News for the Week of March 13, 2017

Hot Topic: Legal News: Regulatory News: Major Contract Awards:
Hot Topic:

Contractor Liable for Employee's Acceptance of Kickbacks
The Court of Appeals for the Fifth Circuit affirmed a judgment finding a global logistics support contractor liable under the Anti-Kickback Act because the district court properly imputed an employee's knowledge to the contractor.

The district court held the LOGCAP III contractor liable under the heighted penalty provision in 41 USC 8706(a)(1) after finding two employees knowingly accepted kickbacks from a freight forwarding services subcontractor. §8706(a)(1) allows recovery if a person "knowingly engages in" kickback activity, while §8706(a)(2) allows recovery "from a person ... whose employee" engages in kickback activity.

On appeal, the parties disputed the proper standard for imputing knowledge under the AKA.

A standard applying corporate law principles proposed in a separate concurrence in the Fifth Circuit's prior opinion and adopted by the district court was the proper test because it "fit comfortably within [the AKA's] two-tiered liability structure" and gave meaning to "knowingly" as used in §8706(a)(1).

Under this test, corporations are liable "only for the knowing violations of those employees whose authority, responsibility, or managerial role within the corporation is such that their knowledge is imputable to the corporation."

Applying this standard, one employee possessed sufficient authority and responsibility to impute his knowledge to the contractor. The employee was responsible for supervising the subcontract, including both general performance and day-to-day operations, ensuring the subcontractor met its obligations, communicating performance issues, and reviewing the subcontractor's invoices and submitting them for payment.

He was also "part of a collaborative process to determine whether to exercise options under the ... subcontract and to execute technical evaluations for rebidding the ... subcontract." Although not an executive or particularly high on the contractor's "corporate ladder," the evidence supported finding the employee worked in a supervisory capacity as to the subcontract.

However, the other employee's limited authority was insufficient to impute his knowledge to the contractor. That employee had some authority as to the initial award of the subcontract but almost no further involvement or authority with respect to the prime contract. (U.S. ex rel. Vavra, et al. v. Kellogg Brown & Root, Inc., CA-5, 61 CCF ¶81,055)

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Legal News:

Historical Data Not Per Se Reasonable Estimate of Requirements
The Court of Appeals for the Federal Circuit reversed the denial of an equitable adjustment under a firm-fixed-price contract for surplus property disposal because the Court of Federal Claims erred in finding the government realistically estimated its requirements by providing historical data. The contractor sought increased costs incurred to process more than anticipated quantities of property received from the military as troops departed from Iraq, The CFC clearly erred in not treating a solicitation amendment chart as an estimate. (Agility Defense & Government Services, Inc. v. U.S., CA-FC, 61 CCF ¶81,057)

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Government Didn't Conduct Mandatory Price Realism Analysis
The Court of Federal Claims sustained a protest of a contract award for website support services because there was no evidence the government conducted a required price realism analysis. The materials reviewed and prepared by the source selection authority only mentioned the price of each offeror in the competitive range, failed to discuss whether the prices were realistic in relation to Section M, addressed other evaluation factors, or were conclusory. (Active Network, LLC v. U.S., et al., FedCl, 61 CCF ¶81,060)

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Disallowance of Material Costs Was Not Justified
The Armed Services Board of Contract Appeals sustained an appeal from the denial of a claim to recover commercial catalog prices because the government did not justify disallowance of the costs under the material cost principle. The government argued the transfers of training materials between the contractor's divisions lacked "economic substance." However, the cost principle did not impose an economic substance requirement. (A-T Solutions, Inc., ASBCA, ¶95,089)

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Government Conceded Evaluations Were Unreasonable
A protest of a contract award for auditing support services was clearly meritorious because the government conceded, and the record showed, the technical and past performance evaluations were unreasonable. The technical evaluation considered only a single paragraph in finding the protester's proposal lacked detail, and the error was compounded by the assignment of at least two, and possibly three, additional weaknesses for the same perceived lack of detail. (Best Value Technology, Inc.—Costs, 32 CGEN ¶115,458)

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Regulatory News:

Executive Order Calls for Regulatory Reform
Executive Order 13777, Enforcing the Regulatory Reform Agenda, dated February 24, 2017, calls for lowering regulatory burdens by implementing and enforcing regulatory reform. The order requires each agency head to designate a Regulatory Reform Officer. RROs will oversee the implementation of regulatory reform initiatives and policies to ensure that agencies effectively carry out regulatory reforms, consistent with applicable law, and they must periodically report to the agency head and regularly consult with agency leadership. The order also requires each agency to establish a Regulatory Reform Task Force, chaired by the RRO.

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Major Contract Awards:

Foreign Language Services — $9.9 Billion
Nine awardees will share $9,864,000,000 multiple types of contracts to procure foreign language services in support of the Defense Language Interpretation Translation Enterprise program. U.S. Army Intelligence and Security Command, Fort Belvoir, Virginia, is the contracting activity.

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Early Warning Radar System — $1.1 Billion
Raytheon Co., Woburn, Massachusetts, has been awarded a $1,066,297,129 fixed-price, incentive-firm letter contract for a Qatar early warning radar system. Air Force Life Cycle Management Center, Hanscom Air Force Base, Massachusetts, is the contracting activity.

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F-35 Lightning Sustainment Services — $1.1 Billion
Lockheed Martin Aeronautics Co., Fort Worth, Texas, is being awarded a $1,059,239,124 cost-plus-incentive-fee contract for recurring logistics support and sustainment services for F-35 Lightning II aircraft. The Naval Air Systems Command, Patuxent River, Maryland, is the contracting activity.

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Design, Construction, and Engineering Services — $950 Million
Eleven contractors have been awarded a combined $950,000,000 multi-award, firm-fixed-price, cost-plus-fixed fee, indefinite-delivery/indefinite-quantity contract. The contractors will compete for design, construction, and engineering activities. The 772nd Enterprise Sourcing Squadron, Joint Base Lackland - San Antonio, Texas, is the contracting activity.

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Support — $875 Million
Seven contractors have been awarded a combined, not-to-exceed $875,000,000 indefinite-delivery/indefinite-quantity contract for total lifecycle support of cryptographic and information assurance related products. Air Force Life Cycle Management Center, Joint Base San Antonio- Lackland, Texas, is the contracting activity.

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Support Services — $771 Million
Jacobs Technologies, Tullahoma, Tennessee is being awarded a $771,331,027, cost-plus-fixed-fee task order for enterprise operations and maintenance support services. U.S. Special Operations Command, Tampa, Florida, is the contracting activity.

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About this Newsletter

From Wolters Kluwer Legal & Regulatory's Government Contracts editors, here are summaries of the important recent developments in this practice area. Complete coverage of these issues, and more, appears in Government Contracts Reports, the Government Contracts Reporter, and related CCH products.

Federal Acquisition Regulation (FAR) & Department of Defense FAR Supplement (DFARS), January 2017 Combo

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