Let’s suppose you’re a contractor that provides services to the federal government. Typically, your contract will require you to pay your employees the prevailing wage rates promulgated under the Service Contract Act.
What if you suspect that, under previous contracts, your competitors failed to pay their employees the mandated prevailing rates? Can you use a pre-award bid protest to obligate a procuring agency to police possible ongoing non-compliance through solicitation provisions? If you say yes, perhaps you should keep reading.
In Crosstown Courier Service, Inc., B-416261 (July 19, 2018), GAO encountered a protester with this concern.
There, the VA was looking for commercial transportation services on a fixed-price basis. The solicitation was subject to the SCA. Consequently, the solicitation required offerors to comply with the relevant SCA wage determinations and make certain certifications regarding their SCA-exempt employees. But it did not require a breakdown of costs by labor category.
The protester, motivated by real or perceived abuses by other contractors, challenged the solicitation’s terms in two salient ways. First, it argued that the solicitation was defective because it did not require a breakdown of the offerors’ labor costs. And second, the solicitation did not provide for a price realism evaluation.
Breakdown of Labor Costs
The protester believed that the VA has a “long history” of awarding similar contracts to companies with low pricing–pricing that must have been, in the protester’s view, insufficient to cover SCA wage rates. Thus, the protester argued that the solicitation should require a labor costs breakdown.
With this added detail, argued the protester, VA could evaluate each offeror’s proposal with an eye to whether an offeror was, in fact, capable of paying the required SCA wages. In essence, (and perhaps you can sympathize) the protester wanted to ensure that its pricing–which it believed factored in the full impact of SCA wages–was not undercut by offeror who might be less concerned with SCA compliance.
GAO batted down the protester’s argument.
For one, the protester did not present any evidence substantiating its claim that VA had previously awarded contracts to companies who did not pay the appropriate SCA wages.
But more to the point, GAO said that protester misapprehended pricing in the fixed-price context. GAO explained that “[t]here is nothing inherently objectionable about low pricing, or even below-cost pricing, in fixed-price contracts, because the risk and responsibility for contract costs is on the contractor.”
So, barring terms in the solicitation saying otherwise, an offer for a fixed-price contract isn’t invalid simply because the offeror won’t be able to cover its costs (including SCA wages) with the revenue generated from the specific procurement–as long as the proper wages are paid during contract performance. In other words, a contractor may calculate to lose money on a government contract, and submit a below-cost bid on a fixed-price contract, even where the contract is covered by the SCA.
Of course, the cost breakdown urged by the protester might give the VA greater confidence that an offeror has considered the required costs associated with the procurement. But because” the agency’s approach in this case–advising vendors of the requirements and requiring relevant certifications–is not inconsistent with law or regulation, or otherwise unreasonable,” GAO denied this protest ground.
The protester’s second protest ground essentially repackaged the first. It went like this: because the solicitation failed to provide for a price realism evaluation, the VA would not be able to assess the likelihood of contract compliance (including the payment of SCA wages). In other words, a price realism evaluation was necessary in order to root out offers that, if accepted, would not provide the revenue necessary for the contractor to pay its employees compliant wages.
GAO was unconvinced.
After noting that agencies have broad discretion when selecting evaluation criteria, GAO noted that “the protester [had] not identified any laws or regulations, which would compel the agency to incorporate a price realism evaluation.” What is more, GAO explained, citing FAR 15.404-1(d)(3), that “a price realism evaluation is not required for fixed-price contracts” but an agency can still use it in “exceptional cases.”
In addition, GAO found that “other than the protester’s vague representations concerning prior unrealistic quotes or proposals, the protester has not identified any facts that would suggest that the agency erred in failing to include a price realism evaluation in the [solicitation].” Because the protester presented no error made by the VA, GAO denied this ground too.
We can probably all sympathize with a contractor who makes an offer on a fixed-price contract only to be undercut but a lower price–especially one that, in all probability, won’t cover the winning contractor’s costs. In such cases, one might suspect that the winning offeror won’t comply with applicable laws, like the SCA, or may be angling for an equitable adjustment in the midst of contract performance.
Here, the protester wasn’t wrong to think that added scrutiny of offerors’ prices may have been beneficial in the evaluation process, but agencies have broad discretion when it comes to drafting solicitations. Regardless of whether it would have been a good idea for the VA to more closely evaluate offerors’ prices, the GAO said that the VA wasn’t required to do so.
If you do suspect that a competitor is not, or will not, pay required wages under the SCA (or the Davis-Bacon Act), you might consider raising the issue with a contracting officer or the Department of Labor. But when the solicitation calls for a fixed-price contract, and the solicitation terms don’t include a price realism analysis, raising the issue in the context of a pre-award protest is likely a dead end.
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It’s time for the best part of the week: the SmallGovCon Week in Review!
In this week’s edition, the Deputy Secretary of Defense discusses the importance of cybersecurity in DoD procurements, a California company was ordered to pay back wages under the Service Contract Act, upcoming changes to startup contracts with the Air Force, and much more.
Have a great weekend!
DoD releases new cybersecurity strategy. [Fedscoop]
California company to pay back wages after they violated federal contract provisions of the SCA. [dol.gov]
The world’s richest person weighs in on commercial technology acquisitions. [Fedscoop]
Air Force will soon announce a series of “Startup Days” involving startup companies in Air Force acquisition by awarding contracts in less than 24 hours. [defensenews.com]
Public and private officials met to discuss how to use innovation from protecting critical assets to reforming acquisition methods. [washingtontechnology.com]
In the new fiscal year, agencies will have access to automated contact center technologies and services through the General Services Administration’s IT Schedule 70. [nextgov.com]
A father and son are sentenced to prison and ordered to pay over $1 million in restitution for fraudulently winning government contracts. [justice.gov]
View the full article
I am very pleased to announce that Haley Claxton has joined our team of attorney-authors here at SmallGovCon. Haley is an associate attorney with Koprince Law LLC, where her practice focuses on federal government contracts law.
Haley is a recent graduate of the University of Kansas Law School, and has served as a law clerk to the Library of Congress Office of the General Counsel in Washington, DC. Check out Haley’s full biography to learn more about our newest author, and don’t miss her first SmallGovCon post on new rules recently implemented at the Civilian Board of Contract Appeals.
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An agency ordinarily enjoys very broad discretion in its procurement-related decisions. This includes whether an agency will award a contract or, instead, cancel a procurement.
Broad as this discretion is, however, an agency does not have carte blanche to cancel a procurement on a whim. As a recent Court of Federal Claims decision shows, an agency must support its decision with sufficient information, lest the cancellation decision itself be successfully protested.
The factual and procedural histories in FMS Investment Corporation v. United States, No. 18-862C et al. (Fed. Cl. Sept. 14, 2018) are tortured. But for purposes of this post, it’s sufficient to say that in 2015, the Department of Education issued a solicitation for student loan collection services. After an initial award, some twenty-two companies protested at GAO. In response, the agency decided to take a voluntary corrective action. In response, one of the protesters reasserted its protest at the Court of Federal Claims.
In response to the COFC protest, DoE again decided to take corrective action. It terminated the awarded contracts, issued a revised solicitation, and then made two new awards. In January 2018, twenty disappointed offerors again filed bid protests relating to these awards.
In March 2018, DoE again cancelled its solicitation. Doing so, it announced a new “vision” to utilize “enhanced servicers” to administer student debt. As a result of this new vision, DoE said that it no longer needed the services of private collection agencies (like the protesters). It therefore asked the Court to dismiss the bid protests filed by those agencies.
Unsurprisingly, these agencies challenged DoE’s decision to cancel the solicitation, arguing that it was arbitrary and capricious.
Reviewing the “scant” administrative record (totaling only 33 pages) provided by the agency in support of its cancellation decision, the Court agreed that DoE’s proposed cancellation was arbitrary. Doing so, it noted that the decision itself was largely unsupported by any reasoned analysis. The Court found that the record “is missing critical information about the enhanced servicer program,” including a plan or timeline for implementing that program, an overview of what its request for proposals might look like under that program, a source (or anticipated amount) of funding, or even estimates of the defaulted loan volumes and loan processing capacity.
According to the Court, DoE’s decision to cancel the solicitation and instead transition to enhanced servicers is “a significant policy change.” Its underlying documentation for that change, however, was nearly non-existent. DoE “needs to provide a ‘reasoned analysis’ for the policy change.” The record presented by DoE failed to provide this analysis, so the Court found the proposed cancellation arbitrary.
Although FMS Investment shows that an agency must support a cancellation decision with adequate justification, it might ultimately be for naught. That is, although the Court set aside the solicitation cancellation, the opinion did not permanently prohibit DoE from pressing ahead with its planned action. Quite the opposite: the Court noted that “[r]esurrecting the solicitation . . . will not prevent [the Department] from continuing to develop its enhanced servicer program.” As I read it, therefore, the Court simply found that the “scant” record did not adequately support the cancellation; it did not, however, prohibit DoE from continuing to develop the record and then pressing ahead with its planned cancellation at a later date.
In any event, FMS is important because it shows that an agency’s conduct in even the most fundamental procurement decisions isn’t necessarily free from review. In some instances, an agency’s decision to cancel a solicitation in response to a protest might be so unsupported or illogical so as to be arbitrary.
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On August 17, 2018, the Civilian Board of Contract Appeals (CBCA) issued new procedural rules which go into effect Monday, September 17, 2018. The substantial overhaul of the former rules intends bring the CBCA into the 21st century by emphasizing, adding, and clarifying rules about electronic filing.
Efiling is now common practice in many, if not most, federal courts, saving claimants and appellants both time and money. Electronic filings, or “efilings” are defined by the CBCA as any “documents submitted through the Board’s email system.”
Along with more specific file size and format requirements for efilings, perhaps most importantly, the new rules change the CBCA filing deadline from 4:30 PM Eastern Time, in accordance with the Board’s regular business hours, to midnight Eastern Time. The new midnight deadline brings the CBCA into conformity with many other federal courts, including the U.S. Court of Federal Claims and is good news for those of us looking for a few more minutes to file.
In addition to amending the filing deadline, CBCA’s new rules also now allow appellants to file their “appeal files” “in an electronic storage medium (e.g., hard disk or solid state drive, compact disc (CD), or digital versatile disc (DVD)), labeled with the docket number, case name, and range of exhibit numbers,” though appellants must still receive Board permission to submit an appeal file or supplement by email.
In contrast with the old rule that only allowed for hardcopy filing in “loose-leaf binders,” the CBCA’s new filing rules usher in more efficient and environmentally friendly filing procedures. While the new rules still permit paper filing, this method of filing is only allowed “by permission of the Board,” further promoting the use of filing by electronic means.
Overall, the CBCA’s new rules provide appellants with a little more time to file and a lot more savings on office supplies, printing, and postage costs.
View the full article
Another week has flown by, which means that it’s time for the SmallGovCon Week in Review. In this week’s edition, we’ll take a look at Uncle Sam’s “cloud spending splurge,” a new GSA bid on a vendor verification system, frustrations with the VA’s verification process, the looming year-end spending binge, and more.
Have a great weekend!
Congress has reached a deal to avoid a shutdown . . . for now. [Bloomberg]
Federal cloud spending hits a new high. [FedScoop]
VA’s VOSB verification process is causing delays and frustration for hundreds of companies. [Stars and Stripes]
Issues under the looming Kaspersky ban. [NextGov]
GSA opened up bids to manage its vendor verification system. [NextGov]
Leaders of Senate subcommittee on government contracting asks agencies for briefing on fiscal year-end spending. [FEDweek]
Agency customers and industry partners push for GSA schedule modernization. [Federal News Radio]
VA issues final rule amending and updating VA Acquisition Regulation (VAAR). [Federal Register]
View the full article
In a best value competition, when two offerors receive identical adjectival scores on the non-price factors, one might assume that the procuring agency would be required to award the contract to the lower-priced offeror.
Not so. In a recent bid protest decision, the GAO held that where two offerors received identical scores on three non-price factors, the agency could still elect to award the contract to the higher-priced offeror.
GAO’s decision in Valiant Government Services, LLC, B-416488 (Aug. 30, 2018) involved an Army Corps of Engineers task order solicitation for operations and maintenance services. The solicitation called for proposals to be evaluated on a best value basis, considering price and three non-price factors (Experience, Technical Approach, and Past Performance).
Only two offerors, Valiant Government Services, LLC and J&J Maintenance, Inc., submitted proposals. After evaluating those proposals, the Corps assigned each offeror a “Very Relevant” score for Experience, an “Outstanding” score for Technical Approach, and a “Substantial Confidence” score for Past Performance. Valiant’s price was about $300,000 lower–$43,551,418 versus $43,846,929 for J&J. Nevertheless, the Corps determined that J&J offered the best value, and awarded the task order to J&J.
Valiant filed a bid protest with GAO. Among its allegations, Valiant argued that the Corps was required to award it the contract because Valiant’s non-price scores were identical to J&J’s, and Valiant was lower-priced.
The GAO wrote that “[w]hen conducting a best-value tradeoff analysis . . . an agency may not simply rely on the assigned adjectival ratings to determine which proposal offers the best value because evaluation scores–whether they are numerical scores, colors, or adjectival ratings–are merely guides to intelligent decision-making and often reflect the disparate, subjective judgments of the evaluators.” Therefore, “a tradeoff analysis should be based upon a qualitative comparison of the proposals consistent with the evaluation scheme.”
In this case, although the two offerors received identical Past Performance and Experience scores, the underlying source selection documentation revealed that J&J had “superior past performance ratings” and “a greater percentage of exceptional ratings on all related task orders.” Additionally, while the two companies received the same adjectival score for Technical Approach, the Corps “concluded that J&J’s approach was superior because it offered technically advanced management tools.” Therefore, the Corps reasonably determined that J&J’s advantages were worth its higher price, “especially considering that the price differential was less than 1 percent of the total price of the contract.”
The GAO dismissed a portion of Valiant’s protest and denied the remainder.
When an agency assigns two companies the same adjectival scores for a best value solicitation’s non-price factors, the agency typically awards to the lower-priced offeror. But, as Valiant Government Services demonstrates, the agency isn’t required to do so, if it has good reason to consider one offeror’s proposal superior despite the identical underlying scores.
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Last year, we wrote about the SBA’s Office of Inspector General’s concerns with the SBA’s review of potential 8(a) participants’ eligibility. In this report, the OIG made three recommendations aimed at improving to verify applicants’ eligibility.
Just last week, the OIG released a new report analyzing the 8(a) Program. This report picks up where the earlier report left off—it addressed several issues in the SBA’s evaluation of participants’ continuing eligibility.
The results of this report are rather alarming: based on its review, the OIG identified almost $127 million in 8(a) set-aside awards to ineligible firms.
Before diving into the OIG report, it’s important to remember that 8(a) participants not only have to meet initial eligibility criteria for admission into the Program, but they also have to meet continuing eligibility criteria to stay in the Program. These criteria not only include a $750,000 cap on the 8(a)’s disadvantaged owner’s net worth and a $6 million limit on his/her overall assets, but also a restriction on the amount of withdrawals an owner can make from the participant. A participant is subjected to annual eligibility reviews once admitted to the Program; if the firm fails to meet these criteria, it should be removed from the Program.
SBA’s OIG analyzed the SBA’s oversight of 8(a) continuing eligibility, to determine whether it was doing enough to make sure that 8(a) participants met these continuing eligibility requirements. The OIG analyzed the continuing eligibility of twenty-five 8(a) participants—the 15 individually-owned 8(a) firms with the highest 8(a) set-aside contract dollars in 2016 (totaling some $461 million in set-aside awards) and 10 other firms about which the OIG had received complaints alleging continuing eligibility violations.
The OIG’s investigation revealed a troubling truth: 20 of the 25 firms reviewed by the OIG did not meet the 8(a) Program’s continuing eligibility requirements and should have been removed from the Program. These firms were not removed, however, and “received $126.8 million in new 8(a) set-aside contract obligations in FY 2017 at the expense of eligible disadvantaged firms.”
Based on its investigation, the OIG identified three issues that contributed to these improper awards.
First, the OIG noted that the SBA did not consistently identify ineligible 8(a) firms. It noted that, in some cases, the SBA’s reviewers did not perform continuing eligibility reviews for the most high risk firms and, when reviews were conducted, did not detect indicators of ineligibility. As a result, ineligible firms were able to stay in the Program.
Second, the SBA did not remove ineligible firms in a timely manner. When issues relating to eligibility were discovered, the SBA did not provide several firms with a Notice of Intent to Terminate or Graduate Early; for those that the SBA did notice its intent to terminate, it lacked sufficient follow-through to actually terminate. Problematically, the OIG noted that the SBA did not have an adequate system to track the removal of a firm or the resolution of eligibility issues once concerns with that firm were identified.
Third, and perhaps most striking, was that the SBA did not address complaints about 8(a) firms that were forwarded from its OIG Hotline. Here, it’s important to remember that SBA’s regulations say that the SBA will review a firm’s eligibility “upon receipt of specific and credible information alleging that a Participant no longer meets the eligibility requirements for continued eligibility.” From a sample of 10 complaints, the OIG found that the SBA did not conduct any follow-up investigation. When the OIG reviewed these complaints, however, it found that all 10 firms failed to meet the continued eligibility criteria.
From these findings, the OIG made 11 recommendations to improve the SBA’s oversight of 8(a) participants’ continued eligibility. These recommendations largely focus on the SBA’s internal processes for identifying and reviewing eligibility reviews. For example, the OIG recommended that the SBA “[d]evelop and implement a centralized process to track and document all adverse actions and voluntary withdrawals from the 8(a) program, from recommendation through resolution” and “[e]stablish and implement clear policies and procedures that include timelines for sending Notices of Intent to Terminate and to Graduate Early firms after eligibility issues are first identified.”
The OIG further recommended that the SBA develop a system for tracking and resolving complaints that are received via the OIG’s Hotline. Moreover, the OIG recommended that the SBA evaluate the eligibility of specific 8(a) concerns (as referenced in the report) and, if necessary, remove them from the Program.
In our practice, we often counsel prospective and admitted 8(a) participants about the Program’s nuanced eligibility criteria. The OIG’s recent report is revealing, as it shows that the SBA often struggles with issues of continuing eligibility, too. Going forward, we wouldn’t be surprised if the SBA more thoroughly scrutinizes 8(a) eligibility as a result of the OIG’s recent investigations.
If you have any questions about your company’s 8(a) eligibility, please give us a call.
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As we’ve noted here on SmallGovCon, appealing the assignment of a NAICS code for a solicitation is often successful. But the time frame for doing so is short, and there are other procedural limitations. Given the short deadlines and procedural hurdles, are there any signals to help identify when a NAICS code appeal might be in order?
Recently, SBA’s Office of Hearings and Appeals provided some guidelines in discussing the assignment of NAICS codes in the Computer Facilities Management Services, Research and Development, and Engineering Services codes.
In Rollout Systems, LLC, SBA No. NAICS-5901 (2018), OHA reviewed a procurement by the Navy for a contractor to provide “full spectrum information technology (IT) engineering and management support services” for the Research, Development, Test and Evaluation (RDT&E) Infrastructure Division in the Navy’s Integrated Battlespace Simulation and Test Department at Naval Air Warfare Center Aircraft Division (NAWCAD).
I will describe the decision in some detail because each part is helpful for analyzing a potential NAICS code appeal.
The CO set the solicitation as restricted under NAICS code 541715, Research and Development in the Physical, Engineering, and Life Sciences (except Nanotechnology and Biotechnology). NAICS code 541715 normally has a size standard of 1,000 employees, but the RFP indicated that the procurement fit within the exception for Aircraft, Aircraft Engine and Engine Parts, which has a 1,500-employee size standard.
The scope of the contract included the following areas:
The solicitation included two sample tasks that offerors had to address. First, each had to “propose a secure method of transmitting [aircraft and weapon systems] data to various labs and facilities at NAWCAD,” along with “a long-term data storage, archival, index and retrieval solution.” Second, offerors had to “propose a solution discussing the types of communications networks, cyber security considerations, and data storage systems that would be required” to support a “high fidelity multi-ship battlespace simulation.”
Arguments of the Parties
The various ways the parties argued this appeal demonstrate how different parts of a solicitation can support various NAICS codes.
Rollout Systems filed an appeal with the SBA Office of Hearings and Appeals challenging the assigned NAICS code, arguing that the correct NAICS code for this procurement wsa 541330, Engineering Services. NAICS code 541330 normally corresponds with a size standard of $15 million average annual receipts.
Rollout Systems also noted that that “there is no R&D work identified to be performed for this effort.” Further, “[n]one of the labor categories have R&D attributes specified in their descriptions or have responsibilities and education requirements that support R&D.” Instead, Appellant maintains, the contractor will perform information technology support services, specifically “the operation and maintenance of the RDT&E network (i.e. operation and maintenance of [NAWCAD’s] IT systems.” Although this procurement is “in support of an RDT&E organization,” the contractor will not itself be engaged in research and development.
Another potential offeror, RMC, similarly argued that the appropriate NAICS code was 541330 but, in contrast to Rollout Systems, said the exception for Military and Aerospace Equipment and Military Weapons should apply with a $38.5 million size standard. NAICS code 541330 has three exceptions that utilize a size standard of $38.5 million. As support, it noted the sources sought proposed code 541330 with the Military Weapons exception. RMC maintained that “[t]here is no original research and experimental development” for this RFP and OHA has stated that a research and development NAICS code such as 541715 requires creating new processes.
A third potential offeror, MIL Corp. argued that code 541715 was correct because this RFP included “research and development efforts” in certain task areas and for certain labor categories. The services here are an integral part of the Navy’s “research, and essential for the conduct of the research”, and the computer services are woven into the Navy’s research.
The CO stated that NAICS code 541715 was correct because the NAICS Manual describes NAICS code 541715 as including “research and experimental development in . . . computers.”
The NAICS code manual provides descriptions for various NAICS code industries.
NAICS code 541715. NAICS code 541715, Research and Development in the Physical, Engineering, and Life Sciences (except Nanotechnology and Biotechnology), covers:
The NAICS Manual defines “research” as “original investigation undertaken on a systematic basis to gain new knowledge,” and “experimental development” as “the application of research findings or other scientific knowledge for the creation of new or significantly improved products or processes.”
For NAICS code 541715, a footnote in the Size Standards table states that:
13 C.F.R. § 121.201, n.11(a).
NAICS code 541330. NAICS code 541330, Engineering Services, in contrast covers:
NAICS code 541513. Finally, NAICS code 541513, Computer Facilities Management Services, covers:
How to Assign the Proper NAICS Code
OHA reiterated the rule that “the CO must assign the NAICS code that best describes the principal purpose of the product or service being acquired in light of the industry descriptions in the NAICS Manual, the description in the solicitation, the relative value and importance of the components of the procurement making up the end item being procured, and the function of the goods or services being acquired. The key with this sort of fact-specific analysis is how OHA decides what is proper, and in this case OHA’s analysis is pretty straightforward (at least in my opinion).
OHA decided that NAICS code 541715 was inappropriate because the solicitation did not call for research and development. Research and development means “creating new processes or products.” Reviewing the solicitation, it called for network administration; cyber security; data storage; and other information technology and computer-related technical support. Because the computer networks already existed, the contractor would not invent or create them.
Interestingly, OHA noted that, because there were few labor categories with advanced research or educational requirements, this reinforced that the agency was not looking for research and development. In other words, research and development often requires advanced degrees.
Further, under the NAICS code table notes, “computer programming,” “data processing,” and “engineering, operations, systems, or other nonphysical research” is excluded from the definition of “research and development.”
OHA also held that in some cases, supporting research by an agency can make it into a research procurement. But this procurement was not in direct support of research because the particular division of the Air Force seeking services (RDT&E Infrastructure Division, with the “R” standing for Research) did not do research. Rather the RDT&E Infrastructure Division provided the “computer and communications infrastructure to support research and development conducted by the ‘RDT&E labs’ and ‘the RDT&E community.’”
In order to fit this exception for supporting research efforts, the contractor must also perform work integral to the research. Here, the contractor would not be doing research and was not required to have experience in aircraft or weapons research; the contractor would supply the computer services to assist those doing the research.
OHA succinctly rejected NAICS code 541330, Engineering Services, because so little of the required labor consisted of engineers.
So what NAICS code did apply? 541513, Computer Facilities Management Services, with a size standard of $27.5 million. Oddly, none of the parties suggested this code, but that did not stop OHA from applying it. Here, the contractor would supply operation and maintenance of government-owned computer systems; that fits NAICS code 541513.
This case demonstrates that there are many ways to advocate for the appropriate NAICS code for services in this arena. Three potential NAICS codes or variants were put forth, and OHA chose a fourth, and the size standards ranged from $15 million to 1,500 employees. Second, the line between some of these NAICS codes are quite fuzzy. Finally, OHA seemed to take a broad approach to analyzing the appropriate NAICS code, meaning OHA looked at the overall work being done, without getting bogged down too much in individual parts of the Solicitation.
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As our readers well know, a good proposal for a federal government procurement is an exercise in persuasive writing. You muster your creative powers to convince the source selection authority that you offer the best product or service, that your price is competitive, and that your past performance is stellar. So you invest heavily in your proposal writers; you review your proposal repeatedly to polish and ensure that it compels; you agonize.
But while the artistic portion of your proposal is, without dispute, extraordinarily important, don’t neglect the seemingly mundane–like CAGE codes. Get that wrong, and GAO just might sustain your competitor’s protest.
In United Valve Co., B- B-416277 et al. (July 27, 2018), GAO considered a protest alleging that the Defense Logistics Agency made an improper award because, based on the submitted CAGE code, the awardee did not appear to be an approved source sanctioned by the solicitation.
Under the RFP, the agency was looking for an indefinite quantity of helicopter damper assemblies for the UH-1 (I didn’t realize the U.S. still used this Vietnam-era helicopter . . . It must be a good piece of machinery!). The solicitation identified the dampers as critical source items and identified four approved sources, including the eventual awardee, Logistical Support, LLC. The solicitation also noted Logistical Support’s CAGE code as 55064 .
In Logistical Support’s proposal, it listed its business address on Prairie Street in Chatsworth, California and identified itself as the manufacturer of part number listed in the solicitation. Yet, Logistical Support listed a different CAGE code (1HFE7) from the one listed by the agency in the solicitation (55064).
Given this discrepancy, the agency contacted Logistical Support for clarification, asking:
In response, Logistical Support responded that “both Cage codes belong to the same facility as stated in the SAM registration. If needed, the quote can be changed to the 55064 cage code.” Apparently, Logistical Support’s proposal was never changed to reflect CAGE code 55064.
After due consideration of all proposals, Logistical Support was awarded the contract.
A contending offeror was not convinced that Logistical Support was the same entity identified as an approved source in the solicitation–even though the approved source and Logistical Support maintained the same address. It filed a bid protest, arguing that the agency acted unreasonably in concluding that the approved source and Logistical Support were the same legal entity because each was identified by a different CAGE code.
GAO was receptive to this argument. Citing its previous decisions, it observed that “ncertainty as to the identity of an offering entity renders an offer technically unacceptable.” As a factual matter, it found that Logistical Support’s proposal nowhere reflected the CAGE code associated with the solicitation’s approved sources. And while it acknowledged that the SAM registration showed the entities associated with CAGE code 55064 and 1HEF7 were both named Logistical Support, LLC and had the same address, each entity possessed a different CAGE code, DUNS number, DBA name, and activation date.
Under these circumstances, GAO held that:
In sustaining the protest, GAO recommended that the agency determine–and document–whether the awardee was qualified and eligible for award. And if not eligible, GAO recommended termination of the award for the government’s convenience and making the award to the protester. In addition, GAO also recommended that the agency reimburse the protester for its protest costs, including attorneys’ fees.
The lesson here: don’t get dragged into a protest because you forgot to cross all t’s and dot all i’s. GAO will hone in on seemingly insignificant details, especially when they concern a contractor’s identity. Put simply, you need to sweat the humdrum details in your proposal.
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Happy Friday, everybody!
As always, we wanted to bring you a roundup of government contracting news. In this week’s edition of the SmallGovCon Week in Review, we’ll take a look at some potential updates to GSA contracts, reminders of the trouble that comes along with defrauding the government, and more.
Have a great weekend!
GSA to acquire new validation services for federal contractors and grantees. [FedScoop]
GSA considering governmentwide contracting vehicle for services related to manned and unmanned systems. [Bloomberg Government]
More talk of a government shutdown as the end of FY18 draws to a close. [Government Executive]
GSA has issued a notice for comments regarding extension to an existing OMB clearance. [Federal Register]
Trial ends for two brothers accused of conspiring to defraud the federal government. [East Bay Express]
A Turkish man who owns a New Jersey defense contracting business charged in a scheme to fraudulently acquire lucrative contracts with DoD. [U.S. Department of Justice]
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Recently, GAO sustained a bid protest where the ratings assigned to the unsuccessful offeror’s proposal did not conform to the definitions identified within the Solicitation.
For those of you frequent the blog, you may recall earlier this year when we blogged on GAO’s decision in Immersion Consulting, LLC, B-415155 et al. (Dec. 4, 2017) where the Source Selection Authority had unilaterally revised the Source Selection Evaluation Board’s evaluation prior to making an award decision. GAO sustained the protest and instructed the agency to reevaluate proposals. This same procurement was subject to another round of protests following the agency’s reevaluation.
We covered part of the GAO’s decision to sustain the second protest due to pervasive issues with the awardee’s staffing proposal in a recent blog post. This, however, was only one basis for GAO’s decision. As discussed in this post, GAO also sustained the protest due to issues with the agency’s application of the adjectival ratings.
As more fully discussed in the earlier post, Immersion Consulting involved a procurement of program management support services by the Department of Defense’s Defense Human Resources Activity. Proposals were to be evaluated on three factors: technical, past performance, and price. Technical approach was the most important factor, followed by past performance, then price. The Solicitation explained that the agency intended to use adjectival ratings to evaluate proposals.
The Solicitation provided definitions for each of the adjectival ratings. As relevant here, an adjectival rating of “Acceptable” was defined as follows:
The Department of Defense has issued a class deviation raising the micro-purchase threshold to $10,000, effective immediately.
The increase implements Section 821 of the 2019 National Defense Authorization Act, which was signed into law last month.
The memo explains that there are a few exceptions to the standard $10,000 threshold. The class deviation “does not change the micro-purchase threshold exceptions of $2,000 for acquisitions of construction subject to [the Davis-Bacon Act] and $2,500 for acquisitions of services subject to [the Service Contract Act].” Definitions of these more limited authorities remain “as is” under FAR 2.101. The memo also sets forth instances, such as contingency operations, where the micro-purchase threshold may be as high as $30,000.
Kudos to the DoD for moving so quickly to implement the new statutory authority. No doubt many Contracting Officers will be grateful.
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I’m just back from El Paso, where I had a great time discussing small business size and affiliation issues at the Contract Opportunities Center. This presentation got me thinking: “Wouldn’t our loyal SmallGovCon readers want to know 5 Things about size protests and appeals?”
“Of course they would!” I immediately answered my own internal monologue. “After all, who wouldn’t?”
Here are 5 Things You Should Know about size protests and appeals:
What is a size protest?
As a refresher, an offeror has to be a small business under the NAICS code assigned to a solicitation set-aside for small businesses in order to qualify for the award.
At the most basic, a size protest is a challenge to an awardee’s size. In essence, a protester argues that the contract awardee should not have been awarded the contract because it’s not a small business. Sometimes, protesters argue that the awardee on its own is just too large a business; most of the time, however, a size protest argues that an awardee is affiliated with one or more other companies and, together with its affiliates, the awardee exceeds the applicable size standard.
If a size protest finds that the awardee is not a small business, it can lose the award.
Who can challenge a company’s size?
A size protest must relate to a specific procurement. In most instances, this means that a person can’t protest a company’s size just because that person thinks the company is a large business—the supposedly large business must first be named an awardee under a particular solicitation.
There are generally three different persons who might file a size protest against a particular company:
A disappointed offeror. If an offeror loses out on the award (for reasons unrelated to its own size), that company could challenge the awardee’s size. Protests by a disappointed offeror must be sent to the contracting officer within five days from the date the disappointed offeror receives notice of the award; the contracting officer will then forward the protest to the SBA for a decision.
The contracting officer. If a contracting officer has reason to doubt the awardee’s size, she can ask the SBA for a size determination. Importantly, this request can be made at any time—meaning that, even a couple of years into performance, the SBA can ask for a size determination.
The SBA itself. Like a contracting officer, the SBA can initiate its own size determination, at any time, if it has reason to doubt a company’s size.
How are size protests decided?
If a size protest is filed (and isn’t dismissed for untimeliness or some other reason), the SBA will immediately notify the awardee. The awardee must then submit a response to the size protest and provide a trove of documents with that response—including its articles of organization, bylaws, tax returns and financial statements for the preceding three fiscal years, and documents describing its relationship with any potential affiliates. This response (and supporting documentation) is usually due just a few days after the awardee is notified of the protest.
After it receives this information, the SBA will evaluate it thoroughly. If needed, it will ask for a more detailed response or additional documents from the company being protested. Once all of the needed information is received, the SBA will evaluate it and make a size determination (either finding that the company is a small or large business under the applicable NAICS code) within a couple of weeks.
Can I appeal an adverse size determination?
Any party that is adversely affected by a size determination can appeal it to the SBA’s Office of Hearings and Appeals. If your company is named the awardee and is subsequently found by the SBA to be an ineligible large business, you can appeal this determination to the OHA. Conversely, if your company loses a size protest against a different awardee, you can also appeal that determination.
I don’t have any empirical data, but it’s my impression that OHA appeals are oftentimes successful. Size determinations are intensely fact-specific, and the SBA’s regulations are quite nuanced. So if you think that a determination might have been in error, it could be worth appealing that determination to the OHA.
What else should I know about size protests and appeals?
Size protests are an important part of the procurement process, as they help make sure that small businesses get the benefit of set-asides. Used offensively, a protest might help take an award away from a competitor. But this is a double-edged sword: one of your competitors might try to take your award away, too.
Size protests must be taken seriously. Size protests and appeals oftentimes involve complicated factual and legal questions. And failing to adequately respond to a protest, in fact, could be considered an admission that your company is not a small business.
Given the stakes—potentially winning or losing an award, as the case may be—it makes sense to get help from counsel that are experienced in size protests and appeals.
There you have it: 5 Things You Should Know about size protests and appeals. If you have any questions, please give me a call.
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The Labor Day weekend is inching closer! Before you enjoy the unofficial end of summer, let’s take a look at the SmallGovCon Week in Review.
This week’s edition includes suggestions for interacting with a Contracting Officer Representative, a proposed DFARs amendment, contractors behaving badly, and more.
Have a great weekend!
Suggestions for interacting with a Contracting Officer Representative [Clearance Jobs]
A recent report shows large compensation gaps among federal government contractor CEOs and workers [USA Today]
More OTAs and less LPTA part of the impending upheaval for contractors [Federal News Radio]
A proposed amendment to the Defense Federal Acquisition Regulation Supplement would revise progress payments and performance-based payments policies for DoD contracts [Federal Register]
Dan Snyder, deputy director of Government Contracts Research at Bloomberg Government, and Larry Allen, president of Allen Federal, share their thoughts on what to expect at the end of FY 2018 and the beginning of FY 2019 [Federal News Radio]
A $13.7 million “rent-a-vet” scheme lands a business owner in jail [U.S. Department of Justice]
The mastermind of a scheme to use disabled veterans to apply for military construction project found guilty [The State]
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It was a great honor to be a speaker at the 2018 Government Procurement Conference in Arlington, Texas. The event was organized by the Cross Timbers Procurement Technical Assistance Center from the University of Texas at Arlington.
My talk ranged from basic bid protest matters, to cybersecurity, to threats facing small businesses (including Amazon), and the 2019 NDAA. I hope those in attendance learned something. I know I learned from you (you know who you are).
Special thanks to Gregory James and Loren L. Hitchcock for organizing the event and everyone who worked so hard to make it happen. It was great to connect with clients and make new friends. Hope to see you all again soon.
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The Government improperly threatened to terminate a contractor for default, because there was no good reason to believe the contractor had actually defaulted.
In a fascinating new decision by the Armed Services Board of Contract Appeals, the Government’s threat–made to a contractor with cash-flow issues–amounted to coercion, and invalidated a settlement agreement that awarded the contractor much less than it probably should have received.
The ASBCA’s decision in North American Landscaping, Construction and Dredge Co., Inc., ASBCA Nos. 60235 et al. (2018) involved a contract between the titular company (abbreviated NALCO), and the U.S. Army Corps of Engineers. Under the contract, NALCO was to perform maintenance dredging of two channels and an anchorage on the Scarborough River in Maine. After evaluating bids, the Corps awarded the contract to NALCO.
A disagreement soon arose about the nature and extent of the Corps’ obligation to pay NALCO’s mobilization costs under DFARS 252.236-7004. NALCO expected to be paid approximately $800,000, but after various communications, the Corps agreed to pay only $101,102.70. This led NALCO to inform the Corps that it would have significant cash flow problems in its performance of the contract. NALCO’s owner took out a home equity loan and borrowed $100,000 from members of his church in an effort to maintain adequate cash flow for the business. Ultimately, NALCO was unable to fully perform within the contract period.
After demobilizing, NALCO and the Corps then entered into settlement negotiations. NALCO submitted a settlement proposal seeking $1,023,898. After discussions, the Contracting Officer told NALCO that “$375,000 was take it or leave it and if NALCO did not take it she would terminate the contract for default.”
NALCO’s owner understood “that if the contract was terminated for default he would get no money and the bond company would auction off his personal house, property and NALCO’s equipment.” Under these circumstances, NALCO signed the settlement offer of $375,000. The modification memorializing the settlement offer included a waiver and release of further claims against the Corps related to the contract.
Unsurprisingly, NALCO was dissatisfied with the settlement. After unsuccessfully seeking relief through other avenues, NALCO filed a claim with the Contracting Officer seeking more than $2 million in damages. The Contracting Officer denied the claim (presumably citing the waiver and release) and NALCO appealed to the ASBCA.
Interpreting DFARS 252.236-7004, the ASBCA said that it was an “abuse of discretion” for the Corps to offer NALCO so little in mobilization costs. The Corps’ rejection of NALCO’s “plea for payment,” showed “a degree of callousness unexpected from the government since the government caused NALCO’s cash flow crisis.”
After holding that other Corps actions violated the Government’s implied duty of good faith and fair dealing, the ASBCA turned to the negotiated settlement of $375,000. The ASBCA held that because the Corps caused NALCO’s cash flow difficulties and breached the contract, “NALCO’s failure to perform due to financial difficulties is excusable.” Under these circumstances, the Corps “had no right to terminate for default and therefore no right to threaten to terminate for default.”
The ASBCA explained that “uch threats can be coercive.” Coercion can occur when the government takes an action that is “(1) illegal, (2) a breach of an express provision of the contract without a good faith belief that the action was permissible under the contract, or (3) a breach of the implied covenant of good faith and fair dealing.”
Here, the ASBCA had already determined that the Corps had violated the implied covenant of good faith and fair dealing. And while the Corps’ actions weren’t illegal, the ASBCA also found that the Corps “violated an express provision of the contract, the Default clause [FAR 52.249-10] without a good faith belief that the action was permissible under the contract.” Thus, “having found two of the three indicia of coercion, we find that NALCO was coerced into signing [the modification memorializing the settlement agreement] and its release is unenforceable.”
The ASBCA granted NALCO’s appeal in part, and remanded the matter to the parties to determine the exact amount to which NALCO would be paid. (NALCO will have the right to appeal again if those negotiations don’t succeed in producing a fair agreement).
Contractors should be careful not read too much into the NALCO case. Other precedent says that, as a general matter, the Government can be a tough negotiator, and most settlements aren’t invalidated because of coercion or duress. This case is very fact-specific: it is clear from the ASBCA’s full opinion (which weighs in at 57 pages) that the ASBCA was very unhappy with the Corps’ treatment of NALCO pretty much from Day One. Indeed, the ASBCA said that “[a]t every point where an important decision had to be made, the [Corps] chose to protect itself rather than act to successfully complete the contract or redress NALCO’s legitimate claims.”
That said, NALCO demonstrates that while the Government is allowed to be tough, it cannot be unfair. Here, the Corps unfairly “squeezed” a contractor for a one-sided settlement, using unjustified threats of default and a cash flow crisis the Government itself had created to get NALCO to sign. That crossed the line from merely tough to impermissible coercion.
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An Air Force Contracting Officer, asked by a contractor where to send an appeal, provided the contractor with information about the Civilian Board of Contract Appeals, not the Armed Services Board of Contract Appeals.
Despite the Contracting Officer’s erroneous advice, the CBCA dismissed the appeal for lack of jurisdiction.
The CBCA’s decision in Engineering & Environment, Inc., CBCA 6228 (2018) is one of the briefest appellate decisions you’ll ever read–just three sentences of substantive discussion. Those sentences, however, make an important point about the jurisdiction of the Government’s two main contract appeals boards.
After the Air Force terminated Engineering & Environment, Inc.’s contract for default, E&E asked the Contracting Officer about where an appeal could be filed. The Contracting Officer provided contact information for the CBCA, and that’s where E&E filed its appeal.
Unfortunately, the Contracting Officer’s information was erroneous–the CBCA doesn’t have jurisdiction over Air Force contracts. Citing its jurisdictional statute at 41 U.S.C. 7105(e), the CBCA dismissed E&E’s appeal. The CBCA wrote, “[t]he Board lacks jurisdiction over this matter because the [ASBCA] is the board responsible for hearing appeals involving Department of the Air Force contracts.”
The Engineering & Environment, Inc. case highlights the fact that the Government has two major contract appeals Boards. Under the statute, the ASBCA has jurisdiction to decide “any appeal from a decision of a contracting officer of the Department of Defense, the Department of the Army, the Department of the Navy, the Department of the Air Force, or the National Aeronautics and Space Administration relative to a contract made by that department of agency.” In contrast, the CBCA has jurisdiction to decide an appeal from a decision of a contracting officer of “any executive agency” except the agencies named above, and a handful of others such as the Postal Service.
Because appeals are subject to strict timeliness deadlines, filing at the wrong Board could be fatal. By the time the incorrect Board dismisses the appeal for lack of jurisdiction, it could be too late to file at the right Board. (It’s not clear whether E&E itself still had time on the clock). As Engineering & Environment demonstrates, contractors must file appeals at the right place–even if the Contracting Officer provides erroneous information.
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We’re in the final stretch! There are only about 5 weeks left in the fiscal year, which means the lives of government contractors are about to get more chaotic. But as August draws to a close, I hope you’re able to have a relaxing weekend; let’s get it started off right with the SmallGovCon Week in Review.
This week’s edition discusses an update on the ban of Kasperky anti-virus software, continuing uncertainty about GSA’s effort to re-bid SAM.gov, a contractor sentenced under a rent-a-vet scheme, and more.
Have a great weekend!
Only three people comment on rule banning Kaspersky anti-virus software. [NextGov]
DoD, GSA and NASA adopt final rule establishing paid sick leave for federal contractors. [Federal Register]
GSA grants IBM six-month extension on its contract with SAM.gov and considers whether to put the business up for bidding. [FCW]
The Civilian Board of Contract Appeals (Board) makes a final rule and amends its rules of procedure for cases arising under the Contract Disputes Act. [Federal Register]
A contractor will spend a year in federal custody after admitting to hiring disabled veteran to pose as his business partner to land lucrative contracts. [Chron]
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I am very pleased to announce that John Mattox has joined our team of attorney-authors here at SmallGovCon. John is an associate attorney with Koprince Law LLC, where his practice focuses on federal government contracts law.
Before joining our team, John practiced business litigation with a national law firm in Kansas City. Check out John’s full biography to learn more about our newest author, and don’t miss his first SmallGovCon post on NAICS code changes.
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As the incumbent contractor, you’re excited to bid on the successor contract. The day it’s posted, you dash to fbo.gov, pull up the solicitation, and breathe a sigh of relief: the contract is still exclusively a small business set-aside. But wait! Under the assigned NAICS code your business doesn’t fall below the size standard.
Can the agency change the NAICS code from one iteration of the contract to another? Sure, so long as the selected NAICS code meets the regulatory standard.
In NAICS Appeal of STG, Inc., SBA No. NAICS-5936 (2018), OHA considered a solicitation, issued by the Department of the Army, for “[n]on-personal information technology (IT) services and support requirements.” The contracting officer assigned the procurement NAICS code 541513, Computer Facilities Management Services, which carries a $27.5 million size standard. STG, the incumbent contractor, disagreed with that selection. It contended that the NAICS code, assigned to the existing contract, was the correct one, namely NAICS code, 517110 (now NAICS code 517311), Wired Telecommunications Carriers, with a 1,500-employee size standard.
STG’s arguments largely took the if-it-ain’t-broke-don’t-fix-it line. It asserted that the contemplated contract contained requirements substantively identical to its contract. And, in an appeal to history, STG noted that the agency had used NAICS code 517311 on predecessor contracts for more than a decade. Further, it argued that NAICS code 517311 focuses on telecommunications and networks—the procurement’s essence—not the computer management field covered by NAICS code 541513.
But STG’s cries did not move OHA, which sided with the contracting officer. Two points from OHA’s analysis are worth mentioning here.
First, OHA isn’t persuaded by a prior contract’s NAICS code designation—unless OHA previously reviewed or affirmed it. OHA explained the principle this way:
Here, Appellant argues that the CO’s designation of the instant procurement under NAICS code 541513 is erroneous because the predecessor contract, upon which Appellant was the awardee, was designated under NAICS code 517311. However, OHA never reviewed or affirmed the NAICS code designation for the prior procurement, and therefor it is not probative of the correct designation for this procurement, nor is it binding for this proceeding.
In other words, a NAICS code designation for a prior procurement is not probative of the correct designation, in a subsequent contract, unless OHA weighed in on the earlier-assigned NAICS code.
Second, a NAICS code appellant can’t lose sight of its burden. In an NAICS code appeal, the appellant must prove that the contracting officer erred in designating the procurement under a certain NAICS code. To do that, the appellant must show that the “code designation is clearly incorrect and not that another code is correct.” OHA is not in the business of second-guessing the contracting officer. Unless, the contracting officer clearly got the NAICS code wrong, then OHA will not disturb the decision. Put differently, the fact that OHA would have chosen another NAICS code, standing in the contracting officer’s shoes, isn’t enough for the appellant to win.
In the end, OHA’s analysis wasn’t particularly extensive. It simply pointed out that the “types of services NAICS code 541513, Computer Facilities Management Services, are aligned with the work required by the instant procurement.” And it noted that the procurement’s central focus was gaining quality, highly trained contractor personnel, and NAICS code 541513 “requires a high degreed of expertise and training.”
The salient take-away, for any incumbent contractor, is this: don’t be lulled into the tantalizingly deceptive notion that a NAICS code is chiseled in stone from one iteration of the contract to another. It can change. And OHA won’t provide any relief unless a contractor can show that the contracting officer, in assigning the NAICS code, clearly got it wrong.
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I am back from a great trip to Norman, Oklahoma where it was an honor to be part of the annual Indian Country Business Summit. My talk at the ICBS covered recent legal developments in government contracting law, including the Section 809 Panel reports, the strict SBA SDVOSB ownership requirements, enhanced debriefings, and much more.
A big thank you to the Tribal Government Institute and Oklahoma Bid Assistance Network for sponsoring this wonderful event, and Victoria Armstrong and everyone who worked with her to organize it. And, of course, thank you to all of the clients, old friends, and new faces I met and spoke with at the conference.
I’ve been a road warrior recently, but will be sticking around town for awhile as the fourth quarter heads into its last stretch. Next up on my schedule: the Buy, Build and Sell Conference in Washington, DC on October 11. I’m looking forward to spending a day in my old DC stomping grounds.
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If you’ve ever responded to an SBA size protest, you know that the process is quite involved: SBA will require your company to provide a complete response to the protest (including production of corporate, financial, and tax records for all implicated concerns) within only a few business days. The consequences for not providing all of the requested information can be quite severe, as the SBA can presume that the responsive information would demonstrate that the concern is not a small business (through its “adverse inference” rule).
A recent OHA appeal shows the dangers of failing to adequately respond to a size protest. In Size Appeal of Perry Johnson & Associates, SBA No. SIZ-5943 (2018), the OHA affirmed the SBA’s reliance on an adverse inference and, as a result, found the protested company was not an eligible small business.
At issue in the appeal was an award to Perry Johnson by the Department of Defense Education Activity for transcription support services. The procurement was set-aside for small businesses under NAICS code 561410, which carries a $15 million size standard.
A disappointed offeror challenged Perry Johnson’s eligibility for the award, pointing to Perry Johnson’s online statement that it “had become the largest privately held transcription company in the United States with $43 million in revenues.” Its website also identified certain “affiliates” that shared the “Perry Johnson” name.
The SBA notified Perry Johnson of the protest and requested its response. Perry Johnson was specifically asked to provide its tax returns and documents relating to the “affiliated” entities identified on its website.
What happened next was somewhat of a dance: Perry Johnson would provide partial information, but omitted information it believed wasn’t relevant. The SBA would then ask for this information, and Perry Johnson would demur. Throughout, Perry Johnson exhibited a lack of understanding of the size protest process—it repeated its (mistaken) belief that companies weren’t affiliated simply because they worked in different industries (while failing to address the apparent common ownership or management or identity of interest between them).
Finally, after over a week of back-and-forth, the SBA issued a size determination that found Perry Johnson to be a large business under the assigned NAICS code. It did so by primarily relying on the adverse inference rule—even though it repeatedly told Perry Johnson that the failure to provide the requested information could result in an adverse size inference, it nonetheless failed to provide the requested information about its affiliates.
Perry Johnson appealed the size determination, arguing that the adverse inference was improper. Not only was the information requested by the SBA irrelevant, Perry Johnson argued, but it was also publicly available. Perry Johnson also doubled-down on its belief that because the affiliated entities’ businesses were unrelated to its own, it was “unwarranted” to ask for their information.
The OHA denied Perry Johnson’s appeal. Doing so, it agreed with the Area Office’s conclusion that Perry Johnson “has a fundamental misunderstanding of the size regulations.” Whether firms operate under different NAICS codes is irrelevant to affiliation—instead, affiliation is found if one party has the power to control the other (like through common ownership, common management, or identity of interest). The Area Office repeatedly tried to explain this to Perry Johnson, to the point where the OHA questioned whether the “failure to understand [was] deliberate.”
Even still, Perry Johnson did not address its relationships with these companies. So the OHA found that the Area Office correctly applied the adverse inference rule:
[Perry Johnson] was given numerous opportunities by the Area Office to provide sufficient information to properly establish its size. However, instead of providing the information the Area Office requested and allowing the Area Office the chance to determine its size, [Perry Johnson] made a conscious decision not to provide the Area Office with the information it requested, having been warned that doing so could lead to a finding that [it] is not small.
Perry Johnson therefore did not qualify as a small business under the procurement.
So what are the takeaways from this decision? I think there are two:
First, always provide as much relevant information to the SBA as possible when responding to a size protest. This can be frustrating, as oftentimes responses can feel like you’re living “If You Give A Mouse A Cookie”—no matter what information is provided, the SBA sometimes asks for still more. But it’s helpful to keep in mind that the SBA is just doing its job. And as Perry Johnson shows, it’s always best to provide the information requested.
Second, get help from counsel experienced in responding to size protests. SBA’s regulations are complex, so your general corporate attorney might not understand the issues relating to affiliation and determining size.
Perry Johnson shows that responding to size protests is a complicated endeavor. If you have any questions about size protests, please give me a call.
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It’s mid-August, which means school is back in session! If you have little ones, we hope they had a nice first few days back.
But before we head out to enjoy the weekend, let’s take a look at the SmallGovCon Week in Review. In this week’s edition, the Pentagon’s procurement process is criticized, contractors are reminded how to prep for a government shutdown (let’s hope one doesn’t happen), and more.
Have a great weekend!
Michael Griffin, Undersecretary of Defense for Research and Engineering, lashed out at the Pentagon’s oppressive procurement process. [Space News]
How contractors can plan for a government shutdown. [Federal News Radio]
GSA adds web page that lists Pentagon contractors that have received waivers for new contracts despite having been barred from government work because of fraud-related charges. [Bloomberg Government]
Oracle protests the DoD’s decision to make JEDI a single source. [Federal News Radio]
Kaspersky Lab argues that the ban on its products is unreasonable. [NextGov]
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The Department of Defense’s micro-purchase threshold will double, from $5,000 to $10,000, under the 2019 National Defense Authorization Act.
The increase in the DoD micro-purchase threshold will put the DoD on par with civilian agencies after Congress increased the civilian micro-purchase threshold to $10,000 in last year’s NDAA.
For several years, the standard micro-purchase threshold for both DoD and civilian agencies was $3,500. There are some very limited exceptions, such as in certain contingency operations, where significantly larger micro-purchases are permitted.
In the 2017 NDAA, Congress increased the DoD’s micro-purchase threshold to $5,000. Civilian agencies did not get a boost that year. The DoD acted quickly to implement its new micro-purchase authority.
The next year, Congress increased the civilian micro-purchase threshold all the way to $10,000. Now, it was DoD with the smaller micro-purchase threshold–only half that of its civilian counterparts.
The 2019 NDAA restores parity in micro-purchases by increasing DoD’s micro-purchase threshold from $5,000 to $10,000. Section 821 of the 2019 NDAA simply strikes the portion of the United States Code establishing a $5,000 threshold and replaces it with a sentence reading “The micro-purchase threshold for the Department of Defense is $10,000.” President Trump signed the 2019 NDAA into law earlier this week.
If the 2017 NDAA is any guide, the DoD will implement the new increase quickly, giving its Contracting Officers considerably more flexibility when it comes to lower-dollar acquisitions.
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