Several prominent government contractors have faced a recent baptism by fire into the world of acquisition policy under the Trump Administration. These have included public comments by President-elect Trump regarding the cost of Boeing’s contract to provide a replacement to Air Force One and Lockheed Martin’s contract to produce the F-35, a 5th generation multi-role fighter. These comments resulted in an acute reduction in Boeing’s and Lockheed Martin’s stock prices and were met with rejoinders by the companies defending their deals with the Pentagon. United Technologies Corporation (the parent company of jet-engine manufacturer Pratt and Whitney, UTC Aerospace, and Carrier Air Conditioning) noted the importance of its government contracts as a factor in recent negotiations with the Trump Administration to scuttle Carrier’s plan to move a manufacturing facility to Mexico.
These high profile interactions, along with Mr. Trump’s stated policy positions and ongoing cabinet nominations, provide some preliminary insights into what government contractors can expect over the next four years. In a word, the relationship between contractors and the Trump Administration is likely to be complicated.
On the one hand, the Trump Administration, support by Republican majorities in both houses of Congress, is anticipated to support increases in defense spending, including removing the so-called “sequestration” budget limits enacted in the Budget Control Act of 2011. These increases may include significant investments in additional weapons programs and other hardware; creating additional business opportunities for government contractors and their lower-tier subcontractors and suppliers. The budget priorities, of course, will be revised throughout the legislative process, including balancing increased defense spending with Mr. Trump’s tax reduction proposals.
President-elect Trump has also made a number of public statements expressing concern with President Obama’s use of Executive Orders and has stated his intent promptly to repeal many of these orders. This presents an opportunity for the Trump Administration to reconsider a number of Executive Orders that took particular aim at the government contracting community, including:
- Executive Order 13495, Non-displacement of Qualified Workers Under Service Contracts (Jan. 30, 2009): requires contractors, and their subcontractors, under a successor contract for performance of the same or similar services at the same location, to offer those employees (other than managerial and supervisory employees) who worked under the predecessor contract, a right of first refusal of employment under the successor contract.
- Executive Order 13627, Strengthening Protections Against Trafficking in Persons in Federal Contracts (Sept. 25, 2012): expounds upon existing anti-trafficking regulations and government contract terms to require contracts to prepare detailed anti-trafficking compliance plans and annual certifications and create additional reporting obligations.
- Executive Order 13658, Establishing a Minimum Wage for Contractors (Feb. 12, 2014): establishes a minimum wage of $10.10 per hour for federal contractor and subcontractor employees, effective January 1, 2015, and permits the Secretary of Labor to adjust the minimum wage upwards each year thereafter based on the Consumer Price Index for Urban Wage Earners and Clerical Workers ($10.20 effective January 1, 2017).
- Executive Order 13665, Non-Retaliation for Disclosure of Compensation Information (April 8, 2014): prohibits contractors from retaliating against employees who share compensation information. The Executive Order is intended to provide greater transparency on employee compensation in an effort to combat discriminatory employment practices.
- Executive Order 13673, Fair Pay and Safe Workplaces (July 31, 2014): requires contractors to report to contracting officers whether there has been any administrative merits determination, arbitral award or decision, or civil judgment rendered against the contractor within the preceding 3-year period for violations of certain labor laws and Executive Orders relating to labor laws.
- Executive Order 13706, Establishing Paid Sick Leave for Federal Contractors (Sept. 7, 2015): requires contractors and subcontractors to provide employees a minimum of seven days of paid sick leave per year.
Many of these Executive Orders implement aspects of President Obama’s broader economic agenda that could not be implemented across all industries due to resistance from Congress. For instance, raising the federal minimum wage for all employees was out of reach because it requires a statutory change while a minimum wage could be implemented against federal contractors through unilateral executive action. We anticipate that these Executive Orders will be subject to significant scrutiny by the Trump Administration and subject to potential rescission. These Executive Orders singled out the contracting community for additional regulation, created new compliance requirements, and increased costs of performing government contracts. A serious review of these Executive Orders, therefore, would likely be welcomed news to the contracting community.
We also anticipate that the Trump Administration will be receptive to other acquisition reforms that allow contractors to rely upon more of their commercial practices when performing government contracts. This may include resistance to recent Department of Defense efforts to narrow the definition of “commercial items” and to restrict the allowability of independent research and development costs.
On the other hand, President-elect Trump’s recent tweets and policy emphasis on what appear to be protectionist-leaning policies may cause some concerns for the contracting community. President-elect Trump has shown little hesitation in leveling public criticism of contractors he perceives are mismanaging their government contracts and in using contractors’ relationship with the federal government as leverage to pursue other policy initiatives. As this tendency is implemented through acquisition policy, government contractors may face increased pricing pressures, increased reliance on fixed priced or fixed priced incentive contract types, and programmatic pressure to provide price or cost reductions or face termination of their contracts. President-elect Trump’s trade policies may also permeate into government contracts through increased domestic preference requirements, changes to free trade agreements (which provide exemption to some existing domestic preferences), and increased political pressure to award contracts to companies that otherwise support President-elect Trump’s agenda of returning manufacturing jobs to the United States. In sum, government contractors may face an increased politicization of the award and administration of federal contracts.
Acquisition policy, of course, is only one of many issues that the Trump Administration will have to manage over the next four years. This policy will be subject to not only competing policy interests but many policy changes will have to go through the legislative process including the attendant bargain and compromise process that will shape the enacted legislation. Ultimately, broad executive and legislative prescriptions will have to be refined into detailed regulations, agency policies, and contract clauses. This process provides ample opportunities for the contracting community to engage with the Trump Administration and Congress to shape acquisition policy in a manner that allows the contracting community to provide its products and services to the federal government as efficiently and cost-effectively as possible.
