ASBCA Grants $253 Million Northrop Post-Retirement Benefits Claim

David Yang

Pension and other post-retirement benefit expenses have long constituted a substantial obligation on the part of contractors under cost-type contracts and are often the subject to disputes with the government as to the calculation and allowability of such costs. While court and board decisions regarding pension-related disputes have tended to be a mixed bag, the decisions have more often sided with the government. However, the Armed Services Board of Contract Appeals’ (“ASBCA” or “Board”) July 13, 2017, decision in Northrop Grumman Corp., ASBCA No. 60190, may signal a more favorable trend for contractors in connection with such issues. In this case, Northrop filed a claim for $253 million in retiree health benefits over an 11-year period from 1995 to 2006, which the Defense Contract Management Agency (“DCMA”) disallowed because Northrop used an outdated accounting practice for accruing such costs under the relevant Federal Acquisition Regulation (“FAR”) cost accounting requirements. Continue reading “ASBCA Grants $253 Million Northrop Post-Retirement Benefits Claim”

Managing the Export Controls Minefield (Part 1 in a Series)

David Yang and Christian N. Curran 

yangcurranDespite recent political shifts away from globalization, international trade remains a bedrock of the U.S. economy, and companies doing business in the United States must be cognizant of the intricate set of export control regulations promulgated by the U.S. government. In today’s rapidly changing economy, it is more important than ever for companies to thoroughly assess their connections to the international marketplace. While the Obama Administration took strides toward simplifying the export control process, U.S. export control regulations remain complex due to the multiple government stakeholders involved, resulting in varying interpretations, policies, and agendas. Export control violations can still carry serious ramifications for a company’s business practices both inside and outside the United States. Accordingly, the first of this three part series begins by identifying whether your business may be subject to the U.S. export controls regime. Our next two installments will then, respectively, address: (Part 2) practical strategies for addressing risk mitigation; and (Part 3) enforcement actions by the government. Continue reading “Managing the Export Controls Minefield (Part 1 in a Series)”

How UHS v. U.S. ex rel. Escobar Will Impact Government Contractors

David Yang and Christian N. Curran

David YangChristian N. CurranOn June 16, 2016, the Supreme Court issued its decision in Universal Health Services, Inc. v. United States ex rel. Escobar, holding that “implied certification” is a valid theory of liability under the False Claims Act (“FCA”), and further concluding that a failure to comply with a contract requirement, regulation, or statute may support a false claims case even if the provision is not an “express condition of payment.” While the unanimous opinion settles the debate over the viability of the implied certification theory, its reliance on a subjective materiality standard will likely make FCA cases more difficult to resolve on the pleadings and also increase the number of FCA cases filed. Continue reading “How UHS v. U.S. ex rel. Escobar Will Impact Government Contractors”

The Expansion of the Business Systems Rule Beyond DoD

David M. Nadler, Justin A. Chiarodo, David Yang, and Stephanie M. Harden

David M. NadlerJustin A. ChiarodoDavid YangStephanie Marie ZechmannWith the potential for millions of dollars in withholdings on contract payments, Department of Defense (DoD) contractors have become all too familiar with the Business Systems Rule since it was first implemented in 2011. The Department of Energy (DoE) is now following in the steps of DoD and promulgating its own Business Systems Rule. On April 1, 2014, DoE issued a Notice of Proposed Rulemaking for its Business Systems Rule, which is largely modeled off of the DoD rule. This expansion of the Business Systems Rule beyond DoD warrants careful attention by contractors who may not have previously been covered, as effective and proactive compliance is essential to mitigating the risk of withholdings under the rule.

Overview of the DoD Business Systems Rule

The DoD Business Systems Rule permits DoD to withhold contractor payments on covered contracts if one or more “significant deficiencies” are found in any of the six business systems covered by the rule. The term “significant deficiency” is broadly defined as “a shortcoming in the system that materially affects the ability of officials of DoD and the Contractor to rely upon information produced by the system that is needed for management purposes”–a definition which leaves great discretion to the Contracting Officers responsible for determining system acceptability. Continue reading “The Expansion of the Business Systems Rule Beyond DoD”

KBR Ruling Threatens Privilege in Mandatory Disclosure Investigations

David M. Nadler, David Yang, and Christian N. Curran

David M. NadlerDavid YangChristian N. CurranRecently, the U.S. District Court for the District of Columbia ruled that a company’s work product created during an internal mandatory disclosure investigation was not protected by the attorney-client privilege or attorney work-product doctrines. During discovery in United States ex. rel. Barko v. Halliburton Co. et al., KBR sought to withhold internal investigation reports relating to alleged fraudulent activities during its performance of the Logistics Civil Augmentation Program (LOGCAP III) contract in Iraq. The ruling casts doubt on whether documents created pursuant to internal investigations are protected by the attorney-client privilege or work-product doctrines and could significantly impact how companies conduct internal investigations, including their mandatory disclosure practices.

The Barko Case

The relator filed his case against KBR under the False Claims Act (FCA) in 2005, alleging that KBR had overcharged the government in a variety of ways under KBR’s LOGCAP III contract. During discovery, the relator requested that KBR produce documents relating to internal audits and investigations of alleged misconduct that was reported by KBR employees under LOGCAP III. KBR asserted that the material was protected by the attorney-client privilege and work-product doctrine. After the relator moved to compel, the court conducted an in camera review of the documents. Continue reading “KBR Ruling Threatens Privilege in Mandatory Disclosure Investigations”

The DOD Gets Serious About Supply Chain Integrity

David Yang

David YangThe issue of counterfeit electronic parts in the Department of Defense (DOD) supply chain has taken center stage in recent years given the performance and security concerns that such parts can pose. Hearings before the Senate Armed Services Committee in November 2011 revealed an “open and notorious” counterfeit parts industry and led to the inclusion of Section 818 in the FY 2012 National Defense Authorization Act (NDAA), which was enacted on December 31, 2011. Section 818, which was further amended by the 2013 NDAA, requires the DOD to implement regulations to define, identify, and prevent the use of counterfeit electronic parts in DOD procurements as well as limit the allowability of costs to replace, rework, or take other corrective action in connection with such parts. Notably, the risks and costs associated with these requirements will largely be placed on contractors.

Although final regulations have yet to be issued, the DOD issued proposed rules on May 16, 2013 and December 3, 2013 for industry consideration. As issued, however, the proposals, which raise more questions than they answer, place significant cost and performance risks (including breach, termination, and perhaps even false claims liability) on covered contractors and will almost certainly and significantly increase compliance costs. Continue reading “The DOD Gets Serious About Supply Chain Integrity”