Looking Back on 2022 in Government Contracts

Government contractors witnessed significant developments ranging from infrastructure, sustainability, supply chain, and cyber security requirements to increased compliance obligations and enforcement actions in 2022. Here we review those developments and provide insight into what to expect heading into 2023 with regard to both enhanced regulations and business development opportunities under the Biden administration. 

COVID-19 Response

The Biden Administration continues to use federal procurement policy in the fight against COVID-19. In September 2021, the administration issued Executive Order 14042 (EO 14042). EO 14042 sets forth three main requirements: a vaccination requirement for employees of covered contractors; masking and physical distancing requirements in workplaces of covered contractors; and a requirement to designate a person or persons to coordinate and implement COVID-19 workplace safety efforts. We went into depth on those requirements in “Safer Federal Workforce Task Force Issues COVID-19 Workplace Safety Guidance for Federal Contractors and Subcontractors.”

In August 2022, the Eleventh Circuit ruled on the U.S. District Court for the Southern District of Georgia’s preliminary injunction halting the nationwide enforcement of EO 14042,¹ concluding that the lower court’s decision was too broad and the injunction could only be enforced in states that were parties to the lawsuit — Georgia, Alabama, Idaho, Kansas, South Carolina, Utah and West Virginia.² The Eleventh Circuit’s decision took effect on October 18, 2022.³ With it came news that the Biden administration would implement EO 14042 in some states and a promise that the Office of Management and Budget (OMB) and the Safer Federal Workforce Task Force would soon issue implementation-related guidance. The OMB has instructed federal agencies not to enforce EO 14042 until it provides additional guidance on implementation.⁴

The Fifth Circuit has since issued a decision similar to the Eleventh Circuit’s decision, upholding an injunction blocking the enforcement of EO 14042 in Louisiana, Indiana and Mississippi.⁵ These circuit-by-circuit, state-by-state enforcement decisions will continue into 2023, muddying the waters for any additional guidance that OMB plans to release. 

The Department of Justice (DOJ) continued to crackdown on COVID-19 related fraud throughout 2022. In March, the DOJ appointed a deputy attorney general to lead its COVID-19 Fraud Enforcement office and carryout the Department’s criminal and civil enforcement efforts.⁶ In September, it charged 47 defendants in its “largest pandemic fraud prosecution to date.”⁷ And days later, it announced the creation of three Strike Force teams to further enhance its enforcement efforts.⁸ The DOJ is pursuing various types of pandemic related fraud through these efforts, including cases involving Paycheck Protection Program and Economic Injury Disaster Loan fraud. 

Although the DOJ has already prosecuted many cases involving fraudulently obtained PPP loans and has stated its commitment to targeting “egregious pandemic fraud,”⁹ we have also seen instances of PPP forgiveness denials and enforcement actions against small businesses that lawfully obtained their PPP loans. Among other things, the government is renewing its focus on eligibility from both a size perspective and as to whether borrowers satisfied the certification requirement as to need. Inevitably, the government will make errors regarding which loans to investigate during the course of this enforcement initiative and may pursue companies that were entitled to pandemic relief funds, as well as those that were not. Companies that find themselves the subject of an enforcement action should seek legal counsel to assess their options. To the extent that companies are ultimately deemed ineligible it will certainly be due in some instances to the changing requirements and guidance and resulting confusion associated with the first round of PPP loans. In those instances, it will be difficult for the government to demonstrate fraud, and borrowers will likely simply be required to pay back the loans. This heightened enforcement effort will certainly continue into this new year.

Russia-Ukraine War 

Faegre Drinker has kept a close eye on the government’s response to the Russia-Ukraine War in 2022, tracking the sanctions and export controls that have been imposed by the Biden administration since the war began in February. We alerted our clients to the economic sanctions and export control measures that the U.S., U.K. and EU considered before the Russian invasion. We cataloged “The First Tranche” of sanctions against Russian individuals and entities in late February and the blocking sanctions that were imposed against Russia’s defense-industrial base in April. We also went into depth on the Department of Commerce’s Bureau of Industry’s decision to add to the list of items requiring a license for the export, reexport or transfer to Russia. Partners Jessica Abrahams and Dana Pashkoff were featured on the Faegre Drinker on Law and Technology Podcast, where Abrahams predicted that these sanctions and export controls are likely to remain in place for a long time, even if the war were to end.

We’ve also tracked pending legislation that could further impact federal contractors, namely the Federal Contracting for Peace and Security Act (FCPSA).¹⁰ The FCPSA would prohibit federal agencies from entering into, continuing, extending or renewing a covered contract with a company that conducts business operations in Russia between the date of its enactment and the end of the covered period. The “covered period” begins 60 days after the date of enactment and will end on a date determined jointly by the Secretary of State and the Secretary of Treasury based on the steps Russia takes “to restore the safety, sovereignty, and condition” of Ukraine. With Vladimir Putin recently saying that the war in Ukraine “might be a long process,” 2023 will likely bring more war-driven changes to the government procurement landscape.¹¹

Domestic Sourcing Requirements 

President Biden used his State of the Union address in March to declare that the federal government “will buy American to make sure everything from the deck of an aircraft carrier to the steel on highway guardrails is made in America from beginning to end. All of it.” This latest pledge to buy American products and support American jobs signals the administration’s sustained efforts to propel key objectives that have been at the forefront of this administration’s agenda since Biden took office. The administration has issued a series of executive orders relating to Buy American requirements and, as discussed in a prior client alert, the FAR Council issued a proposed rule implementing these requirements. On the heels of the State of the Union address, the FAR Council issued a final rule amending the Federal Acquisition Regulation to implement EO 14005 and finalize many of the requirements set forth in the proposed rule. The final rule implements several key changes to the Buy America Act regulations, including the incremental increases the domestic content threshold over time. Now, manufactured end products and construction materials must have 60% domestic content to be considered a domestic end product, with that percentage set to increase to 65% in 2024 and to 75% in 2029.¹²

Federal contractors should keep in mind that the IIJA implemented new Buy America requirements through the Build America, Buy America (BABA) Act. BABA requires federal agencies to ensure that no funds made available for a Federal financial assistance program for infrastructure are obligated for a project unless all of the iron, steel, manufactured products and construction materials used in the project are produced in the United States. For purposes of “manufactured products,” (i) the product must be manufactured in the United States; and (ii) the cost of the components of the manufactured product that are mined, produced or manufactured in the United States must be greater than 55% of the total cost of all components of the manufactured product, unless another standard for determining the minimum amount of domestic content of the manufactured product has been established under another applicable law or regulation. 

Navigating the difference between the various Buy American and Buy America regulations can prove challenging, especially as the requirements continue to evolve and different agencies, for example the Department of Transportation, consider issuing waivers for certain BABA requirements and not others.¹³ Government contractors should stay apprised of the domestic sourcing requirements and consider how both current regulations and regulations implemented in 2023 and beyond may impact their supply chain.

Construction Labor Developments

In 2022, the Biden administration leveraged procurement policy to strengthen organized labor. In February, the administration issued Executive Order 14063 (EO 14063). Titled “Use of Project Labor Agreements for Federal Construction Projects,” EO 14063 requires certain contractors and subcontractors “to negotiate or become a party to a project labor agreement with one or more appropriate labor organizations.”¹⁴ Several months later, the FAR Council issued a proposed rule implementing EO 14063.¹⁵ That rule would require the use of a project labor agreement (PLA) on federal construction projects worth $35 million or more. Once finalized, the rule could have a significant impact on federal construction contractors. Indeed, the FAR Council estimates that over 100 contracts per year could now require a PLA. 

In another move to strengthen organized labor, the Department of Labor (DOL) also proposed several changes to the Davis-Bacon Act (DBA). The DBA sets wage standards for federal construction workers, and the DOL’s proposed changes would extend the Act’s applicability, rewrite several of the Act’s key definitions and increase the Act’s enforcement.¹⁶ These proposed changes drew over 37,000 comments from trade associations and labor unions alike.¹⁷ Federal contractors may have to wait until 2023 to see how the DOL incorporates these comments in its final rule. In the meantime, contractors should be aware of these proposed changes as they prepare their bids for federal construction projects in the months ahead. 

Environmental Developments

In December 2021, the Biden administration issued Executive Order 14057 (EO 14057). Titled "Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability,” EO 14057 announced the administration’s goal “to achieve a carbon pollution-free electricity sector by 2035 and net-zero emissions economy-wide by no later than 2050.”¹⁸  Included in the strategies set forth to reach that goal was a plan to have 100% zero-emission vehicle acquisitions by 2035 and net-zero emissions from federal procurement by 2050. 

Picking up where it left off, the administration continued to emphasize sustainability in 2022. In January, the administration created the Buy Clean Task Force and the Federal Buy Clean Initiative to use the federal government’s purchasing power to increase demand for American-made low-carbon materials.¹⁹ In February, the administration released its 2023 Budget, dedicating $50 billion to climate change and clean energy.²⁰ That is in addition to the billions of dollars already set aside for climate change and clean energy efforts in the Infrastructure Investment and Jobs Act, discussed below. 

In November, the administration appointed the first permanent director of the Office of Environmental Justice (OEJ), released its long-awaited environmental justice tool, and proposed a climate disclosure rule for federal contractors. Cynthia Ferguson — a longtime government attorney — will lead the OEJ as it implements DOJ’s Comprehensive Environmental Enforcement Strategy (Strategy). That Strategy calls for “pursuing violations of material environmental or public health-related requirements that are included in federal grants or contracts using the False Claims Act (FCA),” among other things.²¹ With a permanent director now in place, contractors should expect the OEJ to heighten its enforcement efforts in the years ahead. 

Related to that Strategy is the administration’s environmental justice tool, the Climate and Economic Justice Screening Tool (CEJST). CJEST will help the Administration implement its Justice40 Initiative — which calls for 40% of the overall benefits of certain federal investments to flow to disadvantaged communities — by identifying disadvantaged communities.²² Contractors in the climate change, clean energy and energy efficiency, and clean transit spaces should be sure to check out the CJEST and explore how it may impact their proposed projects.

In November, less than a week after releasing the CJEST, the administration proposed a climate disclosure rule for federal contractors.²³ We explored the proposed rule’s requirements in a recent article and explained that the proposed rule would amend the Federal Acquisition Regulations (FAR) to require certain contractors to disclose their greenhouse gas emissions and climate-related financial risk and set science-based targets to reduce their greenhouse gas emissions. While the proposed rule is open for public comment until January 13, 2023, if finalized, it could impact the ability of some contractors to secure federal contracts. Regardless, if the end of 2022 was any indication, 2023 is sure to be a busy year for green procurement. 

Small Business Administration 

In 2021, a record 27.2% of all federal contracts — worth another record of $154.2 billion — went to small businesses.²⁴ The Small Business Administration (SBA) looked to keep up the positive momentum in 2022. In March, the SBA issued four final rules that increase the small business size standards for over 200 industries, including agriculture²⁵ and health care.²⁶ Because of these increases, more businesses will be eligible for the federal procurement programs that target small businesses. Later in the year, the SBA issued a similar rule increasing the thresholds of eligibility for the 8(a) and Economically Disadvantaged Women-Owned Small Business programs.²⁷ That means more businesses will be eligible for these programs — and their related federal procurement opportunities. 

Likewise, in July, the SBA issued its final “Past Performance Ratings for Small Business Joint Venture Members and Small Business First-Tier Subcontractors” rule. Finding that a lack of qualifying past performances was often an obstacle for small businesses trying to win government contracts, the rule allows small businesses to use a past performance rating for work performed as a member of joint venture or for work performed as a first-tier subcontractor in making offers on federal prime contracts.²⁸

Inflation

The spiraling inflation in 2022 impacted adversely government contractors, and the Department of Defense (DOD) and the Government Service Administration (GSA) took notice. DOD issued guidance memos on inflation and price adjustment in May and September. In the latter, DOD encouraged contractors to negotiate with contracting officers to make amendments and to also consider applying for Extraordinary Contractual Relief.²⁹

In September, the GSA issued an acquisition alert suggesting that contractors incorporate economic price adjustment (EPA) clauses in future contracts, attempt to “streamline procedures and simplify acquisitions” by using GSA Multiple Award Schedules and other similar programs, and consider contracting for shorter periods of performance.³⁰

While both sets of strategies could provide some relief, 2023 will likely bring further discussion of inflation and its impact on procurement and government contracting. 

Infrastructure Investment and Jobs Act 

2022 saw the first full year of implementation for Infrastructure Investment and Jobs Act (IIJA). So far, nearly $190 billon has been earmarked for state, local, tribal, and territorial governments for highways, railways, ports, airports, transit systems, and other infrastructure projects.³¹ The IIJA’s electric vehicle (EV) infrastructure charging programs — like the National Electric Vehicle Infrastructure Program (NEVI) — have been among the fastest to be rolled out. All 50 states have submitted NEVI implementation plans, and early 2023 is sure to bring a surge of investment in EV infrastructure. 

Other programs — like several of the broadband expansion programs — have had a slower start. The Federal Communications Commission (FCC) was slow to update its national broadband maps, taking until November to identify communities that are without access to high-speed internet.³² Now that those communities have been identified, the broadband expansion funds can be awarded. Expect these broadband expansion programs to be at the IIJA forefront in early 2023. 

Office of Federal Contract Compliance Programs 

The Office of Federal Contract Compliance Programs (OFCCP) increased its oversight efforts in 2022. In March, OFCCP issued Directive 2022-02, “Effective Compliance Evaluations and Enforcement.” Faegre Drinker reviewed that Directive in detail in “New OFCCP Directive Rolls Back Previous Administration’s Contractor-Friendly CERT Principles.” March also brought the opening of the long-awaited Federal Contractor Portal.³³ Federal contractors are required to use the Portal to certify the status of their affirmative action plans (AAPs). For more on the Federal Contractor Portal, check out “OFCCP New Federal Contractor Portal Opened for Required Certification.” 

In August, OFCCP revised Directive 2022-01 to clarify its earlier guidance addressing federal government contractors’ regulatory requirement to evaluate compensation as part of their affirmative action programming. The revision makes clear that under Directive 2022-01, federal contractors are required to “perform an in-depth analysis” of their compensation systems, looking for any gender-, race- or ethnicity-based disparities. We walk through the revised Directive in “OFCCP Revises Recent Directive on Compensation Analysis.”

False Claims Act at the Supreme Court

The False Claims Act (FCA) was at issue in several cases heard by the Supreme Court in 2022 and may feature on the Court’s docket again in 2023. In August 2022, the Court asked the Solicitor General to weigh in on “whether and when a defendant’s contemporaneous subjective understanding or beliefs about the lawfulness of its conduct are relevant to whether it ‘knowingly’ violated the [FCA],” the question at issue in U.S. ex rel. Proctor v. Safeway, Inc.³⁴ The Solicitor General responded, urging the Court to take up the case.³⁵ Should the Court take up the government’s invitation, that question — and its several possible implications for government contractors — would be before the Court sometime this year. 

Cybersecurity Updates

The Department of Defense issued a memorandum on June 16, 2022, reiterating the critical importance of protecting controlled unclassified information on contractor information systems. The memorandum provides an overview of the requirements in the Defense Federal Acquisition Regulation Supplement (DFARS) that contractors must comply with, including the implementation of the security requirements in the National Institute of Standards and Technology Special Publication 800-171 (NIST SP 800-171). The memorandum reminds contracting officers that although they may negotiate bilateral modifications to incorporate DFARS clause 252.204-7020, they do not have the authority to unilaterally impose High or Medium NIST SP 800-171 DoD Assessments under contracts that do not already include this DFAR provision. 

Looking Ahead

As described above, 2022 was a busy year and 2023 promises to continue the trend, with new procurement regulations and executive orders, increased pandemic related enforcement efforts, and a continuation of the Biden administration’s top priorities. Companies can also expect record levels of federal spending, and thus, new contracting opportunities. In addition to funding under legislation such as the IIJA and the American Rescue Plan Act, the CHIPS and Science Act, passed in August 2022, authorizes $52.7 billion for semiconductor research, development, manufacturing and workforce development.³⁶ The Department of Commerce’s National Institute of Standards and Technology has recently closed a request for information seeking comment on how to best distribute this funding³⁷ and companies can expect funding programs to be rolled out in the first six months of 2023. 

Stay tuned throughout 2023 as Faegre Drinker’s Government Contracts team continues to analyze and provide updates on relevant procurement developments.