Government Contracts

Subscribe to Government Contracts

DCMA to Audit Compliance With DFARS Cyber Flowdown RequirementsFor over a year now, federal defense contractors have been required to comply with Defense Federal Acquisition Regulation Supplement (DFARS) Clause 252.204-7012, Safeguarding Covered Defense Information and Cyber Incident Reporting (see our recent firm alert). Recently, however, the Department of Defense (DoD) announced in a memorandum to DoD officials that it has “asked” the Director of the Defense Contract Management Agency (DCMA) to begin auditing contractor compliance with the cybersecurity requirements described in DFARS Clause 252.204-7012.

More specifically, the memorandum states that “to effectively implement the cybersecurity requirements addressed in” DFARS Clause 252.204-7012 and National Institute of Standards and Technology (NIST) Special Publication (SP) 800-171, Protecting Controlled Unclassified Information (CUI) in Nonfederal Information Systems and Organizations, DoD has instructed DCMA to “leverage its review of a contractor’s purchasing system in accordance with DFARS Clause 252.244-7001, Contractor Purchasing System Administration,” in order to:

  • “Review Contractor procedures to ensure contractual DoD requirements for marking and distribution statements on DoD CUI flow down appropriately to their Tier 1 Level Suppliers;” and
  • “Review Contractor procedures to assess compliance with their Tier 1 Level Suppliers with DFARS Clause 252.204-72 and NIST SP 800-171.”

As the memorandum explains, DFARS Clause 252.204-7012 “requires contractors to implement” NIST SP 800-171 “as a means to safeguard the [DoD’s CUI] that is processed, stored or transmitted on the contractor’s internal unclassified information system or network.” Federal contractors, in turn, “are required to flow down this clause in subcontracts for which subcontract performance will involve DoD’s CUI.”

In light of this new development, federal contractors would be wise to review and document their compliance with the subject requirements set forth in DFARS Clause 252.204-7012 and NIST SP 800-171.

If you have any questions about the foregoing or about any other related issues, please feel free to contact Aron Beezley.

Federal Contractors May Be Able to Recover Costs Caused by the Government ShutdownThe current government shutdown is now the longest in U.S. history, and many federal contractors are incurring costs as a result of shutdown-related work stoppages and delays. Luckily, many federal contracts contain clauses that provide a potential avenue for recovery of such costs. Further, there are practical steps that contractors can take to increase their chances of recovering shutdown-related costs from the government.

What contract clauses might apply?

Several Federal Acquisition Regulation (FAR) clauses, including the following ones, could provide contractors with an avenue to recover costs incurred as a result of shutdown-related delays or work stoppages:

  • FAR 52.242-14 (Suspension of Work)
  • FAR 52.242-15 (Stop Work Order)
  • FAR 52.242-17 (Government Delay of Work)
  • FAR 52.243-2 (Changes – Cost-Reimbursement)
  • FAR 52.243-3 (Changes – Time-and-Materials or Labor-Hours)

It is very important to note that these clauses generally impose very short timeframes in which a contractor must provide the government with notice and/or assert its right to an adjustment. For instance, FAR 52.242-15 (Stop Work Order) requires a contractor to assert “its right to the adjustment within 30 days after the end of the period of work stoppage[.]”

How can my company increase its chances of recovering shutdown-related costs? 

One way federal contractors can increase their chances of recovering costs caused by the government shutdown is by setting up separate charge codes in their accounting systems to identify and segregate all costs incurred as a result of shutdown-related delays or work stoppages. These types of costs often include, but are not necessarily limited to:

  • Idle facility/staff/equipment costs
  • Costs to implement a stop work order
  • Severance pay if layoffs are necessitated
  • Recruiting costs for replacement employees
  • Unabsorbed overhead
  • Remobilization costs once work recommences

Moreover, contractors would be wise to document justifications for shutdown-related costs and document steps taken to mitigate the impact of the shutdown.

Finally, contractors should document any and all communications with the government regarding shutdown-related delays and work stoppages, as these may come in handy if the government attempts to invoke the Sovereign Acts Doctrine as a defense against a contractor’s claim for shutdown-related costs.

Wait, I have more questions!

If you have any questions about the topics discussed in this article or about any related issues, please do not hesitate to contact Aron Beezley.

Important Update Re: Small Business Runway Extension Act of 2018We recently reported that, on December 17, 2018, President Trump signed into law a bill that amends the Small Business Act to require that the size of a federal contractor be measured by an average of five years—rather than three years—of revenue for the purpose of determining small business program eligibility. As commentators have noted, the bill did not have a specific effective date, and thus it should be presumed to be effective immediately under longstanding principles of statutory interpretation.

However, the Small Business Administration (SBA) very recently issued an Information Notice, which states:

SBA is receiving inquiries about whether the Runway Extension Act is effective immediately—that is, whether businesses can report their size today based on annual average receipts over five years instead of annual average receipts over three years. The Small Business Act still requires that new size standards be approved by the Administrator through a rulemaking process. The Runway Extension Act does not include an effective date, and the amended section 3(a)(2)(C)(ii)(II) does not make a five-year average effective immediately.

The change made by the Runway Extension Act is not presently effective and is therefore not applicable to present contracts, offers, or bids until implemented through the standard rulemaking process. The Office of Government Contracting and Business Development (GCBD) is drafting revisions to SBA’s regulations and SBA’s forms to implement the Runway Extension Act. Until SBA changes its regulations, businesses still must report their receipts based on a three-year average.

Interestingly, the SBA indicated in an April 2018 Federal Register notice that it was not in favor of changing the lookback period from three years to five years:

SBA believes that calculating average annual receipts over three years ameliorates fluctuations in receipts due to variations in economic conditions. SBA maintains that three years should reasonably balance the problems of fluctuating receipts with the overall capabilities of firms that are about to exceed the size standard. Extending the averaging period to five years would allow a business to greatly exceed the size standard for some years and still be eligible for Federal assistance, perhaps at the expense of other smaller businesses. Such a change is more likely to benefit successful small business graduates by allowing them to prolong their small business status, thereby reducing opportunities for currently defined small businesses.

Thus, it is possible that the SBA’s seemingly unfavorable view of the of the Small Business Runway Extension Act informed its decision to issue the Information Notice—even though, as commenters have noted, the validity of the SBA’s position about the present effect (or lack thereof) of the Act is questionable.

The bottom line is this: The SBA presumably will update its regulations in the near future to include the five-year lookback period set forth in the Small Business Runway Extension Act. Accordingly, any confusion created by the SBA’s recent Information Notice hopefully will be ameliorated fairly soon. In the meantime, whether the three-year lookback period or five-year lookback period applies needs to be analyzed on a case-by-case, situation-by-situation, and company-by-company basis.

If you have any questions about any of the foregoing issues, please do not hesitate to contact Aron Beezley.