Notwithstanding the uncertainty associated with the upcoming change in Administration, we decided to push forward with issuing the second edition of Steptoe’s Government Contractor Supply Chain Toolkit. Version 2.0 of the Toolkit (available here) provides an update on various federal rules and developments imposing supply chain requirements on federal contractors and subcontractors. The updated Toolkit includes:
- Updates on newly issued employment requirements, such as rules addressing the “Fair Pay and Safe Workplaces” and “Paid Sick Leave for Federal Contractors;”
- A snapshot of the major – and fast evolving – cybersecurity requirements;
- Other regulatory updates on human trafficking, counterfeit parts, subcontracting limitations for contracts set aside for small businesses, and the expanded scope of the SBA’s Mentor-Protégé program for all “small” businesses; and
- Recent civil and criminal enforcement activities by the federal government arising from supply chain risks, including in the areas of illegal kickbacks, counterfeit parts, and the Trade Agreements Act.
Although the conventional wisdom seems to suggest that the new administration will roll back some of the Obama administration’s initiatives in the federal government’s supply chain, such as certain Executive Orders imposing employment-based requirements, there is no question that supply chain risk management will continue to be a key element of compliance programs for government contractors. Despite differences in political views, for example, the federal government will continue its emphasis on increasingly stricter requirements for cybersecurity in the supply chain, particularly in light of recent reports of Russian and Chinese hacking. In 2016, we also saw an increase in scrutiny and enforcement by the General Services Administration (GSA) relating to contractors’ compliance with the Trade Agreements Act, which is intended to ensure that products sold to the federal government are made in the US (or in approved countries with existing trade agreements). It seems likely that this focus on compliance with country of origin and other American preference laws will continue – if not substantially increase – under the new administration.
At the same time, there is at least some congressional awareness of the potential adverse impacts of increasing supply chain requirements on federal contractors and subcontractors. In passing the National Defense Authorization Act (NDAA) for Fiscal Year 2017, Congress included a provision (Section 887) calling for the review of contractual flow-down provisions in the federal supply chain. Section 887 requires the Secretary of Defense, through an independent entity, to review the necessity and effects of contractual flow-down provisions related to major defense acquisition programs on contractors and suppliers. The section specifically requires DoD to, inter alia, (i) identify FAR and DFARS clauses that flow-down into the supply chain, (ii) indicate which of them are critical for national security, (iii) examine the extent to which flow-down clauses in DoD contracts are applied inappropriately in the subcontracts, (iv) assess unnecessary costs and burdens of those provisions on the supply chain, and (v) determine the effect, if any, of such flow-down provisions on the participation rate of small businesses, contractors for commercial items, nontraditional defense contractors, universities, and not-for-profit research organizations in defense acquisition efforts. The NDAA requests a report no later than August 1, 2017 addressing the findings of this review and proposed actions to take in response.
Nonetheless, contractors should not expect this report to substantially relieve them of the need to focus on supply chain risk management and we suspect that federal contractors will continue to face increased demands to police their supply chains in various areas. Because the consequences of a failed supply chain risk management program can be severe, Steptoe’s Supply Chain Toolkit is intended to assist government contractors to understand the legal and regulatory framework applicable to supply chain management and to navigate supply chain risks. Version 2.0 of the Toolkit is available here.