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

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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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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