What You Need to Know About Mergers and Acquisitions Involving Government Contractors and Their Suppliers

Volume VII—Investing in Small Businesses

Numerous government contracts programs support small businesses.  There are prime contracts set aside for various categories of small business entities.  Agencies have small business contracting goals and take them very seriously.  Prime contractors often are incentivized, through evaluation factors, to propose significant small business participation.  They can also face liquidated damages for failing to make good faith efforts to comply with their small business subcontracting plans.  These programs promote economic growth by incentivizing investment in small business entities.

The primary obstacle to investing in small businesses, from a government contracts perspective, is that it is quite easy to lose small business size status as the result of a corporate transaction.  The difficulties arise from the doctrine of “affiliation.”

Continue Reading

Price Reductions Are Dead; Long Live Price Reductions

You no doubt have heard by now about GSA’s 23 June effort to “embrace  modern  technology while moving away from outmoded practices” – specifically, its implementation of the new Transactional Data Reporting Rule (“TDR Rule”) and its concurrent elimination of the Price Reductions Clause (“PRC”) and the Commercial Sales Practices Format (“CSPF”).  See 81 Fed. Reg. 41104 (June 23, 2016). The new rule covers certain GSA Multiple Award Schedules as well as the Agency’s GWAC and IDIQ contracts.   As it represents the most significant change to the GSA MAS program since  1994  (when  GSA  removed  federal  sales  as  a PRC trigger), the new rule has the potential to change significantly the way Schedule contractors (and others) do  business;  hence,  my  willingness  to  interrupt  your otherwise enjoyable day with a treatise on GSA Schedule contracting.

Continue Reading

DOJ Rule Increases FCA Penalties to Over $20,000 Per Claim

Effective August 1, 2016, the False Claims Act’s (FCA) civil penalty will double.  As it currently stands, the FCA’s civil penalty ranges from $5,500 to $11,000 per violation.  But as of August 1, the FCA’s civil penalty range will almost double to a minimum of $10,781 and a maximum of $21,563.

The increase is the result of an interim final rule issued yesterday by the Department of Justice.  81 Fed. Reg. 42491 (June 30, 2016).  Although the increase was expected, it still reflects a dramatic increase in risk to those doing business with the federal government.  Health care providers are uniquely at risk, because those entities are often sending thousands of claims to the federal government for reimbursement.  When thousands of claims are at issue, the civil penalty can easily add up.

Continue Reading

U.S. Targets Private Equity Funds for FCPA Scrutiny

The private equity industry is facing increased scrutiny by the U.S. Government for potential violations of the Foreign Corrupt Practices Act (“FCPA”).  The Securities and Exchange Commission (“SEC”) has created a new private fund unit and publicly asserted that it is more closely examining the operations of private equity funds and their portfolio companies.  As with all SEC units, the private fund unit works in conjunction with the U.S. Department of Justice (“DOJ”) criminal and civil fraud divisions.  This increased attention will lead to more investigations, and has enhanced the need for robust FCPA compliance by private equity funds.

Continue Reading

What GSA Can Learn from the National Parks Service

Note: The following post is adapted from the forthcoming 2016/2017 GSA Schedule Handbook, published by ThompsonWest, due out later this year.

Any way you look at it, 2016 will be an interesting year.  You may have heard there is an election on the horizon.  That’s right; in November 2016, U.S. voters will trudge down to their neighborhood elementary schools and community centers to pull the lever (or, far less climactically, tap a graphic on a screen) for their favorite candidate.  As we draft this preface in Washington, D.C. in June 2016, Hillary and Donald are neck in neck for the White House with more than half of all Americans saying they are dissatisfied with both candidates.  This dismal statistic, of course, is consistent with the growing numbers of Americans who say they are dissatisfied with the federal Government (and Congress) generally.

Continue Reading

SEC Steps Up Cybersecurity Enforcement with $1 Million Fine Against Morgan Stanley

The Securities and Exchange Commission’s (“SEC”) recent $1 million settlement with Morgan Stanley Smith Barney LLC (“MSSB”) marked a turning point in the agency’s focus on cybersecurity issues, an area that the agency has proclaimed a top enforcement priority in recent years.  The MSSB settlement addressed various cybersecurity deficiencies that led to the misappropriation of sensitive data for approximately 730,000 customer accounts.

Continue Reading

What You Need to Know About Mergers and Acquisitions Involving Government Contractors and Their Suppliers

Volume VI —Organizational Conflicts of Interest:  When the Whole Is Less Than the Sum of Its Parts

An organizational conflict of interest (“OCI”) arises when the performance of one contract undermines a contractor’s objectivity or creates an unfair competitive advantage with respect to another contract.  An agency cannot issue an award to a contractor that possesses an OCI unless that OCI has been avoided, mitigated, or waived.  Many government contracts include clauses that require contractors to avoid potential OCIs, to notify the Government of any OCIs that arise after award, and to work with the Government to mitigate any such OCIs.  Some contracts also avoid OCIs proactively by precluding the contractor from performing specific types of work.

Continue Reading

FCA’s “Implied Certification” Theory Survives

We previously reported on the viability of the “implied certification” theory of FCA liability based on oral argument before the Supreme Court in Universal Health Services, Inc. v. U.S. ex rel. Escobar.  We concluded that the theory—under which a claim for payment can be false without an express certification, but because the government contractor has not complied with an applicable statute, regulation, or contractual provision—did not appear to be headed for extinction.  It turns out we were right.

Continue Reading

What You Need to Know About Mergers and Acquisitions Involving Government Contractors and Their Suppliers

Volume V—The Land Mines Strewn Throughout the Data Room

M&A transactions, like most transactions in life, involve a cost/benefit analysis.  Some cost/benefit analyses are relatively easy to perform.  For example, if I buy an energy efficient appliance, I can calculate the likely savings in energy costs over the useful life of the appliance (the benefit) and compare it with the acquisition cost of the appliance (the cost).  M&A transactions, of course, involve far more complex cost/benefit analyses.  But the key to any such analysis is the ability to identify and quantify the costs and benefits with some measure of confidence.  Every line of business has its own quirks and idiosyncrasies, and they need to be understood when evaluating the acquisition of a company that operates in that line.  More than most, the business of government contracting is replete with such quirks and idiosyncrasies, and they can have a dramatic effect on the “cost” side of the cost/benefit analysis.

Continue Reading

LexBlog