Infotech and the Law: Limber up to leap these legal hurdles

Walt Zenner

Forecasters suggest that federal IT contractors can expect 2006 to be almost as good as 2005, but contractors also should expect several new or increased legal risks to arise in the new year. Here's a rundown:

Contractor ethics and compliance. The ethics pendulum hasn't yet begun its return swing. One can still pick up the newspaper and read about some new allegation of fraud, waste or abuse in procurement by government acquisition officials, contractors or, more recently, lobbyists and members of Congress seeking to influence federal procurement decisions.

In light of the squall of scrutiny and accompanying increases in government enforcement efforts, contractors with no compliance program should develop and implement one. Such programs should cover a broad range of topics, but contractors especially should be sure to address revolving door rules, organizational conflicts of interest, General Services Administration schedule requirements, lobbying rules and timekeeping and billing practices.

Increased competition. The federal government continues to acquire IT services through large, long-term, indefinite-delivery, indefinite-quantity contracts. Given the percentage of IT work they represent, as well as increasing constraints on federal IT spending, IT contractors should not be surprised to see sharper competition for these contracts. This higher-stakes competition may force losing bidders to think longer and harder about the upside of filing bid protests.
At the same time, the ongoing diversion of funds for the war in Iraq and post-Hurricane Katrina reconstruction suggests that the government will have to continue to scale down existing contracts, either through deductive change orders or terminations for convenience.

Small-business issues. After two years of mergers and acquisitions in the federal IT industry, prime contractors are larger. Coupled with the concentration of IT work in large IDIQ contracts, it's a buyer's market for a prime contractor looking for prospective small-business subcontractors.

Contractors that don't have compliance programs should develop and implement such programs.

It's not easy for a small subcontractor to negotiate a good teaming agreement with a prime (and make it stick), but it's particularly hard for the subcontractor that lacks a distinctive specialty when the prime can pick and choose among dozens of other, indistinguishable subcontractors.

Small business may also feel the increased pinch of recertification requirements, following a recent decision by the Court of Federal Claims, stating that contracting officers in certain circumstances may require small businesses to recertify their size status for each new task order issued under an IDIQ contract.

GSA schedule contracts. Over the last decade, GSA schedule contracting for time-and-materials services of the standalone, open-ended sort has had something of the Wild West about it. Only recently has the law begun to catch up with GSA's actual practice by authorizing the treatment of such time-and-materials services as commercial items. But the rules for pricing such contracts remain unclear.

Until recently, this lack of clarity didn't matter much; GSA over the last 10 years or so has done few pre-award pricing audits. But the agency last year promised to boost that number, and so far it seems intent on keeping that promise. Many of these new, pre-award audits will hit time-and-materials service contractors in the next year or two as they come up for their five-year renewals.
Some of them may stumble on the requirement to establish the commerciality of their hourly rates.

New time-and-materials payment rule. The proposed new rule would clarify the existing rule, but it could affect adversely the financial incentives of large IT contractors to parcel out work to small-business subcontractors. The trick under the proposed rule is to ensure that the payment clause identifies the subcontractor by name.

Walter Zenner is a senior counsel in the government contracts group at Pillsbury Winthrop Shaw Pittman LLP in McLean, Va. He can be reached at

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