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DOJ Looks to Incentivize Whistleblowers with New Pilot Program

On March 7, 2024, Deputy Attorney General Lisa Monaco announced that the Department of Justice (“DOJ”) is designing and launching a pilot program to pay monetary rewards to whistleblowers who report significant corporate or financial misconduct. The pilot program, which will roll out later this year, is intended to encourage individuals to report misconduct and for companies to further invest in their internal compliance and reporting systems.

Several agencies have already established similar programs that reward whistleblowers financially, including the U.S. Securities & Exchange Commission (“SEC”) and the Commodities Futures Trading Commission (“CFTC”). Those programs, however, are limited in scope to each agency, resulting in what Monaco referred to as a “patchwork quilt” that does not address the full range of corporate and financial misconduct. The new pilot program is intended to fill these gaps.

Key Aspects of Pilot Program

Over the next 90 days, DOJ will be engaging in a “policy sprint” to gather information, consult with stakeholders, and design the pilot program. DOJ’s Money Laundering and Asset Recovery Section (“MLARS”) will lead the development and administration of the program.

The program’s core concepts will include the following:

Award Thresholds: DOJ expects to establish a monetary threshold to focus its resources on the most significant cases. Both the SEC and CFTC whistleblower programs limit rewards to cases in which the agency orders sanctions of one million dollars or more. DOJ may end up adopting a similar threshold.
Victim Compensation: Whistleblowers will only receive payment after all victims have been compensated.
“First in the Door”: Eligibility is limited to whistleblowers who provide truthful information not already known to the government. The information cannot be in response to any government inquiry, pre-existing reporting obligation, or imminent threat of disclosure. As Monaco emphasized, “you have to tell us something we didn’t already know.”
No Criminal Involvement: Whistleblowers cannot be involved in the criminal activity itself.
No Existing Incentive Programs: The program applies only in cases where there is no existing disclosure incentive, including qui tam provisions of the False Claims Act or another federal whistleblower program.

Enforcement Priorities

Although DOJ seeks information about any violation of federal law, Monaco clarified that the government is primarily interested in:

Criminal abuses of the U.S. financial system;
Foreign corruption cases outside the SEC’s jurisdiction; and
Domestic corruption cases, especially involving illegal corporate payments to government officials.

What to Expect from the Pilot Program?

Increase in voluntary disclosures

The new whistleblower program builds on DOJ’s prior efforts to strengthen corporate enforcement by encouraging voluntary disclosures. With the new pilot program offering monetary rewards to those “first in the door,” companies assessing whether to self-report potential misconduct must consider whether a whistleblower might get to DOJ first (thereby preventing the company from reaping the benefits of a voluntary disclosure). This may encourage companies to self-report misconduct earlier and more often. As Monaco stated, “[O]ur message to whistleblowers is clear: the Department of Justice wants to hear from you. And to those considering a voluntary self-disclosure, our message is equally clear: knock on our door before we knock on yours.”

More referrals to DOJ—and potentially fewer internal whistleblower reports

With the prospect of potentially significant financial rewards, we can expect more employees to report wrongdoing directly to DOJ, rather than going through corporate whistleblower channels. Companies should therefore ensure employees are aware of and have easy access to whistleblower hotlines to encourage internal reporting.

Focus on non-public companies

One of the “gaps” DOJ seeks to fill with the whistleblower program is to target foreign corruption cases outside the jurisdiction of the SEC, which already has its own whistleblower program. Thus, DOJ is likely to focus on suspected violations by non-public corporations.

We expect more information on program details and implementation over the coming months and will follow up with further updates.

More Cases and Expanded Data Analytics: A Closer Look at DOJ’s FY 2023 False Claims Act Statistics

Dominique L. Casimir, Luke W. Meier, and Oliver E. Jury ●

The United States Department of Justice (“DOJ”) recently announced its statistics for False Claims Act (“FCA”) FY 2023 settlements and judgments. DOJ recovered $2.68 billion in FY 2023; as usual, the majority of these recoveries (nearly 70 percent, or $1.8B) came from the healthcare industry. DOJ continues to make use of data analytics to inform its enforcement activity.

Background

Comparing year-to-year variance in the volume of DOJ’s FCA recoveries provides only marginal utility. More telling is the rapid expansion of the non-qui tam matters opened during the past two years. In FY 2022, DOJ opened 305 non-qui tam matters, representing approximately 186 percent of its prior ten-year average (164). In FY 2023, this increase continued, with DOJ opening 500 non-qui tam matters—305 percent of the ten-year average over FY 12–21.

Deadline Looms for the Submission of Comments on FAR Council’s Proposed Rule Updating Federal Debarment Procedures

Dominique L. Casimir and Patrick F. Collins ●

Introduction

The United States spends hundreds of billions of dollars annually on government contracts, grants, and other forms of federal assistance. Although most entities that receive these awards are good business partners, the government must protect itself from those that lack integrity. One of the ways the government does this is by imposing suspension or debarment, which renders an entity broadly ineligible to receive federal awards for a specified period.

The suspension and debarment regulations at Federal Acquisition Regulation (“FAR”) Subpart 9.4 (which apply to procurement contracts) and at 2 C.F.R. Part 180, known as the Nonprocurement Common Rule (“NCR”) (which apply to nonprocurement transactions such as grants) have remained relatively unchanged for many years. But change may be on the horizon, as the FAR Council recently issued a proposed rule that aims to better harmonize the two regulatory regimes. The period for public comment closes on March 11, 2024—one week from today. Rulemaking is infrequent in this area, so the final rule will be highly anticipated.

Meet Our Newest Partner, Robyn Burrows

Justin A. Chiarodo, Dominique L. Casimir, and Robyn N. Burrows

In late 2023, we were very happy to announce that Blank Rome Government Contracts associate Robyn N. Burrows was elevated to partner in our Government Contracts practice in Washington, D.C., effective January 2024.

Robyn is a key member of our practice group who represents clients on a wide range of government contracts matters. She has experience preparing and negotiating complex claims and has litigated disputes before the boards of contract appeal and state and federal courts. Robyn has a particular focus on emerging supply chain and cybersecurity issues and has counseled numerous clients on Section 889 compliance. She also provides counseling on cost/pricing issues, domestic preferences, protection of contractor data and intellectual property, and suspension and debarment matters. She has experience navigating clients through False Claims Act investigations and regularly assists clients in high-value bid protests before the Government Accountability Office and U.S. Court of Federal Claims.

Robyn has also developed particular experience with Department of Energy (“DOE”) contracts, and has handled matters involving whistleblower complaints, civil investigative demands, subcontractor disputes, cost-allowability issues, and other unique DOE requirements applying to management and operating (“M&O”) contractors.

Robyn is a member of the Public Contract Law Section of the American Bar Association, where she is Vice-Chair – Contract Claims & Disputes Committee, Vice-Chair – Cybersecurity, Privacy and Emerging Technology Committee, and has served as the Associate Editor for the section’s quarterly journal, The Procurement Lawyer, since 2021. Robyn also serves on the Washington, D.C. Bar Government Contracts Steering Committee.

Before joining Blank Rome, Robyn represented construction clients in federal contracting matters. During law school, she was a research editor for the George Mason Law Review. She interned with the Honorable R. Terrence Ney of the Fairfax County Circuit Court, and with the administrative judges at the Office of Hearings and Appeals of the U.S. Department of Housing and Urban Development.

We took some time to chat with Robyn to see how she is settling into her new position, and to learn more about her, including what she enjoys doing outside of work!

DOD Finalizes Rule Concerning Domestic Content Preference

Samarth Barot and Shane M. Hannon ●

On February 15, the Department of Defense (“DOD”) finalized a rule amending the Defense Federal Acquisition Regulation Supplement (“DFARS”) to supplement the Federal Acquisition Regulation (“FAR”) implementation of Executive Order 14005, addressing domestic preferences in DOD procurement. Defense contractors should be aware of the specific changes and ensure their sourcing and supply chain systems incorporate the updated requirements.

Background

As we discussed in prior posts, in January 2021 President Biden issued an executive order strengthening the Buy American Act’s (“BAA”) preference for domestic products and services in federal procurements. The executive order directed the FAR Council to consider proposing a rule to increase the BAA’s domestic content threshold for domestic end products.

The FAR Council then issued a final rule that increased the domestic content threshold for domestic end products (covered here). Previously, a product was considered a domestic end product if the cost of its components mined, produced, or manufactured in the United States exceeded 55 percent of the cost of all components. The FAR Council’s final rule increased that domestic content threshold to 60 percent and implemented a phased increase to 65 percent in 2024 and 75 percent in 2029. However, the rule also included a fallback threshold of 55 percent if (1) no end products exist that meet the new domestic content threshold or (2) such end products do exist but are unreasonably expensive. This fallback threshold will persist until 2030.

Two Sides to Every Story: When Is Extrinsic Evidence Relevant to Interpreting the Scope of a Contractor Release?

Stephanie M. Harden and David L. Bodner ●

When is it appropriate to consider “extrinsic evidence” of the parties’ intent when interpreting a contractor’s release of claims? A new decision out of the Armed Services Board of Contract Appeals (“ASBCA”), Sonabend Company (ASBCA No. 63359), sheds new light on this important question, denying the government’s motion for summary judgment because the release language it relied on was ambiguous and thus raised an issue of fact.

Signing Releases—An Area Fraught with Risk

Releases are typically presented to the contractor as routine. Simply sign the modification and new work scope or new funding will be added to your contract! But when a contractor signs a modification, it might waive its ability to later pursue a cost claim, even for prior changes not impacted by the modification itself. Thus, it is important to identify modification language that may bar a future claim.

The government typically seeks to bar recovery based on at least one of two legal theories: (1) a release and (2) accord and satisfaction.

Release—a unilateral act by which one party disclaims a contract right or obligation.
Accord and Satisfaction—a bilateral agreement or an accord, where the parties agree to altered performance and the acceptance of such altered performance is satisfaction of the accord, which discharges the claim.

In practice, these theories may apply even though a modification does not announce itself as a release or an accord and satisfaction or a bar to a future claim.

60-Second Sustains: Deloitte Consulting LLP and Softrams LLC

Elizabeth N. Jochum ●

Deloitte Consulting LLP
B-422094; B-422094.2

During the evaluation of the awardee’s quotation, the Department of Homeland Security identified a potential Organizational Conflict of Interest (“OCI”) with one of the awardee’s proposed teaming partners.
The Agency engaged in discussions with the awardee, in which the awardee informed the Agency that the teaming partner with the potential OCI would be immediately removed from the team and would not participate in the program upon award.
Deloitte argued that the agency failed to consider the impact of the teammate’s removal on the awardee’s proposed approach to performance.
The Agency provided declarations asserting that the agency had considered the elimination of the teaming partner and its impact on performance, but the Government Accountability Office (“GAO”) found that those declarations were unsupported by the contemporaneous record and gave them little weight.
GAO sustained the protester’s argument that the Agency’s evaluation was unreasonable because it failed to consider the elimination of the teaming partner.

Deloitte Consulting LLP; Softrams, LLC
B-421801.2,B-421801.3,B-421801.4,B-421801.5,B-421801.6

DISPARATE TREATMENT

Both protesters alleged numerous instances where the Library of Congress engaged in disparate treatment by assessing strengths for elements of the awardees’ proposals that were substantially indistinguishable from the protesters’ proposal features that did not receive strengths.
In most cases, the Agency argued that the strengths in question stemmed from differences between the proposals or that the protesters’ proposal features were, in fact, captured in the evaluation. However, in a few instances, the Agency instead argued that the disparate treatment was insignificant or did not prejudice the protesters.
GAO found these instances amounted to a concession by the Agency that there had been disparate treatment and sustained these protests, since the competition was extremely close and any change in competitive standing could have impacted source selection.

The Department of Defense Clarifies FedRAMP Equivalency Standard

Michael Joseph Montalbano ●

As many Department of Defense (“DoD”) contractors know, if they want to store, process, or transmit covered defense information (“CDI”) with a cloud service provider (“CSP”), then the CSP must meet the security requirements equivalent to those established by the Government for the Federal Risk and Authorization Management Program (“FedRAMP”) Moderate baseline. This begs the question, what is equivalence to the FedRAMP Moderate baseline? Earlier this month, the DoD issued a much-needed memorandum that helps answer this question.

My Company Just Got a Notice of Proposed Debarment. Now What?

Dominique L. Casimir ●

Receiving a Notice of Proposed Debarment from a federal agency Suspending and Debarring Official (“SDO”) is an alarming moment for any government contractor. It means the government believes there is a basis to question whether the entity is “presently responsible.” Debarment is sometimes referred to colloquially as the “death penalty” for government contractors because of its many, potentially devastating effects. A debarred entity is ineligible to receive new government contracts from any executive agency, not just the agency that imposes the debarment. Additionally, any existing federal contracts cannot be augmented or extended and may even be terminated.

Debarment can also seriously disrupt numerous areas of an entity’s business, including prime-sub relationships, teaming arrangements, and the normal function of the supply chain, because companies involved in government contracts ordinarily avoid partnering with debarred entities, and even entities proposed for debarment. Moreover, there are significant reputational impacts associated with debarment and these can affect everything from workplace morale to customer goodwill and even commercial relationships. And finally, debarment casts a long shadow, because even after the debarment ends, an entity will almost certainly be required to disclose the prior debarment as it pursues future government work.

For these reasons, it is critical to respond effectively to a Notice of Proposed Debarment. This blog post offers suggestions to federal contractors who have been proposed for debarment and are wondering what to do next.

60-Second Sustains: American Material Handling, Inc.

Elizabeth N. Jochum ●

American Material Handling, Inc.
B-422171

The Agency, the International Boundary and Water Commission, was buying a brand name or equal wheel loader on a lowest price, technically acceptable basis.
The RFQ stated that the proposed loader had to “meet the salient features or specifications of the [brand name product] or exceed the specifications attached,” and included a two-page specification sheet.
After receiving quotations, the contracting officer added salient characteristics—not expressly included in the solicitation—to the technical evaluation form to be considered during evaluations.
The Agency evaluated the two quotes received and found the protester not technically acceptable based on the salient characteristics added after submission of quotes.
GAO sustained the protest of the evaluation, noting that, in a “brand name or equal” acquisition, the agency has an obligation to inform vendors of the characteristics that are essential to the government’s needs; a product offered as an “equal” one need not meet unstated features of the brand name product.
Here, GAO found the agency “appeared to be deciding what characteristics it considered to be salient for the first time during its evaluation of quotations.”

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