Status of Public Private Partnerships in Texas

Status of Public Private Partnerships in TexasIn recent years, the state of Texas jumped headlong into public-private partnerships in a variety of different arenas. Often called PPP, 3P or P3, this delivery method has rapidly become the go-to avenue for delivering projects that a governmental authority does not have either the funding or expertise to complete on its own. In Texas, the first public-private partnership projects to gain widespread notoriety were in the transportation infrastructure space. Specifically, the first big projects were concession agreements with private companies to finance, design, build, operate and maintain public roads, such as the LBJ Express and North Tarrant Express projects. These projects were not without controversy, but have largely been successful. Through the construction phase, the concessionaires and their design-build contractors have successfully delivered massive projects ahead of schedule and within budget.

The Texas Department of Transportation accomplishes these projects through Comprehensive Development Agreements that regulate everything from financing, revenue sharing, construction standards and preliminary plans detailing the scope of the project. As of the date of this post, the Texas Department of Transportation is a party to 16 Comprehensive Development Agreements. Of those 16, four are concession agreements that contemplate private management of state roadways and some form of toll revenue sharing.

Once the path was paved (pun intended) by large scale infrastructure projects, the availability and use of public-private partnerships as a delivery method exploded. For example: the Texas Rangers baseball team is part of a partnership with the City of Arlington to build a new stadium; Texas A&M University and Servitas are constructing a $368 million, 50-acre student housing project; and several local school districts are using P3 to raise funds for new facilities in exchange for naming rights.

The proliferation and increasing popularity of public-private partnerships has necessitated legislation across the country to govern their use, implementation and particularly procurement. At this point, many states have public-private partnership legislation of some kind, although the breadth of the legislation varies widely. In Texas, there are specific P3 enabling statutes that deal with highway and toll road projects (see Texas Transportation Code Chapters 22223, 228, 362, and 37071), and a more general enabling statute (see Texas Government Code Chapters 2267 and 2268) for most other types of government projects. In some cases, there have been statutes enacted authorizing specific projects, such as a biotechnology park (see Texas Government Code § 488.006). These statutes provide the legal and regulatory framework that govern the public-private partnership procurement and administration process and must be carefully considered when contemplating a new project, whether you are on the government side or the private side of the deal. If you are on the private side, but are not the developer, then one must examine the statutory and contractual framework to determine whether you have lien rights, surety bond requirements (“little Miller Act”), and other rights or obligations that are often considered “routine” on public projects.

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Nathan Graham is a partner in Bradley’s new Houston office. His practice focuses primarily on complex commercial litigation and transactions with a particular focus on construction, public-private partnerships, and corporate matters.

New Federal Contracting Requirements for Reporting Tax Liabilities and Felony Convictions

New Federal Contracting Requirements for Reporting Tax Liabilities and Felony ConvictionsFederal acquisition officials recently finalized an interim rule intended to remove contractors with federal tax liabilities and felony convictions from the federal contracting arena. The interim rule, which took effect February 26, 2016, was published in December of 2015. No changes were made as a result of the comments submitted before its finalization and effective date of September 30, 2016. The rule amends the FAR by implementing sections of the Consolidated and Further Continuing Appropriations Act of 2015. The purpose of the amendments is to prohibit the federal government from contracting with corporations that have federal tax liability or a federal felony conviction.

Under the rule, offerors responding to federal solicitations are required to represent whether they (1) have a delinquent federal tax liability or (2) were convicted of a federal felony conviction within the preceding 24 months. When an offeror makes an affirmative response in connection with one of these representations, the rule requires the contracting officer to (1) request additional information from the offeror; (2) notify the agency official responsible for initiating debarment or suspension action; and (3) refrain from making an award to the offeror until the agency suspending or debarring official (SDO) has considered suspension or debarment of the offeror and determined that further action is not necessary to protect the interests of the government. If a federal agency has already determined that the disclosed incidents do not require suspension or debarment, the contracting officer may proceed with the award to the offeror without further delay.

The rule imposes additional, more stringent requirements where the offeror proposes a total contract price that will exceed $5 million. The rule states that “[i]f the certification regarding tax matters is applicable, then the contracting officer shall not award any contract in an amount greater than $5,000,000, unless the offeror affirmatively certified in its offer…” that (1) it has filed all required federal tax returns during the three years preceding the certification; (2) it has not been convicted of a criminal offense under the Internal Revenue Code of 1986 (this in addition to the felonies question, and it relates to any offense, including misdemeanors); and (3) it has not, more than 90 days prior to the certification, been notified of any unpaid federal tax assessment for which the liability remains unsatisfied, unless the assessment is the subject of an installment agreement or offer in compromise that has been approved by the IRS and is not in default, or the assessment is the subject of a non-frivolous administrative judicial proceeding.

The rule does not include a time requirement for a reasonable response time for an SDO to make a determination of whether suspension or debarment is required to protect the government’s interests. Despite at least one commenter’s concerns that the absence of a reasonable response time requirement will likely delay the procurement process, no such requirement was added.

It is also noteworthy that the rule contains no de minimis exception. Instead, offerors must disclose all federal tax liabilities. The rule does allow offerors to hold off on reporting tax debts until all appeals are exhausted. However, offerors must report any federal felony conviction, regardless of whether the conviction is on appeal.

The rule applies not only to C corporations, but also to entities such as S corps, professional corporations, LLCs, and may also apply to partnerships and joint ventures. In the response to a comment asking for clarification of the meaning of “corporation,” the agencies wrote: “A corporation is a legal entity that is separate and distinct from the entities that own, manage, or control it. It is organized and incorporated under the jurisdictional authority of a governmental body, such as a state or the District of Columbia.”

While no substantive changes were made to the interim rule, the finalization of the rule nonetheless is noteworthy because it will likely result in an increased government focus on and scrutiny of contractor certifications regarding delinquent tax liability and federal felony convictions. Accordingly, contractors should be particularly vigilant about ensuring the accuracy of federal certifications, as the penalties for making a false certification to the government can be many and severe.

For a related article written by Aron C. Beezley analyzing the interim rule, see Inside New FAR Provisions on Reporting Felony, Tax Info.

View the Federal Register announcement finalizing the interim rule published at 81 Fed. Reg. 67728-67731 (September 30, 2016) here.

View the interim rule published at 80 Fed. Reg. 75903-75907 (December 4, 2015) here.

View the Consolidated and Further Continuing Appropriations Act here. (The new rule implements sections 744 and 745 of Division E and section 523 of Division B).

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Bradley Opens New Office in Houston, Texas

Bradley Opens New Office in Houston, TexasBradley is pleased to announce that we have opened our first office in Texas with the addition of nine construction and energy attorneys. Joining the firm’s Houston office are partners Ian Faria, Jim Collura, Jared Caplan and Jon Paul Hoelscher, and associates Christian Dewhurst, Ryan Kinder, Justin Scott, and Andrew Stubblefield. Each attorney previously practiced at Coats Rose. Nathan Graham also joins the firm’s Houston office as a partner after serving as Chief Corporate Officer at Inuvialuit Regional Corporation.

Our strategic expansion into the Texas market directly aligns with our clients’ needs. The Houston office will help us serve our construction industry clients better and make even greater strides within the energy industry, including in particular, alternative energy markets.

Collectively, the new Houston attorneys represent a wealth of experience and capabilities in construction and surety law, including construction contract drafting and negotiation, administration during construction, and, if need be, litigation, alternative dispute resolution, bond and lien claims. We also regularly advise regarding construction safety and OSHA investigations, environmental and other regulatory matters affecting construction projects, and construction insurance policies. The team also has extensive experience in energy law, with an emphasis on representing oilfield service companies in all facets of business development through dispute resolution and litigation. They serve private and public sector clients in legal matters that stem from construction and development projects of every size and scope.

Bradley’s Houston office marks the firm’s ninth location and our first Southwest location. Read the press release on our website here.

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Is the SBA’s 8(a) Minority Business Development Program Constitutional?

Is the SBA’s 8(a) Minority Business Development Program Constitutional?

The constitutionality of small business programs has been a significant topic of debate over the past few years. The U. S. Court of Appeals for the D.C. Circuit recently upheld the constitutionality of the Small Business Administration’s 8(a) Program finding that the challenged provisions do not, on their face, classify individuals by race.

Section 8(a) of the Small Business Act authorizes the SBA to acquire procurement contracts from other government agencies and to award or arrange for performance of those contracts by small businesses whenever the agency determines such action is necessary. The current Section 8(a) Program was developed with the express purpose of helping small business owners who are socially and economically disadvantaged compete on an equal basis in the American economy. The Program provides qualifying small businesses with technological, financial, and practical assistance through preferential awards of government contracts. To receive the benefits conferred under the Program, applicants must: (1) be small businesses; (2) demonstrate their businesses’ potential to succeed; and (3) be owned by U.S. citizens of good character that are “socially and economically disadvantaged.”

The question regarding the constitutionality of the Section 8(a) Program arose in the most recent case, Rothe Development, Inc. v. U.S. Dept. of Defense et al., out of the Act’s race-conscious definition of “socially disadvantaged individuals.” In 2012, Rothe Development Corporation, a woman-owned small business, filed suit against the Department of Defense and the SBA. Rothe claimed that the statute’s definition of “socially disadvantaged” small business owners is a racial classification that violates its right to equal protection under the Due Process Clause of the Fifth Amendment. According to Rothe, the government, under the 8(a) Program, has increasingly set aside contracts for minority-owned/controlled businesses, which unfairly prevents Rothe from competing for those contracts on equal footing with minority-owned contractors.

Rothe argued that the racial classification stems from three provisions: (1) the statutory definition of socially disadvantaged individuals; (2) a government-wide goal of awarding 5 percent of federal contracts to small businesses owned by socially disadvantaged individuals; and (3) the findings section of the statute, which Rothe claimed assumes that all individuals who are members of certain groups (Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, Native Hawaiian Organizations, and other minorities) are socially disadvantaged. The district court upheld the constitutionality of the 8(a) Program, and Rothe immediately appealed. On September 9, 2016 the U.S. Court of Appeals for the D.C. Circuit affirmed the district court’s decision.

The court held that the statute does not contain an unconstitutional racial classification for the following reasons: (1) the definition of “socially disadvantaged individuals” does not distribute burdens or benefits on the basis of individual racial classifications and that while the statute does reference specific groups, it does not do so as a floor for participation; (2) the program’s goal is not a racial classification as it refers to socially and economically disadvantaged individuals and does not define the relevant business owners by their race; and (3) that in implementing the program, the SBA requires an individualized showing of a social disadvantage. As the statute lacks a racial classification, the court applied rational basis review, under which it concluded that the statutory scheme was rationally related to the legitimate government interest of counteracting discrimination.

Judge Karen Lecraft Henderson disagreed with the majority, stating that she would hold that the challenged portions of the Small Business Act include a racial classification and therefore are subject to strict scrutiny. Judge Henderson parts from the majority’s analysis which she explained is “fundamentally flawed” because it assumes that a statute that “does not classify exclusively on the basis of race must necessarily be ‘facially race-neutral.’” In her dissenting opinion, Judge Henderson explains that the inquiry as to whether Section 8(a) is race neutral boils down to whether the Act provides members of certain racial groups an advantage in qualifying for contract preference by virtue of their race. She points out that it is membership in a class that has suffered racial/ethnic prejudice or cultural bias, not an inquiry into each applicant’s unique experience of discrimination that determines whether an individual is socially disadvantaged. She also commented on the SBA’s implementing regulations, which she interpreted as presuming that members of certain racial groups are automatically categorized as socially disadvantaged but that individuals who do not belong to any of the designated groups must establish their individual social disadvantage by a preponderance of the evidence.

Accordingly, Judge Henderson reasoned that “Section 8(a) contains a paradigmatic racial classification” because Congress has distributed a benefit to members of statutorily designated racial groups because of their membership in one of them. These designated racial groups are not required to meet the same standard in establishing their eligibility to participate in the Program that members of non-minority races must satisfy.

This is not the first lawsuit challenging the constitutionality of small business programs over the past few years, let alone the first suit filed by Rothe. Parties challenging the constitutionality of such programs have been successful in some cases. It remains to be seen whether these challenges will change the SBA’s 8(a) Program and other small business set aside programs. If Rothe had been successful in its challenge, it would have been a damaging blow to race-conscious small business programs and ultimately may have significantly affected the way government contracts are awarded.

Read the United States Court of Appeals for the D.C. Circuit’s full opinion at:


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FAR Council and DOL Issue Final Rule Implementing Fair Pay & Safe Workplaces Executive Order

InspectionsThe Federal Acquisition Regulatory Council and the Department of Labor published a final rule, implementing the Fair Pay and Safe Workplaces Executive Order (also known as the “blacklisting” Executive Order), on August 24, 2016.  The Executive Order, implemented by the final rule, requires federal prime contractors and subcontractors – including federal construction contractors – under covered procurements (i.e., ones where the estimated value exceeds $500,000) to disclose to the government certain labor violations.

Among the labor laws listed in the Executive Order and the final rule, violations of which must be reported, are: (1) the Davis-Bacon Act; (2) the Service Contract Act; (3) the Fair Labor Standards Act; (4) the Occupational Safety and Health Act of 1970; (5) the Migrant and Seasonal Agricultural Worker Protection Act; and (6) the National Labor Relations Act.  While prime contractors are to disclose labor law violations in their bids or proposals, the final rule provides that subcontractors generally are to “disclose details regarding labor law decisions rendered against them . . . directly to [the Department of Labor] for review and assessment instead of to the prime contractor.”

The final rule – which is over 500 pages long including comments – contains an effective date of October 25, 2016, but also includes various “phase-in process[es]” for certain prime contractors and subcontractors.  For instance, the “reporting disclosure period” for prime contractors initially is limited to one year and will gradually increase to three years by October 25, 2018.

The penalties for non-compliance are not entirely clear, but they may range from being found “nonresponsible,” to losing a bid protest, and/or to being accused of failing to comply with various federal laws requiring truthful statements to the government. Given the fast-approaching effective date, federal prime contractors and subcontractors would be well-advised to familiarize themselves with the content of the new rule and to do so promptly.

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GAO Sustains Bid Protest Where, Among Other Things, the Agency Improperly Considered Cost Risk under Its Technical Evaluation

GAO Sustains Bid Protest Where, Among Other Things, the Agency Improperly Considered Cost Risk under Its Technical EvaluationRecently, the Government Accountability Office (GAO) sustained a bid protest involving the U.S. Army Corps of Engineers’ (USACE) evaluation of proposals for remedial action and surface support assistance at the Gilt Edge Mine Superfund Site near Lead, South Dakota.  See Arcadis U.S., Inc., B-412828 (2016). While the GAO sustained the protest on approximately ten different grounds, the GAO’s holding with respect to the USACE’s consideration of cost implications during its evaluation of the protester’s technical proposal is particularly noteworthy.

The USACE assigned the protester’s technical proposal various “weaknesses” because the USACE believed that the protester’s technical approach posed a cost risk to the USACE. The protester argued that the USACE’s focus on cost in its evaluation of the protester’s technical approach was unreasonable because the cost of the technical features was included in the protester’s fixed-price proposal, and thus posed no independent cost risk to the government. The GAO sided with the protester on this issue (as well as several others), finding that the USACE’s “focus on cost in the context of making assessments under the technical approach factor – particularly where the approach is otherwise viewed as offering a benefit to the government – was not reasonable.”

Importantly, the GAO’s holding in this regard is applicable far beyond the context of remediation services contacts, such as the one at issue in the protest. Instead, the GAO’s holding applies to fixed-price federal contracts across all industries – including construction and beyond.

*Note:  This author, along with Douglas L. Patin and Lisa A. Markman of Bradley, represented the protester in this case.

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Broad “Assumption of Liability” Clause in Subcontract Likely Trumps “Waiver of Subrogation” Clause in Prime Contract

Broad “Assumption of Liability” Clause in Subcontract Likely Trumps “Waiver of Subrogation” Clause in Prime ContractIn a recent case handled by Bradley, a federal court in Maryland issued a decision attempting to reconcile inconsistent contract provisions.

The general contractor said that its fire sprinkler subcontractor was responsible for the burst sprinkler pipe and the resulting property damage based on the “Assumption of Liability” provision in the subcontract, which stated that the subcontractor “assumes the entire responsibility for any and all actual or potential damage…” and “agrees to indemnify and save harmless [the general contractor]… from and against any and all loss.” The subcontractor said that the general contractor waived its right to hold the subcontractor responsible based on a provision in the form contract between the general contractor and the project owner. Under the boilerplate “Waiver of Subrogation” in the American Institute of Architects (AIA) A201-2007 General Conditions, the owner and general contractor “waive all rights against … each other and any of their subcontractors” for “causes of loss to the extent covered by property insurance obtained pursuant to … Section 11.3 or other property insurance applicable to the Work.” (emphasis added)

Finding “sufficient ambiguity for consideration of extrinsic evidence” as to whether the parties actually intended the Waiver of Subrogation clause to control, the Court denied the parties’ cross-motions for summary judgment.

The Court determined that the subcontractor could invoke the Waiver of Subrogation provision even though that clause resided in a contract to which it was not a party. After all, the subcontract incorporated the general contract by reference, and the phrase “and any of their subcontractors” in the subrogation waiver clause supported the subcontractor’s contention that it was an intended third-party beneficiary of that provision. Moreover, the Court observed that courts in other jurisdictions have permitted subcontractors to invoke prime-contract subrogation waivers.

Next, the Court took up the conflict between the subrogation waiver provision and the Assumption of Liability clause in the subcontract concluding that the general contractor had the better argument.

First, the Court invoked the “well-established canon of contract interpretation” that a “specific” provision takes precedence over a “general” provision holding that the specific Assumption of Liability provision in the subcontract should prevail over the Waiver of Subrogation clause in the general contract, which was merely incorporated into the subcontract by reference.

Next, the Court identified another subcontract provision that favored the general contractor’s interpretation. The subcontract required the subcontractor to maintain commercial general liability insurance and to list both the project owner and the general contractor as additional insureds. The subcontract also stated: “It is expressly agreed … that all insurance … afforded the additional insureds shall be primary insurance … and that any other insurance carried by the additional insureds shall be excess of all other insurance carried by the Subcontractor and shall not contribute with Subcontractor’s insurance.” The Court found it “difficult to square” that provision with a Waiver of Subrogation clause that purported to make the project owner’s property insurance primary.

Third, the Court found yet another subcontract provision in support of the general contractor’s interpretation which said “[i]f … any provision … irreconcilably conflicts with a provision of the General Contract … the provision imposing the greater duty or obligation on the Subcontractor shall govern.” Here, the Assumption of Liability provision imposed the greater obligation on the subcontractor.

Characterizing the Assumption of Liability clause as “breathtaking in scope,” the Court begrudgingly found that the Assumption of Liability clause should prevail over the Waiver of Subrogation provision stating: “The Court thus suspects that this case may be an outlier – a rare case in which the obvious public-policy benefit of orderly and predictable insurance planning at the outset of a venture must yield to the explicit arrangements between a general contractor and the subcontractors with which it chooses to transact.”

This case offers important lessons concerning insurance and indemnification provisions and reinforces familiar rules of contract interpretation. It also serves as a reminder that prime contract language incorporated by reference into subcontracts should be reviewed for consistency with the intent of the subcontract provisions.

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The “Rule of Two” Rules the Day in Supreme Court’s Decision Against the VA

The “Rule of Two” Rules the Day in Supreme Court’s Decision Against the VAThe recently decided case of Kingdomware Technologies, Inc. v. United States marks a big win for small business-owning veterans. The Supreme Court unanimously decided that the Department of Veterans Affairs (VA) misinterpreted the language of the Veterans Benefits, Health Care, and Information Technology Act of 2006 (codified in 38 U.S.C. § 8127) by applying it to only its small business contracting goals. According to the Court, the Act requires the VA to award contracts to a restricted pool of competition—namely, small businesses owned and controlled by veterans if at least two such businesses submit offers (the “Rule of Two”)—and it applies to all contracts entered into by the VA.

Notably, the Supreme Court opined that “all contracts” includes Federal Supply Schedules (FSS) orders. In doing so, the Court rejected the VA’s interpretation of an “order” as something other than a legally binding contract to which the Rule of Two does not apply, opening up a whole new category of contracts to veteran-owned (or controlled) small businesses.  While this decision may raise new issues as the VA seeks to implement the Rule of Two to FSS orders, it definitely sets veterans back on track to receive the broad competitive bidding opportunities that the legislature intended them to have.

Bradley is a proud supporter of our nation’s veterans, representing veteran-owned construction companies and other businesses, as well as employing more than 30 attorneys and staff who have served in a branch of the United States military.

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OSHA Penalties Are About to Get A Lot More Expensive

OSHA Penalties Are About to Get A Lot More ExpensiveThe Occupational Safety and Health Administration (OSHA) published an interim final rule on July 1, 2016, that increases the maximum penalties for citations by more than 75 percent. This is the first increase in OSHA penalties since 1990. Why now, you ask? Well, in November 2015 the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (a pithily titled portion of the budget bill) eliminated a long-standing exemption for OSHA that permitted it to not increase fines to keep pace with inflation. Under the act, federal agencies must adjust penalties based on the Consumer Price Index (CPI). Because the difference between the 1990 CPI and the current CPI is 78 percent and change, all of OSHA’s penalties will increase by 78 percent and change effective no later than August 1, 2016. If you have facilities in Puerto Rico, the Virgin Islands, or one of the 25 states that have OSHA-approved State Plans, expect increases in those fines as well because a State Plan’s penalties must be at least as effective as federal OSHA penalties.

Although OSHA will be taking public comments on this final rule until August 15, 2016, the new levels are effective August 1, 2016. The DOL has posted a helpful chart comparing the new penalties:

Type of Violation Current Maximum Penalty New Maximum Penalty


Posting Requirements

$7,000 per violation $12,471 per violation
Failure to Abate $7,000 per day beyond abatement date $12,471 per day beyond abatement date
Willful or Repeated $70,000 per violation $124,709 per violation

Do these effect ongoing investigations? Yes. According to the DOL website, if the violations occurred after November 2, 2015, and the citation is issued on or after August 1, 2016, the new penalties apply.

So get your safety audits done before August 1 and make sure you keep them up to date.

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SBA Expands Mentor-Protégé Program and Eliminates Populated JVs

SBA Expands Mentor-Protégé Program and Eliminates Populated JVs

The U.S. Small Business Administration (SBA) recently published its much-anticipated final rule establishing a mentor-protégé program available to all small businesses, not just certain SBA-approved 8(a) contractors as is the case under the current program. The SBA’s new “universal” mentor-protégé program will be separate from, but very similar to, the SBA’s current 8(a) mentor-protégé program.

The primary benefit of the new universal mentor-protégé program is that “[a] protégé and mentor may joint venture as a small business for any government prime contract or subcontract, provided the protégé qualifies as small for the procurement.” Moreover, the new regulations state that “[s]uch a joint venture may seek any type of small business contract (i.e., small business set-aside, 8(a), HUBZone, SDVO, or WOSB) for which the protégé firm qualifies (e.g., a protégé firm that qualifies as a WOSB could seek a WOSB set-aside as a joint venture with its SBA-approved mentor).”

In addition to implementing the new program, the SBA’s final rule eliminates populated joint ventures – both in the mentor-protégé context, specifically, and in the small business context in general. Under the current regulations, a joint venture can be either populated or unpopulated. A populated joint venture is a joint venture that employs its own workers and performs a contract using its own employees, whereas, in an unpopulated joint venture, the venturing members provide employees as subcontractors to the joint venture. While the new regulations eliminate populated joint ventures, the regulations state that a joint venture “may be in the form of a formal or informal partnership or exist as a separate limited liability company or other separate legal entity . . . .”

The SBA’s new regulations have an effective date of August 24, 2016. If you want assistance with exploring or, better, complying with the new regulations, we will be happy to help if your regular lawyer is not familiar with the nuances (and pitfalls) of small business contracting with the Federal government.

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