We’re halfway through the government’s fourth quarter, and experienced contractors know what that means–lots of awards on the horizon.
According to a fascinating new analysis from USASpending.gov, the fourth quarter spike in contract awards is quite real, and quite significant: the value of average weekly contract spending in the final week of the fiscal year is more than double that of the next-highest weekly average.
The USASpending analysis looked at ten years’ worth of government contract spending data. Unsurprisingly, total contract spending was at its highest in the recovery from the Great Recession, when legislation pushed spending in FY 2010 to a record-high $560 billion. In FY 2017, the total spent was $510 billion.
Regardless of overall spending levels, the analysts “observed seasonal trends in contract spending occurring within a single year.” They found that “spending tended to rise and fall on a monthly cadence, with roughly one small peak and one small drop per month.”
But September was an exception to the trend of small peaks and drops. Each year over the decade, there was a massive spike in spending in September. The spike was most pronounced in the last week of September, where the government averaged $18 billion in contract spending.
For comparison, the week with the next-highest average, in the spring, was $7.8 billion. The lowest-spending week fell over the winter holidays, where the government averaged a mere $340 million in awards. In other words, the Government awarded about 53 times more in contracts during the last week of September then it did over the winter holidays.
Contractors have long known that the Government can be like many of us–it tends to wait until the last minute to do things. When it comes to contract awards, that means lots of action in the fourth quarter, especially in the last week of the fourth quarter. The fact that the Government spends a lot in the last week of September doesn’t come as much of a surprise, but the numbers are still rather striking.
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As the incumbent contractor, you’re excited to bid on the successor contract. The day it’s posted, you dash to fbo.gov, pull up the solicitation, and breathe a sigh of relief: the contract is still exclusively a small business set-aside. But wait! Under the assigned NAICS code your business doesn’t fall below the size standard.
Can the agency change the NAICS code from one iteration of the contract to another? Sure, so long as the selected NAICS code meets the regulatory standard.
In NAICS Appeal of STG, Inc., SBA No. NAICS-5936 (2018), OHA considered a solicitation, issued by the Department of the Army, for “[n]on-personal information technology (IT) services and support requirements.” The contracting officer assigned the procurement NAICS code 541513, Computer Facilities Management Services, which carries a $27.5 million size standard. STG, the incumbent contractor, disagreed with that selection. It contended that the NAICS code, assigned to the existing contract, was the correct one, namely NAICS code, 517110 (now NAICS code 517311), Wired Telecommunications Carriers, with a 1,500-employee size standard.
STG’s arguments largely took the if-it-ain’t-broke-don’t-fix-it line. It asserted that the contemplated contract contained requirements substantively identical to its contract. And, in an appeal to history, STG noted that the agency had used NAICS code 517311 on predecessor contracts for more than a decade. Further, it argued that NAICS code 517311 focuses on telecommunications and networks—the procurement’s essence—not the computer management field covered by NAICS code 541513.
But STG’s cries did not move OHA, which sided with the contracting officer. Two points from OHA’s analysis are worth mentioning here.
First, OHA isn’t persuaded by a prior contract’s NAICS code designation—unless OHA previously reviewed or affirmed it. OHA explained the principle this way:
Here, Appellant argues that the CO’s designation of the instant procurement under NAICS code 541513 is erroneous because the predecessor contract, upon which Appellant was the awardee, was designated under NAICS code 517311. However, OHA never reviewed or affirmed the NAICS code designation for the prior procurement, and therefor it is not probative of the correct designation for this procurement, nor is it binding for this proceeding.
In other words, a NAICS code designation for a prior procurement is not probative of the correct designation, in a subsequent contract, unless OHA weighed in on the earlier-assigned NAICS code.
Second, a NAICS code appellant can’t lose sight of its burden. In an NAICS code appeal, the appellant must prove that the contracting officer erred in designating the procurement under a certain NAICS code. To do that, the appellant must show that the “code designation is clearly incorrect and not that another code is correct.” OHA is not in the business of second-guessing the contracting officer. Unless, the contracting officer clearly got the NAICS code wrong, then OHA will not disturb the decision. Put differently, the fact that OHA would have chosen another NAICS code, standing in the contracting officer’s shoes, isn’t enough for the appellant to win.
In the end, OHA’s analysis wasn’t particularly extensive. It simply pointed out that the “types of services NAICS code 541513, Computer Facilities Management Services, are aligned with the work required by the instant procurement.” And it noted that the procurement’s central focus was gaining quality, highly trained contractor personnel, and NAICS code 541513 “requires a high degreed of expertise and training.”
The salient take-away, for any incumbent contractor, is this: don’t be lulled into the tantalizingly deceptive notion that a NAICS code is chiseled in stone from one iteration of the contract to another. It can change. And OHA won’t provide any relief unless a contractor can show that the contracting officer, in assigning the NAICS code, clearly got it wrong.
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Ahh, fall. A time for football, hay rides, and returning to campus. Being in a college town, we are always reminded that students are back on campus due to the increased traffic, the homecoming parade, and the increased buzz (no pun intended) around the town. The onset of fall sometimes dredges up unwanted memories about turning in term papers and meeting all the inane requirements insisted upon by the professor.
A recent GAO opinion also brought me back to my college days. Specifically, what happens when the government (kind of like a college professor) sets a requirement for a certain type of file format for a solicitation, but the offeror submits a proposal in a different file format? A recent GAO opinion answers that question in the contractor’s favor–although GAO’s ruling isn’t a blanket permission slip for contractors to ignore file format requirements.
In McCann-Erickson USA, Inc., B-414787 (Comp. Gen. Sept. 18, 2017), McCann-Erickson USA, Inc. had submitted a proposal to provide advertising services to the Army on an IDIQ basis for a potential 10-year contract worth up to $4 billion. The Army would evaluate proposals “on a best-value basis, considering cost/price, along with several non-cost/price evaluation criteria.”
The solicitation set up a two-phase evaluation process. Phase one would be based on written proposals while phase two would involve an oral presentation for all proposals that were deemed acceptable. Phase one involved “a substantive evaluation of written proposals considering cost/price and the non-cost/price evaluation factors with a focus on the adequacy of the offerors’ response–and the feasibility of their approach–to fulfilling the requirements of the RFP.” But instead of following the two-phase review process, the Army conducted what it termed a “compliance review” of proposals, consisting of reviewing and eliminating proposals based on “informational deficiencies” in what GAO described as a “superficial, perfunctory review of the ME proposal to identify instances where ME allegedly did not fully comply with the instructions for proposal preparation.”
What were these “information deficiencies” identified by GAO? The wrong file format was one of them. The Army rejected ME’s proposal, in part, “for submitting its cost/price proposal as a portable document file (pdf) rather than as a Microsoft Excel spreadsheet.” Per the GAO, “[t]he record shows that the agency did not substantively evaluate the ME cost/price proposal, choosing not to calculate the firm’s total evaluated cost/price; performing no meaningful cost realism evaluation; and not evaluating the proposal for balance, fairness or reasonableness, as specifically contemplated by the solicitation’s cost/price evaluation factor. The agency also did not afford ME an opportunity to submit its cost proposal as a Microsoft Excel file.”
GAO rejected the Army’s interpretation of its submission requirements because
In addition, GAO held that allowing ME to submit an Excel version of its cost/price proposal would be prudent, as long as no changes were made in the pricing, because this would amount to a mere clarification of the proposal. In the end, GAO sustained the protest and advised the Army to reevaluate ME’s proposal and awarded costs to ME.
It’s important to note that the GAO’s decision was based on the specific circumstances of the case. GAO did not hold that it is always okay for an offeror to submit its proposal in the wrong electronic file format. In fact, in a case decided a few years back, the GAO reached the opposite conclusion–holding that an offeror was properly excluded from award when it submitted its proposal in PDF instead of Excel. The difference? In the prior case, the agency argued that it needed to manipulate offerors’ cost data to complete the price evaluation, and the GAO agreed that doing so would be “unduly burdensome” without an Excel file.
Perhaps a college student may come across this blog after turning in a paper in the wrong format and be able to argue that, if it’s good enough for the GAO, it should be good enough for you, professor. Regardless, this decision is noteworthy because it points to limits on an agency’s discretion in rejecting a proposal based on the file format of the submission.
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Women-owned small businesses are increasingly seeking to become certified through one of four SBA-approved third-party WOSB certifiers. But which third-party certifier to use?
There doesn’t seem to be any single resource summarizing the basics about the four SBA-approved certifiers, such as the application fees, processing time, and documents required by each certifier. So here it is–a roundup of the key information for three of the four SBA-approved WOSB certifiers (as you’ll see, we’ve had some problems reaching the fourth).
First things first: why should WOSBs and EDWOSBs consider third-party certification?
As part of the 2015 National Defense Authorization Act, Congress eliminated self-certification for WOSB set-asides and sole sources. Despite the statutory change, the SBA continues to insist that WOSB remains a viable option indefinitely while the SBA figures out how to address Congress’s action. But can the SBA legally allow WOSBs to do the very thing that Congress specifically prohibited? I certainly have my doubts, particularly since the SBA has never explained the legal rationale for its position.
For WOSBs and EDWOSBs, third-party certification (which is still allowed following the 2015 NDAA) may be the safest option. There are currently four entities that the SBA has approved as third-party certifiers: the National Women’s Business Owners Corporation (NWBOC), Women’s Enterprise National Council (WBENC), the U.S. Women’s Chamber of Commerce (USWCC), and the El Paso Hispanic Chamber of Commerce (EPHCC). This post summarizes the cost, time, and application fees associated with three of those organizations.
After researching and speaking with three of the WOSB certifiers, we found that all three require a written application, and that the required supporting documents are largely similar. Anticipated processing times vary (and probably should be taken with a grain of salt, as no certifier wants to admit that it is slow). For all certifiers, the anticipated processing time from application to certification begins when a completed application is received. This point was reiterated time and again at each of the three certifiers we were able to reach. To facilitate the prompt consideration of an application, prospective WOSBs should make sure to submit all of the required documents and information the first time around; and to respond promptly if additional information is requested during the application process.
National Women’s Business Owners Corporation (NWBOC)
The NWBOC offers third-party certification to both WOSBs and EDWOSBs. All application information and documents needed are listed in the NWBOC’s application form, which is available on its website. The NWBOC also offer the option for potential WOSBs and EDWOSBs to purchase a tailored application kit to guide applicants through the process of applying. The fee to apply for certification is $400 at a minimum, and an applicant may be charged more if requests for more information are not met in a timely fashion. According to the NWBOC, the current processing time for certification is between 6-8 weeks. A completed application and all required documents must be mailed into the NWBOC before processing will begin.
Women’s Business Enterprise National Council (WBENC)
WOSB Certification through WBENC is free and very quick—for WBENC members. For companies that are already members of WBENC—especially those that are already certified as Women’s Business Enterprises (WBEs)—this option could be both the quickest and cheapest. For companies that are not members of WBENC, the cost for WBENC Membership starts at $350, and can go up based off of the applying company’s revenue. And although WBENC says that WOSB certification for its members is “virtually instant,” the process of becoming a member can take up to 90 days—which means that if a non-member elects to use WBENC, the application process could take 90 days or more. WBENC offers a WOSB application checklist on its website to aid in document production, as well as a guide to completing the application. WBENC suggests that the application be completed after document production, as it is done online and has a 90-day deadline from start to finish—and once it is submitted, no changes can be made. All documents required for the application, including the fee, must be provided before the application will be processed. WBENC only offers WOSB certification, not EDWOSB certification. Prospective EDWOSBs will need to look at another option.
The U.S. Women’s Chamber of Commerce
The USWCC offers WOSB and EDWOSB third-party certification, to both its members and non-members. According to the USCWCC’s website, certification takes between 15-30 days and costs $275 for Business and Supplier members and $350 for non-members. A possible bonus (or deterrent, for some) is that the entire application and document submission is completed online. The USWCC offers both a certification and document checklist and sample application on its website to aid applicants in document production and prepare them to answer the questions on the application, but it cannot be submitted in lieu of the online form. The USWCC also requires the application be completed in one sitting—it cannot be completed partially and saved to be completed later. This means that the applicant should be completely ready to apply prior to starting, or else risk getting almost done and being interrupted and then having to restart from the beginning.
The El Paso Hispanic Chamber of Commerce (EPHCC)
Unfortunately, we found that the EPHCC was difficult to contact, and we were unable to speak with any staffer regarding the EPHCC’s WOSB certification process. If we obtain information about the EPHCC, we will update this post to include it.
These four entities are currently the only ones approved by the SBA for third-party WOSB/EDWOB certification. While the SBA remains adamant that third-party certification remains viable indefinitely, women-owned businesses should decide for themselves whether they are comfortable with the SBA’s position. For women-owned businesses that decide to play it safe while the SBA addresses the 2015 NDAA, third-party certification is the way to go.
Molly Schemm of Koprince Law LLC was the primary author of this post.
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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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A self-certified woman-owned small business was ineligible for a WOSB set-aside contract because the woman owner’s husband held the company’s highest officer position and appeared to manage its day-to-day operations.
A recent SBA Office of Hearings and Appeals decision highlights the importance of ensuring that a woman be responsible for managing the day-to-day business of a WOSB–and that the woman’s role be reflected both in the corporate paperwork and in practice.
OHA’s decision in Yard Masters, Inc., SBA No. WOSB-109 (2017) involved an Army solicitation for grounds maintenance services. The solicitation was issued as a WOSB set-aside under NAICS code 561730 (Landscaping Services), with a corresponding $7 million size standard.
After evaluating competitive proposals, the Army awarded the contract to Yard Masters, Inc. A competitor then filed a WOSB protest, alleging that Yard Masters was ineligible. The protester contended that a man, Bryce Wade, was Yard Masters’ majority owner and President until recently and that he still exercised control over the company.
In response to the protest, Yard Masters admitted that Bryce Wade had previously been the majority owner, but that he had recently sold stock to his wife, Sally Wade, making her the 51% owner. Yard Masters also produced Sally Wade’s resume and meeting minutes, showing that Sally Wade was the Chief Executive Officer.
The SBA Area Office examined Yard Masters’ bylaws, and determined that the bylaws “do not create a CEO position” or assign any duties to the CEO. Instead, the bylaws identified the President (a position held by Bryce Wade) as the “chief executive and administrative officer of the corporation.” The SBA Area Office also noted that “Bryce Wade signed [Yard Masters’] proposal and its contract documents for the instant procurement,” as well as the company’s tax returns. The tax returns “identify Bryce, and not Sally, Wade as a compensated officer.”
The SBA Area Office found that Sally Wade did not control Yard Masters, and issued a determination finding the company ineligible for the Army WOSB set-aside contract.
Yard Masters appealed to OHA. Yard Masters argued, in part, that the corporation’s meeting minutes made clear that Sally Wade had ultimate direction and control of the company.
Yard Masters “argues that Sally Wade is its CEO,” OHA wrote. “The problem is that the Board did not formally create a position of CEO.” OHA continued, “[t]he Bylaws were never changed to add the position of CEO. The Bylaws clearly state that the President is the corporation’s ‘chief administrative and executive officer.’ Bryce Wade holds that position.” OHA concluded that Yard Masters’ “highest officer position is President, and Bryce Wade, not Sally Wade, holds it.”
OHA also noted that “all actions taken on [Yard Masters’] behalf were taken by Bryce Wade.” Even after Sally Wade “supposedly had taken control” of the company, “Bryce Wade signed [Yard Masters’] offer” and was listed as the point of contact. And incredibly, after the WOSB protest was filed, “t was Bryce Wade, not Ms. Sally Wade, who communicated with SBA on [Yard Masters’] behalf.”
OHA denied the appeal and upheld the SBA Area Office’s decision.
The Yard Masters case offers at least three important lessons for WOSBs.
First, corporate paperwork matters. I can’t count how many times, in my practice, I’ve seen a situation like Yard Masters’, where a company officer is using a title that isn’t established in the governing documents. In order for a woman to hold the highest officer position in the company, the governing documents need to establish that her role is, in fact, the highest. Even small, family-owned companies like Yard Masters need to ensure that their corporate documents are up to snuff.
Second, perception matters. Although there’s not necessarily anything inherently wrong with a man signing contracts and other documents on behalf of a WOSB, it does tend to suggest that the man has outsize influence within the company. WOSBs ought to be careful about who signs contracts, checks and other corporate documents–as well as who is listed as points of contact in SAM and in proposals.
And third, as a corollary to the previous item, if you’re getting protested for WOSB eligibility, don’t have a man be in charge of communicating with the SBA. Talk about not sending the right signals.
The SBA is still working in the long-awaited rules that will require all WOSBs to be formally certified. But in the meantime, Yard Masters is a good reminder self-certified WOSBs need to do their due diligence to ensure that they comply with all WOSB requirements.
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The woman-owned small business program is in the midst of major changes: from the addition of sole source authority, to lingering questions about what the heck the SBA’s plan is to address the elimination of WOSB self-certification.
I recently joined host “Game Changers” podcast host Michael LeJune of Federal Access for an in-depth discussion of recent WOSB program changes, and where the WOSB program goes from here. Click here to listen to the podcast, and visit the Game Changers SoundCloud page for more great discussions with government contracting thought leaders.
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It happened again this morning. I was at a government contracts conference (which was great, by the way), and stepped away from my trade show booth for a few minutes.
While I was gone, someone stole one of my display copies of Government Contracts Joint Ventures, our new GovCon Handbook. It’s not the first time a display copy of one of my books has been pilfered at an industry event. Why do people keep stealing my books at government contracts conferences?
Perhaps people are just confused and somehow think the books are free. Nope.
The way the books are set up at the booth makes it quite obvious that these are display copies, not giveaways. And of course, no one ever comes up and tries to take one when I’m actually at the booth. But just in case, I tested this theory a few years ago by placing a sign next to my book (at that time, The Small-Business Guide to Government Contracts). The sign said “FOR DISPLAY PURPOSES ONLY.”
When I came back from presenting my breakout session, The Small-Business Guide to Government Contracts had grown legs and walked off.
I suppose some folks just want to save money. But petty theft isn’t a great way to fund your next family vacation. Besides, Government Contracts Joint Ventures is a mere $9.99 in paperback and $6.99 on Kindle. You can get a copy the honest way for less than it costs to “Build Your Sampler” at Applebee’s. And after you read the nutritional information in the sidebar, you’re going to be happy that you skipped the boneless wings anyway.
So all I can conclude is that, unfortunately, like any major gathering of people, a government contracts conference attracts a few dishonest types–the sort who see a chance to steal something, and take it. Not because they’re confused, not because they want to save money, but simply because they’re the sort of people who steal things.
Don’t get me wrong. I love government contracts conferences, and undoubtedly the vast majority of people who attend them are honest and ethical. But it’s sad that if I forget to take my display copies with me when I leave my booth (which is what I’ve been doing for a few years now, but forgot to do this morning), the odds are good that those books will mysteriously vanish while I’m gone.
So if you’re the lowlife who took Government Contracts Joint Ventures, this morning, please don’t call me if you have questions. I don’t want you as a client–and I feel sorry for your joint venture partners.
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In a best value competition, when two offerors receive identical adjectival scores on the non-price factors, one might assume that the procuring agency would be required to award the contract to the lower-priced offeror.
Not so. In a recent bid protest decision, the GAO held that where two offerors received identical scores on three non-price factors, the agency could still elect to award the contract to the higher-priced offeror.
GAO’s decision in Valiant Government Services, LLC, B-416488 (Aug. 30, 2018) involved an Army Corps of Engineers task order solicitation for operations and maintenance services. The solicitation called for proposals to be evaluated on a best value basis, considering price and three non-price factors (Experience, Technical Approach, and Past Performance).
Only two offerors, Valiant Government Services, LLC and J&J Maintenance, Inc., submitted proposals. After evaluating those proposals, the Corps assigned each offeror a “Very Relevant” score for Experience, an “Outstanding” score for Technical Approach, and a “Substantial Confidence” score for Past Performance. Valiant’s price was about $300,000 lower–$43,551,418 versus $43,846,929 for J&J. Nevertheless, the Corps determined that J&J offered the best value, and awarded the task order to J&J.
Valiant filed a bid protest with GAO. Among its allegations, Valiant argued that the Corps was required to award it the contract because Valiant’s non-price scores were identical to J&J’s, and Valiant was lower-priced.
The GAO wrote that “[w]hen conducting a best-value tradeoff analysis . . . an agency may not simply rely on the assigned adjectival ratings to determine which proposal offers the best value because evaluation scores–whether they are numerical scores, colors, or adjectival ratings–are merely guides to intelligent decision-making and often reflect the disparate, subjective judgments of the evaluators.” Therefore, “a tradeoff analysis should be based upon a qualitative comparison of the proposals consistent with the evaluation scheme.”
In this case, although the two offerors received identical Past Performance and Experience scores, the underlying source selection documentation revealed that J&J had “superior past performance ratings” and “a greater percentage of exceptional ratings on all related task orders.” Additionally, while the two companies received the same adjectival score for Technical Approach, the Corps “concluded that J&J’s approach was superior because it offered technically advanced management tools.” Therefore, the Corps reasonably determined that J&J’s advantages were worth its higher price, “especially considering that the price differential was less than 1 percent of the total price of the contract.”
The GAO dismissed a portion of Valiant’s protest and denied the remainder.
When an agency assigns two companies the same adjectival scores for a best value solicitation’s non-price factors, the agency typically awards to the lower-priced offeror. But, as Valiant Government Services demonstrates, the agency isn’t required to do so, if it has good reason to consider one offeror’s proposal superior despite the identical underlying scores.
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Welcome to 5 Things You Should Know, a new SmallGovCon series aimed at providing foundational information on topics relevant to government contractors.
In the posts that follow, I’ll try to distill complex contracting topics to their very essence. Unsure about what, exactly, a claim or bid protest is? What is the All Small mentor protégé program? I’ll walk through each of these topics (and others) and explain why they matter.
These posts won’t be a treatise on each topic discussed, but hopefully they’ll help you navigate the complex world of federal contracts.
If there’s a particular topic you’d be interested in learning more about, please send it to me.
In the first post, we’ll tackle the basics of bid protests. Other posts will follow approximately every two weeks.
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An unequal evaluation can get an agency into hot water and force a reevaluation, as GAO has stated before. But with agencies entitled to broad discretion in their evaluations, how do you know what constitutes unequal evaluation?
Some GAO opinions can leave you wondering where the line is drawn, but a recent GAO decision provides an easy-to-understand example involving a requirement to train personnel under certain regulations. In that case, the GAO held that it was improper for the agency to assign a weakness to the protester for omitting a discussion of certain regulations as applied to its training program, while failing to assign weaknesses to several awardees whose proposals also omitted this discussion.
In Transworld Systems, Inc., B-414090.13 (December 22, 2017), GAO reviewed the award of an RFQ to multiple awardees under a Federal Supply Schedule. The RFQ was for private debt collection services for Department of the Treasury, Bureau of the Fiscal Service.
The evaluation criteria and weights assigned to each were (1) technical approach (25%); (2) management approach and organizational structure (management approach) (25%); (3) quality control approach (20%); (4) past performance (25%); and (5) utilization of small business concerns (5%). For quality control, the proposal, in part, had to outline a training plan to show “how staff would be trained on applicable laws, regulations, procedures, and Bureau requirements.”
Transworld Systems, Inc.’s quotation received a deficiency and a weakness and was rated poor for the quality control factor. The agency assigned a weakness “because TSI’s quotation did not address HIPAA and TOP [Treasury Offset Program] regulations in addressing training on laws and regulations and Bureau requirements.”
TSI filed a GAO bid protest challenging the agency’s evaluation.
Under GAO precedent, “t is a fundamental principle of government procurement that competition must be conducted on an equal basis; that is, the contracting agency must treat all offerors or vendors equally; it must even-handedly evaluate offers against common requirements and evaluation criteria.”
GAO noted that the quotations of several awardees “did not address both HIPAA and TOP regulations and their quotations were not assessed weaknesses under the quality control factor for their omission.” Thus, GAO held, “the Bureau’s evaluation of TSI’s proposal was unequal as compared to the evaluations of the quotations of” four awardees.
GAO sustained the protest based on the unequal evaluation and recommended reevaluation of proposals.
This decision reinforces that GAO will sustain a protest based on unequal evaluation of weaknesses. Because an unequal evaluation may not become evident until outside counsel is able to review the source selection file under a protective order (which is what happened here), a protester may not be able to make an allegation of unequal treatment in its initial protest filing. But once the agency report is produced, if there is an example or two of unequal evaluation, that may constitute a good basis for a supplemental protest.
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GAO’s outcome prediction alternative dispute resolution (“ADR”) can be a tempting option for all parties to a protest, as it provides a preview of sorts for GAO’s written decision. A recent GAO decision, however, underscores that despite its relative informality, outcome prediction ADR can have significant repercussions on future protest developments.
In Will Technology, Inc; Paragon TEC, Inc., B-413139.4 et al., __ CPD ¶ __ (Comp. Gen. June 11, 2018), NASA issued a procurement for acquisition and business support services. Twenty companies submitted proposals in response to the Solicitation. After evaluating the submissions, NASA determined discussions would be necessary and endeavored to establish a competitive range comprised of 5 bidders. As relevant to this blog, Will Technology (“WTI”), Paragon, and Canvas were all included within the competitive range and received discussions. Following discussions, all three companies submitted revised proposals.
NASA evaluated the revised proposals and announced Paragon as the awardee, due in part to the strengths assigned to its proposed Project Manager. NASA provided WTI with a written debriefing of its award decision on August 3, 2017. In response, WTI filed a timely GAO protest, challenging the evaluation of its past performance and proposed experience.
GAO subsequently conducted outcome prediction ADR with WTI and NASA. Outcome prediction ADR is a process where, after the protest record has been developed and the parties have submitted written briefing, the GAO attorney will advise the parties of the likely outcome of the case if GAO issued a written decision. Following outcome prediction ADR, the parties are encouraged to take appropriate action to resolve the protest (i.e. the protester withdraw the protest or the agency take corrective action, as the case may be) before GAO issues a written opinion.
WTI was advised during outcome prediction ADR that GAO would likely deny its protest. After ADR, WTI notified GAO and NASA of its intent to file a protest before the Court of Federal Claims. Importantly, at this time, WTI also voluntarily withdrew its GAO protest.
Before filing its complaint with the Court of Federal Claims, however, WTI provided NASA with additional information regarding alleged improprieties in NASA’s evaluation of proposals. As a result, NASA suspended contract performance and reconvened the Source Evaluation Board to conduct an investigation. As NASA had concluded it was necessary to conduct a reevaluation, WTI never filed a protest before the Court of Federal Claims.
During the investigation, NASA determined it had improperly credited Paragon’s project manager with experience the project manager did not actually possess. As such, NASA revised Paragon’s evaluation. This, in turn, resulted in Paragon’s proposal no longer representing the best value to NASA. Accordingly, NASA revised its source selection decision and announced award would now be made to Canvas.
On March 1, 2018, Paragon, WTI, and Canvas each received debriefings explaining the basis for the revised award decision. WTI timely submitted a second protest. Among other things, WTI again challenged NASA’s evaluation of its past performance and proposed experience. These arguments essentially renewed the same allegations WTI raised in its first protest that GAO predicted it would deny during ADR.
At this point, the Army and NASA became enthralled in a battle over timeliness. Accordingly, a little background on GAO’s bid protest regulations is helpful at this juncture. In order to be considered timely, a protest after award must be filed within 10 days of when the protester knew or should have known the basis for protest. 4 C.F.R. § 21.2(a)(2). The sole exception to this rule occurs for protests where a debriefing is both requested and required. Under such circumstances, a protest is timely if it is filed with GAO within 10 days of the debriefing’s conclusion.
Responding to WTI’s protest, NASA argued the renewed challenges were untimely. According to NASA, since WTI’s renewed grounds concerned evaluation issues of which WTI was aware following its first debriefing on August 3, 2017, it was now untimely to challenge those same protest grounds after the second debriefing on March 1, 2018.
WTI countered that its protest was timely as it was filed within 10 days of the March 1, 2018, debriefing, which also resulted in a new awardee. According to WTI, since NASA had reconvened the Source Selection Board and conducted a reevaluation, it could timely raise the same protest grounds.
GAO concluded that NASA had the better of the argument. As GAO explained, “[t]he record demonstrates that WTI knew the basis for the agency’s evaluation of its proposal more than 10 days before WTI filed its March 5, 2018 protest.” As such, WTI’s protest was untimely.
GAO did not stop there, however. Instead, it turned to WTI’s argument that its renewed challenges were nevertheless timely because they were filed within 10 days of the second debriefing. GAO similarly rejected this line of argument and explained as follows:
GAO also made a point to note that WTI’s prior protest had been voluntarily withdrawn after GAO conducted outcome prediction ADR. According to GAO, “we see no reason to provide the protester here with a second opportunity to re-file protest allegations that it chose to withdraw from our forum after being notified that they would be denied.” Thus, GAO dismissed WTI’s renewed protest of NASA’s evaluation of its past performance and proposed experience.
Will Technology serves as a cautionary tale for protesters confronted with the opportunity of conducting outcome prediction ADR. While the factual circumstances of Will Technology are unique, the fact remains that in the eye of the GAO, by voluntarily withdrawing its protest following outcome prediction ADR, WTI conceded its ability to continue challenging its past performance and proposed experience evaluations. While voluntary withdrawal of its protest seemed like a reasonable action at the time, it ultimately doomed any future attempts to raise the same issues with GAO.
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SDVOSBs and VOSBs are big winners today, as the Supreme Court unanimously ruled that the VA’s “rule of two” is mandatory, and applies to all VA procurements–including GSA Schedule orders.
The Supreme Court’s decision in Kingdomware Technologies, Inc. v. United States, No. 14-916 (2016) means that the VA will be required to truly put “Veterans First” in all of its procurement actions–which is what Kingdomware, and many veterans’ advocates, have fought for all along.
History of the Kingdomware Case
As followers of SmallGovCon and the Kingdomware case know, the battle over the VA’s “rule of two” began in 2006, when Congress passed the Veterans Benefits, Health Care, and Information Technology Act of 2006 (the “VA Act”). The VA Act included a provision requiring the VA to restrict competitions to veteran-owned firms so long as the “rule of two” is satisfied. The VA Act states, at 38 U.S.C. 8127(d):
(d) Use of Restricted Competition.— Except as provided in subsections (b) and (c), for purposes of meeting the goals under subsection (a), and in accordance with this section, a contracting officer of the Department shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.
The two exceptions referenced in the statute (“subsections (b) and (c)”) allow the VA to make sole source awards to veteran-owned companies under certain circumstances. Nothing in the statute provides an exception for orders off the GSA Schedule, or under any other government-wide acquisition contract.
Despite the absence of a statutory exception for GSA Schedule orders, the VA has long taken the position that it may order off the GSA Schedule without first applying the VA Act’s Rule of Two.
In 2011, the issue first came to a head at the GAO. In Aldevra, B-405271; B-405524 (Oct. 11, 2011), the GAO sustained an SDVOSB’s bid protest and held that the VA had violated the law by ordering certain supplies through the GSA Schedule without first applying the Rule of Two. The GAO subsequently sustained many other protests filed by Aldevra and others, including Kingdomware.
But there was one problem: the VA refused to abide by the GAO’s decisions. GAO bid protest decisions are technically recommendations, and while agencies almost always follow the GAO’s recommendations, they are not legally required to do so. The VA kept circumventing the Rule of Two notwithstanding the GAO’s decisions.
Finally, Kingdomware took the VA to federal court. But in November 2012, the U.S. Court of Federal Claims reached a different conclusion than the GAO. In Kingdomware Technologies, Inc. v. United States, 106 Fed. Cl. 226 (2012), the Court ruled in favor of the VA. Relying on the phrase “for purposes of meeting the goals under subsection (a),” the Court determined that the VA Act was “goal setting in nature,” not mandatory. The Court held that the VA need not follow the “rule of two,” so long as the VA had met its agency-wide goals for SDVOSB and VOSB contracting (which, to the VA’s credit, it had).
Kingdomware appealed to the U.S. Court of Appeals for the Federal Circuit. In June 2014, a three-member panel upheld the Court of Federal Claims’ decision on a 2-1 vote. Like the Court of Federal Claims, the Federal Circuit majority held that the VA Act’s “rule of two” was a goal-setting requirement, and that the VA need not apply the “rule of two” so long as its SDVOSB and VOSB goals are satisfied. In a sharp dissent, Judge Jimmie Reyna noted that the statute uses the mandatory word “shall” and argued that the phrase “for purposes of meeting the goals under subsection (a)” was merely “prefatory language” that explained the general purpose of the statute, but did not vary the statute’s mandatory nature.
In June 2015, the Supreme Court agreed to hear Kingdomware’s appeal. Kingdomware and the Government began filing briefs with the Supreme Court (as did a number of Kingdomware supporters, including yours truly). But in a surprising twist, in September 2015, the Government abandoned the “goal setting” argument that had prevailed at two lower courts. The Government conceded that the “rule of two” applies regardless of whether the VA has met its goals–but argued that the statute’s use of the term “contract” excludes GSA Schedule orders (as well as orders under other multiple-award vehicles).
The Supreme Court heard oral arguments on the morning of February 22, 2016. At the Court, Kingdomware’s counsel focused primarily on the mandatory nature of the statutory language, while the VA’s counsel primarily made policy arguments, namely, that it would be difficult and cumbersome for the VA to apply the rule of two in every setting.
After February 22, SDVOSBs and VOSBs waited for the Court’s decision. Now it’s here–and it’s a big, big win.
The Supreme Court’s Kingdomware Decision
The Supreme Court’s opinion, written for an 8-0 unanimous Court by Justice Clarence Thomas, begins by recounting the history of the VA Act, the “rule of two,” and the Kingdomware case itself. The Court then examines whether it has jurisdiction to consider the case (a technical issue raised earlier in the process), and concludes that it does.
Turning to the merits, the Court gets right to business:
On the merits, we hold that [Section] 8127 is mandatory, not discretionary. Its text requires the Department to apply the Rule of Two to all contracting determinations and to award contracts to veteran-owned small businesses. The Act does not allow the Department to evade the Rule of Two on the ground that it has already met its contracting goals or on the ground that the Department has placed an order through the [Federal Supply Schedule].
The Court explains that any issue of statutory construction begins “with the language of the statute.” If the language is unambiguous, and the “statutory scheme is coherent and consistent,” the Court’s review ends there.
The Court writes that “[Section] 8127 unambiguously requires the Department to use the Rule of Two” before applying other procedures. The Court points out that the statute includes the word “shall,” and writes "nlike the word ‘may,’ which implies discretion, the word ‘shall’ usually connotes a requirement.” Accordingly, “the Department shall(or must) prefer veteran-owned small businesses when the Rule of Two is satisfied."
The Court then writes that other portions of the statute confirm that Congress “used the word ‘shall’ . . . as a command.” Therefore, “before contracting with a non-veteran owned business, the Department must first apply the Rule of Two.”
Next, the Court turns to the Government’s shifting rationales for evading the “rule of two.” The Court notes that the Government changed its theory of the case late in the process, but nonetheless addresses the Government’s original argument regarding the goal-setting nature of the statute. The Court writes:
[T]he prefatory clause has no bearing on whether [Section] 8127(d)’s requirement is mandatory or discretionary. The clause announces an objective that Congress hoped that the Department would achieve and charges the Secretary with setting annual benchmarks, but it does not change the plain meaning of the operative clause.
The Court next rejects the VA’s argument that the word “contracts” means that the VA Act doesn’t apply to FSS orders. The Court writes that it would ordinarily not entertain an argument that the Government failed to raise at the lower courts, “ut the Department’s forfeited argument fails in any event.”
The Court explains that “[w]hen the Department places an FSS order, that order creates contractual obligations for each party and is a ‘contract’ within the ordinary meaning of that term.” The Court also explains that an order is a contract “as defined by federal regulations,” particularly FAR 2.101. The Court then goes into additional explanation about why FSS orders are types of contracts.
Finally, the Court rejects the Government’s argument that the Court should defer to the VA’s interpretation of the VA Act. The Court simply writes that “we do not defer to the agency when the statute is unambiguous . . . [t]hus, we decline the Department’s invitation to defer to its interpretation.”
The Court concludes:
We hold that the Rule of Two contracting procedures in [Section] 8127(d) are not limited to those contracts necessary to fulfill the Secretary’s goals under [Section] 8127(a). We also hold that [Section] 8127(d) applies to orders placed under the FSS. The judgment of the Court of Appeals for the Federal Circuit is reversed, and the case is remanded for further proceedings consistent with this opinion.
The Aftermath of the Kingdomware Decision
For SDVOSBs and VOSBs, the Supreme Court’s Kingdomware decision is a huge win. Ever since the VA Act was adopted, the VA has taken the position that it may order off the GSA Schedule without prioritizing veteran-owned businesses. That’s about to change.
I expect that the Kingdomware decision will prove a major boon to SDVOSBs and VOSBs, ultimately resulting in billions of extra dollars flowing to veteran-owned companies. The long battle is over–and SDVOSBs and VOSBs have won.
View the full article.
Despite a longstanding and very common misconception, the VA’s SDVOSB verification requirement doesn’t apply to non-VA SDVOSB contracts.
As the SBA Office of Hearings and Appeals recently reiterated, it was “simply not correct” to believe that a company was required to be verified in VetBiz to be awarded a non-VA SDVOSB contract.
Confusingly, the federal government currently runs two SDVOSB programs: one under the VA’s rules and the other under the SBA’s. The SBA’s program (which is the “original” SDVOSB set-aside program) is authorized by the Small Business Act, which is codified in Title 15 of the U.S. Code and implemented by the SBA in its regulations in Title 13 of the Code of Federal Regulations. The VA’s separate program is codified in Title 38 of the U.S. Code and implemented by the VA in Title 38 of the Code of Federal Regulations.
There are some important differences between the two programs. For example, the VA requires that the service-disabled veteran holding the highest officer position manage the company on a full-time basis; the SBA’s regulations do not. Following a 2013 Court of Federal Claims decision, the VA allows certain restrictions of a veteran’s ability to transfer his or her ownership, but that decision doesn’t necessarily apply to the SBA, which has held that “unconditional means unconditional,” as applied to transfer restrictions.
Following a change in the 2017 National Defense Authorization Act, many of the substantive differences between the two programs are going to be resolved. But one important difference will remain for the indefinite future: the VA’s program, as implemented in VAAR 852.219-11, requires that a company be formally verified to be awarded a VA SDVOSB contract. The SBA’s program, implemented in FAR 52.219-27, allows for self-certification of SDVOSB status.
That brings us to OHA’s recent decision in XtremeConcepts Systems, SBA No. VET-273 (2018). The XtremeConcepts case involved a Navy solicitation for program management support services. The solicitation was issued as a small business set-aside, but provided that certain task order under the resulting IDIQ contract could be restricted to SDVOSBs.
After evaluating competitive proposals, the Navy announced that award would be made to several companies. XtremeConcepts, a VA-verified SDVOSB, filed a protest against three of the awardees, including Ironclad Technology Services, LLC. XtremeConcepts contended that Ironclad and the two other companies were not SDVOSBs because they were not verified in the VA’s VetBiz database.
The SBA’s Office of Government Contracting noted that Ironclad had self-certified as an SDVOSB in SAM, and wrote that “a firm is not required to be registered in VetBiz” to pursue a non-VA SDVOSB contract.” The SBA dismissed the protest, and XtremeConcepts appealed to OHA.
OHA wrote that “only firms competing for VA contracts must be registered in the [VetBiz] database.” For non-VA procurements, “registration in the database, or receipt of any VA certification, is not required.”
Here, “VA did not conduct the instant procurement, so [XtremeConcept’s] protest in effect offered no reason at all to believe Ironclad is not an eligible [SDVOSB].” XtremeConcept “simply is not correct” to believe the “false premise Ironclad was required to have obtained VA certification in order to participate in the subject procurement.”
OHA denied the appeal.
For long-time SmallGovCon readers, this post may seem a little familiar. I wrote about a similar OHA decision way back in 2012, and have been highlighting the “two SDVOSB programs” ever since. But despite my best efforts, this misunderstanding remains very, very common. I doubt a week passes when I don’t speak to someone who believes that VA verification is required for non-VA SDVOSB contracts.
As the XtremeConcepts Systems case reiterates, it just isn’t.
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The VA has officially withdrawn its November 2015 proposal to overhaul its SDVOSB and VOSB regulations.
The VA’s action isn’t surprising, given that the 2017 National Defense Authorization Act requires the VA to work with the SBA to prepare a consolidated set of SDVOSB regulations, which will then apply to both VA and non-VA procurements. What’s interesting, though, is that the VA doesn’t say that it’s withdrawing the 2015 proposal because of the 2017 NDAA, but rather because of numerous objections to the proposal–including objections from the SBA.
By way of quick background, the VA’s 2015 proposal would have significantly overhauled its SDVOSB and VOSB regulations with the goal of finding “an appropriate balance between preventing fraud in the Veterans First Contracting Program and providing a process that would make it easier for more VOSBs to become verified.” The VA accepted comments on the proposal until January 2016.
As it turns out, those comments were largely negative. According to the notice of withdrawal published in the September 1, 2017 Federal Register, of the 203 comments received, “134 of these comments were adverse to the proposed rule and VA’s verification program in general.”
Several of the adverse comments came from the SBA. The SBA wrote, among other things, that the VA did “not provide any indication of the number of small businesses that may be impacted by the proposed change,” and that the proposed rule “failed to provide statutory or other legal authority following each cited substantive provision.”
Not all of the SBA’s objections concerned the rulemaking process. SBA also objected to the VA’s proposal to remove an SDVOSB or VOSB from the database if the veteran in question was formally accused of a crime involving business integrity. SBA (correctly, I think), said that this proposal “would seem to deny an applicant due process of law” because an accusation is not the same as a finding of guilt.
Other commentators also objected to various portions of the rule, including the VA’s proposal to make a firm wait 12 months, instead of six, to reapply after an application is denied.
After summarizing the reaction to its proposal, VA simply states: “ecause of the adverse comments received during the comment period, VA is withdrawing the proposed rule.”
What comes next for the SDVOSB and VOSB regulations? Well, the 2017 NDAA directed the SBA and VA to issue a joint proposal within 180 days of the final enactment of the statute. Former President Obama signed the bill into law on December 23, 2016, so the joint proposal is overdue–although I understand that the two agencies are working on it.
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The VA will “immediately comply with the Court’s decision” in Kingdomware Technologies, Inc. v. United States, according to a top VA official.
In written testimony offered in advance of a Senate committee hearing tomorrow, the Executive Director of the VA’s Office of Small and Disadvantaged Business Utilization tells Congress that the VA will work to implement the Kingdomware decision, including by improving its market research processes.
In his testimony, Executive Director Thomas J. Leney states that his office has “already engaged VA’s acquisition workforce with new guidance, focusing most urgently on procurements currently in progress, but not yet awarded.” Unfortunately, however, Mr. Leney doesn’t specify what guidance the acquisition workforce has been given regarding ongoing procurements; hopefully that’s something that the Committee members will be able to flesh out at the oral hearing.
Mr. Leney devotes much of his written testimony to pledges to strengthen the VA’s market research processes to identify qualified SDVOSBs and VOSBs. “This means,” he writes, “market research must consist of more than merely finding firms in a particular industry code listed in the System for Award Management.” Mr. Leney explains that VA Contracting Officers “can make better use of Requests of Information, or RFIs, for data-driven decision making.” Additionally, Contracting Officers “need to meet with procurement-ready VOSBs to understand their capabilities and what they are already accomplishing.”
Mr. Leney concludes his written testimony by stating, “embracing the Court’s decision in Kingdomware . . . improves the Veteran experience, both as Veteran small business owners and as Veteran customers receiving the health care and benefits they have earned and deserve.”
Mr. Leney won’t be the only one testifying at tomorrow’s hearing. LaTonya Barton of Kingdomware Technologies will also go before the Senate. In her written testimony, Ms. Barton states:
We hope the VA takes the Supreme Court decision and Rule of Two mandate seriously and diligently works to implement it. We have already lost almost ten years. It is time for the VA to stop looking for loopholes and to redirect that energy into making the mandate work.
Hopefully, Mr. Leney’s comments reflect a genuine change of heart on the VA’s part, and a commitment to truly “embrace” Kingdomware, as Ms. Barton hopes. Time will tell.
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On May 21, 2018, the VA will suspend SDVOSB and VOSB applications for “approximately thirty (30)” days while the VA transitions to a new VIP interface.
According to a notice posted on the VA OSDBU website, the suspension will affect “both new applications and applications for re-verification.” However, the VA CVE “will continue processing previously submitted applications during the suspension.” The VA doesn’t beat around the bush: “any applicants (Veterans) that desire to have their cases begin the verification process before the suspension start date, should strongly consider case submission completion to VIP prior to May 21, 2018.”
The temporary suspension will draw the headlines–as it does in this post. But the good new is that the updated system sounds like it will allow for a more user-friendly experience. According to the VA’s notice, the updated system will allow for easier uploads, automatic validation of SAM profiles and DUNS numbers, and other features designed to make it easier for veterans and their representatives to use. Fingers crossed that will be the case.
In the meantime, SDVOSBs and VOSBs should circle May 21 on their calendars. If you’re planning on an SDVOSB or VOSB application, it’s not “now or never,” but it is “now or June.”
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A protester contending that the VA violated the “rule of two” by failing to set-aside a solicitation for SDVOSBs must present sufficient facts to indicate that the VA should have had a reasonable expectation of receiving two or more offers from SDVOSBs at fair and reasonable prices.
In a recent decision, the Court of Federal Claims dismissed a rule of two challenge because, according to the Court, the protester only identified one SDVOSB–itself–that was likely to submit an offer at a fair and reasonable price.
The Court’s decision in Veterans Contracting Group, Inc. v. United States, No. 18-92C (2018) involved a VA solicitation for a roof replacement at the VA Medical Center in Northport, New York. The VA originally issued the solicitation as an SDVOSB set-aside. The VA received four proposals, but only two were deemed “responsive,” that is, considered to meet the terms and conditions of the solicitation.
Veterans Contracting Group, Inc. submitted one of the bids deemed non-responsive because VCG had been removed from the VA VetBiz database. A second offeror, too, was apparently eliminated for failing to be verified as an SDVOSB.
The VA evaluated the pricing of the remaining two proposals and found that both offerors proposed pricing more than 30% higher than the Independent Government Estimate. The VA then cancelled the solicitation and reissued it as a small business set-aside.
In the meantime, VCG prevailed in a Court of Federal Claims action challenging its exclusion from the VA’s database. The VA readmitted VCG to the VetBiz database.
After its readmission, VCG protested the terms of the reissued solicitation. VCG contended that the VA failed to follow the “rule of two” by issuing the solicitation as a small business set-aside rather than an SDVOSB set-aside. VCG supported its protest by contending that four SDVOSBs submitted proposals originally, indicating that the VA should have expected to receive two or more SDVOSB proposals once again.
The Court explained, “[e]xcept in cases subject to exceptions not relevant here, VA contracting officers are bound by the ‘rule of two,’ which requires them to ‘award contracts on the basis of competition restricted to [SDVOSBs] if the contracting officer has a reasonable expectation that two or more [SDVOSBs] will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.” The Court wrote that, in light of the terms “reasonable expectation,” fair and reasonable price,” and “best value,” “[w]hile the rule of two is imperative where it applies, the pertinent statute builds discretion into the contracting officer’s evaluation process.”
Here, “the only fact that [VCG] alleges in support” of its rule of two claim “is that four SDVOSBs previously bid on the original solicitation, apparently implying that the contracting officer could therefore reasonably expect that at least two SDVOSBs would submit bids on a re-issued solicitation at fair and reasonable pricing.” But “even with [VCG’s] restoration to the VetBiz database, only three of those bidders were eligible SDVOSBs, and two of them failed to offer bids at a fair and reasonable price.” The Court continued:
[O]n the facts alleged, the court is only aware of one eligible SDVOSB who has offered a bid at a fair and reasonable price, namely, [VCG]. If [VCG] had alleged additional facts, e.g., relating to the average number of bids submitted on similar solicitations or its own knowledge of other eligible SDVOSBs that would have submitted bids if the roofing solicitation had been reissued, the outcome might be different, but on the facts at hand, [VCG] has failed to state a claim.
The Court dismissed VCG’s complaint.
The Court’s decision offers some important pointers for SDVOSBs and VOSBs thinking of challenging a VA set-aside decision. First, the VA isn’t required to consider a company in the “rule of two” analysis if the VA has good reason to believe that the company won’t offer a fair and reasonable price. Here, that meant that the VA didn’t have to include the two original offerors who proposed pricing well in excess of the IGE.
Second, a protester must introduce facts indicating that at least one eligible, qualified SDVOSB–other than the protester itself–is likely to submit a proposal. As the Court suggested, those facts could be things like “the average number of bids submitted on similar solicitations or its own knowledge of other eligible SDVOSBs” that would submit bids if the solicitation was issued as an SDVOSB set-aside.
There’s no guarantee that VCG would have won its protest had it introduced facts like these, but at least the Court would have considered the issue on the merits. But because the Court believed that VCG had only established that one qualified, capable SDVOSB–itself–was likely to submit a fairly priced offer, the Court simply dismissed the protest.
One final note: the acquisition in this case sounds like one that might be solicited under a tiered evaluation in the future. After discussing the concept at last year’s National Veterans Small Business Engagement, the VA posted a Procurement Policy Memorandum in February providing guidance for the use of tiered evaluations.
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SDVOSBs and VOSBs will only be required to obtain reverification every three years under an interim final rule adopted yesterday by the VA.
The VA’s new rule replaces the prior rule, which required reverification every two years. The purpose of the change? To “reduce the administrative burden on SDVOSB/VOSBs regarding participation in VA acquisition set asides for these types of firms.”
When the VA originally finalized its SDVOSB/VOSB program in 2010, VA “anticipated that annual examinations were necessary to ensure the integrity of the Verification Program.” But the VA soon had second thoughts. In 2012, the VA adopted a two-year program term.
Now, the VA believes that even a biennial reverification is unnecessary. The VA explains that data from Fiscal Year 2016 “shows that out of 1,109 reverification applications, only ten were denied.” Therefore, “only 0.9 percent of firms submitting reverification applications were found to be ineligible after two years.”
The VA notes that “[o]ther integrity aspects of the program remain adequate to oversee a 3-year eligibility period.” For example, the VA “conducts a robust examination of personal and company documentation” when a firm first applies, and the VA’s regulations require a participant to inform the VA “of any changes that would adversely affect its eligibility.” Additionally, the VA “has the right to conduct random, unannounced site examinations of participants” or examine a participant “upon receipt of specific and credible information that a participant is no longer eligible.” And of course, in the case of an SDVOSB or VOSB set-aside acquisition, VA contracting officers and competitors “have the right to raise a SDVOSB/VOSB status protest” of the awardee.
The VA’s change is an “interim final rule,” which means that it takes effect immediately, but is subject to revision upon receipt of public comments. Comments are due April 24, 2017, and I imagine that they will be overwhelmingly positive.
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The VA has proposed expanding its definition of the “good character” required to own or control an SDVOSB or VOSB.
The VA’s proposed rule would exclude many people convicted of felonies (including felonies unrelated to business integrity), which may raise questions about the rule’s fairness. And I have to wonder–is the VA’s proposal consistent with the Congressional directive requiring the VA to use the SBA’s SDVOSB eligibility rules?
As I wrote earlier this week, the VA recently issued a proposed rule to eliminate its SDVOSB and VOSB ownership and control rules. Instead, as directed by Congress in the 2017 National Defense Authorization Act, the VA would defer to the SBA’s regulatory criteria when it comes to small business size, ownership, and control.
The VA’s proposed rule doesn’t seem to eliminate every SDVOSB and VOSB eligibility requirement. Instead, when it comes to two unique VA requirements, regarding “good character” and federal financial obligations, the VA’s proposed rule would actually expand the list of veterans ineligible for VA SDVOSB/VOSB verification, even though many of those same veterans would be able to self-certify their SDVOSBs under the SBA’s rules. Today, I want to focus on the good character piece of the proposal.
Under current VA law, SDVOSB and VOSB owners must have good character. The regulation, 38 C.F.R. 74.2(b), says:
(b) Good character. Veterans, service-disabled veterans, and surviving spouses with ownership interests in VetBiz verified businesses must have good character. Debarred or suspended concerns or concerns owned or controlled by debarred or suspended persons are ineligible for VetBiz VIP Verification.
Clearly, the existing rule prohibits debarred or suspended individuals from owning or controlling verified SDVOSBs and VOSBs. Fair enough. The existing rule doesn’t provide any additional guidance on what “good character” means.
The VA’s proposed rule, though, would significantly expand the current definition of good character. Here’s what the VA proposes:
(b) Good character and exclusions in System for Award Management (SAM). Individuals having an ownership or control interest in verified businesses must have good character. Debarred or suspended concerns or concerns owned or controlled by debarred or suspended persons are ineligible for VIP Verification. Concerns owned or controlled by a person(s) who is currently incarcerated, or on parole or probation (pursuant to a pre-trial diversion or following conviction for a felony or any crime involving business integrity) are ineligible for VIP Verification. Concerns owned or controlled by a person(s) who is formally convicted of a crime set forth in 48 C.F.R. 9.406-2(b)(3) are ineligible for VIP Verification during the pendency of any subsequent legal proceedings. If, after verifying a participant’s eligibility, the person(s) controlling the participant is found to lack good character, CVE will immediately remove the participant from the VIP database, notwithstanding the provisions of § 74.22 of this part.
It’s worth noting that the VA’s proposal goes beyond the FAR’s responsibility-related certifications. FAR 52.209-5 (Certification Regarding Responsibility Matters) and FAR 52.209-7 (Information Regarding Responsibility Matters) don’t require a contractor’s “principal” to disclose all crimes, but rather those directly related to government contracts, or those that are directly relevant to business integrity–such as embezzlement, theft, forgery, bribery, and tax evasion. In contrast, the VA’s proposal would seem to apply to all felonies, regardless of the nature or circumstances.
The SBA also has a “good character” component in the 8(a) Program. But the SBA doesn’t apply a one-size-fits-all test. Instead, the SBA’s regulations say that the SBA will “consider the nature and severity of the violation in making an eligibility determination.” The VA’s proposal doesn’t seem to allow for consideration of the nature and severity of the violation (other than considering whether it was a felony).
Speaking of the SBA, I also wonder whether the VA’s proposal complies with the 2017 NDAA, which says that the VA must apply the SBA’s SDVOSB/VOSB eligibility rules. Specifically, the 2017 NDAA says that the VA must verify SDVOSBs and VOSBs using Sections 632(q)(2) and (3) of the Small Business Act, which don’t say a darn thing about good character (and still won’t following the ultimate insertion of the 2017 NDAA’s amended language into the statute). The 2017 NDAA directs the VA to apply the SBA’s regulations implementing the Small Business Act, and then says that the VA “may not issue regulations related to the status of a concern as a small business concern and the ownership and control of such small business concern.”
Now, it’s true that this prohibition isn’t supposed to take effect until the VA and SBA issue their consolidated regulation, which of course hasn’t happened yet. But as I read the VA’s proposal, it intends its new good character restriction to apply after the joint rule is issued. After all, the main point of the VA’s proposed rule is to pave the way for the consolidation of the two programs’ eligibility requirements by deleting most of the VA’s language relating to SDVOSB ownership and control. It appears, then, that the VA doesn’t think that its new good character proposal is contrary to the Small Business Act’s definitions or the restrictions placed on the VA in the 2017 NDAA.
I’m curious to see how the VA supports its restriction in light of the Small Business Act’s definitions of SDVOSB and VOSB. Beyond that, I’ll be interested to see how the VA explains its power to issue the regulation. In its decisions, the Supreme Court has written that “the key phrase ‘related to’ expresses a ‘broad pre-emptive purpose.'” Here, the VA is proposing a rule to restrict who can own or control a verified SDVOSB or VOSB. From my vantage point, it certainly seems like the VA is proposing a rule “related to . . . the ownership and control” of SDVOSBs and VOSBs, which would be contrary to the “broad pre-emptive purpose” set forth in the 2017 NDAA.
Congress’s goal was to require the VA and SBA to apply uniform, government-wide SDVOSB/VOSB eligibility criteria. (I’m not making a wild guess here–Section 1832 of the 2017 NDAA is titled “Uniformity in Service-Disabled Veteran Definitions.”) But if the VA proposal becomes law, we could be right back in a world of “separate programs, separate requirements.” Under the VA’s proposal, a veteran with (for example) a felony DUI on his or her record couldn’t own or control a VA-verified SDVOSB. However, because the current SBA SDVOSB rules don’t impose a good character requirement, that same individual would be able to self-certify the company as SDVOSB for non-VA purposes. Such a result doesn’t seem to reflect Congress’s intent.
No one wants unscrupulous felons to take advantage of government contracting set-aside programs. That said, it’s an open question in my mind whether the VA has legal authority to adopt the restriction it’s proposing. Moving forward, I hope the VA takes a close look at whether its proposed rule complies with the 2017 NDAA. And if it decides that the proposal is compliant, I hope the VA will consider a more nuanced, case-by-case approach to evaluating good character, like the one that’s been used in the 8(a) program for many years.
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The VA has formally proposed to eliminate its SDVOSB and VOSB ownership and control regulations.
Once the proposed change is finalized, the VA will use the SBA’s regulations to evaluate SDVOSB and VOSB eligibility, as required by the 2017 National Defense Authorization Act.
As regular SmallGovCon readers know, the differences between the government’s two SDVOSB programs have caused major headaches for veterans. As demonstrated in the recent Veterans Contracting Group saga, the SBA and VA have different SDVOSB eligibility requirements. That means, as was the case in Veterans Contracting Group, that a company can be a valid SDVOSB for VA contracts but not for non-VA contracts, or vice versa.
In 2016, Congress addressed the problem. As part of the 2017 NDAA, Congress directed the VA to verify SDVOSBs and VOSBs using the SBA’s regulatory definitions regarding small business status, ownership, and control. Congress told the SBA and VA to work together to develop joint regulations governing SDVOSB and VOSB eligibility. However, a proposed consolidated regulation has yet to be published.
Now the VA has proposed to eliminate its separate SDVOSB and VOSB ownership and control requirements, which are found primarily in 38 C.F.R. 74.1, 38 C.F.R. 74.3 and 38 C.F.R. 74.4. In a proposed rule published in the Federal Register last week, the VA notes that “regulations relating to and clarifying ownership and control are no longer the responsibility of VA.” The proposed rule wouldn’t entirely repeal the VA’s existing regulations, but, with respect to the eligibility requirements for size, ownership and control, those regulations would simply refer to the SBA’s rules in 13 C.F.R. part 125.
The VA is accepting public comments on the proposal until March 12, 2018. The VA doesn’t say when it expects the rule to become final, but if it follows the ordinary rulemaking process, it will likely be summer at the very earliest.
My biggest concern is whether the VA intends to finalize this rule before the consolidated SBA/VA eligibility rules take effect. If that happens, verified SDVOSBs and VOSBs will be stuck with the current SBA ownership and control regulations. And, as we recently saw in Veterans Contracting Group, those rules aren’t always veteran-friendly.
In Veterans Contracting Group, a VA-verified SDVOSB wasn’t eligible for a non-VA contract because the company’s governing documents allowed the company to repurchase the veteran’s shares in the event of the veteran’s death, incapacity, or insolvency. This provision was just fine with the VA, which verified the company. But the SBA found that this restriction interfered with “unconditional ownership” under the SBA’s separate SDVOSB regulations. Although the Court of Federal Claims memorably called the SBA’s harsh interpretation “draconian and perverse,” the Court held that the SBA was within its legal rights to impose such strict eligibility requirements.
If the VA’s rule “goes final” before a consolidated SBA/VA rule takes effect, every firm in the VA’s VIP database will be subjected to these strict SBA requirements, even when bidding on VA contracts. Undoubtedly, many companies with provisions like those at issue in Veterans Contracting Group have been verified by the VA and rely on their verifications to bid VA work. These companies could be vulnerable to successful SDVOSB status protests if they don’t update their governing documents to reflect the SBA’s stricter rules.
Of course, there’s no guarantee that the consolidated SBA/VA rule will fix the problem. The consolidated rule (which, again, has yet to be proposed) could be every bit as strict as the current SBA interpretation of “unconditional ownership.” It’s anybody’s guess what the consolidated rule ultimately will say. But if the VA eliminates its ownership and control requirements before the consolidated rule is finalized, no guesswork is needed: a lot of verified SDVOSBs and VOSBs will suddenly become ineligible for VA set-aside contracts.
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The VA has released an Acquisition Policy Flash providing guidance to VA Contracting Officers on implementing the U.S. Supreme Court’s decision in Kingdomware Technologies, Inc. v. United States.
The Policy Flash suggests that the VA is, in fact, moving quickly to implement the Kingdomware decision–and if that’s the case, it is good news for SDVOSBs and VOSBs.
The Policy Flash begins by reiterating the Supreme Court’s major holdings: namely, that the Rule of Two applies to orders placed under the GSA Schedule, and applies even when the VA is meeting its SDVOSB and VOSB subcontracting goals. The Policy Flash states that the VA “will implement the Supreme Court’s ruling in every context where the law applies.”
As a general matter, the Policy Flash instructs Contracting Officers to conduct robust market research to ensure compliance with the Rule of Two. The Policy Flash continues:
If market research clearly demonstrates that offers are likely to be received from two or more qualified, capable and verified SDVOSBs or VOSBs and award will be made at a fair and reasonable price, the Rule of Two applies and the action should be appropriately set-aside in the contracting order of priority set forth in VAAR 819.7004. Contracting officers shall also ensure SDVOSBs or VOSBs have been verified in VIP before evaluating any offers or making awards on an SDVOSB or VOSB set-aside. Supporting documentation must be maintained in the contract file in the Electronic Contract Management System (eCMS).
With respect to acquisitions currently in the presolicitation phase, Contracting Officers are to continue with existing SDVOSB and VOSB set-asides. However, “f the original acquisition strategy was not to set-aside the acquisition to SDVOSBs or VOSBs, a review of the original market research should be accomplished to confirm whether or not the ‘Rule of Two’ was appropriately considered . . ..” If a review finds that the Rule of Two is met, “the action shall be set-aside for SDVOSBs or VOSBs, in accordance with the contracting order of priority set forth in VAAR 819.7004.”
Perhaps most intriguingly, the VA is instructing Contracting Officers to apply the Kingdomware decision to requirements that are in the solicitation or evaluation phase. For these requirements, “[a] review of the original market research and VA Form 2268 shall be accomplished to confirm whether or not the ‘Rule of Two’ was appropriately considered . . ..” If this review finds that ther are two or more SDVOSBs or VOSBs, “an amendment should be issued that cancels the solicitation.” However, the agency can continue with an existing acquisition if there are “urgent and compelling circumstances” and an appropriate written justification is prepared and approved.
The VA apparently will not, however, apply Kingdomware to requirements that have been awarded to non-veteran companies, even where a notice to proceed has not yet been issued. The Policy Flash sates that “Contracting officers shall coordinate with the HCA, OGC and OSDBU and be prepared to proceed with issuing the notice to proceed if issued within 30 days of this guidance.”
Overall, the Policy Flash seems like a positive step for veterans–both in terms of the speed with which it was issued, and in the decision to apply Kingdomware to existing solicitations, except where an award has already been made.
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The VA Center for Verification and Evaluation unreasonably decertified an SDVOSB based on the results of an SBA SDVOSB decision.
According to the U.S. Court of Federal Claims, it was improper for the VA to remove the SDVOSB from the VA’s database without evaluating whether the SBA’s determination was consistent with the VA’s separate SDVOSB requirements.
The Court’s decision in Veterans Contracting Group, Inc. v. United States, No. 17-1015C (2017) was the fourth in a series of battles between Veterans Contracting Group, Inc., a VA-verified SDVOSB, on the one hand, and the SBA and VA, on the other. My colleague Shane McCall and I have previously written about each of the other three cases: the SBA Office of Hearings and Appeals decision, the Court’s first decision involving the VA, and the Court’s decision in a case challenging the SBA OHA ruling.
All four cases involved an Army Corps of Engineers IFB for the removal of hazardous materials and the demolition of buildings at the St. Albans Community Living Center in New York. The Corps set aside the IFB for SDVOSBs under NAICS code 238910 (Site Preparation Contractors).
After opening bids, the Corps announced that Veterans Contracting Group, Inc. was the lowest bidder. An unsuccessful competitor subsequently filed a protest challenging VCG’s SDVOSB eligibility.
DoD procurements fall under the SBA’s SDVOSB regulations, not the VA’s separate rules. (As I’ve discussed many times on this blog, contrary to common misconception the government currently runs two separate SDVOSB programs: one under SBA rules; the other under VA rules). The protest was referred to the SBA’s Director of Government Contracting for resolution.
The SBA determined that Ronald Montano, a service-disabled veteran, owned a 51% interest in VCG. A non-SDV owned the remaining 49%.
The SBA then evaluated VCG’s Shareholder’s Agreement. The Shareholders Agreement provided that upon Mr. Montano’s death, incapacity, or insolvency, all of his shares would be purchased by VCG at a predetermined price. The SBA determined that these provisions “deprived [Mr. Montano] of his ability to dispose of his shares as he sees fit, and at the full value of his ownership interest.” The SBA found that these “significant restrictions” on Mr. Montano’s ability to transfer his shares undermined the SBA’s requirement that an SDVOSB be at least 51% “unconditionally owned” by service-disabled veterans. The SBA issued a decision finding VCG to be ineligible for the Corps contract.
When the SBA issues an adverse SDVOSB decision, the SBA forwards its findings to the VA Center for Verification and Evaluation. After receiving the SBA’s findings, the VA CVE decertified VCG from the VetBiz database.
The Court and OHA reached different conclusions.
As my colleague Shane McCall wrote in this post, the Court concluded that the VA should not have removed VCG from the VetBiz database. While the Court didn’t directly overrule the SBA, the Court wrote that the SBA’s application of the “unconditional ownership” requirements was flawed.
The Court cited with approval two cases dealing with the VA’s SDVOSB regulations, AmBuild Co., LLC v. United States, 119 Fed. Cl. 10 (2014) and Miles Construction, LLC v. United States, 108 Fed. Cl. 792 (2013), agreeing with these cases that a restriction on ownership that is not executory (meaning not taking effect until a future event occurs) does not result in unconditional ownership. The Court issued a preliminary injunction ordering the VA to restore VCG to the VetBiz database, but reserved a final decision until further briefing in the case.
Things turned out far differently at OHA. As I wrote in a September post, OHA held that the restrictions in VCG’s Shareholders Agreement prevented Mr. Montano from unconditionally controlling the company. OHA issued a decision upholding the SBA’s determination, and finding VCG ineligible for the Corps contract.
VCG challenged OHA’s decision at the Court. In a strongly-worded opinion, the Court blasted the SBA’s interpretation of its regulations as “draconian and perverse,” but nonetheless held that the SBA was within its discretion to apply its rules in this harsh manner. The Court upheld OHA’s decision finding VCG ineligible for the Corps contract.
That brings us (finally) to the fourth decision in the battle. Here, the question was whether the VA had acted improperly by decertifying VCG from the VetBiz database. As Shane McCall wrote earlier, the Court had already issued a preliminary injunction ordering the VA to restore VCG to the database; the question now was whether the Court would issue a final decision in VCG’s favor on the merits, and enter a permanent injunction.
The Court explained, in some detail, the background behind the separate SBA and VA SDVOSB programs. The Court then wrote that the regulation at issue in this case was the VA’s regulation at 38 C.F.R. 74.2(e). Under this regulation, “[a]ny firm registered in the VetBiz VIP database that is found to be ineligible due to an SBA protest decision or other negative finding will be immediately removed from the VetBiz VIP database” and ineligible to participate in the VA SDVOSB program until the SBA decision is overturned or overcome.
“This provision is not remarkable in isolation,” the Court wrote, “but due to the differences in the VA and SBA regulations . . . it can create anomalous results.” This is because “protest decisions by SBA, presumably applying SBA’s own regulations, could potentially displace VA’s cancellation and removal process without accounting for the differences between the two agencies’ underlying regulatory eligibility criteria.”
The Court held that it “disagrees with the government that Subsection 74.2(e) relieves CVE of any obligation to look beyond the fact that SBA has issued an adverse determination before removing an SDVOSB from the VetBiz VIP database.” The Court continued:
[T]he eligibility requirements in the VA and SBA SDVOSB set-aside programs are similar in some respects but are materially divergent in others. The differences are insignificant if and when the SBA protest giving rise to removal from the VIP database treats an area in which the regulations are the same or similar, e.g., the size of the business; if SBA determines that an SDVOSB is not small then it would be justifiably disqualified from both programs. But in this case, an uncritical application of Subsection 74.2(e) would require an SDVOSB’s immediate removal from the VetBiz VIP database if the business fails to meet the SBA’s . . . definition of “unconditional” despite meeting the VA’s definition of the term . . ..
The Court wrote that it was “arbitrary for VA to mechanistically apply Subsection 74.2(e) without examining the basis for SBA’s ruling.” Rather, “n light of the distinct definitions of ‘unconditional ownership’ in the two programs, CVE must look beyond the fact of a ruling by SBA, to determine whether it was based on grounds consistent with or contrary to VA’s eligibility regulations.” Because VA failed to undertake such an analysis, “there was no rational connection between the facts found and the choice made, thus rendering CVE’s action arbitrary and capricious.”
The Court granted VCG’s motion for the judgment on this part of its appeal, and made the prior injunction permanent. The Court essentially overturned CVE’s decision removing VCG from the VA VetBiz database.
In my last post on the Veterans Contracting Group saga, I got a few things off my chest regarding the mess the “two SDVOSB programs” system creates for well-meaning veterans like Mr. Montano. I’ll spare you another soapbox moment, but I hate seeing small businesses (and particularly SDVOSBs) harmed by the legal complexities, interpretations and divergences seen in these cases.
Sometime in 2018, the SBA and VA should unveil their proposed joint regulation to consolidate the SDVOSB eligibility requirements. As the Veterans Contracting Group cases make clear, a unified set of rules is sorely needed. Stay tuned.
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The VA is considering using so-called “tiered evaluations” to address concerns that SDVOSBs and VOSBs may not always offer “fair and reasonable” pricing, even when two or more veteran-owned companies compete for a contract.
In a session yesterday at the National Veterans Small Business Engagement, a panel of VA acquisition leaders described the potential tiered evaluation process. It’s hard to argue that the VA isn’t entitled to fair and reasonable pricing, but judging from the reaction in the room, some SDVOSBs and VOSBs may wonder whether tiered evaluations are an effort to circumvent Kingdomware.
The VA panel consisted of Thomas Leney, Executive Director of Small and Veteran Business Programs, Jan Frye, Deputy Assistant Secretary for Acquisition and Logistics, and Robert Fleck, Chief Counsel of the Office of General Counsel.
Mr. Leney, who spoke first, said that the Kingdomware decision has been “good for veterans and good for the VA,” and pointed out that the VA’s annual SDVOSB/VOSB spending rose significantly following Kingdomware. That’s good news, of course.
But Mr. Frye said that when Kingdomware was decided in June 2016, the the VA was worried that the decision could, in some cases, result in higher prices and lengthier procurement processes. The VA doesn’t currently have any hard data about whether that’s proven true on a macro level, but has commissioned a study to evaluate it.
In the meantime, Mr. Leney said, there is anecdotal evidence of cases where the VA has paid “excessive prices” to award to veteran-owned companies. The VA hopes that this is a “small problem in a few cases, not a widespread problem,” Mr. Leney said. But apparently anticipating the need for policy changes to address the issue, the VA is considering adopting a tiered evaluation system in some procurements.
Under a tiered evaluation, a solicitation would be set-aside for SDVOSBs or VOSBs, but other companies (including large businesses) would also be able to submit proposals. The agency would start by evaluating the proposals of the top tier–in most cases, likely SDVOSBs. If the VA didn’t receive “fair and reasonable” pricing at that tier, the VA would go down to the next tier (probably VOSBs) and continue down the chain until a “fair and reasonable” offer was available to accept.
The speakers said that using a tiered evaluation approach would prevent procurement delays. As it stands now, if an acquisition has been set aside for SDVOSBs but no SDVOSB offers a fair and reasonable price, the VA must cancel and resolicit. Mr. Leney said that there have been cases where the VA has solicited the same acquisition “two, three or four times” before receiving fair and reasonable pricing. A tiered evaluation would eliminate this problem by allowing the contracting officer to simply go to the next tier, instead of resoliciting.
The speakers indicated that tiered evaluations wouldn’t be used in all acquisitions. Mr. Leney said that the approach likely wouldn’t be used in acquisitions involving complex technical proposals because the VA would be unlikely to receive offers from companies whose proposals might never be considered. On the other hand, the VA seems to think that the approach could work well in less-complex acquisitions, particularly where price is a critical factor.
It’s hard to argue that the VA isn’t entitled to “fair and reasonable” pricing. Fair pricing is, of course, a bedrock principle of federal procurement. But, judging from the mood in the room, the VA is going to have some work to do to convince SDVOSBs and VOSBs that this initiative (if it comes to pass) isn’t an attempt to circumvent Kingdomware.
One key consideration: how is “fair and reasonable” determined? One speaker suggested that if the VA receives pricing that is lower than the prices submitted by SDVOSBs, the Contracting Officer might use that as evidence that the SDVOSB pricing wasn’t fair and reasonable.
Hopefully, that’s not how it would work: there’s a big difference between higher pricing and unreasonable pricing. As one audience member pointed out, if reasonableness is judged based on the pricing submitted by non-veteran offerors (including large businesses), many SDVOSBs and VOSBs would have a tough time competing.
I give the VA leadership credit for coming to a public forum to discuss issues like these. And I’m willing to wait and see the details before passing judgment on the proposal, should the VA decide to implement it.
But the VA must understand that the SDVOSB/VOSB community watched for years as the VA fought tooth-and-nail to evade the statutory preferences under 38 U.S.C. 8127. With that history, some veterans are understandably skeptical that efforts like these are anything other than an attempt to circumvent the Supreme Court’s ruling.
If the VA is going to implement tiered evaluations, or similar tools, the agency will have some convincing to do. Stay tuned.
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The VA has adopted a Class Deviation to the VAAR, severely restricting the ability of VA Contracting Officers to request waivers of the nonmanufacturer rule–and, even more troubling, suggesting that Contracting Officers need not apply the statutory SDVOSB and VOSB preferences even when the SBA has already granted a class waiver.
You may be wondering “does the VA’s Class Deviation comply with Kingdomware?” Good question.
Before diving into the details of the Class Deviation, let’s step back for a second to review why this is so important.
Under the SBA’s regulations, when any contract is set-aside for small businesses (including SDVOSBs and VOSBs) under a manufacturing NAICS code, there are two ways that the prime contractor can satisfy the requirements of the limitations on subcontracting. As one option, the prime contractor can agree to pay no more than 50% of the amount paid by the government to it to firms that are not similarly situated. In other words, the prime can do most or all of the manufacturing itself (or work with similarly situated small businesses). Alternatively, the prime can sell the products of another business, so long as the prime qualifies as a nonmanufacturer.
For VA SDVOSB set-asides, VAAR 852.219-10 (VA Notice of Total Service-Disabled Veteran-Owned Small Business Set-Aside) provides the applicable limitation on subcontracting. While this clause has not yet been updated to reflect the new wording of the SBA’s regulations, it also recognizes the nonmanufacturer exception. A nearly-identical provision is set forth in VAAR 852.219-11, which governs VOSB set-asides.
The nonmanufacturer rule, in turn, states that a company qualifies when it meets four requirements. Among those, the company must “supply the end item of a small business manufacturer, processor or producer made in the United States or [obtain] a waiver of such requirement.” The SBA is the only agency empowered to grant nonmanufacturer rule waivers.
An SBA nonmanufacturer rule waiver can be a “class” waiver, which applies to a class of products after the SBA determines that there are no small business manufacturers available to participate in the Federal procurement marketplace. Anyone can request that the SBA process a class waiver. Alternatively, the SBA can grant an “individual” nonmanufacturer rule waiver when it determines that no small business manufacturers are likely to be available for a particular solicitation. Only a Contracting Officer can request an individual waiver.
So, to sum up, if a small business (including an SDVOSB or VOSB) wants to sell the product of a large business under a set-aside contract, the small business may do so provided that an SBA class waiver or nonmanufacturer rule waiver is in place (and provided that the small business satisfies the other criteria of the nonmanufacturer rule). Many small businesses validly sell products this way: the SBA’s current class waiver list spans 14 pages.
That takes us to the VA’s recent Class Deviation. The Class Deviation does two things.
First, the Class Deviation states that a Contracting Officer must receive the approval of the Head of the Contracting Activity, or HCA, to request an individual nonmanufacturer rule waiver from the SBA. As this helpful GAO report states (see pages 3 and 4) there are only eight HCAs in the entire VA. (For comparison, that’s the same number of people who have been in the Rolling Stones).
So the Class Deviation strips the discretion to request nonmanufacturer rule class waivers from VA Contracting Officers (where the FAR says it belongs) and limits it to only eight individuals. Further, the HCA’s authority to approve individual nonmanufacturer waiver requests “cannot be redelegated.” Anyone want to guess what this is likely to do to the number of requested and approved individual nonmanufacturer rule waiver requests?
Second, the Class Deviation says that “[w]here the SBA has issued a class waiver to the Nonmanufacturer Rule, a contracting officer must receive approval from the HCA prior to utilizing other than competitive procedures or restricted competition as defined in 38 U.S.C. 8127.” The Class Deviation says that “[t]his is necessary to ensure HCAs have situational awareness of issues prompting the requests or use and, if needed, can take actions to mitigate requests or use.” This authority, too, “cannot be redelegated.”
If you think that 38 U.S.C. 8127 sounds familiar, you’re absolutely right–it’s the “rule of two” statute made famous by Kingdomware. When the Class Deviation says “other than competitive procedures,” it means “SDVOSB and VOSB sole source contracts.” When the Class Deviation says “restricted competition” it means “SDVOSB and VOSB set-asides.”
In other words, the Class Deviation provides that a Contracting Officer cannot make an SDVOSB or VOSB sole source award or establish an SDVOSB or VOSB set-aside competition for a product covered by an SBA nonmanufacturer rule class waiver unless the HCA approves. The almost-certain result is that many procurements that otherwise would have been set aside for SDVOSB and VOSB nonmanufacturers will be issued as unrestricted instead, with awards going to non-veteran companies.
The Class Deviation seems to make the assumption that the VA gets to pick and choose when to “use” a nonmanufacturer rule class waiver. I’m not sure that the SBA would agree. It seems to me that a class waiver either exists, or it doesn’t.
It’s hard to see this Class Deviation as anything but a premeditated targeting of SDVOSB and VOSB nonmanufacturers as somehow unworthy of the preferences established by 38 U.S.C. 8127 and Kingdomware. I hope that the powers that be at the VA come to their senses and retract this poorly-conceived rule. The Class Deviation itself doesn’t address the interplay between this rule and Kingdomware, and I’ll reserve for another day my thoughts on whether this Class Deviation complies with the Supreme Court’s ruling–but unless the VA does the right thing and withdraws the Class Deviation, my crystal ball sees another battle in the future.
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