Piliero, Mazza and Pargament, PLLC.

Piliero Mazza & Pargament, PLLC   Vol. 5, Issue 4
Fourth Quarter 2003
Legal Advisor
An Update for Federal Contractors and Commercial Businesses


    A R T I C L E S

CORPORATEArbitration Provisions May Leave You in a Bind If Not Drafted Properly

EMPLOYMENTCommissions Plan Should Be Structured to Comply with Wage Laws

ON THE HILL - Congressional Amendments Stall OMB's A-76 Rewrite

GOVERNMENT CONTRACTING - DOD Issues Interim Rule on Management Structure
for Performance Based Contracting

GOVERNMENT CONTRACTING - Agencies Issue Final Rules Affecting Government Contracts



Arbitration Provisions May Leave You in a Bind If Not Drafted Properly

Many companies are following the trend toward increasing use of alternative dispute resolution procedures, such as arbitration, to resolve contractual disputes. It is a common perception that arbitration provides for a quicker and less expensive resolution of disputes. Although the extent to which arbitration may be preferable to litigation may be debatable, those who chose to agree to arbitration in their contracts should be cautious in drafting those clauses.

Although arbitration can be an effective tool for achieving a prompt resolution of contractual disputes that involve money damages, a more problematic situation arises when one of the parties seeks equitable or injunctive relief. Arbitrators typically have authority to make whatever ruling is necessary to resolve a dispute including declaratory or equitable relief. However, in certain circumstances, a temporary restraining order or a preliminary injunction may be needed by one of the parties to a contract to avoid irreparable harm.

Although the Commercial Arbitration Rules of the American Arbitration Association provide for an expedited resolution of disputes, there is not presently a process within those rules that allows one party to obtain "emergency" relief akin to obtaining a restraining order in court. This type of emergency relief may be needed by one of the parties to a contract in the event the other party, for example, threatens to misuse intellectual property, threatens to defame the other party or threatens to unfairly compete against the other party. In these situations, one of the parties may sustain irreparable harm unless the other party’s wrongful conduct is enjoined. If the parties have agreed to arbitrate all disputes, the enforcing party may experience difficulty in preventing the wrongful conduct on an emergency basis because the parties have agreed to arbitrate disputes.

Fortunately, some courts have held that, not withstanding the inclusion of a broad arbitration clause in a contract, in the event there is a basis for an emergency restraining order, one of the parties may petition in court to preserve the status quo pending submission of the matter to arbitration, thereby preventing the irreparable harm from occurring. However, not all courts have adopted this rule, and firms are well-advised not to rely on these rulings.

Accordingly, before agreeing to arbitration, firms should carefully review with counsel the type of contract involved in order to determine whether or not the potential of irreparable harm in the event of a breach of that contract is real or remote. If intellectual property rights are a primary subject matter of the agreement, an arbitration provision may be ill-advised. If an arbitration clause is included in such a contract, then the parties should ensure that the arbitration provision is drafted to allow either party to obtain preliminary and permanent equitable relief from a court of competent jurisdiction. In so doing, firms can avoid situations in which they may have difficulty preventing irreparable harm from occurring by the wrongful actions of the other party to the contract.



Commissions Plan Should be Structured to Comply with Wage Laws

In order to provide incentive for growth, many companies hire marketers and other employees on a
commissions basis. This often results in additional business for the company, and potentially, represents a win-win situation for both the employer and the employee. Because the calculation of commissions can become complicated, employers should always set forth commissions guidelines in a written policy or employment agreement with the employee.

One of the primary objectives of any written document is to eliminate ambiguities that may lead to disputes between the employee and employer. For example, the document should clarify the circumstances under which revenues realized by the company will be deemed to be attributable to the employee’s efforts. In addition, the document should accurately define the baseline for calculating the commissions (e.g., profitability, growth, revenue).

Importantly, commissions policies should also discuss the circumstances under which employees will be paid commissions following their termination. If left unaddressed, this issue has the potential for creating disputes between the employer and the employee following the employee’s termination, particularly if the termination is Trademark Owners Must Act Quickly in Asserting Their Rightsinvoluntary. Some employers have attempted to address this issue by requiring the employee to be employed at the time the commissions are paid. Under such a plan, if commissions were "earned" in May, but not payable until July, the employee would not be entitled to receive those commissions if his employment was terminated in June. Although this type of provision may be to the advantage of the employer, it may also violate applicable state wage payment laws.

In one case, Medex v. McCabe, 372 Md. 28, 811 A.2d, 297 (2002), the Maryland Court of Appeals held that a commissions plan that conditioned payment on continued employment conflicted with the employee’s statutory right to payment under the Maryland Wage Payment Collection Act. In that case, an employer refused to pay commissions to a terminated employee because he was unemployed at the time the commissions were to be paid. The Court held, however, that the Wage Payment Collections Act required employees to receive all remunerations for work performed, regardless of any ensuing termination of employment. Because the employee had completed all sales upon which commissions were based, the Court held that the company was statutorily required to pay him those commissions regardless of the language of the employment contract.

Accordingly, plans that condition payment of commissions on the individual’s employment at the time of the payment may be in violation of applicable state wage payment laws. These laws vary by state and should be reviewed prior to establishment of a commissions policy.



Congressional Amendments Stall OMB’s A-76 Rewrite

Two spending bills, one already passed in the House and the other recently signed into law by the President, include setbacks to the Administration’s full implementation of the Office of Management and Budget’s Revised Circular A-76. On September 9, 2003, the House passed the Transportation and Treasury Appropriations Act for 2004 (H.R. 2989) which would deny funding for the revisions. Also, on September 30, 2003, the President signed into law the Defense Appropriations Act of 2004, which eliminates A-76’s streamlined procedures. These bills, if indicative of the congressional mind-set, could seriously jeopardize the effectiveness of the Revised Circular A-76.

By way of background, the final revisions to A-76 were released on May 29, 2003. These revisions reflected the Administration and OMB’s desire to streamline the federal procurement process by allowing for greater competition in government contracting. The final version eliminated most direct conversions (i.e. the outsourcing of government work without public-private competition), and implemented a streamlined public-private competitive process. Also, federal agencies would lose certain advantages they had been able to utilize in the public-private competition process. OMB believes public/private competition and market-based initiatives for government contracts would help to make the process more efficient and save taxpayers money. OMB’s A-76 rewrite may put many federal government jobs on the line due to more stringent competition requirements.

The Transportation and Treasury Appropriations Act for 2004, which was passed by an overwhelming margin, contains an amendment offered by Congressman Chris Van Hollen of Maryland. The Van Hollen amendment would stall the Administration’s plan to implement the rewrite of the Revised Circular A-76 by denying funding. The amendment states, "[n]one of the funds made available by this Act may be used to implement the revision to [OMB] Circular A-76 made on May 29, 2003."

The Defense Appropriations Act of 2004, which the President signed into law on September 30, 2003 applies only to the Department of Defense. Under the Act, contracting opportunities would not be subject to the new streamlined competitive sourcing procedures outlined in the most recent revision to A-76 because of an amendment to section 8014.

The amendment, authored by Senator Edward Kennedy of Massachusetts, eliminated A-76’s streamlined procedures and set forth new criteria describing the circumstances under which a contract can be directly converted. Under this language, the contract may not be directly converted if it involves an activity or function performed by 10 or more civilian workers, unless that conversion results from a public/private competition and a competitive sourcing official determines that the contractor’s cost to DOD will be at least 10 percent or $10 million less than the functions performed by agency personnel.

The Kennedy amendment does not apply to functions planned for conversion to qualified firms that are 51 percent owned by a tribal business certified under the Small Business Act. Also, any conversion under the Act will be credited toward an agency’s competitive or outsourcing goals or targets previously established by law.

As noted, the enactment of Congressman Van Hollen’s amendment would effectively suspend implementation of the new A-76 procedures and leave the old procedures in effect. Unlike the Kennedy amendment, the Van Hollen amendment would apply to all federal civilian agencies. In an official press statement, Congressman Van Hollen said, "this legislation ensures that we have an even playing field when the federal government decides to hold a competition to contract out federal jobs and services to private contractors. Federal employees are more than willing to submit to a competitive process, but they shouldn’t be asked to do it with one hand tied behind their backs." He believes that competitive sourcing was more even-handed under the former A-76 requirements and that the new Circular would tip the competition scales in favor of private contractors.

This policy disagreement pits a pro-market based Administration procurement strategy against legislators seeking to protect federal workers. Not all lawmakers that represent a sizeable portion of federal employees voted for the Van Hollen amendment. Government Reform Committee Chairman, Congressman Tom Davis of Virginia, supported giving the new Circular a chance. Both sides contend that their method will save taxpayers money and lead to improved government services.



DOD Issues Interim Eule on Management Structure for Performance Based Contracting

To implement Section 801(b) of the National Defense Authorization Act for Fiscal Year 2002, the Department of Defense is amending the Defense Federal Acquisition Regulation Supplement (DFARS) concerning the procurement of services. As stated in the Federal Register: "The rule prohibits the acquisition of services through use of a DoD contract or task order that is not performance based, or through any contract or task order that is awarded by an agency other than DoD, unless certain approval requirements are met" (emphasis added). Although the notice’s language does not specifically reference contracts for the purchase of services through GSA Schedules, such contracts and orders are thought to be subject to the approval requirements presently being formulated by the various services under DoD.

Comments are due December 1, 2003 and may be submitted directly on the Web at http://emissary.acq.osd.mil/dar/dfars.nsf/pubcomm.



Agencies Issue Final rules Affecting Government Contracts

On October 1, 2003, the Department of Defense, the General Services Administration and the National Aeronautics and Space Administration published in the Federal Register several proposed and final rules that will impact government contractors. The following is a brief synopsis of the most relevant of those rules.

Central Contractor Registration – This final rule requires contractors who do business with DOD to register in the Central Contractor Registration (CCR) database prior to the awarding of all contracts, basic agreements, basic ordering agreements, or blanket purchase agreements on or after October 1, 2003. Contractors executing awards in effect prior to October 1, 2003 and extending beyond December 31, 2003 must also register. The contractor registration deadline is December 31, 2003.

Electronic Commerce in Federal Procurement – This final rule creates a single point of entry for all government-wide solicitations as http://www.fedbizopps.gov. Agencies are required to post procurement opportunities on this site.

Procurements for Defense Against or Recovery from Terrorism – This final rule increases the micro-purchase threshold from $2,500 to $7,500/$15,000 and the simplified acquisition threshold from $100,000 to $200,000/250,000 when the government procures supplies or services for an executive agency. The supplies or services must be used in the defense and/or recovery from acts of terrorism or nuclear, biological, chemical or radiological attack.

Notification of Overpayment – This final rule requires the government contractor to notify the contracting officer when the government overpays an invoice or contract financing payment under either commercial or noncommercial item contracts.



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