House bill

Inside or outside? Latest House Bill Pressures Federal Contractors to Exit Russian Market – Government Contracts, Procurement and PPPs

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On April 6, 2022, the House Committee on Oversight and Reform passed HR 7185the Federal Peace and Security Contracts Act, which would prohibit the United States Government (USG) from entering into contracts with companies continuing to do business in the Russian Federation in response to the ongoing war in Ukraine.

The law formally establishes that it is the policy of the US government not to do business with companies continuing to operate in Russia during the “covered period”, defined as beginning 60 days after the law’s enactment and ending on a joint decision of the state and treasury secretaries that Russia has taken steps to “restore the security, sovereignty and condition of” Ukraine.

Accordingly, the law would prohibit the US government from entering into, continuing, extending, or renewing a “Covered Contract” with any company that conducts business in Russia during the “Covered Period.” In particular, a “covered contract” includes both main contracts and “major subcontracts” and applies to any parent company, subsidiary or beneficial owner of a main contractor or a major subcontractor beyond beyond the procuring entity itself.

Additionally, “business operations” are broadly defined as “engaging in commerce in any form” with limited exceptions for:

  1. national security,

  2. products or services benefiting Ukraine,

  3. humanitarian goods and services, and

  4. journalistic activities.

The law grants the Office of Management and Budget (OMB) the power to make contingency rules to enact regulations that would further define the contours of the law, including:

  1. specific items and activities that would constitute prohibited “business operations”

  2. a requirement that contractors certify or declare that they comply with the Act, and

  3. characteristics to further delineate what constitutes a “major subcontract”.

For federal contractors and subcontractors currently operating in Russia, executive agencies are required by law to initiate termination proceedings at the start of the “covered period” and with 15 days notice. The Act provides for certain “good faith” 30-day extensions if a contractor takes all reasonable steps to comply with the requirements of the Act (that is to say, quit business activities in Russia). However, the processes for determining good faith will be further defined and described by OMB regulations.

For any companies considering bidding on government contracts, it will likely be beneficial to start reviewing all operations now, including operations throughout the supply chain, to determine what activities are ongoing in Russia. likely to be subject to the law.

While it is unclear if the law will come into effect, it will create a very short time frame if it becomes law, and the time period covered could continue indefinitely. Given the breadth of jurisdiction and prohibitions in the law, contractors should begin to consider the costs and benefits of any ongoing operations in Russia should such operations become prohibited.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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