The Contractor's Perspective

More forms ahead for contractors on “Fair Pay and Safe Workplaces”

Posted in Compliance, Contract Administration, Labor & Employment

Contractors will have more forms to fill out, and possibly some explaining to do, when the recently issued Executive Order on Fair Pay and Safe Workplaces is fully implemented in 2016. The Executive Order requires offerors to disclose whether they have been found to have violated, within the past 3 years, any of 14 different labor laws.

Covered laws include:  Fair Labor Standards Act, Occupation Safety and Health Act, Davis Bacon Act, Service Contract Act, Americans with Disabilities Act, and a host of others. Violations of equivalent state laws must also be reported.

An offeror with violations will be provided an opportunity to disclose steps it has taken to correct the violations or improve compliance. The procuring contractor officer will take this into account in determining the offeror’s responsibility.  The contractor will need to update its disclosure every six months.

Agencies are also required to ensure that contractors (and their subcontractors) provide their employees with “paycheck transparency,” providing a document to each employee that shows the hours worked, overtime hours, pay, and any additions or deductions made. Contractors must also state in writing if an individual is considered an independent contractor and not an employee.

These requirements apply to contracts and subcontracts valued at $500,000 or more. GSA is charged with developing a single website for contractors to use in meeting these new reporting requirements.

For contracts (and subcontracts) valued at $1 million or more, contractors may not require that their employees arbitrate claims relating to Civil Rights violations, sexual assault, or harassment. (Once such a claim has arisen, the parties can mutually agree to arbitrate the claim.)  This restriction, however, does not apply to employees who are covered by a Collective Bargaining Agreement.

The Executive Order is effective now, but the reporting requirement is not expected to begin until 2016, after the development of FAR regulations and clauses. Since the disclosure form has a 3-year look back period, violations that occurred in 2013 would be subject to the reporting requirement.

Contractors need only report adjudicated labor law violations:  a civil judgment, arbitral award, or administrative merits determination that the contractor violated a covered labor law. Settlements of alleged labor law violations are not reported. The Executive Order thus places further pressure on contractors to settle such claims rather than risk a reportable violation.

U.S. Postal Service plays the terrorist card against whistleblower

Posted in Labor & Employment, Postal Service Contracting

Retaliating against an employee for reporting safety violations, the U.S. Postal Service asserted baseless terrorism charges against him. As a result, the employee was dismissed from his job, arrested, detained, harassed, criminally charged with committing acts of terrorism, and subjected to an extended campaign of public disparagement. That sounds like the exaggerated ranting of a would-be whistleblower seeking to cash in on a big pay day. But it’s not. These are the allegations made by the U.S. Department of Labor in a lawsuit it filed against its sister agency, the U.S. Postal Service, in an action filed in the U.S. District Court for the Eastern District of Missouri, Eastern Division, Case No. 4:14-cv-1233.

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Barko v. Halliburton—How the D.C. Circuit’s decision reaffirms the attorney-client privilege in internal investigations

Posted in Claims and Disputes, Compliance, Contract Administration, False Claims Act

The attorney-client privilege applies with equal force to internal investigations today as it did 30 years ago thanks to the D.C. Circuit’s recent decision in In re: Kellogg Brown & Root, Inc., No. 14-5055 (D.C. Cir. June 27, 2014). The appeals court decision vacates the March 6, 2014 district court decision in the same case. At the district court, Judge James Gwin ruled that the attorney-client privilege did not protect documents developed during KBR’s internal investigations of potential fraud relating to its LOGCAP III contract. According to Judge Gwin, KBR’s investigations were not privileged because they were conducted “pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.”

The D.C. Circuit’s decision reverses Judge Gwin’s ruling. The decision recognizes the “uncertainty generated by the novelty and breadth of the District Court’s reasoning” and echoes the Supreme Court’s concern that an “uncertain privilege, or one which purports to be certain but results in widely varying applications by the courts, is little better than no privilege at all.” If the district court’s decision were to stand, “businesses would be less likely to disclose facts to their attorneys and to seek legal advice.” The behavior created by this uncertainty in the attorney-client privilege would undercut the very compliance and disclosure regulations central to Judge Gwin’s analysis.

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Will the Supreme Court uphold tolling of the six-year limitations period for civil False Claims Act cases during times of war?

Posted in Claims and Disputes, Contract Administration, Cost Issues, False Claims Act

Whether the Wartime Suspension of Limitations Act tolls the six-year statute of limitations for civil claims under the False Claims Act will soon be addressed by the Supreme Court. In Kellogg Brown & Root Services, Inc. v. United States ex rel Benjamin Carter, No. 12-1497 (July 1, 2014), the Court will have the opportunity to address several important questions about the application of the WSLA. Should it apply to civil claims or be limited to criminal actions? Does the tolling specified in the WSLA require a formal declaration of war? And does the WSLA apply to a qui tam claim in which the United States declines to intervene?

CH-47F Chinook at Camp Marmal, Afghanistan.

[Note:  The case also asks the Court to address whether the FCA’s “first-to-file” bar applies to cases filed after the first case is dismissed.  We’ll look at that question in another post.]

The case comes to the Supreme Court following the Fourth Circuit’s decision in U.S. ex rel Carter v. Halliburton Co., 710 F.3d 171 (4th Cir. 2013). In that case, the Fourth Circuit held that the WSLA tolled all civil actions—including civil FCA claims brought by qui tam relators—until the President or Congress declared a “termination of hostilities.” The Supreme Court accepted Halliburton’s petition for certiorari and will hear the case in 2015.

We believe the Fourth Circuit’s opinion represents a significant expansion of the WSLA. As Judge Agee points out in his dissenting opinion, a particularly troublesome aspect of the Fourth Circuit’s decision is its application of the WSLA to civil qui tam actions in which the United States has not intervened. The underlying purpose of the WSLA is to allow the law enforcement arm of the United States government to focus on its “duties, including the enforcement of the espionage, sabotage, and other laws’” in times of war. Id. (citing Bridges v. United States, 346 U.S. 209, 219 n. 18 (1953). In a qui tam action initiated by a private citizen, the rationale for tolling the limitations period is diminished.

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The favorable trends in suspension and debarment

Posted in False Claims Act, Suspension and Debarment

Contributed by Husch Blackwell Summer Associate Elizabeth Sebesky

In its May 2014 report [pdf], the GAO found that the total number of contractor suspension and debarment actions continues to rise, more than doubling from 1,836 in FY 2009 to 4,812 in FY 2013. At a high level, the increase in suspension and debarments tracks the dramatic rise in federal contract spending. Looking at the data more closely suggests that all is not doom and gloom. Between 2012 and 2013, suspension actions increased by less than six percent. There were fewer debarments in 2013 than there were in 2012, and the decrease in some agencies is significant.

The 2014 annual report published by the Interagency Suspension and Debarment Committee [pdf] reflects these figures. According to this report, there were 836 suspensions and 1,722 debarments in FY 2012. There were 883 suspensions and 1,715 debarments in FY 2013. The number of suspension actions increased by less than six percent and the number of debarments decreased slightly from 2012 to 2013. The percentage of proposed debarments that became actual debarments also decreased.

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Raytheon v. United States—the Federal Circuit’s tutorial on the difference between the Cost Accounting Standards and the FAR Cost Principles

Posted in Claims and Disputes, Cost Issues

The Federal Circuit’s decision in Raytheon Co. v. United States, No. 2013-5004 & 2013-5006 (Fed. Cir. April 4, 2014) [pdf] affirms a $59-million judgment arising from a government challenge to Raytheon’s calculation and payment of pension fund adjustments. It is certainly an important case because of the money at stake for Raytheon and its analysis of CAS 412 and CAS 413.

It may have much broader relevance. One of the most striking elements in the decision is the court’s discussion of the relationship between the Cost Accounting Standards and the cost principles in FAR Part 31. In a few direct and succinct paragraphs, the court summarizes the differences between allowability under the FAR and allocability under the CAS. Here are the highlights drawn from the opinion:

  1. The FAR Cost Principles govern matters of cost allowability. A determination that a particular cost is allowable reflects a policy judgment that the cost is of a type that should be paid by the Government.
  2. The CAS does not address allowability. Rather, the CAS addresses the measurement, assignment, and allocability of costs.
  3. If there is a conflict between the CAS and the FAR as to an issue of allocability, the CAS governs.
  4. According to the CAS, measurement includes defining the components of costs, determining the basis for cost measurement, and establishing the criteria for using alternative cost measurement techniques. Allocability addresses the relationship between a cost and a cost objective (e.g., a contract), such that the cost objective bears the appropriate portion of a cost.
  5. An agency may include a provision in its contracts or regulations that disallow certain types of costs because they are unreasonable in amount or contrary to public policy. Unallowable costs may nevertheless be allocable to a contract.

The decision also concludes that the Government bears the burden of proving that a contractor’s accounting practices do not comply with the CAS.

Is mail dead?

Posted in Postal Service Contracting

Lonely mailboxIs mail dead?  Let’s ask Google, the ubiquitous source of all things online. This should be a lay-up on the home court of those who would say yes. And guess what. The top ten results for a Google search of “Is mail dead?” produces seven articles on why e-mail is dead, two unrelated articles, and one article on why direct mail is not dead. Dig down for another ten results and you get about the same result – more articles on why email is dead and a few on why direct mail or “snail mail” isn’t dead.

At the National Postal Forum last month, a postal official responsible for large customer accounts noted that a while back, Circuit City was his 26th largest customer. Circuit City is now defunct. But if we asked people 15 years ago to predict whether USPS or Circuit City would still be around today, I don’t think many people would have picked the Postal Service.

Don’t get me wrong – mail has definitely changed. There’s much less First-Class Mail than before, and less total volume than before. But here’s what I learned about why mail is not dead and not going away any time soon.  No company is forced to use the mailbox as an advertising medium and there are strong competitors for most package services. But Standard Mail volume for the first quarter of Fiscal Year 2014 is the same as last year, and Shipping Services & Packages volume increased by 14 percent.

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Pass-through claims without a contract—Severin doctrine part two

Posted in Claims and Disputes, Contract Administration, Subcontracting

The Severin doctrine restricts the ability of prime contractors to hold the government responsible for costs incurred by subcontractors. It is often of limited practical effect because it can usually be avoided by contract. Liquidation agreements, sponsorship agreements, pass-through agreements, and other similar agreements often include a conditional release that limits the subcontractor’s recovery to the amount that the prime contractor recovers from the government. With this protection, prime contractors are often willing to pursue subcontractor claims on a pass-through basis.

As we discussed in part one of this post, the Severin doctrine is nevertheless a recurring issue in federal contracts. Here we address two recent cases that explore the application of the Severin doctrine when the rights of the prime contractor and subcontractor are not expressed in a written agreement.

No subcontract at all

The decision in Parsons-UXB Joint Venture, ASBCA No. 56481, 13-1 BCA ¶ 35,378 (Aug. 1, 2013) [pdf] addresses the application of the Severin doctrine when there is no written subcontract. Parsons and UXB formed a joint venture to complete a Navy project to restore the Hawaiian island of Kaho’olawe, which had been used as a weapons range. The JV was “unpopulated,” meaning that employees of Parsons and UXB did all the work even though the JV formally held the contract. There were no subcontracts in place between the JV and either Parsons or UXB. When a dispute developed over costs incurred on the project and the JV brought the case to the Armed Services Board, the Navy cited the Severin doctrine. Without a subcontract, the Navy asserted that the JV could not be liable for costs incurred by Parsons or UXB and therefore could not pursue claims on their behalf.

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Preserving attorney-client privilege in internal investigations after Barko v. Halliburton

Posted in Claims and Disputes, Compliance, False Claims Act, Qui tam litigation, Suspension and Debarment

Read the press about Judge James Gwin’s decision in United States ex rel. Barko v. Halliburton Co., No. 1:05-cv-1276 (D.D.C. Mar. 6, 2014), and you might see it as the beginning of the end for the attorney-client privilege in internal investigations. While the ultimate implications of the decision remain to be seen, that’s not how we see it.

The attorney-client privilege and the work product doctrine are alive and well, as is their application to internal investigations. The FAR clause implementing the requirement for a Code of Business Ethics and Conduct preserves the contractor’s right to conduct an internal investigation subject to the protections of the attorney-client privilege and the work product doctrine. See FAR 52.203-13 (Dec. 2008). The Justice Department’s Principles of Federal Prosecution of Business Organizations explicitly states that a company is not required to waive privilege in order to get credit for cooperating with a government investigation. “[W]aiving the attorney-client and work product protections has never been a prerequisite under the Department’s prosecution guidelines for a corporation to be viewed as cooperative.”

For federal contractors, publicly-traded companies, and others in highly-regulated industries, the real question presented by Barko is more granular: How can my company avoid the same result?

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A five-part action plan for responding to a federal search warrant

Posted in Compliance, False Claims Act, Labor & Employment

The line between “white collar crime” and “street crime” is often blurred as prosecutors and investigators deploy all of the tools at their disposal against white collar and regulatory offenses. Principal among these tools is the search warrant. While the execution of a lawfully-obtained search warrant cannot be stopped, a company’s reaction to the search and to the agents conducting it can have a significant impact on the course of a government investigation. A well-executed response may yield intelligence about the nature and scope of the investigation and may limit the amount of information the government obtains.

In this post, we present an overview of the search warrant process and offer some basic guidelines that may be used in preparing for and responding to a search warrant.

Understanding the element of surprise

Government investigators correctly see search warrants as their one chance to use the element of surprise. They make every effort to use it effectively. Long before a warrant is served, agents spend weeks or months on pre-search surveillance. They serve warrants simultaneously at all of a company’s offices. They conduct interviews of key executives at their residences early in the morning before attorneys are available. They use whistleblowers present during the execution of the warrant wired to record employee conversations of the employees. They interview employees on site before company attorneys can inform them of their rights or contact the lead prosecutor. They engage in surveillance of key individuals after the search is executed. They even search nearby dumpsters for evidence. Several weeks later, they may issue a grand jury subpoena requiring the company to produce email and text messages sent during and after the search.

Investigators have the process down to a science, while the company at the center of the investigation likely will be going through it for the first time. Preparation and training on the process will help level the playing field. Here are the five basic elements that should be addressed in an action plan for responding to a search warrant.

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