An agency was justified in canceling a small business set-aside solicitation–and reissuing the solicitation on an unrestricted basis–where the agency determined that the prices offered by small businesses were too high.
In a recent bid protest decision, the GAO confirmed that while the FAR’s “rule of two” set-aside requirement provides a powerful and important preference for small businesses, it doesn’t require an agency to pay more than fair market value for products or services.
The GAO’s decision in Wall Colmonoy Corporation, B-413320; B-413322 (Oct. 3, 2016) involved an Air Force solicitation for the remanufacture of approximately 80 F-16 heat exchangers. Before issuing the solicitation, the Air Force conducted market research to determine whether the solicitation should be set aside for small businesses. The market research indicated that two small businesses were likely to submit proposals. Based on its market research, the Air Force issued the solicitation as a small business set-aside.
The Air Force also prepared an independent government estimate, or IGE, to use in the evaluation of offerors’ price proposals. The Air Force’s IGE indicated that the remanufacture of each unit should cost approximately $12,000. The Air Force’s IGE was based in large part on a 2012 contract for the same services, under which the Air Force paid $11,936 per unit.
The two small businesses identified in the market research submitted proposals. Wall Colmonoy Corporation, one of the small businesses, proposed a unit price of $17,426. The other small business proposed a unit price of $29,950.
The Air Force opened discussions with both small business offerors. Through several rounds of discussions, the Air Force informed the small businesses that their proposed prices were higher than the Air Force had anticipated. WCC ultimately lowered its proposed price to $15,950 per unit. The second small business apparently lowered its price by only $450 per unit, to $29,500.
After reviewing revised proposals, the Air Force concluded that it could not make award at a reasonable price. The Air Force canceled the solicitation. The Air Force then issued a new solicitation on an unrestricted basis. Except for removing the small business set-aside designation, the new solicitation was “essentially identical to the previous solicitation.”
WCC filed two GAO bid protests: one challenging the Air Force’s decision to cancel the small business solicitation; the second challenging the Air Force’s failure to issue the second solicitation as a small business set-aside. The GAO consolidated the protests for decision.
The GAO first determined that the Air Force had properly canceled the first solicitation. The GAO noted that WCC’s proposed prices were “significantly higher” than the Air Force had anticipated. The Air Force “engaged in multiple rounds of discussions with WCC, repeatedly advising WCC that its unit price was too high.” When WCC’s final proposal remained $3,950 higher per unit than the IGE, the Air Force reasonably canceled the solicitation.
The GAO then held that the Air Force had reasonably issued the second solicitation on an unrestricted basis. The GAO wrote: “[g]iven that the agency canceled [the first solicitation] because the agency concluded that it was unable to make an award at a fair market price, we find nothing improper with the contracting officer’s decision to not set aside [the second solicitation] for the same requirements.” The GAO denied WCC’s protest.
FAR 19.502-2(b) provides that an acquisition over $150,000 ordinarily shall be set aside for small businesses where the contracting officer has a reasonable expectation of obtaining offers from at least two small businesses, and where “[a]ward will be made at fair market prices.” Although discussion of the “rule of two” usually centers on the availability of small business sources, the Wall Colmonoy Corporation protest is a good reminder that an agency need not restrict a solicitation to small businesses if the agency has a reasonable belief that it cannot make award at “fair market prices.”
One final note: the Air Force’s response to WCC’s protest indicated that the services had been procured in 2008 for $8,882 per unit and again in 2012 for $11,936 per unit. In other words, over the four-year period from 2008 to 2012, the cost of the services increased by $3,054 per unit, a jump of approximately 34.4%. Given this history, it’s surprising that (at least based on the public protest decision), WCC does not appear to have protested the reasonableness of the IGE itself. The IGE of $12,000 anticipated a mere 0.54% price increase over the four years between 2012 and 2016: well below inflation rates during the period, and at odds with the 34.4% increase the Air Force agreed to in the prior four-year period. Indeed, WCC’s final unit price of $15,950 was approximately 33.7% higher than the 2012 unit price: directly in line with the percentage increase between 2008 and 2012. Why didn’t this issue come up in the protest (or at least in the published decision)? Good question.
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Federal contractors frequently find themselves in the position of needing to establish their past performance credentials to secure future contracts – the government’s form of a reference check. The government often performs these reference checks by requesting completed past performance questionnaires, or PPQs, which the government uses as an indicator of the offeror’s ability to perform a future contract.
But what happens when a contractor’s government point of contact fails to return a completed PPQ? As a recent GAO decision demonstrates, if the solicitation requires offerors to return completed PPQs, the agency need not independently reach out to government officials who fail to complete those PPQs.
By way of background, FAR 15.304(c)(3)(i) requires a procuring agency to evaluate past performance in all source selections for negotiated competitive acquisitions expected to exceed the simplified acquisition threshold. The government has many means at its disposal to gather past performance information, such as by considering information provided by the offeror in its proposal, and checking the Contractor Performance Assessment Reports System, commonly known as CPARS.
PPQs are one popular means of obtaining past performance information. A PPQ is a form given to a contracting officer or other official familiar with a particular offeror’s performance on a prior project. The official in question is supposed to complete the PPQ and return it–either to the offeror (for inclusion in the proposal) or directly to the procuring agency. Among other advantages, completed PPQs can allow the agency to solicit candid feedback on aspects of the offeror’s performance that may not be covered in CPARS.
But the potential downside of PPQs is striking: the FAR contains no requirement that a contracting official respond to an offeror’s request for completion of a PPQ or similar document within a specific period (or at all). Contracting officials are busy people, and PPQ requests can easily fall to the bottom of a particular official’s “to-do” list. And procuring agencies sometimes contribute to the problem by developing lengthy PPQs that can be quite time-consuming to complete. For example, in a Google search for “past performance questionnaire,” the first result (as of the date of this blog post) is a NASA PPQ clocking in at 45 questions over 11 pages. A lengthy, complex PPQ like that one almost begs the busy recipient to ignore it.
That brings us to the recent GAO bid protest, Genesis Design and Development, Inc., B-414254 (Feb. 28, 2017). In Genesis Design, GAO denied a protest challenging the rejection of an offeror’s proposal where the offeror failed to adhere to the terms of the solicitation requiring offerors to submit three PPQs completed by previous customers.
The protest involved the National Park Service’s request for the design and construction of an accessible parking area and ramp at the Alamo Canyon Campground in Ajo, Arizona. The solicitation required offerors to provide three completed PPQs from previous customers to demonstrate that the offerors had successfully completed all tasks related to the solicitation requirements. The solicitation provided the Park Service with discretion to eliminate proposals lacking sufficient information for a meaningful review. The Park Service was to award the contract to the lowest-priced, technically acceptable offeror.
Genesis Design and Development, Inc. submitted a proposal. However, the PPQs Genesis provided with its proposal had not been completed by Genesis’ prior customers. Instead, the PPQs merely provided the contact information of the prior customers, so that the Park Service could contact those customers directly.
The Park Service found Genesis’ proposal was technically unacceptable, because Genesis failed to include completed PPQs. The Park Service eliminated Genesis from the competition and awarded the contract to a competitor.
Genesis filed a GAO bid protest challenging its elimination. Genesis conceded that the PPQs had not been completed by its past customers, but stated that it “reasonably anticipated that the agency would seek the required information directly from its clients.” Genesis contended that it “is often difficult to obtain such information from its clients because they are often too busy to respond in the absence of an inquiry directly from the acquiring activity.”
GAO wrote that “an offeror is responsible for submitting an adequately written proposal and bears the risk that the agency will find its proposal unacceptable where it fails to demonstrate compliance with all of a solicitation’s requirements.” Here, “the RFP specifically required offerors to submit completed PPQs,” but “Genesis did not comply with the solicitation’s express requirements.” Accordingly, “the agency reasonably rejected Genesis’ proposal.” GAO denied Genesis’ protest.
GAO’s decision in Genesis Design should serve as an important warning for offerors: where the terms of a solicitation require an offeror to return completed PPQs from its previous customers, the offeror cannot assume the procuring agency will contact the customers on the offeror’s behalf. Instead, it is up to the offeror to obtain completed PPQs.
In our view here at SmallGovCon, the Genesis Design decision, and other cases like it, reflect a need for a FAR update. After all, Genesis was exactly right: contracting officers are sometimes too busy to prioritize responding to PPQs. It doesn’t make good policy sense for the results of a competitive acquisition to hinge on whether a particular offeror is lucky enough to have its customers return its PPQs, instead of on the merits of that offeror’s underlying past performance.
Policymakers could address this problem in several ways, such as by imposing a regulatory requirement for contracting officials to respond to PPQ requests in a timely fashion, or by prohibiting procuring officials from requiring that offerors be responsible for obtaining completed PPQs. Hopefully cases like Genesis Design will spur a regulatory change sometime down the road. For now, offerors bidding on solicitations requiring the completion of PPQs must live with the uncertainty of whether the government will reject the offeror’s proposal as technically unacceptable due to the government’s failure to complete a PPQ in a timely manner.
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A Program Management Office manager was not a “key employee” within the definition of the SBA’s affiliation regulations, according to the SBA Office of Hearings and Appeals.
In a recent size appeal decision, OHA found that the fact that a small business’s CEO served as another company’s PMO manager did not result in affiliation between the two companies because the individual in question could not control the second company through his PMO manager role.
OHA’s decision in Size Appeal of INV Technologies, Inc., SBA No. SIZ-5818 (2017) involved an Air Force solicitation for training services and support at the Oklahoma City Air Logistics Complex. The solicitation was issued as a small business set-aside under NAICS code 611430 (Professional and Management Development Training) with a corresponding $11 million size standard.
After evaluating proposals, the Air Force announced that INV Technologies, Inc. was the apparent awardee. An unsuccessful offeror filed an SBA size protest challenging INV’s small business status.
The SBA Area Office determined that INV’s owner and President, Chandan Jhunjhunwala, also worked as a Program Management Office manager for SNAP, Inc. INV and SNAP also had other relationships, including a number of subcontracts issued between the companies.
The SBA Area Office issued a size determination finding INV and SNAP to be affiliated. Among the reasons for affiliation, the SBA Area Office found that Mr. Jhunjhunwala was a key employee of SNAP, meaning that INV and SNAP shared common control. The affiliation with SNAP caused INV to be ineligible for the Air Force contract.
INV filed a size appeal with OHA, alleging that the SBA Area Office’s decision was erroneous. Among its arguments, INV contended that Mr. Jhunjhunwala was not a “key employee” of SNAP and could not control that company.
OHA explained that under the SBA’s affiliation regulations, “the touchstone issue is control. A connection between two concerns does not necessarily cause affiliation. There must be an element of control present.”
OHA stated that while a “key employee” may be found to control a company, “[a] key employee is one who, because of his position in the concern, has a critical influence over the operations or management of the concern.” An employee “with no authority to hire and fire or to enter into contracts is not likely to be a key employee.” Conversely, “an employee who is critical to a concern’s control of day-to-day operations is a key employee.”
In this case, INV was “owned and solely controlled by Mr. Jhunjhunwala.” However, “the record does not support the conclusion that [Mr. Jhunjhunwala] could control both [INV] and SNAP.”
Here, the record contains no evidence demonstrating that the Area Office considered Mr. Jhunjhunwala’s role, duties, or authority at SNAP. Rather, the determination that he is a key employee appears to be based merely on his title. Further, the record does not support finding him to be a key employee, either. According to his resume, he provides PMO support, but there is no indication that he has the authority to hire and fire, enter into contracts, or otherwise control the operations of SNAP as a whole.
OHA granted INV’s size appeal and reversed the SBA Area Office’s size determination.
The SBA affiliation rules can seem confusing and complex. But in one respect, they are simple: affiliation turns on common control. Although a “key employee” can control a company within the meaning of the SBA affiliation rules, the employee in question must have critical influence over the company’s day-to-day operations. When an employee doesn’t exercise such influence, he or she will not be found to control the company.
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March Madness is here! I hope your brackets are doing well. So far, mine haven’t been “busted,” but Notre Dame looked mighty shaky in that opening-round win over Princeton.
While I get ready for tomorrow’s games with my Duke Blue Devils and Kansas Jayhawks, I’m keeping an eye on the latest and greatest (or not so great) in government contracting. In this week’s SmallGovCon Week In Review, the GAO releases a major report on the state of government contracting, an IT contractor will pay $45 million to resolve claims of overcharging the government, the SBA proposes to terminate a nonmanufacturer rule class waiver, and more.
A revised National Institute of Standards and Technology guideline raises the risk profile of merger and acquisition deals and presents challenges. [Signal]
Because the statute of limitations had expired, a federal judge threw out charges against two men accused of falsely claiming a construction company they operated was headed by a service-disabled veteran. [ArkansasOnline]
The Federal Acquisition Service closed Schedule 75 for what it claimed would be just 24 months, but over six years later Schedule 75 remains closed to new offers. [Federal News Radio]
The Government Accountability Office released a 66-page report that dives into the state of federal contracting and where those federal dollars are being spent. [Government Executive]
An IT contractor will pay $45 million to resolve allegations of overcharging the GSA for software licenses and maintenance. [FCW]
A proposed rule by the VA will amend and update various aspects of the VA Acquisition Regulations (VAAR). [Federal Register]
A retired Navy admiral is among nine people indicted in a major bribery scandal. [Federal News Radio]
The SBA is proposing to terminate the nonmanufacturer rule class waiver for rubber gloves. [Federal Register]
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Companies controlled by a father and son, respectively, were affiliated under the SBA’s affiliation rules because there was no clear fracture of the family members’ business relationships.
In a recent size appeal decision, the SBA Office of Hearings and Appeals held that a son’s company was affiliated with a company owned by his father because the son had worked for many years at the father’s company, the son’s company leased office space from the father’s company, and the two companies engaged in significant amounts of subcontracting.
OHA’s decision in ProSol Associates, LLC, SBA No. SIZ-5813 (2017) involved a Marine Corps solicitation seeking a contractor to provide IT training. The solicitation was issued as a small business set-aside under NAICS code 611430 (Professional and Management Development Training), with a corresponding $15 million size standard.
After evaluating competitive proposals, the Contracting Officer notified offerors that ProSol Associates, LLC (“PSA”) was the apparent awardee. After receiving the notice, an unsuccessful competitor filed an SBA size protest. The competitor alleged that PSA was affiliated with ProSol, LLC under various SBA affiliation rules.
The SBA Area Office determined that Michael E. Dean was PSA’s sole shareholder and CEO. His father, Michael J. Dean, was the sole owner of ProSol. Michael E. Dean worked for ProSol from 2002 to 2010 in a number of positions. In 2008, while Michael E. Dean was still a ProSol employee, he founded PSA.
The SBA Area Office determined that PSA subleased office space from ProSol. Additionally, subcontracts from PSA had represented approximately 16% of PSA’s revenues since 2009, and represented 29% of PSA’s revenues in Fiscal Year 2015–the year in which the Marine Corps proposal was submitted. PSA intended to award a subcontract to ProSol under the Marine Corps solicitation.
The SBA Area Office found that Michael E. Dean and Michael J. Dean were presumed to have an identity of interest under the SBA’s affiliation regulations. Although the presumption of affiliation based on an identity of interest can be rebutted by showing a clear fracture, there was no clear fracture between PSA and ProSol because of the lease and continuous subcontracting relationships. The SBA Area Office issued a size determination finding PSA to be affiliated with ProSol. The affiliation caused PSA to be ineligible for the Marine Corps contract.
PSA filed a size appeal with SBA OHA. PSA alleged that the SBA Area Office had misapplied the affiliation rules. PSA argued, in part, that the business relationships between PSA and ProSol were sufficiently minimal to establish a clear fracture.
OHA wrote that it “has extensive case precedent” interpreting the identity of interest affiliation rule “as creating a rebuttable presumption that close family members have identical interests and must be treated as one person.” Citing a 2014 size appeal decision, OHA wrote that “[w]hen one concer is owned and controlled by a father, and the other owned and controlled by a son, the two concerns are presumed to be affiliated by an identity of interest.”
OHA reiterated that “[a] challenged concern may rebut the presumption of identity of interest if it is able to show ‘a clear line of fracture among the family members.'” A clear line of fracture exists when the family members “have no business relationship or involvement with each other’s business concerns, or the family members are estranged.” Additionally, “a minimal amount of business or economic activity between two concerns does not prevent a finding of clear fracture.”
After revisiting the various relationships between PSA and ProSol, OHA wrote “[t]he facts here thus support the Area Office’s conclusion that Michael E. Dean cannot be said to have made a break with his father’s business interests, and thus has not achieved a clear fracture.” Rather, “he has continuously been involved with ProSol to a significant extent, from the time be became [PSA’s] principal until the present.” OHA concluded: “[t]he burden is on [PSA] to establish that Mr. Dean has made a clear fracture, and he has failed to meet that burden.” OHA denied PSA’s size appeal, and affirmed the SBA Area Office’s decision.
The so-called “family relationships” affiliation rule isn’t necessarily intuitive. After all, it can apply–as it did in ProSol Associates–even when the two firms share no owners or officers. But as ProSol Associates demonstrates, companies controlled by close family members (like a father and son) can be affiliated when the family members do business together, even without shared ownership or management.
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I am back in Lawrence after two fantastic trips to the West Coast, in very rapid succession.
Last Thursday, I was in Puyallup, Washington for the annual Alliance Northwest conference. As always, the conference was one of the best events of its type nationwide. Thank you to Tiffany Scroggs and her colleagues at the Washington PTAC for sponsoring this great event and inviting me to participate. If you missed Alliance Northwest (and my presentation on the SBA’s All Small Mentor-Protege Program), the presentations are all posted on the conference website. Check it out, and circle your calendar for next year’s Alliance NW.
Yesterday, I was in Las Vegas for the National Reservation Economic Summit conference. It was my first time at National RES, and I was very impressed with this outstanding event. If it weren’t for a very lengthy to-do list back here at the office, I’d happily be enjoying the remaining days of the conference. A big “thank you” to the National Center for American Indian Enterprise Development for sponsoring National RES and inviting me to speak.
After logging quite a few frequent flyer miles, I’m happy to be closer to home for the next several weeks. But just because I’ll be in Kansas doesn’t mean that I won’t be engaging in one of my favorite pastimes: speaking at length about government contracting legal issues. Join me on Thursday for “Obtaining and Maintaining the SBA’s HUBZone Certification,” an online seminar sponsored by my good friends at GOVOLOGY.
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Resolving a protest challenging a past performance evaluation, GAO is deferential to the agency’s determinations. It is primarily concerned with whether the evaluation was conducted fairly and in accordance with the solicitation’s evaluation criteria; if so, GAO will not second-guess the agency’s assessment of the relevance or merit of an offeror’s performance history.
For protesters, therefore, challenging an agency’s past performance evaluation can be difficult. But a recent decision makes clear this task is not impossible—GAO will sustain a protest challenging a past performance evaluation if the agency treats offerors differently or unfairly, such as by more broadly reviewing the awardee’s CPARs than the CPARs of the protester.
At issue in CSR, Inc., B-413973 et al. (Jan. 13, 2017) was the Department of Justice’s evaluation and award of a blanket purchase agreement to Booz Allen Hamilton. The BPA sought performance measurement tool services for the Office of Justice Programs, to assist with the Office’s award of grants to federal, state, local, and tribal agencies for criminal justice, juvenile justice, and victims’ matters.
According to the solicitation, offerors were allowed to submit up to nine past performance examples. DOJ could supplement this information with “data obtained from other sources, including, but not limited to, other DOJ and OJP contracts and information from Government repositories[.]” CSR (the protester) submitted six past performance examples, three of which concerned task orders involving similar services previously performed for the agency.
Booz Allen scored an exceptional rating while CSR earned only an acceptable rating. CSR filed a GAO bid protest, alleging that these ratings were caused by DOJ’s disparate treatment of the offerors.
CSR contended that DOJ only considered CPARs for CSR’s submitted past performance examples (finding the quality of CSR’s prior work to be mixed) but considered Booz Allen’s CPAR ratings for past performance projects that were not identified in its proposal (finding them to be of high quality). CSR alleged that had DOJ considered CPARs for its other projects (as it had for Booz Allen), its past performance score would have been higher.
GAO found the past performance evaluation to be unequal. In doing so, GAO noted that it will not normally object to an agency’s decision to limit its review of past performance information. But this discretion comes with a large caveat—as a fundamental matter of fairness, offerors must be evaluated on the same basis and the evaluation must be consistent with the solicitation’s terms. Explaining its decision, GAO wrote:
[T]he agency’s evaluation of CSR’s past performance was based on only the most recent CPARs for those specific projects identified by the vendor in its quotation. However, when evaluating BAH’s past performance, the agency considered CPARs for other than the specific projects that BAH had identified in its quotation. . . . Quite simply, to the extent that the agency’s past performance evaluation of BAH considered CPARs for other than the projects specifically referenced by the awardee in its quotation, the agency was required to do the same when evaluating CSR’s past performance. As the agency was required to treat vendors equally and evaluate past performance evenhandedly, and failed to do so here, the agency’s actions were disparate and unreasonable.
GAO sustained CSR’s protest.
Though agencies typically enjoy discretion in evaluating past performance, CSR confirms that this discretion isn’t unlimited. Agencies must evaluate offerors fairly. This means that, if an agency considers a broad range of CPARs from one offeror, it must consider a similar range of CPARs for other offerors, too.
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I am headed back to Kansas after a great trip out west to speak at the 2017 Alliance Northwest Procurement Conference in Puyallup, WA. It was great seeing many familiar faces and meeting many other new ones. But I won’t be home long: I will be off to fabulous Las Vegas for the National RES Conference, where I’ll be presenting on Monday. If you will be at RES, please be sure to connect.
Even with all of this travel, I’ve been keeping a close eye on government contracting news–and that means that it’s time for the SmallGovCon Week In Review. In this week’s edition, scammers are using the HHS OIG telephone number in a spoofing ploy, the GAO releases a report on developments in the HUBZone program, a Coast Guard employee makes a funny FedBizOpps post (no, really!) and more.
A post from the U.S. Coast Guard’s Pacific Northwest contracting office that appeared on FedBizOpps showed some humor, and a bit of bureaucratic frustration. [The Libertarian Republic]
The GAO reports that agencies need to step it up when it comes to protecting contractor whistleblowers. [U.S. Government Accountability Office]
Fraud Alert! The U.S. Department of Health and Human Services Office of Inspector General recently confirmed that the HHS OIG Hotline telephone number is being used as part of a telephone spoofing scam. [Office of Inspector General]
The SBA has made significant improvements in HUBZone Program administration, but some weaknesses remain. [U.S. Government Accountability Office]
One commentator explains that the GSA Schedule program needs an overhaul–and offerors some thoughts as to how the program should be revised. [Federal News Radio]
The former owners of a Pittsburgh-area military supplier have been accused of defrauding the U.S. government of more than $6 million in defense contract work.
The Defense Department may have hit upon an acquisition innovation that is slowly drifting to the civilian world. [Federal News Radio]
The Senate voted Monday to kill an Obama administration rule aimed at curbing labor violations among government contractors and President Trump can seal its fate with his signature. [The Center for Public Integrity]
Washington Technology gives us 5 steps for contractors to meet the FAR’s cyber requirements. [Washington Technology]
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The HUBZone contracting program, while well-intended to provide economic and employment opportunities in otherwise low income, high unemployment areas, must nonetheless connect HUBZone firms with government contracts, the overwhelming majority of which are not located within a HUBZone.
If HUBZone firms are to experience growth, they will need to utilize the local labor force in the area where the contract is to be performed, in addition to utilizing the labor force residing in their HUBZone to perform indirect labor functions. As a company’s direct labor force grows, their indirect labor will also grow, producing more employment opportunities within the HUBZone, thereby fulfilling an intent of the program.
The HUBZone Empowerment Act became law through the Small Business Reauthorization Act of 1997. The Small Business Administration (SBA) regulates and implements the program, determines the businesses eligible to receive HUBZone contracts, maintains a database of qualified HUBZone businesses, and adjudicates protests of eligibility to receive HUBZone contracts. HUBZone contracting encourages small businesses to locate in and hire employees from economically disadvantaged areas of the United States. HUBZone entities may receive competitive advantages in winning federal contracts.
The HUBZone program was designed to promote economic development and grow employment opportunities in metropolitan or rural areas with low income, high poverty rates, and/or high unemployment rates, by targeting federal contracts to small businesses in these areas. This is a conceptual shift where contracting preference is targeted at geographic areas with specified characteristics, as opposed to targeting it to people or businesses with specified characteristics.
There are five classes of HUBZones: qualified census tracts; qualified counties; Indian reservations; difficult development areas; and military bases closed under Base Realignment and Closure Act. The program uses three mechanisms for targeting contracts to HUBZone businesses: set-asides, sole source awards, and a 10% price preference; with set-asides being the preferred method of matching HUBZone businesses with federal opportunities.
The government-wide goal for most agencies is to award at least 3% of their eligible federal contracting dollars to HUBZone-certified firms [see 15 USC 644 (g)]. Almost all federal agencies participate in the HUBZone program. Although several individual agencies often met or exceeded this goal, it has never been achieved government-wide.
The following table shows the performance of HUBZone against other small business goals in fiscal year 2015.
Small Business Contract Spending by Federal Agencies (FY15)
Eligible Dollars – Excludes Some Special Programs 20 Largest Spending Agencies
*Millions of Dollars (rounded)
Revised January 2017; Fiscal 2016 data will not be official until mid-2017
The table shows that HUBZone demonstrates tremendous potential for growth. Peaking in 2009, the HUBZone program nearly reached its 3% goal, finishing just short at 2.7%. Since 2011, as funding for the program has decreased, so has the use of HUBZone businesses, now averages 1.74% of procurement budget between 2013-16. ALL = All Small Businesses; SDB = Small Disadvantaged Businesses [including 8(a)]; WOSB = Women-Owned Small Businesses; SDVO = Service-Disabled Veteran-Owned Small Businesses; HUBZONE = HUBZone-Certified Small Businesses. Source: smallbusiness.data.gov.
Early program critics questioned if the program would offer enough incentive for business to choose to locate/relocate in areas they would otherwise avoid. HUBZones are rarely located at or near Federal installations or business locations; could the failure to achieve the government’s goal be mitigated by amending the 35% requirement against all employees employed by the business, to a 35% requirement against indirect employees only? Here is a practical example:
Company “R” is a small business whose principal office is located on an Indian Reservation in South Dakota approximately 200 miles from the nearest Federal installation or location of business. Company R has 20 employees at its principal office: 1 executive, 3 finance, 2 HR, 1 compliance, 3 business development, and 2 project managers and 8 direct employees who work in the company’s primary business line. All the employees (10 indirect; 10 direct) live on the reservation. Meeting the all requirements to include the 35% mandate, the company certifies as a HUBZone.
Implementing its growth strategy, Company R subcontracts to a prime for a contract whose place of performance is Huntsville, AL. The subcontract is to provide 100 full time equivalent (FTE) employees. None of the new direct employees live in the HUBZone where Company R is located, nor in any adjoining HUBZone. As a result, of the 120 employees, only 20 (16.7%) live in the HUBZone. Company R can no longer certify as a HUBZone company.
This example, shows that as a practical matter, a company in a HUBZone is not incentivized to secure a HUBZone certification when performance on a federal contract will likely not be located near or in the HUBZone. With 20 employees all residing in a HUBZone, Company R is capped as a 57-person labor force – in other words, either priming or subbing on a 37 FTE contract vs. the full 100 FTE. However, if Company R were to ONLY count its indirect employees as the basis for the 35% requirement, it could continue as a HUBZone concern.
Therefore, to expand the HUBZone program, legislation should be submitted to amend the Small Business Act and 13 C.F.R. 126.200 be amended to require a HUBZone small business to:
Maintain a principal office located in a HUBZone and ensure that at least 35% of its indirect employees reside in a HUBZone as provided in paragraph (b)(4) of this section; or
Certify that when performing a HUBZone contract, at least 35% of its indirect employees will reside within any Indian reservation governed by one or more of the Indian Tribal Government owners, or reside within any HUBZone adjoining such Indian Reservation
If these changes are made, HUBZone businesses will have the potential to grow their companies and better serve the economic development needs of the areas in which they are located. As these companies grow, their workforce from the HUBZone area will also grow to meet the company’s management and overhead needs. Finally, these changes will better position government agencies to make their HUBZone goals.
Michael Anderson, Executive Director
Michael “Keawe” Anderson, is a Native Hawaiian who is passionate about advancing Native economic development. He is NACA’s principal advocate of policies and programs for the participation of Native American Tribes, Alaska Native Corporations, Native Hawaiian Organizations, and individually-owned Native businesses in the federal marketplace.
NACA represents Native community-owned businesses who serve a million tribal members or shareholders by applying their earning from government contracts to the benefit of their communities. NACA recently added individually-owned Native businesses as NACA Associates. In total, these businesses provide quality goods and services to federal agencies in all 50 states and internationally.
A graduate of the Air Force Academy, Mike has a master’s in business administration from the University of Northern Colorado, a master’s in strategic military studies from the Air University, and a master’s certificate in government contracting from the George Washington University.
Native American Contractors Association – 750 First Street NE, Suite 950 – Washington, DC – 20002
Phone: 202-758-2676 Email: firstname.lastname@example.org Website: www.nativecontractors.org
GovCon Voices is a regular feature dedicated to providing SmallGovCon readers with candid news, insight and commentary from government contracting thought leaders. The opinions expressed in GovCon Voices are those of the individual authors, and do not necessarily reflect the opinions of Koprince Law LLC or its attorneys.
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The Supreme Court’s now-famous Kingdomware decision doesn’t affect the timeliness of SBA size protests of GSA Schedule orders.
In a recent decision, the SBA Office of Hearings and Appeals rejected the notion–based in part on Kingdomware–that an GSA Schedule order is a “contract” for purposes of the SBA’s size protest timeliness rules. Instead, OHA held, the SBA’s existing rules clearly distinguish between contracts and orders, and often effectively do not permit size protests of individual orders.
OHA’s decision in Platinum Business Services, LLC, SBA No. SIZ-5800 (2017), involved a GSA request for quotations for transition ordering support assistance. The RFQ was issued under the GSA Professional Services Schedule. The GSA set aside the order for SDVOSBs under NAICS code 541611 (Administrative Management and General Consulting Services), with an associated $15 million size standard.
After reviewing quotations, the GSA issued a notice of award to Redhorse Corporation. An unsuccessful competitor, Platinum Business Services, LLC, then filed a size protest, alleging that Redhorse was not small under the RFQ’s $15 million size standard.
The SBA Area Office determined that, under 13 C.F.R. 121.1004, there are three times that a size protest may be timely filed in connection with a long-term contract, such as a GSA Schedule contract. First, size can be protested when the long-term contract is initially awarded. Second, size can be protested at the time an option is issued. And third, size can be protested in response to a contracting officer’s request for size recertifications in connection with an individual order. In each case, the size protest is due within five business days of the event in question (e.g., five business days after receiving notice of the award of the order, if recertification was requested).
In this case, Redhorse was in its first option period under the PSS contract. The option had been awarded long before the size protest had been filed. The SBA Area Office inquired whether the GSA had asked offerors to recertify as small businesses in connection with the order; the GSA responded that no recertification had been required. The SBA Area Office then dismissed the size protest as untimely.
Platinum filed a size appeal with OHA. Platinum argued, in part, that “a task order fits the definition of a contract,” citing Kingdomware. Platinum contented that because the Supreme Court defined an order as a contract in Kingdomware, the SBA’s size regulations allowed it to file a size protest within five days of learning of the award of the “contract” in question, that is, the order awarded to Redhorse.
OHA agreed that the SBA Area Office had correctly interpreted 13 C.F.R. 121.004. OHA confirmed that the RFQ “does not include a specific request for recertification” and that “the CO expressly confirmed that she did not intend to request recertification.”
Platinum’s “reliance on Kingdomware,” OHA continued, is “erroneous.” OHA explained that Kingdomware “does nothing to disturb SBA’s regulatory scheme for establishing the times at which size protests may be placed against awards for long-term contracts.” OHA denied Platinum’s appeal, and affirmed the dismissal of Platinum’s size protest.
The impact of Kingdomware continues to be felt, and it is an open question whether the Supreme Court’s rationale might apply to the small business “rule of two.” But unlike in Kingdomware–in which the statute in question simply discussed “contracts,”without defining that term–the SBA’s size protest timeliness rules clearly distinguish between orders and other types of contracts. It remains to be seen how broadly Kingdomware will affect various aspects of the contracting landscape, but one question has been answered: the Supreme Court’s decision doesn’t impact the timeliness of size protests of GSA Schedule orders.
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March has arrived, and March Madness will be here soon. With the Kansas Jayhawks looking like a top seed and my Duke Blue Devils sitting at Number 14 in the Coaches Poll, I’m hoping to be watching my teams a lot this month.
While we await conference tournaments and Selection Sunday, it’s time for the SmallGovCon Week In Review. This week’s edition is packed with the latest developments in government contracting, including guilty pleas from seven defendants accused of contract fraud, questions about the Trump administration’s position on category management, the Federal Times takes a look at which agencies will have the most follow-on work up for grabs in 2017, and much more.
A recent report from Onvia predicts several factors will continue to drive growth in government spending including President Trump’s proposed $1 trillion, 10-year infrastructure initiative. [Federal Times]
Linda McMahon is committed to keeping the SBA intact but will be taking a hard look at the loan programs it offers. [Forbes]
Could total acquisition cost be the missing link in measuring, assessing, and ultimately, reforming the procurement system to deliver best value mission support for customer agencies and the American people? [Federal News Radio]
An Air Force Master Sergeant has been sentenced to 23 months in prison and $126,300 in restitution after accepting a kickback in exchange for a contract award. [United States Department of Justice]
The Departments of Education, State and the Army are among those with the most documented bids for contracts expiring in 2017, providing industry with actionable insight on just how competitive the procurement process will be. [Federal Times]
Without knowing whether the Trump administration will support category management, the federal government continues to use its immense buying power to drive down acquisition costs. [Nextgov]
The Office of Personnel Management’s National Background Investigations Bureau is almost five months old and is already embroiled in its first bid protest. [Federal News Radio]
Seven defendants have pleaded guilty to obtaining money from the United States by making false representations and false claims to the Department of Defense for payment on items that were substituted with unauthorized products. [United States Department of Justice]
Even though a North Carolina-based defense contractor defrauded the U.S. government of more than $13.6 million dollars over the course of a decade, the government continues to do business with it. [The Virginian-Pilot]
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A major tenet in government contracting is that agencies enjoy broad discretion in identifying their needs and developing the most appropriate solicitation to satisfy them. Though broad, this discretion is not unlimited. If challenged, an agency must demonstrate that its specifications are reasonably necessary to meet its needs and are not unduly restrictive of competition.
GAO recently affirmed this principle in Pitney Bowes, Inc., B-413876.2 (Feb. 13, 2017), when it sustained a protest challenging a solicitation’s requirements as being unduly restrictive of competition.
The Pitney Bowes bid protest involved a solicitation issued by the Internal Revenue Service, seeking quotations for document processing and mailing equipment for its National Distribution Center in Bloomington, Illinois. Specifically, the solicitation called for four PS200 folder/inserters and four PS200 high capacity feeders. The Statement of Work then modified the requirements for the folder/inserters to include, among other things, a “high capacity sheet feeder with a capacity of up to 1000 [sheets] per feeder with the capability of loading on the fly.”
Pitney Bowes filed a protest challenging this modification, claiming it was unduly restrictive of competition. Pitney’s sheet feeders did not have the capability of being loaded “on the fly.” But Pitney argued that the same continuous operation would be achieved by its plan to use two high capacity sheet feeders (each holding 1000 sheets). This approach, Pitney argued, would allow the machine to alternate between feeders to provide a continuous operation and avoid system interruption.
GAO reiterated that “the determination of an agency’s needs and the best method to accommodate them is primarily the responsibility of the procuring agency, since its contracting officials are most familiar with the conditions under which supplies, equipment and services have been employed in the past and will be utilized in the future.” But if a protester challenges a solicitation specification as being unduly restrictive of competition (either by challenging the nature of the requirement itself or the agency’s need for the restriction), “the procuring agency has the responsibility of establishing that the specification is reasonably necessary to meet its needs.” GAO will evaluate the agency’s purported justification for reasonableness—“that is, whether it can withstand logical scrutiny.”
The IRS sought to justify its requirement for 1000 sheet feeders capable of on-the-fly loading by focusing on their ability to provide continuous operation. GAO did not find these arguments convincing. To the contrary, it found that the IRS had not established that Pitney’s proposed solution would require any more employee time or attention than the restrictive specification requirement. GAO also noted some possible benefits from Pitney’s proposed solution—for example, one sheet feeder could run the machine if the other needed to be turned off for repair, thus helping to meet the IRS’s goal of continuous operation. In short, GAO held, the IRS failed to justfy “why a requirement for load-on-the-fly capability is necessary, when a different approach may be able to achieve the same results.”
GAO sustained Pitney’s protest and recommended the IRS amend the solicitation’s requirements.
Pitney Bowes highlights the intersection of two key tenets in government contracts: that an agency has broad discretion to identify its needs and how to best meet them, and that, ordinarily, agencies must procure goods and services using full and open competition. These two tenets, however, don’t always line up; where they conflict, GAO will review a solicitation’s requirements to make sure that they are reasonable and not unduly restrictive of competition.
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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  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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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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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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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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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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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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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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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: email@example.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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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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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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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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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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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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