This week’s episode covers OFCCP’s new proposed Directive regarding Functional Affirmative Action Programs, DOJ’s settlement with a contractor to resolve alleged violations of the False Claims Act and Anti-Kickback Act, the latest on the government’s authority to dismiss a relator’s qui tam action pursuant under the False Claims Act, and the proposed legislation entitled “Stop Price Gouging the Military Act,” and is hosted by Peter Eyre and Yuan Zhou. Crowell & Moring’s “Fastest 5 Minutes” is a biweekly podcast that provides a brief summary of significant government contracts legal and regulatory developments that no government contracts lawyer or executive should be without.
On June 23, 2022, a federal grand jury returned an indictment against Army contractor Envistacom LLC and two of its executives alleging participation in a fraudulent scheme that deprived the federal government of competition and making false representations to the government in furtherance of the conspiracy. The indictment also charged the executive as a co-conspirator, and asserts the conspirators coordinated in the preparation of so-called “competitive quotes” submitted in connection with 8(a) set aside contracts. The quotes were allegedly fraudulently inflated in order to all but guarantee the government customer would sole source the award to the conspirators’ pre-determined bidder. This indictment represents the fruits of yet another investigation by the Department of Justice’s Procurement Collusion Strike Force (“PCSF”).
According to the indictment, the defendants conspired to prepare and secure “sham” pricing quotes from third-party companies that were intentionally higher than Envistacom’s proposals to ensure that the government issued sole source awards to Envistacom. Further, the defendants allegedly coordinated with an unnamed government employee who acted as a co-conspirator and assisted in preparing and submitting Independent Government Cost Estimates (“IGCE”) for certain set aside contracts to ensure that the pre-determined bidder’s proposal would be lower than the IGCEs. Finally, the indictment alleges that the defendants made “false statements, representations, and material omissions to federal government contracting officials” about the IGCEs being “legitimate” and the sham quotes being “competitive.”Continue Reading Procurement Collusion Strike Force Nabs Another Military Contractor in Bid Rigging Scheme
Yesterday, the U.S. Supreme Court granted certiorari in Polansky v. Executive Health Resources Inc., No. 19-3810 (3d Cir. Oct. 28, 2021), which involves the Government’s authority to dismiss a relator’s qui tam action pursuant to 31 U.S.C. § 3730(c)(2)(A) of the False Claims Act. In Polansky, the U.S. Court of Appeals for the Third Circuit held the Government must intervene in FCA suits before moving to dismiss and that, where responsive pleadings have been filed, a court has wide discretion to permit or deny the Government’s exercise of dismissal authority. This cemented two circuit splits. The first split is between the Third, Sixth, and Seventh Circuits, which require the Government to intervene before moving for dismissal of an FCA suit, and the D.C., Ninth, and Tenth Circuits, which do not require the Government to intervene before moving for dismissal of an FCA suit at any point in the litigation. The second is a three-way split among the Circuits regarding the standard of review a court must apply when determining whether the Government can dismiss a qui tam action over a relator’s objection: the Third and Seventh Circuits apply the Rule 41(b) standard, the D.C. Circuit considers the Government’s dismissal authority unfettered, and the Ninth Circuit applies a “rational relation” test requiring the Government to demonstrate a valid government purpose and a “rational relation” between the dismissal and that government purpose. The Supreme Court is now poised to resolve both of these splits.Continue Reading U.S. Supreme Court Poised to Resolve Two FCA Circuit Splits
After a recent Court of Federal Claims (“COFC”) decision limited the circumstances under which a departure of key personnel may doom an offeror’s proposal, an even more recent GAO decision might have swung the pendulum right back. In Sehlke Consulting, LLC, GAO sustained a protest because the agency failed to penalize the awardee when a proposed key person employed under the incumbent contract provided notice that he planned to resign. Even though the key person was still employed on the date of award, GAO held that the agency’s failure to consider his “prospective unavailability” for the follow-on contract undermined the contract award.
The following dates were relevant:
- Performance of the follow-on contract was scheduled to begin February 1, 2022.
- On January 11, 2022, one of the awardee’s proposed key personnel (who was then an employee of a subcontractor on the incumbent contract) announced that he planned to resign effective January 28, 2022. The awardee timely notified the Contracting Officer’s Technical Representative (“COTR”) for the incumbent contract.
- On January 25, 2022, the agency completed its evaluations and awarded the contract.
- On January 28, 2022—after award but before performance was to begin—the key person’s resignation became effective.
This week’s episode covers a new SBA final rule about calculation of employee-based size standards, a False Claims Act settlement involving small business status, DOD’s guidance about impact of inflation on contractors, and the White House’s use of the Defense Production Act to accelerate domestic production of clean energy technologies, and is hosted by Peter Eyre and Yuan Zhou. Crowell & Moring’s “Fastest 5 Minutes” is a biweekly podcast that provides a brief summary of significant government contracts legal and regulatory developments that no government contracts lawyer or executive should be without.
On June 6, 2022, President Biden issued a White House Fact Sheet (“Fact Sheet”) outlining President Biden’s “Bold Executive Action to Spur Domestic Clean Energy Manufacturing” along with five related Defense Production Act (“DPA”) Presidential Determinations (“Presidential Determinations”) and a Declaration of Emergency and Authorization for Temporary Extensions of Time and Duty-Free Importation of Solar Cells and Module from Southeast Asia (the “Declaration”). The Fact Sheet states the President is (1) authorizing use of the DPA to accelerate domestic production of clean energy technologies; (2) encouraging domestic solar manufacturing capacity through the use of master supply agreements with enhanced domestic preferences; and (3) creating a two-year trade regulation bridge as domestic manufacturing for solar products scales up. The White House stated that these actions are being taken to lower energy costs, reduce risks to the power grid, and mitigate climate change. The Department of Energy (“DOE”) also released a statement on June 6 about the DPA Presidential Determinations which describes DOE’s concerns with regard to each material or technology for which a determination was issued. The statements made by the White House and DOE also make clear that these actions to employ the DPA are part of the Administration’s broader “all of government” approach to addressing Environmental Justice, with the intention to “strongly encourage projects with environmental justice outcomes that empower the clean energy transition in low income communities historically overburdened by legacy pollution.”Continue Reading President Biden Employs Defense Production Act and Tariff Act in Domestic Clean Energy Manufacturing Push
On April 28, 2022, the DoD issued a final rule that, effective immediately, requires the government to treat a contract previously awarded using FAR part 12 procedures as a prior commercial item determination (“CID”) for the acquired product or service, unless the head of contracting activity determines that the prior use of FAR part 12 procedures was improper or is no longer appropriate. The final rule implements section 848 of the NDAA for 2018, and applies to DoD contracts regardless of dollar value. Note, however, that prior FAR Part 12 purchases made pursuant to 41 U.S.C. 1903 (for supplies or services to be used to facilitate defense against or recovery from cyber, nuclear, biological, chemical, or radiological attack) or 10 U.S.C. 2380a (for supplies or services from nontraditional defense contractors) may not serve as a prior commercial item determination unless the products or services purchased in that prior acquisition otherwise received a CID.
Crowell & Moring’s “All Things Protest” podcast keeps you up to date on major trends in bid protest litigation, key developments in high-profile cases, and best practices in state and federal procurement. In this episode, Crowell attorneys Christian Curran and Zachary Schroeder discuss a recent GAO case (K&K Industries, Inc., B-420422; B-420422.2, March 7, 2022) that highlights timeliness traps with enhanced debriefings.
As Russia’s assault on Ukraine continues, countries around the world are taking action. Relevant to U.S. Government contractors, on April 22, the Defense Logistics Agency (“DLA”) issued a Request for Information (“RFI”) seeking information on companies’ abilities to deliver military and commercial assistance to Ukraine. The RFI states that “the Biden Administration is working around the clock to fulfill Ukraine’s priority security assistance requests,” and explains that “Russia’s unprovoked invasion has highlighted the importance of dialogue between industry and commercial partners and the Department of Defense.” To that end, the RFI seeks to fulfill three strategic objectives:
- Delivering critical commercial and military capabilities to Ukraine;
- Enhancing the preparedness of our own forces; and
- Supporting our allies and partners in bolstering their defense capabilities.
Of particular interest to DOD are options that would accelerate production and build more capacity across the industrial base for weapons and equipment that can be rapidly exported, deployed with minimal training, and that are proven effective in the battlefield. Specifically, the RFI seeks information from industry on weapons systems or other commercial capabilities related to air defense, anti-armor, anti-personnel, coastal defense, counter battery, unmanned aerial systems, and communications (e.g., secure radios, satellite internet). Among other things, the RFI asks respondents to “describe the weapon, product, or system you believe could assist the Ukrainian military” and state what delivery timeframe they could meet.
Responses are due by Noon Eastern on May 6, 2022, and should be submitted in accordance with the instructions outlined in the RFI.
As the war in Ukraine continues, Government contractors should be alert for this and similar opportunities to bolster the United States’ defenses and assist Ukraine. The FY2022 omnibus appropriations bill – signed into law in March 15 – includes a $13.6 billion Ukraine aid package, $6.5 billion of which was earmarked for military support for Eastern European countries, including $3.5 billion in additional weapons for Ukraine. In addition, on April 21, President Biden announced that the U.S. will provide another $800 million in assistance to Ukraine, which will include heavy artillery, ammunition, and tactical drones.
As Congress considers legislation prohibiting government contractors from doing business in Russia, over 20 states have already acted. In this alert, we highlight: (i) how different states are defining Russian business operations, and the corresponding risks to differently situated government contractors; and (ii) unique aspects of certain state actions that contractors need to be aware of as they develop their compliance strategy.
Which Government Contractors are Affected by Which State Actions?
States have taken a wide variety of approaches to determining which contractors and actions to cover with their Russia-related prohibitions. For example:
- Several states, including Ohio and Virginia, are limiting their actions to Russian institutions and/or companies, but have not defined such terms.
- On the other hand, New Jersey and North Carolina are targeting entities that are headquartered or have their principal place of business in Russia, as well as such entities’ subsidiaries (with New Jersey also targeting entities in Belarus). See also proposed Louisiana legislation requiring any public entity to reject the lowest procurement bid if that bidder is “domiciled in Russia.”
- New York is taking yet a third—and much broader—approach and is targeting entities that conduct business operations in Russia, which includes entities: (i) conducting any commercial activity in Russia; (ii) transacting business with the Russian Government; or (iii) transacting business with commercial entities headquartered or with their principal place of business in Russia. See also proposed Alabama legislation encouraging the state “to disfavor Russian products and any economic activity that would benefit Ukraine, to the utmost extent possible.”
- Finally, certain states have not yet determined the precise scope of their restrictions. For example, Missouri currently has two competing bills: its Senate has proposed legislation that targets “companies that have active business operations in strategic industries with the Russian Federation”; whereas its House has proposed legislation that would cover “Russia, Russian entities, or any other country adversely occupying or attacking a North Atlantic Treaty Organization (NATO) member, Ukraine, Finland, Sweden, or Georgia; unless the transaction is authorized under Ukraine General License Number 18 issued on February 21, 2022, by the U.S. Department of Treasury’s Office of Foreign Assets Control.”
Government contractors—especially those doing business in multiple states—must carefully consider this evolving patchwork of prohibitions and restrictions as part of their overall compliance strategy.
What are the States Prohibiting, and How?
In addition to determining whether a given state’s proposed or enacted restrictions apply, government contractors must also closely scrutinize the nature of the prohibitions or restrictions at issue. As we discussed previously, most states are considering or have enacted prohibitions on future contracts with affected companies, and/or would require termination of existing contracts with such companies. However, certain states have passed or are contemplating actions with unique—and potentially extreme—consequences.
Most notably, New Jersey has already enacted legislation that requires a contractor to certify it is not on the Department of Treasury’s list of entities engaged in prohibited activities in Russia or Belarus before a contract is awarded, renewed, amended, or extended. For false certifications, the legislation requires: (1) a civil penalty in an amount that “is equal to the greater of $1,000,000 or twice the amount of the [contract] bid”; (2) “termination of an existing contract [or bid] . . . by the issuing agency”; and (3) exclusion from public contracting with the State for 3 years (and with reinstatement only allowed so long as the entity has ceased its engagement in prohibited activities in Russia or Belarus). These penalties significantly exceed the penalties under New Jersey’s state False Claims Act, and pose significant risk to any contractors that do business in the State. Indeed, they could have far reaching effects even beyond New Jersey, as many other states look to whether a company is banned from contacting in any jurisdiction.
Crowell is continuing to monitor these state actions and will highlight significant developments in future alerts. Government contractors should closely follow these issues and update their compliance practices accordingly.