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

By: Marko W. Kipa

The United States Court of Federal Claims recently reaffirmed the applicability of two exceptions to the Anti-Assignment Act (the “Act”). Liberty Ammunition, Inc. v. United States, 2011 WL 5150221 (Fed. Cl. Oct. 31, 2011). Specifically, the Court acknowledged that (1) the Government may prospectively waive the Act, and (2) the Act does not prohibit the transfer of an agreement where the transfer occurs by operation of law. Id. at *6-8. Notably, the Court’s decision provides further guidance for contractors undertaking corporate reorganizations and/or examining whether a particular acquisition transaction requires the execution of a novation agreement. We previously discussed the novation requirements here.

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On May 24, 2011, one of our Government Contracts lawyers, Marko W. Kipa, was interviewed by host Roger Waldron on Federal News Radio’s (Washington 1500AM) Off The Shelf – a weekly radio program devoted to topics of interest to the government contracting community. The interview focused on key issues facing government contractors when assessing an acquisition transaction and conducting a due diligence. Among other things, Marko discussed the risks associated with various contract types, small business contracts, the Anti-Assignment Act / Novations, the Mandatory Disclosure Rule, Organizational Conflicts of Interest, and foreign investors. In addition, Marko discussed recent regulatory changes impacting government contractors and due diligence best practices.

Click here to listen to the full interview.

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By Marko W. Kipa

After an unsuccessful bid protest, many contractors assume that their chance at getting a piece of the action has passed. They assume that they have exhausted their remedies and that all of the spoils inevitably will go to the victor. They let bygones be bygones and move-on to the next capture opportunity and ignore their competitor’s performance under the awarded contract. 
 

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By Alexander W. Major

Effective October 1, 2010, the final rule amending FAR subpart 15.4 expands government contracting officers’ ability to obtain cost or price-related data for all contracts, including currently exempted commercial-items contracts. The amended rule is intended to clarify the FAR’s definition of “cost or pricing data” and to make the definition consistent with that used in the Truth in Negotiations Act (“TINA”) (10 U.S.C. §2306a and 41 U.S.C. §254b). The final rule’s effect, however, may increase both a government contractor’s disclosure requirements and its False Claims Act vulnerability.
 

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By Alexander W. Major

After a decade of increasing appetite for defense dollars, the Pentagon appears to have stepped on a scale and decided to make some changes. Following-on from the Department of Defense’s June 2010 announcement regarding changing its procurement business models, Defense Secretary Robert Gates and Under Secretary of Defense for Acquisition, Technology and Logistics, Ashton Carter, recently unveiled their proposed procurement changes intended to redirect $100 billion over the next five years. Like the lifestyle changes made by contestants on television’s “The Biggest Loser,” the proposed measures, referred to collectively as a “wide ranging Efficiencies Initiative,” are an attempt to demonstrate to Congress that the Department can trim the fat, tighten the belt and use its hefty $700 billion annual budget in a healthier way.
 

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Sheppard Mullin was recently given a Silver Award 2010 for Best USA Law Firm in the category of Public Procurement, Public Law and Government Relations presented at the International Legal Awards 2010 in Paris on June 3, 2010.  The award recipients are selected by a jury of recognized leading General Counsels in each of twenty-eight categories and the event is organized by, among others, the Association of Corporate Counsel, the International Legal Alliance Summit, The Canadian Corporate Counsel Association, All India Bar Association, The European Lawyer, and Leaders' League.  The award recognizes distinguished law firms in various domestic markets for outstanding results achieved in the last calendar year and continuing distinguished performance in management and leadership. The award was presented at an awards dinner and ceremony attended by 500 lawyers, executives, general counsels, and other leading professionals from the legal field from over 40 countries.
 

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By Townsend L. Bourne

In Precision Pine & Timber, Inc. v. United States, 2010 WL 569733 (C.A. Fed. 2010), the United States Court of Appeals for the Federal Circuit articulated an unexpected test for determining when a party to a contract has breached the implied duty of good faith and fair dealing.[1] The court in Precision Pine found that the U.S. Forest Service did not breach the implied duty of good faith and fair dealing owed to the contractor because the Forest Service’s actions “were (1) not ‘specifically targeted,’ and (2) did not reappropriate any ‘benefit’ guaranteed by the contracts.” This differs markedly from the objective “reasonableness” standard generally used by courts to analyze whether a party has breached the implied duty to cooperate and not to hinder contract performance.
 

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The Obama Administration is now planning yet another spending plan, this time in the form of a policy that actively encourages federal contractors either to increase the pay and benefits extended to their workforces, or to face an evaluative disadvantage in competing for federal contracts. This so-called "High Road Procurement Policy" includes an evaluative reward for "potential Federal contractors that pay wages or provide benefits above those required by our laws," including the Service Contract, the Davis-Bacon, the Walsh-Healey, and the Fair Labor Standards Acts.
 

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There are few things worse for a business than starting the day with FBI agents at the door demanding to search the files and computers with a search warrant in hand. Matters have not improved for businesses in the last ten years.  Courts have struggled with balancing the government's interest in discovering evidence of a crime before it is possibly destroyed by the target of a criminal investigation, and the Fourth Amendment right against unreasonable searches and seizures. This balancing of competing priorities is even more difficult now that the majority of business records are in electronic format, which makes an on site review for material covered by the search warrant virtually impossible.  Consequently, the government has been obtaining search warrants that allow entire computer files and email communications to be copied, and then seized in their entirety by the government. Needless to say, such an unbridled search without reasonable constraints is tantamount to a "general warrant" that is expressly prohibited by the Fourth Amendment.
 

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Nearly one year ago on February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (Pub. L. No. 111-5), more commonly known as the Stimulus Act, the Recovery Act, or ARRA. One of the key features of the Act included a "Buy American" requirement, requiring domestically manufactured "iron, steel, or manufactured goods" to be used in Recovery Act funded projects (located at Section 1605 of the Act). This requirement has proven to be a collossal headache for vendors supporting Recovery Act projects and has also proven to be immensely complicated for the good men and women in Government (including those at the State and local levels), who are faced with the task of figuring out how, where, and when the Recovery Act Buy American requirement applies. 
 

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The intrusive nature of the oversight mechanisms that are available to the Government under the Recovery Act is unprecedented in federal contracting. It is a subject that has been dealt with previously in this blog (click here, here, here and here). For a useful PowerPoint summary of these mechanisms, click here. This link was used as the basis for a presentation at the recent 16th Annual Procurement Institute in which the acceptance of ARRA dollars was said to evoke memories of a 1959 movie starring James Cagney and Don Murray entitled "Shake Hands With the Devil." We leave it to you to decide if the title is apt.
 

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As though the risks inherent in a merger or acquisition were not enough to turn any business person prematurely gray, when one or both of the entities in play are federal contractors, the risks become even greater. One of the primary sources of these additional risks is the federal Government’s novation rules. Anyone looking to buy or sell a federal contractor must be familiar with these rules, which are set out at FAR 42.1204. 
 

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Effective January 1, 2010, the U.S. Trade Representative (USTR), Ronald Kirk, published new dollar thresholds determining the applicability of the Buy American Act (BAA), the Trade Agreements Act (TAA), and (potentially) other "Buy American" preferences to the United States' various international free trade agreements. See 74 Federal Register 68907 (December 29, 2009). The changes to the dollar thresholds are effective through the end of 2011, so it is doubtful that we will see any additional escalation until 2012. 
 

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In October, the United States Senate, by a 68-30 vote, approved an amendment to the Department of Defense (“DoD”) appropriations bill for fiscal year 2010 which prohibits the use of appropriated funds, if such funds are to be paid to any contractor or subcontractor, at any tier, which requires its employees or independent contractors to resolve certain claims through arbitration. The amendment, which passed despite DoD objections, was introduced by Sen. Al Franken (D-MN) (the “Franken Amendment”).
 

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In Teknowledge Corp. v. U.S., Fed. Cir., No. 2009-5053, 11/03/09, the U.S. Court of Appeals for the Federal Circuit affirmed a decision by the Court of Federal Claims (COFC) that software development costs were not allocable to the Government because the Government did not receive a benefit from the costs.  Earlier this year we wrote about the potential implications of the COFC's decision.
 

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The final rule mandating E-Verify for federal contractors became effective on September 8, 2009. The lawsuit that stayed implementation of E-Verify since January ended with the district court’s granting of the Government’s motion for summary judgment. As long as Congress continues to fund E-Verify, it should remain a permanent fixture of federal procurement.

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In early July, we discussed that fact that Taiwan would soon be an approved country of origin for purposes of the Trade Agreements Act.  This was, in our view, good news and a welcome development.

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Even experienced contractors can find themselves in unfamiliar waters when delving for the first time in the world of government contracts. In many cases, the first step for a commercial company may be acting as a subcontractor (the "Subcontractor") for another company (the "Prime") that is contracting directly with the Government. Even though the Subcontractor's contract is with the Prime and not the Government, certain federal regulations and policies may still apply and place obligations on the Subcontractor. For various reasons, including promoting federal policy and protecting itself contractually, the Government may require that certain clauses included in its contract with the Prime also be included in the subcontract between the Prime and Subcontractor. Similarly, the Prime, for reasons of consistency, to ensure that the Subcontractor's performance will allow the Prime to meet its own contractual requirements, or to protect itself, may include provisions from the prime contract in the subcontract. Such clauses are colloquially known as "flowdown" clauses.
 

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The civil False Claims Act (FCA) prohibits using false statements related to a false claim. (Other types of FCA liability include presenting a false claim, concealing an obligation to pay money to the government, and conspiring to violate the FCA.) In the recent FCA amendments, Congress explicitly added materiality as an element of FCA false statement liability.  Not surprisingly, it also adopted a weak, pro-plaintiff definition: materiality means “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.”
 

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Congress recently expanded contractors’ liability under the civil False Claims Act (FCA). The substantive changes include eliminating the presentment requirement, adding liability for claims seeking non-United States funds, expanding the scope of reverse false claims and conspiracy liability, and eliminating the intent requirement for conspiring to violate the FCA and for using false statements material to a false claim.
 

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I.  INTRODUCTION

Without a doubt, the False Claims Act ("FCA") has been dramatically changed in the last few months. As will be discussed in more detail herein, it certainly appears that the FCA has been retooled so that the playing field is now stacked in favor of the government and qui tam plaintiffs. There is also every indication that lenders who have federally insured mortgages, redevelopment funding, or other financial support from the government, are at risk of being sued for false claims unless they take certain precautions to educate and protect themselves.

In fact, it is a good idea for all companies who receive government funding (e.g., defense contractors, health care providers, academic institutions) to look closely at their internal compliance programs, and modify them to reflect the recent changes in the FCA. This article is intended to offer some specific suggestions, and also encourage companies to have their programs amended, and implemented by legal counsel who are receptive to flexible billing arrangements including flat fee schedules.
 

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With the elimination of the IR&D and B&P ceiling a decade or so ago and the recognition of “dual use” technologies as appropriate subjects of IR&D, contractors have tended to place questions relating to the allocability of IR&D on the back burner. True, the old concurrency issue remained, but allocability seemed to be relatively non-controversial. Based upon a COFC decision issued earlier this year -- and to quote Bob Dylan -- “The times they are a changin.’”
 

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In November 2002, the FAR Councils eliminated the so-called "paid cost" rule from the FAR, which had previously prevented federal prime contractors other than small businesses from recognizing incurred subcontractor costs for purposes of progress billing until "payment by cash, check, or other form of actual payment" had actually been made. See 67 Federal Register 70520 (Nov. 22, 2002). The Government form used to request progress payments, the Standard Form (SF) 1443, Request for Progress Payments, implemented the paid cost rule by requiring large contractors to identify "paid costs eligible under progress payments clause" (Line 9) and "incurred costs eligible under progress payments clause" (Line 10). See FAR 53.301-1443 (2008) (last updated in October 1982). Bizarrely, however, when the paid cost rule was eliminated in 2002, the SF 1443 was not updated to remove these two lines. Now -- a mere six years and eight months since the elimination of the paid cost rule -- the FAR Councils have finally issued a revised SF 1443, removing Lines 9 and 10 and thereby eliminating the last vestiges of the long-defunct rule. See 74 Federal Register 28430 (Jun. 15, 2009).
 

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• Seven Years After the Fact">Share Link

On June 16, 2009, Taiwan (aka Chinese Taipei) took the penultimate step in acceding to the World Trade Organization's Government Procurement Agreement (WTO GPA), which will eventually grant Taiwan "free trade partner" status under the Federal Acquisition Regulation (FAR) and allow companies selling to the U.S. Government to deliver products that are manufactured in Taiwan. The accession process is expected to be complete by July 15, 2009. After that date, and once the FAR is updated accordingly, "Made in Taiwan" will finally be an approved country of origin for products and services delivered to the U.S. Government.
 

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• China Continues to Dawdle

  Costa Rica, Peru, and Oman also Recognized

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On May 19, 2009, the Federal Circuit in Secretary of the Army v. Tecom upheld the contracting officer’s disallowance of a contractor’s legal costs and settlement expenses in a sexual harassment and retaliation action brought under Title VII. The opinion is sweeping, and appears to extend the holding in Boeing North American, Inc. v. Roche, 298 F.3d 1272 (Fed. Cir. 2002) to almost every instance in which the contractor elects to settle in lieu of litigating cases to a conclusion.
 

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In McDonnell Douglas Corp. v. United States, Civil Action No. 2007-5111-5113 (Fed. Cir. June 2, 2009), the Federal Circuit, after more than a decade of A-12 litigation, upheld a termination for default, finding that the Government was justifiably insecure about the contract's timely completion. The Court's opinion articulates the sustainable rationale for a default termination when there is no firm contract end date or set delivery schedule.
 

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The influential inside-the-Beltway newspaper and website Politico "reports" in its May 26th edition that, as the Administration is "following through" on its campaign pledge to cut wasteful Pentagon spending, it is finding that "the price is high." Politico, May 26, 2009 at 14. Well, OK, as a well worn bumper sticker says “Choices have consequences,” and the choice to cancel a contract is no exception to that rule. But the story's headline and subheadline presage Politico’s insidious and inaccurate message:
 

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For the third time, the Government has agreed to delay the mandatory implementation of E-Verify for government contractors. They will not have to comply with E-Verify until June 30, 2009, when contracting officers can begin inserting FAR clause 52.222-54. Employment Eligibility Verification, into solicitations and contracts. 74 Fed. Reg. 17793.

E-Verify has been pushed back once already as a result of a lawsuit in federal district court filed by the U.S. Chamber of Commerce and other parties. As this Blog has previously reported, the plaintiffs challenge the mandatory use of E-Verify for government contractors by means of an Executive Order despite statutory language making its use voluntary. Plaintiffs moved for summary judgment, and the court agreed to a Government request to stay proceedings while the new Administration assesses the new rule.
 

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The Congressional Research Service has recently published a useful and thought-provoking report on the potential Government-wide impact of the Federal Circuit’s November 4, 2008 decision in Rothe Development Corporation v. Department of Defense, 545 F.3d 1023 (Fed. Cir. 2008). Although we have previously reported on Rothe as it wound its way through the courts click here and here, the CRS Report provides a comprehensive litigative history of Rothe that is often lacking in piecemeal reports relating to the latest developments in that decade-long saga. It also assesses the potential impact of Rothe on a host of federal contracting programs designed to promote the participation of disadvantaged small businesses in the federal procurement process and, including SBA’s 8(a) Program, and on contracting assistance programs for women-owned businesses. While concluding, with suitable caveats, that few if any of these programs are likely to succumb to a Rothe-like attack, the report notes that cases like Rothe “place an increasingly heavy evidentiary burden on Congress,” that the courts’ traditional “deference to congressional authority has eroded over the years,” and that “Congress must now support any race-conscious measures by developing a strong record, as demonstrated in hearings and legislative findings, of methodologically sound, broad statistical evidence of discrimination capable of withstanding searching judicial inquiry.” The report is well worth the time it will take you to read it.

Authored by:

John W. Chierichella

(202) 218-6878

jchierichella@sheppardmullin.com

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Currently before Congress are at least two bills that could significantly increase government contractors’ liability and strengthen whistleblowers’ power to sue on behalf of the government. Senators Chuck Grassley (R-Iowa) and Patrick Leahy (D-Vermont) are spearheading a bipartisan effort to revise the False Claims Act (FCA), the government’s primary tool to recover damages for fraud related to government contracts. Under the FCA, the government may recover treble damages for false claims in addition to a $5,500 to $11,000 penalty per claim. The qui tam provisions of the FCA permit whistleblowers (called “relators”) to sue on behalf of the government and receive up to 30 percent of the government’s total recovery. Since 1986, the government has recovered over $22 billion through the FCA.

Both Senate bills would overturn court decisions that the sponsors (and the plaintiffs bar) allege were too friendly to contractors. The first bill, the Fraud Enforcement and Recovery Act of 2009 (FERA), would expand FCA liability, particularly for subcontractors. The second bill, the False Claims Act Clarification Act of 2009 (FCACA), would eliminate the public disclosure defense and give relators new procedural advantages. Interestingly, as we discussed here, the Department of Justice (DOJ) is already on record questioning the need for some of these provisions in earlier proposed legislation.
 

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In United States v. Hoffman, 556 F.3d 871 (2009), the appellate court upheld a gratuities conviction based on an indictment alleging that the defendant had given a Government employee a set of golf clubs for or because of that Government employee’s role in rating the contractor’s performance under a contract with the United States Army Corps of Engineers. The court’s opinion illustrates a number of key points regarding the gratuities statute and the types of conduct that create the risk of a gratuities violation.
 

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The Government Accountability Office (“GAO”) denies more than three quarters of all bid protests decided on the merits. Certain categories of protests, however, tend to be more successful than others. 

Three of our Government Contracts lawyers – Keith Szeliga, Marko Kipa, and Daniel Marcinak – recently published an article that assists protestors in identifying such allegations. Among other things, the article analyzes the most common categories of successful bid protest grounds and describes the circumstances under which each ground is likely to prevail. With permission of Briefing Papers, the article is reproduced in full in this issue of our blog. 

Click here to view a PDF copy of the article.

Authored by:

Keith R. Szeliga

(202) 218-0003

kszeliga@sheppardmullin.com

and

Marko W. Kipa

(202) 772-5302

mkipa@sheppardmullin.com

and

Daniel J. Marcinak

202) 772-5391

dmarcinak@sheppardmullin.com

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In his first month of office, President Obama issued three significant Executive Orders affecting employees of government contractors.  Revoking several Bush administration Executive Orders, the three new orders demonstrate a dramatic shift in federal labor policy.
 

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On November 4, 2008, the U.S. Court of Appeals for the Federal Circuit issued an opinion in Rothe Development Corporation v. Department of Defense, holding that a statute providing for race-based preferences in DOD procurements was unconstitutional.  We discussed this decision previously when it was released, noting that the ultimate consequences of the decision were uncertain.  We observed that the procedural time limits allowing appeal needed to pass before anything would be considered “final.”  Now that it seems that the Government is not appealing the Federal Circuit’s decision to the U.S. Supreme Court, District Judge Xavier Rodriguez (the original judge from the Western District of Texas) issued an Order on February 26, 2009 enjoining in whole the enabling statute at 10 U.S.C. § 2323, not merely those portions of the statute that relate to race-based preferences.
 

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Since the FAR Council’s November 2008 publication of new regulations mandating the disclosure by federal contractors of certain categories of wrongdoing and Government overpayments, there has been much ink spilled by lawyers, consultants, and the Government itself regarding what it all means.  The lack of clear definitions in the rule – notwithstanding the accompanying pages and pages of purported helpfully commentary – has provided ample opportunity for discussion, analysis, and conjecture regarding what the rule requires and what contractors should do to stay compliant.
 

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On January 15, 2009, the FAR Councils issued the final rule implementing the provision of the Trafficking Victims Protection Reauthorization Act of 2005 ("TVPA") 22 U.S.C. § 7104(g).  The final rule is implemented by FAR 52.222-50 entitled “Combatting Trafficking in Persons.”
 

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Mandatory implementation of E-Verify by government contractors – which was originally scheduled for January 15, 2009 and postponed until February 20 – has been postponed again in connection with a lawsuit filed by the Chamber of Commerce of the United States of America and its co-plaintiffs in U.S. District Court seeking declaratory and injunctive relief on several grounds. The government has now agreed that contractors need not comply with E-Verify until at least May 21, 2009.
 

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By now, everyone who has even a passing familiarity with the new “Contractor Code of Business Ethics and Conduct” clause that went into effect on December 12, 2008 knows that “internal controls” are important.  In fact, with the stakes under the new clause so high, many government contractor personnel can tell you that, under the clause FAR 52.203-13, they are required to:

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In its 2008 report on the Government’s financial consolidated statements released on December 15, the Government Accountability Office criticized “serious financial management problems at the Department of Defense, the federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and the federal government’s ineffective process for preparing the consolidated financial statements.”  GAO further reported that the Government did not comply “with significant laws and regulations.”  Ironically, this report issued just days after the Government forced all federal contractors to implement their own internal control systems under penalty of suspension or debarment.

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Beginning on January 15, 2009, certain federal contractors will be required to utilize the E-Verify system to assure that employees assigned to work on federal procurement contracts and all new employees are authorized to work in the United States.  E-Verify is an Internet-based employment verification system administered by the Department of Homeland Security (“DHS”) designed to ensure the legal employment status of employees working in the United States.

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On November 4, 2008, the U.S. Court of Appeals for the Federal Circuit issued an opinion in Rothe Development Corporation v. Department of Defense, No. 2008-1017, 2008 WL 4779586, holding that:

• Congress lacked a "strong basis in evidence" of discrimination by the Department of Defense ("DOD") against socially and economically disadvantaged individuals and businesses (referred to collectively as "socially disadvantaged businesses" or "SDBs");
• Lacking a "strong basis in evidence," the race-conscious remedial measures at 10 U.S.C. § 2323 (setting a goal to award at least 5% of annual contracting dollars to small disadvantaged businesses and authorizing certain set-asides for SDBs) were unconstitutional, violating the Fifth and Fourteenth Amendments to the U.S. Constitution guaranteeing equal protection to all citizens under the law; and
• The District Court hearing the case should enter an order declaring that the current 10 U.S.C. § 2323 is facially unconstitutional, and that its further application should be enjoined.

Since federal procurement includes a hodgepodge of "preferences" for small businesses, minority-owned businesses, women-owned business, veteran-owned businesses, service-disabled-veteran-owned businesses, historically underutilized business zone ("HUBZone") businesses, and other small disadvantaged business concerns, the Rothe decision has the potential for a significant ripple effect. Already the "splash" of the Rothe decision is obvious, with news of the recent decision being picked up by bloggers and newspapers alike. However, its ultimate impact remains to be seen and may be overstated by some recent analyses.

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• Disclose attorney-client communications to relatives or friends
• Speak with your attorney (or client) in the presence of third parties
• Use your company's computer to contact your personal attorney
• Tell corporate counsel about conversations with your personal attorney
• Disclose attorney-client communications to your personal accountant
• Disclose attorney-client communications to the company's outside auditors or investment bankers (some courts)
• Give business, not legal, advice
• Share the report of counsel's internal investigation with the government
• Assert advice of counsel defense in litigation
• Designate an attorney as deponent for the company
• Designate an attorney to verify discovery response
• Produce attorney-client privileged communications to an adversary
• Seek a new trial or other relief based upon ineffective assistance of counsel
• Sue your attorney for malpractice
• Sell the company to new owners who may waive the privilege
• Bankrupt or dissolve your company

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On April 30, 2008, the National Defense Industrial Association -- a trade association whose membership includes 1300 defense contractors, many of whom are small businesses -- filed an amicus curiae brief in support of a petition for a writ of certiorari at the U.S. Supreme Court. The amicus brief encouraged the Supreme Court to reverse a September 2007 decision by the U.S. Court of Appeals for the Federal Circuit vacating a $436 million verdict in favor of a victim thrift in a Winstar-related case because the thrift's agreement with the government was tainted from the inception by fraud and misrepresentation. Long Island Savings Bank, FSB v. United States, 503 F.3d 1234. The Federal Circuit held that any agreement with the federal government that is tainted by fraud or misrepresentation or conflict of interest at the outset -- even when the wrongful acts were committed by a rogue employee engaged in illegal acts of self-dealing -- automatically renders the agreement void in its entirety and absolves the government from any responsibility to perform (even though the contractor may have already fully performed under the agreement, and the government may have already received the benefit of the bargain).

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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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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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Recently, the Government has been increasing its enforcement efforts under the Foreign Corrupt Practices Act, announcing that there are 60 active investigations in its pipeline and that five FBI agents have been assigned full time to FCPA enforcement.  In the last two years, more FCPA enforcement actions have been completed than in the prior ten years combined.  FCPA compliance is, moreover, not a “stand alone” issue – increasingly, FCPA have become a focal point in due diligence with respect to M&A activity and the formation of joint ventures, one party to which has historically conducted business in a high risk region.

Click here for a PowerPoint that summarizes some of the principal issues and questions that typically arise under the FCPA.

Authored by:

John Fornaciari

202.218.0009

jfornaciari@sheppardmullin.com

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By John W. Chierichella and Marko W. Kipa
Legal Times
10-08-2007

Reform is not always popular among those who enjoyed the old regime. The current push to strip away protections afforded to contractors participating in commercial-item acquisitions illustrates this struggle - and why the reforms were valuable in the first place.

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For years, in-house counsel have struggled with how best to persuade their clients to establish codes of business conduct, implement training programs, and adopt systems for assessing contract compliance. While the wisdom of all three activities was obvious to lawyers, who have the benefit (or misfortune) of witnessing firsthand the pervasive impact of not doing these things, the message often was lost on revenue-driven sales organizations that could not quite grasp -- or preferred not to grasp -- the ROI of a robust internal compliance program.

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If discretion is the better part of valor, then administrative contracting officers must be feeling less valiant these days. When it comes to penalties for unallowable costs, ACOs and government auditors are beginning privately to admit what many contractors already know from experience – enforcement of FAR 42.709 is on the rise.  This article is designed to clarify some key underlying concepts, to identify major risks – as well as opportunities for their mitigation – and to discuss a few emerging issues.

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