February 27, 2020 Procurement Lawyer

News from the Committees

by Herman Levy

Summary of Minutes, Commercial Products and Services Committee, September – November 2019

September 17, 2019

Co-chair Julia Smith intro-duced guest speaker Roger Waldron, president of the Coalition for Government Procurement (CGP), a nonprofit association of commercial contractors advocating “common sense in government procurement.” Roger has had extensive experience in GSA Multiple Award Schedules (MASs). This includes twenty years at GSA, where he held several positions, including those of Senior Assistant General Counsel, Director of Acquisition Management Center, and Acting Deputy Chief Acquisition Officer, in which “he was responsible for the development, issuance, and monitoring of acquisition policies and procedures governing GSA’s $60 billion procurement operations.” Prior to joining CGP, Roger was counsel at Mayer Brown LLP, where he advised clients on all aspects of government contracting.

Roger discussed current issues in commercial item contracting, including the Coalition’s July 29, 2019, letter regarding (1) GSA’s review of the information-collecting requirements for the Commercial Sales Practices (CSP) disclosures and (2) the Price Reduction Clause (PRC). He also briefly discussed GSA’s progress in schedule consolidation and Veterans Affairs schedules. Regarding the letter, the CGP urged that the “PRC and the CSP requirements no longer have practical utility in today’s Schedules program” and are no longer necessary. “Pricing under Schedule contracts is driven by competition and market forces, not the PRC and CSP requirements. These compliance and data reporting mechanisms cause significant burdens for Schedules contractors . . . . and the costs of those activities . . . do not result in increased value for customer agencies or taxpayers. Also, the PRC and CSP are inappropriate for service contracts and do not encourage agencies to use the Schedules.”

In conclusion, the CGP made the following recommendations:

  1. Eliminate the PRC;
  2. As an alternative to the PRC, increase competitionfor task and delivery orders;
  3. Reform the CSP;
  4. Establish the goal of MAS pricing as a fair andreasonable price, rather than as most favoredcustomer; and
  5. Implement the authority to offer “unpriced”services on Schedules.

A question-and-answer period followed.

October 10, 2019

The guest speakers were Chip Purcell Jr., Esq., Thompson Hine LLP, and Robert Neill, Esq., U.S. Army Legal Services Agency, on the subject of the Commercial Item Termination for Convenience clause, FAR 52.212-4(1). This clause, although apparently straightforward, in practice has been “problematic for contractors, government contract attorneys[,] and terminating contracting officers to apply uniformly.” Both guest speakers have litigated the meaning of the clause.

On July 24, 2012, Defense Information Systems Agency (DISA) awarded Contract No. HC1028-12-C-0047 to ESCgov. It “provided for a base year in the amount of $2,276,906.” Among other things, the contract provided inclusion of BladeLogic software. The period of performance began on August 1, 2012. In addition to the Commercial Item Termination for Convenience clause, the contract contained paragraph (g) of FAR 52.249-2, Termination for Convenience of the Government (Fixed Price) (May 2004).

On August 1, 2012, GAO received a protest alleging improper award to ESCgov in that the awardee “was not an authorized reseller of the BladeLogic software at the time of contract award.” The contracting officer (CO) issued a stop work order to ESCgov. DISA informed GAO that it intended to terminate the contract for convenience and award it to the protester. On January 2, 2013, ESCgov submitted its termination settlement proposal in the amount of $3,384,500.76, which included $1,031,430,50 for the BladeLogic software license purchased in 2008, $180,937.50 for one month of utility services provided under the contract, $2,127,924 for the average of two methodologies used by its expert in assigning value to the intellectual property involved, and $44,208.76 for termination settlement expenses. On June 12, 2013, ESCgov converted its proposal into a certified CDA claim requesting a CO final decision; ESCgov appealed the deemed denial to the ASBCA.

The contractor’s figures were based on the commercial items clause, FAR 52.212-4. On the basis of the FAR 52.249-2 clause, the government asserted that ESCgov was limited to a maximum recovery of $58,366.94. Because the contract was awarded and terminated under FAR Part 12 procedures, the ASBCA found it clear that the commercial items clause was the proper one. Indeed, the ASBCA noted that prior to termination there was “no evidence in the record that the parties even realized that there were two termination for convenience clauses the elements of ESCgov’s recovery as follows:

1.  BladeLogic software license
The ASBCA denied the $1,031,450.50 claim, whichrepresented “a portion of the cost of its purchase in2008” for an earlier contract. According to ESCgov, thelicenses were perpetual and valid; the ASBCA noted noapparent reason why the licenses “could not be used toperform future contracts like the one terminated.”

2.  Contract performance
ESCgov sought $180,937.50 for the one-month period ending on the date of termination, representing thepercentage of the work performed prior to notice of termination. The ASBCA noted, however, that ESCgovperformed 10 base-period days prior to the stop-workorder, representing about 2.74% of the contract price, or$62,387.22.

3.  ESCgov-developed software
ESCgov sought $2,260,875, representing the fair marketvalue of software it allegedly “developed and deployedon government computer servers to provid[e] additional functionality to the BladeLogic software to meet thecontract requirements.” Also ESCgov said that subsequent to termination, the government refused its request “to return the ESCgov-developed software andcontinue[d] to use it.”

The ASBCA held that fair compensation under termination for convenience “does not include the fair market value of an item . . . developed and deployed to perform the contract.” ESCgov also effectively admitted that it developed the software to perform another contract. On that basis, the ASBCA denied the claim.

4.  Severance pay
ESCgov sought $20,868.40 in severance pay to a program manager whose employment it terminated as a result of contract termination. Nevertheless, because thepayment was not legally required, the ASBCA deniedreimbursement for it.

5.  Employee and consultant termination settlement proposalpreparation costs
ESCgov sought $1,689 in claimed “employee costs toprepare the termination settlement proposal.” The government objected in that this amount was calculated ata “fully burdened [hourly] rate” of $281.50 that includedunallowable profit. ESCgov replied, citing testimony asto reasonableness. Nevertheless, the ASBCA held thattestimony absent contemporaneous documentation wasinsufficient to support the claim and disallowed it.

6.  Legal and consulting termination settlement proposalpreparation costs
ESCgov sought $15,651.36 in legal costs and $6,000 inconsulting costs. The government objected, arguing that the settlement claim was not submitted in good faith and was made for noncompensable claims. The government contended that ESCgov was entitled to $5,489, all in legal costs.

The ASBCA found that the government cited no evidence in the record to support lack of good faith. Nevertheless, the ASBCA found ESCgov’s claim for legal and consulting costs to be unreasonably high. The parties agreed that consulting fees for valuation of contractor-developed software were noncompensable, making the consulting fees also noncompensable.

The ASBCA found that legal fees beyond $5,489 to be noncompensable as having been “spent in whole or in unsegregated part in support of claims for [noncompensable] issues . . . mostly the claim for the value of the ESCgov software,” which the ASBCA found to be noncompensable. See item 3, supra.

7.  Affirmative defenses
The ASBCA noted two government affirmative defenses, neither of which changed its analysis: (1) ESCgov’s costs of purchasing licenses of the software it developed and the value of the software it developed (items3 and 6, supra) and (2) ESCgov’s failure to comply withthe CDA by submitting “baseless” elements in its claim.The ASBCA held these to be “merely a thinly-disguisedattempt to have the ASBCA assess fraud penalties,” amatter beyond its jurisdiction.

A question-and-answer period followed.

November 15, 2019

Co-chair Julia Smith introduced guest speaker Susan Warshaw Ebner, a partner in Stinson LLP, who “represents businesses and nonprofits on a broad spectrum of government contract and compliance matters, including bid protests, cyber security and supply chain risk, audits and investigations, and dispute resolution.”

Susan then discussed her slides, which were as follows:

  1. Flowing Down Terms and Conditions;
  2. The 21st Century Supply Chain;
  3. Emerging Issues — Delivery Uncompromised — AStrategy for Supply Chain Security and Resiliencein Response to the Changing Character of War;
  4. Emerging Issues — Risk (Threat, Vulnerabilities,Consequences) and Opportunity;
  5. Supply Chain Risk Management, CongressionalActions, National Defense Authorization and Appropriation Acts;
  6. Supply Chain Tool Kit — Executive Branch;
  7. Supply Chain Risk Management;
  8. Emerging Issues;
  9. Emerging Issues; and
  10. Emerging Issues.

A question-and-answer period followed.