Reed Smith In-depth

Last week, the House Committee on Oversight and Reform voted to advance H.R. 7185, the Federal Contracting for Peace and Security Act (the Act), which, if signed into law, would preclude all federal contractors, as well as all affiliated companies, from conducting any business in Russia or risk losing existing and future federal government contracts. The proposed legislation supplements the Biden administration’s significant expansion of sanctions against Russia, including the recently issued Executive Order 14071 (April 6, 2022), which prohibits the sale or supply of any category of services as may be determined by the Secretary of the Treasury to any person located in Russia from the United States or by a U.S. person. The Act would impose additional restrictions on federal government contractors, including non-U.S.-based companies and their corporate parents and affiliated subsidiaries.

The purpose of the Act is to prevent the United States from “conduct[ing] business with companies that undermine United States national security interests and international law by continuing to operate in the Russian Federation during its ongoing war of aggression against Ukraine.” The Act takes a bold and broad-sweeping stance to prohibit federal agencies from entering into new contracts, as well as requiring the termination of existing contracts, with any company that is doing business in Russia.

First, the Act, in its current form, will prohibit agencies from entering into or continuing any “covered contract” with any company that “conduct[s] business operations in territory internationally recognized as the Russian Federation.” Under the Act, the term “covered contract” means “a prime contract entered into by an executive agency and any major subcontract of that contract (as that term is defined by the rulemaking...) with a company (including any parent, subsidiary, successor entity, or beneficial owner of such company) conducting business operations in territory internationally recognized as the Russian Federation during the covered period.” The Act’s prohibitions broadly cover the following: (1) award of new contracts, (2) continued performance on an existing contract, (3) extending the period of performance of an existing contract – such as through the exercise of an option year or modification, or (4) renewing an existing contract through, for example, a bridge contract or procurement award. The Act defines the term “business operations” in Russia broadly to mean “engaging in commerce in any form, including acquiring, developing, selling, leasing, or operating equipment, facilities, personnel, products, services, personal property, real property, or any other apparatus of business or commerce” (emphasis added). The Act excludes, however, business operations that benefit Ukraine, provide humanitarian assistance, provide legal assistance for compliance with laws other than Russia, and journalism. Based on the Act’s definition of “covered contract,” the prohibition on conducting business operations in Russia appears to apply beyond just the contracting company, and also applies to any parent, subsidiary, successor entity, or beneficial owner of such company. The prohibition will also apply to subcontractors.