President Trump Issues Executive Order Expanding North Korea Sanctions

President Trump issued a new executive order (the EO) on September 21st that greatly expands the U.S. sanctions against North Korea, particularly secondary sanctions. Secondary sanctions apply to non-U.S. individuals and corporations and are imposed by the U.S. Secretary of the Treasury, in consultation with the U.S. Secretary of State. The EO establishes the following:

  • Broad new criteria for designating non-U.S. persons for sanctions, including blocking their assets in the United States
  • A “180 Day Rule” under which vessels and aircraft are barred from entering the U.S. for a period of 180 days after any port call or landing in North Korea
  • Authority for the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) to block any funds transiting accounts linked to North Korea that come within the U.S. or possession of a U.S. Person
  • Authority for OFAC to impose sanctions on foreign financial institutions that knowingly conducted or facilitated, on or after the date of the EO: (i) any significant transaction on behalf of certain blocked persons; or (ii) any significant transaction in connection with trade with North Korea

To read more about the EO, click here.

Department of Labor Announces Increase to Minimum Wage for Government Contractors

Effective January 1, 2018, the minimum wage for federal contractors working on or in connection with contracts covered by Executive Order 13658 will increase to $10.35 per hour. The current minimum wage under Executive Order 13658 is $10.20 per hour. The Wage and Hour Division of the U.S. Department of Labor posted notice of the increased wage requirement in the Federal Register on September 15, 2017. See 82 Fed. Reg. 43408.

Contracts awarded on or after January 1, 2015, are subject to an increased minimum wage under the Executive Order. Contracts entered into prior to January 1, 2015, also generally will be subject to the Executive Order if, through bilateral negotiation, on or after January 1, 2015, the contract is renewed, extended, or amended pursuant to a modification that is outside the scope of the contract.

The minimum wage requirement of the Executive Order generally does not apply to federal grants, contracts with Indian Tribes, contracts for services that are exempted from coverage under the Service Contract Act, and construction contracts that are excluded from coverage under the Davis-Bacon Act. The Executive Order also excludes certain workers from entitlement to the minimum wage rate. For example, FLSA-covered workers who perform support work “in connection with a contract” for less than 20 percent of their hours in a workweek are not entitled to the increased minimum wage.

Federal contractors working on or in connection with contracts covered by the Executive Order should prepare to implement the increased wage rate in 2018, and should notify their workers of the applicable rate. Pursuant to 29 CFR 10.29, contractors are required to notify all workers performing on or in connection with a covered contract of the applicable minimum wage rate. A sample poster that contractors can display in a prominent or accessible place at the worksite is published at 82 Fed. Reg. 43412, Appendix B.

UK Investment Consultants and Fiduciary Management Services Under Investigation

The UK competition regulator, the Competition and Markets Authority (CMA), will be conducting in-depth investigations of investment consultancy and fiduciary management services after the Financial Conduct Authority (FCA) initiated an investigation.  The CMA has a wide range of powers enabling them to investigate and impose remedies.  Industry participants should expect requests from the CMA to provide evidence and produce documentation. For those seeking a positive outcome, it is pertinent to begin compiling persuasive submissions and evidence.  To learn more, click here.

Blockchain-Related Companies Facing Increased Scrutiny from the SEC

Digital tokens, which used to be considered an unregulated “wild west”, are now facing Federal and State regulations. Over two weeks, the SEC suspended trading in company securities of three publicly-traded blockchain-related businesses.  The SEC followed up the suspensions with releasing an Investor Alert advising investors to be cautious of companies that have been subject to a trading suspension.  Companies that intend to issue digital tokens through an ICO need to be vigilant in ensuring that their offerings are clearly outside the scope of or fully compliant with the securities laws and regulations. To learn more click here.

Proposed Internet of Things Cybersecurity Bill May Create Hurdles for Government Contractors

The federal government dramatically has increased its spending in recent years on Internet of Things (“IoT”) devices, including biosensors that can gather medical and security data from soldiers and vehicles in the field; smart-building applications that reduce energy (such as desks that automatically power on when an employee scans his or her identification badge upon entering the building); and myriad other devices.  Despite its rapid increase in procurement of IoT devices, the government has yet to adequately address critical issues, including risk and uncertainty about privacy and security of the devices.

In response, a bipartisan group of U.S. senators recently introduced the “Internet of Things (IoT) Cybersecurity Improvement Act of 2017” to improve the cybersecurity of internet-connected devices.  The bill seeks to impose minimum security requirements on devices purchased by the U.S. government and has widespread industry support.  Although the bill does not apply to consumer devices, industry experts anticipate the proposed legislation is a stepping stone to broader regulation of security and privacy in all IoT devices.

In co-introducing the legislation, Sen. Cory Gardner (R-Colo.) underscored the necessity for strengthening cybersecurity defenses with regard to the government’s purchase of IoT devices, stating: “As these devices continue to transform our society and add countless new entry points into our networks, we need to make sure they are secure from malicious cyber-attacks.  This bipartisan, commonsense legislation will ensure the federal government leads by example and purchases devices that meet basic requirements to prevent hackers from penetrating our government systems without halting the life-changing innovations that continue to develop in the IoT space.”

The bill will require agencies to include certain contract clauses in any contract for the acquisition of internet-connected devices.  The proposed contract clauses impose a number of new responsibilities on contractors providing the U.S. government with IoT devices.  For example, vendors will be required to ensure that their devices are patchable, do not include hard-coded passwords that can’t be changed, and are free of known security vulnerabilities, among other precautions.  The bill also indicates contractors will be required to comply with certain “cybersecurity coordinated disclosure requirements” and policies pursuant to agency guidelines to be prepared by the Department of Homeland Security National Protection and Programs Directorate.   

Government contractors who manufacture and/or supply IoT devices to the federal government should monitor the proposed legislation, as its passage will result in new procurement requirements and will impose new and potentially burdensome obligations on contractors.  The bill also may result in increased market competition among manufacturers on the security of their products.  Critically, contractors also should be aware that the bill broadly defines “internet-connected device” as “a physical object that (a) is capable of connecting to and is in regular connection with the Internet; and (b) has computer processing capabilities that can collect, send, or receive data.”  Such an expansive definition will subject a wide range of suppliers and manufacturers to the terms of the legislation, particularly when not only end products but also their components are considered.   

The bill has yet to be scheduled for markup or debate.  Reed Smith will continue to monitor this developing legislation.     

Senate’s Bid Protest Reforms a Step Backwards for Transparency

On July 10, 2017, the U.S. Senate placed the FY 2018 National Defense Authorization Act on its Legislative Calendar. This action means the historically must-pass legislation is now ready for amendment and debate. Just as it did last year, the Senate Armed Services Committee (“SASC”) has included two provisions focused on bid protest reform.  Given the absence of these bid protest reform provisions from the House version of the bill, and the SASC press release and summary touting the Senate bill’s strengths, these provisions are unlikely to make it through to the final version of the bill.  Nonetheless, larger government contractors should take heed of the inclusion of the proposed bid protest provisions, consider appropriately lodging their disagreement with the provisions, and work to ensure they are not included in future legislation – House or Senate.

These provisions would penalize contractors that file unsuccessful bid protests in DoD procurements. First, section 821 would require any defense contractor with revenues of greater than $100 million over the past year, which loses a protest, to pay the government’s costs of processing that protest.  Second, the proposed Senate bill would require incumbent DoD contractors that file protests to have their payments above incurred costs withheld on any bridge or temporary contracts issued, if their protest resulted in the delay requiring a bridge or temporary contract.  Such DoD contractors could then receive the withheld funding if the solicitation is cancelled by the agency or if the GAO upholds the incumbent’s protest.

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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.

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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).

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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.

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