foley’s 2013 annual update on government contracts · foley’s 2013 annual update on government...

©2013 Foley & Lardner LLP 13.9663

Foley’s 2013 Annual Update on Government Contracts

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Table of Contents

Seminar Topics Tab 1

Teaming Agreements Tab 2

Mandatory Disclosure Update Tab 3

Export Controls and Economic Sanctions Tab 4

Bid Protest Update Tab 5

Money Matters Tab 6

Supply Chain & Information Security Issues Tab 7

Buy American Act and Trade Agreement ActSupplementary Material Tab 8

Small Business Subcontracting Plans Tab 9

Foreign Corrupt Practices Compliance Guidelines Tab 10

Civil False Claims Act Update Tab 11

Regulatory Update/IP RightsStorm Cloud on the Horizon Tab 12

Glossary of Acronyms Tab 13

Biographical Summaries Tab 14


Teaming Agreements

FAR Subpart 9.6 - Contractor TeamArrangements

Teaming Agreements vs. Other TeamArrangements

Recommended Due Diligence

Top 10 Clauses to Include in a TeamingAgreement

Recent Cases Regarding the Enforceability ofTeaming Agreements

Mandatory Disclosure Update

Overview of FAR 52.203-13

Credible Evidence – What does it mean?

Disclosure – What, when and to whom?

Experience and some lessons learned fromdisclosures to date

Export Controls and Economic Sanctions:New Rules, New Risks, New Realities

The Sanctions Enforcement Environment

New Sanctions Requirements

Export Control Reform Initiative

Updating Compliance Programs

Money Matters

Sequestration 2.0

Executive Compensation Caps

Executive Compensation Reviews

Government Statute of Limitations Cases –Impact on Pending Incurred Cost Audits

Noteworthy Recent DFARS Checklists

Supply Chain & Information Security Issuesfor Contractors

Counterfeit Parts: New Rules and the PathAhead

Conflict Minerals: Compliance Updates andTrends

Cybersecurity and Information Security: WhatChallenges Lie Ahead for Contractors?

Domestic Sourcing Requirements

Bid Protest Update

Small Business Subcontracting Plans

Foreign Corrupt Practices ComplianceGuidelines

Civil False Claims Act Update

Regulatory Update/Intellectual Property Rights

Foley & Lardner LLPAnnual Update on Government Contracts

October 15, 2013 – The Pfister Hotel – Milwaukee, WI

*October 22, 2013 – Forefront Center for Conferences – Waltham, MA

*October 29, 2013 – Schoolcraft College – Livonia, MI

*12:30 p.m. – 1:00 p.m. Registration

1:00 p.m. – 5:15 p.m. SeminarReception to Follow

Seminar Topics

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©2013 Foley & Lardner LLP©2013 Foley & Lardner LLP

Erin L. Toomey

October 2013

Teaming Agreements


Overview

■ FAR Subpart 9.6 - Contractor Team Arrangements■ Teaming Agreements vs. Other Team Arrangements■ Recommended Due Diligence■ Top 10 Clauses to Include in a Teaming Agreement■ Recent Cases Regarding the Enforceability of

Teaming Agreements

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FAR Subpart 9.6 – TeamingArrangements

■ FAR Subpart 9.6 recognizes that contractor teamarrangements may be “desirable” from both agovernment and an industry standpoint to enable thecompanies involved to:− Complement each other’s unique capabilities; and− Offer the government the best combination of

performance, cost, and delivery for the system or productbeing acquired

■ Teaming arrangements may be particularlyappropriate in complex research and developmentacquisitions, but may be used in other appropriateacquisitions, including production

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FAR Subpart 9.6 – TeamingArrangements

■ FAR Subpart 9.6 recognizes two forms of teaming arrangements:− Two or more companies form a separate company (e.g., partnership, joint

venture, limited liability company, etc.) to act as a potential prime contractor− A potential prime contractor agrees with one or more other companies to act

as a subcontractor under a specified Government contract or acquisitionprogram

■ Teaming arrangements are typically formed before the primecontractor submits an offer to the Government, BUT teamingarrangements can be entered into later in the acquisition process,including after contract award

■ The Government recognizes the validity of contractor teamingarrangements provided the arrangements are identified anddisclosed to the Government

■ If a teaming arrangement is entered into after the submission of anoffer, the arrangement must be disclosed to the government beforethe arrangement becomes effective 4

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Teaming Agreements vs. Other TeamArrangements

■ Benefits of the creation of a separate company:− The new company can be set in place and cover multiple RFPs and

contracts

− Can combine the bonding capacity of the member companies

− Can receive corporate limited liability protection

− Tax savings may result

− May be able to avoid the high cost structure of the membercompanies – important if price is a major source selection criterion

■ Drawbacks to the creation of a separate company:− Each member may possess liability for the obligations of the company

− Management issues or partner disagreements may be difficult tomitigate and may result in delayed decisionmaking

− May lock members into a relationship for a longer period of time thanintended 5


Recommended Due Diligence

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■ Regardless of the form of the teaming arrangement,contractors should perform the following “due diligence” ontheir proposed teaming partners:− Confirm the proposed teaming partner is not suspended, debarred, or

proposed for debarment; check www.sam.gov

− Consider the proposed teaming partner’s past performance history

− Assess whether the proposed team member has any actual orpotential Organizational Conflicts of Interest

− Confirm the proposed teaming partner is in a sound financial positionto perform any resulting prime contract or subcontract

− Subcontractors to consider the likelihood that the proposed prime willreceive the prime contract award

− When teaming with a small business to obtain access to smallbusiness set-asides, consider the implications of affiliation rules andthe restrictions on subcontracting

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Top Ten Clauses to Include in aTeaming Agreement

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1. Designation of a Prime Contractor and aSubcontractor

2. Purpose and Scope of the Agreement

3. Incorporation by Reference of a Non-DisclosureAgreement

4. Protection/Allocation of TechnicalData/Inventions/Patents


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5. Division of Responsibilities Between the Prime

Contractor and the Subcontractor and Definition of the

Relationship of the Parties (e.g., neither party shall have

the right to bind the other)

6. Duration of the Agreement and Termination Provisions

– Primes retain the right to terminate if can’t obtain government

approval of the subcontract, if such approval is required

– Primes retain the right to terminate if an Organizational Conflict

of Interest arises that can’t be mitigated

– Both parties retain the right to terminate if the other party is

suspended, debarred, or proposed for debarment


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7. A Disputes provision that addresses the process (choice oflaw/venue, arbitration, court, etc.), and the available remedies(indemnity, injunctions, limitation of liability, etc.)− Teaming Agreements are governed by state law, even though they are

recognized under the FAR

8. No Assignment Without Consent9. Exclusivity/Noncompetition

− Consider an exception to exclusivity for direct subcontractor sales to the

government to avoid violating FAR 52.203-6, “Restrictions onSubcontractor Sales to the Government”

10. Identify the Nature and Key Terms of the Expected SubcontractBetween Team Members− Commercial item subcontractors can require that the resulting subcontract

will be a FAR Part 12 Commercial Item Subcontract− Define the contract type (e.g., firm fixed-price, cost plus fixed fee, etc.) and

payment terms (e.g., milestone vs. progress payments)


Recent Cases

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■ Cyberlock Consulting, Inc. v. Info. Experts, Inc. (E.D. Va. Apr. 3, 2013),appeal docketed, No. 13-599 (4th Cir. May 2, 2013)− Cyberlock (proposed subcontractor) entered into a Teaming Agreement with

Information Experts (proposed prime contractor) to bid on a contract issued bythe Office of Personnel Management (OPM)

− The Teaming Agreement contained the following:

■ Parties agreed “to exert reasonable efforts to obtain an [InformationExperts] prime contract for the Program and to negotiate a subcontract forthe Program in accordance with Exhibit A”

■ Exhibit A listed an anticipated set of tasks “as presently understood by theparties” and provided that Cyberlock would perform 49% of the functionsand scope of work in the prime contract

■ Teaming Agreement would terminate if there was a “failure of the partiesto reach agreement on a subcontract after a reasonable period of goodfaith negotiations”− Information Experts received the prime contract from OPM, but terminated

negotiations between the parties on the proposed subcontract

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Recent Cases

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■ Cyberlock (cont’d)

− Under Virginia law, “agreements to agree in the future” are“too vague and indefinite to be enforced”

− Virginia courts consider whether the teaming agreementcontains the essential terms of a subcontract and whetherthe parties intended to enter into a subcontract The nature and scope of the work to be performed

The compensation to be paid

The place of performance; and

The duration of the contract


Recent Cases

■ Cyberlock (cont’d)− Court held that the following aspects of the Teaming Agreement

signified the parties’ intent to create an agreement to negotiate at alater time and therefore was unenforceable: The award of a 49% portion of the prime contract “would require the

negotiation and execution of a future subcontract” This future subcontract “was dependent on the success of such future

negotiations” “Any future executed subcontract was subject to the approval or

disapproval of” the government The provisions of the Teaming Agreement suggested “that the framework

set out for the work allocation in a future subcontract potentially couldchange as it merely was based on the work anticipated to be performedby Cyberlock as then-presently understood by the parties”

− Significant that the Court refused to consider extrinsic evidenceregarding the parties’ intent and relied solely on the terms of theTeaming Agreement based on the merger/integration clause

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Recent Cases

■ X Technologies, Inc. v. Marvin Test Systems, Inc. (5th Cir. June 11, 2013)− X Tech (proposed prime) entered into an exclusive teaming agreement with

Marvin Test Systems (Geotest) (proposed subcontractor) to bid on a U.S. AirForce contract for testing equipment “This is an exclusive agreement between X-Tech and Geotest. X-Tech will submit

Geotest’s workshare as part of X-Tech’s proposal as a response to this RFP. Geotestwill not team up with any other company for solicitation FA8224-09-R-0104 exceptthat Geotest may provide prices for the TS-217 tester only (without any softwarelicenses, support or training) to other potential bidders.”

− Solicitation initially a small business set-aside

− X Tech was the only bidder and its bid price was high X Tech also submitted a non-conforming bid on its own, without Geotest

− The government amended the solicitation to full and open competition

− X Tech resubmitted its bid with Geotest

− Geotest submitted a second bid in its own name using software licenses fromRaytheon

− The Air Force awarded the contract to Geotest

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Recent Cases

■ X Technologies (cont’d)− X Tech sued Geotest in state court alleging that Geotest

breached the teaming agreement by teaming with Raytheon Later removed to federal court in the Western District of Texas

− Geotest responded that it did not “team” with Raytheon, itwas only a licensee of Raytheon’s data, and thereforeGeotest submitted an independent bid, which did not violatethe terms of the teaming agreement

− Jury found that Geotest and X Tech agreed to exclusivelyteam to jointly pursue the solicitation and Geotest failed tocomply with the agreement

− Jury awarded X Tech $336,000 in damages, plus attorneysfees and court costs

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■ X Technologies (cont’d)− Fifth Circuit affirmed

There was sufficient evidence for the jury to disbelieve thetestimony of the Air Force contract negotiator, who said thegovernment would not pay X Tech’s $3.2M bid price for the project

Teaming agreement only limited Geotest’s ability to team – thesecond bid initially submitted by X Tech independent of Geotest didnot breach the teaming agreement

Geotest used the word “team” in its proposal describing itsrelationship with Raytheon and in internal Raytheon emails


Recent Cases

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■ Takeaways

− If you want to increase the chances that a teaming agreementwill be enforced against the other party:

Include an unqualified obligation to award and accept asubcontract, at least with respect to scope, payment, place ofperformance, and duration

− The prime contractor “shall” subcontract with the teammate

− Avoid use of “good faith negotiations” language

Make sure the Teaming Agreement contains a detailed statementof work, clear subcontract pricing, a defined duration tied to thelength of the prime contract, and reasonable terminationprovisions

If possible, negotiate a subcontract and include it as anattachment to the Teaming Agreement

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Recent Cases

■ Takeaways (cont’d)

− If you want to increase the chances that the teamingagreement will be enforced against the other party (cont’d) Amend the teaming agreement either before or shortly after the

submission of the proposal to definitize the scope of work andpricing terms

Provide that exclusivity and confidentiality obligations survivetermination of the Teaming Agreement and are severable fromother provisions of the Teaming Agreement – this will encouragethe parties to negotiate a subcontract in good faith

Do not include Virginia as your choice of law

Specificity is key

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1


David RalstonOctober 2013

Mandatory Disclosure Update


Mandatory Disclosure Topics

■ Overview of FAR 52.203-13

■ Credible Evidence – What does it mean?

■ Disclosure – What, when and to whom?

■ Experience and some lessons learned fromdisclosures to date

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Compliance Overview

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■ Requirements not new – In place since 2008

■ Fundamental shift of government contracting toquasi-law enforcement

■ Requires:

− Real compliance programs

− Cooperation with government investigations

− Mandatory disclosures of fraud and similar conduct inconnection with contracts


FAR 52.203-13 Compliance Overview

■ Requirements imposed by FAR Subpart 3.10

■ If contract is greater than $5 Million andperformance greater than 120 days

− Requirement: All Contractors within 30 days of award must have a written code

of business ethics and conduct (includes commercial items andsmall business contracts)

Make a copy of the Code available to each employee engaged inperformance of the contract

Includes mandatory, timely disclosure obligations

Exercise due diligence and encourage ethical conduct− Includes “due diligence” in hiring employees

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■ Contractor required to flow-down 52.203-13 forsubcontracts over $5 million/120 day threshold− Includes cascade (lower-tier) flow down requirement

− Flow down failure = breach of contract

■ Even when $5 million value/120 day threshold notmet− Similar disclosure requirement effectively imposed

− Plus disclosure of significant overpayments required byPayments clauses, FAR 52.212-4, etc.

− Failure to disclose can be a basis for suspension ordebarment

− FAR 3.1003; FAR 9.407-2(a)8; FAR 9.406-2(b)(vi)



■ If contract/subcontract is greater than$5 Million and performance greater than 120 days

− All contractors except small business and commercialitem contractors, within 90 days of award, must: Make reasonable efforts not to include as a principal an individual

whom due diligence would have exposed as having engaged inconduct that is in conflict with the Contractor’s code of businessethics and conduct;

Establish an ongoing business ethics awareness and complianceprogram;

Implement an internal control system to facilitate timely discovery;

Implement an internal control system to ensure correctivemeasures

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Mandatory Disclosure Overview

■ Mandatory Disclosure Requirements− FAR 52.203-13(b)(3)

− Mandates that contractors disclose known violations by itsprincipals, employees, subcontractors or agents

■ Disclosure required when contractor/subcontractor has− Credible evidence that

− In connection with the award, performance, or closeout of thecontract or any subcontract under the contract

− A principal, employee, agent, or subcontractor has committed

− A violation of Federal criminal law involving fraud,

conflict of interest,

bribery, or gratuity violations; or

a violation of the civil False Claims Act7


Mandatory Disclosure Overview (cont’d)

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− Failure to disclose = breach of contract

− Does not seem to require contractors to discloseinformation about other contractors (including the primeor a higher tiered subcontractor) or violations bygovernment employees

− FCA violations very broad, and now include retaining anyoverpayment

− Contractors must be diligent about flowing down thisclause to subcontractors when applicable The clause does not require contractors to review/approve its

subcontractors’ codes or systems, but it may be a good practice toconfirm that the subcontractors have such codes and systems

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Mandatory Disclosure Overview (cont’d)

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■ Disclosure made to the Agency OIG and theContracting Officer

■ Will forward to, and will involve− DoJ− DCAA− Suspension/Debarment Office− Criminal investigators− Other interested agencies

■ Treated as confidential when submissions properlymarked

■ Disclosure requirement continues until 3 years afterfinal payment on the contract


What Is Credible Evidence?

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■ No definition in FAR

■ Mostly an issue with FCA violations

■ Little guidance from IGs/DoJ – “they should know itwhen they see it”

■ Rough standard – “possible violation”

− 25-50% likelihood?

− Certainly below probable – 50%

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Disclosure – What and When?

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■ What?

− Contracts involved

− Internal investigations

− Actors involved/culpability/responsibility

− Estimated government loss

− Complete description of dates, details and personnel

− Duration, national security implications, privacy issues,public safety threats

− Corrective actions taken

− Proposed restitution


Disclosure – What and When?

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■ When?

− “Timely” is the requirement

− No guidance from FAR or IGs

− Tension with need for internal investigation

■ IGs seem less concerned with timeliness than qualityof disclosures

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Experience To Date

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■ More than 750 disclosures made■ 90% are from DoD

− Most common: Mischarging Misuse of property False timecards

■ Second largest agency is GSA− Trade Agreement Act violations− Defective pricing− Quality deficiencies− Price reduction violations

■ US v. Gallup Organization --- first case (FCA) alleging failure to disclose aspart of violation

■ Rambo v. Fluor Hanaford – Qui tam case alleging violation of ByrdAmendment is violations of FCA

■ 12 individuals and one company have been subjected tosuspension/debarment actions


Lesson Learned

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■ IGs say

− Contractors file minor matters, but not major matters

− Seem motivated by imminent government discovery

− Disclosure must be detailed to be effective

− Resolution averages six months

■ About 10% involved criminal or significant enoughFCA liability for DoJ to take lead

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Lessons Learned (Cont’d)

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■ If you do business with the government, you should:− Have a compliance program tailored to your business,

including: A compliance code/handbook

A training program

A compliance officer (someone with clear responsibility)

■ Having an effective compliance program reducesviolations and provides more favorable treatment if aviolation occurs

■ Know what is in your contract− Minimize risk by rejecting unnecessary

provisions/requirements

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Gregory HusisianChristopher M. Swift

October 2013

Export Controls & Economic Sanctions:New Rules, New Risks, New Realities


Presentation Overview

2

■ The Sanctions Enforcement Environment

− Record Penalties; Rapidly Changing Rules

■ New Sanctions Requirements

− Implications for Companies Selling Overseas

■ Export Control Reform Initiative

− What it means; Where it is going

■ Updating Compliance Programs

− Re-assessing Risk Exposure

− Updating Policies and Internal Controls

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Sanctions Enforcement EnvironmentEconomic Sanctions

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■ Sanctions restrict commercial or financialtransactions with prohibited countries, entities, andindividuals− Rogue States (Iran, Syria)− Terrorist Syndicates (Al-Qaeda, Taliban, Hamas)− Weapons Proliferators (Iran, North Korea)− Narcotics Traffickers (Latin American and Asian cartels)− Human Right Violators (Belarus, Burma, Zimbabwe)

■ Every sanctions program is different− Don’t assume that all countries are the same

■ Sanctions can be much broader than export controls− Don’t assume that export control compliance is sufficient


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■ Most sanctions programs cover:− Trade in goods

− Financial services

− Non-financial services

− U.S. person involvement

− Facilitating prohibited conduct by others

− Evasion and conspiracies

■ Transactions with sanctioned countries or persons can resultin both sanctions and export control violations− Many sanctions programs prohibit exports and re-exports

− Every export should be considered from a sanctions perspective aswell

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Covered Transactions

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■ Most sanctions programs cover:− Trade in goods− Financial services− Non-financial services− U.S. person involvement− Facilitating prohibited conduct by others− Evasion and conspiracies

■ Transactions with sanctioned countries or personscan result in both sanctions and export controlviolations− Many sanctions programs prohibit exports and re-exports− Every export should be considered from a sanctions

perspective as well


Enforcement Agencies

■ U.S. TreasuryDepartment (OFAC)

■ U.S. Customs &Border Protection(CBP)

■ U.S. JusticeDepartment

■ U.S. StateDepartment

■ U.S. Federal Reserve

■ State Regulators6

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Enforcement Trends

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■ The U.S. Government has more tools to findviolations than ever before

− Export Enforcement Coordination Center (E2C2)

− Enhanced role for the U.S. Intelligence Community

− Stronger collaboration with foreign governments

− Better application of electronic databases & forensic tools

■ Regulators use aggressive legal theories and newlaws to expand U.S. jurisdiction overseas

− Dollar-Denominated Transactions

− Foreign subsidiary liability (Iran, Cuba)

− Foreign sanctions evasion (Iran, Syria)


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Regulatory Environment

■ Export Control and Sanctions investigations are now treatedmore and more like FCPA investigations− $2 Billion in export- and sanctions-related fines in 2012

− Fines over $1 million are increasingly common

− Growing emphasis on exporters of all sizes

■ Strong Incentives for Aggressive Enforcement− National security

− Economic competition

− Congressional and domestic political pressure

■ New laws are more restrictive, more comprehensive, and farmore complex

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Major Enforcement Actions

■ ING Bank NV− $619 Million OFAC penalty for a scheme to deliberately evade

Burma, Cuba, Iran, Libya, and Sudan sanctions

■ HSBC Holdings, Plc.− $375 Million OFAC penalty for a scheme to deliberately evade

Burma, Cuba, Iran, Libya, and Sudan sanctions

■ Standard Chartered Bank− $472 Million penalty for processing $250 billion in illicit

transactions for Iranian banks

− Included $132 million OFAC settlement, plus $340 million for NewYork state regulators

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Case Study

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■ Online Micro, LLC− U.S. company exported computer equipment worth

$527,194 to Iran through the United Arab Emirates− Sanctions violations were discovered during the course of

a federal export control investigation− The investigation culminated in an indictment, trial, and

criminal conviction− Criminal penalties totaled $1.9 Million, almost four times

higher than the value of the goods− Civil penalties from OFAC were $1.054 million, or twice

the value of the goods− Case illustrates how small and mid-sized companies can

be implicated in sanctions and export control violations

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New Sanctions Requirements

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■ Easing Sanctions

− Burma New General Licenses allow the import of many Burmese goods,

as well as the export of financial services. The arms embargo andsanctions on military leaders still remain

− Cuba Revised regulations allow for broader athletic, cultural,

educational, and religious exchanges. Comprehensive sanctionsstill remain

− Libya Treasury gutted most sanctions imposed during the Libyan civil

war, allowing the Transitional Government to operate whilekeeping pressure of Gadhafi loyalists


Tightening Sanctions

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■ Iran− 5 Sets of OFAC Regulations (IASR, ITSR, IFSR, IHRASR)

− 4 New Acts since 2010 (CISADA, NDAA, TRA, IFCA)

− New Executive Orders since 2010

− Nuclear Iran Prevention Act of 2013 passed the House andis currently before the Senate

■ Syria− 5 New Executive Orders since March 2011

− 1 New Act since March 2011 (TRA)

■ Yemen− 1 New Executive Order targeting parties that threaten

peace and stability (Never Used)

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Foreign Subsidiaries

Old Rule

■ Foreign-incorporatedsubsidiaries of U.S.companies were notsubject to U.S. sanctions

■ The sole exception to thisso-called “foreignsubsidiary rule” was Cuba

New Rule

■ U.S. parent companies arenow liable for foreignsubsidiaries’ “knowing”dealings with Iran

■ U.S. parents must wind-upforeign subsidiaries’ Iranbusiness or divest thosecompanies

■ Deadline has passed

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Issuers & Listed Companies

Old Rule

■ No obligation to reportforeign affiliates’ dealingswith Iran

■ No distinction betweenprivate and publiccompanies

New Rule

■ “Issuers” must report theirforeign affiliates’ dealingswith Iran to the SEC

■ Public disclosures requiredin all quarterly and annualSEC reports

■ SEC forwards thisinformation to Congressand the White House

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Sanctions Evaders

Old Rule

■ Prohibits U.S. personsfrom evading U.S.sanctions or conspiring todo so

■ Violators face civil andcriminal penalties in theUnited States

■ Rule is still in effect formost sanctions program

New Rule

■ Prohibits foreign personsin foreign countries fromevading U.S. sanctions onIran and Syria

■ Violators face travel bans,asset seizures, and totalexclusion from the U.S.financial system

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Business Implications

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■ There is no “foreign subsidiary loophole” for Iran

− Foreign subsidiaries that do business in Iran will expose theirU.S. parents even if there is no U.S. person involvement

■ U.S. issuers must publicly disclose Iran business

− Disclosure risks public ridicule and possible enforcementactions; failure to disclose risks SEC reporting violations

■ Foreign companies must consider “sanctions evasion”

− Dealings with Iran and Syria now can lead to asset seizures andexclusion from the U.S. financial system

■ Regulators are seeking new enforcement tools

− Many government contracts now contain sanctions and exportcompliance certifications

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Export Control Reform: Overview

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■ Export Control Reform Initiative

− Adapt a Cold War export regime to modern defenseacquisitions involve COTS parts and technologies

− Improve interoperability and joint acquisitions with foreignallies (NATO, Japan, Australia, etc.)

− Improve enforcement through regulatory clarity

■ Migration from the USML to CCL

− Many low-risk items are being migrated from the USML tothe CCL

− Re-designation of ordinary components could reduce costand risk for exporters


Export Control Reform: Overview

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■ Other Interim Steps:− New Information Triage Unit (ITU) housed within BIS to

provide a single coordinating point for export licensing

− New Export Enforcement Coordination Center (E2C2)housed within DHS to share information and “de-conflict”investigations involving various agencies

− Both involve inputs from the U.S. Intelligence Community

■ Ultimate Goals:− A single export control list

− A single licensing agency

− A single information technology system

− A single enforcement coordination agency

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Export Control Reform: EAR Impact

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■ Despite promises of far-reaching reform, little impacton dual-use regulations

− Very few items migrated off of CCL

− Deemed export control rule largely stays the same

− With exception of license exception STA, few changes inlicense exceptions

− De minimis rules have stayed the same for downstreamproducts

− Main impact has been on defense contractors


Export Control Reform: ITAR Impact

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■ Major Changes for Defense Contractors

− Rewrite of USML Categories

− Movement of up to 77% of USML Items to EAR Control

− Creation of New EAR Categories

− New Definition of Specially Designed

− Transition Rules

− New Definition of Defense Services

− New Brokering Rules

− Unintended Consequences and Complications

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Export Control Reform: Rewrite of USML

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■ New definitions are in place for most USMLcategories (Oct. 15, 2013, Jan. 6, 2014)

■ Fully transitioned by next summer

■ Any defense contractor needs to review new rules forcoverage

■ Possible results

− No change

− Mixed ITAR and EAR

− All EAR controlled (600 series, temporary controls)

− Movement to EAR99



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Export Control Reform: EAR Transition

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■ Three new categories− 600 series

New Commerce military control list

Will be subject to high degree of control – few exceptions apply

No EAR de minimis rules for Country Group D:5 (arms embargo countries)

No registration requirement for 600 series

From compliance perspective, little change

− 500 series

Special rules for spacecraft and related items transferred to EAR control

Subject to national security, regional stability, antiterrorism and(sometimes) missile technology controls

Policy of denial for China, North Korea, and state sponsors of terrorism

− Temporary ECCN

Certain items placed in temporary EAR holding pen while status andultimate home within EAR is determined



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Export Control Reform: New EAR Categories

■ Numerous new categories are being created

■ No substitute for tracing through transitioned itemsto determine EAR category

■ Certain rules ease application of export control laws− Fasteners (nuts and bolts, pins, washers, insulators, springs, wire,

solder) are decontrolled, even if specially designed for particularmilitary application

− “.y” subsystems – items of lesser military significance (tires, filters)are decontrolled, even if related to items of higher control (notapplicable to China)


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■ Major Changes for Defense Contractors− Rewrite of USML Categories








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Export Control Reform: SpeciallyDesigned

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■ Controversial Rule – Previously Captured Any ItemsModified in “Form, Fit, or Function” for Military Use orto Meet Military Specifications

− Captured many items of little military import

− Even minor modifications

− Operation of look-through rule exacerbated impact



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■ “Catch and Release” Operation

− Catch Commodities or software that, as a result of development, have

properties peculiarly responsible for achieving or exceedingcontrolled performance levels, characteristics, or functionsdescribed in the USML

OR

− Parts, accessories, attachments, or software designed “foruse in or with a defense article”

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■ “Catch and Release” Operation

− Release Items subject to EAR pursuant to CJ request

Fastener, even if modified in form or fit for ITAR article

Same function, performance capabilities, and same/equivalentform and fit as a commodity or software in production if notenumerated on USML

Item was developed for both USML/EAR

Item was developed as general purpose commodity

− Remember– just because not specially designed, does notmean otherwise found on USML



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Export Control Reform: Transition Rules

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■ Delayed effective dates – 180 days to adjust

■ Prior CJs remain effective

■ Grandfathering of DDTC approvals

■ Avoidance of dual licensing where project wouldrequire both USML and CCL items

■ Continuing DDTC processing of license applications



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Export Control Reform: Defense Services

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■ May 24, 2013 FR includes new definition of defenseservices

− Proposal would restrict defense services to situations“using other than public domain information”

− Technical assistance provided with public domaininformation would be controlled only if: Furnishing assistance to non-U.S. person for integration of ITAR- or

EAR-controlled item into ITAR-controlled end item

Furnishing assistance (including training) in integrating satellites orspacecraft into a launch vehicle or providing related services

Furnishing assistance to a foreign person in tactical employmentof a defense article

Conducting direct combat operations for a foreign person



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Export Control Reform: Brokering

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■ New Brokering Rules

− In the works since 2003

− Issued in three forms in 2009, 2011, and to DTAG in 2012

− Significant comments and controversy

− Now issued in interim final form


Export Control Reform: Brokering

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■ New Brokering Rules

− Narrower applicability to foreign persons Coverage of foreign persons only when located in U.S. or when

owned or controlled by a U.S. person

Elimination of dual-registration requirement (change when annualrenewal occurs)

Clarification that activities of affiliates on behalf of U.S. companydo not constitute brokering

Clarification that brokering activities do not include administrativeservices

Exclusion of general activities to get bids, such as promotingcompany goodwill at trade shows

Expanded reporting obligations

19



37











Export Control Reform: UnintendedConsequences

38

■ Potential need to report violations to two agencies

− For overlapping timeframes for exports

− Valid exports but prior violations

■ Chinese ambiguity

− Although National Defense Authorization Act (§1211)prohibits procurement of military items from Chinesemilitary companies, not clear if this applies to 600 Seriesitems

− Defense contractors should monitor DFARS 252.225-7007(a) to see whether it adds 600 Series items

20


Export Control Reform: UnintendedConsequences

39

■ Corporate Transactions

− Although all ITAR licenses are grandfathered, this does notapply if the license needs to be amended, such as for M&Aactivity

− No grace period under new EAR rules

− Requires that companies be pro-active, such astransitioning licenses to EAR control ahead of transaction

©2013 Foley & Lardner LLP • Attorney Advertising • Prior results do not guarantee a similar outcome • Models used are not clients but may be representative of clients • 321 N. Clark Street, Suite 2800, Chicago, IL 60654 • 312.832.4500

Coping with Reform:Twelve Steps to International

Compliance

40

21


Twelve Steps to Compliance

41

■ Step 1: Buy-In at the Top

■ Step 2: Perform a Risk Assessment

■ Step 3: Survey Current Controls

■ Step 4: Assess Local Oversight

■ Step 5: Identify Available Resources

■ Step 6: Create a Compliance Program

■ Step 7: Establish Internal Controls

■ Step 8: Training, Training, Training

■ Step 9: Integrate Outsiders

■ Step 10: Auditing and Checkups

■ Step 11: Monitor Red Flags

■ Step 12: Communicate with Board & Senior Management


Risk Management

42

■ Multinational corporations and companies sellingoverseas face higher risks− All of the domestic compliance requirements remain, but

new international obligations are imposed

■ But effective compliance and risk management isstill possible− Identify yours risks− Adopt comprehensive compliance procedures− Tailor training to your business type and risk profile− Conduct due diligence

■ Details in the International Compliance Guidematerials

1


Frank S. Murray

October 2013

2013 Bid Protest Update


Why File a Bid Protest?

2

■ The agency violated a statute, regulation or provisionof the solicitation

■ When second-in-line for award -- a protest iscontinuation of marketing efforts

− Highlight advantages your proposal provides

− Why a proper evaluation would result in selection

■ When the incumbent -- protest allows continuation ofprior contract while protest pending

■ If sustained (or if agency delays in taking correctiveaction), can recover attorneys fees

2


Where Are Bid Protests Filed?

3

■ Three administrative fora for bid protests

− Agency-level protests (Contracting Officer)

− Government Accountability Office (GAO)

− FAA’s Office of Dispute Resolution for Acquisition (ODRA)(FAA protests only)

■ One judicial forum

− U.S. Court of Federal Claims (COFC)


Protests at GAO

4

Fiscal Year 2012 Statistics Protests filed: 2,475

Includes 47 claims for cost and 89 requests for reconsideration

Includes 209 protests of task/delivery orders under IDIQ contracts

Increase of 5% from FY 2011

Merits decisions: 570

Protests sustained: 106

Sustain rate: 18.6% (up from 16% in FY 2011)

Hearings: 56

Effectiveness rate: 42% (steady at 42% since FY 2010) “Effectiveness rate” = percentage of cases in which protester

received some relief from the agency

3


Obtaining “Some Relief from theAgency”

5

■ “Effectiveness rate” - highlights relief obtainableeven when protests don’t reach final decision

■ By filing protest showing potential error inprocurement and delayed award/contractperformance, possible to negotiate with agency− For some benefit, even short of winning the protest− Payment of fees

■ Stronger the protest - greater the leverage withagency

■ FAR 33.102(b) - agency can take any action that GAOcould recommend, including paying protester’sfees/costs


Bid Protest Developments

6

■ GAO’s FY 2014 budget request seeks statutoryauthority to collect bid protest filing fees, to cover thecost of establishing an electronic docketing systemfor protests, similar to the electronic docketingsystems federal courts use

■ Unofficial estimates are that the filing fee (ifimplemented) would be around $250 to $350

■ GAO views new docketing system as increasingtransparency (could make redacted filings morereadily available to public – similar to court filings)

4


Bid Protest Developments

7

■ DoD has sought legislation that would forceprotesters to “elect a forum” – in other words, wouldprevent a subsequent protest at the Court of FederalClaims if a protest had already been filed at GAO

− Congress did not act on DoD request, but this effort tolimit protester choice bears monitoring going-forward

■ Legislation would impact decisions on how to fileprotests, as currently COFC is available as a checkagainst unreasonable GAO decisions

− Growing trend of awardees “appealing” unreasonable GAOprotest decisions to COFC to prevent agency correctiveaction


10 Protest Rules to Live By

8

■ Rule 1: Better to seek legal advice too soon than toolate

− Protest deadlines are strict and unforgiving

− If you have any question about whether you have a protestissue, better to seek legal advice right away than to waitand find out that the issue is now untimely

5



9

■ Rule 2: If you think there’s something wrong or unfairabout the procurement before you’ve even submittedyour proposal, that’s a “solicitation defect” issue thatneeds to be protested before proposals are due

− Solicitation defect protests must be filed prior to due datefor initial proposals (or next closing date for proposals iferror is in amendment)

− Common “solicitation defect” issues: RFP not detailedenough or too detailed/restrictive; brand-name or equalissues; RFP is ambiguous; issues with evaluation scheme;small business issues (failure to set aside, wrong sizestandard, HUBZone issues)



10

■ Rule 3: Avoid protest issues by paying attention tothe solicitation and what the agency is asking forwhen preparing your proposal

− Section L tells you what your proposal should include/howit should be formatted

− Section M tells you how the agency will evaluate proposalsand select a winner

− Focus on provisions drafted by the agency and understandwhat the agency is asking for

− Write proposal that responds to the RFP as issued – not tothe RFP you think the agency should have issued

6



11

■ Rule 4: Use agency protests to your advantage onsolicitation defect issues (but generally not for post-award/evaluation issues)− Agency protests are less formal, less costly, and can be

less adversarial than a GAO protest, but are best usedwhen asking the agency to revise a solicitation pre-award(i.e., a “solicitation defect” issue)

− “Foot-in-the-door” for later GAO protest if agency denies ordeclines to act before proposals due

− Less likely to obtain relief if you are asking agency tovoluntarily reverse its award decision, and awaiting agencyaction on post-award agency protests can affect ability toprotest at GAO or obtain stay of performance



12

■ Rule 5: When eliminated from competitive range, donot defer debriefing until after award – ask for itright away

− When eliminated from competitive range, you have theright to defer your debriefing until after the award, but nota good idea to do so if you think your elimination wasimproper/erroneous

− Ask for a pre-award debriefing and file protest beforeagency moves on with evaluation/award; better chance ofgetting “corrective action” or getting back into thecompetition

7



13

■ Rule 6: Always request a debriefing in writingimmediately upon notification of award decision

− Debriefings can extend protest deadlines, includingdeadlines for automatic stay, but you have to requestdebrief in writing within three calendar days of notification

− If notified by e-mail, make it a practice to replyimmediately with request for debriefing

− Ask for debriefing even if you win award



14

■ Rule 7: Always accept the first debriefing dateoffered by the agency

− Automatic stay deadline is keyed to the first date offeredfor the debriefing, so if you decline the first date and try todelay the debriefing until later, you could lose the chanceto obtain a stay of performance if you do decide to protestthe award

8



15

■ Rule 8: Know the rules/deadlines for obtaining anautomatic stay of performance – and be sure tofollow them

− Remember debriefing deadlines/rules

− Ask agency to identify/confirm date contract was awarded

− Calendar days – “within 5 days of debriefing” Some agencies take position that, if debriefing offered on Tuesday,

protest must be filed on Friday to get stay (even though undernormal GAO rules, a deadline that falls on a weekend carries overto the next business day)

− Err on side of caution; better to be safe than sorry



16

■ Rule 9: Protect your rights as an awardee byintervening in a protest

− Intervening allows you to stay involved in the process andto help the agency respond to the protest allegations anddefend the award

− Also shows that you are concerned/invested in theoutcome and willing to fight for the award, which couldfactor into agency decision on whether to take “correctiveaction” of reopening competition or reevaluating theaward decision

9



17

■ Rule 10: Read Foley Bid Protest Guide

− Foley & Lardner Guide to Federal Procurement Protests,2nd ed., by David Ralston and Frank Murray

− Provides detailed discussion of: Protest jurisdiction and timeliness requirements

Stay of contract award/performance

Protest process and available relief

Common protest grounds

Advantages/disadvantages of each protest forum

1


George W. Ash

October 2013

Money Matters


Overview

2

■ Sequestration 2.0

■ Executive Compensation Caps

■ Executive Compensation Reviews

■ Government Statute of Limitations Cases – Impacton Pending Incurred Cost Audits?

■ Noteworthy Recent DFARS Checklists

2


Sequestration 2.0 – How Did We GetHere?

3


Sequestration 2.0

4

■ How did we get here?− Budget Control Act of 2011 (“BCA”) was passed in August

2011 to end the debt ceiling standoff The BCA called for a Joint Select Committee on Deficit Reduction,

with a requirement that Congress must enact legislationdeveloped by this Committee by January 12, 2012 that wouldreduce the deficit by $1.2 trillion over 10 years

− The Committee could not reach a consensus and no legislation was passed

Under the BCA, automatic cuts would commence on January 2,2013 and continued each year for 10 years

Under the BCA, half of the cuts would come from DoD, and halffrom other agencies

All agencies are affected without regard to existing priorities orstrategy

− The only exception is that the President is empowered to exempt militarypersonnel, which he has done

3


Sequestration – The Five Stages of Grief

5

■ Denial

■ Anger

■ Depression

■ Bargaining

■ Acceptance


Sequestration

6

■ Congress passed the BCA, why not change or repealit?

− Congress is divided along philosophical lines

− The President has said he will veto any attempt to changethe BCA

■ Change in the BCA continues to be mired by politics,involving overall government spending, the debtceiling and the Republican effort to de-fundObamacare

4


Yet Another Fiscal Cliff?

7


Yet Another Fiscal Cliff?

8

■ The President, the House and the Senate all haveproposed budgets that exceed the BCA budget cap

■ The Pentagon has prepared two budgets, one to thePresident’s proposal, and one reflecting thesequester cuts

■ A Continuing Resolution to keep funding at theFY2013 level was expected, but now tied toincreasing the debt limit and de-funding Obamacare

■ Final results are anyone’s guess

5


Sequestration Causes Significant Cuts toAll Programs

9

■ Most of the attention falls on the impact to defense

− Sequester is an arbitrary, meat cleaver approach to budgetcuts, devoid of any strategy

− Large, immediate impact in DoD falls on personnel andR&D

− Congress will not accept DoD’s proposals on base closuresand cuts to retiree benefits

■ Clear if it stays in place, sequestration impact inFY2014 will be more severe

− And it will only get worse


The Impact of Sequestration

10

■ With sequestration, agencies are prone to:− Delay and/or cancel solicitations− Decline to exercise options− Use the limitation of funds clause (FAR 52.232-22)− Place minimum orders under IDIQ contracts− Down-scope existing contracts− Review the contractor’s period of performance− Order stop work/stop shipment actions− Accelerate completion of performance− More quickly issue terminations for default− Cancel multi-year contracts− Terminate contracts for convenience− Seek the re-negotiation of contracts− Pursue liquidated damages− Demand detailed cost or pricing data− Heighten emphasis on business systems and compliance− Move toward more LPTA awards

6


Sequestration and the Budget Crisis

11

■ Long term impact?− Cuts in subsequent years

− Personnel cuts/furloughs

− Loss of industrial base

− Huge (?) unemployment/recession

− Increase unit cost of weapons

− Loss of readiness and training

− Impact on volunteer force

− Impact on national security

− Decrease in investment in R&D

− More bid protests


Contractors Should Prepare For:

12

■ Deductive Changes− Consider flowdowns

■ Terminations for Convenience− Flowdowns

− Repricing remaining work

− Submitting T4C settlements

■ Contract Changes− Need change recognition and management

■ Delays

■ Defaults

■ Contract Restructuring

7



13

■ “Executive Compensation Benchmark” first went intoeffect in 1998 at $340,650− Cap is indexed to increase in compensation for top private

sector CEOs

■ Originally created to apply to the top five executives

■ The Benchmark/cap does not limit the amount acontractor can pay to these executives, but does capthe amount that is allowable

■ The cap has grown each year− currently at $763,029

− expected to be over $950,000 this year unless changed



14

■ Capping the compensation of government contractorexecutives has been a target of Congress, federalemployee unions, advocacy groups and policy groups

− Especially in times of cutbacks, furloughs andsequestration

− Obviously, largest impact on contractors that perform costplus contracts

− Government contractor associations argue that GAO reportand cap reduction proposals fail to consider the impact onattracting and retaining the best executives

8


GAO Study Adds Fuel to the Fire(GAO-13-566)

15

■ Study was required by the 2013 National DefenseAuthorization Act

■ GAO selected 30 companies to survey− 10 large, 10 medium, and 10 small contractors− Lockheed Martin, Northrop Grumman and Boeing declined− Remaining 27 provided information

■ Of the 27 participants:− 200 employees had salaries above the cap 2010-2012,

but if cap reduced to $450,000, 500 employees wouldexceed the cap, saving $100 Million

− If the cap was set at $230,200, then 3,000 employeeswould exceed the cap, saving $440 Million each year 27 contractors represent 7% of the DoD’s contract obligation


Many Proposals Being Floated for a NewCap

16

■ SES compensation: $200,000■ Vice President’s salary $230,700

■ President’s salary $400,000■ Senate’s National Defense

Authorization Act $487,000■ Freeze the Cap $763,029■ House National Defense Authorization Act

− Keep the current cap and increase based on theEmployment Cost Index Companies with >$500 Million in federal contracts eat the

compensation of five highest paid executives

■ Keep the current system

9


DoD Expands the ExecutiveCompensation Cap

17

■ Interim Rule (78 Fed. Reg. 38535, June 26, 2013)extends the cap to all employees of contractorsworking for DoD, NASA and the Coast Guard

− Secretary of Defense can establish narrowly targetedexceptions for scientists and engineers upon adeterminable exception if needed to continue access toneeded skills and capabilities

− Applies to contracts awarded since December 31, 2011

■ Proposed Rule (78 Fed. Reg. 38539, June 26, 2013)would apply retroactively to contracts awarded priorto December 31, 2011, with payments made afterDecember 31, 2011


Executive Compensation Review

18

■ As a separate issue from the ExecutiveCompensation Cap, to be allowable and recoverable,executive compensation must be reasonable (FAR31.205-6(b))

■ In 2012, contractors won two cases that challengedDCAA’s determination that the contractor’s executivecompensation was excessive− J.F. Taylor, Inc., ASBCA Nos. 56105, et al., 12-1 BCA

¶34,920− Metron, Inc., ASBCA Nos. 56624, et al., 12-2 BCA ¶35,066

■ In both cases, the Board found DCAA’s assumptionsarbitrary, unjust and unreasonable

10


Executive Compensation Review

19

■ Despite the Board’s criticism in the Taylor andMetron decisions, DCAA has not changed itsapproach− Generally, DCAA states it sees the two cases as non-

precedent setting

■ Contractors should document and be prepared toexplain their executive compensation plans− Document compensation practices and tie them to a

business plan

■ DCAA focuses heavily on financial performance■ Both decisions criticized DCAA’s sampling

techniques and understanding of statistics


Government Statute of LimitationsCases

20

■ For contracts awarded after October 1, 1995, theContract Disputes Act requires submission of acontract claim “within 6 years after the accrual of

the claim.” 41 USC § 7103(a)(4)(A)

11


Government Statute of LimitationsCases

21

■ Raytheon Co. Space & Airborne Sys., ASBCA 57801 (April 22, 2013)

■ Government claim accrues when the government knows or has reason toknow that some injury occurred, even if the amount is not finalized or amore complete analysis will follow. Appeal involved several separategovernment claims

− Claim involved a CAS change in cost accounting practice, for propertyaccounting and management submitted in 2004, with an impact submitted in2006, government claim brought in 2011 was timely

− Claim involving the transfer of enterprise resource planning, notice given in2004 with known adverse cost impact to begin January 1, 2005.Consequently, government claim in July 2011 was untimely

− Claim involving change in fringe rate and labor rate with notice in November2004 effective January 24, 2005, so the final decision with the governmentclaim on August 22, 2011 was untimely

■ Government had claimed the Statute of Limitations doesn’t start untilthey complete an audit – soundly rejected by the Board and the COFC


Raytheon Missile Systems,ASBCA No. 58011, January 28, 2013

22

■ CAS disclosure statement notice given in late 1998that effective January 1999 “major subcontracts”would receive a lower burden rate

■ In September 2006, DCAA audit report challengesRaytheon’s application of the reduced burden rate ona 1999 contract− Contracting Office issued a claim in 2011

■ Government argued that the claim did not accrueuntil either the government “understood” the impactor the information was transmitted to an individualwith supervisory authority− All were rejected by the Board

12


Statute of Limitationsand Stale Incurred Cost Audits

23

■ Consider the impact of these cases on Incurred Cost Proposal Audits

■ DCAA is woefully behind in completing incurred cost audits, with anestimated backlog of 26,000 – some going back to 1996

■ Many contractors now having their 2004 and 2005 incurred costaudits

■ Board cases have held that the government’s claim accrues when thecontractor first reported the potential impact to the government, notthe later date when it provided more information on the financialimpact

■ Claim accrual does not depend on the degree of detail provided,whether the contractor revises the calculation later, or whether thecontract characterizes the impact as “immaterial.” “Is enough that thegovernment knows, or has reason to know, that some costs have beenincurred, even if the amount is not finalized or a fuller analysis willfollow.” (Raytheon Space & Airborne Systems)



24

■ Effective March 28, 2013, DFARS 252.215-7009incorporates a requirement for a proposal adequacychecklist in proposals that require the submission ofcertified cost or pricing data

− Checklist contains 36 detailed line items with arequirement to cross reference the item to a page in theproposal

− Areas include Materials and Services, Inter-OrganizationalTransfers, Direct Labor, Indirect Costs, Subcontractors andOther Direct Costs

■ Will the failure to include the completed checklistmake a proposal non-responsive?

13



25

■ On May 16, 2013, DoD proposed DFARS amendmentadding instructions to contracting officers to requestcontractors to submit a proposed forward pricingrate proposal adequacy checklist

− Proposed checklist contains 27 FPRP requirementreferences

− Proposed checklist has five sections: General Instructions,Direct Labor, Indirect Rates, Cost of Money, and Other

1


Frank S. Murray

October 2013

Supply Chain & Information SecurityIssues for Contractors


Topics

■ Counterfeit Parts: New Rules and the Path Ahead

■ Conflict Minerals: Compliance Updates and Trends

■ Cybersecurity and Information Security: WhatChallenges Lie Ahead for Contractors?

■ Domestic Sourcing Requirements

2

2


Counterfeit Parts Update

3


Counterfeit Parts Update

■ Where we were last year: Section 818 of 2012 NDAA

■ Where we are now: rulemakings and new DoDinternal guidance

■ What remains to be done

■ What contractors should be doing to prepare for theimplementation of counterfeit parts rules by DoDand other federal agencies

4

3


Where We Were Last Year

■ Section 818 of FY 2012 National DefenseAuthorization Act, “Detection and Avoidance ofCounterfeit Electronic Parts”

■ Required Department of Defense to adopt internalguidance to address counterfeiting of electronicparts

■ Also required DoD to adopt regulations imposingnew responsibilities on contractors (andsubcontractors) regarding detection and avoidanceof counterfeit electronic parts

5


Section 833 of FY 2013 NDAA

■ Limited statutory “safe harbor” for contractorsagainst liability for rework/remediation ofcounterfeit parts

■ Rework/remediation costs allowable only if:

− Contractor has an operational system to detect and avoidcounterfeit parts that DoD has reviewed and approved;

− Counterfeit parts were provided to contractor asGovernment-furnished property; AND

− Contractor timely notified Government of discovery ofcounterfeit parts

6

4


New DoD Internal Guidance

■ DoD Instruction 4140.67, “DoD CounterfeitPrevention Policy,” issued April 26, 2013

− Not limited to counterfeit electronic parts; discusses“counterfeit material” generally

− Establishes objectives and allocates responsibility forfuture policy development, but short on actualpolicies/procedures itself

− Adopts DoD definition of “counterfeit material,” significantas driver of scope of “counterfeit” prevention policiesultimately required

7


DoD Instruction 4140.67

■ Announces intent to issue “standardized guidelines”for contractors to use in their quality systems todetect/avoid counterfeit parts

■ Stated goal of avoiding “DoD-unique” counterfeit-prevention policies; signals desire to coordinate withother federal agencies or industry standards

8

5



■ Announces intent to develop “technical anti-counterfeit qualification criteria for suppliers”

■ Designates Government-Industry Data ExchangeProgram (GIDEP) as reporting mechanism forcounterfeit parts

■ “Risk-based” approach to DoD’s internal counterfeitprevention policies

− Contrast with “zero tolerance”/strict liability approach tocontractor detection/avoidance

9



■ Definitions of “counterfeit,” “suspect counterfeit,”and “authentic” material

− “Counterfeit material” = item that is unauthorized copy orsubstitute that has been identified, marked, or altered bysource other than item’s legally authorized source, andhas been misrepresented to be authorized item of legallyauthorized source

− “Suspect counterfeit” = indication by visual inspection,testing, or other information that it may be counterfeit

− “Authentic material” = “made from the proper materialsusing the proper processes with required testing”

10

6


Counterfeit Parts Rulemakings

■ DFARS case (2012-D055) “Detection and Avoidance ofCounterfeit Electronic Parts”− Proposed rule published May 16, 2013− Implements provisions of both FY12 NDAA §818 and FY13 NDAA

§833

■ FAR case (2013-002) “Expanded Reporting of Non-conforming Items”− Will address the Section 818 requirements regarding the reporting of

suspected and confirmed counterfeit items into the GIDEP

■ FAR case (2012-032), “Higher Level Contract QualityRequirements”− Will provide means for Government to impose increased contract

quality standards, including standards specific to counterfeit partsdetection and avoidance

11


DoD’s Proposed May 16, 2013 Rule

■ What the Proposed Rule Does:

− Limits scope of counterfeit detection/avoidance toelectronic parts;

− Includes a definition of “counterfeit” that is problematic;

− Limits application at the prime contract level to CAS-covered contracts (but requires flow down);

− Makes counterfeit detection/avoidance an element of acontractor’s purchasing system to be evaluated in apurchasing system review

12

7


Counterfeit Parts

■ What the Proposed Rule Does Not Do:

− Identify the criteria DCMA will use to evaluate whether acontractor’s counterfeit detection/avoidance system is“acceptable”;

− Define “trusted supplier” or establish criteria forcontractors to qualify “trusted suppliers”

− Identify required mechanism for reportingcounterfeit/suspect counterfeit parts, including timing,consequences of reporting, and parties to be involved inreport

13


DoD’s Definition of “Counterfeit”

■ 3 Definitions of “Counterfeit”:

− (1) unauthorized copy or substitute part that has beenidentified, marked, and/or altered by a source other thanthe part’s legally authorized source and has beenmisrepresented to be from a legally authorized source;

− (2) item misrepresented to be an authorized item of thelegally authorized source; or

− (3) new, used, outdated, or expired item from a legallyauthorized source that is misrepresented by any source tothe end-user as meeting the performance requirementsfor the intended use

14

8


DoD’s Definition of “Counterfeit”

■ Problems With Third Definition:

− Appears to cover new, unused, genuine parts from theoriginal manufacturer that do not meet “the performancerequirements for the intended use”

− Could turn garden-variety quality issues into “counterfeitpart” issue, if nonconforming part supplied with certificateof conformance

− Would trigger special counterfeit parts rules regardingunallowability of rework/remediation costs, reportingobligations, etc.

15


Other Issues With Proposed Rules

■ Lack of clarity regarding several key terms indefinitions: “legally authorized source,”“authorization,” etc.

■ Strict liability approach, with contractors required to“abolish counterfeit parts proliferation” rather thanadopting a risk-based approach

■ Lack of meaningful analysis as to small businessimpact

■ Unclear as to intended coverage of commercialitems

16

9


Other Issues With Proposed Rules

■ Issues with making counterfeit detection/avoidancesystem an element of a contractor’s purchasingsystem, rather than a stand-alone system

− Safe harbor provision would penalize contractors without apreviously approved counterfeit detection/avoidancesystem, but contractors can go years without a purchasingsystem review

− Will contractors be subject to separate 5% withholds fordeficiencies in both purchasing system and counterfeitdetection/avoidance system?

17


Counterfeit Parts Compliance Tips

■ Review your inspection, testing and authenticationpractices against industry standards/best practices

■ Establish a plan and procedures for quarantining anddestroying suspect counterfeit parts− Do you maintain traceability of parts in inventory to

particular suppliers/lots?

− How would you respond if you receive a report that acertain part supplied by Company X was found to becounterfeit?

■ Establish internal reporting requirements andprocedures for suspect counterfeit parts

18

10



■ Assess “item risk” vulnerabilities

− Obsolete or rare parts

− High value parts

− Safety-critical parts or parts critical to functionality

− Purchases from “independent distributors”

■ Assess and address “supplier risk”

− Limit purchases of in-production parts to OCMs orauthorized distributors and require suppliers to do same

− Inspect/audit supplier quality systems and counterfeitdetection/avoidance systems

19



■ Supply chain traceability

− Certificates of Conformance and Traceability

− Show “chain of custody” of parts traceable back toOCM/OEM or authorized dealer

■ Adapt purchase order/supplier terms and conditionsas required to deal with counterfeit-specific issues,such as impoundment of suspect counterfeits

■ Look for opportunities to remove obsolete parts fromdesign

20

11



■ Consult and monitor updates to applicable industrystandards

− SAE AS5553a, “Counterfeit Electronic Parts; Avoidance,Detection, Mitigation, and Disposition” (SAE AS5553adopted by DoD on Aug 31, 2009)

− SAE AS6081, “Distribution Counterfeit Electronic Parts;Avoidance Protocol, Distributors” (adopted by DoD on June10, 2013)

− SAE AS6174, “Counterfeit Materiel; Assuring Acquistion ofAuthentic and Conforming Materiel” (adopted by DoD onJune 17, 2013)

21



■ Other relevant industry standards

− EPRI TR-1019163, “Counterfeit, Fraudulent andSubstandard Items, Mitigating the Increasing Risk”

− IDEA STD-1010-A, “Acceptability of Electronic ComponentsDistributed in the Open Market”

− JEDEC Standard, “General Requirements for Distributors ofMilitary Semiconductor Devices”

− SEMI T20, “Specification for Authentication ofSemiconductors and Related Products”

22

12



■ These industry standards likely will be examples of“Higher Level Quality Requirements” that agenciescan incorporate into contracts to combatcounterfeiting under pending FAR rulemaking

■ Register for and monitor GIDEP (and other industrysources) for reports of counterfeits

− ERAI High Risk Parts Databasehttp://www.erai.com/Index.aspx

23


Conflict MineralsCompliance Update

24

13


Conflict Minerals: Quick Recap

■ SEC Rule requiring disclosure of use of “conflictminerals” from Democratic Republic of Congo (DRC)and neighboring countries that may have aidedarmed groups committing human rights violations

■ 4 Conflict Minerals: Tin, Tungsten, Tantalum, Gold− Sometimes abbreviated “3TG”− Commonly used in electronics, jewelry, automotive,

communications, aerospace, computers, and otherapplications

■ Obligation to track 3TG sourcing began Jan 1, 2013,but first SEC reports not due until May 2014

25


Conflict Minerals: Legal Challenge

■ National Association of Manufacturers (NAM) andU.S. Chamber of Commerce filed legal challenge toSEC’s conflict minerals rules

■ July 2013: U.S. District Court for D.C. rejected theNAM/Chamber legal challenge

■ August 2013: NAM/Chamber appeal to D.C. Circuit■ September-November 2013: appellate briefing on

NAM/Chamber challenge■ Appellate decision not expected until 2014

26

14



■ Some of the key issues in NAM/Chamber challenge:− Whether SEC erred in not adopting a de minimis exception

to C/M reporting rules− Whether SEC performed an adequate economic analysis

of C/M rules’ impact− Whether it was irrational for SEC to allow larger companies

a shorter transition period (“conflict undeterminable”) thansmall companies

− Whether C/M disclosure rule violates First Amendment bycompelling speech

27



■ Appellate ruling not expected until sometime in2014, when reporting obligations will already betriggered – so don’t put off compliance hoping forhelp from the Courts

■ Even if NAM/Chamber wins on appeal, the Dodd-Frank statutory provision requiring some kind of C/Mrule will still be on the books

− SEC will just have to refine the rules

■ So don’t view legal challenge as “silver bullet”

28

15


Compliance Trends/Developments

■ European Union conflict minerals proposal islooming (expected to be released Oct 2013)

− Expected to involve same 4 conflict minerals (tin,tantalum, tungsten, gold)

− Will not be limited to DRC region; will apply to conflictareas worldwide (ex.: Colombia tungsten mines controlledby rebels)

− Will likely impact companies that sell into EU market orthat sell to customers that sell into EU

29



■ Broad recognition among companies that there islack of transparency in C/M supply chain,particularly for manufacturers of complex itemsseveral levels removed from smelter/refiner

■ Most firms currently in “conflict undeterminable”status

■ Focus is on providing whatever smelter informationis available, even if incomplete

30

16



■ Companies gravitating toward EICC/GeSI reportingtemplate as a preferred tool for reporting andgathering C/M information

− Available electronically at:http://www.conflictfreesmelter.org/ConflictMineralsReportingTemplateDashboard.htm

− Automotive industry is using iPoint platform for reporting Requires subscription, but allows for one report to be submitted for

multiple OEMs

31



■ “Reasonable Practices to Identify Sources of ConflictMinerals: Practical Guidance for DownstreamCompanies”

− Aug 2013 White Paper by Conflict-Free Sourcing Initiative(CFSI)

− “Upstream”: from mine to smelter/refiner

− “Downstream”: from smelter/refiner to end user

32

17



■ Per CFSI, downstream companies should use bestefforts to identify smelters/refiners in their supplychain, recognizing it likely will take years ofengagement before information is complete andaccurate

■ What is important is that knowledge improves overtime

■ Goal is to ultimately pressure smelter/refiner to beconflict-free

33


Getting to Know Your Smelter

■ “Conflict-free Smelter” programs

− Electronic Industry Citizenship Coalition (EICC) & Global e-Sustainability Initiative (GeSI)

− http://www.conflictfreesmelter.org

− Voluntary program in which independent third-partyevaluates smelter and refiner procurement activities anddetermines whether smelter can verify its minerals comefrom conflict-free sources

− Lists of Conflict-Free Tantalum and Tin Smelters and GoldRefiners (Tungsten list in development)

34

18


Conflict Minerals Compliance Tips

■ Engage with your supply chain to determine which ofyour products contain conflict minerals

■ Use EICC/GeSI or similar type of widely-acceptedreporting template (familiar to suppliers and tocustomers)

■ Require suppliers to provide as much information aspossible about C/M smelters/refiners in their supplychain

35



■ Adopt a company policy of “conflict free,”responsible sourcing and communicate it tosuppliers

■ Create an internal C/M compliance team with inputfrom various affected functions (engineering,manufacturing, IT, purchasing, legal, internal audit)

■ Appoint one person in your organization as POC forC/M issues in dealing with suppliers and customers,and answering internal questions

36

19



■ What about requiring suppliers to certify that theyare “conflict-free” or will not use minerals from DRCregion?

− Not a practice recommended by Conflict-Free SourcingInitiative, because of difficulty in validating suchcertifications without visibility as to smelter/refiners insupplier’s supply chain

− Better practice currently is to request information aboutsmelters/refiners, as that is the information industry isusing to develop C/M transparency

37


Cybersecurity &Information Security

38

20


Cybersecurity

■ Hot topic in the news and in Congress■ Affects private industry (energy, banking,

communications, etc.) as well as governmentcontractors

■ Legislative policies/requirements have been underconsideration for past several years

■ Tension has been between imposing mandatorystandards or providing incentives for compliance withvoluntary standards

■ One industry over which Government can imposerequirements is government contractors – can imposerequirements contractually

39


Federal Cybersecurity Standards

■ Federal Information Security Management Act(FISMA)− Establishes information security framework for

information systems used or operated by a federal agency

■ Federal Risk and Authorization ManagementProgram (FedRAMP)− Program to assess risk and authorize cloud products and

services

■ Health Insurance Portability and Accountability Act(HIPAA)− Imposes privacy requirements for personal information

40

21


Cybersecurity Trends

■ Agencies are increasingly attempting to imposecontract requirements of compliance with federalinformation security and privacy requirements(FISMA, FedRAMP, HIPAA)− Applying these requirements beyond IT contracts where

sensitive information is flowing through all contractor ITsystems

■ 2013 NDAA Section 941 establishes specific rulesfor “cleared defense contractors” to report securityincidents and provide government access tocontractor networks for auditing information security

41


Pending Rulemakings

■ FAR Case 2011-020, Basic Safeguarding ofContractor Information Systems (August 24, 2012)

− Proposed rule would impose basic safeguardingrequirements for non-public information provided by, orgenerated for, the Government, that will reside on ortransit through contractor information systems

− New contract clause would apply to commercial item andCOTS contracts, and would require flow down to allsubcontractors with non-public Government informationresiding on or transiting through their information systems

42

22


Pending Rulemakings

■ Proposed FAR Clause “Basic Safeguarding ofContractor Information Systems”

− Contractors cannot access Government information on“public computers” (ex: hotel business centers) orcomputers without access controls

− Contractors cannot post non-public Governmentinformation on publicly available websites, or websiteswith access limited only by domain/Internet Protocolrestrictions Web pages must have access controlled by user ID/password, user

certificates or “other technical means”

43


Pending Rulemakings

■ Proposed FAR Clause “Basic Safeguarding ofContractor Information Systems”− Must transmit non-public Government information via

email, text messages or other electronic communicationusing only “technology and processes that provide the bestlevel of security and privacy available, given the facilities,conditions and environment”

− Information systems must utilize at least one physical(e.g., locked room) and one electronic (login/password)barrier

− Systems must have intrusion protection(malware/antivirus protection, security upgrades/patches)

44

23


Pending Rulemakings

■ DFARS Case 2011-D039, Safeguarding UnclassifiedDoD Information (June 29, 2011)

− Proposed rule provides for two levels of protection –“basic” and “enhanced” – depending on category ofinformation at issue

− “Basic” safeguarding requirements are similar to the basicrequirements in the proposed FAR rule

− “Enhanced” requirements apply to ITAR/export controlinformation, critical program information, personallyidentifiable information, and information exempt fromFOIA disclosure

45


Pending Rulemakings

■ DFARS “Safeguarding Unclassified DoD Information”

− Rule would also require cyber-incident reporting bycontractors

− Broad flow down requirements

− Proposed rule summarized in 2011 Foley SeminarPresentation

46

24


Other Cybersecurity Developments

■ Executive Order 13636, “Improving CriticalInfrastructure Cybersecurity” (Feb. 19, 2013)

− Requires GSA, DoD and DHS, in conjunction with FARCouncil, to provide recommendations on “feasibility,security benefits, and relative merits of incorporatingsecurity standards into acquisition planning and contractadministration”

■ GSA Request for Information (RFI) published inFederal Register on May 13, 2013

47



■ GSA RFI sought information about how toincorporate cybersecurity standards into federalacquisitions, including:

− Establishing baseline standards or accreditationrequirements

− Incentivizing contractors to increase cybersecurity of theirsystem

− Incorporation of cybersecurity standards in acquisitionplanning and contract administration

48

25



■ National Institute of Standards and Technology(NIST) publishes “discussion draft” of PreliminaryCybersecurity Framework, August 28, 2013

■ NIST Framework to be basis of voluntarycybersecurity framework for industry to follow

■ Final NIST Cybersecurity Framework expected inFebruary 2014

49


Cybersecurity Tips

■ Review security of your information systems andensure you satisfy at least the “basic safeguarding”standards

■ Monitor cybersecurity legislation and rulemakings toassess any new standards/requirements

■ Review solicitations and contracts for informationsecurity requirements

■ Be prepared to describe the cybersecurityprocedures/systems you have in place in response toa solicitation

50

26


Domestic SourcingRequirements

51


Domestic Sourcing Requirements

■ Buy American Act

■ Trade Agreements Act

■ “Buy America”Regulations onFederally-FundedTransportation Projects

− FTA

− FHWA

− FAA

■ DoD Specialty MetalsRequirements

■ Berry Amendment(Clothing/Textiles)

■ State “Buy American”Requirements

■ Recovery Act “BuyAmerican”Requirements

52

27


Enforcement & Penalties

■ Recent economic climate has placed increasedemphasis on “Buy American” enforcement –politically attractive

■ Severe Penalties for Noncompliance:

− Suspension and/or debarment possible mandatory if construction materials

− Default termination or price reduction possible

− Criminal referral possible for serious cases

− False Claims Act exposure as express certifications aremade

53


Buy American Act Overview

■ Compliance at prime contract level enforced viacertification submitted with offer

■ BAA does not prohibit the supply of foreign goods –instead, requires disclosure of foreign products andprovides a price preference for domestic offers

■ Effectively becomes a requirement for domesticproducts once you certify your offer is domestic

54

28



■ Applies to supply contracts (“end products”) and toconstruction contracts (“construction material”)

■ “Construction material” defined in terms of howproducts arrive at the job site

■ Can seek exceptions from BAA for domesticnonavailability or unreasonable cost

− But much harder to seek waiver after-the-fact, rather thanas part of initial offer

55



■ End product/construction material must be“manufactured” in U.S.

− Manufacture = completion in form required for use bygovernment; can include assembly

■ Non-COTS end products/construction material mustalso meet a “cost of components” test: cost ofcomponents mined, produced or manufactured inU.S. must exceed 50% of cost of all components

56

29


Trade Agreements Act Overview

■ TAA waives BAA if the prime contract exceeds certainthresholds− $203,000 for supply contracts

− $7,777,000 for construction

■ Carrot: can freely use end products or constructionmaterials that originate from trade agreementcountries (not limited to U.S. products)

■ Stick: prohibited from using end products orconstruction material from countries that do nothave reciprocal trade agreements with the U.S.− Examples: China, India, Malaysia, Thailand, Brazil

57



■ TAA permits use of products that have been“substantially transformed” in a trade agreementcountry

■ Substantial transformation: requires a change in thename, character or use of the underlyingmaterials/components

− Very fact-specific test

− Customs rulings on country of origin can provide guidance

58

30



■ Like BAA, TAA compliance enforced throughcertification in offer in response to solicitation

■ Issues often arise in GSA Schedule contracts, as TAAapplies to all GSA Schedule items

■ False Claims Act liability for listing Chinese (or othernon-TAA country products) on GSA Schedule

59

1


Supplementary Material

The Buy American Actand

Trade Agreement Act


Buy American Act (BAA) Overview

2

■ Enacted in 1933, creates domestic contentpreference in U.S. Government (USG) acquisition

■ Statute: USG agencies must acquire domestic endproducts and construction materials for use in U.S.

■ Application: Price disadvantage imposed on foreigngoods at evaluation stage

■ BAA focus − place of production/manufacture, notnationality of supplier

2


Buy American Act (BAA) Overview(cont'd)

3

■ BAA applies to:− Supplies/construction materials in U.S. only (i.e., doesn’t

apply to overseas construction)

− Services when involved with the furnishing of supplies

− All products not covered by TAA or Berry

− Acquisitions above micro-purchase threshold

− Small business set-asides

■ Contractor must certify compliance or disclose non-compliance


Buy American Act (BAA) Overview(cont'd)

4

■ No flow down-requirement to component orsubcomponent suppliers− But beware: do need to flow down to subcontractors who

will be supplying construction materials (materials that willbe delivered to the job site)

■ Does not apply to services contracts unless inconnection with supplies (but other laws may applyto services)

3


BAA − Coverage

5

■ Supplies

− “End products” – end items sold to the federal government(each CLIN generally considered an item of supply for BAApurposes)

■ Construction

− “Construction material” = article, material or supplybrought to job site for incorporation in a building or work

− How the items arrive at the job site is critical indetermining what the relevant “construction material” isfor BAA compliance purposes


BAA – Evaluation of Foreign Offers

6

■ Domestic end product: Evaluated at offered price

■ Low offer of foreign end product: Evaluated with 6%price add-on to offer, unless:

− Small business/labor surplus area is lowest offer: add12%

− DoD acquisition: add 50%

4


Two-Part Test for BAA

7

■ Two-part test to determine if end product orconstruction material is domestic

− Place of Manufacture Test: end product/constructionmaterial physically manufactured in U.S.

− Cost of Components (C/o/C) Test: cost of domesticcomponents equals/exceeds 50% of total cost ofcomponents of end product/construction material COTS items exempt from C/o/C Test


Two-Part Test for BAA

8

■ End product/construction material must generallymeet both tests to be considered “domestic” for BAApurposes

− Exception: COTS (commercial off the shelf) items notsubject to C/o/C Test

■ If product is not “domestic” under those standards, itis considered “foreign” for BAA purposes

5


BAA – Place of Manufacture Test

9

■ Place of Manufacture Test

− Requires “completion in the form required by thegovernment”

− Assembly operations can be enough, so long as they arenot “minimal”

− Does not require “substantial transformation” in U.S. BAA standard for “manufacture” is less rigorous than the

“substantial transformation” standard used by Customs in country-of-origin decisions


BAA – Cost of Components Test

10

■ Cost of Components Test

− Cost of Components Test is waived for COTS (commercialoff the shelf) items COTS items only need to be manufactured in U.S.; component

sourcing irrelevant

− For non-COTS items, cost of domestic components mustequal or exceed 50% total component cost in end product

6


COTS Definition

11

■ To qualify as a COTS item, product must be:

− A commercial item (as defined by FAR 2.101)

− Sold in substantial quantities in the commercialmarketplace

− Offered to the Government without modification, in thesame form in which it is sold in the commercialmarketplace

■ Government-unique or MILSPEC items ≠ COTS


COTS Definition (cont'd)

12

■ “Substantial quantities” not defined, no black-letterguidelines. Can vary case-by-case depending on item(lower amount of sales needed for high-price item,etc.)

− Relevant considerations: Number of units sold for commercial use

Comparison of number of units sold for commercial use to thosesold for government use

− “Substantial Quantities” can be less than 50% commercialsales; intent is just to make sure item at issue is, in fact,being sold in commercial marketplace by the vendor

7


BAA – Cost of Components Test

13

■ “Component” = articles/materials/suppliesincorporated directly into end product (first-tier only)

− To be “domestic” component, the component must havebeen manufactured/substantially remanufactured in theU.S. (i.e., meets the “place of manufacture test”)

− No review of origin of subcomponents

− No “cost of subcomponents” test

− Components are either entirely foreign or entirelydomestic based solely on place of manufacture


BAA – Calculating Cost of Components

14

■ Two Types of Components: Purchased &Manufactured (i.e., Made)

− The cost of a purchased component = the acquisition cost,including: Transportation to point of incorporation into the end product, and

Customs duties (if applicable)

− The cost of a manufactured component = allmanufacturing costs, including: Transportation, and

Allocable overhead, but not profit

8


BAA – Construction Materials

15

■ Covers contracts for public buildings/works in U.S.

− Overseas projects (embassies, Iraq, etc.) not subject toBAA

■ Must use domestic construction materials unlessexception applies

■ Two-part test applies to construction material ― manufactured in U.S., plus 50+ percent U.S.components


BAA – Construction Materials (cont’d)

16

■ Restriction applies to materials in form brought toconstruction site

■ Excludes subcomponents of materials

■ Cost of components test waived for COTS items− Thus, COTS item is BAA-compliant if manufactured in U.S.,

even if majority (or even all) of its components are offoreign origin

9


BAA Exceptions

17

■ Unreasonable cost

■ Inconsistent with public interest

■ Domestic non-availability

■ Materials used abroad

■ Commissary resale

■ Information technology that is a commercial item


BAA Exceptions – Unreasonable Cost

18

■ Unreasonable cost:

− Domestic product cost above BAA 6/12/50% add-on

− If lowest domestic offer is 6/12/50% higher than foreignoffer, domestic offer = unreasonable cost

− Not applied between two foreign offers

− Tie goes to domestic firm

− Group of CLINs, special rule

10


BAA Exceptions – Public Interest

19

■ Inconsistent with public interest:

– Used to waive BAA for GPA, various trade agreements,DoD bilateral defense agreements MOUs, Caribbean BasinAct


BAA Exceptions – Non-availability

20

■ Non-availability:

− Domestic products not available in sufficient commercialquantities of satisfactory quality

− Two types of non-availability determinations: Individual (applies to a single project, requires specific

showing/support by contractor)

Class (blanket non-availability determination, applies to any projectwithout specific showing/support by contractor)

11


BAA Exceptions – Non-availability

21

■ Individual determinations

− Head of contracting activity determination

− In writing unless open competition, synopsized and nodomestic offer received

■ Class determinations

− List in FAR 25.104

− Market research still required to verify non-availability

− Presumption not usable when market research indicatesdomestic availability of end product or significantcomponent


BAA – Special DoD Rules

22

■ 50% higher cost test used

■ Qualifying country (QC) exception: “Qualifying countries” listed in DFARS 225.872-1 - have MOUs with

DoD

QC end products treated as domestic, and QC components countas domestic in component cost test

QC end products - must use QC/U.S. components

QC exception - N/A to construction materials

12


BAA – Special DoD Rules (cont'd)

23

■ “Eligible end products” are WTO GPA coveredproducts that DoD lists in DFARS 225.401-70. BAAdoesn’t apply to these products

■ Special rules for DNADs

■ Don’t need a DNAD when award is made to“qualifying country” or acquiring “eligible endproducts”


BAA - Compliance

24

■ Contractors submit BAA certifications with offers

■ Non-compliant products must be disclosed

■ Failure to certify may render offer non-responsive

13


BAA Compliance

25

■ BAA compliance is measured at the prime contractorlevel

■ Prime contractors submit BAA certifications withtheir offers

− Offerors are supposed to indicate which foreign productsare being used in their offer as part of certification

− Compliance issues typically arise when offerors submitcertifications that identify no foreign products in offer,thereby certifying entire offer will be “domestic” per BAA


BAA and Bid Protests

26

■ Usually not a protest issue – BAA compliance issuesconsidered contract administration

■ But, if the agency has “reasonable notice” of BAAviolation, agency must:

− Investigate, and

− Reach reasonable conclusion as to BAA status

■ GAO will examine reasonableness of investigationand conclusion in bid protest

14


BAA Contract Clauses/Citations

27

■ FAR Part 25

■ FAR Clauses 52.225-1 through 52.225-4; 52.225-7;52.225-9 through 52.225-12

■ DFARS Subparts 225.1 and 225.2

■ DFARS Clauses 252.225-7001, 252.225-7002,252.225-7035, 252.225-7036


Buy American Is Not Buy America

28

■ Buy American law governs USG procurement

■ Buy America law governs DoT/FTA grant funds usedfor state/local transportation projects

■ Buy America cites: 49 U.S.C. 5323(j) and 49 CFRPart 661

15


The Trade Agreements Act

29


The Trade Agreements Act (TAA)

30

■ Trade Agreements Act (TAA) waives BAA to allow useof end products from “designated countries”:

− World Trade Organization (WTO) Government ProcurementAgreement (GPA) countries;

− Various Free Trade Agreement (FTA) countries;

− Caribbean Basin Act countries;

− Least Developed Countries (LDCs);

− Civil Aircraft Agreement countries

− Israeli Trade Agreement

16


Trade Agreements Act

31

■ WTO GPA: 40 signatory countries, listed in FAR TAAcontract clause

■ Several major countries are not WTO GPAsignatories:

− China, India, Brazil, Thailand, Malaysia, Philippines

− Cannot offer end products from those countries or othernon-signatory countries when TAA applies


Trade Agreements Act

32

■ TAA applies to both goods and services

■ Compliance enforced through certification in offers

■ Stiff penalties possible for violations

■ TAA waives application of BAA requirement that allproducts must be of U.S. origin to allow use ofdesignated country end products

17


Trade Agreements Act (TAA)

33

■ TAA mandates that the USG purchase end productsof U.S. or designated countries

■ TAA prohibits USG acquisition of end products fromnon-designated countries

■ In other words, no price “add-on” allowing for use ofnon-compliant offers, as in BAA context


TAA Application

34

■ TAA applies to federal government prime contractsexceeding certain thresholds

− Supply/services contracts: $202,000 and over for WTOGPA countries (lesser amounts ranging from $25,000 to$77,494 for certain other trade agreements – NAFTA,CAFTA-DR, Australia, Singapore, Israel)

− Construction contracts: $7,777,000 and over

18


TAA Application (cont'd)

35

■ Current thresholds listed at FAR 25.402

■ Thresholds adjusted periodically (generally, every twoyears), and threshold applicable to a specific projectdepends on when contract was awarded (andwhether TAA clause was included in prime contract)


TAA Exceptions

36

■ Small business set aside acquisitions

■ War/national defense materials (but DoD appliesTAA waiver selectively)

■ End products for resale

■ FPI/SourceAmerica acquisitions

■ Certain limited competition/sole source acquisitions

■ Excluded services listed on chart at FAR 25.401(b)

19


Designated Country End Products

37

■ Test for “designated country end product”:

− Wholly the growth, product or manufacture of adesignated country (i.e., 100% product of that country); or

− “Substantially transformed” in designated country


Substantial Transformation Test

38

■ Substantial transformation test = Customs test

− Requires a change in the name, character or use of theunderlying materials/components

− Different from BAA place of manufacture test

− Pointer: What is the product’s country of origin forCustoms purposes?

20


Substantial Transformation Test

39

■ S/T = “substantially transformed into a new anddifferent article of commerce with a name,character, or use distinct from that of the article orarticles from which it was transformed”

■ No “cost of components” test under S/T standard,but percentage of components/cost could be factorin determining where S/T occurs

■ Very fact-specific analysis


TAA and GSA Schedule Contracts

40

■ TAA issues often arise in GSA Schedule contracts,because TAA applies to all items offered for sale on acontractor’s GSA Schedule contract

■ Important to ensure proper country of origininformation is provided regarding items offered forsale on GSA Schedule

− make sure all items are from TAA-compliant countries

21


DoD, TAA, and Trade Agreements

41

■ DoD limits BAA waiver to non-defense supplieslisted in DFARS 225.401-70

■ DoD identifies products subject to TAA (and thereforeBAA waiver) by Federal Supply Group (FSG) number

■ Only products falling within FSGs identified on DoDlist are exempt from BAA at DoD (for DoD purchases)


TAA Certification

42

■ TAA requirements imposed on contractors throughcertification

■ FAR 52.225-5(b):

− Imposes duty to deliver TAA-compliant end products,unless,

− Contractor lists TAA non-compliant goods in FAR 52.225-6TAA certificate (“negative list” approach)

■ Each CLIN is an “end product”

22


TAA Certification (cont'd)

43

■ If no exceptions noted in TAA certificate, all goodsmust be TAA compliant

■ If exceptions noted in TAA certificate, CO goesthrough process of determining whether award canbe made despite TAA non-compliance

− TAA non-compliant goods acceptable only if no TAAcompliant goods are available


Penalties for TAA Violations

44

■ Potential consequences of false/inaccuratecertifications of TAA compliance:

− Suspension and/or debarment from federal governmentcontracting/subcontracting

− Default termination or price reduction on affected contract

− Replacement of non-compliant goods/constructionmaterials

− Criminal referral possible for serious cases

− False Claims Act exposure, as express certifications aremade (can involve treble damages)

23


Penalties for TAA Violations

45

■ Offering products from non-TAA countries (usuallyChina) has resulted in multi-million dollar FalseClaims Act liability for GSA vendors, including somemajor U.S. companies


TAA Compliance Recommendations

46

■ If unwilling/unable to comply with BAA/TAA, don’tsell to the USG

■ If selling to USG, do not supply non-TAA compliantproducts

■ Require subcontractors to supply country-of-origininformation, preferably certified accurate

24


TAA Compliance Recommendations(cont'd)

47

■ Maintain country-of-origin information in companydatabases

■ Train company personnel, particularly sales force, onTAA requirements

■ Periodically test/audit country of origin informationfor accuracy

■ Can request a country of origin opinion fromCustoms if there is close issue as to whether aproduct should be treated as originating from a TAAcompliant country

1


Erin L. Toomey

October 2013




2

■ FAR 52.219-9, “Small Business Subcontracting Plan”− Required for prime contracts and subcontracts over $650,000 ($1,500,000

for construction of a public facility)

− Commercial item subcontracts are exempt (FAR 52.219-9(j))

− Small businesses are exempt

■ Subcontract− Any agreement entered into by a federal government prime contractor or

subcontractor calling for supplies or services required for performance of thecontract or subcontract (including modifications)

− Does not include employer/employee agreements

■ Individual Contract Plan− A subcontracting plan that covers the entire contract period (including option

periods), applies to a specific contract, and has goals that are based on theofferor’s planned subcontracting in support of the specified contract

− Indirect costs incurred for common or joint purposes may be allocated on aprorated basis to the contract

2



■ Commercial Plan− A subcontracting plan that covers the offeror’s entire fiscal year and applies to the

entire production of commercial items sold by either the entire company or aportion thereof (e.g., division, plant, or product line)

− Preferred plan for contractors furnishing commercial items

− Once a commercial plan is approved, the government will not require another planfrom the contractor while it is in effect, as long as the product/service provided bythe contractor continues to meet the definition of a commercial item

− The contractor must submit an initial commercial plan to the first contractingofficer awarding a contract subject to the plan during the contractor’s fiscal year

− If the contractor has ongoing contracts with commercial plans, the contractor mustsubmit a new commercial plan 30 working days before the end of the contractor’sfiscal year to the contracting officer responsible for the uncompleted governmentcontract with the latest completion date

− Once a commercial plan is approved, the contractor must provide a copy of theplan to each contracting officer responsible for an ongoing contract subject to theplan

3


Plan Requirements

4

■ For an individual plan, the contractor’s total dollars planned to besubcontracted

■ For a commercial plan, the contractor’s total projected sales, expressed indollars, and the total dollar value of projected subcontracts to support thesales

■ Total dollars planned to be subcontracted to each of the following: smallbusinesses, veteran-owned small businesses, service-disabled veteran-owned small businesses, HUBZone small businesses, smalldisadvantaged businesses, and women-owned small businesses (SBCs)

■ Goals also expressed in terms of percentages of total plannedsubcontracting dollars for the use of SBCs

■ A description of the principal types of suppliers and services to besubcontracted and the identification of the types planned for each type ofSBC

■ A description of the method used to develop the subcontracting goals

3


Plan Requirements

5

■ A description of the method used to identify potential sources forsolicitation purposes− Existing company source lists− System for Award Management (SAM)− Veterans service organizations− The National Minority Purchasing Council Vendor Information Service− The Research and Information Division of the Minority Business Development Agency in

the Department of Commerce− SBC trade associations− Procurement Technical Assistance Centers (PTACs)

■ For individual plans, a statement as to whether or not the contractorincluded indirect costs in establishing its subcontracting goals, and adescription of the method used to determine the proportionate share ofindirect costs to be incurred with each type of SBC

■ For commercial plans, the contractor must include all indirect costs(effective 8/15/2013)

■ The name of the individual employed by the contractor who willadminister the program and a description of the individual’s duties


Plan Requirements

6

■ A description of the efforts the contractor will make to assure that all types ofSBCs will have an equitable opportunity to compete for subcontracts

■ Assurances that the contractor will include FAR 52.219-8, “Utilization of SmallBusiness Concerns” in applicable subcontracts and require applicablesubcontractors to adopt a small business subcontracting plan

■ Assurances that the contractor will cooperate in any studies or surveys, asrequired

■ Assurances the contractor will submit required periodic reports and ensurethat its subcontractors with subcontracting plans agree to submit requiredperiodic reports

■ A description of the types of records that will be maintained concerningprocedures adopted to comply with the requirements and goals in the plan

■ Assist SBCs by arranging solicitations, time for preparation of bids, quantities,specifications, and delivery schedules so as to facilitate the participation ofSBCs

4


Required Periodic Reports

7

■ Reports submitted under Individual Plans− Individual Subcontract Report (ISR)

Submitted semi-annually during contract performance for the periods ending March 31and September 30

Reports due within 30 days after the close of each period and within 30 days of contractcompletion

Reports due regardless of whether there has been any subcontracting activity during theperiod

− Summary Subcontract Report (SSR) Encompasses all subcontracting under prime contracts and subcontracts with the

awarding agency, regardless of the dollar value of the subcontracts If the contractor is performing work for more than one executive agency, a separate

report shall be submitted to each executive agency covering only that agency’s contracts,provided that at least one of the agency’s contracts is over $650,000 and contains asubcontracting plan

DoD and NASA, reports submitted semi-annually for the six months ending March 31 andthe 12 months ending September 30

For civilian agencies, except NASA, reports submitted annually for the 12 months endingSeptember 30

Reports are due 30 days after the close of each reporting period


Required Periodic Reports

8

■ Reports submitted under Commercial Plans− SSR− Include all subcontract awards under the commercial plan in effect

during the government’s fiscal year− Submitted annually within 30 days after the end of the government’s

fiscal year (September 30)− Specify the percentage of dollars attributable to each agency from

which contracts for commercial items were received

■ All reports are submitted electronically using the ElectronicSubcontracting Reporting System (eSRS) athttp://www.esrs.gov− Do not include purchases from affiliates− Only include purchases from next-tier subcontractors− Only include subcontracts involving performance in the U.S. or its

outlying areas (with some exceptions)

5


Identifying Small Business Concerns

9

■ Central Contractor Registration (CCR) and the Online Representations andCertification Application (ORCA) databases now in SAM (www.sam.gov)

■ Subcontractors must qualify and self-certify as a small business at the time ofoffer submission

■ Per FAR 52.219-9(d)(5), a contractor may rely on the information contained inSAM as an accurate representation of a concern’s size and ownershipcharacteristics for the purpose of maintaining a SBC source list− Contractors should request that all suppliers execute a self-certification form at least annually

− Prime contractors may accept a subcontractor’s electronic self-certification as to size, if thesubcontract contains a clause which provides that the subcontractor verifies by submission of theoffer that the size or socioeconomic representations and certifications made in SAM (or anysuccessor system) are current, accurate, and complete as of the date of the offer for the subcontract(effective 8/15/2013)

■ Contractors must confirm that a subcontractor representing itself as a HUBZonesmall business concern is identified as such by accessing SAM or by contacting theSBA

■ Department of Defense Procurement Technical Assistance Centers (PTACs) arealso a great resource for identifying small business concerns


Consequences for Failure to Make“Good Faith Efforts”

10

■ Failure to comply in good faith with FAR 52.219-8,“Utilization of Small Business Concerns” or an approvedsmall business subcontracting plan shall be a materialbreach of the contract (FAR 52.219-9(k))

■ If a contract contains FAR 52.219-16, “LiquidatedDamages – Subcontracting Plan,” the contractor can besubject to liquidated damages for failing to make a goodfaith effort to comply with the subcontracting plan

■ Prior compliance of a contractor with othersubcontracting plans under previous contracts will beconsidered by the Contracting Officer in determining theresponsibility of an offeror (FAR 52.219-9(h))

6


New Requirements

11

■ Final Rule implementing provisions of the Small BusinessJobs Act of 2010, effective August 15, 2013 (78 F.R. 42391)− A CO may require a subcontracting plan:

If the value of a modification causes the value of the contract to exceed thesubcontracting plan threshold and to the extent subcontracting opportunities exist(except if the contractor has a Commercial Plan)

If a prime contractor’s size status changes from small to other than small as aresult of a size recertification

− A CO may require the prime contractor to update its Individual Planwhen an option is exercised

− Large business prime contractors May not prohibit a subcontractor from discussing any material matter pertaining to

payment or utilization with the Contracting Officer

Must assign to each subcontract the NAICS code and corresponding size standardthat best describes the principal purpose of the subcontract

May not require the use of SAM for purposes of representing size or socioeconomicstatus in connection with a subcontract


New Requirements

12

■ Final Rule (cont’d)

− Large Business Prime Contractors An offeror must represent to the Contracting Officer that it will

make a good faith effort to acquire articles, equipment, supplies,services, or materials from the SBCs it used in preparing its bid orproposal, in the same scope, amount and quality used in preparingand submitting the bid or proposal, if:

− The offeror references the SBC as a subcontractor in the bid/proposal or Plan

− The offeror has a subcontract, or agreement in principle to subcontract withthe SBC to perform a portion of the contract (e.g., teaming agreement)

− The SBC drafted a portion of the bid or proposal or the offeror used the SBC’scost or pricing information or technical expertise in preparing the bid orproposal, where there is written evidence (including email) of an intent orunderstanding that the SBC will be awarded a subcontract for the related workif the offeror is awarded the prime contract

7


New Requirements

13

■ Final Rule (cont’d)− Large Business Prime Contractors

If a prime contractor fails to obtain supplies/services from the SBC,the prime contractor must provide the CO with a written explanation,prior to submission of the final invoice and contract closeout

− Prime contractor shall notify the CO in writing (and provide a reason) if the primepays a reduced price to a SBC subcontractor for goods/ services, or if payment ismore than 90 days past due under the terms of the subcontract for which theagency has paid the prime

− COs must consider this information when evaluating contract performance

− COs must report in FAPIIS those contractors with a “history of unjustified timelypayments” (three or more self-reports in a one-year period)

If at the conclusion of the contract the prime contractor did not meetall small business subcontracting goals in its Plan, the contractor mustprovide the CO with a written explanation as to why the goals were notachieved so the CO can assess whether the prime acted in good faith


New Requirements

14

■ Final Rule (cont’d)

− If a prime has Individual Plans, the CO shall require a Planfor each multiple award ID/IQ contract (including GSAMultiple Award Schedule contracts) where the estimatedvalue exceeds the plan thresholds and the contract hassubcontracting opportunities Contractors shall submit reports for individual orders to the

contracting agency on an annual basis

The agency funding the order shall receive credit towards itssubcontracting goals for a particular subcontract

The agency funding the order can establish goals for individualorders, BPAs, or basic ordering agreements

Authorizes agencies to consider proposed small businesssubcontracting plans when evaluating offers

8


New Penalties

15

■ Final Rule Implementing the Small Business Jobs Act of2010 (Pub. L. No. 111-240), effective August 27, 2013 (78F.R. 38811, June 28, 2013)− Penalties for a willful misrepresentation of small business size

status for the purpose of soliciting or obtaining a federalgovernment prime contract, subcontract, grant, cooperativeagreement, or CRADA (collectively, “Federal Procurements”): Suspension or debarment Severe criminal penalties for knowingly misrepresenting the small business

size status of a concern in connection with a Federal Procurement orknowingly making false statements or misrepresentations to the SBA for thepurpose of influencing any actions of the SBA

Severe civil penalties, including, but not limited to, those under the civil FalseClaims Act, 31 U.S.C. 3729-3733 and the Program Fraud Civil Remedies Act,331 U.S.C. 3801-3812

Repayment to the government of the total value of the Federal Procurementaward


New Penalties

16

■ A concern will not be liable for unintentional errors, technicalmalfunctions, or other similar situations

■ “Affirmative, willful and intentional certifications of small business sizeand status”:− Submission of a bid, proposal, application, or offer for a Federal Procurement, set

aside or otherwise classified as intended for award to small business concerns

− Submission of a bid, proposal, application, or offer for a Federal Procurement,which in any way encourages a Federal agency to classify the bid or proposal, ifawarded, as an award to a small business concern

− Registration on any Federal electronic database for the purpose of beingconsidered for award of a Federal Procurement as a small business concern (e.g.,registration in the System for Award Management (SAM) at www.sam.gov)

■ Requires contractors to update their size status in the SAM databaseat least annually, or the concern will no longer be identified in SAM asa small business concern until its representation is updated

9


New Penalties

17

■ A prime contractor acting in good faith may rely on the writtenrepresentations of its subcontractor regarding the subcontractor’ssmall business size or status

■ Higher-tiered contractors are insulated from liability frommisrepresentations made by their subcontractors only if the primecontractor acted “in good faith”

■ Takeaways− All contractors should require their lower-tier subcontractors to annually

submit written certifications regarding their small business size status andupdate such certifications if and when their size status changes

− Small business concerns should consult with legal counsel to obtain a legalopinion confirming their small business size status

− If the government challenges the concern’s size status, having a legal opinionon file will assist the concern in disputing any allegation that themisrepresentation was willful

1


Gregory HusisianChristopher M. Swift

October 2013

Finally – FCPA Compliance Guidancefrom the U.S. Government


New FCPA Guidance

2

■ FCPA: A Resource Guide to the U.S. Foreign CorruptPractices Act

− Issued on November 14, 2012

− Does not break any new ground on the tricky issues ofinterpretation Who is a “foreign official”?

What is a “state-owned entity”?

Who can be considered an “agent”?

Application of the “knowledge” standard

2


New FCPA Guidance

3

■ FCPA: A Resource Guide to the U.S. Foreign CorruptPractices Act

− Different story on compliance

− Contains numerous compliance “best practices”

− Represents distillation of numerous recent settlements

− Represents the view of the enforcement authoritiesregarding what represents an adequate risk managementand compliance program


The FCPA’s Requirements

4

■ The FCPA anti-bribery provisions prohibit:

− Issuers, U.S. persons, and private companies

− From using the mails or interstate commerce

− Corruptly

− To pay or promise to pay anything of value

− To any foreign official or to a third party while knowing thepayment would be passed on to a foreign official

− To influence any act or decision of that official or to inducethat official to use his or her influence

− To assist in directing business to any person or obtainingor retaining business

3


Hallmarks of an Effective ComplianceProgram

5

■ Of greatest interest are the Guidance’s “hallmarks”of an effective compliance program

■ Intended to communicate “best practices”

■ Consistent with Sentencing Guidelines andcommonly accepted best practices

■ Although “hallmarks” are listed as “best practices,”reality is that they are going to be treated asminimum standards in enforcement proceedings


Compliance Hallmarks

6

■ Hallmark #1: Senior Management Commitment toAnticorruption Compliance

− Going beyond “the letter”

− Avoiding a “paper program”

− Importance of “tone at the top”

− Importance of the flow-down of respect for compliance

− Consistent follow through on compliance initiatives

4



7

■ Hallmark #2: Designating a Senior Executive toImplement and Oversee Compliance

− Four dimensions Someone who is senior to give compliance high visibility

Designating a single person so compliance is given attention

Giving oversight to someone independent

Giving oversight to someone who has direct conduit to seniormanagers and board

− Compliance function requires immunity from businesspressures and authority to halt suspect transactions



8

■ Hallmark #3: Committing Sufficient Resources toAnticorruption Compliance− Once risks are identified, must consider how best to

allocate scarce compliance resources to minimize theidentified risk

− The necessity of frequently reconsidering neededcompliance resources in light of: Changes in business operations

Changes in risk profile of the company

Changes in areas of operation

Changes in products sold (and to whom)

− Avoiding the worst of all worlds – not meeting compliancepromises

5



9

■ Hallmark #4: Conducting an Anticorruption RiskAssessment

− Compliance solutions should vary from company tocompany

− Risk assessment is means of identifying appropriateallocation of risk

− Common topics for risk assessment include: Scope of operations and potential for violations

Identification of risk points (countries of concern, dealings withstate-owned entities and regulators, use of third parties)

Known enforcement priorities (industries, countries, third partyintermediaries)

Scope of regular GME&T



10

■ Hallmark #5: Covering Anticorruption ComplianceWithin the Code of Conduct

− In a well functioning compliance system, the code ofconduct, compliance policies, and internal controls shoulddovetail

− Why is code of conduct important? Ensures coverage of all employees, even if not identified as “high

risk”

Ensures routine training

Communicates seriousness of purpose

6



11

■ Hallmark #6: Implementing a Clearly ArticulatedAnticorruption Policy

− Well written – not just a summary of the law

− Made relevant to audience – real world application

− Tailored to the organization – an unwieldy policy is anineffective policy

− Translation into foreign languages



12

■ Hallmark #7: Consistently Following AnticorruptionProcedures

− General respect for compliance in organization

− Procedures that are consistently followed – including whenthey are preventing a big sale

− Observing senior managers following anticorruptionproscriptions is greatest training tool of all

− Consistent application through internal controls –disbursements and reimbursements

7



13

■ Hallmark #8: Consistent and Regular Training

− Concise, frequent, and repeated – not just at time of hire

− Using opportunities to “repeat the message” Sales meetings

Addresses by senior management

Intranet and newsletters

− Specialized training for people at high risk Personnel in sales

Personnel who deal with regulators and state-owned entities



14

■ Hallmark #9: Enforcing Compliance with AppropriateIncentives and Discipline

− An effective compliance program rewards good behaviorand sanctions bad Regardless of position

Regardless of size of deal

− Compliance programs should lay out repercussions ofviolations

− Companies need to follow up on sanctions lapses

8



15

■ Hallmark #10: Creating Mechanisms for ReportingPotential Violations

− The Guidelines emphasize importance of multiple avenuesof reporting Through supervisors

Through Legal and Compliance

Guidance emphasizes whistleblower hotlines

− Companies should also maintain means of follow up on allreasonable reports



16

■ Hallmark #11: Extending Anticorruption Complianceto Third Parties

− Use of contractual provisions (and their limitations)

− Using risk-based principles to determine due diligenceneeds

− Need to implement anticorruption provisions at time ofcontract formation and renewal

− The tricky issue of requesting (and exercising) audit rights

9



17

■ Hallmark #12: Instituting a Robust InternalInvestigation Process

− Formalizing the process of red flag follow up

− The need for an independent evaluation

− Task #1: Preserving evidence Document holds

Electronic evidence lockdown

Reaching beyond the corporation – outside computers and records

− Determining when to involve outsiders



18

■ Hallmark #13: Implementing a Process of ContinualCompliance Improvement

− Updating compliance and internal controls in light ofexperience

− Updating compliance and internal controls in light ofchanges in company risk profile

− The use of compliance audits

10



19

■ Hallmark #14: Devising a Process to Update RiskAssessments

− Risk assessment cannot be one and done

− Need to update risk assessment in light of Changes in geographic footprint

Changes in business model

Acquisitions and expansions

Changes in regulatory enforcement priorities



20

■ Hallmark #15: Adopting M&A Procedures to Evaluateand Deal with Identified FCPA Risks

− The role of due diligence in identifying risks

− Items for information requests Risk points – regulators and state-owned entities

Compliance and internal controls

Identified prior situations and results

Third-party oversight

− Need for follow-up on identified red flags

− Need for post-merger integration

1


David Ralston

October 2013

Civil False Claims Act Update


Civil False Claims Act

2

■ Federal Civil False Claims Act (FCA) – 31 USC § 3729

− Establishes cause of action for false claims involvinggovernment contracts

− “Claim” includes attempts to get money from governmentthat is misleading or incorrect (e.g., inaccurate invoices,certifications, claims, and statements, falsified testresults, product substitutions, etc.)

− Claim includes payment requests to government and tocontractors, grantees, or other recipients, if the money orproperty “is to be spent or used on the Government’sbehalf or to advance a Government program or interest”

2


Civil False Claims Act

3

■ Case can be initiated by the government or by a qui tamrelator (i.e., a disgruntled employee or a whistleblower)

■ Penalties include treble damages (three times the amount ofthe false claim) and $11,000 per false claim (i.e., per invoice)

■ Examples:

− False certification - Signing a Buy American Act certificate thatstates that each end product to be submitted under the contractis a domestic end product when you know that some of the endproducts will not be domestic

− False written statement – You make similar representations forexample, in a letter or a written submission to the government

− False oral statement – You make similar representations in ameeting with the government


False Claims Act – FY 2012

4

■ Total settlements and judgments $4.9 Billion− HHS: $3 billion

− All other agencies: $1.9 billion

■ Qui Tam settlements and judgments $3.3 Billion

■ Relator’s share $439 Million

■ New matters under investigationduring FY 2012 782

■ Total recovery since 1986 $35.2 Billion

■ Notable contractors paying in FY 2012:GlaxoSmithKline, Lockheed Martin, Oracle, MaerskLine

3


Recent FCA Issues

5

■ FCA used for

− Small business size misrepresentations

− False payroll submissions under Davis-Bacon

− False cost estimates as part of underbidding

■ FCA six-year limitations period suspended duringAfghanistan/Iraq conflicts

■ Government continued effort to expand scope ofdamages for entire contract/grant value beyondfraud in the inducement


Recent FCA Issues

6

■ Some contractor wins

− FCA penalties subject to 8th Amendment

− Ambiguous regulations are interpreted against thegovernment in FCA litigation

■ Keep in mind many states have passed a stateversion of the FCA, many modeled after the federallaw

1


George W. Ash

October 2013

Regulatory UpdateIntellectual Property Rights

Storm Clouds on the Horizon


Technical Data and Computer Software

2

■ FAR permits DoD to create specific rules for DoDacquisitions− FAR 27.400

■ Current DFARS provisions based on principles in the1995 clauses

■ General rule: Look to who funded the development:− Government Funded Unlimited rights− Mixed Funding Government purpose rights− Contractor Funded Limited/Restricted rights

■ Rights determined at the lowest segregable level− DFARS 227.7103-4(b) for technical data− DFARS 227.7203-4(b) for computer software

2


Current DFARS Provisions on TechnicalData and Computer Software

3

■ Clauses address what rights the government obtains,but do not state what the contractor is required todeliver

− FAR 27.403; DoD 2001 Policy Guidance, “IntellectualProperty: Navigating Through Commercial Waters”

■ What is required to be delivered typically listed in aCLIN or DID



4

■ DoD policy is to acquire only the technical data, andthe rights in that data, necessary to satisfy agencyneeds

− DFARS 227.7103-1(a)

■ DoD policy is to acquire only the computer softwareand computer software documentation, and therights in such software or documentation, necessaryto satisfy agency needs

− DFARS 227.7203-1(a)

3



5

■ Consequently, government will have rights intechnical data or computer software developedduring the performance of a contract that is notdelivered, resulting in “inchoate rights”

■ So, a savvy contractor develops an intellectualproperty strategy based on what it (and thegovernment) funds, and what the contract requires tobe delivered

■ Keep in mind that technical data and computersoftware funded through Independent Research andDevelopment (IR&D) is considered “private expense”


Challenges to the Current DFARSRegime

6

■ DFARS Part 227 Rewrite, 75 Fed. Reg. 59412; Sep27, 2010

■ Section 815 of the National Defense AuthorizationAct; Jan 2012

■ Better Buying Power 2.0; Nov 2012

■ Open System Architecture Contract Guidebook forProgram Managers, Version 1.1; Jun 2013

4


DFARS Part 227 Rewrite

7

■ Combined sections on technical data and computersoftware

■ “Clarifies” that the government’s license includes“access”− “in recognition of the emerging practice of providing the

government with remote (e.g., Internet based) access totechnical data or computer software that is maintained bythe contractor, as an alternative to traditional deliverymethods” “Clarifies” suggests this is the current rule

Does access = delivery?

Can the government require access/delivery, even if it isn’t adeliverable?


DFARS Part 227 Rewrite

8

■ Any term in a commercial software license inconsistentwith federal procurement law shall be consideredstricken

− “inconsistencies” not identified

− How to implement with subcontractors?

■ Commercial software will have a marking (legend)requirement

− Terms of the legend are not defined

■ Requirement to include commercial software licensesfrom contractors at all tiers with the prime’s proposal

− And signed by subcontractors at all tiers

■ Draft includes a number of instances of sloppy drafting

5


Section 815 of the National DefenseAuthorization Act 2012

9

■ Statute refers to technical data

− DoD history is to implement with both technical data andsoftware

■ Time period for DoD to pursue a data rights challenge isexpanded from 3 years to 6 years

■ No time limit to challenge Technical Data that are thesubject of a fraudulent asserted use or release restriction

■ Government may disclose limited rights technical data tothird parties outside the government if it is necessary forsegregation or reintegration− Reintegration appears to relate to detailed manufacturing or

process data


Section 815 of the National DefenseAuthorization Act 2012

10

■ Provides the government with access to datagenerated or utilized in the performance of thecontract, if needed for reprocurement, sustainment,modification or upgrade if developed in whole or inpart with federal funds; OR, if necessary, forsegregation or reintegration

6


Better Buying Power 2.0; Nov 13, 2012

11

■ Seven overall objectives, to include:

− Promote Effective Competition Emphasize competitive strategies and creating and maintaining

competitive environments

Enforce open system architectures and effectively managetechnical data rights

− Includes the development of a business model andassociated intellectual property strategy (data rightsplanning) that can be implemented over the life cycle ofthe product, starting when competition still exists

− Objective: breaking “Vendor Lock”


Open System Architecture, Contract Guidebookfor Program Managers -- Version 1.1, June 2013

12

■ Document released in August 2013

■ Guidebook discusses how the government should goabout an acquisition, with sample language forvarious contract sections

■ Emphasis is on COTS – Non-development item (NDI)components, functions, and includes a requirementto attach a copy of the licenses the government willreceive with proposal submissions

■ Includes real time access to software developmentand electronic access and the ability to downloadartifacts throughout the term of the contract

7


Open System Architecture, Contract Guidebook forProgram Managers -- Version 1.1, June 2013

13

■ Contractor is required to justify the use of anyproprietary components, and their isolation at thelowest subsystem or component level

− Also requires a strategy of how the contractor will notpreclude or hinder the involvement of other component ormodular developers

■ Includes text for an option price for greater licenserights in all commercial software and commercialtechnical data provided under the contract

− Consider the difficulty in obtaining such pricing from aproposed subcontractor


Open System Architecture, Contract Guidebook forProgram Managers -- Version 1.1, June 2013

14

■ While recognizing the 10 U.S.C. §2320 prohibition inrequiring contractors as a condition of a contractaward to relinquish limited or restricted rights, theProgram Manager Handbook submits that the rightsthe contractor grants to the government and the costof additional rights can be considered as part of the“best value” determination

8


Assault on Contractor IP Rights

15

■ If IP rights in technical data and software isimportant to you (or your suppliers):− You need to pay attention to these developments− Consider how your business practices will change− How will your suppliers react?

■ Keep in mind that while these changes focus onDoD, once the government gets rights, they are“government wide”

■ Even though the FAR and DFARS have not changed,we are seeing the implementation of Better BuyingPower and the Open System Architecture ProgramManagers Guide in current RFPs


GLOSSARY OF ACRONYMS

3TG Tin, Tungsten, Tantalum, Gold

ASBCA Armed Services Board of Contract Appeals

BAA Buy American Act

BCA Budget Control Act

BIS Bureau of Industry and Security

BPA Blanket Purchase Agreement

C/M Conflict Minerals

CAFTA-DR Dominican Republic-Central America Free Trade Agreement

CAS Cost Accounting Standards

CBP Customs and Border Protection

CCL Commerce Control List

CCR Central Contractor Registration

CDA Contract Disputes Act

CEO Chief Executive Officer

CFR Code of Federal Regulations

CFSI Conflict-Free Sourcing Initiative

CISADA Comprehensive Iran Sanctions, Accountability, and Divestment Act

CJ Commodity Jurisdiction

CLIN Contract Line Item Number

CO Contracting Officer

C/o/C Cost of Components

COFC Court of Federal Claims

COTS Commercial Off The Shelf

CRADA Cooperative Research and Development Agreement

DCAA Defense Contract Audit Agency

DCMA Defense Contract Management Agency

©2013 Foley & Lardner LLP 2

DDTC Directorate of Defense Trade Controls

DFARS Department of Defense Federal Acquisition Regulation Supplement

DHS Department of Homeland Security

DID Data Item Description

DNAD Domestic Non-Availability Determinations

DoD Department of Defense

DoJ Department of Justice

DoT Department of Transportation

DRC Democratic Republic of Congo

DTAG Defense Trade Advisory Group

E2C2 Export Enforcement Coordination Center

EAR Export Administration Regulations

ECCN Export Classification Control Number

EICC Electronic Industry Citizenship Coalition

EPRI Electric Power Research Institute

eSRS Electronic Subcontracting Reporting System

EU European Union

FAPIIS Federal Awardee Performance and Integrity Information System

FAA Federal Aviation Administration

FAR Federal Acquisition Regulation

FCA False Claims Act

FCPA Foreign Corrupt Practices Act

FedRAMP Federal Risk and Authorization Management Program

FHWA Federal Highway Administration

FISMA Federal Information Security Management Act

FOIA Freedom of Information Act

FPI Federal Prison Industries

FPRP Forward Pricing Rate Proposal


FR Federal Register

FSG Federal Supply Group

FTA Free Trade Agreement

FY Fiscal Year

GAO Government Accountability Office

GeSI Global e-Sustainability Initiative

GIDEP Government-Industry Data Exchange Program

GME&T Gifts, Meals, Entertainment & Travel

GPA Government Procurement Agreement

GSA General Services Administration

HHS Health & Human Services

HIPAA Health Insurance Portability and Accountability Act

HUBZone Historically Underutilized Business Zone

IASR Iran Assets Sanctions Regulations

IDEA Independent Distributors of Electronics Association

IDIQ Indefinite Delivery Indefinite Quantity

IFCA Iran Freedom and Counterproliferation Act

IFSR Iran Financial Sanctions Regulations

IG Inspector General

IHRASR Iran Human Rights Abusers Sanctions Regulations

IP Intellectual Property

IR&D Independent Research & Development

ISR Individual Subcontract Report

IT Information Technology

ITAR International Traffic in Arms Regulations

ITSR Iran Transactions & Sanctions Regulations

ITU Information Triage Unit

JEDEC Joint Electron Device Engineering Council


LDCs Least Developed Countries

LPTA Low Price Technically Acceptable

M&A Mergers and Acquisitions

MILSPEC Military Specification

MOU Memorandum of Understanding

NAFTA North American Free Trade Agreement

NAICS North American Industry Classification System

NAM National Association of Manufacturers

NASA National Aeronautics and Space Administration

NATO North Atlantic Treaty Organization

NDAA National Defense Authorization Act

NDI Non-Development Item

NIST National Institute of Standards and Technology

OCM Original Component Manufacturer

ODRA Office of Dispute Resolution for Acquisition

OEM Original Equipment Manufacturer

OFAC U.S. Treasury Department

OIG Office of Inspector General

OPM Office of Personnel Management

ORCA Online Representations and Certification Application

POC Point of Contact

PTACs Procurement Technical Assistance Centers

QC Qualifying Country

R&D Research & Development

RFI Request for Information

RFP Request for Proposal

SAE Society of Automotive Engineers

SAM System for Award Management


SB Small Business

SBA Small Business Act

SBC Small Business Concern

SEC Securities and Exchange Commission

SEMI Semiconductor Equipment and Materials International

SES Senior Executive Service

SSR Summary Subcontract Report

ST Substantially Transformed

STA Strategic Trade Authorization

T4C Termination for Convenience

TAA Trade Agreement Act

TRA Iran Threat Reduction and Syria Human Rights Act

USC United States Code

USG U.S. Government

USML U.S. Munitions List

WTO World Trade Organization

1

PARTNER

[email protected]

313.234.7147ONE DETROIT CENTER500 WOODWARD AVENUESUITE 2700DETROIT, MI 48226-3489

George W. Ash is a partner and member of theAutomotive Industry Team as well as the Privacy,Security & Information Management Practice. He is thechair of the firm’s Government Procurement Practice,which was recognized by Chambers USA (2011, 2012and 2013) as one of the top practices in the nation.Mr. Ash is former chair of the Government & PublicPolicy Practice and previously served as chair of thefirm’s former Regulated Industries Department.

Mr. Ash’s practice focuses on government procurementlaw. He counsels clients on the preproposal, proposal,negotiation and performance of the U.S. governmentprime contracts and subcontracts, and on resolvingcontract disputes. He also has an extensivebackground in other types of procurements such asgrants, cooperative agreements, CRADAs and othertransactions, and assists companies with state andmunicipal contract issues.

Mr. Ash has successfully litigated bid protests;negotiated contracts and subcontracts; submitted,negotiated and litigated claims; advised clientsconcerning audits and compliance issues and thepreservation of intellectual property rights; andappeared before various Federal Boards of ContractAppeals and Courts.

In recognition of the work of Mr. Ash and key attorneysin Foley's Detroit office, U.S. News Media Group andBest Lawyers recently ranked this office as a Tier 1provider of government relations counsel in its 2010"Best Law Firms" Rankings Report. Mr. Ash leads thisarea of practice for the firm.

Mr. Ash was named one of the 2011 Leaders in theLaw by Michigan Lawyers Weekly, a recognitionbestowed upon only 25 attorneys in the state. Inaddition, he has been recognized as a leader in thefield of government relations numerous times over,most recently by DBusiness magazine which listed himin its 2011 list of Top Lawyers in the area ofgovernment relations law. Mr. Ash also has been Peer

George W. Ash

2

George W. Ash

Review Rated as AV® Preeminent™, the highestperformance rating in Martindale-Hubbell's peer reviewrating system. He has been selected by his peers forinclusion in The Best Lawyers in America® since 2008in the area of government relations law and wasrecently selected as Detroit’s Lawyer of the Year ingovernment relations for 2014. He was ranked as oneof the top government attorneys in the nation in 2007by Chambers USA. In 2006, Mr. Ash was named in thelist of Michigan Super Lawyers.

A retired United States Air Force (USAF) LieutenantColonel, Mr. Ash spent his 20 years of active duty as ajudge advocate, an associate professor of law at theUSAF Academy, serving as assistant general counselfor the SDI (Star Wars) Program and was responsiblefor international and arms control issues. He alsoserved as an advisor to the strategic arms reductionstalks in Geneva with the former USSR.

Mr. Ash co-authored the practice note, “GovernmentContracts: Reduced Risk Through Commercial ItemContracting," Practical Law Commercial (2013). Healso authored, "Practical Negotiation of GovernmentContracts," Federal Publications (1996).

Mr. Ash obtained his B.S. from the United States AirForce Academy (1972) where he was named "TheCadet Who Best Exemplifies the Highest Ideals ofLoyalty, Integrity and Courage." He earned his J.D. fromthe University of Denver (1975), where he was electedto the Order of St. Ives. He received an LL.M. ininternational law from the University of London (1985),and a diploma in Air and Space law from the LondonInstitute of World Affairs (1985).

His professional associations include memberships inthe USAF Academy Association of Graduates, AmericanBar Association (Public Contract Law Section, currentMichigan chair), Detroit Metropolitan Bar Association,Michigan and Iowa Bar Associations, and the RetiredAir Force Judge Advocate Association.

He is admitted to practice in Michigan and Iowa.

3

PARTNER

[email protected]

202.945.61493000 K STREET, N.W.SUITE 600WASHINGTON, D.C. 20007-5109

Gregory Husisian is a partner with Foley & Lardner LLPand has extensive experience in export controls andeconomic sanctions, the Foreign Corrupt Practices Act(FCPA), corporate risk management and compliance,and issues arising from international trade. Mr.Husisian is a member of the firm’s GovernmentEnforcement, Compliance & White Collar Defense,Securities Enforcement & Litigation, Automotive,Appellate, and International Practices and theInsurance & Reinsurance Industry Team.

Mr. Husisian advises clients regarding various exportcontrol issues under the Department of State’sInternational Traffic in Arms Regulations (ITAR)restrictions and the Department of Commerce’s dual-use regulations (EAR), as well sanctions/embargoissues under the Office of Foreign Assets Control(OFAC) regulations. Mr. Husisian also counsels clientsregarding the Foreign Corrupt Practices Act (FCPA). Hispractice covers all aspects of these laws, includingcompliance, due diligence, licensing, enforcement,mergers and restructurings, and other issues relatingto U.S. regulation of exports and international conduct.Mr. Husisian also regularly counsels clients regardingrisk-management and compliance, including throughthe conduct of sophisticated risk assessments, thecreation of compliance programs designed to minimizethe risk of violations, and the conduct of trainingtailored to the risk profile of the client. Mr. Husisian hashelped numerous companies create or expandcompliance departments, including through thetraining of chief compliance officers regarding the mosteffective ways to implement and oversee effectivemanagement of domestic and international regulatoryrisks.

A frequent author, Mr. Husisian is the co-author of thefirst published treatise on the FCPA, the author of aforthcoming treatise chapter on U.S. customsregulations and international trade, and the author of a1600-page treatise on the U.S. regulation of exportsand international conduct, published byThomson/West. The latter treatise is the first

Gregory Husisian

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Gregory Husisian

comprehensive treatment of the complex regulationsthat apply to multinational corporations that sell andoperate abroad, and includes extensive coverage ofdual-use export controls, munitions export controls,economic sanctions, the FCPA, and the antiboycottregulations. Consistent with his focus on the creation ofrisk-based compliance solutions, the treatise includesnearly 500 pages of practical advice regarding thecreation and operation of effective risk managementfor companies seeking to comply with thesecomplicated laws.

Mr. Husisian also is a frequent author on issuesrelating to U.S. regulation of exports and internationalconduct and compliance topics. He is the featuredcolumnist for Corporate Compliance Insights, on thetopic of compliance strategies for multinationalcorporations; the country reporter for developments inU.S. trade law for the Journal of International TradeLaw & Regulation; and a featured columnist forAftermarket Business World on compliance strategiesfor automotive companies.

Mr. Husisian also counsels clients on a wide variety ofinternational trade litigation matters, includingantidumping and countervailing duty issues arisingbefore the International Trade Commission and theDepartment of Commerce and other international tradeissues, such as Section 332 investigations and GSPissues before the U.S. Trade Representative. Anexperienced court litigator, he also has representedclients in numerous trade appeals before the Court ofInternational Trade and the Court of Appeals for theFederal Circuit, as well as in cases before NAFTA andU.S.-Canada Dispute Resolution Panels.

Mr. Husisian is admitted to practice in the District ofColumbia, the Court of Appeals for the Federal Circuit,and the Fourth and Fifth Circuit Courts of Appeals.Before entering private practice, Mr. Husisian clerkedfor the Honorable Jerry E. Smith of the Fifth CircuitCourt of Appeals.

Mr. Husisian graduated from Cornell University (B.A.,double major, economics and government, with honorsin law and public policy, 1987). He received his J.D.from Cornell Law School in 1990, where he graduatedmagna cum laude and was elected to the Order of theCoif. While at Cornell Law School, he was the managingeditor of the Cornell Law Review and the nationaleditor of the Harvard Journal of Law & Public Policy.

Mr. Husisian’s client representations include thefollowing:

» Conducting international internal investigations inEurope, South America, and Asia of export controls,economic sanctions, and FCPA issues

» Representing clients in export controls and FCPAenforcement actions before the Departments ofCommerce, State, Treasury (OFAC), and Justice

» Creation of comprehensive domestic andinternational compliance programs at multipleFortune 100 companies

» Assisting numerous companies in the creation of andoperation of compliance and risk managementdepartments

» Counseling a major international company involvedin a takeover of a company that was underinvestigation by the Department of Justice andSecurities and Exchange Commission for allegedFCPA wrongdoing; the matter was resolved in amanner that permitted the acquisition to becompleted

» Representing a large provider of uranium enrichmentservices in antidumping and countervailing dutyactions at the Court of Appeals for the Federal Circuitand the Court of International Trade, resulting infavorable rulings ordering the return of all collectedduties

» Representing a large multinational tire company in aSection 332 investigation and GSP CNL waiverproceeding before the U.S. Trade Representative

5

SENIOR COUNSEL

[email protected]


Frank Murray, Jr. is senior counsel with Foley & LardnerLLP where he focuses his practice on issues related togovernment procurement. Mr. Murray advisesgovernment contractors and commercial clientsseeking to do business with the federal government onwide-ranging procurement law issues, including bothpre-award and post-award bid protests, Buy Americanand related domestic preference and sourcing issues,supply chain management, data rights and intellectualproperty issues, false claims, defective pricing,organizational conflicts of interest ("OCIs"), contractorclaims, contract administration issues,debarment/suspension, commercial itemprocurements, contractor codes of business ethics andconduct, small business subcontracting, smallbusiness set aside issues and protests of smallbusiness size status, and cost accounting matters. Hehas been particularly active in matters concerning U.S.domestic content laws, such as the Buy American Act,the Federal Transit Administration’s "Buy America"Regulations, the Berry Amendment, the TradeAgreements Act, and "Buy American" provisions in theAmerican Recovery and Reinvestment Act of 2009.

Mr. Murray has drafted and negotiated governmentcontracts and subcontracts for clients, including thenegotiation of two sole-source multi-year contracts withthe Department of Defense worth a combined total ofapproximately $50 million.

In his role as counselor to clients on governmentprocurement issues, Mr. Murray has also conductedinternal investigations for various clients to assesscontract and statutory compliance issues and makerecommendations regarding appropriate correctiveaction. These internal investigations haveencompassed issues under the Truth In NegotiationsAct ("TINA"), False Claims Act, and Trade AgreementsAct/Buy American Act. He has also assisted clients byreviewing their contract administration practices andproviding advice regarding process improvements andinternal compliance systems. Mr. Murray has alsodeveloped training materials for clients on contract

Frank S. Murray Jr.

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Frank S. Murray Jr.

compliance issues, particularly with respect to supplychain management/domestic content requirementsand contractor codes of business ethics and conduct,and has provided in-person or remote training to clientpersonnel on government procurement issues.

Mr. Murray has represented clients in state and federalcourts, before administrative agencies, and inalternative dispute resolution proceedings. He also hassubstantial experience in construction law, and hasrepresented contractors, subcontractors, and suretiesin all aspects of public and private constructionprojects. Mr. Murray is a member of the firm’sGovernment & Public Policy and Business Litigation &Dispute Resolution Practices as well as the AutomotiveIndustry Team.

Prior to joining Foley, Mr. Murray served for over fouryears in the Judge Advocate General’s Department ofthe United States Air Force. In this role, he was leadprosecutor in several felony cases and administrativehearings. In addition to his prosecution work, hereviewed government contracts between the Air Forceand private corporations and advised Air Forcecontracting officers on legal issues regarding suchcontracts. During his deployment in Kuwait for the AirForce in 2001, Mr. Murray served as sole legal advisorto a detachment of over 1,100 U.S. military members,which was then the Air Force’s most forward-deployedbase located only 39 miles from Iraq.

Mr. Murray is a graduate of the University of VirginiaSchool of Law (J.D., 1995), where he served on theeditorial board for the Virginia Environmental LawJournal. He received his Bachelor of Arts degree inEnglish from Yale University (magna cum laude, 1992).

Mr. Murray is admitted to practice in Virginia, theDistrict of Columbia and Florida. He is also admitted topractice before the U.S. Court of Appeals for the Firstand Fourth Circuits, the U.S. Court of Federal Claims,and the U.S. District Courts for the Eastern District ofVirginia, the District of Columbia, and the District ofMaryland.

7

PARTNER

[email protected]


David T. Ralston, Jr. is a partner in the Washington,D.C. office of Foley & Lardner LLP where his practicefocuses on government contract litigation andcounseling; rail and air transportation; national andhomeland security. He chairs Foley’s Government &Public Policy Practice.

Mr. Ralston has handled virtually all aspects ofgovernment contracts, including bid and smallbusiness size protests, claims, defective pricing,intellectual property, qui tam litigation, and CostAccounting Standards matters. He has successfullybrought and defended dozens of bid protests, hasdefended government contractors against fraud andbribery charges, including coordinating corporateinvestigations, voluntary disclosures to the Justice andDefense Departments, and represented firms indebarment/suspension proceedings at numerousfederal agencies. Mr. Ralston frequently lectures andwrites on government contracts matters. He is the leadauthor of "The Foley & Lardner Guide to FederalProcurement Protests (second edition)," available inthe Intelligence section on Foley.com and published aspart of "Inside The Minds: The Impact of RecentChanges in Government Contracts," Aspatore Books,2011.

In rail transportation, Mr. Ralston represents a leadingClass I railroad, a major commuter rail carrier andshortline railroads on federal regulatory, legislative andcompliance matters. In aviation, he has representedand advised a number of major U.S. airports on federalregulatory and grant assurance requirements,particularly in the security arena, and serves as vice-chair of the Federal Bar Association’s Transportationand Transportation Security Law Committee.

Mr. Ralston has been Peer Review Rated as AV®Preeminent™, the highest performance rating inMartindale-Hubbell's peer review rating system. In2011 - 2013, he was named one of America’s LeadingLawyers in the area of government contracts byChambers USA, and in 2010 Legal 500 cited him for

David T. Ralston Jr.

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David T. Ralston Jr.

his knowledge of government contracts issues andclient availability. In 2013, he was selected forinclusion in the Washington, D.C. Super Lawyers® listfor his work in government contracts,transportation/maritime and government relations.

In recent years, besides bid protests, Mr. Ralston hasbeen particularly active in contracts claims resolution,and matters concerning US domestic content laws,such as the Buy American Act, the Berry Amendment,the Trade Agreements Act, and international tradeareas. He has also been active in matters wheregovernment contracts and intellectual property issuesintersect, having led multi-year litigation opposingDepartment of Defense efforts to compete with theprivate sector in publishing military standards andspecifications over the Internet. In 2011, he presentedto European procurement leaders at the EU Parliamentin Brussels on US perspectives concerning innovationin government procurement during theScienceIBusiness Policy Bridge conference Power ofthe Purse: Can Europe use procurement power tostimulate innovation?

Virginia Governors George Allen and James Gilmoreappointed Mr. Ralston to the board of the MetropolitanWashington Airports Authority. He was elected aschairman of the board from 1997-2000, and hasserved as vice-chairman and chair of severalcommittees. In 2010, Governor Robert McDonnellappointed him to the board of trustees of the SouthernGrowth Policies Board, a non-partisan public policythink tank focused on advancing effective economicdevelopment policies in 13 Southern states.

From 1980 to 1984, Mr. Ralston served on active dutywith the U.S. Army as a prosecutor and appellateattorney, handling over 100 courts-martial, includingmore than 30 contested cases. From 1984 to 1994,he served as a military judge in the U.S. Army Reserves.

A law graduate of Georgetown University (J.D., 1979,cum laude), Mr. Ralston received his B.S.F.S. degreefrom Georgetown University – School of Foreign Service

(1976). He is a graduate of the Army War CollegeNational Security Seminar (2007).

Mr. Ralston is admitted to the bars of the District ofColumbia, Virginia and New York, and served from2008-2011 on the Litigation Section Committee of theD.C. Bar. He is the chair of the Federal Circuit BarAssociation's Government Contracts Committee andthe Federal Bar Association's Transportation andTransportation Security Law Committee. He is admittedto practice before the U.S. Courts of Appeal for theArmed Forces, the Federal, Fourth, Sixth and District ofColumbia Circuits. He is also admitted before the U.S.District Courts for the Eastern District of Virginia, theDistrict of Columbia, the District of Maryland, and theU.S. Court of Federal Claims.

9

ASSOCIATE

[email protected]


Christopher Swift represents clients in governmentinvestigations and enforcement proceedings involvingarms controls (ITAR), customs, economic sanctions(OFAC), export controls (EAR), the Foreign CorruptPractices Act (FCPA), and government contracts. Healso has experience in proceedings before theCommittee on Foreign Investment in the United States(CFIUS) and other matters involving inboundinvestment, national security, and Foreign Ownership,Control, or Influence (FOCI). Dr. Swift is a member ofFoley’s Government Enforcement, Compliance & WhiteCollar Defense Practice.

In addition to his government enforcement practice, Dr.Swift has also advised clients on Bilateral InvestmentTreaties, Free Trade Agreements, U.S. trade policy,World Trade Organization disputes, and U.S tradelitigation (AD/CVD). His clients include multinationalcorporations, financial institutions, sovereign wealthfunds, private corporations, and defense contractors.

Prior to entering private practice, Dr. Swift was anenforcement officer in U.S. Treasury Department’sOffice of Foreign Assets Control (OFAC), where heinvestigated U.S. sanctions violations with particularemphasis on terrorist syndicates, weaponsproliferators, and specially-designated Iranian andSudanese nationals. While at OFAC, he managed abroad spectrum of enforcement cases involvingbanking, insurance, maritime shipping, and othercomplex international and jurisdictional issues.

Dr. Swift is an adjunct professor of national securitystudies at Georgetown University and continues toadvise U.S. policy makers on the legal and substantiveaspects of counter-terrorism, counter-proliferation, anddefense policy, as well as on political dynamics in theGreater Middle East and Former Soviet Union. Hispolicy experience spans roles with Dartmouth College,Freedom House, the Center for Strategic &International Studies (CSIS), the U.S. Commission forInternational Religious Freedom, and a White Houseinternship in the Office of Vice President Gore. He has

Christopher M. Swift

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Christopher M. Swift

appeared as a guest analyst on legal and nationalsecurity issues for leading media outlets, including theBBC, CBS, Al-Jazeera, and National Public Radio.

Dr. Swift earned a Ph.D. in politics & internationalstudies from the University of Cambridge (2011), wherehe was section editor for the Cambridge Review ofInternational Affairs. His law degree was conferred byGeorgetown University Law Center (J.D., cum laude,2009) and his undergraduate degree in history andgovernment was earned at Dartmouth College (A.B.,1998).

Dr. Swift is admitted to practice in the District ofColumbia, the State of New York, and before the U.S.Court of Federal Claims. He is a member of theAmerican Society of International Law and is a termmember of the Council on Foreign Relations.

Dr. Swift is proficient in French and can understandRussian

11

SENIOR COUNSEL

[email protected]

313.234.7138ONE DETROIT CENTER500 WOODWARD AVENUESUITE 2700DETROIT, MI 48226-3489

Erin L. Toomey is senior counsel with Foley & LardnerLLP, where she is a member of the Government &Public Policy Practice and the Automotive IndustryTeam.

Ms. Toomey's practice focuses on counseling clients inall areas of government procurement, includingreviewing solicitations; drafting proposals; draftingcontracts and subcontracts; assisting with thedevelopment of negotiation positions; protectingcontractors' intellectual property rights; submitting,negotiating, and litigating claims; representingcontractors during bid protests; and performinggovernment contract due diligence for mergers andacquisitions.

Ms. Toomey’s practice also includes assessingcontractors’ compliance programs, assistingcontractors in developing and implementingcompliance programs, counseling contractors duringgovernment investigations, performing internalinvestigations, advising contractors regarding avoidingsuspension and debarment, and defending clientsaccused of healthcare related fraud.

Ms. Toomey was named a 2013 DBusiness TopLawyer in the area of government relations law. Inrecognition of the work of Ms. Toomey and keyattorneys in Foley's Detroit office, U.S. News MediaGroup and Best Lawyers recently ranked this office asa Tier 1 provider of government relations counsel in its2010 "Best Law Firms" Rankings Report. She wasnamed one of the 2011 Up and Coming Lawyers byMichigan Lawyers Weekly, a recognition bestowedupon only 20 attorneys in the state. She was alsoselected for inclusion in the 2012 and 2013 MichiganSuper Lawyers – Rising Stars® editions for her work ingovernment contracts. In 2010, she won the DetroitMetropolitan Bar Association’s Barrister’s Pro BonoAward.

Ms. Toomey served an externship for the HonorableWayne R. Andersen of the Northern District of Illinois

Erin L. Toomey

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Erin L. Toomey

and also is a certified mediator by the Center forConflict Resolution.

Ms. Toomey graduated cum laude from NorthwesternUniversity School of Law (J.D., 2004), where she wasselected for the Order of the Coif and served asmembership editor of the Northwestern University LawReview in 2003-2004. She was a member of theNational Moot Court Team and was a semi-finalist inthe Julius Minor Moot Court Competition, where shewas honored with Best Brief. Ms. Toomey received herundergraduate degree from the University of Michigan,Ann Arbor with high distinction (B.A., 2000).

Ms. Toomey co-authored the practicenote, “Government Contracts: Reduced Risk ThroughCommercial Item Contracting," Practical LawCommercial (2013). She authored the article,“Transactional Attorneys Beware - Avoiding PitfallsWhen Acquiring a Federal Government Contractor” (Fall2012) and co-authored the article, "Selling Goods andServices to the Federal Government with Reduced Riskthrough Commercial Item Contracting" (Spring 2011)which appeared in the Michigan Business LawJournal. Additionally, Ms. Toomey co-authored thearticle, "Lawyers Don’t Look Good in Stripes: Lawyers,The New Target of Federal Prosecution," featured in theDecember 2007 issue of the Michigan Bar Journal. Ms.Toomey has also co-authored various otherpublications and spoken at government procurementseminars.

Ms. Toomey is admitted to practice in the State ofMichigan, the Sixth Circuit, the Eastern District ofMichigan, the Western District of Michigan, theNorthern District of Ohio, and the United States Courtof Federal Claims.

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