Government Contracts Legal Forum : Government Contracts Lawyers & Attorneys for Litigation & Counseling

A memorandum issued by the Office of Management and Budget on Wednesday, September 14, 2011, establishes a new Executive Branch policy that agencies should pay small business government contractors within 15 days of receiving proper invoicing documents. Currently, agencies are required to pay contractors within 30 days of receiving proper documentation under the Prompt Payment Act (“PPA”), or they are subject to late-payment interest penalty provisions. For cash flow purposes, agencies generally do not pay contractors earlier than seven days in advance of the 30-day PPA requirement. However, the PPA does not prevent agencies from paying contractors earlier if it is “necessary,” and current OMB regulations allow agencies to pay small businesses “as quickly as possible.” 

This new policy provides that agencies are required to use their PPA authority and establish an “earlier, accelerated date for their making payments to small business contractors” and that the goal should be to pay small business contractors within 15 days of receiving all required documentation necessary for payment. In outlining this new policy, OMB explains that the “acceleration of payments to small businesses is necessary because. . . .this acceleration improves cash flow. . . .and provides them with a more predictable stream of resources.” 

Noticeably absent from the OMB memorandum, however, is any sort of carrot or stick to ensure agencies implement the spirit and letter of this new policy. Indeed, the policy does not change the operation of the PPA, so agencies will only be liable for late-payment interest if they fail to pay contractors by the required payment date which is usually 30 days after the receipt of all invoicing documents. As such, early payment to small businesses is a goal, and nothing more.

Thus, while this new policy is a first good step toward ensuring small businesses are promptly paid, it will be interesting to see how many agencies actually start paying small businesses on an accelerated basis. 

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The Recovery Act and the funds it has made available under various federal grant programs have brought renewed attention to domestic preference provisions. Contractors familiar with the longstanding Buy American Act restriction on federal procurement and the Trade Agreements Act exception have found themselves confronted by a dizzying array of much less well-known, and often significantly different, Buy American type provisions applicable to federal grant and loan programs used to fund both domestic and international projects. These restrictions vary program to program in terms of the scope of the restriction, the method for determining country of origin for a product, and how foreign content is evaluated. Some of the major grant or loan programs with Buy American restrictions include:

• Recovery Act grants and financial assistance for public works projects by state and local government entities;
• Federal Aviation Funds for airport improvement and other programs;
• Federal Highway Funds for the construction of highways;
• Federal Transit Funds for various mass transit projects;
• The Foreign Military Financing Program administered by DoD;
• U.S. Agency for International Development grants and contracts funded under the Foreign Assistance Act; and
• Procurements funded by the U.S. Export-Import Bank.

These federally-funded programs provide significant business opportunities for contractors, but also present challenges in terms of navigating and complying with a myriad of domestic preference regimes. During the webinar, we will provide an explanation of the domestic preference restrictions associated with each of these programs, as well as practical advice for ensuring compliance, given the realities and global-sourcing pressures of the commercial marketplace.

On Tuesday, June 21st, from 2:00 pm to 3:30 pm EDT, please join Angela Styles, Alan Gourley, and Addie Cliffe, government contract practitioners from Crowell & Moring, for a discussion of these programs and compliance issues. Click here to register.

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Earlier this week the Pentagon issued a statement that cyber-attacks by a foreign nation could be considered an act of war that could elicit a traditional military response. Specifically, Pentagon spokesperson Col. Dave Lapan said that “a response to a cyber-incident or attack on the US would not necessarily be a cyber-response. All appropriate options would be on the table.” This statement comes as the United States grapples with putting together a comprehensive cybersecurity and warfare policy. The development of such a policy must involve a complete understanding of the laws and authority surrounding cyber warfare. Yet, these laws and authorities are, for the most part, uncharted waters. 

The American Bar Association has several committees dedicated to charting these waters and on June 13, 2011, at 12:00 pm EDT, the Science & Technology Law (SciTech) Section’s Homeland Security Committee, the Public Contract Law (PCL) Section’s Cybersecurity Committee and the Standing Committee on Law and National Security are co-sponsoring a joint program focusing on the emerging—and often unsettled—legal and policy issues arising out of cyber warfare. 

The panel for the joint program includes:

• Dr. Herbert S. Lin, Chief Scientist, Computer Science & Telecommunications Board, National Research Council of the National Academies & Study Director for Technology, Policy, Law, and Ethics regarding U.S. Acquisition and Use of Cyberattack Capabilities;
• Dr. Catherine Lotrionte, Executive Director, Institute for Law, Science and Global Security at Georgetown University and former Counsel to the President’s Foreign Intelligence Advisory Board at the White House;
• Suzanne Spaulding, Principal, Bingham Consulting Group and former General Cousnel for the Senate Select Committee on Intelligence and Assistant General Counsel at CIA; and
• The program will be moderated by David Z. Bodenheimer, a partner at Crowell & Moring LLP, Co-Chair of the SciTech Homeland Security Committee and Vice Co-Chair of PCL Cybersecurity Committee. 

The program will be held at the offices of Crowell & Moring LLP at 1001 Pennsylvania Ave., N.W., Washington, D.C. and lunch will be served to those attending in person. You can also attend by phone. The cost to attend (either by phone or in person) is $15. 

Please register here.

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When the Government was facing a shutdown earlier this year, there was much speculation about the impact to cybersecurity. Certainly, cyberterrorists and other attackers would not stop or delay their attacks just because our Government had shutdown and there was concern that some of the Government’s cybersecurity functions would be shutdown, leaving the United States vulnerable. Luckily, the Government avoided a shutdown, but cybersecurity remains a key consideration in today’s world for all types of industries—including the legal profession.

Indeed, the American Bar Association (“ABA”) has several committees focusing on cybersecurity: The Public Contract Law Section’s Cybersecurity Committee, the Science & Technology Section’s Homeland Security Committee and the Standing Committee on Law and National Security. 

On Monday, May 9, 2011, from noon to 1:00 pm, these ABA committees will host David Delaney, Deputy Associate General Counsel with the Department of Homeland Security (“DHS”), in a joint teleconference program focusing on the latest developments in cybersecurity facing the DHS. Mr. Delaney’s responsibilities include advising senior leaders and program officers on legal and policy issues regarding the Department’s cybersecurity, infrastructure protection and related matters. 

The program will be hosted by David Z. Bodenheimer, a partner with Crowell & Moring LLP and is sure to contain the key information you need to know about the latest developments in cybersecurity. 

Dial-in Information:

1-866-279-5008

Passcode: 2026242713

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There have already been a number of high profile small business enforcement actions this year, an enforcement trend we discussed in our April 7 webinar, and a conviction from a federal jury in New York is the latest sign that this trend is continuing. 

Between June 2007 and June 2010, John Raymond Anthony White’s company, Mitsubishi Construction Corp., obtained four contracts set aside for veterans or service-disabled veterans with the Department of Veterans Affairs for construction work in New York, Pennsylvania, and Maryland. Mr. White used his alleged military status as a service-disabled veteran to establish Mitsubishi Construction Corp.’s eligibility for competing for and receiving these contracts. 

However, there was one problem—Mr. White never served in the military and lied about his status as a service-disabled veteran. When the contracts came under investigation, Mr. White compounded the problem by trying to hide the fraud by claiming that an Army veteran actually owned 51% of Mitsubishi Construction Corp. In doing so, not only did Mr. White fail to cover up the fraud, but he found himself facing additional charges for lying. On April 20th, he was convicted of fraud and lying for his actions and now faces a maximum of 75 years in jails and a possible fine of $3.75 million. He will be sentenced on July 20, 2011. 

Although this is a case of egregious fraud, it is worth noting that companies should always take care to verify their size and eligibility status for every contract they bid on. Even making an innocent incorrect certification can have devastating consequences. 

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On Monday, millions of individuals and companies filed their 2010 tax returns. Some of these individuals and companies have fallen behind on their tax payments. The reasons for falling behind vary—some have simply fallen on hard times and cannot pay, while others thumb their noses at the tax laws in a bold game of “Catch Me if You Can.” 

However, with the size of the country’s deficit in the news almost every day recently, the Government is looking to get its money however it can. One proposed effort is aimed at government contractors and seeks to ensure that no grants or government contracts are awarded to individuals or entities with serious tax delinquencies. 

Last week, the House Committee on Oversight and Government Reform recommend that H.R. 829, the Contracting and Tax Accountability Act of 2011, be considered by the entire House of Representatives.  If the Bill becomes law as written, it will prevent individuals and companies with a “seriously delinquent tax debt” from receiving a federal government contract or grant. The Bill defines a “seriously delinquent tax debt” as “an outstanding debt under the Internal Revenue Code of 1986 for which a notice of lien has been filed in public records pursuant to section 6323 of such Code.” The Bill also requires amendments to the FAR to implement its provisions. 

There is still a long way to go before becoming law, but contractors with seriously delinquent tax debts should consider addressing their tax issues sooner rather than later. 

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Last November, we reported on the impact that SBA’s suspension of GTSI had on the government contracting community.  We wondered if the GTSI suspension was the beginning of a new enforcement trend by the SBA. Now, almost six months after that suspension, it is clear that the GTSI suspension was just the beginning.

The SBA has made enforcement a priority and we have seen clients come into the SBA’s crosshairs for what have historically been trivial violations of regulations. As a result, contractors are now scrambling to both understand and address a broad range of small business compliance issues. We want to share our knowledge and experience with these small business compliance matters and help you navigate the issues and associated risks that your company might be facing.

We hope that on Thursday, April 7, 2011, from 2:30-3:45 EDT, you can join Amy O’Sullivan, Richard Arnholt and Gunjan Talati from Crowell & Moring’s Government Contracts Group, and Jacob Blass, the President of Ethical Advocate, to discuss:

• The current environment of SBA “enforcement”
• How will recent changes to SBA regulations impact small business compliance?
• Heightened risk areas for small businesses
• Heightened risk areas for large companies working with small businesses
• Compliance - what does the law require?
• How important is an ethical cultural?
• How can attention to compliance increase the value of a small business?

The webinar will be interactive and we will answer your questions as time allows. To register, please click here.  We look forwarding to seeing you on April 7!
 

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The big news Friday afternoon and over the weekend was the Small Business Administration’s decision to suspend GTSI—a major government contractor – from receiving new government orders. While the notice of suspension is not yet publicly available, the Washington Post reported that the suspension stems from the government’s view that GTSI engaged in improper relationships with small business contractors. 

SBA identified two reasons for the notice of suspension: (1) adequate evidence of the commission of fraud or a criminal offense in connection with obtaining, attempting to obtain or performing a public contract or subcontract; and (2) adequate evidence indicating a lack of business integrity or business honesty impacting the present responsibility of GTSI. Supporting its decision to suspend GTSI, the SBA explained that:

• “There is evidence that GTSI’s prime contractors had little to no involvement in the performance of contracts, in direct contravention of all applicable laws and regulations regarding the award of small business contracts.”
• “The evidence shows that GTSI was an active participant in a scheme that resulted in contracts set-aside for small businesses being awarded to ineligible contractors.”
• “GTSI actively engaged in conduct concealing the extent of its involvement as a subcontractor.”

Stated differently, the SBA apparently was concerned that GTSI was using small businesses as “fronts” to access federal programs and contracts for which it was not otherwise eligible.

There is a fine line between improper and perfectly legitimate relationships between large and small businesses. Large contractors have been coming up with ways to access small business dollars for some time. There is nothing inherently wrong with this, as there are many different ways an other than small business concern can work with a small business, such as through the SBA’s 8(a) Mentor-Protégé Program.  

However, some companies are not aware of where the lines are drawn, while others have knowingly abused these programs and ignored SBA’s regulations outright, sometimes using small businesses as mere pass-throughs. In these cases, the large business would do the work and receive the revenues, giving the small business a “fee” for the use of its small business status. Obviously, this is not the goal of small business programs. Yet, these abuses have largely gone unchecked because of the SBA’s spotty oversight. Indeed, in March of this year, GAO released a report to the House of Representatives Committee on Small Business explaining that 14 ineligible businesses received $325M in 8(a) sole-source and set-aside contracts. Some of these ineligible firms used certified firms as pass-throughs to perform small business contracts. 

The SBA’s decision to suspend GTSI may be the start of a new, vigilant enforcement regime at the SBA. Accordingly, it may be a good time for both small and big businesses alike to examine the law and their relationships and contracts. Small businesses should be sure that they are making appropriate representations about their status and size, particularly if the company has grown or changed since its last certification. In conducting this review, small businesses should be attuned to various size and affiliation factors, including the ostensible subcontractor rule, which provides that the parties to a teaming arrangement may be affiliated if the subcontractor has too large of a role in contract performance. 

Large businesses should review the subcontracting relationships they have with small businesses. They should ensure that they are not taking any actions that are contrary to the SBA’s regulations, such as using small businesses as pass-throughs. 

If this is the beginning of a new enforcement trend, being proactive is the best course of action, as you may not get a warning shot across the bow. In fact, in a public statement released on Friday, GTSI explained that the SBA suspended it “without prior discussion or notice to GTSI.”

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