THIS DOCUMENT IS BEING SENT ON BEHALF OF VINSON & ELKINS L.L.P.

GOVERNMENT CONTRACTS UPDATE

Bush Administration Issues Interim Rule Suspending Clinton Administration
"Blacklisting" Rule; Issues Proposed Rule Permanently Revoking Clinton Rule
and Reinstating Former Contractor Responsibility Provisions<?xml:namespace
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On December 20, 2000, the Clinton Administration issued a final rule
addressing contractor responsibility which took effect on January 19, 2001.
65 Fed. Reg. 80256 (Dec. 20, 2000) (the "Clinton rule").  Federal agencies
are required to award contracts to "responsible" sources and contracting
officers are required to determine whether prospective contractors are
responsible before awarding federal contracts.  The Clinton rule addressed
the procedures to be employed by a contracting officer in arriving at a
responsibility determination and under what circumstances contracting
officers may disqualify companies from contracting with the federal
government.  The rule was extremely controversial and was effectively
overturned on April 3, 2001 by the Bush Administration, in a move that has
been described as a rebuff to organized labor and a nod to business.

Provisions of the Clinton Rule

?        The Clinton rule included a number of notable provisions:

o       Added language stating that a "satisfactory record of integrity and
business ethics" included compliance with the law, including (for the first
time) tax, labor and employment, environmental, antitrust, and consumer
protection laws.

o       Required contracting officers to consider all relevant credible
information, although the rule included guidelines for considering various
types of violations.

o       Expanded the scope of a pre-award contractor certification to
require offerors to certify to additional violations (violations of tax,
labor and employment, environmental, antitrust and consumer protection laws)
adjudicated within the last three years.

?        Although the rule contained certain procedural safeguards and had
its supporters, the rule was widely assailed by business groups and even by
some government officials for its broad scope.

Strong Criticism of the Clinton Rule

?        Businesses argued that the broad scope of the new regulations could
be used by contracting officers to improperly "blacklist" contractors from
doing business with the federal government.  Detractors argued that under
the new rule, a contractor could technically be disqualified based on (among
other things) a relatively insignificant violation of law that did not
reasonably reflect the contractor's record of integrity or business ethics
or even based on unproven allegations set forth in civil or administrative
complaints by third parties, such as labor unions.

?        Businesses also expressed concern about a contractor's ability to
comply with the new certification requirement.

?        The Federal Acquisition Regulation ("FAR") Council admitted that
the rule generated "strong controversy".  According to the FAR Council, the
proposed rules generated 1,800 public comments (the typical FAR rule
generates only about 1% of that amount) and after the final rule was issued,
the FAR Council continued to receive negative comments.  The Business
Roundtable, Chamber of Commerce, National Association of Manufacturers,
Associated General Contractors of America, Inc., and Associated Builders and
Contractors, Inc. even filed a lawsuit seeking to overturn the final rule.

The Bush Administration Responds

?        In response to enormous pressure, the FAR Council published an
interim rule which stayed the Clinton rule and reinstated the FAR text as it
existed prior to January 19, 2001 (although an arcane requirement of the
federal register requires that the stayed text retains its numbering and the
restored text is renumbered accordingly).  66 Fed. Reg. 17754 (Apr. 3,
2001).  The FAR Council provided in the interim rule that the stay will last
for 270 days from April 3, 2001 or until finalization of a proposed rule
that was concurrently published with the interim rule.

?        The proposed rule permanently revokes the Clinton rule and restores
the original FAR text.  66 Fed. Reg. 17758 (Apr. 3, 2001).

?        In both notices, the FAR Council indicated that it was
reconsidering its position and reassessing the advantages and disadvantages
of the December 20, 2000 rule.  The FAR Council noted that it was not clear
whether there is justification for including the added categories of covered
laws in the rule and its implementing certifications, whether the rule
provides sufficient guidelines to prevent arbitrary or otherwise abusive
implementation or whether the final rule is justified from a cost benefit
perspective.  The FAR Council also determined that the 30-day effective date
did not give contractors and the Government sufficient time to meet the new
obligations and responsibilities imposed by the new rule.  The FAR Council
noted that the final rule has only been effect since January 19, 2001 and
there has not been time for the public to be in a position of reliance upon
the rule's existence.

?        Written comments related to the interim and proposed rules must be
submitted on or before June 4, 2001 to be considered.

If you have any questions about the new rules, please contact Michael
Charness at (202) 639-6780, Kathleen Little at (202) 639-6663, David Johnson
at (202) 639-6706 or Suzanne Reifman at (202) 639-6577.

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