Provision Agreeing to Not Challenge Arbitration Award Voided by Georgia Court

An increasingly popular arbitration clause provision is language purporting to waive later challenge to the arbitration award. In a recent decision in Atlanta Flooring Design Centers, Inc. v. R.G. Williams Constr., Inc., 733 S.E.2d 868 (April 2015), the Georgia Court of Appeals held such waiver void and unenforceable.

While that court recognized the general fundamental principle that parties have the right to freely contract, it rationalized that Georgia's arbitration act does not permit such waiver or elimination of right to seek to vacate or modify an arbitrator's award. The court also relied upon federal case law interpreting the Federal Arbitration Act similarly holding.

Virginia's arbitration statutes are similar to those of Georgia and the Federal Arbitration Act. So, would a Virginia court rule similarly? That remains to be seen.

For example, compare the Atlanta Flooring analysis with the Virginia Supreme Court's holdings in Gordonsville Energy v. Virginia Electric and Power Company, 257 Va. 344 (1999) enforcing a contractual provision waiving the right to challenge a contract's liquidated damages provisions. But one can certainly distinguish waiving another contractual provision (in that case for LDs) from a statutory judicial review statute such as applies to an arbitration award.

Time, and someone's judicial challenge, will tell.

Changes . . . New Overtime Rules Published by Department of Labor

Earlier this year, the Department of Labor (DOL) published new proposed rules for FLSA overtime requirements. Among the proposed rules, DOL has proposed:

• Increasing the salary threshold from $23,660/year to $50,400/year [40th percentile].

• Increasing the "highly compensated" threshold from $100,000/year to $122,148/year [90th percentile]; and

• Automatically increasing the thresholds to "keep pace with inflation."

The new rules will go into effect in 2016 absent further change.

Vandeventer Black's Anne Bibeau regularly address these and related employment matters, both involving overtime issues and employment issues for broadly. For more information about these changes or any other employment law matter, please contact her or any of the other Vandeventer Black Employment Law Group team members - www.vanblacklaw.com or (757) 446-8600.

HACKED: 5 THINGS TO KNOW ABOUT NEW DOD CYBERSECURITY REGULATIONS

In 2007, a preeminent American defense contractor first reported cyber attacks emanating from China. Four years later, upon a visit by then Secretary of Defense Robert Gates, the Chinese Air Force revealed a fighter jet unnervingly similar to the one manufactured by the hacked American contractor. More recently, the FBI reported in July 2015 that hackers accessed the personnel files and security clearances of over 22 million federal employees and contractors.

Accordingly, the Department of Defense (DOD) moved to strengthen the Defense Federal Acquisition Regulation Supplement (DFARS) concerning cybersecurity. The interim rule alters the contractual duties of government contractors and subcontractors in a significant manner. Thus, every government contractor and subcontractor ought to consider the following 5 highlights of the interim rule.

(1) Seriousness. The regulation is effective immediately. The DOD invoked “urgent and compelling reasons” to impose the change without the typical comment period. The comment period before final form remains open until October 26, 2015, however.

(2) Scope. First, the interim rule requires “adequate security” from “unauthorized access and disclosure,” an imposition yet undetermined in breadth. Second, the addition compels contractors to report to the DOD any cyber incident “adverse or potentially adverse” to the contractor’s information technology (IT) systems. The scope of what defines “adverse or potentially adverse” is unknown. Once a contractor or subcontractor reports an incident, the company must make all affected “media” available to government inspection. This includes physical devices such as laptops and cell phones as well as paper archives.

The DOD did clarify that the rule includes contracts for commercial items. Likewise, it covers non-confidential and proprietary information. Regulations applicable to confidential data remain unchanged. 

(3) Speed. The new regulation requires contractors and subcontractors to report cyber incidents within 72 hours of the attack.  The contractors owe their report to the DOD while the subcontractor must account to the prime contractor and to the DOD. Fortunately, though, the DOD will not consider such reporting, by itself, as evidence that a company has failed the rule’s security requirements.

(4) Savings? The DFARS modifications are similar in language and intent to those of another federal agency, one created specifically for IT security. As such, the interim rule is “tailored for use in protecting sensitive information residing in contractor information systems,” which could indicate potential savings for certain companies. Other companies, however, especially those without IT departments or IT experts, could experience increased costs. The DOD even admits that some 10,000 small businesses will require the help of IT experts to decipher cyber incidents, to determine the information affected, and to author the government report.  

(5) Service impact. Many contractors and subcontractors are moving their IT services to cloud computing. The interim rule applies to cloud computing, too. In fact, it compels companies to monitor their cloud to confirm the appropriate “administrative, technical, and physical safeguards.”

The broad nature of these DOD security requirements necessitates a precise and professional approach for government contractors. Vandeventer Black's Construction and Government Contracts Team attorneys are poised to help navigate those needs for our clients. Please visit the firm's website to learn more about the firm and our professionals at www.vanblacklaw.com.

 

New Minimum Wage Requirements under FAR 52.222-55

Below is a summary of the new minimum wage requirements of FAR Part 52.222-55 prepared by my law partner, Mike Sterling. The new requirements apply to all prime contractors and subcontractors working on new federal contracts after January 1, 2015.

 

 

Minimum Wages Under Executive Order 13658

You need to be aware of the new minimum wage requirements of FAR 52.222-55. This clause applies when it is included in a contract or modification by the agency as directed by FAR 22.1906. If the agency fails to include it there is a provision for retroactive application of the clause. FAR 22.1905(d)(4).

FAR 52.222-55 applies to almost all prime contractors and subcontractors working under “new” federal contracts after 1/1/15. The minimum wage is generally not retroactive to “old” contracts. However, it appears that the government views a bilateral modification extending a contract more than 6 months to be a new contact. Likewise, the government may also apply the clause to IDIQ contracts with more than 6 months of task or delivery orders remaining.

If you believe that the agency improperly included the clause you may ask the agency to remove it, but if included you must comply with it.  

If FAR 52.222-55 is included you must flow it down to subcontractors at every tier, and if added after award by modification you should take steps to obtain an equitable adjustment for you and your subcontractors. You should not sign a modification that waives your right to an adjustment.

The minimum wage applies to all contractor employees that spend more than 20% of their weekly hours working in “connection” with a federal contract, and regardless of the contractual relationship. Therefore, it may apply to someone in general administration or a 1099 independent contractor.

The minimum wage takes precedence over lower rates in wage determinations, collective bargaining agreements or apprentice programs. You cannot make up short wages with fringe or other benefits.

You must notify all workers of the requirements of the clause.

Asking about union affiliation deemed unlawful interrogation by NLRB

The word interrogation may give one the visual image of something akin to a police interrogation; but in a recent NLRB decision, the NLRB held that when a non-union shop subcontractor asked individual union member workers about their union affiliation in discussions about hiring those workers, the subcontractor violated the National Labor Relations Act. That decision is Euro Buildings, Ltd and International Union of Bricklayers & Allied Craftsworkers, Ohio-Kentucky Administrative Council, Local 22 Ohio, 2014 WL 5410010 (N.L.R.B. Div. of Judges 2014, adopted 2014 WL 6969677 (N.L.R.B. 2014).

The NLRB discussed that whether discussions amounted to interrogation required the NLRB to consider whether all of the associated circumstances of the discussions reasonably tended to evidence restraint, coercion, or interference with rights guaranteed by the Act. The NLRB identified related factors as including the identity of the questioner, the place and method of the questions, the background of the questioning, the nature of the information sought, and whether the employee is an open union supporter.

For that case, the NLRB judge found that the non-union subcontractor's questions of the applicants about their union affiliation and membership was clearly coercive in nature and reasonably tended to coerce the applicants, and as such interfered with their rights under the Act. His decision seems to suggest any inquiry during the interview process about affiliation would similarly qualify as an coercive interrogation - the indirect threat being if you say you are affiliated as an applicant then you can't get the job.

Insurance Coverage For Subcontractor Non-complaince With Prevailing Wage Laws? - One Court Says There's At Least a Duty to Defend

Subcontractor non-compliance with prevailing wage laws is unfortunately not uncommon. But might that be covered by the General Contractor's insurance? For one design-build project that included coverage for professional liability a federal court in Washington has said there's at least a duty to defend on the part of the insurer under that particular policy. The case is Bayley Constr. v. Great American E & S Ins. Co. 980 F. Supp. 2d 1281 (W.D. Wash. 2013). In reaching its conclusion, the court noted that the duty to defend was governed by liberal construction principles and that under those principles the General Contractor's obligation to ensure subcontractor compliance with prevailing wage laws required professional skill and judgment, and so within that particular policy's coverage. While results will necessary vary depending upon each policy, this case suggests any General Contractor required to address subcontractor prevailing wage law non-compliance should consider triggering policy coverage, and when in doubt timely notify its carrier of related claims per the terms of the contractor's insurance policy or policies.

Virginia "Independent Agencies" Now Covered by Virginia's Public Procurement Act

Among other changes adopted by Virginia's General Assembly last session, the scope of coverage of the Virginia Public Procurement Act has been expanded to include the various "independent agencies" in Virginia. Currently, those independent agencies include the Virginia State Corporation Commission, the State Lottery Department, the Virginia College Savings Plan, the Virginia Retirement System, the Virginia Worker’s Compensation Commission, and the Virginia Office for Protection and Advocacy. Presumably those independent agencies will be evaluating and adopting implementation plans, and their inclusion within the VPPA will help provide guidelines and clarity in the implication of procurement process and administration. The adopting bill was SB 1371. Below is a link to the legislation:

http://leg1.state.va.us/cgi-bin/legp504.exe?151+sum+SB1371

VB's Mike Sterling Part of PPP Live Webcast Speaker Team - Thursday, June 18, 2015 @ 12pm - 2pm (ET)

VB is pleased to announce that one of our Construction and Government Contracts Team Members, Mike Sterling, is one of the speakers at the upcoming Live Webcast discussing Payments-Based Public-Private Partnerships on Thursday, June 18, 2015 from 12pm to 2pm. Below is more information about the program:

Pre-contract Bond, Contract or Mechanic's Lien Claim Waivers Nearing Statutory Extinction in Virginia

Virginia Governor McAuliffe proposed amendments on March 27, 2015 to Senate Bill 891S2 relating to lower tier claim rights, and their waiver.

First, he's proposed adding a new provision in Title 11, dealing with contracts generally, to add a new code section, Code Section 11-4.1:1, to void pre-waivers of payment bond claims and contract claims executed prior to providing any labor, services, or materials.

Second, he's proposed a similar pre-provision waiver of mechanic's lien rights to Code Section 43-3 that further, similarly, voids any such pre-waivers executed prior to providing any labor, services or materials.

Below is a link to the current proposed amendments of the Governor:
http://leg1.state.va.us/cgi-bin/legp504.exe?151+ful+SB891S2+pdf

Whether there is an intended distinction between the "in advance" and "prior to" language various used, as well as other interpretive aspects to the pre-waiver limitations, such as implications upon other contract payment terms, will remain to be seen if, as expected, the amendments are adopted to law.

Teaming Agreement: Richmond Circuit Court Concludes More than Mere Agreement to Try and Agree

Teaming agreements are regularly used for collaborative bids or proposals. A significant related issues has increasingly been the enforceability of the teaming agreement, and in particular whether it is merely an agreement to try and agree or whether it creates an obligatory requirement to contract if the team successfully obtains award. Judge Hughes of the Richmond Circuit Court recently considered related questions in the context of a suit by a scorned teaming subcontractor. As framed by Judge Hughes, the lead question for him on summary judgment was whether the teaming agreement was merely an agreement to agree.

Defendant's main contentions for the proposition were 1): no duration for the prospective subcontract was set in the teaming agreement; 2) the plaintiff subcontractor was not a Local Small Business or Local Small Business Enterprises as called for in the teaming agreement; and 3) the teaming agreement included a provision that provided: "Nothing herein shall be deemed to create a presumption that the parties have agreed to exclusively respond with the other." Noting the case was before him on summary judgment, Judge Hughes rejected all three arguments.

Regarding the first, he held that the subcontract duration could be implied; that is, duration would be tied to the nature of the teaming prime's contract with the owner - or, as he noted in his opinion, "In other words, the duration of the parties' sub-contractual undertaking will be determined by the length of defendant's general contract."

Regarding the second, he held that, based on the wording of the LSB / LSBE requirement in the teaming agreement (e.g., "throughout the term of the Contract"), the compliance requirement did not arise until when and if the parties themselves contracted, and so the LSB / LSBE requirement did not come into play until the underlying contract itself came into play; and so the team subcontractor's not meting those requirements for the teaming agreement was not fatal.

Finally, regarding the third, he held that the provision relied upon merely expressed the parties' agreement that the teaming agreement did not create any presumptions, and that nothing about the provision excluded the existence of a contractual relationship as alleged in the complaint; only that exclusivity existed between those parties relating to the project.

In ruling on the summary judgment motion, Judge Hughes noted that the enforceability of the teaming subcontract would be subject to later proof; however, he concluded the defendant's arguments were insufficient, as argued, for him to grant summary judgment and preclude the scorned subcontractor from presenting that proof. This is a helpful case for teaming agreement drafters, or litigators; although the outcome seems strongly tied - as are all of these cases - to the wording of the particular teaming agreement.

FOURTH CIRCUIT CLARIFIES FEDERAL FALSE CLAIMS STANDARDS IN JANUARY 2015 MAJORITY DECISION

Last month the United States Court of Appeals for the Fourth Circuit (which has Federal Court appellate jurisdiction for Virginia, North Carolina, South Carolina, West Virginia, Maryland and the District of Columbia) clarified a number of aspects of Federal False Claim actions. The case is United States, et al. v. Triple Canopy, Inc., Nos. 13-2190 and 13-2191, decided January 8, 2015, and involves a whistleblower (“qui tam”) claim by an ex-employee of a security contractor, Triple Canopy, respecting Triple Canopy security service contracts with the Federal Government.

 

The whistleblower, a medic named Omar Badr, claimed that Triple Canopy had knowingly provided non-qualified guards, asked him to falsify related records, and then when he refused falsified them and invoiced for the non-conforming services. The Attorney General elected to intervene and proceed with the action after it was filed by Badr, and then filed an amended complaint alleging additional violations, and bringing several common law claims against Triple Canopy. The district court dismissed the False Claims Act claims and common law claims, as well as the whistleblower’s claims, and the appeal resulted.

 

Reviewing the district court’s decisions “de novo” (anew; the applicable review standard), the Fourth Circuit reversed several aspects of the district court’s decision, and in the process clarified the pleading (and proof) standards applicable to False Claims Act (“FCA”) actions. Particularly of note as being clarified by the court are the following:

 

-        Implied Certifications: The Fourth Circuit clarified that false claims include falsehoods by silence, and that such “implied” certifications (as opposed to affirmative representations) arise when the contractor’s silence infers the contractor has met contractual prerequisites for the Government action being induced (in that case, the prerequisites for payment). The court clarified that the silence must go to a “material” (as opposed to minor) contractual requirement though; in that case the non-qualification of the guards being held as material by the court.

 

-        Whistleblower as Plaintiff: The Fourth Circuit clarified that the whistleblower remains a proper party plaintiff claimant even after the Attorney General elects to intervene and proceed with the action. The district court had held that the whistleblower’s claims were superseded by the Government’s claims; but the Fourth Circuit reversed holding the whistleblower had the right to continue as a party in the action subject to the limitations in FCA Code Sec. 3730(c)(2); which the court noted the district court was free to consider on remand.

 

-        False Records Claim Basis: The Fourth Circuit clarified that the Government was not required to have actually reviewed or relied upon the false record to support a false records claim. The district court had focused on the actual effect of the false statement rather than its potential effect, but the Fourth Circuit held that – in appropriate circumstances – a record is false if it has the potential to influence Government payment; even if the Government ultimately did not review the record. Additionally, the court expressly declined to adopt the view that such implied representations can only give rise to FCA claims when the condition is expressly designated as a condition for payment; but that not every part of the contract can be assumed as a condition of payment – leaving the question of materiality for case by case analysis.

 

As part of its analysis, the court noted the importance of construing the FCA as a “strong remedy” when one was needed to confront fraud upon the government. While noting that its decisions in Triple Canopy might be “prone to abuse” by efforts to turn minor contractual violations into FCA claims, the court noted the FCA purposes overrode that concern and further noted the available remedies for any such “abusive litigation.”

 

How the Fourth Circuit’s decision in Triple Canopy expands FCA claims, and whistleblower actions in particular, remains to be seen; but it clearly seems to widen the door of FCA action-ability, and should serve as a caution to any Federal contractor respecting both what is said, and not said, to the Government throughout contractual performance.