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Posts by dietrichknauth

I’m a writer and reporter based in Brooklyn, NY. My specialty is legal reporting, particularly government contracts law, government policy, and federal spending.
by dietrichknauth

SBA Rule Will Boost Prosecution of Small-Biz Contract Fraud

A Small Business Administration rule finalized Friday says that fraudulently obtained small business contracts provide no value to the federal government, a change that will increase the number of enforcement actions by clearing the government to seek repayment for the entire contract.

The rule implements part of the Small Business Jobs Act of 2010, which says that when a company wins a contract by willfully misrepresenting its small business status, the government’s presumed loss is the value of the contract.

While the law already provided for criminal and civil penalties, including False Claims Act liability, the government had a hard time winning these cases because rulings like the one in Ab-Tech Construction v. United States had made it difficult to establish damages. In that 1994 case, the Court of Federal Claims limited the government’s recoverable damages because the contractor had provided the agreed-on services.

But the SBA regulation, which takes effect Aug. 27, will allow prosecutors and private relators to pursue fraud much more easily, under the assumption that contracts obtained through misrepresentation have no value to the government. This puts the entire value of the contract at stake.

“I expect to see a substantial uptick in prosecutions,” said Richard Oliver, a partner with McKenna Long & Aldridge LLP. “There have been very few prosecutions for false size certifications over the last 20 years. The only prosecutions we’ve seen have been extremely blatant situations.”

Read the full article on Law360: https://bit.ly/2Kwp4hO

by dietrichknauth

DC Circ. Deals Another Blow To Rumsfeld Torture Suits

By Dietrich Knauth

Law360, New York (June 15, 2012, 7:47 PM EDT) — The D.C. Circuit ruled Friday that a former U.S. government contractor could not sue former Defense Secretary Donald Rumsfeld for monetary damages arising from his alleged torture in Iraq, dealing another blow to a damages theory that has stumbled in two other appeals courts.

The circuit court ruled that the Supreme Court’s 1971 decision in Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics — a decision allowing a citizen to sue for monetary damages where no other federal remedy was provided for the protection of a Constitutional right — had never been applied “in a case involving the military, national security, or intelligence.”

Chief Judge David Sentelle pointed out that the Supreme Court very rarely applies Bivens to new causes of action — only twice in the past 41 years, in fact.

“The implications of a Bivens action…is not something to be undertaken lightly,” Judge Sentelle wrote.

U.S. citizens working under Iraq contracts have alleged in the D.C. and Seventh circuits that they were detained and tortured in Iraq and sought damages under Bivens. The Seventh Circuit case is awaiting an en banc ruling.

The theory has also has failed in the Fourth Circuit, which ruled that convicted terrorism conspirator Jose Padilla could not pursue Bivens remedies against Rumsfeld. The Supreme Court declined to take up an appeal of Padilla’s case on June 11, leaving the Fourth Circuit decision untouched.

The Seventh Circuit went the furthest with the theory, ruling in August that Rumsfeld did not have immunity in a suit brought by contractors Donald Vance and Nathan Ertel. That ruling, however, was vacated in October, when the entire Seventh Circuit decided to rehear the case en banc. No ruling has yet been reached by the full Seventh Circuit.

There is no disagreement among the circuit courts, because the Seventh Circuit rehearing means the original split decision, which was the subject of a contentious dissent, might as well have not happened, said David B. Rivkin of Baker Hostetler LLP, who represents Rumsfeld in the Seventh Circuit.

“I’m very comfortable predicting that we’ll do well and that the balance of the Seventh Circuit will come to the right decision,” Rivkin said.

The anonymous plaintiff, John Doe in court filings, alleged that Rumsfeld personally approved torture techniques, including isolation and sleep and sensory deprivation, and later ordered those practices to be used at Camp Cropper in Baghdad, where Doe was held.

But the D.C. Circuit ruled that the judicial branch should not interfere in the prosecution of wars, which are the province of the political branches of government.

“Military detainee cases implicate similar concerns regarding the conduct of war, the separation of powers and the public scrutiny of sensitive information,” Judge Sentelle wrote.

Jesselyn Radack of the Government Accountability Project, one of Doe’s attorneys, said Doe would take the fight to the Supreme Court if need be.

“It’s a disappointing decision, and we’ll either ask the full circuit to rehear the case en banc or file a petition of certiorari to the Supreme Court,” Radack said.

Radack said her client’s suit seeks an expansion of Bivens but argued that “these are pretty horrific circumstances that maybe warrant an expansion.”

“The Supreme Court has never applied a Bivens remedy to a military or intelligence situation, but we’ve never been in this kind of situation where we’ve tortured our own people in the guise of national security,” Radack said. “This is a scary holding that our military can capture a U.S. citizen and hold them for months and months without trial counsel and judicial review and torture them and they have no redress.”

The courts must be able to protect the constitutional rights of U.S. citizens, even in war zones, Radack added, saying that the D.C. Circuit’s military exception could be an enormous loophole during a period of “indefinite war” that seems to involve many areas of the world at once.

Doe claims he was blindfolded, handcuffed and repeatedly kicked in the back during an initial interrogation in November 2005, then taken to Camp Cropper, a U.S. military prison where he was repeatedly choked, exposed to extreme cold and continuous artificial light, and interrupted whenever he tried to sleep by guards who banged on his door or blasted heavy metal and country music into his cell. He later was moved into a cell with suspected terrorists who knew about his military ties, leaving him in constant fear for his life, according to the complaint.

The U.S. Department of Justice, which represents Rumsfeld, says Doe was detained on suspicion that he accepted bribes from Iraqi customs officials to allow insurgents, weapons and other contraband to pass through the border between Syria and Iraq, as well as for possible collaboration with Syrian or Iranian intelligence services, according to court filings.

But Doe says he was a translator for a U.S. Marines intelligence gathering team, and that he was detained because the U.S. military wanted to keep him quiet about secret negotiations with with Abdul Sattar Abu Risha, a Sunni sheik who became a key U.S. ally and led an uprising against al-Qaida before being assassinated in 2007.

Doe is represented by Michael Kanovitz and Gayle Horn of Loevy & Loevy and Jesselyn Alicia Radack of the Government Accountability Project.

The case is Doe v. Rumsfeld et al., case number 11-5209, in the U.S. Court of Appeals for the District of Columbia Circuit.

Published by Law360

by dietrichknauth

US Fails To Shield Contractors From $920M In Afghan Taxes

By Dietrich Knauth

Law360, New York (May 14, 2013, 9:09 PM EDT) — The U.S.’ failure to enforce nontaxation agreements has allowed Afghanistan to collect more than $920 million in improper taxes from U.S. contractors, according to a new report that experts say highlights the persistent challenge of coordinating federal agencies to ensure war spending isn’t wasted.

The Special Inspector General for Afghanistan Reconstruction, or SIGAR, reported Tuesday that his office examined $921 million in business taxes and penalties levied against 43 contractors supporting U.S. rebuilding efforts in Afghanistan, in spite of agreements meant to ensure that U.S. contractors aren’t taxed. Those agreements “appear to be failing in their purpose,” in part because the U.S. Department of Defense, Department of State and the U.S. Agency for International Development have failed to make a coordinated effort to push back against improper taxes, often leaving contractors to fend for themselves.

“It’s disturbing that the Afghan government is targeting American contractors with unjust taxes and intimidation,” Special Inspector General John F. Sopko said. “It’s even more disturbing that U.S. agencies are letting it happen — all at the expense of American taxpayers, who have already shouldered a heavy burden on Afghan reconstruction. This needs to end.”

Of the $921 million examined by SIGAR, $93 million falls clearly under a tax category that both the U.S. and the Afghan government agreed should be exempt, and SIGAR believes that many of the remaining taxes are also illegitimate.

Congress took quick notice of SIGAR’s report, and Rep. Peter Welch, D-Vt., on Tuesday reintroduced legislation that would block all U.S. taxpayer assistance to Afghanistan until a new bilateral agreement on taxes is reached.

“It is incomprehensible that the government of Afghanistan, with its abysmal track record of corruption, would actually think it is a good idea to tax assistance provided by the American taxpayer,” Welch said. “We shouldn’t give another dime to the Afghan government until they agree to stop ripping off the American taxpayer.”

Experts say that SIGAR’s report is just further evidence of the difficulties that the U.S. faces in getting USAID, DOD and the State Department on the same page when it comes to wartime contracting issues. The recently closed office of Sopko’s counterpart in Iraq, the Special Inspector General for Iraq Reconstruction, has recommended creating a new federal agency to oversee rebuilding efforts in future contingency operations, but the agencies have resisted those recommendations, and some contractors have also opposed the plan as creating another layer of bureaucracy.

Charles Tiefer, a law professor at the University of Baltimore and a former member of the Commission on Wartime Contracting, said the U.S. agencies need to present a more unified front on wartime contracting, whether or not a new agency is introduced.

“There needs to be some structural change,” Tiefer said. “If the agencies coordinated and presented a strong and unified stance to the Afghan government, they could at least reduce the scale of improper Afghan taxing of American efforts.”

Fragmented planning for rebuilding contracts greatly increases the risk of waste and fraud, and that’s especially true in Afghanistan, where corruption is part of the culture, and where President Hamid Karzai’s government has tried to maximize its share of the U.S. and international cash that supports its institutions, Tiefer said. Afghanistan’s tax collectors don’t respect the tax exemption agreements signed by its diplomats, and the tax issues seem to be an echo of previous efforts to force contractors to hire a new Afghan security force in place of private guards, Tiefer said.

“The strategy here on the Afghan side may appear chaotic but in fact comes from the Karzai administration, which treats American contract funding in several ways as its very own piggy bank,” Tiefer said. “The U.S. taxpayer puts up money to build schools and infrastructure in Afghanistan, and the Afghan government turns around and engages in double dipping, getting both the U.S. funded project and skimming extorted taxes as well.”

Contractors say the report simply adds concrete data to the reality they’ve been facing for some time. The Professional Services Council, a contractor trade group, agreed with SIGAR’s calls for better coordination between agencies and more training on the tax exemption agreements for U.S. contracting officers, to prevent representatives of the Afghan government from exploiting inconsistencies in an effort to “shake down” contractors.

“The report confirms what PSC has long argued in letters, white papers and meetings with government officials: The U.S. government’s lack of a unified position in resolving the Afghan government’s inappropriate taxation of U.S.-funded contracts has hindered contractors’ efforts to support the U.S. government in Afghanistan,” said Alan Chvotkin, general counsel and executive vice president of PSC. “As the IG found, the lack of response increases the costs of U.S. government projects in Afghanistan and diverts U.S. funding from program objectives specifically defined by Congress and the contracting agencies.”

Because of tax disputes, the Afghan Ministry of Finance has restricted contractors’ freedom of movement, hurting the ability of contractors to support U.S. missions, and has even arrested at least one contractor because of unresolved tax issues, SIGAR reported.

Some U.S. agencies’ contracting officers do not appear to understand Afghanistan’s tax laws and have improperly reimbursed contractors for taxes paid to the Afghan government, and contractors have begun billing the U.S. government for the tax costs, or adjusting their bids to account for increased costs due to the Afghan taxes, according to SIGAR. The U.S. agencies have paid improper taxes, through contractor reimbursement, without helping contractors fight the taxes or helping contractors obtain tax-exemption certification ahead of time, the report found.

The contractors caught in the middle may face additional trouble down the road, since billing the government for improper taxes may go against federal regulations, Tiefer said.

“These contractors may be violating the rules on reimbursement when they pass on taxes that they shouldn’t have paid,” Tiefer said. “They’re getting away with it now, and that means that in some ways they’re happier avoiding friction with the Afghan government, at the cost of milking the American taxpayer through reimbursement.”

SIGAR recommends that the secretary of state take the lead in developing a consistent, unified position on what the U.S. government deems appropriate taxation of contractors, and make efforts to recover any improper tax payouts. But while the DOD concurred with SIGAR’s recommendations, State resisted, saying it “did not explicitly agree or disagree,” while arguing that the agencies already have a unified position. State also said it “neither agreed nor disagreed” on recommendations to recover tax payments.

The State Department also questioned SIGAR’s authority to examine issues related to the tax treatment of contracts, causing SIGAR to write that it is “concerned that State chose to focus initially on the bureaucratic question of which oversight agency is the appropriate one to examine this issue, rather than turning its attention to devising solutions to the problems we identified in this report.”

While the tax issue is serious on its own, it also points to a larger pattern of the Afghan government trying to maximize what it can take from U.S. and internationally funded rebuilding efforts, Tiefer said. Afghanistan previously banned contractors from hiring foreign-owned private security companies, forcing them to hire a new Afghan government agency, the Afghan Public Protection Force, at a higher price than the contractors were originally paying.

The focus on maximizing short-term payouts doesn’t bode well for the future, Tiefer said, especially as U.S. forces plan to exit Afghanistan and turn over the country’s security to its fledgling armed forces in 2014.

“Supplying their treasury by extorting tax payments from the US treasury is a very short-term strategy, and they are materially diminishing their country’s prospect for surviving after American troops pull out and some of the reconstruction effort drops off,” Tiefer said. “This report shows that the Afghan government is sucking only too much from the teat of the American treasury, and needs to be weaned off its rich diet.”

Foreign aid projects make up an enormous part of Afghanistan’s economy — 97 percent, according to a Senate Foreign Relations Committee report from 2011. Since 2002, Congress has appropriated over $89 billion to U.S. government agencies, including DOD, State and USAID, for humanitarian and reconstruction programs and projects in Afghanistan, according to SIGAR.

Published by Law360

by dietrichknauth

US Agencies Get Major Update To Cybersecurity Guidelines

By Dietrich Knauth

Law360, New York (May 1, 2013, 7:33 PM EDT) — The National Institute of Standards and Technology on Tuesday published its first major update to the data security and privacy guidelines for federal agencies, adding guidance for handling insider threats, risks in supply contracts, and mobile and cloud computing technologies.

Under the Information Security Management Act, the Office of Management and Budget and the NIST take the lead in setting minimum security requirements used across the federal government, such as giving tips for secure passwords or requiring physical security for sensitive computer systems. The NIST standards have governed federal cybersecurity steps in the absence of federal legislation, and the overhaul is the first such update since 2005.

“This update was motivated by the expanding threats we all face,” project leader and NIST fellow Ron Ross said in a statement. “These include the increasing sophistication of cyberattacks and the fact that we are being challenged more frequently and more persistently.”

The revision’s new assurance controls will help agencies have confidence in the security of their systems and give guidance to contractors that develop information systems, information technology component products and services for the government, according to Ross, who said the focus on trustworthiness in the federal information systems supported the NIST’s slogan of “Build it right, then continuously monitor.”

Contractors may welcome the update as an improvement over ad hoc rules pursued separately by separate agencies. In comments submitted to the NIST on April 8, the Professional Services Council urged the government to halt ongoing efforts to create cybersecurity contract requirements until the NIST framework was in place.

“We strongly believe that the NIST cybersecurity framework should be developed prior to the further development or implementation of new acquisition-specific cybersecurity requirements,” PSC President and CEO Stan Soloway said. “To ensure that consistency is achievable by agencies in both the cybersecurity framework and the federal acquisition arena, PSC recommends that the [Federal Acquisition Regulation] and [Defense Federal Acquisition Regulatory Supplement] initiatives be suspended until the initial NIST framework is completed.”

The new guidelines promote cutting-edge security controls aimed at addressing evolving threats — particularly issues related to mobile and cloud computing, insider threats, supply chain risks, advanced persistent threats, and other areas that have evolved greatly over the past eight years, the NIST said.

To address supply chain risks — an area that has been the focus of recent reports from the Senate Armed Services Committee and House Intelligence Committee — the guidelines recommend that the government sometimes use “blind or filtered buys” to withhold the ultimate purpose of electronic parts from the contractors who supply them.

The guidelines also encourage agencies to offer incentives to contractors that are open about their procedures for vetting the security of their electronic parts and subcontract suppliers, something the U.S. Department of Defense is addressing as it implements the 2013 National Defense Authorization Act. The NDAA provided a safe harbor for contractors who have DOD-approved vetting procedures, while requiring other contractors to pay for the cost of replacing counterfeit electronics that supply to a military system.

Previous NIST guidelines, as well as a change in the 2013 National Defense Authorization Act, have pushed contractors to report data breaches affecting government systems. The 2013 NDAA included a last-minute amendment added by Senate Armed Services Committee Chairman Carl Levin, D-Mich., that required cleared contractors to report on cyberattacks and grant the DOD access to information systems for security checks.

Contractors complained that the amendment’s initial language would have provided the DOD with open-ended access to data — even to the point of long-term confiscation of computer servers — with very few controls on how that information would be used or safeguarded. While the final version of the NDAA limits the amendment in a few key ways, requiring the DOD to safeguard trade secrets and commercial information and preventing the DOD from sharing the information outside of the agency, some said the change didn’t go far enough toward addressing contractors’ concerns.

Published on Law360
by dietrichknauth

Obama’s Cybersecurity Order Could Squeeze Contractors

By Dietrich Knauth

Law360, New York (February 26, 2013, 8:01 PM EST) — President Barack Obama’s recent cybersecurity executive order envisions a more centralized approach to protecting the government from hackers, but contractors worry a slew of new costs and burdensome information-sharing requirements could also accompany the well-intentioned move.

Government contractors, already a target for hackers because of their closeness to government data, are among the biggest groups affected by Obama’s Feb. 12 cybersecurity executive order, which pushes federal agencies to work more closely with defense contractors, banks, electric power companies, communications providers and other critical infrastructure operators through voluntary security standards and increased dialog about cyberthreats. The order and an accompanying policy directive also direct the agencies to consider changing the Federal Acquisition Regulation to include cybersecurity concerns in new government contracts.

But the government’s effort to incorporate cybersecurity standards into acquisition planning, and to harmonize existing procurement requirements could be a mixed bag for contractors. While the new standards will likely carry new compliance costs, those additional costs could be offset by smoothing out a “Tower of Babel” of conflicting agency-by-agency and even contract-by-contract approaches, according to Crowell & Moring LLP partner David Bodenheimer.

“It is not all downside. An upside to a FAR regulatory scheme for cybersecurity would be greater uniformity and less compliance burden on contractors,” Bodenheimer said. “One of the problems right now, for federal contractors, is having to comply with a host of changing federal regulations at the agency level.”

But many are concerned that new regulations arising out of the executive order will ask too much of contractors, especially because the government will have to frequently update its standards in order to combat rapidly evolving cyberattacks and new techniques employed by hackers.

“The goal sounds like a good idea, but we’ll have to wait and see what’s proposed,” said Elizabeth Ferrell, a partner at McKenna Long & Aldridge LLP. “Consistency would be helpful but there’s always concerns that the standards will be too strict and too much of a burden on contractors.”

Contractors will also be asked to take part in the executive order’s voluntary information sharing program, which is based on a pilot program already underway between the DOD and some defense contractors. As long as the information sharing remains voluntary, contractors, as with other companies affected by the order, will closely watch as the government settles on a mix of incentives and penalties to encourage the cooperation they’re seeking.

Many companies are worried that reporting on cyberthreats and data breaches will open them to new liability, from exposure of trade secrets and proprietary data, to liability for inadvertently disclosed personal information, to damaged corporate reputations. Contractor groups, including the Professional Services Council and TechAmerica, have already called for granting indemnification to companies that meet cybersecurity standards or exempting their disclosures from Freedom of Information Act requests, steps that would assure contractors, but would require legislative action.

In addition to the reporting risks faced by other companies affected by the order, contractors face a few unique risks when reporting data breaches or cyberattacks — particularly if they lead the government to see the contractor as a less secure partner than potential competitors. Many federal agencies now include information security and safeguards as an element of past performance and experience during a contract competition, according to Bodenheimer.

“That breach may be used against it in other contexts as well, such as being penalized in a competitive source selection,” Bodenheimer said.

Information also carries more risk for contractors than most private sector companies, because government contractors are subject to a number of additional statutory, regulatory and contractual reporting requirements. Noncompliance with one of those additional reporting requirements could open up government contractors to accusations of procurement fraud or whistleblower suits under the False Claims Act.

“Government contractors, by nature, are very cautious because there are a lot of potential liabilities associated with any kind of noncompliance,” Ferrell said. “False Claims Act liability certainly is one of those, so I think that would be on a list of potential lawsuits that a company might face that might originate from voluntary disclosures.”

There is also the fear, perhaps well-grounded, that the voluntary information sharing framework in the executive order will be a mere stepping stone to a mandatory reporting requirement in the future.

Defense contractors, whose early efforts provided a framework for the executive order’s information sharing program, experienced something similar in December, when the 2013 National Defense Authorization Act required contractors with security clearances to report cyberattacks and system breaches.

“If I was an industry member, I would wonder if we’ll see a broader mandatory disclosure requirement that will apply to non-cleared contractors,” said Jon Burd, a government contracts attorney at Wiley Rein LLP. “None of that is on the immediate horizon, but  it’s reasonable to wonder out loud whether that is a path that we may head down in the not too distant future.”

Published by Law360

by dietrichknauth

Gov’t Contracting Slump Could Spark PE Feeding Frenzy

With federal contracting budgets on the wane, private equity firms are looking to snatch up bargains as contractors streamline their businesses and sell off divisions that could see reduced profits or contribute to organizational conflicts of interest.

This should be a busy year for mergers and acquisitions in the government contractor market, experts said, attributing part of the change to declining budgets and the uncertainty around sequestration, a series of automatic budget cuts set to slash about $52 billion from 2013 federal spending unless Congress agrees on an alternative deficit reduction package by March 1. Private equity firms will look to profit from contractors’ belt-tightening, while also seeking to purchase smaller companies in hot areas that will continue to see government investments, such as cybersecurity.

“Government contractors are looking to shed some of their businesses and divisions that are not going to give them the returns they had captured in previous years,” said Scott M. Heimberg, a partner with Akin Gump Strauss Hauer & Feld LLP. “I think that gives some opportunities to private equity companies who are looking for bargains out there.”

Check out the full article, published by Law360: https://bit.ly/2XskO9d

by dietrichknauth

BP Suspension Shows No Contractor Is Too Big To Debar

By Dietrich Knauth

Law360, New York (November 28, 2012, 10:15 PM EST) — The U.S. government’s decision Wednesday to suspend BP PLC, the U.S. military’s largest fuel supplier, in the wake of a criminal settlement over the Deepwater Horizon oil spill sends a message that even companies that perform vital roles for the government are never “too big to debar,” experts say.

Following BP’s record-setting $4.5 billion criminal settlement over Deepwater-related violations, the U.S. Environmental Protection Agency on Wednesday suspended BP from receiving any new government contracts, including military supply deals and drilling leases with the U.S. Department of the Interior.

The decision came as a surprise to many, who believed the company would escape suspension or debarment, based on the government’s reluctance to cut off relationships with its most important suppliers, as well as BP’s own statements after the Nov. 15 settlement.

“There’s some tension between the government’s desire to continue dealing with BP and the government’s capacity to impose a tough suspension,” said Charles Tiefer, a professor of government contracts law at the University of Baltimore and a former member of the congressional Commission on Wartime Contracting.

The government rarely suspends or debars large contractors, and several government watchdogs applauded the move as crucial to protect taxpayers from the risks of dealing with a company whose business integrity is dubious. While suspensions of important contractors rarely last long, they can jolt a company into making dramatic business reforms.

BP’s suspension sends a message that even big contractors will be held accountable if their business practices put taxpayers at risk, according to Scott Amey, general counsel for the nonprofit Project on Government Oversight.

“You can count on probably one hand the number of large contractors that have been suspended or debarred, and a lot of those instances it was only for a matter of days,” Amey said. “I would imagine that BP is doing everything it can do to convince the government that it is a responsible contractor.”

BP said Wednesday it had submitted more than 100 pages of documents to the EPA, highlighting a shake-up of its leadership and business structure and new deepwater drilling policies that exceed current regulatory requirements.

But the agency’s decision to suspend BP less than two weeks after the criminal settlement could indicate it is preparing to force BP to undertake more serious reforms than the company had planned, according to Tiefer.

If the EPA weren’t insisting on extensive reforms, BP would have acquiesced quickly to avoid the “black mark” of a suspension, which can count against the company during contract competitions even after it is lifted, Tiefer said.

“BP would like to argue that it has solved its problems and fixed its systems and by now it should be let off without even a short suspension,” Tiefer said. “But it appears that … the untold billions of dollars in environmental damage that BP did to the Gulf can’t be dealt with through a short period of suspension.”

Tyson Slocum, director of the energy program at the nonprofit Public Citizen, called for the suspension to last for the full five years of probation BP agreed to in its settlement with the U.S. Department of Justice.

He urged the U.S. Department of Defense, which purchased $1.4 billion in fuel from BP in 2011, not to undermine the suspension by seeking a waiver that would let it continue purchasing fuel under new contracts or task orders.

The suspension won’t affect BP’s existing government contracts, including $1.3 billion in new contracts announced Sept. 20. BP says it received more than 50 new drilling leases in the Gulf in the time between the oil spill and the suspension, in addition to billions of dollars in defense contracts.

But according to Defense Logistics Agency spokeswoman Michelle McCaskill, BP’s suspension may cause the agency — which purchases most of the petroleum the DOD uses — to look to other sources for fuel.

The decision to suspend BP more than two years after the spill shows some of the difficulties the government faces when balancing the need to protect itself from unethical contractors with the need to give accused companies time to explain and address deficiencies.

Suspension is intended to protect the government from unscrupulous contractors, not to punish companies — so the timing of BP’s suspension seems strange, according to Amey.

“This is not supposed to be penalty, so it’s odd that the EPA finally acted now,” Amey said.

But in BP’s case, the government had more pressing concerns than an immediate suspension, including overseeing cleanup efforts and pursuing a serious criminal case, Tiefer said.

“There are cases, but this is not one of them, where the need to stop dealing with a contractor is so great that an earlier indictment occurs and then suspension occurs,” Tiefer said. “It’s important that BP is not a wartime contractor in, say Afghanistan — there’s no danger to the troops in the field from a delayed suspension of BP.”

Amey said he’ll be watching to see if BP is able to lift the suspension as quickly as other major contractors have in the past. It would be “a little concerning,” he said, if the EPA quickly lifted the suspension, given it announced the move after about two years of supposed corporate reforms.

BP, for its part, said it expected negotiations with the EPA would go smoothly and it would receive a draft administrative agreement lifting the suspension “soon.”

The company’s criminal plea agreement should help its case. BP said the DOJ has agreed to “advise any appropriate suspension or debarment authority that in the department’s view, BP has accepted criminal responsibility for its conduct relating to the Deepwater Horizon blowout, explosion, oil spill and response.”

Published by Law360

by dietrichknauth

US Enlists Contractors In Anti-Trafficking Struggle

By Dietrich Knauth

Law360, New York (October 2, 2012, 6:06 PM EDT) — The White House has used an executive order to recruit federal contractors for the U.S. government’s attempt to fight labor trafficking at home and abroad, but some experts say comprehensive legislation is still needed to stamp out trafficking violations under U.S. contracts.

Congress has proposed several legislative solutions that drew support from both Democrats and Republicans, but failed to push any legislation through the political gridlock in Washington, D.C. The White House executive order incorporates many of the ideas put forth in legislation, but unlike some earlier proposals, does not focus on criminal or civil penalties. Instead, it gives contractors an increased responsibility to report, root out and remedy labor trafficking among their suppliers and subcontractors.

Even without a legislative complement, the executive order should not be underestimated, according to T. Markus Funk, a former U.S. Department of State and Department of Justice attorney who co-chairs Perkins Coie LLP’s corporate social responsibility and supply chain compliance practice. The order springs from a natural evolution of the State Department’s global anti-trafficking efforts and enlists businesses as powerful partners in that fight, Funk said.

“This is a huge undertaking with global reach,” Funk said. “While taxpayer dollars were once spent on assisting foreign law enforcement and spreading the word about the realities of trafficking, now the U.S. government has directly conscripted all contractors and subcontractors wishing to provide goods and services to the U.S. government into this global fight.”

The order’s impact will depend on the regulations written to carry it out. But it spells out the warning signs contractors have to look for and the kinds of actions they have to take to ensure their suppliers and subcontractors aren’t involved in trafficking. For instance, companies with more than $500,000 in federal contracts must train employees to spot signs of trafficking and allow them to report trafficking violations without fear of retaliation. They also have to certify that neither they nor any of their contractors have engaged in trafficking-related activities.

The order goes further than the floated legislation in one important area: Where legislation in the Senate and House of Representatives would prevent companies from entrapping workers by charging them “excessive” recruitment fees in exchange for the promise of work, the executive order bans recruitment fees entirely. The executive order also forbids companies from misleading potential employees about the locations of their jobs, lying about living and working conditions, denying them access to their passports or drivers’ licenses, or failing to pay return transportation costs for employees who travel to other countries for work.

After the president’s order was handed down, Sen. Richard Blumenthal, D-Conn., and Rep. James Lankford, R-Okla., said Congress must still act to ensure U.S. tax dollars don’t inadvertently fund trafficking. Lankford accused the president of trying to “jump in front of the moving crowd and claim leadership” rather than move more comprehensive legislation forward. He noted that more than 20 executive policies and regulations have failed to halt trafficking.

“One more executive order will not solve the problem,” Lankford said. “We have a loophole in our law that must be closed, and we have serious enforcement issues of existing law.”

Sam McCahon, a government contracts attorney who has testified before Congress as an anti-trafficking expert, agreed with Lankford and Blumenthal on the need for a legislative solution and criticized the executive order’s requirements as incomplete. Legislation such as Lankford’s End Human Trafficking in Government Contracting Act would include the criminal provisions and enforcement mechanisms necessary to stop trafficking in countries where the rule of law is not as strong as here, he said.

“We are not talking about some minor, obscure aspect of the acquisition cycle. We are talking about the U.S. government using U.S. taxpayer dollars to pay companies and individuals who use slave labor to support our troops on the battlefield and embassy workers on mission,” McCahon said. “I do think that the EO was necessary, but as written, not comprehensive enough to abolish trafficking on government contracts. It could have abolished the practice with some additional noncost measures. As signed, it is merely a good first step in the right direction.”

McCahon said the order could be improved by a mandate that recruiters be licensed in the country where recruitment takes place, which would prevent shady recruiters from disappearing with no paper trail. It should also require that workers receive written contracts a week prior to departure that clearly spell out work location, compensation, work hours and other important details, he said.

According to McCahon, these simple steps would combat the core problem by preventing recruiters from trapping workers into indentured servitude. Corrupt recruiters accomplish this by charging upfront commissions — often two to five years of a worker’s average income in his or her home country — for jobs that pay much less than promised, he said.

The practice is “shockingly common,” according to the nonprofit Project On Government Oversight, which lauded the president’s order. Media reports and several congressional investigations, including some by the bipartisan Commission on Wartime Contracting, have added to the weight of evidence about the prevalence of the bogus recruitment fees.

“Trafficking in humans to support government contracts is the rule, not the exception,” McCahon said. “It is the rare case indeed to find a laborer serving in base support operations or logistical support who has not been a victim of deceptive hiring practices and illegal commission paid to labor brokers that result in a state of indentured servitude.”

While some have argued for legislation to add criminal penalties for contractors who support trafficking, Funk said human trafficking is already illegal under U.S. law. Any company falsely certifying its compliance with the promised anti-trafficking regulations also risks being charged with making false statements to the government, he said. The executive order will further incentivize contractors to break ties with unscrupulous foreign partners, a trend already underway as companies seek to avoid liability under the Foreign Corrupt Practices Act, Funk said.

“The new executive order simply adds another weight on the side of staying away from such questionable business partners,” Funk said. “After all, whenever you are talking about doing business with a foreign company willing to use trafficked labor, you are almost certainly also dealing with a company willing to, for example, violate anti-corruption, labor and environmental laws.”

Still, it will be expensive for contractors to comply with the new anti-trafficking rules, which will force companies to invest in new training and far more rigorous due diligence and vetting of foreign partners, Funk said. Investigating possible trafficking will likely be more expensive and complicated than resolving issues related to the FCPA or the U.K. Bribery Act, Funk said. For one thing, trafficked workers are rarely “chained up in shipping containers or being forced to work at gunpoint,” and often fall victim to desperation and economic coercion rather than outright force, he said.

“Although we often think of anti-trafficking ‘raids’ and the like that result in locks being broken and trafficking victims being liberated, it is a lot more complicated than that,” Funk said. “You cannot go in there, interview the employees and have them tell you, ‘Yes, I’m a victim of human trafficking — please release me.’ In many instances, victims will be fearful of cooperating and will not want to accuse their captors.”

Companies could also be on the hook for expensive remediation, depending on forthcoming regulations. The executive order is not clear on whether contractors would be responsible for covering the costs of back pay or plane tickets home, for example.

While some businesses may have private misgivings about the costs of compliance, few are likely to speak out against an order combating a problem as heinous as trafficking. Some business groups, like the Global Business Coalition Against Trafficking — which includes The Coca-Cola Co., Microsoft Corp. and Ford Motor Co. among its members — have already embraced the rule wholeheartedly. Meanwhile, others such as the Professional Services Council have greeted it with an eye toward helping the administration create “executable regulations” for enforcement.

In announcing the order, President Barack Obama said the U.S. has a moral obligation, as the largest single purchaser of goods and services in the world, to ensure American tax dollars do not contribute to “modern-day slavery.” Input from private companies can help sway the tide against trafficking, which affects more than 20 million workers worldwide, the president said.

While it is not a silver bullet, the executive order extends the United States’ leadership in the fight for better working conditions worldwide, Funk said.

“Our nation’s anti-trafficking efforts provide an example of the U.S. trying to do the right thing abroad that even the most committed U.S. cynic will have a difficult time knocking,” Funk said. “The arrival of the executive order will not magically cause questionable companies around the world to stop using trafficked labor. Instead, government contractors are going to have to engage in more heavy-duty vetting and due diligence concerning the people they do business with.”

Published by Law360

by dietrichknauth

Entergy Sues US Over Breached Nuclear Waste Contract

By Dietrich Knauth

Law360, New York (September 27, 2012, 10:22 PM EDT) — An Entergy Co. unit sued the U.S. government Wednesday, seeking damages for what it calls the government’s decadelong, ongoing failure to dispose of spent nuclear fuel at two power plants in Michigan, which it says breaches a waste disposal contract.

Entergy Nuclear Palisades LLC filed its suit in the U.S. Court of Federal Claims, saying it and the plants’ previous owner have paid the Department of Energy $274 million in fees under the 1983 waste disposal contract, as a contribution toward building a long-term waste depository.

Under the terms of the plants’ contract with the government, the U.S. agreed to begin picking up the spent nuclear fuel and high-level radioactive waste no later than January 1998, according to the complaint. But it has not done so, in part because political battles have scuttled every plan to build a long-term disposal site, the complaint says.

While the complaint did not mention specific damages, the court’s docket sheet lists Entergy’s demand as $100 million.

Entergy bought the Palisades Nuclear Plant and the Big Rock Point plant from Consumers Energy Co. in 2007. Entergy continues to pay roughly $6 million a year in fees relating to the plant, the complaint said.

But the government still has no plan to begin disposal of the waste, despite several breach of contract judgments and court orders against it in similar lawsuits, according to the complaint.

“Consumers and [Entergy] have fully complied with all their fee payment obligations under the contract,” the complaint said. “The government, however, has failed to perform its reciprocal obligation to dispose of the spent nuclear fuel, and currently has no plan to meet these obligations.”

Entergy says the government’s foot-dragging has caused it to rack up other costs, including regulatory costs, taxes and fees associated with efforts to ensure sufficient on-site storage or find off-site alternatives, and has delayed Entergy’s plans to decommission the shuttered Big Rock Point.

“As a direct consequence of the government’s disregard of its contractual obligations and defiance of the D.C. Circuit’s rulings, [Entergy] has been incurring and will be forced to incur substantial additional costs to provide for extended on-site storage of its spent nuclear fuel,” the complaint said.

These expenses include buying, loading and maintaining storage casks and related equipment; monitoring storage facilities; and making necessary changes to the plants, according to the complaint.

The DOE is fighting dozens of lawsuits by utilities that had contracted with the agency over the past 20 years to send their spent fuel to the planned Yucca Mountain nuclear waste repository.

The project has been beset by delays and legal challenges, and in the past two years the DOE and the Nuclear Regulatory Commission have suspended their licensing on Yucca Mountain, leaving operators to deal with spent fuel themselves.

Taxpayers could face $19 billion in liabilities by 2020, as the U.S. Department of Energy reneges on contracts with nuclear operators to dispose of thousands of tons of spent fuel accumulating at their plants, the U.S. Government Accountability Office reported in September.

The GAO found that spent fuel stored on-site at nuclear plants will likely increase by about 2,000 tons annually before the DOE can open a new centralized storage facility, which could take as many as four decades. In addition to the $19.1 billion in liabilities racked up by 2020, the DOE could be on the hook for an additional $500 million annually thereafter.

ENP is represented by Layton Jager Smith Jr. of Jager Smith LLC.

The case is Entergy Nuclear Palisades LLC v. U.S., case number 12-cv-01641, in the U.S. Court of Federal Claims.

Published by Law360