US Senate Committee Passes Legislation to Prohibit Agencies from Awarding Contracts to Consulting Firms That Also Work for China and Other Countries

On May 15, 2024, the Senate Homeland Security and Government Affairs Committee (the “Committee”) passed an amended version of the “Time to Choose Act of 2024” (the “Act”) on a bipartisan 10-1 vote. If enacted, the legislation would prohibit consulting firms from contracting with US government agencies if they provide services to the People’s Republic of China (PRC), the Government of the Russian Federation, other governments that have been found to support international terrorism, or entities on lists tracked by the Departments of Commerce, Defense (DoD), and Treasury. The legislation was amended substantially by the Committee prior to passage to narrow its scope and potential impact. Nevertheless, the bill represents another potential increase of the pressure being applied to US contractors operating in countries that the US believes pose serious national security concerns. 

The “Time to Choose Act of 2024”

The Act was sponsored by Senator Josh Hawley (R-MO) to address his concern that US consulting firms’ provision of consulting services to “covered foreign entities may support efforts by certain foreign governments to generate economic and military power that they can then use to undermine the economic and national security interests of the American people.” Under the bill, a “conflict of interest” exists when consulting firms “simultaneously aid in efforts of certain foreign governments to undermine the economic and national security of the United States while they are simultaneously contracting with the Federal agencies responsible for protecting and defending the United States from foreign threats.”

To address this concern, the Act would prohibit consulting firms from contracting with and providing services to the US government if they also provide consulting services to governments or entities that are described as “covered foreign entities.” The Act defines “covered foreign entities” as:

• Parts of (or entities related to) the Government of the PRC such as 
  • the Chinese Communist Party
  • the People’s Liberation Army
  • the Ministry of State Security
  • other security services or intelligence agencies in the PRC
• The Government of the Russian Federation or any entity sanctioned by the US Treasury Department or under Executive Order 13662 “Blocking Property of Additional Persons Contributing to the Situation in Ukraine”
• Governments of countries the Secretary of State determines have repeatedly provided support for international terrorism or otherwise pose a substantial risk to US interests
• Entities included on several lists maintained by the Department of Commerce with respect to export regulation requirements, as well as the Department of Defense¹
• Entities on the “Non-SDN Chinese Military-Industrial Complex Companies List” maintained by the Office of Foreign Assets Control

To implement the Act’s restrictions, US government procurement officials would be required to amend the Federal Acquisition Regulation (FAR) in two important ways:

• Mandate that any entity providing “consulting services”—which include “advisory or assistance services” as described in FAR 2.101 and as well as the services from the North American Industry Classification System’s (NAICS) code related to Management, Scientific, and Technical Consulting Services, i.e., No. 5416—“certify that neither [the entity] nor any of its subsidiaries or affiliates hold a consulting contract with one or more covered foreign entities”; and
• Prohibit agencies from awarding contracts for consulting services to an entity that provides consulting services, including under the NAICS code described above, “if the entity or any of its subsidiaries or affiliates are determined, based on the self-certification . . . to be a contractor of, or otherwise providing services to, a covered foreign entity.”

As part of its considerations of the Act, the Committee adopted a substitute amendment sponsored by Chair Gary Peters (D-MI) and co-sponsored by Senator Hawley that made several important changes that narrowed the scope of the bill. Importantly, the substitute amendment also: 

• Carves out from the Act’s restrictions transactions involving products and services related to compliance with legal, audit, accounting, tax, reporting of the laws and standards of countries or participation in certain legal or dispute resolution proceedings. 
• Removes from the definition of “covered foreign entities” companies that have the ability to enter into contracts, own properties, or pay taxes on behalf of a government targeted by the law. This language appears to exclude state-sponsored entities. 
• Authorizes the head of each contracting agency to waive the conflict of interest restrictions found by Congress when such a waiver is determined to be in the US national security interests and the agency satisfies applicable procedural requirements, e.g., notification to the Office of Management and Budget and appropriate congressional committees, and publication “on the [relevant] agency’s public website” of the names of consulting companies receiving such waivers. 

Considerations for Contractors Performing Government Contracts

Under the Act, contractors performing consulting work for federal agencies must certify that they do not provide services to “covered foreign entities”—or they likely will not be able to receive future US government contract awards. The Act also authorizes termination of any contract awarded to a consulting firm if the head of the contracting agency determines the firm knowingly submitted a false certification regarding its consulting work. The law would require contracting agencies to consider suspending or debarring such consulting firms under FAR subpart 9.4. Finally, the Act makes clear that a consulting firm that “knowingly hides or misrepresents one or more contracts with covered foreign entities” shall be subject to penalties and other actions under the False Claims Act—which may result in the firm being required to pay three times the amount of damages (i.e., treble damages) that result from a violation.

As explained in an earlier Mayer Brown Legal Update on changes to procurement laws and policy, the National Defense Authorization Act (NDAA) for FY2024 prohibits DoD from contracting with consulting firms that previously provided consulting services to certain covered entities unless the entity providing consulting services certifies that it has an adequate conflict of interest mitigation plan or the DoD issues a waiver. The Time to Choose Act goes beyond the FY2024 NDAA by imposing broader certification requirements and additional potential restrictions on consulting firms that attempt to work for covered foreign entities while providing services to DoD or any federal civilian agency.

Finally, the Act would represent yet another escalation of the pressure being applied to contractors to address the national security concerns perceived with respect to the PRC and other covered foreign entities. In light of the strong bipartisan support for the Act, we will continue to monitor the legislation and provide alerts as it moves through Congress.

¹ The Act would designate as “covered foreign entities” persons or companies included on the following Department of Commerce lists related to “Export Administration Regulations”: the “Entity List,” the “Denied Persons List,” the “Unverified List,” and the “Military End User List.” The Act would similarly designate any entity identified by the Secretary of Defense under section 1237(b) of the FY 1999 National Defense Authorization Act.