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Independent Contractor Regulation Update: DOL Withdraws Rule

April 23, 2021
INDEPENDENT CONTRACTOR REGULATION UPDATE: DOL WITHDRAWS RULE

As we discussed in our article last month (here), in February the U.S. Department of Labor (DOL) decided to delay until May 7 the implementation of its new independent contractor regulation, which was released in November 2020 under the prior administration.  The new regulation adopts a five-factor “economic reality” test for making the determination of whether a worker should be classified as an employee or an independent contractor under the Fair Labor Standards Act (FLSA), and two of the factors are designated as “core factors” that carry greater weight.  The first core factor is the nature and degree of control over the work performed by the worker and the second core factor is the worker's opportunity for profit or loss.  (For more on the new regulation see also our video blog.)

More recently, however, on March 12, 2021, DOL announced in a notice of proposed rulemaking that it was withdrawing the new independent contractor regulation.  Given that DOL withdrew two opinion letters that relied on the new regulation shortly before it announced in February the delay of the regulation’s implementation, DOL’s more recent decision to withdraw the regulation altogether is not unexpected.  More surprising, perhaps, is DOL’s detailed analysis setting forth the reasons for the withdrawal - a few of which we discuss below - that amounts to a thorough take-down of its own regulation.

In its withdrawal announcement, DOL concluded that the formulation of the economic reality test under the new regulation had never been used by any court or by DOL itself, and that it was not supported by the text of the FLSA or case-law applying the FLSA.  DOL expressed concern that the new regulation’s elevation of the “control” and “opportunity for profit or loss” factors would, in situations in which the two core factors aligned, largely render the remaining factors inconsequential except in rare circumstances.  DOL asserted that the new approach was inconsistent with the position expressed by the Supreme Court and other federal courts that no single factor should be dispositive.  DOL also decided that weighing the “control” factor more heavily than other factors was inconsistent with the Supreme Court’s analysis of the term “employ” in the FLSA that lead the Court to conclude that the scope of employment under the FLSA is broader than under a common law control analysis.

DOL’s withdrawal of the new regulation also rose out of a concern that the changes under the new regulation would not clarify how to distinguish between employers and independent contractors under the FLSA, as intended, but instead would cause confusion or lead to inconsistent outcomes.

DOL also reasoned that withdrawing the rule would cause no disruption since the rule has not yet taken effect.  According to DOL, no courts have applied the rule to decide any cases.  DOL also cited its earlier withdrawal of the two opinion letters relying on the new rule and the, otherwise, lack of any implementation of the rule on its part.  Lastly, DOL pointed to its primary guidance in DOL Fact Sheet #13 - Employment Relationship Under the Fair Labor Standards Act (FLSA) - which still remains and does not contain the new regulation’s analysis for determining whether a worker is an employee or independent contractor.

To read or obtain a copy of DOL's notice of rulemaking announcing its proposed withdrawal of the new independent contractor regulation go here.

To read other articles from The GovCon Bulletin™ go here.

GovCon Legal Round Up™ - April 21, 2021

The GovCon Legal Round Up™                                                                                                                                                      April 21, 2021
 

U.S. COURT OF FEDERAL CLAIMS (COFC) DECISIONS

Microgenics Corp. v. U.S. (March 30, 2021)
Contractor (Microgenics) filed a bid protest against the Administrative Office of the United States Courts (AOUSC), an entity within the judicial branch, in connection with a solicitation for equipment, supplies and consumables used to operate on-site drug testing laboratories. The COFC, however, dismissed the suit, deciding that the AOUSC was not a “Federal agency” for purposes of bid protests under the Tucker Act.  (Read decision here.)

Rocky Mountain Mobile Medical v. U.S. (April 6, 2021)
Contractor (Rocky Mountain Mobile Medical) filed a bid protest alleging that the agency (Air Force) (1) failed to conduct discussions with it to address past performance information, (2) should have excluded a competing bidder’s technical capability volume as noncompliant, (3) assigned contractor an irrational performance confidence rating, and (4) treated the contractor unequally by assigning a “substantial confidence” rating to a competing bidder's past performance rating.  On the issue of conducting discussions, the COFC determined that the solicitation stated that the competitive selection would be made in accordance with the Simplified Acquisition Procedures under FAR Part 13.  Although the solicitation also stated that “exchanges” - which are referred to in FAR Part 15 and not in FAR Part 13 - might be conducted with some or all offerors, COFC disagreed with contractor that the agency was required to comply with the discussion requirements under FAR Part 15.  COFC determined that, in any event, if contractor believed the agency’s description of potential exchanges was inconsistent with FAR Part 15, the time to complain was prior to bidding.  COFC also rejected contractor’s remaining protest arguments.  (Read decision here.)

GAO BID PROTEST DECISIONS

In re Relyant Global, LLC (Released April 9, 2021)
GAO denied the bid protest of a contractor (Relyant Global, LLC) that challenged an agency’s (Army, Corp of Engineers) decision to amend rather than cancel its request for proposals (RFP).  Contractor submitted a timely proposal in response to the initial solicitation and argued that the agency’s subsequent changes to the solicitation were so substantial that the agency should have cancelled the solicitation and reissued a new one.  Contractor also argued that the binding teaming agreements it entered into based on the unamended solicitation prevented it from competitively bidding on the revised solicitation.  GAO ruled that the contractor was not an interested party for purposes of claiming that the solicitation should have been cancelled and reissued under FAR 15.206(e), which authorizes cancellations so that potential bidders who did not submit proposals have an opportunity to compete.  GAO also found that, rather than any unfair action by the government, it was contractor’s own business decision to enter into teaming agreements that could not be modified after a solicitation has been amended that placed the contractor at a competitive disadvantage.  (Read decision here.)

In re SAGAM Securite Senegal (Released April 7, 2021)
GAO dismissed as untimely a protest by a contractor (SAGAM Securite Senegal) that challenged an agency’s (Department of State) decision to cancel a solicitation.  The contracting officer e-mailed a notice of cancellation to the contractor’s director of operations, who did not acknowledge receipt of the notice.  The contracting officer e-mailed the director again five and eight days after the initial notice.  After an additional e-mail by the agency to the contractor’s program manager on the eighth day after the initial notice, the contractor’s director finally responded, and ten days after that day, the contractor filed a protest with the GAO.  In arguing that its protest was timely, contractor alleged that automatic e-mail replies by its director indicated that his access to e-mail was limited and instructed that urgent matters should be addressed to the program director.  Contractor insisted that it did not receive actual or constructive notice of the cancellation until the director accessed his e-mails on the date the agency e-mailed the contractor’s program director.  In deciding the protest was untimely, GAO ruled that mechanical receipt of an e-mail during a firm’s normal business hours constitutes notice to a party, that the agency’s first e-mail to the director was available to be opened, and that the director’s inability to access his e-mails did not toll the protest filing deadline.  (Read decision here.)

In re APR Staffing, LLC (Released April 6, 2021)
GAO dismissed the protest of a contractor (APR Staffing, LLC) that challenged an agency’s (Department of Energy) decision not to exercise options under the contractor’s blanket purchase agreement.  The contractor alleged that the agency’s evaluation of its performance during the base period and that formed the basis for the agency’s decision not to exercise the options constituted a procurement process that could be protested with the GAO.  In dismissing the protest, GAO reasoned that option provisions are generally exercisable at the discretion of the government and that the protestor’s disagreement over the agency’s assessment of its performance did not transform the decision not to exercise the options into a procurement action.  (Read decision here.)

In re TekSynap Corporation (March 30, 2021)
In a rare case, GAO sustained a contractor’s (TekSynap Corporation) protest challenging an agency’s (National Geospatial Intelligence Agency) evaluation of non-price evaluation factors.  The agency issued a request for proposal contemplating a single award of an IDIQ and simultaneous task order.  Initially finding that the contractor’s pricing information was incomplete, the agency sent the contractor items for discussion pointing out flaws and instructing it to revise its pricing proposal.  After conducting discussions with offerors, the agency requested final proposal revisions.  Upon evaluating the final proposals, the agency found contractor’s pricing proposal was still incomplete, thus precluding the agency from making a pricing reasonableness determination.  The agency also concluded that the contractor’s technical/management rating was lower than the rating of the competing bidder that ultimately received the award.  Given the contractor’s lower technical/management rating, the agency decided not to conduct discussions with the contractor and made the award to the competing bidder.  On review, GAO ultimately decided that the agency’s evaluation of the competing bidder’s proposal as superior to the contractor’s was unreasonable, and thus, the agency’s decision not to reopen discussions was also unreasonable.  In its decision, GAO highlighted several of the agency’s assessments that it concluded were unreasonable, including: (1) assignment of only a slight weakness rating to the competing bidder’s proposal for the failure of one of its proposed key personnel to demonstrate a mandatory qualification; and (2) assignment of a moderate strength rating to the contractor’s proposal for management approach, despite positive remarks by evaluators and where the RFP indicated that assignment of a significant strength rating was warranted.  (Read decision here.)

ARMED SERVICES BOARD OF CONTRACT APPEALS DECISIONS

In re URS Federal Services, Inc. (March 23, 2021)
Contractor (URS Federal Services, Inc.) submitted a claim against the federal government (U.S. Coast Guard) under the Contract Disputes Act seeking payment for maintenance and repair services that the government accepted but did not pay for.  Contractor also alleged that the government’s refusal to pay constituted a breach of the implied duty of good faith and fair dealing.  The Armed Services Board of Contract Appeals (ASBCA) struck the breach of implied duty claim from contractor’s complaint because the contractor did not first present the claim to the contracting officer.  With regard to the claims under the Contract Disputes Act seeking payment for both unpaid invoices and “unbilled” services, although the contractor submitted invoices to the government during and shortly after contract performance, it did not present a claim to the contracting officer for billed and unbilled services until more than eight years after the last invoice for billed services.  The ASBCA ruled that the contractor knew or should have known that it could have converted its invoices to claims within a reasonable time after submitting them to the government and that the contractor’s claim for payment under the Contract Disputes Act was barred by the six-year statute of limitations.  (Read decision here.)

CIVILIAN BOARD OF CONTRACT APPEALS DECISIONS

Microtech Technologies LLC v. Department of Justice (March 31, 2021)
Contractor (Microtech Technologies, LLC) filed an appeal of the federal government’s (Department of Justice) decision to deny contractor’s claim for termination costs.  Contractor held a multi-award government-wide acquisition contract under which the government issued a delivery order for workstation perpetual software licenses, as well as software maintenance for one base year and two additional option years.  At the beginning of the base year, the contractor purchased the perpetual software licenses and also purchased from the manufacturer software maintenance in order to satisfy the maintenance requirement for the base year and the two option years.  At the end of the base year, the government initially exercised the software maintenance option for the next following year but then reversed itself and terminated the option year with a unilateral contract modification after it determined that it had exercised the option in error.  Contractor subsequently sent the government a claim for termination costs in an amount that represented the cost of software maintenance for one year.  Contractor argued that the one-year maintenance cost was non-refundable and that is was a reasonable charge resulting from the termination of the option.  The Civilian Board of Contract Appeals (CBCA), however, remained unconvinced finding that the contractor failed to prove that the pre-payment of the maintenance cost a year in advance was required or that it was non-refundable, or that the contractor took action to activate the software maintenance after the contract modification that terminated the option.  The CBCA concluded, therefore, that the contractor failed to prove that the software maintenance cost arose from the government's contract modification that terminated the option.  (Read decision here.)  

GovCon Legal Round Up™ - March 31, 2021

The GovCon Legal Round Up™                                                                                                                                                      March 31, 2021
 

U.S. COURT OF FEDERAL CLAIMS (COFC) DECISIONS

SEKRI, Inc. v. U.S. (March 22, 2021)
The COFC dismissed a pre-award bid solicitation protest that was filed directly with the court after an agency (DLA) failed to designate the protestor (SEKRI) as a mandatory source of supply for certain military equipment under the AbilityOne Program.  The COFC deviated from the arguments of both protestor and DLA and ruled, on its own, that the protestor lacked standing under the Tucker Act because, having failed to file a protest before the proposal deadline, it was neither a bidder nor a prospective bidder.  The COFC ruled alternatively that even if the protestor had standing, because it did not object before the close of bidding, it waived its challenge under the Blue & Gold Fleet waiver rule.  (Read decision here.)

Mortgage Contracting Services, LLC v. U.S. (March 18, 2021)
In the second ruling in as many days in favor of a bid protestor, the COFC overruled both the agency (USDA) and GAO and ruled in favor of a protestor (Mortgage Contracting Services).  COFC found that the agency’s evaluation of the winning bidder’s proposal was arbitrary and capricious, that protestor was prejudiced by the agency’s actions, and that protestor was entitled to an injunction against further contract performance by the winning bidder.  In a lengthy analysis, the COFC first determined that the agency’s past performance rating for the winning bidder (which was the same rating given to protestor) was arbitrary and capricious because the agency’s evaluations of two of the three past performance references were unreasonable and not performed in accordance with the solicitation. The COFC also determined that the agency’s technical factor evaluation, which was based in part on relevant experience, and its price realism analysis were both inadequate.  In overturning GAO, the COFC concluded that GAO’s analysis of the past performance issue was lacking and its conclusions summary, and that the GAO did not critically examine the price realism issues.  (Read decision here.)

AGMA Security Service, Inc. v. U.S. (March 16, 2021)
In an earlier decision in favor of a bid protestor, the COFC overruled the agency (FEMA) and determined that its award of a sole-source contract was arbitrary and capricious.  At the beginning of the procurement process, the agency issued an RFP for armed security services, and, at first, made an award decision in favor of the protestor (AGMA Security Service).  After the then-incumbent filed a protest with GAO, the agency took corrective action and subsequently reversed itself and awarded the contract to the incumbent.  The protestor then filed a bid protest with the COFC, which ultimately found no explanation for the agency’s reversal and enjoined the agency from continuing the contract with the incumbent.  Undeterred, the agency nevertheless decided to issue a sole source bridge contract to the incumbent on the grounds that there was insufficient time for a full and open competition.  The protestor then filed a bid protest challenging the sole-source award.  The COFC concluded that the sole-source award was improper and that there was no rational basis for the agency’s sole source decision, and permanently enjoined the agency from continuing its sole source contract with the incumbent.  (Read decision here.)

SBA OFFICE OF HEARING AND APPEALS

In re Size Appeal of Leumas Residential, LLC (Released March 16, 2021)
The SBA’s Office of Hearing and Appeals (OHA) granted a contractor’s (Leumas Residential, LLC’s) appeal of the SBA Area Office’s determination that it was not a small business.  The agency (Navy) had issued an RFP for grounds maintenance services under a contract set aside for 8(a) businesses with a size standard of $8M.  The contractor was awarded the contract but another offeror filed a protest alleging that the contractor was unduly reliant on its subcontractor and in violation of the ostensible contractor rule.  The SBA area office, however, ultimately determined that the contractor and its subcontractor were joint venturers and generally affiliated, that the contractor was not small, and that the ostensible contractor issue was moot.  On appeal, OHA determined that since the proposal was submitted by the contractor, and not a joint venture, the Area office should have addressed the question before it - namely, whether the contractor was in violation of the ostensible contractor rule.  OHA, thus, sent the case back to the Area office for a size determination under an ostensible contractor analysis.  (Read decision here.)

GAO BID PROTEST DECISIONS

In re ISS Action, Inc. (Released March 24, 2021)
GAO denied the bid protest of an offeror (ISS Action) that alleged the agency (DOE) improperly evaluated the winning bidder’s lowest-priced, technically acceptable (LPTA) under personnel qualifications and staffing criteria.  Among its arguments, the offeror objected that the bidder identified as the project manager an employee of the current incumbent, which was proposed to serve as a subcontractor to the bidder.  GAO rejected offeror's arguments, including by concluding that the RFP did not require the project manager to be a direct employee of an offeror.  (Read decision here.)

In re CACI, Inc. - Federal  (Released March 23, 2021)
An agency (Army) relaxed the deadline for offerors to submit notices of intent to propose when it accepted late notices.  After making an award to an offeror that submitted an untimely notice but filed a timely proposal, the protestor (CACI) filed a bid protest arguing that the winning bidder was ineligible for the award because of its untimely notice.  GAO dismissed the protest, concluding that even if the notice deadline waiver was material, the protestor was not next in line for the award in any event and, thus, was not an interested party.  (Read decision here.)

In re Pathfinder Consultants, LLC (Released March 23, 2021)
GAO denied the pre-bid solicitation protest of an offeror (Pathfinder Consultants) that argued the agency (VA) unreasonably omitted past performance from its RFP evaluation factors.  GAO concluded that the agency adequately explained the basis for omitting past performance - namely, that the services sought were not complex or difficult, thus requiring only an assessment of technical approach.  GAO, likewise, rejected the other grounds for offeror's protest based on the agency's failure to respond to its pre-bid questions.  GAO ruled that the offeror failed to demonstrate how the solicitation was inadequate, unclear or ambiguous.  Thus, GAO could not conclude that the agency's failure to respond resulted in unfair or unequal treatment.  (Read decision here.)

In re Jade Excavation, Inc. (Released March 19, 2021)
An offeror (Jade) protested an award by an agency (DOT) to the lowest bidder because it did not have an active SAM registration at the time of its bid submission as required by the invitation for bid.  GAO, however, rejected the protest, relying on its prior decisions that minor informalities related to SAM registration generally do not undermine the validity of an award and are waivable.  (Read decision here.)

GovCon Legal Round Up™ - March 18, 2021

March 18, 2021
Introducing the GovCon Legal Round Up™! 
In this issue of The GovCon Bulletin,™ we introduce our GovCon Legal Round Up,™ providing short summaries of recently released federal government contracting bid protest and dispute decisions.  We hope the handful or so of cases that we select and summarize in each round up - taken from decisions made by the SBA's Office of Hearing Appeals, GAO, the U.S. Court of Federal Claims, the U.S. Court of Appeals for the Federal Circuit, and the Civilian and Armed Services Boards of Contract Appeals - will offer "lessons learned" to federal government contractors as they bid on and pursue federal procurement opportunities.  From time to time, our GovCon Legal Round Up™ may also include more in-depth analysis of one of the selected cases if the decision is particularly instructive or reflects a new understanding of federal government contracting legal issues.
Mark A. Amadeo
 

GAO BID PROTEST DECISIONS

In re MidAmerica Fab and Machine, LLC -- Costs (Released March 16, 2021)
GAO denied a request for recovery of bid protest costs even though the agency (Defense Logistics Agency) decided to take corrective action in response to the GAO protest by cancelling a purchase order and making a new award decision.  GAO denied the request because the agency did not unduly delay taking corrective action but, rather, took action and requested dismissal of the protest before the date the agency report was due.  (Read decision here.)  

In re Omni2Max (Released March 16, 2021)
GAO denied a bid protest in a procurement involving an agency's (Navy's) effort to charter a vessel.  The solicitation required offerors that did not own or charter vessels to provide “supporting evidence” of their “legally enforceable right” to purchase, lease or charter a vessel.  GAO upheld the agency’s decision to exclude from competition an offeror that submitted letters of commitment signed by the vessel owners and charterers because the commitment letters did not contain features of a legally enforceable contract or option.  (Read decision here.)

In re Mission1st Group, Inc. (Released March 16, 2021)
GAO denied a bid protest by an offeror whose proposal was eliminated from consideration by the agency (Army) because it included current, but not expired, ISO 9001:2015 certificates when the solicitation required evidence of certification for the two years prior to the submission of proposals.  GAO rejected offeror’s arguments that its expired certificate was not actually required by the solicitation and, alternatively, that the agency should have followed up with a request for its expired certificate.  (Read decision here.)

In re Rotair Aerospace Corporation (Released March 12, 2021)
When an agency (DLA) issued an RFQ that did not include the offeror, the offeror filed a bid protest with the agency arguing that it should have been identified as an approved source of supply.  The agency dismissed the protest as untimely because it was not filed with the agency prior to the closing of the solicitation.  The offeror’s subsequent protest to GAO was also found untimely since a GAO protest is untimely if an original protest filed with an agency is untimely.  The GAO also noted that even if the protestor’s filing with the agency had been timely, the filing with GAO would still be untimely because it was filed more than 10 days after the agency’s decision to dismiss.  (Read decision here.)

In re People, Technology and Processes, LLC (Released March 8, 2021)
GAO denied the bid protest of a company whose proposal was determined by GSA to be untimely, even though the offeror uploaded its proposal and all attachments to GSA ASSIST as of 4:00:52 pm - exactly at the 4:00 pm deadline for submissions. The offeror purportedly was logged off the system while uploading the attachments and when it realized its submission might be late it e-mailed its proposal and attachments to the contracting officer, who received them at 4:01 pm.  GAO agreed with the agency that e-mail submissions were not authorized and that, despite the fact that the offeror uploaded its files in ASSIST, the offeror nevertheless did not complete its proposal submission.  Consequently, the offeror could still have made changes to its uploaded proposal and, thus, never fully relinquished control of its proposal.  (Read decision here.)

In re Vectrus Mission Solutions Corporation; Vanquish Worldwide, LLC (Released March 8, 2021)
In a rare decision sustaining a bid protest, GAO sided with an offeror whose bid was subjected to an upward adjustment by an agency (Army).  In responding to an RFP for a cost-plus-fixed-fee requirement, the offeror proposed to absorb some costs.  During evaluation of the bid, however, the agency made an upward adjustment to the offeror’s bid to reflect the cost that the offeror agreed to absorb.  GAO concluded that since the offeror made a legally binding promise to assume liability for the cost reduction it proposed, the agency should not have made the upward adjustment.  GAO consequently recommended that the agency make the award to the protestor and reimburse its protest costs, including reasonable attorneys fees.  (Read decision here.)

U.S. COURT OF FEDERAL CLAIMS DECISIONS

Colonna's Shipyard, Inc. v. U.S. (March 11, 2021)
After GAO dismissed an offeror’s bid protest against the agency (Navy), the offeror filed its protest with the U.S. Court of Federal Claims (COFC) alleging that the agency was arbitrary and capricious in making the award to another bidder and that the agency breached an implied contract of fair dealing.  Besides challenging the agency’s evaluation of its proposal, the offeror also challenged the agency’s use of Simplified Acquisition Procedures (SAP) under FAR Part 13 and argued that it received no notice that SAP applied to the procurement.  The COFC rejected the offeror’s bad faith claims and its evaluation and scoring challenges.  With regard to SAP, the COFC determined that the agency never represented that FAR Part 15 would control, that the agency complied with FAR Part 13 requirements, and that FAR contains no requirement that an agency notify offerors that it intends to make an award pursuant to SAP.  (Read decision here.)