Each month, Venable's Government Contracts Group publishes a summary of recent legal developments of interest to the government contractor community.
Regulatory Updates
The U.S. Department of Defense (DoD), U.S. General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA) withdrew several proposed rules to amend the Federal Acquisition Regulation (FAR), including Small Business Set Asides for Research and Development Contracts, Extension of Limitations on Contractor Employee Personal Conflicts of Interest, and Organizational Conflicts of Interest.
DoD, GSA, and NASA also withdrew a proposed rule to amend the FAR, Protecting Life in Global Health Assistance, pursuant to President Biden's January 28, 2021 memorandum, Protecting Women's Health at Home and Abroad. The rule would have expanded the application of the so-called Mexico City Policy, which was first issued by President Reagan in 1984 and required foreign nongovernmental organizations to agree, as a condition of receiving U.S. Agency for International Development family planning assistance, not to perform or actively promote abortion as a method of family planning with any source of funds.
The Office of the Under Secretary of Defense, Acquisition and Sustainment, issued a memorandum, Implementation of the Government Furnished Property Module, which finalizes the transition of contractor reporting losses of government property in the Procurement Integrated Enterprise Environment's GFP Module in lieu of the Defense Contract Management Agency (DCMA) Property Loss eTool.
On April 8, 2021, the Committee for Purchase From People Who Are Blind or Severely Disabled, operating as the U.S. AbilityOne Commission, will hold its regular quarterly public meeting via webinar. The AbilityOne Program, through federal contracts, employs people who are blind or have significant disabilities. The Committee's meeting notice lists issues on which it is soliciting input.
Congressional Developments
On March 11, 2021, President Biden signed H.R.1319, the American Rescue Plan Act of 2021, into law, which provides additional monetary relief to address the continued impact of the COVID-19 pandemic. As a result of this Act, contractors and grant recipients can expect an increase in funding flowing through the private sector through various programs. Significantly for contractors, the Act also extended section 3610 of the CARES Act, which allows federal agencies to use their funds to reimburse contractors for paid leave made to employees who are unable to access their work sites and unable to telework during the pandemic, now allowing reimbursements through September 30, 2021.
Relatedly, on March 8, 2021, H.R. 1668, To extend the authority for agencies to reimburse paid leave provided by Federal contractors to certain employees or subcontractors unable to perform work due to the COVID-19 pandemic, was introduced to the House and then referred to the House Committee on Oversight and Reform. Venable will provide further updates regarding this bill as they occur.
On March 3, 2021, the House passed H.R.1, For the People Act of 2021. While widely known as a voting rights bill, it also includes several provisions of note to government contractors. For example, Section 4701, Repeal of Restriction on Use of Funds to Require Disclosure of Political Spending by Government Contractors, would repeal section 735 of the Financial Services and General Government Appropriations Act. Section 735 provided that contractors could not be required to disclose their political contributions as a condition of submitting an offer, the repeal of which would bring greater transparency surrounding companies' political spending.
The Act would also tighten post-employment restrictions applying to agency employees seeking private sector employment.
- For instance, Section 8003, Requirements Related to Slowing the Revolving Door, would bolster the conflict of interest standards for covered employees, providing that "[a] covered employee may not participate personally and substantially in a particular matter in which the covered employee knows or reasonably should have known that a former employer or former client of the covered employee has a financial interest," with some opportunities for waivers to be issued.
- Likewise, Section 8004, Prohibition of Procurement Officers Accepting Employment from Government Contractors, provides that "[a]n employee of the Federal Government may not participate personally and substantially in any award of a contract to, or the administration of a contract awarded to, a contractor that is a former employer of the employee during the 2-year period beginning on the date on which the employee leaves the employment of the contractor."
- Finally, Section 8005, Revolving Door Restrictions on Employees Moving Into the Private Sector, would extend the restricted period from one to two years following departure from the government, and Section 8007, Limitation on Use of Federal Funds and Contracting at Businesses Owned by Certain Government Officers and Employees, would require that "[n]o Executive agency may enter into or hold a contract with a business owned or controlled by a covered individual or any family member of such an individual," and no federal funds can be obligated for the same, subject to certain exceptions.
Last, two bills were recently introduced that could impact government contractors, although further details are still forthcoming. S.583, A Bill to Promote Innovative Acquisition Techniques and Procurement Strategies, and For Other Purposes, was introduced on the Senate floor on March 3, 2021. On March 10, 2021, S.688, A bill to prohibit contracting with persons that have business operations with the Maduro regime, was introduced on the Senate floor. Venable will continue to track these bills as they progress through the lawmaking process.
Compliance and Oversight
Criminal and civil regulatory oversight of the Small Business Administration's (SBA) federal Paycheck Protection Program (PPP) loan program continues, including press releases, such as "Sussex County Man Charged with $1.9 Million Paycheck Protection Program Fraud Scheme" and "Tech Executive Pleads Guilty to Wire Fraud and Money Laundering in Connection with PPP Loans." The SBA Office of the Inspector General (OIG) also released a report, "Flash Report: Duplicate Loans Made Under the Paycheck Protection Program."
In addition, on March 25, 2021, the U.S. Government Accountability Office (GAO) released testimony on the need to identify and respond to fraud risks associated with SBA's PPP loan program. The testimony relied primarily on information about SBA's implementation of these programs found in previously released GAO reports from June 2020 through January 2021 relating to PPP oversight, analysis of Economic Injury Disaster Loan (EIDL) data, assessment of fraud risks, suspicious activity reports, Department of Justice charges, the SBA OIG, and financial statement audits. In this testimony the GAO also stated that it anticipates making four recommendations on fraud risks in PPP and EIDL and one on EIDL oversight in its March 2021 report on the federal COVID-19 response.
As outlined in the conference report accompanying the National Defense Authorization Act for fiscal year 2020, the GAO studied and reported on the Army Corps of Engineers contracting practices, with a specific focus on how the Corps monitors and enforces the Davis-Bacon Act. The report, released on March 10, 2021, examined the Corps' guidance for the Davis-Bacon Act and how selected Corps districts reported monitoring and enforcing compliance with the Act. The GAO found that the Corps' guidance on construction wage requirements reflects the relevant FAR requirements and describes how staff should monitor and enforce compliance with the act. Additionally, it found that the four selected districts' interview practices, payroll review, and on-site inspection processes varied from district to district; however, reported enforcement practices were generally uniform. The GAO recommended that the Corps (1) provide clarifying information about determining the proportion of payroll records to review; (2) clarify the payroll review procedures; and (3) establish a process for consistently documenting on-site inspections.
On March 4, 2021, the GAO released a report on the DoD's efforts to ensure its weapons systems can withstand cyberattacks. In its report, the GAO found that the DoD has taken to steps to make its network of weapons systems less vulnerable to cyberattacks by including increased access to expertise, enhanced cyber testing, and additional guidance. However, it also found examples of program contracts omitting cybersecurity requirements, acceptance criteria, or verification processes. To remedy this, the GAO recommended that the DoD issue guidance on incorporating weapons systems cybersecurity requirements into contract language.
Every two years, the GAO releases its High-Risk List, which reports on federal programs and operations that are vulnerable to waste, fraud, abuse, and mismanagement, or that need broad reform. In this year's report, the GAO found that of the areas on the list, 20 were unchanged since 2019; five areas regressed; six areas improved; one, DoD Support Infrastructure Management, was removed from the list; and two areas were added: small business emergency loans and drug misuse. Additionally, they identified nine existing high-risk areas that also need more focused attention.
The Environmental Protection Agency (EPA) OIG issued a report finding that the EPA had violated the FAR by purchasing hardware and software equipment outside the scope of an expiring information technology contract awarded to CGI Federal. The OIG also found that the EPA had improperly solicited bids for one of two subsequent contracts and transferred the equipment to use on the new contract; issued task orders without approval from the chief information officer required under the Federal Information Technology Acquisition Reform Act (FITARA); and mismanaged contracts with respect to monitoring property and licenses.
Recent Court Cases
The United States Court of Appeals for the Fifth Circuit upheld a district court's enforcement of a $128 million domestic arbitral award to Huntington Ingalls Incorporated, formerly known as Northrop Grumman Ship Systems, Inc. and Ingalls Shipbuilding, Inc., against the Ministry of Defense of the Republic of Venezuela. See Northrop Grumman Ship Sys., Inc. v. Ministry of Def. of Republic of Venezuela, No. 20-60347, 2021 WL 921298 (5th Cir. Mar. 10, 2021). The Fifth Circuit concluded that the district court had not erred in determining that political conditions made arbitration in Venezuela impracticable and that such conditions were unforeseeable to Huntington Ingalls at the time it entered the contract.
The United States District Court for the District of Maryland dismissed a government contractor's complaint against a former employee under the Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1836, highlighting the pleading standard contractors need to meet for such claims. See TECH USA, Inc. v. Milligan, No. CV RDB-20-0310, 2021 WL 795151 (D. Md. Mar. 1, 2021), available at https://www.mdd.uscourts.gov/recent-opinions. Merely alleging disclosure of the identity of certain customers and other information regarding those customers, without alleging that those particular identities and/or their contact information were unavailable to the public, is insufficient to state a claim for relief under the DTSA. The Court noted, however, that customers' buying habits, pricing, and business strategy may qualify for protection under the DTSA under some circumstances.
The United States District Court for the Eastern District of Virginia, Alexandria Division, denied Department of Commerce official Raushi J. Conrad's motion to vacate his convictions for conspiracy to commit bribery and acceptance of bribes by a public official. See United States v. Conrad, No. 1:16CR169, 2021 WL 833948 (E.D. Va. Mar. 3, 2021). The government had alleged that the official "accepted hundreds of thousands of dollars in payments and renovation work at his home from James Bedford, in return for taking official acts to steer government contracts to companies owned by Bedford."
The Court of Appeal of the State of California, Fourth Appellate District, affirmed a lower court's grant of summary judgment in favor of a company accused of wrongfully demolishing a single-family residence while performing a contract for the City of San Bernardino. See Michael Street v. AON, Inc., No. E072477, 2021 WL 927076 (Cal. Ct. App. Mar. 11, 2021). The contractor had relied on government contractor immunity, arguing "that only the City could be held liable because the demolition was done according to the City's plans and specifications."
*We would like to express our special thanks for the key contributions of Venable's Anna R. Kaye in creating this month's update!