Contracting by Tweet: What Impact Can the New Administration Have on Existing Contracts and Future Awards?
(Source: Covington & Burling LLP; issued Jan 12, 2017)

By E. Sanderson Hoe and John W. Sorrenti
The classic tool the government has when it finds an existing contract no longer in its interest is the termination for convenience. See FAR 52.249-2(a) (fixed price contracts); 52.249-6(a)(1) (cost reimbursement contracts). What constitutes the government’s “interest” is very broad.

Surely, a contracting officer could find it in the government’s interest to terminate a contract for a major system that the contracting officer deemed, perhaps because of encouragement from the top of the executive branch, to be too expensive.

Termination for Convenience

However, a termination for convenience is not cost free to the government. Contractors terminated for convenience are entitled to recover their cost incurred to the date of the termination, profit or fee on that cost, and termination settlement expenses. FAR 52.249-2(g); 52.249-6(h).

In addition, the termination of any contract where there is a continuing requirement is a drastic action. The government would need to begin a new procurement to satisfy the requirement, conduct the procurement pursuant to law, including obtaining full and open competition unless an exception existed, and begin a program all over again.

Practically, the government is unlikely to take this path because it would be costly and delay ultimate delivery of the system. Thus, a contractor willing to endure the public approbation of being identified with “fraud, waste and abuse” likely can survive simply because the consequences of terminating a contract are so drastic.

Termination for Default

An even more drastic government approach would be for the government to terminate an unpopular contract for default. This would absolve the government of all monetary obligations for the termination.

This may sound exceedingly extreme, but the history of the longest-running and largest termination for default in the Department of Defense’s history, the Navy’s A-12 aircraft, shows that an over-budget contract that became politically unpopular can meet such a fate.

For new contracts, the government has the ability to set requirements and select the awardee. Could the government establish a requirement that all companies who ship jobs overseas are excluded from government contracting? Or more subtly, could a bias against such companies infect the selection process?

Contracting by Executive Order

The out-going Obama Administration in its latter stages liberally used the president’s Executive Order power to implement socio-economic policies for government contractors. Typically, these policies were ones likely to face opposition in the Republican-controlled Congress. Using the president’s power over contracting, President Obama issued Executive Orders that led to new requirements on paid sick leave, fair pay and safe workplaces, and LGBT rights.

There seems no reason that the Trump Administration might not attempt this same path to limit awards to contractors who do not fit the Administration’s view of “Making America Great Again.”

Such an attempt might run into problems, however. The Obama Administration’s Executive Orders affirmatively imposed new social requirements on contractors where those requirements were not prohibited by law or regulation. A Trump Administration Executive Order prohibiting contract awards to companies who move jobs overseas, for example, might run squarely into the Competition in Contracting Act’s (CICA) mandate for “full and open competition.”

Although CICA contains exceptions to full and open competition, promoting US jobs by discouraging offshoring is not one of them (although awards to inverted domestic corporations are prohibited by statute and regulation, see FAR 9.108-2).

Bias in source selection

Finally, bias in source selection for new contracts is difficult to detect. Every selection official, indeed every human, has biases, but as a matter of law, those biases cannot lead to an award inconsistent with solicitation selection criteria. See FAR 15.303(b)(4).

Unwarranted bias in the procurement process is controlled through the bid protest, a review by a third-party to determine whether a selection authority acted arbitrarily, capriciously, or abusively, or not in conformance with law. See FAR part 33.

A source selection authority influenced by desires of a new president that were not included in a solicitation could be brought to task through the bid protest process.

The Administration can influence

The new Administration is not without power to influence government contracting and contractors through the bully pulpit. From a purely legal standpoint, however, the Administration’s powers are circumscribed by the remedies available to contractors and challenges that prospective offerors can bring through the bid protest process.

We shall see how the Trump Administration proceeds and report further if there are any developments.

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