Piliero Mazza & Pargament, PLLC     Vol. 4   Issue 1  Jan./Feb. 2002 

An Update for Federal Contractors and Commercial Businesses


A R T I C L E S


SMALL BUSINESS

Supreme Court Dismisses Most Recent Adarand Challenge




GOVERNMENT CONTRACTING

Bush Administration Revokes Controversial "Blacklisting" Rule



GOVERNMENT CONTRACTING

New DFAR Rules Published




LABOR RELATIONS

Non-Union Employees Allowed Witness During "Investigatory Interview"




SMALL BUSINESS

DOD Proposes Controversial Rule on Teaming Arrangements



SMALL BUSINESS

Supreme Court Dismisses Most Recent Adarand Challenge

On November 27, 2001, the Supreme Court, less than a month after hearing oral arguments, the Supreme Court dismissed the latest Adarand case. Adarand questioned the constitutionality of the Department of Transportation's (DOT) recently-revised Disadvantaged Business Enterprise (DBE) Program.  (For background, see Nov./Dec. 2001 Legal Advisor).

The Court explained in a brief, unanimous opinion that the case's Acurrent posture" prevented it from ruling on the important constitutional questions presented.  Because the United States Court of Appeals for the 10th Circuit had addressed in its opinion only the constitutionality of the revised DBE Program regarding federal funding for state and local highway projects, Adarand was limited to that issue before the Supreme Court.  Adarand, however, did not challenge the DBE Program, which is governed by DOT regulations, but instead questioned the constitutionality of DOT's direct procurement program for projects on federal lands, which is governed by the Small Business Act and associated regulations.  The direct procurement program had not been considered by the 10th Circuit, and in fact, the Supreme Court opined that Adarand Constructors probably lacked standing to challenge it.

The minority small business community had been concerned that, in taking up Adarand again, the Supreme Court might broaden application of the strict scrutiny standard, and perhaps adversely impact race and gender-based set-aside programs, such as the 8(a) program.  Instead, the Court's dismissal leaves intact the 10th Circuit's holding that DOT's current rules are constitutional.  Nevertheless, other cases challenging similar programs are pending at this time.  If the Court agrees to review one of those cases, it may eventually be faced with issues it declined to address in Adarand.

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GOVERNMENT CONTRACTING

Bush Administration Revokes Controversial "Blacklisting" Rule

The end of 2001 meant the end of the controversial contractor responsibility rule, issued in the final days of the Clinton Administration. The rule ties the awarding of federal contracts to a contractor's record of "satisfactory compliance" with several labor and employment laws and other statutes not directly associated with federal procurement.

In the December 27, 2001 edition of the Federal Register, the Federal Acquisition Regulation (FAR) Council announced its decision to revoke the December 20, 2000 contractor responsibility rule. The rule, enacted under pressure from organized labor, required contractors to have a satisfactory record of compliance with labor and employment statutes and other federal laws related to taxation, the environment, antitrust and consumer protection. 

The rule, dubbed by critics as the "blacklisting" rule, generated a firestorm of controversy, including over 1,800 comments before it became final in December 2000.  Opponents of the rule argued that it would be easily abused, giving labor unions and special interest groups leverage with federal contractors in labor negotiations or other disputes.  Additionally, they foretold arbitrary application of the rule by contract officers lacking substantive experience in areas of law outside of federal procurement.  Several federal agencies also opposed the rule, arguing that it would damage the procurement process.  Within days after the rule was issued, a group of business organizations, including the Chamber of Commerce, Business Roundtable, National Association of Manufacturers, Associated General Contractors of America, and Associated Builders and Contractors, filed suit in federal district court seeking to have the rule declared unlawful.

With the change of Administrations, however, the rule's effectiveness was short-lived. In April 2001, the FAR Council issued a stay, and in June, it received public comments - almost 4,700 - and held a public hearing. The December 27, 2001 announcement stated that the rule had been revoked in its entirety.  The affected FAR sections were restored to their status prior to January 19, 2001.

In announcing the revocation, the FAR Council stated that it "wanted to be responsive to the needs of the contracting community."  The Council explained that it "fully supports the proposition that Government contracts should be awarded to law-abiding entities."  It noted, however, that the "problem lies in the means to ensure that the entities with which the Government conducts its business are good citizens and adhere to the myriad of regulations and laws."  It thus concluded that it "support[s] the objective but find[s] the vehicle unworkable and defective."

The Council noted that it found that "the current regulations governing suspension and debarment provide adequate protection to address serious threats of waste, fraud, abuse, poor performance, and noncompliance."  Ensuring contractor responsibility, the Council stated, "has been a long-standing policy and process of Government contracting dating prior to the Civil War" and "a responsibility shared by a number of individuals in the Government's contracting process."  The Council additionally reminded the public that, under the existing rules, "anyone may submit to an agency debarment official relevant information about the responsibility of a company seeking to do business with the Government."

The FAR Council also agreed with many of the issues raised by critics of the rule, including concerns that contracting officers lack expertise in other areas of law, and that the rule contained insufficient guidance to ensure consistent application.  The Council also noted that the rule could undermine competition, because contractors would be unwilling to spend money to submit offers unless they could ascertain the basis upon which responsibility determinations would be made with some degree of exactness and objectivity.  Additionally, the Council pointed out that, in practice, the cost allowability rules could shift the federal government away from longstanding policy of neutrality in labor-management disputes.

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GOVERNMENT CONTRACTING

New DFARS Rules Published

On December 6, 2001, the Department of Defense (DOD) published final and interim rules relevant to federal contracting.

The Multiyear Contracting regulation, published as a final rule, requires agency heads to report the impending award of sizable multiyear contracts to the congressional defense committees. Also, heads of agencies may not contract on a multiyear basis for services exceeding $500 million, unless a statute specifically authorizes such a contract. Additionally, multiyear service contracts for facilities management, maintenance or modification of military equipment, specialized training, and base services, are limited to five-year terms, with three-year renewal periods. 

An interim rule, also recently announced, permits use of procedures at FAR Part 12 for performance-based service contracts of $5 million or less. This will greatly streamline the acquisition process for small performance-based contracts because, under FAR Part 12, both solicitations and the process for evaluating proposals are greatly simplified.  For instance, solicitations for commercial items need not contain detailed sub-factors describing the technical capabilities of the items to be acquired.  Instead, a simple description of the items and their intended use is often adequate.  Likewise, the technical evaluation of commercial items might include examination of product literature, samples and warranty provisions, rather than a complex exercise for the scoring of multiple factors.

The rule allows contracting officers to use part 12 for any contract for services entered into before October 30, 2003, provided it has a value of $5 million or less.  The contract must also meet the definition of performance-based contracting at FAR 2.101 and use quality assurance surveillance plans.  Additionally, it must include performance incentives where appropriate, specify a firm-fixed price, and be awarded to an entity that provides similar services to the general public.  Contracts awarded under FAR subpart 13.5 (Test Program for Certain Commercial Items) are not eligible.

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LABOR RELATIONS

Non-Union Employees Allowed Witness During "Investigatory nterview"

The United States Court of Appeals for the District of Columbia Circuit has issued a key decision that affects all employers with non-unionized workforces.  In Epilepsy Foundation of Northeast Ohio v. National Labor Relations Board, the Court held that non-supervisory and non-managerial employees who are not union members may demand that a co-worker of their choice be present during any "investigatory interview."  Investigatory interviews are meetings in which an employer gathers information from an employee for possible disciplinary purposes.

The Court affirmed a decision issued by the National Labor Relations Board (NLRB) in July 2000. In that case, the NLRB reversed earlier decisions that had limited the right to have a co-worker present at investigatory interviews.  Prior to the July decision, only unionized employees were entitled to demand the presence of a co-worker during investigatory interviews.

In Epilepsy Foundation, two employees had prepared a memorandum that upset their supervisors.  As a result, one of the employees was ordered to attend a meeting with two supervisors.  The employee requested that the other employee with whom he had drafted the memorandum also be allowed to attend, but that request was denied.  The employee then refused to attend the meeting.  The following day, the employee was terminated for, among other things, "gross insubordination" for having refused to attend the meeting.  The NLRB ruled that the employee was wrongfully terminated and ordered the Epilepsy Foundation to reinstate him and compensate him for lost wages.

The NLRB has issued conflicting opinions on this issue over the years, as changing political winds have shifted its membership from liberal to conservative, and back again.  As background, in its 1975 decision, NLRB v. J. Weingarten, 420 U.S. 251 (1975), the U.S. Supreme Court ruled that employees who are union members have a right to have a co-worker present at an investigatory interview which the employee reasonably believes might result in disciplinary action.  A few years later, in the case Materials Research Corp., 262 NLRB 1010 (1982), the NLRB ruled that this right applied to all employees, regardless of whether they belonged to a union.  The NLRB determined in Materials Research that the right to have a co-worker present in investigatory hearings is rooted in section 7 of the National Labor Relations Act (NLRA), 29 U.S.C. § 157, which grants employees the right to organize "and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection."

Thee years later, however, a more conservative NLRB reversed the Materials Research ruling and determined that this right is limited to union members.  In Sears, Roebuck & Co., 274 NLRB 230 (1985), the NLRB ruled that extending the right to non-union employees is inconsistent with the NLRA because it infringes upon an employer's right to deal with employees on an individual basis when no union is present.  Shortly thereafter, however, in E.I. DuPont & Co., 289 NLRB 627 (1988), the NLRB modified Sears and determined that the NLRB's original ruling in Materials Research was, in fact, consistent with Weingarten, but that extending the right to have a co-worker present at investigatory interviews to non-union employees would be bad public policy.  The NLRB thus continued to limit the right to union members.

In Epilepsy Foundation, the NLRB expressly reversed its holding in E.I. DuPont.  By so doing, it came full-circle and reinstated its original holding in Materials Research that Weingarten requires employers to allow a co-worker to be present in investigatory interviews.  Two of the five Board members dissented.

Management advocates had been hopeful that the D.C. Circuit would reverse the NLRB.  The Court, however, held that the NLRB's decision was entitled to deference, provided it was a "reasonable" interpretation of the law.  The Court found that the NLRB's interpretation of the NLRA was reasonable, and added: "[i]t is a fact of life in NLRB lore that certain substantive provisions of the NLRA invariably fluctuate with the changing compositions of the Board."

As a result of the Epilepsy Foundation decision, all employers, regardless of whether their employees are represented by a union, should be aware that they are legally prohibited from denying a request by an employee to have a co-worker present during any investigatory interview which the employee reasonably believes might result in disciplinary action.  Failure to grant such a request could subject an employer to legal action.  However, employees need not be advised of their right to have a co-worker present.  In addition, supervisory and managerial employees are not entitled to have a co-worker present during investigatory interviews. 

An "investigatory interview" includes any interview that may reasonably be believed will give rise to disciplinary action.  Such interviews could include, for example, investigations arising from sexual harassment complaints or other work related misconduct.  Employees are not entitled to have a co-worker present at meetings which are not "investigatory," but which only convey the results of an investigation, or at which employees are informed of disciplinary actions that have already been decided.

The Court of Appeals' decision in Epilepsy Foundation is not necessarily binding on federal courts in jurisdictions outside the District of Columbia.  The decision, however, will likely be accorded significant weight by other federal courts.  It remains to be seen whether the Epilepsy Foundation will seek further review by the Supreme Court.  It should also be noted that, as the Court of Appeals observed in its decision, the NLRB's interpretation of the law often shifts with the changing political affiliations of its members.  The Board's members are appointed to fixed terms by the President.  Thus, the Board may again reverse course as President Bush fills vacancies left by members whose terms will expire.

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SMALL BUSINESS

DOD Proposes Controversial Rule On Teaming Arrangements

Many companies involved in government contracting know the value of exclusive teaming arrangements.  These arrangements are common, and are generally used by teams in joint contracting efforts to ensure that the efforts involved will solely benefit that team.  The "exclusivity" clause in teaming agreements (whereby the parties agree to work only with each other and not participate in any other team competing for the requirement at issue) has significant value, as it protects each party's competitive position and confidential information.

However, a proposed rule issued by the Department of Defense on November 1, 2001, could affect these exclusive teaming arrangements.  The proposed rule would amend the Defense Federal Acquisition Regulation Supplement to specify that some "exclusive" teaming arrangements could violate antitrust laws.  In particular, the rule provides that "exclusive" arrangements involving a company that is the "sole provider" of a product or service that is "essential for contract performance" and which "impairs competition" may be anti-competitive.  The proposed rule does not provide definitions of these terms or examples.

It is important to note that this rule is only a proposed rule.  The rule has already been criticized by many, including the American Bar Association Section of Public Contract Law.  A frequent criticism of the rule is that it is too broad, in that it gives no guidance as to when a teaming arrangement actually "impairs competition."  If implemented, the rule could have a "chilling effect" by discouraging companies from entering into legitimate teaming arrangements for fear of a referral to the Department of Justice.

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