ABSCA Confirms Contractors May Challenge Unfavorable CPARS Ratings

While you might not be able to fight City Hall, you can fight your CPARS rating. In a short opinion published last week, the ASBCA confirmed it has jurisdiction to annul an inaccurate and unfair government evaluation of a contractor’s performance. Cameron Bell Corporation d/b/a Government Solutions Group, ASBCA No. 61856 (May 1, 2019).  Though the ASBCA cannot require the government to issue a specific rating, it can remand the matter to the contracting officer with instructions to redo the evaluation ─ a perhaps imperfect, yet still potent form of relief available to contractors who believe the government has improperly rated their contract performance.By regulation, contractors are entitled to rebut a negative evaluation of their performance in the Contractor Performance Assessment Reporting System, or CPARS. FAR 42.1503(d).  A contractor’s rebuttal submission typically is due within 14 calendar days of the date the agency invites the contractor to respond. See id. If this proves unsuccessful, a contractor may challenge the CPARS rating by submitting a claim with the contracting officer under the Contract Disputes Act (CDA).  See, e.g., Cameron Bell, ASBCA No. 61856, 2019 WL 2067642 (May 1, 2019).  Then, if the contracting officer denies the claim, the contractor can appeal the decision to an appropriate Board of Contract Appeals or the United States Court of Federal Claims.

That is precisely what the contractor did in Cameron Bell.  There, a contractor challenged a less-than “Satisfactory” rating of its performance in a CDA claim.  After the contracting officer denied the claim, the contractor appealed to the ASBCA seeking various forms of injunctive relief.  The government moved to dismiss the appeal for lack of jurisdiction.  But the Board denied the government’s motion in part, finding that the ASBCA has jurisdiction to “assess whether the contracting officer acted reasonably in rendering the disputed performance rating or was arbitrary and capricious and abused his discretion.”  Id. The Board also noted, that while it lacks authority to “order the government to revise a CPARS rating,” the ASBCA “may remand to require the contracting officer to follow applicable regulations and provide [a contractor] a fair and accurate performance evaluation.” Id.

The Cameron Bell decision provides a few helpful reminders to contractors who are considering whether to challenge a negative CPARS rating.  First, the governing regulations provide contractors a basis for establishing that the government has issued a CPARS rating in an arbitrary and capricious manner.  The FAR includes definitions of each rating (i.e., Exceptional, Very Good, Satisfactory, Marginal, Unsatisfactory) and outlines the information the government must provide to justify the rating it assigns.  See FAR 42.1503 and Table 42-1 (Evaluation Ratings Definitions).  These objective guidelines allow contractors to challenge a negative CPARS rating if, for example, the government’s determination is based upon inaccurate, incomplete, inconsistent or otherwise unsupported information or statements.

Second, contractors should be aware that, while the ASBCA cannot order an agency to issue a higher CPARS rating, the Board can direct the government to conduct a “fair and accurate” evaluation of the contractor’s performance in accordance with law and regulation. In many cases, an order remanding a CPARS rating for reevaluation will result in only partial relief for the contractor ─ e.g., where the agency must simply do a better job of explaining why it assigned a low rating. But in other cases, such an order will require the agency to meaningfully reexamine the rating in light of the contractor’s record of performance, the objective guidelines in FAR Subpart 42.15 and the particular challenges raised by the contractor on appeal.  See, e.g., DOD OIG, “Summary of Audits on Assessing Contractor Performance: Additional Guidance and System Enhancements Needed,” (May 9, 2017) at 11 (criticizing the assignment of a “marginal” rating where the agency did not explain the contractor’s purportedly “significant” performance failure and where the evidence showed the alleged failure had no impact on the agency).

Third, contractors also should keep in mind that, in certain circumstances, they may be entitled to recover monetary damages if they can show the government’s arbitrary and capricious performance evaluation “constituted bad faith and a breach of the [agency’s] duty of good faith and fair dealing.”  See, e.g., Government Services Corp., ASBCA No. 60367, 16-1 BCA ¶ 36,411.   Though it can be challenging to prevail on a claim for breach of the duty of good faith and fair dealing, it undoubtedly is a viable theory of recovery in many CPARS rating cases, particularly those where there is clear evidence of government bias or overreach that can be developed further through discovery.  Cameron Bell, 2019 WL 2067642 (“We also have jurisdiction to determine whether the government breached the implied contractual duty of good faith and fair dealing, an issue that [the contractor] raised in its claim to the contracting officer”).

 At bottom, the ASBCA’s decision in Cameron Bell is a helpful reminder that contractors have recourse when they are assigned a less-than positive CPARS rating. Contractors should familiarize themselves with the CPARS process ahead of time so that they can quickly identify the evidence needed to rebut a negative rating and, if necessary, challenge the rating in a CDA claim.

House Financial Services Committee Passes BSA/AML Overhaul Legislation

On May 9, 2019, the House Financial Services Committee (“HFSC”) unanimously approved an amendment in the nature of a substitute to H.R. 2514, the Coordinating Oversight, Upgrading and Innovating Technology, and Examiner Reform Act (the “COUNTER Act” or the “Act”).  The COUNTER Act, introduced by Representative Emanuel Cleaver (D-MO) would be the first major reform of the Bank Secrecy Act, 31 U.S.C. §§ 5311 et seq. (“BSA”) and related anti-money laundering (“AML”) regulations since 2001.  The COUNTER Act will now move to the House floor for debate.  The HFSC postponed a vote on a related bill that is aimed at combating illicit financial activity in anonymous shell companies and that would require most corporations and limited liability companies to disclose beneficial ownership information at the time of incorporation. Continue Reading

Department of Defense Releases Annual Report to Congress on the Military and Security Developments Involving the People’s Republic of China

The Department of Defense (“DoD” or “the Department”) released its annual report to Congress on the Military and Security Developments Involving the People’s Republic of China (“PRC”) on May 2, 2019. This annual report details DoD’s assessment of Chinese security strategy and military strategy over the next 20 years, with a particular focus on China’s future course of military-technological developments. The Secretary of Defense sends both a classified and unclassified version of the report to Congress each year to fulfill the requirements of Section 1202 of the National Defense Authorization Act for Fiscal Year (“FY”) 2000, as amended by Section 1260 of the NDAA for FY 2019. Notably, the 2019 amendments refined the scope of the reporting requirements to include elements regarding emerging efforts by the PRC on espionage, technology transfer, economic pressure, political coercion, information operations, and predatory lending under its Belt and Road initiative.

The report highlights significant strategic challenges presented by Chinese foreign and military policy.  Its tone underscores sharp differences with several recent policy decisions and comments that take a more accommodating view of Chinese policy.  The UK defense minister, for example, was recently ousted over a leak concerning Britain’s proposed decision to allow Huawei to participate in certain parts of its 5G network.  The DoD report, by contrast, describes serious threats from China’s coercive military-civilian strategy.  China is taking major steps to modernize its military capabilities and can force cooperation under its laws from all potential sources of innovation within its borders.

Industry leaders in the United States should take note of this approach.  As they engage with U.S. government leaders and policy makers, it will be important to look for ways to continue building on key innovation efforts in the United States, and with allies and partners, to harness dual-use emerging technologies for future capabilities. The report also makes clear that cybersecurity and counter-espionage protocols will be key to thwarting efforts of the Chinese government – acting either through governmental agencies or through Chinese companies – to gain insight into the military and industrial capabilities of the United States. Continue Reading

China Amends Trade Secret Law to Further Favor Rights-Holders

On April 23, 2019, the Standing Committee of the National People’s Congress of China passed a bill amending China’s Anti-Unfair Competition Law (“AUCL”). Changes made by the amendment bill took effect on the same day. Further to the last amendment to the AUCL in 2017, the newly introduced burden-of-proof shifting and punitive damages rules will significantly enhance the protections for trade secret right holders.

New burden-of-proof shifting provision will substantially favor trade secrets rights-holders

The most significant change in the amendment is a new burden-of-proof shifting provision with respect to right holder’s establishment of (1) the existence of a trade secret, and (2) the existence of misappropriation. Under the new rules, the burden on the plaintiff is lowered to require only prima facie evidence on these two elements, after which the burden shifts to the defendant to disprove the existence of a trade secret or misappropriation.

According to the first paragraph of Article 32, when a trade secret rights-holder presents prima facie evidence reasonably demonstrating that it has taken confidentiality measures with respect to its alleged trade secret and it was nonetheless misappropriated, the burden then shifts to the defendant to disprove that the asserted information is a trade secret. This is a significant departure from the previous rules, which placed a heavy burden on a trade secret plaintiff to show that the asserted trade secret was not “known to the public.” This issue was frequently the most fiercely-litigated as it serves as a threshold objective defense. Typically proving this point would require the court to rely on a report from an independent judicial appraisal agency, at the plaintiff’s cost. This change is likely to allow plaintiffs to cement their evidence supporting trade secret status and require defendants to instead bear burden to refute claims of trade-secret status.

The second paragraph of Article 32 provides that a trade secret rights-holder can rest on prima facie evidence which reasonably shows that its trade secret has been misappropriated, and also provides evidence supporting that either (1) defendant has an opportunity to access the trade secret, and the information that defendant has used is substantially similar to the trade secret; or (2) the trade secret has been disclosed or used, or there is a risk of being disclosed or used, by defendant. When this prima facie showing has been made, a defendant then has the burden to prove that it has not misappropriated the trade secrets. Due to the lack of fulsome common law-style discovery, parties in trade secret litigation in China frequently find it difficult, if not impossible, to obtain evidence from a defendant to support a claim for misappropriation. By allowing the inference of misappropriation and shifting the burden-of-proof, the new AUCL will help remove this obstacle and compel an accused infringer to present evidence in its possession to try and defeat such a claim.

Enhanced monetary remedies by creating up to fivefold punitive damages and increasing statutory damages cap

Notably, the new AUCL provides for the court to amplify exemplary damages up to five times in cases of willful and malicious misappropriation. This is unprecedented in China’s Trade Secret Law and is intended to serve a punitive purpose. Article 17 of the new AUCL permits the court to exercise the discretion in granting punitive damages where willful misappropriation reaches a “serious degree”. How subsequent legislation and judicial interpretations will define “serious degree”, as well as the more general issue as to how the new willful misappropriation rules will change the legal landscape and parties’ litigation strategies, remains to be observed by practitioners and interested parties.

Article 17 also further increases the upper limit of statutory damages from RMB 3 million (approximately US$ 446,400) in the 2017 AUCL to RMB 5 million (US$ 744,000). As noted in our analysis of the 2017 AUCL amendment, courts in China frequently award statutory damages due to the inability of the injured party to acquire information on an infringer’s unjust gains. This further substantial increase can be expected to provide further relief to right-holders and encourage more right holders to assert trade secret claims that may have seemed too marginal under the old damages limits.

Stronger enforcement power granted to the administrative authority

The new AUCL also grants more enforcement powers to the administrative regulator under the AUCL, the State Administration for Market Regulation (“SAMR”) and its local branches. Previously the SAMR could pursue an administrative investigation into alleged trade-secret theft and was authorized to conduct on-site inspection and dawn raids, sealing and seizing property related to the alleged illegal acts, and further could obtain information on an alleged infringer’s bank accounts. The new AUCL further empowers the SMAR to forfeit the illegal gains from the misappropriation. In addition, the amendment further escalates the range of fines that can be imposed by SAMR. Previously the SAMR could levy a fine ranging from RMB 100,000 (approximately US$14,880) to RMB 500,000 (US$ 74,400), increased to RMB 500,000 (US$ 74,400) to RMB 3 million (US$ 446,400) for severe cases. Under the new AUCL the higher end of these ranges are increased to RMB 1 million (US$ 148,800) and RMB 5 million (US$ 744,000) respectively. These changes can be expected to increase the deterrence against trade secret theft in China.

 Industry Weighs In on Potential “Emerging Technologies” Export Controls

The U.S. government is now considering how to define potential new export controls on “emerging technologies.” Our article in the China Business Review explains the legislative context informing the current rulemaking process, highlights key themes in public comments submitted by stakeholders in response to an initial request for input, and offers recommendations for companies and trade associations aiming to stay ahead of the curve.

A Chinese translation of the article is available here.

This Week in the European Parliament– April 19, 2019

Summary

This week was the last plenary session of this Parliament.  The Parliament finalized most of its pending initiatives before the elections in May.

We highlight some of these files below.

On Tuesday, April 16, the Members of the European Parliament (“MEPs”) debated a report on a proposal for a Regulation amending Regulation No. 469/2009 concerning the supplementary protection certificates (“SPC”) for medicinal products.  The proposed Regulation is intended to benefit EU producers of generic medicine and biosimilar products, and increase access to high quality and affordable medicines in the EU.  The proposed Regulation would introduce an exception by which EU-based manufacturers of generics and biosimilars may manufacture a generic or biosimilar version of an SPC-protected medicine during the term of validity of the SPC, provided that this is done solely for the purpose of export to a non-EU market where intellectual property protection has expired or never existed.  See the draft report here and the proposed Regulation here.

On Wednesday, April 17, the Parliament adopted its position at first reading on the proposed Regulation on Transparency and Sustainability of the EU Risk Assessment in the Food Chain.  The Regulation amends the General Food Law Regulation as well as eight legislative acts focused on specific sectors of the food chain.  Among other things, the Regulation calls for ensuring more transparency by providing citizens with access to studies and information that industries submit in the risk assessment process.  It would also bolster the role of the European Food Safety Authority (“EFSA”).  Member States will be required to nominate a number of experts to the EFSA Scientific Panels.  The Authority will also be notified of all studies commissioned so that it can ensure that companies submit all relevant information.  The Council of the EU still needs to agree the position for the Regulation to become law.  See the Parliament’s position at first reading here.

On the same day, the Parliament also adopted its position at first reading on a proposal for a Directive on Better Enforcement and Modernisation of EU Consumer Protection Rules.  The proposed Directive amends four Directives dealing with the protection of the economic interests of consumers.  Among other things, it bans ‘dual quality’ products, i.e., the marketing of a product as being identical in different Member States, where those products have different characteristics or composition.  The Council of the EU will also have to agree its stance on the proposal.  See the Parliament’s position here.

As the Parliament will now enter into recess, your Week in the European Parliament will return in July 2019.

Meetings and Agenda

  • No meetings scheduled before July 2019.

Congressional Investigations and the Rules of the 116th Congress

With Congress heavily engaged in launching and pursuing new congressional investigations, particularly since the Democratic takeover of the House of Representatives, many of our clients have questions regarding the rules that govern congressional investigations. While many aspects of congressional investigations are not subject to any rules at all, the House, Senate, and their respective committees do have some rules governing subpoenas, depositions, and confidentiality.

Yesterday, Covington issued a client advisory that provides a detailed catalog of the rules applicable to congressional investigations, reflecting changes that have been adopted since the new Congress organized itself in January.

Senators Question the Administration’s Space Force Proposal

The Senate Armed Services Committee heard testimony last week from Acting Secretary of Defense Pat Shanahan, Secretary of the Air Force Heather Wilson, Marine General Joe Dunford (Chairman of the Joint Chiefs of Staff), and Air Force General John Hyten (Commander of U.S. Strategic Command and the presumptive next Vice Chairman of the Joint Chiefs).

The witnesses presented unified support for the creation of the Space Force. Secretary Wilson, notably, voiced support for the proposal, which would put the new Space Force under the Air Force.  That structure mimics the design of the Marine Corps and the Department of the Navy; Wilson acknowledged that she had previously been critical of proposals that would establish a new independent department for space.  From the perspective of continuity, the key testimony came from General Hyten; both Wilson and Dunford are lame ducks, and Shanahan’s nomination for Secretary remains uncertain.  Many of the Senators voiced concerns about the fundamental need for a Space Force and the significant bureaucratic expansion contemplated by the proposal.

It was clear from the hearing that the Administration and the Department still have much to do to market this Space Force proposal to the Congress.  Given the reactions so far, it is extremely unlikely to be included as written in the Fiscal Year 2020 National Defense Authorization Act. While Congress continues to debate the proposal, now is the window to engage with the congressional defense committees with comments on the proposal and suggestions for how to modify it. Continue Reading

Now In Congress: Budget, Nominations, Mueller Report

April began with Washington learning of the first-quarter fundraising hauls of Democratic presidential hopefuls, many of whom are current or former senators and House members. Meanwhile, several additional potential presidential candidates continue to weigh their options for jumping into the race, with much of the attention on former Vice President Joe Biden, who is trying to decide whether to run amidst multiple allegations that he initiated unwelcome physical contact with women whom he encountered in public settings over a period of years.

But even as the nascent 2020 presidential primary race captures much attention, both chambers of Congress grapple with difficult decisions on the budget and appropriations bills. And there is high partisan rancor over the prospect of Congress requiring the U.S. Department of Justice to publicize much of the report of special counsel Robert Mueller, even as Senate Republicans have again changed the Senate’s procedure regarding debate over nominations, and now seek to capitalize on those changes with rapid Senate floor confirmations.

During the first week of April, the House passed a resolution restricting the authority of the United States to use military force in Yemen, absent specific congressional approval. The resolution had previously passed the Senate, where it was sponsored by progressive presidential candidate Sen. Bernard Sanders, I-Vt. This could pave the way for President Donald Trump to issue the second veto of his presidency. The House in late March was not able to override his first veto, of a congressional resolution disapproving of his use of the statutorily created emergency designation to help fund a United States southern border wall.

Last week the House also passed legislation reauthorizing the Violence Against Women Act, with some new gun possession restrictions included that are opposed by the National Rifle Association. Most House Republicans voted against the bill. That bill, and those provisions in particular, face an uncertain fate in negotiations with the Republican-controlled Senate. The House is now preparing to take up legislation gradually increasing the federal minimum wage to $15.00 per hour by 2024. That bill, having passed the House Committee on Education and Labor, appears poised for House floor action sometime this spring.

The Senate has commenced the month of April with two Senate floor disputes. The first dispute, over how much assistance Puerto Rico should receive as part of disaster supplemental funding legislation, has led to a stalemate, with neither side able to muster the 60 votes needed to move a disaster funding package forward. The Senate did take initial steps to move forward with debating the House-passed disaster supplemental package, but the Trump administration was critical of the Puerto Rico aid portion of the package, and is working with Senate Republicans to trim it. It is unclear whether the Senate can find compromise, or try to defer the dispute for a possible conference committee with the House.

A second dispute on the Senate floor involves a failed effort by Senate majority leader Mitch McConnell, R-Ky., to push legislation sponsored by Sen. James Lankford, R-Okla., which would have changed the Senate’s procedures regarding post-cloture debate over many types of presidential nominations. Democrats opposed the changes, and the Lankford legislation failed, but Republicans moved to implement the changes anyway with respect to particular nominations on the Senate floor, the first being that of Jeffrey Kessler to be an assistant secretary of commerce.

These tactics, which limit the options available to the minority party or to those senators who oppose a particular presidential nomination, will surely increase the amount of partisan hostility in the upper chamber. But having forced through the changes, McConnell is now seeking to capitalize on them by filling the Senate’s floor agenda with nominations.

Both the Senate and the House of Representatives have been conducting oversight committee hearings relating to Trump’s fiscal year 2020 budget request. But each chamber is pursuing its own course on budget objectives. Senate Budget Committee chairman Michael Enzi, R-Wyo., brought Senate budget legislation before his committee, which marked up the bill over a two-day period and prepared it for potential action on the Senate floor. House Budget Committee chairman John Yarmuth, D-Ky., appears to be preparing to opt instead for a budget strategy of raising caps on discretionary spending put in place during the Obama years, in a manner that might lead to a more generous new cap on discretionary nondefense spending than on the defense budget.

While Yarmuth points to “parity” in the raising of the caps between defense and nondefense discretionary spending, many House Democrats would prefer a higher nondefense cap. The legislation could reach the House floor this week. This House tactic of raising the caps to parity with defense, or to a more generous level for nondefense spending, would place House Democrats at odds with the White House, which appears to favor generously raising the caps on defense discretionary spending only.

As Congress and the Trump administration are headed towards an impasse over the budget, Congress also has begun work on 12 appropriations bills. Looming over that process is how to address Trump’s request for a large appropriation in the Homeland Security bill for his southern border wall. Adding fuel to the impasse was U.S. Department of Homeland Security secretary Kirstjen Nielsen’s abrupt resignation, and Trump’s withdrawal of his pending nomination of Ron Vitiello to be the next director of U.S. Immigration and Customs Enforcement.

Vitiello continues to serve in an acting role, and is scheduled to testify before Congress this week. While budget legislation is not required to be passed to keep the government functioning, inability to pass a spending package because of the continued stalemate over a southern border wall could lead to a lapse in appropriation, and another federal government shutdown.

House Democrats are pressing to see, and make public, the Mueller report on Russia’s attempts to influence the 2016 U.S. election, and any involvement of Trump and his advisers in that effort. The House Judiciary Committee voted on Wednesday, April 3, to empower its chairman, Jerrold Nadler, D-N.Y., to issue subpoenas for the Mueller report after the U.S. Department of Justice declined to release the report, and U.S. attorney general William Barr issued a summary of the report that limits the wrongdoing attributable to the broader Trump network — a summary which many Democrats believe might overly favor the president in its interpretation. Barr is testifying on the U.S. Department of Justice budget request this week, and is facing questions about his actions related to the Mueller report.

At the end of this week, Congress is scheduled to break for a two-week April recess, returning to round out the month in session.

This article also was published in Law360.

Congress Amends LDA Forms to Require Reporting of Lobbyist Convictions

The recent passage of the Justice Against Corruption on K Street Act of 2018 (“JACK Act” or the “Act”) imposes new requirements on those registering and filing reports under the Lobbying Disclosure Act (“LDA”). The Act amends the LDA to require that LDA registrants disclose listed lobbyists’ convictions for criminal offenses involving bribery, extortion, embezzlement, illegal kickbacks, tax evasion, fraud, conflicts of interest, making a false statement, perjury, or money laundering.Background

The JACK Act was inspired by Jack Abramoff, whose alleged corrupt lobbying activities placed him at the center of a political scandal that led to the conviction of more than twenty lobbyists, congressional aides, and politicians. Between 2006 and 2008, Abramoff himself was convicted of crimes including fraud, tax evasion, conspiracy to bribe public officials, and bribery of public officials. After serving four years in federal prison, Abramoff emerged as a purported political reformer, only to begin lobbying again.

The Law

Congress passed the JACK Act in response to Mr. Abramoff’s post-prison lobbying activities, in order to shed light on registered lobbyists with prior convictions. The Act specifically amends the LDA’s registration (form LD-1) and quarterly reporting (form LD-2) requirements to require registrants to report the date of conviction and a description of the offense “for any listed lobbyist who was convicted in a Federal or State court of an offense involving bribery, extortion, embezzlement, an illegal kickback, tax evasion, fraud, a conflict of interest, making a false statement, perjury, or money laundering.” Those who violate the JACK Act’s requirements are subject to the civil and criminal penalty provisions of the LDA. Those provisions establish civil penalties of up to $200,000 in fines for lack of compliance with LDA requirements or failure to appropriately remedy defective filings following notification. On the criminal side, those who “knowingly and corruptly” fail to comply with LDA requirements may be fined, imprisoned for up to five years, or both.

Going Forward

Amendments to Q4 2018 reports. The JACK Act took effect on January 3, 2019. As a result, any fourth quarter lobbying activity reports filed after January 3 are thus subject to its requirements.  Although guidance released by the Clerk of the House of Representatives is ambiguous as to whether all registrants are required to amend Q4 2018 reports if they were filed on or after January 3, the Office of the Secretary of the Senate has confirmed to Covington that registrants with no reportable convictions need not amend registrations or quarterly reports filed on or after January 3. However, registrants who have relevant convictions to report must file an amendment to their Q4 2018 reports, if those reports were filed on or after January 3. Guidance from the House Office of the Clerk provides additional information about how to disclose required information.

Future reporting. Moving forward, the JACK Act requires LDA registrants to take additional steps before filing lobbying disclosures. LD-1 and LD-2 forms now ask registrants to indicate whether or not lobbyists have reportable convictions, on lines 15 and 29, respectively. The LDA online filing system has been updated accordingly. To ensure filings are accurate, registrants should therefore conduct internal due diligence to identify any registered lobbyists’ reportable offenses. This diligence process could take a variety of forms, but it should at a minimum capture information concerning newly registered lobbyists and should provide a mechanism requiring all lobbyists promptly to inform those responsible for filing the registrant’s forms LD-1 and LD-2 of any relevant convictions. Because a lobbyist’s reportable convictions must be disclosed publicly on all future registrations or quarterly reports listing that lobbyist, registrants should be prepared for the reputational concerns and public scrutiny that may arise from employing or retaining a lobbyist with a reportable criminal history.

If you have any questions concerning compliance with the JACK Act, please contact a member of Covington’s Election and Political Law practice group.

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