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SEC Adopts Proxy Access Rules

Wed, 1 Sep 2010 10:25:43 -0400

New regime will impact public companies, shareholders and activist investors.

On August 25, 2010, the SEC adopted new rules that require companies to include the director nominees of significant, long-term shareholders in company proxy materials, alongside the nominees of management. These new "proxy access" rules will impact public companies, shareholders and activist investors. Qualified shareholders can now avail themselves of company proxy statements to nominate and elect directors, rather than having to launch expensive proxy fights in which they mail their own ballots.

For more information, please click here.

Selling Derivative Claims

Mon, 30 Aug 2010 11:35:09 -0400

The financial crisis has resulted in the termination of billions of dollars worth of derivatives between sophisticated market participants. When a defaulting party files for bankruptcy, the non-defaulting party is often left with a claim against the estate of its counterparty--and claims holders may seek to monetize them by selling to third parties.

Steven B. Levine, Finance Practice Group Leader at Brown Rudnick, and Timothy C. Bennett, Associate at Brown Rudnick, run through the considerations potential sellers should have in mind when negotiating and documenting a claim sale.

To learn more, please read the article Selling Derivative Claims in Derivatives Week on our website.

Clean Energy Contracting with the Government: A New Era for Government Funding

Mon, 30 Aug 2010 10:57:48 -0400

The ramifications of the Gulf oil spill on the Gulf of Mexico and surrounding ecosystems have created a new focus on federal government funding to support green alternatives for the sustainable energy community.

Kenneth B. Weckstein and Michael D. Maloney, members of Brown Rudnick's Government Contracts & Litigation Group, discuss the opportunities and challenges that cleantech companies face in federal government contracting matters. In this article published in Bloomberg's Sustainable Energy Report, they highlight the "Ten Things You Need to Know as a Government Contractor."

To learn more, please read the article Clean Energy Contracting with the Government: A New Era for Government Funding on our website.

Frederick's Sees Attraction of Liquidation Firms' Lending Arms

Steven B. Levine (slevine@brownrudnick.com) — Thu, 26 Aug 2010 11:34:22 -0400

Today it is common for liquidation firms to appear among the names of a company's lenders as an alternative source to a bank. For example, earlier this month, Frederick's of Hollywood Group Inc. closed a $7 million loan with a lender affiliated with a liquidation firm as part of its recapitalization and strategic turnaround.

In this article, Steven B. Levine, Brown Rudnick’s Finance Practice Group Leader, offers insight on the attraction of liquidation firms.

To learn more, please click here.

Permit Extensions Under the Act Relative to Economic Development Reorganization

John W. Wadsworth (jwadsworth@brownrudnick.com) — Wed, 25 Aug 2010 13:56:46 -0400

Massachusetts Governor Deval Patrick has signed the "Act Relative to Economic Development Reorganization". The Act contains many provisions, including the sales tax holiday, abolishment of the Massachusetts Health and Educational Facilities Financing Authority, and extension of the Brownfields Tax Credit, but it also includes a provision designed to extend approvals granted for real estate projects that may have been stalled during the economic downturn of the last two years, to allow projects to proceed without the expense or delay of having to reapply for permits.

For more information, please click here.

Health Care Industry Pay Practices Subject to Increased Department of Labor Scrutiny

Thu, 19 Aug 2010 15:08:25 -0400

The Department of Labor ("DOL") recently announced an initiative to promote compliance with the Fair Labor Standards Act ("FLSA") in the health care industry. This comes after a finding by the DOL that many hospitals and nursing homes do not pay proper overtime to nurses and other employees who work more than 40 hours a week. In addition to the increase in DOL enforcement proceedings, class action plaintiff lawyers are sending mailings to the homes of registered nurses across the country in search of hospitals to sue for wage/hour violations. As a health care industry employer you may be at risk and your potential liability for FLSA violations could total in the hundreds of thousands of dollars or more in back pay and penalties.

For more information, please click here.

U.S. Supreme Court Drastically Reduces Extraterritorial Application of U.S. Securities Laws

Tue, 17 Aug 2010 11:16:27 -0400

Foreign companies will welcome the decision of the United States Supreme Court in Morrison v. National Australia Bank Ltd, US, NO. 08-1191 because it substantially narrows their exposure to private causes of action arising under the principal anti-fraud provisions of the U.S. securities laws -- section 10(b) of the Securities Exchange Act of 1934 and Securities Exchange Commission Rule 10b-5. These provisions, which make it unlawful to employ manipulation or deception in connection with the purchase or sale of any security, were long interpreted to apply to transactions in foreign countries involving U.S. conduct or having substantial effect in the U.S. Reversing decades of lower court decisions on the application of Section 10(b) and Rule 10b-5, the Court held that such provisions apply "only in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States."

For more information, please click here.

Massachusetts Allows Carry Forward of Losses for 20 Years and a Reduced Capital Gains Rate for Start-Ups

Tue, 17 Aug 2010 11:11:04 -0400

On August 5, 2010, Massachusetts Gov. Deval Patrick signed into law an economic development bill that provides favorable tax treatment under Massachusetts tax law. Specifically, the new law (1) allows corporations to carry forward losses for 20 years up from the current limit of 5 years and (2) reduces an investor's tax rate on capital gains earned on investments in start-up companies from 5.3 percent to 3 percent.

For more information, please click here.

New Rules Under Dodd-Frank Law to Impact Derivatives Trading & Market Participants

Tue, 17 Aug 2010 11:05:00 -0400

This Alert is the third in a series of Alerts that examine key aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act"), which was signed into law by President Obama on July 21, 2010. The Act contains numerous provisions which attempt to regulate the over-the-counter derivatives market, both by establishing new requirements and removing exemptions that had been previously codified. This alert summarizes some key points likely to impact your business.

For more information, please click here.

LBIE - Recent Court of Appeal Judgment in Relation to the Client Monies Issue

Tue, 17 Aug 2010 10:58:36 -0400

Below is a summary of the Court of Appeal’s judgment of 2 August 2010 in relation to the ownership of client funds held by LBIE at the date of administration (the so-called "client monies" issue). Those funds were subject to a statutory trust imposed by Chapter 7 of the Client Asset Sourcebook, known as "CASS7" (the FSA’s client money rules).

For more information, please click here.

Challenging bad past performance reviews

Wed, 4 Aug 2010 13:22:50 -0400

Past performance is a key evaluation factor in virtually every federal procurement, yet it is something over which contractors have frustratingly little control. How can that be, you wonder? Doesn't a contractor create its own past performance by how it performs its contracts?

Not entirely. Under the performance evaluation system legislated by Federal Acquisition Regulation (FAR) part 42.15, contracting personnel input detailed past performance information -- including subjective opinions -- into databases that other agencies can access to see what experiences their colleagues have had with a given contractor. One such system is the Contractor Performance Assessment Reporting System or "CPARS." In the CPARS, contractors are evaluated at least once a year, and sometimes more frequently, on a variety of factors, including their Business Relations. A contractor who is deemed uncooperative by the contracting officer, for example, because the contractor is trying to hold the Government to the terms of the contract, might be marked "unsatisfactory" under Business Relations. And, the contractor might get the kiss of death -- a rating of "Definitely would not award another contract."

Officially, contractors can review their CPARS and have their rebuttals included in the database, but what Government employee is going to believe the rebuttal of a biased contractor over the "unbiased" assessment of another Government employee? Contractors have occasionally tried to challenge negative CPARS in court, but have been largely unsuccessful. When the suits have been filed in U.S. district courts, the Government has typically moved to dismiss because Government contract cases are supposed to be brought in the Court of Federal Claims or at the Boards of Contract Appeals. But, when the cases have been filed in those traditional Government contracts forums, the Government has argued that they should be dismissed because the contractor has not filed a certified claim under the Contracts Disputes Act (CDA).

A recent decision of the Armed Services Board of Contract Appeals (ASBCA) suggests that contractors may have a remedy, albeit an incomplete one. In Colonna’s Shipyard, Inc., ASBCA No. 56940 (June 24, 2010), the ASBCA found that when the contractor receives a bad performance evaluation because of a disagreement with the contracting officer over what the contract requires, the contractor can use the disputes process to obtain a ruling that its contract interpretation is correct. The contractor need not request monetary relief to get a decision from the ASBCA. For example, if the contractor believes that it was wrongly assigned low grades for the timeliness of its performance, it can obtain a contract interpretation saying that it was right and the Government was wrong.

The question then becomes, what happens with the bad past performance review in the CPARS or other databases? Boards of Contract Appeals do not seem to have authority to order the Government to remove the improper past performance ratings. That leaves the contractor with few options. It could go back to the court and try to get relief and it could ask the Government to post the Board decision along with the past performance review. Either way, if a contractor wants to challenge a negative past performance review, there is a way to navigate the case law to get some practical relief.

One small step against Bundled Contracts

Wed, 4 Aug 2010 11:26:10 -0400

The Obama Administration recently took a small step to execute its agenda to promote transparency in contracting and small businesses. The Department of Defense ("DOD") released an interim rule effective July 13, 2010 amending the Defense Acquisition Regulation Supplement ("DFAR") to require DOD contracting officers to publish a notice of a solicitation for a bundled acquisition on a public website. "Bundling" is a practice where an agency will combine a number of small requirements that were separate contracts into a single larger contract that may be unsuitable for award to a small business concern. The separate smaller contracts often had been performed by small business concerns or were at least suitable for award to a small business concern. When contracts are bundled into one larger job with different categories of work, small businesses that had been capable of performing the smaller contracts may not have the capability to perform the larger, bundled contract. For that reason, bundling has been criticized as limiting opportunities for small businesses to compete for government contracts.

Currently only the incumbent small business contractor is required to be notified if the follow on contract is going to be bundled. With the new change, the information will be posted for any interested contractors to see. As a result, more small businesses will have the opportunity to submit concerns to the agency (and possibly protest) a bundled acquisition. This notice is to be posted at least 30 days prior to release of the solicitation on the website www.FedBizOpps.gov. In the notice, the DOD is required to describe the "measurably substantial benefits" that are expected to be derived as a result of the bundling. This notice requirement only applies to DOD contracts but it will likely be seen as an improvement by small business owners that seek business with the DOD. DOD is accepting comments on this interim rule until September 13, 2010. For more information see the Federal Register at 75 FR 40714 available here.

U.S. Bankruptcy Court Grants Chapter 15 Foreign Main Recognition to Fairfield Funds

Tue, 3 Aug 2010 10:38:45 -0400

On July 22, 2010, the U.S. Bankruptcy Court for the Southern District of New York (Lifland, J.) entered an order recognizing the insolvency proceedings pending in the British Virgin Islands in respect of three BVI-registered hedge funds - Fairfield Sentry Limited and two other related funds - as foreign main proceedings under Chapter 15 of the Bankruptcy Code. The Fairfield funds were the largest of the so-called Bernard Madoff "feeder funds," and, up until the disclosure of the Madoff fraud in December 2008, certain of their activities could be said to have taken place in New York City. Brown Rudnick LLP represented the BVI court-appointed liquidators for the Fairfield funds in their efforts to obtain Chapter 15 recognition of the BVI proceedings in U.S. Bankruptcy Court.

For more information, please click here.

Department of Labor & SEC Issue Guidance on Target Date Funds

Mon, 2 Aug 2010 13:53:35 -0400

On May 6, 2010, the Department of Labor ("DOL") and the Securities and Exchange Commission ("SEC") jointly issued an investor bulletin to help investors and plan participants better understand the operations and risks of target date fund investments. Subsequently, the SEC voted unanimously on June 16, 2010 to propose tougher disclosure rules on the investment companies that offer target date funds as an investment option. These proposals are designed to increase awareness of both the value and risks associated with target date funds.

To learn more, please click here.

President Signs Into Law Pension Funding Reform Act

Wed, 28 Jul 2010 11:44:29 -0400

On June 25, 2010, President Obama signed into law, H.R. 3962, the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (the "Act"). The Act provides funding relief for both single and multiemployer defined benefit pension plans and provides sponsors of such plans additional time to amortize pension funding shortfalls.

For more information, please click here.

The Dodd-Frank Wall Street Reform & Consumer Protection Act

Tue, 27 Jul 2010 11:35:34 -0400

This Alert-the second in a series of Alerts that examine key aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act"), which was signed into law by President Obama on July 21, 2010-focuses on changes to the "accredited investor" definition under the Securities Exchange Act of 1933. The changes take effect immediately and potentially impact issuers currently engaging in private offerings.

For more information, please click here.

Exceptions to Every Rule

Tue, 6 Jul 2010 12:40:37 -0400

In Federal Government Contracts, for every black letter rule, there often is an exception. This maxim was proven yet again by a case decided by the US Court of Federal Claims in May.

In Magnum Opus Technologies, Inc., et al., v. United States, et al., -- Fed. Cl. --, 2010 WL 2255523 (Nos. 10-106C, 10-127C May 28, 2010), the Court of Federal Claims granted Plaintiffs’ Motion on the Administrative Record, concluding that the Air Force improperly exercised options for extending ID/IQ contracts for four out of six of the contract-holders. The case was framed as a bid protest - with the plaintiffs arguing that the Air Force violated FAR 17.207 and was required to hold a new competition for the option work. Ultimately, the Court agreed.

As a general rule, an agency’s exercise of a contract option does not give competing contractors a basis to protest. And, as a general rule, an agency’s failure to exercise a contract option does not give a contractor a right to file a protest. The Magnum case is somewhat interesting because it represents an example of exceptions to both of those general rules.

The two plaintiffs in the case were: 1) an entity that was not party to one of the ID/IQ contracts at issue; and 2) a contractor that did have an ID/IQ contract but whose option was not exercised by the Air Force. And, both prevailed in the litigation.

The ID/IQ contracts at issue were to provide health care service providers, e.g., doctors, nurses, etc., for Military Treatment Facilities. The original 2005 RFP envisioned award of a minimum of five ID/IQ contracts, with subsequent competition among the ID/IQ contract-holders at the task order level. As part of the initial competition, bidders proposed "Not to Exceed" rates for various health care service provider positions that were to be filled at the task order level. During contract performance, however, the Air Force, by bilateral modification, eliminated all of the "Not to Exceed" rates in the ID/IQ contracts.

The deletion of the Not to Exceed rates from the ID/IQ contracts ended up being the determinative fact in the litigation because the Court ultimately found, among other things, that the deletion of those rates from the ID/IQ contracts rendered the Air Force unable to exercise awarded options without violating FAR 17.207(f) - absent a sole-source justification. Magnum, 2010 WL 2255523 at *24.

FAR 17.207(f) states in part:

Before exercising an option, the contracting officer shall make a written determination for the contract file that exercise is in accordance with the terms of the option, the requirements of this section, and Part 6. To satisfy requirements of Part 6 requirements regarding full and open competition, the option must have been evaluated as part of the initial competition and be exercisable at an amount specified or reasonably determinable from the terms of the basic contract....

Id. (Emphasis added). The Court explained:

The contract modification [deleting Not to Exceed rates] thus removed the only basis the Air Force possessed for meaningfully comparing the cost to the Government of the contractors’ options. Notwithstanding [other] "cost control" measures, the price of the options was not ‘reasonably determinable’ from the ID/IQ contracts.

Magnum, 2010 WL 2255523 at *24.

FAR Pt. 6 outlines the policies and procedures for promoting full and open competition in Federal government procurements. It applies to all Federal acquisitions with limited exceptions. One such exception is "the exercise of priced options that were evaluated as part of the initial competition (see 17.207(f)), that are within the scope and under the terms of the existing contract". FAR 6.001(c).

In the Magnum case, because the deletion of the "Not to Exceed" rates rendered the option prices "not reasonably determinable", the Air Force could not exercise the options in compliance with FAR 17.207(f). Because the Air Force could not exercise the options in compliance with FAR 17.207(f), the Air Force legally was required to use full and open competition to contract for the requirements covered by the options - or prepare a justification for other than full and open competition in accordance with FAR Subpart 6.3.

Thus, sometimes it is the exceptions and not the general principles that carry the day. That said, it is notable that even though the plaintiffs prevailed in the case, the injunctive relief granted was "tailored" to permit the Air Force to continue to obtain work under the improperly exercised ID/IQ contract options through May 13, 2012. Magnum, 2010 WL 2255523 at *36.

Financial Reform Legislation Approved by House-Senate Conference Committee

Fri, 2 Jul 2010 15:49:45 -0400

Dodd-Frank Act Brings Financial Reform Legislation Closer to Reality

Status: On June 25, 2010, the House-Senate conference committee concluded its reconciliation of separate financial reform bills previously approved by the House and Senate. The result of that reconciliation, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act"), was passed by the House (with some modifications) on June 30, 2010. It must now be approved by the Senate before being presented to the President for signature. The recent death of Senator Byrd impacts the Senate’s schedule and voting dynamics, and continued political wrangling leaves the Act’s passage in the Senate unclear. As of the time of this writing, the political landscape appears tilted towards passage, though a Senate vote will not occur before the week of July 12. We will continue to update you on material developments.

For more information, please click here.

Supreme Court Remands Medical Process Cases in View of Bilski

Fri, 2 Jul 2010 15:46:01 -0400

On June 29th, the U.S. Supreme Court remanded to the Court of Appeals for the Federal Circuit two medical process cases (Mayo Collaborative Services v. Prometheus Laboratories and Classen Immunotherapies, Inc. v. Biogen IDEC) in view of the Supreme Court’s decision in Bilski v. Kappos. The Supreme Court held in that decision that the "machine-or-transformation" test is not the exclusive test for patent-eligible subject matter. Under the "machine-or-transformation" test, a process claim will be deemed patent eligible subject matter if it is tied to a particular machine or transforms an article into a different state or thing.

For more information, please click here.

Department of Labor Interprets FMLA to Include Coverage for Same-Sex Partners & Other Non-Traditional Families

Fri, 2 Jul 2010 15:41:22 -0400

On June 22, 2010, the U.S. Department of Labor’s Wage and Hour Division released an administrative interpretation clarifying the definition of "son and daughter" under the Family and Medical Leave Act of 1993 ("FMLA"). As part of the Department of Labor’s continued efforts to promote work-family balance, its issued interpretation allows all qualified employees who provide care or financial support to a child to take unpaid family leave regardless of their legal or biological relationship to the child.

For more information, please click here.

Government to publish J&A's for sole source contracts

Tue, 29 Jun 2010 16:39:05 -0400

We previously blogged that the Government soon may resort to sole-source contract awards in response to the overwhelming oil clean up and containment needs along the Gulf Coast in the aftermath of the BP oil spill disaster. Flexibility is an important feature of federal government contracting.

But so is transparency. And the Government just announced new rules that should go a long way to ensure that the sun shines on agencies' sole-source contracting decisions.

The new rules, at FAR 6.305 and 13.501, require agencies to make publicly available Justification and Approval ("J&A") documents for noncompetitive contracts. The new rules go into effect on July 16, 2010. After that date, agencies must post their J&A documents on the agencies' website and at fedbizopps.gov. Generally, the rules require agencies to post the J&A documents within 14 days of the sole-source award and to maintain the posting for a minimum of 30 days. As with all Government contract rules, there are nuances and exceptions. For example, the publication requirement does not apply if it would disclose the agency's needs and such disclosure would compromise national security or create other security risks. The rules also ensure that contractor proprietary information is not publicly disclosed. Overall, the rules will make sole-source award decisions more transparent and that is a good thing.

If you are a government contractor, however, be careful. These rules have no impact on the bid protest timeliness requirements at GAO or the Court of Federal Claims statutory jurisdiction. These rules and the implementing statute behind them do not affect a sea change in bid protest law. Nor were they intended to do so. For protests at GAO, disappointed bidders generally still must protest sole-source awards within 10 days of when the basis of the protest was known or should have been known. That means that as soon as a company learns that the Government is contemplating a sole source award for work that the company believes it also can perform, the spurned competitor needs to file its protest. That knowledge could come before the J&A is published.

Click here to see the new rules.

Lehman Brothers Fallout

Tue, 29 Jun 2010 16:29:40 -0400

Louise Verrill and Sonya Van de Graaff overview some of the imaginative uses of current insolvency and company legislation since the insolvency of Lehman Brothers.

Click here to view the full article.

Supreme Court Clarified Patent Eligibility but Uncertainty Remains

Tue, 29 Jun 2010 16:25:38 -0400

In a decision announced June 28, 2010, the United States Supreme Court has attempted to clarify what constitutes patentable subject matter under the Patent Statute. In Bilski et al. v. Kappos, the Court upheld a decision by the Court of Appeals for the Federal Circuit that Bilski’s claims to methods of hedging risk in certain financial markets were unpatentable. In so doing, the Court held that the so-called "machine-or-transformation" test is not the exclusive test for patent-eligible subject matter. The Court stated that, while methods of conducting business are not excluded as a category of patentable subject matter, abstract ideas are excluded. The Bilski risk hedging process claims were found to be unpatentable because they recite an abstract idea.

For more information, please click here.

Brown Rudnick's European Litigation Bulletin - June 2010

Tue, 29 Jun 2010 16:20:28 -0400

Welcome to the summer edition of Brown Rudnick's European Litigation Bulletin. This electronic newsletter highlights the latest regulatory news and case information related to commercial litigation and anti-corruption.

Please click here to read the current issue.

IRS Announces Intention to Enforce Withholding Requirements

Tue, 29 Jun 2010 16:13:29 -0400

On Thursday, June 17th, Michael Danilack, IRS Deputy Commissioner (International), announced that the period of "leniency" in IRS enforcement of international withholding requirements must come to an end. This intention was reiterated during an NYU tax seminar on Friday, June 18th. During the seminar, IRS representatives stated that the IRS will be focusing extensively on enforcing (1) international withholding obligations and (2) information reporting requirements. Additionally, the IRS will seek to assess penalties related to both withholding and information reporting requirements. These penalties can be draconian.

For more information, please click here.

Gulf Coast Oil Leak--Government Contractors to the Rescue

Tue, 1 Jun 2010 09:47:15 -0400

The mayor of Grand Isle, Louisiana and the head of Homeland Security for Jefferson Parish, Louisiana recently appeared on CNN to discuss the response of BP and the Government to the Deepwater Horizon crisis. They asked why greater resources were not being mobilized. They wondered why more skimmer ships had not been dispatched to the waters off Grand Isle. They’re not looking for an armada that meet finely tuned specifications - they simply yearn for more boats to win a few battles in what they called the war unleashed by the Deepwater Horizon disaster.

We don’t know whether there are any private skimmer ships that could be dispatched to augment the Coast Guard's own vessels. But these officials’ comments highlight what might be coming soon: a large-scale Government-led mobilization of public and private resources to contain the damage that seems to be getting beyond BP’s ability to respond.

The Government’s mobilization necessarily will require the use of contingency contracting authority under part 18 of the Federal Acquisition Regulation. Among many other "acquisition flexibilities," Contracting Officers are expressly allowed to "limit the number of sources and full and open competition need not be provided for contracting actions involving urgent requirements." FAR 18.104. The Federal Government does have flexibility to flex otherwise inflexible procedures.

While many critics decried the use of sole-source contracting in the response to Katrina and for operations in Iraq and Afghanistan, the fact remains that, in times of crisis, perfection may not be an option. Consider what’s worse: somewhat flawed bargains for imperfect goods and services or unmitigated damage to the Gulf Coast from Florida to Louisiana. At times, trading procurement risk for the irretrievable consequences of delay is a good deal.

Undoubtedly the trade-off is not so dire. Government officials in DHS and DoD have learned important lessons in emergency contracting. Large contractors have taken their knocks in Congressional inquiries. After all this, we’re confident that practices in the public and private sectors have improved. But, we’re equally confident that in years to come, there will be a lot of finger pointing over glitches that occur in the approaching weeks and months if the Government must call contractors into action.

Certainly the procurement community must strive to be worthy stewards of the resources needed to respond to this crisis. But those who may be anxious to find fault down the road should remember that fixing a mess is just that - messy. Perfection should not come at the cost of destruction.

The Thin Blue Line

Mark A. Dorff (mdorff@brownrudnick.com) — Thu, 27 May 2010 10:39:10 -0400

As companies once more consider cross-border acquisitions, Mark Dorff, Co-Chair of Brown Rudnick’s European Venture Capital and Emerging Technologies Group outlines the issues for those occurring across the Atlantic.

For more information, please click here.

Textron: U.S. Supreme Court Denies Certiorari

Thu, 27 May 2010 10:33:28 -0400

On May 24, 2010, the U.S. Supreme Court declined to hear an appeal by Textron, Inc. ("Textron") of a 2009 adverse decision at the U.S. Court of Appeals for the First Circuit involving the application of the work product privilege. The U.S. Supreme Court's refusal to hear this matter will likely embolden the IRS in its attempts to request and obtain tax accrual work papers (and other related documentation) which were previously considered protected by most tax professionals.

For more information, please click here.

Sweeping Changes to Certificate of Need Laws

Mon, 24 May 2010 14:29:11 -0400

The Connecticut Legislature, at the prompting of the Department of Public Health, Division of Office of Health Care Access (OHCA), passed a comprehensive certificate of need (CON) reform bill. If the Governor signs the bill, and all indications are that she will, as this bill is part of the State budget bill, after October 1, 2010, Hospitals and other health care facilities must comply with the new requirements included in Senate Bill 494 (LCO No. 5638): "AN ACT MAKING ADJUSTMENTS TO STATE EXPENDITURES FOR FISCAL YEAR ENDING JUNE 30, 2011, as amended." This bill will have a substantial impact both positively and negatively on all providers of healthcare in the industry.

For more information, please click here.

Legal Interpretation Stand down - GAO v. Executive Branch

Tue, 18 May 2010 09:31:19 -0400

The Government Accountability Office ("GAO") sustained a protest of a solicitation that was not set-aside for a Historically Underutilized Business Zone ("HUBZone") small business. See DGR Associates, Inc. B-4002494 (May 14, 2010). In its decision, GAO stated that the plain language of the HUBZone statute, 15 U.S.C. § 657a, requires agencies to set aside contracts for HUBZone small business concerns when: 1) the agency has a reasonable expectation that not less than two qualified HUBZone small business concerns will submit offers, and 2) that the award can be made at a fair market price. Here, the contract was set aside for 8(a) small business concerns rather than HUBZone small business concerns and GAO concluded that the agency was required to first consider whether conditions for HUBZone set aside were met.

The agency challenged GAO by citing a Department of Justice ("DOJ") memorandum that stated it disagreed with the GAO's interpretation of the statute and instead concluded that the Small Business Act does not compel the Small Business Administration ("SBA") to prioritize the HUBZone program. The DOJ memorandum instructs Executive Branch agencies to instead follow SBA's regulations placing different categories of small businesses on an equal footing for competition and award of contracts. The DOJ memorandum further instructs agencies that the SBA regulations are reasonable and binding on Executive Branch agencies, notwithstanding GAO decisions. DOJ reminds agencies that GAO decisions are not binding on the Executive Branch. Nevertheless, GAO stands its ground and sustained the protest because the agency failed to consider whether the conditions existed for procurement to a HUBZone small business. GAO also noted that the fact that its recommendations are not binding on the Executive Branch does not affect GAO's statutory obligation to decide protests and absent some change in the statutory scheme or a contrary decision by the U.S. Court of Appeals for the Federal Circuit, GAO will continue to interpret the HUBZone statute as it always has.

To read the full decision in DGR Associates, Inc. B-4002494 (May 14, 2010), click here.

SPACS: Listing on the Official List or AIM

Lena Hodge (lhodge@brownrudnick.com) — Fri, 30 Apr 2010 10:31:35 -0400

Special purpose acquisition companies (SPACs) are commonly used as investment vehicles in the U.S. markets and have been adapted for use in the European markets, such as AIM and NYSE Euronext. Growing market acceptance of SPACs, in both the U.S. and Europe, prompted the Financial Services Authority (FSA) to review and comment on the admission of SPACs to the Official List. Currently, due to the continuing economic turmoil and resultant inaccessibility of debt, there has been renewed interest in SPACs and how to evolve the structure in order to address the status current of the financial markets and for their admission to either the Official List or AIM.

For more information, please click here.

Is there a place for PIPES on the London Markets? Are PIPES helping to keep the liquidity flowing and the capital markets in order?

Lena Hodge (lhodge@brownrudnick.com) — Fri, 30 Apr 2010 10:28:27 -0400

Private investment in public equities (PIPEs), is a transaction in which a public company issues equity securities in a private placement to one or more substantial investors (whether overseas or strategic company, wealthy individuals or private equity houses) usually at a discount to the market price of its shares. PIPEs have been a feature of the U.S. and Asian markets for some time, and are now, also emerging in Europe as an attractive financing option for public companies. In the current market, traditional financing options are either unavailable or have become relatively expensive. As a result private equity funds, without debt financing for buyouts, are becoming more interested in investing in PIPEs, particularly in view of the reduced equity values of many public companies.

For more information, please click here.

Winterflood Loses Appeal; Market Abuse Does Not Require Intention

Fri, 30 Apr 2010 10:24:17 -0400

The Financial Services Authority (FSA) has successfully resisted the appeal brought by Winterflood, the biggest market maker on the Alternative Investment Market, in which it contested a £4 million fine and finding of market abuse levied by the FSA in 2008.

For more information, please click here.

This Way Out

Steven B. Levine (slevine@brownrudnick.com) — Fri, 30 Apr 2010 10:18:09 -0400

Exit financing was hard to come by at the beginning of 2009, but one year later, the market seems much improved.

Steven B. Levine, Brown Rudnick’s Finance Practice Group Leader, offers insight on the state of today’s exit financing market. Debtors now have a multitude of potential lenders, pricings on financings have dipped, and exit loans have started to contain more new money than they did at the onset of 2009 -- a trend that is expected to continue this year.

To learn more about the exit financing market, please read the article titled This Way Out on our website.

Ten Common Assumptions about the FLSA that Can Land You in Hot Water

Pamela A. Reynolds (pareynolds@brownrudnick.com) — Fri, 30 Apr 2010 10:12:33 -0400

Most employers have at least a general idea of the requirements of the Fair Labor Standards Act (the "FLSA"), however the road to FLSA compliance is riddled with pitfalls for the unwary, especially when it comes to wage and hour law.

Pamela A. Reynolds, an associate in Brown Rudnick's Washington's office, provides an overview of the more common mistakes made by unsuspecting employers involving FLSA compliance.

To learn more about these common mistakes and assumptions, please read the article titled Ten Common Assumptions about the FLSA that Can Land You in Hot Water on our website.

Bigger Government Coming Soon

Wed, 28 Apr 2010 14:31:42 -0400

Not long after his inauguration, President Obama went on the offensive against Government contractors, declaring that, "The American people's money must be spent to advance their priorities, not to line the pockets of contractors or to maintain projects that don't work." Now, the Office of Federal Procurement Policy ("OFPP") has issued draft guidance whose stated purpose is "to assist agency officers and employees in ensuring that only federal employees perform work that is inherently governmental or otherwise needs to be reserved to the public sector."

OFPP says that nothing in its proposed guidance is intended to discourage the appropriate use of contractors. OFPP says that contractors can provide expertise, innovation, and cost-effective support to federal agencies for a wide range of services. And, OFPP says, reliance on contractors is not, by itself, a cause for concern.

We agree with OFPP's sentiments. What is a cause for concern, though, is the notion expressed in the draft guidance that Government employees are more "accountable" than contractor employees and that relying on contractors causes "the inability to be certain whether the contractor is properly performing the specified work at a proper price and the inability to be sure that decisions are being made in the public interest rather than in the interest of the contractors performing the work."

In fact, federal procurement laws, regulations and policies already provide the checks that are needed. If the concern is "a proper price," the Government can, and does, use independent Government cost or price estimates to determine how much it should be paying. The fact that there is competition provides further comfort that the Government gets competitive prices. Prices charged by contractors often are subject to audit. When the Government itself performs work, there is no competition. And, some would argue that the Government has no incentive to be efficient. Does contractor performance cost more than Government performance? Maybe. Maybe not. In fact, laws allowing for public-private competitions have been in place for many years. Recently, however, Congress has passed laws that put great limits on those competitions.

The bottom line is policies are being put in place that will result in work shifting to Government employees. This will make Government unions happy. Some Government contractors will lose work and contracting opportunities. And, as we have seen in the past, one day the pendulum will swing back in the other direction.

Interested parties may comment on the proposed policy letter until June 1, 2010. The draft guidance is at 75 Fed. Reg. 16,188 (March 31, 2010) and can be found here.

District Court Concludes that Isolated DNA is Not Patentable

Wed, 7 Apr 2010 15:50:07 -0400

Earlier this year, the American Civil Liberties Union (ACLU) and several other plaintiffs filed a lawsuit to invalidate patents covering the breast cancer susceptibility genes, BRCA1 and BRCA2. The patents are exclusively licensed by Myriad Genetics, who has made a clinical diagnostic test available. On March 29, 2010, the District Court for the Southern District of New York granted plaintiff’s motion for summary judgment concluding that isolated DNA compositions are not patent eligible subject matter under the patent statute, and invalidating the patents covering BRCA1 and BRCA2. Association for Molecular Pathology v. United States Patent and Trademark Office (09 Civ. 4515, S.D.N.Y. March 29, 2010).

For more information, please click here.

New Health Care Law Amends Fair Labor Standards Act

Wed, 7 Apr 2010 15:46:04 -0400

The far-reaching healthcare overhaul bill signed into law this week makes changes to numerous existing laws, among them the Fair Labor Standards Act (FLSA).

The FLSA has a significant impact on nearly every employer in the United States. Its best known requirements are the minimum wage (currently $7.25 per hour) and the obligation to pay time-and-a-half for overtime work by non-exempt employees. The economic impact of FLSA violations is also significant. In the last five years, employers have paid more than $1 billion in back wages and penalties for FLSA violations. The FLSA actually encourages employees to enforce their rights by requiring employers to pay the attorneys fees of employees who prevail in an FLSA lawsuit.

For more information, please click here.

Federal Appellate Court Affirms Debtors' Ability to Bar their Senior Lenders from using Debt Owed to them to try to Purchase the Bankrupt Companies' Assets at Auction

Wed, 7 Apr 2010 15:38:48 -0400

The United States Court of Appeals for the Third Circuit very recently upheld the ability of Chapter 11 debtors Philadelphia Newspapers, LLC and its bankrupt affiliates to preclude senior lenders from "credit bidding" their debt at the public auction of the debtors’ assets.

For more information, please click here.

Ariad Pharmaceuticals v. Eli Lilly & Company

Wed, 7 Apr 2010 15:31:36 -0400

The Court of Appeals for the Federal Circuit (the Court that hears all patent appeals) issued a decision on March 22, 2010 in the case of Ariad Pharmaceuticals, Inc., v. Eli Lilly & Company (--F.3d--, 2010 WL 1007369 (C.A.Fed., 2010)) reaffirming a written description requirement that is separate and distinct from the enablement requirement under the patent statute.

For more information, please click here.

Winterflood Appeal Against FSA Censure

Wed, 7 Apr 2010 13:36:07 -0400

In an appeal heard on 9 March 2010 the Court of Appeal was asked to determine whether, as the FSA asserts, a legal entity can be guilty of market abuse absent any element of intention or knowledge (despite the reference to an "actuating purpose" in the Code of Market Conduct). If the Court of Appeal decides in favour of the FSA, it appears that the due diligence and trade monitoring required of traders will increase substantially.

For more information, please click here.

Net Metering to Promote Solar & Wind Energy in Massachusetts

Fri, 2 Apr 2010 11:58:18 -0400

Under the Green Communities Act enacted by the Massachusetts legislature in 2008, the Department of Energy Resources and the Department of Public Utilities were directed to undertake certain actions to promote the development of renewable energy. A previous Alert describes the creation of the Solar Renewable Energy Certificate (S-REC) program as a subset of the Renewable Portfolio Standard (RPS) requirements in Massachusetts, which is intended to create a floor price of $3001 per megawatt hour for solar generation that developers can literally "take to the bank" to allow for the financing of solar projects.

For more information, please click here.

New FSA Framework for Determining Financial Penalties

Fri, 2 Apr 2010 11:49:41 -0400

Since 6 March 2010 the UK Financial Services Authority (FSA) has changed the way it approaches the calculation of fines.

At the beginning of March 2010, the FSA published its policy statement (PS10/4) entitled "Enforcement Financial Penalties." This followed a period of consultation during the second half of 2009 as a result of the FSA’s consultation paper of the same name (CP09/19).

For more information, please click here.

Potentially Curbing the Scope of Gene Patents

Fri, 2 Apr 2010 10:47:43 -0400

On March 9, 2010, the Advocate General of the European Court of Justice issued an Opinion in the case of Monsanto Technology LLC v. Cefetra BV et al., case number C-428/08, that advocates limiting the scope of protection under European Union (EU) patent law afforded by patents on DNA. The European Court of Justice will consider the Advocate General’s Opinion while deliberating their decision in the case.

For more information, please click here.

FBAR: IRS Provides Limited Relief for Foreign Hedge Funds & Private Equity Funds

Mon, 15 Mar 2010 11:11:00 -0400

The Internal Revenue Service ("IRS") has granted relief from the onerous FBAR - or Foreign Bank and Financial Account - filing requirements for certain foreign funds. FBAR reporting is generally required under U.S. law to advise the Treasury Department that certain persons have a financial interest in, or signature authority over, a foreign bank or other financial account. FBAR reports are due June 30th for the prior calendar year.

For more information, please click here.

When does buying a car from the U.S. come with one year's room and board in a Mexican jail?

Wed, 10 Mar 2010 09:30:00 -0500

Buying property at auction can be full of surprises. It is not unusual for property to be sold "as is, where is" and for buyers that end up with a broken item to be left without recourse. And we all have heard stories about purchases of old furniture that come with hidden, valuable papers. But when you buy a car at an auction held by U.S. Customs and Border Protection ("Customs"), you probably aren't planning to go to prison for drug trafficking. Unfortunately, for Francisco Javier Rivera Agredano, instead of a one year warranty, his car purchase came with a one year prison sentence in Mexico. And here's the sad part: Both Mexican and U.S. courts found that he did not do anything wrong.

Less than five months after purchasing a 1987 Nissan Pathfinder from Customs, Mr. Agredano and Mr. Alfonso Calderon Leon were arrested at a mandatory checkpoint after Mexican authorities discovered concealed narcotics in the car. They were charged with drug trafficking and possession. In his defense, Mr. Agredano argued that the drugs were in the Pathfinder when he bought the vehicle from the United States Customs. Mr. Agredano asserted that Customs failed to adequately inspect the Pathfinder prior to sale and locate the concealed narcotics.

Now we know what you are thinking: Two guys get caught trying to smuggle drugs and argue that they never saw the drugs and the drugs must have been in the car when they bought it five months ago. That sounds like something a high-priced lawyer would come up with. And, surprise, the Mexican judge that first heard Mr. Agredano’s case did not believe the explanation. Instead, the Judge said that to accept the defense would mean that U.S. Customs violated U.S. laws by failing to adequately inspect the Pathfinder and locate the concealed narcotics prior to the sale of the car. And the judge was not prepared to believe that Customs had not done its job. The result -- Mr. Agredano (and Mr. Leon) remained in a Mexican penitentiary from approximately January 24, 2002 until January 10, 2003 -- when a Mexican three judge panel ordered their release.

By all accounts, Mr. Agredano was wrongly imprisoned. And, that imprisonment was the direct result of his purchase of the 1987 Nissan Pathfinder from the U.S. Government.

So what do you think happens when you buy something from the Government and get more (or less) than you bargained for? The Government makes you whole, right? Wrong.

Here, the purchaser filed a contract claim with the U.S. Court of Federal Claims. And the evidence in the case showed, and the Court found, that Customs had sold the Pathfinder to Mr. Agredano with the hidden drugs. That means that the U.S. court believed that Mr. Agredano was not a drug dealer. His story checked out. So, you figure that Mr. Agredano should be able to recover damages for his year in prison. Wrong again. According to Customs and the Federal Circuit, which heard the case on appeal, Customs sold the vehicle with an "AS IS" disclaimer which was broad enough to disclaim liability arising from unknown illegal contraband contained in the car.

Customs is charged with searching vehicles and removing illegal contraband. When it seizes vehicles and sells the cars at auction to the public, isn't it responsible for identifying and removing drugs? Indeed, as Court of Federal Claims found, Customs "is responsible for ‘getting narcotics off the street and not giving it to the public.’ . . . The government has that responsibility because only the government may possess illegal narcotics." Agredano, 82 Fed. Cl. at 439. And, a Customs agent testified, in part, as follows:

Well, as an officer of the U.S. Customs Service[,] it was one thing we don’t want to do is be selling vehicles with contraband still left in them. . . . I would say it’s embarrassing to the Customs Service to, you know, sell a vehicle that has narcotics already in it. I mean, we’re supposed to be getting narcotics off the street and not giving it to the public.

Id.

According to the trial testimony, Customs permitted a visual inspection of the Nissan Pathfinder before purchase. Prospective bidders were not permitted to search the vehicle for hidden drugs. In fact, the Court of Federal Claims heard testimony that a lay person would not be able to identify illegal drugs hidden in the car without some training.

When Customs is auctioning cars to the public, Customs is engaging in a commercial transaction. In many commercial transactions, courts will "reform" contracts to strike illegal or invalid terms. In fact, in some instances, such reformation is applied against the United States Government. See, e.g., GHS Health Maintenance Organization, Inc. v. U.S., 76 Fed. Cl. 339, 376 (2007) (reforming contracts to delete contract term based on invalid regulation), aff’d 536 F.3d 1293 (Fed. Cir. 2008).

Here, a private individual paid $2600 for a 1987 Nissan Pathfinder. While the buyer assumed the risk that the transmission on the car did not work, did he assume the risk of being jailed in Mexico for a year and spending $350,000 in legal fees fighting drug trafficking and possession charges because Customs sold the car with hidden drugs? Ultimately, the Court of Appeals found that there was not a contract theory that allowed the purchaser to recover his damages. Like Customs, maybe the Court should have looked harder. The case is Francisco Javier Rivera Agredano and Alfonso Calderon Leon v. United States, --- F.3d ---, 2010 WL 537160 (Fed. Cir. 2010) and was decided on February 17, 2010.

Get ready. Government contractors may be paying higher wages.

Wed, 3 Mar 2010 09:47:42 -0500

The media have been reporting that the Obama Administration plans to make the wages and fringe benefits that a bidder pays its workers an evaluation factor in competitions. We haven't seen the details yet but are curious as to what wages will be favorably evaluated. Will offerors get extra points for proposing reasonable wages, high wages, low wages? Government contracts have long been used to promote social policy. And this Administration has made no secret of its pro-labor leanings. So if we get one guess, it is that this policy, if implemented, could lead to higher wages. After all, in many evaluations the Government already evaluates the reasonableness of wages and there is no chance that the Government will be promoting lower wages.

In fact, most contractors are already subject to laws that govern wages and benefits. First, there is the Fair Labor Standards Act (FLSA) which requires that nonexempt employees receive the minimum wage as well as premium compensation for working overtime. Second, there are state minimum wage laws that often require higher wages than the federal minimum wage. There also are so-called prevailing wage laws, including the Davis-Bacon Act, which applies to construction contracts, and the Service Contract Act (SCA), which applies to contracts that are principally for services. Both the Davis-Bacon Act and the SCA also require the payment of fringe benefits. In many cases, the wages and benefits required under these two laws are at union scales.

Many contractors may not be aware of the serious consequences for violating these laws. In the case of the SCA, for example, a contractor can be debarred, i.e., prohibited from competing for government contracts, for three years. Agencies may also terminate the contracts of companies that violate these laws.

In short, the Government already has tremendous influence over the wages and benefits that its contractors pay. And it is not uncommon for a solicitation to include evaluation criteria that relate to whether offerors will be able to retain the workers necessary to perform the contract. However, as a general rule, compliance with these laws is not expressly an evaluation factor in awarding contracts.

We will keep our eyes open for new developments on the wage front. But don't be surprised if you see future RFPs that lead offerors to propose higher wages and benefits for employees.

SEC Approves Alternative Uptick Rule

Tue, 2 Mar 2010 15:27:32 -0500

On Wednesday, February 24, 2010, the Securities and Exchange Commission (SEC), voting 3-2 on party lines, adopted a new rule that restricts short selling when a stock is experiencing significant downward price pressure. This new alternative uptick rule imposes restrictions on short selling when the price of a stock drops 10 percent or more from the prior day’s closing price. Once the circuit breaker is triggered, the alternative uptick rule would apply to short sale orders in that security for the remainder of the day as well as the following day. Short selling would still be permitted if the price of the security is above the current national best bid.

For more information, please click here.

Let the 2010 Proxy Season Begin!

Tue, 2 Mar 2010 15:23:05 -0500

Last year was a busy year. The Securities and Exchange Commission (SEC) adopted comprehensive rule revisions intended to improve the disclosure provided to shareholders of public companies regarding compensation and corporate governance matters. It also approved the New York Stock Exchange’s amendment to NYSE Rule 452, "Giving Proxies by Member Organizations," which eliminated broker discretionary voting for all elections of directors, whether or not contested, except for companies registered under the Investment Company Act of 1940. These changes will dramatically impact this year’s proxy season.

For more information, please click here.

Change in After Hours Nasdaq Notification Requirement

Tue, 2 Mar 2010 15:18:43 -0500

Last week, the Securities and Exchange Commission issued a Release, which made immediately effective a rule change proposed by The Nasdaq Stock Market LLC to Nasdaq Rule 5250 and IM-5250-1, modifying the prior notification requirements for when Nasdaq listed companies release material information outside of Nasdaq market hours (7:00 a.m. to 8:00 pm. ET).

For more information, please click here.

Department of Labor Finalizes Plan Asset Rule for Small Plans

Tue, 2 Mar 2010 15:13:54 -0500

Effective January 14, 2010, employers that sponsor pension and welfare plans with fewer than 100 participants may take up to seven (7) business days to deposit employee contributions to plan accounts.

An employer is required to deposit funds received or withheld from employee wages as contributions to certain benefit plans into the benefit plans on the earliest date on which the contributions can reasonably be segregated from the employer’s general assets. The Department of Labor’s (DOL) Employee Benefits Security Administration, which is responsible for the enforcement of this issue, has taken a very aggressive position that "as soon as reasonably segregated" means, in some cases, one to two business days. The Employee Benefits Security Administration, acknowledged that there has been uncertainty as to how soon an employer must deposit employee contributions to the benefit plans in order to avoid the requirements associated with holding plan assets. To this end, the final rule creates a safe harbor to "provide greater clarity in remitting participant contributions to small pension and welfare plans in a timely manner," states Assistant Secretary of Labor Phyllis C. Borzi.

For more information, please click here.

Challenge to Gene Patents

Tue, 2 Mar 2010 15:08:17 -0500

On February 9, 2010, a United Kingdom appeals court, in Eli Lilly and Co. v. Human Genome Sciences, Inc., case number A3/2008/2673, upheld a lower court decision to invalidate a patent claiming an isolated nucleic acid encoding a Neutrokine-alpha protein. The appeals court held the patent invalid for lack of "industrial application," despite the fact that the patent provided not only the sequence information but also suggested several therapeutic utilities of the sequences. Nonetheless, the court determined that the claimed nucleic acid had undetermined function, thus rendering the patent invalid.

For more information, please click here.

Brown Rudnick's European Insolvency and Litigation Bulletin - February 2010

Tue, 2 Mar 2010 15:01:21 -0500

Welcome to Brown Rudnick's European Insolvency and Litigation Bulletin. This electronic newsletter highlights the latest regulatory news and case information related to the bankruptcy, corporate restructuring, finance, anti-corruption, and commercial litigation sectors.

The February 2010 issue compares the different treatment given by courts to cash flow waterfalls in enforcement scenarios.

For more information, please click here.

SEC Staff Issues Revised Guidance on Non-GAAP Financial Measures

Tue, 2 Mar 2010 14:55:46 -0500

On January 11, 2010, the staff of the Securities and Exchange Commission (SEC) updated its Compliance and Disclosure Interpretations (C&DIs) regarding the disclosure of non-GAAP financial measures. The C&DIs supersede the SEC’s Frequently Asked Questions (FAQ) regarding the use of such measures published in 2003 but incorporate much of the SEC’s prior guidance.

For more information, please click here.

UK Tax Points Worth Considering Now

Tracy Fisher (tfisher@brownrudnick.com) & Patrick Cox (pcox@brownrudnick.com) — Tue, 2 Mar 2010 14:48:20 -0500

In this difficult market, plans for corporate and business sales and the realisation of investments may be on a go-slow.

This is the time though that owner managers and private equity houses should be giving some thought to how well placed they and their businesses are to maximise the returns on offer once things start moving.

How can they ensure their management teams and employees stay incentivised in the meantime? Can their businesses attract the additional investment needed to see them through? How well placed will they be to realise their investment in the most tax efficient manner when the time comes?

In this alert we will look at some of the ways that proper and timely tax planning can help in addressing these issues.

In any given situation, much will depend on the particular facts and advice should always be sought on what is the best plan of action in the circumstances. However, the following should provide some food for thought.

For more information, please click here.

Promoting Certainty and Stability for Power Contracts

Tue, 2 Mar 2010 14:26:26 -0500

On January 13, 2010, the U.S. Supreme Court issued an 8-1 decision in NRG Power Marketing v. Maine Public Utilities Commission, holding that noncontracting parties challenging rates in energy contracts must demonstrate that the rates are unjust and unreasonable because they seriously harm the public interest. The Supreme Court’s decision reversed the U.S. Court of Appeals for the District of Columbia Circuit, which held noncontracting third parties to a less burdensome standard.

For more information, please click here.

"The money truck will back up to the building" -- but whose money?

Thu, 25 Feb 2010 15:20:39 -0500

It's a well-known principle in contract law that each subcontractor usually has a relationship (called "privity of contract") only with the contractor at the tier directly above the sub. This applies no matter how many levels or tiers of subcontractors there are.

A recent case from Utah (E and M Sales West, Inc. v. Bechtel Jacobs Co.) demonstrates the risks of blurring those lines of privity. In that case, a third-tier sub below Bechtel Jacobs was required to provide a second heater for a Government job after the first had failed inspection testing. E and M thought it should be paid for the second heater. Ordinarily, this would not have been Bechtel Jacobs' immediate problem. The third-tier sub should have sued the second-tier sub, which could have sued the first-tier sub, which could have sued Bechtel, which could have submitted a claim to and sued the Government. While that may sound like a wasteful mess, the beauty of the system is that each tier has the opportunity to assert whatever defenses it has, which may differ based on the contract language at each level.

Here, though, a Bechtel Jacobs manager allegedly told E and M to build the second heater and said "The money truck will back up to the building.". He probably did not intend for it to be Bechtel Jacobs' money in the truck, but a court found that, if he really said those words, he formed a new and direct contract with E and M, and that could form the basis for Bechtel Jacobs to pay.

We suspect that wherever that manager is working now, he has learned to be more careful with his words.

Auctions are fun

(Kenneth B. Weckstein) kweckstein@brownrudnick.com — Fri, 29 Jan 2010 09:34:50 -0500

Admit it, you have gone to an auction or you would like to go to an auction. And, first time auction goers often are scared about scratching their ear and ending up with an ugly painting, or worse. So how does the Government handle an accidental bid in the age of electronic auctions?

The Federal Government auctions a lot of stuff. On GSA Auctions, there are categories for aircraft and aircraft parts, construction equipment, crash test vehicles and even the NASA Shuttle/Hubble (no current auctions). See http://gsaauctions.gov/gsaauctions/aucbddet/#.

If you are in the market for a barge, forklift or test equipment, you can check in at Government Liquidation. See http://www.govliquidation.com/index.html.

But just like private auctions, Government auctions have a lot of rules. For example, the terms and conditions for GSA Auctions go on and on. See http://gsaauctions.gov/html/Terms_main.htm#T15 Among other things, "contracts resulting from the sale of any offer in the GSAAuctions.gov website are subject to the Contract Disputes Act of 1978 (41 USC 601-613), as amended."

One difference between Government and private auctions is that if you submit the winning bid and fail to pay up, the private auction company may not chase after you for $730. Not so with the Government. Ask James Duyon. Mr. Duyon was the winning bidder for a 2006 Guld Stream CVDH Travel Trailer. Mr. Duyon did not pay within two days of being notified that he had submitted the winning bid. After notice, GSA terminated the contract (the agreement to purchase the property) and assessed $730 in liquidated damages against Mr. Duyon. Mr. Duyon appealed to the United States Civilian Board of Contract Appeals. He claimed he made a mistake. The Board, in a five page decision, denied the appeal holding that the mistake was a unilateral error of judgment that arose from the appellant's negligence. The decision is well-written and legally correct. But can't we come up with a better way for the Government to resolve and collect disputes over $730? Duyon v. GSA was decided on January 14, 2010 and is at: http://www.cbca.gsa.gov/2007App/SHERIDAN_01-14-10_1745__JAMES_R._DUYON.pdf.

Delinquent federal contractors better fess up if they owe taxes - NOW

Thu, 21 Jan 2010 16:45:40 -0500

President Obama yesterday directed the Internal Revenue Service ("IRS") to conduct a review to identify federal contractors who have falsely certified that they do not presently owe taxes for which they are delinquent. Contractors whose certifications are found to be false may face severe consequences such as suspension, debarment, or even criminal charges for violations of the False Statements Act. At a minimum, contractors could be subject to a finding that they are not responsible offerors. In yesterday’s announcement, the President stated that he intended that "the Office of Management and Budget, together with the Treasury Department and other federal agencies . . . take steps to block contractors who are delinquent on their taxes from receiving new government contracts." Thus, the memorandum signed by the President, specifically directed the IRS to compare its records with the certifications required of federal contractors that state whether the contractor has "been notified of any delinquent Federal Taxes in an amount that exceeds $3,000 for which the liability remains unsatisfied" in the three year period preceding the certification. This review is to be completed in the next 90 days. The President further directed the Office of Management and Budget ("OMB") to make "recommendations on process improvements to ensure [that] contractors [whose taxes are delinquent] are not awarded new contracts..." These recommendations are due to the President within the same 90 day period as the IRS review of contractor certifications. Finally, the President called on Congress to provide contracting officials with the tools "necessary to ensure that the public’s tax dollars are not used to boost the profits of companies who refuse to pay their taxes." These tools presumably would include the authority to "to recoup [delinquent taxes] or stop tax scofflaws from getting federal contracts," which was proposed by the President in legislation he sponsored while he was in the Senate. The President is on the hunt for deadbeats. Contractors who owe delinquent taxes must immediately review their responsibility certifications. If they are inaccurate, immediate correction and remedial efforts to satisfy the tax liability may be a contractor's best tools to mitigate the consequences of a false certification. The White House Press Release announcing these actions can be found at http://www.whitehouse.gov/the-press-office/president-obama-directs-administration-crack-down-tax-cheats-seeking-government-con. The Presidential Memorandum is available at http://www.whitehouse.gov/the-press-office/memorandum-heads-executive-departments-and-agencies-1. The certification requirement is set forth at Federal Acquisition Regulation ("FAR") Clause 52.209-5 Certification Regarding Responsibility Matters (Dec 2008), specifically § 52.209-5(a)(1)(i)(D). Provisions regarding responsibility, suspension and debarment are located in subparts 9.1 and 9.4 of the FAR.

President Obama Extends COBRA Subsidy Implications for Eligible Individuals and Plan Administrators

Tue, 12 Jan 2010 11:28:24 -0500

On December 21, 2009, President Obama signed legislation that effective immediately extends the COBRA subsidy period, originally provided as part of the American Recovery and Reinvestment Act (ARRA), by six months and extends the eligibility period for the COBRA subsidy through February 28, 2010. This extension does not change the length of time an individual is eligible for COBRA continuation coverage itself, however. It only applies to subsidized premiums during the statutory 18-month COBRA continuation period.

For more information, please click here.

A Federal Agency Must "Stay" When Told

Tue, 12 Jan 2010 09:43:20 -0500

In a recent decision, the Court of Federal Claims held that if GAO timely notifies an agency of a protest, the agency must comply with the Competition in Contracting Act ("CICA"), 31 U.S.C. § 3553, provision requiring an automatic stay of the protested contract. See Unisys Corp. v. U.S et al, No. 09-800C available at http://www.uscfc.uscourts.gov/sites/default/files/GMILLER.UNISYS121809.pdf. That is true even if the agency is disputing GAO's jurisdiction. A challenge to GAO jurisdiction, by itself, does not override an otherwise proper CICA stay. The case arose out of a Transportation Security Agency ("TSA") task order awarded under a Department of Homeland Security ("DHS") Indefinite Delivery/ Indefinite Quantity contract. Some confusion on protest jurisdiction was created because the task order contained a provision indicating the Federal Aviation Administration's ("FAA") Acquisition Management System ("AMS") governed. And, AMS covered contracts are exempt from all federal acquisition laws and regulations. Also, AMS provides that the FAA's Office of Dispute Resolution for Acquisition ("ODRA") has exclusive protest jurisdiction. However, the task order also incorporated by reference the DHS IDIQ contract which is governed by the FAR and allows for GAO protest jurisdiction. As a result, the parties to the lawsuit were in disagreement whether GAO had jurisdiction and, in turn, whether the CICA provisions requiring an automatic stay of contract performance were applicable, or whether the ODRA was the proper forum and CICA did not apply. TSA, arguing that CICA did not apply, lifted the stay without following the statutory procedures to override the stay. The Court of Federal Claims' answer - it doesn't matter- the automatic stay applies when the statutory requirements are met. The Court focused only on the statutory language that requires GAO to properly notify the "Federal agency involved" within "one day after the receipt of a protest." And, if the notice was made within ten calendar days of contract award or within five days of debriefing then the agency is required to suspend performance. 31 U.S.C. § 3553. In this case there was no dispute that the prerequisites for application of the automatic stay were met and GAO had not dismissed the protest. Further, the court held there was nothing in the laws creating AMS that exempts TSA from following a directive to a "federal agency". Therefore, the Court held that the plain language of the statute requires an agency, including TSA, to comply with the automatic stay until such time as GAO dismisses the protest or the agency follows the statutory procedures to override the stay. For an agency to ignore the stay--even if it believes that GAO does not have jurisdiction--is not an option.

Looking for loose change in Uncle Sam’s couch: Obama focuses on overpayments to contractors.

Mon, 7 Dec 2009 16:16:34 -0500

According to OMB, the U.S. Government made $98 billion in improper payments in 2009. That is up from $72 billion in 2008. These figures represent a wide-range of alleged mistakes or abuses -- from improper payment of benefits under Medicare or Medicaid to overpayments to government contractors. But does this new data show a dangerous trend? Not likely. The 36% increase in improper payments may simply be a result of increased government spending associated with the ARRA or TARP funds. Nonetheless, this new data has encouraged the Obama Administration to go digging for its missing change. President Obama recently signed an executive order aimed at reducing these improper payments by requiring additional transparency and accountability. Among other things, it requires the Secretary of the Treasury to create a web page to post information about improper payments (including the originating agencies and entities that have received the most overpayments) as well as a centralized, internet-based system for the public to report suspected overpayments. Agencies must establish methods to identify and measure improper payments and a plan to reduce overpayments. And as a government contractor, if you fail to disclose an overpayment, you may be subject to financial penalties, listed as an "offender" on the internet, or be debarred or suspended from receiving government contracts. There will likely be additional FAR guidance on this topic. The Executive Order requests the FAR Council to recommend "actions designed to enhance contractor accountability for improper payments" including subjecting government contractors to "debarment, suspension, financial penalties, and identification through a public internet website" for knowingly failing timely to disclose credible evidence of significant overpayments received on Government contracts." (Section 4(a)). Government contractors are already subject to debarment for failing to timely disclose credible evidence of a significant overpayments (see FAR 9.406-2(b)(1)(vi)(C)), so it is possible that the FAR Council will recommend additional incentives, e.g., financial penalties or public identification. We can expect specific guidance about the implementation of the Executive Order within the next three months. In the meantime, check out “Executive Order – Reducing Improper Payments and Eliminating Waste in Federal Programs” at http://www.whitehouse.gov/the-press-office/executive-order-reducing-improper-payments.

OMG Like the Gov Totally Wants ur Ideas; Social media meets Government Contracts

Wed, 18 Nov 2009 09:08:31 -0500

"Betterbuyproject.com", a recently launched website has set up a forum and blog for people to post ideas for improving Government acquisition practices with an eye towards greater collaboration and use of social media. When we checked in at www.twitter.com/betterbuyproj the first tweet was "Ideas are rockin' on @betterbuyproj - would love to see you give us yours!" The site asks "How can we use collaboration and social media to make the federal acquisition process more efficient and effective?" Focusing primarily on "the pre-contract-award stages of the process," GSA will choose "[p]romising ideas . . . to be piloted on future acquisitions." Ideas have ranged from conducting pre-bid/Q&A conferences using onlinevideo to providing updates on procurements via Twitter. Site visitors can register, post ideas, and vote on the ideas that others have posted. What’s the top vote getter -- more training for acquisition professionals. Closely trailing in second place: putting an end to the "dump" of end-of-year procurements. These ideas are not particularly 2.0, but they get our votes. GSA does seem serious about moving towards "acquisition 2.0." It’s in the process of assembling a team, figuring out how this could work under the law and selecting procurements on which to test some of the new ideas. For more, go to www.betterbuyproject.com. The project's blog is http://blog.betterbuyproject.com/. C u l8r.

Supreme Court Hears Oral Arguments in Bilski v. Kappos

Fri, 13 Nov 2009 15:16:11 -0500

The Supreme Court agreed earlier this year to hear the Bilski case and address the question of whether the "machine-or-transformation" test enunciated last year by the Federal Circuit is appropriate for determining patent-eligible subject matter.

For more information, please click here.

State Regulator Files Final Massachusetts Data Security Regulations: Retains March 1, 2010 Effective Date

Fri, 13 Nov 2009 15:10:25 -0500

The Office of Consumer Affairs and Business Regulation (OCABR) filed final Data Security Regulations on November 4, 2009, retaining the March 1, 2010 effective date. As reported in prior Alerts, persons who have access to personal information regarding Massachusetts residents in connection with business or employment must have a written information security plan in place by the effective date. The requirements of the Regulations were summarized in the Alert we published on September 25, 2009.

For more information, please click here.

Massachusetts and Solar RECs

John W. Wadsworth (jwadsworth@brownrudnick.com) — Fri, 13 Nov 2009 15:03:51 -0500

Massachusetts has for several years had a rebate program for solar installations which provided a generous subsidy for small solar installations, roughly half the capital cost of installation. That program has recently expired.

For more information, please click here.

FTC Postpones Enforcement of Red Flags Rule: U.S. District Court Holds Rule Not Applicable to Lawyers

Mon, 9 Nov 2009 16:05:08 -0500

There have been two important developments recently regarding the Federal Trade Commission’s Red Flags Rule.
The Red Flags Rule requires financial institutions and creditors to develop and implement written identity theft prevention programs. These programs must provide for the identification, detection, and response to patterns, practices, or specific activities -- known as "red flags" -- that could indicate identity theft. Generally speaking, the Rule applies to all persons who regularly permit consumers to defer payment for goods and services purchased. An obvious example of a "creditor" that is subject to the Rule is an automobile dealer; a less obvious example is a lawn mowing service that provides the service and subsequently sends a bill.

For more information, please click here.

Get it right the first time

Fri, 6 Nov 2009 12:46:49 -0500

A recent case in the US Court of Federal Claims sends a clear message: pick your forum and give it your best shot -- you won’t get a second chance. That’s the painful lesson given to the owner of a small trucking company that had objected to the loss of two contracts to haul mail. The contractor appealed the contracting officers’ decisions to the Postal Service Board of Contract Appeals. The Board rejected the appeals, and the Federal Circuit Court of Appeals declined to reverse the Board’s judgment. Undaunted by the losses, the claimant turned next to the Court of Federal Claims where he reworked the same facts into a new legal theory. The Court threw the case out because it was nothing more than an attempt to get a second bite at the apple. The Court based its decision on two legal doctrines that prohibit judicial do-overs: collateral estoppel and res judicata. Collateral estoppel prevents you from getting one court to retry an issue identical to one that was essential to a judgment you previously litigated in another court (or, in this case, a Board of Contract Appeals). Res judicata prohibits the pursuit of a second case against the same party, if the second case is based on the same transactional facts. We won’t bore you with the subtle differences between collateral estoppel and res judicata because the point actually is quite simple: if you don’t like a contracting officer’s decision, appeal it to the Board of Contract Appeals or the Court of Federal Claims and put forward your best case. Because, once it’s over – it’s over. The case is Emiabata d/b/a Nova Express v. United States, No. 06-702C (Oct. 30, 2009) and is posted on the Court’s website: http://www.uscfc.uscourts.gov/sites/default/files/SMITH.EMIABATA103009.pdf.

Justice delayed is justice delayed

Thu, 29 Oct 2009 10:10:48 -0400

Contractors do have a right to damages if the Government breaches a contract, but the judicial process can be long and slow.
Republic Savings Bank, et al v. U.S., Case No. 2008-5075, (Fed. Cir. 2009), is a Winstar case that dates back to 1985 when the U.S. Government solicited bids to take over failing thrifts. During the early 1980's rising interest rates triggered widespread insolvency in the savings and loan industry. The Government began offering incentives to encourage private investors to take over failing institutions. The Plaintiffs were the successful bidders to take over two of the failing thrifts that formed the contract that is the basis of the suit.
The case for restitution damages first was filed in June 1992. In January 2008, the Court of Federal Claims found that the Government breached the contract when it changed regulations in a way that was contrary to the terms of the original contract with the Plaintiffs. As a result of the breach, the Plaintiffs were awarded $14,641,059.29 in restitution damages. The U.S. Government appealed the decision to the Court of Appeals for the Federal Circuit. The court largely affirmed the lower court's decision holding that restitution damges on summary judgment was appropriate because there was no real question as to the value of the assets at the time of contracting. However, the court did agree with the Government that Plaintiffs were not entitled to proceeds from a sale that the Government had not turned over to the Plaintiffs. The court also agreed that $4.287 million in tax benefits that Plaintiffs enjoyed from the contract should offset the restitution damages and remanded the case on those points.
Now, the case goes back to the Court of Federal Claims and the long road to justice continues.

GAO does more than decide bid protests

(Kenneth B. Weckstein) kweckstein@brownrudnick.com — Wed, 28 Oct 2009 09:11:50 -0400

The U.S. Government Accountability Office (GAO) is "an independent, nonpartisan agency that works for Congress." GAO conducts audits, investigations and analyses, and issues legal decisions and opinions. Those who practice Government Contracts law are most familiar with GAO's bid protest function. Less well known is the fact that GAO acts as a board of contract appeals. Congress has authorized GAO to hear appeals of Contracting Officer Decisions involving contracts of legislative branch agencies. That means, for instance, if you have a contract dispute with the Government Printing Office or the Architect of the Capitol, and you are not satisfied with the decision of the GPO or AOC Contracting Officer, you can file an appeal with the GAO Contract Appeals Board. The rules of the GAO Contract Appeals Board are at: http://www.gao.gov/cabrulesjun2008.pdf . The published decisions of the GAOCAB over the last several years can be found at: http://www.gao.gov/legal/appeals.html. There are seven reported decisions dating back to 2004. And based on the docket numbers, it looks like there are less than 10 cases heard each year. Despite its light caseload, the GAOCAB can present an attractive forum for contractors with the right case. In one case, the contractor received an award in excess of $2 million, and the Board wrote a 362 page decision with 596 footnotes. See: http://www.gao.gov/cab2003-1.pdf Somebody got their day in court.

Does being a friend of the District of Columbia Mayor qualify you for $82 million in contract awards?

(Kenneth B. Weckstein) kweckstein@brownrudnick.com — Mon, 26 Oct 2009 09:22:21 -0400

In the Federal system, a personal relationship with the Source Selection Official could disqualify you from receiving a contract award. In Washington, D.C., the opposite may be true. On October 23, 2009, the Washington Post reported that the D.C. Housing Authority awarded $82 million of contracts to build parks, ball fields and recreation centers. The paper reported that a spokesperson for the D.C. Housing Authority did not known whether the contracts had been competitively bid. The article did report that the construction manager on 12 of the contracts was Banneker Ventures, a firm that is owned by a fraternity brother of D.C. Mayor Adrian Fenty. And on two of the projects, RBK Landscaping and Construction, which was reported as being owned by another friend of the mayor, was listed as the general contractor. Were the contracts awarded after competition? Was there improper influence exercised to make the contract awards? Were the evaluation factors for award followed? All good questions for an Inspector General. But apparently not on the radar of the D.C. Government yet. The focus for now is how is it that the contracts were awarded at all. Apparently the law in D.C. requires that all contracts greater than $1 million must be approved by the D.C. Council. Surprise. The contracts never were presented to the D.C. Council for review and approval. So next time you have a complaint about the Federal contracting system, be grateful that you are not competing for a D.C. contract--or jealous that you are not a friend of the mayor.

You got your ARRA money-now tell us about it.

Fri, 16 Oct 2009 11:00:32 -0400

The long awaited American Recovery and Reinvestment Act ("ARRA") contractor reporting tool initially scheduled to launch in July 2009 was scheduled to be open for reporting on October 1, 2009. The reporting tool will be available at FederalReporting.gov. Contractors that have been anxiously awaiting the availability of the reporting tool will now be able to publish the data from the quarter ending June 30, 2009. The purpose of the reporting is to provide transparency to the public on how ARRA funds are being used and how many jobs are being generated. Using the reporting tool, contractors will input data that identifies the contractor, the amount of ARRA funds received, information about the contract, and the congressional district of the contractor. Contractors must also report how many jobs are retained each quarter and how many full time equivalent jobs are created each quarter. And, the FederalReporting.gov website even provides a calculator tool to assist contractors in determining jobs created and retained. Certain contractors also will have to report the name and total compensation of each of their five most highly compensated officers--not a happy prospect for privately held companies. Once the reporting tool is up and running, contractors will have to update their information quarterly no later than the 10th day after the end of the quarter. ARRA contractors should get ready for the new reporting because contracting officers will be watching. And, a failure to make these required reports can impact a contractor's performance assessment. For more information on reporting requirements see FAR Case 2009-009, 74 Fed. Reg. 14639 and 74 Fed. Reg. 48971.

Defense Department to Private Security Contractors: Drinking While Carrying a Weapon in a War Zone is Bad

Fri, 18 Sep 2009 17:17:13 -0400

It looks like private security contractors will continue to play a large role in Iraq and Afghanistan. And DOD wants to make sure that they are not drunk when they fire their weapons. That has to be a reason for a new DOD regulation designed to improve oversight of private security contractors working in areas of military operations. Link: http://www.regulations.gov/search/Regs/contentStreamer?objectId=09000064809f3eed&disposition=attachment&contentType=html The regulation requires DOD officials to develop and publish guidance and procedures for certain private security contractors and personnel. Those procedures must include a process for arming those personnel. Requests for permission to arm personnel must include written acknowledgement from both the contractor and the personnel of several rules. These include acknowledgement that private security contractor personnel are "prohibited from consuming alcoholic beverages or being under the influence of alcohol while armed." These rules definitely will hamper the guards in bar fights. And hopefully they will not be deployed to Virginia, and other states, where patrons can legally carry concealed weapons in restaurants. Kidding aside, oversight of private security contractors in war zones is likely to become increasingly more important. DOD noted in the preamble to the regulation that "The expansion of troops in Afghanistan will result in a corresponding increase in the number of [private security contractors] performing" there. DOD plans to issue further regulations on this controversial issue.

Small Business Fair Competition Act Would Stifle Competition

Fri, 18 Sep 2009 17:14:43 -0400

How many times growing up did you complain to your parents that something was not fair, only to be given the sage advice: "Life is not fair"? Along the lines of that sage advice (and as something of a misnomer), Representative Griffith from Alabama introduced legislation entitled the "Small Business Fair Competition Act." The primary purpose of the legislation is to permit businesses that are no longer considered "small" to compete for certain follow on work as if they still were small. Thus, even though those businesses legally would be "large", they would be considered "small". Real small businesses that have to compete against these large business under contracts set aside for small businesses might have a hard time seeing how this legislation introduces any "fairness" in small business competitions. The legislation is H.R. 3558 and it was introduced on September 14, 2009. A copy of the bill can be viewed at: . The legislation would create a loophole in the Small Business Act that would permit certain large business incumbent contractors (who were once small) to compete for follow on requirements that are set aside specifically for small businesses. According to the legislation, an admittedly large business incumbent contractor could represent itself as a "small business concern" if, among other things, it was small at the time of the initial award of the incumbent contract, and it would “revert to being a small business (as defined in the solicitation for the proposed contract) if not awarded” the follow-on contract. H.R. 3558, Sec. 2(a)(2). So here's the deal. When the follow-on small business set-aside contract is competed, the competitors would include the now large business incumbent contractor. That large business would have the resources of a large business and direct experience (and likely dedicated staff) for the follow-on requirement. If the incumbent, formerly small, now large business has been doing a good job performing the work, it will be very hard for legitimately small businesses to displace the now, large business incumbent. There is nothing the matter with that if the follow-on work were competed under full and open competition, but to let a large business win a small business set-aside contract does not sound very fair. In fact, the new "Fair Competition Act" would allow the large business incumbent to protest the size of its small business competitors but would not allow the small businesses to protest the size of the large business incumbent. How fair is that?

It is impossible for the Government to act in bad faith--well almost.

Tue, 15 Sep 2009 15:52:42 -0400

Companies not selected for award of government contracts sometimes claim they are the victims of a government official's "bad faith." Sometimes such clients present counsel with objective evidence--in the form of statements made by government evaluators or questionable consulting relationships by former government selection officials--that appear to support these allegations of bad faith. The problem is, bad faith allegations rarely succeed in government contract litigation. The standards to support bad faith allegations are very high. In AFR & Associates, Inc. v. HUD, CBCA 946, August 7, 2009, the contractor ("AFR"), filed a claim against HUD for failing to exercise its option to extend a management and marketing ("M&M") contract, claiming that the decision was tainted by HUD's bad faith. AFR based its bad faith claim on the actions of two of the government personnel on whose advice the contracting officer relied in making her decision. Those actions included the following: (1) One HUD official told AFR's president, "I've one run [sic] M&M contractor out of town and I have no problem running AFR [out of town]." (2) Another HUD official retired from government service and launched a consulting firm that served clients who were HUD M&M contractors, including AFR's competitor that was selected to replace AFR for the work under the M&M contract at issue. The Board was not impressed by AFR's allegations. The Board said that there is a presumption that Government officials act in good faith and to overcome that presumption, the proof must be almost "irrefragable ". That is a great word. We ran for our dictionaries when we first saw it years ago. It means "that cannot be refuted; indisputable." It seems that if you cannot refute the good faith, you will never be able to show bad faith. However, the standard is not quite that high. In the cases where courts have considered allegations of bad faith, the necessary "irrefragable proof" has been equated with evidence of some specific intent to injure the plaintiff. At the end of the day, the Board denied AFR's claim and characterized the one official's comments as "intemperate." The Board also noted that the other government official retired five months after HUD made the decision not to extend AFR's contract and that there was no evidence that she acted unfairly in her assessment of AFR. The lesson is that bad faith claims are tough to win. Even with some objective evidence to support them, bad faith allegations rarely satisfy the standard necessary to overcome the presumption that the Government has acted in good faith. Now use the word "irrefragable" when you go home and talk to your spouse.

The Public Health Option that you will not hear about.

Fri, 11 Sep 2009 11:57:49 -0400

When President Obama addressed a joint session of Congress on September 9, 2009, there wasn't much in his speech about the possibility of a Government-funded health insurance plan as a fallback for the poor and uninsured. Ironically, many well-paid American workers already are receiving Government-funded health insurance as a result of being covered by the Service Contract Act (SCA) or the Davis Bacon Act (DBA). These federal laws require Government contractors to pay service and construction workers certain minimum wages and health and welfare benefits. (Sometimes the minimum wage is $50 an hour--quite a change since we were making minimum wages.) Under the SCA, service contractors must pay their non-unionized workers a health and welfare benefit of $3.35 per hour, while unionized workers may get even more. While employers could pay their workers this benefit in cash, employers are permitted to, and many do, use this amount to pay for or subsidize a health insurance plan. So there's the health insurance, but where's the Government funding? The reason that Congress passed the SCA and the DBA was to ensure that contractors do not compete for work by slashing employee wages and benefits. And Congress fully understood that contractors would pass these wage and benefit costs on to the Government. Contractors who are bidding on a contract covered by one of these laws should make sure they understand what the laws require and permit in order to ensure that their proposals are priced appropriately. It will not be an excuse to non-compliance that the contractor can't afford to pay the correct wages or benefits. And, the sanction for non-compliance is severe--an automatic three-year debarment for Government contracting for SCA violations, for example. The math is simple. Each time the Federal Government increases spending on service and construction contracts, more health benefits are provided to more private sector employees. So increasing spending on Government Contracts is good for the economy, good for private enterprise and good for the health of American workers. That's another reason why we are fans of Government Contracts.

GE Beats Back FOIA Request

Thu, 10 Sep 2009 10:17:55 -0400

As most readers likely know, the Freedom of Information Act ("FOIA") lets private parties request the release of information related to Federal Government contracts. In many industries, FOIA requests are a routine part of a company’s "intelligence" gathering efforts. Where bid and proposal information is not otherwise exempt from FOIA disclosure, a competitor can gather pricing information and technical proposal submission(s) of the winning contractor. What is and is not FOIA exempt, however, often is decided by Federal courts. A recent case involved unit prices of General Electric Company under two different Air Force contracts to supply spare parts for certain GE engines. https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2001cv1549-67 The contracts were awarded to GE in 1999 and 2000. And, in 2000 and 2001, the Air Force received two FOIA requests seeking public release of the GE contracts, including GE’s unit prices. In what appears to be a somewhat tortured history, the Air Force initially determined that the unit pricing information was releasable under FOIA. GE objected, arguing, among other things, that it would suffer substantial competitive harm if the unit prices were released. GE argued that its competitors, once armed with the unit pricing from the Air Force contracts, would be able to "reverse engineer" certain GE pricing strategies. And, GE argued that future commercial customers could leverage the admittedly lower unit pricing offered the Air Force to negotiate lower prices with GE in the future for similar commercial work. GE ultimately prevailed (in court) with both arguments. The case took approximately eight years to wind its way through the system to final decision by the District Court. (The eight years included a remand to the Air Force and a stay pending the appeal of another reverse FOIA case presenting similar issues.) And, during that eight year period, GE’s unit prices were not released to the public (or to the two FOIA requesters who sought the information). So what's the take-away? You have the right to fight the Government release of your information under FOIA. By just fighting the release, you may be able to tie up things until your information loses any value it might have to competitors. (Did we say that the case took eight years?) And, GE not only brings good things to life, but when it wants, it can keep things from seeing the light of day.

New Contract Performance Database Emphasizes Integrity

Wed, 9 Sep 2009 16:50:45 -0400

Contractors better shape up. A new database containing past performance and integrity information on contractors, the Federal Awardee Performance and Integrity Information System ("FAPIIS") is on its way. See FAR Case 2008-027, available at 74 Fed. Reg. 45579. FAPIIS will draw from current past performance databases and include performance and integrity information on contractors dating back five years. Contracting Officers will be required to review and consider the information in the database before making any awards over $100,000--including contracts for commercial items and commercial-off-the-shelf items. Previous bad conduct will cost you. Contracting Officers will be required to input new findings of non-responsibility due to lack of satisfactory performance or poor integrity into FAPIIS. There is also a requirement that Suspension and Debarment Officials enter information on administrative agreements between the contractor and the Government that are entered into in lieu of suspension or debarment. And, because FAPIIS displays data spanning a five year period, Suspension and Debarments (which could be for three years or less) that are no longer in effect may be included in the database. Contractors get their say as well. For example, contractors that have contracts totaling $10 million are required to provide information relating to certain criminal, civil and administrative proceedings, including in some cases settlement agreements. Contractors also can input comments regarding any adverse information in the database. The creation of this new database and the data that is required to be included for consideration indicate an emphasis on business ethics and integrity. Ergo [we love that word], Contractors are on notice to mind their P's and Q's. The proposed rule has not been finalized. If you have concerns, you have until October 5, 2009 to submit comments.

Who wants to be a multi-millionaire?

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Thu, 3 Sep 2009 12:58:41 -0400

The stock market could be stalled for years. Real estate may not reach its prior heights for a decade. And the odds of winning big money on a game show are miniscule. Where is the aspiring multi-millionaire to turn? Some enterprising folks have sued their employer or a Government contractor for making false claims to the Government. If you win, Jackpot! The Department of Justice could decide to prosecute your case and you could receive 15-25% of the proceeds of the action or any settlement of the claim. Our latest multi-millionaires come to us courtesy of Pfizer. According to a Department of Justice Press Release on September 2, 2009, "Pfizer Inc. and its subsidiary Pharmacia & Upjohn Company Inc. ... have agreed to pay $2.3 billion, the largest health care fraud settlement in the history of the Department of Justice, to resolve criminal and civil liability arising from the illegal promotion of certain pharmaceutical products..." See http://www.usdoj.gov/opa/pr/2009/September/09-aag-900.html As a part of the resolution of the cases, "six whistleblowers will receive payments totaling more than $102 million from the federal share of the civil recovery." Let's see, that is $102 million divided by six, an average of $17 million per person--not Warren Buffet numbers, but probably better than Dog the Bounty Hunter makes in a day.

Obama Administration Reaffirms its Commitment to Small Businesses--So what?

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Wed, 2 Sep 2009 13:36:22 -0400

Since he took office, President Obama has spoken of the importance of small and minority businesses, his commitment to those businesses and how he would use government contracts to promote the growth of small businesses. The President reaffirmed those commitments in an August 18, 2009 announcement (SBA Release Number: 09-58). However, when you look more closely at the President's new initiative, it looks like the Administration is talking the talk but not walking the walk. The announcement says that over the next 90 days there will be over 200 events to share information on government contracting opportunities. The announcement also says that small business contracting opportunities will be promoted in remarks by the Secretary of Commerce and the Administrator of SBA. Yawn. That will just get out the word that there are (or could be) some opportunities for small businesses. That will not increase the amount of awards to small businesses. It only will create more competition between small businesses. That is not a bad thing. But by itself, it will not move contracting dollars to small businesses. There are only two ways small businesses can get business from government contracts: 1. When the government sets aside or otherwise awards a contract to a small business (in a full and open competition), and 2. When a prime contractor to the government awards a subcontract to a small business. Having 200 meetings to tell small businesses that there are contracting opportunities, by itself, does not put more contracting dollars in the pockets of small businesses. That is not how it works in the real world. For example, SBA can ask agencies to set-aside certain contracts for small businesses. That means that only small businesses can compete for that set-aside contract. However, the agencies have the right to reject recommendations from SBA. And while SBA and the agency can fight back and forth, as between SBA and the agency, "[t]he decision of the agency head shall be final." 48 CFR 19.505(e). That's not good or bad; it is the law. And, the law presumably recognizes that agencies are more qualified than the SBA to decide whether specific contracting work should be set aside for small businesses. So while the Administration may sincerely want to increase the government contracts work of small businesses, it might want to focus more on persuading contracting agencies to make more awards to small businesses than on holding meetings to tell companies about contracting opportunities.

How to Leverage a Loss into a $1 Billion Win

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Thu, 13 Aug 2009 12:52:37 -0400

We all know that companies compete for trillions of dollars in Government contracts. We all know that the Government has to follow the rules in awarding those contracts and that disappointed bidders can file bid protests with the US Government Accountability Office and with the US Court of Federal Claims. Those protests can take three months to over a year to resolve. However, sometimes the mere fact that a protest is filed is enough to force a quick resolution of the dispute. Sometimes the Government agency will act on its own and take corrective action. Sometimes the competing contractors will get together and cut a deal. While two competitors getting together to divide up business might have anti-trust implications in other circumstances, such a collaboration may be possible as a device to resolve bid protests. Federal Times is reporting one such deal today. See http://www.federaltimes.com/index.php?S=4232395 According to the story, Dyncorp's Global Linguistic Services Division and L-3 competed for an Army translation services contract. Dyncorp won the $4.65 billion contract. L-3 protested. Dyncorp then agreed to give L-3 22.5% of the contract if L-3 dropped its protest. L-3 dropped the protest. In exchange, Dyncorp eliminated the risk that the protest would be sustained and was able to proceed with performance without waiting for a decision on the protest. Effectively, Dyncorp recived 77.5% of the work and L-3 received 22.5% of the work as a subcontractor. The deal was worth $1 billion to losing contractor L-3. The lesson is that bid protests can be an effective tool to win business--even where the protests never are decided. Is that the end of the story? Probably. Will such deals between competitors always go through smoothly? Not necessarily. Every time the Government takes an action in connection with a competition, there are disappointed bidders who have protest rights. Here, the Government directly or indirectly approved the Dyncorp/L-3 post-competition division of the work. Other, third party companies that competed for the work would have had standing to complain that the Army approval of the award to the "new" Dyncorp/L-3 team was improper. That could have led to a new round of protests. Here, it looks like any such protest now would be too late and that losing bidder L-3 has turned its loss into a big win.

When is final acceptance of work not "final"?

Fri, 31 Jul 2009 10:08:32 -0400

Imagine performing a contract, having your work inspected by your customer, the customer accepting the work, the customer paying you, and then the customer taking back the payment. It can happen. If you engage in fraud to get the acceptance, the customer can argue that the acceptance shouldn't count. That makes sense. But what if you just made mistakes in performing the work? If the mistakes are bad enough, the result can be the same. Under the Inspection of Construction clause in most government construction contracts, the Government can revoke "final" acceptance for a contractor's "gross mistakes amounting to fraud." Recently, the Armed Services Board of Contract Appeals upheld the Air Force contracting officer's decision to revoke acceptance and to terminate the design/build contract for default. See Appeals of -- American Renovation and Construction Company, ASBCA Nos. 53723, 54038, June 30, 2009. There, the contractor made some bad mistakes and compounded those mistakes by failing to provide inspection reports to the Government in a prompt manner. The contractor's foundation preparation work for military family housing at an Air Force base in Montana was found to be "inadequate." The contractor allegedly mismanaged water, selected improper foundation backfill and performed improper compaction during the course of the construction project. The Government argued that these mistakes caused the housing units to move--or "heave"--and led to significant exterior damage. According to the ASBCA, the contractor's mistakes were so egregious that they amounted to fraud that justified the Government's decision to revoke final acceptance and to terminate the contract for default. Apparently, the Government relied on the contractor's representation at the time of acceptance that the units were ready for occupancy. The nature of the contractor's mistakes and the fact that the contractor failed to provide the required inspection reports prevented the Government from discovering the mistakes. So if you think that you have to intend to commit fraud, think again. "Honest" mistakes, if frequent--and egregious--enough, can lead to claims of fraud and all the negative consequences that follow allegations of fraud.

OMB to Agencies: Cut back on sole-source and cost reimbursement contracts.

Fri, 31 Jul 2009 10:07:05 -0400

As we discussed in our first blog entry, the President’s March 4, 2009 memo outlined his government contracting policy and tasked the Office of Management and Budget, in two steps, to help Federal agencies implement that policy. The memo triggered much discussion about what changes OMB might make to the procurement rules. OMB took the first step on July 29, 2009, but is apparently waiting to make what could be the most important moves in the fall. The President’s memo directed OMB to issue Government-wide guidance: to assist agencies in reviewing, and creating processes for ongoing review of, existing contracts in order to identify contracts that are wasteful, inefficient, or not otherwise likely to meet the agency’s needs, and to formulate appropriate corrective action in a timely manner. With its three July 29, 2009 memos, OMB started the ball rolling. The memos are titled "Improving Government Acquisition," "Improving the Use of Contractor Performance Information," and "Managing the Multi-Sector Workforce." They can be found at: http://www.whitehouse.gov/omb/assets/memoranda_fy2009/m-09-25.pdf ; http://www.whitehouse.gov/omb/assets/procurement/improving_use_of_contractor_perf_info.pdf; and http://www.whitehouse.gov/omb/assets/memoranda_fy2009/m-09-26.pdf. "Improving Government Acquisition" requires agencies to develop plans to cut 3.5% of contract spending in Fiscal Year 2010 "and a further" 3.5% in FY 2011. It also requires agencies to cut by 10% the percentage of money spent on new contracts awarded with "high-risk contracting authorities." The memo targets as "high risk" acquisition methods noncompetitive contracting, cost-reimbursement contracts, and time-and-materials and labor-hour contracts. It further provides guidance to help agencies meet these requirements. Regardless of how and when the agencies get there, the bottom line is that some contractors who have gotten used to cost-reimbursement and sole-source work are going to have to compete for fixed-price contracts. More details are likely to follow by September 30, 2009, the deadline from the President’s memo for further OMB action.

HUBZone battle opens on another front

Tue, 14 Jul 2009 12:40:21 -0400

A conflict has developed between GAO and the Obama Administration over which small businesses must be first in line when Federal agencies limit competitions for contracts to small businesses. We first blogged about a controversial GAO decision on July 13, 2009, and predicted there would be fallout. GAO decided that agencies must consider whether they are required to set aside an acquisition for HUBZone small businesses before setting it aside for other kinds of small businesses. The Office of Management and Budget is telling Federal agencies that they can ignore GAO’s decision, at least for now. In a memo dated July 10, 2009, the OMB said the GAO’s decision is not binding on Federal agencies, and that it is contrary to the Small Business Administration’s regulations. OMB says the SBA regulations require "parity" among three small-business contracting programs: HUBZone, 8(a), and Service Disabled Veteran Owned Small Businesses. It argues that agencies "should not, as a result of the GAO’s decisions, be compelled to prioritize HUBZone small businesses" over the others. Ultimately, OMB is telling agencies not to follow the GAO decision until "the Executive Branch" completes a legal review. So, a key rule on who’s first in line for set-aside competitions for a large number of government contracts is up in the air, or up for grabs. Because OMB is relying on regulations and GAO relied on a statute, next stop for aggrieved parties could be Congress or the courts.

You are now entering the HUBZone

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Mon, 13 Jul 2009 09:38:14 -0400

The Federal Government uses its contracts to implement social policy. There are special rules that allow for sole source contracts to Alaska Native Corporations and limited competitions to small businesses and 8(a) concerns (businesses certified as socially and economically disadvantaged). Now, after a recent GAO decision, they all take a back seat to Historically Underutilized Business Zone (HUBZone) small businesses. HUBZone small businesses are those located in historically underutilized business zones. Contract awards to such businesses are supposed to increase economic development and employment in those areas. The law requires that contract opportunities "shall" be awarded on the basis of competition limited to qualified HUBZone small businesses if the Government has a reasonable expectation that two or more qualified HUBZone businesses will submit offers and award will be made at a fair market price. So what happens when one social policy pushes up against another social policy? In the May 4, 2009 Decision in Matter of Mission Critical Solutions, GAO said that HUBZone businesses trump Alaskan native and 8(a) businesses. In that case, GAO sustained a protest against an Army contract for IT support that had been filed against a sole source award to an Alaska Native Corporation. GAO also said that setting aside a contract opportunity for HUBZone businesses also had to be considered before a contract opportunity could be set aside for 8(a) concerns. While these are small businesses, this is no small matter. Billions in contracting dollars are at stake. The Small Business Administration did not like the GAO Decision. SBA asked GAO to reconsider its decision. However, on July 6, 2009, GAO denied the SBA's request for reconsideration. There will be fallout from the decision in Mission Critical Solutions. Small businesses will try to qualify as HUBZone businesses. Large businesses will look to team with HUBZone businesses. And we probably will see legislation in the next year that will attempt to restore 8(a) contractors to the King of the Hill.

God bless America--Give me money.

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Mon, 6 Jul 2009 09:41:50 -0400

Sarah Palin celebrated Independence Day by declaring her independence from the governship of Alaska. As governor, her salary is $125,000. In the next year, she will take in how much? $1 million? $2 million? $5 million? More? But according to Palin, it is wrong for lame duck governors to "draw a paycheck" and "kind of milk it." According to reports, she used phrases like a "higher calling" and "it's about country" to describe her abdication from Alaska's throne. As a public official, Palin is governed by ethics rules and Government contract conflict of interest rules. As governor of Alaska, it would be problematic for Palin to collect $60,000 for giving a speech or big bucks for serving on a corporate board. But as a former governor, many of those restrictions go away. What may not go away are rumors that Palin, as mayor of Wasilla, Alaska, benefited from the construction of the Wasilla Sports Complex. An attorney for Palin has denied those allegations. See http://www.politico.com/static/PPM124_release_for_7-4-09-1.html Is this a great country or what? Where else can a former third place finisher in the Miss Alaska pageant play a pivotal role in electing the country's first black President. And where else can milking your popularity make you a millionaire overnight and be called a "higher calling"? Our founders would be proud. Happy July 4th.

SOLAR ENERGY FUNDING OPPORTUNITIES IN THE AMERICAN REINVESTMENT AND RECOVERY ACT

Mon, 29 Jun 2009 10:18:30 -0400

The Obama Administration recently announced the availability of over $467 million from the American Reinvestment and Recovery Act ("Recovery Act") "to expand and accelerate the development, deployment, and use of geothermal and solar energy throughout the United States." The U.S. Department of Energy ("DOE") will dedicate $117.6 million of the Recovery Act funds for the development and commercialization of solar energy technology. These funds will complement ongoing private sector research activities currently funded under the DOE’s Solar Energy Technologies Program ("SETP") and will establish new national and local solar energy programs of interest to commercial entities.

For more information, please click here.

IRS Enforces Report of Foreign Bank Accounts (FBAR) Rules

Mon, 29 Jun 2009 10:15:43 -0400

An often overlooked filing deadline -- June 30 -- is rapidly approaching. The "Report of Foreign Bank and Financial Accounts" -- commonly known as "FBAR" -- must be filed by all United States persons meeting certain requirements with respect to foreign bank and financial accounts.

For more information, please click here.

THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009: Grants in Lieu of Tax Credits for Renewable Energy

Mon, 29 Jun 2009 10:00:52 -0400

The American Recovery and Reinvestment Act of 2009 (the "Act") contains several provisions intended to provide incentives to developers and producers of renewable energy. Perhaps the most attractive renewable energy incentive in the Act is Section 1603, which allows taxpayers to elect to receive a grant, rather than a tax credit, when "specified energy property" is placed in service (the "Grant Program").

For more information, please click here.

Sole source is bad and competition is good, except when it is not.

Mon, 29 Jun 2009 09:30:33 -0400

The Obama administration has become the champion of competition in government contracting. Or has it? The President has stated the policy of the Federal Government that executive agencies shall not engage in noncompetitive contracts except when fully justified and when appropriate safeguards are in place to protect the public fisc. But there may be limits to how far the administration will go to foster competition in Government Contracts. And one area where recent developments suggest competition may give way is when it must go head to head with the interests of federal government employee unions. OMB Circular A-76 (May 29, 2003) provides that it is the longstanding policy of the Federal Government to rely on the private sector for needed commercial services. The Circular provides for agencies to make determinations about which services are "commercial activities" and to set up competitions between private sector contractors and the existing public sector workforce in appropriate circumstances. According to OMB, there were 1375 public-private competitions from Fiscal Year 2003 to 2007. Competitions often are used for IT support, logistics and property management. These A-76 competitions can save the taxpayer money. Estimates are that DOD saves more than $1 billion a year from such competitions. In these days of bailouts and trillion dollar deficits, $1 billion does not seem like much. But outsourcing work to the private sector also has the potential to create new private sector jobs. Recently, the House Armed Services Committee reported out language as part of the Defense Authorization bill for Fiscal Year 2010 that places a three year moratorium on future A-76 studies and a temporary hold on studies already in progress. The moratorium is to give the Administration an opportunity to "study" the process. The House passed the bill on June 25th and the Senate now is considering similar language. When it comes to competing commercial work being performed by Government employees, it looks like the Administration wants to continue performance of that work by Government employees on a sole-source basis.

Follow the Rules or you don't get to play

Wed, 10 Jun 2009 14:42:35 -0400

Everyone knows that the Government's RFP sets forth the rules for submitting proposals. And, if you don't follow the rules, the Government could reject your proposal. But sometimes, you may think you are following the rules when in fact you are not. That is what happened in the protest of Northern Lights Production decided by the GAO on June 1, 2009.

In that case, the National Park Service sought proposals for audiovisual production and services. The protester received a total of 95.64 points out of a possible 100 as a result of the evaluation--a pretty good score. However, the National Park Service rejected the proposal as unacceptable because the protester included language in its final proposal that the Contracting Officer thought took exception to the Data Rights requirements of the solicitation.

The solicitation included FAR 52.227-17 Rights in Data-Special Works, which defines "unlimited rights" as:

the rights of the Government to use, disclose, reproduce, prepare derivative works, distribute copies to the public, and perform publicly and display publicly, in any manner and for any purpose, and to have or permit others to do so.

The solicitation also included another "Ownership of Products" provision that, according to the GAO decision, said: "All original media produced under this contract is the property of the National Park Service."

In response to these requirements, the protester submitted a proposal that addressed the Government’s data rights by stating: "All materials will be cleared for educational and museum presentation use for the life of the program, up to twenty years." That was its downfall. The National Park Service wanted the property period. It didn't just want the property for 20 years or for just certain uses.

The protester argued that its proposal should not have been rejected because it did not label the above language an "exception" or a "deviation". GAO rejected that and found that "the plain language of protester's proposal clearly took exception to a material term of the RFP." And, in denying the protest, GAO repeated a basic tenet of government contracts law-- "a proposal that fails to comply with the material terms of the solicitation should be considered unacceptable and may not form the basis of award."

Is that Elliott Ness at the door?

Thu, 4 Jun 2009 11:05:15 -0400

FBI Director Robert Mueller, in remarks delivered on Tuesday before the Economic Club of New York, spoke of the Government's plans to step up enforcement efforts to combat abuses of stimulus funds. "Where there is money to be made, fraud is not far behind, like bees to honey." Director Mueller's speech highlighted the FBI's intention to work with other agencies "to prevent what has the potential to be the next wave of cases: fraud and corruption related to the TARP funds and the stimulus package." In recent weeks, we have blogged about the expansion of compliance requirements directed at government contractors whose projects are funded by the stimulus package. Director Mueller's remarks make it clear that the FBI will scrutinize contractors with greater intensity than perhaps the government contracting industry has seen before. To do this, the Director stated the FBI "must collect the intelligence necessary to target potential waste and abuse at all levels [so it is] able to follow the money all the way down the line." Strict adherence to recordkeeping, reporting and compliance requirements will be critical so contractors can demonstrate that they are trusted stewards of taxpayer funds. Otherwise, Director Mueller may send a Special Agent to knock on your door. The full text of the Director's speech can be found at http://www.fbi.gov/pressrel/speeches/mueller060209.htm

Supreme Court, Here We Come.

Wed, 3 Jun 2009 14:50:58 -0400

The dispute over the Navy's termination for default of the McDonnell-Douglas and General Dynamics A-12 contract is now entering its 18th year. There apparently have been 14 reported decisions on the case to date. Beside the many attorneys for the two plaintiffs, the Navy and at least one trade association retained outside counsel. (Yes, we are jealous that we didn't have any part of this work.) The most recent decision was released by the Court of Appeals for the Federal Circuit on June 2, 2009. It found that the default termination was justified. As things now stand, the contractors recover nothing and the Navy can pursue a money judgment against the contractors. Was the decision good? Was the decision bad? Does it make a difference? The Court struggled with the decision. It sympathized with the contractors but held against them. The next decision for the contractors is whether to appeal to the US Supreme Court. The contractors’ claim at one time was nearly $4 billion, plus perhaps 18 years of interest. The Navy has asserted a claim against the contractors for $1.35 billion. If there is no appeal, the contractors get nothing. After 18 years of fighting, what would you do?

Stimulus Bill Expands HIPAA Privacy and Security Requirements

Thu, 7 May 2009 13:28:11 -0400

In addition to the massive spending provisions of the American Recovery and Reinvestment Act of 2009 (the "ARRA" or the "Stimulus Bill") the bill significantly expands the applicability of the Privacy and Security Rules of the Health Insurance Portability and Accountability Act (HIPAA). These changes are likely to have a profound impact throughout the healthcare industry. Title XIII of the ARRA, entitled "Health Information Technology," also known as the "Health Information Technology for Economic and Clinical Health Act (HITECH Act)," purports to rectify certain perceived weaknesses within the privacy and security regime created by HIPAA. While there are a number of provisions with different effective dates, covered entities and business associates must comply with most of the new provisions discussed below by February 10, 2010.

For more information, please click here.

Wanted: Systems Engineer, Salary $19.2 million

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Thu, 16 Apr 2009 13:20:16 -0400

According to an April 8, 2009 Settlement Agreement, Igor Kapuscinski worked for NetApp as a Systems Engineer and in other positions. He sued his former employer in a qui tam action. That allows private individuals to file lawsuits in the name of the USA. The lawsuit alleged that NetApp made false statements and claims to GSA and violated the price reduction terms of two contracts "by failing to extend proper discounts to government customers..." NetApp denied all of these contentions. Nonetheless, as part of the Settlement Agreement, NetApp agreed to pay $128 million to the USA and the USA agreed to pay $19.2 million of that amount to Igor. Now I know what you are thinking. Why would NetApp agree to pay $128 million to the USA after denying all the allegations of wrongful conduct? And the answer is "to avoid the delay, uncertainty, inconvenience, and expense of protracted litigation...." That would have paid for a lot of uncertainty and litigation expenses. I would have been happy to handle the litigation for half that amount. Besides the fact that mothers should tell their children to grow up to be engineers or qui tam relators, what does this settlement tell us? First, there are some very good mechanisms in place to detect alleged fraud. These include the qui tam provisions of the False Claims Act, which may have created more millionaires than AIG. Second, don't be surprised if the Obama Administration publicizes and strengthens the qui tam provisions so that more such lawsuits are encouraged. Third, the Price Reduction clause in GSA FSS contracts is a big trap for the unwary. Putting aside those pesky allegations of false statements and claims, you can get in trouble by giving commercial customers discounts that you do not give to the Federal Government. As to Igor's former job, we don't know whether it still is open.

Bailout Basics

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Tue, 14 Apr 2009 13:41:12 -0400

The Emergency Economic Stabilization Act (EESA), also known as the Financial Bailout Law, authorizes the U.S. Department of the Treasury to spend up to $700 billion to secure the national economy. However, the Treasury Department has and will spend much of that money without following the long-established rules that govern more typical government procurements, including the Federal Acquisition Regulation (FAR). The Treasury Department’s implementation of the EESA has been a fluid process, with important developments occurring almost every day. And it is very possible that significant developments will have occurred between the time this article was authored to when you read it in this magazine. Nonetheless, this introduction to the government contracting issues in the EESA will remain useful. This article discusses the kinds of purchases the Treasury Department is authorized to make under the EESA. It also addresses how a company could challenge the Treasury Department’s decision to select a competing bidder for a contract.

For more information, please click here.

No matter who is President, there always will be sole source contract awards

Mon, 13 Apr 2009 14:20:22 -0400

President Obama wants to cut back on sole source contracts. That may be easier said than done. Sole source contracts are specifically allowed by the law and are necessary in many cases. GAO recently upheld the Army's award of a sole source contract in Matter of Pegasus Global Strategic Solutions, LLC, B-400422.43 (March 24, 2009). Pegasus challenged the Army's sole source award of a contract modification to SRCTec, Inc. for the production of a device that would upgrade existing systems to thwart remote control detonation of IEDs by Iraqi insurgents. Pegasus claimed that the Army should have acquired the device under a separate competitively awarded contract. GAO rejected Pegasus's protest and determined that the "continuing and urgent need to address the use of more sophisticated IEDs" justified the modification of SRCTec's contract where it was the only contractor positioned to meet the Army's urgent needs. In GAO's view, the Army reasonably determined that no other contractors in the marketplace (including Pegasus) were positioned to meet the Army's schedule. A competitive procurement would have delayed the delivery of this device vitally needed for the protection of troops on the ground. Long after the President's new policies are in place, we are likely to see that competitive awards are not always a panacea. Yes, in some cases sole source contracts look like sweetheart deals. And yes, in some cases sole source contracts may cost the US more than if the contract had been awarded after competition. However, what will happen when an urgent requirement is competitively let and the selected contractor doesn't get the job done? In those cases, there will be second thoughts about cutting back on sole source contracts. The Government always will need the flexibility to say that only one contractor can get the job done. If new policies take away the discretion of the technical folks to award sole source contracts, we may not like the result.

Government Contracts Continue to Occupy Center Stage

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Thu, 9 Apr 2009 12:48:56 -0400

In an April 6, 2009 Budget Press Briefing, Defense Secretary Gates announced plans for a budget that would increase "the size of defense acquisition workforce, converting 11,000 contractors and hiring an additional 9,000 government acquisition professionals by 2015 - beginning with 4,100 in FY10." The Secretary also announced plans for "greater funding flexibility and the ability to streamline our requirements and acquisition execution procedures."

What does this all mean? We will be seeing more fights in the Government Contracts arena: Fights over what to buy; fights over whether the work should be done with Government employees or outside contractors; and fights about how to award contracts. Stay tuned, or click here for more information.

Keeping Your Dirty Laundry Out of Bid Protests

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Wed, 8 Apr 2009 14:34:58 -0400

Bid protests serve an important function in the Government procurement system. The rewards of winning bid protests can be significant and shift billions of dollars from one competitor to another. The main consequence of losing a bid protest generally is the cost of pursuing the protest. That, however, is not always the case.

How would you like to read the following about your company in a GAO Decision: "In sum, we find reasonable the agency's determination here that KBR's LOGCAP IV program manager knowingly and improperly obtained access to source selection sensitive and proprietary information ...." Or how about: "Nor...is there any question that the program manager, at a minimum, knowingly obtained that source selection sensitive and proprietary information by accessing the 6:35 p.m., September 23 e-mail and attachment; that he did so even though he had been previously advised by the agency that the e-mail and its attachment should be deleted without being viewed; and that he did so after he had in fact advised the agency that he had complied with the direction to delete the e-mail and its attachment." KBR recently had that experience when it protested its elimination from certain Army task order competitions and GAO denied KBR's protests. See Kellogg Brown and Root (B-400787.2; B-400861, February 23, 2009).

Is there any way to file a protest and avoid seeing your dirty laundry aired in public? Maybe. After you file a protest, you often receive the Agency Report and the documents on which the agency relied to make its decision. If you can read the tea leaves and see that the protest is likely to be denied, you always have the right to withdraw the protest. Also, sometimes GAO will help you by holding an outcome prediction conference. (That did not appear to be the case in the KBR protests.) In most cases, if GAO predicts that it will sustain the protest, the agency should take corrective action on its own. If GAO predicts that it will deny the protest, that usually is good sign that the protest will be denied and withdrawal may be appropriate. And although a withdrawal is not a win, it will feel better than having someone rub salt in your wound.

President’s Memo on Government Contracting Could Mean Big Changes in How the Federal Government Does Business

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Tue, 7 Apr 2009 14:41:24 -0400

On March 4, 2009, President Obama signed a memorandum that tasks the heads of all executive agencies with ensuring that the Federal Government will perform its functions efficiently and effectively while ensuring that its actions result in the best value for taxpayers. The memo creates a critical issue for government contractors: it suggests that the President may be inclined to have the Federal workforce, as opposed to private contractors, perform a greater portion of the Government’s work, including that covered by the new Stimulus Law.

For more information, please click here.

What in the world is a RAT board?

Wed, 1 Apr 2009 15:45:07 -0400

You don't use it to hit rats and it is not made up of rats. My guess is that the officials at Names Intended to Thrill, Wow, Instruct and Tutor (NITWIT) sat around a table and said that the crooks who stole from the Government were rats and they needed a RAT Board to ferret out that fraud. They probably are having second thoughts now, at least about the name.

The fact is that with billions of dollars of federal stimulus money being made available for government spending through the American Recovery and Reinvestment Act of 2009 (ARRA), the desire to ferret out fraud and abuse has increased. As a result, government contractors who receive stimulus funds should expect an unprecedented level of information about their government contracts to be made available to the public.

The ARRA (for real) has created a new Recovery Accountability and Transparency Board (RAT Board) to coordinate and conduct oversight. The RAT Board can conduct audits, issue subpoenas and hold hearings. The RAT Board will maintain a website, Recovery.gov, to provide the public with access to data relating to contracts and grants awarded with stimulus funds and the results of audits. The public also will be able to give feedback on the performance of government contracts that use stimulus funds. According to Earl Devaney, the Chairman of the RAT Board, Recovery.gov is only in its early development stage and has not yet been transitioned to the Board's control.

There is no doubt that the public is extremely interested in how this money is spent. According to news sources, Recovery.gov is already receiving an estimated 3,000 or 4,000 hits per second. It remains to be seen how intrusive these new transparency measures will be for government contractors or how effective they will be in curbing fraud, waste and abuse in government contracting.

Read All About It -- Your Total Compensation

Thu, 26 Mar 2009 14:11:26 -0400

The idea of AIG executives receiving big bonuses did not sit well with the public, Congress or the President. The uproar subsided a little when we learned that the bonuses had been agreed to in prior contracts and the Government knew of the bonuses when it was bailing out AIG. Still, that was little comfort to the AIG executives who received hate mail and resigned from their jobs. Could the same publicity be coming to your neighborhood Government contractor?

Federal Acquisition Regulation Case 2009-009 purports to implement section 1512(c) of the American Recovery and Reinvestment Act of 2009. It would require certain non-publicly held companies to report the names and total compensation of each of the five most highly compensated officers of the Contractor for calendar years in which they receive more than 80% of their revenues from "Federal contracts (and subcontracts), loans, grants (and subgrants) and cooperative agreements" and those revenues exceed $25 million. Under the proposed regulation, "the Contractor shall report the ... information, using the online reporting tool available at www.FederalReporting.gov."

Do you want to see your compensation information in print? If not, you might want to let the regulators know.

President Obama's March 24, 2009 Press Conference

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Wed, 25 Mar 2009 15:55:31 -0400

At his March 24, 2009 press conference, the President said: "And there is uniform acknowledgment that the procurement system right now doesn't work. That's not just my opinion. That's John McCain's opinion. That's Carl Levin's opinion." The President also referred to "cost overruns of 30 percent or 40 percent or 50 percent...."

Government contractors and government misspending are easy targets, but we jump to conclusions when we say the procurement system doesn't work. The Government buys trillions of dollars of goods and services without overspending and without incident. Of course, there is some overspending and fraud. And, we always should review the procurement system and make adjustments to try to reduce fraud and misspending. But the procurement system does work. And, the reforms that the President is championing -- fixed-price contracts and competitive contracts -- already are integral parts of the procurement system.

No one wants cost overruns. But if you budget $1000 to do a $10,000 job, don't be surprised if there is an overrun. Or, if you tell a contractor to follow one set of specifications and later make changes to those specifications, don't act shocked if the cost of the work escalates. The way to avoid cost overruns is to know what you are buying before you buy it and clearly define what you want your contractors to do.

It is easy to be against fraud, waste and abuse, but when we say that the procurement system is a hotbed of fraud, waste and abuse, we overstate and simplify the problem. We also suggest that there are villains. That ignores the fact that the vast majority of contractors and Government workers who make the procurement system work are honest, conscientious and getting the job done. Hopefully, the President understands that.

Fighting FOIA Disclosure of Confidential Information

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Thu, 19 Mar 2009 17:29:22 -0400

Anyone can submit a request under the Freedom of Information Act that asks for your confidential records that are in the possession of the Government. But, you have the right to oppose those requests. A company recently did just that when the Government was planning to release a contractor's emails attacking a competitor's qualifications. The company did not want its competitor to know that it had made negative comments about the competitor. The company filed a reverse-FOIA suit and won.

Your company may be able to oppose FOIA disclosures of its business sensitive information. You need to make sure you mark your information with the proper legends and notices, and promptly respond when the Government tells you it has a FOIA request for your records. See our website for information on the reverse-FOIA case, Tybrin Corp. v. United States.

US Government Contracting Reforms

kweckstein@brownrudnick.com (Kenneth B. Weckstein) — Fri, 6 Mar 2009 16:01:24 -0400

Today marks the launch of our Government Contracts blog. It coincides, more or less, with President Obama's March 4, 2009 memo launching his Government Contracting initiatives. On their face, the initiatives are nothing new. They really just ask Office of Management and Budget to develop some guidance on various contracting topics. Still, the President has given us a good idea of his preferences. He doesn't like sole source contracts. He likes competition. He doesn't like cost-reimbursement contracts. He likes fixed-priced contracts. He wants to stimulate the economy by increasing the size of government. He plans to shift work that has been performed by private contractors to the government. Is some of this pay-back to Federal employee unions? Maybe. Will contractors sit still while their work is shifted to Federal employees? Unlikely.

The impact of the proposed government contracting reforms will unfold in the coming months. I invite you to visit this blog regularly to keep abreast of developments, analysis and perspectives.