Global Regulatory Enforcement Law Blog : Global Regulatory Enforcement Lawyers & Attorneys: Reed Smith Law Firm: Government Contracts & Compliance

This post was written by Cynthia O’Donoghue and Nick Tyler.

The UK data protection regulator, the Information Commissioner’s Office (ICO), announced today the imposition of monetary penalties against two organisations for serious breaches of the Data Protection Act. This is the first time the ICO has used its new enforcement powers since they came into effect in April this year.

The monetary penalties signal a step-change in the UK data protection regulator’s approach to enforcement and will see the heat turned up now for those that fall foul of the law through poor, negligent or non-existent personal information handling practices.

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This post was written by Christopher L. Rissetto and Robert Helland.

What can the House Oversight and Government Reform Committee investigate? Pretty much anything it wants. With Republicans taking over the majority in the House of Representatives, the incoming Chair of the House Oversight and Government Reform Committee, Representative Darrell Issa (R-CA-49), is set to move forward on an aggressive plan of oversight of the Executive Branch. This is of importance to interested companies affected by government regulation, but especially those affected by the implementation of the recently passed health care and financial reform statutes; our nation's food safety system; the economic stimulus; and efforts by the Environmental Protection Agency to address greenhouse gas regulation and related environmental issues – areas where Representative Issa and other Republicans have been most critical. The Public Policy & Infrastructure Practice expects to see a number of Committee hearings in these, and other areas, throughout the 112th Congress. We know that Committee and the expected targets in the White House and at federal agencies are all "lawyering up."

To view the full client alert click here.

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This post was written by Sarah R. Wolff.

In January 2010, the Securities and Exchange Commission ("SEC") announced a new cooperation initiative intended to encourage and incentivize individuals and companies to cooperate with and assist the SEC in its investigations and enforcement actions. That initiative, which was characterized as a “potential game-changer” for the SEC’s Enforcement Division by its new director, Robert Khuzami, gave the SEC a new set of tools for its “enforcement toolbox”, including cooperation agreements, deferred prosecution agreements and non-prosecution agreements. These options, while employed by the Department of Justice, were not previously available in SEC enforcement matters. In addition to outlining those tools in a revision to the SEC’s Enforcement Manual, the Commission provided a policy statement detailing the factors the SEC considers when evaluating cooperation by individuals and by companies.

The SEC evidenced its latest expression of interest in obtaining cooperation with its July 23, 2010 announcement that it had awarded a $1 M bounty to two whistleblowers for their substantial assistance in providing information and documents leading to the imposition and collection of civil penalties in the Commission’s May 2010 insider trading actions brought against Pequot Capital Management, Inc. and various individuals. The award was made pursuant to the Commission’s then-existing authority under the Securities Exchange Act of 1934 to award bounties to whistleblowers in insider trading cases. Significantly, in the twenty years since the SEC received its bounty authority, it had only awarded a total of $160,000 to five claimants. All of that appears to have changed with the adoption of the Dodd-Frank Act.

Among the many provisions of Dodd-Frank are specific provisions designed to significantly expand the SEC’s authority to reward whistleblowers for information beyond insider trading cases. The Act provides for the payment of potentially large awards as well as for the protection of employees who provide information to or assist the SEC relating to any violation of the securities laws. To be sure, in order to qualify for a whistleblower award, the information provided to the SEC by the whistleblower must be “original” information; in other words, the information must not previously have been known to the SEC. But if that information provides substantial assistance and leads to a successful enforcement action resulting in over $1,000,000 of monetary sanctions imposed on the wrongdoer, then the SEC has the discretion to award the whistleblower not less than 10 percent and not more than 30 percent of the monetary sanctions collected.

On November 3, the Commission published its proposed rules for implementing the whistleblower provisions of Dodd-Frank. Comments on the rules, which total over 180 pages, are due by December 17, 2010.

Have these developments changed the landscape for clients and their counsel in considering whether, and when, to self-report a potential FCPA or other securities law violation to the SEC or other regulators? Certainly the past five years have seen an uptick in enforcement activity in FCPA investigations and actions, and many of those investigations began with a self-report. The confluence of increased pressure to cooperate early in order to obtain full cooperation “credit” with Dodd-Frank’s whistleblower protections mandates that companies must even more carefully evaluate how they will conduct internal investigations at the first sign of possible wrongdoing. Does an e-mail or an anonymous tip of suggested wrongdoing automatically trigger a full blown investigation? How early companies must share their concerns, preliminary or otherwise, if not their findings, with the SEC and other regulators in order to get cooperation credit, becomes an even more critical decision under the new regulatory regime.

One obvious risk of holding back is that the SEC will receive information from a company employee who in years past might have gone to an in-house compliance officer to voice her concerns. Instead, she went directly to the SEC. Such conduct raises significant issues for companies that have installed significant compliance programs and which now must deal with risk management where the government’s financial incentives may undermine their efforts. In the end, every decision as to whether and when to self-report, and the nature and extent of an internal investigation, are fact-intensive, and there isn’t a one-size fits all prescription. It remains to be seen how the SEC will parse the “race” to disclose and cooperate, in terms of either rewarding an early disclosure or penalizing a company for failing to timely cooperate by, for example, imposing a more significant penalty and other remedies against a company in a subsequent enforcement action.

At a minimum, the dynamics have changed at the SEC and, when combined with Dodd-Frank, present new challenges in navigating the cooperation waters.
 

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This post was written by Edward S. Miller, Marjorie C. Holmes, Richard J. Waite, and Susan Riitala.

The UK Government recently announced proposals to merge the UK’s two main competition bodies, the Office of Fair Trading (OFT) and the Competition Commission, to create a single competition regulator. Currently the OFT, as well as being responsible for conducting antitrust and cartel investigations, also conducts initial merger reviews and market studies. The Competition Commission acts as a second phase review body, conducting more in-depth reviews of those mergers or markets referred to it by the OFT (or, in some case, concurrent regulators) that appear to give rise to more significant competition issues.

The move comes as part of the UK Coalition Government's plans to simplify the work of public bodies, with the creation of a single competition authority intended to streamline procedures and create a stronger enforcement authority. The new body would be responsible for all merger reviews, market investigations, and cartel and antitrust cases. A public consultation on the options for creating the new competition and markets authority is planned for 2011.

Some commentators have raised concerns that the merger would damage the objectivity and independence from political pressures offered by the current system. However, without having the detail of how the new body would operate, the risk of increased political interference in practice would seem relatively low and it is likely that measures could be put in place to protect objectivity in the two-stage review process, which it appears will be retained. Such issues will undoubtedly be addressed in next year’s public consultation process.

On the whole, the announcement is positive and should be welcomed. Frustrations with the existing system include that the Competition Commission begins investigations from scratch once the OFT has already been working on the same case. The proposal should not only cut down the overall timetable of investigations, but should also reduce the time spent by companies providing information to the different authorities when under scrutiny. In a statement issued by the OFT, Chief Executive John Fingleton confirmed that the OFT had advocated the merger for some time and highlighted its potential benefits, pointing to the ability to deliver “better, faster results for consumers and the economy, and greater consistency for businesses".

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 This post was written by Stephen P. Murphy.

I was fortunate to be invited as a guest commentator on The Washington Legal Foundation's video blog, Legally Brief, about the significance of the recent settlement of the Federal Trade Commission v. Intel Corp. administrative complaint. The complaint appears to presage a return of the FTC to active Section 5 enforcement, with challenges to conduct not now prohibited by the Sherman or Clayton Acts. FTC Chairman Jon Leibowitz (then Commissioner) urged this very development in his concurrence to the issuance of the Rambus complaint in 2006. The settlement for Intel is somewhat of an extension of its settlement last year with AMD (which included a payment of $1.25 billion), but it does go further to extend benefits to other competitors and to broaden the scope of Intel's forbearance from patent infringement cases.  View the full video here.

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This post was written by James P. Gallatin, Jr. and Lorraine M. Campos.

With more than 50 years of combined experience in Federal Supply Schedule (“FSS”) contracting, we have negotiated, administered, reviewed, investigated, litigated, and testified as experts about FSS contracts. Today’s FSS contracts can last up to 20 years. It’s difficult enough to look back over the prior 10 years of a contract life and try to determine what the parties meant and understood when it all began. But a 20-year lookback is a challenge of biblical proportions given the “virtually unintelligible” requirements of the Commercial Sales Practices (“CSP”) and Price Reductions Clause (“PRC”) provisions.

Having seen the same issues over and over, we realized that to practice in this area, one needs a set of moral imperatives, perhaps even a set of commandments, to guide them. And while we haven’t seen Moses, we have spent much more than 40 days and nights with GSA and VA Contracting Officers, Administrators, Auditors, and IGs. With that experience and a handy set of stone tools, we offer these commandments as a “moral foundation” for others venturing into the desert to contract by.

Thus, we present our Ten Commandments of FSS Contracting.
 

Disclose it all. Disclose it in narrative form. Disclose all of the company’s commercial pricing, including discounts, concessions and rebates. Disclose Black Friday, blue-light, end-of-year, buy-one-get-one, and just-because-it’s-Tuesday specials. We don’t care what the deal is called – just disclose it.

Explain how the company’s current commercial sales and pricing models work. This is especially true if the current models do not fit the solicitation requirements. Do not try to make the company’s pricing “fit” the CSP chart. Rather, draft your own CSP to paint an accurate portrayal of the company’s pricing practices. Remember, the CSP solicitation asks for a discount off of a price list. If your company’s pricing uses a gross margin build-up off of a factor of cost, then explain that and base your proposed pricing on that model.

Every exchange of data, in any form, including supporting data, should be contemporaneously and fully documented.

Keep copies of everything in Commandment III – Everything. Forever. Period.

An FSS contract requires contractors to negotiate a Customer of Comparability (“CoC”), also known as Tracking Customer or Basis of Award Customer. Generally speaking, “all commercial customers” is not a sound CoC. Keep in mind that while you are required to disclose all your commercial pricing, you are not required to provide the government with the best pricing you offer to any customer – just the best pricing offered to any comparable customer.

We have seen award letters that contain incomplete sentences, random extra punctuation, differences from page to page in the description, and contradictions in attached charts – in short, incomprehensible award letters. Read the award letter and all documents incorporated by reference out loud and ask someone unfamiliar with the negotiations to read the letter. If the letter doesn’t make sense to you, and especially to the other reader, clarify the ambiguities.

Things change – pricing, commercial sales practices, place of manufacturer, administrators, company headquarters can easily fluctuate. Nothing is worse than receiving a subpoena for not responding to three audit notices because they were sent to and sitting on the empty desk of the contract administrator who left the company seven years ago.

Assigning administration of the FSS contract to a salesperson as a penalty for not closing a deal (yes, we’ve seen that), to a finance person temporarily in between audits (been there), or to another distracted and temporary resource (uh huh), is certainly a tried-and-true formula for disaster.

The Trade Agreements Act (“TAA”) is applicable to all FSS contracts. In accordance with the TAA, only U.S.-made or designated country end-products shall be offered and sold under FSS contracts. Manufacturers change manufacturing locations regularly. So does the list of designated countries change, parts are added and removed from the FSS contract. For those reasons, someone in the company needs to understand not only these requirements, but also the sourcing of your company’s products under the FSS Contract to ensure TAA compliance.

There are special requirements for invoicing the government. Is there a negotiated discount if invoices are promptly paid by the government? Are open-market associated items offered as part of the FSS order? If so, you better notify the purchaser via your invoice.

And thus we impart our Ten Commandments of FSS contracting. Since we also want to impart our exhaustive knowledge of each of them, in the coming 10 weeks we will tackle each revelation in depth and provide guidance to live by (or at least to contract by). After all, at Reed Smith, we don’t just give you fish – we teach you how to fish.

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This post was written by Christopher L. Rissetto and Robert Helland.

The midterm elections are (finally) over. With the Republicans taking over the House of Representatives next year and the Democrats keeping control of the Senate, albeit by a smaller margin, the question is what, if anything, will get accomplished in the 112th Congress? Overall, the chance for passage of major legislative initiatives in areas such as energy or immigration are dramatically reduced. However, those elected to Congress, both Republican and Democrat, have promised to deal with the nation's struggling economy, including the too-high unemployment rate. Also, there are a number of legislative matters which must be addressed next year, including the passage of legislation funding the operations of the federal government as well as legislation needed to raise the national debt. All of this occurs while the White House takes steps to implement the recently-passed health care and financial reform laws and the Republicans in the House of Representatives use their new majority to watch those steps closely.

All of this means all lot of activity next year, which has a lot of potential for progress, or mischief, depending on your point of view. Here are some things we expect to see in the 112th Congress:

1. The Obama Administration is moving forward with implementing the health care and financial regulatory reform laws. Despite the greater number of Republicans in Congress, repeal of either law is unlikely.
2. However, expect greater oversight and a slew of subpoenas headed to the White House.
3. "Follow the money". We expect must-pass spending bills to be a battleground over implementation of health care and financial reform.
4. Job creation; Tax credits; and Deficit reduction meets the debt limit.

Tell us in the comments what you expect out of the next Congress … and whether gridlock will prevent anything from getting done. 

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I bet you think pretty highly of yourself. I know I do … come on, I’m a lawyer! (Please insert stereotypical lawyer joke here – put a good one in the comments if you dare). From time to time, I’m “gently” reminded that not all of my accomplishments are oh-so noteworthy. As my brother used to say after I would regale him with some of my more humdrum endeavors: “what do you want, a cookie?” It looks like I’m not the one in search of a cookie.

As the great state of Wisconsin bids farewell to Russ Feingold, the rest of us begin to say goodbye to the legislation he is most known for.

When I think of auditors, the first thing I think of (after the Grim Reaper) is efficiency. So why then is the Defense Contract Audit Agency amending its procedures in a way that “could expose the government to massive overcharges by prime contractors?”

Interested in potentially saving millions of dollars? Yep, I thought so. Now lets play: Follow the Blogosphere Link Machine. This post is my reference to the FCPA Blog’s reference to an article written by Andrew Weissmann and Alixandra Smith discussing the potential for substantive FCPA revision.

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This post was written by Joelle E.K. Laszlo.

“Efficiency” and “transparency” are on the lips of many government regulatory types these days. Along these lines, the FAR Council has proposed a process for determining whether the President may waive in a particular circumstance the standing prohibition in FAR section 25.702 on doing business with entities that conduct certain types of business in Sudan. That section prohibits Federal contracting with entities that engage in “restricted business operations” as defined in the Sudan Accountability and Divestment Act of 2007, including activities related to power production, mineral extraction, oil, and the production of military equipment. While the section permits the President to waive the prohibition on a case-by-case basis, the FAR contains no criteria to govern the section 25.702 waiver process. The FAR Council’s recently-proposed amendments aim to change this situation, by establishing greater consistency in the process.

To bring about this consistency, the amendments would make two specific changes: first, they would establish the particular information an agency must provide when requesting a section 25.702 waiver; second, they would institute a formal process for reviewing agency waiver requests. In addition to requiring pieces of data one would expect (i.e., the agency’s and contracting entity’s names, complete addresses, and points of contact), the proposed amendments would require an agency seeking a waiver to provide market research-supported justification for contracting with the proposed entity, assurances that is it “in the national interest” to grant the waiver, and details on “humanitarian efforts engaged in by the [entity], the human rights impact of doing business with the [entity] for which the waiver is requested, and the extent of the [entity’s] business operations in Sudan,” including its relationship to other entitles that conduct prohibited business operations in the country. Under the proposed amendments, after being reviewed and cleared by the head of the requesting agency, these details would be forwarded to the Administrator of the Office of Federal Procurement Policy, which would consult with the President’s National Security Council, Office of African Affairs, and the Department of State Sudan Office and Sanctions Office, in reviewing the waiver request.

The Sudan Accountability and Divestment Act of 2007 is one of a composite of regulations and statutes addressing the activities of U.S. persons and business in Sudan and/or with Sudanese nationals. Importantly, the “restricted business operations” designated in the Act, and the actions prohibited under the Sudanese Sanctions Regulations, at 31 C.F.R. Part 538, will remain just as restricted and prohibited as they currently are, even if the proposed FAR amendments are adopted as drafted. Parties interested in commenting on the proposed FAR amendments may do so until December 6.

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This post was written by Joelle E. K. Laszlo.

Inflation is good for some things, including increasing the acquisition-related thresholds in the Federal Acquisition Regulation (“FAR”). Inflation-pegged adjustments to the FAR thresholds were initiated by the Ronald W. Reagan National Defense Authorization Act of 2005, and are required every five years thereafter. The most recent adjustments, which took effect on October 1st, increase a number of thresholds, including the following “heavily used” figures:

• The simplified acquisition threshold, which sets the bar below which the simplified acquisition procedures in FAR Part 13 may be used, is now $150,000.
• The ceiling for the commercial items test program (described in FAR Subpart 13.5), under which simplified acquisition procedures may be used if a contracting officer reasonably expects offers to include only commercial items, is now $6.5 million.
• The cost or pricing data threshold is now $700,000, meaning that a contracting officer must obtain cost or pricing data before awarding any negotiated contract or subcontract, or modifying a contract, unless one of the exceptions in FAR § 15.403-1(b) applies.
• The prime contractor subcontracting plan floor described in FAR § 19.702 is now $650,000, meaning that the bidder in a sealed-bid acquisition selected for award of a contract (or contract modification) expected to exceed this amount must submit a subcontracting plan to the contracting officer within a specified time, or risk being found ineligible for the award.
• The threshold in FAR § 19.702 applicable to construction contracts is now $1.5 million.

The micro-purchase threshold, which sets the bar at and below which commercial purchase cards and other less restrictive procedures described in FAR Subpart 13.3 may be used, remains unchanged at $3,000. Also unchanged is the requirement under FAR Part 5 that notice of contract actions above $25,000 must be posted on FedBizOpps.gov.

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