Helping individuals, companies, and organizations understand key legal and practical considerations for promoting compliance and making better business decisions in these types of federal, state, and local government contracting matters MORE

On February 13, 2019, the U.S. Department of Labor, Office of Federal Contract Compliance Programs (“OFCCP”) issued Directive 2019-04, “Voluntary Enterprise-wide Review Program (VERP).”  VERP is essentially an elective audit program and, while it may seem to have some appealing components, it is hard to imagine how the risk of participation would outweigh the reward for the vast majority of government contractors.

When OFCCP was designing VERP, OFCCP researched the Voluntary Protection Programs (VPP) provided by the Occupational Safety and Health Administration. VPP’s purpose is to “recognize and promote effective worksite-based safety and health management systems.” So, similarly, the stated purpose of VERP is to “establish a voluntary enterprise-wide compliance program for high-performing federal contractors.”

According to OFCCP, the program “blend[s] its compliance evaluation and compliance assistance activities to work with high-performing contractors toward a mutual goal of sustained, enterprise-wide (corporate-wide) compliance, outside of OFCCP’s neutral establishment-based scheduling process.” OFCCP claims this program compliments its Early Resolution Procedure, Directive 2019-02, which provides incentives for early corporate-wide resolution of violations during compliance evaluations, and Opinion Letters and Help Desk, Directive 2019-03, which aims to enhance compliance assistance by making certain Help Desk responses available and searchable.

Contractors need to apply to be admitted into VERP. The application process opens the beginning of the 2020 Fiscal Year. The application process entails OFCCP conducting a compliance review of the contractor’s headquarters location and a sample subset of its establishments. If the applicant is not qualified for the program, OFCCP states it will not automatically place the rejected applicant on a scheduling list to have a compliance evaluation.

If admitted into VERP, the contractor will be assigned into one of two tiers. The top tier consists of top-performing contractors achieving corporate-wide diversity and inclusion. Contractors in the top tier can remain in VERP for a period of five years and be re-evaluated at the five-year mark to stay in the program. The second tier consists of OFCCP-compliant contractors that will received individualized compliance assistance. Contractors in the second tier may remain in the program for three (3) years. OFCCP retains the right to terminate agreements with program participants who do not maintain the requirements of VERP and return the contractors to the pool from which OFCCP schedules compliance evaluations.  The idea is that contractors benefit from the certainty of not receiving a separate audit during the VERP period, as OFCCP agrees to remove VERP participants from the normal audit scheduling process.

Should My Company Consider VERP?

It is hard to imagine a situation in which the benefits of participating in VERP outweigh the risks.  First, VERP applicants essentially automatically subject themselves to multiple compliance reviews—a headquarters audit and a sample subset of establishments.  Normally, audits are conducted on an establishment-specific basis; VERP would entail multiple reviews going on at once.  While this can happen through the normal audit scheduling process, it is a guarantee with VERP as currently described.

Second, as any contractor who has been through an OFCCP audit knows, compliance reviews can consume an extreme amount of time and money.  It is unclear how extensive the compliance review under VERP will be compared with a typical audit, but audit defense can cost tens of thousands of dollars depending on the audit length and depth.

Third, applying for VERP does not equate to being selected for participation in VERP, so a contractor may go through all of the time and expense of the VERP application process without any ultimate benefit at all.  And while OFCCP claims it will not automatically place a rejected applicant on an audit scheduling list, a rejected applicant will just necessarily be on OFCCP’s radar.

Finally, the major “benefit” to VERP—the certainty of not being unexpectedly subjected to an audit for some period of time—is not much of a benefit since the odds of being subjected to an audit are low anyway.  A Government Accountability Office report from September 2016 found that OFCCP conducts evaluations for only 2 percent of federal contractor establishments annually, and of that amount, the vast majority had no adverse findings at all.  Only 2 percent of the audits resulted in findings of discrimination.

If you are considering participating in VERP, we recommend consulting legal counsel to determine whether there is a unique reason why the benefits may outweigh the risks.

As most federal government contractors know, the False Claims Act (“FCA”), 31 U.S.C. §§ 3729–33, can be a trap for the unscrupulous. The penalties associated with FCA violations can be steep, and the myriad other consequences (including debarment) can create an existential crisis. Government contractors would do well to pay attention to the FCA’s latest developments.

The Supreme Court will soon rule on a very consequential aspect of the FCA. At the outset, a brief overview of how an FCA claim works is in order. There are three different ways that an FCA claim can be adjudicated. First, the federal government itself (by way of the Attorney General) can bring a suit against a violator. Second, a private plaintiff (known as a “relator”) may bring a qui tam lawsuit in the name of the United States against a violator. Third, an individual may bring an action against an employer who has retaliated against him for helping with an FCA investigation or case. The Supreme Court’s forthcoming ruling will pertain to the second adjudicative mechanism—the relator’s qui tam suit against the violator.

When a relator brings a qui tam action, he must do so by filing a complaint under seal (i.e., not available to the general public) and serving it on the United States (i.e., the Attorney General). While the suit is under seal, the United States may investigate and decide whether to intervene as a party. If the United States intervenes, then it assumes “primary responsibility for prosecuting the action.” 31 U.S.C. § 3730(c)(1). If the United States does not intervene, the relator may proceed with the action on behalf of the government. Id. § 3730(c)(3).

Importantly, the FCA has a statute of limitations for bringing a claim against a violator:

  • (b) A civil action under section 3730 may not be brought—
    • (1) more than 6 years after the date on which the violation of section 3729 is committed, or
    • (2) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed, whichever occurs last.

31 U.S.C. § 3731(b). For several years, courts of appeal have been divided on key questions related to the application of these limitations periods in a qui tam action. First, does the limitations period of (b)(2) listed above apply when the United States decides not to intervene in a qui tam action? And second, if (b)(2) does apply even when the United States does not intervene, on whose knowledge does the limitations depend—the relator’s or a United States official’s? These are important questions because, as is clear from the law’s text, the answers could significantly extend the time a relator has to bring a qui tam action.

Not surprisingly, courts of appeal are split on these questions. The Fourth and Tenth Circuit Courts of Appeal have held that applying section (b)(2) to a case where the United States does not intervene would be absurd because otherwise the timeliness of the action would depend on the knowledge of a non-party. See United States ex rel. Sanders v. N. Am. Bus. Indus., Inc., 546 F.3d 288 (4th Cir. 2008); United States ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d 702 (10th Cir. 2006). In other words, those courts would not apply (b)(2) at all to a situation in which the United States declined to intervene.

The Third and Ninth Circuit Courts of Appeal have held that (b)(2) does apply to a case where the United States does not intervene—and, what is more, they have held that the 3-year limitations period depends on the relator’s knowledge of the material facts, not the United States’. See United States ex rel. Malloy v. Telephonics Corp., 68 F. App’x 270 (3d Cir. 2003); United States ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211 (9th Cir. 1996).

This past year, the Eleventh Circuit Court of Appeal took a different tack than its sister circuits. In United States ex rel. Hunt v. Cochise Consultancy, Inc., 887 F.3d 1081 (11th Cir. 2018), the court held that (b)(2) does apply to a case where the United States does not intervene, but also held that the 3-year limitations period depends on when a United States official knew of the underlying material facts.

Needless to say, the current state of the law is in chaos. It is no surprise that in November 2018, the U.S. Supreme Court granted certiorari and will settle these important statute of limitations questions once and for all. Expect a decision sometime this summer.

Effective February 25, 2019, all small (between 0.55 and 55 pounds) unmanned aircraft systems (UAS) are required to display the Federal Aviation Administration (FAA) registration number on the external surface of the aircraft. This is according to the FAA interim final rule: External Marking Requirement for Small Unmanned Aircraft, published on February 13, 2019. FAA previously allowed such registration numbers to be displayed internally.

Background

The FAA requires registration of small UAS. Upon registration, pursuant to 14 C.F.R. Part 48, the FAA provides UAS owners with a FAA registration number that must be displayed on the aircraft and maintained in legible condition upon visual inspection. See also Registration and Marking Requirements for Small Unmanned Aircraft, 80 Fed. Reg. 78593 (December 16, 2015). Previously, the FAA allowed registration numbers to be affixed to or displayed on UAS within an enclosed compartment, such as a battery compartment, so long as the number is “readily accessible”, without the use of tools. In 2016-2017, the law enforcement community expressed concerns that without an external display of registration devices, first responders could be subjected to a heightened risk of a concealed explosive device. The FAA agreed to impose the external display requirement but postponed doing so because of pending litigation involving the FAA’s Part 48 registration requirements. Congress removed that impediment, however, in December 2017 in the National Defense Authorization Act for Fiscal Year 2018 which affirmed the small UAS registration rules. The FAA issued the interim final rule last week with a remarkably brief period before the effective date to avoid any increased risk during a comment period as a result of “attention drawn to the vulnerability.”

Penalties for FAA violations can be wide-ranging based on the severity of the offense involved.

Request for Comments

The FAA is soliciting comments containing relevant information, data or views on the interim final rule. Comments must be received on or before March 15, 2019 and should include the docket number: “FAA –2018–1084.”

New Proposed Rulemaking for Operations Over People

In addition to the new external display requirements, on February 13, 2019, the FAA also published a notice of proposed rulemaking (NOPR) for Operation of Small Unmanned Aircraft Systems Over People. The proposed rule would, among other things, allow operations of small UAS over people [under certain conditions] and operations of small UAS at night without obtaining a waiver. Comments must be received on or before April 15, 2019 and should include the docket number: “FAA–2018–1087.”

For further details about the new requirements and notice of proposed rulemaking, contact one of the Stinson Leonard Street’s Unmanned Aircraft Systems and Autonomous Vehicles attorneys.

A group of U.S. government contractors are being accused of entering into illegal no-poaching agreements with each other. On February 7, a putative class consisting of current and former employees filed suit against Booz Allen Hamilton, CACI, and Mission Essential alleging antitrust violations. See Hunter v. Booz Allen Hamilton Holding Corp., No. 2:19-CV-411 (S.D. Ohio). The plaintiffs, who all worked at the Joint Intelligence Operations Center Europe Analytic Center in Molesworth, England, claim their employers agreed not to hire each other’s employees, in violation of U.S. antitrust laws including the Sherman Act and Clayton Act.

The terms of the government contracts required the contractors’ employees to be U.S. citizens with top-secret security clearances. According to plaintiffs, due to the relative scarcity of prospective employees matching these criteria who were also willing to move to England, such workers were in high demand and generally able to move freely between defendants to increase their compensation. Plaintiffs allege defendants made the no-poach deal to fix and maintain compensation for skilled labor at artificially low levels.

The lawsuit alleges these actions had the effect of eliminating competition for skilled labor, restricting employee mobility, and suppressing wages for the purpose of increasing profits. According to the Complaint, due to the high cost of moving back to the United States and the lack of employment opportunities in England outside the intelligence contracting world, workers “were essentially defendants’ captives.”

Plaintiffs seek a finding that the defendants’ actions are per se violations of the Sherman Act. Plaintiffs are likely to rely heavily on an October 2016 joint publication issued by the US Department of Justice and Federal Trade Commission, Antitrust Guidance for Human Resources Professionals, which states that “an agreement among competing employers to limit or fix the terms of employment for potential hires may violate antitrust laws if the agreement constrains individual firm decision-making with regard to wages, salaries, or benefits; terms of employment; or even job opportunities.” According to the publication, naked wage-fixing or no-poaching agreements among employers are per se illegal under the antitrust laws.

However, Plaintiffs in this case may have a steep hill to climb. In a recent filing in a separate class action, the U.S. Department of Justice (“DOJ”) cast doubt on employers’ ability to rely on the 2016 publication. The DOJ argued that no-poach deals that are part of a broader business relationship or collaboration between the companies may warrant the rule of reason analysis, which requires that plaintiffs prove the harm done by anti-competitive conduct outweighs any pro-competitive results.

Before entering into any agreements related to no-poach, no-solicit, no-hire or other restrictions between employers, government contractors should consult with counsel to ensure their agreements and practices do not violate antitrust laws. Restrictive agreements should be carefully crafted and limited so the restraint aligns with the legitimate needs of the employer.

For further information about E.O. 13858 and how the new requirements may impact your business, contact one of the members of Stinson Leonard Street’s Government Contracts and Investigations Practice Group.

 

Over the past few months, the threat of a partial government shutdown became real. The initial shutdown broke the record for the longest shutdown in U.S. history – it lasted 35 days.  It was resolved by continuing resolution, but the threat returned when the resolution was approaching its end. The threat for this fiscal year was resolved by a bill to fund the government through to September 30, 2019.  However, after the President signed that bill into law, on Friday, February 15, 2019, he declared a national emergency under the National Emergencies Act to address “the crisis at our Southern border and stop crime and drugs from flooding into our Nation.”  The Administration has identified up to $8.1 billion in funds to reprogram in order to fund border wall projects.  According to the White House, “Projects are being planned for FY 2019 and beyond.”

This means that the President will be directing the affected agencies, including the Department of Defense and the Department of Homeland Security, to divert funds that were appropriated for specific programs and contracts and use them to fund activities under this emergency action.  Lawsuits challenging the President’s authority to take this action have already been filed and more are expected.

What does this mean for government contractors?

This means that government contractors are not out of the woods as these funding decisions and actions may have ripple effects across a variety of government programs and contracts, including their own.  For example, in order to fund the specific programs and contracts needed to address the President’s declared emergency, the Executive branch’s management and budget arm–the U.S. Office of Management and Budget–will be directing specific executive agencies to assess and take actions to free up funds that are currently intended for other activities and contracting actions. The agencies involved in these activities will have to determine which specific programs and funds to use to accomplish these objectives.  This could result in agency decisions to reprogram  money from a planned or ongoing procurement or contract so that it funds a different procurement or contract.

Moving funds out of a procurement could result in the delay or even cancellation of that procurement. Diverting funds from a given program could cause an agency not to exercise an upcoming option under the existing contract. Where incrementally funded contracts are involved, such changes could result in the agency’s deciding to provide no further funding for that contract.  In certain cases, the agency could opt to reduce the scope or even terminate a pending contract to make funds available.

With regard to contracting actions to address the emergency, the agency could solicit and enter into contracts with partial or no funding, and provisions that subject the contract to funding limitations, e.g., clauses restricting contracting based on the availability of funds, limitation of funds, or some other restraint.  These procurements may also may be subject to  court or administrative challenges.

What should you do now?

  • As a contractor, take stock of your contracts and procurements, and assess your potential contractual and extra-contractual risks and options.
  • Evaluate your contracts to determine such things as whether and to what extent your contracts are funded now, or if they will need funding in the future.
  • Take stock of your contractual obligations and potential provisions for seeking and obtaining relief
  • If you have employees or subcontracts that might be impacted, assess these agreements and contracts for risks and options as well
  • If you do receive notice to stop work, or directions that impact your contract’s scope, funding, period or method of performance, or schedule–even if it is a notice of a termination for convenience–you may have rights and potential remedies
  • If you are involved in a pending or future procurement, consider your options for circumscribing your risks. Additionally, be on the lookout for agency or outside actions that may adversely impact the procurement or your rights under it.

As a government contractor you may have rights and remedies in these situations.  It is important to consult with counsel as early in the process as possible to assess your range of rights, options and potential remedies.

For further information concerning the potential impacts of the National Emergency on your business, contact one of the members of Stinson Leonard Street’s Government Contracts and Investigations Practice Group.