The American Small Business League recently released a statement that Section 815 of Senate bill 3454, the National Defense Authorization Act of 2011, "may allow senior Department of Defense (DoD) officials to secretly 'blacklist' government contractors at their discretion and without notice to the contractor or accountability to the public."
This is, of course, the same bill that contains provisions for withholding payment from contractors whose business systems are deemed inadequate. The bill follows proposed changes to the DFARS that would withhold payments up to 100% for "inadequate" business systems, including purchasing systems, which in turn includes subcontracting.
That federal government officials want more and more control over the contracting and subcontracting process is nothing new. Section 815, which covers risk to the supply chain, poses additional challenges for contractors and subcontractors.
At first glance, Section 815 seems to apply only to technology vendors and their suppliers, and it seems to be intended to block terrorists and hackers from maliciously manipulating mission-critical hardware and software. It appears to be a well-intended provision for ensuring that crucial tech vendors--and the military groups who depend on them--can't be shut down by a weak link in the supply chain. Who would be against that?
But the devil is in the details. A more thorough reading reveals some very open-ended wording that could lead to the section being used to justify draconian measures taken arbitrarily against contractors and subcontractors, leaving them with no recourse to restore their businesses and good names.
Section 815 starts by giving the head of "an agency" (which agencies are allowed this power is not specified) to establish qualification requirements for the reduction of supply chain risk, and restrict competition to companies who can meet those requirements. Apparently irrespective of these qualification requirements, the agency head can establish supply chain risk as a major criteria for evaluation of a bid. This begs the question of whether Section 815 could be construed as giving agency heads the ability to exclude non-tech contractors and subcontractors.
The statute does not cover what happens when different agencies establish different qualification requirements. How can a small business keep up with these requirements on top of all the Federal Acquisition Regulations, even if it has an effective FAR management system? These requirements are only available upon request--so contractors must know to request them and contracting officers must be knowledgeable enough to deliver them.
The section goes on to outline how a company that either cannot meet qualification requirements or has been deemed to pose a "supply chain risk" can be restricted from competition either as a contractor or subcontractor. It then states that a determination against a company must be in writing but does not have to be disclosed via Federal Register, that it is at the sole discretion of the agency head or senior procurement executive, and is not subject to review by either a GAO protest or the Federal court.
It doesn't take a contracting expert or attorney to point out the obvious potential for abuse by agency leaders. There are no apparent checks and balances to this system. On top of this, there is another problem that the bill doesn't even address--how the actions of one agency head affects another. Can the head of one agency blacklist a contractor who does business with multiple agencies and therefore cause other agencies to terminate contracts and blacklist the contractor as well? If the answer is yes, then what happens when one agency head blacklists someone another agency head needs to provide crucial systems? And what about contractors who are caught in the middle of inter-agency power struggles?
This is only part of the problem with this pending legislation. We'll examine some of the implications for prime contractors as well as smaller subcontractors next week.
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