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GAO Sustains a Bid Protest Based on an Improper Arbitration Agreement

By: John Ford, Senior Consultant

Most of us have probably heard of the accusations of sexual harassment levied against the movie producer Harvey Weinstein. Some of you may not be aware that there is a government contracting aspect to this story.

Section 8116 of the 2010 Department of Defense (“DoD”) Appropriations Act (P.L. 111-118) (“the Act”) provides in part that:

None of the funds appropriated or otherwise made available by this Act may be expended for any Federal contract for an amount in excess of $1,000,000 that is awarded more than 60 days after the effective date of this Act, unless the contractor agrees not to:

(1) enter into any agreement with any of its employees or independent contractors that requires, as a condition of employment, that the employee or independent contractor agree to resolve through arbitration any claim under title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention; or

(2) take any action to enforce any provision of an existing agreement with an employee or independent contractor that mandates that the employee or independent contractor resolve through arbitration any claim under title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention.

The Act also prohibits funds from being expended in regard to subcontracts with a value in excess of $1M unless the prime contractor “certifies that it requires each covered subcontractor to agree not to enter into, and not to take any action to enforce any provision of, any agreement as described” above. Finally, the Act permits the Secretary of Defense or the Deputy Secretary of Defense to waive these restrictions. Similar language has been included in each subsequent DoD appropriation act.

These statutory provisions have been implemented in the Defense Federal Acquisition Regulation Supplement (“DFARS”) 252.222-7000, which is to be included in all contracts with a value in excess of $1M except contracts for commercial items including contracts for COTS items. Because the Act only imposes restrictions on the use of funds appropriated or made available to the DoD, there is no Federal Acquisition Regulation (“FAR”) coverage on this topic.

Recently, these restrictions became the basis for a Government Accountability Office (“GAO”) bid protest. In L3 Unisys, Inc. B-414902, B-414902.2 and B-414902.3 (October 16, 2017), L3 protested the award of a task order under the Navy’s Seaport-E multiple award IDIQ contract to Leidos. L3 asserted that the Navy never determined whether Leidos was ineligible to receive the award because of this restriction on the use of appropriated funds. In this case, Leidos submitted letters of intent regarding four key personnel with its proposal. The letters all stated “[a]ll new hires and rehires of Leidos must execute an Arbitration Agreement prior to commencement of employment. Enclosed is a copy of the Arbitration Agreement you are required to execute as a condition of employment.” In sustaining L3’s protest on this ground the GAO stated:

there is no evidence in the record to show that the agency ever meaningfully considered whether or not the Leidos proposal complied with the statutory requirements described above in light of the terms of the letters of intent. In fact, there is no evidence to show that the agency even had a copy of the Leidos arbitration agreement before making award to the firm.

As this decision shows, if a contractor wishes to have its employees agree to have certain personnel disputes subject to arbitration, the contractor must ensure that the arbitration agreement is consistent with the statutory prohibitions. In this regard, if an RFP requires offerors to submit offer letters for potential employees who will be required to sign an arbitration agreement, it would seem prudent to also provide the arbitration agreement to avoid the outcome reached here. In this case, we do not know if the arbitration agreement was acceptable under the statute because it was never submitted to the Navy. Finally, it should be noted that the statute addresses agreements between the employer and its employees. It does not seem to apply to collective bargaining agreements with unions representing employees.