When I started writing SmallGovCon back in 2012, I worried that there might not be enough happening in government contracts law to support a robust blog. Needless to say, I’m not worried anymore.
We’re rapidly approaching SmallGovCon‘s 1000th post (this one is No. 990). To celebrate, we’re offering one lucky reader the chance to win a free webinar on the government contracting legal topic of your choice. For details (and to enter) just click here.
What do you like about SmallGovCon? We want to hear from you! Contact us and let us know, and check back here regularly in the coming weeks for much more on the SmallGovCon 1000th post celebration.
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It has been a busy week across the country as we get close to wrapping up the first month of 2017. Here in Lawrence, we’re gearing up for Saturday’s blue blood match-up between Kansas and Kentucky. Both teams are coming off losses and Kentucky is looking to avenge its loss to KU last year. It should be a great game.
Before we get to Saturday basketball, it’s time for our weekly Friday look at government contracting news. In this week’s SmallGovCon Week In Review, articles about what contractors can expect from the new Secretary of the Army and SBA Administrator, the number of new government contractors dropped sharply in 2016, the Washington Post wonders whether President Obama’s executive orders pertaining to contractor employees are on the new Administration’ s”chopping block,” and much more.
Vincent Viola has been selected as the new Army Secretary. What should technology contractors expect? [Deltek]
Will President Trump reverse President Obama’s executive orders pertaining to contractor employees? [The Washington Post]
A former government official has plead guilty to receiving bribes as part of a scheme to give contracts to specific companies and now faces a maximum of 15 years in prison and forfeiture of $60,0000. [Long Beach Patch]
A whistleblower has filed a lawsuit against Washington University for allegedly being fired over bringing attention to “pass through” purchases made from a supposed SDVOSB. [Riverfront Times]
President Trump’s administration has asked the EPA to temporarily halt all contracts, grants and interagency agreements, pending a review. [Oil and Gas Investor]
Speaking of the EPA suspension, the Professional Services Council trade association is none too pleased. [FederalTimes]
The Navy is preparing to release draft requests for proposals to industry to help refine the parameters of the Next Generation Enterprise Networks Recompete. [FCW]
There was a dramatic decline in new vendors selling to the government in fiscal year 2016, raising concerns about the health of the federal government’s industrial base and its ability to fulfill national security, scientific, health and environmental missions. [Bloomberg Government]
Guy Timberlake demystifies the relationship between NAICS codes and Product Service Codes. [GovConChannel]
Linda McMahan, President Trump’s nominee for SBA Administrator, has pledged to level the playing field for women, service-disabled veterans, and minority business owners. [Federal News Radio]
President Trump’s tweets – especially some pointed challenges of big defense contracts just before he took office – have some federal contractors a bit skittish going into the new year, wondering what kind of contracting landscape is developing. [FCW]
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Federal construction contracts incorporate the FAR’s payment and performance bonding requirements as a matter of law, even if the solicitation omits these bonding provisions.
In a recent Armed Services Board of Contract Appeals decision, K-Con, Inc., ASBCA Nos. 60686, 60687, a contractor ran headlong into construction bonding issues when the Army demanded payment and performance bonding for two of its construction contracts despite there being no bonding requirements in either of the contracts. According to the ASBCA, the bonds were required anyway.
K-Con involved two Army procurements for the construction of a laundry facility and communications equipment shelter at Camp Edwards in Massachusetts. The solicitations were both posted through the GSA’s eBuy system. The Contracting Officer inadvertently used Standard Form 1449 (Solicitation/Contract/Order for Commercial Items) despite the procurement being for construction services. As a result, neither of solicitations included provisions requiring payment or performance bonding.
K-Con, Inc. submitted proposals and was awarded both contracts on October 10, 2013. Before work began on either project, the Army requested that K-Con obtain performance and payment bonding. K-Con, however, was unable to obtain the necessary bonding, and proposed an alternative solution. Negotiations progressed slowly. On September 20, 2015—two years after the contract was awarded—K-Con finally obtained the requested bonding. K-Con subsequently completed the contract.
As a consequence of having performance delayed two years, K-Con was forced to pay more for labor and materials than it originally anticipated in its bid. After completing the construction work, K-Con submitted a request for equitable adjustment under each contract. Between the two REAs, K-Con sought a total of $116,336.56. K-Con argued it was entitled to the upward adjustment because performance bonding was not a requirement in either of the original solicitations.
The ASBCA’s discussion of the facts glosses over what happened next. Apparently, however, the Army rejected the REAs, and took the position that bonding had been required by law, even if it wasn’t specified in the solicitations or contracts. Since an REA is not a claim (and the ASBCA lacks jurisdiction over an appeal of a denied REA), the Army must have treated the REAs as claims, or K-Con must have refiled its REAs as claims–the decision doesn’t specify. One way or another, though, the dispute ended up at the ASBCA.
In resolving the case, the ASBCA turned to the longstanding contracting doctrine first developed in G.L Christian & Associates v. United States, 320 F.2d 345 (Ct. Cl. 1963)—the so called Christian doctrine. As the ASBCA explained, “nder the . . . Christian doctrine, a mandatory contract clause that expresses a significant or deeply ingrained strand of public procurement policy is considered to be included in a contract by operation of law.”
In the case of the FAR’s bonding provisions, the ASBCA found that both prongs of the Christian doctrine were met.
First, FAR 28.102-1 requires payment and performance bonding be obtained by contractors for almost all construction contracts exceeding $150,000. FAR 28.102-1 implements a federal statute formerly known as the Miller Act, and currently codified at 40 U.S.C. 3131-3134. When FAR 28.102-1 applies, the solicitation and contract are required to contain the clause at FAR 52.228-15, which imposes the contractual requirement for payment and performance bonds. Because of this legal framework, the ASBCA ruled that “FAR 52.228-15 was a mandatory clause in the contract.”
Second, the ASBCA concluded payment and performance bonding was a “significant component of public procurement policy.”
The ASBCA explained that, with respect to payment bonds, “[a] principal underlying purpose of the payment bond provision is to ensure that subcontractors are promptly paid in full for furnishing labor and materials to federal construction projects.” In particular, “the Miller Act provides subcontractors on federal construction projects with the functional equivalent of a mechanic’s lien available to subcontractors on non-federal projects.” Because the government is immune from most lawsuits, “mechanics’ liens cannot be placed against public property.”
The purpose of a performance bond is to “assure that the government has a completed project for the agreed contract price.” The performance bond “provides protection to the government in situations where the prime contractor defaults in the performance of work or is terminated for default.”
The ASBCA concluded both types of bonding were deeply ingrained features of federal procurement policy. As such, the second prong of the Christian doctrine was satisfied.
The ASBCA held that “the bonding requirements set forth in FAR 52.228-15 were considered to be included in the contracts by operation of law pursuant to” the Christian doctrine. The ASBCA denied K-Con’s appeals.
As K-Con demonstrates, the Christian doctrine allows the government to apply mandatory FAR provisions to contractors even if those provisions were inadvertently omitted in the solicitation. It is thus wise for offerors to carefully review the provisions of a solicitation for the specific terms that the offeror should expect to find. If a particular omission seems too good to be true, odds are it is–and it may be better to raise the issue before proposals are submitted than risk the application of the Christian doctrine down the road.
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A recent GAO decision should serve to caution offerors to be careful what they include with their proposals. Any information that contradicts the proposal or otherwise does not conform to the terms of the solicitation could result in disqualification.
In Independent Systems, Inc., B-413246 (Comp. Gen. Sept. 15, 2016), GAO held that the agency could reasonably disqualify an offeror based on extraneous information the offeror included with the intent of providing the agency with more information, but not changing the terms of the offer.
The case involved a Bristow, Virginia, company called Independent Systems, Inc., that sought a Forest Service contract to provide two bulldozers for use at Coconino National Forest in Flagstaff, Arizona. The solicitation was available to holders of a BPA for heavy equipment. The solicitation required the bulldozers to be delivered F.O.B. to Coconino National Forest on or before August 31. (F.O.B. is a shipping method that stands for “Free On Board.”) The solicitation incorporated the terms of the underlying BPA, which included FAR 52.212-4 (Contract Terms and Conditions – Commercial Items). FAR 52.212-4 provides, among other things, that payment shall be made after delivery and acceptance; the clause does not provide for prepayment or contract financing.
Independent Systems, a BPA holder, submitted a proposal in response to the Forest Service solicitation. Like many contractors, Independent Systems did not simply have two spare bulldozers laying around. Rather, it proposed to buy them from a manufacturer should it be awarded the contract.
When Independent Systems submitted its proposal, it included the manufacturer’s brochures for each bulldozer and a two-page manufacturer’s “terms and warranty” document, which, according to Independent Systems, related to its contemplated purchase of the bulldozers. Independent Systems’ proposal quoted a price for each bulldozer, offered to deliver the goods F.O.B. within three months of the order, and asked the Contracting Officer to refer to the “attached file” for details of the proposed equipment and warranty.
The file, consisting of the manufacturer’s brochures and terms and warranty document, included three clauses that gave the Contracting Officer cause for concern. The first said that all prices were Ex-Factory or F.O.B. (Florida, Texas, or California). This contradicted the solicitation’s F.O.B. Arizona requirement. The second required all orders to be paid in full before shipping, which directly contradicted the BPA’s payment terms under FAR 52.212-4. The third said that prices and specifications were subject to change without notice. The contracting officer worried that meant that Independent Systems would not be bound to perform. The Contracting Officer therefore concluded that Independent Systems’ offer had taken exception the solicitation’s delivery and payment terms and eliminated the offer from the competition.
Independent Systems filed a GAO bid protest challenging its exclusion. Independent Systems argued, basically, that all three of the concerning terms would apply to it, but not to the government. As a practical matter, this argument would seem to make sense. Independent Systems’ plan was to buy the bulldozers under whatever conditions it could negotiate from the manufacturer, then turn around and sell the bulldozers to the government under the conditions the government required. Indeed, by the time the government got its hands on the bulldozers, Independent Systems would have concluded its transaction with the manufacturer. In fact, in its protest, Independent Systems characterized these documents as “an additional item for evaluation, even though it was not required [by] the BPA[.]”
Nevertheless, GAO held that the Forest Service did nothing wrong in rejecting the proposal. GAO wrote that “it was not at all clear from [Independent Systems]’s proposal which delivery and payment terms the firm was actually offering to the Forest Service.” GAO pointed out that various provisions of the manufacturer’s warranty pages “contained conditions expressly applicable to the ‘buyer’ and ‘user’ of the equipment,” which could mean the government. Said GAO: “nstead of making its proposal more thorough by including the manufacturer’s terms and warranty document, as the protester urges, that document actually introduced ambiguities and inconsistencies into [Independent Systems]’s offer that the Forest Service was not required to reconcile.” GAO concluded:
[Independent Systems] concedes that there was no need to include the manufacturer’s warranty terms as part of [Independent System]’s proposal. Thus, as the contracting officer admonished [Independent Systems], if the manufacturer’s terms and conditions did not apply to the Forest Service, then [Independent Systems] should not have included those terms and conditions in its proposal.
In other words, GAO said any confusion was caused by Independent Systems’ decision to include the brochures and manufacturer warranties. Because Independent Systems was not required to include this information, it should have just left it out.
Years ago, when I was a small-town newspaper reporter, our newsroom mantra was “when in doubt, keep it out.” Apparently, those wise words would have also served this protester well. As the Independent Systems decision demonstrates, offerors should carefully review their proposals to ensure that any information that isn’t strictly required by the solicitation doesn’t undermine the proposal.
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The FAR Council has added a new provision to the FAR to restrict the permissible terms of employee confidentiality agreements.
Effective January 19, 2017, contractors wishing to do business with the federal government will need to certify that they do not limit the ability of their employees to report waste, fraud, or abuse to appropriate government officials.
The final rule creates a new FAR 3.909 and two new FAR clauses, FAR 52.203-18 (Prohibition on Contracting with Entities that Require Certain Internal Confidentiality Agreements or Statements – Representation) and FAR 52.203-19 (Prohibition on Requiring Certain Internal Confidentiality Agreements or Statements). FAR 52.203-18 must be included in almost all solicitations, except those for personal services. There is no exception for commercially available off-the-shelf items or acquisitions below the micro-purchase threshold.
The new rule will apply to any acquisitions with funds appropriated in FY 2015 or later. Additionally, unlike many FAR provisions, a portion of the new rule is retroactive. Contracting Officers are directed to “[m]odify existing contracts, other than personal services contracts with individuals, to include [FAR 52.203-19] before obligating FY 2015 or subsequent FY funds that are subject to the same prohibition on internal confidentiality agreements or statements.”
Under the new rule, federal agencies will be prohibited from contracting with concerns that require their employees to sign confidentiality agreements waiving the employees’ rights to report waste, fraud, or abuse related to government contracts. Employees must be able to report violations to appropriate government officials—typically the agency Office of the Inspector General. The rule will also apply to agreements between prime contractors and subcontractors and must be flowed down in all subcontracts.
FAR 52.203-18 provides that by submission of its offer, “the Offeror represents that it will not require its employees or subcontractors to sign or comply with internal confidentiality agreements or statements prohibiting or otherwise restricting such employees or subcontractors from lawfully reporting waste, fraud, or abuse related to the performance of a Government contract” to a government representative.
FAR 52.203-19 prohibits a contractor from requiring its employees or subcontractors to sign or comply with such provisions in an internal confidentiality document or statement. Additionally, the contractor must notify current employees and subcontractors that prohibitions and restrictions of any preexisting internal confidentiality agreements or statements covered by the clause, to the extent disallowed by the clause, are no longer in effect. Alternatively (and perhaps the better practice), contractors can revise their internal confidentiality agreements to exempt the matters prohibited by the new FAR provisions.
Despite the broad applicability of the new rule, there is an exception carved out for classified and sensitive information, which may remain subject to communication limitations. Contractors dealing with classified or sensitive information should review FAR 52.203-19(d) before revising their internal confidentiality agreements or statements.
In sum, the new rule seeks to protect whistle blowers and remove potential impediments to the reporting of fraud, waste, and abuse. While some contractors may complain that the new rule is another example of unnecessary red tape, it’s ultimately intended to protect the taxpayers; even with the recent change of Administrations, this new rule is probably here to stay.
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It is inauguration day, and we are beginning a new chapter in America’s history. We’re expecting lots of government contracting changes in short order (beginning with repeals of some of the Obama Administration’s Executive Orders), so check in with us here on SmallGovCon regularly for updates.
As we honor our nation’s unparalleled tradition of peaceful transitions of power, it’s time for the SmallGovCon Week In Review. In this week’s edition, two commentators weigh in on the GAO’s denial of four protests of the major Alliant 2 GWAC, two major corporations are facing potential debarment stemming from alleged discrimination, Set-Aside Alert discusses how the new Trump Administration will affect small contractors, and much more.
One commentator says that the GAO’s decision to deny four protests of GSA’s Alliant 2 GWAC could end up being a landmark ruling on lowest-price, technically acceptable contracts for services. [Federal News Radio]
More Alliant 2: another commentator says the GAO’s decisions have ramifications beyond a potential $65 billion worth of IT services that it could bring to the federal government over the next 10 years. [Nextgov]
Many small federal vendors are hopeful about the possibility of greater opportunities in defense procurement, and possibly fewer regulations to follow as a federal contractor. [Set-Aside Alert]
Debarment from government contracting could be at stake for Oracle over an employee pay discrimination suit filed by the U.S. Department of Labor. [ZDNet]
President Obama’s Executive Orders dealing with contractor work forces could face reversal now that Donald Trump is President. [Stars and Stripes]
In a lengthy report, the GAO concludes that DoD needs clearer guidance when it comes to privately financed construction projects. [GAO]
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By the middle of this year, the U.S. Small Business Administration should have a strategy in place to assist small businesses with cybersecurity.
The 2017 National Defense Authorization Act is chock full of interesting legal changes for government contractors, and although we have chronicled it in depth, that does not mean there is not necessarily more to be mined from the whopping 1,587-page legislation.
Buried in section 1841, the 2017 NDAA contains an interesting directive for the new head of the SBA–who, pending Senate confirmation, will be former CEO of the professional wrestling franchise WWE, Linda McMahon. Section 1841 instructs the SBA head to work with the Department of Homeland Security to develop a cybersecurity strategy for small businesses.
Cybersecurity–especially the lack of it–has been in the news quite a bit lately. But cybersecurity is not only a concern for government agencies and massive global conglomerates. Cybersecurity should be a concern for all businesses, no matter how small. Indeed, the hack that led to the release of millions of personal information belonging to government workers has reportedly been linked to a government contractor. And, although popular culture depicts hackers cracking the firewall and breaking the encrypted code, the truth is that many hackers are mostly adept at taking advantage of carelessness and human error.
In order to help small businesses deal with this threat, the 2017 NDAA instructs the new SBA Administrator and the Secretary of Homeland Security to work together to create a strategy for small businesses development centers that will seek to protect small businesses from cybersecurity threats. The content of the strategy, according to the NDAA, must include plans to allow Small Business Development Centers access to existing DHS and other federal agency services, as well as methods for providing counsel and assistance to small businesses, including training, assistance with implementation, information sharing agreements, and referrals to specialists when necessary.
The strategy also must include an analysis of how SBDCs can rely on existing government programs to benefit small businesses, identify additional resources that may be needed, and explain how SBDCs can leverage partnerships with Federal, State, and local government entities to enhance cybersecurity.
The SBA Administrator must collaborate with with the DHS Secretary no later than 180 days after enactment of the bill (President Obama signed the 2017 NDAA on December 23) and submit the strategy to the Committees on Homeland Security and Small Business of the House of Representatives and the Committees on Homeland Security and Governmental Affairs and Small Business and Entrepreneurship of the Senate.
For small contractors, the new policy comes at a good time. Last summer, the FAR Council issued a final rule titled “Basic Safeguarding of Contractor Information Systems.” The rule created two new FAR provisions (FAR 4.19 and FAR 52.204-21); together, these FAR provisions impose fifteen specific requirements for safeguarding “covered contractor information systems.” The new FAR requirements supplement DFARS 252.204-7012 (Safeguarding Covered Defense Information and Cyber Incident Reporting), which imposes several more requirements on covered DoD contractors. Clearly, policymakers are focusing on ensuring that contractors appropriately protect electronic information.
Many small contractors could use help understanding and complying with the FAR and DFARS cybersecurity requirements and adopting best practices for cybersecurity. Thus, by the middle of this year, the SBA should have a strategy in place to assist small businesses stave off the threat of cyber attack. Only time will tell whether this strategy will prove effective, but the notion of assisting small businesses in this arena is certainly a positive step.
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A procuring agency erred by failing to seek clarification of obvious errors in an offeror’s proposal, according to a recent ruling by the U.S. Court of Federal Claims.
In Level 3 Communications, LLC v. United States, No. 16-829 (2016), the Court held that although a Contracting Officer has discretion over whether to seek clarification of a proposal, this discretion is not unlimited. By failing to clarify obvious errors, the Contracting Officer’s decision was arbitrary, capricious, and an abuse of discretion.
The decision builds on a 2013 case, BCPeabody Construction Services, Inc., No. 13-378C (2013), in which the Court reached a similar conclusion. But so far, the GAO has drawn a hard line, essentially holding that an agency’s discretion in this area is unlimited.
Under the terms of the solicitation, DISA sought construction and maintenance of a Structured, High Availability Telecommunications Circuit between Wiesbaden, Germany and Arifjan, Kuwait. The solicitation requested offers for a fixed-price, indefinite-term delivery order for telecommunications, installation, service, and maintenance for an estimated 60-month period.
The solicitation provided that offerors were to submit offers to install and maintain two circuit paths: (1) a “protect path” to traverse the waters between Germany and Kuwait, and (2) a “working path” to traverse dry land. Neither path could traverse or touch a list of nations, including Iran. The solicitation stated that DISA would award the contract to the offeror that submitted the lowest-priced, technically acceptable quote with consideration of technical sufficiency, ability to meet required service date, past performance, and total price.
Level 3 Communications, LLC, the incumbent contractor, and Verizon Deutschland GmbH, along with six other offers, submitted offers by the October 28, 2015, deadline. DISA’s Technical Evaluation Team originally evaluated L3’s proposal and determined it was “technically acceptable.”
The Contract Specialist, however, responded to the TET’s finding and reminded the TET of three issues with L3’s proposal: 1) L3 failed to submit its quote in a .kmx/kml file; 2) L3 failed to state that its subcontractor for the nation of Turkey was an accredited National Long Line Agencies (“NALLA”) subcontractor; and 3) L3’s circuit route between Istanbul, Turkey, and Budapest, Hungary, was “completely UNCLEAR” due to gaps in L3’s diagram. Despite the TET’s request for clarification of these issues, the Contracting Officer decided not to request clarification from L3.
Without this information, the TET changed its prior decision finding L3’s offer “technically acceptable” to finding the offer “technically unacceptable.” After the TET found Verizon’s proposal was “technically acceptable,” DISA awarded the contract to Verizon at a price of $38.6 million more than L3 had bid.
After receiving notice of the award to Verizon, L3 filed a bid protest with the GAO. The GAO denied the protest, finding that DISA’s evaluation was reasonable. Although the GAO’s decision did not directly address the question of clarifications, the GAO wrote more generally that “the agency had no obligation to seek out and favorably consider information that the protester was in fact required to have included in its quotation.”
Subsequently, L3 filed a compliant in the U.S. Court of Federal Claims. Among its arguments, L3 alleged that the Contracting Officer had violated the FAR by failing to seek a clarification from L3 regarding the lack of .kmz routing map and in determining that L3’s working path traversed Iran, although L3’s written statement was to the contrary.
The Court agreed with L3. First, the Court found that inquiry about the absence of .kmz files in L3’s offer would be a “clarification” and not a “discussion.” Relying on its previous holding in BCPeabody, the Court noted that although FAR Part 15 is worded permissively, “the United States Court of Federal Claims has determined that a CO’s decision not to seek ‘clarifications’ can constitute an abuse of discretion under certain circumstances.” As noted in a previous blog, the Court in BCPeabody held that the Army Corps of Engineers abused its discretion by failing to clarify an obvious mistake, in that case the submission of identical project information sheets.
In Level 3 Communications, the Court too found that the CO’s decision not to seek “clarification” was arbitrary and capricious and an abuse of discretion. In making this finding, the Court relied on the facts that the omission of the .kmz file was an oversight easily corrected, L3 had provided written representation that the path did not touch Iran, and L3 proposed that its working path would follow the same path as the circuit it provided as the incumbent.
This decision highlights an emerging split between GAO and the Court of Federal Claims concerning the “broad discretion” of a CO to seek clarification of clerical errors and whether a failure to do so can be arbitrary, capricious, and an abuse of discretion. For instance, in Cubic Simulation Systems, Inc., GAO denied a protest arguing that Department of Army should have allowed an offeror to clarify a clerical error in its proposal. In Cubic Simulation Systems, GAO specifically stated that it was not required to follow the holding in BCPeabody.
While GAO may differ on its position, the Court of Federal Claims has provided its marker: despite CO’s broad discretion regarding whether to seek clarifications, that discretion can be abused. As Level 3 Communications illustrates, it may be an abuse of discretion for the CO to fail to allow an offeror to clarify an obvious error.
In our opinion, the Court of Federal Claims has the better policy. Unfettered discretion is rarely a good thing, and sometimes an agency’s failure to seek clarification is nonsensical. In Level 3 Communications, for example, the agency’s decision not to seek clarification–if allowed to stand–would have left taxpayers on the hook for $40 million, the difference in price between the proposals of L3 and Verizon.
We hope that the GAO will reconsider its position and align itself with the Court’s decisions in BCPeabody and Level 3 Communications–both because the Court’s view is better from a public policy perspective and because doing so would discourage forum shopping. For now, would-be protesters concerned about an apparent abuse of discretion in this area may be best served by skipping the GAO and filing directly with the Court of Federal Claims.
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An offeror submitting a proposal under a solicitation designated with the Information Technology Value Added Resellers exception to NAICS code 541519 must qualify as a small business under a 150-employee size standard–even if the offeror is a nonmanufacturer.
In a recent decision, the U.S. Court of Federal Claims held that an ITVAR nonmanufacturer cannot qualify as small based solely on the ordinary 500-employee size standard under the nonmanufacturer rule, but instead must also qualify as small under the much smaller size standard associated with the ITVAR NAICS code exception.
By way of background, NAICS code 541519 (Other Computer Related Services) ordinarily carries an associated $27.5 million size standard. However, the SBA’s regulations and size standards table state that an ITVAR procurement is an exception to the typical size standard. An ITVAR acquisition is one for a “total solution to information technology” including “multi-vendor hardware and software, along with significant value added services.” When a Contracting Officer classifies a solicitation with the ITVAR exception, a 150-employee size standard applies.
ITVAR acquisitions, like others under NAICS code 541419, were long deemed to be service contracts; the nonmanufacturer rule did not apply. But in a recent change to 13 C.F.R. 121.406, the SBA specified that the nonmanufacturer rule applies to the supply component of an ITVAR contract. W
When is a nonmanufacturer small? The SBA’s rules are not entirely clear. 13 C.F.R. 121.402(b)(2) states that a company that “furnishes a product it did not itself manufacture or produce . . . is categorized as a nonmanufacturer and deemed small if it has 500 or fewer employees” and meets the other requirements of the nonmanufacturer rule. But 13 C.F.R. 121.402(a) also states that an offeror “must not exceed the size standard for the NAICS code specified in the solicitation.”
So, for an ITVAR acquisition, which size standard applies to a nonmanufacturer: 150 employees or 500? According to the Court, the answer is “both.”
York Telecom Corporation v. United States, No. 15-489C (2017) involved the solicitation for the NASA Solutions for Enterprise-Wide Procurement V GWAC. The procurement was divided into several groups. The group at issue in this case (Category B, Group C) was a small business group. NASA designated the category with the ITVAR exception to NAICS code 541519.
The solicitation included FAR 52.212-1, which provided, in relevant part:
INSTRUCTIONS TO OFFERORS – COMMERCIAL ITEMS (52.212-1) (JUL 2013) (a) North American Industry Classification System (NAICS) code and small business size standard. The NAICS code and small business size standard for this acquisition appear in Block 10 of the solicitation cover sheet (SF 1449). However, the small business size standard for a concern which submits an offer in its own name, but which proposes to furnish an item which it did not itself manufacture, is 500 employees.
York Telecom Company submitted an offer for Category B, Group C. After evaluating proposals, NASA awarded a contract to Yorktel. But NASA developed concerns about Yorktel’s size, and referred the matter to the SBA for a size determination.
In its size determination, the SBA Area Office concluded that the applicable size standard for the procurement was 150 employees. Because the SEWP V solicitation had been issued before the changes to 13 C.F.R. 121.406, the SBA Area Office concluded that the nonmanufacturer rule did not apply. The Area Office issued a decision finding Yorktel to be ineligible under the solicitation’s 150-employee size standard. The SBA Office of Hearings and Appeals upheld the SBA Area Office’s decision.
Yorktel took its case to the Court. Yorktel argued that it was a nonmanufacturer, and therefore, its size was governed by a 500-employee size standard–not the ordinary 150-employee ITVAR size standard.
After addressing various procedural issues such as jurisdiction and standing, the Court concluded that Yorktel’s protest was an untimely challenge to the terms of the solicitation. The Court dismissed Yorktel’s protest for this reason.
Interestingly, though, the Court didn’t stop there. It wrote that “even if Yorktel could pursue its challenge of the size standard for the SEWP V Contract in this litigation, this claim is unsupported by the terms of the RFP and the statutory nonmanufacturer rule.”
Discussing FAR 52.212-1(a), the Court wrote:
When read in its entirety, the Court construes the above provision to require that a non-manufacturer first meet the 500 employees or less size standard to compete for the contract and to also impose the more restrictive size standard of 150 employees or less under the NAICS code in order for the non-manufacturer to be eligible for contract award. And so, to the extent that Yorktel qualifies as non-manufacturer under the statutory non-manufacturer rule, the RFP requires that Yorktel meet the more restrictive, 150-employee, size standard to be eligible for contract award.
The Court wrote that its interpretation was buttressed by the Small Business Act, which (in 15 U.S.C. 637(a)(17)), specifies that a nonmanufactuer must “be a small business concern under the numerical size standard . . . assigned to the contract solicitation on which the offer is being made.” The Court concluded that “the statutory non-manufacturer rule, thus, requires that an offeror seeking coverage under the rule satisfy the size standard imposed by the NAICS code for the relevant contract.”
The relationship between the nonmanufacturer rule’s 500-employee standard, on the one hand, and the size standard imposed by a solicitation, on the other, was previously a question merely of academic interest (and then, only to true government contracts law nerds like yours truly.) That’s because almost all of the size standards for manufacturing and supply contracts are 500 employees or greater; it would be no problem for a nonmanufacturer to satisfy the solicitation’s size standard. In contrast, the ITVAR size standard is much lower than 500 employees. Now that the SBA has amended its regulations to specify that the nonmanufacturer rule applies to the supply component of ITVAR contracts, the Court’s decision in York Telecom Corporation may have major ramifications for other ITVAR nonmanufacturers.
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Two Missouri men have been indicted for allegedly perpetrating an SDVOSB “rent-a-vet” scheme to fraudulently obtain 20 contracts totaling more than $13.8 million.
According to a Department of Justice press release, the veteran in question nominally served as the company’s President, but did not control the company’s strategic decisions or day-to-day management–in fact, the veteran apparently was working full-time for the DoD instead of managing the SDVOSB.
The indictment contends that Jeffrey Wilson, who is not a service-disabled veteran, owned a Missouri-based construction company. According to the DOJ, Wilson conspired with Paul Salavtich, a service-disabled veteran, to obtain SDVOSB set-aside contracts with the VA and Army.
Salavitch was nominally the President of his company, Patriot Company, Inc. However, the DOJ contends, Mr. Salavitch did not actually manage Patriot’s long-term decisions or day-to-day operations, nor did he work full-time for Patriot. Instead, Salavitch was a full-time employee with the DoD, based in Leavenworth, Kansas. The indictment suggests that Mr. Wilson, not Mr. Salavitch, actually controlled the company.
The indictment is rife with examples of conduct that appear to suggest that the conspirators knew that what they were doing was wrong–and were taking steps to try to hide it. For example, when Patriot was leasing new space, Mr. Wilson stated in an email that he wanted a “thing or two” from Mr. Salavitch “to put in that office that is personal.” Mr. Wilson stated that the purpose of obtaining these personal items was so “if one stepped into [the office], it would look and feel like Patriot.”
It will be up to a judge or jury to decide why Mr. Wilson made statements like these, but here’s one guess: Mr. Wilson was aware that the VA Center for Verification and Evaluation performs unannounced on-site visits, and, for the benefit of potential VA inspectors, was attempting to create the impression that Mr. Salavitch actually worked out of the Patriot office.
The indictment alleges that Patriot was awarded 20 SDVOSB and VOSB set-aside contracts with the VA and Army, totaling $13,819,522. The contracts included construction projects across the Midwest; the largest contract was $4.3 million.
Mr. Wilson, Mr. Salavitch and Patriot are charged with conspiracy and four counts of major government contract fraud. Mr. Wilson is also charged with one count of wire fraud and two counts of money laundering. The indictment contains forfeiture obligations, which would require Mr. Wilson and Mr. Salavitch to forfeit any property derived from the proceeds of the fraud scheme. Law enforcement has already seized over $2 million from various financial accounts.
As with any indictment, the defendants are entitled to a presumption of innocence. But if Mr. Wilson and Mr. Salavitch are found guilty, perhaps they will find themselves better acquainted with Leavenworth than they would have hoped. I’ll keep you posted.
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There is a lot of excitement brewing here in our neck of the woods. We are cautiously awaiting a potential ice storm that is expected to hit town today and roll through the weekend, our Kansas Jayhawks are in action against Oklahoma State on Saturday and a win will likely seal them as the new number 1 seed in the polls and of course the Kansas City Chiefs have their AFC divisional round game against the Pittsburgh Steelers on Sunday. I’m no fan of cold weather, so I’ll be watching the Jayhawks from Allen Fieldhouse and the Chiefs-Steelers game from the comfort of my living room.
While we await “icemaggedon” here in Kansas, it’s time for the SmallGovCon Week In Review. This week’s government contracting news includes three updates to the FAR affecting, a new survey shows that small businesses are spending more time and money trying to win contracts, a federal court rules that a large prime’s subcontracting plan was exempt from disclosure under the Freedom of Information Act, and more.
According to an annual survey, small businesses upped their efforts to bid on federal contracts, reporting a 72 percent increase in time and money devoted to winning a share of the government’s procurement budget. [Government Executive]
The GSA is issuing a final rule amending the GSAR to clarify that the ordering-agency task and delivery order Ombudsman has jurisdiction and responsibility to review and resolve fair opportunity complaints on tasks and delivery orders placed against GSA multiple-award contracts. [Federal Register]
The DoD won an appeals court decision that denied a demand from a small business advocacy group that they be required to disclose its subcontracting plan submitted under a long-standing Pentagon program. [Government Executive]
Proposed revisions of the National Industrial Security Program would add provisions incorporating executive branch insider threat policy and minimum standards as well as make other administrative changes to be consistent with recent revisions to the NISPOM and with updated regulatory language and style. [Federal Register]
The FAR Council has issued a final rule to implement regulatory clarifications made by the Small Business Administration regarding the 8(a) Program–including by adding the longstanding “once 8(a), always 8(a)” policy to the FAR. [Federal Register]
Federal agencies exceeded $144 billion in improper payments in Fiscal Year 2016, according to the GAO. [Federal News Radio]
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The government’s policy encouraging prompt payment to small business subcontractors has been extended to December 31, 2017.
In a Memorandum issued on January 11, 2017 by the Office of Management and Budget, OMB Director Shaun Donovan ordered that the popular policy be extended to the end of the year, and provided additional direction to agencies regarding their quarterly reports on implementing the accelerated payment policies.
The OMB’s accelerated payment policy was originally implemented by OMB Memorandum M-11-32, “Accelerating Payments to Small Businesses for Goods and Services,” which was issued on September 14, 2011. Memorandum M-11-32 specified that, to the greatest extent permitted by law, agencies should accelerate payments to small business prime contractors with the goal of making payments within 15 days of receipt of relevant documents (i.e., an invoice and confirmation that the goods and services have been received and accepted). Memorandum M-11-32 did not specify an expiration date.
On July 11, 2012, OMB took the next step under Memorandum M-12-16, “Providing Prompt Payment to Small Business Subcontractors.” Memorandum M-12-16 provided that, “agencies should, to the full extent permitted by law, temporarily accelerate payments to all prime contractors, in order to allow them to provide prompt payment to small business subcontractors.” The Memorandum established a goal of “paying all prime contractors within 15 days of receiving proper documentation.” Unlike Memorandum M-11-32, however, the policy established by Memorandum M-12-16 was intended as a “temporary, transitional policy,” and was to expire after one year. In subsequent memorandums, the temporary policy was extended to December 31, 2016.
The OMB later adopted requirements that agencies provide six-month reports on their progress in meeting the accelerated payment goals; OMB subsequently increased the reporting frequency to every three months. The January 11 Memorandum, numbered Memorandum M-17-13, extends the temporary policy under Memorandum M-12-16 to December 31, 2017. The new Memorandum also updates the reporting requirements, calling for agencies to make three-month reports on their progress in making accelerated payments to small business prime contractors and to all contractors, as well as “the progress of any other steps that the agency has undertaken to ensure that small business contractors and small business subcontractors are paid in a prompt manner.”
The OMB’s new Memorandum is welcome news for small business subcontractors, some of whom rely on prompt payments to maintain appropriate cash flow. It’s unclear, of course, how the incoming Administration will view the goals established by Memorandums M-11-32 and M-12-16, but supporting small business has long been a priority for many on both sides of the political aisle. Hopefully, that means that further extensions (or perhaps even a permanent extension) will be in the works in 2018–but we’ll just have to wait and see.
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An agency’s decision to award a contract as an 8(a) sole source is a “business decision” for which the agency has broad discretion–and a potential protester challenging the agency’s use of that discretion will have an uphill battle.
In a recent bid protest decision, the GAO confirmed that government officials are presumed to act in good faith, and that the presumption extends to the decision to award an 8(a) sole source contract instead of competing the work in question.
The GAO’s decision in NTELX, Inc., B-413837 (Dec. 28, 2016) involved a Consumer Product Safety Commission procurement for the operation and maintenance of CPSC’s international trade data system risk assessment methodology (“RAM”) software system.
In 2010, the CPSC awarded an 8(a) sole source contract for the development of the initial RAM system. NTELX, Inc. was a subcontractor under the original contract, and developed the system using its proprietary software. The CPSC subsequently awarded a second contract, also as an 8(a) sole source, for the development of a “RAM 2.0” system. The second contract was awarded to TTW Solutions, Inc., an 8(a) Program participant. Unlike the first contract, the RAM 2.0 contract used open source software. NTELX served as a subcontractor to TTW.
In 2016, the CPSC awarded a new 8(a) sole source contract to TTW, this time for the continued operation and maintenance of the RAM 2.0 contract. Apparently the relationship between TTW and NTELX had soured, and NTELX was not offered a subcontract.
NTELX filed a GAO bid protest challenging the new 8(a) sole source award to TTW. NTELX argued that the CPSC acted in bad faith and violated the FAR’s competition requirements by making an 8(a) sole source award to TTW. NTELX argued that it was the only contractor that could successfully perform the work, and that an award to TTW was irrational.
The GAO noted that 8(a) contracts may be awarded “on either a sole source or competitive basis.” Further, “because of the broad discretion afforded the SBA and the contracting agencies under the applicable statute and regulations, our review of actions under the 8(a) program generally is limited to determining whether government officials have violated regulations or acted in fraud or bad faith.” Government officials “are presumed to act in good faith and a protester’s claim that contracting officials were motivated by bias or bad faith must be supported by convincing proof; our Office will not attribute unfair or prejudicial motives to procurement officials on the basis of inference or supposition.”
In this case, the CPSC stated that TTW was capable of performing the contract; the GAO declined to second-guess the CPSC’s determination in that regard. “Therefore,” the GAO wrote, “although NTELX may disagree with the agency’s business decision to award TTW an 8(a) sole source contract for RAM 2.0, it has failed to demonstrate that the agency has engaged in any fraud or bad faith.”
The GAO denied NTELX’s protest.
So long as a procuring agency abides by the inherent limitations of the 8(a) sole source program–most notably, the dollar limitations–the agency (with the SBA’s approval) has broad discretion to choose to award an 8(a) sole source contract. As the NTELX, Inc. decision demonstrates, a protester trying to make the case that the agency abused its discretion will face a difficult challenge.
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Debriefings play a vital role in the procurement process. When conducted fully and fairly, a debriefing provides an offeror with valuable insight into the strengths and shortcomings of its proposal, thus enabling the offeror to improve its offering under future solicitations. But when an agency provides only a perfunctory debriefing, the process can be virtually worthless–and may actually encourage an unsuccessful offeror to file a bid protest.
With this in mind, the Office of Federal Procurement Policy recently issued a memorandum that urges agencies to strengthen the debriefing process. In doing so, OFPP has encouraged agencies to adopt a debriefing guide that will help facilitate effective and efficient debriefings.
FAR 15.506, which governs the post-award debriefing process, provides only general guidance as to the information that must be included in a debriefing. Basically, agencies need only provide minimal information about the award decision, including the evaluation of a proposal’s significant weaknesses or deficiencies and a “summary of the rationale for award.” The FAR prohibits an agency from providing a point-by-point comparison of proposals, or any information that can be deemed as confidential, proprietary, or as a trade secret. Given these restrictions, and considering that agencies are often tasked with debriefing numerous offerors under a solicitation (including the awardee), debriefings can devolve into little more than a notation of the offeror’s score and the awardee’s price.
Written as part of its “myth-busting” series on issues under federal contracting, OFPP’s memorandum explains the importance of effective debriefings:
Debriefings offer multiple benefits. They help vendors better understand the weaknesses in their proposals so that they can make stronger offers on future procurements, which is especially important for small businesses as they seek to grow their positions in the marketplace. In addition to contributing to a potentially more competitive supplier base for future work, debriefings allow agencies to evaluate and improve their own processes.
Despite these benefits, agencies often skimp on the information provided to offerors in a debriefing by providing only the bare minimum required under the FAR. In doing so, an agency may assume that it is limiting its exposure to a post-award protest, by limiting the information (or ammunition) available to a potential protester. OFPP’s memorandum addresses this myth head-on:
[A]gencies that conduct quality debriefings have found a decreased tendency by their supplier base to pursue protests. Studies of the acquisition process have observed that protests may be filed to get information—information that could have been shared during a debriefing—about the agency’s award decision to reassure the contractor that the source selection was merit-based and conducted in an impartial manner.
Offerors—who spend a tremendous amount of time and money to prepare their proposals—are entitled to a debriefing that adequately explains the strengths and weaknesses of their effort and confirms that a fair selection occurred. But agencies are too often quick to limit the information provided in debriefings, in the misguided effort to limit potential protests. OFPP’s memorandum addresses this disconnect, by explaining that an effective debriefing actually tends to lower the risk of a protest.
In our experience, OFPP’s memorandum is spot-on. My colleagues and I frequently speak with clients who are very frustrated with the scant information provided in debriefings. Perception matters in government contracting, and cursory debriefings can appear disrespectful of the time and effort that an offeror puts into its proposal. Worse, bare-bones debriefings can give the impression that the agency has something to hide. In many cases in which we’ve been involved, the agency likely could have avoided a protest if it had provided a comprehensive debriefing. And on the flip side, we have seen many other cases in which a client was initially eager to protest, but changed its mind after a thorough debriefing.
As we recently noted, Congress has also required DoD to analyze and address the effect of the quality of a debriefing on the frequency of bid protests. Hopefully this requirement, together with OFPP’s memorandum, will encourage agencies to make the most of the debriefing process.
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Happy New Year and welcome back to the SmallGovCon Week In Review. I hope that everyone had an enjoyable holiday season and is jumping full force into 2017. We bring you a double edition today, as we took a little time off from delivering you our weekly publication last week.
It may have been the holiday season, but it was still a busy two weeks of developments in the world of federal government contracting. In this week’s edition, the President has signed the 2017 National Defense Authorization Act (click here for SmallGovCon‘s complete 2017 NDAA coverage), alleged procurement fraud results in a whopping $4.5 million settlement, President-elect Trump’s administration may prioritize Buy American policies, Guy Timberlake takes a look at how FY 2016 contracting dollars were obligated, and much more.
Guy Timberlake takes a look at how fiscal year 2016 obligated dollars got to small business concerns based on solicitation type and the award instruments used to help small businesses minimize lost dollars and lost time. [GovConChannel]
Frustrations with security clearance waiting times are growing, but the latest report from Performance.gov shows the administration spent the year putting several key building blocks in place to implement future security clearance reforms and insider threat programs. [Federal News Radio]
A Florida-based company will shell out $4.5 million to settle allegations that it submitted inflated invoices to the government for work performed at the Joint Base Andrews. [United States Department of Justice]
President-elect Trump said that his administration will follow two simple rules: Buy American and Hire American–will the Buy American Act be more strictly applied? [MarketWatch]
President Obama signed the 2017 NDAA–loaded with government contracting provisions—into law. [Military Times]
Small business contractors breathed a sigh of relief after the final version of the 2017 NDAA omitted a proposed provision that would have gutted the DoD’s small business goaling program. [Forbes]
Several dozen companies earned $1 billion or more from federal contracts in Fiscal Year 2015, and 34 of those are publicly traded companies. CNBC has compiled a list of the top earners. [CNBC]
How well do you understand how agencies classify the goods and services you want them to buy from you? Guy Timberlake encourages contractors to look beyond NAICS codes. [GovConChannel]
U.S. Cyber Command will soon be hiring an acquisition expert to handle the $75 million Congress afforded the command in last year’s defense authorization act. [Federal News Radio]
A recent report to Congress ties lower contract costs, reduced costs overruns and arrested cost growth on major programs with the DoD’s “should cost” initiative. [Federal News Radio]
The 2017 NDAA reorganizes the Department of Defense acquisition but splitting up the AT&L office isn’t the only organizational change spelled out in the 2017 NDAA. [Washington Technology]
Too big to debar? The Department of Labor is trying to bar Google from doing business with the federal government unless Google turns over confidential information about thousands of employees. [CBS News]
A December 29th audit substantiated allegations that Bonneville Power’s administration of 1,921 active service contracts “created prohibited personal services contracts by establishing improper employer/employee relationships with supplemental labor workers.” [Government Executive]
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President Obama signed the 2017 National Defense Authorization Act into law on December 23, 2016. As is often the case, the NDAA included many changes affecting government contractors.
Here at SmallGovCon, my colleagues and I have been following the 2017 NDAA closely. Here’s a roundup of all 16 posts we’ve written about the government contracting provisions of the 2017 NDAA.
SDVOSB Programs: 2017 NDAA Sharply Curtails VA’s Authority. (Dec. 5, 2016).
2017 NDAA Restricts DoD’s Use of LPTA Procedures. (Dec. 7, 2016).
2017 NDAA Extends SBIR & STTR Programs For Five Years. (Dec. 8, 2016).
2017 NDAA Authorizes $250 Million For New Small Business Prototyping Program. (Dec. 8, 2016).
2017 NDAA Increases DoD’s Micro-Purchase Threshold To $5,000. (Dec. 9, 2016).
SDVOSB Programs: 2017 NDAA Modifies Ownership & Control Criteria. (Dec. 12, 2016).
2017 NDAA Strengthens Subcontracting Plan Enforcement. (Dec. 13, 2016).
2017 NDAA Requires GAO Report On Minority And WOSB Contract Awards. (Dec. 13, 2016).
2017 NDAA Requires Report On Bid Protest Impact At DoD. (Dec. 14, 2016).
2017 NDAA Restores GAO’s Task Order Jurisdiction – But Ups DoD Threshold. (Dec. 14, 2016).
2017 NDAA Requires “Brand Name Or Equivalent” Justifications. (Dec. 19, 2016).
2017 NDAA Establishes Preference For DoD Fixed-Price Contracts. (Dec. 21, 2016).
2017 NDAA Creates Pilot Program For Subcontractors To Receive Past Performance Ratings. (Dec. 21, 2016).
2017 NDAA Reiterates GAO Bid Protest Reporting Requirements. (Dec. 30, 2016).
2017 NDAA Requires Report on Indefinite Delivery Contracts. (Jan. 4, 2017).
That’s a wrap of our coverage for now, but we’ll keep you posted as various provisions of the 2017 NDAA begin to be implemented. And of course, it won’t be long until we start covering the upcoming 2018 NDAA.
Happy New Year!
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Under the 2017 National Defense Authorization Act, the DoD has the discretion to forego a price or cost evaluation in connection with the award of certain multiple-award contracts.
The 2017 NDAA includes some important changes that are sure to impact federal procurements. Section 825 of the NDAA, which allows DoD contracting officers to forego price or cost evaluations in certain circumstances, is one of these changes.
By way of background, 10 U.S.C. § 2305(3)(A) previously required that DoD solicitations for competitive proposals clearly establish the relative importance assigned to evaluation factors and subfactors, and must include cost or price to the government as an evaluation factor that must be considered in the evaluation of proposals. Section 825 of the 2017 NDAA, however, alters this section and provides the DoD with discretion as to whether to consider cost and/or price in some competitions for certain multiple-award IDIQ contracts (although not when the orders themselves are later competed).
As amended, 10 U.S.C. § 2305(a)(3)(C) provides that if an agency issues a “solicitation for multiple task order or delivery order contracts under [the DoD’s statutory authority governing multiple award contracts] for the same or similar services and intends to make a contract award to each qualifying offeror . . . cost or price to the Federal Government need not, at the Government’s discretion, be considered…as an evaluation factor for the contract award.”
Under this new statute, the multiple-award contract must be for “the same or similar services.” Solicitations for multiple-award contracts contemplating the award of orders to secure a wide range of services still require contractors to provide cost and pricing information.
Second, the agency must intend to make a contract award to each qualifying offeror. The new statute provides that an offeror is a “qualifying offeror” under the proposed statute if: 1) it is a responsible source, 2) its proposal conforms to the solicitation requirements, and 3) the contracting officer has no reason to believe that the contractor would offer anything other than a fair and reasonable price.
Third, this new authority is discretionary, not mandatory. Thus, DoD components may still require cost and pricing information, even when they would have the discretion not to do so. Also worth highlighting, this change only applies to DoD, and does not provide the same discretion to civilian contracting officers.
Finally, if the DoD will not consider cost or price, the qualifying offeror is not required to disclose it in response to the solicitation. However, qualifying offerors will still need to provide cost or price at the time of competition on these orders, unless an exception applies.
One final caveat to the proposed statutory change is of particular interest to participants in the SBA’s 8(a) business development program. Specifically, the changes outlined here do not apply to multiple task or delivery order contracts if the solicitation provides for sole source task or delivery order contracts be set-aside for 8(a) Program participants.
By granting DoD discretion to omit consideration of cost and/or price at the initial multiple-award stage, the statute may ease the burden on both the government and contractors alike, because pricing a multiple-award IDIQ contract is often challenging. For instance, at times, the government has resorted to hypothetical sample tasks to obtain some semblance of pricing, but the sample tasks may not accurately reflect much of the work that the government later procures under the IDIQ–and with no real “skin in the game,” offerors can be tempted to underbid the hypothetical task. In other instances, the government has insisted that offerors provide firm ceiling prices (for example, labor rate ceilings), which creates a conundrum for offerors: bid high and risk losing the IDIQ, or bid low and risk being unable to profit on orders? In settings like these, postponing the price/cost evaluation until the order competition may be a wise move.
As the President signed the 2017 NDAA into law on December 23, 2016, it will be interesting to see if DoD exercises any of its price or cost evaluation discretion accorded to it under Section 825. However, chances are that DoD contracting officers will refrain from exercising their new authority until DoD makes changes to the DFARS to provide contracting officers with more guidance on its use.
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Congress is taking a hard look at how to promote increased competition in federal contracting.
Among the provisions in the 2017 National Defense Authorization Act is a requirement for the GAO to prepare a report on how the DoD enters into and uses indefinite delivery contracts–and recommendations for changes to promote competition with respect to indefinite delivery contracts.
Section 886 of the 2017 NDAA calls for the GAO to study indefinite delivery contracts entered into by the DoD in Fiscal Years 2015, 2016 and 2017. The GAO is then to prepare and submit a detailed report to Congress.
The report is to address five discrete topics. Of these, two are informational requests for data on the number and value of indefinite delivery contracts awarded by the Department of Defense. More interesting are the remaining three categories.
First, the report is to provide a comprehensive review of the DoD’s policies for entering into indefinite delivery contracts, including a discussion of what guidance, if any, DoD contracting officers are given regarding “the appropriate number of vendors that should receive multiple award indefinite delivery contracts.”
Second, the report is to include specific case studies of indefinite delivery contracts. These studies are to specifically address “whether any such contracts may have limited future opportunities for competition for the services or items required.”
Finally, the report is to provide guidance and recommendations for revising existing laws, regulations and guidance to enhance competition with respect to indefinite delivery contracts.
The report is to be submitted to Congress no later than March 31, 2018.
The report is part of the 2017 NDAA’s broader focus on enhancing competition, which includes (among other things) additional restrictions on using “brand name or equivalent” specifications and a review of DoD contracts awarded to minority-owned and women-owned contractors. The report should make for interesting reading when it arrives in 2018.
President Obama signed the 2017 NDAA into law on December 23, 2016.
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An offeror’s proposal was properly rejected as late because the proposal exceeded the agency’s email file size limit.
In a recent bid protest decision highlighting, the GAO held that a small business’s proposal was late because the emails transmitting the proposal exceeded 10 MB–even though the solicitation didn’t mention a file size limit.
The GAO’s decision in Washington Coach Corporation, B-413809 (Dec. 28, 2016) involved a VA solicitation for executive driver transportation services. The solicitation was apparently classified as an acquisition of commercial items, and contained FAR clause 52.212-1 (Instructions to Offerors–Commercial Items).
The solicitation required that proposals be submitted by email to the Contracting Officer and Contracting Specialist. The solicitation did not mention any limit on the sizes of files that could be emailed to the agency. Proposals were due on September 16, 2016 at 2:00 p.m.
On September 16 at 1:19 p.m., Washington Coach Corporation attempted to send its proposal by email to the two VA email addresses. WCC’s email apparently exceeded 10 MB in size. WCC’s emails were not received by the VA.
At 1:55 p.m., WCC called the VA in an attempt to confirm receipt of the proposal. WCC received a voicemail message. After the 2:00 deadline, WCC made three subsequent attempts to call the VA. WCC also sent emails to the Contracting Officer and Contracting Specialist requesting confirmation that the proposal had been received.
The Contracting Officer and Contracting Specialist received WCC’s request for confirmation, and forwarded them to the VA’s IT department to determine whether a proposal had been received from WCC. After several days, the IT department concluded that the emails had been sent, but had not been received “at the Local Exchange Level” because they “exceeded the size limit which is allowed by VA Policy,” that is, because they exceeded 10 MB.
The VA determined that WCC’s proposal was late because it had not been received before the proposal deadline. The VA also determined that none of the exceptions set forth in FAR 52.212-1 applied to WCC’s circumstance. The VA declined to evaluate WCC’s proposal.
WCC filed a GAO bid protest challenging the VA’s decision. WCC argued that it submitted its proposal to the correct email addresses identified in the solicitation before the 2:00 deadline. WCC also pointed out that the solicitation did not identify the 10 MB file size limitation.
The GAO wrote that “ it is an offeror’s responsibility to delivery its proposal to the proper place at the proper time.” Proposals received after the exact time specified are deemed late, and ordinarily cannot be considered. GAO explained, “[w]hile the rule may seem harsh, it alleviates confusion, ensures equal treatment of all offerors, and prevents one offeror from obtaining a competitive advantage” by submitting a proposal later than other offerors.
In keeping with these general principles, “ we view it as an offeror’s responsibility, when transmitting its proposal electronically, to ensure the proposal’s timely delivery by transmitting the proposal sufficiently in advance of the time set for receipt of proposals to allow for timely receipt by the agency.” In that regard, “it is an offeror’s responsibility to ensure that an electronically submitted proposal is received by–not just submitted to–the appropriate agency email address prior to the time set for closing.”
The GAO noted that FAR 52.212-1(f), which was incorporated in the solicitation, does provide an important exception under which electronically-submitted proposals may be considered even if they would otherwise be deemed late. The exception applies where the Contracting Officer determines that accepting the late proposal would not unduly delay the acquisition, and the proposal “was received at the initial point of entry to the Government infrastructure not later than 5:00 p.m. one working day prior to the date specified for receipt of offers.”
Unfortunately for WCC, the exception didn’t apply because WCC’s proposal “was not received at the initial point of entry by 5:00 p.m. the day before proposals were due . . ..” Instead, WCC submitted its proposal about 40 minutes before the final deadline.
The GAO denied WCC’s protest.
The Washington Coach Corporation case is a cautionary tale for contractors. As the GAO’s decision demonstrates, an agency may be able to reject as “late” an electronically submitted proposal if the file size is too large–even if the solicitation didn’t identify any size limits. In an age where proposals are increasingly being submitted by electronic means, it’s important for contractors to be aware of this “harsh” rule.
Of course, WCC’s story might have had a happy ending had the company taken measures to prevent the potential file size problem. For one, WCC could have checked with the VA during the proposal stage to determine whether there were any file size limits. WCC also could have submitted its proposal a day earlier. As the GAO’s decision demonstrates, for commercial item solicitations containing FAR 52.212-1, the agency can accept an otherwise “late” electronically-submitted proposal, but only if the proposal was submitted the prior working day (or earlier).
WCC, like many offerors, waited until the last minute–or close to it, anyway–to submit its proposal. By waiting until so close to the deadline, WCC not only decreased its odds of reaching the Contracting Officer and Contracting Specialist to confirm receipt of its proposal before the deadline, but essentially waived the late proposal exception provided by FAR 52.212-1(f).
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Under the Competition in Contracting Act, the Government Accountability Office is required to issue an annual report to Congress that summarizes the “most prevalent grounds” of sustained protests, identifies the instances in which GAO was not able to decide a protest within its 100-day deadline, and list any protest where the agency did not follow GAO’s recommendations.
The 2017 National Defense Authorization Act doubles down on this first requirement: it mandates that GAO provide Congress with a list of the most common grounds for sustaining protests. This only begs the question: why would Congress require GAO to do something it’s already required to do (and that it’s already doing)?
One possible explanation is that Congress is not getting the information it wants. That is, Congress might want more detail than GAO currently provides. For instance, in its Fiscal Year 2016 Annual Report, the GAO’s list of common grounds for sustained protests included only four items: “(1) unreasonable technical evaluation; (2) unreasonable past performance evaluation; (3) unreasonable cost or price evaluation; and (4) flawed selection decision.”
Broad categories like these don’t offer much in the way of helpful information for agencies to improve the acquisition process. If GAO were able to provide additional detail, it might enable new rules or procedures that improve the procurement process.
In fairness to GAO, though, its ability to provide anything beyond broad generalizations is very limited. Each protest relates to a different solicitation, issued by a different agency, with different technical requirements, different evaluation criteria, and different source selection procedures. GAO can probably do better than “unreasonable technical evaluation,” such as (for example) something like “use of unstated evaluation criteria in technical evaluation.” But beyond that, the differences between each solicitation and evaluation would make summarizing the similarities between sustained protests nearly impossible.
The 2017 NDAA was signed into law on December 23, 2016. Now that the 2017 NDAA is the law of the land, it will be interesting to see what additional information—if any—is included in GAO’s FY 2017 Annual Report.
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The SBA has corrected a flaw in the profit-splitting provisions of its new joint venture regulations.
Under the corrected regulations, which became effective on December 27, all of the SBA’s joint venture regulations–those for small businesses, SDVOSBs, HUBZones, 8(a)s, and WOSBs–will require that each joint venturer receive profits commensurate with the work it performs. The SBA’s revisions clear up an inconsistency between the 8(a) joint venture regulations and the regulations for the SBA’s other set-aside programs, and eliminates a potential disincentive for joint venturers to avail themselves of the protections of a formal legal entity such as a limited liability company.
Effective August 2016, the SBA overhauled its joint venture regulations. Among the major changes, the SBA eliminated so-called “populated” joint ventures and made numerous additions and revisions to the regulations governing mentor-protege joint ventures, SDVOSB joint ventures, and joint ventures for other set-aside contracts.
For those of us whose day-to-day work involves drafting joint venture agreements, it soon became apparent that the profit-sharing provisions of the new regulations were flawed. As I wrote in an October post on SmallGovCon, the SBA’s revised 8(a) joint venture regulation stated that all joint ventures must split profits based on each joint venturer’s work share. But for mentor-protege joint ventures pursuing small business set-aside contracts, as well as for joint ventures pursuing SDVOSB, HUBZone and WOSB contracts, the regulations stated that a “separate legal entity” joint venture (e.g., an LLC) would split profits commensurate with each party’s ownership interest in the joint venture. In these programs, only joint ventures formed as informal partnerships would split profits based on each party’s work share.
This led to an important inconsistency: as I pointed out in my October post, in order for a “separate legal entity” 8(a) mentor-protege joint venture to receive the exception from affiliation for a small business set-aside contract, the regulations required the joint venture to split profits based on ownership and based on work share. It wasn’t clear how the joint venture could do both.
The inconsistency in the prior regulation discouraged 8(a) mentor-protege joint venturers from establishing an LLC or other separate legal entity: by choosing an informal partnership, the joint venturers could avoid the regulatory inconsistency. But even for other joint ventures, the regulations created a disincentive to form a separate legal entity. By forming an informal partnership, the non-managing member could perform up to 60% of the work and receive a commensurate share of the profits. In contrast, in an LLC or other separate legal entity, the non-managing member could still perform up to 60% of the work, but could receive no more than 49% of the profits.
In the preamble to its correction, the SBA states that “it would not make sense to require a firm to receive 51% of the profits for doing only 40% of the work.” The SBA explains that “SBA’s intent was for profits to be commensurate with the work performed by each member of the joint venture” for all of the set-aside programs, not just the 8(a) program. The SBA then revises the regulations governing joint ventures for small business, HUBZone, SDVOSB, and WOSB set asides to provide that the joint venture agreement must contain a provision stating that the managing member “must receive profits from the joint venture commensurate with the work performed” by the managing member.
In any major regulatory overhaul, there will inevitably be flaws of some sort. Kudos to the SBA for recognizing the problems with its joint venture profit-splitting requirements and acting quickly to correct those flaws.
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With Christmas just two days away, it is time for many of us to focus on family and friends and enjoy a few days off. I hope that you have an enjoyable holiday season and are able to surround yourself with those that mean the most to you. Before we take a little break for the holidays we are happy to bring you this final 2016 edition of SmallGovCon Week In Review. (We won’t be publishing a Week in Review next week, but will be back with more in 2017).
As we head into the final week of 2016, we take a look at two separate fraud cases where million dollar fines have been assessed, more predictions of how the incoming Trump Administration will affect government contractors, 2017 is shaping up as a competitive year in IT contracting, and much more.
The Trump transition and campaign websites provide some insight about the acquisition agenda that the new administration will pursue, as well as other policies that may impact government contractors and federal acquisition personnel. [Washington Technology]
A Rhode Island business will pay $1 million dollars to resolve civil allegations that it violated the False Claims Act by submitting, or causing the submission of, claims for reimbursement for funding earmarked for minority, women-owned, or small business that it was not entitled to receive. [The Valley Breeze]
Two Arkansas business owners are accused of falsely claiming to be a service-disabled veteran owned business in order to collect more than $15.5 million in federal contracts. [Arkansas Online]
Our very own Senior Associate Attorney Matthew Schoonover was interviewed for this article on the controversy surrounding the Trump Washington hotel. [Bloomberg Politics]
According to one commentator, the GSA is taking steps to make multiple award schedules more expensive for contractors. [Allen Federal Business Partners]
President-elect Donald Trump’s pick for Army Secretary has some people wondering who? But that may be just what the Army needs. [Federal News Radio]
2017 is shaping up to be a very competitive year for IT contracts across the U.S. military branches and Defense Department. [Nextgov]
A handful of defense organizations are crying foul on a proposed regulation that may eat into research funding the Defense Department gives to industry. [Federal News Radio]
The National Defense Authorization Act of 2017 directs more limited use of Low Price Technically Acceptable procurements, which may be a welcome holiday gift for federal contractors. [Washington Technology]
Jason Miller of Federal News Radio takes an in depth look at three changes to federal acquisition agencies that industry should know about. [Federal News Radio]
The federal government maintains a database of every contract action above the $3,500 threshold, but despite this expansive data set, the government does not capture meaningful visibility into what agencies are actually buying. [Federal News Radio]
Will a potential Trump hiring freeze on federal hiring result in the hiring of more contractors to compensate for a small internal agency workforce? [Government Executive]
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Earlier this year, we wrote about an interesting issue brewing in federal contracting: whether the logic behind the Supreme Court’s June 2016 decision in Kingdomware Technologies means that the Small Business Act’s rule of two is mandatory for acquisitions under Federal Supply Schedules. In other words, does the Small Business Act require agencies to set aside orders under the FSS when two or more small business are likely to submit competitive offers?
The SBA believes that the rule of two (see FAR 19.502-2) is mandatory for such orders. GAO has disagreed, saying instead that the Small Business Jobs Act of 2010 and the exclusion of FSS contracts from the application of FAR Part 19 (see FAR 8.405-5(a)(1)(i)) make the small business rule of two discretionary for these orders.
This conflict—GAO believing the Small Business Act’s rule of two is discretionary for orders placed under multiple-award contracts; SBA believing it is mandatory—has existed for several years. But now the SBA is using the Supreme Court’s recent decision to bolster its case: according to a recent SBA internal memorandum, Kingdomware requires the small business rule of two to be given mandatory effect, at least with respect to orders valued between $3,500 and $150,000.
Kingdomware involved the scope of a VA-specific procurement statute, 38 U.S.C. § 8127(d), which required the VA to set aside contracts for SDVOSBs or VOSBs whenever two or more veteran-owned companies would submit an offer at a fair and reasonable price. The VA opposed the application of this provision to FSS orders, saying that orders are not “contracts” and therefore the statutory rule of two did not apply. The Supreme Court unanimously disagreed with the VA’s interpretation, holding that FSS orders are, in fact, contracts and that the 2006 VA Act’s rule of two is mandatory even when the VA wishes to use the FSS.
The SBA jumped on this decision, and wrote in October 2016 that Kingdomware’s rationale “should be applied broadly to similarly worded Federal statutes.” This includes the Small Business Act’s rule of two, which says that “[e]ach contract for the purchase of goods and services that has an anticipated value greater than [$3,500 but less than $150,000] shall be reserved exclusively for small businesses” if two or more small businesses will submit competitive offers. 15 U.S.C. § 644(j); see also 80 Fed. Reg. 38294 (July 2, 2015) (increasing dollar amounts). Because “FSS orders are unmistakably ‘contracts’ under the common law and the Federal Acquisition Regulation,” the SBA believes that FSS orders between $3,500 and $150,000 must be set aside for small businesses, in accordance with the Small Business Act.
Given its interpretation, the SBA’s memorandum urges its Procurement Center Representatives (“PCR”) to evaluate contracts to increase small business participation:
The policies and goals established by law are clear, and agencies have the requisite tools to receive best value at fair market prices exclusively from SBCs when appropriate, regardless of the mechanism the agency chooses to utilize to acquire those goods or services. Therefore, PCRs should, to the extent possible, review requirements between $3,500 and $150,000 which have not been unilaterally set-aside for SBCs, regardless of which mechanism the agency chooses to obtain said requirement, in order to determine if small businesses can reasonably compete for these opportunities. PCRs should endeavor to use their full authority to review contracts and orders to encourage small business participation.
GAO and the Court of Federal Claims will ordinarily afford the SBA “great deference” as to the interpretation of small business statutes and regulations, so SBA’s stance could impact any future protest decisions. The SBA’s interpretation, moreover, effectuates Congress’s broad policy “that the Government should aid, counsel, assist, and protect the interests” of small business concerns and “ensure that a fair proportion of the total purchases and contracts for property and services for the Government are placed with” small businesses. GAO’s past interpretation of the Act (which, again, holds that the rule of two is discretionary for FSS orders) seems to run counter to this purpose, by potentially minimizing the instances under which small businesses get first dibs on federal contracts.
The question of whether the Small Business Act’s rule of two is mandatory or discretionary for FSS orders promises to percolate over the coming weeks and months. And because the federal government buys billions of dollars’ worth of goods and services through FSS contracts, its resolution will be tremendously important to small businesses.
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The FAR Council has published a final rule to require that certain contractor employees complete privacy training.
The final rule requires privacy training for contractor employees who handle personally identifiable information, have access to a system of records, or design, maintain, or operate a system of records.
The final rule has been more than five years in the making: the FAR Council issued a proposed rule regarding privacy training way back on October 14, 2011. The final rule responds to public comments on the proposal and makes some adjustments, although it’s unclear why the FAR Council required half a decade to do so).
The final rule creates a new FAR Subpart 24.3, which will be named “Privacy Training.” New FAR 24.301 will specify that “Contractors are responsible for ensuring that initial privacy training, and annual privacy training thereafter” is completed by contractor employees who: (1) Have access to a system of records; (2) Create, collect, use, process, store, maintain, disseminate, disclose, dispose, or otherwise handle personally identifiable information on behalf of the agency; or (3) Design, develop, maintain, or operate a system of records.
The FAR will define “personally identifiable information” as “information that can be used to distinguish or trace an individual’s identity, either alone or when combined with other information that is linked or linkable to a specific individual.” The definition refers readers to OMB Circular No. A-130 (Managing Federal Information as a Strategic Resource) for additional guidance. (FAR 24.101 already provides other relevant definitions, such as “operation of a system of records).
FAR 24.301 will specify the minimum “key elements” that privacy training must include. These include such things as “the appropriate handling and safeguarding of personally identifiable information,” “procedures to be followed in the event of a suspected or confirmed breach of a system of records or unauthorized disclosure, access, handling or use of personally identifiable information,” and several others. The clause requires the contractor to “maintain, and upon request, to provide documentation of completion of privacy training for all applicable employees.”
The final rule calls for the contracting officer to insert a new clause, FAR 52.224-3 (Privacy Training) in solicitations and contracts when, on behalf of an agency, contractor employees will engage in functions that fall within the privacy training requirement. The clause must be flowed down to all subcontractors who will engage in covered functions. The clause also permits agencies to use an alternate version of the clause to specify that only agency-provided training is acceptable.
Earlier this year, the FAR Council finalized FAR 4.19 (Basic Safeguarding of Covered Contractor Information Systems) and its associated clause, FAR 52.204-21. The final rule builds on this theme, again emphasizing the protection of information held by contractors. The rule takes effect on January 19, 2017.
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The 2017 National Defense Authorization Act gives certain small subcontractors a new tool to request past performance ratings from the government,
If the pilot program works as intended, it may ultimately improve those subcontractors’ competitiveness for prime contract bids, for which a documented history of past performance is often critical.
For small contractors looking to break into the federal marketplace, a lack of past performance ratings can be a major problem. Without government past performance ratings, it can be difficult to prevail in a “best value” competition. Sure, FAR 15.305 provides that the government can consider past projects performed for non-governmental entities, and the same FAR section states than an offeror without a record of relevant past performance should receive a “neutral” rating. But ask most contractors, and they’ll tell you that their perception–for better or for worse–is that an offeror without government past performance references can be at a significant competitive disadvantage.
Perhaps Congress agrees. Section 1822 of the 2017 NDAA creates a pilot program that will allow a “first tier” subcontractor performing on a government contract, which required the prime contractor to develop a subcontracting plan, to submit an application to the appropriate official (agencies will designate a recipient) requesting a past performance rating. Interestingly, the subcontractor will be able to include a suggested rating, but will have to support the suggestion with written evidence, almost as if the subcontractor will have to plead its case. The application will then go to both the agency Office of Small and Disadvantaged Business Utilization and the prime contractor for review. Each will submit an official response within 30 days.
If the OSDBU and prime contractor agree with the suggested rating, the official simply will enter the rating into the government’s past performance system, and the subcontractor will be able to use the rating “to establish its past performance for a prime contract.”
However, if they disagree with the subcontractor’s suggested rating, the disagreeing party will submit a notice contesting the application, the official will provide the subcontractor with the notice, and the subcontractor will have 14 days to submit comments, rebuttals, and additional information. But, interestingly, the review will stop there. No decider will determine whether the subcontractor’s proposed rating was “right” or “wrong.” Instead, the official with then enter a neutral rating into the system along with the original application and any responses.
This pilot program may turn out to be a valuable tool for companies with excellent performance at the subcontract level but little or no prime contract experience. The program’s timing may be fortuitous, as well: it could dovetail nicely with the SBA’s new “All Small” mentor-protege program, as well as the existing SBA 8(a) and DoD mentor-protege programs. As a part of a mentor-protege agreement, a large mentor could subcontract work to the protege, then help the protege apply for (and hopefully receive) an excellent past performance rating for its work.
However, in practice, there would seem to be a few areas where things may go awry. First, since subcontractors are responsible for suggesting their own ratings, this introduces the obvious potential that a subcontractor could attempt to inflate its score–and put its prime contractor in the difficult position of disagreeing with its teaming partner. Also, on the flip side, the procedure allows for the prime contractor to potentially derail a future competitor by disagreeing with a reasonable suggested rating, and thereby ensure through simple disagreement, at best, a neutral rating. Because there is no adjudicative procedure, the subcontractor seems to have no recourse if the prime contractor doesn’t provide a fair response.
Then there is the question of why OSDBUs are expected to weigh in on the specific past performance scores assigned to small subcontractors. Agency OSDBUs are advocates for small businesses, and are involved in various ways throughout the acquisition cycle. That said, it seems unlikely that an OSDBU will, in the typical case, have sufficient knowledge of a particular small subcontractor’s quality of performance to pass independent judgment on what past performance score that subcontractor should receive. Involving agency OSDBUs ordinarily is a good thing, but requiring them to pass judgment on a subcontractor’s past performance might not be the best way to go about it.
Finally, there is the question of just what sort of weight the typical contracting officer will afford to these ratings. Although the rating comes from the contracting agency, the rating itself is established by the subcontractor, prime contractor, and OSDBU. It’s possible that some contracting officers will see these ratings as less persuasive than “ordinary” prime contractor ratings developed by government contracting officials.
Fortunately, Congress seems to have anticipated that the pilot program might need to be improved. The 2017 NDAA requires the GAO to assess the program one year after it is established and report various findings back to Congress, including “any suggestions or recommendation the Comptroller General has to improve the operation of the pilot program.”
The statute calls for the SBA to establish the pilot program, but doesn’t provide a specific deadline for the SBA to do so. Once the program is up and running, it will last for three years,, beginning on “the date on which the first applicant small business concern receives a past performance rating for performance as a first tier subcontractor.” At that point, it will be up to Congress whether to continue the pilot program.
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