The Beginning Of The Biden Administration – What Federal Contractors Need To Know

McCarter & English Blog: Government Contracts & Export Controls

A new administration has moved into the White House, and, as anticipated, President Biden wasted no time in issuing, in the first few days of his presidency, a raft of Executive Orders (EOs) that appear calculated to set the tone of his administration. Notably, many of these executive actions walk back (or attempt to fully erase) some of the signature policies of the Trump Administration. Some of these presidential actions have immediate implications for government contractors, while others represent broad policy statements that, at least in the short term, will have little impact on contractors’ day-to-day operations – but they merit a close watch, particularly the Executive Order titled “Ensuring the Future Is Made in All of America by All of America’s Workers,” discussed in detail here. Contractors should take note of these early developments, as they are likely to evolve into concrete policies that will create new opportunities – or obstacles – for businesses in the federal marketplace in the months and years to come.

Equity

One of the first Executive Orders issued by the Biden Administration, the Executive Order on Advancing Racial Equity and Support for Underserved Communities Through the Federal Government, is aimed at tackling the “[e]ntrenched disparities in our laws and public policies” and setting forth “an ambitious whole-of-government equity agenda that matches the scale of the opportunities and challenges that we face.” While changes of this magnitude cannot happen overnight – and the EO does not attempt to set forth concrete answers to the problems identified – the EO does take some actions that federal contractors should note.

Significantly, this EO explicitly revokes the outgoing administration’s Executive Order entitled “Combating Race and Sex Stereotyping,” (Executive Order 13950) which we covered in a previous post. This Biden administration EO requires the heads of agencies covered by Executive Order 13950 to review and identify proposed and existing agency actions related to or arising from that EO, and “consider suspending, revising, or rescinding any such actions, including all agency actions to terminate or restrict contracts or grants pursuant to Executive Order 13950, as appropriate and consistent with applicable law.” While the direction to “consider” revoking actions arising from Executive Order 13950 is vague, given the overall tenor of the order (and the context of the Biden Administration’s other statements and executive actions) we expect that agencies will take this as direction to excise the Trump Administration’s policy on this issue from their operations. Indeed, the Department of Labor has already shut down phone and e-mail tip lines established to field federal workers’ complaints about the content of certain diversity programs, and the Office of Federal Contract Compliance Programs  announced it was canceling investigations opened in response to tips received through the hotline.

This equity-focused EO also announces an effort to increase the focus on equity in government contracting, stating the administration’s position that “[g]overnment contracting and procurement opportunities should be available on an equal basis to all eligible providers of goods and services.” To that end, the EO (1) requires the head of each agency to review and provide a report to the Assistant to the President for Domestic Policy reflecting findings on “[p]otential barriers that underserved communities and individuals may face in taking advantage of agency procurement and contracting opportunities” and (2) requires the heads of agencies to “produce a plan for addressing…any barriers to full and equal participation in agency procurement and contracting opportunities.” This plan is due “within 1 year of the date of this order.” Practically speaking, this means that any real change resulting from this policy is likely several years away. Nevertheless, the EO signals a change in tone that may have implications for future procurements – and we will continue to track those developments as they occur.

Border Wall Construction

Of the first actions taken by the Biden Administration, the Proclamation on the Termination Of Emergency With Respect To The Southern Border Of The United States And Redirection Of Funds Diverted To Border Wall Construction will perhaps have the most immediate operational impact on a subset of government contractors. This Proclamation terminates the national emergency declared by the Trump Administration as a means to jump-start construction on the border wall, and states that it “shall be the policy of [the Biden] Administration that no more American taxpayer dollars be diverted to construct a border wall” and directs “a careful review of all resources appropriated or redirected to construct a southern border wall.” The Secretary of Defense and the Secretary of Homeland Security are directed to “pause work on each construction project on the southern border wall, to the extent permitted by law, as soon as possible but in no case later than seven days from the date of this proclamation” to allow for a review of the border wall construction efforts. This direct order will thus have an almost immediate effect on contractors supporting construction of the border wall, which will be forced to abruptly cease operations, presumably in accordance with the stop work or suspension of work clauses in their contracts.

Once work has been suspended as ordered, the cognizant agencies are then charged with developing “a plan for the redirection of funds concerning the southern border wall…[which] shall include consideration of terminating or repurposing contracts with private contractors engaged in wall construction, while providing for the expenditure of any funds that the Congress expressly appropriated for wall construction, consistent with their appropriated purpose.” This plan is to be developed within 60 days from the date of the Proclamation, which means that contractors may spend the next few months in limbo as the new administration determines the best way to address construction already underway while staying true to its policies.

Contractors involved in these contracts, whether directly or further down the supply chain, may well be feeling a bit of justifiable panic reading these strong words from the new administration. But while this policy shift will undoubtedly cause a “change in plans” for many contractors, we expect that contractors will be able to request an equitable adjustment for the costs incurred in complying with the stop work orders that may have already come, and ultimately will be able to avail themselves of the opportunity for recovery of costs per the termination for convenience clauses in their contracts. Contractors in this situation would be wise to begin gathering documentation now to support the costs they incur related to the stop work orders mandated by the new administration, and to begin to think strategically about the contents of potential termination settlement proposals.

COVID-19 Response

As part of his administration’s National Strategy for the COVID-19 Response and Pandemic Preparedness (COVID-19 Strategy), President Biden also signed an Executive Order on a Sustainable Public Health Supply Chain (Supply Chain Order). Although it has been widely reported that the Biden Administration intends to immediately invoke and rely heavily on the Defense Production Act (DPA) to address the country’s critical need for supplies, the Supply Chain Order is somewhat anemic in that it only directs federal agencies to “take appropriate action using all available legal authorities, including the Defense Production Act,” to prioritize the acquisition of supplies to combat the COVID-19 pandemic.

Under the Supply Chain Order, agencies are ordered to review and assess the availability of materials, including personal protective equipment and testing and vaccine supplies, and if an agency identifies any shortfalls, that agency is to revise its acquisition planning to fill the shortfalls as soon as possible. Identified by the administration’s COVID-19 Strategy as a “crucial first step to addressing U.S. pandemic and medical supply chain issues,” this inventory will “drive decisions about the scope, contracting, and replenishing of the Strategic National Stockpile…use of the Defense Production Act, budget requests, investments in manufacturing, decisions about prioritizing supply distribution, and commitments to the global COVID-19 response.” (COVID-19 Strategy at p. 72). Following the inventory, the Supply Chain Order mandates that the COVID-19 Response Coordinator – a position created through a separate Executive Order and responsible for reporting directly to the President and coordinating the government’s efforts to produce and supply personal protective equipment, vaccines, tests, and other supplies for the nation’s COVID-19 response – coordinate with agency heads and submit a report and recommendation to the President that addresses whether additional use of the DPA would be “helpful.”

Even absent an aggressive invocation of the DPA, the Biden administration’s COVID-19 Strategy recognizes that the process of taking inventory will result in the initiation of contracts and purchase commitments. Coupled with the potential use by state and other government buyers of General Services Administration Federal Supply Schedules (GSA Schedules), an uptick in government procurement of personal protective equipment – to include N95 masks, isolation gowns, laboratory and testing equipment for identification of the virus, and equipment and material to increase the manufacture and administration of the vaccine – is to be expected. However, as we discussed previously, the President’s invocation of the DPA would give the Department of Defense and the Department of Health and Human Services (HHS) the ability to issue “rated orders,” or orders that compel businesses to accept the procurement orders and place those ahead of all commercial orders. Absent the use of that authority, while we may see increased procurement of these supplies, we will not see the dramatic increase in production that full use of the DPA would permit.

Nevertheless, contractors that have supplied these materials to the government previously should ensure the continued, and perhaps increased, manufacture of these materials to confirm they have the capacity to meet the government’s soon-to-be-increased demand. Contractors should note, however, that the Supply Chain Order also requires the development of a report and recommendation by the HHS Secretary on how to address the pricing of pandemic supplies. The HHS Secretary must evaluate the use of reasonable pricing clauses in federal contracts, and whether the government should use GSA Schedules to facilitate state, local, tribal, and territorial government buyers in purchasing pandemic response supplies. Therefore, contractors should be extra vigilant in ensuring that their pricing of these critical supplies is well supported, and should expect additional scrutiny of their cost and pricing data as the government redoubles its efforts to procure these supplies.

In addition to increased federal contracting opportunities resulting from the (eventual) invocation of the DPA, the Biden executive actions also appear poised to increase the availability of state funding for pandemic recovery efforts. In a Memorandum issued to the Secretary of Defense and the Secretary of Homeland Security, President Biden ordered that any costs that states and tribal governments incur in deploying the National Guard to facilitate COVID-19 mission activities, including the operation of vaccine centers, will now be reimbursed by FEMA at 100%. Under former President Trump’s administration, states were reimbursed only at 75%. In ensuring full reimbursement, the new administration enables states and tribal governments to focus their already limited financial resources on procurement of other necessary COVID-19 supplies – potentially opening up opportunities for contractors at the state and local levels.

Incarceration Reform

The Biden Administration also issued a brief, but pointed, Executive Order on Reforming Our Incarceration System to Eliminate the Use of Privately Operated Criminal Detention Facilities. This action states the administration’s policy to decrease incarceration levels by reducing “profit-based incentives to incarcerate by phasing out the Federal Government’s reliance on privately operated criminal detention facilities.” In furtherance of that goal, the Executive Order dictates that the Attorney General “shall not renew Department of Justice contracts with privately operated criminal detention facilities, as consistent with applicable law.” This Executive Order provides no detail as to what will happen to the individuals currently detained in privately operated facilities, or whether those facilities will continue to operate as federal facilities. However, this action signals a significant policy shift – with details to be determined.

Climate Change

President Biden’s Executive Order on Tackling the Climate Crisis at Home and Abroad includes a broad agenda to combat climate change, notably including a statement that the administration intends to “[align] the management of Federal procurement and real property, public lands and waters, and financial programs to support robust climate action.” This effort is intended to “catalyze private sector investment into, and accelerate the advancement of America’s industrial capacity to supply, domestic clean energy, buildings, vehicles, and other necessary products and materials.” Of particular note to contractors is the “Federal Clean Electricity and Vehicle Procurement Strategy” set forth in Section 205 of the EO, which requires the National Climate Task Force established by the EO to develop a plan to “create good jobs and stimulate clean energy industries by revitalizing the Federal Government’s sustainability efforts.” This plan is to use “all available procurement authorities” to achieve or facilitate (i) a carbon pollution-free electricity sector no later than 2035 and (ii) clean and zero-emission vehicles for federal, state, local, and tribal government fleets, including vehicles of the United States Postal Service. The EO also notes that agencies are required to adhere to the requirements of the Made in America Laws as defined in the Executive Order titled Ensuring the Future Is Made in All of America by All of America’s Workers – covered in detail here. For contractors, there are two key implications of this climate change strategy: first, contractors in these industry sectors should begin to watch for contracting opportunities that further the administration’s policy to combat climate change through acquisition of clean electricity and vehicles; second, contractors that are in a position to provide those deliverables should examine their supply chains and take note that, when these procurement opportunities arrive, they will be subject to intense scrutiny to ensure that suppliers adhere to the Made in America Laws.

Regulatory Processes and Compliance

Last but not least, the executive actions issued thus far by the Biden Administration include a smattering of policies that impact ongoing compliance efforts and regulatory actions, including a regulatory freeze that may halt the outgoing administration’s efforts to make last-minute changes to regulations (including the Trump Administration’s Final Rule implementing changes to the Buy American rules covered in more detail here). Compiled below is a list of those actions that contractors should keep on their radar as the Biden Administration picks up steam.

  • Regulatory Freeze Pending Review – To ensure that the new administration’s appointees or designees have the opportunity to review any new or pending rules, this Executive Order requests that no administrative rule be proposed or issued until a department or agency head appointed or designated by the President on January 20, 2021, reviews and approves the rule. With respect to rules that have been published in the Federal Register, or rules that have been issued but have not taken effect, a department or agency should also consider postponing the rules’ effective dates for 60 days from the date of the Executive Order to allow a review of any questions of fact, law, and policy the rules may raise, in addition to, where appropriate and consistent with applicable law, opening a 30-day comment period to allow interested parties to provide comments about issues of fact, law, and policy raised by those rules.
  • Ethics Commitments by Executive Branch Personnel – This EO restates the ethical guidelines applicable to every Executive Branch appointee taking office on or after January 21, 2021, including the ban on appointees accepting gifts from registered lobbyists or lobbying organizations and the “revolving door” limitations on employment after leaving government service (e.g., not participating in any matter involving specific parties that is directly and substantially related to the appointee’s former employer or former clients for a period of two years from the date of appointment). This Executive Order serves as a reminder that government employees must remain cognizant of the rules and regulations governing their employment both during and after their service. Contractors should also take this opportunity to review their policies – to include codes of conduct, hiring processes for ex-government employees, and conflict of interest policies – to ensure they are up to date and consistent with the latest guidance on these ethical issues.
  • Modernizing Regulatory Review – This action orders the Director of the Office of Management and Budget, as appropriate and as soon as practicable, to begin a process with the goal of producing a set of recommendations for improving and modernizing regulatory review. These recommendations should provide concrete suggestions on how the regulatory review process can promote public health and safety, economic growth, social welfare, racial justice, environmental stewardship, human dignity, equity, and the interests of future generations, in addition to identifying ways to modernize and review the regulatory process. Although this order has no immediate impact on government contracting, a modernized regulatory review process may eventually streamline revisions to the Federal Acquisition Regulation (FAR) and other regulations applicable to government contractors.
  • Revocation of Certain Executive Orders Concerning Federal Regulations – This EO revokes a number of Executive Orders (and rescinds any related rules, regulations, guidelines, or policies) promulgated by the prior administration, specifically Executive Orders 13771 of January 30, 2017 (Reducing Regulation and Controlling Regulatory Costs), 13777 of February 24, 2017 (Enforcing the Regulatory Reform Agenda), 13875 of June 14, 2019 (Evaluating and Improving the Utility of Federal Advisory Committees), 13891 of October 9, 2019 (Promoting the Rule of Law Through Improved Agency Guidance Documents), 13892, also of October 9, 2019 (Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication), and 13893 of October 10, 2019 (Increasing Government Accountability for Administrative Actions by Reinvigorating Administrative PAYGO). Of particular interest is the revocation of Executive Order 13771, which required that “for every one new regulation issued, at least two prior regulations be identified for elimination.” The rescission of this policy signals that contractors should expect to see increased regulatory requirements under the Biden Administration.
  • Preventing or Combating Discrimination on the Basis of Gender Identity or Sexual Orientation – This EO establishes the Biden Administration policy of preventing and combating discrimination on the basis of gender identity or sexual orientation, and to fully enforce Title VII and other laws that prohibit discrimination on the basis of gender identity or sexual orientation. Under this EO, agency heads must review all existing orders, regulations, guidance documents, policies, programs, or other agency actions that (i) were promulgated or administered under Title VII or any other statute or regulation that prohibits sex discrimination and (ii) are or may be inconsistent with the administration’s policy. In the event that an agency head finds an order, regulation, guidance, or other agency action inconsistent with the administration’s policies, the agency head must determine whether to revise, suspend, or rescind such agency actions, or promulgate new agency actions, as necessary to fully implement statutes that prohibit sex discrimination and the administration’s related policies. If an agency takes any of the aforementioned actions, it must, within 100 days of the date of the order, develop a plan to carry out actions that the agency has identified. Contractors would be well advised to review their equal opportunity and anti-discrimination plans and policies to ensure they have robust protections in place to prohibit discrimination on the basis of gender identity or sexual orientation, as we expect compliance with these requirements to be a key area of focus for the Biden Administration.

With the notable exception of efforts relating to construction of the border wall, while the new administration has made many pronouncements that may evolve into concrete changes to the way the government does business, it has not yet taken any action that will have an immediate impact on government contractors. That said, the actions highlighted above all contain the promise of dramatic shifts in policy that could translate into new procurement opportunities, compliance challenges, or both, and we will continue to track these developments.

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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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