The Defense Acquisition Regulation Supplement (DFARS) 215.408(5) requires contracting officers (CO) to insert the provision at DFARS 252.215-7010 when reasonably certain that the submission of certified cost or pricing data or data other than the certified cost or pricing data is required, or in procurements where there is only one offer and the provision at DFARS 252.215-7008 is utilized. This requirement to include the provision at DFARS 252.215-7010 applies to FAR part 12 procurements for the acquisition of commercial products and services but not to contracts below the Simplified Acquisition Threshold (SAT) or Commercial Off the Shelf (COTS) items. DFARS 252.215-7010(b) lists the exceptions to providing certified cost or pricing data in major weapon systems procurements, including their components, subsystems, or spare parts. Specifically, under DFARS 252.215-7010(b)(1), defense contractors are excepted from providing certified cost or pricing data in such procurements if they can provide information demonstrating that the prices at issue are set by law or regulation or alternatively, prove the commerciality of the product that is a component, subsystem, or a spare part of a major weapon system. Additionally, to be granted an exception from the requirement to submit certified cost or pricing data in such procurements, defense contractors must also demonstrate that their offered prices are fair and reasonable.

The Federal Acquisition Regulation (FAR) prescribes the use of Limitation of Costs or Funds clauses in cost-reimbursable contracts that are either fully or incrementally funded. These clauses require contractors to follow specific procedures to notify the contracting officer (CO) when anticipated costs on a cost-reimbursable contract exceed a pre-determined threshold (typically 75 percent of the estimated costs), provide a revised estimate of costs for the remainder of the contract, and seek the CO’s approval to obtain additional funding. While FAR § 32.706-2 instructs the CO to insert the limitation of cost clause (LOCC) at FAR 52.232-20 in fully funded cost-reimbursable contracts, it instructs the CO to utilize the limitation of funds clause (LOFC) at FAR 52.232-22 in cost-reimbursable contracts that are incrementally funded.

These otherwise nearly identical clauses serve the dual purpose of protecting the contractor and the government from unfunded cost overruns. Firstly, the contractor is protected from the risk of the government’s unexpected refusal to pay additional costs due to the prior approval requirements imposed by the LOCC and the LOFC. Secondly, the LOCC and the LOFC protect the contractor by relieving any performance obligations on the contract beyond the stated cost limitation in the absence of the CO’s approval of a raised ceiling. Meanwhile, the clauses also protect the government by limiting the inherent risks of overpayments in cost-reimbursable contracts. That is, the LOCC and LOFC help prevent unnecessary cost overruns by requiring the contractor to go through an approval process to obtain additional funding before continuing performance on the contract beyond the contract’s stated cost ceiling. By setting a cost limitation ceiling, the government effectively protects itself from unexpectedly having to pay the contractor more than the anticipated costs set aside for the contract. The use of the LOCC or the LOFC also discourages contractors from utilizing unrealistically low pricing to obtain a competitive advantage during the solicitation stage of a cost-reimbursable contract.

Software manufacturers that provide commercial software to the government via pre-approved intermediary software vendors on the General Services Administration (GSA) Federal Supply Schedule (FSS) do not contract directly with the federal government. Due to this lack of privity of contract with the government, such software manufacturers are unable to bring direct contract claims against the government under the Contract Disputes Act (CDA). Since the software manufacturers’ end-user licensing agreement (EULA) is typically incorporated into the government contract and dictates the government’s use of the commercial software – the government’s violation of the EULA is considered a non-frivolous cause of action for a breach of contract claim. However, the Civilian Board of Contract Appeals (CBCA) refused to recognize the right of software manufacturers in such situations to bring a direct CDA claim when the intermediary GSA FSS software vendor does not sponsor their claim against the government.

In the underlying claim at issue, the software manufacturer had alleged that end users at the Food and Drug Administration (FDA) violated its EULA in 2015. The claim was not sponsored by the GSA FSS software vendor. The software manufacturer alleged that as part of FAR Part 12 acquisition of software licenses, FDA end users owed it a freestanding obligation, as they had “clicked” a box representing their agreement to the terms of the EULA. According to the software manufacturer, this freestanding obligation owed by FDA end users, created a privity of contract between the software manufacturer and the FDA. Meanwhile, the GSA and the FDA did not deny the software manufacturer’s allegations concerning the specific acts of the FDA end users leading to the alleged violations of the EULA. However, the agencies generally denied violating any legal obligations to the software manufacturer citing a lack of privity between the government and the software manufacturer, and the GSA FSS software vendor’s lack of sponsorship of the software manufacturer’s claim. The software manufacturer’s January 2019 appeal at the CBCA was dismissed by the Board for a lack of jurisdiction. The software manufacturer appealed the CBCA’s dismissal at the Federal Circuit. In March 2024, the Federal Circuit in Avue Technologies Corp. v. Secretary of Health & Human Services, 96 F.4th 1340 (Fed. Cir. 2024) (covered here) vacated and remanded for the CBCA to consider as a merits issue, whether the software manufacturer was a party to – or otherwise had enforceable rights pursuant to the “procurement contract” – defined by the Federal Circuit as the software manufacturer’s EULA in addition to the underlying GSA FSS or task order contract.

The Small Business Administration (SBA) mentor-protégé program allows experienced firms to pair with smaller firms to form separate joint venture (JV) entities to pursue federal government contracts. The mentor and protégé firms enter into a JV agreement to meet the program’s regulatory requirements. The JV agreement typically divides the work and the responsibilities of contract performance between the member firms. The JV entities are usually “unpopulated,” meaning they do not have their own employees. Thus, instead of performing the work itself, the JV entity subcontracts the performance to member firms per the JV agreement and any subsequent addendums. Additionally, the JV entity is managed by the protégé firm and requires that the protégé firm hold at least 51% of the ownership interest. The SBA’s mentor-protégé program is designed to be mutually beneficial for participating firms, allowing the protégé to benefit from the mentor’s business development assistance and simultaneously affording the mentor firm access to certain contracts it could not otherwise compete for. Despite the arrangement’s “win-win” nature, disputes between participating firms can and often do arise. In case of such disputes, the JV member firms should be mindful that they are not only bound by the terms of the JV agreement but also by any contractually implied duties and covenants, such as the duties of loyalty, care, and good faith and fair dealing.