Legal Developments for Contractors to Consider

5 min

There have been a number of legal developments in the past month that may affect government contractors, both with respect to legislative and regulatory activity, as well as notable court decisions. This article gives a brief review of those developments, as well as our 2017 Enforcement Outlook for non-profit federal grant recipients.

Legislative Developments for Contractors to Consider

  • In February Congress moved one step closer to removing the August, 2016 Fair Pay and Safe Workplaces rule, or "Blacklisting Rule," which has been mostly stayed by a Texas court since October, 2016. The rule would have required federal contractors to report labor law violations. The House passed Joint Resolution 37 in early February, 2017, and it is likely that the entire rule will be eliminated if the Senate passes its own version of the resolution (S. J. Res. 12).
  • The House of Representatives has passed a bill aimed at ending what is commonly referred to as "Chevron deference," a judicial doctrine developed by the U.S. Supreme Court in Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984). See H.R. 5. The doctrine provides for judicial deference to administrative agencies' interpretation of ambiguous federal statutes. An end to Chevron deference would reverse decades of administrative law and likely result in increased legal challenges to proposed rulemakings and final rules from federal agencies.
  • There are multiple efforts in Congress to eliminate the Davis-Bacon Act's requirement that contractors on federal construction projects be paid a prevailing wage set by the Department of Labor. Sen. Flake has introduced the TIRE [Transportation Investment Recalibration to Equality Act] Act (see S. 195) and co-sponsored Sen. Lee's Davis-Bacon Repeal Act (see S. 244).
  • The Surviving Spouse Contracting Preference Act (H.R. 971) has been introduced in the House. If it becomes law, the bill will "treat small businesses, owned by surviving spouses of members of the Armed Forces killed in the line of duty, as small business concerns owned and controlled by veterans for purposes of contracting goals and preferences of the Department of Veterans Affairs, and for other purposes."

Regulatory Developments Affecting Contractors

  • The White House released guidance on how its executive order on "reducing regulation and controlling regulatory costs" will be implemented. If an agency decides to repeal a regulation as part of its cost-saving efforts, contractors need to be vigilant with their contracting officers to ensure references to those regulations are removed from contracts. (And, of course, contractors should always be aware of any new regulatory requirements that might be incorporated into their contracts.) A lawsuit challenging the order has been filed.
  • The Small Business Administration (SBA) has issued a new rule increasing civil money penalties across a range of regulations it enforces. The increase is due to a 2015 law that requires inflation adjustments to keep penalties effective. With a wave of small businesses and their new mentors seeking SBA approval under the new All Small Mentor-Protégé Program, contractors need to be fully aware of potential penalties for false claims or false statements being made to the SBA. Under 13 CFR part 142 (implementing the Program Fraud Civil Remedies Act of 1986), the penalty for submitting, or causing to be submitted, a false claim or a false statement to SBA is going up to $10,957 from $10,781.
  • The Department of Defense (DoD) recently updated its FAQs on Network Penetration Reporting and Contracting for Cloud Services. The FAQs provide contractors more information and insight from the DoD on how it will be assessing compliance with the safeguarding and reporting requirements under DFARS clauses 252.204-7008, Compliance with safeguarding covered defense information controls, 252.204-7009, Limitations on the use or disclosure of third-party contractor reported cyber incident information, and 252.204-7012, Safeguarding covered defense information and cyber incident reporting. The FAQs are particularly helpful for contractors who want to better understand changes that were implemented in the DoD's final rule. Those changes include the new definition of covered defense information, which includes information described in the Controlled Unclassified Information (CUI) registry.

Compliance Considerations

  • A new Government Accountability Office (GAO) report was recently released with findings on U.S. military budget shortfalls. According to the report, "DOD remains one of the few entities that cannot demonstrate its ability to accurately account for and reliably report its spending and assets." For example, with regard to the Air Force, "The auditors reported a lack of adequate supporting documentation for transactions related to travel expenses and payments made to vendors and contractors for purchases of goods and services." In light of this report, contractors should anticipate increased DoD scrutiny of their contract performance costs, and take care to adequately document and support costs incurred in the performance of contracts.
  • The Department of Defense Inspector General issued the fourth installment in a series on contractor performance assessment reports by Defense Organizations for nonsystems contracts. It found that "officials at Defense Information Technology Contracting Organization, DLA Energy, and DLA Troop Support…prepared 49 of 53 PARs [contractor performance assessment reports] that did not include sufficient written narratives to justify the ratings given, ratings for all required evaluation factors, or sufficient descriptions of the contract purpose." Contractors should take advantage of the opportunity to comment on CPARS reports both to (1) ensure the correct rating has been recorded, and (2) where necessary, suggest adding more content to substantiate the rating.
  • The GAO released a report on the use of purchase cards by government agencies for micropurchases (generally under $3,500). The report found little evidence of improper or potentially fraudulent purchases, but did find many instances of inadequate documentation in micropurchases. 22% of transactions across government lacked complete documentation to substantiate their approval process; that number was 23% at Department of Defense and 13% at the Department of Veterans Affairs, which together made up about two-thirds of all micropurchasing in 2014. The report recommends that agencies follow guidance from the Office of Management and Budget (OMB).
  • The Supreme Court issued a brief order (No. 16-578) granting certiorari in a False Claims Act case and remanding the case to the Second Circuit for further consideration in light of its recent ruling in Universal Health Servs., Inc. v. United States ex rel. Escobar, 579 U. S. ___ (2016), which espoused a broad theory of FCA liability. Contractors should continue to be aware of False Claims Act-related updates and rulings based on the Escobar decision.