On September 22, 2020, President Trump issued the Executive Order on Combating Race and Sex Stereotyping (“EO”) establishing requirements aimed at “promoting unity in the Federal workforce,” by prohibiting workplace training on “divisive concepts,” including “race or sex stereotyping” and “race or sex scapegoating” as newly-defined in the EO.  The EO is broadly applicable to executive departments and agencies, Uniformed Services, Federal contractors, and Federal grant recipients.  The EO expands on a letter issued in early September by the Director of the Office of Management and Budget (“OMB”) that directed all agencies to begin to identify contracts or other agency spending on trainings that include “critical race theory,” “white privilege,” or “un-American propaganda,” in an effort to ensure “fair and equal treatment of all individuals in the United States.”

Following the EO, on September 28, 2020, OMB issued a Memorandum for the Heads of Executive Departments and Agencies (the “Memo”) with additional guidance aimed at assisting agencies in identifying diversity and inclusion trainings for agency employees that may be subject to the EO.  The Memo suggests that agencies conduct keyword searches of training materials for specific terms, such as “intersectionality,” “systemic racism,” and “unconscious bias.”  Although the Memo primarily explains the terms of the EO, it also provides additional insight concerning the breadth of agency trainings that may ultimately be considered to violate the terms of the EO, which are described below.

Although the EO is likely to be subject to legal challenge (as more fully discussed below), federal contractors, including subcontractors and vendors, could be subject to the compliance requirements outlined below as soon as November 21, 2020.
Continue Reading President Trump Issues Executive Order Prohibiting “Divisive Concepts” in Federal Contractor Trainings

On August 13, 2020, the Office of Management and Budget (OMB) released new revisions to its Guidance for Grants and Agreements set forth under 2 CFR (commonly referred to as the Uniform Guidance).  The Uniform Guidance governs the terms of federal funding issued by agencies, including grants, cooperative agreements, federal…
Continue Reading New Section 889 Restrictions Included in Updated Uniform Guidance Regulations from the Office of Management and Budget

The Government Accountability Office (“GAO”) released a decision on Friday finding that the Department of Homeland Security (“DHS”) followed the wrong order of succession after Secretary Kirstjen Nielsen resigned in April 2019.  As a result, the Acting Secretaries who have served since then were invalidly selected.  In particular, GAO has questioned the appointments of Acting Secretary Chad Wolf, former Acting Secretary Kevin McAleenan, and Deputy Secretary Kenneth Cuccinelli.

GAO’s decision tees up a thorny question for DHS contractors:  If these officials were invalidly selected, what does it mean for the agency’s policies and procurement decisions made during their tenure?Continue Reading [Updated] If the Acting DHS Secretary Was Unlawfully Selected, What Does that Mean for DHS Procurements?

Earlier this week, the Federal Circuit issued a decision in The Boeing Company v. United States that clears the way for resolution of Boeing’s substantive challenge to a controversial FAR provision that can give the government windfall recoveries in Cost Accounting Standards (CAS) matters.  The Federal Circuit decision is notable for three reasons.  First, in rejecting the government’s argument that Boeing had waived its right to attack the relevant FAR provision, the court clarified the circumstances in which a contractor will be found to have waived its rights to object to FAR provisions.  Second, in concluding that the Court of Federal Claims had jurisdiction to consider the dispute, the court provided a useful primer on the three different kinds of jurisdiction available under the Tucker Act.

Finally, the Federal Circuit’s remand means the Court of Federal Claims will now address Boeing’s substantive challenge to FAR 30.606, which directs contracting officers to ignore offsets that save the government money when calculating the impact of changes to a contractor’s cost accounting practices.  Boeing’s argument that this provision amounts to a breach of contract and an illegal exaction will now be resolved on the merits.Continue Reading Federal Circuit Rejects Government’s Waiver and Jurisdiction Defenses, Paving the Way for a CAS Showdown at the Court of Federal Claims

Last week, President Trump issued an executive order aimed at encouraging the expansion American manufacturing of essential medical products — Executive Order on Ensuring Essential Medicines, Medical Countermeasures, and Critical Inputs Are Made in the United States (August 6, 2020) (the “Order”).  The Order sets forth an ambitious plan requiring extensive agency action on a tight timeline that suggests a significant impact.  Closer examination of the Order raises significant questions about the practicalities of implementation and the realistic impact of the Order once the substantial stated exceptions are taken into account.

The List

The heart of the Order is a list of Essential Medicines, Medical Countermeasures (“MCMs”), and Critical Inputs to which the Order’s requirements apply — but the key components of this list do not yet exist.  Instead, the Order directs the Food and Drug Administration (“FDA”) to produce the list within 90 days and to include on the list Essential Medicines, MCMs, and Critical Inputs “that are medically necessary to have available at all times in an amount adequate to serve patient needs and in the appropriate dosage forms.”

The Order provides the following definitions that give some insight into what may be on the FDA’s eventual list:
Continue Reading Trump Administration Increases Uncertainty for Pharmaceutical Manufacturing

The National Institute for Standards and Technology released the draft of NIST Special Publication 800-172 (“NIST SP 800-172”) on July 6, 2020.  This draft special publication succeeds the prior draft NIST SP 800-171B that NIST published in June 2019, and operates as a supplement to the NIST SP 800-171 controls that federal contractors generally must comply with in order to transmit, process, and store Controlled Unclassified Information (“CUI”).

Like the draft of NIST SP 800-171B released last year that it replaces, the publication recognizes that the basic and derived security controls in NIST SP 800-171 are “not designed to address APTs [Advanced Persistent Threats].”  As the publication notes,  “the APT may find ways to breach and/or compromise boundary defenses and deploy malicious code within a defender’s system.”  Thus, the additional safeguards in NIST SP 800-172 are meant to “outmaneuver, confuse, deceive, mislead, and impede the adversary—that is, take away the adversary’s tactical advantage and protect and preserve the organization’s critical programs and high value assets.”

Comments on the draft are due on August 21, 2020.Continue Reading National Institute for Standards and Technology Releases Draft of NIST SP 800-172

(This article was originally published in Law360 and has been modified for this blog.)

Companies in a range of industries that contract with the U.S. Government—including aerospace, defense, healthcare, technology, and energy—are actively working to assess whether or not their information technology systems comply with significant new restrictions that will take effect on August 13, 2020.  These new restrictions prohibit the use of certain Chinese telecommunications equipment and services, and a failure to comply can have dramatic consequences for these companies.  The new restrictions also will have an immediate impact on mergers and acquisitions involving a company that does—or hopes to do—business with the Federal government.  In this article, we highlight some key considerations for M&A practitioners relating to these restrictions.

Background

On July 14, 2020, the U.S. Government’s Federal Acquisition Regulatory Council (“FAR Council”) published an interim rule to implement Section 889(a)(1)(B) of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 (“FY19 NDAA”).[1]  When the new rule takes effect on August 13, it will prohibit the Department of Defense and all other executive branch agencies from contracting—or extending or renewing a contract—with an “entity” that “uses” “covered telecommunications equipment or services as a substantial or essential part of any system.”  The restrictions cover broad categories of equipment and services produced and provided by certain Chinese companies—namely Huawei, ZTE, Hytera, Hangzhou Hikvision, Dahua, and their affiliates.[2]

The new rule will be applicable to all contracts with the U.S. Government, including those for commercial item services and commercially available-off-the-shelf products.[3]  Companies with a single one of these contracts will soon have an ongoing obligation to report any new discovery of its internal “use” of certain covered telecommunications equipment and services to the Government within one business day with a report of how the use will be mitigated ten business days later.[4]  Further, although companies can seek to obtain a waiver on a contract-by-contract basis from agencies, these waivers must be granted by the head of the agency, and may only extend until August 13, 2022 at the latest.[5]

The new rule is the second part of a two-stage implementation of Section 889’s restrictions on covered telecommunications equipment and services in Government contracting.  It builds on an earlier rule that implemented Section 889(a)(1)(A) of the FY19 NDAA on August 13, 2019 by prohibiting an executive branch agency from acquiring certain covered telecommunications equipment or services that is a substantial or essential part of any system.[6]

The new rule is expansive in scope, and its effects will be felt far beyond the traditional defense industrial base.  Thus, mergers and acquisitions practitioners are well advised to become familiar with the rule and consider how it might impact any future transaction where an acquisition target does at least some business with the Government or has aspirations to do so in the future.Continue Reading M&A and Section 889: Due Diligence and Integration Considerations

On July 2, 2020, the Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”) promulgated a final rule resolving long-standing uncertainty regarding its enforcement authority over health care providers participating in TRICARE, a federal program that provides health care to service members, veterans, and their families.[1] The rule officially removes OFCCP’s regulatory authority over TRICARE providers by amending the definition of “subcontract” set forth in the governing Department of Labor regulations.  Although the amendment carves out TRICARE providers from OFCCP authority by name and leaves the rest of the “subcontractor” definition unchanged, OFCCP expressly raised the possibility that it would issue additional sub-regulatory guidance concerning its jurisdiction over Federal Employees Health Benefit Program (“FEHBP”) and Veterans Administration Health Benefit Program (“VAHBP”) providers.
Continue Reading OFCCP Promulgates Final Rule Eliminating Its Authority Over TRICARE Providers

On July 10, 2020, the interim rule implementing Section 889(a)(1)(B) of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 (Pub. L. No. 115-232) was released by the U.S. Government’s Federal Acquisition Regulatory Council. Section 889 prohibits the U.S. Government from buying (as of August 2019)—or contracting…
Continue Reading “Section 889” Prohibition on “Use” of Covered Telecommunications Equipment by Federal Contractors Released as an Interim Rule

A recent Armed Services Board of Contract Appeals decision serves as a timely reminder for contractors to carefully read and consider any release of claims before signing — especially when you may have otherwise-recoverable coronavirus-related cost increases.
Continue Reading Look Before You Release — ASBCA Enforces Release of Claims to Contractor’s Detriment