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Government Contracts 2017: Discussion

Who’s Who Legal brings together Robert Metzger at Rogers Joseph O’Donnell and Jenny Mellerick at McCann Fitzgerald to discuss the issues facing practitioners and clients in the industry today, including recent legislative developments, the increase in disputes work and the effects of evolving political agendas. 

Government Contracts 2017 Discussion

 

 

 

 

 

 

 

 

Have there been any significant legislative developments in your jurisdiction over the past year?

Robert Metzger: In the US, the past year has produced few legislative developments affecting government procurement. Some of the explanation is in the contentious partisanship that characterised the relationship between Congress and the Executive Branch during the closing months of the Obama administration. The new Trump administration has accomplished little with Congress, despite Republican majorities in both the Senate and House, and has yet to articulate many objectives as concern government acquisition.

There were some legislative actions, however, important to facets of federal procurement. Congress has determined that the Department of Defense (DoD) should split acquisition responsibilities from research and engineering. This will reduce the influence and power of the present “acquisition, technology and logistics” office of the DoD. Congress also passed several laws that continue to emphasise a legislative view that federal needs should be met, in most cases, by purchasing commercial goods and services from commercial suppliers rather than relying upon government-specific supplies from specialised sources. Several considerations contribute to this policy. One is fiscal – Congress believes it can save money by opening up federal needs to broad competition among commercial sources. Another is political, in that Congress is responding to pressure from many commercial companies, in IT and other industries, who seek to sell to federal customers without the burden of regulatory restraints and obligations. But there also is a strategic dimension. Especially as concerns Pentagon purchasing, Congress wants to facilitate access to the agility and ingenuity of the private sector.

Recently, there are signs the Trump administration will increase domestic preferences and raise barriers to foreign sources. Some of this may be justified as reducing vulnerability to a supply chain dependent upon foreign suppliers, but the result is likely to be seen as a revival of “protectionism”, widely regarded as neither sustainable nor successful. 

Jenny Mellerick: The main legislative development in government contracting in Ireland has been the introduction of the updated EU procurement regulations in May 2016, and the very recent introduction of new regulations governing concession contracts in May 2017. The regulations largely reflect existing European case law built up over the ten years since the previous regulations were introduced. Nonetheless, public sector and private entities have still spent time over the past year getting familiar with the updated rules, and changing tender documentation to reflect the new provisions. There had been considerable speculation in the public-private partnership sector as to the approach the new concessions regulations would take, since many public-private arrangements are entered into on a concession basis. The regulations as published have a relatively light-touch approach which is to be welcomed, as it allows flexibility for procuring entities to design competitions to suit the particular contract at issue while preserving key protections for bidders. It also allows Irish law to take account of case law from the European courts as it develops. As with the US, there is a keen focus generally on allowing the public sector to benefit from access to the private sector, while ensuring that lessons learned on public-private arrangements, in both this jurisdiction and others, are rolled forward into future competitions.

If so, how have these developments affected client expectations and desires?

Robert Metzger: The US federal government is both enormous and diverse in its purchases. As a general proposition, however, all facets of government, both civil and military, continue to spend on information technology to better perform internal agency functions and to improve the quality and responsiveness of services affecting the population. In years past, the US government, and particularly the DoD, were key funding sources for technology initiatives that later came to benefit commercial sectors and the citizenry. This has changed. In recent actions intended to promote government purchases from commercial sources, without the burden of special federal rules, and without what some call the “regulatory price premium”, Congress recognises that many of the advances sought in government function can best be achieved relying upon technologies and methods initiated by the private sector. Historically, government-funded technology programmes often are costly and elongated. By enabling easier purchases from commercial providers, Congress encourages agility in government that can exploit rather than trail behind the pace and convergence of emerging technologies.

A particularly noteworthy development is the emergence of cloud services as an instrumentality to support government administrative functions and deliver services to citizens. Cloud may displace “premises based” investments by public agencies and move more formerly government functions to the private sector. The shift to cloud will disrupt established business models and enable new opportunities, but there is increasing risk of market dominance by a small number of hyperscale firms.

Jenny Mellerick: In Ireland, both public and private-sector entities have had to spend time getting to grips with the updated procurement regulations. On the public-sector side, this means updating documents and procedures to take account of both new constraints and new flexibilities. For the private sector, there has been a welcome focus on seeking to streamline and cut costs in procurement procedures, including an emphasis on electronic procurement and the potential to re-use common information from one competition to another. An area of interest to both sides is the increased focus on record-keeping, with public sector entities in particular having to keep detailed records of each procurement process, including pre-procurement planning and “internal deliberations”. While there is no specific entitlement under procurement legislation for the private sector to see these records, we can expect to see them being requested both in procurement challenges and under freedom of information rules. Keeping these detailed records, for the public sector, is a resource-intensive exercise, and many public-sector entities need to adapt their internal procedures to ensure they are complying with the new rules as efficiently as possible.

Practitioners continue to report that bid protests and challenges are rising. What do you think is driving the increasing number of disputes?

Robert Metzger: Protests continue to grow, year after year, in federal forums and in state and local procurements. Some of the reason lies in the frustration of federal contractors who question whether their offers have been fairly treated by procurement officials who may apply incorrectly complex procurement rules. As concerns US federal acquisition, however, a crucial factor is the relatively low cost of bringing a protest to the Government Accountability Office (GAO) and the fact that filing a protest, in all but a very small percentage of procurements, results in a “stay” of intended award that can last 100 days. For companies who have lost a new competition for a follow-on contract, protests become a way to extend incumbency. For companies who wish to displace an incumbent and secure a new award, the perception is common that there is little to lose, much potential gain, and relatively low cost to file a GAO protest. Within the public contracts bar, most lawyers’ views support the protest status quo. But some disagree. Protests are disruptive of agency intentions and can result in significant costs associated with delay in new awards. Nonetheless, in 2016 Congress considered but again declined to act to limit federal bid protests.

Agencies increasingly are moving towards so-called “leveraged purchasing” instruments to reduce the need for new, formal procurements that might prompt protests. We can expect to see further efforts in 2017 to reduce the exposure of public acquisition programmes to protests.

Jenny Mellerick: As with the US, procurement challenges are increasing in Ireland year-on-year. In a rising market, this may be somewhat surprising, since challenges tend to be more common when entities badly need government work, rather than when there is plenty of work available in the private sector. However, the private sector is increasingly familiar with public procurement rules and, as the number of challenges increases, the “fear factor” of being seen to challenge state entities recedes. Like the US, the “stay” of intended award is also an attractive feature in Ireland – for a relatively low initial investment in filing proceedings, challengers can tie contracts up in the Irish courts for many months. This can benefit an incumbent, as Robert suggests, and can also be used as leverage by disappointed bidders where the public body is under pressure to deliver the contract at issue and so may take a decision to collapse the competition and re-tender, rather than face long and costly legal proceedings.

How has the increasing frequency of disputes affected competition in the legal market?

Robert Metzger: The landscape of legal services for government contractors is changing. In the past few years, we have seen many larger companies reduce use of outside government contracts counsel and move these responsibilities in-house. Another trend has been the decision of many companies to reduce significantly the number of outside law firms they use. Further, there seems to be more willingness on the part of companies to make price a lead consideration in the selection of outside counsel. As to disputes, it is important to distinguish between disputes between contractors and the government, on the one hand, and disputes between contractors, on the other. As concerns the former, government investigations and actions under the False Claims Act continue to create opportunities for private law firms. This work often is outside the specialisation of in-house counsel, and the attorney-client privilege may be more helpful if outside representation is used. With respect to disputes between contractors, however, the litigation process is expensive, slow and unpredictable. Fewer companies are likely to pursue civil litigation except for matters of great enterprise importance. Alternative methods of dispute resolution are attractive alternatives.

Jenny Mellerick: The increasing frequency of disputes keeps tendering authorities focused on the importance of compliance with the procurement rules at all times. As Robert notes, in this regard internal legal teams can often seek assistance from external legal counsel, given the specialised nature of the work involved. Depending on the tendering authority involved, external lawyers may be brought in only if a challenge is raised to an individual competition, or may work closely with the authority from the outset of the process to ensure that the competition is designed and run in accordance with procurement law. Experienced legal specialists can bring significant value to tendering organisations in this regard, as they can apply both commercial and legal “lessons learned” from a wide range of procurements for the benefit of a tendering authority. In Ireland, the central government purchasing agency (OGP) has focused on ensuring value for money and competition in the legal market and, following open tender competitions, has set up a large number of frameworks for legal services which can be availed of by the public sector, for firms of all sizes.

A commitment to infrastructure spending seems to be squarely on the political agenda on both sides of the Atlantic at the moment. Do you anticipate steady growth in the amount of available work in the government contracts space in the future?

Robert Metzger: In the US, the Trump administration has announced an intention to invest in infrastructure but its ability to deliver on that intention is uncertain. No comprehensive infrastructure plan has been presented to Congress and the administration has yet to provide a credible explanation of how to foot the bill. Also, there are many choices to be made in deciding which infrastructure to improve, where, how and with what priority. These decisions implicate not only multiple federal agencies but also important state and local considerations. Without more effective leadership, the US may be slower to invest in public infrastructure improvements than some expect. However, cyber protection of critical infrastructure is likely to gain priority as US planners increasingly recognise the vulnerability to a variety of cyber-enabled attacks.

Jenny Mellerick: Like the US, infrastructure spending is on the agenda in Ireland, for both state and semi-state entities seeking to deliver on policy goals. Due to the specialised nature of the expertise required of both legal and financial advisers in infrastructure work, we do see steady growth in the legal sector in this area as infrastructure spending remains on the agenda. There is an increase in tendering authorities bringing some work in this area in-house, but we see continued reliance on external advisers for the time being. As noted by Robert, cybersecurity for critical infrastructure is also crucial, with obligations in this regard in the European General Data Protection Regulation and also the 2016 Directive on Security of Network and Information Systems, which must be implemented in Ireland by May 2018. Contracts relating to infrastructure provision will need to take account of these ICT aspects going forward. Again, this is a specialised area which we would see as involving expert legal advice, in addition to the procurement, commercial, and construction advice generally associated with infrastructure projects.

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