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Koprince Law LLC

It’s been a rainy spring here in Lawrence, but the sun is finally out today.  And speaking of sunshine, I’ll be in sunny San Diego on Monday to speak at the APTAC Spring 2017 Training Conference.  I am looking forward to catching up with many of my favorite “PTACers” next week.

Before I head to the West Coast, it’s time for our weekly rundown of government contracting news and commentary.  In this week’s SmallGovCon Week In Review, a contractor has agreed to pay nearly $20 million to resolve accusations of overcharging the VA, the GSA is considering removing a mandate requiring industry partners to participate in the new Transactional Data Reporting pilot, the GAO concludes that DoD’s buying power is on the rise, and much more.

  • Public Spend Forum offers tips on how to bridge the gap between public procurement and government contracting. [Public Spend Forum]
  • After being accused of overcharging the U.S. Department of Veterans Affairs for drugs under two contracts, Sanofi-Pasteur has agreed to pay $19.8 million. [The United States Department of Justice]
  • As the GSA approaches a transition to its new communications effort, it has promised to learn from its past mistakes by listening more to its agency customers and industry partners and simplifying its efforts. [Federal News Radio]
  • In its annual assessment of the Defense Department’s major weapons systems, the GAO calculated that over the past year the DoD has seen a $10.7 billion increase in its “buying power.” [Federal News Radio]
  • UnitedHealthcare has filed GAO bid protests challenging DoD’s decision to award two large contracts in military health care to rival insurers. [StarTribune]
  • The Pentagon is ending a seven-year drawdown of acquisition spending after the Defense Department 2016 fiscal contract obligations increased by 7% over the previous year. [Government Executive]
  • The GSA is considering whether to remove a mandate requiring industry partners seeking or renewing a schedule to participate in its Transactional Data Reporting Pilot. [Nextgov]

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Koprince Law LLC

In evaluating a WOSB joint venture’s past performance, the procuring agency considered each joint venture member’s contemplated percentage of effort for the solicitation’s scope of work, and assigned the joint venture past performance ratings based on which member was responsible for particular past performance.

The GAO held that the agency had the discretion to evaluate joint venture past performance in this manner–although it is unclear whether a relatively new SBA regulation (which apparently didn’t apply to the solicitation) would have affected the outcome.

The GAO’s decision in TA Services of South Carolina, LLC, B-412036.4 (Jan. 31, 2017) involved an Air Force solicitation seeking services supporting Air Force Information Network operations.  The solicitation was issued on March 13, 2015 and was set aside for WOSBs.

The solicitation called for the award of a fixed-price contract (with a few cost reimbursable line items) for a 12-month base period and four potential option years.  The Air Force was to evaluate proposals on a best value basis, considering technical, past performance, and price factors.

The successful offeror was to perform work in five Mission Areas.  Under a “staffing/management” technical subfactor, offerors apparently were required to provide information regarding the anticipated breakdown of work between teaming partners (or joint venture partners) for each Mission Area.

With respect to past performance, the solicitation stated that offerors should submit past performance information on up to eight recent, relevant contracts performed by the offeror, its subcontractors, teaming partners, and/or joint venture partners.  The solicitation stated that “past performance of either party in a joint venture counts for the past performance of the entity.”

TA Services of South Carolina, LLC was an 8(a) mentor-protege joint venture between Technica, LLC, a woman-owned small business, and AECOM, its large mentor.  TAS submitted a proposal in response to the Air Force solicitation.  TAS provided three past performance contracts performed by AECOM, but none by Technica.

TAS proposed that Technica would provide the majority of the staffing (between 55% and 70%) on four of the five Mission Areas.  AECOM would provide the majority of the staffing on the fifth Mission Area.

In the course of its evaluation, the Air Force independently identified a fourth AECOM contract, but no Technica contracts.  The Air Force concluded that the four AECOM contracts “provided meaningful past performance to enable a confidence level to be determined for the Joint Venture.”  However, “while Technica proposed the majority of staffing in all areas except [one], they demonstrated no past performance.”  The Air Force assigned TAS a “Satisfactory Confidence” past performance rating.  The Air Force awarded the contract to a competitor, which proposed a higher price but received a “Substantial Confidence” past performance score.

TAS filed a GAO bid protest challenging the evaluation.  TAS argued, in part, that the Air Force’s past performance evaluation was inconsistent with the terms of the solicitation.  TAS contended that the solicitation required AECOM’s experience to be treated as the joint venture’s experience, and did not allow the Air Force to assign a lower confidence rating merely because Technica, the lead joint venture member, had not demonstrated relevant experience.

The GAO wrote that, “[a]s a general matter, the evaluation of an offeror’s past performance, including the agency’s determination of the relevance and scope of an offeror’s performance history to be considered, is a matter within the discretion of the contracting agency.”  In this case, “the RFP’s reference to the past performance of a JV partner counting for the mast performance of the JV does not mean the agency could not consider which JV partner was responsible for past performance.”  The GAO continued:

In the case of the protester, despite the fact that one JV partner had relevant past performance of exceptional quality in all mission areas, it remains the case that the other JV partner, which was proposed to perform the majority of staffing in four of the five mission areas, had no relevant past performance.  Given the latter circumstance, we fail to see that satisfactory confidence was an unreasonable performance confidence rating for the JV.

The GAO denied the protest.

The evaluation of a joint venture’s past performance is something I’m asked about frequently–and an area where the FAR provides little guidance.  However, is worth noting that last summer, the SBA overhauled its joint venture regulations, including those applicable to the WOSB program.  The WOSB regulations now provide, at 13 C.F.R. 127.506(f):

When evaluating the past performance and experience of an entity submitting an offer for a WOSB program contract as a joint venture established pursuant to this section, a procuring activity must consider work done individually by each partner to the joint venture, as well as any work done by the joint venture itself previously.

Nearly-identical language was added to the SBA’s regulations governing joint ventures for small business, 8(a), SDVOSB and HUBZone contracts.

The new regulation took effect more than a year after the solicitation was issued in March 2015, and wasn’t discussed in GAO’s decision.  But had it been effective, would it have changed the outcome?  That’s not entirely clear (and won’t be until a case comes along interpreting the new rule), but my best guess is “no.”

The regulation, by its plain language, specifies that the procuring agency must consider the past performance of individual joint venture members.  The SBA’s Federal Register commentary indicates that the reason SBA adopted this regulation was to prevent agencies from outright ignoring the past performance of joint venture members, and assigning undeserved “neutral” ratings to JVs comprised of experienced members.

In TA Services, of course, the agency did consider AECOM’s past performance, and didn’t assign TAS a “neutral” rating.  The new regulation doesn’t directly require any more than that, although I imagine there will be bid protests in the future about whether the underlying policy prohibits the sort of weighing that occurred here (i.e., is it fair to “penalize” a mentor-protege JV simply because the protege has little relevant experience?)

We’ll have to wait to see how the GAO and Court of Federal Claims resolve these issues in the future.  For now, TA Services of South Carolina seems clear: at least prior to the adoption of the new SBA regulations, and absent a solicitation provision to the contrary, there is nothing wrong with the agency considering each JV partner’s level of effort as part of the past performance evaluation.

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Koprince Law LLC

A small business joint venture’s proposal was excluded from the competition because the joint venture failed to submit a signed copy of its joint venture agreement, as required by the solicitation.

In a recent bid protest decision, the GAO held that the procuring agency acted properly in excluding the joint venture’s proposal, even though the joint venture’s price was more than $300,000 lower than the lowest-priced awardee’s.

The GAO’s decision in CJW Desbuild JV, LLC, B-414219 (Mar. 17, 2017) involved a NAVFAC solicitation for construction services.  The solicitation was issued as a small business set-aside, and contemplated the award of up to six IDIQ contracts.

The solicitation called for NAVFAC to make award on a best value basis, taking into account both price and non-price factors. The three non-price factors were construction experience, safety, and past performance.

Under the construction experience factor, the solicitation provided the following instruction:

If the Offeror is a Joint Venture (JV), relevant project experience should be submitted for projects completed by the Joint Venture entity.  If the Joint Venture does not have shared experience, projects shall be submitted for the Joint Venture members. . . . The Offeror shall submit a signed copy of the Joint Venture agreement indicating the proposed participation of each Joint Venture member.  Failure to submit the required Joint Venture Agreement will be considered unacceptable. 

CJW Desbuild JV, LLC was a joint venture comprised of two small businesses.  CJW Desbuild submitted a proposal in response to the NAVFAC solicitation.  However, CJW Desbuild failed to provide a signed copy of its joint venture agreement.  NAVFAC rated CJW Desbuild’s proposal as unacceptable, and excluded CJW Desbuild from award.  NAVFAC awarded IDIQ contracts to six other offerors.

CJW Desbuild filed a bid protest with the GAO.  CJW Desbuild argued that its failure to submit a signed joint venture agreement was a “minor oversight,” and should not have resulted in an “unacceptable” score.  CJW Desbuild also argued that NAVFAC should have used clarifications to permit CJW Desbuild to provide the joint venture agreement–especially in light of the fact that CJW Desbuild “submitted a proposed price that was over $300,000 lower than the lowest-priced awardee.”

GAO noted that the solicitation specifically required a signed copy of the joint venture agreement, and unambiguously “warned that failure to submit the agreement would be considered unacceptable.” GAO concluded that “ince the requirement for a signed JV agreement was specifically linked to technical acceptability, it could not be considered an informality or minor irregularity, subject to waiver.”

GAO also wrote that the agency could not have used clarifications to obtain the joint venture agreement.  The GAO said: “ince the protester’s failure to submit a signed JV agreement was a deficiency that rendered its proposal technically unacceptable, and clarifications do not envision revisions to proposals to cure matters of technical unacceptability, the protester could not have revised its proposal to make it acceptable via clarifications.”

GAO denied CJW Desbuild’s protest.

Joint ventures have long been part of the government contracting landscape.  But now that the SBA has finalized its All Small Mentor-Protege Program, which allows small proteges to joint venture with their large mentors for set-aside contracts, joint venturing seems to be increasing significantly in popularity.

Perhaps in response to an uptick in proposals from joint ventures, it seems to me (based on an entirely unscientific process I call “looking at a lot of government solicitations”) that more and more agencies are requiring joint ventures to submit their signed joint venture agreements as part of their proposals.  And as the CJW Desbuild protest demonstrates, when an agency requires a signed joint venture agreement as part of a non-price evaluation, a joint venture may be excluded from the competition for failing to comply.

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Koprince Law LLC

Here at Koprince Law LLC, we just celebrated our second anniversary (which we affectionately call our “firmaversary”). Thank you very much to our wonderful lawyers, staff and clients for a fantastic first two years.

It’s time for our weekly dose of the latest and greatest in federal government contracting news–the SmallGovCon Week In Review. In this week’s edition, the Fair Pay and Safe Workplaces rule is gone, contractors weigh in on the President’s “skinny budget” proposal, a new bill would expand the USASpending.gov website, and much more.

  • Contractors weigh in on the highs and lows of President Trump’s proposed “skinny budget.” [Government Executive]
  • The “Contractor Accountability and Transparency Act of 2017” will expand the contracting information available on USASpending.gov and make the contract information more accessible and readable. [Project On Government Oversight]
  • President Donald Trump signed a joint resolution shutting down the Fair Pay and Safe Workplaces rule that supporters said evened the playing field for law-abiding contractors, and opponents singled out as unduly burdensome. [Federal News Radio]
  • The White House released a statement on the revocation of the Fair Pay and Safe Workplaces executive order and other contracting-related executive orders issued by former President Obama. [The White House]
  • Speaking of repeals, the President’s action rolls back pieces of an Obama executive order banning federal contractors from discriminating against employees on the basis of their sexual orientation or identity. [NBC News]
  • When it comes to federal IT acquisition, the workforce is too small, the hurdles are numerous, and modernization is slow. A House subcommittee hears proposals for modernizing Federal IT acquisition. [Federal News Radio]
  • The White House has released a few more details on how exactly it plans to cut $18 billion from some civilian agencies and offset significant boosts to defense and homeland security spending for the rest of fiscal 2017. [Federal News Radio]

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Koprince Law LLC

Earlier this month, the GAO  released a comprehensive report detailing the trends in government contracting over a five-year period (from fiscal year 2011 through 2015). The entire report is available here. If you have a few hours to spare, it’s worth a read; if not, this post will summarize a few of its most eye-catching nuggets.

Off the bat, the report noted the massive amount of money spent on government contracts. In 2015, federal agencies procured over $430 billion in products and services—nearly 40 percent of the government’s discretionary spending. However, this amount represents a substantial decrease in government-wide contracting expenditures since 2011. Defense obligations decreased by nearly 31 percent over this time (dropping from $399 billion to $274 billion), while civilian obligations remained comparatively steady (nearly $176 billion in 2011 to $164 billion in 2015).

Interestingly, the report noted that approximately 2/3 of federal contracts were procured via competitive means during this time. Civilian agencies averaged higher competition rates (nearly 80 percent of solicitations, in 2015) than did defense agencies (only about 56 percent). Even still, a surprising number of competed contracts were effectively sole source awards—in 2015, 14 percent of competed solicitations were awarded to the sole offeror.

GAO further found that fixed-price contracts were the primary purchasing vehicle during this time frame. Nearly 2/3 of total contract obligations during this five-year time period were fixed-price awards. Defense agencies relied more on cost-type contracts—which GAO considers to be “high risk,” as they “do not directly incentivize contractors to control costs and thus carry significant potential risk of overspending”—than did civilian agencies. (As we wrote earlier on SmallGovCon, the 2017 National Defense Authorization Act establishes a preference for the DoD to use fixed-price contracts, although such a preference is already contained in the FAR). Contracts were about split between awards issued under indefinite delivery vehicles (like IDIQs and government-wide acquisition contracts) and definitive contracts.

Finally, the report discussed the government’s progress toward reaching its small business contracting goals. Government-wide, GAO found that small businesses received over $97 billion in prime contract awards in 2015. According to the SBA, the government met its goal for contracting to small businesses—achieving about 25 percent small business participation in 2015 (versus the 23 percent goal). On the whole, more agencies met their socioeconomic contracting goals in 2015 than did in 2011.

For all the positive news, the report revealed a downward trend in small business contracting. Defense awards to small businesses fell about $10 billion over this time period, while civilian awards decreased by about $5 billion.

GAO’s report is an interesting look into the state of federal contracting and, in particular, the government’s focus on austerity since 2011 (including sequestration). We’ll see how changes to the political landscape affect the next five years.

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Koprince Law LLC

If an SDVOSB was eligible at the time of its initial offer for a multiple-award contract, the SDVOSB ordinarily retains its eligibility for task and delivery orders issued under that contract, unless a contracting officer requests a new SDVOSB certification in connection with a particular order.

In a recent SDVOSB appeal decision, the SBA Office of Hearings and Appeals confirmed that regulatory changes adopted by the SBA in 2013 allow an SDVOSB to retain its eligibility for task and delivery orders issued under a multiple-award contract, absent a request for recertification.

OHA’s decision in Redhorse Corporation, SBA No. VET-261 (2017) involved a GSA RFQ for transition ordering assistance in support of the Network Services Program.  The RFQ contemplated the award of a task order against the GSA Professional Services Schedule multiple-award contract.  The RFQ was issued as an SDVOSB set-aside under NAICS code 541611 (Administrative Management and General Management Consulting Services).  The GSA contracting officer did not request that offerors recertify their SDVOSB eligibility in connection with the order.

After evaluating quotations, the GSA announced that Redhorse Corporation was the apparent awardee.  An unsuccessful competitor subsequently filed a protest challenging Redhorse’s SDVOSB status.  The SBA Director of Government Contracting sustained the protest and found Redhorse to be ineligible for the task order.

Redhorse filed an SDVOSB appeal with OHA.  Redhorse argued that regulations adopted by the SBA in 2013, and codified at 13 C.F.R. 125.18(e), specify that a company qualifies as an SDVOSB for each order issued against a multiple-award contract unless the contracting officer requests recertification in connection with the order.

OHA wrote that SBA’s SDVOSB regulations “make clear that a concern will retain its [SDVOSB] eligibility for all orders under a GSA Schedule or other ‘Multiple Award Contract’ unless the CO requests recertification for a particular order.”  OHA then quoted the relevant portions of 13 C.F.R. 125.18(e):

Recertification. (1) A concern that represents itself and qualifies as an SDVO SBC at the time of initial offer (or other formal response to a solicitation), which includes price, including a Multiple Award Contract, is considered an SDVO SBC throughout the life of that contract. This means that if an SDVO SBC is qualified at the time of initial offer for a Multiple Award Contract, then it will be considered an SDVO SBC for each order issued against the contract, unless a contracting officer requests a new SDVO SBC certification in connection with a specific order.

(5) Where the contracting officer explicitly requires concerns to recertify their status in response to a solicitation for an order, SBA will determine eligibility as of the date the concern submits its self-representation as part of its response to the solicitation for the order.

In this case, Redhorse “self-certified as an [SDVOSB] when it was initially awarded its Professional Services Schedule contract, and most recently recertified its status in 2014 when GSA exercised an option to extend the contract.”  As a result, “according to the plain language” of the regulation, Redhorse is considered an SDVOSB “for each order issued against the contract,” unless a recertification is requested.

OHA stated that “t is undisputed that the CO here did not request recertification of size or status for this task order.”  Accordingly, “the award of the instant task order was not an event that [the protester] could challenge through a status protest.”

OHA concluded that the initial SDVOSB protest “should have been dismissed.”  OHA granted the appeal and vacated the SBA’s decision.

Before the 2013 changes to 13 C.F.R. 125.18, the SBA’s regulations didn’t specifically address whether an SDVOSB’s eligibility could be challenged on an order-by-order basis.  But as the Redhorse Corporation appeal demonstrates, the SBA’s regulatory changes cleared up that potential confusion.  Under the current rules, if an SDVOSB qualifies at the time of its initial offer on the underlying multiple-award contract, the SDVOSB ordinarily will be eligible for orders issued under that contract, unless a Contracting Officer requires recertification in connection with an order.

One final note: the SBA’s decision applies to procurements falling under the SBA’s self-certification SDVOSB program.  But as SmallGovCon readers know, the government is currently operating two SDVOSB programs: the SBA’s self-certification and the VA’s formal verification program.  OHA’s decision doesn’t apply to VA SDVOSB procurements; it’s possible that the VA would reach a different conclusion for a procurement governed by the VAAR’s unique SDVOSB rules.

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Koprince Law LLC

The Armed Services Board of Contract Appeals recently dismissed a government claim that Lockheed Martin Integrated Systems, Inc. (LMIS), failed to comply with its prime contract terms by not adequately managing its subcontractors and therefore all subcontract costs (more than $100MM) were unallowable.

Although the government claim was directed at a large contractor, some of the amount in question, presumably, included invoiced amounts by small business subcontractors.  At least by implication, had the government prevailed, it could have resulted in requirements for prime contractors to become far more demanding and intrusive in terms of subcontractor documentation and/or access to subcontractor records.

At issue in Lockheed Martin Integrated Systems, Inc., ASBCA Nos. 59508, 59509 (2016) was DCAA’s assertion and the Contracting Office agreement, that a prime, in accordance with FAR 42.202(e)(2), Assignment of Contract Administration, must perform in the role of the CO, CAO and DCAA when managing subcontracts.  DCAA went on to assert that this responsibility includes, among other things, requiring subcontractors to submit Incurred Cost Proposals (ICP) to the prime and the prime performing an audit on that ICP, or requesting an assist audit by DCAA.

Because LMIS had no documentation requiring its subcontractors to submit ICPs, the government asserted a breach of contract and therefore questioned all subcontract costs as unallowable.  Fortunately, the Board adamantly disagreed, stating that FAR 42.202 (the whole basis on which subcontract cost were questioned) is not a contractual clause nor a clause incorporated by reference.  The Board concluded that FAR 42.202 is a regulation pertaining only to the government’s administration of contracts and nowhere is it implied that a prime take on the role of CO, CAO or DCAA for its subcontractors.

Whew, good news for contractors, right?  Some may assume the outcome of this case will force DCAA to relent on its current obsession with prime management of subcontracts.  If you have had the fortune of an ICP audit or a Paid Voucher audit recently, you understand my statement, “current obsession with prime management of subcontracts.”  These audits, in particular, place significant emphasis on the processes and procedures in place which demonstrate and document the prime’s management of subcontracts.

Many small business primes have expressed concern about DCAA’s requests and expectations, during these audits, and what impact it may have on the allowability of historical subcontract cost.  In my professional opinion, I doubt DCAA is going to take a step back in its auditing approach, nor relent in its expectation of subcontractor monitoring.  But, at least now there is precedent stating that primes are not auditors and it’s not the prime’s responsibility to require subcontractor ICPs nor audit subcontractor ICPs.

So, what is the prime’s responsibility for monitoring subcontractors?  First, note that the responsibility of the prime to “manage” subcontractors stems not from FAR 42.202 but rather from other regulations and at different phases of the contract process.

Pre-award phase:

  • FAR 9.104-4(a) – Subcontractor Responsibility: “Prospective prime contractors are responsible for determining the responsibility of their prospective subcontractors.”
  • FAR 15.404-3(b) – Subcontract Pricing Considerations: “Prime contractor shall perform appropriate cost or price analysis to establish the reasonableness of subcontract prices and include the results in the price proposal.”

Post-award phase:

  • FAR 52.216-7 (d)(5) – Allowable Cost and Payment: “The prime contractor is responsible for settling subcontractor amounts and rates included in the completion invoice or voucher and providing status of subcontractor audits to the contracting officer upon request.

Primes must still ensure subcontractor capability and contract compliance.  This is best achieved by implementing policies motivated towards an on-going monitoring approach and well documented subcontract files.  Best practices considerations include, but are not limited to the following:

  • Perform and document Price Analysis or Cost Analysis. Although this documentation primarily supports cost estimates, it ultimately supports the reasonableness of subcontract costs as a component of prime ICPs.
  • Obtain subcontractor self-certifications (accounting system, provisional rates, ICP submission); note, however, that self-certifications without any corroborating data is risky.
  • Insert subcontract clauses with access to specified records and/or the requirement of third party verification (reasonable assurance, but not an audit). For example, a subcontract clause with rights to detailed subcontractor supporting records such as time sheets, travel expense receipts intermittently.  The purpose is to selectively document that the subcontractor can support costs invoiced.
  • Focus on billing policies and procedures providing reasonable assurance of satisfactory subcontract performance.
  • Define managing subcontracts in the context of review and approval of subcontractor invoices (substation of hours, rates). Avoid references to “audits” unless expressly required by a specific contract.
  • Consider contract close-out expediencies
    • Quick close-out and/or DCAA Low Risk (concept)
    • Convert to FFP (FAR 16.103(c)) with support for the fixed price)
    • Third party reviews (agreed upon procedures/limited transaction verification)

Regardless of the outcome and what evolves from the ASBCA cases, primes are ultimately responsible for the allowability of subcontract costs.  There is always risk that subcontractor cost will be challenged at the prime contract level.  However, these ASBCA cases confirm that the contractual requirements imposed on primes is far less onerous than anything envisioned by DCAA.

Courtney Edmonson, CPA is the VP of Small Business Consulting at Redstone Government Consulting and provides contract compliance services to small business government contractors.  Her areas of expertise include pricing and cost volume proposals, indirect rate forecasting and modelling, incurred cost proposals, and DCAA compliance. Courtney is the lead instructor for the Federal Publication Seminars course, “Government Contractor Accounting System Compliance”, and provides instruction for other compliance courses including, “Preparation of Incurred Cost Submissions”, “FAR 31, Cost Principles”, and “Cost Accounting Standards.” Courtney graduated from Jacksonville State University with a Bachelor of Science and obtained a Master of Accountancy from the University of Alabama in Huntsville.  She is also a Certified Public Accountant.

Redstone Government Consulting – 4240 Balmoral Drive, SW Suite 400 Huntsville, AL 35801 www.redstonegci.com

Phone: 256-704-9840                       Email: cedmonson@redstonegci.com

GovCon Voices is a regular feature dedicated to providing SmallGovCon readers with candid news, insight and commentary from government contracting thought leaders.  The opinions expressed in GovCon Voices are those of the individual authors, and do not necessarily reflect the opinions of Koprince Law LLC or its attorneys.

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When issues arise in performance of a federal contract, a contractor may seek redress from the government by filing a claim with the contracting officer. However, commencing such a claim may result in an exercise of patience and waiting by the contractor.

The Contract Disputes Act, as a jurisdictional hurdle for claims over $100,000, requires a contractor to submit a “certified claim” to the agency. The CDA also requires the contracting officer, within sixty days of receipt of a certified claim, to issue a decision on that claim or notify the contractor of the time within which the decision will be issued.

That second part of the equation can lead to some frustration on the part of contractors. As seen in a recent Civilian Board of Contract Appeals decision, a contracting officer may, in an appropriate case, extend the ordinary 60-day time frame by several months.

In Stobil Enterprise v. Department Veterans Affairs, CBCA No. 5616 (2017), the VA awarded Strobil a contract to provide housekeeping and dietary services for an inpatient living program at a VA facility. After encountering contractual issues, Stobil initially filed a claim in the amount of $166,000. The VA denied this claim, and Stobil appealed. The CBCA dismissed Stobil’s appeal because the underlying claim hadn’t included the required certification.

Stobil then went back to the drawing board and filed a certified claim, “based on the same contracts and similar issues as those presented” in the first claim. But the certified claim was in the amount of $321,288.20, plus a whopping $2.3 million in interest. Stobil filed its certified claim on November 28, 2016.

By way of a January 27, 2017 letter, the contracting officer notified Stobil that the contracting officer would issue a decision on the certified claim by March 31, 2017. According to the contracting officer, the decision would be issued about four months after Stobil had filed its claim–or about twice as long as the 60-day time frame set forth in the CDA.

Apparently frustrated with the delay, Stobil requested the CBCA direct the contracting officer to issue its decision sooner. The CBCA declined this request.

In its rationale, the CBCA noted that the CDA doesn’t require a contracting officer to issue a decision within 60 days, but instead provides the contracting officer the option of notifying the contractor of the time within which the decision will be issued. The CDA doesn’t provide an outer limit on the period in which the decision may be extended beyond 60 days. Instead, the question is whether the delay was reasonable in light of the specific facts and circumstances of the case.

The CBCA continued:

Typically, in evaluating undue delay and reasonableness [of the date proposed by the contracting officer for issuance of a decision on a claim], a tribunal considers a number of factors, including the underlying claim’s complexity, the adequacy of contractor-provided supporting information, the need for external technical analysis by experts, the desirability of an audit, and the size of and detail contained in the claim.

The CBCA explained that while the VA had previously issued a decision on Stobil’s claims involving similar matters,”Stobil nearly doubled the amount of its claim from its former appeal . . . and is also now seeking around $2.3 million in interest.” This is, the CBCA said, “by no means a slight up-tick in money sought, such that the contracting officer should be able to rely primarily on whatever documentation Stobil previously submitted” with its initial claim. The CBCA agreed with the VA that with the significantly increased monetary demand and possibility of new items requiring review, the contracting officer was not “unduly delayed” in issuing a decision. The CBCA concluded that the VA’s timeline for issuing a decision on the certified claim was “reasonable, constituting only a modest delay.”

It’s commonly understood that a claim filed pursuant to the Contract Disputes Act must be decided within 60 days. But as the Stobil Enterprise case demonstrates, agencies have the discretion to extend the 60-day period significantly, provided that the extension is deemed “reasonable.” Here, the contracting officer essentially doubled the underlying 60-day period, but was guilty of nothing more than a “modest delay.” Contractors availing themselves of the claims process should be prepared to play the waiting game.

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The woman-owned small business program is in the midst of major changes: from the addition of sole source authority, to lingering questions about what the heck the SBA’s plan is to address the elimination of WOSB self-certification.

I recently joined host “Game Changers” podcast host Michael LeJune of Federal Access for an in-depth discussion of recent WOSB program changes, and where the WOSB program goes from here.  Click here to listen to the podcast, and visit the Game Changers SoundCloud page for more great discussions with government contracting thought leaders.

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Koprince Law LLC

The mantra of March Madness is “survive and advance,” but the Kansas Jayhawks did more than that in their 32-point win over Purdue last night. Here in Lawrence, we’re waiting for tomorrow night’s Elite Eight showdown with Oregon. And since waiting is always better with some good reading material, it’s time for the SmallGovCon Week In Review.

In this week’s edition, a look at how President Trump’s proposed military budget will impact customers, a contractor agrees to a whopping $45 million payout to settle allegations of overcharging the government, the Army contends that protests are “nearly automatic,” and much more.

  • President Trump is requesting a big boost to military spending in the FY 2018 budget request blueprint, but not all contractors will win. [Bloomberg Government]
  • After a long-lasting legal dispute between an IT contractor and the federal government, the contractor has agreed to pay $45 million to settle allegations that it overcharged and provided false pricing information to the government. [Nextgov]
  • The National Park Service concessions program is making changes based on recommendations from the GAO, but challenges remain. [U.S. Government Accountability Office]
  • Federal contractors are driving a trend of specialization to reposition themselves in the market so they can compete less on price and more on the value of particular skills and knowledge. [National Defense]
  • High-ranking U.S. Army officials contend that protests are “nearly automatic” and are asking industry to reconsider its approach. (My take: with only 2,789 GAO bid protests filed in FY 2016–across all procurements by all federal agencies–I’m sensing a wee bit of exaggeration on the part of the Army). [DefenseNews]
  • A possible bright spot for contractors asking how to maintain market share could be GWACs and IDIQs. [Washington Technology]
  • According to government contracting guru Larry Allen, contractors should look forward to more activity in the fourth quarter of the fiscal year. [Federal News Radio]

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An agency was justified in canceling a small business set-aside solicitation–and reissuing the solicitation on an unrestricted basis–where the agency determined that the prices offered by small businesses were too high.

In a recent bid protest decision, the GAO confirmed that while the FAR’s “rule of two” set-aside requirement provides a powerful and important preference for small businesses, it doesn’t require an agency to pay more than fair market value for products or services.

The GAO’s decision in Wall Colmonoy Corporation, B-413320; B-413322 (Oct. 3, 2016) involved an Air Force solicitation for the remanufacture of approximately 80 F-16 heat exchangers.  Before issuing the solicitation, the Air Force conducted market research to determine whether the solicitation should be set aside for small businesses.  The market research indicated that two small businesses were likely to submit proposals.  Based on its market research, the Air Force issued the solicitation as a small business set-aside.

The Air Force also prepared an independent government estimate, or IGE, to use in the evaluation of offerors’ price proposals.  The Air Force’s IGE indicated that the remanufacture of each unit should cost approximately $12,000.  The Air Force’s IGE was based in large part on a 2012 contract for the same services, under which the Air Force paid $11,936 per unit.

The two small businesses identified in the market research submitted proposals.  Wall Colmonoy Corporation, one of the small businesses, proposed a unit price of $17,426.  The other small business proposed a unit price of $29,950.

The Air Force opened discussions with both small business offerors.  Through several rounds of discussions, the Air Force informed the small businesses that their proposed prices were higher than the Air Force had anticipated.  WCC ultimately lowered its proposed price to $15,950 per unit.  The second small business apparently lowered its price by only $450 per unit, to $29,500.

After reviewing revised proposals, the Air Force concluded that it could not make award at a reasonable price.  The Air Force canceled the solicitation.  The Air Force then issued a new solicitation on an unrestricted basis.  Except for removing the small business set-aside designation, the new solicitation was “essentially identical to the previous solicitation.”

WCC filed two GAO bid protests: one challenging the Air Force’s decision to cancel the small business solicitation; the second challenging the Air Force’s failure to issue the second solicitation as a small business set-aside.  The GAO consolidated the protests for decision.

The GAO first determined that the Air Force had properly canceled the first solicitation.  The GAO noted that WCC’s proposed prices were “significantly higher” than the Air Force had anticipated.  The Air Force “engaged in multiple rounds of discussions with WCC, repeatedly advising WCC that its unit price was too high.”  When WCC’s final proposal remained $3,950 higher per unit than the IGE, the Air Force reasonably canceled the solicitation.

The GAO then held that the Air Force had reasonably issued the second solicitation on an unrestricted basis.  The GAO wrote: “[g]iven that the agency canceled [the first solicitation] because the agency concluded that it was unable to make an award at a fair market price, we find nothing improper with the contracting officer’s decision to not set aside [the second solicitation] for the same requirements.”  The GAO denied WCC’s protest.

FAR 19.502-2(b) provides that an acquisition over $150,000 ordinarily shall be set aside for small businesses where the contracting officer has a reasonable expectation of obtaining offers from at least two small businesses, and where “[a]ward will be made at fair market prices.”  Although discussion of the “rule of two” usually centers on the availability of small business sources, the Wall Colmonoy Corporation protest is a good reminder that an agency need not restrict a solicitation to small businesses if the agency has a reasonable belief that it cannot make award at “fair market prices.”

One final note: the Air Force’s response to WCC’s protest indicated that the services had been procured in 2008 for $8,882 per unit and again in 2012 for $11,936 per unit.  In other words, over the four-year period from 2008 to 2012, the cost of the services increased by $3,054 per unit, a jump of approximately 34.4%.  Given this history, it’s surprising that (at least based on the public protest decision), WCC does not appear to have protested the reasonableness of the IGE itself.  The IGE of $12,000 anticipated a mere 0.54% price increase over the four years between 2012 and 2016: well below inflation rates during the period, and at odds with the 34.4% increase the Air Force agreed to in the prior four-year period.  Indeed, WCC’s final unit price of $15,950 was approximately 33.7% higher than the 2012 unit price: directly in line with the percentage increase between 2008 and 2012.  Why didn’t this issue come up in the protest (or at least in the published decision)?  Good question.

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Federal contractors frequently find themselves in the position of needing to establish their past performance credentials to secure future contracts – the government’s form of a reference check. The government often performs these reference checks by requesting completed past performance questionnaires, or PPQs, which the government uses as an indicator of the offeror’s ability to perform a future contract.

But what happens when a contractor’s government point of contact fails to return a completed PPQ? As a recent GAO decision demonstrates, if the solicitation requires offerors to return completed PPQs, the agency need not independently reach out to government officials who fail to complete those PPQs.

By way of background, FAR 15.304(c)(3)(i) requires a procuring agency to evaluate past performance in all source selections for negotiated competitive acquisitions expected to exceed the simplified acquisition threshold. The government has many means at its disposal to gather past performance information, such as by considering information provided by the offeror in its proposal, and checking the Contractor Performance Assessment Reports System, commonly known as CPARS.

PPQs are one popular means of obtaining past performance information. A PPQ is a form given to a contracting officer or other official familiar with a particular offeror’s performance on a prior project. The official in question is supposed to complete the PPQ and return it–either to the offeror (for inclusion in the proposal) or directly to the procuring agency. Among other advantages, completed PPQs can allow the agency to solicit candid feedback on aspects of the offeror’s performance that may not be covered in CPARS.

But the potential downside of PPQs is striking: the FAR contains no requirement that a contracting official respond to an offeror’s request for completion of a PPQ or similar document within a specific period (or at all). Contracting officials are busy people, and PPQ requests can easily fall to the bottom of a particular official’s “to-do” list. And procuring agencies sometimes contribute to the problem by developing lengthy PPQs that can be quite time-consuming to complete. For example, in a Google search for “past performance questionnaire,” the first result (as of the date of this blog post) is a NASA PPQ clocking in at 45 questions over 11 pages. A lengthy, complex PPQ like that one almost begs the busy recipient to ignore it.

That brings us to the recent GAO bid protest, Genesis Design and Development, Inc., B-414254 (Feb. 28, 2017). In Genesis Design, GAO denied a protest challenging the rejection of an offeror’s proposal where the offeror failed to adhere to the terms of the solicitation requiring offerors to submit three PPQs completed by previous customers.

The protest involved the National Park Service’s request for the design and construction of an accessible parking area and ramp at the Alamo Canyon Campground in Ajo, Arizona. The solicitation required offerors to provide three completed PPQs from previous customers to demonstrate that the offerors had successfully completed all tasks related to the solicitation requirements. The solicitation provided the Park Service with discretion to eliminate proposals lacking sufficient information for a meaningful review. The Park Service was to award the contract to the lowest-priced, technically acceptable offeror.

Genesis Design and Development, Inc. submitted a proposal. However, the PPQs Genesis provided with its proposal had not been completed by Genesis’ prior customers. Instead, the PPQs merely provided the contact information of the prior customers, so that the Park Service could contact those customers directly.

The Park Service found Genesis’ proposal was technically unacceptable, because Genesis failed to include completed PPQs. The Park Service eliminated Genesis from the competition and awarded the contract to a competitor.

Genesis filed a GAO bid protest challenging its elimination. Genesis conceded that the PPQs had not been completed by its past customers, but stated that it “reasonably anticipated that the agency would seek the required information directly from its clients.” Genesis contended that it “is often difficult to obtain such information from its clients because they are often too busy to respond in the absence of an inquiry directly from the acquiring activity.”

GAO wrote that “an offeror is responsible for submitting an adequately written proposal and bears the risk that the agency will find its proposal unacceptable where it fails to demonstrate compliance with all of a solicitation’s requirements.” Here, “the RFP specifically required offerors to submit completed PPQs,” but “Genesis did not comply with the solicitation’s express requirements.” Accordingly, “the agency reasonably rejected Genesis’ proposal.” GAO denied Genesis’ protest.

GAO’s decision in Genesis Design should serve as an important warning for offerors: where the terms of a solicitation require an offeror to return completed PPQs from its previous customers, the offeror cannot assume the procuring agency will contact the customers on the offeror’s behalf. Instead, it is up to the offeror to obtain completed PPQs.

In our view here at SmallGovCon, the Genesis Design decision, and other cases like it, reflect a need for a FAR update. After all, Genesis was exactly right: contracting officers are sometimes too busy to prioritize responding to PPQs. It doesn’t make good policy sense for the results of a competitive acquisition to hinge on whether a particular offeror is lucky enough to have its customers return its PPQs, instead of on the merits of that offeror’s underlying past performance.

Policymakers could address this problem in several ways, such as by imposing a regulatory requirement for contracting officials to respond to PPQ requests in a timely fashion, or by prohibiting procuring officials from requiring that offerors be responsible for obtaining completed PPQs. Hopefully cases like Genesis Design will spur a regulatory change sometime down the road. For now, offerors bidding on solicitations requiring the completion of PPQs must live with the uncertainty of whether the government will reject the offeror’s proposal as technically unacceptable due to the government’s failure to complete a PPQ in a timely manner.

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A Program Management Office manager was not a “key employee” within the definition of the SBA’s affiliation regulations, according to the SBA Office of Hearings and Appeals.

In a recent size appeal decision, OHA found that the fact that a small business’s CEO served as another company’s PMO manager did not result in affiliation between the two companies because the individual in question could not control the second company through his PMO manager role.

OHA’s decision in Size Appeal of INV Technologies, Inc., SBA No. SIZ-5818 (2017) involved an Air Force solicitation for training services and support at the Oklahoma City Air Logistics Complex.  The solicitation was issued as a small business set-aside under NAICS code 611430 (Professional and Management Development Training) with a corresponding $11 million size standard.

After evaluating proposals, the Air Force announced that INV Technologies, Inc. was the apparent awardee.  An unsuccessful offeror filed an SBA size protest challenging INV’s small business status.

The SBA Area Office determined that INV’s owner and President, Chandan Jhunjhunwala, also worked as a Program Management Office manager for SNAP, Inc.  INV and SNAP also had other relationships, including a number of subcontracts issued between the companies.

The SBA Area Office issued a size determination finding INV and SNAP to be affiliated.  Among the reasons for affiliation, the SBA Area Office found that Mr. Jhunjhunwala was a key employee of SNAP, meaning that INV and SNAP shared common control.  The affiliation with SNAP caused INV to be ineligible for the Air Force contract.

INV filed a size appeal with OHA, alleging that the SBA Area Office’s decision was erroneous.  Among its arguments, INV contended that Mr. Jhunjhunwala was not a “key employee” of SNAP and could not control that company.

OHA explained that under the SBA’s affiliation regulations, “the touchstone issue is control.  A connection between two concerns does not necessarily cause affiliation.  There must be an element of control present.”

OHA stated that while a “key employee” may be found to control a company, “[a] key employee is one who, because of his position in the concern, has a critical influence over the operations or management of the concern.”  An employee “with no authority to hire and fire or to enter into contracts is not likely to be a key employee.”  Conversely, “an employee who is critical to a concern’s control of day-to-day operations is a key employee.”

In this case, INV was “owned and solely controlled by Mr. Jhunjhunwala.”  However, “the record does not support the conclusion that [Mr. Jhunjhunwala] could control both [INV] and SNAP.”

OHA continued:

Here, the record contains no evidence demonstrating that the Area Office considered Mr. Jhunjhunwala’s role, duties, or authority at SNAP.  Rather, the determination that he is a key employee appears to be based merely on his title.  Further, the record does not support finding him to be a key employee, either.  According to his resume, he provides PMO support, but there is no indication that he has the authority to hire and fire, enter into contracts, or otherwise control the operations of SNAP as a whole.

OHA granted INV’s size appeal and reversed the SBA Area Office’s size determination.

The SBA affiliation rules can seem confusing and complex.  But in one respect, they are simple: affiliation turns on common control.  Although a “key employee” can control a company within the meaning of the SBA affiliation rules, the employee in question must have critical influence over the company’s day-to-day operations.  When an employee doesn’t exercise such influence, he or she will not be found to control the company.

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March Madness is here!  I hope your brackets are doing well.  So far, mine haven’t been “busted,” but Notre Dame looked mighty shaky in that opening-round win over Princeton.

While I get ready for tomorrow’s games with my Duke Blue Devils and Kansas Jayhawks, I’m keeping an eye on the latest and greatest (or not so great) in government contracting. In this week’s SmallGovCon Week In Review, the GAO releases a major report on the state of government contracting, an IT contractor will pay $45 million to resolve claims of overcharging the government, the SBA proposes to terminate a nonmanufacturer rule class waiver, and more.

  • A revised National Institute of Standards and Technology guideline raises the risk profile of merger and acquisition deals and presents challenges. [Signal]
  • Because the statute of limitations had expired, a federal judge threw out charges against two men accused of falsely claiming a construction company they operated was headed by a service-disabled veteran. [ArkansasOnline]
  • The Federal Acquisition Service closed Schedule 75 for what it claimed would be just 24 months, but over six years later Schedule 75 remains closed to new offers. [Federal News Radio]
  • The Government Accountability Office released a 66-page report that dives into the state of federal contracting and where those federal dollars are being spent. [Government Executive]
  • An IT contractor will pay $45 million to resolve allegations of overcharging the GSA for software licenses and maintenance. [FCW]
  • A proposed rule by the VA will amend and update various aspects of the VA Acquisition Regulations (VAAR). [Federal Register]
  • A retired Navy admiral is among nine people indicted in a major bribery scandal. [Federal News Radio]
  • The SBA is proposing to terminate the nonmanufacturer rule class waiver for rubber gloves. [Federal Register]

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Koprince Law LLC

Companies controlled by a father and son, respectively, were affiliated under the SBA’s affiliation rules because there was no clear fracture of the family members’ business relationships.

In a recent size appeal decision, the SBA Office of Hearings and Appeals held that a son’s company was affiliated with a company owned by his father because the son had worked for many years at the father’s company, the son’s company leased office space from the father’s company, and the two companies engaged in significant amounts of subcontracting.

OHA’s decision in ProSol Associates, LLC, SBA No. SIZ-5813 (2017) involved a Marine Corps solicitation seeking a contractor to provide IT training.  The solicitation was issued as a small business set-aside under NAICS code 611430 (Professional and Management Development Training), with a corresponding $15 million size standard.

After evaluating competitive proposals, the Contracting Officer notified offerors that ProSol Associates, LLC (“PSA”) was the apparent awardee.  After receiving the notice, an unsuccessful competitor filed an SBA size protest.  The competitor alleged that PSA was affiliated with ProSol, LLC under various SBA affiliation rules.

The SBA Area Office determined that Michael E. Dean was PSA’s sole shareholder and CEO.  His father, Michael J. Dean, was the sole owner of ProSol.  Michael E. Dean worked for ProSol from 2002 to 2010 in a number of positions.  In 2008, while Michael E. Dean was still a ProSol employee, he founded PSA.

The SBA Area Office determined that PSA subleased office space from ProSol.  Additionally, subcontracts from PSA had represented approximately 16% of PSA’s revenues since 2009, and represented 29% of PSA’s revenues in Fiscal Year 2015–the year in which the Marine Corps proposal was submitted.  PSA intended to award a subcontract to ProSol under the Marine Corps solicitation.

The SBA Area Office found that Michael E. Dean and Michael J. Dean were presumed to have an identity of interest under the SBA’s affiliation regulations.  Although the presumption of affiliation based on an identity of interest can be rebutted by showing a clear fracture, there was no clear fracture between PSA and ProSol because of the lease and continuous subcontracting relationships.  The SBA Area Office issued a size determination finding PSA to be affiliated with ProSol.  The affiliation caused PSA to be ineligible for the Marine Corps contract.

PSA filed a size appeal with SBA OHA.  PSA alleged that the SBA Area Office had misapplied the affiliation rules.  PSA argued, in part, that the business relationships between PSA and ProSol were sufficiently minimal to establish a clear fracture.

OHA wrote that it “has extensive case precedent” interpreting the identity of interest affiliation rule “as creating a rebuttable presumption that close family members have identical interests and must be treated as one person.”  Citing a 2014 size appeal decision, OHA wrote that “[w]hen one concer is owned and controlled by a father, and the other owned and controlled by a son, the two concerns are presumed to be affiliated by an identity of interest.”

OHA reiterated that “[a] challenged concern may rebut the presumption of identity of interest if it is able to show ‘a clear line of fracture among the family members.'”  A clear line of fracture exists when the family members “have no business relationship or involvement with each other’s business concerns, or the family members are estranged.”  Additionally, “a minimal amount of business or economic activity between two concerns does not prevent a finding of clear fracture.”

After revisiting the various relationships between PSA and ProSol, OHA wrote “[t]he facts here thus support the Area Office’s conclusion that Michael E. Dean cannot be said to have made a break with his father’s business interests, and thus has not achieved a clear fracture.”  Rather, “he has continuously been involved with ProSol to a significant extent, from the time be became [PSA’s] principal until the present.”  OHA concluded: “[t]he burden is on [PSA] to establish that Mr. Dean has made a clear fracture, and he has failed to meet that burden.”  OHA denied PSA’s size appeal, and affirmed the SBA Area Office’s decision.

The so-called “family relationships” affiliation rule isn’t necessarily intuitive.  After all, it can apply–as it did in ProSol Associates–even when the two firms share no owners or officers.  But as ProSol Associates demonstrates, companies controlled by close family members (like a father and son) can be affiliated when the family members do business together, even without shared ownership or management.

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I am back in Lawrence after two fantastic trips to the West Coast, in very rapid succession.

Last Thursday, I was in Puyallup, Washington for the annual Alliance Northwest conference.  As always, the conference was one of the best events of its type nationwide.  Thank you to Tiffany Scroggs and her colleagues at the Washington PTAC for sponsoring this great event and inviting me to participate.  If you missed Alliance Northwest (and my presentation on the SBA’s All Small Mentor-Protege Program), the presentations are all posted on the conference website.  Check it out, and circle your calendar for next year’s Alliance NW.

Yesterday, I was in Las Vegas for the National Reservation Economic Summit conference.  It was my first time at National RES, and I was very impressed with this outstanding event.  If it weren’t for a very lengthy to-do list back here at the office, I’d happily be enjoying the remaining days of the conference.  A big “thank you” to the National Center for American Indian Enterprise Development for sponsoring National RES and inviting me to speak.

After logging quite a few frequent flyer miles, I’m happy to be closer to home for the next several weeks.  But just because I’ll be in Kansas doesn’t mean that I won’t be engaging in one of my favorite pastimes: speaking at length about government contracting legal issues.  Join me on Thursday for “Obtaining and Maintaining the SBA’s HUBZone Certification,” an online seminar sponsored by my good friends at GOVOLOGY.

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Resolving a protest challenging a past performance evaluation, GAO is deferential to the agency’s determinations. It is primarily concerned with whether the evaluation was conducted fairly and in accordance with the solicitation’s evaluation criteria; if so, GAO will not second-guess the agency’s assessment of the relevance or merit of an offeror’s performance history.

For protesters, therefore, challenging an agency’s past performance evaluation can be difficult. But a recent decision makes clear this task is not impossible—GAO will sustain a protest challenging a past performance evaluation if the agency treats offerors differently or unfairly, such as by more broadly reviewing the awardee’s CPARs than the CPARs of the protester.

At issue in CSR, Inc., B-413973 et al. (Jan. 13, 2017) was the Department of Justice’s evaluation and award of a blanket purchase agreement to Booz Allen Hamilton. The BPA sought performance measurement tool services for the Office of Justice Programs, to assist with the Office’s award of grants to federal, state, local, and tribal agencies for criminal justice, juvenile justice, and victims’ matters.

According to the solicitation, offerors were allowed to submit up to nine past performance examples. DOJ could supplement this information with “data obtained from other sources, including, but not limited to, other DOJ and OJP contracts and information from Government repositories[.]” CSR (the protester) submitted six past performance examples, three of which concerned task orders involving similar services previously performed for the agency.

Booz Allen scored an exceptional rating while CSR earned only an acceptable rating. CSR filed a GAO bid protest, alleging that these ratings were caused by DOJ’s disparate treatment of the offerors.

CSR contended that DOJ only considered CPARs for CSR’s submitted past performance examples (finding the quality of CSR’s prior work to be mixed) but considered Booz Allen’s CPAR ratings for past performance projects that were not identified in its proposal (finding them to be of high quality). CSR alleged that had DOJ considered CPARs for its other projects (as it had for Booz Allen), its past performance score would have been higher.

GAO found the past performance evaluation to be unequal. In doing so, GAO noted that it will not normally object to an agency’s decision to limit its review of past performance information. But this discretion comes with a large caveat—as a fundamental matter of fairness, offerors must be evaluated on the same basis and the evaluation must be consistent with the solicitation’s terms. Explaining its decision, GAO wrote:

[T]he agency’s evaluation of CSR’s past performance was based on only the most recent CPARs for those specific projects identified by the vendor in its quotation. However, when evaluating BAH’s past performance, the agency considered CPARs for other than the specific projects that BAH had identified in its quotation. . . . Quite simply, to the extent that the agency’s past performance evaluation of BAH considered CPARs for other than the projects specifically referenced by the awardee in its quotation, the agency was required to do the same when evaluating CSR’s past performance. As the agency was required to treat vendors equally and evaluate past performance evenhandedly, and failed to do so here, the agency’s actions were disparate and unreasonable.

GAO sustained CSR’s protest.

Though agencies typically enjoy discretion in evaluating past performance, CSR confirms that this discretion isn’t unlimited. Agencies must evaluate offerors fairly. This means that, if an agency considers a broad range of CPARs from one offeror, it must consider a similar range of CPARs for other offerors, too.

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I am headed back to Kansas after a great trip out west to speak at the 2017 Alliance Northwest Procurement Conference in Puyallup, WA. It was great seeing many familiar faces and meeting many other new ones. But I won’t be home long: I will be off to fabulous Las Vegas for the National RES Conference, where I’ll be presenting on Monday. If you will be at RES, please be sure to connect.

Even with all of this travel, I’ve been keeping a close eye on government contracting news–and that means that it’s time for the SmallGovCon Week In Review. In this week’s edition, scammers are using the HHS OIG telephone number in a spoofing ploy, the GAO releases a report on developments in the HUBZone program, a Coast Guard employee makes a funny FedBizOpps post (no, really!) and more.

  • A post from the U.S. Coast Guard’s Pacific Northwest contracting office that appeared on FedBizOpps showed some humor, and a bit of bureaucratic frustration. [The Libertarian Republic]
  • The GAO reports that agencies need to step it up when it comes to protecting contractor whistleblowers. [U.S. Government Accountability Office]
  • Fraud Alert! The U.S. Department of Health and Human Services Office of Inspector General recently confirmed that the HHS OIG Hotline telephone number is being used as part of a telephone spoofing scam. [Office of Inspector General]
  • The SBA has made significant improvements in HUBZone Program administration, but some weaknesses remain. [U.S. Government Accountability Office]
  • One commentator explains that the GSA Schedule program needs an overhaul–and offerors some thoughts as to how the program should be revised. [Federal News Radio]
  • The former owners of a Pittsburgh-area military supplier have been accused of defrauding the U.S. government of more than $6 million in defense contract work.
  • The Defense Department may have hit upon an acquisition innovation that is slowly drifting to the civilian world. [Federal News Radio]
  • The Senate voted Monday to kill an Obama administration rule aimed at curbing labor violations among government contractors and President Trump can seal its fate with his signature. [The Center for Public Integrity]
  • Washington Technology gives us 5 steps for contractors to meet the FAR’s cyber requirements. [Washington Technology]

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The HUBZone contracting program, while well-intended to provide economic and employment opportunities in otherwise low income, high unemployment areas, must nonetheless connect HUBZone firms with government contracts, the overwhelming majority of which are not located within a HUBZone.

If HUBZone firms are to experience growth, they will need to utilize the local labor force in the area where the contract is to be performed, in addition to utilizing the labor force residing in their HUBZone to perform indirect labor functions.  As a company’s direct labor force grows, their indirect labor will also grow, producing more employment opportunities within the HUBZone, thereby fulfilling an intent of the program.

The HUBZone Empowerment Act became law through the Small Business Reauthorization Act of 1997.  The Small Business Administration (SBA) regulates and implements the program, determines the businesses eligible to receive HUBZone contracts, maintains a database of qualified HUBZone businesses, and adjudicates protests of eligibility to receive HUBZone contracts.  HUBZone contracting encourages small businesses to locate in and hire employees from economically disadvantaged areas of the United States.  HUBZone entities may receive competitive advantages in winning federal contracts.

The HUBZone program was designed to promote economic development and grow employment opportunities in metropolitan or rural areas with low income, high poverty rates, and/or high unemployment rates, by targeting federal contracts to small businesses in these areas.  This is a conceptual shift where contracting preference is targeted at geographic areas with specified characteristics, as opposed to targeting it to people or businesses with specified characteristics.

There are five classes of HUBZones: qualified census tracts; qualified counties; Indian reservations; difficult development areas; and military bases closed under Base Realignment and Closure Act.  The program uses three mechanisms for targeting contracts to HUBZone businesses: set-asides, sole source awards, and a 10% price preference; with set-asides being the preferred method of matching HUBZone businesses with federal opportunities.

The government-wide goal for most agencies is to award at least 3% of their eligible federal contracting dollars to HUBZone-certified firms [see 15 USC 644 (g)].  Almost all federal agencies participate in the HUBZone program.  Although several individual agencies often met or exceeded this goal, it has never been achieved government-wide.

The following table shows the performance of HUBZone against other small business goals in fiscal year 2015.

Small Business Contract Spending by Federal Agencies (FY15)
Eligible Dollars – Excludes Some Special Programs
20 Largest Spending Agencies

*Millions of Dollars (rounded)

Revised January 2017; Fiscal 2016 data will not be official until mid-2017

The table shows that HUBZone demonstrates tremendous potential for growth.  Peaking in 2009, the HUBZone program nearly reached its 3% goal, finishing just short at 2.7%.  Since 2011, as funding for the program has decreased, so has the use of HUBZone businesses, now averages 1.74% of procurement budget between 2013-16. ALL = All Small Businesses; SDB = Small Disadvantaged Businesses [including 8(a)]; WOSB = Women-Owned Small Businesses; SDVO = Service-Disabled Veteran-Owned Small Businesses; HUBZONE = HUBZone-Certified Small Businesses.   Source: smallbusiness.data.gov.

Early program critics questioned if the program would offer enough incentive for business to choose to locate/relocate in areas they would otherwise avoid.  HUBZones are rarely located at or near Federal installations or business locations; could the failure to achieve the government’s goal be mitigated by amending the 35% requirement against all employees employed by the business, to a 35% requirement against indirect employees only?  Here is a practical example:

Company “R” is a small business whose principal office is located on an Indian Reservation in South Dakota approximately 200 miles from the nearest Federal installation or location of business.  Company R has 20 employees at its principal office:  1 executive, 3 finance, 2 HR, 1 compliance, 3 business development, and 2 project managers and 8 direct employees who work in the company’s primary business line. All the employees (10 indirect; 10 direct) live on the reservation.  Meeting the all requirements to include the 35% mandate, the company certifies as a HUBZone.

Implementing its growth strategy, Company R subcontracts to a prime for a contract whose place of performance is Huntsville, AL.  The subcontract is to provide 100 full time equivalent (FTE) employees.  None of the new direct employees live in the HUBZone where Company R is located, nor in any adjoining HUBZone.  As a result, of the 120 employees, only 20 (16.7%) live in the HUBZone.  Company R can no longer certify as a HUBZone company.

This example, shows that as a practical matter, a company in a HUBZone is not incentivized to secure a HUBZone certification when performance on a federal contract will likely not be located near or in the HUBZone.  With 20 employees all residing in a HUBZone, Company R is capped as a 57-person labor force – in other words, either priming or subbing on a 37 FTE contract vs. the full 100 FTE.   However, if Company R were to ONLY count its indirect employees as the basis for the 35% requirement, it could continue as a HUBZone concern.

Therefore, to expand the HUBZone program, legislation should be submitted to amend the Small Business Act and 13 C.F.R. 126.200 be amended to require a HUBZone small business to:

  • Maintain a principal office located in a HUBZone and ensure that at least 35% of its indirect employees reside in a HUBZone as provided in paragraph (b)(4) of this section; or
  • Certify that when performing a HUBZone contract, at least 35% of its indirect employees will reside within any Indian reservation governed by one or more of the Indian Tribal Government owners, or reside within any HUBZone adjoining such Indian Reservation

If these changes are made, HUBZone businesses will have the potential to grow their companies and better serve the economic development needs of the areas in which they are located.  As these companies grow, their workforce from the HUBZone area will also grow to meet the company’s management and overhead needs.  Finally, these changes will better position government agencies to make their HUBZone goals.

Michael Anderson, Executive Director

Michael “Keawe” Anderson, is a Native Hawaiian who is passionate about advancing Native economic development. He is NACA’s principal advocate of policies and programs for the participation of Native American Tribes, Alaska Native Corporations, Native Hawaiian Organizations, and individually-owned Native businesses in the federal marketplace.

NACA represents Native community-owned businesses who serve a million tribal members or shareholders by applying their earning from government contracts to the benefit of their communities. NACA recently added individually-owned Native businesses as NACA Associates. In total, these businesses provide quality goods and services to federal agencies in all 50 states and internationally.

A graduate of the Air Force Academy, Mike has a master’s in business administration from the University of Northern Colorado, a master’s in strategic military studies from the Air University, and a master’s certificate in government contracting from the George Washington University.

Native American Contractors Association – 750 First Street NE, Suite 950 –  Washington, DC – 20002

Phone: 202-758-2676    Email: keawe@nativecontractors.org    Website: www.nativecontractors.org

GovCon Voices is a regular feature dedicated to providing SmallGovCon readers with candid news, insight and commentary from government contracting thought leaders.  The opinions expressed in GovCon Voices are those of the individual authors, and do not necessarily reflect the opinions of Koprince Law LLC or its attorneys. 

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The Supreme Court’s now-famous Kingdomware decision doesn’t affect the timeliness of SBA size protests of GSA Schedule orders.

In a recent decision, the SBA Office of Hearings and Appeals rejected the notion–based in part on Kingdomware–that an GSA Schedule order is a “contract” for purposes of the SBA’s size protest timeliness rules.  Instead, OHA held, the SBA’s existing rules clearly distinguish between contracts and orders, and often effectively do not permit size protests of individual orders.

OHA’s decision in Platinum Business Services, LLC, SBA No. SIZ-5800 (2017), involved a GSA request for quotations for transition ordering support assistance.  The RFQ was issued under the GSA Professional Services Schedule.  The GSA set aside the order for SDVOSBs under NAICS code 541611 (Administrative Management and General Consulting Services), with an associated $15 million size standard.

After reviewing quotations, the GSA issued a  notice of award to Redhorse Corporation.  An unsuccessful competitor, Platinum Business Services, LLC, then filed a size protest, alleging that Redhorse was not small under the RFQ’s $15 million size standard.

The SBA Area Office determined that, under 13 C.F.R. 121.1004, there are three times that a size protest may be timely filed in connection with a long-term contract, such as a GSA Schedule contract.  First, size can be protested when the long-term contract is initially awarded.  Second, size can be protested at the time an option is issued.  And third, size can be protested in response to a contracting officer’s request for size recertifications in connection with an individual order.  In each case, the size protest is due within five business days of the event in question (e.g., five business days after receiving notice of the award of the order, if recertification was requested).

In this case, Redhorse was in its first option period under the PSS contract.  The option had been awarded long before the size protest had been filed.  The SBA Area Office inquired whether the GSA had asked offerors to recertify as small businesses in connection with the order; the GSA responded that no recertification had been required.  The SBA Area Office then dismissed the size protest as untimely.

Platinum filed a size appeal with OHA.  Platinum argued, in part, that “a task order fits the definition of a contract,” citing Kingdomware.  Platinum contented that because the Supreme Court defined an order as a contract in Kingdomware, the SBA’s size regulations allowed it to file a size protest within five days of learning of the award of the “contract” in question, that is, the order awarded to Redhorse.

OHA agreed that the SBA Area Office had correctly interpreted 13 C.F.R. 121.004.  OHA confirmed that the RFQ “does not include a specific request for recertification” and that “the CO expressly confirmed that she did not intend to request recertification.”

Platinum’s “reliance on Kingdomware,” OHA continued, is “erroneous.”  OHA explained that Kingdomware “does nothing to disturb SBA’s regulatory scheme for establishing the times at which size protests may be placed against awards for long-term contracts.”  OHA denied Platinum’s appeal, and affirmed the dismissal of Platinum’s size protest.

The impact of Kingdomware continues to be felt, and it is an open question whether the Supreme Court’s rationale might apply to the small business “rule of two.”  But unlike in Kingdomware–in which the statute in question simply discussed “contracts,”without defining that term–the SBA’s size protest timeliness rules clearly distinguish between orders and other types of contracts.  It remains to be seen how broadly Kingdomware will affect various aspects of the contracting landscape, but one question has been answered: the Supreme Court’s decision doesn’t impact the timeliness of size protests of GSA Schedule orders.

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March has arrived, and March Madness will be here soon. With the Kansas Jayhawks looking like a top seed and my Duke Blue Devils sitting at Number 14 in the Coaches Poll, I’m hoping to be watching my teams a lot this month.

While we await conference tournaments and Selection Sunday, it’s time for the SmallGovCon Week In Review.  This week’s edition is packed with the latest developments in government contracting, including guilty pleas from seven defendants accused of contract fraud, questions about the Trump administration’s position on category management, the Federal Times takes a look at which agencies will have the most follow-on work up for grabs in 2017, and much more.

  • A recent report from Onvia predicts several factors will continue to drive growth in government spending including President Trump’s proposed $1 trillion, 10-year infrastructure initiative. [Federal Times]
  • Linda McMahon is committed to keeping the SBA intact but will be taking a hard look at the loan programs it offers. [Forbes]
  • Could total acquisition cost be the missing link in measuring, assessing, and ultimately, reforming the procurement system to deliver best value mission support for customer agencies and the American people? [Federal News Radio]
  • An Air Force Master Sergeant has been sentenced to 23 months in prison and $126,300 in restitution after accepting a kickback in exchange for a contract award. [United States Department of Justice]
  • The Departments of Education, State and the Army are among those with the most documented bids for contracts expiring in 2017, providing industry with actionable insight on just how competitive the procurement process will be. [Federal Times]
  • Without knowing whether the Trump administration will support category management, the federal government continues to use its immense buying power to drive down acquisition costs. [Nextgov]
  • The Office of Personnel Management’s National Background Investigations Bureau is almost five months old and is already embroiled in its first bid protest. [Federal News Radio]
  • Seven defendants have pleaded guilty to obtaining money from the United States by making false representations and false claims to the Department of Defense for payment on items that were substituted with unauthorized products. [United States Department of Justice]
  • Even though a  North Carolina-based defense contractor defrauded the U.S. government of more than $13.6 million dollars over the course of a decade, the government continues to do business with it. [The Virginian-Pilot]

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Koprince Law LLC

A major tenet in government contracting is that agencies enjoy broad discretion in identifying their needs and developing the most appropriate solicitation to satisfy them. Though broad, this discretion is not unlimited. If challenged, an agency must demonstrate that its specifications are reasonably necessary to meet its needs and are not unduly restrictive of competition.

GAO recently affirmed this principle in Pitney Bowes, Inc., B-413876.2 (Feb. 13, 2017), when it sustained a protest challenging a solicitation’s requirements as being unduly restrictive of competition.

The Pitney Bowes bid protest involved a solicitation issued by the Internal Revenue Service, seeking quotations for document processing and mailing equipment for its National Distribution Center in Bloomington, Illinois. Specifically, the solicitation called for four PS200 folder/inserters and four PS200 high capacity feeders. The Statement of Work then modified the requirements for the folder/inserters to include, among other things, a “high capacity sheet feeder with a capacity of up to 1000 [sheets] per feeder with the capability of loading on the fly.”

Pitney Bowes filed a protest challenging this modification, claiming it was unduly restrictive of competition. Pitney’s sheet feeders did not have the capability of being loaded “on the fly.” But Pitney argued that the same continuous operation would be achieved by its plan to use two high capacity sheet feeders (each holding 1000 sheets). This approach, Pitney argued, would allow the machine to alternate between feeders to provide a continuous operation and avoid system interruption.

GAO reiterated that “the determination of an agency’s needs and the best method to accommodate them is primarily the responsibility of the procuring agency, since its contracting officials are most familiar with the conditions under which supplies, equipment and services have been employed in the past and will be utilized in the future.” But if a protester challenges a solicitation specification as being unduly restrictive of competition (either by challenging the nature of the requirement itself or the agency’s need for the restriction), “the procuring agency has the responsibility of establishing that the specification is reasonably necessary to meet its needs.” GAO will evaluate the agency’s purported justification for reasonableness—“that is, whether it can withstand logical scrutiny.”

The IRS sought to justify its requirement for 1000 sheet feeders capable of on-the-fly loading by focusing on their ability to provide continuous operation. GAO did not find these arguments convincing. To the contrary, it found that the IRS had not established that Pitney’s proposed solution would require any more employee time or attention than the restrictive specification requirement. GAO also noted some possible benefits from Pitney’s proposed solution—for example, one sheet feeder could run the machine if the other needed to be turned off for repair, thus helping to meet the IRS’s goal of continuous operation. In short, GAO held, the IRS failed to justfy “why a requirement for load-on-the-fly capability is necessary, when a different approach may be able to achieve the same results.”

GAO sustained Pitney’s protest and recommended the IRS amend the solicitation’s requirements.

Pitney Bowes highlights the intersection of two key tenets in government contracts: that an agency has broad discretion to identify its needs and how to best meet them, and that, ordinarily, agencies must procure goods and services using full and open competition. These two tenets, however, don’t always line up; where they conflict, GAO will review a solicitation’s requirements to make sure that they are reasonable and not unduly restrictive of competition.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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