In a big victory for proponents of the 8(a) program, the Supreme Court of the United States has denied the Petition for Certiorari filed by Rothe Development, Inc.
Consequently, the decision of the Court of Appeals for the D.C. Circuit finding the statutes establishing 8(a) program to be constitutional will be allowed to stand.
For those of you who are new to the Rothe Development case, it is a long-running constitutional challenge to the SBA’s 8(a) Business Development program. Rothe argued that the statutes implementing the 8(a) program establish a racial classification in violation of the equal protect rights afforded by the Due Process clause of the Fifth Amendment. Rothe contended the statute should be struck down as unconstitutional, which would mean the end of the 8(a) program–or at least the 8(a) program as we know it.
Rothe Development has been making its way through the federal court system since 2015. In an earlier decision, the District Court for the District of Columbia upheld the 8(a) program despite subjecting the statutes to the Supreme Court’s most intense level of legal scrutiny.
Rothe subsequently appealed the decision of the Court of Appeals for the D.C. Circuit. As we covered, the D.C. Circuit concluded that a less demanding level of scrutiny applied, which the 8(a) statutes comfortably passed. Accordingly, the 8(a) statutes were allowed to stand.
After its loss at the D.C. Circuit, Rothe development filed a petition for Certiorari, which we also covered. A Petition for Certiorari is the formal process by which a party not entitled to an appeal as a matter of right may nevertheless request the Supreme Court decide its case. The Supreme Court, however, grants a very limited number of petitions each year.
Rothe Development’s Petition for Certiorari was not granted by the Supreme Court. As a result, the decision reached by the D.C. Circuit finding the 8(a) program to be constitutional will stand.
While Rothe Development ends with the 8(a) program’s survival, the decisions do leave the program open to further legal challenge. Most notably, the difference in legal scrutiny applied between the District Court and the Court of Appeals indicates that there may be more than one reasonable interpretation of the 8(a) programs statutes, which could result in further litigation down the road. Additionally, Rothe (apparently for strategic reasons), challenged only the underlying statutes–not the SBA’s regulations implementing them. A separate constitutional challenge to the regulations remains a possibility.
For now, however, the 8(a) program stands unscathed–and 8(a) supporters can breathe a big sigh of relief.
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An agency was allowed to assign a Native Hawaiian-owned prime contractor a weakness for its experience because the NHO prime lacked relevant experience–even though the prime’s proposal indicated that it would rely in part on the resources of an experienced NHO sister company.
A recent GAO bid decision demonstrates that while a procuring agency is entitled to consider the experience and past performance of a prime contractor’s affiliates under certain circumstances, the agency is not precluded from considering the prime’s own experience (or lack thereof).
The GAO’s decision in Dawson Enterprises, LLC, B-414591.2 (July 24, 2017) involved a Navy solicitation for construction projects on Guam. The solicitation, which was set aside for small businesses, was issued under the two-step design-build procedures of FAR 36.3.
The phase 1 evaluation called for the consideration of four factors: technical approach, experience, past performance, and safety. With respect to the experience factor, offerors were to provide between three and five relevant construction projects that were similar in size, scope and complexity, as well as three to five relevant design projects for the lead design firm. The past performance evaluation was to consider how well the offeror performed on the relevant contracts submitted under the experience factor.
Dawson Enterprises, LLC submitted a proposal. In its proposal, Dawson Enterprises explained that it was a subsidiary of Hawaiian Native Corporation, an NHO. Dawson Enterprises’ proposal stated that HNC owned several other subsidiaries, including Dawson Technical LLC and Dawson Federal Inc.
The proposal stated that Dawson Enterprises would be the general contractor and would perform the work using several subcontractors, including Dawson Technical and Dawson Federal. The proposal included teaming agreements between Dawson Enterprises, on the one hand, and Dawson Technical and Dawson Federal, on the other.
Dawson Enterprises submitted five construction projects. Of the five projects, all five were performed by subcontractors: Dawson Technical and another (non-NHO) entity. The Navy assigned Dawson Enterprises a significant weakness for its experience, because of the prime’s lack of experience. On the past performance factor, the Navy assigned Dawson Enterprises a middle-of-the-road “satisfactory confidence” rating.
After learning that its proposal had been excluded from phase 2, Dawson Enterprises filed a GAO bid protest. Dawson Enterprises primarily challenged the agency’s evaluation under the experience and past performance factors.
Dawson Enterprises contended that it was unreasonable for the Navy to assign a significant weakness under the experience factor because, “as a wholly owned subsidiary of an NHO, the firm may rely on the experience of its parent or affiliated companies”. Dawson Enterprises pointed out that, as discussed in prior GAO bid protest decisions, an agency may attribute the past performance of an affiliated company to an offeror where the firm’s proposal demonstrates that the resources of the affiliate will affect performance. Here, of course, the proposal indicated that Dawson Technical and Dawson Federal would be meaningfully involved as subcontractors.
GAO acknowledged that, in a case like this, an agency may consider the past performance of affiliated companies. But, “the protester points to no statute, regulations or prior precedent that precludes the agency from considering an [NHO] prime contractor’s lack of experience merely because the prime contractor has proposed to use affiliates with relevant experience.”
In this regard, the GAO, “has recognized that the weight to be assigned to a prime contractor’s experience–or lack thereof–is a matter of contracting agency discretion.” The GAO denied the protest, writing, “[c]onsequently, we find nothing improper about the agency’s assignment of a significant weakness for Dawson’s lack of experience because the firm proposed to perform the contract using affiliated companies with relevant experience.”
When it comes to past performance and experience, contractors often focus on whether the agency will consider projects performed by a teammate or affiliate. It’s an important question. But the question of what weight the agency will assign those projects can be just as important. And, as the Dawson Enterprises case demonstrates, the contracting agency typically has the discretion to downgrade an offeror based on the offeror’s own lack of experience–even if the offeror proposes experienced teammates.
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Patent ambiguities present in the solicitation for an Indefinite Delivery/Indefinite Quantity procurement must be protested prior to the close of proposal submission for the base contract—waiting to protest at the task order level may be too late.
A recent GAO decision shows that when an IDIQ solicitation contains an obvious ambiguity, the rule is “speak now or forever hold your peace.” By the time task order competitions get rolling, the chance to protest will likely be gone.
In Draeger, Inc., B-414938, __ CPD ¶ __ (Comp. Gen. Sept. 21, 2017), the Defense Logistics Agency was conducting an IDIQ procurement for various medical monitoring devises, including anesthesia monitoring systems. The base contract was originally awarded in 2007, but provided an open season at the end of each contract period where DLA would consider products from new offerors.
Draeger was awarded a base contract during the 2013 open season. Before submitting its proposal, Draeger expressed uncertainty as to whether it had the capacity to provide anesthesia equipment to meet the agency’s needs due to ambiguities in the RFP. Nevertheless, Draeger was awarded a base contract and later received task order awards.
On July 12, 2016, DLA issued a new task order to offerors for anesthesia machines. After reviewing proposals from offerors, including GE and Draegar, DLA awarded the task order to GE. Draeger filed a GAO bid protest challenging the award.
Draeger alleged the task order was outside the scope of the IDIQ Base Contract. According to Draeger, an anesthesia monitor is different from an anesthesia machine. Since the base contract did not expressly mention anesthesia machines, Draeger alleged that the DLA could not order those machines off the Base Contract.
GAO dismissed Draeger’s protest as untimely. Under 4 C.F.R. § 21.2(a), “[p]rotests based upon alleged improprieties in a solicitation which are apparent prior to bid opening or the time set for receipt of initial proposals shall be filed prior to bid opening or the time set for receipt of initial proposals.” In the unique context of open season contracts that reopen based on contract amendments, GAO explained that “a protest based upon alleged improprieties apparent on the face of the solicitation must be filed no later than the time set for receipt of proposals under the amendment.”
According to GAO, Draeger identified ambiguities regarding the anesthesia equipment in the RFP for the Base Contract; therefore, it should have protested the alleged ambiguities prior to the close of proposals for the Base Contract. GAO was particularly unimpressed with Draeger’s arguments because Draeger had previously received task order awards under the RFP for anesthesia machines. Accordingly, GAO concluded that “Draeger should have protested any apparent ambiguity regarding the type of anesthesia equipment contemplated under the ID/IQ RFP, prior to the January 6, 2014, deadline . . . for submission of proposals for the 2013 open season.”
GAO’s decision in Draeger is a cautionary tale to offerors—if there are ambiguities apparent on the face of an IDIQ RFP, the proper time to challenge those ambiguities is prior to proposal submission for the base contract. Challenges at the task order level regarding patent ambiguities present in the RFP for the base contract will likely be untimely.
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My heart rate has finally come down after the exciting finish to Game Five of the Cubs-Nationals playoff series last night. I caught the first few innings waiting for my flight in Salt Lake City, and the game (which clocked in at more than 4 1/2 hours) was still going when I landed in Kansas City a couple hours later. Thanks in part to the magic of instant replay, my Cubs were victorious, and will continue their World Series title defense against the Dodgers this weekend.
Clearly, my mind is on sports–but I’m also closely watching developments in government contracts. In this week’s SmallGovCon Week In Review, the GAO reminds agencies that they have the power to override the automatic stay, the SBA updates the WOSB/EDWOSB NAICS codes, a bill to improve the SBIR and STTR programs passes the House unanimously, and much more.
Can one contract change the way the government buys IT? How EIS will spur federal IT modernization. [FedTech]
The Centers for Medicare and Medicaid Services signed a memorandum of understanding to use the GSA’s OASIS vehicle. [fedscoop]
The government may soon buy based more on best value considerations, and less often using lowest price as its main, or sometimes only, focus. [Bloomberg Government]
An Ohio senator has asked the Treasury Department to review whether the Equifax breach could constitute grounds for debarment, which would prevent the company from winning or renewing contracts with the government. [Washington Examiner]
The GAO released a statement rebuking comments by the IRS, which had stated that it was forced award a bridge contract to Equifax during the course of a bid protest. The GAO noted that agencies have the power to override the automatic stay in appropriate circumstances. [Nextgov]
The SBA has updated the NAICS codes authorized for use in the WOSB program; the updates apply to all solicitations issued on or after October 1, 2017. [Federal Register]
Language in the 2018 NDAA would make it more difficult for companies to protest contract awards, particularly those made by defense and military agencies. [Nextgov] (And click here for my take on why this is a really bad idea).
It was with unanimous support this week that H.R. 2763, The Small Business Innovation Research and Small Business Technology Transfer Improvement Act of 2017, passed the House of Representatives. [scvtv]
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Ahh, fall. A time for football, hay rides, and returning to campus. Being in a college town, we are always reminded that students are back on campus due to the increased traffic, the homecoming parade, and the increased buzz (no pun intended) around the town. The onset of fall sometimes dredges up unwanted memories about turning in term papers and meeting all the inane requirements insisted upon by the professor.
A recent GAO opinion also brought me back to my college days. Specifically, what happens when the government (kind of like a college professor) sets a requirement for a certain type of file format for a solicitation, but the offeror submits a proposal in a different file format? A recent GAO opinion answers that question in the contractor’s favor–although GAO’s ruling isn’t a blanket permission slip for contractors to ignore file format requirements.
In McCann-Erickson USA, Inc., B-414787 (Comp. Gen. Sept. 18, 2017), McCann-Erickson USA, Inc. had submitted a proposal to provide advertising services to the Army on an IDIQ basis for a potential 10-year contract worth up to $4 billion. The Army would evaluate proposals “on a best-value basis, considering cost/price, along with several non-cost/price evaluation criteria.”
The solicitation set up a two-phase evaluation process. Phase one would be based on written proposals while phase two would involve an oral presentation for all proposals that were deemed acceptable. Phase one involved “a substantive evaluation of written proposals considering cost/price and the non-cost/price evaluation factors with a focus on the adequacy of the offerors’ response–and the feasibility of their approach–to fulfilling the requirements of the RFP.” But instead of following the two-phase review process, the Army conducted what it termed a “compliance review” of proposals, consisting of reviewing and eliminating proposals based on “informational deficiencies” in what GAO described as a “superficial, perfunctory review of the ME proposal to identify instances where ME allegedly did not fully comply with the instructions for proposal preparation.”
What were these “information deficiencies” identified by GAO? The wrong file format was one of them. The Army rejected ME’s proposal, in part, “for submitting its cost/price proposal as a portable document file (pdf) rather than as a Microsoft Excel spreadsheet.” Per the GAO, “[t]he record shows that the agency did not substantively evaluate the ME cost/price proposal, choosing not to calculate the firm’s total evaluated cost/price; performing no meaningful cost realism evaluation; and not evaluating the proposal for balance, fairness or reasonableness, as specifically contemplated by the solicitation’s cost/price evaluation factor. The agency also did not afford ME an opportunity to submit its cost proposal as a Microsoft Excel file.”
GAO rejected the Army’s interpretation of its submission requirements because
In addition, GAO held that allowing ME to submit an Excel version of its cost/price proposal would be prudent, as long as no changes were made in the pricing, because this would amount to a mere clarification of the proposal. In the end, GAO sustained the protest and advised the Army to reevaluate ME’s proposal and awarded costs to ME.
It’s important to note that the GAO’s decision was based on the specific circumstances of the case. GAO did not hold that it is always okay for an offeror to submit its proposal in the wrong electronic file format. In fact, in a case decided a few years back, the GAO reached the opposite conclusion–holding that an offeror was properly excluded from award when it submitted its proposal in PDF instead of Excel. The difference? In the prior case, the agency argued that it needed to manipulate offerors’ cost data to complete the price evaluation, and the GAO agreed that doing so would be “unduly burdensome” without an Excel file.
Perhaps a college student may come across this blog after turning in a paper in the wrong format and be able to argue that, if it’s good enough for the GAO, it should be good enough for you, professor. Regardless, this decision is noteworthy because it points to limits on an agency’s discretion in rejecting a proposal based on the file format of the submission.
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I am back from a great trip to Salt Lake City, where I spoke at the Utah PTAC Symposium. My talk at the symposium centered on prime/subcontractor teams and joint ventures–topics of ever-increasing interest for small and large contractors alike.
It was wonderful to see so many clients and old friends at the Symposium and meet so many new people, too. A big “thank you” to Chuck Spence and his team at the Utah PTAC for organizing this event and inviting me to speak. And thank you, also, to everyone who attended my seminar and stopped by the Koprince Law LLC booth to talk about government contracts.
I’ll be sticking around Kansas for a few weeks, although I’ll be making a short trip down to Wichita on Tuesday to give a half-day session on the SBA’s All Small Mentor-Protege Program, sponsored by the Kansas PTAC. If you’re a Kansas contractor, I hope to see you there.
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Ah, joint ventures. Few topics in government contracting these days seem to cause as much confusion. And that’s due, in large part, to some common misunderstandings I hear repeated over and over.
Recently, I joined host Michael LeJeune on the “Game Changers” podcast to talk about some of the most common areas of confusion regarding joint ventures. What is the relationship between joint ventures and the SBA’s new All-Small Mentor-Protege Program? How do the rules for joint venture work share operate? What are some frequent mistakes companies make when they draft joint venture agreements? And so on.
My podcast is available now on the Federal Access website. Click here to give it a listen, and while you’re there, check out the many other great podcasts featuring a range of government contracts thought leaders.
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Like many, I enjoy a good meal out on the town. I tend to order strictly from the menu without any additions or substitutions. Perhaps, it is from all my years of waitressing prior to attending law school. In a recent GAO decision, however, the Navy attempted to order items not on the vendor’s menu only to have GAO determine that the order was beyond the scope of that menu.
In Bluewater Management Group, LLC, B-414785, Bluewater protested the Navy’s award of lodging and transportation services to DMC Management Services, LLC, alleging the award was improper because DMC’s GSA Schedule contract did not include transportation services.
By way of background, the Department of Navy, Military Sealift Command, issued an RFQ to small business holders of GSA Schedule 48 for lodging and transportation services. The RFQ was issued pursuant to FAR Subpart 8.4, Federal Supply Schedules, whereby GSA directs and manages the FSS program and federal agencies can utilize a simplified process for obtaining commercial supplies and services at bulk prices.
Key to the RFQ’s scope of work, offerors were to not only provide an average of 120 extended-stay hotel rooms within 25 miles of the naval base, but daily round trip transportation to the naval base. The RFQ identified the lodging and transportation services as separate CLINs and instructed vendors that all products and services were to be included in their current GSA Schedule contract.
While DMC was a holder of a Schedule 48 contract, its contract only listed pricing for lodging and housekeeping services. It did not disclose transportation or corresponding pricing for transportation as an additional service. Nevertheless, the Navy awarded DMC the task order for an evaluated price of $38,009,781.
Bluewater protested, arguing that the award was improper because the Navy was procuring transportation services from DMC that were outside the scope of its Schedule 48 contract. The Navy counter-argued that the transportation services were ancillary to complete the task order lodging requirement.
In rejecting the Navy’s argument, GAO wrote, “[t]he Navy provides no legal authority for this assertion, nor does it provide any evidence that DMC’s schedule contract listed these services or otherwise explain why the transportation services are not required to be listed and priced on the FSS contractor’s schedule.” Similarly, GAO found unavailing the Navy’s argument that the transportation services were “other direct costs,” because DMC did not offer a description or established price for transportation services.
GAO explained that “[n]on-FSS products and services may not be purchased using FSS procedures; instead, their purchase requires compliance with the applicable procurement laws and regulations, including those requiring the use of competitive procedures. GAO sustained the protest, affirming that “[w]here an agency orders from an existing FSS, all items quoted and ordered are required to be on the vendor’s schedule contract as a precondition to receiving an order.”
Bluewater is a good reminder that for Schedule contracts, the government is not permitted to order items not listed or priced on the vendor’s menu. Doing so could result in not obtaining any of the items on the menu.
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The baseball playoffs are back, and tonight I’ll be watching my Cubs begin their quest for back-to-back titles. (If you’re not a lifelong Cubs fan, you may not realize how strange it feels to write that previous sentence).
Before the games begin, it’s time for our weekly dose of government contracting news. In this week’s edition of the SmallGovCon Week in Review, the DOJ charges four men with participating in a bribery and kickback conspiracy, the GAO publishes a report finding that many contracts weren’t closed on time, a court reverses a contractor’s debarment, and more.
You don’t see this every day: four men are charged in a bribery and kickback conspiracy scheme–involving a DoD Office of Inspector General contract. If true, that’s pretty brazen. [U.S. Department of Justice]
The SBA has adopted the 2017 NAICS code revision as the basis of its small business size standards. [Federal Register]
The GAO published a report showing that contracts were not closed on time at several agencies. [U.S. Government Accountability Office]
A federal court ruled the GSA unfairly debarred a government contractor because GSA did not give the contractor notice of all grounds prior to the agency’s final debarment determination. [Federal News Radio]
Several defendants in a New York SDVOSB False Claims Act case have agreed to pay $3 million to resolve allegations that they improperly obtained SDVOSB contracts. [U.S. Department of Justice]
A retired Army colonel whose business company reportedly was used to commit bribery to obtain more than $20 million in government contracts has been charged with conspiracy. [The Augusta Chronicle]
A new website consolidates federal Inspector General reports in one place. [Oversight.gov]
Reverse auction provider FedBid has been acquired but will continue to operate under its own brand. [Compusearch]
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So you’ve teamed with an ineligible incumbent contractor to bid on some government work and, to try and maintain continuity, the incumbent would like to retain project management functions. “No big deal,” you think, “I’ll just create a management position to oversee the project manager.”
Actually, it could be a big deal if you’re trying to avoid ostensible subcontractor affiliation. Among the four key factors for determining ostensible subcontractor affiliation is whether the management previously served with the subcontractor under the incumbent contract. And according to a recent SBA Office of Hearings and Appeals decision, creating a figurehead management position to oversee the project manager won’t negate this indicia of ostensible subcontractor affiliation.
By way of background, ostensible subcontractor affiliation exists when a prime contractor relies on a subcontractor to perform the contract’s primary and vital requirements or if the prime contractor is otherwise “unusually reliant upon” its subcontractor. Though it’s a fact-specific inquiry, OHA has identified four key factors for determining unusual reliance:
First, the proposed subcontractor was the incumbent contractor, and was not itself eligible to compete for the procurement. Second, the prime contractor planned to hire the large majority of its workforce from the subcontractor. Third, the prime contractor’s proposed management previously served with the subcontractor on the incumbent contract. And fourth, the prime contractor lacked relevant experience, and was obliged to rely upon its more experienced subcontractor to win the contract.
An important consideration, then, is contract management—if the subcontractor is providing project management, or if the managers previously served on the subcontractor’s incumbent contract, OHA is more likely to find ostensible subcontractor affiliation.
That brings us to Automation Precision Technology, LLC, SBA No. SIZ-5850 (Sept. 6, 2017). In that case, Automation Precision Technology (“ATS”) teamed with Serco, Inc. (the incumbent contractor, and a multi-billion dollar company) to bid on undersea surveillance systems support services solicited by the Department of Navy’s Space and Naval Warfare Systems Command. The work was solicited under NAICS code 541614 (Process, Physical Distribution, and Logistics Consulting Services), which carries a $15 million size standard.
Though ATS’s revenues alone fell under the size standard, the SBA Area Office found that ATS’s relationship with Serco violated the ostensible subcontractor rule based on the four key factors. As part of the determination, the Area Office noted that nearly all of the contract employees were former Serco employees that would transition over to ATS, including the key personnel and management employees (like the Program Manager). Serco’s size was aggregated with ATS’s and, as a result, ATS was found to be ineligible for the SPAWAR contract.
ATS appealed the determination to OHA, saying, in part, that the Area Office erred by finding ATS unusually reliant on Serco for project management. According to ATS, its proposal included a Contract Manager who would serve as “the absolute lead for the Contract team” and would ensure that ATS firmly manages the contract. Thus, ATS said the Area Office erred by finding ATS reliant on Serco for project management.
OHA rejected ATS’s arguments, noting that the solicitation identified the Program Manager as the contract’s top management official and charged her “with the responsibility of accomplishing the overall efforts of the contract.” The Contract Manager position created by ATS was not required under the solicitation. And though ATS said its Contract Manager would oversee the entirety of the contract, its proposal indicated otherwise: under ATS’s proposal, the Program Manager was “responsible for day-to-day contract management with the authority to obligate Team [ATS] within contract terms,” while the Contract Manager “provides leadership, guidance, and resources to support the Project Manager in management and execution of the contract.”
According to OHA, “the Contract Manager appears to be more of a liaison and an advisor than a manager . . . [who] does not work directly on and has no major role in performing the contract.” OHA found ATS’s Contract Manager did not exercise sufficient management over the Program Manager, thus supporting a finding of ATS’s unusual reliance on Serco.
OHA denied ATS’s appeal.
Automation Precision Technology confirms that, when evaluating ostensible subcontractor affiliation, project management matters. A company cannot avoid the sting of affiliation simply by creating a figurehead manager that lacks firm authority.
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The SBA has proposed rules to enable contractors to file protests with the SBA Office of Hearings and Appeals challenging the SDVOSB or VOSB status of a company included in the VA’s CVE VetBiz database. The same set of proposed rules would allow a contractor to appeal to OHA if the VA denies the contractor’s application for inclusion in the CVE database, or cancels an existing verification.
The proposed rules, once finalized, will offer important new protections for SDVOSBs and VOSBs and are the first official step in implementing Congress’s mandate that the SBA and VA consolidate their SDVOSB eligibility requirements.
The SBA’s proposed regulations were published in the Federal Register on September 28, 2017. The proposed rules fall into two broad categories: CVE protests and CVE appeals.
CVE Protests – Proposed Rules
The SBA proposes to give OHA jurisdiction to decide SDVOSB and VOSB eligibility protests for VA procurements. These rules don’t apply to SDVOSB protests for non-VA procurements, which will continue to be evaluated under the SBA’s existing rules.
Here are some of the highlights of the SBA’s proposed rules governing CVE Protests:
Who can file CVE Protests? The proposed rules allow “the Secretary of the VA, or his/her designee” to file what the SBA calls a “CVE Protest.” Additionally, if a small business is awarded a VA contract, “the contracting officer or an offeror” can file a CVE Protest.
When are CVE Protests due? The VA can file a CVE Protest at any time. If a protest is filed in connection with a VA contract, “[a]n offeror must file a CVE Protest within five business days of notification of the apparent awardee’s identity.” A contracting officer, on the other hand, “may file a CVE Protest at any time during the life of the VA contract.”
Where are CVE Protests filed? Protests by private parties must be filed with the appropriate contracting officer, who will refer the protest to OHA. Contracting officers and the VA may file protests directly with OHA.
What are the contents of a CVE Protest? A CVE Protest “must be in writing.” While there is no required format, the protest must contain the solicitation or contract number, if applicable, the name and contact information and signature of the protester and/or its attorney, and pecific allegations supported by credible evidence that the [protested] concern does not meet the eligibility requirements for inclusion in the CVE database.” OHA will dismiss a protest that fails to meet this “specificity” threshold.
When must the protested company respond? The protested concern, the VA, the contracting officer and “any other interested party” may respond to a protest or supplemental protest. The response is due “no later than 15 days from the date the protest or supplemental protest was filed with OHA.”
What is the burden of proof? Once OHA has determined that the protest is timely, specific and within OHA’s jurisdiction, “[t]he protested concern has the burden of proving its eligibility, by a preponderance of the evidence.”
What about discovery? Nope. “Discovery will not be permitted in CVE Protest proceedings.” However, “the Judge may investigate issues beyond those raised in the protest and may use other information or make requests for additional information to the protester, the protested concern, or VA.” OHA will only hold an oral hearing in “extraordinary” circumstances.
What happens if OHA sustains a CVE Protest? If OHA sustains a protest before award of a contract, the contracting officer cannot follow through with the award. If the protest is sustained after award, “the contracting officer shall either terminate the contract or not exercise the next option.” Additionally, the VA must immediately remove the company from the CVE database, and the company “may not submit an offer on a future VA procurement until the protested concern reapplies to the Vendor Information Pages Verification Program and has been reentered into the CVE database.”
Can OHA’s decision be appealed? No. OHA’s decision is “final agency action,” and can only be formally challenged in federal court. However, there is a process to request reconsideration of the decision. A request for reconsideration “must clearly show an error of fact or law in the decision.” An OHA judge “may also reconsider a decision on his or her own initiative.”
For those familiar with the SBA’s size, SDVOSB and WOSB protest processes, these rules will look rather familiar. Most of the proposed rules for the CVE Protest process don’t vary too much from that of SBA’s other protest processes. Perhaps the most significant difference is that CVE Protests will be decided directly by OHA rather than another SBA office. Under current law, size protests are decided by SBA Area Offices; WOSB and non-VA SDVOSB protests are decided by the SBA’s Director of Government Contracting. OHA serves an appellate function for these protests but will decide CVE Protests directly.
CVE Database Appeals – Proposed Rules
For years, veteran-owned firms have complained that they cannot appeal to an administrative judge if their CVE application is denied or cancelled. The SBA’s proposed rules would allow those companies to appeal directly to OHA.
Here are some highlights of the SBA’s proposal for CVE Appeals:
Who can file a CVE Appeal? According to the proposed rule, “[a] concern that has been denied verification of its CVE status or has had its CVE status cancelled may appeal the denial or cancellation to OHA.”
When are CVE Appeals due? A CVE Appeal must bee filed “within 10 business days of receipt of the denial or cancellation.” OHA will dismiss an untimely CVE Appeal.
Where are CVE Appeals Filed? CVE Appeals are filed directly with OHA. (The proposed rule, oddly, doesn’t seem to explicitly say so, but instead refers to another OHA regulation, 13 C.F.R. 134.204, regarding filing). Copies of the appeal must be served on the VA.
What are the contents of a CVE Appeal? Like a CVE Protest, a CVE appeal must be in writing, but there is “no required format.” However, the CVE appeal must contain: (1) a copy of the denial or cancellation and the date the appellant received it; (2) a statement of why the denial or cancellation is in error; (3) “any other pertinent information the Judge should consider,” and the contract information and signature of the appellant and/or its attorney.
Who can respond to a CVE Appeal? The VA may respond to a CVE Appeal. The VA has 15 days after OHA files a “notice and order” acknowledging the appeal in which to file a response.
What is the burden of proof? To win a CVE Appeal, the appellant has the burden of proving, by a preponderance of the evidence, that the denial or cancellation “was based on clear error of factor law.”
What about discovery? Like CVE Protests, there is no discovery in CVE Appeals. OHA will not hold oral hearings.
When is the decision due? OHA “shall decide a CVE Appeal, insofar as practicable, within 60 calendar days after close of the record.” The record closes on the date the VA’s response is due, meaning that OHA judges will attempt to issue their decisions within 75 days of acknowledging the appeal. But this isn’t a hard deadline.
What happens if OHA grants a CVE Appeal? If OHA grants a CVE Appeal, the VA “must immediately reinstate or include the appellant, as the case may be, in the CVE database.”
Can OHA’s decision be appealed? No. As is the case for CVE Protests, OHA’s decision is “final agency action,” and can only be formally challenged in federal court. However, there is a process to request reconsideration of the decision. A request for reconsideration “must clearly show an error of fact or law in the decision.” An OHA judge “may also reconsider a decision on his or her own initiative.”
What Happens Next
Don’t lose sight of the fact that these are proposed rules, not final rules. Until the rules become final, contractors won’t be able to file CVE Protests or CVE Appeals with OHA. And, of course, the final rules may vary from the proposed versions.
The public is invited to comment on the proposed rules. Comments are due by October 30, 2017. To comment, follow the instructions at the beginning of the Federal Register entry.
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It’s a sad day here at Koprince Law. Molly Schemm, who has been my fantastic legal executive assistant since before the firm’s doors even opened, is leaving to pursue new adventures in Alabama. All of us here at the firm will miss Molly dearly–and we won’t be the only ones. Molly’s warmth and professionalism have earned her many friends among our clients, too. We wish Molly the very best.
Before the weekend begins (and Molly begins her drive South), it’s time for your weekly dose of SmallGovCon Week In Review. In this edition, a provision commonly known as the “Amazon” amendment is garnering renewed attention, an Alabama contractor is sentenced for defrauding the government, SAM is getting a makeover, and much more.
A recent DoD memo provides guidance regarding the implementation of DFARS Clause 252.204-7012, which governs safeguarding covered defense information and cyber incident reporting. [Office of Under Secretary of Defense]
Some in the House of Representatives want to make federal procurement less complex and more competitive. But is the so-called “Amazon Amendment” the way forward? [Federal News Radio]
A contractor was ordered to repay the full amount of contracts awarded after he was found guilty on criminal charges of falsely obtaining Small Business Innovation Research contracts with the DoD and NASA. [United States Department of Justice]
The GAO released a length report regarding agencies’ compliance with OSDBU requirements. [GAO]
The GSA is working on a new look for SAM. You can now check out the beta version of the website and provide your feedback on what will eventually become the permanent site. [fedscoop]
Recent studies show that the percentage of overall research and development spending sponsored by the government has dropped sharply over the last 50 years. [National Defense]
Check out the four changes in the 2018 NDAA that contractors need to know about. [Federal News Radio]
With a great deal of uncertainty about the 2018 federal budget, Edge 360 takes a look at what October will hold for federal IT contractors. [Edge 360]
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I recall sitting in a mediation one day when the mediator, a judge, told me and my client that we all have lightning in our fingers. He went on to explain that this means, once you sign a contract, it’s like magic in the sense that you can’t get out of the contract and are bound by it, absent certain exceptional circumstances.
I was reminded of this concept while reading a recent opinion from the Armed Services Board of Contract Appeals that dealt with the effect of a contractor signing a release with the government and then trying to back out of that release by refusing payment from the government.
In Central Texas Express Metalwork LLC d/b/a Express Contracting, ASBCA No. 61109, (Sept. 7, 2017), the ASBCA reviewed an appeal of contractor CTEM, which had contracted to repair and replace certain HVAC systems at an Air Force base for $2,457,237. After partial performance, CTEM submitted a request for equitable adjustment for $643,841.88 in increased costs due to the Air Force’s purported delays and changes, including $345,691.07 sought on behalf of a subcontractor called IMS.
In settlement of the dispute, the Air Force agreed to pay the outstanding contract balance of $395,727.99. This resulted in, among other things, CTEM waiving its REA and the Air Force waiving a credit it should have received from reducing the scope of the contract. CTEM and the subcontractor agreed to provide a final invoice and a release of claims, and the release included no exceptions. The pertinent language of the release was “the Contractor, upon payment of the sum by the United States of America (Herein after called Government), does remise, release, and discharge the Government, its officers, agents, and employees, of and from all liabilities, obligations, claims, and demands, whatsoever, under or arising from the said contract.”
CTEM then contacted IMS to inform IMS of what amount it would receive as part of the settlement, and IMS refused the offer. When the government sent the final payment to CTEM, CTEM had frozen its account and informed the government that CTEM was working on submitting a corrected invoice. CTEM then submitted a certified claim to the CO for $643,841.88 for the delays by the Air Force, including the $345,691.07 sought by the subcontractor IMS.
CTEM argued that, because it did not accept the final payment from the government, the release was not binding. The ASBCA, referring to case-law dating back to 1860, wrote that “[o]nce an offer has been accepted, there is a binding contract.” Thereafter, “neither the offer nor the acceptance generally can be revoked or withdrawn.”
In this case, the government made a binding offer for settlement, and CTEM accepted it, so CTEM “cannot avoid its obligations under the release by refusing to accept payment.” What’s more, because CTEM entered into the settlement agreement with the government, CTEM had a duty of good faith to not interfere with the government’s performance in tendering the final payment. Rather, “ecause CTEM cannot withdraw its offer at this point, it is bound to accept $395,727.99 for its claims, and release the remainder of the claims.”
This decision is a good reminder of the power we all hold in our hands when we are signing a contract. This power holds sway in government contracts as equally as it does in other areas of contract law. The government often asks contractors to sign waivers and releases, and like CTEM, other contractors sometimes have second thoughts after they sign. Contractors would do well to think very carefully when they are signing a release with the government that covers all claims, because, barring relatively rare exceptions, those releases are binding.
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A dissatisfied U.S. Postal Service customer filed an appeal with the Postal Service Board of Contract Appeals, seeking $50,000 in damages resulting from the Postal Service’s failure to deliver a Priority Mail package.
The appellant contended that it had a contract with the Postal Service, which was breached when the Postal Service failed to deliver the package. But the appellant’s cleverness wasn’t enough to prevail: the Board held that it lacked jurisdiction over the appeal.
The case of Triumph Donnelly Studios LLC v. United States Postal Service, PSBCA No. 6683 (2017) began in August 2016, when Triumph Donnelly mailed a package from South Carolina to California using Priority Mail. The package was never delivered, and the Postal Service admitted that the package was lost.
The Postal Service automatically insures most Priority Mail packages in the amount of $50. Triumph filed a claim for this amount, and was reimbursed by the Postal Service.
But Triumph wasn’t satisfied with a mere $50. Triumph filed a claim with the Postal Service’s National Tort Center seeking $50,000. The National Tort Center denied Triumph’s claim and a subsequent request for reconsideration. The National Tort Center advised Triumph that its decision was final, and that Triumph’s next legal option would be to file suit in federal district court.
Instead, Triumph filed an appeal with the Board, arguing that the Postal Service breached a contract when it lost the Priority Mail package. The Postal Service asked the Board to dismiss the appeal for lack of jurisdiction.
The Board held that the Contract Disputes Act applies to the Postal Service. Under the CDA, a Board of Contract Appeals has jurisdiction over “any express or implied contract . . . made by an executive agency for (1) the procurement of property, other than real property in being; (2) the procurement of services; (3) the procurement of construction, alteration, repair or maintenance of real property; or (4) the disposal of personal property.”
The Board wrote that its jurisdiction is limited “to the four contract types” identified in the CDA. More specifically, the CDA “does not apply to a contract under which the government provides a service.”
Here, the Board determined, “ecause the alleged contractual relationship between the Postal Service and Triumph Donnelly would be just such a contract for the government to provide a service, we hold that it is not covered by the CDA.” The Board concluded: “imply put, we do not have jurisdiction to decide disputes between the Postal Service and its customers involving delivery of the mail.”
The Board dismissed the appeal.
Sadly, the PSBCA’s decision doesn’t answer an obvious question: what the heck was in that Priority Mail package, anyway? Cold cash? Ultra-rare Nintendo games? The possibilities are endless, and perhaps raw speculation is more fun than an answer.
The Triumph Donnelly case is interesting because of its facts, but it also demonstrates an important point of law: the jurisdiction of a Board of Contract Appeals is limited by the CDA to specific matters–and excludes cases in which the government provides a service.
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I am back in Lawrence after a great trip late last week to Omaha, where I gave a half-day seminar on joint venturing, teaming and subcontracting for federal government small business contracts.
Thank you very much to Veronica Doga and her team at the Nebraska PTAC for organizing the event and making sure everything ran smoothly. Thanks also to the other sponsors for contributing their time, expertise and meals (like many things in life, in-depth seminars on government contracts always go over better on a full stomach). And of course, thank you to all of the attendees who spent a sunny Friday morning talking about mentor-protege agreements, teaming agreements, and similar topics. It was great to meet so many new people.
I’ll be sticking around for the next couple weeks before catching a flight to Salt Lake City for the 2017 Utah PTAC Procurement Symposium on October 11. If you’ll be at the Symposium, please stop by the Koprince Law LLC booth to say hello. Hope to see you there!
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Small government contractors lost an important ally last week–and many of us lost a great friend.
Becky Peterson, the longtime Interim Executive Director of the Association of Procurement Technical Centers, passed away on Thursday. Her legacy lives on in the amazing network of PTACs across the country.
I first met Becky a number of years ago, when she and the APTAC leadership team took a chance, and invited a little-known government contracts associate to give a breakout session at the APTAC national conference. Many conferences later, Becky’s amazing blend of professionalism and kindness always stood out. “You’re family here,” she would tell me, giving me a hug. Then she’d pivot into a nuanced issue affecting small contractors, discussing how her PTAC counselors could best make a difference.
Becky strongly believed in the mission of PTACs: to provide government contractors (mostly small businesses) with individualized counseling services, training and assistance in pursuing, winning and successfully performing government contracts. Working with a network of nearly 650 procurement counselors nationwide, Becky sought to arm her team with the information they needed to best counsel their clients. But more than that: she and the APTAC leadership team always emphasized the importance of ethics and compliance, helping make sure that PTAC clients were counseled on much more than just the nuts and bolts of the contracting process.
She fought hard for her organization, working to raise its profile on Capitol Hill and ensure that it continues to receive much-needed political support (and funding). And she didn’t stop fighting: just a few weeks ago, even while she battled illness, she was in Oklahoma helping organize the Indian Country Business Summit. I am heartbroken to know that was the last time I’ll see her.
You shouldn’t feel bad if you didn’t know Becky’s name. She wasn’t one to seek the spotlight for herself. Her focus was on PTACs, and all the wonderful things they do for contractors around the country. In fact, if she could read this post, she’d probably say something like, “that’s very sweet, but enough about me–please remind your readers of the free PTAC counseling they can get right in their own backyards.”
If you haven’t connected with your PTAC, there’s no time like now. Visit the APTAC website to find your local PTAC and schedule an appointment. I think you’ll be impressed with the organization Becky helped build and run.
Those of us who knew Becky will miss her dearly. And those who didn’t will feel the positive effects of her hard work for years to come.
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Greetings from Omaha, where I’ve just wrapped up a great half-day training session sponsored by the Nebraska PTAC. If you haven’t been to Omaha, you’re missing out: I’m enjoying exploring the Old Market District, and keep wondering when I’ll run into Warren Buffett.
Of course, I’m not about to let a little road trip get in the way of our weekly roundup of government contracts news. In this edition of the SmallGovCon Week In Review, we have an update on an SDVOSB fraud case that we have been following for awhile, a push to close loopholes in the Buy American Act, some promising changes for the SBA Surety Bond Guarantee program, and more.
After jurors became deadlocked, a retrial was scheduled in the case of an Arkansas businessman accused of falsely claiming to operate a SDVOSB. [Arkansas Online]
Senator Chris Murphy is pushing hard to change federal rules regarding the government buying products from American companies, trying to close loopholes in the Buy American Act. [New Haven Register]
FEMA is seeking contractors to provide meals in the wake of Hurricane Maria, and will begin awarding contracts as soon as possible. [Markets Insider]
Congressman Will Hurd is one step closer to making his dream of overhauling federal government information technology procurement a reality. [San Antonio Business Journal]
The SBA is considering granting a request for a class waiver of the Nonmanufacturer Rule for Positive Airway Pressure Devices and Supplies Manufacturing. [Federal Register]
The SBA has finalized two important changes to its Surety Bond Guarantee Program that will increase contract opportunities for small construction contractors. [SBA]
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In late 2016, the SBA rolled out a fantastic tool to help small business grow in the marketplace.
Here are five things you should know about the SBA All Small Mentor-Protégé Program:
It’s a business development program.
I’m often asked by small business owners, What is the new mentor-protégé program? My answer is simple: it’s a business development program aimed at increasing small business capabilities. Under the All Small Mentor-Protege Program, a mentor provides its protégé with various types of business development assistance.
What type of assistance can be given?
The All Small Mentor-Protege Program is designed to help protégés improve their ability to compete for government contracts. As a result, mentors can provide virtually any type of assistance that would help protégés do so. This assistance might qualify as technical or management assistance, financial assistance (including taking a minority equity stake in the protégé to help raise capital), subcontracts or subcontracting assistance, trade education, or any other general or administrative assistance. Mentors and protégés can also—but don’t have to—form a joint venture relationship to pursue one or more contracts.
Who’s eligible to participate?
The Program’s rules are broad enough that really any business can participate. To qualify as a protégé, a company simply has to be a small business under its primary NAICS code or under a secondary NAICS code under which it is seeking business development assistance. (To qualify as a protege in a secondary code, however, the company must have done business in that code). Any business (large or small) can act as a mentor, so long as it has the capabilities to offer the pledged assistance and is of good character.
The benefits of participation.
For a protégé, the benefits to participation are obvious: so long as the mentor lives up to its end of the bargain, the protege should gain increased capabilities and become more competitive in the federal marketplace. A protégé, moreover, will not be considered to be affiliated with its mentor simply because of the assistance provided by the mentor (but a word of caution: affiliation might still be found for other reasons).
But what’s in it for a mentor? Aside from the good karma promised by helping develop a small business, a large business mentor may also have increased access to federal contracts. If a mentor and protégé choose to form a joint venture to pursue a federal contract, the joint venture will qualify as a small business if the protégé alone qualifies as a small business. This is a great benefit—for joint ventures between companies that aren’t in a mentor-protégé relationship, both companies would separately have to qualify as small. By entering into a mentor-protégé joint venture relationship, a large business will increase its access to small business contracts.
The affiliation exception can also be appealing to mentors, as it may allow a mentor to have a closer working relationship with a small business than might otherwise be advisable under the SBA’s affiliation rules.
How can your business apply?
To form an All-Small Mentor-Protégé relationship, the parties must complete a written application that details the type of assistance needed by the protégé and explains (complete with timetables and progress benchmarks) how the mentor will provide that assistance. The application must be approved by the SBA. The benefits of the All Small Mentor-Protege Program don’t kick in until the SBA’s approval and only last while the mentor-protege agreement is in effect. Additional details about the application process can be found on the SBA’s All Small Mentor-Protege website.
Though still in its infancy, the All Small Mentor-Protégé Program has already been a tremendous benefit to its participants. If you’d like to learn more, or if you want help applying, please give me a call.
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Although a lease may be a “contract” in common parlance, does a lease qualify as a contract under the Contract Disputes Act?
The answer is important, because the Contract Disputes Act provides jurisdiction for the Court of Federal Claims and Board of Contract Appeals to decide challenges to contracting officers’ final decisions. If a lease isn’t a contract under the Contract Disputes Act, government lessors could be in a bind.
The United States Court of Federal Claims recently decided the issue–and came down on the side of lessors, at least under the facts at hand.
In Lee’s Ford Dock, Inc. v. Secretary of the Army, 865 F.3d 1361 (Fed. Cir. 2017), the Court of Appeals for the Federal Circuit was called on to resolve a dispute between the United States Army Corps of Engineers and Lee’s Ford Dock, a marina operator on Lake Cumberland, Kentucky.
Lake Cumberland is a man-made lake resulting from the damming of the Cumberland River. The dam was constructed in 1951 by the Corps and has been in continuous operation ever since.
In 2000, Lee’s Ford Dock, Inc. entered into a lease with the Corps for roughly 166 acres of land and water real-estate on Lake Cumberland. The lease was for a 25 year term, with an option to extend for an additional 25 years. Importantly, under the lease, the Corps reserved the right to manipulate the water levels of Lake Cumberland.
In 2007, seven years into the lease, the Corps determined the dam was at a high risk of failure and initiated risk reduction measures, including lowering the water level. It was not until 2014 that remedial work on the dam was completed and the water level returned to its pre-2007 levels.
The drawdown of Lake Cumberland had significant ramifications for Lee’s Ford Dock, which was dependent on the higher water-levels for its marina operations. It filed a claim with the contracting officer for damages associated with the depressed water levels and reduced marina revenues. Lee’s Ford Dock alleged these damages totaled at least $4 million dollars.
The Contracting Officer denied the claim, and Lee’s Ford Dock appealed to the Armed Services Board of Contract Appeals. After the ASBCA ruled in the Corps’ favor, Lee’s Ford Dock appealed yet again, this time to the Federal Circuit.
The Corps argued that the Federal Circuit lacked jurisdiction because the case did not arise under the Contract Disputes Act. That forced the Federal Circuit to address a threshold question, is a lease a “contract” subject to the Contract Disputes Act?
Pursuant to Section 7102(a), the Contract Disputes Act generally applies to “any express or implied contract . . . made by an executive agency for” the following:
(1) the procurement of property, other than real property in being;
(2) the procurement of services;
(3) the procurement of construction, alteration, repair, or maintenance of real property; or
(4) the disposal of personal property.
Of the available options, the best chance for jurisdiction would be if the lease was considered personal property that the Corps disposed–the fourth item on the list above.
The Federal Circuit found the lease to constitute a contract for personal property. As the Court explained, “t is well settled that leasehold interests are items of personal property unless a statute commands otherwise.” As the Corps could point to no statute commanding otherwise, the Federal Circuit concluded that Lee’s Ford Dock’s right to operate a marina on the leased premises was personal property.
Next, the Federal Circuit considered whether the Corps “disposed” of property when it entered into the lease. The Court concluded the Corps did dispose of property through the lease and explained its reasoning accordingly:
“Dispose” is a broad term meaning “to exercise control over; to direct or assign for a use; to pass over into the control of some one else; to alienate, bestow, or part with.” By entering into the Lease with [Lee’s Ford Dock], the Corps “bestowed,” “directed,” and “assigned”—and therefore disposed of—a personal property right to [Lee’s Ford Dock] to operate a marina on the leased premises. The Lease therefore embodies a contract for “the disposal of personal property” within the purview of the [Contract Disputes Act].
Finding the lease was personal property that was disposed of by the government, the Federal Circuit concluded it had jurisdiction to decide the case on the merits. But unfortunately for Lee’s Ford Dock, it won the battle but lost the war: the Federal Circuit dismissed a portion of the appeal on different jurisdictional grounds, and affirmed the ASBCA’s ruling as to the remainder of the appeal.
Although Lee’s Ford Dock didn’t win its appeal, the Federal Circuit’s decision establishes an important precedent for those who engage in lease transactions with the government. While the Lee’s Ford Dock decision was specific to the facts at hand and won’t necessarily apply to every lease, the Court’s broad reading of the Contract Disputes Act is a good thing for contractors.
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Provisions in a company’s Shareholders Agreement, requiring the service-disabled veteran to sell his shares back to the company in the event of the veteran’s death or incapacity, were contrary to the SBA’s SDVOSB regulations.
According to a recent SBA Office of Hearings and Appeals decision, these provisions prevented the veteran from having unconditional ownership over the company, because he could not dispose of his shares as he chose. In reaching its conclusion, SBA OHA wrote that Court of Federal Claims decisions allowing such provisions under the VA’s SDVOSB program didn’t apply to SBA–meaning that SDVOSBs verified by the VA might be ineligible for non-VA SDVOSB contracts.
What a mess.
OHA’s decision in Veterans Contracting Group, Inc., SBA No. VET-265 (2017) involved a Corps of Engineers IFB for the removal of hazardous materials and demolition of buildings at the St. Albans Community Living Center in New York. The Corps set aside the procurement for SDVOSBs under NAICS code 238910 (Site Preparation Contractors).
After opening bids, the Corps announced that Veterans Contracting Group, Inc. was the lowest bidder. An unsuccessful competitor subsequently filed a protest challenging VCG’s SDVOSB eligibility.
DoD procurements fall under the SBA’s SDVOSB regulations, not the VA’s separate rules. (As I’ve discussed various times on this blog, the government currently runs two separate SDVOSB programs: one by SBA; the other by VA). The protest was referred to the SBA’s Director of Government Contracting for resolution.
The SBA determined that Ronald Montano, a service-disabled veteran, owned a 51% interest in VCG. A non-SDV owned the remaining 49%.
The SBA then evaluated VCG’s Shareholder’s Agreement. The Shareholders Agreement provided that upon Mr. Montano’s death, incapacity, or insolvency, all of his shares would be purchased by VCG at a predetermined price. The SBA determined that these provisions “deprived [Mr. Montano] of his ability to dispose of his shares as he sees fit, and at the full value of his ownership interest.” The SBA found that these “significant restrictions” on Mr. Montano’s ability to transfer his shares undermined the SBA’s requirement that an SDVOSB be at least 51% “unconditionally owned” by service-disabled veterans. The SBA issued a decision finding VCG to be ineligible for the Corps contract.
VCG appealed the decision to SBA OHA. VCG argued, among other things, that a 2013 Court of Federal Claims decision characterized a right of first refusal as “a standard provision used in normal commercial dealings,” which “does not burden the veteran’s ownership interest unless he or she chooses to sell some of his or her stake.” That case, which arose under the VA’s SDVOSB regulations, caused the VA to reverse its previous guidance and allow right of first refusal provisions–something VA has now permitted for more than four years.
OHA wrote that the Shareholders Agreement “places conditions on Mr. Montano’s ownership interest.” OHA explained that, “in [the] event of Mr. Montano’s death, he is not able to dispose of his stock as he pleases, but rather, his estate must sell it to the corporation at the corporation’s price.” Similarly, if Mr. Montano were to be deemed incapacitated, his “shares are deemed to have been offered to the corporation at Certificate Value, and the corporation shall purchase the shares.”
OHA wrote that the Court of Federal Claims decision dealt with “DVA’s Service Disabled Veteran-Owned Small Business Program, the Vets First Contracting.” The Court “considered the issue of ownership under DVA’s regulation, 38 C.F.R. 74.3” This “is a different program from SBA’s Service-Disabled Veteran-Owned Small Business Concern program.” SBA’s program, OHA wrote, “requires that the SDV’s ownership be unconditional, without condition or limitation upon the individual’s right to exercise full ownership and control of the concern.”
OHA denied VCG’s appeal, and upheld the SBA’s determination finding VCG ineligible.
OHA’s opinion is consistent with its prior decisions, and not surprising in that respect. OHA’s job in cases like these is to interpret the SBA’s rules–nothing more. But for SDVOSBs, Veterans Contracting Group confirms that the government’s SDVOSB system is (to use official law school terminology), a hot mess.
In my experience, many SDVOSBs don’t even realize that the government runs two separate SDVOSB programs, much less that the two programs have separate eligibility rules. When a company is verified by the VA as an SDVOSB, many veterans assume that the company is eligible for SDVOSB contracts government-wide.
But since 2013, the VA accepts right of first refusal provisions like those at issue in Veterans Contracting Group. These provisions are commonplace in standard corporate documentation, and undoubtedly many companies with such provisions in their governing documents have been verified by the VA. As Veterans Contracting Group confirms, these same provisions may make these verified SDVOSBs ineligible for non-VA SDVOSB contracts.
Fortunately, changes are on the way. Thanks to the 2017 National Defense Authorization Act, the SBA and VA are working together on regulations to consolidate the SDVOSB eligibility requirements. Once these new rules are finalized, SDVOSBs will finally be able to play under one set of rules instead of two.
Of course, the consolidated regulations have yet to be proposed, much less enacted. For now, SDVOSBs should strongly consider taking a fresh look at their governing documents. As Veterans Contracting Group demonstrates, just because those documents might be VA-approved doesn’t mean that they’ll pass muster for non-VA procurements.
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An agency isn’t required to cancel a small business set-aside solicitation if the agency learns that one of the small businesses upon whom the set-aside decision rested is no longer small.
In a recent bid protest decision, the GAO confirmed that an agency need not redo its “rule of two” determination when a potential small business competitor outgrows its size standard–even if it could effectively convert a particular solicitation into a “rule of one.”
The GAO’s decision in Synchrogenix Information Strategies, LLC, B-414068.4 (Sept. 8, 2017) involved an FDA acquisition for software licenses, maintenance and support and related services. Before issuing the solicitation, the agency issued a request for information on FedBizOpps, seeking information from businesses regarding their interest in the procurement.
The FDA received three responses to the RFI from small businesses. After evaluating those responses, the FDA concluded that it was reasonably likely to receive at least two or more offers from responsible small businesses. Accordingly, the FDA issued the solicitation as a total small business set-aside.
The agency received two proposals by the original closing date, August 10, 2016. After evaluating those proposals, the FDA awarded the contract to Lorenz International. The unsuccessful offeror, GlobalSummit, then filed a GAO bid protest challenging the award.
In response, the agency took voluntary corrective action. It asked both offerors to submit “a new full proposal.” New proposals were due on May 15, 2017. The new proposals were to include “all certifications, technical and business information” required by the solicitation.
In March 2017, Synchrongenix Information Strategies, LLC “purchased substantially all of GlobalSummit’s assets.” The purchase created an affiliation between GlobalSummit and Synchrogenix, a large business. As a result, GlobalSummit was no longer small.
GlobalSummit asked that the FDA remove the certification requirement. It explained that, at the time of its original proposal in August 2016, it had qualified as a small business. However, because of the affiliation with Synchrogenix, it would no longer qualify as small if forced to re-certify in May 2017.
The FDA declined to remove the requirement.
Synchrogenix (presumably acting as successor-in-interest to GlobalSummit) filed a GAO bid protest. Synchrogenix argued that the FDA was required to cancel the small business set-aside and reissue the solicitation as unrestricted because there was no longer a reasonable expectation of receiving two or more offers from small businesses. Instead, Synchrogenix contended, the agency could only expect to receive one offer–from Lorenz. Synchrogenix argued that proceeding with the acquisition would be tantamount to a de facto sole source award to Lorenz.
The GAO sought the SBA’s opinion. The SBA weighed in on the FDA’s side, stating:
There is no requirement in the Small Business Act, the FAR, or SBA regulations, that an agency must redo its market research regarding the “rule of two” prior to requesting revised or newly submitted proposals during the course of a procurement or altogether cancel the solicitation if it becomes aware that only one responsible small business offer will be received in response to an amended solicitation.
The SBA further explained “it is not uncommon that an agency becomes aware, over the course of a procurement, that it will receive only one revised offer from a small business concern.” The SBA pointed out that small businesses “may drop out of a competition for a variety of reasons . . . such that there is only one responsible small business offeror remaining.” In such a case, “the agency may make award to that firm, provided award will be made at a fair market price.”
The GAO found the SBA’s reasoning persuasive. “As SBA advised in response to this protest,” GAO wrote, “there is no requirement in law or regulation that an agency must revisit” its rule of two determination when it becomes aware that it will only receive one offer from an eligible small business. GAO concluded: [t]he fact that, during the course of the procurement, one of the two small business offerors is no longer capable of submitting a revised proposal, does not mean the procurement should be viewed as a de facto sole source procurement.”
The GAO denied the protest.
The Synchrogenix case makes the point that if an agency’s market research is sufficient to justify a set-aside, the agency need not adjust its determination if it later comes to realize that it will only receive one offer from a qualified small business. In other words, it can be permissible for a “rule of two” set-aside to effectively turn into a “rule of one” as the acquisition proceeds.
Interestingly, it’s not clear to me that Synchrogenix was ineligible for the FDA solicitation in the first place. Under the SBA’s regulations, size ordinarily is determined as of the date of an initial offer; GlobalSummit met that requirement in August 2016. While there used to be a provision in the regulations allowing contracting officers to require recertifications in connection with certain amendments, that rule was eliminated a few years ago. And although SBA’s regulations do call for a company to recertify its size if it is acquired by another entity, the SBA Office of Hearings and Appeals held, in Size Appeal of W.I.N.N. Group, Inc., SBA No. SIZ-5360 (2012), that “[t]his provision does not deal with the date for determining size for contract award,” but instead merely addresses whether the agency can count the award toward its small business goals.
It’s a complex area of law, but Sychrogenix might have had better luck if it had protested the FDA’s authority to require a size recertification–or if Synchrogenix had simply submitted an offer and forced the Contracting Officer to go through the SBA size protest process to determine whether Synchrogenix was eligible.
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As we get closer to the end of the fiscal year, things can get a little crazy in the world of government contracts. This week is no exception, with plenty of news and commentary in our SmallGovCon Week In Review.
In this mid-September edition, court documents reveal a bribery scheme centered on a former VA OSDBU official, the GSA has relaxed certain contracting rules to speed efforts to rebuild after Hurricane Harvey, the OFPP is planning a third in its series of highly-regarded “mythbusters” memos, and much more.
Newly released court documents have revealed an elaborate scheme with a former VA OSDBU official, who was accepting bribes for lucrative government contracts. [CBS Denver]
In the wake of Hurricane Harvey, the GSA is relaxing certain contracting rules to encourage speed and local awards. [Government Executive]
Contractors are playing a major role in assisting with disaster relief in the wake of Hurricanes Harvey and Irma. [Federal News Radio]
A former Department of Commerce official has found himself with a four year prison sentence and ordered to forfeit approximately a quarter of a million dollars for conspiracy to pay and receive bribes. [United States Department of Justice]
A contractor who was debarred from entering into contracts with the DoD in 2013, but continued to provide airplane parts to the government, has been sentenced to 26 months imprisonment and ordered to pay $420,000 in restitution. [United States Department of Justice]
109 startup companies, venture capital firms and angel investors were interviewed to come up with a report titled “Why Startups Don’t Bid on Government Contracts.” [fedscoop]
The Office of Federal Procurement Policy is planning a third mythbusters memo as part of its continuing effort to improve communication around acquisition. [Federal News Radio]
The Senate will be voting on the 2018 NDAA soon, and Federal News Radio put together a list of four important amendments for contractors to watch. [Federal News Radio]
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Contracting officers have wide discretion to determine that a business can perform the work in question—even if the business is about to enter bankruptcy.
In a recent GAO protest, an unsuccessful offeror challenged just such a determination, saying that there is no way the awarded business could perform because it was nearly bankrupt. But according to the GAO, so long as the agency considered the pending bankruptcy, it was not improper to make an award.
The case, SaxmanOne, LLC, B-414748 (Aug. 22, 2017), involved a motorcycle safety and training contract for the U.S. Marine Corps. The USMC wanted not only motorcycle training, but also dirt bike, all-terrain, recreational off-highway, and driver improvement training at 15 Marine Corps installations across the United States.
After evaluating competitive proposals, the USMC gave the award to Information Science Consulting, Inc., a Manassas, Virginia, company. SaxmanOne, LLC, also a Manassas company, protested.
SaxmanOne took issue with the technical evaluation, the past performance, and the price evaluation, all of which GAO considered and ultimately rejected. But for our purposes, it is the challenge to the contracting officer’s responsibility determination that was the key part of the protest. In finding the awardee responsible, SaxmanOne argued that the USMC ignored the awardee’s debts and pending bankruptcy.
In the decision, GAO noted that, in general, it does not review affirmative responsibility determinations. But, it will when it the agency ignored information that “by its nature, would be expected to have a strong bearing on whether or not the awardee should be found responsible.”
Pending bankruptcy almost certainly satisfies the definition of information that would be expected to have a strong bearing on whether or not the awardee is responsible. Looking good for the protestor, right?
Ah, but here’s the rub: the question is not whether or not such information exists, nor is the fact alone enough for GAO to sustain the protest. The question is whether the agency considered this information or ignored it.
Here, GAO said: “The record demonstrates that the contracting officer considered the awardee’s alleged debts and pending bankruptcy litigation.”
According to GAO, the contracting officer thoroughly investigated the awardee’s financial resources, contacted the awardee’s current clients to see whether debt or pending bankruptcy would have any effect on performance, and reviewed the Federal Awardee Performance and Integrity Information System, which confirmed the awardee had no history of failing to pay subcontractors.
GAO said that was enough: “Given this level of detail, we do not find that the agency ignored either the awardee’s alleged debts or any pending bankruptcy litigation.” The GAO denied the protest.
So, in summation, because the USMC knew about the bankruptcy, and it factored into the responsibility decision, GAO did not see it as an abuse of discretion. Given the relatively thorough investigation the contracting officer undertook, it sounds as though the USMC truly was not worried about this particular contractor performing.
As SaxmanOne shows, agencies have tremendous discretion in making responsibility determinations. When it comes to a financial responsibility matter, the key question is not whether relevant information exists, but whether the contracting officer considered (or ignored) that information.
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What goes around, comes around.
The government sometimes refuses to pay a contractor for a modification when the government official requesting the modification lacks appropriate authority. But contractual authority isn’t a one-way street benefiting only the government. A recent decision by the Armed Services Board of Contract Appeals demonstrates that a contractor may not be bound by a final waiver and release of claims if the individual signing on the contractor’s behalf lacked authority.
The ASBCA’s decision in Horton Construction Co., SBA No. 61085 (2017) involved a contract between the Army and Horton Construction Co., Inc. Under the contract, Horton Construction was to perform work associated with erosion control at Fort Polk, Louisiana. The contract was awarded at a firm, fixed-price of approximately $1.94 million.
After the work was completed, Horton Construction submitted a document entitled “Certification of Final Payment, Contractors Release of Claims.” The document was signed on Horton Construction’s behalf by Chauncy Horton.
More than three years later, Horton Construction submitted a certified claim for an additional $274,599. The certified claim was signed by Dominique Horton Washington, the company’s Vice President.
The Contracting Officer denied the claim, and Horton Construction filed an appeal with the ASBCA. In response, the Army argued that the appeal should be dismissed because the claim arose after a final release was executed.
Horton Construction opposed the Army’s motion for summary judgment. Horton Construction contended that “Mr. Chauncy Horton did not have the requisite authority or the intent to release a claim.”
The ASBCA noted that, when a party moves for summary judgment, it must demonstrate “that there are no disputed material facts, and the moving party is entitled to judgment as a matter of law.” In this case, the information in the record did “not demonstrate the extent to which Mr. Chauncy Horton was authorized to enter agreements between Horton and the Army.” The ASBCA concluded that “the Army failed to submit sufficient evidence to meet its initial burden, specifically whether Mr. Chauncy Horton was authorized to sign the final payment and final release for appellant.”
The ASBCA denied the government’s motion for summary judgment.
When issues of contractual authority arise, they usually seem to benefit the government. But, as the Horton Construction case shows, the government cannot have it both ways. Like the government, a contractor may not be bound by the signature of someone who lacks appropriate authority.
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A communication to a contracting officer taking issue with an awardee’s size can be treated as a size protest–even if the offeror making the communication didn’t intend to file a size protest.
That’s what happened in Sea Box, Inc., SBA No. SIZ-5846 (Aug. 7, 2017), when an offeror accidentally initiated a size protest after losing an award.
Sea Box involved a procurement by the GSA for temporary shelters. The procurement was set-aside for small businesses under NAICS code 332311, Prefabricated Metal Building and Component Manufacturing, and carried a 750 employee size standard.
Sea Box was eliminated during GSA’s evaluation because it did not satisfy one of the pass/fail technical evaluation criteria. Tribalco, LLC was subsequently identified as an apparent successful offeror.
After learning that Tribalco had been named the awardee, Sea Box sent a letter to the contracting officer stating that it had “significant evidence” that Tribalco was not small under the procurement and could not satisfy the nonmanufacturer rule. Sea Box’s letter contained specific information regarding Tribalco’s size, including relevant exhibits. Sea Box concluded by requesting that the contracting officer initiate a size protest. In other words, Sea Box didn’t intend to file its own size protest, but rather to convince the contracting officer to file one.
At this point, it’s important to note what is required to initiate a size protest. Under the 13 C.F.R. § 121.1007, a size protest is merely required to identify the basis for the size allegations; there is no particular form the protest must take. The SBA’s website summarizes the size protest requirements as follows:
There is no format for a protest. If submitting a size protest, one must identify the business and its operators and provide additional information to supplement the claim. In addition, a protest should be filed as soon as possible and include the procurement and specific facts that relate to the size of the business.
With this in mind, the contracting officer reasonably interpreted Sea Box’s letter to be a size protest in and of itself. Accordingly, the Contracting Officer forwarded Sea Box’s letter to the SBA for resolution.
The SBA also interpreted Sea Box’s letter as a size protest. Unfortunately, since Sea Box was previously eliminated from the procurement due to technical issues, it was not an interested party, and the SBA subsequently dismissed its protest. The contracting officer, however, adopted the protest and requested the SBA conduct a size determination.
At this point, the case gets a little odd. Sea Box subsequently appealed the dismissal of its size protest to the SBA Office of Hearings and Appeals. Sea Box argued that it never intended to initiate a size protest against Tribalco; therefore, there should be no size protest dismissal attributed to Sea Box.
Given that the size protest had moved forward at the contracting officer’s request, OHA was unsure what Sea Box was requesting in its appeal. As OHA stated, “[t]he [SBA] Area Office did [Sea Box] a favor by treating its letter as a protest.” OHA further explained that “there are no adverse consequences from simply being on record as having filed an unsuccessful size protest. Many protestors have had their size protests dismissed without any lasting prejudice to them.” Because there was no harm to Sea Box in having its letter dismissed as a size protest and that it objectively lacked standing to protest, OHA upheld the Area Office’s decision to dismiss Sea Box’s protest letter.
The somewhat convoluted procedure involved in Sea Box highlights its lesson—when a contractor submits something that looks like a size protest to a contracting officer, it may be treated as such. This is by design. The SBA’s regulations want to allow contractors with relevant size information to be able to file protests without specific formatting constraints. As Sea Box learned, however, the wide net the SBA’s protest regulations cast can result in letters unintentionally being treated as full-blown protests.
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