Category / Professional

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.”

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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.”

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by dietrichknauth

Recent Rulings Back OFCCP’s Deep-Digging Audits

By Dietrich Knauth

Law360, New York (September 6, 2012, 8:48 PM EDT) — Recent court cases have rubber-stamped more aggressive data requests made by the Office of Federal Contractor Compliance Programs during audits of contractors’ affirmative-action programs, making it more difficult for companies to fight requests that they feel are unduly burdensome or irrelevant, experts say.

Contractors were handed losses in United Space Alliance LLC v. Solis — decided in Washington federal court in November — and in an OFCCP Administrative Review Board decision involving Frito-Lay Inc. in May. In both cases, contractors had resisted OFCCP data requests during audits of their compliance with affirmative action and nondiscrimination rules, and both the D.C. federal court and the ARB came down firmly on the side of the OFCCP.

Jeffrey Norris of the Equal Employment Advisory Council, speaking at the 2012 National Industrial Liason Group meeting between OFCCP regulators and contractors, said the decisions gave the OFCCP open-ended authority to ask “virtually anything” in compliance audits.

“It’s going to be very difficult to argue that OFCCP is not entitled to data that it asks for,” Norris said. “Instead, you’ll be forced to argue that the information isn’t relevant.”

Both United Space and Frito-Lay involved audits over potential pay disparities between male and female employees, which has been a particular focus for the OFCCP under President Barack Obama. The OFCCP has recently proposed rules that would give it more authority to ask for compensation data from contractors and has delved more deeply into pay disparity during its compliance audits.

United Space, which is owned by Lockheed Martin Corp. and The Boeing Co., sued to fight a sex discrimination audit by the OFCCP, which ordered the company to provide detailed pay records within 30 days or face termination of its current government contracts and face ineligibility for future procurements. According to the DOL, United Space holds contracts with NASA that are worth at least $8 billion.

While United Space claimed that initial data provided to the OFCCP had met the department’s initial tests for pay fairness and that a demand for further documents and an inspection was unfair and intrusive, U.S. District Judge Royce Lamberth concluded that the OFCCP had full authority to perform other analyses to determine whether pay discrimination existed and to base document requests on those other tests.

In his order, Judge Lambert said he preferred United Space’s interpretation of OFCCP’s regulatory authority, but he ruled that courts must give considerable deference to agency interpretations of their own regulations as long as they are not plainly erroneous.

“Submission to such lawful investigations is the price of working as a federal contractor,” Lamberth wrote.

OFCCP Director Patricia Shiu has said that the decision will ensure that her office has the tools it needs to protect workers from discrimination, but contractors hoping for a legal check on the OFCCP’s increasingly aggressive audits were disappointed by the result.

“United Space is a disaster for the contractor community,” said David Fortney, co-founder of Fortney & Scott LLC.

The Frito-Lay case, which the contractor has appealed in Texas federal court, also has the potential to limit contractors’ ability to push back against data requests, according to Fortney and John Fox of Fox Wang Morgan PC.

Frito-Lay actually won the first round of litigation in its dispute with the OFCCP, when a U.S. Department of Labor administrative law judge agreed that the agency had unlawfully expanded the scope of a pay disparity investigation by trying to reach back for another two years of pay records long after it began its initial review. But the DOL’s Administrative Review Board, the highest appeals body within the agency, reversed the decision in May, ruling that the OFCCP had regulatory authority to request data from years before and after the period it initially began auditing.

With the Frito-Lay decision, the ARB showed that it had transitioned from a neutral body willing to take a skeptical look at OFCCP practices to one firmly in OFCCP’s favor, Fox said. The decision contributes to contractors’ complaints of being “bullied” in OFCCP audits, he added.

In looking for recent cases that contractors could use to defend against audit requests, Fortney said that contractors could take some heart in the U.S. Supreme Court’s decision this year in Dukes v. Wal-Mart Stores Inc. and Christopher v. SmithKline Beecham.

The Dukes ruling, which shot down a discrimination suit brought on behalf of a nationwide class of 1.5 million female Wal-Mart employees, could help contractors defend themselves when OFCCP tries to establish a pattern and practice of discrimination, Fortney said. The Supreme Court’s focus on the influence and discretion of local managers in pay and promotions decisions could be brought up as a shield against OFCCP attempts to find discrimination patterns by pooling data from several locations and divisions within a contractor company.

And the Christopher decision — in which the Supreme Court ruled that pharmacecutical sales representatives are outside employees and thus exempt from federal overtime pay requirements — was sharply critical of the DOL’s attempt to informally reinterpret ambiguous regulations, both in the majority and dissenting opinions. While the DOL cited its own previous court filings to argue that drug representatives were not exempt, the position was a change from a decades-long policy of allowing drug companies to classify the reps as exempt, creating an “unfair surprise” for an industry that had not been given notice or a chance to comment on the new interpretation.

That rationale could be used against OFCCP during some of its audits, preventing the agency from greatly pushing the boundaries of its audit authority or of relying on posthoc rationalizations of its requests, according to Fortney. Indeed, in its appeal to the Texas federal court, Frito-Lay argues that the OFCCP’s tactics were a “marked departure from how the agency has historically interpreted its regulations and conducted compliance evaluations.”

Despite those defenses, contractors still must deal with an aggressive OFCCP, and the United Space and Frito-Lay cases could have contractors facing an uphill battle against expansive data requests during audits, particularly with increased pressure on the OFCCP to get settlements in pay disparity cases.

“There’s a long haul to get litigation relief if the Obama administration is re-elected,” Fox said.

Published by Law360

by dietrichknauth

OFCCP’s Regulatory Agenda Has Contractors Seething

By Dietrich Knauth

Law360, New York (September 5, 2012, 5:52 PM EDT) — An ambitious but stalled effort to revamp affirmative action rules for contractors has put President Barack Obama’s Office of Federal Contractor Compliance Programs at loggerheads with federal contractors, and the worsening relationship has bogged down audits and added to the financial strain on both private companies and the agency.

Obama’s OFCCP has proposed 10 major rule changes — far more than the four changes the regulator pushed during the Bush administration — that include widely criticized new rules aimed at boosting affirmative action hires of veterans and disabled workers, and a revised audit policy that seeks more detailed data on employee compensation. But contractors say the regulatory overload and the OFCCP’s combative attitude have hindered real progress.

The disconnect between the regulator and government contractors was on display at the 2012 National Industrial Liaison Group conference in Hawaii, where OFCCP officials including Director Patricia Shiu and Policy Director Debra Carr spoke via teleconference to companies about proposed and pending regulations.

The distance was more than simply physical — while Carr and Shiu both emphasized the importance of communication and outreach, contractors at the conference said they felt ignored, bullied or even lied to by the OFCCP.

“I’ve never seen so much acrimony,” said John Fox of Fox Wang & Morgan PC, who added that the OFCCP had put itself on “war footing” with contractors. “I’ve frankly never seen the contractor community so active and mobilized against a common threat.”

At the ILG conference, Fox characterized the OFCCP as a “broken” agency, and one company representative raised the possibility of “civil disobedience” as a corrective against what he saw as agency overreach during audits.

Valerie Hoffman, head of Seyfarth Shaw LLP’s OFCCP and affirmative action compliance group, said a lack of private sector experience within the OFCCP and the agency’s failure to reach out to contractors had led it to greatly underestimate the costs of compliance with its proposed rules. And the sheer number of proposed reforms has helped slow the pace with which new regulations are enacted, and left contractors nervous and uncertain about delayed changes, she said.

“This administration has the most ambitious regulatory agenda of any recent administration,” Hoffman said. “It looks like they’ve bitten off more than they can chew, and the contractor community is rightly concerned about the breadth of the new regulations and the burdens associated with them.”

The OFCCP has also pursued audits more aggressively than it did during the Bush administration, when it would commonly shut down audits if it didn’t find systematic discrimination that affected 10 or more employees, according to David Cohen of DCI Consulting. Cohen dates the change in attitude to 2010, when the OFCCP renamed its approach from Active Case Management to Active Case Enforcement.

“And OFCCP is wondering why we’re all feeling so anxious?” Cohen said. “I call it the ‘No Lawyer Left Behind Act,’” he said of the OFCCP’s package of proposed reforms.

Making matters worse for both OFCCP and the contractors it oversees, data from the OFCCP’s public enforcement database shows that the OFCCP is burying itself in technical violations that require reporting and burden both the agency and contractors, without bringing any settlement money back to OFCCP, Cohen said.

While the number of audits that resulted in financial remedies rose slightly between 2004 to 2011, from 1.12 percent of audits to 2.5 percent, the percentage of audits that ended in conciliation agreements, without payment to OFCCP or individuals, rose much more sharply, from 5.25 percent to 24.9 percent.

Carr acknowledged that federal budget pressures are weighing on the agency, saying she’s “doing more with less,” and estimating the number of employees in the policy office as “in the mid-20s.”

Fox said the OFCCP is “starving to death” for lack of funds and argued that Carr needs three times as many employees to get the regulations right.

“She can’t do a big job like that with 20 people,” Fox said. “No one can.”

Near the close of the ILG conference, Fox suggested that contractors step up and do the OFCCP’s work for it, writing proposed regulations themselves and submitting them to OFCCP for editing. Everyone agrees that the regulations are out of date, he said, citing the OFCCP’s obsolete sex discrimination rules that don’t even allow the agency to prevent contractors from firing women who become pregnant.

“OFCCP is broken. We all know that,” Fox said, saying contractors should not only write rules, but lend managers to the OFCCP to give guidance and assistance. “Don’t whine any more; just do it. It’s a classic partnership — you fill in where they’re weak, and they fill in where you’re strong.”

Hoffman called Fox’s proposal interesting but said most contractors are “overwhelmed” with their own responsibilities and would likely have few resources to devote to assisting the OFCCP’s policymaking. Sandy Zeigler, a retired OFCCP regional director, added that it would be tough to convince contractors to go through the effort and expense of rewriting regulations without any guarantee that the OFCCP would listen.

Zeigler said the OFCCP should listen more to contractors, rather than “regulate without even thinking about it.”

The agency’s plan to have contractors give veterans and disabled applicants written letters of denial when they are not hired, including a reminder that they are protected classes that can sue for discriminatory hiring practices, was one example of a poorly thought-out requirement Zeigler cited. The change would create recordkeeping burdens, while encouraging contractors to keep the denial letters as bland and uninformative as possible to prevent applicants from getting ideas for lawsuits.

“You’re going to send out a lot of pabulum to a lot of people. That’s a waste of your time, that’s a waste of paper,” Zeigler said. “Why regulate to have a bland statement like that?”

The new recordkeeping burdens and a “gotcha” mentality that focuses on technical violations during audits has damaged the relationship between the agency and federal contractors, and the hostile environment can distract from affirmative action programs that actually work, Zeigler said.

“I don’t want to civil rights to be hurt by people who are intending to help it,” Zeigler said.

Published by Law360

by dietrichknauth

With New Rules In Limbo, OFCCP Ramps Up Vet Hiring Push

By Dietrich Knauth

Law360, New York (August 31, 2012, 6:11 PM EDT) — In lieu of new veterans hiring rules that have stalled during an ambitious regulatory push in the Office of Federal Contract Compliance Programs, the government is leaning on audits and more aggressive interpretations of current regulations to support its affirmative action policies, experts said.

The OFCCP has proposed new affirmative action rules for veterans that would require contractors to track those who apply for jobs and write reports explaining decisions not to hire protected veterans. But a regulatory logjam in the OFCCP has put the proposed regulation more than nine months behind schedule, and many experts wonder if the rules will be finalized before a November election that could change the OFCCP’s makeup regardless of whether there is a change in the White House.

In the meantime, the OFCCP is using audits to take a much harder look at contractors’ good-faith efforts at veterans outreach; expecting contractors to check back and evaluate the results of those efforts; and demanding information about how many applicants were referred by a particular job board or organization, how many applicants were interviewed and how many were hired.

“We’ve seen these changes over the last 18 months, and the changes are massive,” Mickey Silberman, head of the affirmative action and OFCCP practice at Jackson Lewis LLP, said. “OFCCP’s approach to good-faith efforts has changed in a fundamental way.”

Employers who appear to be going through the motions will face greater scrutiny during OFCCP audits, and the agency will issue technical violations to contractors that are found deficient in either outreach or recordkeeping, according to Silberman, who spoke about the issue during the 2012 Industrial Liaison Group meeting. To protect themselves, contractors should make more of an effort to track the number and quality of applicants referred by recruitment sources and stop using ineffective recruitment sources, Silberman said.

“It’s not about getting through the audit. The goal is to increase veterans’ employment,” Silberman said. “What’s the point of good-faith efforts if you don’t monitor their effectiveness?”

The OFCCP is focusing its efforts on affirmative action and applicants who are not hired in part because it is rarely able to substantiate claims of discrimination against veterans or disabled workers who have been hired, according to David Cohen of the Center for Corporate Equality.

OFCCP data shows that the agency has alleged discrimination against veteran or disabled workers just three times during 22,000 compliance evaluations conducted since 2007, Cohen said. And in 871 investigations initiated since 2004 as a result of disabled or veteran workers complaining to the OFCCP, it identified just 60 violations, he added.

In response to the OFCCP’s more aggressive audits, contractors should make efforts to improve their outreach to veterans, but they shouldn’t try to anticipate the stalled regulations and start asking applicants whether or not they are veterans, according to Jennifer Seda, an attorney at Jackson Lewis. Employers have no obligation to ask, and if they do, they could open themselves up to OFCCP scrutiny if they do not hire or interview veteran applicants.

“Until the regulations are passed, please don’t ask your applicants if they are veterans,” Seda said.

While Silberman and Seda both recommended that contractors do more to evaluate the results of their outreach efforts, they also said contractors should push back against another OFCCP attempt to use current regulations on behalf of veterans. The agency has adopted a more aggressive interpretation of a current rule that requires contractors to undertake a “thorough and systematic consideration” of “known veterans” for all positions, including new hires, promotions and retraining opportunities.

Even if no veterans apply for a position, the OFCCP has taken the position that contractors should look internally at their veteran employees, as well as applicants for other positions, to see if they are qualified and interested, which would put a large burden on some contractors and give veterans a kind of preferential treatment that runs counter to the philosophy of equal employment opportunity, Silberman said. Contractors should consider fighting the OFCCP on the issue — even if the legal fight costs more than a settlement — because it’s a fight they can win, he said.

“The EEO lawyers have a pretty good sense that this interpretation makes people uncomfortable, and it should,” Silberman said.

The new audit policies are, at least temporarily, taking the place of the proposed new rules that would require contractors to set hiring goals for veterans; compile additional data on hiring decisions, including reports to explain why qualified veterans not hired; and keep relevant records for five years. Contractors and their advocates, including attorneys with Littler Mendelson PC, the Association of General Contractors and the Equal Employment Advisory Council, argue that the rule creates enormous additional burdens on employers while not significantly increasing veterans’ rights or opportunities for employment.

“These regulations are not going to create revenue-generating jobs for veterans. They are not going to level the playing field for qualified veterans and ensure equal access,” Littler Mendelson said in response to the veterans rule. “They are going to create layers upon layers of overhead for companies ill-prepared to absorb these costs in the current economy.”

But despite contractors’ concerns about the proposed veterans rule, it is the most likely of several pending OFCCP regulatory changes to be finalized before the election, because of political support for veterans affirmative action. While other pending rules — including a proposal that would require contractors to work towards a goal of hiring disabled workers in 7 percent of its jobs — would likely be scrapped if President Barack Obama is not re-elected, the veterans rules have a chance to survive even if Mitt Romney becomes president, according to Silberman. And even if Romney wins, Obama’s OFCCP could still push them out as midnight regulations, he said.

“For all the proposals, they’d like to have something to show for it,” Silberman said. “This should have been an easy one. Everybody wins, and the administration gets to trumpet the fact that they’re helping veterans.”

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by dietrichknauth

Solar Could Win Big In Army’s $7B Energy Buy

By Dietrich Knauth

Law360, New York (August 17, 2012, 9:17 PM EDT) — Solar power companies are well positioned to compete for U.S. Army energy contracts worth $7 billion over the next 10 years, considering the solar-friendly terrain around bases and the attractive pricing of renewable energy projects as utility-scale development slows and competition for projects increases, experts say.

The U.S. Army issued its formal request for proposals for the energy contracts on Aug. 7, outlining a plan to hand out so-called indefinite delivery, indefinite quantity contracts companies that meet the qualifications to provide renewable power on military bases. Once the pool of contractors is selected, the winners will compete for individual task orders to build specific projects, signing power purchase agreements that could last 30 years.

In its request for proposals, the Army plans to buy a mix of solar, wind, biomass, geothermal and other renewable power, although its requirements could favor solar over others, with wind potentially being a runner-up, according to experts.

“Solar and wind will probably dominate the response,” said Jeffery Atkin, head of the solar enery team at Foley & Lardner LLP.

Solar has a few advantages over wind for the miltary’s purposes, starting with its smaller footprint and the fact that many Army bases are located in flat, sunny areas. Wind power requires more land and would need to be transported over larger distances, and an expiring tax credit for wind energy production could lead to higher prices that make wind projects less competitive, experts said.

“Solar would probably have more opportunities than wind, simply because there are operational issues associated with wind projects that can make some base commanders nervous,” including the increased land use and the potential for wind turbines to interfere with flight training, said Amy Koch, the regulatory team leader for Reed Smith LLP’s energy and natural resources industry group.

Wind power could suffer another disadvantage because of uncertainty surrounding the production tax credit for wind. Based on the Army’s reverse auction approach, wind developers might be less viable or reluctant to bid, because without the tax credit, their prices will go up, according to Joel A. Goldberg, a partner at Porter Hedges LLP.

“The tax credit is sort of in limbo,” Goldberg said. “It expires at the end of the year, and in an election year there’s a lot of uncertainty about where that is going.”

On the other hand, the Army’s RFP could throw a lifeline to the wind power industry if the tax credit is not extended, Iverson said.

“With the expiration of the wind PTC, this RFP may spur new development in the sense that it may open new markets to the private sector that offer higher wind regime sites that will increase productivity and revenue, and help off-set the loss of the PTC, thus making wind project profitable in a PTC-less era,” Iverson said.

Solar developers were also helped by lowered energy thresholds for proposed projects in the final RFP, compared to other industries and the initial draft released in March. While the draft RFP required potential contractors to propose 10 projects, including at least three that would provide 4 megawatts or more, the final RFP allowed solar energy companies to drop that threshold to at least three projects of 2 MW or more.

“This was an important change to expand the list of potentially qualified solar offerors,” said Bruce Iverson, a senior project manager at TRC Companies Inc., which provides engineering, consulting and construction services to the energy, environmental and infrastructure markets.

The timing of the RFP will also allow the Army to take advantage of maturing technology and a lull in development that will maximize competition and help drive its prices down, according to Atkin.

Demand for new projects is low because most of the utility-scale purchasers have already made their investments in renewable technology — in part because they wanted to get started to take advantage of the expiring 1603 Treasury Grant program, which covers up to 30 percent of an eligible renewable project’s construction costs through grants instead of tax credits, according to Atkin.

“We’ve seen the prices just continue to drop and drop, and most of the major buyers of these clean energy projects are not as aggressive in buying right now,” Atkin said. “There will be very high interest in this RFP, and there will be a lot of competitors.”

Geography will play a key role in determining the technology that the Army chooses for individual bases as well. In many cases, biomass could also be in a good position because its smaller footprint allows for easier on-base production than wind or solar, while geothermal opportunities could be available only on a limited number of bases, according to Goldberg.

“It really depends on where these bases are and what kind of spaces are available,” Goldberg said.

While biofuel’s smaller footprint could play to its advantage, the Army RFP’s insistence on proven power production could still make wind and solar technology a better fit, because of recent technological advances made by private developers, according to Atkin.

“The industry has been well seeded and grown in,” Atkin said of wind and solar. “This will certainly help maintain the momentum that’s built up over the past couple of years.”

While the Army is relying on proven technology for power production, the RFP could spur innovation in other areas, such as energy efficiency and smart grid technologies, such as technology that would automatically adjust a base’s energy use to reduce power at times when prices are the highest, Koch said.

“Where they may push the envelope a little bit is in their smart grid needs, and smart grid issues are going to be part and parcel of some of the upcoming task order RFPs,” Koch said. ”It is possible that they may be a bit more flexible as far as not requiring fully commercialized technology for smart grid because that is more of an emerging area.”

While some politicians have criticized the military for buying alternative energy at higher prices than traditional fuels, Atkin said that the long-term agreements contemplated in the RFP will help shield the Pentagon from volatile energy prices and could save money in the long run.

“They’re locking in their power price for 20-plus years, reducing the risk of price escalation,” Atkin said. “When we look back at this in 20 years, it will probably have turned out to be a pretty good deal.”

Published by Law360

by dietrichknauth

Navy’s ‘Green Fleet’ Could Make Congress Believe In Biofuel

By Dietrich Knauth

Law360, New York (July 19, 2012, 9:48 PM EDT) — The U.S. Navy’s “Great Green Fleet,” a biofuel-powered aircraft carrier group that conducted training missions in the Pacific on Wednesday and Thursday, could help the Navy overcome congressional obstacles to its biofuel investments by showcasing the new fuels’ reliability, experts say.

Republican lawmakers have criticized the Navy for investing in expensive biofuels at a time of declining defense budgets, and both the U.S. House of Representatives and the Senate Armed Services Committee have passed proposals that would stop future purchases of alternative fuels if they carry a higher price tag than oil or gasoline. But several senators are pushing to reverse those restrictions before they become law, and the successful demonstration could help them make their case.

Sen. Mark Udall, D-Colo., said Thursday that he supports the Navy’s “smart investments in homegrown green technology” as a way to reduce the military’s reliance on foreign oil. Udall believes the Senate will eventually remove anti-biofuel provisions in its version of the 2013 National Defense Authorization Act, and a successful green fleet demonstration in the Pacific Rim can help convince opponents of biofuel investment.

“I have every confidence that the tests will show that domestically produced, renewable fuels have the capability to power our ships, aircraft and vehicles,” Udall said. “This is an exciting time, and this exercise will be remembered as a great step forward for our military and for American energy security.”

To fuel the green fleet demonstration, the Navy paid about $26 a gallon in December for 450,000 gallons of biofuel created from a blend of used cooking oil and algae, in the largest advanced biofuel purchase in U.S. history. Congressional critics of the Navy’s biofuel spending, including Rep. Randy Forbes, R-Va., and Sen. James Inhofe, R-Okla., who wrote the Senate amendment that would block biofuel buys, have focused on that $26 per gallon price tag, and Inhofe has criticized the military’s energy strategy as an excuse to support “liberal energy projects” at the expense of traditional firepower and combat readiness.

But Udall is not alone in seeking to roll back Inhofe’s amendment. He’s joined by fellow Armed Services Committee members Sens. Susan Collins, R-Maine, and Jeanne Shaheen, D-N.H., who wrote in an op-ed that the Navy’s biofuels could shield the U.S. Department of Defense from swings in oil prices, which is more efficient in the long run than investing all its funds into building more ships, planes and tanks.

“Every time a barrel of oil goes up $10, the Defense Department pays $1.3 billion more in fuel costs,” the senators said. “That’s roughly the equivalent of building a new destroyer — then sinking it in the middle of the ocean.”

The Pentagon said that price hikes for oil caused it to spend $3 billion more on energy costs than it had planned last year, money that will have to be diverted away from other priorities. Supporters of military biofuel say that its benefits are plain — alternative fuels could shield the Pentagon from energy price hikes, reduce dependence on foreign oil and support a new domestic energy industry.

The Truman National Security Project, which advocates for national security from a progressive political viewpoint, has lobbied members of Congress through ads featuring retired military leaders and through face-to-face meetings to support alternative fuels, including biofuel. Michael Wu, the group’s advocacy policy director, said Thursday that those meetings have left him encouraged that the Republican opposition to biofuels isn’t as solid as it is often portrayed.

“I think that more Republicans are likely to be supportive when the bill comes to the floor,” Wu said. “In reality, we’re much closer to ensuring that the military’s investments are maintained than maybe some of the coverage has indicated lately.”

The current fight over biofuels includes many more national security voices than previous congressional battles over alternative energy, including former military leaders who have firsthand experience grappling with the kind of budget tradeoffs necessary to pay for higher-than-expected fuel costs, Wu said. The green fleet’s fuel, while expensive, will come down in price once industry partners are able to establish economies of scale, and as an investment, it took up only 0.03 percent of the Navy’s budget, he added.

“The good news is that these fuels are becoming cost competitive incredibly quickly,” Wu said. “Advanced biofuels are getting cheaper more quickly than any other renewable source of power.”

Biofuel producers have said that the Pentagon’s planned purchases could help kick-start their industry by providing upfront investment and a long-term customer that will incentivize the building of larger refineries that can drive down costs through economies of scale.

“I think we need the jump start, but I think we can quickly get to a cost-effective price point,” said Riggs Eckelberry, CEO of OriginOil, which extracts gasoline from algae.

Eckelberry said that the Navy’s price tag for its the Great Green Fleet fuel contracts was not representative of biofuel’s already-declining cost because the Navy had chosen to buy a more expensive, high-quality fuel that has already been proven reliable. But OriginOil believes that it can sell biofuel at $2.28 per gallon, using existing technology, as long as it can leverage the economies of scale that would come with a 250-acre algae plantation.

Congress is right to push for lower prices, Eckelberry said, as long as there is a reasonable time frame for bringing costs down.

“[Congressional pressure] is good in its own way because it’s going to force the biofuel industry to stop making boutique fuels and start making mass biofuels that are cheaper,” Eckelberry said. Still, he added, “It’s unrealistic to say that it has to be done today, that’s just being obstructionist.”

While Navy leadership, including Navy Secretary Ray Mabus, has staunchly supported biofuels as a way to combat the military’s energy vulnerability, the demonstration also allowed sailors and pilots to experience the new fuel’s reliability for themselves.

Lt. Karen Smith, fuels officer for the guided-missile destroyer USS Chafee, said Thursday that the use of biofuels on Navy ships further enhances the overall readiness of the fleet by reducing the military’s dependence on foreign fossil fuels. The Chafee took on 250,000 gallons of the biofuel mix while participating in the Great Green Fleet demonstration.

“It gives the Navy a little bit more flexibility, and they know where it’s coming from,” Smith said. “Thinking about it economically, yes, it’s a little bit pricier on the front end, but everything new is. I think that, as time goes on, that cost will drive down. The added benefit of having that operational capability is a plus, and now it’s not left in foreign hands to decide what our fuel costs are.”

Published by Law360

by dietrichknauth

NASA Contractor’s Launch Kicks Off Commercial Space Race

By Dietrich Knauth

Law360, New York (May 22, 2012, 6:21 PM EDT) — NASA contractor Space Exploration Technologies Corp. launched the first commercial space flight to the International Space Station on Tuesday, a significant milestone in NASA’s quest to open up outer space to private companies.

SpaceX’s unmanned Dragon spacecraft, funded by a mix of private investment and NASA contracts, will deliver cargo to the International Space Station, and if successful, would position the company to begin a cargo delivery contract worth between $1.6 billion and $3.1 billion.

But both NASA and SpaceX have even bigger goals in mind for the project, which they view as an early step toward a future in which commercial space flights provided by private U.S. companies are almost routine and private innovation spurs greater access to space.

SpaceX CEO and Chief Designer Elon Musk compared the commercial entry into spaceflight to the growth of the Internet in the mid-1990s, when commercial companies entered what was originally a government endeavor, making the technology available for mass consumption.

“I think we’re at a similar inflection point for space,” Musk said. “I hope and I believe that this mission will be historic in marking that turning point toward a rapid advancement in space transportation technology.”

While it develops a replacement for the retired space shuttle, NASA has been funding SpaceX and other contractors to develop and build spacecraft capable of short-range space flights. Contractor-owned vehicles, including a variant of the SpaceX Dragon, will eventually transport astronauts as well, reducing U.S. reliance on Russia, which charges about $62 million to send an astronaut to the International Space Station, as well as smoothing the way for future commercial spaceflights.

John P. Holdren, assistant to the president for science and technology, said Tuesday that partnering with U.S. companies helps free up NASA resources to focus on more long-range goals, and Tuesday’s mission, if successful, may well kick-start a new era in American spaceflight.

“Partnering with U.S. companies such as SpaceX to provide cargo and eventually crew service to the International Space Station is a cornerstone of the president’s plan for maintaining America’s leadership in space,” Holdren said. “This expanded role for the private sector will free up more of NASA’s resources to do what NASA does best — tackle the most demanding technological challenges in space, including those of human space flight beyond low Earth orbit.”

Henry Hertzfeld, research professor of space policy and international affairs at George Washington University, praised the SpaceX team, while pointing out that its launch, which was built with funds from government contracts and designed for a specific government mission, was a natural progression from previous NASA efforts, like the space shuttle, which depended on NASA contractors Boeing Co. and Lockheed Martin Corp.

Space technology has matured through decades of previous launches, making it possible for NASA to switch to a more contractor-driven approach, tying contract funds to certain goals and checkpoints and giving contractors like SpaceX more responsibility and the flexibility to design with future commercial opportunities in mind.

“One of the things that’s different about the whole commercial program is that we try to stay out of the details of how the problems are solved,” said Sean O’Rourke, NASA’s lead visiting vehicle officer for SpaceX’s Dragon. “They have to weigh our requirements against what other markets they see out there, which would be great because if they can take this vehicle and make money in others ways then that could bring our costs down in the long run.”

Increased commercialization of outer space will also accelerate the evolution of space laws and regulations, according to space law experts. The U.S. and other space-capable nations will have to further develop laws on space safety standards and liability, develop a strategy to deal with increased space debris, and rethink current restrictions on the import and export of space technology.

“The commercial participation in space activities, more specifically space launch and manned spaceflight, is the most exciting and fundamental development in space over its last half century — and that applies to space law as well,” said Frans von der Dunk, professor of space law at University of Nebraska-Lincoln’s College of Law.

Space law is largely based on international treaties that date back to the 1960s and 1970s, when large-scale commercial space flight was not seriously expected, von der Dunk said. The laws around commercial space flights are evolving, and in 2004, the U.S. Commercial Space Launch Act was amended to include manned spaceflight, which would apply not only to future SpaceX launches of a manned-version of the Dragon cargo vehicle, but also to space tourism, the “next new kid on the block.”

“With Virgin Galactic planning to start flying space tourists later this year or early 2013, the 2004 amendments allowed for such companies to offer their services effectively disclaiming liability on the basis of ‘informed consent,'” von der Dunk said. “The issues, however, certainly gain in importance once we would be talking about private passenger services for public astronauts to the ISS — is NASA going to allow Space-X to fly on the basis of informed consent? Is it going to impose its own safety standards?”

Currently, the Federal Aviation Administration is in charge of safety standards for commercial spacecraft, an extension over its current oversight of commercial aircraft, while NASA handles safety standards for government missions and government personnel.

However, U.S. law prevents the FAA from implementing full-blown safety regulations until 2015 because lawmakers don’t want the FAA to stifle innovation by setting standards that give preference to one vehicle type, according to Matthew Kleiman, professor of space law at Boston University Law School.

“The FAA so far has a very hands-off approach to spacecraft,” Kleiman said. “Once it can become routine, like airline flights, and there’s a precedent for how these tourism rides work, it will make a lot more sense for the FAA to come in and regulate it.”

Despite the relaxed regulation, companies like Virgin and Space X have every incentive to put safety first.

“Nobody is looking at these companies like they’re cowboys. Even without strict regulation, they are taking every precaution,” Kleiman said. “They know that if they have an accident on one of their early flights, it’s game over for the whole industry.”

Still, the commercial spaceflight contracts have their detractors. In testimony to Congress, NASA Inspector General Paul K. Martin said that NASA still needs to develop clear safety and performance requirements and be more careful to avoid potential conflicts of interest. While NASA has awarded more than $300 million in contracts through its commercial crew development program, it still needs to finalize regulations, develop a procurement strategy and coordinate safety standards with the FAA.

And members of Congress like Rep. Brad Miller, D-N.C., have questioned whether the U.S. should make huge investments in a private space industry that will then have great leverage over the U.S. in negotiating transportation prices. The U.S. is prepared to spend $4 billion to $6 billion to develop commercial spacecraft, and the contractors might not charge much less than the $62 million per seat that the Russians are charging, he said in a November hearing.

“It sounds like it’s a lot more expensive than the deal we have now,” Miller said.

Despite current skepticism, early successes for Space X and other contractors will go a long way toward making investors and Congress more comfortable with the technology and give companies like Space X more credibility in performing these missions, according to Kleiman.

“If we’re actually going to have a space faring civilization that routinely goes to outer space, these companies need to be successful, it can’t be just the government,” he said.

Tuesday’s Space X launch was originally scheduled for Saturday, but Space X’s computers aborted the launch at the last minute, after discovering high pressure in one of the Dragon rocket’s nine engines. Space X said that the problem was caused by a failed valve that was quickly repaired.

“In some ways that [aborted launch] was a success even if they didn’t get off the ground,” Hertzfeld said, noting that the aborted launch demonstrated SpaceX’s effective safety controls and allowed the company to save their rockets for another flight.

Published by Law360

by dietrichknauth

NASA Contractor’s Launch Kicks Off Commercial Space Race

By Dietrich Knauth

Law360, New York (May 22, 2012, 6:21 PM EDT) — NASA contractor Space Exploration Technologies Corp. launched the first commercial space flight to the International Space Station on Tuesday, a significant milestone in NASA’s quest to open up outer space to private companies.

SpaceX’s unmanned Dragon spacecraft, funded by a mix of private investment and NASA contracts, will deliver cargo to the International Space Station, and if successful, would position the company to begin a cargo delivery contract worth between $1.6 billion and $3.1 billion.

But both NASA and SpaceX have even bigger goals in mind for the project, which they view as an early step toward a future in which commercial space flights provided by private U.S. companies are almost routine and private innovation spurs greater access to space.

SpaceX CEO and Chief Designer Elon Musk compared the commercial entry into spaceflight to the growth of the Internet in the mid-1990s, when commercial companies entered what was originally a government endeavor, making the technology available for mass consumption.

“I think we’re at a similar inflection point for space,” Musk said. “I hope and I believe that this mission will be historic in marking that turning point toward a rapid advancement in space transportation technology.”

While it develops a replacement for the retired space shuttle, NASA has been funding SpaceX and other contractors to develop and build spacecraft capable of short-range space flights. Contractor-owned vehicles, including a variant of the SpaceX Dragon, will eventually transport astronauts as well, reducing U.S. reliance on Russia, which charges about $62 million to send an astronaut to the International Space Station, as well as smoothing the way for future commercial spaceflights.

John P. Holdren, assistant to the president for science and technology, said Tuesday that partnering with U.S. companies helps free up NASA resources to focus on more long-range goals, and Tuesday’s mission, if successful, may well kick-start a new era in American spaceflight.

“Partnering with U.S. companies such as SpaceX to provide cargo and eventually crew service to the International Space Station is a cornerstone of the president’s plan for maintaining America’s leadership in space,” Holdren said. “This expanded role for the private sector will free up more of NASA’s resources to do what NASA does best — tackle the most demanding technological challenges in space, including those of human space flight beyond low Earth orbit.”

Henry Hertzfeld, research professor of space policy and international affairs at George Washington University, praised the SpaceX team, while pointing out that its launch, which was built with funds from government contracts and designed for a specific government mission, was a natural progression from previous NASA efforts, like the space shuttle, which depended on NASA contractors Boeing Co. and Lockheed Martin Corp.

Space technology has matured through decades of previous launches, making it possible for NASA to switch to a more contractor-driven approach, tying contract funds to certain goals and checkpoints and giving contractors like SpaceX more responsibility and the flexibility to design with future commercial opportunities in mind.

“One of the things that’s different about the whole commercial program is that we try to stay out of the details of how the problems are solved,” said Sean O’Rourke, NASA’s lead visiting vehicle officer for SpaceX’s Dragon. “They have to weigh our requirements against what other markets they see out there, which would be great because if they can take this vehicle and make money in others ways then that could bring our costs down in the long run.”

Increased commercialization of outer space will also accelerate the evolution of space laws and regulations, according to space law experts. The U.S. and other space-capable nations will have to further develop laws on space safety standards and liability, develop a strategy to deal with increased space debris, and rethink current restrictions on the import and export of space technology.

“The commercial participation in space activities, more specifically space launch and manned spaceflight, is the most exciting and fundamental development in space over its last half century — and that applies to space law as well,” said Frans von der Dunk, professor of space law at University of Nebraska-Lincoln’s College of Law.

Space law is largely based on international treaties that date back to the 1960s and 1970s, when large-scale commercial space flight was not seriously expected, von der Dunk said. The laws around commercial space flights are evolving, and in 2004, the U.S. Commercial Space Launch Act was amended to include manned spaceflight, which would apply not only to future SpaceX launches of a manned-version of the Dragon cargo vehicle, but also to space tourism, the “next new kid on the block.”

“With Virgin Galactic planning to start flying space tourists later this year or early 2013, the 2004 amendments allowed for such companies to offer their services effectively disclaiming liability on the basis of ‘informed consent,'” von der Dunk said. “The issues, however, certainly gain in importance once we would be talking about private passenger services for public astronauts to the ISS — is NASA going to allow Space-X to fly on the basis of informed consent? Is it going to impose its own safety standards?”

Currently, the Federal Aviation Administration is in charge of safety standards for commercial spacecraft, an extension over its current oversight of commercial aircraft, while NASA handles safety standards for government missions and government personnel.

However, U.S. law prevents the FAA from implementing full-blown safety regulations until 2015 because lawmakers don’t want the FAA to stifle innovation by setting standards that give preference to one vehicle type, according to Matthew Kleiman, professor of space law at Boston University Law School.

“The FAA so far has a very hands-off approach to spacecraft,” Kleiman said. “Once it can become routine, like airline flights, and there’s a precedent for how these tourism rides work, it will make a lot more sense for the FAA to come in and regulate it.”

Despite the relaxed regulation, companies like Virgin and Space X have every incentive to put safety first.

“Nobody is looking at these companies like they’re cowboys. Even without strict regulation, they are taking every precaution,” Kleiman said. “They know that if they have an accident on one of their early flights, it’s game over for the whole industry.”

Still, the commercial spaceflight contracts have their detractors. In testimony to Congress, NASA Inspector General Paul K. Martin said that NASA still needs to develop clear safety and performance requirements and be more careful to avoid potential conflicts of interest. While NASA has awarded more than $300 million in contracts through its commercial crew development program, it still needs to finalize regulations, develop a procurement strategy and coordinate safety standards with the FAA.

And members of Congress like Rep. Brad Miller, D-N.C., have questioned whether the U.S. should make huge investments in a private space industry that will then have great leverage over the U.S. in negotiating transportation prices. The U.S. is prepared to spend $4 billion to $6 billion to develop commercial spacecraft, and the contractors might not charge much less than the $62 million per seat that the Russians are charging, he said in a November hearing.

“It sounds like it’s a lot more expensive than the deal we have now,” Miller said.

Despite current skepticism, early successes for Space X and other contractors will go a long way toward making investors and Congress more comfortable with the technology and give companies like Space X more credibility in performing these missions, according to Kleiman.

“If we’re actually going to have a space faring civilization that routinely goes to outer space, these companies need to be successful, it can’t be just the government,” he said.

Tuesday’s Space X launch was originally scheduled for Saturday, but Space X’s computers aborted the launch at the last minute, after discovering high pressure in one of the Dragon rocket’s nine engines. Space X said that the problem was caused by a failed valve that was quickly repaired.

“In some ways that [aborted launch] was a success even if they didn’t get off the ground,” Hertzfeld said, noting that the aborted launch demonstrated SpaceX’s effective safety controls and allowed the company to save their rockets for another flight.

Read the original article on Law360 (subscription required).