Government Contracts Lawyer & Attorney : Sheppard Mullin Law Firm : Bids, Licenses, Awards, Conflict of Interest.

Introduction

By John W. Chierichella

In an August 2007 article entitled "Political Connections and the Allocation of Procurement Contracts," Eitan Goldman, Jorg Rocholl and Jongil So constructed an analytical model that, in the authors' opinion, establishes an empirical link between "political connections" and the allocation of Government contracts.  The authors' conclusions are perhaps best encapsulated by the following passage from page 4 of their study:

…companies that are connected to the winning party experience an increase in their contracts upon a change in control of the House or Senate or upon a change in control of the administration, while those connected to the losing party suffer a decrease in their procurement contracts following these changes … The paper thus highlights one crucial way in which political contributions can have a direct influence on company value.

Readers are, of course, free to agree or disagree with the study, to disregard it, or to attack it premises and methodologies.  The fact that the study exists, however, is probably reflective of an increasing cynicism with respect to the operation of Government as a whole.  Those who have worked with the Government procurement system, whether as participants, advisors, or counselors, while no less cynical than the population as a whole – and perhaps more so in some respects – are not likely to embrace or applaud the study, or to compliment its methodological approach to a highly complex issue.

In this latter regard, we are pleased to provide in this issue a Guest Commentary relating to the above-referenced study.  Our Guest Commentator needs no introduction to those whose Government Contracts experience predates the advent of cell phone technology, the internet and MTV.  William P. Rudland is the former Chief Trial Attorney of the United States Air Force.  Following his retirement from the Air Force, Bill practiced Government Contracts law, both in private practice and in the corporate world, and authored the well known book "Defective Pricing" (Federal Practice Press, 1990).  Bill's comments on the study are as refreshingly candid as those he reserved for unmeritorious appeals in his prior life.

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In March 2008, the U.S. Department of Justice ("DOJ") issued guidelines for the selection, scope of duties, and duration of corporate monitors in cases of deferred prosecution and non-prosecution agreements.  Although such agreements have become increasingly common, the process pursuant to which monitors are selected has recently drawn scrutiny in the wake of a no-bid, multi-million dollar monitoring contract awarded to the consulting firm of former Attorney General John Ashcroft, which was selected for the assignment by a former colleague of Mr. Ashcroft who worked under him when he headed the DOJ.  The ensuing controversy has prompted the DOJ to announce nine principles for the appointment and use of corporate monitors.  Foremost among these is sensitivity to conflicts of interest, nomination of the monitor by an ad hoc committee in the office negotiating the agreement, and approval by the Deputy Attorney General.  Other principles stress the monitor's primary responsibility to "address and reduce the risk of recurrence of the corporation's misconduct" through involvement with crafting the corporation's internal controls and compliance programs and familiarity with the "full scope of the corporation's misconduct."  All the while, the monitor should remain in "open dialogue" with the Government and the corporation and keep the former apprised of the latter's amenability to the monitor's recommendations.  Depending on the particular circumstances of a case, a monitor may be required to report undisclosed or new misconduct to the Government and should be prepared to remain in place if, "at the discretion of the Government," the corporation has not complied with the agreement to the Government's satisfaction.

Click here for the DOJ's memorandum on the selection and use of monitors in deferred prosecution agreements and non-prosecution agreements.

Authored by:

Daniel J. Marcinak

202.772.5391

dmarcinak@sheppardmullin.com

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• Check, is the patent rights clause in your RFP?
• Should it be?
• The clause gives government rights in "subject inventions."
• You have a "subject invention" if:
  • It is "conceived" or "reduced to practice" during contract performance;
  • And there is a "close" relationship between invention and SOW;
  • Or you can't prove otherwise - record keeping is all important
• You may have a "subject invention" even if:
  • You filed your patent application before contracting;
  • Your invention cost was properly charged to IR&D
• You must disclose a "subject invention" within:
  • 2 months of your internal "invention" report; or
  • 6 months of learning of the "invention."
• Disclosure is required for "inventions" - this means inventions that "are" or "may be" patentable.
• Failure to timely disclose can result in your forfeiture of all rights.
• "Subject inventions" cannot be exclusively licensed for foreign manufacture.

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Disappointed bidders intent on protesting an allegedly improper contract award could pursue traditionally two avenues of potential relief.  They could file a post-award bid protest either:  (1) at the Government Accountability Office ("GAO") within 10 days of when they learned of the protest grounds (or, where competitive proposals were involved, within 10 days of the requested and required debriefing), or (2) at the United States Court of Federal Claims ("Court of Federal Claims" or "COFC"), constrained primarily by the Court’s 6-year statute of limitations.  While disappointed bidders may retain ultimately the discretion to choose the forum of their choice, protests at the Court of Federal Claims outside of the 10-day period after contract award (or after a requested and required debriefing) are in danger of becoming an artifact of the past.  This potential change to the post-award bid protest jurisdiction of the Court of Federal Claims is one that every contractor should be watching closely.

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The Court of Federal Claims' most recent decision in Axiom Resource Management v. United States, 2008 WL 541675 (Feb. 26, 2008) ("Axiom II"), suggests that extended judicial oversight of contract administration functions may be a viable bid protest remedy, particularly in the context of organizational conflicts of interest (OCIs).  The case also highlights the importance of preparing and implementing an OCI mitigation plan that will withstand rigorous judicial scrutiny, during the proposal phase, so that the Government's and the offeror's apparent front end indifference to the issue of OCIs does not jaundice the court's views with respect to their willingness or inclination rigorously to implement a mitigation plan to which they were dragged "kicking and screaming."

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On February 27, 2008, the Senate Judiciary Committee held hearings debating whether the civil False Claims Act, 31 U.S.C. §§ 3729-3733, should be expanded – potentially creating additional liability for companies receiving any government money, reducing the ability of any such company to defend itself against claims of fraud, and creating significant hurdles for companies in defending themselves against mere allegations of fraud by "whistleblowers" from the company and within the Government.  When the Department of Justice testified before the Committee, the DOJ indicated that it did not support the legislation as currently drafted, noting that there was "no pressing need" for changes to the FCA at this time despite the fact that the proposed legislation would provide greater opportunities for the DOJ to recover allegedly fraudulent payments to contractors.  The DOJ’s objections, however, which are outlined below, are limited in scope.

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A government contractor participating in an acquisition transaction must comply with both commercial and government-specific regulations. And there are numerous issues unique to government contractors that threaten a successful closing. If not identified or mitigated in a timely fashion, a contractor might unknowingly assume liabilities or fail to consummate the deal altogether. One issue involves the transfer of government contracts, which generally requires the government's consent, or a "novation." If the contractor does not novate the contract in accordance with designated rules, a buyer faces the possibility that its newly acquired contracts will be terminated for default. This could leave the contractor without the benefit of its bargain and with a "scarlet letter" on its record. While several exceptions to the general rule prohibiting the sale or transfer of government contracts have been carved-out in applicable regulations and case law, there are also structural alternatives available to the contractor that may not be so obvious. It is imperative that these options be considered and evaluated in order to attain the contractor's specific needs and expectations.

Click here to view a PDF copy of the article.

Authored by:

Marko W. Kipa

(202) 772-5302

mkipa@sheppardmullin.com

and

Lucantonio Salvi

(202) 218-0004

lsalvi@sheppardmullin.com

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• Do understand the OCI rules and the different categories of OCIs.
• Do be particularly attuned to "impaired objectivity" OCIs.
• Do think broadly - OCIs are created at a company-wide level, not simply a division or sector level.
• Do consider the long-range business plan for a particular procurement; be aware that winning a small, preliminary award could create conflicts on a massive, future award.
• Do be aware of the potential restrictions on follow-on contracts that may accompany SETA work.
• Do not simply ignore an institutional competitive advantage when preparing a proposal.
• Do ensure that every proposal considers and, as required, implements an OCI mitigation plan.

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In a recent issue of our Blog, we reported on the new FAR requirements relating to the development and implementation of contractor ethics and compliance programs.  We are pleased in this issue to have been authorized by PriceWaterhouseCoopers to provide you with a reprint of its recent "A&D Technical Alert" relating to this issue.  The Alert, click here, includes PWC's principal points of contact on the issue -- Jim Thomas and Joe Barsalona -- and a link to the PWC site.

Our thanks to Jim, Joe and their colleagues for allowing us to provide their insights on an important development to readers who may not have received the original PWC distribution.

To learn more about PricewaterhouseCoopers please visit their website at www.pwc.com.

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