Join another outstanding 60-minute webinar with the National Bar Association and George Washington University Law School’s Government Procurement Program, to discuss contractors’ road to recovery – the challenges and opportunities facing government contractors as the country emerges from the COVID-19 pandemic
Michael Bennett, Evans & Chambers Technology, LLC; Chair, DC Board of Elections
Michelle Coleman, Counsel, Crowell & Moring
Dominique Casimir
Danielle Conway, Dean, Penn State Dickinson Law
Dominique Casimir, Partner, Blank Rome LLP
Liza Craig, Counsel, Reed Smith
Judge Jeri Somers
Kendra Perkins Norwood, Wiley. For an earlier webinar on Section 3610 reimbursement in which Kendra Perkins Norwood and other attorneys from the government and the private sector participated, click here.
Judge Jeri Somers, Chair, US Civilian Board of Contract Appeals
Moderators: National Bar Association President Alfreda Robinson (GW Law School) & Christopher Yukins (GW Law School)
On April 17, 2020, the U.S. Office of Management and Budget, part of the White House, issued guidance on how agencies should implement contractor reimbursement for employees granted leave to mitigate the COVID-19 pandemic. This is a major milestone in COVID-19 procurement developments, and a detailed analysis is available here.
The first phase of the COVID-19 pandemic brought a new wave of trade controls, as countries imposed new barriers against trade in vital supplies such as masks and ventilators. Now as the COVID-19 pandemic enters its next phase – as the disease recedes in some populations, and attacks others with new ferocity – a simple but critical question has come into focus: do trade barriers make sense in a pandemic?
One striking aspect of the pandemic has been the global supply chain needed for supplies essential to fight the virus. In an April 2020 report, the World Trade Organization highlighted the global sources for medical supplies, and the World Health Organization and other international organizations have stressed the need for international cooperation in fighting the COVID-19 pandemic.
Zornitsa Kutlina-Dimitrova
Concerns over new protectionism in the United States arose earlier this year, when the Trump administration signaled that the United States might withdraw from the WTO Government Procurement Agreement (GPA) in response to a GAO study which suggested that European exporters enjoy lop-sided access to the federal procurement market. Lucian Cernat and Zornitsa Kutlina-Dimitrova, trade economists at the European Commission, have responded that the U.S.-EU trade balance in procurement, if read broadly, is actually much more favorable to the United States.
Another potential Trump administration initiative would impose new trade controls to force pharmaceutical companies to bring their production to the United States. This initiative, long pressed by senior White House trade advisor Peter Navarro, appears to have faded as well.
The Trump administration instead took a focused approach to trade controls, when on April 10, 2020 the Federal Emergency Management Agency imposed export controls under the Defense Production Act on personal protection equipment, including certain masks and gloves. At the same time, companies such as 3M were being savaged by President Trump for shipping emergency supplies abroad, even when (as 3M made clear) those shipments might be critical to other countries’ efforts to fight the pandemic.
Tom McSorley
But even the Trump administration’s most aggressive export controls, such as those aimed at Iran, Cuba, Venezuela and other sanctioned nations, will not necessarily block life-saving supplies. As Tom McSorley and his colleagues have pointed out, exceptions built into the U.S. export regime will still allow humanitarian supplies to reach Iran and other nations under U.S. sanctions. The FEMA ban on exports of PPE also allows for exceptions – under FEMA’s approval – for humanitarian purposes, Tom McSorley and his colleagues have noted. [Editor’s update: FEMA’s exceptions to the export ban — including a blanket exception for shipments to Canada and Mexico — are published in draft form here.]
Even more striking was the Trump administration’s decision to waive certain import controls – long the heart of Trump’s “Buy American” rhetoric – on vital items in short supply, from N95 masks to bleach. In normal times, the U.S. General Services Administration, which runs “schedule” contracts used by federal agencies for tens of billions of dollars in annual sales, complies with the Trade Agreements Act (TAA) by banning supplies from countries that have not entered into free trade agreements with the United States (“non-TAA” countries). Because of acute shortages in fighting the pandemic, however, GSA has temporarily lifted that ban for certain supplies. [Editor’s note: Jean Grier’s summary of this development is at Perspectives on Trade: ‘US Temporarily Lifts Procurement Ban’] The Trump administration’s abrupt volte face suggests that trade controls can raise dangerous barriers in times of crisis.
Even more striking was the Trump administration’s decision to waive certain importcontrols – long the heart of Trump’s “Buy American” rhetoric – on federal procurements of vital items in short supply
Simon Evenett – University of St. Gallen (Switzerland)
U.S. trade controls in the pandemic are part of a broader trend around the world, as nations try to reshape trade flows to husband supplies needed to address the COVID-19 disease. Those trade controls, which Simon Evenett of the University of St. Gallen calls “sickening-thy-neighbor” measures, raise serious humanitarian and political questions now that some countries no longer need equipment that is desperately sought in other nations. With the pandemic receding, New York will now share ventilators it no longer needs with Maryland and Ohio; should the United States do the same for Senegal, or for new hotspots such as Sweden? And what role should international institutions, such as the WTO, the World Bank and the OECD, play in facilitating international cooperation rather than trade barriers – global cooperation, as Laurence Folliot Lalliot has argued, that will be needed to save lives. (An update: EU Commissioner Phil Hogan on April 16, 2020 called for a temporary international ban on tariffs for vitally needed COVID-19 supplies, and made clear that European Union cannot “on-shore” its manufacturing in the long term — it will continue to rely on an international supply chain for key medical supplies.)
Laurence Folliot Lalliot – University of Paris Nanterre
Solving that puzzle – weighing protectionism in the pandemic – may require a new set of policy metrics. Zornitsa Kutlina-Dimitrova of the European Commission has argued that trade restraints make little sense when weighed against the secondary economic effects (e.g., the industrial atrophy, the isolation from innovation) that trade controls cause. Her research bears special attention now, when human lives – not just dollars – weigh in the balance.
Editor’s note: Join a free GW Law webinar on Tuesday, April 21, 2020 at 9:00 ET/14:00 UK/15:00 CET/21:00 CST. Simon Evenett, Robert Anderson, Jean Heilman Grier, Tom McSorley and Zornitsa Kutlina-Dimitrova (invited) will convene before a worldwide audience to discuss “Protectionism in the Pandemic.” The program will be moderated by Laurence Folliot Lalliot, Vanessa Sciarra of the NFTC and Christopher Yukins. Program information and registration.
Alfreda Robinson, President, National Bar Association & Associate Dean, GW Law
Please join the National Bar Association, in conjunction with George Washington University Law School’s Government Procurement Program, for a one-hour webinar on federal contracting and the COVID-19 pandemic — a review of emerging issues, in law and business, for thousands of federal contractors and their employees.
Thursday, April 23, 2020, 9 am Pacific/10 Mountain/11 Central/12 noon Eastern
Program Recording –Instructions on Using Auto-Captioning in 100+ Languages
Tuesday, April 21, 2020, 9:00 ET/14:00 UK/15:00 CET/21:00 CST
Governments around the world are imposing trade controls that may cut off access to life-saving equipment. GW Law held an open webinar on protectionism in the COVID-19 pandemic – the barriers to imports and exports that threaten to deepen the pandemic. The program materials are below.
Program Recording –Instructions on Using Auto-Captioning in 100+ Languages
Tom McSorley, Arnold & Porter (Washington DC) – BioHumanitarian aid US Export Controls
Zornitsa Kutlina-Dimitrova, European Union – DG for Trade – Bio – Works
Moderators: Christopher Yukins, GW Law School; Vanessa Sciarra, National Foreign Trade Council; Laurence Folliot Lalliot (University of Paris Nanterre (joining from Dakar))
A new threat has emerged in the pandemic: fraud in the supply chain for critical COVID-19 supplies. Governments the world over are fighting back against price gouging and defective supplies. What tools are available, and will they work? Join a free one-hour webinar with GW Law, as experts discuss these critical global developments in anti-corruption and procurement.
Moderators: Christopher Yukins, GW Law School (Washington); Jean-Bernard Auby (Professor emeritus, Sciences Po Law School (Paris)); Gabriella Racca (University of Turin); Laurence Folliot Lalliot (University of Paris Nanterre (joining from Dakar))
Kim Herrington, Acting Principal Director, Defense Pricing and Contracting (photo: US Army)
The U.S. Department of Defense has issued a critical memorandum on how contractor requests for additional contract payments in response to the COVID-19 crisis should be handled. The memorandum, issued on March 30, 2020 by Kim Herrington, Acting Principal Director, Defense Pricing and Contracting, noted that further guidance is expected.
Mr. Herrington’s memorandum discussed other possible grounds of contractor relief, such as stop-work orders. Most critically, his memorandum suggested that contracting officials, when considering contractor requests for compensation for additional costs (“requests for equitable adjustments”), should take into account the reimbursement for contractors contemplated by Section 3610 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, discussed here, which President Trump signed into law on March 27, 2020.
Under Section 3610 of the CARES Act, agencies may in their discretion use any “funds made available to the agency” by Congress to modify any contract or other agreement to reimburse contractors for workers’ lost time up to September 30, if the contractor provides leave to its employees or subcontractors “to protect the life and safety of Government and contractor personnel.”
The Defense Department memorandum stated, in relevant part:
When reviewing requests for equitable adjustment,
contracting officers are to take into account, among other factors, whether the
requested costs would be allowable, allocable and reasonable to protect the
health and safety of contract employees as part of the performance of the
contract. Equitable adjustments to the contract or reliance on an excusable
delay should not negatively affect contractor performance ratings.
In response to this national emergency, on March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES). Most notable within the act is Section 3610, Federal Contractor Authority, which provides discretion for the agency to modify the terms and conditions of the contract to reimburse paid leave where contractor employees could not access work sites or telework but actions were needed to keep such employees in a ready state (Attachment 1). Section 3610 is included for information only. DPC [Defense Pricing & Contracting] will provide implementing guidance for this section as soon as practicable.
The Office of Management and Budget, and many senior procurement officials of the Military Departments and Agencies have promulgated guidance similar to that in this memo regarding management of contract performance impacts due to COVID-19, many of which are available at https://www.acq.osd.mil/dpap/pacc/cc/COVID-19.html. They share the common theme that contracting officers are trusted and empowered to make the difficult decisions on appropriate adjustment to each contract. Both during and after the COVID-19 emergency, contracting officers must work closely with our industry partners to ensure continuity of operations and mission effectiveness, while protecting the continuing vitality of the DIB [Defense Industrial Base] that is so critical to our national security. Please ensure widest distribution of this guidance.
Editor’s note: These and other developments in COVID-19 contracting will be discussed in a free international webinar on Thursday, April 2, at 9 am ET.
On March 27, 2020, Congress sent to the President the Coronavirus
Aid, Relief, and Economic Security (CARES) Act, which
will provide over $2.2 trillion in government funding as the United States
weathers the COVID-19 pandemic. President
Trump promptly signed the Act, the product of a bipartisan compromise between
the White House and Congress. Among many
other forms of relief, the CARES Act provides funding to preserve public health
and economic stability in various sectors, including federal contracting – a market
sector that employs several
million American workers.
The CARES Act stands as an important example for the
international procurement community – a COVID-19 measure that both reduces health
risk and drives economic recovery through existing public contracts.
Rep. Anthony Brown (D-Md.), speaker pro tempore, gavels $2 trillion CARES Act’s passage in House by voice vote
The challenge now is for federal agencies to deploy the CARES
Act’s funding, consistent with the goals of President
Trump and Congress
to use the CARES Act to —
Preserve workers’ health: Section
3610 of the CARES Act protects workers’ health by allowing contractors to send
their non-essential employees home during the pandemic, using leave paid for by
the federal government.
Minimize the spread of the coronavirus: Keeping contractor employees at home will
retard the spread of the COVID-19 virus, by reducing social exposure to the
virus in millions of offices, factories and homes.
COVID-19 Cases as of 24 March 2020 – Source: World Health Organization data – Wikimedia
Save the contracting base: The CARES Act directs funding to fragile sectors
of the U.S. economy, including the thousands of companies that support the federal
government. Without CARES Act funding, many
contractors – including vulnerable small businesses – may collapse, destroying
vital parts of the government’s contracting base.
Jump-start the stalled economy: When President Trump signed
the CARES Act, he pointed out that the legislation ultimately may cost over $6
trillion – stimulus funding which is critically needed, as the President noted,
for the American economy to rebound in the coming months.
In the next few weeks, procurement leaders from across government will need to implement the CARES Act. This article assesses some of the key questions those leaders will need to address. To make sense of the CARES Act, we will examine the Act and its purposes in an integrated way, looking both at Section 3610 (which authorized contractor reimbursement) and at other, parallel provisions of the Act. As the late Supreme Court Justice Antonin Scalia (an expert on statutory interpretation) explained:
“Statutory construction . . . is a
holistic endeavor. A provision that may seem ambiguous in isolation is often
clarified by the remainder of the statutory scheme—because the same terminology
is used elsewhere in a context that makes its meaning clear, or because only
one of the permissible meanings produces a substantive effect that is
compatible with the rest of the law.”
What does the CARES Act call on agencies to do for contractors? Under Section 3610 of the Act, agencies may in their discretion use any “funds made available to the agency” by Congress to modify any contract or other agreement to reimburse contractors for workers’ lost time up to September 30, if the contractor provides leave to its employees or subcontractors “to protect the life and safety of Government and contractor personnel.”
What work locations are covered for reimbursement? A contractor may recover only if its work
location has been approved by the government – in other words, a contractor
cannot “game” the government by unilaterally naming a work site (such as New
York City or New Orleans) where it may be impossible to perform.
What if the contractor employees can telework? The government has strongly encouraged contractor
telework, through policies issued by the Office
of Management and Budget and the Defense
Department. If employees can do telework
from home, then reimbursement may not be available.
How will contractors’ reimbursement be calculated? Section 3610 is clear: the CARES Act allows agencies to reimburse contractors at “minimum applicable contract billing rates” for up to an average of 40 hours per week for paid leave (including sick leave).
What kinds of contracts will be covered? The CARES Act does not exclude any
contract types, or provide detail on how different contract types should be handled. This may have been due to the rushed
legislative process. S. 3548, the prior
Senate bill, was introduced late the prior week, and then was blocked by a
partisan battle in the Senate. The final
language of the CARES Act reflects rapid legislative drafting, which naturally
left gaps in the statutory language. Applying
the maxims of statutory interpretation explained above by Justice Scalia, we
can look to other sections of the CARES Act (discussed below), which also
address contractor reimbursement but do not distinguish between types of
contracts.
What’s to keep contractors from cheating ? The CARES Act makes relief under the Act subject to audit by the Government Accountability Office (Congress’ watchdog agency), and nothing in the Act suggests that contractors seeking reimbursement will be exempt from the criminal and civil fraud laws, debarment and exclusion rules that the government normally uses to block bad actors.
Although Section 3610 is silent on the mechanics of reimbursement . . . other provisions of the Act shed light on Congress’ intent.
How should contractors seek reimbursement? Although Section 3610 is silent on the mechanics of reimbursement — a detail normally left to the agencies — other provisions of the Act may shed light on Congress’ intent. Section 18006, for example, says that educational institutions that receive funding “shall, to the greatest extent practicable” continue to pay their contractors during the period of any disruptions or closures related to the coronavirus. Section 4113 explains how contractors in the aviation industry are to seek reimbursement by applying for an amount, “using sworn financial statements or other appropriate data, as to the amount of wages, salaries, benefits, and other compensation” that the contractors paid their employees. Section 19005 says that the Architect of the Capitol is to “continue to make payments provided for under . . . contract for the weekly salaries and benefits of . . . [contractor] employees” who are “furloughed or otherwise unable to work” during closures. Finally, Section 3610 itself explains that any contractor’s reimbursement will need to be reduced by the value of other credits the contractor receives, such as the tax credits afforded for employee leave under the Coronavirus Families First Response Act.
Taking these provisions together – “holistically,” to use Justice Scalia’s famous term – it becomes clearer how in practice agencies can afford contractors relief under the Act. What Congress and the President clearly expect is that contracting agencies will move quickly to advance the nation’s recovery – and Americans’ health – by allowing contractors to seek reimbursement for covered COVID-19 losses.
Editor’s note: On April 2, a free GW Law webinar will discuss these and other emerging international developments in COVID-19 emergency procurement, with panelists from government, business, economics and the law, who will join us from Europe, Asia, Africa and the Americas.
Governments’ procurements of critically needed supplies for COVID-19 – such as ventilators, masks, and other protective equipment – are collapsing in the face of a worldwide pandemic and global shortage. Join this free webinar with George Washington University Law School to discuss the emerging economic, business, political and legal aspects of what may well be the biggest procurement challenge of our time, with private and public experts from Asia, Africa, Europe and the Americas.
At a press briefing on March 19, President Trump brushed aside demands that the federal government take the lead in buying medical equipment – including the coronavirus tests, ventilators and protective gear – critically needed to save lives in the current pandemic. “We are not a shipping clerk” Trump said, and left it to the states to take first responsibility for procuring life-saving equipment.
Is President Trump right – should state governments be left to procure emergency equipment – or is this one of the most serious mistakes he has made in this pandemic?
The need for emergency equipment is desperate. On March 18, for
example, the New York Times reported that there are only roughly 170,000
ventilators in this country, although many hundreds of thousands of coronavirus
patients may need them soon. In a March 19 interview,
Governor Andrew Cuomo of New York was brutally direct. “We now have about
5,000, 6,000 ventilators in New York State,” Cuomo reported. “We are going to
need about 30,000 ventilators because these people who come in all have
respiratory illnesses.” Experience
in Italy, already overwhelmed by the pandemic, shows that if emergency
equipment is not procured immediately, thousands of American patients and healthcare
providers may die unnecessarily.
Trump’s comment deflecting responsibility for buying emergency
equipment came at a March 19 White House press
briefing, when he was asked why the federal government had (by executive
order) invoked, but not triggered, the Defense
Production Act. The Act allows
the federal government to direct manufacturers to produce vitally needed items.
The states’ governors, Trump responded, “are supposed to be doing a lot of this
work.” The federal government, he continued,
“is not supposed to be out there buying vast amounts of items and then
shipping.” “You know,” Trump said, “we’re
not a shipping clerk. The governors are supposed to be – as with testing, the governors
are supposed – are supposed to be doing it.”
Trump’s insistence that the states take the lead in emergency procurement contradicts his own administration’s “Crimson Contagion” study, confidentially drafted before the pandemic and disclosed on March 19 by the New York Times. The Trump administration draft report clearly foresaw that the federal government would have to coordinate equipment requests from the states in times of pandemic. Public health experts now reinforce the administration’s own conclusion: the federal government must take the lead in purchasing emergency equipment such as ventilators.
Trump’s approach
also contradicts what other nations facing the same pandemic are doing. Italy, for
example, has centralized
(and radically simplified) procurements of emergency equipment. CONSIP,
the Italian centralized purchasing agency, has taken charge of buying
thousands of ventilators, and it has open
requests to the market for emergency equipment.
By pushing
procurement responsibility out to the states, Trump’s approach also ignores a critical
tool available to the federal government: the United States’ unmatched ability
to assure vendors that if they build equipment, the manufacturers’ costs will
be covered even if the equipment is never used.
While the
Defense Production Act allows the government to direct the production process –
always a risky prospect – the federal government’s contracting tools include the
power to “terminate for convenience.” This simple, largely unknown contracting
power became a central part of U.S.
procurement after World War I, when the federal government canceled large numbers
of wartime contracts. The termination for convenience clause – now
required
in every federal supply contract – says that while the government may terminate
contracts for its own convenience (a right most commercial parties do not have),
the United States will make its contractors whole if the federal government
does prematurely end a contract.
This simple
termination right is extremely powerful in a time of crisis, because it means
that manufacturers – from Ford
to Tesla – can incur huge cost risks in retooling to build vital equipment. Although contractors may lose commercial
opportunities by temporarily retooling their production lines, at least those companies
know their sunk costs will be covered
by the United States – and here, that federal government guarantee may enable
many more manufacturers to join this battle against death by disease.
“This simple termination right is extremely powerful in a time of crisis, because it means that manufacturers . . . can incur huge cost risks in retooling to build vital equipment.”
This simple
procurement tool also explains why the federal government must take the lead in
procuring emergency equipment. State governments
typically have the same contract clause
– the same right of termination for convenience – but state governments do not
have the federal government’s massive resources backing the promise to make
manufacturers whole, or the United States’ preeminent market position. In
contrast to the states’ limited resources, the U.S. government’s procurement rules
channel the federal government’s nearly unlimited resources – its commitment to
pay, and the world’s largest procurement apparatus – to drive procurement of
equipment that will save lives. The time
for the federal government to exercise that procurement power is now.
By Christopher Yukins, the Lynn David Research Professor
in Government Procurement Law at the George Washington University Law School,
Washington, DC. The Law School’s
government procurement program will host an international online
colloquium on public procurement and the COVID-19 pandemic on Tuesday,
March 24, 2020, at 12:00 ET.
