Earlier this week, I had the privilege of attending the National 8(a) Conference in Nashville. If you’re an 8(a) Program participant and have never been, I’d certainly recommend it: beyond the breaking GovCon news, there’s lots of great networking opportunities. Be sure to pencil-in the date for 2020!
Let’s wrap up the week as we always do, with the Week In Review. In this edition, we’ll look at GAO’s recommendations for DOD’s planned IT upgrades, additional uncertainty for federal contractor back-pay, and more contractors behaving badly.
Have a great weekend!
Former federal employee and former official of a defense contractor charged with conspiracy to commit wire fraud. [Justice.gov]
GAO recommends that DOD monitor and assess contractor’s business systems to ensure data is safe. [GAO]
Latest shutdown deal includes nothing in back pay for federal contractors. [Money]
Proposed legislation would give back pay to federal contractors. [FedSmith]
Florida man is sentenced to 5 years in prison after pleading guilty to bribing a federal contracting officer. [NWFDaily]
New studies debunk urban myths about GSA procurement advantages. [FederalNewsNetwork]
Businessman who admits he lied to get more than a million dollars in government contracts headed back to a South Dakota courtroom. [Keloland]
Lawsuit filed against Lockheed Martin and Mission Support Alliance for kickbacks in connection to a DOE multi-million dollar contract. [Justice.gov]
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GAO’s bid process can be difficult to understand. There are rules about who can file a bid protest and what issues can be protested. And the deadlines for filing are strict and unforgiving.
In the February 2019 issue of Contract Management Magazine (the monthly publication of the National Contract Management Association), we provide a plain English overview of GAO’s bid protest process. We think that, whether you’ve been a federal government contractor for many years or just a few, you’ll find it informative. The magazine has kindly allowed us to post the article. Click here to view and happy reading!
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The Small Business Runway Extension Act continues to be a hot topic of conversation among small businesses. For good reason: it revised the receipts calculation period for revenue-based size standards from three years to five.
In late 2018, the SBA opined that the Runway Extension Act wasn’t yet applicable because the SBA had not yet updated its regulations. Following industry pushback, the SBA’s position seems to have evolved. During a panel discussion at this year’s National 8(a) Conference, the SBA said that the Runway Extension Act applies to every agency that might adopt its own size standards . . . just not the SBA itself.
This new justification is a bit of a head-scratcher. And I still don’t think the SBA has it right.
Let’s work through the SBA’s position together.
Whenever the applicability of a statute is disputed, the obvious starting place is the statutory language itself. The Runway Extension Act is very brief. It states, in full:
of the Small Business Act (15 U.S.C. 632(a)(2)(C)(ii)(II)) is amended by
striking “3 years” and inserting “5 years”.
As revised by the Runway Extension Act, the Small Business Act now reads, in pertinent part:
(a) Small Business
Establishment of size standards.
specifically authorized by statute, no Federal department or agency may
prescribe a size standard for categorizing a business concern as a small
business concern, unless such size standard—
(ii) provides for determining—
(II) the size of a business concern providing services on the basis of the concern’s annual average gross receipts of the business concern over a period of not less than 5 years.
See 15 U.S.C. § 632(a)(2)(C).
In other words, the Small Business Act now says that “no
Federal agency or department” can issue a receipts-based size standard unless
that standard calculates the small business’s size over a five-year period.
This language seems pretty clear to me. But at the 2019 National 8(a) Conference, the SBA said that it doesn’t believe the Runway Extension Act applies to it; instead, the SBA says that Section 632(a)(2)(C) applies to every other agency, so the SBA isn’t obligated to update its own receipts-based calculation period. Had Congress simply amended the correct section of the Small Business Act, the SBA said it would’ve given the Runway Extension Act immediate effect.
Contrary to this assertion, Section 632(a)(2)(C) doesn’t exclude the SBA. The provision applies to any federal agency or department—which the SBA surely is. The Small Business Act broadly defines a “federal agency” to include “each authority of the Government of the United States, whether or not it is within or subject to review by another agency” (subject to certain specific—and inapplicable—exceptions). 15 U.S.C. § 632(b) (incorporating the definition of agency set forth at 5 U.S.C. § 551(1)). Under the plain language of the Small Business Act, as revised by the Runway Extension Act, the new five-year calculation period applies to the SBA.
Earlier in 2018, in fact, the SBA acknowledged that it was subject to Section 632(a)(2)(C). Citing that provision, the SBA said that “Congress directs SBA to establish size standards for manufacturing concerns using number of employees and service concerns using average annual receipts.” Coming just a few months after the SBA acknowledged the applicability of Section 632(a)(2)(C), I’m not sure how it can now say the opposite.
Passing the Runway Extension Act, moreover, Congress made clear that it applies to the SBA. The stated purpose of the statute is to “help advanced-small contracts successfully navigate the middle market as the reach the upper limits of their small size standard,” by “lengthen[ing] the time in which the Small Business Administration (SBA) measures size through revenue, from the average of the past 3 years to the average of the past 5 years.” (Emphasis added). This purpose is important—according to the Supreme Court, ambiguous statutes should be interpreted “not in a vacuum, but with reference to the statutory context, structure, history, and purpose.” Abramski v. United States, 573 U.S. 169, 179 (2014) (citation omitted).
As I read it, the Runway Extension Act requires the SBA to update the receipts-based calculation period, from three years to five. Congress not only made this purpose clear, but the SBA has itself acknowledged that it is subject to the revised section of the Small Business Act. With respect to the SBA, I don’t think this new justification against giving immediate effect to the five-year receipts calculation period is any more convincing than its first explanation. To me, the Runway Extension Act requires the SBA to immediately implement the five-year receipts calculation period.
I understand the difficult position the SBA has been placed in by the Runway Extension Act. One would think that, before it mandated a change in the small business calculation period, Congress would’ve consulted the SBA. I’m not sure that happened to a meaningful degree here—had it, Congress probably would have given the SBA time to implement updated regulations. Absent this meaningful consultation, Congress mandated an immediate change without fully understanding how disruptive it would be.
Let’s also give the SBA credit for trying to explain its position to the industry. At the National 8(a) Conference, in fact, both Robb Wong (SBA’s Associate Administrator, Office of Government Contracting and Business Development) and John Klein (SBA’s Associate General Counsel for Procurement Law) discussed the issue—and a myriad of others—with small business contractors in great detail. And though I might disagree with the SBA’s conclusions about the implementation of the Runway Extension Act (as it no doubt disagrees with mine), I’m nonetheless impressed with their willingness to engage forthrightly on the issues impacting small businesses.
Faced with uncertainty about its size regulations, it’s not unreasonable for the SBA to maintain the existing three-year calculation period until it can revise its regulations to reflect the new five-year period. But whether a policy is reasonable doesn’t necessarily mean it’s legally sound. Here, I think the legally sound policy would be to give the five-year calculation period immediate effect.
Where does this leave small business contractors? Unfortunately, I think they’re in the same position they were before: dealing with the uncertainty of whether their size is calculated based on a three or five year period of measurement.
If you have questions about the applicability of the Runway Extension Act or its effect on your business, please give me a call.
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Contractor responsibility is to be considered before every federal contract award, but what about task orders issued under an FSS contract? Are contractors still subject to responsibility inquiries when competing for orders?
According to GAO, the answer is, “yes.”
Dehler Manufacturing Company, Inc., B-416819 et al. (Comp. Gen. Dec. 19, 2018), involved a procurement by the Army to provide furnishings for barracks at Fort Jackson in South Carolina. The Solicitation, which contemplated the award of a task order, required prospective contractors to hold FSS contacts that included furnishings. Award was to be made on a low-price technically-acceptable basis. Proposals were to be evaluated on a number of factors, including past performance.
Dehler timely submitted a response to the solicitation. During the Army’s evaluation of past performance, it obtained information from the Past Performance Information Retrieval System. Of the five PPIRS reports the Army obtained for Dehler, four categorized Dehler’s performance as either “Marginal” or “Unsatisfactory.” Consequently, the Army concluded Dehler’s past performance was unacceptable and eliminated it from consideration.
Given that the Army’s evaluation and elimination of Dehler was equivalent to a finding of non-responsibility, the Army forwarded Dehler (a small business) to the SBA for a Certificate of Competency investigation. Shortly thereafter, the SBA declined to issue a Certificate of Competency. As such, the Army moved forward with awarding to another offeror.
Dehler protested the elimination
of its proposal before GAO. Dehler argued, in part, “that it was improper for
the agency to consider Dehler’s responsibility as part of the source selection
process, since ‘this procurement was conducted under [FAR subpart] 8.4, which
does not require the contracting officer to make a responsibility
GAO was unconvinced by Dehler’s line of argument. As GAO explained, “[w]hile an agency is not required to make a new responsibility determination when awarding a task order to an FSS contractor (as opposed to the required determination at the time the FSS contract is awarded), an agency is not precluded from doing so.”
Turing to the specifics of Dehler’s case, GAO noted the solicitation instructed offerors that past performance would be subject to evaluation by the Army, and that award would only be made to offerors evaluated as “acceptable” under the non-price factors, which included past performance. As such, GAO found “nothing unreasonable or improper in the agency’s consideration of matters associated with Dehler’s responsibility—including its negative past performance assessments, nor in the agency’s referral of that matter to the SBA.” Thus GAO denied this basis of Dehler’s protest.
GAOs’ decision in Dehler severs as a reminder that past performance and responsibility are considerations an evaluating agency may reach when issuing task orders under a FSS procurement. As Dehler discovered, such an investigation can be a significant hurdle for some offerors, even those deemed responsible with respect to their underlying FSS contracts.
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The limitations on subcontracting are undergoing some major changes in 2019, including a newly-effective DoD class deviation and the FAR Council’s long-awaited proposal for a comprehensive overhaul.
Recently, I joined host Michael LeJeune of Federal Access on the Game Changers podcast to discuss these important changes. Click here to listen to my podcast, and be sure to check out the other great Game Changers podcasts featuring voices from across the government contracting landscape.
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An offeror provided a procuring agency with only the first pages of its teaming agreements with proposed subcontractors–and received a “Marginal” score on the small business participation factor as a result.
In a recent decision, the Court of Federal Claims held that the agency reasonably downgraded the offeror for failing to provide its entire teaming agreements, saying that the agency correctly determined that it was unable to determine what work would be performed by the subcontractors.
The Court’s decision in ATSC Aviation, LLC v. United States, No. 18-1595C (2019) involved an Army solicitation for a multi-billion dollar multiple-award IDIQ. Under the resulting IDIQ contracts, the successful offerors would provide the Army with worldwide logistical support services for non-standard rotary-wing aircraft.
The solicitation called for the evaluation of six criteria, including Small Business Participation. Under the Small Business Participation factor, all offerors were to submit a Small Business Participation Plan based on executing a Sample Task Order. Offerors were to identify each small business they would use as subcontractors. Among other requirements, offerors were directed to provide copies of teaming agreements that defined subcontractor work.
ATSC Aviation, LLC was one of ten offerors to submit proposals. ATSC proposed to use 17 subcontractors, all of which were small businesses. ATSC had executed teaming agreements with all 17 subcontractors, and these agreements ran to between 11 and 15 pages. However, ATSC only included the first page of each teaming agreement in its proposal.
The Army assigned ATSC a “Marginal” score for its Small Business Participation, even though all of ATSC’s subcontractors were small businesses. The Army determined that the first pages of ATSC’s teaming agreements were inadequate “to determine [the] amount of variety and complexity” of work assigned to small businesses. The Army was concerned that it could not ascertain “if small businesses are being utilized for skilled work or being relegated to menial tasks.”
After performing a best value trade off, the Army informed ATSC that it would not be included in the competitive range. ATSC then filed a protest with the Court. ATSC alleged, among other things, that the Army had erred by assigning ATSC a “Marginal” rating on the Small Business Participation factor.
The Court noted that, under the solicitation, teaming agreements were to “contain a statement of work that defines the work that will be performed by the subcontractor.” The Court continued:
The Court denied ATSC’s motion for judgment and ruled in favor of the Army.
Neither the FAR nor the SBA’s regulations require written teaming agreements. In my experience, though, procuring agencies are increasingly asking offerors to submit written teaming agreements with their proposals. Teaming agreements help agencies confirm that proposed subcontractors really are committed to the project, and what work those subcontractors will perform.
In ATSC Aviation, the offeror only submitted portions of its teaming agreements, leaving the agency uncertain about what work the subcontractors would perform. And while most offerors might not make the same mistake, it’s possible that even a complete teaming agreement might not satisfy an agency interested in what work the subcontractors will perform.
In my experience, many teaming agreements are extremely vague when it comes to the statement of work–often offering little more than “TBD.” If an agency wants to determine what work a subcontractor will perform, “TBD” is unlikely to cut it.
So, for prime contractors, ATSC Aviation isn’t just about providing the whole teaming agreement, which should be obvious. It’s also a good reminder to make sure that the substance of the teaming agreement allows the agency to complete its evaluation.
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After a lovely weekend, temperatures have again dropped here in Lawrence. A quick Google search, however, tells me that a certain groundhog didn’t see his shadow last week, so here’s hoping we all get warmer temperatures soon . . . .
In the meantime, let’s warm our hearts with the latest government contracting news. Today we look at how the Pentagon plans to use the cloud and protect itself while doing so, how several companies survived the shutdown as they look toward another, and the millions it costs to settle a procurement fraud investigation.
Have a great weekend!
New report indicates conservative cash management is key for WOSB start ups. [Bizjournals]
Customer loyalty leads makes all the difference for WOSB. [Forbes]
Executive order expands “Buy American” requirements to agency procurements. [Govexec]
Pentagon behind in taking action on GAO recommendations. [NextGov]
Companies trying to “futureproof” their businesses as another shutdown looms. [Inc]
DOD releases its long awaited Pentagon cloud strategy. [FederalTimes]
GAO report focuses on DOD’s monitoring and review process. [GAO]
Pentagon taking action to boost cybersecurity down the supply chain. [Fedscoop]
Tech and defense contractors share lessons learned during this lengthy government shutdown. [Nextgov]
The Navy needs 2 tons of storage devices burned to ash. [Nextgov]
$3.6 million settlement resolves procurement fraud investigation against Maryland and Colorado companies. [[Justice.gov]
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In all competitive procurements, agencies must identify and analyze, as soon as possible, whether a potential contractor has an actual or potential organizational conflict of interest. (OCIs come in three general varieties: unequal access to information, biased ground rules, and impaired objectivity.) If the agency finds one, it must avoid, neutralize, or mitigate the potential OCI to ensure fairness.
As one recent GAO decision illustrates, an agency’s failure to reasonably investigate a potential OCI can lead to a sustained protest.
In Safal Partners, Inc., B-416937 et al. (Comp. Gen. Jan. 15, 2019), the Department of Education issued a fixed-price task order under the awardee’s GSA FSS contract to support the Charter Schools Program with technical assistance and disseminating best practices. The TO was referred to as the National Charter School Resource Center (NCSRC) contract.
Among other grounds, the protester, Safal, asserted that the awardee’s subcontractor, WestEd, had an impaired objectivity OCI. (In general, an impaired objectivity OCI exists when a contractor’s ability to provide impartial advice to the government might be undermined by its competing interests.)
WestEd, under its DCM contract (a separate contract it has with DOE) conducts on-site monitoring to gather information and data to ensure project performance by DOE grantees. From information gathered from these visits, WestEd develops a comprehensive report that may recommend technical assistance for grantees. Then, the NCSRC contractor (who, here, had subcontracted with WestEd) provides individualized assistance to address the findings identified by WestEd under the DCM contract.
Given this relationship between the DCM contract and the NCSRC contract, Safal understandably argued that WestEd could benefit itself by recommending grantees for technical assistance, under the DCM contract, and then providing that assistance under the NCSRC contract.
Only after the protest was filed did the contracting officer analyze the potential impaired objectivity OCI. Nonetheless, the agency defended its award decision. In doing so, the contracting officer stressed that the agency, not WestEd, made the final decisions related to monitoring and technical assistance. So, while the contracting officer didn’t explicitly find that there wasn’t an OCI, he concluded that WestEd, in performing the DCM contract, couldn’t funnel work to itself under the NCSRC contract.
GAO was unconvinced. It noted that it reviews an agency’s OCI analysis for reasonableness and doesn’t substitute its judgment for the agency’s when an agency gives meaningful consideration to whether an OCI exists. But here, GAO found that the agency’s conclusion–regarding WestEd’s supposed inability to funnel work to itself–didn’t hold water. In fact, it reasoned:
Ultimately, GAO recommended that the agency conduct a new OCI analysis, and it recommended the reimbursement of Safal’s protest costs for its trouble.
How could this protest have turned out differently? Could WestEd have taken some proactive step to help protect its award from an OCI attack? Yes! It could have, and should have, foreseen the potential OCI and tried to preempt it through a comprehensive OCI mitigation plan.
This plan, which it could have submitted with its proposal, would, first, have alerted the contracting officer to the potential OCI (apparently, here, the contracting officer first heard of the potential OCI during the protest). But also, the agency could have used the mitigation plan as a basis to defend the award decision, despite the potential OCI.
There’s no guarantee that this strategy would have worked: unlike “unequal access to information” OCIs, a conflict of interest based on impaired objectivity can be difficult to mitigate. Nevertheless, GAO has held that, under appropriate circumstances, impaired objectivity OCIs can be mitigated with a strong mitigation plan.
It is unclear from GAO’s decision whether WestEd’s prime contractor, the awardee itself, was aware of its subcontractor’s OCI when it submitted its proposal. For prime contractors, this case is a good reminder to require prospective subcontractors to disclose actual or potential OCIs before proposal submission.
For a company like WestEd, the best takeaway from this case is this: implement a general OCI mitigation plan for your firm and adapt it to specific procurements when needed.
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When choosing the most appropriate awardee for any federal contract, agencies are required to fully document all procurement decisions and their rationale, especially when those decisions could narrow the competition.
In Soft Tech Consulting, Inc., B-416934 (Comp. Gen. Feb. 1, 2019), GAO held that the Department of Homeland Security failed to adequately document its evaluation decision in a procurement for software development services and recommended that DHA reevaluate all offers from square one.
To compete for RFQ No. 70SBUR19Q00000249, offerors were required to be “small business vendors holding a GSA Federal Supply Schedule (FSS) contract under Schedule 70, special item number 132-51 (Information Technology Professional Services).” Under IT 70, contractors could be required to provide personnel at three different levels of experience: entry, mid, and high. When associated with different staffing positions, each level of experience corresponded with a different number of years of experience. Of importance, entry-level “Technical Staff III” under the FSS were required to have two to four years of experience and entry-level “Technical Staff IV” required three to five years of directly relevant experience.
RFQ offerors here were to propose teams of professionals to complete the work solicited. Specifically, the RFQ required all offerors to complete a template including titles and experience levels for each proposed team member. The RFQ required all personnel to be of “mid-level to senior level” categories, but did not provide any information about the number of years of experience associated with either level.
Soft Tech Consulting, an offeror, submitted its template providing the title “Technical Staff-III EL” and the abbreviation “Mid.” for experience level associated with one position, and the title “Technical Staff-IV EL” and “Senior” for a number of Business Analyst positions. DHS evaluators concluded that “EL” meant “entry level” and that Soft Tech therefore did not meet the RFQ requirements and would be excluded from the competition. After excluding Soft Tech, DHS awarded to Dev Tech, another offeror. Soft Tech protested, arguing DHS did not appropriately document its decision and failed to equally evaluate all offerors. GAO agreed.
GAO first explained that adequate documentation of evaluation decisions is essential to show whether or not an agency has acted reasonably. Here, GAO held, DHS failed to explain “why, when reviewing Soft Tech’s quote of personnel labeled as ‘Technical Staff-III EL,’ and ‘Technical Staff-IV EL,’ the agency did not recognize that Soft Tech was proposing mid- to senior-level personnel, or senior-level personnel.” Further, GAO also noted that the record failed to show “whether the agency considered two to four years, or three to five years of experience sufficient to constitute mid-level to senior-level.” In all, GAO concluded that DHS only conducted a “cursory level of review not permitted by the terms of the solicitation.”
In contrast with its evaluation of Soft Tech, DHS decided that Dev Tech was the appropriate awardee, though Dev Tech did not specify the level associated with each of its proposed personnel at all. “As such,” GAO determined, “neither [Soft Tech’s or Dev Tech’s] quotations was clear as to whether it was proposing exclusively mid-to senior- level personnel,” but DHS only downgraded Soft Tech. Without any explanation as to how DHS decided on this course of action, GAO held that DHS’ choice was not appropriately supported and recommended a full reevaluation of all offers submitted.
As the Department of Defense moves to implement enhanced debriefing requirements, this case serves as another important reminder to contracting officers: because documentation is essential to demonstrate whether or not a decision is entirely reasonable, adequate documentation of all procurement decisions is necessary.
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By now, our frequent readers are familiar with GAO’s mantra that it is an offeror’s responsibility to submit a well-written proposal that complies with the solicitation’s requirements and risks being found unacceptable if it fails to do so.
That rule serves its purpose: it helps maintain an organized bidding process, under which the agency can evaluate proposals on an even footing. But it can also lead to harsh results, like it did in a recent protest challenging a proposal’s unacceptability due to its non-compliant table of contents.
Let’s take a look.
In Nexagen Networks, Inc., B-416947 et al. (Jan. 11, 2019), Nexagen submitted a proposal under a request for task execution plan issued by the U.S. Army. The solicitation sought technical support for communications capabilities, and was competed among the 20 companies holding contracts under the Army’s Global Tactical Advanced Communication Systems IDIQ vehicle.
As is relevant here, the solicitation required proposals to be organized in a certain manner. Part 4 of the required Technical Volume was to have the offeror’s response as to the Service Desk Location requirements and was to be evaluated on an acceptable/unacceptable basis. The solicitation said that each factor “shall contain clearly identified sections,” and, throughout, the solicitation further admonished offerors (sometimes in bold, capitalized font) that they had to meet the solicitation’s instructions.
Nexagen’s proposal scored acceptable ratings under all but Technical Factor Part 4, where it was evaluated as unacceptable. According to the Army, Nexagen’s proposal wasn’t clear as to its effort under this Part—it was not listed in Nexagen’s table of contents or addressed later in the Technical submission. Because the Army believed that Nexagen did not address this aspect of the solicitation, it found Nexagen’s entire proposal to be unacceptable.
The Army instead issued an award to Nexagen’s competitor—for
a little bit more money than Nexagen proposed.
Perhaps thinking this outcome a bit harsh, Nexagen protested
the evaluation to the Government Accountability Office. Nexagen acknowledged
that “the numbering of the proposal and the nomenclature used in the table of
contents is slightly confusing,” but nonetheless argued that the required
information was included in its table of contents at Section 3.3.3 (labeled “Service
Desk Location”). According to Nexagen, the Army was required to interpret this
section as its response to Part 4.
GAO disagreed with Nexagen. Noting that it is an offeror’s responsibility to submit an adequately-written proposal or risk being downgraded or excluded if it doesn’t, GAO found that “Nexagen’s proposal explicitly identified Parts 1, 2, and 3 and provided a corresponding response, but did not clearly identify similar information for Part 4.” GAO continued:
To the extent Nexagen
contends that the agency should have recognized that section 3.3.3., Service
Desk Location, should have been interpreted as its Part 4 response because its
proposal referenced Part 4 in another section of the proposal, we disagree. The
agency is not required to piece together disparate parts of Nexagen’s proposal
to determine its intent. Since offerors are expected to respond explicitly to
RFP requirements, the protester acted at its own peril in not submitting a
clear and appropriately organized proposal.
Given Nexagen’s failure to comply with the solicitation’s
requirements, GAO denied its protest.
At first blush, Nexagen’s exclusion seems somewhat harsh—Nexagen was essentially excluded for a labeling error, which ended up costing taxpayers a bit more than they otherwise might have spent. But keep in mind that the point of the rule is to ensure that offerors are evaluated, as close as possible, under a level playing field. Could the agency have opened discussions with offerors and allowed Nexagen to fix this (relatively minor) error? Sure. But there’s no requirement that an agency do so, further cementing the importance that offerors provide their best effort in their initial offer.
These facts also help bring home an important point about
bid protests: the stronger an offeror’s proposal, the better (in general) its
odds of success in a bid protest. After all, having an acceptable effort means
that you’ll likely have standing to challenge any errors in the evaluation.
If you have questions about whether to protest an evaluation or award decision, please give us a call.
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A government contractor must include certain details in a certified claim, including a sum certain, signature, and a request for a final decision. With regards to the “sum certain,” a contractor cannot avoid this requirement by attempting to portray its claim as one not for monetary relief, when the contractor is really just asking for money.
In Northrop Grumman Systems Corp. v. United States, 140 Fed. Cl. 249 (2018), the court considered a claim by Northrop against the Postal Service. The claim arose under a contract for Northrop to produce and deliver mail-processing machines for a fixed price of approximately $874 million. After performing the contract, Northrop claimed the Postal Service breached the contract and the Postal Service counter-claimed.
From 2007 through 2009, the parties negotiated over the scope of work and there were a series of equitable adjustments resulting in modifications to the production contract. After some delays and disagreements, the machines were installed by August 2011.
Northrop then filed a series of claims, including two for approximately $63 million each and one for around $71 million. The Postal Service counterclaimed, saying it was owed approximately $410 million. The contracting officer issued his final decision, deducting certain amounts Northrop claimed from the Postal Service claim, and determined Northrop owed it $341 million.
Northrop then took its case to the Court of Federal Claims. As part of its complaint, Northrop alleged “that the Postal Service affected a cardinal change to the contract and, as a remedy, seeks reformation of the contract so that the parties may determine the amount that the Postal Service should reimburse Northrop for costs incurred.” The Postal Service argued that this part of the claim was improper and the court lacked jurisdiction “because its claim is a monetary one for which Northrop did not seek payment in a sum certain.”
The court noted that a claimant “may not circumvent the requirement to state a sum certain in its claim by camouflaging a monetary claim as one seeking only declaratory relief.”
Northrop’s first claim stated that the “Postal Service’s actions constituted a cardinal change” asked the contracting officer “to reform the contract to a cost-plus-fixed-fee structure, pursuant to which [Northrop] shall be reimbursed for all allowable and reasonable costs allocable to this Contract . . . plus a reasonable fee thereon.”
A cardinal change is ” a substantial deviation from the original scope of work that changes the nature of the bargain between the parties.” “It is such a fundamental change that the parties cannot redress the change under the contract. Demanding performance thus, places the government in breach of the contract.”
Northrop argued that the Postal Service “fundamentally altered the nature of the contract by wresting design control from the contractor.” However, the court did not buy this argument, as Northrop itself stated that ” “[t]he remedy for a cardinal change is breach damages.”
The court wrote:
A claim must include a “sum certain,” requesting a specific dollar amount, whenever the contractor thinks it is entitled to money from the government, or the claim may be invalid.
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The breadth and depth of protests heard by GAO may lead even a seasoned government contractor to overlook the limitations of GAO’s jurisdiction.
As one contractor recently found, the GAO generally will not consider
protests based on an allegation that the agency should not have referred an
adverse responsibility determination to the SBA for a certificate of competency
We must lay the foundation for the Certificate of Competency (“COC”)
procedure before adequately analyzing the case before us. COCs are authorized
and regulated by 15 U.S.C.
§ 637(b)(7), 13 C.F.R.
§ 125.5, and FAR 19.6. While they each address COCs in their own
language, the core idea is that “[a] COC is a written instrument issued by SBA
to a Government contracting officer, certifying that one or more named small
business concerns possess the responsibility to perform a specific Government
A contracting officer is obligated to refer a small business concern to SBA
for possible COC when the contracting officer determines that a small business
is not responsible, and that determination would preclude the small business
from receiving an award. When the SBA issues a COC, as in the circumstances
presented in the case before us, it effectively overturns the
With that background, let us refocus on the case at issue – Lawson Envtl. Servs. LLC,
The EPA named Eagle Eye-Enviroworks Joint Venture awardee under RFP No. 68HE0718R0009. Eagle Eye was one of ten
offerors who submitted a proposal. Eagle Eye, however, was the only offeror
referred to the SBA for a COC. The contracting officer was concerned that
“Eagle Eye did not meet the minimum corporate experience requirements, and that
its project manager and site superintendent did not meet the minimum key
personnel experience requirements.”
In its review, “the SBA found that Eagle Eye’s COC application included information demonstrating that the offeror met the RFP’s corporate experience and key personnel requirements.” The SBA granted Eagle Eye a COC.
Following this SBA action, the EPA awarded the contract to Eagle Eye. Lawson
Environmental Services LLC, an offeror and interested party, protested the
award. Lawson argued that the EPA erred by referring Eagle Eye to the SBA for a
COC in the first place.
GAO spent some time reaffirming the core concepts we set forth in our foundation earlier. Mainly that the EPA “must refer to the SBA a determination that a small business is not responsible if that determination would preclude the small business from receiving an award.” GAO also stated that regulations require a contracting officer to refer a concern to the SBA for a COC determination when the contracting officer refused to consider a concern for award “after evaluating the concern’s offer on a non-comparative basis . . . such as experience of the company or key personnel or past performance[.]”
While the text of the solicitation is not provided, we can infer that reviewing experience and past performance on a “non-comparative basis” equates to offerors receiving a pass/fail in these areas. Had experience and past performance been evaluated on a comparative basis, Eagle Eye would not have been eligible for a COC review, and the GAO would not have seen this case.
The regulations and GAO statements so far would lead one to believe that the
GAO would allow the protest to proceed and evaluate the merits of the protest.
GAO’s next statement, however, is key to this protest.
GAO dismissed the protest because “15 U.S.C.
§637(b)(7) gives the SBA, not [the GAO], the conclusive authority to
review a contracting officer’s determination that a small business concern is
not responsible.” GAO goes further to specifically state that Bid Protest Regulations mandate that “a [COC] under
§ 637(b)(7)] will generally not be reviewed by GAO.” The only
exceptions are if the protests can show “possible bad faith on the part of the
government,” that “SBA failed to follow its own regulations,” or that SBA
“failed to consider vital information bearing on the firm’s responsibility.”
GAO found that “Lawson raises none of the exceptions that would allow [GAO] to review the contracting agency’s action.” In a footnote, GAO acknowledged that Lawson tried to differentiate between responsiveness of a proposal and the responsibility of that same proposal. However, this argument was a non-starter as GAO stated that “both corporate experience and key personnel, when evaluated on a non-comparative basis, are matters of responsibility.” Because Lawson failed to claim any of the exceptions, GAO lacked jurisdiction.
Keep this case in mind if you are considering protesting an award that involves a COC. At the same time, remember that each solicitation and award may have any number of errors which give rise to a valid protest. Our office is always happy to help you evaluate the merits of an award or possible protest.
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Happy February, everybody! After a bit of frigid weather here in Lawrence this past week (though not nearly as frigid as it was for our friends up north), we’re gearing up for a spring-like weekend. Don’t get too jealous: it’ll turn cold again just a few days later. Gotta love that Kansas weather!
Now that the federal government is open again (at least for now), let’s take a look at some of the post-shutdown news in this edition of the Week In Review. We’ll look at federal IT spending, mounting shutdown effects, and, as usual, some contractors behaving badly.
Have a great weekend!
Pentagon to review Amazon employee’s influence over $10 billion government contract. [Stripes.com]
DOL investigation results in contractor paying out over $80,000.00 in back pay. [DOL]
Federal IT contract spending reaches new high in fiscal 2018, report says. [Fedscoop]
Federal contractors who lost health insurance during shutdown remain in limbo. [SeattleTimes]
To tech startups, small biz grants are small potatoes. [DefenseNews]
Stopgap spending measure doesn’t fix federal contractors’ problems. [Nextgov]
Women- and minority-owned firms hold tiny slice of money management industry. [Piononline]
Florida man charged Monday with fraud in connection with a kickback scheme involving federal government contracts. [VIDailyNews]
Government’s reputation as prompt bill payer among shutdown’s casualties. [Federalnewsnetwork]
Company, CEO to pay $2.75M to resolve government contracting fraud allegations. [AFMC]
View the full article
GAO will frequently dismiss protest grounds based on its strict timeliness rules, as we’ve written about before on the blog. Generally, GAO’s bid protest regulations require a contractor to file a protest within “10 days after the basis of protest is known or should have been known.”
But sometimes knowing when a protest ground is untimely can be difficult. For instance, where a protester should have known the basis for protest based on an inference from a debriefing response and its incumbent knowledge, does that debriefing start the 10-day protest clock running? A recent GAO decision answers that question in the affirmative.
In CDO Technologies, Inc., B-416989 (2018), GAO considered a case involving a solicitation under the NETCENTS-2 Small Business Pool NetOps indefinite-delivery, indefinite-quantity contract. CDO Technologies protested the award of the requirement to Atlantic CommTech Corporation (ACT).
The Air Force sought communications engineering and installation program support for the U.S. Air Force Central Command for various countries. Award was based on the basis of a best-value tradeoff, considering technical, past performance, and price.
The Air Force would evaluate proposed prices for reasonableness, realism, and balance. Offerors were supposed to use plug numbers for certain pricing, meaning “offerors only provided independent prices for the fixed-price CLINs for transition and core labor.”
The Air Force notified CDO that its proposal was not selected for award. ACT’s evaluated price was $89,995,770 and CDO’s evaluated price was $106,178,945. CDO received a debriefing and submitted additional questions, to which the Air Force responded in writing on September 5.
CDO asked a number of questions pertaining to the price realism evaluation.
In addition, “the protester, whose team includes the incumbent, argued that it appeared that the awardee’s total proposed price was unrealistically low and would likely result in significant compensation reductions for incumbent personnel.” CDO specifically asked:
The Air Force responded that it could not disclose the awardee’s technical and pricing strategies to CDO and “confirmed that it had conducted a price realism analysis in accordance with the FOPR and determined that ACT’s labor rates and total evaluated price did not pose an unacceptable risk.”
CDO did not file a protest within 10 days of when the debriefing closed.
“On October 2, or approximately one month after the debriefing was closed, CDO alleges that ACT contacted several incumbent personnel regarding employment on the follow-on contract. The protester alleges that some of ACT’s offers represented a decrease in compensation of nearly 25 percent as compared to the affected employees’ compensation on the incumbent contract.”
CDO then filed its protest on October 10.
The Air Force sought dismissal of the protest, arguing that “CDO knew or reasonably should have known of its basis of protest, namely that ACT’s low overall proposed price was unrealistic and presented a flawed and risky technical approach, at the time the agency disclosed ACT’s total evaluated price.” Because CDO was the incumbent,” the Air Force said, “the protester knew or reasonably should have known that the material difference between the offerors’ total proposed prices had to be related to the core labor CLIN.”
CDO argued that it could not have known the basis for its protest based on ACT’s total evaluated price because “it would have had to have speculated regarding the basis for the difference in the proposed prices” and it did not know the basis for the difference in price “until incumbent personnel received allegedly low proposed compensation packages from ACT.”
GAO rejected CDO’s argument and held that the protester should have known of the price issues based on the debriefing responses, because “CDO’s debriefing questions unequivocally demonstrate that it was aware that the likely difference in the proposals’ respective prices related to the offerors’ proposed compensation for core labor.” While GAO “will not consider purely speculative protest arguments, that does not mean that our Office will not consider–and a protester should not timely allege–protest grounds that are based on reasonable and credible inferences based on the information available to the protester.”
GAO concluded that “CDO’s protest is based on a comparative assessment of the awardee’s price to its own–information which CDO knew from the award notice.”
GAO noted that “CDO’s debriefing questions unequivocally demonstrate that it was aware that the likely difference in the proposals’ respective prices related to the offerors’ proposed compensation for core labor. CDO specifically suggested to the agency that ACT’s likely lower proposed compensation would present staffing and related performance risks.”
GAO concluded that the protest was untimely and dismissed it.
This decision is another reminder that, when a protester knows (or should know) of the basis for a protest ground, even if some of the information is based on the protester’s knowledge as an incumbent, it should err on the side of caution and file its protest in line with the timeliness regulations. The GAO’s strict timeliness rules do not allow for a protester to wait to be absolutely sure of all protest grounds before filing.
View the full article
You’ve likely heard of small business set-asides, SDVOSB set-asides, 8(a) Program set-asides, HUBZone set-asides, and other set-aside categories regulated, for the most part, by the Small Business Administration. But have you ever heard of a Stafford Act set-aside?
If not, you might want to keep reading about GAO’s recent analysis where it assessed whether the awardee was eligible for the Stafford Act set-aside.
First, what is the Stafford Act? The Act provides the statutory authority for FEMA to respond to disasters. And the Act authorizes FEMA to set aside disaster relief contracts for individuals or firms residing or primarily doing business primarily in the designated disaster area (42 U.S.C. 5150).
The FAR elaborates on the statute, outlining the criteria for determining whether an offeror is considered to be residing or primarily doing business in the set-aside area (FAR 52.226-3). So, for instance, an offeror is considered to reside, or primarily do business in the set-aside area if the offeror, during the last twelve months, had its main operating office in the area and that office generated at last half of the offeror’s gross revenues and employed at least half of the offeror’s permanent employees (FAR 52.226-3(c)). But if an offeror doesn’t meet those criteria, the FAR provides an eight factor list of other criteria to consider whether an offeror resides or primarily does business in the set-aside area (FAR 52.226-3(d)).
The issue of whether offeror primarily did business in a set-aside area was at play in Falken USVI, LLC, B-416581.2 (Comp. Gen. Jan. 2, 2019).
There, in response to Hurricane Maria, FEMA sought armed guard services to safeguard federal employees, visitors, and property at facilities in the U.S. Virgin Islands, including St. Croix, St. Thomas, and St. John. The solicitation required each vendor to represent whether it resided or primarily did business in the designated set-aside area.
In reviewing set-aside eligibility, FEMA found that Falken, the eventual protester, did not meet the criteria for set-aside eligibility. FEMA awarded the contract to Ranger, a company that was found to a local, eligible business. In its protest, Falken challenged FEMA’s determination that Falken didn’t meet the Stafford Act set-aside eligibility criteria and that Ranger did.
In evaluating set-aside eligibility, FEMA first looked to whether Falken and Ranger met the eligibility requirements under FAR 52.226-3(c). And it found that neither did. Thus, it looked to FAR 52.226-3(d) to see whether they qualified using the eight enumerated factors.
With respect to Falken, FEMA found that it also didn’t also qualify under FAR 52.226-3(d). In so determining, FEMA noted:
Falken’s two operating offices in the U.S. Virgin Islands were established in 2017 and 2018, with a total of 113 employees at both locations.
Falken’s licenses were not issued until October 2017, after the company’s establishment in the U.S. Virgin Islands that same month.
Identified contracts between Falken and other U.S. Virgin Island businesses did not establish a history of local business relationships because all the contracts had arisen within the previous five months and had been for small dollar amounts.
Falken did not demonstrate which portion of Falken’s gross revenues were attributable to work performed in the set-aside area.
On the other hand, FEMA found that Ranger did establish its set-aside eligibility through the following:
Ranger filed its Articles of Incorporation 1993, and they were certified by the Lieutenant Governor for the Virgin Islands.
Ranger had established and operated two permanent offices in the U.S. Virgin Islands since 1996 and 1999, respectively.
Ranger had 204 current and permanent employees in the set-aside area and maintained the appropriate license for every year from 2012 to 2018.
Ranger filed tax returns for its business in the U.S. Virgin Islands from 2012-2016 showing gross receipts and sales each year.
GAO found FEMA’s evaluation kosher and that it reasonably evaluated Falken and Ranger’s set-aside eligibility:
Depending on where a disaster strikes, your business might become eligible for a Stafford Act set-aside. But remember that these set-asides are designed for well-established local businesses in the designated disaster area. Setting up shop shortly before a disaster (or shortly thereafter, for the matter) won’t qualify you for these unique contracts.
View the full article
It has been a bit of a double-whammy for us in the Kansas City-area this week. Not only did our Chiefs lose in a heartbreaker last weekend, but we’ve also been dealing with cold temperatures, snow, and ice.
But there is also some good news. As we’re writing this post, word came down that the government will soon reopen (if only temporarily). To all our friends that work for or with the federal government, we’re thrilled that you’ll soon be back at work.
With that, let’s take a look at the week-that-was in federal government contracting. Have a great weekend, everyone!
Reform panel warns Congress to overhaul Pentagon acquisitions. [DefenseNews]
DOD’s Section 809 panel proposes a revolution in contracting. [FCW]
Proposed bill would guarantee federal contractors back pay. [VOX]
Fortune 500 contractors feeling the bite from the shutdown. [Politico]
Small businesses join ranks of contractors feeling pains of shutdown. [Govexec]
Subcommittee shake-up around federal IT oversight. [FedScoop]
Oracle faces discrimination lawsuit putting their federal contracts in jeopardy. [Fortune]
Kansas man charged in govcon contract fraud scheme. [Justice.gov]
The investigation of bribery and bid-rigging at Fort Gordon continues. [AugustaChronicle]
View the full article
The Section 809 Panel has recommended that Congress eliminate most small business set-asides for DoD acquisitions. The Panel would replace the longstanding set-aside system with a meager five percent small business price preference.
For small government contractors, this recommendation is the policy equivalent of a five-alarm fire. Small contractors may need to fight hard to save the set-aside system.
Get ready for a battle.
The Government’s Longstanding Small Business Policy
The United States Government has long supported small contractors. Policymakers wisely understand that providing contracting opportunities to small businesses isn’t just good for those businesses, but benefits the nation as a whole. Here’s how that longstanding policy is described in the Small Business Act itself, at 15 U.S.C. 631:
For more than 30 years, this vital policy has been implemented in the FAR by way of the “rule of two,” which requires Contracting Officers to set aside competitions for small businesses (or socioecononmic subcategories of small businesses, like SDVOSBs) under certain circumstances.
In its current form, the rule of two under FAR 19.502-2 has two components, which are rather similar.
There is a strong policy of set-asides for purchases (except micro-purchases) under the simplified acquisition threshold. For those procurements, the FAR says:
A slightly different standard applies to acquisitions over the threshold. In those cases, the Contracting Officer generally is required to use a set-aside when there is a “reasonable expectation” of receiving offers from “two responsible small business concerns” and “award will be made at fair and reasonable prices.”
Responsibility, of course, is the question of whether an offeror is capable of performing a contract. As set forth in FAR Part 9, responsibility encompasses things such as whether the offeror has adequate financial resources, experience, operational controls, technical skill, facilities, and equipment. Because the rule of two only applies when two responsible offerors are likely to submit bids, Contracting Officers need not issue set-asides when they aren’t comfortable that they’ll receive at least two reasonably-priced offers from small businesses meeting these standards.
Contracting Officers have a great deal of latitude when it comes to applying the FAR rule of two. As the GAO has written, a set-aside determination “is basically a business judgment within the broad discretion of the contracting officer.”
Contracting Officers also have ways of avoiding the rule of two entirely. For instance, while small business set-asides are allowed under GSA Schedules, they aren’t required. Unlike the VA’s separate SDVOSB rule of two, which was the subject of the Supreme Court’s famous Kingdomware case, a Contracting Officer need not apply the FAR’s small business rule of two before buying off the Schedule. Additionally, the GAO has held that Contracting Officers need not apply the rule of two when soliciting orders under unrestricted multiple-award contracts, like the Air Force’s large NETCENTS-2 vehicle.
The bottom line? Under the FAR, small business set-asides are preferred no matter the dollar value, but Contracting Officers have a great deal of flexibility. If a particular Contracting Officer isn’t satisfied with the potential pool of small business offerors, he or she is unlikely to be forced to issue a set-aside solicitation.
The Section 809 Panel’s Shocking Proposal
That brings us back to the Section 809 Panel’s shocking proposal.
When I first heard of the Section 809 Panel, my immediate reaction was “uh-oh.” After all, the Panel touts its mission as “identifying ways to streamline and improve the defense acquisition system,” among other things.
To me, “streamline” is one of those loaded terms (like “strategic sourcing,” “consolidation,” and “category management”) that never seem to work out too well for small businesses. If an organization views its mission as streamlining, there’s a pretty good chance that it will see a policy like the rule of two as red tape, rather than a fundamental building block of a broad and robust industrial base.
Through its first two reports, the Section 809 Panel didn’t seem to be doing too badly when it came to small business recommendations. I was starting to hope that small contractors might make it through the Panel’s process without too much trouble.
Then came Volume III.
The third and final volume clocks in at a whopping 1,120 pages, not including a separate “Summary of Recommendations.” (I continue to be mildly amused by the irony of a “streamlining” panel putting out Tolstoy-length reports).
The Section 809 Panel summarizes the FAR small business set-aside rules this way:
Then, the Section 809 Panel claims that small business set-asides actually hurt small businesses:
As evidence of the “extraordinary efforts,” the Section 809 Panel cites . . . its own Volume I Report! That’s like me claiming to be the best-looking government contracts lawyer in the country, and citing an email I wrote to myself as proof.
Anyway, getting back to Volume III, the Panel proposes that, for most DoD acquisitions (those classified as “readily available” or “readily available with customization”), small business set-asides would be replaced with a five percent small business price preference. The Panel says:
Oh goody! A whopping five percent price preference! I’m sure that will make all the difference when I’m competing directly against Microsoft for that IT staffing project.
The Problems with the Section 809 Panel’s Shocking Proposal
If you’re something of an astute reader, you may have picked up on the fact that I’m not particularly wild about the proposal to replace small business set-asides with a five percent price preference. And by “not particularly wild,” I mean that this may be the single worst government contracting idea I’ve ever seen.
Why, you ask? (It’s so nice of you to ask! Next, please send me an email saying I’m the country’s best-looking government contracts lawyer!)
First, the Section 809 Panel begins by misstating the current small business set-aside rules. No, Panel, not “all procurements” under the simplified acquisition threshold are 100% set-aside for small businesses. Likewise, the rule of two doesn’t apply to all procurements over the SAT.
What about fair pricing? Responsibility? GSA Schedule contracts? Unrestricted IDIQs? Contracting Officer discretion? Nope, nope, nope, nope and nope. The Panel doesn’t mention any of it.
The Section 809 Panel is composed of many smart, experienced people. They must know that the small business set-aside rules are nuanced. But instead of mentioning that nuance in the report, the Panel gives readers the impression that big, bad FAR 19.502-2 is grim and unyielding, regularly forcing beleaguered DoD Contracting Officers into ill-advised set-asides.
Members of Congress are, by necessity, jacks of all trades. They don’t necessarily have the depth of knowledge about federal contracting to understand that the Panel’s statement of the set-aside law is incomplete at best. It’s quite possible that policymakers will read Volume III and come away thinking, “wow, every single procurement under the simplified acquisition threshold goes to small businesses, no matter what? That seems excessive!” And they’d be right, were that actually the way it worked. But it’s not.
Second, the Section 809 Panel says that businesses make “extraordinary efforts” to remain small, and that offering set-asides doesn’t encourage growth beyond certain size standards.
Now, there’s a nugget of truth here: while many contractors (including many of our firm’s clients) embrace growth above their small business size standards, some businesses do, indeed, choose to remain small rather than try their luck competing against Lockheed, Boeing and their ilk. But most of those businesses wouldn’t have grown close to the size standard in the first place were it not for set-asides.
Sure, an IT company could run into trouble competing against Microsoft and Google, even after the IT company has exceeded the $27.5 million size standard under NAICS codes like 541511 (Custom Computer Programming Services). A company in that position might choose to remain small, or it might embrace its growth and prepare to compete against the big boys. But how would that company have fared against Google when the company was a $1 million or $2 million entity?
It seems crazy that I have to say it, but set-asides help small businesses, by creating a special pool where those companies can grow and develop while avoiding direct competition against multi-billion dollar behemoths. If we eliminate set-asides, why would a $1 million company even attempt to enter the Government market?
Notably, the Section 809 Panel doesn’t seem to have asked any actual small businesses or small business advocates about its plan. Are small businesses really clamoring for the elimination of those pesky set-asides? Do small businesses, or small business advocates like the SBA, really think that set-asides hurt small businesses? I can’t help but wonder if the reason the Section 809 Panel doesn’t seem to have asked is because the Panel already knows the answer.
It’s unfortunate when businesses outgrow their size standards and can no longer compete for re-competes of contracts they’ve successfully performed, but eliminating set-asides isn’t the answer. Doing so will simply ensure that many businesses never get to this tipping point in the first place.
Third, the proposal to replace set-asides with a five percent price preference is woefully inadequate to ensure that small businesses continue to receive a fair proportion of government contracts.
To understand whether price preferences are sufficient to ensure that DoD meets its small business goals, we can simply look at the HUBZone Program. For years, HUBZone firms have been entitled to a 10 percent price preference when they compete against large firms.
The HUBZone price preference works by requiring the Contracting Officer to pretend, for evaluation purposes, that the prices offered by large businesses are 10 percent higher. For example, if a large business proposes a price of $10 million, the agency would pretend that the price was $11 million. But if the agency awards the contract to the large business, the agency pays the “real” price: $10 million.
In a lowest-price, technically-acceptable evaluation, the HUBZone price preference can make a difference. In the example above, if the solicitation was issued on an LPTA basis, and a technically acceptable HUBZone firm proposed a price of, say, $10.5 million, the HUBZone company would get the contract.
In recent years, though, Congress has dramatically curtailed the use of lowest-price technically acceptable evaluation schemes, meaning that price is rarely going to be the sole deciding factor in a DoD acquisition. And in the context of a best value procurement, I can’t recall a single instance in my career in which the HUBZone price preference determined the outcome.
Contracting Officers are human beings, after all. And it takes a special human being to say, “yep, I know the large business was a little better technically, has more past performance, and proposed the lower ‘real’ price, but to heck with it–I’m going with the HUBZone based on the pretend price, even though the Government will actually pay more.”
Further, although many Contracting Officers support small businesses as a general principal, Contracting Officers (unsurprisingly) tend to care most about getting a project done right. Faced with a choice between, say, Google, on the one hand, and a smart, creative, tenacious, up-and-coming HUBZone firm on the other, how many Contracting Officers will simply opt for the “safe” choice and go with the brand name?
Then there’s the math. If the HUBZone price preference was truly effective at ensuring that DoD met its HUBZone goals, one would expect that that the numbers would show it. But, like the Government as a whole, DoD has fallen way short. In Fiscal Year 2017, the DoD “achieved” just 1.56% for HUBZones, versus a 3% goal.
Keep in mind that the 1.56% “achievement” occurred even though the FAR includes a 10 percent HUBZone price preference plus provisions allowing for HUBZone set-asides and sole source contracts. If DoD can barely reach half of its HUBZone goal given these tools, why on earth would anyone think that a five percent price preference, with no set-asides, would be enough to ensure achievement of the small business goals?
Fourth, speaking of goals, the Section 809 Panel is wrong to say that “requiring DoD to continue to meet the overarching small business use goal established by SBA will ensure the same amount of DoD dollars are invested in small business.”
No agency, including DoD, is “required” to meet SBA goaling requirements. The goals are just that: goals. If an agency doesn’t meet its goals, the agency might get a slightly lower grade on the SBA’s annual report card, but that’s it. (And even the lower grade is unlikely given the SBA’s tendency toward grade inflation: DoD got an “A” for Fiscal Year 2017 despite missing its WOSB and aforementioned HUBZone goals.)
By the way, DoD exceeded its 22% small business goal in FY 2017, but not by much, at 23.26%. More than three-quarters of DoD’s prime contracting dollars already go to large businesses. These numbers don’t exactly suggest that DoD Contracting Officers are struggling with the rule of two.
And if DoD can only muster 23.26% now, is it really going to continue meeting its small business goal if we eliminate set-asides? Count me as skeptical.
Bold–or Bold and Stupid?
The Section 809 Panel says that its proposal is for “bold changes, which will not be welcomed by those who benefit from the idiosyncrasies of the existing system and those who view this proposed approach as an abandonment of socioeconomic and domestic preference programs.”
This sort of self-congratulatory rhetoric permeates the Volume III Report. The Section 809 Panel repeatedly casts itself as bold and revolutionary, and tries to preemptively tar anyone who dares to disagree as a behind-the-times proponent of “idiosyncrasies.”
Don’t be fooled.
Riding a jetski over Niagra Falls is bold, but stupid. Same with trying to take selfies with wild elephants, or driving on a state highway in a golf cart towed by a garden hose. The Section 809 Panel’s ideas on small business set-asides may be bold, but that doesn’t make them good ideas.
The Panel says, “these recommendations would achieve the goal of allowing DoD to behave the way buyers in the private sector behave.” But the Government isn’t the private sector. Unlike the private sector, which is narrowly responsible to its investors and customers, the Government has much broader obligations to the taxpayers and nation as a whole.
Do we really want the Government to behave like a private company? A private company isn’t worried about growing a broad industrial base. A private company isn’t concerned about supporting the broader economy, expanding competition, or promoting any of the other important social and public policies that are part of the fabric of the nation. A private company isn’t subject to the same ethics rules: it may be perfectly fine, at a private company, if the CEO decides to award a subcontract to his golf buddy, or if a customer takes the entire Board of Directors on an Aspen ski trip to try to close the deal.
Government should be different: different in its societal role, different in its priorities, different in the ethical standards to which it holds itself and its employees. While there’s nothing wrong with looking to the private sector for procurement ideas, there’s everything wrong with treating private industry as the gold standard, and Government as though it’s just another private buyer.
Sorry, Panel, but the longstanding small business preferences set forth in the FAR aren’t “idiosyncrasies.” They’re the essential underpinning of a procurement system that is designed to do much more than merely copy the habits of for-profit businesses, regardless of whether those habits make sense when the buyer is the Government.
The Section 809 Panel was convened by Congress, so there’s little doubt that the Panel’s recommendations will be taken seriously–and little doubt that many large contractors will seize the opportunity to push for, as the Panel puts it, “abandonment” of the small business programs.
Small businesses better gear up for a fight.
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As we’ve discussed in previous posts, if you want to initiate a size protest, you generally must do so within 5 business days after the contracting officer notifies you of the prospective awardee’s identity.
But what happens if, after learning that you did not receive the award, the agency does something that suggests its award decision wasn’t final–e.g., reopens discussions with offerors and seeks revised proposals? Would your size protest still be late if didn’t file within the 5-day time frame?
Take a guess. And keep reading to find out the answer!
OHA confronted this situation in Global Dynamics, LLC, SBA No. SIZ-5979 (Dec. 17, 2018). The dizzying procedural backdrop starts in September 2012, when the Army issued an RFP for registered nurse services and assigned a NAICS code carrying a $7 million size standard. Global and GiaMed submitted offers.
Later that year, the Army excluded Global from the competitive range, and in early January 2013, notified Global that GiaMed was apparent successful offeror. This award sparked a 5-year legal battle between the two parties.
Global kicked things off by filing a protest with GAO challenging its exclusion from the competitive range. In mid-2013, GAO sustained the protest and, in response, the Army established a new competitive range that included both Global and GiaMed and obtained revised proposals from each.
In early 2015, based on the revised proposals, the Army informed GiaMed that Global was apparent successful offeror. GiaMed then filed a size protest against Global and, after the protest was denied, filed an appeal with OHA. OHA denied the size appeal.
Attacking simultaneously on another front, GiaMed filed a protest with GAO. Based on that protest, the Army took corrective action; after which, the Army reaffirmed the award decision to Global in June 2016. Not willing to go down easily, GiaMed filed another GAO protest, which GAO partially sustained.
Tired of litigation, the Army threw up its hands and announced that it would cancel the RFP and award a sole source extension to the incumbent contractor. Global then filed a bid protest at the Court of Federal Claims challenging this intended course. In response, the Army rescinded the cancellation, amended the RFP, reopened discussions and requested revised proposals. On August 23, 2018, the Army notified Global that GiaMed was the apparent successful offeror.
Also not willing to back down without an extended fight, Global filed a size protest within 5 business days. In response, GiaMed argued that Global’s protest was five years too late. That’s right, GiaMed argued that Global should have filed a size protest way back in 2013 when it was first notified that GiaMed was the apparent successful offeror. The SBA Area Office agreed, and dismissed the protest.
On appeal, OHA saw things differently. OHA looked only to the most recent award to GiaMed and found that, since Global had filed its size protest within 5 business days of that award, it was timely. It rejected the idea that Global should have filed in 2013, after the initial notification of award to GiaMed, because the Army had taken actions inconsistent with the award notification. Relying on analogous precedent, OHA held:
In line with its analysis, OHA granted Global’s appeal and remanded the case back to the Area Office for a substantive size determination.
While this decision shows that OHA won’t ignore practical realities in enforcing the timeliness rules, don’t be lulled into the false belief that time rules for size protests are flexible. They aren’t! Generally, the five-day rule is very strictly enforced. Here, though, OHA applied the timeliness rule in a reasonable and fair manner given the very unusual circumstances of the case.
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In Adams and Associates, Inc., B-417120 et al. (Comp. Gen. Jan. 16, 2019), GAO dismissed a post-award protest, which alleged agency bias and retaliation against the protester, as untimely.
The GAO’s decision highlights the uphill battle contractors face when alleging agency bias.
In this case, the Department of Labor issued two solicitations, each seeking services for the operation of a Job Corps Center. The Department’s Office of Contract Management (or “OCM”) has overseen all Job Corps Center procurements for close to the last eight years and, as indicated in each solicitation, was to oversee the procurements at issue here.
Adams and Associates had interacted with OCM prior to the issuance of these solicitations. Specifically, the two appear to have had several run-ins regarding Adams’ previous protests related to Job Corps Center procurements. Still, Adams submitted proposals in response to both solicitations, without filing a pre-award protest challenging OCM’s involvement.
After evaluating proposals, the DOL announced that both contracts would be awarded to one of Adams’ competitors. Adams protested, arguing that OCM had “taken a number of retaliatory measures and expressed bias against Adams based on its bid protests and other advocacy regarding Job Corps Center procurements.” Specifically, Adams argued that it should be entitled to reevaluation of its proposals “‘without any input or interference by DOL’s [OCM] or other DOL Headquarters personnel.”
GAO rooted its decision in 4 C.F.R. § 21.2(a)(1), under which “[p]rotests based upon alleged improprieties in a solicitation which are apparent prior to bid opening or the time set for receipt of initial proposals shall be filed prior to bid opening or the time set for receipt of initial proposals.” Though this provision is often cited in reference to issues with the terms of a solicitation itself, here, GAO explained that Adams was pointing to an issue which was apparent from the solicitation as soon as the solicitations were issued. It stated that “there [was] no question that the factual predicates for Adams’ bias and retaliation allegations were reasonably known to the protester prior to the closing times for proposals,” and thus, protest following award was inherently untimely.
GAO also spoke to the policy behind its timeliness rules. Not only are its rules intended to “reflect the dual requirements of giving parties a fair opportunity to present their cases,” they are also in place to “resolv[e] protests expeditiously without unduly disrupting or delaying the procurement process[.]” GAO explained that its rules also seek to promote “fundamental fairness in the competitive process by preventing an offeror from taking advantage of the government as well as other offerors, by waiting silently only to spring forward with an alleged defect in an effort to restart the procurement process, potentially armed with increased knowledge of its competitors’ position or information.”
As we’ve discussed previously, contractors should think very carefully before alleging agency bias as part of a bid protest. Bid protests alleging agency bias are very rarely sustained due to the high standards of proof imposed by GAO. What’s more, as demonstrated here, untimely filing issues can be another hurdle for contractors to overcome when alleging bias. Finally, allegations of bias could be seen as attacking the honesty and integrity of agency officials, and that may not sit well with the agency, especially if a contractor hopes to work with the same agency in the future.
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Among its suggestions to streamline the acquisition process,
the Section 809 Panel has proposed to eliminate the ability to file a protest
at GAO and the Court of Federal
Claims. Instead, the Panel would require protesters to choose between filing at
GAO or the Court.
Let’s take a look.
By way of background, a disappointed offeror can file a bid protest in three potential forums: the agency itself, GAO, or the Court of Federal Claims (COFC). Depending on the forum first selected, the protester might have other bites at the apple if it is unsuccessful. For example, a protester can first file at the agency and, if unsuccessful, file at GAO. If the protest still isn’t successful at GAO, the protester can then take its challenge to court. But this progression doesn’t work in reverse—for example, a protester can’t first file at GAO and then try to challenge at the agency, or first file at the Court of Federal Claims and then file at GAO.
Considering ways to improve the acquisition process, the Section
809 Panel believed this multiple-forum approach to be too inefficient:
Allowing protesters to
litigate a protest at GAO and, if not satisfied with the GAO decision, file the
same or a refined version of the protest at COFC undermines one of the critical
aspects of GAO’s jurisdictional mandate: “providing for the inexpensive and
expeditious resolution of protests.” In the current system, GAO cannot conclusively
resolve a protest. The option remains to relitigate that very same protest at
COFC. For GAO to achieve its statutory purpose, the opportunity for a second
protest opportunity at COFC must be eliminated.
Overall, the effect of this proposed change would be to
force would-be protesters to choose their only path for relief. As the Panel said,
“[p]rotesters would be able to make the choice of protest forum based on the
perceived advantages and disadvantages of the different options, and nothing would
prevent a protester from first filing a protest with the agency.” In this regard,
the Panel noted its belief that “the vast majority of protesters would choose
the more affordable, predictable, and efficient GAO forum. This recommendation
protects the rights to choose the forum that will hear their protest,
eliminates the potential for extraordinary delays that result from relitigating
protests at separate forums, and ensures GAO achieves its statutory purpose.”
Frankly, I’m not wild about this proposed change. For
starters, I think the proposed solution doesn’t match the supposed problem. I
don’t see how allowing protesters to file a separate COFC protest following the
resolution of a GAO protest impacts GAO’s ability to meet its own mandate. So
long as GAO is timely resolving the protests on its docket, it is meeting its
statutory purpose—even if a protester later chooses to then file a protest in a
Beyond that, the ability to file subsequently at COFC helps ensure that protesters will receive relief. As part of the Legislative Branch, GAO cannot technically order an agency to undertake any action as part of its resolution of a bid protest. Instead, GAO simply makes recommendations, and the agency has the discretion to follow those recommendations (or not). Though agencies follow these recommendations most of the time, they sometimes don’t. As it currently stands, a protester’s recourse would be to file a separate protest at COFC and seek an order directing the agency to take a certain action. If COFC’s ability to consider protests that were previously heard by GAO was removed, an agency would, in theory, be free to disregard GAO’s recommendation, and a protester would be left without any recourse. I struggle to see how such an approach would help to ensure confidence in the acquisition system.
Neither am I convinced that allowing an offeror to file a
bid protest at COFC after previously filing at GAO is the cause of “extraordinary
delays” in the acquisition process, as the Panel alleges. Indeed, the Report
acknowledges that COFC protests currently take, on average, 133 days to
resolve. That’s not that bad, considering the complicated questions considered
by COFC. Even still, most of the delays caused in COFC protests are attributable
to the agency itself, in two respects.
First, unlike at GAO, a protester at COFC isn’t entitled to
an automatic stay of performance if it files its protest within a certain
timeframe. Instead, the protester must move for a preliminary injunction to
prevent any action on the contract while the protest is being heard. But as the
Panel notes, “n practice, the need for a stay is often agreed to by the
parties at the outset of the litigation and does not require a formal motion.” Because
agencies often agree to these stays, it’s unreasonable to pin the blame for any
delays on the fact of the protest itself.
Second, the Panel acknowledges that the agency’s own conduct
in the COFC protest is a primary driver in the time it takes to resolve the
protest. Until the agency produces the administrative record, not much can
happen. On average, the Panel found that this takes approximately 37 days at
COFC—a week more than an agency is allowed at GAO. To its credit, the Panel
noted that the agency’s “inability to provide the administrative record” is a
direct cause of the COFC’s extended timelines.
Reforming the bid protest process is a laudable goal. But in my mind, removing an offeror’s ability to seek review from GAO and COFC isn’t a reasonable proposal, as it would eliminate important protections for disappointed offerors. Instead, reform efforts should first focus on the agency’s own role in the protest process—including through continuing efforts to improve the debriefing process. In the end, I hope this proposed recommendation isn’t adopted.
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Under the so-called “once 8(a), always 8(a)” rule set forth in the FAR and SBA regulations, when a procurement has been accepted by the SBA for inclusion in the 8(a) Program, any follow-on contract generally must remain in the 8(a) Program, unless the SBA agrees to release it for non-8(a) competition.
Now, the Section 809 Panel has proposed a modest, but potentially important change to the “once 8(a), always 8(a)” rule–a change that would allow for acquisitions to be removed from the 8(a) Program without the SBA’s explicit consent.
To remove an acquisition from the 8(a) Program, a Contracting Officer must make a formal request to the SBA. However, as the Section 809 Panel writes, “there is no prescribed timeframe” for the SBA’s response.
This “prevents contracting officers from soliciting performance outside the 8(a) program and causes unnecessary delays waiting for the SBA’s response.” One procurement official told the Section 809 Panel that his office had waited as long as 90 days for the SBA to respond to a request for removal (although the same official noted that on another occasion, the SBA responded in just three days).
The Section 809 Panel proposes giving SBA officials a hard deadline for responding to removal requests:
To implement this proposed change, the Section 809 Panel recommends that the FAR Council revise FAR 19.815 “to allow for tacit release for non-8(a) competition by the SBA if no response has been received by the SBA after 15 working days.”
Now, while I am not saying that I oppose the change, I have a few concerns.
First, from the report, it’s unclear whether delayed SBA responses are a widespread problem–or have ever been a problem for anyone other than one person (the guy whose office once waited 90 days for a response). The only evidence the Section 809 Panel provides of this supposed problem is a single email from this individual. The Panel doesn’t offer any statistics about average SBA response times, or even statements from other contracting officials who may have experienced delayed responses to 8(a) Program removal requests.
I don’t think one person’s anecdotal experience is a particularly strong basis to be monkeying with the FAR. As is the case with bid protest “reforms,” math, not limited anecdotal experiences, should be central to figuring out whether there is a real problem in need of solving.
Second, the Section 809 Panel doesn’t offer any reasonable justification for its choice of 15 business days. The Panel mentions that the SBA has 10 business days to decide whether to accept most new requirements into the 8(a) Program (although the SBA may request extensions). But removing a requirement from the 8(a) Program is a different process, and requires the SBA to consider, among other things, “[w]hether the requirement is critical to the business development of the 8(a) Participant that is currently performing it.”
Can the SBA effectively perform this analysis in 15 business days? Maybe, or maybe not. Strikingly, the Panel doesn’t seem to have done the obvious thing: ask the SBA. Suffice it to say, getting the SBA’s input seems like a wise move before imposing a hard deadline, no matter the length.
Third, the Panel’s recommendation–amending the FAR–arguably would create a conflict between FAR 19.815 and the SBA’s regulation at 13 C.F.R. 124.504(d), which also implements the “once 8(a), always 8(a)” rule. The SBA’s regulation doesn’t include a time frame, and if the SBA takes the position that it isn’t bound by the 15-day period, the dispute would inevitably lead to legal action.
I, for one, think it’s important hear from the SBA before adopting the Panel’s recommendation, because the Panel leaves a lot of important unanswered questions. How long does the SBA typically take to respond to a removal request? Does the SBA think that a 15-day clock is reasonable? Does the SBA need some flexibility for unusual cases (like, say, government shutdowns?) Can the SBA ask the Contracting Officer for an extension? Will the SBA be willing to amend 13 C.F.R. 124.504 to impose the same deadline established by the FAR?
Buried in the middle of of the Section 809 Panel’s lengthy final report, the recommendation on “once 8(a), always 8(a)” may not get much attention. But for Contracting Officers and 8(a) contractors alike, it’s a potentially important change, and hopefully one that won’t be made without SBA’s input.
My colleagues and I will keep you posted.
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Amidst the news cycle focusing on the government shutdown, there is some other action in the House of Representatives that recently caught our eye.
The House recently passed a bill called the “Expanding Contracting Opportunities for Small Businesses Act of 2019.” If the bill becomes law, we will see a dramatic expansion in the size of sole source contracts for SDVOSBs, WOSBs, and HUBZones.
H.R. 190 proposes changes to how contracting officers may award sole source contracts based on certain socioeconomic certifications or self-certifications. (There are other ways for sole source contracts to be awarded, such as national security, and “urgent and compelling,” which are not part of the bill, and not discussed here).
As it stands, FAR Part 19 allows contracting officers to award sole source contracts to 8(a)s, SDVOSBs, HUBZones and WOSBs under certain conditions. While the exact requirements vary for each socioeconomic category, some core concepts are identical.
Except in the 8(a) Program and VA SDVOSB/VOSB program, a CO may not sole source under FAR Part 19 if there are likely two or more qualified concerns likely to submit offers. Sole sourcing is only available if there are qualified concerns able to perform the contract at fair and reasonable pricing. Finally, and most importantly in context of H.R. 190, a sole source contract under FAR Part 19 may not exceed certain dollar thresholds. Under current law, when calculating the award price of a sole source contract issued under FAR Part 19, the CO must include the anticipated price of all options.
H.R. 190 would change these requirements for HUBZone, service-disabled veteran-owned, and woman-owned small businesses by eliminating the words “including options” from the spending limit portions of the cited regulations. The changes would allow a contracting officer to award a sole source contract if, among other things, the “anticipated award price of the contract” does not exceed the established dollar figures for manufacturing NAICS code contracts or other contracts. As the bill states, it would “eliminate the inclusion of option years in the award price for sole source contracts,” basing the threshold only on the base period of the contract. That’s a big change.
H.R. 190 also unifies the sole source thresholds at $7 million for manufacturing NAICS code contracts and $4 million for other contracts.
For example, let’s suppose that a solicitation calls for bottled water manufacturing under NAICS code 312112. This bottled water is not just any bottled water. In the entire world, there is only one spring where the water provides super human strength. Understandably, the Army wants a constant supply of this water for soldiers, and would like to award to an SDVOSB. The problem, however, is that only one SDVOSB company, You Need Our Water, LLC, has access to the spring. The Army intends to issue a one-year, $5 million contract for bottling this water. The contract allows for the potential of five, one-year options valued at $4 million each.
Under the current regulations, the contracting officer would not be able to issue a sole source award to You Need Our Water, LLC under FAR Part 19 because “the anticipated award price of the contract, including options” is $25 million (the award of $5 million plus five, $4 million options). This exceeds the $6.5 million threshold established under 13 C.F.R. § 125.23.
Under H.R. 190, the contracting office would be able to issue a sole source award to You Need Our Water, LLC because the $6.5 million threshold only applies to the anticipated award price of the base year. It does not matter that there is the potential for $20 million in options. The “anticipated award” is only addressing the $5 million price tag of year one.
While there may not be a spring from which superpower elixirs burst forth, there are more realistic contracts which small business concerns may be uniquely qualified to address. A company could be the only SDVOSB that manufactures a specific life-saving medical product for our service members under NAICS code 325414. Another company could be the only HUBZone in a region with the necessary equipment, personnel and expertise to perform a specialty construction project under NAICS code 238210. Yet another company could be the only WOSB with the qualifications and licenses necessary to perform specialized laboratory testing under NAICS code 541380.
Hopefully you noticed that 8(a) concerns are not included in the list of companies whose sole source limits would be increased under H.R. 190. This could change as the bill advances through the legislative hoops, but it also may not. As it stands, removing “including options” from the regulations could have huge ramifications for SDVOSBs, HUBZones and WOSBs, but not for 8(a)s, where the rules wouldn’t change.
On January 16, 2019, H.R. 190 passed the House of Representatives by a vote of 415-6. As of January 22, 2019, the bill is being considered by the Senate Committee on Small Business and Entrepreneurship. The significance of H.R. 190 passing the House should not be lost as only 6% of bills introduced in the last Congress even got a vote. Half of the bills that received a vote became law.
H.R. 190, if passed in its current form, would be a substantial shift from existing practice. These changes may be welcome, especially by concerns that hold unique manufacturing patents or are otherwise uniquely positions in their industry or geographic region. These changes may be shunned by others, especially by 8(a) concerns, which are mysteriously excluded.
Regardless, the democratic process works best with public participation. We
encourage you to contact your local representative to discuss your thoughts on
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Congress should require Government acquisition personnel to communicate with industry, according to the Section 809 acquisition reform panel.
In the third and final volume in its series on streamlining and improving DoD acquisition processes, the Section 809 Panel takes aim at Government reticence to communicate with industry, and says that merely permitting such communications doesn’t go far enough.
The Section 809 Panel writes that “Congress has not explicitly directed the acquisition team to communicate with the marketplace but has encouraged and permitted communication with industry.”
The Panel notes that the Office of Federal Procurement Policy, in its well-known “Myth-Busting” memos, encouraged increased communications between acquisition personnel and contractors. Likewise, a March 2018 memo from then-Deputy Secretary of Defense Patrick Shanahan encouraged communications with industry. FAR Part 1 allows for Government-industry communications, and a proposed FAR change would more explicitly state that Government acquisition personnel are encouraged to communicate with industry.
But this encouragement hasn’t been enough, according to the Panel:
The Panel says that the culture of fear surrounding Government-industry communication is bad for everyone:
The Panel writes that, because encouragement hasn’t worked, “t is apparent that a congressional mandate is the only condition that will convince government acquisition team members that they are really empowered” to engage in communications with industry. The Panel proposes to “[d]irect DoD, by statute, to communicate with the marketplace concerning acquisition from development of the need/requirement through contract closeout, final payment, and disposal.”
In my experience, many in Government and industry alike are afraid of robust communication. I’ve seen Contracting Officers who believe (wrongly) that they cannot take one-on-one meetings with potential offerors, and contractors who believe (again, wrongly) that they cannot contact a Contracting Officer outside of a formal written Q&A.
Of course, not all communications are allowed: the FAR, for example, places limits on post-proposal discussions with offerors. And, while it should go without saying, bringing a briefcase stuffed with unmarked bills to a one-on-one meeting with a Contracting Officer is a big no-no.
But with a little training and common sense, these limits shouldn’t pose much of a barrier to effective Government-industry communication. Instead, as the Panel indicates, a “culture of fear” surrounds communications, and memos–even ones with catchy titles like “Myth-Busting” haven’t been enough to change that culture.
Is a Congressional mandate the right solution? Maybe, although changing a culture with a mandate could be a tricky business. It will be interesting to see how policymakers react to the Panel’s recommended solution, but I’m glad to see the Panel so squarely raise the underlying problem.
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While most of the rules for SDVOSB eligibility now reside with the SBA, the VA is still responsible for verification of entities for inclusion into its database of verified SDVOSBs and VOSBs. A recent Court of Federal Claims case describes what sort of conduct might get a business removed from the VA’s database–even if that conduct doesn’t run afoul of the SBA’s SDVOSB rule.
While the conduct in this case is somewhat egregious, it is a good reminder that VA has the power to thoroughly investigate the eligibility of an SDVOSB and can revoke the verified status based on inaccurate statements in an application.
In BTR Enterprises of SC, LLC v. United States, 140 Fed. Cl. 500 (2018), the court considered the VA’s decision to cancel BTR’s verified status in the Center for Veterans Enterprise’s database of SDVOSBs. This case was decided under the old versions of the rules, but it is still relevant as the current control regulations are similar to the old version.
BTR submitted its application for CVE verification in November 2015. The application included a resume stating that the service-disabled owner (Mr. Roberts) would “manage all aspects of the business including the day to day operations as well as all financial decisions” and that he “works for BTR Enterprises of SC LLC on average 40 hrs per week.”
Based on the application, CVE added BTR to the CVE database in December 2015, stating that “that BTR “must inform CVE of any changes or other circumstances that would adversely affect its eligibility.”
In November 2016, Mr. Roberts was charged with perpetrating a scheme and artifice to defraud relating to VA disability benefits, obstruction of justice, and witness tampering. CVE obtained a copy of this indictment. The case does not go into the circumstances that led to the filing of this indictment. Mr. Roberts eventually pled guilty to some of the charges.
In March 2017, VA Office of Inspector General special agents visited Mr. Roberts’ residence and interviewed him. Mr. Roberts told the agents that ” “he had last worked in approximately 2009.” He also said that “most days he did not want to get out of bed and when he did he couldn’t concentrate and that is why his companies all failed.” He also stated that “he was unable to ‘maintain substantially gainful employment’ and has not worked or had any income since 2009.”
While it is not clearly spelled out in the decision, there is some indication that the agents were investigating the disabled status of Mr. Roberts for purposes of whether Mr. Roberts was entitled to VA disability benefits. In that context, the statements make more sense. However, statements that might support disability status can run counter to facts that support control over an SDVOSB. That appears to be what happened in this case.
Mr. Roberts also said that “he never worked alone and would be unable to fulfill those contracts without the assistance of his wife, his mother and his father.” In addition, “he was unable to work due to PTSD and cannot run a company and his prior companies failed due to his inability to ‘maintain substantial gainful employment.'”
CVE issued a Notice of Proposed Cancellation to BTR in May 2018. CVE stated that BTR was ineligible for three reasons:
“Mr. Roberts had not maintained the required “’good character.’”
Based on “recent statements made by the SDV Mr. Roberts, [the VA] has become aware that the SDV has been unable to work and hat [sic] he would not be able to operate his businesses without the assistance of his wife, his mother, and his father.” This means that Mr. Roberts “did not control BTR in accordance with the requirements of section 74.4, specifically that he did not manage BTR’s day-to-day operations, contrary to his prior assurances.”
“CVE could not reasonably conclude that Mr. Roberts managed BTR ‘as a result of SDV Mr. Roberts’ indication that he relies on the assistance of his wife, mother, and father to operate his businesses.’” “CVE therefore could not ascertain whether without non-veterans BTR would be viable or if Mr. Roberts’ dependence on nonveterans interfered with his independent business judgment.”
BTR responded to the notice of cancellation, attempting to explain away Mr. Roberts’ statements.
It argued that the “indictment is ‘nothing more than a federal accusation which is unproven,’ and is not sufficient grounds to cancel verification for failure to meet the good character requirement.” It also alleged that “that statements regarding Mr. Roberts’ inability to work and his family’s involvement in managing BTR were ‘taken out of context.’” More specifically, ” “no one in the family has much of anything to do with the business . . . The day to day management, long term decision making, and control all rests with Brian, the SDV.” The involvement of Mr. Roberts’ family was limited to his wife, who” “provides emotional and moral support.”
On August 13, 2018, CVE issued its Notice of Verified Status Cancellation to BTR, stating “that it could not conclude that that Mr. Roberts met the good character requirement, the control requirement of managing day-to-day operations, or the requirement that non-veterans not exert undue influence over the service-disabled veteran.” The conclusion that Mr. Roberts did not maintain day-to-day operation of BTR and that non-veterans exerted too much control over BTR was based on the recent statements that “he would not be able to operate his businesses without the support of his wife, his mother, and his father.”
The court, in reviewing BTR’s complaint, held that the VA did not “act arbitrarily or capriciously in canceling BTR’s verified status because it had a rational basis for concluding that Mr. Roberts had submitted false information in his application materials regarding control of BTR.”
CVE was allowed to rely on the notes of the OIG special agents “which plainly were inconsistent with the representations Mr. Roberts made to become eligible for award of set-aside contracts.” Mr. Roberts stated that “he never worked alone and would be unable to fulfill those contracts without the assistance of his wife, his mother and his father,” had not worked since 2009, and that “he was unable to work due to PTSD and cannot run a company.” This is at odds with the verification application, which stated that Mr. Roberts managed “all aspects of the business including the day to day operations as well as all financial decisions” and worked “on average 40 hrs per week.”
As to the argument that these statements were taken out of context, the court was not buying that: “We assume this is a polite way of saying that plaintiff should be given a pass for lying to the OIG Special Agents because he was concerned about not losing his VA benefits for being 100% disabled. We are unsympathetic.”
The court summed up that CVE’s decision was rational.
This case makes clear that inaccurate statements in a CVE SDVOSB application can be enough to revoke the business’s verified statements. Importantly, even though matters regarding SDVOSB ownership and control have now been moved under the SBA’s regulations in 13 C.F.R. part 125, the VA still retains independent regulations governing good character and related matters. While the statements about the family members operating the business could have been used to show that Mr. Roberts was not in control of the business, the court’s emphasis was that the inaccurate statements alone were enough to support the revocation of the verified status.
It is a good reminder that statements in an CVE SDVOSB application must be truthful and not leave out important matters. It is usually better to explain a situation rather than attempt to stay silent on important aspects of how an SDVOSB is operated. In addition, a veteran’s statements in different contexts (e.g. SDVOSB status versus disability status) must be consistent, or risk running afoul of the rules for one program or the other.
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As the shutdown ticks into its 27th day, federal employees and contractors across the nation wait in limbo with no end in sight. Hopefully the pain ends soon, and everyone can get back to work.
Meanwhile, closer to home, folks are very excited about the AFC Championship this weekend. Hopefully our New England-area readers will excuse our overt partisanship towards the Chiefs.
Even with the shutdown, there have been some important developments in government contracting. This week, we’ll look at a new DOD rule about LPTA procedures, suggestions for the DOD’s CIO, and more.
Have a great weekend . . . and GO CHIEFS!
The Government Shutdown Is Beginning to Cause Chaos for Defense Contractors [Fool.com]
Miscrosoft Outlook mobile cleared for DOD use. [fedscoop]
Defense Acquisition Reform Panel Suggests Reevaluating Department CIO. [Nextgov]
DOD Rule Defines When LPTA May be Used. [WashingtonExec]
The shutdown is having a major effect on government contractors and federal employees alike. [Nextgov]
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