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Is BusyBox Too Dangerous To Use?

Edward J. Naughton (enaughton@brownrudnick.com) — Fri, 3 Feb 2012 16:00:07 -0500

Rob Landley thinks so. One of the principal developers of BusyBox, Landley was a lead plaintiff in some of the enforcement actions brought by the Software Freedom Law Center a few years ago. He’s now leading up a project, called Toybox, to rewrite BusyBox and release it under a more permissive, non-GPL license. And for doing that, Landley’s drawn a lot of fire from free software advocates.

I wrote about the BusyBox lawsuits a few months ago. BusyBox itself is a lightweight set of utilities licensed under GPLv2 that is widely used in embedded Linux devices. It’s been a vital tool in a GPL enforcement campaign by the Software Freedom Law Center (SFLC) and Software Freedom Conservancy (SFC).

Those enforcement demands and lawsuits generally involved consumer devices such as BluRay/DVD players, DVRs, and wireless routers. The devices included Busybox, but the manufacturers or distributors of the devices (including Cisco, Verizon, Best Buy, and others) allegedly failed to provide the corresponding source code for Busybox.

Landley and his colleague Erik Andersen, represented by the SFLC/SFC, took the position that the failure to provide source code as required by GPLv2 (a) automatically terminated the licensees’ right to distribute GPLv2 code, and (b) could not be cured simply by providing the corresponding source after the fact, but required the licensees to obtain the express permission of the relevant copyright holders. The SFLC/SFC and the copyright holders apparently demanded many concessions from the licensees before agreeing to reinstate the license, including the release of source code for a number of proprietary libraries and programs, as well as the right to review all of the code for new products prior to their release to ensure GPL compliance.

Busybox was critical to the SFLC/SFC’s strategy. First, it was found in many consumer devices. Second, in many cases the companies targeted by the SFLC/SFC had simply manufactured or distributed products that included chips on which the BusyBox code had been embedded. The targeted companies, therefore, had to obtain the corresponding BusyBox source code from their upstream chip supplier. As a practical matter, it was generally difficult for these companies to obtain the right version of the code. Taken together, these factors gave the SFLC/SFC tremendous leverage.

This is exactly why Landley says that "GPLv2 BusyBox is legally speaking one of the most _dangerous_ pieces of software you can ship." According to Landley, he initially became involved in the BusyBox lawsuits because he thought that they would improve the software:

when I thought that hooking up with a lawfirm to launch BusyBox license enforcement lawsuits would result in any code added to the BusyBox repository, THAT was naive. Zealots grabbed that and used it to inflict completely unrelated crap like "license compliance officers" sending reports to the Free Software Foundation (which WAS NOT INVOLVED, yet somehow managed to hijack this to further their own agenda).

Landley now believes that the lawsuits were a bad idea:

The BusyBox lawsuits are something I personally started. They were a bad idea, they have done more harm than good (I have personal, firsthand experience with this), and it's my responsibility to stop them.

On an engineering note, they never contributed a single line of code to BusyBox. NOT ONE. I thought they would, but they didn't, so I stopped pursuing them.

Instead they were picked up by zealots to pursue a wider agenda that had NOTHING TO DO WITH MAKING BUSYBOX A BETTER PIECE OF SOFTWARE. You yourself admit that this is what happened, and the idea of STOPPING this is exactly what you are objecting to.

I'm an engineer. I respond to problems by writing code.

Zealots respond to problems by telling OTHER people what they "should" do, and freaking out when they don't do it.

Landley explains that he wants to rewrite BusyBox under a non-GPL permissive license to "stop BusyBox from being used as a bludgeon against the world at large."

The BusyBox license enforcement lawsuits were a HORRIBLE IDEA, I regret having started that ball rolling, I couldn't stop it. I can only render it irrelevant with fresh development.

But others, particularly Matt Garrett, have excoriated Landley, because they believe that creating a non-GPL alternative to BusyBox will make it easier for others to violate the GPL:

the reason for writing this replacement isn't to avoid infringing Busybox's license, as such, but to avoid Busybox being used as a tool to enforce the license of other GPLed code (primarily the Linux kernel). . . .

The problem of vendors wilfully violating the GPL isn't one that can be solved by writing code. People who own the copyright to bodies of BusyBox have chosen to enforce that copyright as part of a larger overall strategy to force vendors to release the source code to other GPLed works that they're infringing. They have the right to do that. You're choosing to work on a replacement for BusyBox in order to make it easier for people to avoid enforcement actions. You also have the right to do that. I think your approach results in us seeing a larger number of wilful GPL violations than would otherwise be the case, but it's absolutely your choice.

For his part, Landley has little good to say about the SFLC/SFC:

I wrote up fairly extensive guidelines about what I did and did not consider infringement:

http://lists.busybox.net/pipermail/busybox/2008-October/033327.html

I.E. using vanilla unmodified code is not infringing, we just want your IMPROVEMENTS. I did'nt care about forcing you to mirror source tarballs like the FSF did to Mepis, or exploiting crazy loopholes. If you honestly haven't got any code we'd want, there's nothing in it for us.

The SFLC/SFC didn't work that way. They wanted settlement money so they could afford to file the next suit, and they used BusyBox to sue over OTHER software packages which is disingenuous.

So from my point of view, "Is your code vanilla unmodified BusyBox" could be answered "yes". From the SFLC's point of view, the answer had to be accompanied with a $20k check and the right to go through your refrigerator looking for expired mattress tags.

I'm aware that you care deeply about the mattress tags, but you're being a slimy weasel exploiting other people's loopholes to get your way, and you're upset that the loophole is closing. You find it an INJUSTICE that the loophole may no longer be leverageable for unrelated purposes.

Both Landley and Garrett are passionate advocates for FOSS, but it’s evident that they view the problem from diametrically opposite perspectives. Garrett sees GPL non-compliance as a serious problem that will be made bigger by the loss of BusyBox as a tool for enforcement. Landley believes that the BusyBox litigation hurt the adoption of Linux and other GPL’d code. Landley’s collaborator Tim Bird sums it all up soberly and succinctly:

Matthew correctly points out that the busybox litigators use busybox as a leverage for asking for more than just the busybox source. I believe they do not have this right (either legally or morally). It is this aspect of the situation that some companies find undesireable. It represents a business risk that is beyond the value that busybox provides.

The intent of this project is not to shield GPL violators. It is intended to prevent violation in the first place. I view the need for this project with some sadness, as I myself have worked hard for many years to encourage GPL compliance. I will continue to do so.

I think that reducing the legal uncertainty involved with using GPL software increases the likelihood of adoption and compliance. This is in stark contrast to the direction that the SFC has taken with their re-compliance requirements.

What Matthew argues here is that the ends justify the means, in terms of GPL enforcement. I respectfully disagree.

Landley and Bird have framed the problem well, but they can’t solve it simply by rewriting BusyBox. In his response to Landley, Bradley Kuhn declares that "I’m here to enforce the GPL," and Garrett himself urges Linux kernel copyright holders to step into the breach left by Landley. "The mushroom cloud of legal uncertainty" surrounding the GPL and the Linux kernel will continue.

What To Do When Your Proposal Is Late?

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Thu, 2 Feb 2012 15:08:49 -0500

Kenneth B. Weckstein, partner in Brown Rudnick's Government Contracts & Litigation Group, and Raymond Fioravanti, associate general counsel at General Dynamics C4 Systems, authored the article "What To Do When Your Proposal Is Late?" which was published in the January 2012 issue of Federal Contracts Report.

As discussed in this article, the Late Bid Rule is quite simple: offerors are responsible for ensuring that proposals reach the designated office by the "exact time" stated in the solicitation (or 4:30 PM if no time is specified), and a late proposal "will not be considered" unless it falls under a recognized exception.

To learn more about the late bid rules and the exceptions to them, as well as case law applying those rules to particular situations, please read the article What To Do When Your Proposal Is Late? on our website.

Data Protection Update

Thu, 2 Feb 2012 14:57:30 -0500

The European Commission has today confirmed the key measures that will be included in its new data protection regulation. In doing so, it has confirmed speculation that organisations who breach data protection laws can be fined based on the worldwide turnover, although the level of the proposed fine has fallen to 2% from the previously mentioned 5%.

For more information, please click here.

Massachusetts Federal Court Grants Rare Dismissal of High Cost Home Loan Claims

Thu, 2 Feb 2012 14:45:38 -0500

On January 23, 2012, the United States District Court for the District of Massachusetts issued a rare ruling dismissing so-called "high cost home loan" allegations asserted by two Worcester mortgagors against EquiFirst Corporation, a now-dissolved North Carolina mortgage lender. The case is titled Maldonado v. AMS Servicing et al., No. 11-CV-40044. The decision represents one of the only cases in Massachusetts dismissing high cost home loan allegations on a motion to dismiss, and it provides a roadmap on how lenders can obtain the same result, and save litigation costs, when the facts warrant it.

To learn more, please click here.

Legal Issues In Open Source: What to Expect in 2012

Edward J. Naughton (enaughton@brownrudnick.com) — Mon, 30 Jan 2012 12:34:08 -0500

It’s traditional in late December to take a look back at the past year and review the top stories, and there are plenty of pieces that review the developments in open source in 2011: Sean Gallagher’s article at Ars Technica, Stephen J. Vaughn-Nichols’ recap of the top five Linux stories, and Mark Radcliffe’s take.

As you’d expect, pretty much everyone who made a list of top stories included Linux’s twentieth birthday, the dramatic rise of the Android mobile operating platform, and the resulting mobile phone patent wars.

It’s always more dangerous to make predictions than it is to summarize what’s already happened, but I thought I’d take a stab. Here are a few of the big stores that I think we’ll see in 2012.

I’ll start with a safe pick: expect the smart phone IP wars to continue. The federal court in San Francisco has scheduled a mid-April trial on Oracle’s patent and copyright infringement claims against Google. Microsoft is still slugging it out with Motorola and Barnes & Noble. Apple and Samsung continue to battle it out in courts around the world. And there’s a new entrant: Kodak, which asserted digital imaging patents against Apple, HTC, and Samsung as it filed for bankruptcy.

Next, I think that there will be an increased awareness of security issues in Linux and Android. The conventional wisdom has been that Linux and open source systems were more secure than systems running proprietary code because the community could review the code and discover and fix any security vulnerabilities. This view may have been a bit too rosy. In August, kernel.org, the network of servers that host and distribute the Linux code, was hacked and was taken out of service for a couple of months. And as Android and other open source systems have increased their market share in consumer devices, they’ve increasingly become the targets of hackers and malware. The Android Market has been a significant vector for malware because, unlike Apple’s iStore, it’s uncurated. But some of the malware, like CarrierIQ, was authorized by Android device makers and/or carriers. To be sure, CarrierIQ was installed on iPhones and Blackberrys as well as Android devices, and the availability of Android source code helped researchers find the code, but users can no longer take comfort in the idea that open source systems are necessarily more secure than closed systems.

Another trend to watch: the continued movement by developers away from the GPL and other copyleft licenses in favor of more permissive licenses like Apache and BSD. Google’s release of Android under the Apache license rather than GPLv2 is perhaps the most prominent example, but an analysis of data from Black Duck Software shows that this trend is growing and accelerating. Many commercial open-source projects, particularly vendor-led projects, prefer permissive licenses because they make it easier to build proprietary enhancements around open-source code without having to give that proprietary code back to the community.

This trend makes sense for commercial developers, who profit from their proprietary enhancements, but it has generated or aggravated schisms in the FLOSS community. The free software advocates who embrace the GPL are showing increasing impatience with commercial developers who use free software but fail to comply with the license terms. Android device makers are notoriously bad in complying with their GPL obligations. The angry rhetoric from free software advocates has escalated because they perceive that Google has failed, perhaps deliberately, to lead the Android community and ensure that Android device makers comply with their GPL obligations. Those who prefer the commercial open source model have been equally strident in their attacks on free software advocates.

Given these simmering resentments, I would expect to see enforcement actions and litigation brought by free software advocates, particularly against Android device makers. Harald Welte, one of the leading enforcers of the GPL, has threatened to take enforcement actions against HTC, and others have made similar noises about Barnes & Noble’s Nook tablet. Only time will tell whether these tactics will lead to a FLOSS ecosystem that’s more vibrant or more divided.

Brown Rudnick's White Collar Defense and Government Investigations Bulletin: January 2012

Tue, 24 Jan 2012 19:28:04 -0500

Welcome to the winter edition of Brown Rudnick's White Collar Defense & Government Investigations Bulletin. This electronic newsletter highlights the latest regulatory news and case information in the white collar criminal defense, corporate investigations, and compliance areas.

This issue includes articles on FCPA enforcement, the Stevens Corruption Trial, the SEC's new settlement policy, and the Economic Espionage Act, among others.

Please click the link below to read the current issue:

Brown Rudnick's White Collar Defense and Government Investigations Bulletin: January 2012

The $11,000 Steak

Mon, 9 Jan 2012 13:27:03 -0500

We hope that the steak was not over-cooked. And tell us it didn’t have ketchup on it.

A former employee of a government contractor agreed to pay the United States $11,000 to settle allegations that he accepted illegal kickbacks while working for Fluor Hanford, Inc. at DOE’s Hanford Nuclear site. The two alleged kickbacks referenced in the settlement agreement are: i) a $100 Outback Steakhouse gift certificate; and ii) approximately $400 worth of Seattle Mariners tickets. Both kickbacks were received from the owner of Fast Pipe Supply, Inc., which was a subcontractor to Fluor.

In November 2005 -- the month when the employee received the Outback gift certificate, he reportedly purchased over $10,000 of materials from Fast Pipe. In February 2006 -- the month when he received the Mariners tickets, the employee reportedly purchased over $16,000 of material from Fast Pipe. The settlement agreement does not include any allegations suggesting that Fast Pipe did not provide the purchased materials -- or that the purchased materials were unnecessary. Rather, the settlement agreement alleges that DOE would not have approved any of the amounts used to pay Fast Pipe if DOE had known the employee was accepting kickbacks. Fair enough. The presumption is that kickbacks ultimately are passed through to the Government in the form of increased prices.

Many Federal government contractors have adopted zero tolerance policies for gifts between subcontractors or vendors and their employees, period. Employees do not always view such policies -- or compliance with such policies -- to be that important or in their best interest. This recent settlement is a cautionary tale.

The settlement is related to an investigation in the Eastern District of Washington that has led to indictments filed against Fast Pipe's owner and others. According to the indictment of Fast Pipe's owner, Fast Pipe allegedly received $3.9 million in orders in exchange for approximately $40,000 in kickbacks the company's owner paid to 14 Fluor employees. Kickbacks alleged in the indictment include personal checks to employees, an airline ticket for one employee, $100 gift cards to Macy’s and Outback, Seattle Seahawks and Mariners tickets, and a parking pass for a Seahawks game. Seems like little stuff, but can lead to big consequences.

The New Year provides a good opportunity to review and update compliance programs to incorporate real world examples of questions/issues faced by employees.

New Proposed Obligations for Contractors and Subcontractors Regarding Individuals with Disabilities

Fri, 6 Jan 2012 14:09:17 -0500

Helping out individuals with disabilities is, or should be, as American as apple pie. Requiring contractors to implement procedures and take action to show that they are taking affirmative action in hiring persons with disabilities will create more of a debate. Should that be left to the private sector? Or should the Government use its contracts as a prod to dictate social policy?

The Office of Federal Contract Compliance Programs ("OFCCP") has issued a proposed revision to the regulations implementing the non-discrimination and affirmative action regulations of section 503 of the Rehabilitation Act. See 76 Fed. Reg. 77056. The goal of the proposed rule is to strengthen the affirmative action requirements for federal contractors and subcontractors to ensure equal employment opportunities for qualified workers with disabilities. The proposed rule applies to contractors and subcontractors who have any government contracts valued at $10,000 or more. Among the changes is a new proposed utilization goal for employment of individuals with disabilities of 7% for each job group in the contractor's workforce, as defined in the affirmative action regulations at 41 C.F.R. §§ 60-2.12 & 60-4. This proposed 7% utilization is a goal and not a requirement for contractors, although contractors are required to make an assessment as to whether they have met the goal. The proposed rule establishes steps for contractors to follow to make that assessment.

Other requirements applicable to contractors include: placing job listings with employment service delivery systems; conducting annual surveys of employees giving them the opportunity to self-identify as an individual with a disability; inviting applicants to self-identify as an individual with a disability at the pre-offer stage; and maintaining records on the number of persons with disabilities applying for positions and the number hired. In addition, some requirements that were previously recommendations now will become mandatory if the proposed rule is implemented as is. For example, a contractor would be required at a minimum to review its personnel processes by identifying vacancies and training programs for which applicants and employees with disabilities are considered, provide a statement of reasons explaining the circumstances for rejecting individuals with disabilities, and describe the nature and type of accommodations for individuals with disabilities who were selected for hire. Also, the proposed rule requires a contractor to engage in a minimum number or outreach and recruitment efforts to attract persons with disabilities and conduct a self-assessment of its outreach efforts.

To review all of the requirements of the proposed rule, go to the Federal Register . Contractors are invited to comment on the proposed rule by February 7, 2012.

New Year’s Resolutions to Keep You in Good Standing with DOL, Employees

Shlomo D. Katz (skatz@brownrudnick.com) — Tue, 3 Jan 2012 14:15:32 -0500

The U.S. Department of Labor is resolved to enforcing wage and hour laws under the Fair Labor Standards Act. In this article from Thompson's Employer’s Guide to the Fair Labor Standards Act, Brown Rudnick lawyer Shlomo D. Katz offers up 12 mini-resolutions -- one per month -- for employers to make when it comes to wage and hour compliance.

To learn more about this topic, please read the article New Year’s Resolutions to Keep You in Good Standing with DOL, Employees on our website.

Mission Accomplished in Iraq?

Fri, 16 Dec 2011 14:53:16 -0500

The war in Iraq drew to a close this week. This time, there were no banners proclaiming victory. There were no sounds of horns blaring triumphantly, and celebrations were muted. It is said that more than one million U.S. troops and civilians served in the almost-nine year conflict and that the U.S. spent more than one trillion dollars on the war effort. The war has left more than 4,400 U.S. service men and women dead, with countless more injuries. The toll on civilians was almost unimaginable. President Obama said that history will be the judge of the decision to invade Iraq, which seems about right.

We wondered what the legacy of the Iraq war would be on government contracting. Even as the war ends, left behind are thousands of private security contractors who will be tasked with protecting U.S. diplomats in Iraq for the foreseeable future. Surely, there will be GAO reports that count the "fraud, waste and abuse." And there will be headlines and press accounts announcing bribery schemes and ethics scandals that seem almost inevitable when billions of federal dollars are thrown into the mix. But what about the many competent, conscientious, ethical, professional procurement officials who do their jobs well and do not get journalist and media attention? We hope their efforts will be recognized and commended. And is it fair in the middle of combat to fault contractors that are responsive to Government demands but do so without a required form or make an urgent or unconventional purchase for the war effort without getting a signed receipt?

At times, a lot is asked of the U.S. government procurement system. The war in Iraq was one such time where the limits of the system were strained, and any accounting of the American blood and treasure expended in Iraq should include an assessment of how that system performed. The bottom line, to channel Churchill and his comment about democracy, may be that the federal procurement system is the worst form of government contracting except for all the other forms that have been tried. History will be the judge.

Connecticut Utilities File Proposed ZREC / LREC Solicitation Plans

Wed, 14 Dec 2011 11:30:18 -0500

On December 9, The Connecticut Light and Power Company and The United Illuminating Company (Connecticut’s two electric utilities) filed plans with the Public Utilities Regulatory Authority to acquire zero emission renewable energy credits (ZRECs) and low emission renewable energy credits (LRECs) under Public Act 11-80, Connecticut’s comprehensive energy reform legislation enacted last summer. The joint filing envisions a Request For Proposals (RFP) process for 15-year utility contracts for the purchase of ZRECs from solar, wind and some hydro facilities, and LRECs from fuel cells and biomass facilities. The filings also include the proposed RFP and proposed purchase contract.

To learn more, please click here.

New European Measures to Allow Fines of up to 5% of Worldwide Turnover

Wed, 7 Dec 2011 14:10:44 -0500

The long awaited update to data protection legislation within the European Union is expected to be published in January 2012. It is anticipated that this will include a dramatic increase in the ability to fine for breaches of data protection legislation, of up to 5% of an organisation’s worldwide turnover.

To learn more, please click here.

The Accidental Android TouchPad: Further Developments

Edward J. Naughton (enaughton@brownrudnick.com) — Thu, 10 Nov 2011 14:23:49 -0500

As I wrote a few weeks ago, it seems that a few of HP’s now discontinued TouchPads shipped with Android 2.2, or FroYo, installed. The TouchPad was a WebOS-powered tablet, but somehow at least a few units had Android installed. It’s thought that these were test units that were never meant to be sold.

A developer leading an open source project to port Android to the TouchPad has demanded that HP provide the source code for the modified version of the Linux kernel that is embedded in these units. HP declined, because it doesn’t officially support Android on the TouchPad and didn’t authorize the shipment of devices with Android embedded.

At the time, I observed that a Linux copyright holder could cause trouble for HP by invoking Section 4 of GPLv2, which has been construed by the Software Freedom Law Center and the Free Software Conservancy to automatically and permanently terminate the rights granted by the GPLv2.

As it happens, the developer at issue owns copyrights on various files in the Linux kernel, and he seems intent on using those copyrights to pressure HP to release the source code for the GPL’d portions of Android. Now it appears that a law firm has sent a demand letter on his behalf.

How will this play out? Stay tuned.

Bionic Revisited: What the Summary Judgment Ruling in Oracle v. Google Means for Android and the GPL

Edward J. Naughton (enaughton@brownrudnick.com) — Wed, 9 Nov 2011 16:40:07 -0500

In September, Judge William Alsup, the federal judge presiding over the Oracle v. Google lawsuit, rejected Google’s arguments that software application programming interface (API) specifications are per se unprotected by copyright. That order, which is consistent with the legal precedent, will have significant implications for the dispute between Oracle and Google. The court has not yet decided that Google infringed Oracle’s copyrights in the Java APIs and code - the trial has been delayed until next year - but Google now has a tough hill to climb: at trial, it will need to walk through each of the 37 APIs and 12 code files one by one and demonstrate for each that there was no infringement.

To learn more, please click here.

Android’s Bionic Problem Is Not "Bogus": Why Judge Alsup Got It Right And Linus Torvalds Got It Wrong

Edward J. Naughton (enaughton@brownrudnick.com) — Tue, 8 Nov 2011 16:31:32 -0500

In September, federal judge William Alsup denied Google’s request for a ruling that the Java application programming interfaces ("APIs") were, categorically, not protected under copyright law. In that order, which came in Google’s litigation with Oracle over Google’s use of Java in its Android mobile operating system, Judge Alsup ruled that each of the disputed files must be analyzed individually to determine whether it is protected by copyright. He also ruled that even if the individual files are ultimately determined not to be copyrightable, the selection and arrangement of those unprotected elements may nevertheless show creativity that is entitled to copyright protection.

Android’s use of Oracle’s Java isn’t the only example of Google’s cavalier attitude toward copyrights. Judge Alsup’s order didn’t address Android’s Bionic library, which I analyzed back in March, but his reasoning can be readily applied there, too. As I explained, when Google created the Bionic library, it attempted to work around GPLv2 by using an automated script to "clean" the Linux kernel headers. After analyzing the code in several files, I concluded that Google’s categorical, automated approach to "clean" the headers didn’t work as a matter of copyright law, and I observed that Google’s methods provided an easy bypass of the GPL for commercial exploitation.

My observations piqued the curiosity of a number of journalists and bloggers, and several recognized the implications of Google’s approach. It didn’t take long for Google supporters (and, surprisingly, some free software advocates) to go on the attack. After much sturm und drang in the Android community, Linus Torvalds himself reportedly declared that the idea "seems totally bogus." He admitted, however, that he had not bothered to review the code or my analysis of Google’s approach to "cleaning" the Linux kernel header files. Although Linus has emphasized that he speaks only for himself and not for any of the other contributors who hold copyrights in the Linux kernel, critics of my analysis nevertheless declared it "debunked," on the basis little more than a flippant quote from Torvalds in a blog.

Another blogger who criticized my initial analysis declared that "It Is Not That Simple." At least he got that part right, but that was my very point, and it is also the point that Judge Alsup made in his recent order: the copyrightability of the Java APIs and the Linux kernel headers cannot be determined on a categorical basis. It’s necessary to examine the files themselves, perform a complex analysis of the code, and properly apply copyright law. I did that in my first paper, and I’ve done it further in this new white paper. That analysis leads me to the conclusion that Google’s approach doesn’t work. But if it does work, if the guardians of the Linux kernel and the GPL believe that it is acceptable to use an automated process to "clean" GPL’d headers or code so that you can re-distribute them under a non-copyleft license, that fact should be made clear so that the uncertainty and doubt is dispelled for good.

European Commission Paves Way for an EU Freezing Order

Thu, 27 Oct 2011 12:37:04 -0400

In high-value commercial litigation, it is often important for a claimant to consider at the outset whether it is possible to freeze assets belonging to the defendant to ensure that any judgment subsequently obtained can be enforced.

The European Commission has recently proposed to introduce an EU-wide freezing order known as a European Account Preservation Order (EAPO). At present, the UK Government is considering whether to opt-in and an announcement of the Government’s decision is anticipated shortly. Potential claimants and defendants who may be affected by freezing orders should be aware of this possible development and financial institutions should be aware of their potential role in administering EAPOs.

To learn more, please click here.

Poor Software Design as an Unfair and Deceptive Act: The Lessons of FrostWire

Edward J. Naughton (enaughton@brownrudnick.com) — Wed, 26 Oct 2011 15:59:42 -0400

It was inevitable that malware would eventually target smartphones. The mobile devices are ubiquitous, and they can store quite a lot of valuable private data. Downloaded apps - projected to reach a staggering 29 billion for 2011 - provide an easy vector for infection.

As Android’s market share has grown, it’s become a big target for malware, especially because the Android Market is unregulated, in contrast to the curated Apple AppStore. InfoWorld called the Android Market a "malware cesspool."

It’s become all too common to see reports of mobile malware appear with increasing frequency. The scourge comes in many forms: disguised as e-book readers or mini-browsers or other apps, they can vacuum up and steal your data, or trick you into registering and paying for a premium service, or root and gain control of your phone, or grab all of your SMS messages including bank authentication codes.

Even some legitimate apps are designed to behave in ways that seem a lot like malware, accessing permissions that go beyond what’s really needed. So it comes as welcome news to hear of the FTC’s recent enforcement action against FrostWire. FrostWire developed a popular peer-to-peer file sharing app, called FrostWire for Android, that was available for free in the Android Market. When users downloaded and installed the FrostWire for Android app, they were presented with a dialog box that allowed them to choose which types of files - photos, videos, music, documents, etc. - they wanted to share. According to the FTC, "FrostWire had configured the application’s default settings so that, immediately upon installation and set-up, it would publicly share users’ photos, videos, documents, and other files stored on those devices." If a user didn’t uncheck the boxes upon installation, all files in that category would be publicly available for sharing. The user could change those settings later, but it was difficult to figure out how to do that. The FTC filed suit against FrostWire in federal court in Miami, contending that FrostWire had committed unfair and deceptive acts by configuring the default settings in a way that would cause users to share all their files unwittingly. FrostWire settled the case, agreeing to the entry of an injunction that required it to make changes to the app, including the default settings, which FrostWire apparently has done. Google has nevertheless banned the app from the Android Market.

From a legal standpoint, the FrostWire matter is especially interesting because the FTC’s claim wasn’t based on false or misleading statements but on the design of the software. It also offers a cautionary tale for app developers: don’t write your apps to ask for more permissions than they need, and be smart about choosing the default privacy settings.

Brown Rudnick's European Litigation Bulletin: October 2011

Tue, 25 Oct 2011 16:16:48 -0400

Welcome to the fall 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 the link below to read the current issue:

Brown Rudnick's European Litigation Bulletin: October 2011

More Protection for Small Business Subcontractors in the Works

Thu, 13 Oct 2011 09:35:19 -0400

On September 21, 2011, we posted a piece about an initiative implemented by the Obama administration which would, in theory, lead to small business contractors being paid by federal agencies on an accelerated basis. Now, the U.S. Small Business Administration has proposed new regulations which, if implemented, will help small businesses on several fronts.

On October 5, 2011, the SBA proposed regulations which would, by implementing certain provisions of the Small Business Jobs Act of 2010, increase government oversight of contractors that subcontract with small businesses. The new regulations would require prime contractors to notify contracting officers in writing whenever (1) a subcontractor included in a bid or proposal is not actually used; (2) a payment to a small business subcontractor is less than proposed; or (3) a payment to a small business subcontractor is more than 90 days late. These new reporting requirements would apply to contracts with subcontracting opportunities of more than $650,000, except for public building construction contracts, for which the threshold would be $1.5 million. Comments on the proposed rules are not due until December 5, 2011, so don’t count on these new regulations taking effect any time soon.

But, the proposed regulations could offer some powerful tools to small business subcontractors in their dealings with large business prime contractors. Take the case of a subcontractor that is proposed to work on a contract. The small business is counting on that work. If the work doesn’t come through, the small business could sue its large business customer. Good for lawyers. Not so good for the small business. Under the proposed regulation, the prime contractor would have to self-report if it did not use a small business subcontractor that it proposed to use. Same if the large prime pays the small business less than proposed. Ditto if a payment to the small business is more than 90 days late.

Will the prime contractors and contracting officers like the program and the extra reporting obligations? Negative. But will this put more money in the pockets of small businesses sooner? Probably. Even though there may not be a strong enforcement mechanism, contractors like to win and get high grades. This is one more area where large businesses may be able to distinguish themselves from their peers.

And so the march to assist small businesses through the use of Government dollars continues until a new administration with new objectives is handed the keys and does an about face.

Merchant Power Regulatory Roulette

Howard L. Siegel (hsiegel@brownrudnick.com) — Tue, 4 Oct 2011 11:54:37 -0400

In this article from The Hedge Fund Law Report, Brown Rudnick partner Howard L. Siegel discusses the impending, highly contested and still spinning EPA "Train Wreck" rules and forward capacity market pricing contests. The article also addresses the potential impact of those regulatory actions on billions of dollars of merchant power debt tied to aging, largely coal-fired power plants already subject to escalating financial stress.

To learn more about this topic, please read the article Merchant Power Regulatory Roulette on our website.

The Accidental Android TouchPad: Why It’s Important to Manage Software Supply Chain Risks

Edward J. Naughton (enaughton@brownrudnick.com) — Thu, 29 Sep 2011 14:30:49 -0400

For a time, it seemed that HP couldn’t give away its TouchPad tablet. Then it killed the device and announced a fire sale liquidation. Giving them away wasn’t the problem any longer -- HP couldn’t handle the demand as the remaining inventory flew off the shelves.

Now there’s a clamor for HP to give away something else: the source code for a version of Android that somehow found its way onto at least some of the devices that HP shipped.

The exact details are murky, but it seems that at least a few of the WebOS-powered TouchPads actually shipped with Android 2.2, or Froyo, installed. Because the Android software on these units shows a Qualcomm Innovation Center logo, the best guess is that these were Qualcomm test units (Qualcomm supplies the processors for the TouchPad). They were never meant to be shipped and sold, but somehow they were.

The story is more than an embarrassment for HP. There are open source projects underway to port Android to the TouchPad, and the developer leading one of those projects has demanded that HP provide the source code for the modified version of Linux embedded in these units. So far, HP has declined, because it doesn’t officially support Android on the TouchPad.

This is all interesting enough in its own right, but what makes it really fascinating is that a developer who sent a demand to HP claims that he owns the copyright on certain code included in the Linux kernel.

In other words, the hotly debated question of whether Section 4 of GPLv2 automatically and permanently terminates your license upon noncompliance may not be hypothetical. If Linux copyright holder invoked Section 4, he could cause real headaches for HP, which distributes many products running Linux.

Managing the supply chain for a complex hardware or software product has never been easy. This story shows why it is so important and how high the stakes can be.

Is the FSF more harmful to FOSS than Android?

Edward J. Naughton (enaughton@brownrudnick.com) — Wed, 28 Sep 2011 09:08:16 -0400

A couple of weeks ago I noted the conversation in the FOSS community over Google’s closed development of the "open" Android mobile operating system. That debate was sparked by the publication of some internal Google documents that instructed its Android team: "Do not develop in the open."

That internal directive contrasted sharply with Google’s public statements. In the Oracle v. Google lawsuit, for instance, Google filed an answer in which it insists that Android is an "open platform -- a platform that provides equal access to any who would choose to develop software for the platform." According to Google, the "objective of Android is an open and shared product that each contributor can freely tailor and customize . . . the success of the Android platform is due in large part to its open nature, which benefits the entire open source community of consumers, developers, manufacturers, and mobile operators."

Last week, Richard Stallman, the founding figure of the free software movement, weighed in on Android in The Guardian. Stallman acknowledged that "most of the source code of some versions of Android has been released as free software," but because Google had refused to release the Honeycomb code, he observed that "Android 3, apart from Linux, is non-free software, pure and simple." He also noted that "even the executables that are officially part of Android may not correspond to the source code Google releases" because device manufacturers often don’t release the source for the executable version that actually ships on the devices. Stallman’s summary: Android phones are "less bad" than proprietary smartphones but still do not respect freedom.

Stallman’s take on Android is hardly surprising, and he doesn’t say much that others haven’t already said. What is surprising is the vehemence of the response to Stallman from Android apologists: one leading open source blogger lambastes Stallman for engaging in "repugnant partisanship," while another accuses him of spreading anti-Android FUD.

Talk about shooting the messenger. Google’s approach to using free and open source software in Android has been unorthodox, to put it mildly: It used scripts in an effort to "clean" the Linux kernel headers of copyleft. It has withheld the vast majority of the source code for Android 3.0. It has walled off Android from the rest of mobile Linux, not accepting contributions from the community and contributing little itself to the upstream Linux stack. And it has subsidized an ecosystem of Android device manufacturers that has been notoriously lax at GPL compliance.

So instead of attacking Stallman, who has simply called out the problems with the "open" Android platform, maybe these commentators should join him, and call on Google to make Android truly open, or even free.

Considerations of Post-Reorganization Equity in the Secondary Market

Thu, 22 Sep 2011 16:23:52 -0400

In this article from The Distressed Debt Report, Brown Rudnick Attorneys Philip Flink and Timothy Bennett discuss issues potential sellers and buyers of securities should consider when negotiating, documenting and settling their trades in the post-reorganization equity of reorganized debtors.

To learn more about this topic, please read the article Considerations of Post-Reorganization Equity in the Secondary Market on our website.

Faster Payments to Small Businesses Intended to Spur Economic Growth, but Will the Feds Make Good?

Wed, 21 Sep 2011 15:25:13 -0400

Under the Prompt Pay Act, federal agencies are required to pay contractors within 30 days of receipt of all required invoicing documentation. The Obama administration says it would like to cut that time in half for payments to small businesses.

On September 14th, President Obama announced that all agencies are being ordered to accelerate payments to small businesses (as defined in 48 C.F.R. § 2.101), with the goal of making payments within 15 days. The idea behind this initiative is to improve cash flow and, as a result, increase hiring. We get it. Paying small businesses and all businesses more quickly is a good idea and the right thing to do. It will make doing business with the Government more attractive. It will improve cash flow. But will it lead to more jobs? Let's see, I'm a small business with ten employees. I send the Government a bill for $100,000. The Government pays the amount owed 15 days later instead of 30 days later. I am happy. I take my wife out to dinner. But will being paid money I am due 15 days early get me to hire a new employee?

And, the actual acceleration of payments to small businesses is not a sure thing. There are a few eggs left to hatch before small business contractors can begin counting their accelerated chickens. In a memorandum to the heads of all Executive departments and agencies, the Director of the Office of Management and Budget ("OMB") laid out the parameters for implementing the President’s mandate. (A copy of this memorandum can be found here). It looks like agencies don’t need to be in a big hurry to start cutting checks. Implementation of this initiative does not begin until November 1, 2011. At that time, each agency is required to notify the OMB when it can begin accelerating payments, along with the reasons why it can’t start earlier.

Once the agencies do undertake to comply with the OMB’s memorandum, their compliance won’t necessarily be uniform. Indeed, the OMB is not really "ordering" the agencies to make payments to small business contractors within 15 days - they just have to try to pay "as quickly as possible" after receipt of all proper documentation. Agencies and contracting officers that want to hold up payments based on missing documentation (real or perceived) may do so. And the accelerated payment initiative does not change the timing of late charges under the Act; the government will not be liable for any late charges until the full 30 days have passed. So the agencies really have little incentive to pay more quickly, and there is no penalty for failing to comply with this new "mandate."

Don't get us wrong. Putting more cash in to the economy sooner isn't a bad thing. But will this new initiative deliver as promised? Only time will tell how many agencies actually accelerate their payments, and when they begin doing so. And while small businesses would certainly benefit from improved cash flow, it looks like no one should be holding their breath.

DOD decides that it is a good idea to conduct discussions with offerors for contracts expected to be more than $100 million.

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Tue, 20 Sep 2011 14:26:39 -0400

If I'm going to make a $100 million purchase, I certainly would want to talk with the seller before writing a check. Not so for the Federal Government. FAR 52.215-1, which is a standard clause titled "Instructions to Offerors--Competitive Acquisition", at (f)(4), states that "[t]he Government intends to evaluate proposals and award a contract without discussions with offerors...." DOD is changing that preference. A Final Rule announced on September 20, 2011 added section 215.306(c)(1) to the DFAR and reads: "For acquisitions with an estimated value of $100 million or more, contracting officers should conduct discussions." So what's blogworthy?

First, why has it taken 40 years to come to what seems like an obvious conclusion? The answer: DOD figured out that if it makes awards without discussions, there is a greater likelihood of a bid protest. More procurement lead time is needed when there are protests. So, cutting back on protests will reduce necessary lead time. OK. Except don't discussions take time and lead to submission of BAFOs? And don't inadequate discussions lead to protests? Isn't the real answer that conducting discussions will more likely result in a meeting of the minds and a greater likelihood that the Government will buy what it wants to buy?

Second, even when solutions seem obvious, there is not total agreement. According to the Federal Register notice, one commentator said that the proposed rule is "overkill". Let's see if I have this right. Having some discussions as compared to having no discussions is overkill? No discussions is not too much killing and not too little killing. Just right. Sort of like Goldilocks' take on baby bear's porridge.

Regardless, discussions in large procurements are a good idea. More than that, as DOD said in its notice, it is a best practice. You would never write a check for $100 million without having discussions with the seller. Why should DOD?

Inherently Governmental Functions Policy and Guidance Issued

Thu, 15 Sep 2011 11:26:01 -0400

Two years ago, contractors shuddered when the Obama Administration proposed to shift work from contractors to government employees. That objective was to be accomplished, in part, by more clearly defining what contractors could and could not do. The wait is over. And the answer so far is a big "Never mind". The long awaited guidance on the type of work that is considered "inherently governmental" and thus, cannot be performed by contractors, was issued by the Office of Federal Procurement Policy ("OFPP") on September 12, 2011. See 76 Fed. Reg. 56227. The definition of what constitutes an "inherently governmental function" was not re-written. Instead, the OFPP maintained the definition from the Federal Activities Inventory Reform Act, Public Law 105-270, which defines an inherently governmental function as "a function that is so intimately related to the public interest as to require performance by Federal Government employees." The OFPP explains that these are functions that require the exercise of discretion in applying Federal Government authority including judgment related to monetary transactions and entitlements. The types of things that are inherently governmental would be those that bind the United States, determine and advance United States interests by military or diplomatic action, significantly affect the life of private persons, appoint or control employees of the United States or exert control over acquisitions. Some examples given include: combat, security operations performed in support of combat, determining what supplies or services are to be acquired by the government, participation as a voting member on a source selection board, determining whether prices are fair and reasonable, and awarding and administering contracts.

The OFPP policy letter also explains the types of things that are not considered inherently governmental such as gathering information or providing advice or opinions to Federal Government officials and functions that are ministerial in nature such as building security, mail operations, and cafeteria operations. Other categories of functions broken out include "critical functions" and functions "closely associated with inherently governmental functions." Functions that fall into these categories can be performed by contractors with proper oversight by federal employees. Guidance is also provided on how to determine whether a function is "inherently governmental", "critical" or "closely associated with inherently governmental functions" in the letter.

While many in the private sector feared strict new guidelines would limit the work available, the final guidelines in large part remain somewhat vague and allow room for agency level discretion. In fact, there is not an announced intent to move away from using contractors. In the policy letter, OFPP states that "[n]othing in this guidance is intended to discourage the appropriate use of contractors. Contractors can provide expertise, innovation, and cost-effective support to Federal agencies for a wide range of services." 76 Fed. Reg. at 56236. The OFPP further explains that it "does not anticipate a widespread shift away from contractors as a result of the requirements in the policy letter. As the policy letter explains, insourcing is intended to be a management tool - not an end in itself - to address certain types of over reliance on contractors." See 76 Fed. Reg. at 56234. Nevertheless, the definition of "inherently governmental functions" remains somewhat vague which means that to a certain extent the true impact is yet to be seen as various agencies take the guidance and implement their own internal practices and policies.

Kick the contractor is good sport and, at times, the temptation to play is too much to avoid. For now, there are higher priorities.

The policy letter as well as OFPP's explanation can be found in the Federal Register available here.

Power Plant Sale-Leaseback Debt Restructuring: Navigating the Multi-Dimensional Battleground

Howard L. Siegel (hsiegel@brownrudnick.com) — Thu, 15 Sep 2011 11:14:26 -0400

In this article from Bloomberg Law Reports, Brown Rudnick Partner Howard Siegel discusses sale-leaseback financing, and how many U.S. coal-fired power plants face distinct debt restructuring challenges in the current merchant power market. In this article, Mr. Siegel maps out the multi-dimensional battleground for those sale-leaseback debt investors seeking to navigate the territory for opportunities. As you will learn, there are significant risks and rewards to be had in assessing how inter-related regulatory, commodity, energy, and environmental factors will impact plant value. The complexity of that exercise, and the associated risks and rewards, are likely to be even greater for debt investors in the sale-leaseback milieu.

Please click here to view the full article.

Google’s Closed Development of Android Opens Old Wounds

Mon, 12 Sep 2011 17:51:54 -0400

Does "open source" mean developing in the open? Or is it good enough – legally and morally – to publicly release the code after the fact, when the next release is ready for market? Is transparency a defining value of the open source community, perhaps even the most important value? Or is it equally valid, and perhaps a better business practice, to keep development closed?

That debate is raging in the open source community following the recent publication of internal Google documents that bluntly set out the company’s strategy for developing Android: “Do not develop in the open.” The articles, like this one at The Register, set out the news story, but the real action is in the comments. This posting by Scott M. Fulton, III, over at ReadWriteHack, has generated some thoughtful commentary as well.

There’s a similar divergence of views, to put it mildly, over Barbara Hudson’s four-part article on termination under Section 4 of GPLv2. Hudson excoriated the FSF and SFLC – using terms like "GNUstapo" – and rejected their position that Section 4 automatically terminates rights under the GPLv2. She argues that rights can be reinstated simply by coming into compliance and downloading a new copy of the license. If her argument is correct, compliance with the GPLv2 becomes much easier. Those who enforce the GPL argue that her argument would "eviscerate" the license; others complain that the FSF’s reading allows it to "take hostages."

The free, libre, and open source community has always been marked by yin-yang. Today’s quarrels echo the row in the late 1990s between Richard Stallman, who insisted that "free software" was essential to freedom, and Eric Raymond, who rejected Stallman’s ideology and embraced a pragmatic "open source" development model. And now, as Linux turns twenty, Android is both a blessing and a curse.

Congress Passes Patent Reform Legislation

Fri, 9 Sep 2011 14:31:03 -0400

Voting 89-9 yesterday, the United States Senate passed H.R. 1249, the Smith-Leahy America Invents Act, and the President is expected to sign it. This legislation constitutes a significant change to the U.S. patent system. Most of the significant provisions in the new legislation will impact only patent applications with a priority claim within 18 months from the date of enactment, although other provisions of the act will take immediate effect.

For more information, please click here.

On the State of Open Source Software: The Marketing and the Reality

Edward J. Naughton (enaughton@brownrudnick.com) — Thu, 8 Sep 2011 12:07:34 -0400

Yesterday Infoworld published a thought-provoking piece by Peter Wayner about the state of open source. Wayner observes that the "open source" label is ubiquitous, but that the freedoms that open source was supposed to bring are much harder to find. Many products are built on open source - the operating systems for iPhone and Android phones, for instance, are governed by open source licenses - but they’re locked down and/or kept in a "secret lair." Enterprise software companies offer community editions of their products, but often as a feature-limited demo version, in the hope of selling upgrades to a commercial license.

But this isn’t anything new. Seven years ago, around the time of those IBM commercials during the Super Bowl declaring that "The Future Is Open," a colleague and I published a couple of papers, including for the Computer Law Association, that examined the transformation of the free software movement and ecosystem. Ieuan G. Mahony and Edward J. Naughton, "Open Source Software Monetized: Out of the Bazaar and into Big Business," 21 The Computer and Internet Lawyer 1 (October 2004) (not available online). After tracing the history of the free software and its embrace by the largest proprietary software companies, we observed that the "open source" label was increasingly used simply as a marketing strategy, to sell their essentially proprietary products.

Plus ça change, plus c’est la même chose.

The Longest Six Months: Final Rule on Hiring Predecessor's Service Workers Still in Limbo

Tue, 30 Aug 2011 13:27:29 -0400

Ten days after taking office in 2009, President Obama issued Executive Order 13495 entitled "Nondisplacement of Qualified Workers under Service Contracts." The Order directed the Federal Acquisition Regulatory Council ("FAR Council")--the body that manages the Federal Acquisition Regulation or "FAR"--to publish a contract clause and accompanying regulations to require contractors and subcontractors to "in good faith offer those employees (other than managerial and supervisory employees) employed under the predecessor contract whose employment will be terminated as a result of award of this contract or the expiration of the contract under which the employees were hired, a right of first refusal of employment under this contract in positions for which employees are qualified." The Executive Order was hailed by employees of Government contractors that envisioned employment for life and by attorneys who hoped to fight about the applicability of the Executive Order.

Unfortunately, we all have to wait. The Executive Order says, "This order shall become effective immediately and shall apply to solicitations issued on or after the effective date for the action taken by the Federal Acquisition Regulatory Council under section 6(b) of this order." Which is it--was it effective immediately or would it be effective only when a FAR clause was issued?

Also, the Order ordered the Department of Labor ("DOL") to promulgate regulations within six months of the Order for enforcing the Order's requirements, i.e., by July 29, 2009. How did that affect the Order's effective date? What were contractors supposed to be doing in the interim?

The answer is that the Order was effective immediately for the Government agencies--the FAR Council and DOL--that were given new responsibilities under the Executive Order. However, the Order has no impact on contractors unless and until a clause is included in a solicitation implementing the Order. Such a clause still does not exist.

DOL's July 29, 2009 deadline also came and went with no action. Finally, on August 29, 2011--only 25 months late--DOL issued its regulations. And what do they say? They say that the long awaited regulations have no effective date because the FAR Council still has not issued its regulations. (And if a Republican is elected President before the rules take effect, we predict that the Executive Order will be jettisoned pretty quickly.)

What's going on? DOL blames its delays on "organizational restructuring" of the Department of Labor (76 Fed. Reg. 53,270). It also may be connected to the fact that more than halfway through the Obama administration, there is still a "vacancy" sign on the office of the Administrator of DOL's Wage & Hour Division, the office in charge of these regulations. And what about the missing FAR clause? The FAR Council actually closed its files on the Executive Order on October 29, 2009 to be reopened after DOL took action. So, don't expect that anytime soon.

What does this all mean? It seems to be good news for the contractors we have talked to, since they uniformly dislike the Executive Order. For one thing, it may give incumbents an advantage in bidding. DOL's final, but not effective rules, require contracting officers to give bidders a list of the employees who are covered by the Order's hiring requirement, but the rules also say that the successor contractor's obligation to hire the predecessor's employees exists even if the successor does not receive that list. If and when these rules become effective, contractors may have little choice but to protest a procurement until they get the required list. For better or worse, we do not expect to see that anytime soon. This is one provision that has Democrat written all over it. As long as Republicans have a say, any requirement to hire employees of the predecessor contractor could die on the vine.

Open Source License Compliance: It’s Straightforwardly Complicated

Edward J. Naughton (enaughton@brownrudnick.com) — Thu, 25 Aug 2011 15:49:09 -0400

Some of my recent posts on the challenges of compliance with open source licenses have generated a lot of discussion in the FOSS community, as I hoped they would, and I’ll have more to contribute to the discussion in coming posts. But for now, consider this:

Brian Proffitt, discussing my post, assures readers that there’s no cause for concern about termination under Section 4 of GPLv2 and quotes Linux Foundation’s VP Amanda McPherson, who says that "complying with open source licenses is very straightforward." But not long ago, Jim Zemlin, President of the Linux Foundation, acknowledged the very opposite: "Managing open source license compliance is complicated." Complicated enough, in fact, that the Linux Foundation offers fifteen highly technical manuals and tools to manage the compliance process.

Will There Be Any Open Space Left In The Mobile Landscape?

Edward J. Naughton (enaughton@brownrudnick.com) — Fri, 19 Aug 2011 15:18:35 -0400

It’s been a topsy-turvy week for open source in the mobile space.

Google’s Android mobile operating system has been marketed as "open source," free for others to use and modify, in contrast to Apple’s closed iOS and Microsoft’s closed Windows Phone. One of the defining hallmarks of open source software has been the free availability of the source code. Late last week, however, Google asked the International Trade Commission to sanction Microsoft for allegedly disclosing certain "highly confidential" Android source code in connection with an ITC proceeding against Android-powered Motorola smartphones.

Another hallmark of open source, particularly code under free software licenses like the GPLv2, is an opposition to software patents. Many free and open source licenses contain provisions that expressly or implicitly require distributors of open source code to grant licenses to any patents that read on the code they distribute. But late last week, it was reported that Motorola Mobility, one of the largest makers of Android smartphones, had suggested that it might begin asserting its substantial patent portfolio against other Android device makers. Then, on Monday, Google announced that it had agreed to buy Motorola Mobility, primarily to acquire its trove of patents. Google promised that it will continue "to run Android as an open platform," but it’s not immediately evident how it will reconcile its patent holdings with an open Android. Will it make those patents available, royalty-free, perhaps through a mechanism like the Open Invention Network? Is Google willing to do that after paying $12.5 billion to acquire them?

Some glimmers of hope remain. HP announced yesterday that it was exiting the mobile phone and tablet business and scrapping the WebOS mobile operating system. Some have called for HP to open source WebOS. And a few weeks ago the Mozilla Foundation announced its plans to develop an open source mobile operating system. Perhaps there’s still room in the mobile landscape for a truly open solution.

Operating (system) without a license: Does Section 4 of the GPL leave Google and Android device manufacturers unlicensed? (Part 2)

Edward J. Naughton (enaughton@brownrudnick.com) — Tue, 16 Aug 2011 11:03:38 -0400

In my previous post, I explained how Section 4 of GPLv2 plays a critical role in GPL enforcement actions brought by the SFC and the SFLC. By immediately terminating rights for non-compliance and requiring express permission from the licensor to reestablish those rights, Section 4 provides a stout club that can be used against companies who rely on GPL code in their products but fail to adhere to the complicated requirements for that license. In this post, I want to examine what that might mean for an Android ecosystem that is not a model of GPL compliance.

How does Section 4 affect Android OEMs?

As we’ve discussed, GPL compliance is challenging even for those who want to comply. It seems that many in the Android community are not trying that hard, and the GPL compliance record is fairly dreadful. Late last year, a well-known OSS hacker looked into Android tablet compliance and found that most of the device manufacturers are not in compliance with the GPL. As I recently observed, with Honeycomb, the compliance record is even worse.

If the SFC/SFLC position in Best Buy were applied to the Android ecosystem, every device for which a manufacturer has not made all of the GPL source code available is unlicensed and subject to an injunction. Google’s recent posting of some source code on the Android Open Source Project (AOSP) site doesn’t protect OEMs: it’s quite clear that the obligation to provide source code is personal to each and every person in the supply chain, and a commercial entity cannot rely on others to provide the relevant source code. In addition, because the source that Google has posted is a blind dump without any manifest, it is very difficult to determine whether it meets the "corresponding source" requirement of the GPLv2. Google cautions that the Honeycomb source it has released is not "likely to work on actual hardware," and so I suspect that it is not "corresponding source."

What about Google?

To a certain extent, an OEM’s failure to comply with the GPL source distribution may not be Google’s problem, if Google has provided the necessary source to the OEMs and doesn’t restrict them from making it available.

But the provision of source code is not the only obligation imposed by the GPLv2. Section 1 also requires you to redistribute GPLv2-licensed source code under the GPLv2. In other words, you can’t take code that you’ve received under the GPLv2 and release it under another license. This is "license laundering" and a violation of GPLv2 that would trigger Section 4.

A visual examination of the source code for Gingerbread -- the latest complete version of Android that is publicly available - reveals several instances of what appears to be GPLv2-licensed code included in files that are licensed under the Apache License. For example, Android uses "bootcharting" logic, which uses "the 'bootchartd' script provided by www.bootchart.org, but a C re-implementation that is directly compiled into our init program." The license that appears at www.bootchart.org is the GPLv2, not the Apache 2.0 license that Google claims for its implementation.

There are other examples as well, including repurposing of files from the Cygwin and Zenburn projects and the inclusion of a code "modeled after" a script that appears to be from a documentation page from Linux man-pages project at kernel.org. Each of these situations involves original code or content that is licensed under the GPLv2 but which is ostensibly relicensed under the Apache 2.0 in Android. I’ve previously discussed Google’s "washing" of the Linux kernel headers when it created the Bionic library.

Did Google get permission from the original copyright holders to relicense this GPLv2 code and content? It’s possible, but developers that pay attention to GPLv2 compliance typically include a note to that effect in the code comments. Without such permission, the relicensing of that code violates the GPL and triggers Section 4. It would also require Android OEMs to disclose additional source code, beyond what Google has provided on the AOSP, because that code would remain under the GPLv2 despite Google’s attempts to launder the license.

What could this mean for the Android ecosystem?

Any OEM that isn’t providing a GPL-compliant source code distribution - there are few in the phone universe who are and, as far as I can tell, none in the tablet universe - is, according to the SFC/SFLC, unlicensed and does not have the right to distribute Android devices that contain GPLv2-licensed code.

That’s a serious issue, more serious than the situation that led to the BusyBox lawsuits. Unlike many of the BusyBox defendants, each of the Android manufacturers knows that there’s GPLv2 code in their products - Google emphasizes that it has consciously leveraged such code in its development of Android.

Perhaps more intriguing is the likelihood that Google has improperly relicensed GPLv2 code under Apache 2.0. If that is the case, Google itself has probably lost its rights to distribute Android containing that laundered code, and Google would need to obtain the express permission of the relevant copyright holders to resume distributing it.

How will this play out? Will the SFC or another party bring a suit? The facts and the law seem pretty compelling. In Best Buy, the SFC went after a number of parties and sought an injunction against the distribution of an entire product based on the inclusion of just one small GPLv2 component. In those cases, the SFC argued that:

Failing to enjoin blatant violations of open source licenses threatens to erode their effectiveness, which would cause substantial public harm by decreasing the participation in the software distribution model that produces freely available and modifiable software to the world.

If that’s true of a few Blu-Ray players, it seems to be an enormous peril in the case of the Android ecosystem, where the problems - failure to provide any source code and potential license laundering by Google - are much more "blatant violations of open source licenses."

License revoked: Applying Section 4 of the GPL and the lessons of Best Buy to Google’s Android

Edward J. Naughton (enaughton@brownrudnick.com) — Mon, 8 Aug 2011 15:42:12 -0400

Not long ago, open source advocates sued more than a dozen major consumer electronics manufacturers, claiming that the manufacturers had lost the right to use GPL’d software in their devices. It looks like the same could be said of Android: virtually every one is unlicensed.

I recently explained that by failing to make freely available the source code for the GPL’d portions of Honeycomb, Google is forcing its OEM partners to face a number of increasingly unpleasant legal issues. Perhaps in response to the outcry created by its decision, Google made available portions of the source code for Honeycomb, some of it in just the past couple of weeks. Even if that code release could be considered GPL compliant - which is quite doubtful -it doesn’t end the controversy.

The arguments made by the Software Freedom Conservancy (SFC) and the Software Freedom Law Center (SFLC) in Software Freedom Conservancy, Inc. v. Best Buy Co., 09-CV-10155 (S.D.N.Y.), put the entire Android ecosystem in potential legal jeopardy. In the Best Buy case, the SFC and SFLC argued that a violation of the GPLv2 immediately terminates a licensee’s right to distribute covered code and that the licensee cannot remedy its violation by providing the source code after the fact. The express permission of the relevant copyright holders is necessary to reestablish the licensee’s rights.

Given the woeful track record of GPL compliance in the Android ecosystem, that argument would imply that almost every OEM distributing Android devices today is unlicensed, and even Google itself may not be licensed to distribute portions of the Android code.

That is an astonishing situation, one that could have significant repercussions for Android users, distributors, and Google itself. Some may dismiss it reflexively as scaremongering, but that response is just too simple. In this first post, I’ll analyze and explain the legal background of Section 4 of GPLv2. In my next post, I’ll discuss why Section 4 matters for Honeycomb and the risks it creates for the entire Android ecosystem.

The Best Buy Case and GPLv2 Section 4

For many years, there were questions whether the GPL was enforceable. To put an end to those questions, the SFLC and the SFC began to file copyright infringement actions, primarily against manufacturers and distributors of embedded Linux devices. Those cases focused primarily on BusyBox, a set of utilities licensed under GPLv2 that was used in those devices. The SFC and SFLC have ridden these cases to a lot of success.

One of those cases involved Best Buy, the electronics retailer, which distributed a Blu-Ray player with embedded Linux and BusyBox. Most of the BusyBox cases resolved pretty quickly, and those that went to litigation settled well before anything significant happened. The Best Buy case also settled, a few weeks ago, but before it did the SFC and SFLC filed motion for a preliminary injunction to prevent Best Buy from selling the Blu-Ray players even though the BusyBox code had been made available. The court never decided that motion, but the papers submitted in support of and opposition to it provided a lot of insight into the usually opaque area of GPL compliance and enforcement.

The heart of the SFC/SFLC case was Section 4 of the GPLv2, which states that any attempt "to copy, modify, sublicense or distribute" covered code in a way other than provided in the license "is void, and will automatically terminate your rights under this License." The SFC/SFLC insisted that once the defendants violated that section, by failing to distribute the corresponding source for BusyBox, they needed the licensor’s explicit permission to continue to distribute devices containing BusyBox. In other words, after-the-fact compliance with the GPL was a necessary condition, but it was not sufficient to reinstate the defendants’ rights under the GPL. This is not a particularly controversial position: Harald Welte of gpl-violations.org has relied on Section 4 to obtain injunctions against non-compliant GPL distributions in Germany, and there are US precedents supporting the concept that one loses the right to distribute if one violates a copyright license.

This "express permission" requirement really gives teeth to the SFC’s enforcement activities. The SFC can - and does - condition continued distribution on requirements that go far beyond the GPL terms. In its A Practical Guide to GPL Compliance, the SFLC explicitly affirms this power: "Different copyright holders condition reinstatement upon different requirements, and these requirements can be (and often are) wholly independent of the GPL. The terms of your reinstatement will depend upon what you negotiate with the copyright holder of the GPL’d program." Many of the reported settlements in other cases involve (a) the appointment of an "open source compliance officer" to monitor compliance with all GPL programs, not just the one at issue, (b) periodic reporting of those compliance efforts, (c) notification to previous recipients of the GPL’d program, and (d) monetary payments. E.g., BusyBox Developers and Monsoon Multimedia Agree to Dismiss GPL Lawsuit; FSF Settles Suit Against Cisco ; BusyBox Developers Agree To End GPL Lawsuit Against Verizon. According to affidavits filed in the Best Buy case, the SFC demanded that the defendants disclose source code for a number of proprietary libraries and programs, as well as the right to review all of the code for new products prior to their release to ensure GPL compliance. When the defendants refused, the SFC filed a motion seeking an injunction against the continued distribution of the Blu-Ray players at issue.

Complying with the GPL’s source code disclosure obligations is no simple matter; it’s easy to run afoul of them and end up in the unenviable position of facing an SFC/SFLC compliance action and their accompanying demands. First of all, you need to know what it is you have to disclose. Section 3 of the GPLv2 describes the obligation to provide "corresponding source." It’s not enough under that section to simply provide the source code for the component itself. You also need to provide "any associated interface definition files," plus "the scripts used to control compilation and installation of the executable." (Scripts in this situation include any software programs, files, tools, or scripts that are necessary for a user to install a modified version of the program, such as makefiles, configuration files, build scripts, and packaging scripts.) It can be very difficult to satisfy this obligation in the real world: in Best Buy, the defendants provided seven different rounds of proposed compliance information, none of which was deemed adequate.

Even if you get the extent of the "corresponding source" right, you still need to figure out how to make it available properly. Assuming that you are a commercial distributor of GPL code, the source code must be available simultaneously with your binary distribution. The distribution must either have source code accompanying it or come with an offer "valid for at least three years" to provide the source code immediately upon request. You cannot rely on another entity’s offer of code to satisfy your obligation, nor can you simply offer the source code for download. You must make it available on a physical medium - e.g., CD - for anyone who requests it.

How tricky is compliance with the GPL source disclosure obligation? Here’s a data point: last week Slashdot reported that "Emacs, one of GNU's flagship products and the most famous software creation of Richard Stallman, has been discovered to be violating the GPL since 2009-09-28 by distributing binaries that were missing source." Richard Stallman himself commented that "We have made a very bad mistake. Anyone redistributing those versions is violating the GPL, through no fault of his own."

Section 4 of the GPL clearly poses a significant risk for companies who rely on GPL code in their products. One slip-up in the complicated arena of GPL compliance can jeopardize their right to distribute products. In my next post, we’ll see why this matters for Google, its OEMs, and the Android ecosystem generally.

Because Android "Is Not Open Source," The Mozilla Foundation Plans To Build A New MobileOS

Edward J. Naughton (enaughton@brownrudnick.com) — Mon, 8 Aug 2011 15:30:17 -0400

You know how the old saying goes: if you are going to talk the talk, you’d better walk the walk.

Google has long touted Android as "open," but as many (including me) have chronicled, it hasn’t been walking the walk.

Google’s decision to withhold the Honeycomb source code, to overtly privilege some OEMs and partners over others, to implement subjective compatibility requirements, and to make risky licensing decisions (I expect to have more to say about this issue in a future post), has belied its claims that Android is "open." Now it appears that the Mozilla Foundation, developer of the Firefox browser and other popular OSS projects, has had enough. On Monday, Mozilla revealed its plans to develop its own mobile operating system for tablets and smartphones, one that is truly open.

This is a fascinating development. According to eWeek:

The new Mozilla project is known as Boot to Gecko, or B2G, and its goal is to build a complete, stand-alone operating system for the open Web, said Mozilla engineer Andreas Gal in a July 25 blog post. Gecko is Mozilla’s browser layout engine. It appears that Mozilla will begin building out B2G with Android components and Gecko as foundational technologies.

Mozilla’s criticisms of Google’s "openness" were rather pointed:

Android is not open source in the sense of 'open technology.' Android APIs are proprietary Google sauce, not broadly accepted and adopted open web standards. At some point Android used to be at least 'available source' where Google would publish secretly/internally developed source code/technology after the fact as products ship, but even those times seem to be over now. I would love to boot my custom Android build on my Galaxy Tab 10, but no luck, Google refuses to release the source.

We want to do Boot to Gecko the way we think open source should be done. In the open, from day 1, for everyone to see and participate.

Up until now, Android has been marketed as the "open source" mobile operating system. However, in reality, Google has locked down Android in many relevant ways. Mozilla, one of the bastions of open source, is now drawing a line in the sand.

It’s still early, too early to know how this will shape up, but Mozilla’s track record and public statements certainly signal that they are likely to give OEMs and partners far more opportunity to innovate than Google.

This is hardly surprising: Mozilla is a non-profit foundation, not a profit-seeking enterprise. Google, by contrast, uses "openness" because it wants to be everywhere. By offering a free (as in beer, not speech) mobile platform, Google has achieved some ubiquity, which has driven tremendous advertising revenue. Mozilla, on the other hand, has generally been a real and passionate proponent of open web and open access.

Does that mean Mozilla’s solution is the best approach for mobile? No, at this early stage, it’s hard to say much of anything about the project from a technical standpoint. But at least the project appears to be driven by real open source values and can be expected to play by the rules, which is much more than we can say about Android.

What this recent announcement really highlights is that "open source" means something. Google’s handling of Android has raised legal questions that haven’t yet been resolved, but Mozilla’s decision to go its own way shows that the problems are more than just legal. There are serious questions about Google’s treatment of the open source code and the open source community. "Open source" is not just a marketing label for Google to use however it likes, and if the Boot to Gecko project succeeds, some of Google’s "open source" chickens may come home to roost.

Looks like Mozilla will actually try to walk the walk. Bravo.

Appeals Court Decides Myriad Gene Patent Case

Mon, 1 Aug 2011 11:10:36 -0400

In a highly-anticipated ruling, the Court of Appeals for the Federal Circuit reversed a district court ruling and held that isolated DNA is eligible for patent protection. In the same decision, the Appeals Court affirmed that method claims requiring only "analyzing" and "comparing" steps are not eligible for patent protection.

For more information, please click here.

The Scope of the Anti-Deprivation Rule

Mon, 1 Aug 2011 11:03:23 -0400

On 27 July 2011, The Supreme Court of England and Wales handed down its long awaited judgment concerning the scope and application of the "anti-deprivation" rule. This appeal, arising from the decision in Perpetual Trustee Company Ltd v BNY Corporate Trustee Services Ltd & Ors (the "Perpetual Case"), was dismissed. The court found that the rule should be applied with common sense and would not always apply to bona fide commercial transactions.

To learn more, please click here.

FDA Publishes Draft Guidance for Mobile Medical Applications

Tue, 26 Jul 2011 09:21:40 -0400

On July 21, 2011, the FDA published draft guidance for mobile medical applications (found here). The purpose of the draft guidance document is to inform manufacturers, distributors, and other entities about how the FDA intends to apply its regulatory authority to medical software applications intended for use on mobile platforms. The FDA will accept comments for 90 days from July 21, 2011. At some point in the future, the FDA almost certainly will issue a final version of its guidance on the regulation of mobile medical applications.

For more information, please click here.

Winning - Successful Litigators, Powerful Strategies

Robert J. Stark (rstark@brownrudnick.com) — Fri, 8 Jul 2011 13:48:32 -0400

Robert J. Stark, partner in Brown Rudnick's New York office, was one of 14 lawyers featured in The National Law Journal's Special Report (June 13, 2011). Readers from across the country were asked to nominate trial attorneys with at least one significant win at jury or bench trial within the past 18 months and who have a track record of success over many years.

This article discusses Robert's approach to a formidable challenge -- representing the unsecured creditors in Visteon's Chapter 11 filing. Against warnings that "there's not going to be a success for you at the end of the day," he clearly beat these odds. Robert managed to win nearly $2 billion for his clients by pursuing his "value-finding courtroom strategy." To learn more about this case, please read the article Winning - Successful Litigators, Powerful Strategies on our website.

A Brave New World of Electronic Surveillance in White-Collar Investigations?

Paul F. Enzinna (penzinna@brownrudnick.com) — Fri, 8 Jul 2011 13:27:00 -0400

In this article from Westlaw Journal -- White-Collar Crime, Brown Rudnick Partner Paul Enzinna, discusses the new "blue collar" investigative techniques that are being used to investigate white-collar crime. In United States v. Rajaratnam, the court for the first time authorized use of electronic surveillance (in this case, telephone wiretaps) in an insider trading investigation. To learn more about this case, please read the article A Brave New World of Electronic Surveillance in White-Collar Investigations? on our website.

The Court Rules that Third Parties Funding Litigation Should Face the Financial Consequences of their Decisions

Fri, 8 Jul 2011 11:32:02 -0400

In its judgment in the case of (1) Merchantbridge & Co Limited, (2) Safron Advisors Ltd v Safron General Partner Limited and others / 2003 Folio 884 that was handed down on 15 June 2011, the Commercial Court exercised its wide discretion and ruled that third parties that funded the defence of an insolvent Defendant should be liable for the costs incurred by the successful Claimants.

To learn more, please click here.

SEC Announces New Rules Regulating Private-Fund Advisers

Fri, 1 Jul 2011 10:36:17 -0400

On June 22, 2011, the Securities and Exchange Commission announced rules that will impose new registration and disclosure requirements on investment advisers to private funds. These requirements, which the SEC adopted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, become effective March 30, 2012.

For more information, please click here.

ICANN Allows Brand Owners to be the Masters of their own Domains

Thu, 23 Jun 2011 15:26:27 -0400

A new era for the Internet is dawning. ICANN (the Internet Corporation for Assigned Names and Numbers, which administers the domain name system) has approved fundamental changes to the domain name system, changes that present tremendous opportunities - and some new risks - for brand owners.

To learn more, please click here.

Connecticut’s Energy Bill Re-energizes Energy Efficiency Programs

Wed, 22 Jun 2011 11:01:41 -0400

Connecticut’s recently-passed energy reform bill, SB 1243, which combines the State’s environmental and energy agencies into a new Department of Energy and Environmental Protection (DEEP), includes major new and revamped programs to promote energy efficiency. Combined with existing federal and Connecticut incentives and other programs, the new law creates significant opportunities for energy efficiency developers, contractors and consultants, as well as for building owners.

For more information, please click here.

Connecticut Energy Reform Legislation: Summary of SB 1243

Fri, 17 Jun 2011 10:24:28 -0400

On June 7, the Connecticut legislature passed a sweeping energy reform bill. This Alert discusses two important aspects of the bill. First, the bill makes significant changes to Connecticut’s energy and environmental regulatory structure to enhance energy policy and economic development. Second, the bill strongly promotes and incentivizes the development of clean energy and energy efficiency projects.

To learn more, please click here.

Connecticut Revamps Incentives for Solar Power and Other Renewable-Energy Sources

Fri, 17 Jun 2011 10:18:03 -0400

Connecticut’s energy-reform bill, which passed the Legislature on June 7, provides significant incentives for commercial and residential solar-power generation and other renewable and low-emissions power sources. While the new law has gained attention for folding the Department of Public Utility Control and Department of Environmental Protection into a new Department of Energy and Environmental Protection (DEEP), it also reorients the State’s energy priorities to promote profitable development of clean energy. Combined with existing Connecticut and federal clean-energy incentives, the new programs expand business opportunities for owners, developers and generators of clean and renewable power sources.

To learn more, please click here.

Microsoft v. i4i

Thu, 16 Jun 2011 14:48:29 -0400

In a unanimous decision issued on June 9, 2011, the Supreme Court of the United States in Microsoft v. i4i upheld the clear and convincing standard of review for proving patent invalidity. The Court rejected Microsoft’s contention that the standard should be lowered to require only a preponderance of the evidence.

For more information, please click here.

Tax Update: Recent Changes to Foreign Bank Account Reporting Rules (FBAR)

Thu, 16 Jun 2011 14:39:04 -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 with the Treasury Department by all United States persons having a financial interest in, or signature or other authority over, a bank, securities or other financial account in a foreign country if the aggregate value exceeds $10,000 at any time during a calendar year. Civil penalties for failure to file required FBARs can be harsh and often are disproportionate to the foreign account balances.

For more information, please click here.

Time to check those assignment of invention agreements.

Thu, 16 Jun 2011 14:31:08 -0400

Standard employment agreements often contain provisions by which employees agree that their employers will own any inventions that the employees invent on the job. But what if an employment agreement doesn't say that? Who owns the inventions then? For as long as there has been a U.S. Constitution, the general rule in that case has been, "You invent it, you own it!"

Seems simple enough. Enter the "University and Small Business Patent Procedures Act of 1980" -- better known as the "Bayh-Dole Act." That law says that the U.S. Government will own any inventions invented using Government money unless the contractor is a non-profit or small business and it elects to "retain" the rights to the invention.

So where does that leave an inventor who invents something while working for a non-profit or small business contractor using U.S. Government funding? Does the Bayh-Dole Act strip the inventor of ownership of his or her inventions and give them to the employer?

That question was decided by the U.S. Supreme Court on June 6, 2011 in Stanford Univ. v. Roche Molecular Systems, Inc. The stakes in that case were very high -- specifically, the right to profit from a Nobel Prize-winning HIV test kit. Dr. Holodniy had developed the kit while working for both Stanford University and the pharmaceutical company Roche, and had assigned rights to both of them. So Roche began marketing the kit worldwide. The University sued, however, claiming that Dr. Holodniy had no rights to assign because his work at Stanford was funded by the Government, and the Bayh-Dole Act allocated inventor rights to the university.

Not so, declared a 7-2 majority of the Supreme Court. The Bayh-Dole Act only permits contractors to "retain" rights that they have, it does not grant the contractors new rights. And, contractors only have the rights that their employees give them, because that's how the U.S. patent system works. Since Dr. Holodniy gave his rights to both Stanford and Roche, Stanford cannot sue Roche for patent infringement.

There are lots of lessons to learn from this case, but the most important lesson may be a reminder to employers to be very precise in how they write important provisions in their employment agreements such as clauses that govern ownership of inventions. Otherwise, you may be letting your employees use your laboratory and your lab supplies on your time without having much to show your investors in return. That is never a happy ending.

Final Regulations Under the Americans with Disabilities Act Amendment Act

Thu, 16 Jun 2011 14:25:40 -0400

On May 25, 2011, the Final Regulations under the Americans with Disabilities Act Amendment Act ("Regulations") published by the Equal Employment Opportunity Commission ("EEOC") became effective. Although the Regulations retain the basic definition of disability contained in the Americans with Disabilities Act ("ADA"), the Regulations greatly expand the interpretation of the definition of disability. "Like the law they implement, the regulations are designed to simplify the determination of who has a ‘disability’ and make it easier for people to establish that they are protected by the Americans with Disabilities Act," the EEOC’s website states. As a result, future disability discrimination cases will focus less on whether the claimant has a disability and more on whether the employer has fulfilled its obligations under the ADA.

For more information, please click here.

Brown Rudnick's White Collar Defense & Government Investigations Bulletin

Wed, 1 Jun 2011 14:38:41 -0400

Welcome to the spring edition of Brown Rudnick's White Collar Defense & Government Investigations Bulletin. This electronic newsletter highlights the latest regulatory news and case information in the white collar criminal defense, corporate investigations, and compliance areas.

This issue includes articles on the acquittal of GlaxoSmithKline's in-house counsel, the UK Bribery Act, and TARP-related fraud cases, among others.

Please click here to read the current issue.

Protect Your Trademarks In - Or From - The Internet’s New Red-Light District

Mon, 16 May 2011 14:46:06 -0400

There’s a new neighborhood on the Web, one that many trademark owners may want to avoid. In March 2011, the board of ICANN (the Internet Corporation for Assigned Names and Numbers, which administers the domain name system) approved the top-level domain (TLD) ".xxx" (referred to as "dot triple-X"). The controversial new domain is intended to be a voluntary designation for adult entertainment and pornographic websites. The idea has been under consideration for years, and after rejecting it several times in the past, a fractured ICANN board finally approved it.

For more information, please click here.

Bribery Act - Some Clarity at Last?

Tue, 10 May 2011 09:12:23 -0400

After a long wait, the Ministry of Justice has finally published its official guidance on the UK Bribery Act, which is now due to come into force on 1 July 2011. The official guidance clarifies the ‘full defence’ against the new crime introduced by the Act, namely failure to prevent bribery, and deals at length with the adoption of ‘adequate procedures’, which relevant commercial organisations of all sizes must now put into place. Like the draft guidance published in September 2010, the official guidance is based on six basic principles. That said, however, it should be emphasised that the guidance is not prescriptive and is not a ‘one-size-fits-all' document. Companies of different sizes naturally face different challenges and, whilst the principles should provide useful policy guidance in the event that a case is prosecuted, all relevant facts and circumstances will be taken into account.

To learn more, please click here.

Beam me up, Scotty

Fri, 6 May 2011 16:35:25 -0400

This is for real. On Tuesday, May 3, the Defense Advanced Research Projects Agency (DARPA) issued a Request for Information for "a study to inspire the first steps in the next era of space exploration - a journey between the stars." Dubbed the "100 Year Starship Study," the study’s goal is "to develop a viable and sustainable model for persistent, long-term, private-sector investment into the myriad of disciplines needed to make long-distance space travel practicable and feasible."

Essentially, DARPA and NASA’s Ames Research Center are looking for ideas about how to create a privately funded endowment "by which worthwhile undertakings - in the sciences, engineering, humanities, or the arts - may be awarded in pursuit of the vision of interstellar flight." DARPA specifically wants respondents to describe what such an organization might look like in terms of its structure, governance, "investment strategy [and] Business model for long-term self-sustainment...." After considering these ideas, DARPA plans to "issu[e] an appropriate contract instrument for initial start-up and early operating expenses for the organization not to exceed several hundred thousand dollars."

We have to say that our initial reaction to this announcement included the words "what the." But, having shaken our heads a bit, forward thinking such as this has spawned remarkable achievements. In addition to NASA’s leadership in space travel, DARPA’s efforts have contributed to the development of stealth aircraft, GPS, the internet (with co-inventor Al Gore), and myriad other technologies. Many of these achievements were realized through the joint efforts of these agencies and their contractors. Together, they have fulfilled many of the most creative "gee whiz," "what if" initiatives and represent the best of what Government and its contractor partners can offer.

So, our space helmets are off to them.

Should your inner James T. Kirk inspire you to submit your ideas, be sure to limit your input to five pages and provide your response to DARPA’s email address for this project: 100YSS@darpa.mil. Your deadline is June 3, 2011. By the way, we’re pretty sure they don’t want to know how you would constitute the Federation of Planets.

Does Your Employer Have Employees Located in Puerto Rico? What You Need to Know for 2011

Mon, 18 Apr 2011 11:53:34 -0400

When it comes to employer sponsored retirement plans, U.S. based employers may not be aware of the special considerations that relate to employees and participants residing in Puerto Rico ("Puerto Rico employees") or the special transitional relief for transfers between U.S. based retirement plans and Puerto Rico-only retirement plans issued by the Internal Revenue Service ("IRS") which expires December 31, 2011. While the types of employer sponsored retirement plans used in Puerto Rico are substantially similar to the retirement plans used in the U.S., there are some plan design differences primarily due to the fact that Puerto Rico has its own income tax system, the Puerto Rico Internal Revenue Code of 2010 ("PRIRC").1 Accordingly, in designing retirement plans for its Puerto Rico employees, employers must carefully consider the qualification requirements and the tax implications of U.S. versus Puerto Rico source income.

For more information, please click here.

A Bad Day for Competition

Fri, 15 Apr 2011 09:33:15 -0400

GSA has IDIQ contracts for telecommunication services with Quest, Verizon and AT&T. The Department of Homeland Security ("DHS") needs hosting services. DHS issues an RFQ to the three contract holders. The RFQ says: 1) award of the task order will go to the lowest priced technically acceptable offeror; and 2) a $13.8 million upward adjustment will be made to the evaluated price of all offerors except Verizon -- the incumbent. And, DHS claims that the value of the task order is less than $10 million. So if you’re keeping score at home, this is the deal, Quest could bid $0 for the work and lose because $13.8 million would be added to its price. That adjustment would exceed the under $10 million value of the work that presumably would be bid by the incumbent. Qwest figured that this was a bogus competition and filed a protest.

Not so fast. In Qwest Government Services, Inc., B-404845 (March 25, 2011), GAO found that it did not have jurisdiction to hear a bid protest challenging the price evaluation approach because it only has jurisdiction of protests of task orders under GSA IDIQ contracts that have a value in excess of $10 million. What about that $13.8 million? Didn’t that push the value over $10 million? Negative. The $13.8 million upward price adjustment for all but the incumbent’s bid reportedly was to cover the costs that the Government would incur if required to move the hosting services to a new location. GAO determined that the $13.8 million in costs should be excluded in determining the value of the task order. Result: Value of GSA task order is under $10 million and there is no GAO jurisdiction to consider the merits of the protest. Doesn’t seem quite fair, does it?

Two Wrongs Make a Right...

Tue, 12 Apr 2011 15:46:46 -0400

At least that seems to be the case in a recent dispute between Kellogg Brown & Root ("KBR") and its subcontractor Tamimi Global Company Limited ("TGC"). KBR holds a contract with the U.S. to provide dining services for military personnel in Iraq. The U.S. Government withheld payment under KBR’s contract. KBR, in turn, withheld roughly $34 million in payments it owed to TGC for work performed - claiming it was not required to pay TGC until KBR was paid by the government. TGC disagreed, demanded the parties go to arbitration, and eventually won the full amount owed under the subcontract, plus interest, costs and legal fees.

When TGC went to a U.S. District Court in Texas to confirm the foreign arbitration award, KBR opposed the confirmation. (Tamimi Global Co. Ltd., Kellogg Brown & Root LLC, No. H-11-0585 (S.D. Tex. March 24, 2011)). District courts can refuse to enforce foreign arbitration awards for public policy reasons. KBR relied on the public policy grounds argument to oppose confirmation and ask for a stay pending a decision in a related proceeding at the Court of Federal Claims.

In the related case at the Court of Federal Claims, the U.S. Government alleged that KBR management employees accepted kickbacks from TGC in return for the subcontract work. At the district court, KBR argued that it would be against public policy for the district court to confirm the arbitration award because TGC’s subcontract was procured by fraud. So let us see if we have this right. TGC allegedly paid kickbacks to KBR employees in exchange for awarding a subcontract to TGC.

The district court found that even if TGC had committed fraud, there was no basis for KBR’s public policy argument because KBR participated in the fraud. The court also noted that KBR chose not to raise fraud as a defense during arbitration even though at that time KBR knew about the alleged kickback scheme. The court found that enforcing a foreign arbitration award for payment in favor of one bad actor against another bad actor "does not violate the most basic notions of morality and justice." Translation: A briber can enforce a contract against a bribee.

If KBR had raised the fraud defense during the arbitration, maybe the result here would be different. We can visualize more than one basis to argue that enforcing the subcontract is not equitable. (How about that the KBR bribees were acting outside of the scope of their authority and KBR should not be penalized for their bad acts). And of course the case is subject to appeal. However, at least for now, it looks like two wrongs make a right.

New York State Employers Must Comply with Wage Theft Prevention Act Commencing April 12, 2011

Thu, 7 Apr 2011 15:49:15 -0400

On April 12, 2011, New York State’s Wage Theft Prevention Act (the "Act") will overhaul New York’s current Labor Law. The Act applies to all individuals who receive W-2 compensation. It does not apply to owners of a company or partners of a partnership.

The Act increases certain notice requirements and provides for greater penalties for non-compliance with New York Labor Law. The heightened penalties increase the likelihood of expensive litigation, including class actions, against employers who violate the Labor Law.

For more information, please click here.

Kenneth B. Weckstein Publishes New National Litigation Blog for Thomson Reuters

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Thu, 7 Apr 2011 15:17:17 -0400

Attorney and blogger Ken Weckstein is authoring a new blog, with a focus on litigations around the country. Published by Thomson Reuters (Westlaw), these postings will offer Ken's insights and perspectives -- to "inform, educate, and amuse" -- based on his experience as a DC-based, seasoned litigator. At Brown Rudnick LLP, Ken leads the Government Contracts team and, since 2009, has been blogging on topics relating to that area of his practice.

Here you can read Ken's second editorial venture -- Some of my best friends are lawyers.

Brown Rudnick's European Litigation Bulletin: April 2011

Thu, 7 Apr 2011 15:13:49 -0400

Welcome to the spring 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 the link below to read the current issue:

Brown Rudnick's European Litigation Bulletin: April 2011

Expert witnesses to no longer enjoy immunity from suit

Thu, 7 Apr 2011 15:10:28 -0400

On 30 March 2011 the Supreme Court delivered its judgment in Paul Wynne Jones v Sue Kaney [2011] UKSC 13. In a majority decision (Lord Hope and Lady Hale dissenting) the court held that the immunity from suit for breach of duty (whether in contract or in negligence) that expert witnesses have enjoyed in relation to their role in legal proceedings should be abolished. Protection will still remain in respect of liability for defamation.

For more information, please click here.

Fraud and COD Write-downs

Thu, 7 Apr 2011 15:04:42 -0400

Net operating losses ("NOLs") can constitute a source of significant value. The extent of this value is frequently driven by cancellation of debt ("COD") write-downs. The IRS recently issued guidance that highlights how COD write-down can be avoided in cases that involve certain types of fraud or misrepresentation. Specifically, the new guidance addresses situations involving an "infirmity that relates back to the original sale" or the potential characterization of debt cancellation as a medium of payment for certain types of nontaxable recoveries.

In cases involving loan restructurings or debt forgiveness, consideration should be given to the potential minimization or avoidance of COD write-down if the circumstances surrounding the original lending transaction might give rise to a claim of fraud or misrepresentation. Careful structuring by tax advisors could help avoid COD Income.

Please click here for a PDF of this alert.

Brown Rudnick's Gordon Z. Novod Recognized as One of Law360’s "Rising Stars" in Bankruptcy

Gordon Z. Novod (gnovod@brownrudnick.com) — Thu, 7 Apr 2011 14:55:27 -0400

We are pleased to share with you the news that Gordon Z. Novod, a partner in Brown Rudnick's New York office, was selected by the editors of Law360 as a "Rising Star" in bankruptcy and corporate restructuring. He was one of only five bankruptcy attorneys in the country named to Law360's list of lawyers under 40 to watch.

If you'd like to learn more, please read the article titled Rising Star: Brown Rudnick's Gordon Novod on our website.

An English Law Clause Doesn’t Automatically Lead to the English Courts

Thu, 7 Apr 2011 14:49:22 -0400

The recent judgment of Eder J in Mujur Bakat and SMS Ship Management Services v Uni Asia General Insurance & Ors. [2011] EWHC 643 (Comm) (18 March 2011) has once again highlighted that even though the parties may agree English law will govern a contract there is no guarantee that any subsequent dispute will end up before an English court.

For more information, please click here.

FERC Issues Significant Decision for Energy Storage Regarding Pay-For-Performance Tariffs

Andrew O. Kaplan (akaplan@brownrudnick.com) — Thu, 7 Apr 2011 14:44:36 -0400

The Federal Energy Regulatory Commission (FERC) has proposed new rules that would compensate regulation energy storage technologies based on the benefits they provide to the electric grid. FERC's decision to propose new pay-for-performance market rules indicates the Commission’s continuing support of the energy storage marketplace and will encourage additional investment in technologies that can be used to regulate the grid quickly and accurately.

Deadline to Submit Comments: FERC has requested that all interested parties submit comments on its proposed rules by May 2, 2011.

Please click here for a PDF of this alert.

Security clearances and discrimination

Tue, 5 Apr 2011 13:35:13 -0400

Discrimination in employment decisions is bad. But refusing to hire or promote someone who lacks job qualifications is permitted. In particular, Federal law (42 U.S.C. 2000e-2(g)) expressly permits employers to fire an employee from, or to refuse to hire an applicant for, a job requiring a security clearance if the employee does not have a security clearance. You should know where this is going already. Part of not discriminating is, surprise, not discriminating.

A decision of the U.S. Court of Appeals for the Ninth Circuit issued on April 4, 2011 reminds employers that the security clearance exception is not a carte-blanche to discriminate. Employment decisions relating to security clearances will be scrutinized by courts to ensure that the employer is applying policies in a consistent and non-discriminatory manner. Zeinali v. Raytheon Co., No. 09-56283 (9th Cir. Apr. 4, 2011) (available here).

Mr. Zeinali is an Iranian-born engineer who alleges that he was fired by Raytheon based on his national origin. If that is true, the termination would be illegal. Raytheon asserts, however, that Mr. Zeinali was fired because his application for a security clearance was denied and the company has no work for him that does not require a security clearance.

In its April 4th opinion, the Ninth Circuit did not decide whose version of the facts is correct. Rather, the question before the court was whether Mr. Zeinali can sue at all or whether, as Raytheon asserts, all suits relating to security clearances are beyond the jurisdiction of the court system because they relate to matters within the unique expertise of the Executive Branch (i.e., the granting of security clearances). The Ninth Circuit ruled for Mr. Zeinali because it found that Mr. Zeinali is not challenging the denial of his security clearance. Rather, he is challenging Raytheon's claim that a security clearance is a bona fide job qualification. In particular, the court noted, Mr. Zeinali alleges that two non-Iranian engineers whose security clearances had been terminated have not been fired which could be evidence that he was discriminated against.

Only time will tell whether Mr. Zeinali can prove that he was discriminated against. Nevertheless, employers should take note that their hiring and firing decisions that relate to security clearances are not immune from challenges by employees.

Caught in a "Mail Storm"? This Umbrella Might Help.

Thu, 31 Mar 2011 15:17:23 -0400

This can keep Business Development Managers up at night: The RFP permits proposal submission by email to the Contracting Officer. The proposal submission deadline is noon on April 1st. The proposal is finalized and emailed to the correct address 50 minutes early. No bounce-back email is received, but the email is not "received" in the Contracting Officer’s email inbox until 12:04pm. Is the proposal late?

Judge Braden of the Court of Federal Claims says "no" under the facts of the recently decided case, Watterson Construction Company v. United States, No. 10-587C (Fed. Cl. March 29, 2011), available here. There, Watterson Construction Company emailed its second revised proposal at 11:01 am on the due date for proposals. Proposals were due at noon. Watterson’s emailed proposal was received by the "first of four Army Corps servers" at 11:29 am, but did not arrive in the contracting officer’s email inbox until 12:04 pm - four minutes after the RFP-designated time for receipt of proposals. A "mail storm" delayed the delivery of Watterson’s emailed proposal to the contracting officer’s email inbox.

What is a "mail storm"? It is what happens when a large number of email users get a little happy with the use of "reply all" when they receive unwanted emails. As described, in part, by Wikipedia:

Such storms start when multiple members of the distribution list reply to the entire list at the same time in response to the instigating message. Other members soon respond, usually adding vitriol to the discussion, asking to be removed from the list, or pleading for the cessation of messages. If enough members reply to these unwanted messages this triggers a chain reaction of email messages. The sheer load of traffic generated by these storms can render the email servers inoperative, similar to a DDoS attack.

Wikipedia, "E-mail storm", can be found here.

In Watterson, the Court of Federal Claims was asked to decide if a proposal delayed by a mail storm was late, and if yes, was that lateness excused. Judge Braden found for the Plaintiff on both issues.

As most contractors know, the general rule for proposal submission is: "Late is late." If your proposal does not reach the RFP-designated spot for receipt of proposals by the time designated in the RFP, you are out of the competition. A proposal that is received one second after the deadline for receipt of proposals is late.

Watterson adds to the "late is late" body of case law. Watterson’s proposal was not late "because the proposal was both reached and received by the Government’s e-mail servers before the due date." Watterson, No. 10-587C, at 11; see also FAR 52.215-1(c)(3)(i-ii). According to the Court’s reasoning, timeliness for emailed proposals is measured as of the time the offeror’s proposal is received by the Government’s email server - not the time it arrives in the email inbox for the email address designated in the RFP. The case further finds:

1. even if the Watterson proposal was late, the so-called "Government Control" exception to the "late is late" rule for proposals applies. Watterson at 17; see also FAR 52.215-1(c)(3)(ii)(A)(2); and

2. even if the Watterson proposal was late and it was not excused under the "Government Control" exception, Watterson was entitled to a one day extension to submit the proposal because of the "emergency or unanticipated event" rule of FAR 52.215-1(c)(3)(iv). Id. at 18-19. The "emergency or unanticipated event" was the mail storm at the Army Corps of Engineers.

These are interesting developments. That said, Watterson is the well-reasoned decision of only one judge. The decision is not binding on other judges at the Court of Federal Claims or GAO. So, other judges and GAO still may disagree.

Protest sustained. Go back to square 1.

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Tue, 29 Mar 2011 10:41:28 -0400

We are at war. Our troops move from place to place. A DLA RFP required about $800 million of "mobile, non-permanent shelters and soft-sided tents which can be readily assembled and disassembled in the field for troop movement...." The RFP sought the ability to run the equivalent of entire cities including "the following 12 types of shelters: (1) aviation hangers, (2) warehouse units, (3) housing/billeting units, (4) command centers, (5) decontamination units, (6) emergency response shelters, (7) HAZMAT shelters, (8) mobile medical hospitals, (9) first aid stations, (10) security gates/checkpoints, (11) field shelters and (12) large shops." So what's an agency to do if it wants specific brands of the shelters or the equivalent of those brands?

Three choices. Behind door number 1. Clearly state the performance and/or physical characteristics that are required. Behind door number 2. Request a brand name or equal and state "the salient physical, functional or performance characteristics that are necessary to render an 'equal' product eligible." Behind door number 3. If nothing but the brand name will do, prepare and execute an appropriate Justification & Approval that says full competition is not proper because only the brand name will satisfy the requirement. In Let's Make a Deal, the odds of getting the correct answer are 1 in 3. Here, they seemed to be 3 in 3. In Matter of: California Industrial Facilities Resources, Inc., d/b/a CAMSS Shelters, B-403397.3, issued on March 21, 2011, DLA chose door number 4 (yup, that was not one of the choices) and listed 366 brand name products without including salient characteristics for the brand name products. The result, GAO says do not pass go, do not collect $200. Protest sustained. Protester gets attorney fees. DLA told to "prepare an adequately written solicitation that meets the CICA requirement for full and open competition. In the alternative, we recommend that the agency prepare and execute an appropriate J&A that sets forth the agency's reasons for conducting its acquisition using other than full and open competition."

Full Decision can be read here.

Recent Seventh Circuit Decision Provides Clarity on the Assignability of Cure Rights in Bankruptcy Claims Transactions

Mon, 21 Mar 2011 13:47:17 -0400

Recently, the U.S. Court of Appeals for the Seventh Circuit issued an opinion that is noteworthy to participants in the claims trading market. In ReGen Capital I, Inc. v. UAL Corporation (In re UAL Corporation), 2011 WL 559702 (7th Cir. Feb. 18, 2011), the Seventh Circuit held that cure rights associated with an assumed contract are included in the bundle of rights "arising out of or in connection" with a claim against a debtor, and can thus be assigned to a third-party purchaser of such a claim.

For more information, please click here.

The Bionic Library: Did Google Work Around The GPL?

Edward J. Naughton (enaughton@brownrudnick.com) — Mon, 21 Mar 2011 11:21:13 -0400

There's been much ado about the Android operating system lately. A good bit of the buzz has been the marketing hype and early adopter reviews that inevitably accompany the release of new products. But it's not this buzz that's so interesting; it's the discussion about the open source licensing and copyright issues that Android has generated. Android presents some fascinating lessons and some thorny legal questions for those who develop applications for the Android platform and the software lawyers who advise them.

For more information, please click here.

BNY Corporate Trustee Services Limited v Eurosail-UK 2007-3BL PLC & Ors.

Mon, 21 Mar 2011 11:09:09 -0400

On 7 March 2011 the Court of Appeal in Eurosail handed down a significant decision on the meaning of the 'balance sheet insolvency' test set out in section 123(2) of the Insolvency Act 1986. This was the first substantive decision on this issue by an appellate court.

For more information, please click here.

Voluntary Disclosure 2011 New

Patrick M. Cox (pcox@brownrudnick.com) — Fri, 11 Mar 2011 11:53:57 -0500

The IRS has launched another voluntary disclosure program for offshore accounts...

To listen to this podcast, please click here.

RBIL Carryback

Patrick M. Cox (pcox@brownrudnick.com) — Fri, 11 Mar 2011 11:52:51 -0500

Certain post-ownership change losses may not be available to a corporation...

To listen to this podcast, please click here.

Spin-Off (Credit)

Patrick M. Cox (pcox@brownrudnick.com) — Fri, 11 Mar 2011 11:51:44 -0500

Tax-free spin-offs can be used to enhance a corporation's ability to borrow...

To listen to this podcast, please click here.

U.S. Real Estate Trade or Business Implications to Foreign Investors

Patrick M. Cox (pcox@brownrudnick.com) — Fri, 11 Mar 2011 11:50:39 -0500

Foreign investors' should be aware of the tax implications of investing in U.S. real estate...

To listen to this podcast, please click here.

REMICs and Loan Modifications

Patrick M. Cox (pcox@brownrudnick.com) — Fri, 11 Mar 2011 11:48:55 -0500

Modifying loans held by REMICs should be done so as to comply with the tax-free safe harbors...

To listen to this podcast, please click here.

Impact of Section 338(g) Elections on Controlled Foreign Corporations

Patrick M. Cox (pcox@brownrudnick.com) — Fri, 11 Mar 2011 11:47:40 -0500

A purchaser's Section 338 election may have hidden consequences to selling shareholders...

To listen to this podcast, please click here.

Digital Goods Sales Tax

Patrick M. Cox (pcox@brownrudnick.com) — Fri, 11 Mar 2011 11:46:46 -0500

Companies that sell computer software and digital goods should be aware of varying sales tax treatment...

To listen to this podcast, please click here.

Foreign Investment in Real Property Tax Act (FIRPTA) Implications for Foreign Investors

Patrick M. Cox (pcox@brownrudnick.com) — Fri, 11 Mar 2011 11:43:26 -0500

Distressed corporations may inadvertently trigger FIRPTA withholding obligations...

To listen to this podcast, please click here.

1 March 2011 - CAP Code Applies to Websites From Today

Fri, 11 Mar 2011 11:37:25 -0500

Website owners now need to comply with the rules in the UK Code of Non-broadcast Advertising, Sales Promotion and Direct Marketing (the "CAP Code") in order to avoid sanctions for failing to do so.

For more information, please click here.

Italian Derivatives Scandal

Steven Friel (sfriel@brownrudnick.com) — Fri, 11 Mar 2011 11:33:46 -0500

Steven Friel, a Partner in Brown Rudnick's Litigation Group, discusses Italy's derivatives crisis in this article from Offshore Investment.

To read the article, please click here.

The names have not been changed to protect the innocent

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Mon, 7 Mar 2011 09:24:38 -0500

According to a March 6, 2011 Washington Post story, Gray (DC Mayor Vincent Gray) has denied knowledge of payments to Brown (former DC Mayoral candidate Sulaimon Brown) by Green (Gray campaign chairman, Lorraine Green). Orange (unsuccessful candidate in 2010 for Chairman of the DC Council, Vincent Orange) has not commented. (No, this is not the sequel to Reservoir Dogs). The alleged payments were alleged to have been made in return for Brown's attacks during the campaign on then DC Mayor Adrian Fenty. The allegations came to light when Brown was dismissed from a city job that he allegedly received in exchange for attacks on the incumbent mayor during the campaign. The Post story reported that a text message from Gray's cell phone to Brown read, in part "...we did not renege on any commitments to you. You know and we know what agreements had been reached. And none has been breached." The reference to an agreement was, according to Gray, a promise of a job interview, not a job. So Gray's position apparently is there was some sort of deal with an opposing mayoral candidate during the campaign in which if Gray was elected, Brown would be given an interview for a position in the Gray Administration. And, the fact that Brown did get a job with Gray for a position for which Brown apparently is not qualified and from which Brown is scheduled to be dismissed is an unfortunate coincidence. Brown's position is that Green showed him the money to help Gray.

In terms of dirty tricks, this hardly registers. In days of yore in Chicago, Boston, Louisiana or West Virginia, this would be little more than amateur hour. Here, for Gray, Brown and Green, it could provide an embarrassment and distraction for some time to come. It also will be a lesson for all in Government and the public eye: Read that tweet, text or email twice before you hit send. Of course plenty of folks will not heed that warning, which is good news for reporters and lawyers everywhere.

Contracting Officer won't talk to you? Call "myth-busters"!

Wed, 2 Mar 2011 09:37:08 -0500

Last month, the Office of Federal Procurement Policy ("OFPP"), the office that makes procurement policy for the Executive Branch, issued a memorandum entitled: "'Myth-Busting': Addressing Misconceptions to Improve Communication with Industry during the Acquisition Process." Just as the title promises, the memorandum lists, discusses and debunks common myths about the communications between procurement personnel and would be contractors.

Some of the procurement myths addressed and debunked by OFPP are the following:

- Misconception: "We can’t meet one-on-one with a potential offeror."

- Misconception: "A protest is something to be avoided at all costs - even if it means the government limits conversations with industry."

- Misconception: "If the government meets with vendors, that may cause them to submit an unsolicited proposal and that will delay the procurement process."

- Misconception: "Industry days and similar events attended by multiple vendors are of low value to industry and the government because industry won’t provide useful information in front of competitors, and the government doesn’t release new information."

- Misconception: "The program manager already talked to industry to develop the technical requirements, so the contracting officer doesn’t need to do anything else before issuing the RFP."

- Misconception: "Giving industry only a few days to respond to an RFP is OK since the government has been talking to industry about this procurement for over a year."

- Misconception: "Getting broad participation by many different vendors is too difficult; we’re better off dealing with the established companies we know."

Believe it or not, OFPP developed this list based on interviews with actual government procurement personnel. Apparently, there are government employees charged with getting the best value for the government who believe that talking to potential contractors is a bad thing.

The bottom line, says OFPP, is the following:

While agencies do not have the resources, and are not required, to meet with every vendor at every step of the acquisition process, information gathered from industry sources plays an invaluable role in the acquisition process. For this reason, agencies must develop practices that will ensure early, frequent, and constructive communication during key phases of the process. The federal government’s ability to achieve successful program outcomes, effectively and efficiently, depends upon agencies establishing effective strategies for industry engagement and supporting those strategies with senior-level commitment.

While this is good news for contractors, it does not mean, of course, that all communications between contracting personnel and industry are permitted. Contractors and government personnel alike should still take care not to violate the Procurement Integrity Act which prohibits certain types of communications once a procurement is underway. Rather than just being a good practice, the PIA is a criminal law with tough penalties.

A copy of OFPP's memorandum is available here.

Brown Rudnick's White Collar Defense & Government Investigations Bulletin

Fri, 25 Feb 2011 10:45:38 -0500

Welcome to the first edition of Brown Rudnick's White Collar Defense & Government Investigations Bulletin. This electronic newsletter highlights the latest regulatory news and case information in the white collar criminal defense, corporate investigations, and compliance areas.

The February 2011 issue includes articles on the UK Bribery Act, Dodd-Frank whistleblower provisions, and the Foreign Corrupt Practices Act, among others.

Please click here to read the current issue.

New Immigration Rules Require Employers of Foreign Nationals to Certify Compliance with Export Regulations

Mon, 14 Feb 2011 11:37:22 -0500

The International Traffic in Arms Regulations ("ITAR") and the Export Administration Regulations ("EAR") bar certain exports from the United States absent a license granted by the State Department or Commerce Department.1 These regulations apply not only to physical shipments of products and technology to foreign countries, but also to "deemed exports" -- i.e., the transfer of information subject to the ITAR or EAR to foreign nationals within the United States.2 Beginning February 20, 2011, employers seeking certain visas for foreign national employees3 will be required to certify, under oath, that they have reviewed ITAR and the EAR, and determined either (a) that no export license is required, because the affected employee will not have access to restricted information or technology; or (b) that if a license is required, (i) the employer has received the license, or (ii) the employer will prevent the employee from having access to the restricted information or technology until the license is obtained.

For more information, please click here.

28 January - Today is European Data Protection Day

Mon, 14 Feb 2011 11:32:45 -0500

In addition to raising awareness of information security and privacy issues, this year European data protection day will signal a review of the current legislative framework.

For more information, please click here.

In-sourcing, say hello to political reality

Mon, 14 Feb 2011 11:15:16 -0500

There always seems to be a tug of war between how much work should be performed by government employees and how much work should be performed by contractors. It's no surprise that unions that represent government employees want more work performed by government employees and trade associations that represent private contractors want more work performed by their member companies. And there is no clear dividing line. Contracts cannot be used to perform inherently governmental functions, such as commanding military forces or conducting foreign relations. See Federal Acquisition Regulation ("FAR") 7.503 and Defense FAR Supplement 207.503. But after the purely inherently governmental functions, the line gets fuzzy. There are many activities that are listed as possibly bleeding over in to the inherently government category, such as providing inspection services. And then there is the rest--work that government employees and contractors consider fair game. That could include almost anything. And get ready to be shocked: The government employee unions want that work "in-sourced". Contractors want the work "out-sourced".

In the battle between in-sourcing and out-sourcing, the camp that can point to cost savings can claim high ground. Previously, the Obama administration had climbed on board the cost-savings band-wagon to support in-sourcing. In April of 2009, Defense Secretary Gates announced Department of Defense ("DOD") plans "to hire as many as 13,000 new civil servants in FY10 to replace contractors and up to 30,000 new civil servants in place of contractors over the next five years." (Read Secretary Gates' announcement here). That lasted until (Surprise!) we found out we had a budget deficit. And in August of 2010, Secretary Gates did an about face and questioned whether in-sourcing to save money really works: "As we were reducing contractors, we weren't seeing the savings we had hoped from in sourcing."

The latest shoe dropped on February 3, 2011, when Army Secretary John McHugh released a policy directive that effectively stops all Army in-sourcing initiatives in their tracks. (Read McHugh's memo here). Secretary McHugh has it just about right when he says that the Army "must approach the in-sourcing of functions currently performed by contract in a well-reasoned, analytically based and systemic manner, consistent with law and prevailing Presidential and Department of Defense guidance." Really? We're pretty sure that always has been government policy. Here's the real deal: Tell us what work the Government needs to get done. In almost all cases, we can make a case for performance by government employees or performance by contractors. But someone has to choose the winners and losers. Contractors won under Bush II. Government unions started out winning when the Obama Administration came to town. Now, it looks like the pendulum is starting to swing back to contractors.

One small step for women...oh, forget it. SBA's Women-Owned Small Business Federal Contract Program.

Wed, 9 Feb 2011 09:34:21 -0500

In 1994, a law was enacted that set a goal of awarding 5% of all federal contracting dollars to women-owned small businesses. That statute, the Federal Acquisition Streamlining Act, Publ.L.No. 103-355 (Oct. 13, 1994) and codified in scattered sections of Title 10 of the U.S. Code for military agencies and Title 41 for civilian agencies, did a lot of other things in the government contracts world, including promoting "best value" procurement strategies, simplifying procurement procedures and facilitating Commercial Off-the-Shelf purchases. But what became of the 5% goal for women-owned small businesses?

Now, 16 years later, on February 4, 2011, the Small Business Administration ("SBA") has unveiled its Women-Owned Small Business ("WOSB") Federal Contract Program. (Details can be found here). According to SBA, small businesses now "may begin taking steps" to participate in the WOSB Program. However, the WOSB Program is not yet ready for prime time. Although SBA announced that there will be "training and outreach events" over the next several months, the WOSB rule in the Federal Acquisition Regulation ("FAR") is still undergoing review. SBA expects the WOSB FAR rule to be issued in April 2011.

SBA also has announced that companies meeting the WOSB requirements must either self-certify their businesses or "be certified by an SBA-approved Third-Party Certifier." As of February 4, 2011, there were more winning professional sports teams in Washington (one) than there were third party certifiers that have been approved by SBA. In fact, SBA only released the application to become a third-party certifier on February 4, 2011.

So for women-owned small businesses, this may be a case of "hurry up and wait." The rubber may be about to hit the road, however. SBA has announced its goal for WOSBs: the goal is for WOSBs to be "ready to compete for contracts awarded in the fourth quarter of fiscal year 2011, which is when the largest percent of small business contracts are awarded."

Stay tuned.

A Cautionary Tale for New Government Contractors: Ignorance is Not Bliss

Tue, 8 Feb 2011 10:15:36 -0500

A government contract or solicitation can sometimes feel like a puzzle or a set of matryoshkas. You may read all sorts of obligations and requirements that incorporate even more obligations and requirements. Those obligations and requirements may refer to even more obligations and requirements. However, no matter how complicated this puzzle may seem to you, it is your responsibility to read, understand, and comply with all of the requirements in your contract.

In a recent Armed Services Board of Contract Appeals decision, one newbie government contractor learned this lesson the hard way. Appeals of Office Automation & Training Consultants, ASBCA No. 56779 and 56838, January 19, 2011, was a case involving a U.S. Army Corps of Engineers 8(a) set-aside for end-user IT support. The solicitation and resulting contract included FAR clauses incorporating the Service Contract Act ("SCA") wage rate requirements. The solicitation, however, did not include the required wage and fringe benefit rates, but instead referenced a web address where the applicable wage determination could be found.

Unfortunately, the contractor never checked the rates it was required to pay to comply with the SCA and its contract. Ultimately, the Department of Labor sought over $100,000 from the contractor for SCA violations. The contractor sought reformation of its contract, arguing that the solicitation was incomplete and that the contractor was new to government contracts and didn’t understand that it was required to comply with the statutory wage and fringe benefit rates. Good luck with that.

The Board noted that in order to reform a contract based on unilateral mistake, the contractor must show by clear and convincing evidence that: (1) a mistake in fact occurred prior to award; (2) the mistake was a clear-cut clerical or math error or a misreading of the specifications and not a judgmental error; (3) the Government knew or should have known prior to award that a mistake was made and should have verified the bid; (4) the Government did not request a bid verification or the verification was inadequate; and (5) proof of the intended bid is established. The Board was unmoved by the contractor’s lack of government contracts experience and instead found that, in the Board’s words, "the evidence presented upon the motion demonstrates [the contractor’s] business decision to ignore the wage requirement clauses in the solicitation and resulting contract."

It is worth noting that the contractor never provided its actual wage or fringe benefit rates to the government prior to award and the Board found that nothing in the contractor’s bid suggested that it could not, or would not pay the minimum statutory wage and fringe benefits. But it was not the responsibility of the government to assume the contractor did not understand the contract requirements simply because it was the contractor’s first government contract. The "you should have known I didn't know what I was doing" theory will not work.

So government contractors, new and old, listen up. Read your entire solicitation, read all of the requirements incorporated or referenced in your solicitation, and seek clarification before bidding if you are confused. If you choose instead to stay silent, you may win the contract but you could literally end up paying for your mistake.

Litigation Reform--Part 1

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Fri, 4 Feb 2011 16:29:54 -0500

Sometimes attorneys file lawsuits that they shouldn't file. Other times, they get bad press for filing suits that are proper. An excerpt from a February 1, 2011 Decision of the U.S. Civilian Board of Contract Appeals reads: "Here, performance under the contract ended on June 24, 1993. There is no documentary evidence that Marut made any claim for additional amounts due under the contract until March 2007, some fourteen years after performance concluded. Appellant has offered no explanation for this lengthy delay in filing its claims." The Board, predictably, denied the appeal, and I thought--here come the attorney bashers. But then I saw that the Appellant was represented by the President of the contractor and not by an attorney. Bad for the Appellant. Good for attorneys (or at least not a blemish on the reputation of attorneys). Maybe the lesson is that there should be more attorneys. Yeah, right.

Besides the Board's perfectly obvious conclusion that a "fourteen year unexcused delay" in submitting claims is unreasonable, the Decision had some other information of interest. It seems that GSA has a document retention program that calls for destruction of contract files "six years and three months after the end of the fiscal year in which the file becomes inactive." And you thought that your permanent record with the government was permanent.

The Board's Decision can be found here.

House Republicans to White House - Outsource Now (or at least think about it if you want to).

Wed, 2 Feb 2011 12:52:17 -0500

Last November we predicted that one of the outcomes of Republican electoral successes would be an effort to reverse the Obama administration’s drive to return outsourced work from the private sector to the Government. The battle has now been joined - sort of.

On January 24, 2011, leaders of the Republican Study Committee (a caucus of conservative Republicans in the U.S. House) introduced a bill entitled the Spending Reduction Act of 2011 (H.R. 408); Senator Jim Demint (R-S.C.) introduced the companion version in the Senate (S. 178) on January 25. The bill captured much of the pre-State of the Union headlines with its proposal to eliminate 37 federal programs. Among the programs targeted for elimination were Amtrak, the National Endowments for the Arts and Humanities, and the Agency for International Development.

In the midst of this, the sponsors proposed the repeal of prohibitions passed in the last Congress that essentially barred any new studies or competitions to convert functions performed by federal employees to contractor performance under OMB Circular No. A-76 or any other law or regulation. The Republican proposal further would authorize executive agencies to begin, continue and/or finish any studies or public-private competitions to convert functions performed by federal employees to contractor performance - "notwithstanding any other provision of law."

Despite its clear message, the effect of this proposal, if passed, ultimately could be quite minimal. Currently, agencies are prohibited from conducting A-76 competitions. The proposed legislation would lift the prohibition but would not force the issue. This is because the proposal does nothing more than tell agencies that they may conduct A-76 competitions - if they want to.

However, given the announced policies of the President, agencies probably won’t try to outsource anything unless the Republicans succeed in passing one of their other proposals - to cut the federal workforce through attrition by 15%. If that dog ultimately hunts, outsourcing might be one way to keep the Government going.

Call us cynical, but pendulum shifts from outsourcing to insourcing and back to outsourcing really don’t change the business of Government. Someone still needs to mop the floors in federal buildings and mow the Capitol lawns. Soldier’s uniforms have to be stitched, fit and washed.

So, the tug of war between government contractors and federal employee unions continues. But, as we said back in November, we expect the insourcing-outsourcing debate might be one possible area in which the House, Senate and the White House might find common ground to reduce the rhetorical heat in the broader budget debate. Stay tuned.

The text of H.R. 408 can be found here, and S. 178 can be found here. The outsourcing proposal is contained at section 705 of both bills.

The European Mediation Directive - Legal and Political Support for Alternative Dispute Resolution in Europe

Wed, 2 Feb 2011 11:06:45 -0500

By May 21, 2011, Directive 2008/52/EC of the European Parliament and of the Council on Certain Aspects of Mediation in Civil and Commercial Matters must be implemented by all European Union member states. The Directive aims "to facilitate access to alternative dispute resolution and to promote the amicable settlement of disputes by encouraging the use of mediation and by ensuring a balanced relationship between mediation and judicial proceedings."

Partner Steven Friel and Associate Christian Toms, both of Brown Rudnick, discuss the Directive and how it affects the European Union in The European Mediation Directive - Legal and Political Support for Alternative Dispute Resolution in Europe on our website.

No sushi for you!

Fri, 28 Jan 2011 10:41:42 -0500

Sometimes government agencies make mistakes in assessing proposed contractors' past performance. When an agency ignores negative past performance information about a potential contractor, its award decision can be found to be unreasonable. That is what happened in a recent procurement by DOD for commissary deli and bakery resale operations.

In Northeast Military Sales, Inc., B-404153, Jan.13, 2011, GAO considered a protest that challenged DOD's consideration of past performance information. As part of the past performance factor, DOD was required to evaluate "quality history/overall customer satisfaction...." DOD rated the awardee's past performance as exceptional. Instead of being exceptional, the GAO Decision described the awardee's past performance as follows:

"Specifically, the evaluation team was provided with e-mails from various commissaries which reported staff and product shortages during transition periods; unsanitary conditions; employee tardiness and cleanliness; and problems with sushi, including use of expired products and pre-dating products. See, e.g., id. at 147-48 (June 25 e-mail reporting "serious problems" with sushi at Memphis commissary which "nee[d] to be addressed immediately"); 145-46 (July 15 e-mails reporting an "ongoing problem" and that "there are still significant issues" with sushi at Memphis commissary); 154 (July 18 e-mail reporting problems "once again" with sushi at Scott AFB)." (The emphasis in bold was not in the GAO Decision, buy hey, we wanted to make a point).

GAO ultimately sustained the protest and held that DOD was wrong to ignore the adverse past performance information. And GAO recommended that the agency make a new source selection determination.

There are at least two take aways from the decision. First, agencies cannot ignore negative past performance information in their possession. Second, think twice before buying the sushi at DOD commissaries.

Bankruptcy Group of the Year: Brown Rudnick

Thu, 27 Jan 2011 15:47:26 -0500

Brown Rudnick was one of only five US law firms to be selected as "Bankruptcy Group of the Year" by the editors of Law360. We were specifically recognized for our leading role in Quigley, Lyondell, Visteon, Six Flags and American Safety Razor, among others. This award honors our Bankruptcy & Corporate Restructuring Group as one that "consistently gets results" for our clients in high stakes, tough cases.

To read the full article, please click here.

Why can't we all be friends?

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Thu, 20 Jan 2011 12:06:22 -0500

On January 18, 2011, the Supreme Court heard argument in the case of General Dynamics v. United States. This case arose from the Navy's default termination in 1991 of contracts that had been awarded (in 1988) to General Dynamics and McDonnell Douglas. The contracts called for developing a carrier-based stealth aircraft called the A-12 Avenger. While the A-12 never was built, what was developed was a cottage industry for some Government Contracts lawyers. The Supreme Court case was preceded by 14 decisions at the US Court of Federal Claims and the US Court of Appeals for the Federal Circuit. Apparently the contractors spent $2.55 billion performing the contract. They were paid $1.35 billion. The Navy wants the $1.35 billion back. The contractors want to get paid the $1.2 billion in extra money they spent but never were paid. Some of the justices asked why the parties couldn't just leave things as they were. That would allow the contractors to keep what they have been paid, but prevent them from getting any further payments. It is good to see the Court look at practical solutions. But in the past 20 years the case has been litigated, I'm guessing someone tried to the settle the case before. But when Justice Scalia tells you to think about settlement, you may take more notice.

Oh yeah. There is a legal issue that was before the Court. Can an agency rely on the State Secrets doctrine to withhold from a contractor information that the contractor may be able to use to defend against a termination for default? Here, the contractors argued that the Navy caused the delay that led to the termination for default by failing to disclose superior knowledge. The Navy refused to give that information to the contractors during the litigation. The legal issue balances the interest of the Government in protecting State Secrets with the right of contractors to defend against Government contract actions.

So what can happen? The options I see:

1. The parties can settle the case and tell the Court that the case is moot.

2. The Court can issue a decision saying no more money for the contractors and no more money for the Government. I'm not sure how the Court would get there but some of the justices seemed to like that solution.

3. The Court can affirm the termination for default. That would create more litigation when the Navy acts to collect the $1.35 billion.

4. The Court could reverse and hold that the termination for default was not justified. That could lead to more litigation. Indeed, if the Navy is required to disclose the State Secrets to the contractors, a court could find that the contractors were not prejudiced by not having had the State Secrets. The end result could still be that the termination for default was valid.

Now if I were given the chance to be Chief Mediator of the United States, my questions would be:

1. After 20 years, is the information requested by the contractors still really a State Secret?

2. Couldn't the Navy find someone within General Dynamics and McDonnell Douglas to whom the State Secrets could be disclosed in such a way that there was no risk of improper disclosure?

3. Did someone look through the materials leaked by Wikileaks to see if the States Secrets already have been disclosed?

Massachusetts "Prompt Payment" Legislation Effective November 8, 2010

Mon, 3 Jan 2011 10:26:52 -0500

The Massachusetts "Prompt Pay Act" (G.L. c. 149, § 29E) may dramatically change the way parties are paid on private construction projects. This new law applies to all private construction contracts executed after November 8, 2010 with a prime contract price in excess of $3 million.1 The Act requires "reasonable" time periods for submission, review and payment of pay applications at every level of a project, from owners to lower tier subcontractors and suppliers. Moreover, the Act imposes strict parameters on what is considered reasonable: billing intervals cannot exceed 30 days, pay applications must be approved or rejected within 15 days after submission by the general contractor to the owner,2 and payment must be made within 45 days after approval. Failure to act on a pay application by the statutory deadline is deemed to be approval of the application.3 Notably, the 30 day restriction on billing intervals effectively does away with payments based on actual progress milestones, if the milestones are more than 30 days apart. Additionally, while the Act does not restrict the potential contractual grounds for rejection of a pay application, any rejection must be made in writing, and must be certified as being made in good faith.

For more information, please click here.

The Justice Department's Brief in the Gene Patents Case

Mon, 3 Jan 2011 10:10:21 -0500

On October 29, 2010, the U.S. Department of Justice filed a "friend of the court" (Amicus) brief in the case of The Association for Molecular Pathology, et al. v. Myriad Genetics that has resulted in significant commentary in the media and the blogosphere. The underlying case is an appeal from the decision of the U.S. District Court in the Southern District of New York invalidating a number of patent claims directed to "isolated" gene sequences (for background, see the Brown Rudnick Alert dated March 30, 2010). In its brief, the DOJ made the argument that isolated, but not otherwise modified, DNA is a product of nature and thus ineligible for patent protection.

For more information, please click here.

Federal Reserve Board Notice of Proposed Rulemaking Regarding Debit Card Interchange Fees and Routing

Nancy R. Wilsker (nwilsker@brownrudnick.com) — Wed, 29 Dec 2010 10:45:50 -0500

On December 16, 2010, the Federal Reserve Board issued a Notice of Proposed Rulemaking (NPRM) regarding Debit Card Interchange Fees and Routing. There have been several articles in the press regarding the politics of the proposal (and of how it would represent more than a 70% reduction in average debit interchange fees). This Alert is to give you a legal summary of what the Federal Reserve is proposing and of the timeline for commenting on the proposal and finalizing the regulations.

For more information, please click here.

Expecting a wage increase next year? Not so fast.

Tue, 28 Dec 2010 12:10:03 -0500

We recently blogged about the Secretary of Energy's declaration that he is implementing a two-year "freeze on salary and bonus pool increases for site and facility management contractor employees" to match the pay freeze for government workers. We noted that the Department of Energy (DOE) may get push-back from those contractors whose support the Secretary is seeking if implementing this freeze means breaching contracts or violating laws, including the Service Contract Act (SCA).

The SCA requires service contractors to the federal government to pay covered workers wages and fringe benefits that are set by the Secretary of Labor. That's right, the Secretary of Labor, not the Secretary of Energy. In fact, the law is clear that contracting officers and other Government personnel do not have the right to excuse contractors from complying with the SCA. Not the Secretary of Energy, for that matter, not even President Obama, can direct a contractor not to comply with the SCA.

Here's how the SCA works: The Labor Department issues wage determinations (WDs) that specify the wages and fringe benefits that are prevailing in a given locality. Contracting officers are required to incorporate the appropriate WDs into contracts. Furthermore, once every year or two years, depending on the type of contract, contracting officers are required to incorporate updated WDs into their contracts. That means that covered contractor employees get pay and benefit increases. That's not what Energy Secretary Chu apparently has requested, but that's the law.

And there's more. The Federal Acquisition Regulation includes a clause called the Fair Labor Standards Act / Service Contract Act Price Adjustment clause. (Depending on the contract type, the clause is either FAR 52.222-43 or -44). The Price Adjustment clause says that when DOL issues a WD with increased wages or benefits and the contracting officer incorporates that new WD into the contract, the contractor is entitled to a contract price adjustment.

And what about collective bargaining agreements (CBAs)? Is the Energy Secretary telling contractors to breach CBAs that call for wage increases? Whatever happened to the National Labor Relations Act (NLRA)?

Will the Energy Secretary try to convince DOL not to increase wages and benefits for two years? Does DOE plan to deny contractor price adjustment requests? That's a recipe for angry contractors and lots of new litigation.

It should be interesting to watch what happens next.

Happy Holidays, from the Secretary of Energy, Part 1.

Thu, 23 Dec 2010 14:45:25 -0500

On December 17, 2010, Secretary of Energy Dr. Steven Chu sent the following email to an undisclosed list of recipients:

Dear Colleagues,

Last month, President Obama spoke to the American people about the need for broad sacrifice in the effort to get the federal deficit under control. He said that if small businesses and families are tightening their belts, our government should do the same.

President Obama proposed a two-year pay freeze for all civilian federal workers, which is predicted to save $2 billion for the remainder of FY 2011 and $28 billion over the next five years.

It’s in the same spirit of shared sacrifice that I am implementing a similar freeze on salary and bonus pool increases for site and facility management contractor employees, who run day-to-day operations at certain Department of Energy sites and facilities, including national laboratories, and do a great service for the country.

As our nation continues to recover from these challenging economic times, and we work to address the massive deficits we inherited, I am asking our contractor staff, who represent the best and brightest in their fields, to join the federal workforce in playing a part.

Our national labs, sites and facilities across the country will continue to attract and retain the nation’s top talent and pursue some of the most important discoveries that will lead us into the 21st century. I look forward to continuing our work together to help advance America’s scientific leadership, economic competitiveness, and national security.

Thank you for your continued service to this nation.

Sincerely,

Steven Chu

What does this mean? Is he "implementing" a freeze on salary and bonus pool increases? Or he is "asking" contractors to forego increases? Or he is making an offer that contractors cannot refuse? And what does this mean? Can DOE prevent contractors from giving salaries increases to its employees? Unlikely. However, for contractors with cost-reimbursement contracts can DOE refuse to reimburse the contractor for salary increases? Maybe. That might depend on the language in the original contract. Also, what does freezing bonus pool increases mean? If the amount in the bonus pool is fixed by contract, freezes increases to the pool may not do much.

While the sentiment that contractors should share the pain with the Federal workforce may be a noble sentiment, the devil will be in the details. And if the details mean breaching contracts or violating laws (like the Service Contract Act), contractors may not enlist in the war on the deficit as requested by DOE.

Stay tuned.

Small business contracting under the microscope

Wed, 15 Dec 2010 10:33:00 -0500

The Washington Post recently ran an article warning of increased enforcement efforts by the Federal Government aimed at identifying fraud and abuse in small business contracting - and recovery of damages from those guilty of receiving federal monies as a result of such fraud and abuse. See Small-business Contracting Under Scrutiny From Several Federal Agencies, here.

Such plans of the Federal Government should not come as much of a surprise. They come after high profile media coverage of alleged abuses in connection with the Alaska Native Corporation ("ANC") preference program, subsequent agency enforcement, including suspension of GTSI and other Federal Government contractors, and Congressional action (and reaction).

The "Small Business Jobs Act of 2010" was enacted this year. Among other things, that law creates a presumption of the amount of loss to the government where a business concern misrepresents its size. That presumption of loss is equal to the "total amount expended" by the Government on the contract, subcontract, grant or cooperative agreement that is tainted by the misrepresentation. See Pub. Law 111-240 § 1341.

While there no doubt are bad actors out there seeking to reap the benefits of small business set-asides and preferences fraudulently, there are other companies that may unintentionally run afoul of the Small Business Administration’s rules regarding size and status. That is because the rules are not always straightforward and contracting officers historically may have blessed arrangements that in reality are improper - as some of the allegations raised in the media coverage of the ANC procurements suggest. Thus, legitimate companies may be at risk as the Federal Government turns its focus to small business contracting fraud and abuse.

Accordingly, as the New Year approaches, contractors, subcontractors, grantees and cooperative agreement holders who perform or bid for small business-preference work may want to add internal compliance audits to their list of resolutions. And it wouldn't be a bad idea to review:

- Written policies/procedures for teaming arrangements related to small business work;

- Actual practices in negotiating and entering into teaming arrangements;

- Teaming arrangement agreements (teaming agreements, subcontracts, etc.) proposed or used for small business work;

- Written policies/procedures for auditing compliance with small business work allocation and other compliance requirements;

- Actual recordkeeping practices related to small business requirements compliance;

- Representations and Certifications related to size and status to confirm that all such reps and certs are current, accurate and complete; and

- Internal compliance program for uncovering and addressing potential compliance issues related to the small business program.

Developments related to this area are likely to continue in the New Year, but identifying and correcting potential compliance issues now may offer some protection against your company being next year’s headline.

Permit Extension Act Update

John W. Wadsworth (jwadsworth@brownrudnick.com) — Thu, 9 Dec 2010 16:03:48 -0500

The Permit Extension Act was enacted as part of the "Act Relative to Economic Development Reorganization" (Section 173 of Chapter 240 of the Acts of 2010). We previously published an Alert which explained that this Act automatically extended many categories of permits or approvals that were "in effect or existence" during the period beginning August 15, 2008 through August 15, 2010 (the "Tolling Period").

For more information, please click here.

Ramping up for cloud computing?

Thu, 9 Dec 2010 15:29:19 -0500

Unemployment may be close to 10% but at least one person's job is safe - the person responsible for coming up with cute acronyms for new Government programs. As part of the Administration’s Federal Cloud Computing Initiatives, the Federal Risk and Authorization Management Program ("FedRAMP") was created to provide a unified approach to assessing and authorizing cloud computing systems. Upon request of any agency, FedRAMP will assess and authorize vendors against a unified security risk model and once completed, FedRAMP will certify the vendor as FedRAMP authorized. Other agencies may choose to accept the FedRAMP authorization as evidence that the vendor is compliant with applicable security protocols.

FedRAMP is still in its early stages, but its "approve once, and use often" approach is expected to reduce duplicative work for both agencies and vendors, achieve consistency in federal security standards, speed up the procurement process, and achieve overall cost savings for the federal government.

So what does this mean for government contractors? On the one hand, a FedRAMP authorization could prove to be a valuable asset to contractors who intend to provide cloud computing to multiple agencies. On the other hand, there is no requirement that agencies participate and therefore, contractors could still be subject to separate assessments and different security standards. But who are we kidding? If you want to provide cloud computing to anyone, you likely want to get an ATO ("Authority to Operate") from FedRAMP.

The details of FedRAMP have not been finalized. On November 2, 2010, an inter-agency team, consisting of GSA, the National Institute of Standards and Technology, the CIO Council, and others released a Proposed Security Assessment and Authorization for U.S. Government Cloud Computing document. It will serve as the basis for the government-wide assessments and authorizations. If you are a government contractor interested in offering cloud computing services, you may want to access the document CIO.gov’s FedRAMP page. Comments to these documents can be submitted through the FedRAMP webpage of CIO.gov. The deadline for comments recently was extended to January 17, 2011.

The 2010 Election - How will it affect Government Contractors?

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Thu, 9 Dec 2010 13:47:06 -0500

The 2010 elections represent a historic turn-around in American politics from just two years earlier.

Kenneth B. Weckstein, a Partner in Brown Rudnick's Government Contracts & Litigation Group, discusses some potential threats, opportunities, and uncertainties that government contractors should think about in his article The 2010 Election - How will it affect Government Contractors? on our website.

New DOL Rule for Disclosing Fees to Workers in 401k Retirement Plans

Thu, 9 Dec 2010 11:39:31 -0500

On October 14, 2010, as part of an ongoing effort to increase transparency in plan-related fees and expenses, the Department of Labor ("DOL") published final regulations that require plan fiduciaries to provide participants and beneficiaries, on a regular and periodic basis, sufficient information regarding the plan and its investment options, including fee and expense information, such that participants can make informed decisions with regard to the management of their accounts.

To learn more about these regulations, please read the alert New DOL Rule for Disclosing Fees to Workers in 401(k) Retirement Plans on our website.

Uncle Sam wants you . . . or, at least your proprietary software!

Tue, 7 Dec 2010 15:08:47 -0500

Some time in the early 1990s, the Federal Government came to the realization that more companies would offer their products and services to the Government if the Government behaved more like a commercial buyer. The result was an expansion of the exemptions from various procurement regulations for contractors supplying "commercial items."

It seems that the Government has changed its mind.

One sign of the Government's about face is the proposed revision to Part 227 of the Defense Federal Acquisition Regulation Supplement (DFARS) dealing with intellectual property rights in computer software. (See 75 Federal Register 59412 (Sept. 27, 2010), available here). Among other changes, the proposed rules reverse the current policy of obtaining commercial software products using the seller's standard commercial license. Instead, the proposed rule says,

"[T]he Government shall have the same rights as those in the standard commercial license customarily provided to the public unless such rights are inconsistent with Federal procurement law. Any portions of the standard commercial license that are inconsistent with Federal procurement law shall be considered stricken from the license and the remaining portions of the license shall remain in effect. The parties will promptly enter into negotiations to resolve any issues raised by the elimination of license terms or conditions that are inconsistent with Federal procurement law." [Emphasis added]

No meaningful guidance is provided on when the contractor's asserted license rights will be considered inconsistent with Federal procurement law. It seems that the Government is not content to follow the same rules followed by other users of commercial software. Stay tuned to see how the Government will exercise this new right to reject terms in standard commercial licenses based on vague policy grounds.

The proposed rule also provides that the Government will be able to challenge a contractor's restrictive markings on commercial computer software if the Government believes it was not created at private expense. If the Contracting Officer issues a final decision determining that the contractor is not entitled to restrict the Government's use or disclosure of the software and the contractor disagrees with that decision -- which we presume a contractor would do -- the contractor will be allowed to appeal that decision under the Contract Disputes Act. Sounds fair. But wait! The proposed rule states that "the Contractor agrees that the agency may access, use, modify, reproduce, release, perform, display, or disclose computer software or technical data as necessary to address the urgent and compelling circumstances" notwithstanding a pending appeal. So, the contractor ultimately may win its case, but only after the horse is out of the barn, in this case meaning after the Government has given a competing contractor access to the software. The proposed DFARS clause makes clear that the contractor is not prevented from seeking damages if the Contracting Officer's decision is ultimately reversed, but monetary damages are unlikely to restore the competitive position that the contractor had when access to its software was restricted. This is a proposal that lawyers may like more than contractors.

Think that's bad policy or just not fair? The public may comment on these proposed rules until December 27, 2010.

Brown Rudnick's European Litigation Bulletin: November 2010

Wed, 1 Dec 2010 13:00:20 -0500

Healthcare Reform Imposes Additional Requirements on Tax Exempt Hospitals

Wed, 1 Dec 2010 12:56:44 -0500

The Patient Protection and Affordable Care Act, signed into law on March 23, 2010 (the "Act"), contains specific requirements for hospitals that wish to receive or maintain their tax-exempt status under section 501(c)(3) of the Internal Revenue Code of 1986 (the "Code"). In particular, Section 9007 of the Act adds new section 501(r) to the Code, which supplements the community benefit standard generally applicable to tax-exempt hospitals. Although many hospitals may already be operating in substantial conformance with the new standards in connection with their annual IRS Form 990 filing obligations, all tax-exempt hospitals should review their existing policies and procedures to be certain that they are in compliance, and that the compliance efforts are integrated into their reporting requirements under Schedule H of the IRS Form 990.

For more information, please click here.

SEC Proposes Rules Under Dodd-Frank On Stockholder Approval of Executive Compensation and Golden Parachutes

Wed, 1 Dec 2010 12:41:16 -0500

On October 18, 2010, implementing Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC proposed rules that have important implications for all companies that are required to disclose compensation in their proxy statements or annual reports. These proposed rules would require such companies to hold advisory votes on executive compensation and, in certain circumstances, on "golden parachute" agreements.1

For more information, please click here.

Regulation FD Enforcement: Implied Messages Subject to SEC's Scrutiny

Wed, 1 Dec 2010 11:58:14 -0500

The Securities and Exchange Commission recently announced enforcement actions against Office Depot, Inc. and two executives for violating Regulation FD. The SEC alleged that the Company and the executives attempted to surreptitiously convey nonpublic information to select analysts and institutional investors. Office Depot agreed to settle the SEC's charges without admitting or denying the findings and allegations and to pay a $1 million penalty. The two executives also settled the Regulation FD charges also without admitting or denying the findings against them, and will pay $50,000 each.

For more information, please click here.

Want to sue your boss? DOL may help you find a lawyer.

Wed, 1 Dec 2010 11:47:43 -0500

The best laid plans of mice and men gang aft agley.

There's a large bureaucracy in the Executive Branch called the U.S. Department of Labor (DOL). Part of DOL's job is to enforce the Fair Labor Standards Act (FLSA), which guarantees covered employees a minimum wage and premium pay for overtime work, and the Family and Medical Leave Act (FMLA), which ensures that eligible employees won't lose their jobs just because they or their children get sick. DOL can and does investigate and punish employers for violating the FLSA and FMLA. In Fiscal Year (FY) 2009 (the last year for which DOL has published statistics), the agency collected $172,373,875 in back wages for 219,560 workers, mostly for FLSA overtime violations. (The top three industries hit were restaurants, guard services and healthcare). (DOL's "raw data" statistics are available here in XML format. A trade association that obtained the compiled statistics under the Freedom of Information Act (FOIA) has posted them here). DOL also can, and does, sue employers in federal court to enforce these laws, more than 125 times in FY 2008 alone.

Employees also can initiate private lawsuits to enforce the FLSA and FMLA. In fact, as an incentive for employees to take private action to enforce their rights, Congress provided that the employer must pay the attorneys fees of an employee who succeeds in FLSA or FMLA litigation. This is a departure from the normal American rule that each side in a case pays its own attorneys fees. In FY 2008, employees filed more than 5,000 FLSA actions in federal courts, and even more in FY 2009 (according to the Administrative Office of the United States Courts).

While there is no law against it, the reality is that, until now, employers rarely had to face the disruption of a DOL investigation followed by a private lawsuit over the same charges. Another reality is that DOL may take the path of least resistance and may be more likely to drop an investigation when the employer appears to have real defenses or raises novel legal issues. These realities are about to change.

On November 23, 2010, DOL announced that, beginning on December 13, 2010, when FLSA or FMLA complainants are informed that DOL's Wage and Hour Division (WHD) is declining to pursue their complaints, they may also be given a toll-free number to contact the newly created American Bar Association (ABA) - Approved Attorney Referral System. In addition, when the WHD has conducted an investigation, the complainant will now be provided information about the WHD’s determination regarding violations at issue and back wages owed. While DOL's announcement is vague as to the type of "information" it will share, a typical investigation involves interviews with both management and employees and a review of company employment records, some of which may be sensitive. Whatever information WHD chooses to share will be given to the complainants in the same letter informing them that the WHD will not be pursuing further action, and will be very useful for attorneys who may take the case. The Wage and Hour Division also has developed a special process for employees and their attorneys to quickly obtain certain relevant case information and documents when available. As far as we can tell, there is no provision for WHD to give this same information to the employer.

Why is DOL doing this? Probably as a way of getting more bang for its budget bucks. Resources are limited, so DOL must be picky about which cases it pursues. A case that may not be economically viable for DOL to pursue may interest an attorney working on a contingent fee basis. Why do we think this is wrong? When DOL has started an investigation and decided it is not worth pursuing, why should it turn its investigative files over to the employee but not to the employer? These are materials that usually are not shared with the public and may be exempt from disclosure under FOIA. Also, while DOL's plan may help employees achieve justice in some cases, it will force employers to defend what could be frivolous charges in other cases. Notably, DOL found "no violation" in 51% of FMLA investigations in FY 2009. Will these files be turned over too? To avoid opening the floodgates of litigation, DOL might want to share its findings with the employer as well and also remind employees and their attorneys that the DOL materials, by themselves, do not provide the basis to file a lawsuit. But good luck with that.

What's an employer to do? Understand what wages and overtime must be paid to which employees, conduct reviews to make sure that there is compliance with wage and hour laws, and properly document employment decisions.

So while DOL's heart may be in the right place, its plan may not work the way it hopes. Expect to see more lawsuits, and more complaints that the Obama administration is anti-business and pro-employee.

Year-End Compliance Review is Suggested for All Qualified Plans

Wed, 1 Dec 2010 10:53:41 -0500

As the end of the year rapidly approaches, it is imperative that plan sponsors review their tax-qualified plans to determine whether any plan amendments are required to be adopted prior to December 31st. We also call your attention to the fact that all plan sponsors of individually designed plans with an EIN ending in a "0" or "5" should submit a determination letter application by January 31, 2011 as part of the IRS Cycle E determination letter filing period.

For more information, please click here.

Healthcare Reform Provisions Effective Jan. 1, 2011. Is Your Plan in Compliance?

Wed, 1 Dec 2010 10:38:13 -0500

With the passage of the Patient Protection and Affordable Care Act and the accompanying Healthcare and Education Reconciliation Act (collectively, the "Acts"), this year marked significant changes in the way companies and their employees think about healthcare. Many of these healthcare reform provisions become effective January 1, 2011 for calendar year plans.1 We refer you to our previous Alert Guidance on Healthcare Reform Requirements is Being Offered for Employers for an overview of Healthcare Reform. This second Alert in our series on Healthcare Reform provides you with a summary of the considerations and action items which plan sponsors may need to complete as the year-end approaches.

For more information, please click here.

New York City Building Efficiency Requirements

Wed, 1 Dec 2010 10:35:02 -0500

In December, 2009, the New York City Council enacted several bills that will impose energy efficiency requirements on privately owned buildings in New York City, and in some cases may require significant expenditures on the part of building owners. Some of these requirements are already in effect, and others will be effective in the near future.

For more information, please click here.

Cloud Computing: The Next Battleground?

Tue, 30 Nov 2010 11:58:23 -0500

Cloud computing. You heard of it. You probably even benefit from it. Think Google, Facebook, and Amazon.com and you get the idea. Cloud computing is the buzz word for internet-based computing, where resources and data are shared and allocated on-demand over the internet. And now, the federal government has taken the next big leap towards cloud computing. The General Services Administration (“GSA”) recently awarded the first government-wide Cloud Infrastructure contracts to eleven vendors, including AT&T, General Dynamics, and Verizon. Also known as Infrastructure as a Service (“IaaS”) contracts, these are the first of three types of cloud computing contracts that will be available through a new GSA website called Apps.gov. Through the IaaS contracts, government customers will soon be able to purchase cloud storage, virtual machines, or web hosting services.

So why the push for cloud computing and why now? Earlier this year, the Obama Administration announced its Accountable Government Initiative, which included a number of significant IT related reforms. One of those reforms was to halt the growth of federal data centers and shift investments to cloud computing solutions. By storing information in the cloud, government agencies will spend less money investing in IT infrastructure and less money on electricity costs to maintain large data centers. OMB also recently announced that the federal government will follow a “cloud-first” policy as part of its 2012 budget process.

We expect major changes in where the federal government invests its IT dollars. And the industry has caught on quickly. A number of companies, including IBM, Dell, and Google, have been vying for their share of the pie. And although cloud computing may be cutting edge, how you win business from the government is not. In October of this year, Google protested the terms of a Department of Interior procurement for web-hosted messaging services arguing that the RFQ’s Microsoft-specific requirements were unduly restrictive and improper. That case is pending at the Court of Federal Claims.

We will keep you posted. But if you are interested in learning more, visit GSA’s Apps.gov storefront.

Sorry about that Chief--Air Force sends confidential information to Boeing and EADS in $35 billion tanker competition

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Mon, 22 Nov 2010 12:08:30 -0500

In most competitions, the competitors give the Government their best technical proposals and their best prices and the Government selects the proposal offering the best value. In the multi-billion competition to replace the aging KC-135 refueling tankers, the Air Force is trying a different approach: Give the competitors each other's prices. At least that is what the Associated Press is reporting. AP, relying on the Seattle Times, reported that the Air Force mistakenly gave crucial pricing information on the competing bids to competitors Boeing and EADS.

It looks like the Air Force may have given corresponding data to the two competitors. That means that, for instance, if Boeing's price was given to EADS, EADS' price then was given to Boeing. That supposedly levels the playing field and allows both companies to submit their Final Proposal Revisions ("FPRs") on an equal basis. And that should end the matter. Indeed, Air Force spokesman Col. Les Kodlick reportedly has insisted that the incident would not delay the award of the contract. Not so fast Colonel Kodlick.

Here's the GAO rule at 4 CFR 21.5(d): "Procurement integrity. For any Federal procurement, GAO will not review an alleged violation of subsections (a), (b), (c), or (d) of sec. 27 of the Office of Federal Procurement Policy Act, 41 U.S.C. 423, as amended by sec. 4304 of the National Defense Authorization Act for Fiscal Year 1996, Public Law 104-106, 110 Stat. 186, February 10, 1996, where the protester failed to report the information it believed constituted evidence of the offense to the Federal agency responsible for the procurement within 14 days after the protester first discovered the possible violation."

What does that mean? It means that within 14 days of the disclosure, Boeing and EADS should report the disclosure to the Air Force--this probably has been done already. The Air Force then should perform an investigation to see how the information was released--which the Air Force no doubt already is performing. The Air Force will determine that the mistake was accidental. The Air Force will make award. And then the losing bidder will protest the award saying that the mistake may not have been accidental was more involved than the Air Force said.

There is more. The Air Force says that it has leveled the playing field. The competitors may not agree. Before the due date and time for submitting of FPRs, Boeing and EADS can submit protests arguing that the Air Force has not leveled the playing field.

All of these protests are in addition to any protests that the competitors can submit against the actual evaluation and selection decision--the bases for which they will not learn until after they are debriefed sometime next year.

The RFP for the initial refueling tanker replacement contract was issued on January 30, 2007. Eleven protests at GAO followed and resulted in GAO sustaining Boeing's protests on June 18, 2008. Many more protests will follow. I'm jealous. Air Force, call me.

Buddy can you spare a helicopter?

Thu, 18 Nov 2010 09:08:09 -0500

On November 1, 2010, the Army Times reported that the Air Force is close to completing a $3 billion sole-source contract to buy Sikorsky UH-60M Black Hawk helicopters from the Army. Wait. The Air Force needs helicopters. But instead of buying helicopters from a helicopter manufacturer, the Air Force is buying the helicopters from the Army? That raises a number of questions. First, how did the Army get $3 billion in helicopters that it doesn't need? Did it buy helicopters that it did not need? Did it buy helicopters that it needed and then determined that it did not need the helicopters? If so, why does the Army no longer need the helicopters? Or does the Air Force have an immediate need for the helicopters and the Army is the only entity that can meet that need? Is the Army selling used helicopters to the Air Force?

Although full details of the Air Force's contemplated purchase have not been reported, the Army Times and other media outlets do provide some answers. And the "immediate need" rationale appears to be out the window--the Air Force published a sources-sought notice for this purchase last year. While that is good advance planning, and we don't know what was submitted in response to the sources-sought notice, it sort of kills any argument that the helicopters are urgently needed. Other details about the Air Force plan also raise questions. For example, the purported justification for this $3 billion purchase is to save money. However, one of the benefits of competitive acquisitions is that any guess work about saving money can be eliminated: if the Air Force does not compete this purchase, how can it know that it is saving money by purchasing helicopters from the Army? Until precise specifications are circulated, how can the Air Force know that other conforming, less expensive helicopters are not out there? How can the Air Force be sure that it is getting the most bang for its buck?

The original sources-sought notice set forth the Air Force's generic helicopter requirements. The Air Force said that its helicopter, which will replace those used to monitor missile bases in the Northwest United States and to shuttle VIPs around the DC Metropolitan area, must carry nine passengers and cruise at 135 knots. The Sikorsky Black Hawk that the Air Force would buy from the Army exceeds those requirements. Black Hawks carry 13 passengers and can fly at an average cruising speed of 151 knots.

The Air Force's acquisition strategy apparently is to buy the helicopters from the Army under a Depression-era statute, the Economy Act of 1932, which allows one agency to buy goods from another agency without seeking bids from private companies. The FAR addresses interagency purchases under the Economy Act. See FAR Subpart 17.5. That section requires agencies contemplating such purchases to support their orders by a Determination and Finding (D&F) that: the acquisition is in the best interest of the Government; and the supplies cannot be obtained as conveniently and economically by contracting directly with a private source. FAR 17.503. Again we haven't seen responses to the sources-sought notice. But if the Air Force goes down this path, there may be a few helicopter manufacturers waiting in the wings to challenge any D&F and sole source award, especially with $3 billion at stake.

If the now dissolved Coalition Provisional Authority owes you money - - head to Iraq.

Wed, 17 Nov 2010 14:21:24 -0500

A recent Armed Services Board of Contract Appeals ("ASBCA") decision highlights the conundrum some contractors who worked in Iraq now face in their efforts to get paid. You've done the work. You are owed money. And, even the U.S. Contracting Officer that managed your contract agrees that you are owed money, yet no one will hear your claim. The ASBCA recently held that there was not jurisdiction under the Contracts Disputes Act ("CDA") to hear the appeal of a contractor that had contracted with the Coalition Provisional Authority ("CPA") in Iraq. Appeal of MAC Int'l FZE, ASBCA No. 56355 (October 29, 2010). In this matter, MAC International had held a contract with the CPA and sought payment on two task orders it had performed under that contract. However, there were just a few problems with the claim. For one, the contract was funded with Iraqi money, not U.S. appropriated funds. Also, the contract was not with the United States. It was with the CPA, which was made up of multiple countries and was found by the ASBCA to not be an agency of the United States. The ASBCA was not persuaded by the fact that CPA "Memorandum Number 4," which was the CPA's contracting guidance, established that the ASBCA had jurisdiction to hear disputes under contracts with the CPA. The ASBCA noted that Memorandum # 4 was not incorporated into MAC International's contract. Further, when the CPA dissolved it transferred its contracting powers to the Iraqi Government and amended Memorandum # 4 to give sole jurisdiction over CPA contracts obligating Iraqi funds to the Iraqi Courts. The fact that the contract was written on Department of Defense standard forms and administered by U.S. Contracting Officers was not enough to give the ASBCA jurisdiction over the matter.

So what is a contractor to do? How about the Court of Federal Claims? Probably not a good idea. One respected judge at the Court of Federal Claims has held that "extensive involvement by the United States in administering" a contract "cannot overcome the lack of privity of contract" between a contractor and the United States. Laudes Corp. v. United States, 86 Fed. Cl. 152, 165 (2009). Although we can think of arguments to get jurisdiction in the United States, all are fact dependent and none are foolproof. It appears the correct answer may be to bring your case in an Iraqi Court, in accordance with the amended CPA Memorandum # 4--a process that is likely easier said than done.

Transparency in Government Contracting?

Thu, 11 Nov 2010 14:29:34 -0500

Tension between disclosing information about government contracts and protecting proprietary information of companies has become more frequent in the government contracts community.

Kenneth B. Weckstein and Michael D. Maloney, members of Brown Rudnick's Government Contracts & Litigation Group, discuss the issues surrounding transparency in government contracting in the debut issue of Government Contracts Law360.

To learn more, please read the article Transparency in Government Contracting? on our website.

How distressed claims trading may impact your reorganization strategy

Edward S. Weisfelner (eweisfelner@brownrudnick.com) — Thu, 11 Nov 2010 14:25:44 -0500

The surging growth of the claims trading market, and the increasing influence exercised by hedge funds and private equity funds that purchase claims and interests, has revolutionized corporate restructurings. Learn more about this trend from Edward S. Weisfelner, Chair of Brown Rudnick's Bankruptcy and Corporate Restructuring Practice Group, in the book Navigating Today's Environment: The Directors' and Officers' Guide to Restructuring.

Feel free to read the chapter titled How distressed claims trading may impact your reorganization strategy on our website.

SEC Stays Effectiveness of New Proxy Access Rules

Thu, 11 Nov 2010 14:05:42 -0500

On October 4, 2010, the Securities and Exchange Commission issued an order to stay the effectiveness of recent changes to the federal proxy rules, including new Rule 14a-11, the amendment to Rule 14a-8 and other related amendments.

For more information, please click here.

2010 Election Results, Part II

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Wed, 10 Nov 2010 10:44:26 -0500

There will be no Senator Greene (D-Penthouse) or Senator O'Donnell (R-Hogwarts). But we surely have not heard the last from them. There already are reports that Greene is considering a run for President. And O'Donnell is becoming a regular on the late night comedy talk show circuit. But seriously folks, what do you get when you mix 53 Democrat Senators and 46 Republican Senators with 239 Republican House Members and 188 Democrat House Members and a Democrat President?

I went back and checked my High School Government diagram of how a bill becomes a law and I was right. You need approval of the House, the Senate and the President for new "laws". Control of the House and $3.00 will buy you a latte at Starbucks. Neither Democrats nor Republicans can force new laws down the throats of the other. Does that mean that there will be deadlock and that the status quo will be maintained? Not necessarily.

This is what could happen. Republicans will control the House Committees. They can hold hearings, conduct investigations and issue subpoenas. Will that happen? You betcha. If your highest priority is defeating the President in 2012, rooting out fraud and inefficiency in those Departments headed by appointees of the President is a good game plan. In the Government contracts arena, if your company received an earmark sponsored by a D, expect some scrutiny.

Beyond the politics, there is politics. A big part of the President's base is unions, including those that represent Federal employees. How do you pay back those supporters and court them for 2012? You keep the Government employees you have and hire more. Historically, in Republican Administrations more Government work has been outsourced to contractors. In Democrat Administrations, the work has been brought back inside (insourced). The Obama Administration was true to that script. Republicans may use their Committee powers to scrutinize that.

One place where there will not be deadlock is in bills being passed out of the House. The House Republicans will rule. They can pass one bill after another and send them over to the Senate. A Conference Committee of House Members and Senators then will meet to work out differences and present a compromise bill for approval of both Chambers. Stay with me here. If there is never a compromise on anything, nothing ever will be presented to the President. If the Democrats in the Senate and the President want anything, they will have to give up something to the Republicans in the House--and vice versa. The bottom line is that there will be some laws passed and the Republicans will get their way on some issues. One of those issues could be to, once again, make it easier to outsource. And for contractors, that means more work.

It will be a fun dance to watch. Stay tuned.

2010 Election Results--What will it mean for Government Contractors?

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Wed, 3 Nov 2010 16:19:37 -0400

The Republicans have gained control of the House. The Democrats held the Senate. Now what? For Government Contractors, the following are some possibilities:

Afghanistan. The President wants to end the war and win the war. The Republicans want to win the war and end the war. If the Republicans get their way, we may be in Afghanistan longer than the President had planned. Impact on contractors? More work for a longer time.

Federal workforce. Republicans believe that Government in general and the Federal workforce are too big. Federal unions have been big supporters of President Obama and he has rewarded them with initiatives that sought to expand the Federal workforce. These initiatives could be rolled back and we likely will see a smaller Federal workforce. Fewer Federal employees to do the same level of work could mean more claims from contractors if they do not get timely direction or more work for contractors if there is budget to award more contracts. Which brings us to:

In-sourcing of work to Federal workforce. The current Congress passed legislation that made it more difficult to out-source work to Government contractors. Look for efforts to reverse that and to make more work available for contractors.

Burial of spent fuel. This Congress cut off spending for construction of the permanent repository for nuclear waste planned for Yucca Mountain, Nevada. That leaves spent fuel at nuclear power plants around the country with no place to be sent. The main proponent of the spending cut-off was Senator Reid. Given the change in the control of the House, the fact that Senator Reid is wounded from his election fight, and it sometimes feels good to poke your opponent in the eye, don't be surprised if there is an effort to restore funding for Yucca Mountain.

New major programs and spending initiatives. To paraphrase the Bill Clinton election campaign, "It's the deficit, stupid." Forget about it.

Government shut down. The Government needs an approved budget to operate. Will the House, Senate and President get along and if they get along, will they be able to agree on a budget? If they can't agree on a budget will they agree to a Continuing Resolution under which Government will continue to operate? If not, the Government shuts down. While no one will come out in favor of a Government shut down, there are many scenarios that could lead to a shut down. Some parties may have well-founded beliefs and refuse to back down. Other may welcome a shut down as a tool to embarrass an adversary. Either way, if the Government shut downs, there will be confusion for contractors, claims from contractors and extra cost for the Government.

At the end of the day, the new Congress will mean some changes for Government contractors and a little more work, but for the most part, business as usual.

You're a government contractor! And who knew?

Wed, 3 Nov 2010 10:38:26 -0400

Being a government contractor has its rewards. The Government must follow rules designed to treat all competitors fairly. Losers have the right to protest award decisions. You don't have to worry about your clients running out on their bills or not being able to pay. But government contracts also are subject to provisions that some companies consider to be onerous and intrusive. That is OK if you sign a contract with the Government. In that case, you know what you are getting in to. But what if you do not sign a contract with the Government and the Government still imposes its rules on you? Ask Florida Hospital of Orlando.

A Department of Labor Administrative Law Judge in Office of Federal Contract Compliance, U.S. DOL v. Florida Hospital of Orlando (Oct. 18, 2010), found that a hospital providing medical services to TRICARE beneficiaries was subject to OFCCP jurisdiction and required to comply with the affirmative action obligations of various statutes and executive orders because of an agreement the hospital had with a TRICARE management support contractor. (TRICARE is the health care system for Uniformed Service members, retirees and their dependents.) The hospital argued that it was not a federal government "subcontractor" for purposes of affirmative action requirements because the prime contracts between the TRICARE management support contractor and the federal government said that the agreement between the hospital and the prime contractor was not a "subcontract." Saying that your contract is not a subcontract does not make that true. The hospital also argued that it was not a government contractor because it was not providing personal property or nonpersonal services to the government and was not performing any of the prime contractor's obligations under the prime contract. The judge also rejected that argument because the purpose of the TRICARE prime contract and the agreement with the hospital was to provide health care.

While the recent cases involve the health care industry, we also are aware of instances where suppliers of food products have received OFCCP desk audit compliance notices -- even though the suppliers were unaware that the supplies provided ultimately were for a federal government prime contract.

Although the Florida Hospital case is on appeal and could be reversed, this case suggests that DOL is out to expand its jurisdiction over unsuspecting employers. This may mean that companies that never knew they were government contractors will have to undergo compliance audits under affirmative action laws and executive orders as well as investigations of their compliance with the prevailing wage and fringe benefit requirements of the Service Contract Act and Davis Bacon Act. Likewise, they could be subject to other laws and regulations designed to apply to government contractors. So when a request from OFCCP comes in, be ready to object or comply. And since knowledge is power, before entering into any agreement, you may want to confirm that the ultimate customer is not the Federal Government. After all, if you are going to be a government contractor, you might as well do it with your eyes open.

Ten years in the making, but who's counting. The new, improved Women Owned Small Business Federal Contracting Program

Fri, 22 Oct 2010 10:27:47 -0400

President Clinton signed the Equity for Women in Contracting Act 10 years ago. The purpose of the law, surprise, was to create more opportunities for Women-Owned Small Business ("WOSBs") to obtain Federal Government contracts. Prior to that there were programs that gave preferences to small businesses, Alaskan Native Corporations, veteran owned businesses, and certain businesses owned by Black Americans, Hispanic Americans, Native Americans and/or Asian Pacific Americans. Woman-owned businesses? Nada (as in nothing, not the National Automobile Dealers Association). But the government moves in mysterious ways, and often slowly.

The Small Business Administration ("SBA") issued regulations to implement the law in 2008. See 73 Fed. Reg. 56940. The same rule proposed just four (out of hundreds of) North American Industry Classification System ("NAICS") categories that would be covered by the WOSB program. That meant that very few woman-owned businesses would be able to benefit from being woman-owned businesses. The SBA also issued proposed rules regarding what data it would use to establish which industries were underrepresented by women-owned businesses and sought comments. See 73 Fed. Reg. 57014. The 2008 regulations never were finalized as to which NAICS categories would be eligible for federal contracting assistance. That meant the program could not be implemented. Instead, in March 2010 the SBA withdrew the proposed rule found at 73 Fed. Reg. 57014 and proposed a new method for calculating which NAICS codes would be eligible for WOSBs. The 2010 proposed rule resulted in 83 4-digit NAICS categories, rather than the four previously proposed. Finally, the end is in sight. On October 7, 2010, SBA issued a new Final Rule with an effective date of February 4, 2011, amending its regulations governing the WOSB Federal Contract Assistance Procedures. See 75 Fed. Reg. 62258. When that rule becomes final, this is what you can expect:

- Businesses that are small under the relevant NAICS code and are at least 51% owned and controlled by women, eligible for the WOSB program.

- Ability of a WOSB to self-certify its status as long as supporting documentation is provided to the SBA's document repository or directly to the relevant Contracting Officer.

- More opportunities for WOSB preference in federal contracting through contracts set aside for WOSBs. These procurements must be within one of the 83 NAICS categories representing industries where WOSBs are underrepresented or substantially underrepresented. The Contracting Officer must have a reasonable expectation that two or more WOSBs will submit offers. And, the anticipated award price of the contract must not exceed of $5 million (including options) for manufacturing contracts and $3 million for other contracts.

- Parity with other SBA small business programs with regard to agency decisions to set aside a procurement.

- Elimination of requirement for an agency certification that it has engaged in discrimination against WOSBs in order for the program to apply to that agency.

To see the details of the Final Rule including the methodology used to determine which NAICS codes are eligible for the program see 75 Fed. Reg. 62258.

Government contractors: No sex, no drugs

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Fri, 15 Oct 2010 10:51:14 -0400

We recently blogged about the Government using the award of contracts to promote social policies. Our September 29, 2010 post talked about the ban on text messaging while driving. It turns out that this is not the first time that the Government has used contracts to influence personal behavior. Government contractors also have been deputized to make sure that their employees do not use illegal drugs or pay for sex.

Most Government contracts must include the Drug-Free Workplace clause at FAR 52.223-6. As the title suggests, the clause requires contractors to notify their employees that the unlawful manufacture, distribution, possession or use of controlled substances is prohibited in the contractor's workplace. The clause also says that if the contractor is an individual, he or she must agree not to engage in the unlawful manufacture, distribution, possession or use of a controlled substance "while performing this contract." While it is not clear whether the clause applies to use in the workplace or use during the pendency of the contract, the Government has a legitimate interest in its contractors not being high while they perform Government work.

But sex in Government contracts? FAR 52.222-50 is titled Combating Trafficking in Persons. There can be nothing more vile than trafficking in persons. And the clause states that the "United States Government has adopted a zero tolerance policy regarding trafficking in persons." To that end, the clause prohibits contractors and their employees from engaging in "sex trafficking in which a commercial sex act is induced by force, fraud, or coercion..." The clause also prohibits the use of forced labor in the performance of the contract. No argument there. But the clause goes further. It prohibits contractor employees from procuring "commercial sex acts during the period of performance of the contract." And "Commercial sex act means any sex act on account of which anything of value is given to or received by any person." Basically, if you are a Government contractor and you perform Government contracts all year long, your employees (outside of work) are prohibited from paying for sex--even where paying for sex would be legal. So if any employees were planning a trip to the Mustang Ranch in Nevada, they better cancel.

New Type of Investor Litigation

Wed, 6 Oct 2010 11:00:22 -0400

Following the EU Transparency Directive, changes to section 90A of the English Financial Services and Markets Act 2000 ("FSMA") mean that, after 1 October 2010, investors in companies traded on certain public markets will have extended rights to compensation from the company if they suffer loss as a result of:

- relying on a statement,

- which is made by the company to, or for the benefit of, the market,

- and is misleading due to deliberate or reckless behaviour, or delayed due to dishonesty, by one or more of the company’s directors,

- if it was reasonable in all the circumstances for the investor to rely on it in deciding whether to buy, sell, or hold on to, the company’s securities.

For more information, please click here.

Pre-award Protests May Increase Chances for Contract Award

Wed, 6 Oct 2010 10:53:45 -0400

A recent case from the Government Accountability Office shows how pre-award protests can be good for contractors, the government and the public.

On September 27, 2010, GAO sustained a pre-award protest that argued the Department of Health and Human Services, Centers for Disease Control and Prevention did not adequately justify its decision to make a single contract award under an IDIQ contract for toxicological profiles. The GAO recommended that the CDC "reconsider whether, in accordance with FAR § 16.504(c)(1)(ii)(B), the RFP should be competed on a multiple-award basis, and that the agency document a well-supported rationale for its conclusion." Information Ventures, Inc., B-403321, Sept. 27, 2010.

Regulations provide that for most IDIQ contracts:

the contracting officer must, to the maximum extent practicable, give preference to making multiple awards of indefinite-quantity contracts under a single solicitation for the same or similar supplies or services to two or more sources.

FAR 16.504(c)(1)(i) (emphasis added). A contracting officer can overcome the multiple award preference if, for example, "[m]ultiple awards would not be in the best interests of the Government." FAR 16.504(c)(1)(ii)(B)(6). The contracting officer, however, "must document the decision whether or not to use multiple awards in the acquisition plan or contract file." FAR 16.504(c)(1)(ii)(C).

In the Information Ventures procurement, the CDC was asked during the Q&A process for "the Agency’s well-supported advance justification for a single contract award[.]" The CDC responded by stating:

This is an internal acquisition sensitive document which isn’t releasable, however, the solicitation file contains the proper, comprehensive justification to support the strategy of making a single vs. multiple award.

Solicitation No. 2010-N-12083, Questions and Answers #2, Q&A No. 10, are available here. Because the CDC stated its intention to make a single contract award, but did not disclose the rationale in response to the Q&A, the only way to find out the basis for the determination was to file a pre-award bid protest. (A protest after contract award likely would have been viewed as untimely under GAO protest rules). In this case, the protest showed that CDC had relied on issues experienced in 1988 to justify the single contract award some 20 years later. And GAO did not buy it.

CDC still may not make multiple awards after the corrective action. However, Information Ventures shows that the pre-award protest process can be used to help increase competition and transparency.

Ban on Text Messaging while Driving

Kenneth B. Weckstein (kweckstein@brownrudnick.com) — Wed, 29 Sep 2010 15:33:48 -0400

The Government uses the award of contracts to implement important social policies. Contractors know that as a condition to receiving Government contracts they often must have affirmative action plans, provide United States made products and strive to use small business subcontractors. Bribery and pollution also are no-no's. Now, add to the list of prohibited practices--text messaging while driving. Texting while driving is no joking matter, but still, prohibiting it by contract does sound like a joke. Eating while driving. OK. Putting on make-up while driving. No problem. Reading the newspaper (remember those) while driving. Go for it. Texting while driving. Breach of contract.

The September 29, 2010 Federal Register set forth the new interim rule. It applies to solicitations issued and contracts awarded on or after September 29, 2010. It includes a new contract clause at FAR 52.223-18 titled "Contractor Policy To Ban Text Messaging While Driving (Sep 2010)". The clause states, in part: "(c) The Contractor should--(1) Adopt and enforce policies that ban text messaging while driving--(i) Company-owned or -rented vehicles or Government-owned vehicles; or (ii) Privately-owned vehicles when on official Government business or when performing any work for or on behalf of the Government." Note the little semi-colon after "Government-owned vehicles in (c)(1)(i). That means that when a company has a Government contract, it is agreeing that there can be no texting while driving company cars--even if the company cars are not being used for Government business. And note the "or" between (c)(1)(i) and (c)(1)(ii). Does that mean that the contractor has the choice of banning texting while driving in either 1. company owned vehicles, or 2. privately-owned vehicles used to perform Government business? I don't think so. Contract attorneys love those little contract interpretation issues.

The repercussions of the new clause could be far reaching. If a contractor fails to adopt "and enforce" policies that ban text messaging while driving and if an employee texts whiles driving and causes an accident, there will be fall-out. Anyone injured by the accident will have additional ammunition to sue the company for negligence. And, the Government will have remedies against the contractor for breach of contract.

The rule is effective immediately but comments can be submitted on or before November 29, 2010.

Websites - Countdown to CAP Code Compliance

Wed, 29 Sep 2010 11:45:14 -0400

Website owners have been given six months to comply with the rules in the UK Code of Non-broadcast Advertising, Sales Promotion and Direct Marketing (the "CAP Code").

As of 1 March 2011, the CAP Code will apply to advertisements and other marketing communications by or from companies, organisations or sole traders on their own websites, or in other space online which has not been paid for but which is under their control (including advertising on social networking websites), that are directly connected with the supply or transfer of goods, services, opportunities and gifts, or which consist of direct solicitations of donations as part of their own fund-raising activities.

For more information, please click here.

DOL Regulations for Disclosing Hidden Fees

Tue, 28 Sep 2010 14:36:34 -0400

Interim Final Regulations released by the Department of Labor require companies that provide services to employee retirement plans to disclose all fees, including hidden fees, related to those services.

On July 15, 2010, as part of an ongoing effort to increase transparency in plan-related fees and expenses, the Department of Labor ("DOL") published interim final regulations which require companies that provide services to retirement plans to disclose all fee information, including hidden fees, relating to those services. In addition, the rules provide fiduciary relief for a plan fiduciary who reasonably believes that the disclosure rules have been complied with, provided that it promptly requests any missing information upon discovery of noncompliance and notifies the DOL where appropriate. While these rules do not address disclosure to plan participants, they are intended to better equip a plan fiduciary in determining the reasonableness of service provider contracts.

For more information, please click here.

New Bills Make Significant Changes to Massachusetts Employment Laws

Tue, 28 Sep 2010 14:32:46 -0400

Last month, Governor Deval Patrick signed into law bills that significantly amend the Massachusetts Personnel Records Statute, limit what information an employer may seek on a job application, and narrow the criminal record information available through the Massachusetts Criminal Offender Record Information (CORI).

For more information, please click here.

Senate Considers Bill to Require Debarment of Government Contractors Who Violate FCPA

Tue, 28 Sep 2010 14:27:13 -0400

The Overseas Contractor Reform Act of 2010 ("OCRA") has been passed by the House and submitted to the Senate Committee on Homeland Security and Government Affairs for consideration. It was introduced earlier this year by Rep. Peter Welch (D-VT) in response to reports that Blackwater USA continued to perform U.S. government contracts after paying $1 million in bribes to Iraqi officials in connection with the 2007 Nisour Square shootings in Baghdad. The OCRA would automatically debar from federal contracting anyone "found to be in violation of" the Foreign Corrupt Practices Act ("FCPA"), which prohibits the payment of bribes to foreign officials and requires covered businesses to maintain accurate books, records and internal controls.1 The OCRA also provides that the head of a federal agency may waive the automatic debarment requirement, provided that any such waiver is reported to Congress with "accompanying justification."

For more information, please click here.

Guidance on Healthcare Reform Requirements is Being Offered for Employers

Tue, 28 Sep 2010 14:11:32 -0400

September 23, 2010 marks the six-month anniversary of the enactment of the new health care reform, the primary purpose of which is to require every American to have healthcare coverage by 2014. It is also the date that several key provisions of the law will take effect. We are pleased to share with you the first alert in our Healthcare Alert Series which we hope will serve as useful references on employer compliance requirements and the healthcare reform initiatives that are the cornerstone of the new health care reform.

For more information, please click here.

Akzo Nobel Ruling

Tue, 28 Sep 2010 13:48:35 -0400

European Court of Justice confirms that privilege does not apply to in-house lawyers under EU competition law.

The week of 13 September, 2010, the European Court of Justice (ECJ) handed down judgment in the Akzo privilege case, confirming that legal professional privilege does not apply to protect communications between parties and their in-house lawyers from disclosure during competition investigations by the European Commission (Akzo Nobel Chemicals Limited and Akcros Chemicals Limited v Commission of the European Communities).

For more information, please click here.

Summary of Dodd-Frank Compensation Provisions Applicable to Non-Financial Companies

Tue, 28 Sep 2010 13:41:34 -0400

The SEC must implement rules requiring the following (no specific timeframe given):

Executive Compensation Disclosures.

The SEC must require each issuer to disclose in any proxy statement for an annual meeting a clear description of any compensation required to be disclosed, including information (graphic or otherwise) that shows the relationship between executive compensation actually paid and the financial performance of the issuer, including any change in the value of the Company's shares, dividends and distributions. The SEC must also require disclosure of (i) the median annual total compensation of all employees, except the CEO, (ii) the annual total compensation of the CEO, and (iii) the ratio of the median employee annual total compensation to that of the CEO.

For more information, please click here.

Vodafone: Bombay High Court Ruling Impacts Transactions with Entities Indirectly Holding Assets in India

Thu, 23 Sep 2010 11:13:12 -0400

On September 8, 2010, the Bombay High Court held that the Indian Income Tax Department ("ITD") has jurisdiction to impose capital gains tax on the sale of shares in a Cayman Islands-based holding company that indirectly held an interest in a company with assets and operations in India.

For more information, please click here.

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.