New Semiconductor Export Controls: Executive Briefing

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Anthony Rapa ●

On October 7, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued sweeping new export controls under the Export Administration Regulations (“EAR”) aiming to cut off support for China’s advanced computing and supercomputing capabilities, with the new controls targeting specified chips, chipmaking equipment, and related services.

The BIS rule, which runs over 100 pages, is the most significant expansion of semiconductor-related export controls in recent memory, if not the history of the EAR, and marks a decisive inflection point in the U.S. strategic competition with China. Companies in the semiconductor industry should gauge their exposure to China-related risk, which could be present in oblique and non-obvious ways, and service providers to the industry should assess their risk exposure in light of the rule’s provisions regarding U.S. person “support” for restricted activities.

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Westlaw Today: U.S. Commerce Department Issues Semiconductor-Related Export Controls

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Westlaw Today, October 7, 2022

Anthony Rapa and Matthew J. Thomas ●

On August 15, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued an interim final rule imposing new export controls relating to certain semiconductor technology.

Specifically, the rule establishes a requirement under the Export Administration Regulations (EAR) to obtain a license from BIS before exporting to certain destinations the following materials and technologies:

      • Substrates of gallium oxide and diamond (ultra-wide bandgap semiconductors); and
      • Electronic Computer Aided Design (ECAD) software for the development of integrated circuits with Gate All-Around Field Effect Transistor (GAAFET) structures.

The control for the specified substrates is effective Aug. 15, 2022, while the control for the ECAD/GAAFET software is effective Oct. 14, 2022, with a comment period for industry that ran through Sept. 14, 2022.

The rulemaking follows public reports in July 2022 indicating that BIS had sent letters to chipmaking equipment manufacturers directing them not to export to China equipment capable of fabricating chips at 14 nanometers and below.

You can read more on our website.

The Government Contractor: Hejran and Zafer: Reiterating the CDA’s March to Meaningful Review on the Merits

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The Government Contractor, October 5, 2022

Stephanie M. Harden and David L. Bodner ●

Stephanie Harden's Headshot Photo

The ability for a Government contractor to secure fair resolution of a contract dispute is essential for maintaining a vibrant competitive marketplace for federal contracts. The perceived fairness of the contract dispute resolution process is influential on contractor participation. S. Rep. No. 95-1118, at 4 (1978) (“The way potential contractors view the disputes-resolving system influences how, whether, and at what prices they compete for Government contract business.”). Yet even after passage of the Contract Disputes Act of 1978, it is often difficult for a contractor to secure a review of a claim on the merits due to a barrage of procedural and jurisdictional hurdles. The U.S. Court of Appeals for the Federal Circuit has cleared some of the thicket in recent years by reiterating its commonsense approach to evaluating the sufficiency of claims, finding that if a submission meets the requirements of a claim, it may be heard on the merits, even if it was not originally styled as a claim.

This Feature Comment discusses this recent guidance, including the Federal Circuit’s treatment of the difficult question of which contractor submissions may be treated as valid claims under the CDA, even if not styled as such in the first instance. We then offer practical guidance for contractors navigating these issues.

Learn more on our website.

DoD Section 889 Telecommunications Prohibition Waiver Expires

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Merle M. DeLancey Jr. 

Effective October 1, 2022, Department of Defense (“DoD”) contractors must comply with Part B of Section 889 of the FY 2019 National Defense Authorization Act (“NDAA”). The approximately two-year long Part B waiver granted to the Director of National Intelligence expired October 1. DoD contractors cannot seek a DoD agency-level waiver as DoD cannot grant waivers under the statute. Thus, as with other agencies, DoD is prohibited from entering into, extending, or renewing contracts with contractors who use covered telecommunications or video surveillance equipment and services from certain Chinese companies in any part of their business.

Compliance with Part A of Section 889 was straightforward. Part A prohibited contractors from selling covered technology to the federal agencies. Comparatively, compliance with Part B is much more complicated. Part B requires a contractor to certify that it does not use “any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system.” The prohibition applies to all contracts at any dollar value. “Covered telecommunications equipment or services” is defined as equipment, services and/or video surveillance products from Huawei Technologies Company, Hangzhou Hikvision Digital Technology Company, Hytera Communications Company, Dahua Technology Company, ZTE Corporation, or any entity controlled by the People’s Republic of China.

For more information regarding Part B compliance, see our prior posts For Part B of Section 889, Is Compliance by August 13, 2020, Realistic? and Five Steps to Take to Prepare for Part B of the Section 889 Ban.

Proposed Rule for PLA Will Substantially Shift Federal Construction Landscape

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Carolyn R. Cody-Jones and Luke W. Meier  ●

The FAR Council recently published a proposed rule mandating the use of project labor agreements (“PLAs”) on federal construction projects where the total estimated cost to the government is $35 million or more. See FAR Case 2022-003, 87 FR 51044 (Aug. 19, 2022). The proposed rule codifies President Biden’s February 4, 2022, Executive Order No. 14063. 87 FR 7363 (Feb. 9, 2022). Certain exceptions apply, and for projects below $35 million whether to mandate PLAs is left to the discretion of each federal agency. A PLA is a pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project.

Why it’s significant: The proposal rule, and the underlying Executive Order, further enhance an Obama-era Executive Order that encouraged PLAs on federal construction projects over $25 million, but did not require it. 74 FR 6985 (Feb. 11, 2009). The new Executive Order puts forth the new rule to seek increased “economy and efficiency,” arguing that large-scale construction projects can create “special challenges” for efficient and timely procurement, and contractor labor disputes can cause significant project delays. During the Obama and Trump Administrations, construction industry trade groups sought revocation of the Obama Executive Order, arguing it increases taxpayer costs and filing pre-award bid protests against agencies implementing a PLA requirement, in order to have it removed. During the time that rule was in effect, between 2009 and 2021, the FAR Council estimated that a PLA was used only 12 times despite there being roughly 2,000 eligible contracts. The new Biden Executive Order and proposed rule firmly moves the industry requirements on federal projects in the opposite direction and establishes a clear federal prerogative for PLAs on large construction projects.

Effects on the industry: Once in effect, the proposed rule will cause a significant shift in the federal construction industry. Recent Bureau of Labor Statistics estimates show that only 12.6 percent of the construction work force belong to unions. This means a contractor may face staffing challenges arising from a restricted pool of potential candidates. The FAR Council notes in the proposed rule that the average number of construction awards valued at $35 million or more, from Fiscal Year 2019 through Fiscal Year 2021, was approximately 119 annually, with an average cost of $114 million per award.

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Partial Settlement and Allocation of Damages Liability under the False Claims Act (“FCA”)

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Jennifer A. ShortBridget Mayer Briggs, and Tjasse L. Fritz ●

Jennifer A. Short headshot image
Bridget Mayer Briggs headshot image
Tjasse L. Fritz headshot image

On August 30, 2022, the D.C. Circuit Court of Appeals brought renewed attention to the conundrum of False Claims Act (“FCA”) damages by applying a pro tanto allocation rule to a partially settled case. In United States v. Honeywell International Inc., No. 21-5179, 2022 WL 3723020 (D.C. Cir. Aug. 30, 2022), the court reasoned that, because the government had already recovered its full alleged damages through co-defendants’ settlements, it could not seek additional damages from the remaining defendant, regardless of that defendant’s alleged misconduct.

The FCA’s Treble Damages Provision

Under the FCA, 31 USC § 3729-3733, “any person” found to have violated the statute:

is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, as adjusted … plus 3 times the amount of damages which the Government sustains because of the act of that person.

In United States ex rel. Marcus v. Hess, 317 U.S. 537 (1943), the Supreme Court described “damages which the Government sustains because of the act of that person” as the amount the government would have paid for the fraudulent goods or services had it known the relevant facts. The Court further rationalized that allowing damages to be multiplied per the statute was consistent with the common law tradition of civil punitive damages. In the 80 years since Marcus, courts have continued to grapple with the nature and calculation of FCA damages: whether they are punitive or compensatory; whether they are sufficiently predictable to encourage settlement; and whether they serve as a sufficient deterrent for wrongful conduct.

Continue readingPartial Settlement and Allocation of Damages Liability under the False Claims Act (“FCA”)

New York Law Journal: Recent Developments in U.S. Supply Chain Security

Preparing for Compliance Risks Under the ICTS Rules, the Uyghur Forced Labor Prevention Act, and the National Critical Capabilities Defense Act

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New York Law Journal, September 22, 2022

Anthony Rapa and Justin A. Chiarodo ●

Supply chain security remains a key bipartisan policy goal and burgeoning compliance risk area. This article examines three recent initiatives that exemplify these trends: the regulations on securing the Information and Communications Technology and Services supply chain, the Uyghur Forced Labor Prevention Act, and the proposed National Critical Capabilities Defense Act.

Companies with cross-border supply chains should assess their exposure under these emerging regimes and prioritize their compliance efforts accordingly. The risk profile is greatest for companies developing technology and software across borders; companies importing items produced in (or incorporating components produced in) the Xinjiang region of China; parties seeking to invest in certain critical capabilities outside the United States; and government contractors that may be exposed to foreign adversaries in their supply chains.

Information and Communications Technology and Services Rules

One pillar of the U.S. government’s developing architecture for supply chain security is the U.S. Department of Commerce’s (Commerce’s) regulations on Securing the Information and Communications Technology and Services (ICTS) Supply Chain (ICTS Regulations), set out at 15 C.F.R. Part 7. Promulgated pursuant to Executive Order 13873, the rulemaking identifies the ICTS supply chain as critical to “nearly every aspect” of national security, acknowledging the degree to which American government, business, and the economy at large rely on ICTS. See Securing the Information and Communications Technology and Services Supply Chain, 86 Fed. Reg. 4909 (Jan. 19, 2021).

The ICTS Regulations empower Commerce to review, prohibit, or restrict specified “ICTS Transactions” that present national security risks. The term “ICTS Transactions” is defined broadly to include: “any acquisition, importation, transfer, installation, dealing in, or use of any information and communications technology or service, including ongoing activities, such as managed services, data transmission, software updates, repairs, or the platforming or data hosting of applications for consumer download.”

You can read more on our website.

60-Second Sustains: R&K Enterprise Solutions, Inc.

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Elizabeth N. Jochum

R&K Enterprise Solutions, Inc.
B-419919.6, .7, .8

  • The protester alleged the Air Force’s best-value tradeoff decision was unreasonable because it consisted of a “mechanical comparison of point scores that did not take into account the underlying bases for those scores” and because the source selection authority only considered the awardee’s proposal and did not compare the merits of the offerors’ proposals.
  • GAO agreed, noting that the award determination document discusses only the awardee’s proposal, with no reference to R&K’s proposal.
  • The Agency had argued that the selection authority had relied on the evaluation board’s recommendation and rationale, but GAO found that, even if that were the case, that recommendation was “based entirely on a mechanical evaluation of point scores” without a qualitative comparison of underlying strengths and weaknesses and was therefore unreasonable.
  • GAO recommended the agency perform and document a proper best-value tradeoff.

60-Second Sustains: Selex EX, Inc.

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Elizabeth N. Jochum and Luke Meier

Selex EX, Inc.
B-420799

  • Selex ES argued that the solicitation, which sought proposals to replace a tactical air navigation system, was unduly restrictive of competition because it could be interpreted to require offerors meet the navigation system’s flight check qualification and readiness level requirements at the time of proposal submission rather than at the time of award or performance.
  • GAO found that the solicitation was patently ambiguous regarding whether the requirements are due at time of proposal submission or at time of award and that Selex ES was prejudiced by the ambiguity and GAO sustained the protest on that basis.
  • GAO declined to address whether it would be unduly restrictive of competition to expect offerors to meet the requirements at the time of proposal submission given the patent ambiguity.
  • GAO recommended the agency amend the solicitation to clarify when various requirements are due.

Lifecycle of a Claim, Part III: Submitting a Claim

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Stephanie M. Harden and David L. Bodner ●

Stephanie Harden's Headshot Photo

Welcome back to our “Lifecycle of a Claim” series. This series explores the Contract Disputes Act (“CDA”) claims process, with practical guidance stemming from recent case law every step of the way. Click the subscribe button on the right to get timely updates right in your inbox!

This series walks through this infographic (click here or the image below to expand), which illustrates the lifecycle of a typical claim:

Click here to read our first post and here to read our second post. This post focuses on Step 5 of this process: submitting a claim.

Seven Elements for Submitting a Claim

Once a contractor has made the decision to pursue a CDA claim, the contractor must ensure that it follows the Contract Disputes Act or risk jeopardizing its ability to obtain meaningful judicial review. While the Federal Circuit has made clear that a claim need not take “any particular form or use any particular wording,” below are seven fundamental elements that should be included:

Continue reading “Lifecycle of a Claim, Part III: Submitting a Claim
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