DEC 1979

General Counsel (L)

t

Legal Opinion Re Section 211 of P.L. 95-507

Assistant Administrator for Acquisition Policy (V)

On December 5, 1979, you requested an opinion as to the meaning of
▲ response made by the Comptroller Caneral to a question raised by
Congressman Joseph P. Addabbo in a letter dated October 19, 1979
(D-114835).

The text of the question and answer is as follows:

"What is the legal status of all Federal contracts
awarded since October 24, 1978, that fall within the
scope of section 211 but which do not contain the
mandated subcontracting plans? If you determine that
all or any particular group of such contracts suffer
from a legal deficiency because they do not contain
plans can that deficiency be remedied by executing
modifications to such contracts which contain plans?
What other rezadies, if any, are available?"
(Emphasis added.)

"It is our view, for the reasons already indicated, that the legality of the contracts awarded after October 24, 1978, and before the issuance of implementing regulations is not impaired by the absence of the plans. To conclude otherwise would mean that Congress intended the wheels of Goverment-wide procurement to come to a halt pending issuance of the necessary regulatory implementation of section 211. We do not believe that Congress intended such a result.

"Contracts awarded after issuance of the regulations should contain subcontractor plans. You suggest that if any of these contracts fail to contain plans, the legal deficiency may be remedied by executing contract modifications which contain plans. "We agree with you that contracts which fail to contain plans required under section 211 and the implementing regulations are legally deficient. However, we believe the remedy must depend on the particular circumstances. Contract modifications might be appropriate under certain conditions. On the other hand, contract termination and a resolicitation of the procurement might be the preferable solution in other cases. Also, situations could arise

where it is not feasible to remedy the situation. For
example, urgency might preclude amending the contract to
include a plan which would delay the performance. We do
not anticipate that this situation would arise very often."
(Emphasis added.)

The question that needs clarification is what the Comptroller General meant when he stated that "contracts which fail to contain plans required under section 211 and the implementing regulations are legally deficiant." Did he mean (1) that such contracts are illegal, or (2) that they are improper because they are technically deficient? The remainder of the Comptroller General's response (quoted above) seems to suggest the answer. Had he intended to say that such contracts were illegal and should be cancelled without any liability to the Government, he would not have said "the remedy must depend on the particular circumstances" and "Contract modifications might be appropriate under certain conditions", (Emphasis added.)

etc.

I believe he used the words "legally deficient" because Mr. Addabbo had employed the words "legal deficiency" in the question. I believe that the Comptroller General vas saying that contracts awarded after the effective date of the regulations implementing section 211 which did not contain the subcontracting plans were improper but not illegal. (Informal contact with GAO's Office of General Counsel confirmed the fact that GAO regards the contracts in question to be improper, not illegal.)

A number of Court of Claims cases and Comptroller General decisions have addressed the differences between improperly awarded contracts and illegal contracts. In 52 Comp. Gan. 215 (1972) at 218, the Comptroller General states:

"We are in agreement with the position of the Court of
Claims that 'the binding stamp of nullity' should be
imposed only when the illegality of an award is 'plain,'
John Rainer & Co. v. United States, 325 F. 2d 438, 440
(163 Ct. Cl. 381) or 'palpable,' Warren Brothers Roads Co. v.
United States, 355 F. 2d 612, 615 (173 Ct. Cl. 714). In
determining whether an award is plainly or palpably illegal,
we believe that if the award was made contrary to statutory
or regulatory requirements because of some action or statement
by the contractor (Prestex, Inc. v. United States, 320 F. 2d
367 (162 Ct. al. 620)), or if the contractor was on direct
notice that the procedures being followed were violativa of
such requirements (Schoenbrod v. United States, 410 F. 2d 400
(187 Ct. a. 627), then the award may be canceled without
liability to the Government except to the extent recovery

if the contractor did not contribute to the mistake
resulting in the award and was not on direct notice
before award that the procedures being followed were
wrong, the award should not be considered plainly or
palpably illegal, and the contract may only be terminated
for the convenience of the Government. John Reiner & Co. v.
United States, supra; Brown & Son Electric Co. v. United
States, 325 F. 28 446 (163 Ct. c. 465)." (See also

Nationwide Building Maintenance, Inc., B-184186, February 3,
1976, 76-1 CPD 71.)

The fact that subcontracting plans were not incorporated into the
contracts in question does not, in my opinion, render such contracts
plainly or palpably illegal. It was clear and GAO agrees that compliance
with the statutory requirement for plans was dependent upon publication
of implementing regulations. In fact, the Comptroller General concluded
that the legality of contracts awarded after the effective date of
P.L. 95-507, but before the issuance of implementing regulations, was
not impaired by the absence of the plans. Although both the Government
contracting officials and presumably the contractors had either real or
constructive notice of the statutory requirement for subcontracting
plans, it would be impracticable, if not impossible, to impose require-
ments that had not been fully implemented by the Government. The
contractors did nothing to preclude the Government from incorporating
a requirement for subcontracting plans in the applicable solicitations
and camot be held to a requirement that was not a part of their contracts.
Accordingly, I believe that the contracts affected by the deficiency
of not containing subcontracting plans required by section 211 and the
implementing regulations were improperly awarded but remain legally
valid and binding contracts. Subcontracting plans cannot be imposed
upon contractors whose contracts did not contain this requirement at
the time they were awarded unless the contractors are willing to modify
their contracts to provide for them. That is why the Comptroller General
concluded that the remedies available to correct the deficiency will
depend upon the particular circumstances of each of the affected contracts.

(Signed) ALLIE B. LATIMER

ALLIE B. LATIMER

General Counsel

Cc:

Official File - - L

L

LL

LL/EJDuignan/pat 12/11/79 566-0050

NOV

5 1979

TAB Q

Comunistation washington, DC 20405

Office of Small and Disadvantaged Business Utilization (VS)

Proposed Changes to Regulations Implementing Section 211 of Public
Law 95-507 and Proposed Format for Collection of Federal Subcontracting
Data

Assistant Administrators

Heads of Services

Regional Administrators

The Office of Federal Procurement Policy (OFPP) has promulgated proposed changes to regulations implementing Section 211 of Public Law 95-507 including a proposed format for the collection of Federal subcontracting data. OFPP's proposed changes are enclosed for your review and comment. In order that we may submit a coordinated GSA response to OFPP by the December 15, 1979, deadline please provide your comments to this office by COB Friday, November 30. Negative responses are requested.

Mil. Kogen

WILLIAM F.' MADISON

Director, Office of Small and
Disadvantaged Business Utilization

Enclosure

""

EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET

WASHINGTON, D.C. 20503

OFFICE OF FEDERAL PROCUREMENT POLICY

OFFICE OF MANAGEMENT AND BUDGET

Office of Federal Procurement Policy
Subcontracting Under Federal Contracts

AGENCY: Office of Federal Procurement Policy, Office of Management and Budget.

ACTION: Request for comment on proposed changes to regulations implementing Section 211 of Public Law 95-507 and proposed format for collection of Federal subcontracting data.

SUMMARY: Regulatory changes. The following set forth changes to be made in the Federal Procurement Regulations (FPR), the Defense Acquisition Regulation (DAR), and other procurement regulations in implementation of Section 211 of Public Law 95-507.

On October 24, 1978, the President signed into law Public Law 95-507 amending the Small Business Act and the Small Business Investment Act of 1958. Section 211 of Public Law 95-507 relates to subcontracting under Federal Contracts.

On January 16, 1979, the Office of Federal Procurement Policy published in the Federal Register (44 Fed. Reg. 3340) a proposed policy statement relating to changes in the FPR and DAR regarding Section 211 (Subcontracting). On April 20, 1979, final regulations were published in the Federal Register (44 Fed. Reg. 23610). The proposed changes in I. below are intended to supplement the regulations published on April 20. For the ease of reading, the original regulations are also printed below, with changed or new material inserted in italics, and deletions in brackets.

Proposed Data Collection Formats. In order to enforce the provisions of Section 211 of Public Law 95-507, the procuring agencies must collect certain data relating to subcontracting under Federal prime contracts. In addition, certain additional data is required by the Federal Government to support and evaluate the Labor Surplus Area Program mandated by P.L. 95-89, and the National Women's Business Enterprise program established by E.O. 12138. The proposed forms in II. below are intended to provide a uniform format for collecting this data that will minimize the burden on Federal contractors. The forms will replace any existing Federal forms requiring similar data.