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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!

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?

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

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.…

Contractors are now familiar with the Supreme Court’s June 2016 decision in Universal Health Services, Inc. v. United States ex rel. Escobar [PDF]. That decision recognizes False Claims Act liability for implied false certifications. But it also holds that FCA liability is available only when the false statement or omission is “material” to the Government’s decision to pay a claim. Our discussion of Escobar is available here.

Over the last 18 months, courts across the country have been asked to determine the impact of the Escobar decision. Ten of the eleven U.S. Circuit Courts of Appeal have interpreted Escobar. Numerous U.S. District Courts have applied Escobar in resolving pre-trial motions. Cases based on “garden-variety breaches of contract or regulatory violations” are being thrown out. Even jury verdicts are being overturned for insufficient evidence of materiality. There is one inescapable conclusion from these post-Escobar decisions: materiality matters.

In this entry, we discuss two recent decisions that illustrate the impact of Escobar. One reaffirms the notion that, after Escobar, minor non-compliance with a regulatory requirement will not normally support FCA liability. The other highlights the critical role the government’s actions can play in establishing materiality. Together they reject jury verdicts imposing more than $1 billion in False Claims Act liability.
Continue Reading After Escobar, materiality matters

The standard form construction contract documents published by the American Institute of Architects are used widely throughout the construction industry. With assistance from federal agencies, the AIA created specific construction contract documents, such as the B-108-2009, to address the unique nature of federally-funded and insured projects. This year the AIA issued its once-a-decade revisions to address…

On August 29, 2017, the White House Office of Management and Budget announced that it would immediately pause the pay-data collection requirement of the revised EEO-1 form that was scheduled to take effect in March 2018. The data collection requirement would have significantly expanded employers’ reporting obligations to the EEOC to include pay data by gender, race and ethnicity on the annual EEO-1 form. The EEO-1 is required of employers with 100 or more employees and federal contractors and subcontractors with 50 or more employees.

The expanded EEO-1 reporting requirements had their genesis in an April 8, 2014 Presidential Memorandum, which directed the Secretary of Labor to propose “a rule that would require Federal contractors and subcontractors to submit to DOL summary data on the compensation paid their employees, including data by sex and race.” In a January 29, 2016 fact sheet, the Obama administration explained that the heightened EEO-1 reporting requirements would “help focus public enforcement of our equal pay laws and provide better insight into discriminatory pay practices across industries and occupations.”

President Trump’s OMB sees things differently. In its memorandum halting implementation of the proposed rule, OMB says that the heightened reporting requirements “lack practical utility, are unnecessarily burdensome, and do not adequately address privacy and confidentiality issues.” Further, these burdens outweighed any benefit that might come from implementing the expanded requirements at this time. OMB directed the EEOC to submit a new information collection package for the EEO-1 form for OMB’s review and to publish a notice in the Federal Register confirming that businesses may use the previously approved EEO-1 form in order to comply with their FY 2017 reporting obligations.  

Continue Reading OMB pauses new data collection for the 2017 EEO-1

Small business status impacts government contractors in several ways. Set-aside procurements and financial assistance programs are available for small businesses. Small business status is important for those seeking to meet the goals and commitments set forth in their small business subcontracting plans. Looming over all determinations of small business size status is the concept of affiliation. If the Small Business Administration finds that two business concerns are “affiliates” (one controls or has the power to control the other or a third party controls or has the power to control both), a business may no longer be a “small business.”

Affiliation determinations are likewise essential for pharmaceutical companies seeking to have the Food and Drug Administration waive the user fee for reviewing a new human drug application. Under § 736(d)(4) of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 379h(d)(4), a small business is entitled to a waiver of the prescription drug user fee when the business meets three criteria:

  1. The business must employ fewer than 500 persons, including employees of its affiliates.
  2. The business does not have a drug product that has been approved under a human drug application and introduced or delivered for introduction into interstate commerce.
  3. The application must be the first human drug application, within the meaning of the FD&C Act, that a company or its affiliate submits to the Food and Drug Administration for review.

Continue Reading FDA breaks with SBA on small business affiliation

The 1996 Congressional Review Act has been getting a lot of use since President Trump’s inauguration. On March 27, 2017, President Trump signed House Joint Resolution 37, revoking the “blacklisting regulations” put in place following former President Obama’s July 2014 Executive Order on Fair Pay and Safe Workplaces (EO 13673). As we discussed in an earlier post, the EO and the regulations implementing it directed federal agencies to take into account an employer’s workplace safety and other labor law violations as part of the their procurement decisions.

The CRA is an obscure legislative tool that can rescind recent executive actions, and thereby limit agency authority. Under the CRA, Congress has 60 legislative days (which are counted differently than calendar or business days) to pass a “joint resolution of disapproval” in the House and Senate. Joint resolutions of disapproval cannot be filibustered. A simple majority in both houses of Congress can overturn agency rules and regulations if the president signs the joint resolution.

There were significant questions regarding due process concerns with the blacklisting regulations. Industry strongly criticized the regulations because they allowed agencies to exclude contractors based on mere accusations, such as safety citations that had not yet gone through any adjudicatory proceedings.

Revoking the blacklisting regulations was the first of several actions President Trump and his allies in Congress intend to pursue to reduce the administrative/regulatory burdens on employers.Continue Reading Will the rollback of Obama’s executive orders be permanent?