Government Contracts Archives - The National Law Forum

The COVID-19 Change Order

During the pandemic it has become common for contractors to submit change orders to owners seeking reimbursement for COVID-19 related expenses and costs. This is especially true for large construction projects. These “COVID-19 Change Orders” seek reimbursement for everything from masks, dividers, hand sanitizer and other items required to follow and implement CDC guidelines (or to comply with state and local orders) for maintaining a safe work environment. COVID-19 Change Orders also seek reimbursement for extended general conditions caused by having less workers on site because of social distancing requirements, lost time caused by shorter working hours, and lost time associated with CDC mandated hygiene breaks and temperature checks. On larger projects, COVID-19 Change Orders can escalate into millions of dollars and are often submitted without warning towards the end of a project when final completion and the payment of retainage are approaching.

For owners and contractors that are trying to complete their projects, many of which have been delayed or suffered from cost overruns, these unexpected COVID-19 Change Orders can be very problematic and hard to navigate. Owners will argue that increased costs associated with the pandemic have affected all businesses, not just contractors. Contractors will respond that these are real costs that they must pay to operate. Often, the justification for reimbursement is not black and white because it is hard to find a specific contractual provision that addresses such an unprecedented situation, which causes uncertainty and strained relations between owners and contractors at the end of a project.

The justifications asserted for COVID-19 Change Orders vary from project to project and are sometimes asserted as an event of force majeure or more commonly as a general change in site conditions. While many force majeure clauses expressly apply to acts of God, pandemics and government shutdowns, that is not the end of analyzing whether the clause applies. While the application of a force majeure clause to these situations is highly dependent on the wording of such a clause, most require that performance be completely prevented and do not recognize commercial impracticability as a justification for delay. There were a small number of projects that were shut down at the beginning of the pandemic by state and local orders in stricter jurisdictions, but for the most part complete shutdowns were uncommon because of various exceptions to such orders for businesses broadly defined as “essential.” As the pandemic extended through late 2020, and into 2021, shutdowns became non-existent. Finally, many force majeure clauses don’t allow for the reimbursement of costs for implementing required protective measures, they simply allow for an extension of the contract time.

As a result, many contractors have turned to other contractual provisions, such as language related to changes in site conditions or clauses related to change orders in general. But prior to the pandemic these provisions were not drafted with this circumstance (a virus) in mind. Instead, they usually apply to changes in “physical” conditions at the site that are specifically described, like subsurface conditions, otherwise concealed physical conditions or hazardous materials found at the site. Making the argument that a virus is an unknown “physical” condition at the site can be a challenge since the virus is airborne, not necessarily part of the site itself and not unique to the site. In addition, because many of these clauses require the approval of the owner or are only triggered by specific conditions, they may not support a unilateral change order.

Because of the ambiguity surrounding COVID-19 Change Orders, many owners will initially be reluctant to cover such reimbursements for their contractors. Aside from the specific language in their construction contracts, Owners should consider other factors when deciding whether to reject, accept or partially accept COVID-19 Change Orders, including the risk of strained relations with its contractor, distractions at the project and the costs of a potential dispute with its contractor. If there are remaining construction contingency funds available, and the project has otherwise run smoothly, the owner should consider offering all or part of it at the end of the project to avoid a dispute. Likewise, contractors should be thoughtful and thorough when deciding whether to seek reimbursement for project costs associated with COVID-19, and make sure the costs at issue were necessary and can be verified. Finally, if the contractor received government loans or payments because of the pandemic, including funds from the Paycheck Protection Program, it should strongly consider not seeking reimbursement from the owner.

Article By Richard F. Whiteley, Phillip L. Sampson Jr., and Stacianne M. Wilson of Bracewell LLP

For more coronavirus legal news updates, click here to visit the National Law Review.

If You Can’t Stand the Heat, Don’t Build the Kitchen: Construction Company Settles Allegations of Small Business Subcontracting Fraud for $2.8 Million

For knowingly hiring a company that was not a service-disabled, veteran-owned small business to fulfill a set aside contract, a construction contractor settled allegations of small business subcontracting fraud for $2.8 million. A corporate whistleblower, Fox Unlimited Enterprises, brought this misconduct to light. We previously reported on the record-setting small business fraud settlement with TriMark USA LLC, to which this settlement is related. For reporting government contracts fraud, the whistleblower will receive $630,925 of the settlement.

According to the allegations, the general contractor and construction company Hensel Phelps was awarded a General Services Administration (GSA) contract to build the Armed Forces Retirement Home’s New Commons/Health Care Building in Washington, D.C. Part of the contract entailed sharing the work with small businesses, including service-disabled, veteran-owned small businesses (SDVOSB). The construction contractor negotiated all aspects of the contract with an unidentified subcontractor and then hired an SDVOSB, which, according to the settlement agreement, Hensel Phelps knew was “merely a passthrough” for the larger subcontractor, thus creating the appearance of an SDVOSB performing the work on the contract to meet the set-aside requirements. The supposedly SDVOSB subcontractor was hired to provide food service equipment for the Armed Forces Retirement Home building.

“Set aside” contracts are government contracts intended to provide opportunities to SDVOSB, women-owned small businesses, and other economically disadvantaged companies to do work they might not otherwise access. Large businesses performing work on government contracts are often required to subcontract part of their work to these types of small businesses. “Taking advantage of contracts intended for companies owned and operated by service-disabled veterans demonstrates a shocking disregard for fair competition and integrity in government contracting,” said the United States Attorney for the Eastern District of Washington, as well as a shocking disregard for proper stewardship of taxpayer funds.

Whistleblowers can help fight fraud and protect taxpayers by reporting government contracts fraud. A whistleblower can report government contracts fraud under the False Claims Act and become a relator in a qui tam lawsuit, from which they may be entitled to a share of the funds the government recovers from fraudsters.

Article By Eva Gunasekera and Renée Brooker at Tycko & Zavareei LLP

For more whistleblower legal news, click here to visit the National Law Review.

The Government Contractor’s Guide to (Not) Doing Business with Russia

The United States is engaging in a new form of warfare. Russia invaded Ukraine just over two months ago and, rather than join the fight directly by sending troops to defend Ukraine, the United States is fighting indirectly by engaging in unprecedented financial warfare against the Russian Federation. The initial export and sanctions actions were swift and severe – but somewhat expected. As the invasion persists, the U.S. Federal Government and individual States also have begun to leverage procurement policy to amplify the financial harm to Russia. This Guide will try to help make sense of the current efforts targeting Russia, the potential impact to government contractors, and proactive steps to mitigate risk.

Sanctions and Export Controls on Russia

Before we get to the specific issues government contractors will face with respect to Russia, we should lay out a bit of a landscape. We have covered the broader restrictive measures on Russia here and have updated them steadily as those measures have broadened and deepened.

Generally, U.S. export controls prohibit nearly all exports of U.S.-origin items to Russia, and U.S. sanctions prohibit U.S. persons from transacting—directly or indirectly—with a host of Russian persons, businesses, and financial institutions, as discussed in greater detail below.

1.2 Sanctions

The increased Russia sanctions will present a compliance concern, but most companies with solid protective measures already in place will not need to change too much to address it. For instance, if your company uses a third-party screening service to identify potentially sanctioned parties in your proposed transactions, your company may reasonably rely on that service to update the lists against which it screens. Further, most screening services can identify sanctioned parties in a prospective transaction partner’s ownership chain where that information is readily available. In light of the increased sanctions and increased scrutiny, however, it may be worth confirming that your screening vendor is making that check for you and request it if they are not.

It is most likely that the sanctions that will limit payments to Russia—sanctions on banks, on government agencies, and on the Russian Central Bank—will create supply chain difficulties for government contractors in the near term. The first and most obvious supply impact will be on oil and gas—by far the largest Russian export. Restrictions on Russia have increased, and will continue to increase, prices until the world market can adjust.

Additionally, there are other supplies that may become more scarce and, it follows, more expensive. Russia supplies platinum, titanium, and vanadium to the fuel cell, hydrogen, and 3D printing industries. Russia also is the world’s third largest supplier of nickel used for electric vehicle batteries, and is heavily involved in the production of stainless steel, a basic commodity in countless industries.^[1]

1.3 Export Controls

Many companies that supply the U.S. Government, particularly the U.S. Military, will have limited sales in Russia because of long-standing restrictions on supplies to Russia for military end-uses. However, the new export controls may affect commercial suppliers as they decide what to do with the commercially available off-the-shelf items they supplied to offices, restaurants, or civil aircraft in Russia just a few months ago.

For those companies, we note that Russian businesses desperately are trying to get their supplies into the country, and some do not shy away from a little dissembling to do so. For example, we have seen customers and distributors suddenly request their supplies be delivered to neighboring Kazakhstan—a huge red flag that the supplies would be reexported to Russia in violation of U.S. law, a practice called “transshipment” by the regulators who would be keen to catch and level penalties against those engaged in it. Similarly, requests for software programs, updates, and patches are being made to U.S. companies in ways designed to disguise a Russian end-user, such as delivery to third-country servers.

So, for government contractors, as for many U.S. companies, a nimble shifting of logistics chains, and a hard look at any customer requests that don’t quite pass the sniff test, appear to be in order.

Federal Procurement Legislation

As the Russian invasion of Ukraine has persisted, the U.S. Government continues to identify new ways to punish Russia economically beyond sanctions and export limitations. Not wanting to let the Executive Branch have all the fun, on March 21, 2022, Congress took action of its own – Representative Carolyn Maloney (D-NY) introduced the Federal Contracting for Peace and Security Act (H.R. 7185). The purpose of the legislation is simple: to “[p]rohibit the federal government from purchasing products or services from companies that continue to conduct business in Russia during its war of aggression.” The legislation specifically targets “covered entities” that conducted business in Russia during the “covered period.” Specifically, the bill would:

Prohibit any agency from awarding, extending, or renewing any contract with a covered entity;
Prohibit any agency from awarding, extending, or renewing a contract with a company that issued a major subcontract to a covered entity; and
Require the termination of existing contracts with covered entities.

As currently drafted, the reach of the proposed legislation is staggering, and would cover any Federal contractor with an affiliated entity (including any parent, subsidiary, successor entity, or beneficial owner of such company) that conducted business in Russia during the covered period. The proposed legislation defines “conducted business” broadly, and includes acquiring, developing, selling, leasing, or operating equipment, facilities, personnel, products, services, personal property, real property, or any other apparatus of business or commerce.

This isn’t the first time we’ve seen the Federal Government actively leveraging its procurement power to affect policy change (see, e.g., Section 889 of the FY19 NDAA, the Federal Contractor Vaccine Mandate), but this legislation may be the most powerful attempt to use procurement policy as a substitute for more traditional warfare.

On April 7, 2022, the House Oversight and Reform Committee passed an amended version of the proposed legislation (which added details around the exceptions, rulemaking process, and adopted a process for “good faith extensions”). The legislation now will move to the full House for consideration. If the proposed legislation is signed into law, the Office of Management and Budget will have only 30 days to issue emergency regulations to implement the statute. Even if this particular legislation doesn’t become law, it is likely something similar impacting Federal contractors will be implemented (perhaps even via Executive Order), and therefore contractors currently conducting business in Russia should develop a proactive plan to mitigate the likely impact.

Current and Proposed State Actions

From condemning Russia to banning the sale of Russian-origin liquor, more than 35 States also have exercised their Executive and Legislative powers to respond to Russia’s actions against Ukraine, all while encouraging private entities to do the same. Some actions largely are symbolic—such as lighting the State Capitol the color of Ukraine’s flag—but others may have significant impact on State economies, and, even more so, on contractors operating within or in conjunction with these States.

Most relevant to contractors, certain States (including California, Colorado, Florida, Massachusetts, Minnesota, Missouri, Mississippi, New Jersey, New York, North Carolina, Ohio, Texas, Vermont, and Washington, to name a few) have announced their intent to terminate all agreements with entities tied to Russia,^[2] whether directly via Russian ownership or control, or indirectly by operating in Russia or providing Russian-origin goods. Though many of these State actions are short on specifics at the moment, Ohio is a bit ahead of the curve and already has made clear this prohibition likewise will extend to subcontracts and subcontractors. We expect other States to follow suit.

Certain states have indicated they intend to enforce this prohibition, at least in part, by requiring contractors to submit new representations and certifications regarding their business dealings in Russia (including the business dealings of their subcontractors). Ensuring these representations and certifications are accurate will be critical to mitigate risk in the States with False Claims Act statutes.

Other States have banned the sale, provision, or import of certain Russian-origin products. Though many of these bans involve the sale of Russian-made liquor, some States have extended these prohibitions to products that may more directly affect contractor performance, including oil and gas (Louisiana and Hawaii), and iron and steel (Louisiana). Other States, such as Texas, have taken a more sweeping approach, banning all Russian-origin products outright. The impact on each contractor’s supply chain will vary based on the specific State prohibitions, though given the widespread action across States, there’s certain to be some impact to every contractor’s supply chain.

We have compiled this table here as an overview of current and pending State actions impacting government contractors.^[3]

Proactive Steps to Mitigate Risk

In light of this flurry of activity across all levels of the U.S. Government, we’ve compiled this preliminary list of proactive steps government contractors should consider to help ensure compliance (and, maybe, recover additional costs). This is not an exhaustive list – but it’s a good start given the current state of actions against Russia.

Rely on your existing screening software to ensure you are not doing business with a sanctioned entity (including an analysis of the ultimate beneficial owner of your customer).
Track increased costs tied directly to Russian sanctions (e.g., fuel, iron, alternative sources of supply), and analyze whether you can seek an equitable adjustment for those costs.
Monitor whether customers are making unusual requests, like relocating shipments to countries neighboring Russia and Belarus.
Evaluate your corporate family’s business dealings in Russia. Given the public pressure against companies currently doing business in Russia, these efforts likely already are underway.
Begin assessing the entities in your supply chain (including your subcontractors) to determine if they conduct business operations in Russia. A multi-phased approach that first analyzes the principal place of business of each entity before progressing to certifications from suppliers seems to make the most sense. Where practical, begin to identify alternative suppliers.
Monitor Federal and State contracts for modifications incorporating new language restricting business with Russian entities and providing new representation or certification requirements.
Carefully review any new representation or certification provisions and ensure your company’s responses are current, accurate, and complete to minimize risks of False Claims Act liability at both the Federal and State levels.

FOOTNOTES

[1] https://encompass-europe.com/comment/securing-eu-critical-raw-material-supplies-after-russias-war#:~:text=Material%20bottlenecks&text=Russian%20supplied%20platinum%2C%20titanium%2C%20and,basic%20commodity%20in%20countless%20industries.

[2] In some instances even local and municipal governments have jumped in on the action. For example, on March 9, 2022, the Dallas City Council approved a resolution proposed by Mayor Eric Johnson that, inter alia, restricts the Council’s ability to approve future contracts with entities that have ties to Russia.

[3] In providing this table, we do not weigh in on the legality of any such action, especially where the Federal Government typically is tasked with primary authority over diplomatic relations and sanctions. Nor do we proclaim this table offers a comprehensive summary of every relevant State action—we not only expect additional resolutions in the days and weeks to come, but also expect that many actions may be amended as they make their way through State legislatures. In providing this summary, we only aim to assist contractors in identifying new and evolving restrictions and requirements impacting contractor performance in those named States.

Article By Reid Whitten, Ryan E. Roberts and Ariel Debin of
Sheppard, Mullin, Richter & Hampton LLP

For more articles on government contracts, visit the NLR Government Contracts, Maritime & Military Law section.

GovCon Fraud Grounded: Whistleblower Receives Reward for Reporting Aviation Equipment Government Contracting Fraud

The United States Department of Justice settled a case against aviation equipment defense contractor Airbus Defense and Space Inc. (ADSI) for charging improper fees on government contracts. Under the terms of the settlement, the defense contractor paid $1,043,475 to resolve False Claims Act allegations. A former employee of the government contractor reported these improper fees and will receive $157,220 of the government’s recovery.

According to the allegations, the contractor included an unapproved cost rate on contracts, did not accurately disclose fees, and worked out a storage overbilling scheme with a third-party contractor, causing the government to pay more for storage than necessary. To disguise an additional and sometimes undisclosed indirect cost rate, the contractor added what they called an “Orlando Factor” to various price proposals for 62 contracts. Indirect cost rates are a complex portion of government contracting arrangements whereby a contractor attempts to obtain reimbursement for their company’s operational costs. From 2016-2017, this aviation equipment contractor’s “Orlando Factor” was applied in addition to their indirect cost rate approved by the federal agencies with which they were contracting.

The allegations further describe additional fees the contractor tacked onto equipment acquisitions in violation of federal acquisition regulations. Moreover, the contractor listed an unverified affiliate fee on its proposals. Finally, the contractor inflated storage costs by a factor of 10, resulting in General Dynamics passing on $80,000 in storage fees to the U.S. Navy instead of $8,000 in fees.

Defense contracting fraud harms taxpayers; inflating the cost of obtaining equipment can make defense budgets spiral out of control. This particular contractor seems to have found multiple ways to hide costs and pad proposals so as to turn a profit above and beyond their cost of doing business.

A former employee of ASDI reported these fraudulent practices and is being rewarded for speaking up, including receiving funds to pay for their expenses, attorneys’ fees, and costs. The Department of Justice needs whistleblowers to report government contracts fraud. Last year, only 35 defense fraud cases were filed by whistleblowers. With $720 billion spent, more fraud is out there.

Article by the Tycko & Zavareei Whistleblower Practice Group with Tycko & Zavareei LLP.

For more articles on Government Contracts, visit the NLR

Government Contracts, Maritime & Military Law type of law section.

How Government Contractors Can Prepare for a Government Shutdown

The federal government’s funding is slated to deplete on September 30th, 2021. Congress is currently debating the legislation that will allow operations to continue beyond this date, but it remains to be seen whether or not the government will experience a temporary shutdown. Regardless, the Office of Management and Budget signaled for agencies to prepare for a gap in funding, and President Joe Biden’s White House is preparing for this outcome.

“Government shutdowns impact government contractors in significant ways. Work and payments suddenly stop, and contractors have to decide what to do with their skilled and knowledgeable workers, who suddenly have nothing to do for a company whose cash flow has taken a sudden hit,” said Guy Brenner, a partner in the labor and employment law department and head of the Government Contractor Compliance Group at Proskauer Rose LLP. “This is particularly difficult given that the length of the shutdown is difficult to predict.”

A government shutdown presents unique challenges, not only for federal agencies, but for government contractors and subcontractors as well. These challenges include (but are certainly not limited to) employee pay and overtime, unemployment benefits, the furloughing of employees and more. As a result, it’s important government contractors remain informed and prepare themselves for next steps, should the shutdown indeed take place.

What Do Government Contractors Need to Know About the Shutdown?

In years past, government shutdowns complicated pay and backordered work, and the ongoing COVID-19 pandemic adds another layer to the impending decision on September 30, 2021. With a possible shutdown approaching, government contractors should consider their options under their existing contracts. The looming possibility of a government shutdown creates an air of uncertainty, but workers can mitigate the effects with proper preparation. This includes provisions of the Worker Adjustment and Retraining Notification Act of 1988 (WARN Act) which impacts larger employers.

Typically under the WARN Act, employers must notify employees within 60 days of an upcoming large-scale layoff. The WARN Act applies if there is an “employment loss,” which includes a layoff exceeding six months, an employment termination or a 50 percent reduction in hours in each month over six months.

Another consideration for government contractors during a shutdown is furloughing employees. Often contract workers who are furloughed are not paid their owed wages until after the shutdown has ended and a spending agreement is made, sometimes taking many months before issuing the payments. In some instances, such as during the shutdown of 2018/2019, lawmakers may vote against paying contractors for their furloughed time.

Another complication begins when government contractors take a hit during the shutdown and require workers to use their paid time off (PTO) as compensation rather than back pay. And those with PTO still fare better than contractors who are considered non-essential and cannot rely on PTO. What are the options for those workers?

In addition to furlough and PTO, another potential option for government contractors and their employees during the shutdown is unemployment benefits. However, some furloughed employees may not be eligible for unemployment benefits. Government contractors should check state laws to determine eligibility. Government contractors can find additional resources from the U.S. Department of Labor, including fringe benefits, paid sick leave and pay requirements.

How Can Government Contractors Prepare for a Shutdown?

Despite the uncertainty, government contractors can prepare in advance for a government shutdown. E-Verify, the online system used by employers to check the employment eligibility of new hires, is run by the Department of Homeland Security and may be unavailable during a shutdown. To prepare for this, government contractors should complete I-9 paperwork as soon as possible if E-Verify is unavailable.

Another consideration for government contractors during a shutdown is employee benefits. Furloughed employees may have their benefits affected if a government shutdown happens for a long period of time. The longest government shutdown on record was for 34 days in 2018-2019, which was a partial shutdown, whereas the government is facing a full shutdown this time since the government hasn’t passed any funding bills.

If the government shuts down and employees’ hours are reduced, they may lose COBRA health plan coverage. If this happens, government contractors must send qualifying event notices to affected employees, and employees must be given the option to continue coverage under the plan for the duration of the furlough at the employee’s expense for the maximum COBRA continuation period.

If the government is shut down and employees are furloughed, government contractors should tell employees not to do any work. If employees work while furloughed, they must be paid a salary for the entire week. Aside from furlough, government contractors may also decide to allow employees to work a reduced number of hours, but the process needs to be analyzed carefully and managed tightly, due to requirements for exempt employees, salary requirements, local regulations for a reduction in compensation, as well as contractual obligations, overtime exemptions and any foreign work authorizations.

Government contractors should consider incorporating the cost impacts of a shutdown into their planning and allow for it in their contracts. Contractors should plan to establish a line of communication with contracting officers ahead of time to discuss what work might be halted just in case they are unavailable if the government shuts down. Additionally, small businesses that rely on government funding can also prepare by speaking with their bank before any upcoming funding deadlines to ensure they have the cash flow to stay afloat during the shutdown.

What are the Next Steps for Government Contractors?

Government contractors can start preparing now for a government shutdown by completing necessary I-9 paperwork, determining furlough and unemployment benefit eligibility, determining WARN Act eligibility as well as planning for COBRA coverage interruptions.

“When the government shuts down, contractors can feel sudden and serious economic and workflow impacts, and naturally want to react quickly. But doing so without careful thought and planning may only solve one problem while creating an even bigger and potentially more costly one,” Mr. Brenner said. “Wage and hour, immigration, benefits, unemployment insurance, and lay off laws are all issues contractors need to consider before taking action.”

Article By Rachel Popa, Jessica Scheck and Chandler Ford of The National Law Review / The National Law Forum LLC

For more articles on the government shutdown, visit the NLRGovernment Contracts, Maritime & Military Law section.

Department of State Releases 2017 TIP Report

The Department of State has released its 2017 Trafficking in Persons (“TIP”) Report. As with prior versions of the annual report, the State Department reviewed efforts made by more than 180 countries to address the minimum Prosecutorial, Protective, and Preventative standards necessary for effective anti-trafficking measures, as these standards are outlined in the United States’ Trafficking Victims Protection Act (“TVPA”).

The release of the report is notable because it can directly impact contractors’ diligence obligations for supply chain review under the Federal Acquisition Regulation (“FAR”) Human Trafficking Rule (located at FAR § 52.222-50). As we have highlighted in previous articles, for those contractors required to submit compliance plans to the government, such plans should be appropriately shaped to the “nature and scope of activities to be performed for the Government . . . and the risk that the contract or subcontract will involve services or supplies susceptible to trafficking in persons.” See FAR § 52.222-50(h)(2)(ii). Additionally, as set forth in a recent proposed memorandum, which remains the clearest articulation of the government’s views on supply chain diligence obligations to date (covered in a prior post), contractors are expected to take steps to “identify high-risk portions of [their] supply chain[s].”

For these reasons, movement of a particular country up or down in risk classification in the TIP Report may greatly impact a contractor’s supply chain risk profile, especially if the contractor sources a significant amount of goods or materials from that country. Even where countries are not designated under the Trade Agreements Act for direct importation and sale of goods to the U.S. government, to the extent that contractors rely on these countries for the supply of materials or components to be “substantially transformed” in the U.S. or a designated country, those contractors will bear heightened risk of non-compliance under the FAR requirement should a country fall in placement.

Although this year’s TIP Report was recently revised for increased clarity per the recommendation of a late 2016 GAO Report, it continues to classify countries by the same “Tiers,” that it has in years past. Tier 1 countries “fully meet the TVPA’s minimum standards for the elimination of trafficking,” and consequentially are considered to be relatively low risk. Tier 2 countries “do not fully meet TVPA’s minimum standards but are making significant efforts to bring themselves into compliance.” Tier 2 Watch List countries are still considered to be “making significant efforts to bring themselves into compliance,” but may have only made commitments to take action over the next year, or have yet to stem the absolute number of trafficking cases. Finally, Tier 3 countries fail to meet TVPA standards and are not considered to be taking significant steps to come into compliance, either through commitments or otherwise.

For 2017, Iceland and China each fell in placement, while Malaysia and Afghanistan moved up in placement. Per the classification standards mentioned above, Iceland is now on par with Afghanistan in terms of basic classification — both are now Tier 2 designated countries. Malaysia is now also a Tier 2 designated country, moving up in placement from the Tier 2 Watch List. The People’s Republic of China, in contrast, fell to a Tier 3 classification this year, greatly increasing its risk profile. (Hong Kong, however, remains on the Tier 2 Watch List.)

In light of these changes, and recent indications that the Trump Administration remains committed to “devoting more” to anti-trafficking programs, contractors would be advised to make sure that their supply chain compliance and diligence programs are updated to reflect the latest information on country risk profiles available from the government.

For more legal analysis go to the National Law Review.

This post was written by Jennifer L. Plitsch Ryan Burnette and Alexander B. Hastings of Covington & Burling LLP.

Congress Boots “Blacklisting” Regulation and Sends it to President’s Desk

On March 6, 2017, on a narrow straight party line vote of 49–48, the U.S. Senate passed a Congressional Review Act (CRA) Joint Resolution of Disapproval, which moots Executive Order (EO) 13673, “Fair Pay and Safe Workplaces“—also referred to as government contractor “blacklisting”— and which revoked its implementing regulations and Labor Department guidance. The U.S. House of Representatives passed the joint resolution, H.J. Res. 37 on February 2, 2017. The next step is to send the Joint Resolution of Disapproval to the president for signature.

If signed by the president, the CRA Joint Resolution of Disapproval prohibits the future re-issuance of a federal regulation in the same or substantially similar form without authorization of Congress.

President Obama signed EO 13673 on July 31, 2014, and implementing regulations were issued in final on August 24, 2016. The EO and its implementing regulations would require federal contractors and subcontractors to notify federal contracting officers of violations and “administrative merits determinations” of 14 federal labor and employment laws, and their state equivalents, including wage and hour, discrimination, union organizing, and collective bargaining, and workplace safety and health laws.

Key Takeaways

The resolution of disapproval does not repeal the executive order; it only disapproves of the Federal Acquisition Regulation (published at 81 Fed. Reg. 58562) to implement the EO, which the U.S. Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) finalized on August 25, 2016. Nevertheless, the joint resolution has the effect of essentially repealing the EO or rendering it moot. President Trump is expected to revoke the EO in a separate action

In addition, the resolution will prohibit the paycheck transparency provision of the EO from being implemented. (A district court temporarily enjoined the other provision of the EO; the joint resolution also renders this injunction moot.)

This resolution of disapproval should relieve government contractors of having to implement the provisions requiring them to disclose labor law violations and revamp their payroll systems to meet the requirements of the EO’s paycheck transparency provisions. Not only would we expect the president to sign the resolution, but we also anticipate, at some point, that Executive Order 13673 will be rescinded and that the Labor Department will withdraw its guidance.

ARTICLE BY Harold P. Coxson & Alfred B. Robinson, Jr. of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

FBI’s Choice of Contractors Not as Good as Its Crime Solving/Terrorist Tracking

fbibuilding jedgar hoover.jpg The FBI is very good at tracking down terrorist threats and catching criminals. It appears, however, that it needs some help in choosing contractors to support its mission.

The FBI wanted a contractor for its Name Check and Freedom of Information Act (FOIA)/Declassification programs. Specifically, the FBI needed personnel to conduct research and to provide analysis and reporting services. The FBI decided to procure these services under the Federal Supply Schedule (FSS) using streamlined procedures. So, the FBI issued a Request for Quotations (RFQ) with these labor categories: research analysts; program managers, general consultants; and legal administrative assistants. That much is clear.

The rest is less clear. Apparently, the FBI selected a contractor that did not have the required personnel. Instead of personnel with experience in paralegal, records management and declassification review, the FBI got personnel with capabilities in the development of business methods and identification of best practices. That’s according to the Government Accountability Office (GAO) decision in US Investigations Services, Professional Services Division, Inc., B-410454.2, Jan. 15, 2015, 2015 CPD ¶ 44.

That case was cited by GAO’s general counsel, Susan A. Poling, recently in the GAO Bid Protest Annual Report to Congress for Fiscal Year 2015. Ms. Poling cited to US Investigations Services as an example of GAO’s Most Prevalent Grounds for Sustaining Protests. GAO notified Congress that “unreasonable technical evaluation” was no. 5 on the list and described the decision as follows: “finding that the agency erred in concluding that the labor categories included on the awardee’s Federal Supply Schedule contract encompassed the requirements of the task order.”

Contractors can learn valuable lessons from this case. First, don’t leave the Government hanging. Make sure the labor categories in your proposal match the categories listed in the Solicitation. If there is not a direct match, make sure you explain how your personnel fit the requirements. For task orders under FSS contracts, the law is clear. All solicited labor categories must be on the successful offeror’s FSS contract. Here, maybe the awardee was surprised that it won. More likely, the awardee just failed to explain what it was offering. That was fatal. If you can’t explain how your labor categories fit the RFQ requirements, maybe you should take a pass on the bid.

For protesters and disappointed bidders, this case demonstrates a solid ground for protest. In truth, you probably already know what your competitors are offering, at least when it comes to FSS contract offerings. A quick check on www.GSAAdvantage.gov after you receive an award notice is always a good idea.

Footnote: Although GAO sustained USIS’s protest, the FBI had overridden the automatic stay of performance. Thus, GAO made alternative recommendations to the FBI. Under one scenario, the FBI could consider awarding the task order to USIS but first it had more work to do. That is because in a different protest GAO had questioned an agency’s affirmative determination of USIS’s responsibility in the face of fraud allegations against USIS’s parent company. So, if the FBI was to select the “next in line” bidder, it would have to be careful that the bidder was eligible to perform the work. Otherwise, it could be back to the drawing board.

Article By Michael D. Maloney, Charles R. Lucy & Diego G. Hunt of Holland & Hart LLP

Wasn't That Supposed to be Made in the USA?

Made in the USA.jpg Despite the existence of long-standing U.S. laws strongly favoring the purchase of domestic products for use by governmental entities, in governmental programs and particularly the fulfillment of Department of Defense (“DoD”) contracts, a surprising number of companies still attempt to circumvent these laws. They do so at their own peril. Recognizing the harm likely to befall American workers as a result, an increasing number of employees and former employees have “blown the whistle” on these practices in recent years and teamed up with the U.S. Government to curtail this trend.

The Buy American Act, 41 U.S.C. §§ 8301–8305, (“BAA”) was enacted in 1933 under President Hoover as part of New Deal legislation intended to help struggling American depression era companies. The BAA superseded an 1875 statute that “related to preferential treatment of American material contracts for public improvements.” (1933, Sect. 10). The law carried with it a very simple idea: require the government to exercise a clear preference for US-made products in its purchases to bolster the American economy.

To this day, the BAA continues to require federal agencies to purchase “domestic end products” and use “domestic construction materials” in contracts exceeding certain dollar amounts performed in the United States. Unmanufactured end products or construction materials qualify as “domestic” if they are mined or produced in the United States. Manufactured products are treated as “domestic” if they are manufactured in the United States, and either (1) the cost of components mined, produced, or manufactured in the United States exceeds 50% of the cost of all components, or (2) the items are commercially available off-the-shelf items.

Exemptions and exceptions to the applicability of the BAA exist. For example, the BAA does not apply if the purchasing agency determines “it to be inconsistent with the public interest, or the cost to be unreasonable.” Furthermore, the U.S. Trade Agreements Act of 1979 authorizes the President to waive any procurement law or regulation that accords foreign products less favorable treatment than that given to domestic products in foreign lands. Additionally, purchases from Canada and Mexico are exempt from BAA prohibitions under the North American Free Trade Agreement. Other treaties and agreements also limit the BAA. Despite these, the BAA continues to cast a wide liability net for those that seek to willfully or knowingly circumvent it.

Similar to the BAA, the Berry Amendment was passed in 1941 to promote the U.S. economy through the preferential purchase of certain U.S. goods. The Amendment was eventually codified as 10 U.S.C. 2533a in 2002. The law prohibits the Department of Defense (“DoD”) from utilizing any funding available to or appropriated by the DoD for the purchase of the following end product items from “non-qualifying countries” unless these items are wholly of U.S. origin: food; clothing; tents, tarpaulins, or covers; cotton and other natural fiber products; woven silk or woven silk blends; spun silk yarn for cartridge cloth; synthetic fabric or coated synthetic fabric (including all textile fibers and yarns that are for use in such fabrics); canvas products, or wool (whether in the form of fiber or yarn or contained in fabrics, materials, or manufactured articles); or any item of individual equipment manufactured from or containing such fibers, yarns, fabrics, or materials; and hand or measuring tools. Noticeably absent from the definition of “qualifying country” are China, Japan, Thailand and Korea- among others.

Congress revised the Berry Amendment for fiscal years 2007 and 2008 with National Defense Authorization Act. The revised statute, 10 U.S.C. 2533b, declares that the DoD is prohibited from acquiring specialty metals or component parts for the use in the construction of aircraft, missile and space systems, ships, tank and automotive items, weapon systems, or ammunition unless the DoD itself acquires those materials directly. In other words, contractors engaged in the production of these items must use American made specialty metals or require that the DoD obtain these materials and component parts for use in any such fabrication and manufacturing.

Despite the existence numerous limitations with the Buy American Act, Berry Amendment and Trade Agreements Act, as discussed above, the United States Government and private citizen plaintiffs (known as Relators) have recently collaborated in bringing numerous False Claims qui tam actions against companies seeking to profit at the expense of the American Taxpayers. In the majority of these cases, contractors attempted to pass off foreign goods as made in the U.S.A. Examples of these include: MedTronic (relabeled Chinese devices allegations – $4.4 million settlement); ECL Solutions (conceal country of origin-$1.066 million civil forfeiture); Invacare (wrongfully certified as American Made- $2.6 Million settlement); Staples (foreign made goods- $7.4 million settlement), Office Depot (foreign made goods – $4.75 million settlement) and Office Max (sale of goods not permitted by Trade Agreements Act results in $9.72 million settlement).

According to Justice Department statistics released last week, whistleblowers filed 638 False Claims Act lawsuits in FY2015. Because these cases remain under seal sometimes for years, we do not know how many involved violations of BAA or related laws. We are aware from conversations with the Justice Department of an uptick in these claims, however.

Whistleblowers who bring claims under the False Claims Act can earn up to 30% of whatever the government collects from the wrongdoer. To qualify, one must have original knowledge or information about the fraud. Successful whistleblowers are usually current or former employees but anyone with inside information can file.

Article By Brian Mahany of Mahany Law

Wasn’t That Supposed to be Made in the USA?

Article By Brian Mahany of Mahany Law

Tag: Government Contracts

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