Regulate First, Listen Later: The FAR Overhaul's Procedural Problem

Agencies went ahead with the FAR Overhaul before notice-and-comment. But there's still time to make up for that.

Photo by National Cancer Institute on Unsplash

With the Supreme Court being asked to review the 8(a) program—though SBA filed yesterday in opposition—I wondered what the justices might think of the FAR Overhaul. The answer comes in a COVID-era case about the Biden Administration’s vaccine mandate for healthcare workers, and it should inform the FAR Council’s plan for finalizing the FAR Overhaul through one or more proposed rules.

In 2021, the second year of the pandemic, the Biden Administration issued the President’s six-point plan for combating COVID-19. Item #1 was “vaccinating the unvaccinated,” an initiative that would result in vaccination mandates for military personnel, Federal contractors, and healthcare workers.

The healthcare-worker vaccination mandate came about through a November 2021 rule issued by the Center for Medicare and Medicaid Services. CMS used a fast-track legal strategy to make the rule effective quickly, within 30 days. Rather than publishing a proposed rule in the Federal Register and putting the rule into effect after reviewing public comments, CMS issued an interim final rule. The interim final rule would go into effect in December. The public still could comment on the rule, but those comments weren’t due until January and, because of the timeline, would not affect the rule’s immediate implementation.

After a couple of lower courts heard challenges to the mandate, the case reached the Supreme Court in Biden v. Missouri. And that’s where the justices reviewed CMS’s fast-track process.

The 5-4 majority upheld the rule and the process, ruling that the vaccination mandate “fits neatly within the language of the statute.” But Justice Alito authored a dissent, joined by Justices Thomas, Gorsuch, and Barrett. It’s the dissent that is most relevant to the FAR Overhaul.

Justice Alito’s dissent criticized CMS’s decision to finalize the vaccine mandate before giving the public the opportunity to submit comments. Agencies must exercise “basic procedural safeguards,” Justice Alito wrote. “Except in rare cases,” he explained, an agency must provide public notice of proposed rules and address concerns raised during the notice-and-comment process. The dissent didn’t list what rare cases would qualify, but they believed the COVID emergency was not enough to explain why “an agency can regulate first and listen later.”

That requirement for public input applies to FAR rules, including the FAR Overhaul. But it’s not through the same statute that CMS—and almost all other Federal agencies—are subject to, the Administrative Procedure Act, which contains an exception for public contracts. Instead, a special provision of the OFPP Act, 41 USC 1707, requires that the FAR Council seek public comments at least 60 days before making a FAR regulation effective. The OFPP Act includes some exceptions for agency-specific “internal operating procedures” and “urgent and compelling circumstances.”

The FAR Overhaul hasn’t complied with the notice-and-comment requirements, at least not yet. Instead, the FAR Council has taken the approach of “regulate first and listen later,” exactly what the Alito dissent found objectionable in Biden v. Missouri. That’s a problem if the overhauled FAR were ever to reach the courts.

The FAR Overhaul’s deviate-and-test approach

The approach that the FAR Overhaul has taken is different from what CMS used in mandating vaccinations—the FAR Council doesn’t have a pandemic to use as an excuse for avoiding public comment. Rather than using an interim final rule, the FAR Council created a wholly new process for the Overhaul: model deviations.

Instead of issuing rules, the FAR Council has been issuing model deviations, one deviation for each part of the FAR. The model deviations are essentially draft regulations. Deviations are a procurement-specific mechanism from FAR subpart 1.4 that are really designed for agency-specific actions. The idea behind deviations is that, because the FAR is a government-wide regulation, individual agencies might want to “test” different procurement approaches based on their special circumstances. A law, 41 USC 1303, lets the individual agency propose its special approach to the FAR Council for approval as a deviation.

The model-deviation approach gets that typical mechanism backwards; instead of the individual agency proposing the test, the FAR Council itself has proposed these model deviations to each agency. Then the agencies can decide whether to test the deviations (the FAR Council has pre-approved the tests, in order to comply with the law).

Some agencies have adopted all or nearly all the model deviations as tests. These include GSA and DOT. A few agencies—the Department of Defense and the Small Business Administration among them—haven’t started using any of the model deviations, seemingly preferring to see how the tests turn out for the adopting agencies. The number of agencies that adopt each model deviation varies widely. Twenty-six agencies adopted Part 6, the model deviation about competition and sole-source justifications. Only eight agencies have adopted Part 15, the deviation on negotiations that was one of the last to be published.

The FAR Council issued the model deviations without notice-and-comment. Instead, the FAR Council solicited what it called “informal feedback”—basically a webform to submit what ordinarily would be called comments. I sent in a few forms about typos and what I thought were strange oversights. And it looks like some of the informal feedback resulted in policy changes; the FAR Council quickly changed the model deviation for FAR Part 8 to remove a mandate to use “best-in-class” contracts (though the frozen-in-time press release about Part 8 still refers to that mandate).

There are two ways of looking at the FAR Council’s deviate-and-test approach, as my colleagues recently discussed at an American Bar Association panel. One is that the FAR Council is, in Justice Alito’s words, ignoring “basic procedural safeguards” by authorizing agencies to go ahead with implementing new regulations without notice-and-comment. In this view, the “tests” are just cosmetic; the adopting agencies are going full steam ahead with policy changes before listening to affected parties.

The other perspective is that these model deviations are more akin to drafts that can be refined later during a public-comment process. The FAR Council already announced that the Overhaul will eventually go through notice-and-comment. And the current testing period—which will continue until the FAR Council issues a final rule—helps the public understand how the drafts operate so that they can submit more meaningful comments. In this view, the later comment period will be a “second bite at the apple,” as was mentioned at the ABA. The public already had a first chance during the informal-feedback period.

Which perspective you support depends on how you think the FAR Council will proceed with the notice-and-comment rulemaking process. It also depends on whether you think the FAR Council will have an open mind to consider comments and changing policies, an issue I’ll discuss later.

Either way, though, you really should submit comments if you have any stake in the policies in the FAR Overhaul.

Why submit comments

Submitting comments on a regulation, like the FAR, is more like asking a question in a townhall than putting a comment on a YouTube video. That’s because, as expressed by the Supreme Court in Perez v. Mortgage Bankers Association (2015), an agency must “consider and respond to significant comments.” In other words, the agency—the FAR Council in the case of the FAR Overhaul—is accountable to the public for not just reading the comments but actually responding to the significant ones.

If the agency doesn’t adequately “consider and respond,” a court can nix the whole process. That’s exactly what happened to the EPA in a recent case that reached the Supreme Court.

In Ohio v. EPA (2024), the EPA proposed to create a single Federal Implementation Plan (or FIP) to cover air-quality standards for ozone, replacing individual state plans that the agency had previously rejected. Commenters to the proposed rule worried, though, that the FIP might not work if all the covered states weren’t included. And, indeed, court action soon prevented some states from being a part of the FIP. In a final rule, however, the EPA went ahead with the FIP anyway, despite some of the initial states being excluded—before the Supreme Court got involved.

The 5-4 majority ruled that the EPA’s final rule was likely arbitrary or capricious (“likely” because this was an interim ruling). Commenters had raised the concern about states needing to be excluded, the majority wrote, but the EPA “offered no reasoned response.” The EPA defended itself by arguing that it had considered the comments. The Court’s majority, however, wanted to see an actual response—something showing that agency would “address the concern adequately.”

This requirement for a response (which is fairly new in caselaw) is what separates the more regimented notice-and-comment rulemaking process from what the FAR Council instituted with “informal feedback.” The FAR Council might be reading the feedback. But it won’t respond in any formal way. When it comes to rulemaking comments, though, the FAR Council has no choice. The Supreme Court cases require agencies to respond to “significant” comments.

Of course, not all comments will be significant. There is a good argument, though, that small-business-related comments should be more likely to be deemed significant. The Regulatory Flexibility Act—which the SBA oversees through its Office of Advocacy—creates special procedures for considering the impact of regulations on small businesses. The RFA requires agencies to prepare an initial regulatory flexibility analysis (or IRFA) about a proposed rule’s impact on small entities, including small businesses. In the final rule, the agency needs to respond to all comments filed about that IRFA, as well as any comments submitted by the Office of Advocacy. (Agencies don’t consistently publish IRFAs, though, and there are bills pending in both the House and Senate to force more agencies to comply.)

In the special case of FAR rules, the law goes even further to protect small businesses. In formulating the FAR, the Office of Federal Procurement Policy must develop policies that promote the achievement of small business goals, and it must analyze the impact of FAR revisions on small businesses. For the FAR Overhaul, I can think of at least three areas that have a big impact on small businesses: the mandate for agencies to use “required-use” contracts; the preference for competitions on consolidated 8(a) multiple-award contracts over 8(a) sole-source awards; and the automatic waiver of the “once 8(a), always 8(a)” rule when the agency uses a women-owned, service-disabled veteran-owned, or HUBZone set-aside.

But the FAR Overhaul still might be OK

At this point, the FAR Overhaul looks a lot like the CMS vaccine mandate: a policy rushed to implementation before the opportunity for public comment. The CMS won that case because of the pandemic emergency. The FAR Council can’t point to a similar emergency, but there are still two reasons why the FAR Overhaul could be OK procedurally.

First, the courts don’t appear very concerned about agencies predetermining what their policies will look like. Challengers have tried to create a so-called open-mindedness test, arguing that agencies need to leave space to have their minds changed by public comments. But the Supreme Court has said definitively that it will not apply the open-mindedness test. Yes, agencies must consider and respond to significant comments. But the fact that the FAR Council has issued all the FAR rules as model deviations, and some agencies are already using them, doesn’t invalidate the process simply because it might suggest the Council is closed to the idea of changing the rules.

Second, it’s possible—even likely—that no one will ever have reason to challenge the process. Most of the FAR Overhaul changes are stylistic. And the substantive changes are to common ground rules, like Part 15’s introducing the idea of an evaluation scheme for the highest technically rated proposal with a fair and reasonable price. The reason for suing is that you lost a contract, and most of the FAR Overhaul changes don’t change who wins the contract. There are a few exceptions, though. The most likely litigant is an 8(a) firm that misses out on a follow-on contract because of the watering-down of the “once 8(a), always 8(a)” rule.

If that happens—or the FAR Overhaul is reviewed by the courts for some other reason—the FAR Council still has the chance to avoid the same scrutiny as the vaccine mandate. It needs to concentrate on providing an adequate comment period and formally responding to all significant comments, especially those about the impact on small businesses. Soon, it’ll be up to contractors, and small businesses especially, to send in those comments.

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Today is Giving Tuesday, and I want to encourage everyone to give to a great charity, the Capital Area Food Bank. The CAFB really came through last month, preparing to donate an extra one million meals during the government shutdown and interrupted SNAP. The holiday season brings more challenges: higher grocery bills, fewer school meals for kids, and increased utility costs. Every dollar donated provides two meals to our area’s neighbors in need.

With 20 years of Federal legal experience, Sam Le counsels small businesses through government contracting matters, including bid protests, contract compliance, small business certifications, and procurement disputes. Sam obtained his law degree from the University of Virginia and formerly served as SBA’s director of procurement policy. His website is www.samlelaw.com.

This article is for informational purposes only and does not constitute legal advice.