This is a month my office (which represents several different teams) gets excited for. The first week of March Madness is here, which means you may have found yourself being less productive than usual–don’t worry, that’s expected! But even during a time as captivating as the NCAA tournament, the world of government contracting doesn’t slow down.
In this week’s edition of the SmallGovCon Week in Review, a communications company has agreed to pay over $12 million to settle civil False Claims Act allegations, antitrust critics fear that a winner-take-all contract for the Defense Department’s cloud computing could help tech giant Amazon corner the government contract market, a construction company lost $40 million in four years in a scheme to illegitimately gain government contracts, and much more.
A San Diego communications company will pay more than $12 million to settle False Claims Act allegations regarding SBIR contracts. [www.justice.gov]
Amazon’s attempt to land a major Pentagon job has stoked some antitrust fears. [thehill.com]
A construction company owner fraudulently obtained set-aside contracts–but only gets probation. [post-gazette.com]
During Sunshine Week, senators cite issues with FOIA request backlog. [Federal News Radio]
Alliant 2 SB has been awarded–now comes the inevitable protest phase. [Washington Technology]
The Pentagon tells its leaders to talk more with contractors–but less with the press. [Government Executive]
One commentator says that the DoD’s cloud strategy stifles innovation. [Federal News Radio]
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Under a multiple award contract, the underlying contract ordinarily governs whether a contractor qualifies as a woman-owned small business for purposes of task or delivery orders.
As demonstrated in a recent SBA Office of Hearings and Appeals decision, if a company qualifies as a WOSB or EDWOSB at the time of its initial offer on the underlying multiple-award contract, it will also qualify as a WOSB or EDWOSB for each order issued against the contract, unless the contracting officer requests recertification in connection with a particular order.
OHA’s decision in Island Creek Associates, LLC, SBA No. WOSB-110 (2018) involved a Marine Corps solicitation for services in support of the Global Combat Support Systems-Marine Corps/Logistics Chain Management Program. The solicitation was issued as a competitive task order procurement under the SeaPort-e multiple-award IDIQ contract. The agency issued the solicitation as a WOSB set-aside, but did not request that SeaPort-e contractors recertify their WOSB status for purposes of the task order competition.
After evaluating proposals, the agency announced that ReMilNet, LLC was the apparent successful offeror. An unsuccessful competitor, Island Creek Associates, LLC, then filed a WOSB status protest challenging ReMilNet’s eligibility.
The SBA Director of Government Contracting issued a decision finding ReMilNet to be an eligible WOSB. Island Creek appealed the determination.
OHA asked the parties to address whether the SBA should have dismissed the initial WOSB status protest as untimely. OHA pointed out that in a 2017 case involving SBA’s similar SDVOSB rules, OHA held that a protest of a task order was untimely because it wasn’t filed within five business days of the award of the underlying multiple-award contract or an option under that contract. In that case, OHA noted that the contracting officer hadn’t requested recertification at the task order level, and thus there was no new SDVOSB certification to protest with respect to the task order.
OHA wrote that “with regard specifically to orders under a Multiple Award Contract, SBA regulations state that a concern will retain its status as a WOSB or EDWOSB for the entire duration of the contract, unless the CO requests recertification in connection with a particular order.”
In this case, “ReMilNet self-certified as a WOSB when it submitted its offer for the SeaPort-e contract in 2014, and no status protest was filed at that time.” Moreover, “it is undisputed that the CO here did not request recertification for the instant task order.” Accordingly, “Appellant’s protest was untimely because it was not filed within five days after award of ReMilNet’s SeaPort-e contract or an order requiring recertification.”
OHA vacated the SBA’s decision and dismissed the appeal.
When it comes to multiple-award contracts, there is a lot of confusion about when a company must qualify by size and/or socioeconomic status. As the Island Creek Associates case demonstrates, in the WOSB and EDWOSB context, the self-certification made in connection with the underlying contract ordinarily governs.
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An agency was not required to evaluate past performance under an SDVOSB set-aside solicitation that contemplated making award to the lowest-price, technically-acceptable offeror.
According to a recent GAO bid protest decision, a past performance evaluation in the context of an LPTA set-aside is essentially duplicative of the agency’s evaluation of responsibility, meaning that a separate past performance evaluation isn’t necessary.
GAO’s decision in Data Monitor Systems, Inc., B-415761 (Mar. 6, 2018) involved an Air Force solicitation for base operations and support services at Grissom Air Reserve Base. The solicitation was set-aside for SDVOSBs, and called for award to the lowest-price, technically acceptable offeror.
Under the solicitation, the Air Force would evaluate two factors: technical merit and price. The solicitation did not include past performance as an evaluation factor.
In a contemporaneous Determination and Findings, the Air Force found that evaluating past performance would not provide any significant benefit. In its D&F, the Air Force noted that, under an LPTA evaluation, offerors with limited or unknown past performance cannot be evaluated unfavorable, meaning that such offerors are entitled to an “acceptable” rating. Additionally, because the acquisition was an SDVOSB set-aside, any “unacceptable” past performance score would need to be referred to the SBA under the Certificate of Competency program, increasing the potential administrative burdens of conducting the acquisition.
Data Monitor Systems, Inc. filed a pre-award bid protest challenging the terms of the solicitation. DMS argued, in part, that failing to include past performance as an evaluation factor was unreasonable and improper.
The GAO wrote that “the FAR provides that past performance need not be evaluated if the contracting officer documents the reason past performance is not an appropriate evaluation factor for the acquisition.” And, in the context of a LPTA set-aside competition, the GAO “has previously questioned the value of including past performance as a separate evaluation factor precisely because the past performance evaluation is ultimately reduced to a matter of the firm’s responsibility, which will be evaluated, in any case, after source selection.” This is particularly true “given the difficulties associated with how to consider a neutral rating in the context of a pass/fail evaluation, which as noted by the agency’s D&F in this case, is the rating required for firms without any past performance record or where the record is not available.”
The GAO concluded: “n sum, we see no basis to disturb the agency’s conclusion that performing a past performance evaluation in the context of a lowest-priced, technically-acceptable procurement, which is set aside for small businesses, is essentially duplicative of the agency’s responsibility determination . . ..” The GAO denied the protest.
Past performance is, of course, an extremely common evaluation factor. But as the Data Monitor Systems case demonstrates, procuring agencies are not required to consider past performance in every acquisition. Where, as here, the acquisition will be set-aside for small businesses and award made on an LPTA basis, an agency may have good reason to forego an evaluation of past performance.
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I am back in Kansas after spending some time in sunny Florida for the APTAC Spring 2018 Training Conference in Jacksonville. Next week, I hit the road again, this time to not-so-sunny (but still awesome) Washington State, where I’ll be giving a session at the 2018 Alliance Northwest Conference in Puyallup, WA. If you are attending the event, please be sure to connect.
Now it’s time for the latest and greatest in government contracting. In today’s edition of the SmallGovCon Week in Review, the Pentagon has reportedly slashed a contract worth almost $1 billion that was awarded last month, a former contractor has been convicted of retaining classified information, the DOJ launches a national FOIA portal, and much more.
The Pentagon has slashed an Amazon partner’s $950M cloud computing contract. [siliconangle.com]
The State Department is updating contract language regarding requirements for contractors to cooperate with the agency Inspector General. [Federal News Radio]
A former defense contractor has been convicted of unlawfully retaining classified information. [justice.gov]
DOD defends its decision to move to commercial cloud with a single award. [fedscoop.com]
The DOJ has announced the launch of a national FOIA portal. [justice.gov]
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An 8(a) Program participant was terminated from the 8(a) Program for failing to pay a subcontractor.
According to the SBA, the non-payment reflected poorly on the 8(a) company’s character–and “good character” is a prerequisite for 8(a) Program participation.
The decision of the SBA Office of Hearings and Appeals in Corporate Portfolio Management Solutions, SBA No. BDPT-567 (2018) was an appeal of the SBA’s decision to terminate Corporate Portfolio Management Solutions from the 8 (a) Program. The reason for the termination was CPMS’s failure to pay a subcontractor.
In 2012, the SBA certified CPMS as an 8(a) Program participant. The following year, the GSA awarded CPMS an 8(a) prime contract. CPMS then hired a subcontractor, Procon Consulting, LLC, to perform some of the work under the GSA contract.
By April 2016, CPMS owed Procon $68.688.53 for its subcontract work. In August 2016, Procon initiated arbitration before the American Arbitration Association to recover the amounts due. In December 2016, CPMS signed a consent order and judgment acknowledging that it owed Procon the full $68,688.53. CPMS agreed to pay Procon $75,000 in three installments, with the last installment due February 28, 2017.
In June 2017, Procon filed a complaint in the Superior Court of the District of Columbia, seeking to enforce the arbitration consent order. Procon alleged that CPMS had failed to make any of the agreed-upon installment payments. In October 2017, the Court issued a judgment in favor of Procon.
Procon didn’t limit itself to civil remedies. In July 2017, Procon sent a letter to the SBA asking for the SBA’s assistance in recovering the unpaid debt and urging the SBA to revoke Procon’s 8(a) certification.
In August 2017, the SBA suspended CPMS from participating in the 8(a) Program. By notice dated October 27, 2017, the SBA informed CPMS that it was being terminated from the 8(a) Program. The SBA’s notice specified that the termination was due to a lack of business integrity because CPMS had failed to pay Procon and failed to comply with the arbitration order.
CPMS appealed the termination to OHA. CPMS said that it had begun making payments to Procon and had taken other corrective actions such as implementing new corporate policies. However, CPMS did not dispute any of the underlying facts regarding its relationship with Procon.
OHA wrote that “[t]he SBA has an affirmative responsibility under the Small Business Act to ensure that only eligible business concerns are admitted into, and remain in, the 8(a) BD program.” OHA explained, “[t]his ensures that public funds are properly administered, and that the benefits of the 8(a) BD program are limited to those small businesses that qualify to receive such benefits.”
Here, even assuming that CPMS had begun making payments to Procon and had changed some of its internal corporate policies, “these contentions do not rebut SBA’s conclusion that [CPMS] engaged in conduct indicating a lack of business integrity when it failed to pay its subcontractor.” OHA dismissed the appeal.
The Corporate Portfolio Management Solutions case shows that, when it comes to 8(a) Program participation, “good character” means more than avoiding criminal convictions. If an 8(a) Program participant doesn’t pay its bills, the SBA may terminate the participant from the 8(a) Program.
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I am back in Kansas after a fantastic trip to Jacksonville, Florida, where I spent yesterday at the Association of Procurement Technical Assistance Centers Spring Conference. My morning general session focused on important recent developments in government contracting–everything from key provisions of the 2018 National Defense Authorization Act to the impact of the RAND Corporation’s bid protest report.
It was great to see so many familiar faces. Thank you to all of the wonderful PTAC counselors who attended the session and asked great questions during the presentation and after. A big thanks to Scott Knapp of our local Kansas PTAC, who provided a warm introduction. And a special thank you to the attendees who took my advice and really did “live Tweet” about the great pink tie my daughter gave me last Father’s Day!
Spending time with the PTACers is always one of the highlights of my professional year. If you’re a government contractor who hasn’t yet connected with your local PTAC, you’re missing out. Visit the APTAC homepage to find out more.
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If a prospective contractor wishes to file a size protest, it must act quickly: the protester ordinarily has five business days to initiate its protest. But does the deadline get extended if the agency takes corrective action in response to a bid protest?
Maybe, maybe not. A recent SBA Office of Hearings and Appeals decision examines that question.
The case of Chenega Support Services, LLC, SBA No. SIZ-5874 (Dec. 12, 2017) involved a solicitation for an Air Force contract for operating certain medical centers. The Solicitation was assigned NAICS Code 621399, Office of All Other Miscellaneous Health Practitioners, with a corresponding size standard of $7.5 million.
On December 19, 2016, the Air Force awarded the contract to Prairie Quest, Inc. and notified Chenega Support Services, LLC of the award. Chenega and another party then filed timely GAO bid protests.
In response to the bid protests, the Air Force issued a stop work order on January 10, 2017, and indicated on January 18, 2017, it would undertake corrective action by conducting a new past performance evaluation and new source selection decision. However, the Air Force did not terminate the award to Prairie Quest. Instead, the Air Force said that the award would remain in place pending the reevaluation, and would only be terminated if the reevaluation led to a different outcome.
On October 3, 2017, the Air Force confirmed award to Prairie Quest. Chenega filed a size protest on October 10, 2017. The size protest was filed within five business days of the October 3 confirmation but was filed long after the initial award in December 2016.
The SBA Area Office dismissed the size protest as untimely. The Area Office held that because the award had never been terminated, any viable size protest was due five business days after the award in December 2016–not five business days after the October 2017 confirmation of award.
Chenega appealed to OHA. On appeal, Chenega argued that, because there had been a new source selection, “Prairie Quest could not have been the apparent awardee while the corrective action was ongoing, and no prospective awardee existed until the Air Force made its new selection decision in October 2017.”
OHA looked at the underlying regulation regarding timeliness of size protests, which states in relevant part that “[a] protest must be received by the contracting officer prior to the close of business on the 5th day, exclusive of Saturdays, Sundays, and legal holidays, after the contracting officer has notified the protestor of the identity of the prospective awardee.” 13 C.F.R. § 121.1004(a)(2). OHA reasoned that “the regulations do not contemplate any exception if corrective action occurs after the award notification.”
In making this decision, OHA reaffirmed the holding of EFT Architects, Inc., which we examined on the blog in 2013. The recent decision confirms that this timing issue is still coming up. But five years later, OHA is not inclined to reconsider its earlier ruling.
That takes us back to to the underlying question: how does corrective action impact a size protest? As the Chenega Support Services case demonstrates, the answer is “it depends on the scope of the corrective action.”
If the corrective action results in a termination of the original award, it seems clear that a new five-day window opens when a new award is announced. But where, as here, the agency does not terminate the original award while it undertakes a reevaluation, and then confirms the award to the original awardee, there is no new size protest window.
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March has arrived, and soon it will be time for all the March Madness fun. But first, I will be heading to sunny Florida for the APTAC Spring 2018 Training Conference on Monday. If you’re a PTAC counselor, I hope to see you there.
In today’s edition of the SmallGovCon Week in Review, an Atlanta-based company that failed to deliver millions of emergency meals to Puerto Ricans struggling to recover from Hurricane Maria may have plagiarized its winning bid, a former quality-control officer who demanded kickbacks from construction businesses he monitored is going to prison, Guy Timberlake takes a look at the use of Product Service codes, and much more.
Government contracts guru Guy Timberlake says that “fair opportunity is not the best value in Simplified Acquisitions for agencies or small business concerns.” [linkedin.com]
An Atlanta-based contractor has been accused of plagiarizing its bid for a major Puerto Rico food supply contract. [usnews.com]
The instigators of a kickback scheme at a South Carolina military base are heading to prison. [postandcourier.com]
One commentator says that the Pentagon’s new $1 Billion cloud deal may signal a new era in government buying. [nextgov.com]
The GSA says a recent rule change will simplify Schedule buys and reduce the proliferation of multiple-award contracts. [federalnewsradio.com]
Two recent DHS procurements show how innovation is happening in government. [federalnewsradio.com]
Guy Timberlake reminds contractors that NAICS codes are just part of the story–to truly understand how procurements are classified, you also need to think about Product Service Codes. [govconchannel.com]
Congratulations to the 40 companies named as potential winners of the CIO-SP3 Small Business ramp-on. [washingtontechnology.com]
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Under the FAR, unbalanced pricing may increase performance risk and can result in the government paying unreasonably high prices. But the concept of unbalanced pricing is often misunderstood in practice.
As the GAO wrote in a recent bid protest decision, unbalanced pricing doesn’t exist merely because some of an offeror’s line item prices are low. Rather, unbalanced pricing requires both understated and overstated line items–that is, some line items appear too high while others appear too low.
The GAO’s decision in First Financial Associates, Inc., B-415713, B-415713.2 (Feb. 16, 2018) involved a DHS solicitation to administer the agency’s child case subsidy program. The solicitation was issued as a small business set-aside, and contemplated the award of a contract to the offeror providing the best value considering three factors: technical merit, past performance, and price. The solicitation apparently called for offerors’ pricing proposals to include breakdowns by contract line item numbers.
After evaluating proposals, the agency awarded the contract to FEEA Childcare Services, Inc. An unsuccessful offeror, First Financial Associates, Inc., then filed a GAO bid protest. FFA challenged several aspects of the agency’s evaluation. Among its challenges, FFA alleged that FEEA’s pricing was unbalanced because FEEA allegedly had priced some CLINs “extremely low.”
The GAO wrote that “balanced pricing exists where the prices of one or more line items are significantly overstated or understated, despite an acceptable total evaluated price (typically achieved through underpricing of one or more other line items.)” To prevail on an allegation of unbalanced pricing, “a protester must show that one or more prices in the allegedly unbalanced proposal are overstated; it is insufficient to show simply that some line item prices in the proposal are understated.”
The GAO explained, “[w]hile both understated and overstated prices are relevant to the question of whether unbalanced pricing exists, the primary risk to be assessed in an unbalanced pricing context is the risk posed by overstatement of prices, because low prices (even below cost prices) are not improper and do not themselves establish (or create the risk inherent in) unbalanced pricing.”
In this case, “FFA only claims that some of FEEA’s CLIN prices are understated; FFA does not allege that any of the awardee’s CLIN prices are overstated.” Therefore, “FFA provides no basis for us to question the agency’s price evaluation for allegedly failing to identify unbalanced prices.”
In the competitive world of government contracts, it’s not unusual for competitors to question one another’s pricing, and “unabalanced pricing” is one of those terms that is often thrown around when a competitor’s pricing appears suspect. But as the First Financial Associates protest demonstrates, a proposal containing understated CLINs alone isn’t unbalanced–rather, unbalanced pricing requires both understated and overstated line items.
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Despite older case law to the contrary, the GAO ordinarily lacks jurisdiction to decide a protest challenging the award of a subcontract, even where the subcontract is alleged to have been made “for” the government, as in the case of some subcontracts awarded by DOE Management and Operation prime contractors.
In a recent decision, the GAO confirmed that, except in very narrow circumstances, it won’t decide protests challenging subcontract awards.
The GAO’s decision in Peter Vander Werff Construction, Inc., B-415676 (Feb. 6, 2018) involved the award of a subcontract by Lawrence Livermore National Security, LLC. LLNS is a M&O prime contractor to the DOE, responsible for the management and operation of the Lawrence Livermore National Laboratory in California. LLNS’s prime contract included FAR 52.244-5 (Competition in Subcontracting) which specifies that a prime contract shall select subcontractors “on a competitive basis to the maximum extent practicable with the objectives and requirements of the contract.”
In March 2017, LLNS issued a competitive solicitation for the award of multiple master task agreements for general construction and design services. LLNS received 32 offers. After evaluating those offers, LLNS made 16 awards. LLNS informed the remaining offerors, including Peter Vander Werff Construction, Inc., that their offers were unsuccessful.
PVWC filed a GAO bid protest challenging the evaluation. The DOE moved to dismiss the protest, arguing that the GAO lacked jurisdiction.
The GAO wrote that, for several years, it “took jurisdiction over subcontract awards by prime contractors to the federal government where, as a result of the government’s involvement in the award process, or the contractual relationship between the prime contractor and the government, the subcontract, in effect, was awarded on behalf of–i.e., ‘by or for’–the government, and federal procurement laws and regulations otherwise would apply.”
But in 1991, the U.S. Court of Appeals for the Federal Circuit issued a decision interpreting jurisdictional language similar to that governing the GAO. In that case, the Federal Circuit held that the General Service Administration’s Board of Contract Appeals lacked jurisdiction over subcontract procurements conducted “for” a federal agency, unless the prime contractor was a “procurement agent” as narrowly defined in other authority.
After the Federal Circuit issued its decision, the GAO narrowed its jurisdiction over subcontract protests. Since the 1991 decision, the GAO will only take jurisdiction over a subcontract protest in two instances: first, “upon the written request of the federal agency that awarded the prime contract,” and second, “where we find that a subcontract essentially was awarded ‘by’ the government.”
With respect to the second instance, GAO has “considered a subcontract procurement to be ‘by’ the government where the agency handled substantially all of the substantive aspects of the procurement and, in effect, took over the procurement, leaving to the prime contractor only the procedural aspects of the procurement, i.e., issuing the subcontract solicitation and receiving proposals.” In contrast, unlike its pre-1991 cases, the GAO will no longer take jurisdiction of a subcontract that was awarded “for” the government.
In this case, there apparently was no written request by DOE that the GAO decide this matter. Additionally, the GAO found that this was not a subcontract issued “by” the Government. In that regard, the GAO wrote that “the record does not establish that the agency controlled essentially every meaningful aspect of the procurement.” Instead, “the evaluation and ultimate decision was made by LLNS,” the prime contractor.
The GAO dismissed the protest.
As the Peter Vander Werff Construction case demonstrates, the GAO’s jurisdiction over subcontract protests is very narrow. Contrary to older case law, the GAO no longer accepts jurisdiction based on the allegation that a subcontract was awarded “for” the government.
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To be eligible for a small business set-aside procurement seeking a manufactured product, an offeror has to either be the product’s manufacturer or otherwise qualify under the nonmanufacturer rule.
Determining whether a business qualifies—either as the manufacturer or nonmanufacturer—can be a fact-intensive and confusing task. But it’s a vitally important one, as the penalty for not qualifying can be the loss of an awarded contract.
Recently, however, the SBA Office of Hearings and Appeals provided important clarity on how a small business might qualify as a nonmanufacturer.
Let’s take a look.
Under SBA’s regulations, a firm may qualify as a nonmanufacturer if it meets four criteria:
The business does not exceed 500 employees;
It is primarily engaged in the retail or wholesale trade and normally sells the type of item being supplied;
The business takes ownership or possession of the item(s) with its personnel, equipment, or facilities in a manner consistent with industry practice; and
The business will supply the end item of a small business manufacturer, processor, or producer made in the United States (or gets a waiver of this requirement).
13 C.F.R. § 121.406(b)(1).
Recently, the OHA considered what it takes to comply with the second of these requirements, when it considered a small business protest alleging the awardee did not normally sell the items procured by the government. At issue in SeaBox, Inc., SBA No. SIZ-5881 (2018) was a Marine Corps procurement seeking ISO dry and refrigerated cargo containers. The solicitation was issued as a total small business set-aside, under a manufacturing NAICS code (specifically, code 332439, for Other Metal Container Manufacturing).
After QAF Technologies, Inc. was awarded the contract, SeaBox filed a protest alleging that QAF didn’t normally sell the type of items being procured. SeaBox’s argument was somewhat interesting—though SeaBox acknowledged that QAF sold similar items to the federal government, it said that federal government sales were not sales in “the retail or wholesale trade,” as required under the second nonmanufacturer rule criterion.
This argument was rejected by the SBA Area Office, and SeaBox filed an appeal alleging the same at the OHA. But it wasn’t successful at OHA, either.
After considering the regulatory history, the OHA concluded that federal government sales qualify as sales within the retail or wholesale trade. What’s more, the regulation doesn’t require a company to sell the exact items procured, but only the type of item being procured. Thus, QAF’s past sales of similar items to the federal government were sufficient to meet the second criterion to the nonmanufacturer rule.
The OHA denied SeaBox’s appeal and affirmed that QAF was an eligible small business under the procurement based on its compliance with the nonmanufacturer rule.
As mentioned, complying with the manufacturer rule or nonmanufacturer rule is a prerequisite for a small business’s eligibility for a small business set-aside under a manufacturing NAICS code. For help determining if you comply, give me a call.
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After a long week that included two ice storms here in the Midwest, I hope you’re ready for a relaxing weekend. But first, it’s Friday, which means that it’s time for the SmallGovCon Week In Review.
In today’s edition, a Utah man pleads guilty to wire fraud and money laundering for his role in a scheme to obtain government construction contracts set aside for SDVOSBs, a former CEO pleads guilty to an $8.1 million “Made In The USA” marketing scheme and government contract fraud, the federal services market has experienced a jolt of dealmaking activity in recent months as companies position themselves to capture new government spending, and much more.
SDVOSB fraud: a Utah man has pleaded guilty to wire fraud and money laundering charges. [justice.gov]
Speaking of guilty pleas, a former CEO has pleaded guilty in relation to a scheme to sell Chinese-made combat boots as “Made in America.” [justice.gov]
Merger mania? Dealmaking accelerates as federal contractors jockey for spending. [standard.net]
Are RFIs a waste of time and money? [fcw.com]
The GAO has sustained a protest of a $771 million award. [nextgov.com]
One commentator says that increases in the micro-purchase and simplified acquisition thresholds are a “win-win.” [Federal News Radio]
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Civilian agencies may issue class deviations to quickly implement provisions of the 2018 National Defense Authorization Act increasing the micro-purchase threshold to $10,000 and the simplified acquisition threshold to $250,000.
In a memorandum for civilian agencies issued on February 16, the Civilian Agency Acquisition Council says that agencies may elect to adopt interim authority allowing their Contracting Officers to take advantage of these higher thresholds, even as the FAR Council goes through the formal process of codifying those changes.
The memorandum states that an official FAR Case has been opened to “implement that appropriate statutory changes in the FAR that are compelled” by the 2018 NDAA. However, “agencies may have a need to use the increased thresholds prior to publication of the FAR changes.” Therefore, the memorandum “constitutes consultation in accordance with FAR 1.404 with the Chair of the CAAC allowing agencies to authorize a class deviation to implement the changes.”
The CAAC’s memorandum makes it relatively easy for agencies to adopt class deviations: the CAAC provides agencies with the relevant FAR text, together with “highlights of the appropriate FAR citations needing changes to implement the increased thresholds.” The highlighted provisions may serve “as a basis for issuing a class deviation.”
The CAAC memorandum “is effective immediately, and remains in effect until the increased thresholds are incorporated into the FAR or is otherwise rescinded.”
It’s very important to note that the CAAC memorandum is not itself a class deviation. Instead, it authorizes civilian agencies to adopt their own class deviations while the FAR Case is pending. If I don’t miss my guess, many Contracting Officers are going to be pushing their agencies for class deviations to take advantage of this new authority more quickly.
We’ll keep you posted.
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As a contractor, you strive to do the best job for the fairest price and to develop a good working relationship with the government. But in government contracts—like in any other—disputes sometimes arise. So what’s the best way to protect your interests under the contract?
Here are five things you should know about the basics of claims:
What is a claim?
A claim is a written demand to the agency requesting some type of relief under a contract. Unlike other means of resolving disputes, the Contract Disputes Act requires a contracting officer to respond, in writing, to a claim. If the Contracting Officer fails to do so, you can take your case directly to a judge under a theory called “deemed denial.” Under this process, the contractor and the government basically litigate their dispute before a judge with jurisdiction to consider the matter.
A claim can help define your rights and obligations under a contract.
If you have a dispute under your contract, a claim is generally the formal, legal way to get it resolved. Sometimes, a contracting officer might interpret a contractual provision differently or request that work be performed in a manner that differs from the solicitation. Other times, the agency might cause delays that increase your cost of performance. Whenever a dispute arises under a contract, you may wish to consider a claim—otherwise, you could risk losing money and adverse performance ratings (or even termination).
File your claim with the contracting officer, not GAO or a Board of Contract Appeals.
Perhaps because their bid protest decisions are so common, some contractors think that claims must be filed at the Government Accountability Office. Nope—disputes as to contract administration (in other words, claims) fall outside GAO’s jurisdiction. Other contractors hope to file a claim directly with a Board of Contract Appeals, like the Armed Services Board of Contract Appeals. Boards do get involved in claims but only at the appellate level after the Contracting Officer issues a decision (or a deemed denial).
Claims are, instead, filed directly with the contracting officer for resolution. Each claim should be in writing and explain the factual and legal reasons why you’re entitled to the relief sought. This relief, moreover, could be money or some type of contract modification.
The claim process is set by statute.
The Contract Disputes Act governs the claim resolution process. In a nutshell, contractors generally have six years to file a claim (but try to avoid waiting this long—and make sure that a shorter period doesn’t apply in your case). You must do so, as mentioned, by sending your written claim to the contracting officer. Claims valued at greater than $100,000 have to be certified by the contractor.
Once the contracting officer receives the claim, she has a soft 60-day response deadline. Her response should be in writing and give the reasons why a claim was accepted or denied. If the claim is denied, the contractor can appeal to appropriate Board of Contract Appeals or federal court.
A claim doesn’t have to harm your relationship with the agency.
One of the most common questions I hear from contractors considering a claim is whether it will hurt their relationship with the contracting officer. My response is simple: it doesn’t have to.
The vast majority of contracting officers understand that claims are part of the cost of doing business. If a contractor presents a claim in a professional and civil manner, contracting officers usually reciprocate. And if a valid dispute exists, most contracting officers would rather resolve it through an early claim than have it blow up into something larger (and harder to fix). A claim simply doesn’t have to ruin a relationship.
But if you still have concerns, consider a less-formal option. The FAR, for example, encourages contracting officers to use alternative dispute resolution proceedings if requested by a contractor. You can also request that your contract be equitably adjusted—though similar to claims, requests for equitable adjustment are usually less formal and might be viewed as less adversarial. Sometimes these approaches can also save time and money. No matter which option you choose, don’t let fear of ruining a relationship stop you from protecting your rights under a contract.
So that’s it: five things you should know about the basics of claims. If you have a dispute with an agency under a contract and are considering a claim, call me to discuss your options.
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A subsidiary cannot file an SBA size protest on behalf of its parent company.
Last week, I wrote about an SBA Office of Hearings and Appeals case holding that a parent couldn’t file a size appeal on behalf of its subsidiary. Unsurprisingly, it turns out that the same principles apply to initial size protests, too.
OHA’s decision in Size Appeal of Conrad Shipyard, LLC, SBA No. SIZ-5873 (2017) involved a DOT solicitation for the construction of an ice-breaking tugboat. The solicitation was issued as a small business set-aside under NAICS code 336611 (Ship Building and Repairing), with a corresponding 1,250-employee size standard.
Conrad Shipyard, LLC submitted a proposal. Conrad Shipyard, LLC is part of a family of companies ultimately owned by Conrad Industries, Inc. Conrad Shipyard, LLC has two wholly-owned subsidiaries: Conrad Orange Shipyard, Inc. and Conrad Shipyard Inc. (In this case, the two relevant companies are Conrad Shipyard, LLC and Conrad Orange Shipyard, Inc. For ease of reference, I am going to call them “Conrad Shipyard” and “Conrad Orange,” respectively).
After evaluating competitive proposals, the DOT announced that Gulf Island Shipyards, LLC was the apparent successful offeror. Conrad Orange then filed a size protest, arguing that GIS was not an eligible small business. In the size protest, Conrad Orange stated that it was an interested party because it had submitted an offer in response to the DOT solicitation.
The Conrad companies apparently realized their mistake. Five days after filing the initial size protest, Conrad Shipyard–the offeror–filed a “Notice of Amendment” to the size protest. Conrad Shipyard asked the the size protest be amended to reflect Conrad Shipyard, not Conrad Orange, as the protester.
The SBA Area Office held that Conrad Orange was not an interested party because it did not submit an offer. The SBA Area Office dismissed Conrad Orange’s size protest. The SBA Area Office treated Conrad Shipyard’s “amendment” as a separate size protest, and dismissed it too, holding that it was untimely filed outside the five-day size protest window.
Conrad Shipyard filed a size appeal with OHA. Conrad Shipyard alleged that it should have been permitted to correct a “minor, clerical error” by substituting Conrad Shipyard for Conrad Orange as the protester. Alternatively, Conrad Shipyard alleged that Conrad Orange was an interested party because “as a member of the same corporate family as [Conrad Shipyard], it has direct economic interest in the award to GIS.”
OHA wrote that “[a] size protest against an awardee of a small business set aside contract may be filed by: any offeror the contracting officer has not eliminated from consideration for any procurement-related reason, the contracting officer, the SBA Area Director, and other interested parties.” A size protest filed by anyone other than the SBA or Contracting Officer “must be filed within five business days after the CO has notified the protestor of the identity of the apparent successful offeror.”
Here, there was no dispute that the “amendment” filed by Conrad Orange was filed after expiration of the five-day period. Thus, if the SBA Area Office was correct to treat it as a separate protest, the amendment was untimely.
Under the SBA’s size rules, OHA said, “protestors are not permitted to amend protests after the filing deadline.” Indeed, “[a]fter filing a protest, the regulation contemplates no further role for the protestor in the size determination process. It has no further submissions to make.” Otherwise, “new protest allegations could constantly be added up until issuance of the size determination.” Here, Conrad Shipyard’s “time for filing had expired, and the Area Office was not compelled to accept the October 11th filing as an amendment.”
OHA then turned to Conrad Shipyard’s contention that Conrad Orange, as its wholly-owned subsidiary, was an interested party. OHA wrote that GAO has held in its bid protest cases that “a parent corporation has no standing to file a protest on behalf of a subsidiary, because it is not the parent who would be contracting with the Government.” OHA found the GAO’s reasoning persuasive. Here, “Appellant’s subsidiary attempted to file a protest on its behalf, but it was not the offeror on this procurement. Where a parent may not file for its subsidiary, a subsidiary surely may not file for its parent.”
OHA denied the size appeal and affirmed the SBA Area Office’s decision.
As I wrote in my post last week, in practice, parent and subsidiary companies often downplay or largely ignore the legal distinctions between them. But when it comes to the SBA size protest and appeals process, those distinctions are critical. As demonstrated in the Conrad Shipyard case, members of the same corporate family are not permitted to file size protests for one another.
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Love was in the air this week with Valentine’s Day falling on Wednesday. If all the chocolate and flowers distracted you from the latest and greatest in government contracting news, you’re in luck. It’s time for our weekly roundup, the SmallGovCon Week in Review.
In today’s edition, a California father-and-son team pleaded guilty to using false financial statements and other lies in order to win more than $4 million in federal contracts, one commentator says the Department of Homeland Security must improve the quality of post-award debriefings, the GSA awarded its Alliant 2 small business small contract on Wednesday, and much more.
A California father-and-son team pleads guilty to fraudulently obtaining more than $4 million in government contracts. [nbcsandiego.com]
The GAO says that the DoD can improve its practices for developing acquisition program managers. [GAO]
A new report says that a significant percentage of government contractors have experienced cybersecurity breaches. [Washington Technology]
Speaking of cybersecurity, the DoD is warning contractors to better protect their networks, or risk losing contracts. [GovExec]
One commentator says that DHS’ post-award debriefings are underwhelming, and offers ideas for improvements. [hstoday.us]
The GSA has awarded the $15B Alliant 2 SB contract to 81 small businesses. [fedscoop.com]
The DoD recently used Other Transaction Authority to make a $950 million award. But what the heck is Other Transaction Authority, anyway? [Federal News Radio]
View the full article
When an agency solicits competitive proposals to establish multiple blanket purchase agreements, the agency may include “on-ramp” procedures to potentially award additional BPAs at a later date.
In a recent bid protest decision, the GAO confirmed that the FAR allows agencies to use on-ramp procedures to add additional BPAs–and that on-ramped BPA holders don’t enjoy an inherent unfair competitive advantage, at least not under the facts at issue.
The GAO’s decision in Al Baz 2000 General Trading & Contracting Company W.L.L., B-415353.5 (Feb 12, 2018) involved an Army solicitation for the establishment of up to eight BPAs. The awardees were to provide non-tactical vehicle leasing and maintenance services. The solicitation provided that the initial BPAs would be for a base year, and would include six one-year option periods.
Each offeror was to propose BPA ceiling unit prices. Those ceiling prices would be incorporated in the BPAs of the awardees. Orders would then be competed among BPA holders. When bidding on an order, each BPA holder could propose its ceiling unit prices, or provide discounted prices.
The solicitation included on-ramp procedures under which the Army could add new BPA holders. According to the solicitation, the Army could use the on-ramp at any time by reopening the competition and using the same basis of award established in the initial solicitation. Any additional BPAs added as a result of an on-ramp were to contain the same terms and conditions as the initial BPAs, including the same period of performance.
Al Baz 2000 General Trading & Contracting Co. filed a pre-award bid protest challenging the on-ramp procedures. Al Baz contended that the on-ramp would result in unfair competition for orders because new potential offerors would have insight into the initial BPA awardees’ total pricing. Al Baz also argued that the new awardees would have less risk as compared to the initial BPA holders because of the shorter period of performance and a better understanding of market conditions.
The GAO wrote that “the incorporation of on-ramp procedures is consistent with the authority granted to agencies to add additional BPAs pursuant to FAR 13.303-5(d).” That FAR provision “authorizes the establishment of additional BPAs to ensure maximum practicable competition.” Thus, “we find no basis to challenge the agency’s inclusion of a provision that, in essence, incorporates this regulatory authority.”
Turning to Al Baz’s specific objections, the GAO first said that “we can discern no reasonable possibility of competitive prejudice from the disclosure of the initial awardee’s total evaluated prices.” The GAO noted that the total evaluated price “is calculated by summing the proposed ceiling prices for more than 1,200 contract line item numbers.” Thus, “we find no reasonable basis to conclude that a potential offeror on a future on-ramp procurement could reasonably discern confidential proprietary or business pricing information based on the total evaluated price.”
The GAO then held that Al Baz’s final objection, regarding unfair competition, was “misplaced.” The GAO wrote that even if additional awardees had better knowledge of market conditions, they would merely be “in a better position to establish BPAs with lower ceiling prices.” However, “all BPA holders competing for individual orders are free to provide lower prices based on actual market conditions at the time the agency solicits an order.”
The GAO denied the protest.
The term “on-ramp” is often used to describe a procedure in which a contracting officer may add new small businesses throughout the life of a multiple-award set-aside contract. Such provisions are sometimes called “open season.”
As the Al Baz case demonstrates, on-ramps aren’t limited to small business set-aside GWACs. Under the FAR, the government can add new BPAs “to ensure maximum practicable competition.”
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A procurement may not be set aside for SDVOSB concerns without also including mandatory VA set-aside VAAR provisions, including the limitation on subcontracting.
In a recent bid protest decision, the GAO held that a solicitation was flawed where the cover sheet indicated that the solicitation would be set aside for SDVOSBs, but the solicitation omitted the mandatory VAAR SDVOSB set-aside clause.
Office Design Group, B-415411, __ CPD ¶ __ (Comp. Gen. Jan. 3, 2017) involved a procurement for office furniture installation for the Department of Veterans Affairs. The procurement was designated as a total Service-Disabled Veteran-Owned Small Business set-aside on block 10 of Standard Form 1449 (the standard cover sheet for commercial items procurements).
As a total SDVOSB set-aside procurement, VAAR 819.7009 required the Contracting Officer to incorporate VAAR 852.219-10, VA Notice of Total Service-Disabled Veteran-Owned Small Business Set-Aside. Of importance here, VAAR 852.219-10(c) incorporates the SBA’s limitation on subcontracting requirements found in 13 C.F.R. § 125.6, which, for this supply and services contract, prevents the prime contractor from paying more than 50 percent of the amount paid by the government to non-SDVOSB subcontractors.
Before the deadline for proposals, one offeror contended there was a general lack of SDVOSB contractors capable of performing the installation work, which made compliance with the limitation on subcontracting difficult. In response, the VA amended the Solicitation to eliminate VAAR 852.219-10 and references to the limitation on subcontracting. SF 1449, however, continued to state the contract was set-aside for SDVOSB concerns.
Two days before the close of proposals, the president of Office Design emailed the contracting officer noting that while SF 1449 still listed the procurement as set-aside for SDVOSBs, the removal of VAAR 852.219-10 created an ambiguity as to whether the solicitation was actually set-aside. The VA responded that SF 1449 still indicated the procurement was set-aside for SDVOSB concerns, thus the procurement is set-aside.
Nine days later, Office Design protested the ambiguities within the Solicitation before GAO.
As a preliminary matter, Office Design’s protest raised questions regarding its timeliness. The VA alleged that Office Design’s protest was an untimely protest of patent ambiguities within the Solicitation, which needed to be protested prior to the due date set for the receipt of proposals. Office Design, on the other hand, argued it had timely challenged the Solicitation’s terms at the agency level when it emailed the agency requesting clarification of the ambiguity resulting from the removal of VAAR 852.219-10.
GAO concluded Office Design had the better of this argument. Under GAO bid protest regulation 4 C.F.R. § 21.2(a)(3), an agency-level protest may be taken to GAO within 10 days of the agency’s decision. As GAO explained, “[a] letter (or email) does not have to explicitly state that is intended as a protest for it to be so considered; rather, it must, at a minimum, express dissatisfaction with an agency decision and request corrective action.”
In GAO’s eyes, Office design’s email raising concerns with the ambiguity of the procurement’s SDVOSB set-aside status resulting from the removal of VAAR 852.219-10 from the Solicitation expressed frustration with the Solicitation’s terms and requested the agency clarify the ambiguity. In other words, Office Design’s email “express[ed] dissatisfaction with an agency decision and request corrective action.” Taking the VA’s email response on September 19th as a denial, GAO concluded Office Design’s GAO protest timely followed an agency-level protest.
Moving to the merits of the protest, the VA argued the Solicitation was not ambiguous because SF 1449 still indicated the procurement was set-aside for SDVOSB concerns. GAO disagreed. As GAO explained, a solicitation is ambiguous when “two or more reasonable interpretations of the terms or specifications of the solicitation are possible.” Due to the VA’s deletions, two interpretations were possible. On one hand, SF 1449 continued to represent that the procurement was set-aside for SDVOSB concerns. On the other hand, the removal of VAAR 852.219-10—the mandatory SDVOSB solicitation and contract provision—indicated the Solicitation was no longer set-aside. According to GAO “[g]iven the conflicting information in the solicitation, it is impossible to determine conclusively whether the solicitation was set aside for SDVOSBs; in short, the amended solicitation was patently ambiguous.”
GAO sustained Office Design’s protest and recommended any awards be terminated and the Solicitation be revised to include mandatory provisions, as necessary.
GAO’s decision in Office Design shows that when it comes to set-asides, an agency cannot have it both ways. Here, the VA was trying to execute an SDVOSB procurement without including the associated limitations on subcontracting. But the limitations on subcontracting are part and parcel of the VA SDVOSB program because of their inclusion in VAAR 852.219-10. As such, the VA could not have one without the other, and its attempt to do so resulted in an ambiguous and flawed solicitation.
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Not too many government contracting disputes make it to a federal court of appeals—the level just a step below the U.S. Supreme Court. The most notable recent examples would probably be the Federal Circuit’s decision in Kingdomware Technologies (which, as SmallGovCon readers know, was ultimately overturned by the Supreme Court in 2016) and the D.C. Circuit’s decision Rothe Development (which the Supreme Court declined to consider).
But recently, the Federal Circuit issued a decision of note to government contractors. In AgustaWestland North America v. United States, the Court issued guidance on what constitutes a “procurement decision” and upheld the Army’s decision to buy helicopters on a sole-source basis.
Let’s take a look.
The facts of AgstaWestland date back to the Army’s 2005 decision to procure light utility helicopters by full and open competition. Airbus was ultimately awarded that contract in 2006 and, under it, the Army would purchase UH-72A Lakota helicopters.
In 2012—four years before Airbus’s contract expired—the defense budget underwent dramatic reductions. As a result, the Army implemented Army Execution Order 109-14, which, among other things, retired the Army’s existing helicopter training platform and designated the UH72A Lakota (procured under Airbus’s then-ongoing contract) as its institutional training helicopter.
To comply with the Order, the Army thought that it needed to increase its number of Lakota helicopters. It issued a sources sought notice in 2014 to explore its sole source options but ultimately decided to instead exercise Airbus’s remaining options (permitting the procurement of 412 helicopters). This left the Army 16 helicopters short of its total requirement; so, in late 2015, the Army issued a Justification & Approval to acquire these helicopters from Airbus on a sole-source basis.
AgustaWestland was a disappointed bidder under the Army’s 2005 solicitation and filed a complaint in the Court of Federal Claims, challenging the Army’s sole-source decision here. The Court of Federal Claims granted AgustaWestland a preliminary injunction (preventing the Army from proceeding with the acquisition), from which the Army appealed.
Ultimately, the Federal Circuit ruled in the Army’s favor and reversed the Court of Federal Claims. In doing so, it addressed a couple of questions important for government contractors to bear in mind:
What is a “procurement?”
This seems like a straightforward question, but it’s sometimes not. It’s important, too: under the Tucker Act, the Court of Federal Claims has jurisdiction to consider an alleged violation of a statute or regulation in connection with a procurement or proposed procurement. But the Act doesn’t actually define what a “procurement” is.
But, applying the definition applied to the Office of Federal Public Policy, the Court noted that a “procurement” is “all stages of the process of acquiring property or services, beginning with the process for determining a need for property or services and ending with contract completion or closeout.” In other words, a “procurement” involves the initiation of the government’s process for determining the need for an acquisition all the way through contract closeout.
Applying that definition, the Court found the Execution Order was not a procurement. It was instead a part of a restructuring initiative for existing Army assets; the Order did not direct or discuss the need to procure additional helicopters.
On the other hand, the Army’s sole source acquisition of 16 helicopters from Airbus was a procurement decision. As a result, the Court of Federal Claims had jurisdiction under the Tucker Act to consider the propriety of the sole source decision.
Was the sole-source decision properly supported?
Under the FAR, a sole-source contract is permitted when it is a follow-on contract for the continued development or production of a major system or specialized equipment, and award to an alternative source would result in substantial duplication of costs or unacceptable delays in fulfilling the agency’s requirements. Applying this definition here, the Federal Circuit found it “irrelevant” that the sole-source award was a new contract to Airbus—all that mattered was that it was a contract for the continued development or production of a major system.
Supporting the sole-source decision, the contracting officer found that Airbus was the only responsible source for the contract because it has exclusive ownership of all data rights required to produce, maintain, and modify the UH-72 Lakota. According to the Army, procuring a new helicopter from another source would result in significant duplication of costs and would unreasonably delay the Army’s ability to fill gaps in its helicopter fleet.
The Federal Circuit found this rationale to be sufficient, meaning that the sole-source decision was neither arbitrary nor capricious.
* * *
At the end of the day, AgustaWestland’s nuanced legal principles will probably be more applicable to contracting officers (or government contracts attorneys) than contractors. But contractors considering a protest challenging a sole-source justification might nonetheless pay attention to the Court’s rationale.
In any event, AgustaWestland is worth discussing given the relative infrequency of bid protest decisions from the Federal Circuit.
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An SBA size appeal must be filed by someone “adversely affected by a size determination.” Because parent and subsidiary companies are not directly affected by contracts bid upon by their corporate affiliates, those entities cannot file SBA size appeals on behalf of one another.
In a recent size appeal decisions, OHA confirmed that a parent company cannot file a size appeal on behalf of a subsidiary.
OHA’s decision in Size Appeal of Cliffdale Manufacturing, LLC, SBA No. SIZ-5879 (2018) involved two Army solicitations, which were set aside for small businesses under NAICS code 336413 (Other Aircraft Parts and Auxiliary Equipment Manufacturing) and NAICS code 332912 (Fluid Power Valve and Hose Fitting Manufacturing).
Cliffdale Manufacturing, LLC submitted offers on the Army solicitations. Cliffdale was announced as the awardee of both Army contracts, but its size was successfully protested by a competitor. RTC Aerospace LLC, Cliffdale’s parent company, filed size appeals with the SBA Office of Hearings and Appeals, challenging the SBA’s size determinations.
OHA wrote that SBA’s regulations “dictate ‘any person adversely affected by a size determination’ has standing to appeal a size determination to OHA.” In its prior cases, “OHA has refrained from extending standing to alleged affiliates, proposed subcontractors, and even ostensible subcontractors to appeal the size determination of a challenged firm because the size determination has no impact on their size or status.”
Applying these rules, OHA said that “Cliffdale submitted the proposals for the subject procurements, was awarded the two subject contracts, and would be the firm contracting with the Government, not RTC.” Because “[t]he size determination has no impact or consequence on RTC’s status,” OHA concluded, “RTC lacks standing to file the instant appeals on behalf of its wholly-owned subsidiary, Cliffdale.”
OHA dismissed RTC’s size appeal.
In practice, parent and subsidiary companies often downplay or largely ignore the legal distinctions between them. But when it comes to SBA size appeals, the rule is clear–the appellant must be the entity that submitted the proposal, not a parent company.
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It has been a cold week here in Lawrence, Kansas. I hope everyone is staying warm. It’s time to get some hot cocoa (or the Friday afternoon beverage of your choice) and enjoy the top government contracting news and notes for the week.
This week’s news includes the release of the major Section 809 Panel’s first acquisition reform report, a Maryland company pays the government more than half a million dollars to settle False Claims Act allegations relating to unallowable costs, HHS agency officials are heading on a cross-country tour to demystify selling to the government, the GAO says that the SBIR and STTR databases are riddled with errors, and much more.
The Section 809 Panel put out its first “Report of the Advisory Panel on Streamlining and Codifying Acquisition Regulations.” [Section 809 Panel]
An 8(a) contractor has protested a major DoD cloud computing services contract that could be worth up to $950 million. [Federal News Radio]
A defense contractor will pay more than $500,000 to settle False Claims Act allegations relating to unallowable costs. [justice.gov]
HHS has kicked off a tour to encourage selling to the government. [Nextgov.com]
The new GSA Administrator is looking to bring more transparency to the procurement process, especially in the GSA Schedule program. [Federal News Radio]
The SBA’s SBIR and STTR program databases are hobbled by errors, according to the GAO. [Fedscoop.com]
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The FAR and DFARS have 27 distinct definitions of the term “subcontract,” according to an acquisition reform panel.
In its first report, the Section 809 Panel urges policymakers to adopt a consolidated definition of the term “subcontract,” as well as a common definition of “subcontractor,” a term that has 21 distinct definitions in the FAR and DFARS.
The Section 809 Panel was established by Congress in the 2016 National Defense Authorization Act, and tasked with recommending ways to streamline and improve the defense acquisition process. The Panel intends to release a three-volume series of reports on ways to potentially improve and reform DoD acquisitions. The Panel released its first report on January 31.
The 642-page report is chock full of interesting information–including the fact that DoD small business contract awards have dropped sharply since FY 2011, something I wrote about earlier this week. But the report also includes some other important nuggets that may fly under the radar, such as the need for common definitions of what it means to be a subcontractor or award a subcontract.
The Panel writes that “[t]he FAR currently defines the term contract, an important term widely used throughout the FAR and DFARS.” However, “neither the FAR nor DFARS defines the term subcontract, another term used throughout the FAR and DFARS.” Similarly, the term “subcontractor” is used frequently, but does not have a common definition.
The Panel says that both terms have “numerous definitions” under current regulations:
A search of the FAR and DFARS produced 27 distinct definitions of the term subcontract. Seventeen of these definitions were essentially the same with only minor differences. The other 10 were unique one way or another, but shared many of the same common elements.
The FAR and DFARS search also produced 21 distinct definitions of subcontractor. Most of these definitions shared common elements that could be conducive to drafting a single, common definition. Several had a unique element that would require an accommodation.
The Panel recommends adopting common definitions of the terms “subcontract” and “subcontractor,” and provides suggested definitions that could be adopted.
The Panel’s discussion of this terminology is a very minor part of a very large report. But it struck a chord with me, because clients have asked me many times whether a particular arrangement constitutes a “subcontract” or whether a particular company qualifies as a “subcontractor.”
It drives me absolutely batty (yes, that’s official legal terminology), that I have to respond “it depends.” And, as a policy matter, it makes little sense to treat an agreement as a subcontract in certain contexts, but as something else in others. A set of rules that defines the same terms more than 20 different ways is the sort of unnecessary complexity that discourages companies–particularly small businesses–from participating in government contracts in the first place.
The Section 809 Panel’s report will come under intense scrutiny, and some of its recommendations will likely garner significant push back from various segments of the government contracting community. But I hope that pretty much everyone can get behind the need for common definitions of important terms like “subcontract” and “subcontractor.”
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The number of DoD small business contract actions has dropped almost 70 percent since Fiscal Year 2011, even as the total number of small business dollars increased significantly. This is one of the important new findings from an acquisition reform panel’s initial report.
The Advisory Panel on Streamlining and Codifying Acquisition Regulations–better known as the Section 809 Panel–recently released the first in an anticipated three-volume series of reports on ways to potentially reform and improve DoD acquisitions. The report, which clocks in at a whopping 642 pages, includes a detailed section on DoD small business acquisitions–and suggests that DoD’s focus on achieving dollar-based small business goals has obscured the fact that far fewer small businesses have been awarded DoD contracts in recent years.
If you haven’t heard of the Section 809 Panel, don’t feel bad. It’s an important entity, but to date, its work has largely flown under the radar of many in the acquisition community. The Panel is an 18-person group established by Congress in the 2016 National Defense Authorization Act (in Section 809–gotta love the creative naming!), and assigned the task of recommending ways to streamline and improve the defense acquisition process. The Panel’s recommendations are only advisory, but in light of the Congressional mandate, they’re likely to carry quite a bit of weight with policymakers.
Some small business advocates have been worried that the Section 809 Panel will be detrimental to small contractors. After all, when it comes to government contracting, terms like “streamlining” sometimes seem to be code for bundling, consolidation, and similar processes.
It remains to be seen whether the Section 809 Panel’s recommendations, in the aggregate, will prove beneficial or detrimental to small businesses. From what I can tell so far (keeping in mind that we’re only one-third of the way into the Panel’s reporting), the answer may well depend on where a small business sits in the marketplace. But this post isn’t intended to be a soapbox screed on the Panel’s recommendations as a whole–although that may come at a later date. For now, though, I want to focus on a very important small business statistic buried in the lengthy report:
The number of small business contract actions dropped nearly 70 percent from FY 2011 to FY 2016, but during that same timeframe the value of DoD small business contracts rose approximately 290 percent. Small companies are receiving contracts of substantial value from the government, including DoD, but the decline in the number of small business contract actions indicates DoD’s small business contracting is not promoting competition and fostering robustness in the defense market.
The Panel blames this decline in part on DoD’s “almost singular focus on the aggregate dollar value of small business contracts.” In other words, under the current small business goaling system, DoD gets credit when it awards a certain percentage of its prime contracting dollars to small businesses–but it makes no difference whether those dollars are divided between 1,000 small businesses or 100,000 small businesses.
In Fiscal Year 2016, for example, the DoD awarded 22.94% of its prime contracting dollars to small businesses, and earned an “A” for its efforts. However, there has been a “decline of nearly 100,000 small companies registered in [SAM] to do business with the federal government since 2012,” and DoD’s achievement of its dollar goals masks a sharp drop in the number of contracts awarded to small companies since FY 2011.
Of course, the dollar goals were in place long before FY 2011, so there must be more going on here. Why is DoD awarding far fewer small business contracts? The Panel points to various potential factors.
For example, some small businesses interviewed by the Panel said that “doing business with DoD is too complex and burdensome.” Among the many complexities, “[a]croynms and jargon that are widely used across DoD are not always comprehensible for small businesses lacking experience in the defense market . . ..” Amen to that. But other issues abound, including the costs of pursuing DoD contracts, the long lead times associated with many DoD procurements, the “lack of clear entry points into the defense market,” and “the potential effects of audits, paperwork, and other [compliance] processes” on small businesses.
This all makes sense, but these factors all existed before FY 2011. It seems to me that the Panel, having identified a very important issue and some potential barriers to small business participation in the DoD marketplace, is ignoring the elephant in the room: streamlining itself may be playing a major role in reducing the number of small business awards.
While definitive statistics can be hard to come by, you can’t go 15 minutes at the typical government contracts conference without hearing about how agencies are moving toward fewer, larger contracts–regardless of whether those contracts meet the FAR’s technical definitions of consolidation or bundling. And I’m not going to get into the long-running debate over category management and strategic sourcing, but it’s a commonly-held view that these initiatives may be detrimental to broad small business participation in the government marketplace.
When contracts become larger and more complex, it follows that fewer small businesses are likely to compete. After all, there are only so many small businesses that can feel confident pursuing and successfully performing set-aside contracts of $25 million, $50 million, $100 million and larger. Indeed, I’ve seen a few large set-aside competitions in which all of the offerors were “non-traditional” small businesses, such as ANC subsidiaries or 8(a) mentor-protégé joint ventures.
The Section 809 Panel report identifies a very important problem in DoD’s small business contracting system, and it’s a good idea to look at ways to reduce the costs and administrative burdens of doing business with DoD. It’s also wise to consider whether the current goaling system can be adjusted to include more metrics that aren’t based on aggregate dollars. However, policymakers should examine the potential negative effects of streamlining itself, including initiatives such as strategic sourcing and category management. Without that analysis, any effort to reverse the major decline in small business awards may be missing a large piece of the puzzle.
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A newly released Government Accountability Office report provides a rare peek behind the curtain of how contracting officers assign North American Industry Classification System codes.
Contracting officers are required by 13 C.F.R. § 121.402(b) to designate the NAICS code that “best describes” the work to be performed. It sounds simple enough, but the report reveals that it can be tricky.
The contracting officers interviewed by GAO as part of its December 2017 Report to the Committee on Small Business, House of Representatives said as much, telling GAO that assigning a NAICS can be challenging, especially “when one or more codes could apply to a contract.”
“Best describes” is a lofty principle, but in practice, nothing tells the contracting officer how he or she is supposed to go about determining what NAICS code best describes the work. There are hundreds of codes with wildly different corresponding size standards. Making sense of them all is surely no easy task—especially since none of the agencies studied provide NAICS-specific training.
The selection of one code over another can have a massive impact on any procurement. The NAICS code determines whether a business is “small” for the purposes of that procurement. In terms of dollars, size standards vary in annual revenue from $750,000 to $38.5 million. Employee count size standards vary from 100 to 1,500. Thus, that one decision can dramatically affect the contours of the competition.
The report, given to Congress in December, was the result of interviews with contracting officers and small business specialists from the Departments of the Army, the Navy, Homeland Security, and Health and Human Services. But, somewhat disappointingly, GAO’s sample size appears to be extremely small. GAO only interviewed one contracting officer per agency.
Nevertheless, all four contracting officers told similar tales. The steps they generally take are 1) review the statement of work/performance work statement to get an idea of the type of work being done to assign a preliminary code; 2) conduct/review market research; and 3) seek input from the small business specialist.
Reviewing the work, according to those interviewed, includes checking to see what code the work was previously solicited under, if applicable, and whether similar work has been previously procured by the agency.
Although all four of the contracting officers said that the market research contributes to the decision, GAO found evidence of market research in only two of the four contracts reviewed.
Meanwhile, the mechanism for seeking the input of the small business specialist is simply filing out a form. The small business specialist reviews the form prior to the contracting officer issuing the solicitation.
Not to oversimplify a complicated process, but it sounds like the contracting officers generally pick a code after reviewing the work and as long as they do not get any push back, go with that.
The obvious drawback to this system is that it is heavily dependent on the contracting officer’s personal judgement. As one contracting officer told GAO, “assigning the NAICS code is subjective and two different contracting officers could review the same contract and find different codes to be appropriate.”
GAO, in fact, found evidence that this happens. For example, GAO wrote that an order for “a new closed circuit TV (CCTV) System” went out under NAICS code 541330 (Engineering Services), with a corresponding size standard of $15 million. But an order for “installation of intrusion detection and closed circuit video surveillance” went out under code 541512 (Computer Systems Design Services) with a corresponding size standard of $27.5 million. Thus, although the work was very similar, much larger businesses were eligible to compete for the latter procurement.
GAO also noted the challenge associated with IDIQ contracts, because “the statements of work may cover more than one code.” The SBA attempted to give contracting officers more freedom on that front by issuing a rule in 2013 that allowed the assignment of more than one NAICS code to multiple-award contracts. But, according to the GAO findings, contracting officers do not take advantage of the flexibility, in part because there is not a practical mechanism that would allow them to do so. The contract writing systems which feed into the Federal Procurement Data System-Next Generation (FPDS-NG) only allow for one NAICS code per contract.
The study also gave industry groups and firms the chance to opine. Unsurprisingly, they “expressed concern that some contracting officers assign NAICS codes because they want specific size standards, not because they are the most appropriate codes[.]” Both HHS and SBA pushed back against that idea. The SBA argued that the “results of NAICS code appeals as an indication that the practice of assigning NAICS codes based on the size standard was not widespread.”
But, as we recently pointed out, the relative sparsity of sustained NAICS appeals found in this report does not necessarily mean that a good portion of appeals filed are not successful. Furthermore, the standard on appeal is not whether there is a better NAICS code to describe the work, but whether the code picked was in “clear error of fact or law,” which means that the SBA Office of Hearings and Appeals’ job on appeal is not to determine if the selected code “best describes” the work, just if the selected code was obviously wrong.
Unfortunately, the small sample size means that no hard conclusions can be drawn. However, the report highlights the importance of NAICS codes in small business acquisitions, and suggests that policymakers would be wise to undertake further study to determine if the process of assigning NAICS codes can be improved.
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5 Things has previously discussed 8(a) Program basics and eligibility requirements. But the 8(a) Program isn’t the only socioeconomic program benefiting small businesses. In this post, we’ll begin exploring another crucial program for small businesses: the Historically Underutilized Business Zone—or HUBZone—program.
Here are five things you should know about the HUBZone program.
What is the HUBZone program?
At its most basic, the HUBZone program is designed to provide economic assistance to economically-depressed geographic areas by awarding federal contracts to small businesses that operate and employ workers in those areas.
Which geographic areas fall in a HUBZone?
The Department of Housing and Urban Development determines which areas qualify as HUBZones, with reference to the latest census data. The SBA then publishes interactive maps that show whether an address falls within a HUBZone.
For example, a qualified census tract HUBZone is shown shaded on the map below (just across the street to the south and east from Koprince Law LLC). Companies with their principal offices located in the blue area might qualify to participate in the HUBZone program, if they meet the other eligibility requirements; those outside of the HUBZone would not.
Who is eligible to participate as a HUBZone business?
There are four basic requirements a “typical” company must meet to participate in the HUBZone program:
The company must be at least 51% unconditionally and directly owned and controlled by United States citizens;
The company must be a small business under its primary NAICS code;
The company’s principal office must be located in a HUBZone; and
At least 35% of the concerns employees must live in a HUBZone.
These are just the basic criteria. The last two requirements come with their own quirks, so future posts will explore them in greater detail.
It’s also worth bearing in mind that these are the eligibility criteria for typical HUBZones—that is, those owned by individuals. There are separate eligibility criteria for companies owned by Indian tribes, Alaska Native Corporations, Native Hawaiian Organizations, and Community Development Corporations. We will explore the requirements for these special HUBZone firms in future posts, as well.
When is eligibility determined?
HUBZone eligibility is an on-going process. A company has to qualify at the time it submits its offer under a HUBZone contract and at the time of award. And once on the job, the company must “attempt to maintain” its compliance with the regulations. To reiterate: at the time of bid and time of award, the company must be in actual compliance with all eligibility criteria, not just be attempting to maintain compliance.
This ongoing eligibility can cause heartburn for some companies, particularly regarding the 35% employee residency requirement. Consider the following scenario: a company has 10 employees (4 of whom reside in a HUBZone) at the time it submits its bid but then, before the award is made, one of its HUBZone-residing employees takes a job elsewhere. At the time of the bid, 40% of its employees lived in a HUBZone; at the time of the award, only 33% did. Through no fault of its own, the company would not be eligible for the award.
We’ve seen this scenario happen several times—and have prosecuted and defended protests challenging HUBZone eligibility based on similar circumstances. Maintaining 35% residency supports the underlying goal of the HUBZone program—how would an economically-depressed area reap the benefits from a HUBZone contract if its residents aren’t employed to perform the work? That said, we think SBA ought to consider changing the rules to prevent potentially harsh results like the one seen in the example.
Though it might sound daunting, maintaining eligibility isn’t impossible for most firms. It just takes a little vigilance and a strong, effective compliance plan.
What’s the benefit to participating?
The benefits to participating in the HUBZone program can be enormous: the government’s goal is to award 3% of its prime contracts to HUBZone entities annually. Contracting officers are given broad powers to award contracts to HUBZone entities—including through sole-source awards and set-asides. For contracts issued under full and open competition, moreover, HUBZone companies receive a price evaluation preference.
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That’s it: five things about HUBZone basics. Look for future posts explaining HUBZone program requirements in more detail. And of course, please call me to discuss eligibility or applying.
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