THE BELTWAY AND BEYOND

Is Microsoft ineligible for federal business?

Stephen M. Ryan

Bill Gates probably sees Joel Klein in his bad dreams. Klein, of course, is the government antitrust prosecutor who put together an unwieldy coalition of 19 states and the federal government to bring a civil suit and obtain judgment against Microsoft Corp.

The Microsoft antitrust case is headed either directly to the Supreme Court or toward a detour to the ideologically polarized U.S. Court of Appeals. Regardless, the company now must battle on a new legal front, namely the so-called responsibility regulation.

Commonly known as the blacklisting rule, it means the Federal Acquisition Regulation Council poses a new problem for the company.

The blacklisting rule basically says that, until a finding that a company is responsible, no federal contract can be awarded to that company. The language of the law and the interpretative regulations in FAR permit contracting officers wide latitude in declaring contractors responsible'or not. Case law has shown that a finding of responsibility by a contracting officer is almost impossible to overturn. Findings of nonresponsibility are nearly always challenged. Contracting officers thus seldom make such a finding.

Civil violations of antitrust laws figure in the latest regulatory proposal. Specifically, a new proposed regulation calls for a contractor to disclose both felony convictions and civil judgments for violations of antitrust laws in the past three years.

In July of last year, the Clinton administration drew the ire of the federal contracting community with a proposed rewrite of the blacklisting rule. Many contracting officers claimed the rewrite was vague, lacking standards and dangerous. Contracting officers didn't like having administrative authority to effectively debar vendors. Needless to say, industry didn't much care for the proposal either. The rewrite garnered an unheard-of 1,500 comments, mostly against the rule.

Members of Congress from both parties also weighed in against the rule.

But the lame-duck administration, which had promised to its allies in the labor movement a tightening of the regulations, favored it. Still, caught between these forces, the administration has taken lots of time and gone back to the regulatory drawing board, producing a very different version of the blacklisting rule.

On June 30, the FAR Council kicked out a second proposed rewrite of the blacklisting regulations. Comments are due Aug. 29, before a third version of the rule is made final. Go to www.arnet.gov/far/ProposedRules for a downloadable version of the proposed rule.

The proposed standard remains the same: no finding of responsibility for vendors with 'an unsatisfactory record of integrity and business ethics.' But the new proposed rule requires contracting officers to rely more on objective measures, such as findings or decisions by U.S. courts, administrative law judges and boards of contract appeals.

Could some enterprising contracting officer therefore conclude that Microsoft, the world's largest software company and a major seller to the federal government, has an unsatisfactory record of integrity and business ethics based on Judge Thomas Penfield Jackson's detailed ruling?

I think the answer is yes. One outcome of invoking the rule could be to put an intrepid contracting officer on television, establishing him or her as a new Ernie Fitzgerald. Fitzgerald brought attention to cost overruns on Air Force cargo planes in the 1980s and made himself untouchable for his boldness. More so, the possibility exists that an anti-Microsoft finding by a contracting officer will drive a wedge in what, so far, has been a uniformly negative industry response to the old blacklisting rule.

Sticky situation

The administration has taken a bag of lemons and, with luck, made lemonade. It will be more difficult politically to oppose the latest proposed version of the rule, compared to the last. And if the administration has promised to cheerfully walk labor's political plank, this is a more palatable way of doing so than last year's version.

Whether the re-rewrite can assuage industry is uncertain. Either way, this is great political theater for the contracting community and may even get noticed outside our tiny village.n

Stephen M. Ryan is a partner in the Washington law firm of Manatt, Phelps and Phillips. He has long experience in federal information technology issues. E-mail him at SRyan@Manatt.com.

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