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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Anatomy of a Protest

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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.

J. Alex Ward

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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.

Brad is a partner in Morrison Foerster’s Litigation Department, Managing Partner of the Austin office, and Chair of the firm’s Israel practice. He is the former Co-Chair of the firm’s Global Litigation Practice and the Government Contracts + Public Procurement Practice.

Bradley Wine

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The Tortured Regulations Department: SBA’s New Rule and Its Effect on Investments

Bid Protest Spotlight: Standing, Relationships, Responsibility

House’s Passage of the SAMOSA Act Signals Policy Shift Towards Government-Wide Enterprise Software Licensing

New DFARS Regulation on Small Business Affiliate Past Performance

Bid Protest Spotlight: Unclear Criteria, Data Rights, Conflicts

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The Procurement Bill announced in the Queen’s Speech at the opening of Parliament in May 2021 was one of 30 new bills on the UK government’s legislative agenda for the coming year.  The main aim of the Procurement Bill is to reform the government procurement process in the UK and create replacements for the current legislative regime which is based on the system implemented across the EU.  Coming relatively soon after Brexit, this will be a test of how far the UK government is prepared to go to create regulatory “disalignment” between the UK and the EU.This is a quick turnaround based on the Cabinet Office’s consultation on its Green Paper to transform public procurement, which we discussed in a <a href="https://govcon.mofo.com/international-public-procurement/post-brexit-government-procurement-in-the-uk-spot-the-differences/">previous blog post</a> and which only closed in March 2021.Although the Cabinet Office is still analyzing the consultation responses and has not yet published the outcome or any further proposed action, the Procurement Bill’s inclusion in the UK legislative agenda means that the government has already decided to press ahead with plans to differentiate the UK procurement system from the current regime based on EU rules.  This is no real surprise, particularly as government ministers regularly describe the EU procurement rules as “complex” and “rigid”.  Even in the ministerial foreword of the Green Paper, Lord Agnew, Minister of State of the Cabinet Office, describes the EU regime as “outdated” and “bogged down in bureaucratic, process-driven procedures”.The new UK regime will consolidate many existing regulations governing public procurement to create a single, uniform framework, including for defense procurement.  The UK government hopes that this framework will be quicker, simpler and better able to meet the country’s needs while remaining compliant with its international obligations.Although the exact form of the Procurement Bill has not yet been released, its main elements are likely to include:<ul><li>confirming the overriding importance of certain key principles of public procurement: value for money, public benefit, transparency, integrity, fair treatment of suppliers, and non-discrimination;</li><li>overhauling the existing procurement procedures which are seen as too rigid and inflexible, and replacing them with three simple, modern procedures (allowing the public sector more scope to negotiate with potential suppliers to deliver innovative new solutions);</li><li>introducing procurement processes that allow contracting authorities to procure quickly for serious situations that are declared a crisis, with strengthened safeguards for transparency;</li><li>establishing a single data platform for supplier registration which ensures that suppliers only have to submit their data once to qualify for any public sector procurement;</li><li>tackling unacceptable behavior such as supplier fraud through new exclusion rules and giving government buyers better tools to take account of a bidder’s past performance; and</li><li>reforming the process for challenging procurement decisions to speed up the review system and make it more accessible and capping the level of damages available to bidders in order to reduce the attractiveness of speculative claims.</li></ul>Some aspects of the new Procurement Bill are likely to get more scrutiny than others, particularly those affecting transparency in the procurement process – especially in the light of concerns about cronyism in the procurement of supplies in response to the COVID-19 pandemic.The provisions in the Procurement Bill will apply to all contracting authorities in England and to contracting authorities carrying out reserved functions in Scotland, Wales and Northern Ireland.  The UK government is in discussions with the devolved Welsh and Scottish governments and Northern Ireland Executive about the application of some provisions.Businesses will also need to look out for the UK government’s first National Procurement Policy Statement (NPPS).  Under the new Procurement Bill, buyers will be required by law to apply the strategic national priorities for public procurements set out in the NPPS.So how different will the UK’s new system look?  We won’t know that until the publication of the draft Procurement Bill itself.  But it is worth remembering that the new regime must stay within the parameters of the UK’s international agreements, namely the requirements of the WTO’s Agreement on Government Procurement (GPA) and the terms of the EU-UK Trade and Co-operation Agreement (TCA).  So while the UK government is driving towards a new procurement regime, we don’t expect to see significant changes in direction in the procurement rules.The UK government has already shown its desire in other areas to prove that the EU led to red tape and bureaucracy, and to ensure that post-Brexit laws will reduce administration costs.  But can it simplify the process without losing trust in what has proven over many years to be, by and large, a stable, relatively transparent, largely non-discriminatory system?Georgia-Louise Kinsella, a trainee solicitor in the London office, assisted in the preparation of this article.

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Alistair Maughan co-leads Morrison & Foerster's European Technology & Commercial Practice.

Alistair Maughan

Alistair advises on the deployment of new technology platforms involving, for example, the internet of things, AI and machine-learning, and blockchain and distributed ledger technology.

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Post-Brexit UK Public Procurement Reform

Consortium Bidding in European Government Contracts

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The Procurement Bill announced in the Queen’s Speech at the opening of Parliament in May 2021 was one of 30 new bills on the UK government’s legislative agenda 

Post-Brexit UK Public Procurement Reform

Brexit finally became a reality on 31 December 2020, as the UK reached the end of the agreed Transition Period after the UK’s departure from the EU.The UK government has heralded Brexit as a “historic opportunity to overhaul our outdated public procurement regime”. With the UK government buying almost £300 billion of goods and services from the private sector every year, businesses in the UK and around the world must be asking how the new regime will affect them. How much will the process of government procurement in the UK actually change?While the UK was an EU Member State, the government procurement process in the UK was based on EU directives—so both the regulatory environment and the practical tendering process was essentially harmonized across the EU.One immediate change has been that the UK no longer participates in the open tender advertising process through the EU’s Official Journal and Tenders Electronic Daily. The UK has started an equivalent system: an e-notification service called “<a href="https://www.find-tender.service.gov.uk/Search">Find a Tender</a>” where UK government contracts above a value threshold are published (lower value contracts are published elsewhere).In regulatory terms, the UK’s procurement rules are largely staying the same—for now. Partly, the short‑term status quo is because the UK had traditionally translated the EU’s procurement directives into national UK law via national implementing regulations—and those national regulations stay in place despite Brexit.But going forward, of course, the UK has some degree of freedom to go its own way and do things differently from the EU—although this freedom is not completely unrestricted because the UK is a party to the WTO’s Agreement on Government Procurement (the GPA) and must stay within GPA requirements.Membership to the GPAFollowing the WTO’s approval on 7 October 2020, the UK joined the GPA as an independent member from 1 January 2021. The GPA—which <a href="https://media2.mofo.com/v3/assets/blt5775cc69c999c255/bltfb13537715949291/627312d8a1a1dd2aa9f6c892/160707brexitgovprocurement.pdf">we’ve discussed before in a previous alert</a>—is a voluntary trade agreement within the WTO, whereby signatory parties give access to foreign suppliers to their government procurement markets. Maintaining membership gives UK suppliers access to a £1.3 trillion international market, comprising of EU procurement markets as well as other markets (such as the United States, Japan, and South Korea).However, the UK will have a reduced level of access to EU markets because the scope of activities covered by the GPA is narrower than membership to the EU single market. The UK has tried to address this gap in its trade talks with the EU.Post-Brexit, non-UK bidders will have similar rights to bid for UK procurement opportunities as before the transition period ended. Bidders from other GPA countries will continue to have rights under the UK procurement regulations as long as the procurement scope is within the relevant GPA schedules. EU bidders will (continue to) have similar but slightly broader rights than other non-UK bidders on the basis of the coverage of the UK-EU trade and co-operation agreement—see below.The UK-EU Trade and Co-operation Agreement (TCA)The TCA covers a broader range of EU/UK procurement activity than that provided for under the GPA.The TCA provisions also add to the UK and EU’s existing GPA obligations, e.g., a UK supplier must not be required to demonstrate experience in the territory of the EU (and vice versa) as a condition for participation.Unlike the GPA—which does not apply to contracts below certain value thresholds—the TCA provides that, when procuring a contract below the relevant financial threshold, the procuring party must treat EU or UK suppliers no less favourably than suppliers from its own country (unless covered by specific GPA exceptions such as security).Streamlining the national regulatory frameworkThe UK Government has also published a Green Paper signaling its intention to simplify the existing regulatory framework into a single set of rules for all public contract awards. In doing so, the UK proposes, for example, to reduce the procurement procedures available to buyers from seven to three:<ol><li>a new competitive, flexible procedure that gives buyers maximum freedom to negotiate and innovate to get the best from the private, charity, and social enterprise sectors;</li><li>the (existing) open procedure that buyers can use for simpler, “off the shelf” competitions (expanding its availability to suitable defence and security procurements for which this procedure is currently not available);</li><li>a “limited tendering procedure”, which will be effectively equivalent to the existing “negotiated procedure without prior publication”.</li></ol>The Green Paper proposes changes within these procurement procedures, including:<ul><li>basing the evaluation of bids on the Most Advantageous Tender (MAT) rather than the most economically advantageous to encourage contracting authorities to take a broader view, including social value as part of the quality assessment;</li><li>expanding the grounds on which bidders may be excluded for poor past performance;</li><li>establishing “crisis” as a new ground for using the limited tendering procedure.</li></ul>There are also plans to reform the legal review system as well as to tackle claims over minor issues that delay contract awards, such as a new fast track system and capping the level of damages available to successful bid protest complainants to a maximum amount equal to legal fees plus 1.5 times their bid costs.Preparing for the new public procurement regimeWhile the Green Paper is likely a good indicator of changes to come, the Cabinet Office will still take several months to reflect on the proposed approach before deciding what to put into draft legislation in late 2021 or 2022.One part likely to stick is the Cabinet Office’s emphasis on cutting red tape—a common theme from the current UK government’s agenda (in fact, the prime minister recently addressed a conference of 250 industry leaders, inviting them to propose areas where his government can cut bureaucracy). At the same time, the UK has already started to show that, where it can, it is likely to be prepared to dis-align itself with legacy EU rules where it feels that it makes sense to do so.Even so, the UK’s freedom to diverge from EU public procurement rules is somewhat limited by its GPA membership and the TCA. So, while the UK government procurement rules are likely to change, those changes may not be too fundamental.Georgia-Louise Kinsella, a Trainee Solicitor in the London office, assisted in the preparation of this article.

Post-Brexit Government Procurement in the UK - Spot the Differences

Brexit finally became a reality on 31 December 2020, as the UK reached the end of the agreed Transition Period after the UK’s departure from the EU.

Post-Brexit Government Procurement in the UK - Spot the Differences

<h4>Foreign Subsidies Could Soon Become The Subject of Specified EU Regulations</h4>The EU Commission wants to create regulations to tackle impacts of foreign government funding in the EU. In its “White Paper on levelling the playing field as regards foreign subsidies,” published on June 17, 2020, the EU Commission identifies problematic foreign subsidies that distort the EU internal market but that cannot be controlled under the current regulatory framework. According to the EU Commission, the regulatory gap is particularly apparent, where foreign subsidies take the form of financial flows facilitating acquisitions of EU companies or where they support the operation of a company active in the EU. To address this regulatory gap, the EU Commission calls for new tools supplementing the existing EU state aid, public procurement, foreign direct investment screening, anti-dumping and antitrust rules. The White Paper is now open for public consultation until September 23, 2020; the EU Commission aims at introducing a new legal instrument in 2021.<h4>New Tools to Prevent Foreign Subsidies From Distorting the EU Internal Market</h4>According to the EU Commission, a regulatory gap exists due to the following limitations of existing rules: antitrust and merger control rules are not designed to sufficiently weigh foreign subsidies nor tackle the new foreign direct investment screening mechanism of this issue in a satisfactory manner. Also, EU state aid rules only apply to funding by EU governments and does not address foreign government grants. Anti-dumping rules apply to products imported to the EU only, not to business activities carried out in the EU that are backed by foreign subsidies. Under current EU law, access to EU funding is not generally restricted if a company also receives foreign subsidies. Last but not least, EU public procurement law offers public sector business opportunities for (practically) all EU-based businesses and many companies established in third countries; contracting authorities are not obliged to assess whether bidders receive funding from foreign governments.The EU Commission defines “foreign subsidy” broader than the notion of state aid under EU state aid law to cover any financial contribution by a government or any public body of a non-EU State, which confers a benefit to a recipient and which is limited to an individual company or industry or a group thereof. These can take a broad variety of forms, e.g., unlimited guarantees, capital injections or preferential tax treatments.To achieve its goal to prevent foreign subsidies from distorting the EU internal market, the White Paper presents three regulatory approaches (Modules), as briefly summarized below, that could be used individually or in a combination. Enforcement of the suggested schemes would be carried out by the EU Commission or by Member State authorities (or jointly), depending on the Module(s) and circumstances.Module 1: Instrument to control foreign subsidies granted to a recipient active or established in the EUModule 1 aims at addressing distortive foreign subsidies in all market situations, including acquisitions facilitated by foreign subsidies. The competent authority could assess the foreign subsidy ex officio in a two‑step procedure consisting of a preliminary review and, if necessary, an in-depth investigation. Following an in‑depth investigation, the authority could impose measures to redress those distortions, such as redressive payments and structural or behavioral remedies.An intervention would depend on certain criteria and thresholds, such as that the foreign subsidy reaches the threshold of EUR 200 000 over a period of three consecutive years (aligned with the de minimis threshold under EU state aid law) and that any positive impact of the subsidy does not outweigh its distortions. The EU Commission proposes to distinguish between two categories of foreign subsidies: one shall be considered distortive per se and the other shall be subject to a rebuttable presumption.Module 2: Instrument to control foreign subsidies facilitating the acquisition of EU targetsModule 2 aims to ensure that foreign subsidies do not confer a benefit on their recipients when acquiring stakes in EU targets, either directly by linking a subsidy to a given acquisition or indirectly by de facto increasing the financial strength of the acquirer. Companies benefitting from a foreign subsidy would need to notify their acquisitions of EU companies, above a given threshold, to the competent authority.The Commission considers different criteria to trigger the proposed notification obligation. One proposal is a turnover threshold of EUR 100 million. An acquisition shall be deemed to arise where the acquirer receives control of a company or acquires a not yet specified percentage of shares or voting rights or otherwise acquires “material influence.” Module 2 shall include the acquisition of significant but possibly non-controlling minority rights or shareholdings.An intervention would require that, inter alia, the foreign subsidy directly or indirectly facilitates the acquisition of an EU target and that the positive impact of the subsidy does not outweigh its distortions. A review procedure would need to be carried out, and the authority could impose remedies or prohibit the proposed transaction.Module 3: Instrument to control foreign subsidies in the context of public procurement proceduresModule 3 aims to ensure that foreign subsidies do not distort public procurement procedures. For example, where the subsidy enables the recipient to submit an offer that would otherwise be economically less sustainable, especially in case of bidding significantly below market price or below cost, a distortion shall be presumed. The White Paper proposes a mechanism where bidders would have to notify the contracting authority of foreign subsidies they received. Depending on the outcome of its assessment, the contracting authority could exclude the bidder from the ongoing tender.Finally, the White Paper includes a proposal on how to address subsidies that give foreign companies an unfair advantage in winning contests for EU grants and suggests following a procedure similar to public procurement.<h4>Outlook</h4>The EU uses a moment of increased economic insecurity during the COVID-19 pandemic to introduce a proposal of far-reaching control tools. If adopted, such rules could significantly change foreign government‑funded acquisitions of EU-based target companies or foreign government-backed business activities in the EU. For now, it bears close watching which positions stakeholders will take during the consultation process either calling for moderations or the implementation of a protectionist regime and contributing to this process.

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Felix possesses more than a decade of experience in complex regulatory counselling, compliance, and litigation. He advises major companies, public sector entities, and innovative businesses on EU and 

Felix Helmstädter

Felix Helmstädter is a counsel at the German office of Morrison Foerster in Berlin. He advises clients in the area of public commercial and regulatory law, in particular on all matters of German and European public procurement law, state aid law and sector-specific regulatory law; foreign trade law, export control law and EU sanctions law; as well as antitrust and merger control law. Felix has particular, industry-specific expertise in the areas of transportation, technology, media and telecommunications. Another area of emphasis of his work lies in the health and energy sectors. Felix has years of experience in providing strategic regulatory advice to companies as well as representing them in administrative litigation, civil litigation, and public procurement disputes before national and European authorities and courts.

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Senior Associate

Theresa is a senior associate at Morrison & Foerster’s German office in Berlin and a member of our litigation practice group. She advises clients in a range of industries, including technology, media 

Theresa Oehm

Theresa Oehm is a senior associate at Morrison & Foerster’s German office in Berlin and a member of the firm's antitrust practice group and TMT regulatory team. She advises clients in the technology, media and telecommunications sector on all aspects of antitrust law and regulatory law.

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Closing the Gap – European Union to Challenge Foreign Subsidies

Foreign Subsidies Could Soon Become The Subject of Specified EU Regulations The EU Commission wants to create regulations to tackle impacts of foreign governmen

Closing the Gap – European Union to Challenge Foreign Subsidies

Updated May 18, 2020As many companies are likely aware by now, Small Business Administration (SBA) loans under the Paycheck Protection Program (PPP) provide aid to qualifying small businesses in the form of loans with terms favorable to borrowers, including, in particular, provisions that allow potentially the entire loan amount to be forgiven if the proceeds are spent on payroll and other qualifying expenses. The PPP, which we have written about <a href="https://www.mofo.com/resources/insights/200327-faq-coronavirus-economic-stabilization-act-cesa.html">previously</a>, is part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).  There are many paths to qualifying as a small business under the CARES Act, one of which is if the company (with its affiliates) has 500 or fewer employees.Early guidance issued by both the SBA and the Treasury Department (the “Treasury”) after enactment of the CARES Act indicated that under this PPP-specific 500-employee size standard, only those employees whose principal place of residence is in the United States are included in the size calculation.<a href="#_ftn1" name="_ftnref1">[1]</a>  Specifically, <a href="https://home.treasury.gov/system/files/136/PPP--IFRN%20FINAL.pdf" target="_blank" rel="noopener noreferrer">Interim Final Rule</a> originally published on April 2, 2020, states the following:2. What Do Borrowers Need to Know and Do? a. Am I eligible?You are eligible for a PPP loan if you have 500 or fewer employees whose principal place of residence is in the United States, or are a business that operates in a certain industry and meet the applicable SBA employee-based size standards for that industry.Additionally, FAQ #3 of the <a href="https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf" target="_blank" rel="noopener noreferrer">FAQs</a><a href="#_ftn2" name="_ftnref2">[2]</a> published by the SBA and the Treasury on April 6, 2020, states the following:3. Question: Does my business have to qualify as a small business concern (as defined in section 3 of the Small Business Act, 15 U.S.C. 632) in order to participate in the PPP?Answer: No. In addition to small business concerns, a business is eligible for a PPP loan if the business has 500 or fewer employees whose principal place of residence is in the United States, or the business meets the SBA employee-based size standards for the industry in which it operates (if applicable). Similarly, PPP loans are also available for qualifying tax-exempt nonprofit organizations described in section 501(c)(3) of the Internal Revenue Code (IRC), tax-exempt veterans organization described in section 501(c)(19) of the IRC, and Tribal business concerns described in section 31(b)(2)(C) of the Small Business Act that have 500 or fewer employees whose principal place of residence is in the United States, or meet the SBA employee-based size standards for the industry in which they operateIn other words, the rule and previous FAQ guidance both suggest that only employees whose principal place of residence is in the United States will count toward the size of a concern under the PPP’s 500-employee size standard.  However, on May 5, 2020 (a month after the above guidance had been published), the Treasury and the SBA added the following FAQ #44:44. Question: How do SBA’s affiliation rules at 13 C.F.R. 121.301(f) apply with regard to counting the employees of foreign and U.S. affiliates?Answer:  For purposes of the PPP’s 500 or fewer employee size standard, an applicant must count all of its employees and the employees of its U.S and foreign affiliates, absent a waiver of or an exception to the affiliation rules.  13 C.F.R. 121.301(f)(6).  Business concerns seeking to qualify as a “small business concern” under section 3 of the Small Business Act (15 U.S.C. 632) on the basis of the employee-based size standard must do the same.Although this Answer doesn’t explicitly state that concerns have to count the foreign employees of the applicant and those of its foreign affiliates, the statement that all employees must be counted without inclusion of the clarifying “whose principal place of residence is in the United States” language seems to suggest that foreign employees count toward PPP’s “500 or fewer” size standard.  Such a position would be completely inconsistent with the SBA’s and Treasury’s earlier guidance, which still appears in the current FAQs.Recognizing this inconsistency, earlier today SBA issued a <a href="https://home.treasury.gov/system/files/136/Interim-Final-Rule-on-Treatment-of-Entities-with-Foreign-Affiliates.pdf">new rule</a> on eligibility for companies with foreign affiliates.  SBA has now made clear that all employees of foreign affiliates (not just those employees in the U.S.) need to be counted in determining eligibility for a PPP loan.  Importantly, however, because SBA acknowledges that its guidance on this point has been inconsistent, SBA has provided yet another safe harbor.  If a company with foreign affiliates applied for its loan prior to May 5 and only included U.S.-based employees in the employee count, it will not be deemed to have made an inaccurate certification:However, as an exercise of enforcement discretion due to reasonable borrower confusion based on SBA guidance (which was later resolved through a clarifying FAQ on May 5, 2020), SBA will not find any borrower that applied for a PPP loan prior to May 5, 2020 to be ineligible based on the borrower’s exclusion of non-U.S employees from the borrower’s calculation of its employee headcount if the borrower (together with its affiliates) had no more than 500 employees whose principal place of residence is in the United States. Such borrowers shall not be deemed to have made an inaccurate certification of eligibility solely on that basis. Under no circumstances may PPP funds be used to support non-U.S. workers or operations.In other words, if the company’s application pre-dates May 5, this should not be a concern, but if later, and the company has foreign employees or foreign affiliate employees that bring it over the 500 employee threshold, the company is ineligible for a PPP loan.<a href="#_ftnref1" name="_ftn1">[1]</a> Note that for companies electing to use the employee-based size standard set by their primary NAICS code, all employees (not just those employees residing in the United States), must be included in the size calculation.<a href="#_ftnref2" name="_ftn2">[2]</a> All prior FAQs were consolidated into a single document on the Treasury CARES Act website on May 6, 2020.  Importantly, the FAQs do not carry the force and effect of law independent of the statute and regulations on which they are based.

Anser Advisory

ARKA

Arlington Capital

Battle Investment Group

Behrman Capital

Cadmus

Chainalysis

CollabraLink

Definitive Logic

Emmes

Enlightenment Capital

Grant Thornton

Griffon Corporation

eTelligent

L3Harris

Jacobs

LinQuest Corporation

Micross

Sagewind

Sedgwick

Sigma Defense

teKnoluxion

The Building People

Damien C. Specht

Are Foreign Employees Included in Calculating Size for PPP’s 500-Employee Size Standard? New Guidance Makes the Answer Unclear