Modernizing Government Technology Act Passes House, Moves to Senate

The revised Modernizing Government Technology Act (HR 2227) passed the House by voice vote May 17. Identical legislation already has been introduced in the Senate by Sens. Gerry Moran (R-Kan.) and Tom Udall (D-N.M.), and with strong bipartisan and industry support, the bill is expected to advance to the president in upcoming weeks.

As Reed Smith recently advised, the legislation aims to modernize federal IT infrastructure and to reduce wasteful government spending on the maintenance of existing “legacy” IT systems. The MGT Act stresses the importance of modernized information technology solutions, such as cloud computing. The heart of the legislation is the creation of two funding sources to support agency modernization efforts: working capital funds and a centralized technology modernization fund.

Agencies will be able to tailor the IT solutions to their particular needs. Contractors can anticipate an uptick in RFIs and RFPs related to this modernization effort upon passage of the MGT Act. Reed Smith will continue to monitor the legislation and provide periodic updates. To learn more about the MGT Act, click here.

DOD Audits Identify Evaluation Errors, Shows Need For Proactive Contractor Diligence

On May 9, the Department of Defense Inspector General (“DoD IG”) released Audit Report No. DODIG-2017-081, Summary of Audits on Assessing Contractor Performance: Additional Guidance and System Enhancements Needed (the “Audit Report”). The audit identified weaknesses within the DoD’s contracting officials’ preparation of contractor Performance Assessment Reports (“PARs”) and potential improvements to the Contractor Performance Assessment Reporting System (“CPARS”).

Because of insufficient training, lack of internal controls, and ineffective procedures for timeliness and PAR review, DoD contracting officials sometimes failed to: (i) write sufficient narratives to defend past performance ratings; (ii) properly rate past performance evaluation factors; and (iii) prepare sufficient contract effort descriptions.

The audit highlights that contractors must be proactive in their efforts to ensure the accuracy of PARs; a contractor’s reputation with agencies is vital to any contractor’s success. To guarantee the right to appeal an inaccurate PAR, the contractor must file a claim with the contracting officer in accordance with the Contract Disputes Act. Without that claim, and the contracting officer’s ultimate denial of that claim, the Board of Contracts Appeal or the U.S. Court of Federal Claims will have no jurisdiction over the challenge.

The Audit Report is a strong reminder that contractors, and their counsel, must be conscious about how executive agencies evaluate contractors’ performance. To read more click here.

DOJ Casts Shade on Proposed Chicago Sun-Times Newspaper Sale

The Department of Justice Antitrust Division (DOJ) announced May 15 that it is investigating the proposed acquisition of the Chicago Sun-Times newspaper by the owner of rival publication the Chicago Tribune. As a condition of proceeding with the sale, the DOJ has required that the Chicago Sun-Times advertise for an alternative buyer. The investigation demonstrates the Antitrust Division’s willingness to scrutinize the acquisition of market power even within depressed industries.

In disclosing the Chicago Sun-Times investigation, the DOJ stated that the Chicago Sun-Times must run an advertisement seeking additional bidders and allow for a 15-day waiting period. If another viable buyer steps forward, a “reasonable opportunity” will exist for the buyer to conduct due diligence and negotiate purchase terms. A press release from the current owners of the Chicago Sun-Times, Wrapports, LLC, announced the proposed sale to tronc, Inc., which operates the Chicago Tribune, and acknowledged the DOJ’s conditions. If an alternative buyer fails to surface, tronc will run the Chicago Sun-Times as a separate unit with an independent newsroom.

The DOJ is responsible for evaluating the competitive effects of newspaper acquisitions pursuant to a 2002 memorandum of agreement with the Federal Trade Commission. In 2016, the DOJ successfully sued to block the owners of the Los Angeles Times from acquiring two bankrupt California newspapers. In response to criticism of the DOJ’s decision to sue in light of internet-based competition, then-Assistant Attorney General Bill Baer predicted that the enforcement action would “ensure that citizens and advertisers . . . continue to benefit from competition and from a diversity of views in their local news coverage.” The Chicago Sun-Times investigation is a clear reminder that the DOJ remains ready and willing to enforce merger policy guidelines, despite the widespread layoffs and sustained decreases in subscriber counts that have plagued many regional and local publishers in the industry.

With Unanimous Support, the Revised MGT Act Quickly Clears the House Oversight Committee

The House Oversight and Government Reform Committee recently passed the revised “Modernizing Government Technology Act,” and the bill will proceed to the House floor for a vote.  The legislation aims to modernize federal IT infrastructure and to reduce wasteful government spending on the maintenance of existing “legacy” IT systems.  The bill has bipartisan, bicameral and widespread industry support, as well as support from the White House.

 The MGT Act stresses the importance of modernized information technology solutions, such as cloud computing. According to the bill, modernized solutions offer efficiencies, cost savings, and greater computing power to agencies.  The heart of the legislation is the creation of two funding sources to support agency modernization efforts: working capital funds and a centralized technology modernization fund.

 Agencies will be able to tailor the IT solutions to their particular needs. Contractors can anticipate an uptick in RFIs and RFPs related to this modernization effort upon passage of the MGT Act.  Reed Smith will continue to monitor the legislation and provide periodic updates.  To learn more about the MGT Act click here

 

Germany updates competition rules to deal with digital markets

The “Digital Strategy 2025”, adopted by the German Federal Government on March 1, 2016, aims to ensure that Germany remains a growing, modern and significant financial marketplace in an increasingly digitalized environment. Measures proposed under the Digital Strategy 2025 include the further development of Germany’s regulatory landscape, in particular in the areas of competition and consumer rights.

On March 20, 2017, the German Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie) published the White Paper ‘Digital Platforms‘. The white paper stresses the need to further develop competition and antitrust policy in Germany to facilitate a level playing field for both digital and analog businesses.

In recent years, the German competition regime has been widely perceived as inadequate in addressing digital platforms, for instance, when assessing their market power; traditional turnover-based concepts have proved incapable of capturing their position for competition, in particular in the light of big data. The growing relevance of big data, with consumers nowadays “paying” for the services digital platforms provide “free” of charge, has created the need to refine the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen, ARC) in addition to strengthening consumer rights.

The ARC is currently going through its ninth amendment, which is expected to enter into force shortly. On March 31, 2017, the German Federal Council (Bundesrat) consented to the legislative changes which had already been approved by the German Federal Parliament (Bundestag) earlier this year. The ninth amendment introduces alternative and more effective concepts into German competition policy that apply to the specific features of digital platforms:

  • Under the new law, the existence of a relevant market will no longer depend on the generation of turnover, and so social platforms, search engines and information sites will no longer slip under the radar of competition regulation only because they offer their services to consumers for free.
  • The amendment further incorporates numerous criteria into the assessment of two- or multi-sided markets (in which digital platforms are typically active) such as the interdependencies of the different market sides (so-called direct and indirect network effects), whether users only engage one or several competing services (i.e., engage in single- versus multi-homing), the existence of so-called lock-in effects (e.g., losing access to contacts when leaving a social network), economies of scale relating to network effects, access to relevant data, and the potential constraints on competition due to innovation.
  • The amendment introduces a size-of-transaction test into German merger control with the intention of catching transactions with a deal value of €400 million where the target company does not generate turnover in Germany or its turnover in Germany is below the €5 million threshold. This will ensure effective merger control in cases where the target’s economic relevance in Germany is not adequately reflected in its domestic turnover. Supplementing the existing turnover-based threshold test with an alternative size-of-transaction test is also being discussed at the EU level. The acquisition of WhatsApp by Facebook in 2014 prompted this change under the ninth amendment – the transaction was caught under neither German nor (initially) EU merger control although the acquisition’s relevance in the market was significant (Facebook paid approximately US$19 billion for the acquisition).

The anticipated changes to the assessment of the competitiveness of digital platforms do not necessarily introduce entirely new concepts and approaches but rather help to synchronize the law with concepts already established in the approach to decisions taken by the German Federal Cartel Office (Bundeskartellamt, FCO) and German courts. In contrast, the introduction of the size-of-transaction test into German merger controls will close a perceived enforcement gap. It remains to be seen to what extent this will lead to an increase in burdens and bureaucracy for both companies and the FCO, in particular since the size-of-transaction test will apply to transactions across all sectors and not just digital markets. This test is, therefore, also likely to increase the volume of cases before the FCO relating to mergers which are not potentially anti-competitive. Furthermore, the additional criterion introduced into the test, which requires the target to be domestically active “to a significant extent”, may lack sufficient legal certainty when determining whether or not a transaction is notifiable.

Independent Health Care Providers Beware – FTC Actions Against Group Contracting Efforts Continue

The Federal Trade Commission (“FTC”) recently charged a Puerto Rico ophthalmologist cooperative with organizing a group boycott of a health plan in violation of section 5 of the FTC Act.  This action demonstrates the need for providers to be heedful of the antitrust laws when engaging in group contracting efforts.  While agreements among independent providers on the prices or payors they will deal with are usually per se illegal, there are exceptions for financially or clinically integrated provider joint ventures. To read more click here.

Private Equity Firm Held Responsible for Portfolio Company’s Antitrust Violations

In January of 2017 a private equity firm, Bencis, was found liable for a portfolio company’s involvement as one of 14 cartelists producing flour in the Netherlands, Belgium, and Germany. The Authority for Consumers and Markets (ACM) ruled that while company was a member of Bencis’s portfolio, Bencis was accountable for their antitrust violations.  This case demonstrates the need for private equity firms to ensure that companies they invest in are in full compliance with competition rules.  To read more about parental liability click here

2017 Expectations of the U.S. CFTC Enforcement Agenda

The U.S. Commodity Futures Trading Commission is undergoing a transformation with the new Trump administration while staying on course with its statutory mission of protecting US commodities and derivatives markets.  Some of CFTC’s priorities under new Republican Administration will certainly change as articulated by the new Congress, several executive orders from the White House, and the recent statements of Acting Chairman Giancarlo.  However, it is likely that we will see in 2017 a combination of both the enforcement trends that emerged after the Dodd Frank Act was implemented as well as the new trends under the new leadership.  This client alert provides insights into how the existing CFTC’s authorities will be used in 2017 in enforcement area.

 

Iran Missile Test Leads to New Sanctions

On February 2nd the Office of Foreign Assets Control (“OFAC”) imposed new sanctions on 13 individuals and 12 entities that were believed to be “involved in procuring technology and/or materials to support Iran’s ballistic missile program, as well as for acting for or on behalf of, or providing support to, Iran’s Islamic Revolutionary Guard Corps-Qods Force.”  According to White House Press Secretary Sean Spicer, a missile test conducted on January 29, 2017 by Iran was a driving force behind the new sanctions.  This could be just the beginning as the Trump administration promises to “aggressively target Iran’s ballistic missile program and terrorism related activities.”  To read more click here.

Overview of 2016 French Financial Regulations

The ACPR and AMF, French financial regulators, focused on anti-money laundering and anti-terrorism, internal control procedures, conflicts of interest and market abuse infringements in 2016.  While the focus may have shifted, financial sanctions made up 90% of the penalties in 2016.  In fact, financial regulators’ powers of sanction have drastically broadened over the last decade and have made sanctions a more effective deterrent.  To read more about the 2016 French financial regulation click here.

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