Government Contracts Regulatory Compliance

The Small Business Administration (“SBA”) recently issued a proposed rule that would significantly change the rules concerning small business recertification in M&A transactions and other events (the “Proposed Rule”).  SBA has framed the Proposed Rule as a consolidation of what is currently a scattered set of regulations, but the rule goes further than consolidating and clarifying existing law.  It would expand recertification requirements in several key ways, including eliminating exemptions that currently allow contractors to continue to utilize set-aside multiple award vehicles after a so-called “disqualifying recertification” (i.e., a recertification as other than small or other than disadvantaged).

SBA invited public comment on the Proposed Rule.  The deadline for submitting comments passed last week.  We have spent some time reviewing the comments submitted thus far, which provide insight into the issues that affect both small business contractors and the industry writ large.  As discussed below, many of the comments describe the potential chilling effects of the Proposed Rule, which could deprive contractors of key income streams just as they graduate from small business status and discourage investors and other contractors from acquiring small businesses that hold multiple award contracts. 

The sections below describe the Proposed Rule in greater detail and provide an overview of the comments to the Proposed Rule.Continue Reading Public Comments to Proposed Rule Underscore the Need for Additional Clarity on SBA Recertification Requirements

In the wake of the U.S. Supreme Court’s decision in Students for Fair Admissions, Inc. v. President & Fellows of Harvard College, there has been an increase in legal challenges to race and gender-based programs and initiatives in multiple contexts, including within government contracting.  While the holding of Students for Fair Admissions did not address public contracting or disturb existing case law that considers the validity of similar government contracts programs, the decision has informed and reshaped the landscape for strict scrutiny challenges to these programs, and there has been a significant uptick in challenges to diversity-focused government procurement regulations.

Last month, in Mid-America Milling Company, LLC, et al., v. U.S. Department of Transportation, the U.S. District Court for the Eastern District of Kentucky temporarily enjoined the Department of Transportation (“DOT”) from mandating the use of race- and gender-based presumptions for DOT contracts impacted by Disadvantaged Business Enterprise (“DBE”) goals.  The court found, among other things, that while DOT’s DBE program intends to combat historical discrimination and its lingering effects on the ability of disadvantaged businesses to equally compete for government contracts, the plaintiff was likely to prevail on the merits of its argument that the program’s “race and gender classifications” violate the Equal Protection clause.

Although the preliminary injunction currently remains geographically constrained to Kentucky and Indiana, the case is an important development for government contractors that are impacted by DBE related contracts.  We summarize the key takeaways from the court’s holding, as well as its implications for government contractors, below.Continue Reading Federal Court Enjoins DOT Disadvantaged Business Enterprise Program On Equal Protection Grounds

The U.S. Department of Labor (“DOL”) recently announced its annual update to the hourly minimum wage for federal contract workers.  Beginning January 1, 2025, the minimum wage for employees performing work on or in connection with covered contracts will increase from $17.20 to $17.75 per hour.  The increase applies to tipped and non-tipped employees, as well as employees with disabilities.

The DOL announcement follows President Biden’s Executive Order 14026, issued in April 2021, to “promote economy and efficiency in procurement by contracting with sources that adequately compensate their workers.”  We discuss the types of federal contracts and workers subject to the wage rate increase, and its implications for contractors, below.Continue Reading Bigger Pay Days Are Coming for Some Federal Contract Workers in 2025

A key component of President Biden’s October 2023 Executive Order on Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence is a directive to develop a mandatory industrial base survey for the development of advanced artificial intelligence (“AI”) models and computing clusters.  Leveraging authority under the Defense Production Act, President Biden charged the Department of Commerce, Bureau of Industry and Security (“BIS”) to implement this industrial base assessment.  On September 9, 2024, BIS proposed to amend its Industrial Base survey regulations by establishing reporting requirements for the development of advanced AI models and possession of large-scale computing clusters.

Section 4.2(a)(ii) of the October 2023 Executive Order directed BIS to “require companies, individuals, and other organizations or entities that acquire, develop, or possess a potential large-scale computing cluster to report any such acquisition, development, or possession,” as its authority for the proposed rule.  BIS had previously released a mandatory survey for companies it had identified as “developing or planning to develop potential dual-use foundation models.”  This proposed rule now sets forth further reporting requirements, as well additional details on the rationale for the survey – rationale that could have serious implications for government contractors.Continue Reading Every Quarter, On the Quarter:  BIS Proposes New Reporting Requirements for the Development of Advanced Artificial Intelligence Models and Possession of Large-Scale Computing Clusters

GAO’s recent protest decision in HPI Federal, LLC, B-422583, Aug. 9, 2024, 2024 WL 3823852, highlights the importance of making clear and precise Trade Agreements Act (TAA) compliance certifications when offering products for sale to the U.S. Government.   

  • On the one hand, GAO found that it was unreasonable for an agency to accept an offeror’s certification that certain of its products were “assembled in” a TAA-compliant country as evidence of the product’s TAA compliance.  GAO reasoned that the referenced assembly — which was not described in the proposal — may not satisfy the TAA’s requirement for “substantial transformation” in that country. 
  • In contrast, GAO found that it was reasonable for the agency to accept the same offeror’s certification that other products had a TAA-compliant “country of origin”. 

As these contrasting examples show, offerors should take care to ensure that their certifications are adequate to establish TAA compliance.  A certification falling short of that standard could place an award at risk, and could even render an offeror ineligible for award. Continue Reading Trade Agreements Act Certifications Undergo New Scrutiny

This is part of a series of Covington blogs on implementation of Executive Order 14028, “Improving the Nation’s Cybersecurity,” issued by President Biden on May 12, 2021 (the “Cyber EO”).  The first blog summarized the Cyber EO’s key provisions and timelines, and the subsequent blogs described the actions taken by various government agencies to implement the Cyber EO from June 2021through July 2024.  This blog describes key actions taken to implement the Cyber EO, as well as the U.S. National Cybersecurity Strategy, during August 2024.  We discuss developments during August 2024 to implement President Biden’s Executive Order on Artificial Intelligence in a separate post. Continue Reading August 2024 Developments Under President Biden’s Cybersecurity Executive Order and National Cybersecurity Strategy

This is part of an ongoing series of Covington blogs on implementation of Executive Order 14028, “Improving the Nation’s Cybersecurity,” issued by President Biden on May 12, 2021 (the “Cyber EO”).  The first blog summarized the Cyber EO’s key provisions and timelines, and subsequent blogs described the actions taken by various government agencies to implement the Cyber EO from June 2021 through May 2024.  This blog describes key actions taken to implement the Cyber EO, as well as the U.S. National Cybersecurity Strategy, during June 2024.  It also describes key actions taken during May 2024 to implement President Biden’s Executive Order on Artificial Intelligence (the “AI EO”), particularly its provisions that impact cybersecurity, national security, and software supply chain security.Continue Reading June 2024 Developments Under President Biden’s Cybersecurity Executive Order, National Cybersecurity Strategy, and AI Executive Order

The Federal government may soon adopt new rules for when indefinite delivery contracts and orders are subject to the Cost Accounting Standards. According to a June 18, 2024 notice, the CAS Board is considering multiple different approaches to this issue, and it has invited comments from the public.Continue Reading Wondering Whether Your IDIQ Award Will Be Subject to CAS?  New Rules May Be Coming Soon from the CAS Board.

Recently, the Department of Labor (“DOL”) Office of Federal Contract Compliance Programs (“OFCCP”) unveiled new guidance regarding the use of automated systems and artificial intelligence (collectively referred to as “AI”) in the workplace.  This guidance was issued as a part of a series of actions that the Biden administration has taken to address AI in various contexts and industries. 

The OFCCP guidance follows President Biden’s Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence, which directed the Secretary of Labor to “publish guidance for Federal contractors regarding nondiscrimination in hiring involving AI and other technology-based hiring systems.”  Specifically, the guidance addresses how federal prime contractors and subcontractors should approach employment nondiscrimination risks and best practices when using AI in the context of the laws that OFCCP enforces.Continue Reading Office of Federal Contract Compliance Programs Releases New Guidance on the Use of Artificial Intelligence in Federal Contracting Employment Processes

This is part of a series of Covington blogs on implementation of Executive Order 14028, “Improving the Nation’s Cybersecurity,” issued by President Biden on May 12, 2021 (the “Cyber EO”).  The first blog summarized the Cyber EO’s key provisions and timelines, and the subsequent blogs  described the actions taken by various government agencies to implement the Cyber EO from June 2021through February 2024.  This blog describes key actions taken to implement the Cyber EO, as well as the U.S. National Cybersecurity Strategy, during March 2024.  It also describes key actions taken during March 2024 to implement President Biden’s Executive Order on Artificial Intelligence (the “AI EO”), particularly its provisions that impact cybersecurity, secure software, and federal government contractors. Continue Reading March 2024 Developments Under President Biden’s Cybersecurity Executive Order, National Cybersecurity Strategy, and AI Executive Order