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SmallGovCon Week in Review: October 15-19, 2018

I had a great time last week at the National HUBZone Conference in Chantilly, Virginia. If you were there, please reach out to say hi! In this week’s edition of SmallGovCon Week In Review, we’ll look at GSA’s new eBuy pilot program, insight into the SBA OIG’s 8(a) eligibility findings, new WHD-compliance tools from the U.S. Department of Labor, the impact of debriefings on bid protests, and much more. Have a great weekend! GSA announces it will run a year-long “eBuy Open GSA First” pilot program. [FedScoop] Research suggests that poor debriefings often lead to  bid protests. [Washington Technology] More information about the SBA OIG’s report on 8(a) eligibility. [Bloomberg] The U.S. Department of Justice announces that Indal Technologies has agreed to pay $3.5 million to resolve allegations that it sold defective helicopter systems to the Navy. [U.S. Department of Justice] The U.S. Department of Labor announces launch of new online tools to assist American small businesses. [U.S. Department of Labor] Tech companies facing protest from workers and activists when working for the government. [FCW] Amazon chief, Jeff Bezos, defends working with the government on military and national security related technology. [Fortune]
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Koprince Law LLC

Koprince Law LLC

 

GAO: No Attorneys’ Fees When Arguing that Corrective Action is a Ruse

When pursuing a bid protest before the Government Accountability Office, it is never a good idea to presume that you’ll get your attorneys’ fees paid by the agency. If you are fortunate enough to recover attorneys’ fees , GAO’s general standard is to recommend paying the fees associated with all the protest grounds being pursued, whether or not they were meritorious. But although this is the general posture, it is not always the case. For example, in CSRA LLC-Costs, B-415171.3 (Aug. 27, 2018), the protester’s initial key argument was that the awardee had proposed to use incumbent workers who had not given their permission to be included in the proposal. The agency took corrective action and GAO dismissed the protest. But, the protester, CSRA LLC, of San Diego, Calif., evidently believed that the corrective action was too restrictive. The agency’s corrective action was to discuss staffing, but it refused to allow offerors to make other changes to their proposals (another of GAO’s longstanding rules is that when opening discussions, in general, offerors should be permitted to make whatever changes to which they see fit). CSRA protested the corrective action arguing that its terms were too restrictive and that it was mere pretext to avoid a GAO decision on the merits. Rather than take corrective action again, the agency filed a report arguing that it had the discretion to take corrective action as it saw fit and that it was not a pretext to avoid a decision on the merits. A month passed and the agency suddenly changed its mind to take corrective action again. It said it would allow offerors to revise other aspects of their proposals. The protester asked GAO to recommend the agency pay the costs associated with pursuing the second protest. CSRA explained that it had prepared its proposal based on the individuals’ capabilities named in the staffing plan, and that changes to the staffing plan would have a ripple effect through the whole proposal. GAO agreed and said that the agency should have allowed offerors to revise other parts for their proposals as well. But, as to the pretext argument, GAO would not bite. CSRA had cited a case saying “where a protester alleges that the agency’s rationale for cancellation [of a solicitation] is a pretext, that is, that the agency’s actual motivation is to avoid awarding a contract on a competitive basis or to avoid the issuance of a decision by [GAO] on the merits of the protest, we will closely examine the reasonableness of the agency’s actions in canceling the acquisition.” GAO said that that case was distinguishable because here the solicitation was not cancelled. Therefore, GAO said that the argument was not “clearly meritorious” and is severable from the clearly meritorious argument about the scope of proposal revisions. GAO did not recommend paying fees associated with the second issue. So, why did GAO depart from the general rule that protesters should be reimbursed for all arguments made, not only the successful ones? Well, for one thing, neither of the protests were sustained. Both ended when the agency voluntarily chose to take corrective action. GAO will still sometimes award fees after corrective action, but only when the agency unduly delays taking corrective action in the face of a “clearly meritorious” protest. The test for delay is generally whether the agency took corrective action before or after the agency report. If the corrective action comes before the agency report, usually GAO will not find that the agency delayed. Here, because the agency waited to take corrective action until after it argued against the protest in the agency report, it delayed. So, the question then became whether the delay was in the face of a clearly meritorious protest. One could argue that if a protest includes one obviously meritorious protest ground, that makes it a clearly meritorious protest. But that is not what GAO decided here. It decided it would only grant relief (i.e., recommend paying fees) for the clearly meritorious grounds included in the second protest. The nature of the second argument may have played a role in GAO’s decision not to award fees for it as well. The protester allegation was essentially one of bad faith. It had argued that the first corrective action was essentially a ruse. But government officials are presumed to act in good faith. GAO may not have wanted to send the message that it was rewarding a protester for an allegation of bad faith on the part of the agency. Note: Want to learn more about recovering attorneys’ fees and costs at the GAO?  Click here for an in-depth article published by two Koprince Law LLC attorneys in the Summer 2017 issue of the American Bar Association’s publication “The Procurement Lawyer.”
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Koprince Law LLC

Koprince Law LLC

 

Federal Circuit Affirms SDVOSB Priority Over AbilityOne

Ever since the Supreme Court’s Kingdomware decision was handed down in 2016, an important question has remained: who has priority at the VA for items on the AbilityOne List? Yesterday, the Federal Circuit Court of Appeals provided the answer. The VA is required to prioritize service-disabled veteran-owned or veteran-owned small businesses when the Rule of Two is met, even when it buys items on the AbilityOne List. The issue in PDS Consultants, Inc. v. United States was the conflict between the Javits-Wagner-O’Day Act (“JWOD”) and the Veterans Benefits, Healthcare, and Information Technology Act (the “VA Act”). By way of background, the JWOD was enacted in 1938 to provide employment opportunities for blind and severely disabled persons. It does so by requiring agencies (including the VA) to give contracting priority to nonprofits that employ blind and disabled persons when purchasing certain items (found on the AbilityOne List). Signed into law in 2006, the VA Act requires the VA to give contracting priority to SDVOSBs and VOSBs, including by restricted competitions issued under the Rule of Two. In other words, two different statutes mandate two different contracting priorities applicable to the VA—one favoring blind and disabled persons, the other SDVOSBs and VOSBs. In 2010, procurements for certain eyewear products and services in two VA service networks (VISNs 2 and 7) were added to the AbilityOne List. In 2016, the AbilityOne list was expanded to include eyewear in VISN 6. PDS Consultants—an SDVOSB that sells vision-related products—filed a bid protest in the Court of Federal Claims challenging this addition. In a resounding victory for SDVOSBs, the Court ruled that the VA is required to perform a Rule of Two analysis for all procurements that post-date the VA Act’s passage in 2006. In other words, the Court ruled that SDVOSBs have priority at the VA even under procurements for items on the AbilityOne List. The United States (along with an AbilityOne entity) appealed this decision to the Federal Circuit. In general, the argument was one of statutory interpretation: according to the Government, the VA Act only applies in non-mandatory, competitive awards. Because it believes the JWOD mandates non-competitive procurements in favor of AbilityOne entities in certain instances, the Government argued that the VA is not required to give priority to SDVOSBs or VOSBs when buying from the AbilityOne list. The Federal Circuit rejected the Government’s argument. Echoing the Supreme Court in Kingdomware, the Federal Circuit held that the VA Act “applies to all contracts—not only competitive contracts.” “[W]hen the Rule of Two is triggered,” the Federal Circuit continued, “the VA must apply competitive mechanisms to determine to whom the contract should be awarded.” From this background, the Court was able to (fairly easily) resolve the apparent conflict between the two statutes. It noted first that the VA Act is a specific statute (applying only to VA procurements and triggered only when the Rule of Two is satisfied) while the JWOD is more general (applying to all federal agencies). And as a matter of statutory construction, a specific statute (like the VA Act) takes precedence over a more general one. Moreover, the Court found that applying the VA Act in a manner that gives precedence to SDVOSBs and VOSBs furthers the VA’s mission: to support and champion the veteran community. What’s more, the Court noted that the VA Act was passed well-after the JWOD. And ordinarily, “when two statutes conflict, the later-enacted statute controls.” The Court was willing to “infer that Congress” knew of the JWOD when it passed the VA Act, and intended the VA Act “to control in its narrower arena, and the JWOD to dictate broader procurements outside of the VA.” Finally, the Court found support for its conclusion in Kingdomware. It noted that the Supreme Court ruled the VA Act’s requirement to set-aside contracts in favor of SDVOSBs is mandatory and that the Rule of Two applies to all VA procurements. The Court noted: Competitive or not, placing an item on the List, or choosing an item therefrom under the JWOD, is a form of awarding a contract. And under § 8127(d) and Kingdomware, the VA, in such a situation, is required to first conduct a Rule of Two analysis. The Court concluded that, “where a product or service is on the List and ordinarily result in the contract being awarded to a nonprofit qualified under the JWOD, the [VA Act] unambiguously demands that priority be given to veteran-owned small businesses.” There are, no doubt, important policy implications in this decision. But those decisions are for Congress to make. And having considered the statutory framework, the Federal Circuit has affirmed that SDVOSBs and VOSBs must be given contracting priority by the VA whenever the Rule of Two is met.
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Koprince Law LLC

Koprince Law LLC

 

Small Business Set-Asides Not Required Under NETCENTS-2, Says GAO

The Air Force’s large NETCENTS-2 IDIQ vehicle did not require orders to be set-aside under the small business pool, except for orders valued between the micro-purchase threshold and simplified acquisition threshold. In a recent decision, the GAO held that although the NETCENTS-2 contract in question says that Contracting Officers “should” perform a “rule of two” small business set-aside analysis for orders valued over the simplified acquisition threshold, it does not require that such an analysis be performed–meaning that Contracting Officers can validly award such orders to large businesses, even if two or more small business NETCENTS-2 holders exist. Like many large IDIQs, the NETCENTS-2 IDIQ has dedicated small business pools.  The NETCENTS-2 contract for NetOps and Infrastructure gives the following instructions to Contracting Officers regarding use of the small business pool: a.  Each acquisition of services that has an anticipated dollar value exceeding the micro-purchase threshold, but not over the simplified acquisition threshold shall be competed in the NetOps Small Business Companion Contracts pool of awardees . . . . b.  For orders exceeding the simplified acquisition threshold the task order Contracting Officer should conduct market research to determine whether or not there is a reasonable expectation of receiving offers from at least two small business companion contractors.  If market research reveals that at least two small businesses in the Small Business Companion contract are capable of performing the work, the task order should be competed in the NetOps Small Business Companion contract pool of awardees.  If a task order is competed in the NetOps Small Business Companion contract pool of awardees and the task order contracting officer receives no offers, or no acceptable offers from a small business companion contract ID/IQ awardee, the RFP shall be withdrawn and the requirement, if still valid, shall be resolicited in the NetOps full and open pool of ID/IQ contracts awardees. That brings us to the GAO’s decision in Technica Corporation, B-416542, B-416542.2 (Oct. 5, 2018).  The case involved a NETCENTS-2 task order issued on a sole source basis to Leidos Innovations Corporation, a large business.  Under the task order, Leidos was to provide various IT network services under a program known as the Air Force National Capital Region Information Technology requirement. Technica Corporation, a small business, was the incumbent contractor and a NETCENTS-2 contract holder.  Technica filed a GAO bid protest challenging the sole source award to Leidos.  Among its allegations, Technica contended that the Air Force was required to set aside the order for small businesses. The GAO wrote that FAR 16.5, which generally governs the award of task orders, says that agencies “may, at their discretion,” set aside orders for small businesses.  According to the GAO, this provision, as well as the underlying statutory authority, “make clear that agencies are not required to set aside an order for small businesses, absent specific contractual language obligating the agency to do so.” Turning to the NETCENTS-2 contact itself, the GAO noted that “the contract states that for orders exceeding the simplified acquisition threshold, agencies ‘should’ conduct market research regarding small business vendors, and ‘should’ set aside task orders for small business vendors if there is a reasonable expectation of receiving proposals from two or more such firms.”  The GAO contrasted the use of the term “should” in this sentence with the use of the word “shall” in the paragraph discussing orders between the micro-purchase threshold and simplified acquisition threshold.  The GAO wrote: We conclude that for orders valued above the simplified acquisition threshold, the use of the term “should” in the NETCENTS-2 contract does not require the agency to assess whether to conduct market research for the purpose of determining whether to set aside an order for small businesses, nor does the contract require the agency to set aside an order if market research shows that two or more small businesses are capable of performing the work.  Instead, these set-aside actions for orders above the simplified acquisition threshold are discretionary on the part of the agency. The GAO denied the protest. For small business NETCENTS-2 contract holders, the GAO’s decision in Technica Corporation is disappointing.  Even though the Air Force “should” prioritize small businesses, “should” is not the same as “shall,” and the Air Force need not conduct a rule of two analysis for orders valued over the simplified acquisition threshold.
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Koprince Law LLC

Koprince Law LLC

 

GAO: Protester Identity Must Match Offeror Identity

In order to protest a procurement at GAO, the protester must be an “interested party.” An interested party is an “actual or prospective bidder or offeror whose direct economic interest would be affected by the award of the contract or by the failure to award the contract.” But does the identity of the protester have to be the same as the offeror under the procurement? GAO recently offered some guidance on that question. In Intermarkets Global USA, LLC, B-415969.2,B-415969.4, (2018), Intermarkets Global USA, LLC (IMG US) protested an award of a contract by the Defense Logistics Agency. A company named Intermarkets Alliance submitted a proposal for the DLA contract. DLA asked Intermarkets Alliance some clarifying questions about its identity. Intermarkets Alliance explained it was a joint venture of two companies, Intermarkets Alliance (IMG) and USFI, Inc. The first company was referred to as “Intermarkets Alliance,” or “IMG Alliance,” or “IMG,” in the proposal, and the firm is a Jordanian Company registered in Jordan. The proposal further explained that “[e]ach of these companies may have a role in this solicitation and any resultant contracts – but all roles are executed under the umbrella of IMG Alliance or in the name of IMG Alliance.” The DLA awarded the contract to a competitor. IMG US then filed a GAO bid protest. In response, DLA filed a motion to dismiss, arguing that IMG US, which filed the protest, was different than Intermarkets Alliance, which submitted the proposal for the procurement. IMG US argued that it was an interested party because the proposal of  Intermarkets Alliance indicated it was “submitting the proposal on behalf of, and with authority from, all IMG companies.” IMG US explained that the owners of the IMG Companies had moved to the US and then created IMG US. Therefore, the “offeror submitting the proposal–the IMG companies–remains identical,” and the “only change is that the protesting entity–IMG US–is the current representative of the IMG companies in the place of [Intermarket Alliance].” GAO did not accept the protester’s argument. Even if the resources or employees of the IMG Companies would be used to perform the contract, the protester has to be the same party that will be contracting with the government.  Here, the party that interacted with the government and held itself out as the offeror, even through the debriefing period, was Intermarkets Alliance, not IMG US. GAO noted that “even after the creation of IMG US in November, 2016, there is nothing in the record to indicate any change in the identity of the proposed offeror, or any change in the proposed IMG Alliance Group of entities that would be performing the contract, or any change at all in Intermarket Alliance’s proposal.” Nothing in the proposal or any documentation related to the proposal indicated that the offeror had changed from Intermarkets Alliance to IMG US, such as proof that IMG US was a successor in interest to Intermarkets Alliance. (One way to establish successor-in-interest standing is through a novation). Therefore, IMG US was not in privity of contract with the government and was not an interested party. The take-home lesson from this decision is to be sure that the party filing the protest is the same party that made the offer on the solicitation. If not, be prepared to show how the protester is a successor in interest to the offeror, or the protest will stand a good chance of being dismissed.
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Koprince Law LLC

Koprince Law LLC

 

GAO: Bid Was Responsive Despite Missing Information Regarding Buy American Act Exception

The Buy American Act generally requires construction contractors to use domestically-made materials, unless an exception applies. One important exception allows contractors to use foreign-produced materials when the cost of domestic material is six percent more expensive. To quality under this exception, however, a contractor must provide certain information outlined by the FAR with its bid. But what if a contractor doesn’t provide every piece of required information? Is its proposal automatically doomed as non-responsive? Not necessarily. A recent case shows that offerors may have some wiggle-room. In Addison Constr. Co., B-416525 et al. (Sept. 4, 2018), the Department of Energy issued a solicitation for the construction of certain electrical transmission equipment. The solicitation incorporated FAR 52.225-9 which, among other things, requires the contractor to use “domestic construction material” to perform the contract unless an exception, like the one referenced above, applies. The solicitation also incorporated FAR 52.225-10, which directs the contracting officer to reject, as non-responsive, any bid that uses “foreign construction material” and no exception applies. To invoke the unreasonable cost exception, an offeror must provide certain information, outlined in FAR 52.225-9, in its bid. For example, an offeror must include the price, quantity, unit of measure, and a description of the foreign and domestic materials at issue, along with a detailed justification for the use of foreign construction materials, a reasonable survey of the market, and a completed price comparison table. Also, the provision requires the offeror to list the time of delivery or availability of the materials, the construction project’s location, specific supplier information (e.g., name, address, telephone number), a copy of each supplier’s response to the market survey, and “other applicable supporting information.” Addison, the protester, submitted a bid requesting an exception to the Buy American Act, on the basis of unreasonable cost for three items. Addison’s bid included much of the information required to invoke the exception. But it did not provide 1) the name, address, telephone number, and contact information for the suppliers that had been surveyed, 2) a copy of the suppliers’ responses, or 3) any other supporting information. Given this missing information, the agency rejected Addison’s bid as nonresponsive. It argued that, without the information, it could not determine whether unreasonable cost exception applied. GAO disagreed. Two key points are worth mentioning. First, in previous cases, GAO has held that offerors, when invoking the unreasonable costs exception, must provide key information required by FAR 52.225-9 —i.e., the amount of foreign construction material it plans to use and the price of the material–to ensure that it can’t manipulate its overall price, and thus its relative standing, after bid opening.  Other information, however, is much less critical and an offer can be responsive without it. GAO explained: Here, we find that, based on the information provided in Addison’s bid, the bid was responsive.  In this regard, while the bid did not include all of the information required under FAR clause and provision 52.225-9 and 52.225-10 respectively, it nonetheless included sufficient information for the agency to understand the foreign material being provided, and the quantity and costs of such material.  Thus, while the bid was missing required supporting documentation and details, the omission of this information would not enable Addison to alter the price, or relative standing, of its bid. Second, GAO noted that the agency could conduct its own investigation to determine the applicability of the unreasonable cost exception because the missing information would not have allowed Addison to alter its acceptance of the solicitation’s terms after bid closing: n our view, the agency is permitted to conduct its own investigation to determine the applicability of the requested Buy American Act exception provided that the information not included would not be the type that would enable a bidder to alter or amend the price, or relative standing, of its bid. . . . Here, the missing information, which includes such information as the contact information for the foreign supplier contacted by the protester, would not allow Addison to alter its acceptance of the [solicitation’s] terms.  Accordingly, we conclude that the agency erred in determining that the missing information required the rejection of the exception request. Ultimately, GAO sustained the protest and recommended that the agency reimburse Addison for its protest costs. Despite this case, if you plan on taking advantage of the unreasonable cost exception, it’s always best to provide all the required information under FAR 52.225-9. Doing so will likely elicit a more favorable response from the agency in the first instance. But if you leave out certain non-critical information and the agency rejects your bid as non-responsive, GAO may afford your offer a second chance.
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Koprince Law LLC

Koprince Law LLC

 

SmallGovCon Week in Review: October 8-12, 2018

As the workweek comes to a close, our thoughts are with everyone who has been affected by Hurricane Michael. In government contracts news, there was plenty happening this week.  In the latest SmallGovCon Week in Review, three people have been indicted on charges relating to procurement fraud, a new study creates a “sweetheart index” to analyze whether political donations affect government contract awards, IBM is the second company to file a pre-award protest against the Pentagon’s cloud contract, and much more. Have a great weekend! Three people have been indicted on charges relating to procurement fraud and unlawfully disclosing and obtaining bid information on a contract worth $1.5 million. [justice.gov] The U.S. Army Corps of Engineers awarded the Kansas City District 1,360 contracts worth more than $328 million for fiscal year 2018. [dvidshub.net] A new study analyzes how likely businesses that are political donors receive government contracts. [wfyi.org] A defense contractor has agreed to a million-dollar settlement after allegations that it wrongfully obtained contracts with the Defense Department. [wtoc.com] IBM has filed a pre-award protest against the Pentagon’s massive cloud contract. [nextgov.com] GSA and OMB are working on a strategy to execute the so-called “Amazon Amendment,” legislation crafted to help speed the procurement process through e-commerce portals.  [publicspendforum.net] Google has made the decision to not bid on Defense Department’s $10 billion cloud procurement. [federalnewsnetwork.com]
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Thank You, Live Oak Bank & GMU!

I am back in Kansas after a whirlwind trip to Washington, DC where I was part of a fantastic governing contracting event sponsored by Live Oak Bank and George Mason  University.  My panel focused on the legal and practical issues that companies face when they grow out of their small business size standards–an important topic that doesn’t get nearly as much attention as it should. Many thanks to Jackie Robinson-Burnette, Erin Andrew, Tess Mackey, Jerry McGinn and everyone else who planned and coordinated this event.  Thanks also to my fellow panelists, Gloria Larkin and Rosetta Rodwell–and to everyone who asked questions and stuck around afterwards to chat–for a great discussion about government contracts. And a big thank you to the chefs at Ray’s the Steaks, where I had dinner for the first time in about six years.  Tasty as ever! Next on my travel agenda: New Orleans, where I’ll be attending the 2018 National Veterans Small Business Engagement and SAME Small Business Conference.  Hope to see you there!
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ASBCA: Claim Must Include Request for “Final Decision”

As readers of this blog might know, the government contracts claims process is set by statute and includes a number of requirements, such as being certified if the dollar amount is over $100,000. But a possibly lesser-known requirement is that, in order to be valid, a claim must request that the contracting officer issue a “final decision” on the claim. In a recent decision, the Armed Services Board of Contract Appeals opined on this requirement. The ASBCA reviewed the claim requirement in Hejran Hejrat Co. Ltd, ASBCA No. 61234, 18-1 B.C.A. (CCH) ¶ 37039 (Apr. 23, 2018). The Army Corps of Engineers awarded Hejran Hejrat Co. LTD (HHL) a contract to lease armored utility vehicles for use in Afghanistan. After a bid protest, corrective action, and a modification, the contract price was decreased from $9,364,707 to $8,787,800. In July 2012, USACE indicated it would not exercise an option. HHL then informed USACE that it was due additional payments and some vehicles were missing and submitted three invoices requesting $4,137,964 of additional compensation. The contracting officer responded: The CO also asked if HHL “intended to submit a claim or sought a contracting officer’s final decision.” In a January 2014 email, HHL responded that it had not intended the earlier email with the three invoices (from July 2012) to be considered an REA. But, the January 2014 email further explained that “We therefore ask you to treat this email together with the supporting documents as a REA. In the event that you decide to treat this email as REA and still reject our request for the adjustment of payments, we would then proceed with issuing a certified claim.” The email included justification for why it was owed additional money, such as missing vehicles, and asked again that “this email . . . be treated as a REA.” In March 2015, an officer of HHL sent an email to the agency requesting payment, giving reasons why it was owed money, and stating that the “clauses and points reflected in REA (Request for Equitable Adjustment) in reference to contract# W5J9JE-11-C-0115, to the best of my knowledge are true.” In May 2015, the CO sent a “Response to REA” document back to HHL. This document contained no indication that it should be treated as the CO’s “final decision” and the CO noted that HHL “may have a claim on the things discussed in our decision.” The new USACE CO found no merit to the REA in March 2017 and advised HHL to follow the procedure in the contract’s disputes clause. But the CO did not issue a contracting officer’s final decision. The ASBCA, in reviewing this matter on appeal,  started with the basic requirements of a claim. The four requirements are (1) the amount of the claim,  (2) the basis of the claim, (3) a request for final decision by the CO, and (4) a certification if the amount is over $100,000. Here, while HHL included the amount and basis of the claim (and could have remedied the certification issue before final judgment), it never  requested a contracting officer’s final decision in six years of communication. HHL “declined to ask for a final decision or identify the invoices, or any of its submissions, as a claim. HHL demonstrated that it understood the significance of the contracting officer’s inquiry.” HHL tried to argue that USACE had treated its communications as a claim. But ASBCA did not accept this argument, holding that the “contracting officer’s characterization of a submission by a contractor cannot establish that a CDA claim has been submitted.” Therefore, ASBCA dismissed the appeal. This case is a stark reminder that, generally speaking, all elements of a claim must be in place for it to be treated as a claim under the FAR and applicable statutes. One of those four requirements is the request for a final decision. If the contractor does not make such a request, the claim may well fail.
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Get Your Novation Before Filing a Bid Protest with GAO

Only an “interested party” can bring a GAO bid protest. This generally means that a protester must be “an actual or prospective bidder or offeror” with a “direct economic interest” in the contract’s award. You might ask: is there such a thing as an offeror without a direct economic interest in the outcome of the contract award? It can happen–and a novation may be relevant. In a recent case, GAO held that a pending novation meant that the protester didn’t meet the standard necessary to file a protest. In Wyle Labs., Inc., B-416528 (Sept. 7, 2018), U.S. Customs and Border Control issued a solicitation for various support services. But the agency limited the procurement to firms holding one of GSA’s OASIS IDIQ contracts for professional, scientific and technical services. Wyle held an OASIS contract at the time the agency released the solicitation. Just after the solicitation issued, however, Wyle transferred its “assets and liabilities used in or relating to the performance” of its OASIS contract to another company (GAO’s decision redacted the other company’s identity, so for the purposes of this post I’ll call the company “ABC Corp.”). Under the companies’ agreement, Wyle agreed to cooperate and assist ABC Corp. in submitting proposals before a novation was granted (see FAR 42.1204 for a discussion of novation–the avenue by which a government contract is transferred to a third party). And in fact, Wyle and ABC Corp. submitted a bid for the solicitation, explaining that Wyle would “serve as the prime contractor until novation of its OASIS . . . contract assets” and would perform “requisite prime contract administration responsibilities only during the novation period.” After novation, however, ABC Corp. would become the prime contractor and assume the all contract responsibilities. Before submitting its bid, Wyle filed a protest with GAO arguing that the solicitation unduly restricted competition given how the agency limited the submission of past performance information. The agency moved to dismiss Wyle’s protest arguing that Wyle was not an “interested party.” Without much analysis, GAO found that Wyle met the first half of the “interested party” requirement because Wyle was an actual bidder under GAO’s regulations. So GAO turned its attention to the second requirement —i.e., whether Wyle had a “a direct economic interest in the procurement that would be affected by the award of a contract or the failure to award a contract.” GAO’s analysis focused on three salient facts: 1) Wyle submitted the bid solely to comply with Wyle’s contractual obligations to ABC Corp. under their asset transfer agreement; 2) the bid was prepared by ABC Corp.; and 3) ABC Corp. would perform all the work under the task order. Given these facts, GAO found that Wyle had “not demonstrated how the limited prime contract administration responsibilities it indicates that it will provide as the prime contractor reflect that Wyle has a direct economic interest in the procurement.” Significantly, GAO latched onto the key fact that Wyle had no intention of performing any substantive work under the task order. Thus, GAO held: Where, as here, Wyle’s purpose as the “prime contractor” is a legal requirement of its third-party asset purchase agreement with [ABC Corp.] and Wyle’s only duties as the prime contractor are the administrative responsibilities required to allow [ABC Corp.] and its subcontractors to perform under the task order until the novation is finalized, and where Wyle acknowledges that it does not intend to perform any work required under the solicitation, we do not believe that the protester has demonstrated sufficient direct economic interest in the procurement to qualify as an interested party. GAO then dismissed the protest, never reaching the protest’s merits. This case teaches an important lesson: a contractor can’t be a mere placeholder and invoke GAO’s jurisdiction. Put differently, before GAO entertains a protest, it wants to see a protester that will play a bona fide role in contract performance. In our firm’s experience, novations often involve deals like that between Wyle and ABC, under which the party seeking the novation (in this case, Wyle) essentially agrees to subcontract all or almost all of its work to the “new” contractor (here, ABC) pending the approval of the novation. But as this case demonstrates, a relatively commonplace novation arrangement may impact the ability to file a bid protest.
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SmallGovCon Week in Review: October 1-5, 2018

It promises to be a beautiful (albeit rainy) fall weekend here in Lawrence. We hope that your weekend is shaping up nicely, too. In this week’s edition of SmallGovCon Week In Review, an update on the National Cybersecurity Strategy, key mistakes small business contractors should avoid, tips on how to get IT contracts, and much more. Have a great weekend! New National Cyber Strategy has dramatic changes for government contractors.  [jdsupra.com] Key mistakes that small business contractors should avoid. [federalnewsradio.com] Former CIO of the US federal government gives tips on how to get IT contracts. [theregister.co.uk] The greater Washington, DC area is the largest recipient of contract dollars in the nation. [globest.com] GSA issues CAAC Letter to implement a section of John S. McCain National Defense Authorization Act (NDAA) for FY 2019. [acquisition.gov] Air Force terminates contract due to contractor’s ties to U.S.-sanctioned Russian oligarch. [about.bgov.com] The way the government resolves fraud allegations is often dictated by how the government learns of suspected wrongdoing.  [defenseone.com] Department of Labor investigation finds Iowa company violated SCA and CWHSSA and required to pay $678,296 in back wages, overtime, and fringe benefits. [dol.gov] Senators call for investigation of FEMA awarding contracts to companies with little or no experience doing the work required. [mcclatchydc.com]
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Federal Judge Suggests Congressional “Kill Switch” For Kingdomware SDVOSB Preferences

In a strongly-worded opinion, a federal judge decried a “labyrinth of legal and regulatory hoops and hurdles” imposed on the VA as a result of the famous Kingdomware Supreme Court decision–and suggested that Congress could exercise a “kill switch” to curtail or even eliminate the SDVOSB and VOSB contracting preferences the Supreme Court unanimously affirmed. While I have no reason to suspect that Kingdomware is in any danger of being overturned or curtailed by Congress, its certainly not great news for SDVOSBs and VOSBs that a federal judge seems to be pushing for that very thing. First things first: if Kingdomware was a Supreme Court decision, how could it be overturned?  Isn’t the Supreme Court the highest court in the land? The Supreme Court decision captured the public’s attention, but the Supreme Court didn’t invent the “rule of two” at issue in the case.  Instead, the Supreme Court was asked to interpret the breadth of the underlying statute, 38 U.S.C. 8127, and affirmed that the statute creates broad preferences for SDVOSBs and VOSBs when it comes to contracting with the VA. Congress, of course, writes statutes, including 38 U.S.C. 8127.  If Congress wished, it could amend or repeal the statute, and the change would become law with the President’s signature (or perhaps without, although that’s rarer). That takes us to the recent decision of the Court of Federal Claims in Electra-Med Corp. v. United States, No. 18-927C (2018).  The case involved the VA’s Medical-Surgical Prime Vendor-Next Generation program. Under the MSPV program, the VA awards several contracts to so-called Prime Vendors.  Each contract covers a specified geographical area.  The VA can then place orders with Prime Vendors to obtain certain medical supplies, which are available on the VA’s MSPV “Master List.” The VA struggled to populate the Master List.  By March 2018, the Master List contained only 7800 out of the 80,000 items that the VA anticipated as necessary to support its healthcare network.  To address the issue, the VA sought to outsource to the Prime Vendors the selection of the items to be contained on the Master List.  The VA issued a Class Justification and Approval to allow the Prime Vendors to modify the process of creating the Master List and allow the Prime Vendors to select the items on the Master List. In June 2018, Electra-Med Corporation and three other plaintiffs filed a complaint in the Court of Federal Claims.  The plaintiffs contended that the J&A was legally insufficient to justify the sole-sourcing of thousands of medical and surgical supply items, many of which the plaintiffs alleged they could provide. Among their allegations, the plaintiffs argued that allowing the Prime Vendors to select items for the Master List violated the “rule of two” under 38 U.S.C. 8127 and Kingdomware.  The plaintiffs contended that because they are SDVOSBs, the VA could not allow the Prime Vendors to select non-SDVOSBs to provide products for the Master List without first applying the rule of two and considering SDVOSB and VOSB sources for those products. The VA and the Prime Vendors said that the prime vendors would be bound by their small business participation plans, which would protect SDVOSBs and VOSBs.  Judge Eric Bruggink didn’t agree.  He wrote that “[t]here is no legal requirement that the [Prime Vendors] consider whether two VOSBs can provide an item that they source for the Master List, nor is there any requirement that they limit their consideration to such businesses.”  Because the Prime Vendors are “private purchasers untethered to the FAR, VA regulations, and procurement statutes,” the VA could not rely on the Prime Vendors to enforce the rule of two.  Instead, Judge Bruggink held, “[p]laintiffs are correct that 38 U.S.C. 8127 is violated by the VA’s outsourcing of its selection of supply vendors.” So far, so good, right?  The SDVOSBs seemed to win.  But although Judge Bruggink held that the VA had violated the rule of two, he seemed to wish that the law would allow him to find differently.  He wrote: The bevy of protests filed in this court and at GAO since the Supreme Court’s decision in Kingdomware are evidence enough that these requirements are strict and difficult to follow in the mean and no doubt doubly so when the law requires that they be applied without fail or exception.  And yet the law remains.  Only Congress has the kill switch. While Judge Bruggink ruled that the plaintiffs were right on the merits, he declined to enter an injunction to prevent the VA from continuing to populate the Master List through the Prime Vendors.  Judge Bruggink focused primarily on the “compelling problems” of ensuring “high quality healthcare to veterans.”  Disrupting the supply chain, Judge Bruggink held, would harm this important public interest. In this section of his opinion, Judge Bruggink again took aim at the Kingdomware preferences (and the contracting process more generally), writing: In this case, the VA is hamstrung by the myriad requirements and preferences layered onto the process of federal purchasing, and especially the preferences unique to the VA.  The complaint here is exhibit A.  Plaintiffs are correct that Congress has granted to them and bidders generally a variety of rights when it comes to selling things to the VA.  It is for Congress and the voters to weight the merits of the benefits and burdens imposed by such a labyrinth of legal and regulatory hoops and hurdles.  This case presents a circumstance in which the VA could not timely clear the hurdles.  The result is a danger to veterans’ healthcare and increased cost to the government. Despite holding that the plaintiffs had shown that the VA had violated the law, Judge Bruggink denied the protest. For SDVOSBs and VOSBs, the outcome in Electra-Med is troubling.  Even though the VA was clearly violating the rule of two, that violation effectively was allowed to stand–and one of the reasons Judge Bruggink allowed the violation to stand was his opinion that the “rule of two” preferences imposed by statute, and affirmed by Kingdomware, are unduly strict.  And while I have no reason to believe anything of the sort is under serious consideration, Judge Bruggink’s suggestion that Congress think about a “kill switch” for the rule of two is also highly concerning. But, in fairness, Electra-Med was hardly a run-of-the-mill case.  The unique nature of the MSPV program–and its impact on veterans healthcare–may mean that Electra-Med isn’t a sign of things to come in future cases, but an outlier in which a judge felt that the rule of two had to bend in favor of even more important policy considerations. It’s also true, of course, that federal procurement is complicated, and the rule of two places additional requirements on the VA to prioritize contracting with veteran-owned companies.  But I hardly think that the “bevy of protests” filed since Kingdomware is evidence that the law is strict or difficult to follow in the typical case.  Rather, it simply seems to me evidence that the VA isn’t always faithfully following the law, and that the veterans’ community is willing to hold the VA’s feet to the fire when it sees potential violations.  Think of it this way: if the police stop a lot of inebriated drivers at a sobriety checkpoint, this doesn’t mean that DUI laws are too strict or confusing–it just means that drivers are violating those laws. While I don’t have any inside information, it won’t surprise me in the least if Electra-Med ends up in the Federal Circuit on appeal.  My colleagues and I will follow up with another post if that happens.  In the meantime, we’ll see what effect, if any, Judge Bruggink’s decisions (and his commentary) has on lawmakers, the public, and other judges who may be deciding protests involving Kingdomware and the rule of two.
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GAO Reviews Agency Actions in the Wake of Equifax Data Breach

It’s easy to forget that roughly a year ago, Equifax was hacked, which compromised the personal information of roughly 145.5 million individuals. The scope of the breach was concerning for a number of reasons, not the least of which was the fact that Equifax was providing identity verification services for three federal agencies at the time it was attacked. In a recent report, GAO reviewed how these agencies responded to the attack. While not making any specific recommendations at this time, GAO’s report does highlight the extent to which federal agencies were not fully prepared for cyberattacks on private contractors. Prior to the Equifax breach, the IRS, the Social Security Administration, and USPS contracted with Equifax to provide identity verification services. These agencies relied on Equifax’s databases to verify the identities of individuals applying for various services. For example, the IRS used Equifax servers to verify identities for tax return purposes. Following the Equifax cyberattack, agencies took a variety of steps to assess the situation and make proactive changes to their contracts with Equifax. Foremost was notifying impacted individuals. While there was no breach of agency systems in connection with the Equifax attack, there was nevertheless concern that impacted individuals may have had an increased risk for identity theft. Accordingly, one of the first actions taken by the impacted agencies was to notify impacted individuals. Additionally, the impacted agencies took a number of contractual actions to improve the response in the event of future breaches. For example, the Social Security Administration made modifications to its current contracts with Equifax to “require prompt notification of any future breach[.]” This was a significant concern, as Equifax did not immediately notify agencies following the initial breach. Similarly, the IRS also updated its contracts to require Equifax “notify IRS within one hour after a breach is discovered, rather than within the previous time frame of 24 hours.” The IRS and USPS also made contract modifications and policy changes to improve cybersecurity provisions. As the GAO explained in its report, the “IRS updated its internal cybersecurity contractor requirements and controls related to incident handling.” Additionally, the USPS “initiated discussions with the National Institute of Standards and Technology to determine risks associated with the knowledge-based verification questions it had been using with Equifax’s identity-proofing service.” The USPS subsequently revised the questions it used for identity verification. Finally, prior to the breach, Equifax was serving as an incumbent contractor for the IRS providing tax payer identity verification services. These services were subsequently competitively re-procured through Experian. Equifax protested the Experian award before GAO, which caused the IRS to issue a sole-source bridge contract for identity verification services while the protest was pending. This contract extension was issued despite Equifax acknowledging its data breach a few weeks earlier. The IRS, however, subsequently issued a stop work order for the work. After Equifax’s GAO protest was denied, the IRS transitioned the new work to its contract with Experian. While not making any recommendations, the GAO report did acknowledge a number of potential issues with the response. Among these was the fact each of the affected agencies initiated its own internal investigation “because they said it was unclear whether any single federal agency had responsibility for coordinating government actions in response to a breach of this type in the private sector.” This is a significant issue, particularly given the increasing frequency of cyber-attacks on private companies. In all, the Equifax breach highlights the difficulties agencies face when private contractors encounter data security issues. As noted by GAO, the impacted agencies did not have a standard set of procedures for addressing large cyberattacks on private contractors. As cyber-security has only become a more pressing issue following the Equifax attack, developing a robust set of procedures for addressing cyber breaches is likely to become increasingly important in federal government contracting.
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New Consolidated SDVOSB Eligibility Requirements: the Good, the Bad, and the Downright Ugly

New, consolidated SDVOSB eligibility regulations kicked in on October 1.  The new regulations replace the old VA and SBA rules, which provided separate eligibility standards for SDVOSBs. Veterans have long been confused by the fact that the Government operated two separate SDVOSB programs, each with its own standards.  The consolidated rule will eliminate that confusion, and that’s a very good thing.  There are also several other pieces of the new SDVOSB eligibility rule that veterans should like–but also some that aren’t so great, or that require further clarification as to how they’ll be applied. My colleague Matt Schoonover provided a broader overview of the new regulations earlier last week.  Now it’s time for me to get on my soapbox.  Without further ado, here’s my list of the good, bad, and the downright ugly from the new SDVOSB regulations. The Good
More Clarity. The SBA’s old SDVOSB regulations could be maddeningly vague, particularly when it came to the question of what the SBA meant by “unconditional control.”  In fact, in a handful of cases, the SBA’s Administrative Judges used the 8(a) Program regulations as a reference point for interpreting SDVOSB requirements.  Whether one likes or dislikes the new regulations, they at least provide veterans with much more clarity than the SBA’s old SDVOSB regulations, making compliance easier. Bye-Bye “Draconian and Perverse.” The new rules seem to do away with perhaps the most egregious interpretation of “unconditional” that I’ve seen.  In late 2017 and early 2018, the SBA took the position that a veteran did not “unconditionally” own his company because the company’s bylaws said that the veteran’s ownership would transfer to the 49% owner in the event of the veteran’s death or incapacity. A federal judge famously called the SBA’s position “draconian and perverse,” but nonetheless within the SBA’s broad powers.  The new regulation excludes “death or incapacity” from the definition of “unconditional ownership,” appearing to effectively overturn SBA’s prior precedent.  But the new regulation is much less clear about whether ordinary rights of first refusal–such as those that simply say that each owner must offer his or her shares to the others before selling to third parties–is permissible.  (More on that below). Forget About Community Property. Married veterans living in so-called “community property” states have long been forced to ask their spouses to legally disclaim their legal ownership rights in SDVOSBs.  The new regulations provide that “[o]wnership will be determined without regard to community property laws,” eliminating this burdensome requirement. No Full-Time Devotion. Veterans–particularly those running start-ups–have been frustrated with the VA’s old requirement that the veteran holding the highest officer position work “full time” for the SDVOSB.  The new regulations dial back on this requirement. The regulations specify that there is a rebuttable presumption that a person who does not work for the company during normal working hours does not control the company.  But, as the SBA says in the commentary accompanying the new regulations, “[a]s a rebuttable presumption, this is not a full-time devotion requirement and can be rebutted by providing evidence of control.” The Bad A Physical Test in an Online World. As telecommuting and location-independent work skyrocket in the Internet age, the new regulations take a giant step backward.  They say that “there is a rebuttable presumption that a service-disabled veteran does not control the firm if that individual is not located within a reasonable commute to [the] firm’s headquarters and/or job-sites locations, regardless of the firm’s industry.” Not only does this unnecessary test discourage reasonable telecommuting–by disabled individuals, no less, some of whom have physical limitations making commuting difficult–it is also maddeningly unclear in its use of the term “and/or.”  Many government contractors work regionally, nationally or even internationally, with jobsites spread hundreds of miles apart. If, for example, a company is headquartered in Kansas City but has jobsites in Virginia and California, then what?  Is the veteran okay if he or she lives close to the Kansas City headquarters, even though the jobsites are nowhere nearby?  Would a California residence suffice, if this is the primary jobsite, even though the Missouri headquarters is far away?  Or perhaps the SBA expects veterans to have ready access to teleportation technology, making for an easy commute to all three locations? Caregiver Confusion. The regulations say that, in the case of a veteran with a permanent and severe disability, the spouse or permanent caregiver of the veteran can run the company’s management and daily business operations.  Now, don’t get me wrong–I support the notion that veterans with permanent and severe disabilities ought to be able to appoint someone else to run the company’s daily operations.  But why should that person be the veteran’s own spouse or permanent caregiver? A spouse or caregiver may not have the industry or business know-how necessary to run the company successfully, much less effectively control all aspects of its daily operations.  And the reverse is true, too: I’d hate to think of a veteran choosing a personal caregiver based on an individual’s business savvy, instead of that person’s ability as a caregiver.  Additionally, while the new regulations don’t impose a full-time devotion requirement, they do generally require that the individual running daily operations be working during normal business hours.  But shouldn’t an appointed caregiver be, um, caregiving during some of those hours? If it were up to me, I’d allow the veteran to appoint a non-caregiver business manager, and ditch the requirement that the person appointed be the spouse or caregiver. The Downright Ugly Primary NAICS Code. The new regulations appear to say that a company cannot qualify as an SDVOSB unless it is small in its primary NAICS code.  The regulations define an SDVOSB as a type of “small business concern,” and defines “small business concern” as “a concern that, with its affiliates, meets the size standard corresponding to the NAICS code for its primary industry . . ..”  If this is the intent, it would be a big change to prior SBA regulations, and could dramatically and unfairly limit the ability of a particular company to qualify for SDVOSB contracts. For example, consider a solicitation set aside for SDVOSBs under NAICS code 236220 (Commercial and Institutional Building Construction), with a corresponding $36.5 million size standard.  As I read it, if a company had $30 million in average annual receipts, it could bid on the solicitation if its primary NAICS code was 236220, or some other NAICS code with a size standard exceeding $30 million.  But if the same company had a primary NAICS code like 238140 (Masonry Contractors), with a $15 million size standard, it would be ineligible. I hope I’m wrong about how this will be applied, because it sounds very unfair–and could lead to some real gamesmanship when it comes to companies self-certifying their primary NAICS codes in SAM. Rights of First Refusal. As I mentioned above, the new SBA regulations seem to allow rights of first refusal in the case of the veteran’s death or incapacity.  That’s a step in the right direction.  But what about an ordinary right of first refusal, simply stating that if one owner (including the veteran) wishes to sell, he or she must offer the interest to the other owners first? Such provisions are commonplace in corporate documents, and have been permitted by the VA since mid-2013.  Many companies in the VetBiz database undoubtedly have such restrictions in their bylaws and operating agreements.  It’s unclear whether those companies remain eligible SDVOSBs under the new regulations. The new regulations do specify that “adding a new equity stakeholder” is an “extraordinary” item over which a non-veteran may exercise veto power.  That’s good, as far as it goes, but not all of these transactions involve a new stakeholder. For example, let’s say that a company has a veteran owner with 51% and two non-veteran owners, each with 24.5%.  As I read it, each of the non-veterans would be unable to prevent the veteran from transferring his or her entire share to the other non-veteran, because no “new equity stakeholder” would be added. More troubling, the new regulations discuss the “extraordinary” exceptions in the portion of the regulations dealing with unconditional control; the SBA has historically found that right of first refusal provisions violate the requirement for unconditional ownership.  Hopefully, this uncertainty will be resolved in favor of allowing reasonable right of first refusal provisions, but if not, I’m worried that many currently-verified SDVOSBs could be deemed ineligible. The Road Ahead There is a lot to like in the SBA’s consolidated SDVOSB regulations, but some real areas of concern, as well.  As these rules get applied and interpreted in practice, my colleagues and I will keep you posted–and I hope that the SBA will be willing to quickly make tweaks to its new rules if any interpretations prove unfair.
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FAR Update Clarifies SAM Registration Deadline

In last week’s edition of the SmallGovCon Week In Review, we referenced a FAR update that has important ramifications for prospective small business government contractors. This rule is potentially important enough that we figured it deserved its own stand-alone SmallGovCon post. So what’s so important about this new rule? In a nutshell, it clarifies that offerors must be registered in SAM at the time of bid submission to be considered for an award. We’re sometimes asked “when does a company have to be registered in SAM?” It’s a relatively simple question, but the answer isn’t clear due to two conflicting FAR provisions. As currently written, FAR 4.1102(a) generally requires prospective contractors to be “registered in the SAM database prior to award of a contract or agreement[.]” But FAR 52.204-8(d) required an offeror to complete the SAM representations and certifications as part of its offer—meaning, by extension, that the SAM profile had to be completed before the offer was submitted. In other words, one FAR provision required offerors to be registered in SAM before the award, while another basically required them to be registered at the time of proposal submission. The FAR Council has now corrected this inconsistency. In a final rule published last week, the Council amended FAR 4.1102 to require offerors to be registered in SAM at the time an offer or quotation is submitted. This new requirement takes effect October 26, 2018. Importantly, the commentary to this final rule makes clear that the registration requirement also applies to joint ventures. “An exception to SAM registration requirements to provide for registration of joint ventures after submission of offers but prior to award is not practicable,” the FAR Council concluded, “because the contracting officer needs the annual representations and certifications to evaluate the offers.” Thus, the Council recommended that joint venture agreements should be in place more than 48-72 hours in advance of proposal submission, to account for the time to complete the joint venture’s SAM registration. In my mind, however, 48-72 hours is underestimating the time it often takes to prepare and agree to a joint venture agreement, organize the joint venture under state law, obtain an EIN, DUNS number, and CAGE Code, and then complete the SAM registration. In our practice, we recommend that potential venturers take care of these tasks as soon as possible after the solicitation is released—after all, if you can’t timely get an entity registered to compete for a bid, what’s the point of spending the time and money to prepare the bid in the first place? Overall, the changed FAR rule makes sense: when you think about it, the point of a SAM registration is to provide important background information about a prospective awardee. It makes sense to have this information submitted to an agency early in the process, so that it can be considered as part of the evaluation. Keep in mind, too, that an existing SAM registration needs to be accurate and up-to-date. It’s a common misconception that registrations only need to be updated once a year. Not so: the FAR requires that registrations be updated at least annually, but as frequently as needed to ensure that it’s current, accurate, and complete. What’s the gist? Effective October 26, every offeror (including joint ventures) must be registered in SAM before they submit a bid under a federal procurement.
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GAO Puts Substance Over Form in Past Performance Protest

Recently, GAO sustained a bid protest where an agency “unreasonably excluded” a joint venture’s proposal, which included all necessary information listed in the solicitation, from competition. The GAO held that it was unreasonable for the agency to exclude the joint venture merely because the joint venture’s proposal didn’t include a subcontract number for one of its past performance references. The GAO held, in essence, that the missing information was irrelevant because it had no bearing on the type of work completed. In Veteran Technology Integrators, LLC, B-415716.3 (Comp. Gen. Jun 20, 2018), an agency issued an RFP for a multiple-award IDIQ contract related to IT services. Proposals were to be evaluated on technical experience and past performance, among other considerations. The technical experience and past performance evaluation factors required a minimum number of contract references addressing particular subfactors. For IDIQ contract references, the RFP required, at minimum, task order numbers be included, but not base IDIQ numbers alone. In addition, joint ventures were required to provide at least one contract reference for each JV member. Finally, each contract reference had to include a technical narrative, indicating the work actually done by the offeror or JV member. Veteran’s Technology Integrators, LLC, a joint venture, submitted a proposal, providing the appropriate number of references. VTI, however, included only a subcontract reference for one JV member. For that reference, VTI provided the base contract’s IDIQ number because the subcontract itself was not assigned a specific number. While providing a subcontract reference was permissible under the RFP, upon receipt of the proposal, the contracting officer reviewing the proposal took note of the IDIQ number without analyzing the accompanying narrative. The contracting officer contacted the contracting agency to verify the number referred to as an IDIQ upon which task orders were issued. Because the agency confirmed the contracting officer’s assumption, the agency rejected the proposal immediately, because VTI “failed . . . to provide an associated task order number.” VTI protested, arguing that not only was the subcontract not assigned a number, but also the narrative provided with the reference properly explained the subcontract arrangement. GAO agreed with VTI, holding “the rationale proffered to support exclusion of VTI’s proposal lack[ed] a reasonable basis.” GAO determined that even if a subcontract or task order number existed and was provided, “it is unclear what information the agency could have gleaned solely from the subcontract number about the type of work” done. Further, GAO found “the agency had [received]. . . descriptive information regarding the type of work performed by [the JV member] that it could have used to evaluate VTI’s technical and past performance information,” but the agency “failed to look further than the IDIQ number.” Because the agency possessed the information it really sought, despite the number provided, GAO sustained VTI’s protest. The Veterans Technology Integrators case is a welcome instance of GAO putting substance over form. Here, there was nothing relevant the agency could have learned from a subcontract number. Excluding VTI for failing to provide one just didn’t make sense.
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5 Things You Should Know: Adding Wage Rates to Davis-Bacon Act Wage Determinations

For federal construction projects in the United States exceeding $2,000, the Davis-Bacon Act requires contractors to pay their “laborers and mechanics” the “prevailing wage.” Typically, a federal construction contract will incorporate a wage determination which outlines the prevailing wages for the workers expected for the project. But what if you discover that you need another type of worker not listed on the wage determination? Here are five things you should know about adding wage rates to an existing DBA wage determination. 1. What is a wage determination? Prepared by the Wage and Hour Division of the U.S. Department of Labor, a wage determination is a document listing the prevailing hourly wages and fringe benefits for each classification of laborer or mechanic in one of four types of construction—building, heavy, highway, and residential. Because the prevailing wage varies with geography, WHD prepares wage determinations on a regional basis, oftentimes a multi-county area. So, for example, WHD has prepared a wage determination of prevailing wage rates for highway construction projects in the Kentucky counties of Boone, Campbell, Kenton and Pendleton.  You can check out WHD’s library of wage determinations at wdol.gov. 2. A contractor can add a wage rate through the conformance process.  DBA wage determinations do not list every classification conceivably necessary to perform on every federal construction contract. So, a contractor can seek to add a necessary classification, during the performance period, through the conformance process. But to add the additional classification, the contractor must satisfy a three-part test: The work performed by the requested classification cannot be performed by a classification already in the wage determination. The requested classification is one used in the area by the construction industry. The proposed wage rate, including any bona fide fringe benefits, must bear a “reasonable relationship” to the rates in the wage determination. 3. The conformance process is narrowly limited. But beware. Conformances are granted sparingly to preserve the integrity of the bidding process. Typically, a challenge to a wage determination—based on, say, its failure to include a classification that a contractor knows it will need on the project—should occur before contract award.  Otherwise, an awardee could simply use the conformance process as a tactic to pay its workers less than was expected by other offerors. For this reason, additional classifications and rates (particularly lower ones) will likely only be approved if they were not foreseen or anticipated before the contract was awarded. 4. When does a new wage rate bear a “reasonable relationship” to rates in the wage determination? The analysis on this point focuses on comparing apples to apples. For example, if the proposed classification and wage related to a skilled worker, then the focus is on the wages of skilled workers in the wage determination. Or if the new wage relates to power equipment operator, then the wages of the wage determination’s power equipment workers take center stage. And so on. In addition, differentiating between union wages and non-union wages plays an important role. As you could likely guess, if the wage determination itemizes predominantly union wages, then a new wage would need to bear a “reasonable relationship” to the union wages, with little or no focus on the non-union wages. And vice versa. 5. WHD Must Approve a Conformance Request. To initiate a conformance request, a contractor prepares an SF-1444 and submits it to the contracting officer. The contracting officer reviews the form, indicates whether the contracting agency agrees with the request, and then forwards the request to the WHD’s Branch of Construction Wage Determinations for approval. If the BCWD denies the conformance or sets the conformed wage too high, a contractor can appeal to the WHD Administrator. And if the Administrator’s decision doesn’t make the contractor smile, it can take its dispute to the Department of Labor’s Administrative Review Board. Though sometimes difficult, it is possible to obtain a conformance to a wage determination. Give us a call if you need to add wage rate to your federal construction contract.
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SmallGovCon Week in Review: September 24-28, 2018

Happy end of FY 2018, everybody! Let’s celebrate properly, with the SmallGovCon Week In Review. In this week’s edition, we’ll discuss end-of-fiscal-year spending (appropriately enough), new FAR regulations, and government contracting officials behaving badly. Have a great weekend! Federal Government may spend close to half its appropriated budget in the final fiscal quarter. [NextGov] GAO recommends the SBA boost staff compliance to strengthen HUBZone eligibility reviews in Puerto Rico and program-wide. [Government Accountability Office] Five lawsuits dismissed by Court of Federal Claims and two remain in General Service Administration’s Alliant 2 Small Business Contract. [FCW] DoD, GSA, and NASA issue final rule amending FAR to update instructions for registration in SAM and clarify timing of registration. [Federal Register] DoD issues proposed rule to amend the FAR to implement a section of the National Defense Authorization Act (NDAA) for Fiscal Year 2017. [Federal Register] Veterans Affairs official charged taking bribes to manipulate the process for bidding on federal contracts with the VA. [U.S. Department of Justice]
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SDVOSB Eligibility Update: SBA Issues New Rule

Earlier this week, Steve updated SmallGovCon readers on a very important SDVOSB eligibility change: beginning October 1, the VA will begin using the SBA’s eligibility rules to verify SDVOSBs and VOSBs. The SBA has now followed suit—in a final rule published today, the SBA has amended its eligibility rules for SDVOSBs. These rules provide important clarity into SDVOSB eligibility going forward. Let’s take a look at some of the most important changes. The first change that jumped out at me was the SBA’s new definition of “extraordinary circumstances.” By way of background, SmallGovCon readers know that the VA and the SBA have long had differing standards of control—in some cases, the SBA required that a service-disabled veteran exercise absolute control over the SDVOSB, while the VA recognized that non-veteran owners should have a say over some matters in the business. This conflict meant that a company could be an SDVOSB under the VA’s regulations, but not the SBA’s. The new SBA rules try to bring consistency to this mess. It should come as no surprise, however, that the new rule specifies that service-disabled veterans must control the company’s “daily business operations,” and defines that term as including, “but not limited to, the marketing, production, sales and administrative functions of the firm, as well as the supervision of the executive team, and the implementation of policies.” But the SBA has included a new provision (at 13 C.F.R. § 125.13(m)) that allows non-service disabled veterans to have a say over certain “extraordinary actions.” The new rules set out five—and only five—of these extraordinary actions: Adding a new equity stakeholder; Dissolution of the company; Sale of the company; The merger of the company; and Company declaring bankruptcy. Other than in the case of these five actions, the SBA’s rules still require the service-disabled veteran to control the company. Exercising this control, the new SBA rules require that the service-disabled veteran work at the company during normal business hours. Importantly, however, the SBA has not included a full-time devotion requirement, meaning that, in theory, the veteran can have outside engagements, so long as the veteran is able to control the company’s management and daily business operations. But if the veteran is not able to work at the company during its normal business hours, there is a rebuttable presumption that the veteran is not actually in control. The SBA would also prefer it if the veteran worked close to the company’s headquarters or jobsites. If the veteran “is not located within a reasonable commute” to the company, there’s a rebuttable presumption that he or she does not control the firm. Under the new rule, various examples are given of circumstances that may cause the SBA or VA to find that the veteran doesn’t satisfy the unconditional control requirement, including cases where the SDVOSB has business relationships “with non-service-disabled veteran individuals or entities which cause such dependence that the applicant or concern cannot exercise independent business judgment without great economic risk.” The new rule also makes important changes to the ownership requirements for an SDVOSB. Among them: For partnerships, the new rule says that the service-disabled veteran must unconditionally own at least 51% of the aggregate voting interest (rather than at least 51% of every class of partnership interest); The new rule clarifies that the SDVOSB’s service-disabled veteran owners must receive at least 51% of the company’s annual distribution of profits and that the ability to share in profits must be commensurate with the veteran’s ownership interest; The new rule doesn’t count stock held by ESOPs in the 51% ownership requirement—but only for a “publicly owned business,” which doesn’t apply to the vast majority of SDVOSBs; Community property laws will be disregarded in determining compliance with the 51% ownership requirement, a welcome change for veterans living in certain states, who have long been forced to ask their spouses to sign legal documents disclaiming their community property rights; The new rule says that that veterans must be able to overcome any supermajority voting requirements and requires verified SDVOSBs to inform the VA of any new supermajority voting requirements adopted after verification; The veteran holding the company’s highest officer position generally must be the highest compensated under the new rule—a requirement that’s existed in the VA regulations for many years, but not the SBA’s old regulations; and The new rule essentially adopts the VA’s surviving spouse ownership regulation, which allows the veteran’s spouse to take ownership of the SDVOSB upon the veteran’s passing (if certain requirements are met). If some of these provisions sound familiar, it’s because many of the “new” SBA rules are similar to, or in some cases essentially identical to, existing VA regulations. For some veterans, who may have hoped that using the SBA’s regulations would eliminate some of the more cumbersome VA requirements, the SBA’s adoption of these requirements may be disappointing. But all-in-all, these new rules bring important clarity to the SBA’s SDVOSB ownership and control requirements. While we can certainly quibble with some of the substantive requirements, it’s important for everyone to understand exactly what a program like the SDVOSB program allows (and doesn’t allow). The SBA’s SDVOSB regulations have long been rather vague—so vague, in fact, that in some cases the SBA’s own Administrative Judges have resorted to using the 8(a) Program regulations to evaluate certain aspects of SDVOSB compliance. Whether one agrees or disagrees with a particular requirement, it’s better to know that it exists, instead of being caught off guard during a protest, when a contract is at stake. One thing I didn’t see addressed, however, is the SBA’s prohibition on rights of first refusal for the veteran’s ownership interest. It’s possible that the “extraordinary action” of allowing a new equity stakeholder would cover a standard right of first refusal, but it would be best to see how the SBA interprets this rule before jumping to conclusions. As Steve noted in his post earlier this week, SDVOSBs and VOSBs should continue to be leery against including any right of first refusal in their ownership documents. One final note: as Steve wrote about back in April, SDVOSBs and VOSBs have new protest and appeal rights, which also kick in October 1. Among those rights, if a company’s SDVOSB verification application is denied, or its verified status is cancelled, the company can appeal to the SBA’s Office of Hearings and Appeals. We’ll keep you posted on the implementation and interpretation of these new regulations. In the interim, please give us a call if you have questions about SDVOSB eligibility.
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GAO: Sole-Source Bridge Contracts are Acceptable after Corrective Action

Generally, agencies are required to maximize competition for procurements. But there are exceptions to this rule, such as for simplified acquisitions. Another exception is for sole source bridge contracts awarded between the end of an incumbent contract and the start of a new contract. A recent GAO case explains the rationale for why a sole-source award is usually acceptable in that situation. In Trailboss Enterprises, Inc., B-415970.2, (Comp. Gen. May 7, 2018), Trailboss protested the terms of a solicitation for Air Force flight training services. Trailboss also protested the award of a sole-source contract to PKL Services, Inc. for training services during the time between the expiration of the incumbent contract and the award of the new contract. Trailboss had filed an earlier protest for the same procurement, in response to which the Air Force took corrective action. During the corrective action, the Air Force indicated via synopsis it would award a sole-source contract to PKL for 3 months with a 2-month option to ensure continuity of services when the incumbent contract expired. Trailboss protested this sole-source bridge contract. Trailboss argued that the bridge contract was “improper because it was based on a lack of advanced planning.” GAO denied this protest ground. GAO noted that the Competition in Contracting Act requires use of full and open competition. But there is an exception when “the supplies or services required by an agency are available from only one responsible source, and no other type of supplies or services will satisfy agency requirements.” For follow-on (or “bridge”) contracts, In order to make use of this exception, the agency must provide a reasonable justification and approval with facts and rationale to support the sole-source procurement. Here, the Air Force noted that the flight training services were needed after expiration of the incumbent contract. The Air Force contacted three other potential offerors to see if they could meet the sole-source requirement. The results of this survey were that it would take 30-45 days to transition over, with an additional 14 days for employee clearance and badging requirements. There would also be heightened costs for transition to the new contractor. Based on the transition time and added costs, the Air Force determined that only the incumbent PKL could meet the requirements for the bridge contracts, stating that “[d]ue to the highly specialized services required under this contract, discontinued use would result in substantial duplication of cost to the government that is not expected to be recovered through competition and will result in unacceptable delays in fulfilling the agency’s requirements.” Trailboss argued that the sole-source was the result of failure in advance planning, which is not a proper justification for a sole-source award. But GAO held that “an agency’s procurement planning need not be error-free or successful” and “an immediate need for services that arises as a result of an agency’s implementation of corrective action in response to a protest does not constitute a lack of advance planning.”  Because the corrective action created the need for a sole-source contract, it was not a result of bad planning. After a corrective action, a short-term sole-source bridge contract to the incumbent will very likely be acceptable and difficult to successfully challenge at GAO.
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VA Will Use SBA SDVOSB Eligibility Rules Starting October 1, 2018

The VA will begin using the SBA’s eligibility rules to verify SDVOSBs and VOSBs beginning October 1, 2018. In a final rule published today in the Federal Register, the VA confirms that the SBA’s eligibility requirements will apply beginning next week–but in my eyes, one very important question remains unanswered. As regular SmallGovCon readers know, the differences between the government’s two SDVOSB programs have caused major headaches for veterans.  Because the two sets of regulations have different eligibility requirements, a company may be an eligible SDVOSB under one set of rules, but not the other. In 2016, Congress addressed the problem.  As part of the 2017 NDAA, Congress directed the VA to verify SDVOSBs and VOSBs using the SBA’s regulatory definitions regarding small business status, ownership, and control.  Congress told the SBA and VA to work together to develop joint regulations governing SDVOSB and VOSB eligibility.  The VA published a proposed rule earlier this year to eliminate its separate SDVOSB and VOSB eligibility requirements. Now the VA has issued a final rule, set to take effect in just one week on October 1.  The final rule broadly reiterates that the VA is eliminating its separate SDVOSB and VOSB eligibility requirements because “regulations relating to and clarifying ownership and control are no longer the responsibility of VA.”  Instead, in verifying SDVOSBs and VOSBs, the VA will use the SBA’s eligibility rules set forth in 13 C.F.R. part 125. The VA’s final rule answers a few questions from the public about the change.  Among the VA’s answers: Despite a common misconception, this final rule does not move the verification process from the VA to the SBA.  The final rule states, “[a]lthough the authority to issue regulations setting forth the ownership and control criteria for SDVOSBs and VOSBs now rests with the Administrator of the SBA, the [VA] is still charged with verifying that each applicant complies with those regulatory provisions prior to granting verified status and including the applicant in the VA list of verified firms.” The “VA and SBA will treat joint ventures the same way,” applying the SBA’s regulatory criteria.  This is important because the VA currently does not treat joint ventures the same way as the SBA.  Although the VA largely defers to the SBA’s joint venture rules, the VA has been requiring SDVOSB joint ventures to demonstrate that the SDVOSB managing venturer will receive at least 51% of the joint venture’s profits.  This conflicts with the SBA’s current regulation, which allows the SDVOSB managing venturer to receive as little as 40% of the joint venture’s profits, depending on how the joint venturers split work. Persons “found guilty of, or found to be involved in criminally related matters or debarment proceedings” will be immediately removed from the VetBiz database.  Additionally, owing outstanding taxes and unresolved debts to “governmental entities outside of the Federal government” may be disqualifying, but won’t lead to an automatic cancellation. As you may recall, the SBA proposed to revise its own SDVOSB regulations earlier this year.  These proposed rules, when finalized, would apply to both the VA and SBA. The VA’s final rule indicates that the SBA’s final rule also will take effect on October 1.  “VA and the SBA believe a single date on which all of the changes go into effect is the most effective path for implementation,” the VA writes.  As I sit here today on September 24, I haven’t seen the SBA’s final rule yet, but I assume it will be published any moment.  We’ll blog about it on SmallGovCon when that happens. By consolidating the eligibility requirements for SDVOSBs and VOSBs, the SBA and VA will eliminate a lot of confusion.  In that sense, these changes are good news.  But I’m concerned about one important item that wasn’t raised in the VA’s response–that is, what happens to currently verified companies who no longer meet the eligibility requirements?  In other words, what happens to companies that were verified under the VA’s “old” rules, but won’t qualify as SDVOSBs under the SBA’s “new” rules? Remember, many companies were verified as SDVOSBs and VOSBs based on the VA’s eligibility requirements, which (until October 1) aren’t identical to the SBA’s.  Perhaps most notably, the VA has long permitted companies to use reasonable “right of first refusal” provisions in their corporate governing documents.  The SBA, on the other hand, has deemed such provisions impermissible–a position that a federal judge called “draconian and perverse,” but nonetheless within the SBA’s broad discretion. As I read the SBA’s proposed rules, anyway, the SBA hasn’t changed its position on this issue.  And while it sounds wonky, it’s actually very important: right of first refusal provisions are commonplace in operating agreements, bylaws, and shareholders’ agreements prepared by good corporate counsel.  It’s a virtual certainty that hundreds, if not thousands, of verified SDVOSBs and VOSBs have such provisions in their governing documents. Are these companies now vulnerable to protest?  Will the VA CVE propose them all for cancellation?  Are they somehow grandfathered in?  (I highly doubt that, but I suppose you never know).  It’s a very important question and I hope one that the SBA and VA will answer soon. My colleagues and I will keep you posted.
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A Pre-Award Protest Probably Isn’t the Place to Raise Suspicions of Wage Violations

Let’s suppose you’re a contractor that provides services to the federal government. Typically, your contract will require you to pay your employees the prevailing wage rates promulgated under the Service Contract Act. What if you suspect that, under previous contracts, your competitors failed to pay their employees the mandated prevailing rates? Can you use a pre-award bid protest to obligate a procuring agency to police possible ongoing non-compliance through solicitation provisions? If you say yes, perhaps you should keep reading. In Crosstown Courier Service, Inc., B-416261 (July 19, 2018), GAO encountered a protester with this concern. There, the VA was looking for commercial transportation services on a fixed-price basis. The solicitation was subject to the SCA. Consequently, the solicitation required offerors to comply with the relevant SCA wage determinations and make certain certifications regarding their SCA-exempt employees. But it did not require a breakdown of costs by labor category. The protester, motivated by real or perceived abuses by other contractors, challenged the solicitation’s terms in two salient ways. First, it argued that the solicitation was defective because it did not require a breakdown of the offerors’ labor costs. And second, the solicitation did not provide for a price realism evaluation. Breakdown of Labor Costs The protester believed that the VA has a “long history” of awarding similar contracts to companies with low pricing–pricing that must have been, in the protester’s view, insufficient to cover SCA wage rates. Thus, the protester argued that the solicitation should require a labor costs breakdown. With this added detail, argued the protester, VA could evaluate each offeror’s proposal with an eye to whether an offeror was, in fact, capable of paying the required SCA wages. In essence, (and perhaps you can sympathize) the protester wanted to ensure that its pricing–which it believed factored in the full impact of SCA wages–was not undercut by offeror who might be less concerned with SCA compliance. GAO batted down the protester’s argument. For one, the protester did not present any evidence substantiating its claim that VA had previously awarded contracts to companies who did not pay the appropriate SCA wages. But more to the point, GAO said that protester misapprehended pricing in the fixed-price context. GAO explained that “[t]here is nothing inherently objectionable about low pricing, or even below-cost pricing, in fixed-price contracts, because the risk and responsibility for contract costs is on the contractor.” So, barring terms in the solicitation saying otherwise, an offer for a fixed-price contract isn’t invalid simply because the offeror won’t be able to cover its costs (including SCA wages) with the revenue generated from the specific procurement–as long as the proper wages are paid during contract performance. In other words, a contractor may calculate to lose money on a government contract, and submit a below-cost bid on a fixed-price contract, even where the contract is covered by the SCA. Of course, the cost breakdown urged by the protester might give the VA greater confidence that an offeror has considered the required costs associated with the procurement. But because” the agency’s approach in this case–advising vendors of the requirements and requiring relevant certifications–is not inconsistent with law or regulation, or otherwise unreasonable,” GAO denied this protest ground. Price Realism The protester’s second protest ground essentially repackaged the first.  It went like this: because the solicitation failed to provide for a price realism evaluation, the VA would not be able to assess the likelihood of contract compliance (including the payment of SCA wages). In other words, a price realism evaluation was necessary in order to root out offers that, if accepted, would not provide the revenue necessary for the contractor to pay its employees compliant wages. GAO was unconvinced. After noting that agencies have broad discretion when selecting evaluation criteria, GAO noted that “the protester [had] not identified any laws or regulations, which would compel the agency to incorporate a price realism evaluation.” What is more, GAO explained, citing FAR 15.404-1(d)(3), that “a price realism evaluation is not required for fixed-price contracts” but an agency can still use it in “exceptional cases.” In addition, GAO found that “other than the protester’s vague representations concerning prior unrealistic quotes or proposals, the protester has not identified any facts that would suggest that the agency erred in failing to include a price realism evaluation in the [solicitation].” Because the protester presented no error made by the VA, GAO denied this ground too. We can probably all sympathize with a contractor who makes an offer on a fixed-price contract only to be undercut but a lower price–especially one that, in all probability, won’t cover the winning contractor’s costs. In such cases, one might suspect that the winning offeror won’t comply with applicable laws, like the SCA, or may be angling for an equitable adjustment in the midst of contract performance. Here, the protester wasn’t wrong to think that added scrutiny of offerors’ prices may have been beneficial in the evaluation process, but agencies have broad discretion when it comes to drafting solicitations. Regardless of whether it would have been a good idea for the VA to more closely evaluate offerors’ prices, the GAO said that the VA wasn’t required to do so. If you do suspect that a competitor is not, or will not, pay required wages under the SCA (or the Davis-Bacon Act), you might consider raising the issue with a contracting officer or the Department of Labor. But when the solicitation calls for a fixed-price contract, and the solicitation terms don’t include a price realism analysis, raising the issue in the context of a pre-award protest is likely a dead end.
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SmallGovCon Week in Review: September 17-21, 2018

It’s time for the best part of the week: the SmallGovCon Week in Review! In this week’s edition, the Deputy Secretary of Defense discusses the importance of cybersecurity in DoD procurements, a California company was ordered to pay back wages under the Service Contract Act, upcoming changes to startup contracts with the Air Force, and much more. Have a great weekend! DoD releases new cybersecurity strategy. [Fedscoop] California company to pay back wages after they violated federal contract provisions of the SCA. [dol.gov] The world’s richest person weighs in on commercial technology acquisitions. [Fedscoop] Air Force will soon announce a series of “Startup Days” involving startup companies in Air Force acquisition by awarding contracts in less than 24 hours. [defensenews.com] Public and private officials met to discuss how to use innovation from protecting critical assets to reforming acquisition methods. [washingtontechnology.com] In the new fiscal year, agencies will have access to automated contact center technologies and services through the General Services Administration’s IT Schedule 70. [nextgov.com] A father and son are sentenced to prison and ordered to pay over $1 million in restitution for fraudulently winning government contracts. [justice.gov]
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SmallGovCon Welcomes Haley Claxton!

I am very pleased to announce that Haley Claxton has joined our team of attorney-authors here at SmallGovCon.  Haley is an associate attorney with Koprince Law LLC, where her practice focuses on federal government contracts law. Haley is a recent graduate of the University of Kansas Law School, and has served as a law clerk to the Library of Congress Office of the General Counsel in Washington, DC.  Check out Haley’s full biography to learn more about our newest author, and don’t miss her first SmallGovCon post on new rules recently implemented at the Civilian Board of Contract Appeals.
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Court of Federal Claims Rejects Unsupported Decision to Cancel Solicitation

An agency ordinarily enjoys very broad discretion in its procurement-related decisions. This includes whether an agency will award a contract or, instead, cancel a procurement. Broad as this discretion is, however, an agency does not have carte blanche to cancel a procurement on a whim. As a recent Court of Federal Claims decision shows, an agency must support its decision with sufficient information, lest the cancellation decision itself be successfully protested. The factual and procedural histories in FMS Investment Corporation v. United States, No. 18-862C et al. (Fed. Cl. Sept. 14, 2018) are tortured. But for purposes of this post, it’s sufficient to say that in 2015, the Department of Education issued a solicitation for student loan collection services. After an initial award, some twenty-two companies protested at GAO. In response, the agency decided to take a voluntary corrective action. In response, one of the protesters reasserted its protest at the Court of Federal Claims. In response to the COFC protest, DoE again decided to take corrective action. It terminated the awarded contracts, issued a revised solicitation, and then made two new awards. In January 2018, twenty disappointed offerors again filed bid protests relating to these awards. In March 2018, DoE again cancelled its solicitation. Doing so, it announced a new “vision” to utilize “enhanced servicers” to administer student debt. As a result of this new vision, DoE said that it no longer needed the services of private collection agencies (like the protesters). It therefore asked the Court to dismiss the bid protests filed by those agencies. Unsurprisingly, these agencies challenged DoE’s decision to cancel the solicitation, arguing that it was arbitrary and capricious. Reviewing the “scant” administrative record (totaling only 33 pages) provided by the agency in support of its cancellation decision, the Court agreed that DoE’s proposed cancellation was arbitrary. Doing so, it noted that the decision itself was largely unsupported by any reasoned analysis. The Court found that the record “is missing critical information about the enhanced servicer program,” including a plan or timeline for implementing that program, an overview of what its request for proposals might look like under that program, a source (or anticipated amount) of funding, or even estimates of the defaulted loan volumes and loan processing capacity. According to the Court, DoE’s decision to cancel the solicitation and instead transition to enhanced servicers is “a significant policy change.” Its underlying documentation for that change, however, was nearly non-existent. DoE “needs to provide a ‘reasoned analysis’ for the policy change.” The record presented by DoE failed to provide this analysis, so the Court found the proposed cancellation arbitrary. Although FMS Investment shows that an agency must support a cancellation decision with adequate justification, it might ultimately be for naught. That is, although the Court set aside the solicitation cancellation, the opinion did not permanently prohibit DoE from pressing ahead with its planned action. Quite the opposite: the Court noted that “[r]esurrecting the solicitation . . . will not prevent [the Department] from continuing to develop its enhanced servicer program.” As I read it, therefore, the Court simply found that the “scant” record did not adequately support the cancellation; it did not, however, prohibit DoE from continuing to develop the record and then pressing ahead with its planned cancellation at a later date. In any event, FMS is important because it shows that an agency’s conduct in even the most fundamental procurement decisions isn’t necessarily free from review. In some instances, an agency’s decision to cancel a solicitation in response to a protest might be so unsupported or illogical so as to be arbitrary.
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