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SBA Affiliation Rules: Owner of One Share (of 120) Controlled Company

The owner of a 1/120th interest was presumed to control a company under the SBA’s affiliation rules. You read that right.  In a recent size appeal decision, the SBA Office of Hearings and Appeals held that where 120 owners each held one share of stock in a company, all 120 were presumed to control the company for size purposes. OHA’s decision in Size Appeal of Melton Sales & Service, Inc., SBA No. SIZ-5893 (2018) involved an Army solicitation seeking the remanufacture of Route Clearance Vehicle engines.  The Contracting Officer issued the solicitation as a small business set-aside under NAICS code 333618 (Other Engine Equipment Manufacturing), with a corresponding 1,500 employee size standard. After reviewing competitive proposals, the Army informed offerors that MTP Drivetrain Service, LLC was the apparent successful offeror.  An unsuccessful competitor then filed a size protest challenging MTP’s small business status.  Among its allegations, the protester contended that MTP was affiliated with VIPAR Heavy Duty, Inc. The SBA Area Office determined that Joe Niswanger held a 70% ownership interest in MTP.  His son, Rudy Niswanger, was MTP’s General Manager.  The Area Office concluded that Joe and Rudy Niswanger controlled MTP. The Area Office then identified 24 other companies under the control of MTP and/or the Niswangers.  One of these companies was Joe Gear Holdings, LLC. Joe Gear, in turn, owned a single share of stock in VIPAR.  In total, VIPAR had 120 shares outstanding, all held by different individuals or entities, and each entitled to one vote.  The Area Office determined that Joe Gear’s 1/120th share ratio “does not provide Joe Gear with the power to control VIPAR.”  The Area Office concluded that MTP was not affiliated with VIPAR. After adding together the average employee counts of MTP and its affiliates, the Area Office found that MTP was a small business for purposes of the Army solicitation. The original protester filed a size appeal with OHA.  The protester argued, in part, that the Area Office had erred by determining that MTP was not affiliated with VIPAR. OHA wrote that, under the SBA’s “common ownership” affiliation rules, if two or more persons or entities “each owns, controls, or has the power to control less than 50 percent of a concern’s voting stock, and such minority holdings are equal or approximately equal in size, and the aggregate of those holdings is large compared with any other stock holding, SBA presumes that such person controls or has the power to control the concern whose size is at issue.”  The presumption “may be rebutted with evidence to the contrary, such as evidence demonstrating another party such as the Board of Directors and CEO or President controls the concern.” Here, “it is undisputed that MTP is affiliated with Joe Gear through common ownership, and Joe Gear holds one of VIPAR’s 120 shares” of stock.  Therefore, “[w]hen considering MTP’s affiliation with VIPAR under the minority shareholder rule, the Area Office erred in concluding Joe Gear’s 1/120th interest does not provide Joe Gear with control or the power to control VIPAR.” OHA acknowledged that the single share alone wasn’t enough for Joe Gear to make VIPAR take action, but explained that under the SBA’s affiliation rules, “individual control is immaterial, as multiple minority shareholders may control a subject concern even if they individually cannot.”  When multiple minority shareholders each hold equal or approximately equal interests, “in the absence of clear evidence demonstrating control or the power to control by another party, it is presumed that each minority shareholder has equal control over the subject concern, regardless of the size of the shareholder’s interests.” In VIPAR’s case, “[t]he Area Office failed to establish MTP and Joe Gear had rebutted this presumption with evidence demonstrating another party controls or has the power to control VIPAR.”  Therefore, “Joe Gear must be presumed to control or have the power to control VIPAR under the multiple minority shareholder rule, and accordingly, MTP is affiliated with VIPAR.” Fortunately for MTP, even adding VIPAR’s size to the mix didn’t change the ultimate result–MTP and its affiliates still fell below the 1,500-employee size standard.  OHA characterized the Area Office’s analysis of VIPAR as “harmless error,” and affirmed the size determination. Some of the SBA’s affiliation rules are pretty darn intuitive, but others absolutely are not.  The typical businessperson probably wouldn’t think that holding 1 of 120 shares, all with equal voting power, would create control–but that’s how it works under the SBA’s multiple minority shareholder rule. One final note: a separate rule applies to “widely traded” companies, like those you might hold in your investment or retirement portfolios.  Here, OHA found that this separate rule didn’t apply to VIPAR, because its shares were not publicly traded.
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Weaknesses Cannot Be Assigned Unequally, GAO Confirms

An unequal evaluation can get an agency into hot water and force a reevaluation, as GAO has stated before. But with agencies entitled to broad discretion in their evaluations, how do you know what constitutes unequal evaluation? Some GAO opinions can leave you wondering where the line is drawn, but a recent GAO decision provides an easy-to-understand example involving a requirement to train personnel under certain regulations. In that case, the GAO held that it was improper for the agency to assign a weakness to the protester for omitting a discussion of certain regulations as applied to its training program, while failing to assign weaknesses to several awardees whose proposals also omitted this discussion. In Transworld Systems, Inc.,  B-414090.13 (December 22, 2017), GAO reviewed the award of an RFQ to multiple awardees under a Federal Supply Schedule. The RFQ was for private debt collection services for Department of the Treasury, Bureau of the Fiscal Service. The evaluation criteria and weights assigned to each were (1) technical approach (25%); (2) management approach and organizational structure (management approach) (25%); (3) quality control approach (20%); (4) past performance (25%); and (5) utilization of small business concerns (5%). For quality control, the proposal, in part, had to outline a training plan to show “how staff would be trained on applicable laws, regulations, procedures, and Bureau requirements.” Transworld Systems, Inc.’s quotation received a deficiency and a weakness and was rated poor for the quality control factor. The agency assigned a weakness “because TSI’s quotation did not address HIPAA and TOP [Treasury Offset Program] regulations in addressing training on laws and regulations and Bureau requirements.” TSI filed a GAO bid protest challenging the agency’s evaluation. Under GAO precedent, “t is a fundamental principle of government procurement that competition must be conducted on an equal basis; that is, the contracting agency must treat all offerors or vendors equally; it must even-handedly evaluate offers against common requirements and evaluation criteria.” GAO noted that the quotations of several awardees “did not address both HIPAA and TOP regulations and their quotations were not assessed weaknesses under the quality control factor for their omission.” Thus, GAO held, “the Bureau’s evaluation of TSI’s proposal was unequal as compared to the evaluations of the quotations of” four awardees. GAO sustained the protest based on the unequal evaluation and recommended reevaluation of proposals. This decision reinforces that GAO will sustain a protest based on unequal evaluation of weaknesses. Because an unequal evaluation may not become evident until outside counsel is able to review the source selection file under a protective order (which is what happened here), a protester may not be able to make an allegation of unequal treatment in its initial protest filing. But once the agency report is produced, if there is an example or two of unequal evaluation, that may constitute a good basis for a supplemental protest.
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No Competitor Size Protests of 8(a) Sole Source Awards, Says SBA OHA

The SBA’s regulations do not allow an 8(a) company to file a size protest challenging the award of an 8(a) sole source contract to a competitor. In a recent size appeal decision, the SBA Office of Hearings and Appeals confirmed that size protests relating to 8(a) sole source awards can be filed by contracting officers or the SBA itself–but not by competitors. OHA’s decision in Size Appeal of GovSmart, Inc., SBA No. SIZ-5894 (2018) involved a Navy procurement for commercial off-the-shelf firmware, software license renewals and hardware maintenance.  The Navy awarded the work to Cypher Analytics, Inc. d/b/a Crown Point Systems, using an 8(a) sole source purchase order. Shortly after the award, another 8(a) company, GovSmart, Inc., filed a size protest.  GovSmart contended that Crown Point was ineligible because it was violating the ostensible subcontractor affiliation rule. The SBA Area Office issued a size determination dismissing GovSmart’s size protest for lack of standing.  The SBA Area Office said that because the award was an 8(a) sole source, GovSmart was not permitted to protest under SBA’s size protest regulations.  GovSmart then appealed the decision to OHA. OHA wrote that SBA’s size protest regulations, at 13 C.F.R. 121.1001, specifically identify who may request a size determination in connection with an 8(a) sole source award.  The list includes “[t]he Participant nominated for award of the particular sole source contract,” “[t]he SBA program official with authority to execute the 8(a) contract or, where applicable, the procuring activity contracting officer who has been delegated SBA’s 8(a) contract execution functions,” or “[t]he SBA District Director in the district office that services the Participant, or the [SBA] Associate Administrator for Business Development.” Notably missing from the list: 8(a) competitors. Although GovSmart contended that it, too, was “nominated” for the 8(a) contract but ultimately unsuccessful in receiving it, OHA pointed to 13 C.F.R. 124.517, which states that “[t]he size status of an 8(a) participant nominated for an 8(a) sole source contract may not be protested by another 8(a) participant or any other party.”  Thus, “given that Crown Point clearly was nominated for the instant 8(a) sole source award, [GovSmart] cannot pursue a size protest against Crown Point, regardless of whether [GovSmart] also may have been nominated.” OHA denied GovSmart’s size appeal. Size protests are an important part of the government’s size and socioeconomic preference systems, but they have their limits.  As the GovSmart case demonstrates, an 8(a) company cannot file a size protest challenging the award of an 8(a) sole source contract to a competitor.
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VA SDVOSB Rule of Two: Court Provides Important Guidance for Protesters

A protester contending that the VA violated the “rule of two” by failing to set-aside a solicitation for SDVOSBs must present sufficient facts to indicate that the VA should have had a reasonable expectation of receiving two or more offers from SDVOSBs at fair and reasonable prices. In a recent decision, the Court of Federal Claims dismissed a rule of two challenge because, according to the Court, the protester only identified one SDVOSB–itself–that was likely to submit an offer at a fair and reasonable price. The Court’s decision in Veterans Contracting Group, Inc. v. United States, No. 18-92C (2018) involved a VA solicitation for a roof replacement at the VA Medical Center in Northport, New York.  The VA originally issued the solicitation as an SDVOSB set-aside.  The VA received four proposals, but only two were deemed “responsive,” that is, considered to meet the terms and conditions of the solicitation. Veterans Contracting Group, Inc. submitted one of the bids deemed non-responsive because VCG had been removed from the VA VetBiz database.  A second offeror, too, was apparently eliminated for failing to be verified as an SDVOSB. The VA evaluated the pricing of the remaining two proposals and found that both offerors proposed pricing more than 30% higher than the Independent Government Estimate.  The VA then cancelled the solicitation and reissued it as a small business set-aside. In the meantime, VCG prevailed in a Court of Federal Claims action challenging its exclusion from the VA’s database.  The VA readmitted VCG to the VetBiz database. After its readmission, VCG protested the terms of the reissued solicitation. VCG contended that the VA failed to follow the “rule of two” by issuing the solicitation as a small business set-aside rather than an SDVOSB set-aside.  VCG supported its protest by contending that four SDVOSBs submitted proposals originally, indicating that the VA should have expected to receive two or more SDVOSB proposals once again. The Court explained, “[e]xcept in cases subject to exceptions not relevant here, VA contracting officers are bound by the ‘rule of two,’ which requires them to ‘award contracts on the basis of competition restricted to [SDVOSBs] if the contracting officer has a reasonable expectation that two or more [SDVOSBs] will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.” The Court wrote that, in light of the terms “reasonable expectation,” fair and reasonable price,” and “best value,” “[w]hile the rule of two is imperative where it applies, the pertinent statute builds discretion into the contracting officer’s evaluation process.” Here, “the only fact that [VCG] alleges in support” of its rule of two claim “is that four SDVOSBs previously bid on the original solicitation, apparently implying that the contracting officer could therefore reasonably expect that at least two SDVOSBs would submit bids on a re-issued solicitation at fair and reasonable pricing.”  But “even with [VCG’s] restoration to the VetBiz database, only three of those bidders were eligible SDVOSBs, and two of them failed to offer bids at a fair and reasonable price.”  The Court continued: [O]n the facts alleged, the court is only aware of one eligible SDVOSB who has offered a bid at a fair and reasonable price, namely, [VCG].  If [VCG] had alleged additional facts, e.g., relating to the average number of bids submitted on similar solicitations or its own knowledge of other eligible SDVOSBs that would have submitted bids if the roofing solicitation had been reissued, the outcome might be different, but on the facts at hand, [VCG] has failed to state a claim. The Court dismissed VCG’s complaint. The Court’s decision offers some important pointers for SDVOSBs and VOSBs thinking of challenging a VA set-aside decision.  First, the VA isn’t required to consider a company in the “rule of two” analysis if the VA has good reason to believe that the company won’t offer a fair and reasonable price.  Here, that meant that the VA didn’t have to include the two original offerors who proposed pricing well in excess of the IGE. Second, a protester must introduce facts indicating that at least one eligible, qualified SDVOSB–other than the protester itself–is likely to submit a proposal.  As the Court suggested, those facts could be things like “the average number of bids submitted on similar solicitations or its own knowledge of other eligible SDVOSBs” that would submit bids if the solicitation was issued as an SDVOSB set-aside. There’s no guarantee that VCG would have won its protest had it introduced facts like these, but at least the Court would have considered the issue on the merits.  But because the Court believed that VCG had only established that one qualified, capable SDVOSB–itself–was likely to submit a fairly priced offer, the Court simply dismissed the protest. One final note: the acquisition in this case sounds like one that might be solicited under a tiered evaluation in the future.  After discussing the concept at last year’s National Veterans Small Business Engagement, the VA posted a Procurement Policy Memorandum in February providing guidance for the use of tiered evaluations.
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Bundling Didn’t Allow Agency to Purchase FSS Open Market Items, GAO Says

An agency cannot buy “Open Market” items from a Federal Supply Schedule vendor when the same items are readily available under another vendor’s FSS contract–even if the vendor selling Open Market items offers them as a discounted bundle and the FSS vendor does not. In a recent decision, GAO held that it was improper for an agency to buy bundled software packages as Open Market items when another vendor sold the same licenses on its FSS contract as four separate items.  Scope Infotech, Inc., B-414782.4 et al. (Comp. Gen. Mar. 22, 2018), involved a procurement for information technology operations and support for the Department of Health and Human Services, Centers for Medicare and Medicaid Services. The procurement was set-aside for small businesses holding GSA Schedule 70 contracts. The procurement has a drawn out history, including two prior protests that resulted in corrective actions. As relevant to this protest, offerors were to propose a suite for software licenses to support various DHHS networks and the Healthcare.gov exchanges. One of the required licenses was for JBoss software. Scope timely submitted a bid in response to the solicitation. As relevant here, Scope initially proposed to provide the JBoss software license as an Open Market item. “Open Market” items is a term of art to describe items that are not available on the FSS but are added to individual FSS task order deliveries. Authorization for Open Market purchases can be found in FAR 8.402(f). A predicate for including Open Market items in an FSS procurement, however, is complying with applicable Competition In Contracting Act requirements, including full and open competition. The agency received six offers in response to its Solicitation, including Scope. Following its preliminary evaluation, the agency reached out to offerors requesting additional information about the software suites the offerors proposed. With respect to Scope, the agency inquired as to whether the JBoss software licenses could be obtained from Scope or one of its team members on the FSS. Scope replied that it could provide JBoss licenses on the FSS, but it would not be able to provide the same discounts. Following these initial communications, the agency narrowed the competitive field to only Scope and Sparksoft Corp. During discussions, the agency observed that both Scope and Sparksoft had proposed a significant number of software licenses as Open Market items. The agency requested that “f at all possible, please provide a quote with no open market [software licenses].” Both offerors subsequently revised their pricing proposals; however, Sparksoft continued to include the JBoss licenses as an Open Market item. On May 31, 2017, Sparksoft was awarded the task order. In its third protest, Scope challenged the evaluation of Sparksoft’s proposal because Sparksoft proposed providing the JBoss licenses as an Open Market item. Less than two weeks after Scope protested, the agency executed a justification and approval authorizing other than full and open competition to procure JBoss as an open market item. The agency based its justification and approval on 41 U.S.C. § 253(c)(1), which authorizes the use of non-competitive acquisition procedures when “the property or services needed by the executive agency are available from only one responsible source and no other type of property or services will satisfy the needs of the executive agency[.]” The thrust of Scope’s argument was that since a member of its team could provide the JBoss licenses on its GSA Schedule contract, it was improper to award the task order to Sparksoft because it listed JBoss licenses as Open Market items. The agency’s response was somewhat convoluted. The Agency defended that it was reasonable to procure JBoss licenses as Open Market items because Scope’s team broke out the various JBoss licenses as four separate line items and noted that these licenses were bundled into two separate packages under the predecessor contract. According to the agency, the mention of the incumbent contract bundling indicated Scope could not obtain the required JBoss software licenses on the FSS. GAO did not agree. As GAO explained, “Scope’s quotation provided all the necessary information for the agency to confirm that Scope was offering the four separate JBoss software licenses on a GSA schedule[.]” A proper review of this information by the Agency would have revealed that Scope was offering unbundled JBoss licenses from the FSS. Consequently, “the agency’s conclusion that Scope failed to provide the JBoss software licenses on a GSA schedule was unreasonable.” Next, the agency argued that because the bundled JBoss contracts could not be obtained on the FSS, it was reasonable to obtain them as Open Market items. GAO was unconvinced. While the agency vigorously argued the different product numbers for the bundled software packages meant they were different items not available on the FSS, GAO noted “the exact software licenses quoted in Sparksoft’s proposal as open market items were quoted by Scope on [its team member’s] GSA schedule.” GAO continued: [W]hile the agency makes much of the fact that [Scope’s teammate] provides different numbers for those software licenses, whether bundled or unbundled, and provides a price discount for the bundled items, the agency’s claim that the price discount prevents Sparksoft from quoting these items on a GSA schedule is unreasonable and circumvents the very purpose of the FSS. That is, to award contracts to vendors quoting scheduled items. As such, “the agency could not reasonably rely on a bundle-item price discount as a basis to find that the JBoss software licenses were not available on a GSA schedule.” Because the agency could procure the JBoss licenses it required on the FSS, GAO concluded it was unreasonable for the agency to instead procure the same licenses as Open Market items. GAO therefore sustained this basis of protest. Scope Infotech is a good barometer for GAO’s approach to purchasing bundled items as Open Market on the FSS: it is the form and function of the item(s) being procured that matters. Here, for example, while the bundling of the software packages may have resulted in a cost savings, there was no functional difference between the bundled and non-bundled software packages. Since the non-bundled package could be obtained on the FSS, it was unreasonable for the agency to procure a bundle of identical software as an Open Market item.
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Hack Response: Notarized Letters Now Required for SAM.gov

Because of a recent cyber attack on the System for Award Management, the Federal Service Desk is requiring new contractors to submit a signed notarized letter in order to be registered. Later this month, existing registrants seeking to update or renew profiles will have to do the same. This move comes after the General Services Administration acknowledged on March 22 that the inspector general is looking into a hack of the SAM.gov database, in which the hackers changed the banking information for “a limited number” of contractors. The GSA has released scant details regarding the hack except to say that it affected only a limited number of registrants and that GSA has “notified the affected entities.” The perpetrators apparently changed the bank account information for Electronic Fund Transfer (EFT) in an unspecified number of entities. Although GSA has not confirmed the electronic theft of any contracting dollars, presumably the hackers at least tried to get the federal government to pay them for contracted work. According to fedscoop.com, cyber attacks were first identified in 2017 and have been ongoing until recently. The perpetrators reportedly used a sophisticated technique called “spear phishing”—sending a high-quality but fake email to the contractor’s point of contact in order to steal logins and ultimately change payment accounts. In response, GSA is advising all registered entities to check their SAM profiles and verify their registered information, particularly bank accounts. If you suspect that a payment due your company was paid to a fraudulent account, GSA is advising contractors to contact FSD, which provides support for SAM.gov. GSA deactivated those registrants affected and provided them with instructions for how to re-register. It has also taken “proactive steps” required to “address this fraudulent activity”. Specifically, GSA said: Thus, any new registrants will need a notarized letter. By the end of April, any current registrant needing to update or renew a profile will also need to submit a notarized letter. GSA added that it “has begun implementing additional reviews during the registration process to prevent future issues” although it did not elaborate on what those additional reviews would entail. Meanwhile, the GSA has posted a step-by-step set of instructions for completing the notarization process. SAM.gov is the database that all contractors must be registered in to do business with the federal government. It is therefore a fundamental barrier to being awarded a contract. While it is a good thing that the GSA is taking steps to address the recent problems, it’s not clear that requiring notarized letters is the best solution. Requiring notarized letters and whatever these “additional reviews” are adds more hoops for contractors to jump through in an already complicated process—especially since the notarization requirement will apply each time a contractor updates its SAM profile. Most small business contractors, in our experience, don’t have notaries on staff, meaning extra trips (and fees) to banks and other institutions offering notary services. Beyond that, it is also unclear how requiring a notarized letter would prevent the type of attack that reportedly occurred, although the new requirement might make it more difficult for hackers to successfully use the information they glean. Verifying the identity of the users was not the problem, it was that the hackers were able to use the publicly available information on SAM.gov to trick users into providing their login information. The notarization requirement wouldn’t seem to prevent that underlying issue, although the requirement for a notarized letter could make it more difficult for a hacker to use that information to update the victims’ accounts, such as by switching the victims’ bank account information. Still, a hacker who executes a successful phishing scheme may not balk at providing fake notarized letters, either. We’ll keep you posted.
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“Using” an Affiliate’s Past Performance: GAO Explains the Test

Contrary to a common misconception, an offeror is not automatically entitled to “use” the past performance of parent companies, sister companies or other corporate affiliates. So when can an offeror rely on the past performance of an affiliate in submitting a proposal? A recent GAO opinion sheds some light on that question. Not meeting the GAO’s guidelines for describing the detailed involvement of the affiliate can have a harsh result—a sustained protest if award was made based on the affiliate’s past performance. In Language Select LLP, B-415097.2 (Nov 14, 2017), GAO considered the Social Security Administration’s issuance of a Federal Supply Schedule blanket purchase agreement to Cyracom International, Inc. for worldwide telephone interpreter services. The underlying Solicitation was based on best value, considering the factors of corporate experience (the most important factor), past performance, and evaluated price. Under corporate experience, vendors were to provide a “complete and full description” of three contracts demonstrating the firm’s relevant experience and how these contracts were “similar in size, scope, and complexity to the RFQ requirement.” Past performance ratings would be based on having each client from the three corporate experience contracts submit a completed past performance questionnaire form to SSA. SSA could contract the references and obtain past performance information from other sources. SSA would base its evaluation “‘in part’ by assessing the firm’s quality of service, its timeliness of performance, its management of personnel, and its business relations.” About a month before the evaluation was finalized, SSA contacted Cyracom for an explanation of the relationship between it and another entity (the name was redacted in the opinion but was referred to as Cyracom Affiliate), because Cyracom had listed the Cyracom Affiliate’s name on the past performance contracts.  Cyracom responded that Cyracom Affiliate was a wholly-owned subsidiary of Cyracom, that “its services are provided and managed by the parent company,” and that Cyracom “uses its divisions ‘[Cyracom Affiliate]’ and ‘CyraCom’ for marketing to different industries.” In evaluating the proposal of Language Select LLP, which was the incumbent contractor, SSA rated its corporate experience as “good.” For Language Select’s past performance, SSA reviewed FAPIIS/PPIRS information, past performance questionnaires, and SSA reports on incumbent performance. SSA identified one termination for cause from FEMA, and weighing this termination for cause against the multiple strengths, it assigned a “very good” rating for past performance. For Cyracom, SSA assigned a “satisfactory” rating for the corporate experience factor, taking into account the similarities of the contracts submitted in terms of scope and complexity. However, SSA found weaknesses because the contracts were smaller than SSA’s requirement. For Cyracom’s past performance, SSA noted that each prior contract was identified as performed by Cyracom Affiliate, rather than Cyracom. SSA noted that Cyracom Affiliate was a wholly-owned subsidiary of Cyracom and that its services were “provided and managed by the parent company.” There was one termination for cause in Cyracom’s past performance record, which the evaluation panel deemed a “minor problem.” The summary of the adjectival ratings and prices were; Language Select: Corporate Experience – Good, Past Performance – Very Good, Price $34.7 million. Cyracom: Corporate Experience – Satisfactory, Past Performance – Very Good, Price $29.9 million. Noting that the price difference of 13.65 percent outweighed the minimal risk of awarding to Cyracom, the contracting officer awarded the contract to Cyracom. Language Select protested the award, arguing that the SSA engaged in unequal discussions when it asked Cyracom for its relationship to the Cyracom Affiliate. SSA argued that the question to Cyracom was just a clarification, as it had already deduced that the Cyracom Affiliate was affiliated with Cyracom based on “the fact that CII’s quotation was printed on stationery that depicted an affiliation, and that information available online did also.”  GAO noted, with respect to affiliation, that GAO concluded that, when SSA sought an explanation of the role of the Cyracom Affiliate, it constituted discussions. Since Language Select did not receive an equivalent opportunity, SSA did not conduct discussions fairly and equally.  Language Select also challenged the reasonableness of SSA’s past performance and experience evaluation, arguing that it was improper for SSA to attribute the Cyracom Affiliate’s experience to Cyracom. SSA argued that it is sufficient that an affiliate “shares management with the offeror” or where “the parent company manages the entire corporate family.” GAO disagreed, noting that “[a]bsent a factual basis to conclude that the awardee had a commitment of resources from other separate corporate subsidiaries, we found the attribution of those affiliates’ past performance and experience to the awardee to be improper.” GAO held that the stationary and online information showing the affiliate relationship and the statement by Cyracom that the Cyracom Affiliate “was a wholly-owned subsidiary and that its services were ‘provided and managed by'” Cyracom was not enough to demonstrate the factual basis. This decision is important because it sets guidelines for evaluating past performance based on affiliates. Generally, in preparing a proposal that uses affiliate past performance, the offeror must clearly demonstrate the factual basis for how the affiliate will be involved in performance and how the affiliate will share resources with the offeror. Merely noting the affiliation between the offeror and the affiliate is not sufficient for use of an affiliate’s past performance.
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SmallGovCon Week in Review: April 2 – 6, 2018

Winter refuses to end here in Lawrence, Kansas as snow is in the forecast tonight.  But before we settle in for a cold weekend, it’s time for the SmallGovCon Week in Review. In this week’s edition, how the DoD will collect data to help reduce time for awards,  two construction companies have agreed to pay $1.2 million to resolve whistleblower claims related to set-aside contracts, the GSA and OMB move forward with the e-commerce initiative established in the 2018 NDAA and much more. We’re halfway through the fiscal year.  Here’s how the Continuing Appropriations Act of 2018 will impact government services contractors. [washingtontechnology.com] The DoD will collect data in an effort to reduce Procurement Acquisition Lead Time. [federaltimes.com] The Treasury Department’s Bureau of Fiscal Services is launching a series of new data analysis tools to help provide oversight into contract and grant spending. [Federal News Radio] Two construction companies agree to pay $1.2 million to settle allegations that they violated the terms of a program designed to help small, disadvantaged businesses. [sltrib.com] Multiple defendants have been charged with money laundering and fraud related to $200 million in small business contracts. [U.S. Department of Justice] The GSA and OMB are moving ahead with implementation of the “Amazon Amendment”–I mean, the Section 846 E-Commerce Plan. [Federal News Radio] The GAO comments on the new EPDS filing system, which will launch on May 1 (along with a new $350 protest filing fee). [NextGov]
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DoD Immediately Implements Portion of Enhanced Debriefing Requirements

The DoD has issued a class deviation to immediately implement part of the the enhanced debriefing requirements mandated by the 2018 National Defense Authorization Act. In a class deviation issued on March 22, 2018, the DoD says that, effective immediately, contracting officers must comply with new requirements allowing unsuccessful offerors to submit questions–and postponing the ticking of the “protest clock” until after answers are received.  But the class deviation doesn’t fully implement the 2018 NDAA’s enhanced debriefing requirements; the portion of the statute calling for the disclosure of redacted source selection information is not addressed. As SmallGovCon readers will recall, Section 818 of the 2018 NDAA strengthened debriefing requirements for DoD procurements conducted under FAR Part 15.  Most notably, the 2018 NDAA requires “enhanced” debriefings of certain offerors, allowing those offerors to obtain the written source selection determination, redacted as necessary to protect other offerors’ confidential information. But Section 818 also made important updates to the debriefing question-and-answer process.  These changes are particularly important in an age in which many debriefings are given in writing, often without clear guidance to offerors about when or how they may ask questions.  It’s not uncommon for offerors to receive written debriefings (often in the form of PowerPoint slides) that end with statements like “this concludes your debriefing,” without any mention of questions. FAR 15.506(d)(6) requires a debriefing to include, at a minimum, “[r]easonable responses to relevant questions about whether source selection procedures contained in the solicitation, applicable regulations, and other applicable authorities were followed.”  But statements like “this concludes your debriefing” can lead to confusion among offerors, some of whom don’t realize that they’re legally allowed to ask reasonable questions no matter what a PowerPoint may say. Now, the DoD has issued a class deviation to immediately implement the portion of the 2018 NDAA addressing debriefing questions-and-answers.  The class deviation, issued, March 22, says: Effective immediately, when providing a postaward debriefing of offerors in accordance with Federal Acquisition Regulation (FAR) 15.506(d), contracting officers shall include in the debriefing information provided to unsuccessful offerors an opportunity to submit additional questions related to the debriefing within two business days after receiving the debriefing.  The agency shall respond in writing to the additional questions submitted by an unsuccessful offeror within five business days after receipt of the questions.  The agency shall not consider the postaward debriefing to be concluded until the agency delivers its written responses to the unsuccessful offeror.   The class deviation also addresses the GAO protest clock associated with debriefings–something that can be very tricky to navigate when it’s unclear whether a debriefing has concluded.  The class deviation says that the DoD will honor the “automatic stay” under the GAO protest process when a protest is filed within the later of: (1) 10 days after the date of contract award; (2) five days after a debriefing date offered to the protester under a timely debriefing request if no additional questions related to the debriefing are submitted; or (3) five days after the Government delivers its written responses to additional questions. Kudos to DoD for acting quickly to implement these portions of the 2018 NDAA, which should make the debriefing process fairer and more transparent.
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GAO Final Rule: EPDS Filing System Will Be Live May 1

We’ve been following GAO’s plan to implement its Electronic Protest Docketing System (“EPDS”) with great interest. In fact, we’ve had the opportunity to test-drive the new system (tl/dr: it’s a very user-friendly system, but there are a couple of minor improvements that would make it even better). Just yesterday, GAO released a final rule implementing EPDS. Here are the most important takeaways. GAO’s final rule includes two very important points about EPDS: First, the final rule says that, effective May 1, 2018, “EPDS will be the sole means for filing a bid protest at GAO (with the exception of protests containing classified information).” One commenter expressed concern about EPDS being the sole means for filing, noting that file size or type might not be compatible with EPDS. In this (rare) instance, however, GAO noted that its EPDS Instructions explain how a protest should be filed. Second, GAO confirmed that new protest actions will be subject to a $350 filing fee. “At this time,” GAO explained that “additional fees will not be required for supplemental protests, requests for reconsideration, requests for recommendation for reimbursement of costs, or requests for recommendation on the amount of costs.” This clarification is helpful, as it wasn’t previously clear if supplemental protests would also be charged the $350 fee. As expected, some commenters objected to the fee, asking that protest filings continue to be free. But somewhat surprisingly, other commenters argued that the fee was too low to discourage serial or speculative protesters (one commenter, in fact, suggested a $1000 fee). GAO rejected these suggestions, noting that the fee is not intended to discourage or reduce the number of protests but instead to cover the costs of establishing and operating EPDS. GAO also considered waiving the fee for small businesses but decided “that the interest of administrative efficiency supports imposition of a uniform fee for all protests.” We think GAO’s rejection of a high fee makes sense. As we’ve previously noted, GAO protests aren’t actually all that common, and GAO already has effective remedies for dealing with abusive protesters if needed. Imposing a high fee would create an unnecessary barrier to the protest process, especially for small businesses. GAO also noted that the protest fee might be a reimbursable cost if the protester is successful. In the case of a corrective action (where a protest isn’t decided on its merits), GAO noted that 4 C.F.R. § 21.8(e) allows a protester to request the agency reimburse the protester’s costs; if GAO recommends the agency reimburse such costs, the filing fee would be reimbursable. *** With that, EPDS will be live May 1. All-in-all, I welcome this advancement: most courts use some type of electronic filing system, and it only makes sense for GAO to do the same. The final rule includes a few additional nuggets unrelated to EPDS that we’ll separately address. In the meantime, let us know if you have any questions about EPDS or GAO bid protests.
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SBA CVE Protests and Appeals: Coming October 1

The SBA will begin hearing protests and appeals related to inclusion in the VA’s SDVOSB/VOSB CVE database on October 1, 2018. On March 30, the SBA published a final rule, which responded to public comments made on the proposed rule issued last year.  SBA’s Office of Hearings and Appeals will begin deciding these cases in the fall. I blogged on the SBA’s proposed rule in October.  Most of the proposed rule will take effect as-is, and I won’t rehash those items here (although I do encourage you to read my October post for a refresher). The SBA did make a couple notable changes in response to public comments. First, SBA has clarified that when a CVE protest pertains to a particular procurement, “SBA should examine eligibility at two separate points: (1) As of the date the concern submits its bid or initial offer, which includes price; and (2) as of the date the CVE protest was filed.”  This is in keeping with VAAR 852.219-10(b), which requires an SDVOSB to be eligible both on the date of bid and date of award. It varies from the SBA rule applicable to non-VA procurements, under which, ordinarily, “[a] concern that represents itself and qualifies as an [SDVOSB] at the time of initial offer (or other formal response to a solicitation), which includes price . . . is considered an [SDVOSB] throughout the life of that contract.” Second, the SBA amended the proposed rule to state that a contract awarded to an ineligible company shall be “rescinded” rather than “terminated.”  This sounds like meaningless legalese, but there’s an important difference.  If a contract is terminated for convenience, the terminated company ordinarily may recover its costs.  But if a contract is rescinded as “void ab initio,” the contract is treated as though it never existed–hence, I assume, no “T for C” recovery. Several commentators asked the SBA to change its proposed timelines.  For example, three commentators stated that 10 business days is too short a time frame to file a CVE Appeal and requested 30 calendar days.  The SBA rejected these requests, sticking with the shorter timeline in the proposed rule.  The SBA similarly rejected a request that OHA issue CVE Appeal decisions in 30 days instead of 60 days as set forth in the proposed rule. The most important part of the final rule, of course, is that it is final.  SDVOSBs and VOSBs have long asked for an independent administrative appeal route when it comes to CVE database issues.  Starting on October 1, they’ll have one.
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SmallGovCon Week in Review: March 26 – 30, 2018

It’s moving day at Koprince Law LLC. We are in the midst of moving into our new digs at 901 Kentucky Street, Suite 301 here in Lawrence. Our new office has a lot more space to support our growing firm, and is just a two-block walk to Chipotle. I call that a win-win. While we get the new space ready for Monday morning, it’s time for the SmallGovCon Week in Review. In this week’s edition, the GSA’s Inspector General is investigating fraudulent activity on SAM, Bloomberg Government expects the number of mergers and acquisitions in the federal contracting market to decrease in 2018, a mother and daughter plead guilty to bribing employees of the Picatinny Arsenal military base for 12 years with luxury items valued at $250,000, and much more. The GSA’s inspector general is investigating fraudulent activity on its contractor and grantee registration website after someone allegedly redirected federal payments to bank accounts not tied to the appropriate contractors. [fedscoop] Georgia Tech PTAC offers these useful tips for surviving the compromise of the SAM database. [GTPAC] “Other transaction authorities,” also known as OTAs or OTs, has been around longer than the FAR, but it may become the new, potentially game-changing acquisition model. [Nextgov] Bloomberg Government expects the number of mergers and acquisitions in the federal contracting market to decrease in 2018, a trend since 2015. [Bloomberg Government] The Civilian Board of Contract Appeals has proposed major changes to its rules of procedure. [federalregister.gov] CACI International has withdrawn a $7.2 billion bid for government IT Services conglomerate CSRA, ending a bidding war. [washingtonpost.com] A mother and daughter have pleaded guilty to bribing employees of a military base for 12 years. [njherald.com] The document that provides the most comprehensive information on services contracting was missing from the Trump administration’s fiscal 2019 budget released in February. [govexec.com]
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“Using” an Affiliate’s Past Performance: GAO Explains the Test

Contrary to a common misconception, an offeror is not automatically entitled to “use” the past performance of parent companies, sister companies or other corporate affiliates. So when can an offeror rely on the past performance of an affiliate in submitting a proposal? A recent GAO opinion sheds some light on that question. Not meeting the GAO’s guidelines for describing the detailed involvement of the affiliate can have a harsh result—a sustained protest if award was made based on the affiliate’s past performance. In Language Select LLP, B-415097.2 (Nov 14, 2017), GAO considered the Social Security Administration’s issuance of a Federal Supply Schedule blanket purchase agreement to Cyracom International, Inc. for worldwide telephone interpreter services. The underlying Solicitation was based on best value, considering the factors of corporate experience (the most important factor), past performance, and evaluated price. Under corporate experience, vendors were to provide a “complete and full description” of three contracts demonstrating the firm’s relevant experience and how these contracts were “similar in size, scope, and complexity to the RFQ requirement.” Past performance ratings would be based on having each client from the three corporate experience contracts submit a completed past performance questionnaire form to SSA. SSA could contract the references and obtain past performance information from other sources. SSA would base its evaluation “‘in part’ by assessing the firm’s quality of service, its timeliness of performance, its management of personnel, and its business relations.” About a month before the evaluation was finalized, SSA contacted Cyracom for an explanation of the relationship between it and another entity (the name was redacted in the opinion but was referred to as Cyracom Affiliate), because Cyracom had listed the Cyracom Affiliate’s name on the past performance contracts.  Cyracom responded that Cyracom Affiliate was a wholly-owned subsidiary of Cyracom, that “its services are provided and managed by the parent company,” and that Cyracom “uses its divisions ‘[Cyracom Affiliate]’ and ‘CyraCom’ for marketing to different industries.” In evaluating the proposal of Language Select LLP, which was the incumbent contractor, SSA rated its corporate experience as “good.” For Language Select’s past performance, SSA reviewed FAPIIS/PPIRS information, past performance questionnaires, and SSA reports on incumbent performance. SSA identified one termination for cause from FEMA, and weighing this termination for cause against the multiple strengths, it assigned a “very good” rating for past performance. For Cyracom, SSA assigned a “satisfactory” rating for the corporate experience factor, taking into account the similarities of the contracts submitted in terms of scope and complexity. However, SSA found weaknesses because the contracts were smaller than SSA’s requirement. For Cyracom’s past performance, SSA noted that each prior contract was identified as performed by Cyracom Affiliate, rather than Cyracom. SSA noted that Cyracom Affiliate was a wholly-owned subsidiary of Cyracom and that its services were “provided and managed by the parent company.” There was one termination for cause in Cyracom’s past performance record, which the evaluation panel deemed a “minor problem.” The summary of the adjectival ratings and prices were; Language Select: Corporate Experience – Good, Past Performance – Very Good, Price $34.7 million. Cyracom: Corporate Experience – Satisfactory, Past Performance – Very Good, Price $29.9 million. Noting that the price difference of 13.65 percent outweighed the minimal risk of awarding to Cyracom, the contracting officer awarded the contract to Cyracom. Language Select protested the award, arguing that the SSA engaged in unequal discussions when it asked Cyracom for its relationship to the Cyracom Affiliate. SSA argued that the question to Cyracom was just a clarification, as it had already deduced that the Cyracom Affiliate was affiliated with Cyracom based on “the fact that CII’s quotation was printed on stationery that depicted an affiliation, and that information available online did also.”  GAO noted, with respect to affiliation, that GAO concluded that, when SSA sought an explanation of the role of the Cyracom Affiliate, it constituted discussions. Since Language Select did not receive an equivalent opportunity, SSA did not conduct discussions fairly and equally.  Language Select also challenged the reasonableness of SSA’s past performance and experience evaluation, arguing that it was improper for SSA to attribute the Cyracom Affiliate’s experience to Cyracom. SSA argued that it is sufficient that an affiliate “shares management with the offeror” or where “the parent company manages the entire corporate family.” GAO disagreed, noting that “[a]bsent a factual basis to conclude that the awardee had a commitment of resources from other separate corporate subsidiaries, we found the attribution of those affiliates’ past performance and experience to the awardee to be improper.” GAO held that the stationary and online information showing the affiliate relationship and the statement by Cyracom that the Cyracom Affiliate “was a wholly-owned subsidiary and that its services were ‘provided and managed by'” Cyracom was not enough to demonstrate the factual basis. This decision is important because it sets guidelines for evaluating past performance based on affiliates. Generally, in preparing a proposal that uses affiliate past performance, the offeror must clearly demonstrate the factual basis for how the affiliate will be involved in performance and how the affiliate will share resources with the offeror. Merely noting the affiliation between the offeror and the affiliate is not sufficient for use of an affiliate’s past performance.
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Thank you, Boise!

Last week I had the fantastic opportunity to travel to Boise to speak at the Idaho Small Business Contracting Symposium.  My talk focused on recent updates in the law relating to contracting with the Federal government. It was a broad topic I hope was valuable to all who attended. The symposium provided a wonderful opportunity to meet some clients face-to-face after having established a relationship over email and the phone and also to make some great new contacts. Huge thanks to Gary Moore and Lee Velton and the Idaho PTAC for organizing and inviting Koprince Law LLC to speak. Thanks to all who stopped by the table (and if you asked me where to get a copy of the Joint Ventures handbook, here’s a handy dandy link.) Next stop: Kansas SBDC Cybersecurity Forum in Manhattan, Kan., April 25, where I’ll be on the Identify, Protect, Detect, Respond, Recover panel. The event is sponsored by the Washburn Kansas Small Business Development Center. Registration is open. Hope to see you there.
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HUBZone Program: SBA Will Delete “Direct” Ownership Requirement

HUBZone companies owned by U.S. citizens will no longer be required to demonstrate that the ownership is “direct.” The SBA’s HUBZone program rules have long required that a HUBZone company owned by U.S. citizens be at least 51% directly owned by those citizens–as opposed to allowing the qualifying citizens to own those interests through legal vehicles like holding companies.  But the SBA has had second thoughts, and effective May 25, 2018, the direct ownership requirement will be eliminated. In a direct final rule issued on March 26, the SBA writes that “[d]irect ownership is not statutorily mandated” by the portion of the Small Business Act governing the HUBZone program.  The SBA has concluded that “the purposes of the HUBZone program–capital infusion in underutilized geographic areas and employment of individuals living in those areas–may be achieved whether ownership by U.S. citizens is direct or indirect.” The SBA explains: The regulations first implementing the HUBZone program were largely based on those governing the Small Disadvantaged Business (SDB) program, which is no longer in existence and which served different goals than the HUBZone program. The SDB program and SBA’s other currently active socioeconomic programs (including the 8(a) BD program, the WOSB small business program, and the SDVO small business program) are intended to assist the business development of small concerns owned and controlled by certain individuals, so requiring direct ownership for these programs is consistent with their purposes. The HUBZone program differs in that the program’s goals do not center on the socioeconomic status of the SBC owner but rather the location of the business and the residence of its employees. The SBA concludes: “[t]his direct final rule deletes the requirement that ownership by United States citizens in the HUBZone program must be direct, and instead it merely copies the statutory requirement that a HUBZone small business concern must be at least 51% owned and controlled by United States citizens.” The public is invited to submit comments on the direct final rule by April 25, 2018.  The rule will automatically become effective on May 25 “unless significant adverse comment is received” by the April 25 deadline. If anyone makes adverse comments (significant or otherwise), it won’t be me.  I’ve long felt that the direct ownership requirement is unnecessary for HUBZone companies owned by U.S. citizens, and applaud the SBA’s deletion of this requirement.  Elimination of this requirement will allow greater flexibility for U.S. citizens to own HUBZone companies using vehicles that may make good sense from business, liability, and tax standpoints. It’s worth noting that the change only applies to HUBZone companies owned by U.S. citizens.  HUBZone companies owned by Indian Tribes, ANCs, NHOs, CDCs and small agricultural cooperatives have separate requirements which are unaffected by this change. One final, slightly off-topic note: if you’re an SDB, don’t freak out about SBA’s statement that the SDB program “is no longer in existence.”  The SDB program is still in existence.  It’s right there in the SBA’s regulations, and SDB self-certification can still offer important benefits–for example, large prime contractors are required to meet SDB goals under typical subcontracting plans.  I think what the SBA meant to say is that the SBA no longer operates the SDB program as a formal certification program, which is certainly true; the SBA stopped certifying SDBs in 2008.
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DoD Mentor-Protege Program: Major Changes Finalized

The DoD has issued a final rule making major changes in the DoD “Pilot” Mentor-Protege Program.  The rule took effect on March 23, 2018. Among the major changes, DoD has both expanded and contracted the universe of potential proteges–and has included a mandatory certification that seems to completely misunderstand the SBA’s joint venture rules and processes. Here is my take on the good, the bad, and the ugly from the final rule. The Good Unlike the SBA’s mentor-protege program, the DoD mentor-protege program isn’t open to “ordinary” small businesses–instead, an eligible protege must fit within a permitted category.  The old rule limited the universe of proteges to small disadvantaged businesses (including 8(a)s), SDVOSBs, HUBZones, WOSBs, and entities employing the severely disabled. The final rule adds (1) an entity controlled and 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 coverage 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 sector that are critical to enhancing the capabilities of the defense supplier base and fulfilling key DoD needs. Expanding the universe of potential DoD proteges is a good step–although it’s undermined by a rather nonsensical size limit I’ll discuss momentarily. The final rule also extends the program through September 30, 2021, which is of course a good thing.  Even though it was first established in 1990, the DoD Mentor-Protege Program remains a “pilot” program and requires occasional renewal.  Perhaps in 2020, Congress will honor the program’s 30th birthday by finally removing the “pilot” label. The Bad The final rule adds a new size restriction: it says that an eligible protege must be “[l]ess than half the Small Business Administration (SBA) size standard for its primary North American Industry Classification System (NAICS) code.”  I guess if the SBA’s program is the All Small Mentor-Protege Program, the DoD’s is now the “Half Small.” I don’t like restricting proteges in this manner.  In my view, small is small.  According to the final rule, there are only 85 proteges currently participating in the DoD Mentor-Protege Program.  Imposing a Half Small limit will almost certainly further reduce the number of firms participating in the program. The final rule also imposes several requirements designed to ensure that there is no affiliation or control between mentor and protege.  In my view, some of these go too far. For instance, the final rule requires the mentor and protege to certify that “[t]he owners and managers of the mentor firm are not the parent, child, spouse, sibling, aunt, uncle, niece, nephew, grandparent, grandchild, or first cousin of an owner or manager of the protege firm.”  This rule goes well beyond the SBA’s affiliation regulation, under which familial relationships cause a presumption of affiliation only when the individuals in question are “married couples, parties to a civil union, parents, children, and siblings.”  And even then, the SBA rule is rebuttable by showing a “clear line of fracture” between the firms; there doesn’t seem to be any such rebuttal opportunity at DoD. Similarly, the final rule requires the parties to certify that “[t]he mentor firm has not, during the 2-year period before entering into a mentor-protege agreement, employed any officer, director, principal stock holder, managing member, or key employee of the protege firm.” Again, this rule goes beyond the presumptions established in the SBA’s affiliation rules and appears completely unrebuttable, no matter what role the individual in question held at the mentor firm, and regardless of the individual’s ability to control the protege. I certainly understand that the DoD wants to ensure that the program isn’t abused, but I think these overly broad rules aren’t the right way to do it.  Instead of completely preventing firms with these relationships from entering the program, the DoD would be better-served to ask for this information as part of the application, then refer the matter to the SBA for a formal size determination if the answers indicate a potential concern. The Ugly The very worst of these restrictions seems to completely misunderstand the SBA’s joint venture rules and processes.  The DoD mentor-protege program now requires a mentor and protege to certify that “[t]he mentor firm has not engaged in a joint venture with the protege firm during the 2-year period before entering into a mentor protege agreement, agreement, unless such joint venture was approved by SBA prior to making any offer on a contract.” There are two glaring problems with this requirement. First, the SBA doesn’t approve joint ventures for non-8(a) contracts.  For small business, SDVOSB, HUBZone, and WOSB/EDWOSB contracts, a joint venture must follow the SBA regulations, but the SBA will only review the joint venture if there is a protest of the apparent successful offeror.  Because it is impossible to obtain SBA’s approval for non-8(a) joint ventures, any mentor and protege who formed a joint venture for a non-8(a) contract would be precluded from participating in the DoD mentor-protege program. Second, even for 8(a) contracts, the SBA typically doesn’t approve joint ventures “prior to making an offer on a contract.”  Rather, the SBA need only approve the joint venture before award of the 8(a) contract.  So even if the mentor and protege had been approved by SBA for an 8(a) contract, they would likely be precluded from participating in the DoD mentor-protege program, simply because of the way the SBA 8(a) joint venture process approval process works. In practice, this rule would seem to effectively prevent anyone from applying to the mentor-protege program if the parties had formed a joint venture within the prior two years.  Because a single joint venture is almost never indicative of affiliation or control, I don’t see any good public policy purpose for this rule.  And since the restriction seems to stem from a fundamental misunderstanding of the SBA’s joint venture processes, this part of the final rule is downright ugly. The Rest  These aren’t the only changes included in the final rule, of course.  Among other revisions, the final rule limits proteges to one DoD mentor-protege agreement at a time, and imposes a five-year eligibility period for each protege.  The final rule also imposes new reporting requirements designed to allow the DoD to better track the progress of mentor-protege relationships. For those considering a DoD mentor-protege application, it’s well worth reading the entire final rule to become familiar with the new requirements–good, bad, ugly, and otherwise.
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SmallGovCon Week In Review: March 19 – 23, 2018

What a week of college basketball!  I don’t think anyone could have predicted a world in which UMBC knocked out Virginia and Loyola-Chicago is knocking on the door of the Final Four, but that’s where we are.  Tonight, both of my teams–Duke and KU–are playing, so I’ll be spending my Friday evening watching some hoops. But before March Madness kicks off, it’s time for the SmallGovCon Week in Review. In this week’s edition, the GSA and OMB are seeking legislative fixes as they move forward with the “Amazon Amendment,” protests against the major ENCORE III contract have been denied, a contractor admits to a bribery and gratuity scheme, and much more. The GSA and OMB are seeking legislative fixes as they seek to implement the so-called “Amazon Amendment.” [FederalNewsRadio] The major ENCORE III contract has survived four bid protests. [Nextgov] Speaking of protests, Professor Steven Schooner of George Washington University offers a timely take on the RAND Corporation’s recent bid protest report. [SSRN] A defense contractor has pleaded guilty to a bribery and gratuity scheme involving “valuable gifts” such as Apple products, luxury handbags, and Beats headphones. [U.S. Department of Justice] The DOE isn’t waiting around–it’s issued a class deviation adopting increases in the micro-purchase and simplified acquisition thresholds. [U.S. Department of Energy] The FBI has issued a timeline for the recompete of its $30 billion IT services contract. [Nextgov] The VETS 2 IT contract is open for business after several protests were denied. [Washington Technology]
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GAO’s Electronic Filing System: First Impressions

SmallGovCon readers may recall that, in 2016, the Government Accountability Office proposed an electronic filing system for bid protests. GAO released a pilot version of its new system earlier this year, and Koprince Law LLC has had the opportunity to test it on several occasions through our bid protest work. Here are some first impressions on GAO’s Electronic Protest Docketing System. EPDS is very functional and easy to use. If you’ve ever clicked a link, selected an option from a drop-down menu, and uploaded a document to a website, you’d have no problems using the system. But even if you did run into trouble, GAO has published a comprehensive user guide and videos that thoroughly explain how to use the system. Upon logging in, the user’s dashboard displays a list of each protest it has pending before GAO. This list provides basic information about the protest—GAO’s docket number (or “B-number”), identification of the protester and agency, filing date, next due date, and case status. From this page, users can also file a new protest (once that feature is active upon EPDS’s formal roll-out) or intervene in a protest that’s currently pending. Users can drill-down into each individual protest to view even more detailed information, like the solicitation number, whether there is an intervenor or if the protest is consolidated, the protester’s size status, and the identification of the GAO attorney considering the protest. Links to filed documents also appear on this page: if allowed access by GAO, users can view the protest, agency report, comments, and any other filings made. It’s from this page that users can also file documents—a pretty simple process of selecting the type of filing from a drop-down menu, then attaching a PDF document. Registered users are notified of each filing via an instantaneous email and can access filed documents right away. Overall, we are very impressed with EPDS. But there are a couple tweaks that could make the system even more useful: A messaging function. We don’t mean an instant messaging function [does anybody miss AIM?], but instead an email-esque function where parties can discuss routine matters with GAO. For example, we recently needed to request access to a document following our admission to a protective order; rather than simply sending a message within EPDS, we had to prepare and upload a letter. GAO responded immediately, but sending an internal email would have been more efficient. EPDS does have a “no objection” button, which allows users to, for example, easily state that they have no objection to a protective order application. But a broader, simple messaging function would be useful for other quick communications. Indefinite storage of protest documents. Before EPDS, it was up to the parties how they would store bid protest documents. And under the pilot program, it still is. But could a party use EPDS as its primary document storage system? This could be a great convenience for bid protest attorneys, especially if certain documents will remain accessible on EPDS even after a protest is closed. That said, we would caution against any requirement that litigants only store documents within EPDS—even in 2018, there will still be occasions where an attorney or pro se protester will need access to protest documents offline. These issues don’t detract from EPDS’s functionality or its ease of use. GAO has obviously paid significant attention to developing an easy-to-use system. As EPDS is rolled-out, we expect it will be proven a tremendous leap forward for the GAO bid protest process.
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NAICS Code Appeals: Discussions With Agency Don’t Extend Deadline

NAICS code appeals can be powerful, and while they’re infrequent, they often succeed.  But NAICS code appeals are subject to a strict, 10-day deadline–and that deadline isn’t extended by deliberations with the Contracting Officer. In a recent NAICS code appeal decision, the SBA Office of Hearings and Appeals reiterated that the 10-day deadline isn’t affected by discussions with the procuring agency. OHA’s decision in NAICS Appeal of AMEL Technologies, Inc., SBA No. NAICS-5892 (2018) involved a NAVFAC solicitation for construction management services.  NAVFAC issued the solicitation as a small business set-aside and assigned NAICS Code 236220 (Commercial and Institutional Building Construction), with an associated $36.5 million size standard.  The solicitation was issued on January 25, 2018. AMEL Technologies, Inc. believed that the correct NAICS code was 541330 (Engineering Services), which ordinarily carries a $15 million size standard. AMEL apparently initiated discussions with the Contracting Officer shortly after the solicitation was issued, asking the Contracting Officer to change the NAICS code to 541330. The Contracting Officer didn’t respond to the request until March 1, 2018.  The Contracting Officer didn’t address the merits of AMEL’s request, but simply stated that she considered the matter closed because AMEL had not filed a formal NAICS code appeal with OHA.  AMEL subsequently filed a NAICS code appeal on March 6. OHA wrote that “nder applicable regulations, a NAICS code appeal must be filed within 10 calendar days after issuance of the solicitation, or within 10 calendar days of an amendment affecting the NAICS code or size standard.”  OHA “has no discretion to extend, or waive, the deadline for filing an appeal.” OHA continued, “deliberations with a procuring agency which do not result in any change to the solicitation, do not extend the [NAICS] appeal deadline.”  Therefore, “the fact that [AMEL] requested that the CO reconsider the NAICS code does not alter [AMEL’s] deadline for bringing a NAICS code appeal at OHA.” AMEL “filed this appeal 40 calendar days after issuance of the RFP.”  Thus, “[t]he instant appeal is untimely and must be dismissed.” OHA dismissed AMEL’s NAICS code appeal. When an agency assigns an apparently erroneous NAICS code, it’s not a bad idea to approach the Contracting Officer about a change, as AMEL did.  Doing so can avoid unnecessary administrative litigation.  Additionally, giving the Contracting Officer the chance to reconsider before filing a NAICS code appeal may be beneficial from a “relationship standpoint.” However, as the AMEL Technologies case demonstrates, informal discussions about NAICS codes don’t extend the strict NAICS code appeal deadline–the 10-day clock keeps ticking.
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No Protest of CIO-SP3 SB Order Below $10 Million, Says GAO

A CIO-SP3 SB contract holder could not protest the award of a task order to a competitor because the order was valued at less than $10 million. In a recent bid protest decision, the GAO confirmed that civilian task order awards–including those under CIO-SP3 SB–generally cannot be protested unless the value of the order exceeds $10 million. The GAO’s decision in AMAR Health IT, LLC, B-414384.3 (Mar. 13, 2018) involved a task order RFQ issued by the Department of Health and Human Services.  HHS issued the RFQ as part of the CIO-SP3 SB Government-Wide Acquisition Contract. After evaluating quotations, HHS initially awarded the task order to AMAR Health IT, LLC at a price of nearly $14 million.  Zolon Tech Inc., an unsuccessful competitor, ultimately filed two GAO bid protests challenging the award to AMAR.  In response to the second protest, the HHS conducted discussions and evaluated final quotations.  The HHS then awarded the task order to Zolon at a price of approximately $6.3 million. AMAR attempted to file a GAO bid protest challenging the award to Zolon. The GAO wrote that “[p]rotests filed with our Office in connection with the issuance or proposed issuance of a task or delivery order under a civilian agency IDIQ contract are not authorized except where the order is valued over $10 million, or where the protester can show that the order increases the scope, period, or maximum value of the contract under which the order is issued.”  For purposes of determining the value of an order, the awardee’s price “is controlling since the terms of the order define the scope and terms of the contractual commitment between the contractor and the government.” The GAO rejected AMAR’s creative efforts to encourage the GAO to take jurisdiction.  “Here,” the GAO wrote, “because the order at issue is valued at less than $10 million, we lack jurisdiction to consider the protester’s challenge.” The GAO dismissed the protest. It’s easy to understand AMAR’s frustration with the circumstances here.  AMAR would have won the order itself but for two GAO protests from Zolon.  Then, when AMAR attempted to return the favor, it was unable to do so because Zolon’s price was below the $10 million threshold.  Because the awardee’s price governs, when AMAR was the awardee, the order was protestable; when Zolon was the awardee, it wasn’t. The AMAR Health IT case highlights the difficulty of attempting to protest a task order under CIO-SP3 or another multiple-award contract.  Except in unusual circumstances, the GAO lacks jurisdiction to consider the award of a task order under a civilian multiple-award contract where the value of the order is less than $10 million.
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Small Business Status: Ongoing Fiscal Year Usually Isn’t Included

Under the SBA’s size regulations, when a size standard calls for a company’s size to be determined by its average annual receipts, the company’s ongoing fiscal year usually isn’t included. In a recent size appeal decision, the SBA Office of Hearings and Appeals rejected an argument that the SBA’s evaluation of a company’s size should have included receipts from the company’s current fiscal year. OHA’s decision in Size Appeal of Nordstrom Contracting & Consulting Corp., SBA No. SIZ-5891 (2018) involved a VA IFB for the replacement of air handling units at a VA Medical Center.  The solicitation was issued as an SDVOSB set-aside under NAICS code 236220 (Commercial and Institutional Building Construction), with a corresponding $36.5 million size standard.  Bids were due November 28, 2017. The VA opened bids on November 28 and announced that Williams Building Company, Inc. was the apparent successful offeror.  Nordstrom Contracting & Consulting Corporation then filed a size protest against WBC, alleging that WBC’s receipts exceeded that $36.5 million size standard. The SBA Area Office evaluated the size protest.  Because WBC had submitted its bid in November 2017, the Area Office used WBC’s last three completed fiscal years–2014, 2015, and 2016–as the basis of its measurement.  After running the numbers, the Area Office concluded that WBC fell below the $36.5 million size standard. Nordstrom filed a size appeal with OHA.  Nordstrom pointed to information from USASpending.gov indicating that WBC was awarded federal contracts exceeding $50 million in 2017.  Nordstrom contended that the Area Office should have included WBC’s 2017 receipts because the Area Office’s size review was conducted in January 2018. OHA wrote that, under 13 C.F.R. 121.404(a), a company’s small business size status ordinarily is determined “as of the date the concern submits a written self-certification that it is small to the procuring activity as part of its initial offer (or other formal response to a solicitation), which includes price.”  Additionally, under 13 C.F.R. 121.104(c), the SBA ordinarily calculates size under a receipts-based size standard by examining “the total receipts of the concern over its most recently completed fiscal years divided by three.” In this case, “it is undisputed that WBC self-certified as a small business with its bid on November 28, 2017.”  OHA continued: Therefore, WBC’s three most recently completed fiscal years were 2014, 2015, and 2016.  Fiscal year 2017 was not yet complete at the time of WBC’s self-certification, and thus is not included in the period of measurement.  Accordingly, the Area Office correctly based its review on WBC’s average annual receipts over the time period 2014-2016. OHA denied Nordstrom’s appeal. As with many rules in government contracting, the rule discussed in the Nordstrom Contracting case has an exception: when a company has been in business less than three complete fiscal years, the SBA will use an alternate formula that includes revenues generated in the ongoing fiscal year.  But as the Nordstrom Contracting size appeal demonstrates, a company’s size under a receipts-based size standard usually turns on the average of the last three completed fiscal years–and excludes revenues generated in the ongoing fiscal year.
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SmallGovCon Week In Review: March 12-16, 2018

This is a month my office (which represents several different teams) gets excited for. The first week of March Madness is here, which means you may have found yourself being less productive than usual–don’t worry, that’s expected! But even during a time as captivating as the NCAA tournament, the world of government contracting doesn’t slow down. In this week’s edition of the SmallGovCon Week in Review, a communications company has agreed to pay over $12 million to settle civil False Claims Act allegations, antitrust critics fear that a winner-take-all contract for the Defense Department’s cloud computing could help tech giant Amazon corner the government contract market, a construction company lost $40 million in four years in a scheme to illegitimately gain government contracts, and much more. A San Diego communications company will pay more than $12 million to settle False Claims Act allegations regarding SBIR contracts. [www.justice.gov] Amazon’s attempt to land a major Pentagon job has stoked some antitrust fears. [thehill.com] A construction company owner fraudulently obtained set-aside contracts–but only gets probation. [post-gazette.com] During Sunshine Week, senators cite issues with FOIA request backlog. [Federal News Radio] Alliant 2 SB has been awarded–now comes the inevitable protest phase. [Washington Technology] The Pentagon tells its leaders to talk more with contractors–but less with the press. [Government Executive] One commentator says that the DoD’s cloud strategy stifles innovation. [Federal News Radio]
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WOSB Status & Task Orders: Underlying Contract Usually Governs

Under a multiple award contract, the underlying contract ordinarily governs whether a contractor qualifies as a woman-owned small business for purposes of task or delivery orders. As demonstrated in a recent SBA Office of Hearings and Appeals decision, if a company qualifies as a WOSB or EDWOSB at the time of its initial offer on the underlying multiple-award contract, it will also qualify as a WOSB or EDWOSB for each order issued against the contract, unless the contracting officer requests recertification in connection with a particular order. OHA’s decision in Island Creek Associates, LLC, SBA No. WOSB-110 (2018) involved a Marine Corps solicitation for services in support of the Global Combat Support Systems-Marine Corps/Logistics Chain Management Program.  The solicitation was issued as a competitive task order procurement under the SeaPort-e multiple-award IDIQ contract.  The agency issued the solicitation as a WOSB set-aside, but did not request that SeaPort-e contractors recertify their WOSB status for purposes of the task order competition. After evaluating proposals, the agency announced that ReMilNet, LLC was the apparent successful offeror.  An unsuccessful competitor, Island Creek Associates, LLC, then filed a WOSB status protest challenging ReMilNet’s eligibility. The SBA Director of Government Contracting issued a decision finding ReMilNet to be an eligible WOSB.  Island Creek appealed the determination. OHA asked the parties to address whether the SBA should have dismissed the initial WOSB status protest as untimely.  OHA pointed out that in a 2017 case involving SBA’s similar SDVOSB rules, OHA held that a protest of a task order was untimely because it wasn’t filed within five business days of the award of the underlying multiple-award contract or an option under that contract.  In that case, OHA noted that the contracting officer hadn’t requested recertification at the task order level, and thus there was no new SDVOSB certification to protest with respect to the task order. OHA wrote that “with regard specifically to orders under a Multiple Award Contract, SBA regulations state that a concern will retain its status as a WOSB or EDWOSB for the entire duration of the contract, unless the CO requests recertification in connection with a particular order.” In this case, “ReMilNet self-certified as a WOSB when it submitted its offer for the SeaPort-e contract in 2014, and no status protest was filed at that time.”  Moreover, “it is undisputed that the CO here did not request recertification for the instant task order.”  Accordingly, “Appellant’s protest was untimely because it was not filed within five days after award of ReMilNet’s SeaPort-e contract or an order requiring recertification.” OHA vacated the SBA’s decision and dismissed the appeal. When it comes to multiple-award contracts, there is a lot of confusion about when a company must qualify by size and/or socioeconomic status.  As the Island Creek Associates case demonstrates, in the WOSB and EDWOSB context, the self-certification made in connection with the underlying contract ordinarily governs.
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GAO: Past Performance Evaluation Not Required In LPTA Set-Aside Competition

An agency was not required to evaluate past performance under an SDVOSB set-aside solicitation that contemplated making award to the lowest-price, technically-acceptable offeror. According to a recent GAO bid protest decision, a past performance evaluation in the context of an LPTA set-aside is essentially duplicative of the agency’s evaluation of responsibility, meaning that a separate past performance evaluation isn’t necessary. GAO’s decision in Data Monitor Systems, Inc., B-415761 (Mar. 6, 2018) involved an Air Force solicitation for base operations and support services at Grissom Air Reserve Base.  The solicitation was set-aside for SDVOSBs, and called for award to the lowest-price, technically acceptable offeror. Under the solicitation, the Air Force would evaluate two factors: technical merit and price.  The solicitation did not include past performance as an evaluation factor. In a contemporaneous Determination and Findings, the Air Force found that evaluating past performance would not provide any significant benefit.  In its D&F, the Air Force noted that, under an LPTA evaluation, offerors with limited or unknown past performance cannot be evaluated unfavorable, meaning that such offerors are entitled to an “acceptable” rating.  Additionally, because the acquisition was an SDVOSB set-aside, any “unacceptable” past performance score would need to be referred to the SBA under the Certificate of Competency program, increasing the potential administrative burdens of conducting the acquisition. Data Monitor Systems, Inc. filed a pre-award bid protest challenging the terms of the solicitation.  DMS argued, in part, that failing to include past performance as an evaluation factor was unreasonable and improper. The GAO wrote that “the FAR provides that past performance need not be evaluated if the contracting officer documents the reason past performance is not an appropriate evaluation factor for the acquisition.”  And, in the context of a LPTA set-aside competition, the GAO “has previously questioned the value of including past performance as a separate evaluation factor precisely because the past performance evaluation is ultimately reduced to a matter of the firm’s responsibility, which will be evaluated, in any case, after source selection.”  This is particularly true “given the difficulties associated with how to consider a neutral rating in the context of a pass/fail evaluation, which as noted by the agency’s D&F in this case, is the rating required for firms without any past performance record or where the record is not available.” The GAO concluded: “n sum, we see no basis to disturb the agency’s conclusion that performing a past performance evaluation in the context of a lowest-priced, technically-acceptable procurement, which is set aside for small businesses, is essentially duplicative of the agency’s responsibility determination . . ..”  The GAO denied the protest. Past performance is, of course, an extremely common evaluation factor.  But as the Data Monitor Systems case demonstrates, procuring agencies are not required to consider past performance in every acquisition.  Where, as here, the acquisition will be set-aside for small businesses and award made on an LPTA basis, an agency may have good reason to forego an evaluation of past performance.
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SmallGovCon Week In Review: March 5 – 9, 2018

I am back in Kansas after spending some time in sunny Florida for the APTAC Spring 2018 Training Conference in Jacksonville. Next week, I hit the road again, this time to not-so-sunny (but still awesome) Washington State, where I’ll be giving a session at the 2018 Alliance Northwest Conference in Puyallup, WA.  If you are attending the event, please be sure to connect. Now it’s time for the latest and greatest in government contracting.  In today’s edition of the SmallGovCon Week in Review, the Pentagon has reportedly slashed a contract worth almost $1 billion that was awarded last month, a former contractor has been convicted of retaining classified information, the DOJ launches a national FOIA portal, and much more. The Pentagon has slashed an Amazon partner’s $950M cloud computing contract. [siliconangle.com] The State Department is updating contract language regarding requirements for contractors to cooperate with the agency Inspector General. [Federal News Radio] A former defense contractor has been convicted of unlawfully retaining classified information. [justice.gov] DOD defends its decision to move to commercial cloud with a single award. [fedscoop.com] The DOJ has announced the launch of a national FOIA portal. [justice.gov]    
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