I. INTRODUCTION

The U.S. Government is the world’s largest purchaser, spending over $400 billion annually on goods and services. It represents a huge and alluring source of business for private entities that have the fortitude to traverse the minefield of government contract procedures. Contracting with the federal government is unlike any other kind of commercial activity, and while the appeal of federal contracts is undeniably hard to resist, contractors must be aware of their unique features. Contractors must comply with the many regulations, numerous statutes, and abundant case law that govern federal procurement. Contractors also need to familiarize themselves with the newly enacted compliance and self disclosure regulations. Finally, those contractors looking to cash in on the new stimulus money must understand the rules and regulations imposed by the American Recovery and Reinvestment Act.

The American Recovery and Reinvestment Act (also known as “ARRA,” the “Recovery Act,” and the “Stimulus Act”), signed into law on February 17, 2009, is intended to pump billions of dollars into the United States’ market to jump start the economy. With $575 billion in total spending, including $150 billion earmarked for the U.S. infrastructure construction projects, and considerable funds being poured into programs for renewable energy, many new construction opportunities are being developed as a result of the Recovery Act.^{^[1]}

Various agencies will be awarding construction contracts with the ARRA funds. For example, the Department of Defense (“DOD”) was appropriated over $7.4 billion dollars under the ARRA. Of this $7.4 billion, the DOD plans to spend $4.2 billion on Facilities, Sustainment, Restoration, and Modernization projects (these FSRM projects are primarily new construction and extensive renovations on domestic military facilities).[2] Further, the DOD plans to spend $1.3 billion on military construction for hospitals; $240 million in military construction for child development centers; $100 million in military construction for warrior transition complexes (rehabilitation facilities for returning veterans); and $600 million for other military constructions projects such as housing for the troops and their families.

The General Services Administration (“GSA”) operates as the landlord for over 400 federal agencies, bureaus and commissions. GSA spending is also increasing dramatically based upon ARRA funds. GSA has $5.55 billion of spending in the pipeline, with $4.5 billion going to convert existing buildings into green structures and $1.05 billion being used for courthouses, land ports of entry and federal buildings. The GSA will be overseeing projects in all 50 states, the District of Columbia and two territories.

Specifically, the ARRA includes a number of important provisions governing federal procurement that are designed to increase transparency and accountability of Stimulus Act funds. These provisions were to be implemented through the Federal Acquisition Regulation (“FAR”) by the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (“Councils”) and the Office of Management and Budget (“OMB”). Although the Councils were supposed to issue final rules implementing these changes by June 16, 2009, as of August 1, 2009, the interim rules are still in effect. These rules are discussed in Section VI below.

Contractors must also be aware of the myriad of regulations and rules already in place that govern federal contracts and contracts supported with federal money. This paper will examine some important aspects of government contracting to provide contractors and their counsel with knowledge that should help in taking advantage of the many opportunities available under the Recovery Act.^{^[3]}

Part II of the paper will establish the framework of the basic statutory and regulatory laws that govern federal contracts and the role of the Christian Doctrine in interpretation of government contracts. Part III will examine the application of federal law and regulations to government contracts, including subcontracts for federal work. Part IV will address procurement vehicles such as sealed bidding and best value procurements. Part V will examine some of the specific issues a contractor encounters in bidding on a federal contract. Specifically, it will outline set-asides for small and disadvantaged businesses, Miller Act Bonding requirements, Buy American requirements, responsibility/past performance evaluations, the Davis-Bacon Act and federal cost principles and requirements for accounting. Part VI will focus on select contract administration issues under federal construction contracts, such as compliance programs, self-disclosure requirements, False Claims Act, Anti-Kickback Act, bribery statutes, Truth in Negotiations Act/defective pricing, and some specifics of the ARRA. Finally, Part VII will address issues associated with resolving disputes.

II. BASIC STATUTORY AND REGULATORY LAW

A. Statutory Law

The Armed Services Procurement Act of 1947 (“ASPA”),[4] the Federal Property and Administrative Services Act of 1949 (“FPASA”),[5] and the Competition in Contracting Act (“CICA”),[6] represent the three statutory foundations of government contract law and the federal acquisition process. The ASPA governs the acquisition of all property (except land), construction, and services by defense agencies. The FPASA governs similar civilian agency acquisitions. The passage of CICA and the resulting creation of the FAR in the 1980s was a major shift in the government contract landscape. Federal agencies are now required to seek and obtain “full and open competition” wherever possible in the contract award process.

Beyond these foundational statutes, there are scores of additional statutes governing the interactions between the U.S. Government and its contractors. Some of the key statutes are discussed in the Sections below.

B. Regulatory Law

The Federal Acquisition Regulation (FAR) – codified at Title 48 of the Code of Federal Regulations – contains the uniform policies and procedures for acquisitions by all federal agencies. The FAR implements or addresses nearly every procurement-related statute or executive policy. In doing so, it touches every stage of the acquisition process.

Prior to the FAR, the defense services and various federal agencies each had their own procurement regulations, dating back to the late 1940s. The 1984 promulgation of the FAR reflected Congress’ efforts to create a uniform structure for all federal contracting done by the Executive Branch. The goal of uniformity has been undermined, to a degree, by the numerous agency-specific supplements implemented after promulgation of the FAR. For example, the DOD promulgated its own supplemental regulations in the Defense Federal Acquisition Regulation Supplement (“DFARS”) and the United States Agency for International Development also has additional regulations in its Acquisition Regulations, just to mention two. In some instances, these supplements override or supersede relevant FAR provisions, while in other cases they simply provide additional procedures, further detail, or clarification of FAR regulations. In addition to all of the statutes and regulations discussed above, the contractor must also be careful to comply with all terms of its particular contract.

C. Christian Doctrine

In the seminal case of G.L. Christian and Associates v. United States,[7] the Government contracted with G.L. Christian and Associates to construct a housing project at a Marine Corps base. When that base was subsequently deactivated prior to completion of the work, the court permitted the Government to terminate the contractor for convenience despite the Government’s failure to include a convenience termination clause in the contract.[8] In implying this contract term, the court developed what would be known as the “Christian doctrine,” under which mandatory clauses that were erroneously left out of a government contract will still be read into the contract.[9] Thus a contractor cannot merely rely on the clauses included in its federal contract to determine its responsibilities, but must comply with all contract provisions that were supposed to be included in its contract per the regulations. Accordingly, the Christine Doctrine requires a contractor to be very familiar with the FAR, knowing the clauses that should be included in its contract.

III. APPLICATION OF FEDERAL LAW TO GOVERNMENT CONTRACTS

Another unique aspect of federal procurement law is that many federal regulations and statutes automatically apply to subcontractors and suppliers, despite those entities lacking direct contractual privity with the Government.

FAR Part 52, “Solicitation Provisions and Contract Clauses,” and the various agency FAR supplements mandate the use of literally hundreds of different contract clauses based upon the specifics of the procurement. Many of these clauses are required to flow down to subcontracts for services or supplies under a federal contract. These clauses are commonly referred to as “mandatory” FAR flow-down provisions. Thus the prime contractor must be aware of these provisions when drafting its subcontracts. Other FAR clauses do not include an express requirement that they flow down to a subcontract. These are commonly referred to as “optional” FAR flow-down provisions. Prime contractors often find it prudent to bind the subcontractor to the same or similar requirements to which the prime contractor is bound.

A. Mandatory FAR Flow-down Clauses

Mandatory FAR flow-down clauses are those that are either: (1) required by federal statute, executive order, or regulation and have the force of law; or (2) required to be included in a subcontract by the Government’s prime contract. Mandatory FAR flow-down provisions are generally clauses that apply throughout the subcontracting chain, depending on the type and amount of the services or supplies being acquired by the prime contractor or higher-tier subcontractor.

Currently, there are more than 50 FAR provisions and more than 35 DFARS provisions that are considered mandatory flow-down provisions. Other agency FAR supplements contain additional mandatory flow-down provisions. Depending on the nature of the subcontract and the clause’s proscriptive language, these provisions must be incorporated in subcontracts under a Government contract. Whether a particular FAR or FAR supplement clause must flow down to a subcontract depends on various factors, including: (a) the type of prime contract or subcontract (i.e., whether it is a fixed-price or cost-reimbursement contract); (b) the type of services or supplies being acquired from the subcontractor; (c) the value of the subcontract; and (d) the location at which the subcontract work will be performed .^{^[10]}

Some mandatory FAR flow-down clauses must be incorporated in the affected subcontracts exactly as written, without alteration. In other cases, the FAR recognizes that certain wording changes may be appropriate and simply requires that the substance be passed down to lower tier contracts.

B. Mandatory FAR Flow-down Clauses Applicable to Subcontracts by Operation of Law

Under G.L. Christian, applicable provisions of the FAR are incorporated into every federal procurement contract and have the same effect as if they were written in the contract itself.^{^[11]} However, the Christian doctrine is not applicable to subcontracts and cannot be used to invoke or incorporate mandatory flow-down provisions that have been omitted from a subcontract by a prime contractor or higher-tier subcontractor. Thus, apart from the exceptions noted below, it is the responsibility of the prime contractor to ensure the appropriate flow-down provisions are incorporated in its subcontracts.

Depending on the purpose of the clause, failure to incorporate applicable FAR, DFARS, or other agency FAR supplement provisions can have serious implications for the prime contractor. Except in certain circumstances discussed below, the clause will not be enforceable against the subcontractor. Also, if a prime contractor fails to include such clauses in its subcontracts, the prime contractor may be declared in breach of its contract with the Government. If the omission is material, such breaches could be grounds for default under the FAR “Default” clause.^{^[12]}

There are a few exceptions to the foregoing in which the implementing regulations for certain FAR flow-down clauses state that a clause will be read into a subcontract by operation of law, even if the clause is omitted from a nonexempt subcontract (either intentionally or negligently). These include the following clauses imposing equal employment opportunity and affirmative action requirements on contractors: “Notice of Requirement for Affirmative Action To Ensure Equal Employment Opportunity for Construction,”^{^[13]} “Equal Opportunity,”^{^[14]} “Affirmative Action Compliance Requirements for Construction,”^{^[15]} “Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans,”^{^[16]} and “Affirmative Action for Workers With Disabilities.”^{^[17]} The Department of Labor (DOL) implementing regulations state that the applicable contract clauses are deemed to be a part of every subcontract, whether or not the clauses are physically incorporated in such subcontract and whether or not the subcontract is written.^{^[18]} A subcontractor’s claim that it was unaware of such provisions or that it took exception to these clauses during the negotiation process is generally not a valid defense.

C. Optional Flow-down Provisions

In instances where the Government does not require a prime contractor to pass a FAR requirement down to a subcontractor, contractors often still find it prudent to flow-down the requirements in its subcontract agreements. The primary reason to include optional flow-downs is to maintain consistency between the prime contractor’s rights and obligations toward the Government and the subcontractor’s rights and obligations toward the prime contractor. Indeed, in many respects, optional FAR flow-down clauses can be more important for protecting the parties’ rights and obligations than many of the mandatory flow-down clauses previously discussed.

Among other things, these optional FAR flow-down provisions include important requirements involving notice requirements, certifications, treatment of changes and equitable adjustments, inspection and acceptance, changes, differing site conditions, stop work orders, suspensions of work, technical data rights, termination for convenience, termination for default, and disputes resolution procedures. Although it is not practicable to discuss all of these optional FAR flow-down provisions in the limited space of this paper, the following are among the most important to consider in developing a subcontract agreement.

1. Unilateral Changes to the Requirements/Notice

Contractors should consider subcontract flow-downs related to the procedures by which a prime contractor has a right to make changes in the subcontract scope, schedule and other terms. The FAR “Changes” clause appearing in fixed-price federal construction contracts allows the Government to make changes to: (1) the specifications (including drawings and designs); (2) the method or manner of performance of the work; (3) the Government-furnished facilities, equipment, materials, services, or site; or (4) the period of performance, by allowing acceleration in the schedule of the work.^{^[19]}

Although the prime contractor may submit a request for an equitable adjustment for impact to its work due to the change, both as to time and to money, it must generally follow specified procedures to protect its rights against the Government. Among other things, if a change order is the result of an informal directive, interpretation, or other guidance, to preserve its rights, the prime contractor must usually give the Government Contracting Officer (“CO”) written notice when any order from the Government or representatives is viewed as a change to the contract. Such notice must identify (a) the date, circumstances, and source of the subject order, and (b) the fact that the contractor regards the order as a change to the contract.[20] The “Changes” clause directs that any demand for equitable adjustment must be made within 30 days after this written notice, and that no adjustment for any costs incurred more than 20 days before issuance of the written notice will be allowed.^{^[21]} The subcontractor’s notice requirements should be tailored to allow the prime contractor to meet its own notice and claim submission obligations within the time permitted by the FAR “Changes” clause.

2. Suspension/Delay of Work

Another important optional FAR flow-down provision is the “Suspension of Work” clause.^{^[22]} This clause allows the Government to order the prime contractor to suspend, delay, or interrupt all or any part of the work of the contract for the period of time that the Government deems appropriate.^{^[23]} If performance is delayed for an “unreasonable” period, the prime contractor may seek an equitable adjustment from the Government.^{^[24]}

Like the “Changes” clause, this FAR provision imposes certain notification requirements on the prime contractor. More importantly, the FAR limits any adjustment for the increase in the costs of the performance caused by the suspension by excluding any profit on those costs.^{^[25]} In both instances, the prime contractor would benefit from similarly binding its subcontractors.

3. Differing Site Conditions

The FAR Differing Site Conditions clause allows relief for subsurface or latent conditions that differ from those either indicated in the contract documents (“Type I”) or ordinarily encountered and generally recognized as inhering in work of the character provided for in the contract (“Type II”). To dissuade contractors from inflating their contract prices to cover such contingencies while allowing them to recover their actual costs, the Government incorporates a “Differing Site Conditions” clause in almost all of its construction contracts.^{^[26]}

The FAR’s “Differing Site Conditions” clause requires the contractor “promptly, and before the conditions are disturbed,” to give a written notice to the Government.^{^[27]} This notice requirement allows the Government to investigate any alleged condition and evaluate its options on how best to deal with the condition to minimize its impact on the project costs and schedule. Importantly, the FAR’s “Differing Site Conditions” clause states that no request for an equitable adjustment will be allowed unless the prime contractor has given the required written notice.^{^[28]}

Because a subcontractor may be the first to identify a differing site condition, the prime contractor should incorporate a notice provision similar to the “Differing Site Conditions” clause of the prime contract. Any such provision should unequivocally require the subcontractor to leave the differing condition undisturbed pending direction from the prime contractor or the government.

4. Terminations

Every Government prime contract incorporates, usually by reference, clauses allowing the Government to terminate the contract for either (a) the Government’s convenience ^{^[29]} or (b) the prime contractor’s default.^{^[30]} These provisions are mandatory, and even if the FAR clauses are inadvertently omitted, they will be read into the prime contract under the Christian doctrine.^{^[31]} The procedures that both the Government and prime contractor must follow to preserve their respective rights under these clauses can be quite complex. Flawed attempts to terminate contracts for default, as well as issues over the allowability of termination costs, have been the subject of extensive litigation under Government construction contracts.

To ensure that subcontractors on a federal construction project are bound by these clauses’ substantive and procedural requirements, it is essential that the prime contractor incorporate its own termination provisions that take into account the rights that the Government has against the prime contractor. Failure to do so could subject the prime contractor to liability for delays, Government re-procurement costs, unallowable costs, and liquidated damages that it may not otherwise be able to recover.

5. Dispute Resolution Procedures

One of the most difficult issues that must be addressed in any prime contractor/ subcontractor relationship is the extent to which a subcontractor will be bound by any resolution of disputes between the prime contractor and the Government. Factors that must be considered when drafting an effective dispute resolution subcontract provision include not only issues related to the substantive outcome of any Government-generated dispute on the subcontractor’s rights against the prime contractor, but also the procedures that the parties must follow in processing their claims for Government-generated issues to ensure a consistent outcome.

Lacking privity of contract with the Government, subcontractors generally cannot bring a direct suit against the procuring agency – even though the Government’s actions or inactions may be the direct cause of the claim ^{^[32]} (see Part VII for more detail on subcontractor disputes). Moreover, the standard dispute resolution procedures under the Contract Disputes Act (“CDA”)^{^[33]} do not allow prime contractors to implead subcontractors as third parties to an action by or against the Government.

This does not mean, however, that subcontractors have no substantive rights to recover for Government-caused changes or delays. Prime contractors have the ability to sponsor a subcontractor’s claim for government-generated disputes by submitting them to the Government on behalf of the subcontractors (see discussion of “pass-through” in Section VII below).^{^[34]}

General contractors and higher-tier subcontractors should incorporate appropriate dispute resolution mechanisms in their subcontracts that follow the same general procedures as the FAR “Disputes” clause.^{^[35]} Specifically, it is essential that any subcontract flow-down clauses addressing Government-generated disputes include terms: (1) defining the parties’ rights and obligations in pursuing subcontractor claims against the Government; (2) establishing procedures for pursuing such claims, as well as the legal or other costs incurred therewith; (3) requiring the subcontractor to continue performance as directed by the prime contractor, pending resolution of the dispute; and (4) binding the subcontractor to the same substantive determinations that the Government’s CO, court, or board of contract appeals issues in connection with the prime contractor’s sponsored claim.

IV. FEDERAL CONTRACTING METHODS

The federal Government has numerous rules and regulations governing the contract award process in order to protect its own interests and those of its contractors. In regards to evaluating contract offers, the Government typically uses either sealed bidding or competitive proposals.

A. Sealed Bidding

Once a federal agency identifies a need, and decides to proceed with an acquisition, it must solicit sealed bids if: “(1) [t]ime permits the solicitation, submission, and evaluation of sealed bids; (2) [t]he award will be made on the basis of price and other price-related factors; (3) [i]t is not necessary to conduct discussions with the responding offerors about their bids; and (4) [t]here is a reasonable expectation of receiving more than one sealed bid.”^{^[36]} Sealed bidding can only be used for procurement of fixed-price contracts.

The agency’s CO initiates a sealed bidding acquisition by issuance of a synopsis followed by an Invitation for Bids (“IFB”).[37] The IFB must describe the Government’s requirements clearly, accurately, and completely. The FAR and case law prohibit the use of unnecessarily restrictive specifications that might unduly limit the number of bidders. The agency publicizes the IFB through display on the internet at http://www.fedbizopps.gov.^{^[38]}

Contractors must submit their bids by the deadline stated in the IFB. A late bid will not be considered for award except where: (1) the bid was sent to the CO by registered or certified mail at least five days before the bid receipt date; (2) the Government mishandled the bid after receipt; (3) the bid was sent to the CO by “Postal Service Next Day Service” two days prior to the bid receipt date; or (4) the bid was transmitted electronically and received by 5:00 p.m. one working day prior to the bid receipt date.^{^[39]}

All bids received by the time and at the place set for opening are publicly opened and read aloud by the CO. The bids are then recorded on an “Abstract of Offers” (Standard Form 1049) and examined for mistakes. If no mistakes are found, after certain other administrative steps, the CO awards the contract to the responsible bidder who submitted the lowest responsive bid. A responsive bid is one that contains a definite, unqualified offer to meet the material terms of the IFB.^{^[40]} Conditions, informalities, or defects in the bid that affect the price, quantity, quality, or delivery of the items being acquired by the Government will result in rejection of the bid.

The FAR also requires an affirmative finding of responsibility prior to awarding the contract to the lowest bidder.^{^[41]} To be determined responsible, the bidder must have the ability and capacity to perform the contract. More specifically, the FAR requires a prospective contractor to:

(1) [h]ave adequate financial resources to perform the contract ….;

(2) [b]e able to comply with the required or proposed delivery or performance schedule ….;

(3) [h]ave a satisfactory performance record ….;

(4) [h]ave a satisfactory record of integrity and business ethics ….;

(5) [h]ave the necessary organization, experience, accounting and operational controls, and technical skills ….;

(6) [h]ave the necessary production, construction, and technical equipment and facilities ….; and

(7) [b]e otherwise qualified and eligible to receive an award under applicable laws and regulations.^{^[42]}

Beyond responsiveness and responsibility, the CO’s evaluation of sealed bids may only consider price and price related factors during evaluation of the bids.^{^[43]} Price-related factors include costs or delays to the Government resulting from differences in inspection, locations of supplies, and transportation; taxes; and changes made or requested by a bidder in any provision of the IFB. After evaluating price and price-related factors, the CO should award the contract to the responsible bidder whose bid is most advantageous to the Government – i.e., the lowest price.^{^[44]} Award is made by furnishing a properly executed award document to the successful bidder.[45]

B. Best Value Procurement

When the value of the contract exceeds $100,000 and the product or service is considered to be highly technical in nature, the Government moves away from sealed bidding and conducts a best value procurement. Under a best value procurement, the Government has the flexibility to consider factors other than price. The process begins with the Government issuing a Request for Proposal (“RFP”) instead of an IFB.[46] In this case the Government will describe the product or service that it needs, and solicit proposals from prospective contractors on how they intend to carry out that request, and at what price. The Government may then hold negotiations with the offerors within the competitive range under the terms of the solicitation. After the offerors submit their best and final offer, the Government awards the contract.

FAR 15.304 describes how the Government will evaluate the offers it receives. The award will be made to the best overall (best value) proposal — that is, the offer that the agency considers to be the most beneficial to the Government. The agency will typically look at four evaluation factors:

(1) Technical Approach;

(2) Management Approach;

(3) Past Performance; and

(4) Price or Cost.[47]

In the solicitation document, the agency will list the evaluation factors in their order of importance. In some cases, the Technical Approach will be significantly more important; at other times, Management, Price, or Past Performance may take precedence.

C. Federal Contract Types

Under federal contracts, the Government has the option of using a fixed-price or a cost-reimbursable contract scheme. Fixed-price contracts must be used when work is awarded using sealed bidding. As the name implies, they incorporate a fixed-price for all goods and services under the contract.^{^[48]} Cost-reimbursement contracts are typically the result of best value procurement.^{^[49]} The most common form of cost reimbursement contracts is a cost-plus-fixed-fee.^{^[50]} In this scenario, a contractor is reimbursed for all allowable costs (subject to a cost ceiling) and then paid a fixed-fee on top of that. Cost-reimbursement contracts are often used for research and development and in situations where the construction project will be undertaken in hostile areas where costs are hard to anticipate. Otherwise, typical federal construction contracts are fixed-price.

V. ISSUES TO CONSIDER IN BIDDING ON FEDERAL PROJECTS

Apart from the practical aspects of calculating and submitting a bid or proposal, a contractor must also be mindful of several other important issues when bidding on a federal Government contract. Failure to comply with federal regulations in a bid can mean the difference between winning and losing the contract award. When responding to an RFP, inadvertent mistakes in preparation may take the proposal out of the competitive range or cause the contractor to ultimately lose money on the contract if it is awarded. Thus, it is imperative that contractors fully comprehend all of the rules and regulations applicable to their contracts. While not a dispositive list, the following is a selection of typical issues that arise during the federal bid process.

A. Small and Disadvantaged Businesses

Federal procurement statutes and regulations implement policies to encourage participation of small businesses in federal contracts. These policies seek to “provide maximum practicable opportunities [for] small businesses, veteran-owned small businesses, service-disabled veteran-owned small businesses, small disadvantaged businesses, and women-owned small business[es].”[51] The Small Business Act and implementing regulations require 20 percent of the total value of all prime contract awards for each fiscal year to be awarded to small businesses and five percent of the total value of all prime and subcontract awards to be awarded to socially and economically disadvantaged individuals. The Small Business Act and FAR Part 19 define the eligibility criteria for small and disadvantaged businesses.

The Government effectuates this pro-small business policy by setting certain contracts aside so that only a particular type of small business may compete for award. These contract actions, known as “set-asides,” are announced by the procuring agency so that ineligible contractors are on notice that they will not be considered for award.[52] In very limited circumstances, a CO may award a contract to a company that does not qualify for the set-aside.[53]

There are several different types of set-asides. The three most important are the Small Business Set-Aside, the Section 8(a) Program, and the HUBZone Program. In order to qualify as a small business, a company must meet certain criteria established by the Small Business Administration (SBA). Currently, a heavy construction contractor may be considered a small business if it earns average annual receipts of $33,500,000 or less over the last three years.[54] Generally, all Government contract opportunities valued between $3,000 and $100,000 are automatically set-aside for small businesses.[55] The regulations further mandate that contracts valued over $100,000 should be set-aside for small businesses unless doing so would lead to inadequate competition or unreasonable prices.[56]

The Section 8(a) Program is another set-aside program implemented by the SBA. In order to qualify as an 8(a), a company must first qualify as a small business, defined above. Additionally, the company must be “unconditionally owned and controlled by one or more socially and economically disadvantaged individuals who are of good character and citizens of the United States, and which demonstrates potential for success.”[57] The SBA defines an individual as “socially disadvantaged” if that person has been “subjected to racial or ethnic prejudice or cultural bias within American society because of their identities as members of groups and without regard to their individual qualities.”[58] The SBA defines an individual as “economically disadvantaged” if that person’s “ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same or similar line of business who are not socially disadvantaged.”[59] For more information on the 8(a) program, visit http://sba8a.symplicity.com/applicants/guide.

The Historically Under-utilized Business Zone (“HUBZone”) program is intended to provide incentive to small Government contractors to locate their businesses in disadvantaged areas by providing set-asides for such companies.[60] To qualify as a HUBZone small business concern, the contractor must be small according to the SBA size standards (discussed above), be 51% owned and controlled by U.S. citizens, and have its principal office located in a HUBZone.[61] The qualification requirements for HUBZone firms regarding ownership and control are the same for qualification as a small business firm under the 8(a) SBA regulations[62]. With regard to location, a “HUBZone” is defined as a qualified census tract or a nonmetropolitan county with an unemployment rate not less than 140% of the statewide average or with a median household income less than 80% of the nonmetropolitan state median household income.[63] The SBA has a searchable map to allow contractors to determine if they are located in a “HUBZone.”[64] In addition, to qualify as a HUBZone firm, at least 35% of the company’s employees must reside within a HUBZone.[65] Finally, the firm must certify its attempt to continue to employ at least 35% of its workforce from the HUBZone during contract performance.[66] Firms are only eligible for HUBZone certification through application to the SBA.[67]

HUBZone small business prime contractors must comply with the same performance and subcontracting restrictions, commonly referred to as the “Ostensible Contractor Rule,” that apply under other small business programs. Under the Rule, the prime contractor must self-perform at least 50% of the work on a service contract. Under a contract for general construction, the HUBZone small business concern must spend at least 15% of the cost incurred for direct-hire personnel. If it is a “special trade” contract, the percentage required is 25%.

B. Miller Act Bonding Requirements

Another issue to consider when bidding federal Government projects is the bonding requirements. Many construction contractors may be familiar with the concepts behind the Miller Act as a result of the “Little Miller Acts” enacted by various states.

Pursuant to the federal Miller Act, a contractor must furnish a payment bond and performance bond for the construction, alteration, or repair of any public building or public works contract over $100,000 awarded by the Government.^{^[68]} These requirements protect the Government by ensuring performance, while also protecting individuals and companies that supply labor and material.

1. Payment Bonds

A payment bond is an agreement whereby the surety assures the government, who under the Miller Act is the federal Government, that the supplier of labor, materials, and equipment to or on behalf of the prime contractor for the project will be paid by the prime contractor. In addition to providing assurance to the Government, the payment bond protects subcontractors and suppliers. On a federal construction project, subcontractors and suppliers do not have the benefit of mechanics lien statutes that are common on private contracts because a lien cannot be placed against government property.^{^[69]} So the Miller Act essentially provides the protection that the mechanic’s lien statute otherwise would.

Typically, the Government will require the payment bond to equal the total amount of the prime contact. If the CO finds it impractical to obtain a payment bond equal to the total amount of the prime contract, then the CO can set the amount of the bond at a lower level. The payment bond, however, cannot be less than the amount of the performance bond.

Under the Miller Act, suppliers of labor or material who contracted expressly or impliedly^{^[70]} with the prime contractor or directly with a first tier subcontractor may recover from the surety.^{^[71]} While the statute does not define the term “labor,” federal case law provides guidance, specifying that labor includes professional or skilled services rendered at the job-site.^{^[72]}

As for material suppliers, a Miller Act claimant must prove that it provided material to a Government project in prosecution of the work and that the material supplied was in accordance with the terms of the prime contract.^{^[73]} Second tier suppliers of material to materialmen who then provide such material to the prime contractor are not entitled to recover under the payment bond,^{^[74]} as such the distinction between subcontractor and materialmen becomes meaningful. The courts have developed an 18-factor balancing test to determine whether a particular company is a subcontractor or materialmen.^{^[75]}

2. Performance Bonds

The Miller Act also requires the contractor to provide a performance bond in an amount satisfactory to the CO.^{^[76]} Under the Miller Act, performance bond requirements may be waived for certain military and transportation contracts.[77] Typically, the penal amount must be equal 100 percent of the original contract price.[78] As the contract price increases, the penal amount must be adjusted to capture the increase.[79]

A three party relationship is created under the performance bond. The prime contractor (principal) contracts with the Government (obligee) to perform the underlying contract. The principal then enters into a bond with the surety whereby the surety guarantees the performance of the principal’s obligation to the obligee.[80] Upon the principal’s default, the surety has the option of completing the project itself or paying the obligee the costs to complete performance. The performance bond is solely for the protection of the Government, which means that suppliers of labor and material generally cannot recover under the performance bond.^{^[81]}

3. Additional Bonds

Although not part of the Miller Act, FAR 28.001 permits the CO to require a “bid guarantee” when submitting a bid for a federal project. A bid guarantee is a type of security that if required, assures the Government that the contractor will not withdraw its bid within the specified period and that the contractor will execute a contract and provide the required bonds if awarded the contract.^{^[82]}

C. Buy American Act Requirements

The Buy American Act has the potential to dramatically influence a contractor’s bid price for federal construction projects. The Act requires contractors to utilize articles, materials and supplies that have been manufactured, mined or produced in the United States in performing their federal construction contracts.[83] Although the Act is subject to United States trade agreements, the trade agreement exception only triggers after certain monetary thresholds are reached and the thresholds vary depending upon the country of origin.[84] Aside from the trade agreement exemptions, the Buy American Act also contains a complicated web of regulations to determine whether an item is considered construction material fully subject to the Buy American Act, and whether the item acquired can be considered domestic under the statute.[85] Contractors must be careful to follow these complex regulations or face significant repercussions, such as having to replace the improper materials, suspension, debarment, or default termination.[86]

There are three primary exceptions to the Buy American Act. If any one of these three exceptions applies, the CO may permit acquisition of foreign construction materials.[87] First, an agency can waive compliance with the Buy American Act if requiring compliance with the Act would be inconsistent with the public interest.[88] The second exception applies if the goods or materials are not mined, produced, or manufactured in the United States “in sufficient and reasonably available commercial quantities of a satisfactory quality.”[89] The third exception applies if the cost of the domestic construction material would be “unreasonable.”[90] If any of these three exceptions apply, the Contractor should seek a formal waiver of the requirements prior to submitting its bid.

Even if a waiver is granted, the contractor offering foreign goods is not evaluated on an equal footing with other bidders who offered domestic goods. There are bid adjustments to offset the cost savings realized by a bidder supplying foreign materials. See Section VI.E below for further discussion of the Buy American requirements and the impact of ARRA.

D. Responsibility/Past Performance Evaluations

Contractors hoping to work with the U.S. Government must be familiar with the role of past performance evaluations in awarding contracts. It is also essential that contractors understand what avenues are available to rebut poor past performance evaluations in order to receive fair treatment in future contract awards.

1. Performance Evaluation Procedures

Under FAR 42.1502, all federal agencies must conduct a contractor performance evaluation on all contracts exceeding the simplified acquisition threshold (currently $100,000).[91] In addition, federal agencies must complete interim contractor evaluations on contracts that last more than one year.^{^[92]} These evaluations are then used by the government to support future award decisions.^{^[93]} The performance evaluations measure a number of factors such as customer satisfaction, conformance with the contract requirements, and standards of good workmanship.^{^[94]}

The agency must provide the contractor with a copy of the performance evaluation as soon as practicable after the completion of the evaluation.^{^[95]} The contractor then has 30 days to submit comments to rebut statements or provide additional information.^{^[96]} The 30-day comment period is designed as a safeguard for contractors, providing an opportunity to suggest input on its own performance evaluation. A careful review of an agency’s evaluation for erroneous or misleading information is critical, as this may be the deciding factor in future award decisions. Despite this opportunity for input, the contracting agency has the final decision on the content of the performance evaluation.^{^[97]}

2. Special Provisions for Evaluating Construction Contractors

Under FAR 36.201, the Government must evaluate any construction contract that is more than $550,000 and any contract where the contractor was terminated for default. This section of the FAR mandates that officials must advise contractors in writing of an unsatisfactory evaluation, however, it is silent on an official’s duty to inform contractors of evaluations with an overall rating higher than unsatisfactory.^{^[98]} Unsatisfactory marks can affect all future business opportunities a contractor may have with the Government.

3. Responsible Prospective Contractors

The Government can only award contracts to responsible contractors.^{^[99]} One factor considered in determining non-responsibility is whether the contractor has a satisfactory past performance record.^{^[100]} Thus, in both sealed bid and best value procurements, a contractor can lose the contract based upon its past performance record.[101]

The failure to display sufficient tenacity along with the failure to meet quality requirements are both examples of performance criteria that indicate the non-responsibility of a contractor.^{^[102]} The FAR does not provide contractors with an opportunity to rebut the Government’s finding of non-responsibility unless they qualify as small businesses.^{^[103]} The lack of an opportunity to respond highlights the importance of a careful review of an agency’s performance evaluation for erroneous or misleading information during the 30-day comment period.

In addition, in best value procurement the past performance record of a contractor is considered for all contracts expected to exceed the SAT^{^[104]} (currently at $100,000). Weak ratings can result in that contractor falling outside the competitive range (even though considered responsible) because another bidders past performance ratings were superior.[105] If a contractor’s past performance information causes its proposal to fall outside the competitive range, the contractor will have an opportunity to communicate with the Government regarding its adverse past performance information.^{^[106]}

E. Davis-Bacon Act

In bidding federal construction projects, the contractors’ pricing must account for Davis-Bacon Act wages. The Davis-Bacon Act and related laws require contractors to pay certain wage rates based on the same type of labor performed in the particular locality on private projects. Bid solicitations and resulting covered contracts must contain the applicable Davis-Bacon labor standards and wage determinations found in FAR 22.4 for contracts involving construction. Wage determinations are provided online by the Wage and Hour Division of the Department of Labor.^{^[107]} While contractors must be mindful of Davis-Bacon wage determinations on most federal construction projects, the Recovery Act included specific language mandating that the requirements of the Davis-Bacon Act apply to all construction projects that receive Recovery Act funds.^{^[108]} Not only does the Recovery Act require construction contracts “funded directly” by federal agencies to comply with the Davis-Bacon Act, but it also extends the Davis-Bacon Act to projects “assisted in whole or in part by and through the federal government pursuant” to the Recovery Act. ^{^[109]} The purpose of this language was to extend the scope of federal regulation to encompass all parts of a larger project funded by the Recovery Act under the Davis-Bacon Act. Thus, a contractor cannot avoid Davis-Bacon wage determinations by dividing up its projects into smaller contracts.^{^[110]} In addition, according to the Recovery Act, a project funded under the Recovery Act and other statutes must follow Davis-Bacon requirements regardless of whether one of the other statutes exempts the project from compliance with Davis-Bacon wage determinations.^{^[111]} For further information regarding the Davis-Bacon Act and its relationship with the Recovery Act, contractors should visit a special website established by the Wage and Hour Division at the Department of Labor’s page at http://www.dol.gov/esa/whd/recovery/.

F. Federal Cost Principles and Requirements for Accounting

Another important consideration when bidding Government construction work is the application of the federal cost principles. Even though most construction work is done on a fixed-price basis and the cost principles are most commonly associated with cost-reimbursement contracts, the cost principles are still likely to come into play on a typical fixed-price construction contract. For example, the cost principles of FAR Part 31 must be used in the pricing of fixed-price contracts whenever “(a) cost analysis is performed, or (b) a fixed-price contract clause required the determination or negotiation of costs.”^{^[112]} Also, the Cost principles often arise when change orders are issued to a fixed-price contract or when a fixed-price contract is terminated for convenience and the contractor is paid for its services according to a cost-reimbursement scheme.^{^[113]}

1. Cost Principles

Cost principles govern which costs are allowable under a Government contract. The factors considered in determining whether a cost is allowable include the following:

(1) Reasonableness

(2) Allocability

(3) Standards promulgated by the Cost Accounting Standards Board, if applicable; otherwise, generally accepted accounting principles and practices appropriate to the particular circumstances

(4) Terms of the contract

(5) Any limitations set forth in FAR Part 31.[114]

The first two categories, reasonableness and allocability, are the threshold requirements to determine whether a contractor can recover its costs under the contract. A cost is reasonable if “in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business.”[115] If questions as to reasonableness are raised, the burden is on the contractor to demonstrate that the cost is reasonable.[116] Some additional factors considered in a reasonableness determination include whether the cost is ordinary and necessary for the contractor’s business, is the result of bona fide bargaining with suppliers and subcontractors, and whether the cost was incurred according to the contractor’s established business practices.[117]

A cost is allocable to a particular project if it “(a) [i]s incurred specifically for the contract; (b) [b]enefits both the contract and other work, and can be distributed to them in reasonable proportion to the benefits received; or (c) [i]s necessary for the operation of the business although direct relationship to a particular cost objective cannot be shown.”[118]

2. Cost Accounting Standards

The Government not only has regulations to determine which costs are allowable, but in certain situations also requires the contractor to follow certain specific standards in accounting for its costs. The purpose of Cost Accounting Standards (“CAS”) is “to achieve uniformity and consistency in the cost accounting standards governing measurement, assignment, and allocation of costs to contracts with the United States.”^{^[119]} Contractors who enter into contracts subject to CAS must follow strict cost accounting schedules that are promulgated by the CAS Board. Having to change a company’s established accounting procedures can be costly, but CAS only applies to certain contracts and subcontracts.^{^[120]} CAS’s application is generally limited to cost-reimbursable contracts and thus CAS is not applicable to the typical fixed-price construction contract. However, the substantial implications of CAS merit attention here as there are some circumstances where large scale construction projects are performed under cost-reimbursable contracts.

Under CAS, contractors must follow particular accounting practices in administering their contracts or face negative price adjustments when their failure to comply causes an increase in costs to the Government.^{^[121]} Congress has included several exemptions to the applicability of CAS (including the aforementioned exemption for fixed-price contracts).^{^[122]} Contractors must carefully examine these exemptions before submitting a proposal in order to determine whether the contract in question requires CAS. If the initial contract is covered by CAS, then subsequent changes or modifications are also covered, even if the changes would otherwise be exempt. However, if the original contract is not subject to CAS, then any subsequent changes or amendments are also not covered. So unlike the general cost principles of FAR Part 31, a change order to a fixed-price contract cannot trigger the application of CAS. Accounting standards can change frequently, but contracts subject to CAS must only follow the standards that were in place at the time the contract was awarded. Still, contractors must be aware that changes or amendments to a contract subject the entire contract to the new standards in place at the time of the change or amendment.

While the cost principles and accounting standards are a major contract administration issue, it is critical that contractors are aware of the implications of these issues in assembling their bids. The potential challenges of the cost principles and CAS can have a significant effect on a contractor’s bid price. Moreover, given the ample administrative challenges on a Government construction project (as discussed in the section that follows), it is prudent to resolve the accounting system issues prior to submission of the bid.

VI. ADMINISTRATION OF FEDERAL CONTRACTS

The complexities of federal contracting certainly do not end with the award of the contract. Administering a federal construction contract can be dramatically different than handling a private construction project. Navigating the maze of statutes and regulations can be a challenge even for those experienced in Government contracting. The following section discusses some of the more common issues.

A. Self-Disclosure and Internal Compliance Programs

1. History

The FAR is designed to provide the best value product or service for the Government “while maintaining the public’s trust.”[123] Part of that mission involves ensuring that the contractors and the Government “conduct business with integrity, fairness, and openness.”[124] However, enforcing integrity and fair dealing is an elusive goal.

Historically, the FAR did not directly or specifically address contractor ethical codes, internal compliance programs, or self-disclosure of unfair practices.[125] Even though such requirements were not included in the regulations, many large Government contractors in the defense and supply industries implemented internal compliance programs to manage the complex web of regulations involved with federal contracts. But for many federal construction contractors, internal compliance programs and formal written codes of ethics were non-existent or unsophisticated. This is not to imply that the construction contractors operated with any less integrity; rather, they typically operated quietly at the edge of the system with some regulations not applying to construction work and others simply not being applied by the COs. Those days are over.

On November 14, 2007, the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (“the Councils”) proposed new regulations, in FAR Case 2007-006. The new regulations require government contractors:

[T]o have a code of ethics and business conduct, establish and maintain specific internal controls to detect and prevent improper conduct in connection with the award or performance of Government contracts or subcontracts, and to notify the CO without delay whenever they become aware of violations of Federal criminal law with regard to such contracts or subcontracts.[126]

Prior to the final rulemaking, which was released May 16, 2008, Congress endorsed the Councils’ efforts by passing the Close the Contractor Fraud Loophole Act, which ordered that

The [FAR] shall be amended . . . pursuant to FAR Case 2007-006 . . . or any follow-on FAR case to include provisions that require timely notification by Federal contractors of violations of Federal criminal law or overpayments in connection with the award or performance of covered contracts or subcontracts, including those performed outside the United States and those for commercial items.[127]

The resultant regulations have broad applicability. All government contractors that are subject to the “Contractor Code of Business Ethics and Conduct” clause, with limited exceptions, must develop: (1) a formal, written code of business ethics and conduct; (2) a business ethics awareness and compliance program; and (3) an internal control system. Furthermore, all government contractors must self-disclose various violations of federal law or receipt of overpayments on government contracts. These recent regulatory changes place a significant burden on a construction contractor seeking to enter the federal construction arena, creating a barrier to entry that will be tested as many contractors now venture for the first time into federal contracting.

2. Compliance

The duty of internal compliance is established in a standard contract clause titled “Contractor Code of Business Ethics and Conduct.” The clause is to be inserted in all federal contracts “expected to exceed $5,000,000 [where] the performance period is 120 days or more.”[128] Through mandatory flow-down provisions, the clause also applies to subcontracts “that have a value in excess of $5,000,000 and a performance period of more than 120 days.”[129] Many federal construction contracts and many subcontracts exceed those values, triggering wide-spread application of the clause in federal construction. The clause includes two main elements: (1) establishing a Code of Business Ethics and Conduct; and (2) developing a program to ensure internal compliance with the code.

a. Code of Business Ethics and Conduct

Contractors subject to the “Contractor Code of Business Ethics and Conduct” clause must have in place “a written code of business ethics and conduct.”[130] The contractor’s written code must be in place within 30 days of contract award, unless the CO sets another time period.[131] The contractor must “make a copy of the code available to each employee engaged in performance of the contract.”[132]

As to the content of the written code, the clause offers no specific guidance. But the concepts addressed in the code should echo the issues discussed in FAR 52.203-13 itself. Specifically, the clause requires that the contractor “[e]xercise due diligence to prevent and detect criminal conduct; and [o]therwise promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law.”[133] FAR 52.203-13 makes reference to various statutory obligations and certain types of conduct that presumably should be addressed or explained in the written code. Those include fraud, bribery, conflict of interest and other violations of Title 18 of the United States Code, as well as violations of the civil False Claims Act.[134] The clause also discusses self-disclosure obligations and internal compliance programs (discussed below). These issues too should be included in the written code prepared by the contractor.

The tone of the written code is almost as important as the specific content. The code should speak in strong terms about the company’s commitment to ethical behavior and set forth clear and meaningful punishment for those who fail to live up to the standard of conduct. The code should emphasize the training that will be undertaken to ensure that the employees are fully aware of what is expected of them.

The written code, once prepared, can be used on all federal contracts. However, contractors should consider including addenda to the code in instances where a particular project presents unique ethical issues or concerns.

b. Business Ethics Awareness and Compliance Program and Internal Control System

Contractors subject to the “Contractor Code of Business Ethics and Conduct” clause who are not small businesses, and whose applicable contract is not for a commercial item, have two additional mandates.[135] The additional mandates will apply to most federal construction contractors. A heavy construction contractor may be considered a small business only if it earns $33,500,000 or less in average annual receipts,[136] meaning that many construction companies undertaking federal construction work as prime contractors are unlikely to qualify.[137] Regarding the commercial item exclusion, the definition of a “commercial item” in the FAR, while broad, cannot be reasonably read to encompass typical construction contract work. Thus most federal construction contracts should expect to be subject to the following requirements in addition to the preparation of a written code of business ethics.

In order to comply with the clauses, each contractor must establish an ongoing business ethics awareness and compliance program within 90 days of contract award.[138] The program must “include reasonable steps to communicate periodically and in a practical manner the Contractor’s standards and procedures and other aspects of the Contractor’s business ethics awareness and compliance program and internal control system, by conducting effective training programs and otherwise disseminating information appropriate to an individual’s respective roles and responsibilities.”[139] Furthermore, “training conducted under [the] program shall be provided to the contractor’s principals and employees, and as appropriate, the Contractor’s agents and subcontractors.”[140]

The second mandate is that each applicable contractor must, within 90 days of contract award, establish an internal control system.[141] Generally, the internal control system must “[e]stablish standards and procedures to facilitate timely discovery of improper conduct in connection with Government contracts; and [e]nsure corrective measures are promptly instituted and carried out.”[142] Specifically, the contractor must plan to:

(1) Assign adequate, high-level resources to effectively implement the business ethics awareness and compliance program and internal control system;

(2) Make reasonable efforts to avoid appointment as principal any person whose conduct conflicts with the code of business ethics and conduct;

(3) Periodically review “company business practices, procedures, policies, and internal controls” to verify compliance with the code of business ethics and conduct;

(4) Develop an anonymous reporting system that allows employees to report suspected “improper conduct” under a veil of confidentiality;

(5) Impose disciplinary action against employees who act improperly or fail to reasonably prevent improper behavior;

(6) Disclose “credible evidence” of certain violations of criminal and civil law to the government (see “Self-Disclosure” below);

(7) Cooperate fully with the government in audits and investigations.[143]

While these details are helpful to the government contracting community, the true significance and meaning of each will likely develop further as experience with these new requirements expands.

3. Self-Disclosure

Federal Government contractors are required to “conduct themselves with the highest degree of integrity and honesty.”[144] While the concept is not new, the method of ensuring that contractors comply with that requirement is a dramatic departure from prior regulations. Under the 2008 regulations, all Government contractors are obligated to:

[T]imely disclose to the Government, in connection with the award, performance, or closeout of [a] contract or a subcontract thereunder, credible evidence of:

(A) Violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code;

(B) Violation of the civil False Claims Act; or

(C) Significant overpayment(s) on [a] contract, other than overpayments resulting from contract financing payments as defined in 32.001.[145]

Self-reporting is required of all contractors, regardless of size, experience, or type of contract. The Government may punish a contractor with suspension or debarment for failure to self-disclose any of the listed violations.[146]

While the Government has broad authority to suspend or debar a contractor in order to protect the public interest,[147] the existence of a cause for suspension or debarment “does not necessarily require that the contractor be” suspended or debarred.[148] When making a decision to suspend or debar a contractor, a suspending or debarring official may consider, among other factors, whether the contractor had good internal policies and controls in place, whether the contractor fully investigated suspect events on its own, and whether the contractor cooperated with Government investigations. Therefore, today’s contractors are placed in the difficult position of finding the appropriate level of investigation and self-reporting under a law that has yet to be fully developed by the courts.

4. Issues in Self-Disclosure and Compliance

a. The Small Business and Commercial Item Exemptions

The new regulations purport to exempt small business and contractors providing commercial items from mandatory compliance. Unfortunately, these “exemptions” may be somewhat illusory. While small businesses and contractors providing commercial items are exempt from developing an ongoing business ethics awareness and compliance program and an internal control system,[149] they still face punishment including suspension or debarment for failure to self-disclose,[150] and they still must develop a written code of business ethics and conduct.[151]

Furthermore, if an investigation of the contractor uncovers violations of applicable federal law or the civil False Claims Act, the Government will consider the lack of an ongoing business ethics awareness and compliance program and an internal control system when developing sanctions against the contractor.[152] This creates a conundrum for the small business in deciding whether to incur the substantial cost of implementing a compliance program. This decision should be carefully considered in light of the circumstances for each small business.

b. What is Credible Evidence?

All contractors are subject to suspension or debarment for “knowing failure by a principal to timely disclose . . . credible evidence” of various violations of the law or significant overpayments.[153] The “Contractor Code of Business Ethics and Conduct” clause included in most government contracts also requires contractors to disclose the same “credible evidence” of legal violations or significant overpayments as a minimum requirement of a contractor’s internal control system.[154] Unfortunately, the phrase “credible evidence” is not defined in the regulation or the contract clause.

The Councils’ minimal guidance in the Final Rule indicates that “credible evidence” is more than simple “reasonable grounds to believe.”[155] The Final Rule notes that the term “impl[ies] that the contractor will have the opportunity to take some time for preliminary examination of the evidence to determine its credibility before deciding to disclose to the Government.”[156] Again, judicial interpretation is needed to define what constitutes “credible evidence.”

c. Attorney-Client Privilege and Work Product

The mandatory disclosure by contractors of “credible evidence of a violation of Federal criminal law”[157] and the required full cooperation with Government investigators raise attorney-client privilege issues. When presented with a potential but unverified violation, a contractor will undoubtedly consult an attorney in order to determine the validity and impact of the allegation. The new mandatory disclosure requirements raise the specter of conflict with the attorney-client privilege.

The Councils’ claims that mandatory disclosure “[d]oes not foreclose any Contractor rights arising in law,” or require a contractor to “waive attorney-client privilege or the protections afforded by the attorney work product doctrine.”[158] But what does this really mean? Unfortunately, the regulation is not clear. While “[f]acts are never protected by the attorney-client privilege or work product doctrine,”[159] a contractor may have difficulty determining where the line is drawn. The contractor may suffer serious consequences in the event of either under-reporting violations or over-disclosure of what would otherwise be privileged information.

B. The False Claims Act

The Government has a large arsenal for combating contractor fraud.[160] One of the most powerful weapons is the False Claims Act (“FCA”), which has both criminal and civil penalties.[161] The FCA was enacted during the Civil War at the behest of President Lincoln in response to the rise of dishonest business dealings with the U.S. Government.[162]

The FCA punishes contractors when they improperly receive, request payment from, or seek to avoid making required payments to the Government. The most common violations of the FCA occur when a contractor presents or causes to be presented to the Government a false claim for payment or makes a false record or statement to get a claim paid or approved by the Government.[163] Most FCA cases involve a contractor overcharging the Government for goods or services.

1. Criminal Liability under the FCA

Under the FCA, presentation of a false, fictitious, or fraudulent claim to the Government can result in both a fine and imprisonment of up to five years.[164] Fines may be as high as $250,000 for a felony conviction that does not involve fraud against the DOD or up to $1 million for a false claim related to a contract with the DOD. Because prison sentences and fines are assessed per violation, a contractor can face substantial fines and the possibility of lengthy imprisonment if the contractor makes multiple false submittals.[165]

In order for a contractor to be convicted of violating the criminal FCA, the prosecution must prove three essential elements for each offense: (1) the contractor presented a claim to the Government; (2) the claim was false, fictitious, or fraudulent; and (3) the contractor knew the claim was false, fictitious, or fraudulent and had specific intent to defraud.[166] The FCA’s definition of a “claim” was recently amended and now includes “any request or demand, whether under a contract or otherwise, for money or property . . . that is presented to an officer, employee, or agent of the United States or is made to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government’s behalf or to advance a Government program or interest.”[167]

Because the criminal FCA statute requires that a submitted claim be either false, fraudulent, or fictitious, it is not necessary for a claim to “be fraudulent so long as it is false or fictitious.”[168] When examining allegations of FCA violations, courts have found exaggerated charges, which are characterized by the contractor as estimates, to be false for purposes of the FCA.[169] Since the Government has increased scrutiny on these types of claims, intentionally vague estimates could subject the contractor to criminal liability.

2. Civil Liability under the FCA

The FCA also has civil penalties for submission of false or fraudulent claims. Under the Civil FCA statute, a contractor can be liable if it is shown that the contractor either: (1) knowingly presented or caused to be presented a false claim for payment related to a Government project; (2) knowingly made a false record for payment related to a Government project; (3) conspired to defraud the Government by getting a false or fraudulent claim allowed or paid; or (4) knowingly made use or caused to be made or used a false record to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.[170] Unlike the Criminal FCA, the civil statute does not require a specific intent to defraud the Government.[171]

An important consideration for all Government contractors is that under the general rules of agency law, an employer can be liable for the acts of its employee when its employee acts with apparent authority, even if the employee acts solely for self-benefit.[172] Similarly, in FCA cases, an employer may be vicariously liable for the fraudulent actions of its employee. If it is determined that the employee acted with apparent authority of the contractor then the courts will likely place liability on the unsuspecting contractor.[173]

One prominent characteristic of the Civil FCA is its qui tam[174] provision, which allows private citizens to bring a suit against a contractor on behalf of the U.S. Government.[175] Any individual may bring a civil action under the FCA. The individual is often termed the “whistleblower” or “qui tam relator” and the Department of Justice is authorized to pay the qui tam relator a percentage of the money recovered based upon the information provided. Currently, in order to bring a qui tam suit against a contractor, the relator must possess “direct and independent knowledge of the information on which allegations are based,”[176] but this requirement may soon become less stringent, as discussed below.

3. Recent Changes and Pending Changes to the FCA

The political popularity of pursuing fraud, waste and abuse has allowed Congress to broaden the FCA and override attempts by the Courts to limit the FCA.^{^[177]} The most notable limit on the FCA came in the Supreme Court’s decision in the Allison Engine Co., Inc. v. United States ex rel. Sanders case.[178] In a unanimous opinion, the Court applied a plain language construction to §§3729(a)(2) and (a)(3) of the Civil FCA and ruled that liability was limited to fraudulent statements that were designed “to get” false claims paid or approved “by the Government.” The Court’s decision in Allison Engine was viewed as a favorable outcome for subcontractors because it required evidence that a subcontractor defendant knew that a prime contractor would submit its false claim to the Government for payment. Without direct presentment of the claim to the Government, there would be no false claim liability for the subcontractor.

Congress responded with the passage of the Fraud Enforcement and Recover Act of 2009 (“FERA”) effectively overruling the Supreme Court’s unanimous decision in Allison Engine. The stated goal of this legislation was to “improve enforcement” of anti-fraud laws related to “federal assistance and relief programs” and to facilitate the recovery of federal funds lost to fraud. Under the FERA, the key liability sections of the FCA remain the provisions addressing false claims, false statements supporting false claims, conspiracy, and the reverse false claims and obligation provisions. FERA removed both the “to get” language and the “by the Government” limitation from the previous section 3729(a)(2), as well as comparable language in sections 3729(a)(3) and (a)(7). This change supersedes the Supreme Court’s interpretation in Allison Engine.

Due to the FERA changes, subcontractors must be more cautious when submitting claims to Government prime contractors. The Court in Allison Engine had noted that without a clear link between a false claim and payment or approval by the government, the FCA would be “boundless” and become an “all-purpose antifraud statute.”[179] Now that FERA has added a new definition of “claim,” FCA liability will be limited only by requiring some nexus to the Government. The FCA now covers requests for funds to a contractor, grantee, or other recipient, if the money or property requested “is to be spent or used on the Government’s behalf or to advance a Government program or interest.” The legislation does not define the key terms “used on the Government’s behalf” or “to advance a Government program or interest,” and courts will have to decide the meaning of these phrases on a case-by-case basis. While there have been no cases yet applying the shift from Allison Engine to the FERA, there can be little doubt about the increased scrutiny that will now be applied to subcontractor claims.

Another change to the FCA implemented by FERA involved the expansion of whistleblower protections. In its original form, the FCA protections for whistleblowers only covered employees of the targeted company.[180] Under FERA, the protections have been extended to agents and contract-hires.[181] Thus, FERA expands both the types of submissions that are covered and the pool of people who are likely to bring qui tam actions given the new whistleblower protections.

The FCA is continually changing with new proposed amendments to the law on the way. The False Claims Act Clarifications Act of 2009 (“Clarifications Act”),[182] which was introduced February 24, 2009, proposed complete removal of the Public Disclosure bar and essentially allow relators to bring suit on behalf of the government based on public records and information, rather than independent firsthand knowledge. This further change in the qui tam requirement would likely to attract plaintiff’s lawyers to join the expanded “hunting season” against private contractors and will reverse much of the current FCA case law. [183] The lure of potential financial gain, accompanied by elimination of a substantial obstacle to bringing claims, will likely cause a substantial increase in qui tam suits against contractors.

C. Kickbacks and Bribery

There are statutes beyond the criminal and civil FCA that may influence procurement fraud investigations and contractor liability. Commercial bribery, in the form of kickbacks, is a growing area of Government enforcement. Practices that may be common place within the commercial construction world are forbidden in the government contract world. To avoid potential liability, contractors must exercise great caution in both giving gifts to Government officials and receiving gifts from subcontractors and suppliers.[184]

In 1986, Congress passed the Anti-Kickback Act (“AKA”), in order to combat “kickbacks” or commercial bribes, paid by subcontractors, vendors, and suppliers to prime contractors, other subcontractors, or their representatives in return for favorable contractual treatment.[185] AKA has fostered the vigorous criminal and civil policing of both prime and subcontractors.

The AKA expressly prohibits any individual or business entity from: (1) providing, attempting to provide, or offering to provide any kickback; (2) soliciting, accepting, or attempting to accept any kickback; (3) including the amount of any prohibited kickback in the price charged by a subcontractor to a prime contractor or higher-tier subcontractor, or in the price charged by the prime contractor to the Government. [186] Violations of the AKA can be the basis for a qui tam action brought by a whistleblower under the FCA.[187]

The term “kickback” is defined as “any money, fee, commission, credit, gift, gratuity, thing of value, or compensation of any kind which is provided, directly or indirectly,” to any prime or subcontractor or their employees “for the purpose of improperly obtaining or rewarding favorable treatment in connection with a prime contract or in connection with a subcontract relating to a prime contract.”[188]

The AKA, which is implemented in FAR 3.502, places obligations on contractors to have internal procedures to detect and prevent kickbacks and to report, in writing, suspected violations of kickback laws to the Government.[189] “Knowing and willful” violations of the AKA are criminal offenses that carry penalties of substantial fines and up to 10 years’ imprisonment.[190] There are also potential civil penalties that can be equal to twice the amount of each kickback involved in the violation and up to $10,000 for each occurrence of prohibited conduct.[191]

In addition to the AKA, other federal statutes such as 18 U.S.C. § 201 impose criminal penalties for bribery of public officials. This statute prohibits any form of gift giving to a Government agent aimed at influencing a decision or winning favor.[192] Although it may be industry practice in commercial construction for companies to present one another with gifts and other gratuities as a method of maintaining business relationships, this practice is strictly prohibited in the Government realm.

Recently, the Eighth Circuit Court of Appeals upheld a gratuities conviction based on allegations that the defendant, a vice president of a government contractor, had given a Government employee a set of golf clubs for or because of that Government employee’s role in rating the contractor’s performance under a contract with the U.S. Army Corps of Engineers.[193] Although the defendant claimed that he only meant to “treat a friend” when he presented the Government employee with the golf clubs and golf outings, the court held that he had violated federal law and affirmed his jury conviction. In addition to being barred from employment by any firm that contracts with the federal Government, the defendant was sentenced to three years of probation and received a $5,000 fine.

D. Defective Pricing and TINA

In 1962, Congress passed the Truth in Negotiations Act (“TINA”) to combat defective pricing in non-competitive procurements.[194] TINA, as amended, along with the FAR subpart 15.4 requires prime contractors and subcontractors in certain circumstances to submit cost or pricing data to the Government and to certify that, to the best of their knowledge and belief, the data submitted is current, accurate and complete.[195] Essentially, the contractor must “show its hand” to the Government by revealing its cost structure. The heightened level of disclosure has a significant impact on Government contractors in one-on-one negotiations with the Government. TINA claims, or at least the threat of TINA claims, have become common practice in negotiations where there is no competition. The threat is a real one as the submission of inaccurate, incomplete, or non-current data can result in contractual, civil, and even possible criminal liability.[196]

At first blush, TINA may appear to have limited relevance to federal construction work, as most construction contracts are competitively bid. However, TINA applies to: (1) any non-competitive negotiated contract expected to exceed $650,000; (2) any modification of a negotiated or sealed-bid contract involving a price adjustment exceeding $650,000; (3) the award of a subcontract exceeding $650,000 if the prime contractor and each higher-tier subcontractor are required to submit cost or pricing data; and (4) a modification of a subcontract involving a price adjustment exceeding $650,000.[197] The second case above, a modification exceeding $650,000, is a relatively common occurrence on large federal construction projects. Thus, even if the construction contractor is not obligated to provide cost or pricing data in support of its initial bid because it was competitively bid, that contractor still needs to have the systems in place to respond to the Government with appropriate cost or pricing data for large change orders.

Deciding what information must be provided often presents a challenge for contractors. TINA provides a very general definition of “cost or pricing data” as:

[A]ll facts that . . . a prudent buyer or seller would reasonably expect to affect price negotiations significantly. Such term does not include information that is judgmental, but does include the factual information from which a judgment was derived.[198]

Based on this definition, the contractor must disclose all the facts that formed its proposed price so that the agency is assured of the price reasonableness. Typically, cost or pricing data consists of direct labor costs, material costs, overhead costs, and other factors that play a role in the total price. If the work is fully completed, this requirement may not present an insurmountable obstacle for the construction contractor. However, TINA also applies to cost estimates or projections. When a contractor is submitting a proposal based on cost estimates or projections, it must also submit the factual data surrounding those estimates.[199] Thus, the construction contractor would be obligated to disclose any contingencies or risk factors included in its proposal for work not yet performed. Failure to submit the proper factual data can render the proposal incomplete or inaccurate for price reasonableness purposes. This can become a potential problem in construction contracts where it is industry practice to estimate material and labor costs.

Determining whether TINA applies to a contract modification can be a difficult task. TINA applies to the total price adjustment of any contract, whether the adjustment is an increase, decrease or both, regardless of whether the contract was initially negotiated or competitive. For example, if a contract modification seeks an increase of $500,000, and a related scope reduction of $400,000, the total adjustment would still be TINA applicable because the combined increase and decrease exceed the $650,000 threshold. As such, the contractor would still be required to submit cost or pricing data, even if such data was not required at the initial contract award.[200]

There are instances where the standard rules described above for applying TINA are not applicable. For example, the CO can require cost or pricing data in cases not meeting the thresholds above if the data is needed to determine price reasonableness.[201] On the other hand, there are exceptions and waivers to the applicability of TINA. If the contract or contract modification is based on adequate price competition or the prices have been set by law or regulation, TINA may not apply.[202] The same is true for the procurement of commercial items as defined by the Office of Federal Procurement Policy Act.[203] In certain cases, the head of an agency (no delegation permitted) may waive cost or pricing data requirements in writing, but this is permitted only in exceptional circumstances.[204] These exceptions are of limited practical use in most federal construction contracts.

Failure to comply with TINA requirements is called “defective pricing.” The FAR clause titled Price Reduction for Defective Cost or Pricing Data states that if “any price, including profit or fee . . . was increased by any significant amount” because the contractor or subcontractor submitted data “that were not complete, accurate, and current as certified,” the contract’s “price or cost shall be reduced accordingly.”[205] In such a situation, the Government will compare the submitted cost or pricing data with the data that should have been presented, had the contractor complied with TINA, and the difference establishes the contractor’s liability. The Government is also entitled to “recovery of any over-payment plus interest on the overpayments.”[206] If contractors or subcontractors knowingly or intentionally submit defective pricing data, they may be liable for civil and criminal penalties, including fines, imprisonment, suspension, and debarment.[207] Government contractors can be charged with defective pricing violations in instances where proposed costs are overstated significantly or where small costing errors are compounded by large quantities. A construction contractor that is ill prepared can face substantial aggregated violations for seemingly miniscule oversights.

E. The American Recovery and Reinvestment Act

As discussed above in Section I, the ARRA took effect on February 17, 2009. The purpose behind the Act is to preserve and create jobs, aid in economic recovery, and invest in long-term transportation and infrastructure.[208] The ARRA includes $575 billion in federal spending. Allocations include $27 billion for highways, $8 billion for high-speed rail service, $13 billion for repair, revitalization and construction of non-DOD federal buildings, $15+ billion for water and environmental projects overseen by the Department of Energy and the Environmental Protection Agency, and $31 billion for energy-related projects, including electrical grid projects. The specific projects can be identified through www.recovery.gov or through www.FedBizOpps.gov.

Rooted in the Depression-era work programs, the concept behind the ARRA acknowledges that the construction industry can serve as an engine to drive the economy back to good health. The construction industry was dramatically impacted by the credit crisis, and new federal money will help soften that blow. A federal construction boom will undoubtedly create/save jobs, and the work performed will serve as a much needed boost to the crumbling U.S. infrastructure.

As with most federal programs, the “good news” for the construction industry is tempered with some potential headaches in contract administration. Highlighted below are two issues that arise specifically with projects funded with ARRA money: (1) changes to Buy American requirements for construction; and (2) additional transparency and reporting requirements associated with ARRA. The Buy American requirements are intended to positively impact American companies’ bottom lines by ensuring as much money as possible is spent inside the United States. And the huge amount of money involved and the concerns about waste and abuse prompted what has been referred to as an “unprecedented level of transparency and accountability.”[209] In order to achieve this level of transparency and accountability, contractors are required to comply with new public contract data reporting mandates.

1. ARRA-Specific Buy American Provisions for Construction

In an effort to maximize the domestic economic impact of the money spent under the ARRA, Congress added provisions that alter what are the already existing Buy American Act requirements for federal contracting. These existing requirements, discussed in Section V above, could have been easily applied to projects involving ARRA money. Instead, Buy American requirements were tweaked under the ARRA with the only apparent result of creating confusion.

For any project funded in any part with ARRA money, contractors may only use iron, steel, and manufactured goods that were produced in the United States.[210] In order to be “produced” in the United States, all manufacturing processes must take place in the United States.[211] Unmanufactured construction materials continue to be governed by the existing Buy American Act.

While the concept sounds simple and the political advantages are obvious, the application of the new requirements creates some potential headaches for contractors. The original Buy American Act[212] has a set of standards for what products must be purchased within the U.S. under what circumstances. The Federal Transit Administration (“FTA”) Buy American provisions[213] create a separate scheme for highway and mass transit projects funded by the FTA. And with Section 1605 of the ARRA, Congress inexplicably created yet another set of Buy American rules.

a. Application of ARRA’s Buy American Rules

Agencies may deviate from the ARRA’s Buy American provisions in limited circumstances. First, the government may allow a contractor to incorporate foreign materials if the desired construction materials are not available from U.S. sources in sufficient quantities to fulfill agency requirements on that particular construction project.[214] While this is not a commonly used exception for construction projects, it is available to contractors who can make the appropriate showing. As with many other regulations, the Government may also exempt a contract from compliance with the new ARRA Buy American provisions if such restrictions would be inconsistent with the public interest.[215]

Also, in a tip of the hat to concerns about protectionism, Congress made the ARRA’s additional Buy American provisions subject to international trade agreements.[216] Generally, if the overall value of a project exceeds $7,443,000, then covered products can be purchased from many of the countries with which the U.S. has a trade agreement. [217] Exceptions to that rule include Mexico. No purchase of goods from Mexico is permitted unless the overall project value exceeds $8.817 million.[218]

Buy American restrictions can also be waived if the price of domestic iron, steel, or manufactured goods “would increase the overall offered price of the contract by more than 25 percent.”[219] In this case, the contractor must request a waiver of the Buy American requirements. However, even though the contractor may be relieved from using American products, its bid will be adjusted to reflect the use of foreign goods in order to level the competition with other bidders who used domestic goods. Specifically, competitors’ prices (assuming the competitor used American goods) are to be compared based on a 25% evaluation factor “applied to the total offered price of the contract, if foreign iron, steel, or other manufactured goods are incorporated in the offer.”[220]

In the case of unmanufactured materials,[221] they will be deemed unreasonably priced if “the cost of the domestic unmanufactured construction material exceeds the cost of the foreign unmanufactured construction material by more than 6 percent.”[222] Again, the contractor must request a waiver. If granted, a similar bid adjustment is made, namely, the competitors’ prices are to be compared based on a 6% evaluation factor “applied to the cost of foreign unmanufactured construction material incorporated in the offer.”[223]

If a waiver of the Buy American requirements has not been granted prior to the time for submitting bids, the CO may reject the bid. To safeguard against this, when the waiver is not yet received, the contractor should submit two bids/proposals – one with foreign materials and one without.

If it sounds complicated that, is because it is – probably unnecessarily so. These Buy American provisions can be a trap for the unwary contractor.

b. Non-Compliance During Performance

Contractors who are awarded ARRA construction contracts must make sure that they execute the contract in accordance with the additional ARRA Buy American rules. The consequences of violating the rules include the Government’s rightful demand to remove and replace non-compliant materials, price reductions, termination for default, suspension, or debarment.[224] Additionally, if the Government suspects fraud, the matter will be referred to an agency-specific criminal investigation unit.[225]

2. Transparency and Public Disclosure

The ARRA also burdens contractors with reporting requirements in order “[t]o maximize transparency of Recovery Act funds.”[226] These new reports will be made available to the public.[227] Contractors must report quarterly by submitting contract award and progress details (discussed below) to an online reporting tool at www.federalreporting.gov.[228] These reporting requirements apply to contracts awarded wholly or partially with ARRA dollars.

The first round of submissions to the Government was recently postponed until October 10, 2009 [229] Because the Government reporting mechanisms were not going to be in place in time for the original deadline. When the reporting commences, contractors must report three categories of information. First, contractors must report basic project description, progress data, and invoicing information.[230] Basic information consists of contract number and project title. Contractors must also detail the overall purpose of the contract effort, and describe the expected end product.[231] When significant progress has been made during the reporting period, the contractor must also note the nature of that progress.[232] If the contractor submits an invoice to the Government during the reporting quarter, the contractor must also detail the amount of ARRA dollars invoiced.[233] Even though this is all information readily available to the Government from typical project invoicing, the contractor is obligated to ensure that the reporting is done. In most instances, the reporting can be done without significant additional burden on the contractor.

The second category of information that contractors must report is the project’s impact on employment. This information must be reported in narrative form, describing the employment impact of work performed.[234] At a minimum, the narrative must include both a description of the types of jobs created by the contractual effort, and the types of jobs retained by the expenditure of ARRA funds.[235] The FAR suggests that contractors present this data by job titles and labor categories, but any other method commonly used by contractors may be used as long as the information is widely understood.[236] Contractors must also report the number of jobs created and retained, in a similar manner.[237] It remains to be seen what type of scrutiny this information will receive. Contractors are not generally in the business of making economic impact predictions; so this requirement (depending on the nature of the practical enforcement) may create some additional burden for the contractors.

Finally, many contractors will be required to report compensation information about their five most highly paid officers. Contractors must report the name and total compensation of these individuals for the calendar year if (1) the contractor receives at least 80% of its annual gross revenue from federal contracts, subcontracts, loans, grants, sub-grants, or cooperative agreements; and (2) the contractor receives at least $25,000,000 in annual gross revenue from federal contracts, subcontracts, loans, grants, sub-grants, and cooperative agreements. This reporting requirement is waived if the information is already publically available from SEC or IRS disclosure statements.[238] Under certain circumstances, prime contractors must submit similar information about their subcontractors.[239] This requirement has drawn extensive criticism from many in the contracting community.[240] In a practical sense, medium or large privately-held companies working primarily on government work will be most affected by the new requirement, as most other companies either are already obligated to provide such detailed information or will be exempt from doing so. Again, until the initial filings are provided in October, much remains to be seen about the application and enforcement of this requirement.

If a contractor fails to properly report this mandatory data, the CO is authorized to “exercise appropriate contractual remedies.”[241] The regulation does not elaborate on what those remedies might be, but it does state that a failure by the contractor to comply must be noted by the CO in the contractor’s performance evaluation.[242]

3. Conclusion

ARRA funded projects will inject billions of dollars into the economy. But even the most experienced Government contractor must be cautious when bidding on or accepting work under an ARRA project. New and unfamiliar Buy American provisions and a new level of public scrutiny through mandatory reporting will complicate contract administration for all contractors. As for those just entering the Government contracting arena, ARRA is yet another layer of regulation with which one must become familiar.

VII. DISPUTES IN FEDERAL GOVERNMENT CONTRACTING

In addition to the unique aspects of bidding and administering federal contracts discussed above, the dispute resolution process in federal contracting also differs substantially from the commercial world. The Contract Disputes Act (“CDA”)[243] governs the resolution of many Government contract disputes, giving jurisdiction of the disputes to either the appropriate agency board of contract appeals or the U.S. Court of Federal Claims. Among other things, the CDA grants broad authority to agency COs to settle disputes with the contractor. The CDA includes procedural rules for claims such as time limitations for the CO to address the contractor’s claim and the time period a contractor has to file an appeal. Additionally, subcontractors have a set of remedies for contract disputes relating to government procurements.

A. Prime Contractor Disputes with the Government

When a prime contractor has a contract dispute with the Government, the initial phase of the dispute process begins with the contractor submitting a claim to the agency CO. The CDA requires that a claim “be in writing” and that all claims exceeding $100,000 include a certification.[244] The contractor must certify that: (1) the claim is made in good faith, (2) the claim’s supporting data are accurate and complete to the best of its knowledge and belief, and (3) the amount requested is an accurate tally of the amount for which the contractor believes the Government is liable.[245] The certification requirement is intended to discourage contractors from submitting inflated claims,[246] though the FCA, TINA, and other weapons in the Government arsenal provide a similar disincentive. The claim must also be for sum certain, meaning the claim must request a specific dollar amount for the alleged damage, and the claim must specifically request a final decision from the CO.[247]

Upon receipt of a claim, the CO must investigate the claim and render a final decision within 60 days. The FAR authorizes COs “to decide or resolve all claims arising under or relating to a contract subject to the CDA.”[248] The Government’s goal is “to try to resolve all contractual issues in controversy by mutual agreement at the Contracting Officer’s level.”[249] Importantly, a contractor’s initial request for relief is not considered a formal “claim” until the contractor complies with the specific requirements of the CDA set forth above. If the submission is not deemed a “claim” by the CO, the CO’s obligations for moving forward with the process described below will not be triggered and the contractor will not be entitled to a remedy.

At the outset, alternative disputes resolution (“ADR”) is the preferred method of claim disposal for the Government and contractors must provide a written explanation if they reject a Government offer of ADR.[250] While there is no empirical data to prove it, experience indicates that the ADR process is less often effective in the federal context as compared to private construction cases. Since the ADR process is typically predicated on the parties meeting in the middle, contractors in private projects may be tempted to inflate the damages claimed and the owner often assumes that that contractor has done so. However, as noted above, there are significant penalties associated with the contractor submitting false claims or defective pricing data in the federal context. There is no corresponding restriction on the Government’s ability to take harsh or unrealistic positions as to what portion of the claim it deems recoverable. As such, the “meet in the middle” approach to ADR is handcuffed somewhat by the dynamics of the federal claim process. Moreover, the lack of personal financial risk from Government decision-makers also inhibits opportunities for settlement through ADR in federal construction cases.

If ADR is not effective in resolving the dispute between the contractor and the agency, the CO must render a final decision within 60 days.[251] If the CO fails to render a final decision within 60 days without notice of delay, it is deemed a denial of the claim and the contractor can pursue its appeals rights.[252]

Contractors under the CDA have a choice of forum for challenging an adverse CO decision by either appealing to the appropriate agency board of contract appeals or filing suit in the U.S. Court of Federal Claims. Neither forum allows for the contractor to demand a jury trial. Beyond that, the differences between the two forums are significant. Everything from the time requirement for filing (the appeal to the Board must be made within 90 days of the CO’s final decision, while the period for the Court of Federal Claims is one year),[253] to the evidentiary rules, to the judicial body, differs in the two forums. There are, of course, advantages and disadvantages to each forum, which typically makes selection of the proper forum dependent upon the specifics of the case. Additionally, regardless of which forum a contractor chooses, the contractor may appeal an unfavorable decision to the United States Court of Appeals for the Federal Circuit. Further yet, the contractor and the Government can petition for a discretionary review in the U.S. Supreme Court (although few writs of certiorari in construction cases have ever been granted).

B. Subcontractor Disputes

For subcontractors involved in government construction projects, two main types of disputes give rise to claims. The first is a dispute arising out of the actions of the government agency in which case the prime contractor will “pass-through” the claim to the Government on the subcontractor’s behalf. The second type of claim is a claim directly between the subcontractor and the prime contractor having nothing to do with the actions of the Government. In the second type, the subcontractor and the prime contractor follow the standard judicial process or otherwise agreed upon conflict resolution channel for contract disputes. The CDA plays no role in such disputes.

Because a subcontractor lacks privity of contract with the Government, it generally cannot bring a direct suit against the Government, even though the Government’s actions or inactions may be the direct cause of the claim.[254] The FAR prohibits the CO from giving approval to any subcontract clause that purports to give a subcontractor the right to obtain a direct decision of the CO on a claim against the Government or the right to direct appeal to a board of contract appeals.[255] Furthermore, the Court of Federal Claims lacks jurisdiction over a subcontractor’s breach actions against the prime contractor.

While a subcontractor cannot obtain relief directly from the Government, it can do so indirectly. A prime contractor can sponsor its subcontractor’s claim for Government-generated disputes by submitting them to the CO on behalf of the subcontractor. The prime contractor must still execute any required certifications under the CDA as discussed above (i.e., claims exceeding $100,000, sum certain, etc.).[256] It is also common for a prime contractor to allow the subcontractor to use its name in bringing a claim against the Government. In this instance, the standard CDA claim procedures discussed above would apply. Although the remedy sought would be for the subcontractor, the dispute would be between the prime contractor and the Government.[257]

C. Subcontractor and Supplier Disputes under the Miller Act

Since Government property is not subject to the traditional mechanic’s liens, another mechanism is needed to protect lower-tier contractors from non-payment. The Miller Act (discussed in Section V above) provides that same protection by requiring government contractors to get payment bonds for the benefit of lower-tier contractors on the project. The Miller Act protects subcontractors and suppliers who have direct contracts with a government prime contractor (first-tier claimants) and subcontractors and material suppliers who have contracts with a subcontractor (second-tier claimants). However, those subcontractors and suppliers further down the contract chain are not eligible to bring claims under the Miller Act because the connection is considered too remote.

Under the Miller Act, suppliers of labor or materials who contracted expressly or impliedly [258] with the prime contractor or directly with a first-tier subcontractor may recover from the surety as claimants.[259] To prevail under a Miller Act claim, the first or second-tier claimant must prove that: (1) it supplied material or labor in prosecution of work provided for in the prime contract; (2) it has not received payment; (3) it has a good faith belief that the materials were intended for the work specified; and (4) it satisfied the requirements of timely notice and filing required by the Miller Act.[260]

While the Miller Act does not specifically define the term “labor,” federal case law provides guidance, specifying that labor includes any solicited professional or skilled services rendered at the job-site.[261] Labor that is supplied on the job-site after the completion of the project, to correct defects in the completed work, does not qualify as labor under the Miller Act.[262]

Suppliers of materials on qualifying federal projects [263] must prove that they provided materials to a government contractor in prosecution of the work and that the material supplied was in accordance with the terms of the prime contract.[264] Second-tier suppliers of materials to materialmen who then provide such material to the prime contractor are not entitled to recover under the payment bond.[265] The courts typically utilize a balancing test to determine whether a claimant is a subcontractor or materialmen.[266]

Claimants with a direct contractual relationship with the prime contractor are not required to provide notice of their lien rights. However, labor or material suppliers who are not in privity with the prime contractor, but are in privity with a subcontractor, must provide written notice to the bonded prime contractor within 90-days from the date they last supplied labor or materials on the government project.[267] Simply mailing the notice to the bonded contractor within 90 days does not satisfy the requirement of the Miller Act.[268] Instead, the bonded contractor must receive the notice within the 90-day time frame.[269]

Additionally, the Miller Act provides that a claimant must file suit under the payment bond no later than one year from the date the claimant last performed labor or supplied material on the project.[270] If a claimant has multiple contracts for the same project, the claimant is permitted to bring one suit under the payment bond that encompasses the multiple contracts.[271] If the claimant is only bringing suit under a single contact, but holds multiple contracts on the same project, it does not matter which contract the claimant last performed. Regardless of the contract the claimant performed, the statute of limitations begins on the day after the claimant last performed labor or supplied materials on the project. The statute of limitations period will begin to run, however, even if insubstantial contract requirements are not yet complete.[272]

Claimants must bring all Miller Act suits in federal district court in the name of the United States for the use of the claimant party. The subcontractor can waive the venue provision of the Miller Act if the subcontract contains a valid forum selection clause or an alternative dispute resolution clause.

^{^[1]} See Recovery.gov, http://www.recovery.gov/?=content/act.

[2] The DOD issued a preliminary 191 page report to Congress on March 20, 2009 that detailed how the DOD plans to spend its stimulus money. The report details how the money will be spent, breaking down each proposed project and provides a state by state summary of Stimulus Bill funded projects. The Preliminary report can be found at: http://www.defenselink.mil/recovery/plans_reports/2009/april/DoD_ARRA_First_Report_to_Congress-24_Mar_09.pdf. The DOD has subsequently released a final estimate of its Stimulus Funded Procurements. This Final report is located at http://www.defenselink.mil/recovery/plans_reports/2009/april/DoD_ARRA_Second_Report_to_Congress-28_Apr_09.pdf.

^{^[3]} For further explanation of the purpose behind the Recovery Act and some of the programs it provides, see Recovery.gov, http://www.recovery.gov/?q=content/our-mission.

[4] 10 U.S.C. §§ 2301-2314.

[5] 40 U.S.C. §§ 501-506; 41 U.S.C. §§ 251-260.

[6] 41 U.S.C. § 253.

^{^[7]} 312 F.2d 418 (Cl. Ct. 1963).

^{^[8]} See G.L. Christian & Assocs. v. United States, 160 Ct. Cl. 1, 312 F.2d 418, cert. denied, 375 U.S. 954 (1963).

^{^[9]}See id.

^{^[10]} See generally National Defense Industrial Association, A Study of the Applicability of FAR Clauses to Subcontracts Under Prime Defense and NASA Contracts (Jan. 2002).

^{^[11]}See G.L. Christian, 160 Ct. Cl. at 1. See supra Part II.C. for further discussion of the Christian Doctrine.

[12] FAR 52.249-10.

[13] FAR 52.222-23.

[14] FAR 52.22-26.

[15] FARR 52.222-27.

[16] FAR 52.222-35.

[17] FAR 52.249-36.

[18] 41 C.F.R. §§ 60-1.4(e), 60-4.9, 60-250.5(e) and 60- 741.5(e).

[19] FAR 52.243-4(a).

[20] FAR 52.243-4(b).

[21] FAR 52.243-4(d)-(e).

[22] FAR 52.242-14.

[23] FAR 52.242-14(a).

[24] AR 52.242-14(b).

[25] FAR 52.242-14(b).

[26] FAR 52.236-2. See also Olympus Corp. v. United States, 98 F.3d 1314, 1317 (Fed. Cir. 1996).

[27] FAR 52.236-2(a).

[28] FAR 52.236-2(a).

[29] FAR 52.249-2.

[30] FAR 52.249-10.

[31] See G.L. Christian, 160 Ct. Cl. at 1.

[32] See United States v. Johnson Controls, Inc., 713 F.2d 1541, 1556 (Fed. Cir. 1983).

[33] 41 U.S.C. §§ 601-613.

[34] Erickson Air Crane Co. of Wash., Inc. v. United States, 731 F.2d 810 (Fed. Cir. 1984).

[35] FAR 52.233-1.

[36] FAR 6.401(a).

[37] FAR 5.201.

[38] FAR 5.201.

[39] FAR 14.304-1 (b).

[40] FAR 14.301(a).

[41] FAR 14.408-2. See infra Part V for discussion of responsibility in awarding contracts.

[42] FAR 9.104-1 (internal cross-references omitted).

[43] FAR 14.201-8; FAR 14.408-1.

[44] FAR 14.408-1.

[45] FAR 14.408-1(c).

[46] FAR 14.408-1(c).

[47] FAR 15.304(c).

[48] Contracting officers often choose between the two types of contracts based on the economic circumstances surrounding the contract. For example, where the contract is for research and development or construction of a new item, the contractor assumes a lot of risk in creating something that has never been done before. If forced to use a fixed fee contract, the contractor would try and distribute some of that risk to the government by escalating its costs considerably. As a result, the government would only receive large bids. On the other hand, a cost-plus contract ensures the contractor that it will be reimbursed for its costs, thereby erasing the risks associated with a fixed fee contract. Without the risks inherent in a fixed fee contract on a new type of project, the contractor can submit a competitive bid for its fixed fee on top of the cost reimbursement contract. Thus, in certain situations, cost reimbursement contracts allow the government to procure new items while keeping its own costs and those of the contractor lower than if the parties were forced to use a fixed fee contract.

^{^[49]} Competitive negotiation can yield either a fixed-price or cost reimbursement contract, but while cost reimbursement contracts can only result from competitive negotiation, fixed fee contracts must result from sealed bidding. See supra Part IV.B. for further discussion of sealed and competitive bidding.

^{^[50]}Other cost-plus contracts include cost-plus-incentive-fee, cost-plus-award-fee. See FAR 16.405.

^{^[51]} FAR 19.201(a).

^{^[52]}FAR 19.508(c).

^{^[53]} FAR 19.502-2(a); FAR 19.506; FAR 19.507.

[54] See http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf. Different size thresholds exist for individual industries and sub-industries.

[55] FAR 19.502-2(a).

^{^[56]} FAR 19.502-2(b).

^{^[57]} 13 C.F.R. § 124.101.

^{^[58]}13 C.F.R. § 124.103.

^{^[59]} 13 C.F.R. § 124.104.

^{^[60]}15 U.S.C. § 657a, 13 C.F.R. § 126.

^{^[61]} 13 C.F.R. §§ 126.200(b), 126.207.

[62] 13 C.F.R. §§126.201, 126.202.

^{^[63]} 13 C.F.R. § 126.103.

^{^[64]}See http://map.sba.gov/hubzone/init.asp#address

^{^[65]}13 C.F.R. §§ 126.103, 126.207.

^{^[66]} 13 C.F.R. § 126.200(b).

[67] 13 C.F.R. §§ 126.300-126.309.

[68] 40 U.S.C. § 3131 (2002).

[69] Under ordinary circumstances, a supplier of labor or material on a construction contract could obtain a mechanic’s lien against an improved property. A mechanic’s lien, however, cannot attach to Government property. The Miller Act provides a remedy for the suppliers of labor or material who are unable to secure a mechanic’s lien against Government property. F. D. Rich Co., Inc., v. United States ex rel. Indus. Lumber Co., 417 U.S. 116, 122 (1974); Faerber Elec. Co., Inc., v. Atlanta Tri-Com, Inc., 795 F. Supp. 240, 243 (N.D. Ill. 1992).

[70] United States ex rel. Clark Concrete Constr. Corp. v. Jones Stewart, 195 F. Supp. 715, 718 (D. Co. Idaho 1961).

[71] Clifford F. MacEvoy Co. v. U.S., 322 U.S. 102, 107 (1944).

[72] United States ex rel. Naberhaus-Burke, Inc. v. Butt & Head, Inc., 553 F.Supp 1155, 1160 (S.D. Ohio 1982) (finding that claimants that provide professional or skilled services can only recover the amount of its contract that constituted on-site services). See also American Surety Co. of New York v. United States ex rel. Barrow-Agree Labs., Inc., 76 F.2d 67, 68 (5th Cir. 1935) (distinguishing architects and other skilled men that superintend work from other professional services).

[73] ER.B. Lumber Co. v. Gregory Indus., Ltd., 769 F. Supp. 221, 224 (E.D. Mich. 1991).

[74] See Clifford F. MacEvoy Co., 322 U.S. at 111 (relying on numerous references to the distinction between laborers, materialmen, and suppliers before the Miller Act was adopted.).

[75] See United States ex rel. Conveyor Rental & Sales Co., v. Aetna Casualty & Surety Co., 981 F.2d 448, 450-51 (9th Cir. 1992) (listing thirteen factors that weigh in favor of a subcontractor relationship and five factors that weigh in favor of a materialmen relationship.).

[76] 40 U.S.C. § 3131(b)(1).

[77] 40 U.S.C. § 3134. Performance bond requirements may also be waived by the CO for contracts performed in a foreign country where the CO finds it impracticable for the contractor to furnish a bond. 40 U.S.C. § 3131(d).

[78] FAR 28.102-2(b)(1)(i).

[79] FAR 28.102-2(b)(1)(ii).

[80] Thomas J. Vollbrecht & Jacqueline Lewis, The Law of Performance Bonds, 5 (Lawrence R. Moelmann et al., eds., 2nd ed. 2009).

[81] But see U.S. ex rel. Blount Fabricators, inc. v. Pitt General Contractors, Inc., 769 F. Supp. 1016, 1019 (E.D. Tenn. 1991) (allowing the subcontractor to recover under the prime contractor’s performance bond where the subcontractor was a third-party beneficiary of the prime contractor’s performance bond).

[82] FAR 28.001.

[83] FAR 25.200. See also 41 U.S.C. §§ 10a-10d.

[84] FAR 25.4.

[85] FAR 25.003.

[86] FAR 25.206.

[87] FAR 25.202(a).

[88] FAR 25.202(a)(1).

[89] FAR 25.202(a)(2).

[90] FAR 25.202(a)(3). The procedure to determine if the cost of a domestic end product is as follows. First, the CO adds 6% of the cost of the foreign construction materials to the offered price of a bid proposing the use of foreign construction materials. See FAR 25.204; Executive Order No. 10,582, 3 C.F.R. § 230 §2(c)(1) (1954-58). Then the CO compares this increased price of the bid containing foreign construction materials to a bid containing only domestic materials. Executive Order No. 10,582 §2(b). The CO can then issue a waiver if the bid containing only domestic materials continues to be higher priced. Id. This evaluative procedure applies to construction contracts with the DOD as well. DFARS 225.2.

[91] FAR 42.1502(b).

[92] FAR 42.1502(a).

[93] FAR 42.1503(c).

[94] FAR 42.1501.

[95] FAR 42.1502(b).

[96] FAR 42.1502(b).

[97] FAR 42.1503(c).

[98] See FAR 36.201.

[99] FAR 9.103(a).

[100] FAR 9.104-1(c). A contracting agency or department will not evaluate a contractor favorably or unfavorably on past performance if the contractor lacks a past performance record. However, if a contractor has recently been seriously deficient in contract performance, the Government will automatically presume that the contractor is non-responsible. FAR 15.305 (a)(2)(iv) and FAR 9.104-3(b).

[101] FAR 9.104-1(c).

[102] FAR 9.104-3(b).

[103] See FAR 9.104.

[104] FAR 15.304(c)(3)(i).

[105] FAR 15.305(a)(2) and FAR 15.304(c)(3)(i).

[106] FAR 15.306(3)(b)(i).

[107] Wage Determinations Online.gov, http://www.wdol.gov.

[108] See John L. McKeon, Department of Labor Memorandum No. 207, Applicability of Davis-Bacon labor standards to federal and federally-assisted construction work funded in whole or in part under provisions of the American Recovery and Reinvestment Act of 2009, May 29, 2009, available at http://www.dol.gov/esa/whd/recovery/AAM207.pdf.

[109] See Sec. 1606, Division A, Pub. L. No. 111-5, 123 Stat. 303.

[110] See AGC of America, DOL Issues Guidance on Davis-Bacon Requirements for Stimulus-Funded Projects, June 12, 2009, available at http://newsletters.agc.org/hr_labor/2009/06/12/dol-issues-guidance-on-davis-bacon-requirements-for-stimulus-funded-projects/ [hereinafter Davis-Bacon Guidance].

[111] See McKeon supra note 107. Special exemptions for Davis-Bacon compliance under the Recovery Act apply to certain tribal contracts and projects for Department of Housing and Urban Development appropriations for Assisted Housing Stability and Energy and Green retrofit Investments. See Davis-Bacon Guidance supra note 110.

[112] FAR 31.102. “However, application of cost principles to fixed-price contracts and subcontracts shall not be construed as a requirement to negotiate agreements on individual elements of cost in arriving at agreement on the total price.” Id.

[113] See FAR 49.2 and 31.205-42.

[114] FAR 31.201-2(a).

[115] FAR 31.201-3(a).

[116] FAR 31.201-3(a).

[117] FAR 31.201-3(b).

[118] FAR 31.201-4(a).

[119] 41 U.S.C. § 422(f)(1).

[120] See 48 C.F.R. 9903.201-4 for the Cost Accounting Standards Notices and Certifications to be inserted in all contracts and subcontracts subject to CAS under 48 C.F.R. § 9903.201.

[121] See FAR 52.230-3 requiring CAS contracts to include a clause where the contractor “[a]gree[s] to an adjustment of the contract price or cost allowance . . . if the Contractor or a subcontractor fails to comply with the applicable CAS or to follow any cost accounting practice, and such failure results in any increased costs paid by the United States. Such adjustment shall provide for recovery of the increased costs to the United States together with interest thereon ....”

[122] According to 41 U.S.C. § 422(f)(2)(B), the following types of contracts or subcontracts are exempt from CAS .

(i) Contracts or subcontracts for the acquisition of commercial items.

(ii) Contracts or subcontracts where the price negotiated is based on prices set by law or regulation.

(iii) Firm, fixed-price contracts or subcontracts awarded on the basis of adequate price competition without submission of certified cost or pricing data.

(iv) A contract or subcontract with a value of less than $7,500,000 if, at the time the contract or subcontract is entered into, the segment of the contractor or subcontractor that will perform the work has not been awarded at least one contract or subcontract with a value of more than $7,500,000 that is covered by the cost accounting standards.

Furthermore, 48 C.F.R. 9903.201-1 provides additional exemptions regarding contracts with small business, certain contracts with foreign governments, certain contracts under the NATO PHM ship program and contracts to be performed outside of the United States and its territories.

[123] FAR 1.102(a).

[124] FAR 1.102(b)(3).

[125] Agencies had the ability to supplement the FAR with agency-specific guidance in order to address these topics. For example, the DoD supplemented the FAR with DFARs “203.70 – Contractor Standards of Conduct,” that encouraged contractors to “conduct themselves with the highest degree of integrity and honesty,” and encouraged development of internal control systems and standards of conduct. DFARs 203.7000. Additionally, the DoD asked contractors to report suspected violations of federal law and to cooperate with investigations. DFARs 203.7001.

[126] Federal Acquisition Regulation; FAR Case 2007-006, Contractor Compliance Program and Integrity Reporting, 72 Fed. Reg. 64,019 (Nov. 14, 2007) (notice of proposed rulemaking).

[127] Close the Contractor Fraud Loophole Act, Pub. L. No. 110-252, 122 Stat. 2386 (2008).

[128] FAR 3.1004(a).

[129] FAR 52.203-13(d) (DEC 2008); the one day difference in applicability between prime and subcontractors is likely due to a drafting error.

[130] FAR 52.203-13(b)(1)(i).

[131] FAR 52.203-13(b)(1).

[132] FAR 52.203-13(b)(1)(ii).

[133] FAR 52.203-13(b)(2) (DEC 2008) (numbering omitted).

[134] FAR 52.203-13(b)(3) (DEC 2008). Note that the scope of the clause’s coverage does not include overpayments.

[135] FAR 52.203-13(c)(1) (DEC 2008). Note that “commercial item” includes a variety of services. See FAR 2.101(5)-(6).

[136] See http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf. Different size thresholds exist for individual industries and sub-industries.

[137] Note that the threshold to qualify as a small business as a Specialty Trade Contractor is $7,000,000. See http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf.

[138] FAR 52.203-13(c)(1) (DEC 2008).

[139] FAR 52.203-13(c)(1)(i) (DEC 2008).

[140] FAR 52.203-13(c)(1)(ii) (DEC 2008).

[141] FAR 52.203-13(c)(2) (DEC 2008).

[142] FAR 52.203-13(c)(2)(i) (DEC 2008) (internal numbering omitted).

[143] FAR 52.203-13(c)(2)(ii) (DEC 2008).

[144] FAR 3.1002(a).

[145] FAR 9.407-2(a)(8); FAR 9.406-2(b)(1)(vi) (numbering and internal citation omitted). Note that the clause at FAR 52.203-13 does not address overpayments.

[146] FAR 3.1003(a)(2); FAR 9.407-2(a)(8); FAR 9.406-2(b)(1)(vi).

[147] FAR 9.407-1(b)(1); FAR 9.406-1(a).

[148] FAR 9.407-1(b)(2); FAR 9.406-1(a).

[149] FAR 52.203-13(c) (DEC 2008).

[150] FAR 3.1003(a)(2); FAR 52.203-13(b)(3)(i) (DEC 2008).

[151] FAR 52.203-13(b)(1); note that contracts valued at $5,000,000 or less, or where the period of performance is 119 days or less, are exempt from the contractual requirement to develop a written code of business ethics and conduct.

[152] See U.S. Sentencing Guidelines Manual § 8B2.1 (2008).

[153] FAR 3.1003(a)(2).

[154] FAR 52.203-13(c)(2)(ii)(F) (DEC 2008).

[155] Federal Acquisition Regulation; FAR Case 2007-006, Contractor Business Ethics Compliance Program and Disclosure Requirements, 73 Fed. Reg. 67,064, 67,073 (Nov. 12, 2008) (final rule).

[156] Federal Acquisition Regulation; FAR Case 2007-006, Contractor Business Ethics Compliance Program and Disclosure Requirements, 73 Fed. Reg. 67,064, 67,073 (Nov. 12, 2008) (final rule).

[157] FAR 3.1003(a)(2).

[158] FAR 52.203-13(a) (DEC 2008).

[159] Federal Acquisition Regulation: FAR Case 2007-006, Contractor Business Ethics Compliance Program and Disclosure Requirements, 73 Fed. Reg. 67,064, 67,077 (Nov. 12, 2008) (final rule).

[160] In addition to the False Claims Act discussed herein, the government enforces fraudulent, unscrupulous, and erroneous actions by contractors through a number of statutes, such as the Truth in Negotiations Act (TINA) (discussed in Section VI), the Anti-Kickback Act (discussed in Section VI), the antifraud provision of the Contract Disputes Act (CDA) (discussed in Section VI), the Forfeiture Statute, 28 U.S.C. § 2514 (1992), and the False Statements Act, 18 U.S.C. § 1001 (1996).

[161] Civil Provisions 31 U.S.C. §§ 3729-3733 and Criminal Provisions 18 U.S.C. § 287

[162] Adrian L. Bastianelli et al., Federal Government Construction Contracts 527 (2003).

[163] Bastianelli et al., supra, at 528.

[164] See 18 U.S.C. § 287 (1986).

[165] See 18 U.S.C. § 287 (1986).

[166] 18 U.S.C. § 287 (1986).

[167] S. 386, Fraud Enforcement and Recovery Act of 2009. See subsection iii below.

[168] United States v. Irwin, 654 F.2d 671, 683 (10th Cir. 1981).

[169] See United States v. White, 765 F.2d 1469, 1482 (11th Cir. 1985).

[170] 31 U.S.C. § 3729.

[171] See 31 U.S.C. § 3729(a); 18 U.S.C. § 287.

[172] Restatement (Second) of Agency § 27 (1958).

[173] See United States v. Southern Md. Home Health Servs., 95 F.Supp. 465, 467-68 (D. Md. 2000).

[174] Qui tam is an abbreviation of the Latin phrase qui tam pro domino rege quam pro se ipso in hac parte sequitur, meaning “[he] who sues in this matter for the king as [well as] for himself.”

[175] 31 U.S.C. § 3730(b) (1994).

[176] 31 U.S.C. § 3730(e)(4)(B) (1994).

[177] Proposed changes to the False Claims Act were introduced in the 110th Congress as S. 2041 and H.R. 4854 (both called The False Claims Corrections Act), and as H.R. 3180 (The Whistleblower Recovery Act of 2007), neither proposal passed.

[178] 128 S. Ct. 2123 (2008).

[179] Allison Engine, 128 S. Ct. at 2128, 2130.

[180] 31 U.S.C. § 3730(h).

[181] Under FERA, Section 3730(h) now reads, “any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment ….”

[182] H.R. 1788.

[183] The U.S. Supreme Court in Rockwell Int’l Corp. v. United States, 549 U.S. 457, 472-76 (2007), held that a relator must be an original source of the claims upon which a verdict is rendered, rather than merely the claims in the original complaint. This meant that a relator could not bring a suit based on some facts and then later supplement those f acts with investigations done following the complaint.

[184] See generally Girod & Campos, Feature comment, Gift Rule Guidelines: Ensuring Goodwill Gestures Do not Backfire, The Government Contractor, 47 GC ¶ 54 (Feb. 2, 2005).

[185] See 41 U.S.C. §§ 51 to 58; FAR 3.502-2.

[186] See generally John Cibinic, Jr., Ralph C. Nash, Jr. & James F. Nagle, Administration of Government Contracts 162-63 (4thed. 2006)

[187] See McNutt ex rel. U.S. v. Haleyville Medical Supplies, Inc., 423 F.3d 1256 (11^th Cir. 2005).

[188] 41 U.S.C. § 52(2); FAR 3.502-1.

[189] FAR 3.502-2.

[190] 41 U.S.C. § 54.

[191] 41 U.S.C. § 55.

[192] See 18 U.S.C. § 201.

[193] United States v. Hoffman, 556 F.3d 871 (2009).

[194] 10 U.S.C. § 2306a.

[195] 10 U.S.C. § 2306a(a); 41 U.S.C. § 245b(a).

[196] See 30 U.S.C § 231.

[197] 10 U.S.C. § 2306a (1994). In 2006, the threshold was increased by $100,000 to the current $650,000.

[198] 10 U.S.C. § 2306a(h)(1).

[199] 10 U.S.C. § 2306a(h)(1).

[200] FAR 15.403-4(a)(1)(iii).

[201] 10 U.S.C. § 2306a(c); 41 U.S.C. § 245b(c)(2); FAR 15.403-3(a).

[202] 10 U.S.C. § 2306a(b), (d) ; 41 U.S.C. § 245bb(b); FAR 15.403-1(c)(4).

[203] 41 U.S.C. § 403(12) (2007).

[204] FAR 15.403-1(c)(4).

[205] FAR 15.215-10(a).

[206] FAR 15.407-1(b)(7)(i).

[207] 31 U.S.C. § 231; 18 U.S.C. §§ 287, 1001.

[208] American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5, § 3, 123 Stat. 115, 116 (2009).

[209] Letter from Peter Orszag, Director of the White House Office of Management and Budget, “Initial Implementing Guidance for the American Recovery and Reinvestment Act of 2009” (Feb 18, 2009).

[210] American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5, § 1605, 123 Stat. 115, 303 (2009).

[211] FAR 25.602. Note that FAR 25.602(a)(i) contains a narrow exception to this rule for “metallurgical processes involving refinement of steel additives.” Furthermore, FAR 25.602(a)(ii) excepts “steel or iron used as components or subcomponents of other manufactured construction material.”

[212] 41 U.S.C. 10a-10d.

[213] 49 U.S.C. 5323(j).

[214] FAR 25.603(a)(1).

[215] FAR 25.603(a)(3).

[216] American Recovery and Reinvestment Act § 1605(d).

[217] FAR 25.603(c)(1).

[218] FAR 25.402(b).

[219] FAR 25.604(c)(1).

[220] FAR 25.605(a)(1) (emphasis added).

[221] “‘Unmanufactured construction material’ means raw material brought to the construction site for incorporation into the building or work that has not been— (1) Processed into a specific form and shape; or (2) Combined with other raw material to create a material that has different properties than the properties of the individual raw materials.” FAR 25.601.

[222] FAR 25.604(c)(2).

[223] FAR 25.605(a)(2) (emphasis added).

[224] FAR 25.607(c).

[225] FAR 25.607(c)(4).

[226] FAR 4.1501(b).

[227] American Recovery and Reinvestment Act § 1512(d).

[228] Id. at § 1512(c), 123 Stat. 115, 287 (2009); FAR 52.204-11(d) (MAR 2009).

[229] See instructions at www.federalreporting.gov. Note that the first report will be cumulative. Therefore, just because the initial report is not due until October 2009, contractors awarded ARRA-funded projects must begin collecting data immediately upon award.

[230] FAR 52.204-11(d)(1) (MAR 2009); FAR 52.204-11(d)(4) (MAR 2009).

[231] FAR 52.204-11(d)(5) (MAR 2009).

[232] FAR 52.204-11(d)(3) (MAR 2009); FAR 52.204-11(d)(6) (MAR 2009).

[233] FAR 52.204-11(d)(2) (MAR 2009).

[234] FAR 52.204-11(d)(7) (MAR 2009).

[235] FAR 52.204-11(d)(7)(i) (MAR 2009).

[236] FAR 52.204-11(d)(7)(i) (MAR 2009).

[237] FAR 52.204-11(d)(7)(ii) (MAR 2009).

[238] FAR 52.204-11(d)(8) (MAR 2009).

[239] FAR 52.204-11(d)(9) – (10) (MAR 2009).

[240] Comments of AGC of America, FAR Case 2009-009 (filed June 1, 2009).

[241] FAR 4.1501(c).

[242] FAR 4.1501(d).

[243] 41 U.S.C. §§ 601-603 (1978).

[244] 41 U.S.C. §605(a), (c)(1); FAR 52.233-1.

[245] FAR 52.233-1.

[246] See Fischbach and Moore Int’l Corp. v. Christopher, 987 F.2d 759 (Fed. Cir. 1993).

[247] FAR 52.233-1.

[248] FAR 33.210.

[249] FAR 33.204.

[250] FAR 53.233-1(g).

[251] 41 U.S.C. §§ 605(c)(1), (2); FAR 33.211(c).

[252] FAR 33.211(c).

[253] 41 U.S.C. §606. Appeal to the appropriate board of contract appeals must be done within 90 days. Appeal to the Court of Federal Claims must be done within one year. 41 U.S.C. §609(a)(1).

[254] United States v. Johnson Controls, Inc., 713 F.2d 1541, 1556 (Fed. Cir. 1983).

[255] FAR 44.203(b)(3).

[256] Erickson Air Crane Co. of Wash., Inc. v. United States, 731 F.2d 810 (Fed. Cir. 1984).

[257] See, e.g., Boeing Co., A.S.B.C.A. No. 10524, 67-1 B.C.A. (CCH) ¶ 6350, 67-2 B.C.A. (CCH) ¶ 6693.

[258] United States ex rel. Clark Concrete Constr. Corp. v. Jones Stewart, 195 F. Supp. 715, 718 (D. Co. Idaho 1961).

[259] Clifford F. MacEvoy Co. v. U.S., 322 U.S. 102, 107 (1944).

[260] R.B. Lumber Co., 769 F. Supp. at 224.

[261] United States ex rel. Naberhaus-Burke, Inc. v. Butt & Head, Inc., 553 F.Supp 1155, 1160 (S.D. Ohio 1982) (finding that claimants that provide professional or skilled services can only recover the amount of its contract that constituted on-site services). See also American Surety Co. of New York v. United States ex rel. Barrow-Agree Labs., Inc., 76 F.2d 67, 68 (5th Cir. 1935) (distinguishing architects and other skilled men that superintend work from other professional services).

[262] Gen. Ins. Co. of America v. United States ex rel. Audley Moore & Son, 409 F.2d 1326, 1327 (5th Cir. 1969) (holding that a the taking of measurements to prepare a final estimate after completing the contract work did not qualify as “labor” under the Miller Act.).

[263] 40 U.S.C. § 3131 (2002).

[264] R.B. Lumber Co. v. Gregory Indus., Ltd., 769 F. Supp. 221, 224 (E.D. Mich. 1991).

[265] Id. at 111 (relying on numerous references to the distinction between laborers, materialmen, and suppliers before the Miller Act was adopted.).

[266] See United States ex rel. Conveyor Rental & Sales Co., v. Aetna Casualty & Surety Co., 981 F.2d 448, 450-51 (9th Cir. 1992) (listing thirteen factors that weigh in favor of a subcontractor relationship and five factors that weigh in favor of a materialmen relationship.).

[267] 40 U.S.C. § 3133 (2002).

[268] Pepper Burns Insulation, Inc. v. Artco Corp., 970 F.2d 1340 (4th Cir. 1992).

[269] Id.

[270] 40 U.S.C. § 3133.

[271] United States ex rel. GE Supply v. C&G Enters., Inc., 212 F.3d 14, 18 (1st Cir. 2000)(ruling that the text of the Miller Act “references only the time that the last material was supplied; it does not advert to whether or not the contractor and the supplier treated the separate shipments of project material under the bond as being governed by a distinct contract.).

[272] Trinity Universal Ins. Co. v. Girdner, 379 F.2d 317(5th Cir. 1967).