Government Contracts – Clash of Agendas Means More Uncertainty

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With a new negotiator-in-chief at the table, will there be more or less regulation of government contractors? It depends. Donald Trump expressed his view on government contractors even before he officially became president. In a six-day period in December 2016, he said that the costs of both the new Air Force One presidential aircraft and the F-35 next generation fighter jet were “out of control.”

The message was clear: contractors were taking advantage of the government and their prices (presumably attributable to waste, fraud, and abuse) had to come down.

One of President Trump’s policy imperatives, meanwhile, is that government regulations are strangling businesses and economic growth and must be dramatically reduced. His executive order of January 31, 2017, stipulated that for every new regulation issued, at least two existing regulations must be eliminated.

The most natural way to accomplish the first objective would be to create new checks and balances—i.e., regulations. But doing so clashes head-on with the call for regulatory rollbacks.

UNCERTAIN NEW WORLD

Welcome to the uncertain new world of government contractors.

“The administration has put forth two mandates that are very difficult to reconcile,” says David Ginsberg, a partner in Crowell & Moring’s Government Contracts Group. “It’s impossible to predict which, if any, will prevail, which means that government contractors will have to be prepared for both.”

Given the strength of the administration’s conviction about both goals, it’s not unreasonable to think that a third scenario—call it “convenient coexistence”—could emerge.

According to Gail Zirkelbach, a partner in Crowell & Moring’s Government Contracts Group, the implementation of cost controls doesn’t necessarily have to take the form of new regulations. “There are other ways to reduce spending on contractors,” she says. “The budget proposal for fiscal 2018, which directs non-national security federal agencies to cut spending by $54 billion, is the most obvious. The administration could take the executive order route as well, which it clearly won’t hesitate to do. Agencies could also simply take a tougher negotiating stance and encourage their personnel to try harder.”

At the same time, there’s no shortage of candidates for contractor regulations or prior executive orders that could be eliminated, watered down, or enforced less aggressively.

WHAT SHOULD CONTRACTORS DO?

Alan Gourley, a Crowell & Moring partner in the firm’s Government Contracts Group, recommends several measures that contractors should take to adjust to the new regulatory environment:

• Don’t forget about current regulations. It’s prudent to stay focused on compliance with existing regulations— especially regarding costs—until things change.
• Prepare to change course. Even as contractors comply with current regulations, they must be ready to do things differently, which appears inevitable.
• Be ready for terminations for convenience. Government contracts give the government the right to terminate the contract at any time without giving a reason, a provision known as termination for convenience. In the current environment, such terminations could become more frequent. Contractors should expect more of them to happen and be sure that they have the ability to terminate their own subcontractors for convenience if necessary.

Since government contractors are generally entitled to a negotiated settlement for an equitable recovery of costs and losses incurred in the event of termination for convenience, they should keep ample documentation to submit potential recovery claims and to have those claims certified (which is required for claims to proceed).