Proposed Bill Would Bar Contractors from Conducting Business in Russia

Blank Rome LLP

Blank Rome LLP

On March 21, 2022, Representative Carolyn B. Maloney (D-NY), Chairwoman of the House Oversight and Reform Committee, introduced the “Federal Contracting for Peace and Security Act” (H.R. 7185). In light of Russia’s military invasion of Ukraine, the proposed bill would prohibit federal agencies from contracting with companies operating in Russia. The Committee approved an amended version on April 6, and the bill will be sent to the House of Representatives for further consideration. If passed, the bill would have a significant impact on government contractors that continue to operate in Russia by terminating existing contracts and barring them from further contracting opportunities.

We provide below an overview of the key elements of the bill. We anticipate further clarifications as the bill proceeds through the legislative process. Contractors should closely monitor these developments as this legislation will likely pose challenges to companies seeking to quickly disentangle themselves from any ongoing Russian business.

Prohibition on Contracting with Companies Conducting Business in Russia

The bill would establish that it is the policy of the U.S. government not to conduct business with companies that continue to operate in Russia “during its ongoing war of aggression against Ukraine.” In particular, the bill would prohibit agencies from entering into, extending, or renewing a “covered contract” to procure any product or service from a company that continues to conduct business operations in Russia 60 days after the legislation is enacted.

A “covered contract” means any prime contract and any “major subcontract” with a company (including any parent, subsidiary, successor entity, or beneficial owner of a company) conducting business operations in Russia. The bill defines “business operations” broadly to include “engaging in commerce in any form, including acquiring, developing, selling, leasing, or operating equipment, facilities, personnel, products, services, personal property, real property, or any other apparatus of business or commerce.”

Termination of Existing Contracts and “Good Faith” Extensions

For any non-complying contractor, agencies must initiate termination proceedings after first providing the contractor at least 15 days’ written notice. Agencies may grant a 30-day extension to the initiation of termination proceedings if the contractor demonstrates a good faith effort to comply with the Act’s requirements and provides a reasonable, written plan to achieve compliance. Additional 30-day extensions are available if a contractor continues to take reasonable steps to cease its business operations in Russia and further demonstrates satisfactory progress in implementing its written plan.

Exemptions and Waivers

The bill’s prohibition and termination requirement do not apply to any contract that is (1) for the benefit of Ukraine (either directly or through efforts of regional allies); (2) for humanitarian purposes to meet basic human needs; or (3) with a contractor that has suspended or terminated its business operations in Russia (although this third exception appears somewhat circular given the ban requires contractors to cease business operations in Russia).

The head of an agency may also waive the prohibition and termination requirement if it certifies to the President that the waiver is in the national interest or public interest of the United States. Agencies must submit the certification to the appropriate congressional committees seven days before issuing a waiver.

Further Rulemaking

The bill would require the Director of the Office of Management and Budget to publish regulations for agency implementation that address the following:

      • A list of equipment, facilities, personnel, products, services, or other items or activities that would be considered “business operations” and therefore subject to the Act’s prohibitions.
      • A requirement for a contractor or offeror to represent whether it uses any of the items on the list described above.
      • A definition of the characteristics of any major subcontract that qualifies as a covered contract.
      • A description of the process for determining a good faith extension.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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