Compliance

The 2015 amendments to the anti-trafficking provisions in the Federal Acquisition Regulation will apply to all federal contracts and subcontracts awarded after March 2, 2015. Existing IDIQ contracts for which additional orders are anticipated will be modified “on a bilateral basis” to include the new language in FAR 52.222-50. See 80 Fed. Reg. 4967 (Jan. 29, 2015). The changes implement the requirements outlined in Executive Order 13627 (Sept. 25, 2012) and the anti-trafficking provisions of the 2013 National Defense Authorization Act, Public Law No. 112-239 (Jan. 2, 2013), codified in 22 U.S.C. Chapter 78.

Here we present some of the background on the original FAR clause and a summary of the new requirements. A redline version of the 2015 amendments to FAR 52.222-50 is available here.

The original FAR language on human trafficking

A contract clause prohibiting severe forms of human trafficking, procurement of commercial sex acts, and the use of forced labor has appeared in federal service contracts since April 2006. See 71 Fed. Reg. 20301 (Apr. 19, 2006) [pdf]. The 2006 version of the anti-trafficking clause included a general prohibition applicable to federal service contractors and a requirement to establish policies and procedures to ensure employee compliance. It required contractors to notify employees of the policy and to establish an appropriate employee awareness program. It required contractors to notify the government of an alleged violation and specified penalties for human trafficking violations. The original interim version of FAR 52.222-50 was also a mandatory flowdown in all subcontracts for the acquisition of services.

FAR 52.222-50 was expanded in 2007 to cover all federal contracts and subcontracts, including those for supplies and for commercial items. See 72 Fed. Reg. 46335 (Aug. 7, 2007). The clause was revised again in January 2009. See 74 Fed. Reg. 2741 (Jan. 15, 2009). The main substantive addition at that time was the addition of language making it clear that a contracting officer could consider the adoption of a Trafficking in Persons awareness program as a mitigating factor in determining the appropriate remedy for a trafficking violation.

The 2015 FAR amendments

The 2015 amendments to FAR Subpart 22.17 and FAR 52.222-50 go well beyond the original requirements. They introduce a list of specific types of conduct that had not previously appeared in the clause. They add a requirement for many contractors to implement trafficking compliance plans and to certify the absence of any trafficking activities every year. They also modify the mandatory disclosure obligations and specify the minimum level of cooperation required of contractors responding to a trafficking investigation. Finally, the amendments to the FAR clause expand the list of contracting relationships subject to the anti-trafficking clause.

Despite getting a rare Writ of Mandamus from the D.C. Circuit Court of Appeals establishing that its internal investigations were covered by the attorney-client privilege, Kellogg Brown & Root must still turn them over. As predicted in our earlier posts on Barko v. Halliburton, Judge James Gwin has ruled that KBR waived the attorney-client privilege that would otherwise have shielded KBR’s internal investigation documents from discovery. His rationale is reflected in three opinions published in November and December 2014.

In a June 2014 opinion, the D.C. Circuit held that KBR’s internal investigation documents would be privileged if obtaining or providing legal advice was “a primary purpose of the communication, meaning one of the significant purposes. . . .”

But the Court of Appeals also invited the District Court to consider additional arguments that might have been timely asserted as to “why these documents are not covered by either the attorney-client privilege or the work product doctrine.”

That is what Judge Gwin did. When the case returned to the District Court, Barko sought “interviews, reports, and documents that KBR prepared while investigating tips KBR had received that involved the same allegations found in Barko’s complaint.” Barko relied on four arguments to support his claim that KBR had waived any attorney-client privilege or work-product protection over the documents:

  1. KBR put the contents of the documents at issue in the litigation;
  2. KBR’s Rule 30(b)(6) witness reviewed the privileged documents prior to testifying at his deposition;
  3. The documents fell under the crime-fraud exception to the privilege; and
  4. KBR had failed to list these documents on a privilege log when responding to an earlier administrative subpoena from the Defense Criminal Investigative Service (“DCIS”).

In an opinion issued on November 20, 2014, Judge Gwin accepted the first two arguments.

Submitted by Husch Blackwell Associate Kayt Kopen

Federal contractors will soon need to update their Equal Employment Opportunity policies and their Affirmative Action Plans. According to an announcement by DOL’s Office of Federal Contract Compliance Programs, federal contracts and subcontracts awarded or modified after April 8, 2015, must include new contract language prohibiting discrimination …

Contractors receive about $50 billion a year through GSA multiple award schedule contracts. With that level of spending, it is easy to see why GSA has adopted policies and procedures that allow it to secure the best possible pricing for each one of its schedule contracts.

Initially, GSA uses discounts, terms, and conditions that contractors offer to other customers to negotiate “most favored customer” pricing.

But negotiated prices stated in a schedule contract are not necessarily fixed for the entire term of the contract. The contractor remains subject to the Price Reductions Clause (GSAR 552.238-81; formerly GSAR 552.238-75), which imposes a duty to report certain changes in its commercial pricing terms. Under some circumstances, the PRC allows a downward adjustment in the contractor’s fixed prices.

Two triggers for adjustments under the PRC

Two types of events will trigger the Price Reduction Clause. The first is relatively straightforward: GSA and the contractor base the federal supply schedule pricing on a commercial price list, catalog, schedule, or similar document. The contractor later reduces the list price or otherwise revises the price list or offers more favorable pricing, discounts, or terms to another customer.  When that occurs, the contractor must offer the same reduced price, discount, or better terms to the government.

The second situation is a bit trickier. The PRC is triggered when the contractor makes a pricing change that disturbs the relationship between the government’s pricing and the pricing offered to the customer or customers whose pricing terms are established as the “basis of award.”

The Senate passed the Carl Levin and Howard P. “Buck” McKeon National Defense Authorization Act for Fiscal Year 2015 [pdf] on Friday, December 12, 2014. President Obama is expected to sign the bill into law. The $585 billion bill authorizes the Pentagon’s activities in FY 2015. It includes $521.3 billion in base defense spending and another $64 billion in war funding. Here is a summary of the procurement reform initiatives that will be relevant to contractors in the upcoming year:

  1. Cyber incident reporting for operationally critical contractors. Section 1632 of the 2015 NDAA directs the Secretary of Defense to designate and notify “operationally critical contractors,” a term narrowly defined in the bill. After notification, designated contractors will be required to report to the Department of Defense each cyber incident with respect to any network or information system of such contractor. Reports must include: an assessment of the effect on the contractor’s ability to meet the Department’s contractual requirements; the technique used in the cyber incident; any sample of malicious software obtained; and a summary of information compromised by the incident. Despite the disclosure requirement, section 1632 provides for protection of contractor trade secrets and confidential commercial or financial information. It also limits the dissemination of information obtained to relevant entities and agencies.
  2. Enhanced authority for non-DOD Chief Information Officers. Section 831 of the NDAA increases the role of Chief Information Officers of agencies other than the Department of Defense. It provides that an agency may not enter into a contract for information technology unless the contract has first been reviewed and approved by the agency’s Chief Information Officer. The head of each covered agency must ensure that its Chief Information Officer has a significant role in all annual and multi-year planning, budgeting, and reporting related to information technology. The bill requires the Director of OMB and the Chief Information Officers of appropriate agencies to increase the efficiency and effectiveness of information technology investments and to develop opportunities to consolidate the acquisition and management of information technology services. The Chief Information Officer of each covered agency is directed to inventory agency data centers and develop a multi-year strategy for consolidation and optimization of those data centers inventoried.
  3. DOD CIO positions consolidated. Section 901 of the 2015 NDAA incorporates a DOD proposal to combine the positions of Chief Information Officer and Deputy Chief Management Officer into the position of Under Secretary of Defense for Business Management and Information. The new Under Secretary will oversee business operations, personnel, and IT projects and will be appointed by the President with the advice and consent of the Senate. This change will not take place until the next administration.

The need for strong security measures to protect sensitive government data from hackers has never been more intense. In November alone, the federal government suffered at least four breaches of government information systems, including cyber-attacks on the U.S. Postal Service, the State Department, NOAA, and the White House. What is not discussed in the news reports is the fact that the much of the burden of securing government data falls on government contractors.

The federal government has struggled to adopt a unified and mandatory approach to contractor data security. Each agency has taken a separate approach to adopting cybersecurity requirements, for example DoD recently adopted a new set of regulations governing unclassified “controlled technical information.” Many contractors find the current requirements confusing and at times conflicting between agencies.

In an effort to address this problem, the Department of Commerce National Institute of Standards and Technology has released a draft version of NIST Special Publication 800-171, Protecting Controlled Unclassified Information in Nonfederal Information Systems and Organizations [pdf].

The new NIST guidance is directed at contractors that already have information technology infrastructure and associated security policies and practices in place. The final version of Special Publication 800-171 will attempt to synthesize the federal government’s recommendations to ensure the confidentiality of sensitive federal information stored on contractor computers and information systems. Special Publication 800-171 is part of a three-part plan that will ultimately make these recommendations mandatory. The other parts include a rule proposed by the National Archives and Records Administration—currently under review by OMB—and the eventual adoption of a FAR clause that will apply the requirements of the NARA rule and Special Publication 800-171 to all federal contracts.

Controlling legal spend is a frequent and important topic of discussion, especially among in-house counsel and their litigation teams. Much of the discussion focuses on the problem of soaring discovery costs driven by the proliferation of electronic data. As an eDiscovery attorney, I employ early case assessment strategies and tools, technology-assisted review, and even low-cost outside staff attorneys to try and curtail the cost of discovery. In the end, the effectiveness of these cost-reduction alternatives hinges on whether clients have done their part to reduce the volume of data upstream.

Beyond implementing a formal records retention plan, there are a number of fairly simple steps that companies can take to help reduce litigation costs. Items 1-5 help reduce the volume of data that needs to be collected and reviewed. Items 6-8 will help ensure that your litigation budget is not exhausted on spoliation or sanctions motions.

1.   When implementing an email archive, be mindful of how it will impact litigation costs.

An email archive is not a cure to your litigation woes. Storing every company email that was sent or received in an email archive may make preservation easy, but it may also be contributing to your soaring discovery costs. Despite claims to the contrary, most archives have poor search and export features. It is also very difficult to pull out only responsive email from an archive.  Instead, you end up overspending on attorney review of irrelevant data or producing mounds of irrelevant data.

One way to control this issue is to tailor the archive for your own business and legal needs from the beginning. Do you really need every employee’s email messages for the last 10 years? Very few industries have regulatory requirements that require such broad retention. Even those that do usually only apply to a small subset of employees. Confirm any applicable regulatory requirements and consider your own business and legal needs. Consider creating email groups with different retention cycles.

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.

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. 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?