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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In recent months, there have been a number of articles about an increase in venture capital interest in entities that do business with the federal government. 

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Venture Capital Investment in a Small Business? Know the SBA rules first. | Government Contracts Insights

Damien C. Specht

Tyler J. Sewell

Alissandra Young McCann

In recent months, there have been a number of articles about an increase in venture capital interest in entities that do business with the federal government. In fact, this interest is not new. Small entities with venture backing have used programs like the Small Business Innovation Research (SBIR) program to obtain early stage research and development funding and government entities, like the Department of Defense, have tried to encourage smaller firms with cutting edge technology to enter the federal market. However, traps for the unwary remain. Specifically, many small businesses and venture capital firms assume that minority investments on standard market terms will not change a company’s status under the Small Business Administration (SBA) affiliation rules. This assumption can be a mistake and is one of the most common pitfalls we see companies get caught in when making a minority investment in a small business.To calculate the size of a business for purposes of SBA small business rules, SBA aggregates the number of employees or annual receipts of the business with those of all of its affiliates.   Under the SBA rules, affiliation includes both exercised and potential control ‒ both affirmative and negative control. To avoid the small business becoming affiliated with its minority investors (and perhaps its other investments) for purposes of determining the size of the small business, such minority investors cannot have control over the small business’s day-to-day actions.SBA’s Office of Hearing and Appeals (OHA) case law has explained that the following activities constitute day-to-day actions that a small business must maintain exclusive control over:<ul><li dir="ltr">Paying dividends;</li></ul><ul><li>Forming a quorum of shareholders;</li><li>Determining employee compensation;</li><li>Hiring and firing executives;</li><li>Blocking “any changes in the [company’s] strategic direction”;</li><li>Committing any act that would alienate or encumber a concern’s assets;</li><li>Amending or terminating existing lease agreements;</li><li>Purchasing equipment;</li><li>Incurring debts or obligations (even if a dollar threshold is established);</li><li>Selecting independent auditors;</li><li>Choosing accounting methods; and</li><li>Making changes to the budget.</li></ul>This list is not exhaustive, and case law is constantly developing to highlight additional actions that SBA considers to be day-to-day. However, here’s the important point ‒ many of the terms used in venture capital investments (such as the National Venture Capital Association (NVCA) form certificate of incorporation and investor rights agreement) contain controls that would be deemed to result in a venture capital firm having negative control over the small business, and thus result in affiliation under the SBA rules ‒ and perhaps making that business ineligible for SBIR<a href="#_ftn1" dir="ltr" target="_self">[1]</a> or other small business contracts. A few examples of such standard terms that could (and in some instances likely would) result in affiliation under SBA rules include, but are not limited to, the following:<ul><li dir="ltr">Create, or authorize the creation of, or issue, or authorize the issuance of any debt security or create any lien or security interest (except for purchasing money liens or statutory liens of landlords, mechanics, materialmen, workmen, warehousemen and other similar persons arising or incurred in the ordinary course of business) or incur other indebtedness for borrowed money, including, but not limited to, obligations and contingent obligations under guarantees, or permit any subsidiary to take any such action with respect to any debt security lien, security interest or other indebtedness for borrowed money[, if the aggregate indebtedness of the corporation and its subsidiaries for borrowed money following such action would exceed $_____] [other than equipment leases, bank lines of credit or trade payables incurred in the ordinary course] [unless such debt security has received the prior approval of the board of directors, including the approval of [at least one] preferred director];</li><li dir="ltr">Purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares of capital stock of the corporation other than (i) redemptions of, or dividends or distributions on, the preferred stock as expressly authorized herein, (ii) dividends or other distributions payable on the common stock solely in the form of additional shares of common stock and (iii) repurchases of stock from former employees, officers, directors, consultants, or other persons who performed services for the corporation or any subsidiary in connection with the cessation of such employment or service at no greater than the original purchase price thereof [or (iv) as approved by the board of directors, including the approval of [at least one] preferred director];</li><li dir="ltr">Create, or authorize the creation of, or issue, or authorize the issuance of any debt security or create any lien or security interest (except for purchasing money liens or statutory liens of landlords, mechanics, materialmen, workmen, warehousemen and other similar persons arising or incurred in the ordinary course of business) or incur other indebtedness for borrowed money, including, but not limited to, obligations and contingent obligations under guarantees, or permit any subsidiary to take any such action with respect to any debt security lien, security interest or other indebtedness for borrowed money[, if the aggregate indebtedness of the corporation and its subsidiaries for borrowed money following such action would exceed $_____] [other than equipment leases, bank lines of credit or trade payables incurred in the ordinary course] [unless such debt security has received the prior approval of the board of directors, including the approval of [at least one] preferred director];</li><li dir="ltr">Make, or permit any subsidiary to make, any loan or advance to, or own any stock or other securities of, any subsidiary or other corporation, partnership, or other entity unless it is wholly owned by the company;</li><li dir="ltr">Guarantee, directly or indirectly, or permit any subsidiary to guarantee, directly or indirectly, any indebtedness except for trade accounts of the company or any subsidiary arising in the ordinary course of business;</li><li dir="ltr">Incur any aggregate indebtedness in excess of $[_____] that is not already included in the budget, other than trade credit incurred in the ordinary course of business;</li><li dir="ltr">Hire, terminate, or change the compensation of the executive officers, including approving any option grants or stock awards to executive officers;</li><li dir="ltr">Sell, assign, license, pledge, or encumber material technology or intellectual property, other than licenses granted in the ordinary course of business; or</li><li dir="ltr">Enter into any corporate strategic relationship involving the payment, contribution, or assignment by the company or to the company of money or assets greater than [_____] dollars ($[_____]).</li></ul>So, if you have an outside investment with these terms and are bidding on small business contracts with the federal government, you are at significant risk of not only losing a size protest but, in some instances, you may face action under the False Claims Act.Case law and guidance from SBA also clarifies that minority investors may take actions that are meant to protect their own interests, rather than impede a small business’s ability to control its day-to-day operations. In other words, a minority investor may block extraordinary actions without SBA finding the minority investor has negative control over the small business. Although there is no bright-line test for what meets this standard, OHA has found that a minority investor can block the following extraordinary actions without the result of its actions becoming a finding of control by minority investors:<ul><li>Selling all or substantially all of a company’s assets;</li><li>Mortgaging or placing an encumbrance upon all or substantially all assets of a company;</li><li>Engaging in any action that could result in a change in the amount or character of a company’s contributions to capital;</li><li>Changing the character of a company’s business;</li><li>Amending a concern’s charter, bylaws, operating agreement, or the articles of organization;</li><li>Taking an action in contravention of a concern’s operating agreement;</li><li>Committing any act that would make it impossible for a company to carry on its ordinary course of business;</li><li>Disposing of the goodwill of a company;</li><li>Correcting a false or erroneous statement in a concern’s articles of organization;</li><li>Submitting a company’s claim to arbitration;</li><li>Confessing about a judgment;</li><li>Initiating litigation;</li><li>Issuing additional stock;</li><li>Entering into substantially different lines of business;</li><li>Adding new members;</li><li>Dissolving the company;</li><li>Approving an increase or decrease in the size of the concern’s board;</li><li>Approving an increase or decrease in the number of authorized interests, or reclassifying interests;</li><li>Amending the operating agreement in any manner that materially alters the rights of existing members; and</li><li>Filing for bankruptcy.</li></ul>Navigating the line between day-to-day management and extraordinary actions and staying attuned to further developments in case law that provide additional data points about what falls on either side of that line are critical for both small startups and investors. However, the key action item for investors and small businesses is to review their current agreements and, at minimum, eliminate any of the prohibited negative controls before submitting future small business proposals. You can gain an invaluable amount of the knowledge needed to manage the legal aspects of launching, funding, and growing a startup, with insights to avoid many common mistakes that can have serious consequences down the road at <a href="https://scaleup.mofo.com/" target="_blank">MoFo ScaleUp</a>.<a href="#_ftnref1" target="_self">[1]</a> We note that the risk around affiliation for the SBIR program is significantly mitigated by 13 CFR 121.702(c)(9), where SBA has gone out of its way to make the program more accessible to investors (“If a venture capital operating company, hedge fund, or private equity firm that is determined to be affiliated with an awardee is a minority investor in the awardee, the awardee is not affiliated with a portfolio company of the venture capital operating company, hedge fund, or private equity firm, unless: (i) The venture capital operating company, hedge fund, or private equity firm owns a majority of the portfolio company; or (ii) The venture capital operating company, hedge fund, or private equity firms holds a majority of the seats of the board of directors of the portfolio company.”

Venture Capital Investment in a Small Business? Know the SBA rules first.

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