Fifth Circuit Court of Appeals Negates Ruling on Federal Contractor Minimum Wage
On March 28, 2025, the Fifth Circuit Court of Appeals vacated its previous ruling that permitted a $15 per hour minimum wage for federal contractors, shortly after President Donald Trump revoked the Biden administration rule setting that wage rate.
Quick Hits
The Fifth Circuit vacated its decision to uphold a $15 per hour minimum wage for federal contractors.
The court acted shortly after President Trump rescinded a Biden administration rule raising the minimum wage for federal contractors to $15 per hour.
An Obama-era rule establishing a $13.30 per hour minimum wage for federal contractors still stands.
On the website for the U.S. Department of Labor, the agency said it is “no longer enforcing” the final rule that raised the minimum wage for federal contractors to $15 per hour with an annual increase depending on inflation.
As of January 1, 2025, the minimum wage for federal contractors was $17.75 per hour, but that rate is no longer in effect. Therefore, an Obama-era executive order setting the minimum wage for federal contractors at $13.30 per hour now remains in force.
Some federal contracts may be covered by prevailing wage laws, such as the Davis-Bacon Act or the McNamara-O’Hara Service Contract Act. Those prevailing wage laws are still applicable.
Many states have their own minimum wage, and those vary widely.
Background on the Case
In February 2022, Louisiana, Mississippi, and Texas sued the federal government to challenge the Biden-era Executive Order 14026, which directed federal agencies to pay federal contractors a minimum wage of $15 per hour. The states argued the executive order violated the Administrative Procedure Act (APA) and the Federal Property and Administrative Services Act of 1949 (FPASA) because it exceeded the president’s statutory authority. The states also claimed the executive order represented an “unconstitutional exercise of Congress’s spending power.”
On February 4, 2025, the Fifth Circuit Court of Appeals upheld the $15 per hour minimum wage for federal contractors. A three-judge panel ruled that this minimum wage rule was permissible under federal law.
On March 14, 2025, President Trump rescinded the Biden-era executive order that established a $15 per hour minimum wage for federal contractors. In effect, that made the earlier court ruling moot, according to the Fifth Circuit.
Next Steps
Going forward, the Obama-era $13.30 minimum wage rate for federal contractors still stands. Federal contractors operating in multiple states may wish to review their policies and practices to ensure they comply with state minimum wage laws and federal prevailing wage laws. If they use a third-party payroll administrator, they may wish to communicate with the administrator to confirm legal compliance.
Strengthening Government Fraud Enforcement: Administrative False Claims Act Provides Agencies Tool to Bring Fraud Claims
Enacted as part of the recent National Defense Authorization Act (NDAA), the U.S. Congress established a significant new fraud enforcement mechanism, called the Administrative False Claims Act (AFCA), which empowers federal agencies to investigate and adjudicate more fraud cases involving false claims and statements made to the government.
Quick Hits
The Administrative False Claims Act (AFCA) significantly strengthens agencies’ ability to combat fraud involving federal funds by allowing direct prosecutions.
The AFCA raises the maximum claim amount from $150,000 to $1 million, expands definitions of false claims that trigger liability beyond those involving claims for money, and establishes reimbursement guidelines for investigation costs.
The AFCA further broadens liability by including false statements not tied to a claim for payment and extends the timeframe for pursuing allegations of fraud.
On December 23, 2024, then-President Joe Biden signed the 2025 NDAA (also known as the “Servicemember Quality of Life Improvement and National Defense Authorization Act (NDAA) for Fiscal Year 2025”). Buried in the lengthy legislation is a section creating the AFCA, which revamps the underutilized Program Fraud Civil Remedies Act (PFCRA) of 1986. The AFCA expands the types of fraud cases that federal agencies can directly pursue, raising the claim ceiling to $1 million and allowing agencies to recover investigation costs.
Background
The PFCRA was enacted in 1986 to provide administrative agencies with a mechanism to pursue low-dollar-value fraud cases. However, the statute has been underutilized historically. In particular, a 2012 study conducted by the U.S. Government Accountability Office (GAO) revealed that during the fiscal years 2006 to 2010, only five civilian agencies—the U.S. Department of Housing and Urban Development (HUD), U.S. Department of Health and Human Services (HHS), the U.S. Department of Energy, the Corporation for National and Community Service (now named AmeriCorps), and the Nuclear Regulatory Commission—had utilized the PFCRA. Notably, HUD referred 96 percent of the cases, while other agencies referred only six cases over five years, according to the GAO study.
Key Amendments Under the AFCA
The AFCA introduces several significant amendments to strengthen the former PFCRA:
Increased Claim Ceiling—The maximum claim amount has been raised from $150,000 to $1 million, adjusted for inflation.
Conformance With FCA Provisions—The AFCA aligns its provisions with those found in the False Claims Act (FCA), one of the government’s primary tools for combating fraud against the federal government, ensuring consistency in fraud enforcement.
Reverse False Claims—The AFCA expands the definition of a false claim to include claims made to an “authority,” including federal agencies, executive departments, and designated federal entities, “which has the effect of concealing or improperly avoiding or decreasing an obligation to pay or transmit property, services, or money to the authority.”
Reimbursement for Investigation Costs—The AFCA also provides that agencies are reimbursed for the costs of investigations from amounts collected, including “any court or hearing costs,” making it more financially viable for agencies to pursue fraud cases.
Expanded Jurisdiction for Appeals—The AFCA specifies who can hear appeals for agencies without ALJs, broadening the scope of administrative review.
No Qui Tam Provision—However, unlike the FCA, the AFCA does not include a qui tam provision, which allows private individuals, known as “relators” or “whistleblowers,” to file lawsuits on behalf of the government and potentially receive a portion of any recovered damages.
Promulgation of Regulations—The AFCA will further require authorities to promulgate regulations and procedures to carry out the act and its amendments by June 23, 2025.
Revision of Limitations—The AFCA expands the limitation period for pursuing allegations, requiring the person alleged to be liable to be notified of the allegation within six years from the date the violation is alleged to have been committed or within three years after the material facts are discovered or “reasonably should have been known,” but not more than ten years from the date the alleged violation was committed.
Semiannual Reporting—The AFCA also amends the reporting obligations for federal government agencies, departments, and entities, requiring semiannual reports to include data on AFCA claims: the number of cases reported, actions taken—including statistical tables showing pending and resolved cases, average time to resolve cases, and final agency decisions appealed—and instances in which officials reviewing cases declined to proceed.
Next Steps
The AFCA represents a significant shift in administrative fraud enforcement as the federal government under the Trump administration focuses on reducing fraud and waste. The law strengthens and enhances the government’s ability to investigate and prosecute allegations of fraud, particularly those involving smaller dollar amounts, by providing agencies with a mechanism to prosecute allegations of fraud without having to go through the U.S. Department of Justice (DOJ) and the FCA process.
Moreover, the AFCA also expands the scope of potential liability, covering false statements even in the absence of a claim for payment. However, the AFCA lacks a qui tam provision that would incentivize whistleblowers to come forward with false claims allegations.
Moreover, the AFCA provides another antifraud tool as the Trump administration has sought to use the FCA against businesses to stop “illegal” diversity, equity, and inclusion (DEI) programs. There is potential that the AFCA could be used similarly as part of the administration’s efforts.
However, there are still questions regarding the AFCA’s authorization of administrative law judges (ALJs) and other officials to oversee cases. In its 2024 decision in Securities and Exchange Commission v. Jarkesy, the Supreme Court of the United States vacated a civil monetary penalty that was imposed in an ALJ proceeding. The Court found that this penalty violated the defendant’s right to a jury trial under the Seventh Amendment of the U.S. Constitution, raising concerns about the constitutionality of ALJ proceedings, particularly concerning monetary penalties.
Attention Department of Labor Contractors and Grantees: A Federal Court Hits Pause on Executive Orders Related to Diversity, Equity, and Inclusion
Federal courts continue to grapple with challenges to President Trump’s executive orders (“EOs”) related to diversity, equity, and inclusion (“DEI”), particularly EO 14151, Ending Radical And Wasteful Government DEI Programs And Preferencing, and EO 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity. As we’ve noted in our coverage of the litigation first filed in the District Court of Maryland, there has been a sense of whiplash among the courts, with the District Court initially issuing a nationwide injunction that was then stayed by the Fourth Circuit Court of Appeals. Now a second federal court has weighed in, issuing a new, nationwide temporary restraining order (“TRO”). This new TRO is more limited than the prior preliminary injunction issued by the District Court of Maryland, in that the new TRO only applies to Department of Labor (“DOL”) contractors and grantees. Nevertheless, the Court’s reasoning could be helpful to the contractors and grantees of other agencies facing renewed demands to execute the DEI Certification.
Case Background
The case is Chicago Women in Trades v. Trump et al., 1:25-cv-02005. It was filed on February 26, 2025, in the U.S. District Court for the Northern District of Illinois by Chicago Women in Trades (“CWIT”), an Illinois-based non-profit and DOL grantee whose mission is to prepare women to enter and remain in high-wage skilled trades, such as carpentry, electrical work, welding, and plumbing.
On March 18, 2025, CWIT filed a Motion for a TRO broadly seeking to preclude “any and all federal agencies” from taking action adverse to a federally funded contract, grant, or other implementing vehicle, where that action is animated by either EO 14151 or EO 14173. Alternatively, CWIT sought an injunction prohibiting only DOL from (1) taking any adverse action animated by EO 14151 or EO 14173 on any of the federal grants by which CWIT receives funding, as either a grant recipient, sub-recipient, or subcontractor; and (2) directing any other grant recipient or contractor under which CWIT operates as a sub-recipient or subcontractor from taking any adverse action on any of those grants on the basis of the anti-diversity EOs. Thus, the Plaintiff essentially offered the Court a choice of whether to fashion broad relief, or narrow relief.
The Executive Orders
We have previously written extensively about the two EOs at issue. The EO provisions that are relevant to the CWIT litigation include (1) the Termination Provision of EO 14151 (requiring the termination of “equity-related” contracts and grants), (2) the Certification Provision of EO 14173 (requiring contractors and grantees to execute a certification that they do not operate DEI programs that run afoul of applicable antidiscrimination laws and stating that compliance with antidiscrimination laws is material to the government’s payment decisions under the False Claims Act (“FCA”)), and (3) the Enforcement Provision of EO 14173 (requiring the Attorney General to prepare a report identifying potential targets for investigation and enforcement related to DEI).
Scope and Effect of the March 27, 2025, TRO
The Termination Provision: Per the terms of the TRO, DOL “shall not pause, freeze, impede, block, cancel, or terminate any awards, contracts or obligations” or “change the terms of” current agreements “with CWIT” on the basis of the Termination Provision in EO 14151. Note that this part of the TRO does not apply to agencies other than DOL or to contractors or grantees other than CWIT.
The Certification Provision: The Court ordered that DOL “shall not require any grantee or contractor to make any ‘certification’ or other representation pursuant to” the Certification Provision of EO 14173. Note that this applies not only to CWIT, but to any and all DOL contractors and grantees. The Court found that a TRO precluding “any enforcement” of the Certification Provision is warranted in order to ensure that CWIT has complete relief, given that CWIT works in conjunction with other organizations that may be deemed to provide DEI-related programming, and because other similarly situated organizations would not need to show different facts to obtain the relief sought by CWIT.
The Enforcement Provision: The Court ordered that the Government shall not initiate any False Claims Act enforcement “against CWIT” pursuant to the Certification Provision of EO 14173.
The main takeaway for the federal contracting and grant community is that DOL cannot ask any of its contractors and grantees to sign the DEI Certification of EO 14173. The rest of the TRO is limited to CWIT. The Northern District of Illinois may have limited the relief available under the TRO due to the Fourth Circuit’s March 14, 2025, ruling to stay a much broader preliminary injunction that was issued by the District Court of Maryland. (According to Judge Rushing of the Fourth Circuit, “[t]he scope of the preliminary injunction alone should raise red flags: the district court purported to enjoin nondefendants from taking action against nonplaintiffs.”)
Conclusion
Although Judge Kennelly of the Northern District of Illinois issued a TRO that applies only to DOL contractors and grantees, his reasoning can serve as a roadmap for the contractors and grantees of other agencies who may receive the EO 14173 DEI Certification. Judge Kennelly expressed concern that the EOs likely violate the First and Fifth Amendments of the Constitution, as well as the Spending Clause and the Separation of Powers. As such, the Northern District of Illinois is now the second federal court to call out both the vagueness of the challenged EOs and the government’s unwillingness to define the EOs’ key concepts, such as “DEI” and “illegal DEI”. Accordingly, contractors and grantees faced with the DEI Certification should increasingly feel that it is reasonable to respond by bringing the ambiguities in the certification language to the attention of the Contracting Officer, while, as we have previously suggested, contemporaneously memorializing the basis for the contractor’s reasonable interpretation of the ambiguous certification, in order to assist in the defense of any potential FCA claim.
Another Court Partly Blocks DEI-Related Executive Orders; U.S. Government Continues to Stay Its Course
On Thursday, March 26, 2025, a federal judge for the Northern District of Illinois issued a Temporary Restraining Order (TRO) prohibiting enforcement of portions of Executive Order 14151 (“the J20 EO”) and Executive Order 14173 (“the J21 EO”), two of President Trump’s first directives seeking to eliminate Diversity, Equity, and Inclusion (DEI), previously explained here.
This order has implications for federal contractors and grant recipients nationwide, at least for now.
The Case
The case, Chicago Women in Trades v. Trump et. al., was brought by a Chicago-based association, Chicago Women in Trades (CWIT), that advocates for women with careers in construction industry trades. Federal funding has constituted forty percent of CWIT’s budget. After the issuance of the J20 and J21 EOs, CWIT received an email from the U.S. Department of Labor’s (DOL) Women’s Bureau stating that recipients of financial assistance were “directed to cease all activities related to ‘diversity, equity and inclusion’ (DEI) or ‘diversity, equity, inclusion and accessibility’ (DEIA).” Similarly, one of its subcontractors emailed CWIT to immediately pause all activities directly tied to its federally funded work related to DEI or DEIA. CWIT brought the action against President Trump, the DOL, and other agencies alleging, among other things, that its Constitutional rights were violated by various provisions in both EOs. For example, CWIT argued that the J20 EO targeted “DEI,” “DEIA,” “environmental justice,” “equity,” and “equity action plans” without defining any such terms. This lack of definition, according to CWIT, makes it difficult to understand what conduct is permissible and what is not.
Contractor “No DEI” Certifications Blocked
The ruling enjoins the DOL and, by extension, its Office of Federal Contract Compliance Programs (OFCCP) from enforcing two discrete portions of the Executive Orders: (1) Section 2(b)(i) of the J20 EO (the “Termination Provision”), authorizing the agency to terminate a government contract or grant based on the awardee’s alleged DEI-related activities; and (2) Section 3(b)(iv) of the J21 EO (the “Certification Provision”), requiring federal contractors and grant recipients to certify that they do not operate any program promoting unlawful DEI. A Memorandum Opinion and Order accompanying the TRO emphasizes that its ruling constrains only one agency, at least for now.
The injunction against the Termination Provision is also narrow in that it applies only to the plaintiff, CWIT. Specifically, the TRO blocks the DOL from taking any adverse action related to any contracts with the plaintiff. The TRO further forbids the federal government from initiating any enforcement action under the False Claims Act against the plaintiff. Nevertheless, the TRO does carry nationwide implications, in that it prohibits the DOL from requiring any contractor or grantee to make any certification or other representation pursuant to the terms of the J21 EO’s Certification Provision.
Other Initiatives to Curb DEI Continue
Despite judicial opinions criticizing the EOs, most notably in a case currently under review by the U.S. Court of Appeals for the Fourth Circuit, governmental agencies continue to move forward with actions supportive of the EOs, and enforcement against public and private entities for DEI initiatives or other practices. For example:
On March 19th, the U.S. Equal Employment Opportunity Commission and the U.S. Department of Justice (DOJ) issued multiple documents explaining the administration’s view of DEI as a form of workplace discrimination.
On March 26th, the DOJ issued a Memorandum to all U.S. law schools regarding race-based preferences in admissions and employment decisions.
On March 27th, two agencies issued press releases announcing investigations: the U.S. Department of Health and Human Services announced action against an unnamed “major medical school in California,” and the DOJ issued a press release stating that it is looking into whether four major universities in California use “DEI discrimination” in their admissions practices. The DOJ announcement concludes that “compliance investigations into these universities are just the beginning of the Department’s work in eradicating illegal DEI and protecting equality under the law.”
On March 28th, the administration made headlines across Europe after two French newspapers published the template of a letter and accompanying form sent by the U.S. Department of State to companies in France, Belgium, Italy, and other European Union nations that do business with the federal government, demanding compliance with the J21 EO and requesting completion of a form to certify “compliance in all respects with all applicable federal anti-discrimination law…” and that the contractor does not “operate any programs promoting Diversity, Equity, and Inclusion that violate any applicable Federal anti-discrimination laws.”
What’s Next?
The court will consider further injunctive relief in the coming weeks, and may convert the TRO into a preliminary injunction after a hearing scheduled for April 10, 2025. At present, at least a dozen lawsuits have been filed challenging the Executive Orders regarding DEI, while Executive Branch agencies continue to pursue enforcement activities aligned with the EOs and administration policy.
A Roadmap for Terminations for Convenience in the DOGE-Era
The Department of Government Efficiency’s (“DOGE”) scrutiny of federal contracts has resulted in a spike in notices of termination for convenience. Given DOGE’s broad mandate to reduce federal spending, we expect a sustained increase in the use of terminations for convenience to end contracts the administration considers “wasteful” or not aligned with its priorities.
But while termination notices make one thing clear—the contract is over—it can leave contractors with questions about their rights and obligations.
What Is a Termination for Convenience and Can I Challenge It?
The right to terminate for convenience is included expressly in almost all government contracts—and is generally considered to be a government right even when not expressly included.[1] Terminations for convenience allow the federal government to unilaterally end a contract (or a portion of a contract) immediately and without alleging contractor fault. The government typically invokes a termination for convenience after determining the contract is no longer in its best interests, and this can occur for a wide variety of reasons, such as budget cuts, or changes in government priorities or project requirements. Typically, the government does not explain why it is terminating a contract for convenience.
The government’s right to terminate for convenience is broad and, unlike a termination for default, there are very limited paths to challenge a convenience termination. In order to overturn a termination for convenience, the contractor must prove it was made in bad faith or that it constitutes an abuse of discretion. This typically requires the contractor to present clear and convincing evidence that the contract was terminated for the purpose of harming the contractor.[2] Some groups of contractors have begun to challenge termination notices the government has issued under the new administration. Because most contractors will struggle to demonstrate that mass terminations—or even any specific one—were made with the intention of causing harm to them specifically, contractors and grantees are testing novel arguments. For example, in Pacito v. Trump, No. 2:25-cv-00255 (W.D. Wash. 2025), the district court issued a preliminary injunction requiring the government to reinstate cooperative agreements with refugee resettlement agencies, finding that the mass terminations essentially nullified the statutory scheme obligating the government to provide refugee admission and resettlement services and were likely arbitrary and capricious under the Administrative Procedure Act.
While these novel challenges will be addressed by the courts and Boards of Contract Appeals, most contractors are best served by working on how to maximize the compensation they are entitled to in response to a termination.
What Is Required for a Termination Notice to Be Valid?
A notice of termination for convenience must be in writing. The contracting officer may deliver the notice by: (1) e-mail with confirmation of receipt; (2) certified mail, return receipt requested; or (3) hand delivery, with written acknowledgment of receipt. FAR 49.102(a). The notice must also be sent simultaneously to the contract administration office and any known assignee, guarantor, or surety of the contractor. FAR 49.102(b).
The notice of termination must include:
A statement that the contract is being terminated for convenience under the applicable contract clause;”
The effective date of termination;
The extent of termination, whether complete or partial and, if partial, the scope of the work terminated;
Any special instructions, such as to stop all work, terminate subcontractors and suppliers, and return property belonging to the government;
Recommended steps to minimize the impact on the contractor’s workforce, such as giving affected employees advance notice of the reduction-in-force, advising employees to apply for unemployment insurance, and informing any local unions representing employees. FAR 49.102; FAR 49.601-2(g).
What If My Termination Notice Is Procedurally Deficient?
Given the speed at which the government is issuing terminations, and because, in some cases, typical contract points of contact have left the government, some termination notices issued have not taken the typical form, calling into question their validity. If the termination notice is missing any required information or is unclear or inaccurate, the contractor should document the issue in writing to the contracting officer. A contractor should identify the specific deficiencies in the notice and any impacts on its ability to comply with the termination, including resulting delays and additional costs incurred. If the contractor believes the termination notice is not valid, it should nonetheless treat the notice as a stop work order in order to avoid incurring additional costs that may not be recoverable.
A defective termination notice does not give the contractor a right to bring a claim for breach of contract.[3] And the government can amend the notice to correct non-substantive errors, add data or instructions, or rescind the notice if the items terminated had been completed or delivered before the contractor’s receipt of the notice. FAR 49.102(b). Even if a notice is deficient, a contractor should still make reasonable efforts to comply and reduce costs. But identifying validity issues, particularly those which may result in the termination notice being rescinded, can save the contractor from taking actions which may be difficult to undo in the case of recission, such as terminating staff.
Identifying the proper point of contact for a termination has, in some recent instances, been a challenge. If none is identified in the notice, contractors should make all reasonable efforts to identify and contact a contracting authority within the relevant agency or department. This can involve searching public directories and identifying chief procurement officers or other senior contracting officials. If those efforts are unsuccessful, contractors should send a letter documenting the deficiencies to the last known address or e-mail address of the contracting officer and contracting agency.
Identifying Termination-Related Costs
The contractor is responsible for preparing and submitting a termination proposal to the contracting officer within one year of the termination notice. See FAR 52.249-2; FAR 52.249-6. There is little reason to wait anywhere near that long. We suggest termination proposals be submitted as soon as possible, particularly now as the federal workforce is in flux. And, regardless of the speed with which the proposal can be submitted, contractors who receive a notice of termination for convenience should immediately begin identifying and segregating recoverable costs to allow them to prove those costs with sufficient certainty and certify to their accuracy. The contractor should document costs incurred up to the termination, ongoing costs directly related to the contract that cannot be avoided, and costs incurred in settling the terminated contract. Detailed records, including invoices and relevant backup documentation, should be kept and contract-related costs should be segregated from other expenses.
The following cost categories can be recovered in a termination for convenience:
Payment for work performed: Contractors are entitled to compensation for the value of work completed up to the termination date. Recovery of costs under a fixed-price contract is limited to the “total contract price.” FAR 52.249-2(f).
Reasonable profit: Contractors are entitled to profit on work performed before the termination notice. Profit will depend, among other things, on the difficulty of the work, the contractor’s efficiency, and the profit rate the contractor would have earned had the contract been completed. FAR 49.202(b). If the government can prove the contract would have been completed at a loss, the contractor is not entitled to any profit and recovery is subject to a loss adjustment. FAR 49.203(a).
Settlement costs: Expenses related to preparing the termination settlement proposal, including accounting, legal, and clerical costs.
Post-termination costs: Costs directly associated with halting operations, such as demobilization expenses, severance for personnel, and subcontractor settlements.
The last category tends to cause the most confusion and it is often necessary to analyze the costs individually and collectively to determine whether the relevant case law supports their inclusion and whether, overall, the proposal will be viewed as “fair and reasonable.” FAR Part 31.205-42 outlines some of the types of costs “that would not have arisen had the contract not been terminated”:
common items: the costs of items “reasonably usable on the contractor’s other work” but only if these items could not be retained at cost without the contractor sustaining a loss;
costs continuing after termination: costs which cannot be discontinued immediately after the termination “[d]espite all reasonable efforts by the contractor”;
initial costs: nonrecurring labor, material, and related overhead costs incurred in the early part of production as a result of factors such as training, lack of familiarity with the product, or excess spoilage due to inexperienced labor; and preparatory costs incurred in preparing to perform the terminated work, such as initial plant rearrangement and alterations and production planning;
loss of useful value of special tooling, machinery, and equipment, provided that the items are not “reasonably capable of use” in the contractor’s other work, and the government’s interest is protected;
rental under unexpired leases, minus the residual value of such leases, provided that the amount of rent claimed does not exceed the reasonable use value of the property, and the contractor makes “all reasonable efforts” to terminate or otherwise reduce the cost of the lease;
alterations of leased property: alterations and reasonable restorations required by the lease, when the alterations were necessary for performing the contract;
settlement expenses: accounting, legal, clerical, and similar costs reasonably necessary for preparing settlement claims and for termination and settlement of subcontracts; reasonable costs for the storage, transportation, protection, and disposition of property acquired or produced for the contract; and indirect costs related to salary and wages incurred as settlement expenses in relation to the foregoing;
subcontractor claims, including the allocable portion of the claims common to the contract and the contractor’s other work, as well as an “appropriate share” of the contractor’s indirect expenses, provided that the amount allocated is “reasonably proportionate” to the relative benefits received and is otherwise consistent with Part 31 of the FAR.
While these items stem from and take into account the FAR’s cost principles, the FAR directs agencies to use those principles as “guides, but [] not rigid measures, for ascertaining fair compensation.” FAR 49.201. Accordingly, “in appropriate cases, costs may be estimated, differences compromised, and doubtful questions settled by agreement.”
The ability of contractors to include accounting and legal costs in their settlement proposal should encourage them to seek advice from their attorneys, accountants, and cost consultants immediately after receiving a termination notice. This can ensure they maximize the recovery to which they are entitled.
What If the Government Rejects My Termination Settlement Proposal?
If the government rejects a termination settlement proposal, contractors have several options. They can negotiate with the contracting officer to reach a mutually acceptable settlement, which is the most common and most cost-efficient path. Notably, the FAR authorizes partial payment if there are areas of agreement but a final settlement has not been reached. These partial payments can ease cash flow problems for contractors and provide them sufficient time to finalize stickier areas of settlement.
If negotiations fail, a contractor can file a claim under the Contract Disputes Act (“CDA”), which involves submitting a written claim to the contracting officer who must issue a final decision within a specified time frame. If the claim is denied, the contractor can appeal the decision to the applicable agency board or the Court of Federal Claims. Contractors should keep in mind that a termination itself is not a contracting officer’s final decision, meaning contractors must first file a claim under the CDA before proceeding to a board or court.[4]
If contractors are unable to get a response to their termination settlement proposals, they can move forward with a CDA claim, which can be “deemed denied” after 60 days. While this path may be a less ideal process than negotiated settlement, it provides contractors with an appeal before the board or court even if their settlement proposal is rejected.
[1] See G.L. Christian & Assoc. v. United States, 312 F.2d 418 (Ct. Cl. 1963).
[2] See Am-Pro Protective Agency, Inc. v. United States, 281 F.3d 1234, 1239 (Fed. Cir. 2002).
[3] Fahey v. United States, 71 Fed. Cl. 522, 528 (2006).
[4] See, e.g., Blankson v. Agency for Int’l Dev., CBCA 8256 (Jan. 2, 2025) (notice of termination for convenience was not a final decision under CDA).
Implications of New “Secondary Tariff” Executive Order Targeting Importers of Venezuelan Oil
On 24 March 2025, the White House issued an Executive Order threatening to impose a 25% tariff on all goods imported into the US from any country that imports Venezuelan oil directly or indirectly through third parties. Effective on or after 2 April 2025, the tariff is in response to alleged actions of Venezuela’s Maduro government, in particular sending members of the Tren de Aragua gang (designated a foreign terrorist organization) and other criminals into the US and its involvement in kidnapping and violent attacks including the assassination of a Venezuelan opposition figure.
The 25% tariff—called a “secondary tariff” as it is analogous to “secondary sanctions” asserted against non-US entities for doing business with sanctioned parties and countries—will apply to “any country that imports Venezuelan oil, directly or indirectly, on or after 2 April 2025” as determined by the Secretary of State in consultation with the Secretaries of the Treasury, Commerce, and Homeland Security, and the US Trade Representative. Once imposed, the tariff would expire one year after a country ceases Venezuelan oil imports or earlier at the discretion of US officials. For countries already subject to other comprehensive import tariffs, the 25% tariff would be cumulative, so China, for example, could be subject to a 45% import duty including the 20% tariff that already applies.
The Order raises several questions, including the scope of products and transactions covered. “Venezuelan oil” is defined as “crude oil or petroleum products extracted, refined, or exported from Venezuela” regardless of the nationality of entities involved, and “indirectly” is defined to include purchases through intermediaries or third countries “where the origin of the oil can reasonably be traced to Venezuela.” This will put significant pressure to conduct and confirm the origin of petroleum products traded on the international market as a limited volume could trigger the tariffs. The Order also leaves the fate of refined and derivative products made from Venezuelan crude oil uncertain, suggesting that further processing and refinement in another country may still be subject to restriction. It is also unclear how Venezuelan oil commingled with oil from other countries would be treated. Presumably, such commingling would be assessed in the same manner as oil from embargoed countries under US sanctions regimes, where even a small amount of commingled product can taint an entire shipment. The Order leaves to Commerce responsibility to issue guidance on implementation of the measure.
Over half of Venezuelan oil exports are imported into China, with significant volumes purchased by France, India, Italy, and Spain under limited US authorizations that were previously granted. The tariff threat will lead to significant disruptions in these markets. The threat could also impact oil traders, shipping companies, and operators of storage facilities, with significant oil volumes becoming stranded without a viable buyer.
Beltway Buzz, March 28, 2025
The Beltway Buzz™ is a weekly update summarizing labor and employment news from inside the Beltway and clarifying how what’s happening in Washington, D.C., could impact your business.
FMCS Cuts Staff Dramatically. Following through on President Donald Trump’s executive order, “Continuing the Reduction of the Federal Bureaucracy,” which we recently examined here at the Buzz, this week, the administration all but shut down the Federal Mediation and Conciliation Service (FMCS). FMCS is an independent agency established by the U.S. Congress in the Taft-Hartley Act of 1947 “to prevent or minimize interruptions of the free flow of commerce growing out of labor disputes, to assist parties to labor disputes in industries affecting commerce to settle such disputes through conciliation and mediation.” FMCS will reportedly retain approximately 15 employees—down from the 220 employees it maintained in 2024.
Personnel News. There were significant developments this week on the agency personnel front as President Trump seeks to install his political appointees at executive branch agencies. For example:
NLRB. Today, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit, in a 2–1 decision, ruled that President Trump was permitted to remove Gwynne Wilcox, a President Biden–appointed member of the National Labor Relations Board (NLRB), whose five-year term expires on August 27, 2028. A lower-court judge had issued a decision preventing the president from removing Wilcox without cause, but today’s appellate court ruling lifts the injunction while the litigation proceeds. The case will likely reach the Supreme Court of the United States.
EEOC. President Trump nominated Andrea Lucas, currently the acting chair of the U.S. Equal Employment Opportunity Commission (EEOC), to another five-year term on the Commission. Lucas has served as a commissioner since 2020, and her current term will expire on July 1, 2025. The Commission currently consists of Lucas and Democratic Commissioner Kalpana Kotagal, with three vacancies.
OFCCP Director. President Trump appointed management-side attorney Catherine Eschbach to serve as the director of the Office of Federal Contract Compliance Programs (OFCCP). The position does not need Senate confirmation, so Eschbach will immediately replace Acting Director Michael Schloss. With the revocation of Executive Order (EO) 11246, OFCCP now only enforces affirmative action and discrimination laws related to veterans and workers with disabilities. According to some media reports, Eschbach will lead the effort at OFCCP to review already-submitted affirmative action plans for potential discrimination. Lauren B. Hicks and T. Scott Kelly have the details.
Workplace Safety Commissions. President Trump nominated Jonathan Snare to serve on the Occupational Safety and Health Review Commission. Snare was recently appointed deputy solicitor of labor and served in various positions within the DOL from 2003 to 2009. Additionally, the president nominated Marco Rajkovich Jr. to serve on the Federal Mine Safety and Health Review Commission (FMSHRC). Rajkovich chaired the FMSHRC during President Trump’s first term.
DOL Office of Disability Employment Policy. Julie Hocker has been nominated to serve as assistant secretary for disability employment policy at the DOL. Hocker previously served as commissioner of the Administration on Disabilities within the U.S. Department of Health and Human Services.
Republican Committee Chair Outlines Suggested Policy Priorities for New Secretary of Labor. Late last week, the Republican chairman of the House Committee on Education and the Workforce, Representative Tim Walberg (MI), sent a letter to Secretary of Labor Lori Chavez-DeRemer, outlining policy issues that the committee believes are ripe for action by the new secretary. The letter specifically recommends the withdrawal or rescission of several regulatory actions issued by the Biden administration, such as:
The Wage and Hour Division’s (WHD) final rules on overtime, independent contractors, tipped workers, and Davis-Bacon regulation, among others. Also singled out is the WHD’s proposed rule eliminating the subminimum wage for workers with disabilities (Rep. Walberg underscored the importance of withdrawal of this proposal in a separate letter sent this week).
The Occupational Safety and Health Administration’s (OSHA) final walkaround regulation and electronic injury and illness recordkeeping rule, as well as proposed rules relating to excessive heat in the workplace and emergency response.
Representative Walberg also encouraged “DOL to enforce its laws while providing robust compliance assistance to workers and businesses instead of continuing the enforcement-only approach taken by the Biden-Harris administration.” The administration’s first regulatory agenda will provide a roadmap of agency priorities when it is issued in June or July this summer.
House Committee Examines Opportunities to Amend FLSA. On March 25, 2025, the U.S. House of Representatives Committee on Education and the Workforce’s Subcommittee on Workforce Protections held a hearing entitled, “The Future of Wage Laws: Assessing the FLSA’s Effectiveness, Challenges, and Opportunities.” The hearing focused on ambiguous and outdated provisions in the Fair Labor Standards Act (FLSA) and how they could be updated for the modern economy and workforce. For example, legislators and witnesses discussed legislative options to simplify the calculation of an employee’s “regular rate” for purposes of calculating overtime pay as well as a familiar bill that would allow employees to choose paid time off or “comp time” instead of cash wages as compensation for working overtime hours. Witnesses also advocated for passage of both the Modern Worker Empowerment Act and Modern Worker Security Act, as well as the readoption of the Payroll Audit Independent Determination (PAID) program, a pilot program the DOL launched during the first Trump administration that allowed employers to self-report federal minimum wage and overtime violations, but terminated in January 2021, soon after former President Joe Biden came into office.
CHNV Parole Programs Terminated. On March 25, 2025, the U.S. Department of Homeland Security (DHS) published a notice terminating the parole programs for individuals from Cuba, Haiti, Nicaragua, and Venezuela (“CHNV parole programs”), “unless the Secretary [of Homeland Security] makes an individual determination to the contrary.” Individuals whose parole is terminated must leave the United States by April 24, 2025. According to the notice, the DHS estimates that 532,000 people have entered the country through these parole programs. Among other reasons for terminating the parole programs, the DHS concluded that they “exacerbated challenges associated with interior enforcement of the immigration laws.” Individuals from these countries who have Temporary Protected Status, as well as individuals residing in the United States pursuant to parole programs relating to Ukraine and Afghanistan, are not impacted by the notice. Evan B. Gordon, Daniel J. Ruemenapp, and Hera S. Arsen have the details.
One Person, One Vote. On March 26, 1962, the Supreme Court of the United States issued its pivotal decision in Baker v. Carr, which changed the process by which our political representatives are chosen. The issue concerned the drawing of legislative districts in Tennessee. At the time of the initial legal challenge, the population of urban districts had dramatically increased compared to rural districts. Plaintiff Charles Baker argued that by not redrawing or reapportioning the districts, Tennessee violated the Equal Protection clause of the U.S. Constitution because citizens in rural districts were overrepresented compared to those in the more populated urban districts. The case was initially dismissed as a “political question,” but the Supreme Court reversed, holding that apportionment of state legislatures is a justiciable matter. The decision in Baker v. Carr opened the door for a series of legislative malapportionment cases decided by the Supreme Court in the 1960s and formed the basis for the “one person, one vote” principle. But not everything about the case turned out great. The deliberations among the Supreme Court justices were so intense and exhausting that Justice Charles Evans Whittaker suffered a nervous breakdown and had to recuse himself from the case.
GSA Expansion under Executive Order “Eliminating Waste and Saving Taxpayer Dollars by Consolidating Procurement”
On March 20, 2025, President Trump issued an Executive Order (the “Order”) targeted at consolidating domestic government procurement processes. Titled “Eliminating Waste and Saving Taxpayer Dollars by Consolidating Procurement,” this Order aims to streamline Federal procurement by consolidating it under the General Services Administration (GSA) rather than continuing the current practice of allowing all executive agencies and their subcomponents to manage much of their own procurement processes. As the Federal government is the largest buyer of goods and services globally, this Order seeks to enhance efficiency and effectiveness in procurement by better aligning with the GSA’s original purpose established in 1949—to consolidate the Federal government’s resources in order to streamline administrative work. The Order proposes that by centralizing procurement functions, the Federal government can better eliminate waste and duplication, allowing for the efficient use of taxpayer dollars and allowing agencies to focus on their core missions.
To ensure consistency across Federal procurement activities, the Order defines several key terms. The term “Administrator” shall refer to the GSA Administrator—not any agencies’ independent administrators— and “Agency” shall retain its definition as per Section 3502 of Title 44, but with an emphasis on the Executive Office of the President’s exclusion from this definition. “Common goods and services” are to be those defined by the Office of Management and Budget’s (OMB) Category Management Leadership Council, while an “indefinite delivery contract vehicle” refers to agreements that allow flexible ordering over time. The intention behind laying out these definitions is to further ensure clarity and consistency across to be-consolidated Federal procurement activities.
Next Steps for Implementation
The order outlines a clear timeline for procurement consolidation. By April 19, 2025, the GSA Administrator will be designated as the executive agent for government-wide acquisition contracts (GWACs) for information technology. The GSA Administrator, in consultation with the Director of OMB, will also defer or decline the executive agent designation for GWACs for information technology, when necessary, to ensure continuity of service. Further, the GSA Administrator must, on an ongoing basis, “rationalize” Government-wide indefinite delivery contract vehicles for information technology for agencies across the Government to reduce contract duplication, redundancy, and other inefficiencies. By April 3, 2025, the OMB must issue a memorandum to agencies implementing the aforementioned requirements. By May 19, 2025, Federal agency heads must submit proposals for the GSA to handle the procurement of common goods and services. The GSA Administrator is then tasked with submitting a comprehensive plan to the OMB by June 18, 2025.
Potential Implications for Government Contractors
The Order emphasizes that so as not to impair existing legal authorities or budgetary functions, its decree must be implemented in accordance with applicable laws and available appropriations. Perhaps most importantly, this Order does not create any new enforceable rights or benefits against the U.S. government, suggesting a potentially limited ability of government contractors to protest or dispute the allocation of Federal awards.
On the same day of the Order’s release, the GSA held an all-hands meeting where the head of GSA’s Federal Acquisition Service is reported as stating, “[o]ver the coming months, we are going to ingest all domestic, commercial goods and services inside the GSA. We’re not going to do all $900 billion, but we will do about $400 billion, so we’re going to quadruple our size.”1
[1] https://www.nextgov.com/acquisition/2025/03/gsa-quadruple-size-centralize-procurement-across-government/403935/.
Other Transactions: A Flexible and Efficient Acquisition Tool for the Department of Defense
On March 6, 2025, the Defense Secretary released a memorandum directing the Department of Defense (“DoD”) to adopt the Software Acquisition Pathway (“SWP”) to speed up the development, procurement, and delivery of software needed for weapons and business systems. Specifically, the memorandum directed DoD to use Commercial Solutions Openings and Other Transactions (“OTs”) as the default solicitation and award approaches for acquiring capabilities under the SWP. As a result, we are likely to see an expansion in DoD’s use of OTs. Thus, contractors should be aware of the rules and regulations regarding OTs.
Background
While OTs have been in the news a lot these days, they are not a new concept. OTs date back to 1958, when Congress granted the National Aeronautics and Space Administration (“NASA”) the authority to enter into transactions other than contracts, grants, or cooperative agreements in order to foster innovation and speed in the space race.
Since then, Congress has granted OT authority to several other federal agencies, including the Department of Energy, the Department of Health and Human Services, the Department of Homeland Security, the Transportation Security Administration, and the Department of Transportation. However, the most significant and frequent user of OTs has been the DoD.
What is an OT?
An OT is a legally binding agreement that is not subject to most of the federal laws and regulations governing procurement contracts, such as the Federal Acquisition Regulation, the Competition in Contracting Act, the Cost Accounting Standards, and the Contract Disputes Act. An OT can be structured in various ways, depending on the type, purpose, and scope of the project, as well as the needs and interests of the parties. This means that DoD has more discretion and flexibility to negotiate the terms and conditions of an OT, and to tailor them to the specific needs and objectives of the project. This also means that the participants have more freedom and autonomy to conduct their work, and to avoid most of the compliance burdens and administrative costs associated with procurement contracts.
An OT is still subject to certain statutory requirements, such as the Anti-Deficiency Act, the Freedom of Information Act, the False Claims Act, the Anti-Kickback Act, and the Procurement Integrity Act. An OT is also subject to certain policy and oversight considerations, such as the public interest; the protection of human subjects; the safeguarding of classified information; the prevention of fraud, waste, and abuse; and the audit and review by DoD and other agencies. Moreover, an OT—while not a procurement contract—is still a contract in the eyes of the law, and can be enforced and challenged in the courts. As we recently discussed, the Court of Federal Claims (“COFC”) appears to be taking a broader view of its jurisdiction over OTs than it has previously, so we may see more post-award protests for OTs at the COFC.
Because an OT is not subject to many of the federal laws and regulations applicable to procurement contracts, an OT does not automatically provide the same rights and remedies that are available under procurement contracts, such as those relating to equitable adjustments, claims, appeals, protests, and termination settlements. Therefore, the parties to an OT need to carefully consider and negotiate the terms and conditions of their agreement, and also address the risks and responsibilities that may arise during the performance and administration of the project. For example, in addition to basic terms such as the scope of work, deliverables, performance milestones, and payment provisions, the parties may want to negotiate clauses addressing data rights, intellectual property rights, dispute resolution mechanisms, termination procedures, and audit rights.
Types of DoD OTs
The DoD has two main types of OTs: Research and Development OTs and Prototype OTs, the latter of which can lead to production contracts.
Research and Development OTs
Research and Development OTs are utilized for basic, applied, and advanced research projects.10 U.S.C. § 4021(a). Research OTs may be used to pursue research and development of technology with dual-use application (commercial and government). Research OTs may also be used to advance new technologies and processes to evaluate the feasibility or utility of a technology. However, unlike Prototype OTs, DoD cannot transition a Research OT to a follow-on production contract.
Prototype OTs
A Prototype OT can be used for a broad range of projects, including but not limited to (A) a proof of concept, model, or process, including a business process; (B) reverse engineering to address obsolescence; (C) a pilot or novel application of commercial technologies for defense purposes; (D) agile development activity; (E) the creation, design, development, or demonstration of operational utility; or (F) any combination of subparagraphs (A) through (E). 10 U.S.C. § 4022(e)(5). And, for a Prototype OT to be awarded, one of the following conditions must be met: (i) significant participation by a nontraditional defense contractor or a nonprofit research institution; (ii) all significant participants being small businesses or nontraditional defense contractors; (iii) at least one-third of the total cost being covered by non-federal parties; or (iv) exceptional circumstances that justify the use of innovative business arrangements or structures. 10 U.S.C. § 4022(d).
Note that successful completion of a Prototype OT can result in a follow-on production contract without further competition, provided the prototype OT was competitively awarded, and the solicitation and agreement included the possibility of a production contract. This streamlined transition from prototype to production can allow for rapid fielding of new technologies and capabilities—once a prototype has proven its value and effectiveness, DoD can quickly move to production, ensuring that contractors are able to start working on delivering critical technologies without the delays often associated with competitive procurements.
Key Takeaways
DoD’s use of OTs has been steadily growing in recent years, both in terms of the number and the value of agreements. This is only expected to increase further under the current administration. Thus, contractors should keep in mind the following:
Embrace the Flexibility: Recognize that OTs offer a flexible framework that allows for innovative and collaborative agreements. This flexibility can be leveraged to tailor agreements that meet specific project needs without the constraints of traditional procurement regulations.
Leverage Nontraditional Partnerships: Consider forming partnerships with nontraditional defense contractors, research institutions, and consortia. These collaborations can bring diverse expertise and innovative solutions to the table, enhancing the project’s success.
Stay Informed on Legal Requirements: While OTs are exempt from many procurement laws, they are still subject to certain statutory and policy requirements. Ensure compliance with these requirements to avoid legal pitfalls.
Monitor Emerging Trends: Keep an eye on emerging technology areas where the DoD is increasing its use of OTs and position your organization to take advantage of opportunities in these high-priority areas.
Seek Legal Counsel: Given the unique nature of OTs and their legal implications, it is important to consult counsel with experience in federal contracting and OTs to assist in navigating complex legal landscapes and mitigate risks.
An In-Depth Look at Three of the Most Common Types of Government Procurement Fraud
While government procurement fraud can take many different forms, certain forms are more common than others. These forms of fraud within the procurement process cost taxpayers hundreds of billions of dollars per year, and they impact agencies across the federal government.
Although federal agencies have the authority to audit their contractors, and while the U.S. Department of Justice (DOJ) and Offices of Inspectors General (OIGs) specifically target procurement fraud, the federal government still relies heavily on whistleblowers to report fraud, waste, and abuse. This makes it critical for whistleblowers to come forward when they have information that could help uncover procurement fraud cases—and the False Claim Act’s whistleblower reward provisions provide a direct financial incentive to do so.
“Whistleblowers play a critical role in the federal government’s ongoing fight against government procurement fraud. From bid rigging and collusion to violations of the Buy American Act (BAA), whistleblowers can receive financial rewards for reporting all types of procurement fraud to the appropriate federal authorities.” – Dr. Nick Oberheiden, Founding Attorney of Oberheiden P.C.
With all of this in mind, when can (and should) employees, former employees, and others consider serving as a federal whistleblower? Here is an in-depth look at three of the most common types of government procurement fraud:
3 Common Types of Government Procurement Fraud
1. Bid Rigging and Collusion
The U.S. General Services Administration’s Office of Inspector General (GSAIG) identifies bid rigging and collusion as being among the most common types of government procurement fraud. It specifically identifies five forms of bid rigging and collusion that are particularly common within the federal contracting sector:
Bid Rotation – Bid rotation involves “tak[ing] turns submitting the lowest (winning) bid on a series of contracts” based on a “pre-established agreement.”
Bid Suppression – Bid suppression involves an agreement “not to bid, or withdraw a previously submitted bid, so a designated bidder is ensured to win.”
Bidding Collusion – Bidding collusion involves contractors agreeing to “set prices they will charge . . . , set a minimum price they will not sell below, or reduce or eliminate discounts.”
Complementary Bidding – Complementary bidding involves certain contractors “submit[ting] bids which are intentionally high or which intentionally fail to comply with bid requirements.”
Customer and Market Division – Customer and market division involve contractors agreement “not to bid or submit only complementary bids for customers or geographic areas.”
Even when competitive bids are submitted, the integrity of the bid evaluation process can be compromised through coordinated efforts to mislead contracting officials. As a result, recognizing unusual patterns in the bids governments receive can be a key first step toward identifying collusion or fraud in the procurement process.
If left undiscovered and unreported, all forms of bid rigging and collusion can lead to federal agencies paying more than necessary for essential products and services. In many cases, contractors will engage in multiple forms of bid rigging, price fixing, and collusion in an effort to create the appearance of legitimate competition. Contractors’ current and former employees will often have access to information that federal agencies have no practical way of discerning on their own—and this is one of several reasons why whistleblowers play such an important role in the federal government’s fight against procurement fraud.
According to the GSAIG, the following are common indicators (among others) of potential bid rigging and collusion:
Competing bids that contain identical line items or lump sums
Bids that greatly exceed the contracting agency’s estimated contract value
Bids that greatly exceed the total contract value of competing bids
Last-minute alterations or withdrawals of competitive bids
Contractors giving different bid amounts for the same line items on different contracts
Non-submission of bids by qualified contractors
Frequent interactions or communications between bidders near the time of submission
Certain contractors never (or rarely) bidding against others
Contractors only bidding for certain types of contracts despite broader capabilities
Joint venture submissions when both contractors have the ability to perform individually
2. Defective Pricing and Other Pricing Violations
Defective pricing and other pricing-related violations are also extremely common forms of procurement fraud. Here too, federal agencies often rely heavily on whistleblowers to inform them of suspect pricing practices, as they otherwise have limited options for uncovering pricing violations without initiating a costly and time-consuming audit or investigation. While conducting an audit or investigation can be well worth it when there is something to find, auditing all federal contractors to search for evidence of a potential pricing violation or another fraudulent scheme simply is not feasible.
Some common examples of pricing-related violations in the federal procurement sector include:
Defective Pricing – Defective pricing is defined as “provid[ing] incomplete, inaccurate or not current disclosures during contract negotiations.” While federal agencies can reduce government contract prices under the Federal Acquisition Regulations (FAR) in the event of defective pricing, again, agencies are often reliant on whistleblowers to inform them that action is warranted.
Price Reduction Violations – Price reduction violations involve contractors failing to lower their prices for government agencies when they offer discounts to other clients or customers. While these price reductions are not required across the board, non-compliance with this requirement (when it applies) is fairly common.
Progress Payments Fraud – Progress payments fraud involves “submit[ting] a request for payment with a false certification of work completed or falsified costs such as direct labor not rendered and materials not purchased.” This is a common form of fraud as well that can also be difficult for contracting agencies to uncover on their own—particularly in certain industries.
Similar to bid rigging and collusion, pricing-related violations can result in substantial overpayments and allow unqualified contractors to acquire contracts they wouldn’t win with accurate pricing disclosures. Whether intentional or inadvertent, these violations warrant correction to help preserve taxpayer funds and maintain the integrity of the federal procurement system. When committed intentionally, defective pricing and other pricing-related violations may warrant criminal enforcement action as well.
According to the GSAIG, the following are common indicators (among others) of potential pricing-related violations under federal contracts:
Nondisclosure of standard concessions
Nondisclosure of standard discounts
Nondisclosure of standard rebates
Failure to provide updated pricing information to the federal government
Delays in releasing updated pricing information
Failure to disclose third-party customer agreements that contain more favorable pricing than that offered to the federal government
Offering better pricing on the open market than offered to the federal government
Providing financial data and pricing information for different time periods
Inability to explain why certain supplies or materials were necessary
Reporting hours worked that are inconsistent with hours documented on employees’ timecards
3. Charging Violations
Charging violations also involve improperly billing the government under procurement contracts, but they relate more to the products and services provided (or lack thereof) than the pricing offered. For example, as identified by GSAIG, some of the most common forms of government procurement fraud that involve charging violations are:
Charging for Products Not Used or Delivered – Charging federal agencies for products not used or delivered is an extremely common form of government procurement fraud. This includes charging for materials and supplies that contractors have purchased but not used as well as billing federal agencies for end products that have not been delivered.
Charging for Services Not Performed – Charging for services not performed is another extremely common form of government procurement fraud. Many federal procurement fraud investigations focus on allegations that contractors have altered their employees’ timecards or inflated the time spent on contract-related activities.
Charging for Inferior Products or Services (Substitution) – Charging for inferior products or services (also commonly referred to as service or product substitution fraud) is common as well, especially when contractors fail to meet contract specifications. Federal contractors have an obligation to deliver in accordance with the terms to which they have agreed, and delivering inferior products or services violates this obligation.
Cost Mischarging – Cost mischarging involves “charg[ing] the government for costs which are not allowable, reasonable, or allocated directly or indirectly to the contract.” This includes misrepresenting charges as allowable, concealing unallowable costs within government billings, and hiding unallowable costs in accounts that are difficult for federal agencies to audit effectively.
Improperly Charging Under a Time and Materials (T&M) Contract – Charging expenses under a time and materials (T&M) contract that should be billed under a contractor’s firm fixed price (FFP) contract with the government is also a common type of charging violation. This, too, can be difficult for federal agencies to identify without whistleblowers’ help.
Violations of the Buy American Act (BAA) and Trade Agreements Act (TAA) fall into this category as well. The BAA requires the federal government to buy “articles, materials, and supplies” from domestic producers unless an exemption applies, while the TAA restricts the sources of end products delivered to federal agencies. Noncompliance with these statutes and falsely certifying compliance with these statutes are both common forms of federal procurement fraud.
According to the GSAIG, the following are common indicators (among others) of potential charging violations:
Costs billed under T&M contracts that exceed contract estimates
Products or services billed under FFP contracts that fall below contract estimates
Billing costs under a T&M contract that are not related to the subject matter of the contract
Using vague terms or descriptions when billing for discrete products or services
Modification of purchase orders or timecards
Inadequate documentation to support charges under federal contracts
Increases in labor hours without corresponding increases in output
Billing for labor hours at or extremely near the budgeted amount
Efforts to prevent auditing, inspection, or testing of delivered products or products in development
Irregularities in dates, signatures, and other details pertaining to charged amounts
Again, these are just three of the most common types of government procurement fraud. From manipulating the bidding process to paying kickbacks and falsely claiming small business or veteran-owned status, procurement fraud can take many other forms as well. If you believe that you may have information about any form of procurement fraud and are thinking about serving as a federal whistleblower, you should consult with an experienced attorney promptly.
How to Remain Compliant: Navigating the Post-Affirmative Action Landscape for Federal Contractors
On January 21, 2025, President Trump issued an Executive Order targeting diversity, equity, and inclusion (DEI) and diversity, equity, inclusion, and accessibility (DEIA) programs.1 Among other things, Executive Order 14173 (EO 14173), titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” revoked Executive Order 11246. We unpacked the key provisions of E.O. 14173 in a previous alert. How will this development impact federal contractors, subcontractors and other companies?
Overview of E.O. 11246
E.O. 11246, now revoked, provided much of the basis for regulations implementing the requirement that federal contractors and subcontractors engage in affirmative action efforts to ensure that contractors and subcontractors refrained from discrimination against any employee or applicant for employment because of race, creed, color, or national origin. EO 11246 also required federal contractors and subcontractors that met specified jurisdictional thresholds to develop written affirmative action plans. These federal contractors and subcontractors, and private employers with at least 100 employees, must also submit workforce data annual report (“EEO-1”) to the Equal Employment Opportunity Commission (the “EEOC”). Thereafter, the government added two additional equal opportunity mandates: Section 503 of the Rehabilitation Act of 1973 (“Section 503”), which covers individuals with disabilities and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (“VEVRAA”), which covers protected veterans. Note that VEVRAA requires covered contractors and subcontractors to submit to the EEOC an annual VETS-4212 report, which is a workforce data report specific to protected veterans.
On February 21, 2025 the United States District Court for the District of Maryland enjoined the Trump administration from implementing E.O. 14173 and another Executive Order ending DEI programs within the federal government. (E.O. 14151). As we summarized in a previous alert, the Court found that certain provisions of these two executive orders violate the First and Fifth Amendments to the United States Constitution in that they are unconstitutional content-based and viewpoint-discriminatory restrictions on protected speech (First Amendment) and deny Plaintiffs protection under the Fifth Amendment right to Due Process.
A panel of the United States Court of Appeals for the Fourth Circuit lifted the injunction on March 14. As we wrote in a previous alert, in lifting the injunction the panel noted that the challenged executive orders directed government agencies to take certain actions, and there was not yet a basis to conclude that the agencies would do so in an unconstitutional manner.
What Happened?
On January 24, acting U.S. Department of Labor (DOL) Secretary Vincent Micone released an agency Order directing DOL employees to stop “all investigative and enforcement activity” related to E.O. 11246. Secretary Micone stated that the DOL “no longer has any authority” under the rescinded order. The Order also ordered Section 503 and VEVRAA components of any ongoing review or investigation be held in abeyance pending further guidance.
Additionally, news outlets reported that on February 25, 2025, in response to Trump’s mandate to reduce all agency workforces, acting director of OFCCP, Michael Schloss sent a memo to Secretary Micone detailing Schloss’ plans for a reduction in force at OFCCP.
Undoubtedly, the revocation of E.O. 11246, the planned reduction in force at OFCCP, and a host of other executive orders and agency activities are causing confusion among employers and federal contractors and subcontractors who are perplexed about whether to collect, report, or store demographic data about their employees and prospective employees as required in Section 709(c) of Title VII of the Civil Rights Act of 1964 and implementing regulations (including FAR 22.8). On the one hand, the status of the executive orders issued by President Donald Trump is in flux as courts across the country are addressing challenges raised to the legality of the orders; on the other hand federal contracting and subcontracting entities are confronted with managing the legal and business risks associated with “illegal DEI and DEIA policies.” Federal contracting agencies have also begun to announce Federal Acquisition Regulation (FAR) Class Deviations to FAR 22.8 in order to implement the recent executive orders related to DEI. These FAR Class Deviations will result in modifications to existing and future federal contracts, affecting both federal contractors and subcontractors.
What Should Federal Contractors and Subcontractors Do?
Continue Compliance with Other Federal and State Law
Federal contractors and subcontractors must still fulfill obligations under federal and state laws, like those requiring submission of workforce and/or pay data under applicable federal and state law.
Permissive and Mandatory Steps
Federal contractors may continue to comply with the regulatory scheme implementing E.O. 11246 for 90 days from the date EO 14173 was published. How to determine whether to continue developing and maintaining affirmative action plans through April 21, 2025, is a business decision that should be made on a case-by-case basis.
Additionally, OFCCP still has authority to investigate and enforce claims under Section 503 of the Rehabilitation Act or VEVRAA brought by a federal contractor or subcontractor employee.
Ongoing Affirmative Action Obligations
Federal contractors and subcontractors who were in the process of drafting or implementing affirmative action policies should be mindful that E.O. 14173 did not revoke the federal contractor and subcontractor mandates under Section 503 or VEVRAA to take affirmative action for individuals with disabilities and protected veterans. Accordingly, business with at least 50 employees (or those expecting to grow to that size) and with contracts valued at least $50,000 (for coverage under Section 503, or $150,000 under VEVRAA) should continue with instituting affirmative action plans for individuals with disabilities and protected veterans. As referenced above, however, OFCCP has been directed to hold review and enforcement proceedings in abeyance.
Next Steps
Overall, federal contractors and subcontractors should thoughtfully review their employment policies and practices to ensure that decisions, and records about employment decisions, accurately reflect merit-based employee selection and advancement processes. We also recommend waiting for additional details from the agency and seeking legal counseling before making any changes to your existing policies.
Before making any changes to current candidate or employee data collection practices, federal contractors and subcontractors should review their policies and procedures to determine compliance with both federal and state anti-discrimination laws, as well as for data reporting requirements.
Department of Labor Announces Appointment of New OFCCP Director
On March 24, 2025, the Department of Labor announced the appointment of Catherine Eschbach as Director of OFCCP. Direct Eschbach joins the agency after serving as an appellate lawyer in private practice.
Director Eschbach intends to “oversee [OFCCP’s] transition to its new scope of mission[.]” Notably, in the announcement Director Eschbach states that:
“President Trump made clear in his executive order on eliminating DEI that EO 11246 had facilitated federal contractors adopting DEI practices out of step with the requirements of our Nation’s civil rights laws and that, with the recission of EO 11246, the President mandates federal contractors wind those practices down within 90 days. As director, I’m committed to carrying out President Trump’s executive orders, which will restore a merit-based system to provide all workers with equal opportunity.”
According to reporting from The Wall Street Journal and Bloomberg, following her appointment, Director Eschbach issued an internal email to OFCCP employees outlining her plans for the agency. According to reports, Director Eschbach stated that:
“The reality is, most of what OFCCP had been doing was out of step, if not flat out contradictory, to our country’s laws, and all reform options are on the table[.]”
OFCCP will “examin[e] federal contractors’ previously submitted affirmative action plans to determine whether they indicate the presence of long-standing unlawful discrimination and whether it is appropriate for OFCCP to undertake any investigation and enforcement actions, or refer the matter to other relevant agencies with jurisdiction to investigate and/or initiate enforcement action[.]”
OFCCP will “verify” that contractors have “wound down” the affirmative action programs for women and minorities by April 21, 2025, as required by Executive Order 14173.
OFCCP will “examine the statutory authority” for any investigations and enforcement action under VEVRAA and Section 503 and determine if “new rulemaking is necessary” and whether investigation and enforcement actions are “best housed” within OFCCP;
OFCCP plans to identify “potential civil compliance investigations” of large organizations with assets of $500 million or more, state and local bar and medical associations, and institutions of higher education with endowments over $1 billion in order to “deter DEI programs.” This is consistent with EO 14173, which requires federal agencies to identify up to nine large organization for DEI-related civil investigations.
Consistent with previous OFCCP announcements and “the administration-wide DOGE agenda,” OFCCP will undergo a “rightsizing” to reduce its staff and office presence in light of OFCCP’s “reduced scope of mission.” As we previously reported, OFCCP had already planned to cut its workforce by 90 percent.