Doing business with the Government: Step Zero.

August 19, 2015

Your business can’t even bid on a federal government contract without registration with the “System for Award Management.” This registration can be done entirely on-line at sam.gov and anyone could do it (well, with minimal computer skills).
That said, I have been surprised, but probably shouldn’t be, that businesses wanting to get into the federal contracting world choose not to do it themselves. There a lot of companies out there that will sell you help with this registration bundled with a lot of marketing services. I have friends with government contract marketing companies and I know they do good work, but it can get pricey for a start-up.
Having done a number of these in the last few months, I have decided that I and my office manager should offer this service as a standalone product for a fixed price. If you are interested, feel free to contact me at jvanhorne@vanhornelaw.com for pricing and more information on the process.


Governmental Squareness

June 20, 2011

While working on the section on the limited authority of government agents for my soon-to-be published Solo Attorney’s Emergency Guide to Government Contracts, I had reason to wonder about the genesis of the oft quoted phrase “those who contract with the Government must turn square corners.” United States v. Wunderlich, 342 U.S. 98, 101 (1951). My understanding of this phrase relates to the inapplicability of doctrines such as apparent authority to government contracts, although it has also been applied in a compliance context. That said, it turns out that the phrase and variations thereof have quite an interesting history.

The turn of phrase can be attributed to Justice Holmes in Rock Island, Arkansas & Louisiana RR. Co. v. United States, 254 U.S. 141, 143 (1920). In Rock Island, the plaintiff failed to follow the statutory procedures for appealing a tax assessment. Justice Holmes’ opinion states: “Men must turn square corners when they deal with the Government. If [the Government] attaches even purely formal conditions to its consent to be sued those conditions must be complied with.” Obviously, the context is a question of sovereign immunity and the government’s consent to be sued. That is an issue that remains very relevant with respect to remedies such as the Federal Tort Claims Act.

The first use of this maxim in a government contracts case that I could find came in 1925, in David A. Wright v. United States, 60 Ct. Cl. 519 (1925). In that case, the U.S. Court of Claims (predecessor twice removed of today’s U.S. Court of Federal Claims) quoted Justice Holmes’ maxim in concluding that the plaintiff could not recover for a so-called informal agreement, i.e., a contract not in writing. The plaintiff was induced by government agents (military officers) to rehabilitate a manufacturing facility in reliance on the promise of orders for special lathes. The officer with whom plaintiff dealt had no authority to enter into contracts on behalf of the government. Even though there was authority to give relief for the “informal agreements,” the government official did not have authority to enter into any contract. Notwithstanding the officer’s inducement to incur the costs and plaintiff’s reliance on the officer’s statements, the officer was an agent without authority and the government was not liable. This is the application of Holmes’ “square corners” maxim with which I was familiar.

United States v. Bethlehem Steel Corp., 315 U.S. 289, 337 (1942), concerned shipbuilding contracts from World War I. The contractor in this case was in a very strong negotiating position and insisted on a contract that resulted in a 22% profit. The majority upheld the contract. Justice Frankfurter thought the contracts should be reformed to reduce the profit the contractor received. In his dissent, he quoted Justice Holmes’ maxim in arguing that contractors should not take advantage of the government in an emergency situation. Two years later Justice Frankfurter had occasion to argue the maxim’s antithesis in his dissent in United States v. Blair, 321 U.S. 730, 736-738 (1944). The majority held that a construction contractor could not pursue a claim for damages in the Court of Claims because he had failed to follow the prescribed administrative disputes procedures. “If it were shown that the appeal procedure provided in the contract was in fact inadequate for the correction of the alleged unreasonable attitude of the subordinate Government officials, we would have quite a different case. But here we must insist, not that respondent turn square corners, but that he exhaust the ample remedies agreed upon.” Justice Frankfurter, while acknowledging that those dealing with the government must “turn square corners” and that government contract provisions could not be waived or modified even where circumstances rendered their effect harsh, argued that “there is neither law nor policy that requires that courts in construing the terms of a government contract should turn squarer corners than if the same terms were contained in a contract between private parties.”

The risk that dealing with government agents take was perhaps most brutally demonstrated in Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380, 384-388 (1947). Local government agents had approved insurance contract that was not permitted by the regulations. The majority held that government did not have to make good on the insurance contract. “Whatever the form in which the Government functions, anyone entering into an arrangement with the Government takes the risk of having accurately ascertained that he who purports to act for the Government stays within the bounds of his authority. . . . And this is so even though, as here, the agent himself may have been unaware of the limitations upon his authority.” The majority opinion went on to say that Justice Holmes’ maxim “does not reflect a callous outlook. It merely expresses the duty of all courts to observe the conditions defined by Congress for charging the public treasury.” The dissent by Justice Jackson included a nice turn of phrase on the Holmes maxim: “It is very well to say that those who deal with the Government should turn square corners. But there is no reason why the square corners should constitute a one-way street.”

That brings us to the case that first captured my interest in the Holmes maxim, United States v. Wunderlich, 342 U.S. 98, 101 (1951). This case involved a standard government contract disputes clause which appeal from a contracting officer’s decision could only be appealed to the head of the department. Here the contractor appealed the adverse decision of the agency head to the Court of Claims, which found in the contractor’s favor. In the Supreme Court, the majority basically said the contract prohibited any sort of judicial relief except in the case of the government agency’s engaging in fraud. The reference to the Holmes maxim actually comes in Justice Douglas’ dissent in which he offers the maxim as a concept of government contract law upon which the majority relied sub silentio, ignoring (in Justice Douglas’ mind) the broader implications of the majority position.

This decision, as might be expected, caused an uproar in the business community and Congress enacted the “Wunderlich Act” which authorized judicial review on fact decisions if the decisions were (1) fraudulent, (2) arbitrary, (3) capricious, (4) so grossly erroneous as necessarily to imply bad faith, or (5) not supported by substantial evidence. (41 U.S. Code §§321- 322) The act also prohibited use of a government contract clause making the decision of any administrative official, representative, or board final on a question of law. Although still on the books, the Wunderlich Act has for most government contract purposes been preempted by the Contract Disputes Act. (41 U.S. Code §§601-613)

Justice Black’s dissent in St. Regis Paper Co. v. United States, 368 U.S. 208, 229 (1961), provided another nice turn of phrase based on the Holmes maxim. For purposes of an investigation, FTC had demanded copies of corporate reports submitted to the Census Bureau. The census statute granted the Secretary of Commerce the discretion to furnish to named authorities data taken from information obtained by the Census Bureau on censuses of population, agriculture and housing. The statute also provided that when the Secretary furnishes such data it shall “in no case” be used by the recipient “to the detriment of the persons to whom such information relates.” The majority said that didn’t matter because the information didn’t come from the Secretary but from a direct request from the FTC to the company. In dissent, Justice Black responded: “Our Government should not, by picayunish haggling over the scope of its promise, permit one of its arms to do that which, by any fair construction, the Government has given its word that no arm will do. It is no less good morals and good law that the Government should turn square corners in dealing with the people than that the people should turn square corners in dealing with their Government.”

The Holmes maxim was used to reinforce the principle that unauthorized representations of government agents cannot be relied on in Heckler v. Community Health Services, 467 U.S. 51, 63 (1984). The majority concluded that the government was not estopped from recovering Medicare overpayments even though recipient relied on express authorization of government agent in making expenditures. The majority opinion explained that the Holmes maxim “is consistent with the general rule that those who deal with the Government are expected to know the law and may not rely on the conduct of Government agents contrary to law.”

Perhaps the most recent and notorious invocation of the Holmes maxim was in the Winstar Supreme Court decision. (United States v. Winstar Corp., 518 U.S. 839 (1996)) Because the FSLIC lacked the funds to liquidate all of the failing thrifts during the savings and loan crisis of the 1980’s, the Federal Home Loan Bank Board encouraged healthy thrifts and outside investors to take over ailing thrifts. As inducement, the Bank Board agreed to permit buyers to designate the excess of the purchase price over the fair value of identifiable assets as an intangible asset referred to as supervisory goodwill, and to count this goodwill toward the capital reserve requirements imposed by federal regulations. Congress’s subsequent passage of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 prohibited thrifts from counting this goodwill in computing the required reserves. A number of thrifts put out of business by the change in the rules sued on the theory that the promise to be able to use goodwill as an asset counting toward the capital reserve requirements was a contractual obligation that was breached by the government. The majority confirmed the judgment of the courts below that the thrifts were entitled to recover against the government for breach of contract.

Between the various opinions in Winstar, almost all of the cases referenced above were invoked. Chief Justice Rehnquist dissenting, invoked the Holmes maxim with this explanation: “The wisdom of this principle arises, not from any ancient privileges of the sovereign, but from the necessity of protecting the federal fisc — and the taxpayers who foot the bills — from possible improvidence on the part of the countless Government officials who must be authorized to enter into contracts for the Government.” In his concurring opinion, Justice Scalia said in response to the government’s argument that the promise to recognize the supervisory goodwill was not “unmistakable:”

It was found below that the Government had plainly made promises to regulate in a certain fashion, into the future; I agree with those findings, and I would conclude, for the reasons set forth above, that the promises were unmistakable. Indeed, it is hard to imagine what additional assurance that the course of regulation would not change could have been demanded — other than, perhaps, the Government’s promise to keep its promise. That is not what the doctrine of unmistakability requires. While it is true enough, as the dissent points out, that one who deals with the Government may need to “turn square corners,” . . . he need not turn them twice.

While it is of literary and historical interest to see how Holmes’ maxim has been invoked over the decades since 1920, it certainly remains a key concept for all dealing with the government. Government agents can only act within the scope of their authority. Commitments made by government agents without authority cannot be relied upon. Government agents’ representations of the law are worth nothing if in error. We all must turn square corners when we deal with the Government.


Government Raids Contractor

June 16, 2011

In one of my first posts on this blog, I said “the government customer is still the one customer that has its own cadre of policemen and is quite willing to send them after vendors whom they find annoying.”  (http://wp.me/piEZm-3)  Now, undoubtedly to provide an updated confirmation of my platitude, the FBI and IRS CID have raided the offices of a government contractor in Meriden, Connecticut. (http://tinyurl.com/66p2g7w) The contractor was involved in $3.3 billion in military housing contracts with the U.S. Navy in the Pacific Northwest for more than 600 homes; with the U.S. Air Force at bases in Florida, Georgia, Arkansas and Massachusetts, and at a U.S. Army base in Missouri.. Every one of these projects collapsed with deadlines missed and subcontractors suing for payment. Although, as I know from personal experience, the military services aren’t very well staffed to manage the development of privately owned military housing, eventually the compounding contracting disasters brought so much attention that the contractor obviously came to the attention of those government agents who carry guns and they swooped in and carted off boxes of document and computers.

The poor attorney who apparently has been representing the company in its negotiations with the government was not aware of the raid when contacted by a reporter. Naturally, the reporter didn’t hear from the attorney again. I only hope he had learned the rule of legal representation that I was taught while an in-house attorney with GE: the lawyer never goes to jail. Which is to say, advise the client, but don’t participate in the conspiracy.

While this is perhaps an extreme example of a government contract (and possibly a government contractor) gone bad, it is good to remember that for the government contracting officer, the agents with guns are only a phone call away. To be successful in this business, government contractors must have both knowledge and integrity. Either one without the other is a good recipe for one of these surprise visits.


Finessing CICA Redux: Another Attempt by Government IT Offices to Avoid Competition

January 11, 2011

A bit over a year ago, I wrote about an interesting government agency strategy to avoid having to deal with the messiness of “full and open competition.” (See https://vanhornelaw.wordpress.com/2008/09/05/finessing-cica-the-open-ended-support-contract-ploy/) Now it is time to discuss another ploy to avoid the annoyance of competition, the purported standardization determination.

On January 3, 2011, the Court of Federal Claims issued a preliminary injunction against the Department of the Interior’s attempt to standardize on Microsoft’s email system without conducting a competition. After attempting unsuccessfully to interest the Department in its ability to provide an email system for the Department, Google protested various actions of the Department to implement its sole source decision to use the Microsoft product. You can see a copy of the opinion at http://tinyurl.com/4956j5g.

From the opinion, it is pretty clear that Interior had made the decision to standardize on Microsoft some time ago, perhaps as early as 2007. For months, in 2009 and 2010, Google corresponded with and met with Interior officials to pitch its competing product. Up until late 2010, Interior essentially led Google on, claiming that a competition would be held for the Department’s email system. When solicitation documents became public in late 2010, it was finally clear that there was to be no competition and that Interior had made a final, internal decision to go with Microsoft. The actual solicitation was issued only to selected Microsoft resellers to implement the standardization decision.

This is not a new tactic among government IT offices. In 2007, the Department of Homeland Security tried to do the same thing with the acquisition of financial systems software. (See Savantage v. US, http://tinyurl.com/24vj2rg.) Both DHS and Interior set up the actual solicitation so that the real party in interest, the software developer, could not bid on the procurement by making the procured services only for implementation of a sole source designation of the software to be used. This appears to be an effort to simply avoid having to have a competition for the software since IT personal have developed their own preferences for a particular company’s software and choose not to subject that preference to the competitive market place. Obviously, the strategy becomes problematic when the sole source determination fails to meet statutory and regulatory requirements. Secondarily, the strategy also makes it more difficult for the software developer to challenge the procurement.

It would appear that GAO simply will not address this type of procurement law violation because the protester is not, and cannot be, a bidder. The Court of Federal Claims, on the other hand, has repeatedly shown a willingness to address CICA finessing ploys of various types. I assume this is because the two bid protest forums work under quite different jurisdictional mandates. The statutory mandate to GAO in ruling on bid protests is to “determine whether the solicitation, proposed award, or award complies with statute and regulation.” 31 U.S. Code 3554(b)(1). The Court, however, is under a mandate “to render judgment on an action by an interested party objecting to a solicitation by a Federal agency for bids or proposals for a proposed contract or to a proposed award or the award of a contract or any alleged violation of statute or regulation in connection with a procurement or a proposed procurement.” 28 U.S. Code 1491(b)(1). What the Court has that GAO does not is jurisdiction over “any alleged violation of statute or regulation in connection with a procurement or a proposed procurement.” The Court interprets this third leg of its jurisdictional statute quite broadly, relying on the very broad definition of “procurement” from the Office of Federal Procurement Policy Act, 41 U.S. Code 403(2)(which is mirrored in the FAR at 2.101). See Ramcor Services Group, Inc. v. United States, 185 F.3d 1286, 1289 (Fed. Cir. 1999).

So what is going on here? Why the tendency for this type of ploy to show up in the government IT arena? I would suggest that defining requirements, as would be necessary for a competitive procurement, is really not an easy task. By just getting comfortable and familiar with and then specifying one software product, the requiring office can avoid the unpleasant task of actually articulating what the agency needs. It would appear that procurement officials, perhaps because of a lack of technical expertise, can get snowed by inadequate sole source justifications. This is then compounded with use of all of the IDIQ type contracts available to the contracting officer (e.g., GSA schedule contracts, GWACS, various agency BPAs) which also help disguise the real sole source selection. Since the Savantage decision, and now certainly after the Google decision, it hopefully will be obvious that this particular CICA finessing ploy isn’t all that likely to succeed.


Non-US Contractors Taxed To Pay For 9/11 Medical Benefits

January 3, 2011

The James Zadroga 9/11 Health and Compensation Act of 2010 was signed by President Obama on January 2, 2011. The Act established the World Trade Center Health Program and, among other things, provides for medical monitoring and treatment benefits to eligible emergency responders and recovery and cleanup workers who responded to the September 11, 2001, terrorist attacks.

To pay for the costs of this program, the Act imposes what amounts to a two percent gross revenue tax on “foreign persons” for amounts received as US government contractors for work performed in certain countries. The US Government contracts covered are those for services performed in, or goods produced or manufactured in, any country which is not a party to an international procurement agreement with the United States.

There are several bilateral trade agreements covering government procurement, but the primary multilateral agreement covering government procurement is the World Trade Organization Agreement on Government Procurement. Although the specific countries covered by this definition will most likely be specified in regulations that will certainly be issued to implement this Act, the countries most likely covered are Iraq, Afghanistan, Pakistan, India, central Asia and the Middle East (excluding Israel but including the Persian Gulf countries), and Turkey.

The Act defines “foreign person” as any person other than a United States person. The tax will apply to contracts awarded on or after January 2, 2011.


14 Tips for the Truly Clueless Contractor

May 29, 2010

Vern Edwards, in his blog on wifcon.com, tells a sad tale about a government contracting situation that went very bad for the contractor, but which could have been prevented if the contractor had understood the significant differences between government and commercial contracting. [You can read the whole story at http://tinyurl.com/244dtv5.%5D At the end of this blog entry, Vern lists 14 tips “for the Truly Clueless Would-Be Government Contractor.”

Of course, none of my clients fall into the “truly clueless” category (among many other reasons, because they are my clients). Nevertheless, the 14 tips are a great basis for considering how we deal with government customers. The 14 tips would be absolutely priceless to a new government contractor and they aren’t all obvious even to an experienced government contractor. There are several that anyone would do well to think about, especially #5 and #8. Of course, I really like #14. Feel free to keep my phone number and email address handy. For those of you in the business for a while, some of the tips should be worth a chuckle or two.

Although this is not news to my clients, I would note that new contractors often confuse dealing with government customers and dealing with commercial customers. Commercial purchases can be very subjective and personal relationships can be very important. With the government, the customer is not an individual but a bureaucracy that is obligated to follow very specific rules in the purchasing process. Filing a claim or a bid protest can be necessary to keep the bureaucracy focused on following the rules. It’s not personal and can always be handled professionally to minimize personal animosity. While you may not want your company to get a reputation for going to court at the drop of a hat, getting a reputation for never standing up for your legal rights is much worse. The impersonal bureaucracy can hardly resist taking advantage of that.

So here are Vern’s 14 tips verbatim. Enjoy.

Here are 14 tips for the Truly Clueless Would-Be Government Contractors who think that winning a government contract is the yellow brick road to riches:

1. If you are thinking of competing for a government contract, hire good professional help to negotiate and manage the contract, and listen to them.

2. Your technical and marketing employees are the ones who are going to get you into trouble on a government contract. Keep them on a leash.

3. Buy first-rate training for all of the people who will be involved with government contracts. If you will not invest in training you have no business doing business with the government.

4. Don’t compete for a government contract if you are not sure that you can do the job to the government’s satisfaction. Make sure that you know what it will take to satisfy the government before you submit a bid or proposal.

5. Don’t assume that the government’s representatives know what they’re talking about when they explain rules, specifications, and the contract clauses. In my experience, most of them don’t.

6. READ THE SOLICITATION. THE WHOLE THING.

7. If you win the contract, take a firm, formal, arm’s-length, businesslike approach to all aspects of the deal. Comply strictly with all contract terms and insist that the government do the same. Know all of your contractual deadlines and meet them. Know all of the government’s contractual deadlines and notify them in writing the moment that they are late. The very moment. Neither ask for nor grant exceptions except through formal processes, such as engineering change proposals, formal waivers, and change orders. Know your obligations and fulfill them. Know your rights and insist upon them. When you truly believe that the government owes you something, ask for it in writing. If you don’t get favorable action within a reasonable period of time, submit a claim in accordance with the contract Disputes clause and FAR Subpart 31.2. If the contracting officer does not make a decision within the deadlines set by the Disputes clause, hire an attorney and appeal to a board of contract appeals or to the Court of Federal Claims, unless you are willing to let the government keep what you think is yours.

8. Never yield to threats from a contracting officer or a contracting officer’s representative. If you do, things will only get worse. When you insist upon your rights and the contracting officer’s representative says: That cuts both ways, just say: Yes, and we can live with that.

9. Don’t rely on personal relationships with government personnel. Good personal relations are important and desirable; but, in the end, it’s a dog-eat-dog world. Never consider a government representative to be your “friend.” Remember that government personnel are not business persons. They are government officials with limited authority, limited knowledge, a heavy workload, and lots of people looking over their shoulders. They will not (and should not) stick their necks out for you. If they do they are either stupid or dishonest and cannot be trusted. Some will make an extra effort for you, which is okay, but many will not. Assume from day one that you are on your own.

10. Keep good records. Document every telephone call and meeting. EACH AND EVERY ONE. Write down who, what, when, where, why, and how, and make your people do it as well. Check to see that they do. File every email and letter. EACH AND EVERY ONE. He or she who does not document or who skimps on documentation is a fool.

11. Promptly follow up on oral understandings and agreements in writing. Send crucially important communications by certified mail, return receipt requested, including confirmation of emailed and oral understandings and agreements.

12. It’s business, not personal. When speaking with and corresponding with government personnel, always be calm and polite, no matter how badly they have behaved or how angry about it you are, but always be determined and firm.

13. Remember the 999/1,000 rule: You can do things wrongly 999 times out of 1,000 and nothing bad will happen. It’s the 1,000th time that will do you in.

14. Make sure that you have the telephone number, email address, and street address of a good government contracts attorney and a good government contracts accountant. If you can’t afford that kind of help, stay away from government contracts.