PilieroMazza’s Weekly Update is an e-mail sent on Fridays that recaps legislative and regulatory issues affecting businesses of all sizes. When government agencies propose significant changes to existing regulations or Congress passes legislation of special interest to the small business community, we follow-up the Weekly Update with an analysis of the proposed change and the likely impact on small business.
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Weekly Report for February 8, 2019
GOVERNMENT CONTRACTINGThe Small Business Administration (SBA) announced a series of workshops geared to help Native American small business communities with technical assistance and business development. The SBA will participate in the workshops by providing information and access to products and services that are available. The workshops will focus on increased financial literacy and outreach initiatives to enhance the use of the SBA’s financing programs, counseling, and business development services. The SBA and other federal agencies, such as the U.S. Department of Agriculture, stand ready to provide long-term business development and job creation strategies throughout Native American communities.
President Trump issued an Executive Order to strengthen “Buy-American” principles in federal financial assistance programs. The Order requires the heads of executive departments and agencies to encourage federal assistance recipients to use, to the greatest extent practicable, iron, aluminum, steel, cement, and other manufactured products produced in the U.S. in every contract, subcontract, purchase order, or sub-award that is chargeable against such federal financial assistance award. It further requires agency and department heads to report on any tools, techniques, terms, or conditions that could maximize use of U.S.-produced iron, aluminum, steel, cement, and other manufactured products in contracts, subcontracts, purchase orders, and sub-awards. 84 Fed. Reg. 24, 2039.
The Veterans Benefits Administration (VBA) is moving to a paperless claims processing environment from a patchwork system that combines paper records, electronic fax, microfilm, microfiche, files stored on compact discs, DVDs, and flash memory devices. According to Bloomberg Government, the VBA issued a request for information to find companies interested in supporting the transition. The draft performance work statement indicates that VBA may contract with multiple companies and that the scope of work may be extensive. The agency wants contractors capable of applying machine learning and artificial intelligence to the problem, as well as identifying performance deficiencies, establishing performance metrics, and providing organizational training and leadership.
Representative Donald Norcross (D-NJ) introduced a bipartisan bill, Fairness for Federal Contractors Act (H.R. 824), which would provide back pay for more than a million federal contractors furloughed or on the job without pay during the 35-day government shutdown. The legislation was co-sponsored by 19 House Democrats and 3 Republicans.
According to Law360, the U.S. Army Corps of Engineers (USACE) is launching a pilot program aimed at determining how well different project delivery methods can reduce the amount of money and time spent on government projects. Interested parties can send the USACE information about possible public-private partnership projects on or before April 2, and the USACE’s civil works department will choose up to 10 projects based on specific criteria, including a requirement that construction costs be higher than $50 million. The program is part of the Revolutionize USACE Civil Works initiative, which seeks to get civil works projects done faster, implement different types of financing strategies, and streamline the permitting and review process.
The Department of Justice (DOJ) reported that a former active-duty U.S. Army colonel and his wife have been sentenced to federal prison and fined more than $200,000 for their roles in steering government contracts to co-conspirators in return for cash. Anthony Roper pled guilty to procurement integrity fraud and was sentenced to 60 months in prison and fined $200,000. Mr. Roper’s wife, Audra Roper, pled guilty to accessory after the fact and was sentenced to 28 days in prison, fined $10,000, and placed on five years of probation. According to evidence presented during guilty pleas and sentencing hearings, Mr. Roper, then in active-duty status at Fort Gordon, accepted bribes from Calvin Devear Lawyer, a retired U.S. Army colonel, to steer Army contracts worth more than $20 million to Mr. Lawyer’s company, the CREC group. Based on false representations, the CREC group had been awarded status as a small, disadvantaged business, and the company used that status to gain a competitive advantage in contracting.
The DOJ announced that VMJ Construction, LLC (“VMJ”); its owner, Michael T. Vigil; Vigil Contracting, Inc. (“Vigil Contracting”); and Vigil Contracting’s Operations Manager, John J. Vigil, have agreed to pay the United States $3.6 million to resolve allegations that they defrauded the Small Business Administration (“SBA”) 8(a) Business Development Program. The United States contends that VMJ made false statements to the SBA regarding its eligibility to participate in the 8(a) Program. Specifically, VMJ relied almost exclusively upon Vigil Contracting to bid on and complete the work awarded to VMJ under the 8(a) Program. VMJ used Vigil Contracting’s bonding, office space, employees, contractors, software, computers, and vehicles. Vigil Contracting employees and contractors, including John J. Vigil, made the high-level business decisions of VMJ and managed the day-to-day operations of VMJ. Michael T. Vigil did not control VMJ, did not set the long-term policy, nor manage the day-to-day management of the business. By misrepresenting these facts, the United States Army, the United States Navy, and the United States Department of Agriculture awarded VMJ several federal government contracts set aside for 8(a) Program participants.
LABOR AND EMPLOYMENTThe U.S. Court of Appeals for the Fifth Circuit held that Title VII of the Civil Rights Act of 1964 does not apply to transgender workers. The Fifth Circuit applied a 40-year old precedent that stated federal civil rights law does not apply to gay workers. According to Bloomberg Government, the question of whether Title VII covers LGBT workers and job applicants continues to percolate in the courts, and the U.S. Supreme Court has three petitions asking it to settle the issue. The Supreme Court justices are expected to decide whether to grant the petitions on February 15.
The Department of Labor announced the launch of an enhanced electronic version of the “Reference Guide to the Fair Labor Standards Act” (FLSA). This new online version of one of the Wage and Hour Division’s (WHD) most popular publications aims to assist American employers and workers with a simple, easy-to-follow resource that provides basic WHD information, as well as links to other resources. WHD established this electronic guide as part of its ongoing efforts to modernize compliance assistance materials for employers and workers, and to provide easily accessible, plain-language information that will guide them to compliance.
According to Law360, the Equal Employment Opportunity Commission (EEOC) said that it is giving employers two more months to file their EEO-1 workforce data surveys after the agency shut down due to the federal government appropriations lapse. The EEOC said employers will need to file their forms covering the year 2018 by May 31, rather than the usual March 31 due date. The agency requires private employers with 100 or more workers and federal contractors or first-tier subcontractors to file EEO-1 forms breaking down the employers’ workforces by race, ethnicity, gender, and job title. That data is used “to support civil rights enforcement and to analyze employment patterns, such as the representation of women and minorities within companies, industries or regions.”
Subcontract Language Controls, Even When It May Not Be FairBy Matthew E. Feinberg
The language you choose to put in your subcontract matters, even if you do not understand it or applying that language might end in an unfair result. The Ninth Circuit Court of Appeals drove this point home recently in Aspic Engineering and Construction Company v. ECC Centcom Constructors, LLC.
Using a Joint Venture for Supply ProcurementsBy Jon Williams
Joint ventures have been popular arrangements for chasing government contracts, particularly since the start of SBA's All Small Mentor-Protégé program in 2016. The "ASMPP" allows any small business to enter into an SBA-approved mentor-protégé relationship with a large business. Once a mentor-protégé relationship is approved, the small business and large business can form a joint venture to pursue small business set-asides. This marriage of a small and large business to pursue small business contracts can provide a real competitive edge in competitions for set-aside work, which is a big reason we continue to see a lot of activity with joint ventures and mentor-protégé relationships more than two years after the ASMPP opened its doors.
Weekly Report for February 1, 2018
GOVERNMENT CONTRACTINGAccording to a Washington Technology article, just because government agencies reopened after five weeks of a shutdown does not mean things return to business as usual. In fact, the article continues, service providers and other market observers advise that patience and empathy will both be virtues in this situation. Generally speaking, the 800,000 furloughed federal civilian employees were not allowed to check email or telephone messages during the shutdown, which includes many employees responsible for processing invoices to pay contractors for their work. Stop-work orders need to be lifted, and unpaid invoices need to be processed for work dating back to before the shutdown began. Matt McKelvey, President of a financial and proposal consulting firm, recommended that contractors give shuttered agencies one month for every week they have been closed to catch up, meaning that it would not be until the summer that operations at the agencies are back to normal.
According to Law360, federal contractors may be able to recoup some of the costs incurred during the partial government shutdown, but the article stated contractors need to act quickly and have a strategy that minimizes government pushback. Although some shutdown-related issues do not have the direct contractual connections needed to support a reimbursement claim, contractors who were required to stop work on a specific contract and incurred costs while that work was halted may be able to be reimbursed for some of those costs. Law360 reported that, while there are no shutdown-specific clauses in the Federal Acquisition Regulation (FAR), more general FAR and contractual clauses may apply, such as those covering suspensions or delays of work, stop work orders, or various contractual changes, all of which come with an opportunity for an equitable adjustment claim. Given the government's expectation that a contractor be up and running as soon as the shutdown was over, Law360 stated reimbursement claims could cover, for example, the costs related to winding down, resuming operations, idled facilities, laid-off staff, or warehousing operating equipment. Law360 recommended that contractors provide as much paperwork as possible to tie a cost to the work stoppage and to justify the necessity of that cost.
According to Law360, a Ninth Circuit panel affirmed a lower court’s order vacating a $1.07 million arbitration award issued to an Afghan subcontractor, finding the award was properly canceled because the arbitrator’s decision was “irrational.” The dispute stemmed from two subcontracts ECC CENTCOM Constructors, LLC (“ECC”) awarded to Aspic Engineering and Construction Co. (“AEC”) for supporting construction services at Afghan National Police training facilities under ECC's prime contracts with the U.S. Army Corps of Engineers for various reconstruction projects. The prime contracts were eventually terminated, and ECC subsequently terminated the subcontracts. Afterward, ECC, having paid AEC more than $1 million, determined that it did not owe any additional sums, prompting AEC to launch the underlying arbitration. In September 2016, the arbitrator sided with AEC and awarded it $1.07 million. The Ninth Circuit’s three-judge panel held the arbitrator exceeded his authority when he found that AEC did not have to comply with the subcontract’s Federal Acquisition Regulation (FAR) provisions because it was unreasonable to expect the Afghan company to understand contract regulations. The panel noted that if arbitrators were to routinely determine that parties to contracts were too “unsophisticated” to comply with contract regulations, it “would potentially cripple the government’s ability to contract with private entities, and would violate controlling federal law.” “By concluding that Aspic need not comply with the FAR requirements, the arbitrator exceeded his authority and failed to draw the essence of the award from the subcontracts,” the panel said. “The award disregarded specific provisions of the plain text in an effort to prevent what the arbitrator deemed an unfair result.”
According to Bloomberg Government, a recently-unsealed complaint filed by PCA Integrity Associates LLP in May 2015 alleged that multiple debt collection companies engaged in a conspiracy to defraud the Department of Education by falsely certifying compliance with small business requirements. PCA was a whistleblower and alleged that the defendants, comprised of prime contractors and purported small business subcontractors, violated the False Claims Act by falsely claiming credit for awarding millions of dollars in subcontracts to companies that lacked proper eligibility.
LABOR AND EMPLOYMENTThe Department of Labor’s Wage and Hour Division (WHD) found that Marathon Electrical Contractors Inc.—an Alabama corporation—violated the Davis-Bacon and Related Acts, the Contract Work Hours and Safety Standards Act, and the Fair Labor Standards Act by failing to pay some employees the required, prevailing wage and overtime rates on a project subject to Davis-Bacon requirements. Marathon Electrical inaccurately classified employees as laborers instead of electrician apprentices and failed to pay them the correct percentage of the required journeyman wage. Marathon Electrical also violated Davis-Bacon requirements by claiming it made contributions to employees’ 401(k) funds and showed those contributions on the payroll, but never actually made those contributions. Further, Marathon Electrical violated Davis-Bacon requirements when it claimed credit for vacation benefits that failed to meet the criteria for such a credit. As a result, Marathon Electrical paid $82,515 in back wages and fringe benefits to seventeen employees.
The Department of Labor’s Office of Federal Contract Compliance (OFCCP) found that beginning in 2015, Asplundh Tree Expert Co.—a federal contractor—discriminated against 124 African American applicants in the hiring and selection process for a grounds person, tree trimmer, and equipment operation positions. Asplundh Tree agreed to pay $55,000 in back wages and make job offers for specific positions to eligible class members who express an interest in employment and meet qualifications. To ensure further compliance, Asplundh Tree is obligated to evaluate and revise its hiring and selection policies and ensure that it applies selection criteria uniformly and train personnel involved in hiring to ensure use of nondiscriminatory practices.
Law360 reported that the National Labor Relations Board (NLRB) made it easier for employers to show their workers are independent contractors who cannot unionize and made workers’ entrepreneurship a pillar of the board’s employment classification test. The NLRB’s ruling rejected a 2014 NLRB decision and returned to a traditional common-law test. The NLRB emphasized that entrepreneurial opportunity, like employer control, was a principle by which to evaluate the overall effect of the common-law factors on a putative contractor’s independence. Law360 opined that the ruling could stymie unions’ future efforts to organize drivers for Uber, Lyft, FedEx, or others that classify their workers as contractors.
According to Law360, while the Seventh Circuit's recent ruling adopting a narrow view of the Age Discrimination in Employment Act (ADEA) may seem like a win for employers, experts say it could result in more state court suits where heftier damages are possible. In an 8-4 ruling, the en banc Seventh Circuit held that the text of Section 4(a)(2) of the ADEA covers only discrimination against current employees and that outside job seekers cannot sue businesses for disparate impact claims alleging that they use practices that adversely affect older individuals. Law360 reported four takeaways from the ruling:
(1) The ruling results in a narrower view of the ADEA;
(2) Since the ruling limits job applicants' ability to sue for disparate impact discrimination, attorneys said it could boost their reliance on state statutes if they believe they were victims of age bias; and
(3) The ruling runs largely counter to the Equal Employment Opportunity Commission’s longstanding position that the ADEA allows older job applicants who feel they have been unfairly passed over because of a hiring policy to file charges with the agency and later sue.
Additionally, the Seventh Circuit’s decision brought it into harmony with the Eleventh Circuit, which decreases the chances the U.S. Supreme Court will take this issue up on appeal.
According to Bloomberg Government, which obtained documents through a Freedom of Information Act request, the Department of Labor’s (DOL) Office of Federal Contract Compliance Programs (OFCCP) sent notices of violation (NOVs) to more than 200 federal contractors between 2016 and 2018, including Wells Fargo & Co., Deloitte, and Huntington Ingalls Industries Inc. At least sixty-four of the NOVs included hiring or pay discrimination claims, and at least two companies were accused of both. The most common offense in the NOVs was a violation of record-keeping obligations. Companies are required to maintain records of their hiring, pay, and other employment practices while doing business with the government.
HEALTHCAREAccording to Washington Technology, the Centers for Medicare and Medicaid Services (CMS) made 58 awards on a potential 10-year, $25 billion contract vehicle to help carry out efforts aimed at improving the quality of health care in various settings and programs. Washington Technology reported that CMS’ Network of Quality Improvement and Innovation Contractors program seeks industry support in creating new data-driven methodologies for doctors to help patients make healthcare decisions and providers to build up the quality of care. Awardees for the indefinite-delivery/indefinite-quantity contract were unveiled in a notice. Topic areas of focus for the contract include behavioral health, patient safety, care coordination, nursing homes, long-term care, chronic disease self-management, and public health. Specific work will include health information technology, direct technical assistance, recruitment, community coalitions, learning and action networks, continuous improvement, measurement, data collection, reporting, and analytics.
In the Weeds: Testing Federal Contractor Employees for Marijuana UseBy Sarah L. Nash
Consider the following scenario: Janie is employed as a help desk clerk to perform work on a federal government contract and is a model employee. She has a perfect attendance record, performs her job responsibilities with enthusiasm, and is always a team player. Pursuant to company policy, one day Janie is subjected to a random drug test. The results show she tested positive for THC, consistent with the use of marijuana. What options does her employer have?
Facing Costly Litigation? An Offer of Judgment May Save You Money in the Long RunBy Matthew E. Feinberg
"[I]n this world, nothing can be said to be certain, except death and taxes." This oft-cited quote attributed to Benjamin Franklin may be timeless, but it fails to tell the whole story in the modern world—at least for businesses facing unwelcome litigation. As companies conduct more and more of their business digitally, the cost of defending a lawsuit is increasing, due in large part to the impact of electronic discovery obligations. Electronic discovery, or e-discovery, generally involves the identification, collection, and production of all electronically stored information (such as e-mails, document drafts, spreadsheets, electronic archives, instant messages, and the like) that may be even remotely relevant to a dispute. For many companies, this means they are paying lawyers to review and produce hundreds upon hundreds of thousands of documents, substantially increasing the costs and attorneys' fees incurred for even minor suits.
Weekly Report for January 25, 2019
As reported in a Nextgov article, the Department of Homeland Security’s (DHS) Chief Procurement Officer Soraya Correa issued a special notice extending the due dates for all unamended acquisition deadlines after December 22. The special notice also states that DHS, and most of its component parts, will not move forward with pending acquisitions until the shut down ends. The notice gives vendors up to seven days after the partial government shutdown is resolved to submit bid proposals if the deadline passes before DHS reopens. The deadline to submit questions on requests for proposals was also extended, but all questions must be submitted within five days of funding being restored to DHS. Responses to requests for information will be due three days after the shutdown ends. All other aspects of the process remain the same, including the time, place, and format for submissions.
A man from Kansas was charged with two counts of major program fraud against the U.S. and two counts of lying to federal investigators. The indictment alleges Troy Bechtel and other persons falsely represented that United Medical Design Builders, LLC (UMDB), and Kansas limited liability company, was controlled by Joseph Dial, Jr., a disabled veteran of the U.S. Army. However, UMDB was a pass-through company that Mr. Dial did not control. UMDB received a contract through the SDVOSB program awarded by the U.S. Army Corps of Engineers for the design and construction of healthcare facilities at multiple air force bases. The indictment alleges that Mr. Bechtel ran the daily operations for UMDB and made project decisions without reporting to or consulting with Mr. Dial, who allegedly was rarely in the office. For more, please see the article here.
Bloomberg Government reported that the Armed Services Board of Contract Appeals found that the Fluor Federal Services (Fluor), a unit of Fluor Corporation, is entitled to recover costs incurred after the U.S. Navy improperly modified its $41 million base support operations contract for work in or around Jacksonville, Florida. Specifically, the Navy did not comply with contract terms when it unilaterally extended Fluor’s performance period. Fluor and the Navy will now have to negotiate the recovery amount.
LABOR AND EMPLOYMENTAccording to Bloomberg Government, the U.S. Supreme Court will consider whether exhaustion of administrative remedies is a prerequisite for an employee bringing discrimination claims in federal court or whether an employee only needs to establish exhaustion of administrative remedies as an element of a discrimination claim. Federal law requires a worker to bring all discrimination claims to the Equal Employment Opportunity Commission or a similar state agency first before suing an employer, but courts disagree whether that requirement is an absolute must-do before a court even has jurisdiction to consider the employee’s claims or whether it is a defense employers’ can lose by not raising it early enough. If exhaustion of administrative remedies is a prerequisite before bringing suit in federal court, then an employer could raise the issue at any time—even on appeal—because it would constitute a challenge to the court’s jurisdiction, which is generally non-waivable. However, if a worker needs to establish exhaustion of administrative remedies as an element of their discrimination claim, then an employer would have to raise the issue with the court at the first available opportunity.
Law360 reported that, in an 8-4 en banc decision, the Seventh Circuit ruled that the Age Discrimination in Employment Act (ADEA) bars discrimination of older employees only, not older outside job applicants. The majority held in Dale E. Kleber v. CareFusion Corp., case number 17-01206, that the ADEA does not allow an unsuccessful job applicant to sue an employer for using a practice that has a disparate impact on older workers, saying the plain text of Section 4(a)(2) of the statute covers discrimination against employees—not outside applicants for employment. The majority relied on the language of the ADEA and Congress’s use of the term “any individual” in reaching its decision.
According to Law360, the Department of Labor's (DOL) Office of Federal Contract Compliance Programs (OFCCP) alleged in an expanded complaint that Oracle America Inc. allegedly underpaid its female and nonwhite workers by more than $400 million over a four year period. OFCCP wrote that Oracle’s pay data showed it shorted thousands of female, black, and Asian workers by as much as five figures relative to their white colleagues every year from 2013 through 2016. OFCCP also alleged that Oracle unfairly passed over non-Asian job applicants, particularly Hispanic and black applicants. Though the case is two years old, the new complaint is based on data Oracle disclosed in October and November 2017, and it added allegations that Oracle depressed pay for female and nonwhite workers by assigning them to low-level positions with low starting salaries, which compounds over the years and culminates in "female, black and Asian employees with years of experience [being] paid as much as 25 percent less than their peers.” The case, OFCCP v. Oracle America Inc., case number 2017-OFC-00006, is pending before the DOL Office of Administrative Law Judges.
According to Bloomberg Government, the National Labor Relations Board (NLRB) recently determined that Alstate Maintenance, LLC did not violate labor law by firing skycaps working at John F. Kennedy International Airport. The skycaps were asked to assist a soccer team with their equipment but complained that they did not receive tips the last time they assisted with a similar job. When the soccer team’s equipment arrived, the skycaps did not respond to instructions to help. Baggage handlers assisted with the team’s equipment before the skycaps ultimately helped finish the job. That evening, Alstate Maintenance decided to terminate the skycaps’ employment for providing subpar service and acting indifferently to customers. One of the skycaps brought a claim at the NLRB, which was dismissed by the regional judge. The NLRB ruled the skycaps were not involved in protected concerted activity under the National Labor Relations Act because the statements and complaints made by the skycaps did not have mutual aid or protection as their purpose. Specifically, the use of the word “we” by one skycap in voicing complaints in front of supervisors and other skycaps did not qualify the statement as protected concerted activity. Bloomberg Government noted this ruling is the latest example of the NLRB rolling back its definition of concerted activity.
According to Bloomberg Government, the partial government shutdown may spell trouble for the Department of Labor’s overtime rule, which is pending review at the Office of Information and Regulatory Affairs (OIRA). OIRA, however, is largely closed. To properly review a rule, OIRA must reach out to other federal agencies that may be affected by the proposal and ensure there is no overlap with similar work being done by the agency promulgating the rule; that, however, is not supposed to happen during the shutdown, when OIRA’s career experts are likely furloughed.
Law360 reported that a Senate Finance Committee member questioned the legality of the Internal Revenue Service (IRS) plan to recall 46,000 furloughed workers next week, which the agency would execute if the partial federal government shutdown remained in effect. On January 15, 2019, the IRS announced that if the shutdown remained in effect, more than 46,000 workers will be recalled from furlough on January 28 to begin the tax filing season. However, the Anti-Deficiency Act states that only certain classifications of federal workers, those whose service involves emergencies affecting human life or the protection of property, can volunteer their time.
Government Executive reported that unemployment filings among furloughed federal employees doubled over the past week in Maryland, Virginia, and D.C. According to David Berteau, the head of the Professional Services Council, the shutdown is costing contractors an estimated $1.5 billion per week, and companies that primarily serve the government have already lost tens of thousands of people. Mr. Berteau further commented that unemployed government contractors are likely to join the 9,000 furloughed federal employees who have been added to unemployment rolls in the capital region. The government is stopping contracts daily across the Departments of Treasury, Agriculture, Homeland Security, Interior, State, Housing and Urban Development, Transportation, Commerce and Justice, as well as other agencies including NASA. In Fiscal Year 2018, services contracts at those agencies—the contracts most likely to be halted due to lack of appropriated money—were valued at more than $70 billion.
The Department of Labor Secretary Alex Acosta rejected an effort by Washington, D.C. Mayor Muriel Bowser to allow federal employees working without pay during the shutdown to be eligible for unemployment benefits while agencies remain closed. Currently, furloughed federal workers and idle contractors in a number of states can apply for unemployment, but they are expected to return the money when they return to work and Congress has approved back pay. In contrast, excepted employees—who are currently working without pay but whose pay is guaranteed once the government reopens—cannot apply for unemployment.
The Office of Personnel Management (OPM) issued new guidance that allows “excepted” employees to “request time off based on their personal circumstances.” As described in a Government Executive article, this marked a sudden reversal from OPM and the Trump administration, which had previously directed agencies to label any employee who did not show up for work as “absent without leave” and apply appropriate consequences. As described by Government Executive, OPM’s new guidance had a vastly different tone. Excepted employees are those that are required to report to work because they protect life or property. Per the new guidance, these workers have two avenues for calling out of work: (1) they can request leave, which they will be paid for once the government reopens, or (2) they can take approved periods of absence without requesting leave. Employees who select the latter option will be placed in furlough status, too, and will receive retroactive pay. Those employees will also not have their leave balances docked once their agencies reopen. OPM also encouraged agencies to consider leave requests as they would during their normal course of business and also allow excepted employees to work remotely and/or have flexible start and stop times. OPM Acting Director Margaret Weichert noted that excepted federal employees working without pay have often lost their subsidies for child care and transit benefits.
OPM’s change in leave policy for excepted employees comes as more employees are being furloughed from agencies. As Government Executive reported, federal agencies have forced home many employees that had been working, and the number is likely to continue to grow as agencies that had leftover appropriated funds or fee-collected funds see those resources depleted. For example, the General Services Administrations (GSA) has now furloughed over 40% of its workforce, and the Department of Justice (DOJ) furloughed an additional 1,200 employees since the beginning of the shutdown. GSA may soon be forced to furlough some of the 3,200 employees currently working at the Federal Acquisition Service (FAS). FAS employees are exempted at this time, meaning their salaries are drawn from sources other than annually appropriated funds, but that could change if their alternative funding becomes impacted by the shutdown.
As the partial government shutdown continues into a second pay period, Government Executive reported that food banks from Washington, D.C. to Kansas have served an increased number of federal workers and anticipate another increase in those needing help. Only 15% of civilian, full-time federal employees live in the D.C. region, so representatives and senators from across the country could hear from increasingly anxious constituents well beyond the Beltway. For example, Government Executive noted that Senator Mitt Romney, in his first town hall as a senator, received nervous questions from some of Utah’s 26,000 government employees. A federal union also began daily demonstrations at the Senate Hart Office Building this week.
LITIGATIONAs reported by Law 360, a putative class action lawsuit was filed on Friday in New York State court against New York University’s teaching hospitals for failing to fully compensate security guards for overtime work and pay for required duties before and after shifts. The case, Ivan Arroyo v. NYU Langone Hospitals, case number 150525-2019, filed in New York Supreme Court for the County of New York, alleges that the unpaid time worked “includes but is not limited to, time spent changing in the locker room, time spent assembling for roll call before each shift, time spent waiting for relief workers to appear at the end of each shift, and time spent at the end of the shift going back to the locker room to change and store the security uniform.” Recently, similar suits brought by airport security guards and a class of ABM Security Services workers resulted in multimillion-dollar settlements for the employees.
A Five-Year Measuring Period for Economic Dependence AffiliationBy Peter B. Ford
Earlier this month, we wrote about the internal SBA Information Notice (Information Notice), which clarifies that the changes made by the Small Business Runway Extension Act (Runway Extension Act) are not effective immediately. The Runway Extension Act requires that receipts-based size standards be based on annual average gross receipts over five years. SBA's regulations currently require a three-year lookback for size standards based on annual receipts. And, according to the Information Notice, until SBA revises its regulations through the rulemaking process, businesses must continue to report their receipts based on a three-year average. [Read More]
GAO Sustains Protest Alleging Misrepresentation in Proposal Regarding Availability of Incumbent StaffBy Patrick T. Rothwell
It is generally difficult to win a bid protest by arguing that the awardee proposed personnel that it did not have a reasonable expectation would be available for performance. Such allegations are normally difficult to prove, particularly at the outset of a protest, because the protestor is unlikely to know which personnel the awardee proposed. As a result, these protest grounds have a high risk of being dismissed as speculative. Winning such a protest is, however, possible. [Read More]
Weekly Report for January 18, 2019
According to Bloomberg Government, contract spending has grown by almost 6% per year over the past five years as federal agencies increasingly rely on government-wide contract vehicles and simplified acquisition procedures. Bloomberg Government identified five spending trends that developed from Fiscal Year 2014 through Fiscal Year 2018, listed below.
Federal contract spending reached a five-year high in Fiscal Year 2018. The $560 billion in federal contract spending in Fiscal Year 2018 is the highest level since Fiscal Year 2010, when it hit $562 billion. Bloomberg Government suggests that this could be due to the fact that efforts to slow federal discretionary spending—such as the Budget Control Act, which began imposing annual spending caps in 2013—are having less of an effect as the Trump administration boosts defense spending. Bloomberg Government suggested spending could remain above $550 billion in Fiscal Year 2019 and beyond, whereas annual contract spending averaged $542 billion from Fiscal Year 2008 to Fiscal Year 2012.
Federal spending surged on government-wide acquisition contracts that agencies use to buy information technology (IT), suggesting agencies are relying more on these types of contracts to satisfy IT purchases and modernize legacy systems.
Federal spending on small businesses has risen in lockstep with overall contract spending, meaning that the share of federal dollars won by small businesses has remained relatively flat. From Fiscal Year 2014 through 2018, small-business spending has hovered around 22% of the market.
Spending on indefinite-delivery contracts outpaced obligations on definitive contracts by about $34 billion in Fiscal Year 2018. The share from Fiscal Year 2014 through 2017 was just about evenly split.
Spending through simplified acquisition procedures (SAP), a government process for buying commonly acquired goods and services that fall below a certain price threshold has gradually increased each year since Fiscal Year 2014. Bloomberg Government reported that SAP spending reached the highest amount ever reported in Fiscal Year 2018 and suggested the increase could be attributed to both threshold increases and the fact that SAP allows agencies to cut some red tape.
Bloomberg Government reported that more than 40,000 D.C., Maryland, and Virginia companies performing work for the thirteen major federal agencies that have been shut down since December 22, 2018 could experience lost or delayed revenues amounting to $91 million per day. Of the three jurisdictions, Maryland accounts for 24% of the combined Fiscal Year 2018 spending and is the least affected by the current shutdown. A majority of federal money spent on contracts performed in the state come from the Departments of Defense and Health and Human Services, which are fully funded for Fiscal Year 2019. Virginia and D.C. are more dependent on the Departments of Homeland Security and Justice, which issued billions of dollars in contracts there during Fiscal Year 2018. Additionally, Bloomberg Government reported that small businesses holding shorter and smaller contracts are seeing cash flow problems. “Some companies have already furloughed workers and some believe they will go out of business after this week,” said Barbara Ashe, executive vice president of the Montgomery County Chamber of Commerce.
As reported by Bloomberg Government, the Professional Services Council (PSC) sent a letter to House and Senate leaders calling on Congress to immediately end the partial government shutdown. PSC requested that lawmakers prioritize providing full-year appropriations and highlighted its concerns about the hundreds of thousands of contract workers who work in support of the government but do not expect to receive back pay, unlike federal civilian employees. PSC’s letter pushed Congressional leaders to provide the same redress for government contractors as it does for federal civil employees.
Cameron Leuthy, writing for Bloomberg Government, noted that whenever Congress makes full-year appropriations—whether on time, after a continuing resolution, or after a partial government shutdown—contractors can become impatient for new spending to get underway. However, laws and rules designed to prevent the misuse of federal appropriations can delay the process. Some of the steps in the process include (1) apportionments by the Office of Management and Budget allocating funds from each appropriations account for specific time periods or for specific programs; (2) warrants issued by the Treasury Department allowing agencies to draw on central accounts to pay bills; and (3) agency “spend-plans” that may have to be updated due to the passage of time, congressional changes to the request, or real-world events.
According to an article by Government Executive, several agencies announced they would recall thousands of employees to prepare for a long-term shutdown. Some federal agencies, such as the Internal Revenue Service, Federal Aviation Administration, and Food and Drug Administration, have begun adjusting their shutdown plans, including reactivating previously-furloughed employees in order to continue mission-critical functions. Most agencies’ shutdown contingency plans also have provisions noting that furloughed employees can be recalled during an emergency, and this is particularly true at the Department of Homeland Security, which notes in its plan that those deemed excepted under the Anti-Deficiency Act do not entirely overlap with those deemed “essential” during emergency situations.
As reported by Law360, on January 11, 2019, the House of Representatives passed the Government Employee Fair Treatment Act by a vote of 411-7, one day after it unanimously passed the Senate. President Trump signed the bill into law on January 16, 2019, which gives furloughed federal workers back pay after the end of the partial government shutdown. The bill calls for those who were working without pay or kept from working during the shutdown to receive pay “at the earliest date possible after the lapse in appropriations ends, regardless of scheduled pay dates.”
LABOR AND EMPLOYMENT
According to Law 360, on January 15, 2019, the U.S. Court of Appeals for the Ninth Circuit stated that California's prevailing wage law could be expanded or narrowed, depending on how the state's highest court may rule on a question about the payment of workers who transport machinery to and from public construction projects. In this case, Mendoza et al. v. Fonseca McElroy Grinding Co. et al., case number 17-15221, which is currently pending before the Ninth Circuit, road construction workers filed an appeal claiming they were underpaid for work done off the job site. Because the Ninth Circuit found no applicable decisions from California’s Supreme Court or appellate courts to aid its decision, it asked the California Supreme Court to weigh in. The Ninth Circuit wants to know if offsite "mobilization work," such as hauling asphalt and grinding equipment to and from public works sites, is performed "in the execution of" a public contract, which would entitle the workers performing those tasks to the prevailing wage. The Ninth Circuit stated that, if the California Supreme Court accepts the case and applies a broader application of the prevailing wage law, it could extend its coverage to a range of "public works-adjacent" activities, including travel and machine transport. Alternatively, if the California Supreme Court applies a narrower application, it could limit wages for workers on public projects when they do offsite tasks, even when that work is closely related to their onsite job. The California Supreme Court has not yet decided if it will accept the case.
According to Bloomberg Government, and based on sources that communicated with Bloomberg Law, the Department of Labor (DOL) sent a proposal to expand overtime eligibility to the White House’s Office of Information and Regulatory Affairs (OIRA). This is the first step of regulatory review before a proposal can be released to the public for comments. A new overtime eligibility policy has been the biggest issue at the DOL since Secretary Alexander Acosta took office in 2017. Per the agency’s latest regulatory agenda, a rule was scheduled for release in March, but the government shutdown could affect the actual publication of the proposal.
According to an article on Law360, the National Labor Relations Board (NLRB) issued another extension of the public comment period for the proposed rollback of the joint employer test. Law360 reported that the NLRB has received nearly 30,000 comments on the proposed rule, which demonstrate a sharp divide between pro-business and pro-labor groups about how broad the standard should be. The proposed rule was issued in September and would tighten the NLRB’s test for determining joint employer status and liability, which was previously expanded in 2015. In an announcement on January 11, the NLRB noted that in light of the “unique circumstances” presented by the D.C. Circuit’s decision in Browning-Ferris Industries of California v. NLRB, --- F.3d ---, 2018 WL 6816542, it was extending the time for submitting comments regarding its Notice of Proposed Rulemaking (“NPRM”) on joint-employer status in order to permit issues raised by that decision to be addressed. Comments must now be received on or before January 28, 2019.
Additionally, according to Law360, the NLRB general counsel’s office unveiled a trio of advice memorandums, finding in one that an energy company could start enforcing a non-solicitation clause that prevented subcontractors from hiring its workers for six months without first bargaining with the union that represented them. The three memos were written last month by Jayme Sophir, head of the NLRB’s Division of Advice, which is part of the board’s Office of the General Counsel. Memos can be released at the general counsel’s discretion after a case has been closed, and each resulted from requests for guidance by various NLRB regional directors on cases their offices were handling. The memos can be found here.
LITIGATIONAccording to Bloomberg Government, the federal courts are expected to run out of money as soon as January 18, 2019. Judges will continue to hear some criminal cases, but almost everything else will be put on hold. The Equal Employment Opportunity Commission, which is shut down, is already asking courts to pause litigation involving the agency.
CAPITOL HILLThe House passed four contractor-related bills over the past week.
1. H.R. 227 modifies required subcontracting plans for companies that win federal contracts and establishes a dispute resolution process for payment issues between subcontractors and prime contractors.
2. H.R. 226 requires the Small Business Administration (SBA) to report on “best-in-class” contract awards to small businesses.
3. H.R. 190 increases the size of sole-source manufacturing that could be awarded to disadvantaged small businesses. The anticipated awards of sole-source contracts could be worth as much as $7 million for manufacturing, or $4 million for other opportunities. Current thresholds are (1) $5 million for manufacturing contracts and $3 million for other contracts awarded to HUBZone or service-disabled veteran-owned businesses and (2) $6.5 million for manufacturing contracts and $4 million for other contracts awarded to qualified woman-owned businesses.
4. H.R. 246 requires federal agencies that award contracts and grants to small businesses for research and development through the Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) programs to help small businesses participate in research and development contracting programs. In particular, the SBA would have to coordinate with senior procurement executives at agencies with SBIR and STTR programs to help small businesses commercialize their research before they are awarded contracts.
Teaming Agreements: Are They Necessary or Not Worth the Effort?By Antonio R. Franco
Government contractors enter into teaming agreements to secure contracts with partners that will help them win and perform the work. It surprises many, however, that certain terms in a teaming agreement may not be enforceable, particularly the clauses providing for the award of a subcontract. This has led contractors to ask, "What is the point of a teaming agreement?" There are many advantages to teaming agreements, or they would not be so prevalent in the government contracting industry. Although those advantages cannot be understated, contractors need to know the limits of teaming agreements. Depending on whether the contractor is the anticipated prime or subcontractor, those limitations need to be carefully considered.
Weekly Report for January 11, 2019
A Government Executive article discussed the impact of the shutdown on some defense contractors. As the partial government shutdown continues, some American defense firms are receiving multi-million-dollar IOUs instead of payments. For example, executives for Science Applications International Corporation (SAIC) and Engility, two of the government’s largest service contractors, said the payroll for workers idled by the shutdown comes to $10 million every week, and, just three weeks into the freeze, they say the government is about $40 million to $50 million behind in payments. In the short term, this is not a huge deal for most affected firms, because the government will eventually make good on its debts, but there is cause for concern because Wall Street does not look favorably on companies whose cash flow falters.According to a Bloomberg Government article, contractors with small, specialized practices could be at risk of losing employees, may have to move workers to other projects, or use downtime for training as the partial government shutdown continues. Attorney Dismas Locaria from Venable LLP told Bloomberg Law that employees will be “out of sorts” if the shutdown “drags on for weeks or months.” He further said that employees will eventually exhaust their annual and sick leave and will be less inclined to be loyal to their employers. Attorney Locaria opined that contract employees with in-demand skills, such as cybersecurity specialists, would likely be the first to “jump ship.” Larger contractors with diverse customer bases—particularly those who do work for state and local governments or private-sector companies as well as the federal government—may be able to keep their employees working despite the shutdown by moving them to other projects or using the time for training.
According to a Bloomberg Government article, contractors with small, specialized practices could be at risk of losing employees, may have to move workers to other projects, or use downtime for training as the partial government shutdown continues. Attorney Dismas Locaria from Venable LLP told Bloomberg law that employees will be “out of sorts” if the shutdown “drags on for weeks or months.” He further said that employees will eventually exhaust their annual and sick leave and will be less inclined to be loyal to their employers. Attorney Locaria opined that contract employees with in-demand skills, such as cybersecurity specialists, would likely be the first to “jump ship.” Larger contractors with diverse customer bases—particularly those who do work for state and local governments or private-sector companies as well as the federal government—may be able to keep their employees working despite the shutdown by moving them to other projects or using the time for training.
The partial government shutdown is also beginning to affect federal contracts cases litigated by the Department of Justice (DOJ). According to a Bloomberg Government article, the shutdown is being cited in motions to stay proceedings in false claims cases. Four false claims cases and two cases in the Court of Federal Claims have been stayed because of the shutdown. DOJ attorneys noted in one brief that they are prohibited from working except in emergencies involving the safety of human life or the protection of property unless an appropriation is secured. However, in an Army bid protest case, Judge Charles F. Lettow denied a motion to stay due to the shutdown and noted the hearing should proceed because the funding lapse did not impact the Army or the court at the time, just the DOJ.
The U.S. Supreme Court declined to hear two petitions that could have provided clarity as to what False Claims Act (FCA) cases must allege to advance. According to a Bloomberg Government article, the Court’s decision to reject the petitions ended defendants’ hopes that the Court would adopt a rule clarifying that FCA cases in which the government continued to pay a contractor despite knowledge of misconduct must fail for lack of materiality. “Materiality” concerns whether the government would have withheld payment to a contractor had it known about allegations of noncompliance, and both petitions concerned the impact of continued payments to contractors on the issue.
The Department of Defense (DoD) issued a memorandum ordering that, as of December 20, 2018, the Defense Contract Management Agency (DCMA) Commercial Item Group (CIG) contracting officers will serve as determining officials for all commercial item review requests submitted to DCMA. This will relieve buying activating procuring contract officers from duplicating effort expended reviewing CIG recommendations to determine whether an item meets the Federal Acquisition Regulation 2.101 definition of “commercial Item” and provide consistency in the commerciality review process. Determinations made by the DCMA CIG will be contained in the commercial item database available for all DoD contracting officers to rely on for future purchases of the same item or service. The full memorandum can be found here.
LABOR AND EMPLOYMENTA Texas-based contractor, J&L Imperium Industries LLC (J&L), had to pay back wages to 10 employees after a U.S. Department of Labor's (DOL) Wage and Hour Division (WHD) investigation found the company violated requirements of the Davis-Bacon and Related Acts (DBRA), the Contract Work Hours and Safety Standards Act (CWHSSA), and the Fair Labor Standards Act (FLSA), while operating at a worksite in Birmingham, Alabama. WHD investigators found J&L inaccurately classified several employees working as batch plant managers, truck drivers, or office administrators as exempt from the overtime requirements of the FLSA when, in actuality, none met the requirements for exemption. J&L paid all of the affected employees’ flat weekly salaries regardless of the number of hours they worked, resulting in overtime violations when they worked more than forty hours per week without overtime pay. J&L also employed workers in violation of the CWHSSA because some employees who worked on the project were not paid time-and-one-half for their overtime hours when they worked more than 40 hours in the workweek.
An Alabama roofing contractor was also found to have violated pay and benefits requirements. Maldonado Roofing LLC (Maldonado Roofing)–based in Tuscaloosa, Alabama–will pay back wages, overtime, and fringe benefits to forty-one employees after a DOL WHD investigation found the employer violated requirements of the DBRA, the CWHSSA, and the FLSA. WHD investigators found that Maldonado Roofing failed to pay one employee for overtime hours worked on a Davis-Bacon Act covered project, resulting in a violation of the CWHSSA. Maldonado Roofing also failed to pay several employees overtime when they worked more than forty hours in a workweek on a commercial project as required by the FLSA. Additionally, Maldonado Roofing failed to submit accurate certified payroll records and maintain accurate records of the number of hours employees worked, as required by the Davis-Bacon Act. Investigators also found the Maldonado Roofing violated FLSA recordkeeping requirements by failing to maintain accurate, daily records of the number of hours employees worked.
The Department of Labor (DOL) started the new year without Senate-confirmed leaders at seven sub-agencies. Jaclyn Diaz, in a Bloomberg Government article, reported that those openings could slow some significant regulatory initiatives. The vacancies, including in the Wage and Hour Division, come as the department is still working on tackling overtime policy and “joint employer” liability. The DOL is likely to face some challenges to those and other moves in the courts and Congress.
The Center for American Progress published a report and called on state lawmakers to ban non-compete and “no poaching” agreements in a wide range of employment contracts. The report comments that emerging research and litigation have revealed that many companies use non-compete agreements even for low-wage workers. From fast-food workers and check-cashing clerks to health care providers and engineers, companies are requiring workers across income and educational attainment to sign restrictive contractual agreements, such as non-compete contracts and even “no-poaching” agreements between firms. Employment contracts often carry these requirements as well as several other provisions—including mandatory arbitration requirements, class-action waivers, and nondisclosure agreements—that may restrict workers’ rights on the job and their ability to leave the job for a better one or to start a new business. The report outlines three concrete solutions that states should take to prevent corporations from using these sorts of agreements to suppress competition and workers’ wages and to instead boost workers’ pay and freedom in the economy: (1) ban non-compete contracts for most workers, (2) ban franchise no-poaching agreements, and (3) give workers and enforcement agencies tools to enforce their rights.
According to Law360, two House Democrats—Representatives Bobby Scott (D-SC) and Rosa DeLauro (D-CT)—wrote a letter to the National Labor Relations Board (NLRB) asking NLRB Chairman John Ring not to narrow its joint employer test under the National Labor Relations Act. The Representatives argued that a recent D.C. Circuit Court decision affirmed a broader standard and asked that Chairman Ring withdraw its notice of proposed rulemaking, which seeks to back away from a 2015 NLRB decision. The 2015 decision, involving Browning-Ferris Industries, was affirmed in part by the D.C. Circuit, and the court agreed with the test that a business could be deemed a joint employer if it exhibited “indirect control” or reserved the ability to exert such control. In September, the NLRB made public its draft rule that would undo the 2015 standard and say a business is only a joint employer if it has "direct and immediate control" of another’s workers.
According to a Law360 article, employers have had a hard time fighting U.S. Equal Employment Opportunity Commission (EEOC) subpoenas since an April 2017 U.S. Supreme Court ruling limited court review of the agency's information bids, forcing businesses to undertake costly data searches and potentially disclose information that could make way for bias suits. The Court’s decision in McLane v. EEOC also endorsed a broad reading of the agency's subpoena power. Since that recent decision, federal courts have largely approved the EEOC’s subpoenas in the few cases in which the EEOC has taken businesses to litigation. This trend has left subpoenaed parties little choice but to turn over whatever data the EEOC demands.
BUSINESS AND CORPORATEAccording to Bloomberg Government, the Securities and Exchange Commission (SEC) is on hold due to the partial government shutdown. Initial public offerings (IPOs) and normal policing of the securities industry are on currently on hold. Many SEC officials cannot respond to emails or calls, and only a few are able to hold meetings. The agency’s normal back-and-forth with companies on capital raising, enforcement matters, and other issues is at a standstill. Ride-sharing companies Uber Technologies Inc. and Lyft Inc. could face delays in launching their highly anticipated IPOs. The SEC has said it is still helping with fee calculations and “emergency” enforcement matters but has put most rulemaking, filing processing, and other work to the side.
LITIGATIONAccording to Law360, the federal judiciary has pushed back the date it is expecting to run out of funding due to the government shutdown to next week, increasing the chances that the impasse will resolve before courts may have to start cutting staff and delaying litigation. The federal court system has been operating in full swing since the shutdown began by using fees and other spare funds. The federal judiciary was originally expecting those reserves to dry up by January 11, but it revised that estimate to January 18.
CAPITOL HILLOn January 9, the House passed a bill, H.R. 264, which provides funding for federal services and some federal agencies at levels approved by the Senate last year. In particular, the bill provides appropriations for Fiscal Year 2019 to the Department of Treasury, the federal judiciary, the District of Columbia, and several independent agencies including the Small Business Administration and Securities and Exchange Commission. According to a Government Executive article, the bill includes a 1.9 percent pay increase for civilian federal employees, overriding President Trump’s pay 2019 freeze, and reinstates a pay freeze that has been in place since 2013 for the vice president, Cabinet-level officials, and nearly 1,000 other political appointees. The Office of Management and Budget (OMB) announced that President Trump’s administration opposes the House-passed bill, along with three other appropriations bills the chamber plans to consider, saying the administration “is committed to working with the Congress to reopen agencies affected by lapsed appropriations, but any effort to do so must address the security and humanitarian crisis on our Southwest border and should restore funding for all agencies affected by the lapse.” The other three appropriations bills have provisions to fund other federal agencies.
The House passed two more appropriations bills on January 10—H.R. 265 and H.R. 267—both of which were included in the OMB’s announcement of opposition. H.R. 265 provides Fiscal Year 2019 appropriations for the Department of Agriculture, the Food and Drug Administration, and related agencies. H.R. 267 provides Fiscal Year 2019 appropriations for the Department of Transportation, the Department of Housing and Urban Development, and several related agencies. According to a CNN article, both bills received slightly more Republican support than the bill passed on January 9, but the vast majority of Republican Representatives oppose the Democrats strategy. Moreover, even though these bills were passed in 2018 by the Republican-controlled Senate, President Trump is still expected to veto each piece of legislation, and Senate Republican Leader Mitch McConnell has indicated he would not bring shutdown-related bills to the Senate floor without the President’s support.
SBA Information Notice Provides Guidance on SBA's Interpretation of the Small Business Runway Extension Act of 2018By Jacqueline K. Unger
We recently wrote about the Small Business Runway Extension Act (Runway Extension Act), which President Trump signed into law on December 17, 2018. Under the Runway Extension Act, for industries with receipts-based size standards, the size of a firm is to be measured based on its average annual gross receipts over the previous five years (extended from the previously used three-year period). Missing from the Runway Extension Act is any explicit directive as to when the new five-year calculation takes effect, leaving open the question of whether agencies will interpret the law as effective immediately or only upon the issuance of revised regulations. This has led to significant confusion among contractors as to whether a firm's size status could immediately be impacted by the new law, i.e., whether a firm should report its size today based on average annual receipts over the past five years instead of three years.