President Biden Signs Executive Order to Promote Competition in the U.S. Economy
Government Contracts Update
Date: July 14, 2021
On July 9, President Biden issued Executive Order (EO) 14036, “Promoting Competition in the American Economy,” which includes 72 initiatives by more than 12 federal agencies aimed at addressing competition issues across the economy and different industries. A White House fact sheet accompanying the EO expresses concern that “[f]or decades, corporate consolidation has been accelerating,” including in the health care, financial services, agriculture, and other sectors.
The EO sets in motion a series of reviews and rulemakings around initiatives to enforce antitrust laws and other laws that may impact competition, to combat excessive concentration of industry and abuses of market power, and to address challenges posed by new industries and technologies. The EO even goes so far as to call antitrust laws the “first line of defense against the monopolization of the American economy,” and many of its key proposals are aimed at increasing antitrust enforcement by the Justice Department Antitrust Division (DOJ) and Federal Trade Commission (FTC) or involving them in competition policy issues with other agencies.
Additionally, the EO directs the U.S. Attorney General and the Secretary of Commerce to examine the possibility of revising their stance on the intersection of IP and antitrust laws, which includes considering changes to the 2019 “Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments” issued by the DOJ, U.S. Patent & Trademark Office, and National Institute of Standards and Technology.
New White House Competition Council
Notably, the EO establishes a new White House Competition Council to coordinate the White House response to anticompetitive behavior, as well as various deadlines for agency response, which are discussed in further detail below. The council will consist of representatives from key agencies and will invite the FTC and several other independent agencies to participate.
The EO directs each council member to designate a senior agency official to be the point of contact with the council and oversee the agency’s efforts to address competition issues within 30 days. The EO also stipulates that the council will meet semiannually unless the chair determines that a meeting is unnecessary.
The EO asks the FTC Chair to address persistent and recurrent practices that inhibit competition and encourages the FTC to exercise its statutory rulemaking authority to address seven areas:
- Unfair data collection and surveillance processes.
- Unfair anticompetitive restrictions on third-party or self-repair of items.
- Unfair anticompetitive drug industry conduct or agreements, including involving generics and biosimilars.
- Unfair competition in the major internet marketplaces.
- Unfair occupational licensing restrictions.
- Unfair tying or exclusionary practices in the brokerage or listing of real estate.
- A catchall “any other unfair industry-specific practices that substantially inhibit competition.”
Potential Impacts on Defense/Government Contractors
The EO provides several recommendations to the DoD, including that DoD, within 180 days, submit a report assessing the state of competition within the defense industrial base and make recommendations for improving the solicitation process to promote greater competition, as well as plan for avoiding contract terms in procurement agreements that limit the ability of the DoD or service members to repair their own equipment.
Companies that are suppliers to the DoD can expect scrutiny of current competition practices as well as current recordkeeping practices regarding their lower-tier subcontractors and suppliers.
The EO also “encourage[s]” the FTC to “consider” using its authority to “curtail the unfair use of non-compete clauses,” which, to be clear, does not impact the current state of the law or enforceability of non-competition agreements in any context, including those between an employer and its employees or partners, or in the context of the sale of a business.
Given that many states already require non-compete agreements to be reasonable in their scope, it is unclear how a federal effort to curtail such agreements that “unfairly” limit worker mobility would change the legal landscape. Government contractors are in a better position than other industries, given their familiarity with FAR 52.237-3, Continuity of Services, which requires that government contract work “continue without interruption” when services under the contract are considered vital. Relatedly, an incumbent government contractor’s non-compete agreements may be barred under FAR 52.237-3 when the successor needs those employees to fulfill its contract and an interruption in the work threatens national security.
Additionally, some courts have reasoned that because non-competes restrict the government’s access to qualified personnel, they are against public interest in the government contracts context. This is because courts also often view arguments to protect goodwill and customer relationships with more skepticism in government contracting than in other fields because there is one chief customer – the government – that follows a stringent bidding process intended to limit biases. Instead, more justifiably protectable interests in government contracting include proprietary information, such as training programs, manufacturing processes, and trade secrets.
Companies with non-competes in place that historically have been enforceable in government contracting should review their non-competition agreements to ensure they are fairly tailored to specific circumstances, such as the uniqueness of a training or reference to only one possible customer, as well as investigate internal contingency plans in the event the DoD or a civilian agency proposes rulemakings further limiting or banning the non-competes by government contractors.
The EO is a significant pronouncement of the Biden administration’s position on competition matters and business practices generally. As discussed in detail above, the EO is primarily a series of directives that federal agencies are encouraged to address and are not self-executing. Its ultimate importance will depend on agencies’ success in implementing the changes the EO identifies.
Companies concerned about specific directives in the EO should begin making plans now to ensure those concerns are amply documented before the agency when rulemaking proceedings begin. Companies should also keep a close eye on the regulatory proposals that result from this EO and consider engaging those that affect their business operations.
In addition, companies that are government contractors or suppliers to the DoD and other civilian agencies can expect increased scrutiny of their current competition practices with respect to their recordkeeping and non-competition agreements. Additionally, companies should be mindful of the recently created DOJ Procurement Collusion Strike Force, which has a stated goal of “deterring, detecting, investigating, and prosecuting antitrust crimes … in government procurement, grant and program funding.” Contractors and suppliers should continue to monitor further executive branch actions related to antitrust in the wake of this EO and the creation of the Procurement Collusion Strike Force, as they both reflect an increased emphasis by DOJ and other federal agencies with respect to anticompetitive behavior by government contractors and suppliers.
Our team will continue to follow and update on these and related developments.
FOR MORE INFORMATION
For more information, please contact:
Jessica V. Haire
Francis E. (Chip) Purcell, Jr.
Joseph R. Berger
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