Morrison Foerster’s Government Contracts Insights provides our in-depth analysis of developments and trends impacting government contracting. Through Insights, our attorneys offer a real-time assessment of the statutory, regulatory, legal, and business-related developments and trends that are shaping the industry. We also examine a full array of non-U.S. public procurement issues, mindful that our clients compete in a global marketplace.Morrison Foerster’s nationally recognized Government Contracts and Public Procurement practice represents the world’s leading companies in the aerospace and defense, intelligence, cybersecurity, information technology, financial and professional services, education, healthcare, infrastructure, and logistics support sectors. We are enlisted to address our clients’ most complex and important legal issues. Our work includes contract and subcontract negotiation and other transactional matters, business and regulatory compliance counseling, internal investigations, bid protests, and a wide array of enforcement and litigation matters. Our clients range from Fortune 50 companies to small and medium-sized companies just entering the public sector. We advise both U.S. and non-U.S. companies involved in municipal, state, federal, and non-U.S. procurement matters.<h2>ABOUT MORRISON FOERSTER</h2>Morrison Foerster is a leading global law firm that transforms complexity into advantage for its clients. Our clients include some of the largest financial institutions, banks, consulting and accounting firms, and Fortune 100, technology, and life sciences companies. Highlighting the firm’s commitment to client service, leadership in market-changing deals and impact litigation, and values-based culture, Morrison Foerster has been repeatedly recognized as one of the top 10 firms on The American Lawyer’s A-List. Year after year, the firm receives significant recognition from Chambers and The Legal 500 across their various guides, including Global, USA, Asia‑Pacific, Europe, UK, Latin America, and FinTech Legal. Our lawyers passionately care about delivering legal excellence while living our values. Morrison Foerster has a long-standing commitment to creating a culture that respects and celebrates differences, while providing an inclusive environment. The firm has achieved Mansfield Certification Plus since 2018 as a result of successfully reaching at least 30 percent women, communities of color, and LGBTQ+ lawyer representation in a notable number of current leadership roles and committees. The firm also has a long history of commitment to the community and society through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education and fostering the wellbeing of children, advocating for veterans, promoting international human rights, enforcing the right to asylum, and safeguarding the environment.

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Tina is Co-chair of Morrison Foerster’s Government Contracts & Public Procurement practice. She represents a wide variety of government contractors including information technology, defense, biotechnology, and pharmaceutical companies, with a focus on general contract counseling and compliance, particularly concerning intellectual property, and cybersecurity matters and federal grant funding.Tina counsels contractors on compliance with federal, state and local acquisition and ethics regulations and with the evolving myriad of requirements pertaining to data security and cybersecurity. She has been involved with numerous internal investigations and compliance reviews, and with mandatory and voluntary disclosures to agencies, and litigation of False Claims Act matters.Tina routinely advises clients concerning:<ul><li>Prime-subcontractor relationships</li><li>Sources of supply and country of origin requirements</li><li>Price reductions and price reporting issues</li><li>Organizational conflicts of interest</li><li>Safeguarding of intellectual property and other proprietary interests</li><li>Licensing and data rights issues</li><li>Handling of classified materials and controlled unclassified information</li><li>Agency suspension and debarment proceedings</li></ul>She also assists clients with due diligence and other activities related to the acquisition of government contracting concerns, and with the drafting and negotiation of teaming agreements, subcontracts, licensing agreements, and cooperative research and development agreements. She also assists clients applying for federal grants (including SBIR and STTR agreements), and those who seek to obtain other transactional authority agreements, as well as those competing for state and local government work.Tina’s litigation experience includes government contracts claims litigation in federal courts and before boards of contract appeals, bid protests before the Government Accountability Office and the Court of Federal Claims, and complex disputes in federal courts, including civil fraud and False Claims Act litigation and reverse Freedom of Information Act litigation.Prior to joining Morrison Foerster, Tina worked at another large national firm and as a trial attorney in the Office of the General Counsel of the Navy, Navy Litigation Office.<h4>Representative Experience</h4><ul><li>Negotiation of largest CHIPS Act federal funding agreement between multinational semiconductor corporation and U.S. Department of Commerce.</li><li>Negotiated prime contract and major subcontracts related to the Department of Energy’s next generation supercomputer program, including extensive IP rights negotiations and negotiation of associated patent rights waivers.</li><li>Negotiated series of other transaction authority agreements with DARPA and associated subcontracts with more than a dozen research universities on behalf of a firm biotech client, including complex IP rights allocations and material transfer agreements.</li><li>Assist clients with FedRAMP authorization process and with development of license agreements for software products sold to federal, state and local government agencies.</li><li>Cyber incident response counseling to some of the largest companies and organizations impacted by security incidents.</li><li>Advises clients on Bayh-Dole reporting of inventions and IP strategies for contracts and grants.</li><li>Conducts due diligence for major government contract mergers and acquisitions.</li></ul>

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Tina is co-chair of Morrison Foerster’s Government Contracts & Public Procurement practice. She counsels a wide variety of government contractors on compliance with federal acquisition and ethics regulations. She drafts and negotiates contracts on their behalf and has been involved with numerous internal investigations and compliance reviews, and with bid protest, contract claims, and False Claims Act litigation. She also advises on M&A transactions involving government contractors.

Tina D. Reynolds

Jim Tucker is of counsel in Morrison Foerster’s Government Contracts and Public Procurement Practice Group and is based in the firm’s Washington, D.C. office.Jim’s practice runs the gamut of litigation and counseling in federal procurement matters, with an emphasis on bid protests, Cost Accounting Standards disputes, and small business matters. He has represented both protesters and awardees in scores of protests before the Government Accountability Office, the Court of Federal Claims, and procuring agencies, in acquisitions ranging from small business procurements to multibillion-dollar contracts of global significance. His representative protest matters span the aerospace sector, the Intelligence Community, base operations and logistics, healthcare, nuclear and environmental work, and information technology and software acquisitions. His protests have included both classified and unclassified programs. In addition to prevailing in published decisions, Jim has also secured favorable corrective action on behalf of clients in a wide variety of protests that were resolved without a published decision.Jim’s work also focuses on disputes over cost allowability and compliance with the Cost Accounting Standards, and he has appeared before the Armed Services and Civilian Boards of Contract Appeals, in size and status protests before Small Business Administration (SBA) area offices, and appeals before the SBA Office of Hearings and Appeals. Jim regularly counsels clients on contract interpretation, organizational conflicts of interest, and small business compliance.Jim graduated with high honors from the George Washington University Law School, where he focused his studies on federal procurement law, was a member of the Law Review, and interned with the General Services Administration’s suspension and debarment office. Jim also holds a degree in theology magna cum laude from the Pontifical Gregorian University in Rome and a bachelor’s degree in classical languages and literature summa cum laude from the University of Kentucky, where he graduated Phi Beta Kappa.

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Jim maintains an active practice in bid protests before the Government Accountability Office and contracting agencies and counsels clients in contract disputes and compliance obligations.

Jim Tucker is of counsel in Morrison Foerster’s Government Contracts and Public Procurement Practice Group and is based in the firm’s Washington, D.C. office. Jim’s practice runs the gamut of litigation and counseling in federal procurement matters, with an emphasis on bid protests, Cost Accounting Standards disputes, and small business matters.

James Tucker

<div style="margin-bottom: 15px;" class="videoWrapper"><iframe class="sticky-video" title="Meet Alex Ward, Government Contracts Practice Co-Chair" src="https://www.youtube-nocookie.com/embed/TkliwdSlTaQ?rel=0" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen="1" title="iframe"></iframe></div>J. Alex Ward is co-chair of Morrison Foerster’s Government Contracts and Public Procurement group. His practice covers a full range of government contracts matters, including investigations, bid protests, claims, general litigation, corporate transactions, and counseling. Alex strives in all matters is to provide his clients the highest level of efficient and effective representation.Alex represents contractors in internal and external investigations, disclosures to the government, and qui tam litigation, with great success in reducing or eliminating his clients’ exposure through active engagement with the government. His work in this area includes obtaining numerous declinations and dismissals of False Claims Act cases in their earliest stages, sparing his clients the cost, risk, and exposure of litigation.He has also served as lead counsel in dozens of bid protests involving military and civilian agency procurements of a wide range of products and services, including all manner of pre- and post-award protests in the GAO, the U.S. Court of Federal Claims, and state tribunals, as well as appeals to the U.S. Court of Appeals for the Federal Circuit and size protest appeals before the SBA’s Office of Hearings and Appeals.Alex handles all aspects of the claims process, from the initial assessment and drafting of requests for equitable adjustment through litigation in the Boards of Contract Appeals and the Court of Federal Claims. Alex’s practice also covers the full gamut of other controversies confronting government contractors, including prime-sub, teaming partner, employer-employee, competitor, and indemnification disputes. His litigation work also includes a wide variety of pro bono engagements, in which he has represented both individual and institutional clients in matters ranging from immigration and criminal defense to sustainable procurement and protection of the environment.Prior to joining the firm, Alex served in the U.S. Army as a commissioned officer and an Assistant to the General Counsel of the Army responsible for civil works and international matters, and as a clerk for judges on the U.S. Courts of Appeals for the Armed Forces and the D.C. Circuit. He is a member of the Boards of the Morrison & Foerster Foundation and the Chesapeake Bay Foundation and of Law360’s Government Contracts Editorial Board.

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Alex is co-chair of Morrison Foerster’s Government Contracts and Public Procurement practice. His practice covers a full range of government contracts matters, including bid protests, claims, investigations, corporate transactions, and counseling.

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Morrison Foerster’s Government Contracts Insights blog provides an in-depth analysis of news, developments, and trends impacting government contracting and procurement. Through Insights, attorneys from our nationally recognized Government Contracts and Public Procurement practice will offer a real-time assessment of the statutory, regulatory, legal, and business-related developments that are shaping the industry. This blog will also examine a full array of U.S. and non-U.S. public procurement issues, mindful that our clients compete in a global marketplace.Read about our <a href="http://govcon.mofo.com/editors/">Authors</a>.Never miss a post. Subscribe to get real-time updates.

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James A. Tucker

Bid Protest Spotlight: Jurisdiction, Price Range, Late-Is-Late

Trump Issues Executive Order on Cybersecurity Rolling Back Some Prior Policies and Introducing New Ones

GAO Reaffirms Agencies’ Discretion to Award Sole-Source SBIR Phase III Contracts (Even to a Successor-in-Interest)

Ongoing FAR Overhaul: Market Research and the New FAR Part 10

Bid Protest Spotlight: Size, Supply Schedules, SINs

On October 25, 2024, the Small Business Administration (SBA) published <a href="https://www.govinfo.gov/content/pkg/FR-2024-10-25/pdf/2024-24716.pdf" target="_blank">a proposed rule</a> to mandate a Rule of Two analysis for most task and delivery order competitions, except under Federal Supply Schedule (FSS) contracts.  The proposed rule implements a recommendation the Office of Federal Procurement Policy (OFPP) made earlier this year (which we covered <a href="/topics/omb-says-agencies-should-perform-a-rule-of-two-analysis-and-set-aside-requirements-for-task-orders-under-multiple-award-contracts" target="_self">in this article</a>).  The SBA has invited public comments, which are due by December 24, 2024.BackgroundFor many years, the Rule of Two has required agencies to set aside acquisitions for small businesses based on whether two or more responsible small businesses were expected to submit offers at fair market prices. See FAR 19.502-2. For acquisitions valued between the micro-purchase threshold and the simplified acquisition threshold, there is a presumption of a set-aside, “unless the contracting officer determines there is not a reasonable expectation of obtaining offers from two or more responsible small business concerns that are competitive in terms of fair market prices, quality, and delivery.” FAR 19.502(a). For acquisitions valued above the simplified acquisition threshold, the contracting officer must set aside a procurement if there is a “reasonable expectation” that offers will be obtained from at least two responsible small businesses at fair market prices. FAR 19.502(b).It is essentially undisputed that the Rule of Two applies to most procurements for stand-alone contracts valued at more than micro-purchase threshold.  And it is essentially undisputed that the Rule of Two does not apply to FSS orders under FAR Subpart 8.4.  But, as task and delivery order procurements have proliferated under multiple-award Indefinite Delivery, Indefinite Quantity (IDIQ) contracts, controversy has arisen over whether the Rule of Two is mandatory for these task and delivery order procurements under FAR Subpart 16.5.  Following a statutory change in 2010, the Government Accountability Office’s position has been that the Rule of Two is not obligatory in such procurements, leaving full discretion to the contracting officer.  One judge of the Court of Federal Claims, by contrast, has held that the Rule of Two remains mandatory in most procurements outside the FSS, and should be applied even before an agency determines whether to use an existing IDIQ contract to procure requirements.  See Tolliver Grp. v. United States, 151 Fed. Cl. 70 (2020).In response to the confusion, and to promote increased task and delivery order awards to small businesses, OFPP issued a policy memorandum earlier this year, stating that “agencies should set aside orders over the micro-purchase threshold (MPT) for small business contract holders when the contracting officer determines there is a reasonable expectation of obtaining offers from two or more small business contract holders under the multiple-award contract that are competitive in terms of market prices, quality, and delivery.”  The SBA’s new proposed rule seeks to codify that recommendation and make it mandatory.If the new rule is adopted, we can expect both an increase in set aside activity on existing multiple award contracts and litigation about why task orders were not set aside.  In conjunction with SBA’s other pending proposed rules on mentor-protégé joint ventures and recertifications under multiple-award contracts, this rule is likely to create real headwinds for recently graduated small businesses and mid-size businesses that hold multiple-award contracts and expected to continue to win work on those contracts for the coming years.Key Features of the Proposed Rule<ol><li>Rule of Two Applicable at the Order Level: SBA proposes to make the Rule of Two mandatory for orders valued at more than the micro-purchase threshold, except when an order is placed under the FSS program, or an exception to fair opportunity applies, “or where agency procedures reflect an appropriate exception.” The Rule of Two analysis would be limited to holders of the multiple-award contract itself, with a set-aside ordinarily required if “the contracting officer determines there is a reasonable expectation of obtaining offers from two or more small business contract holders under the multiple-award contract that are competitive in terms of fair market price, quality, and delivery.” The rule would not dictate which multiple-award vehicle the agency chooses.</li><li>Documentation Requirements for Orders Competed Under Multiple-Award Contracts with Fewer Than Two Small Business Holders: “If the agency chooses to issue an order under a multiple award contract that has one or no small business contract holders, the agency must document the rationale for that decision, including the market research conducted by the agency, coordinate that documentation with the small business specialist, and ensure that the small business specialist has a reasonable opportunity to respond.” This documentation requirement falls short of requiring the application of the Rule of Two prior to choosing a particular multiple-award contract vehicle (which, according to Tolliver, the underlying statute requires).</li><li>Agencies May Develop Agency-Specific Exceptions: The proposed rule contemplates that agencies may develop agency-specific exceptions. SBA offered some possible examples: “to address supply chain and national security risks, to address goods or services that no small businesses provide and would not provide in the future, or to respond to a major disaster or emergency.” Such exceptions would be developed in consultation with agency small business officials and SBA, and must be published. We would expect notice-and-comment rulemaking for inclusion in agency FAR supplements to be the most appropriate way to create such exceptions.</li><li>New Documentation and Coordination at the IDIQ Level: At the IDIQ level, the new rule would add new documentation and coordination requirements when an agency plans to establish a multiple-award contract above a specified size without set-asides or reserves and the number of small business awardees is expected to be less than 30 percent of all awards. SBA hopes these new requirements will help small businesses constitute at least 30 percent of new multiple-award contract holders and make it easier to satisfy the Rule of Two under those contracts.</li><li>Engagement of Small Business Specialists in Order Set-Aside Decisions: The new rule would require agencies to provide their own small business specialists with documentation of their rationale for not setting aside orders valued at more than the micro-purchase threshold.</li></ol>

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Damien is a partner in the firm’s Government Contracts & Public Procurement practice. He represents clients in all facets of government contracts transactions, as well as regulatory counseling, subcon

Damien Specht

Damien C. Specht

Jim Tucker is of counsel in Morrison & Foerster’s Government Contracts and Public Procurement Practice Group and is based in the firm’s Washington, D.C. office.
Jim’s practice runs the gamut of litiga

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SBA Issues Final Rule on Appeals Process for PPP Loan Review Decisions

SBA Proposes to Require the Rule of Two for Most Task and Delivery Order Competitions

On September 4, 2024, the U.S. Department of Defense (DoD) issued a <a href="https://www.federalregister.gov/documents/2024/09/04/2024-19457/transactions-other-than-contracts-grants-or-cooperative-agreements-for-prototype-projects" target="_blank">proposed rule</a> to update its longstanding but little-known regulations for prototype other transactions (OTs), including new sections that authorize follow-on production OTs. The changes would bring the regulations up to date with the current text of DoD’s statutory authority for prototype OT and follow-on production agreements. Much has changed since DoD’s OT regulations were last amended in 2004. In those years, the regulations have largely sat on the shelf (at <a href="https://www.ecfr.gov/current/title-32/subtitle-A/chapter-I/subchapter-A/part-3" target="_blank">32 C.F.R. Part 3</a>), rarely used and collecting dust while Congress repeatedly updated and expanded DoD’s statutory authority. In practice, DoD Agreements Officers and others draw their authority and guidance directly from the statute itself (10 U.S.C. § 4022). We expect that to continue, and the proposed rule is unlikely to effect any substantive change to current law. Nevertheless, it provides a good reminder of where the requirements stand for DoD OTs in a few key respects.Nontraditional Defense ContractorsDoD’s prototype OT authority is limited to agreements that meet certain statutory criteria. According to DoD’s Federal Register notice, the most commonly used of these eligibility criteria – accounting for more than 90 percent of all prototype OT awards – is the significant participation of a “nontraditional defense contractor.”[1]So, who qualifies as “nontraditional”? A nontraditional defense contractor is an entity that has not performed a DoD contract or subcontract subject to Full Cost Accounting Standards (CAS) coverage in the year prior to a solicitation. This is intentionally broad, and, as noted by DoD in its <a href="https://www.acq.osd.mil/asda/dpc/cp/policy/docs/guidebook/TAB%20A1%20-%20DoD%20OT%20Guide%20JUL%202023_final.pdf">Other Transactions Guide</a>, it includes nearly all small business concerns and even many companies that work exclusively with DoD.[2] It also includes subsidiaries or affiliates of large traditional defense contractors, as long as the specific legal entity at issue is not subject to Full CAS coverage (and, for purposes of the eligibility criteria, will in fact be a significant participant in the prototype project).DoD’s OT regulations, as currently written, reiterate this by defining nontraditional defense contractor status to apply specifically at the “business unit” level, rather than at the “entity,” consistent with general rules for CAS applicability across different segments within an organization. DoD’s proposed rule would update the regulations to replace “business unit” with “entity” for consistency with the statute, but there is no indication the change is intended to substantively alter the availability of nontraditional status to separate legal entities within a larger corporate family of companies. The proposed rule also would remove the additional requirement that a “nontraditional defense contractor” not have performed any prototyping or research projects worth more than $500,000 in the past year. That additional requirement was previously removed from the statutory definition.Broad Definition of PrototypeThe proposed rule would implement the broad definition of “Prototype Project” used by DoD and authorized by Congress in recent years. This broad definition, which comes directly from the statute, says that a prototype project can be any combination of the following: <ul><li>A proof of concept, model, or process, including a business process.</li><li>Reverse engineering to address obsolescence.</li><li>A pilot or novel application of commercial technologies for defense purposes.</li><li>Agile development activity.</li><li>The creation, design, development, or demonstration of operational utility.</li></ul>Congress added this definition to the statutory authorization in the National Defense Authorization Act for Fiscal Year 2023.  Previously, the statute contained no definition, but the DoD claimed a broad interpretation of “prototype” that was very similar to the current statutory definition. Even before Congress enacted its definition into law, the Government Accountability Office upheld DoD’s broad interpretation of the term as reasonable in multiple challenges to its breadth. See ACI Techs., Inc., B-417011, Jan. 17, 2019, CPD ¶ 24; Oracle America, Inc., B-416061, May 31, 2018, CPD ¶ 180.Follow-On ProductionThe proposed rule also would add regulations for follow-on production OT awards. By law, DoD may award an OT or contract for follow-on production efforts on a sole-source basis if the initial prototype OT was awarded using competitive procedures and has been successfully completed. Notably, any agency may award a follow-on production OT or contract following successful completion; it does does not have to be the same agency that awarded the initial prototype OT, as we discussed <a href="/topics/dod-issues-updated-other-transactions-ot-guide" target="_self">previously</a>.  In fact, multiple DoD agencies may each award their own production OTs or contracts as follow-ons to a successfully completed prototype OT that a single agency had awarded and managed.To proceed from a prototype to follow-on production OT, the government must make a written determination that the prototype OT was “successfully completed.” According to DoD guidance, “successful completion” means that the prototype project “(1) met the key technical goals of a project; (2) satisfied success metrics incorporated into the Prototype OT; or (3) accomplished a particularly favorable or unexpected result that justifies the transition to production.” Any success metrics incorporated into a prototype OT may be objective or subjective, and success can be determined before the prototype project has ended, to facilitate the transition to a follow-on production OT.DoD’s Other Transactions Guide advises agreements officers to plan for the follow-on production OT as much as possible in the original prototype OT award. That planning should include a strategy “to obtain necessary IP deliverables (e.g., technical data or computer software), or associated license rights.” Pricing for the follow-on production OT should also be set at the time that the prototype OT is awarded, if the price can be forecast that far in advance.OTs Are ContractsDoD’s proposed rule would affirm that although OTs are not “procurement contracts” (or grants or cooperative agreements) and thus not subject to the laws specific to those legal instruments, they are most certainly “legally binding instruments that include the elements of: offer; acceptance; consideration; authority; a legal purpose; a meeting of the minds; and are approved by an Agreements Officer who has authority to bind the Government.”  They are, in other words, contracts – contracts that may be enforced, against the Government or the OT Performer in a court of law (namely, the U.S. Court of Federal Claims), even if not subject to the Contract Disputes Act. That never should have been in doubt, but it was a common misconception. A Few Closing ThoughtsDoD’s proposed rule is yet another signal that DoD’s prototype OTs have matured from pilot program to permanent authority. They are now a fixture of the government contracts industry and, according to the Federal Register notice announcing the proposed rule, “a significant asset in the DoD toolbox for acquisition of items to support the DoD mission.” DoD continues to tout publicly its “flexibility in negotiation of terms” and “less Government oversight” associated with OTs, which it hopes will encourage participation by businesses that are otherwise “unwilling to forfeit intellectual property rights or adhere to some of the procurement regulations.” In practice, however, this flexibility is all too often leveraged by agreements officers to benefit the Government at the OT performer’s expense, especially with respect to intellectual property rights. The FAR and DFARS and their underlying statutes are the products of many decades of legislation and notice-and-comment rulemaking attempting to balance the Government’s interests with those of a captive industry. As a result, they include significant protections for contractor rights, such as a right to own their inventions or a right to keep their privately developed trade secrets out of the hands of their competitors. Yet there are OTs and OT solicitations now that demand performers give up those rights as a condition of participating in the same kinds of major weapons acquisitions that historically have formed the companies’ lifeblood. Such abuses of the Government’s bargaining position would be unheard of – and legally actionable – in a procurement contract, but OTs often evade such oversight.  When considering its proposed rule, DoD appears to have weighed other alternatives, such deleting its OT regulations altogether or expanding them to include “best practices for DoD practitioners.” It decided against the former because deletion of regulatory coverage for such an important acquisition tool “would be inconsistent with DoD’s policy to support innovation through acquisition policy.” It dismissed the latter as adequately addressed by DoD’s existing Other Transactions Guide. Whether to expect more OT regulations in the future, in furtherance of “innovation through acquisition policy,” is yet to be seen. The flexibility and speed of OTs, when used correctly, present an opportunity to meet critical defense needs in ways that would otherwise be difficult or impossible. However, the flexibility can introduce new risks to the contracting process, so it remains vital for contractors to review terms with counsel before entering agreements.Ethan Sterenfeld, a Law Clerk in our Washington, D.C., office, contributed to the writing of this article.[1] Note that to meet this requirement, a nontraditional defense contractor is not required to be the OT awardee but rather must simply be “participating to a significant extent,” a phrase that has been broadly interpreted and defined by DoD in its internal OT guidance. DoD estimates that the majority of the dollars obligated for such agreements actually went to nontraditional defense contractors, but acknowledges limitations in its access to reliable data. [2] As DoD observes in the Federal Register: “This definition permits a large number of entities, including nearly all small business concerns, to be considered [nontraditional defense contractors] to help drive innovation.”

Tina is a partner in Morrison & Foerster’s Government Contracts practice. She represents a wide variety of government contractors including information technology, defense, biotechnology, and pharmace

Tina Reynolds

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Locke Bell is a partner in the firm’s Government Contracts & Public Procurement practice.

Locke Bell

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GAO Finds CIO-SP4 Solicitation Is Unduly Restrictive of Competition

DoD Dusts Off Other Transactions (OT) Regulations

In September 2024, the Ninth Circuit reversed in part a district court’s dismissal of an action under the False Claims Act (FCA or the “Act”) for lack of jurisdiction under the Act’s First-to-File Rule and held that the First-to-File Rule is not jurisdictional.  In doing so, the en banc court overruled circuit precedent and brought the Ninth Circuit in line with several other circuits.In Stein ex rel. United States v. Kaiser Foundation Health Plan, Inc., the relators alleged that Kaiser-related entities committed Medicare fraud.  The district court dismissed the action as barred by the first-to-file rule, 31 U.S.C. § 3730(b)(5) (the “First-to-File Rule”), because it related to earlier-filed pending actions against the same defendants.On appeal, the three-judge panel affirmed, applying the Ninth Circuit’s precedent that the First-to-File Rule is jurisdictional.  The en banc court convened to “tidy up the law.”  In doing so, it overruled prior Ninth Circuit precedent and held that the First-to-File Rule is not jurisdictional.The FCA’s First-to-File Rule states: “When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.”  31 U.S.C. § 3730(b)(5).Applying the Supreme Court’s recent holding in Santos-Zacaria v. Garland, 598 U.S. 411 (2023), that a statutory bar is jurisdictional only if Congress clearly states that it is, the en banc court held that the First-to-File Rule is not jurisdictional because § 3730(b)(5) does not use the term “jurisdiction” or “include any other textual clue that points to jurisdiction,” unlike other provisions in the FCA that use explicitly jurisdictional language.The Ninth Circuit has joined the First, Second, Sixth, and D.C. Circuits in agreeing that the FCA’s First-to-File Rule is not jurisdictional.  See United States ex rel. Bryant v. Cmty. Health Sys., Inc., 24 F.4th 1024, 1036 (6th Cir. 2022); United States v. Millenium Labs., Inc., 923 F.3d 240, 248–51 (1st Cir. 2019); United States ex rel. Hayes v. Allstate Ins. Co., 853 F.3d 80, 85–86 (2d Cir. 2017) (per curiam); United States ex rel. Heath v. AT&T, Inc., 791 F.3d 112, 119–21 (D.C. Cir. 2015).The Ninth Circuit’s decision notes that three other circuits have held that the First-to-File Rule is jurisdictional.  See United States ex rel. Carter v. Halliburton Co., 866 F.3d 199, 203 (4th Cir. 2017); United States ex rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371, 376 (5th Cir. 2009); Grynberg v. Koch Gateway Pipeline Co., 390 F.3d 1276, 1278 (10th Cir. 2004).  However, the Ninth Circuit observed that these cases predate the Supreme Court’s decision in Santos-Zacaria holding that a statutory bar is jurisdictional only if Congress clearly states that it is.Although the circuits remain split, the tide seems to be shifting in favor of finding the First-to-File Rule is not jurisdictional.  In these circuits, defendants can still move to dismiss an FCA case under the First-to-File Rule, but now they will bear the burden of proof under Federal Rule of Civil Procedure 12(b)(6) rather than putting the burden on plaintiffs under Rule 12(b)(1).

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Ninth Circuit Sits En Banc to “Tidy Up the Law” on the False Claims Act’s First-to-File Rule