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Afghanistan Has Fallen. How Should Government Contractors Minimize Risk During This Crisis?

By Robert Nichols and Alan Chvotkin

August 16, 2021

As of August 16, the U.S. Embassy in Kabul is closed and all Embassy staff are being evacuated.  The U.S. military, and most aligned governments, have accelerated the withdrawal of troops and support personnel from Afghanistan.  The Government of Afghanistan, led by President Ghani, has collapsed.

As counsel to several major U.S. Government contractors and grantees that work in Afghanistan, we have received numerous requests for legal guidance on what contractors/NGOs should be doing to manage the situation.  We offer the following general guidance, which is applicable to all contractors in Afghanistan, whether under contracts or grants to the Department of Defense, Department of State, USAID, or other U.S. Government agencies.

SAFETY IS #1

Keep the safety of all personnel still in Afghanistan as your highest priority and take whatever actions are available to keep them safe while in country and to facilitate the rapid evacuation of personnel out of Afghanistan.  Document the actions being taken and any costs incurred by increasing security or facilitating departures.  This is important for two reasons.

First, the Government may or may not reimburse such costs – see analysis below – but it certainly can refuse to pay costs that are not properly documented.

Second, employees and subcontractors may bring tort or contract claims against prime contractors for injuries and trauma that they may suffer.  Defending against such claims will involve demonstrating that the prime contractor took all reasonable steps under the circumstances to warn and protect their employees and subcontractor/subgrantee personnel.

SEEK AND FOLLOW U.S. GOVERNMENT DIRECTION – AND OTHERWISE TAKE REASONABLE STEPS

To the extent that contractors receive guidance or direction from the United States Government, whether from contracting and grants officers or otherwise, follow that guidance or direction to the maximum extent possible.  Memorialize when the guidance/direction was received, the steps taken to comply, any impediments to complying, the costs of compliance, and the ripple effects from compliance.  This will help in resolving contract claims later.

The larger problem, of course, is that the government is not issuing sufficient, if any, guidance/direction to contractors, leaving the contractors to decide next steps.  The prudent course is to take reasonable steps, notifying the government contracting officers and other government officials in writing as far in advance as possible of the urgency of the planned steps and the basis for your actions – to give them a chance to confirm or object.  Save those communications and any “out of office” or other responses.

As an example, one of our clients evacuated its personnel to Qatar but has not yet received government direction about whether their program and contract are ending.  Their personnel, unsurprisingly, want to return to the United States or to their country of origin.  Surely evacuating personnel from Afghanistan was essential but sending those personnel home may put the underlying program and contract in jeopardy.  Clearly thinking through reasonable steps to mitigate the programmatic and financial fallout, and communicating that plan to the government, would be helpful in working through the contractual fallout from what the contractor does next.

KEEP WORKING IF POSSIBLE AND SAFE

Some contractors have told us that, in the absence of a stop-work order from their customer, they intend to continue performing their prime contracts through Afghan subcontractors.  This course of action may avoid many of the legal issues outlined below, but obviously brings substantial risks.  However, we suggest putting in place express agreements with subcontractors – and if possible, with any individuals staying in country – that acknowledge and accept the risks of continuing work in this non-permissive environment and release the prime contractor from legal liability for harm caused by the Taliban.

If the U.S. Government directs a contractor to continue working, such direction may entitle the contractor to immunity from tort suits by harmed employees.  See Tort Suits Against Federal Contractors: Selected Legal Issues, Congressional Research Service, Mar. 31, 2014.  Understanding the scope of these defenses is important for any contractor remaining in country.

DEALING WITH LOCAL NATIONALS

The U.S. Government’s Afghan and Iraqi Special Immigrant Visa (SIV) Program allows Afghan individuals who supported our military and the U.S. mission in Afghanistan (including working on State Department and USAID contracts and grants), and who face threats resulting from their service, to apply for refugee status in the United States.  There are a limited number of SIVs available.  Given the dangers these Afghans and their families face, it is crucial to start the SIV process as quickly as possible; it starts with contractors providing letters of employment and support to their Afghan personnel.  However, we are aware of both the limited U.S. Government capacity to process such applications and the reluctance of many Afghan nationals to have such documentation in their possession.

MOVE, DISABLE, OR DESTROY INFORMATION

Various government offices have advised contractors to destroy documentation in Afghanistan before departing.  This could include documents showing programs in-country, information on Afghan beneficiaries or organizations that are core to program design or implementation, “personally identifiable information” of Afghans that have assisted U.S. efforts, and even company finances.

To the maximum extent practicable, move (physically or electronically) such information to a safe location.  As contractors know, government audits and claims can sometimes last for years and, if the contractor does not have good documentation, it can make supporting such audits and claims difficult.

To the extent that moving the documents is not possible, destroy documents and disable systems.  But try to keep a list of what documents were destroyed, since this type of information will be valuable in future audits and claims.

MOVE MONEY

Some contractors and NGOs are currently being sued for intentionally or inadvertently providing funds to the Taliban.  See https://www.cnn.com/2019/12/27/politics/afghanistan-contractor-suit/index.html.  For funds held in Afghan bank accounts, take steps immediately to transfer funds to other accounts outside of Afghanistan, while you are still able to do so.  Document the steps taken to try to keep funds from falling into the hands of the Taliban.

PROTECT PROPERTY

Many contractors working in Afghanistan receive government-furnished property (GFP) or purchased property for on behalf of the government.  To the extent possible, try to remove or otherwise protect this property to avoid liability for losses.  Otherwise, document the property that was destroyed or left behind and the steps taken to try to preserve it.  This may help in defending against claims or disallowances for that property loss.

PREPARE FOR CLAIMS AND AUDITS

While the immediate focus should be on protecting personnel and keeping sensitive information and property from falling into the hands of the Taliban, eventually the government and contractors will need to work through the financial impacts of these circumstances.  Looking ahead toward that, contractors should prepare now for future claims and audits.

As a threshold matter, contractors/NGOs working on cost-type contracts should be able to recover all reasonable costs arising from contract performance, including evacuation of personnel and shutting down a project or contract on an emergency basis.  This does not mean that a claim will be easy, though.  Does the government want to continue the program from elsewhere (e.g., working from Kuwait or from the U.S.)?  Should you terminate employees or keep them on payroll to keep the program capability intact?  Contractors should make these types of decisions in light of government direction (or absence of direction) and the case law governing similar situations, or risk losing any chance of recovery.

Time-and-material contractors will face even more challenges, where the circumstances in Afghanistan keep contractor from actually performing on the contract.  For example, in Dynamics Research Corp., ASBCA No. 53788, 04-2 BCA ¶ 32,747, the contractor had a time-and-materials contract that it was unable to perform while the government customer’s computer networks were down.  The government would not allow the contractor to bill during the downtime, arguing that it was not responsible for idle labor costs.  The contractor appealed its claim to the Armed Services Board of Contract Appeals, which permitted the cost recovery – based on an interpretation that the stop work clause in the contract controlled the matter.

Fixed price contractors are in a more difficult position – made even more difficult by the recent decisions regarding the Ebola crisis.  In 2013, the Department of State (DoS) awarded Pernix Serka Joint Venture (Pernix Serka) a Firm Fixed Price contract for a rainwater capture and storage system in Freetown, Sierra Leone.  When the Ebola epidemic reached Sierra Leone, Pernix Serka asked the DoS for guidance on whether to cease or delay performance.  The DoS refused to provide guidance or direction to Pernix Serka, stating that “the decision for your people to stay or leave for life safety reasons rests solely on your shoulders.”  Pernix Serka ultimately withdrew its personnel from Sierra Leone and submitted a Request for Equitable Adjustment (REA) for the increased time and cost to complete the project and the additional health services it provided its personnel.  DoS granted a contract extension but refused to pay the requested costs, because the contract was fixed price and included FAR 52.249-10.  That provision grants excusable delays, but not money, for force majeure events.  The Civilian Board of Contract Appeals upheld DoS’s position because the contracting officer had remained silent – i.e., did not direct Pernix Serka – on what it should do in the circumstance.  Without such direction, there was no change to the scope of work, and the financial risk from the force majeure event fell on the fixed-price contractor.  The Federal Circuit upheld the Board’s decision, sending an important signal on which party bears the costs of force majeure events for fixed price contracts.  See Pernix Serka JV v. Secretary of State, No. 2020-2153, June 9, 2021 (summarily affirming the CBCA).  But the Afghanistan crisis may present a different set of facts.

This type of detailed factual and legal analysis is usually how these types of claims get resolved.  As such, a prudent contractor should understand the implications of its planned actions before proceeding.  Otherwise, it heightens its risk of loss when the government finds a basis for denying a claim.

* * *

All of these legal issues are very factually intensive and require knowledge of government contracts law – and a lot of creative thinking – to minimize risk during this crisis.

Pub K and Nichols Liu will be holding a free webinar on this topic at 1 pm EST on Tuesday, August 17.  Join by clicking https://us02web.zoom.us/s/82749719551 or dialing +16465588656,,82749719551#.

Of course, if you have any questions or need any additional information, please do not hesitate to let us know.

Robert Nichols
rnichols@nicholsliu.com 
(202) 846-9801

Alan Chvotkin
achvotkin@nicholsliu.com
(202) 846-9806

 

Disclaimer

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.  Information on this website may not constitute the most up-to-date legal or other information.  Readers of this website should contact their attorney to obtain advice with respect to any particular legal matter. 

D.C. Circuit Upholds Overpayment Rule, Reverses Lower Court Ruling

By Andy Liu, Robert Rhoad, and Haaleh Katouzian

August 16, 2021

A unanimous D.C. Circuit, in UnitedHealthcare Ins. Co. v. Becerra,[1] reversed a district court’s ruling, holding “that the Overpayment Rule does not violate the Medicare statute’s actuarial equivalence and same methodology requirements and is not arbitrary and capricious as an unexplained departure from prior policy.” (internal quotations omitted).

 

The Overpayment Rule, issued by the Centers for Medicare and Medicaid Services (“CMS”) in 2014 “to implement the statutory requirement to report and return overpayments,” requires Medicare Advantage insurers to report and correct overpayments to CMS within 60 days.  The Rule, as explained by the D.C. Circuit, was imposed to control overpayments when “there is no basis for that payment in the underlying medical records” or if the “payment increment . . . lacks support in their beneficiaries’ medical records.”

 

UnitedHealthcare (“United”) argued that the Overpayment Rule must comply with actuarial equivalence, which requires payments made to providers participating under Medicare Advantage be equivalent to payments made under traditional “fee-for-service” Medicare, and that the Rule had failed to do so.  In 2018, the D.C. District Court agreed with United’s argument,[2] holding that the Overpayment Rule violated actuarial equivalence because “payments for care under traditional Medicare and Medicare Advantage are both set annually based on costs from unaudited traditional Medicare records, but the 2014 Overpayment Rule systemically devalues payments to Medicare Advantage insurers by measuring overpayments based on audited patient records.”  (internal quotations omitted).  Ultimately, the district court vacated the Overpayment Rule – a relief for Medicare Advantage providers.

 

The D.C. Circuit, however, reversed and concluded that the actuarial-equivalence requirement does not apply to the Overpayment Rule, but instead, “appl[ies] to different actors, target[s] distinct issues arising at different times, and work[s] at different levels of generality.”  In so doing, it effectively eliminated the centerpiece of United’s defense that its application of actuarial equivalence was reasonable and negated its “report and return” obligation under the Overpayment Rule.  The Court suggested that United’s argument connecting these two concepts — and the district court’s decision incorporating it – wrongly conflated and applied them.

 

Additionally, the Court held that the 1) Overpayment Rule does not violate Medicare’s “same methodology” requirement; and 2) Overpayment Rule was not arbitrary and capricious because CMS acted within its discretion when it applied an “adjuster” in connection with certain Medicare Advantage audits but did not do so in the context of the Overpayment Rule (even though it observed that CMS later changed the adjustment).

 

The same methodology requirement “merely clarifies that, in computing the data it publishes, CMS must use the same risk-adjustment model that it already uses to set monthly payments to Medicare Advantage insurers . . . .”  Because actuarial-equivalence does not apply to the Overpayment Rule, the same methodology rule is not implicated nor would the same methodology requirement have anything to do with determining whether insurers were overpaid.  Similarly, because the Overpayment Rule “does not violate, or even implicate, actuarial equivalence,” the Court held that CMS was not obligated to use an “FFS Adjuster” (or explain its refusal to do so).

 

At first glance, the D.C. Circuit’s decision appears to be a significant blow to Medicare providers.  While it may have been to the case-specific facts presented, Medicare providers still have several other potential defenses they can raise in the FCA overpayment context: room to demonstrate when credible information is received; when a potential overpayment was identified; when reasonable diligence is complete; and what reasonable diligence was undertaken.

 

Compliance is prospective; enforcement is retrospective.  Medicare Advantage providers should heed this by having robust compliance measure in place and by viewing circumstances in real time through the lens of what they are doing and how it might be looked back upon in the future by government enforcers and qui tam relators.  Keeping careful contemporaneous records of what is learned; when it is learned; what is done to investigate and make determinations; and, if necessary, to report or disclose any adverse determination, remain the key concepts to be employed in mitigating exposure under the False Claims Act.

[1] https://www.cadc.uscourts.gov/internet/opinions.nsf/BC04AB134EEF09A285258730004EFDC4/$file/18-5326-1910101.pdf.

[2] ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2016cv0157-74

Disclaimer

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.  Information on this website may not constitute the most up-to-date legal or other information.  Readers of this website should contact their attorney to obtain advice with respect to any particular legal matter.