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Koprince Law LLC

When the SBA evaluates a size protest, it is not required to investigate issues outside of those raised in the size protest itself.

A recent decision of the SBA Office of Hearings and Appeals demonstrates the importance of submitting a thorough initial size protest–and confirms that the SBA need not investigate issues outside of the allegations raised in the protest.

OHA’s decision in Size Appeal of K4 Solutions, Inc., SBA No. SIZ-5775 (2016) involved a TSA procurement.  The TSA acquisition in question contemplated the award of a single BPA to a business holding a GSA Schedule 70 contract.  The RFQ was issued as a total small business set-aside.

After evaluating quotations, the TSA announced that Systems Integration, Inc. was the apparent successful offeror.  K4 Solutions, Inc., an unsuccessful competitor, then filed a size protest.  K4 alleged that SII had been acquired by Rimhub Holdings, Inc. in 2014, and thus was affiliated with Rimhub.  The size protest did not address the question of whether SII had been required to recertify its size under its Schedule 70 contract upon the acquisition by Rimhub.

The SBA Area Office dismissed the size protest as untimely.  The Area Office stated that, for a long-term contract like Schedule 70, a size protest may be challenged at three points in time: (1) when the long-term contract itself is initially awarded; (2) when an option is exercised; or (3) upon the award of an order, if the Contracting Officer specifically requests size recertification in conjunction with the order. (OHA has held in an earlier case that merely bidding on a set-aside order does not constitute a recertification under this rule).

In this case, the TSA had not requested a recertification in connection with the order, and there was no option at issue.  Therefore, the Area Office determined, “size was determined from the date of SII’s self-certification for the GSA Schedule Contract,” and there was “no available mechanism for [K4] to challenge SII’s size in connection with” the TSA RFQ.

K4 filed a size appeal with OHA. K4 argued that, under 13 C.F.R. 124.404(g)(2), SII had been required to recertify its size within 30 days of being acquired by Rimhub. K4 argued that its protest was timely because it was filed within five business days of when K4 learned that SII had continued to represent itself as a small business following the acquisition.

OHA wrote that an Area Office “has no obligation to investigate issues beyond those raised in the protest.”  In this case, the recertification issue raised by K4 on appeal “was not raised in [K4’s] underlying size protest.”  Accordingly, “given that [K4’s] protest did not allege that SII was required to recertify its size . . . the Area Office could reasonably choose not to explore this issue n the size determination, and [K4] has not demonstrated that the Area Office committed any error in its review.”

OHA denied K4’s size appeal.

An unsuccessful offeror doesn’t have much time to file a size protest–just five business days from receiving notice of the prospective awardee, in most cases.  But even with such a short time frame, a size protester must submit the most thorough protest possible.  As the K4 Solutions case demonstrates, the SBA has no obligation to investigate an issue that the protester didn’t raise.


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Koprince Law LLC

The 8(a) Program has survived a major challenge to its constitutionality–but the legal battle over the 8(a) Program’s future may well continue.

On Friday, a two-judge majority of the U.S. Court of Appeals for the D.C. Circuit held that the statute that creates the 8(a) Program is not unconstitutional. While the D.C. Circuit’s decision is a big win for proponents of the 8(a) Program, the limited scope of the ruling–and a sharp dissent from that ruling–signal that the fight over the future of the 8(a) Program may not be over.

Rothe Development, Inc. v. U.S. Department of Defense, No. 1:12-cv-00744 (D.C. Cir. Sept. 9, 2016), involved the question of whether the Department of Defense could set aside certain procurements exclusively for 8(a) Program participants. Rothe Development, Inc., which is not an 8(a) participant, brought suit against the DoD, arguing that it had been improperly precluded from competing for these contracts.

Rothe challenged the constitutionality of the 8(a) Program itself. Rothe attacked the statutory provisions establishing the 8(a) Program, claiming that the underlying 8(a) Program statute “contains a racial classification that presumes that certain racial minorities are eligible for the program,” while denying such a presumption to those who are not members of those groups. Rothe argued that this classification system violated its right to equal protection under the Due Process Clause of the Fifth Amendment.

When a court reviews an equal protection challenge, the court will apply a certain “standard of review.”  The standard of review sets forth the burden that the government must meet in order to demonstrate that the challenged law is constitutional. For equal protection purposes, the Supreme Court has established three standards of review: rational basis, intermediate scrutiny and strict scrutiny. Think of these as low, medium, and high scrutiny (or tall, grande, and venti, if you prefer Starbucks terminology).

Rational basis is the lowest threshold, and applies to the review of most laws. To survive a rational basis review, a statute merely must be bear some reasonable relation to some legitimate government interest.

Strict scrutiny, on the other hand, is the highest level of review. A court must apply strict scrutiny in certain circumstances, such as where a statute, on its face, is not race-neutral. To pass strict scrutiny, the government must show the statute is narrowly tailored to meet a compelling government interest. That, of course, can be a very difficult burden for the government to meet; when strict scrutiny is applied, the court often rules against the government.

Turning back to the case at hand, the two-judge majority, after closely reviewing the 8(a) Program’s underlying statute, determined that “the provisions of the Small Business Act that Rothe challenges do not on their face classify individuals by race.” The majority continued:

Section 8(a) uses facially race-neutral terms of eligibility to identify individual victims of discrimination, prejudice, or bias, without presuming that members of certain racial, ethnic, or cultural groups qualify as such. That makes it different from other statutes that either expressly limit participation in contracting programs to racial or ethnic minorities or specifically direct third parties to presume that members of certain racial or ethnic groups, or minorities generally, are eligible. Congress intentionally took a different tack with section 8(a), opting for inclusive terms of eligibility that focus on an individual’s experience of bias and aim to promote equal opportunity for entrepreneurs of all racial backgrounds.

The majority noted that “in contrast to the statute, the SBA’s regulation implementing the 8(a) program does contain a racial classification in the form of a presumption that an individual who is a member of one of five designated racial groups (and within them, 37 subgroups, is socially disadvantaged.” Importantly, however, Rothe “elected to challenge only the statute,” not the regulation. Therefore, the court determined, “[t]his case does not permit us to decide whether the race-based regulatory presumption is constitutionally sound.”

Having determined that the statute was race-neutral on its face, the D.C. Circuit majority applied the rational basis test, not strict scrutiny. The majority found that “[c]ounteracting discrimination is a legitimate interest,” and that “the statutory scheme is rationally related to that end.” The D.C. Circuit held that the 8(a) Program’s statutory provisions did not violate the Fifth Amendment.

Judge Karen Lecraft Henderson dissented in part from the majority’s ruling. Judge Henderson pointed out that just about everyone who had looked at the issue previously–Rothe, the government’s counsel, and the lower court–had concluded that the statute did, in fact, contain a racial classification.

Judge Henderson wrote that that “section 8(a) contains a paradigmatic racial classification,” and that the court “should apply strict scrutiny in determining whether the section 8(a) program violates Rothe’s right to equal protection of the laws.” Judge Henderson did not say, however, whether she would find the 8(a) Program to be unconstitutional under a strict scrutiny test.

There is no doubt that the D.C. Circuit’s decision is a big win for proponents of the 8(a) Program. Not only was the 8(a) program found to pass constitutional muster, the applicable standard of review was determined to be rational basis—the easiest test for a statute to pass.

But some of the coverage I’ve seen of the D.C. Circuit’s decision makes it sound like the issue of the 8(a) Program’s constitutionality has been fully and finally resolved. I’m not so sure.

As the majority noted, Rothe specifically disclaimed any challenge to 13 C.F.R. 124.103, the SBA regulation establishing who is–and is not–deemed “socially disadvantaged” for 8(a) Program purposes. The majority was very clear that it believes that the regulations themselves are not race-neutral, meaning that any future challenge to the regulations would likely be decided under the much-higher strict scrutiny standard.

Additionally, there is no guarantee that the Rothe case itself is over and done. While the Supreme Court doesn’t take many government contracting cases, the recent Kingdomware decision demonstrates that the Court is willing to take on an important contracting case. And in Rothe, the D.C. Circuit’s internal disagreement over what level of scrutiny to apply, coupled with the Court’s willingness to tackle cases involving alleged race-based classifications>, might mean that Rothe ends up on the Supreme Court’s docket.

For 8(a) Program proponents, there is good reason to cheer the D.C. Circuit’s Rothe decision, but don’t break out the champagne just yet.

Ian Patterson, a law clerk with Koprince Law LLC, was this post’s primary author.

 

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Koprince Law LLC

Happy Friday! Here at Koprince Law, we’ve been busy posing for pictures for our new firm website (coming soon) and enjoying our annual trip to the Taste of Lawrence event last night, where we were able to enjoy food from local restaurants, hear live music and interact with the community.

Even with all that fun we have managed to bring you this edition (albeit a little later in the day) of SmallGovCon Week In Review. In this week’s edition, we bring you the latest on the ENCORE III bid protest, a look at the how a continuing resolution will affect contractors, underfunding of efforts to investigate whistleblower claims, and more.

  • A $5 billion, ten-year agreement with a subsidiary of Lockheed Martin was rescinded due to concerns over the sale of the subsidiary to Leidos. [Defense News]
  • The Government Accountability Office detailed its rationale in the ENCORE III bid protest, saying that the reason for the “sustain” decision wasn’t that the Defense Information Systems Agency wanted to award spots on the ten-year contract on a lowest-price technically acceptable basis. [Federal News Radio]
  • Federal contracting companies have come to terms with the fact that the new fiscal year will begin next month with a congressional stopgap budget measure. [Washington Business Journal]
  • A memorandum entitled Commercial Items and the Determination of Reasonableness of Price for Commercial items has been rescinded and new guidelines have been issued in its place. [Office of the Under Secretary of Defense]
  • The Pentagon’s acting inspector general told Congress this week a chronic underfunding of his office played a major role in the extensive delays surrounding its investigations into whistleblower reprisal claims. [Federal News Radio]
  • The GSA has issued a proposed regulation to incorporate Other Direct Costs into the Multiple Award Schedule program. [GSA]
  • Intelligence agencies are increasingly turning to contractors for talented information specialists and scientists as the in-house talent pool wanes. [Federal News Radio]

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Koprince Law LLC

A contractor successfully challenged an adverse size determination that found affiliation under the newly organized concern rule, by establishing that its president and chief executive officer was not a former key employee of its supposed affiliate.

In a recent size appeal decision, the SBA Office of Hearings and Appeals clarified the definition of “key employee” under the newly organized concern rule, by noting that such a former employee’s title was not conclusive—instead, to be a key employee, that person had to have influence or control over the operations of the business as a whole.

Size Appeal of Human Learning Systems, LLC, SBA No. SIZ-5769 (2016) involved an appeal challenging a size determination that found the contract awardee—Human Learning Systems (“HLS”)—to be “other than small” under the operative NAICS code. The underlying solicitation was issued by the Department of Labor, seeking the administration of a Jobs Corps Center in Tucson, Arizona. Serrato Corporation filed a size protest challenging HLS’s award, claiming that HLS was affiliated with various large businesses, including ResCare, Inc.

In response to Serrato’s protest, the SBA Area Office found HLS and ResCare to be affiliated under the newly organized concern rule. In essence, that rule is designed to prevent a large business from avoiding size standards by creating a spin-off firm to perform as a small business. To find affiliation based on the newly organized concern rule, four conditions need to be met:

  • Former key employees of one concern organize the new concern;
  • The individuals who formed the new concern will serve as its key employees;
  • The new concern is in the same or a related industry as the other concern; and
  • The new concern will be provided with contracts, financial or technical assistance, indemnification or bonding assistance, or facilities, by the other concern.

HLS’s president and chief executive officer—Benjie Williams—formerly worked as a Jobs Corps Center Director for ResCare. His résumé, moreover, said that he was responsible for oversight of four Jobs Corps Centers, and provided support to other Center Directors across the country. He also provided technical assistance and training to Center Directors, and participated in annual reviews for all centers. According to the Area Office, this work made Mr. Williams a key ResCare employee: “he obviously had significant influence and control of a Jobs Corps Center and later of Jobs Corps Operations.” Given Mr. Williams’ prior work for ResCare, and considering that the companies had worked together on previous procurements, the Area Office said that HLS and ResCare were affiliated by the newly organized concern rule.

HLS appealed the size determination, specifically challenging the Area Office’s determination that Mr. Williams was a key employee of ResCare. A key employee, the OHA noted, “is one who, because of his position in the concern, has a critical influence or substantive control over the operations or management of the concern.” Such influence or control must be over the operations of a concern as a whole—supervision over a relatively small portion of the company is not sufficient. “A key employee, then, is not merely an employee with a responsible position or a particular title. A key employee is one who actually has influence or control over the operations of the concern as a whole.”

Mr. Williams was not a key ResCare employee, according to HLS. Despite his “Vice President” title, Mr. Williams was not higher than the fifth tier of authority at ResCare. Mr. Williams was not in charge of any department at ResCare, nor did he supervise any employees. He had no authority to bind ResCare to any contracts, control its revenue, or make any substantive decisions.

OHA agreed that Mr. Williams was not a key ResCare employee. It noted that the segment of ResCare’s business relating to Jobs Corps Centers (under which Mr. Williams worked) amounted to roughly 8% of ResCare’s receipts. This small amount meant that Mr. Williams could not have influenced or controlled ResCare as a whole. And even within that business segment, Mr. Williams’ role was not controlling: though he “provided support” to Center Directors, he did not supervise them. Providing support “is not supervision,” according to OHA. Neither was Mr. Williams’ status as a Vice President evidence of control—“As a Vice President, Mr. Williams was outranked by at least six Senior Vice Presidents, four Executive Vice Presidents, the COO and eight other C-level officers, and the CEO.” Mr. Williams simply did not influence or control ResCare as a whole in a manner sufficient to find him a key employee.

The OHA held the Area Office clearly erred when it found HLS and ResCare to be affiliated under the newly organized concern rule.

As Human Learning Systems makes clear, the question of whether an employee is a “key employee” for affiliation purposes is fact-intensive. SBA will look beyond titles and examine the employee’s role in the organization, to determine whether that person had influence or control over the whole company’s operations.


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Koprince Law LLC
NAICS code appeals, while little known, can be an extraordinarily powerful tool when it comes to affecting the competitive landscape of government acquisitions.
Case in point: in a recent NAICS code appeal decision issued by the SBA Office of Hearings and Appeals, the appellant prevailed–and obtained an order requiring the contracting officer to change the solicitation’s size standard from 500 employees to $15 million.

OHA’s decision in NAICS Appeal of Hendall Inc., SBA No. NAICS-5762 (2016) involved an HHS solicitation for support for its public engineering platform.  HHS issued the solicitation as a small business set-aside under NAICS code 511199 (All Other Publishers), with a corresponding 500 employee size standard.
Here’s where many small businesses would throw in the towel: “500 employees?  I can’t compete with that.  I’m moving on to the next solicitation.”
But Hendall Inc. understood that a prospective small business offeror has the right to file a NAICS code appeal directly with OHA.  So Hendall filed a NAICS code appeal, arguing that the HHS had assigned an incorrect NAICS code.  Hendall made the case that the appropriate NAICS code was 561422 (Telemarketing Bureaus and Other Contact Centers), with a corresponding $15 million size standard.
The incumbent contractor–which presumably was small under the 500-employee size standard, but not under the $15 million size standard–intervened in the case.  The incumbent argued that HHS’s original NAICS code designation was correct.
OHA evaluates NAICS code appeals primarily by comparing the solicitation’s statement of work to the NAICS code definitions in the Census Bureau’s NAICS Manual.  In this case, OHA noted that the NAICS Manual defines NAICS code 511199 as establishments “generally known as publishers,” who “may publish works in print or electronic form.”  NAICS code 561422, in contrast, comprises “establishments engaged in operating call centers that initiate or receive communications for others via telephone, facsimile, email, or other communication modes . . ..”
After examining the statement of work, OHA wrote that “the Contractor will not be writing, editing, or in any other way producing publications for [HHS].”  Because “the Contractor will not be engaged in activities which constitute publishing . . . the CO’s designation of a publishing NAICS code for this procurement is clear error.”
Having found the original NAICS code to be erroneous, OHA then turned to the question of what NAICS code was appropriate.  This second part of the analysis is as important as the first; OHA is under no obligation to accept the appellant’s proffered NAICS code even when OHA agrees that the original NAICS code was incorrect.  In many cases, OHA has assigned a third code–one that neither the appellant nor the agency wanted.
In this case, however, OHA wrote that “the operating of the Contact Center appears to be the major part of this procurement.”  The Contact Center, in turn, “responds to inquiries by telephone, email, fax and postal mail.”  Thus, while Hendall’s suggested NAICS code might not be the “perfect fit,” OHA concluded that NAICS code 561422 “best describes the principal purpose of the instant acquisition . . ..”
OHA granted Hendall’s NAICS code appeal.  OHA issued an order requiring HHS to “amend the solicitation to change the NAICS code designation from 511199 to 561422.”  And just like that, the solicitation’s size standard changed from 500 employees to $15 million.
The Hendall NAICS code appeal, on its surface, is a fact-specific case about a particular HHS solicitation.  But beyond that, the Hendall case is an example of the potential power of a NAICS code appeal.  By successfully appealing the solicitation’s NAICS code, Hendall dramatically affected the competitive pool for the solicitation–including, potentially, excluding the incumbent as an eligible offeror.

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Koprince Law LLC
We have been hard a work all week long here at Koprince Law and are ready to take advantage of the Labor Day weekend. Not only is it a long weekend, but it is also the start of the college football season. There is nothing better than football, tailgating and cooler weather to get you in the mood for fall (although our local Kansas Jayhawks haven’t exactly been tearing up the gridiron in recent years).
Before you head out the door to enjoy the holiday weekend, it’s time for the SmallGovCon Week In Review. This week’s edition includes articles on the recent implementation of the Fair Pay and Safe Workplaces final rule, a look at the large amount of money spent of professional services and how that spending is (or isn’t) tracked, a proposed rule for streamlining awards for innovative technology projects and much more.

Business in government-wide acquisition contracts is booming, with agency buyers turning to the large-scale vehicles for price breaks and convenience. [Washington Technology] Bloomberg BNA has an interesting Q&A session involving the recently released Fair Pay and Safe Workplaces regulations. [Bloomberg BNA] According to one commentator, government contracting is being hurt by the lack of transparency and secrecy with the amount of money flowing through all the contract vehicles across government. [Washington Technology] The Obama administration has finalized plans to bring more scrutiny to potential federal contractors’ histories of violating labor laws, releasing twin final regulations that will implement a 2014 executive order. [Government Executive] A government contractor is required to pay $142,500 to settle civil fraud allegations that their employees engaged in labor mischarging. [Department of Justice] Agencies spend almost $63 billion a year on professional services and there is a new plan to help the government improve how it buys and manages these contracts. [Federal News Radio] A proposed rule has been issued to amend the DFARS to implement a section of the National Defense Authorization Act for Fiscal Year 2016 that provides exceptions from the certified cost and pricing data requirements and from the records examination requirement for certain awards to small businesses or nontraditional defense contractors. [Federal Register]
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Koprince Law LLC
A common misconception in government contracting is that to be eligible under a particular solicitation, a small business must have the solicitation’s assigned NAICS code listed under its SBA System for Award Management (“SAM”) profile.
Not so. GAO, in a recent decision, affirmed this misconception to be false—it found that an awardee’s failure to list the assigned NAICS code under its SAM profile did not make its proposal technically unacceptable.

Veterans Electric, LLC, B-413198 (Aug. 26, 2016) involved a VA solicitation seeking electrical upgrades at the Wood National Cemetery. The solicitation was set-aside for service-disabled veteran-owned small businesses. The VA issued the solicitation under NAICS code 238210 (Electrical Contractors and Other Wiring Installation Contractors), which carries a size standard of $15 million.
Before getting to the merits of the protest, a brief primer on NAICS codes might be helpful. NAICS codes—short for North American Industry Classification System codes—are simply industry classification codes assigned by the procuring agency for the purpose of collecting, analyzing, and publishing statistical data relating to government contracts. A contracting officer is required to assign the NAICS code that “best describes the principal nature of the product or service being acquired,” and identify and specify the operative size standard for the procurement. FAR 19.102(b). The SBA, moreover, assigns pertinent size standards (either in terms of annual receipts or number of employees) for the different NAICS codes, on an industry-by-industry basis. The codes, then, are particularly relevant in small business set-aside solicitations: if a company exceeds the corresponding size standard, it is “other than small,” and not an eligible offeror.
In Veterans Electric, two offerors—Veterans Electric and Architectural Consulting Group (“ASG”)—submitted offers. After evaluating proposals, the VA awarded the contract to ASG.
Veterans Electric protested the award, challenging ASG’s technical acceptability on two related grounds: first, that ASG’s failure to include NAICS code 238210 in its SAM profile demonstrated that it lacked the requisite technical experience and, second, that ASG’s failure to certify that it met the relevant size standard rendered its proposal unawardable.
GAO rejected Veterans Electric’s arguments. Taking Veterans Electric’s second allegation first, GAO acknowledged that ASG’s proposal and its SAM profile did not list NAICS code 238210. But GAO found convincing the contracting officer’s determination that, because ASG listed several other NAICS codes at or below the relevant the $15 million size standard, ASG obviously certified that it complied with the size standard for this procurement. Veterans Electric did not present any evidence to show otherwise. The contracting officer’s determination was therefore reasonable.
This finding also compelled GAO to deny Veterans Electric’s first allegation. A technical evaluation is within the agency’s discretion, and GAO found no basis to question ASG’s level of technical experience simply because it did not identify the primary NAICS code in its proposal or its SAM profile. GAO wrote:
So long as a company meets the applicable size standard, we are aware of no statutory or regulatory requirement that it have the particular NAICS code identified in the solicitation as its primary code.
GAO denied Veterans Electric’s protest.
Small business contractors are allowed to identify in their SAM profiles their areas of experience, by NAICS codes. And as a matter of practice, companies often list all codes in which they hope to perform work. But as Veterans Electric confirms, whether a small business lists any particular NAICS code under its SAM profile is not conclusive evidence as to its technical experience or acceptability—that evaluation is instead made by the procuring agency after its review of the offeror’s proposal as a whole. So long as that evaluation was reasonable, GAO will not sustain a protest challenging the awardee’s failure to list a NAICS code.

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Koprince Law LLC
I am back in Lawrence after a great Midwestern driving trip last week, where I spoke at two fantastic government contracting events.

On Tuesday, I was in Des Moines for the Iowa Vendor Conference.  My presentation focused on debunking common myths surrounding the SBA’s size and socioeconomic programs (think that VetBiz verification applies to all agencies?  Think again!)  Many thanks to the Iowa State University Center for Industrial Research and Service for organizing this great event and inviting me to speak.  Special thanks to Pam Russenberger and Jodi Essex for all their work planning and coordinating the event, and a big “thank you” to the featured keynoter–the one and only Guy Timberlake–for everything he did to make the conference such a great success.
After I spoke at the Iowa Vendor Conference, I hit the road for Norman, Oklahoma for the annual Indian Country Business Summit.  My talk at the ICBS touched on several recent, major changes to the small business contracting regulations, including the new rules for the limitations on subcontracting and universal mentor-protege program.  The ICBS has always been a great event, but it seems to get bigger and better each year.  A big “thank you” to Victoria Armstrong for her amazing work planning the event, as well as the Oklahoma Bid Assistance Network and Tribal Government Institute for hosting.
I’ll be sticking around home for a few weeks, but more travel is on the agenda–I’m excited to be speaking at the Redstone Edge conference in Huntsville, Alabama on September 22.  Hope to see you there!

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Koprince Law LLC
Greetings from Oklahoma, where I am wrapping up a busy week of travel that has included speaking engagements both at the Iowa Vendor Conference and The Indian Country Business Summit.
While I’ve been on the road, it has also been a noteworthy week in government contracting news. This week, SmallGovCon Week In Review takes a look at stories about the year end spending frenzy, the Freedom of Information Act may undergo major changes, DoD is barely exceeding 50% when it comes to meaningful competitions, and much more.

The projected federal contract spending is on a decidedly upward slant with two issues affecting the year-end spending frenzy. [American City & County] What impact will the outcome of the presidential election have on the government contracting landscape? [GovBizConnect] Federal agencies could soon face a new governmentwide guidance on how they respond to Freedom of Information Act requests, following an upcoming meeting in September. [Federal news Radio] The Office of Federal Procurement Policy has launched a dashboard to hold agencies accountable to meet the goals in the category management memos. [Federal News Radio] With worry that only 56.5 percent of the DoD’s contracted dollars involved a meaningful competition between two or more vendors, they have issued a series of corrective actions to reverse a downward slide that has been ongoing for nearly a decade. [Federal News Radio] Several speculative conclusions can be made based on fiscal 2015 government contracting data and, according to one commentator, the outlook is not positive. [Federal News Radio] The FAR Council published the final rule regarding the Fair Pay and Safe Workplaces Executive Order, which imposes a host of new obligations on government contractors, including an obligation to report various labor law violations during the bid and proposal process. [The Hill] A former MCC Construction Company officer and owner pleads guilty to conspiring to defraud the government. [The United States Department of Justice]
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Koprince Law LLC
I recently had the pleasure to discuss important government contracting legal updates and their effects on small businesses, at the 11th Annual Veterans Business Conference at Fort Bliss (in El Paso). The Contract Opportunities Center did a fantastic job organizing the conference, which brought together small businesses and government agencies for a wide-ranging discussion on government contracting. My presentation discussed many of the topics we’ve been following at SmallGovCon, including the SBA’s new small business mentor-protégé program, changes to the limitation on subcontracting, and, of course, the Supreme Court’s Kingdomware decision.
I also enjoyed meeting many of the small business owners and government representatives who attended the event. If you attended the conference, it would be great to hear from you.
Thanks to the COC for a great event—I hope to see you again next year!

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Koprince Law LLC
With the Olympics coming to a close this Sunday, we can look forward to getting back to our usual sleeping patterns without the lure of athletes seeking gold in Rio. So while preparations are ongoing for the closing ceremony and the eventual torch hand off to Tokyo, we continue to work to bring you the top government contracting news and notes for the week.
In this week’s SmallGovCon Week in Review, a businessman will serve prison time after stealing a veteran’s identity and using it to obtain SDVOSB contracts, the first protest of the Alliant 2 solicitation has been filed, faulty military helmets manufactured at a Texas prison under a government contract have been recalled, and much more.

A six-year prison sentence was handed down to a businessman stealing a disabled veteran’s identity and using the information to seek $2.7 million in government contracts. [CBS DFW] Has the VA acted too hastily when it quickly complied with the U.S. Supreme Court’s “rule of two” decision in the Kingdomware Case? [Federal News Radio] A $2.25 million fine will be paid out by a research and development company, financed largely by federal government funding, to resolve allegations that they violated the False Claims Act by seeking disbursements from federal agencies for falsified labor costs. [United States Department of Justice] The first protest has come just six weeks after the GSA released the request for proposals for the massive IT services multiple award contract known as Alliant 2. [Federal News Radio] Government marketing expert Michelle Hermelee, CSCM, discusses two of the new GSA initiatives and what they mean for federal contractors. [Government Product News] Small businesses that contract with the federal government fear proposed changes to regulations will push them out of the bidding process. [The Hill] Mid-tier companies of smaller size are finding it impossible to compete on Alliant 2 Unrestricted and are voicing complaints that could result in a pre-award protest. [Washington Technology] More than 126,000 helmets manufactured at a Texas prison under a government contract were recalled after inspectors found major defects, including serious ballistic failures. [The Washington Times] Industry now has another two weeks to submit bids for Alliant 2, the largest IT contract released in the past decade, after an extension by the General Services Administration. [Nextgov]
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Koprince Law LLC
Each party to a GSA Schedule Contractor Teaming Arrangement must hold the Federal Supply Schedule contract in question.
As demonstrated by a recent GAO bid protest decision, if one of the parties to the GSA CTA doesn’t hold the relevant FSS contract, the CTA may be found ineligible for award of an order under that contract.
 
The GAO’s decision in M Inc., d/b/a Minc Interior Design, B-413166.2 (Aug. 1, 2016) involved a VA RFQ for healthcare facility furniture and related services.  The VA issued the RFQ using the GSA’s eBuy system, and intended to award multiple Blanket Purchase Agreements to successful vendors holding GSA Schedules 71 or 71 II K.
The RFQ allowed vendors to submit quotations using GSA CTAs.  If a vendor elected to use a CTA, the lead vendor was required to submit all CTA agreements, identify each CTA vendor and its respective GSA Schedule contract numbers, and specify each CTA vendor’s responsibilities under the BPAs.
M Inc. d/b/a Minc Interior Design submitted a quotation as the lead vendor of a team that included Penco Products, Inc.  Minc’s quotation did not identify a current FSS contract number for Penco, nor did Minc identify any services that Penco was currently performing under an FSS contract.
In its evaluation of Minc’s proposal, the VA determined that Penco did not hold an FSS contract.  As a result, the VA determined that Minc’s quotation was unacceptable.
Minc filed a GAO bid protest challenging the VA’s decision.  Minc argued, among other things, that it had been unreasonable for the VA to rate its quotation as unacceptable based on Penco’s lack of an FSS contract.
The GAO wrote that “an agency may not use schedule contracting procedures to purchase items that are not listed on a vendor’s GSA schedule.”  Furthermore, “the GSA considers each vendor competing through a CTA to be a prime contractor with respect to the items it would provide in support of the team’s quotation, and thus must hold an FSS contract.”
In this case, “issuance of a BPA under Minc’s quotation would thus have impermissibly used FSS contracting procedures to enter into a BPA with Penco despite its not having a current FSS contract.”  The GAO denied Minc’s protest, holding, “[t]he VA reasonably determined that Minc’s quotation was unacceptable due to the inclusion of a CTA with a firm that lack an FSS contract.”
GSA Contractor Teaming Arrangements can be a highly effective way for two or more Schedule contractors to combine their resources, capabilities, and experience.  But as the M, Inc. bid protest demonstrates, the members of a GSA CTA must all hold the relevant Schedule contract–or risk exclusion from the competition.
 
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An offeror submitting a proposal for a set-aside solicitation ordinarily need not affirmatively demonstrate its intent to comply with the applicable limitation on subcontracting.
In a recent bid protest decision, the GAO confirmed that an offeror’s compliance with the limitations on subcontracting is presumed, unless the offeror’s proposal includes provisions that negate that presumption.

The GAO’s decision in NEIE Medical Waste Services, LLC, B-412793.2 (Aug. 5, 2016) involved a VA RFQ for the pick-up and disposal of medical waste.  The RFQ was issued as a SDVOSB set-aside.  Award was to to be made to the lowest-priced, technically-acceptable offeror.
The RFQ included FAR 52.219-14 (Limitations on Subcontracting), which requires the contractor to agree that, in the performance of a contract for services (except construction), at least 50 percent of the cost of the contract performance incurred for personnel shall be expended on the employees of the prime contractor.  (Note: because the RFQ was a VA SDVOSB set-aside, the limitations on subcontracting probably should have been governed by VAAR 852.219-10 (VA Notice of Total Service-Disabled Veteran-Owned Small Business Set-Aside), which permits a SDVOSB prime contractor to satisfy its own performance obligations by subcontracting to other SDVOSBs.  For purposes of this protest, however, the differences between FAR 52.219-14 and VAAR 852.219-10 aren’t important).
The VA received three quotations.  After evaluating quotations, the VA announced that award would be made to REG Products, LLC.  An unsuccessful competitor, NEIE Medical Waste Services, LLC, subsequently filed a GAO bid protest.  NEIE contended, in part, that REG could not comply with the limitation on subcontracting because the VA’s Vendor Information Pages database indicated that REG had only one employee, and lacked sufficient experience or expertise to perform the requirement without relying on subcontractors.
The GAO wrote that “[a]n agency’s  judgment as to whether a small business offeror can comply with a limitation on subcontracting provision is generally a matter of responsibility and the contractor’s actual compliance with the provision is a matter of contract administration.”  Although the GAO ordinarily will not review such issues, “where a quotation, on its face, should lead an agency to the conclusion that an offeror has not agreed to comply with the subcontracting limitations, the matter is one of the quotation’s acceptability,” and is subject to review by the GAO.
However, the GAO explained, “[a]n offeror need not affirmatively demonstrate compliance with the subcontracting limitations in its proposal.”  Rather, “such compliance is presumed unless specifically negated by other language in the proposal.”  The protester “bears the burden of demonstrating that the awardee’s proposal should have led the agency to conclude that the awardee did not comply with the limitations.”
In this case, the GAO held, “NEIE has not met its burden.”  In that regard, NEIE “has identified nothing on the face of the awardee’s quotation that indicates that REG Products does not intend to comply with the subcontracting limitation.”  Instead, NEIE “expressly states that the RFQ’s terms and conditions were acceptable, without modification, deletion, or addition.”  In the absence of any language in the proposal negating the intent to comply with the limitation on subcontracting, “we find no basis to sustain this protest ground.”  The GAO denied NEIE’s protest.
The limitations on subcontracting are an essential component of the government’s set-aside programs, and violations can lead to severe consequences.  But as the NEIE Medical Waste Services case demonstrates, protesting an awardee’s intent to comply with the limitations on subcontracting requires more than speculation–it requires demonstrating that the awardee’s proposal, on its face, takes exception to the subcontracting limitations.

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The SBA Office of Hearings and Appeals lacks jurisdiction to consider whether an entity owned by an Indian tribe or Alaska Native Corporation has obtained a substantial unfair competitive advantage within an industry.
In a recent size appeal case, OHA acknowledged that an unfair competitive advantage is an exception to the special affiliation rules that tribally-owned companies ordinarily enjoy–but held that only the SBA Administrator has the power to determine that an Indian tribe or ANC has obtained, or will obtain, such an unfair advantage.

OHA’s decision in Size Appeal of The Emergence Group, SBA No. SIZ-5766 (2016) involved a State Department solicitation for professional, administrative, and support services.  The solicitation was issued as a small business set-aside under NAICS code 561990 (All Other Support Services), with a corresponding $11 million size standard.
After evaluating competitive proposals, the agency announced that Olgoonik Federal, LLC (“OF”) was the apparent successful offeror.  The Emergence Group, an unsuccessful competitor, then filed an SBA size protest, alleging that OF was part of the Olgoonik family of companies, which received a combined $200 million in federal contract dollars in 2015.
The SBA Area Office found that OF’s highest-level owner was Olgoonik Corporation, an ANC.  Because Olgoonik Corporation was an ANC, the SBA Area Office found that the firms owned by that ANC–including OF–were not affiliated based on common ownership or management.  Because OF qualified as a small business as a stand-alone entity, the SBA Area Office issued a size determination denying the size protest.
Emergence appealed to OHA.  Emergence argued that the exception from affiliation should not apply to OF because Olgoonik had gained (or would gain) an unfair competitive advantage through the use of the exception.  Emergence cited the Small Business Act, which states, at 15 U.S.C. 636(j)(10)(J)(ii)(II):
In determining the size of a small business concern owned by a socially and economically disadvantaged Indian tribe (or a wholly owned business entity of such tribe), each firm’s size shall be independently determined without regard to its affiliation with the tribe, any entity of the tribal government, or any other business enterprise owned by the tribe, unless the [SBA] Administrator determines that one or more such tribally owned business concerns have obtained, or are likely to obtain, a substantial unfair competitive advantage within an industry category.
OHA wrote that the statute “explicitly states that the Administrator must determine whether an ANC has obtained an unfair competitive advantage,” and OHA “has no delegation from the Administrator to decide” whether an unfair competitive advantage exists.  OHA held that it “lacks jurisdiction to determine whether the exception to affiliation creates an unfair competitive advantage in OF’s case.”  OHA dismissed Emergence’s size appeal.
Entities owned by tribes and ANCs ordinarily enjoy broad exceptions from affiliation.  As The Emergence Group demonstrates, those broad exceptions can be overcome by a finding of an unfair competitive advantage–but only the SBA Administrator has the power to make such a finding.

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It’s hard to believe that August is already here. Before we know it, the end of the government fiscal year will be here–and if tradition holds, a slew of bid protests related to those inevitable last-minute contract awards.
In our first SmallGovCon Week In Review for August, two big-wig executives who previously plead guilty to charges of conspiracy now face civil claims, some helpful tips on how to prepare for the year-end contracting frenzy, Schedule 70 looks to be improved, a major roadblock for the ENCORE III IT service contract, and much more.

A False Claims Act complaint has been filed by the U.S. Justice Department against two former New Jersey executives accused of defrauding the military. [nj.com] A federal judge said that the U.S. Department of Health and Human Services showed a “cavalier disregard” for the truth and favoritism during the evaluation of bid proposals for its financial management. [Modern Healthcare] A watchdog found that a five-year contract originally valued at a fixed price of nearly $182 million ballooned to $423 million. [Government Executive] A GSA top acquisition official has promised an improved Schedule 70 following an audit that found price discrepancies for identical products and some offered at higher prices than they were commercially available. [Nextgov] Washington Technology offers eight tips to help contractors prepare for the last month of the government fiscal year. [Washington Technology] A growing legion of small businesses are trying make federal contracting a bigger part of their revenue as federal small business awards stay above $90 billion for the past two fiscal years. [Bloomberg] A group of men, women and corporations have been indicted for illegally winning government contracts worth some $350 million by misrepresenting themselves as straw companies controlled by either low-income individuals or disabled veterans. [The State] The final “blacklisting” rule to prevent businesses that had broken labor laws from working with the federal government is expected soon, and the National Labor Relations Board is preparing to follow the proposal. [Society for Human Resource Management] The growing number of bid protests appears unavoidable, regardless of the efforts to engage industry before, during and after the bidding process. [Nextgov] The GAO has sustained protests challenging the terms of the major ENCORE III IT services contract. [Federal News Radio]
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An SDVOSB set-aside contract was void–and unenforceable against the government–because the prime contractor had entered into an illegal “pass-through” arrangement with a non-SDVOSB subcontractor.
In a recent decision, the Civilian Board of Contract Appeals held that a SDVOSB set-aside contract obtained by misrepresenting the concern’s SDVOSB status was invalid from its inception; therefore, the prime contractor had no recourse against the government when the contract was later terminated for default.

Bryan Concrete & Excavation, Inc., CBCA 2882, 2016 WL 4533096 involved a U.S Marine Corps veteran with a 100% disability rating, Jerry Bryan. Mr. Bryan owned and operated a construction company, Bryan Concrete & Excavation, Inc., which he started in 1999. In 2006, BCE was hired as a subcontractor on a number of projects overseen by Arthur Wayne Singleton.
After learning of Mr. Bryan’s service disabled status, Mr. Singleton urged BCE to start bidding on SDVOSB set-aside contracts. Mr. Singleton offered to assist BCE in getting qualified as an SDVOSB, bidding on federal projects, and managing those projects. During this time, Mr. Bryan and Mr. Singleton entered into a teaming agreement, which stipulated Mr. Singleton would perform all of work on the set-aside contracts for BCE and BCE would pay Singleton for the direct costs and overhead plus 90 percent of the anticipated gross profit. Despite the impermissible pass-through arrangement, BCE self-certified in the VA’s SDVOSB database (this was before the formal verification process required today).
In 2010, the VA issued an SDVOSB set-aside solicitation for chiller and air handling equipment upgrades. BCE submitted a bid, which was alleged to contain a forgery of Mr. Bryan’s signature by Mr. Singleton.  Further complicating matters, Mr. Singleton misrepresented himself to the VA as Mr. Bryan, during discussions of the proposal. BCE was the awarded the contract.
A number of performance issues hampered the of the contract and the VA ultimately terminated the contract default. BCE filed an appeal with the CBCA, seeking to overturn the termination.
During the course of the appeal, the VA learned for the first time that the teaming agreement between Mr. Singleton and Mr. Bryan compromised BCE’s eligibility as an SDVOSB. The VA subsequently moved for the CBCA to grant summary relief for the VA on the ground that BCE’s contract was void from the start and therefore unenforceable because it was obtained by misrepresenting BCE’s SDVOSB eligibility status to the VA.
As the CBCA explained, for the VA to prevail on its motion, it had to demonstrate that BCE had obtained the contract by knowingly making a false statement. The CBCA concluded the VA had met its burden because BCE had received a VA contract by misrepresenting its SDVOSB status. Since the misrepresentation occurred before the contract was awarded, the entire award was tainted from the beginning and thus void ab initio—from the beginning.
BCE countered that even if the contract was void from the start, subsequent dealings with the VA had created implied contracts that BCE had rights under. The CBCA was not impressed by these arguments and concluded:
While BCE may believe that it has the right to enforce a new agreement that ‘adopts the terms of the agreement that has been deemed void,’ whether through equitable estoppel, promissory estoppel, or other legal theories, the law does not work that way. ‘No tribunal of law will lend its assistance to carry out the terms of an illegally obtained contract.’
BCE’s case highlights just how little tolerance there is for concerns who misrepresent themselves to gain SDVOSB set-aside contracts. Not only can the government impose fines, jail terms, and other penalties, but the underlying contract can be considered void from the outset.
Oh, and speaking of jail time–Mr. Singleton was sentenced to two years in prison back in 2013.
Ian Patterson, a law clerk with Koprince Law LLC, was the primary author of this post.

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A protester’s failure to be specific enough in an SDVOSB status protest will result in dismissal of the protest.
The decision of the SBA Office of Hearings and Appeals in Jamaica Bearings Company, SBA No. VET-257 (Aug. 9, 2016), reinforces the SBA’s rule concerning specificity in filing a service disabled veteran-owned status protest. The rule provides, “[p]rotests must be in writing and must specify all the grounds upon which the protest is based. A protest merely asserting that the protested concern is not an eligible SDVO SBC, without setting forth specific facts or allegations is insufficient.”

Jamaica Bearings involved a solicitation issued as an SDVOSB set-aside by the Defense Logistics Agency for 77 Parts Kits, Linear AC. Jamaica Bearings Company (JBC) was awarded the contract. JBL System Solutions, Inc. (JBL), an unsuccessful offeror, submitted a timely protest stating, “‘while [JBC] may or may not be owned and operated by a qualified Service Disabled Veteran, they do not meet the qualifications of the SBA to be a Small Business.’ (Protest, at 1),” and added that due to Jamaica Bearing Company’s size, the company should not pretend to be an SDVOSB.
Although the protester offered no evidence to support its claim that JBC “may” not be an eligible SDVOSB, the SBA’s Director of Government Contracting (D/GC) initiated a full investigation of JBC’s SDVOSB eligibility. JBC (for reasons unexplained in OHA’s decision) did not respond to the D/GC’s inquiries. Thus, the D/GC apparently applied an “adverse inference” and assumed that JBC’s response would demonstrate that it was not an eligible SDVOSB. The D/GC issued a decision finding JBC to be ineligible for the DLA contract.
JBC appealed the decision to OHA. JBC argued that it was an eligible SDVOSB and that another SBA office had previously confirmed JBC’s SDVOSB status.  The SBA’s legal counsel filed a response to the appeal, supporting the D/GC’s decision.
Although neither party had raised it in its initial filings, OHA–on its own initiative–asked the parties to address “whether the D/GC should have dismissed the initial status protest by JBL as nonspecific.” Unsurprisingly, JBC responded by stating that the protest was not specific and should have been dismissed; the SBA claimed that the protest was specific.
OHA wrote that, under its regulations, a viable SDVOSB protest must provide specific reasons why the protested SDVOSB is alleged to be ineligible. Insufficient protests must be dismissed. Further, OHA noted, the regulations provide the following example:
A protester submits a protest stating that the awardee’s owner is not a service-disabled veteran. The protest does not state any basis for this assertion. The protest allegation is insufficient.
In this case, OHA wrote, “the protest does not even rise to this level, as the protest simply states that [JBC] ‘may or may not’ be controlled by a service-disabled veteran.” The protest “does not directly allege that [JBC] is not owned and controlled by a service-disabled veteran, and gives no reason which would support such an assertion.”
OHA wrote that “the D/GC was required to dismiss JBL’s protest because it simply failed to be specific enough as to challenge [JBC’s] service-disabled status.” OHA granted JBC’s SDVOSB appeal and reversed the D/GC’s status determination.
As highlighted in Jamaica Bearings, SDVOSB status protest must be “specific.” However, the exact level specificity required under the regulations remains a bit fuzzy (although other OHA decision offer some guidance). Regardless of where the line is drawn in a particular case, Jamaica Bearings confirms that it is not enough for the protester to make an unsupported blanket allegation that an awardee is ineligible.

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An unsuccessful offeror lacked the ability to file a valid SBA size appeal involving the size status of a competitor, because the unsuccessful offeror was eliminated from the competitive range–and its elimination had been upheld in a GAO bid protest decision.
In a recent size appeal decision, the SBA Office of Hearings and Appeals confirmed that an offeror that cannot possibly be awarded the contract ordinarily lacks standing to file a size appeal.

OHA’s decision in Size Appeal of Straughan Environmental, Inc., SBA No. SIZ-5767 (2016) involved a NASA solicitation for environmental consulting services.  The solicitation was set aside for small businesses under NAICS code 541620.
Straughan Environmental, Inc. submitted a proposal.  After evaluating initial proposals, NASA established a competitive range, which did not include Straughan.  Straughan filed a GAO bid protest challenging its exclusion from the competitive range.  The GAO denied Straughan’s bid protest.
NASA subsequently announced that Integrated Mission Support Services, LLC, an SBA 8(a) mentor-protege joint venture, was the apparent successful offeror.  After learning of the award to IMSS, Straughan filed an SBA size protest.  The SBA Area Office ultimately found IMSS to be an eligible small business.
Straughan then filed a size appeal with SBA OHA.  In response, IMSS filed a motion to dismiss.  IMSS argued that, because Straughan had been eliminated from the competitive range, it was ineligible for the contract.  Accordingly, IMSS contended, Straughan was not adversely affected by the size determination finding IMSS to be a small business, and lacked standing to file a valid size appeal.
OHA agreed with IMSS.  OHA wrote that under its regulations, “any person adversely affected by a size determination” may file a size appeal.  In previous cases interpreting this regulation, OHA has held that an appellant ordinarily must be “an otherwise eligible small business offeror on the procurement.”  OHA explained:
The rationale behind this policy is that, if an otherwise eligible small business offeror were to prevail on its appeal, there is a chance it could ultimately be awarded the contract.  This possibility is what causes an unsuccessful offeror to be adversely affected by a size determination favorable to a rival.
In this case, Straughan “is not an otherwise eligible small business offeror on this procurement because NASA excluded [Straughan’s] proposal from the competitive range, and GAO affirmed this result by denying [Straughan’s] bid protest challenging its elimination from the procurement.”  Straughan “cannot be awarded the contract, regardless of whether it prevails on appeal at OHA.”  Therefore, Straughan “is not adversely affected by the instant size determination and lacks standing to bring this appeal.”
OHA dismissed Straughan’s size appeal.
An unsuccessful offeror’s standing to file a size protest or size appeal is relatively broad; unlike in some GAO bid protests, the protester or appellant need not demonstrate that it was next in line for award.  But, as the Straughan Environmental size appeal demonstrates, standing to file a size appeal is not unlimited.  Where, as in Straughan Environmental, the putative appellant was excluded from the competitive range, the appellant ordinarily will lack standing to file a size appeal.

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A former 8(a) protege was not automatically entitled to take advantage of the past performance it obtained as part of a mentor-protege joint venture, in a case where the former mentor would not be involved in the new contract.
In a recent bid protest decision, the GAO held that a procuring agency erred by crediting the protege with the joint venture’s past performance without considering the extent to which that past performance relied on the mentor–and the extent to which the mentor’s absence under the new solicitation might impact the relevance of the past performance as applied to the new work.

The case, Veterans Evaluation Servs. Inc., B-412940 et al. (July 13, 2016), involved a solicitation by the VA to acquire medical disability examination services. The VA issued the RFP seeking to award several large IDIQ contracts. Each contract carried a minimum value of $3.7 million and a top value of $6.8 billion. (That’s billion-with-a-b for those scoring at home.)
The RFP split the services area to seven districts throughout the United States and abroad. The VA intended to award two contracts per district 1 through 6, and required the contractors to propose to locate, subcontract with, and train a network of healthcare professionals to perform the examinations.
VetFed Resources, Inc. had been performing the incumbent contract as part of an 8(a) mentor-protege joint venture with QTC Medical Services, Inc.  The mentor-protege arrangement apparently had expired by the time that proposals were due under the RFP.  VetFed independently submitted proposals for districts 1, 2, and 5.  In districts 1 and 5, VetFed proposed to use QTC as its major subcontractor, making available QTC’s provider network and infrastructure. But for district 2, VetFed did not propose to use QTC as its subcontractor.
After evaluating competitive proposals, the VA awarded contracts to VetFed for districts 1, 2, and 5.  In its evaluation of all three districts, the VA rated VetFed’s past performance as good.
Three unsuccessful competitors filed GAO protests challenging the results of the VA’s evaluation.  All three protesters argued that in district 2, VetFed would not be able to take advantage of QTC’s provider network and infrastructure. The protesters argued that VetFed’s good past performance rating was a result of VetFed’s having access to the resources of its former mentor, and that without that access, VetFed did not deserve a good rating.
GAO wrote that “[a]n agency may attribute the experience or past performance of a parent or affiliated company to an offeror where the firm’s proposal demonstrates that the resources of the parent or affiliate with affect the performance of the offeror.” In this regard, “the relevant consideration is whether the resources of the parent or affiliated company–its workforce, management, facilities, or other resources–will be provided or relied upon for contract performance . . ..” For this reason, “it is inappropriate to consider an affiliate’s record where that record does not bear on the likelihood of successful performance by the offeror.”
In this case, GAO wrote that “VetFed’s relevant past performance example is a contract it performed in close cooperation with QTC; the firms performed using a mentor-protégé arrangement, and there is no dispute that QTC’s provider network and IT infrastructure played a material part in VetFed’s successful performance of the predecessor contract. . . . Since the record here does not show that the agency gave consideration to this question, we conclude that its assignment of a good rating to VetFed for its past performance in district 2 was unreasonable.” GAO sustained this part of the protest.
Given SBA’s strong interest in how mentor-protege joint ventures are treated, it is somewhat surprising that GAO didn’t seek SBA’s input on this aspect of its decision–especially since the decision is troubling from the perspective of 8(a) proteges like VetFed. While GAO’s decision is a logical outgrowth of GAO’s longstanding case law regarding the past performance of affiliates, the particular context is unique, and the SBA’s comments might have been instructive.
In sum, GAO essentially said that a protégé might not get full past performance credit for work it performed in a mentor-protégé arrangement unless the mentor sticks around (in this case as a subcontractor). This is bad news for the protégés of the world, who presumably enter into these relationships in large part for the purpose of gaining experience and knowledge so that they can perform larger contracts on their own in the future. Especially with the new universal mentor-protege program coming online on October 1, it will be important for everyone–mentors, proteges, and contracting officers alike–to fully understand exactly how past performance of mentor-protege joint ventures is to be treated.

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An 8(a) joint venture failed to obtain SBA’s approval of an addendum to its joint venture agreement—and the lack of SBA approval cost the joint venture an 8(a) contract.
In Alutiiq-Banner Joint Venture, B-412952 et al. (July 15, 2016), GAO sustained a protest challenging an 8(a) joint venture’s eligibility for award where that joint venture had not previously sought (or received) SBA’s approval for an addendum to its joint venture agreement.

At the big picture level, SBA’s 8(a) Business Development Program Regulations contain strict requirements that an 8(a) entity must satisfy before joint venturing with another entity for an 8(a) contract. For instance, the 8(a) joint venture must have a detailed joint venture agreement that, among other things, sets forth the specific purpose of the joint venture (usually relating to the performance of a specific solicitation). Where the joint venture seeks to modify its joint venture agreement (even to allow for the performance of another 8(a) contract), the Regulations require prior approval of any such amendment or addendum by the SBA. 13 C.F.R. § 124.513(e).
At issue in Alutiiq-Banner was a NASA 8(a) set-aside solicitation that sought to issue a single-award IDIQ contract for human resources and professional services. In late March 2016, CTRM-GAPSI JV, LLC (“CGJV”), an 8(a) joint venture between GAP Solutions and CTR Management Group, was named the contract awardee. As part of this award, the contracting officer made a responsibility determination that included an undated letter from the SBA stating that “CTRMG/GAPSI JV” was an eligible 8(a) joint venture under the solicitation.
Alutiiq-Banner Joint Venture protested this evaluation and award decision on various grounds, including that CGJV was not an eligible 8(a) entity and, thus, should not have received the award.
According to Alutiiq-Banner, CTRM-/GAPSI JV (the entity that submitted the proposal) and CTRM-GAPSI JV, LLC (the awardee) were different entities. The awardee-entity did not exist until an official corporate registration was filed for the joint venture until April 2016; NASA, however, completed its evaluation and made its award the month prior. Because CGJV did not exist until after the award, it was not the firm that submitted the proposal—it was a newly-created and legally-distinct entity that was not approved by the SBA for this 8(a) award.
NASA, in response, characterized Alutiiq-Banner’s arguments as trying to make a mountain out of a molehill. That is, NASA said the protest challenged the awardee’s name, and that any differences were “insignificant clerical issues.” Because NASA identified the entities that prepared the proposal and that was awarded the contract under the same DUNS number and CAGE code, there was “no material doubt of the awardee’s identity.”
GAO sought SBA’s input as to whether the awardee was a different entity than the SBA had approved for award as a joint venture. According to the SBA, they were the same entities. But apparently, the SBA’s approval of CGJV’s joint venture agreement upon which the contracting officer relied in finding CGJV a responsible entity was outdated; it did not relate to the addendum that allowed CGJV to perform under this particular solicitation. Thus, the SBA said that CGJV’s failure to obtain approval for this addendum to its joint venture agreement violated the SBA’s regulations. As a result, the SBA said that it would rescind its approval of CGJV’s award eligibility, and recommended that the award be terminated.
In response to the SBA’s recommendation, both CGJV and NASA instead requested that GAO stay its decision on Alutiiq-Banner’s protest pending approval of CGJV’s joint venture agreement addendum. GAO refused to do so, noting its statutory obligation to decide protests within 100 days.
GAO sustained Alutiiq-Banner’s protest, agreeing with the SBA that the award to CGJV was improper. It wrote:
[T]here appears to be no significant dispute that CGJV did not seek the approval for this award as required under the 8(a) program, and the SBA did not have a basis to approve the award—both of which are required by the SBA’s regulations as a precondition of awarding the set-aside contract to a joint venture.
GAO thus recommended the award to CGJV be terminated and, as part of NASA’s re-evaluation, that NASA and the SBA confirm that the selected awardee is an eligible 8(a) participant before making the award decision.
It’s a common misconception that 8(a) joint ventures are approved “in general,” that is, that once SBA approves a joint venture for one contract, the joint venture “is 8(a)” and can pursue other 8(a) contracts without SBA approval. Not so. As Alutiiq Banner demonstrates, an 8(a) joint venture must obtain SBA’s separate approval for each 8(a) contract it wishes to pursue. Failing to get that approval may cost a joint venture the contract—something CGJV learned the hard way.
 

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Citing an abuse of the protest process, the GAO has suspended a company’s right to file bid protests for a period of one year.
The GAO’s unusual action was taken after the contractor in question filed 150 bid protests in the ongoing fiscal year alone, most of which have been dismissed for technical reasons.  The GAO’s decision also cites “baseless accusations” made by the protester, including accusing GAO officials of being “white collar criminals” and asserting that “various federal officials have engaged in treason.”

The GAO’s decision in Latvian Connection LLC, B-413442 (Aug. 18, 2016) arose under a task order issued by DISA to ManTech Advanced Information Systems, Inc. for engineering services.  The task order in question was issued in 2013, and ManTech completed full performance on January 31, 2016.
After ManTech had completed full performance, Latvian Connection LLC filed a bid protest challenging the task order award.  Latvian Connection alleged that DISA had erred by failing to issue the task order solicitation as a small business set-aside and by failing to publish the solicitation on the FedBizOpps website.
Apparently, this particular protest was the proverbial straw that broke the camel’s back.  While the GAO’s decision addressed the particular task order in question, the GAO focused in large part on Latvian Connection’s widespread use of the protest process.
The GAO started by explaining that “our records show that, thus far this fiscal year, Latvian Connection has filed 150 protests with our Office.”  Of those protests, 131 have been decided: one was denied on the merits, and “[t]he remaining protests were dismissed, the most common reason being that Latvian Connection was not an interested party.”  Further, “[a] number of Latvian Connection’s most recent protests, like the instant protest, have been attempts to challenge acquisitions where the contract in question was awarded years ago.”
But it wasn’t just the number and nature of Latvian Connection’s many protests that drew the GAO’s ire; the GAO also found the content of those protests troubling.  The GAO wrote that “Latvian Connection’s protests are typically a collection of excerpts cut and pasted from a wide range of documents having varying degrees of relevance to the procurements at issue, interspersed with remarks from the protester.  The tone of the filings is derogatory and abusive towards both agency officials and GAO attorneys.”  The GAO continued:
While its protests typically revolve around the two central issues noted above, Latvian Connection also routinely makes baseless accusations.  In recent months, Latvian Connection has claimed that agency and GAO officials are white collar criminals; that the actions of agency procurement officials have violated the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968; that various federal agency officials have engaged in treason; that GAO has violated the Equal Access to Justice Act, 5 U.S.C.§ 504; and that agency and GAO officials have engaged in activities that amount either to engaging in, or covering up, human trafficking and slavery.
The GAO dismissed the protest against the ManTech contract award both for lack of standing and lack of jurisdiction.  The GAO then turned again to Latvian Connection’s protest history.  The GAO noted that, although Latvian Connection had protested hundreds of acquisitions under which the government has sought a wide variety of goods and services, “[p]ublicly available information provides no evidence that Latvian Connection has successfully performed even a single government contract, and there is no evidence in the many cases presented to our Office to suggest that Latvian Connection engages in any government business activity whatsoever beyond the filing of protests.”  The GAO then stated:
The wasted effort related to Latvian Connection’s filings is highlighted by its latest series of protests (including the current protest) challenging acquisitions that were conducted years ago, where performance is complete and there is no possible remedy available. These protests have placed a burden on GAO, the agencies whose procurements have been challenged, and the taxpayers, who ultimately bear the costs of the government’s protest-related activities.  When presented with evidence, as here, that Latvian Connection does not hold the umbrella ID/IQ contract under which the order was issued, or that the order involves an amount lower than the statutory threshold for GAO’s task order jurisdiction, Latvian repeatedly fails to engage with the issues.  Instead, the company simply files a lengthy, often unrelated, harangue that does not address the threshold issues that must be answered by any forum as part of its review. 
We conclude that the above-described litigation practices by Latvian Connection constitute an abuse of our process, and we dismiss the protest on this basis.  Although dismissal for abuse of process or other improper behavior before our Office should be employed only in the rarest of cases, it is appropriate here where we find that Latvian Connection’s abusive litigation practices undermine the integrity and effectiveness of our process.
In addition, the GAO wrote, “because of these abusive litigation practices, and to protect the integrity of our bid protest forum and provide for the orderly and expedited resolution of protests, we are suspending Latvian Connection from protesting to our Office for a period of one year as of the date of this decision.”  The GAO remarked that it does “not take these actions lightly,” but “[n]onetheless, on balance, suspending for one year Latvian Connection’s eligibility to file protests with our Office may incentivize the firm to focus on pursuing legitimate grievances in connection with acquisitions for which there is evidence that Latvian Connection actually is interested in competing.”
The GAO concluded:
Our bid protest process does not provide, and was never intended to provide, a platform for the complaints of businesses or individuals that, to all outward appearances, have no actual interest in, or capability to perform, the government contracting opportunities to which they have objected.  Nor, as a forum for the expeditious and inexpensive resolution of bid protests, are we required to endure baseless and abusive accusations.
A reader of the GAO’s decision might conclude that all of Latvian Connection’s protests have been frivolous.  Not so.  SmallGovCon readers will recall that last year, the GAO actually sustained two of Latvian Connection’s protests, involving FedBid reverse auctions and these decisions established (at least in my eyes) important precedent concerning agencies’ responsibilities when using FedBid.  The GAO also sustained a third Latvian Connection protest in a case confirming that offerors are not presumed to be “on notice” of agency postings on websites other than FedBizOpps.
In fairness to Latvian Connection, then, it is clear that at least a handful of its many protests have been meritorious.  That said, I can’t begin to imagine why a single company would feel the need to file 150 protests in the span of one not-yet-completed fiscal year.  And while I haven’t had the opportunity to review the contents of Latvian Connection’s protest filings myself, I believe that the protest system works best where the litigants (even though adversarial) treat each other with basic norms of courtesy and respect.  If Latvian Connection failed to meet this standard–as suggested by the various “baseless accusations” referenced in the GAO decision–then that failure alone is detrimental to the protest process.
The Latvian Connection case may become known for the effect it will have on a single company, but I think it’s broader than that: the GAO knows that allowing abuse of the protest system harms those who use the system in the way it was intended, and risks political intervention that might harm all contractors’ ability to file good faith protests.  And in a world where 45% of GAO protests result in a favorable outcome for the protester, there can be little doubt that the good faith use of the protest system serves an important public purpose.  Contractors can ill afford a Congressional rollback of their protest rights.  As the Latvian Connection case demonstrates, the GAO itself possesses the inherent authority to sanction what it believes to be abuse of the protest system, and will exercise that authority in an appropriate (and rare) case.

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An agency acted improperly by inviting the ultimate contract awardee to revise its pricing, but not affording that same opportunity to a competitor–even though the awardee didn’t amend its pricing in response to the agency’s invitation.
According to a recent GAO bid protest decision, merely providing the awardee the opportunity to amend its pricing was erroneous, regardless of whether the awardee took advantage of that opportunity.
The GAO’s decision in Rotech Healthcare, Inc., B-413024 et al. (Aug. 17, 2016) involved a VA solicitation for home oxygen and durable medical equipment.  The solicitation contemplated award to the offeror providing the best value to the government, including consideration of four non-price factors and price.
After evaluating initial proposals, the VA opened discussions with Rotech Healthcare, Inc. and Lincare, Inc. on July 28, 2015.  The VA’s discussions letter asked both offerors to submit final revised price proposals no later than July 30, 2015.
Rotech responded by submitting a revised price proposal on July 29, 2015.  Lincare responded by stating that it stood by its original price.
On March 7, 2016, the VA contracting specialist sent an email only to Lincare.  The VA’s email stated:
The subject solicitation closed more than 6 months ago, therefore the VA would like your company to verify its offer pricing before a final award decision is made for this contract.  Attached is Lincare’s price proposal for quick reference.  Please respond either confirming the original price offer, or provide alternate price information by 6:00 pm EST on March 9th, 2016.
Lincare responded to the VA’s email by stating that it (again) chose not to revise its price proposal.
The VA assigned similar non-price scores to the proposals of Lincare and Rotech.  However, Lincare’s proposal was lower-priced.  The VA awarded the contract to Lincare.
Rotech filed a GAO bid protest challenging the award.  Rotech argued, among other things, that the VA had improperly opened discussions only with Lintech.  Rotech contended that, had it been provided a similar opportunity, it “reasonably could have submitted lower pricing,” thereby enhancing its chances of award.
In response, the VA pointed out that Lincare did not alter its price proposal.  The VA also contended that Rotech was not prejudiced by any error committed by the VA, because Lincare was already the lower-priced offeror.
The GAO wrote that “the acid test of whether discussions have occurred is whether the offeror has been afforded an opportunity to revise or modify its proposal.”  And where “an agency conducts discussions with one offeror, it must conduct discussions with all offerors in the competitive range.”
In this case, “ecause Lincare was given the opportunity of revising its price, we think that the agency’s invitation constituted discussions,” and “Rotech was improperly excluded” from those discussions.  Rotech’s statement that it “reasonably could have submitted lower pricing” had it been given the opportunity was sufficient to demonstrate that Rotech may have been prejudiced by the VA’s error.  The GAO sustained Rotech’s protest.
Agencies have a great deal of discretion in many aspects of the procurement process, but not when it comes to discussions.  As the Rotech Healthcare case demonstrates, when an agency invites one offeror to revise its proposal, that same opportunity must be extended to every other offeror in the competitive range.
 
 
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This week I had the pleasure of speaking at the 20th Annual Government Procurement Conference in Arlington, Texas. It was a great event and I was glad to see so many familiar faces. Next up, I’ll be in Des Moines on August 23rd for the Iowa Vendor Conference, where I’ll be joined by my friend Guy Timberlake for a great day of networking and information sessions.
But even as I log miles on the air and on the highways, there’s no mistaking the fact that we’re in the last days of the government fiscal year–and that means a busy week of government contracting news.  This week, SmallGovCon Week In Review takes a look at stories involving an update to CAGE codes, some Milwaukee businesses under investigation for wrongly portraying themselves as veteran-owned and minority-owned, a lack of oversight allowed contractors to overbill a government customer, a look at the uptick in government spending as the fourth quarter winds down, and much more.

The Defense Logistics Agency will, for the first time in 44 years, allow CAGE codes to expire. [Defense Logistics Agency] Has the Homeland Security Department and it’s components gone overboard with agile? [Federal News Radio] Several Milwaukee-area businesses are under investigation for falsely claiming  they were owned by minorities and military veterans in order to win government contracts. [Daily Progress] The Defense Information Systems Agency said it will amend the ENCORE III RFP to fix some of the problems pointed out by protesters that were upheld by the GAO last week. [Federal News Radio] The U.S. Fish and Wildlife Service allowed contractors to overbill the government for more than $130,000 because the agency didn’t “always review contractor invoices to ensure costs claimed were allowable and adequately supported.” [The Daily Caller] A proposed rule from the SBA would update the regulations governing the delivery and oversight of its business lending programs. [Federal Register] The SBA is asking a judge to throw out a lawsuit claiming it uses “creative accounting” for federal contracting benchmarks. [Federal News Radio] The procurement policy world is heating up as summer begins to wind down and we jump into the final stretch of the fiscal year. [Federal News Radio] Companies fraudulently got $268 million in contracts, according to a recent affidavit. [BizTimes] A trifecta of companies protested the Department of Defense TRICARE contract awards, including the winner of the contract. [Federal News Radio] The SBA has launched a new website that helps women-owned small businesses more easily manage eligibility and certification documents for the WOSB Federal Contract Program. [GCN] An increasingly sluggish security review process is forcing some recruiters, contractors and agencies to change the way they enlist new qualified, cleared candidates. [Federal News Radio]
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Circle October 1, 2o16 on your calendar: that’s when the SBA will begin accepting applications for its new universal small business mentor-protege program.
According to the SBA’s new website for the small business mentor-protege program, applications will only be accepted through the SBA’s new certify.sba.gov portal.  The SBA’s new website also has an overview on the small business mentor-protege program itself and a discussion of the eligibility requirements for the program.
For prospective mentors and proteges alike, there’s no time to waste in order to take immediate advantage of the new mentor-protege program.  Watch this space for additional information as the SBA makes it available.

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With the finalization of the new SBA Small Business Mentor Protégé Program, other agencies without statutorily-authorized mentor-protege programs must seek SBA approval of their mentor-protege programs within one year, if they wish those programs to continue.
In a final rule scheduled to be effective August 24, 2016, the SBA questioned the need for other agencies (except the Department of Defense) to continue to operate their own mentor-protege programs, but provided a road map for agencies to preserve their separate mentor-protege programs if they wish.
 
As we have discussed in detail on SmallGovCon, the new “universal” small business mentor-protégé program establishes a government-wide program open to all small businesses, consistent with the SBA’s mentor-protégé program for participants in SBA’s 8(a) Program. But the final rule doesn’t just add a new SBA mentor-protege program–it may also signal the end of many other Federal mentor-protege programs.
Under the final rule, a Federal department or agency can no longer operate its own mentor-protégé program, unless: 1) the agency submits a program plan to the SBA, and 2) receives the SBA Administrator’s approval of the plan within one year of the SBA’s mentor-protégé regulations finalization. The requirement for SBA approval does not apply to DoD, which has special statutory authority to operate its own mentor-protege program. However, the SBA approval requirement does apply to most other Federal mentor-protege programs, including those operated by the VA, NASA, DHS, State Department, and so on.
The SBA “received only a few comments” regarding the proposal to require most agencies to obtain SBA approval to continue independent mentor-protege programs. These commenters “agreed with the statutory provisions in questioning the utility of other Federal mentor-protege programs” now that the SBA has established a mentor-protege program open to all small businesses. However, commenters raised two specific concerns about the potential phase-out of other agencies’ mentor-protege programs: 1) Would the new regulations be a disincentive for mentors to utilize their protégés as subcontractors? And, 2) would the SBA have the necessary resources to handle mentor-protégé applications for the entire government?
Many of the other agency-specific mentor-protégé programs incentivize mentors to utilize their protégés as subcontractors. For example, some agencies provide additional evaluation points to a large business submitting an offer on an unrestricted procurement where the large business is using its protege as its subcontractor. Other agencies give a large prime contractor additional credit toward its subcontracting plan goals where the large prime contractor uses its protege as a subcontractor.
The SBA acknowledged that the new small business mentor-protege program “assume more of a prime contractor role for proteges, but would also encourage subcontracts from mentors to proteges as part of the developmental assistance that proteges receive from their mentors.” The SBA declined to adopt specific subcontracting incentives as part of its final rule, but will allow individual procuring agencies the flexibility to do so. The SBA writes:
SBA believes that it is up to individual procuring agencies whether to provide subcontracting incentives for any specific procurement, SBA also believes that these incentives should be authorized and used, where appropriate. As such, this final rule identifies subcontracting incentives as a possible benefit to be provided by procuring activities in appropriate circumstances. The final rule authorizes procuring activities to provide incentives in the contract evaluation process to a firm that will provide significant subcontracting work to its SBA-approved protégé firm.
With respect to the processing of mentor-protege applications, the SBA writes that it is “working to adequately process mentor-protege applications,” but if it is unable to handle the volume of applications and agreements, the SBA may institute “open” and “closed” periods wherein the SBA would only accept mentor-protégé applications in the “open” periods. Since the SBA itself is unable to predict whether it will have the resources to process mentor-protege applications year-round, other agencies will have to decide for themselves whether this uncertainty is a reason to maintain separate mentor-protege programs.
The government’s mentor-protege programs have been in a state of flux since early 2013, when Congressfirst directed the SBAto adopt rules governing other agencies’ mentor-protege programs. In 2017, we should finally get some long-awaited clarity as to whether other agencies’ mentor-protege programs will continue.
 
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