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.

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.

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Contractors face potential payment uncertainty as a result of the current congressional inability to agree to increase the federal government’s debt ceiling. The government reached the official debt limit months ago, on January 19, 2023.  Yet by all appearances it continues to operate “as normal.” The appearance of normalcy is due to the government’s considerable cash reserves and its use of certain “extraordinary measures” (such as not paying into trust funds).

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The Debt Ceiling and Its Potential Implications for Government Contractors | Government Contracts Insights

Kevin P. Mullen

Markus Gerhard Speidel

Contractors face potential payment uncertainty as a result of the current congressional inability to agree to increase the federal government’s debt ceiling. The government reached the official debt limit months ago, on January 19, 2023. Yet by all appearances it continues to operate “as normal.” The appearance of normalcy is due to the government’s considerable cash reserves and its use of certain “extraordinary measures” (such as not paying into trust funds). Without further borrowing, however, the cash reserves will shrink, eventually forcing the government to make hard choices. That day may now come as soon as June 1, 2023.Should political brinkmanship around raising the debt ceiling reach beyond the “X” day, the government may need to determine who gets paid and who gets furloughed. Government contractors may find themselves in line after higher-priority spending obligations, such as interest rate payments to U.S. bond holders, military salaries, civil servants’ pay, unemployment benefits, Social Security checks, Medicare benefits, federal law enforcement expenses, and funding for the courts. Contractors should therefore take stock now of their plans to weather the possible financial shortfalls.Treasury Control of PaymentsThe United States has faced a similar situation in the past. In the run up to the 2011 debt limit crisis, the Federal Reserve and Treasury developed a plan to prioritize payments if the government was unable to pay all of its obligations. The <a href="https://www.federalreserve.gov/monetarypolicy/files/fomc20110801confcall.pdf" target="_blank">transcript</a> of a conference call between the Federal Open Market Committee and the Board of Governors of the Federal Reserve System indicates that such a plan had “evolved fairly substantially in the past week or two” prior to resolution of the 2011 impasse and only been finalized the night before. The plan, which was never implemented, applied three principles. First, principal and interest payments on Treasury securities would be made on time. Second, other payments may be delayed. Third, any payments made would be settled.Although the plan was formalized in a special operating circular, that circular was never issued, prepared only as a contingency if a deal wasn’t struck. In September 2021, Treasury Secretary Janet Yellen’s team rejected the idea of prioritized payments under the 2011 plan. That position, however, may represent the practicalities of preventing panic, political push-back, and pre-emptive litigation by not revealing the Treasury’s plans prematurely. If no deal is struck before the extraordinary measures are exhausted, the Treasury may well revert to the 2011 gameplan as a means to mitigate the financial fallout.Agency Control of Remaining FundsAgencies might similarly reassess their financial priorities and seek to conserve funds by limiting less-necessary expenses if no compromise is reached. Understanding the approach agencies may take requires a quick review of agency spending mechanisms. Once Congress appropriates funds, OMB apportions those funds into Treasury accounts. When the existing apportionment is “no longer appropriate or applicable because. . . unforeseen events have occurred,” agencies may request the reapportionment of funds per OMB Circular A-11. Agencies may not obligate funds without an OMB-approved apportionment, due to the strictures of the Anti-deficiency Act. Thus, if a timely Congressional agreement is not reached, agencies may seek to quickly reapportion their funds based on projected needs and priorities. To ensure sufficient funds to pay for the most vital and immediate expenditures, including those for salaries of military personnel, agencies are likely to rebalance their Treasury Appropriation Fund Symbols (TAFS) accounts. If agencies shift unobligated funds out of procurement-related TAFS, then, despite adequate congressional appropriations, the Anti-deficiency Act would prohibit agencies from issuing new obligations (such as awarding new contracts or orders) in excess of the amount remaining in the appropriate TAFS account.In planning for the worst, government contractors should consider two separate scenarios as they review their existing contract portfolio and pipeline. The first scenario is where the agency acts to conserve cash flow (e.g., by suspending award of future contract actions, not raising the limitation-of-funds ceiling on specific programs, or issuing stop-work orders). The second scenario is where an agency forges ahead without adequate funds to cover all of its contractual obligations. Below we outline considerations for each scenario.Scenario I: The agency acts to conserve cashThis scenario is similar in effect to prior government shutdowns where budgets are not timely enacted. Agencies may choose not to obligate new funds unless the work is essential to sustaining the agency’s mission. This may mean halting new solicitations and pending proposal reviews, not awarding new contracts or task orders, and refusing to raise limitation-of-funds ceilings, exercise options, or issue contract extensions.  Importantly, where funds are not yet obligated, contractors must avoid acting as a volunteer; the government has no obligation to cover unfunded activities.As an initial step, contractors may seek guidance from the Contracts and Acquisition functions at each agency where they hold an active contract or have a pending proposal. In particular, contractors might ask about agency plans for contract performance if the debt ceiling is not raised, and specifically whether agency personnel, facilities, and equipment will be available. Finally, contractors can work cooperatively with the agencies to mitigate performance disruptions.The following are practical steps contractors may take to prepare should a midnight solution for the borrowing debate not be found:<ol><li>Identify solicitations with source selection decisions scheduled during the fourth quarter of the fiscal year and anticipate delays in contract awards.</li><li>Identify contracts with options due in the fourth quarter and review the terms for the government's option exercise. The failure of the government to exercise an option in strict accordance with its terms could entitle the contractor to reprice the option.</li><li>Identify contracts that rely on incremental funding and determine whether it may become necessary to notify the Contracting Officer and then stop work to avoid incurring costs beyond the amount obligated. Under the Limitation of Funds clause (which often is tailored for use in large fixed-price contracts), the government is not required to reimburse a contractor for costs incurred beyond the amount obligated. If the obligated funds are insufficient to cover a contractor’s ongoing performance and termination liability, the contractor is required to “take a vacation” until funds become available.</li><li>Identify cost-type contracts that approach the Limitation of Costs clause ceiling and decide whether to stop work. The government is not required to reimburse a contractor for costs beyond the stated ceiling, and the contractor should not expect the government to increase the contract ceiling during a cash crisis. Any performance beyond the ceiling is as a volunteer.</li><li>Where funds are obligated, agencies may act to stop the bleed from particular funding accounts. Agencies may issue stop work orders on less essential contracts to conserve cash for more essential work. Where agencies issue stop-work orders, the contractor must stop work. If affected, be sure to keep accurate records of any disruption you encounter.</li></ol>Scenario II: The agency forges ahead despite funding shortfallsSomewhat trickier is where agencies choose to press ahead, despite a lack of cash. A contracting officer may elect not to issue stop work orders, and either permit or require the work to continue, even in the absence of funds. If this happens, the contractor must choose between observing its legal right to halt performance or satisfying the customer at its own risk.Arguably, if the government fails to pay properly submitted invoices in the absence of a dispute, the contractor may refuse further performance on a theory of material breach. As recently as 2013, the ASBCA has—at least in dicta—recognized the general proposition that a material breach by the government, in not paying when or as required, excuses a contractor’s obligation to perform.  The justification to discontinue performance is well established where the government’s failure to make payments renders a contractor financially incapable of proceeding with the work. Even where continued performance remains possible, the government’s antecedent breach in failing properly to pay the contractor may justify the contractor’s abandonment of the contract and shield it from default.[1]Whether or not they elect to continue work despite interrupted payments, government contractors should keep track of all delays, disruption, or work-around accommodations they are forced to endure as a result of government personnel, facilities, or equipment being unavailable or late. In doing so, government contractors will be better prepared to seek reimbursement for the added costs caused by these constructive changes once things get back to normal.ConclusionUltimately, no one knows what will occur should the government prove unable to pay its bills.  The U.S. government has never defaulted and hopefully never will. In any scenario, contractors may prepare for the uncertainty ahead by accumulating sufficient cash in hand to continue core operations and pay their own bills. Contacting preferred financial institutions to ensure adequate access to credit in the event of a default may prove equally important by providing a financial lifeline. Having a plan in place on how best to weather the brewing storm promotes internal confidence. Finally, working with industry groups to express the importance of a timely resolution may motivate members of Congress to find common ground and avoid the storm all together.[1] Whether this principle remains good law in all circumstances is an open question, particularly where a contract includes the Alternate I version of the Disputes clause at FAR 52.233-1.

The Debt Ceiling and Its Potential Implications for Government Contractors

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