Competition is the touchstone of federal contracting. Except in limited circumstances, agencies are required to procure goods and services through full and open competition. In this regard, an agency’s decision to limit competition to only brand name items must be adequately justified.
GAO recently affirmed this principle in Phoenix Environmental Design, Inc., B-413373 (Oct. 14, 2016), when it sustained a protest challenging the Department of the Interior, Bureau of Land Management’s decision to restrict its solicitation for herbicides on a brand name basis.
The solicitation at issue in Phoenix Environmental Design specifically named five herbicides, and contemplated that BLM would issue a purchase order to the vendor that offered to provide those five herbicides on a best value basis. Because the estimated value of these commercial—about $5,500—fell below the simplified acquisition threshold, BLM issued the solicitation using commercial item and simplified acquisition procedures (under FAR Parts 12 and 13, respectively).
Phoenix Environmental Design, Inc. filed a pre-award GAO bid protest challening BLM’s decision to limit the solicitation to brand name herbicides. Phoenix argued that BLM’s decision was unduly restrictive of competition. To support its protest, Phoenix pointed to a list of commercial herbicides—described by Phoenix as equal to the brand names identified in the solicitation—that were approved for use on BLM land.
BLM opposed the protest, saying that the brand name herbicides requested were currently approved for use under the agency’s pesticide use proposal (“PUP”). To use a specific pesticide on BLM land, there must be an approved PUP listing the specific pesticide. So, BLM said that it was “justified in using brand name only herbicides in this case because if it desires to use other equal pesticides that are not on the PUP, it will be required to amend the PUP to include these pesticides, which will take up to six months.”
Resolving the protest, GAO noted that agencies are required to obtain competition to the maximum extent practicable. As part of this requirement, agencies are generally prohibited from soliciting quotations based on personal preference or from restricting the solicitation to suppliers of well-known and widely distributed makes or brands. “In a simplified acquisition,” GAO wrote, the FAR allows an agency to “limit a solicitation to a brand name item when the contracting officer determines that the circumstances of the contract action deem only one source is reasonably available.”
Applying these principles, GAO found BLM’s decision to restrict competition to the brand name herbicides to be unreasonable. Though BLM said that all of the specified herbicides were approved for use under the PUP, it failed to support this statement with adequate documentation. To the contrary, based on the information provided, GAO concluded that “there is no current PUP that covers three of the herbicides that the agency is procuring under a brand name only specification.”
Faced with this information, BLM said that it has discretion to purchase a product prior to the completion of a PUP. Specifically, BLM said that its purchase of the brand name items was justified because it was finalizing a (yet-to-be-approved) PUP that included them. This explanation, however, was inconsistent with BLM’s justification for restricting competition to name brands in the first place—BLM had said that it could not purchase the generic herbicides because they were not listed on the PUP. GAO found this inconsistency to be unreasonable, writing that BLM “cannot simply rely on the PUP to limit competition, where it has not provided a reasonable basis for excluding items from the PUP.”
Because BLM failed to reasonably justify its reasons for limiting the competition to only brand name items, GAO sustained Phoenix’s protest.
On occasion, an agency might have a good reason to limit a solicitation to only brand name items. But where it doesn’t have a good reason—or where those reasons aren’t adequately documented—GAO will often find the solicitation to be unduly restrictive of competition. That’s exactly what happened in Phoenix Environmental Design.
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I am back in Lawrence after a great trip to Philadelphia, where I spoke at the 11th Annual Veterans Business Training and Outreach Conference. My presentation focused on recent legal changes important to SDVOSBs and VOSBs, including major changes to the SDVOSB joint venture requirements and the new “all small” mentor-protege program.
Many thanks to Clyde Stoltzfus and his team at the Southeast Pennsylvania PTAC for organizing this great event and inviting me to speak. And of course, a big “thank you” as well to everyone who attended the presentation, asked great questions, and followed up after the event.
Next on my travel agenda, I’ll be at the National Veterans Small Business Engagement in Minneapolis from November 1-3. I will present four Learning Sessions at the NVSBE, and will spend my “spare” time manning the Koprince Law LLC booth on the tradeshow floor. If you’ll be attending the 2016 NVSBE, I look forward to seeing you there!
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Stating that populated joint ventures have now been eliminated, the SBA has revised its 8(a) joint venture regulations to reflect that change.
In a technical correction published today in the Federal Register, the SBA flatly states that an earlier major rulemaking eliminated populated joint venture, and tweaks the profit-sharing piece of its 8(a) joint venture regulation to remove an outdated reference to populated joint ventures. But even following this technical correction, there are three important points of potential confusion that remain (at least in my mind) regarding the SBA’s new joint venture regulations.
If you’re a SmallGovCon reader (and I’m assuming you are, since you’re here), you know that the SBA made some major adjustments to its rules regarding joint ventures earlier this year. Among those changes, the SBA amended the definition of a joint venture to state that, among other things, a joint venture “may be in the form of a formal or informal partnership or exist as a separate legal entity.” If the joint venture is a separate legal entity, it “may not be populated with individuals intended to perform contracts,” although the joint venture may still be populated with one or more administrative personnel.
When the SBA made this change, it apparently forgot to adjust its 8(a) joint venture regulation to reflect the elimination of “separate legal entity” populated joint ventures. The 8(a) joint venture regulation, 13 C.F.R. 124.513, continued to provide that each 8(a) joint venture agreement must contain a provision “Stating that the 8(a) Participant(s) must receive profits from the joint venture commensurate with the work performed by the 8(a) Participant(s), or in the case of a populated separate legal entity joint venture, commensurate with their ownership interests in the joint venture.”
In today’s technical correction, the SBA writes that “because SBA eliminated populated joint ventures,” the reference to a populated separate legal entity joint venture in 13 C.F.R. 124.513 “is now superfluous and needs to be deleted.” The SBA has amended 13 C.F.R. 124.513 to provide that an 8(a) joint venture agreement must contain a provision “Stating that the 8(a) Participant(s) must receive profits from the joint venture commensurate with the work performed by the 8(a) Participant(s).”
So far, so good. But even after this technical correction, I have three important points of confusion regarding the SBA’s new joint venture regulations.
Are all populated JVs eliminated?
In today’s technical correction, the SBA states that populated joint ventures have been eliminated. But the regulation itself only prohibits populated joint ventures when the joint venture is a “separate legal entity,” such as a limited liability company. The SBA may believe that the employees of the joint venture partners are themselves employees of the joint venture when the joint venture is an informal partnership–but that’s unclear from the regulations and the SBA’s accompanying commentary.
Could two companies form an informal partnership-style joint venture, and then populate the partnership with employees who aren’t on either partner’s individual payroll? That might not be advisable for various reasons, but the possibility appears to be left open in the SBA’s revised joint venture regulations.
Which regulation do 8(a) M/P JVs follow for small business set-asides?
When an 8(a) mentor-protege joint venture will pursue a small business set-aside contract, the revised regulations suggest that the joint venture agreement must conform with two separate regulations. And, in the case of the profit-splitting provision that I discussed earlier, the regulations appear to conflict with one another.
Bear with me here, because this involves following a regulatory bouncing ball. Under the SBA’s size regulations at 13 C.F.R. 121.103(h), in order for an 8(a) mentor-protege joint venture to avail itself of the regulatory exception from affiliation (the exception that allows a joint venture to be awarded a set-aside contract without regard to the mentor’s size), the joint venture “must meet the requirements of 13 C.F.R. 124.513(c) and (d) . . ..” This requirement applies “for any Federal government prime contract or subcontract,” including non-8(a) contracts.
Turning to 13 C.F.R. 124.513(c), the SBA’s 8(a) joint venture regulation, we see a list of mandatory provisions that the joint venture agreement must contain. Among those mandatory provisions, as I mentioned previously, is a requirement that the parties divide profits commensurate with work share. The 8(a) firm’s work share can be as low as 40% of the joint venture’s work, meaning that the 8(a) firm could receive a 40% profit share.
So far, so good. But let’s say that the joint venture will pursue a small business set-aside contract, not an 8(a) contract. The SBA’s new regulation governing joint ventures for small business set-aside contracts, 13 C.F.R. 125.8, provides that “every joint venture agreement to perform a contract set aside or reserved for small business between a protege small business and its SBA approved mentor authorized by [13 C.F.R.] 125.9 or 124.520 must contain” a list of required provisions set forth in 13 C.F.R. 125.8(b). 13 C.F.R. 124.520 is the regulation establishing the 8(a) mentor-protege program, which means that the list of required provisions under 13 C.F.R. 125.8 applies to 8(a) mentor-protege joint ventures seeking small business set-aside contracts.
While the list of required provisions in 13 C.F.R. 125.8 is very similar to that of 13 C.F.R. 124.513, there is one major difference. Under 13 C.F.R. 125.8, the joint venture agreement must contain a provision “stating that the small business must receive profits from the joint venture commensurate with the work performed by the small business, or in the case of a separate legal entity joint venture, commensurate with their ownership interests in the joint venture.” The 8(a) protege must hold a minimum 51% ownership interest, meaning that the 8(a) must receive at least a 51% profit share.
So let’s say that an 8(a) protege and its large mentor form a limited liability company joint venture to pursue a small business set-aside. In order to avail themselves of the mentor-protege exception from affiliation, the mentor and protege are required to adopt a joint venture agreement pledging to split profits based on work share, with a potential minimum share of 40% for the 8(a) protege. But in order to comply with 13 C.F.R. 125.8, the joint venture agreement must pledge to split profits based on each party’s respective ownership interest in the joint venture, with a potential minimum share of 51% for the 8(a) protege. These provisions are inconsistent, and it’s not clear how a joint venture could readily comply with both.
Can SDVOSB Joint Ventures Use “Contingent Hire” Project Managers?
For mentor-protege joint ventures pursuing small business set-aside contracts, as well as all joint ventures pursuing 8(a), SDVOSB, HUBZone, and WOSB contracts, the SBA’s regulations require that an employee of the Managing Venturer be named the Project Manager responsible for contract performance. In its revised regulations for small business, 8(a), HUBZone, and WOSB set-asides, the SBA added a new provision stating that “the individual identified as the project manager of the joint venture need not be an employee of the small business at the time the joint venture submits an offer, but if he or she is not, there must be a signed letter of intent that the individual commits to be employed by the small business if the joint venture is the successful offeror.”
This provision makes a lot of sense, because small businesses don’t often have under-employed Project Managers (who are often rather highly compensated) on payroll, just sitting around waiting for potential contracts to be awarded. Instead, a Project Manager is often formally hired only when a contract award is made.
Strangely, though, unlike for the rest of its small business programs, the SBA did not adopt this “contingent hiring” language in its revised regulation for SDVOSB joint ventures. That regulation, 13 C.F.R. 125.18, simply states that the joint venture must designate “an employee of the SDVO SBC managing venturer as the project manager responsible for performance of the contract.”
Did the SBA intend to prohibit SDVOSB joint ventures from using contingent hire project managers? My best guess is that this was an oversight; I don’t see any good reason to differentiate SDVOSB joint ventures from other joint ventures in this regard. But unless and until the SBA clarifies the matter, it may be risky business for SDVOSB joint ventures to rely on contingent hires to satisfy the Project Manager requirement.
Almost any major rulemaking ultimately requires some clarifications and corrections, and I’m glad that the SBA is working to clarify the rule it adopted this summer. That said, some confusion seems to remain, and I hope that further clarification is coming.
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It’s mid-October, and my Chicago Cubs are still playing. After a thrilling comeback win over the Giants, the Cubs will take on the Los Angeles Dodgers starting tomorrow in the National League Championship Series. Will this be the year that the Cubs break the Billy Goat Curse and allow their fans to think about The Simpsons instead of the 2003 playoffs when they hear the word “Bartman”?
Time will tell. But as the baseball playoffs move forward, I’m keeping my eyes on government contracting news–and there’s plenty of it this week. In the latest SmallGovCon Week In Review, a large trade group has filed a lawsuit to block the Fair Pay and Safe Workplaces final rule, GSA updates its Dun & Bradstreet contract, Guy Timberlake addresses the potential effects of the 2017 NDAA, and much more.
A large construction trade group has filed a lawsuit to block the Fair Pay and Safe Workplaces final rule. [The Wall Street Journal]
The Air Force awarded the largest contract during the 2016 fiscal year, thanks to a $30 million agreement with Agile Defense. [Washington Technology]
A draft proposal, Implementing Category Management for Common Goods and Services, was published last week in the Federal Register and is now open for public comment. [FCW]
The General Services Administration has updated its Dun & Bradstreet contract, which will allow agency acquisition personnel and contractors wider latitude to use the standardized company information for purposes beyond mere identification. [Government Executive]
An ex-NASA official has pleaded guilty to making false statements about self-interested interactions with contractors according to the Justice Department. [Government Executive]
Bloomberg Government takes a look at five trends shaping federal contracts in fiscal 2017 [Bloomberg Government]
With about four months before the end of the Obama administration, the push to recognize, even celebrate, and institutionalize its management agenda is coming fast and furious. [Federal News Radio]
Guy Timberlake digs into the proposed changes being considered in the 2017 National Defense Authorization Act and how small businesses will be affected. [GovConChannel]
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In August, I wrote about a highly unusual case in which a company–which had filed 150 protests in the current fiscal year–was suspended from filing GAO bid protests for one year. I recently spoke with Tom Temin on his radio show Federal Drive to talk about GAO’s decision.
If you missed the live conversation, you can click here to listen to the recorded audio from Federal News Radio. And be sure to tune in to Federal Drive with Tom Temin, which airs from 6-10 a.m EST on 1500 AM in the Washington, DC region and online everywhere.
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In conducting a cost realism evaluation, an agency was entitled to use an offeror’s historic approved indirect rates and current incumbent direct labor rates to upwardly adjust the offeror’s evaluated cost, in a case where the offeror’s proposed rates were significantly lower.
The GAO recently held that an agency did not err by adjusting a protester’s rates to better align with the protester’s historic indirect rates and current direct rates, where the agency was unable to determine that the protester’s significantly lower proposed rates were realistic.
In AM Pierce & Associates Inc., B-413128 et al. (Aug. 22, 2016), GAO considered a protest by a disappointed offeror challenging the Navy’s evaluation under a solicitation seeking program management support services for the H-60 Helicopter Program Office. The solicitation was completely set-aside for EDWOSBs. The resulting contract was to be awarded on a cost-plus-fixed-fee basis, under a best-value evaluation.
The solicitation said that offerors’ proposed costs would be evaluated for realism, to determine whether the overall costs were realistic for the work to be performed, reflective of the offeror’s understanding of the requirements, and/or consistent with the technical proposal. To facilitate the evaluation, the RFP required offerors to substantiate their proposed direct and indirect labor rates through payroll verification, contingent offer letters, DCAA rate verification or approval letters, or other detailed justification methods. The cost realism analysis would then involve a calculation of each offeror’s evaluated costs, to reflect the estimated most probable costs. This determination would include an evaluation of the offeror’s cost information—including its substantiated labor rates.
Under the technical proposal, offerors were required to complete a “workforce qualifications spreadsheet” for each employee—including contingent or prospective hires—for the base year. The offerors were further required to demonstrate that this information exceeded the personnel labor category requirements outlined in the solicitation. Then, in the cost proposal, offerors were required to provide the proposed rates for employees based on labor categories.
AM Pierce & Associates, Inc. and Island Creek Associates, LLC were two of the six offerors. AM Pierce’s proposal scored higher under several technical subfactors, and its proposed cost was about $2.5 million less expensive than Island Creek’s. But after evaluating cost proposals, the Navy made significant upward revisions to AM Pierce’s proposed costs. Following these revisions, Island Creek’s evaluated cost was about $300,000 less than AM Pierce’s.
The upward adjustment to AM Pierce’s proposed cost resulted from two aspects of its cost proposal.
First, in its cost proposal, AM Pierce offered lower indirect rates than its historical rates, claiming the reduction was based, in part, on a change to its accounting system. Evaluating its proposal, the Navy instead considered AM Pierce’s historical rates, as approved by DCAA.
Second, AM Pierce’s direct rates were adjusted upwards for proposed personnel after the Navy found the proposed rates to be “drastically inconsistent with the rates verified by current and contingent employees.” To determine the most probable cost, the Navy used verified rates for proposed employees in each labor category for the base year and, for option years, used the median of all verified rates for each labor category in which hours would be reduced in option years.
After conducting a best value tradeoff, the Navy awarded the contract to Island Creek.
AM Pierce protested the award. AM Pierce argued that the Navy had erred by upwardly adjusting AM Pierce’s indirect and direct rates.
GAO explained that “[w]hen an agency evaluates a proposal for the award of a cost reimbursement contract, an offeror’s proposed estimated costs are not dispositive because, regardless of the costs proposed, the government is bound to pay the contractor its actual and allowable costs.” Therefore, “an agency must perform a cost realism analysis to determine whether the estimated proposed cost elements are realistic for the work to be performed, reflect a clear understanding of the requirements, and are consistent with the unique methods of performance and materials described in the offeror’s proposal.” An offeror’s proposed costs “should be adjusted, when appropriate, based on the results of the cost realism analysis.”
GAO first addressed the Navy’s evaluation of AM Pierce’s proposed indirect costs. Although AM Pierce argued that a change in its accounting practices justified the lower indirect rates, “DCAA did not approve AMP’s provisional billing rates for 2016, which reflected changes to AMP’s accounting practices, until April 11, 2016, after the agency had completed its cost evaluation.” GAO wrote that “it appears that the agency considered the most realistic and verifiable information available when calculating AMP’s most probable cost,” and denied this aspect of AM Pierce’s protest.
GAO then turned to the evaluation of AM Pierce’s direct labor rates. Noting that the Navy had based its evaluation on AM Piece’s actual current labor rates, GAO wrote that AM Pierce’s argument was little more than an assertion that “the agency should ignore the rates currently being paid to proposed employees in calculating the most probable cost in the base and option years.” Though it is true that current employees might leave and be replaced at lower rates, “the possibility of changes to personnel does not negate the fact that the actual rates currently being paid to personnel proposed by AMP are the most realistic rates available.” The GAO denied this aspect of AM Pierce’s protest, as well.
Cost realism evaluations can be complicated. But AM Pierce underscores two important points: first, that an agency can use historic verified indirect rates instead of unsubstantiated rates proposed by an offeror; second, an agency can upwardly adjust the direct labor rates proposed by an offeror for incumbent employees based on the actual costs for those employees.
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A large business couldn’t demonstrate that it was eligible to pursue a bid protest challenging a VA SDVOSB sole source contract award.
In a recent decision, the U.S. Court of Federal Claims held that a protester, which was a large business under the NAICS code assigned to the SDVOSB sole source contract, had not demonstrated standing to challenge the contract award. The sole source contract in question wasn’t just any contract, either–but a contract to oversee the VA’s verification process for SDVOSBs and VOSBs.
The matter at issue in Loch Harbour Group, Inc. v. United States, No. 16-1114C (2016) began when the VA issued a solicitation in June 2016, seeking proposals from contractors to oversee the VA’s verification process. After the solicitation was issued, a prospective offeror filed a pre-award protest with the GAO. In August, the VA cancelled the solicitation.
After cancelling the solicitation, the VA awarded a sole source contract to GCC Technologies, LLC, an SDVOSB and one of the incumbent contractors, to perform the verification services. The VA supported its award by reference to the same federal statute at issue in the Supreme Court’s Kingdomware decision. That statute, 38 U.S.C. 8127, allows the VA to make a sole source contract award to an SDVOSB when the anticipated price is below $5 million and certain other factors are met.
Loch Harbour Group, Inc. filed a protest with the Court, challenging the SDVOSB sole source award to GCC. LHG asked the Court to issue a temporary restraining order and a preliminary injunction preventing GCC from performing the contract until LHG’s protest was resolved.
The Court wrote that in order to have standing to bring a viable bid protest, LHG was required to “prove it is either an ‘actual or prospective bidder or offeror whose direct economic interest would be affected by the award of the contract or failure to award the contract.'” The Court noted that the June 2016 solicitation and the subsequent sole source award to GCC both designated the same NAICS code and size standard, and that “it is undisputed that LHG is not a small business” under that NAICS code. (The Court’s decision doesn’t specify which NAICS code and size standard were assigned). The Court continued:
Given this, it is reasonable to assume that this NAICS code would also apply to a new solicitation for this work and that LHG would be ineligible to compete for the award of that contract. And so, LHG has not demonstrated thus far in the litigation that it has standing to bring its protest.
The Court also held that, even if it had standing to pursue the protest, LHG had not demonstrated that it was likely to succeed on the merits of the case. The Court wrote that the VA’s justification for its sole source award specifically stated that the award complied with the SDVOSB sole source authority of 38 U.S.C. 8127, and that the record in front of the Court did not support LHG’s contention that the award didn’t comply with the statute. The Court denied LHG’s request for injunctive relief.
The Court’s decision doesn’t necessary spell an end to LHG’s protest; it is conceivable that LHG could prevail on its case even after losing its motion. But, should LHG continue to pursue its protest, it would seem to have an uphill battle, as the Court made it very clear that an ineligible large business ordinarily lacks standing to challenge an SDVOSB sole source award.
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Earlier this year, the United States Supreme Court issued its decision in Kingdomware Technologies v. United States. As we’ve noted, this case was a monumental win for veteran-owned small businesses—it requires the Department of Veterans Affairs to set-aside solicitations for SDVOSBs or VOSBs where two or more such offerors will submit a proposal at a fair and reasonable price, even if that solicitation is issued under the Federal Supply Schedule.
A recent GAO decision suggests, however, that Kingdomware’s impact could be felt beyond the world of VA procurements. Indeed, the Supreme Court’s rationale in Kingdomware might compel every agency to set aside any FSS order (or any other order, for that matter) valued between $3,000 and $150,000.
In Aldevra, B-411752.2—Reconsideration (Oct. 5, 2016), the protester relied on Kingdomware to challenge a prior GAO decision that an agency is not required to set-aside an FSS order for small businesses. At issue in the initial protest was an Army National Guard Bureau solicitation under the FSS, seeking an ice machine/water dispenser (valued at $4300). According to Aldevra, the Small Business Act required the solicitation to be set aside for small businesses.
Under the Small Business Act,
Each contract for the purchase of goods and services that has an anticipated value greater than [$3,000] but not greater than [$150,000] shall be reserved exclusively for small business concerns unless the contracting officer is unable to obtain offers from two or more small business concerns that are competitive with market prices and are competitive with regard to the quality and delivery of the goods or services being purchased.
15 U.S.C. § 644(j); 80 Fed. Reg. 38294 (July 2, 2015) (increasing dollar amounts).
Because the solicitation was valued at more than $3,000 but less than $150,000, Aldevra argued that the Small Business Act required the Army to apply the “rule of two” under the Small Business Act.
GAO disagreed, and denied Aldevra’s initial protest. In doing so, it relied on Section 644(r) of the Small Business Act—that section, according to GAO, makes an agency’s use of set-aside procedures for FSS contracts discretionary. GAO further explained that the SBA’s regulations give contracting officers discretion—but do not command them—to set aside orders under multiple-award contracts.
Some eight months after GAO’s initial decision, the Supreme Court issued its Kingdomware decision, interpreting the effect of the Veterans Benefits, Healthcare, and Information Technology Act of 2006’s Rule of Two. According to the Act:
[A] contracting officer of the Department shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.
38 U.S.C. § 8127(d).
The mandatory phrasing of the statute was crucial: the Court held that “Congress’ use of the word ‘shall’ demonstrates that [the Act] mandates the use of the Rule of Two in all contracting before using competitive procedures.” The Court, moreover, specifically found that FSS orders are contracts.
Aldevra jumped on the Kingdomware decision and sought to apply its logic to the Small Business Act. It asked GAO to reconsider its initial decision, arguing that the Supreme Court’s decision compels GAO to find that Section 644(j) similarly required the Army National Guard’s solicitation to be set aside for small businesses.
GAO denied the request. But it did so on a technicality—it ruled that Kingdomware was not made retroactive by the Court, so it could not be applied to the prior decision in Aldevra’s protest. Thus, the issue of whether Section 644(j) requires all solicitations valued between $3,000 and $150,000 be reserved for small businesses is yet to be decided.
Aldevra has successfully advanced the interests of small businesses at GAO before—it was the first to challenge the VA’s failure to follow the Rule of Two, which ultimately led to the Kingdomware decision. Aldevra’s argument here could have the same reach: under Kingdomware’s logic, the Small Business Act might compel all solicitations valued between $3,000 and $150,000 be reserved for small businesses.
Aldevra isn’t alone in its belief that the FAR’s “rule of two” must be applied to orders under the FSS and other acquisition vehicles. The SBA agreed with Aldevra’s interpretation during both its initial protest and request for reconsideration. The support of the SBA–which has considerable discretion to interpret the Small Business Act–could be crucial in the future.
Because Aldevra was decided on a technicality, the important question Aldevra raised remains to be answered. But there is little doubt that before long, Aldevra or another protester will revisit this issue, in connection with a post-Kingdomware acquisition. What happens then could be every bit as important to small businesses as Kingdomware was for SDVOSBs and VOSBs.
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While we are diving into fall weather here in Kansas, my colleagues and I are thinking of everyone on the East Coast dealing with Hurricane Matthew. We hope that everyone makes it through the storm safe and sound.
Hurricane Matthew is at the top of the news headlines this week, but there’s still plenty happening in the world of government contracting. In this edition of SmallGovCon Week In Review, we bring you articles final FAR rule restricting awards to companies with unpaid tax liabilities, two separate cases regarding alleged discrimination by government contractors, a new beta version of a Freedom of Information Act Wiki was launched, a major expansion of the HUBZone program, and much more.
The FAR Council has adopted, without changes, an interim rule I reported on last year, which restricts most contract awards to companies with unpaid federal tax obligations. [Government Publishing Office]
The United States Department of Labor is suing a Silicon Valley firm, which handles $340 million of federal contracts, for allegedly discriminating against Asian job applicants. [Parent Herald]
Using a category management approach to optimize spending, the GSA’s Human Capital and Training Solutions Unrestricted contract is intended to increase access to 77 qualified vendors offering, efficient, cost-effective management and training support. [Federal Times]
The Small Business Administration is correcting a final rule that described the limitations on subcontracting that apply to set aside contracts. [Federal Register]
A Freedom of Information Act Wiki was launched that acts as a free and collaborative resource and allows a rapid account of new developments so everyone has the most up-to-date information about the law in a useful, online format. [CJR]
A global technology manufacturing company has been sued by the U.S. Department of Labor for compensation discrimination against female assembly workers who were found to be making less than their male counterparts. [The Salem News]
President Obama is being urged to issue a directive against anti-gay bias in federal contracting. [The Washington Post]
Oracle’s decision to abandon the GSA Schedules as a channel to sell its products might just be the tip of the iceberg of problems in the government market. [Washington Technology]
A new report shows that women-owned firms are 21 percent less likely to win government contracts. [Biz Journals]
In an important change that’s flown beneath the radar, the SBA removed what it said was an unnecessary requirement in the HUBZone program, allowing for a major expansion of the program. [Set-Aside Alert]
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A North Carolina couple is heading to prison after being convicted of defrauding the SDVOSB and 8(a) Programs.
According to a Department of Justice press release, Ricky Lanier was sentenced to 48 months in federal prison and his wife, Katrina Lanier, was sentenced to 30 months for their roles in a long-running scheme to defraud two of the government’s cornerstone socioeconomic contracting programs.
According to the DOJ press release, Ricky Lanier was the former owner of an 8(a) company. When his company graduated, Ricky Lanier apparently wasn’t satisfied with the ordinary routes that former 8(a) firms use to remain relevant in the 8(a) world, such as subcontracting to current 8(a) firms and/or becoming a mentor to an 8(a) firm under the SBA’s 8(a) mentor-protege program.
Instead, Mr. Lanier helped form a new company, Kylee Construction, which supposedly was owned and managed by a service-disabled veteran. In fact, the veteran (a friend of Ricky Lanier) was working for a government contractor in Afghanistan, and wasn’t involved in Kylee’s daily management and business operations.
The Laniers also used JMR Investments, a business owned by Ricky Lanier’s college roommate, to obtain 8(a) set-aside contracts. As was the case with Kylee, the Laniers misrepresented the former roommate’s level of involvement in the daily management and business operations of JMR.
If that wasn’t enough, “[t]he scheme also involved sub-contracting out all or almost all of the work on the contracts in violation of program requirements.” In other words, not only were Kylee and JML fraudulently obtaining set-aside contracts, they were also serving as illegal “pass-throughs.”
Over the years, Kylee Construction was awarded $5 million in government contracts and JMR was awarded $9 million. The Laniers themselves received almost $2 million in financial benefits from their fraudulent scheme.
People like the Laniers undermine the integrity of the set-aside programs and steal contracts from deserving SDVOSBs and 8(a) companies. Here’s hoping that the prison sentences handed down in this case will not only punish the Laniers for their fraud, but help convince other potential fraudsters that the risk just isn’t worth it.
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The government can terminate a contract when the Department of Labor has made a preliminary finding of non-compliance with the Service Contract Act, even if the contractor has not exhausted its remedies fighting or appealing the finding.
The 3-0 (unanimous) decision by the Armed Services Board of Contract Appeals in Puget Sound Environmental Corp., ASBCA No. 58828 (July 12, 2016) is troubling because it could result in other contractors losing their contracts based on preliminary DOL findings–perhaps even if those preliminary findings are later overturned.
The Puget Sound decision involved two contracts under which Puget Sound Environmental Corporation was to provide qualified personnel to accomplish general labor tasks aboard Navy vessels or at naval shore leave facilities. Both contracts included the FAR’s Service Contract Act clauses.
Under that first contract, PSE ran into SCA issues. DOL investigated and PSE entered into a payment plan to remedy the alleged violations.
The Navy, knowing about the payment plan, nevertheless entered into another contract with PSE to provide similar services. The second contract, like the first, was subject to the SCA.
Early into the performance of the second contract (referred to as Task Order 9) during the summer of 2011, DOL began a new investigation into PSE. DOL’s investigation ultimately concluded that PSE owed its workers over $1.4 million on both contracts for failure to pay prevailing wage rates, and failing to provide appropriate health and welfare benefits and holidays to its covered employees. DOL made some harsh claims, including that PSE had classified skilled maintenance and environmental technicians as laborers and had issued health insurance cards to employees who were stuck with large medical bills after they found the cards were not valid.
During the investigation, on September 1, 2011, DOL wrote to the Navy contracting officer and informed the contracting officer of DOL’s preliminary findings. A week later, the contracting officer emailed PSE and told it that the Navy “no longer has need for the firewatch/laborer services provided under task order” 9, and that the Navy was terminating the contract for convenience. That same day, as would eventually come out in discovery, the contracting officer had written an internal email stating that he was concerned about awarding PSE another task order because of the supposed likelihood that PSE would “commit Fraud against [its] employees[.]”
Five days later, PSE agreed to allow the Navy to transfer funds due on Task Order 9 to DOL to be disbursed as back wages. Shortly thereafter, on September 15, PSE and the Navy mutually agreed to terminate the contract for convenience. The Navy issued no further task orders, but awarded a bridge contract for the same services to another contractor in October of that year.
Just under two years later, on May 17, 2013, PSE submitted a certified claim under the Contract Disputes Act, claiming lost revenue of $82.4 million (based on five years worth of revenue on the contract) and asked for 4% of that number, or $3.3 million in damages. The contracting officer never issued a final decision on the claim, so PSE treated this as a deemed denial and on August 9, 2013, appealed the decision to the ASBCA.
On May 12, 2014, DOL’s Office of Administrative Law Judges reviewed the findings of the DOL investigation and concluded that DOL was right to assess the $1.4 million in back pay. The Office of Administrative Law Judges determined that PSE should be debarred for three years. PSE appealed the decision to the Administrative Review Board, which affirmed the ALJ. PSE indicated that it would appeal the ruling in federal court, although it had not done so by the time the ASBCA ruled on PSE’s appeal.
At the ASBCA, both PSE and the Navy moved for summary judgment. PSE primarily argued that the Navy terminated the contract in bad faith. PSE said that the contracting officer rushed to judgment and that the termination for convenience was effectively a termination for default, relying on the use of the word “fraud” in the contracting officer’s internal email as evidence of animus.
The ASBCA said: “Whether fraud was the best word choice is not the issue before us; the undisputed facts show that the contracting officer had a good faith basis for concluding that PSE failed to pay its employees in accordance with the contracts and that it had deceived those employees by leading them to believe that they had health insurance when, in fact, they did not.” The ASBCA denied PSE’s motion for summary judgment, and granted the Navy’s motion.
While the facts of the case are interesting, they’re not all that unique; DOL investigates and prosecutes alleged SCA violations with some frequency. What’s troubling about the Puget Sound case is that the Navy unceremoniously terminated a contractor well before any of the new allegations were fully adjudicated and before PSE had the opportunity to contest DOL’s preliminary findings.
Although PSE could still prevail in federal court, the preliminary findings were confirmed by DOL’s ALJ and Administrative Review Board. But preliminary findings are just that–preliminary–and sometimes are overturned. The ASBCA’s decision therefore begs the question: what if a future contractor is terminated based on a preliminary DOL finding that is later overturned? Does Puget Sound Environmental mean that that contractor would have no remedy?
It’s certainly a possibility. That said, some there may be ways for other contractors to distinguish Puget Sound Environmental.
For one thing, PSE had already agreed to pay back wages on an earlier contract, of which the contracting officer was aware. That earlier settlement likely influenced the contracting officer’s decision; had the DOL’s preliminary findings on task order 9 stood in a vacuum, the contracting officer might have allowed things to play out.
Additionally, in reaching its conclusion, the ASBCA wrote that “PSE has not provided us with any evidence that DOL is wrong (and that the contracting officer’s reliance on DOL is actionable.” For example, the ASBCA said, “with respect to the allegation that PSE failed to pay health and welfare benefits, if DOL was wrong and PSE had paid for those benefits, it would have been relatively simple to establish this. But, PSE has failed to provide any such evidence.” In a case where DOL’s preliminary findings were overturned, the contractor would have strong evidence that those preliminary findings were wrong–and hopefully, that it was unreasonable for the contracting officer to rely on those findings.
There is an old legal adage that “hard cases make bad law,” which means that when judges allow themselves to be persuaded by sympathy, they make bad decisions. The same can be true when the parties involved elicit little sympathy, as may have been the case here–by not providing evidence that it had actually complied with the SCA, PSE wasn’t likely to win many points with the ASBCA’s judges.
That said, the next appellant who comes before the ASBCA with a similar issue may be able to demonstrate that it did, in fact, comply with the SCA, and that DOL’s preliminary findings were wrong. If so, it remains to be seen how the ASBCA will view the termination of that appellant’s contract.
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The SBA has released a sample template mentor-protege agreement, and accompanying application information, for its new “all small” mentor-protege program.
The template calls for the parties to select from up to six categories of assistance that the mentor may provide, and requires the parties to set forth specific details about the nature of the planned assistance, the timeline for providing it, and milestones for measuring success. The application form, in turn, requires the protege to have a written business plan, and will require mentors and proteges to complete an online training module if they apply after November 1, 2016.
The template provides six categories of assistance that the mentor may provide the protege: (1) Management and Technical Assistance; (2) Financial Assistance; (3) Contracting; (4) Trade Education; (5) Business Development; and (6) General Administrative. The protege may select “any or all that apply to your situation.”
Once the appropriate assistance is identified, the protege must then specify its needs within each selected area, what the mentor will do to support those needs, the timeline for meeting the needs, and how to measure whether each of the needs have been successfully met “in accordance with your business plan . . ..” The SBA’s accompanying instructions confirm that the protege must have a written business plan–and that the business plan must be submitted to the SBA as part of the mentor-protege application.
The template requires the protege to identify any other federal mentor-protege programs in which it is currently participating, and sets forth a variety of other standard terms, such as those involving reports to the SBA, termination of the mentor-protege agreement, and so on. The template mentor-protege agreement also includes a provision in which the mentor acknowledges that it may be penalized if it fails to provide the promised assistance.
The sample template agreement has been posted on the SBA’s all small mentor-protege program website, but two other documents–the application form itself, and the instructions for applying, have been made available only to those who requested them. (A contact sent me both documents, which I’ve linked in this paragraph, but those interested in applying should not rely on my copies of the documents, which could become outdated at any time. Instead, visit the SBA’s website for up-to-date instructions on applying.)
The application is largely straightforward, and repeats much of the substance of the mentor-protege template agreement, including the types of assistance sought. The application, and the SBA’s online guidance, specify that prospective mentors and proteges will be required to complete an online training module as part of the application process. However, “this requirement will be waived for October applications only, and until November 1.” Those applying on or after November 1 will have to provide proof of completion of the online training module.
In October, the SBA will accept emailed electronic applications. But those who apply in October will have to “finalize the administrative process” in November by creating a profile on certify.sba.gov and uploading the application documents to that website. Beginning in November, it appears that all applications will be submitted using the certify.sba.gov website.
The SBA’s all small mentor-protege program is now “live.” For contractors who hope to take advantage of this powerful new program, it may be time to get started.
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If you’ve been reading SmallGovCon regularly (and I certainly hope that you have!), the name Ian Patterson may ring a bell. Ian has been a law clerk at Koprince Law LLC since May 2015, and has been credited as the primary author of many SmallGovCon blog posts during that time, including an important recent post on the Rothe Development 8(a) case.
I am pleased to announce that Ian has been admitted to the Bar and is now an Associate Attorney at Koprince Law. Please feel free to browse Ian’s biography for more information about the latest addition to our growing team, and check back here soon for more of Ian’s writings on government contracts law.
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Fall is officially here, and that means that the leaves are turning color, it’s apple-picking season, and football is a big part of my typical weekend (both on TV, and chasing around my three-year-old son as he scores touchdown after touchdown in our living room).
But for those of us involved in federal government contracts, it’s hard to think of the fall without also thinking of the end of the government’s fiscal year, and all that it entails. In this, the final SmallGovCon Week in Review of the 2016 Fiscal Year, we have stories on a large software vendor pulling out of the GSA schedule, Guy Timberlake’s unvarnished–and very important–commentary on a terrible change being proposed to small business goaling, and more.
One of the largest software vendors in the world is telling the General Services Administration, thanks, but we can live without you. [Federal News Radio]
An Army procurement initiative is pursuing a strategy of “ruthless prioritization.” [Federal News Radio]
The General Services Administration gave the go-ahead to 109 vendors who won spots on the Human Capital and Training Solutions unrestricted and small business contracts to begin promoting and selling against the governmentwide acquisition contract. [Federal News Radio]
The SBA seeks comments on a proposed amendment to its regulations governing the small business timber set-aside program so that appraisals on small business set-aside sales be made to the nearest small business mill. [Federal Register]
Guy Timberlake takes a look at rule changes that are being implemented that he feels will kill small business participation in federal contracting. [GovConChannel]
A commentator offers a warning about “one size fits all” procurement solutions. [Washington Technology]
Six industry associations are asking the government to delay the implementation of new rules around safe workplaces and fair pay for at least a year. [Federal News Radio]
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An offeror’s failure to provide the type of past performance information mandated by a solicitation led to the offeror’s elimination from consideration for a major GSA contract.
A recent GAO bid protest decision highlights the importance of fully reading and adhering to a solicitation’s requirements–including those involving the type of past performance or experience information required.
GAO’s decision in Dougherty & Associates, Inc., B-413155.9 (Sept. 1, 2016) involved the GSA “HCaTS” solicitation, which contemplated the award of multiple IDIQ contracts to provide Human Capital and Training Solutions across the federal government. The solicitation was divided into two Pools based on the offeror’s small business size status. The GSA established a target of 40 awards for each Pool.
The solicitation provided for award based on best-value, and included a requirement for past experience, which stated:
For an Offeror to be eligible for consideration under a given Pool, the Offeror shall have performed six Relevant Experience Projects [REP], with four of those Relevant Experience Projects under a NAICS Code that corresponds directly to a NAICS Code in the Pool being applied for… Each Relevant Experience Project shall meet the minimum requirements prescribed in Section L.5.2.2.
The solicitation also warned potential offerors that their experience “must be substantiated by ‘evidence within a verifiable contractual document,’ adding that an offeror ‘shall only receive credit…if the Government can validate the information,’” and that failure to meet the experience requirements “may result in the proposal being rejected.” Under the terms of the solicitation, an offeror could meet the experience requirements by “submitting for each relevant experience project: a single contract; a single task or purchase order, or a ‘collection of task orders’ that had been placed under a ‘master contract vehicle.” Finally, the solicitation required for each project that an offeror submit either a single contract/task order/purchase order, or a combination of task orders, “but not both.” The solicitation stated that “if the Offeror submits the single contract and the task order(s)/purchase order(s) awarded against it, the single contract and the task order(s)/purchase order(s) shall not be considered.”
The GSA received 115 proposals. Dougherty & Associates, Inc. was one of the offerors; it submitted a proposal for both Pools. In supporting one of its required experience projects, DAI reference a subcontract between DAI and a prime contractor under an Office of Personnel Management contract. DAI also submitted three purchase orders that had been issued under the subcontract.
The GSA sought clarification from DAI regarding this experience project. The GSA noted that the project contained three separate purchase orders and “was not identified as a ‘collection of task orders’ … It’s unclear how these 3 orders are linked.”
DAI responded by stating that “[w]e did not submit this relevant project as a collection of task orders.” DAI explained that the prime contractor had used purchase orders throughout the period of the subcontract and that “[t]he purchase orders were submitted, as required by the RFP proposal submission instructions, as contractual documents to substantiate … DAI’s scope of work, [key service areas], relevancy, period of performance and project value.”
The GSA subsequently notified DAI that its proposal had been eliminated from consideration. GSA explained that the experience project in question “contains three separate purchase orders and was not identified as a ‘collection of task orders.'”
DAI filed a GAO bid protest. DAI argued that the GSA had improperly eliminated DAI based on an unreasonable reading of DAI’s proposal.
GAO explained that the solicitation required that for each of the six relevant projects “an offeror must submit either a single contract/task order/purchase order, or a collection of task orders–but not both.” GAO continued:
Here, notwithstanding these provisions, DAI submitted its OPM subcontract–along with purchase orders issued under that subcontract. Further, DAI acknowledges that the subcontract, itself, does not substantiate the various experience requirements . . .. Finally, DAI declined to comply with the solicitation requirements regarding a collection of task orders/purchase orders–despite the agency’s notification that it was unclear that the purchase orders DAI submitted were sufficiently related.
GAO denied DAI’s protest.
Dougherty & Associates, Inc. serves as a reminder to fully read and follow the specific requirements of a solicitation to a T–including those involving experience or past performance. While this is true in any solicitation, it is especially so in the case of a large multiple-award IDIQ like HCaTS with dozens (or hundreds) of offerors. In these cases, agencies may be trying to more easily whittle down the playing field, and may be all the more inclined to reject proposals for what seem like minor variances from the terms of the solicitation.
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After September 30, 2016, unsuccessful offerors will lose the ability to challenge some task order awards issued by civilian agencies.
With the House of Representatives and Senate at odds over the extent to which task orders should be subject to bid protests in the first place, it’s unclear whether that protest right will be restored.
Under the Competition in Contracting Act, a protest challenging a task order award issued by a civilian agency is not permitted unless it falls under either of the following exceptions:
(A) the protest alleges that the order increases the scope, period, or maximum value of the contract under which the order was issued; or
(B) the protest challenges an order valued in excess of $10 million.
41 U.S.C. § 4106(f)(1).
The statute, however, provides that the second exception—allowing protests challenging orders valued at greater than $10 million—expires on September 30, 2016. After that date, an offeror’s ability to protest a task order issued by a civilian agency will be limited to only those protests alleging that the order increases the scope, period, or maximum value of the underlying contract.
It is important to note that this expiration applies only to task orders issued by civilian agencies; offerors can still challenge task orders issued by the Department of Defense, so long as the awards meet the same $10 million minimum. See 10 U.S.C. § 2304c(3)(1).
Congress has started discussing how to address this issue. But the House and Senate remain worlds apart: the House proposes to allow civilian task order protests again, while the Senate wants to do away with task and delivery protests at GAO altogether and instead require the task and delivery order ombudsman to resolve any complaints. H.R. Rep. No. 114-537, § 1862 (p. 348); S. 2943, 114th Cong. § 819.
In fiscal year 2015 (the last year for which statistics are available), GAO closed 2,647 cases; only 335 of them arose from GAO’s special task order jurisdiction. And as we have reported, 45% of protests resulted in a favorable outcome for the protester, either through a formal “sustain” decision or by way of voluntary corrective action. It would be unfortunate to permanently eliminate GAO’s ability to decide protests regarding larger task orders when the statistics indicate that such protests aren’t pervasive and are often meritorious.
So what’s the bottom line? Unless Congress acts, unsuccessful offerors in civilian task order competitions will be able to protest only in very limited circumstances; these offerors must instead bring their complaints before the agency’s task order ombudsman. In the meantime, affected offerors might consider discussing the issue with their elected representatives.
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I am back in Lawrence after a great trip to Huntsville, Alabama, where I spoke at the Redstone Edge Conference. My presentation focused on the recent major developments in small business contracting, including the changes to the limitations on subcontracting and the new universal mentor-protege program.
Many thanks to Courtney Edmonson, Scott Butler, Michael Steen, and the rest of the team at Redstone Government Consulting for putting together this impressive event and inviting me to participate. A big “thank you” as well to everyone who attended the presentation, asked great questions, and followed up after the event.
Next on my travel agenda, I’ll be in Wichita this Friday for a comprehensive half-day session on joint venturing and teaming for federal government contracts, sponsored by the Kansas PTAC. Hope to see you there!
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The Department of Defense is proposing a major overhaul of the regulations governing its “pilot” mentor-protege program for small businesses.
The proposed rule, which was published in the Federal Register on September 23, 2016, makes a number of important changes, including adding new eligibility criteria, placing limits on the amount of time a protege can participate in the program, adding new required elements to mentor-protege agreements, and much more.
The DoD’s proposed rule responds to the 2016 National Defense Authorization Act, which called for the DoD to amend its mentor-protege program. The proposed rule makes the following important changes:
Purpose. The current DoD mentor-protege program regulations (which are found in an appendix to the DFARS), describe the primary purpose of the program as being to “provide incentives to major DoD contractors . . . to assist protege firms.” The proposed rule switches the focus, stating that the primary purpose of the program is to “[e]nhance the capabilities of eligible small business concerns to perform as subcontractors under DoD contracts and other contracts and subcontracts . . ..”
Mentor Eligibility Expansion. The proposed rule would expands the universe of potential mentors. The current definition primarily covers large businesses operating under at least one approved subcontracting plan negotiated with DoD or another federal agency. In contrast, the proposed rule would allow any eligible large business to serve as a mentor, regardless of whether the large business is operating under a subcontracting plan. The proposed rule would also allow small businesses to serve as mentors, if approved by the DoD’s Small Business Programs office.
Protege Eligibility Expansion. The proposed rule also expands the universe of potential proteges. The current rule requires that a protege be a small disadvantaged business (SDB), a WOSB, a HUBZone, an SDVOSB, or an eligible entity employing the severely disabled. The proposed rule adds: (1) an entity controlled an owned by an Indian tribe; (2) an entity controlled by a Native Hawaiian organization; (3) an entity owned and controlled by socially and economically disadvantaged individuals (which sounds a lot like an SDB to me); (4) a so-called “non-traditional defense contractor,” which is defined as “an entity that is not currently performing and has not performed any contract or subcontract for DoD that is subject to full covereage under the cost accounting standards . . . for at least the 1-year period preceding the solicitation of sources by DoD for the procurement or transaction”; and (5) an entity that currently provides goods or services in the private section that are critical to enhancing the capabilities of the defense supplier base and fulfilling key DoD needs.
Protege Eligibility Limitations. It isn’t all good news for prospective proteges, however. The proposed rule adds two new restrictions on protege eligibility. First, a protege must be less than half of the size standard under its primary NAICS code. In my view, this is a poor policy choice; small is small, and I don’t like the thought of restricting eligibility in this manner. Second, a protege must be “not owned or managed by individuals or entities that directly or indirectly have stock options or convertible securities in the mentor firm.”
Protege Term Limitations. In addition to limiting the universe of potential proteges, the proposed rule limits the length of time a protege can participate in the mentor-protege program. The proposed rule specifies that “a protege firm may not be a party to more than one DoD mentor-protege agreement at a time, and may only participate in the Program during the 5-year period beginning on the date the protege firm enters into its first mentor-protege agreement.”
Affiliation and Control. The proposed rule would require the mentor-protege agreement to contain seven separate “assurances” regarding affiliation and control, such as a statement that “the mentor firm does not share, directly or indirectly, with the protege firm ownership or management of the protege firm” and that “the mentor firm does not have an agreement, at the time the mentor firm enters into a mentor-protege agreement, to merge with the protege firm.” Some of these requirements, however, appear to go too far and/or misunderstand the SBA’s rules. For example, the DoD requires the parties to certify that they have not been parties to a joint venture during the 2-year period before entering the mentor-protege agreement “unless such joint venture was approved by SBA prior to making an offer on a contract.” However, the SBA only approves joint ventures for 8(a) contracts; joint ventures for all other contracts (including small business, SDVOSB, HUBZone, and WOSB set-asides) are not pre-approved by SBA. The DoD’s proposal, as written, would appear to exclude parties who have joint ventured for these types of contracts, even under the SBA’s new “all small” mentor-protege program. Further, even under the 8(a) Program, the SBA doesn’t approve joint ventures “prior to making an offer on a contract,” but rather need only approve the joint venture before award of the 8(a) contract. Here’s hoping DoD takes a closer look at these portions of its proposal before they become final.
Joint Ventures. The new rule doesn’t prevent DoD mentors and proteges from forming joint ventures (although it doesn’t provide an exception from affiliation to allow them to do so; a large mentor would only be able to joint venture with its protege for set-aside contracts under the SBA’s all small mentor-protege program or 8(a) mentor-protege program). However, the proposed rule specifies that “DoD may not reimburse any fee to the mentor firm for services provided to the protege firm . . . or for business development expenses incurred by the mentor firm under a contract award to the mentor firm while participating in a joint venture with the protege.”
Progress Reports. The proposed rule expands on the current requirements for the mentor’s semiannual progress report. For example, the new rule requires the mentor to specify whether there were any loans to the protege or any joint ventures between the mentor and protege.
Name. The proposed rule doesn’t eliminate the term “Pilot” from the DoD Pilot Mentor-Protege Program. This “Pilot” program was created by the 1991 NDAA, so perhaps it’s time for Congress to drop that particular word from the program’s name.
The SBA’s new all small mentor-protege program has been getting all of the press recently, including on this blog. But even when that program is up and running over the next few months, the DoD mentor-protege program will continue to offer a separate and viable way for mentors and proteges to come together–and may be of special benefit to small businesses who are more interested in serving as DoD subcontractors than as small prime contractors themselves.
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The SBA’s new “all small” mentor-protege program will begin accepting applications on October 1, 2016–but applicants will have to contact the SBA for an application form.
After November 1, 2016, the SBA will be processing electronic applications through its certify.sba.gov website.
Earlier this fall, the SBA announced that it would begin processing mentor-protege applications on October 1. The SBA’s official website for its all small mentor-protege program now provides the following instructions:
The SBA will begin accepting applications for the All Small Mentor Protégé Program on October 1, 2016.
If you would like to apply during the month of October, please send your request for an application to firstname.lastname@example.org. An application and instructions will be emailed to you. In November, 2016, you will be required to finalize the administrative process by adding your profile to certify.sba.gov and uploading your application and documents into that repository.
After November 1, applicants will be instructed to go directly to certify.sba.gov to begin and complete the application process. Watch this site for updates.
It sounds to me like the SBA won’t really be “accepting” applications on October 1, so much as providing applicants the forms to complete and be submitted in November. For those intending to apply to the program, it would make a lot of sense to email the SBA in early October, use the next several weeks to negotiate and complete the mentor-protege paperwork, and be one of the first to submit electronically in November.
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I am wrapping up a great trip to Huntsville, Alabama, where I gave a presentation yesterday the Redstone Edge conference. As I make my way back home, it’s time for our weekly roundup of government contracting news and notes.
In this week’s SmallGovCon Week In Review, fourth quarter spending is actually down this year, Congress takes aim at the “Fair Pay and Safe Workplaces” executive order, and much more.
The federal equivalent of Black Friday isn’t what it used to be: a new analysis of federal contracting data shows that Q4 spending is declining after years of elevated levels, with more agencies spending earlier in the year. [Government Executive]
Supporters of President Obama’s “Fair Pay and Safe Workplaces” order are now fighting a tough new obstacle–a Congressional proposal to severely curtail the order’s scope. [Forbes]
The Defense Department spending on research and development has suffered historic declines during the budget drawdown that has been in progress since 2009. [Federal News Radio]
The General Services Administration is trying to ease industry concerns about its new transactional data requirement. [Federal News Radio]
A VA Inspector General audit has discovered flaws in the way the VA awarded its major PC3 contracts. [VA OIG]
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Before deciding whether to set-aside a solicitation for small businesses under FAR 19.502-2, should the contracting officer first determine whether those small business will be able to provide the needed services while, at the same time, complying with the limitation on subcontracting?
No, according to a recent GAO bid protest decision. Instead, an agency’s determination whether a small business will comply with the limitation on subcontracting should be made as part of its award decision (following the evaluation of proposals), not during its initial set-aside determination.
Under FAR 19.502-2(b), a procurement with an anticipated dollar amount greater than $150,000 must be set-aside for small businesses where there is a reasonable expectation that offers will be received from at least two responsible small businesses and that award will be made at fair market prices. Though orders under FSS contracts (issued under FAR part 8.4) are exempt from these small business programs, a contracting officer nonetheless has discretion to set-aside FSS orders for small businesses.
In InfoReliance Corporation, B-413298 (Sept. 19, 2016), GAO considered a protest challenging the Federal Bureau of Prisons’ decision to set aside an FSS order for cloud computing services to small businesses. The contracting officer’s market research identified at least eight small businesses that were authorized re-sellers of the Amazon Web Services sought under the order.
InfoReliance, a large businesses, challenged the set-aside decision, arguing that no small businesses would be able to perform the solicited services while complying with the limitation on subcontracting. According to InfoReliance, the small businesses were thus not responsible, and the set-aside decision was unreasonable.
GAO disagreed with InfoReliance. It noted that contracting officers have discretion to set-aside FSS orders for small business concerns, and that InfoReliance did not show BOP violated any law or regulation in exercising its discretion under this solicitation.
GAO also denied InfoReliance’s argument that BOP was required to verify each small business’s responsibility before deciding to set-aside the solicitation. Before setting-aside a solicitation, an agency “need only make an informed business judgment that there are small businesses expected to submit offers that are capable of performing.” An agency need not conduct a formal responsibility analysis before setting-aside a procurement.
Neither was BOP required to analyze the offerors’ potential compliance with the limitation on subcontracting before setting-aside the solicitation. GAO bluntly said:
This argument, however, puts the cart before the proverbial horse: an agency’s determination whether a small business concern will comply with a solicitation’s subcontracting limitation is to be made as part of the award decision, and based on the particular quotation submitted.
GAO denied InfoReliance’s protest.
InfoReliance serves as a reminder that, in deciding whether to issue a solicitation as a small business set-aside, an agency is not required to prospectively evaluate offerors’ potential proposals. This makes sense: because the rule of two analysis is conducted before a solicitation is issued, an agency cannot evaluate yet-to-be-submitted proposals for compliance with subcontracting limits. To do so would, in GAO’s words, put the cart before the horse.
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When multiple unsuccessful offerors protest a solicitation, the GAO ordinarily will dismiss any and all bid protests associated with the procurement in the event one unsuccessful offeror takes its case to federal court–even if some protesters would prefer to remain at the GAO.
As one federal contractor recently learned in Colleague Consulting, LLC—Reconsideration, B-413156.18 (Sept. 12, 2016), the GAO’s jurisdictional rules prevent it from deciding protests when the outcome of the protest could be affected by a pending federal court decision.
Colleague Consulting involved a competition for a GSA contract. Colleague Consulting, LLC was eliminated from the pool of successful offerors because its proposal was deemed technically unacceptable. After learning of its exclusion, CCL filed protest with the GAO.
Separately, another unsuccessful offeror under the same solicitation filed a bid protest before the GAO challenging the GSA’s decision not to conduct discussions. After a time, that second unsuccessful offeror withdrew its protest from the GAO and refiled it before the U.S. Court of Federal Claims.
One of the goals of the GAO protest process is to give government contractors an administrative alternative to pursuing their bid protests in federal court. The GAO process, by design, is typically faster and less expensive than pursuing a protest in court (though not always). Despite this option, contractors also are afforded the opportunity to pursue bid protests at the Court of Federal Claims.
Because both the GAO and the Court of Federal Claims are authorized to decide bid protests, there is the possibility that different adjudicators will come to differing—and potentially contradictory—conclusions. To prevent such an outcome, the GAO’s jurisdictional regulations, at 4 C.F.R. § 21.11(b), state that “GAO will dismiss any case where the matter involved is the subject of litigation before, or has been decided on the merits by, a court of competent jurisdiction.”
Returning to Colleague Consulting, after the GAO received notice of the Court of Federal Claims protest, determined that “disposition of the COFC case could render a decision by our Office on CCL’s protest academic.” The GAO dismissed CCL’s protest, citing 4 C.F.R. § 21.11(b).
CCL filed a motion for reconsideration, urging the GAO to reverse its decision and continue hearing its protest. CCL argued that the word “matter” within 4 C.F.R. § 21.11(b) should be construed narrowly to mean that the GAO must dismiss a protest only where the arguments before the GAO and Court are similar. In this case, CCL argued, the arguments were entirely dissimilar: CCL was protesting its technical evaluation whereas the other unsuccessful offeror was protesting the GSA’s decision not to hold discussions.
The GAO disagreed. It wrote:
While the word ‘matter’ is not defined, there is nothing in the language of the regulation, or elsewhere, to suggest that it is meant to apply to the exact narrow issue involved in the protest before our Office. Instead, the matter before the court can properly be characterized as a dispute over which companies should have remained in the competition under the GSA solicitation. While that matter remains before the [federal court], GAO will not also decide the question.
GAO denied CCL’s request for reconsideration.
In today’s contracting environment, it is not uncommon for more than one offeror to pursue a protest over the same procurement. With each offeror being able to choose where it wants to file (i.e. GAO or the Court of Federal Claims), an offeror wishing to use the GAO’s administrative processes may nonetheless be out of luck if a competitor chooses the Court.
Ian Patterson, a law clerk with Koprince Law LLC, was this post’s primary author.
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The Department of Labor has announced a new “preassessment” initiative, under which a government contract can voluntarily ask the DOL for an assessment of the contractor’s record of labor law compliance.
The preassessment program is designed to help contractors discover if they may have any trouble with their mandatory disclosures under the new Fair Pay and Safe Workplaces Executive Order, which will take effect beginning on October 25. Voluntary use of the preassessment program may be a good idea for any contractor with a history of labor issues, but I wonder what will be more likely–contractors choosing to use it on their own, or being pushed to use it by prospective teammates?
In August, the FAR Council released its final rule implementing the Fair Pay Executive Order. Under the final rule, contractors bidding on contracts over $500,000 must certify as to whether they have been subject to any judgments or determinations within the preceding three-year period under a variety of labor and employment laws, including the Davis-Bacon Act, Service Contract Act, and many others. The information provided is to be used by the Contracting Officer as part of the overall responsibility determination. For subcontracts over $500,000, subcontractors are required to provide similar information directly to the DOL.
Effective September 12, contractors can now apply for preassessment. The DOL explains the preassessment program as follows:
Independent of a specific acquisition, any current or prospective government contractor may voluntarily contact the Department of Labor to request an assessment of their record of labor law compliance. Using DOL Guidance, the Department will assess whether any of the prospective contractor’s violations are serious, repeated, willful, or pervasive; and whether a labor compliance agreement may be warranted. If a contractor that has been assessed by the Department of Labor subsequently submits a bid, and the contracting officer initiates a responsibility determination of the contractor, the contracting officer and the Agency Labor Compliance Advisor (ALCA) may use the Department’s assessment that the contractor has a satisfactory record of labor law compliance unless additional labor law violations have been disclosed.
To participate in the preassessment program, a contractor must fill out a short intake form on the DOL’s website, and wait for contact from the DOL. Even though the program is beginning now, DOL confirms that it is an ongoing initiative, and “does not end when the FAR Rule takes effect on October 25, 2016.”
The effectiveness of the preassessment program will depend on how it is implemented, but if it is done well, it could prove useful for contractors willing to voluntarily go through it. But as someone who works every day with teaming agreements and joint ventures, I wonder what is more likely: contractors voluntarily agreeing to go through the program, or being pushed to do so by prospective teammates?
If nothing else, it wouldn’t surprise me to see teaming agreements and joint venture agreements begin to require certifications related to the Fair Pay Executive Order. For prospective teammates who cannot certify to a “clean” record, the next step may be obvious: “if you want to team with us, go through preassessment.” We’ll see.
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For many sports fans, it’s now football season, but I’m still focused on baseball, with my Chicago Cubs clinching the Central Division title last night. There are still more regular season games to be played, but I’m looking forward to the start of the playoffs, where the Cubs will try to end a 108-year World Series drought.
Of course, baseball isn’t the only thing on my mind these days–especially this close to the end of the government’s fiscal year. As always, I’ve been keeping a close eye on government contracting news. This week, SmallGovCon Week In Review includes stories on the latest developments in the Alliant 2 procurement process, insightful commentary by Guy Timberlake on a terrible new proposal for small business goaling, a major bid protest filed by Delta Air Lines, and much more.
According to Deltek’s Angie Petty, the pending change in administrations seems unlikely to affect federal IT contract spending. [ExecutiveBiz]
At the end of the fiscal year, lots of companies get the good news: “you’ve won!” One commentator offers a list of five things to do after winning a federal contract. [Washington Technology]
Guy Timberlake hits back at a recent proposal to count subcontracting dollars toward the government’s 23% small business goal–a move Timberlake says would “put the screws to America’s small businesses.” He’s right. [GovConChannel]
The U.S. Government Accountability Office announced it will create a Center for Advanced Analytics to bring a more data-driven approach into its work. [govfresh]
Delta Air Lines is protesting a contract that it says undermines the “Fly America Act” that requires taxpayer-funded travel to take place on domestic carriers. [Reuters]
The General Services Administration is sprinting to launch four new categories of specialized cybersecurity offerings for agency purchase October 1 on the government’s largest IT services acquisition vehicle. [fedscoop]
Alliant 2 Unrestricted and Alliant 2 Small Business extended the due date again without the GSA giving a reason as to why. [Aronson Fed Point]
Contractors are urging the next President to mandate a change to improve the services acquisition process. [Government Executive]
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To be timely, a GAO bid protest challenging the terms of the solicitation must be filed no later than the proposal submission deadline.
A recent GAO decision affirmed that, at least in some cases, this deadline applies to an offeror’s elimination from competition based on an organizational conflict of interest. Because the offeror knew of its potential conflict and the agency’s position on its eligibility before its proposal was submitted, its post-evaluation protest was untimely. GAO dismissed its protest.
The facts in A Squared Joint Venture, B-413139 et al. (Aug. 23, 2016) are relatively straightforward. A Squared Joint Venture (“A2JV”) was a joint venture formed by two companies, including Al-Razaq Computing Services. Al-Razaq was the incumbent contractor under a contract for acquisition and business support services at NASA’s Marshall Space Flight Center (“MSFC”).
Al-Razaq’s contract allowed it access to MSFC’s procurement-related information and, in some cases, required it to be involved with MSFC’s acquisition efforts. So its contract included a limitation on future contracting that, among other things, prohibited Al-Razaq and any of its subcontractors from performing or assisting with the performance of any other contract issued by MSFC during the performance of the incumbent contract.
In February 2016, NASA issued the follow-on solicitation to Al-Razaq’s incumbent contract. The solicitation sought many of the same acquisition support functions that Al-Razaq was currently performing, and also included an identical limitation on future contracting clause.
Later in February, Al-Razaq’s Acquisition Team Lead met with the contracting officer to discuss whether Al-Razaq personnel performing the incumbent contract could assist with the preparation of the offeror’s proposal. The contracting officer told Al-Razaq that it needed to implement a firewall to separate both the information and personnel associated with its incumbent performance from those personnel preparing the proposal.
A2JV submitted its offer on March 18. But contrary to the contracting officer’s instruction, its proposal was hand-delivered to the MSFC contracting activity by (then-) current and former Al-Razaq program managers under the incumbent effort. In fact, Al-Razaq’s program manager “informed agency officials that he had been involved in the preparation of the A2JV proposal, and had spent 10-12 hours a day for the last two weeks working on the proposal.”
NASA eliminated A2JV’s proposal from competition on May 9, citing its organizational conflict of interest—specifically, its unequal access to information. Explained by GAO, “an unequal access to information OCI exists where a firm has access to nonpublic information as part of its performance of a government contract, and where that information may provide a firm a competitive advantage in a later competition for a government contract.”
Justifying A2JV’s exclusion, the contracting officer explained that Al-Razaq’s incumbent performance includes its support of MSFC procurement activities, and allows Al-Razaq “access to the full breadth of sensitive contractual and financial information necessary for the administration of MSFC contracts.” Al-Razaq was required to screen new business opportunities to avoid a conflict of interest, yet failed to do so. Its use of the existing program manager created an impermissible OCI.
A2JV protested its elimination, challenging the determination that it had unequal access to information and was required to firewall its employees. NASA, in its response, argued that the protest was untimely because it was not filed before the deadline to submit proposals.
GAO agreed with NASA. It explained that “Al-Razaq (and A2JV) was fully aware prior to closing of the fundamental ground rules by which the  competition was being conducted.” To this point, it said “prior to the closing time for the receipt of proposals, A2JV was aware of the operative facts regarding the existence of an actual or potential OCI involving itself, as well as the agency’s position on the offeror’s eligibility to compete[.]” If A2JV believed that a firewall was not necessary, it should have protested that requirement prior to the RFP’s closing date.
A2JV’s untimely protest was dismissed.
Knowing the deadline to file a bid protest can be tricky. If a protest challenges the ground rules of a solicitation, it must be filed by the time proposals are due. As A Squared Joint Venture confirms, GAO will dismiss any protest that does not meet the filing deadline–including, potentially, one involving the government’s position on an alleged OCI.
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