Counseling clients and prospective clients on a potential
bid protest, we often ask: Why would you
like to file this protest? Of course, the answer inevitably involves the discussion
of a flaw (or several) in the evaluation process that, had they not been
committed, would have resulted in a different award decision.
In its latest report, the Section 809 Panel offers another consideration: Will this protest ensure confidence in the acquisition system?
Before diving into the recommendations from its January 2019 report, let’s first step back and remind ourselves why the Section 809 Panel exists. Named after the section of the 2016 NDAA that brought it into existence, the Panel is tasked with reviewing the acquisition system and, where necessary, making recommendations to ensure that the Department of Defense is able to effectively buy the items needed to best equip its warfighters.
As part of this call, the Panel took an in-depth look at the bid protest process and its impact on DoD’s ability to perform its most vital functions. We’ll take a look at some of the Panel’s other recommendations in future posts but, for now, I wanted to tackle the threshold question asked by the Panel:
What’s the point of a
According to the Panel, none of the statutes governing the bid protest process articulate a purpose for protests. This lack of an established protest, according to the Panel, “makes it difficult to evaluate the effectiveness of the current protest process and produces reform efforts intent on resolving discrete perceived problems rather than ensuring the process achieves the desired outcome.”
Reviewing the history of the bid protest process, as well as
considering corollary processes from different countries and under the model
procurement codes, the Panel noted two different purposes: is the protest
process designed to ensure transparency and accountability in acquisitions, or
is it intended to provide redress to offerors that feel they have been harmed
by an agency’s conduct?
The Section 809 Panel suggested that the former purpose
should be emphasized. In its discussions with industry stakeholders, it noted that
a “consistent theme of the arguments in favor of a robust protest process is
the need for the government to have a means of checking its own performance to
ensure compliance with law and regulation and to protect public funds.” A
minority of persons consulted thought that protecting the rights of
disappointed offerors should also be at issue.
The Panel thus recommended that Congress adopt a purpose
statement highlighting the need to promote confidence in the acquisition
The purpose of
Congress in providing for review of procurement action of the Department of
Defense through the procurement protest system . . . was to enhance confidence
in the Department of Defense contracting process by providing a means, based on
protests or actions filed by interested parties, for violations of procurement
statutes and regulations in a timely, transparent, and effective manner; and a
means for timely, transparent, and effective resolution of any such violation.
This is a laudable purpose. But, with respect to the Panel, I wonder if its adoption will have much of an impact on the perceived inefficiencies caused by protests. After all, every protester thinks that its protest will enhance confidence in the acquisition process and cure a violation of an applicable requirement. By focusing on the micro concern (that is, the unfair evaluation of its particular effort), protesters are helping to solve the macro problem (of maintaining confidence in the acquisition process).
To be sure, understanding the point of a bid protest is a necessary task for agencies and would-be protesters alike. The Section 809 Panel’s recommendation is a good reminder that the point should be to maintain confidence in the acquisition system.
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Does 8(a) status remain in place for the duration of GSA Schedule contracts? GAO says no.
In MIRACORP, Inc., B-416917 (Comp. Gen. Jan. 2, 2019), the incumbent contractor for administrative support services sought by the Department of Energy, protested the Department’s evaluation and award of a delivery order to RiVidium, Inc., an 8(a) small business. GAO dismissed the protest, saying that the protester–which had graduated from the 8(a) program–lacked standing because it wasn’t eligible for the 8(a) set-aside order.
The underlying services fell under a the GSA’s Professional Services Schedule (PSS) contract, and the solicitation was limited to 8(a) program participants that held such a PSS contract. Offers were due in August of 2018.
After evaluating competitive quotations, the DOE announced that RiVidium would be awarded the order. MIRACORP, which had also submitted a quotation, then filed a GAO bid protest, arguing that the DOE had evaluated quotations improperly.
The DOEs and RiVidium struck back against MIRACORP’s protest, arguing that MIRACORP was not an interested party and had no standing to protest before the GAO. The agency and awardee noted that the solicitation at issue was set aside for 8(a) program participants and MIRACORP had graduated from the 8(a) program prior to the due date for offers.
MIRACORP, however, disagreed. While MIRACORP confirmed that it had graduated from the 8(a) program in 2017, it argued that MIRACORP was an eligible 8(a) participant when it acquired its underlying PSS contract so should maintain its 8(a) status for all solicitations under that contract. MIRACORP’s PSS contract, however (like all GSA Schedule contracts) was not set-aside for 8(a) participants. Rather, any 8(a) set-asides under the PSS occur at the order level, rather than the underlying Schedule level.
MIRACORP pointed to an SBA regulation, 13 C.F.R. § 121.404, to support its arguments. This regulation states in pertinent part that “SBA determines size at the time of initial offer . . . which includes price, for a Multiple Award Contract based upon the size standard set forth in the solicitation for the Multiple Award Contract” and that “f a business is small at the time of offer for the Multiple Award Contract, it is small for each order issued against the contract, unless a contracting officer requests a new size certification in connection with a specific order.” Still, though it addresses size, the regulation does not address maintaining 8(a) or other set-aside status for the duration of a Multiple Award Contract.
The SBA chimed in, indicating that “any order under [the PSS] contract that is competed exclusively among 8(a) concerns, only can be awarded to a firm that SBA has verified as being an eligible 8(a) concern” as of the due date for offers on the order. The SBA cited 13 C.F.R. 124.503(h)(2), which applies when an order was set-aside for 8(a) participants, but the underlying contract was not. Thus, the SBA concluded, MIRACORP had no standing to protest before GAO because it was no longer an 8(a) participant when offers were due.
The GAO agreed, holding that “[a]lthough MIRACORP held a PSS contract, its PSS contract was not reserved for 8(a) participants” and it was therefore “not an interested party for the purposes of challenging DOE’s evaluation and award determination.”
The MIRACORP case highlights the different ways size and 8(a) status are treated for purposes of GSA Schedule contracts. A company’s small business status is usually based on the date of the initial proposal for the underlying Schedule contract itself, although there are exceptions, and recertification is required after five years. For 8(a) purposes, however, eligibility is determined as of the date for offers on the order.
It’s a nuanced distinction, but as MIRACORP demonstrates, it can be a very important one.
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As we discussed in a previous post, there are big changes on the horizon for the HUBZone program. On October 31, the SBA published a proposed rule that, if adopted, would overhaul the program.
Recently, the SBA extended the period for public comment to February 14, 2019.
On December 31, 2018, the SBA published notice in the Federal Register that the comment period for the proposed HUBZone regulation revisions was extended to February 14, 2019. “Due to the scope and significance of the changes contemplated by the proposed rule,” the SBA felt the original 60-day comment period was too short.
In the event the scope of these changes leaves you scratching your head, allow us to summarize some of the most important proposals.
As we mentioned in the first blog addressing these proposed changes, the HUBZone Program has a noble mission: to direct federal contracts to economically disadvantaged portions of the country, known as Historically Underutilized Business Zones. But the way the HUBZone Program has been structured has made it difficult for contractors to comply, and has contributed to a significant ongoing annual shortfall in HUBZone awards.
The SBA’s thoughtful proposal would address some of the most glaring structural problems with the HUBZone Program.
First, the proposed rule would eliminate the requirement that a HUBZone company be in active compliance with all HUBZone criteria on the dates it bids, and is awarded, any HUBZone contract. This requirement can be very difficult for contractors to meet: in some cases, if a single employee resigns or moves out of a HUBZone, the contractor can dip below the 35% residency requirement. And if that happens close to the day a proposal is due, or when a HUBZone award is announced, the contractor can be out of luck.
The proposed rule would replace this cumbersome requirement with an annual certification process. Each HUBZone company would be required to recertify compliance with all HUBZone eligibility elements annually. But once the company was certified, it could bid and be awarded HUBZone contracts for the next year, even if during that time it temporarily fell out of actual compliance.
Second, HUBZone companies are required to “attempt to maintain” compliance with the 35% HUBZone residency requirement during the performance of any HUBZone contract. But what does it mean to “attempt to maintain” compliance? The current rules are largely silent.
The proposed rule attempts to eliminate guesswork as to what is required as a concern “attempts to maintain” the residency requirement that 35% of the concern’s workforce lives in a HUBZone. SBA’s proposed solution to the existing ambiguity is to establish a 20% floor. In the event less than 20% of a concern’s workforce resides inside a HUBZone, that concern has failed in its “attempt to maintain” the residency requirement.
Third, HUBZone companies can be put in a bind when employees who live in HUBZones decide to move. In fact, sometimes employees who receive good jobs with HUBZone companies use their improved financial positions to move out of HUBZones.
The proposed rule makes some accommodations for a concern’s existing employees moving out of a HUBZone. Specifically, if a HUBZone employee moves outside of a HUBZone, that same employee is grandfathered in for the purposes of calculating a concern’s HUBZone residency requirement, even though the employee no longer lives in the HUBZone.
These three changes aren’t all, of course. The proposed rule would make many other changes, including changes to the HUBZone protest process, clarifications about how 1099 independent contractors are treated, and much more.
As you can see, even our attempt to “briefly” summarize the issues ends up being longer than intended. If you are still trying to wrap your head around the proposed changes and their potential impact on your business, contact our office. And if the proposed changes could impact your business, for the better or worse, and you want your voice to be heard – you now have until Valentine’s Day to let the SBA hear your story.
View the full article
By Julia Coon,
Clause 552.238-74 Industrial Funding Fee and Sales Reporting requires all General Services Administration (GSA) Schedule contractors to report sales within 30 calendar days following the completion of the reporting period and remit the Industrial Funding Fee (IFF) within 30 calendar days following the end of each reporting quarter. Over the next twelve months, GSA will be transitioning all GSA Schedule contracts from the legacy 72A Reporting System to the new Federal Acquisition Service (FAS) Sales Reporting Portal (SRP). The process will take place in three phases:
Phase One: Notification
Contractors will receive an email from GSA stating the date to begin reporting sales and submitting IFF in the FAS SRP. The date provided will be the first day of a reporting quarter, and no action is required until the end of the reporting period when it is time to report sales and submit the IFF.
Example: The contract is assigned a 1/1/2019 transition date, but no action is necessary until the January – March 2019 sales are required to be reported by April 30, 2019.
Phase Two: Final Reporting in the 72A Reporting System
Contractors will complete the final sales report and IFF remittance in the legacy 72A Reporting System.
Example: If the contract is assigned a 1/1/2019 transition date, the October 2018 – December 2018 sales and IFF will be the final report in the 72A System.
Phase Three: Transfer History from Legacy 72A Reporting System to the new FAS SRP
GSA will migrate the contract sales history to the FAS SRP. This will not occur until contractors have completed the last sales report in the 72A System. If there is a discrepancy between the IFF owed versus the IFF paid, contractors will be notified via email before the migration.
Where do you stand?
Contractors who are not participating in the Transactional Data Reporting (TDR) pilot will continue to report quarterly sales by Special Item Number (SIN) and remit IFF in the new system within 30 days following completion of the reporting quarter. Contractors who are participating in the TDR pilot should already be completing reporting requirements in the FAS SRP.
Currently digital certificates are required to access the FAS SRP; however, the MAS Program Management Office confirmed that GSA will be moving to a multi-factor authentication process in the coming months. All users will be required to register in the new system even if you are currently using a digital certificate to access the system. At the time of registration, you will have the option to select receiving the security code via phone or email. Contractors using a generic email address should choose to receive the security code via email at the time of registration.
Once registered in the FAS SRP, users will be able to access any GSA Schedule contract where their email address appears on the contract. To prepare for this transition, it is essential to review all authorized negotiators and points of contact currently listed on the contract to ensure anyone reporting sales and remitting the IFF is included. If updates are needed, you will need to submit a modification in the eMod system for your Contracting Officer’s approval.
If you are unsure which reporting system to use during the transition, you can look up your contract using the VSC Sales Reporting Lookup Tool. If you have any questions regarding the change or using the new FAS SRP, you can reach out to our GSA consulting team.
Want to learn more? Attend our Boot Camp for GSA Schedules training course.
About the Author:
Julia Coon is GSA and VA Contract Consultant at Centre Law & Consulting. Julia works with the GSA/VA team in preparing new schedule proposals and post-award contract administration. She has experience in producing schedule renewal packages, various modification packages, small business subcontracting plans, and updates to GSA price lists.
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Let’s suppose that, under your contract, an agency hasn’t properly paid for your work. Or the agency took actions that caused you damages. Can you run off to the Civilian Board of Contract Appeals to register your complaint and recovery your money?
Yes . . . if you’ve taken an important preliminary step: filing a claim with the contracting officer.
Recovering money from the government is different than recovering money from, say, a commercial entity with which you contract. In the commercial context, if your contractual partner owes you money, you can run off directly to state court (or federal court, if you meet certain subject matter jurisdiction requirements) and ask the judge for your money. To invoke the court’s jurisdiction, you generally don’t have to make a formal request to the other party before filing a lawsuit.
But in federal government context, the process is different. Before getting to a judicial tribunal, you must first submit a formal request for payment to the contracting officer–a.k.a., a “claim.” If the contracting officer denies your request entirely, or in part, you can then elevate your request to the Civilian Board of Contract Appeals (or to the Armed Services Board of Contract Appeals if your contract is with DoD, NASA, and the CIA or to the Postal Service Board of Contract Appeals if your contract is with the Postal Service) .
But what is a claim? The FAR 2.101(b) provides a definition:
In general, while it’s a required step, submitting a claim isn’t a complex process. The claim simply must be in writing and submitted to the contracting officer. And for claims over $100,000, the claim must be accompanied by a certification. In fact, without a certification, a written demand for over $100,000 isn’t technically a claim that invokes the CBCA’s jurisdiction under the Contract Disputes Act.
But what if you get too excited and file an appeal before you file an appropriate claim? What happens? CBCA will dismiss the appeal for lack of jurisdiction.
Take U.S. Army Tactical Supply, CBCA 5989 et al. (Dec. 12, 2018) as an example. There, U.S. Army Tactical filed multiple appeals with CBCA alleging that the Department of State had not paid it for deliveries made to various embassies. But, U.S. Army Tactical did not, as required by CBCA’s rules, attach a copy of the claim it was supposed to make to the contracting officer before it filed its appeals. So, CBCA raised, on its own initiative, whether it had jurisdiction to hear the appeals (without a prior claim, CBCA does not have jurisdiction to hear an appeal).
Ultimately, CBCA held that U.S. Army Tactical that it did not have jurisdiction because U.S. Tactical did not file the prerequisite claim with the contracting officer. Here’s what it said:
So remember, before proceeding to the CBCA or another contract appeals board with your dispute, you must–though it may seem like a pointless exercise–file a claim with the contracting officer. If you don’t, the CBCA will dismiss your appeal. And where will that leave you? Right back at the point where you need to file a claim with the contracting officer.
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I've chosen the winners of the Plain Language writing contest. The following entry from @Jamaal Valentine was the acceptable entry with the best readability score:
The most humorous entry came from @apsofacto:
There were some others I really liked that didn't win. If we slightly change @bentley78's entry, we get:
Thank you all for participating!
As we enter day 21 of the government shutdown (as of this writing, the second-longest in U.S. history), federal employees and contractors are feeling the sting.
In this week’s edition of the Week In Review, we’ll take a look at the shutdown in more detail. It has, after all, been the predominant news story of late in the government contracting world. But we’ll also discuss other news, including a new law aimed at helping veteran-owned companies, recent OTA guidance, and more.
Have a great weekend!
A bipartisan bill to help veteran entrepreneurs grow their small businesses is now law. [CIProud]
DOL orders Alabama contractor to pay $57,000.00 in back pay and benefits to employees. [DOL]
GAO reports that agencies aren’t tapping into venture-capital owned companies for innovation. [Fedscoop]
DOJ recovers over $2.8 billion in false claims cases. [Justice.gov]
New OTA guide is helpful, but may not be enough. [Forbes]
Shutdown threatens $200 million a day in federal contracts. [Bloomberg]
Federal workers quietly working as the partial shutdown continues. [FederalTimes]
Shutdown is putting security clearances in jeopardy for some contractors. [WashingtonExaminer]
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When a small business sells products to the government under a contract designated with a manufacturing NAICS code, the small business either must be the “manufacturer” of the products, or separately qualify under the nonmanufacturer rule. The nonmanufacturer rule, in turn, requires the prime contractor to have no more than 500 employees, whereas manufacturers may fall under larger size standards–some as big as 1,500 employees.
But what about an unpopulated joint venture that doesn’t itself manufacture any products, relying on the individual venturers to manufacture the solicited goods? Does it also have to comply with the 500-employee size standard under the nonmanufacturer rule? Or can the joint venture be deemed the “manufacturer” of the products in question?
SBA’s OHA recently confronted this issue in Lynxnet, LLC, SBA No. SIZ-5971 (Nov. 7, 2018). In the underlying solicitation, the Army sought labor, materials, and facilities to assist the Aviation and Missile Research Development, and Engineering Prototype Integration Facility. The Solicitation was set aside for 8(a) participants and assigned a 1,250 employee size standard. After a competitive bidding process, the Army awarded the contract to Defense Systems and Solutions (DSS), an SBA-approved 8(a) joint venture between Yulista Integrated Solutions, LLC (YIS), an 8(a) participant and Science and Engineering Services, LLC (SES).
Lynxnet then filed a size protest with SBA alleging various reasons why DSS was an ineligible business. But I’ll focus on just one: DSS didn’t qualify as a small business nonmanufacturer because SES exceeded the nonmanufacturer rule’s 500-employee size standard.
During the size determination, SBA’s Area Office determined that DSS–through its two venturers–would qualify as the manufacturer of the components the Army sought under the contract. Specifically, the Area Office found that DSS–through YIS and SES–would manufacture 85% of one component and 100% of another. And YIS, the 8(a) participant, would perform 90% of the joint venture’s overall manufacturing requirements. Given these facts, the Area Office concluded that DSS was the manufacturer of the required components and, therefore, subject to the solicitation’s 1,250 size standard–not the nonmanufacturer rule’s 500-employee size standard.
On appeal at OHA, Lynxnet argued that Area Office should have used the 500-employee size standard under the nonmanufacturer rule. It argued that, as an unpopulated joint venture, DSS couldn’t perform the manufacturing itself and could only resell the items produced by YIS and SES–the two venturers which comprised DSS. In essence, Lynxnet argued that the joint venture had to independently qualify as a manufacturer, separate from its venturers. And it argued that the Area Office erred by failing to consider whether DSS would manufacture the required components with its own facilities under 13 C.F.R. 121.406(b)(2).
OHA found Lynxnet’s arguments “meritless” because the work of each venturer is imputed to the joint venture itself. Thus, because the venturers, especially YIS, would manufacture the solicited components, the joint venture also qualified as the manufacturer. It explained:
OHA also rejected the notion that DSS would not use its own facilities to perform the work. In its proposal, DSS noted that it had entered into a transition agreement with the incumbent contractor to lease and take possession of the incumbent’s manufacturing facility. On this point, too, OHA held that a contractor need not own in “fee simple absolute” its manufacturing facilities in order to comply with the requirement that it use “its own facilities” for the manufacturing work.
Ultimately, OHA found that the Area Office had not committed an clear error of fact or law. Thus, it affirmed the Area Office’s size determination and denied the appeal–on all grounds raised by Lynxnet.
This case confirms that, when it comes to qualification as a manufacturer, the work of individual venturers will be imputed to the joint venture itself. Of course, in this case, it helped DSS escape the nonmanufacturer rule’s 500-employee size standard. But it also likely has implications in any instance where a individual venturer’s work is compared to the joint venture as whole (e.g., joint venture workshare requirements applicable to joint ventures under mentor-protégé agreements).
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In a recent decision, GAO determined an agency could reasonably amend a solicitation for a task order issued under a set-side base contract to require offerors to recertify their size and SDVOSB status at the task order level.
The Oryza Group, LLC, B-416719 et al. (Comp, Gen. Nov. 26, 2018), involved a task order procurement by the United States Army Reserve Command for “sustainment information system” support (the “Task Order”). The task order was competed among holders of the Veterans Technology Services 2 (“VETS 2”) government wide acquisition contract.
The VETS 2 base contract is set aside for SDVOSB concerns. Consequently, any firm competing for the VETS 2 base contract was required to certify as an eligible SDVOSB firm at the time it submitted its proposal for the base IDIQ contract award.
At this juncture, a bit of regulatory background is helpful. Pursuant to 13 C.F.R. § 125.18(e), an SDVOSB firm will be considered eligible for the life of a contract (including multiple award contracts), even if the firm’s circumstances change during performance of the contract that would undermine its SDVOSB status.
There are two notable exceptions to this general rule. First, the contracting officer may require competitors to recertify their SDVOSB eligibility at the time each firm submits a proposal in response to a task order Solicitation. Second, if the performance of the contract, inclusive of option years, will exceed 5 years, the SDVOSB firm will be required to recertify its SDVOSB status at the conclusion of the 5th year, and every year thereafter until the end of the contract.
When the VETS 2 base contract was competed, Oryza was an eligible SDVOSB concern. It was subsequently named an awardee. Between the award of the VETS 2 base contract and competing for the Task Order, however, Oryza outgrew the applicable size standard. While Oryza had yet to reach the 5-year performance deadline requiring mandatory recertification, it would no longer be able to recertify as small under any task order procurements requesting recertification.
Unfortunately for Oryza, the VA attempted to include such a recertification requirement in the solicitation for the Task Order. Specifically, the Task Order solicitation included a somewhat ambiguous provision regarding SDVOSB and small business eligibility at the time of proposal submission. Specifically, the Task Order instructed as follows:
While not clear from GAO’s decision, Oryza apparently interpreted this
provision to refer to the written representations submitted with the VETS 2
base contract, so Oryza submitted a proposal in response to the Task Order
Oryza was subsequently evaluated by the Army and
determined to be the lowest priced technically acceptable offeror. Before
awarding the Task Order, however, the Contracting Officer reviewed SAM and noticed
Oryza was no longer listed as an eligible SDVOSB concern because it had grown
beyond the applicable size standard. Believing the Task Order solicitation had
required offerors to recertify their SDVOSB status at the time of proposal
submission, the Contracting Officer declined to make an award.
In an effort to eliminate any ambiguity, the Army
subsequently revised the Task Order Solicitation to clarify that offerors were
to recertify both their size and SDVOSB status for competition under the Task
Order. Offerors were then given the opportunity to re-certify their size and
status for the Task Order bids.
Unable to certify it was small under the NAICS code assigned to the Task Order, Oryza protested the terms of the solicitation. The principal argument advanced by Orzya was somewhat convoluted. According to Oryza, the Army’s amendment to the Task Order solicitation to explicitly require recertification of both size and SDVOSB status amounted to unequal treatment because the Task Order solicitation had not expressly required such certification, as it was originally drafted.
The Army responded that the Solicitation had always required recertification of SDVOSB status, and its amendment to the Solicitation merely clarified this requirement. The Army further alleged that the decision of whether to request SDVOSB recertification was a matter firmly within the discretion of the contracting officer.
GAO agreed with the Armry. As GAO explained, “the Army
had the discretion to request that VETS 2 contract holders recertify their
SDVOSB status.” As such, GAO concluded that it found “nothing objectionable
with the agency’s request that offerors recertify their SDVOSB status.” Turning
to the manner in which the Agency clarified its requirements, GAO also found
nothing objectionable. GAO explained as follows:
As such, GAO denied Oryza protest.
GAO’s decision in Oryza demonstrates the extraordinary amount of discretion afforded to contracting officers with respect to having offerors recertify size, status, or both. This discretion places formally small businesses with large multiple award task order contract portfolios in a difficult position. Since the value of multiple award task order contracts is only realized through the competition and award of task orders, requiring recertification on a task order basis can curtail or eliminate the value of these contracts for formerly small businesses.
As GAO explained in Oryza, however, policy considerations aside, contracting officers are well within their rights to require recertification.
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By William Weisberg,
Organizational Conflicts of Interest (OCI) are a well-known fixture of government contracting. OCI has its own FAR subsection, FAR part 9.5, and figures prominently in several GAO bid protests every year. OCIs can be waived by the Government, and mitigated by contractors, with the Government’s approval.
OCIs are situations where a contractor either has an unfair competitive advantage from previous work done, has impaired objectivity, or has other prohibited items.
I spend a fair amount of my professional life advising clients on how to mitigate or avoid OCIs, and in protesting OCIs during competitive procurements.
Everyone agrees that OCIs are bad. But until a recent False Claims Act settlement (FCA) between the Department of Justice (DOJ) and a contractor, we didn’t know just how bad.
In recent years, many if not all solicitations require contractors to certify that they do not have an OCI or identify any potential OCIs. This certification certainly seems like a material certification under the Supreme Court’s Escobar standard, because FAR part 9.5 generally prohibits the award of a contract to an offeror with an un-waived and unmitigated OCI.
For false OCI certifications, the Government would not award a contract, and certainly not pay invoices submitted under the contract. A clear FCA violation.
But until now, most contractors assumed that the worst thing that could happen with an OCI is that they lost a contract after a GAO bid protest.
Sending a message
A recent DOJ announcement of a $110,000 False Claims Act settlement with a Colorado-based IT company, stemming from false statements regarding the lack of an OCI, surprised many. To say the case landed with a loud bang is an understatement.
The danger to contractors is obvious. OCIs can be tough to identify, particularly because they can be created by subcontractors or even individual employees based on their prior positions. Failure to properly screen for OCIs can lead to false statements and false claims based on the “reckless disregard for accuracy” standard that Courts and DOJ use as an alternative to intentional violations.
The takeaway from this recent OCI case is straightforward but urgent. Contractors should implement a formal OCI screening process as part of their proposal preparation and should document both the methodology and the result. That process should also be integrated into their formal Government Contract Compliance Program.
About the Author:
William Weisberg, Esq
William Weisberg is a government contracts attorney with 30 years of experience. Bill received his undergraduate degree from the University of Virginia (where he was an Echols Scholar) in 1983 and his law degree from the George Washington University in 1986. Bill practiced with large international law firms for over 25 years, the last 10 of which he led his firms’ Government Contract and Grant practice groups. Bill formed his own boutique government contract firm in 2013.
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A recent court case details the aftermath of a bid protest battle lasting over four years. During that period, the agency’s requirements had changed, and the court held that the agency was required to amend its solicitation as a result.
In DZSP 21, LLC v. United States, 139 Fed. Cl. 110 (2018), the Court of Federal Claims considered the long-running saga of protests of a Navy procurement for base operation services for military installations in Guam. Prior to the protest the court was considering, there had been four GAO protests and one previous court protest. The two contractors involved were Fluor Federal Solutions, LLC and DZSP 21, LLC.
The Navy issued the original solicitation underlying the protest in October 2013. In the GAO protests, the Navy took corrective action on three separate occasions. As summarized by the court, “DZSP has been performing the base operation services on Guam since 2005, operating under bridge contracts since 2014 while the protests related to awards under the 2013 solicitation have been litigated.”
The solicitation was for “a cost-plus multi-year contract” “for base service operations for the Joint Region Marianas, comprising various military installations in Guam.” The Navy would evaluate proposals based roughly 50% on cost, 25% on past performance, and remaining 25% on technical factors. The total value of the contract was approximately $500,000,000.
In initial evaluation in 2014, “both DZSP and Fluor received an overall technical rating of ‘outstanding’ and a confidence assessment rating of ‘substantial confidence.” “Because DZSP’s proposal was the less costly of the two, the Navy determined that DZSP provided the best value to the government, and awarded it the contract.”
Fluor then filed a number of protests to GAO. After three of them, the Navy took corrective action but continued to award the contract to DZSP.
In July 2016,
In October 2016, Fluor filed another GAO protest and GAO sustained it. The Navy took corrective action and, in a reversal of its prior actions, awarded the contract to Fluor in 2017.
What had changed from the prior decisions?
In awarding to Fluor, the Navy’s 2017 cost evaluation “stated that the Navy no longer considered DZSP’s approach to ‘maintaining exempt labor rates’ to be ‘reasonable and realistic.'” The cost evaluation team for the Navy stated that it had “considered data from the current and past bridge contracts under which DZSP had been operating while the procurement process was pending.”
“The Navy also changed its views on the reasonableness of Fluor’s proposal and made upward adjustments to both cost proposals.” With the changes, Fluor was the lowest-cost proposal and best value.
DZSP became the protester, and filed a protest in the Court of Federal Claims.
The court held that the Navy’s award to Fluor was arbitrary and capricious because ” the Navy had erroneously assigned a strength to Fluor under Factor C, staffing and resources, where it may have been required to assess a weakness, and had arbitrarily made an upward adjustment to DZSP’s cost estimate.” “It was unreasonable,” the court held, for the Navy to “consider the bridge contracts only as to cost, while ignoring other aspects that were relevant to a full evaluation of Fluor’s and DZSP’s proposals, especially those concerning staffing and contractual risk of satisfactory performance.”
In response to the court’s decision, the Navy conducted a 22-day reevaluation and awarded to Fluor again. This reevaluation “disregard[ed] the bridge contracts in their entirety,” despite the court’s emphasis on those very bridge contracts.
DZSP once again challenged the award in court.
The court again sustained DZSP’s protest, holding that agency failed to take into account “significant increase in operational requirements” for military base operation services since an original solicitation in 2013 and the bridge contracts awarded since that time after the series of protests concerning this contract.
Under FAR § 15.206(a), “[w]hen . . . the government changes its requirements or terms and conditions, the contracting officer shall amend the solicitation.” The court found that, “[c]onsidering the bridge contracts as a relevant factor highlights what has already become evident: the requirements of this solicitation have changed markedly.”
The court then ordered the Navy to amend its solicitation after this 4-year series of bid protest battles. The court held that the Navy must take into account the increased staffing needs and requirements as shown under the bridge contracts. The court also held it was “irrational for the Navy to not consider [incumbent] DZSP’s work on the bridge contracts” as part of its past performance evaluation.
This case provides an interesting example of a long and convoluted protest battle involving years of bridge contracts. The Navy was not free to ignore the changes in its requirements that had occurred over this period of time, nor was it free to ignore the performance that the incumbent had carried out during the series of bridge contracts.
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In the 2019 National Defense Authorization Act (NDAA), Congress placed serious limitations on the Government’s use of Lowest Price, Technically Acceptable (LPTA) procurements. As a result, we should be seeing the Government issue more RFPs in which technology and innovation outweigh price. In these instances, contractors can seek a higher price but are expected to show substantial technological advantages. Two recent protests cases out of GAO illustrate the principles of technical proposal evaluation when technical factors are more important than price, and demonstrate the potential cost/technical trade-offs under these circumstances.
Read the full article here.
As we have previously noted on the blog, a substantial number of protests filed before GAO end in voluntary corrective action taken by the protested agency. In recent decision, GAO addressed just how much discretion agencies have in designing corrective actions.
Spoiler alert: it’s a lot.
RTW Management, B-416786.2 (Comp. Gen. Dec. 17, 2018) involved a VA procurement for shuttle transportation services around its healthcare facilities in Maryland. As relevant here, the solicitation provided two different award methodologies. On one hand, the solicitation instructed offerors that award would be made on a best value basis. On the other hand, the solicitation also stated: “award will be made to the responsible offeror who submits an acceptable proposal, as determined by a technical evaluation, and has [the] lowest price for satisfactory completion of all contract requirements.” The solicitation did not clarify how these two competing evaluation methodologies could coexist.
Proposals were due on August 22, 2018. Six days later, on August 28, an offeror, Taylor Made Transportation Services, Inc., filed an agency-level protest with the VA challenging the evaluation terms of the solicitation. The VA subsequently denied Taylor Made’s protest.
While Taylor Made’s protest was being considered, the VA moved forward with the procurement and named RTW Management as the awardee.
After having its agency-level protest denied, Taylor Made took its challenge of the solicitation’s terms to GAO. In response, the VA elected to take voluntary corrective action, which included wiping out the award to RTW Management, and re-issuing the solicitation with clarification as to its intended evaluation scheme. GAO subsequently dismissed Taylor Made’s protest as academic.
With its award cancelled, RTW protested the VA’s proposed corrective action. According to RTW, the VA’s corrective action was unreasonable because Taylor Made’s original agency-level protest was untimely. Consequently, RTW argued, the VA’s decision to take corrective action was not necessary, and was designed to benefit Taylor Made. Alternatively, RTW argued that even if there were an ambiguity in the Solicitation, it was not prejudicial because multiple offers were able to submit competitive proposals. For this reason, RTW said, there was no basis to sustain Taylor Made’s protest (and thus no reason to take corrective action).
In response, the VA argued that it had broad discretion to take any corrective action it believed necessary. The VA explained its reasoning as follows: “amending and re-posting the solicitation, in this instance, is reasonable and within its broad discretion to ensure fair and impartial competition, as it is designed to ensure that the solicitation includes a clearly defined method of evaluation.”
GAO agreed with the VA that its corrective action was reasonable. GAO began its analysis by noting that agencies have broad discretion to take corrective action as they see fit. GAO then addressed the specific challenges raised by RTW:
Given the clear ambiguity in the solicitation’s evaluation criteria, GAO concluded the VA’s proposed corrective action was reasonable.
RTW Management demonstrates the extreme deference GAO gives to agencies to undertake and design corrective action. Despite a potentially fatal protest error, GAO nevertheless condoned the VA’s proposed corrective action. In so doing, GAO reaffirmed the tough climb protesters face to challenge the terms of a corrective action before GAO.
View the full article
The 8(a) Program can offer incredible opportunities: sole source contracts, set-aside competitions, mentor-protege relationships, SBA business training and much more.
But for business owners older than 59 1/2, getting admitted to the 8(a) Program can be very difficult: unlike their younger counterparts, funds these owners have saved in traditional retirement accounts will likely count against the 8(a) Program’s $250,000 adjusted net worth cap.
How is this fair? (Spoiler alert: in my opinion, it ain’t).
The 8(a) Program regulations are chock-full of arcane eligibility criteria, but today we’re concerned with only one: “economic disadvantage.” To be admitted to the 8(a) Program, a company’s disadvantaged owners generally must fall below certain net worth and income thresholds.
On the net worth side, for initial 8(a) Program eligibility, an individual’s net worth must be below $250,000. But I call this the “adjusted” net worth threshold, because it excludes certain things, including the owner’s equity in the individual’s primary residence and the 8(a) applicant company itself.
It would be bad public policy to discourage Americans from saving for retirement, especially with one news story after another reporting that the country is facing a retirement savings crisis. Fortunately, the SBA regulations provide this exclusion:
Great! Problem solved, right?
Well, sure, if you’re young enough. But what if you’ve hit “retirement age?”
That term doesn’t mean the age when a person actually retires. Rather, for 401(k) plans and IRAs alike, it means the age when an individual can withdraw funds from the plan without a tax penalty. That magic number is 59 1/2. (I’m sure there’s a complex legislative story around the “1/2” part, but the IRS and my kids are the only ones I know who seem particularly enthused by “half birthdays”).
Now, you might think, “but wait! I don’t plan to retire at 59 1/2! Or even 59 3/4!”
If so, you’re not alone. The average American retires around age 63. And business owners aren’t necessarily average. One survey indicated that 42% of business owners plan to retire at 65 or later. Another survey found that one-third of small business owners intend to work indefinitely, and of those who plan to retire, the average anticipated retirement age is 67.
Perhaps most striking, the same survey showed that the average American small business owner is 60.3 years old. That’s right: according to this data, the average small business owner is older than “retirement age.” That’s a heck of a lot of small business owners in their 60s and older.
That brings us back to the 8(a) Program. What happens when one of these older business owners applies? Well, if he or she has been saving for retirement, and the retirement accounts in question no longer have a withdrawal penalty after age 59 1/2, the SBA counts every dollar saved for retirement toward the $250,000 cap.
If the SBA’s regulations aren’t clear enough on this point, the agency’s 8(a) Standard Operating Procedure leaves no room for doubt that older business owners, like Tommy and Davey, get hosed. The SOP instructs SBA officials to calculate net worth using a series of five steps. Step 1 begins with adding the individual’s total assets and subtracting total liabilities.
Here’s Step 2:
The emphasis, of course, is mine.
So there you have it: if you’re below “retirement age,” funds you’ve saved in 401(k)s, IRAs and the like probably won’t count against you for 8(a) Program purposes. If you’re above retirement age, these funds very likely will count against you–regardless of whether you plan to retire anytime soon (or ever).
Those of you who have read my GovCon Handbooks (available on Amazon! Please don’t steal them!) know that I just love examples. So let’s try a couple!
Harry seems quite a bit wealthier than Shari. In fact, according to this handy investment calculator, if Harry’s 401(k) generates a 7% annual return and Harry contributes an additional $18,000 a year, Harry will have nearly $2.6 million socked away by the time he reaches Shari’s age–about 21 times Shari’s current retirement savings. But according to the SBA’s 8(a) Program rules, Harry is economically disadvantaged; Shari is not.
As another Harry might have said, “Holy Cow!”
To be fair, I have a bone to pick with the entire net worth component of the 8(a) Program eligibility rules. After all, you can have a low net worth because of difficult life circumstances–or because you blew all of your money on things like $80,000-per night hotel suites, $50,000 pet fish, $5,000 hamburgers, and other financially questionable purchases. A one-size-fits-all net worth threshold discourages saving while encouraging frivolous spending and high-interest consumer debt. That’s terrible public policy, but it’s a rant for another day.
So let’s get back to Harry, Shari and their retirement accounts. It doesn’t seem fair that Shari is tagged with every dollar in her $125,000 IRA while Harry’s cool $1 million is completely disregarded merely because he’s younger. Indeed, in a nation where 59 1/2 isn’t the typical retirement age for anyone, much less small business owners, why should the SBA penalize older owners like Shari for celebrating that magical half birthday?
In my view, things would be fairer and better from a public policy standpoint if the SBA just dropped the age limit and excluded everyone’s retirement accounts from the net worth threshold. The SBA could just say that so long as the money is in a retirement account, it doesn’t count. If it gets pulled out, it does count. Pretty easy.
While this would seem to be the best solution, the SBA seems to want some assurance that disadvantaged individuals won’t access funds in retirement accounts during the 8(a) Program term. An early withdrawal penalty, though, is just that: a penalty. It discourages withdrawals before retirement age, but doesn’t prevent them. The 401(k) early withdrawal penalty, for instance, is 10%. That’s not ideal, but our friend Harry could pull his entire $1 million account today for a $100,000 penalty, leaving him with $900,000 (less taxes)–still a heck of a lot more money than Shari.
So, SBA, how about this? After exempting retirement accounts from the net worth calculation, simply have all 8(a) applicants sign a pledge not to access their retirement accounts during the course of 8(a) Program participation. You could back it up by saying that accessing retirement accounts without SBA’s prior approval would result in termination from the Program. And if that wasn’t good enough, you could tack on one of those super scary lists of potential other consequences for breaking the pledge. (Debarment! False Claims! Fifteen yards and loss of down!)
Sure, you’d probably need to make some allowances for required minimum distributions and the like, but there are a lot of smart retirement planning people out there who could help craft the policy. Done right, you’d have a win-win: a policy that better achieves the apparent goal of preventing owners from accessing retirement funds during 8(a) Program participation, while giving the many, many American small business owners over 59 1/2 a fair shot at the 8(a) Program.
Look, SBA. I know I rag on you every now and then. Don’t take it the wrong way: overall, from Headquarters on down, you’re doing a great job supporting small contractors. But great ain’t perfect, and part of my job, as I see it, is to try to spark discussion about areas of your government contracting programs that could be improved.
This is one of them.
In my practice, I’ve seen wonderful and deserving companies denied the opportunity to participate in the 8(a) Program merely because the owners were over 59 1/2 and had (wisely) saved for retirement. I don’t think that’s fair.
I hope, SBA, when you think about it, you won’t, either.
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Happy New Year! It looks as if the government needed a longer holiday break than planned. As we enter the third week of the shutdown, it’s our hope that the powers-that-be might reach a quick resolution and let government personnel and contractors alike get back to work.
In this two-week New Year’s edition of the Week In Review, we’ll look (of course) at the effects of the shutdown. But we’ll also look at the need for transparency in the upcoming year’s procurement process, how a contract dispute led up to the closing of living history in Washington D.C., and much more.
Happy New Year—2019 is going to be an exciting year!
ChallengeHER program hoping to get woman owned businesses a better shot in the federal marketplace. [FederalNewsNetwork]
GAO reports that contractors are violating “Buy American” fine print. [WashingtonTimes]
Contract dispute with the National Park Service shuts down 45 years of living history. [WAMU]
SBA announces new rule making in the Federal Register to solicit public comments on HUBZone programs. [FederalRegister]
The Pentagon removes its top buying weapons negotiator after seeing the receipts. [Govexec]
How OTA collaborations are streamlining government acquisitions. [FederalNewsNetwork]
DHA ditches Eagle II contract for GAS, NIH vehicles. [Fedscoop]
The NIH makes major award announcements in healthcare. [GovconWire]
Companies wrestling with highly fluid shutdown situation. [Nextgov]
Government contractors and SBA suffering from Government shutdown. [USAToday]
Federal procurement enforces bid deadlines during shutdown. [Nextgov]
Michigan cardboard manufacturer pays a heavy fine under False Claims Act. [Justice.gov]
Failure to report conflict of interest and falsifying security clearance for a consultant in Colorado end in settlement. [Justice.gov]
Senior officials at the GPO betrayed “public trust” by hiring unqualified workers, according to an internal report. [NPR.org]
Administration seeking more transparency and oversight in the federal procurement process. [WashingtonTechnology]
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On December 17, 2018, the Small Business Runway Extension Act became law. As we’ve previously written, this Act had a single purpose: to extend the measurement period of the SBA’s calculation of average annual receipts, from three years to five.
We opined that the Act became effective with the stroke of the President’s pen. Just a few days ago, however, the SBA disagreed—according to the SBA, the 5-year calculation period will not become effective until its regulations are revised.
The SBA’s December 21, 2018 Information Notice (which, due to
the partial government shutdown, hasn’t yet been posted to its website) notes
the confusion caused by the Runway Extension Act:
SBA is receiving
inquiries about whether the Runway Extension Act is effective immediately—that
is, whether businesses can report their size today based on average annual
receipts over five years instead of annual average receipts over three years.
Information Notice No. 6000-180022 observes that the “Runway Extension Act does not include an effective date,” and therefore the SBA concludes that the Act “is not presently effective and is therefore not applicable to present contracts, offers, or bids until implemented through the standard rulemaking process.” And though the SBA says that it is drafting regulations to implement the change, there’s no indication of when those revisions might be completed and implemented.
Candidly, I don’t believe the SBA’s decision to defer the effectiveness of the 5-year calculation period has much merit. A long-standing principle of statutory interpretation holds that a statute is presumed to be effective immediately unless it specifies a different effective date. E.g., Matthews v. Zane, 20 U.S. 164, 179 (1822). Again, the SBA noted that the Act doesn’t include an effective date. So how did it reach its decision to give effect to the Act at some future date?
Unfortunately, the Information Notice doesn’t really explain the SBA’s rationale. It comes closest to offering a justification when it notes that the Small Business Act “requires new size standards be approved by the Administrator through a rulemaking process.” But that’s not the issue here: the Runway Extension Act addresses the time-period for calculating receipts, not new size standards. I don’t think, therefore, that this explanation is sufficient—under clear principles of statutory interpretation, the Act is effective immediately. And because a statute trumps an inconsistent regulation, e.g., Scofield v. Lewis, 251 F.2d 128, 132 (5th Cir. 1958), the 5-year calculation period should be considered to apply.
None of this is meant to fault the SBA. Congress really stuck
it to the SBA when it passed the Act without including any time for the SBA to
revise its regulations. In fact, I’ll give the SBA some credit: it is dealing
with the confusion caused by the Act the best it can by trying to maintain the
status quo until its regulations catch up. I’m just not sure, however, that its
chosen path is legally correct.
Enough of the legal discussion. What does this mean for small business federal contractors? Well, as of now, the SBA has said that the 3-year calculation period still applies. If that best suits your business, you might consider rolling with it.
But if a 5-year calculation might instead benefit your business, you could consider making that case; you might be able to appeal an adverse decision to SBA’s Office of Hearings and Appeals, which might be of the mindset that the 5-year calculation is, in fact, immediately effective. An adverse OHA ruling could be taken to the Court of Federal Claims.
Though the SBA has tried to eliminate the confusion caused by the abrupt effectiveness of the Runway Extension Act, I’m not sure it has done so convincingly. If you have any questions about how to calculate your size—or how it might affect any size protest or appeal—please give me a call.
View the full article
GAO sustained a protest recently where a contractor misrepresented
to the agency that it had negotiated offers with incumbent workers when in fact
it had not.
In Sev1Tech, Inc., B-416811 et al., (Dec. 18, 2018), the U.S. Coast Guard sought to award a task order contract for project management, technical support, and logistics services to a member of the General Services Administration’s One Acquisition Solution for Integrated Services (“OASIS”) Small Business Pool.
The solicitation required offerors to submit résumés for all
positions. It identified six key positions and 26 positions overall. It also said
that offerors would be evaluated by their ability to recruit and keep incumbent
Six contractors submitted proposals. The Coast Guard
evaluated them and established a competitive range of two: Solutions Through
Innovative Technologies, Inc., of Fairborn, Ohio, and Sev1Tech, Inc., of
Solutions Through Innovative Technologies’ proposal included the résumés of 10 incumbent workers and said that it had begun to negotiate contingent offers of employment with them. It offered a lower cost to the government and was selected for award.
Sev1Tech filed a protest. It alleged that Sev1Tech had negotiated exclusive letters of commitment with the employees in question. Sev1Tech argued that Solutions Through Innovative Technologies had misrepresented their availability.
Although, generally, the issue of whether or not proposed
workers will actually perform under the contract is one of contract
administration and not a matter for GAO to consider, GAO will consider whether
an offeror misrepresented its ability to provide the identified staff and, if
so, whether the agency relied on that misrepresentation.
The rule is that contractors may propose to use incumbent
workers when the worker in question has expressed some interest in working for
the contractor. The commitment does not have to be firm, but there at least
needs to be some sign that supports the notion that the worker would assent to
being included in the proposal.
But here, GAO found that Solutions Through Innovative Technologies got these workers résumés not from the workers themselves, but from a database. GAO said: “The record shows, however, that [Solutions Through Innovative Technologies] received the resumes for the incumbent staff from its proposed subcontractor, which maintained a database that included the resumes of staff who performed under a previous task order.”
In fact, Solutions Through Innovative Technologies had not even contacted those workers. It admitted during the course of the protest that it did not make first contact with them until after it was notified of award. Said GAO, “contrary to its representation in its proposal, [Solutions Through Innovative Technologies] did not reach out to and negotiate contingent offers of employment with candidates for each position and did not have prior permission to submit the incumbent employees’ resumes or a prior expression of willingness by the individuals to consider employment with the awardee.”
In other words, the representation in its proposal that it had begun negotiating contingent offers was simply false.
Solutions Through Innovative Technologies claimed that this was not a deliberate falsehood, but instead a copy and paste error made by relying on the text of a previous proposal and that it reasonably expected to be able to hire incumbents based on its historic incumbent capture rate.
But GAO was having none of that, pointing out that an offeror is responsible for ensuring the accuracy of a proposal as submitted. It added: “Although [Solutions Through Innovative Technologies] may have had a reasonable basis to believe that the incumbent personnel would be available to work for [Solutions Through Innovative Technologies] upon award, this did not negate the awardee’s misrepresentations that it had contacted incumbent personnel whose resumes it submitted.”
Because the Coast Guard found that the provided incumbent résumés
were a strength in Solutions Through Innovative Technologies’ proposal, GAO
said that this misrepresentation was a material one. It sustained the protest
and recommended the Coast Guard reevaluate proposals taking this
misrepresentation in to account. It also recommended paying Sev1Tech’s protest
There are a few takeaways from this case. The first is an obvious one. Don’t think that fudging or puffery in a proposal will go unnoticed. Even if the agency misses it, there’s a good chance a competitor (or their attorney, under a protective order) will be more eagle-eyed. Second, be very careful with copy and paste. It’s a tremendous tool, but a dangerous one.
Third, and least obvious, if you are going to file a protest, it can be a tremendous advantage to be represented by an attorney. Had Sev1Tech pursued this protest alone, it would not have been able to gain access to its competitor’s proposal—only those admitted to the protective order (in general, just your attorney) have access to protected materials—and likely would not have caught the misrepresentation. So, it could have missed out on the key argument that swayed GAO.
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Shuttering of the government (or parts of the government) following appropriations lapses has become an increasingly common phenomenon in recent years. Funding lapses interrupt the usual predictability of government operations, which is often to the detriment of both agencies and federal contractors that are left in proverbial limbo with stop work orders.
Unfortunately, unlike many other topics, the FAR does not substantively address procedures for contractors during or following a government shutdown. As such, recovering expenses incurred as a consequence of government shutdowns can be challenging.
Here are some pointers.
The counter-intuitive reality of federal shutdowns is that they are expensive. For example, according to a report published by the White House Office of Management and Budget (“OMB”), the 2013 shutdown was estimated to reduce Gross Domestic Product growth by between $2 and $6 billion. With respect to the federal contractor workforce, the report summarized as follows:
As the OMB report explained, Federal contractors are frequently given stop work orders for the duration of the shutdown, yet those same contractors usually must stand ready to resume work as soon as the federal government reopens its doors. Consequently, contractors typically will be incurring costs despite not performing work to ensure their staff and equipment is ready to go back to work at any time.
The state of near immediate readiness begs the question: Can
contractors be reimbursed for expenses incurred during a government shutdown?
The answer: It depends.
The FAR is uncharacteristically silent with respect to procedures
during and after federal government shutdowns. As such, FAR clauses addressing
delays and funding limitations have been pressed into service to provide some
guidance for how agencies and federal contractors can proceed following a
shutdown. These provisions, however, were not originally designed to address
funding lapse issues, and sometimes offer imperfect solutions.
Due to the lack of FAR guidance, it has largely been up to the courts and administrative bodies to apply the FAR’s current provisions to address costs associated with a shutdown.
In a 1978 case, S.A. Healy Co. v. United States, 216 Ct. Cl. 172 (1978), a contractor claimed it was entitled to an equitable adjustment following a funding lapse related to the construction of tunnels for an aqueduct in Utah. That funding lapse was due, in part, to the agency failing to seek appropriate funds for the program. The government countered that it was insulated from liability due to a clause in the Reclamation Project Act of 1939, which allowed the Secretary of the agency to enter into contracts, but limited government liability to the extent of available appropriations.
The Court of Claims concluded the Agency’s interpretation of Reclamation Project Act of 1939 was overly broad and would place all risk of Congressional non-appropriation on the shoulders of contractors. Clearly unimpressed, the Court stated, “f defendant wants construction contractors who have studied in the school of Machiavelli, it should so state in its invitations for bids.” As such, the funding lapse was treated as work suspension, which was compensable under the contract’s equitable adjustment clauses.
While the handling of appropriations lapses has evolved since S.A. Healy, the case nevertheless appears to have set the tone for subsequent federal procurement lapses. Thus, it is relatively settled law that federal contractors will be able to recover some costs during the shutdown; however, extent of those costs depends on the specific terms of the underlying contract.
In one example, a contractor was able to obtain compensation following the most recent shutdown. In Amaratek, ASBCA No. 59149, 51-1 BCA ¶ 35,808, the Army obtained laboratory services for the Yuma Proving Ground. In terms of payment, the contract divided the period of performance into 12 service units of one month each. Due to the 2013 government shutdown, the contractor only performed for 6 days during the month of October. Consequently, the Army proportionally reduced payment for the month of October.
On appeal, the ASCBA agreed with the contractor that it was entitled to full compensation for the month of October despite only performing 6 days of work. In its decision, the ASBCA distinguished the unique circumstances of Amaratek from other cases where the performance was measured in discrete units, which could be directly accounted for during the shutdown. These cases were completely unlike Amaratek’s case because the performance unit was months. As such, the fact that the Army received any work during October 2013 obligated it to pay the full contract price for that month.
As a more general matter, contractors may typically claim the direct costs associated with remaining prepared to return to work; however, lost profits typically are not compensable. For example, in L&L Excavating & Land Clearing, LLC v. Dept. of Agric., CBCA 3911, 14-1 BCA ¶ 35,723, a contractor was not entitled to recover lost profits or income attributable to government shutdown delays because the contract included provisions that would allow the government to extend the term of performance for “acts of the Government which interrupt the purchaser in active operations for ten or more consecutive days during a normal operating season.”
Under this provision, however, the contractor was expressly precluded from recovering expectancy damages or anticipated profits. Consequently, when the contractor attempted to recovered these costs in connection with the 2013 shutdown, the claim was denied.
Notably, the ASBCA similarly found research and development termination costs separately claimed in Amaratek to constitute lost profits, which were not compensable.
As with most things related to the government shutdown, there are few generally applicable rules regarding cost recovery. While there appears to be consensus that lost profits will not be compensable, the recovery of other costs will depend on the specific terms of the contract.
The lack of clarity in this regard is undoubtedly a further aggravation for government contractors, many of whom will incur additional expenses consulting with counsel to determine where particular shutdown costs could be claimed. As noted at the outset of this blog, shutdowns are expensive, and the winter 2018-19 shutdown will likely be no different.
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By Angel Davis
Happy New Year and Happy Contracting!
As we enter 2019, we have the opportunity to make and commit to several resolutions with the hope of remaining steadfast and following through with at least a few. As an industry, a company and an individual now is the time to set goals for the new year.
What can we expect in 2019?
2019 will undoubtedly continue being a year of technological disruption. Due to that, this year our government will place a high value on:
As thought leaders within government and industry, we must be prepared to adapt to these changes and ensure that the workforce is equipped with the appropriate tools and resources to make effective business decisions that have the least amount of risk and the best overall value. Is your organization, adequately equipped to support these changes?
While Acquisition Reform is not a new topic, its importance is heightened as we discover more innovative ways to deliver services and products, in a more streamlined way in support of all government agencies. As the Acquisition Reform initiative continues to mature, input from industry leaders and stakeholders will help to shape future acquisition reform policies. Let’s resolve to initiate continuous dialogue in support of Acquisition Reform initiative.
With the constant challenges of Cyberwarfare, vigorous Cyber-Security solutions must be implemented in order to protect government and industry networks. Federal regulations will continuously be revised to keep up with the constant Cyber threats. Is your organization prepared to deliver services and products in accordance with these new regulations? Has the cost and business risk been analyzed to support and implement these cyber-security solutions?
Innovation and collaboration
With the evolution of Other Transaction Agreements (OTAs), Block Chain, Artificial Intelligence (AI) and many other Smart Technologies, Government- Industry collaboration is significant. We must work together to utilize these new technologies to support innovation within the Government Contracting and Acquisition communities. This new technology will undoubtedly drive the future of Government Contracting. We should anticipate solicitations being shaped to support such technological advances and be prepared to respond accordingly.
Centre Law and Consulting, LLC., takes pride in supporting our clients and providing consulting and training services that align with the latest Federal Regulations and Emerging Technologies. As you head into the New Year, please contact us to find out how we can support your organization’s New Year Resolutions.
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Assume you are soliciting quotes for an item of supply. Suppliers A, B, and C each sell the item for about $100/unit. However, the probability of late delivery is different for each supplier. Supplier A has a 31% chance of delivering late, Supplier B has a 21% chance of delivering late, and Supplier C has a 4% chance of delivering late. There’s a 100% chance that all suppliers will deliver no later than one week after the delivery date and any damages due to late delivery will be negligible.
Your solicitation requests that vendors quote both a unit price and a per-unit delivery incentive. The supplier can only earn the delivery incentive if delivery is on time. Otherwise, the Government only pays the unit price.
Supplier A quotes a per-unit price of $71 and a $41/unit delivery incentive.
Supplier B quotes a per-unit price of $65 and a $41/unit delivery incentive.
Supplier C quotes a per-unit price of $59 and a $41/unit delivery incentive.
Considering only the total amount the Government would expect to pay, which quote do you think is best?
Updating your joint venture agreement is essential to maintaining compliance with SBA’s regulations and failing to update could cost you contracts.
In Stacqme, LLC, SBA No. SIZ-5976 (Dec. 10, 2018), the SBA Office of Hearings and Appeals held that a mentor-protege joint venture’s failure to update its JV agreement caused the agreement to be non-compliant with the SBA’s rules, and meant that the joint venture was ineligible for an SDVOSB set-aside contract.
Many participants in the SBA’s All Small Mentor-Protégé Program (ASMPP) form joint ventures because of the special exception from affiliation the ASMPP offers. When members of a joint venture are also parties to an SBA-approved mentor-protégé agreement, an exception to affiliation applies pursuant to 13 C.F.R. § 121.103(h)(3)(ii). This special exception says that only the protege’s size is considered, allowing a large business (even a multi-billion dollar conglomerate) to be part of a joint venture for set-aside contracts. However, to be eligible for the exception, the joint venture, particularly its joint venture agreement, must meet a number of regulatory requirements.
Of particular relevance here, a JV seeking award of contracts set aside for SDVOSBs must “[specify] the responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance, including ways that the parties to the joint venture will ensure that the joint venture and the SDVO small business partner(s) to the joint venture will meet the performance of work requirements.” 13 C.F.R. § 125.18(b)(2)(vii). Performance work requirements here fall under 13 C.F.R. § 125.18(b)(3) and include compliance with the limitations on subcontracting under 13 C.F.R. § 125.6 and mentor-protégé workshare requirements.
Because many joint ventures are formed before members know the contracts they’ll bid on, many joint ventures provide an addendum to their JVA to be completed or updated when the joint venture decides to pursue a particular contract. But regardless of whether the information is in the original joint venture agreement or added later, each joint venture agreement must contain some information that is contract-specific, such as the parties’ respective roles in contract performance. (JVAs for indefinite contracts can be somewhat more vague with respect to certain information, which may not be available until a competition for an order occurs).
Here, STAcqMe, LLC was a mentor-protégé joint venture made up of AcqMe LLC, the protégé and SDVOSB, and Sonoran Technology and Professional Services, LLC, the mentor. The pair had an SBA-approved mentor-protégé agreement and formed a joint venture.
STAcqMe’s JVA was based on SBA’s JVA template and thus contained many, if not most, of the regulatory requirements, including language requiring compliance with the limitations on subcontracting and mentor-protégé workshare requirements. Its JVA was adopted in April of 2017. Because STAcqMe did not know which contracts it would pursue and could not list specific tasks each party would perform under the not yet identified contracts, STAcqMe instead included a list of all contracts it was likely to bid on in an addendum to their joint venture agreement.
In 2018, STAcqMe bid on a solicitation for Squadron Operations Support at MacDill Air Force Base, Florida. Rather than update its JVA addendum to explain which tasks each party to the joint venture would perform under the resulting contract, STAcqMe merely added the RFP number to the list of contracts it sought to pursue. Because STAcqMe didn’t list out how its members would perform specific tasks, the SBA Area Office and the OHA took issue.
STAcqMe was awarded the contract and a competing bidder protested. Upon review, the Area Office found that STAcqMe’s JVA didn’t comply with 13 C.F.R. § 125.8(b)(2)(vii) because it hadn’t been updated to include the tasks each member would provide pursuant to the contract at issue. Accordingly, the Area Office found STAcqMe large for the procurement because the affiliation exception did not apply.
STAcqMe appealed, arguing they should have been qualified for the affiliation exception because their JVA mirrored the SBA’s template. OHA did not agree.
The OHA upheld the Area Office’s determination that “[STAcqMe’s] JVA does not fully comply with § 125.18(b)(2) and (3).” The OHA took particular note of STAcqMe’s argument about reliance on SBA’s JVA template, strongly indicating that STAcqMe “could [not] properly rely upon informal guidance, such as the SBA template, in lieu of specific regulations and without seeking further clarification.” Additionally, the OHA noted that even if STAcqMe could rely on SBA’s template without also considering the regulations upon which it was based, STAcqMe should have updated its work split in accordance with that template.
There are two major takeaways from this case. First, it is of critical importance to update your JVA as you pursue specific contracts. Even if you don’t know what each party will be doing when you first draft your JVA, updating your document to reflect contracts sought is essential. Second, even if a template comes directly from SBA, it is necessary to make sure that the “informal guidance” contained in the template, and your use of it, complies with binding regulations.
If you need help drafting your JVA, or ensuring ongoing compliance with the regulations, contact us!
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NAICS code appeals are a useful tool in any small business
government contractor’s toolbox. If successful, an appeal can dramatically
change a procurement’s competitive landscape—either by limiting the pool of eligible
offerors, or expanding it.
Even still, NAICS code appeals are underutilized among contractors. So I wanted to take just a few minutes to walk through the basics of NAICS codes appeals, in case your business ever needs to file one.
Here are 5 Things You Should Know about NAICS appeals:
1. What’s a NAICS code, and why would I appeal it?
To understand why a NAICS code appeal is such a vital tool,
let’s start at first principles: a NAICS code (or North American Industry Classification System code) is a unique
code that, in general, describes the corresponding industry. These codes are
determined by the U.S. Census Bureau. For each code, the Small Business
Administration assigns a corresponding size threshold (either in terms of
annual receipts or number of employees). When issuing a solicitation, a contracting
officer is tasked with assigning a NAICS code that most closely corresponds to
a procurement’s primary purpose.
For example, the NAICS Manual describes NAICS code 541430 (Graphic Design Services) as relating to “establishments primarily engaged in planning, designing, and managing the production of visual communication in order to convey specific messages or concepts, clarify complex information, or project visual identities.” This NAICS code carries a $7.5 million size standard—in other words, to qualify as a small business under a solicitation issued under NAICS code 541430, an eligible offeror’s average annual receipts must be under $7.5 million.
The assigned NAICS code, in effect, thus dictates the competitive pool of offerors. For example, if your company’s average annual receipts totaled $7.6 million, it wouldn’t be eligible to bid on a solicitation issued under NAICS code 541530. Instead, it would have to try to reframe the competition by having a different NAICS code—with a larger corresponding size standard—assigned to the procurement.
2. Who can challenge a NAICS code designation?
SBA’s regulations allow “any person adversely affected by a NAICS code designation” to challenge its designation.
This standing typically arises in one of two instances:
First, if the company is a large business under the
assigned NAICS code (and, thus, not eligible to bid), it can argue that the
contracting officer should have issued the procurement under a NAICS code with
a larger size standard.
Second, if the company is a small business under the assigned NAICS code, it might nonetheless argue that the contracting officer should have issued the procurement under a NAICS code with a smaller size standard, to further reduce the pool of potential offerors. Say, for example, a company with $3.8 million in average annual revenues intends to bid on a solicitation issued under a NAICS code that carries a $15 million size standard. It might challenge the NAICS code designation to try to have the solicitation reissued under a NAICS code that carries a $7.5 million size standard.
3. When is a NAICS appeal due?
If you’re considering a NAICS code appeal, act fast: to be timely, an appeal must be filed within 10 calendar days after the solicitation is issued (or, after the solicitation is amended, if that amendment affects the NAICS code designation or size standard).
4. How are NAICS appeals decided?
NAICS code appeals must be filed at the SBA’s Office of
Hearings and Appeals (with a copy to the contracting officer). The appeal
should, in general, explain the factual and legal reasons why the assigned NAICS
code doesn’t correspond to the solicitation’s primary requirements. After the
appeal is filed, the agency will have a chance to file a response that explains
Once briefing is complete, the OHA will issue its decision relatively quickly: on average, these decisions take anywhere from a few weeks to one month. That quick turnaround is important—if the OHA recommends that the NAICS code be changed, the solicitation will have to be amended, potentially causing a delay in the procurement process.
5. How can I prepare for a NAICS code appeal?
To be successful, a NAICS code appeal must demonstrate that
the solicitation’s NAICS code designation was clearly erroneous. It’s not enough,
therefore, just to say that the assigned NAICS code was wrong. The challenger should
not only explain why the assigned NAICS code doesn’t closely fit the solicitation’s
primary purpose, but also offer up an alternative NAICS code (with a full
explanation of why this code would be more appropriate).
How can you make this determination? Look closely at the
solicitation’s scope of work and level of effort. If one task makes up a
majority of the associated costs or hours, it’s arguable that that task is the
solicitation’s primary purpose. Then, consider the industry descriptions in the
NAICS Manual to determine whether there’s a code that best describes that task.
Finally, note whether there are any historical examples of similar work (or
perhaps even the incumbent work) being procured under a different NAICS code.
All of this might help show that a different NAICS code is more appropriate.
As mentioned, NAICS code appeals are a tremendously useful tool, in that they can dramatically affect the pool of eligible offerors. As we’ve previously written, NAICS codes appeals are often successful—a recent GAO study found that, of 27 NAICS code appeals considered on the merits, the OHA granted 12.
A successful NAICS code appeal might make your business eligible to bid on a solicitation, or result in your competitor not being eligible to bid. Either way, the results can be dramatic. If you’re considering a NAICS code appeal, please give me a call.
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As we’ve written about on the blog, SDVOSB regulations were consolidated under the SBA’s rules beginning October 1, 2018, and those changes included some good and bad changes. We recently noticed a single letter in one of the changes that, while most likely a typo, could potentially affect the meaning of one part of the new regulation.
The SBA’s SDVOSB regulations require that a service-disabled veteran unconditionally own the SDVOSB.
“Unconditional ownership” now means:
Rather than saying “other than after death or incapacity,” the official regulation uses the word “of.”
The current SBA definition (now applicable to both VA and non-VA procurements) incorporates the definition of “unconditional” that had been contained in the VA’s former rules on unconditional ownership (and which used the word “or”). These rules, as we interpret them, seem to allow a right of first refusal before transfer of a service-disabled veteran’s ownership interest based on a veteran owner’s death or incapacity. The rule, in other words, appears to be intended to effectively reverse SBA’s prior position on this subject.
However, one interpretation of this phrase is that the exception only applies if the service-disabled veteran dies “of incapacity,” meaning death from any other means would not meet the exception.
While this interpretation would severely curtail the meaning of this exception (and it’s not even clear to us whether “death by incapacity” has any particular medical meaning), it is an open question until the SBA amends the regulation or otherwise addresses the issue. Even though this one letter is a small issue, we hope to see it corrected because it complicates the interpretation of the new SDVOSB regulations and creates unnecessary uncertainty for SDVOSBs looking to amend their governing documents to take advantage of the new rules.
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