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 January 11, 2019

GOVERNMENT CONTRACTING

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 EMPLOYMENT

A 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 CORPORATE

According 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.

LITIGATION

According 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 HILL

On 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.

PILIEROMAZZA BLOGS

SBA Information Notice Provides Guidance on SBA's Interpretation of the Small Business Runway Extension Act of 2018

By 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.
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Weekly Report for January 4, 2019

GOVERNMENT CONTRACTING

According to an article on Law360, American freight shipping company, YRC Worldwide (YRC), was sued in a securities class action lawsuit filed in New York federal court that claims investors paid the ultimate price when the company allegedly overcharged the federal government for carrier services and later tried to cover it up. An investor, who is looking to represent all those who bought stock in YRC from March 10, 2014, to December 14, 2018, alleges that YRC hid the fact that it systematically overcharged the Department of Defense by millions of dollars for freight shipping services from 2005 to at least 2013. According to the article, the complaint further alleges YRC increased the recorded weights of government shipments to artificially raise the price.

The Federal Communications Commission (FCC) issued a message that it will suspend most operations in the middle of the day on January 3, 2019. This message came after the FCC initially indicated it had sufficient funding to stay open during the partial government shutdown. According to a Government Executive article, contractors working to support the FCC are among those who expressed concerns with the Professional Services Council about stop-work orders from agencies. The Council, whose members have contracts with the shutdown-affected Departments of State and Justice, the U.S. Agency for International Development, and the Department of Homeland Security, recently posted on its website for members an updated Congressional Research Service report on the history of shutdowns, their costs, and changes in agency guidance. Another contractors group, the National Defense Industrial Association, posted its own guidance for handling a shutdown.

The Congressional Research Service updated its report entitled “Small Business Size Standards: A Historical Analysis of Contemporary Issues.” The report provides a historical examination of the Small Business Administration’s (SBA) size standards, assesses competing concerns about how to define small businesses, and discusses multiple statutes.


LABOR AND EMPLOYMENT

According to an exclusive interview with Law360, the National Labor Relations Board’s (NLRB) chairman, John Ring, and general counsel, Peter Robb, reported that the NLRB will not only move toward finalizing its hotly debated joint employer rule in 2019, but will explore ways it can use the rulemaking process more often. Regulations covering board member recusals and employer property access rights are potentially on the horizon.

According to Law360, the Equal Employment Opportunity Commission (EEOC) will continue to pressure employers over claims of discrimination and sexual harassment in 2019, but it may be slow to enact new policies with three of the five seats on the Commission now vacant. The Senate failed to confirm nominees Daniel Gade and Janet Dhillon and reconfirm two-term commissioner Chai Feldblum by the end of the legislative session, so there is no longer a quorum, with only Acting Chair Victoria Lipnic and Commissioner Charlotte Burrows seated. However, Attorney James Paretti, Acting Chair Lipnic’s former chief of staff, told Law360 that the agency would “mostly hum along” even with these vacancies at the top, which means the EEOC will continue to field and investigate bias complaints and bring suits alleging mistreatment of workers. But, according to Mr. Paretti, the agency's policymaking will grind to a halt.

The U.S. Court of Appeals for the D.C. Circuit held that the NLRB acted properly in 2015 when it adopted a more expansive test for determining when companies in franchise, staffing, and other relationships should be considered joint employers for liability and collective bargaining purposes. According to Bloomberg Government, the NLRB broke new ground with the more expansive test by saying that a company that has the authority to exert control over another company’s workforce could be required to bargain with or be held liable for unfair labor practices against the workers, even if it does not exercise that ability. The NLRB’s test, crafted by a Democratic majority, has been the subject of debate in the business community, courts, and Congress, including litigation involving McDonald’s and allegations against Microsoft. However, the now Republican-majority board is working on a regulation that would limit joint employment and allow businesses more leeway to outsource labor and other components. But, the D.C. Circuit’s 2-1 ruling could constrain the NLRB to a standard close to the more expansive test that is currently in place because the court said the judicial branch has primary authority to define what an “employer” is not agencies.

Bryan Jarrett, the Department of Labor’s (DOL) acting wage and hour administrator and President Trump’s nominee for a permanent position in the agency, withdrew his name from consideration and accepted another position in California. According to Bloomberg Government, Mr. Jarrett was the face of an effort to expand overtime pay requirements and was also involved in the effort to update joint-employer liability for franchise and other businesses. His departure comes as the DOL is still grappling with what to do about overtime. The DOL has largely abandoned an Obama-era proposal, blocked by a federal court, that would have made about four million workers newly eligible for overtime pay, but it has not yet offered an alternative approach.

According to an article in the New York Times, Judge Reed O’Connor, the federal district judge who struck down the Affordable Care Act (ACA) as unconstitutional, said his ruling should not go into immediate effect. Judge O’Connor’s original ruling had caused some confusion because it came as many states were finishing open enrollment for 2019. Though the Judge ruled the ACA’s individual mandate as unconstitutional and the rest of the law was therefore invalid, he did not issue an injunction stopping the law from being enforced. The Department of Justice did not object to delaying enforcement of Judge O’Connor’s ruling, either, in order to prevent causing confusion and disrupting health care markets, especially if the decision is appealed. Employers, in the meantime, must still abide by the ACA and its requirements.


RULES AND REGULATIONS

The SBA issued a proposed rule extending the comment period on its proposed revisions to the HUBZone regulations to February 14, 2019. 83 Fed. Reg. 249, 67701. The proposed rule outlines a comprehensive overhaul of the program’s current eligibility and compliance requirements. As mentioned in last week’s Weekly Report, PilieroMazza submitted comments to the SBA’s proposed rule on December 27, 2018.


CAPITOL HILL

House Democrats announced that they plan to pass a combination of six Senate appropriations bills to fund closed agencies on January 3, 2019, the first day of the 116th Congress. No end to the shutdown is expected on January 2, but Government Executive reported that the House will vote on a consolidated package of bipartisan bills that came out of the Republican-controlled Senate Appropriations Committee to provide full fiscal 2019 funding for the Departments of Transportation, Housing and Urban Development, State, Interior, Agriculture, Treasury, Commerce, and Justice, as well as a number of independent agencies such as the Environmental Protection Agency, Office of Personnel Management, and General Services Administration. Government Executive also noted the House is expected to pass stopgap funding through December 8, 2019 for the Department of Homeland Security.


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Weekly Report for December 28, 2018

COMMENTS SUBMITTED IN RESPONSE TO THE SMALL BUSINESS ADMINISTRATION’S PROPOSED RULE ON THE HUBZONE PROGRAM, RIN 3245-AG38

On December 27, 2018, PilieroMazza submitted comments to the U.S. Small Business Administration’s proposed rule regarding changes to the HUBZone Program. The proposed rule outlines a comprehensive overhaul to the program’s current eligibility and compliance requirements.


GOVERNMENT CONTRACTING

A Nextgov article discussed the potentially significant impacts the government shutdown may have on government contractors, especially small businesses. The article recommended that contractors have preparations in place to weather a lapse in work. Representative Gerry Connolly (D-VA) commented that “President Trump’s Christmas shutdown will be incredibly harmful to government contractors who support their federal employee partners but aren’t made whole after the government reopens. These people have families, mortgages and other daily expenses.” Federal employees exempted from furlough through the shutdown will not receive paychecks, but they will generally get back pay once the shutdown has ended. Federal contractors who are paid for time worked, rather than salaried, cannot be paid for the time they did not work, which may make budgets tighter for people, especially around the holidays. Another article by Nextgov recommended that vendors still submit questions and bids according to previously-posted deadlines, even if contracting officers are not there to receive them. Vendors should ensure submissions are timestamped and well-documented.

According to a Nextgov article, the General Services Administration (GSA) will use the coming year to determine what its recently-announced, consolidated schedule will look like. The GSA announced in November that it would consolidate twenty-four multiple award schedules into a single contract vehicle. “Over this year, we’ll start the consolidation of the MAS program,” said Stephanie Shutt, director of the MAS Program Management Office, speaking at a recent GSA industry day. Ms. Shutt reported that the consolidation will likely be a five-year process, and moving existing contract holders to the new schedule will likely begin in January 2020. Ms. Shutt recommended, however, that companies waiting for a new contract or those looking to get on the schedule continue with business as usual and not halt their efforts or wait for the GSA to get caught up as it consolidates the award schedules.

According to a report by the Government Accountability Office (GAO), only three of the eleven agencies participating in the Small Business Innovation Research (SBIR) program awarded contracts and grants to small businesses majority-owned by multiple venture capital operating companies, hedge funds, or private equity firms from fiscal years 2015 to 2018. Specifically, the Department of Health and Human Services' National Institutes of Health, the Department of Energy's Advanced Research Projects Agency-Energy, and the Department of Education's Institute for Education Sciences made a total of sixty-two awards and obligated $43.6 million to such businesses during this period. This amount constituted between 0.1 percent and 2.7 percent of these agencies' obligations for the SBIR program each year.

A Government Executive article reported that Shay Assad, a senior Department of Defense (DoD) bureaucrat, is being reassigned to a post in Boston, Massachusetts, one unconnected to the contract negotiating team he has led for seven years. Per current and former officials, Mr. Assad will be moved from his position as director of defense pricing and contracting initiatives to a lateral position within the Defense Contract Management Agency in the Boston area in the coming weeks. The move comes after Mr. Assad championed a plan to change how the Pentagon pays defense firms, by tying contractor payments to their performance instead of to production milestones. According to the article, top Pentagon officials were not fully clued into the details of the plan, to which defense firms and lawmakers vocally objected. According to DoD officials, Mr. Assad’s reassignment is also due, in part, to a reorganization of the DoD’s acquisition directorate in which leaders determined they wanted the head of pricing to work at the Pentagon. Mr. Assad had an arrangement where he lived in Boston and commuted regularly to Washington, DC.

According to a Bloomberg Government article and Laura Criste, blockchain spending nearly tripled in Fiscal year 2018. Federal agencies invested more in blockchain technologies in fiscal 2018 than all previous years combined, and federal use of blockchain is expected to continue rising in fiscal 2019. This may mean that more money will go toward contractor implementations of the nascent technology. For example, the Department of Homeland Security released a new solicitation in November seeking solutions that use blockchain and distributive ledger technology to issue digital documentation in a way that prevents fraud, counterfeiting, and forgery.


LABOR AND EMPLOYMENT

Craig Leen was named Head of the Department of Labor’s (DOL) Office of Federal Contract Compliance Programs (OFCCP). Mr. Leen was formerly the acting director of this office, having taken over for the previous director, Ondray Harris, in July. The OFCCP audits government contractors across a wide range of industries—from technology and finance to manufacturing, construction, and health care—to ensure compliance with workplace affirmative action and nondiscrimination laws. According to a Bloomberg Government article, however, Mr. Leen, in less than six months as acting director, signed ten internal agency directives that have been viewed by the contractor community as being more “employer-friendly,” including policy changes regarding the analysis of contractors’ pay data, the speed of audits and settlements, and religious exemptions to discrimination liability.

According to a Memorandum of Understanding (MOU) released by the Equal Employment Opportunity Commission (EEOC) and the Department of Justice’s (DOJ) Civil Rights Division, the two agencies will team up to fight harassment in state and local government. Both agencies enforce Title VII of the Civil Rights Act, and the MOU will allow further coordination between the two agencies. For example, the MOU will expedite action to help state and local government workers where quick intervention is needed to prevent harm, the statement said. In those cases, the DOJ will request necessary information from the EEOC “to obtain an injunction, temporary or preliminary relief, in federal court for the affected employees, pending the final outcome of the charge,” according to the MOU.

According to a Bloomberg Government article, the EEOC and DOL will look to maintain the momentum gained around sexual harassment and workplace discrimination awareness through focused litigation and new approaches to conciliation in 2019. The EEOC and DOL’s Office of Federal Contract Compliance Programs anticipate more enforcement activity in the coming year, agency heads told Bloomberg Law before the shutdown. For employers, this could mean spending more money to defend against or settle agency bias allegations. Interestingly, the EEOC may lose its quorum in 2019, which could impact rulemakings and the agency’s ability to update its sexual harassment guidance.


RULES AND REGULATIONS

Final Rules

The Department of Homeland Security (DHS) issued a final rule that amends the Homeland Security Acquisition Regulation (HSAR) by removing the clause regarding small business subcontracting plan reporting because the requirements of this clause duplicate the requirements in a Federal Acquisition Regulation (FAR) clause. 83 Fed. Reg. 248, 67123.

Proposed Rules

The DoD, GSA, and National Aeronautics and Space Administration (NASA) issued a proposed rule amending the FAR to implement an act to enhance whistleblower protection for contractor employees. The rule would make permanent the protection for disclosure of certain information. It also would clarify that the prohibition on reimbursement for certain legal costs applies to subcontractors, as well as contractors. 83 Fed. Reg. 246, 66223.

The Department of Veterans Affairs (VA) issued a proposed rule that amends and updates the VA Acquisition Regulation (VAAR) in phased increments to revise or remove any policy superseded by changes in the Federal Acquisition Regulation (FAR), to remove any procedural guidance that is internal to VA into the VA Acquisition Manual (VAAM), and to incorporate new regulations or policies. The changes seek to streamline and align the VAAR with the FAR and remove outdated and duplicative requirements and reduce the burden on contractors. In particular, this rulemaking revises VAAR concerning Special Contracting Methods and Solicitation Provisions and Contract Clauses. Comments are due by February 25, 2019. 83 Fed. Reg. 247, 66662.


PILIEROMAZZA BLOGS

OHA Explains Which SDVOSB Eligibility Rules Apply in Its First VA SDVOSB Protest Decision

By Julia Di Vito

Starting October 1, 2018, the U.S. Small Business Administration's ("SBA") Office of Hearings and Appeals ("OHA") now has jurisdiction over all service-disabled veteran-owned small business ("SDVOSB") status protests when the procuring agency is the U.S. Department of Veterans Affairs ("VA"). Previously, SDVOSB status protests on SDVOSB set-aside solicitations issued by VA were decided by VA. Now, OHA hears all SDVOSB status protests on VA procurements and has recently issued its first decision in an SDVOSB status protest in connection with a VA procurement. OHA refers to these SDVOSB status protests as "CVE Protests." In CVE Protest of Blue Cord Design and Construction, LLC, SBA No. CVE-100-P (2018), OHA denied a protest alleging that an SDVOSB awardee in a VA procurement was not controlled by a service-disabled veteran.
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Weekly Report for December 21, 2018

GOVERNMENT CONTRACTING

According to a Bloomberg Government article, more than 30,000 federal contracting opportunities at twenty-eight (28) agencies are coming up for competition in the coming fiscal years. In a webinar, Bloomberg Government identified the top opportunities at nineteen (19) selected agencies, identified 27,751 opportunities at seventeen (17) civilian agencies, and identified 3,281 opportunities at eleven (11) defense agencies. Importantly, however, each agency reports acquisition forecast details differently; some agencies provide more details than others.

President Trump signed the Small Business Runway Extension Act of 2018 (H.R. 6330) into law on December 17, 2018. As explained in the PilieroMazza blog, the law amends the Small Business Act by changing the time period for determining a company’s size based on average annual receipts. Initially, the Small Business Act required a company's compliance with the size standards to be prescribed on the basis of the company's average annual receipts from the previous three years; the new law extends this time to the previous five years. The text of the law can be found here. Because it was signed by the President, the law is now effective. It is unclear, however, how the Small Business Administration and agencies will view this change absent regulations. If the change impacts your size status as of January 1, 2019, we would be happy to discuss this with you, as the change could impact small business size representations made in SAM or on proposals you are submitting.

The United States filed a complaint against YRC Freight Inc. (YRC), Roadway Express Inc. (Roadway), and Yellow Transportation Inc. (Yellow), alleging that these companies systematically overcharged the government for freight carrier services and made false statements to the government that hid their misconduct. The lawsuit alleges that the defendants reweighed thousands of shipments and suppressed the results whenever they indicated that a shipment was actually lighter than its original estimated weight. Thus, instead of charging the Department of Defense (DoD) for shipments based on the correct weight, the defendants knowingly billed the government (and their other customers) based on weights that they knew to be inflated. The defendants also allegedly made false statements to induce the DoD to use them as freight carriers and further knowingly made or used false statements to improperly avoid their obligations to correct inflated invoices and return overpayments. The Department of Justice news release can be found here.

The U.S. Attorney announced a $110,000 settlement with a technology company and its CEO to resolve allegations of false claims on a defense procurement contract. Progressive Technology Federal Systems, Inc. and its Chief Executive Officer have paid a combined $110,000 to settle allegations that the corporation and its CEO made false statements concerning a consultant’s security clearance and failed to disclose an organizational conflict of interest when bidding on a defense procurement contract. More information can be found here.

The Government Accountability Office (GAO) reported that agencies need to take action to improve their waiver and exception reporting. The Buy American Act requires federal agencies to buy domestic products. However, federal agencies can buy foreign products sometimes, e.g., when domestic items are not available at a reasonable cost or when international trade agreements waive the Buy American Act restrictions. According to the federal procurement database, foreign products comprised less than 5% of what the government bought in Fiscal year 2017. The real amount could be higher than that, however, in part, because of data errors. For example, some agencies had inaccurately recorded waiver information. The GAO recommends that the Office of Management and Budget take steps to improve Buy American Act data and that the Department of Health and Human Services, Department of Homeland Security and the Department of Veteran’s Affairs improve agency guidance and training on implementing the Act. All of the agencies either concurred or generally concurred with GAO's recommendations. More information can be found here.

The Securities and Exchange Commission (SEC) is starting a review of how often U.S. public companies report financial results. As reported by Bloomberg Government, this apparently heeds President Donald Trump’s call for the agency to consider letting businesses open their books less frequently. The SEC will seek public comment on the quarterly reporting process. President Trump, in an August tweet, had said that moving to semi-annual reports would save companies money and increase flexibility.

According to a Bloomberg Government article, the SEC may issue lower fines to businesses and banks because Kara Stein, the SEC’s lone Democratic commissioner, has to leave the SEC at the beginning of next year. Until President Donald Trump nominates a successor—something the article believes his administration may have little incentive to do given its pro-business stance—Republican commissioners will have outsize influence and may block cases.

According to a Government Executive article involving an internal Pentagon report, most jobs in the DoD are cheaper with civilian employees as compared to contractors, though the cost comparisons differ based on location, pay grade, and job function. A report compiled by the Office of the Secretary of Defense found that civil service workers are most likely to be less expensive than contractors performing the same work in the Washington, D.C. region and in the Southeastern United States. In the Southeast, more than 75% of comparisons that the Pentagon ran between government and contract workers showed a higher cost for the private sector, and the capital region was not far behind. Government Executive obtained the never-before reported-on document through a Freedom of Information Act request.

The DoD issued a class deviation on December 14, 2018 requiring contracting officers to use the procedures and clauses provided in the attachment to the class deviation in lieu of the procedures and clauses in the Defense Federal Acquisition Regulation Supplement (DFARS) 225.7703, 252.225-7023, 252.225-7024, and 252.225-7026 when acquiring products or services in support of military or stability operations in Afghanistan. The class deviation and attachment can be found here.

LABOR AND EMPLOYMENT

On December 14, 2018, a Texas federal judge, Reed O’Connor, struck down the Affordable Care Act (ACA) as unconstitutional. Judge O’Connor held the ACA’s individual mandate requiring people to buy health insurance was no longer an exercise of Congress’s power to tax, was now unconstitutional under the interstate commerce clause, and was essential to and inseverable from the remainder of the ACA such that the rest of the ACA cannot stand without that provision. Last year, the tax law passed by Congress removed the ACA’s penalty for not having health insurance, which went into effect in January 2018. Thereafter, Republican officials in twenty (20) states sued and argued that the elimination of the health insurance requirement eliminated the tax, and therefore, the ACA loses its constitutionality. Judge O’Connor agreed and now the case will likely be appealed to the U.S. Court of Appeals for the Fifth Circuit. The case may ultimately reach the U.S. Supreme Court. Until the case is resolved on appeal, employers will still need to comply with the ACA’s requirements. More on the decision can be found here and here.

The U.S. Supreme Court agreed to hear a case that could dial back workplace oversight. Specifically, the Court agreed to hear a case that could be a vehicle for striking down administrative agencies’ Auer deference, which dictates that courts must defer to agencies’ interpretations of ambiguous rules. According to a Bloomberg Government article, some lawyers and legal scholars have commented that workplace agencies—i.e., the Department of Labor’s (DOL) Wage and Hour Division, Occupational Safety and Health Administration, and the Equal Employment Opportunity Commission (EEOC)—have the most leeway to lose. If the Court were to limit the deference agencies are afforded, employers may face less aggressive oversight but also miss out on guidance published by the agencies. According to Paul DeCamp, who led the DOL’s Wage and Hour Division under President George W. Bush, Auer buttresses most of what that division does; “[o]n dozens if not hundreds of issues, the controlling standard is an interpretation of an ambiguous regulation.” Robert Glicksman, an administrative law professor at George Washington University, commented that if Auer is overturned, agencies’ might stop issuing guidance—potentially leaving regulated parties in the dark—or start lengthy and expensive rulemakings whenever they want to clarify regulations.

RULES AND REGULATIONS

Final Rules

The DoD, General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) issued a final rule amending the Federal Acquisition Regulation (FAR) to provide a definition of “recruitment fees” to further implement the FAR policy on combating trafficking in persons. One element in combating trafficking in persons is to prohibit contractors from charging employees recruitment fees. The rule is effective January 22, 2019. 83 Fed. Reg. 244, 65466.

The EEOC issued a final rule removing the incentive section of a previously-published final rule, “Regulations Under the Americans With Disabilities Act,” in response to a decision by the U.S. District Court for the District of Columbia vacating such section in the ADA rule. The removal of the incentive section will be effective January 1, 2019. 83 Fed. Reg. 244, 65296.

The DoD issued a final rule on amending the DFARS to change the entity to which contractors submit Summary Subcontract Reports in the Electronic Subcontracting Reporting System (eSRS) and to change the entity that acknowledges receipt of, or rejects, the reports in eSRS. 83 Fed. Reg. 245, 65562.

The DoD issued a final rule amending the DFARS to implement sections of the NDAA for Fiscal Year 2019 that modifies the limitations on awarding single-source task or delivery order contracts exceeding $112 million. 83 Fed. Reg. 245, 65559.

The DoD issued a final rule amending the DFARS to clarify policies and procedures for submission of payment requests and receiving reports in electronic form. 83 Fed. Reg. 245, 66062.

Proposed Rules

The Environmental Protection Agency (EPA) issued a proposed rule revising its “Submission of Invoices” clause to add electronic invoicing requirements. In 2019, the EPA will begin using the Invoice Processing Platform (IPP), which is a secure web-based service provided by the U.S. Treasury that efficiently manages government invoicing. 83 Fed. Reg. 244, 65328.

The DoD issued a proposed rule amending the DFARS to implement a section of the National Defense Authorization Act (NDAA) for Fiscal Year 2018 to require that inflation adjustments of statutory acquisition-related thresholds apply to existing contracts and subcontracts in effect on the date of the adjustment that contains the adjusted clauses. 83 Fed. Reg. 245, 65618.

Interim Rules

The DoD issued an interim rule amending the DFARS to implement sections of the NDAA for Fiscal Years 2017 and 2018. One section imposes additional prohibitions with regard to acquisition of certain foreign commercial satellite services, such as cybersecurity risk and source of satellites; launch vehicles used to provide the foreign commercial satellite services, and expands the definition of “covered foreign country” to include Russia. Another section prohibits the purchase of items from a Communist Chinese military company that meets the definition of goods and services controlled as munitions items when moved to the Commerce Control List of the Export Administration Regulations of the Department of Commerce. 83 Fed. Reg. 245, 66066.


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Weekly Report for December 14, 2018

GOVERNMENT CONTRACTING

A former National Aeronautics and Space Administration (NASA) Facility Chief pleaded guilty to receiving illegal gratuities. Steven Eric Kremer, a former Chief of the Range and Mission Management Office at NASA’s Wallops Flight Facility (WFF) pleaded guilty to receiving gratuities in exchange for official acts performed in his capacity as a government official as well as stealing funds from a government contract. As Chief of the Range and Mission Management Office, Mr. Kremer administered the Range Operations Contract (ROC)—a multi-year government contract intended to provide services at test facilities and launch control centers. During the summers of 2008-2015, a subcontractor provided Mr. Kremer with the free use of the subcontractor’s vacation home in Virginia in exchange for Mr. Kremer facilitating the selection of the subcontractor’s firm to supply interior design services and office furniture for WFF. Mr. Kremer also used ROC funds to purchase gift cards for personal use and to obtain a piece of personalized art. Mr. Kremer will be sentenced in March 2019.

The U.S. Department of Veterans Affairs (VA) Office of Inspector General (OIG) Administrative Investigations Division did not substantiate allegations of improper contracting practices. The VA OIG investigated an allegation that an employee in the Veterans Health Administration, Office of Quality, Safety and Value engineered the award of a contract valued in excess of $1 million to a company whose Chief Executive Officer was alleged to be a personal friend. The complainant alleged that an existing contracting vehicle was available to meet the requirement and should have been used to procure the services at issue, and that the employee instead improperly steered the contract to the company run by the employee’s friend. The OIG did not substantiate the allegations. The OIG’s full report can be found here.

The U.S. Government Accountability Office (GAO) issued a legal advisory reviewing the 1974 Impoundment Control Act, which allows the president to propose to rescind funding previously approved by Congress. In the first-of-its-kind advisory, the GAO concluded that the Impoundment Control Act does not permit the withholding of funds through their date of expiration. For further discussion on the advisory and the political context within which it was issued, please see this article on Government Executive.

An enforcement agency within the U.S. Department of Labor (DOL) is offering federal contractors a five-year moratorium on compliance audits as part of workplace discrimination settlements. To cash in on the deal, federal contractors would have to turn over biannual data reports on companywide hiring and compensation data to the agency, something that immediately chills excitement, management attorneys told Bloomberg Law. The agency, at present, audits contractors based mostly on location, not by pooling companywide data. Some employer representatives are worried that agreeing to companywide exposure only increases the chances of adverse findings, instead of focusing on the issues of a single location. Employer representatives also raised concerns about ambiguities in the policy and whether it should have been introduced through a formal regulatory process.

The U.S. Department of Defense (DoD) published an announcement of public meetings to obtain views of experts and interested parties regarding revising policies and procedures for contract financing, performance incentives, and associated regulations for DoD contracts. The public meetings will be held on the following dates at the Mark Center Auditorium in Alexandria, VA, and registrations are due one week before each meeting:
• January 10, 2019, from 9:00 a.m. to 12:00 p.m., EST.;
• January 22, 2019, from 1:30 p.m. to 4:30 p.m., EST.; and
• February 19, 2019, from 1:00 p.m. to 4:00 p.m., EST.

The GAO issued a report after it was asked to review the federal government’s use of noncompetitive contracts for information technology (IT). The report examined (1) the extent that agencies used noncompetitive contracts for IT, (2) the reasons for using noncompetitive contracts for selected IT procurements, (3) the extent to which IT procurements at selected agencies were bridge contracts, and (4) the extent to which IT procurements were in support of legacy systems. The GAO found, however, that the DoD, U.S. Department of Homeland Security (DHS), and U.S. Department of Health and Human Services’ (HHS) contracting officials misreported competition data in the Federal Procurement Data System-Next Generation (FPDS-NG) for 22 of the 41 orders the GAO reviewed. The GAO’s findings call into question competition data associated with nearly $3 billion in annual obligations for IT-related orders. DHS identified and corrected its errors, but the GAO asked the DoD and HHS to do the same. The GAO’s overview and summaries can be found here.

The DoD issued a memorandum reminding contracting officers that the must comply with the documentation requirements for each phase of the negotiation process as outlined in FAR 15.406, “Documentation.” The reminder was issued as a result of a recent evaluation performed by the DoD Inspector General (DoDIG) to determine whether contracting officers took appropriate actions when Defense Contract Audit Agency (DCAA) determined a price proposal was inadequate. The DoDIG reviewed 23 contractor price proposals and found that, even though the contracting officers addressed the proposal inadequacies, they did not adequately document the contractor price proposal inadequacies and the actions taken to address the same in the contract file.

CLASS DEVIATIONS

The U.S. General Services Administration’s (GSA) Civil Agency Acquisition Council (CAAC) issued a letter permitting agencies to authorize class deviations to implement a section of the National Defense Authorization Act (NDAA) for 2019 to remove the best procurement approach determination requirement to use an interagency acquisition in FAR 17.502-1(a). In accordance with the CAAC letter, the Department of Energy issued a class deviation to remove the requirement for a best procurement approach, which was effective as of October 23, 2018

LABOR AND EMPLOYMENT

The National Labor Relations Board (NLRB) released a proposed rule that would establish a standard for determining when companies can be held liable for labor law violations committed by subcontractors. Under the proposal, a company would have to possess and exercise “substantial, direct and immediate control” over the hiring, firing, discipline, supervision and direction of another firm’s employees to be considered a joint-employer. The rule further states that control can't be limited or routine, and the rule may have implications on bargaining between employers and jointly employed workers. For more, please see the article on The Hill.

This week, the NLRB also published a proposed rule extending the comment period concerning the standard for determining joint-employer status under the National Labor Relations Act. Comments are due by January 14, 2019, and replies to comments submitted are due January 21, 2019. The published version can be found here.

The NLRB also issued a strategic plan for fiscal years 2019-2022, which includes four mission-related goals: (1) achieving a collective 20% increase (5% over each of four years) in timeliness in case processing of unfair labor practice charges, (2) achieving resolution of a greater number of representation cases within 100 days of the filing of an election petition, (3) achieving organizational excellence and productivity, and (4) managing agency resources efficiently and in a manner that instills public trust. The strategic plan also calls for an annual, agency-wide 5% reduction in case processing time for unfair labor practice charges at all levels of handling these matters, from case handling in the regional offices to the time between the issuance of an ALJ’s decision and a Board Order. More information can be found on the NLRB’s website.

BUSINESS AND CORPORATE LAW

Members in both the House and Senate have introduced bills that would add regulatory oversight for proxy advisors, whom institutional investors hire for recommendations on how to vote their shares in public companies. Legislative action is unlikely in the current session of Congress, which ends Jan. 3. But the bills’ sponsors—Rep. Sean Duffy (R-Wis.) and Sen. Jack Reed (D-R.I.)—plan to reintroduce their legislation in the new Congress, their spokesmen said. The SEC is reportedly considering making its own changes as part of a broader look at shareholder voting in company elections, presumably through new rules. Further discussion of the issues, Congress’s role, and the SEC action can be found in a Bloomberg Government article.

CAPITOL HILL

As of December 14, 2018, the Small Business Runway Extension Act (H.R. 6330) had not yet been signed into law by President Trump. The U.S. Constitution dictates that when Congress passes a bill and presents it to the president, the president has ten (10) days, excluding Sundays, to either sign the bill or veto it. H.R. 6330 was presented to President Trump on December 11, 2018, so he has until December 22 to sign the bill into law.

Generally, if the president does not take any action by the end of the ten-day period, the bill is automatically enacted into law without the president’s signature. However, if Congress adjourns prior to the end of the ten-day period, and the president does not sign the bill by the end of the ten-day period, the bill does not become law. This is known as a “pocket veto.” If this happens, the bill would have to be reintroduced in the next session of Congress, and the legislative process would have to start over again. Due to Congress’s impending adjournment, it is possible that H.R. 6330 would be pocket vetoed if President Trump does not sign the bill into law by December 22.

PILIEROMAZZA BLOGS

Key Considerations for Government Contractors Facing a Government Shutdown

By Nichole D. Atallah and Jacqueline K. Unger

A government shutdown is looming once again. Congress has already passed five of the twelve FY 2019 funding bills, which fund 70% of the government through September 2019, through two vehicles. H.R. 6157 includes funding for the Departments of Defense, Labor, Health and Human Services, Education, and related agencies. H.R. 5895 provides funding for the Departments of Energy, the Interior (Bureau of Reclamation only), Veterans Affairs, and related and independent agencies, as well as the Army Corps of Engineers civil works projects, and the legislative branch. However, the remaining departments and agencies have yet to be funded for FY 2019, leading to a potential partial government shutdown as of December 21st if another Continuing Resolution or funding measures are not passed. [Read More].

Congress Passes New Receipts Calculation for Determining the Size of Small Businesses
*Update*

By Emily J. Rouleau

On December 6, 2018, the Senate passed the Small Business Runway Extension Act (HR 6330), which amends the Small Business Act by changing the time period for determining a company's size based on average annual receipts. Initially, the Small Business Act required a company's compliance with the size standards to be prescribed on the basis of the company's average annual receipts from the previous three years; the Small Business Runway Extension Act extends this time to the previous five years. The House passed the bill on September 25, 2018, and on December 11, 2018, it was presented to President Trump to be signed into law.
[Read More].

Important Changes Governing Limitations on Subcontracting Immediately Affecting All DoD Procurements

By Kathryn V. Flood

In a welcome step towards regulatory conformity, on December 4, 2018, the FAR Council finally issued its proposed rule to bring the FAR into compliance with the statutory requirements of § 1651 of the NDAA for FY 2013, which governs limitations on subcontracting. The proposed rule will conform the FAR's limitations on subcontracting clause, FAR 52.219-14, with how SBA performs the calculation, codified at 13 C.F.R. § 125.6.
[Read More].

SBA Proposes Significant Changes to Its Small Business Regulations

By Samuel S. Finnerty

On December 4, 2018, the U.S. Small Business Administration ("SBA") issued a proposed rule ("Rule") to implement several provisions of the National Defense Authorization Acts ("NDAA") of 2016 and 2017 and the Recovery Improvements for Small Entities After Disaster Act of 2015 ("RISE Act"), as well as other clarifying amendments. The Rule will likely garner a lot of attention in the coming weeks, as it proposes a number of sweeping amendments that could have a significant impact on small business government contracting. Indeed, the proposed revisions address key small business issues such as subcontracting plans, the non-manufacturer rule ("NMR"), Information Technology Value Added Reseller ("ITVAR") procurements, limitations on subcontracting ("LOS"), recertification, size determinations, and the ostensible subcontractor rule. Below, we summarize some of the more notable amendments that will impact small business procurement.
[Read More].

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