Government Contracts Quarterly Update – May 2014

The Government Contracts Quarterly Update is published by BakerHostetler’s Government Contracts Practice Group to inform our clients and friends of the latest developments in federal government contracting.

In This Issue:

– 2014 Appropriations Act Softens China-IT Restrictions for Contractors

– Minimum Wage Increased to $10.10 for Contractors

– Decrease in Allowable Individual Compensation for 2014

– Voluntarily Lowered FCA Award Avoids Excessive Fines Clause

– GAO Ruling Creates an Exemption to the Ten-Day Protest Deadline

– GAO Study on Sequestration Observes a Pronounced Effect on Agencies

– GAO to Institute Filing Fee for Bid Protests

– War-Zone Contracts Are Not Exempt From Obligation to Justify Cost Reasonableness

– Long-Term Suspension of Affiliate Does Not Violate Due Process

– New Disability and Veteran Hiring Rules Take Effect

– President Obama Narrows “White Collar” Exemption, Expanding Eligibility for Overtime Pay

– Legislative and Regulatory Updates

– Excerpt from 2014 Appropriations Act Softens China-IT Restrictions for Contractors:

In the April 2013 edition of the Quarterly, we discussed how the 2013 Consolidated and Further Continuing Appropriations Act (“2013 Act”) potentially prohibited the Departments of Justice and Commerce, NASA, and the National Science Foundation from acquiring IT equipment from companies that are owned, directed, or subsidized by the Chinese government. However, the $1.1 trillion Consolidated Appropriations Act, 2014 (the “2014 Act”), signed into law on Jan. 17, 2014, scaled-back China-IT supply chain restrictions. See Title V, § 515. Although the new law still singles out China as a potential threat, the law pivots from a geographic approach to a risk-based approach.

Please see full update below for more information.

 Download PDF

(Continued)

 2014 Appropriations Act Softens
China-IT Restrictions for Contractors
 Minimum Wage Increased to $10.10
for Contractors
 Decrease in Allowable Individual Compensation
for 2014
 Voluntarily Lowered FCA Award
Avoids Excessive Fines Clause
 GAO Ruling Creates an Exemption to the Ten-Day
Protest Deadline
 GAO Study on Sequestration Observes a
Pronounced Effect on Agencies
 GAO to Institute Filing Fee for Bid Protests
 War-Zone Contracts Are Not Exempt From
Obligation to Justify Cost Reasonableness
 Long-Term Suspension of Affiliate Does Not
Violate Due Process
 New Disability and Veteran Hiring Rules Take
Effect
 President Obama Narrows “White Collar”
Exemption, Expanding Eligibility for Overtime Pay
 Legislative and Regulatory Updates
www.bakerlaw.com  
The Government Contracts Quarterly Update is published by BakerHostetler’s Government Contracts Practice Group to inform
our clients and friends of the latest developments in federal government contracting.
This Quarterly Update is for informational purposes only and does not constitute specific legal advice or opinions. Such
advice and opinions are provided by us only upon engagement with respect to specific factual situations. This communica-
tion is considered attorney advertising.
Confronted with this argument, the relator and the
government agreed to reduce the penalty to $24 million.
While the district court found that the statutory minimum
penalty cannot be modified by the court even if that penalty
runs afoul of the Excessive Fines Clause and precludes
recovery, the Fourth Circuit disagreed. The appeals court
found that the relator is master of his complaint and that
voluntary remitter is “just the sort of arrow that a plaintiff is
presumed to possess within his quiver.” Id. The court
stressed that it would be a perverse result if the FCA’s
penalties were in all cases mandatory and thus, when
running up against a barrier like the Eighth Amendment,
caused the relator to be unable to recover. In fact, the court
noted that this would encourage dishonest contractors to
run up as many false claims as possible once they have
committed one. The primary purpose of the FCA is to make
the government, and the relator, whole, not to strictly adhere
to the prescribed penalties.

GAO Ruling Creates an Exemption to
The Ten-Day Protest Deadline
In its Jan. 28, 2014, decision in Motorola Solutions, Inc., the
GAO found that when an agency stalls in providing a
protestor with information necessary to bring its protest, and
the protestor is conscientious in trying to obtain that
information, then the protestor need only file its protest
within ten (10) days of receiving the improperly withheld
information in order to be considered timely filed. B-409148,
B-409148.2 (Jan. 28, 2014). This new exemption to the
general ten-day protest deadline may provide a shield to
contractors in the event that the contracting agency
attempts to manipulate the release of information in relation
to the deadline.

In Motorola, the agency failed to tell Motorola that its
competitor in the procurement, Harris Corp., intended to sell
Motorola’s radios to the agency. When the agency did tell
Motorola’s attorneys, they did so under seal at the GAO, so
the attorneys could not consult with their client as to whether
they would be willing to sell Harris the radios. This
confusion pushed Motorola over the ten-day deadline, but
the GAO found that the agency’s handling of the information
was unfairly beneficial to the agency and sustained the
protest. Further, the protest was also sustained on the basis
that the agency accepted the awardee’s proposal without
evidence that the awardee could obtain essential
equipment.

GAO Study on Sequestration Observes a
Pronounced Effect on Agencies
The GAO’s Mar. 6, 2013, report titled “2013 Sequestration:
Agencies Reduced Some Services and Investments, While
Taking Certain Actions to Mitigate Effects,” found that the
sequestration had a pronounced effect on services and
operations at the 23 agencies reviewed by the GAO.

According to the report, the sequestration caused reductions
in grants for research in science and health and backlogs at
other agencies as a result of limitations imposed on hiring
and, in some cases, because of the furlough of existing
employees. However, many of the agencies clarified that
they were uncertain of the full effects of sequestration and
that their magnitude might not be known for several years.
Although most agencies used funding flexibilities to balance
the required sequestration reductions while protecting their
mission, many agencies reported curtailing hiring, rescoping
or delaying contracts or grants for core mission activities,
and reducing training and employee travel.

GAO to Institute Filing Fee For Bid
Protests
The GAO, as authorized by Section 1501 of the Consolidated
Appropriations Act of 2014, will soon institute a filing fee for
bid protests along with a new online docketing system. The
fee, expected to be around $250, is intended to offset the
cost of the docketing system, which the GAO hopes will lead
to a more transparent bid protest system. The new system
will allow companies to file a protest electronically and allow
documents and information to be disseminated and made
available to the parties of the protest through electronic
means. The GAO is making this change in the face of
increased requests for information on previous protests.

War-Zone Contracts Are Not Exempt
From Obligation to Justify Cost
Reasonableness
On Feb. 3, 2014, the Federal Circuit affirmed a lower court
decision that contractors must have sufficient documentation
to demonstrate that allowable costs are reasonable, even
when the Government makes an urgent request for a change
in a war-zone environment. Kellogg Brown & Root Servs.,
Inc. v. United States, 742 F.3d 967 (Fed. Cir. 2014). After
receiving a change order from the Army, the contractor asked
its subcontractor to prepare a new proposal without specific
detail as to how it would justify a cost that was triple the
original proposed costs.

The subcontractor based the price on its costs in building
similar structures elsewhere and justified the increase on the
need for more equipment and a violence-induced increase in
labor costs. The court found this justification to be
conclusory and devoid of any detail connecting the new
revised specifications to the quoted amounts, which should
have prompted increased scrutiny by the prime contractor
rather than acceptance of the subcontractor’s proposal at
face value. As a result, even in light of the war-zone
environment and urgent situation, the costs were held to be
not reasonable and therefore unallowable.

Long-Term Suspension of Affiliate Does
Not Violate Due Process
On Dec. 31, 2013, the Eleventh Circuit ruled in Agility
Defense Services, Inc. v. United States Department of
Defense, No. 13-10757, 2013 WL 6850891 (11th Cir.) that the
Government may suspend affiliates of an indicted contractor
pursuant to FAR 9.407, even without any indictment of the
affiliates themselves. The court went on to hold that a
suspension of over 18 months, as prescribed by the FAR,
does not violate due process.

FAR 9.407-1(c) provides that “[t]he suspending official may
extend the suspension decision to include any affiliates of the
contractor if they are – (1) specifically named; and (2) given
written notice of the suspension and an opportunity to
respond.” In this case, Agility was an affiliate of Public
Warehousing Company, K.S.C. (“PWC”), which was
suspended in 2009 in relation to a fraud indictment. The
court found that the language of the FAR clearly provided for
just such a suspension of an affiliate without any requirement
of a finding of wrongdoing on the part of Agility.

The court next found that due process was not violated,
because FAR 9.407-1 provided for notice of the suspension
and an opportunity to respond. The court found it
“nonsensical” to require either not suspending or bringing a
separate proceeding against Agility when the FAR clause
Page 2
dictates that Agility’s status will be determined by the outcome
of PWC’s legal proceeding. The Agility ruling highlights the
potential risk that companies face due to the actions of their
affiliates and underscores the importance of strong
compliance programs across the entire affiliate network.

New Disability And Veteran Hiring Rules
Take Effect
On Mar. 24, 2014, the U.S. Department of Labor’s (“DOL”)
Office of Federal Contract Compliance Programs’ (“OFCCP”)
new regulations concerning Section 503 of the Rehabilitation
Act and the Vietnam Era Veterans’ Readjustment Assistance
Act (“VEVRAA”) went into effect.

The new regulations concerning Section 503 of the
Rehabilitation Act require contractors to take affirmative
actions to hire, promote, and retain individuals with
disabilities. The regulation establishes a utilization goal of 7%
for qualified individuals with disabilities, which a contractor
must apply to each of their job groups or to their entire
workforce if a contractor has fewer than 100 employees.
Contractors must also track data regarding how many
persons with disabilities apply for jobs and how many the
contractor hires. The regulation also requires contractors to
invite applicants during the pre-offer and post-offer stages to
self-identify as a person with a disability, as well as invite their
employees to self-identify every five years.

The new regulations concerning VEVRAA require contractors
to establish hiring benchmarks for protected veterans.
Contractors may choose to establish a benchmark equal to
the national percentage of veterans in the civilian workforce or
alternatively establish their own benchmark based on certain
data published by the Bureau of Labor Statistics (“BLS”) and
OFCCP. As with the disability regulations, contractors must
track how many veterans apply for jobs and the number of
veterans hired.

An early challenge to the new regulations was dismissed by a
federal judge on Mar. 21, 2014. In Associated Builders &
Contractors, Inc. (“ABC”) v. Shiu, 2014 WL 1100779 (D.D.C.
Mar. 21, 2014), the court found that the regulations, which
impose hiring and record-collecting responsibilities on
contractors that have 50 or more employees and a contract of
$50,000 or more, are clearly authorized under Section 503 of
the Rehabilitation Act of 1973.

ABC, which represents over 19,000 construction firms, filed
suit arguing that the regulations exceed the statutory authority
of the OFCCP. The regulations require contractors to
maintain hiring goals for veterans and disabled employees,
compile records on their hiring, ask applicants whether they
would like to self-identify for veteran or disabled status, and
survey their employees to see if they identify with either
status. The judge commented that Section 503 gives the
Government broad authority to define how contractors “must
engage in affirmative action.”

President Obama Narrows “White-Collar”
Exemption, Expanding Eligibility for
Overtime Pay
On Mar. 13, President Obama signed a Presidential
Memorandum directing the DOL to update the Fair Labor
Standard Act’s (“FLSA”) exemption regarding eligibility for
overtime pay for hours worked in excess of 40 hours per
week. The Memorandum directs the DOL to revise the
exemption for the categories of bona fide executive,
administrative, and professional (often referred to as the
“white collar” exemption) employees who are exempt from the
general obligation to receive time and a half for hours in
excess of 40 per week. Currently, to qualify for the
exemption, an employee has to be paid at least $455 a
week and his or her job must include certain duties, such as
managing part of the enterprise and supervising other
employees.

These changes, when implemented, will raise the salary
threshold for qualifying for the exemption and will establish
eligibility for workers who did not previously qualify for
overtime pay. Although the short Memorandum provides
limited details as to how the changes will be implemented,
the Obama Administration has suggested that the objective
is to address “low level” managers and clerical employees
who work alongside hourly employees yet only have
marginally more responsibility than their overtime-eligible co
-workers. The Administration has stated that such a
scenario is “unfair” and at odds with the underlying purpose
of the FLSA. We will continue to monitor changes to the
exemption and provide updates in future editions to the
Quarterly.

BakerHostetler Updates
 A BakerHostetler team represented Toronto Stock
Exchange-listed Cangene Corporation (TO: CANG), the
Canadian life sciences heavyweight, in its cross-border
public-to-public takeover through arrangement by New
York Stock Exchange-listed Emergent Biosolutions
(NYSE: EMS) for approximately $300 million U.S. (due
in part to final currency fluctuation). Led by
Government Contracts Partner Kelley Doran and
Mergers and Acquisitions Partner Steven H. Goldberg,
the team comprised partners and associates throughout
the firm.
 The Livingston Parish News reported on a motion
submitted by BakerHostetler Partner Hilary S. Cairnie
on behalf of Livingston Parish, LA in its dispute with the
Federal Emergency Management Agency (FEMA) over
$59 million in expenses incurred by the Parish during
cleanup from Hurricane Gustav in 2008. The article
(“Parish legal brief disputes FEMA debris criticism,”
March 18, 2014) states that “the parish disputes
FEMA’s justifications for denying most payments
related to Hurricane Gustav debris removal in a 35-
page document released Tuesday for an upcoming
arbitration hearing.” The article reports: “FEMA skews
information to try to discredit the Parish’s contractors,”
according to the parish response. “FEMA tells the
(CBCA) Panel a story about an out of control cleanup
project stopped by a concerned public official (former
parish president Mike Grimmer) in May 2009. FEMA
does not explain, however, how FEMA missed such
widespread fraud for nine months,” according to
Cairnie’s response to FEMA’s defense. Cairnie also
writes that FEMA has not explained why its
representatives failed to notice fraud though they were
“intimately involved in the operation, through daily
briefing meetings, discussions in the fields, and site
visits.” Later, the article states, “Satisfying all
requirements for each claim puts a heavy burden of
proof on the monitors and on Cairnie’s legal team” but
that “Cairnie uses FEMA’s own ‘80 percent’ policy to
argue that if the parish can justify 80 percent of its
claims, then the full charges should be paid.”

Page 3
Code
Section Agency Regulation Description
Lastest
Action
Effective
Date
48 CFR Parts
1, 4, 8, 17, 37,
and 52
DoD, GSA,
NASA
Requires service contractors for executive agencies, except where DOD has fully
funded the contract or order, to submit information annually in support of agency-
level inventories for service contracts
Final Rule 1/30/2014
48 CFR Parts
202, 207, 209,
216, and 234
DoD To amend the Defense Federal Acquisition Regulation Supplement (“DFARS”) to
implement a section of the National Defense Authorization Act for FY 2013,
which prohibits DOD from entering into cost-type contracts for production of
major defense acquisition programs
Interim
Rule
1/29/2014
48 CFR Parts
203 and 252
DoD To amend the DFARS to implement statutory amendments to whistleblower pro-
tections for contractor and subcontractor employees
Final Rule 2/28/2014
48 CFR Parts
1022 and
1052
Treasury To amend the Department of the Treasury Acquisition Regulation to include a
contract clause on minority and women inclusion, as required by the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010
Final Rule 4/21/2014
48 CFR Parts
1542, 1552,
and 1553
EPA To rescind the Environmental Protection Agency Acquisition Regulation
(“EPAAR”) regarding the EPA’s policies for collecting and maintaining contractor
past performance information. Under the final rule, EPAAR Section 1542.15,
Contractor Performance Information, 1552.242-71, Contractor Performance Eval-
uations, and 1553.209, Contractor Qualifications are deleted in their entirety.
Direct
Final Rule
5/23/2014
Bill
Number Sponsor Legislation Description
Last
Action Status
H.R. 4093 Graves A bill to amend the Small Business Act to raise the prime and subcontract goals 2/26/2014 Referred to
Committee
H.R. 4281 Huelskamp A bill to amend title 38, United States Code, to improve the oversight of contracts
awarded by the Secretary of Veterans Affairs to small business concerns owned
and controlled by veterans
3/21/2014 Referred to
Committee
H.R. 1232 Issa A bill to eliminate duplication and waste in agency information technology
acquisition and management
2/25/2014 Passed by
House
H.R. 3840 Thornberry A bill to establish the Office of Net Assessment within the Department of Defense
to assess U.S. military capabilities
1/9/2014 Referred to
Committee
H.R. 4289 Payne A bill to amend the Homeland Security Act of 2002 to require the undersecretary
for management of the Department of Homeland Security to take administrative
action to achieve and maintain interoperable communications capabilities among
agency components
3/24/2014 Referred to
Committee
H.R. 3847 Barber A bill to require the Secretary of Homeland Security to develop and provide to the
secretary of Health and Human Services risk-based, performance-based cyber-
security standards for the Federal information technology requirements under the
Patient Protection and Affordable Care Act, including the HealthCare.gov website
1/10/2014 Referred to
Committee
S. 2075 Warner A bill to prohibit a reduction in funding for the defense commissary system in
FY 2015 pending the report of the Military Compensation and Retirement
Modernization Commission
3/04/2014 Referred to
Committee
H.R. 4257 Calvert A bill to limit the number of civilian employees at the Department of Defense 3/13/2014 Referred to
Committee
H.R. 3844 Grayson A bill to require cost or price to the federal government be given at least equal
importance as technical or other criteria in evaluating competitive proposals for
defense contracts
1/10/2014 Referred to
Committee
H.R. 3863 Brady A bill to amend title 5, United States Code, to establish uniform requirements for
thorough economic analysis of regulations by Federal agencies based on sound
principles, and for other purposes
1/14/2014 Referred to
Committee
Page 4
Legislative Updates
Regulatory Updates
About BakerHostetler
BakerHostetler, one of the nation’s largest law firms, represents
clients around the globe. With offices coast to coast, our more
than 800 lawyers litigate cases and resolve disputes that poten-
tially threaten clients’ competitiveness, navigate the laws and
regulations that shape the global economy, and help clients
develop and close deals that fuel their strategic growth. At
BakerHostetler we distinguish ourselves through our commit-
ment to the highest standard of client care. By emphasizing an
approach to service delivery as exacting as our legal work, we
are determined to surpass our clients’ expectations.
BakerHostetler’s Government Contracts Practice Group consists
of more than a dozen attorneys with extensive experience in
government contracts, including former government attorneys
from the Justice Department, SEC, and USPTO. Working
closely with the firm’s other practice groups, including the Intel-
lectual Property, Labor, International Trade, FDA, and White
Collar groups, among others, the Government Contracts Practice
Group represents clients on a wide variety of government
contract matters and cases.
Why BakerHostetler’s Government Contracts
Practice Group?
 Seasoned, experienced team with a deep bench.
 Several attorneys with technical and engineering
backgrounds.
 Former government attorneys.
 Outstanding client service and responsiveness.
 Competitive value-driven rates and fee arrangements.
Hilary S. Cairnie
Partner, Washington, D.C.
(202) 861-1668
hcairnie@bakerlaw.com
Kelley P. Doran
Partner, Washington, D.C.
(202) 861-1661
kdoran@bakerlaw.com

Kelley Doran has focused on
government contracts counseling,
contract negotiation, and litigation for
over fifteen years. Mr. Doran’s
practice includes representing a
broad array of commercial item,
defense, and homeland security
contractors that sell products and
services to the federal, state, and
local governments. He has worked
with product and service companies
in numerous industries, including
biodefense and life sciences,
environmental remediation, home-
land security, information technolo-
gy, and nanotechnology.
Hilary Cairnie is the head of the firm’s
Government Contracts Practice. He
focuses on public contract law,
encompassing virtually all aspects
including contract formation,
performance, administration, and
enforcement controversies at the
federal and state levels. With two
engineering degrees and several years
of experience working as an engineer
for various companies, Mr. Cairnie uses
his unique technical background to
represent clients involved in aerospace,
automotive, shipbuilding, transportation,
construction, software, medical and
healthcare, engineering, and research
and development endeavors, among
others.
This Quarterly Update is for informational purposes only and does not constitute specific legal advice or opinions. Such advice and opinions are
provided by us only upon engagement with respect to specific factual situations. This communication is considered attorney advertising.
www.bakerlaw.com  
Page 5

Download PDF[304KB]
Email
Report

Note close

Firefox recommends the PDF Plugin for Mac OS X for viewing PDF documents in your browser.

We can also show you Legal Updates using the Google Viewer; however, you will need to be logged into Google Docs to view them.

Please choose one of the above to proceed!

LOADING PDF: If there are any problems, click here to download the file.