Welcome everyone to today's webinar. My name is Eric Leonard. I'm a partner at Wiley Rein here in Washington, DC and our government contracts group. And I am excited today to be able to join you. And thankful to Quimbee for having me to do another update session on Federal Contracting 101. I call it so you want to do business with the federal government? We will be covering a lot of ground today over the next hour. There are topics in in my slides that you probably could take a whole hour, if not a half day themselves on a webinar. But I've structured this to you'll see the slides are somewhat dense. That's intentional. I wanted to give as much information as we could as a takeaway, but also, you know, really structured this not to sort of. Appropriate for someone that's brand new to federal contracting or for someone that is sort of does some federal contracting, but they're looking to kind of expand their footprint or profile. And so we'll talk about a little bit more detail, a little bit in the weeds on some of these issues. But overall, you know, doing business with the federal government, as you can imagine, is a challenging environment. And it's ever changing, particularly these days. We find that, you know, not just through statutes and regulations, but executive orders and other changes that, you know, particularly in areas that may not be applicable to commercial work or thoroughly vetted through commercial work.
I'm talking about things like changes in labor and employment, minimum wages, things like that. In a lot of ways, these. Initiatives tend to get sort of rolled out on federal contractors. But before I go there, I want to just take a step back a little bit and just do a little introduction here so you can sort of level set what we're going to talk about. As I said, I'm a partner in our government contracts group here at Wiley Rein in Washington, D.C. I've been doing this for over 25 years. You know, we've handle we've got about 40 lawyers here. And I think over that time, we've probably seen just about all the different federal government contract issues that you can imagine. This is a huge marketplace, obviously, and I don't need to tell you that 600 billion that's sort of an estimate right now in annual purchases. And the federal government know they purchase pretty much everything. I mean, you know, you we had a list once years ago of all the different, you know, sort of unique products and services that the government would purchase. And some of them were kind of eye opening. But I try to group them in sort of three major groups here. So your traditional products, your, you know, your missiles, your vehicles, computers, hardware, a lot of Department of Defense purchases on that side and then your traditional services. I do a lot of work in the services industry area, IT services, professional services, but you know, consulting services.
But it could be mowing lawns at a at a courthouse. It could be any number of sort of wide range of services that the government purchases. And then we'll talk a little bit about some of the new and innovative solutions that we're seeing on, you know, sort of in solicitations and RFPs and requests for business, particularly related to things like software as a service and some of the cybersecurity solutions. Cyber is an area where there's been a tremendous amount of activity recently. And I'll talk about some of the developments there. But, you know, from a broader perspective, the federal government, while an incredibly vast marketplace for for purchasing all of that comes with a lot of risk and a lot of caveats. And we're going to talk about those today. This is not the same as dealing with a, you know, a normal commercial customer. There are certain rules that apply that some would argue maybe are slanted in favor of the federal government, but that's sort of the price of doing business. Now. At the same time, there also are some real advantages to having a steady source of revenue. I mean, steady meaning assuming we don't have a government shutdown, which, you know, may or may not be the case, but that's a whole whole other topic. But I am going to talk mostly today about government contracts. And, you know, there are other ways the federal government will spend money, whether it's through grants or financial assistance awards.
There are some massive programs that are just getting rolled out the Infrastructure and Infrastructure Act and the Inflation Reduction Act and Chips and Science Act. Those are all massive programs. They're not federal contracts. So we're not going to really talk about them. But it's good to know that there are other ways to engage the federal government in terms of of doing business with them, not necessarily having to enter into contracts. I mean, now those grants and financial assistance awards and OTAs, we call other transaction agreements, they'll have their own terms and conditions and and compliance challenges and obligations. But for today, we're really just going to be focusing on US federal contracting. And just to give you a little bit of background, I mean, I think for a long time, a big part of my practice was helping commercial companies enter the federal marketplace through establishment of a small business, a subsidiary sometimes, and or trying to figure out how they can leverage their commercial solutions to market to the federal government without sacrificing, you know, the benefit they had of and the sort of efficiencies they developed in creating their solution. And so, you know, and it's not easy. It's not easy sometimes to try to, you know, to to make that transition. But, you know, if you know what your, what your where your challenges will lie. And hopefully after this presentation you may get a better sense of that.
It's a lot easier to sort of gauge the risk and determine how you might want to enter the marketplace or expand expand your offerings within the marketplace. So with that, I'm going to jump to the very sort of high, high level points. I call these sort of the 35,000 foot level points. I'm going to try and identify some of these key issues, risks and compliance obligations that that you need to consider if you're going to move into the government marketplace. These are some of these are very unique and complex. There are things like appropriated funds, requirements that are foreign to any kind of commercial. Exercise other types of obligations that are perfectly acceptable on the commercial side, but could subject you to, you know, either in some cases even criminal liability, but but certainly other types of civil and penalties and sanctions if you engage in the same conduct on the federal side. I'll talk a little bit, too about some of those enforcement oversight mechanisms, mechanisms, because it's a very large part of of the of the conversation when in terms of trying to understand and quantify and assess risk compliance programs. This is an area in the last 15 to 20 years we've really seen an explosion, if you will, in terms of the compliance, sort of more defined compliance requirements. And we'll talk about what does that mean in the context of federal contracting. And, you know, there are certain different levels of compliance programs, meaning it all dependent upon the type of work you're doing with the federal government.
Is it limited to, we call, fixed price contracting? Well, maybe there's some fewer obligations that apply if you're a cost contractor. We'll talk about that later. Cost reimbursable arrangement where the government simply pays you for the work you do on a on a going, ongoing basis that comes with more requirements and more requirements for your compliance program. But there are some basic elements of every every program. We're going to talk through them that, you know, you need to understand and need to put in place if you're going to be doing business with the federal government. And then we'll just talk about some, you know, risk management mitigation strategies. There are ways to to do this that are not that will not expose your company to as much risk as as you may think. And, you know, again, there's pros and cons, I think to a lot of the different approaches. And, you know, the reality is in the world of government contracting, we really look at it as kind of a pendulum. You get these swings every 5 to 7 years thereabouts as a, you know, maybe different time frame, but but every every few years you get this swing of the government being more accessible to entering, you know, commercial solutions and trying to encourage commercial players to enter the marketplace.
And then you get the swing back to regulation, where it makes it harder to enter the marketplace, or there's just more hoops you have to jump through, more compliance obligations. I would say right now we're kind of on the, you know. Compliance heavy side of the pendulum. You know, I think there are efforts within the administration and just more generally within the federal government to encourage more and more companies to offer their solutions, offer their innovative solutions, not just to folks in, you know, in the commercial side, but also to federal customers. But, you know, we also there's there there are at the same time and I'll talk about this probably in the best the best example, this is probably the cybersecurity world. There are some real challenges that the federal government creates by by, you know, again creating these some sometimes it barriers to entry or certainly risk risk issues when trying to protect themselves. Because again there are there are not a normal customer like you would find obviously in the commercial side. So with that, I'm not going to talk about state and local governments, but that's a whole nother area of procurement, obviously. And they have their own rules and regulations in the federal, the federal space. We we use the Federal Acquisition Regulation, we call it the far is the Bible in terms of regulation. But within it's not the it's really just the beginning, not the end of of the inquiry in that there are a host of other statutes and regulations.
And like I said, executive orders that create these obligations Far has a separate section, part 52, that has the standard clauses that you would expect to find in a federal contract. Again, it's not exclusive because each agency also has their own Far supplement that will add their own obligations. Some agencies that far supplement is pretty consistent with and doesn't add a whole lot to the obligations set forth in the Far. But if you looked at the Department of Defense Far supplement the dfars, you know, a whole different ball of wax. They have a whole host of new requirements and obligations, some of which only apply to Department of Defense contract awards. So I think it's important to know you're going to have this sort of panoply of of different regulations and statutes that could potentially apply. And a lot of that will depend on the nature of the agency that you're doing work with. The other sort of, let's say, big picture thing to think about is this idea of full and open competition. The federal government, in terms of the competitions that it, you know, supports, are always looking for there to be a level playing field. And and this is something that, once again, is sort of counterintuitive to a lot of folks that work on the commercial side. You know, when we talk about competitive intelligence and what's going to give me the edge, you know, those are those things are relevant, obviously, in federal contracts, but there are a lot of limits to what you can do in terms of, you know, either utilizing certain information or getting access to certain information.
And ultimately, the standard that the government contract award is going to be judged upon really is is determined by whether there was this level playing field. Nobody had an unfair competitive advantage. And this all this all derives from the Competition in Contracting Act we call Ceqa, which sets forth the full and open competition. Now there are some small and relatively narrow exemptions for certain types of contracts where there doesn't need to be full and open competition. We call those sole source awards. Those could be for certain national emergencies and other very sort of very unique situations where a full and open competition there just isn't the time or the ability to do it. But but again, those are those are pretty narrow. And generally if you're going to be pursuing a, you know, a bid, a proposal through the federal government, you should expect that it's probably going to go through some open competition process. And we'll talk a little bit later about some of the details there and how that works. And then, you know, once the the other piece of this that I think is worth really thinking carefully about, and this is one of the ones, I think, that gets some of the companies that we're trying to enter this space kind of catches them a little bit by surprise.
This is sort of the the breadth of socioeconomic obligations that a contractor takes on when they become a federal contractor. You know, we're going to talk through a bunch of them, but a lot of these they affect, you know, can affect the payment that your wages and fringe benefits to your workers. They can affect how you hire workers. They can affect all kinds of areas of of compliance, environmental compliance. I mean, other aspects that, you know, you may not necessarily, you know, at least consider or things that may have been market driven, let's say, in terms of things like wages and fringe benefits. They're not under some of these types of federal contracts when when you deal with things like construction or services type work. And so, you know, you need to be prepared to implement all these policies and procedures and update wherever possible. I mean, that's the other piece of this that I think nobody really talks about is these are tend not to be stagnant type obligations. They get updated periodically, get revised and expanded every year. You know, there's a Defense Appropriations Act. You can expect that in that act you're going to find more newer obligations. You know, most recently we've had, you know, a couple, you know, situations where there's been bans put in place to not do business with. You know, that that certain companies from countries, particularly China, were banned from doing business with the federal government.
And so that's sort of the, you know, sort of the issue du jour, if you will, and a lot of, you know, these procurement statutes that get passed, you know, each year. So, you know, keeping abreast of all this, it's a challenge. And, you know, I think you can't just, you know, rest on your laurels, if you will, when you're when you're trying to ensure that you are fully compliant. So some of the core compliance obligations. And again, I'm not going to go through every single one because again we'd be here all afternoon. But a lot of these relate to ethics and integrity. And the idea here is again to ensure a level playing field, but they're also there to deter waste, fraud and abuse in procurement. Some of them are kind of obvious prohibitions on bribes, kickbacks, things like that. But gifts and gratuities is not as obvious. We had a major case where, you know, a contractor took one of the officials out to a golf outing, paid for their golf fees, you know, brought them to dinner, something that was, you know, a dime a dozen on the on the commercial side, I mean, in terms of activity and perfectly normal and thought really nothing of it until it was exposed in the litigation. And they had to enter into an agreement to prevent themselves from being debarred from federal contracting because what they were doing was seen as providing an improper gratuity to a contracting official.
And so, you know, that's one where, you know, I think there's always a need for a cultural change or, you know, or at least an understanding within, within the company that these sort of wine and dine kind of events, sports tickets, condos in Vegas, whatever it might be. Those are the kinds of things that you can't do with with federal customers, and quite frankly, really extends beyond the federal customers. Most large prime contractors prevent those kinds of or prohibit those kinds of activities with their lower tier subcontractors just to protect themselves. So it's something you need to be careful. Other there are other topics like conflicts of interest where you know both again, that can be a personal conflict of interest, whether it's hiring someone's, you know, nephew or, you know, providing some kind of unfair advantage. But there's also what we call organizational conflict of interest, which is a situation where you may have done some prior work. And because of that work, let's say you did work. And setting the specifications for a new vehicle that work may take your company out of the running for being able to bid on a contract for the actual vehicle. So you've got to be very cognizant of the fact that this is in the Federal Acquisition Regulation part nine, and there's a whole series of of detailed regulations on organizational conflict of interest.
And it's a good way to submarine your business if you don't fully appreciate what, you know, maybe the $10,000, a small part of work, what impact that might have on the multi million dollar production contract, you know, looking at these closely early on is critical. And then we have a whole set of regulations. And this is generally in far part three which deal with the integrity of the procurement process. Information related to, you know, other other competitors bids what we call source selection information, which is the information that typically an agency will produce to document its evaluation, that all that information is protected and restricted of, of being disclosed. Now, there are times when, you know, there's a process where you can have certain information disclosed after it's been redacted or removed. But if you're a contractor and you come upon, you know, the bid, the proposal of another contractor one way or another and try to use that information to your advantage, you could be violating their Procurement Integrity Act. And there's very significant violation or, you know, sanctions and, and, and parameters for violation that can subject the company and or the individuals to, to severe penalties. And the same goes for on the government side, they have a similar obligation. And to the extent there's a the government officials could find themselves on the on the wrong end of a criminal investigation. There also are restrictions on the hiring of certain government officials, like the best example is you've got, you know, a colonel in the army, and he was responsible for being the source selection official for a particular procurement.
And you know, that procurement is coming up again. You go to hire him, bring him on. You know, in the commercial space you might want to hire, you know, again, the capture manager for your competitor to or even maybe your customer to come on board to help you be more competitive in your next bid. Different restrictions here on the federal side in terms of what you can and can't do with these government officials. Some of them are have long periods in which they're not allowed to continue to, to serve in particular roles. So I think you got to look at that carefully. I mentioned the federal acquisition again, the Bible here, there are hundreds of clauses in there that could otherwise you could otherwise find in your contract. And we always say whenever you're dealing with a particular opportunity, you know, and usually they come in the form of what's called an RFP request for proposal or solicitation. Look at that carefully. I always go right to section I. Section I of the solicitation is generally where you're going to find the clauses that are required, usually for clauses and maybe some agency clauses. But you're also going to want to look at the statement of work, obviously to see make sure it's the type of work and type of product or service you can provide.
But, you know, going straight to the contract or the solicitation in this case is critical to really try to figure out what, you know, what you're signing on to here. The mentioned some of the socioeconomic obligations. We're going to go over those later. But it's not just wages. It could be small business. It's equal employment and affirmative action. It's interesting, interesting discussion going on in the world of government contracts on where affirmative action will go, particularly after some of these Supreme Court decisions. But as of right now, nothing's changed. It's still the same obligations that there were for many, many years. Okay. I've talked a lot about the prime contract side, but a big piece of federal contracting relates to sub contracts and the supply chain. And and that could be, you know, a subcontractor that's providing a particular expertise in, let's say, a service and or supplier that's bringing, you know, the lumber in to, to build a particular, you know, courthouse or whatever it might be. You know, the relationship between the prime and the sub is critical. And, you know, in many cases, a lot of those far clauses that we were just talking about need to be flowed down or made applicable to the subcontractor. And there are ways to do that. And the clauses tend to, you know, identify when they're required to be slowed down or maybe recommended to be slowed down.
But this is all a negotiation between the subs and the primes. But, you know, and this goes all this can go all the way down the chain. It's not just down to the subcontractor. And you know, it's not just in this case your far clauses. It could also be things like like I mentioned here by American rule, these these are domestic source restrictions. And where, you know, the federal government is saying by policy we want to only buy from, you know, the product needs to be us made. And what does that mean? Well, there's tests in there and, you know, and you have to look at the country of origin. So all these things not not only will will impact the, you know, the business of the Prime but also of the subcontractor. And I mentioned the cybersecurity safeguards. And the reason I keep coming back to this is real quickly. There are two proposed rules that were just issued for cybersecurity compliance that are going to pose significant or impose significant obligations on reporting, and not just breaches, but also reporting of software, bill of materials and other things that if these rules go into effect, we're really going to have, you know, some, some, some additional compliance costs in that area. I mentioned enforcement, but, you know, the one point I want to make here with enforcement is it comes from all it can come from all angles. If you're a federal contractor, you could have simply your contracting officer or the agency ask you to clarify how you're going to continue to perform, provide a cure, notice something like that, and then it goes all the way up to congressional hearings or Department of Justice who can, you know, initiate a civil or criminal or both investigation, you know, parallel investigation against the company.
There are agencies have inspector generals. It's not uncommon for inspector generals to to undertake investigations, and the penalties can be severe. We're talking not just monetary. We're talking potential for criminal penalties. And also, in some cases, debarment from federal contracting a three year ban from doing any work. So with that, you know, I do want to talk about the types of contracts. I think this is one area that, you know, it kind of gets glossed over a little bit, but it's critically important. And if you look at far part 16, you can see that they list the typical, you know, contracts that the federal government awards. Fixed price cost. It's really fixed price cost, time and materials are really the three main ones I would say. But these contracts themselves will help to guide what clauses are going to be in your contract. So for instance, if it's a fixed price contract and you're performing at, you know, for, let's just say, you know, $500,000 for a particular service for the year, that risk of performance really is on the contractor, right? The risk is that you're not you know, it's going to cost you more than 500,000.
The government really doesn't care. You're going to get paid 500,000, even if your cost is is 700,000. It doesn't. You know, you've taken on that risk. As a result, fixed price contracts tend to have fewer clauses incorporated because the risk balance is the risk is is on the contract more than the government. On the flip side, cost reimbursement. That's the opposite situation where the government is essentially just paying you for hourly work. Like, you know, kind of like a lawyer would do, you know, just doing the hourly billing, the hourly. Now, there are tend to be caps and, and funding, you know, limitations on those types of contracts. But because of the nature of the, of the contract and that the risk is really more on the government than on the contractor, you are going to be subject to more rigorous compliance requirements, more rigorous audit requirements, record keeping, you know, production, you know, in some cases, things like the cost accounting standards we call cast, those are, you know, sort of disclosure requirements as to how you treat certain costs. So, you know, if you're going to be a contractor that really just wants to sort of dip their toe in federal contracting, you probably want to stay away from the cost. What is your first contract? Look at the fixed price and we'll talk a little bit later about fixed price contracts that are also commercial items, which is even an easier way to dive into this pool.
But labor hours, time, materials, some of these other ones, these are, you know, more more, you know, based on particular rates for individuals that are pre-negotiated sometimes pre-negotiated otherwise you bid them at your, you know, as part of the competition. As far as methods and vehicles, there's a lot of different ones. I mean, micro purchase under ten grand. You don't see a lot of purchases here, but these are very streamlined, very simple. Um, you know, some of them, many some of them are even made, I think, by by agency credit purchase cards, things like that. There are very limited obligations for compliance. But, you know, there are. But things like equal opportunity, affirmative action. Let's talk a little bit more about later. Those do apply. And here even the prohibition against telecom. So telecom equipment from China. So you do you know it's not free of obligation. It's just much more limited. Then the next step up you take is simplified acquisition threshold under 250,000. This changes constantly. This is under 13.3 subpart. Again they have a limited number of standard clauses. But the list gets longer right. It's equal opportunity for action 89. Some of these other provisions that kick in at 25,000 or 50,000, you know those are all now going to come into play because you're you're at this simplified acquisition threshold. But at the same time, it's still it is pretty streamlined comparatively.
I'll talk a little bit about task order contracts. I didn't mention. Indefinite delivery. Indefinite. Indefinite quantity or idiq contracts. These are very common in the world of government contracts where you would compete for a particular, almost like a master contract, if you will, almost a schedule. And then, you know, if you're awarded that vehicle, you then compete for individual task order contracts that are issued under the particular vehicle. So it's not uncommon to have an idea or there's maybe ten IQ holders. And then when different opportunities come up, maybe, you know, six of the ten compete for it, or maybe all ten compete for it. These task order contracts are, you know, they can be structured just in any, any way in terms of pricing. But, you know, the some of them are even broader to be government, you know, what we call government wide acquisition contracts that allow, you know, an award of the master allows any agency to then place orders underneath it. And so it is you see this in the IT world. It can be pretty efficient whether you can challenge the award of a competitive task order that's been awarded. I mean, there are some questions and jurisdictional issues there. I think you need to look at that carefully. There's a dollar threshold under which you have to meet in order to at least to protest or challenge it at the Gao. But you're going to see a lot of task order contracts out here and a lot of ikz if you are interested in pursuing that kind of work.
Um, another sort of more, you know, traditional, I would say idiq is what we call the GSA schedule contract. This is under far 8.44. General Services Administration has what we call the federal supply schedule. And it is a it's almost like a big, um, you know, I don't know how to best describe it, but it's just a marketplace that has a list of services that is a mile long. And the way you get access to it and you get what really what's called basically like a hunting license is you go and get your GSA schedule contract awarded. And at that point, you're listed on the schedule as one of the contractors and agencies can go and place awards with you in a much in a much more streamlined fashion. They could be fixed price or tied materials. Like I said, the competition requirements are relaxed here, but you're also subject to other obligations like providing your most favorable pricing and disclosing commercial practices. So again, look at the fine print. But it's a way that a lot of you see, a lot of, you know, traditional commercial contractors will get on the call, get them on schedule, get on the GSA schedule in order to offer their products and services to the federal government. Um, I mentioned the federal competitive procurements, you know, far part 15 is, is the is the sort of standard in terms of a typical full and open competition, and it sets forth all the details and all the requirements.
There are different types of competitive procurements. The government say may say we want to, you know, we're going to just select the lowest priced, technically acceptable bid. Or they might say we want the best value bid, meaning, you know, we may pick someone that it's more expensive, but we think the expense is worth the value. So, you know, there are a lot of different sort of iterations here in terms of how these contracts would be awarded. Far. Part 15 is your most standard and the one you want to look at. That being said, you know, on every award the government has to determine that the price is fair and reasonable. And that really is a sort of a bedrock principle that they're going to follow under any circumstance. And the way they do that, at least on far part 15, is they tend to ask for disclosure of things called cost and pricing data, and that's, you know, detailed information as to how you develop your price. And you have to certify that it's current, accurate and complete. And if you don't do that, and you either don't certify or falsely certify, that can subject you to defective pricing, audit and all kinds of sanctions. So important to know, I mentioned here the GSA commercial pilot program. You can take a look at that.
That's, you know, sort of I think the next step, if you will, to allow federal users to buy directly from online electronic marketplaces. I think it was Amazon, Overstock and Fisher Scientific. Um, you know, again, it's sort of the next step, if you will, in the government trying to evolve and avail itself to the benefits of the commercial marketplace. Okay, so I mentioned this earlier and I'm not going to spend a lot of time. This is sort of really kind of high level. But you know, there really is this web of requirements that you need to look at. And when it comes to yes, you start with the FA and you go to the FA if it's defense. But but particularly these days, the executive orders have really been sort of utilized by, particularly by this current administration to impose additional requirements that maybe not, you know, aren't in the FA or maybe take time to find their way into the FA, for instance, a federal minimum wage that's now part of the FA, but it started out as a $15 federal minimum wage. That started out as an executive order. We're also seeing a number of orders issued on racial equality and climate change and other issues that are sort of socioeconomic type issues that, you know, in some cases, you know, impose particular obligations on federal contractors or are more aspirational in terms of what they're trying to espouse for, for federal contracting.
So in a lot of these orders, you know, the federal government has much more greater power to impose these orders on federal contractors than it does to the commercial marketplace as a whole. So I feel like this is where there, if you will. It's sort of the tryout, right, for a lot of these policies that ultimately some some get rolled out more broadly and some don't. But as a federal contractor, you're in you're in the crosshairs. I mentioned. So you know, I don't. This is where I think we have included a whole bunch of these details in terms of where things, these compliance restrictions can be found, things like bribery. And I mentioned gifts and gratuities, while in part three kickbacks is another I've identified here. This is the far clause in part 52 on kickbacks. The definition of of favorable treatment is very broad. And I think it's very, very important to to look at that carefully. I think there are we've had clients that, you know, sort of unintentionally came close to or ran afoul of these requirements by offering things of value, maybe not with necessarily the intent to for there to be a quid pro quo or anything like that. But at the same time, it's the kind of action that certainly would, would, would merit investigation. And then there's also more stringent statutes in the health care context for kickback contingent fees, an interesting one where this is really about paying someone to go, sort of a finding fee, if you will, to track down a government contract to secure a government contract.
There are ways there is an exception if you use a bona fide selling agency, but you know that the burden is on on you, the contractor, to determine that you haven't run afoul of these requirements. And it's not you know, there are there are certain criteria that need to be met in order to to fall within the exception here. I mentioned organizational conflicts of interest, I mentioned integrity, so I'm not going to spend much time. Same with government officials. But here you can see the sections within the FA where you can look at the rules. And again make sure that whatever you're pursuing, you're not going to run afoul of any of these obligations or again, be excluded from future work by doing, you know, some, you know, small piece of work that might otherwise, you know, give you an unfair competitive advantage going forward. Antitrust bid rigging. This is one where I think you've we've seen a reinvigoration, if you will, of of the requirements for, you know, in the antitrust world, there have been a number of, of situations where the Justice Department has sought to block mergers in the government contracting space. And so, you know, I think this is one area that, you know, you need to look at pretty carefully, particularly with the Justice Department now upping their enforcement and changing if you just as an aside, they are changing also their some of their guidance on this to make it I think.
Well I don't go into too much detail, but there is changing guidance in this area that needs to be looked at. Lobbying restrictions. This is about limiting the use of appropriate federal funds to lobby and influence officials. You know, requires disclosure of lobbying contacts, even where you're not using appropriated funds. But I think it's important to make sure there is a separation. If you are engaged in lobbying activities, you know you have different hoops to jump through once you're a federal contractor. So that's a lot, right? I mean, look, there's a lot of different. And I didn't even hit on everything. But there there are a lot of a lot of tough obligations here. And like I said, we've seen the bad endings unfortunately. And it you know, sometimes it's contractors that don't even sort of realize they're federal contractors or don't appreciate it because they're 2 or 3 tiers down the, you know, down the contracting level. And they get themselves in trouble because they don't quite understand what they're what they're getting themselves into, or that they're subject to all these different requirements. So I mentioned the compliance program. And this is 452 203 13 is the best clause to look at because it will it sets forth kind of the elements of what you need to put in place.
And it's, you know, it's relatively detailed, but there is no one size fits all approach. And a lot of this is going to be driven by the breadth of your, your business with the federal government, the types of contracts you do. Are you only doing fixed price? Are you also doing cost type. But they do set forth these sort of basic internal controls. And I've listed them here that you need to have in place. And where this really becomes relevant, it's not that the government's going to come and audit you and see if you have this compliance plan in place. They don't have the resources to do that. Where it really becomes relevant is if you have a violation and you have a subpoena or a whistleblower or some bad, potentially bad issue, that's when the government is going to come to you and say, what's your compliance program look like? What's your tone at the top? What did you put in place to make sure you educated your employees on you know, what the obligation was for preventing gifts and gratuities? That's the situation where you want to make sure you have a good answer and you know you've got the right, you know, internal controls in place. And again, you can look you can look at 203 52 203 13 C to to kind of let to see what the the basic structure would be. Okay. So the socioeconomic requirements, as I said before, I do a lot of work in the services industry, some with product but mostly service.
And in the services world, we have this thing called the Service Contract Act, and it is a statute that basically governs your wages and fringe benefits. You pay your employees. So you know, where this becomes really tricky is if you have a company that you're primarily commercial, but you want to do a portion of your work for the federal government and you want to offer a service, you may have two separate wage rates and two separate pay structures for your for your employees based on their federal work and their non federal work. And then it becomes incumbent upon the contractor to be able to segregate that work and show what's federal what's non-federal. Some of the more basic obligations that you find under socioeconomic are equal opportunity prevention of any kind of segregated workplace. These all flow from an old executive order. Affirmative action is another one I mentioned that also flows from executive order now has found its way into the regulations. It's been there for years. But those are other sort of basic socioeconomic obligations that you sign on to when you become a federal contractor. Small business subcontracting another one where you have most contracts, as long as they're over, you know, 250,000, and you have to at least make the maximum practical opportunity for small businesses to participate. And then when it gets above 750,000 or 1.5 million for construction, then it's more structured.
You have to have a plan to bring in small businesses. The government, federal government encourages working with small businesses. They are a critical part of the federal marketplace. And so this this sort of requirement, if you will, is just a way to get more small businesses involved with work with the federal government, other obligations like E-Verify I mentioned already mentioned equal employment opportunity. These, again, are E-Verify really is just checking the the status, the employment or the, you know, the status of your employees employment eligibility status when they bring on, bring them on to work under the federal contract. There are other specific equal opportunity obligations, whether it's for veteran hiring or veterans or hiring of workers with disabilities. These, as you can see, very pretty low thresholds, certainly for disabilities, 15,000 and even the veterans one 150,000. Again, it's really about preventing discrimination and and trying to again hire or encourage hiring of of individuals in these in these different in these different groups. Somewhat more recently the anti human trafficking far subpart 20 217 really zero tolerance policy obviously on human trafficking. But it goes this regulation goes way pretty pretty far beyond in terms of requiring contractors, if you have a contract over five, 500,000 to implement a compliance plan, you know, and this these can be very detailed or or somewhat high level. But at the same time, this is an area we've seen active enforcement in this area and some broad interpretations as to what could constitute human trafficking for federal contracting.
So I think, you know, you need to be aware of these obligations. I mentioned the executive orders and I. And I threw out a few here, just so you know, with some executive order numbers, when you get a chance, it's probably worth taking a look at them and you'll see how a lot of these orders either focus on federal contractors by imposing the obligation like minimum wage or more aspirational. But at the same time, you can't you can't ignore them because they're definitely the modus operandi in terms of getting additional obligations imposed on a federal contractor. Okay. How do I limit my risk? What do I do? I don't like all this stuff. This is a little too much, right? All right, so how do I limit this? Well, one way to do that is what's called a commercial item contractor. And the idea behind commercial item contracting was the government wanted to encourage commercial companies to enter this marketplace, but they knew that there were companies that weren't going to do it because they didn't want to be subject to audit requirements. And, you know, all these disclosure requirements and other things like that. So they developed this thing under far part 12 called commercial Item or Service. And the idea is you're basically offering the federal government pretty much the same item or service. Not exactly always, but pretty much the same item or service that you were selling on the commercial marketplace.
And as a result, the federal government doesn't impose as many obligations on you. So look at the next slide. I know this one's a little small probably, but I try to set forth a few different areas. For instance, where, you know, if you're a commercial item contractor, you have more streamlined obligations, like for instance, on the audit side, there's much more limited rights for the government to go in and audit your records. If you are awarded a commercial item, contract changes is another case. Normally on a regular non commercial item contract, the government can come in and change your your your contract unilaterally within the at least within the general scope of the contract. Now you know you can get compensated as a contractor for those changes typically, but under commercial item, the government needs to have mutual written agreement by both parties. You could say, no, I don't want to make that change. I'm not going to, you know, provide additional quantities or whatever it might be that the government wants. It's a very different sort of balance of power, if you will. And as far as flow down clauses, I mentioned that earlier with subcontracts, if you're a commercial item subcontractor, there are the number of clauses, rather than being 50 to 60 clauses that could flow down in a non commercial one is limited to these 20 clauses, and even some of those may not even be relevant.
So it may even be a smaller number. But you have an ability as a commercial item contractor to push back. If a higher tier contractor wants to flow down, you know, let's say broad audit requirements or cost accounting standards or other things that are just not should not be applicable. There's the ability to point to the guidance for commercial item contracting as a means to prevent taking on too many obligations. So I mentioned earlier the subcontracts and supply chain management. And you know, subcontracts are they are private contracts, right. Because they're between two private entities. And if you're a subcontractor, you don't have privity with the federal government. So any type of action, you know, contractually at least is going to come from the prime contractor, not from the government, but that that still doesn't mean, you know, you don't have obligations potentially to the federal government. The federal government customer I mean, we talked about slowdowns where clauses get flowed down from a prime to a sub. There are investigations that can be kicked off even if you're a subcontractor, if you're not paying your required minimum wages to your employees. We've seen plenty of, you know, investigations. If you're not complying with the Buy American Act in terms of domestic sourcing, I mean, so, yes, it's a private contract, but not like any commercial contract. You're still are going to have a significant number of obligations.
And like I said, you could limit those. You can limit those if you're a commercial item or you have leverage and negotiating power and can, you know, sort of fuse certain clauses from being imposed on you by your higher tier contractor. That's all a matter of negotiation. Um term subcontract very broad, broadly defined, 44 101 I get people that come to us and say, well, I'm not really a subcontractor, I'm just a supplier or a vendor. Well, you know, there are tests and different agencies have different guidance on what what it takes to be a subcontractor. But, you know, if you're necessary to the performance of the prime contract, you're going to probably be a subcontractor. So, you know, if maybe you can argue that you're a vendor or supplier. So therefore you're not subject to a lot of these slowdown obligations. That's going to be a case by case basis. You know, I mentioned here I'm going to go through this again. This is the flow down some of the more more of the details here. And by America I mentioned and Trade Agreements act because those are ones that come up a lot when you know, a, you know, a subcontractor may come to a deal and not realize that, oh, I can't get these parts from Thailand or China or wherever, you know. And that's something you need to, to understand really on the front end, to make sure you don't get yourself in a situation where you're having to use a source that's prohibitively expensive, or maybe not even available in order to meet your delivery requirement.
Um, here's where a little more detail on Buy America. You can find it at 25 Far. Part 25.1 Trade Agreements is 25.4, which is more for supplies and services. Buy America is really for, you know, for products and products typically is what they look at. And again they have this cost of components test. There's a whole lot of detailed sort of analysis that needs to go into whether or not you're truly compliant. The cybersecurity. You know, this is this is going to be a hot issue in our world. But you need to understand that, you know, the government is now always been a little bit behind, if you will. I would say on the the commercial marketplace on cyber, but they're catching up. And and if you're entrusted with sensitive government information, you know, there are all kinds of security protocols. And this is not just if you're, you know, the highest level obviously is if you're doing classified work. But but even just, you know, you know, information that's sensitive to the government and it could be any number of things, whether it's a solution or pricing information. These new two new rules that just came out about a month ago, maybe a little less than a month ago, are going to impose some significant obligations on contractors. And it goes right down the supply chain.
It isn't just limited to the prime. All right. Let's talk about what happens if the train goes off the tracks. Lovely image now. But, you know, it's important to understand that unlike in the commercial context, you know, you breach a contract. Okay, well, then maybe you have some financial damages. Maybe you get sued in civil, federal or state court. Very different, different world in terms of oversight enforcement for the government. They have they have all kinds of mechanisms to pursue against contractors that violate either the contract or the relevant statutes and regulations that cover the contract. And as I mentioned before, suspension debarment probably the biggest hammer, although I'll talk a little bit about False Claims Act. That also is another one where in terms of financial impact can be significant and pile up really quickly. Suspension. Debarment is again under Far subpart 9.4. This is not technically a sanction. What suspension to Barber is designed to do is to protect the federal government from doing business with contractors that are not presently responsible. There are all kinds of ways the suspension debarment can come about. Some. Sometimes it's statutory where if you debarment set forth and any violation can trigger a debarment. More commonly, it's a combination of factors where there's a concern of your lack of business integrity or unsatisfactory performance, and you get proposed for debarment. There's a process to challenge it and deal with it, but it is again, the situation you do not want to be in if you're a federal contractor.
Mandatory disclosure is another interesting area where the government is now put the burden on the contractor. If you are aware or have credible evidence of a violation for procurement fraud statutes and other federal civil and criminal law, including whether you have knowledge that you've been significantly overpaid by the government. Also covering False Claims Act. If you become aware of these and have credible evidence. It's incumbent upon the contractor to make a disclosure either to the inspector general or, you know, actually is the contracting officer, sorry, disclosure to the inspector general and the contracting agency. But if you don't do that, then mandatory disclosure, failure to do it can result in a suspension or debarment. So it's an important thing to consider and carefully look at if you become aware of a violation. Your typical audits of an investigation. This is another power that the government uses broadly. This can be inspector general. The Department of Justice, the Government Accountability Office has the ability to conduct audits. But you may just have an audit from your agency. You may just have a contract situation where they're going to audit your your pricing information or audit your compliance with particular requirement that's imposed. Audits are commonplace in the government contracting world, and records need to be kept in the appropriate way to be able to support these audits. Defense Contract Audit Agency is does a whole lot of audits for Department of Defense contractors.
Sometimes they get contracted out to work for other agencies, and they tend to do the really hard core audits of your cost records and your systems. There's a whole list of different systems, estimating systems and purchasing systems that can all be subject to audit by Dcaa. Other submissions. When you're a cost contractor about your overhead rates and your general and administrative rates, all of those can be subject to audit by DCA. And in many cases, they have to be approved by DCA in order to be used in federal contracting. The Ofccp that's the Department of Labor kind of piece of oversight, if you will, that they're going to look at things like affirmative action and equal opportunity, those types of requirements. And know, as I said, it's not unusual to get called up to congressional for congressional investigation actions on a wide range of procurement related issues. We've seen it happen to clients. And, you know, it's it's what it is. But you have to make sure you're ready to deal with answering the questions posed by even the congressional stakeholders. Terminations. This is again, we can do a whole long session just on terminations, but typically the government has the ability to terminate the contract in two ways, either for default or convenience. Default would be your typical I didn't perform and therefore you know it's a default termination. We ended the contract, but the government also can do it for what's called convenience.
And that's sort of a new concept or a different concept than the commercial side, where they can simply do it for pretty much any reason. And yes, you can be compensated as a contractor for your costs related to a convenience termination, but it's an it's an important distinction to understand, because you may not get all of your profit on a particular work. And I caution contractors, prime contractors, to make sure that they flow down to any of their subs. This ability to do a convenience termination. So if the government does a convenience termination on a prime, they're not stuck with the inability to terminate their sub. There is a whole section on claims and disputes was, you know, could be a dispute over, you know, a contract rate or a payment or extra work the government ordered. There's a whole process in part 33.2 whereby you submit a claim and in certain cases, a certified claim, if it's over a certain dollar amount. And if that can't be resolved administratively, you can appeal to two different forums with the Boards of Contract Appeal or the Court of Federal Claims. But, you know, one one tricky thing is, you know, if you do a claim and let's say there's extra work, the contractor has to keep performing even though the dispute is pending. You can't walk away. If you walk away, you'll be default terminated and there'll be other sanctions. Again, very different from the commercial world.
I mentioned this in passing a little bit. Bid protest and you can take a look at 33.1. This is the process to challenge a contract award, and it can be done at the General Government Accountability Office, the Court of Federal Claims. This is a weird system. The system is set up for you to sue your customer. That's essentially what this is. You have an ability and a right to challenge a contract award if you think there's an appropriate basis for protest. And this is a huge part of our practice here at Wiley and a lot of government contract practices. And you know, something that, you know, if you're going to get involved in this world, you're probably going to be on one end of a protest, either seeking to overturn a contract award or defend it. Mention the False Claims Act. The False Claims Act that's the government's real primary tool for prosecuting any kind of fraud. And when I say fraud, it's fraud can be pretty broadly defined. It could be sort of your typical false claim. It could be some kind of product substitution. There's the false statements act also that kind of works in tandem with the False Claims Act, where if you've made some kind of false certification or statement to the federal government, this is, you know, a real challenge to navigate. If you get a false Claims Act case, there are potential sanctions that attach to each invoice that you've submitted there.
And in addition to just sort of more general types of sanctions that you could be subject to, there's also a provision called the qui tam provision, which allows private plaintiffs to come and sue you under the False Claims Act. And so you could have it coming from not just the government, but also from a private plaintiff together as part of a massive suit. Been involved in a number of these. They're costly. They're challenging. Even if you haven't violated it. Even just the legal fees of navigating through the False Claims Act can be very, very difficult. And false statements act, as I said before, knowingly and willfully making a false statement or certification on a matter. This is pretty broadly interpreted. You know, it can be sworn or unsworn statements. You could fill out a certification or a or a representation in a proposal. And if it's false, that could that could form the basis for a false statements act. I don't think you tend to see as many cases under false statements as you do under false claims. But again, still something to be aware of. If you're if you're and you know, the way to mitigate your risk obviously is to make sure you have a, a process to vet any statement that's made to a federal government official or as part of a bitter, bitter proposal. Okay, so where does that leave us? Well, hopefully you don't walk away from this thinking it's not worth being a federal contractor.
But there are a lot of challenges and compliance obligations that you're going to take on. You do need to go into this eyes wide open and making sure you understand and have looked at carefully at what the risk is. But as I said before, the government is a steady customer that provides, you know, is always buying, let me put it that way. And and the breadth of opportunities within the federal government just keep expanding as we go along. I mean, I know I've been doing this 26 years, and I look at some of the procurements now in terms of what the government is buying. And it's far different than your standard buying five missiles for, you know, a particular for a particular defense contractor. We're seeing these software as a service. We're seeing all these innovative procurement methods being used even beyond federal contracting, because I think the federal government really does want to leverage as much as it can, the innovation of the commercial marketplace. And as I noted, if you want to dip your toe in and try to enter the marketplace without taking on too much risk, look into commercial item contracting. Whether you're it's a product or a service, that's the way to limit your risk and limit the scope of of federal obligations. But either way, you know, I think this is I hope you found this presentation helpful. And, you know, if there are any questions, my contact information is available, please feel free to reach out to me. And best of luck navigating this world. Thanks everyone. Take care.