By Dietrich Knauth

Law360, New York (January 29, 2014, 9:59 PM EST) — Whether supporting green energy or fighting human trafficking, President Barack Obama has leveraged his authority over federal contracting to push policy goals without the support of Congress, and his newly proposed minimum wage for contractor employees signals a continued willingness to use contracting to push through incremental policy victories.

A key piece of Obama’s State of the Union address on Tuesday centered on his plans to require contractors to pay a minimum wage of $10.10 an hour to employees, part of an overall push for a nationwide minimum wage. While that proposal matched the speech’s theme of promoting executive action when Congress fails to act, it also highlighted the administration’s frequent use of contracting to pursue its policy goals.

“Using executive orders is not new, and contractor employment practices have been an active area for executive branch regulation since the 1960s,” said Charles Tiefer, a law professor at the University of Baltimore and a former member of the congressional Commission on Wartime Contracting. “President Obama, though, is using his power over contracting in a greater variety of ways than did his predecessors. This signals mounting frustration on many, many fronts with congressional inaction.”

Contractors’ employment practices, in particular, have been a sort of proxy war for disagreements between the White House and Republicans in Congress about issues like income inequality, and the minimum wage plan comes just weeks after the president signed a piece of legislation that reined in the amount the government will pay toward the salaries of contractor executives.

Obama has used executive power to change a number of contractor employment practices, requiring them to make more of an effort to retain workers when a federal service contract changes hands, requiring companies to police their suppliers for signs of human trafficking, and introducing new affirmative action rules that require contractors to hire more veterans and people with disabilities — regulations that have drawn protests from many in the contractor community.

Although executive orders cannot match the impact of comprehensive legislation, presidents have often used such orders to build on Congress’ work or prod it to action, Tiefer said.

“Congress can go much further by legislation than the president can by executive fiat, but often it breaks the ice for presidents to go first,” Tiefer said. “The equal employment opportunity program, by executive order, laid the groundwork for later legislation that strengthened the key anti-discrimination statutes.”

Obama’s executive order on human trafficking, for example, was quickly bolstered by legislation that was passed as part of the 2013 National Defense Authorization Act. Sen. Tom Harkin, D-Iowa, said he hopes something similar happens with the minimum wage, asking his colleagues to follow the president’s example and pass his proposal to raise the nationwide minimum wage to $10.10 an hour.

“As I’m sure the president would agree, this is only a first step,” Harkin said in a statement after the speech. “Low-wage workers perform some of the most difficult and important jobs in our society. They should not have to live in poverty, regardless of whether they are employed by a federal contractor or elsewhere in the private sector.”

From a policy perspective, the minimum wage is a curious place to go after contractors, according to Kara Sacilotto, a partner at Wiley Rein LLP. Contractors are already subject to minimum wages set by the U.S. Department of Labor through the Service Contracts Act and the Davis-Bacon Act, among other laws, she said.

“It’s not necessarily fair to single out federal contractors,” Sacilotto said. “They’ve already got some protections. To me this is perhaps a way of moving the needle on the minimum wage. One could argue that it puts a spotlight on an issue and provides greater attention.”

The president’s order will protect some workers not covered by existing laws, although it is unclear how many, according to Jonathan Entin, a law professor at Case Western Reserve University.

“How much of an impact President Obama’s proposal to raise the minimum wage for federal contractors to $10.10 per hour will have could depend on how many minimum-wage workers are employed by federal contractors,” Entin said. “I don’t know the answer to that. But presumably the number is not zero, so the order could make some difference directly and might also exert some pressure on state governments to raise their minimum wages.”

Tiefer estimated that existing minimum wage programs like Davis-Bacon cover less than 50 percent of the contracting workforce, and the practical impact of the executive order will depend in large part on how far it extends into “gray areas” like commercial item procurement and federal subcontracts.

But according to Stan Soloway, president of the Professional Services Council, the Service Contracts Act generally requires higher wages than the proposed $10.10 an hour, and the executive order could create unnecessary ill will toward contractors.

“We are deeply concerned with any implication that federal contractors are paying substandard wages,” he said. “The requirements of the federal prevailing wage laws and the government’s central role in determining the definition of a fair and reasonable wage are clear and long-standing. Moreover, there is natural concern that, amid a national debate over the minimum wage, government contractors are being uniquely singled out.”

Although Obama has been quick to target contractor employment practices in executive orders, he’s sometimes deferred to lawmakers. In 2012, he declined to issue an executive order that would prevent a contractor from discriminating on the basis of sexual orientation because he said it would distract from more comprehensive legislation in Congress.

The president has also used executive orders to change contracting policies in fields far from employment, acting to fill legislation gaps by boosting contractors’ cybersecurity responsibilities, or pursuing an agenda opposed by congressional Republicans by supporting green energy policies through Defense and Energy department contracts.

The military’s green energy initiatives have been a particular point of contention among many Republican lawmakers, who say that the military cannot afford expensive investments in new energy while it cuts costs and downsizes after two wars.

According to Sacilotto, the president’s focus on contracting is part of the higher public profile that contract spending has taken on after the wars in Iraq and Afghanistan, which helped make government contracts into front-page news and a more obvious political battleground.

“Ten years ago, it would have to be a big-time scandal to be in the news, but now you read about government contracts all the time,” Sacilotto said. “If there’s one area where Congress and the president seem to be able to legislate, it’s in regulating government contracts.”

Published by Law360

By Dietrich Knauth

Law360, New York (January 1, 2014, 10:08 AM EST) — The two-year budget deal signed at the end of 2013 offers at least a pause in the budgetary brinksmanship that led to the haphazard budget cuts of sequestration and a 16-day government shutdown, but Congress will  force contractors in 2014 to think on their feet as lawmakers seek to address embarrassing procurement missteps, such as the early failures of HealthCare.gov, and leverage the power of the purse to pursue social and political goals.

Here are the areas to watch for additional legislation and regulation in 2014:

Information technology procurement reform

The botched rollout of HealthCare.gov ramped up scrutiny of the federal information technology acquisition process, prompting calls for change in 2014 amid a growing consensus that the way the government buys technology is too slow, too burdened by inefficiencies and too prone to high-profile failures.

The legislation with the most momentum behind it, Darrell Issa’s, R-Calif., Federal Information Technology Acquisition Reform Act, suffered a setback when it was removed from the National Defense Authorization Act, the must-pass legislation that authorizes defense spending, in December. FITARA was included in the version of the NDAA that passed the House in June, and offered as an amendment to the Senate NDAA, but it was removed in a last-minute rewrite of the law aimed at quickly passing the bill after the Senate ran short on time for amendments and debate.

Still, FITARA, or legislation like it, remains on Congress’s agenda in 2014, and it could mitigate some of the persistent problems with IT purchases by giving more budget authority and responsibility to agency chief information officers, creating a streamlined approval process for new information technology contracts, and redirecting money from existing contract management funds to fund IT training for the government’s acquisition personnel.

Contractors generally see empowering CIOs as a good step toward fixing some of the dysfunction that plagues IT procurement, according to Alan Pemberton, co-chair of the government contracts group at Covington & Burling LLP. Contractors would rather directly “talk to the people who actually know the technical aspects of the system and can make sure that the right types of systems are being bought,” rather than have the CIO sidelined by budget and acquisition people who are less familiar with the technology requirements in a procurement

Though FITARA’s reforms would help, anyone who suggests that they’d solve the problems behind the troubled rollout of online health insurance exchanges is kidding themselves, according to Alan Chvotkin, general counsel for the Professional Services Council.

“It’s not a perfect bill. It has elements that are helpful, such as clarifying the role of CIOs, that are long overdue, and if the Congress passes it, it will contribute to some of the issues,” Chvotkin said. “It is not a solution for HealthCare.gov, and if it’s being talked about as ensuring that another HealthCare.gov will never happen, I think that oversells what FITARA is capable of doing.”

Suspension and debarment

Suspension and debarment is an increasingly popular topic in Congress, and that won’t change in 2014, as lawmakers seek to prevent taxpayer dollars from flowing to companies with questionable ethics or track records.

Congress has proposed a more comprehensive overhaul of the government’s approach to suspension and debarment through the Stop Unworthy Spending Act, or SUSPEND Act. That bill would create a new governmentwide suspension and debarment board, and allow some civilian agencies and the U.S. Department of Defense to opt out of the planned consolidation if they can demonstrate that they already have strong suspension and debarment offices.

The waiver option could help civilian agencies with relatively sophisticated suspension and debarment programs, such as the U.S. Environmental Protection Agency, maintain control of their programs, and would treat the DOD and military services just like any other executive branch agency. That change has alleviated some criticism of the bill and turned some early skeptics into cautious supporters.

Congress has ramped up its scrutiny of contractor suspension and debarment in recent years, after reports by the U.S. Government Accountability Office and the Commission on Wartime Contracting highlighted weaknesses in the suspension and debarment offices of civilian agencies. The SUSPEND Act was proposed after oversight hearings embarrassed some agencies that rarely suspended or debarred any contractors.

Beyond the obvious impact of  taking suspension and debarment authority away from some agencies, passing the SUSPEND Act would likely lead to more of a litigation-style approach to suspension and debarment, according to Frederic Levy of McKenna Long & Aldridge LLP.

“The rules for responsibility will stay the same,” Levy said. “The process by which it is determined is going to be much more formal, much more rigorous, and with public decisions you’re going to see more and more of a litigation bar arising around suspension and debarment.”

Though the SUSPEND Act is the most dramatic change that’s on the table, it is likely that Congress will also pursue piecemeal additions to the range of offenses that result in automatic debarment, according to David Robbins, a former Air Force debarring attorney who now heads the government contracts practice at Shulman Rogers Gandal Pordy & Ecker PA.

The rise in automatic debarments puts government agencies and their contractors in a tight spot, Robbins said, because the automatic exclusions are a slippery slope, and lingering debarments with no agency discretion would “absolutely ruin everyone’s ability to get anything done.

“The solution to every problem cannot be to eliminate companies from competition,” Robbins said. “There has to be something short of the ‘death penalty’ of suspension and debarment.”

Supply chain management

Rules proposed in 2013 have required contractors to make significantly greater efforts to police their supply chain and their subcontractors for counterfeit electronic parts and evidence of human trafficking. Those rules could be finalized in 2014, and attorneys expect the focus on supply chain scrutiny will spread to other areas, opening up new risks and potential liabilities.

“I think there’s going to be much more focus on sources and how prime contractors supervise and monitor subcontractors in their supply chain,” said Peter Eyre, an attorney with Crowell & Moring LLP. “This is an area that is changing quite rapidly.”

Visibility into a company’s supply chain will cost money, requiring negotiations with subcontractors, pushback and new agreements.

“There’s also a question of who’s going to bear those costs,” Eyre said. “There are dollars associated with closer scrutiny of the supply chain.”

The government advanced significant rules on counterfeit electronic parts and human trafficking in 2013, taking the same approach to pursue very different goals. In the counterfeit parts rule, the DOD will evaluate contractors’ efforts to scour its supply lines for counterfeit electronics — which pose greater risk of failure and sabotage — as part of its review of contractor purchasing systems. In the human trafficking rule, proposed in September, the government will require contractors to police subcontractors and recruiters for telltale signs of worker exploitation, such as confiscating passports and charging recruitment fees.

An interim rule issued on Nov. 18 expands the same kind of oversight responsibilities to information technology components sold for use in national security systems. That rule is especially noteworthy for contractors, because it gives the DOD the ability to exclude IT contractors from a contract competition if the DOD determines that a contractor or subcontractor presents a supply chain risk, without requiring a full explanation, according to Susan Cassidy of Covington & Burling LLP.

“You can be excluded from a procurement, and there’s a provision that DOD can limit disclosure of why, so you may not even know why,” Cassidy said. “Just from a practical standpoint, this could put contractors in a terrific bind.

Cybersecurity

Protecting the government’s data will remain a focus for federal agencies and their contractors in 2014, and experts expect more regulation in support of that goal.

“The government is broadening the definition of protected data,” Eyre said. “It’s no longer just classified information, it’s not just technical data under ITAR, it’s more generally protecting contractor networks that contain government data.”

Late in 2013, the government finalized a rule requiring contractors to take additional steps to safeguard unclassified technical data, paring down a cybersecurity rule that was criticized as being too broad when proposed in 2011. Though the 2011 proposed rule would have required enhanced cybersecurity for a broader range of unclassified information provided by or developed for the DOD, the final rule is limited to unclassified technical documents related to DOD-funded research and development — including computer software and documents such as engineering drawings, technical manuals, blueprints, data sets, studies and analyses — and to other technical information that could be used to produce, repair or modify any military or space equipment.

The new rule requires contractors to take enhanced cybersecurity measures to protect DOD technical data. The cybersecurity measures are drawn from commonly used practices codified by the National Institute of Standards and Technology, including access control, awareness and training, contingency planning and maintenance.

Some concerns remain for contractors, including the lack of a safe harbor for contractors who report breaches despite complying with the NIST standards, and some ambiguity in the definition of a cyberevent that must be reported, according to Elizabeth Ferrell of McKenna Long & Aldridge LLP.

“Even though they’ve really narrowed this down, there are certain things that are still troubling from a contractor’s perspective,” Ferrell said.

The DOD said in the final rule that reported cyberincidents will not, by themselves, be considered evidence that a contractor had inadequate security, but flatly denied any safe harbor requests in the comments to the proposed rule, saying “the government does not intend to provide any safe harbor statements.”

Though the DOD has said that the cyberincident reports will not be disclosed as a result of Freedom of Information Act requests, contractors are wary about ways the reports could be used against them, such as impacting their performance reviews or disqualifying them from contract competitions under the supply chain rule, Cassidy said.

“There’s a requirement to report, but it’s unclear what DOD’s going to do with that information,” Cassidy said.

Published by Law360