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Author Archives: Michael E. Stamp

  1. New Confidentiality Agreement Restrictions for DOD Contractors

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    In a previous article we explained the dangers of utilizing an overbroad confidentiality agreement between your business and your employees or subcontractors.  To briefly recap, in some states, like Virginia, an overbroad confidentiality agreement can be just as bad as having no confidentiality agreement at all.  Virginia courts will invalidate an overly broad confidentiality agreement, leaving the company with little protection against disclosure of sensitive information that it might have provided to its employees and subcontractors.  Therefore, it is essential that businesses think carefully about what information truly needs to be protected from disclosure and that the confidentiality agreement be tailored to fit those particular requirements.  While just tailoring the confidentiality agreement to the business’s needs – and making sure not to be overbroad – might be enough to make the agreement enforceable under state law, it might not be enough for contractors to the Department of Defense (“DOD”).  Government contractors may need to go one step further.

    The DOD recently issued a class deviation prohibiting DOD organizations from contracting with companies that require certain internal confidentiality agreements.  Class deviations are instructions from the DOD Director of Defense Procurement and Acquisition Policy that instruct governmental organizations to deviate from the FAR and DFARS.  Under a class deviation issued by DOD on November 14, 2016, no funds may be used to contract with a business that prohibits or restricts its employees or sub-contractors from reporting waste, fraud, or abuse to a designated investigative or law enforcement representative of a federal department or agency.  It requires that clauses be included in all applicable solicitations requiring the offeror to represent to the government that the contractor does not require employees or subcontractors to sign or comply with internal confidentiality agreements prohibiting or otherwise restricting the employees or subcontractors from lawfully reporting waste, fraud, or abuse.  While similar class deviations concerning non-disclosure agreements have occurred in the past (e.g., the Department of Veteran Affairs), because this class deviation applies to the entire Department of Defense, it will impact a far greater number of contractors than other similar class deviations.

    Here is the fundamental problem that contractors face:  The typical confidentiality agreement flatly prohibits the disclosure of sensitive business information, such as financial information.  Naturally, most confidentiality agreements are focused on restricting disclosure; they tend not to expressly allow disclosure of confidential business information.  What is needed is a safety valve that prohibits disclosure of sensitive company information except in the circumstances delineated by DOD’s recent class deviation.

    Luckily, this is easily fixed by modifying the restrictive language contained in the confidentiality agreement, but it is a fix that needs to occur before an offer is submitted to the government in response to a solicitation.  And while the fix may, itself, be easy, it is nevertheless important to keep in mind that the confidentiality agreement will need to be re-signed by the affected employees or subcontractors, which may cause additional delay.  If you anticipate that your business may be bidding on DOD contracts in the future, it is wise to re-work your confidentiality agreements now.

  2. Procuring a Meaningful Remedy in Non-Procurement Protests

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    There are a variety of venues in which a disappointed federal government contractor can protest a contract award.  Bid protests do not always need to be brought before the GAO—they may also be adjudicated by the Court of Federal Claims and, in the case of non-procurement contracts, in U.S. District Courts. Moreover, a protestor unhappy with the outcome in one venue (e.g., the GAO) may re-assert its claim before the Court of Federal Claims.  However, sometimes even the Court of Federal Claims is unable to afford the relief desired.  For instance, the Court of Federal Claims is unable to grant equitable or declaratory relief in claims concerning non-procurement contracts (e.g., concession contracts).  In such cases, it may make sense to file a bid protest claim in one of the federal district courts.

    The efficacy of this approach was highlighted in Eco Tour Adventures, Inc. v. Jewell, 174 F. Supp. 319 (D.D.C. 2016), a bid-protest case brought before the U.S. District Court for the District of Columbia, in which a disappointed offeror initially filed a bid protest in the Court of Federal Claims and, after partial success, filed a second action in the federal district court.  The offeror, Eco Tour Adventures, was bidding on a concession contract to provide ski touring services in Grand Teton National Park.  After award of the contract to the incumbent concessionaires, Eco Tour filed a protest in the Court of Federal Claims arguing that the incumbents’ failure to include financial information required by the solicitation rendered their proposals unresponsive.  The Court of Federal Claims agreed that the agency did not fairly consider Eco Tour’s bids, but explained that it lacked jurisdiction to award the injunctive and declaratory relief sought.  Although the Court of Federal Claims awarded Eco Tours its bid preparation costs because of the unfairness of the agency’s actions, it could not compel the agency to re-evaluate the proposals.  Consequently, the agency proceeded with its award of the contract despite the finding that it breached its duty to fairly and honestly consider Eco Tour’s bids.

    Six months later, Eco Tour again commenced court proceedings, this time in federal district court, seeking an order declaring that the contract awards were illegal and void.  More importantly, Eco Tour asked the federal district court for an injunction requiring the agency to award the contracts to Eco Tours.  The agency, of course, disagreed with what it deemed to be a second bite at the apple.  The agency argued that the matter was closed once Eco Tour was awarded its bid preparation costs by the Court of Federal Claims and that it could not bring a separate action seeking the relief that the Court of Federal Claims lacked the power to grant.

    The district court disagreed.   It explained that Eco Tour’s recovery of its bid preparation costs in the Court of Federal Claims only reflected a portion of the potential costs Eco Tour incurred in submitting its bid for the contested contracts.  Moreover, while the district court recognized that courts are loathe to make contracts for the parties, putting the disappointed bidder in the position it would have occupied but for the error is normally the best approach to resolving the dispute.  According to the court, the facts suggested that but for the agency’s improper actions, Eco Tour would have been awarded the contracts.

    These are very unique circumstances, but they highlight the need for thoughtful strategy.  There are several different fora in which a disappointed government contractor can seek relief, and each has its own unique benefits and limitations.  Understanding each forum’s limitations, and having a proper strategy for utilizing the most advantageous forum, can mean the difference between winning and losing a bid protest.

  3. Agency Refuses to Comply With CICA Stay, Gets Slapped

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    The Competition in Contracting Act (CICA) prohibits an agency from authorizing performance of a contract while a bid protest is pending if the protest was filed within either ten days after the date of the contract award or within five days after a requested and required debriefing date.  The only exception to this requirement is that an agency may authorize performance of a contract notwithstanding a pending protest if it first makes a written finding that performance of the contract is in the best interests of the United States or urgent and compelling circumstances significantly affecting the interests of the United States will not permit waiting for the decision of the Comptroller General concerning the protest.

    Although the CICA stay is mandatory, the U.S. Government Accountability Office (GAO) does not have any mechanism for actually enforcing the stay.  If an agency violates the CICA stay during a pending GAO proceeding, the protestor must initiate separate litigation in the Court of Federal Claims in order to force the agency to maintain the status quo.  This can be a powerful remedy as illustrated by a recent scathing decision by the Court which led the Court to contemplate sanctioning the agency for refusing to institute the stay.

    In May 2016, the Defense Intelligence Agency issued a solicitation for three blanket purchase agreements for IT-related services. On September 27, 2016, the agency notified the disappointed bidder, Favor TechConsulting “FTC) that the blanket purchase agreements were awarded to other companies.  Ten days later, on October 7, 2016, FTC filed a bid protest with the GAO challenging the agency’s evaluation criteria and asserting that it was entitled to a CICA stay.  Six days later, the agency notified the protestor that the blanket purchase agreements were actually awarded on September 26, 2016 and that the automatic CICA stay would not be instituted because the protest was untimely.  One day later, FTC took steps to commence an action against the agency in the Court of Federal Claims seeking an injunction requiring the agency to institute the CICA stay while the protest before the GAO was pending.  The end result did not go well for the agency.

    Remarkably, the agency argued that the automatic stay deadline should be measured from the date of award, regardless of the knowledge of the protestor.  The Court rejected this argument, noting that the automatic stay cannot function as intended if potential protestors do not know how long they have to file before they lose their right to an automatic stay.  Furthermore, the Court found evidence that the contracts were not actually signed by the contracting officer until September 27, even though the agency’s internal systems indicated they were signed on September 26.  Ultimately, the court held that the agency’s refusal not to institute a stay was arbitrary, capricious, contrary to law and an abuse of agency discretion and that the agency must institute the stay until the protestor’s GAO bid protest is resolved.  In addition, the court ordered the agency to explain in future briefing why it should not be sanctioned and required to pay the protestor’s legal expenses for refusing to comply with its legal obligations.  The protestor’s decision to enlist the court to do what GAO would not do dramatically changed the posture of the bid protest.

  4. GAO Calls for More Vigorous Enforcement Actions by OFCCP

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    The Government Accountability Office (GAO) recently released a report calling on the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) to more vigorously enforce federal contractor nondiscrimination compliance. Specifically, OFCCP is charged with ensuring federal contractor compliance with federal equal employment opportunity and affirmative action requirements that are derived from executive orders and other federal laws and regulations. This objective is pursued by OFCCP through a variety of means including audits, enforcement actions, and educational initiatives. At the behest of a Congressional committee, GAO initiated an investigation into the function of OFCCP and concluded that OFCCP needs to become better in nearly every respect.

    As a result of the increased focus by GAO and Congress on OFCCP, federal government contractors should anticipate more vigorous and targeted enforcement of equal employment opportunity and affirmative action requirements. One of GAO’s chief concerns reflected in the report is that, presently, OFCCP does not effectively identify or target contractors who are most likely to be noncompliant with nondiscrimination laws. Instead, contractors are selected for compliance evaluations based a rather irrelevant set of factors (e.g., geography or contract expiration date). The GAO report calls for OFCCP to take more meaningful steps to identify potential noncompliance risk and target higher-risk contractors for the greater share of enforcement compliance reviews. Significantly, OFCCP has already begun this process, though it has not provided any specific details about what attributes will define higher-risk contractors subject to a more vigorous enforcement process.

    The GAO report also takes OFCCP to task for enforcement-related inconsistencies that have plagued government contractors who sincerely want to be compliant. For instance, GAO called out OFCCP for giving sometimes vague or contradictory advice to businesses seeking input as to how they can best achieve compliance. To some extent, this is the result of being too decentralized, with different offices offering different interpretations. However, GAO also criticized OFCCP for reducing outreach to government contractors even as critical regulatory requirements were changing, thus leaving contractors in the dark. GAO emphasized that OFCCP’s plan for increased enforcement is not enough – OFCCP must also provide effective outreach and compliance assistance to government contractors who are striving to comply with their legal obligations.

    Time will tell whether OFCCP manages to select contractors for compliance evaluations based on the actual risk of noncompliance. Other changes in enforcing compliance are likely to develop over a longer term as OFCCP rebalances and refocuses its compliance officers. One way or the other, OFCCP is unlikely to continue with “business as usual.”

  5. Misclassifying Employees as Independent Contractors

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    Businesses are not infrequently subjected to competing and often unclear legal rules.  Take, for example, the independent contractor versus employee classification morass.  Sophisticated Fortune 500 companies find themselves just as frustrated as small businesses in trying to comply with the law.  It is not always easy to determine when a worker may be engaged as an independent contractor or when he or she must be hired as an employee; the law frequently does not provide any concrete answers.  Moreover, different states have different rules, and those rules may differ from the viewpoint of the Internal Revenue Service (IRS) and U.S. Department of Labor (DOL). Even if both the business and worker want to establish an independent contractor relationship, the law may not allow it.

    The U.S. Department of Labor is actively on the look-out for employers who misclassify workers as independent contractors rather than employees.  In concert with the IRS, the Department of Labor has partnered with about half the states in an effort to identify instances of worker misclassification.  DOL is engaging in “strategic enforcement” by focusing on particular industries in which it believes that violations may be the greatest.

    The fact that different states have different rules is particularly troublesome for businesses that have workers in different states.  In the Washington D.C. Metropolitan Area, the problem can become particularly knotty since a business’s worker might provide services to clients located in Virginia, Maryland, and the District of Columbia all on the same day. One state might consider the worker an employee while the other might treat the worker as an independent contractor.

    In Virginia, an independent contractor is a person who is employed to do a piece of work without restriction as to the means to be employed and who employs his own labor and undertakes to do the work according to his own ideas, or in accordance with plans furnished by the person for whom the work is done.  The key is that the independent contractor is held accountable only for results.  While easy to state and understand, the difficulty is in applying this rule to individual circumstances since many workers do not fit neatly into this criteria; not infrequently, workers exhibit characteristics of both employees and independent contractors.

    To make matters worse, DOL takes a fairly expansive view of what makes a worker an employee as opposed to an independent contractor.  Summarized, its focus is on whether the worker is really in business for him or herself (and therefore an independent contractor) or is economically dependent on the employer (and therefore an employee).

    The consequence of getting it wrong, and treating a worker as an independent contractor when, in fact, the worker is an employee, can be devastating.  It can lead to a business becoming liable for unpaid taxes, unpaid overtime, and various other penalties.  Furthermore, as the law develops, what might have been permissibly characterized as an independent contractor relationship years ago, might now be found to be more like an employment relationship.  Periodically auditing how your company classifies its workers is essential to minimizing unexpected liabilities in a changing legal and regulatory environment.

  6. Is Your Company’s Confidentiality Agreement Unenforceable?

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    Your company’s confidentiality agreement with its employees is not worth the paper it is printed on if it cannot be enforced. An unenforceable confidentiality agreement might even be worse than having nothing at all, since it might lull management into a sense of complacency over the security of sensitive information.  But in a well-meaning effort to protect as much information as possible, some businesses try to protect too much information or protect the information for too long into the future.  This can result in an overbroad confidentiality agreement, which might not be enforceable at all.

    Confidentiality agreements are restrictive covenants that courts scrutinize for their reasonableness.  In Virginia, courts are increasingly giving restrictive covenants more and more scrutiny. Moreover, the problem of an overbroad confidentiality agreement is exacerbated because, in Virginia, courts will likely not “blue pencil” the agreement by excising the overbroad components of the confidentiality provision and enforcing only the acceptable portions; the agreement must likely be completely acceptable or it will be entirely unenforceable.

    Time and subject matter are the two most common areas of over-breadth in confidentiality agreements. A confidentiality provision should have a reasonable subject matter scope and a reasonable temporal scope.  It should encompass no more and no less than the specific information that needs to be protected.  Over-inclusiveness–whether it is deliberate or through sloppiness–is a cardinal sin in drafting confidentiality agreements.  Business owners and management must think carefully about the particular types of information are actually confidential, and use language in the confidentiality agreement that carefully delineates that information.  

    Even if the substantive scope of the confidentiality agreement is narrowly tailored, it might still be deemed unenforceable if it seeks to prohibit disclosure of the information in perpetuity. Courts tend to look at information on a sliding scale of importance, and allow greater temporal restrictions depending on the importance of the information.  But when marginally confidential information is tied with an in perpetuity prohibition on disclosures, Virginia courts will tend to draw the line and deem the entire confidentiality agreement unenforceable.

    Having an overbroad confidentiality agreement is just as bad as not having one at all.  Unfortunately, many businesses do not find out that their confidentiality provisions are worthless until they really need to enforce them.  In Virginia, the law has changed substantially in the past five years, such that a confidentiality agreement that may have passed muster five years ago might be worthless today.  The difference between a good and bad confidentiality agreement is often as simple as the addition or subtraction of a few words.  Giving your company’s confidentiality agreement a check-up can prevent headaches down the road.