Three Important Developments for Government Contractors Going Into 2015

As 2014 comes to an end, it is important to keep in mind three important developments that occurred this year that will have an impact on government contractors well into the future.

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1. Contractor self-disclosure duties to increase.

On July 31, 2014, President Obama signed the “Fair Pay and Safe Workplaces Executive Order.” While its primary purpose is to encourage federal contractors to follow the federal laws affecting their employees’ working conditions, it also imposes significant new self-reporting duties.

Contractors bidding on procurement contracts valued at $500,000 or more must disclose whether, during the preceding three years, “there has been any administrative merits determination, arbitral award or decision, or civil judgment” issued against the contractor for violations of the federal and state labor laws covered under the Executive Order, which laws include the FLSA, FMLA, ADA, Age Discrimination in Employment Act, Title VII of the Civil Rights Act, the Davis Bacon and Service Contract Acts, and recent Executive Order 13658 – “Establishing a Minimum Wage for Contractors.”

You can expect to see regulations implementing the new Executive Order in 2015. They will include factors to be used in determining whether serious, repeated, willful, or pervasive labor law violations demonstrate a lack of integrity or business ethics that would impact your status as a responsible contractor and eligibility for continued government work.

2. Some contractor self-disclosures are privileged and protected from discovery.

The new “self-disclosure” duty discussed above adds to another self-disclosure duty a contractor already had, the contractor’s duty under the Federal Acquisition Regulation (FAR) to disclose to the government any fraud a contractor uncovers following an internal investigation.

This year brought some good news to contractors. According to a 2014 appellate court decision, some self-disclosures can go no further than the government. Specifically, the reports a contractor prepares during its internal compliance investigations are subject to the attorney-client privilege, and therefore not discoverable by self-appointed whistleblowers.

A wide range of documents are protected, including investigations by outside counsel as well as a company’s in-house lawyers; interviews conducted by lawyers as well as by non-lawyers at the direction of the attorneys in a contractor’s law department; and interviews during which the interviewees are not told that the interview’s purpose is to assist the company in obtaining legal advice.

The appellate court made another point that is also important for government contractors. Although the lower court held that the investigation at issue was not privileged because its purpose was to comply with regulatory requirements rather than to obtain or provide legal advice, the appellate court labeled this construction as a “false dichotomy . . . . Investigations do not lose their confidentiality simply because a company investigation is driven by” federal regulations like the FAR.

3. Small businesses get protection from primes.

This year also saw the implementation of regulations designed to keep prime contractors from taking undue advantage of small business subcontractors.  One behavior these regulations address is “bait-and-cut,” a practice by which a prime contractor baits the government into awarding the prime a fixed-price contract on the strength of a small business subcontractor’s price but then forces that subcontractor to cut its price, thereby increasing the prime contractor’s profit.  The new regulations now also prohibit so-called “gag-orders.” Formerly, primes commonly included a subcontract provision prohibiting the subcontractor from communicating with the contracting officer. Under the new rules, however, a prime contractor can no longer prohibit a subcontractor from discussing with a contracting officer any material matter pertaining to the subcontractor’s getting paid or getting work under the contract.

Stay tuned.  As you can see, 2014 brought government contractors developments that are both good and not-so-good. Throughout 2015, we will keep you updated about how these 2014 developments work themselves out as the year progresses.