Procurement
Law yer
The
Section of Public Contract Law • American Bar Association • Volume 47, Number 2 • winter 2012
Veterans First? VA Should Give Vet Contracting
Program Priority
By Jonathan T. Williams
George Washington famously
observed that, “[t]he willingness with which our young
people are likely to serve in
any war, no matter how justified, shall be directly proportional to how they perceive
veterans of earlier wars were
treated by their nation.” No
federal agency has been more
instrumental in carrying out
programs to aid our military
veterans than the US Department of Veterans Affairs (VA).
Among many veteran contractors, however, the current perception is that the VA is not doing enough to embrace and
implement its Veterans First Contracting Program.
This view is held with good reason. Despite a statutory
and regulatory scheme that establishes a contracting priority
for service-disabled, veteran-owned small businesses (SDVOSBs) and veteran-owned small businesses (VOSBs)
above all others in VA procurements, several decisions, including the recent US Government Accountability Office
(GAO) ruling in Aldevra,1 reveal that the VA is not adhering
to the “Veterans First” mandate. Quite the opposite, the VA
has fought vigorously to defend positions that directly contradict the priority for SDVOSBs and VOSBs, even going so
far as to ignore the GAO’s recommendations in Aldevra.
Furthermore, the VA’s Office of Inspector General (OIG) recently found numerous shortcomings in the verification process for SDVOSBs and VOSBs, a process that has resulted in
denials of roughly half of the applications over the last year,
many without a sufficient or efficient review.
Jonathan T. Williams is a partner with the firm of PilieroMazza PLLC in
Washington, D.C. The author wishes thank Peter B. Ford, an associate
at the firm, for his invaluable contributions to this article.
This article examines the adversarial positions the VA
has taken against the Veterans First Contracting Program
and questions the wisdom of this approach by the very
agency that is uniquely entrusted with the program’s implementation. The article also looks at the challenges facing
the VA’s Center for Veterans Enterprise (CVE) in verifying
the eligibility of firms for the Veterans First Contracting
Program and concludes that it is too soon for Congress to
expand the CVE’s role to cover all federal agencies that restrict procurements for SDVOSBs.
Background
In 1999, Congress passed the Veterans Entrepreneurship
and Small Business Development Act of 1999 because, although veterans “have been and continue to be vital to the
small business enterprises of the United States,” Congress
found that “[t]he United States has done too little to assist
veterans, particularly service-disabled veterans, in playing a
greater role in the economy of the United States by forming and expanding small business enterprises.”2 The law
(continued on page 22)
Issue Highlights
News from the Chair 2
Asserting a “Sum Certain”: A Tutorial
3
The Impact of Stanford v. Roch on Technology
Licensing under Bayh-Dole
5
Alternative Delay-Based Entitlement Thories
to the Government Delay of Work Clause
17
News from the Committees
20
Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
News from the
CHAIR
Carol N. Park-Conroy,
Chair
It just does not seem possible
that I am already writing my
second “News from the
Chair” column in The Procurement Lawyer. There is
much to report and many
people to thank for their substantial efforts on behalf of
the Section.
Let me begin with our recent programs. The 5th Biennial Federal Drug Pricing Program, “Confronting the
Complexities of Federal Drug Pricing,” was held October
17–18, 2011, at the Crystal Gateway Marriott in Arlington,
Virginia. The program was exceptional, as reflected by the
strong paid attendance and favorable comments, particularly about the quality of the written materials. Special
thanks to Stephen Ruscus, who served as program chair,
and to Joy Sturm, Allison Pugsley, Connie Wilkinson,
Donna Lee Yesner, and the other members of the Health
Care Contracting Committee for their contributions in
making the program a success.
Less than a month later, on November 4–5, 2011, the Section held the fall educational program and Council meeting
in Albuquerque, New Mexico. The program, “Emerging
Federal Markets,” featured government and industry experts
who discussed priority problems rapidly surfacing in the areas
of cybersecurity, Internet security and privacy, new innovations in research and development contracting, and recent
advancements in public-private partnerships. We were privileged to have Captain David C. Iglesias, US Navy, chief trial
attorney, Office of the Chief Prosecutor, Office of Military
Commissions, as our luncheon speaker. Captain Iglesias provided us with a fascinating history of military commissions
and the significant present day work they now perform at
Guantanamo Bay, Cuba. Many thanks to the program cochairs, Anne Donohue, Kevin Mullen, and Al Purdue, for a
job exceedingly well done.
I am compelled to pause here and note that we have always
taken pride in the Section’s educational programs because of
the expertise and diversity of the speakers and the quality of
the program materials. The Federal Drug Pricing and Emerging Federal Markets programs were outstanding examples of
the Section’s educational programming excellence.
Carol N. Park-Conroy is the 2011–2012 Section chair and an administrative judge on the Armed Services Board of Contract Appeals in Falls
Church, Virginia.
2 This brings me to the Fall Council Meeting. Of considerable interest to the Section’s committees will be the
Council’s adoption of guidelines for the posting of information on the Section’s new webpage. The guidelines were
initially developed by the revamped Technology and Electronic Communications Committee, cochaired by Greg
(continued on page 27)
Procurement
THE
LAWYER
The Procurement Lawyer (ISSN: 1079–073X) is published quarterly by
the American Bar Association’s Section of Public Contract Law, 321 N. Clark St.,
Chicago, IL 60654–7598, as a benefit of Section membership. Nonmember
subscriptions are $40; single copies are $10 plus S&H. Contact the ABA Service
Center at (800) 285–2221.
The Procurement Lawyer seeks to provide Section members with information on
current developments in federal, state, and local procurement law. The opinions
expressed here are those of the authors and do not necessarily represent those of
the ABA or the Section.
Change of Address: Mail to Procurement Lawyer, Member Records at 321
N. Clark St., Chicago, IL 60654-7598 or go online to Member Services at www.
americanbar.org.
Reprints: For permission, send requests to [email protected] or go
online to www.americanbar.org/reprint.
Manuscripts: Mail to Nicole Owren-Wiest at Wiley Rein LLP, 1776 K St, NW,
Washington, DC, 20006-2304 or e-mail to [email protected]. If
accepted, articles must be available electronically. For a style guide, visit www.
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Contract Law Journal.
Editor in Chief:
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(202) 719-7430
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Associate Editors: John A. Burkholder
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Herman D. Levy
[email protected]
Reba A. Page
[email protected]
Howard W. Roth III
[email protected]
Kathryn E. Swisher
[email protected]
Richard J. Webber
[email protected]
ABA Publishing
Editor:
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Designer:
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Copyright 2012 American Bar Association
The Procurement Lawyer Winter 2012
Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
Asserting a “Sum Certain”: A Brief Tutorial
By Reba Page
Although the requirement
that a monetary claim be asserted in a sum certain is
nothing new, the matter of
whether this was properly
done continues to be the
subject of a significant number of appeals. This article
provides a brief tutorial on
the topic by examining some
of the recent decisions rendered on the issue by the
Armed Services Board of Contract Appeals.
The Requirement for a Sum Certain. The Contract
Disputes Act of 1978 (CDA), 41 U.S.C. §§ 7101–7112 (formerly 41 U.S.C. §§ 601–13 (2006)), grants a limited waiver of
sovereign immunity by permitting the US government to be
sued in its capacity as a contracting party. The CDA and its
implementing regulations establish “procedures and requirements for asserting and resolving claims subject to the Act.”1
To be a cognizable claim under the Act, a contractor’s submission for monetary relief must (among other things) be
stated in a “sum certain.”2 Thus, the FAR defines a claim as,
in relevant part, “a written demand or written assertion by
one of the contracting parties seeking, as a matter of right,
the payment of money in a sum certain. . . .” 3
The purpose for requiring a “sum certain” is to provide
the contracting officer (CO) with “adequate notice of the
basis and amount of the claim.”4 Because this is a jurisdictional requirement,5 the question too often raised in a motion to dismiss for want of jurisdiction, or even sua sponte
by ASBCA, is whether a “sum certain” was asserted when
the claim was before the CO. Parties continue to use qualifying adjectives or phrases that may bring in to doubt precisely how much they seek, and thus deprive the board of
jurisdiction over all or part of the appeal. Following are
some of the decisions recently rendered by the board on
this issue, as well as synopses demonstrating what the
board has found acceptable and what it has not.
Computer Sciences Corporation, ASBCA Nos. 56165,
56166, 56167, 56170, 10-2 BCA ¶ 34,572 (Sept. 21, 2010).
Lesson learned: The board examines a claim as it is submitted
to the CO, and regards the proper allocation of previously
Reba Page was apointed administrative judge to the Corps of Engineers
Board of Contract Appeals on July 1, 1994, and chairman of the Engineer Board on January 30, 1999. She became a member of the Armed
Services Board of Contract Appeals on July 12, 2000, with the merger
of ASBCA and the Engineer Board. This article considers existing case
law addressing matters of jurisdiction only, and not the merits of any
particular case. The views expressed herein are those of the author, and
do not necessarily represent those of the United States Department of
Defense or the Armed Services Board of Contract Appeals.
paid amounts as a matter of proof of quantum.
The government asserted that the board lacked jurisdiction over four claims consolidated in these appeals, because
the contractor allegedly failed to satisfy the CDA requirement that a claim be stated in a sum certain. The contractor
had submitted multiple certified claims to the CO that were
each stated in a specific monetary amount. The government
contended that these amounts were not in a sum certain, as
the CO could not “sort out” how to allocate the government’s earlier payment of $42.4 million among the various
claims to determine the “sum certain” amount of each.
The board rejected this argument, reiterating that it undertakes a “common sense analysis in evaluating the CDA
claim factors.”6 It emphasized that the “jurisdictional validity of a claim is determined at the time of submission to the
[CO] and the accuracy of the sum certain amount claimed
goes to the merits of the claim, not to its validity as a
claim.”7 The board held that CSC had properly stated specific dollar amounts for each of the controverted claims,
and determined that the issue of how to allocate prior government payments is a “matter relating to proof of quantum, not one relating to our jurisdiction over the claim in
the first instance.” 8
J.P. Donovan Construction, Inc., ASBCA No. 55335,
10-2 BCA ¶ 34,509 (July 16, 2010). Lesson learned: A prime
contractor’s use of the qualifying word “approximately” to
describe a requested amount does not state a sum certain.
The board raised sua sponte the issue of whether a subcontractor’s pass-through claim brought by the prime contractor was stated in a sum certain. The prime contractor
referenced the subcontractor’s request for an equitable adjustment in the amount of $559,764, but added that, “Donovan has or will have approximately $65,000.00 of additional direct and administrative costs” that should be
added to this amount.9 The board held that this failed to
state a sum certain and that it was deprived of jurisdiction,
despite the CO’s having rendered a decision on the alleged
claim. “The requirement that a claim be in a sum certain
necessitates that the amount being demanded in the claim
not be the subject of qualifying language, such as “approximately.”10 The decision noted, however, that the use of
qualifying language is not fatal to jurisdiction where “the
sum certain being demanded is expressly stated (or ascertainable) elsewhere in the claim.”11
Freeport Technologies, Inc., ASBCA No. 56665, 10-2
BCA ¶ 34,492 (June 24, 2010). Lesson learned: Including
unspecified amounts “to be determined” deprives the board
of jurisdiction, as the “claim” is not stated in a sum certain.
The contractor alleged that the government breached
the subject contract for audio-visual services at Bolling Air
Force Base, and submitted claims for (among other things)
“unspecified damages in the amount of the lost profits”
Volume 47, Number 2 The Procurement Lawyer 3 Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
associated with the allegedly improper termination of particular work.12 The board held that the statement of lost
profits in appellant’s “Summary of Consequential Damages” as “TBD [to be determined]” did not constitute a sum
certain, and dismissed that claim for lack of jurisdiction,
citing Reflectone, Inc. v. Dalton, 60 F.3d 1572, 1575 (Fed.
Cir. 1995).
Northrop Grumman Systems Corporation Space Systems Division, ASBCA No. 54774, 10-2 BCA ¶ 34,517 (July
22, 2010). Lesson learned: Alternative claim for an amount
“in excess of” the stated monetary amount was not stated in
a sum certain, but was severable from the certified claim.
The contractor’s request for an equitable adjustment
sought $12 million, but advised that “if” the government
chose to abrogate its alleged settlement agreement, “then”
the contractor would seek an amount “in excess of” the purportedly agreed-upon amount.13 The board raised sua sponte
the issue of whether the claim was stated in a sum certain,
and directed the parties to provide supplemental briefs on
the issue. The board determined that the questioned language was not stated in a sum certain, because it sought an
unspecified amount “in excess of” a stated dollar amount.
However, the board also determined that this section was
stated as an alternative claim that was severable from the
primary claim and dismissed only this part of the appeal.14
Wimberly, Allison, Tong & Goo, ASBCA No. 56432,
10-1 BCA ¶ 34,365 (Jan. 28, 2010). Lesson learned: The
sum certain requirement applies to government claims as
well as contractor claims.
The board granted appellant’s motion for reconsideration, and affirmed its prior decision dismissing the appeal
for lack of jurisdiction. The board determined that it lacked
jurisdiction over the contractor’s appeal of the CO’s pur-
✮✮✮
Section Funds Pro Bono for Military
The ABA Section of Public Contract Law will
sponsor the ABA Military Pro Bono Project in the
amount of $5,000 (as a “Three-Star Supporter”).
The Section determined that this amount would
allow continued sponsorship of the project through
2012. The project was established by the ABA
Standing Committee on Legal Assistance for
Military Personnel (LAMP) in 2008 to help meet
the pro bono representation needs of active-duty
service members and their families. For more
information, please visit www.militaryprobono.org.
4 ported final decision, because the alleged claim did not demand a sum certain. The CO had notified the contractor
that the government would, in the future, seek payment “to
the extent” that appellant was responsible for “some or all”
of various amounts claimed by the general contractor. The
board held these “multiple amounts, dependent upon a
host of contingencies” in other litigation, “do not equate to
a ‘sum certain’.” It cited Southwest Marine, Inc., ASBCA
No. 39472, 91-3 BCA ¶ 24,126 at 120,744 (June 26, 1991),
which held that under the CDA, “a ‘pick one’ claim is not a
claim for a sum certain’,” and Hom-Russ, Inc., ASBCA No.
46142, 94-2 BCA ¶ 26,635 at 132,477 (Jan. 12, 1994), which
held that “‘a demand for an amount that ‘exceeds $10,000’ . . .
[does] not satisfy the [CDA’s] quantification requirement.’ ”15
MACH II, ASBCA No. 56630, 10-1 BCA ¶ 34,357
(Jan. 12, 2010). Lesson learned: Jurisdiction is determined
by the contractor’s claim as submitted to the CO, not
whether the complaint is stated in a sum certain.
Although the contractor’s certified claim set forth the
sum certain amount of $238,035.42 allegedly owed to it by
the government, appellant’s amended complaint sought
“an uncertain sum, described as ‘not less than $978,709.04.’ ”
The board granted the government’s motion to strike this
portion of the amended complaint, without prejudice to
the submission of a claim or claims to the CO that complied with the requirements of the CDA. The decision
noted that the scope of an appeal and the board’s jurisdiction thereof, are determined by the claim as submitted to
the CO, and not the pleadings. Accordingly, the board had
jurisdiction to determine the merits of the appeal as it related to the original certified claim.16 PL
Endnotes
1. Federal Acquisition Regulation (FAR) 33.202.
2. 41 U.S.C. § 605(a) (2006); FAR 2.101; Essex Electro Eng’rs, Inc.
v. United States, 960 F.2d 1576, 1581–82 (Fed. Cir. 1992), cert. denied, 506 U.S. 953 (1992).
3. FAR 2.101 (emphasis added); see also FAR 52.233-1, particularly
¶ (c); James M. Ellett Constr. Co. v. United States, 93 F.3d 1537,
1542 (Fed. Cir. 1996).
4. Contract Cleaning Maint., Inc. v. United States, 811 F.2d 586,
592 (Fed. Cir. 1987).
5. Eaton Contract Services, Inc., ASBCA Nos. 52888 et al., 02-2 BCA
¶ 32,023 at 158,266-69 (Oct. 19, 2002).
6. CSC slip op. at 4, citing Transamerica Insurance Corp. v. United States, 973 F.2d 1572, 1579 (Fed. Cir. 1992).
7. See Harbert Int’l, Inc., ASBCA No. 44873, 97-1 BCA ¶
28,719 at 143,357, recon. denied, 97-2 BCA ¶ 29,235 at 145, 432 and
Eaton Contract Servs., Inc., ASBCA Nos. 54045, 54055, 03-2
BCA ¶ 32,273 at 159,664 (CSC, slip op. at 4–5).
8. Id. at 5.
9. 10-2 BCA at 170, 170.
10. Id. at 170,171 citing Van Elk, Ltd., ASBCA No. 45311, 93-3
BCA ¶ 25,995 at 129,237 (Apr. 20, 1993).
11. 10-2 BCA at 170,171 citing United Tech.s Corp., Pratt & Whitney Grp., Gov’t Engines and Space Propulsion, ASBCA Nos. 46880,
et al., 96-1 BCA ¶ 28,226 at 140,946 (Feb. 29, 1996).
12. 10-2 BCA at 170, 127.
13. 10-2 BCA at 170, 228.
14. Id. at 170,232–33.
15. 10-1 BCA at 169,704.
16. Id. at 169,673.
The Procurement Lawyer Winter 2012
Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
The Impact of Stanford v. Roche on Technology
Licensing Under Bayh-Dole
By James G. McEwen, Sean M. O’Connor, John E. McCarthy Jr., and Susan Warshaw Ebner
James G. McEwen
Sean M. O’Connor
The University and Small Business Patent Procedures Act
of 1980,1 more commonly known as the Bayh-Dole Act,
and its implementing regulations apply to and clarify the
priority of rights of small business and nonprofit organizations in inventions that are funded by the government
through procurement contracts, grants, and cooperative
agreements (collectively, “funding agreements”).2 While
seemingly an obscure act, Bayh-Dole is often held up as one
of the most important pieces of legislation governing patent rights resulting from collaborations between private institutions and the government, and is a model on which
other countries have based their attempts to promote technology transfer between government and the private sector.3 Arguably, in the drive to harmonize global patent
laws, Bayh-Dole is the one of the few US patent policies
being adopted willingly by other countries. Accordingly,
the operation of the Act has far-reaching consequences.
Under Bayh-Dole, small businesses, universities, and
other nonprofit organizations may elect to retain title to
subject inventions rather than confer title to the governJames G. McEwen is a partner at Stein McEwen LLP, Washington,
D.C. Contact him at [email protected]. The author wishes to
thank Grant Gildehaus for his input and Bluebook assistance on this
article. Sean M. O’Connor is a law professor and the faculty director
of the Law, Business, and Entrepreneurship Program at the University
of Washington School of Law. Contact him at [email protected]. John
E. McCarthy Jr. is a partner at Crowell & Moring LLP, Washington,
D.C, focusing on government contracts law. Contact him at jmccarthy@
crowell.com. The author wishes to thank Jonathan Baker of Crowell &
Moring for his assistance. Susan Warshaw Ebner is counsel at Buchanan Ingersoll & Rooney, Washington, D.C., focusing on government
contracts law. (Buchanan Ingersoll & Rooney did not represent Roche
in this matter but represents Hoffman-LaRoche, Inc. in other matters.)
Portions of this article were previously presented at the CLE Roundtable:
The Impact of Stanford v. Roche on Private Party Transactions:
Can and Should Bayh-Dole Decide Ownership of Inventions Not
Owned by the Contractor, 26th Annual ABA Intellectual Property
Law Conference (Apr. 2011). Some portions also appeared on the
IPOsgoode blog on January 24, 2011.
John E. McCarthy Jr.
Susan Warshaw Ebner
ment.4 In return, the government receives a license to use
the subject invention or to permit others to do so for government purposes (including procurement).5 Pursuant to
Executive Order 12591, these same rights are conferred on
large contractors to the extent permitted by law.6 Thus,
under a typical funding agreement, a contractor is entitled
to retain title in its subject inventions, with the government obtaining only a license to those inventions.7
Not all inventions are “subject inventions.” A subject invention to which these rules apply is “any invention of the
contractor conceived or first actually reduced to practice in
the performance of work under a funding agreement.”8 The
government only obtains rights in those inventions that
are: (1) of the contractor; and (2) are first conceived or actually reduced to practice accruing under funding agreements with the contractor. Importantly, and as discussed
below, these requirements specifically disclaim certain inventions (background inventions), such as those that are
outside the statement of work of a funding agreement.
As a preliminary matter, it is important to understand
that although the government acquires rights in “subject
inventions,” it does not acquire rights in background inventions unless specifically and separately provided for by contract.9 If background inventions are needed, the government is required to pay for its licensed use in the same
manner as a private individual.10 It is also important to understand that Bayh-Dole and its implementing regulations require the contractor have in place a proper system,
including record-keeping and reporting, to ensure the
government obtains its rights in subject inventions.11 The
entire reporting system is predicated on the contractor having such a plan, and the standard patent clauses actually require large contractors to ensure such a plan exists in order
to adequately track and report inventions. The assurance
that such a plan exists is a condition of compliance with
the clause in the first place and can be grounds for withholding final payment.12 Thus, there is a contractual re-
Volume 47, Number 2 The Procurement Lawyer 5 Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
quirement that effectively requires the contractor to obtain
the necessary assignments from the inventor for subject inventions (which are necessarily inventions “of the contractor”), and there is no express revocation of the fundamental
rule that the invention is first owned by the inventor.13
Among the reporting requirements is a requirement to report subject inventions and thereafter to inform the government whether the contractor will be keeping ownership of
the invention (i.e., title) and in which countries.14 The contractor also must inform the government of the countries in
which it is declining title, whether it is failing to make a
maintenance fee payment, or the countries in which it is otherwise allowing the application to go abandoned.15 Where
the government also declines title so as to allow the invention
to go abandoned or become unenforceable, Bayh-Dole permits the contractor and government to allow the inventor to
have title.16 In this scheme, the inventor could also be an assignee of title if the contractor directly assigns the invention
to the inventor instead of declining title. However, for nonprofits and universities, this type of assignment requires the
initial consent of the government funding agency.17
Whether an invention was first conceived or actually reduced to practice under a government contract has been
litigated both after passage of Bayh-Dole and under predecessor procurement regulations. Often, the issue is whether
the government already has a license in a third-party patent or, under 28 U.S.C. § 1498(a), is required to pay reasonable compensation for use of a contractor’s patented invention. In these cases, the issue is not as to ownership of the
patent, but whether the invention should have been a “subject invention” to which the government has a license. In
asserting such an argument, the government carefully reviews the interactions between the contractor and the government to identify funding agreements that might render
the invention a “subject invention.”
For instance, in Rutgers v. United States,18 the Court of
Federal Claims determined an invention conceived during
a contract was not a subject invention since, while it was
conceived during a contract, it was outside the statement of
work. Even though the statement of work was later modified to include the invention, the court reached this decision because there was no evidence the invention was later
actually reduced to practice under the contract having the
enlarged statement of work. In contrast, in Mine Safety Appliances Co. v. United States,19 because the first reduction to
practice of an invention occurred between contract phases
but was within the statement of work, the resulting invention was deemed a subject invention with a “close and umbilical connection” to the work.20 Thus, the inquiry under
Bayh-Dole typically focuses on whether the inventive
events (conception and reduction to practice) occurred
during a funding agreement, not on whether the invention
is one “of the contactor” as defined by the Act. For this reason, until Board of Trustees of the Leland Stanford Junior
University v. Roche Molecular Systems, Inc., 21 there was very
little judicial guidance on the first requirement—whether
the invention is “of the contractor.”
6 In sum, Bayh-Dole provides a comprehensive framework
to ensure a subject invention is commercialized at some
level, either by the contractor (or its assignee), the government, or the inventor if both the contractor and government would otherwise allow the patent to go abandoned.
However, while Bayh-Dole most obviously allocates rights
between the government and the contractor, it was unclear
until Stanford v. Roche whether it also allocates rights
among private parties to the extent those private parties
are not all participants in the federal funding agreement.
The Supreme Court found that it does not.
Stanford v. Roche: The Background
In Stanford v. Roche, Stanford owned patents related to
methods for quantifying human immunodeficiency virus
(HIV) in human blood samples using polymerase chain reaction (PCR) and correlating those measurements to the
therapeutic effectiveness of antiretroviral drugs (hereinafter the “PCR patents”). The inventors, Mark Holodniy,
Thomas Merigan, and David Katzenstein, were Stanford
researchers who had originally signed individual employment agreements with Stanford agreeing to assign their
rights in inventions to the university. Each of these employment agreements required that the signer “agree to assign” inventions to Stanford.
Prior to conceiving of the invention underlying the
PCR patents but after signing the employment agreement
with Stanford, Holodniy signed a visitor confidentiality
agreement (VCA) with Cetus, a private company, as a condition of learning about PCR. Pursuant to the Cetus VCA,
Holodniy did “hereby assign” all “title, and interest in each
of the ideas, inventions and improvements” that he may
devise “as a consequence of” his work at Cetus. It was only
subsequent to signing the Cetus VCA that Holodniy returned to Stanford to continue his research and later reported to Stanford the invention underlying the PCR patents as a subject invention pursuant to a funding agreement
between Stanford and the National Institutes of Health
(NIH). The patent application was filed as if the invention
was first conceived and first actually reduced to practice at
Stanford. Cetus was not aware of the filing.22 It is clear from
the record that Holodniy created the PCR patents as a result of the PCR techniques learned while at Cetus operating under the VCA.
Stanford, in turn, reported to NIH that the invention
was a subject invention in which the government would
obtain rights under Bayh-Dole and notified the government it was retaining title to the invention.23 Stanford duly
required the inventors to assign its rights to the invention
to Stanford, which each did. The issued patents list Stanford as the assignee.
Several years later, Roche purchased Cetus’ assets, giving Roche ownership of Cetus’ intellectual property. When
Roche began selling HIV assay kits based on that intellectual property, Stanford disclosed to Roche the patents-insuit and offered Roche a license. Based on Holodniy’s VCA
and because the techniques he learned and applied in de-
The Procurement Lawyer Winter 2012
Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
veloping the assay came from Cetus, Roche claimed it had
co-ownership, or at least a “shop rights” license, of the patents-in-suit, and refused to take the license. Stanford sued
and the trial court found, in part, that Holodniy could not
have transferred any title to Cetus, because title had transferred to Stanford automatically by operation of law under
Bayh-Dole once the inventions arose.24
On appeal, the Federal Circuit overruled the district
court.25 First, the Federal Circuit held that, because it provided for an immediate assignment of future inventions,
the Cetus VCA vested equitable title in Cetus before any
title vested in Stanford. While Holodniy had signed Stanford’s employment agreement before signing the VCA, the
employment agreement only imposed a contractual obligation to assign inventions when they arose and at Stanford’s
demand. In this way, Stanford’s agreement operated more
as an option agreement than a present assignment agreement. Accordingly, when Holodniy signed the VCA he assigned away his future inventions and was not able to reassign these same rights to Stanford.
Alternately, in its decision that Bayh-Dole automatically
vested title in Stanford, the district court found the Federal
Circuit’s decision in Central Admixture Pharmacy Services,
Inc. v. Advanced Cardiac Solutions, P.C.26 held that BayhDole negated the VCA because Bayh-Dole empowered
Stanford to take complete title to the inventions.
The Federal Circuit disagreed and noted that Central
Admixture had only held that when Bayh-Dole’s provisions
are violated, the government could choose to take action
and title to the patent may be voidable; it is not automatically void. Thus, according to the court, title remains with
the named inventors or their assignees. Nothing in the
statute or regulations indicates title is automatically forfeited.27 Accordingly, under the holding in Central Admixture,
Bayh-Dole did not automatically void the VCA. At most, it
provided the government a discretionary option to patent
rights owned (at least in part) by the contractor, and did
not reach into situations where an inventor was unable to
provide his or her ownership interest to the contractor.
The district court had also ruled that under a specific
provision of Bayh-Dole, 35 U.S.C. § 202(d) (2006), the inventor could keep title to inventions only if a contractor
did not elect to retain title to a subject invention. As
such, the district court held that the proper statutory construction of Bayh-Dole meant that Holodniy’s rights to
assign under the VCA were contingent on Stanford first
declining rights, which Stanford did not do.28 The Federal
Circuit disagreed on this point as well.
Specifically, the Federal Circuit held that, under federal
common law, the VCA was a present assignment for all of
Holodniy’s inventions, whereas Stanford then had only an
obligation to assign what was available in the future upon
Stanford’s demand at the time the invention arose.29 As such,
under Bayh-Dole, Stanford was entitled to claim whatever
rights were still available, including the rights of the co-inventors who had not transferred their rights prior to the election. However, as Holodniy had already transferred his rights
to Cetus more than six years before Stanford formally notified the government of its election of title, Stanford could
not obtain the assignment from Holodniy despite his earlier
agreement to assign these same rights. Again citing to Central Admixture, the Federal Circuit noted that because the
Act does not automatically void ab initio the inventor’s
rights in government-funded inventions, it saw no reason
why the Act voids prior contractual transfers of rights.30
The Federal Circuit also noted that Stanford’s interpretation of Bayh-Dole had already been rejected by the Court
of Appeals for the Sixth Circuit in University of Pittsburgh
v. Townsend.31 In this regard, the Federal Circuit agreed
with the Sixth Circuit that Bayh-Dole does not create a
mechanism to allow a contractor to void prior valid transfers of patent rights and consolidate ownership in the contractor merely by declaring the invention a subject invention. Because Holodniy had previously assigned title to the
invention to Cetus, he simply could not later fulfill his prior
agreement to later assign title to the same invention to
Stanford. Therefore, any rights obtained by the government were subject to whatever rights the contractor actually had at the time of the conception or first actual reduction to practice.
Subsequently, Stanford petitioned for certiorari to the
Supreme Court, which was granted on November 1, 2010,
on the following question:
Whether a federal contractor university’s statutory right under
the Bayh-Dole Act, 35 U.S.C. §§ 200-212, in inventions arising
from federally funded research can be terminated unilaterally by
an individual inventor through a separate agreement purporting
to assign the inventor’s rights to a third party.
Stanford v. Roche: The Supreme Court’s Decision
Delivering the opinion of the court, Chief Justice Roberts
began the analysis by noting that the presumption in patent law that the inventor is the first owner of the invention
has been in effect since 1790 when Article I, Section 8 was
enacted. As such, the basic assumption has always been
that the inventor was the first owner, subject to a subsequent assignment. Therefore, the mere employment of an
inventor does not vest ownership in the employer absent
an agreement.32
Moreover, the Supreme Court noted that while Congress also possesses the power to change this initial ownership rule and divest the inventor’s first ownership right, it
has always done so clearly and through express language.
As such, under 42 U.S.C. § 2182 (2006), Congress provided
that title to inventions relating to nuclear and atomic energy “shall be vested in, and be the property of, the [Atomic
Energy] Commission.” It noted as well that similar express
language was used by Congress when allocating ownership
of NASA inventions under 51 U.S.C. § 20135 (2011) and
DOE inventions under 42 U.S.C. § 5908 (2006).33 Thus,
the Supreme Court held that such changes in the fundamental rules of ownership must be explicit.
In contrast to these clear expressions of congressional
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may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
intent, the court observed that “[s]uch language is notably
absent from the Bayh-Dole Act [35 U.S.C. § 202].”34 Moreover, Bayh- Dole does not expressly state that inventors are
not the first owners or that contractors have more than an
option to retain title in subject inventions. While the term
“subject invention” includes “inventions of the contractor,”
the Supreme Court found that this phrase does not work to
divest inventors of their initial ownership, as such a reading
would “assume that Congress subtly set aside two centuries
of patent law in a statutory definition.” Instead, the Supreme Court explained that the term “of” means whatever
is already owned by the contractor, which is more consistent with prior case law in Poe v. Seaborn, 282 U.S. 101
(1930); Flores-Figueroa v. United States, 129 S. Ct. 1886
(2009); and Eillis v. United States, 206 U.S. 246 (1907).35
Further, to the extent that this phrase could be interpreted to mean any invention made by the employee, the
Supreme Court held that this interpretation is contrary to
existing patent law. Thus, the court rejected the idea that
“mere employment is sufficient to vest title to an employee’s
invention in the employer.”36
While Bayh-Dole does allow contractors the option to
“retain title”, the court found that this language actually
confirms its interpretation of “inventions of the contractor.” Specifically, although Stanford asserted that “of the
contractor” means “acquire,” the court found that the common definition relates to keeping what you already own:
“You cannot retain something unless you already have it.”
Thus, the court found that Bayh-Dole only allows contractors to retain title where they already have it, and does not
automatically divest ownership from employee inventors of
subject inventions in order to give the contractors something to retain.37
Lastly, the court explained that, while the solicitor general suggested that 35 U.S.C. § 210 of Bayh-Dole supersedes
the fundamental rule of ownership, this provision provides
only that the provisions of Bayh-Dole take precedence over
other acts in relation to “subject inventions.” Thus, while
this provision does require that Bayh-Dole supersede other
acts in dispositions of rights, it only does so to the extent that
the invention is a “subject invention” (i.e., an invention of
the contractor). Therefore, 35 U.S.C. § 210 (2006) does not
affect rights in nonsubject inventions, such as where the
contractor does not own the invention in the first place.38
Policy Arguments Favoring the
Supreme Court’s Decision 39
Traditionally, debates over the ownership and use of government-funded inventions have revolved around the interests of two entities: the institutions that receive funding
and the government (for both its own interests and those
of the public). In Stanford v. Roche, however, attention was
focused on the interests of inventors as well—namely, what
rights do they have to compensation for their inventions,
to take the inventions with them if they leave the institution, or to assign or license the inventions to third parties?
This section discusses how reasonable policy positions orig-
8 inating in the early days of federal research and development (R&D) patent policy support the Supreme Court’s
and the Federal Circuit’s interpretation of Bayh-Dole’s definition of “subject invention.”
As federal R&D spending increased dramatically in
World War II, President Roosevelt charged the attorney
general to investigate the patent practices and policies of
the various federal agencies and their contractors. A report
was released in 1947 that is mainly known for its recommendation of a “title policy” in which federal agencies
would be required to obtain title to inventions arising
under government funding. This would apply equally to intramural research conducted by federal employees and extramural research conducted by outside contractors.
But the attorney general also investigated the extent to
which contractors were themselves securing title from their
employees. Because federal R&D contracts were generally
between federal agencies and institutions or firms, if those
organizations did not secure title from their employees, the
organization would not be able to assign title to the government. The results showed that most private companies and
nonprofit research institutions routinely secured intellectual property (IP) assignments from inventive employees, but
that many universities did not, especially from faculty
members. Notwithstanding this finding, the report concluded that contractor employees were almost always obligated to assign their inventions to their employers.
While the report’s conclusion may have been true in the
aggregate, it obscured the uncertain nature of university IP
assignments (perhaps excusably because most practical development contracts were awarded to contractors or research institutes). This became the fundamental assumption that allowed the attorney general expressly to limit his
recommendations to allocating rights and obligations as
between agencies and contractors only. While it was a
flawed, or at least glossed, assumption, it set the stage for a
reasonable expectation that inventors’ rights and obligations could be left to contractors and their employees or independent contractors. Such a system would also keep the
government out of micromanagement of the complicated
web of researchers with different affiliations and appointments at universities and nonprofit research institutes.
It was not until 1963 that any president acted on the report’s recommendations with regard to extramural research. (President Truman established formal policies with
regard to intramural research patent ownership in 1950.)
President Kennedy’s “uniform” patent policy memo to departments and agencies, however, was hindered by a number of ad hoc statutes Congress had passed allocating IP
title in the case of particular technology fields—such as
atomic energy—or with regard to specific agencies—including NASA. The Kennedy policy largely tracked the report’s recommendations, albeit with a more nuanced title
policy that allowed, on a case-by-case basis, for contractors
to retain title or exclusive rights when needed to incentivize practical application of the research results. Following
the report, the Kennedy policy also restricted itself to allo-
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may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
cation principles as between agencies and contractors
(other than where dictated by the ad hoc statutes), and left
inventors’ rights to the contractors. The policy did not affect contractor rights by operation of law, but, rather, had
to be used to secure contractual rights by agencies in executing contractor funding agreements. It thus placed these
issues squarely within the federal procurement system.
President Nixon largely reaffirmed these policies in 1972
and ordered that formal regulations be promulgated. Meanwhile, the NIH and the National Science Foundation had
already developed the institutional patent agreement (IPA)
system that provided master agreements between those
agencies and certain of their contractors to eliminate caseby-case title determinations. The IPAs established a default
rule of title remaining with the contractor, with a license,
march-in rights, and certain other protective rights granted
to the government. However, the IPAs expressly required
the contractor institution to secure patent title rights from
employee inventors—perhaps because of an increased
sense that the attorney general’s assumption may indeed
have been flawed. The government-wide regulations that
issued also included such an express requirement.
When Bayh-Dole was passed in 1980, it likewise focused
primarily on the allocation of title and rights as between
federal agencies and contractors (flipping the default title
policy from the government to the contractor). Contractor
employee inventors were addressed in two ways, both derivative of contractors’ rights. First, contractors must share
revenues with employee inventors. Second, if contractors
do not elect to take title to an invention, then the inventors may petition the funding agency to grant them title
(rather than having it transfer to the agency). Bayh-Dole’s
implementing regulations largely tracked the existing
Nixon policy regulations, albeit with the default title rule
change. This included the requirement that contractors
must secure the government’s rights under Bayh-Dole by
appropriate patent agreements with employee inventors.
Despite all this, a belief arose among many university officials that Bayh-Dole provided some sort of backstop title
allocation mechanism as between a university and its employees, including faculty. The requirement to secure patent assignment agreements apparently came to be seen as
required only to provide a formal path for perfecting assigned titles with the US Patent & Trademark Office.
Thus, a failure to secure the assignment contractually from
the inventor increasingly became viewed as a small matter—the inventor would “have” to assign the patent anyway under Bayh-Dole’s statutory provisions. Accordingly,
many universities adopted a policy of having inventive employees sign future contingent assignment agreements
based on the phrase “agree to assign,” rather than the immediate present assignment agreements favored by industry, which typically use the phrase “hereby assign.”
This came to a head in Stanford v. Roche. It is true that
Bayh-Dole envisions a system in which title allocation decisions under the funding agreement are first made as between the contractor and the funding agency, with the in-
ventor only being able to retain title afterwards in certain
circumstances. And this system is jeopardized if inventors
can simply assign their inventions to third parties before
title vests in either the contractor or the government. But
the system relies on contractors to secure title rights from
inventors in the first place.
At the dawn of federal patent policies for extramural inventions, the exhaustive attorney general’s report concluded that contractors were already doing this and, therefore,
the government did not need to directly address that part
of the equation. This permitted the attorney general and
subsequent presidential administrations to not to have to
worry about constitutional and practical implementation
questions with regard to a wide and complex field of contractor-inventor relationships (including students, staff, faculty, independent researchers, and the like at universities).
Even amid the extensive debate over Bayh-Dole and
similar bills in Congress during the later 1970s and in 1980,
little to no mention was made of whether or how such a
massive “automatic” title transfer from inventors to contractors would be authorized. By contrast, the extensive debates and detailed provisions of Bayh-Dole and its implementing regulations focused on the minutiae of how title
and rights are to be allocated between contractors and the
funding agencies. Bayh-Dole only provides two minimum
requirements for how contractors should treat inventors. Its
implementing regulations clearly require contractors to (1)
secure title from inventors; and (2) do so by obtaining a
written agreement. As such, the history and purpose of
Bayh-Dole support the Supreme Court’s conclusion that
Bayh-Dole was not designed to govern employment relationships, but was instead designed to balance the relationship between the government and the contractor for whatever contractor-owned inventions were developed under
funding agreements.
Policy Arguments Favoring Revising Bayh-Dole
to Reverse Stanford v. Roche
In contracting with the government, unique rules abound.
The rules relating to intellectual property generally, and
patent rights in particular, are no different. They have been
crafted to serve the specific policy objectives of the government. Here, the policy and the associated rules for the allocation of rights to inventions developed in the performance of government funding agreements are quite
straightforward. The rights of the individual inventor are,
at best, an afterthought in that statutory scheme.
Although the concept of having a patent system is guaranteed by the Constitution, the mechanics of that system
are a function of statute. Specifically, U.S. Const. art. 1, § 8
states that “[t]he Congress shall have Power . . . To promote
the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to
their respective Writings and Discoveries.” The core issue
in Stanford v. Roche was one of statutory interpretation.
On its face, the statute allocates title to inventions developed in the performance of a government funding
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may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
agreement between the government, on one hand, and its
nonprofit and small business contractors, on the other.
From a policy objective, the purposes of Bayh-Dole are to:
(1) encourage the use of federally-funded inventions; (2)
maximize participation of small business in government
R&D; (3) promote collaboration between nonprofits and
commercial concerns; (4) ensure that nonprofit and small
business inventions are used to promote free competition
and enterprise without unduly encumbering future research and discovery; (5) promote the commercialization
and public availability of government-funded inventions;
(6) ensure that the government obtains the rights it needs
in federally-supported inventions; (7) protect the public
against non-use or unreasonable use of inventions; and (8)
minimize the costs of administering policies in this area. 40
Notably, none of these policy considerations relate to the
protection of rights of the individual inventor.
The operative language of the Act that was at issue before the court provides that the “contractor” may elect to
“retain title to a subject invention,” with the government
“receiv[ing] title to any subject invention in which the contractor does not elect to retain title.”41 Further, the Act
does not discuss the inventor except in the alternative,
where the contractor does not elect to retain title:
If a contractor does not elect to retain title to a subject invention in cases subject to this section, the Federal agency may
consider and after consultation with the contractor grant
requests for retention of rights by the inventor subject to the
provisions of this Act and regulations promulgated hereunder.42
The Act therefore specifies the mechanism for the inventor
to obtain title. It does not mention a requirement for the
contractor employer to obtain an assignment from the employee inventor.
The legislative history likewise contains no mention of
any requirement to obtain employee-inventor assignments.
The Senate contemplated the exact same allocation
scheme as expressly set forth in the Act:
It has been clearly demonstrated that the universities and nonprofit organizations who are conducting this research effort are
much more efficient in delivering these important discoveries
to the marketplace than are the agencies. S. 414 will allow such
contractors to retain patent rights on these discoveries while
allowing the funding agencies to have free access to them.
....
Section 202(a) provides that as a normal rule small business firms
and nonprofit organizations are to have the right to elect to retain
worldwide ownership of their inventions by making an election
within reasonable time after they disclose the invention.
....
Section 202(d) provides agencies with the authority to leave
rights with individual inventors in cases when contractors do
not elect rights. 43
Although the House report contemplated a slightly dif-
10 ferent allocation scheme as to employee-inventors, its approach was consistent with the Act:
Section (a) provides for the acquisition of title to contract
inventions by contractors which are either a small business or a
nonprofit organization.
....
Section 389 authorizes a contractor’s employee-inventor to
receive some or all of the contractor’s rights to a contract invention if the responsible agency and the contractor approve.44
Accordingly, the legislative history for both the Senate
and House indicates the legislature contemplated a statutory scheme that involved assignment of inventions developed under government contracts and resulting patent
rights to the small business or nonprofit contractors in the
first instance, and a contingent mechanism for assignment
to the employee-inventor in the event the contractor did
not elect to retain title.
As discussed above, the decision of the majority in Stanford v. Roche turned on the interpretation of a few words in
the Act—words that the majority conceded were arguably
subject to multiple interpretations—and the assumption
that Congress would have been clearer if it had intended to
overturn the historical presumption that the inventor in
the first instance takes title to subject inventions.
The benefit of Bayh-Dole is inarguable. In 1980, the US
government owned 28,000 patents and fewer than 5 percent had been licensed to industry. Moreover, taxpayers
were funding 60 percent of all academic research with virtually no return on their investment.45 Bayh-Dole brought
about a sea change. Since 1980, there has been a tenfold
increase in the patents generated by American universities.
Better yet, universities have spun off more than 2,200 firms
to exploit research done in their labs, resulting in 260,000
new jobs, which now contribute $40 billion annually to the
American economy.46 Given the state of today’s economy,
this is a statute that the court should have enforced, not
undermined. Congress should take the necessary steps to
eliminate the new procedural hurdle created by the Supreme Court’s decision in Stanford v. Roche. Under the
court’s new reading of the statute, the opportunity for mischief is palpable.
Stanford v. Roche: Possible Implications
and Practical Guidance
As described above, the Supreme Court’s decision that
Bayh-Dole did not provide Stanford with preemptive ownership rights against inventor employees in inventions arising from research funded in whole or in part with federal
funds created confusion on ownership and licensing rights.
This confusion may be avoided through proactive steps,
keeping in mind the countervailing interests at stake.
The Federal Government. The government has multiple interests at stake, including the promotion of research
and development for public purposes and to ensure access
to and rights to use inventions developed with federal
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may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
funds. It also has an interest in ensuring the active and,
hopefully, domestic commercialization and availability of
federally-funded inventions, encouraging the involvement
of small businesses and universities in federally-funded research, and increasing the collaboration between commercial and noncommercial businesses and nonprofits, including universities. And, it wants to do all this as simply and
efficiently as possible.47
Given the facts in Stanford v. Roche, the government
may obtain the license mandated by Bayh-Dole under a
federally-funded agreement if the university can at least establish that it is a joint owner of the invention at issue.
Under Stanford v. Roche, there may be cases in which contractors and universities will not be able to provide the government the required license. In such a situation, the contractors and universities may have to obtain an assignment
or license for the portion of the patents-in-suit it would not
own to provide the government its required license or rely
As a result of this case, it will be
critical for universities to exercise due
diligence to determine whether they
have clear and valid assignments to
prior assigned inventions, to inventions
licensed from third parties, and to
those inventions that will be assigned
under future federal funding agreements.
upon the government’s authorization and consent under 28
U.S.C. § 1498(a) (2006) to continue the work and possibly
indemnify the government for such use. Where the contractors and universities do not have sufficient rights to provide the license required, the government can bring an action against the federal-funding recipient for breach of
contract. Further, if a third-party taking occurs, negotiations or, if that fails, litigation with the affected third party
may become necessary.48
To avoid these pitfalls, the government should review
proposals provided in the procurement process to ensure
that necessary rights are being obtained and properly addressed. The ultimate agreement should clearly identify the
scope of the project, the nature of the funding for each portion of the scope by each party, and the rights of all parties.
The government funding agreement (i.e., contract, grant,
or cooperative agreement) should identify instances in
which subcontractors or third parties are involved in performance or funding, or in which third-party information
will need to be used or provided and should contain assurances that the rights required will be provided by the funding recipient. The government can require advance subcontract approval and conduct audits during the life of the
project to ensure that it is getting what it needs and its interests are being protected.
The University or Nonprofit. Universities such as Stanford have contractual, academic, and monetary interests in
obtaining ownership in any inventions developed under federally-funded agreements. They need ownership of, or at
least the right to license, inventions developed under federally-funded agreements to comply with the requirement that
they license to the government inventions conceived or first
reduced to practice using federal funds. They further want to
have the unqualified right to use the research and resultant
inventions for their own research needs and to disseminate
them for educational purposes. And, they want the ability to
license the research and resultant patents to third parties
and collaborators for purposes of generating revenues to fund
further research and academic interests.
In Stanford v. Roche, the Supreme Court knocked down
Stanford’s argument that Bayh-Dole endowed Stanford
with a right to automatic preemption of any other contractual rights that are inconsistent with the university’s right
to exercise ownership of the invention developed under its
federally-funded agreement.49 Therefore, it is more important than ever that parties to R&D projects establish upfront through clear agreements (a) whether there is government funding involved; (b) whether there is pre-existing IP
that will be used in the performance of these agreements
that is outside of the development effort and who owns
rights in that IP; and (c) what specific license rights each of
the parties (e.g., university, inventor, collaborator, and/or
entities providing background material and inventions)
will have in any future (or actual) invention developed
under the federally-funded agreement.
Indeed, the Supreme Court did not accept certiorari
and did not opine on the issue of whether the assignment
that existed in Stanford v. Roche was valid.50 The ruling
may mean that further negotiations will be in order to establish the respective rights of Stanford and Roche in the
inventions at issue and the licensing fees received by Stanford. Further, there may be implications for Stanford with
regard to any other inventions previously developed and
”assigned” to it, as well as for new opportunities for invention under federally-funded agreements going forward.
In short, as a result of this case, it will be critical for Stanford (and universities or other entities similarly situated) to
look backward and move forward by exercising due diligence
to determine whether it has clear and valid assignments to
its prior assigned inventions, to inventions it has licensed
from third parties, and to those inventions that will be assigned to it under future federal funding agreements. Proactive steps that may be taken by universities and nonprofits to
establish their respective rights and to avoid problems in
ownership and licensing down the road include:
1. Work with legal counsel to identify any risk areas before entering into the agreement and commencing the
work. This goes without saying—think ahead and identify
risk areas, then follow through to ensure they are addressed
adequately.
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may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
2. Figure out what agreements you need. Stanford v.
Roche points out there are a variety of potential and actual
agreements that may be needed to protect the rights of the
university when it engages in R&D activities. These may
include (a) the federally-funded agreement, including the
statement of work to be performed, the prime contract and
flow-down terms and conditions under which the work
must be performed, and the rights that will be required and
provided by and to each of the parties; (b) the employment
and other agreements between the nonprofit and its staff;
and (c) the subcontracts, licenses, and collaborative agreements between the nonprofit and the entities and persons
providing IP, research, or other needed capabilities for the
federally-funded research. Knowing what needs to be done
and what is required to accomplish it and then ensuring
that you get these things are key components for contracting successfully. Do your planning in advance and then ensure consistent and appropriate follow through.
3. Make sure the agreements say what you mean and
mean what you say. In Stanford’s case, it did not have a
clear and present assignment of inventions in its employment agreements with its inventors. To avoid this problem,
review your policies and form agreements, and shore up
current employment agreements with researchers. Make
sure the documents say what they mean. To ensure inventors do not assign rights to another except with the university’s express permission, this must be made clear in the
agreements, which should also specify that such terms are
essential conditions of employment for the researcher and
that a breach of such terms may result in adverse actions
and other penalties.
4. Set the ground rules when collaborating with third
parties. While it seems that Stanford wanted its researchers
to collaborate with Cetus because Cetus had needed experience, technology, and IP to offer, it does not appear from
the facts of the case that Stanford took adequate steps to
ensure a consistent and acceptable manner for handling
such collaborations. From the record available, it appears
there were at least two different types of agreements between members of Stanford’s staff and the collaborator
Cetus. Some of the inventors were collaborating through
materials transfer agreements and at least one, Holodniy,
was collaborating through a VCA. These differing agreements created different obligations and interests, including
the inventor assignment at issue.
Additionally, when employees will work at an outside facility, or with a collaborator, prime contractor, lower-tier
subcontractor, or subrecipient grantee, they may use or obtain IP in which the nonprofit does not have rights. Universities and nonprofits must establish up front the ground
rules for its employees’ presence and activities with the
other party and document those rules in a written master
agreement. If a specific agreement is needed at the individual employee level, the form used should be standardized.
Even before an employee goes to a third-party site, the employee should be advised to bring all agreements to the
nonprofit for review and all such agreements should be re-
12 viewed by the nonprofit to ensure their terms are acceptable. Additionally, you should obtain and retain copies of
all such agreements signed by the employee.
5. Police agreements and be proactive to ensure that
agreements with your employees are being adhered to and
complied with.
6. Ensure clear records and ownership. When performing R&D, there is the possibility that patentable inventions
will be developed. Keep strict logs and records of what is
being done and used, including whether background information or inventions are being used.
7. Work with legal counsel to identify any risk areas before commencing the work. Did we say you should check
with counsel first? Do it again! Figure out whether you are
going to use preexisting technology and how that might
impact your research activities. As the work proceeds, reevaluate the situation to ensure you identify and address
any additional IP or personnel needed or being used.
Where the nonprofit wants to ensure complete, unclouded
ownership of a potential invention being developed, it may
want to isolate from the development effort anyone who
may have knowledge of a third party’s related technology.
Alternatively, if use of that employee or technology will be
essential, the nonprofit will need to determine whether and
what kind of agreements it needs with the third party and
inventor to ensure it gets what it needs and its rights in its
inventions will be protected. This should be done before
work on a project begins.
8. Patent due diligence. When preparing to patent an
invention, the nonprofit must do its due diligence. It must
review the logs and records and interview personnel to determine (a) the identities of the inventors; (b) the bases of
the invention; and (c) who has rights in the invention—
that is, what if any agreements exist that may affect the
nonprofit’s rights and ownership. Again, if third-party information or IP is identified, the nonprofit should work
with counsel to establish risks and actions needed to address these important questions. Timely assert all patent
and ownership rights.
The Inventor Employee. The inventor’s interests are
similar to those of universities and nonprofits, although his
or her research and financial interests are personal. In the
instant case, because the court held that there is no preemptive Bayh-Dole assignment of inventions arising under
the federally-funded agreement held by Stanford, knowing
just what was developed and when, what background technology was used, and whether Holodniy’s assignments to
Stanford and Cetus were valid is critical to determining
whether Stanford or Stanford and Roche have rights to the
inventions at issue and to any fees generated from their use.
Given the nature of the record in that case, it is unknown
whether Stanford may have an action against its employee
for entering into a present assignment despite the terms of
his employment agreement, or if its own inaction may provide an affirmative defense to any such action.
It is clear, however, that affirmative steps must be taken
in an employer-employee relationship to establish the re-
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Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
spective rights of the parties. This is doubly true where
there is a more complex relationship between and among
the parties—specifically, where the university or nonprofit
employee will be working with a third party. In Stanford v.
Roche, the university apparently encouraged its employee
to go to work for Cetus and learn Cetus’ proprietary PCR
technology; Stanford should have taken appropriate steps
to ensure its employee knew his responsibilities to Stanford
and agreement(s) should have been established between
and among the parties to allocate acceptable rights in any
IP developed then or in the future using that technology.
In addition, prior to entering into any assignment, the
employee should have consulted with his own counsel, or at
least his employer, to understand his rights and responsibilities. Cetus as well might have taken steps to ensure that its
rights in IP were understood and being protected—not only
by entering into the VCA assignment with Holodniy, but
also by notifying Stanford, Holodniy’s other employer, of
Cetus’ rights with regard to any IP provided to Holodniy, or
developed by him based upon that IP. Where there are multiple parties, care must be taken by the parties to ensure IP
rights are protected and preserved (or at least clearly understood). Proactive steps for employee-inventors include:
1. Know your rights. Stanford v. Roche makes clear that
employees who will perform research and may invent patentable inventions must understand their rights at all times and
the requirements placed on them by any agreements entered
into with the employer and others. When entering into an
employment arrangement, employee-inventors should review the terms of that agreement and all applicable employer
policies and guides. Employee-inventors must also know
what they can and cannot do, and their rights regarding
things they now own or may later develop.
2. Identify the boss. When preparing proposals for funding agreements, know who is doing the project and make
sure it is clear in the agreement who will be performing the
work (e.g., the employer, a university, or by the employee as
an individual). In all cases, employee-inventors should
identify their intellectual property and take appropriate
steps to protect it.
3. Handle intellectual property properly. Employees who
will engage in research or who will be provided access to
third-party IP should make sure to understand restrictions
that apply to that IP. Employee-inventors provided with an
agreement relating to the project or access to IP, which
could include nondisclosure agreements, material transfer
agreements, or visitor agreements, should make sure they
understand the agreement and are able to comply with the
restrictions identified. In addition, employees must be sure
to understand the effect of the agreement on what rights
the employees have and what they want to do.
4. Provide the agreement to your employer. If the project
is being done at the direction of the employer, employees
should provide a copy of the agreement to the employer before it is signed. The employer may object to the agreement
altogether or to its terms.
5. Understand your agreements. If the project is being
done on employee-inventors’ personal time, they should
make sure they have a right to do this under any existing
employment agreements (and any other agreements the
employees may have) and should determine whether they
need to push back on the terms and conditions contained
in those agreements to accomplish their goals. This should
be done before employee-inventors obtain access to IP or
starts the research.
6. Obtain legal counsel. Employee-inventors may need
counsel at any of these stages of the process to ensure protection of their rights to conceive of or develop inventions
and their ownership interests in any resultant inventions.
Subcontractor or Subrecipient. A party such as Roche
in Stanford v. Roche also has interests in access to developments for its own further research and financial gain. Notably, its interests are driven by a responsibility to its shareholders to conduct business in a sound fashion, to be able
Employee-inventors may need counsel
at any stage of the process to protect
their rights to conceive of or develop
inventions and their ownership interests
in any resultant inventions.
to purchase valuable IP with clear title, and to create, commercialize, and sell products for profit. As such, Roche’s interests represent those of the commercial sector that does
not participate in the federal procurement system and requires certainty in its IP portfolios.
Since Stanford lost on its preemption argument, the
Bayh-Dole assignment on which Stanford relied does not
automatically override a valid, prior assignment of rights by
the involved inventor and other parties. The Stanford employment agreement appeared to have permitted the inventor to make assignments, as the agreement did not require the present assignment of rights to the university.
Where ownership does not automatically attach to nonprofits, including universities, these entities can establish
the respective rights of the nonprofit, its employees, collaborators, and third-party providers in current inventions and
other IP to be used and in future inventions and other IP
that might be developed.51
Roche’s victory in Stanford v. Roche makes clear that
parties to R&D and other similar projects must put in place
appropriate contractual arrangements laying out their respective rights as clearly as possible, or risk disputes arising
at various stages throughout the R&D, patenting, and licensing phases. It would be best if these rights were established by agreements up front, or at least as early as possible
in the procurement process. A risk that some rights would
not be adequately protected, including the license rights of
the government can be addressed by the government expressly where federally-funded patents and other IP are in-
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may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
volved or through Bayh-Dole’s subcontractor provisions.52
The Roche victory may have implications beyond the
underlying federally-funded agreement, however. Stanford,
as a co-owner of the patents-in-suit, still can provide the
government with the required license to the invention
since the remaining inventors have already provided such
licenses. Though Stanford lost the case, the government
interest is still protected. Stanford, however, cannot claim
damages from Roche. If the facts of the case had been that
no new invention was created, and Stanford had used and
delivered to the government third-party IP it had not developed and had no right to use or further develop (i.e.,
background inventions, or trade secrets proprietary to the
third party), Stanford and the government might be facing
risks of suit by the third party for misappropriation and use
of that property. Following are some proactive steps subcontractors and subrecipients can take in light of the decision in Stanford v. Roche:
1. Review the suggestions for nonprofits above, as the issues a university nonprofit must address are the same types
of issues that subcontractors and subrecipients must attend
to. Even prime contractors and other than nonprofit recipients should pay attention to and address these issues.
2. Understand the scope and source of funding that applies. It is especially important that subcontractors and subrecipients identify their role in the project and the manner
in which their piece of the project will be funded. If it is a
federally-funded project, identify the scope of the project
and whether all or only a portion of it is government funded. It is important to know what rules apply to each funded
portion, as the rules may differ and can affect the rights
subcontractors and subrecipients may receive and retain.
3. Understand the project and who will be involved. It
also is important as early as possible in the process to identify who will be involved in the project work, what IP will
be used, and what rights the parties have to that IP or IP
that is developed. If there is to be development, receipt, or
disclosure of IP by the subcontractor, its employees, or a
third party, the relevant agreements should be reviewed as
early as possible. Planning adequately and reviewing all
agreements in advance will enable the subcontractor to decide whether it wants to be involved in the project. If so,
the subcontractor will be better able to determine what it
needs and to negotiate to adjust the terms of those agreements to suit its needs before it starts performance. The
subcontractor’s greatest leverage is before it enters into the
agreement, executes the lower-tier agreement, starts the
work, and provides or obtains access to IP.
4. Maintain control. Once the subcontractor establishes
its rights up front, it must work to maintain control over its
technology, its personnel, and those with whom it does
business, in accordance with its agreements. Remember: If
the subcontractor or subrecipient delivers or develops IP
using federal funds or for performance of a federal contract,
grant, or cooperative agreement and does not take steps to
protect its rights, it risks having the government (and potentially the higher-tier nonprofit, prime contractor, grant
14 recipient, or agreement holder) assert potentially unlimited
rights or government purpose rights in the developed IP.
Thus, federally-funded subcontract or subrecipient agreements require an additional step of due diligence to ensure
any necessary rights are secured and accounted for.
5. Do not sit on your rights. As Roche discovered, subcontractors cannot sit on their rights. If they see a situation
in which their IP is being used by another without their express agreement, a subcontractor or subrecipient should
timely assert its ownership rights and take steps to protect
its IP. If the subcontractor or subrecipient does not do so, it
risks being precluded down the road from making such an
assertion under the doctrine of laches.
Issues Left Unresolved
While definitively answering the question of invention ownership where no law or assignment expressly alters the fundamental rule that title vests in the inventor, the Stanford v.
Roche decision leaves open the issue of why federal common
law was used in the first place, as well as the application of
federal common law to determine the validity of the assignments at issue. These issues were expressly left open in footnote 2 of the opinion and were criticized by Justice Breyer in
his dissent and by Justice Sotomayor in her concurrence as
not being adequately briefed. These issues are not without
importance, as at least one commentator has noted, because,
under California law, an opposite interpretation of the assignment language may well have benefited Stanford over
Roche.53 The Supreme Court recently had an opportunity to
clarify this remaining issue when APP Pharmaceuticals filed
a petition for certiorari on June 13, 2011.54 That case directly
raised the question of whether the Federal Circuit erred in
creating federal common law, instead of applying state law,
in order to interpret patent assignments. However, in denying the petition on October 2011, the Supreme Court has
left this issue unresolved.
Conclusion
Stanford v. Roche clarified existing law, but this does not
mean that the law should remain as written. As an initial
point, in confirming that Bayh-Dole does not change the
fundamental rule that patents are owned by their inventors
in the first instance, the Supreme Court specifically cited
the statutes that changed that ownership rule such that the
government was deemed the initial owner. In making such
an analysis, the Supreme Court is acknowledging that
Congress can revise Bayh-Dole to provide that title to inventions conceived or first reduced to practice pursuant to
a federal-funding agreement initially rests with the government contractor, not the individual inventor. Such a
change to Bayh-Dole would seemingly be consistent with
Congress enacting the equivalent of a “work-for-hire” rule
for federally-funded R&D whereby contractors would be assigned title to subject inventions of their employees.55
Thus, to the extent flawed assumptions created a lessthan-perfect title allocation system for a funding agreement,
Congress has the power to make changes to Bayh-Dole for
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Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
universities and small businesses and the president has similar authority for all other businesses operating under funding
agreements. At the same time, to do so would in effect work
as a massive, nearly unbounded transfer of title from inventors—who are essentially only third-party beneficiaries of
federal funding agreements and thus not directly in privity
with the government—to contractors.
Universities raised a disturbing claim that without automatic vesting under Bayh-Dole, they would not be able to
ensure that they can secure title to federally-funded inventions. Essentially, this claim means they cannot ensure title
for any other of their inventions, regardless of funding
source. Their licensees and assignees were surely unhappy
to hear this, although it seems to have been overblown.
Universities, like normal businesses, are perfectly capable
of securing the proper written agreements to protect their,
and the government’s, rights, and they must do so under
Bayh-Dole. Thus, to the extent Congress has such a power,
given the relative ease with which this fix can be implemented, it is unclear whether such a fix should be made to
Bayh-Dole or to patent law in general.
Lastly, the facts portrayed in Stanford v. Roche provide
lessons for the legal community in general. The rights of
the parties need to be considered and clearly established as
early as possible in the R&D process. By considering the
client’s requirements and those of others, as well as the attendant risks up front, counsel can minimize risks and
avoid confusion regarding who has rights to what down the
road. Counsel needs to exercise diligence throughout the
project to ensure that all needed rights and requirements
are being addressed. While one may not be able to avoid all
problems, counsel will be better positioned to address any
that do arise and will not need to rely upon courts or congressional changes to achieve a desired end. PL
Endnotes
1. Bayh-Dole Act, Pub. L. No. 96-517, 94 Stat. 3015 (1980) (codified at 35 U.S.C. §§ 200-212).
2. Funding agreements covered by Bayh-Dole include “any contract, grant, or cooperative agreement entered into between any
Federal agency, other than the Tennessee Valley Authority, and any
contractor for the performance of experimental, developmental, or
research work funded in whole or in part by the Federal Government. Such term includes any assignment, substitution of parties, or
subcontract of any type entered into for the performance of experimental, developmental, or research work under a funding agreement
as herein defined.” 35 U.S.C. § 201 (2006). Thus, funding agreements include contracts covered by the FAR, subcontracts, and certain other non-FAR covered agreements. A covered “contractor” includes “any person, small business firm, or nonprofit organization
that is a party to a funding agreement.” Id.
3. See generally Rahul Vartak & Manish Saurastri, The Indian Version of the Bayh-Dole Act, Intell. Asset Mgmt. 63–64 (Mar./Apr.
2009) (discussing drive to enact version in India); Thomas J. Siepmann, The Global Exportation of the U.S. Bayh-Dole Act, 30:2 U.
Dayton L. Rev. 209–243 (2004) (discussing the implementation in
various European countries); BayhDole25, Inc., The Bayh-Dole Act
at 25 (2006) available at http://www.bayhdolecentral.com/BayhDole25_WhitePaper.pdf (last checked June 30, 2011) (discussing implementation in Eastern Europe and Asia).
4. 35 U.S.C. § 202 (2006). There are limited circumstances under
which the government funding agency can exercise exceptions to
this default title rule in the funding agreement. Id. § 202(a)-(b).
5. 35 U.S.C. § 202(c)(4) (2006) ( the government shall receive
“nonexclusive, non-transferable, irrevocable, paid-up license to
practice or have practiced for or on behalf of the United States any
subject invention throughout the world.”). See also FAR 52.22711(d)(2) (2011) and DFARS 252.227-7038(d)(2) (2011).
6. Exec. Order No. 12,591, 3 C.F.R. 220 (1987). See also Memorandum on Government Patent Policy to the Heads of Executive Departments and Agencies (Feb. 18, 1983). The basic government license,
and march-in rights, also are applied to large businesses under 35
U.S.C. § 210(c) unless provided otherwise in agency-specific statutes.
7. However, there are exceptions such as when the work is performed outside of the United States. FAR 27.303(e) (2011).
8. 35 U.S.C. § 201(e) (2006).
9. E.g., DFARS 252.227-7038(i) (2011), DEAR 952.227-13 (c)(1)(v)
(2011), & NFS 1852.227-70 (c)(2) (2011) (stating that no rights are
obtained in “any invention other than a subject invention”).
10. E.g., FAR 27.306 (2011) (requiring head of agency approval for
licensing background inventions for use by the government within
meaning of 28 U.S.C. § 1498(a) (2006)), FAR 27.201 (2011) (requiring authorization and consent clauses to prevent injunctions for use
of nonsubject inventions within meaning of 28 U.S.C. § 1498(a)
(2006)); and DFARS 227.7004 (2011) (discussing Defense Department regulations for settlement of claims and licenses). For more information, see David Bloch & James McEwen, Enforcing IP Against
the Government, Intell. Prop. & Tech. L. J. 9 (Nov. 2010).
11. E.g., FAR 52.227-11(e)(2) (2011) & DFARS 252.227-7038(e)(5)
(2011) (requiring giving instructions to employees on compliance),
and DFARS 252.227-7038(c)(1) (2011) & NFS 1852.227-70(e)(1)
(2011) (require administration of patent rights sufficient to identify
inventions within 6 months).
12. E.g., DFARS 252.227-7038 (k)(1) (2011) & NFS 1852.227.70(g)
(1)(i) (2011) (withholding of final payment for failing to establish
and maintain procedures to assure that subject inventions are identified and disclosed).
13. See Beech Aircraft Corp. v. EDO Corp., 990 F.2d 1237, 1248
(Fed. Cir. 1993).
14. E.g., FAR 52.227-11(c)(2) (2011); DFARS 252.227-7038(c)(2)
(2011).
15. 35 U.S.C. § 202(c) (2006); FAR 52.227-11(d) (2011); DFARS
252.227-7039(d) (2011).
16. 35 U.S.C. § 202(d) (2006) (“If a contractor does not elect to retain title to a subject invention in cases subject to this section, the
Federal agency may consider and after consultation with the contractor grant requests for retention of rights by the inventor subject
to the provisions of this Act and regulations promulgated hereunder”); 37 C.F.R. 401.9 (2011) (“Agencies which allow an employee/inventor of the contractor to retain rights to a subject invention made
under a funding agreement with a small business firm or nonprofit
organization contractor, as authorized by 35 U.S.C. 202(d), will impose upon the inventor at least those conditions that would apply to
a small business firm contractor under paragraphs (d)(1) and (3); (f)
(4); (h); (i); and (j) of the clause at § 401.14(a).”).
17. 35 U.S.C. § 202(c)(7) (2006).
18. 41 Fed. Cl. 764 (1998).
19. 364 F.2d. 385 (Ct. Cl. 1966).
20. For a more detailed discussion of these cases, see generally James
G. McEwen, David S. Bloch, Richard M. Gray, Intellectual
Property in Government Contracts 45–49 (2009).
21. Bd. of Trs. of Leland Stanford Junior Univ. v. Roche Molecular
Sys., Inc., 131 S. Ct. 2188 (2011), aff’g 583 F.3d 832 (Fed. Cir. 2009).
22. Co-inventors Thomas Merigan and David Katzenstein also
collaborated with Cetus during this period under different agreements. However, there was no allegation these other agreements affected their separate assignments to Stanford.
23. 35 U.S.C. § 202 (2006).
24. Bd. of Trs. of Leland Stanford Junior Univ. v. Roche Molecular
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may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
Sys., Inc., 487 F. Supp. 2d 1099 (N.D. Cal. 2007).
25. Bd. of Trs. of Leland Stanford Junior Univ. v. Roche Molecular
Sys., Inc., 583 F.3d 832 (Fed. Cir. 2009), aff’d, 131 S. Ct. 2188 (2011).
26. Central Admixture Pharmacy Services, Inc. v. Advanced
Cardiac Solutions, P.C,. 482 F.3d 1347 (Fed. Cir. 2007).
27. Id. at 1352–53.
28. Stanford, 583 F.3d at 844.
29. It is not to say that the application of federal common law to
assignments is without controversy, and it is unclear whether the
same result would have occurred under California law. See generally
Ian B. Feinberg, Eric B. Evans, and Andrew M. Holmes, Consequences of the Federal Circuit’s New Reliance on Federal Common Law
to Interpret Patent Assignment Agreements, Landslide 24–29 (ABA
Jan./Feb. 2011).
30. Id. at 844 (citing 482 F.3d at 1352–53).
31. University of Pittsburgh v. Townsend, 542 F.3d 513 (6th Cir. 2008).
32. United States v. Dubilier Condenser Corp., 289 U.S. 178 (1933).
33. Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Systems, Inc., 131 S. Ct. at 2195.
34. Id. at 2196.
35. Id. at 2190.
36. Id.
37. Id.
38. Id. at 2197.
39. More details and analysis of this topic are available in both a
report Sean M. O’Connor coauthored for the U.S. National Academy of Science, Legal Context of University Intellectual Property and
Technology Transfer, available at http://sites.nationalacademies.org/
PGA/step/PGA_058712 and a Supreme Court amicus brief
O’Connor coauthored for the American IP Law Association
(AIPLA), available at http://www.aipla.org/advocacy/judicial/
jud2010/Documents/StanfordRoche-AIPLA-Amicus-filed.pdf (Last
visited August 24, 2011).
40. 35 U.S.C. § 200 (2006).
41. Id. § 202(b).
42. Id. § 202(d).
43. S. Rep No. 96-480, at 29, 31, 33 (1979).
44. H.R. Rep. No. 96-1307, pt. 2, at 7, 9–10 (1979).
45. Op-Ed., Innovation’s Golden Goose, The Economist, Dec. 14, 2002.
46. Id.
47. 35 U.S.C. § 200 (2006) (Bayh-Dole Act, Policy and Objective).
48. If Stanford licensed an invention to the government that it did
not own and had no right to license, the infringed patent holder
might have a claim against Stanford and the government for use of
its patented technology. Alternatively, where the government takes
and uses a patented invention without a proper license, a taking situation may arise. Such takings may be compensable. See United
States v. Winstar Corp., 518 U.S. 839 (1996). See also Winstar Corp.
v. United States, 64 F.3d 1531, 1536 (Fed. Cir. 1995).
49. Bd. of Trs. of Leland Stanford Junior Univ. v. Roche Molecular
Sys., Inc., 131 S. Ct. at 2195–96.
50. Id. at 5 n.2 (“Because the Federal Circuit’s interpretation of the
relevant assignment agreements is not an issue on which we granted
certiorari, we have no occasion to pass on the validity of the lower
court’s construction of those agreements”).
51. The importance of fleshing out these respective rights in the
research and development project has clear implications for patent
infringement actions as well. The district court in analyzing the
rights of the parties in the infringement action failed to consider
Roche’s ownership allegations holding that “Roche asserts that ‘with
respect to secondary considerations, it is significant that the origin
of the invention derived from the collaboration at Cetus.’ Motion at
21 (internal quotations omitted). However, Roche fails to explain
the significance, and this court independently attaches no such significance. See Docket. No. 157.” Bd. of Trs. of Leland Stanford Junior
Univ. v. Roche Molecular Sys., Inc., 563 F. Supp. 2d 1016, 1034 n.15
(N.D. Cal. 2008), vacated and remanded, 583 F.3d 832 (Fed. Cir.
2009)), aff’d, 131 S. Ct. 2188 (2011). The Federal Circuit in contrast
focused on these asserted ownership interests and found conclusively as a matter of law that they prevented Stanford from bringing a
patent infringement claim and it vacated the district court decision
in part and remanded: “However, because the district court incorrectly declined to consider Roche’s affirmative defense based on
ownership, and because we conclude as a matter of law that Roche
possesses ownership interest in the patents-in-suit that deprives
Stanford of standing, we vacate the district court’s judgment of invalidity and remand with instructions to dismiss Stanford’s action.”
Bd. of Trs. of Leland Stanford Junior Univ. v. Roche Molecular Sys.,
Inc., 583 F.3d 832, 836–37 (Fed. Cir. 2009) aff’d, 131 S. Ct. 2188
(2011).
52. See, e.g., 37 CFR § 401.14(g) (2011).
53. Ian B. Fleming, Eric B. Evans, and Andrew M. Holmes, Consequences of the Federal Circuit’s New Reliance on Federal Common Law
to Interpret Patent Assignment Agreements, Landslide 24–29 (ABA
Jan./Feb. 2011).
54. APP Pharmaceuticals, LLC v. Navinta LLC, Docket No. 101502.
55. 17 U.S.C. § 201(b) (2006).
2012 Federal Procurement Institute Sponsors
The Section gratefully acknowledges the very generous support from the following Sponsors of the
“18th Annual Federal Procurement Institute: Forecast for Federal Procurement in 2012 and Beyond—Regulatory
Pressure Rising, Budgetary Storms Swirling” on March 22-23, 2012, at Loews Annapolis Hotel.
GOLD
SILVER
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Alternative Delay-Based Entitlement Theories to
the Government Delay of Work Clause
By W. Barron A. Avery
Contractors are frequently
delayed by government action or inaction, and contractors frequently turn to
the Government Delay of
Work clause, Federal Acquisition Regulation (FAR)
52.242-17, as a means of recovering the costs incurred
from government-caused
delay. The Government
Delay of Work clause, however, is an arguably inflexible contract provision that can
hinder contractors’ ability to recover delay-related costs.
Notice requirements, the exclusion of profit from any recovery, and the otherwise narrow application of the clause
can prevent contractors from recouping all their costs from
government delay. Therefore, an alternative basis of recovery to the Government Delay of Work clause can provide
substantial value to contractors.
This article analyzes two alternative breach of contract
theories that contractors can pursue: Recovery under a
“cardinal delay” theory and recovery under a “partial remedy” theory. These theories are particularly attractive, as
they provide an exception to the general rule against
breach of contract actions when a remedy-granting clause
provides an avenue of relief, such as that provided by the
Government Delay of Work clause. Set forth below is an
analysis of these two alternative theories, preceded by a
short analysis of the general rule regarding breach of contract actions and their relation to remedy-granting clauses.
The General Rule
The general, well-established rule is that a contractor cannot maintain a breach of contract claim for governmentcaused delay when contractual relief is otherwise available.1
This rule emanates from the principle that a contractor
must exhaust its administrative contractual remedies if a
contract provides relief for a particular dispute.2 Accordingly, for those contracts that contain the Government Delay
of Work clause,3 breach claims for government delay are arguably precluded, as the clause provides the mechanism for
contractual relief arising from a government-caused delay
of contract performance.4
The government’s ability to bar a breach claim is no
small matter, as a breach of contract can result in the recovery of profit, while the Government Delay of Work
W. Barron A. Avery is an associate in the Government Contracts
Practice Group at Wiley Rein, LLP.
clause specifically denies such recovery.5 Moreover, the government’s ability to bar breach claims is particularly troublesome in those situations in which breach is a more attractive theory of entitlement than one under the
Government Delay of Work clause.6 Notwithstanding this
general rule against breach claims for government delay,
however, the boards of contract appeals have developed
two exceptions that allow recovery under a breach theory
when the government delays a contractor’s performance. 7
Cardinal Delay
One method contractors can use to overcome the Government Delay of Work clause is through the concept of “cardinal delay,” in which the government’s delay was so “profound” that it should be deemed outside the scope of the
contract and, therefore, not remediable under the contract’s clauses.8 In other words, the contractor can argue
that the delay was so significant that the contract (including the contract’s Government Delay of Work clause) no
longer applies. This breach-based approach was first acknowledged by the Armed Services Board of Contract Appeals in Godwin Equipment, Inc.,9 and then tentatively embraced in Selpa Construction & Rental Corp.10 by the Postal
Service Board of Contract Appeals.
In Godwin Equipment, Inc., the board embraced the
concept of cardinal delay, explaining that “in some unusual
cases, the breach has been so profound that it was deemed
to be outside the scope of the contract and, therefore, not
remediable under the contract clauses.”11 The board then
noted that while this principle generally applied to cardinal
changes, “the same logic would seem to dictate that government delays of like magnitude should be treated in the
same fashion.”12 Thus, Goodwin Equipment, Inc., clearly
embraced the concept of cardinal delay; however, the
board failed to establish what magnitude of delay is necessary to invoke the cardinal delay concept.13
More recently, and in the only decision since Goodwin
Equipment, Inc., in which a court or board has applied the
cardinal delay theory, the board in Selpa Construction &
Rental Corp. analyzed whether a particular delay was of a
sufficient magnitude to invoke the cardinal delay concept.
In Selpa Construction & Rental Corp., a contractor appealed
the termination for default of a contract to make improvements to a building to be used as a post office.14 Extensive
delays caused by defective plans, differing site conditions,
and other changes led to a bilateral modification of the
contract, including the extension of deadlines.15 At the end
of these extensions, the government terminated the contract because work remained unfinished.16 The contractor
argued that cardinal delay should excuse its performance
Volume 47, Number 2 The Procurement Lawyer 17 Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
and prevent termination of the contract for default. “Assuming, without deciding, the viability of [the cardinal
delay theory],” the board found that a delay of 138 days did
not constitute cardinal delay.18 Therefore, although the
board failed to establish a clear standard, the board at least
indicated that a delay of 138 days under the circumstances
was insufficient to invoke the cardinal delay concept.
Following the precedent provided in Godwin Equipment,
Inc., and Selpa Construction & Rental Corp., contractors
pursuing delay-based claims can arguably proceed under a
breach theory rather than under a contract’s Government
Delay of Work clause. Although the standard by which a
cardinal delay can be judged is far from developed—at least
as compared to the more developed case law under the cardinal change doctrine—contractors nevertheless have a
viable option to pursue a breach claim. Put simply, delays
that are so profound as to be of a magnitude of a cardinal
change lend themselves to cardinal delay, meaning that a
breach claim can proceed even in the face of the Government Delay of Work clause.
Partial Remedy
Yet another means for contractors to attempt to overcome
the Government Delay of Work clause and maintain a
breach claim for government-caused delay is through the
partial remedy line of authority, in which boards allow recovery under a breach theory when a contract clause could
provide only a “partial remedy.”19 This line of authority recognizes that, although a remedy-granting clause may provide some relief to a contractor, such clauses cannot always
fully satisfy a contactor’s injury.20 Therefore, if a contractor
Delays that are so profound as to be
of a magnitude of a cardinal change
lend themselves to cardinal delay.
can establish that the Government Delay of Work clause
cannot provide full relief, the contractor can maintain a
breach claim for certain costs.21
This partial remedy concept is most clearly illustrated in
Marine Hydraulics, Inc., in which the board stated that a
contractor could recover indirect “cross-contractual
costs”22 from government-caused delay that were unrecoverable under the Government Delay of Work clause.23 Recovery under the Government Delay of Work clause was
arguably unallowable in that case, as the clause only allowed for an equitable adjustment stemming from an increase in performance of the contract in which the government delayed performance,24 and the increased costs
sought by the contractor arose in a separate, otherwise unrelated contract.25 Because these costs could not be recovered under the contract’s terms, and because the Government Delay of Work clause did not specifically prohibit the
18 type of cross-contractual costs sought, the board allowed
the contractor’s breach of contract claim to continue.26
As demonstrated in Marine Hydraulics, Inc., however, the
circumstances in which a contractor can pursue this partial
remedy theory are quite limited, as the costs sought must fall
outside of what can be recovered under the Government
Delay of Work clause.27 Although the boards’ decisions are
unclear, contractors may also have to establish that at least
some delay-related costs are recoverable under the Government Delay of Work clause.28 This unique set of circumstances means that the partial remedy theory is unlikely to
be of use to most contractors in most situations; however,
contractors should still be aware of the potential entitlement
theory. In certain situations, the partial remedy theory will
provide a welcomed avenue of relief from the strict requirements of the Government Delay of Work clause.
Conclusion
Contractors seeking to recover delay-related costs are not
entirely limited to recovery under the Government Delay
of Work clause. Cardinal delay offers the contractor an alternative entitlement theory, so long as the contractor can
show that the government’s delay was so profound that it
rendered the contract inoperable. The partial remedy line
of authority provides yet another alternative to the Government Delay of Work clause; however, the circumstances
in which a contractor seeks costs that cannot be recovered
under the clause means that the theory is probably of limited use. Indeed, the limited circumstances in which a contractor can show a cardinal delay means that the cardinal
delay theory is also of limited use. Nevertheless, unique situations will almost certainly arise where these theories will
provide useful tools for contractors seeking to recover costs
arising from the government’s delay of performance. PL
Endnotes
1. See, e.g., Freedom NY, Inc., ASBCA No. 43965, 01-2 BCA ¶
31,585 (“A contractor cannot maintain a breach claim for Government delay when relief is available under the contract.”), aff’d in part,
rev’d in part and remanded, 329 F.3d 1320 (Fed. Cir. 2003); see also
Mega Constr. Co. v. United States, 29 Fed. Cl. 396, 415 (1993) (“Plaintiff cannot give life to breach of contract claim by merely relabeling
claims for which relief is available under the contract.”); Cleereman
Forest Prods., AGBCA No. 2000-101-1, 02-1 BCA ¶ 31,664 (Houry, J.
concurring in part, dissenting in part) (“[R]elief on the basis of breach
of contract is not available where a remedy granting clause exists.”);
Triax Pac., ASBCA No. 36353, 91-2 BCA ¶ 23,724 (holding that a
delay in the issuance of a notice to proceed was not a breach because
damages were remediable under the contract’s “Suspension of Work”
clause), aff’d, 958 F.2d 351 (Fed. Cir. 1992).
2. See, e.g., Paragon Energy Corp. v. United States, 229 Ct. Cl.
524, 1981 WL 22045, at *1 (1981) (“It has long been settled that if a
Government contract provides relief for a particular dispute, the
standard disputes clause requires the contractor to present the claim
administratively before suit can be brought.”).
3. For purposes of analysis, this article assumes that the clause is included in contracts in which delay-related costs are sought. Indeed,
the Government Delay of Work clause is contained in many fixedprice contracts. The clause is mandatory in fixed-price contracts for
supplies other than commercial or modified-commercial items. FAR
42.1305. The clause is optional for fixed-price contracts for services or
The Procurement Lawyer Winter 2012
Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
for supplies that are commercial or modified-commercial items. Id.
4. See, e.g., Freedom NY, Inc., 01-2 BCA ¶ 31585.
5. See Anchor Savings Bank v. United States, 597 F.3d 1356 (Fed.
Cl. 2010); FAR 52.242-17(a) (“[A]n adjustment (excluding profit) shall
be made for any increase in the cost of performance of this contract
caused by the delay or interruption.” (emphasis added)).
6. The Government Delay of Work clause may be a disfavored
theory of entitlement given the arguably inflexible requirements of
the clause. For example, the clause bars recovery when the contractor
fails to provide adequate notice of an alleged government delay. See
FAR 52.242-17(b) (“A claim under this clause shall not be allowed . . .
for any costs incurred more than 20 days before the Contractor shall
have notified the Contracting Officer in writing of the act or failure
to act involved . . . .”). Although such notice requirements can often
be overcome, it is possible that a lack of notice may be so significant
that a contractor is led to disfavor the Government Delay of Work
clause as a viable theory of entitlement. See Walsh/Davis Joint Venture v. General Services Administration, CBCA No. 1460, 10-2 BCA
¶ 34,479 (noting that a constructive change claim can continue in
the absence of notice so long as the government was not prejudiced
by the lack of notice). As yet another example of the clause’s inflexibility, the Government Delay of Work clause only allows recovery for
increased costs of performance of the contract in which the government causes the delay, meaning that the contractor cannot recover
increased costs of performance incurred in unrelated contracts. See
FAR 52.242-17(a) (“[A]n adjustment (excluding profit) shall be made
for any increase in the cost of performance of this contract caused by
the delay or interruption.” (emphasis added)); Marine Hydraulics
Int’l, Inc., ASBCA No. 46116, 94-3 BCA ¶¶ 27,057 (noting that the
contractor could not recover under FAR 52.242-17 costs incurred due
to government delay arising under a separate, unrelated contract).
These “cross-contractual” costs are addressed below in the “Partial
Remedy” section of this article.
7. See, e.g., Selpa Constr. & Rental Corp., PSBCA No. 5039, 11-1
BCA ¶ 34,635 (addressing cardinal delay); Marine Hydraulics, Inc.,
94-3 BCA ¶ 27,057 (addressing the partial remedy line of authority).
8. See Godwin Equip., Inc., ASBCA No. 51939, 01-1 BCA ¶ 31,221
(“[I]n some unusual cases, the breach has been so profound that it was
deemed to be outside the scope of the contract, and, therefore, not remediable under the contract clauses.”); Cleereman Forest Prods., 02-1
BCA ¶ 31,664 (Westbrook, J., concurring) (“The Government’s failure to commence performance at all . . . resulted in a claim far broader than one for improper delays in performing contract obligations.”);
see also Ralph C. Nash & John Cibinic, Cardinal Delays: Are There
Such Things?, 15 Nash & Cibinic Rep. ¶ 29 (June 2001) (analyzing
cardinal delay as addressed in Godwin Equipment, Inc., 01-1 BCA ¶
31,221); ASBCA Adopts “Cardinal Delay” Rule, Avoids Limitation on
Delay Damages, 43 Gov’t Contractor ¶ 15 (Jan. 10, 2001) (analyzing potential for cardinal delay claim).
9. Godwin Equip., Inc., 01-1 BCA ¶ 31,221.
10. Selpa Constr. & Rental Corp., 11-1 BCA ¶ 34,635.
11. See Godwin Equip., Inc., 01-1 BCA ¶ 31,221.
12. See id. (emphasis added). The cardinal changes of “magnitude”
noted in Godwin Equipment, Inc. related to “1,000 changes to a
manufacturing contract,” a “100 percent increase in amount of earth
moved,” and “reconstruction costing $3.7 million.” See id. (citing
Air-A-Plane Corp. v. United States, 408 F.2d 1030 (Ct. Cl. 1969),
Saddler v. United States, 287 F.2d 411 (Ct. Cl. 1961), and Edward R.
Marden Corp., 442 F.2d 634 (Ct. Cl. 1971)). These and other decisions on cardinal change certainly provide some indication of what
magnitude of delay would qualify as a cardinal delay. However, even
though such examples are instructive, the facts presented in these
cases apply more directly to changes and not to delay, limiting the
precedential value of the examples for a cardinal delay argument.
13. See Goodwin Equip., Inc., 01-1 BCA ¶31,221. See id. (“[I]n some
unusual cases, the breach has been so profound that it was deemed
to be outside the scope of the contract, and, therefore, not remediable under the contract clauses.”); Cleereman Forest Prods., 02-1
BCA ¶ 31,664 (Westbrook, J., concurring) (“The Government’s failure to commence performance at all . . . resulted in a claim far
broader than one for improper delays in performing contract obligations.”); see also Ralph C. Nash & John Cibinic, Cardinal Delays: Are
There Such Things?, 15 Nash & Cibinic Rep. ¶ 29 (June 2001) (analyzing cardinal delay as addressed in Godwin Equipment, Inc., 01-1
BCA ¶ 31,221); ASBCA Adopts “Cardinal Delay” Rule, Avoids Limitation on Delay Damages, 43 Gov’t Contractor ¶ 15 (Jan. 10,
2001) (analyzing potential for cardinal delay claim).
14. See Selpa Constr. & Rental Corp., 11-1 BCA ¶ 34,635.
15. See id.
16. See id.
17. See id.
18. Selpa Constr. & Rental Corp., 11-1 BCA ¶ 34,635; see id. (stating in dicta that a delay of 138 days was not so “extensive or so unusual as to be unremediable under the contract and to implicate the
theory of cardinal delay”).
19. See, e.g., Cleereman Forest Prods., 02-1 BCA ¶ 31,664 (Westbrook, J., concurring) (“Where there is a remedy granting clause
providing only a partial remedy, there is authority under various circumstances for a party to recover costs not payable under the contract, as a breach of the contract.”); see also PAE Int’l, ASBCA No.
45314, 98-1 BCA ¶ 29,347 (“[W]hen only partial relief is available
under the contract . . . the remedies under the contract are not exclusive
and the contractor may secure damages in breach of contract . . . .”);
Maine Yankee Atomic Power Co. v. United States, 225 F.3d 1336,
1342 (Fed. Cir. 2000) (“Our discussion of the limited relief available
under the excusable delays provision also leads to the conclusion
that ‘complete relief’ would not be available for [plaintiff] under that
provision, so that [plaintiff] is not precluded from seeking judicial relief by its failure to invoke the contract’s disputes clause.”).
20. See id.
21. See id. As indicated below, not all costs are recoverable under
such a theory. Because the Government Delay of Work clause precludes the recovery of profit, boards have also precluded the recovery
of profit under the partial remedy theory. See Marine Hydraulics
Int’l, Inc., 94-3 BCA ¶ 27,057.
22. The “cross-contractual costs” sought in Marine Hydraulics, Inc.
were costs that arose from the government’s delay on the contractor’s other, unrelated contracts. See id.
23. See id. Direct costs from the government-caused delay were
presumably recoverable under the Government Delay of Work
clause, although the board never addressed a claim for these direct
costs. See id. The board only addressed the “cross-contractual-costs”
claim, which was before the board on summary judgment. See id.
24. See id.; see also FAR 52-242-17(a) (“[A]n adjustment (excluding
profit) shall be made for any increase in the cost of performance of
this contract caused by the delay or interruption . . . shall be modified
in writing accordingly.” (emphasis added)).
25. See Marine Hydraulics Int’l, Inc., 94-3 BCA ¶ 27,057.
26. See id.
27. See id.
28. In the decisions in which the partial remedy concept is embraced, the boards do not expressly state that the contractor met the
requirements of the Government Delay of Work clause and could
have at least partially recovered its costs under that clause. The
boards’ decisions appear to either take for granted entitlement under
the Government Delay of Work clause or the parties do not dispute
such entitlement. See Marine Hydraulics Int’l, Inc., 94-3 BCA ¶
27,057 (suggesting that analysis of the appellant’s entitlement for
costs under the Government Delay of Work clause is necessary); see
also Cleereman Forest Prods., 02-1 BCA ¶ 31,664 (failing to address
whether the appellant could make a partial recovery under the remedy-granting clause); PAE Int’l, 45314, 98-1 BCA ¶ 29,347 (failing to
state whether the contractor could have recovered under a remedygranting clause).
Volume 47, Number 2 The Procurement Lawyer 19 Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
News from the
COMMITTEES
Reported by Herman Levy
Meeting of the Commercial
Products and Services Committee, October 19, 2011:
Cochair Seamus Curley introduced guest speaker Paul J.
Seidman. Paul spoke on convenience terminations under
commercial item contracts.
He used his slides and guest
appearance in the Nash &
Cibinic Report and its Postscript as the basis for his lecture.
The basic idea of termination for convenience, he said, is
needed flexibility on the part of the government and government exemption from liability for anticipatory profits.
Nevertheless, he said that anticipatory profits probably
would be recoverable under common law.
Termination for convenience, Paul said, is neither required by law nor is standard commercial practice. Under
the traditional formula for recovery, a government contractor is entitled to contract price for completed deliverables
and termination costs, plus profit on costs other than for
settlement expenses. Recovery is subject to the Fair Compensation Principle, FAR 49-201, and to loss adjustment
under FAR 49.203. For commercial item contracts the basic
formula for recovery is the percentage of contract price reflecting percentage of completion plus reasonable charges
resulting from termination.
Paul then discussed various questions that have arisen regarding convenience termination of commercial contracts,
including precontract costs, applicability of deliverables to
FAR Part 12, applicability of FAR Part 49 principles, definitions of “reasonable charges,” “reasonable profit,” ”percentage of completion,” and “fair compensation.”
Seamus then discussed several recent decisions. In
Diebold, Inc., GAO sustained the protest. After contract
award, the US Treasury Department sent the awardee a
draft contract containing a number of substantive provisions not included in the solicitation; GAO held that the
Treasury Department should have afforded all offerors the
opportunity to bid on the changes. In CW Government
Travel, Inc. d/b/a CWTSATOTRAVEL v. United States, the
COFC rejected all solicitation defect challenges except for
one that required “that offerors submit a fixed-price schedule that cannot be renegotiated over the 15-year contract
term,” finding that the agency’s market research did not establish that such pricing is customary. In Seaborn Health
Care, Inc., and Top Echelon Contracting, Inc., v. United
States, the COFC rejected several protest grounds of one
protester and found that another lacked standing. Of particular interest, the court rejected the assertion that the
20 awardee was ineligible for award because its Federal Supply
Schedule had expired. In Technosource Information Systems,
LLC, True Tandem, LLC, GAO among other things (1)
sustained the protest against solicitation requirements involving documents/explanations neither incorporated nor
explained in the solicitation and (2) the protest against a
requirement that data centers be located in Trade Agreements Act “designated countries,” a requirement found
overly restrictive and not required by law.
Seamus then turned to regulatory matters, noting that
the comment period for GSAR interim rule Implementation of Information Technology Security Provisions had
expired. Regarding DFARS final rule Presumption of Development Exclusively at Private Expense, he said that the
Intellectual Property Committee may be interested; he will
coordinate with Fern Lavallee. Seamus also noted DoD’s
request for comments on its recent update of the Commercial Item Handbook; comments were due November 30. Cochair John Howell said that he and Seamus would need
input from the vice chairs in preparing comments. The
Section filed comments on November 30.
Meeting of the Commercial Products and Services
Committee, November 23, 2011: Cochair Seamus Curley
discussed two recent decisions. In U.S. FoodService, Inc.,
and Labatt Food Service, the COFC enjoined awarding
under the solicitation, finding overly broad the government’s methodology of implementing its need for a waiver
from customary commercial practices. At issue was the
most favored customer (MFC) clause, which the agency
tailored for the instant solicitation: “For all items, the contractor warrants, on a continuing basis throughout the period of performance, that its delivered price under this contract is equal to or lower than its delivery price for its
commercial customers.” The court found that the agency
had justified its need to deviate from customary commercial practice: fraud in the industry. Nevertheless it found
the clause to be unreasonably broad for the agency’s stated
rationale; the court acknowledged the protester’s contention that the tailored clause “contains arbitrary and capricious terms to which no offeror can respond.”
Seamus then turned to Tzell Airtrak Travel Corp. The
ASBCA denied the government’s motion for summary
judgment in an appeal of a termination for cause of a task
order under a master contract for worldwide commercial
travel office (CTO). The contract required the contractor
to make travel reservations on behalf of the government.
Some of the reservations were to be accomplished via automated platform and some (CTO assist transactions) were
to be accomplished via the individual attention of contractor personnel. Although the solicitation indicated that the
mix would be 50:50, the actual split was about 5:95. The
contractor filed a request for equitable adjustment. After issuing a cure notice, the government terminated the contract for default. The board denied the government’s motion for summary judgment, citing section 164 of the
Restatement of Contracts and Summit Timber Co. v. United
States. These stated, respectively, that “[a] contract is void-
The Procurement Lawyer Winter 2012
Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
able if a party’s manifestation of assent was induced by either a fraudulent or a material misrepresentation by the
other party upon which the recipient was justified in relying” and that “misrepresentation is not ‘rendered innocuous’ because it is caused by negligence or inadvertence,
rather than bad faith or gross error.”
Seamus then turned to DFARS proposed rule, Applicability of Hexavalent Chromium Policy to Commercial
Items. He said that the rule did not excite him; the clause
did not have a commercial item exception and seemed
“pretty ministerial.” His next item was Office of the Secretary of Defense Acquisition, Technology, and Logistics’
Commercial Item Handbook, a 110-page document; comments were due November 30. On that date the Section
chair addressed a letter to DoD making the following
points: (1) the handbook is important and warrants significant attention; (2) in view of the handbook’s length and
potential impact on DoD, the comment period should be
extended; (3) to maximize the ability of industry and the
public to suggest improvements and clarifications, DoD
should make available a summary of the input received to
date and DoD’s reply to it plus a summary of the rationale
for the revisions reflected in the current update; and (4) the
Section would welcome dialogue with DoD as to whether
and how it can assist DoD with revising the handbook.
Further, Seamus suggested that Section committee websites be updated monthly; Jerry Walz had noted that many
committee websites are out of date. Carl Vacketta suggested
that a student from the PCLJ board be approached to do
the updating; Phil Seckman offered to do it if no one else
were so willing.
Guest speaker Fernand Lavallee then discussed DFARS
final rule Presumption of Development Exclusively at Private Expense. The rule implements section 802(b) of the
FY 2007 National Defense Authorization Act (NDAA)
and section 815 of the FY 2008 NDAA. The former modified 10 U.S.C. § 2321(f)(2) regarding the presumption of development at private expense for major systems. The latter
revised 10 U.S.C. 2321(f)(2) to exempt commercially available off-the-shelf (COTS) items from the special requirements and procedures related to the validation of a contractor’s or subcontractor’s asserted restrictions on
technical data and computer software.
Under the final rule, technical data delivered to the government for a commercial item developed in any part at
government expense is to be governed by both DFARS
252.227-7013 (Rights in technical data-Noncommercial
items) and DFARS 252.227-7015 (Technical data-Commercial items). The -7013 clause will apply to the portions of
the technical data developed at government expense. The
-7015 clause will apply to the portions of the commercial
item technical data developed exclusively at private expense. Under the -7015 clause, should the government
challenge the contractor in that regard, the presumption of
development at private expense remains; the government
must have evidence of development at government expense to successfully challenge the contractor. Under the
-7013 clause, however, the presumption of development at
government expense remains. Contractors need not be
concerned about COTS items, which retain the presumption of development exclusively at private expense.
Fern said that he believes that the final rule is part of a
swinging back of the pendulum in liberalizing the commercial item rule. Even commercial item subcontractors may
be unable to prove development at private expense. The
final rule may impact software developers, especially highend ones; they may have to think twice about bidding on
major systems.
Meeting information: The Commercial Products and
Services Committee generally meets bimonthly (lunch
served). Contacts: cochairs Seamus Curley, (202) 799-4403,
e-mail [email protected], and John A. Howell,
(202) 973-0218, e-mail [email protected]. For
more information on this and other committees, visit the
Section’s website at www.americanbar.org/groups/public_
contract_law.html and click on “Committees” on the lefthand navigation bar. PL
2012‑2013 Nominating Committee
The Section’s Nominating Committee is now accepting nominations and expressions of interest for leadership positions for 2012‑2013. The open positions are:
• Secretary
• Four Council members (three-year terms ending
August 2015)
If you have a strong history of service to the Section, please
consider enhancing your involvement as an officer or
Council member by submitting your name to the
Nominating Committee along with a list of your
Section activities. Please note that the Nominating
Committee must submit its report not later than June 5,
2012, so send in your letter of interest by May 4 if you
would like to be considered.
Any Section member wishing to make a recommendation
to the Nominating Committee is encouraged to contact
directly one of the following committee members:
Donald G. Featherstun, Chair
(415) 544-1088
[email protected]
Melissa J. “Missy” Copeland
(803) 309-4686
[email protected]
Linda Maramba
(703) 280-4086
[email protected]
For complete details Click “NEWS” at americanbar.
org/groups/public_contract_law.
Volume 47, Number 2 The Procurement Lawyer 21 Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
cover
(continued from page 1)
established several forms of contracting assistance for veterans, including a goal that at least 3 percent of all prime
contract and subcontract awards each fiscal year would be
made to SDVOSBs.3 Congress subsequently enacted the
Veterans Benefits Act of 20034 to give contracting officers
the tools (e.g., sole source and set-aside contracts to SDVOSBs) to meet the 3 percent SDVOSB contracting goal.5
The SDVOSB contracting program created under these
laws is administered by the US Small Business Administration (SBA) and is applicable to “all Federal agencies that
employ one or more contracting officers.”6
A few years later, Congress gave the VA its own, separate veterans contracting program via the Veterans Benefits, Health Care, and Information Technology Act of 2006
(VA Act).7 The VA’s program, referred to as the Veterans
First Contracting Program, applies only to VA acquisitions.8 Like the SBA-administered, government-wide program, the Veterans First Contracting Program established
contracting goals, gave the VA sole source contracting authority, and permitted the use of restricted competition for
SDVOSBs, while adding such authority for VOSBs as well.9
The VA’s program is referred to as the “Veterans First
Contracting Program” because the VA Act created mandatory contracting priorities for veterans.10 Specifically, the
VA Act provides that VA contracting officers shall award
contracts based on competition restricted for veteranowned small businesses when two or more such firms will
submit offers and award can be made at a fair and reasonable price.11 The implementing VA Acquisition Regulations (VAAR) confirm that, in almost all cases, the VA
must give priority to SDVOSBs and VOSBs in VA procurements.12 By contrast, the government-wide SDVOSB program “is permissive in nature” because the underlying provision in the Small Business Act indicates merely that
contracting officers may award contracts based on competition restricted for SDVOSBs.13
The VA’s Resistance to the “Veterans First” Priority
Though the VA is in charge of implementing the mandatory Veterans First acquisition initiative, the agency surprisingly has fought against the priority for veterans in several recent acquisitions. Three bid protest cases in
particular, discussed in turn below, demonstrate how the
VA has eschewed corrective action and dug in its heels for
lengthy legal battles to avoid having to reserve procurements for SDVOSBs and VOSBs.
In the first case, Powerhouse Design Architects & Engineers, Ltd.,14 the protester challenged the VA’s failure to set
aside several architect-engineering (A/E) procurements for
SDVOSBs. The VA had indicated in the sources sought notices that it would conduct the procurements pursuant to the
Brooks Act15 and its implementing regulations.16 In ruling for
the protester, the GAO examined the statutory and regulatory provisions requiring priority for veterans and found
22 “nothing in the VA Act or the VA regulations that exempts
A/E procurements from the set-aside requirement.”17 Though
the VAAR contains three exceptions to the set-aside requirement, the GAO noted that none are applicable to A/E
services.18 The GAO similarly found nothing in the Brooks
Act or its implementing regulations that “suggests a reasonable basis for asserting that A/E procurements are exempt
from the VA Act or the VA regulations.”19 The GAO criticized the VA for sidestepping the plain language of the VA
Act and VAAR in its defense; instead, the VA offered several unavailing arguments, including an interpretation of its
response to a comment about a proposed rule that the GAO
found was not entitled to deference.20
Around the same time the GAO decided Powerhouse,
the US Court of Federal Claims (COFC) published its decision in Angelica Textile Services v. United States.21 In Angelica, the VA had restricted the subject contract for firms
eligible under the AbilityOne Program, rather than the
Veterans First program.22 The COFC considered the proper
order of priority between the two programs and held that
the Veterans First Contracting Program should have
trumped the AbilityOne Program based on explicit VA
guidance stating just that.23 Angelica is noteworthy because
the VA failed to follow its own guidance, and, moreover,
because the VA decided to fight the protest rather than
take corrective action. In fact, the VA defended the protest
by challenging the validity of its own guidance, asserting
that the guidelines could be ignored and did not have the
force of law.24 Not surprisingly, the COFC found that the
VA’s position against its own guidance was “not well taken”
and ruled against the VA.25
The Powerhouse and Angelica decisions were prologue to
Aldevra, a bid protest decided in October 2011 in which the
VA again fought (and lost) a challenge to the Veterans First
priority. Aldevra dealt with the priority between the Veterans First Contracting Program and acquisitions under the
Federal Supply Schedule (FSS) procedures. The VA took
the position that FSS procurements are not subject to the
Veterans First mandate, arguing, as in Powerhouse, not
based on the plain language of the VA Act and the VAAR,
but on an interpretation of its responses to rulemaking
comments. In moving to dismiss the protests, the VA
warned the GAO that to rule against the VA “would result
in a weird and whimsical unraveling of procurement priorities and programs that have inured to the benefit of both
the public and government for many decades.”26
The GAO again rejected the VA’s arguments because it
found “nothing in the VA Act or the VAAR that provides
the agency with discretion to conduct a procurement under
FSS procedures without first demonstrating whether the
acquisition should be set aside for SDVOSBs.”27 The VA’s
responses in the rulemaking referenced the applicability of
48 C.F.R. part 19 to FSS procedures, but as the GAO
noted, FAR part 19 governs the separate, SBA-administered procurement program for SDVOSBs that “is permissive in nature.”28 Because the Veterans First Contracting
Program is governed by mandatory statutory language and
The Procurement Lawyer Winter 2012
Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
implemented through the VAAR, it is not subject to “the
exception in the FAR that permits agencies to award task
and delivery orders under the FSS without regard to government-wide small business programs . . . .”29 Thus, the
GAO found no reason to veer from the plain language of
the VA Act and the VAAR, which require the VA to give
priority to the Veterans First program in VA acquisitions.30
Perhaps the most notable aspect of Aldevra occurred after
the GAO decided the case. Though executive branch agencies such as the VA are expected to follow the GAO’s recommendations, the VA moved quickly after Aldevra to inform
its acquisition officials and personnel that the VA would not
follow the GAO’s ruling. On October 17, 2011, the VA’s deputy assistant secretary for acquisition and logistics, Jan R.
Frye, issued a memorandum to all VA acquisition personnel
stating that the “VA is of the opinion GAO’s interpretation
[in Aldevra] is flawed and legally incorrect.” As a result, the
Frye memorandum stated, the VA will wait for the issue to
be decided by the courts. In the meantime, the VA will ignore Aldevra and dig in for further resistance and litigation
against the Veterans First mandate.31
Unfortunately for the veteran contracting community,
Powerhouse, Angelica, and Aldevra are not the only examples of the VA’s resistance to the Veterans First program.
While the VA clearly believes that veterans should be
given priority in at least some procurements,32 the VA is
contesting the Veterans First priority “in several other protests currently pending before [the GAO].”33 The VA has
also faced substantial criticism, and several bid protests, in
connection with its multibillion dollar Transformation
Twenty-One Total Technology procurement (known as
“T4”), for which the VA used a two-tiered award methodology that did not consider veteran-owned offerors until after
the VA had made multiple awards to nonveteran offerors
on an unrestricted basis. And last year, the VA fought a
protest against its failure to set aside a procurement for SDVOSBs, despite market research and comments from the
SBA, both of which indicated that either a set-aside or sole
source for SDVOSBs was required.34
It is unclear why the VA, the agency specifically entrusted to aid veterans and administer the Veterans First Contracting Program, would choose to litigate against its own
Veterans First guidance and statutory mandate. This hardly seems like good policy for the VA, and it is preventing
the veteran contracting community from realizing the full
promise of the Veterans First program. The VA should reconsider its “let the courts decide” approach. Instead, the
VA should seek to avoid protracted legal battles with its
core constituents and, of its own initiative, interpret the
reach of the Veterans First Contracting Program as expansively and favorably for veterans as possible.
Challenges in the CVE Verification Process
In addition to fighting against the mandate of the Veterans
First Contracting Program, the VA is facing challenges in
implementing the program’s verification process. Of the
two federal procurement programs for SDVOSBs, only the
Veterans First Contracting Program requires firms to pass
an upfront eligibility review before they can participate in
the program.35 Verification is conducted through the VA’s
CVE and, when successful, results in a listing in the VA’s
Vendor Information Pages (“VIP”) database, found at www.
VetBiz.gov, with an SDVOSB or VOSB seal of approval.36
According to the VAAR, being listed as verified in the VIP
database is a component of SDVOSB and VOSB eligibility
for the Veterans First Contracting Program.37
In October 2010, Congress passed the Veterans Benefits
Act of 2010 requiring the VA to accelerate the verification
of firms that had previously self-certified in the VIP database.38 All firms must now be listed and verified in the VIP
database before they are eligible for a contract award
through the Veterans First Program.39
The Veterans Benefits Act of 2010 forced the CVE to
immediately review the eligibility of thousands of veteranowned contractors. Such an undertaking would have been
a difficult challenge for most agencies in this era of fiscal
austerity. While many veterans believe the CVE performed
admirably under the circumstances, the VA OIG found significant room for improvement in the VA’s verification process. In a July 2011 report, the VA OIG noted that the Office of Small Disadvantaged Business Utilization (OSDBU)
at the VA “lacks the performance management information needed to determine if it has the right staffing mix and
processes in place to address the backlog of businesses requiring eligibility verification due to the implementation of
the Veterans’ Benefits Act of 2010.”40 The VA OIG also observed that “OSDBU lacks reasonable assurance that CVE
is operating effectively to eliminate VA’s current backlog of
business verifications and is properly maintaining the VetBiz VIP database. . . .”41
A big part of the problem with the verification process is
that the CVE is now too quick to deny applications. The
focus on eliminating fraud and abuse appears to have
swung the pendulum too far in the other direction; in the
last year, close to half of all applications were denied.42
Though many applications were surely denied for appropriate reasons, a fair share of firms have been denied because
the CVE overlooked portions of its rules or applied the
rules in overly restrictive, impractical, and nonbusiness
friendly ways. The CVE has also denied many firms because of minor and easily correctable conflicts in their corporate records. Furthermore, the CVE denied at least one
firm located in a community property state because, in the
CVE’s view, the state law entitled the nonveteran spouse to
half of the veteran’s ownership interest. The CVE determined that because the spouse was entitled to half of the
veteran’s ownership, the veteran actually owned only onehalf of his shares in the company, which reduced his ownership to below the required 51 percent.
There is no question that the CVE has a difficult job to
balance the integrity of the program with fair and timely results for all. But preventing ineligible firms from getting into
the program is no more important than making sure eligible
firms are not unfairly kept out. To limit the number of incor-
Volume 47, Number 2 The Procurement Lawyer 23 Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
rect denials, the CVE should engage in more give-and-take
with applicants before denials are issued. Doing so would
provide applicants with a greater opportunity to address the
CVE’s concerns, correct or clarify corporate records, and
eliminate grounds for denial. In short, the CVE should spend
more time during the application process working to help applicants become eligible, instead of requiring firms to address
the CVE’s concerns (well-founded or not) post-denial via a
new application or request for reconsideration.
Such an approach would help to lessen the record number of reconsideration requests that have deluged the CVE
in the last few months.43 As much as possible, the CVE
should rule on a reconsideration request within 60 days,44 but
the agency has been well behind this target. As of October
18, 2011, the VA had nearly 900 such requests. This represents a threefold increase in the historical rate of reconsideration requests45 and is a poor reflection on the underlying
verification process. The VA is shifting and adding resources
to strengthen and speed up the process, but many veteranowned firms that were wrongly denied admission remain in
limbo in the reconsideration process and unable to pursue
contracts awarded through the Veterans First program.46
Verification of SDVOSB Joint Ventures
The challenges in the verification process extend to joint
ventures as well. Though joint ventures are an increasingly
popular tool among small business contractors, the VA has
interpreted the CVE verification requirement in a way that
limits the usefulness of joint ventures for firms in the Veterans First Program. Specifically, the VA has held that joint
ventures must be listed as verified in the VIP database to be
eligible for award.
Although the GAO has deferred to the VA on this
issue,47 the VA’s reasoning is suspect because the regulation
that provides distinct eligibility criteria for joint ventures
contains no requirement for listing and verification in the
VIP database.48 To the contrary, the joint venture regulation indicates that a joint venture is eligible for contracts
through the Veterans First Contracting Program if “[a]t
least one member of the joint venture is an SDVOSB or
VOSB concern, and makes the representations in paragraph (b) of this section.”49 Thus, the party that must make
the representations in paragraph (b)—which contains the
requirement for verification in the VIP database50—is the
SDVOSB or VOSB member of the joint venture, not the
joint venture itself.
The VA’s interpretation is further belied by the fact that
both the joint venture regulation and the representations
contained in paragraph (b) include size eligibility criteria.51
According to the VA’s interpretation, joint ventures must
comply with the joint venture rule and make the representations in paragraph (b). This interpretation makes the
joint venture size requirement superfluous because paragraph (b) also requires offerors to be small.52 An interpretation that renders a regulation meaningless “violates basic
principles of statutory and regulatory construction.”53
The view that joint ventures should not have to be sepa-
24 rately listed and verified in the VIP database is consistent
with a recent ruling of SBA’s Office of Hearings and Appeals (OHA) pertaining to SDVOSB joint ventures in the
government-wide program.54 It is also the more reasonable
interpretation when accounting for the practical realities of
the CVE verification and reconsideration processes, which
can take many months to complete. Because joint ventures
are limited to a few specific contract opportunities and are
not used “on a continuing or permanent basis for conducting business generally,”55 contractors do not customarily
form joint ventures until a suitable contract opportunity
arises. By the time an opportunity is identified, it will most
often be too late to go through the multimonth process to
gain CVE verification before proposals are due and award is
made. This severely restricts the utility of joint ventures for
SDVOSBs and VOSBs and unfairly burdens them with the
additional time and expense of more verification processes.
Proposal to Expand the CVE’s Role
Notwithstanding the challenges facing the CVE verification process, in September 2011, the Senate Committee on
Small Business and Entrepreneurship unanimously passed
the Small Business Contracting Fraud Prevention Act of
2011 (S. 633). The bill would end the current practice of
self-certification for SDVOSBs that use the governmentwide program, thereby expanding the CVE’s role to cover
the verification of SDVOSBs in both of the federal procurement programs for veterans.
Though S. 633 passed the Senate, it faces an uncertain
future.56 There are concerns about the VA’s resources to
handle another significant increase in application volume.57 Additionally, there are questions about how the
CVE would harmonize the differences between the VA
and SBA programs and give effect to the SBA’s exclusive
role as the arbiter of small business status.58
There is good reason to proceed cautiously in merging
the eligibility processes for the two programs into the CVE,
as there is already a lot of confusion regarding the differences between the two programs. For instance, contracting
officers have sent SDVOSB status protests both to the VA
OSDBU and the SBA,59 and a contractor has tried to appeal a VA status determination to OHA.60 In a more recent
example, the COFC in Bluestar Energy Services, Inc. v.
United States61 rejected the plaintiff’s claim that it could
self-certify its SDVOSB status for a Defense Logistics
Agency solicitation, stating that “[a]lthough self-certification may be acceptable, it is not available in this case,”
based on several VA regulations.62 The court apparently
overlooked that a non-VA procurement falls under the separate, government-wide SDVOSB program for which selfcertification is permitted under the SBA’s regulations.63
Consolidation of the verification processes (if not the
entire contracting programs) into the CVE (or the SBA)
could someday eliminate the confusion and streamline the
barriers to entry into the federal procurement market for
veteran-owned firms. However, as evidenced by the many
issues with the CVE verification and reconsideration
The Procurement Lawyer Winter 2012
Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
processes to this point, there is no reason to believe that
the CVE is ready to handle its existing portfolio of contractors, let alone all federal agencies. Therefore, the best approach for the VA at this time is to focus its efforts and resources on handling the backlog of reconsideration
requests and improving its interactions with applicants before denials are issued so less reconsideration requests need
to be filed.
Conclusion
Despite the criticisms in this article, it should be reiterated
that the VA provides many forms of assistance for our military veterans, including through the Veterans First Contracting Program. Of note, the VA tops all federal agencies
with over 20 percent of its procurements going to SDVOSBs and VOSBs.64 However, the VA can and should be
doing better. Even discounting the VA OIG’s concerns
about the veracity of the VA’s contracting statistics,65 the
VA is still spending roughly four out of every five procurement dollars outside of the Veterans First Contracting Program. Given the VA’s critical role for veterans, it should be
leading the charge for veterans in its acquisitions at a much
more sizable percentage.
To this end, the VA should reconsider its decision to litigate against the Veterans First mandate, and in particular, its
rejection of the GAO’s recommendations in Aldevra. It is
neither good policy for the VA nor consistent with its obligations under the VA Act to interpret the reach of the Veterans First Contracting Program narrowly until the courts tell
the VA otherwise. Rather than continuing to spend precious
resources on further legal battles, the VA should accept the
broad Veterans First mandate and redouble its efforts to ensure that the eligibility verification process is fair and efficient for all applicants. The VA should also relax its interpretation of the joint venture verification requirements so more
SDVOSBs and VOSBs can utilize this valuable contracting
tool. Lastly, Congress needs to allow the CVE more time to
get its house in order before expanding the CVE’s purview.
These steps are necessary so our veterans will get the most
out of the Veterans First Contracting Program and have the
best possible chance to “realize the American dream that
they fought to protect.”66 PL
Endnotes
1. Aldevra, B-405271; B-405524 (Oct. 11, 2011).
2. 15 U.S.C. § 657b note, Veterans Entrepreneurship and Small
Business Development Act of 1999, Pub. L. No. 106-50, § 101(3), 113
Stat. 233, 234 (1999).
3. Id. at 247.
4. Pub. L. No. 108-183, § 308, 117 Stat. 2651 (2003).
5. Id. at 2662. President Bush later issued Executive Order 13360,
which imposed duties on federal agencies to “more effectively implement” the 3 percent contracting goal and their newfound authority
to reserve certain procurements for SDVOSBs. See 69 Fed. Reg.
62549 (Oct. 26, 2004).
6. FAR § 19.1402.
7. Pub. L. No. 109-461, §§ 502–03 (codified at 38 U.S.C. §§ 8127–
28 (2006)); see also 48 C.F.R. § 819.7001.
8. VAAR § 819.7002; see also 74 Fed. Reg. 64619, 64622 (Dec. 8,
2009) (“VA is required to give priority in contracting to small businesses owned and controlled by veterans, but the program is not intended to have government-wide applicability under the FAR.”).
9. Pub. L. No. 109-461, § 502, 120 Stat. 3403, 3431–32 (2006). The
Veterans First Contracting Program “is a logical extension of VA’s
mission to care for and assist veterans in returning to private life. It
provides VA with the new contracting flexibilities to assist veterans
in doing business with VA. SDVOSBs and VOSBs will obtain valuable experience through this VA program that can be useful in obtaining contracts and subcontracts with other government agencies
as well.” 74 Fed. Reg. at 64622.
10. 74 Fed. Reg. at 64622 (“Sections 8127 and 8128 of title 38,
U.S.C., contain provisions that authorize VA to create a VA-specific
procurement program to provide contracting preference to SDVOSBs and VOSBs.”).
11. 38 U.S.C. § 8127(d).
12. VAAR §§ 819.7004(a)-(b), 819.7005(a).
13. Aldevra, supra (citing 15 U.S.C. § 657f(b) and Mission Critical
Solutions, B-401057 (May 4, 2009)).
14. Powerhouse Design Architects & Eng’rs, B-403174, et seq. (Oct.
7, 2010).
15. See 40 U.S.C. § 1101, et seq. (Supp. III 2006). The Brooks Act
provides policies and procedures for the selection of architects and
engineers on federal government contracts. See id.
16. See 48 C.F.R. subpart 36.6.
17. Powerhouse, supra.
18. Id.
19. Id.
20. Id.
21. Angelica Textile Servs. v. United States, 95 Fed. Cl. 208 (2010).
22. Id. at 211–12; see also id. at n.2 (explaining that the AbilityOne
Program involves a list “of products and services that must be purchased by federal governmental agencies from qualifying nonprofit
entities employing handicapped and disabled persons”).
23. Id. at 222–23. The VA guidance at issue in Angelica states that
for all procurements issued after January 7, 2010, VA contracting officers must first consider using the Veterans First Contracting Program before putting a procurement on the list for the AbilityOne
Program. Id. at 213–14.
24. Id. at 221–22.
25. Id. at 222.
26. VA Mot. Dismiss, B-405271; B-405524, filed July 20, 2011, at p.
5. The governmental benefit VA alluded to here appears to be, at
least in part, the fees the VA receives for its role in administering
certain schedules. Id. at p. 6 (discussing the VA’s use and administration of FSS contracts).
27. Aldevra, supra.
28. Id.
29. Id.
30. The GAO cited favorably to Aldevra in Kingdomware Technology, B-405727 (Dec. 19, 2011).
31. Consistent with this approach and its obligation under 31 U.S.C.
§ 3554(b)(3), the VA notified the GAO, on October 28, 2011, that it
does not intend to follow the GAO’s recommendations in Aldevra.
Subsequently, it was reported that the VA had decided to comply with
the GAO’s recommendations in Aldevra. See Jill R. Aitoro, In an about
face, VA cancels protested solicitations, Wash. Bus. J., Dec. 12, 2011,
http://tinyurl.com/cdjagtd. However, in a January 4, 2012 opposition to
a new GAO protest by Aldevra, the VA maintained that Aldevra “is
fundamentally flawed” and “was incorrectly decided.”
32. See, e.g., VA Information Letter 001AL-09-06 (Aug. 17, 2009)
(providing that VA ammunitions acquisitions are subject to the Veterans First Contracting Program).
33. Aldevra, supra.
34. This case, Crosstown Courier Servs., Inc., B-404485 (Dec. 28,
2010), was dismissed for procedural reasons. Although the SBA filed
comments in support of the protest, the GAO dismissed the protest
because the pro se protester did not file comments on time.
Volume 47, Number 2 The Procurement Lawyer 25 Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
35. The SBA considered creating a certification program but decided that doing so was unnecessary, opting instead for self-certification. See Small Business Size Regulations; Government Contracting
Programs, 69 Fed. Reg. 25262, 25265 (May 5, 2004); see also 13 C.F.R.
§ 125.15(a) (discussing the representations of SDVOSB status that
must be made with the firm’s initial offer (which includes price) for a
contract); FAR § 19.1403(a)-(b). The SBA verifies SDVOSB self-certifications through protests and appeals of SDVOSB status. Id. at
25262 (“The SBA’s regulations provide for a mechanism to check
SDVO SBC status through protests and appeals.”).
36. See VAAR § 804.1102 (describing the VIP database listing and
verification requirements for contract eligibility).
37. See, e.g., VAAR § 802.101 (defining SDVOSBs and VOSBs as
firms that are listed as verified in the VIP database).
38. Veterans Benefits Act of 2010, Pub. L. No. 111-275, § 104, 124
Stat. 2864 (2010); see also 74 Fed. Reg. at 64619 (“In the past, vendors could register themselves in the VA vendor database and self
certify the accuracy of the information provided.”).
39. VAAR § 804.1102 provides that firms listed in the VIP database, but not verified, are eligible for award prior to Jan. 1, 2012.
Coming Attractions
APRIL 19-20, 2012
7th Annual State and Local Procurement
Symposium
Sofitel Lafayette Square
Washington, DC
AUGUST 3-6, 2012
Annual Educational Programs and
Open Council Meeting
Hotel InterContinental
Chicago, IL
NOVEMBER 1-3, 2012
Fall Educational Program and
Open Council Meeting
The Brown Palace Hotel and Spa
Denver, CO
MARCH 14-16, 2013
19th Annual Federal Procurement Institute and
Open Midyear Council Meeting
Loews Annapolis Hotel
Annapolis, MD
MAY 2-3, 2013
8th Annual State and Local Procurement
Symposium
Hilton Nashville
Nashville, TN
AUGUST 9-12, 2013
Annual Educational Programs and
Open Council Meeting
Hotel TBA
San Francisco, CA
26 However, in October 2010, the VA issued a class deviation to VAAR
§ 804.1102 to provide that all prospective awardees must be listed
and verified in the VIP database. See VA Acquisition Policy Flash!
11-09, Clarification: Class Deviation from VA Acquisition Regulation (VAAR) 804.1102 (Oct 2010). Unverified firms listed in the
VIP database as of October 13, 2010, were eligible for an accelerated,
21-business day verification process upon notification of a prospective award. However, firms not listed in the VIP database as of Oct.
13, 2010, are not eligible for fast-track verification and must go
through the regular CVE verification process to be eligible for
award. See FedCon RKR JV LLC, B-405257 (Oct. 4, 2011).
40. VA OIG, “Audit of Veteran-Owned and Service-Disabled Veteran-Owned Small Business Programs,” 10-02436-234, July 2011, p. 21.
41. Id. at p. 18.
42. See Prepared Statement of Thomas J. Leney, Executive Director, Small and Veteran Business Programs, Office of Small and Disadvantaged Business Utilization, U.S. Department of Veterans Affairs, to the U.S. House of Representatives, Committee on Veterans’
Affairs (July 28, 2011) (stating that “[s]ince the implementation of
P.L. 111-275, we have verified approximately 2,000 firms and denied
approximately 1,600”).
43. According to the VA’s rules, most applicants that are denied
may request reconsideration. See 38 C.F.R. § 74.13.
44. Id. at § 74.13(b).
45. According to an e-mail from the VA’s “Reconsideration Team,”
while only approximately 20 percent of denied firms have traditionally sought reconsideration, the reconsideration rate is now over 60
percent.
46. Several recent bid protest decisions have confirmed that, without verification in the VIP database, SDVOSBs and VOSBs are not
eligible for contracts awarded through the Veterans First Contracting
Program. See Corners Constr., B-402465 (Apr. 23, 2010); CS-360, LLC
v. United States, 94 Fed. Cl. 488 (2010); FedCon RKR, supra.
47. See Pro South-Emcon, a Joint Venture, B-405267 (Aug. 18,
2011) (citing A-1 Procurement, JVG, B-404618.3 (July 26, 2011)).
48. See VAAR § 819.7003(c).
49. Id. at § 819.7003(c)(1).
50. Id. at § 819.7003(b).
51. Id. at §§ 819.7003(b)(2) and (c)(2).
52. Id.
53. Mid-Atlantic Bus. Fin. Co., SBA No. DEV-643 (2000) (citing
Gustafson v. Allroyd Co, Inc., 513 U.S. 561, 574–75 (1995) and United States v. Alaska, 521 U.S. 1, 59–60 (1997)).
54. See Constr. Eng’g Servs., LLC, SBA No. VET-213 (2011) (finding that because a separate SBA regulation governs contract eligibility for SDVOSB joint ventures, only the SDVOSB member in the
joint venture, as opposed to the joint venture itself, must adhere to
the eligibility criteria for individual SDVOSBs).
55. 74 Fed. Reg. at 64626.
56. See, Featured Interview, Mr. Sam Graves (R-MO), Chairman,
House Small Business Committee, VetLikeMe, Vol. 2, No. 5 (Sept.Oct. 2011), at 8 (transcript of October 12, 2011, interview in which
Chairman Graves said that “[s]elf-certification is a difficult issue. No
one wants to see fraudulent businesses taking opportunities away
from legitimate SDVOSB. However, I am also conscious of the fact
that small businesses already bear the brunt of compliance with regulations, and I want to proceed cautiously before putting another
burden on legitimate SDVOSB.”).
57. Id. (Chairman Graves stated, “Before Congress considers
charging the VA with verification for all SDVOSBs, I want to make
sure that the VA has the capacity and systems to efficiently verify
status.”) at 10.
58. Id. (Chairman Graves stated, “I have no problem with the VA
determining who is a service disadvantaged veteran, but only the
Small Business Administration should be able to determine who is a
small business, otherwise we risk having conflicting decisions from
the two agencies.”) at 12.
59. See United Med. Design Builders, LLC, SBA No. VET-197 (2010).
The Procurement Lawyer Winter 2012
Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
60. See Reese Goel JV, SBA No. VET-199 (2010).
61. Bluestar Energy Servs., Inc. v. United States, 100 Fed. Cl. 607
(2011).
62. Id. at 620.
63. See Apex Limited, Inc., B-402163 (Jan. 21, 2010) (discussing
the need to use the right regulations for the applicable SDVOSB
program).
64. See supra n.42.
65. See July 2011 VA OIG Report, supra n.40, at p. i (“Although VA
reported awarding 23 and 20 percent of its total procurement dollars, respectively, to VOSBs and SDVOSBs in FY 2010, we projected
that these figures were overstated by 3 to 17 percent because of
awards made to ineligible businesses.”).
66. See supra n.2.
cHAIR’S COLUMN
(continued from page 2)
Bingham, Dan Chudd, and Jerry Walz, after our webpage
was updated as part of the ABA’s massive website improvement effort in early 2011. I will be circulating a letter to all
committee cochairs in the near future about the guidelines
adopted by the Council and tips for implementing them.
Our website needs to be the place our members can obtain
information about the Section’s activities and the latest in
federal, state, and local procurement developments. The
guidelines approved by the Council will help the Section
achieve the level of Internet professionalism needed to provide this important service to our members.
Among other important matters presented to the Council for consideration was the adoption of a revised Five-Year
Strategic Plan that was prepared by the Strategic Planning
Committee under the leadership of Mark Colley. The revisions focus upon membership, including expanded diversity
efforts, and adoption of new, innovative means of communicating with the Section’s members and providing them
with educational resources.
Additionally, two new Section task forces were discussed. The first will be under the leadership of Brian
Sweeney and is charged with monitoring the NASA FAR
supplement rewrite announced on August 22, 2011, and
drafting comments on proposed regulatory changes, as appropriate. The work of this new “NASA Task Force” could
be substantial. Brian is seeking volunteers for the task
force, so if you have an interest in participating, please contact him at [email protected]. The second will be
headed up by Candida Steel and is responsible for updating
the Manual for Pro Se Litigants Before the Federal Boards of
Contact Appeals originally published in 2002. The existing
manual is both out of print and out of date. Candy is looking for volunteers, especially those who are members the
Contract Claims and Dispute Resolution Committee. If
you are able to help with the update, you can reach her at
[email protected].
The Council also responded to a request for financial assistance from the Military Pro Bono Project, established by
the ABA Standing Committee on Legal Assistance for Mili-
tary Personnel (LAMP) to assist our service members with
legal issues arising in consumer law, family law, landlord-tenant law, employment law, and others. The project depends
upon contributions to administer its mission to connect active-duty service members and their families to attorneys
willing to donate their time to deliver free legal services. I am
pleased to report that the Council approved Section participation as a Three-Star Supporter with a donation of $5,000
to help continue the project’s important work.
The reports to the Council from the State and Local
Procurement Division continue to reflect increased activity. Keith McCook provided a detailed report of his attendance at the annual meeting of the National Association
of State Procurement Officials (NASPO) September 12–14,
2011 in Austin, Texas, on behalf of the Section and in furtherance of our Memorandum of Understanding with
NASPO. The relationship with NASPO is important to
the Section and is one which we continue to work hard to
advance. To that end, we have included NASPO leadership in our planning for the 7th Annual State and Local
Procurement Symposium. This year the symposium will be
held in conjunction with the spring meeting of the ABA’s
Section of State and Local Government Law at the Sofitel
Lafayette Square Hotel in Washington, D.C., April 19–20,
2012. The symposium cochairs, Missy Copeland and Jeff
Eckland, have planned a program that will be of interest
not only to state and local public contract law practitioners,
but also to those who practice in the federal arena.
And, returning to the subject of educational programs,
mark your calendar now and plan to attend the 18th Annual Federal Procurement Institute (FPI) scheduled for
March 21–24, 2012, at the Loews Annapolis Hotel, in Annapolis, Maryland. In addition to two full days of the latest
developments in federal procurement law, this year’s FPI
will include a special practicum on Wednesday evening devoted to False Claims Act certifications. The FPI program
will again generally track prior FPI formats and include the
following panels: Bid Protest; Inspector General Fraud Issues; DCAA Audit Preparation under the New Business
Systems Rule; Trends in the Industrial Base; Judges; the
FAR Organizational Conflict of Interest Rule Rewrite; Fiscal and Budgetary Pressures in Federal Procurement; and,
of course, a full two hours of Ethics. Program cochairs,
Agnes Dover, Dan Graham, and Robin Ricketts, have
been hard at work and promise that the 18th Annual FPI
will be the best ever.
Meanwhile, as Section chair, I am trying to attend as
many Section committee meetings in person as I possibly
can. I am finding that this is quite a daunting undertaking
given the many meetings and associated programs sponsored by our Section committees. But, that said, it is a wonderful challenge for me—and what a wonderful statement
about the Section of Public Contract Law and the energy
and dedication of the Section’s members!
I continue to welcome your thoughts, comments, ideas
and suggestions. You can reach me at (703) 282-3392 or
[email protected]. PL
Volume 47, Number 2 The Procurement Lawyer 27 Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
Procurement
LAWYER
THE
Nonprofit Organization
U.S. Postage
PAID
American Bar
Association
American Bar Association
321 North Clark Street
Chicago, IL 60654
2011-2012 Reception Sponsors
We gratefully acknowledge the generosity of the following firms and companies whose
contributions will help defray the costs of all of the Section’s quarterly receptions this year:
Akin Gump Strauss Hauer & Feld LLP
Arent Fox LLP
Argy, Wiltse & Robinson, P.C.
Arnold & Porter LLP
Baker Tilly
Barnes & Thornburg LLP
Buchanan Ingersoll & Rooney PC
Chess Consulting LLC
Crowell & Moring LLP
Dickstein Shapiro LLP
DLA Piper US LLP
Eckland & Blando LLP
Fried, Frank, Harris, Shriver & Jacobson LLP
Gibson, Dunn & Crutcher LLP
Greenberg Traurig, LLP
Hogan Lovells LLP
Holland & Knight LLP
Hollingsworth LLP
Jackson Kelly PLLC
Jenner & Block LLP
K&L Gates LLP
The Kenrich Group LLC
Kirkland & Ellis LLP
Lockheed Martin Corporation
Mayer Brown LLP
McAleese & Associates, P.C.
McGlinchey Stafford PLLC
McKenna Long & Aldridge LLP
Miles & Stockbridge, P.C.
Morrison & Foerster LLP
Northrop Grumman Corporation
Peckar & Abramson PC
Pepper Hamilton LLP
Perkins Coie LLP
Pillsbury Winthrop Shaw Pittman LLP
Raytheon Company
Reed Smith LLP
Rifkin, Livingston, Levitan & Silver, LLP
Rogers Joseph O’Donnell
Seyfarth Shaw LLP
Sheppard Mullin Richter & Hampton LLP
Smith, Currie & Hancock LLP
Smith Pachter McWhorter, PLC
Steptoe & Johnson LLP
Teledyne Technologies Incorporated
Venable LLP
Watt, Tieder, Hoffar & Fitzgerald, L.L.P.
Wiley Rein LLP
WilmerHale
Wittie, Letsche & Waldo, LLP
Womble Carlyle Sandridge & Rice PLLC
Published in The Procurement Lawyer, Volume 47, Number 2, Winter 2012. © 2012 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof
may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.