Government contractors should take note of the Fifth Circuit’s June 30, 2021 decision in Taylor Energy Co. v. Luttrell, which reaffirmed that contractors can enjoy a broad immunity from third-party liabilities—known as “derivative sovereign immunity,” or “Yearsley immunity.” Yearsley immunity emanates from Yearsley v. W.A. Ross Const. Co., an 80-year-old Supreme Court decision, which established that a contractor is immune when (i) it performed acts pursuant to a valid authorization of Congress and (ii) the contractor did not exceed the scope of that authority.

In Taylor Energy, the court dismissed claims arising out of an oil spill containment project in the Gulf of Mexico. The basic claim in the suit was that the contractor failed to effectively remediate and contain the oil. The Fifth Circuit found that the government: (i) provided direction to the contractor through the statement of work, in the form of “goals” and specific contract deliverables and deadlines; and (ii) periodically met with the contractor and reviewed and approved the work during performance. Based on these core facts, the court held the contractor was immune. The court held that it was irrelevant that the statement of work was “barebones,” and that the contractor—rather than the government—designed certain elements of the remediation effort. Following the Fourth Circuit’s 2018 decision in Cunningham v. GDIT, the Taylor Energy decision is another appellate court victory for contractors in the wake of the Supreme Court reaffirming Yearsley’s core principles in Campbell-Ewald Co. v. Gomez.


Continue Reading Fifth Circuit Reaffirms Breadth of Yearsley Immunity For Government Contractors

(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

At the end of last month, the Department of Defense (“DoD”) issued a class deviation to implement Section 2821 of the National Defense Authorization Act for Fiscal Year 2020 (“FY20 NDAA”), which seeks to reduce dependence on Russian energy by prohibiting the acquisition of energy sourced from inside Russia for DoD’s main operating bases in

Earlier this month the U.S. Government Accountability Office (“GAO”) released a report titled “Department of Energy: Use of Leading Practices Could Help Manage the Risk of Fraud and Other Improper Payments” (GAO-17-235) (the “Report”).  As the title suggests, GAO assessed the Department of Energy’s (“DOE”) internal controls to manage “the risk of fraud and improper payments.”  GAO found that DOE had not employed certain “leading practices” to combat fraud – like creating a “dedicated entity to lead fraud risk management activities” and using “specific control activities, such as data analytics” – and offered six recommendations for improvement.  Although DOE disagreed with certain findings in the Report, the agency represented that it either already has implemented or is implementing the majority of GAO’s recommendations.  Here is our assessment of the Report.

Continue Reading GAO Recommends Improvements to DOE’s Fraud Controls; DOE Fires Back

As part of an ongoing Department of Defense (“DoD”) effort to increase its energy efficiency,  late last month the U.S. Army committed to develop its largest renewable energy project to date — a 65MW  wind and solar  project at Fort Hood.  This ambitious project will need to comply with the latest DoD rules regarding sourcing requirements for photovoltaic (“PV”) devices.  We previously analyzed the proposed rule issued by DoD in May 2015 that placed stricter sourcing requirements on PV devices.  Toward the end of last year, DoD issued a final rule implementing the requirements of the proposed rule with relatively minimal, but still notable, changes.  The solicitation for the Fort Hood project was amended to add the updated DFARS clause implementing this final rule.  The final rule tightens the sourcing restrictions for PV devices and may raise some compliance challenges for contractors.
Continue Reading Strict DoD Sourcing Requirements for PV Devices

Last week the Savannah River Site (“SRS”) in South Carolina, a large nuclear facility owned by the U.S. Department of Energy (“DOE”), went into a lock down after electronic and canine scans of a commercial delivery truck attempting to enter the facility indicated possible explosive residue on the vehicle.  Fortunately, the lock down was lifted a few hours later after law enforcement determined that there were no explosives on the truck.  The incident nonetheless attracted significant media attention presumably in view of the activities conducted at the facility, which is operated by private companies under contract with the DOE.  SRS processes and stores nuclear materials in support of U.S. national defense.  It also develops and deploys technologies to treat nuclear and hazardous waste left from the Cold War.

Based on publicly-available information about last week’s incident, SRS contractors did everything right:  they screened the vehicle as it approached the facility, prohibited entry and locked the facility down when a potential threat was detected, and called in law enforcement to secure the area and investigate.  There is, however, one more thing SRS contractors could have done — and still can do — obtain protection under the SAFETY Act, a post-9/11 risk mitigation program administered by the U.S. Department of Homeland Security (“DHS”) to incentivize the development and deployment of anti-terror technology.


Continue Reading Lock Down of Nuclear Site:  False Alarm, with a Lesson Learned

Earlier this week, the Department of Defense (“DoD”) issued a proposed rule to revise (and make stricter) the unique sourcing requirements applicable to certain photovoltaic devices that are used in the performance of DoD contracts.  Specifically, unless an exception under the Trade Agreements Act applies or a contractor secures a waiver based on public interest or unreasonable cost, the proposed rule would require photovoltaic devices provided under a covered contract to be both manufactured in the United States and made “substantially all” from components or materials that are also mined, produced, or manufactured in the United States.  DoD contracts covered by the proposed rule involve the provision of photovoltaic devices that are—within the United States—either (i) installed on DoD property or in a DoD facility or (ii) reserved for the DoD’s exclusive use for their full economic life.  Although the proposed rule does not apply to contracts under which the DoD directly acquires photovoltaic devices as end products, it does extend to energy savings performance contracts and power purchase agreements under which the DoD effectively acquires electricity produced by photovoltaic devices that are installed and managed by contractors.  As we have previously discussed, these contracts represent significant opportunities, especially given the DoD’s continued focus on securing sources of renewable energy.

The proposed rule implements new sourcing requirements set forth in the National Defense Authorization Act for Fiscal Year 2015, which overlap with existing requirements established in the National Defense Authorization Act for Fiscal Year 2011 that are contained largely in DFARS 252.225-7017.  Although the new requirements are largely consistent with existing requirements, which make the Buy American Act applicable to photovoltaic devices provided under similar contracts, the new requirements contain key differences that may complicate existing supply chains.  Importantly, the DoD has interpreted the new requirements to foreclose existing exceptions and waivers on which contractors may currently rely to provide photovoltaic devices that are manufactured outside the United States or made from foreign components.  In addition, whereas existing requirements apply only when both the DoD has reserved the exclusive use of a photovoltaic device and the device is to be installed on DoD property or in a DoD facility, the new requirements apply when either condition is satisfied.  As a result, a number of contracts will suddenly be subject to new sourcing requirements under the proposed rule, including contracts under which the DoD does not have an exclusive right to power generated from a photovoltaic device installed on DoD property or in a DoD facility, such as when a contractor is authorized to export power produced by such a device to a commercial grid, as well as contracts which have a term that is less than the full economic life of such a device.


Continue Reading DoD Moves Forward with Stricter Sourcing Requirements for PV Devices

Last week the Defense Logistics Agency (DLA) Energy issued a statement on DLA’s website about its plan to “increase the productivity, efficiency and effectiveness of [the] Air Force’s utility services contracts” – a plan that dovetails with the Department of Defense’s (DOD) Better Buying Power 3.0 initiative (BBP 3.0).  This should be good news for utility service providers seeking opportunities in and currently performing under the Air Force’s (and the Army’s) utility privatization program. 
Continue Reading DLA Energy Plans to Make Utility Privatizations More Effective and Streamlined

Earlier this month, the U.S. Environmental Protection Agency (“EPA”), U.S. Forest Service, Department of Energy, and General Services Administration (“GSA”) released a final solicitation for the Federal Aggregated Solar Procurement Project (“FASPP”).  Through the FASPP, these agencies seek to acquire cost-effective solar electricity at nine federal sites located throughout northern California and northern Nevada.  The solar electricity will be purchased under a firm fixed-price Power Purchase Agreement (“PPA”) with a single contractor who will design, construct, own, maintain, and operate photovoltaic systems on the agencies’ sites.
Continue Reading Federal Agencies Join Forces to Procure Solar Electricity

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