Contracting

The Supreme Court ruling that falls squarely on the contractor-government intersection

The Supreme Court rule last week that people subject to administratively-rendered fines and penalties have the right to a jury trial.

Tom Temin@tteminWFED

July 2, 2024 2:39 pm

7 min read

The Supreme Court rule last week that people subject to administratively-rendered fines and penalties have the right to a jury trial. The ruling had to do with the Securities and Exchange Commission. But as dissenter Justice Sotomayor said, it could upend the operations of many agencies. Federal sales and marketing consultant Larry Allen joined the Federal Drive with Tom Temin with his reaction.

Interview Transcript:

Tom Temin
We know the SEC has been involved in Donnie Brooks for a number of years over its administrative power. A lot of people see its administrative judges as making the agency its own judge and jury in cases. What’s the big takeaway for federal contractors here.

Larry Allen
Tom, I think the big takeaway for federal contractors is precisely because agencies like the SEC act as their own judge and jury in a number of administrative functions. And I think the ruling here in SEC v. Jarkesy has wide ranging implications for government contractors. First, government contractors, like other businesses are subject to fines from [Occupational Safety and Health Administration (OSHA)], the Department of Labor, from the EPA, we also know that there are special penalties that government contractors can come upon in the conduct of their government business. So I’m not saying that all of these things immediately become suspect. But I think that there certainly is going to be a review of them to see which ones apply to government contractors in specific situations. I think further, this ruling is just one of several, Tom. So this is not an isolated incident. This is one where you have federal courts generally rolling back the power of the administrative state saying to the administrative state, Hey, if you go too far afield from what Congress gave you the authority to do, we might clip your wings on that. So stay a little closer to what Congress intended.

Join us July 16 at 2 p.m. for insights from the State Department on how to strengthen the cybersecurity workforce, sponsored by ExtraHop.

Tom Temin
In the meantime, though, whatever regulations are out there, whatever penalties might be served by an agency to a contractor, you’re not absolved until a court case says you are at this point.

Larry Allen
Well that’s right, I believe so. I think if you’re a contractor, and you find yourself in one of these administrative tribunals, facing fines or other adverse actions, you ought to talk with counsel to see if this case, the precedent set by the Supreme Court last week affects your business. If so, you may very well be able to get out of a tribunal and into a court, very much have your day in court, quite literally, which really is what the case the court ruled on last week was all about. They didn’t tell Jarkesy, Hey, you’re good to go, you’re not good to go. What they said was that he’s due a day in federal court to defend himself. And only if that court then decides that he should be found guilty, will that be the proper way of bringing about justice.

Tom Temin
And the reality is that in the case of false claims, act, types of penalties or whatever it might be in contracting. In reality, companies balance the cost of litigation and going to court, which can take years and Lord knows how much in legal fees versus what they have to pay out. And if there’s no prejudice after the payment is made, then they make that calculus and go ahead and pay it.

Larry Allen
Oftentimes they do. We see a lot of things, particularly in the False Claims Act realm, settle out before anything really goes to trial, Tom. But I think that this ruling potentially has other implications for contractors that are going to be a net positive, and that is regulatory groups. In this case, the FAR Council are certainly going to have to take notice of the court’s ruling in this case, decide what their own further rulemakings are going to be and make sure that they meet the standard, the Supreme Court set here and the other federal works are setting in similar fashions. And that’s good news for contractors who have been facing a Macy’s Thanksgiving Day Parade of new government contract rules. And maybe this will slow that down a little bit, and challenge some of those rules that maybe aren’t so transparently tied to an underlying statute.

Tom Temin
We’re speaking with Larry Allen, president of Allen federal business partners. And meanwhile, we are in the fourth quarter soon of the buying year for the federal government. We saw recently the sleepy Joe versus convict Don [Trump] debate, for whatever that was worth. So the country is preoccupied, the government is preoccupied in many way Congress is preoccupied in many ways. So what should contractors assume this fourth quarter?

Larry Allen
Tom, my advice to contractors for this fourth quarter is to assume nothing. Make sure that you are dotting your I’s and crossing your T’s. And there are a couple of ways that that manifests itself. One is, don’t assume that your customer knows how to buy from you. This is something we talk about this time of year, every year Tom. And yet, when I’m out talking to clients, and even people in government, it still comes up to the top. So if you’re a government contractor, you want to be prepared with one or two easy and fast ways that an agency can buy from you. Related to that, contractors should never assume that the project they’re working on is as important to the government as it is to them. I’ve found this a lot with companies, particularly small businesses. And I understand that for smaller companies, one or two projects between now and the end of the fiscal year, makes your year or doesn’t make your year. And it’s important to press on those and get them done if you can. And by the same token, you have to understand that your agency customer and their teams, they’re working on probably dozens of procurements like yours, some of which may require more time and attention, and be higher on the priority list. So you as the Contractor have to be the one that’s riding herd on your opportunity, if you want to get it across the finish line.

Tom Temin
And contracting officers themselves get busy. Is it possible to do a little shopping and say, Look, if you can’t handle this is there another SEO that can take this over for you. Is that kind of safe or possible thing to do.

Larry Allen
Tom, that type of thing happens a lot. And in fact, I do think that it’s worthwhile to have those discussions, particularly if you’re talking about larger pieces of business. GSA, for example, runs an entire Assisted Acquisition Service, whose job it is to conduct acquisitions on behalf of customer agencies, there’s a similar organization in the Department of Interior, the Interior Business Center, and there’s a small office in NIH, that does the same types of things for NIH agencies. So if your agency contracting officer is underwater, with all the work they have to do, absolutely, you can recommend that they seek help from one of these assisted acquisition functions. If you’re going to do that, though, I would recommend doing that sooner rather than later. They also get backed up, they also get committed. And at some point, during the next couple of months, we’re going to see them mostly close the gates, at least on a formal basis. And you’re gonna have to work on a one off situation to try and get them to take your buy. If that’s where you want to go.

Read more: Contracting

Tom Temin
Yes. And we’re in that quadrennial occurrence of when we’re going to have continuing resolutions, late budget, which always depresses spending. Because agencies don’t know what they’re going to end up with. So they’re reluctant to start new things. And then the election, the national election, that tends to be a depressive effect on spending in contracting. Fair to say?

Larry Allen
I think that’s fair to say. I think you’re gonna see a lot of nuts and bolts things done. This fourth quarter, you will see some innovative projects, because there’s just so much of a need for it. And there are people at every level of government who understand the need for innovative government. However, it’s not going to be as maybe robust as it was last year for all of the reasons you cite. Doesn’t mean the money’s not going to get spent, it’s just a question of what it’s going to get spent on. It might be more of the traditional things, where they put the innovative brand new solution on hold until the next group of people come in to manage the agency.