Insights

Highlighting the renewed focus on debarment in state and local contracting, the state of New York recently reminded purchasing agencies of their obligations to debar non-responsible contractors and to confirm that intended awardees are otherwise eligible before awarding contracts. Executive Order (EO) 192, issued by Governor Cuomo, directs purchasing entities to consider vendor responsibility by evaluating, among other factors, financial and organizational capacity, integrity, and past performance. If buying agencies become concerned about a contractor’s responsibility, the EO instructs agencies to conduct an investigation and make a responsibility determination. Agencies are required to list nonresponsible vendors on the Office of General Services’ website. No state agency may purchase from a vendor on that list, absent a waiver, or agency leadership risks “breaching their duty as a public officer . . . ” suggesting that contract rescissions may follow, among other consequences.

The federal government’s response to Hurricane Florence will increase its reliance upon government contractor support to perform critical tasks in the coming months. The Federal Emergency Management Agency and other federal, state, and local agencies charged with disaster response and recovery will look to contractors to provide everything from logistics, to housing, construction, and security services. National disaster contracting provides contractors with immediate opportunities to assist in the recovery effort, but given the time sensitivity, evolving customer needs, and critical nature of the work, contractors must be prepared to: (i) perform under tight deadlines and high scrutiny; (ii) seek clarity with respect to the scope of work they are asked to perform; (iii) properly manage contract and change order documentation; and (iv) maintain contract files for subsequent audits and other inquiries which can take place years after the recovery effort has ended.

On July 18, 2018, the Federal Circuit affirmed the U.S. Court of Federal Claims’ decision in Shell Oil Co., et al. awarding $99.5M to Shell and other oil companies for the government’s breach of World War II-era contracts for high-octane aviation gasoline production (previously discussed here, and here).

Section 1612 of the National Defense Authorization Act for Fiscal Year 2018 contains a development that should be concerning to contractors working on space procurements. The NDAA requires the Commander of the Air Force Space and Missile Systems Center to develop a “watch list” of contractors with a history of poor performance on space contracts, including procurement contracts and research, development, test and evaluation space program contracts. The basis for inclusion is the Commander’s determination that performance on a specific contract is “uncertain” because of: (1) poor performance or award fee scores of under 50%; (2) financial concerns; (3) felony convictions or civil judgments; security or foreign ownership and control issues. Entire companies or divisions may be included on the “watch list” and inclusion will end the availability of new contracts, options, changes, etc. without the Commander’s permission. The “watch list” will also preclude subcontracts of more than $3 million or 5 percent of the contract value without Commander permission.

Continuing the Trump Administration’s focus on fraud, waste, and abuse, Veterans Affairs Secretary Dr. David Shulkin announced a program to consolidate fraud detection, prevention, and remediation efforts in VA administered programs. The program, called Seek to Prevent Fraud, Waste, and Abuse (STOP FWA), consolidates fraud prevention and remediation efforts within VA health, benefits, and cemeteries programs and is expected to partner with other federal agencies to leverage best practice in fraud prevention, detection, and enforcement. Information sharing among fraud detection and remediation programs has accelerated in recent years across the government, and contractors are well served to consider a holistic approach to investigating (and, if needed, disclosing) misconduct because it is increasingly likely that multiple government stakeholders will be interested in the outcome.

The Continuing Resolution funding government operations will expire on April 28, 2017. Absent a budget agreement or a new CR, certain government operations will cease. While Congress is working on the budget, contractors wishing to plan for the end of the CR and a potential shutdown might consider: (1) maintaining open lines of communication with their customers; (2) cataloguing contracts by funding source, performance period, option exercise dates to assess impact on their businesses, while paying attention to changes clauses for opportunities for mitigation; (3) preparing for human resources impacts on staff; and, (4) reviewing subcontracts to understand rights and obligations on both sides.

The Government Contracts Group of Crowell & Moring LLP is pleased to announce its Government Contractor Recovery Practice, focused on recovery opportunities for our clients in in the government contracting industry. Our team consists of experienced and highly skilled attorney and non-attorney government contract management professionals who stand ready to assist clients with identifying and pursuing claims based on a variety of contractual theories – including REAs and claims to recover (i) increased performance costs attributable to Government action or delay, (ii) costs resulting from Government-initiated contract termination, (iii) costs of remediating certain environmental pollution and toxic tort litigation covered by certain indemnification clauses, and (iv) other costs to which contractors are entitled by operation of contract or statute. Our Performance Review Offering (PRO) allows, at your request, our team of experienced Crowell & Moring attorneys to provide a “diagnostic” review of the relevant documentation on your contract or program and make a recommendation regarding whether or not to pursue a claim; we can also discuss alternative fee arrangements, including risk-sharing, full and partial contingency arrangements.

On January 28, 2017, President Trump issued an executive order setting forth the ethics restrictions for its executive agency appointees. These restrictions, discussed more fully in our blog post, are simultaneously more restrictive and less restrictive than their 2009 Obama counterparts, and appear to be more focused on appointees’ conduct following their exit from Government rather than on their conduct preceding and during their appointments.

On July 26, 2016, the Office of Government Ethics issued a final rule updating the Standards of Ethical Conduct for Employees of the Executive Branch, subpart F, “Seeking Other Employment” (5 C.F.R. 2635), to clarify recusal requirements. Recusals are required when the scope of the federal employee’s duties has a “direct and predictable” effect on the financial interest of an entity with whom the employee is either negotiating prospective employment or with whom the employee has any agreement concerning prospective employment, and the final rule also adds a new section to implement the statutory notification requirements under section 17 of the STOCK Act, which applies to individuals required to file public financial disclosure reports.

The ASBCA's dismissal of an appeal in Binghamton Simulator Co. provides a stark reminder that subcontractors generally do not have privity of contract with the government and therefore cannot appeal contracting officer final decisions – even those that directly affect the sub's rights – unless that appeal is in the name of the prime and with the prime's consent and cooperation. The substantive dispute in this appeal related to the extent of government rights in software provided by Binghamton, and Binghamton had a provision in its subcontract that may have required the prime to sponsor the appeal, but the ASBCA held these were irrelevant because the prime refused to confirm its sponsorship of the appeal to the Board.

In a decision with potentially far-reaching ramifications for companies conducting internal investigations, the Delaware Supreme Court in Wal-Mart Stores, Inc. v. Indiana Elec. Workers Pension Trust Fund IBEW (July 23, 2014) ordered Wal-Mart to hand over attorney-client privileged documents describing how it set up its investigation into Mexican bribery allegations. The Delaware Supreme Court held that, under the Garner exception, which allows stockholders to invade a corporation’s attorney-client privilege to prove a fiduciary breach by those in control of the corporation upon showing of good cause, Wal-Mart was required to comply with the stockholders’ request for information relating to the investigation, the potential of a cover-up, and the reports provided to the board of directors.