SBA Proposes Anticipated Small Business Subcontracting Rule

Justin A. Chiarodo and Philip E. Beshara

Justin A. ChiarodoPhilip E. BesharaA recent proposed rule issued by the Small Business Administration (SBA) previews long-awaited changes to SBA’s regulations governing small business government contracting programs. These changes will impact both large and small government contractors alike and warrant close attention. This alert highlights key elements in the proposed rule, including major changes to subcontracting limitations for small business set-asides that first arose in the FY 2013 National Defense Authorization Act (NDAA). Given the explosive growth in enforcement for small business program violations, and draconian new penalties for such violations, all contractors should take steps to ensure they comply with the upcoming rule changes.

Changed Method for Calculating Subcontracting Limitations

The FY 2013 NDAA implemented a number of changes to small business programs in federal procurements (we recently covered these changes here). The primary reform in the NDAA—now addressed in the SBA’s proposed rule—is a significant shift in the method of limiting subcontracting under set-aside procurements. The SBA and FAR currently require prime small business concerns on set-aside contracts to incur set percentages of costs incurred under the contract based on the contract type (e.g., at least 50 percent of the personnel or manufacturing costs incurred under service and supply contracts). The challenges in monitoring this cost-based method led Congress to amend the Small Business Act. That statute now limits the percentage of the total contract price a prime awardee can subcontract out. Consistent with the statute, the proposed rule would amend 13 CFR § 125.6 to require small business primes to perform 50 percent of the total contract price for service and supply contracts, 15 percent for general construction, and 25 percent for specialty trade construction. Continue reading “SBA Proposes Anticipated Small Business Subcontracting Rule”

Guidelines for Contractors Considering Giving Gifts to Government Customers

Merle M. DeLancey Jr. and Christian N. Curran

Merle DelanceyChristian N. CurranAs the holiday season approaches, companies may consider giving gifts to their government customers. But companies should be aware of the legal limits imposed on gift giving, which could result in serious penalties if ignored. Generally, federal government employees may not solicit or accept gifts or any other thing of value from prohibited sources. See generally, 5 C.F.R. Part 2635, Standards of Ethical Conduct for Employees of the Executive Branch. A prohibited source is defined as a person or company seeking official action by, doing business with, or seeking to do business with the employee’s agency, or a person or company regulated by the employee’s agency or that has interests that may be substantially affected by the employee’s official duties.

There are exclusions under the definition of “gift” that allow for some leeway in giving. Snacks or light refreshments (e.g., coffee and doughnuts at a seminar, but not as part of a meal) are excluded from the definition of gift. Items of little intrinsic value such as greeting cards are also excluded. Further, anything that a government employee pays “market value” for is not considered a gift. Market value can have varying meanings, but generally is considered face value, what the contractor paid for it, or the open market equivalent, depending on the item. Continue reading “Guidelines for Contractors Considering Giving Gifts to Government Customers”

What Service Contractors Need to Know About the Executive Order Raising the Minimum Wage

 

Merle M. DeLancey Jr. and Stephanie M. Harden

Merle DelanceyStephanie Marie ZechmannStarting January 1, 2015, a minimum wage of $10.10 per hour will apply to certain federal government contracts issued or awarded after that date. This alert provides key details about this new minimum wage that service contractors need to know.

Which Contracts Are Covered?

On February 12, 2014, President Obama signed Executive Order 13658, which instructed the Secretary of Labor to raise the minimum wage on federal construction and service contracts to $10.10 per hour beginning in 2015 and, beginning in January 2016, to an amount set by the Secretary on an annual basis. The Department of Labor issued a final rule implementing this new minimum wage in October 2014. See 79 Fed. Reg. 60,633 (Oct. 7, 2014).

The Department of Labor’s final rule generally extends to the following four categories of “contracts” and “contract-like instruments”:

  1. Procurement contracts for construction services covered by the Davis-Bacon Act (DBA);
    2. Service contracts covered by the Service Contract Act (SCA);
    3. Concession contracts, including any concession contract excluded from the SCA by the Department of Labor’s regulations at 29 C.F.R. § 4.133(b); and
    4. Contracts in connection with federal property or lands related to offering services for federal employees, their dependents, or the general public.

Continue reading “What Service Contractors Need to Know About the Executive Order Raising the Minimum Wage”

Government Contractors and Executive Order – Fair Pay and Safe Workplaces: New Federal Labor Law Compliance Issues

Justin A. Chiarodo, Deborah P. Kelly, and Lyndsay A. Gorton

Justin A. ChiarodoDeborah P. KellyLyndsay A. GortonDOD, FYSA, SITREP – government contractors are familiar with the alphabet soup that goes hand-in-hand with doing business with the federal government as well as most common labor laws and their acronyms: Federal Labor Standards Act, (“FLSA”), the Family and Medical Leave Act (“FMLA”), or Occupational Safety and Health Act of 1971 (“OSHA”). Now, the question is whether contractors comply with these laws and recent developments in government contractor employment law. On July 31, 2014 the White House issued the Executive Order – Fair Pay and Safe Workplaces (the “Executive Order”) which creates new requirements that will add pre and post-award reporting demands on many new government services and construction contracts. The purpose of this alert is to help government contractors sort through the dense language of the Executive Order and provide a roadmap for what to do going forward so that violations of labor laws don’t lead to suspension or debarment.

  1. What’s New? The Basics of Executive Order – Fair Pay and Safe WorkplacesThe Executive Order applies to all new “procurement contracts for goods and services” with an expected value exceeding $500,000. The new requirements do not apply to contracts for “commercially available off-the-shelf items,” or contracts presently being performed. According to the White House Fact Sheet for the Executive Order, the new requirements will be applied in stages, on a “prioritized basis” beginning in 2016. Neither the Executive Order nor the Fact Sheet define “prioritized basis,” but presumably, government contracts with the highest expected values and most hazardous contract conditions will be among the first to report under the new requirements. The 2016 date provides some time for both the Federal Acquisition Regulatory (“FAR”) Council and Department of Labor (“DOL”) to issue guidance for implementation as required by the Executive Order.

Continue reading “Government Contractors and Executive Order – Fair Pay and Safe Workplaces: New Federal Labor Law Compliance Issues”

Does Your State Contract Prohibit Offshore Outsourcing?

Merle M. DeLancey Jr.

So your company has been diligently trying to comply with state and federal government contracting regulations. You pay your service employees in accordance with the Service Contract Act, you file your EEO-1s and VETS 100s, you monitor state campaign contributions, and you follow all of the additional requirements in your compliance plan. You think your company is “golden.” Right? Maybe. Are you “offshoring” services under your contract, or the data related to your state and/or Medicaid government contracts? This easily overlooked issue has been percolating to the top of the list for government agencies, state attorneys general, and perhaps, qui tam plaintiffs’ attorneys.

Offshoring, or “the import from abroad of goods or services that were previously produced domestically,”[1] is a major part of today’s business landscape, and government contracting at both federal and state levels is no exception. The issue of offshore outsourcing of services first drew attention in the world of government contracts in 2004, when the media reported that call centers in India were answering customer service calls from Food Stamp recipients.[2] The controversy faded from the public spotlight, but in response to public outcry some states passed legislation or issued executive orders prohibiting or limiting the practice.

A recent (April 11, 2014) report[3] from the Department of Health and Human Services (DHHS) Office of the Inspector General (OIG) resurfaced the issue of offshoring restrictions in the context of Medicaid contracts. The report reminded contractors that offshoring prohibitions and limitations remain in full force today, and government contractors need to be aware of them. Government contractors must review each individual state contract to ensure compliance with any offshore outsourcing prohibition or restriction. Running afoul of an offshore outsourcing prohibition could have serious consequences. Noncompliance could expose a contractor to suspension, debarment, or even liability under the state’s version of the False Claims Act under the theory that the contractor implicitly certified compliance with a material term of the contract.[4] Continue reading “Does Your State Contract Prohibit Offshore Outsourcing?”

Supreme Court Grants Petition for Review in Carter; Will Address FCA First-to-File Bar and Wartime Suspension of Limitations Act

David M. Nadler

David M. NadlerOn July 1, 2014, the Supreme Court granted the petition for certiorari in Kellogg Brown & Root Services v. United States ex rel. Carter, and now has the opportunity to determine the proper application of the False Claims Act’s first-to-file bar, as well as the inapplicability of the Wartime Suspension of Limitations Act (WSLA) to the civil FCA due to the WSLA’s criminal law context, two critical issues of statutory interpretation that have become increasingly problematic to FCA litigation over the last several years.

The Supreme Court will address two questions presented, which are: (1) whether the WSLA applies to civil FCA claims brought by private relators “in a manner that leads to indefinite tolling,” and (2) whether the FCA’s first-to-file bar, which prohibits parasitic claims, creates a race to the courthouse and encourages relators to promptly disclose fraud, instead “functions as a ‘one-case-at-a-time’ rule allowing an infinite series of duplicative claims so long as no prior claim is pending at the time of filing.” Petition for Writ of Certiorari at *I, Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, 2013 WL 3225969 (U.S. June 24, 2013) (No. 12-1497).

There is a reasonable chance the Supreme Court will reverse the Fourth Circuit on both issues. The petitioners are seeking review of the Fourth Circuit decision United States ex rel. Carter v. Halliburton Co., 710 F.3d 171 (4th Cir. 2013), which suspended the FCA statute of limitations in the civil context through its application of the WSLA, and also transformed the FCA’s first-to-file bar into a “one-case-at-a-time” rule. The defendants petitioned the Supreme Court in June 2013 after a petition to the Fourth Circuit for rehearing was denied. The Court’s decision to grant the petition runs contrary to the recommendation of the Solicitor General, who filed a brief on May 27, 2014 requesting that the petition be denied and defending the Fourth Circuit rulings. Continue reading “Supreme Court Grants Petition for Review in Carter; Will Address FCA First-to-File Bar and Wartime Suspension of Limitations Act”

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”