On December 21, 2018, the U.S. Government Accountability Office (GAO) published a report analyzing contract and grant awards of Small Business Innovation Research (SBIR) funding to small businesses owned by multiple venture capital (VC) companies, hedge funds, or private equity firms between 2015 and 2018. In 2011, agencies were given the authority to award SBIR funds to small businesses owned by multiple venture capital companies, hedge funds, or private equity firms (investment companies and funds), however these awards were not to exceed either 25% or 15% of the agencies’ SBIR budgets depending on which agency was making the award. The GAO found that of the 11 federal agencies participating in the SBIR program, only three agencies (the Department of Health and Human Services’ National Institutes of Health (NIH), the Department of Energy’s Advanced Research Projects Agency-Energy (ARPA-E), and the Department of Education’s Institute for Education Sciences) awarded contracts or grants to small businesses majority-owned by multiple venture capital operating companies, hedge funds, or private equity firms. These three agencies made a total of 62 awards and obligated $43.6 million to such businesses from 2015 to 2018, only amounting to 0.1% to 2.7% of the three agencies’ total SBIR awards. Continue Reading Agencies Continue to Shy Away from Awarding SBIR Funds to VC/Private Equity-Backed Small Businesses
- Russian corporations de-listed through significant specific steps agreed to with OFAC
- Exporter settles for $7.7 million and agrees to comprehensive compliance measures
- OFAC outlines sanctions compliance best practices, expands oversight
As 2018 came to a close, the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) announced two actions that should be studied by any party subject to U.S. economic sanctions. OFAC is the U.S. government agency with principal responsibility for administering U.S. sanctions regulations.
First, on December 19, OFAC published a letter to members of the U.S. Congress announcing the agency’s intention to remove a group of Russian corporations from the List of Specially Designated and Blocked Persons List (SDN List) that OFAC maintains. As a general matter, U.S. individuals and entities are prohibited from engaging in any transaction with an SDN.
Then, on December 20, OFAC released its settlement agreement with Zoltek Companies, Inc. (Zoltek) for violations of the Belarus Sanctions Regulations. According to OFAC, the violations consisted of at least 26 transactions with an SDN.
These actions are quite different. But as described below, each includes very useful guidance about OFAC’s current view of sanctions compliance best practices. Continue Reading OFAC Actions Provide Guidance on Sanctions Compliance Best Practices
This year’s annual GAO Bid Protest Report to Congress, which was submitted on November 27, shows that the number of protests remained approximately the same as last fiscal year – up to 2,607 versus 2,596 for FY17. But, for attorneys who regularly practice before the GAO, there are some trends that may make filing an initial protest at the Court of Federal Claims (COFC) a more attractive option.
The overall sustain rate at GAO for FY18 was 15%, down slightly from FY17 (17%). But, when reviewing the sustain rate, it is important to keep in mind that GAO issued only 622 bid protest merit decisions in FY18, and that the “effectiveness rate,” which the GAO defines as the protester obtaining some form of relief from the agency, was 44%.
While the effectiveness rate continues to be over 40%, the FY18 report shows a precipitous decline in the number of bid protest hearings at GAO over the past five years. In FY14, hearings were held in 42 fully developed cases, or 4.7%. In FY18, that dropped to only five cases, or .51%.
- Penalties imposed for violations of U.S. sanctions on Russia and Ukraine
- Violations identified during pre-acquisition due diligence on contractor
- Denied persons screening was conducted but missed prohibited parties
In late November 2018, the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) announced that Cobham Holdings, Inc. agreed to pay $87,507 to settle violations of U.S. sanctions on Ukraine and Russia.
Violations Identified During Pre-acquisition Due Diligence
According to OFAC, the violations were committed by Cobham’s former subsidiary, Metelics, prior to the sale of Metelics to MACOM. It was MACOM that identified the violations during due diligence related to its acquisition of Metelics. And it was presumably MACOM that required Cobham to make the voluntary disclosure to OFAC that led to the penalty in this matter.
The penalty is small by recent OFAC standards. (For example, it is about 620 times less than Societe Generale paid to OFAC as part of its global settlement of sanctions violations.)
But as a cautionary tale, the Cobham matter is important to any exporter.
I provided insight on the Export Control Reform Act – a law passed in August 2018 that will limit exports of some emerging technologies to curb national security threats and espionage. Some technology groups fear that the Commerce Department, which regulates most U.S. exports, will too broadly define which emerging technologies should be covered by the law. As I noted, this could result in “a more onerous review process for non-U.S. parties that seek to invest in these technologies.”
The full article, “Tech Giants Worry Commerce Going Too Far to Block China Exports,” was published by Bloomberg Law on December 10, 2018, and is available online (subscription required).
On November 5, 2018, the Federal Circuit held in a precedential decision that bonding requirements in FAR 52.228-15, “Performance and Payment Bonds—Construction,” were read into all construction contracts by operation of law at the time of award, pursuant to the Christian doctrine. FAR 52.228-15 requires an offeror in any construction contract valued over $150,000 to furnish performance and payment bonds:
Performance and Payment Bonds—Construction (OCT 2010)
(b) Amount of required bonds. Unless the resulting contract price is $150,000 or less, the successful offeror shall furnish performance and payment bonds to the Contracting Officer as follows:
(1) Performance bonds (Standard Form 25). The penal amount of performance bonds at the time of contract award shall be 100 percent of the original contract price.
(2) Payment Bonds (Standard Form 25-A). The penal amount of payment bonds at the time of contract award shall be 100 percent of the original contract price.
I recently provided insight for a Bloomberg Law article on the new interim rules implementing the Foreign Investment Risk Review Modernization Act (FIRRMA). The interim rules, which went into effect on November 10, broaden the authority of the Committee of Foreign Investment of the United States (CFIUS) – an interagency committee that reviews foreign investments in U.S. companies that could impact national security.
To implement the new interim rules, CFIUS is establishing a pilot program to carry out new requirements for foreign parties making investments, including non-controlling investments, in U.S. businesses involved in 27 explicitly designated industries that develop “critical technology.”
The Treasury Department imposed “pretty stringent, broad rules,” I explained. “The potential penalties are substantial, and the breadth of [covered] industries is pretty significant too. They could have limited it to a smaller subsection of industries.”
The full article, “CFIUS Review Law Sends ‘Critical’ Tech Companies Scrambling,” was published by Bloomberg Law on November 12, 2018, and is available online. Click here to read an earlier post on this blog further detailing the CFIUS pilot program.
On November 7, 2018, Global Trade Magazine republished a blog post that I wrote discussing recent changes to U.S. law that further restrict trade with individuals and entities in Russia. The changes further complicate an already-difficult situation for businesses working in and with the country.
You may access the original September 27 blog post on the Government Contracts and International Trade blog website. You may also access the full article, “Update on Russia: Restrictions Expanded to New Actors, Industries,” on the Global Trade Magazine website.
In an article published in the November 2018 issue of the ACC Docket, I co-authored an article with Elliot Burger, senior legal counsel at Linamar Corporation in Ontario, Canada discuss the expanding role of the Committee on Foreign Investment in the United States (CFIUS). CFIUS is the U.S. government committee that reviews transactions that could result in control of a U.S. business by a foreign person in order to determine whether the transaction could harm U.S. national security.
I recently authored an article for Strategic Consulting Solutions, Inc. (SCS) GovCon Advisor – a monthly news source for the government contracts industry. The article outlines the requirements of the Small Business Administration’s (SBA) All Small Mentor-Protégé Program (ASMPP), focusing on the Mentor-Protégé Agreement (MPA) and the recent Hendall case. As I point out, “The Hendall case is a great example of one of the primary business development benefits under the ASMPP – the ability for a large business and small business to form a joint venture and pursue a small business set aside contract as a team. Without the ASMPP JV affiliation exception – these businesses would normally be considered affiliates and unable to pursue the opportunity as a joint venture. The case also highlights the importance of carefully drafting the MPA and being very specific as to the benefits the protégé will receive.”
The full article, “SBA’s All Small Mentor-Protégé Program Provides Critical Affiliation Exception for Eligible Joint Ventures,” is available on the SCS website.