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Koprince Law LLC

For Federal Supply Schedule procurements, agencies are not required to evaluate past performance references of subcontractors, unless the solicitation provides otherwise.

As one offeror recently discovered in Atlantic Systems Group, Inc., B-413901 (Jan. 9, 2017), unlike negotiated procurements, where agencies “should” evaluate the past performance of subcontractors that will perform major or critical aspects of the contract, offerors bidding under FSS solicitations should not assume that a subcontractor’s past performance will be considered.

Atlantic Systems involved a solicitation for technical, engineering, management, operation, logistical, and administrative support for the Department of Education’s cybersecurity risk management program. The solicitation was set aside for SDVOSB concerns that held Schedule 70 contracts.

Pursuant to the solicitation, offerors were to be evaluated for both corporate experience and past performance. In order to enable the agency to conduct the past performance/experience evaluation, each “offeror” was to provide evidence of the experience “of the organization” with similar projects or contracts.

For corporate experience, offerors were to provide between 3 and 5 performance examples that demonstrated the offeror’s capabilities “with similar projects or contracts, in terms of the nature and objectives of the project or contract; types of activities performed; studies conducted; and major reports produced.” Similarly, under the past performance factor, offerors were to provide between 3 and 5 performance examples “performed in the past [3] years that were similar in size, scope, and complexity” to the solicitation. The solicitation did not specify how the agency would treat a subcontractor’s past performance.

Under both corporate experience and past performance categories, Atlantic Systems provided two examples of its own performance and two examples from its subcontractor. In its evaluation, the agency did not consider the subcontractor’s past performance. Rather, “since the solicitation asked for experience and past performance for the organization, offeror, the agency only considered the information provided for the entities in whose name the offers were submitted.” Based in part on this determination, the agency rated Atlantic Systems as “does not possess” for corporate experience, and “neutral” for past performance. The agency awarded the order to a competitor.

Atlantic Systems filed a bid protest at GAO. Atlantic Systems contended, in part, that the agency had erred by failing to consider the past performance and experience of its subcontractor. Atlantic Systems pointed out that in a prior bid protest, Singleton Enterprises, B-298576 (Oct. 30, 2006), GAO sustained the protest, holding that the solicitation contained a “latent defect”: the agency had reasonably concluded that “offeror” meant only the prospective prime contractor; the protester had reasonably believed otherwise.

But Singleton was a negotiated procurement; offers were evaluated under FAR Part 15. FAR 15.305(a) states that agencies “should” consider the past performance of a subcontractor that will perform major or critical aspects of the contract. FAR 15.305(a) was central to GAO’s ruling in Singleton, because it created a reasonable expectation that a subcontractor’s past performance would be considered.

Here, in contrast, “the solicitation was issued pursuant to FAR part 8,” which applies to FSS procurements. FAR Part 8 “does not suggest that in evaluating an offeror’s past performance an agency should also consider the past performance of its proposed subcontractors.” Accordingly, “we do not find that the solicitation here is ambiguous, and it was reasonable for the agency to consider the experience and past performance of the offeror (i.e., the entity that submitted the offer) and not its subcontractors.”

As a policy matter, it’s fair to wonder if the underlying rule for consideration of a subcontractor’s past performance should vary depending on which Part of the FAR applies to the acquisition. But as a practical matter, Singleton Enterprises stands for an important principle: if an FSS solicitation does not specifically indicate that a subcontractor’s past performance will be considered, there is no guarantee that it will be.

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Koprince Law LLC

The SBA Office of Hearings and Appeals reaffirmed recently that a business need not manufacture the most expensive component of an item in order to be considered its manufacturer.

Rather, under the SBA’s size rules, a company may be considered a manufacturer if it adds important functionality to the end product, even if the proportion of total dollar value added by the company is relatively small.

The case, Size Appeals of MPC Containment Systems, LLC & GTA Containers, Inc., SBA No. SIZ-5802 (Jan. 11, 2017), involved a solicitation issued by the DLA to acquire collapsible fabric fuel tanks. Basically, the tanks would need to hold fuel but collapse when empty for easy storage and transport. The procurement was 100% set aside for small businesses and competed under NAICS code 313320 (Fabric Coating Mills). The corresponding size standard was 1,000 employees.

DoD awarded Avon Engineered Fabrications, Inc., the contract on April 11, 2016. Two of Avon’s competitors, MPC Containment Systems, LLC, and GTA Containers, Inc., filed size protests, arguing among other things, that Avon was a subsidiary of Avon Rubber, P.L.C., a publicly-traded British company with over 500 employees, and a number of other businesses.

One of the protesters also argued that Avon was not the manufacturer of the fuel tanks, and that therefore the 500-employee standard of the nonmanufacturer rule should apply. The nonmanufacturer rule allows a small business to sell the manufactured goods of other businesses, presuming certain conditions are met. Among those conditions, the prime contractor must have no more than 500 employees, even if the solicitation’s NAICS code (like the Fabric Coating Mills NAICS code) carries a higher size standard.

The SBA Area Office issued a size determination on August 12, 2016. The SBA Area Office found that Avon was owned by Avon Rubber and Plastics, Inc., which was owned by Avon Rubber Overseas Limited, which is in turn owned by Avon Rubber (the parent publicly-traded British company). Avon was therefore affiliated with its parent company as well as the various holding companies, and sister companies in the Avon Rubber family–a total of 15 companies.

The SBA Area Office then examined whether Avon was the manufacturer of the end items in question.  The SBA Area Office determined that rubber fabric was the most expensive component of the fuel tanks. Rubber fabric accounted for 67% of all material costs and 54% of total product costs. Avon was not the manufacturer of the rubber fabric.

However, Avon would transform rubber fabric and other components into the fuel tanks. The SBA Area Office held that Avon was the manufacturer because, without Avon’s modification and assembly, the final contract deliverables would not exist.

Because Avon was deemed the manufacturer, the Area Office applied the 1,000 employee size standard under NAICS code 313320, not the 500-employee size standard applicable to nonmmanufacturers. The Area Office found that Avon, together with its affiliates, did not exceed the 1,000 employee size standard.

MPC and GTA filed size appeals with OHA. The appeals centered on the question of whether the SBA Area Office had correctly found Avon to be the manufacturer of the fuel tanks. The appellants argued that Avon should not have been considered the manufacturer, and its small business status should have been evaluated under the 500-employee size standard.

OHA wrote that, under the SBA’s regulations, “[t]he manufacturer is the concern that, with its own facilities, performs the primary activities in transforming inorganic or organic substances, including the assembly of parts and components, into the end item being acquired.” The end item “must possess characteristics which, as a result of mechanical, chemical, or human action, it did not possess before the original substances, parts or components were assembled or transformed.” However, “the proportion of value added by the manufacturer can be a very small proportion of the total value, provided that the concern adds important functionality.”

In this case, “although the rubber fabric will be manufactured by a third party, Avon will transform the fabric, through a ‘series of labor and machine steps,’ into collapsible tanks.” Avon’s work is “of crucial importance” because “without Avon’s modification and assembly the coated fabric alone would not function as a collapsible fuel tank.”

OHA held that “the Area Office reasonably determined that Avon will transform raw materials into the end items being acquired, and therefore qualifies as the ‘manufacturer’ within the meaning of” the SBA’s regulations. OHA denied the size appeals.

The question of whether a company is a “manufacturer” for purposes of the SBA’s size rules is determined on a case-by-case basis. As the MPC Containment Systems case demonstrates, a company may qualify as the manufacturer even if the proportion of total value it adds is relatively small.

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Koprince Law LLC

Imagine that you’re a manufacturer of appliances, and respond to a solicitation seeking one of your appliances (on a brand name basis). You, of course, propose to provide your appliance. But you lose out on an award to an offeror that submits an offer for a different appliance that admittedly does not comply with the solicitation’s minimum requirements.

In this situation, you’d probably be fairly upset. And as a recent GAO decision acknowledged, you’d likely have a successful basis of protest—that is, if you could establish that you were prejudiced by the government’s award decision, and if you understood what exactly the GAO means by “prejudice.”

The facts in Glem Gas S.p.A, B-414179 (Feb. 23, 2017) are fairly straightforward. The protest involved a solicitation issued by the Navy, seeking 270 gas stoves for base housing at the U.S. Naval Air Station in Sigonella, Italy. The solicitation specifically identified a stove model manufactured by Glem Gas on a brand-name-or-equal basis. To be considered equal to Glem Gas’s stove, a different stove had to possess various salient characteristics, including a depth of 60 centimeters and capacity of 95 liters.

Unsurprisingly, Glem Gas proposed its own stove to meet the agency’s needs. But because the specified model was no longer manufactured, it proposed the latest model with even greater capabilities.

Gaeta Ship Supply SRL proposed an alternative stove manufactured by a different company. This stove did not comply with the Navy’s minimum requirements—it had a depth of 50 centimeters and capacity of 92 liters. But even though Gaeta’s proposed stove did not satisfy the Navy’s minimum stated requirements, the Navy awarded the contract to Gaeta.

Glem Gas protested, arguing that the Gaeta’s proposal failed to meet the solicitation’s requirements and, as a result, should have been found technically unacceptable. The Navy responded by acknowledging that Gaeta’s offered stove did not meet the solicitation’s requirements. But it called these deviations “minor . . .and inconsequential.” Because “the stoves are functionally interchangeable and will perform identically,” the Navy found that waiver of the dimension specifications was appropriate.

GAO disagreed with the Navy’s argument. It explained:

Under a brand name or equal solicitation, a firm offering an equal product must demonstrate that the product conforms to the salient characteristics of the brand name product listed in the solicitation. In general, the particular features of the brand name identified in the solicitation as salient characteristics are presumed to be material and essential to the government’s needs, and quotations offering other than the brand name product that fail to demonstrate compliance with the stated salient characteristics are properly rejected as unacceptable.

Thus, because the solicitation specifically identified the stove’s dimensions as salient characteristics, Gaeta’s failure to propose a stove in conformity with them should have rendered its proposal unacceptable.

But this finding did not end GAO’s analysis. Instead, GAO noted that an agency may waive compliance with a material solicitation requirement if doing so will not prejudice other offerors. So here, GAO considered the potential prejudice to Glem Gas as a result of the Navy’s waiver.

Now, one might think that prejudice in this situation is obvious: if Gaeta had been kicked out of the competition, Glem Gas might have been awarded the contract. But that’s not how GAO looks at prejudice in these cases. In cases like these, GAO’s test for prejudice is whether the protester, had it known that the agency wouldn’t enforce its minimum requirements, would have proposed something different. In other words, would Glem Gas have proposed a different (and cheaper) stove had it known that the Navy wouldn’t enforce the stated depth and capacity requirements?

GAO found that Glem Gas had not shown that its own proposal would have been any different:

Although we agree with Glem Gas that the Navy improperly waived the RFQ’s salient characteristics by selecting the awardee’s non-brand name stove, we also agree with the agency that the protester has not shown that it was prejudiced by the waiver. As the Navy points out, Glem Gas has not alleged that it would have quoted a lower price for its brand name model, or that it would have offered another similar product, if it had known that the agency would waive the RFQ’s salient characteristics at issue here. We thus have no basis to sustain Glem Gas’ protest.

Despite being correct on the law—arguing that the Navy’s waiver of the salient characteristics was improper—Glem Gas’ protest was denied.

The Glem Gas decision is an important reminder that it is not always enough for a protester to prove that the awardee’s product didn’t satisfy the solicitation’s salient characteristics. The protester must also demonstrate that it was prejudiced by the agency’s waiver of the salient characteristics. And in the GAO’s eyes, “prejudice” means that the protester would have changed its own proposal in some way—not just that the awardee would have been excluded.

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Koprince Law LLC

It’s hard to believe, but this is already the last SmallGovCon Week In Review of February 2017. The year seems to be flying by, and there’s never a shortage of government contracting news. This week is no exception.

In this edition of the SmallGovCon Week in Review, one commentator suggests that the Trump administration revive an old contracting practice, a Pennsylvania man faces up to 10 years in prison after admitting to paying bribes and kickbacks on federal construction projects, government contracting gurus Guy Timberlake and Mark Amtower offer some candid commentary on the industry, and much more.

  • Could an old contracting approach be just what the Trump administration needs? [Government Executive]
  • The DOE has published an updated Acquisition Guide on its Management and Operating contracts. [United States Department of Energy]
  • The Federal Risk and Authorization Management Program unveiled the first draft of another tool it will add to its kit: a way to more efficiently authorize low-risk cloud services. [fedscoop]
  • Unlawful bribes and kickbacks have one construction company operator in hot water: he could face 10 years  in prison and and maximum fine of $250,000. [United States Department of Justice]
  • A former OPM and NSA contractor has been sentenced to pay $70,000 in restitution and perform 360 hours of community service for falsifying his time sheets while working at the agencies. [United States Department of Justice]
  • Guy Timberlake has some advice on the importance of knowing your stuff when it comes to procurement data and the federal contracting process. [GovConChannel]
  • Mark Amtower offers some tips on getting government buyers and influencers to notice you during the bidding process. [Washington Technology]

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Koprince Law LLC

SDVOSBs and VOSBs will only be required to obtain reverification every three years under an interim final rule adopted yesterday by the VA.

The VA’s new rule replaces the prior rule, which required reverification every two years.  The purpose of the change?  To “reduce the administrative burden on SDVOSB/VOSBs regarding participation in VA acquisition set asides for these types of firms.”

When the VA originally finalized its SDVOSB/VOSB program in 2010, VA “anticipated that annual examinations were necessary to ensure the integrity of the Verification Program.”  But the VA soon had second thoughts.  In 2012, the VA adopted a two-year program term.

Now, the VA believes that even a biennial reverification is unnecessary.  The VA explains that data from Fiscal Year 2016 “shows that out of 1,109 reverification applications, only ten were denied.”  Therefore, “only 0.9 percent of firms submitting reverification applications were found to be ineligible after two years.”

The VA notes that “[o]ther integrity aspects of the program remain adequate to oversee a 3-year eligibility period.”  For example, the VA “conducts a robust examination of personal and company documentation” when a firm first applies, and the VA’s regulations require a participant to inform the VA “of any changes that would adversely affect its eligibility.” Additionally, the VA “has the right to conduct random, unannounced site examinations of participants” or examine a participant “upon receipt of specific and credible information that a participant is no longer eligible.”  And of course, in the case of an SDVOSB or VOSB set-aside acquisition, VA contracting officers and competitors “have the right to raise a SDVOSB/VOSB status protest” of the awardee.

The VA’s change is an “interim final rule,” which means that it takes effect immediately, but is subject to revision upon receipt of public comments.  Comments are due April 24, 2017, and I imagine that they will be overwhelmingly positive.

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Koprince Law LLC

An agency’s task order award was improper because the order was outside the scope of the underlying IDIQ contract.

In Threat Management Group, LLC, GAO sustained a protest holding that the Air Force violated the Competition in Contracting Act by issuing a task order for some work beyond the scope of the awardee’s IDIQ contract. GAO’s decision highlights the fact that an order must be within the scope of the underlying contract–and the award of an out-of-scope order can be successfully challenged in a bid protest.

The Threat Management Group decision involved a single-award IDIQ contract held by R3 Strategic Support Group, Inc. The IDIQ contract permitted R3 to provide explosive ordnance disposal (“EOD”) support services and training at various Air Force bases. Task orders issued under the IDIQ simply described the work as “EOD Support Services” in accordance with the IDIQ’s statement of work.

Threat Management Group, LLC had been performing a separate Air Force contract to perform contingency training services. Under its contract, TMG employed 13 individuals, who provided training and other support services.

In anticipation of the expiration of TMG’s contract, the Air Force contacted R3 about obtaining training services. The Air Force subsequently issued a task order, numbered 76 (and referred to in the GAO’s decision as “TO 76”) to R3. TO 76 called for R3 to provide 13 individuals–the same number of individuals required under TMG’s incumbent contract.

R3’s IDIQ contract was for EOD support services. Some of work under TO 76, however, involved providing “controlled area training to Flight personnel,” “chemical, biological, radiological, and nuclear capability training,” and “medical training mannequin” – all seemingly outside the scope of the underlying IDIQ contract.

Upon learning of the task order award to R3, TMG filed an agency-level bid protest. When the Air Force denied the agency-level protest, TMG protested at the GAO.

The GAO wrote that the Competition in Contracting Act ordinarily requires full and open competition. Therefore, “[w]here an agency issues a task order for work that is beyond the scope of the contract originally awarded, the agency violates CICA.” This is because “the agency has subverted competition by awarding without competition work that would otherwise be subject to the statutory requirement for full and open competition.”

In determining whether a task order is beyond the scope of the contract, GAO “looks to whether there is a material difference between the task order and contract.” GAO explained that it considers “the circumstances attending the procurement that was conducted;… any changes in the type of work, performance period, and costs between the contract as awarded and as modified by the task order; and… whether the original contract solicitation adequately advised offerors of the potential for the type of task order issued.”

Under R3’s IDIQ contract “R3 is only permitted to provide training .  . . on ‘demolition and handling of explosives in accordance with [various] directives'” and related matters. TO 76 did not have a separate PWS. GAO reviewed R3’s monthly progress reports, and determined that R3 was performing services such as “training and refresher courses for Flight cadre; improved instructor expertise,” and providing a new “medical training mannequin” for medical training scenarios.

GAO wrote that some of the services described in R3’s monthly reports do “not appear to fall within the scope of the underlying PWS.” GAO sustained TMG’s protest, and recommended that the Air Force cancel TO 76 and re-determine the scope of services and number of personnel required to ensure the task order fell within the scope of the underlying contract.

As noted in a previous blog post, agencies have rather broad discretion to use BPAs, IDIQs and other vehicles to obtain good and services. However, as the Threat Management case again illustrates, that discretion is not unlimited. Even if an agency omits a PWS for a specific task order, the GAO will review other evidence to determine if the task order was out-of-scope. An order exceeding the scope of the underlying IDIQ contract violates CICA.

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Koprince Law LLC

Spring seems to have sprung here in Lawrence, even though the calendar still says February. These past few days we have been treated to 70+ degree weather. For me, the early spring temps have meant playing outside with the kids and, well, blogging about government contracts here inside the office, but with the window open.

Speaking of government contracts blogging, it’s time for our weekly look at the latest government contracting news and notes. In this week’s SmallGovCon Week In Review, Congress is likely to repeal former President Obama’s “blacklisting” rule, Jason Miller of Federal News Radio wonders if contractors are worrying too much over the GSA’s transactional data rule, the SBA has a new leader, and much more.

  • The federal government is boosting the use of contracts to save energy that require no upfront capital costs or special appropriations from Congress. [Bloomberg Government]
  • Former President Obama’s blacklisting rule, estimated to cost business $474 million to enforce, awaits a likely repeal in the Senate. [Chief Executive]
  • Many government contractors are worried, fearful and in disbelief about the General Services Administration’s implementation of its Transactional Data Rule. But should they be so concerned? [Federal News Radio]
  • A roundtable discussion recommended the Trump administration conduct a review of all acquisition regulations and policies with a goal of reducing them and including sunset provisions in existing ones to force a periodical review. [Federal News Radio]
  • Dump the DUNS? The GSA took an important step toward reducing its reliance on a proprietary business entity identifier system in government contracting. [FCW]
  • In a rare display of bipartisanship, the Senate confirmed former wrestling entertainment executive Linda McMahon to lead the SBA as part of President Donald Trump’s cabinet. [Fox News]
  • The White House is preparing a new executive order to require agencies to plan and suggest ways to reorganize the government. [Federal News Radio]

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Koprince Law LLC

Taken as a whole, the Government-wide performance metrics for small business utilization are encouraging.

The Small Business Administration’s FY2015 report card shows that the Government exceeded its prime contracting goals across four of the five socioeconomic categories measured. Moreover, the amount of federal spend going to small businesses reached an all-time high of over 25%.


These numbers do not tell the whole story, however. The 5% goal for WOSBs has been in place since 1994, and since at least 2008, major campaigns have aimed to bridge the gap. In 2014, WOSBs became eligible for sole-source awards, an important means of gaining a foothold in the federal marketplace.

Nonetheless, FY2015 marks the first time ever that the 5% goal has been met.

While the milestone is certainly a victory, significant disparities remain. A January 2016 report by the Department of Commerce found that woman-owned firms are 21% less likely to win federal work than comparable businesses owned by men—even when controlling for potentially confounding variables such as business size, age, and past performance.

Such disparities are especially glaring on the Government’s most lucrative contracts. An October 2016 report from Women Impacting Public Policy (WIPP) analyzes WOSB wins on major Multiple Award Contracts (MACs), and the results are troubling.

MACs go by many names—GWACs, MATOCs, IDIQs, etc.—but the idea is the same. Firms compete to win a spot on the MAC and the Government chooses multiple winners. The Government subsequently issues Task Orders, and the firms who won a spot on the MAC then compete exclusively with one another to win actual Task Order work. Winning a MAC doesn’t necessarily mean you’ll go on to win any work, but you can’t win any work without first winning the MAC.

To say that MACs are important is an understatement: they have grown to represent 21% of federal spend, and 17 of FY2017’s 20 biggest opportunities are MACs. The WIPP report finds that on the most important MACs, the percentage of WOSBs winning a spot on the contract tends to be significantly lower than the percentage of WOSBs winning federal work overall.

In other words, although WOSBs are winning more federal contracts than they used to, they are still largely shut out of the most lucrative contract vehicles.

Once a WOSB does get a spot on a MAC, however, the results are very different. On the MACs analyzed, WOSBs won roughly 20% of Task Order dollars—compared to only 5% of federal spend overall. This suggests that MACs have the potential to be a powerful equalizing force—if the initial disparity in onboarding can be overcome.

To that end, WIPP recommends that the Government: 1) Ensure parity when adding socioeconomic tracks to contract vehicles (e.g., if SDBs get a set-aside under a particular contract, so should WOSBs, SDVOSBs, etc.); 2) Create a WOSB Government-Wide Acquisition Contract for IT Services, such as those already in place for 8(a) and SDVOSB firms; 3) Add/enforce onboarding processes for major contracts (providing firms with a way onto the contract now rather than waiting many years for its eventual re-compete); and 4) Report the socioeconomic statuses of contract holders for greater transparency.

Additional information about the Government’s socioeconomic goals is available here. To learn more about WIPP, visit www.wipp.org.

Courtney Fairchild, President

Courtney Fairchild is the co-founder and President of Global Services.  Global Services is a niche consulting firm focused on writing winning proposals and GSA Schedules for federal contractors.  Over the past nineteen years she and her team have successfully prepared, negotiated, and managed 2000+ federal contracts for Global Services’ clients totaling over $20 Billion Dollars.  Ms. Fairchild has been with the company since it was founded in 1996 and headed up the Global Services GSA Schedule Programs division from its inception.

Global Services  – 1401 14th Street, NW – 3rd Floor – Washington, D.C. 20005

Phone: 202-234-8933   Email: cfairchild@globalservicesinc.com   LinkedIn: www.linkedin.com/in/globalservices   Twitter: @globalservicedc

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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Koprince Law LLC

In determining whether a prime contractor and subcontractor are affiliated under the ostensible subcontractor rule, the SBA is supposed to consider the totality of the relationship between the parties.  But when it comes to determining whether the ostensible subcontractor rule has been violated, not all components of the prime/subcontractor relationship are created equal.

In a recent decision, the SBA Office of Hearings and Appeals confirmed that there are “four key factors” that are strongly suggestive of ostensible subcontractor affiliation–especially if the subcontractor will perform a large percentage of the overall contract work.

OHA’s decision in Size Appeal of Charitar Realty, SBA No. SIZ-5806 (2017) involved a GSA solicitation for custodial, landscaping and grounds maintenance at two federal courthouses.  The solicitation was issued as an 8(a) set-aside under NAICS code 561720 (Janitorial Services), with a corresponding $18 million size standard.  The solicitation required, among other things, that offerors provide at least three past performance references, completed over the last three years, for similar work.

After evaluating competitive proposals, the SBA announced that Charitar Realty was the apparent successful offeror.  An unsuccessful competitor then filed a size protest.  Although the size protest was found to be untimely, the SBA believed that the protest raised valid concerns.  The Director of the SBA’s Fresno District Office initiated his own size protest against Charitar.

Charitar’s proposal identified itself as the prime contractor and Zero Waste Solutions, Inc. as its subcontractor.  ZWS was the incumbent contractor, but had graduated from the 8(a) Program and was not eligible for the follow-on contract.

The proposal stated that “the allocation of financial risk, responsibility, and profit sharing will be 51% [Charitar] and 49% [ZWS].”  The proposal included three past performance references: two for ZWS and one for Charitar.  The project performed by Charitar was much smaller in scope and value.

The proposed Project Manager was a current employee of ZWS, who had agreed to move to Charitar’s payroll if Charitar won the prime contract.  Additionally, the SBA Area Office found that Charitar’s “entire workforce” would be hired from ZWS.

The SBA Area Office determined that Charitar was unusually reliant upon ZWS.  The SBA Area Offices deemed the firms affiliated under the ostensible subcontractor rule.  The affiliation caused Charitar to be ineligible for award.

Charitar appealed to OHA.  Charitar argued that the SBA Area Office had erred by finding a violation of the ostensible subcontractor rule.

OHA began its opinion by reiterating that the ostensible subcontractor rule “provides that when a subcontractor is performing the primary and vital requirements of the contract, or when the prime contractor is unusually reliant upon the subcontractor, the two firms are affiliated for purposes of the procurement at issue.”  The rule is intended ” to prevent [large] firms from forming relationships with small firms to evade SBA’s size requirements.”

To determine whether a relationship violates the ostensible subcontractor rule, the SBA Area Office “must examine all aspects of the relationship, including the terms of the proposal and any agreements between the firms.”  However, OHA’s prior case law has “identified ‘four key factors’ that have contributed to the findings of unusual reliance.”  OHA explained that those four factors are:

(1) the proposed subcontractor is the incumbent contractor and is ineligible to compete for the procurement; (2) the prime contractor plans to hire the large majority of its workforce from the subcontractor; (3) the prime contractor’s proposed management previously served with the subcontractor on the incumbent contract; and (4) the prime contractor lacks relevant experience and must rely upon its more experienced subcontractor to win the contract.

When these four factors are present, “violation of the ostensible subcontractor rule is more likely to be found if the proposed subcontractor will perform 40% or more of the contract.”

In this case, all four of the “key factors” were present.  ZWS was “ineligible to submit its own proposal” under the solicitation.  Charitar “will staff its portion of the contract almost entirely with personnel hired from ZWS.”  Charitar proposed “a ZWS employee to manage the contract” as Charitar’s Project Manager.  And although Charitar had some experience in the industry, Charitar produced no evidence that it had “ever performed” a contract of the size defined as “Similar Work” in the solicitation.  Finally, ZWS was proposed to perform 49% of the work, “a larger proportion than the 40%” that heightens the risk of ostensible subcontractor affiliation.

OHA affirmed the SBA Area Office’s size determination.

Ostensible subcontractor affiliation is intensely fact-specific, and the SBA will examine the totality of the relationship between the parties.  But as the Charitar Realty case demonstrates, the risk of ostensible subcontractor affiliation increases significantly where the “four key factors” identified in the case are present–particularly where the subcontractor will perform more than 40% of the work.

Because ostensible subcontractor affiliation is so fact-specific, it’s difficult to be 100% sure that any specific relationship will pass muster.  That said, avoiding the four key factors will likely go a long way toward showing the SBA that there has been no ostensible subcontractor violation.

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Koprince Law LLC

This is it: the 1,000th SmallGovCon post.  And if you’re reading this, you are a big reason why we’ve hit such a major milestone in less than five years.

Thank you, SmallGovCon readers.

Before I launched SmallGovCon, I thought it would be a good idea to read a bunch of other legal blogs, just to get a sense of how others were doing it.  A few hours in, and I was ready to beat my head against the nearest wall.  While, in fairness, a few of the blogs were quite good, most of them were pretty darn rough.  These not-so-great blogs proved quite inspirational, however: I figured out what annoyed me about them, and resolved to do the exact opposite.

First things first: most of these legal blogs were chock full of unnecessary legalese, arcane Latin phrases, cumbersome in-text citations, and the like.  Sure, we lawyers spend three years in law school learning to read this stuff, but to a regular person, there’s not a whole lot of difference between Legalese and Klingon.  I decided that, because SmallGovCon‘s intended audience was smart government contractors and acquisition professionals–not Ruth Bader Ginsburg–I would write SmallGovCon in plain English.  (And if you are into random jargon, well, there are other websites for that).

The next thing I noticed was that most of these blogs suffered from a serious lack of personality.  Were the authors actual human beings, or jargon-spouting lawyer robots?  Sometimes, it was hard to tell.  I happen to own this shirt, which expresses an important fact about lawyers: we’re people!  Seriously!  In honor of my membership in the human race, I decided that I occasionally would subject SmallGovCon‘s readers to random musings about things near and dear to my heart, like my kids and the Chicago Cubs.  But beyond that, I decided that SmallGovCon wouldn’t be afraid to express a point of view, like we did throughout our coverage of the Kingdomware saga.

During my “blog due diligence,” it also quickly became clear that many of these blogs were updated about as often as the Cleveland Browns make the playoffs.  That is to say, infrequently.  It’s hard to imagine becoming a go-to website in any field–much less a rapidly-changing field like government contracts law–without publishing often.  Would you visit a website with a tagline like “Your Seasonal Guide to a Few Random Things Happening in Government Contracts”?  Yeah, me neither.  So I decided to publish frequently.

Due diligence complete, I launched the blog in late May 2012.  One big question remained: would anyone read it?  Was there an audience for a niche blog on government contracts law?

Hundreds of thousands of page views later, I’ve got my answer.  But the feedback that matters most isn’t from Google Analytics.  It’s from the readers I meet at industry events across the country, who approach me–completely unsolicited–to say how much they enjoy the blog and our free electronic newsletter.  It’s from the readers who take the time to email me to thank me for a particular post, or ask a follow-up question.  It’s from my many LinkedIn connections, who frequently comment on blog posts and spark insightful discussions.  Thanks to you, dear readers, I know that SmallGovCon serves an important role in the procurement community–and that’s what matters most to me.

Of course, SmallGovCon has grown and changed throughout the last several years, too.  My fantastic colleagues at Koprince Law LLC have become co-authors, which has allowed us to broaden our coverage.  We added our “Week In Review” feature to help update readers on important government contracting news.  We recently kicked off our GovCon Voices series to offer perspectives from non-attorney thought leaders.  I’m proud of SmallGovCon, but we’re not resting on our laurels.  My colleagues and I will continue to work to make the site even better.

The first 1,000 posts have come quickly.  Thank you very much for reading.  I hope you’ll stick with us for the next 1,000.

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Koprince Law LLC

If you have been reading our blog recently, you may be aware that this is the 999th SmallGovCon post. My colleagues and I are excited to reach the 1,000-post milestone next week. To celebrate SmallGovCon‘s first 1,000 posts, we’re offering one lucky reader a chance to win a free one-hour custom webinar with me on the government contracting legal topic of your choice. All that you need to do is tell us why you read the blog and you will be entered–you don’t need to be a Koprince Law client or even a Chicago Cubs fan (although if you are both, I commend you for your exceptional choices).

Keep an eye out for SmallGovCon Post #1,000 early next week.  In the meantime, it’s time for the weekly SmallGovCon Week In Review.  This week’s articles include White House guidance on the new Executive Order governing agency regulations, a Minnesota man heads to the pokey after being convicted of contract fraud, the GSA seeks to calm apprehensions related to its new Transactional Data Reporting rule, and more.

  • The VA Inspector General has released a report about how the agency “blew $5 million on a botched cloud broker program,” and the report offers some important lessons for acquisition officials. [Nextgov]
  • A Minnesota businessman was sentenced to seven years in prison for fraudulently obtaining at least $3 million in government construction contracts–which he used to buy a Corvette, Jaguar, and other high-end toys. [StarTribune]
  • An anticipated wave of expiring contracts at the Department of Health and Human Services could free up billions for reprogramming. [FCW]
  • The White House released a memorandum giving guidance on how to implement the Executive Order that is requiring two regulations to be repealed before implementing one new one. [The White House]
  • The General Services Administration sought to calm apprehensions related to its Transactional Data Reporting rule by hosing a roundtable to outline the benefits of the acquisition rule–but some industry stakeholders remain skeptical. [FederalTimes]
  • Despite inaction by Congress on appropriations, the Pentagon’s Defense Logistics Agency continues to award billions of dollars in government contracts. [Bloomberg Government]
  • Most fraudulent contractors steal money, but according to a federal grand jury, one contractor stole government secrets for more than 20 years. [FCW]

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Koprince Law LLC

I am back in Kansas, where it is a balmy 39 degrees, after a great trip to Orlando for the National 8(a) Association Small Business Conference.

The weather in Florida was “for real” balmy, as my kids might say–but as tempting as the sunny outdoors was, the convention hall was packed with representatives from 8(a) companies, large primes, government agencies, and others.  You know a conference has great content–and great networking–when attendees voluntarily choose the lecture hall over a nearby sun-drenched pool.

At the Small Business Conference, I was part of a panel focusing on joint venturing and teaming issues.  Thank you to my fellow panelists, Shawn Ralston of AECOM and Jesse Binnall of Harvey & Binnall PLLC, for offering some great information and perspectives.  Thank you, also, to Ron Perry and the National 8(a) Association leadership for putting together this incredible event and inviting me to participate.  And thank you most of all to all those who attended the panel or stopped by the Koprince Law LLC booth.  It was wonderful to see so many familiar faces and make so many new connections.

Next on my travel calendar: the Alliance Northwest conference on March 9, where I’ll be speaking in-depth about the legal aspects of the SBA’s new All Small Mentor-Protege Program.  If you’re in the Pacific Northwest (or just love a fantastic government contracts conference), I hope to see you there!

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Koprince Law LLC

When many people think of small business federal contractors, they probably picture a local business and not a subsidiary of a foreign entity. But this image isn’t always accurate—small business federal contractors don’t often neatly fit in the mold of local, mom-and-pop shops.

The SBA’s small business regulations confirm this to be true. Indeed, to qualify as a small business for most federal contracting purposes, a company can be a subsidiary of a foreign firm–so long as certain criteria are met. This point was recently affirmed by the SBA Office of Hearings and Appeals, when it found that a domestic affiliate of an international conglomerate qualified as a small business.

In Size Appeal of Global Summit, Inc., SBA No. SIZ-5804 (2017), OHA considered an appeal of a size determination that found LORENZ International to be an eligible small business under an FDA procurement for software maintenance and support services. Among the issues considered was LORENZ’s eligibility as a supposedly-foreign company.

LORENZ is the American subsidiary of LORENZ Archiv, a German company that also owns subsidiaries in Germany, Canada, India, and the United Kingdom. According to the protester (Global Summit, Inc.), because most of the business conducted by this family of companies occurred outside of the United States, LORENZ was not an eligible small business under SBA’s regulations.

The regulations, in pertinent part, define a business concern eligible for assistance from SBA as a small business (including participation in small business contracting programs) as “a business entity organized for profit, with a place of business located in the United States, and which operates primarily within the United States or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.” 13 C.F.R. § 121.105(a)(1).

Citing this definition, OHA wrote that it has “long recognized” that the SBA’s regulations “[do] not bar foreign-owned small businesses from participating in small business set-asides, provided that the small business is based in the U.S. and contributes to the U.S. economy.” In this case, LORENZ provided evidence showing that it had a location in the United States “and has made contributions to the U.S. economy by paying U.S. taxes and employing American workers.” Thus, OHA held, LORENZ qualified as a “business concern eligible for assistance from SBA as a small business.”

What about LORENZ’s parent company and sister companies? The SBA Area Office considered them to be affiliates, but held that the affiliations did not cause LORENZ to exceed the applicable size standard. Global Summit did not present any evidence to demonstrate that the Area Office’s math was wrong.

OHA denied Global Summit’s appeal and affirmed the SBA’s size determination.

At their most basic, SBA’s regulations are designed to foster small business participation in federal contracting programs. Global Summit shows that this participation is encouraged even among small American affiliates of international firms, so long as these businesses have a location in the United States and contribute to the U.S. economy.

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Koprince Law LLC

The SBA is processing the typical “All Small” Mentor-Protege Program application in a lightning-fast eight days.

Speaking at the National 8(a) Association 2017 Small Business Conference, John Klein, the SBA’s Associate General  Counsel for Procurement Law, confirmed that All Small mentor-protege agreements are being processed very quickly.  I was in the audience this morning for Mr. Klein’s comments, which also included many other interesting nuggets on the SBA’s new All Small Mentor-Protege Program.

Mr. Klein’s comments included the following:

  • Specificity of Mentor-Protege Agreements. When it comes to processing All Small mentor-protege agreements, the SBA is looking for specificity in terms of the assistance that the mentor will provide the protege.  The SBA wants to see the sort of detail that can be tracked and evaluated to determine whether it was actually provided (and, if so, whether it was successful).  Mr. Klein provided an example: a mentor committing to perform a certain type of training for a specific number of hours.
  • Focus on Protege.  The mentor-protege agreement should focus on the benefits that the arrangement will provide to the protege.  The SBA knows that joint venturing is an important reason why mentors and proteges alike pursue mentor-protege arrangements (and joint venturing should be mentioned in the agreement if the parties will pursue it), but joint venturing can’t be the primary focus of a successful mentor-protege agreement.
  • Equity Interest in Protege.  Mr. Klein acknowledged that the regulations allow the mentor to obtain up to a 40% interest in the protege, but he cautioned small businesses to think carefully before giving up a large equity stake in the company.  If the parties do agree to allow the mentor to take an equity interest, the mentor-protege agreement must demonstrate that doing so was beneficial to the protege.  The equity interest cannot appear to primarily benefit the mentor.  Although the mentor is not required to divest its equity interest upon the expiration of the mentor-protege agreement, the parties should be very careful that the equity interest doesn’t result in an affiliation once the mentor-protege agreement expires.
  • Secondary NAICS Codes.  Mr. Klein confirmed that a company looking to be mentored in a second NAICS code must demonstrate that it has previously done work in that NAICS code.  The All Small Mentor-Protege Program allows a company to receive mentoring in a secondary NAICS code, but is not intended for a company that has outgrown its primary NAICS code and is merely search for any NAICS code in which it is still small.
  • Second Protege.  If a mentor wants a second (or third) concurrent protege, it is up to the mentor and protege–in the second or third application, if possible–to demonstrate that the additional protege is not a competitor of the first.  Mr. Klein suggested that there are various ways to do this, such as showing that the second protege is in a different geographic area, industry, or niche than the first.

The All Small Mentor-Protege Program continues to draw a great deal of interest from large and small contractors alike.  It’s very helpful to hear from SBA officials like Mr. Klein exactly what the SBA is looking for when it processes applications.  And of course, it’s wonderful that processing is currently going so quickly.  Here’s hoping that’s one contracting trend that continues.

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Koprince Law LLC

Super Bowl Sunday is just a few days away. Whether you are a fan of football or are just tuning in for the commercials, I hope you have a relaxing day with friends and family. Next week, I’ll be heading to Orlando for the 2017 National 8(a) Association Small Business Conference where I have been selected as a panelist to discuss “Two is Better than One: JVs, MPs, and Teaming Agreements.” If you are planning to attend the conference I hope you will come say hello at my Koprince Law booth on the exhibit floor.

Before I leave the freezing temperatures of Kansas behind for the sunshine and sand of Florida, we bring you this edition of the SmallGovCon Week In Review. This week, we have articles discussing the role of FOIA under the new Administration, Congress is working to block former President Obama’s “Fair Pay and Safe Workplaces” executive order, a look ahead to what experts are saying may be the most competitive year in federal IT contracts in over a decade, and much more.

  • How does FOIA fit under the new Trump administration? FCW takes a look. [FCW]
  • The VA is exempting some contracting professionals from President Donald Trump’s recently announced, short-term hiring freeze. [Federal News Radio]
  • One commentator says that despite good intentions, initiatives surrounding the Multiple Award Schedules have resulted in costly, time-consuming contracting and reporting requirements for both contractors and contracting officials. [Federal News Radio]
  • President Donald Trump signed an executive order that requires federal agencies requesting new regulations to cut two existing regulations, which he hopes will reduce regulatory burdens on the private sector, particularly small businesses. [NBC News]
  • For the Trump administration to make good on its campaign pledges to radically reform the government, agencies will have to reprogram dollars from some current programs. [Washington Technology]
  • If 2016 was the biggest year for federal IT contracts in a decade, 2017 might well be the most competitive. [Nextgov]
  • A series of new acquisition rules proposed weeks ago by the Department of Homeland Security have some Federal contracting experts worried about future governmentwide disruptions and a decrease in competition. [MeriTalk]
  • Leaders in both the House and Senate made good on past pledges and introduced a joint resolution to block former President Obama’s “Fair Pay and Safe Workplaces” rule. [Government Executive]
  • Linda McMahon clarified past statements and now says she favors keeping the SBA separate, instead of merging it into the Department of Commerce. [Multichannel]

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Koprince Law LLC

Having been a part of the federal contracting community for close to 30 years, I’ve seen quite a few changes in policy and process that have both improved and degraded the ability of small business concerns to participate as contractors and subcontractors. I’m not referring solely to changes where the language targeted small business, I’m also including those intending to change how business is done based on a specific commodity, contract cost type, procurement method, agency mission or government-wide initiative.


In this, my first contribution to GovCon Voices, I’m taking a look back at recent proposed changes that resulted in lots of conversations with my friend Steve Koprince, a slew of articles and blogs and way too many anxious moments awaiting the outcomes. This is the first of a three part series I’m calling ‘The Good, the Bad and the Just Plain Ugly Changes That Almost Were!’

 The Just Plain Ugly

The 2017 NDAA was chock full of changes that included:

  • DoD having the option to forego price or cost evaluation for certain multiple-award contracts;
  • GAO being mandated to provide Congress a list of the most common grounds for sustaining protests;
  • A pilot program for certain small subcontractors to receive past performance ratings;
  • Requiring justification for ‘Brand Name or Equivalent’ purchases, and;
  • Strengthening small business subcontracting plan enforcement, just to name a few.

One of the intended changes that died in conference was the provision introduced as Section 838 of the Senate version. Its name was “Counting of major defense acquisition program subcontracts toward small business goals.” and the very negative effects of this rule would be catastrophic to small business, if enacted.

guy-img-2.jpgNot familiar with Major Defense Acquisition Programs or MDAP? Think of program names like Global Hawk, the Presidential Helicopter, Arleigh Burke Class Destroyer, Littoral Combat Ship and more. Each of these and numerous other MDAP programs are critical to our Nation’s security. As a result, collectively thousands of small business subcontractors capturing tens of billions of dollars in revenues are engaged. Had this provision made it into the 2017 NDAA, the Department of Defense would be able to include 1st and 2nd tier subcontract dollars, reported by MDAP prime contractors, towards the Department’s overall small business set-aside goals. In short, DoD could reduce set-aside award dollars by replacing them with dollars that may have been awarded to small businesses via subcontracts.

The scenario represented potential lost dollars to small contractors starting in the area of $18,000,000,000 based on DoD’s FY16 OUSD Comptroller/CFO publication that indicated Major Defense Acquisition Programs (MDAPs) and Major Automated Information Systems (MAIS) accounted for 43% of the requested $177.7B. If we take 23% of $76B (the MDAP/MAIS portion of the OUSD FY16 request) what we end up with is the amount of set-aside obligations DoD would not have to issue in FY17 and beyond. The amount is effectively 1/3 of the dollars awarded to small business via set-aside or sole-source in FY2016. Let that sink in.

In the spaghetti western movie ‘The Good, the Bad and the Ugly’ there is a line I find very relevant to this legislative near-miss. It goes like this:

“In this world there’s two types of people my friend.
Those with loaded guns and those who dig. You dig.”

I’m beyond overjoyed this piece of legislation had to dig and I hope it stays buried.

Your comments and questions are always welcome! Stay tuned for ‘The Bad’ change that almost was.


Guy Timberlake, The Chief Visionary
http://www.theasbc.org | @theasbcguy | @govconguy |@govconchannel

“The person who says it cannot be done should not interrupt the person doing it.”

Guy Timberlake, Chief Visionary Officer and Co-Founder,
The American Small Business Coalition, LLC
(410) 381-7378 x200 | founder@theasbc.org

‘Go-To’ Guy Timberlake is an accomplished veteran of federal contracting with nearly 30 years of experience, knowledge and relationships acquired in support of civilian, defense and intelligence agency programs since Operation Desert Storm. He’s called ‘Edutainer’ for his ability to make mundane discussions about business essential topics (like finding and winning federal contracts and subcontracts!) interesting, and presenting them so they are practical and sticky. Most important is that Guy is a devoted husband, a proud father and loves pizza night with his family and friends. ‘Go-To-Guy’ is the nickname given to him by his defense customers in the 1990’s.

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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Koprince Law LLC

In the nearly five years (and almost 1,000 posts) since SmallGovCon began publishing, we’ve grown from a single-author blog written by yours truly, to a multi-author website featuring regular contributions from my colleagues here at Koprince Law LLC.

Growing our authorship base has allowed SmallGovCon to bring our readers expanded content that would have been very difficult for me to manage alone–like the 16 posts we wrote on the 2017 NDAA in little over a month. But as we continue to grow, I think it’s important that we also offer our readers expanded perspectives, as well.  After all, we lawyers aren’t the only ones with interesting things to say about government contracting law.  That’s why I’m excited to announce our new feature, GovCon Voices.

GovCon Voices will provide insights, opinions, and commentary from non-attorney thought leaders across the field of federal government contracting.  Our GovCon Voices contributors not only have a lot of insightful things to say, they’re probably quite a bit more entertaining than we are, too.

For our first GovCon Voices post, I’m very pleased to present the first in a three-part series from Guy Timberlake, called “The Good, the Bad, and the Just Plain Ugly Changes That Almost Were!”  Want to know which pieces of the proposed 2017 NDAA were “just plain ugly” for small businesses?  Guy has some candid commentary (spiced up with movie quotes and graphics)–and an important warning for small businesses to help ensure that some truly terrible ideas that “almost were” don’t find their way into future legislation.

Whether you’re a longtime SmallGovCon reader or just finding your way here for the first time, I think you’ll find GovCon Voices to be informative, entertaining and insightful.  Go read Guy’s piece, check back here soon for more posts from Guy and other thought leaders, and thank you for reading SmallGovCon.

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Koprince Law LLC

President Donald Trump won’t repeal former President Obama’s 2014 Executive Order prohibiting federal contractors from discriminating on the basis of sexual orientation and gender identity.

According to CNN and other news outlets, the new Administration will allow Executive Order 13672 to remain on the books.  The Executive Order, which was codified in the FAR in 2015, adds sexual orientation and gender identity to the list of protected categories under the FAR’s Equal Opportunity clause, FAR 52.222-26.

In recent days, the new Administration had faced repeated questions about whether Executive Order 13672 would remain in place.  While this week’s announcement puts those questions to rest, the fate of other government contracts Executive Orders signed by President Obama, such as the so-called “mandatory sick leave” Executive Order, remains uncertain.  My colleagues and I will keep you posted.

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Koprince Law LLC

As a general rule, an agency is only required to evaluate a fixed-price offer for reasonableness (that is, whether the price is too high). Agencies are not required to evaluate fixed-price offers for realism (that is, whether the price is too low) and, in fact, cannot do so unless the solicitation advises offerors that a realism evaluation will be conducted.

GAO recently reaffirmed this principle when it denied a protest challenging an agency’s refusal to consider the realism of offerors’ fixed prices as part of a corrective action, even though the agency suspected that at least one offeror’s price was unrealistically low.

Under FAR 15.404-1(d)(3), an agency may evaluate fixed-price contracts for realism “in exceptional cases,” but it is not required to do so. Ripple Effect Communications, B-413722.2 (Jan. 17, 2017), confirmed the breadth of an agency’s discretion to evaluate—or not—fixed price offers for realism.

Ripple Effect involved a challenge to the terms of a corrective action following Venesco, LLC’s protest challenging an award made to Ripple. Venesco argued in its protest that the Army improperly declared its price to be unrealistic, in part because the solicitation was ambiguous as to whether offerors’ fixed prices would be evaluated for realism. The Army then announced that the procurement would be resolicited, and made clear that price realism would not be evaluated.

Ripple then protested the scope of this corrective action, arguing that the Army should be required to evaluate offerors’ prices for realism. Ripple noted that the Army’s evaluation of Venesco’s proposal already revealed concerns with Venesco’s labor rates, “which were far below the average of all evaluated proposals in all but one labor category.” Thus, “it would be unreasonable for the agency not to consider the risk posed by Venesco’s prices.”

In response to these arguments, the Army noted that it never intended to evaluate offerors’ proposed prices for realism. And although Venesco’s debriefing noted concern with unrealistic prices, the Army called this a “conclusory finding” that was not actually based on a completed price realism evaluation. In any event, offerors’ ability to submit revised proposals (including prices) mitigated any need for a price realism evaluation.

GAO agreed with the agency and denied the challenge to the corrective action. In doing so, it relied on an agency’s broad discretion to evaluate (or not) price realism under fixed-price solicitations:

Because the solicitation contemplates the award of a fixed-price contract, the agency’s intended evaluation approach is consistent with the Federal Acquisition Regulation (FAR), which establishes that an agency “may . . . in exceptional cases,” provide for a price realism evaluation when awarding a fixed-price contract, but is not required to do so. Given the agency’s broad discretion to decide whether to include a price realism evaluation in this instance, we have no basis to conclude that the agency’s decision was unreasonable.

Denying Ripple’s protest, GAO reaffirmed the principle that agencies have broad discretion to evaluate fixed-price offers for realism. Ripple Effect shows the breadth of this discretion—even where an agency has reason to suspect an offeror’s fixed-price might be unrealistically low, it is not required to evaluate that price for realism unless the solicitation specifically says otherwise.

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Koprince Law LLC

When I started writing SmallGovCon back in 2012, I worried that there might not be enough happening in government contracts law to support a robust blog.  Needless to say, I’m not worried anymore.

We’re rapidly approaching SmallGovCon‘s 1000th post (this one is No. 990).  To celebrate, we’re offering one lucky reader the chance to win a free webinar on the government contracting legal topic of your choice.  For details (and to enter) just click here.

What do you like about SmallGovCon?  We want to hear from you!  Contact us and let us know, and check back here regularly in the coming weeks for much more on the SmallGovCon 1000th post celebration.

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Koprince Law LLC

It has been a busy week across the country as we get close to wrapping up the first month of 2017. Here in Lawrence, we’re gearing up for Saturday’s blue blood match-up between Kansas and Kentucky. Both teams are coming off losses and Kentucky is looking to avenge its loss to KU last year. It should be a great game.

Before we get to Saturday basketball, it’s time for our weekly Friday look at government contracting news. In this week’s SmallGovCon Week In Review, articles about what contractors can expect from the new Secretary of the Army and SBA Administrator, the number of new government contractors dropped sharply in 2016, the Washington Post wonders whether President Obama’s executive orders pertaining to contractor employees are on the new Administration’ s”chopping block,” and much more.

  • Vincent Viola has been selected as the new Army Secretary. What should technology contractors expect? [Deltek]
  • Will President Trump reverse President Obama’s executive orders pertaining to contractor employees? [The Washington Post]
  • A former government official has plead guilty to receiving bribes as part of a scheme to give contracts to specific companies and now faces a maximum of 15 years in prison and forfeiture of $60,0000. [Long Beach Patch]
  • A whistleblower has filed a lawsuit against Washington University for allegedly being fired over bringing attention to “pass through” purchases made from a supposed SDVOSB. [Riverfront Times]
  • President Trump’s administration has asked the EPA to temporarily halt all contracts, grants and interagency agreements, pending a review. [Oil and Gas Investor]
  • Speaking of the EPA suspension, the Professional Services Council trade association is none too pleased. [FederalTimes]
  • The Navy is preparing to release draft requests for proposals to industry to help refine the parameters of the Next Generation Enterprise Networks Recompete. [FCW]
  • There was a dramatic decline in new vendors selling to the government in fiscal year 2016, raising concerns about the health of the federal government’s industrial base and its ability to fulfill national security, scientific, health and environmental missions. [Bloomberg Government]
  • Guy Timberlake demystifies the relationship between NAICS codes and Product Service Codes. [GovConChannel]
  • Linda McMahan, President Trump’s nominee for SBA Administrator, has pledged to level the playing field for women, service-disabled veterans, and minority business owners. [Federal News Radio]
  • President Trump’s tweets – especially some pointed challenges of big defense contracts just before he took office – have some federal contractors a bit skittish going into the new year, wondering what kind of contracting landscape is developing. [FCW]

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Koprince Law LLC

Federal construction contracts incorporate the FAR’s payment and performance bonding requirements as a matter of law, even if the solicitation omits these bonding provisions.

In a recent Armed Services Board of Contract Appeals decision, K-Con, Inc., ASBCA Nos. 60686, 60687, a contractor ran headlong into construction bonding issues when the Army demanded payment and performance bonding for two of its construction contracts despite there being no bonding requirements in either of the contracts. According to the ASBCA, the bonds were required anyway.

K-Con involved two Army procurements for the construction of a laundry facility and communications equipment shelter at Camp Edwards in Massachusetts. The solicitations were both posted through the GSA’s eBuy system. The Contracting Officer inadvertently used Standard Form 1449 (Solicitation/Contract/Order for Commercial Items) despite the procurement being for construction services. As a result, neither of solicitations included provisions requiring payment or performance bonding.

K-Con, Inc. submitted proposals and was awarded both contracts on October 10, 2013. Before work began on either project, the Army requested that K-Con obtain performance and payment bonding. K-Con, however, was unable to obtain the necessary bonding, and proposed an alternative solution. Negotiations progressed slowly. On September 20, 2015—two years after the contract was awarded—K-Con finally obtained the requested bonding. K-Con subsequently completed the contract.

As a consequence of having performance delayed two years, K-Con was forced to pay more for labor and materials than it originally anticipated in its bid. After completing the construction work, K-Con submitted a request for equitable adjustment under each contract. Between the two REAs, K-Con sought a total of $116,336.56. K-Con argued it was entitled to the upward adjustment because performance bonding was not a requirement in either of the original solicitations.

The ASBCA’s discussion of the facts glosses over what happened next. Apparently, however, the Army rejected the REAs, and took the position that bonding had been required by law, even if it wasn’t specified in the solicitations or contracts. Since an REA is not a claim (and the ASBCA lacks jurisdiction over an appeal of a denied REA), the Army must have treated the REAs as claims, or K-Con must have refiled its REAs as claims–the decision doesn’t specify. One way or another, though, the dispute ended up at the ASBCA.

In resolving the case, the ASBCA turned to the longstanding contracting doctrine first developed in G.L Christian & Associates v. United States, 320 F.2d 345 (Ct. Cl. 1963)—the so called Christian doctrine. As the ASBCA explained, “nder the . . . Christian doctrine, a mandatory contract clause that expresses a significant or deeply ingrained strand of public procurement policy is considered to be included in a contract by operation of law.”

In the case of the FAR’s bonding provisions, the ASBCA found that both prongs of the Christian doctrine were met.

First, FAR 28.102-1 requires payment and performance bonding be obtained by contractors for almost all construction contracts exceeding $150,000. FAR 28.102-1 implements a federal statute formerly known as the Miller Act, and currently codified at 40 U.S.C. 3131-3134. When FAR 28.102-1 applies, the solicitation and contract are required to contain the clause at FAR 52.228-15, which imposes the contractual requirement for payment and performance bonds. Because of this legal framework, the ASBCA ruled that “FAR 52.228-15 was a mandatory clause in the contract.”

Second, the ASBCA concluded payment and performance bonding was a “significant component of public procurement policy.”

The ASBCA explained that, with respect to payment bonds, “[a] principal underlying purpose of the payment bond provision is to ensure that subcontractors are promptly paid in full for furnishing labor and materials to federal construction projects.” In particular, “the Miller Act provides subcontractors on federal construction projects with the functional equivalent of a mechanic’s lien available to subcontractors on non-federal projects.” Because the government is immune from most lawsuits, “mechanics’ liens cannot be placed against public property.”

The purpose of a performance bond is to “assure that the government has a completed project for the agreed contract price.” The performance bond “provides protection to the government in situations where the prime contractor defaults in the performance of work or is terminated for default.”

The ASBCA concluded both types of bonding were deeply ingrained features of federal procurement policy. As such, the second prong of the Christian doctrine was satisfied.

The ASBCA held that “the bonding requirements set forth in FAR 52.228-15 were considered to be included in the contracts by operation of law pursuant to” the Christian doctrine. The ASBCA denied K-Con’s appeals.

As K-Con demonstrates, the Christian doctrine allows the government to apply mandatory FAR provisions to contractors even if those provisions were inadvertently omitted in the solicitation. It is thus wise for offerors to carefully review the provisions of a solicitation for the specific terms that the offeror should expect to find. If a particular omission seems too good to be true, odds are it is–and it may be better to raise the issue before proposals are submitted than risk the application of the Christian doctrine down the road.

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Koprince Law LLC

A recent GAO decision should serve to caution offerors to be careful what they include with their proposals. Any information that contradicts the proposal or otherwise does not conform to the terms of the solicitation could result in disqualification.

In Independent Systems, Inc., B-413246 (Comp. Gen. Sept. 15, 2016), GAO held that the agency could reasonably disqualify an offeror based on extraneous information the offeror included with the intent of providing the agency with more information, but not changing the terms of the offer.

The case involved a Bristow, Virginia, company called Independent Systems, Inc., that sought a Forest Service contract to provide two bulldozers for use at Coconino National Forest in Flagstaff, Arizona. The solicitation was available to holders of a BPA for heavy equipment. The solicitation required the bulldozers to be delivered F.O.B. to Coconino National Forest on or before August 31. (F.O.B. is a shipping method that stands for “Free On Board.”) The solicitation incorporated the terms of the underlying BPA, which included FAR 52.212-4 (Contract Terms and Conditions – Commercial Items). FAR 52.212-4 provides, among other things, that payment shall be made after delivery and acceptance; the clause does not provide for prepayment or contract financing.

Independent Systems, a BPA holder, submitted a proposal in response to the Forest Service solicitation. Like many contractors, Independent Systems did not simply have two spare bulldozers laying around. Rather, it proposed to buy them from a manufacturer should it be awarded the contract.

When Independent Systems submitted its proposal, it included the manufacturer’s brochures for each bulldozer and a two-page manufacturer’s “terms and warranty” document, which, according to Independent Systems, related to its contemplated purchase of the bulldozers. Independent Systems’ proposal quoted a price for each bulldozer, offered to deliver the goods F.O.B. within three months of the order, and asked the Contracting Officer to refer to the “attached file” for details of the proposed equipment and warranty.

The file, consisting of the manufacturer’s brochures and terms and warranty document, included three clauses that gave the Contracting Officer cause for concern. The first said that all prices were Ex-Factory or F.O.B. (Florida, Texas, or California). This contradicted the solicitation’s F.O.B. Arizona requirement. The second required all orders to be paid in full before shipping, which directly contradicted the BPA’s payment terms under FAR 52.212-4. The third said that prices and specifications were subject to change without notice. The contracting officer worried that meant that Independent Systems would not be bound to perform. The Contracting Officer therefore concluded that Independent Systems’ offer had taken exception the solicitation’s delivery and payment terms and eliminated the offer from the competition.

Independent Systems filed a GAO bid protest challenging its exclusion. Independent Systems argued, basically, that all three of the concerning terms would apply to it, but not to the government. As a practical matter, this argument would seem to make sense. Independent Systems’ plan was to buy the bulldozers under whatever conditions it could negotiate from the manufacturer, then turn around and sell the bulldozers to the government under the conditions the government required. Indeed, by the time the government got its hands on the bulldozers, Independent Systems would have concluded its transaction with the manufacturer. In fact, in its protest, Independent Systems characterized these documents as “an additional item for evaluation, even though it was not required [by] the BPA[.]”

Nevertheless, GAO held that the Forest Service did nothing wrong in rejecting the proposal. GAO wrote that “it was not at all clear from [Independent Systems]’s proposal which delivery and payment terms the firm was actually offering to the Forest Service.” GAO pointed out that various provisions of the manufacturer’s warranty pages “contained conditions expressly applicable to the ‘buyer’ and ‘user’ of the equipment,” which could mean the government. Said GAO: “nstead of making its proposal more thorough by including the manufacturer’s terms and warranty document, as the protester urges, that document actually introduced ambiguities and inconsistencies into [Independent Systems]’s offer that the Forest Service was not required to reconcile.” GAO concluded:

[Independent Systems] concedes that there was no need to include the manufacturer’s warranty terms as part of [Independent System]’s proposal. Thus, as the contracting officer admonished [Independent Systems], if the manufacturer’s terms and conditions did not apply to the Forest Service, then [Independent Systems] should not have included those terms and conditions in its proposal.

In other words, GAO said any confusion was caused by Independent Systems’ decision to include the brochures and manufacturer warranties. Because Independent Systems was not required to include this information, it should have just left it out.

Years ago, when I was a small-town newspaper reporter, our newsroom mantra was “when in doubt, keep it out.” Apparently, those wise words would have also served this protester well. As the Independent Systems decision demonstrates, offerors should carefully review their proposals to ensure that any information that isn’t strictly required by the solicitation doesn’t undermine the proposal.

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Koprince Law LLC

The FAR Council has added a new provision to the FAR to restrict the permissible terms of employee confidentiality agreements.

Effective January 19, 2017, contractors wishing to do business with the federal government will need to certify that they do not limit the ability of their employees to report waste, fraud, or abuse to appropriate government officials.

The final rule creates a new FAR 3.909 and two new FAR clauses, FAR 52.203-18 (Prohibition on Contracting with Entities that Require Certain Internal Confidentiality Agreements or Statements – Representation) and FAR 52.203-19 (Prohibition on Requiring Certain Internal Confidentiality Agreements or Statements). FAR 52.203-18 must be included in almost all solicitations, except those for personal services. There is no exception for commercially available off-the-shelf items or acquisitions below the micro-purchase threshold.

The new rule will apply to any acquisitions with funds appropriated in FY 2015 or later. Additionally, unlike many FAR provisions, a portion of the new rule is retroactive. Contracting Officers are directed to “[m]odify existing contracts, other than personal services contracts with individuals, to include [FAR 52.203-19] before obligating FY 2015 or subsequent FY funds that are subject to the same prohibition on internal confidentiality agreements or statements.”

Under the new rule, federal agencies will be prohibited from contracting with concerns that require their employees to sign confidentiality agreements waiving the employees’ rights to report waste, fraud, or abuse related to government contracts. Employees must be able to report violations to appropriate government officials—typically the agency Office of the Inspector General. The rule will also apply to agreements between prime contractors and subcontractors and must be flowed down in all subcontracts.

FAR 52.203-18 provides that by submission of its offer, “the Offeror represents that it will not require its employees or subcontractors to sign or comply with internal confidentiality agreements or statements prohibiting or otherwise restricting such employees or subcontractors from lawfully reporting waste, fraud, or abuse related to the performance of a Government contract” to a government representative.

FAR 52.203-19 prohibits a contractor from requiring its employees or subcontractors to sign or comply with such provisions in an internal confidentiality document or statement. Additionally, the contractor must notify current employees and subcontractors that prohibitions and restrictions of any preexisting internal confidentiality agreements or statements covered by the clause, to the extent disallowed by the clause, are no longer in effect. Alternatively (and perhaps the better practice), contractors can revise their internal confidentiality agreements to exempt the matters prohibited by the new FAR provisions.

Despite the broad applicability of the new rule, there is an exception carved out for classified and sensitive information, which may remain subject to communication limitations. Contractors dealing with classified or sensitive information should review FAR 52.203-19(d) before revising their internal confidentiality agreements or statements.

In sum, the new rule seeks to protect whistle blowers and remove potential impediments to the reporting of fraud, waste, and abuse. While some contractors may complain that the new rule is another example of unnecessary red tape, it’s ultimately intended to protect the taxpayers; even with the recent change of Administrations, this new rule is probably here to stay.

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Koprince Law LLC

It is inauguration day, and we are beginning a new chapter in America’s history. We’re expecting lots of government contracting changes in short order (beginning with repeals of some of the Obama Administration’s Executive Orders), so check in with us here on SmallGovCon regularly for updates.

As we honor our nation’s unparalleled tradition of peaceful transitions of power, it’s time for the SmallGovCon Week In Review. In this week’s edition, two commentators weigh in on the GAO’s denial of four protests of the major Alliant 2 GWAC, two major corporations are facing potential debarment stemming from alleged discrimination, Set-Aside Alert discusses how the new Trump Administration will affect small contractors, and much more.

  • One commentator says that the GAO’s decision to deny four protests of GSA’s Alliant 2 GWAC could end up being a landmark ruling on lowest-price, technically acceptable contracts for services. [Federal News Radio]
  • More Alliant 2: another commentator says the GAO’s decisions have ramifications beyond a potential $65 billion worth of IT services that it could bring to the federal government over the next 10 years. [Nextgov]
  • Many small federal vendors are hopeful about the possibility of greater opportunities in defense procurement, and possibly fewer regulations to follow as a federal contractor. [Set-Aside Alert]
  • Debarment from government contracting could be at stake for Oracle over an employee pay discrimination suit filed by the U.S. Department of Labor. [ZDNet]
  • President Obama’s Executive Orders dealing with contractor work forces could face reversal now that Donald Trump is President. [Stars and Stripes]
  • In a lengthy report, the GAO concludes that DoD needs clearer guidance when it comes to privately financed construction projects. [GAO]

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