The 2017 National Defense Authorization Act, Pub. L. No. 114-328 (Dec. 23, 2016), introduces major changes to the Defense Department healthcare program known as TRICARE. By this time next year, we’ll see a new program to contain the cost of prescription drugs at retail pharmacies, contractual incentives for improving the quality of healthcare and
Contractors interested in the application of FOIA Exemption 4 should take note of the Ninth Circuit’s decision in American Small Business League v. Dep’t of Defense, No. 15-15120 (9th Cir. Jan. 6, 2017). The issue in the case was whether a declaration submitted by a Sikorsky Aircraft Corporation employee was sufficient to show the competitive harm necessary to withhold small business subcontracting data obtained from Sikorsky. The Sikorsky declaration was short, but it identified Sikorsky’s competitors and asserted that its small business subcontracting data could be used to gain a competitive advantage.
In a November 2014 order, the District Court found the declaration too vague. It lacked “reasonably specific detail” as to the likelihood of competitive injury. It did not show how information found in the subcontracting plan would be “likely to cause substantial competitive injury.” Proof of competitive harm was based only on the fact that a Sikorsky competitor “could” use Sikorsky’s data to cause harm. In the words of District Judge William Alsup, “[t]hat is not enough to grant summary judgment for the agency.” The District Court ordered the government to produce Sikorsky’s master subcontracting plan, subject only to appeal.
[UPDATE: The Supreme Court resolved the Escobar case in a unanimous decision published on June 16, 2015. A link to our discussion of the Court’s opinion is available here.]
In some courts in the United States today, a government contractor or a healthcare provider seeking reimbursement from a federal program can violate the False Claims Act even when its work is satisfactory and its invoices are correct. Under the theory of “implied certification,” a minor instance of non-compliance with one of the thousands of applicable statutes, regulations, and contract provisions can be the basis for a federal investigation, years of litigation, as well as fines, penalties, suspension and debarment, even imprisonment of company personnel.
This week, the Supreme Court heard oral arguments in Universal Health Services, Inc. v. United States ex rel. Escobar, Docket No. 15-7, a case involving the viability of the implied certification theory. Here, we look at the questions posed during oral argument to see if we can infer how the Court might resolve the case.
The Supreme Court agreed to consider two questions posed in Escobar. First, the Court agreed to address the current split in the circuits as to the viability of the implied certification theory. The First Circuit’s decision in United States ex rel. Escobar v. Universal Health Services, Inc., 780 F.3d 504 (1st Cir. 2015), broadly adopts implied certification. The Seventh Circuit’s decision in United States v. Sanford-Brown, Ltd., 788 F.3d 696 (7th Cir. 2015), firmly rejects it.
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.…
Continue Reading The 2015 amendments to the FAR rule on human trafficking
The contractor’s duty to proceed with performance pending the resolution of disputes is a basic concept in the law of government contracts. It is laid out explicitly in FAR 52.233-1(i), the mandatory disputes clause that appears in nearly all federal contracts: “The Contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under the contract, and comply with any decision of the Contracting Officer.”
But the duty to proceed has important limits. A contractor is excused from its duty to proceed and may stop work if the government materially breaches its own obligations under the contract.
Breaches occur in many contexts. A cardinal change in the scope of work is a breach that excuses a contractor’s performance. Terminating a contract just to get a lower price is a breach. Refusing to pay for a contractor’s work without an adequate excuse is also a breach.
According to the decision in Kiewit-Turner v. Dep’t of Veteran Affairs, CBCA No. 3450 (Dec. 9, 2014) [pdf], the government breaches the contract by ordering a contractor to continue performance when it is clear that there will be no funds available to pay for the work. The Civilian Board of Contract Appeals recognized Kiewit-Turner‘s right to stop work when the Department of Veteran Affairs failed to provide a design that would have allowed construction to be completed within the budget established by the available appropriations. Despite the general duty to proceed, Kiewit-Turner was not required to continue performance because it was clear that the construction costs would exceed the available funds and the VA refused to seek additional funding or incorporate value engineering changes to reduce the overall construction cost.…
Continue Reading Kiewit-Turner and the right to stop work
If you are getting ready to submit a claim on a federal contract—especially one that challenges an assessment of liquidated damages—take note of the Federal Circuit’s decision in K-Con Building Systems, Inc. v. United States, No. 2014-5062 (Fed. Cir. Feb. 12, 2015) [pdf]. It has some specific instructions for the contents of your claim letter and demonstrates the harsh results that follow from a misstep in the disputes process.
K-Con held a Federal Supply Schedule contract for prefabricated structures. In 2004, it won a $582,000 Coast Guard task order for the design and construction of a Coast Guard cutter support building at Port Huron, Michigan.
K-Con’s July 2005 Claim
When K-Con was unable to complete the work by the deadline set forth in the task order, the Coast Guard assessed liquidated damages of $109,554—186 days at $589 per day. On July 28, 2005, K-Con submitted a one-page claim letter seeking remission of the liquidated damages.
Although it was brief, K-Con’s letter asserted three reasons why the liquidated damages assessment was improper:
- K-Con “was not the sole cause of any alleged delays” and any K-Con delays were “concurrent with delays caused by the government;”
- the government “failed to issue extension to the completion date as a result of changes to the contract by the government;” and
- the liquidated damages “are an impermissible penalty.”
K-Con’s letter requested a contracting officer’s final decision. Though it demanded relief of more than $100,000, K-Con’s letter asserted that a certification was not required “since the assessment of liquidated damages is a claim by the Government.”
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.
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…
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.
[UPDATE: On May 26, 2015, the Supreme Court reversed the Fourth Circuit’s decision in Carter and held that the Wartime Suspension of Limitations Act is limited to criminal offenses. Kellogg Brown & Root Services, Inc. v. Carter, No 12-1497 (U.S. May 26, 2015) [pdf]. Our discussion of the Carter decision is available here.]
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?
[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.