Piliero Mazza &
Pargament, PLLC

Vol. V, Issue 7
July 2000

An Update for Federal Contractors and Commercial Businesses

A R T I C L E S


ELECTRONIC COMMERCE
House Subcommittee Explores Courts' Jurisdiction Over Internet Disputes



GOVERNMENT CONTRACTS
GAO Requires Agencies to Document Oral Presentations

Senate Amendment Would Require GAO Review of A-76 Process

"Bad Faith" Standard Revisited by Court of Federal Claims



SMALL BUSINESS
DOD Mentor/Protege Program May Be Expanded to Include Women-Owned Businesses

New SBA Size Standards Will Create Business Opportunities





H O M E


P U B L I C A T I O N S



ELECTRONIC COMMERCE

House Subcommittee Explores Courts' Jurisdiction Over Internet Disputes

In the September 1999 issue, the Legal Advisor reported that companies that sell goods and services through an Internet Web site may be subject to lawsuits in any jurisdiction in which their web sites are used by consumers to purchase the goods and services. As a result, it was noted that a business based in Virginia could be forced to defend against a lawsuit in California or even a foreign country. The article also noted that many aspects of Internet jurisdiction issues have not yet been settled and that courts will provide more definite guidance as these matters continue to come before them.

In addition to the courts, Congress is also examining jurisdiction issues raised by Internet marketing. On June 29, 2000, the House Judiciary Committee's Subcommittee on Courts and Intellectual Property conducted a hearing on jurisdictional issues concerning on-line marketing. Specifically, the subcommittee explored the problems associated with businesses having to stay abreast of the laws of every jurisdiction in the world in which their Web site can be accessed. To that end, the subcommittee heard from legal scholars and business representatives who offered various proposals on how to deal with this issue.

Jeffrey D. Kovar of the U.S. State Department testified that U.S. courts usually enforce civil judgments of foreign courts while other countries are less diligent in enforcing civil judgments by American courts. To deal with this disparity, the Clinton Administration has been negotiating an international treaty with 45 other countries to recognize and enforce foreign civil judgments. Mr. Kovar said that American officials are uncomfortable with the current draft text of the treaty but that he is hopeful that an agreement might be reached by the next session of the Hague Conference on Private International Law in June 2001.

Professor Mark A. Thurmon of the University of Florida School of Law proposed applying an alternative dispute resolution system similar to the uniform dispute resolution policy ("UDRP") that was established by the International Corporation for Assigned Names and Numbers to resolve disputes over abusive domain name registrations. The UDRP eliminated jurisdiction as an issue in disputes by requiring the parties to consent to arbitration by contract. Professor Thurmon conceded, however, that the UDRP model has some weaknesses, such as lack of a mechanism to enforce damage awards.

Professor Henry H. Perritt, Jr. of the Illinois Institute of Technology suggested that private industry self-regulation could offer solutions. He cited, as an example, the credit card chargeback system, which offers security to credit card customers and creditors without excessive litigation over credit card bills. Jonathan Zittrain of the Harvard University School of Law, however, said that such "private sheriff" remedies warrant careful monitoring. As an example, Mr. Zittrain cited the use by many e-mail providers of a service that blocks mail to their subscribers from addresses on a list of alleged "spammers" (sources of unsolicited mass commercial e-mail messages). While acknowledging that this service might be useful, Mr. Zittrain noted that most people do not know that some of their incoming mail is being blocked by this service based on the service's sole judgment as to who is a "spammer."

Mr. Zittrain also suggested that Internet jurisdiction issues may become less problematic as a result of technological advances. Specifically, businesses will soon be able to limit their Internet marketing to specific geographical areas. Therefore, companies will be able to avoid jurisdictions in which they do not wish to solicit business.

The Chairman of the American Bar Association's Cyberspace Law Committee, Thomas P. Vartanian, recommended a multinational commission to study Internet jurisdiction issues and develop uniform standards and principles. Mr. Vartarian also joined other witnesses in proposing the idea of alternative dispute resolution tribunals and self-regulatory systems. Mr. Vartarian also endorsed several policy proposals, such as (i) discouraging a finding of jurisdiction based solely on the accessibility of a passive Internet site; (ii) encouraging the use of notification and screening mechanisms to prevent access by inappropriate users; and (iii) encouraging the disclosure of geographic location information by buyers and sellers.

Given the diversity of viewpoints represented at the congressional subcommittee hearing, the issue of courts' jurisdiction over companies that conduct business over the Internet is far from settled. While the courts are offering guidance as to how and when jurisdiction may be applied, Congress is also exploring policy ideas to address this complicated issue. The Legal Advisor will continue to monitor this issue and report on new developments. In the meantime, companies that conduct business over the Internet should be aware of the possibility that they may be subject to suit in jurisdictions in which they otherwise have no contact.







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GOVERNMENT CONTRACTS

GAO Requires Agencies to Document Oral Presentations

In recent years, procuring agencies have made greater use of oral presentations as part of the evaluation process. The use of oral presentations offers distinct advantages. In addition to the time and cost savings, the informality of oral presentations can provide an effective means by which the agency can better understand the offerors' approaches. In light of a recent GAO decision, however, the use of oral presentations is likely to become more formalized.

In J&J Maintenance, Inc.,
B-284708.2, June 5, 2000, the GAO held that, although agencies may use oral presentations as a means of streamlining the acquisition process, they must adequately document the evaluation results of the presentations. In that case, there were no written technical proposals. Rather, the offerors made oral presentations with slides and submitted resumes for their proposed personnel. The evaluation ratings consisted only of numerical scores, without any explanation of the strengths or weaknesses of the various approaches.

Noting that the use of oral presentations does not relieve the agency of its obligation to reasonably document the evaluation, the GAO found the record to be "sketchy." The GAO added that, because of the inadequate record, the bases of the evaluators' conclusions and the disparities in ratings could not be determined. Accordingly, the protest was sustained.

The impact that this decision will have on the evaluation process is unclear. Agencies will likely be more diligent in issuing written narrative description in summarizing their evaluation of oral presentations. Also, if agencies are required to articulate the ratings given to oral presentations, they may also feel compelled to provide more structured guidelines for those evaluations. As a result, agencies may choose to more clearly specify the factors that will be considered during the presentations. There may also be an increase in the use of videotaping so that agencies are better able to justify their ratings.

Decisions such as J&J Maintenance are clearly designed to further remove subjectivity from the evaluation process, particularly where the evaluators may experience difficulty in articulating why they were impressed with, or disappointed by, an offeror's presentation. While some procuring agencies may be displeased with this trend, the increasing level of objectivity in the evaluation of oral presentations should help ensure that offerors are treated equally and fairly.







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GOVERNMENT CONTRACTS

Senate Amendment Would Require GAO Review of A-76 Process

On June 19, 2000, the Senate adopted an amendment to the FY 2001 DoD Authorization bill that would require the GAO to review the process by which the government outsources services through the process described in Office of Management and Budget Circular A-76.

The amendment, which was offered by Senator John Warner, covers public-private competitions under the A-76 process. The amendment would require GAO to establish a review panel selected from industry, labor and government. The head of the GAO, the Comptroller General, would act as chairman of the panel.

Contractors and government agencies have each contended that the A-76 process favors the other. The primary objective of the panel, therefore, would be to assess whether A-76 competitions are conducted in a manner that is fair to all concerned. If the amendment is included in the version of the authorization bill that is passed, the GAO's review could ultimately lead to changes in the A-76 process.







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GOVERNMENT CONTRACTS

"Bad Faith" Standard Revisited by Court of Federal Claims

It is firmly entrenched in case precedent that government officials are presumed to act conscientiously and in good faith, and that a contractor must present "well nigh irrefragable proof" of bad faith conduct in order to prevail. As shown by the results of numerous "bad faith" cases, this standard has been very difficult to meet.

In a recently decided case, however, the Court of Federal Claims made a rare finding that Army officials acted in "bad faith" in terminating a grounds maintenance contractor for default. In The Libertatia Associates, Inc. v. United States, 2000 WL 688282 (Fed. Cl., May 23, 2000)
, the Court heard testimony from nineteen witnesses during a five day trial, and concluded that there was sufficient evidence of bad faith on the part of the Government.

Significantly, the Court in Libertatia
appeared to soften the "well nigh irrefragable proof" standard established almost 25 years ago. The Court noted that the dictionary meaning of "irrefragable" is "[i]mpossible to refute or controvert; indisputable." According to the Court, such a standard would exceed the "beyond a reasonable doubt" standard required in criminal cases, and almost insulate government action from review by the courts. Therefore, although the Court did not disturb the "well nigh irrefragable proof" standard, it focused its review on whether there was "evidence of some specific intent to injure" the plaintiff, or whether the government was "actuated by animus toward the plaintiff."

In applying these principles, the Court in Libertatia
found that the Army's default termination was made in bad faith. There was testimony presented that the Contracting Officer's Representative ("COR") expressed a dislike for the plaintiff's president "almost daily;" told the plaintiff that he would "break" them; repeatedly talked about how he was going to "run [the company] off" or "get rid" of them; and expressed amusement after he terminated the plaintiff.

Even if Libertatia is construed as a slight relaxation of the "bad faith" standard, contractors nonetheless face a substantial burden in showing that government officials have acted in bad faith. More than a strained working relationship, personality conflict or sour attitude is required. Rather, evidence of a specific intent to injure the contractor must be presented. As demonstrated in the Libertatia case, this will likely require that there be testimony that government officials made comments or statements exhibiting ill will and/or a desire to cause damage to the contractor.







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SMALL BUSINESS

DOD Mentor/Protege Program May Be Expanded to Include Women-Owned Businesses

The Senate Small Business Committee has included a provision in the FY 2000 Department of Defense Authorization Bill that would expand the DOD's Mentor-Protege Program to allow participation by small business concerns owned and controlled by women.

Although the small business community has also attempted to include HUBZone businesses as eligible proteges, it appears unlikely at this point that such a provision will be included in this year's bill. We will keep you appraised of all developments on this issue.





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SMALL BUSINESS

New SBA Size Standards Will Create Business Opportunities

A new Small Business Administration ("SBA") regulation could increase business opportunities for government contractors. Effective July 17, 2000, the SBA's size standards in several construction industries were substantially increased. Most of these standards have not been adjusted since 1984.

When the SBA first published its proposed regulation on July 26, 1999, the SBA proposed to adjust the size standards for inflation through the baseline year of 1994. However, due to comments received on the proposed rule, the SBA's final regulation adjusts the size standard for inflation through 1999, increasing the new size standards by an additional 1.1% over those originally proposed last year. The SBA's increase in these size standards stems primarily from its desire to account for the 48.2% cumulative inflation over the past sixteen years. As a result of these changes in size standards, more businesses will now qualify as "small" businesses for purposes of competing for government contracts.

The following size standard changes are included in the new regulation:

- General Building Contractors: increased from $17 million to $27.5 million

- Heavy Construction, Non-Building: increased from $17 million to $27.5 million

- Construction - Special Trade Contractors: increased from $7 million to $11.5 million

While the new SBA regulation applies only to certain industries, the SBA anticipates proposing in the near future a broad-based inflation adjustment to its receipts-based size standards. The Legal Advisor will continue to monitor the SBA's regulatory proposals and how they affect business opportunities for goverment contractors.
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