Merle M. DeLancey Jr. Archives - Government Contracts Navigator

Understanding the Potential Anthropic Ban: Key Considerations for Federal Contractors

Robyn N. Burrows and Merle M. DeLancey, Jr. ●

On February 27, 2026, President Trump posted on Truth Social directing all federal agencies to “immediately cease” use of Anthropic’s artificial intelligence (“AI”) technology. Simultaneously, Defense Secretary Pete Hegseth announced on X he was designating the company a “supply chain risk to national security” and prohibiting federal contractors from doing any business with Anthropic. This unprecedented action against a domestic company has significant supply chain implications for government contractors. Below, we summarize what led to this development, the legal authorities pertaining to supply chain bans, and practical guidance for contractors navigating this evolving situation.

1. Background: From Contract Dispute to Presidential Directive

The conflict between Anthropic and the federal government emerged from a contract dispute over the company’s AI usage restrictions. Anthropic, which holds a $200 million Pentagon contract and was the first frontier AI company to deploy its models on classified government networks, maintained two “red lines” in its contract negotiations: it refused to allow its AI model, Claude, to be used for mass domestic surveillance of Americans or in fully autonomous weapons systems.

The Pentagon demanded that Anthropic agree to “all lawful use” of its technology without Anthropic’s proposed restrictions. Anthropic’s refusal led President Trump and Secretary Hegseth to announce their decisions against Anthropic on social media. Secretary Hegseth stated that Anthropic would be “immediately” designated a supply chain risk, prohibiting any federal contractor working with the military from “any commercial activity with Anthropic.”

Anthropic has announced it will challenge the supply chain risk designation in court, calling it “legally unsound.”

Domestic Production of Pharmaceuticals: Are the Administration’s Efforts Enough?

Merle M. DeLancey, Jr. ●

The Administration issued Executive Order (“EO”) 14293: Regulatory Relief to Promote Domestic Production of Critical Medicines on May 5, 2025 (whitehouse.gov/presidential-actions/2025/05/regulatory-relief-to-promote-domestic-production-of-critical-medicines). The EO seeks to ease obstacles for drug manufacturers to establish or expand domestic production facilities. For example, it streamlines Food and Drug Administration (“FDA”), Environmental Protection Agency, and Army Corps of Engineers reviews and inspections associated with building or expanding manufacturing facilities. These accelerated processes are intended to reduce a manufacturer’s cost to build or expand a facility with the intended result being lower prices for domestically produced drugs.

The EO also calls for enhanced FDA inspections of foreign manufacturing facilities. The inspections will be funded through increased fees imposed on foreign drug manufacturers. The likely result will be an increase in foreign drug production costs, which would lead to increased prices of foreign-produced drugs. Further, adding to the price of foreign drugs are the Administration’s proposed tariffs. If imposed, the tariffs could start at 15 percent and ratchet up to 150 percent and 250 percent over time.

The goal of increasing the prices of foreign-produced drugs is to enable domestically produced drugs to compete. Only time will tell whether the EO’s efforts will be enough to level the playing field. However, there are at least two obstacles that could prevent the Administration from reaching its goal.

Beyond the Balance Sheet: The Continued Importance of Cybersecurity in M&A

Merle M. DeLancey Jr., Samarth Barot, and Michael Joseph Montalbano ●

In our August 1 post, we discussed how companies that acquire government contractors can inherit the False Claims Act (“FCA”) exposure based on their targets’ cybersecurity violations. Now, the Department of Justice (“DOJ”) delivered another vivid real-world example: a $1.75 million settlement in which a private equity (“PE”) firm, Gallant Capital Partners LLC, was named jointly and severally liable for its portfolio company’s cybersecurity violations on a U.S. Air Force contract.

The outcome underscores two critical truths. First, DOJ will pursue financial sponsors when a contractor in their portfolio fails to comply with its contractual cybersecurity requirements. Second, investors that fail to ask about, document, and remediate a target’s security shortcomings can find themselves financing both the acquisition and the government’s recovery.

CMS Proposes New Rules for Calculating Average Sales Price for Medicare Part B Drug Reimbursement

Merle M. DeLancey, Jr. ●

The Centers for Medicare & Medicaid Services (“CMS”) released the Calendar Year 2026 Medicare Physician Fee Schedule (“PFS”) proposed rule on July 16, 2025. (See cms.gov/newsroom/fact-sheets/calendar-year-cy-2026-medicare-physician-fee-schedule-pfs-proposed-rule-cms-1832-p). The proposed rule includes potentially significant changes to what is considered a bona fide service fee (“BFSF”) when calculating average sales price (“ASP”) under Medicare Part B.^[*]

Under Medicare Part B, most drugs are reimbursed based on ASP plus six percent. Manufacturers report ASPs to CMS quarterly. With certain exceptions, ASP is defined as a weighted average price to commercial customers in the United States. Drug manufacturer price concessions are deducted when calculating ASP but BFSFs are not. To support a higher ASP, which increases a drug’s reimbursement, manufacturers seek to avoid price concessions and instead classify programs as BFSFs. Improperly classifying a price concession as a BFSF increases a manufacturer’s ASP, which results in Medicare overpayments and higher coinsurance amounts for Medicare beneficiaries.

Defense Contractors’ Restrictions When Contracting with Chinese Companies

Merle M. DeLancey, Jr. and Oliver E. Jury ●

In the current economic climate, the obvious focus of many companies is on the administration’s imposition of tariffs. However, government contractors, especially those contracting with the U.S. Department of Defense (“DoD”), must not lose sight of their current and potential future direct and indirect relationships with certain Chinese entities.

Contractors’ compliance obligations regarding relationships with Chinese entities flow from:

FAR 52.204-25 (Section 889 of the 2019 National Defense Authorization Act (“NDAA”)), and
The Chinese Military Companies (“CMC”) List (Section 1260H of the 2021 NDAA) (also known as the “1260H List”).

VHA and DLA Enter Into Another Interagency Agreement: Déjà Vu All Over Again?

Merle M. DeLancey, Jr. ●

In March 2025, the Defense Logistics Agency (“DLA”) and the Veterans Health Administration (“VHA”) entered into another interagency agreement. The agencies announced that the purpose of the 10-year, $3.6 billion agreement is to align supply chain requirements and centralize logistical support DLA will provide to all VHA healthcare facilities nationwide.

The 2025 agreement follows three DLA and VHA interagency agreements entered into between 2018 and 2020. In 2018, DLA and VHA entered into an agreement under which VHA began transitioning its medical supplies purchasing to DLA’s Electronic Catalog (“ECAT”). In 2019, the agencies entered into another interagency agreement which allowed VHA to access medical and surgical items by leveraging the DLA supply chain and provided for creating a centralized ordering system, rather than using the separate VHA and DLA systems.

Claims Court Breathes Life into Another Path to Protest OTAs

Merle M. DeLancey, Jr. ●

On Monday, February 24, 2025, the Court of Federal Claims (“COFC”) released the public version of a February 13 decision declining to dismiss Raytheon Company’s protest of a $648.5 million award under the Missile Defense Agency’s (“MDA”) interceptor development program. Judge Armando O. Bonilla held that the award was within the court’s jurisdiction over Other Transaction Authority agreements (“OTAs”).

Unsuccessful offerors have had difficulty finding a tribunal with jurisdiction over post-award protests involving OTAs. Under COFC and U.S. General Accountability Office (“GAO”) precedent, an offeror’s ability to protest an OTA award is limited. OTAs are not considered procurement contracts. They are considered non-traditional acquisitions usually involving innovative research and development or prototyping services. They are not based on the Federal Acquisition Regulation (“FAR”) or Defense Federal Acquisition Regulation Supplement (“DFARS”) and are not subject to the Competition in Contracting Act (“CICA”). Under CICA and the GAO’s Bid Protest Regulations, GAO’s bid protest jurisdiction is limited to protests concerning alleged violations of federal agency procurement statutes or regulations in the award or proposed award of contracts for the procurement of goods and services, and solicitations leading to such awards. Under the COFC’s Tucker Act bid protest jurisdiction, COFC’s review is limited to protests “in connection with a procurement or a proposed procurement.” Disappointed OTA competitors also have been unsuccessful seeking relief in U.S. Federal District Courts.

Timely Protesting Non-Solicitations at GAO

Merle M. DeLancey, Jr. and Michael J. Slattery ●

The Government Accountability Office’s (“GAO”) rules for timely protesting non-solicitations can be confusing. Offerors (or potential offerors) diligently monitoring SAM.gov need to focus on the substance of a non-solicitation posting and not simply the name or subject line an agency uses for the posting. Postings titled Notices of Intent, Sources Sought Notices (“SSN”), and Requests for Information (“RFI”) (collectively “pre-solicitation notices”) are common but the information therein can be different even for nearly identical titled postings. For example, one agency’s RFI might request that interested parties submit statements of interest or capabilities while another agency’s RFI has no such requirement. Companies need to carefully review these pre-solicitation notices to determine if they must protest the notice to be timely under GAO’s rules, or if they can wait and protest the terms of a subsequently issued solicitation.

The general rule is that GAO only has protest jurisdiction over actual solicitations—not pre-solicitation notices—since the pre-solicitation notice does not set forth the actual final requirements of an agency, but only a draft of the eventual requirements. Protests of such pre-solicitation documents that do not reflect the final actual requirements of the agency will be dismissed as premature, as they only anticipate improper agency action. See F-Star Zaragosa Port, LLC, B-417414.1, B-417414.2, Apr. 15, 2019, 2019 U.S. Comp. Gen. LEXIS 110 at *1; see also AeroSage, LLC, B-415893, B-415894, Apr. 17, 2018, 2018 Comp. Gen. ¶ 142 at 4-5 (explaining that “a sources sought notice is a request for information by the agency and not a solicitation that anticipates the award of a contract”); Onix Networking Corp., B-411841, Nov. 9, 2015, 2015 Comp. Gen. ¶ 330 at 5 (concluding that a request for information provided to prospective vendors is not a “solicitation that embodies [the agency’s] actual requirements”); Sigmatech, Inc., B-296401, Aug. 10, 2005, 2005 Comp. Gen. ¶ 156 at 4 (finding that a “sources sought notice is not a solicitation”).

Biden Administration Prioritizing Domestic Production of Pharmaceuticals . . . Again?

Merle M. DeLancey, Jr. ●

On November 27, the Administration announced another blue-ribbon panel to bolster the domestic manufacturing of pharmaceuticals. This one is called the Supply Chain Resilience Council. Co-chairs of the Council are Lael Brainard, Director of the White House National Economic Council, and Jake Sullivan, the White House National Security Advisor. Among the other 25 Council members are multiple agency Secretaries; the U.S. Trade Representative; the Chair of the White House Council of Economic Advisers; and the Directors of National Intelligence, the Office of Management and Budget, and the Office of Science and Technology Policy. The Council does not include any industry representatives.

A major part of the Council’s plan to bolster domestic manufacturing is providing the Department of Health and Human Services (“HHS”) with expanded authorities under Title III of the Defense Production Act (“DPA”) to invest in domestic manufacturing of essential medicines, medical countermeasures, and other critical inputs deemed crucial for national security. HHS will be granted DPA authority beyond what it was given during the COVID pandemic.

Government Offerors—There Are No Foolish Questions

Merle M. DeLancey, Jr. ●

The Government Accountability Office (“GAO”) regularly denies protests because an offeror made assumptions in its proposal. To the offeror, such assumptions seem perfectly reasonable but to an agency the assumptions are incorrect or contrary to the agency’s intended procurement approach. As a result, the offeror’s proposal is rejected as non-compliant.

If the offeror files a GAO protest, GAO will likely dismiss the protest as being untimely, stating that the offeror was required to challenge a solicitation’s terms and conditions prior to the deadline for the submission of proposals. This scenario is frustrating because it likely could have been avoided had the offeror simply asked the agency questions.

Frequently, clients ask us to opine on what information an agency is seeking in a solicitation or how to interpret a term in a solicitation. These questions are often asked shortly before an offer is due. While we do our best, our guidance is not a substitute for agency guidance. We appreciate offerors are busy. Most prepare proposals based on due dates. As a result, by the time an offeror begins to prepare its proposal, the solicitation’s Q&A period is over.

1. Background: From Contract Dispute to Presidential Directive

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