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Koprince Law LLC

GAO sustained a protest recently where an agency had given higher past performance scores to a proposal with two relevant examples of past performance than a proposal with five relevant examples.

In Patricio Enterprises, Inc., B-412740 et al. (Comp. Gen. May 26, 2016), GAO said that an agency cannot mechanically apply an evaluation formula that produces an unreasonable result, such as allowing a proposal with fewer examples of relevant past performance to somehow earn a higher score than a proposal with more examples.

The Patricio Enterprises case had to do with an SDVOSB set-aside procurement for the U.S. Marine Corps, Marine Corps Systems Command for program and financial management support services for the Marines’ Program Manager, Infantry Weapons Systems program. The solicitation called for a best value evaluation encompassing three factors: management and staffing capability, past performance, and price.

With respect to the past performance factor, the solicitation instructed offerors to provide summaries of up to five contracts that were recent and similar in size and scope to the project. The evaluation scheme would involve assigning each example a relevancy and quality of performance rating, which would lead to an overall past performance confidence rating.

Among the offerors were Patricio Enterprises, Inc. of Stafford, Va., and Get It Done Solutions, LLC, of Fredricksburg, Va.  Get It Done submitted a proposal with three past performance examples.  Two of them received ratings of very relevant/exceptional while the third was determined to not be relevant. Patricio meanwhile, proposed five examples of past performance. The agency rated two of the proposals very relevant/exceptional (the same as Get It Done), one very relevant/very good, and two relevant/exceptional.

Based on this, one might assume that Patricio earned the higher past performance rating. Not so. The agency determined that a proposal would earn a substantial confidence rating only when all relevant past performance was rated very relevant, with exceptional performance. Get It Done, with two relevant contracts, met this standard and received a substantial confidence rating. But in Patricio’s case, even though Patricio also had three very relevant/exceptional projects, Patricio’s other three projects scored lower (though no worse than relevant/very good). Because the three additional examples did not receive perfect scores, the agency gave Patricio’s proposal a lower “substantial confidence” rating.

The agency awarded the contract to Get It Done, based in part on Get It Done’s higher past performance score.  Patricio then filed a GAO bid protest.

GAO s wrote that the agency had used an unreasonable methodology in evaluating past performance. It explained:”n our view, the agency’s mechanical evaluation of past performance was unreasonable where the result was that the additional relevant past performance references with exceptional and very good quality resulted in a downgraded past performance rating.” GAO sustained the protest and recommended that the agency re-evaluate offerors’ past performance.

Agencies have fairly broad discretion in their evaluations, but an evaluation scheme must be reasonable and logical. In sustaining Patricio’s protest, GAO basically told the agency to use some common sense. In other words, two is not greater than five.

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Koprince Law LLC

While we patiently await the Supreme Court’s pending decision in Kingdowmware Technologies, Inc. v. United States, there is still plenty happening in the world of government contracting.

This week’s edition of SmallGovCon Week In Review is packed with important news and commentary, including stories on the Army looking to end its ‘use it or lose it’ budgeting, the continued push for category management, a sneaker company looking to nix an exemption in the Berry Amendment, allegations of SDVOSB fraud, and much more.

  • The VA’s chief acquisition officer says that a new acquisition program management framework will be rolled out this summer. [Federal News Radio]
  • The GAO is warning that CIOs in various agencies are undercutting the usefulness of the federal IT dashboard that is meant to offer feds and the public alike a way to keep tabs on how investments are likely to proceed. [FCW]
  • As part of a directive set to take effect July 1, the Army is telling all of its major commands that they cannot cut a program’s funding just because it didn’t spend all of its money the year before. Will this directive help address the persistent “use it or lose it” problem associated with federal contracting? [Federal News Radio]
  • Large and small companies alike are facing the loss of their GSA Schedule 75 contracts, as the GSA doesn’t plan on accepting new offers or renewing current Schedule holders’ contracts for at lease another nine months. [Federal News Radio]
  • In the ongoing debate over category management, one commentator argues that category management is “good news for American taxpayers.” [FCW]
  • President Obama has threatened to veto the 2017 NDAA, in part because of the bill’s acquisition reforms, many of which have support in the contracting community. [Government Executive]
  • Who says sneaker wars only happen in basketball? New Balance is looking to become the sneaker brand of the U.S. Military by lobbying to remove a Berry Amendment exception. [Government Executive]
  • An SDVOSB that was awarded a $3 million contract in the wake of the Joplin, Missouri May 2011 tornado has been indicted for allegedly passing-through the work to a non-SDVOSB and splitting the profits with that company. [KZRG]

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Koprince Law LLC

The number of 8(a) sole source contracts over $20 million awarded by the DoD has been “steadily declining since 2011,” when a new requirement was adopted requiring agencies to prepare written justifications of such awards.

According to a recent GAO report, such awards have dropped more than 86% compared to the period before the justification requirement took effect.  The report states that much of the work that was previously awarded on a sole source basis has now been competed.

8(a) Program participants owned by Alaska Native Corporations or Indian Tribes (which the GAO collectively refers to as “tribal 8(a) firms”) are eligible to receive  8(a) sole source contracts for any dollar amount.  In contrast, as the GAO writes, other 8(a) firms “generally must compete for contracts valued above certain thresholds: $4 million or $7 million, depending on what is being purchased.”

Section 811 of the 2010 National Defense Authorization Act did not eliminate the special sole source authority for tribal 8(a) firms, but required a contracting officer to issue a written justification and approval for any sole source 8(a) award over $20 million.  This portion of the 2010 NDAA was incorporated in the FAR in March 2011.  A regulatory update in late 2015 increased the threshold to $22 million, where it remains today.

In 2015, Congress directed the SBA to assess the impact of the justification requirement.  The GAO’s recent report responds to that Congressional directive.  The report demonstrates that large DoD 8(a) sole source awards have dropped dramatically since 2011.  The GAO writes:

From fiscal years 2006 through 2015, the number of sole-source 8(a) contracts started to decline in 2011 and remained low through 2015, while the number of competitive contract awards over $20 million increased in recent years.  Consistent with findings from our past reports, we found that sole-source contracts generally declined both number and value since 2011, when the 8(a) justification requirement went into effect.  DOD awarded 22 of these contracts from fiscal years 2011 through 2015, compared to 163 such contracts in the prior 5-year period (fiscal years 2006 through 2010).

In my eyes, this isn’t just a decline–it’s a dramatic drop in 8(a) sole source awards of 86.5% from one five-year period to the next.

The GAO stated that there is a variety of reasons for the drop, including “a renewed agency-wide emphasis on competition” at DoD, as well as budget declines and declines in the sizes of requirements.  DoD officials “had varying opinions about whether the 8(a) justification was a deterrent to awarding large sole-source 8(a) contracts.”  Some of the officials GAO interviewed “noted that the 8(a) justification review process would deter them, while others said they would award a sole-source contract over $20 million if they found that only one vendor could meet the requirement.”

The report wasn’t all bad news for tribal 8(a) firms.  The GAO wrote that competitive awards to tribal 8(a) firms have increased even as sole source awards have fallen:

Since 2011, tribal 8(a) firms have won an increasing number of competitively awarded 8(a) contracts over $20 million at DOD.  Although these firms represent less than 10 percent of the overall pool of 8(a) contractors, the number of competitively awarded DOD contracts over $20 million to tribal 8(a) firms grew from 26 in fiscal year 2011–or 20 percent–to 48 contracts in fiscal year 2015–or 32 percent of the total.  In addition, since 2011, tribal 8(a) firms have consistently won higher value awards than other 8(a) firms for competitive 8(a) contracts over $20 million.  In fiscal year 2015, the average award size of a competed 8(a) contract to a tribal 8(a) firm was $98 million, while other 8(a) firms had an average award of $48 million.

Despite the good news on the competitive front, tribal advocates are likely to see the GAO report as confirmation of what many have already assumed: that Section 811 of the 2010 NDAA has had a significant negative effect on sole source awards to 8(a) firms owned by ANCs and Indian tribes.  Alaska Congressman Don Young has included language in the 2017 NDAA to repeal Section 811.  Congressman Young included similar language in the 2016 NDAA, but it was removed from the final bill.  We’ll see what happens this year.

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Koprince Law LLC

SBA’s regulations provide that an 8(a) program participant that no longer is owned or controlled by socially and economically disadvantaged person can be terminated from the 8(a) program. But the decision to terminate is not one to be made lightly: SBA must make sure that it not only has evidence in support of its termination decision, it must also explain how that evidence demonstrates its conclusions.

This requirement was at issue in a recent court decision that found an SBA 8(a) program termination decision to be based on “numerous erroneous assumptions” and “unsupported conclusions, not substantial evidence.”

The 8(a) program serves an important policy objective: to assist socially and economically disadvantaged small businesses to compete for (and perform) government contracts as a means of business development. To qualify for the 8(a) program, a company must be “a small business which is unconditionally owned and controlled by one or more socially and economically disadvantaged individuals who are of good character and citizens of and residing in the United States, and which demonstrates potential for success.” 13 C.F.R. 124.101.

With respect to control, the SBA’s regulations require that a business be managed full-time by at least one capable disadvantaged individual. But certain business relationships may jeopardize that control: the regulations caution that non-disadvantaged persons may be found to control (or have the power to control) the 8(a) company when business relationships with such non-disadvantaged persons “cause such dependence that the [8(a) Program] applicant or Participant cannot exercise independent business judgment without great economic risk.” Id. § 124.106(g)(4).

In The Desa Group, Inc. v. U.S. Small Business Administration, Civ. No. 15-0411 (RC) (May 26, 2016), the United States District Court for the District of Columbia analyzed the issue of control, when it considered The Desa Group’s (“TDG”) argument that SBA had arbitrarily terminated it from the 8(a) program. The SBA had based its termination on a finding that TDG was supposedly controlled by DESA, Inc., a former 8(a) participant controlled by the mother of TDG’s 8(a) participant owner, Dionne Fleshman.

As part of its application for the 8(a) program, TDG disclosed its relation to DESA, noting that DESA was run by Ms. Fleshman’s mother, but asserted that TDG was not dependent on DESA other than the fact that DESA was a TDG customer. SBA approved TDG’s 8(a) application on September 30, 2010.

A little more than two years later, SBA received information that cast doubt on these statements. A tipster informed SBA that Ms. Fleshman actually worked at both TDG and DESA, and that her mother (DESA’s owner) actually managed TDG. The SBA initiated an investigation of the allegations. Following its investigation, SBA advised TDG that it intended to terminate its participation in the 8(a) program.

After receiving its notice of termination, TDG appealed to the SBA’s Office for Hearings and Appeals. OHA rejected SBA’s claim that Ms. Fleshman’s mother actually controlled TDG. Even still,  OHA found “significant interconnectedness” between TDG and DESA that demonstrated DESA’s control. Specifically, OHA noted that TDG and DESA acted as subcontractors for each other; that TDG maintained an office in DESA’s headquarters; that the building where TDG housed its own headquarters was owned by Ms. Fleshman’s mother, who “plays a critical role” in TDG’s success; that DESA was responsible for nearly 40% of TDG’s revenues in 2010; and that DESA was paying TDG between $7,000 and $10,000 per month from 2010 to 2012. As a result, OHA determined that TDG could not exercise independent business judgment apart from DESA without great economic risk. As a result, DESA controlled TDG. TDG’s appeal was denied.

Usually, 8(a) termination appeals end at OHA. But TDG wasn’t done fighting. TDG sued the SBA in federal court, arguing that SBA’s termination decision was arbitrary and capricious. The U.S. District Court for the District of Columbia, after considering the parties’ evidence and arguments, agreed with TDG.

The Court noted that several of the SBA’s reasons for termination appeared unsupported by evidence, and that much of the evidence that was offered by SBA in support of its decision was disputed. Additionally, the Court concluded that neither SBA nor OHA had explained how TDG’s connections with DESA demonstrated such a high level of dependence that TDG could not exercise independent business judgment without great economic risk.

As an example, the Court agreed with SBA that, as a general matter, the level of revenue that TDG received from DESA “might support a finding of dependence that prohibited TDG from exercising its own independent business judgment without great economic risk[.]” But the Court faulted SBA for not explaining how the facts supported its conclusion:

[T]he mere fact that DESA pays for TDG’s services does not necessarily indicate that it is able to assert control over how TDG runs its business or the business judgment TDG or Ms. Fleschman make in doing so.

The “implicit, unexplained assumption” in the SBA’s argument was that any contractual relationship between the companies indicated that Ms. Fleshman has ceded control over TDG to DESA. This was simply a bridge too far.

The Court concluded:

The agency has identified several contacts or connections between TDG and DESA. But under the regulation the SBA has invoked here, mere contacts or business relationships alone are insufficient to show control; the agency must establish that those relationships cause such dependence that TDG cannot exercise independent business judgment without great economic risk. The SBA has done no more than conclusorily state that the contracts here equate to the level of dependence necessary to show that Ms. Sumpter or DESA controls TDG.

The Court thus found that SBA had not met its burden to terminate TDG from the 8(a) program. It therefore remanded the issue back to SBA for additional investigation or explanation.

The Desa Group demonstrates that 8(a) termination decisions cannot be made lightly. In order to properly terminate an 8(a) program participant, SBA must back its decision with evidence, explanation, and analysis. Mere conclusory statements don’t do the trick.

And The Desa Group is also a good reminder that an 8(a) Program participant need not simply accept an SBA final termination decision–instead, like TDG, a terminated 8(a) program participant may fight SBA in federal court after exhausting its internal SBA remedies.

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Koprince Law LLC

An offeror’s apparent attempt to engage in a little proposal gamesmanship has resulted in a sustained GAO bid protest.

In a recent case, an offeror attempted to evade a solicitation requirement that proposals be no more than 10 single-spaced pages, by cramming its proposal into less than single-spacing.  The GAO wasn’t having it, sustaining a competitor’s protest and holding that the “spacing gamesmanship” had given the offeror an unfair advantage.

The GAO’s decision in DKW Communications, Inc., B-412652.3, B-412652.6 (May 6, 2016) involved a Department of Energy RFQ seeking three fixed-price task orders for various support services.  The task orders were to be awarded under a RFQ issued to blanket purchase agreement holders under multiple federal supply schedules, including Schedule 70.

The RFQ stated that quotations should be submitted in three volumes: technical, past performance, and price.  With respect to the technical volume, the RFQ informed vendors that quotations would be limited to 10 pages and that material in excess of 10 pages would not be evaluated.  The RFQ further provided that “the text shall be 12 point (or larger) single-spaced, using Times New Roman Courier, Geneva, Arial or Universal font type.”

After evaluating competitive quotations, the agency awarded the task orders to Criterion Systems, Inc.  DKW Communications, Inc., an unsuccessful competitor, then filed a GAO bid protest challenging the award to Criterion.

During the course of the protest, DKW apparently received Criterion’s technical proposal (I assume, although it is not stated in the decision, that the proposal was provided only to DKW’s outside counsel, under a GAO protective order).  DKW then filed a supplemental protest arguing that Criterion had violated the 10-page limit by compressing the line spacing of its technical proposal to be less than the single-spacing required by the RFQ.

The GAO wrote that “[a]s a general matter, firms competing for government contracts must prepare their submissions in a manner consistent with the format limitations established by the agency’s solicitation, including any applicable page limits.”  Consideration of submissions that exceed established page limitations “is improper in that it provides an unfair competitive advantage to a competitor that fails to adhere to the stated requirements.”

The GAO noted that Criterion “used different spacing for both volumes 1 and 3, which had no page limitations, than it did for the technical volume, which had a 10 page limit.”  In volumes 1 and 3, “Criterion used spacing that yielded approximately 44 lines per page.”  However, for the technical volume, Criterion “used dramatically smaller line-spacing for each of the 10 pages, resulting in approximately 66 lines per page.”  (The GAO’s PDF decision provides a visual comparison of the spacing differences between the volumes).  The GAO continued:

Accordingly, it appears that Criterion implemented compressed line-spacing in a deliberate and intentional effort to evade the page limitation imposed by the RFQ, especially when compared to the other parts of its quotation.  Criterion’s significant deviation from the other two volumes of its quotation effectively added approximately three to four pages to the 10-page limitation.  In our view, this was a material change from the RFQ’s instructions that gave Criterion a competitive advantage.

The GAO sustained DKW’s protest.

Offerors faced with tight page limitations can be tempted to try to fit as much in those pages as possible.  But as the DKW Communications protest shows, attempting to evade a page limit can have serious (and negative) repercussions.

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Koprince Law LLC

Women-owned small businesses are increasingly seeking to become certified through one of four SBA-approved third-party WOSB certifiers.  But which third-party certifier to use?

There doesn’t seem to be any single resource summarizing the basics about the four SBA-approved certifiers, such as the application fees, processing time, and documents required by each certifier.  So here it is–a roundup of the key information for three of the four SBA-approved WOSB certifiers (as you’ll see, we’ve had some problems reaching the fourth).

First things first: why should WOSBs and EDWOSBs consider third-party certification?

As part of the 2015 National Defense Authorization Act, Congress eliminated self-certification for WOSB set-asides and sole sources. Despite the statutory change, the SBA continues to insist that WOSB remains a viable option indefinitely while the SBA figures out how to address Congress’s action. But can the SBA legally allow WOSBs to do the very thing that Congress specifically prohibited? I certainly have my doubts, particularly since the SBA has never explained the legal rationale for its position.

For WOSBs and EDWOSBs, third-party certification (which is still allowed following the 2015 NDAA) may be the safest option. There are currently four entities that the SBA has approved as third-party certifiers: the National Women’s Business Owners Corporation (NWBOC), Women’s Enterprise National Council (WBENC), the U.S. Women’s Chamber of Commerce (USWCC), and the El Paso Hispanic Chamber of Commerce (EPHCC). This post summarizes the cost, time, and application fees associated with three of those organizations.

After researching and speaking with three of the WOSB certifiers, we found that all three require a written application, and that the required supporting documents are largely similar. Anticipated processing times vary (and probably should be taken with a grain of salt, as no certifier wants to admit that it is slow). For all certifiers, the anticipated processing time from application to certification begins when a completed application is received. This point was reiterated time and again at each of the three certifiers we were able to reach. To facilitate the prompt consideration of an application, prospective WOSBs should make sure to submit all of the required documents and information the first time around; and to respond promptly if additional information is requested during the application process.

National Women’s Business Owners Corporation (NWBOC)

The NWBOC offers third-party certification to both WOSBs and EDWOSBs. All application information and documents needed are listed in the NWBOC’s application form, which is available on its website. The NWBOC also offer the option for potential WOSBs and EDWOSBs to purchase a tailored application kit to guide applicants through the process of applying. The fee to apply for certification is $400 at a minimum, and an applicant may be charged more if requests for more information are not met in a timely fashion. According to the NWBOC, the current processing time for certification is between 6-8 weeks. A completed application and all required documents must be mailed into the NWBOC before processing will begin.

Women’s Business Enterprise National Council (WBENC)

WOSB Certification through WBENC is free and very quick—for WBENC members. For companies that are already members of WBENC—especially those that are already certified as Women’s Business Enterprises (WBEs)—this option could be both the quickest and cheapest. For companies that are not members of WBENC, the cost for WBENC Membership starts at $350, and can go up based off of the applying company’s revenue. And although WBENC says that WOSB certification for its members is “virtually instant,” the process of becoming a member can take up to 90 days—which means that if a non-member elects to use WBENC, the application process could take 90 days or more. WBENC offers a WOSB application checklist on its website to aid in document production, as well as a guide to completing the application. WBENC suggests that the application be completed after document production, as it is done online and has a 90-day deadline from start to finish—and once it is submitted, no changes can be made. All documents required for the application, including the fee, must be provided before the application will be processed. WBENC only offers WOSB certification, not EDWOSB certification. Prospective EDWOSBs will need to look at another option.

The U.S. Women’s Chamber of Commerce

The USWCC offers WOSB and EDWOSB third-party certification, to both its members and non-members. According to the USCWCC’s website, certification takes between 15-30 days and costs $275 for Business and Supplier members and $350 for non-members. A possible bonus (or deterrent, for some) is that the entire application and document submission is completed online. The USWCC offers both a certification and document checklist and sample application on its website to aid applicants in document production and prepare them to answer the questions on the application, but it cannot be submitted in lieu of the online form. The USWCC also requires the application be completed in one sitting—it cannot be completed partially and saved to be completed later. This means that the applicant should be completely ready to apply prior to starting, or else risk getting almost done and being interrupted and then having to restart from the beginning.

The El Paso Hispanic Chamber of Commerce (EPHCC)

Unfortunately, we found that the EPHCC was difficult to contact, and we were unable to speak with any staffer regarding the EPHCC’s WOSB certification process. If we obtain information about the EPHCC, we will update this post to include it.

These four entities are currently the only ones approved by the SBA for third-party WOSB/EDWOB certification. While the SBA remains adamant that third-party certification remains viable indefinitely, women-owned businesses should decide for themselves whether they are comfortable with the SBA’s position. For women-owned businesses that decide to play it safe while the SBA addresses the 2015 NDAA, third-party certification is the way to go.

Molly Schemm of Koprince Law LLC was the primary author of this post.  

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Koprince Law LLC

June seems to have crept up on us, but here we sit enjoying warm temperatures and sunshine. Hopefully you are making plans for some summer rest and relaxation. While you kick back this weekend by the pool, we are happy to bring to you some weekend reading material in this edition of SmallGovCon Week In Review. 

This week’s top governing contracting stories include an inquiry on DoD Buy American Act waivers, the continued push to “dump the DUNS,”  False Claims Act allegations regarding pricing, a construction company settles a SDB fraud claim for $5.4 million, and more.

  • NASA has proposed a new rule that would require vendors to make their company’s greenhouse emissions data available through the Systems for Award Management. [FCW]
  • Over the past 10 years the U.S. DoD has granted more than 300,000 lawful waivers to the Buy American Act and while some of the exceptions make sense, many of them do not. [Journal Inquirer]
  • The summer of 2016 will be known from this point forward as “the summer of the billion dollar IT contract” with 26 protests of an $11.5 billion training contract. [Federal News Radio]
  • Back in 2012 the GAO said that the costs and technical challenges of moving away from the DUNS to another system for identifying and tracking contractors would simply be too great.  One industry group says that, four years, later the time is ripe to dump the DUNS. [Federal News Radio]
  • One of the largest federal consulting practices has agreed to settle a False Claims Act brought by the General Services Administration for allegations the vendor failed to lower prices on its IT services contracts. [Federal Times]
  • The Department of Energy is examining what it would take to overhaul the IT behind its business operations, possibly resulting in a contract that could be worth up to $850 million. [fedscoop]
  • The charges against a former Hayner Hoyt employee have been dismissed after alleging the company had fired him for refusing to go along with a scheme to defraud a government program that provided contracts to small business owned by disabled veterans. [Syracuse.com]
  • Federal Times offers seven highlights form the General Services Administration’s Office of Inspector General semiannual report. [Federal Times]
  • Allegations that Harper Construction, Inc., knowingly used sham small disadvantaged businesses and then falsely certified to the government that it used legitimate small disadvantaged businesses has led to the company paying $5.4 million to the United States. [Oceanside Camp Pendleton Patch]
  • Washington Technology takes a look at the 100 largest government contractors over the past two decades to determine the changing government market over the years and where 2016 is heading. [Washington Technology]

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Koprince Law LLC

The nonmanufacturer rule will not apply to small business set-aside contracts valued between $3,000 and $150,000, according to the SBA.

In its recent major rulemaking, the SBA exempts these small business set-aside contracts from the nonmanufacturer rule, meaning that small businesses will be able to supply the products of large manufacturers for these contracts without violating the limitations on subcontracting.

In its rulemaking, the SBA explains its new exemption as a way to increase small business awards:

SBA believes that not applying the nonmanufacturer rule to small business set-asides valued between $3,500 and $150,000 will spur small business competition by making it more likely that a contracting officer will set aside an acquisition for small business concerns because the agency will not have to request a waiver from SBA where there are no small business manufacturers available.

The SBA points out that it can take “several weeks” for the SBA to process a nonmanufacturer rule waiver request, and suggests that contracting officers are unlikely to pursue waivers for lower-dollar procurements, choosing instead to simply release such solicitations as unrestricted.  The new rule will expand current authority, which allows an exemption for simplified acquisitions below $25,000.

The SBA’s new rulemaking also includes several other important changes related to the nonmanufacturer rule:

  • The SBA clarifies that procurements for rental services should be classified as acquisitions for services, not acquisitions for supplies.  The SBA notes that “renting an item is not the same thing as buying a item.”  This clarification means that offerors for solicitations for rented products shouldn’t need to worry about the nonmanufacturer rule (although they will need to comply with the applicable limitation on subcontracting).
  • In some cases, a single procurement seeks multiple items, and only some of them are subject to nonmanfacturer rule waivers.  In such a case, the new rule provides, “more than 50% of the value of the products to be supplied by the nonmanufacturer that are not subject to a waiver must be the products of one or more domestic small business manufacturers or processors.”  The new regulations includes an example of how this concept should work in practice.
  • The SBA has adopted a requirement that a contracting officer notify potential offerors of any nonmanufacturer rule waivers (whether class waivers or contract-specific waivers) that will be applied to the procurement.  The SBA writes that “[w]ithout notification that a waiver is being applied by the contracting officer, potential offerors cannot reasonably anticipate what if any requirements they must meet in order to perform the procurement in accordance with SBA’s regulations.”  The notification “must be provided at the time a solicitation is issued.”
  • The SBA has expanded its authority to grant nonmanufacturer rule waivers.  Under current law, waivers must be granted before a solicitation is issued.  The new rule allows the SBA to grant waivers after a solicitation has been issued so long as “the contracting officer provides all potential offerors additional time to respond.”  In an even bigger change, the new rule allows the SBA to grant nonmanufacturer rule waivers after award, if the agency makes a modification for which a waiver is appropriate.
  • The SBA has clarified that the nonmanufacturer rule (including waivers) applies to certain types of software.  The SBA writes that “where the government buys certain types of unmodified software that is generally available to both the public and the government . . . the contracting officer should classify the requirement as a commodity or supply.”  However, “if the software being acquired requires any custom modifications in order to meet the needs of the government, it is not eligible for a waiver of the NMR because the contractor is performing a service, not providing a supply.”

The SBA’s changes to the nonmanufacturer rule take effect on June 30, 2016.

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Koprince Law LLC

GAO ordinarily will not hear any argument that is based on a company’s small business status, even if the alleged large company is only a proposed subcontractor.

In a recent decision, GAO declined to hear a protester’s argument that the awardee’s supposedly-small subcontractors were affiliated with other entities, holding that such a determination is reserved solely for the SBA.

The case, URS Federal Services, Inc., B-412580 et al. (Mar. 31, 2016), involved an Army task order request seeking proposals to perform maintenance, repair, overhaul, modification and upgrade of various military vehicles and equipment. The solicitation was issued on an unrestricted basis, but contained a requirement that 25 percent of the labor value for each performance period be proposed for performance by small businesses.

After evaluating competitive proposals, the Army awarded the task order to VSE Corporation. URS Federal Services, Inc., the incumbent, then filed a GAO bid protest challenging various aspects of the award decision. Among its challenges, URS contended that the agency should have excluded VSE’s proposal for failing to meet the 25% small business requirement. URS contended that two of VSE’s proposed small business subcontractors were affiliated with each other, causing both to exceed the relevant size standard.

The GAO wrote that the Small Business Act “gives the Small Business Administration (SBA) not our office, conclusive authority to determine matters of small business size for federal procurements.” Accordingly, GAO’s bid protest regulations provide that challenges to an entity’s size status “may be reviewed solely by the Small Business Administration.” GAO dismissed this aspect of URS’s protest, writing “[w]e will not consider any allegation that is based on URS’s assertions regarding the size status of particular firms, since such matters are solely for the SBA’s consideration.”

What’s interesting to consider, however, is what if URS was right? For argument’s sake, let’s say that the awardee’s subcontractors were affiliated and therefore too large to satisfy the small business participation requirements. What should URS have done?

The SBA’s size protest regulations allow “interested parties” to file protests with respect to “SBA’s Subcontracting Program.” (See 13 C.F.R. 121.1001(a)(3)).  In a 2013 case, IAP World Services, Inc., SBA No. SIZ-5480 (June 24, 2013), the SBA Office of Hearings and Appeals held that an unsuccessful offeror could file a size protest based on whether the successful offeror–itself a large business–would improperly count work performed by a certain entity toward its subcontracting goals. In reaching this conclusion, OHA wrote that 13 C.F.R. 121.1001 “contemplates that there will be protests of the small business size status of subcontractors under [SBA’s] Subcontracting Program and that these may be filed by ‘other interested parties,'” including “an unsuccessful offeror for the prime contract.”

Thus, it seems that URS should have taken the matter to the SBA. As the GAO made clear in URS Federal Services, it will not decide such challenges as part of the bid protest process.

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Small businesses will be able to joint venture with one another more often under a new SBA rule.

As part of a recent major rulemaking, the SBA will allow two or more small businesses to joint venture for any procurement without being affiliated with regard to the performance of that requirement.

Under the current regulation, two or more small businesses may be affiliated with one another if they joint venture for a particular procurement, depending on that procurement’s value.  In fact, the underlying rule provides that joint venture partners are affiliated for purposes of that procurement.  However, an exception states that the businesses can avoid affiliation if the procurement exceeds half of the size standard corresponding to the NAICS code assigned to the contract (for revenue-based size standards) or $10 million (for employee-based size standards).

That’s a mouthful, so here is a quick example.  Let’s say Company A is a $5 million dollar business, and Company B is a $6 million dollar business.  Companies A and B want to joint venture for a contract carrying a $7 million size standard.  Can they do so?  It depends on the value of the procurement.  If the value of the procurement exceeds $3.5 million (half of $7 million), then the joint venture would be eligible, because both companies are smaller than $7 million.  But if the value of the procurement is less than $3.5 million, Companies A and B cannot joint venture, because they are considered affiliates–and their aggregated revenues exceed $7 million.

Last year, the SBA proposed to do away with this complexity and simply allow small businesses to joint venture together, without regard to affiliation, so long as all joint venture partners qualify as small under the NAICS code.  Now, the SBA has finalized that rule.

The SBA writes that public comments on the proposal were “overwhelmingly positive,” and that the SBA believes that “the proposed change [will] encourage more small business joint venturing, in furtherance of the government-wide goals for small business participation in federal contracting.”  The SBA concludes:

This final rule clarifies that a joint venture of two or more business concerns may submit an offer as a small business for a Federal procurement, subcontract or sale so long as each concern is small under the size standard corresponding to the NAICS code assigned to the contract.

The final rule takes effect on June 30, 2016.  But the final rule may not be the only important change to the SBA’s joint venture rules this year.  As part of a separate proposed regulation, the SBA has suggested other major changes, such as doing away with the concept of a “populated” joint venture.   A final version of that rule has yet to be released, so stay tuned.

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The SBA has changed its affiliation regulations to clarify when a presumption of affiliation exists due to family relationships or economic dependence.

In its major final rulemaking published today, the SBA clears up some longstanding confusion regarding affiliation based on a so-called “identity of interest.”

The SBA’s current “identity of interest” affiliation rule states that businesses controlled by family members may be deemed affiliated–but does not explain how close the family relationship must be in order for the rule to apply.  The SBA’s final rule eliminates this confusion.  It states:

Firms owned or controlled by married couples, parties to a civil union, parents, children, and siblings are presumed to be affiliated with each other if they conduct business with each other, such as subcontracts or joint ventures or share or provide loans, resources, equipment, locations or employees with one another. This presumption may be overcome by showing a clear line of fracture between the concerns. Other types of familial relationships are not grounds for affiliation on family relationships.

By limiting the application of the rule to certain types of close family relationships, the SBA essentially codifies SBA Office of Hearings and Appeals case law, which has long interpreted the rule to apply only to close family relationships.  It’s a good thing to have the types of relationships at issue spelled out in the regulation, rather than buried in a series of administrative decisions.

More interesting to me is the fact that the final rule suggests that the presumption of affiliation doesn’t apply unless the firms in question “conduct business with each other.”  I wonder whether this regulation essentially overturns OHA’s recent decision in W&T Travel Services, LLC.  In that case, OHA held that two firms were affiliated because the family members in question were jointly involved in a third business–even though the two firms in question had no meaningful business relationships.  I will be curious to see how OHA addresses this component of the final rule when cases begin to arise under it.

The SBA’s final rule also codifies OHA case law regarding so-called “economic dependence” affiliation.  As my colleague Matt Schoonover recently wrote, OHA has long held that a small business ordinarily will be deemed affiliated with another entity where the small business receives 70% or more of its revenues from that entity.  The final rule provides:

(2) SBA may presume an identity of interest based upon economic dependence if the concern in question derived 70% or more of its receipts from another concern over the previous three fiscal years.

(i) This presumption may be rebutted by a showing that despite the contractual relations with another concern, the concern at issue is not solely dependent on that other concern, such as where the concern has been in business for a short amount of time and has only been able to secure a limited number of contracts.

As with the rule on family relationships, the codification of the “70% rule” will help small businesses better understand their affiliation risks, without having to delve into OHA’s case law.  In that regard, it’s a positive change.

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Koprince Law LLC

A small business cannot file a viable SBA size protest if the small business has been excluded from the competitive range, or if its proposal has otherwise found to be non-responsive or technically unacceptable.

In its recent final rule addressing the limitations on subcontracting, the SBA also clarifies when small businesses can–and cannot–file viable size protests.

Under the SBA’s current regulation, a size protest may be filed by “[a]ny offeror whom the contracting officer has not eliminated for reasons unrelated to size.”  Many small businesses and contracting officers have found this regulation confusing, both because it contains a double negative and because it is unclear when an offeror has (or has not) been “eliminated” from a competition.

In its new final rule, the SBA states that its intent “is to provide standing to any offeror that is in line or [under] consideration for award, but not to provide standing for an offeror that has been found to be non-responsive, technically unacceptable, or outside of the competitive range.”  The SBA points out that, while such offerors cannot file viable size protests of their own, “SBA and the contracting officer may file a size protest at any time, so any firm, including those that do not have standing, may bring information pertaining to the size of the apparent successful offeror to the attention of SBA and/or the contracting officer for their consideration.”

The new rule provides that a size protest can be filed  by “[a]ny offeror that the contracting officer has not eliminated from consideration for any procurement-related reason, such as non-responsiveness, technical unacceptability or outside of the competitive range.”  The rule takes effect June 30, 2016.

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