In the wake of November’s elections, just about the only thing that Washington can agree on is a pervasive sense of uncertainty about the future, which includes the direction of government regulation. The fact that many incoming agency heads and cabinet secretaries come from nontraditional backgrounds and, consequently, do not have a long record of public comments only serves to deepen the apprehension across regulated industries.
While the banking and pharmaceutical industries often garner the bulk of column inches when it comes to federal regulations, individual government contractors are most directly affected by federal rules and regulations. So, what does the near future hold for contractors? Recent congressional statements and proposed legislation offer a clue into what lies ahead.
One of the primary concerns of the Republican-controlled congress is to scale back what it sees as the broad regulatory overreach of the previous administration. To that end, several seldom-used quirks of congressional procedure have been put back on the table. These include budget reconciliation, a process that would functionally lower the threshold for a bill passing the Senate from 60 votes to a simple majority (51 votes), preventing Democrats from organizing a filibuster. Congress has also revived an 1876 rule authorizing lawmakers to slash the pay of federal employees unilaterally – a move that is likely a symbolic gesture to signify an increased focus on accountability and fiscal belt-tightening.
The piece of this emerging Congressional agenda that is most important for federal contractors is the potential repeal of rules and requirements promulgated under the previous regime, and increased scrutiny on executive agency rules moving forward.
The Obama administration implemented many new rules on contractors – such as those mandating certain levels of health care coverage for contractor employees and raising the minimum wage for federal contractors. While these rules often furthered laudable policy goals such as LGBT-antidiscrimination, they also imposed significant compliance costs on contractors, many of whom are small businesses who would have to invest in, say, accounting software upgrades to meet the new “paycheck transparency” standards. Other new rules would force contractors to track and disclose pending labor law proceedings, spend more time and resources vetting potential subcontractors, and make all manner of new representations and certifications to federal officials as part of the process of determining responsibility for contract awards. There are indications that one of the highest priorities of the new administration would be revoking these rules and associated executive orders in the interest of easing the compliance burden on private businesses.
Indeed, if the opening days of President Trump’s administration provide any indication, the Executive Branch does intend to pursue a deregulatory agenda. Already, the President has taken executive actions placing a freeze on all pending regulations, expediting the approval of large-scale infrastructure projects, and taking aim at the regulatory burdens on domestic manufacturing. Further action directing the construction of a wall along the U.S.-Mexico border, a signature campaign promise, is likely to result directly in major contract actions.
For those rules and regulations that the President cannot unilaterally undo, Congress – or at least the Republican portions thereof – appears committed to assisting. Congressional leaders have suggested the Congressional Review Act (“CRA”) – enacted in the 1990s as a reaction to President Clinton’s regulatory agenda – could be used to throw a wrench into pending agency rules. Under the CRA, Congress can order hearings – and ultimately vote to disapprove of – a rule proposed by an executive agency. Though seldom-used in the past, the CRA could afford Congress a strong hand in the rulemaking processes through which revisions to the FAR are generally made.
In addition to acting against agency rulemaking, Congress is also seeking to change the law in a way that would make it easier for contractors to challenge agency actions in court. On January 11, 2017 the House of Representatives passed The Regulatory Accountability Act of 2017 (the “Accountability Act”), a bill aimed at repealing the longstanding practicing in federal courts of giving substantial deference to agency decision making.
The Accountability Act would significantly amend the Administrative Procedure Act (“APA”) 5 U.S.C. § 551 et seq., the law that provides a basis for challenging an agency’s actions in court – actions including the award and administration of a contract. Under the APA as currently written, a court will generally only set aside an agency’s decision if that decision was found to be “arbitrary and capricious.” This standard, called the Chevron standard after the 1984 court case that established the rule, means that it is very difficult to prove that the government’s conduct in connection to the award or administration of a contract was so unfair that a court must overturn it. As many reading this may know through experience, courts grant the government a great deal of deference, and assume that the government’s actions are reasonable and performed in good faith unless there is overwhelming evidence to the contrary. The Accountability Act, if enacted, would amend the APA to remove much of this deference, meaning that the court may be able to substitute its own judgment for that of the agency, rather than merely consider whether the process the agency used to make its decision was reasonable.
While every major piece of legislation has unintended consequences, the Accountability Act would undoubtedly make it easier to prevail in a lawsuit against the government. Flaws in proposal evaluation methodology that previously would be overlooked could find themselves grounds for overturning an award. However, there is potential for the Accountability Act to be a double-edged sword – agencies may become wary of large awards, and an already slow evaluation and award process would likely take even longer as agencies adjust to the changes and develop new policies and guidelines.
On balance, the incoming administration seems poised to implement a new, business-friendly environment for regulated industries. Federal contractors can expect to see the reins loosened in a variety of ways that will likely relieve compliance costs. However, there is an element of unpredictability in the air as the incoming President has expressed a willingness to chart a very different path, exemplified by the freeze in contracting and grant issuance instituted at the EPA. As the new Congress and new administration settle in, do not be surprised to see rapid changes to the rules governing federal contracts.
Edward T. DeLisle is Co-Chair of the Federal Contracting Group, and frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.
Carl J. Vernetti is an Associate in the Federal Contracting Group and focuses his practice on federal procurement issues.