A frequent complaint is that the Federal government pays more for similar products than do commercial enterprises. The election of Donald Trump could reset the clock for the Federal procurement changes that have arisen in the past 8 years and help bring down prices charged to Federal customers. Most prominently, Mr. Trump could begin by revising or rescinding the executive orders on which myriad new contractor obligations are based. Additionally, Mr. Trump could push for legislation to narrow the False Claims Act, resetting it to its original intent as a vehicle for punishing contractors who submit false claims for payment, rather than as a general-purpose fraud or contract compliance tool. Either of these efforts would decrease the cost to the Federal government relative to what commercial customers pay for similar goods.
Rescind Executive Orders Pertaining to Federal Contractors
The first area in which Mr. Trump could have an immediate impact on Government contractors is the rescindment of executive orders issued by President Obama in 2014 that later served as the basis for changes to regulations. Most prominently, rescinding Executive Order 13673, known as the Fair Pay and Safe Workplaces Order, and Executive Order 13706, known as the Paid Sick Leave Executive Order, would enable more companies to stay or become Federal contractors. The Fair Pay and Safe Workplaces Order, requires a contractor to notify the government at the time of bidding for a contract whether it has been found to be in or even accused of non-compliance with a federal, state, or local workplace safety or pay law. The contractor is also required to update the government every six months that the contract is in place and keep track of the same for all its subcontractors. As implemented, however, the regulation requires contractors to keep track of decisions and even administrative complaints regarding literally more than 800 laws and in numerous federal, state, and local tribunals. Further, for larger contractors with multiple contractors, the six-month notification requirement means that they would be updating the government almost every week regarding the status of different cases, imposing substantial compliance costs on the contractors and the government.
The Paid Sick Leave regulation also contained burdens that would dissuade many companies from becoming Federal contractors. This order required all government contractors, grant recipients, and even contractors operating concessions on government property to provide their employees with paid sick time. It applies not only to employees working on a government contract, but also those employees working “in connection with” a government contract, a category that potentially captures many employees who are not billing their time to the government, but nonetheless support those who do. Given that the employer bears the burden of proof that an employee does not work “in connection with” a government contract (defined as being less than 20% of the employee’s time), many potential contractors will opt to cease accepting new government contracts after January 1, 2017, rather than risk being in non-compliance.
The clear majority of government contractors already provide paid sick time. However, the executive order imposes accrual and notification requirements that are burdensome. For example, an employer cannot show compliance with the regulations by demonstrating that it is already in compliance with the state, local, or even federal laws regarding paid sick time. Additionally, the order requires that the employer provides notice of all time remaining on each paycheck and that the employer keep records of such notifications (and all sick-time taken and approved) for the course of the contract and for three years thereafter. Given that a government contract is often 5 years (base year plus four option years), an employer, therefore, is faced with a requirement to keep records of its notification to each employee for each pay period for 8 years. This requirement is unduly burdensome relative to the evidentiary benefit and exposes contractors to risks that require the contractors to either increase their prices to cover the risk or to cease contracting.
Rescinding these executive orders would ensure that more companies remain Federal contractors, rather than exiting because of notification and tracking burdens. As further discussed below, the Supreme Court’s recent “implied certification” decision substantially increases the risk of liability from failing to track and report either alleged labor violations or paid-sick leave correctly, adding to the risk that if neither of these orders are rescinded, contractors could face substantial liability for minor oversights. Additionally, the lack of continuity with the existing state and local means that the new regulations require employers to create new systems, not just amend or alter existing ones. To keep companies from exiting the Federal market, President Trump could encourage them to stay by rescinding the executive orders and the accompanying regulations.
Work with Congress to Eliminate “Implied-Certification” Liability for the False Claims Act
On June 16, 2016, in Universal Health Services, the Supreme Court held that contractors could face liability under the False Claims Act for non-compliance with a regulation, even if the contractor did not certify that it complied with that regulation or otherwise submit a false claim. The False Claims Act (31 U.S.C. § 3729), originally meant to cover invoices that overstated quantities delivered or inflated the prices, now therefore can be used to state that non-compliance with any regulation or contract term makes each claim “false”. This results in essentially punitive sanctions for the contractor, including triple damages, suspension from all government contracting, interest, and attorney’s fees. Adding to the risk is that False Claims Acts cases can be brought by whistleblowers (primarily, disgruntled employees) on behalf of the government, meaning that they are far more common and a favorite of the plaintiffs’ bar. This potential risk will further dissuade contractors from pursuing future work or to increase the price of their products to account for the increased risk.
President Trump should ask Congress to amend the False Claims Act to make it explicit that it only applies to explicit false claims. The government already has numerous antifraud statutes it can use to pursue contractors, including 18 U.S.C. § 1003 and § 1341 as well as 28 U.S.C. § 2514 and 41 U.S.C. § 7103(c), making it unnecessary to contort the False Claims Act to cover frauds not involving the submission of claims with false statements. Indeed, the reason that the False Claims Act is used so frequently is that it permits claims to be brought by whistleblowers, even when the Government declines to proceed with the case after reviewing the facts. Failing to address this issue will mean that contractors will either need to increase their spending on compliance dramatically to avoid almost all non-compliance with the myriad of contract clauses or to stop providing the goods and services to the government.
President Trump could work with Congress to clarify that the False Claims Act only applies to claims that are actually false. Imposing fraud liability for what are in reality contract or regulatory-compliance issues discourages companies from risking their reputations with the Government, thereby increasing the costs charged by remaining contractors. Clarifying the statute would keep these contractors as government suppliers while not ceding any power of the government to pursue legitimate fraud claims through other means.
Making either or both of these changes would send a signal to the contracting community that compliance burdens of contracting will no longer continue to increase and may decrease to a more rational level. President Trump, together with the incoming Congress, should work towards these and similar changes to ensure that taxpayers are receiving the best value.
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Christopher Bowen is a senior attorney at a Fortune 20 company.
The author had originally authored a piece about the continuing effect of President Obama’s executive orders on Federal contractors.