Buy American Act Domestic Content Requirements Likely to Increase Soon

Scott Arnold, Justin A. Chiarodo, and Robyn N. Burrows







As directed in President Biden’s January 25, 2021, Executive Order we discussed six months ago, last week the FAR Council proposed increases to the Buy American Act (“BAA”) domestic content requirements, and previewed enhanced price preferences and reporting obligations for “critical” domestic products and components under the BAA.

The proposed rule, issued on July 30, 2021, contains three key elements: (1) Phased increases in domestic content thresholds from the current 55% to 75% by 2029, (2) enhanced price preferences for critical products and components, and (3) post-award reporting requirements for critical products and components.

A virtual public meeting to discuss the proposed rule will be held on August 26, 2021, and comments are due by September 28, 2021. The DAR Council also has an open DFARS Case relating to BAA provisions (2019-D045).

We provide an overview of the rule below along with practical takeaways for contractors to consider in light of these potentially significant changes.

Continue reading “Buy American Act Domestic Content Requirements Likely to Increase Soon”

“Rule of Two” Cheat Sheet

Merle M. DeLancey Jr.

June 2021 marked the five-year anniversary of the Supreme Court’s Kingdomware decision[1], which is best known for broadly interpreting the so-called “Rule of Two” requirement flowing from the Veterans Benefits, Health Care, and Information Technology Act of 2006 (the “VBA”). The Rule has been criticized for delaying Department of Veterans Affairs (“VA”) procurements and increasing the prices the government pays for goods and services. However, the importance of the Rule’s purpose—to prioritize and increase the government’s use of small businesses owned by veterans—cannot be credibly challenged.

Over the past five years, the Federal Circuit, Court of Federal Claims, and Government Accountability Office (“GAO”) protest decisions have created some bright-line rules interpreting the VBA’s Rule of Two. After a brief summary of the Rule of Two, this post lays out these bright-line rules, and concludes with predictions regarding future VBA Rule of Two protests.

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Biden Administration Initiatives to Rein in Drug Prices—Déjà vu All Over Again

Merle M. DeLancey Jr.

On July 9, President Biden signed Executive Order 14063, designed to promote competition in the American economy with the goal of lowering prices for families, increasing wages for workers, and promoting innovation and even faster economic growth. The Order is expansive—requiring more than 12 federal agencies to pursue 72 initiatives. One of the Order’s prominent targets is drug pricing. At the signing ceremony, President Biden reiterated that “Americans pay two-and-a-half times more for prescription drugs than in any other leading country,” and “nearly one in four Americans struggles to afford their medication.” We have heard similar words multiple times before over many years, however, to date, there has been little progress.

The Order’s initiatives focusing on drug prices do not appear very different from similar efforts in recent years. First, the Order calls on the Department of Health and Human Services (“HHS”) to create a plan within 45 days to combat “excessive pricing of prescription drugs and enhance domestic pharmaceutical supply chains, to reduce the prices paid by the federal government for such drugs, and to address the recurrent problem of price gouging.” While perhaps a good sound bite, this initiative is not new. In fact, it sounds similar to the Trump administration’s “Most Favored Nation” drug pricing initiative under which Medicare reimbursement for certain drugs would be based on lower prices in other countries. The call for a plan to be delivered in 45 days is curious since it is reported that HHS delivered a new, Biden administration, most favored nation drug pricing rule to the Office of Management Budget for review earlier last week. Perhaps the plan will address how the Biden administration can implement this policy and avoid being bogged down in litigation.

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Tips to Maximize Contractor Recoveries for Public Health-Related Claims: Lessons from Pernix Serka and the Ebola Crisis

Justin A. Chiarodo and Stephanie M. Harden

Stephanie Harden's Headshot Photo

Does the mere existence of a deadly epidemic entitle a contractor to monetary relief when it experiences cost increases stemming from that epidemic? Not without Government direction, ruled the Federal Circuit in affirming a decision of the Civilian Board of Contract Appeals (“CBCA”) in Pernix Serka JV.

The facts of Pernix Serka are striking: a contractor repeatedly requests guidance for dealing with a major health crisis, the Government refuses to provide guidance, and the contractor is unable to recoup the additional costs it incurs in order to proceed with performance because the Government provided no guidance.

This timely ruling sheds light on strategies contractors should consider for recouping costs stemming from the COVID-19 pandemic. We provide a roadmap below for navigating these issues in light of Pernix Serka JV.

The 2014 Ebola Crisis

Pernix Serka was in the midst of performing a contract in Sierra Leone when a deadly Ebola outbreak struck the country in 2014. Pernix Serka diligently sought guidance from the Contracting Officer on its State Department (“DOS”) contract, but the Government refused to weigh in on whether it should temporarily shut down its work on the contract. Ultimately, Pernix Serka decided to temporarily withdraw its personnel, which the Government then characterized as Pernix Serka’s “unilateral” decision. When Pernix Serka sought advice on whether and when to resume work, the Government went so far as to say that “DOS will not provide any instructions or directions” regarding whether and when to return to the work site. The contractor ultimately decided to resume performance, but incurred additional costs when it decided to contract for medical facilities and services on the project site.

Continue reading “Tips to Maximize Contractor Recoveries for Public Health-Related Claims: Lessons from Pernix Serka and the Ebola Crisis”

President Biden’s Recent Cybersecurity Executive Order Will Increase Compliance Obligations on the Private Sector

Sharon R. Klein, Alex C. Nisenbaum, Karen H. Shin, Justin A. Chiarodo, and Michael Joseph Montalbano

Companies providing information technology products and services to U.S. government agencies are now required to notify such agencies of cyber incidents and meet specific cybersecurity standards. The executive order attempts to modernize the federal government’s cybersecurity defenses by “protecting federal networks, improving information-sharing between the U.S. government and the private sector on cyber issues, and strengthening the [United States]’ ability to respond to incidents when they occur.” The executive order is just one example of the Biden administration’s push to improve the nation’s data privacy and cybersecurity practices in response to the recent series of ransomware attacks.

On May 12, 2021, President Biden signed an executive order to bolster the federal government’s cybersecurity practices and contractually obligate the private sector to align with such enhanced security practices (“the Order”). The Order comes on the heels of a ransomware attack on Colonial Pipeline that occurred on May 6, 2021, which shut down the largest oil pipeline in the United States and disrupted supplies of gasoline, diesel, and jet fuel to the East Coast. This initiative to improve the security of the software supply chain also stems from the SolarWinds cyberattack that occurred last year. In the attack, Russian hackers used a routine software update that Texas-based SolarWinds Corp. provided to its customers to install malicious code, allowing the hackers to infiltrate nine federal agencies and about 100 companies.

Proposed amendments are expected soon from the Federal Acquisition Regulation (“FAR”) and the Defense Federal Acquisition Regulation Supplement (“DFARS”) that will increase compliance obligations for government contractors and their vendors, building on a string of supply chain and cybersecurity regulation in recent years (including Section 889’s prohibition on the use of certain Chinese telecommunications, new registration requirements in the Supplier Performance Risk System, and the Department of Defense’s Cybersecurity Maturity Model Certification program). We see the biggest impacts on government contractors, such as developers and users of software.

To read the full client alert, please click here

How to Know the Government Is Investigating You or Your Company in Connection with COVID Relief Funds

By Merle M. DeLancey Jr.Craig Stetson*, and Jennifer A. Short

In our previous blogs, we discussed the multiple government enforcers and regulators charged with authority to oversee the application, eligibility, and use of COVID relief funds. Here, we address how to know whether you or your company is under investigation or review or being considered for same. Sometimes it is obvious—for example, when the Federal Bureau of Investigation (“FBI”) along with other agencies raid your offices. Other times, the signs are subtle. 

The federal government has an arsenal of tools it uses to gather information for investigations and audits. These tools are not new and are not specific to COVID relief funds. However, some of the “new” entities created by COVID relief legislation (e.g., the Special Inspector General for Pandemic Recovery (“SIGPR”)), as well as the coordination of agency inspectors general on the Pandemic Response Accountability Committee (“PRAC”)), can use those same old tools to hone in on recipients of COVID-related funding.

Below are some practical tips to understand whether you are being investigated based upon investigative tools used by the government. 

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Executive Order Increases the Minimum Wage for Federal Contractors—What Is the Impact?

Scott Arnold

Legal developments aimed at government contractors do not always make headline news in mainstream media, but last week’s Executive Order on Increasing the Minimum Wage for Federal Contractors, April 27, 2021 (“Executive Order”), did get widespread attention, perhaps because it is viewed by some in political circles as the next best thing for an administration that sees substantial congressional hurdles for more broadly applicable minimum wage increase legislation. So you have probably heard about about the Executive Order, but how will it impact government contractors?

What does the Executive Order do?

The Executive Order will increase the hourly minimum wage for workers working on or in connection with federal government contracts to $15.00, effective January 30, 2022. This will be a substantial increase from the current minimum wage of $10.95 applicable to most federal contracts pursuant Executive Order 13658. (EO 13658 originally set a federal contractor minimum wage of $10.10, effective January 1, 2015, when it was issued by President Obama in early 2014. That minimum wage has since increased annually.)

How will the increase be implemented?

The Secretary of Labor is to issue implementing regulations by November 24, 2021, and the Federal Acquisition Regulatory Council is to amend the FAR to provide the new minimum wage provisions in federal procurement solicitations, contracts, and contract-like instruments within 60 days after issuance of the Labor Department’s implementing regulations.

Continue reading “Executive Order Increases the Minimum Wage for Federal Contractors—What Is the Impact?”

Paycheck Protection Program Audits Are Upon Us—Borrowers Prepare!

Merle M. DeLancey Jr., Craig Stetson*, and Jennifer A. Short

In our last post on this topic, we touched on how the acceptance, use, and forgiveness of Paycheck Protection Program (“PPP”) loans can be viewed in the context of a Defense Contract Audit Agency (“DCAA”) audit. This post focuses on audits and investigations involving PPP loans. Close scrutiny of PPP loans is not a prediction; it is reality. The Small Business Administration (“SBA”) has announced it will audit all PPP loans in excess of two million dollars following a lender’s submission of a borrower’s loan forgiveness application, and it reserves the right to “spot check” any PPP loan of a lesser amount at its discretion. The Department of Justice has already charged multiple individuals with PPP fraud. And this is just the beginning of what many think will be a tidal wave of enforcement activity involving PPP loans.

Overview of the PPP

The PPP is the largest relief measure for small businesses under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The government has made available nearly one trillion dollars in PPP relief funds through four separate funding measures ($349 billion via the CARES Act; $310 billion via the PPP and Health Care Enhancement Act; $284 billion via the Consolidated Appropriations Act of 2021; and $7.25 billion via American Rescue Plan Act of 2021).

The PPP makes available guaranteed SBA loans to small business that meet certain eligibility requirements. In addition, PPP loans can be forgiven fully if used properly to cover specified business expenses such as payroll, rent, utilities, mortgage interest, and other limited uses. As of April 11, 2021, the SBA had approved more than 9.5 million loans totaling more than $755 billion using more than 5,400 lenders.

Continue reading “Paycheck Protection Program Audits Are Upon Us—Borrowers Prepare!”

M&A Dealmaker Perspectives on Transaction Structure and Value

Dean S. Nordlinger*

Recently, I hosted the third session of Blank Rome’s new on-demand webinar series, “Strategically Speaking,” with featured guests Mitchell Martin of The McLean Group and Scott Brezler of Dixon Hughes Goodman LLP bout the key issues that arise in mergers and acquisitions (“M&A”) transactions involving govcon firms. You are invited to watch the recording on demand here; I hope you find it helpful and informative.

Martin has held a number of financial advisory positions with leading investment banks focused on M&A for logistics and defense and government services companies, and is currently the co-head of The McLean Group’s M&A practice, as well as its Defense, Government & Intelligence (“DGI”) practice. Brezler currently heads the Government Contracting practice for Dixon Hughes Goodman LLP and previously served as chairman of the Small and Emerging Contractors Advisory Forum.

Our session includes an informative and helpful discussion, including:

      • A high-level overview of M&A:
          • A seller’s perspective on an M&A transaction;
          • A buyer’s perspective on an M&A transaction;
          • The reality of the M&A process:
              • Time, resources, and money; and
              • Deep scrutiny of a seller.
      • A high-level overview of purchase price (and tracking the value):
          • Identifying and understanding the purchase price component parts;
          • Breaking down the component parts and transaction terms to track value;
          • What a seller gets at closing vs what remains “at risk” post-closing; and
          • What’s the impact of each item/issue on an aggregated basis.
      • Structuring the purchase price:
          • Use of and recent trends in earnouts and impact on value; and
          • Use of and recent trends in rollover equity on value.
      • The impact of acquisition/tax structuring on purchase price and value:
          • GovCon regulations impact on acquisition structure;
          • Acquisition structure impact on transaction value to seller; and
          • Acquisition structure impact on transaction value to buyer. 
      • Weaponizing working capital:
          • Net working capital and impact on overall deal value;
          • Negotiation of working capital (in the letter of intent); and
          • Things sellers do to their advantage, things sellers do to their detriment.
      • Importance of employee incentive plans & retention:
          • “Key employees” as a buyer condition to closing;
          • Negotiation of key employee retention bonuses:
            • Cooperation between buyer and seller on what it should be;
            • Does the seller have any preexisting retention in place;
            • Who bears the burden vs. benefit; and
          • Buyer redirect of purchase price to use as retention bonuses for key employees.

PAST SESSIONS OF STRATEGICALLY SPEAKING NOW AVAILABLE ON DEMAND:

Session I: Navigating the Future of Office Leases with Featured Guests Chethan Rao and Andrew Roberts of global commercial real estate firm Newmark. Watch the Webinar >>

Session II: Pivoting & Positioning Small Businesses for Dynamic (Full & Open) Growthwith Featured Guests Gilbert Dussek of Gunnison Consulting Group and Kevin Robbins of Blue Delta Capital Partners. Watch the Webinar >>


*Dean Nordlinger is a partner in our Corporate practice whose new “Strategically Speaking” webinar series includes discussions with a variety of seasoned professionals and subject matter experts about critical and challenging issues that government contractors and other companies (and business owners) face throughout their life cycle.

COVID-Related Audits and the DCAA’s New Audit Direction

Merle M. DeLancey Jr. and Craig Stetson*

This is the third in a series of posts regarding what we believe will be an onslaught of government investigations and audits of COVID relief funds and contracting. Previously, we identified likely categories of programs, contracts, and companies the government might investigate or audit. Below, we discuss the Defense Contract Audit Agency’s (“DCAA”) current direction, interests, and initiatives related to contractors’ receipt of COVID relief funds and the impact an uncertain business environment may have on government contract pricing and costing forecasts.

COVID Relief Funds

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) funding opportunities come with unique government contract compliance requirements and financial reporting obligations. The funding is not “free” and may result in financial consequences to unwary contractors. DCAA knows this and will be conducting audits to test contractors’ compliance with unique relief fund requirements. Contractors unaware of these accounting and reporting requirements risk DCAA questioning or denying costs.

In January 2021, DCAA issued an audit alert to its regional offices pertaining to COVID relief legislation and regulation.[1] The audit alert includes frequently asked questions and answers (“FAQs”) concerning contractors’ request or receipt of COVID relief funding. Originally released last summer, the FAQs have been revised and expanded several times. The FAQs telegraph DCAA’s position on various instances where COVID relief funding intersects with or impacts government contract cost accounting and compliance.

Continue reading “COVID-Related Audits and the DCAA’s New Audit Direction”