Photo of Alan Pemberton

Alan Pemberton

Alan Pemberton has practiced in the government contracts area since 1982, and chaired or co-chaired Covington’s government contracts practice from 2000 to 2016. His practice includes the full range of government contracts matters, including bid protest and other procurement litigation before GAO, agency boards, and federal and state courts and ADR tribunals. He advises large and small contractors and grantees about the full range of government proposal, performance, compliance, regulatory, suspension and debarment, transactional and legislative issues. He also directs the firm’s pro bono program as co-chair of the Public Service Committee.

Contact:Read more about Alan PembertonEmail

On March 16, U.S. Customs and Border Protection (“CBP”) issued a final country of origin determination that will be of interest to the consumer electronics device industry generally.  CBP ruled that under four different scenarios involving the manufacture and assembly of laptops abroad, downloading an operating system was not enough to change the computers’ country of origin for purposes of U.S. Government procurement.

CBP found each of the four scenarios presented in the ruling request failed to satisfy the “substantial transformation” test under the Trade Agreements Act, and squarely rejected the argument that downloading firmware, including a basic input/output system (“BIOS”), transforms “discrete and inoperable components into a finished product with a different name, character and use.”
Continue Reading Downloading An Operating System Does Not Substantially Transform Laptops for Purposes of U.S. Government Procurement

Following Obama’ s February 13, 2015 Executive Order to promote the sharing of cybersecurity risks and incidents between the federal government and the private sector, Congress has introduced a slew of information-sharing legislation.  Such legislation includes the Cybersecurity Information Sharing Act of 2015 (“CISA”), which was marked up and approved 14-1 by the Senate Intelligence Committee in a closed session on March 12.

CISA, which has been met with some criticism in the press, provides for the promulgation of policies and procedures for the voluntary sharing of “cyber threat indicators” among the federal government and the private sector.  The bill defines “cyber threat indicators” as “information necessary to describe or identify –

  • malicious reconnaissance . . .;
  • a method of defeating a security control or exploitation of a security vulnerability;
  • a security vulnerability;
  • a method of causing a user with legitimate access to an information system . . . to unwittingly enable the defeat of a security control or exploitation of a security vulnerability;
  • malicious cyber command and control;
  • the actual or potential harm cause by an incident . . .; or
  • any other attribute of a cybersecurity threat.”

As currently drafted, CISA would apply to contractors in two ways:Continue Reading Controversial Cyber Information Sharing Bill May Impact Government Contractors

GAO has added IT Acquisitions and Operations to its list of programs it identifies as posing a high risk for fraud, waste, abuse, and mismanagement.  This biennial list contains GAO’s analysis of newly- and previously-added high-risk programs and recommendations for improving their economy, efficiency, and effectiveness.

In adding IT Acquisitions and Operations to this list, GAO observed that “federal IT investments too frequently fail to be completed or incur cost overruns and schedule slippages while contributing little to mission-related outcomes.”  The GAO noted that “the federal government has spent billions of dollars on failed and poorly performing IT investments, which often suffered from ineffective management, such as project planning, requirements definition, and program oversight and governance.”  As a result, improving IT acquisition requires “[p]erseverance by the executive branch in implementing GAO’s recommended solutions and continued oversight and action by Congress.”Continue Reading IT Acquisitions and Operations Added to GAO’s List of High-Risk Programs

On January 15, 2015, the Special Inspector General for Afghanistan Reconstruction (“SIGAR”) released a new report, Department of Defense: More Than 75 Percent of All SIGAR Audit and Inspection Report Recommendations Have Been Implemented (“SIGAR Report”).  At 86 pages, the SIGAR Report might be expected to robustly catalogue and analyze how the Department of Defense (“DOD”) implemented the 209 recommendations made by SIGAR from January 2008 through June 2014.  Upon closer examination, however, that does not appear to be the case.  The SIGAR Report provides no definition or explanation of the criteria SIGAR uses to conclude that a recommendation was “implemented,” and it provides scant specifics about whether the outcome of any “implementation” can be seen as a success.
Continue Reading New SIGAR Audit Report Says . . . Very Little

On December 4, 2014, the House passed a version of the National Defense Authorization Act for Fiscal Year 2015 (“NDAA FY 15”) which is now up for debate in the Senate.  While the original House version of NDAA FY 15 contained a number of provisions relating to the procurement of biofuels, these biofuels provisions were substantially modified in the amended version of the bill that the House passed last week after an agreement was made with the Senate to align the House and Senate versions of the bill.

Summary of the changes

  • Section 314.  Section 314 of the House-passed NDAA FY 15 would require the Secretary of Defense or the Secretary of the military department concerned to submit to the congressional defense committees a business case analysis at least 30 days before entering into a contract for the “planning, design, refurbishing, or construction of a biofuel refinery, or of any other facility or infrastructure used to refine biofuels.”  The prior version of this provision in the House bill — Section 317 — would have required the Department of Defense to obtain congressional authorization before entering into such a contract, and drew criticism from the Obama Administration which stated  that such a provision “would inhibit the development of a diverse, cost-competitive energy supply that enhances American energy security.”  The Senate committee-reported bill had contained no similar provision.  As such, the original House version of the provision appears to have been softened by dropping the requirement for congressional authorization after negotiations with the Senate.   
    Continue Reading Changes to Biofuels Provisions in House-Passed NDAA FY 15

A major piece of IT acquisition reform legislation called the Federal Information Technology Acquisition Reform Act (“FITARA”), on which we have previously reported, was included in version of the National Defense Authorization Act for Fiscal Year 2015 (“NDAA FY 15”) passed by the House on December 4, 2014, along with other significant IT reform provisions related to open systems requirements for the Department of Defense (“DoD”).

The FITARA portion of the bill includes provisions that would require the federal government to:

  • empower Chief Information Officers (“CIOs”) and prevent the CIO from delegating the duty of reviewing IT contracts before the agency enters into the contract;
  • provide a publicly available list for each major information technology investment, both new and existing, that lists information specified in forthcoming investment evaluation guidance;
  • engage in a detailed review of high-risk information technology investments to identify problems;
  • inventory all information technology;
  • implement a federal data center consolidation initiative, which will include publicized goals regarding cost savings and optimization improvements to be achieved as a result of the initiative, and must be performed consistent with federal guidelines on cloud computing and cybersecurity such as FedRAMP and NIST guidelines;
  • expand the use of specialized IT acquisition experts;
  • develop a federal strategic sourcing initiative to be developed by GSA, which will allow for the use of governmentwide user license agreements.

Additional provisions require the use of open and modular strategies by the DoD, including the following requirements
Continue Reading Federal Information Technology Reform Act Included in the House-Passed NDAA FY 15

The Third Circuit recently ruled that a qui tam relator must have “direct knowledge” of the fraud or false statements at issue in order to satisfy the False Claims Act’s (“FCA”) “original source” jurisdictional requirement.  A relator fails to satisfy the direct knowledge requirement where his or her allegations are mere inferences based on the review of agreements and documents, discussions of those documents with others, or conclusions based on industry experience.  The case is U.S. ex rel. Schumann v. Astrazeneca Pharmaceuticals L.P., No. 13-1489 (3rd Cir. Oct. 20, 2014).
Continue Reading Third Circuit Requires Actual Knowledge of Fraudulent Claim to Satisfy FCA’s “Direct” Knowledge Requirement

On October 15, 2014, the Center for Strategic & International Studies (CSIS) released a report on U.S. Department of Defense (DOD) contract spending between 2000 and 2013. The report analyzes publicly available information from the Federal Procurement Data System (FPDS) and thus does not consider classified contracts, which CSIS estimates to account for up to 10 percent of DOD contract spending.

The CSIS report focuses in particular on the effect of Fiscal Year 2013 sequestration on DOD spending. Overall, DOD-funded contract obligations decreased from 53% of overall DOD spending in 2012 to 49% in 2013, bringing DOD contract spending to its lowest percentage since 2002. The same period saw a 16% decrease in the volume of contract spending—4 times the percentage drop experienced during the budget drawdown from 2009 to 2012—despite the fact that DOD noncontract spending was relatively unchanged between 2012 and 2013.

CSIS measured a number of dimensions of DOD’s spending decreases during the 2012-2013 period:
Continue Reading CSIS Report Exposes Dramatic Decreases in DOD Contract Spending in 2013

Last month, the U.S. Court of Appeals for the First Circuit affirmed the award of a $50 million tax refund to Fresenius Medical Care Holdings, Inc. The court agreed with Fresenius that certain payments in settlement of alleged False Claims Act violations were tax-deductible. The case is Fresenius Medical Care Holdings, Inc. v. United States, No. 13-2144 (1st Cir. Aug. 13, 2014).

Fresenius operates dialysis centers within the United States and abroad, and in the mid-1990s its predecessor company faced an array of FCA whistleblower suits and related government investigations. Fresenius eventually settled both criminal and civil matters with the Government, agreeing to pay $385,147,334 to resolve the civil matters.

Fresenius claimed a tax refund based on the amount it paid to settle civil FCA claims. Civil FCA violations normally result in treble damages and a statutory penalty per false claim. Although the Government agreed that Fresenius could deduct an amount equal to single damages ($192,550,517) plus that amount owed to the whistleblowers ($65,800,555), Fresenius sued in the District of Massachusetts to seek a tax refund based on the remaining $126,796,262. A jury concluded that $95,000,000 of the remaining $126,796,262 was “compensatory” in nature and hence deductible, which resulted in a $50,420,512.34 tax refund for Fresenius.

The Government appealed, arguing that amounts paid in settlement of civil FCA claims—other than single damages and whistleblower payments—are nondeductible unless the parties enter into a tax characterization agreement indicating a mutual intent that those sums be deductible. The Government relied on a Ninth Circuit case, Talley Industries Inc. v. Commissioner, 116 F.3d 382 (9th Cir. 1997), in support. Because there was no tax characterization agreement in this case, the Government reasoned, Fresenius was owed no refund.

The First Circuit found the Government’s position unpersuasive in light of “generally accepted principles of tax law” to the contrary. Fresenius’s ability to deduct civil FCA settlement payments did not turn exclusively on the presence or absence of a tax characterization agreement. Instead, the district court had correctly instructed the jury to consider what portion of the settlement was compensatory, rather than punitive, “in terms of the economic realities of make-whole remediation.” Under well-settled rules of tax law, the compensatory portion was deductible.
Continue Reading First Circuit Affirms $50 Million Tax Refund for FCA Settlement Payments

On August 29, the U.S. Court of Appeals for the D.C. Circuit upheld the dismissal of a qui tam suit under the False Claims Act (“FCA”) alleging that government contractor Govplace made false statements and false claims by selling to the Government, via its GSA schedule contract, computer and other products not originating in designated countries under the Trade Agreements Act (“TAA”). The decision shows that a contractor may defend against an FCA action by showing that it reasonably relied on a supplier’s certification as to TAA compliance.

The D.C. Circuit Decision: Govplace has been providing information technology (“IT”) integration and product solutions to the Government via a GSA schedule contract since 1999. Products on GSA schedule contracts must comply with the TAA requirement that “only U.S.-made or designated country end products [can] be offered and sold” under such contracts. Govplace acquires many of the products listed in its schedule contract from a distributor, Ingram Micro, which expressly certifies that its products are TAA compliant.

In the Govplace case, the relator alleged that certain products that Govplace acquired from Ingram Micro were manufactured in China, a non-designated country, and that Govplace acted with reckless disregard in relying on Ingram Micro’s certifications.Continue Reading D.C. Circuit Dismisses FCA Suit & Provides Guidance for Contractor Reliance on Supplier Certifications