Photo of Daniel ZelenkoPhoto of Gail D. ZirkelbachPhoto of Alexis DeBernardisPhoto of Megan Wolf

Late Friday, the Department of Justice announced its first charges under the Procurement Collusion Strike Force. A federal grand jury seated in the Eastern District of North Carolina returned a six-count indictment against Ohio-based Contech Engineered Solutions LLC and its former executive for their involvement in a decade-long conspiracy to rig bids for North Carolina Department of Transportation contracts. The contracts were funded by both the U.S. government and the state of North Carolina, and involved aluminum drainage structure projects adjacent to roads, bridges, and overpasses.

The Raleigh-based executive charged in the indictment was the employee responsible for supervising the preparation and submission of bids in response to the relevant NC DOT opportunities. The indictment alleges that, in advance of submitting bids on behalf of his employer, the executive contacted – or directed his subordinate to contact – employees at the co-conspirator, requested the co-conspirator’s bid pricing, and then used that information to finalize bids on behalf of Contech, in violation of the Sherman Act. In addition to the antitrust counts, the defendants were also charged with mail and wire fraud related to knowingly submitting fraudulent statements that their proposals had been submitted “competitively and without collusion.”

Notably, the Eastern District of North Carolina is not one of the PCSF’s partner districts, suggesting that the reach of the PCSF has extended farther than initially expected. Underscoring the mission of the PCSF and the scrutiny of public procurements, the U.S. Attorney for the district remarked, “Here, the defendants are accused of having conspired to violate those laws and to deprive the people of North Carolina of both the best service and the best pricing. Prosecution of these types of cases is critical to ensuring fairness and integrity in our public contract bidding system.”

Photo of Adelicia R. CliffePhoto of Kate M. Growley, CIPP/G, CIPP/USPhoto of Stephanie Crawford

Companies have less than one week to submit comments regarding a recent interim rule that provides the responsibilities, processes, and procedures for the Federal Acquisition Security Council (“FASC”), established by the Federal Acquisition Supply Chain Security Act of 2018.  Under the immediately effective interim rule, the FASC is responsible for assessing supply chain risk and making removal and exclusion recommendations to the Secretary of the Department of Homeland Security (“DHS”), Secretary of the Department of Defense (“DoD”), and Director of National Intelligence (“DNI”).  Based on these recommendations, DoD, DHS, and the Office of the DNI (“ODNI”) then have authority to issue exclusion and removal orders for sources and/or covered articles deemed to pose a supply chain risk from certain procurements.

The interim rule is divided into three sections.  As further described below, Subpart A provides key definitions, outlines the membership of the FASC (including representatives from at least 12 agencies or departments), and describes the FASC’s authority to request information and establish subordinate bodies.  Subpart B establishes the DHS Cybersecurity and Infrastructure Security Agency (“CISA”) as the subordinate body for the collection of supply chain risk information from executive agencies and the Interagency Supply Chain Risk Management Task Force as the subordinate body for the analysis of that information.  The interim rule also provides guidance on mandatory and voluntary supply chain risk information submissions.  Finally, Subpart C focuses on the FASC’s removal and exclusion recommendation process, as well as the process for review of those recommendations.

Information-Sharing with the FASC.  Executive agencies are required to submit supply chain risk information to CISA when (1) the FASC requests information relating to a particular source[1], covered article[2], or covered procurement[3]; or (2) the agency has determined there is a reasonable basis to conclude there is a substantial supply chain risk associated with a source, article, or covered procurement.

Contractors and any federal or non-federal entity may voluntarily submit information to the FASC that relates to supply chain risk management, covered articles or procurements, or sources.  The interim rule provides some protection for the submitted information, but the relationship between the FASC’s information protections and Freedom of Information Act requests remains unclear.  To be afforded information protections, submissions to the FASC should include proper markings, handling, dissemination, and use restrictions including IP markings, business confidentiality markings, or contractual dissemination restrictions.  The rule states that the FASC, its Task Force, and CISA will handle the information in accordance with the markings provided.

Removal and Exclusion Recommendations.  The FASC may evaluate sources or covered articles (1) upon referral to the FASC or to a member of the FASC; (2) upon written request by an executive agency; or (3) based on information that is submitted to the FASC on a mandatory or voluntary basis and that the FASC deems credible.  The Council will then evaluate the sources or covered articles based on a series of non-exclusive factors including foreign ownership, control, or influence; security breaches; access to sensitive information; and other relevant supply chain risk information.  As part of this analysis, the FASC also must conduct due diligence, such as (1) reviewing information available to the FASC; (2) evaluating and accounting for the level of confidence in the information provided and; (3) examining public and commercially-available information as necessary or appropriate.  The FASC then prepares a recommendation for DoD, DHS, and ODNI.  The recommendation must include a summary of the basis for the recommendation and the assessment conducted, the scope of the recommendation, information for identifying the sources or covered articles, and any possible mitigation steps that would change the FASC’s recommendation.  Any source named in a recommendation will be provided notice of the FASC’s recommendation and may respond to the recommendation with additional information or argument.  The FASC will not release any recommendations to a non-federal entity unless a decision on whether to issue an exclusion or removal order has been made by DoD, DHS, and ODNI and the affected source has been notified of the decision.

Removal and Exclusion Orders.  The Secretary of DHS, the Secretary of DoD, and the DNI will review the Council’s recommendations, accompany information, and source-submitted information to determine whether to issue a removal or exclusion order.  A DoD, DHS, or ODNI order is only applicable to the specific agencies under the DoD, DHS, or ODNI’s purview as identified in the rule (see Removal and Exclusion Order Applicability graphic).  Orders must be reviewed annually and may be modified or rescinded; however, modifications may not apply more broadly than the initial order.  Named sources, CISA, appropriate Congressional Committees and leadership, and the Interagency Suspension and Debarment Committee will be notified of an issued order.  An exclusion order may require the exclusion of covered sources or articles from federal procurement activities (as a prime contractor or subcontractor at any tier), and/or could require removal of covered articles from federal or contractor information systems.  And in the event that DHS, DoD, and ODNI all issue removal or exclusion orders that amount to a government-wide exclusion, then the Federal Supply Schedules (“FSS”) and government-wide acquisition contracts shall facilitate implementation by removing covered articles or sources identified in the removal and exclusion orders from such FSS and multi-agency contract vehicles.

Removal and Exclusion Order Applicability

Comments on the interim rule are due no later than November 2, 2020.  Because of the potential costly impact of the removal and exclusion orders, as well as their mandatory ties to the Interagency Suspension and Debarment Committee, contractors should carefully consider the interim FASC process.

The FASC interim rule was one of many pieces of supply chain security-related news in September, along with the long-awaited DFARS cybersecurity rules and the National Counterintelligence and Security Center Supply Chain Risk Management Summary Publication.  With the 2021 NDAA around the corner and 2020 NDAA microelectronics standards deadline looming, this will continue to be an active area for counsel to follow.  For up to date information on Supply Chain Security and Risk Management developments, see Crowell’s SCRM site here.


[1] A “source” is a non-federal supplier, or potential supplier, of products or services, at any tier.

[2] A “covered article” is any of the following:

(1) Information technology, including any equipment or interconnected system or subsystem of equipment, used in the automatic acquisition, storage, analysis, evaluation, manipulation, management, movement, control, display, switching, interchange, transmission, or reception of data or information by the executive agency, if the equipment is used by the executive agency directly or is used by a contractor under a contract with the executive agency that requires the use of such equipment; computers, ancillary equipment (including imaging peripherals, input, output, and storage devices necessary for security and surveillance), peripheral equipment designed to be controlled by the central processing unit of a computer, software, firmware and similar procedures, services (including support services), and related resources; and cloud computing services of all types;

(2) Telecommunications equipment or telecommunications service (meaning equipment, other than customer premises equipment, used by a carrier to provide telecommunications services, and includes software integral to such equipment (including upgrades) and telecommunications offerings for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used);

(3) The processing of information on a Federal or non-Federal information system, subject to the requirements of the Controlled Unclassified Information program or subsequent U.S. government program for controlling sensitive unclassified information; or

(4) Hardware, systems, devices, software, or services that include embedded or incidental information technology.

[3] A “covered procurement” is any of:

(1) A source selection for a covered article involving either a performance specification or an evaluation factor relating to a supply chain risk, or where supply chain risk considerations are included in the agency’s determination of whether a source is a responsible source;

(2) The consideration of proposals for and issuance of a task or delivery order for a covered article where the task or delivery order contract includes a contract clause establishing a requirement relating to a supply chain risk;

(3) Any contract action involving a contract for a covered article where the contract includes a clause establishing requirements relating to a supply chain risk; or

(4) Any other procurement in a category of procurements determined appropriate by the FASC, with the advice of the FASC.

Photo of Steve McBradyPhoto of Brian Tully McLaughlinPhoto of Nicole Owren-WiestPhoto of Skye MathiesonPhoto of Charles Baek

On September 30, the Office of the Undersecretary of Defense for Acquisition and Sustainment issued a memorandum titled “Delegation of Defective Pricing Authority to the Defense Contract Management Agency,” describing DCMA’s new, enhanced role in TINA audits and subsequent disputes. The memo states that DCMA has created a “Defective Pricing Pilot Team,” which will “provide support” to PCOs and DCAA auditors in connection with defective pricing matters. According to the memo: “Effective immediately” PCOs may delegate to DCMA traditional PCO functions under FAR 15.407-1(b), (d), and (e), to DCMA, and DCMA will take “all actions” to resolve defective pricing issues on such matters, including, inter alia, “issu[ing] contracting officer final decisions” and “litigat[ing] any appeal or case that results from delegated DCMA defective pricing actions.” While it remains to be seen how DoD customers will implement this delegation of authority, contractors facing defective pricing allegations should be aware that DCMA may play an increasingly visible role in negotiating and litigating TINA disputes going forward.

Photo of Mana Elihu LombardoPhoto of Jacinta Alves

In this episode, hosts Jacinta Alves and Mana Lombardo discuss DOJ FCA investigations and common mistakes that targets make in defending these investigations with partner Michael Shaheen. “Let’s Talk FCA” is Crowell & Moring’s podcast covering the latest developments with the False Claims Act. | PodBean | SoundCloud | Apple Podcasts 

Photo of Peter J. EyrePhoto of Kate M. Growley, CIPP/G, CIPP/US

This week’s episode discusses the recent DFARS Interim Rule titled “Assessing Contractor Implementation of Cybersecurity Requirements” and is hosted by partners Peter Eyre and Kate Growley. 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.

Photo of Mana Elihu LombardoPhoto of Stephanie MarcantonioPhoto of Amy Laderberg O'SullivanPhoto of Paul J. PollockPhoto of Olivia Lynch

On October 2, 2020 (almost two months after the August 10, 2020 commencement of the acceptance period for forgiveness applications), the Small Business Administration (SBA) released an SBA Procedural Notice (the “Notice”) concerning required procedures for change of ownership of an entity that has received PPP loans (the “PPP Borrower”). Under the Notice, SBA approval or funding PPP loan balances into escrow may be required in connection with a change of ownership transaction and purchasers may be required to assume the PPP Borrower’s obligations, in addition to PPP Lender notice and approval.

Under the Notice, a “change of ownership” will be considered to have occurred when (1) at least 20% percent of the common stock or other ownership interest of a PPP Borrower is sold or otherwise transferred, whether in one or more transactions, including to an affiliate or an existing owner of the PPP Borrower, (2) the PPP Borrower sells or otherwise transfers at least 50% of its assets, whether in one or more transactions, or (3) a PPP Borrower is merged with or into another entity. The SBA further explained that to determine whether a change of ownership has occurred, all transfers of stock or other ownership interests since the date of the PPP loan would be aggregated. For publicly traded PPP Borrowers, only sales or transfers that result in one person or entity owning 20% or more of the PPP Borrower would be aggregated.

Under the Notice, prior to the closing of any change of ownership transaction, the PPP Borrower must notify the PPP Lender in writing of the contemplated transaction and provide the PPP Lender with a copy of the proposed agreements or other documents that would effectuate the proposed transaction.

Once the notification has been given to the PPP Lender, PPP Borrowers must provide notice to and obtain SBA’s prior consent to the change of ownership unless (i) the PPP loan has been fully satisfied through repayment, either by the PPP Borrower or by the SBA in response to a forgiveness application, (ii) the sale or transfer is of 50% or less of the common stock or other ownership interest of the PPP Borrower, or (iii) as set forth in more detail in the Notice, the PPP Borrower has completed a forgiveness application reflecting its use of the PPP loan and established an interest-bearing escrow account with the full amount of the balance of the PPP loan.

PPP Borrowers considering entering into a change of control transaction should note that, among other information to be included with the request for consent, the request must disclose a list of all owners of 20 percent or more of the purchasing entity. In addition, in transactions where SBA consent would be required, the transaction timeline should take into account that the SBA has sixty (60) days from receipt of a complete request to respond.

The Notice includes a number of additional requirements and further confirms that SBA approval of any change of ownership involving the sale of 50% or more of the assets of a PPP Borrower will require (i) buyer assuming all of the PPP Borrower’s obligations under the PPP loan, including responsibility for compliance with the PPP loan terms, and (ii) the purchase or sale agreement or a separate assumption agreement including appropriate language regarding the buyer’s assumption of the PPP Borrower’s obligations under the PPP loan.

In the case of a change of ownership not involving an asset sale, including a merger, the PPP Borrower or its successor entity would remain responsible for (1) performance of all obligations under the PPP loan, (2) the certifications made in connection with the PPP loan application, including the certification of economic necessity, and (3) compliance with all other applicable PPP requirements.

Crowell & Moring will continue to monitor and provide updates regarding developments in the PPP.

Photo of Trina Fairley BarlowPhoto of Peter J. EyrePhoto of Kris D. MeadePhoto of Rebecca SpringerPhoto of Jillian Ambrose

Two weeks after President Trump issued an “Executive Order on Combating Race and Sex Stereotyping,” which bans federal contractors from utilizing training that “inculcates in its employees any form of race or sex stereotyping,” the Department of Labor’s Office of Federal Contract Compliance Programs has issued its first guidance on the EO.

Notably, the guidance clarifies that unlawful “race or sex scapegoating” under the EO includes “any claim that, consciously or unconsciously, and by virtue of their race or sex,” people are inherently racist or inherently sexist. The guidance also explicitly states that “[u]nconscious or implicit bias training is prohibited to the extent it teaches or implies that an individual, by virtue of his or her race, sex, and/or national origin, is racist, sexist, oppressive, or biased, whether consciously or unconsciously.” Because this principle is a concept frequently included in unconscious and implicit bias training, the OFCCP’s guidance suggests that many training programs historically offered by federal contractors could now be viewed as a violation of the EO.

The guidance also announces that the Department of Labor is in the process of drafting a Request for Information (RFI), to be issued by October 22, 2020, which will seek information from contractors and their employees regarding training, workshops and similar programming in order to determine whether they violate the EO. The current guidance does not detail the deadline or process by which the responses to the RFIs must be submitted.

The guidance further clarifies that EO 13950 became effective immediately when signed on September 22, 2020, but that its requirements apply to contracts entered into on or after November 21, 2020. Importantly, however, the guidance makes clear that the OFCCP may also investigate complaints of sex and race stereotyping pursuant to its existing authority under EO 11246. This caveat suggests that contractors’ diversity and inclusion training programs could become the subject of an OFCCP investigation, even if the requirements of EO 13950 have not yet been incorporated into their contracts. Finally, the guidance announces the establishment of both telephone and email hotlines that individuals and “groups” – an undefined term – may use to report concerns of “race and sex stereotyping and scapegoating.”

Photo of Nicole Owren-WiestPhoto of J. Chris HailePhoto of Skye Mathieson

On August 18, 2020, the Acting Principal Director for Defense Pricing and Contracting (DPC) issued updated guidance regarding contractor and subcontractor reimbursement of paid leave costs under the CARES Act § 3610, including two key Class Deviations, both effective immediately. First, it issued Revision 1 to Class Deviation 2020-O0013, which revises and supersedes the original class deviation (issued April 8, 2020) to FAR 31 and DFARS 231, which added a new cost principle, DFARS 231.205-79, “CARES Act Section 3610 – Implementation,” governing the allowability of paid leave costs under § 3610. Second, it issued Class Deviation 2020-O0021, which establishes guidance for contracting officers to follow when reviewing and processing § 3610 requests for reimbursement, including detailed checklists that describe the cost and other information contractors should provide with their requests. It also establishes a new contract clause, DFARS 252.243-7999, “Section 3610 Reimbursement Requests,” to be used to reimburse approved costs. Together, these class deviations revise, clarify, and amplify the earlier version of Class Deviation 2020-O0013, which we discussed here.

Notably, the revision of Class Deviation 2020-O0013 shortens the period for which the cost of paid leave related to COVID-19 is allowable under DFARS 231.205-79 from January 31, 2020 through September 30, 2020, to March 27, 2020 through September 30, 2020. The revision explains that March 27, 2020 was the date the CARES Act was enacted into law and it did not provide for retroactive coverage. The guidance and the DPC’s updated Frequently Asked Questions make clear, however, that contracting officers may still reimburse the cost of paid leave provided between January 31, 2020 and March 27, 2020, if allowable under other contracting authorities (i.e., other than § 3610).

Class Deviation 2020-O0021 establishes structured processes for contractors and contracting officers to follow when making and reviewing such requests, including an “abbreviated” process for reimbursement requests under a single contract below $2 million; a “multipurpose reimbursement” process for requests related to a single contract or multiple “homogeneous groups of contracts,” such as contracts for a single program or with a single contracting activity or DoD Component; and a “global reimbursement” process for requests that seek reimbursement at a business unit or segment level, which should be submitted to the contractor’s assigned Cognizant Federal Agency Official.

The new guidance also addresses procedures for subcontractor requests, whether as part of a prime contractor’s own request or as a pass-through. All subcontractor requests are to be submitted to the prime and should include the same supporting information and documentation that is required from the prime contractor. Although the subcontractor must provide at least the amount of its request to the prime (for submission to the contracting officer), the subcontractor may submit all other supporting information directly to the contracting officer under separate cover. The guidance states that the prime contractor should evaluate its subcontractor’s submission and provide, with its own request, an opinion regarding the subcontractor’s eligibility as an “affected contractor.”

Following submission of a request, the contracting officer will determine, in writing, if the contractor is an “affected contractor,” the reimbursement amount, and the amount of funds available using the provided template Memorandum for Record. The contracting officer shall modify the affected contract(s) to provide for reimbursement through a bilateral modification that includes the new clause DFARS 252.243-7999 Section 3610 Reimbursement. (DEVIATION 2020-O0021). The clause requires contractors who receive any other relief specifically identified with the COVID-19 pandemic, such as credits or PPP loan forgiveness, to notify their contracting officer within 30 days, and to agree to a reduction in the reimbursement by the same amount received by other means up to the entire amount reimbursed under § 3610.

Although these processes are only guidance and contracting officers have discretion to tailor these processes to fit specific circumstances, contractors should expect contracting officers to hew closely to these processes and be prepared to provide the types of detailed cost and other information identified in the “checklists,” which apply to all contract types, including for commercial items.

The DPC also issued guidance regarding implementation of these deviations in connection with Other Transaction Authority Agreements. Crowell & Moring is continuing to monitor these developments.

Photo of Steve McBradyPhoto of Jim Flood

Rebuilding America’s aging and technologically challenged infrastructure is increasingly seen as an imperative. The need to invest in and mobilize resources for critical infrastructure projects has become an ever greater priority given the role project development can play in lifting the U.S. economy in dire times.

Congress and the Administration are actively exploring various forms of infrastructure-related stimulus and associated legislation. We are closely monitoring, and are in regular contact with key officials who are driving the efforts. We are also working with companies focused on impacting the contours of such funding avenues and enabling legislation. Drawing upon our market-leading status in government contracting, we are also assisting clients to position themselves to be on the front end of the coming wave of infrastructure projects.

There are many moving pieces looming in the infrastructure space, with crucial questions to be answered. Among them:

  • What infrastructure line items are likely to appear in forthcoming legislation?
  • Who will be the major players in driving legislation development, negotiations, and enactment?
  • Which industry sectors stand most to gain, or lose, depending on the outcomes?
  • How will the specifics of COVID-19 experience drive project development and the formulation of new law?
  • What does infrastructure even mean in our digital age?
  • How can and will defense sectors, and government contracting agencies, participate?
  • What regulatory, court, and arbitral litigation will fall out of these legislative and development efforts, and how will savvy businesses prepare?

With all this swirling, we are pleased to offer a webinar series focused on both the immediate opportunities associated with government stimulus and the broader set of strategic issues for companies focused on not being left behind in the coming wave of infrastructure projects in this rapidly evolving landscape.

The first program in the series will be a workshop-style brainstorming session, to make sure a broad set of perspectives is explored.

Click here to register for the first webinar in the series, “Infrastructure Stimulus Panel: How to prepare for, and influence, the extent, scope and funding of US infrastructure projects,” on September 10, 2020.

Photo of Jacinta AlvesPhoto of Mana Elihu Lombardo

In this episode, hosts Jacinta Alves and Mana Lombardo discuss the Paycheck Protection Program, which was established by the CARES Act, and FCA risks associated with receipt of those funds. “Let’s Talk FCA” is Crowell & Moring’s podcast covering the latest developments with the False Claims Act. | PodBean | SoundCloud | Apple Podcasts