The recent U.S. Supreme Court decision in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College is poised to significantly influence Diversity, Equity, and Inclusion (“DEI”) practices and Environmental, Social, and Governance (“ESG”) programs and affirmative action requirements for government contracts. This landmark decision has far-reaching implications and is being exploited by advocacy groups to challenge current norms.
On Thursday, September 28 at 12 p.m. ET / 9:00 a.m. PT, please join special guest speaker Victoria Lipnic, former EEOC Commissioner and Human Capital Strategist, and guest speaker Paul White, both partners at Resolution Economics LLC, along with Blank Rome partners Dominique Casimir, Yelena Barychev, and Anthony Haller, for a Blank Rome-hosted webinar to explore the intricate implications of this landmark case and offer actionable insights for navigating them effectively.
2023 is shaping up to be a major year in False Claims Act (“FCA”) practice, with the Supreme Court weighing in on both FCA scienter (in SuperValu) and the reach of the government’s dismissal authority (in Polansky), and the government focusing its enforcement efforts around antitrust, cyber, and national security. We focus today on the United States ex rel. Schutte v. SuperValu, Inc. decision, in which the Supreme Court held that a contractor’s subjective belief about its compliance at the time it submitted claims for payment is relevant to whether it had the requisite scienter for FCA liability. Much has been written on this case, with most articles exploring esoteric concepts like “scienter,” “falsity,” and the “objectively reasonable person.” But assuming—as we do—that the decision will reduce the prospect of successful early dispositive motions, what practical steps can contractors take to reduce their False Claims Act exposure and avoid litigation in the first place? We offer three suggestions.
We begin with a basic refresher on the issue presented in SuperValu. A defendant is not liable under the False Claims Act unless it “knowingly” (including acting with “reckless disregard”) submits a false claim to the government. The “knowing” scienter element—particularly around reckless disregard—can be difficult to prove in the world of complex and often ambiguous laws and regulations that govern contractors’ compliance. The federal circuits had split on the issue of whether a defendant’s subjectiveinterpretation at the time it submitted claims for payment to the government was relevant to determining FCA “knowledge” if the defendant could later show that the underlying rule was ambiguous and its conduct (regardless of its contemporaneous understanding or belief) was consistent with an objective, reasonable interpretation of the unsettled requirement. SuperValu resolved the debate by holding that whether a defendant knowingly violated the FCA—and satisfied the scienter element—must consider the defendant’s real-time “knowledge and subjective beliefs.” United States ex rel. Schutte v. SuperValu, Inc., 143 S. Ct. 1391 (2023).
In 2021, federal government prime contractors and subcontractors found themselves in a difficult situation with respect to COVID vaccination requirements. More than a dozen states enacted laws prohibiting companies from requiring their employees to be COVID-19 vaccinated or even show proof of COVID-19 vaccination as a condition of employment. At the same time, federal government contracts were subject to mandatory employee vaccination requirements in the FAR and DFARS. (i.e., FAR 52.223-99 Ensuring Adequate COVID-19 Safety Protocols for Federal Contractors (OCT 2021) (DEVIATION) and DFARS 252.223-7999 Ensuring Adequate COVID-19 Safety Protocols for Federal Contractors (Deviation 2021-O0009) (OCT 2021). Luckily, the potential conflict was resolved, on May 9, 2023, when President Biden signed Executive Order (“EO”) 14099, Moving Beyond COVID–19 Vaccination Requirements for Federal Workers, which revoked EO 14042, Ensuring Adequate COVID Safety Protocols for Federal Contractors. EO 14099 directed agencies to rescind any policies that were adopted to implement EO 14042. Thus, the potential conflict between inconsistent federal and state laws concerning COVID-19 vaccinations was mooted.
A new conflict between state and federal procurement requirements may be brewing for federal prime contractors and subcontractors concerning race-based employment preferences and diversity policies after the Supreme Court decision in Students for Fair Admissions v. Harvard and Students for Fair Admissions v. UNC.
Welcome back to our “Lifecycle of a Claim” series. This series explores the Contract Disputes Act claims process, with practical guidance stemming from recent case law every step of the way. Click the subscribe button on this page to get timely updates right in your inbox!
Our previous posts are available at the following hyperlinks: Part I, Part II, and Part III. This post focuses on Steps 6 through 8 of this process: reviewing the Contracting Officer’s Final Decision (“COFD”), accepting or the appealing the COFD, and resolving or litigating the matter.
We begin with these essential questions: What is a COFD? What can a contractor do if it does not like the COFD? And what is the timeline to appeal a COFD?
What Is a COFD?
A COFD is a Contracting Officer’s (“CO”) decision on the merits, which provides the reasons for the decision and notifies the contractor of its appeal rights. 41 U.S.C. § 7103(d)-(e). The FAR describes a COFD as a written decision that:
i. Describes the claim or dispute
ii. References pertinent contract terms
iii. States the factual areas of disagreement
iv. States the CO’s decision, with supporting rationale
v. includes notice of contractor’s appeal rights “substantially as follows:”
Building on recent and ongoing efforts to limit Chinese government access to government contractor supply chains, the FAR Councils published an interim rule effective June 2, 2023, that will broadly ban TikTok on contractor and contractor employee electronic devices used in the performance of federal contracts. The ban will be implemented through a new contract clause at FAR 52.204-27. Expect to see the clause added in all future solicitations (including commercially available off-the-shelf (“COTS”) acquisitions and micro-purchases) and added to existing contracts over the next month. We answer seven common questions on this new interim rule and offer several compliance tips.
The new TikTok ban broadly prohibits contractors from having or using a “covered application” (e.g., TikTok or other successor applications by ByteDance Limited, a privately held company headquartered in Beijing, China) on any “information technology” used in the performance of a government contract. The ban applies regardless of whether the technology is owned by the government, the contractor, or the contractor’s employees. Bottom line, the rule has a (very) broad reach—it applies to contracts below the micro-purchase threshold, contracts for commercial products and services, and COTS items.
After several Federal District Courts issued injunctions against the federal contractor vaccine mandate in December 2021, the Federal Government issued guidance fully suspending its enforcement of the federal contractor mandate. Despite the guidance, the future of the federal contractor vaccine mandate continued to remain in a state of limbo. This was best demonstrated two weeks ago when the Ninth Circuit sided with the Federal Government by lifting the district court’s preliminary injunction of the federal contractor vaccine mandate. The Ninth Circuit’s decision created a split with the Fifth, Sixth, and Eleventh Circuits that have enjoined the mandate. This Circuit split was likely headed to the United States Supreme Court.
On May 1, 2023, all of this changed. The Biden Administration announced its plan to end its federal contractor vaccine mandate on May 11, 2023, the same day the public health emergency ends. Accordingly, the Administration plans to issue an Executive Order “rescinding the vaccination requirement for federal employees and COVID-19 safety protocols for federal contractors, effective at 12:01 am on May 12, 2023.” For Federal Contractors | Safer Federal Workforce. Until then, the guidance suspending the enforcement of the federal contractor mandate remains in effect.
This should be the end of the federal contractor vaccine mandate; however, we will know more by May 11, 2023. Stay tuned for further developments.
A successful False Claims Act (“FCA”) claim must show that the defendant submitted a false claim or statement “knowingly.” The “knowing” element—the scienter prong—depends on whether the defendant actually knew that the claim or statement was incorrect, or recklessly disregarded the facts or legal requirements that rendered the claim “false.” But, of course, government regulations, contract terms, and grant requirements can be incredibly complex and difficult to understand. When the ground rules are unclear, how does a company “know” that its claims for payment may be false under the FCA?
What does the FCA say about “knowing”?
The FCA defines “knowing” as (1) having “actual knowledge of the information;” (2) acting “in deliberate ignorance of the truth or falsity of the information;” or (3) acting “in reckless disregard of the truth or falsity of the information.” 31 U.S.C. § 3729(b). A “specific intent to defraud” is not required for liability under the FCA.
For over 18 months, the Biden Administration has discussed incorporating certain climate-change measures into the federal procurement system. A recent proposed rule forecasts where the Administration may be headed. In a nutshell, the proposed rule would require contractors receiving over $7.5 million in annual contract obligations to disclose greenhouse gas emissions. And it would require those receiving over $50 million in annual contract obligations to also set greenhouse gas reduction targets. Though the rule remains open to comment (through February 13, 2023), the FAR Council has tentatively tied compliance with the rule to responsibility determinations—making this a key new compliance frontier for many government contractors. This post summarizes the proposed rule, including implementation and enforcement mechanisms.
Climate change has been a procurement priority since early in the Biden Administration. In May 2020, the President issued Executive Order (“E.O.”) 14030, which directed the FAR Council to consider amending the FAR to require contractors to publicly disclose greenhouse gas (“GHG”) emissions and climate-related financial risk, have these entities set science-based GHG-reduction targets, and ensure that federal procurements minimize climate change risk.
Last month, we wrote about a proposed amendment to the FY 2023 National Defense Authorization Act (“NDAA”) that would prohibit contractors from selling certain Chinese semiconductor technologies to federal agencies and from using these same covered products and services. This measure was added through Section 5949 of the NDAA.
On December 6, the House passed a compromise version of the NDAA, which appears to scale back the semiconductor ban by applying it only to federal sales of covered products and services, without also banning contractors from using them. However, the explanatory statement accompanying the NDAA suggests contractors (including their affiliates and subsidiaries) may ultimately be prohibited from using covered semiconductor technologies—which would raise a host of compliance and implementation concerns.
Compromise Version of NDAA Limits Semiconductor Ban to Federal Sales
Section 5949 bans semiconductor products and services from Semiconductor Manufacturing International Corporation, ChangXin Memory Technologies, and Yangtze Memory Technologies Corp., plus their subsidiaries and affiliates. This ban was modeled after the supply chain restrictions from Section 889, which prohibit contractors from selling and using covered telecommunications and video surveillance equipment from five Chinese telecom companies.
On October 18, 2022, Senate Majority Leader Chuck Schumer (D-NY) issued a press release signaling a potentially significant expansion of Section 889 through a proposed amendment to the 2023 National Defense Authorization Act (“NDAA”). Schumer’s proposal is aimed at extending the telecommunications supply chain prohibitions in Section 889 to the semiconductor manufacturing industry.
Section 889 currently prohibits contractors from providing the federal government or using any products or services that incorporate “covered telecommunications equipment or services” from five Chinese telecom companies and their affiliates and subsidiaries: (1) Huawei Technologies Company, (2) ZTE Corporation, (3) Hytera Communications Corporation, (4) Hangzhou Hikvision Digital Technology Company, and (5) Dahua Technology Company.
Schumer’s 2023 NDAA amendment would expand Section 889 by banning semiconductor products like microchips from the following three Chinese entities: (1) Semiconductor Manufacturing International Corporation (“SMIC”), (2) ChangXin Memory Technologies (“CXMT”), and (3) Yangtze Memory Technologies Corp. (“YMTC”). Schumer noted that these companies have known links to the Chinese state security and intelligence apparatuses. The amendment is aimed at filling a gap in federal procurement restrictions that currently do not include semiconductor technology and services, creating a vulnerability for cyberattacks and data privacy. The amendment would not take effect until three years after the NDAA’s enactment, or until 2025.
Although we do not yet know whether Schumer’s amendment will be incorporated into the final NDAA bill, contractors should nevertheless begin evaluating their supply chains to identify any semiconductor products from any of the three named Chinese manufacturers. Schumer’s amendment signals a continually expansive interpretation and enforcement of Section 889, which may be reflected in the final rulemaking for Section 889. The current FAR docket anticipates a final rule in December 2022, although these deadlines continue to be moving targets.