As the Department of Energy's ("DOE") Loan Programs Office ("LPO") continues to finance clean energy manufacturing and deployment in the United States, the recent announcement by the DOE's Office of Inspector General's ("DOE OIG") that it intends to scrutinize LPO's due diligence process increases the risk to program applicants. According to a recent notice issued on SAM.gov, the DOE OIG intends to issue a sole source contract for legal support "assessing the policies and procedures" for the due diligence of loan applications, and evaluate specific LPO loans and guarantees to assess their compliance with, consistency in application of, and the effectiveness of LPO policies and procedures, as well as related Governmentwide regulations, policies, procedures, and directives, to identify specific points of weakness in due diligence practices, and to recommend improvements to mitigate risks.
While the DOE OIG's review is directed primarily at evaluating the adequacy of LPO's compliance, it signals greater likelihood that program applicants will draw the attention of DOE OIG and other regulators, including in the form of voluntary requests and subpoenas from the DOE OIG for documents, suspension and/or rescission of government awards, and in some instances, criminal and civil referrals to the Department of Justice.
The DOE OIG's investigation comes amid intense Congressional scrutiny of the program from Senator John Barrasso (R-WY), the senior Republican on the Senate's Energy and Natural Resources Committee. Companies that find themselves in the crosshairs of DOE OIG or other regulators will also likely find themselves subject to congressional oversight.
Risk Mitigation
Program applicants should consider several steps to mitigate oversight risks, including:
- Carefully scrutinizing their submissions to DOE, including information about the company's financials;
- Establishing proper internal controls and robust compliance programs to identify and resolve significant audit findings;
- Taking prophylactic steps to address any inadvertent misrepresentations to the agency before the DOE OIG, civil regulators or law enforcement authorities, or congressional investigators discover them; and
- Establishing and maintaining relationships with key agency officials, Members of Congress, and congressional committee staff.
Responding to DOE OIG and Congressional Inquiries
Program applicants should also understand the goals in responding to formal or informal outreach from the DOE OIG or congressional investigators:
- Understand the facts underlying the outreach, the cause for the outreach, and disclosure obligations to the DOE OIG or congressional investigators, if any.
- Maintain privilege: Facts are not privileged, but legal analysis and conclusions drawn from facts are privileged. Confidential communications between employees and counsel for the company for the purpose assessing legal issues or providing legal advice to the company are protected by the attorney-client communications privilege. Likewise, the work product of investigations conducted by or at the direction of counsel for the purpose of providing legal advice to the company (in anticipation of litigation, broadly defined) is generally privileged. Accordingly, to maintain privilege over the investigative work product, always: (1) document that the investigation's purpose is to provide legal advice to the company; and (2) have counsel conduct the investigation or, at a minimum, actively direct non-attorneys conducting the investigation under written instruction from counsel.
- Assess exposure to criminal, regulatory, and civil liability.
- Implement corrective actions (remediation/mitigation), while also minimizing disruption to the business and avoiding criminal referral/prosecution, civil enforcement action, and parallel private civil litigation.
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