Thank you for sharing!

Your article was successfully shared with the contacts you provided.
With the economy still in the dumps, many companies are eager for new customers. One possibility: the U.S. Department of Homeland Security, which has just started operations with a $37 billion budget. The hefty sum has caught the eye of businesses that make vaccines, software, surveillance equipment, and security-related gizmos. But companies pitching to Washington for the first time are learning that they must master a range of thorny legal issues before they can land on Uncle Sam’s payroll. For one thing, businesses must find ways to indemnify themselves from liability suits in the event their products fail during, say, another terrorist attack. They must also deal with the government’s insistence on stricter accounting procedures. Other quirks of working for the feds: Agencies reserve the right to cancel a job early, and, in some instances, to share intellectual property rights with contractors. “Doing business with the government creates an absolute legal minefield,” says James McCullough, a government contracts partner in the Washington office of Fried, Frank, Harris, Shriver & Jacobson. “And most of the time it’s the in-house lawyers who [have to] keep things from blowing up.” Top Worry: Liability Exposure For many DHS contractors, securing indemnification will probably be the biggest challenge. Lawyers must seek assurance that their companies won’t end up in Chapter 11 if their anthrax-sniffer, bomb detector, or smallpox vaccine fails in a time of crisis. But for now, there are no simple answers [see "Double Indemnity" and "Homeland Insecurity"]. According to Joseph West, a government contracts partner at Arnold & Porter, “This prospect really frightens people. They worry that they’ll get stuck holding the bag if something catastrophic happens.” Most government contracts also require in-house lawyers to become part-time accountants. In the early nineties federal agencies took considerable heat for paying inflated prices for telephones, hammers, and other off-the-shelf items. The government firmed up its accounting requirements as a result. Agencies began to conduct tougher and more frequent audits, and vowed to bring criminal charges at the slightest whiff of fraud. Companies doing business with Washington for the first time will find that the tough requirements of the Sarbanes-Oxley Act have helped prepare them for the even tougher accounting standards of government contracts. Still, first-time contractors may be taken aback by an agency’s right to audit a contractor whenever it wants, says Charles Tiefer. A counsel in the D.C. office of Seattle’s Preston Gates & Ellis, Tiefer also puts in time as a government contracts professor at the University of Baltimore School of Law. To deal with surprise visits from the feds, Tiefer advises his clients either to keep their federal contract ledgers separate from the rest of the company’s books, or else to set up new corporate entities that deal only with the government. That way, if the feds come knocking, a company can just turn over the files pertaining to their government contracts without having to comb through all of its records. Beware Of Sudden Stops For smaller companies new to federal contracting, an even bigger legal hurdle may be accommodating the government’s time-honored right to terminate a contract at any time. Take Avant Immunotherapeutics, Inc.: The Needham, Massachusetts�based biopharmaceutical company recently agreed to produce several anthrax vaccines for the government, but it knows its contracts could be canceled at any moment. “A little company like us has to walk down a path, investing millions along the way, all the while living with the fear that the path could just dead-end one day,” says Dr. Una Ryan, Avant’s president and chief executive. “If the government wants to keep using technologies developed by smaller players, it really should change the way it structures these contracts.” David Perla at Monster, a job-postings Web site that just completed its first government job, agrees. Early termination clauses “add a lot of risk,” says Perla, the company’s vice president of legal affairs. Monster didn’t have a problem with its Office of Personnel Management contract; it finished the work and got paid. Still, Perla says he remains cautious about future jobs with DHS or any other agency. “Lawyers need to make sure that the risk profile of every contract squares with what the company wants � because not all of them will.” In another departure from usual business practices, agencies can appropriate the intellectual property rights of products developed under government contract. Giving up exclusive licensing rights may not be a problem if the product has no marketplace potential. But smaller players often envision commercial uses for their products. Avant, for example, is developing a range of vaccines that are administered in a single dose and don’t require refrigeration. “We’d plan on using [these] vaccines during peacetime for food safety, international travelers, and global health,” says Ryan. “But letting the government use them might hinder our ability to make them available worldwide.” Hope You Don’t Mind Sharing Can businesses do anything to protect their patents? Larger companies can try to negotiate more favorable IP provisions, says Alan Pemberton, a government contracts lawyer at Covington & Burling. But smaller players will likely be stuck with agencies’ prepackaged terms. “If you’re relatively small, the government always asks you to share your rights,” says Frank Pao, a vice president and in-house lawyer at Virage, Inc. The surveillance equipment maker has recently picked up government contracts with several different agencies. “Of course, we try to negotiate the IP issues every time, but most of the time we don’t have a lot of success.” Unfortunately, working with the government entails still more legal idiosyncracies. Almost all federal contracts require the hiring of minority-owned subcontractors. And most agencies criminalize practices common in the commercial markets, such as paying for a client’s meal. “It’s an extremely difficult world,” says Preston Gates’s Tiefer. Not surprisingly, he advises in-house lawyers new to government contracts to hire experienced outside counsel. “But outside counsel can’t do all the work,” Tiefer adds. “The in-housers have to get out of bed.”

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.