On the brink of protectionism? Germany tightens rules on foreign investment controls to block unwanted takeovers

On 12 July 2017, the German government adopted new provisions amending the German Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung “AWV”).

By implementing the new rules, Germany is trying to stop losing know-how to foreign countries by blocking unwanted takeovers by non-European companies. The amendments are regarded as a response to the takeover of German robotics manufacturer Kuka last year by a Chinese company, which could not be prohibited by the German government although know-how concerning key technologies was affected.

In particular, the amendments will allow the government to block takeovers of domestic companies by foreign investors if this could endanger critical infrastructure. In addition, the period for review of potential acquisitions by the German Ministry for Economic Affairs and Energy (“the Ministry”), as the competent authority dealing with foreign investment controls, was extended. Ultimately, rules to prevent the circumvention of relevant laws have been tightened.

Foreign investment controls in Germany come in the form of either ‘sector-specific reviews’ or ‘cross-sector reviews’. Continue Reading

What a New ‘Space Corps’ Military Branch Could Mean for Government Contractors

The House and Senate Armed Services Committees recently completed their respective markups of the 2018 National Defense Authorization Act (NDAA). The House version requires the Pentagon to establish the “U.S. Space Corps” – the first new military branch in 70 years – by January 1, 2019. The proposed Space Corps would fall under the secretary of the U.S. Air Force, but would have a separate and equal member of the Joint Chiefs of Staff, similar to how the Marine Corps is organized under the Department of the Navy.

Supporters of the bill argue that a military branch devoted to space is a necessary response to the United States’ heavy dependence upon satellites for military operations and intelligence. The tracking and defense of U.S. satellites and assets in space is critical, as countries like China and Russia have become increasingly competitive in their space capabilities.

Continue Reading

GAO Makes Rare Finding of Error in Past Performance Evaluation, and Underscores Incumbents Are Not Automatically Entitled to Highest Technical Rating

The GAO recently sustained a protest challenging the U.S. Coast Guard’s evaluation of past performance in a task order competition to obtain information technology support services under a multiple-award IDIQ enterprise acquisition gateway for leading edge solutions (EAGLE II) contract. Despite being decided in April, the decision was released recently to the public. SITEC Consulting, LLC, B-413526.4-.7 (April 3, 2017).

The RFQ advised offerors that the government would evaluate “relevant past performance.” The RFQ defined “relevant” as “similar to the IT services in the PWS and similar in nature, scope, size and complexity to the required services.” The RFQ provided an evaluation scheme for past performance that included the following adjectival ratings: “little confidence,” “neutral,” “confidence,” and “significant confidence.” The agency assigned a “confidence” rating to all four offerors’ past performance. Following a tradeoff analysis, the agency awarded the contract to Computer World Services Corporation (CWS).

Continue Reading

Your Contract Requires You To Be Named as an Additional Insured: Are You?

Last week, New York joined the ranks of several states that may limit a government contractor’s access to insurance coverage despite being added, as set forth in the contract, as an “additional insured” under a prime or subcontractor’s insurance policy. Generally, it is within the purview of a government contractor to add its prime or subcontractors, or a particular government agency, to its insurance policy as additional insureds, to cover injury resulting from contract performance. In last week’s ruling, New York’s highest court limited the practical effect of such coverage. Although contractors may be added as additional insureds to cover injury sustained during contract performance, insurance companies may restrict coverage to the additional insured for its acts or omissions, unless the primary policyholders are also found to be negligent for the injury. See Burlington Ins. Co. v. NYC Transit Auth., No. 57, 2017 WL 2427300 (N.Y. June 6, 2017).

In Burlington, a government contractor, Breaking Solutions, Inc. (“BSI”), contracted with the NYC Transit Authority to provide tunnel excavation work on a subway project in New York City. As required by its government contract, BSI added the NYC Transit Authority and MTA New York City Transit as additional insureds to its commercial general liability (“CGL”) insurance. After a BSI employee was injured on-site, he sought damages from BSI and the NYC Transit Authority. The NYC Transit Authority attempted to exercise its right to coverage as an additional insured under BSI’s insurance policy. The New York Court of Appeals, however, denied the extension of coverage to the NYC Transit Authority under BSI policy on the grounds that the acts and omissions of NYC Transit Authority, not BSI, caused the injury. Consequently, the insurer denied coverage on the grounds that coverage only extended to additional insureds when the primary policyholder was also found to be negligent. In particular, the court considered language in BSI’s policy, adopted from the standard form language drafted by the Insurance Services Office (“ISO”), which limited coverage for additional insured injury “caused, in whole or in part by: 1. [the primary policyholder’s] acts or omissions; or 2. The acts or omissions of those acting on [the primary policyholder’s] behalf.” The court interpreted this language to limit coverage for additional insureds to incidents proximately (legally) caused in whole or in part, by the primary policyholder’s acts or omissions. The court also rejected arguments that a mere causal link between the actions of the primary policyholder and the injury (“but for” causation) was sufficient for coverage to attach. Instead, relying on the language in the policy, the court explained that the parties could have negotiated language that would have allocated risk between the primary policyholder and additional insured parties, but as written, it did not allow coverage if the primary policyholder was not also legally negligent for the injury.

Continue Reading

What VA Contractors Can Expect from Proposed Amendments to VA Acquisition Regulations

In efforts to bring the VA Acquisition Regulation (VAAR) “in line” with Federal Acquisition Regulation (FAR), the US Department of Veterans Affairs (“VA”) has proposed amendments to its acquisition regulation.  The VA proposes to eliminate any procedural guidance from the VAAR that is internal to the VA, to incorporate new regulations and policies, and to revise or remove any policy that has been superseded by changes in the FAR.

The Agency’s proposed rule and procurement reform should be of particular interest for federal health care contractors providing supplies and/or services to the VA, such as health care products, medical devices, pharmaceuticals, or nursing home care services.  The proposed changes may require modifications to contractors’ internal procurement policies and practices when doing business with the VA.  For example, the VA proposes clarifications to the calculation of overtime wages for contractors providing nursing home care to veterans.  Other suggested changes include a prohibition from making reference to VA contracts in commercial advertising, updating policies on improper business practices and personal conflicts of interest, and revamping sealed bidding procedures.

Federal health care contractors impacted by the proposed changes should submit public comments on the proposed rule on or before July 17, 2017 for the Agency’s consideration in formulating the final rule.  To learn more about the proposed amendments to VAAR, click here.

The European Commission Publishes Final Report on E-commerce Inquiry – What it Means for Brand Owners

On 10 May 2017, the European Commission published its final report on its two-year e-commerce sector inquiry (the Final Report).  Many of the conclusions in the Final Report closely follow the Commission’s preliminary report, which were analysed and summarised in our last client alert on the e-commerce inquiry, and were also featured in our webinar on the subject last April.

The Final Report reviews the use of territorial restrictions, geoblocking, restrictions on resellers’ use of online marketplaces, Google AdWords and price comparison sites, provides some warnings on resale price maintenance and some analysis of the current regime of licensing of rights to digital platforms like Netflix and Spotify.  The Commission continues to slowly chip away at e-commerce constrictions across the EU, in its ongoing desire to perfect and liberalise the European internal market.  To learn about the key takeaways from the report, click here.

On-Time Bid Proposals—Not a Second Too Late

Submitting your company’s bid proposal close to the deadline can be risky and have grave consequences. The government has repeatedly rejected proposals submitted before, but received after, the deadline because of technical glitches.  In submitting a proposal for a government contract, the onus is on the contractor to ensure that its proposal is received prior to the exact time specified for receipt of proposals.  The deadlines set forth in the solicitation are strictly enforced unless: the agency receives the proposal before the contract is awarded, the contracting officer determines that accepting the late proposal would not unduly delay the acquisition, and: (i) the proposal was submitted electronically and received at “the initial point of entry to the Government infrastructure not later not later than 5:00 p.m. one working day prior to the date specified for the receipt of proposals,” (ii) the proposal was “received at the Government installation” and was “under the Government’s control” before the solicitation deadline, or (iii) it was the only proposal that the Government received.  FAR 15.208(b)(1)(i)-(iii).  This applies not only to defense and IT contractors, but also to health care companies competing for government contracts. See FAR 15.208(b)(1) (“Any proposal, modification, or revision, that is received at the designated Government office after the exact time specified for receipt of proposals is ‘late” and will not be considered.”); see also FAR 52.212-1(f)(2) (“offer, modification, revision, or withdrawal of an offer received at the Government’s office designated in the solicitation after the exact time specified for receipt of offers is ‘late’ and will not be considered” ). Continue Reading

Online sales restrictions continue to be top enforcement priority in EU

The European Commission recently published its long-awaited final report on its E-commerce Sector Inquiry launched two years ago. Therein, the Commission identifies that pricing limitations, dual pricing (i.e., charging different prices according to the channel through which a product is sold) and platform bans are among the most widespread vertical competition restraints in e-commerce implemented particularly often in distribution agreements between manufacturers and retailers in Germany. The report contains some helpful guidance on the competition assessment of the individual online sales restrictions. It comes as a warning, when the Commission indicates in the report that it intends to conduct a targeted enforcement in the e-commerce sector in the near future aimed at those business practices with the greatest potential to harm competition…read more.

Facebook Is Fined US$122 Million by European Commission for Misleading Information in WhatsApp Merger Review

Facebook is faced with a fine of EUR110 million (US$122 million) for providing misrepresentative or incorrect information to the European Commission when it filed the acquisition of WhatsApp for merger approval in 2014.

In the notification, Facebook stated it would not be able to reliably link Facebook users’ accounts and WhatsApp users’ accounts. However, two years later, Facebook updated its terms of service, which then allowed for a matching of Facebook and WhatsApp user accounts. According to the Commission’s ensuing investigation, Facebook had the ability to link users at the time of the WhatsApp acquisition, when Facebook filed the WhatsApp acquisition for merger approval.

Implications: A Warning Shot for Business

The Commission sees this as a warning shot, says Margrethe Vestager, the EU’s competition commissioner: “Today’s decision sends a clear signal to companies that they must comply with all aspects of EU merger rules, including the obligation to provide correct information.” On her Twitter account, she posted: “We need accurate #facts to do our job.”

Yesterday’s decision will not affect the merger clearance approving Facebook’s acquisition of WhatsApp. Although the Commission has the power to withdraw the clearance if it is based on incorrect or misleading information, the clearance in this case was based on facts beyond the automated matching capability, and even analyzed the effects of such an automated matching. The Commission therefore decided not to withdraw the clearance of the transaction.

Risk of Major Fines Even for Procedural Violations: 1% of Global Turnover

The Commission over recent years has repeatedly fined companies for violation for procedural requirements, but yesterday’s decision is the first fine for providing incorrect or misleading information. Under the current guidelines, the Commission can fine companies up to 1 percent of their global annual turnover for violation of procedural requirements, while violations of substantive EU competition law can be fined of up to 10 percent of global annual turnover. Based on 2016 data, the Commission could have imposed a fine on Facebook of up to EUR248 million (US$276 million) for the procedural violation.

Earlier, the Commission had fined Germany’s E.On EUR38 million (US$42.2 million) and France’s Suez Environnement EUR8 million (US$8.9 million) for breaching seals during inspections, as well as Belgium’s Electrabel and Norway’s Marine Harvest each EUR20 million (US$22.2 million) for gun-jumping in acquisitions. A Czech energy company had been fined EUR2.5 million (US$3.3 million) for obstruction during an inspection by not blocking email accounts of employees, and failure to disclose complete information.

WhatsApp Acquisition Raises Antitrust Jurisdictional Debate

Facebook’s WhatsApp acquisition had sparked a debate on whether the current turnover-based jurisdictional test in European merger control was suitable to deal with acquisitions in the digital economy. The US$19 billion acquisition was initially not reportable to the European Commission, as WhatsApp in 2013 generated only US$10 million in annual turnover. However, the transaction triggered market-share-based tests in various EU Member States, and was referred to the Commission upon application of Facebook. There are now discussions of introducing a transaction value-based system, and Germany has just updated its merger control rules to capture transactions valued at EUR400 million or more, even where the target company has only minimal turnover.

Similarly, the transaction has shown a spotlight on whether seemingly free platforms to end users are subject to the antitrust rules, as end users do not pay for the platform’s services in money. However, competition authorities in Europe have clearly stated that they see these interactions as business transactions in which users pay for the platform’s services via their personal data. Germany has, for example, very recently amended its Competition Act to clarify that markets that are subject to antitrust review will not require a payment in money. In addition, the amendment sets the parameters according to which market power in digital markets is measured.

Yesterday’s decision will not affect ongoing national antitrust procedures (such as in Germany), or privacy, data protection, or consumer protection issues, which may arise following the August 2016 update of WhatsApp terms of service and privacy policy.

Non-Federal Entities Receive Extra Year to Comply with Overhauled OMB Procurement Standards for Federal Assistance Agreements

Non-federal entities that receive federal assistance—such as colleges and universities, hospitals, nonprofits, and state, local and tribal governments—have been given an additional year to comply with the Office of Management and Budget’s (OMB) revised procurement standards for grants and federal funding.

In December 2013, OMB overhauled its guidelines for the oversight and administration of federal grants and other federal financial assistance. The sweeping changes included revisions to procurement standards codified at 2 CFR §§ 200.317-200.326.  OMB originally gave non-federal entities until December 25, 2016, to implement changes to their procurement policies and procedures to comply with the OMB revised guidance.  On May 17, OMB announced that it would allow non-federal entities a grace period of one additional year, to December 25, 2017, to implement such changes, and the implementation date for the procurement standards will start for fiscal years beginning on or after December 26, 2017.

The OMB procurement standards require non-federal entities to establish procurement procedures that are consistent with federal law, OMB standards, and any state regulations. The non-federal entities’ procurement procedures must be formally documented and must address a number of critical procurement issues, including, but not limited to:

  • Written standards of conduct covering organizational and personal conflicts of interest and contractor integrity
  • Emphasis on economical and efficient solutions during the procurement process, and the inclusion of a cost or price analysis in connection with every procurement action to determine the most economical approach
  • Promotion of full and open competition
  • Measures to assure that minority businesses, women’s business enterprises, and labor surplus area firms are used when possible

Federal grant recipients should continue to review the OMB procurement standards under 2 CFR §§ 200.317-200.326 and should formally document their revised internal procurement policies in order to bring the entity into compliance with OMB standards before the December 25, 2017, deadline.

LexBlog