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

By Peter Menard

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) became law on July 21, 2010. A primary purpose of the Act is to further incentivize whistleblowers to report potential violations of federal securities laws, including the Foreign Corrupt Practices Act (“FCPA”), to the SEC. Section 922 of the Act requires the SEC to pay whistleblowers an award, between 10-30%, for original information about a violation that leads to a successful action resulting in monetary sanctions exceeding $1 million. The Act therefore provides yet another set of liabilities for government contractors doing business internationally, and creates a whole new class of would-be private attorneys general attempting to enforce the FCPA.

For a further discussion of the Act and its implications, click here to read Sheppard Mullin partner Peter Menard's recently published article, "The Dodd Frank Act: A Guide to the Corporate Governance, Executive Compensation, and Disclosure Provisions."  This article appears in Business Law News, Published by the Business Law Section of the State Bar of California.

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By Lucantonio N. Salvi and Marko W. Kipa

A government contracts due diligence encompasses a broad range of statutory, regulatory, and contractual issues. One issue that we always consider is compliance with the Anti-Assignment Act (the “Act”), which prohibits the transfer of a government contract to a third-party. While the Act does not strictly apply to subcontracts, we nevertheless must review them, as well as other agreements (such as teaming agreements), for contractual anti-assignment provisions. This review was facilitated in the past by the widely held view among practitioners that a stock purchase or reverse triangular merger, without more, does not generally result in an assignment and therefore does not require the counterparty’s consent. This is particularly relevant since most sales and purchases of government contractors are structured as stock purchases or reverse triangular mergers (i.e., an acquisition structure in which a subsidiary of the buyer merges into the target company and the target company becomes a wholly-owned subsidiary of the buyer once the merger is consummated).  In both cases, the separate corporate identity of the target company is preserved, and the parties generally avoid the need to obtain Government consent to novate government contracts held by the target company.  The traditionally prevalent view even finds support under federal case law in the context of government contractors. See Appeals of Newport News Shipbuilding & Dry Dock Co., ASBCA Nos. 44731, 44826, 97-1 BCA ¶ 28,835 (holding, among other things, that reverse triangular mergers are stock purchase transactions where the acquired corporations retain their separate corporate existence and in which the acquired company’s contracts are in most cases unaffected).
 

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By Curt Dombek, Thad McBride and Mark Jensen

In a significant step in the reform of U.S. export controls, the Department of Commerce issued a proposed rule on Friday, July 15, 2011, that would fundamentally affect the overlap between, and operation of, the International Traffic in Arms Regulations (“ITAR”) administered by the U.S. Department of State, Directorate of Defense Trade Controls, and the Export Administration Regulations (“EAR”) administered by the Department of Commerce, Bureau of Industry and Security. See Proposed Revisions to the Export Administration Regulations (EAR): Control of Items the President Determines No Longer Warrant Control Under the United States Munitions List, 76 Fed. Reg. 41,958 (July 15, 2011) (amending 15 C.F.R. Pts. 730, 732, 734, 738, 740, 742, 743, 744, 746, 748, 756, 762 ,770, 772 and 774). The changes, which are based on the interagency review of the U.S. export control system that was initiated by President Obama in August 2009, would create a regulatory construct for harmonizing the United States Munitions List (“USML”) of the ITAR and the Commerce Control List (“CCL”) of the EAR, as well as standardizing certain key definitions between the two regulatory systems.
 

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