Section 8(a) of the Small Business Investment Act of 1958 authorizes the Small Business Administration (“SBA”) to enter into prime contracts with federal agencies and to subcontract the performance of the contract to qualified small businesses. As most are aware, the 8(a) program is designed to assist “socially and economically disadvantaged small business” concerns that are owned by one or more individuals who are from a socially and economically disadvantaged group and whose management and daily operations are controlled by such individuals. 15 U.S.C. § 637(a)(4)(A)-(B). Included in the definition of “socially and economically disadvantaged groups” are, among others, Indian tribes, Native Hawaiians, and Alaskan Natives, which allows each “maximum practical opportunities” to participate in the government contracting market. But in so doing, those companies must stomach the good with the bad, i.e., they must be prepared to (a) navigate the thicket of regulatory hurdles required to do business with the government and (b) combat potential allegations of fraud if there is a perception that one or more of those hurdles has not been cleared successfully.
Effective Date of Increase and Customs Reporting Guidance
On May 9, 2019, the Office of the U.S. Trade Representative (USTR) announced an increase in duties pursuant to Section 301(b) of the Trade Act of 1974, as amended (Section 301), from 10% to 25%, on over 5,700 Harmonized Tariff Schedule of the United States (HTSUS) products imported from China. The increase, covering $200 billion in products that were subject to 10% additional duties since September 24, 2018, was set to rise to 25% at the beginning of this year, only having to be postponed twice to allow U.S.–China trade negotiations to bear fruit. They did not.
A little-heralded change to the statutory definition of “commercial item” has now made its way to a proposed FAR rule, which will open up regulatory relief to a whole new class of government contractors – companies, both domestic and foreign, that regularly sell products developed at private expense to friendly foreign governments. With the December 12, 2017, passage of Section 847 of the National Defense Authorization Act of 2018, Pub. L. 115-91 (“2018 NDAA”), the statutory set of definitions for the term “commercial items” was amended. See 41 U.S.C. § 103. More specifically, Section 103(8), addressing “nondevelopmental items,” was broadened as follows:
On Dec. 4, 2018, the Federal Acquisition Regulatory Council finally released a proposed rule to implement changes to certain small business subcontracting regulations required by the 2013 National Defense Authorization Act (NDAA). 83 Fed. Reg. 62540 (Dec. 4, 2018). This is a welcome, if not long-overdue sign of progress. Over the last half-decade since the passage of the 2013 NDAA, contractors and Government personnel alike have struggled to comply with an amalgam of inconsistent rules regarding the extent to which a small business may subcontract work under a federal small business set-aside contract.
E-Verify, the online system used by enrolled employers to verify the identity and employment eligibility of newly hired employees against records available to the Social Security Administration (SSA) and the Department of Homeland Security (DHS), is temporarily suspended. It’s a barely noticed consequence of the government shutdown, unless, of course, you happen to be one of the more than 800,000 employers enrolled in the program and are in a position to hire new employees.
By now, we have all read the horror stories of federal employees who are either furloughed or forced to work without pay during this historic shutdown. Less well-known, however, is the impact this shutdown has had on small business contractors who rely on federal government contracts for much – if not all ‒ of their revenue. Whereas large government contractors may have ample cash reserves for a situation like this, small businesses are likely less fortunate. In fact, many small businesses hire highly skilled, in-demand personnel specifically in support of their government contracts. Unfortunately, with much of the government shuttered and its coffers empty, these highly skilled personnel, and the companies for which they work, find themselves emptyhanded and operating in the red. Absent a stream of revenue, small businesses cannot pay the employees they specifically hired for the contracts that are now unfunded. While many small business contractors have been able to weather the first few weeks of this shutdown by either diverting these employees to other projects or using vacation or sick leave, many thousands of contractors are now facing grim choices as the shutdown enters its fourth week. Simply stated, these companies are in real danger not only of losing those employees hired to support existing contracts, but of losing the opportunity to leverage those employees to compete for future contracts. To make matters worse, unlike federal employees who will likely receive back pay, most if not all contractors will not be reimbursed for the revenue lost during this time of political chicken.
Week three of the U.S. Government shutdown has begun, and agencies responsible for administering export controls, sanctions, and other trade-related functions have been affected by the lapse in federal appropriations. This means that companies need to be prepared for extended licensing and processing wait times, along with increased wait times for any communications with the agencies, including advisory opinions. Accordingly, companies must operate — and continue to operate — in accordance with law and regulation. The shutdown requires increased vigilance on the part of those regulated by or working with the government (see here for advice for federal contractors). With that in mind, see below for the key international trade-related agencies impacted by the shutdown and suggestions on how industry should properly respond.
Here we are again. Large swaths of the federal government have been closed since December 22 because Congress and the president cannot agree on legislation to fund the government. Nearly a million federal employees are not receiving their paychecks. Even larger numbers of government contractors are – as is often the case – left squarely at the bottom of the hill, dodging the boulders of political mismanagement that are raining down in a landslide of “stop-work” orders. For example, as has been reported, the Department of Homeland Security’s Federal Emergency Management Agency (FEMA) took affirmative steps to publicize and issue a “blanket” stop-work order on December 26 – the day after Christmas – giving many affected contractors a post-holiday cocktail of uncertainty and dread. Other agencies have followed suit, with the Departments of Justice, Agriculture, Commerce, Housing and Urban Development, Interior, State, Transportation, and Treasury issuing such orders over the past few weeks.
In a highly unusual move, the federal Bureau of Industry and Security is asking U.S. industry to help identify emerging technologies that are essential to national security but currently escape the tangle of laws and regulations that govern — and in some cases restrict or prohibit — the sale or transfer of commodities, technology, and technical data to foreign businesses, research institutions, government and private organizations, and individuals who are neither U.S. citizens nor lawful permanent residents.
On November 19, 2018, the Bureau of Industry and Security (BIS) published an Advanced Notice of Proposed Rulemaking (Notice) seeking comments from industry on how to define and identify “emerging technologies” that currently are not export controlled but which ought to be because they are “essential to the national security of the United States.” Yes, you read that correctly – BIS seeks industry input as to whether it should subject industry’s emerging technologies to export controls and, by extension, to likely review by the Committee on Foreign Investment in the United States (CFIUS) of any sales or control of such technology to foreign investors. For those who have something to say about this impending regulatory storm, comments on the Notice are due to BIS by December 19, 2018.