A New World Order?
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 of the new 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, government contractors are 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 new 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 Obama administration implemented many 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 policy goals, they also imposed significant compliance costs on contractors, many of which are small businesses. For example, a significant cost was investing in accounting software upgrades to meet the new paycheck transparency regulations. Other rules from the previous administration would require contractors to track and disclose pending labor law proceedings, spend more time and resources vetting potential subcontractors, and make 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 with the goal of easing the compliance burden on businesses.
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 that the Congressional Review Act (CRA), enacted in the 1990s as a reaction to President Clinton’s regulations 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 give Congress a strong hand in the rulemaking processes through which revisions to regulatory 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 practice 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., which is the law that provides a basis for challenging an agency’s actions in court, 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 Supreme 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 simply 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 now be 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.
Federal contractors can expect to see the reins loosened in a variety of ways that may relieve compliance costs. However, there is an element of unpredictability in the air as the new administration has expressed a willingness to chart a very different path. As the new Congress and administration settle in, do not be surprised to see rapid changes to the rules governing federal contracts.