Closing Down Guantanamo

February 23, 2016

I have always limited posting here to government contracting issues. I am about to violate that self-imposed limitation, doing it on a subject about which I am definitely not an expert. That is probably dangerous thing to do in the blogosphere, but taking a risk now and then keeps life interesting. These ruminations are prompted by an article in Vox.com about the legality of the Berghdahl prisoner swap, today’s satire from Borowitz, and my pondering whether there was any possible way President Obama could complete his 2008 pledge to shut down Guantanamo. And now, in a spasm of synchronicity, President Obama has launched today another effort to close Guantanamo; however, the President’s proposal would require congressional approval and we know how likely that is to happen in an election year. I’m thinking about a way to close Guantanamo down without congressional approval. So here goes, my flagrantly Machiavellian, blatantly textualist way to get this done. Read the rest of this entry »

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Government Oral Assurances

February 6, 2016

In a recent episode of the epic legal soap opera, Suits, an Assistant DA and the show’s protagonist reached an oral agreement that the Assistant DA later reneged on. This reminded me of the general proposition in the world of government contracts that, to coin a phrase, oral agreements are worth the paper they’re written on. A few years back, my opposition in a bid protest ran into this truism. Read the rest of this entry »


Bid Protests for Government Property Sales? Maybe . . . Sort of

January 31, 2016

When a bidder in a government real estate property auction feels in some way the victim of unfair or improper treatment by the government is there a remedy available? And by remedy, I mean some formal process that will subject the government agency’s action to an independent review. If you ask the General Services Administration (the seller of most surplus federal property), they will say there is no remedy.   But in my view, that is not quite the case. Read the rest of this entry »


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.


Women-Owned Small Business Set-Asides Finally For Real?

April 2, 2010

On March 4, 2010, the Small Business Administration proposed new regulations for the Women-Owned Small Business (WOSB) Federal Contract Program. (75 Fed. Reg. 10030-10058) These regulations are authorized by legislation enacted in 2000, and follow a long and convoluted rule making process. The biggest change from previously promulgated regulations is making the the program applicable to 83 NAICS Industry Codes as opposed to the four Industry Codes previously included in the program. The list of these newly selected Industry Codes can be found at 75 Fed. Reg. 10036-10037. The list of Industry Codes won’t be included in the regulation, but will be available on the SBA website. This change in selected Industry Codes is based on an extensive rethinking of the process for identifying Industry Codes in which women-owned small businesses are either “underrepresented” or “substantially underrepresented.” The details of how these Industry Codes are selected is probably of interest only to those with graduate degrees in statistics and a great deal of patience.

One other interesting change is the elimination of a requirement that an agency must make its own analysis “that would justify a restriction on competition under the equal protection requirements of the Due Process Clause of the Fifth Amendment of the Constitution” and, based on an analysis of the its procurement history “make a determination of whether there is evidence of relevant discrimination in that industry by that agency.” (13 CFR 127.501(b)) I think it’s a fair guess that most agencies would be, and probably have been, slow to tackle this burden.

The WOSB Program is probably not the panacea that some might hope since the statute allows WOSB set-asides only for procurements of less that $5,000,000 for contracts classified under the manufacturing Industry Codes and $3,000,000 for other contracts. Nevertheless, it’s nice to see that the ten-year old legislation might now be given a reasonable chance to have the impact originally intended.


Court of Federal Claims Jurisdiction Over Non-Procurement Protests

January 16, 2010

In a recent Court of Federal Claims decision (Ozdemir v. United States, 19 November 2009), Judge Damich clarified the Court’s jurisdiction over protests of solicitations and awards of contracts other than procurement contracts. In a time when the government is pumping out vast sums for economic recovery through a number of formal vehicles (grants, etc.), this remedy could become increasingly important to those frustrated in their dealings with the federal government.

The Ozdemir case arises from the very first solicitation issued by the Department of Energy’s Advanced Research Projects Agency (“ARPA-E”). This solicitation requested concept papers so ARPA-E could select promising energy-related technologies for research and development funding. To provide this funding, the solicitation identified grants, cooperative agreements and technology investment agreements as the anticipated legal vehicles. Interested parties were required to request an “application control number” by a given deadline. Mr. Ozdemir failed to make a timely request for this number and the agency refused to consider his concept paper when he submitted it.

The government chose to defend against Mr. Osdemir’s protest by moving to dismiss on the theory that the Court did not have jurisdiction because the solicitation did not relate to a procurement. Although the parties argued over whether or not the solicitation related to a procurement (the solicitation included one reference to a procurement instrument), the Court sidestepped this issue to deal with a more fundamental issue, whether the Court had jurisdiction over non-procurement protests.

After concluding that the precedents offered by the government did not support their position that the Court’s bid protest jurisdiction did not extend beyond procurement matters, the Court proceeded to set out two bases for its conclusion that its bid protest jurisdiction extends beyond procurement matters. (Senior Judge Merrow applied similar reasoning in Red River Holdings, LLC, v. United States, July 17, 2009, however, in that case the protest involved a maritime contract, which was clearly a procurement matter, and the parties agreed that the Court had jurisdiction; the jurisdiction issue was raised sua sponte by the Court.)

First, the Court found support in something cleverly called the Last Antecedent Rule (which, it turns out, is rather like the Pirate Code, more of a suggestion than a rule). The Last Antecedent Rule is a rule of statutory interpretation that was explained by the Federal Circuit in Anydrides & Chems. Inc. v. United States, 130 Fed.3d 1481, 1483 (Fed. Cir. 1997) (quoting 2A Sutherland Statutory Construction, 4th ed., § 47.33):

The rules of grammar apply in statutory construction:

Referential and qualifying words and phrases, where no contrary intention appears, refer solely to the last antecedent, which consists of “the last word, phrase, or clause that can be made an antecedent without impairing the meaning of the sentence.”

The government focused on the last phrase of the jurisdictional statute (28 USC § 1491(B)(1)), “in connection with a procurement or proposed procurement,” claiming that this phrase modified the entire sentence. Because there is no comma immediately before this phrase, the Court, applying the Last Antecedent Rule, determined that the phrase modified only the immediately preceding phrase (“any alleged violation of statute or regulation”), not the entire sentence. Thus, the rest of the sentence provides several independent bases of jurisdiction, including a protest against a solicitation for proposals for a proposed contract and a protest against a proposed award. The Court found its jurisdiction in these phrases since ARPA-E had clearly issued a solicitation which contemplated an award.

Also the government argued that “contract” in this context meant procurement contract, relying on the definitions in the Federal Grant and Cooperative Agreement Act (31 USC 6301-08), the Court found this assertion unsupported and held that “contract” in § 1491(b)(1) encompasses a wide range of formal agreements, including grants and cooperative agreements.

The Court also noted that the ARPA-E solicitation clearly contemplated an “award,” giving the Court a second basis for jurisdiction as a protest against a proposed award. This does not seem to me to be as strong a basis for jurisdiction, since at best, Mr. Ozdemir was complaining about a refusal to consider an award to him, not a proposed award to a third party. However, given the Court’s expansive reading of 1491(b)(1) (including the noted “hexadic” use of the conjunction “or”), the idea that one could protest an “award,” without reference to a contract (however defined) and without reference to a solicitation raises some interesting possibilities. Might it cover a financially significant endorsement of a commercial product by a federal agency or federal official that prejudiced a competitor (prejudice being a required element of the Court’s jurisdiction)?

The Court found further support for its reading of § 1491(b)(1) in its analysis of the history of the Court’s bid protest jurisdiction. Specifically, the Court noted that prior to enactment of the current language in § 1491(b)(1) in the Administrative Dispute Resolution Act of 1996 (“ADRA”), the Court had jurisdiction over protests involving award of non-procurement contracts, such as timber sales, and that there is no indication that ADRA in any way was intended to restrict the Court’s bid protest jurisdiction, only to expand it.

Although this decision was not the first since 1996 to recognize the Court’s jurisdiction over non-procurement protests, it certainly is unique in its thorough discussion of the issue, all the more intriguing for having occurred in a pro se case.

My personal perspective is that federal agencies have for some time been looking for creative ways to avoid exposure to bid protests, mostly by using highly complex, multi-agency IDIQ procurement vehicles or by having support contractors doing what would normally be agency procurements. It will be interesting to see, in this environment, how the agencies react to this clear assertion of the Court’s jurisdiction over non-procurement bid protests.