An Update for Federal, State, and Private Prison Contractors      Vol. 2, Issue 5  May/June 2001


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A R T I C L E S






CONSTRUCTION CONTRACTING
BOP Wins Termination for Default Case

Labor Law

Senate, House Vote to Eliminate OSHA Ergonomic Regulations

On March 20th, President Bush signed into law Senate Joint Resolution 6, a resolution eliminating new OSHA rules on workplace injuries. The result of this action impacts all government contractors, including correction contractors. Previously, by a vote of 56 to 44, the Senate passed the resolution disapproving of these new regulations. The House of Representatives followed suit and passed the same resolution by a vote of 223 to 206. For the first time, Congress invalidated an agency rule under the recently passed Congressional Review Act. As a result, OSHA=s controversial final rule on ergonomic standards was invalidated.

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Regulations

"Blacklisting" Rule Suspended

The Federal Acquisition Regulatory ("FAR") Council has suspended a last-minute Clinton administration rule that could have significantly affected the process for bidding on government contracts. While the FAR Council's April 3, 2001 decision to suspend the rule was expected, it is likely that this so-called "blacklisting" rule will be either substantially modified or eliminated in the coming months.

The controversial "blacklisting" rule was issued on December 20, 2000 and became effective on January 19, 2001. The rule required federal contracting officers to consider factors unrelated to procurement when evaluating a prospective contractor, such as compliance with labor, environmental, employment, antitrust, and consumer protection laws. If a contractor displayed a history of noncompliance with these laws, it would be deemed ineligible to receive a contract even if it otherwise had the most attractive bid. The rule had come under criticism from many business leaders, who complained that the rule unfairly punished certain businesses and was overbroad.

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Bid Protest

Protesters Win Attorneys' Fees

On March 14, 2001, the General Accounting Office ("GAO") determined that two bid protestors were entitled to attorney fees resulting from a protest involving Wackenhut Services, Inc. ("Wackenhut"). The protest arose from the Department of State's ("DOS") awarding of a contract to Wackenhut. In awarding the attorney fees, the GAO reaffirmed the principle that these fees can be granted when an agency takes corrective action before the protest comes to fruition.

The contract between the DOS and Wackenhut called for providing uniformed protective services at various locations for a period of one to five years. However, two unsuccessful bidders, Inter-Con Security Systems, Inc. ("Inter-Con") and CASS Joint Venture ("CASS") protested the bidding process on several grounds. Following the protest, a GAO conducted an "outcome prediction" alternative dispute resolution conference with the parties. At the conclusion of the conference, the GAO informed that the likely result of the protests would be sustained. Shortly thereafter, the DOS decided to reopen the bidding process and amend the solicitation in a manner that remedied Inter-Con and CASS's complaints. Thus the protests were dismissed as being merely academic. However, Inter-Con and CASS moved to collect attorney fees resulting from the protest.

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Small Business

SBA Proposes New Markets Venture Capital Program

On January 22, 2001, the Small Business Administration ("SBA") issued an interim final rule containing regulations implementing the New Markets Venture Capital Program Act of 2000 ("Act") which will effect all federal government contractor, including those in the corrections arena. The rule is based in large part on an interim final rule that was published on April 23. Comments to the proposed rule are due on or before May 4, 2001.

Act was passed in an effort to provide increased entrepreneurial and employment opportunities in low-income geographic areas by creating an economic infrastructure in these areas and encouraging business growth through program-supported investment. This type of investing is commonly referred to as "double bottom line" investing, because the investments have potential financial returns as well as social impact.

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Construction Contracting

BOP Wins Termination For Default Case

The United States Court of Federal Claims recently affirmed a decision by the Federal Bureau of Prisons ("BOP") to terminate for default a prison construction contract. The Court held that the BOP's decision was justified despite the fact that the prison was more than three-quarters completed at the time of the termination. The Court found for the BOP, largely because of substantial and excessive delays committed by the building companies involved.

After soliciting bids, the BOP entered into a contract with Morganti National, Inc. ("Morganti") and Trataros Construction, Inc. ("Trataros") (together the "Builders") to construct a federal detention facility in Brooklyn, New York. The original contract called for the facility to be substantially completed by November 30, 1995, and to be completely built by February 1, 1996. The contract laid out an extensive list of completion dates for certain portions of the facility. Because of the complex nature of the project, the BOP made 359 modifications to the contract, several of which were extensive. As a result, the BOP granted several time extensions to the Builders. Eventually, the substantial completion date was pushed back to September 22, 1997.

Even with the granting of numerous time extensions, Morganti and Trataros consistently lagged behind the targeted dates for substantial completion and actual completion. The BOP believed that any additional time delays were not adequately justified, even after the modifications were taken into account. The BOP particularly cited the Builders= failure to correct deficient contract work in a timely fashion and their unwillingness to accurately assess and mitigate impacts to the schedule of construction caused by delays and modifications. Finally, on April 30, 1997, the BOP concluded that the Builders could not meet the final substantial completion date of September 22, 1997, and thus terminated the contract for default. At that point, the Builders had completed approximately 75 percent of the contract work while 110 percent of the contract period had lapsed. The Builders did not dispute that the September 22, 1997 substantial completion date would not be reached. The Builders' scheduling expert estimated that the substantial completion date would be on or around May 26, 1998.

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