Fixed Price Contracts: Government Contractors Beware
Many predict that, among other procurement and regulatory reforms, the new administration will implement policies favoring the award of fixed-price government contracts and grants. Throughout the years, the procurement pendulum has swung back and forth in favor of and against fixed-price contracting. For example, in 2017, the Department of Defense (“DoD”) implemented a preference for fixed-price contracting and required approval of cost-reimbursement contracts in excess of $25 million by the head of the contracting agency. In 2022, DoD reversed course and removed both the preference and approval requirement.
For taxpayers, fixed-price contracting may seem appealing; however, for government contractors, fixed-price contracts present significant risk. Fixed-price contracting is often criticized because it deprives the government from receiving the best solutions and performance and instead results in awards to the lowest price, technically acceptable offeror. The federal government typically prefers fixed-price contracts because of budget and funding certainty, and because a fixed-price contract assigns all performance risk to the contractor.
Absent actual or constructive changes to the contract requirements, a contractor generally is not entitled to a cost or price increase under a fixed-price contract. This applies to large and small business contractors. A large government contractor recently reported it will recognize a significant loss on fixed-price space and defense programs, which already caused the company years of losses, due to issues such as increased production costs and disruptions from a recent strike. However, the impact on small businesses that cannot absorb the level of losses of a large business can have much more dire consequences.
Contractors have limited options to mitigate the risk associated with fixed-price contracts. First, notwithstanding the fixed-price label, a contractor should seek to include in its fixed-price contract the ability to request equitable price adjustments (“EPA”) for circumstances beyond what a contractor can reasonably assume/predict. For example, while a contractor generally can make assumptions regarding supply chain risk, contractors could not reasonably assume supply chain costs or the cost of certain materials would increase as much as 25 percent or 50 percent, as occurred during the COVID pandemic. A contractor could seek inclusion of an EPA clause that is triggered only when costs exceed a high threshold, such as 25 percent. To be clear, the applicable contracting officer will resist including any sort of EPA clause in a fixed-price contract. And contractors need to be careful conditioning their quotes or proposals on inclusion of an EPA clause as their offer could be deemed non-responsive and eliminated from consideration.
Second, when possible, contractors should negotiate statements of work (“SOWs”) and Performance Work Statements (“PWS”) that include reasonable, achievable performance. For example, for research and development contracts, a contractor should never promise or guarantee successful performance. This would include guaranteeing Food and Drug Administration approval of a drug under a government grant or 100 percent completion of a project. Rather, contractors should attempt to negotiate milestones and goals that do not guarantee success. Obviously, this approach would not apply to some contracts such as construction contracts or the sale of existing products that require no development.
Third, a contractor can seek to negotiate a dollar cap on what it is required to spend to complete performance of a fixed-price contract. Yes, this sounds similar to a time and materials (“T&M”) contract, but the dollar cap in this case would go beyond the funds available under a T&M contract. At the same time, the dollar cap gives the contractor a level of certainty that failure to achieve a specific result will not drive the contractor into bankruptcy.
Many contracting officers will resist and reject the contractor requests discussed above. But contracting officers should consider that the approaches allow more companies to compete for awards, and ensures the government has access to more companies, including small businesses, willing to contract with the government. Absent such measures, competition is reduced and those that opt to compete will propose higher prices to mitigate risk. Bottom line, if the predictions are accurate and the government shifts its contracting preferences to fixed-price contracts, contractors need not immediately throw-in the towel. In most procurements, so long as a company submits a compliant offer, offerors can submit an alternative proposal that includes one or more of the approaches above. These are novel approaches that could mitigate the contractor’s risk in fixed-price contracting to more acceptable levels.
2025 New Jersey Employment Law Updates
The start of a new year is a great time for New Jersey employers to review their employee handbooks and policies and consider revisions based on changes in the law or best practices. This GT Alert summarizes some recent legal updates and changes on the horizon to help focus employers as they evaluate the compliance of their policies.
Pay Transparency
As set forth in a November 2024 GT Alert, New Jersey, like a number of other states, will soon enforce pay transparency requirements and mandate certain job posting disclosures. Effective June 1, 2025, New Jersey employers with 10 or more employees over 20 calendar weeks doing business or taking applications for employment within the state must disclose the hourly wage or annual salary range and general benefit information in all job postings for new positions and transfer opportunities. Covered employers must also post promotion opportunities to the entire affected department, with certain exceptions.
Remote Workers
The New Jersey Attorney General and New Jersey Division on Civil Rights (DCR) issued guidance on existing legal requirements applicable to workers employed with New Jersey companies who reside and work outside the state. The DCR published this update in the wake of recent case law holding that “a court would not apply New Jersey law to a multi-state dispute.” The DCR took the position that “[b]y its terms, the [New Jersey Law Against Discrimination (LAD)] does not protect only New Jersey residents. For instance, the LAD provides that ‘all persons shall have the opportunity to obtain employment . . . without discrimination.’” Thus, according to the DCR, the LAD protects all employees who work for a New Jersey employer “regardless of their residency or where they physically work, including those who work remotely full-time or part-time on a hybrid schedule.”
The DCR stated that it was providing guidance “to clarify and explain DCR’s understanding of existing legal requirements in order to facilitate compliance with the LAD.” However, it acknowledged that “[t]his guidance document does not impose any new or additional requirements that are not included in the LAD, does not establish any rights or obligations for any person, and will not be enforced by DCR as a substitute for enforcement of the LAD.” Although not law, employers should be aware of the DCR’s position to the extent it may impact decisions on charges of discrimination filed with the agency and potentially be viewed as persuasive by the courts.
Dress Codes (Employees and Patrons)
The New Jersey Attorney General and the DCR issued a consent decree stemming from a charge of discrimination against a New Jersey restaurant involving a gender-binary dress code for employees and patrons. The DCR’s press release stated that a non-binary individual was denied service because they purportedly failed to adhere to rules for men’s attire. The DCR took the position that the restaurant’s dress code policy violated the law because “New Jersey’s civil rights laws make it unlawful to discriminate based on gender identity. Those protections mean that places open to the public, including restaurants, can’t maintain gender-binary dress codes that exclude LGBTQ+ people.” Employers with dress code requirements for employees and/or the public should review their policies to ensure compliance.
The New Jersey Data Protection Act
Effective Jan. 15, 2025, the New Jersey Data Protection Act (NJDPA) imposes new protections for New Jersey consumers regarding personal data released to businesses. Personal data is defined as “information that is linked or reasonably linkable to an identified or identifiable person.” New Jersey residents now have the right to limit whether and how their personal data may be collected and used, the right to correct inaccuracies in their personal data, and the right to delete their personal data. The NJDPA also imposes new compliance obligations on businesses, including, but not limited to, responding to consumer requests not later than 45 days after receipt and providing certain information free of charge.
The NJDPA’s compliance obligations apply to New Jersey companies that operate as either “controllers” or “processors.” “Controllers” are individuals or legal entities that determine the purpose and means of processing personal data; processors are individuals or entities that collect, modify, and otherwise process personal data on behalf of a controller. The NJDPA applies to controllers conducting business in New Jersey or producing products or services targeted to the state’s consumers and that, during a calendar year, either (1) control or process personal data of at least 100,000 consumers, with certain exceptions; or (2) control or process the personal data of at least 25,000 consumers while deriving revenue, or receiving a discount on the price of any goods or services, from selling personal data.
The NJDPA also directs the Director of the Division of Consumer Affairs to promulgate regulations necessary to effectuate the purpose of this new law.
Retirement Plan Requirements
RetireReady NJ requires all New Jersey employers with 25 or more employees that do not offer a qualifying retirement plan for their employees to provide certain retirement benefits. Covered employers were required to register with the state by Sept. 15, 2024 (if 40 or more employees) or Nov. 15, 2024 (if between 25-39 employees), but the RetireReady NJ webpage appears to still be accepting registrations. Additionally, exempt employers that already provide retirement benefits must certify their exemption on the webpage. Employers who fail to comply with RetireReady NJ may be subject to penalties, ranging from a warning to monetary fines.
Employment Law Regulations Impacting New Jersey Residents
Private households in New Jersey employing domestic workers may now be considered employers and have important obligations under the Domestic Workers’ Bill of Rights (DWBR). The DWBR gives certain workers providing in-home services to private households—i.e., childcare, house cleaning, care for disabled or elderly individuals, and/or cooking—with the right to a contract, the right to minimum wage, as well as overtime compensation, break time, and privacy, safety, and discrimination protections. The law took effect July 1, 2024, and applies regardless of the immigration status of the worker.
Immigration Status Protections
Pursuant to S2869, signed into law in August 2024, employers may not coerce or attempt to coerce an employee based on the employee’s immigration status for the purpose of concealing purported violations of state wage, benefit, or tax laws. “Any employer that coerces or attempts to coerce an employee based on the employee’s immigration status, and in furtherance of violating the State’s labor laws, will be subject to penalties in addition to any penalties to which the employer may be subject due to employment violations.”
Wage and Hour
As previously announced by the New Jersey Department of Labor, effective Jan. 1, 2025, the minimum wage applicable to most employees increased to $15.49 per hour.
Employers should also consider reviewing other pay practices (such as timing of payment, calculation of premium pay, and commission plans), as well as employee exemption classifications.
Potential Developments for 2025
Employers should also be aware of the following pending legislation:
A.B. 3854 would regulate the use of automated employment decision tools (AEDTs) in hiring to “minimize employment discrimination that may result from the use of the tools.” Under this proposed legislation, employers using AEDTs would be subject to a number of requirements. This bill was referred to the Assembly Labor Committee in May 2024.
A.B. 3911 would require employers that use artificial intelligence to analyze applicant-submitted videos to abide by specific procedural requirements to safeguard the interview process. This bill was referred to the Assembly Science, Innovation and Technology Committee.
A.B. 3816 would provide bereavement leave for reproductive loss, such as miscarriage or stillbirth. This bill was referred to the Assembly Labor Committee in April 2024.
A.B. 3505 would allow employees to use paid family leave and/or paid sick leave for bereavement following the death of a family member. This bill was referred to the Senate Budget and Appropriations Committee.
How to Successfully Transfer Your Manufacturing Plant From Mexico to the United States
President Trump’s promise to impose a new 25% tariff on goods produced in Mexico has prompted many companies to consider alternatives to their current or planned operations in Mexico. The decades following the 1994 North American Free Trade Agreement (NAFTA) saw enormous industrial investment in Mexico, especially in northern cities like Monterrey, Tijuana, Chihuahua, and Baja California.1 The benefits of producing goods in Mexico were clear – low labor costs, modest transportation costs to the United States, and reduced tariffs under NAFTA. These benefits, however, could be eclipsed by a new 25% tariff on Mexican origin goods. Companies with industrial plants that have tight profit margins are in a precarious position, so it is not surprising that many are now “looking to shift operations to the US to avoid these additional costs and reroute cargo from Mexican ports to US ports.”2
The automotive sector is a prime example of an industry that will be significantly impacted by the proposed tariffs, if implemented. The United States imported more than US$86 billion worth of motor vehicles from Mexico and more than US$63 billion of auto parts from Mexico last year, according to US Department of Commerce data, excluding December.3 This reflects the major investments automotive manufacturers and their suppliers made in Mexico in the years since NAFTA. It also reflects the extent to which Production in Mexico and the US became highly integrated, with producers in both countries (and Canada) relying on a free flow of parts and finished goods across borders. New tariffs, therefore, pose a major challenge to the status quo.
The question of whether to shift operations from Mexico to the United States requires a careful cost-benefit analysis to determine if there is an opportunity to increase profits by relocating to the United States. But, once this analysis is complete, how does one evaluate the opportunity? Proactive planning is essential. For example, when evaluating potential moves, it is important to: (1) select an ideal site that meets the utility and labor needs of the plant; (2) negotiate and maximize economic incentives; (3) conduct real estate due diligence and analyze real estate documents for the facility and its operations; (4) review the tax and corporate considerations with respect to the transaction; and (5) analyze supply chains to ensure products produced or processed in the United States will meet US country of origin standards.
For companies facing these challenges, the firm can assist in finding a successful solution. The firm has an internationally recognized Global Location Strategies practice and an experienced Policy and Regulatory practice with special capabilities in international trade regulation. We have strong relationships with federal, state, and local economic development and government officials all over the United States. This enables our clients to gain government assistance with evaluating when and where to move their operations in the United States. The firm has obtained incentives up to a billion US dollars for our clients and has assisted with finding the perfect site for our clients through our strong relationships with federal, state, and local governments and agencies.
Now is the perfect time to explore relocating to the United States, as doing so will better position your company to navigate future disruptions and obtain the best incentives possible when making use of the firms’ years of experience and success in obtaining those incentives.
Footnotes
1 The Los Angeles Times, p. 6.
2 State of the American Supply Chain, Averitt p. 2 January 9, 2025.
3 WDSU, p. 3, January 21, 2025.
AI Regulation in Financial Services: US House Report
In December 2024, the US House of Representatives Bipartisan Task Force on Artificial Intelligence released a comprehensive report examining artificial intelligence’s (AI) impact across various sectors, including a significant focus on financial services. The report provides important insights into both the opportunities and challenges of AI adoption in the financial sector that will be a focus of the next Congress.
Key findings from the report
The task force highlighted several critical aspects of AI in financial services:
AI decision-making risks: AI automated decision-making tools trained on flawed or biased data can produce harmful outputs that may disproportionately affect certain groups. This risk is particularly heightened in areas such as lending and credit decisions, credit scoring models, and compliance with the Equal Credit Opportunity Act and Regulation B, and has been a strong focus of the Consumer Financial Protection Bureau’s supervisory highlights.
Consumer data privacy: Given AI’s reliance on large datasets, data privacy has emerged as a major concern. Financial institutions must carefully balance data utilization for AI systems with robust privacy protections.
Access to financial services: AI has the potential to increase access to financial services, particularly for underserved communities, through innovations such as alternative data underwriting and automated customer service.
Institution size disparity: Smaller financial institutions often lack the resources to develop and implement sophisticated AI tools, potentially creating competitive disadvantages against larger institutions.
Legacy integration: The financial sector has been utilizing AI technologies for decades, with applications ranging from fraud detection to algorithmic trading. However, recent advances in generative AI have introduced new considerations for regulation and oversight.
Practical takeaways for financial institutions
1. Governance and oversight
Establish internal AI governance bodies to oversee AI implementation
Maintain human oversight of AI systems, particularly for critical decisions
Document AI decision-making processes and maintain clear audit trails
2. Data management
Implement robust data quality controls for AI training data
Ensure compliance with privacy regulations when collecting and using customer data
Regularly audit AI systems for potential bias or discriminatory outcomes
3. Risk management
Develop comprehensive AI risk assessment frameworks
Maintain clear processes for monitoring and validating AI model outputs
Create contingency plans for AI system failures or errors
4. Regulatory compliance
Stay informed about evolving regulatory guidance on AI use
Ensure AI systems comply with existing antidiscrimination and consumer protection laws
Maintain transparency in AI-driven decisions affecting customers
5. Customer protection
Implement clear disclosure practices for AI-driven services
Consider alternative service options for customers who prefer non-AI interactions
Develop processes for addressing AI-related customer complaints
Looking ahead
The report suggests that future legislation will likely take a principles-based approach to AI regulation in financial services, focusing on existing regulatory frameworks while addressing new challenges posed by AI technology. Financial institutions should prepare for increased scrutiny of their AI systems while continuing to innovate responsibly.
For financial institutions considering or expanding their use of AI, the key message is clear: Embrace innovation while maintaining robust controls and oversight. Success will require balancing technological advancement with consumer protection and regulatory compliance.
This report serves as a valuable road map for financial institutions navigating the evolving landscape of AI regulation. Banks and financial services firms should review their current AI practices against these findings and prepare for potential regulatory developments in this space.
Employer Group Sues to Block Mental Health Parity Rules
Only weeks after the principal effective date for the final 2024 federal mental health parity rules for employer-sponsored health benefit plans, those rules—and specifically some key features that are frustrating employers—are being challenged as examples of regulatory overreach.
Quick Hits
A large employer advocacy group sued three federal agencies over their final rules implementing the federal mental health parity law applicable to employer-sponsored health plans.
The industry group argues the federal agencies did not have the authority to create a benefit mandate.
The federal agencies have until March 17, 2025, to respond to the complaint. They have argued that the mental health parity rules are not a benefit mandate.
The ERISA Industry Committee (ERIC), a large employer advocacy group, is asking a federal court to vacate certain provisions or the entire 2024 final regulations under the Mental Health Parity and Addiction Equity Act (MHPAEA), as well as permanently enjoin enforcement of the specific provisions or the regulations overall.
The complaint was filed on January 17, 2025, in the U.S. District Court for the District of Columbia against the U.S. Departments of Health and Human Services, Treasury, and Labor.
In its complaint, ERIC specifically criticizes requirements in the MHPAEA rules, including those that:
require named fiduciaries to make certifications regarding the “comparative analysis” prepared for the plan;
require plans to comply with the final rules generally as of January 1, 2025 (less than four months following publication of the final rules); and
require fiduciaries to determine whether a service provider is “qualified” to do a comparative analysis.
ERIC generally argues that these 2025 requirements, as well as several requirements that would take effect in 2026, exceed the agencies’ authority to implement the MHPAEA and related statutes, or are too imprecise to serve as a legitimate basis for enforcement against employer-sponsored health plans.
On September 23, 2024, the federal agencies published final rules requiring group health plans to provide “meaningful benefits” for mental health or substance use disorders in coverage categories where medical or surgical benefits are also provided. Meaningful benefits cover core treatments, defined as standard treatments or interventions indicated by “generally recognized independent standards of current medical practice.”
The bulk of the final rules took effect on January 1, 2025, with some provisions scheduled to take effect on January 1, 2026. The meaningful benefits requirement is slated to become effective on January 1, 2026.
The lawsuit argues that the meaningful benefits requirement exceeds the federal agencies’ authority because it imposes a benefits mandate. It also claims the federal agencies violated the Administrative Procedure Act’s notice and comment requirements.
“All that is required is parity in particular plan terms and their application, not parity in access to mental health/substance use disorder benefits, much less provision of particular benefits,” the lawsuit states. “Congress has repeatedly made clear that the MHPAEA is not a benefits mandate, and it therefore does not require health plans to provide any particular mental health/substance use disorder benefits, or even to provide mental health/substance use disorder benefits at all.”
It also argues that the meaningful benefits requirement is antithetical to the Employee Retirement Income Security Act (ERISA), which governs most private health plans.
In the final rule, the federal agencies emphasized that the meaningful benefits requirement “is not a coverage mandate, but rather another approach to ensuring parity between mental health or substance use disorder benefits and medical/surgical benefits in a classification.”
Next Steps
The meaningful benefits requirement is scheduled to take effect on January 1, 2026. It is unclear what the federal court will ultimately decide in this case. If the court finds in favor of the ERISA Industry Committee, then the obligation to provide “meaningful benefits” for mental illness and addiction could become moot.
In the meantime, employers may want to review the terms of their group health plans for compliance with the mental health parity requirements and work closely with their plan administrators and other professionals to document their analysis of how the plan meets the mental health parity requirements in operation based upon available data and guidance.
Allegations of Redlining and Discriminatory Practices at The Mortgage Firm
With changes in leadership eminent and changes in regulatory priorities likely to follow, the Department of Justice (DOJ) and the CFPB kicked off 2025 with a pair of significant fair lending actions. On January 7, 2025, the United States filed a complaint against The Mortgage Firm, Inc., alleging violations of the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA) due to unlawful redlining in predominantly Black and Hispanic neighborhoods in the Miami-Fort Lauderdale-Pompano Beach area from 2016 through 2021.
Ten days later, the CFPB filed a complaint and announced a proposed consent order involving Draper & Kramer Mortgage Corporation. The charges were brought under ECOA and the Consumer Financial Protection Act (CFPA) and include allegations of redlining majority- and high Black and Hispanic neighborhoods in the Chicago and Boston Metropolitan Statistical Areas from 2019 through 2021.
Many similarities exist between the two cases. Both involve allegations of redlining practices, including receiving a disproportionately low number of residential mortgage applications and approving a disproportionately low number of home loans in underserved communities. The claims are supported by extensive Home Mortgage Disclosure Act (HMDA) data analysis for each company. Additionally, each of the lenders is accused of locating its offices in predominantly white areas, failing to ensure that its loan officers served majority-Black and Hispanic communities, and targeting its marketing efforts primarily at predominantly white neighborhoods. Similarly, it is alleged that each of the lenders’ fair lending policies and procedures were insufficient to ensure equal access to credit. And both lenders are accused of failing to analyze mortgage lending data in real time. In The Mortgage Firm’s case, it is alleged that the company failed to sufficiently track HMDA data until it received notice of a fair lending examination from the CFPB, and that it took no action to address redlining risks until after the CFPB delivered its findings. For Draper & Kramer, the complaint alleges that it failed to make needed course corrections for fair lending deficiencies, such as its marketing practices nearly two years after the CFPB identified the problems.
Internal emails were problematic to say the least for the lenders in each case. The DOJ referenced several internal communications to support the claims against The Mortgage Firm. These communications included derogatory references to majority-Black and Hispanic neighborhoods, with employees using terms like “ghetto” or “in the ‘hood.’” The DOJ also highlighted that one loan originator who made these remarks remained employed and was not disciplined promptly or effectively. Instead, the individual only received a written warning over nine months after the emails were reported to The Mortgage Firm. The complaint further notes that another non-Hispanic white loan officer, one of the top producers in the Miami area, sent emails containing a racial slur and similarly received just a written warning nine months after the incident was brought to the company’s attention.
Similarly, the CFPB referenced internal communications from Draper & Kramer’s loan officers that included deeply inappropriate and discriminatory language. These emails contained offensive remarks that perpetuated harmful stereotypes and racial biases. The complaint does not indicate what, if any, disciplinary penalties may have been applied to the authors of the emails.
Also of note in the Draper & Kramer case are allegations by the CFPB that the company’s recruiting and hiring practices, which were based on “prior relationships with the company’s Regional Sales Manager, referrals from its existing mostly white loan officers, and word of mouth,” created a fair lending closed loop. The complaint alleges that the company failed to adequately monitor or document its marketing or outreach materials “to ensure that such distribution occurred in all neighborhoods…” and that “[n]early all of the most frequently used preapproved advertisements contained images of exclusively white-appearing loan officers.” These practices, according to the CFPB, discouraged residents in the underserved communities from making or pursuing applications for credit.
Uptick in Referrals
The complaint against The Mortgage Firm was referred to the DOJ by the CFPB. Agencies with enforcement authority under section 704 of ECOA, including the CFPB, Comptroller of the Currency, Board of Governors of the Federal Reserve System, Board of Directors of the Federal Deposit Insurance Corporation and National Credit Union Administration, must refer cases to the DOJ if they suspect a creditor of engaging in a pattern of lending discrimination (see § 1002.16 (b)(3) [15 U.S.C. § 1691e(g)]). They can also refer other potential ECOA violations to the DOJ.
According to the CFPB’s 2023 Fair Lending Report (the 2024 fair lending data is not yet available as of the date of this publication), in 2023, the FDIC, NCUA, FRB, OCC, and CFPB referred 33 cases to the DOJ, up from 22 such referrals in 2022, setting a high-water mark for Section 704 fair lending referrals to the DOJ in a calendar year.
The jump in 2023 follows a period of fluctuating referrals, with the CFPB’s numbers having steadily declined from 24 in 2013 to a dramatic low of just two referrals in 2018. This sharp drop in 2018 stands out as an anomaly in the data and suggests a year where fewer cases were escalated to the DOJ for action. However, the trend began to shift after 2018, with referrals picking up again in the following years. By 2022, referrals had rebounded to 23, and in 2023, they surged to 33, nearly doubling the previous year’s total and reflecting a notable change in the volume of cases referred for DOJ involvement.
Of the 33 cases referred in 2023, the CFPB contributed 18. These referrals involved a range of discriminatory practices, including redlining in mortgage lending based on race and national origin; underwriting discrimination against those receiving public assistance; predatory targeting based on race and national origin; pricing exceptions discrimination based on race, national origin, sex, and age; and credit card discrimination based on national origin and race.
The significant increase in 2023, following years of relative decline, highlights the growing recognition of fair lending violations and the CFPB’s increasing focus on addressing these discriminatory practices.
Implications
When viewed through the lens of DOJ referral trends, The Mortgage Firm and Draper & Kramer complaints serve to highlight several key areas of focus for financial institutions’ fair lending efforts:
Regularly analyze mortgage lending data in real time, including HMDA data, to identify and address any potential disparities in lending practices — do not wait until a fair lending examination to take action. Corrective actions are difficult if not impossible to take in an information vacuum.
Ensure that fair lending policies and procedures are robust and effectively promote equal access to credit across all communities, particularly in historically marginalized areas. The CFPB specifically noted that Draper & Kramer’s fair lending policies and procedures did not adequately address redlining and contained only general prohibitions against discrimination.
Both The Mortgage Firm and Draper & Kramer were cited for inadequate fair lending training. The CFPB noted that “Certain relevant training materials did not even contain a definition of redlining.” Financial institutions should ensure that training materials are accurate, relevant and enforced, particularly for its loan officers, who are often positioned as “the primary public-facing points of contact of applicants and prospective applicants.”
Take immediate, meaningful action when discriminatory behavior or derogatory remarks are known or reported, including timely and consistent discipline for violations of company conduct standards.
Investigate and address any disparities in office location and marketing practices to ensure that outreach efforts are inclusive and not concentrated in predominantly white neighborhoods. The two cases serve as a reminder that marketing approval should include a critical fair lending review. The DOJ noted that The Mortgage Firm failed to translate its website into Spanish or indicate which offices could assist Spanish-speaking clients. Lenders should view similar missteps as regulatory low-hanging fruit.
Lenders may also wish to consider the consequences of marketing to past customers. The CFPB cited Draper & Kramer’s reliance on marketing to past customers, who were predominantly white, as exacerbating the consequences of its failure to advertise, assign loan officers, and place offices in historically underserved neighborhoods.
Foster an inclusive company culture by conducting regular training on cultural competency and the implications of discriminatory language and behavior in the workplace.
Develop a comprehensive plan to proactively identify and mitigate redlining risks, especially in communities that have been historically underserved or targeted by discriminatory practices.
Hold all employees, including top producers, accountable for adhering to fair lending standards, ensuring that no one is above the rules, regardless of their performance.
Regulatory priorities may change as a new attorney general and CFPB director assume their roles. But these cases provide live guidance for lenders to develop compliance programs with respect to redlining, including policies and procedures, employee training, and internal monitoring, that will comply with regulatory guidelines under any administration.
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Senate Banking Committee Announces Digital Asset Agenda
Under Chair Tim Scott (R-SC), the Senate Committee on Banking, Housing and Urban Affairs has announced several policy objectives favorable to the digital asset industry. We expect the Committee to take a more favorable view of the industry during the next Congress than in years past.
In announcing the Banking Committee’s priorities for the next Congress, Chair Scott noted that will be a key focus.
Under Chair Gensler, the SEC refused to provide clarity to the cryptocurrency industry, which has forced projects overseas. Moving forward, the committee will work to build a regulatory framework that establishes a tailored pathway for the trading and custody of digital assets that will promote consumer choice, education, and protection and ensure compliance with any appropriate Bank Secrecy Act requirements. The committee will also foster an open-minded environment for new innovative financial technologies and digital asset products, like stablecoins, that promote financial inclusivity.
To that end, the Committee announced the formation of the first ever Subcommittee on Digital Assets, to be chaired by Senator Cynthia Lummis (R-WY), an outspoken supporter of cryptocurrency innovation. The Subcommittee’s jurisdiction covers a wide range of issues, including:
Digital assets, including but not limited to cryptocurrencies and stablecoins; activities of digital asset issuers, trading and lending platforms, custody providers, and other intermediaries, when such activities are related to digital assets; regulatory activities of the Department of Treasury, the Federal Reserve System, OCC, FDIC, NCUA, SEC, to the extent they directly or indirectly exercise supervisory or regulatory authority over digital assets and digital asset intermediaries; and financial literacy in digital assets.
Chairman Scott also issued a press release trumpeting President Trump’s executive order on digital assets. Further, the Committee announced a hearing on February 5 to discuss possible “debanking” of certain industries, including digital assets.
One Week to Go Until HM Treasury’s UK Green Taxonomy Consultation Closes
HM Treasury published the UK Green Taxonomy Consultation (the ‘‘Consultation’’) on 14 November 2024, and there is one week to go until the consultation window closes on 6 February 2025. The Consultation seeks views on the value of the UK government implementing a UK green taxonomy (the ‘‘Green Taxonomy’’) into its wider sustainable finance framework.
The Green Taxonomy — if introduced — is envisaged by the UK government to serve as a tool for financial market participants as a reference book for which economic activities are deemed to support climate, environmental or wider sustainability objectives and, in turn, increase sustainable investments and reduce greenwashing. The UK government’s proposed implementation of the Green Taxonomy forms part of its wider ambitions for the UK to be a leader in sustainable finance. Please see our alert here for further information: UK Doubles-Down on Sustainable Finance – Insights – Proskauer Rose LLP.
Notwithstanding the potential benefits of the Green Taxonomy on the UK investment industry, the UK government has noted that introducing a Green Taxonomy can be complex and that feedback the UK government has received on its value is ‘‘mixed’’.
The Consultation therefore seeks feedback on any market and regulatory use cases for the Green Taxonomy, as well as potential design features and characteristics which would maximise its usability and efficiency for investors and those seeking investment.
The UK government is also looking to understand whether the Green Taxonomy would complement existing sustainable finance policies and how best to facilitate its implementation. In particular, the Consultation focuses on whether and how the Green Taxonomy could achieve the following objectives:
mitigate greenwashing;
channel capital towards increased sustainable investments;
complement the UK’s existing sustainable finance framework; and
include design features to ensure maximum usability and efficiency, including:
interoperability with existing international taxonomies;
addressing the scope of the Green Taxonomy in terms of environmental objectives and sectors to be covered;
incorporation of the “Do no significant harm” principle, which states that progress towards one environmental objective should not cause significant harm to other environmental objectives; and
governance of the Green Taxonomy along with regular updates to it.
Stakeholders have until 6 February 2025 to provide their responses, which is now imminent.
Looking Beyond FedRAMP – Lessons from the U.S. Treasury Cybersecurity Incident
In the ever-evolving world of cybersecurity, even organizations that meet stringent security standards can be victims of sophisticated cyberattacks. A notable example of this is the December 8, 2024 cybersecurity incident involving the U.S. Department of the Treasury and its third-party cloud service provider, BeyondTrust. This incident underscores some critical lessons for entities (both government agencies and private sector) that rely on third-party cloud service providers (“CSPs”).
The Incident
In a December 30, 2024 letter, Treasury Officials notified lawmakers of a “major incident” in which Chinese state-sponsored hackers stole Treasury documents. The letter explained that on December 8, 2024, the Treasury Department was notified by BeyondTrust, a CSP responsible for providing remote technical support to Treasury Departmental Offices (“DO”), that a threat actor had gained unauthorized access to a key used by BeyondTrust to secure its cloud service. With the stolen key, the threat actor was able to bypass security protocols to remotely access specific Treasury DO workstations, potentially exposing unclassified documents maintained by the users of those systems.
Interestingly, BeyondTrust holds a security authorization under the Federal Risk and Authorization Management Program (“FedRAMP”). FedRAMP is a government program designed to ensure that CSPs meet rigorous security requirements for the handling of federal data and includes similarly rigorous continuous monitoring and reporting requirements. BeyondTrust’s authorization indicates that it met these requirements.
However, this breach illustrates a critical point: meeting government security requirements does not guarantee invincibility to security incidents. Cybersecurity threats are constantly evolving, and no system—no matter how secure it may seem at a particular moment—can be completely free from risk. Companies must be continuously vigilant and proactive, even organizations that have been cleared through rigorous government-imposed security standards like FedRAMP.
Key Takeaways for Organizations Relying on Third-Party CSPs
Government Security Standards Are Not a Guarantee Against Breaches: While government security certifications such as FedRAMP provide an important benchmark for evaluating third-party vendors, they should not be seen as a one-and-done solution. Security threats are dynamic and evolve rapidly, meaning that entities must remain vigilant and continuously evaluate and update their security protocols. This particular incident serves as an important reminder that security is a continual process, not a final checkbox.
Thorough Vetting of Third-Party Providers Is Essential: The Treasury Department incident is also a reminder of the importance of thorough, ongoing vetting of third-party CSPs. Simply confirming a CSP’s compliance with FedRAMP (or other security standards) should not be the end of the due diligence process. Entities must assess whether their third-party providers have robust security measures in place, including continuous monitoring, rapid incident response protocols, and regular updates to their security infrastructure. This is especially important when the service provider holds access to critical systems or sensitive data.
Collaboration and Transparency Are Critical in the Event of a Breach: BeyondTrust’s prompt notification to the Treasury Department highlights the importance of transparency and communication between service providers and their clients when an incident occurs. Quick and clear communication can help mitigate the damage from a breach and allow organizations to respond more effectively. It also underscores the importance of ensuring that third-party vendors have comprehensive and well-practiced incident response protocols in place.
Conclusion
The recent breach of the Treasury Department’s technical support systems, facilitated by a compromised security key from BeyondTrust, serves as an important reminder of the ever-present risks in the cybersecurity supply chain. While third-party CSPs, such as BeyondTrust, may meet rigorous government standards, such actions reduce, but do not eliminate, risk.
Organizations must recognize that cybersecurity is not static, and the reliance on third-party providers necessitates thorough, ongoing risk assessments and proactive security measures. As cyber threats continue to evolve, so too must the strategies used to safeguard sensitive systems and data. Vetting CSPs should be a continuous process, and security should always be viewed as a shared responsibility between organizations and their third-party vendors.
Phew! Form PF Amendments Deadline Extended (So You Can Procrastinate a Little Longer)
The SEC and CFTC have extended the compliance date for their jointly adopted amendments to Form PF (originally 12 March 2025) to 12 June 2025.
In December 2024, a number of industry associations submitted a letter to SEC and CFTC on behalf of their respective members describing certain significant technological and administrative challenges being faced by advisers required to file on new Form PF, as well as third-party vendors assisting these advisers. In the letter, these industry associations requested that the SEC and CFTC extend the compliance date for new Form PF until 12 September 2025 (or, at a minimum, until 12 June 2025), maintaining that such an extension would provide impacted industry participants with additional time to build out and test new reporting systems and work through any outstanding reporting and interpretive questions.
In granting the three-month extension until 12 June 2025, the SEC and CFTC reasoned that the extension should alleviate certain administrative and technological challenges associated with the original compliance date and that the extension would provide more time for filers to program and test for compliance with the amendments. For example, as a result of this extension, December 31 year-end filers will no longer need to report 2024 data on the new form.
For additional details about the Form PF amendments, please refer to our long-form client alert here.
Updated: Court Halts Trump Administration Order Pausing Government Grants; Trump Administration Rescinds OMB Memo
Today the US Office of Management and Budget (OMB) issued a brief statement rescinding OMB Memorandum M-25-13, after a federal judge in Washington, DC, temporarily ordered the freeze on current awards to be lifted pending a hearing on Monday February 3, to consider a coalition of nonprofits’ request for a temporary restraining order. See our previous alert below.
We expect federal agencies to continue to review federal funding assistance programs for potential conflicts with President Trump’s Executive Orders, and we will update this Alert as developments warrant.
Many parties are rightly concerned about the impact of yesterday’s announcement that nearly all federal funds will be frozen for an indeterminate period. Minutes before it was intended to go into effect today, a federal judge in Washington, DC, temporarily ordered the freeze to be lifted until at least Monday February 3, when a full hearing will occur as to whether the freeze is permissible under federal administrative procedure laws and the First Amendment.
The court’s action pauses the Office of Management and Budget’s (OMB) instruction of the heads of all federal executive departments and agencies to temporarily pause all obligation and disbursement activity related to federal financial assistance. The pause was to go into effect at 5pm EST, January 28, but this is now temporarily on hold.
The OMB Memo M-25-13 entitled “Temporary Pause of Agency Grant, Loan, and Other Financial Assistance Programs” (OMB Memo) requires federal agencies to identify and review all federal financial assistance programs and activities to ensure consistency with President Trump’s policies, stating that “the use of Federal Resources to advance Marxist equity, transgenderism, and green new deal social engineering policies is a waste of taxpayer dollars that does not improve the day-to-day lives of those we serve.”
OMB Memo
Purposes
The OMB Memo, issued by Matthew J. Vaeth, acting director of OMB, states that federal financial assistance should be dedicated to advancing the Trump Administration’s priorities, strengthening national security, taming inflation, increasing domestic manufacturing and energy production, ending “wokeness,” promoting efficiency, and improving Americans’ health. The OMB Memo specifically references seven of the executive orders signed by President Trump on January 20[i] as examples of the Trump Administration’s intent to safeguard taxpayer funds. See our previous alerts on Trump’s Executive Orders here and here.
Requisite Agency Comprehensive Program Analyses
The OMB Memo directs each federal agency to complete a comprehensive analysis of all federal financial assistance programs, identify programs and activities potentially implicated by the Executive Orders, including, but not limited to, “financial assistance for foreign aid, nongovernmental organizations, diversity, equity, and inclusion (DEI), woke gender ideology, and the green new deal,” and submit to OMB detailed information on such programs and activities no later than February 10. OMB also released a set of instructions for programs with funding or activities planned before March 15, which requires that answers to 14 specific questions regarding the programs listed on the accompanying spreadsheet be submitted to OMB by February 7, 2025.
Interim Guidance
In the interim, the OMB Memo requires each federal agency to pause issuance of new awards, disbursement of federal funds under all open awards, and any other relevant agency actions potentially implicated by the Executive Orders until OMB reviews and responds to the agency’s analysis. In a subsequent guidance FAQ issued on January 28, OMB clarified that “the pause does not apply across-the-board” and is instead “expressly limited to programs, projects, and activities implicated by the President’s Executive Orders, such as ending DEI, the green new deal, and funding nongovernmental organizations that undermine the national interest.” The OMB Memo states that the purpose of the pause is to provide the Trump Administration with time to review federal programs and determine use of federal funds consistent with the Administration’s priorities.
The OMB Memo also requires all agencies to promptly identify legally mandated actions or deadlines for federal assistance programs that arise during the federal funding pause and report this information to OMB with an analysis of the applicable legal requirement.
Policy Realignments
Finally, the OMB Memo requires agencies to take the following steps with respect to each federal financial assistance program:
Assign oversight and responsibility to a senior political appointee.
Review pending federal financial assistance to ensure the Administration’s priorities are sufficiently addressed.
Modify unpublished federal financial assistance announcements consistent with the Administration’s priorities and withdraw any announcements already published.
Cancel awards that conflict with the Administration’s priorities.
Ensure adequate oversight of federal assistance programs.
Initiate investigations to identify underperforming recipients and address underperformance issues, including cancelling awards.
Medicare and Social Security Benefits
The OMB Memo states that it does not apply to assistance received directly by individuals or to Medicare or Social Security benefits. OMB’s subsequent follow-up FAQ further made clear that “any program that provides direct benefits to Americans is explicitly excluded from the pause and exempted from this review process” and that “[i]n addition to Social Security and Medicare… mandatory programs like Medicaid and SNAP will continue without pause.” Similarly, the FAQ noted that “[f]unds for small businesses, farmers, Pell grants, Head Start, rental assistance, and other similar programs will not be paused.”
Exceptions
The OMB Memo provides that exceptions to the mandatory pause will be considered on a case-by-case basis.
Timing
While the OMB memo itself did not specify how long the pause might continue, OMB’s subsequent FAQ provided that “[a] pause could be as short as day” and that “OMB has worked with agencies and has already approved many programs to continue even before the pause has gone into effect.”
There already have been two lawsuits to stop the Trump Administration’s proposed funding freeze. The first, filed by a coalition of nonprofits and small businesses, led to the judicial pause; that complaint is available here. An additional lawsuit to stop the Trump Administration’s proposed funding freeze was filed by a coalition of 22 states and the District of Columbia in federal district court in Rhode Island. The plaintiff jurisdictions request an emergency temporary restraining order and allege violations of the Administrative Procedure Act (APA), separation of powers, and the Spending, Presentment, Appropriations, and Take Care Clauses of the US Constitution.
What Should You Do If You Are Concerned About An Award or Grant?
Affected Program Assessment
Grant recipients and subrecipients should first assess whether their grant or financial assistance award is covered by the pause. Despite its potentially broad reach, the pause is not intended to cover all grants and awards. The pause is instead limited to funds in support of programs implicated by the Executive Orders. Award recipients should reach out to their federal agency contacts to determine the agency’s view on whether their specific grant program is subject to the pause. If the grant or award is subject to the pause, the grantee may wish to inquire whether the program might receive an exception.
Cash Flow and Cost Concerns
Where implicated, the temporary pause in funding may raise liquidity and cash flow concerns and could lead to additional costs, delays, and other consequences for projects. As a result, many award recipients may have to consider temporarily laying off or permanently furloughing those responsible for administrating awards for an affected program (see ‘Potential Labor Implications’ below).
Rights and Remedies
Award recipients should review the specific terms of their grant award for procedures to take during the pause as the award itself is the most definitive source for the recipient’s rights and remedies during the pause. Grant recipients should review agency grant regulations for the specific agency that granted the award as these regulations may provide additional remedies and/or procedures.
Downstream Impact on Subcontract and Supplier Arrangements
Additionally, unless subcontracts and supplier agreements under grants include in case of government suspension or stop work, downstream contractors and suppliers could seek continued payment from the grant holder notwithstanding the pause in funding. This could lead to claims and disputes with subcontractors and suppliers. Grantees should review such agreements to determine their legal rights to place subcontractor and supplier agreements on hold during the pause.
Potential Reimbursement for Pause/Termination Costs
If the pause is only temporary, recipients may potentially be able to receive a payment adjustment for reasonable costs arising out of the pause.[ii] Grantees should review their grant agreements for potential requirements to notify of additional incurred costs or changes to their budget and push agencies to expressly authorize such additional costs.[iii]
If a grant does fall within the ambit of one of the Executive Orders, however, recipients might remain concerned about longer term implications, including whether the financial assistance award will ultimately be terminated or have its funding withdrawn. Federal regulations require that agencies provide recipients with written notice of termination including the reasons for termination, the effective date, and the portion of the federal award to be terminated, if applicable.[iv] Federal agencies must also maintain written procedures for processing objections, hearings, and appeals.[v] If the termination proceeds forward, a recipient may potentially receive reimbursement for costs properly incurred before the effective date of the termination where the agency authorizes such termination costs.[vi]
Possible Legal Challenges
Receiving reimbursement for termination costs may be cold comfort for aid recipients that rely extensively on federal funding to remain afloat. In such cases, grant recipients may seek to enjoin or halt federal action to terminate the award.
Potential bases to challenge termination might include one or more of the following arguments:
OMB’s action violates the Impoundment Control Act, 2 U.S.C. § 681 et seq., which requires the President to request authority from Congress to rescind funding authorization insofar as awarded grant funds have already been obligated.
The agency’s action constitutes a breach of “contract” sufficient to invoke the Tucker Act where the grant resembles a “contract” through competitive acquisition, offer, acceptance, and consideration.
The agency’s action violates the APA, 5 U.S.C. § 706, to the extent it is in excess of statutory jurisdiction, authority, or limitations, or short of statutory right, or is otherwise arbitrary, capricious and/or contrary to law.
An APA challenge might include arguments that the agency’s action was ultra vires, violative of regulations specifying termination procedures (e.g. under 2 C.F.R. § 200.340), or contrary to constitutional protections (e.g., limits imposed by the Spending Clause, Due Process concerns, Takings Clause issues, and First Amendment concerns).
Potential Employment Implications
WARN Warning Requirements
Recipients of federal financial assistance that have employees whose positions are entirely grant-funded may be faced with the difficult question of whether it is necessary for them to furlough employees or even layoff all or part of their workforce until disbursements resume. Employers who do so may have to comply with the notice requirements of the federal Work Adjustment and Retraining Notification (WARN) Act[RAM5] [TC6] , which requires covered employers to notify employees, unions, and government officials in advance of covered plant closings or mass layoffs. Moreover, a number of states have their own “mini WARN” Acts, some of which have more onerous or expansive notice requirements. Employers who fail to comply with federal or state WARN Act requirements may be subject to government enforcement actions as well as private lawsuits from employees seeking the maximum allowable damages for noncompliance.
Layoffs and Furloughs
Employers considering temporary or permanent layoffs of employees without pay should first consider the type of action that is best suited to their workplace and employees — whether that means temporarily reducing impacted employees’ paid hours, temporarily reducing their pay, or requiring employees to take time off without pay. Employers for whom it is necessary to require employees to take time off without pay should ensure that employees do not perform any work during that time. This is particularly important for employees who are exempt from applicable minimum wage and overtime requirements, as any work they perform in a week would entitle them to pay for the full workweek. Employers should also determine whether a temporary furlough would trigger an obligation to pay out employees for any unused, accrued paid time off under applicable state law.
Finally, employers who have no choice but to furlough employees should decide whether and to what extent they are able to support employees in maintaining their benefits during the furlough period. If feasible, many employers may wish to cover both the employer and employee cost of any health insurance premiums during the furlough period, or otherwise make alternative arrangements for employees to pay their premiums directly. Employees whose hours are reduced such that they no longer meet plan eligibility requirements may be entitled to continue their coverage through COBRA. Employers who lay off employees and offer severance pay will have to determine if such pay is an allowable expense.
[i] The Executive Orders subject to the OMB memorandum include: (1) Protecting the American People Against Invasion; (2) Reevaluating and Realigning United States Foreign Aid; (3) Putting America First in International Environmental Agreements; (4) Unleashing American Energy; (5) Ending Radical and Wasteful Government DEI Programs and Preferencing; (6) Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government; (7) and Enforcing the Hyde Amendment.
[ii] See 2 C.F.R. §§ 200.305(b)(7) (“When a Federal award is suspended, payment adjustments must be made in accordance with § 200.343.”); 200.343 (“[C]osts during suspension or after termination are allowable if: (a) The costs result from financial obligations which were properly incurred by the recipient or subrecipient before the effective date of suspension or termination, and not in anticipation of it; and (b) The costs would be allowable if the Federal award was not suspended or expired normally at the end of the period of performance in which the termination takes effect.”).
[iii] See C.F.R. § 200.343 (“Costs to the recipient or subrecipient resulting from financial obligations incurred by the recipient or subrecipient during a suspension or after the termination of a Federal award are not allowable unless the Federal agency or pass-through entity expressly authorizes them in the notice of suspension or termination or subsequently.”).
[iv] See 2 C.F.R. § 200.341(a), Notification of termination requirement.
[v] See 2 C.F.R. § 200.342, Opportunities to object, hearings, and appeal.
[vi] See C.F.R. § 200.343.
Travis L. Mullaney, Alexandra M. Romero, Brian D. Schneider, J. Michael Showalter, Michael L. Stevens, and David Tafuri also contributed to this article.
FY2025 NDAA Increases the Threshold for DoD Task Order Protests and Asks GAO and DoD to Explore Changes to Bid Protest Process
In the Fiscal Year 2025 National Defense Authorization Act (“FY25 NDAA”), Congress included some important provisions related to the bid protest process at the U.S. Government Accountability Office (“GAO”). These provisions (1) raise the dollar threshold for task order protests of Department of Defense (“DoD”) procurements and (2) task DoD and GAO with exploring processes to make protesting DoD procurements more difficult.
Task Order Protest Jurisdiction
As a reminder, Congress has given GAO exclusive jurisdiction over protests of task order awards. 41 U.S.C. § 4106(f); 10 U.S.C. § 3406(f). Then, Congress established minimum dollar thresholds for such protests. Prior to the FY25 NDAA, the threshold for protests of task orders issued by civilian agencies was $10 million and protests of task orders issued by DoD was $25 million. FAR 16.505(a)(10). Now, Section 885 of the FY25 NDAA raises the dollar threshold for DoD task order protests from $25 million to $35 million. GAO ordinarily looks at the value of the awarded task order to determine whether it has jurisdiction. Thus, going forward, if an award of a DoD task order is less than $35 million, an unsuccessful offeror cannot protest it.
Potential Protest Process Changes
Additionally, Section 885 asks GAO and DoD, within 180 days, to explore some processes that may make it harder to protest DoD awards:
Enhanced Pleading Standards
GAO and DoD are required to submit a proposal for a process for enhanced pleading standards that would apply to interested parties that protests DoD awards prior to granting such protesters access to the Administrative Record. In other words, the proposal will, potentially, make it harder for a protester to survive an Agency Request for Dismissal before the Agency submits its Agency Report and Administrative Record.
Under the current GAO bid protest regulations, a protester need only provide a “detailed statement of the legal and factual grounds for protest” and it must state “legally sufficient grounds for protest.” 4 C.F.R. §§ 21.1(c)(4), 21.1(f). GAO has stated a protester must provide “allegations or evidence, if uncontradicted, to establish the likelihood that a protester will prevail on its claim of improper agency action.” CACI Techs., Inc., B‑408858, B-4408858.2, Dec. 15, 2013, 2013 CPD ¶ 283. This is generally perceived by GAO as a low bar for surviving a Request for Dismissal, as long as the protester’s grounds are not based solely on speculation.
However, it will be interesting to see what the GAO and DoD proposal suggests for enhancing these pleading standards. Most often, protesters have only their notice of award and debriefing information to use in drafting a protest, which can be very little facts on which to base a protest. If the enhanced pleading standards are adopted, we may see more protests dismissed or partially dismissed before the Agency provides its response on the merits of the protest.
Protest Costs
GAO and DoD are also required to calculate the average costs of a protest to the Government, as well as the lost profits of the contractors that were awarded the contracts subject to protests. Then, GAO and DoD are required to submit a proposal for payment by an unsuccessful party to a protest to the Government and the awardee in accordance with the calculated costs and lost profits.
If this process is eventually adopted, it would likely cause a major shift in a protester’s risk/benefit analysis before deciding whether to file a protest. However, it is important to note that this is not the first time Congress raised this idea. In the FY18 NDAA, Congress passed a similar pilot program for DoD to assess the feasibility of requiring large contractors (i.e., those receiving over $250 million in revenue) to reimburse DoD for the costs associated with an unsuccessful protest. Congress then repealed this pilot program in the FY21 NDAA because “the pilot program [was] unlikely to result in improvements to the bid protest process given the small number of bid protests captured by the pilot criteria and lack of cost data.” It is possible that by expanding the program to all contractors and instructing GAO and DoD to first calculate the costs, Congress is aiming to remedy the flaws in the FY18 program.
We will be watching for the GAO and DoD proposal due by June 21, 2025.