Defense Department Issues Interim Rules Defining Contractors Subject to Arbitration Ban
By Ted Olsen
In our January 2010 newsletter, we reported on the so-called "Franken Amendment" to the Department of Defense Appropriations Act for 2010 ("2010 Appropriations Act"), signed by the President. The Amendment requires a defense contractor with a contract valued at over one million dollars to commit not to (a) enter into, or (b) take any action to enforce, any agreement with employees or independent contractors requiring the arbitration of certain legal claims.
On May 19, 2010, the Defense Department issued so-called interim rules on the Amendment. The Department will accept comments until July 19, 2010. See, 75 Fed. Reg. 27,946. The interim rules define when a defense contractor does and does not have a contract valued at over one million dollars. Of great importance to contractors, the interim rules make clear that the monetary value of a contract must be assessed according to the amount of compensation to be paid to the contractor specifically under the 2010 Appropriations Act.
For instance, a defense contractor that has an existing indefinite delivery/indefinite quantity contract with the DoD is covered by the Amendment if the Defense Department places a new order with funds of more than one million dollars appropriated or otherwise made available specifically by the 2010 Appropriations Act. This is true, according to the interim rules, even if the original contract did not have a value of more than one million dollars. Likewise, a bilateral modification of a contract that uses more than one million dollars appropriated by or made available by the 2010 Appropriations Act is also covered. A newly-awarded order for less than one million dollars does not make the agreement subject to the Franken Amendment, even if the value of original or existing contract was more than one million dollars.
Most notably, in cases where an awarded contract has a total value of more than one million dollars (e.g., $1.5 million), but less than one million dollars will be paid on the contract pursuant to the 2010 Appropriations Act (e.g., $10,000), with the balance to be paid in Fiscal Year 2011 or later, the Franken Amendment will not apply.
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©2010 Sherman & Howard L.L.C. July 7, 2010