Name: Navigating Mergers and Acquisitions in Federal Contracting
Uploaded: 2026-04-09T16:30:42.616Z
Duration: 1 h 3 min 44 s
Description: Navigating Mergers and Acquisitions in Federal Contracting

Transcript for "Navigating Mergers and Acquisitions in Federal Contracting": Good afternoon, everyone, and welcome to today's webinar, navigating mergers and acquisitions in federal contracting. Before we get underway, just a few quick administrative items to note. For your best webinar experience today, you can please use Google Chrome or Firefox. If you do have any questions throughout today's presentation, you can go ahead and type those into the q and a box anytime. You'll, find that box on the right hand side. Just make sure you you click into q and a. We will be addressing as many questions as we can at the conclusion of today's web webinar. Excuse me. And then any questions that are left left unanswered, we will be sure to address individually offline following today's presentation. So please don't hesitate hesitate to get your questions in today. Related resources to today's webinar, including the presentation slides, are available for you to download. You can click into the documents tab on the right hand side of your screen and grab those, slides from today as well as some really great related resources. Just also note you will also be receiving the on demand recording of today's webinar, and that will be sent to you via email within, twenty four hours after the webinar ends. So I'd like to go ahead and introduce our speaker for today. We are pleased to welcome back once again, Maria Panicelli, partner at McCarter in English. Maria is a government contracting attorney and a frequent speaker on our topic compliance webinars. She offers great insights to any of the legal and compliance issues facing contractors today. We are thrilled to have her once again back with us. And with that, I will go ahead and turn it over to you, Maria, to get us started. Thank you very much, and, thanks to everyone out there for joining us today. As you heard, my name is Maria Panacelli. I am a partner with the law firm of McCarter and English. McCarter is a full service law firm. We've got about 400 attorneys, across I think we're up to 12 or 13 offices. We're constantly expanding. So, and the law firm provides, you know, legal assistance across a variety of areas from general corporate representation, to labor and employment, to intellectual property. But, of course, my group is the government contracts group, which means we focus exclusively on procurement. That's what I do all day every day. I guide contractors, both large and small, you know, primes and subs, across a variety of industries working with all different agencies through all the legal needs that come up through the, you know, every stage of the procurement process. So that means my practice includes a lot of different things from bid protests to claims, from subcontracting to compliance, from general performance counseling, and and various different types of small business procurement issues, to terminations, to OCIs. And, of course, what we're gonna be talking about today, specifically mergers and acquisitions in the government contract space. As you heard Leslie say, we're gonna be trying to save some time for questions at the end. But given that there are a lot of you guys on today, if we don't get to all of them, you know, you know, feel free to pop them in the question box anyway. We'll get to what we can, and we'll follow-up with those of you who can't. But, if you've got questions that you don't think about until after the presentation or if you've got questions about another issue a month or a, you know, a year from now, feel free to take down my contact information and and get in touch with me separately offline. Got my email information, my my social information, up there, and, yeah, happy to hear from any of you. You'll hear you'll see the slide again at the the end of the presentation. And as Leslie said, you have access to these slides, so you will be able to get my contact information. Alright. So with that, and I apologize in advance. My voice is a little bit croaky today. Apparently, I'm, having an allergy attack. We are gonna dive into the substance and specifically the substance being government contract, mergers, and acquisitions, and the unique issues that have to be considered when you're talking about, you know, being purchased as a government contractor, and perhaps a little bit more intricately when you are thinking about purchasing a government contract, company. Some of the issues that we're gonna run through and, obviously, in an hour, it's gonna be a a pretty summary level review, but the the point is for you to understand all of the different moving pieces and the different types of things that one might need to think about in, GovCon mergers and acquisition context, so that you then can seek assistance from a legal professional in assessing the the more specific needs in your specific case. But the issues that we're gonna talk about, that we're gonna kind of provide a summary on, are the novation and anti assignment act issues, small business eligibility issues, OCIs, otherwise known as organizational conflicts of interest. We're gonna talk briefly about some intellectual property issues and classified information and security clearance issues. Also, talk about audits and investigations and false claims act. And then finally, some duty to disclose stuff that can impact, when you discover wrongdoing in a company that's been acquired. As we go through, like I said, feel free to pop things in the q and a. We will try to take them as they come in if I can if I can kind of fit it in. Otherwise, leave it till the end, or, of course, I'll do some following up depending on how many we get in there in our brief hour together. Alright. So the first thing I wanna kind of just hit on is a little bit of a question of vernacular. And I know lawyers get a bad rap for always being in the semantics and and, you know, splitting hairs in terms of what words mean. But I think it's important sometimes to kinda set a baseline of what people mean when they say certain things. So you will hear a lot of times when people are talking about mergers and acquisition, you know, this idea of due diligence. The idea that when you are acquiring a company, you need to look into a number of things to kind of figure out if it's a good deal or not. And at least in in my world, and, obviously, you know, corporate law and mergers and acquisitions can differ in from context to context. But in the government contract world, that that terminology, you know, due diligence, is very broad and can kinda cover all manner of sins. So when you're talking about doing due diligence in the gov con world, because there are so many different things that a government contractor needs to be aware of and, you know, for those of you who've been in the industry for a long time, you'll you'll be well aware of this. So many different laws and regulations you need to comply with, so many different things about the way you need to set up your company, the way you need to be, you know, running your accounting, the way you need to be operating, the the various, you know, compliance just as a, you know, itself an umbrella term, compliance with small business regs, compliance with Buy American or other domestic preference things, compliance depending on your size with certain cost principles, you know, compliance with, previously affirmative action issues, and now compliance with the the new, you know, DEI executive order during COVID, compliance with the COVID regulations. So when you are doing business with the federal government, there are a number of things that you need to be aware of and you need to be compliant with. What that means from the point of view of someone acquiring a government contractor is that you need to do a really deep dive or or you need to choose how deep a dive you wanna do and accept the risks of not doing a deeper dive when you are assessing, okay. I I, you know, I potentially wanna buy x y z company. They've been doing business with the federal government for however many years. They've been, for example, representing themselves to be a small, you know, eight a business. They have been, you know, representing that they've been compliant with cost accounting principles. They've been doing this and, you know, have have said that they are appropriately, complying with CMMC requirements. There are so many different things that you need to vet to make sure that the company you're buying has actually been in compliance, you know, has not been falsely certifying anything and will continue to remain in compliance or that, you know, you you're gonna adjust things accordingly when you take over. So, yeah, we've got a a list here, and I won't read them because that'll take away from our precious time today. But you can see, and, again, you'll get a copy of the slides, the the types of different things you're gonna have to look into if you're doing kind of a full soup to nuts due diligence, quote, unquote, analysis. And like I said, due diligence is a term that can mean different things in different contexts, and the amount of due diligence you have to do needs to be something you should talk about with your attorney handling your individualized case. And sometimes, you know, time constraints or whatnot mean that you need to make certain decisions about. Alright. We're not gonna have a chance to do as deep dive into, you know, all of the the past stuff and and see if there's a compliance issue or not. We're just going to have to accept that, you know, we've we've done as much as we can do due diligence wise, and, you know, we're negotiating that into the price or or what have you. But there are a number of different things that you need to think about falling under that, quote, unquote, due diligence umbrella. It's not just like, quote, unquote, I've done due diligence, and that's like a specific, you know, one size fits all checklist. It's gonna differ depending on the the company that you're acquiring and and what particular issues are at play. Alright. So moving on from there to talk about some of the issues in more detail. Like I said, you know, what you're doing for due diligence is kind of the the overall broad brush stroke topic. And some of these things I would say characterize or, you know, should be characterized as part of your due diligence. Some of them are are kind of not due diligence per se, but there's something else you're gonna have to think about. But they all go under the umbrella or, you know, under the framework of, you know, issues that you're gonna have to explore and and plan for when you're talking about doing a an m and a in the the gov con context. And one of the first ones or or most important ones are perhaps primary things you should be thinking about right off the bat is it's gonna drive a a lot of the value of the company that's being acquired. Right? Is alright. Well, what contracts does this company the the target company, the the seller, what contracts do they have? What vehicles are they on? And are we going to be able to continue to perform work, you know, once the acquisition goes through? Because there are certain limitations in government contracting on the ability of one company to complete work that was awarded to to a different company. Specifically, we've got the anti assignment act at 41 US code 15, which prohibits transferring government contracts to a third party. Now the original intent to this was, you know, the the government didn't want, and they they didn't think it would be beneficial for, you know, the government itself or for the taxpayer to have brokers coming in, obtaining contracts, and reselling them for profit. Kind of the the, oops, the the Ticketmaster way of, you know, scalper way of doing things. They didn't want folks gobbling up contracts and then selling them out at higher, you know, higher values and and kind of driving the price up. But that doesn't mean the anti assignment MAC doesn't mean that there aren't certain exceptions. It is still possible to assign government contracts through a process called novation, but generally speaking, you need government approval for novation, and you've gotta follow a a kind of prescribed or specific set of steps. So far sub and when I I say the far, I'm referring to kind of the the far as it stood, the revolutionary far overhaul is a kind of a different question layered on top of everything in government contracting right now. So brief sidebar to discuss that. You know, the the far has some proposed changes, in regards to the the RFO or revolutionary far overhaul. However, agency by agency, those changes are being adopted or or potentially adopted differently through a series of deviations while the, kind of overall changes are are gonna be run through the comment and and rulemaking process. So, you know, to see whether there have been changes that would impact impact impact you and and your specific situation, an analysis would need to be done of the the deviations issued by the specific agencies at issue in your case. So for now, we're talking about the general, you know, previous far subpart sections. To be honest, they really haven't gone through that much changes even in the the revolutionary FAR overhaul, but you need to be looking at the deviations. That's kind of something that needs to be done across the board now on everything you're talking about with the FAR given the the potential changes that are out there. But, anyway, FAR, subpart forty two twelve, where we're at in the the current FAR, you know, the the pre revolutionary FAR overhaul, standard FAR, governs novation and change of name agreements between contractors and the government. And the two I'm sorry. 12 o four governs specifically the novation process and sets forth when novation is required. Now be aware again, and this kinda goes not only to the the deviations issue, but even prior to that, the fact that different government agencies have supplemental requirements for the novation, process. And when I say that, I mean the VAR or the GSAR or the DFAR. The agency specific, you know, supplements to the FAR might also include additional requirements or or kind of nuances that you'll need to be aware of. And, of course, as I said, the recent changes or or proposed changes to the RFO, or I'm sorry, I should say, in the RFO, the revolutionary far overhaul, you know, need to be something that you look at specifically with regards to the deviations of the agencies governing the contracts at issue in any particular m and a. When is novation required is a is a big question that you you need to, you know, start with, because, ideally, you want to try to avoid this novation process if you can. Not because you're trying to hide the ball or because there's you're you're doing something nefarious, but just because it's an administrative hassle. Right? It can can hold things up. It makes things a little bit more difficult, and it kind of gums up the works, especially if you're trying to do something quickly and figure out the value of a company so that you can push a deal through before the end of the year or before something else happens or, you know, whatever. For those of you who do deals, you know, that a lot of times, you're in kind of a a rush at the last minute. So under the FAR, the government may recognize its successor in interest to a contract through innovation where the successor obtains all of the contractor's assets or all of the assets used in performance of the contract. The contract itself is considered one of those assets. But what the FAR goes on to say is that a novation agreement is not necessary. It's unnecessary. Where there is sure. There's a change in ownership as a result of a stock purchase, but no legal change in the contracting party when the contracting party remains in control of the assets and is the primary party or I'm sorry. I should say the party performing the contract. So what that means is, you know, there are different ways to set up a merger or acquisition. If you set it up as a stock purchase where you don't have a legal change in the party that's performing the contract, you basically now just have a subsidiary that's continuing to operate, you know, but the stock of that company has been purchased by now a a parent company, then you're not gonna have to go. And, again, you're gonna wanna run your specific situation by your your own legal professional that can advise you on your individual situation. But generally speaking, when you set things up as a stock purchase, you're not gonna have to go through the novation process. So for that reason, oftentimes, you know, to the extent that it can be agreed on by the parties and it works with all the other situations that kinda going on, you're gonna wanna set things up as a stock purchase. It makes things easier. But if you can't do that, what is the process for innovation? You've got to do a request to the government. And as part of that request, you need to submit a number of different things. Three signed copies of a provosted novation agreement, and what you should use for that agreement is gonna depend on what agencies you're dealing with in your specific situation. There are templates, but you need to make sure you're using the right one. Document describing the proposed transaction. You're gonna wanna include a list of all of the effective contracts. In other words, all of the contracts that the target or the the seller, the, you know, company being acquired has. And for each of those, you're gonna wanna show the contract number and type, the name and address of the contracting office, total dollar value, and the approximate remaining unpaid balance. In other words, you know, if the contract's only partially performed, which, you know, usually, it's gonna be in the course of a of an m and a procedure. Also gonna show evidence of the transferee. And by that, it's the, you know, the person taking over, the buyer, their capability to perform, and then any other relevant information requested by the contracting officer. You must also provide an authenticated copy of the instrument affecting the transfer. So, you know, the the agreement at issue in terms of the the merger or acquisition, certified copy of board of directors resolutions authorizing the transfer, certified copy of the stockholder or shareholder minutes approving the transfer, authenticated copy of the transferee certificate and articles of corporation, if formed for the purpose of receiving the assets involved in the performance of the government contracts at issue, and then the opinion of legal counsel for transfer and transferee stating that the transfer was properly affected under the applicable law and the effective date of the transfer. So, again, you can see there's quite an extensive list. You need to get together a a bunch of different things. It can be a document heavy process. There's a lot of kind of moving pieces. The the checklist is something that you gotta be kind of slavishly devoted to, and, you know, going back and forth on different aspects of that with different folks. You know, usually, when I'm involved in one of these things, I'm working with corporate counsel whether at my firm or, you know, I'm working with someone at another firm depending on what state. So you can have multiple lawyers involved. It can be a relatively involved process. So, again, that is why a lot of people try to avoid this by setting things up as a stock purchase. The process for innovation involves a lot more. You gotta do balance sheets of transfer and transferee on the dates immediately before and immediately after the transfer, which are audited by independent accountants. And notice that, you know, you've gotta do a balance sheet before the transfer. So this is one of those things where you need to make sure you understand kind of steps one through a 100 before you start down the road because you're gonna run into some requirements like this that required you to take a snapshot or do something earlier in the process. You wanna make sure, you know, that you're you're kind of setting things up appropriately at the beginning to have all of the documents and and whatnot that you need at the end. And, again, a a legal professional that that works in this space is gonna be able to help you figure that out at the beginning before you start down the path. You're also gonna need to provide evidence that any security clearances have been met, consent of any cert excuse me, sureties or a statement from transfer that none no sureties that is are required, and then, again, any other relevant information requested by the contracting officer, and that's gonna differ depending on who you're dealing with. So, overall, the best practices here are you're gonna wanna consult with your contracting officer as early as possible to start saying, hey. Look. We're, you know, we're we're possibly entering into an m and a transaction here. We wanna be working alongside you, but we wanna make sure, you know, through every step of the process, we're on the same page. We're giving you what you need. We're following the appropriate processes. You also want to engage legal counsel early in the process because even if you have a very cooperative contracting officer, they don't always know the process. They're not always familiar with it. And sometimes they're getting advice about a process that's not applicable to your specific situation. I've had folks, you know, get templates for the novation agreement from their contracting officer, and it turns out to be the wrong template. And they're halfway through the process having, you know, followed that template and gotten that list of documents together, and it's not the right list. So you really do wanna have counsel that is specifically knowledge knowledgeable in this area and, you know, looking at what you and your individualized situation need and not necessarily relying on the the contracting staff of the agency to tell you that. But you also want to be very early on engaging with the contracting office, with the contracting officer, and talking to them about, you know, cooperative efforts and making sure everyone's on the same page. And, again, it it's a discussion. There's nothing combative or, you know, adversarial about it. It's just you want everyone kind of working together from the beginning. You need to be aware that novation may not be approved. It's it's not always. You know, for the most part, it is, but, it's not always. It's a question of of of seeking approval from the government. And if you don't get it, you might wish to have a plan in place to unwind the transaction. And this is where drafting your corporate, you know, actual merger and acquisition documents, the actual deal documents, you know, it it's important to have GovCon counsel involved early in the process to understand the potential risks so that the corporate counsel side can draft things in a way that, you know, if certain, novations aren't secured, if therefore certain contracts can't continue to be approved and that or I'm sorry, performed and that impacts the value of the the target company, you know, that might be something that you want to unwind. The original contractor, either way, is going to remain liable for the performance of the contract. The government's gonna continue to pay the original contractor, unless and until the novation is approved even if the successor is performing work. So, again, you can end up, you don't set up your documents correctly, you can end up in kind of a a weird situation there. So something else to keep in mind just kind of in the, you know, additional category is that, you know, when we're talking about the the novation process, and I mentioned, you know, if you set things up as a a stock purchase, you oftentimes although, again, you're gonna wanna consult a legal professional about your specific situation. You know, oftentimes, you are able to avoid a lot of this if you set things up as a stock purchase. Even so, you're going to want to check with your agency, and you're gonna wanna check-in your specific contracts. Even if you're not kind of as a an overall proposition required under the FAR to obtain approval, you might have a specific contract that says, no matter what, you gotta obtain approval. Or you might just have a a contract that says, hey. No matter what, you've gotta give notice even though, you know, you don't have to seek approval. So in addition to just looking at the the, you know, the general obligations that the FAR imposes on you overall or imposes on government contractors overall, you are going to want to also look at your specific contract and see what, if any, additional obligations or or nuances those contracts specifically impose upon you. And you're gonna wanna think about what that means, you know, as a practical measure and, you know, work that into your timing the same way that you did the the far provisions. Alright. So moving on to the the second thing that you're gonna wanna think about, and this is eligibility, small business eligibility. If the target company is a small business, you've got a bunch of additional things you need to think about. Now, also, I should mention that if, you know, you are the buyer and you are a small business, you've got things to think about in terms of, you know, if purchasing this company is going to push you over size standards or, you know, therefore nullify your eligibility. But most of the times, what you see is you see a small business being acquired by a a large or a medium sized business. And the question is, you know, is that gonna nullify the small business status? Usually, the answer is yes. It used to be that large businesses could acquire small businesses, and the small businesses could continue to perform, you know, contracts that they had gotten while they were small businesses. But recent changes that went into effect, I guess that was two years ago, kind of changed things around in this this area. Generally speaking, you've always gotta do an analysis as to whether or not an acquisition is gonna nullify anyone's small business status. You know, usually, those are issues of affiliation definitely come into play because these companies are now gonna be affiliated if one owns the other, which means that their sizes are going to be added together. And, obviously, also, there's a control aspect to it. So if you have you know, if the the one company has any certifications like the eight a or the the woman owned or the service disabled veteran owned, type of statuses, you guys will know that that requires a certain individual. So, you know, whether it's a woman or a vet or a, economically and socially individually I'm sorry, socially and economically disadvantaged individual, those folks, in order to have eligibility under those programs, need to have unconditional control of the company. They're not necessarily going to have that control anymore if they now have a a parent company involved, again, depending on how the the acquisition was was structured. So you can have acquisitions that have a really big impact on the size of a company, but then also the other eligibility criteria relating to ownership and and control. Prior to 2007, a business that was small at the time of contract award could retain its status for the life of the contract. However, small businesses must recertify their size status, within thirty days after modification of the contract to recognize the novation or thirty days after a merger that doesn't require novation. But, again, I mentioned these critical and major changes that came out about two years ago or, I guess, you know, a little bit over a year and a half ago. Can't do bath. 12/17/2024. They went into effect January '25 and then January and changed that up, which mean that you need to be aware of what the current regulations are. You need to be thinking about, okay. We're gonna have to recertify, and we're not gonna be able to recertify after this acquisition. It's greatly limited the ability of, you know, large businesses to acquire small businesses or eight a or women owned or veteran owned businesses, you know, etcetera, and then continue to have that company operate as a subsidiary performing set aside contracts that, has been, you know, pretty pretty well diminished, if not eliminated, under the new regulations, which is why there was so much merger and acquisition activity last year. Although, you know, I I think a lot of us predicted there was going to be even more before the uncertainty associated with the those terminations and things like that started, and perhaps made it a little shakier to to wanna acquire a government contractor. But those, again, are are things that have changed greatly. So if you've done this before, if you've gone through the m and a process previously, don't assume that it's gonna work the same way. Some things have changed in the very recent past. Overall, at the discretion of the government, existing small business set aside contracts can be terminated if, the company is acquired. Eight a contracts must be terminated for convenience. So it's not a default. It's convenience. But they're gonna be terminated unless a waiver is obtained. So, again, even if it's not impacting eligibility, you know, there there are some additional things where the government might just say, hey. Right. But we don't like the way that the things have changed here. We're gonna terminate for convenience. And then for eight a, it's a a pretty safe bet that they're gonna do that. The government can continue contracting with a company but can no longer claim small business credit. That's gonna include delivery and and task orders. There are greater consequences when you're, you know, talking about how to value a company based on everything we're talking about. So, you know, especially and then then looking at this more from the seller's point of view, you're gonna need to think about, okay. This company is worth whatever now when they're performing all of these contracts. But if we buy them, you know, it sounds like most likely we're not gonna be able to continue counting on that revenue. You know, do we have another enough irons in the fire? Is the reason for the acquisition, you know, some some other aspect, you know, some other value other than being able to continue the the performance of the set aside contract? Because if not, obviously, that's going to likely, you know, decrease the value of the company that you're acquiring, and perhaps make it less interesting to acquire them. So these are all things that you're going to need to, again, analyze at the earlier stages of the process so that you can be sure you are properly valuing the company and and going down the right road. That, again, is gonna require you to coordinate with the small business contracting officer, you know, coordinate with the SBA. Again, it's about having everybody on the same page, having everybody communicating freely throughout this process and early in the process. After novation, again, you're gonna wanna assume that you need to give formal required notice, and that's going to, you know, relate to the small business stuff as well. Alright. Moving on to another kind of large picture issue here, organizational conflicts of interest, otherwise known as OCIs. There's a lot of discussion of quote, unquote conflicts of interest in government contracting. And I wanna just real quick kind of as a a primary point here, distinguish between organizational conflicts of interest, which we're talking about here, and other things that sometimes can be considered personal conflicts of interest, things like, you know, giving gifts to contracting officers and and things like that. What we're talking about here is when a a company has a conflict because due to the activities that they are involved in or activities that their affiliates, which becomes important when you're talking about the m and a stuff, are involved in, basically, their their relationship with the government or the existence of a contract they or an affiliate have with the government impacts their ability to be impartial or, you know, kind of be on equal footing or be neutral with regard to another contract. So we're gonna talk about, you know, examples or or kind of the categories in just a second. But this idea that they're either unable to render impartial advice, unable to offer unbiased assistance, unable to, you know, act objectively in performing another contract, or that, you know, they are given an unfair competitive advantage, these are all things that are considered OCIs. And, again, this idea that the contractor can't have, that type of relationship, that includes sister corporations, affiliates, parent subs, which is why it becomes important when you're talking about m and a where two companies are are joining and are now going to be affiliated with each other or potentially have a parent sub relationship. And then you need to kind of look at their contracts in light of each other's contracts to see if any conflicts arise. There are generally three primary types of OCIs, unequal access to information, impaired objectivity, and biased ground rules. So when you are, you know, talking about OCIs, these are the types of things that that that the government is is looking for and that protesters and things like that might, you know, bring up if there's any sort of of issue. So an unequal access to information OCI arises where a firm has access to nonpublic information as part of its performance as a government contract. The idea being that, you know, if they have that information that not everybody else has, they have a competitive advantage because they might be able to use that information to kind of better put their proposal together, to, you know, kind of steer things their way in the future competition. Keep in mind, this doesn't necessarily include things like, hey. I'm the incumbent, and I just know how the government likes to do things. So I'm gonna be able to, you know, kind of keep that in mind when I'm preparing my proposal. And, you know, obviously, I don't wanna go too far the other way and have incontonitis, but, you know, that's not gonna rise to the level for the most part of a of an OCI. But what we're talking about is kind of nonpublic information that you might have by virtue of being involved in something with the government, or sometimes this might happen because you have hired someone that used to work at the government. Things like that can can fall under the umbrella of unequal access to information, And the concern there is that one company who has that information, it's not a level playing field if that company has additional information. Impaired objectivity exists where a contractor is in a position to evaluate itself or its affiliates or potentially its competitors. In other words, where it holds one contract where it's supposed to be, you know, performing, but it's going after another contract where it would be supervisor or evaluating that other performance or or vice versa. This idea that, you know, you'd be supervising or evaluating yourself or your affiliates, or you'd be supervising or evaluating your competitors and therefore, you know, perhaps a little bit more likely to give yourself thumbs up and your competitors a thumbs down. And what what's important to keep in mind with all of these OCIs, the the two that I just mentioned and the third that we're gonna talk about in just a second on this third bullet point, is that it's not that you actually go through with doing anything perhaps a little bit biased or a little bit unfair. Like I said, you can be tempted to give yourself a thumbs up and your competitors thumb down. Maybe you avoid that temptation. Maybe you're the most honest, earnest, you know, I cannot tell a lie kind of company or or person there is. But if you have the ability, if, you know, if if it's open to you to take the wrong path, that's gonna be considered an OCI. You don't have to actually have taken it or have actually done the the wrong thing. It's just putting you in a position, putting a company in a position to have to make that decision and and have one of the options be something that would be a little bit unfair is enough to to, you know, render it an OCI. The third type, which falls into that, you know, like I just said, it it's under the the same kind of rule, is the bias ground rules OCI. And this occurs when a company, by participating in the process of setting procurement ground rules, Like, maybe they helped write the specifications, or maybe they helped determine what the scoring matrix should be, or help determine what procurement method should be used. Because they have special knowledge of the agency's future requirements, you know, that might skew skew competition in their favor. In other words, if you're the one that wrote the test, you're gonna be more likely to ace it. Right? If you're the one that decided what ruler is going to be used, you're more likely to measure up. Those are the types of things that are in a biased ground rules, OCI, and that, you know, they're they're gonna be looking for or would be of concern to the government. So when you're talking about the merger and acquisition context, you need to be careful that, you know, your company as the the seller I'm sorry, as the buyer, you know, the the acquirer, you've got certain contracts in player. You have certain contracts that you are interested in in the future. Right? You need to make sure that the contracts that you, you know, that the the the target, that the buyer I'm sorry, that the seller, the company that you are acquiring, has are not going to cause you a problem or that you can put up certain firewalls and put in certain protections so that they don't cause you a problem. Because oftentimes, you can deal with OCIs by by enacting firewalls or or kind of building around them and making sure that certain parts of your business are walled off or certain people have you know, they're not supposed to be discussing certain matters. Similarly, you're gonna wanna make sure that the contracts that you have, you as the acquirer, as the buyer, as the company who is, you know, buying the the target, you know, that you don't have contracts that would create OCIs. I mean, the the target company, the the seller, the company that you're acquiring can't lose some of their contracts because now they have a conflict because of you. You know, these OCIs can preclude you from entering into corporate transactions, competing for future work, performing certain task orders under existing contracts, and that's something that can happen a lot in the m and a context. You know, if something changes now and and the future task orders are an issue, it can occur because you're transferring personnel between organizations, as part of a a merger or acquisition. Also, this is less, you know, m and a and and more overall, but hiring personnel or or teaming with certain vendors, especially if you're working with people that used to be government employees. But like I said, you know, OCIs are things that can be mitigated. And oftentimes, what's gonna happen is when you submit a proposal, the the contracting officer is is gonna look to see if there are OCIs. And oftentimes, it's your responsibility as the offer, again, depending on the terms of the solicitation, to point out whether there are potential OCIs and then go so far as to be proactive and say, but here's how we've mitigated them. You can mitigate using things like firewall arrangements, confidentiality agreements, like I said, kind of, you know, putting protections in place to make sure that information is not transferred between certain individuals, certain components, certain divisions, certain subsidiaries and parents, you know, things like that, preventing the flow of information so that, sure, company a has information about contract one. But, you know, now that company b has acquired company a, we're not gonna make sure you know, we're gonna make sure that that that information stops with the first company. It doesn't go to the new parent company. Therefore, the new parent company won't have an impaired, you know, objectivity or a biased ground rules or, you know, an unfair access to equal, information, type of OCI because we've stopped the flow of information. It's it's not going to now reach that other company so as to cause a conflict. So in the context of these OCIs oh, and I should mention specifically biased ground rules. You know, they're a little bit harder sometimes to to get around. You wanna do recusal, reassignment of the work, you know, potentially an independent third party review or hiring of consultant. Divestiture of organizations can can even happen. But you're gonna wanna plan accordingly. So when you're talking about OCIs in the government contract space, that's one of the things you're going to want to do early in the process. Again, with the all of the things we're covering are things you're gonna wanna do early in the process. That's why we're talking about them in this webinar because it's gonna impact alright. Well, then how do we structure things, in terms of going forward? How do we build these firewalls? How do we say, oh, well, in that case, we're not gonna be able to move these employees from, you know, the company to the the new parent company, or or we are we aren't going to be able to share certain information. And then that might impact the viability of the merger or the acquisition. It might impact the value of the company. It might impact the timing of when you're doing things. So all of these things are things that you're gonna wanna consider when, you know, you know, talking about a potential acquisition. The vetting very early of alright. Well, does this raise any OCI concerns? What would we do to get around it? Would that be a sufficient mitigation plan such that the government would accept it and, you know, we would still be eligible for award? And does anything in that mitigation plan have an impact on, you know, the viability of this merger? Now do we have to go back to the drawing board and and think again about the way that we wanna do things differently? That's the way you you kinda have to think about it. Alright. Intellectual property, I just wanna touch on briefly, sometimes known as data rights when you're talking about government contracting. This could be, you know, a topic for its own webinar. My my colleagues have done that many times, and it could be its its own three day topic. But just kind of very briefly, broad license rights for patented products can be provided under contract. In addition, there are different variety of data rights and computer software and technical data, and it really depends on kind of how things were classified in certain contracts. There can be unlimited rights, limited or restricted rights, government purpose rights, specifically negotiated rights, commercial license rights. And you're going to want to, again, when you're talking about acquiring a company that's been involved with a government contract and perhaps especially in, like, r and d or certain scientific endeavors, have they developed these, you know, these these assets in such a way that they belong to them? Do they belong to the government? Do they belong to both of them? Again, these are things that are going to impact, you know, what technology can be used for other projects going forward, if it can be used only for certain government projects, only for certain agencies, or if it can be used commercially, can it be sold elsewhere? And what does that say about the value or the, you know, potential price point that you set for the company that you're acquiring? You know, do they really have the license or or the ownership of the different technology or processes or information or whatever that they have developed? These are things that are gonna kinda impact you. So questions that you're gonna want to, you know, be talking about and the answers to these questions and the way that the answers combine are kind of gonna point you to different further analyses you need to do. And and those analyses are then going to impact, again, like I said, how you structure things, how you're planning for future contracts, and and perhaps the value of the the target company. But did the target develop the the intellectual property at a private, or in private or or as part of a private contract or at, you know, public expense? Did the target deliver the IP during the performance of a government contract? Has the target instituted business practices that protect its privately developed IP rights? You know, what designations were on these contracts that they they entered into? Does the target's accounting team separate public and private funding and track developmental work to each type of funding? Those are the types of things that might, you know, provide the groundwork to make certain arguments about data rights belonging to the contractor and not to the government. So, again, these are things that are gonna go to, you know, what can certain IP be used for in the future, and what does that say about what contracts can be gone after in the future, and what does that say about the value of the target? You're gonna want to as part of the due diligence, again, that that term being used very broadly, look at things like what data right causes have been included in the target's contracts. Are there any specifically negotiated data rights? Or, you know, what what has the government done in terms of the the types of classifications? Has the target marked the IP with the appropriate restrictive legends? Sometimes literally, things need to be kind of, you know, literally marked on the documents. Did the target provide the appropriate written notice prior to award? And that's specifically or or particularly, I should say, not specifically, important when you're dealing with the Department of Defense under the DFAR. If not, does the target meet post award notice exception? And, again, these are all things that, you know, you should be asking and analyzing with a legal professional that is familiar with how data rights work in the GovCon context and kind of the impact that could have on the use of the technology or software or information processes or or what have you that were developed. And that, again, is gonna impact how that technology can be used in the future, what the value of that technology is, and therefore, perhaps what the value is in the m and a context. Classified information and security clearances. So for those of you who are, you know, in the industry and and have worked on classified contracts and, obviously, you know, kind of the proliferation now of not classified but CUI and all of that fun stuff, you will know. Many contracts with the government include classified information or protected information. In order to be able to view and and kind of work with this information, contractors need to maintain appropriate FCLs. So excuse me. FCL, facility security clearance. To maintain an FCL, the contractor has to have key leadership personnel with appropriate personal security clearances. So you've got the facility security clearance. You've got the personal. In acquiring a company with classified contracts, you might have, as the buyer, significant difficulty obtaining access even if you have your own facility, security clearance because only companies with a need to know can be read into certain classified programs. So what this means is it can make valuation of classified contracts and, therefore, valuation of companies with classified contract extremely difficult. It's something that you need to, again, work on, kind of accept or or or refuse to accept the risk and then plan accordingly. But it means that, you know, when you are acquiring a company with classified contracts, there's this additional level of, you know, analysis that needs to go into whether you're gonna be able to to work on those, whether you're gonna be able to, you know, continue to have them work on those, how things are gonna be done. And, again, that can depend greatly on how you structure the the merger or, you know, whether or not it even makes sense to go ahead with a a merger acquisition based on the value. Foreign ownership can be its own kind of layer on top of this. There are significant limitations when you're talking about foreign owned companies acquiring government contractors because they have additional obstacles to obtaining US defense contractors, and getting access to classified information. The DCSA oversees the mitigation of these issues, known as FOCI, FOCI, foreign ownership control or influence. But the point of this mitigation program is actually to minimize foreign control. So there's this disincentive or or this idea that the default should be that foreign control is is not allowed. Generally speaking, that means that foreign owners should have, you know, minimal access to information or control of any US defense contractors they may obtain. That doesn't mean that there are no foreign companies with, you know, United States subsidiaries, that do work for the Department of Defense. That's simply not true. There there are. But it means that you're gonna have to be thinking about that planning accordingly. And, also, to the extent you can get around it and build certain firewalls or certain protections, to kind of deal with those issues, you know, how does that impact how much control you're gonna be able to exercise over that subsidiary, you know, this new subsidiary that you're acquiring? How how does that impact the, you know, the amount of comfort you have about being able to control the company or control their contracts? And what, if anything, you know, does that say or or how does that impact your version of the the value of the company or or how you're you know, how much you wanted or how much leverage you have in the deal? Audits investigations and FCA. The FCA stands for the False Claims Act. And this kind of goes back or or circles back around to the concept that we talked about upfront about there being just a million different things that government contractors need to be, kind of facile with, familiar with, and compliant with. And the idea that there's a lot of different things you're gonna wanna be looking into to figure out if a target company, if a a seller, if a company that you will be acquiring has been compliant or has run some risks out there. So, you know, there are going to be things like audits by the DCAA, the Defense Contract Auditing Agency. Have they been subject to an audit? Did they pass that audit? Have they not been subject to an audit? Is there information indicating that they wouldn't pass that audit? You know, costs, for those of you who ever dealt with stuff like this, must be allowable, allocatable, and reasonable. Claim cost can be denied after payment. When you're talking about indirect cost, rates are set on a provisional basis and may only be finalized years later. If they were done incorrectly, you can be liable for significant repayments, which means that if you are acquiring a company that is liable for significant repayments and you did a stock purchase, you bought the assets and the liabilities. So you are now liable for significant repayments. Certain companies may also be required to use the the cost accounting standards. Many companies, especially when they're smaller or new to government contracting or don't work exclusively in government contracting, they don't realize that the cast cost counting standards that are, you know, supposed to be used by government contractors, in certain areas and of certain sizes differ greatly from generally established, you know, accounting standards. They're very different. I have seen in my time many, many companies that have for decades, literally, been checking the box saying they're CAS compliant, and when you ask them the question, they don't even know what that means. They don't know what CAST stands for, let alone have they changed their accounting procedures. They haven't been working with an accountant that knows government contracting. You know, they're they have not been compliant, but they've been certifying that they've been compliant. Those are the types of things that can cause problems, and are are red flag areas or at least things that could cause you potential liability if you are buying this company down the road. So valuation of current contracts and current contractors must take into account potential long term impact of audits and and other things like that, the risk thing. Similarly, False Claims Act, FCA provides for enormous amounts of damages, trouble damages, and fines if a company is found to have committed fraud against the government. There could be whistleblower suits. You can have fraud arising out of things like audits, whistleblower claims, size and status misrepresentations, service contract act or foreign corrupt practices act, Davis Bacon violations, any number of different things where there's been a violation, or there has been a certification that turns out to be false even if it was inadvertent can lead to false claims act. Even if ultimately the false claims act cases is not you know, doesn't go the government's way and then the government and the contractor is found not at fault or or isn't subject to the damages. It's a very expensive long litigation, you know, big litigation. So false claims act issues are are something that really you wanna avoid. So, again, there's a a number of different things that can lead to false claims act problems. If they lead to false claims that problems, the damages and the consequences can be pretty great. And the the costs involved in litigating, even if you ultimately don't suffer those ultimate damages, can be pretty great. So due diligence concerns are are really important here. You're gonna wanna investigate potential violations that could lead to any host of problems with the government under the False Claims Act or the Foreign Corrupt Practices Act or any kind of any other I don't wanna say subsidiary, but any other regulation that, like, then can get bundled under, a False Claims Act type of a violation argument. It should really include all communications from the Department of Justice and specific investigative inform investigation information from any agency if there is already some sort of investigation underway. But if not, you're going to want to investigate what type of risk you might have in future, if any. Ideally, none because everyone's been doing everything correctly, but it's something you're going to want to explore. Now sometimes what happens is that you acquire a company and then you realize afterwards that there was some wrongdoing, that, you know, you weren't aware of. Suspension and debarment, which is dealt with in FAR part nine, talks about the fact that a company must timely disclose to the government when a principal has credible evidence of a federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations, civil false claims act violation, or significant overpayments. And then separately, you've got the FAR disclosure clause, which says that the company has to disclose to the office of inspector general with a copy to the contracting officer when it has credible evidence of certain crimes and false claims that violation, although this one doesn't mention overpayments. This requirement that was only applicable to contracts over 6,000,000, and over a hundred and twenty days. But what that means is that you've got various different requirements built into government contracting saying, hey. If you uncover that something wrong happened, you've got a duty to tattle on yourself. And in the suspension and debarment context, kind of the underlying wrongdoing is one thing. The failure to disclose is, like, a second strike. So, you know, even if the underlying wrongdoing doesn't turn out to be that serious or a basis for debarment, the fact that you found out about it and then didn't go to the government with it can in and of itself without anything else be a basis for debarment. So there's this this strong, you know, incentive, a a strong motivation to tell on yourself if if you find out that something went wrong. And you're supposed to be doing that even outside the mergers and acquisition context. You know, if a principal discovers that one of the other principals or or one of their underlings or one of the other branches of the company, another division did something wrong, they're supposed to disclose. But this can become increasingly important, and it's increasingly important to do your due diligence as soon as possible and and to kind of do that even after the after the acquisition another round of investigation. Because if you are in a position where you acquire a company and discover something, you actually have a little bit of a of a protectionary safe harbor policy. And there's a quote up on your screen from, you know, Lisa Monaco, and, basically, this is talking about the the underlying reasoning behind the safe harbor thing. In a world where companies are on the front line and responding geopolitical risks, we are mindful of the danger of unintended consequences. The last thing the department wants to do is discourage companies with effective client compliance programs from lawfully acquiring companies with ineffective compliance programs and a history of misconduct. Instead, we want to incentivize the acquiring company to timely disclose misconduct uncovered during the m and a process. So in other words, the idea is we want companies that do everything right to gobble up the companies that are doing things wrong and fix them, bring them into the fold, make them believers, make them do the right thing. But if they could get in trouble for that, they're obviously not gonna be incentivized to do it. So instead, what we're gonna say is if you are a good company, if you've got a big old halo, we're gonna incentivize you going out there, finding the troublemakers, bringing them under your wing, reforming them, making them compliant. And because of that, we're gonna give you this safe harbor policy in terms of the disclosure. So if you are a company that has acquired a company, you've got a disclosed misconduct discovered, within six months from the date of closing, whether or not the misconduct was discovered pre or post acquisition. You've got a six month kind of cutoff date. You then have a baseline of one year from the date of the closing to fully, you know, to one year from then to fully remediate that misconduct, again, to bring the company into the fold and get them going on a compliant track and fix all the problems. You can request the deadline if needed, if there's complexity or or what have you, but this only applies to bona fide arms length m and a transactions. And, again, you've got these six month and one year cutoff points. So the idea is if you acquire a company, you can kind of, you know, enact this stuff and and get them up to speed, and that's that's the incentive. So we have reached the end of our presentation today. I do have two polling questions for you. You might remember my name is Maria Panacelli, and I am from McCarter in English. So if you are interested in hearing more from me, things like when I'm doing other presentations such as this or when we have a client alert dealing with a new executive order or a change in the law or the revolutionary far overhaul, for example. Please select yes. I am interested in learning more, and you will I will be notified, and I can add you to our mailing list. Don't worry. We don't spam you to death. It's just client alerts and and, like, monthly wrap ups unless you wanna separately subscribe to our blog. So with that, I'll leave this polling question up for a few minutes. I have one question I wanted to address, and then we will move on to the the second polling question. And, Leslie, let me know. I guess it doesn't look like anyone's voting, so I'm not sure if, I've got it up the right way. But, if you could deal with there we go. Alright. I had one question come in earlier, about the recent changes, relating to the I I think this says that came down from the SBA. So I'm not sure exactly what changes you are dealing with. The the regs are are specific or the regs, both in in terms of the FAR and the SBA regulations are changing constantly, and that has always been the case. This is an area government contracting is an area where regulations change frequently. There have been a number of different changes that have, kind of impacted SBA since January. So I'm not sure which the the person asking this question is referring to, but you can specifically ask you know, reach out to me offline, and we can talk about the the specific regulations you have a question with. Overall, though, I would say you need to be aware of the various changes, kind of, you know, keeping abreast of things through newsletters, watching the federal register, and things like that. So, I have a second polling question for you specifically relating to Deltek, asking, would you like to be contacted by a sales representative to learn how Deltek's intelligent AI enabled platform powers success for government contractors. Obviously, our host, Deltek, a wonderful suite of activities and and processes that can help you. Please click yes. I want to learn more if you'd like to learn more and hear more from them, and they can get you some more information, from that. Alright. With that, I think we are out of time. For those of you who, just put a question in, if you wanna reach out to me offline, I'm happy to answer them. Thank you very much to everyone for joining. Thanks to Deltek as always for being an amazing host, and, I look forward to seeing you guys at future webinars. Thanks much. Great. Thanks very much, Maria. And before we officially conclude, we just wanna remind you that you'll receive an on demand recording of today's webinar via email within twenty four hours. Again, if we were not able to get to your question today, we will follow-up with you directly. I think we did get through them. Also, we appreciate if you fill out the short survey you're gonna be seeing in just one moment. Your feedback is very important to us. So if you don't mind just, taking our quick survey. And with that, I'd like to thank you all for joining us today. Many thanks to our speaker, Maria, and remind you to please visit deltech.com for more GovCon webinars and additional Deltek events. Thanks, everyone, and have a great afternoon.