I was fortunate enough to spend the beginning half of my week speaking at the 2017 SAME Small Business Symposium in Bremerton, Washington. It was a wonderful event and it was nice to be able to see so many familiar faces (and make some new acquaintances). I am back in the office to wrap up the week and bring you yet another SmallGovCon Week In Review.
In this week’s edition: former President Obama’s “mandatory sick leave” Executive Order may remain on the books after all, IDIQ contracts made up about one-third of all federal contracting spending over a four-year period, contractors react to President Trump’s “Buy American, Hire American” Executive Order, and much more.
Why won’t many small firms won’t sell to the government? FCW provides some answers. [FCW]
Surprise: an Obama Executive Order mandating sick leave for federal contractor employees, once considered primed for reversal by the Trump administration, may be here to stay. [Bloomberg BNA]
The DoD is parsing out exactly how it will split one of its biggest and most infamous sections after Congress mandated the division last year. [Federal News Radio]
Between 2011-2015 the sometimes-controversial contract type known as indefinite delivery/indefinite quantity accounted for an annual $130 billion of agency awards. [Government Executive]
Quantum computing is about to disrupt the government contracts market. [Bloomberg Government]
The White House previewed an Executive Order that will make it tougher to obtain foreign contracting waivers and H-1B visas, which the administration claims will boost manufacturing and skilled labor at home. [Federal Times]
Insider threats present a real danger to federal agencies, and those threats have inspired the GSA to issue a Schedule 70 special item number for Continuous Diagnostics and Mitigation products and services. [FCW]
President Trump’s “Buy American” order is drawing mixed reviews from government contractors. [Government Executive]
The SBA released a notice of termination of the class waiver to the nonmanufacturer rule for rubber gloves. [Federal Register]
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I am back in Lawrence after a great trip to the Pacific Northwest for the SAME 2017 Small Business Symposium, hosted by the SAME Seattle Post. I gave two talks at the Symposium: the first focused on the legal requirements for joint ventures and prime/subcontractor teaming arrangements, and the second on the SBA’s new All Small Mentor-Protege Program.
A big “thank you” to Julie Erickson for organizing the event and inviting me to speak, and thanks also to Thomas Nichols for his kind introductions at both talks. And of course, thank you to all of the contractors, government officials and clients who attended the sessions and asked such insightful questions.
I’ll be sticking around Kansas for the next several weeks, but that doesn’t mean that I’ll be taking a break from speaking about government contracts. Please join me and the Kansas PTAC for in-depth sessions on the government’s four major socioeconomic programs: 8(a), SDVOSB, HUBZone, and WOSB. These sessions will be held in Wichita and Overland Park; click here for details and to register. Hope to see you there!
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A procuring agency’s conduct in the course of evaluating proposals–and defending itself in four subsequent bid protests–was an “egregious example of intransigence and deception,” according to the Court of Federal Claims.
In a recent decision, Judge Eric Bruggink didn’t hold mince words, using terms like “agency misconduct,” “untruthful,” and “lack of commitment to the integrity of the process,” among other none-too-subtle phrases, to describe the actions of the Department of Health and Human Services. But Judge Bruggink’s decision is striking not only for its wording, but because it demonstrates the importance of good faith bid protests to the fairness of the procurement process, in a case where HHS unfairly sought to “pad the record” in support of a favored bidder–and would have gotten away with it were it not for the diligent efforts of the protester.
The Court’s decision in Starry Associates, Inc. v. The United States and Intellizant, LLC, No. 16-44C (2017) ostensibly was a case about attorneys’ fees. The legal question before the Court was whether Starry Associates, Inc., which had prevailed in a prior protest, Starry Associates Inc. v. United States, 127 Fed. Cl. 539 (2016), should recover its fees. But in answering this question, the Court took HHS to task for repeated egregious conduct in its underlying source selection, and in the bid protest process itself.
Back in 2014, HHS issued an RFQ seeking a range of business operations to support HHS’s financial management system, known as the Unified Financial Management System, or UFMS. The RFQ was issued as a small business set-aside, and called for award to the lowest-priced, technically acceptable offeror.
Three companies submitted quotations. Starry Associates, Inc., the incumbent contractor, was one of these companies. However, the lowest-priced quote was submitted by a competitor, Intellizant, LLC. Because Intellizant had submitted the lowest-priced quote, HHS evaluated Intellizant’s quote for technical acceptability.
Technical proposals were evaluated by a Technical Evaluation Panel consisting of three individuals: John Thompson, Karen Slater, and Arlette Peoples. And here’s where things got interesting. According to internal HHS correspondence (as well as sworn statements made in connection with the protest), the composition of the TEP was determined, at least in large part, by an HHS employee named John Davis. Mr. Davis happened to be a former Intellizant employee, and had been involved in Intellizant’s unsuccessful bid for the incumbent contract (the contract won by Starry).
Ms. Slater, for her part, was the Contracting Officer’s Representative on an unrelated HHS contract being performed by Intellizant. On November 21, 2014, Ms. Slater prepared a Past Performance Questionnaire for Intellizant on that contract, and rated Intellizant as “Exceptional” in every category. Just four days later, the TEP was convened. When Mr. Thompson asked whether Ms. Slater might appear to be biased, having prepared such a glowing PPQ for Intellizant so recently, Ms. Slater responded that she was asked to serve on the TEP “per the direction of John Davis,” who had informed Ms. Slater that it was appropriate for her to serve on the TEP.
Mr. Thompson rated Intellizant unacceptable overall, finding that the proposal didn’t meet several RFQ requirements. Ms. Peoples also questioned whether she ought to rate Intellizant as unacceptable. However, another HHS official incorrectly informed Ms. Peoples that HHS would be able to hold discussions with Intellizant to clear up those concerns. Ms. Slater, for her part, rated Intellizant’s proposal as acceptable.
The Source Selection Authority, Cassandra Ellis, reviewed the TEP’s report, and then evaluated the proposal herself. She found Intellizant’s proposal to be acceptable. Starry was notified that the award had been made to Intellizant.
Starry filed a GAO bid protest, arguing that Intellizant could not satisfy all of the RFQ’s requirements and lacked key personnel. In January 2015, HHS announced that it would take corrective action. However, upon inquiry from the GAO, HHS stated that it would not solicit new proposals or reevaluate existing proposals; instead, it said that the protest had revealed “gaps in the record” which it would correct in its “contract file.”
Believing this so-called corrective action to be insufficient, Starry announced its intent to file a bid protest with the Court. HHS then changed its tune, stating that it would reevaluate proposals and make a new award decision. In response, Starry agreed to withdraw its notice of intent to protest in the Court.
The same TEP reevaluated proposals. Again, there was no consensus: Mr. Thompson rated Intellizant as unacceptable, while Ms. Peoples and Ms. Slater rated it as acceptable. Ms. Ellis, the SSA, again concluded that Intellizant was acceptable; Intellizant was announced as the awardee for a second time.
Starry protested again at the GAO. This time, among its arguments, Starry alleged that Mr. Davis was biased in favor of Intellizant and had attempted to exert influence to guide the award to that company. In response, Mr. Davis informed the GAO that he had “recused” himself from the protest process. The GAO issued a decision sustaining a portion of Starry’s protest. However, based on Mr. Davis’s representation, the GAO denied the bias allegation.
After receiving the GAO’s decision, Mr. Davis decided to cancel the solicitation entirely. Starry protested again, arguing that the cancellation was an improper pretext to allow the work to be contracted to Intellizant under a new RFQ. The GAO denied the protest in December 2015.
Starry then took its case to the Court. In the Court, Starry was able to obtain additional evidence that had not been available at the GAO. Starry’s new evidence included the depositions of several HHS officials, including Ms. Slater, Ms. Ellis, and Mr. Davis.
In July 2016, the Court issued a decision sustaining Starry’s protest. The Court wrote that “[o]nce the initial decision to award to Intellizant had been made, Ms. Ellis and Ms. Slater make clear that any other result was unwelcome and not seriously considered.” Instead, “they viewed their task as bolstering the initial decision, not reevaluation.” Although HHS told the GAO and Starry that it was performing a full and fair reevaluation following Starry’s record protest, “the record does not reflect such an effort.”
Further, the Court found, in a “cavalier disregard for the truth of representations made to the GAO,” Mr. Davis did not recuse himself from the procurement process. In fact, “he remained directly involved in the selection of the TEP and ultimately made the critical decision to moot out the series of protests by canceling the solicitation.” Further, based on Mr. Davis’s deposition, his ultimate rationale for canceling the solicitation was “completely illusory.”
The Court issued an injunction setting aside the cancellation. The Court also ordered that Ms. Ellis, Ms. Slater, and Mr. Davis could not be involved in “any subsequent agency actions involving this solicitation.”
After winning at the Court, Starry sought attorneys’ fees under the Equal Access to Justice Act. EAJA caps the recovery of attorneys’ fees at $125 an hour (a sum which probably sounded mighty princely when it was adopted back in 1996, but won’t get a traffic ticket defended in many jurisdictions 21 years later). However, there are exceptions to the cap, including when there is a “special factor” that the court finds justifies a higher amount.
At issue in Starry’s case was whether there was a special factor present that justified deviating from the $125 cap (plus a cost-of-living adjustment, which the government did not oppose). Judge Bruggink began his analysis this way: “[w]hat the agency did here constitutes an egregious example of intransigence and deception, not just with regard to the bidder, but to the GAO and to the court. It is fortunate, but relevant, that this was anomalous conduct.”
Judge Bruggink then summarized the history of the procurement. He wrote that, after Starry’s first protest, “HHS did not conduct a meaningful reevaluation but instead undertook an effort to pad the record to better support award to Intellizant.” In the course of the second protest, HHS “misled GAO” with the “untruthful” representation that Mr. David had recused himself from the process. When Mr. Davis later decided to cancel the solicitation, he provided “an illusory basis for that decision.” In addition, “[t]he fact that the agency left the decision of what to do with the procurement to Mr. Davis after it had just represented to GAO that he was uninvolved is a further reflection of its lack of commitment to the integrity of the process.”
The Court continued:
The extreme measures that [Starry] was forced to pursue to vindicate its right to a rational and lawful federal procurement process, combined with the shocking disregard of the truth by the agency, justify an award at higher than the default rate. Both Starry and the GAO were misled on multiple occasions. Although we do not reach the question of bias, the record is replete with examples of agency misconduct.
Judge Bruggink held that Starry was entitled to recover attorneys’ fees and costs under EAJA, and that a “special factor” adjustment was appropriate, allowing Starry to recover for the rates actually billed by its attorneys.
Starry should be congratulated for its perseverance, and Judge Bruggink should be commended for holding HHS’s feet to the fire–and not mincing words when it became apparent that HHS had engaged in improper conduct. It’s rare, to say the least, to see a federal judge unload on an agency like Judge Bruggink did here, but it’s readily apparent that HHS deserved it.
Judge Bruggink labeled the circumstances here “particular and unique,” and I think he’s right. In my experience, the vast majority of agency officials take great care to act fairly and honestly. For example, contrary to common misconception, these fair and honest agency officials do not automatically blackball contractors who file good faith bid protests–in fact, many such good faith protesters are awarded a contract after a fair re-evaluation.
But Starry Associates is a good reminder that must because the vast majority of agency officials act fairly and honestly does not mean that all agency officials do so. In this case, Judge Bruggink found that the agency allowed a former employee of a competitor to make crucial evaluation decisions, “padded the file” to support that competitor, flat-out lied to Starry and the GAO, and more.
There’s been a lot of sky-is-falling complaining lately about bid protests. The former U.S. Chief Technology Officer wants to create a “shame list” of unsuccessful protesters. One GSA official says she has “given up hope” for a reduction in protests. The Senate attempted to enact strict (and poorly conceived) bid protest “reforms.” And so on.
Underpinning these complaints, of course, are several assumptions: bid protests are commonplace, bid protests are frivolous, and–perhaps most important–government evaluators always act fairly and honestly.
All of these assumptions are readily disproved.
Let’s start with the number of protests. In Fiscal Year 2016, there were 2,621 protests filed at GAO, and perhaps a hundred more at the Court. That sounds like a lot, but it’s a drop in the bucket compared to the total number of government contracting actions. A few years ago, former OFPP head Dan Gordon did the math, and concluded that “etween approximately 99.3 percent and 99.5 percent of procurements were not protested.”
Then there’s the assumption that most bid protests are frivolous. Again, those pesky facts get in the way. Year after year, the overall “effectiveness rate” of protests at GAO (that is, cases that result in a positive outcome for the protester, either through a “sustain” decision or voluntary corrective action) hovers somewhere around 45%. Last year, it was 46%. Think about that for a second: the protester has the burden of proof in a protest; given that burden, one would assume that protesters would lose most of the time. Instead, protesters receive a positive outcome in nearly half of cases filed.
And just because a protester doesn’t win doesn’t mean the protest was intentionally frivolous. Lots of protests are close cases, involving subjective judgment calls and gray areas of the law. Many of these close cases (again, that burden of proof thing) go the agency’s way. There’s a huge gap between being a losing protester and a frivolous protester–a gap that some people (I’m looking at you, Mr. “Shame List”) should acknowledge.
Sure, sometimes a protest is filed that appears frivolous. But in my experience, many of these are filed by what we lawyers call pro se protesters, that is, protesters who aren’t represented by counsel. Instead of being exercises in frivolity, many of these protests–although legally insufficient–are the result of a lack of legal understanding, not an attempt to game the system. For example, a pro se protester in a small business set-aside competition may file a GAO bid protest challenging the small business size status of the awardee. The GAO’s bid protest regulations don’t provide for jurisdiction over such issues, so the protest could appear frivolous–but how many non-lawyers have spent time poring over 4 C.F.R. 21.5?
That brings us to the final assumption–that agency evaluators will act fairly and honestly. Again, I want to be clear: in my experience, that is absolutely true in the large majority of cases. But Starry Associates shows that it is not always true. Starry Associates demonstrates that every now and then an agency official pads the file, or allows a conflict of interest to permeate an evaluation, or lies to an offeror. The bid protest process offers a way–perhaps the only way–to combat this type of malfeasance. And human nature being what it is, what would happen if bid protests disappeared, or were severely curtailed? I think that most agency officials would continue operating just as honestly and fairly as before–but a few, knowing that there was no chance of being caught, would be tempted to engage in unfair behavior like that seen in Starry Associates.
The procurement process is about more than speed and efficiency, as some of the “protest complainers” would have it. Those things are important, but the process is also about fundamental fairness. Our system of competition is worthless if the competitors believe–rightly or wrongly–that the game is rigged, and that there is no way to fix it. As Starry Associates makes clear, every now and then, the game is rigged. And even when (as is far more typical) an agency’s evaluation error is the result of an honest mistake, those mistakes happen quite frequently–as evidenced by the 46% bid protest effectiveness rate.
Congress has asked for an independent report on the impact of bid protests at DoD, and lawmakers undoubtedly will continue to get an earful from procurement officials who’d like to see the protest process severely curtailed or wiped out completely. I’m not saying that the protest process cannot be improved–there is room for improvement in almost any process. But I hope that Congress will check the statistics (and perhaps read Starry Associates) before equating “reform” with “greatly reducing access to bid protests.” Improving the procurement process shouldn’t begin with curtailing one of the most important mechanisms available to ensure the fairness and integrity of the competitive system.
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It is out with the old, in with the new at the U.S. Small Business Administration.
A proposed SBA rule change published Tuesday, April 18, would incorporate the 2017 NAICS code revision into the SBA’s size standards table. If the proposed rule is made final, it will replace SBA’s current size standards table, which SBA has relied on for making size determinations since 2012. The revised size standards table will add 21 new NAICS industries. The revised NAICS code table also will feature larger standards for six industries, smaller standards for two industries, and will switch one size standard from revenue-based to employee-based.
By way of background, NAICS codes are a system for classifying businesses by type of economic activity. In the federal contracting world, NAICS codes are best known for their relationship to small business status, but the government uses NAICS codes for many other purposes, as well. The U.S. Office of Management and Budget has revised NAICS codes every five years since the system was adopted in 1997. OMB’s most recent revision came last summer.
OMB revisions do not automatically apply to SBA, which uses NAICS codes as the basis of its size standards table under 13 C.F.R. 121.201. The SBA’s current size standards table is based on the 2012 NAICS codes.
SBA now proposes to update its size standards table to use OMB’s 2017 NAICS code revision. The new NAICS codes will not only update the size-standards associated with existing codes, but also will create 21 new industries by reclassifying, combining, or splitting 29 existing industry codes. Only one new industry would be formed by designating part of an existing industry as a separate industry. No new codes would be created out of whole cloth.
Below is a summary of the most significant proposed changes:
211112 (Natural Gas Liquid Extraction) / 750 employees to 1,250 employees
335222 (Household Refrigerator and Home Freezer Manufacturing) / 1,250 employees to 1,500 employees
335224 (Household Laundry Equipment Manufacturing) / 1,250 employees to 1,500 employees
335228 (Other Major household Appliance Manufacturing) / 1,000 employees to 1,500 employees
452112 (Discount Department Stores pt: Insignificant perishable grocery sales only) / $29.5 million to $32.5 million
454111 (Electronic Shopping) / $32.5 million to $38.5 million
212234 (Copper Ore and Nickel Ore Mining) / 1,500 employees to 750 employees
512220 (Integrated Record Production/Distribution) / 1,250 employees to 250 employees
512210 (Record Production) / $7.5 million to 250 employees
All of these changes would be the result of merging codes together. For example, current code 211112 (Natural Gas Liquid Extraction) will be merged with 211111 (Crude Petroleum and Natural Gas Extraction) to create code 211130 (Natural Gas Extraction). The move will increase the size of 211112 (Natural Gas Liquid Extraction) from 750 employees to 1,250. SBA estimates this change would result in an additional 4-6 firms qualifying as small businesses.
SBA also proposes to merge four NAICS codes related to appliance manufacturing into one, adopting the size standard of the largest of the four, thereby increasing the size of three codes at once. NAICS codes 335221 (Household Cooking Appliance Manufacturing), 335222 (Household Refrigerator and Home Freezer Manufacturing), 335224 (Household Laundry Equipment Manufacturing), and 335228 (Other Major household Appliance Manufacturing) will all become 335220 (Major Household Appliance Manufacturing) with a corresponding size standard of 1,500 employees. Currently, codes 335222 (Household Refrigerator and Home Freezer Manufacturing), 335224 (Household Laundry Equipment Manufacturing), and 335228 (Other Major household Appliance Manufacturing) have smaller size standards: 1,250, 1,250, and 1,000 respectively.
SBA did not say how many large businesses would become small based on the change, but said that 77 percent of the businesses in the appliance manufacturing field operate in 335221 (Household Cooking Appliance Manufacturing) and that therefore decreasing the size of that code would cause four known firms to lose their small business size status. What SBA did not say is that, after the change, 1,500 employee-sized businesses in the Appliance Manufacturing code would be able to compete for contracts that would have previously been set aside under the smaller refrigerator, laundry or other codes.
The rule change would also increase the size of 452112 (Discount Department Stores pt: Insignificant perishable grocery sales only) from $29.5 million to $32.5 million by merging it into code 452111 (Department Stores (except Discount Department Stores)) to create 452210 (Department Stores). SBA notes that the impact of this change will be negligible as wholesale and retail contracts are classified under a manufacturing or supply code and generally an offeror has to meet the 500-employee standard of the non-manufacturer rule in order to be eligible as a small business.
The final increased size standard would be NAICS code 454111 (Electronic Shopping) which is proposed to merge with 454112 (Electronic Auctions) and 454113 (Mail-Order Houses) to create 454110 (Electronic Shopping and Mail Order Houses). The size of 454111 would increase from $32.5 million to $38.5 million to match the other codes in the new 454110. SBA said reducing the size of the other two codes would not be feasible as it would result in 80 businesses having their small business status stripped. But SBA did not estimate how many currently large businesses under 454111 would be small as a result of the change.
As for the two NAICS codes that would be decreased in size, the first is a mining code. The rule would decrease the size standard of code 212234 (Copper Ore and Nickel Ore Mining) from 1,500 employees to 750 employees by merging it with 212231 (Lead Ore and Zinc Mining) to create code 212230 (Copper, Nickel, Lead, and Zinc Minding). Code 212231 (Lead Ore and Zinc Mining) currently has a size standard of 750. According to the SBA, increasing the size of 212234 would not be an option, because it would make virtually every business operating in that code–including dominant ones–into small businesses. But, the SBA says, reducing the size of 212234 would only make one formerly small firm into a large one.
Finally, the merging of 512220 (Integrated Record Production/Distribution) and 512210 (Record Production) into 512250 (Record Production and Distribution) would decrease the size of 512220 from 1,250 employees to 250 employees and swap 512210 from $7.5 million to 250 employees. According to the SBA, retaining the 1,250 employee standard of 512220 would have resulted in all but one business in the industry being small. As proposed, however, SBA says that two current businesses under 512220 would become large. Meanwhile, three businesses currently large under 512210’s $7.5 million standard (with average revenues between $52 million and $213 million) would become small under the 250 employee standard. Further, the change would remove the earnings cap from all businesses operating in the 512210 code.
The SBA is asking for comments on the proposed rule before June 19 and seeks to adopt the rule on October 1, 2017.
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I’ve been spending quite a bit of time on the West Coast lately: I started the week in San Diego as a speaker at the APTAC’s Spring 2017 Training Conference and after a few days in the office will be heading back on the road to present at the 2017 SAME Small Business Symposium in Bremerton, WA. If you will be attending please come say hello!
Before I head back West, it’s time for our weekly look at comings and goings in the world of federal government contracting. In this week’s SmallGovCon Week In Review, a business owner pleads guilty to defrauding more than 1,000 would-be contractors in a sleazy registration scheme, the GSA’s Alliant 2 unrestricted contract is moving forward, a government official goes on the record as stating that some contractors are “kicking butt,” and much more.
Government agencies are paying out millions of dollars to contractors that violate federal labor laws, says government watchdog. [FederalTimes]
The GSA’s Transactional Data Reporting program is supposed to eliminate the need for contractor-supplied price and discounting information but there is widespread anecdotal evidence to show that this is not happening. [Federal News Radio]
More GSA news: the Assisted Acquisition Services has found itself moving away from IT and into professional services. [Federal News Radio]
A national counterintelligence chief gave a pat on the to the contractors who are “kicking butt” in helping agencies head off insider threats. [Government Executive]
DHS’s acquisition processes are improving, according to a new GAO audit. [Nextgov]
The Alliant 2 unrestricted acquisition is moving forward: GSA has reached the source selection phase and will soon be contacting bidders to verify certain information. [FederalTimes]
A sleazy “government contracts registration” scheme has resulted in a guilty plea from a defendant accused of defrauding more than 1,000 would-be contractors. [United States Department of Justice]
A small-business advocate has won a day in court with Pentagon attorneys to argue whether the DOD should release internal documents that the plaintiff argues will reveal a government bias against small defense contractors. [Government Executive]
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The GAO estimates that 27 percent of DoD mentor-protege agreements are deficient.
In a comprehensive new report, the GAO says that many active DoD mentor-protege agreements are missing basic (and necessary) information, like the protege’s primary NAICS code. Also missing, in some cases: the parties’ signatures
The GAO’s report, titled “Small Business Contracting: DOD Should Take Actions to Ensure That Its Pilot Mentor-Protege Program Enhances the Capabilities of Protege Firms,” begins with an excellent background on the history of the DoD mentor-protege program, and the legal relationship between the DoD program and SBA’s new All Small Mentor-Protege Program (spoiler alert: there isn’t one; the two programs are separate and independent). The GAO then explains the many required elements of a DoD mentor-protege agreement, such as an assessment of the protege’s needs, a description of the specific assistance the mentor will provide to the protege, and so on.
However, many of the active DoD mentor-protege agreements are missing some of the required elements. GAO writes:
Our review of a randomly selected probability sample of 44 of the 78 total active DOD mentor-protege agreements in place as of June 2016 found that a number of these agreements were missing required elements. Specifically, based on our review, we estimate that 27 percent of the agreements did not address all required elements. With respect to specific elements, we estimate that 25 percent of the agreements did not include the signature of the mentor and protege, 9 percent did not include the protege’s primary NAICS code, and 7 percent did not include an anticipated start and end date for the agreement. These missing elements suggested that the [DoD] components’ procedures for approving mentor-protege agreements do not provide reasonable assurance that agreements are completed in accordance with DOD requirements.
These omissions can be important. For instance, GAO noted, “missing industry codes are used to determine whether proteges are eligible to participate in the program” in the first place. And of course, without signatures, it’s not clear that an agreement exists at all. It’s stunning that an estimated one-fourth of active DoD mentor-protege agreements are unsigned.
In addition to these problems, the GAO writes that the DoD “lacks performance goals and other measures needed to fully assess the program.” In other words, GAO concludes, the DoD lacks the tools and data necessary to “fully assess how well the program is enhancing the capabilities of small businesses to perform under DOD and other contracts.”
The DoD submitted comments concurring with the GAO’s findings and recommendations for improvements; DoD has pledged to take action to address the GAO’s findings. We’ll keep you posted on changes to the DoD mentor-protege program if and when they happen.
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It’s a well-known aspect of federal contracting: if a contractor wishes to formally dispute a matter of contract performance, the contractor should file a claim with the contracting officer.
But if the contractor is working under a task or delivery order, which contracting officer should be on the receiving end of that claim—the one responsible for the order, or the one responsible for the underlying contract?
As a recent Civilian Board of Contract Appeals decision demonstrates, when a contractor is performing work under a Federal Supply Schedule order, a claim involving the terms of the underlying Schedule contract must be filed with the GSA contracting officer.
Consultis of San Antonio, Inc. v. United States, CBCA No. 5458 (March 31, 2017) involved an appeal relating to a task order award by the VA to Consultis under its GSA Federal Supply Schedule Contract, for various information technology services. During performance, one of Consultis’ employees raised concerns about wage rates, so the Department of Labor conducted an inquiry to determine the applicability of the Service Contract Labor Standards under the task order. The DOL found that, while the Service Contract Act was incorporated in Consultis’ GSA Schedule contract, the appropriate wage determinations were not. It therefore recommended that GSA and VA add them to the task order.
Both GSA and the VA initially declined to add the wage determinations to the task order. Some six months later, however, the VA’s contracting officer issued a unilateral modification that did so. About two months after that, Consultis requested a supplemental payment from the VA as a result of these wage determinations, saying that it would pay the increased wages as soon as the VA provided the payment. After additional correspondence, the VA’s contracting officer issued a “final decision” denying Consultis’ request, noting that compliance with the labor standards is a contractor’s responsibility. GSA’s contracting officer apparently was involved in this decision.
Consultis appealed this denial to the Civilian Board of Contract Appeals. But after a review of the appeal, the Board questioned whether the VA contracting officer’s final decision was sufficient to trigger the Board’s jurisdiction.
Specifically, the Board noted that “FAR 8.406-6 requires that disputes pertaining to the terms and conditions of contracts be referred to the schedule contracting officer for resolution . . . whereas disputes pertaining to performance may be handled by the ordering activity contracting officer.” The Board found that this provision required GSA’s contracting officer—not the VA’s—to decide Consultis’ claim:
Although the focus of this appeal is the applicability of the wage determinations to the task order contract, the resolution of that issue necessarily requires an examination of the terms and conditions of the schedule contract. . . . We are not persuaded that clauses mandated by statute in the FSS contract, including those mandating compliance with the SCLS, cannot be enforced if they are not expressly incorporated into the task order contract. The task order comes into existence under the schedule contract. . . . Whether the VA contracting officer merely made explicit (by issuing the modification) what the contract already requires is an issue of contract interpretation that is appropriate for consideration by the GSA contracting officer. At the very least, it is a mixed issue, involving both performance and contract interpretation, which . . . also requires a decision from the GSA contracting officer.
Because GSA’s contracting officer did not issue final decision, the Board ruled that it did not have jurisdiction to consider Consultis’ appeal. It therefore dismissed the appeal for lack of jurisdiction.
Though the principle that a contracting officer must first issue a final decision before a contractor may appeal that decision seems relatively straightforward, Consultis demonstrates that its real-world application is sometimes not. For disputes involving FSS contracts, contractors should consider which contracting officer—either the ordering agency’s or the GSA’s—should consider the claim; if the claim is not decided by the appropriate contracting officer, the Board will not have jurisdiction to consider any appeal.
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I am on my way home from San Diego, where I spent yesterday at the APTAC Spring Conference. My presentation focused on recent major legal updates in government contracting, including key provisions of the 2017 National Defense Authorization Act, implementation of the All Small Mentor-Protege Program, and more.
APTAC is a wonderful organization and it is always such an honor to speak at an APTAC national conference. Thank you to Becky Peterson, Teri Bennett, Tiffany Scroggs, and all of the APTAC leadership for inviting me to be part of this spring’s event. And thank you to all the PTAC counselors who asked great questions and had kind words about the presentation (and a few lighthearted jests about KU’s tournament woes, too).
I say it all the time, but it’s worth saying again: if you are a small business in government contracting, you owe it to yourself to see what your local PTAC can do for you. Visit the ATPAC website to get started.
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The SBA has published a list of active “All Small” mentor-protege agreements. The list, which is available on the SBA’s website, is dated April 5, 2017. It’s not clear how often the SBA intends to update the list.
The April 5 list reveals that there are approximately 90 active All Small mentor-protege agreements, covering a wide variety of primary industry classifications. All major socioeconomic categories (small business, 8(a), SDVOSB, HUBZone, EDWOSB and WOSB) are represented.
There’s no reason why mentor-protege pairings should be a secret. Kudos to the SBA for publishing the list, which will be useful to contracting officers and industry alike (as well as those of us who are simply curious by nature).
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One might think that when an electronic proposal is received by a government server before the solicitation’s deadline, the proposal isn’t late. A government server is under government control, so the proposal is timely, right?
Not necessarily, at least the way the GAO sees it. As one contractor recently learned, waiting until the last minute to submit a proposal electronically carries significant risk that the proposal will not be considered timely, even if the proposal reaches the government server in time.
Peers Health, B-413557.3 (March 16, 2017) involved a Navy RFQ for occupational health disability and treatment guidelines. Quotations were to be submitted no later than 12:00 p.m. EST on November 28, 2016. The RFQ stated that quotations were to be submitted via email to a certain point of contact, and at an email address identified in the solicitation. Alternatively, offerors could submit their proposals by regular or overnight mail.
The Solicitation incorporated FAR 52.212-1 (Instructions to Offerors – Commercial Items), which provides, among other things, that proposals not timely received will not be considered for award. Notably, FAR 52.212-1 provides the following exceptions under which the government may accept late proposals:
(A) If [the proposal] was transmitted through an electronic commerce method authorized by the solicitation, it 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; or
(B) There is acceptable evidence to establish that it was received at the Government installation designated for receipt of offers and was under the Government’s control prior to the time set for receipt of offers. . . .
FAR 52.212-1(f)(2)(i). As the regulation explains, proposals received after the deadline for proposal submission will be considered timely if they are submitted electronically the day before the submission deadline, or if the government received the proposal and was in control of it prior to the submission deadline.
Peers submitted its quotation by email at 11:59 a.m. on November 28, 2016—one minute before the deadline. While the government server received the submission at 11:59 a.m., Peers’ email did not reach its final destination (the point of contact identified in the RFQ) until 3:49 p.m. GAO did not explain what caused the lengthy delay in transmission from the server to the Navy point of contact.
The Navy eliminated Peers from the competition, stating that Peers’ quotation was untimely. After Peers learned of the Navy’s decision, it filed a GAO bid protest.
Peers argued that under FAR 52.212-1(f)(2)(i)(B), its proposal was timely because the email was received by the government’s server at 11:59 a.m. As such, Peers contended, its proposal was eligible for the timeliness exemption under FAR 52.212-1(f)(2)(i)(B) because it was “received at the government installation designated for receipt of offers and was under the Government’s control prior to the time set for receipt of offers . . . .”
GAO was not convinced. GAO explained that in an earlier case, Sea Box, Inc., B-291056, 202 CPD ¶ 181 (Comp. Gen. Oct. 31, 2002), GAO had ruled that only FAR 52.212-1(f)(2)(i)(A) applied to electronically submitted proposals because it spoke directly to the issue of electronic submission. GAO concluded that applying the broader government control exception found in FAR 52.212(f)(2)(i)(B) to electronic submission would make the specific day prior requirements for electronic submission redundant. To the dismay of Sea Box, GAO concluded the government control exception does not apply to electronic submissions.
Applying its reasoning from Sea Box, GAO concluded Peers’ proposal submission was untimely because it was neither received by the intended recipient prior to the closing date for proposal submission, nor received before 5:00 p.m. the working day prior to proposals being due. As such, Peers’ proposal was properly eliminated from competition as untimely, even though it had reached a government server before the deadline.
Interestingly, the Court of Federal Claims disagrees with the GAO’s reasoning in Sea Box (and, presumably, in Peers Health, as well). In Watterson Construction Company v. United States, 98 Fed. Cl. 84 (2012), the Court carefully analyzed the regulatory history of the exceptions, and concluded that the “government control” exception does apply to emailed proposals. The Court has since confirmed its ruling, most recently in Federal Acquisition Services Team, LLC v. United States, No. 15-78C (Feb. 16, 2016).
In our view here at SmallGovCon, the Court has the better position: and not just because arguing with a federal judge isn’t usually a good idea. The regulation states that a late proposal may be accepted where the electronic commerce “or” the government control exception applies. The plain language of the regulation (and the Court’s careful study of the underlying history) suggest to us that Peers should have won its protest.
As we’ve discussed on this blog before, it’s bad news when the GAO and Court disagree about an important matter of government contracting. True, the GAO isn’t required to follow the Court’s rules. However, a bid protest shouldn’t turn on which forum the protester selects. My colleagues and I hope that the GAO reconsiders its position in future protests.
Perhaps Peers will take its case to the Court and obtain a different result. For now, contractors should be aware that under the GAO’s current precedent, the only way to ensure that an electronic proposal submission is timely received is to file before 5:00 p.m. the day before proposals are due. If the proposal is submitted later, and gets stuck on the government’s server, a potential protester should make plans to skip the GAO and head directly to the Court of Federal Claims.
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It’s been a rainy spring here in Lawrence, but the sun is finally out today. And speaking of sunshine, I’ll be in sunny San Diego on Monday to speak at the APTAC Spring 2017 Training Conference. I am looking forward to catching up with many of my favorite “PTACers” next week.
Before I head to the West Coast, it’s time for our weekly rundown of government contracting news and commentary. In this week’s SmallGovCon Week In Review, a contractor has agreed to pay nearly $20 million to resolve accusations of overcharging the VA, the GSA is considering removing a mandate requiring industry partners to participate in the new Transactional Data Reporting pilot, the GAO concludes that DoD’s buying power is on the rise, and much more.
Public Spend Forum offers tips on how to bridge the gap between public procurement and government contracting. [Public Spend Forum]
After being accused of overcharging the U.S. Department of Veterans Affairs for drugs under two contracts, Sanofi-Pasteur has agreed to pay $19.8 million. [The United States Department of Justice]
As the GSA approaches a transition to its new communications effort, it has promised to learn from its past mistakes by listening more to its agency customers and industry partners and simplifying its efforts. [Federal News Radio]
In its annual assessment of the Defense Department’s major weapons systems, the GAO calculated that over the past year the DoD has seen a $10.7 billion increase in its “buying power.” [Federal News Radio]
UnitedHealthcare has filed GAO bid protests challenging DoD’s decision to award two large contracts in military health care to rival insurers. [StarTribune]
The Pentagon is ending a seven-year drawdown of acquisition spending after the Defense Department 2016 fiscal contract obligations increased by 7% over the previous year. [Government Executive]
The GSA is considering whether to remove a mandate requiring industry partners seeking or renewing a schedule to participate in its Transactional Data Reporting Pilot. [Nextgov]
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In evaluating a WOSB joint venture’s past performance, the procuring agency considered each joint venture member’s contemplated percentage of effort for the solicitation’s scope of work, and assigned the joint venture past performance ratings based on which member was responsible for particular past performance.
The GAO held that the agency had the discretion to evaluate joint venture past performance in this manner–although it is unclear whether a relatively new SBA regulation (which apparently didn’t apply to the solicitation) would have affected the outcome.
The GAO’s decision in TA Services of South Carolina, LLC, B-412036.4 (Jan. 31, 2017) involved an Air Force solicitation seeking services supporting Air Force Information Network operations. The solicitation was issued on March 13, 2015 and was set aside for WOSBs.
The solicitation called for the award of a fixed-price contract (with a few cost reimbursable line items) for a 12-month base period and four potential option years. The Air Force was to evaluate proposals on a best value basis, considering technical, past performance, and price factors.
The successful offeror was to perform work in five Mission Areas. Under a “staffing/management” technical subfactor, offerors apparently were required to provide information regarding the anticipated breakdown of work between teaming partners (or joint venture partners) for each Mission Area.
With respect to past performance, the solicitation stated that offerors should submit past performance information on up to eight recent, relevant contracts performed by the offeror, its subcontractors, teaming partners, and/or joint venture partners. The solicitation stated that “past performance of either party in a joint venture counts for the past performance of the entity.”
TA Services of South Carolina, LLC was an 8(a) mentor-protege joint venture between Technica, LLC, a woman-owned small business, and AECOM, its large mentor. TAS submitted a proposal in response to the Air Force solicitation. TAS provided three past performance contracts performed by AECOM, but none by Technica.
TAS proposed that Technica would provide the majority of the staffing (between 55% and 70%) on four of the five Mission Areas. AECOM would provide the majority of the staffing on the fifth Mission Area.
In the course of its evaluation, the Air Force independently identified a fourth AECOM contract, but no Technica contracts. The Air Force concluded that the four AECOM contracts “provided meaningful past performance to enable a confidence level to be determined for the Joint Venture.” However, “while Technica proposed the majority of staffing in all areas except [one], they demonstrated no past performance.” The Air Force assigned TAS a “Satisfactory Confidence” past performance rating. The Air Force awarded the contract to a competitor, which proposed a higher price but received a “Substantial Confidence” past performance score.
TAS filed a GAO bid protest challenging the evaluation. TAS argued, in part, that the Air Force’s past performance evaluation was inconsistent with the terms of the solicitation. TAS contended that the solicitation required AECOM’s experience to be treated as the joint venture’s experience, and did not allow the Air Force to assign a lower confidence rating merely because Technica, the lead joint venture member, had not demonstrated relevant experience.
The GAO wrote that, “[a]s a general matter, the evaluation of an offeror’s past performance, including the agency’s determination of the relevance and scope of an offeror’s performance history to be considered, is a matter within the discretion of the contracting agency.” In this case, “the RFP’s reference to the past performance of a JV partner counting for the mast performance of the JV does not mean the agency could not consider which JV partner was responsible for past performance.” The GAO continued:
In the case of the protester, despite the fact that one JV partner had relevant past performance of exceptional quality in all mission areas, it remains the case that the other JV partner, which was proposed to perform the majority of staffing in four of the five mission areas, had no relevant past performance. Given the latter circumstance, we fail to see that satisfactory confidence was an unreasonable performance confidence rating for the JV.
The GAO denied the protest.
The evaluation of a joint venture’s past performance is something I’m asked about frequently–and an area where the FAR provides little guidance. However, is worth noting that last summer, the SBA overhauled its joint venture regulations, including those applicable to the WOSB program. The WOSB regulations now provide, at 13 C.F.R. 127.506(f):
When evaluating the past performance and experience of an entity submitting an offer for a WOSB program contract as a joint venture established pursuant to this section, a procuring activity must consider work done individually by each partner to the joint venture, as well as any work done by the joint venture itself previously.
Nearly-identical language was added to the SBA’s regulations governing joint ventures for small business, 8(a), SDVOSB and HUBZone contracts.
The new regulation took effect more than a year after the solicitation was issued in March 2015, and wasn’t discussed in GAO’s decision. But had it been effective, would it have changed the outcome? That’s not entirely clear (and won’t be until a case comes along interpreting the new rule), but my best guess is “no.”
The regulation, by its plain language, specifies that the procuring agency must consider the past performance of individual joint venture members. The SBA’s Federal Register commentary indicates that the reason SBA adopted this regulation was to prevent agencies from outright ignoring the past performance of joint venture members, and assigning undeserved “neutral” ratings to JVs comprised of experienced members.
In TA Services, of course, the agency did consider AECOM’s past performance, and didn’t assign TAS a “neutral” rating. The new regulation doesn’t directly require any more than that, although I imagine there will be bid protests in the future about whether the underlying policy prohibits the sort of weighing that occurred here (i.e., is it fair to “penalize” a mentor-protege JV simply because the protege has little relevant experience?)
We’ll have to wait to see how the GAO and Court of Federal Claims resolve these issues in the future. For now, TA Services of South Carolina seems clear: at least prior to the adoption of the new SBA regulations, and absent a solicitation provision to the contrary, there is nothing wrong with the agency considering each JV partner’s level of effort as part of the past performance evaluation.
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A small business joint venture’s proposal was excluded from the competition because the joint venture failed to submit a signed copy of its joint venture agreement, as required by the solicitation.
In a recent bid protest decision, the GAO held that the procuring agency acted properly in excluding the joint venture’s proposal, even though the joint venture’s price was more than $300,000 lower than the lowest-priced awardee’s.
The GAO’s decision in CJW Desbuild JV, LLC, B-414219 (Mar. 17, 2017) involved a NAVFAC solicitation for construction services. The solicitation was issued as a small business set-aside, and contemplated the award of up to six IDIQ contracts.
The solicitation called for NAVFAC to make award on a best value basis, taking into account both price and non-price factors. The three non-price factors were construction experience, safety, and past performance.
Under the construction experience factor, the solicitation provided the following instruction:
If the Offeror is a Joint Venture (JV), relevant project experience should be submitted for projects completed by the Joint Venture entity. If the Joint Venture does not have shared experience, projects shall be submitted for the Joint Venture members. . . . The Offeror shall submit a signed copy of the Joint Venture agreement indicating the proposed participation of each Joint Venture member. Failure to submit the required Joint Venture Agreement will be considered unacceptable.
CJW Desbuild JV, LLC was a joint venture comprised of two small businesses. CJW Desbuild submitted a proposal in response to the NAVFAC solicitation. However, CJW Desbuild failed to provide a signed copy of its joint venture agreement. NAVFAC rated CJW Desbuild’s proposal as unacceptable, and excluded CJW Desbuild from award. NAVFAC awarded IDIQ contracts to six other offerors.
CJW Desbuild filed a bid protest with the GAO. CJW Desbuild argued that its failure to submit a signed joint venture agreement was a “minor oversight,” and should not have resulted in an “unacceptable” score. CJW Desbuild also argued that NAVFAC should have used clarifications to permit CJW Desbuild to provide the joint venture agreement–especially in light of the fact that CJW Desbuild “submitted a proposed price that was over $300,000 lower than the lowest-priced awardee.”
GAO noted that the solicitation specifically required a signed copy of the joint venture agreement, and unambiguously “warned that failure to submit the agreement would be considered unacceptable.” GAO concluded that “ince the requirement for a signed JV agreement was specifically linked to technical acceptability, it could not be considered an informality or minor irregularity, subject to waiver.”
GAO also wrote that the agency could not have used clarifications to obtain the joint venture agreement. The GAO said: “ince the protester’s failure to submit a signed JV agreement was a deficiency that rendered its proposal technically unacceptable, and clarifications do not envision revisions to proposals to cure matters of technical unacceptability, the protester could not have revised its proposal to make it acceptable via clarifications.”
GAO denied CJW Desbuild’s protest.
Joint ventures have long been part of the government contracting landscape. But now that the SBA has finalized its All Small Mentor-Protege Program, which allows small proteges to joint venture with their large mentors for set-aside contracts, joint venturing seems to be increasing significantly in popularity.
Perhaps in response to an uptick in proposals from joint ventures, it seems to me (based on an entirely unscientific process I call “looking at a lot of government solicitations”) that more and more agencies are requiring joint ventures to submit their signed joint venture agreements as part of their proposals. And as the CJW Desbuild protest demonstrates, when an agency requires a signed joint venture agreement as part of a non-price evaluation, a joint venture may be excluded from the competition for failing to comply.
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Here at Koprince Law LLC, we just celebrated our second anniversary (which we affectionately call our “firmaversary”). Thank you very much to our wonderful lawyers, staff and clients for a fantastic first two years.
It’s time for our weekly dose of the latest and greatest in federal government contracting news–the SmallGovCon Week In Review. In this week’s edition, the Fair Pay and Safe Workplaces rule is gone, contractors weigh in on the President’s “skinny budget” proposal, a new bill would expand the USASpending.gov website, and much more.
Contractors weigh in on the highs and lows of President Trump’s proposed “skinny budget.” [Government Executive]
The “Contractor Accountability and Transparency Act of 2017” will expand the contracting information available on USASpending.gov and make the contract information more accessible and readable. [Project On Government Oversight]
President Donald Trump signed a joint resolution shutting down the Fair Pay and Safe Workplaces rule that supporters said evened the playing field for law-abiding contractors, and opponents singled out as unduly burdensome. [Federal News Radio]
The White House released a statement on the revocation of the Fair Pay and Safe Workplaces executive order and other contracting-related executive orders issued by former President Obama. [The White House]
Speaking of repeals, the President’s action rolls back pieces of an Obama executive order banning federal contractors from discriminating against employees on the basis of their sexual orientation or identity. [NBC News]
When it comes to federal IT acquisition, the workforce is too small, the hurdles are numerous, and modernization is slow. A House subcommittee hears proposals for modernizing Federal IT acquisition. [Federal News Radio]
The White House has released a few more details on how exactly it plans to cut $18 billion from some civilian agencies and offset significant boosts to defense and homeland security spending for the rest of fiscal 2017. [Federal News Radio]
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Earlier this month, the GAO released a comprehensive report detailing the trends in government contracting over a five-year period (from fiscal year 2011 through 2015). The entire report is available here. If you have a few hours to spare, it’s worth a read; if not, this post will summarize a few of its most eye-catching nuggets.
Off the bat, the report noted the massive amount of money spent on government contracts. In 2015, federal agencies procured over $430 billion in products and services—nearly 40 percent of the government’s discretionary spending. However, this amount represents a substantial decrease in government-wide contracting expenditures since 2011. Defense obligations decreased by nearly 31 percent over this time (dropping from $399 billion to $274 billion), while civilian obligations remained comparatively steady (nearly $176 billion in 2011 to $164 billion in 2015).
Interestingly, the report noted that approximately 2/3 of federal contracts were procured via competitive means during this time. Civilian agencies averaged higher competition rates (nearly 80 percent of solicitations, in 2015) than did defense agencies (only about 56 percent). Even still, a surprising number of competed contracts were effectively sole source awards—in 2015, 14 percent of competed solicitations were awarded to the sole offeror.
GAO further found that fixed-price contracts were the primary purchasing vehicle during this time frame. Nearly 2/3 of total contract obligations during this five-year time period were fixed-price awards. Defense agencies relied more on cost-type contracts—which GAO considers to be “high risk,” as they “do not directly incentivize contractors to control costs and thus carry significant potential risk of overspending”—than did civilian agencies. (As we wrote earlier on SmallGovCon, the 2017 National Defense Authorization Act establishes a preference for the DoD to use fixed-price contracts, although such a preference is already contained in the FAR). Contracts were about split between awards issued under indefinite delivery vehicles (like IDIQs and government-wide acquisition contracts) and definitive contracts.
Finally, the report discussed the government’s progress toward reaching its small business contracting goals. Government-wide, GAO found that small businesses received over $97 billion in prime contract awards in 2015. According to the SBA, the government met its goal for contracting to small businesses—achieving about 25 percent small business participation in 2015 (versus the 23 percent goal). On the whole, more agencies met their socioeconomic contracting goals in 2015 than did in 2011.
For all the positive news, the report revealed a downward trend in small business contracting. Defense awards to small businesses fell about $10 billion over this time period, while civilian awards decreased by about $5 billion.
GAO’s report is an interesting look into the state of federal contracting and, in particular, the government’s focus on austerity since 2011 (including sequestration). We’ll see how changes to the political landscape affect the next five years.
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If an SDVOSB was eligible at the time of its initial offer for a multiple-award contract, the SDVOSB ordinarily retains its eligibility for task and delivery orders issued under that contract, unless a contracting officer requests a new SDVOSB certification in connection with a particular order.
In a recent SDVOSB appeal decision, the SBA Office of Hearings and Appeals confirmed that regulatory changes adopted by the SBA in 2013 allow an SDVOSB to retain its eligibility for task and delivery orders issued under a multiple-award contract, absent a request for recertification.
OHA’s decision in Redhorse Corporation, SBA No. VET-261 (2017) involved a GSA RFQ for transition ordering assistance in support of the Network Services Program. The RFQ contemplated the award of a task order against the GSA Professional Services Schedule multiple-award contract. The RFQ was issued as an SDVOSB set-aside under NAICS code 541611 (Administrative Management and General Management Consulting Services). The GSA contracting officer did not request that offerors recertify their SDVOSB eligibility in connection with the order.
After evaluating quotations, the GSA announced that Redhorse Corporation was the apparent awardee. An unsuccessful competitor subsequently filed a protest challenging Redhorse’s SDVOSB status. The SBA Director of Government Contracting sustained the protest and found Redhorse to be ineligible for the task order.
Redhorse filed an SDVOSB appeal with OHA. Redhorse argued that regulations adopted by the SBA in 2013, and codified at 13 C.F.R. 125.18(e), specify that a company qualifies as an SDVOSB for each order issued against a multiple-award contract unless the contracting officer requests recertification in connection with the order.
OHA wrote that SBA’s SDVOSB regulations “make clear that a concern will retain its [SDVOSB] eligibility for all orders under a GSA Schedule or other ‘Multiple Award Contract’ unless the CO requests recertification for a particular order.” OHA then quoted the relevant portions of 13 C.F.R. 125.18(e):
Recertification. (1) A concern that represents itself and qualifies as an SDVO SBC at the time of initial offer (or other formal response to a solicitation), which includes price, including a Multiple Award Contract, is considered an SDVO SBC throughout the life of that contract. This means that if an SDVO SBC is qualified at the time of initial offer for a Multiple Award Contract, then it will be considered an SDVO SBC for each order issued against the contract, unless a contracting officer requests a new SDVO SBC certification in connection with a specific order.
(5) Where the contracting officer explicitly requires concerns to recertify their status in response to a solicitation for an order, SBA will determine eligibility as of the date the concern submits its self-representation as part of its response to the solicitation for the order.
In this case, Redhorse “self-certified as an [SDVOSB] when it was initially awarded its Professional Services Schedule contract, and most recently recertified its status in 2014 when GSA exercised an option to extend the contract.” As a result, “according to the plain language” of the regulation, Redhorse is considered an SDVOSB “for each order issued against the contract,” unless a recertification is requested.
OHA stated that “t is undisputed that the CO here did not request recertification of size or status for this task order.” Accordingly, “the award of the instant task order was not an event that [the protester] could challenge through a status protest.”
OHA concluded that the initial SDVOSB protest “should have been dismissed.” OHA granted the appeal and vacated the SBA’s decision.
Before the 2013 changes to 13 C.F.R. 125.18, the SBA’s regulations didn’t specifically address whether an SDVOSB’s eligibility could be challenged on an order-by-order basis. But as the Redhorse Corporation appeal demonstrates, the SBA’s regulatory changes cleared up that potential confusion. Under the current rules, if an SDVOSB qualifies at the time of its initial offer on the underlying multiple-award contract, the SDVOSB ordinarily will be eligible for orders issued under that contract, unless a Contracting Officer requires recertification in connection with an order.
One final note: the SBA’s decision applies to procurements falling under the SBA’s self-certification SDVOSB program. But as SmallGovCon readers know, the government is currently operating two SDVOSB programs: the SBA’s self-certification and the VA’s formal verification program. OHA’s decision doesn’t apply to VA SDVOSB procurements; it’s possible that the VA would reach a different conclusion for a procurement governed by the VAAR’s unique SDVOSB rules.
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The Armed Services Board of Contract Appeals recently dismissed a government claim that Lockheed Martin Integrated Systems, Inc. (LMIS), failed to comply with its prime contract terms by not adequately managing its subcontractors and therefore all subcontract costs (more than $100MM) were unallowable.
Although the government claim was directed at a large contractor, some of the amount in question, presumably, included invoiced amounts by small business subcontractors. At least by implication, had the government prevailed, it could have resulted in requirements for prime contractors to become far more demanding and intrusive in terms of subcontractor documentation and/or access to subcontractor records.
At issue in Lockheed Martin Integrated Systems, Inc., ASBCA Nos. 59508, 59509 (2016) was DCAA’s assertion and the Contracting Office agreement, that a prime, in accordance with FAR 42.202(e)(2), Assignment of Contract Administration, must perform in the role of the CO, CAO and DCAA when managing subcontracts. DCAA went on to assert that this responsibility includes, among other things, requiring subcontractors to submit Incurred Cost Proposals (ICP) to the prime and the prime performing an audit on that ICP, or requesting an assist audit by DCAA.
Because LMIS had no documentation requiring its subcontractors to submit ICPs, the government asserted a breach of contract and therefore questioned all subcontract costs as unallowable. Fortunately, the Board adamantly disagreed, stating that FAR 42.202 (the whole basis on which subcontract cost were questioned) is not a contractual clause nor a clause incorporated by reference. The Board concluded that FAR 42.202 is a regulation pertaining only to the government’s administration of contracts and nowhere is it implied that a prime take on the role of CO, CAO or DCAA for its subcontractors.
Whew, good news for contractors, right? Some may assume the outcome of this case will force DCAA to relent on its current obsession with prime management of subcontracts. If you have had the fortune of an ICP audit or a Paid Voucher audit recently, you understand my statement, “current obsession with prime management of subcontracts.” These audits, in particular, place significant emphasis on the processes and procedures in place which demonstrate and document the prime’s management of subcontracts.
Many small business primes have expressed concern about DCAA’s requests and expectations, during these audits, and what impact it may have on the allowability of historical subcontract cost. In my professional opinion, I doubt DCAA is going to take a step back in its auditing approach, nor relent in its expectation of subcontractor monitoring. But, at least now there is precedent stating that primes are not auditors and it’s not the prime’s responsibility to require subcontractor ICPs nor audit subcontractor ICPs.
So, what is the prime’s responsibility for monitoring subcontractors? First, note that the responsibility of the prime to “manage” subcontractors stems not from FAR 42.202 but rather from other regulations and at different phases of the contract process.
FAR 9.104-4(a) – Subcontractor Responsibility: “Prospective prime contractors are responsible for determining the responsibility of their prospective subcontractors.”
FAR 15.404-3(b) – Subcontract Pricing Considerations: “Prime contractor shall perform appropriate cost or price analysis to establish the reasonableness of subcontract prices and include the results in the price proposal.”
FAR 52.216-7 (d)(5) – Allowable Cost and Payment: “The prime contractor is responsible for settling subcontractor amounts and rates included in the completion invoice or voucher and providing status of subcontractor audits to the contracting officer upon request.
Primes must still ensure subcontractor capability and contract compliance. This is best achieved by implementing policies motivated towards an on-going monitoring approach and well documented subcontract files. Best practices considerations include, but are not limited to the following:
Perform and document Price Analysis or Cost Analysis. Although this documentation primarily supports cost estimates, it ultimately supports the reasonableness of subcontract costs as a component of prime ICPs.
Obtain subcontractor self-certifications (accounting system, provisional rates, ICP submission); note, however, that self-certifications without any corroborating data is risky.
Insert subcontract clauses with access to specified records and/or the requirement of third party verification (reasonable assurance, but not an audit). For example, a subcontract clause with rights to detailed subcontractor supporting records such as time sheets, travel expense receipts intermittently. The purpose is to selectively document that the subcontractor can support costs invoiced.
Focus on billing policies and procedures providing reasonable assurance of satisfactory subcontract performance.
Define managing subcontracts in the context of review and approval of subcontractor invoices (substation of hours, rates). Avoid references to “audits” unless expressly required by a specific contract.
Consider contract close-out expediencies
Quick close-out and/or DCAA Low Risk (concept)
Convert to FFP (FAR 16.103(c)) with support for the fixed price)
Third party reviews (agreed upon procedures/limited transaction verification)
Regardless of the outcome and what evolves from the ASBCA cases, primes are ultimately responsible for the allowability of subcontract costs. There is always risk that subcontractor cost will be challenged at the prime contract level. However, these ASBCA cases confirm that the contractual requirements imposed on primes is far less onerous than anything envisioned by DCAA.
Courtney Edmonson, CPA is the VP of Small Business Consulting at Redstone Government Consulting and provides contract compliance services to small business government contractors. Her areas of expertise include pricing and cost volume proposals, indirect rate forecasting and modelling, incurred cost proposals, and DCAA compliance. Courtney is the lead instructor for the Federal Publication Seminars course, “Government Contractor Accounting System Compliance”, and provides instruction for other compliance courses including, “Preparation of Incurred Cost Submissions”, “FAR 31, Cost Principles”, and “Cost Accounting Standards.” Courtney graduated from Jacksonville State University with a Bachelor of Science and obtained a Master of Accountancy from the University of Alabama in Huntsville. She is also a Certified Public Accountant.
Redstone Government Consulting – 4240 Balmoral Drive, SW Suite 400 Huntsville, AL 35801 www.redstonegci.com
Phone: 256-704-9840 Email: firstname.lastname@example.org
GovCon Voices is a regular feature dedicated to providing SmallGovCon readers with candid news, insight and commentary from government contracting thought leaders. The opinions expressed in GovCon Voices are those of the individual authors, and do not necessarily reflect the opinions of Koprince Law LLC or its attorneys.
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When issues arise in performance of a federal contract, a contractor may seek redress from the government by filing a claim with the contracting officer. However, commencing such a claim may result in an exercise of patience and waiting by the contractor.
The Contract Disputes Act, as a jurisdictional hurdle for claims over $100,000, requires a contractor to submit a “certified claim” to the agency. The CDA also requires the contracting officer, within sixty days of receipt of a certified claim, to issue a decision on that claim or notify the contractor of the time within which the decision will be issued.
That second part of the equation can lead to some frustration on the part of contractors. As seen in a recent Civilian Board of Contract Appeals decision, a contracting officer may, in an appropriate case, extend the ordinary 60-day time frame by several months.
In Stobil Enterprise v. Department Veterans Affairs, CBCA No. 5616 (2017), the VA awarded Strobil a contract to provide housekeeping and dietary services for an inpatient living program at a VA facility. After encountering contractual issues, Stobil initially filed a claim in the amount of $166,000. The VA denied this claim, and Stobil appealed. The CBCA dismissed Stobil’s appeal because the underlying claim hadn’t included the required certification.
Stobil then went back to the drawing board and filed a certified claim, “based on the same contracts and similar issues as those presented” in the first claim. But the certified claim was in the amount of $321,288.20, plus a whopping $2.3 million in interest. Stobil filed its certified claim on November 28, 2016.
By way of a January 27, 2017 letter, the contracting officer notified Stobil that the contracting officer would issue a decision on the certified claim by March 31, 2017. According to the contracting officer, the decision would be issued about four months after Stobil had filed its claim–or about twice as long as the 60-day time frame set forth in the CDA.
Apparently frustrated with the delay, Stobil requested the CBCA direct the contracting officer to issue its decision sooner. The CBCA declined this request.
In its rationale, the CBCA noted that the CDA doesn’t require a contracting officer to issue a decision within 60 days, but instead provides the contracting officer the option of notifying the contractor of the time within which the decision will be issued. The CDA doesn’t provide an outer limit on the period in which the decision may be extended beyond 60 days. Instead, the question is whether the delay was reasonable in light of the specific facts and circumstances of the case.
The CBCA continued:
Typically, in evaluating undue delay and reasonableness [of the date proposed by the contracting officer for issuance of a decision on a claim], a tribunal considers a number of factors, including the underlying claim’s complexity, the adequacy of contractor-provided supporting information, the need for external technical analysis by experts, the desirability of an audit, and the size of and detail contained in the claim.
The CBCA explained that while the VA had previously issued a decision on Stobil’s claims involving similar matters,”Stobil nearly doubled the amount of its claim from its former appeal . . . and is also now seeking around $2.3 million in interest.” This is, the CBCA said, “by no means a slight up-tick in money sought, such that the contracting officer should be able to rely primarily on whatever documentation Stobil previously submitted” with its initial claim. The CBCA agreed with the VA that with the significantly increased monetary demand and possibility of new items requiring review, the contracting officer was not “unduly delayed” in issuing a decision. The CBCA concluded that the VA’s timeline for issuing a decision on the certified claim was “reasonable, constituting only a modest delay.”
It’s commonly understood that a claim filed pursuant to the Contract Disputes Act must be decided within 60 days. But as the Stobil Enterprise case demonstrates, agencies have the discretion to extend the 60-day period significantly, provided that the extension is deemed “reasonable.” Here, the contracting officer essentially doubled the underlying 60-day period, but was guilty of nothing more than a “modest delay.” Contractors availing themselves of the claims process should be prepared to play the waiting game.
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The woman-owned small business program is in the midst of major changes: from the addition of sole source authority, to lingering questions about what the heck the SBA’s plan is to address the elimination of WOSB self-certification.
I recently joined host “Game Changers” podcast host Michael LeJune of Federal Access for an in-depth discussion of recent WOSB program changes, and where the WOSB program goes from here. Click here to listen to the podcast, and visit the Game Changers SoundCloud page for more great discussions with government contracting thought leaders.
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The mantra of March Madness is “survive and advance,” but the Kansas Jayhawks did more than that in their 32-point win over Purdue last night. Here in Lawrence, we’re waiting for tomorrow night’s Elite Eight showdown with Oregon. And since waiting is always better with some good reading material, it’s time for the SmallGovCon Week In Review.
In this week’s edition, a look at how President Trump’s proposed military budget will impact customers, a contractor agrees to a whopping $45 million payout to settle allegations of overcharging the government, the Army contends that protests are “nearly automatic,” and much more.
President Trump is requesting a big boost to military spending in the FY 2018 budget request blueprint, but not all contractors will win. [Bloomberg Government]
After a long-lasting legal dispute between an IT contractor and the federal government, the contractor has agreed to pay $45 million to settle allegations that it overcharged and provided false pricing information to the government. [Nextgov]
The National Park Service concessions program is making changes based on recommendations from the GAO, but challenges remain. [U.S. Government Accountability Office]
Federal contractors are driving a trend of specialization to reposition themselves in the market so they can compete less on price and more on the value of particular skills and knowledge. [National Defense]
High-ranking U.S. Army officials contend that protests are “nearly automatic” and are asking industry to reconsider its approach. (My take: with only 2,789 GAO bid protests filed in FY 2016–across all procurements by all federal agencies–I’m sensing a wee bit of exaggeration on the part of the Army). [DefenseNews]
A possible bright spot for contractors asking how to maintain market share could be GWACs and IDIQs. [Washington Technology]
According to government contracting guru Larry Allen, contractors should look forward to more activity in the fourth quarter of the fiscal year. [Federal News Radio]
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An agency was justified in canceling a small business set-aside solicitation–and reissuing the solicitation on an unrestricted basis–where the agency determined that the prices offered by small businesses were too high.
In a recent bid protest decision, the GAO confirmed that while the FAR’s “rule of two” set-aside requirement provides a powerful and important preference for small businesses, it doesn’t require an agency to pay more than fair market value for products or services.
The GAO’s decision in Wall Colmonoy Corporation, B-413320; B-413322 (Oct. 3, 2016) involved an Air Force solicitation for the remanufacture of approximately 80 F-16 heat exchangers. Before issuing the solicitation, the Air Force conducted market research to determine whether the solicitation should be set aside for small businesses. The market research indicated that two small businesses were likely to submit proposals. Based on its market research, the Air Force issued the solicitation as a small business set-aside.
The Air Force also prepared an independent government estimate, or IGE, to use in the evaluation of offerors’ price proposals. The Air Force’s IGE indicated that the remanufacture of each unit should cost approximately $12,000. The Air Force’s IGE was based in large part on a 2012 contract for the same services, under which the Air Force paid $11,936 per unit.
The two small businesses identified in the market research submitted proposals. Wall Colmonoy Corporation, one of the small businesses, proposed a unit price of $17,426. The other small business proposed a unit price of $29,950.
The Air Force opened discussions with both small business offerors. Through several rounds of discussions, the Air Force informed the small businesses that their proposed prices were higher than the Air Force had anticipated. WCC ultimately lowered its proposed price to $15,950 per unit. The second small business apparently lowered its price by only $450 per unit, to $29,500.
After reviewing revised proposals, the Air Force concluded that it could not make award at a reasonable price. The Air Force canceled the solicitation. The Air Force then issued a new solicitation on an unrestricted basis. Except for removing the small business set-aside designation, the new solicitation was “essentially identical to the previous solicitation.”
WCC filed two GAO bid protests: one challenging the Air Force’s decision to cancel the small business solicitation; the second challenging the Air Force’s failure to issue the second solicitation as a small business set-aside. The GAO consolidated the protests for decision.
The GAO first determined that the Air Force had properly canceled the first solicitation. The GAO noted that WCC’s proposed prices were “significantly higher” than the Air Force had anticipated. The Air Force “engaged in multiple rounds of discussions with WCC, repeatedly advising WCC that its unit price was too high.” When WCC’s final proposal remained $3,950 higher per unit than the IGE, the Air Force reasonably canceled the solicitation.
The GAO then held that the Air Force had reasonably issued the second solicitation on an unrestricted basis. The GAO wrote: “[g]iven that the agency canceled [the first solicitation] because the agency concluded that it was unable to make an award at a fair market price, we find nothing improper with the contracting officer’s decision to not set aside [the second solicitation] for the same requirements.” The GAO denied WCC’s protest.
FAR 19.502-2(b) provides that an acquisition over $150,000 ordinarily shall be set aside for small businesses where the contracting officer has a reasonable expectation of obtaining offers from at least two small businesses, and where “[a]ward will be made at fair market prices.” Although discussion of the “rule of two” usually centers on the availability of small business sources, the Wall Colmonoy Corporation protest is a good reminder that an agency need not restrict a solicitation to small businesses if the agency has a reasonable belief that it cannot make award at “fair market prices.”
One final note: the Air Force’s response to WCC’s protest indicated that the services had been procured in 2008 for $8,882 per unit and again in 2012 for $11,936 per unit. In other words, over the four-year period from 2008 to 2012, the cost of the services increased by $3,054 per unit, a jump of approximately 34.4%. Given this history, it’s surprising that (at least based on the public protest decision), WCC does not appear to have protested the reasonableness of the IGE itself. The IGE of $12,000 anticipated a mere 0.54% price increase over the four years between 2012 and 2016: well below inflation rates during the period, and at odds with the 34.4% increase the Air Force agreed to in the prior four-year period. Indeed, WCC’s final unit price of $15,950 was approximately 33.7% higher than the 2012 unit price: directly in line with the percentage increase between 2008 and 2012. Why didn’t this issue come up in the protest (or at least in the published decision)? Good question.
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Federal contractors frequently find themselves in the position of needing to establish their past performance credentials to secure future contracts – the government’s form of a reference check. The government often performs these reference checks by requesting completed past performance questionnaires, or PPQs, which the government uses as an indicator of the offeror’s ability to perform a future contract.
But what happens when a contractor’s government point of contact fails to return a completed PPQ? As a recent GAO decision demonstrates, if the solicitation requires offerors to return completed PPQs, the agency need not independently reach out to government officials who fail to complete those PPQs.
By way of background, FAR 15.304(c)(3)(i) requires a procuring agency to evaluate past performance in all source selections for negotiated competitive acquisitions expected to exceed the simplified acquisition threshold. The government has many means at its disposal to gather past performance information, such as by considering information provided by the offeror in its proposal, and checking the Contractor Performance Assessment Reports System, commonly known as CPARS.
PPQs are one popular means of obtaining past performance information. A PPQ is a form given to a contracting officer or other official familiar with a particular offeror’s performance on a prior project. The official in question is supposed to complete the PPQ and return it–either to the offeror (for inclusion in the proposal) or directly to the procuring agency. Among other advantages, completed PPQs can allow the agency to solicit candid feedback on aspects of the offeror’s performance that may not be covered in CPARS.
But the potential downside of PPQs is striking: the FAR contains no requirement that a contracting official respond to an offeror’s request for completion of a PPQ or similar document within a specific period (or at all). Contracting officials are busy people, and PPQ requests can easily fall to the bottom of a particular official’s “to-do” list. And procuring agencies sometimes contribute to the problem by developing lengthy PPQs that can be quite time-consuming to complete. For example, in a Google search for “past performance questionnaire,” the first result (as of the date of this blog post) is a NASA PPQ clocking in at 45 questions over 11 pages. A lengthy, complex PPQ like that one almost begs the busy recipient to ignore it.
That brings us to the recent GAO bid protest, Genesis Design and Development, Inc., B-414254 (Feb. 28, 2017). In Genesis Design, GAO denied a protest challenging the rejection of an offeror’s proposal where the offeror failed to adhere to the terms of the solicitation requiring offerors to submit three PPQs completed by previous customers.
The protest involved the National Park Service’s request for the design and construction of an accessible parking area and ramp at the Alamo Canyon Campground in Ajo, Arizona. The solicitation required offerors to provide three completed PPQs from previous customers to demonstrate that the offerors had successfully completed all tasks related to the solicitation requirements. The solicitation provided the Park Service with discretion to eliminate proposals lacking sufficient information for a meaningful review. The Park Service was to award the contract to the lowest-priced, technically acceptable offeror.
Genesis Design and Development, Inc. submitted a proposal. However, the PPQs Genesis provided with its proposal had not been completed by Genesis’ prior customers. Instead, the PPQs merely provided the contact information of the prior customers, so that the Park Service could contact those customers directly.
The Park Service found Genesis’ proposal was technically unacceptable, because Genesis failed to include completed PPQs. The Park Service eliminated Genesis from the competition and awarded the contract to a competitor.
Genesis filed a GAO bid protest challenging its elimination. Genesis conceded that the PPQs had not been completed by its past customers, but stated that it “reasonably anticipated that the agency would seek the required information directly from its clients.” Genesis contended that it “is often difficult to obtain such information from its clients because they are often too busy to respond in the absence of an inquiry directly from the acquiring activity.”
GAO wrote that “an offeror is responsible for submitting an adequately written proposal and bears the risk that the agency will find its proposal unacceptable where it fails to demonstrate compliance with all of a solicitation’s requirements.” Here, “the RFP specifically required offerors to submit completed PPQs,” but “Genesis did not comply with the solicitation’s express requirements.” Accordingly, “the agency reasonably rejected Genesis’ proposal.” GAO denied Genesis’ protest.
GAO’s decision in Genesis Design should serve as an important warning for offerors: where the terms of a solicitation require an offeror to return completed PPQs from its previous customers, the offeror cannot assume the procuring agency will contact the customers on the offeror’s behalf. Instead, it is up to the offeror to obtain completed PPQs.
In our view here at SmallGovCon, the Genesis Design decision, and other cases like it, reflect a need for a FAR update. After all, Genesis was exactly right: contracting officers are sometimes too busy to prioritize responding to PPQs. It doesn’t make good policy sense for the results of a competitive acquisition to hinge on whether a particular offeror is lucky enough to have its customers return its PPQs, instead of on the merits of that offeror’s underlying past performance.
Policymakers could address this problem in several ways, such as by imposing a regulatory requirement for contracting officials to respond to PPQ requests in a timely fashion, or by prohibiting procuring officials from requiring that offerors be responsible for obtaining completed PPQs. Hopefully cases like Genesis Design will spur a regulatory change sometime down the road. For now, offerors bidding on solicitations requiring the completion of PPQs must live with the uncertainty of whether the government will reject the offeror’s proposal as technically unacceptable due to the government’s failure to complete a PPQ in a timely manner.
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A Program Management Office manager was not a “key employee” within the definition of the SBA’s affiliation regulations, according to the SBA Office of Hearings and Appeals.
In a recent size appeal decision, OHA found that the fact that a small business’s CEO served as another company’s PMO manager did not result in affiliation between the two companies because the individual in question could not control the second company through his PMO manager role.
OHA’s decision in Size Appeal of INV Technologies, Inc., SBA No. SIZ-5818 (2017) involved an Air Force solicitation for training services and support at the Oklahoma City Air Logistics Complex. The solicitation was issued as a small business set-aside under NAICS code 611430 (Professional and Management Development Training) with a corresponding $11 million size standard.
After evaluating proposals, the Air Force announced that INV Technologies, Inc. was the apparent awardee. An unsuccessful offeror filed an SBA size protest challenging INV’s small business status.
The SBA Area Office determined that INV’s owner and President, Chandan Jhunjhunwala, also worked as a Program Management Office manager for SNAP, Inc. INV and SNAP also had other relationships, including a number of subcontracts issued between the companies.
The SBA Area Office issued a size determination finding INV and SNAP to be affiliated. Among the reasons for affiliation, the SBA Area Office found that Mr. Jhunjhunwala was a key employee of SNAP, meaning that INV and SNAP shared common control. The affiliation with SNAP caused INV to be ineligible for the Air Force contract.
INV filed a size appeal with OHA, alleging that the SBA Area Office’s decision was erroneous. Among its arguments, INV contended that Mr. Jhunjhunwala was not a “key employee” of SNAP and could not control that company.
OHA explained that under the SBA’s affiliation regulations, “the touchstone issue is control. A connection between two concerns does not necessarily cause affiliation. There must be an element of control present.”
OHA stated that while a “key employee” may be found to control a company, “[a] key employee is one who, because of his position in the concern, has a critical influence over the operations or management of the concern.” An employee “with no authority to hire and fire or to enter into contracts is not likely to be a key employee.” Conversely, “an employee who is critical to a concern’s control of day-to-day operations is a key employee.”
In this case, INV was “owned and solely controlled by Mr. Jhunjhunwala.” However, “the record does not support the conclusion that [Mr. Jhunjhunwala] could control both [INV] and SNAP.”
Here, the record contains no evidence demonstrating that the Area Office considered Mr. Jhunjhunwala’s role, duties, or authority at SNAP. Rather, the determination that he is a key employee appears to be based merely on his title. Further, the record does not support finding him to be a key employee, either. According to his resume, he provides PMO support, but there is no indication that he has the authority to hire and fire, enter into contracts, or otherwise control the operations of SNAP as a whole.
OHA granted INV’s size appeal and reversed the SBA Area Office’s size determination.
The SBA affiliation rules can seem confusing and complex. But in one respect, they are simple: affiliation turns on common control. Although a “key employee” can control a company within the meaning of the SBA affiliation rules, the employee in question must have critical influence over the company’s day-to-day operations. When an employee doesn’t exercise such influence, he or she will not be found to control the company.
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March Madness is here! I hope your brackets are doing well. So far, mine haven’t been “busted,” but Notre Dame looked mighty shaky in that opening-round win over Princeton.
While I get ready for tomorrow’s games with my Duke Blue Devils and Kansas Jayhawks, I’m keeping an eye on the latest and greatest (or not so great) in government contracting. In this week’s SmallGovCon Week In Review, the GAO releases a major report on the state of government contracting, an IT contractor will pay $45 million to resolve claims of overcharging the government, the SBA proposes to terminate a nonmanufacturer rule class waiver, and more.
A revised National Institute of Standards and Technology guideline raises the risk profile of merger and acquisition deals and presents challenges. [Signal]
Because the statute of limitations had expired, a federal judge threw out charges against two men accused of falsely claiming a construction company they operated was headed by a service-disabled veteran. [ArkansasOnline]
The Federal Acquisition Service closed Schedule 75 for what it claimed would be just 24 months, but over six years later Schedule 75 remains closed to new offers. [Federal News Radio]
The Government Accountability Office released a 66-page report that dives into the state of federal contracting and where those federal dollars are being spent. [Government Executive]
An IT contractor will pay $45 million to resolve allegations of overcharging the GSA for software licenses and maintenance. [FCW]
A proposed rule by the VA will amend and update various aspects of the VA Acquisition Regulations (VAAR). [Federal Register]
A retired Navy admiral is among nine people indicted in a major bribery scandal. [Federal News Radio]
The SBA is proposing to terminate the nonmanufacturer rule class waiver for rubber gloves. [Federal Register]
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Companies controlled by a father and son, respectively, were affiliated under the SBA’s affiliation rules because there was no clear fracture of the family members’ business relationships.
In a recent size appeal decision, the SBA Office of Hearings and Appeals held that a son’s company was affiliated with a company owned by his father because the son had worked for many years at the father’s company, the son’s company leased office space from the father’s company, and the two companies engaged in significant amounts of subcontracting.
OHA’s decision in ProSol Associates, LLC, SBA No. SIZ-5813 (2017) involved a Marine Corps solicitation seeking a contractor to provide IT training. The solicitation was issued as a small business set-aside under NAICS code 611430 (Professional and Management Development Training), with a corresponding $15 million size standard.
After evaluating competitive proposals, the Contracting Officer notified offerors that ProSol Associates, LLC (“PSA”) was the apparent awardee. After receiving the notice, an unsuccessful competitor filed an SBA size protest. The competitor alleged that PSA was affiliated with ProSol, LLC under various SBA affiliation rules.
The SBA Area Office determined that Michael E. Dean was PSA’s sole shareholder and CEO. His father, Michael J. Dean, was the sole owner of ProSol. Michael E. Dean worked for ProSol from 2002 to 2010 in a number of positions. In 2008, while Michael E. Dean was still a ProSol employee, he founded PSA.
The SBA Area Office determined that PSA subleased office space from ProSol. Additionally, subcontracts from PSA had represented approximately 16% of PSA’s revenues since 2009, and represented 29% of PSA’s revenues in Fiscal Year 2015–the year in which the Marine Corps proposal was submitted. PSA intended to award a subcontract to ProSol under the Marine Corps solicitation.
The SBA Area Office found that Michael E. Dean and Michael J. Dean were presumed to have an identity of interest under the SBA’s affiliation regulations. Although the presumption of affiliation based on an identity of interest can be rebutted by showing a clear fracture, there was no clear fracture between PSA and ProSol because of the lease and continuous subcontracting relationships. The SBA Area Office issued a size determination finding PSA to be affiliated with ProSol. The affiliation caused PSA to be ineligible for the Marine Corps contract.
PSA filed a size appeal with SBA OHA. PSA alleged that the SBA Area Office had misapplied the affiliation rules. PSA argued, in part, that the business relationships between PSA and ProSol were sufficiently minimal to establish a clear fracture.
OHA wrote that it “has extensive case precedent” interpreting the identity of interest affiliation rule “as creating a rebuttable presumption that close family members have identical interests and must be treated as one person.” Citing a 2014 size appeal decision, OHA wrote that “[w]hen one concer is owned and controlled by a father, and the other owned and controlled by a son, the two concerns are presumed to be affiliated by an identity of interest.”
OHA reiterated that “[a] challenged concern may rebut the presumption of identity of interest if it is able to show ‘a clear line of fracture among the family members.'” A clear line of fracture exists when the family members “have no business relationship or involvement with each other’s business concerns, or the family members are estranged.” Additionally, “a minimal amount of business or economic activity between two concerns does not prevent a finding of clear fracture.”
After revisiting the various relationships between PSA and ProSol, OHA wrote “[t]he facts here thus support the Area Office’s conclusion that Michael E. Dean cannot be said to have made a break with his father’s business interests, and thus has not achieved a clear fracture.” Rather, “he has continuously been involved with ProSol to a significant extent, from the time be became [PSA’s] principal until the present.” OHA concluded: “[t]he burden is on [PSA] to establish that Mr. Dean has made a clear fracture, and he has failed to meet that burden.” OHA denied PSA’s size appeal, and affirmed the SBA Area Office’s decision.
The so-called “family relationships” affiliation rule isn’t necessarily intuitive. After all, it can apply–as it did in ProSol Associates–even when the two firms share no owners or officers. But as ProSol Associates demonstrates, companies controlled by close family members (like a father and son) can be affiliated when the family members do business together, even without shared ownership or management.
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