In the latest Weekly Wright Report:
- Potential Big Break for Small Business – read now
- Federal Contractors Getting Ready for Government Snooping – read now
- The Thrill of Victory… The Agony of the Contract – read now
Potential Big Break for Small Business
One of the pieces of legislation WC&S’s Government Contracting Group is watching has passed the House and is moving to the Senate. The “All Business Runway Extension Act of 2018” (H.R. 6330) lengthens the time in which the Small Business Administration measures the size of a company through revenue from an average of the past 3 years to an average of the past 5 years. This slight modification of SBA’s size formula is designed to reduce the impact of rapid-growth years which result in spikes in revenue which have the effect of prematurely ejecting small businesses out of their small size standard as set by the SBA.
This legislation will allow small businesses at every level more time to grow and develop their competitiveness and infrastructure, before entering the open marketplace. Not only will this Bill assist smaller companies in extending their life before they have to jump into full and open competitions, but it also extends the ability of many government agencies to demonstrate they are meeting small business goals. The bill will also protect federal investment in SBA’s small business programs by promoting greater chances of success in the middle market for newly-graduated firms, resulting in enhanced competition against large prime contractors.
The report on the Bill which gave its recommendation can be found at https://www.congress.gov/115/crpt/hrpt939/CRPT-115hrpt939.pdf. Stay tuned for updates.
Federal Contractors Getting Ready for Government Snooping
On September 20, 2018, the President issued a National Cyber Strategy (the “Strategy”) which follows up Executive Order 13800 – Strengthening the Cyber security of Federal Networks and Critical Infrastructure, issued last year. In addition, the Department of Defense also issued its 2018 DoD Cyber Strategy. Clearly, cyber defense is a top priority for the Administration and the new Strategy is expressly aimed at:
- Defending the homeland by protecting networks, systems, functions, and data;
- Promoting American prosperity by nurturing a secure, thriving digital economy and fostering strong domestic innovation;
- Preserving peace and security by strengthening the ability of the United States to deter and, if necessary, punish those who use cyber tools for malicious purposes; and
- Expand American influence abroad to extend the key tenets of an open, inter-operable, reliable, and secure Internet.
One of the interesting components of the Strategy for federal government contractors is the stated intent to “Strengthen Federal Contractor Cyber security” and “Improve Federal Supply Chain Risk Management.” The Strategy states “[t]he United States cannot afford to have sensitive government information or systems inadequately secured by contractors.” Thus, the Strategy refers to the government being more proactively involved in protecting government information on contractors’ computer systems. Specifically, the Strategy provides:
Going forward, the Federal Government will be able to assess the security of its data by reviewing contractor risk management practices and adequately testing, hunting, censoring, and responding to incidents on contractor systems. Contracts with Federal departments and agencies will be drafted to authorize such activities for the purpose of improving cyber security.
Depending on how far the current Administration pushes this policy, in addition to mandatory notification of attacks, the government may soon be able to access and test a federal contractors’ computer systems. The current cyber protection policy relies on the federal contractors to evaluate and test their own systems.
Another relevant aspect of the new Strategy for federal contractors includes addressing deficiencies in the Federal acquisition system, by providing more streamlined authorities to “exclude risky vendors, products, and services when justified.” The Strategy does not define what “risky vendors”, “risky products” or “risky services” are or how they will be determined or excluded. Of course, no federal contractor or its products or services will want to be deemed “risky.” All federal contractors must closely monitor how the government intends to implement this new Strategy over the coming months and take all steps necessary to participate in the process and ultimately to comply with any new requirements.
The Thrill of Victory… The Agony of the Contract
Congratulations! You were part of the winning team that was just awarded a government contract. Now the prime contractor is asking you to sign a subcontract agreement formalizing your relationship. Before you sign on the bottom a line, a few precautions should be taken to ensure the terms are as you expected and agreeable.
The starting point for the subcontract should be the parties’ Teaming Agreement. If there are any inconsistencies in the scope, obligations or limitations, the subcontractor should object and be wary. Although evaluating a subcontract will be influenced by the parties’ perspective, it is not impossible to achieve a fair balance in the subcontract if it ensures that certain issues are covered. With the Teaming Agreement as your frame of reference, the following should be examined:
Scope of Work should be clearly defined. If too broad, a subcontractor could be trapped into a losing business opportunity which requires more effort than originally contemplated. If too narrow, a considerable amount of work may be considered a change and require additional compensation. In addition, if the subcontractor is responsible for all obligations which the prime has to the government, care should be taken to review the prime contract and understand the full implications of this blanket inclusion.
Standards for Reviewing Performance of the Subcontractor should be addressed to make sure that the prime will not hold the subcontractor to different standards of performance than they are expected to follow under the prime contract. Too often, subcontractors are left to the mercy of an overbearing prime who expects far more than the government does. These standards should also include any wage requirements such as compliance with the Service Contract Act.
Representations/Indemnification should be given that the subcontractor shall comply with Truth in Negotiations and Defective Pricing prohibitions and indemnify the prime should defects be found to have occurred.
Rights in Technical Data and Computer Software must be clearly defined to include the ownership and rights that any party may claim in any intellectual property used or developed during the contract. The prime must pay particular attention to ensure that the subcontractor has the same obligations to the prime as the prime has with the government.
Warranties must be addressed as well to ensure that the prime is not bound to provide something for which it cannot also look to the subcontractor for relief.
Changes, should include the method for pricing changes, the specific prime personnel having the sole authority to authorize changes, a requirement for the subcontractor to perform the additional work regardless of whether a price has been agreed in advance, the terms for payment for changes, any time limits on making claims for changes, a requirement that the change be in writing (although in practice, this is frequently waived), government acknowledgment of the changes, and prosecution of any such change claims against the government.
Insurance requirements for the project and any employees.
Public Policy Compliance such as affirmative action, labor standards, security clearance and E-Verify
Business Integrity Policies to include, ethic obligations, no hire or limited hire policies between the prime and the subcontractor, assessment and reporting of any potential conflicts of interest, and requirements that the prime contractor is the only party in a position to communicate on contractual issues with the government.
Payment Clauses must be reviewed paying particular attention to “paid if paid” and “paid when paid” clauses requiring payment after the government payment to the prime contractor and capture of interest for late payments. Is there an acceleration of payment for small business subcontractors?
Audit Rights exist for the government to audit the prime contractor’s and subcontractor’s records in a variety of circumstances. A prime contractor should ensure that either they have the right to conduct audits of their subcontractors or, to preserve the subcontractors’ propriety, that the subcontractors are subject to being audited by the government in these circumstances and reporting their findings to the prime contractor.
Termination for Cause and Convenience clauses must be carefully reviewed to ensure that the prime contractor does not possess the ability to terminate a contractor unless the government is terminating the prime. At a minimum, opportunities for notice and cure should be built into to make sure the subcontractor doesn’t find itself suddenly defending against a termination for unknown reasons. The parties may also want a restriction against recovering certain types of damages in the event of delays caused by the other party.
Disputes clauses which address timing, personal jurisdiction and forum or venue. Is arbitration a more appropriate dispute resolution forum? What limitations will exist on the method of arbitration? Who is responsible for fees? The disputes clause should address responsibility for disputes which are strictly between the prime and subcontractor and those which the prime may “sponsor” to the government on the subcontractor’s behalf. These clauses should also address the costs associated with prosecuting the disputes including fees, interest and other costs.
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