This transcript has been auto generated
00;00;00;21 - 00;00;26;19
Jonathan Porter
Welcome to another episode of Husch Blackwell's False Claims Act Insights podcast. I'm your host, Jonathan Porter. I live in the fraud world. When I was with the Justice Department, I brought cases against those committing fraud. And now in private practice, I defend those accused of fraud. And in my world of fraud, I've never really dealt with matters of employment discrimination or efforts to make our workforces more inclusive.
00;00;26;29 - 00;00;57;15
Jonathan Porter
Those things aren't in my wheelhouse. Those things to me aren't fraud. But now, all of a sudden, DEI is front and center in the False Claims Act world. That's because President Trump recently signed an executive order that prohibited DEI programs involving federal contracts. But you didn't stop there. The executive order also expressly stated that failure to abide by his DEI decrees was material to the government's decision to pay funds under the False Claims Act.
00;00;57;23 - 00;01;28;07
Jonathan Porter
And you better believe that got my attention, because for as big as FCA is, we don't make our way into too many executive orders. So we're talking about that executive order today. On the podcast, we're talking about what President Trump's order did, how a federal judge temporarily stayed portions of that executive order, how that impacts government contractors and what they need to do right now, and how all of this impacts FCA enforcement in the government contracting space.
00;01;28;24 - 00;01;50;05
Jonathan Porter
Joining me to talk about this new potential DEI as an FCA predicate world is my law partner, Michael Schrier. Michael is a go to lawyer for companies doing business with the government. A lot of the firm's government contractor clients make Michael their first call, whether it's advice on some cutting edge issue or to litigate their cases. Michael's their guy.
00;01;50;07 - 00;02;19;28
Jonathan Porter
And so Michael is our guy today on the podcast to deal with this cutting edge issue, die in government contracts. Michael works out of the firm's Washington, D.C. office, and he just presented on this same topic at a big government contracting conference. And so we're happy to get the benefit of Michael's wisdom on the podcast today. So Michael, with that, thanks for coming on the podcast and telling our listeners about this new executive order, the stay and how they can stay out of FCA trouble in government contracts.
00;02;20;07 - 00;02;21;02
Michael Schrier
Thanks for having me.
00;02;21;06 - 00;02;52;28
Jonathan Porter
Michael, let's get right into the weeds on this issue and I think let's start with some background. President Trump's order was primarily concerned with overturning a 1965 executive order signed by LBJ. Michael, start us off by giving us the backstory to that 1965 LBJ Order, which is executive order 11246. What were LBJ's goals at the time and how generally have government contractors operated from 1965 to 2025 to comply with LBJ's executive order?
00;02;53;09 - 00;02;53;18
Jonathan Porter
Sure.
00;02;54;01 - 00;03;20;29
Michael Schrier
Well, in 1965, LBJ issued executive order 11246 promoting affirmative action in government contracting. And the executive order was issued shortly after passage of the Civil Rights Act of 1964 and designed to effectuate the nondiscrimination provisions of the Civil Rights Act in 1964. Among the things that that executive board covered was to take steps to prevent and undo discrimination against minorities and women.
00;03;21;17 - 00;03;54;19
Michael Schrier
And part of the process was to take affirmative action to increase the hiring pools that government contractors would review when filling vacancies. It wasn't about quotas, it wasn't about ratios or anything like that. It was about simply making sure that contractors would go out and advertise positions properly and go to those certain underserved demographics and try to get increased applications from those underserved demographics so that the employer's workforce would mirror the demographics in the local area from which the employees were drawn.
00;03;55;10 - 00;04;16;18
Michael Schrier
That was the ultimate goal, and this was executive order one one, two, four, six was enforced for the last 30 some odd years, 40 some odd years by the Office of Federal Contract Compliance Programs out of the U.S. Department of Labor. And the other ironic thing is that they could order a11, two, four, six is sort of O.G. government contract law.
00;04;16;29 - 00;04;32;24
Michael Schrier
As you hinted before, it's from 1965, the executive order 11246 predated the Federal Acquisition Regulations. It predated most modern concepts of federal government contracting, and it has persisted for 60 years until this year.
00;04;33;02 - 00;04;52;22
Jonathan Porter
Thanks, Michael. All right. Now let's get into what President Trump did. What did President Trump's executive order seek to do? And critically, here I mentioned in the in the outset, part of this has been stayed by a federal judge. So, Michael, why don't you tell our listeners what the order sought to do? What pieces of it are still good and what pieces of it have been stayed?
00;04;53;10 - 00;05;19;27
Michael Schrier
Sure. What we're talking about a new executive order, 14173. And that executive order, for purposes of our talk here today, created some new requirements. First off, it revoked executive order one one, two, four, six in its entirety. And second of all, it prohibited the Office of Federal Contract Compliance Programs from enforcing affirmative action based on race and gender.
00;05;20;08 - 00;06;04;20
Michael Schrier
And what the executive order also did, was it established two contractual predicate that contractors and grant recipients are supposed to comply with going forward. Number one, the executive order requires that every new contractor grant I'll have a term requiring that the contractor or grant recipient to agree that it's compliant in all respects with all federal anti-discrimination laws is material to the government payments decisions for purposes of the False Claims Act and secondarily and all grant and contracts requiring that counterpart of a recipient to certify that it does not operate any programs promoting DEI that violate any applicable federal anti-discrimination laws.
00;06;05;06 - 00;06;24;17
Michael Schrier
So in a lot of respects, the executive order turns 60 years of anti-discrimination law on its head, whereas before Lyndon Johnson required affirmative action to prevent discrimination. Now, through this executive order, the Trump administration is using the False Claims Act to a complete 180.
00;06;25;03 - 00;06;32;17
Jonathan Porter
Thanks, Michael. And I understand part of this has been stayed by a federal judge. So could you tell our listeners about that? What's been state and what is not?
00;06;32;23 - 00;07;12;15
Michael Schrier
Sure. On February 21st, 2025, a federal judge in a federal district court in Maryland issued a 63 page opinion and preliminary injunction, saying portions of executive order 14173 specifically it stayed the enforcement of the certification provisions that I just read off to you a couple moments ago. And it also stayed the enforcement threat, which was also inherent in President Trump's executive order, saying that the administration would go out and look for corporations, bars, associations, medical associations and so forth and pick targets for prosecution.
00;07;12;25 - 00;07;25;22
Michael Schrier
But by the court's injunction, it placed a temporary stay on all those enforcement activities and also the government's ability to place new certification requirements into contracts and grants going forward.
00;07;26;01 - 00;07;43;03
Jonathan Porter
Thanks, Michael. Yeah. So my read of this and by the way, you and a team from our firm here at Hirsch Blackwell wrote a great alert about the preliminary injunction. We will link to that in the show notes. If you're interested in this, go get the details from Michael and his colleagues on what exactly this preliminary injunction does.
00;07;43;14 - 00;08;05;26
Jonathan Porter
But this is really interesting in the in the False Claims Act space, because, you know, to me, Michael, enjoining enforcement of an executive order is interesting. I wonder if that means that DOJ cannot investigate it if a key item is going to be filed. They have a, you know, a statutory duty. DOJ has a statutory duty to go in and diligently investigate the item.
00;08;06;04 - 00;08;26;29
Jonathan Porter
I wonder if that means that they just have to hold off on filing, say, a false claim. That complaint. Could you still settle conduct under this under this theory? These are all really interesting questions. And Michael, you're the go to guy on this topics. I'm going to give you a really hard question. What should government contractors do while we're here in this enforcement limbo?
00;08;26;29 - 00;08;37;11
Jonathan Porter
I mean, this is a preliminary injunction that could be lifted at some point. It could be overturned on appeal. I mean, there's a lot of different things that could happen. What are government contractors supposed to do right now?
00;08;37;17 - 00;09;01;26
Michael Schrier
Well, right now, the federal government should not. And I say that quotes should not be inserting new certification requirements into existing or future contracts or grants, as well as the certification requirements are not in the contracts agreements. Then that potentially reduces future false claims act exposure and liability. But to your point, can the government investigate? Sure, the government can investigate what the current injunction prohibit.
00;09;02;02 - 00;09;21;26
Michael Schrier
It merely prohibits the government from bringing any false claims, enforcement actions or other enforcement actions pursuant to the enforcement threat in the executive order. It doesn't prevent the administration from investigating. So to your point, there's nothing to prohibit the Justice Department from investigating right now. There's just a prohibition on taking enforcement action.
00;09;22;11 - 00;09;42;25
Jonathan Porter
Yeah, I think we're in a really interesting time. Michael, I don't envy you because you're advising colleagues in a really tough spot. And I'm going to make it even tougher on you because there are some other facts that are complicating all of this already complicated landscape. So let me throw a couple of things that you. One, a lot of federal contractors also have stayed contracts that they need to abide by state laws.
00;09;43;04 - 00;10;06;13
Jonathan Porter
And a lot of states have their own DEI laws that conflict with President Trump's executive order. And I could see states. AG enforcement if state contractors not abiding by those state DEI laws. And here's another thing so key Tamara Leiter's largely drive DOJ agenda when it comes to federal FCA enforcement. And so think about these two things together.
00;10;06;25 - 00;10;34;04
Jonathan Porter
If government contractors are trying to mitigate enforcement risk by scaling back or eliminating their D policies, Michael, how should they think about doing that, knowing that, say, emails that they're writing to each other right now could be discoverable by DOJ, by a state AG, by federal regulators, by maybe state FCA related or I mean, this is a really interesting time where companies are going to have to figure out what they're supposed to do to abide by the law.
00;10;34;16 - 00;10;45;07
Jonathan Porter
And they may need to put memos together, maybe to communicate with each other. What should government contractors be thinking about when they're trying to comply right now, knowing that some of this stuff may be discoverable?
00;10;45;20 - 00;11;09;19
Michael Schrier
Well, the first thing, obviously, from your question is that they should consult the counsel and have those discussions with counsel so that that can be covered with the client privilege to the extent possible. That's the first thing. Substantively, you raised two interesting points about state AGs and potential Relator's. In the employment context or in the DEI context. Most of the policies are published companywide, internally, externally.
00;11;09;24 - 00;11;31;23
Michael Schrier
So again, you're the expert on the False Claims Act, but the way I look at it going to be kind of hard to have a relator come forward with some of this information out there in the public domain. So I think that the risk, poor qui tam claimed coming out of the woodwork is relatively diminished given that the universe in which we're talking about here, the employment and contracting issues.
00;11;32;15 - 00;11;54;24
Michael Schrier
So I think that's a good thing. Of course, that doesn't preclude the government from taking matters on its own outside of a relator. Bring the issue as far as the state AGs go. Now, you raise a fantastic point because there are certain states that have affirmative action requirements built into interstate state contracting law and what contractors are supposed to do.
00;11;54;25 - 00;12;18;21
Michael Schrier
They're supposed to comply with the law and this executive order presumably does not have preemptive effect over state statutory provisions. So it's a very interesting question going forward on a case by case basis, figure out how to potentially thread the needle, if one can, to comply with state requirement while also complying with the executive order to extend it enforced.
00;12;19;04 - 00;12;39;18
Jonathan Porter
Thanks, Michael. Yeah. So what you're referring to there is the public disclosure bar in the FCA. That's actually a very nuanced issue. It is not nearly as broad as people think that it is. We should do an entire episode about the public disclosure bar because it's a fascinating concept and there are a lot of ways around that, a lot of creative ways around that that writers have found.
00;12;39;24 - 00;13;09;07
Jonathan Porter
So, you know, Michael, you bring up a great point. We'll do a whole episode on that. It's great idea because it's a fascinating area of the FCA enforcement, but no, you make a great point. I mean, this is to me what frustrates me about this concept is the FCA is a fraud statute. This is designed, you know, going back to the origins, this came out of the Civil War when government contractors were blatantly ripping off the government, giving the Union Army mud instead of coffee grounds.
00;13;09;07 - 00;13;31;08
Jonathan Porter
I mean, there's all these stories. Mules instead of thoroughbred horses, there's all these stories about what exactly Congress was trying to do when they created the False Claims Act. It was to stop blatant government fraud because they went back and said, look, breach of contract is really not enough to stop a government fraud from happening. So when people are committing knowing fraud, you've got to have more.
00;13;31;09 - 00;13;59;04
Jonathan Porter
You've got to be able to have more. I think it'd be interesting if the administration was saying, look, if you're not eligible to have government contracts, if you have particular DEI programs in place, to go a step further and say if you have the programs, you are committing fraud. That's a really interesting concept. And I think courts are going to respond interestingly to this in that how are you going to say that you're committing fraud if you comply with federal law and you're committing fraud if you comply with state law and if you choose one or the other, that's still fraud.
00;13;59;04 - 00;14;19;00
Jonathan Porter
That doesn't seem like something that should be fraud to me. Picking which version of a law you're going to comply with. So I think this is a really interesting enforcement landscape to me. Michael United We defend companies that are accused of fraud and from my vantage point, not everything can be fraud. Some things can be trying to comply with the law and just making a business decision.
00;14;19;09 - 00;14;27;17
Jonathan Porter
But so, yeah, this is a really interesting area, Michael, and I don't envy you for having to advise clients on this. So how are you going to advise clients on this?
00;14;27;25 - 00;14;51;24
Michael Schrier
Well, there are a couple of interesting points between what you just brought up. First off, you were talking about, you know, having a prohibition on DEI policies that violate federal anti-discrimination law. Okay. So we're not talking about laws that are specifically tailored to government contracting or procurement or whether the contractor produced cannons made out of copper or iron and the government didn't get what it contracted for.
00;14;51;29 - 00;15;21;25
Michael Schrier
Here in this situation, we're talking about laws of general affordability, such as Title seven and the 1964 Civil Rights Act. And it's unclear how a Civil Rights Act remedial statute could serve as the basis for a fraud claim in this context. And similarly, you also touched upon another issue near and dear to my heart that about at the tail end of the Obama administration, there was something that was colloquially known as the blacklisting rule that applied to federal contractors.
00;15;22;08 - 00;15;46;28
Michael Schrier
Basically, there was a series of regulations that were put in place that created a regime that would find federal contractors not responsible. And that's a term of art in a government contracting world. Find contractors not responsible if they had too many labor law violations. And labor law violations was very loosely defined. It was subject to a lot of consternation in the government contracts bar.
00;15;46;29 - 00;16;22;22
Michael Schrier
But one of the very first things that the Trump administration did the first time around with the help of Congress, was to repeal the blacklisting rule used in the Congressional Review Act and to officially kill off any kind of regulatory regime that would place conditions on contractor responsibility to be a contractor based on labor employment stuff. So we've sort of come full circle in some respects because to this executive order, in fact, placing labor employment based responsibility determinations on steroids, on contractors again.
00;16;22;29 - 00;16;41;11
Jonathan Porter
Yeah, that's exactly right, Michael. It's a really interesting enforcement landscape. And so I feel bad for government contractors who are trying to do the right thing. They're trying to abide by the law. And they've got all of these different, you know, just a bunch of different politician based requirements that they're trying to comply with. And so, yeah, this is an interesting space.
00;16;41;22 - 00;17;06;20
Jonathan Porter
Michael, let's close out the conversation. I want to talk about something else. This is sort of tangentially related to President Trump's executive order, but not within the four corners of it. So there's other areas of government contracts like SBA's ADA program, which requires certain government contracts to include some work done by small businesses owned by socially or economically disadvantaged individuals.
00;17;07;00 - 00;17;31;02
Jonathan Porter
Other SBA programs require contracts or subcontracts that are involved by women owned small businesses. These are all statutory concepts requirements within federal contracts. And so I know for a fact that DOJ has some of these investigations pending right now into ADA fraud. Women own small business fraud where people are using, say, alleged pass through entities to do work that shouldn't be done.
00;17;31;07 - 00;17;52;16
Jonathan Porter
I did a decent amount of that FCA work when I was at DOJ. It's a really interesting concept and with those investigations that are pending, it's not within the four corners of the executive order. But what impact would that have? There's still real theories. These are statutes that government contractors are complying with. Michael, what do you think about those sort of tangentially related concepts?
00;17;53;01 - 00;18;16;08
Michael Schrier
Well, I think those are always have been subject to potential false claims act. And I think they will continue to be. More to the point, though, I am aware that there are efforts in Congress right now to attempt to roll back or to remove ADA from the SBA panoply of classifications. Generally, I wouldn't be surprised to see women on small businesses and some other classifications potentially be rolled back.
00;18;16;21 - 00;18;43;23
Michael Schrier
And that's the general consensus of folks that I spoke with at conference, I would add, a week or so ago, as well as the various clients that I've been talking to recently as far as what may survive in the SBA world for federal contractors. The general consensus is that service disabled veteran own small businesses or DeVos BS probably stand the best chance of surviving as well as and fierce Alaska Native Corporation.
00;18;44;25 - 00;19;06;17
Michael Schrier
Those small business designations are probably the most likely to survive, but again, those are all the subject of separate statutory provisions which are not touched by the current executive order, but certainly given the tenor of the executive order. One can see the writing on the wall that the some of these that as I programs and classifications may not be long for this world.
00;19;06;25 - 00;19;29;21
Jonathan Porter
Thanks, Michael. I think that's right. So I just want to say there's a pleasure working with you. I'm so glad that Josh Blackwell has this impressive government contracting group. And so, Michael, thanks for coming on the podcast and telling us some of the struggles that you're having with advising our clients right now on these really tough issues. Michael, I'll go and close us out by saying, you know, government contracting is one of the areas where this is happening.
00;19;29;27 - 00;19;55;25
Jonathan Porter
HHS recently came out with some action that said I should be outside of health care providers as well and health care companies. That's a really interesting space. There's been a lot of talk in the college and university world where if colleges and universities are receiving federal funds, there is some talk that they cannot have DEI programs. Instead. A lot of institutions of higher education, very much value DEI programs.
00;19;55;25 - 00;20;16;26
Jonathan Porter
And so this is an interesting spot right now for a lot of our clients. We're just sort of touching on the tip of the iceberg here, but there's a lot of stuff that's happening in this space. I know, Michael, you've been writing about it from the government contractor perspective. We at Husch Blackwell we're going to continue to bring in information about how to comply with this changing regulatory landscape.
00;20;17;07 - 00;20;44;17
Jonathan Porter
And so continue to read articles. We'll bring you False Claims Act related stuff on this podcast. But I know a lot of our colleagues are going to continue to think about this, help our clients abide by the law. And so we're happy to just offer this little bit of information. But I think we're at an interesting point in False Claims Act enforcement, and we're going to continue to talk about how courts are interpreting what fraud is, what fraud is not, what's enforceable under the False Claims Act, what's not.
00;20;44;29 - 00;21;04;28
Jonathan Porter
So we're going to continue to bring you that content. But I hope you've enjoyed this discussion of DEI as an FCA predicate. We invite you to subscribe however you listen to this and join us again and we'll see you next time.