As if over-reaching under the False Claims Act wasn’t bad enough, government contractors will now be subject to a new area of investigation. On November 5, 2019, the U.S. Department of Justice announced its new Procurement Collusion Strike Force, focusing on ferreting out antitrust violations in the government contracts arena.

The PCSF will focus on deterring, detecting, investigating, and prosecuting antitrust crimes under government contracts. These areas include bid-rigging conspiracies and related fraudulent schemes that undermine competition in government procurement. The new strike force is composed of 13 U.S. Attorneys’ Offices, and investigators from the FBI, Office of Inspector General offices of the Department of Defense OIG, the U.S. Postal Service, and other federal agencies.

Buoyed by a guilty plea by five South Korean oil companies, which netted $156 million in criminal fines and $205 million in separate civil settlements, the DOJ Antitrust Division believes this is just the tip of the iceberg. Indeed, in a speech to the American Bar Association, Deputy Assistant Attorney General Richard A. Powers cited a study that eliminating bid rigging could reduce procurement costs by 20% or more. Government contractors, most of whom likely have a profit rate of 10% or less, will find that figure hard to believe.

The problem that government contractors will face is this:  If DOJ believes procurement costs are being inflated by 20% due to bid rigging, once DOJ starts looking for it, DOJ will find it, whether it exists or not. And DOJ is looking for criminal antitrust violations, with penalties that include up to 10 years imprisonment, steep fines, and double damages. Corporations can be fined up to $100 million.

Continue Reading Contractors: get ready for the new DOJ anti-trust task force!

Arizona State Capitol

Bid protests on statewide and local public procurements in Arizona are allowed, in one form or another, if an unsuccessful offeror has both “standing” and a basis for protest. Protestors can seek to be awarded the contract or to have the solicitation thrown out and reissued, which in many cases is itself a success.

But winning a bid protest in Arizona is not easy. The process is designed to move quickly to promote efficient contracting and to limit protests. Failure to meet any of the strict procedural requirements can lead to outright dismissal or waiver of an argument. Even when a protester properly follows the procedure, the applicable legal standard is a high one. To win a protest in Arizona, a protestor needs to demonstrate that an award decision was “clearly erroneous, arbitrary and capricious or an abuse of discretion.”

The question is what does it take to win an Arizona protest? Here are four steps that can maximize a protester’s chance of success. Continue Reading Four steps to winning an Arizona bid protest

On July 15, 2019, President Trump signed Executive Order 13881 addressing domestic preferences in government procurement. Unlike Executive Order 13788 (April 18, 2017) and Executive Order 13858 (Jan. 31, 2019), which had no substantive effect on existing domestic preference statutes and regulations, this one does.

EO 13881 calls for the FAR Council to make two significant changes to FAR clauses implementing the Buy American Act. The first increases the domestic content requirements for items to comply with the Buy American Act. The second increases the price preference for domestic products. Continue Reading Big changes to the Buy American Act are coming—will they matter?

Under the Christian Doctrine, prime contractors face the risk of having a court or a board of contract appeals read a clause into their contracts, even if it was omitted from the contract that they signed. In this entry we discuss whether the Christian Doctrine applies to subcontractors.

The Christian Doctrine is almost certainly inapplicable to subcontractors. For the reasons why, consider the decision in Energy Labs, Inc. v. Edwards Engineering, Inc., (N.D. Ill. June 2, 2015). A subcontractor contracted to manufacture and deliver HVAC systems for the Chicago Transit Authority. In its own contract, the prime contractor certified that the HVAC system would comply with the Buy America Act. But the prime contractor failed to flow the requirement down to the HVAC manufacturer, which planned to manufacture the units in Mexico. After learning that the plan to manufacture the units in Mexico would not meet the Buy America requirement, the prime contractor canceled the order and purchased the units from another manufacturer.

The original manufacturer sued for breach of contract. In its motion to dismiss, the prime contractor made two arguments. The subcontract was “illegal” because it omitted the Buy America requirement. Or it was legal only because the Christian Doctrine meant that the Buy America requirement was read into the subcontract by operation of law. The court rejected both arguments. There was nothing “illegal” about the prime’s failure to include a Buy America requirement in the subcontract. And there was no basis to read the requirement into the subcontract through the Christian Doctrine. “The Christian doctrine . . . was intended to apply to contracts between the federal government and government contractors, not to subcontracts.”

This result is consistent with our experience. Continue Reading Does the Christian Doctrine apply to subcontractors?

Paying workers as independent contractors instead of as employees may land a former executive in jail for criminal wire fraud. On June 12, 2019, the former operations manager and vice president of a Florida-based mail transportation contractor pled guilty to two counts of wire fraud related to such treatment. The Government’s case was based on pricing estimates for employee-related costs that the contractor later did not incur because it instead used independent contractors.

In the June 1, 2018 indictment of Alexei Rivero, the Government contended that Rivero purposely misclassified the drivers it hired as independent contractors. According to the indictment, this allowed the contractor to “misappropriate” $1.5 million in USPS contract payments “designated” for fringe benefits and $1.2 million designated for payroll taxes. Continue Reading Government contractor pleads guilty to fraud for paying drivers as independent contractors

Helping Hands

 

When drafting small business joint venture agreements, the devil is in the details. A template JV agreement—like the one from the Small Business Administration—may not guarantee a JV’s eligibility for a contract award. The details of the agreement, like which contracts the JV will pursue and what each side will contribute, are critical.

Even if approved, a generic JV agreement may not survive a protest.

In CVE Protest of Veterans Contracting, Inc., the SBA’s Office of Hearings and Appeals sustained a protest challenging a JV’s status as a service-disabled veteran-owned small business because its JV agreement was too generic to establish the JV’s eligibility as an SDVOSB. The JV in that case (CRNTC) was a joint venture between CR Nationwide, LLC (the SDVOSB partner) and Trumble Construction, Inc.

The Department of Veterans Affairs approved CRNTC’s SDVOSB status for a period of three years in June 2018. The approval was based on the JV agreement between CR Nationwide and Trumble, which made CR Nationwide the majority owner. But the JV agreement did not identify any particular solicitation that CRNTC would pursue or otherwise outline what each partner would contribute to the JV. The agreement specified that the parties would identify the contract and scope of work at a later date and would set those out in a jointly executed statement that would be submitted to the relevant contracting authority.

Continue Reading The importance of specificity in small business joint venture agreements

Binoculars

If you are excluded from the competitive range in a procurement, you have a right to request a debriefing (within 3 days) to learn why. 41 U.S.C. § 3705(a). But the scope of that pre-award debriefing is more limited than a post-award debriefing. Pre-award debriefings cover the agency’s evaluation of “significant elements” of the excluded contractor’s offer, the rationale for the exclusion, and “reasonable responses to relevant questions” posed by the excluded offeror. 41 U.S.C. § 3705(d). But they expressly cannot cover the total number or identities of offerors, or the “content, ranking, or evaluation” of the other offerors’ proposals.  41 U.S.C. § 3705(e). That information is available only in post-award debriefings.  41 U.S.C. § 3704(c).  This difference in scope may create the temptation to delay a pre-award debriefing until after award in the hope that you will gain more information. But giving in to that temptation may preclude a protest at GAO. Continue Reading Don’t delay a pre-award debriefing

Transportation companies again dominate this year’s Top 150 U.S. Postal Service Suppliers list. All told, USPS spent nearly $16 billion on purchases in FY 2018, about $900 million more than last year.  Not surprisingly for an agency charged with moving the mail, six of the top ten contractors provide transportation services or equipment.

The Top 150 list has been compiled annually since 1999 by David Hendel, a partner in the firm’s Technology, Manufacturing, and Transportation group and leader of the firm’s Postal Contracting team.  The list is compiled from data received in response to Freedom of Information Act requests.

The Postal Service spent $15.9 billion on all outside purchases in FY 2018, of which $9.8 billion went to the agency’s Top 150 suppliers. The Top 150 received $540 million more than last year’s Top 150 group, and $1.5 billion more than those in FY 2016.

The top 10 largest suppliers earned $4.2 billion, which is one quarter of the Postal Service’s total spend and $700 million more than last year’s Top 10.  They also collected $3 billion more than the next ten largest suppliers. Continue Reading Transportation companies dominate 2018 list of top U.S. Postal Service suppliers

Every year or so, the U.S. Postal Service changes the standard Terms and Conditions that apply to its newly awarded Highway Contract Route (HCR) and Contract Delivery Service (CDS) contacts. When this occurs, the new terms only apply to newly awarded contracts–existing contracts are unaffected and retain the same terms as when awarded.

But this year, the Postal Service has sought to apply new Terms and Conditions to existing CDS contracts as well as newly awarded ones. In an email to its CDS contractors, the Postal Service asked them to sign, without any “alterations or additions,” a contract modification that incorporated the new terms. If the contractor did not so, the Postal Service’s email threatened contract termination:

“Because of the Postal Service’s interest in maintaining consistency across its many CDS contracts, please note that a failure to respond to this correspondence … may lead the Postal Service to consider termination of the subject contract.”

After receiving this email, many contractors asked me: “Can the Postal Service really do this?” In my opinion, several legal arguments, if upheld, would make the resulting modification unenforceable. For example, the modification might fail for lack of consideration, because it gave the Postal Service what it wanted without giving anything that contractors valued in return. And it might fail for violation of the implied covenant of good faith and fair dealing, because it seeks to recapture benefits that were foreclosed at the time of contract award. But I think the best argument against its enforceability is based on the legal theory of coercion and duress. Normally, this is a difficult argument to make, but here the elements seem apparent from the Postal Service’s email itself. Continue Reading Can you be forced to sign this contract modification?

Iran sanctions lifted as part of the Iran Nuclear Deal went back into effect today, November 5, 2018. Companies seeking or performing US government contracts should take this opportunity to confirm that none of their international vendors, suppliers, and subcontractors are on the Office of Foreign Assets Control’s Specially Designated Nationals and Blocked Persons list.

As discussed in more detail in this blog post by our firm’s Export Controls and Economic Sanctions team, the reimposed sanctions extend to a wide range of individuals and companies, including those in the petroleum, shipping, and shipbuilding sectors, as well as to non-U.S. financial institutions and insurance companies that facilitate transactions with SDNs.

Further reading on this topic—

OFAC’s Specially Designated Nationals and Blocked Persons List (SDN)

OFAC’s Press Release on Iran Sanctions

OFAC Amendments to Iranian Transactions and Sanctions Regulations (Nov. 2, 2018)