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Tips for Conducting Attorney–Client Privileged Internal Investigations

In the current compliance environment, all companies must evaluate their internal investigation policies and procedures to ensure that investigations are conducted in a manner that maximizes the protection afforded by the attorney-client privilege. Recent decisions threaten to expose investigation documents to discovery in litigation or to compulsion by government auditors. But these decisions also provide a roadmap on how companies can obtain legal advice beyond the prying eyes of third-parties.

Dentons Partners Lawrence S. Ebner and Christopher W. Myers recently authored the article, entitled “Tips for Conducting Attorney–Client Privileged Internal Investigations” in DRI’s In-House Defense Quarterly, Winter 2016 issue. The article summarizes recent case developments in this area and provides practical tips for conducting internal investigations in a privileged environment. Please feel free to contact the authors with questions.

Download “Tips for Conducting Attorney–Client Privileged Internal Investigations”

Tips for Conducting Attorney–Client Privileged Internal Investigations

CBCA further limits the Federal Circuit’s decision in Maropakis

On January 5, 2016, the Civilian Board of Contract Appeals (CBCA) issued a decision that is another in a line of decisions that erodes the Federal Circuit’s holding in M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323 (Fed. Cir. 2010). In Maropakis, the Federal Circuit held that certain contractor defenses to government claims are actually contractor claims under the Contract Disputes Act’s (CDA), meaning they must first be submitted to the contracting officer for decision and cannot be raised for the first time in litigation. Since that decision, both the Court of Federal Claims (COFC) and the boards of contract appeals have narrowed the scope of the Federal Circuit’s decision in Maropakis. See, e.g., Total Eng’g, Inc. v. United States, 120 Fed. Cl. 10 (2015) (The CDA does not require the contractor to jump through such an extra hoop and refile its defense to a government claim as a so-called contractor’s ‘claim’ where it is not seeking any separate monetary relief or contract adjustment.). For more information on the Total Engineering case, see our previous post here.

Most recently, in Jane Mobley Assoc., Inc., v. Gen. Serv. Admin., CBCA 2878, 2016 WL 73878, the CBCA explained the difference between an affirmative CDA claim and a defense to a government claim:

An affirmative CDA claim is an attempt to modify or adjust the contract to counter the liquidated damages assessment (e.g., compensable time extensions as a result of government delays). A factual defense to a liquidated damages assessment merely serves to attack the assessment itself (e.g., the government’s assessment was incorrect because the delay was excused as a result of government delays). Plainly stated, a CDA claim seeks affirmative relief under the contract through a contract adjustment; a factual defense only attempts to reduce or eliminate the liquidated damages assessment.
Id. (emphasis original) (citations omitted).

In distinguishing (and limiting) Maropakis, the CBCA stated:

In the CDA context, if we were to apply the rule of Maropakis to any defense raised by a contractor in response to a government claim that is not in the nature of an adjustment of contract terms or not seeking separate monetary relief, the “drastic consequence” could well be that the contractor’s appeal is never able to be heard on the merits. This is contrary to the intent and purpose of the CDA.
Id. (emphasis original).

This holding, and the steady departure from Maropakis, is beneficial for contractors because it promotes efficient adjudication in defending against government claims. Nevertheless, contractors should remain cognizant of the Federal Circuit’s holding in Maropakis and assess, on a case-by-case basis, whether their defense qualifies as a “claim” under the CDA.

CBCA further limits the Federal Circuit’s decision in Maropakis

The gift of time: A second DOD interim rule grants contractors additional time to comply with cyber security requirements

The US Department of Defense (DOD) earlier today issued a second interim rule, effective immediately, that gives affected contractors until December 31, 2017, to implement fully compliant cyber security controls.

The cyber security requirements, contained in the National Institute of Standards and Technology (NIST) Special Publication (SP) No. 800-171, were part of a prior interim rule issued in August 2015. Sometimes referred to as the Network Penetration Rule, DOD’s first interim rule had required immediate compliance with NIST SP 800-171 at both the prime and subcontract levels. Although DOD’s second interim rule gives contractors additional time to implement the requirements of NIST SP 800-171, the rule as revised still imposes certain near-term burdens on affected contractors and subcontractors. Read the full article.

The gift of time: A second DOD interim rule grants contractors additional time to comply with cyber security requirements

DOD signals pivot away from proposed DFARS rule on evaluating price reasonableness for commercial items

The Department of Defense (DOD) published a report on the Open DFARS Cases as of December 7, 2015, which indicates that the controversial proposed rule on evaluating price reasonableness for commercial items (DFARS Case 2013-D034) was closed. As we previously reported, the proposed rule would have made significant substantive changes to what qualified as a commercial item under DOD-funded contracts and would have imposed significant data gathering burdens on prime contractors. In its place the DOD opened a new case, DFARS Case 2016-D006, Procurement of Commercial Items. The purpose of the new DFARS case is to implement the requirements of six sections of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2016, in addition to the requirements of section 831 of the NDAA for FY 2013. See National Defense Authorization Act for Fiscal Year 2016, Pub. L. No. 114-92; National Defense Authorization Act for Fiscal Year 2013, Pub. L. No. 112-239. A brief overview of some key requirements within the applicable sections of the NDAA for FY 2016 is provided below.

The DOD opened DFARS Case 2016-D006 on December 7, 2015, and has proposed a rule within the agency, which its staff is processing. We will continue to monitor the progress and will report back here with updates.

Section 851, “Procurement of Commercial Items.” This section requires the Secretary of Defense to establish a centralized capability to oversee the making of commercial item determinations for DOD procurements and to provide public access to these determinations. The section also permits contracting officers (CO) to rely on prior determinations made by a military department, Defense Agency or other component of the DOD. Notably, the section permits a CO to require a contractor to supply additional information to support the reasonableness of a price, irrespective of whether a contractor was required to provide such information in connection to a prior procurement.

Section 852, “Modification to Information Required to be Submitted by Offeror in Procurement of Major Weapon System as Commercial Item.” Under this section, an offeror must submit: (a) prices paid for the same or similar commercial items under comparable terms and conditions by both the government and commercial customers; and (b), if the information for (a) is not available, (i) prices for the same or similar items sold under different terms and conditions; (ii) prices for similar levels of work or effort on related products or services; (iii) prices for alternative solutions or approaches and (iv) other relevant information. The section also permits the CO to request additional information, such as labor costs, material costs and overhead rates.

Section 853, “Use of Recent Prices Paid by the Government in the Determination of Price Reasonableness.” This section provides that a CO, in determining whether a price is reasonable, must consider prior prices paid by the government for the same or similar commercial item if these prices are provided by an offeror and represent reasonable prices based upon the totality of the circumstances (i.e., the time elapsed, the quantities and the terms and conditions).

Section 855, “Market Research and Preference for Commercial Items.” This section requires the Under Secretary of Defense for Acquisition, Technology, and Logistics to issue guidance that: (a) prohibits an agency from contracting for noncommercial information technology products or services in excess of the simplified acquisition threshold, unless the agency determines in writing that commercial items cannot meet the agency’s needs; and (b) mandates that agencies conduct market research, where appropriate, prior to making a price reasonableness determination.

Section 856, “Limitation on Conversion of Procurements from Commercial Acquisition Procedures.” Under this section, for a CO to convert a procurement of commercial items or services valued over $1,000,000 from commercial acquisition procedures to noncommercial acquisition procedures, the CO must make a written determination that: (a) the commercial acquisition procedures were erroneously utilized or were utilized because of inadequate information; and (b) the conversion will result in cost savings. In making such a determination the CO must consider: (a) estimated research and development costs for improving future products or services; (b) transaction costs for both the DOD and contractor; (c) changes in purchase quantities and (d) potential delay costs resulting from the conversion. If the procurement is valued over $100,000,000, the head of the contracting authority must also approve the determination. The requirements in this section terminate in five years.

Section 857, “Treatment of Goods and Services Provided by Nontraditional Defense Contractors as Commercial Items.” This section permits the head of an agency to treat the items and services provided by nontraditional defense contractors as commercial items.

As previously stated, DFARS Case 2015-D006 will also implement section 831 of NDAA for FY 2013, which directed DOD to, among other things, issue guidance including “standards for determining whether information on the prices at which the same or similar items have previously been sold is adequate for evaluating the reasonableness of prices.” National Defense Authorization Act for Fiscal Year 2013, Pub. L. No. 112-239.

DOD signals pivot away from proposed DFARS rule on evaluating price reasonableness for commercial items

Department of Defense seeks to clarify contractor cybersecurity obligations

Earlier this year, we reported on the Department of Defense’s (DOD) imposition of new and revised cybersecurity requirements on DOD prime and subcontractors. The new requirements reflected in DOD’s interim rule, among other things, expanded the clause governing unclassified controlled technical information to cover all “covered defense information,” replaced old safeguarding requirements, and expanded contractors’ reporting obligations in the event of a cyber incident. Since DOD released these new and revised requirements, which took effect immediately, contractors have been hustling to understand the requirements and to ensure full compliance.

Just last week, likely in an attempt to address some of the confusion surrounding the new and revised requirements in the interim rule, DOD released (1) updated Defense Federal Acquisition Regulation Supplement (DFARS) Procedures, Guidance and Information (PGI), and (2) Frequently Asked Questions (FAQs) covering network penetration reporting, safeguarding covered defense information, and cloud services. These two documents shed light on the manner in which DOD is implementing the cybersecurity requirements. For example, together the FAQs and the PGI:

• Explain why DOD replaced the security protections from the National Institute of Standards and Technology (NIST) Special Publication (SP) 800-53 with the NIST SP 800-171;

• Provide DOD’s interpretation of the security controls outlined in NIST SP 800-171;

• Describe how covered defense information and operationally critical support will be identified;

• Provide examples of operationally critical support;

• Clarify that the DOD Cyber Crime Center is the “operational focal point” for receiving reports of cyber threats and cyber incidents; and

• Dictate the roles and responsibilities of the Contracting Officer and/or the requiring activity in, among other things, identifying and marking unclassified controlled technical information, handling a reported cyber incident, and conducting damage assessment activities.

Contractors struggling with how, precisely, to implement DOD’s cybersecurity requirements should look to this issued guidance to see if it addresses the questions they have and use it in formulating their own compliance plans. Additionally, contractors should consider attending DOD’s recently-announced “Industry Implementation Information Day” on December 14, 2015, wherein the department will present a briefing regarding DOD’s new and revised cybersecurity requirements. Information on the industry day, including registration information, can be found here.

Dentons lawyers will continue to monitor key developments in this area and will be providing more information about contractors’ compliance obligations and best practices as part of the Public Contracting Institute’s series on government contracts cybersecurity. More information on the series can be found here.

Department of Defense seeks to clarify contractor cybersecurity obligations

Jason Silverman to moderate free webinar on screening facts, fiction and essential ingredients in a dynamic global marketplace

On November 17, 2015, from 1 – 2:30 pm ET, our colleague Jason Silverman will moderate a panel discussing screening as a compliance tool. Screening is intended to prevent government contractors from doing business with debarred, denied, prohibited, proscribed, restricted and sanctioned entities. Adequate screening diligence means checking the appropriate lists for such entities and not transacting business with them. However, this is more complicated than many realize and carries substantial risk, including fines and penalties. Recent estimates count more than 400 lists globally.

This 90-minute webinar will focus on practical application and “how to,” and will provide answers to a variety of important and timely questions. It will conclude with 30 minutes for questions. Other panelists include Jill Williamson, Chief Compliance Officer of Liquidity Services, Jim Van Eenenaam, Deputy Director of International Trade Compliance and Empowered Official of General Atomics and Affiliated Companies, and Kay Ellis, Director of Export Compliance and Empowered Official of the University of Arizona. Register for this free and engaging webinar here.

Jason Silverman to moderate free webinar on screening facts, fiction and essential ingredients in a dynamic global marketplace

PSC and Dentons to co-sponsor seminar: “Winning Private Damages Suits Stemming from Federal Services Contracts”

On Monday, November 2, 2015, the Professional Services Council (PSC) and Dentons will present a co-sponsored seminar on “Winning Private Damages Suits Stemming from Federal Services Contracts.” This seminar is important, given the increased number of personal injury and property damage lawsuits being filed against contractors doing work both domestically and internationally for DOD and other federal agencies. The seminar will address issues such as:

  • What are the key contractual provisions for minimizing damage from such lawsuits?
  • What should a company do when a lawsuit is filed?
  • What steps can a company take to be best positioned to win these suits?
  • What strategies and tactics should a company pursue, and what defenses can it raise, prior to trial?
  • What is the current case law on government contractor tort defenses such as the political question doctrine, derivative sovereign immunity, combatant activities preemption and Defense Base Act exclusivity?

Contractors do not need to be a member of PSC to attend. For more information, click here.

PSC and Dentons to co-sponsor seminar: “Winning Private Damages Suits Stemming from Federal Services Contracts”

Extension of comment period and public meeting announced for proposed DFARS rule on counterfeit electronic parts

The Department Acquisition Regulation Systems, Department of Defense (DOD), announced today that it has extended the public comment period for the proposed rule Detection and Avoidance of Counterfeit Electronic Parts–Further Implementation, 80 Fed. Reg. 56,939 (Sept. 21, 2015) (Proposed Rule). The Proposed Rule, which was published in the Federal Register on September 21, 2015, amends the Department of Defense FAR Supplement (DFARS) to further implement Section 818 of the National Defense Authorization Act for Fiscal Year 2012 regarding counterfeit electronic parts. The public may now submit comments on the Proposed Rule until December 11, 2015.

Additionally, DOD announced that it will host a public meeting on November 13, 2015 to obtain feedback from experts and other interested parties in the public and private sector on the contents of the Proposed Rule. Registration for the public meeting must be completed by November 9, 2015, and more information about the meeting is available here.

Click here for a complete article discussing the Proposed Rule.

Extension of comment period and public meeting announced for proposed DFARS rule on counterfeit electronic parts

More DOD business systems withholds likely

The Department of Defense Inspector General (DOD-IG) recently issued an audit report identifying extensive deficiencies in the Defense Contract Management Agency’s (DCMA) business system review processes. The DOD-IG’s October 1, 2015 report follows closely a separate DOD-IG report issued in June 2015 containing similar findings. These reports will likely result in changes to DCMA’s internal business system processes, resulting in faster system reviews and an increased DOD emphasis on business system requirements and system disapprovals. In particular, contractors waiting on the status of pending system reviews should expect to see initial and final determinations issued promptly to address the DOD-IG’s concerns. Click here for a complete article discussing this report and its likely impact on contractors.

More DOD business systems withholds likely

Updated NASA Grant and Cooperative Agreement Regulations Become Final

Last week, the National Aeronautics and Space Administration (NASA) adopted as final its new regulatory framework implementing the “Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards,” referred to by many as the “Super” or “Omni” Circular. The Office of Management and Budget (OMB) issued the Super Circular in late December 2013 – in its own words, “[t]o deliver on the promise of a 21st-Century government that is more efficient, effective and transparent” – and shook up the world of grants and cooperative agreements by replacing the cobweb of cross-referencing OMB Circulars that governed grant management. NASA, along with many other federal agencies, issued its updated regulations implementing the Super Circular in December 2014 as an interim rule and requested comments from the public. It received none, and last Friday, after undergoing some internal clerical revisions, NASA’s new regulatory framework became final. Below are some brief takeaways:

The regulatory framework governing grants and cooperative agreements now more closely mirrors the structure of federal contract regulations under the Federal Acquisition Regulation (FAR) and FAR supplements. Emulating the federal contracts regulatory framework, under which agencies generally follow the FAR and supplement where necessary with agency specific regulations (e.g., NASA FAR Supplement (NFS)), the Super Circular consolidates generally applicable grant and cooperative agreement regulations into Title 2, Part 200, of the Code of Federal Regulations, which agencies then supplement in their respective Parts under Title 2 (e.g., Part 1800, for NASA).

Grantees and cooperative agreement awardees must carefully review the certifications that are now required at award. In another similarity to the federal contracts framework, the new NASA grants regulations require grant and cooperative agreement recipients to make a number of certifications and assurances on award. Awardees must certify compliance with federal nondiscrimination laws, agree to report lobbying activities, and certify that neither they nor their principals are debarred, suspended, or recently convicted of civil fraud in connection with public funds or antitrust violations. Awardees must further certify on award that they have not, within the last three years, had a federal, state or local transaction terminated for cause or default.

Grants and cooperative agreements are now audited for cost accounting compliance, much like federal contracts. Subparts E and F of the Super Circular provide a cost accounting and auditing framework that will be familiar to those who have performed federal contracts in the past. For example, under the cost principles laid out in Subpart E, costs are allowable under federal grant awards if they are: (1) reasonable, (2) allocable, (3) consistent with generally accepted accounting principles and the awardee’s uniform accounting policies and procedures, (4) consistent with any other limitations in the regulations, and (5) adequately documented. Subpart F mandates audits for Awardees expending $750,000 or more in federal grant or cooperative agreement awards in a year. For-profit organizations, who may have previously established practices to comply with federal cost accounting requirements, are not required to establish a new system for grants and cooperative agreements; instead, awards received by these commercial organizations are still governed by FAR Parts 30 and 31 and the Cost Accounting Standards in 48 C.F.R. part 99. However, non-profit organizations seeking grants or cooperative agreements with NASA must familiarize themselves with the full extent of the new cost accounting requirements and establish appropriate accounting procedures.

Patent rights for small businesses that develop intellectual property under NASA grants or cooperative agreements are still governed by existing Bayh-Dole Act regulations, while other commercial firms are subject to a complex, NASA-specific “New Technology” clause. Over six columns in the federal register publication of the new NASA grant regulations are devoted to the “New Technology” clause, which is to be inserted into all awards with commercial firms that are not classified as small businesses. Such awardees must establish procedures to identify inventions and discoveries made through performance of the grant or cooperative agreement, and they must report these inventions and discoveries at regular intervals throughout performance. NASA presumptively takes title to any reported patentable invention, though the awardee may submit a written statement providing evidence supporting its claim to title instead.

Rights in data developed under grants and cooperative agreements may be specifically tailored by the parties to fit the circumstances and the awardee’s need to protect proprietary information. The new NASA grant regulations provide a “Rights in Data” clause that is to be included in all awards, including those with large commercial organizations. However, the language prescribing this clause states that the grant officer may revise the language to fit the particular circumstances of the program and the recipient, so long the relevant NASA Center’s Patent Counsel concurs. If left unaltered, the clause provides the government a royalty-free, nonexclusive and irrevocable license to use, reproduce, and distribute the data to the public.

These are just a sample of the many provisions included in the new NASA grant regulations codified in 2 C.F.R. part 1800. With the federal government providing over $600 billion annually in federal grants, cooperative agreements, and other assistance payments, administrative and cost management regulation have become a focal point of recent attempts to reign in excess spending. The Super Circular and supplemental regulations place federal grantees under the microscope of award oversight, and organizations pursuing or performing federal grants with NASA and other agencies must carefully review the new regulations to fully understand their obligations and rights under federal awards.

Updated NASA Grant and Cooperative Agreement Regulations Become Final