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    The World Bank’s Office of Suspension and Debarment (OSD) released its latest “Report on Functions, Data and Lessons Learned” this spring. The Report (pdf) provides important insights into the World Bank’s sanctions process. That process starts with the World Bank’s integrity vice presidency (“INT”), which investigates any allegations of sanctionable practices in the performance of a World Bank project. The OSD then evaluates the information gathered by the INT and, if it deems the evidence sufficient, will issue a notice of sanctions proceedings and recommend an appropriate sanction. According to the OSD Report, the sanction most often recommended is debarment with conditional release. If the respondent chooses not to contest the allegations or the recommended sanction, then the proposed sanction is imposed. According to the Report, respondents contested only about one third of cases. The OSD goes forward with the vast majority of cases submitted by the INT. According to the Report, the OSD has rejected only 4 percent of the cases brought by the INT in their entirety, and has referred 36 percent of cases back to the INT for revision. The respondent may appeal the case to the World Bank’s Sanctions Board. The Sanctions Board reviews cases de novo and may hold hearings. According to the Report, appeals were taken to the Sanctions Board in only 33 percent of cases. The World Bank’s sanctions procedures also provide that a party can seek settlement at any time in the sanctions process. According to the Report, a total of 52 cases brought during the last eight years resulted in settlement agreements. The majority of these settlements occurred during the most recent part of the time period covered by the Report, suggesting that settlement activity may also be increasing. In total, the Report states that 368 firms and individuals were sanctioned in the 2008-2015 period. The majority were sanctioned during the most recent part of this time period. If the sanction imposed is debarment with conditional release or conditional non-debarment, the World Bank normally requires the implementation of an integrity compliance program. The Report notes that the World Bank has developed detailed guidance on the conditions for release from debarment, and that these conditions focus on the debarred party demonstrating the adequacy of its integrity compliance program. The Report also reveals that the vast majority of sanctions cases -- 83 percent -- involved allegations of fraud.  Only 18 percent involved corruption, 8 percent collusion, 4 percent obstruction and 1 percent coercion. Of the cases involving fraud, about half involved forged third party documents, while most of the remainder involved misrepresentations by the respondent. One important lesson from the Report is that the World Bank has ramped up its enforcement activities in recent years. Therefore, companies that wish to continue working on World Bank projects would do well to adopt rigorous compliance regimes. The Report also suggests that the Bank may be increasingly interested in settling sanctions cases. The Report specifically highlights the timeliness of cooperation, the fast payment of restitution reflecting genuine remorse, and the prompt acceptance of responsibility as mitigating factors in determining sanctions. However, even in settlements, the World Bank has often insisted on the imposition of onerous conditions. Therefore, although a settlement may result in a shorter period of debarment, the onerous requirements that the World Bank often insists upon as part of a negotiated settlement may outweigh the advantages of taking this path. “Practice note: New insights from World Bank about its sanctions process,” by Dave Nadler and Adam Proujansky in The FCPA Blog on July 18, 2016. To view this article online, please click here.    

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    To read the full text of the articles in the September 2016 edition of Mainbrace, please download the PDF. A Note from the Editor by Thomas H. Belknap, Jr. It’s hard to believe another summer has come and gone. The kids are back in school, the commuter trains are a bit more crowded, and everyone is back from their holidays, hopefully refreshed and ready to get back down to business. We know we are. (Read more) First Offshore Wind Project in United States to Launch This Fall  by Jonathan K. Waldron and Joan M. Bondareff Although skeptics said it couldn’t happen, the first offshore wind project in the United States is scheduled to begin operation by the end of this year, bringing wind power to shore from waters off Block Island, Rhode Island. Bragging rights can go to Jeffrey Grybowski and his team at Deepwater Wind. (Read more) Is the Maritime Industry Ready to Embrace Drones? by Sean T. Pribyl  Unmanned aerial systems (“UAS”), or “drones” in common parlance, have not been a part of the historical maritime vocabulary. At least, not yet. While UAS may conjure images from science fiction, the reality is that companies are designing commercial UAS for the private sector. In fact, UAS are gradually permeating our daily lives, and over the next five years, the commercial UAS industry is predicted to surpass that of the defense industry. (Read more) IMO Interim Guidelines: Recent Developments in Maritime Cyber Risk Management by Kate B. Belmont Cyber risk management continues to be one of the most significant challenges currently facing the maritime industry. With an overreliance on information technology (“IT”) and operational technology (“OT”), the shipping industry is vulnerable to cyber risks, cyber threats, and cyber attacks that could result in significant damages and loss, including loss of business and damage to reputation and property. (Read more) What the Heck Is “Privity”? Is the Limitation of Liability Act Still Relevant? by Jeffrey S. Moller  In the aftermath of a major shipping disaster, a vessel owner may be expected to exercise its right to file a petition to limit its liability in accordance with the U.S. Shipowner’s Limitation of Liability Act, 46 USC §30501, et seq. This may evoke negative press and social media reaction with a now-familiar refrain: Why should a shipowner escape full liability for a disaster by hiding behind a 19th-century (i.e., outdated, antique, and ancient) statute? (Read more) SBA Rule Expands Mentor-Protégé Program, Creates New Opportunities for the Maritime Industry by David M. Nadler and Justin A. Chiarodo After a long wait and much anticipation, the Small Business Administration (“SBA”) issued its final rule expanding the mentor-protégé program to all small businesses on July 25, 2016. The new rule broadly expands upon the existing 8(a) mentor-protégé program, and is projected to result in two billion dollars in federal contracts to program participants. (Read more) Creative Finance: U.S. Bankruptcy Courts Will Not Tolerate Manipulation of COMI and Bad Faith Uses of Chapter 15  by Michael B. Schaedle In chapter 15 practice, recognition of a foreign proceeding (whether a main or nonmain proceeding) focuses on specific statutory bona fides. To prosecute a chapter 15 in the United States, a properly authorized representative of a foreign debtor has to provide a U.S. Bankruptcy Court with straightforward evidence of the raising of a proceeding under foreign insolvency laws, which are designed to create a collective remedy, in a jurisdiction where a foreign debtor either has an “establishment” or a “center of main interests.” (Read more) Foul Weather and Heavy Seas May Follow South China Sea Ruling by Joan M. Bondareff and Sean T. Pribyl The South China Sea is a major shipping route between China, Japan, South Korea, Europe, and the Middle East, with approximately $5.3 trillion in shipping trade passing through the region every year. The South China Sea is also a vital area for environmental resources, including fisheries and marine species. Freedom of navigation and adherence to the rule of law is of paramount importance to the international shipping community. (Read more) © 2016, BLANK ROME LLP. Notice: The purpose of this newsletter is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. The Advisory should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel. Additional information on Blank Rome may be found on our website www.blankrome.com.

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    The Defense Contract Audit Agency’s fiscal year 2015 report to Congress, issued March 15, 2016, showed that the agency took a definite step in the right direction in reducing its incurred cost proposal (“ICP”) audit inventory. The DCAA improved its efficiency in addressing ICP audits by decreasing the average time for completion from 1,006 days in fiscal year 2014 to 883 days in fiscal year 2015 (a 22 percent improvement), and closed out 1,925 ICP audits. So far so good, but the report was also notable for what it did not say — the many thousands of ICP audits that have accumulated over much of the past decade, which remain pending at the DCAA and still require prompt resolution. The DCAA’s substantial audit backlog poses problems for both the government and industry. For the government, it means that cost recovery efforts on behalf of the government have been substantially slowed and in many cases stalled. For industry, it means increasingly intolerable burdens of maintaining aged records for a growing number of matters that should have been closed almost a decade ago. In light of these problems, Congress, in Section 893 of the 2016 National Defense Authorization Act, stated that the DCAA “may not provide audit support for non-Defense Agencies unless the Secretary of Defense certifies that the backlog of incurred cost audits is less than 18 months of incurred cost inventory.” The purpose of the prohibition was to focus the DCAA on its core mission of providing audit support to U.S. Department of Defense agencies, an effort which had been diluted in recent years by the DCAA’s static, if not shrinking, workforce, combined with its ever growing involvement in ancillary or collateral tasks such as investigations, special audits and litigation support that traditionally have been beyond the DCAA’s purpose as the DOD’s audit arm. In a Sept. 30, 2016, memorandum to regional directors, the DCAA stated that as of Oct. 1, 2016, the agency may again provide audit support for non-DOD entities. The memorandum stated that the DOD comptroller has certified to Congress that the DCAA has reduced its ICP backlog to under 18 months, thus satisfying the conditions placed on the DCAA by Congress in Section 893. While the announcement is promising, congratulations may be premature. The memorandum did not provide any statistics on the number of ICP audits completed, how the DCAA is counting audit inventory and whether the DCAA has met the requirement to be “current” as defined in the 2016 NDAA. Indeed, in response to Freedom of Information Act requests, the DCAA acknowledged that it still has 5,712 ICPs in inventory but this figure is susceptible to multiple interpretations given these open questions. Industry will, thus, likely need to wait for the DCAA’s fiscal year 2016 report to Congress to get a better measure of the agency’s actual ICP progress in 2016. However, in the meantime, industry could be in store for disappointment. First, the DCAA traditionally has not considered an incurred cost proposal to be backlogged until it has been pending for two years because the agency has considered that a “steady state” of two years’ worth of pending incurred costs proposals is within the agency’s normal course of business and, thus, is not considered backlog. Accordingly, given the issues regarding the starting point for counting inventory, it is unclear how the DCAA has decreased its backlog to under 18 months. Specifically, because the DCAA does not consider an ICP to be backlogged until two years have passed, it is unclear whether the 5,712 presently open ICPs disclosed by the DCAA in response to FOIA requests have been pending for two years, are therefore considered backlogged, and thus represent the 18-month backlog requirement mandated by Congress, or if the figure constitutes all open ICPs in inventory regardless of how long they have been pending. If the latter, there may be many more open incurred cost proposals than the 5,712 proposals that the DCAA has disclosed through FOIA. Moreover, putting aside the DCAA's interpretation of when an ICP is technically deemed to be backlogged, in January 2016, the DCAA, in evaluating the phrase “audit support” in Section 893, concluded that the term excluded activities such as negotiation support, litigation support, investigative support, and nonaudit services such as requests for specific cost-rate information. The DCAA also concluded that the de minimis testing of non-DOD direct costs may continue despite the Section 893 ban because there should little impact and burden to the agency’s workload and resources from such efforts. However, the DCAA left it to individual audit teams to determine whether a particular effort is de minimis, so the agency did not establish any thresholds for determining whether a civilian direct cost audit is allowable despite Section 893’s prohibition against such audit support until the DCAA has made substantial progress in clearing out its DOD audit log. Therefore, while the DCAA has been restricted for most of this year from providing official audit support to civilian agencies, it appears that the DCAA has still been providing some audit support, as well collateral services, to those agencies. Contrary to congressional intent, the DCAA has not focused exclusively on its DOD backlog. While it is too soon for any conclusions, the DCAA’s continued civilian involvement, despite Section 893, calls into question just how the DCAA has decreased its ICP backlog to under 18 months, given the thousands of pending ICPs that have accumulated over the past decade, the DCAA’s already strained resources, and the agency’s ever continuing endeavors to expand its mission profile. Finally, even with its certification to Congress, it is questionable whether or to what extent the DCAA should re-engage in civilian agency audits, and certainly whether it should continue to involve itself with nonaudit support activities for any agency, defense and civilian alike. Such activities were never part of the DCAA’s prime mission, and there are compelling reasons that the DCAA should not only fully catch up, but focus only on auditing DOD incurred cost proposals, before again engaging in civilian audits and-or collateral services that are well beyond its original mandate. In any event, even if the DCAA chooses to continue down this path, it should review, enhance and revise its business practices and procedures, including engaging in greater industry outreach, revising its performance metrics and reprioritizing its agenda, before doing so, in order to avoid a reoccurrence of substantial audit backlogs. In sum, while the DCAA’s certification to Congress is certainly a positive development, industry will need to await the DCAA’s fiscal year 2016 report to Congress to truly gauge the DCAA’s progress this year. “Measuring DCAA's Actual Progress on Incurred Cost Proposals,” by Dave Nadler and David Yang was published Law360 on November 17, 2016. To view the article online, please click here.

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    The Department of Homeland Security (“DHS”) recently issued three new proposed cybersecurity regulations for DHS contractors which warrant careful attention. Although a freeze on new regulations by the Trump administration will likely delay any final agency action, and extensive comments and meaningful changes to any final rules are expected, these new regulations could radically impact the compliance landscape for DHS contractors.  To read the full blog article, please click here. 

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    To read the full text of the articles in the January 2017 edition of Mainbrace, please download the PDF. A Note from the Editor by Thomas H. Belknap, Jr. As we launch into a new year, uncertainty remains the word of the day. Whatever your political leanings, it would be hard to dispute that the inauguration of the Trump administration augurs change on many fronts, from shifting and testing political alliances to evolving trade and energy policies and infrastructure development and growth. (Read more) The Future of the Maritime Industry under a Trump Administration — Part I  by Jonathan K. Waldron, Matthew J. Thomas, and Joan M. Bondareff Those engaged in the maritime industry are extremely interested in what the Trump administration will mean for our industry. Although a challenging task, here is what we see in some key areas as we look into our “crystal ball,” just as the new administration gets started. (Read more) Ballast Water Challenges Continue: Several New Things You Should Know by Jeanne M. Grasso On December 2, 2016, the U.S. Coast Guard (“USCG”) reached a watershed moment in the implementation of its ballast water management regulations by announcing the first USCG type-approved ballast water management system (“BWMS”), a filtration-ultraviolet system manufactured by Optimarin AS, based in Norway. (Read more) Blank Rome’s Maritime Practice Ranked in U.S. News – Best Lawyers® 2017 “Best Law Firms” Blank Rome LLP is pleased to announce that the Firm’s maritime practice was highly ranked in the national U.S. News & World Report – Best Lawyers® 2017 “Best Law Firms” survey, and received numerous regional top-tier rankings throughout the Firm’s offices. (Read more) Maritime Cybersecurity: Protecting Passengers and Their Private Information in the Cruise Industry by Kate B. Belmont Cybersecurity has become a critical focus for all industries reliant on information technology (“IT”). Massive data breaches, cyber espionage, and hacking events sponsored by nation states around the globe occur with growing frequency. In response to the obvious and undeniable necessity of cyber­security, certain industries, such as financial services, have aggressively tackled the challenges of cyber­security head-on. (Read more) Red Sky in Morning: Seventh Circuit Reverses Seaman’s Manslaughter Convictions  by Gregory F. Linsin and Emma C. Jones A December 2016 United States Court of Appeals decision highlights a recent, troubling trend of aggressive criminal prosecution of vessel owners and crew members following marine casualties involving a fatality. In a remarkable opinion, the Seventh Circuit in United States v. Egan Marine Corp. overturned the criminal convictions of a tug owner and the tug’s master for violation of 18 U.S.C.A. § 1115, colloquially referred to as the “Seaman’s Manslaughter statute.” (Read more) Celebrating 70 Years Did you know that in 1946, Blank Rome started as a Philadelphia-based law firm of just two attorneys, then known as the law offices of Blank & Rudenko? We recently celebrated our 70th anniversary by reflecting upon the many milestones and successes we have achieved on behalf of our clients, for the communities in which we live and work, and as an innovative firm that continues to grow and evolve. (Read more) Blank Rome Announces 2017 Promotions Blank Rome LLP is pleased to announce that the following attorneys have been elected partner and elevated to of counsel, effective January 1, 2017. The newly elected partners are Mayling C. Blanco, Dayna C. Finkelstein, Andrew J. Haas, Alex E. Hassid, Nikhil A. Heble, Michael A. Iannucci, Rustin I. Paul, Christopher J. Petersen, James J. Quinlan, and Jonathan M. Robbin. The new of counsel are Marquel S. Jordan, Jason I. Miller, Kevin M. O’Malley, and Adrien C. Pickard. (Read more) Blank Rome Earns Perfect Score in 2017 Corporate Equality Index Blank Rome LLP is pleased to announce that it has received a perfect score of 100 percent on the 2017 Corporate Equality Index (“CEI”), a national benchmarking survey and report on corporate policies and practices related to LGBT workplace equality, administered by the Human Rights Campaign (“HRC”) Foundation. (Read more) The Dual Threats of “Wrongful Arrest” and “Counter-Security” in U.S. Maritime Actions: Practical Considerations for the Foreign Litigant by Jeremy A. Herschaft and Lauren B. Wilgus Restraining maritime property ex parte within the district of a United States federal court represents a challenging and “high stakes” area of admiralty practice for the American maritime litigator. Given the significance of this unique type of litigation and its inevitable impact on maritime commerce, two preliminary questions are almost always asked by our foreign colleagues at the outset of conflict. (Read more) Critical GAO Bid Protest Deadlines and Timeline by David M. Nadler, Merle M. DeLancey, Jr., and Lyndsay A. Gorton Almost daily, clients call our office seeking to protest the award of a federal government contract. Unfortunately, sometimes these calls are too late. While contracts can be protested at the agency level, the Court of Federal Claims, and the Government Accountability Office (“GAO”), GAO protests are the most common. (Read more) The Future of the Maritime Industry under a Trump Administration – Part II by Jonathan K. Waldron, Joan M. Bondareff, Sean T. Pribyl, and Kate B. Belmont In offering his views on foreign policy and national security, President Trump’s “Put America First” policy proposes to make the interests of the American workforce and national security his top priorities. In a step generally considered to be in direct support of that policy, President Trump has nominated retired Marine Corps General John Kelly to head the Department of Homeland Security (“DHS”). (Read more) © 2017 Blank Rome LLP. All rights reserved. Please contact Blank Rome for permission to reprint. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.  

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    On December 1, 2016, the Federal Rules of Civil Procedure (the “Rules”) were amended to make the “three-day rule” inapplicable to electronic filers and litigants who agree to receive filings electronically. The “three-day rule” provided an additional three days to respond if a filing was not served personally, i.e., if it is mailed or electronically filed.  To read the full article, please click here. 

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    The Defense Contract Audit Agency had an active year in 2016. At the close of last year, DCAA had issued six memoranda for regional directors (MRDs), including certifying to Congress on Sept. 30, 2016, that the agency had reduced its incurred cost audit backlog to under 18 months. In the 2016 National Defense Authorization Act, Congress suspended the DCAA’s authority to provide audit support for civilian agencies until it could provide this certification, leaving the agency only able to audit U.S. Department of Defense activities. While questions may persist in 2017 regarding the DCAA’s civilian authority (Congress has requested that the U.S. Government Accountability Office provide a report by March 1, 2017, regarding how the DCAA measures its audit backlog), a host of issues carried over from 2016 will likely capture much of the DCAA’s and industry’s attention in 2017. As the DCAA resumes its civilian authority, contractors should be mindful of the following developments that may impact DCAA audits in 2017. Perhaps most notable for 2017 is the DCAA’s continued implementation of its "Selected Areas of Cost Guidebook," which it introduced in September 2016. While the matter remains a work in progress, chapter 7 of the DCAA’s "Contract Audit Manual" (CAM) has been replaced with this new guidance in the form of 75 chapters. The ultimate scope and impact of the DCAA’s changes from its CAM to the new guidebook remain unclear, but the changes will certainly create uncertainty for contractors in 2017 and beyond. For example, while there are 46 substantive cost principles under Federal Acquisition Regulation Part 31.2, there are 75 chapters in the guidebook, many of which appear to narrower than the FAR cost principles. These differences could result in areas of cost guidance by the DCAA that lack a corresponding cost principle in the FAR or in situations where several chapters of guidance contain more burdensome requirements than those under the regulations. In addition, several MRDs issued by the DCAA in 2016 will continue to impact contractors in 2017. First, pursuant to its Feb. 29, 2016, memorandum, the DCAA allows the use of a blended cap for calculating executive compensation for contracts issued on or after June 24, 2014, which cap compensation to $487,000, and the compensation limits that are applicable for prior years. While contractors may continue to calculate compensation by grouping contracts by period, the blended approach (essentially a weighted average) may be easier to perform. Contractors that intend to use a blended cap will need to obtain an advance agreement with their administrative contracting officers. Second, in its Feb. 11, 2016 memorandum, the DCAA stated that if a contractor was still delinquent on its incurred cost proposals for 2014 and any prior years by June 30, 2016, and had not obtained an extension from the Defense Contract Management Agency, the DCAA will close the file, remove the audit from the agency’s audit log, and recommend a 16.4 percent decrement to the contractor’s direct and indirect incurred costs for the affected years. Accordingly, contractors should be prepared to address any decrements applied by their contracting officers pursuant to this memorandum. Moreover, as the DCAA resumes its civilian audit support functions in 2017, contractors should be aware of significant regulatory changes that may impact DCAA audits in 2017. For example, an important rollover from last year is the final rule issued by the U.S. Department of Labor on Sept. 29, 2016, covering solicitations issued on or after Jan. 1, 2017. The rule requires that contractors provide paid sick leave to their employees, at a rate of one hour of leave for every 30 hours worked. Prior to the rule, contractors typically paid sick leave as it was taken and, thus, they accounted for the expense on a cash accounting basis. However, under the new rule, contractors will need to accrue sick leave as it is earned, which will require contractors to move to an accrual basis of cost accounting. As this change could mark a substantial change in accounting practices and result in substantially increased costs, contractors should be prepared to address the matter with the DCAA in connection with any solicitations that are affected by the rule. Another significant development from last year that may carry over into 2017 are the Fair Pay and Safe Workplaces rules issued by the FAR Council and DOL on Aug. 25, 2016, to implement Executive Order 13673 signed by President Obama. Among other requirements, the rules require contractors to disclose any violations of 14 labor laws, impose a three-year look-back period on the reporting obligation, and require that these provisions be flowed down to subcontractors. The U.S. District Court for the Eastern District of Texas enjoined these provisions a day before their effective date on Oct. 25, 2016. However, if these rules survive under the Trump administration (which is unlikely given the House’s passage of a bill to eliminate the rules altogether), the burdens on industry will be substantial and contractors should be prepared for questions by the DCAA about their ability to comply with the new requirements. Other agencies also implemented significant regulatory changes that may impact DCAA audits in 2017. For example, pursuant to a final rule issued on June 23, 2016, the General Services Administration made a sweeping change to give existing schedule holders the option of regularly reporting 11 sets of transactional sales data to the GSA, while contractors which submit offers after the date of the final rule will be required to make such reports. The purpose of using transactional data is to reduce the price variance currently observed on schedules held by different contractors for the same or similar items. If current schedule holders opt into the program, they will no longer need to submit commercial sales practices (CSPs) or be subject to the price reductions clause. Instead, the basis of award and any applicable discounts will be negotiated pursuant to the transactional data provided by the contractor. Contractors who choose not to participate will still need to provide CSPs and be subject to price reduction requirements. As the DCAA resumes providing civilian audit support, contractors should weigh and consider appropriate responses to these developments in the civilian contracting sector in order to efficiently address any DCAA inquiries in these areas. Finally, the expanded scope of DCAA audits is not limited to the civilian sector but could also impact DOD audits. In this regard, on Aug. 30, 2016, the Department of Defense issued a final rule on counterfeit electronic parts which clarified that costs incurred in connection with counterfeit electronic parts, including any reprocurement costs by the government, may be allowable if a contractor has an approved quality assurance system and timely discloses suspect parts to the government. As the potential to recover previously unallowable costs could impact DCAA determinations in audits of DOD contracts, contractors operating under these contacts should be prepared to address the reimbursement of such costs with the DCAA. The DOD also issued a June 21, 2016, defense procurement and acquisition policy memo to the Army, Navy and Air Force promoting participation in a pilot program authorized under the 2016 NDAA to raise the threshold for submitting certified cost or pricing data from $750,000 to $5 million on selected procurements. In addition, by a separate final rule issued on Aug. 30, 2016, the DOD raised the threshold for submitting certified cost or pricing data by small business and nontraditional defense contractors (essentially, technology companies) to $7.5 million also on select procurements. These risk-based pilot programs are intended to determine whether raising the threshold for certified cost or pricing data will promote greater participation in government contracting by technology companies that traditionally have focused on only commercial markets. However, with now three thresholds for submitting certified cost or pricing data, contractors will need to document which rules apply to which contracts. Contractors may also be uncertain as to which of contracts are covered under the Cost Accounting Standards. Previously, CAS-covered contracts and contracts subject to the Truth in Negotiations Act’s requirements to submit certified cost or pricing data moved in tandem with both sets of contracts setting forth the applicable threshold at $750,000. Given the now varying thresholds required for submissions of certified costs or pricing data, contractors operating under such contracts should review their systems and records to ensure that there is a clear paper trail that can be provided to the DCAA in the event the DCAA addresses the need to provide any cost, pricing, or any other supporting data. With the restoration of the DCAA’s civilian audit jurisdiction for 2017, the civilian regulatory developments, and the changes in DOD regulations, contractors should be prepared to address these requirements and developments with the DCAA to facilitate an efficient review by the DCAA of their incurred cost or other submissions. To prepare, contractors should review their business systems, including their supply chain management procedures, to determine whether their systems comply with these requirements, document their analyses, and raise any issues with their contracting officers or the DCMA as early as possible. A well-planned and coordinated assessment will be beneficial for contractors to facilitate DCAA audits in 2017 and beyond. “It’s Full Steam Ahead for DCAA in 2017,” by David Nadler and David Yang was published in Law360 on February 3, 2017. To read the article online, please click here.

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    On January 5, 2017, the Office of Federal Procurement Policy (“OFPP”) issued a “myth-busting” memorandum to Chief Acquisition Officers, Senior Procurement Executives, and Chief Information Officers in the federal government addressing common myths related to government debriefings. To read the full article, please click here. 

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    Despite recent political shifts away from globalization, international trade remains a bedrock of the U.S. economy, and companies doing business in the United States must be cognizant of the intricate set of export control regulations promulgated by the U.S. government. In today’s rapidly changing economy, it is more important than ever for companies to thoroughly assess their connections to the international marketplace.  To read the full article, please click here. 

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    Giant commodities trader Mercuria announced in January that it would employ blockchain technology to sell an oil cargo to ChemChina. This month, IBM revealed a blockchain collaboration with Maersk to track its cargo. Previously, blockchain served as the foundation to secure bitcoin transactions. Now, it promises to supersede hundreds of years of maritime commercial practice by replacing bills of lading and attendant transactional documents, substituting a secure online mechanism to buy and sell goods. Maritime traders and brokers would be wise to keep track of developments with this burgeoning technology because it may bring a sea change in the way they do business. It seems unlikely in the short term that blockchain will displace the myriad bill of lading, charter and sale of goods terms and conditions. But it certainly has the potential to disrupt the way goods and services are bought and sold, by eliminating the need for middlemen to carry out the financial aspects of each transaction. The implications of blockchain are profound, given that the World Economic Forum estimates trade finance constitutes a $10 trillion annual market. The technology’s cryptographic protections make it virtually tamper-proof. Each transaction must be signed using a private key, which prevents access by unauthorised third parties, and the transaction requires several independent confirmations during the process. Blockchain logs every participant in the process, which supporters hope will prevent money-laundering and create greater transparency. The technology provides for a revision-proof, public timestamp for each transaction. At the moment, there is no universal blockchain technology that governs Internet transactions. A variety of companies, including IBM, Bosch, Microsoft, Samsung, Toyota and Visa, are developing applications to implement the technology and expand its global reach. Nasdaq employs blockchain in its Linq system. More than 2,500 blockchain patent applications have been filed. Other companies, including Thomson Reuters, are forming consortiums to create a broad-based blockchain structure that serves a variety of industries. For example, the Linux Foundation Hyperledger consortium is drawing together hundreds of companies and organisations to create standardised blockchain software. The European Union set up a regulatory task force last year to study blockchain and earmarked EUR 1.1m ($1.18m) for a 12-month pilot project to explore the scope of regulatory technology. If it can be made impervious to hacking, the technology may bolster financial stability and open more avenues for government oversight of financial transactions. Standardisation of blockchain could foster the development of far more “smart contracts” (that is, computer protocols that facilitate, verify or enforce contract performance), ease intellectual property transfers and expedite government contracting and supply-chain services, while reducing infrastructure, compliance and auditing costs. Yet how smart is smart? Will such contracts entail only payment and delivery terms, or will they eventually address the many clauses within a typical bill of lading, charterparty or commodities contract of sale? With the advent of blockchain, coupled with ever-accelerating improvements in artificial intelligence and quantum computing, how long will it be before a smart contract can resolve demurrage disputes, deviation claims, weather-related delays, lien issues and the like? The maritime industry has by no means embraced blockchain at this stage, and it is not at all certain that entrenched and time-honoured commercial practices will easily give way to online technology. Blockchain is not yet available or commonly leveraged into usable applications beyond bitcoin, and it is problematic whether regulatory authorities will approve of this technology and its security protections in less than a glacial age. Consider, though, that when 9-11 occurred, White House press secretary Ari Fleischer learned of the attack via pager and then US president George Bush spoke to his secretary of state over a telephone landline from a primary school. Sixteen years later, current president Donald Trump communicates directly to 26.6 million followers through Twitter. “Blockchain Has the Power to Create a Sea Change in the Way Shipping Does Business,” by Keith B. Letourneau was published in TradeWinds on March 23, 2017. A version of this article was first published in the March 2017 edition of Mainbrace, Blank Rome’s quarterly maritime newsletter.

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    It is no secret that deregulation is a top priority for the Trump Administration and the Republican-led Congress. In the early weeks of governing together, President Trump and House Speaker Paul Ryan have dusted off the Congressional Review Act (“CRA”) as the tool of choice for undoing federal rules and regulatory initiatives implemented by the Obama Administration.  To read the full blog article, please click here. 

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    On Monday, March 27, President Trump exercised his authority under the Congressional Review Act (“CRA”) to nullify the Obama-era Fair Pay and Safe Workplaces Rule, which was promulgated pursuant to President Obama’s 2014 Executive Order 13673. The rollback, which has been much anticipated by the contracting community, is part of a push by the Trump administration and the 115th Congress to scale back a number of contracting regulations that were put into effect under the Obama administration. To read the full blog article, please click here. 

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    A recent news article about an oil commodities transaction sparked considerable interest in the maritime transportation sector when worldwide commodities trader Mercuria announced it would employ ‘blockchain’ technology to carry it out. Previously, blockchain technology served as the basis for securing bitcoin transactions. Now, this technology promises to supersede hundreds of years of maritime commercial practice by replacing bills of lading and attendant transactional documents with a secure online mechanism to buy and sell goods. Currently, and depending on their complexity, maritime transactions involve a litany of paper documents, including multiple bills of lading, letters of credit, contracts of sale and-or charter agreements, and the transmission of those documents and payment proceeds by various means among myriad parties. Whether documents are received or presented in a timely fashion may implicate indemnity obligations set forth in the underlying sales contract or charter. Until now, good reasons existed for these multiple transactions and the obligations they imposed. Each party in the transaction chain wanted assurance of payment for its performance, and protection against the unauthorised delivery of the goods being transported. No fool proof mechanism existed to ensure that the carrier could deliver the goods to the authorised recipient without error. Blockchain technology, also known as distributed-ledger technology, may sweep these documents into history’s dustbin. The implications are profound, given that the World Economic Forum estimates that trade finance is a US$10 trillion annual market. The technology’s cryptographic protections make it virtually tamper proof. Each transaction must be signed using a private key, and requires several independent conformations during the process. Blockchain technology logs every participant in the process, which supporters hope will preclude money-laundering activities and create greater transparency. The technology provides for a revision-proof, public timestamp for each transaction. Blockchain technology provides a secure mechanism to pay for the goods and transfer title, but absent incorporating contract clauses into its architecture, it cannot address the vagaries of what happens during the actual physical transportation. Addressing potential eventualities is the fundamental purpose of the charter and contract of sale terms and conditions. Engaging blockchain technology to buy and sell goods without including clauses addressing force majeure, lien rights, demurrage and its exclusions, notice of arrival, speed and consumption, and dispute resolution provisions, among many others, would leave the contracting parties exposed to a wide variety of potential liabilities. Moreover, each seller and buyer, and each charterer and owner, typically has its own terms and conditions that apply to each peculiar type of transaction. How do these parties preserve their terms and conditions in the new area created by blockchain technology? The technology employed must somehow be configured to include the parties’ terms and conditions at inception, failing which liability exposure will be wide open. The maritime industry has not yet embraced blockchain technology, and whether entrenched and time-honoured commercial practices will willingly give way to it is uncertain. The technology is not yet widely available or commonly leveraged into usable applications beyond bitcoin, and whether and how quickly regulatory authorities will approve blockchain technology and its security protections remains to be seen. Some believe that blockchain technology advocates are a long way from proving its viability in commercial scenarios that involve identity authentication, or the protection of financial or privacy data. But there is no denying the potential. Couple blockchain technology with artificial intelligence and quantum computing as the years go on, and online contractual transactions may become completely self-executing and enforcing. Blockchain technology could reduce the need for middlemen. Commodity brokers and traders will find it harder and harder to create value in the marketplace when online access is readily available to create direct links between buyer and seller. “Blockchain Technology Will ‘Transform the Maritime Industry,’” by Keith B. Letourneau was published in Marine Electronics & Communications on March 30, 2017. To view the article online, please click here. The original version of this article was first published in the March 2017 edition of Mainbrace, Blank Rome's quarterly maritime newsletter.

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    On April 13, 2017, President Trump’s federal hiring freeze will be lifted—at least in part. The hiring freeze was instituted by a presidential memorandum signed on January 23, 2017, and prevents federal agencies from filling vacant federal government positions that existed at that time, or creating new positions. President Trump included certain exceptions, including military personnel and other positions deemed “necessary to meet national security or public safety responsibilities.” The memorandum requests that agencies use existing personnel efficiently and does not prohibit reallocation of resources for the highest priority concerns. To read the full blog article, please click here. 

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    President Trump signed an Executive Order yesterday, marking another step forward in his promotion of “Buy American” and “Hire American” policies. The Executive Order focuses on two areas: cracking down abuse of the H-1B guest worker program and promoting the purchase of American products in federal procurements. We tackle in this post the “Buy American” portion of the Executive Order, which is of particular importance to federal contractors. To read the full blog article, please click here. 

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    The government continues to seek ways to rein in healthcare costs. Now it has set its sights on the Medicare Advantage Program. Medicare Advantage Plans, sometimes called “Part C” or “MA Plans,” are offered by private companies approved by Medicare. If you join a Medicare Advantage Plan, you still have Medicare, but you get your Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance) coverage from the Medicare Advantage Plan and not original Medicare. Medicare Advantage Plans may also offer extra coverage like dental, vision, hearing, and wellness programs. To read the full blog article, please click here. 

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    Blank Rome Partners Keith B. Letourneau and Stephen T. Whelan authored the article on “Blockchain: Staying Ahead of Tomorrow” in the Spring 2017 edition of the Journal of Equipment Lease Financing (Volume 34, Number 2). In their article, Mr. Letourneau and Mr. Whelan discuss blockchain technology, also known as distributed ledger technology, which foreshadows the future of decentralized financial transactions. The authors discuss how blockchain works; its implementation hurdles; smart contracts and their limitations; and the need for interpretive coding. To read the full article, please click here.

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    For years, states and the federal government focused their drug pricing enforcement efforts on higher priced and more expensive branded drugs. Not surprisingly, private qui tam lawyers followed on the coattails of these government enforcement efforts. The focus on branded drugs was not wrongheaded. States, the federal government, and qui tam plaintiffs were handsomely rewarded for such efforts, as in the multiple Average Wholesale Price (“AWP”) cases against brand manufacturers. However, while regulators focused on brands, they subsequently found that the pricing for generic drugs had increased unimpeded. In more recent years, the focus has shifted to generic drug price increases. For example, effective for the first time at the start of 2017, the Medicaid Program applied an inflation penalty component to Medicaid rebate payments for generic drugs. Historically, the inflation penalty applied only to branded drugs. The inflation penalty provides that when a drug’s price increases faster than the increases in the Consumer Price Index for All Urban Consumers, a manufacturer is required to pay an additional Medicaid rebate amount to state Medicaid programs. To read the full blog article, please click here. 

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