GAO Sustains Protest Over Agency’s Failure to Conduct Price Risk Analysis Under DFARS 252.204-7024
In the recent MicroTechnologies LLC and SMS Data Products Group, Inc. decisions, the Government Accountability Office (GAO) sustained protests challenging the Agency’s failure to perform the required price risk analysis under DFARS 252.204-7024. These cases mark the first time the GAO has addressed the application of the relatively new DFARS provision.
This article discusses the provision, the GAO’s holdings, and key takeaways for contractors.
DFARS 252.204-7024
In March 2023, the Department of Defense (DoD) implemented DFARS 252.204-7024, Use of Supplier Performance Risk System (SPRS) Assessments. DoD’s goal in implementing the provision was to ensure the consideration of price risk, item risk, and supplier risk “when determining contractor responsibility” DFARS Final Rule: Defense Federal Acquisition Regulation Supplement: Use of Supplier Performance Risk System (SPRS) Assessments (DFARS Case 2019-D009) 88 Fed. Reg. 17336 (Mar. 22, 2023).
The DFARS provision—which is applicable to most DoD solicitations for supplies and services—requires a contracting officer to “consider SPRS risk assessments during the evaluation of quotations or offers received” in response to the solicitation, as follows:
Item risk will be considered to determine whether the procurement represents a high performance risk to the Government.
Price risk will be considered in determining if a proposed price is consistent with historical prices paid for a product or a service or otherwise creates a risk to the Government.
Supplier risk, including but not limited to quality and delivery, will be considered to assess the risk of unsuccessful performance and supply chain risk.
DFARS 252.204-7024(c)(1)-(3). The provision also provides that “[t]he Contracting Officer may consider any other available and relevant information when evaluating a quotation or an offer.” DFARS 252.204-7024(e).
To consider these risks, contracting officers are required to utilize the SPRS. The SPRS gathers, processes, and displays data about supplier performance and determines the risk associated with the contractor.
The GAO’s Ruling on DFARS 252.204-7024
On March 24, 2024, the Department of the Air Force issued a fair opportunity proposal request (FOPR) for the Combined Air and Space Center Operations Center (CAOC) communications support for the U.S. Air Force Central Command MicroTechnologies LLC,B-423197.2, Mar. 4, 2025, 2025 WL 831122 at *2. The FOPR incorporated DFARS 252.204-7024 and required the Agency to conduct a supplier and price risk analysis. Id. at *3. Both MicroTechnologies, LLC (MicroTech) and SMS Data Products Group, Inc. (SMS) submitted proposals. The record in the protest showed that, during the evaluation, the Agency performed a limited supplier risk analysis but failed to perform a price risk analysis. SMS Data Products Group, Inc., B-423197, Mar. 4, 2025, 2025 WL 831119 at *9. Both MicroTech and SMS protested the Agency’s failure in this regard under DFARS 252.204-7024.
The record confirmed that the Agency had not performed a price risk analysis in the SPRS system. The Agency argued that the SPRS did not have the proper data to conduct a price analysis, and that it considered “other available and relevant information” in lieu of performing a price risk analysis. MicroTechnologies LLC, 2025 WL 831119 at *9. Specifically, the Agency claimed that it relied on price analysis techniques listed in the Solicitation, FAR 15.404-1, to satisfy the DFARS requirement. Id.
In both cases, the GAO did not definitively determine whether the Agency could substitute its own price analysis in lieu of the required SPRS price analysis, nor did it confirm whether the price risk information was available to the Agency in the SPRS system. However, the GAO sustained both protests on the grounds that the Agency’s underlying price analysis was flawed. See generally id. As a result, the Agency could not “rely on an unreasonable price evaluation under the FAR to satisfy the DFARS requirement.” Id. The GAO found that the Agency 1) failed to perform the required SPRS price analysis and 2) relied on an unreasonable underlying price evaluation to satisfy the DFARS provision.
What This Means for Contractors
The GAO’s decisions in MicroTechnologies and SMS marks the first instances in which the GAO sustained a challenge based on the agency’s failure to conduct a proper risk analysis as required by DFARS 252.204-7024. Going forward, contractors should ensure that the agency is conducting the required item, price, and/or supplier risk analyses as part of its evaluation process.
Additionally, contractors should monitor their data in SPRS. Contractors are permitted to access their own supplier, vendor, and awardee company data on the SPRS. If the data is wrong, contractors can challenge the information in the SPRS.
Beltway Buzz, March 21, 2025
The Beltway Buzz™ is a weekly update summarizing labor and employment news from inside the Beltway and clarifying how what’s happening in Washington, D.C., could impact your business.
DEI EOs “Unblocked.” T. Scott Kelly and Zachary V. Zagger have the details on a decision by the U.S. Court of Appeals for the Fourth Circuit that will allow the federal government to enforce its DEI-related executive orders (EO) (EO 14151 and EO 14173) while a decision on the merits awaits appeal. This means that the federal government can once again, for example, require federal contractors to certify that they do not operate diversity, equity, and inclusion (DEI) programs that violate federal antidiscrimination laws. It also means that the U.S. attorney general can pursue legal challenges to private-sector DEI programs “that constitute illegal discrimination or preferences.” Other legal challenges to the DEI executive orders are still pending.
EEOC Issues Technical Assistance on DEI. The U.S. Equal Employment Opportunity Commission (EEOC) this week issued two technical assistance documents, “What You Should Know About DEI-Related Discrimination At Work” and “What To Do If You Experience Discrimination Related To DEI At Work.” The first document, in particular, cautions employers that an “initiative, policy, program, or practice may be unlawful if it involves an employer or other covered entity taking an employment action motivated—in whole or in part—by race, sex, or another protected characteristic.” The document then provides examples of DEI-related workplace policies and practices that the EEOC believes may violate Title VII of the Civil Rights Act of 1964. In addition to discrimination in hiring, firing, and compensation, the document notes that job duties, access to training, mentorship programs, and employee resource groups should also not be motivated in whole or in part on race, sex, or other protected characteristics. Nonnie L. Shivers has the specifics.
Secretary of State Asserts Control Over Immigration Rulemaking Process. On March 14, 2025, Secretary of State Marco Rubio published a notice in the Federal Register that will likely have a significant impact on the Trump administration’s immigration-related rulemaking protocols. In the notice, Secretary Rubio states that his primary foreign affairs duty is “to protect the people of the United States from any threats originating from foreign actors or from foreign soil” which includes policies related to the “protection and travel of U.S. citizens overseas, visa operations and visa issuance.” Rubio concludes with the following:
I hereby determine that all efforts, conducted by any agency of the federal government, to control the status, entry, and exit of people, and the transfer of goods, services, data, technology, and other items across the borders of the United States, constitute a foreign affairs function of the United States under the Administrative Procedure Act, 5 U.S.C. 553, 554. (Emphasis added.)
The “foreign affairs” exemption in the Administrative Procedure Act allows the federal government to avoid the normal notice and comment requirements of the rulemaking process. The U.S. Department of State has claimed this exemption regularly over the years, usually when going through the standard rulemaking process would result in some undesirable international consequence. Moreover, during Donald Trump’s first presidency, the administration also claimed this exemption relating to certain policy changes but was rejected by at least two federal courts. Secretary Rubio’s notice, at least on its face, would try to expand the use of this exemption beyond the State Department and extend it to other agencies involved in immigration rulemaking processes, such as the U.S. Department of Labor (DOL) and U.S. Citizenship and Immigration Services (USCIS).
Democratic FTC Commissioners Fired. This week, President Trump fired Alvaro Bedoya and Rebecca Kelly Slaughter, the two remaining Democratic commissioners on the Federal Trade Commission (FTC). FTC Chair Andrew Ferguson and fellow Republican Melissa Holyoak remain on the Commission, which can still bring cases, even with three vacant commissioner seats. Like the firings of NLRB member Gwynne Wilcox and EEOC commissioners Charlotte Burrows and Jocelyn Samuels, the removal of Bedoya and Slaughter is a further example of the administration’s efforts to assert executive branch authority over federal agency commissions and boards.
Trump Rescinds More Biden-Era EOs. On March 14, 2025, President Trump issued an executive order entitled, “Additional Rescissions of Harmful Executive Orders and Actions,” which rescinds eighteen executive orders, memoranda, and determinations issued by President Joe Biden. The rescinded EOs relating to employment policy are as follows:
“Increasing the Minimum Wage for Federal Contractors” (EO 14026, April 27, 2021). This EO set the minimum wage applicable to covered federal contractor employees at $17.75 per hour as of the beginning of this year (pursuant to a provision that provides for annual increases based on the Consumer Price Index). However, President Barack Obama’s Executive Order 13658, which also increases the minimum wage for covered contractors, remains in place. While still unclear at this time, federal minimum wage requirements could be $7.25 per hour or $13.30 per hour, depending on whether the contract was covered under the Biden or Obama EO. Clarification from the DOL on this would be helpful.
“Advancing Worker Empowerment, Rights, and High Labor Standards Globally” (Presidential Memorandum, November 16, 2023). This memorandum encouraged the promotion of workers’ rights (e.g., collective bargaining, safe workplaces, wage and hour protections, and prohibiting forced labor ) as they related to the United States’ “foreign, international development, trade, climate, and global economic policy priorities.”
“Scaling and Expanding the Use of Registered Apprenticeships in Industries and the Federal Government and Promoting Labor-Management Forums” (EO 14119, March 6, 2024 ). This EO directed federal agencies to promote opportunities to contract with employers that participated in union-supported registered apprenticeship programs.
“Investing in America and Investing in American Workers” (EO 14126, September 6, 2024). This EO encouraged federal agencies to include certain labor and employment standards in federal grants and contracts. This came to be known colloquially as the “Good Jobs” executive order.
FMCS on the Brink. Also, on March 14, 2025, President Trump issued an executive order entitled, “Continuing the Reduction of the Federal Bureaucracy,” that “continues the reduction in the elements of the Federal bureaucracy that the President has determined are unnecessary.” The Federal Mediation and Conciliation Service (FMCS) is one of seven agencies ordered to eliminate its “non-statutory components and functions … to the maximum extent consistent with applicable law.” Pursuant to the EO, the FMCS (as well as the other agencies listed) must “submit a report to the Director of the Office of Management and Budget confirming full compliance with this order and explaining which components or functions of the governmental entity, if any, are statutorily required and to what extent” by March 21, 2025. The FMCS homepage currently displays the following message: “We are reviewing recent Executive Orders for immediate implementation. The requirements outlined in these orders may affect some services or information currently provided on this website.”
House Committee Gets Its Start. On March 21, 1867, the U.S. House of Representatives did something that is near and dear to our hearts here at the Buzz: it established the Committee on Education and Labor. Following the Civil War, Congress created the committee to address issues arising from the country’s rapid industrial growth. In 1883, the committee was divided into two separate committees, the Committee on Education and the Committee on Labor. After several decades, the Legislative Reorganization Act of 1946 joined the two committees together again as the Committee on Education and Labor. The committee has existed in that form ever since, though beginning in 1995, the name has been tweaked depending on the party in the majority. When Democrats are in the House majority, it is called the “Committee on Education and Labor.” When Republicans are in the House majority, the committee is referred to as the “Committee on Education and the Workforce.”
The Government Contractor: False Claims Act Liability Based On A DEI Program? Let’s Think It Through
One of the more attention-grabbing aspects of Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” is the specter of False Claims Act liability for federal contractors based on their Diversity, Equity, and Inclusion (DEI) programs. Many workplace DEI programs have been viewed as a complement to federal anti-discrimination law—a tool for reducing the risk of discrimination lawsuits. The new administration, however, views DEI programs as a potential source of discrimination. EO 14173 proclaims that “critical and influential institutions of American society … have adopted and actively use dangerous, demeaning, and immoral race- and sex-based preferences under the guise of so-called ‘diversity, equity, and inclusion’ (DEI) or ‘diversity, equity, inclusion, and accessibility’ (DEIA) that can violate the civil- rights laws of this Nation.” To counteract this potential “illegal” use of DEI programs, the Trump administration is leveraging the FCA, a powerful anti-fraud statute, to enforce its policy within the Federal Government contractor community.
We discuss below the framework of the FCA, how it might apply to federal contractor DEI programs under the administration’s orders, and potential hurdles the Government may face in pursuing FCA claims based on a contractor’s allegedly illegal DEI program. We recommend steps contractors can take to mitigate potential FCA risks when evaluating their own DEI programs.
To read the full article, please click here.
President Trump Issues Executive Order Promoting Domestic Mineral Production
On March 20, 2025, President Donald Trump signed a sweeping executive order promoting mining and processing of “critical minerals” in the United States. The order – Immediate Measures to Increase American Mineral Production – directs agencies of the federal government to prioritize and expedite permitting for mining and mineral processing projects, invoking the Defense Production Act among and other authorities. Key provisions include:
Expanded Critical Minerals List
For purposes of the order, “critical minerals” include uranium, copper, potash, and gold, in addition to the existing list of critical minerals designated by the secretary of the interior pursuant to the Energy Act of 2020 (30 U.S.C. § 1606(a)(3). Further, the order grants authority to Interior Secretary Doug Burgum, who serves as chair of the National Energy Dominance Council (NEDC), to add “any other element, compound, or material” to the critical minerals list.
Priority Projects
The order directs permitting agencies to identify all mine and mineral processing projects awaiting federal approvals, to issue permits and approvals immediately where possible, and to expedite all permitting activities. The NEDC is to identify mine and mineral processing projects for inclusion in the expedited permitting procedures available under the Fixing America’s Surface Transportation (FAST) Act (41 U.S.C. § 41003), and the Permitting Council must add the identified projects to the FAST Act Permitting Dashboard within 30 days of the order.
Mining the Primary Land Use
The Interior Secretary is instructed to provide a list of all federal lands known to contain mineral “deposits and reserves.” Mining and mineral processing are to be prioritized as the primary land use on these lands. Federal land managers are required to revise land use plans to align with the executive order’s directives.
Permitting Reform
To address regulatory inefficiencies, Interior Secretary Burgum, in his role as NEDC chair, is directed to publish a request for information seeking industry input on “regulatory bottlenecks” and “recommended strategies for expediting domestic mineral production.” The order further instructs the NEDC to develop legislative recommendations to clarify the treatment of mine waste disposal on federal lands under the Mining Law. This direction aims to address permitting delays and uncertainty stemming from Center for Biological Diversity v. U.S. Fish & Wildlife Service, 33 Fed. 4th 1202 (9th Cir. 2022) (commonly referred to as the “Rosemont” decision).
Defense Production Act
The order delegates Defense Production Act authority to the secretary of defense to facilitate domestic mineral production. Mineral production is to be added to the Defense Department’s Industrial Base Analysis and Sustainment Program as a priority area. The defense secretary is also directed to work with the International Development Finance Corporation to use financing authorities and mechanisms to advance mineral production, including the creation of a dedicated mineral production fund.
Unneeded Federal Lands for Mining Projects
The secretaries of defense, energy, interior, and agriculture are tasked with identifying sites on “unneeded” federal lands within their jurisdiction that are suitable for “leasing or development” under the authority of 10 U.S.C. § 2667 (Defense), 42 U.S.C. § 7256 (Energy), or other applicable authorities (Interior and Agriculture).
Joint Alert Warns of Medusa Ransomware
On March 12, 2025, a joint cybersecurity advisory was issued by the Cybersecurity and Infrastructure Security Agency, the Federal Bureau of Investigation, and the Multi-State Information Sharing and Analysis Center to advise companies about the tactics, techniques and procedures (TTPs), and indicators of compromise (IOCs) to protect themselves against Medusa ransomware.
According to the advisory:
Medusa is a ransomware-as-a-service (RaaS) variant first identified in June 2021. As of February 2025, Medusa developers and affiliates have impacted over 300 victims from a variety of critical infrastructure sectors with affected industries including medical, education, legal, insurance, technology, and manufacturing. The Medusa ransomware variant is unrelated to the MedusaLocker variant and the Medusa mobile malware variant per the FBI’s investigation.
The advisory provides technical details on how Medusa gains access to systems, including phishing campaigns as the primary method for stealing credentials. The group also exploits unpatched software vulnerabilities, which reinforces the importance of timely patching.
The threat actors exfiltrate the victim’s data and then deploy the encryptor, gaze.exe, on files while disabling Windows Defender and other antivirus tools. The encrypted files use the .medusa file extension. They then contact the victim within 48-hours and use the .onion data leak site for communication.
The advisory lists the IOCs and TTPs used in the attacks. IT professionals may wish to review them and apply mitigation tactics. The mitigations listed in the advisory are lengthy and worth consulting.
Don’t Be a Junkyard Dog: Put Your Agreements in Writing!
A federal judge in Louisiana has dished out some harsh criticism of contractors who don’t reduce their contracts to writing. The case involves the decommissioning of 26 orphaned oil and gas wells near Baton Rouge. The defendant orally hired the plaintiff in 2013 to perform a portion of the cleanup and remediation work after deciding the plaintiff was a “junkyard dog like me.” The plaintiff commenced work shortly thereafter based on a handshake deal because he considered himself “kind of old school” and a “man of his word.” He subsequently sent the defendant invoices, on a time and materials basis, totaling over $1.6 million. A dispute inevitably ensued. The central issue was whether the plaintiff was entitled to payment on a time and materials basis, or whether the plaintiff was entitled to receive only the scrap value of the salvaged equipment. That dispute was complicated by the undisputed fact that the parties never reduced their agreement to writing.
In his 59-page decision released last week – some 12 years after the dispute began – U.S. District Judge John deGravelles waded through the parties’ conflicting testimony as to the existence and terms of the parties’ agreement. He ultimately sided with the plaintiff on the central issue, awarding roughly $750,000 plus interest – but not before offering this stern advice for parties who neglect the most basic task of putting their agreements in writing:
The Court repeats: it is astounding that this contract involving the expenditure of millions of dollars by both parties and untold hours of work was not reduced to writing. [Defendant] claimed he didn’t reduce the agreement to writing because [Plaintiff] was a “junkyard dog like me.” [Plaintiff] said he did the “handshake … deal” because he is a “man of his word,… kind of old school ….” This colossal failure of good business practice and common sense on both sides led to an extensive pre-lawsuit dispute, eventually this lawsuit, and undoubtedly the payment of significant sums by both sides in attorney fees.
The case is Belden Investments, LLC v. Pharaoh Oil and Gas, Inc., 2025 WL 795689 (Mar. 12, 2025, M.D. La., Civil Action No. No. 22-62-JWD-SDJ), and a copy of the court’s opinion can be found here.
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What Is DMSMS and What to Do About It?
What does DMSMS mean?
DMSMS stands for Diminishing Manufacturing Sources and Material Shortages. It is the loss or impending loss of manufacturers or suppliers of items, raw materials, or software. In other words, DMSMS is obsolescence. DMSMS occurs when companies (at any level of the supply chain) that make products, raw materials, or software stop doing so or are about to stop. DMSMS issues can occur for various reasons, such as technological advancements, shifts in market demand, regulatory changes, or a manufacturer’s strategic business decision.
Where can contractors find DMSMS requirements?
DMSMS requirements are typically found in prime contracts. Specifically, a Statement of Work (“SOW”) can describe DMSMS requirements such as: a DMSMS Management Plan, a Bill of Materials, Health Status Reports, End of Life Notices, and various other requirements to mitigate DMSMS risks. The contract may use Contract Data Requirements Lists (“CDRLs”) to specify the content of deliverables, the inspection and acceptance process, and the frequency of delivery (e.g., the Contractor must deliver a Health Status Report “monthly” or an End of Life Notice “as required”).
Below are descriptions of these DMSMS concepts:
A DMSMS management plan is a comprehensive strategy that outlines the processes, roles, responsibilities, and tools necessary to proactively identify, assess, and mitigate the risks associated with the loss or impending loss of manufacturers or suppliers of critical items, raw materials, or software throughout the life cycle of a system.
A Bill of Materials is a comprehensive list of materials, components, and assemblies required to construct, manufacture, or repair a product, often presented in either a flat or indentured format to show the relationships and hierarchy of the items.
A Health Status Report provides a comprehensive accounting of specific obsolescence issues within a system and identifies estimated obsolescence dates, usage rates, and stocks on hand for each item.
An End of Life Notice provides the part numbers, descriptions, and manufacturers for all items that are approaching or have reached a point when the item will no longer be produced, supported, or maintained by its manufacturer.
What are the important DMSMS resources?
Below are key policies on DMSMS that also include recommended contract language:
1 – Source: Robin Brown, Under Secretary of Defense Research & Engineering, DMSMS & Parts Management Program (Apr. 23, 2024) (ndia.dtic.mil/wp-content/uploads/2024/dla/Tue_Breakout_DMSMS_PMP.pdf).
DoD Instruction 4140.01 Vol. 3 recommends 18 potential courses of action for the Department of Defense (“DOD”) to consider when trying to resolve DMSMS issues, such as encouraging the existing source to continue production, making a life of type buy, converting design specifications to performance-based specifications, etc.
What risks does DMSMS pose to contractors?
Increased Costs: Contractors may need to invest in managing DMSMS risks and finding alternative sources, redesigning components, or making a life of type buy to ensure the availability of critical items. These activities can be expensive and, depending on the contractual language, may not be covered by the contract, leading to financial strain.
Compliance Risks: Contractors must comply with contract terms related to DMSMS and other terms such as qualified baselines and source of origin for parts. Failure to adhere to these requirements can result in legal and financial penalties. For example, the use of non-compliant materials or failure to report DMSMS issues can lead to contract termination or other legal actions.
Schedule Delays: DMSMS issues can cause significant schedule delays and disrupt production timelines due to the time required to identify, qualify, and implement alternative solutions.
Quality and Reliability Concerns: The use of alternative parts or materials can introduce quality and reliability concerns. For example, counterfeit parts or parts that do not meet the original specifications can compromise the performance and safety of the system. This can result in increased maintenance costs, reduced system reliability, and potential safety hazards.
Strained Customer Relationships: DMSMS can significantly strain a contractor’s relationship with its government customer. DMSMS issues can lead to increased costs, contract non-compliances, schedule delays, and quality concerns. The government purchasing command has its own customer, the warfighter, and contractors that fail to perform as required can strain that purchasing command’s relationship with the warfighter, leading to further reputational harm if the contractor is blamed for negative impacts to the warfighter.
What should contractors do to mitigate DMSMS risks?
Identify all prime contract requirements that need to be flowed down to meet prime contract terms.
Establish subcontract terms up front that will mitigate DMSMS risk such as recurring parts forecasting updates, licensing with the Original Equipment Manufacturers for access to Bills of Materials, using external data sources to identify predicted level of obsolescence risk for supplies, and developing interchangeability Parts Lists.
Negotiate terms so that if a supplier will no longer manufacture a part, they will license sufficient intellectual property (“IP”) for another source to manufacture the part. This should include the IP for necessary tooling.
Establish subcontract terms defining the party responsible for cost increases due to DMSMS issues.
Negotiate advance notice terms regarding parts availability such as requiring the supplier to provide a Last Time Buy Notice months prior to discontinuation of the product.
Request information regarding DMSMS as part of the supplier selection process.
Collaborate with customers and higher-tier suppliers through proactive risk identification and resolution, regular reviews and updates, and effective communication.
What It Means to Be “Essential” in the Federal Workforce
Current news on the government efficiency and reform front concerns the near-miss of a government shutdown last week (the budget would have lapsed at midnight on March 14, 2025). One reason some cited against allowing a shutdown to occur is how it might encourage or otherwise aid in attempts to eliminate positions if they were deemed “essential” or not. As one who has gone through the “who is essential” exercise in a senior management position at the U.S. Environmental Protection Agency (EPA), here are some general thoughts.
The distinction between the two categories of essential versus non-essential can have very different meanings: is the function important, significant, or necessary? The most significant might be the senior executive charged with making decisions, relying on input from the important senior scientist with the subject-area expertise, and neither can get into the building or work at their desk unless someone lower in the hierarchy opens the doors or turns on the operations of the computer system. In this example, all positions might be “essential” to allowing the organization to function.
Notwithstanding the ego impact of being called essential, in shutdowns the distinction can be difficult to understand. The analyst may be non-essential while the security guard is essential. The senior executive is essential but cannot perform the job if the staff is not there to pass the work or decisions up the chain. During a shutdown, senior executives mostly deal with responding to inquiries from staff and the media, along with missives from upper management monitoring the shutdown and passing along what should or could happen next.
There may seem to be little rhyme or reason to the designations. Senior management at the National Park Service may be at work, yet no rangers are present to let visitors in. (This is also sometimes intentional if the administration in charge is making a point of illustrating the many functions of government.)
In past shutdowns, some of which have extended for more than a few days, some considered the non-essential staff lucky, since it was essentially a day off with the expectation that you would be paid retroactively, after the politics of the moment quieted. Now, fear that such guarantees may be a thing of the past has added to the foreboding tone of current government employee relations. In the past, even “lucky” federal employees tend to realize that such a “day off” will only mean more work — whatever the task — to be completed once the shutdown ends.
The recent potential shutdown was averted, but the essential/non-essential distinction will have little meaningful impact on workforce planning. Federal agencies have long had plans for a possible shutdown, especially in recent years, distinguishing who or what positions were needed if the budget was not authorized in time. These designations are already made, so if the categorization was useful as some kind of autonomous decision mechanism to make personnel decisions, shutdown or no shutdown would not make a difference.
Given the chaotic or at least unpredictable roll-out of personnel decisions so far, being designated “essential” seems to be of little value. Probationary status as a federal employee and Administration priorities are of greater importance. In the latest announcements, the Administration has included language stating that established procedures for budget cuts and staff reductions (“reduction in force” or RIF) will be followed. That process is much more elaborate and opaque, and will have a much greater impact on individual employees deemed essential or otherwise.
Bufkin v. Collins (No. 23-713)
When a veteran seeks disability benefits, federal law provides that ties go to the applicant. But if the Veterans Administration decides it’s not a tie—that is, the preponderance of the evidence comes out against the veteran—then it has no occasion to apply this tiebreaking rule. That leads to a question only an appellate lawyer would ask: What standard of review applies to the VA’s determination that the evidence isn’t even: The de novo standard generally used for legal questions or the clear error one used for findings of fact? In Bufkin v. Collins (No. 23-713), a seven-Justice majority held that this is a best seen as a mixed question of law and fact where the fact piece dominates, meriting clear error review. That prompted a dissent from the two Justices perhaps most likely to favor the little guy against the big-bad government—Justices Jackson and Gorsuch—who thought the whole point of this tie-breaking rule was to thwart the VA’s historical reluctance to award veterans the disability benefits they should receive.
Joshua Bufkin and Norman Thornton are two veterans who applied for disability benefits for PTSD caused by their time in the military. Their claims began in local VA regional offices (the first port of call for veterans seeking disability benefits), where Bufkin’s claim was denied entirely, while Thornton received lower benefits than he sought. Both then appealed to the Board of Veterans’ Appeals, an Article I court that reviews the benefits decisions of VA regional offices. The Board affirmed both regional offices’ decisions. In doing so, it acknowledged that whenever “there is an approximate balance of positive and negative evidence” on any issue material to a veteran’s claim, the VA must “give the benefit of the doubt to the claimant.” 38 U.S.C. § 5107(b). But the Board concluded that the evidence was not approximately balanced, so Bufkin and Thornton weren’t entitled to that deferential standard.
Bufkin and Thornton then appealed their respective cases to the U.S. Court of Appeals for Veterans Claims (the “Veterans Court”), another Article I tribunal, which reviews decisions from the Board. There, they argued that the evidence supporting their claims was about equal to the evidence against them, and that they were therefore entitled to get the benefit of the doubt. Federal law provides that in reviewing Board decisions, the Veterans Court must “take due account” of this benefit-of-the-doubt rule. But the Veterans Court concluded that the account that was “due” wasn’t much: Seeing no clear error in the Board’s decision that evidence weighed more strongly against the veterans, it affirmed the Board.
Bufkin and Thornton then appealed the Veterans Court’s decisions to the U.S. Court of Appeals for the Federal Circuit, a genuine Article III court that (among a great many other things) reviews decisions from the Veterans Court. It agreed with the Veterans Court that clear error applies to the Board’s decision that the evidence wasn’t roughly 50-50, so it too affirmed the denial of benefits. These three rounds of appeals weren’t enough for Bufkin and Thornton, though, as they successfully convinced the Supreme Court to grant cert to address the appropriate standard of review.
Unfortunately for our persistent appellants, the Court affirmed all the courts below it in a 7-2 opinion authored by Justice Thomas. It began with the language of the statute which, as discussed above, requires the Veterans Court to take “due account” of the “benefit-of-the-doubt” rule in reviewing the Board’s decisions. But the phrase “due account” doesn’t have a lot of content on its own, so Thomas concluded the general standards of review called for by the veterans statutes are all the “account” that is “due.” Those statutes prescribe the ordinary standards of review appellate lawyers know well, calling for the Veterans Court to review conclusions of law de novo and findings of fact for clear error. So in which bucket fell the Board’s conclusion that the evidence wasn’t about equal, meaning there’s no “doubt” for the veteran to benefit from? For Thomas and majority, weighing up the evidence involves both legal and factual work, making it a mixed question of fact and law. And because this particular mixed question “is about as factual sounding as any question gets,” Thomas thought it was appropriately reviewed only for clear error.
Justice Thomas then brushed aside two objections to this reasoning. First, Bufkin and Thornton argued this interpretation of the legislative command that the Veterans Court take “due account” of the benefit-of-the-doubt rule made the “due account” provision surplusage. Thomas acknowledged that this objection was “a serious one,” but the problem was that it’s just as true if you apply the de novo standard Bufkin and Thornton asked for: Either way, you’re simply following the statute’s default standards of review. Thomas thus concluded that this wasn’t a context where the rule against surplusage could do any work. Second, the veterans observed that some mixed questions of law and fact—like probable cause determinations—are reviewed de novo. But for Thomas, probable cause determinations dwelt in the “constitutional realm,” giving rise to heightened scrutiny. The “benefit-of-the-doubt” standard, by contrast, was a create of statute. And further, probable cause asks the legal-sounding question of what the hypothetical reasonable man might think of a particular set of facts. The question here—whether the evidence is about equal—was just too fact-like for an appellate court to conduct de novo review.
In dissent, Justice Jackson, joined by Justice Gorsuch, disagreed on both points. In her view, the statutory mandate that the Veterans Court “take due account” of the benefit-of-the-doubt rule should be understood as superseding the general standard of review found in the statute, thereby mandating de novo review. And even if one were to apply the baseline standards of review, Jackson thought that the Board’s determination about whether the benefit-of-the-doubt rule applied looked more like a probable cause determination, meriting de novo review. Although couched in the language of textualism, Jackson’s dissent relied heavily on legislative history, pointing to past drafts of the statute and testimony from veterans groups to Congress, all of which suggested that the whole point of the “due account” provision was to override the Veterans Court’s perceived record of being too deferential to the Board. Finally, Jackson bolstered her ultimate conclusion with the so-called veterans canon, which provides that statutory provisions for the benefit of veterans should be construed in the beneficiary’s favor. It is notable that Justice Gorsuch signed on to a dissent that made such heavy use of legislative history. Perhaps he simply thought veterans should get the benefit of the doubt.
Recovering Attorneys’ Fees in Connection with Termination Settlement Proposals
When a government contract is terminated for convenience, contractors may find themselves navigating the complex process of preparing a termination settlement proposal. One critical consideration that often arises is whether the costs associated with hiring legal counsel to assist with the preparation of these proposals are recoverable from the government. The good news for contractors is that, in many cases, attorneys’ fees related to the preparation of a termination settlement proposal are indeed recoverable.
The Legal Basis for Recoverability
The Federal Acquisition Regulation (FAR) provides guidance on cost allowability when it comes to termination settlements. FAR 31.205-42 specifically addresses termination settlement costs, providing that settlement expenses, including the following, are generally allowable:
Accounting, legal, clerical, and similar costs reasonably necessary for –
(A) The preparation and presentation, including supporting data, of settlement claims to the contracting officer; and
(B) The termination and settlement of subcontracts.
Additionally, FAR 31.205-33 addresses the allowability of professional and consultant service costs, including legal fees, and generally allows for the recovery of such fees when they are reasonable and allocable.
The Armed Services Board of Contract Appeals (ASBCA) and the Civilian Board of Contract Appeals (CBCA) have consistently upheld that legal fees incurred in the preparation and negotiation of termination settlement proposals are recoverable, provided they meet the standards of reasonableness and allocability. Courts have recognized that contractors often require the assistance of legal professionals to navigate the intricate requirements associated with settlement proposals, especially when large sums or complex contract terms are involved.
Demonstrating Reasonableness and Allocability
To ensure recovery, contractors generally should demonstrate that attorneys’ fees were both reasonable and necessary for the preparation of the termination settlement proposal. Factors considered in determining reasonableness include the complexity of the proposal, the qualifications of the attorney, and the time spent on the preparation. Allocability requires showing that the costs are directly linked to the contract termination and not for unrelated purposes.
Practical Tips for Contractors
Consult Early – Involve legal counsel early in the process to ensure compliance with FAR requirements and to maximize the likelihood of recovery.
Document Legal Involvement – Maintain detailed records of the attorney’s contributions to the termination settlement proposal to demonstrate their necessity.
Justify the Reasonableness – Be prepared to show that the rates charged, and the hours billed, are customary and appropriate for the services rendered.
Conclusion
Recovering attorneys’ fees related to the preparation of termination settlement proposals is a crucial consideration for contractors facing contract termination. By carefully documenting expenses and demonstrating reasonableness and allocability, contractors can enhance their chances of obtaining reimbursement from the government.
DEI Litigation Whiplash: Appellate Court Allows the Government to Move Forward with Challenged DEI-Related Executive Orders
Uncertainty for companies when making business decisions is a new norm. Tariffs aren’t going to be the only thing that is on again and off again. The same is happening with directives governing diversity, equity, and inclusion (“DEI”) initiatives. In the first two days of President Trump’s second term, he signed two DEI-related executive orders (“EOs”), EO 14151 (Ending Radical And Wasteful Government DEI Programs And Preferencing) and EO 14173 (Ending Illegal Discrimination And Restoring Merit-Based Opportunity). While they were in effect, these EOs caused widespread concern throughout the public and private sector as entities scrambled to understand the implications for their businesses. Approximately a month later, a federal judge in Maryland issued a preliminary injunction that stopped the government from implementing key provisions of the two EOs. However, the tide turned on Friday, March 14, 2025, when a three-judge panel from the U.S. Court of Appeals for the Fourth Circuit granted the government’s motion to stay the injunction pending appeal. This ruling empowers the government to resume the implementation of EO 14151 and EO 14173.
While the preliminary injunction was in effect, the government was precluded from (1) terminating “equity-related” contracts and grants pursuant to EO 14151, (2) requiring that government contractors and grantees sign a DEI certification pursuant to EO 14173, and (3) bringing any False Claims Act (“FCA”) or other enforcement action premised on the DEI certification. (As we have previously explained, the certification requirement in EO 14173 is intended to deter contractor and grantee DEI-programs by invoking the specter of FCA liability.)
Now that the injunction is stayed, an emboldened government will likely move swiftly to terminate contracts and grants that it views as being “equity-related” and to require contractors and grantees to execute the DEI certification. We have previously recommended general steps that contractors and grantees can take as they navigate a rapidly changing environment in which the president signs new EOs almost daily. Below, we offer recommendations specific to the government’s renewed ability to implement the previously enjoined provisions of the DEI-related EOs.
Recommendations for Federal Contractors and Grantees
If not already completed, it is critical to undertake a privileged assessment of your company’s DEI program, including any public-facing content and recently revised program elements that have not yet been reviewed with counsel.
Confer with counsel immediately in the event of an actual or threatened termination. Although the stayed preliminary injunction allows the government to terminate “equity-related” contracts as directed by EO 14151, it remains the case that the government may not terminate contracts in bad faith. In this regard, terminating contracts based on contractor or grantee speech outside of the government-funded scope of work could be subject to legal challenge. (It is also important to avoid signing any documents containing waiver or release language that might preclude recovery of costs in the future.)
Develop a plan for responding to the DEI certification. This includes ensuring that no one in your organization signs the certification without the prior knowledge and approval of relevant company leadership. We have previously recommended potential contractor and grantee responses to the DEI certification.
Understand the legal landscape. First, there are several other lawsuits pending that challenge EO 14151 and EO 14173, and these could bring new preliminary injunctions. These cases include Shapiro et al. v. U.S. Department of the Interior et al., E.D. Pa., Case No. 25-cv-763; National Urban League et al. v. Trump et al., D.D.C., Case No. 25-cv-00471; San Francisco AIDS Foundation et al. v. Trump et al., D.D.C., Case No. 25-cv-1824; and Chicago Women in Trades v. Trump et al., N.D. Ill., Case No. 25-cv-02005. Additionally, two of the three appellate judges who ruled that the government may implement the DEI-related EOs said they consider the EOs to be “of limited scope” because the EOs “do not purport to establish the illegality of all efforts to advance diversity, equity, or inclusion, and they should not be so understood.” Notably, these judges also distanced themselves from the president’s apparent view of DEI, stating that “while history may be static, its effects remain” and that “people of good faith who work to promote diversity, equity, and inclusion deserve praise, not opprobrium.” This signals that having a DEI program is not per se illegal.
Continue to comply with applicable contract and grant requirements arising under state and local government contracts, seeking the advice of counsel for any perceived conflicts between these requirements and the DEI-related EOs.
DEI Injunction Terminated by Federal Court of Appeals Reinstating DEI Certification Requirement and Civil False Claims Act Risk
As previously reported, one of the first executive orders (EO 14173) issued by President Trump was to rescind Executive Order 11246 issued by President Lyndon B. Johnson, which required federal contractors and subcontractors to engage in affirmative action with respect to women and minorities. In EO 14173, President Trump also directed those federal agencies contracting with all entities to cause the end of all “illegal” DEI and DEIA programs, by — among other things — requiring federal contractors and subcontractors to “certify” that they do “not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.” As also reported, this “certification” requirement gives rise to potentially significant exposure for contractors under the civil False Claims Act if a contractor was later found to have “falsely” submitted its certification — i.e., that it was maintaining an “illegal” DEI or DEIA program.
Not long after issuance of EO 14173, litigation was initiated, challenging the executive order as unconstitutionally vague and a violation of the First Amendment, among other arguments: The DEI-related provisions, including the certification requirement, based on the failure of the executive order to define or provide any guidance as to what would be considered an “illegal” DEI or DEIA program. In essence, the plaintiffs asserted that, without some defining guidance, the executive order was overly broad and could lead to significant exposure for contractors. As we reported, the federal district court agreed and entered a nationwide injunction prohibiting enforcement of the DEI-related provisions with limited exception. Almost immediately thereafter, the Trump administration appealed the entry of the injunction to the Fourth Circuit Court of Appeals.
On March 14, 2025, the Federal Appellate Court stayed the nationwide injunction, finding that the injunction was overly broad and that the executive order itself is likely not unconstitutional as it merely directs agency action. The Appeals Court opined that we must wait to see how the various agencies implement the directives within the executive order, and whether such implementation is done in a constitutional manner. As a result of the most recent court decision, the DEI certification requirement for government contractors and the civil False Claims Act risk is “back in play.”
However, this is likely not the end of the story, as the manner of implementation and enforcement by the various federal agencies is sure to generate questions and challenges. The terminology of the required certifications and the initiation of civil False Claims Act cases on the basis of alleged “illegal” DEI or DEIA programs will lead to legal challenges and a developing body of caselaw.