Federal Government and States Consider Banning U.S. Government Contracts with Companies Doing Business in Russia

Thus far, the Russia-Ukraine war’s primary impacts on Government Contractors have largely been in the export control and sanctions arenas.  However, that could change dramatically under new federal and state proposals.  

On the federal side, Representative Carolyn B. Maloney, Chairwoman of the House Oversight and Reform Committee, introduced the Federal Contracting for Peace and Security Act.  As drafted, the legislation would prohibit the United States from doing business with companies currently operating in Russia.  Specifically, the bill would prohibit awards, extensions and renewals of (i) prime contracts with any company if that company (or any parent, subsidiary, successor entity, or beneficial owner of such company) has done business in Russia during the “covered period of aggression” against Ukraine, and (ii) prime contracts that include subcontracts at any tier with such companies.  The bill would also require termination of existing covered contracts.  Notably, the bill defines the “covered period of aggression” as beginning on February 21, 2022.  Thus, even companies that have already ceased operations in Russia (but that did so after February 21) would be swept in by the bill.

The bill includes exceptions for (i) procurements that benefit Ukraine, either directly or through the efforts of regional allies, and (ii) procurements for humanitarian purposes to meet basic human needs.  Also, the head of an executive agency would be able to waive the bill’s requirements where termination of an existing contract or prohibition of a new contract would not be in the national interest of the United States; however, that waiver authority could not be delegated, and would require advance written notice to Congress and the President.

On the state side, Governors in at least 16 states (including, e.g., California, New York, New Jersey, North Carolina, Washington) are calling for the review and termination of state contracts with Russian entities, and in some instances are proposing to terminate state contracts with companies that do business in Russia.  At least 18 states have taken executive action to divest or are considering divestment bills.  State legislatures also are considering similar actions aimed at prohibiting state agencies from transacting with Russian entities or companies that do business with Russian entities (e.g., New York, California).  

These federal and state proposals are very much in flux, and it remains to be seen whether and to what extent they may ultimately be finalized.  However, given their potential significance, state and federal Government Contractors should continue to closely monitor these developments.