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Koprince Law LLC

I have just returned from Indian Country Business Summit in Norman, Oklahoma, where I enjoyed catching up some old friends and making some new ones.  This conference continues to grow every year–if you haven’t been yet, get it on your calendar for next year.  You won’t regret it.

Of course, like all of us, my thoughts this week have been with the citizens of Houston and elsewhere in Texas as they battle the horrible effects of Harvey. While Harvey dominated the news this week, there was still plenty happening in the world of government contracts.  This edition of SmallGovCon Week In Review brings articles on the end-of-the-year rush to nab contracting dollars, pending legislation to encourage agencies to “Buy American,” a look at the top 10 acquisition trends of FY 2017 and more.

Enjoy the Labor Day weekend and stay safe, Houston.

  • As the clock ticks down on FY 2017, an estimated $98 billion in federal agency contract obligations remains unspent. [Bloomberg Government]
  • A family-owned paper manufacturer might have had the best government contract of all time that has lasted over 240 years, but could it be coming to an end? [Energy & Capital]
  • A U.S. Senator has hopes of making it easier for domestic manufacturers to find out when federal agencies pick a foreign company to make a part that they say isn’t available domestically. [theday]
  • The GAO has upheld a bid protest finding that the Labor Department had given an unfair advantage to one of the companies bidding on their nearly $100 million contract. [Federal News Radio]
  • Federal Times takes a step back and assesses the contracting environmental trends that have emerged over the past year. [Federal Times]
  • DHS is adding more rigor to vendor supply chains for a governmentwide cybersecurity initiative. [Federal News Radio]
  • Bloomberg Government is reporting an 8% increase in total contract spending in FY2016 from FY2015. [Bloomberg Government]

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Koprince Law LLC

Greetings from Oklahoma, where I am wrapping up a busy week of travel that has included speaking engagements both at the Iowa Vendor Conference and The Indian Country Business Summit.

While I’ve been on the road, it has also been a noteworthy week in government contracting news. This week, SmallGovCon Week In Review takes a look at stories about the year end spending frenzy, the Freedom of Information Act may undergo major changes, DoD is barely exceeding 50% when it comes to meaningful competitions, and much more.

  • The projected federal contract spending is on a decidedly upward slant with two issues affecting the year-end spending frenzy. [American City & County]
  • What impact will the outcome of the presidential election have on the government contracting landscape? [GovBizConnect]
  • Federal agencies could soon face a new governmentwide guidance on how they respond to Freedom of Information Act requests, following an upcoming meeting in September. [Federal news Radio]
  • The Office of Federal Procurement Policy has launched a dashboard to hold agencies accountable to meet the goals in the category management memos. [Federal News Radio]
  • With worry that only 56.5 percent of the DoD’s contracted dollars involved a meaningful competition between two or more vendors, they have issued a series of corrective actions to reverse a downward slide that has been ongoing for nearly a decade. [Federal News Radio]
  • Several speculative conclusions can be made based on fiscal 2015 government contracting data and, according to one commentator, the outlook is not positive. [Federal News Radio]
  • The FAR Council published the final rule regarding the Fair Pay and Safe Workplaces Executive Order, which imposes a host of new obligations on government contractors, including an obligation to report various labor law violations during the bid and proposal process. [The Hill]
  • A former MCC Construction Company officer and owner pleads guilty to conspiring to defraud the government. [The United States Department of Justice]

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Koprince Law LLC

It has been a busy week that kicked off with a total solar eclipse.  I was on an airline heading to San Diego for 2017 Department of the Navy Gold Coast Small Business Procurement Event, so I missed the spectacle.  I didn’t get to wear eclipse glasses, but was well worth it to be part of that great annual procurement conference.  My travels aren’t over: next week, I’m off to Norman, Oklahoma to speak at the annual Indian County Business Summit.

While travel has me occasionally wondering which day of the week it is, I haven’t forgotten that it is time for your weekly dose of SmallGovCon Week In Review. This edition includes a tale of Davis-Bacon Act violations, a no-bid contract is now coming under fire (and protests), a new list of the top federal contractors has hit the shelves and much more.

  • DHS’s migration to a unified workforce training and performance management system has been dubbed a “textbook definition of waste.” [Federal News Radio]
  • Workers were kept in the dark about compensation they were owed under the Davis-Bacon Act after performing jobs involving hazardous material that resulted in them making $9.63 less per hour than required by the law. [NBC News]
  • Alliant 2 remains on schedule for award prior to winter of 2017; with GSA asking bidders to extend their offers through December 31. [Federal News Radio]
  • A bid protest has been filed against the VA for allegedly awarding Cerner a contract for its new EHR without conducting a competitive bidding process. [Healthcare IT News]
  • A recent report from the Office of Management and Budget on the DATA Act’s two-part Section 5 pilot, which covers federal grants and federal contracts, recommends three steps to help expedite the process. [Federal News Radio]
  • The 6th annual BGOV200 study was released this week, ranking the top 200 federal government contractors by value of prime, unclassified contracts awarded by U.S. government agencies in FY 2016. [Bloomberg Government]
  • National Defense Magazine takes a look at the importance of a written code of business ethics and conduct, which will help demonstrate a company’s intent to operate as a presently responsible contractor and help bolster ones reputation. [National Defense]

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Koprince Law LLC

With the Olympics coming to a close this Sunday, we can look forward to getting back to our usual sleeping patterns without the lure of athletes seeking gold in Rio. So while preparations are ongoing for the closing ceremony and the eventual torch hand off to Tokyo, we continue to work to bring you the top government contracting news and notes for the week.

In this week’s SmallGovCon Week in Review, a businessman will serve prison time after stealing a veteran’s identity and using it to obtain SDVOSB contracts, the first protest of the Alliant 2 solicitation has been filed, faulty military helmets manufactured at a Texas prison under a government contract have been recalled, and much more.

  • A six-year prison sentence was handed down to a businessman stealing a disabled veteran’s identity and using the information to seek $2.7 million in government contracts. [CBS DFW]
  • Has the VA acted too hastily when it quickly complied with the U.S. Supreme Court’s “rule of two” decision in the Kingdomware Case? [Federal News Radio]
  • A $2.25 million fine will be paid out by a research and development company, financed largely by federal government funding, to resolve allegations that they violated the False Claims Act by seeking disbursements from federal agencies for falsified labor costs. [United States Department of Justice]
  • The first protest has come just six weeks after the GSA released the request for proposals for the massive IT services multiple award contract known as Alliant 2. [Federal News Radio]
  • Government marketing expert Michelle Hermelee, CSCM, discusses two of the new GSA initiatives and what they mean for federal contractors. [Government Product News]
  • Small businesses that contract with the federal government fear proposed changes to regulations will push them out of the bidding process. [The Hill]
  • Mid-tier companies of smaller size are finding it impossible to compete on Alliant 2 Unrestricted and are voicing complaints that could result in a pre-award protest. [Washington Technology]
  • More than 126,000 helmets manufactured at a Texas prison under a government contract were recalled after inspectors found major defects, including serious ballistic failures. [The Washington Times]
  • Industry now has another two weeks to submit bids for Alliant 2, the largest IT contract released in the past decade, after an extension by the General Services Administration. [Nextgov]

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Koprince Law LLC

With what is being deemed “The Great American Eclipse” ready to hit the skies on Monday, there is a lot of excitement in the air here in Lawrence. We are just off the path of totality and are expecting 99.3% coverage. My colleagues and family will be outside (with protective eyewear of course) and witness this amazing moment. As for me, I’ll be in San Diego, speaking at the 2017 Department of the Navy Gold Coast Conference which will drop my near total eclipse view down to a partial eclipse of about 58% coverage–but it’s well worth it to be part of this great event.

Before I take off for the West Coast, it’s time for the latest SmallGovCon Week In Review. This week, two Senators have filed an amendment to the 2018 National Defense Authorization Act called the Modernizing Government Technology Act, an “Amazon-like” procurement system might not be too far off, a company is forced to repay millions of dollars amid allegations of overcharging the government, and much more.

  • The bipartisan Modernizing Government Technology Act is being attached as an amendment to the 2018 National Defense Authorization Act in hopes of improving its chances of being approved. [Federal News Radio]
  • With six weeks left in FY 2017, budget experts are warning federal contractors to begin planning for a possible government shutdown. [Federal News Radio]
  • A provision in the House version of the annual National Defense Authorization Act may soon make ordering office supplies, equipment, or even contract services as easy as placing an order on Amazon. [Government Executive]
  • A contractor will pay $9.2 million dollars to settle allegations of overbilling the U.S. Navy and Coast Guard for labor charges. [WLOX]
  • Government contracts sales guru Eileen Kent provides some pointers for businesses interested in cashing in on opportunities available at the end of the federal fiscal year. [Government Product News]
  • A lawsuit by the American Small Business League, heading for trial, alleges that some large defense contractors manipulate data to falsely claim they are meeting their small business subcontracting targets. [Forbes]

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Koprince Law LLC

It’s hard to believe that August is already here. Before we know it, the end of the government fiscal year will be here–and if tradition holds, a slew of bid protests related to those inevitable last-minute contract awards.

In our first SmallGovCon Week In Review for August, two big-wig executives who previously plead guilty to charges of conspiracy now face civil claims, some helpful tips on how to prepare for the year-end contracting frenzy, Schedule 70 looks to be improved, a major roadblock for the ENCORE III IT service contract, and much more.

  • A False Claims Act complaint has been filed by the U.S. Justice Department against two former New Jersey executives accused of defrauding the military. [nj.com]
  • A federal judge said that the U.S. Department of Health and Human Services showed a “cavalier disregard” for the truth and favoritism during the evaluation of bid proposals for its financial management. [Modern Healthcare]
  • A watchdog found that a five-year contract originally valued at a fixed price of nearly $182 million ballooned to $423 million. [Government Executive]
  • A GSA top acquisition official has promised an improved Schedule 70 following an audit that found price discrepancies for identical products and some offered at higher prices than they were commercially available. [Nextgov]
  • Washington Technology offers eight tips to help contractors prepare for the last month of the government fiscal year. [Washington Technology]
  • A growing legion of small businesses are trying make federal contracting a bigger part of their revenue as federal small business awards stay above $90 billion for the past two fiscal years. [Bloomberg]
  • A group of men, women and corporations have been indicted for illegally winning government contracts worth some $350 million by misrepresenting themselves as straw companies controlled by either low-income individuals or disabled veterans. [The State]
  • The final “blacklisting” rule to prevent businesses that had broken labor laws from working with the federal government is expected soon, and the National Labor Relations Board is preparing to follow the proposal. [Society for Human Resource Management]
  • The growing number of bid protests appears unavoidable, regardless of the efforts to engage industry before, during and after the bidding process. [Nextgov]
  • The GAO has sustained protests challenging the terms of the major ENCORE III IT services contract. [Federal News Radio]

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Koprince Law LLC

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

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

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

View the full article

Koprince Law LLC

I’m starting to feel like the old Johnny Cash and Lynn Anderson song, I’ve Been Everywhere. After two trips out west earlier this month, I spent time this week in Wichita with the Kansas PTAC, and soon enough I will be back on the road for the SAME Omaha Post 2017 Industry Day.  I am always grateful for the opportunity to meet contractors, government officials, and others in the industry–and I am always heartened by how many people I meet at these events have kind words to say about SmallGovCon.

It’s Friday, and time for our weekly look at the latest in the government contracting world. In this edition of  SmallGovCon Week In Review, a contractor faces potential jail time for selling Chinese-made items to the government, Defense analysts anticipate little impact from the recent “Buy American and Hire American” executive order, one commentator says that a recent LPTA National Guard contract hurts those who work to support our troops, and much more.

  • When it comes to wishlists for the last half of 2017, financial and contracting experts say perhaps the most agencies can hope for from Congress is the status quo. [Federal News Radio]
  • Defense analysts are anticipating little impact from President Donald Trump’s “Buy American and Hire American” executive order. [National Defense]
  • One commentator says that a recent “low-ball” National Guard contract is hurting those who work to ‘support our troops.’ [San Francisco Chronicle]
  • The federal government’s biggest challenge in defending its civilian, military and intelligence networks from hackers isn’t technology, it’s people. [Nextgov]
  • The Army has announced that several cloud RFPs are already in the works under the new ACCENT contract. [Federal News Radio]
  • A contractor (who is also a member of the Army Reserves) has been convicted of selling Chinese-made items to the government in violation of the Buy American Act, Berry Amendment, and the contracts’ “100% U.S. MADE” requirement. [United States Department of Justice]

View the full article

Koprince Law LLC

I was fortunate enough to spend the beginning half of my week speaking at the 2017 SAME Small Business Symposium in Bremerton, Washington. It was a wonderful event and it was nice to be able to see so many familiar faces (and make some new acquaintances). I am back in the office to wrap up the week and bring you yet another SmallGovCon Week In Review.

In this week’s edition: former President Obama’s “mandatory sick leave” Executive Order may remain on the books after all, IDIQ contracts made up about one-third of all federal contracting spending over a four-year period, contractors react to President Trump’s “Buy American, Hire American” Executive Order, and much  more.

  • Why won’t many small firms won’t sell to the government?  FCW provides some answers. [FCW]
  • Surprise: an Obama Executive Order mandating sick leave for federal contractor employees, once considered primed for reversal by the Trump administration, may be here to stay. [Bloomberg BNA]
  • The DoD is parsing out exactly how it will split one of its biggest and most infamous sections after Congress mandated the division last year. [Federal News Radio]
  • Between 2011-2015 the sometimes-controversial contract type known as indefinite delivery/indefinite quantity accounted for an annual $130 billion of agency awards. [Government Executive]
  • Quantum computing is about to disrupt the government contracts market. [Bloomberg Government]
  • The White House previewed an Executive Order that will make it tougher to obtain foreign contracting waivers and H-1B visas, which the administration claims will boost manufacturing and skilled labor at home. [Federal Times]
  • Insider threats present a real danger to federal agencies, and those threats have inspired the GSA to issue a Schedule 70 special item number for Continuous Diagnostics and Mitigation products and services. [FCW]
  • President Trump’s “Buy American” order is drawing mixed reviews from government contractors. [Government Executive]
  • The SBA released a notice of termination of the class waiver to the nonmanufacturer rule for rubber gloves. [Federal Register]

View the full article

Koprince Law LLC

I’ve been spending quite a bit of time on the West Coast lately: I started the week in San Diego as a speaker at the APTAC’s Spring 2017 Training Conference and after a few days in the office will be heading back on the road to present at the 2017 SAME Small Business Symposium in Bremerton, WA. If you will be attending please come say hello!

Before I head back West, it’s time for our weekly look at comings and goings in the world of federal government contracting.  In this week’s SmallGovCon Week In Review, a business owner pleads guilty to defrauding more than 1,000 would-be contractors in a sleazy registration scheme, the GSA’s Alliant 2 unrestricted contract is moving forward, a government official goes on the record as stating that some contractors are “kicking butt,” and much more.

  • Government agencies are paying out millions of dollars to contractors that violate federal labor laws, says government watchdog. [FederalTimes]
  • The GSA’s Transactional Data Reporting program is supposed to eliminate the need for contractor-supplied price and discounting information but there is widespread anecdotal evidence to show that this is not happening. [Federal News Radio]
  • More GSA news: the Assisted Acquisition Services has found itself moving away from IT and into professional services. [Federal News Radio]
  • A national counterintelligence chief gave a pat on the to the contractors who are “kicking butt” in helping agencies head off insider threats. [Government Executive]
  • DHS’s acquisition processes are improving, according to a new GAO audit. [Nextgov]
  • The Alliant 2 unrestricted acquisition is moving forward: GSA has reached the source selection phase and will soon be contacting bidders to verify certain information. [FederalTimes]
  • A sleazy “government contracts registration” scheme has resulted in a guilty plea from a defendant accused of defrauding more than 1,000 would-be contractors. [United States Department of Justice]
  • A small-business advocate has won a day in court with Pentagon attorneys to argue whether the DOD should release internal documents that the plaintiff argues will reveal a government bias against small defense contractors. [Government Executive]

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Koprince Law LLC

It’s hard to top last week’s government contracting news, which included the major SDVOSB Supreme Court victory in Kingdomware.  But with the Fourth of July just a week and a half away, there is still plenty going on in the world of government contracts law.

In this week’s SmallGovCon Week in Review, an SDVOSB’s owner speaks out about his important GAO bid protest win, suspensions and debarments of government contractors dropped in 2015, major changes are coming to the GSA Schedule, HUBZone contract awards decline, and much more.

  • After winning a legal battle with the VA, Spur Design’s owner talks about what his company’s victory means for veteran-owned businesses. [Flatland]
  • The Office of Management and Budget has directed federal agencies to adopt practices that will simplify and streamline software acquisition. [E-Commerce Times]
  • Agencies’ budgets for extramural research are wavering amid increasing requirements to set aside funding for small business tech and innovation programs. [fedscoop]
  • A construction company executive has been found guilty of wrongfully winning $100 million in federal contracts that give preference to veteran-owned companies. [Boston Globe]
  • Defense Department procurement officials have agreed to expand their use of the General Services Administration’s single contract for complex professional services known as OASIS. [Government Executive]
  • Suspension and debarments of government contractors fell 3.7 percent in fiscal year 2015 over the previous year according to the annual report of the Interagency Suspension and Debarment Committee. [Government Executive]
  • The Department of Homeland Security will begin accepting video proposals in addition to written ones as part of a procurement innovation initiative. [Federal Times]
  • Vendors could save millions with the new General Services Administration reporting requirement that is being called the “most transformational change to GSA’s Federal Supply Schedules Program in more than two decades.” [Federal Times]
  • Plans to file a lawsuit against the Army are in the works based on claims that the military service has shown bias against off-the-shelf products in its solicitation for a $206 million intelligence IT contract. [Federal News Radio]
  • HUBZone contract awards have stalled again, after two years of modest increases, continuing a mostly downward trend that began six years ago. [Set-Aside Alert]
  • The Labor Department is investigating whether workers on Donald Trump’s renovation of Washington, D.C.’s Old Post Office are being paid less than federal law requires. [Politico]
  • Are Federal agencies overspending billions of dollars each year by allowing employees to make micropurchases on government charge cards instead of using the government’s buying power? [Government Executive]

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Koprince Law LLC

I’m back in the office after a week-long family beach vacation around the 4th of July.  Kudos to my colleagues here at Koprince Law for putting out last week’s SmallGovCon Week In Review while I was out having some fun in the sun.

This week’s edition of our weekly government contracts news roundup includes a prison term for an 8(a) fraudster, a Congressional focus on full implementation of the Supreme Court’s Kingdomware decision, the release of an important new FAR provision regarding small business subcontracting, and more.

  • A businessman from Fairfax, Virginia has been sentenced to 15 months in prison for fraudulently obtaining contracts worth $6 million from a federal program created to help minority-owned small businesses. [IndiaWest]
  • A top Congressional Republican wants to make sure the Department of Veterans Affairs is fully implementing the Supreme Court’s unanimous Kingdomware decision. [The Hill]
  • A look ahead to next spring brings hope of contracting reform and a focus on having an effective cost-comparison system and effective contract management in place. [Federal News Radio]
  • Two former New Jersey construction executives have been sentenced for their roles in a scheme to secure government contracts by bribing foreign officials. [Reuters]
  • The FAR Council has issued a final rule amending the FAR to implement regulatory changes made by the SBA, which provide for a Governmentwide policy on small business subcontracting. [Federal Register]
  • Congress wants the DoD to shed more light on how it is using lowest-price, technically-acceptable contracts–and report back to Congress in the spring. [GovTech Works]

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Koprince Law LLC

An agency isn’t required to cancel a small business set-aside solicitation if the agency learns that one of the small businesses upon whom the set-aside decision rested is no longer small.

In a recent bid protest decision, the GAO confirmed that an agency need not redo its “rule of two” determination when a potential small business competitor outgrows its size standard–even if it could effectively convert a particular solicitation into a “rule of one.”

The GAO’s decision in Synchrogenix Information Strategies, LLC, B-414068.4 (Sept. 8, 2017) involved an FDA acquisition for software licenses, maintenance and support and related services.  Before issuing the solicitation, the agency issued a request for information on FedBizOpps, seeking information from businesses regarding their interest in the procurement.

The FDA received three responses to the RFI from small businesses.  After evaluating those responses, the FDA concluded that it was reasonably likely to receive at least two or more offers from responsible small businesses.  Accordingly, the FDA issued the solicitation as a total small business set-aside.

The agency received two proposals by the original closing date, August 10, 2016.  After evaluating those proposals, the FDA awarded the contract to Lorenz International.  The unsuccessful offeror, GlobalSummit, then filed a GAO bid protest challenging the award.

In response, the agency took voluntary corrective action.  It asked both offerors to submit “a new full proposal.”  New proposals were due on May 15, 2017.  The new proposals were to include “all certifications, technical and business information” required by the solicitation.

In March 2017, Synchrongenix Information Strategies, LLC “purchased substantially all of GlobalSummit’s assets.”  The purchase created an affiliation between GlobalSummit and Synchrogenix, a large business. As a result, GlobalSummit was no longer small.

GlobalSummit asked that the FDA remove the certification requirement.  It explained that, at the time of its original proposal in August 2016, it had qualified as a small business.  However, because of the affiliation with Synchrogenix, it would no longer qualify as small if forced to re-certify in May 2017.

The FDA declined to remove the requirement.

Synchrogenix (presumably acting as successor-in-interest to GlobalSummit) filed a GAO bid protest.  Synchrogenix argued that the FDA was required to cancel the small business set-aside and reissue the solicitation as unrestricted because there was no longer a reasonable expectation of receiving two or more offers from small businesses.  Instead, Synchrogenix contended, the agency could only expect to receive one offer–from Lorenz.  Synchrogenix argued that proceeding with the acquisition would be tantamount to a de facto sole source award to Lorenz.

The GAO sought the SBA’s opinion.  The SBA weighed in on the FDA’s side, stating:

There is no requirement in the Small Business Act, the FAR, or SBA regulations, that an agency must redo its market research regarding the “rule of two” prior to requesting revised or newly submitted proposals during the course of a procurement or altogether cancel the solicitation if it becomes aware that only one responsible small business offer will be received in response to an amended solicitation. 

The SBA further explained “it is not uncommon that an agency becomes aware, over the course of a procurement, that it will receive only one revised offer from a small business concern.”  The SBA pointed out that small businesses “may drop out of a competition for a variety of reasons . . . such that there is only one responsible small business offeror remaining.”  In such a case, “the agency may make award to that firm, provided award will be made at a fair market price.”

The GAO found the SBA’s reasoning persuasive.  “As SBA advised in response to this protest,” GAO wrote, “there is no requirement in law or regulation that an agency must revisit” its rule of two determination when it becomes aware that it will only receive one offer from an eligible small business.  GAO concluded: [t]he fact that, during the course of the procurement, one of the two small business offerors is no longer capable of submitting a revised proposal, does not mean the procurement should be viewed as a de facto sole source procurement.”

The GAO denied the protest.

The Synchrogenix case makes the point that if an agency’s market research is sufficient to justify a set-aside, the agency need not adjust its determination if it later comes to realize that it will only receive one offer from a qualified small business.  In other words, it can be permissible for a “rule of two” set-aside to effectively turn into a “rule of one” as the acquisition proceeds.

Interestingly, it’s not clear to me that Synchrogenix was ineligible for the FDA solicitation in the first place.  Under the SBA’s regulations, size ordinarily is determined as of the date of an initial offer; GlobalSummit met that requirement in August 2016.  While there used to be a provision in the regulations allowing contracting officers to require recertifications in connection with certain amendments, that rule was eliminated a few years ago.  And although SBA’s regulations do call for a company to recertify its size if it is acquired by another entity, the SBA Office of Hearings and Appeals held, in Size Appeal of W.I.N.N. Group, Inc., SBA No. SIZ-5360 (2012), that “[t]his provision does not deal with the date for determining size for contract award,” but instead merely addresses whether the agency can count the award toward its small business goals.

It’s a complex area of law, but Sychrogenix might have had better luck if it had protested the FDA’s authority to require a size recertification–or if Synchrogenix had simply submitted an offer and forced the Contracting Officer to go through the SBA size protest process to determine whether Synchrogenix was eligible.


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Koprince Law LLC

For small businesses, 8(a)s, SDVOSBs, HUBZones and WOSBs, few legal requirements in the world of government contracts are as important as those surrounding ownership and control.  I recently joined host Carroll Bernard of Govology for an in-depth podcast exploring these important requirements, including a discussion of common mistakes and misconceptions.

Follow this link to listen to or download the podcast.  And don’t stop there–check out Govology’s other great podcasts with government contracting thought leaders, too.


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Koprince Law LLC

Last month, I wrote that the SBA shouldn’t have awarded the government an “A” for its FY 2016 small business goaling achievement.  Even though the government exceeded the 23% small business goal, it missed the WOSB and HUBZone goals (the latter by a lot).

In a different context, a recent U.S. Army Corps of Engineers proposal evaluation offers a grading lesson for the SBA.  In that case, the Corps assigned a large prime offeror a middling “Acceptable” score for small business participation where the offeror proposed to meet the contract’s overall small business subcontracting goal, but not the SDB, WOSB, HUBZone, VOSB and SDVOSB goals.

The evaluation came to light in a recent GAO bid protest decision, Pond Constructors, Inc., B-414307; B-414307.2 (May 1, 2017).  The Pond Constructors protest involved a Corps solicitation for recurring maintenance and minor repair services.  The solicitation was issued on an unrestricted basis, and award was to be based on four factors: technical approach, past performance, small business participation, and price.

With respect to small business participation, the solicitation set forth various small business goals, including goals for subcontracting to SDBs, WOSBs, HUBZones, VOSBs, and SDVOSBs.  The solicitation stated that offerors would be assigned adjectival ratings of outstanding, good, acceptable, or unacceptable for the small business participation factor.

Pond Constructors, Inc. submitted a proposal.  In its proposal, Pond committed generally to subcontracting 36 percent of the work to small businesses.  However, it did not commit to meeting the goals for SDBs, WOSBs, HUBZones, VOSBs and SDVOSBs.  The Corps assigned Pond a middle-of-the-road “acceptable” score for the small business participation factor, and awarded the contract to a competitor (which scored “outstanding” for its small business participation).

Pond filed a GAO bid protest.  Among its allegations, Pond contended that the Corps should have assigned it a higher score under the small business participation factor.

The GAO noted that Pond had committed to subcontracting 36 percent of the work to small businesses.  However, “Pond’s proposal, on its face, committed to subcontract 0 (zero) percent to small disadvantaged businesses; 0 percent to WOSBs; 0 percent to HUBZone small businesses; 0 percent to VOSBs, and 0 percent to SDVOSBs.”  Accordingly, “the agency’s rating was reasonable because the protester failed to meet any of the solicitation’s small business subcategory participation goals . . ..”

The GAO denied Pond’s protest.

Pond got the adjectival equivalent of a “C,” which is about right (and perhaps even a little generous) for a company that proposed to satisfy the overall small business subcontracting goals, but not the individual socioeconomic goals.  At the national level last year, the government hit its small business target, but missed two of the four socioeconomic goals.  Maybe that deserves a B or B-minus, but in my book, it ain’t A-level achievement if you don’t hit all of the socioeconomic goals.

SBA, I hope you’re taking notes.


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A former owner and officer of a large business has pleaded guilty to conspiracy charges stemming from an illegal pass-through scheme.

According to a Department of Justice press release, Thomas Harper not only conspired to evade limitations on subcontracting, but obstructed justice during a SBA size protest investigation of his company’s relationship with a putative small businesses.

The DOJ press release states that Harper is the former owner and officer of MCC Construction Company.  Between 2008 and 2012, MCC entered into an arrangement with two 8(a) companies.  Under the arrangement, these companies were awarded set-aside contracts “with the understanding that MCC would, illegally, perform all of the work.”  The scheme was successful: MCC ultimately performed 27 government contracts worth $70 million.

During the relevant time period, the GSA filed a size protest with the SBA, arguing that one of the 8(a) companies was affiliated with MCC.  Then, Harper and others “took steps to corruptly influence, impede, and obstruct the SBA size determination protest by willfully and knowingly making false statements to the SBA about the extent and nature of the relationship between MCC and one of the companies.”

Earlier this year, MCC pleaded guilty to conspiracy charges and agreed to pay $1,769,924 in criminal penalties and forfeiture.  Now, as part of his guilty plea, Harper has personally agreed to pay $165,711 in restitution.  Harper also stands to serve 10 to 16 months in prison under current federal sentencing guidelines.

The limitations on subcontracting are a cornerstone of the government’s small business set-aside programs.  After all, there is no public good to be served if a small business essentially sells its certification and allows a large company like MCC to complete all of the work on a set-aside contract.  Cases like that of Harper and MCC show that the SBA and DOJ are serious about cracking down on illegal pass-throughs.  Hopefully, prosecutions like these will give second thoughts to others who might be tempted to break the law.


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Before deciding whether to set-aside a solicitation for small businesses under FAR 19.502-2, should the contracting officer first determine whether those small business will be able to provide the needed services while, at the same time, complying with the limitation on subcontracting?

No, according to a recent GAO bid protest decision. Instead, an agency’s determination whether a small business will comply with the limitation on subcontracting should be made as part of its award decision (following the evaluation of proposals), not during its initial set-aside determination.

Under FAR 19.502-2(b), a procurement with an anticipated dollar amount greater than $150,000 must be set-aside for small businesses where there is a reasonable expectation that offers will be received from at least two responsible small businesses and that award will be made at fair market prices. Though orders under FSS contracts (issued under FAR part 8.4) are exempt from these small business programs, a contracting officer nonetheless has discretion to set-aside FSS orders for small businesses.

In InfoReliance Corporation, B-413298 (Sept. 19, 2016), GAO considered a protest challenging the Federal Bureau of Prisons’ decision to set aside an FSS order for cloud computing services to small businesses. The contracting officer’s market research identified at least eight small businesses that were authorized re-sellers of the Amazon Web Services sought under the order.

InfoReliance, a large businesses, challenged the set-aside decision, arguing that no small businesses would be able to perform the solicited services while complying with the limitation on subcontracting. According to InfoReliance, the small businesses were thus not responsible, and the set-aside decision was unreasonable.

GAO disagreed with InfoReliance. It noted that contracting officers have discretion to set-aside FSS orders for small business concerns, and that InfoReliance did not show BOP violated any law or regulation in exercising its discretion under this solicitation.

GAO also denied InfoReliance’s argument that BOP was required to verify each small business’s responsibility before deciding to set-aside the solicitation. Before setting-aside a solicitation, an agency “need only make an informed business judgment that there are small businesses expected to submit offers that are capable of performing.” An agency need not conduct a formal responsibility analysis before setting-aside a procurement.

Neither was BOP required to analyze the offerors’ potential compliance with the limitation on subcontracting before setting-aside the solicitation. GAO bluntly said:

This argument, however, puts the cart before the proverbial horse: an agency’s determination whether a small business concern will comply with a solicitation’s subcontracting limitation is to be made as part of the award decision, and based on the particular quotation submitted.

GAO denied InfoReliance’s protest.

InfoReliance serves as a reminder that, in deciding whether to issue a solicitation as a small business set-aside, an agency is not required to prospectively evaluate offerors’ potential proposals. This makes sense: because the rule of two analysis is conducted before a solicitation is issued, an agency cannot evaluate yet-to-be-submitted proposals for compliance with subcontracting limits. To do so would, in GAO’s words, put the cart before the horse.


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Last year, during consideration of the 2017 National Defense Authorization Act, the Senate proposed to “reform” the GAO bid protest process by forcing some unsuccessful protesters to pay the government’s costs, and (more controversially) by denying incumbent protesters profits on bridge contracts and extensions.

Congress ultimately chose not to implement these measures.  Instead, Congress called for an independent report on the effect of bid protests at DoD–a wise move, considering that major reforms to the protest process shouldn’t be undertaken without first seeing whether hard data shows that protests are harming the procurement process.

But now, six months before that report is due, the Senate has re-introduced its flawed bid protest proposals as part of the 2018 NDAA.

Earlier this month, the Senate Armed Services Committee issued its report on the 2018 NDAA.  The SASC report recommends that the 2018 NDAA include two major changes concerning GAO bid protests.

First, the bill states that when a “party with revenues in excess of $100.0 million during the previous year” files a GAO bid protest, that party will be required “to pay the Department of Defense costs incurred for processing [the] protest . . . where all elements of such protest are denied in an opinion” by the GAO.

Second, the bill would “require contractors who file a protest on a contract on which they are the incumbent to have all payments above incurred costs withheld on any bridge contracts or temporary contract extensions awarded to the contractor as a result of a delay in award resulting from the filing of such protest.”  The bill would, however, allow the protester to recover its profits under two circumstances: if the solicitation in question is cancelled, or if the GAO “issues an opinion that upholds any of the protest grounds filed under the protest.”

There have been some minor tweaks, but these changes are nearly identical to the provisions that the Senate proposed during consideration of the 2017 NDAA.  And in my opinion, the Senate has it wrong–again.

Presumably, the point of these “reforms” is to discourage losing offerors from filing bid protests, and in particular, to discourage frivolous bid protests by losing incumbents.  But are bid protests rampant?  Are frivolous bid protests rampant?  And are major DoD acquisitions being unduly delayed by protests?

These are the sorts of important questions that the independent report is likely to address.  Although the independent report isn’t due for a few more months, existing data casts doubt on the underlying presumption that protests are frequent, frivolous and causing undue delays.

On the frequency question, Dan Gordon–the former head of the OFPP–did the math, and concluded that, for the years he analyzed, “etween approximately 99.3 percent and 99.5 percent of procurements were not protested.”  This fits with the raw data: in Fiscal Year 2016, only 2,789 bid protests were filed with GAO.

On the frivolity side, even though protesters have the burden of proof, the success rate of GAO protests in FY 2016 was 46%.  This is not an anomaly: year after year, GAO protesters succeed more than 4 out of 10 times.  That’s not to say, of course, that there are no frivolous protests whatsoever, but when almost half of protests succeed, it’s hard to believe that frivolity is a rampant problem.

And what about delays?  Yes, when a GAO bid protest is filed within a certain time frame, it will initiate an automatic suspension of award or performance, as the case may be.  But a procuring agency can override the stay if there is an urgent and compelling need to award the contract.

Even when the agency doesn’t override, the GAO issues its decisions within 100 days after a protest is filed.  To GAO, the 100-day deadline is no mere guidepost–the GAO meets this deadline every single time (except in a few cases during the government shutdown of 2013). The agency can also request that the GAO resolve the protest even faster, using a 65-day express option or another accelerated schedule. The GAO bid protest process is designed to be relatively quick and efficient, and the GAO operates with that goal in mind.

But let’s put the statistics aside and assume for a moment that frequent frivolous protests are causing massive delays to DoD procurements.  I don’t think the Senate’s proposal solves this hypothetical problem.

The portion of the legislation dealing with protest costs may save the government a few bucks, but it’s very unlikely to make a dent in the number of protests.  The way I see it, companies generating $100 million or more in annual revenues already invest thousands upon thousands of dollars in legal fees and internal costs when they file protests.  These larger companies are very unlikely to be dissuaded by the potential of an additional “internal costs” charge if the protest is unsuccessful.

The second item–the one involving bridge contracts and extensions–is much more troubling.  Some (but not all) of my concerns:

  • Many GAO bid protests are resolved in the protester’s favor in ways other than a formal GAO “sustain” decision.  Most frequently, this involves voluntary agency corrective action–something that happened nearly 24% of the time in FY 2016.  As I read the Senate’s current version of the 2018 NDAA, the incumbent protester would still be required to forfeit all profits associated with any bridge contract or extension when the agency takes corrective action.  A corrective action essentially is a win for the protester–so why should the protester be penalized?
Sometimes, large procurements draw multiple protests.  If a losing incumbent is one of, say, five protesters, will the incumbent still be required to perform at cost?  The bill isn’t clear, but it doesn’t seem to make sense to penalize the incumbent in this situation. Many contracts are fixed-price; indeed, Congress recently affirmed its strong preference for DoD contracts to be awarded on a fixed-price basis.  The Senate 2018 NDAA seems to require that any bridge contract or extension to the incumbent be awarded on a cost-reimbursement basis instead.  Not only does this run against policy, but it’s likely to cause major headaches for contracting officials, who will be forced to fundamentally convert the contract type at the very moment the agency needs a quick and easy extension. Speaking of the apparent requirement that the bridge or extension be a cost reimbursement contract, what if the contractor’s accounting system isn’t adequate for cost reimbursement contracts?  Does everyone have to wait around for a DCAA audit?  Good luck with that. What if the underlying contract is for commercial items?  FAR 16.301-3(b) provides that “[t]he use of cost-reimbursement contracts is prohibited for the acquisition of commercial items . . ..” The GAO isn’t the only place a protest can be filed.  If an incumbent is concerned about potentially coughing up its profits on a bridge contract or extension, it can protest at the Court of Federal Claims.  There are no automatic stays at the Court, but a protester can seek a temporary injunction, and agencies sometimes voluntarily stay a procurement pending a Court protest.  Court protests don’t appear to be affected by the legislation.  So will the Senate bill just encourage forum shopping? Nothing requires an incumbent to sign a bridge contract.  Some incumbent protesters may simply say, “thanks, but no thanks,” to the possibility of performing work at cost.  If this happens, the agency may be in a bind, needing important work to continue immediately but without the ability to bridge the incumbent to meet that need.

Beyond all that, I’m skeptical that the second item will do much to reduce bid protests.  Sure, an incumbent takes the risk that it won’t profit from the bridge contract or extension if it loses the protest, but it won’t perform that work at a loss.  On the other hand, if the incumbent wins the protest, it may get its contract back-and might even be awarded its attorneys’ fees and costs.  Under these circumstances, it seems that the risk/reward analysis often will still favor a protest.

The Senate bill is a deeply flawed attempt to fix a problem that doesn’t necessarily exist.  Hopefully this premature and ill-conceived language will be removed in subsequent versions of the 2018 NDAA.  My colleagues and I will keep you posted.


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If you are a service-disabled veteran owned small business or veteran-owned small business, there’s no bigger event than the annual National Veterans Small Business Engagement.

This year’s NVSBE will be in Minneapolis, and is less than a week away.  I am excited to announce that I’ll be presenting four Learning Sessions at the 2016 NVSBE on a variety of legal topics important to SDVOSBs and VOSBs.

The NVSBE’s schedule is subject to change, so please check at the convention site for any adjustments, as well as for the location of each Learning Session.  But as of now, my presentation schedule is as follows:

  • The Ins and Outs of the Nonmanufacturer Rule.  Nov. 2, 9:00 a.m. to 9:45 a.m.
  • SDVOSB Joint Ventures: A Legal Primer.  Nov. 2, 11:10 a.m. to 11:55 a.m.
  • SBA Size and Socioeconomic Programs: Myths vs. Realities.  Nov. 3, 9:00 a.m. to 9:45 a.m.
  • Effective and Compliant Teaming Agreements. Nov. 3, 11:10 a.m. to 11:55 a.m.

If you will be attending the NVSBE, I hope to see you at my Learning Sessions.  And if you’d like the chance to chat about other issues (or just to share my amazement that my Chicago Cubs are actually in the World Series), please stop by the Koprince Law LLC booth on the trade show floor, where I’ll be spending most of my “non-Learning Session” time.

The NVSBE is a tremendous event every year, and the 2016 NVSBE should be no different.  See you there!


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In May 2017, SDVOSBs and VOSBs lodged another big win in their battle to enforce the statutory preferences for veteran-owned companies: the Court of Federal Claims held that the VA cannot buy products or services using the AbilityOne list without first applying the “rule of two” and determining whether qualified SDVOSBs or VOSBs are likely to bid.

But the AbilityOne vendor in question isn’t going down without a fight.  It’s taking the case to the United States Court of Appeals for the Federal Circuit–and the Court of Federal Claims just issued a ruling staying its May decision pending the results of the appeal.

The COFC’s decision in PDS Consultants, Inc. v. United States, No. 16-1063C (2017) was a major victory for SDVOSBs and VOSBs.  In that case, the COFC resolved an apparent conflict between the statutes underlying the AbilityOne program and the VA’s SDVOSB/VOSB preference program.  The COFC held that “the preference for veterans is the VA’s first priority” and trumps the requirement to use AbilityOne as a mandatory source.

But Winston Salem Industries for the Blind Inc., known as IFB Solutions, has appealed the COFC’s decision to the Federal Circuit.  And in a ruling issued on September 1, the COFC held that its original decision would be suspended pending the resolution of IFB’s appeal.

The COFC wrote that there are four factors it will consider when deciding whether to suspend a ruling pending an appeal: “(1) whether the movant has made a strong showing that it is likely to succeed on the merits; (2) whether the movant will be irreparably injured absent an injunction; (3) whether the issuance of the injunction will substantially injure the other interested parties; and (4) where the public interest lies.” These factors are “not necessarily entitled to equal weight,” and the court may be “flexible” in its application of the factors.

Here, all parties agreed that “whether the court properly interpreted the interplay between [the two statutes] is a question of first impression” that “has not been decided by any prior court.”  Thus, “while the court rejected IFB’s argument, it is not possible to determine the likelihood of success on appeal.”

Turning to the second factor, irreparable harm, IFB argued that, if the COFC decision stood, it would lose “62% of its revenue from optical services or 15.5% of its total revenue” by January 1, 2018.  The COFC wrote that “the loss of these contracts would have a severe impact on not only IFB’s optical business but also IFB’s mission as a nonprofit to provide employment, training, and services to persons who are blind.”  Therefore, the COFC found that IFB had established irreparable harm.

Under the third factor, balancing of the harms, PDS argued that a stay would substantially injure PDS and other SDVOSBs because they would not be able to compete for the contracts in question during the pendency of the appeal.  The COFC wasn’t persuaded, writing that the harm PDS identified “is hypothetical” because “t is based on the hope that it would be able to compete for the subject work . . ..”  The COFC “weighed the concrete harm IFB has identified against the hypothetical harm PDS has identified” and found that IFB’s harm outweighed PDS’s.

Finally, with respect to the public interest factor, the COFC wrote that both statutes (AbilityOne and the VA’s veteran preference rules) “serve important public purposes.”  But because IFB had identified concrete harm under the third factor, “the public interest tips in favor of allowing IFB to continue its work of employing blind and severely handicapped individuals under its contracts for VISNs 2 and 7 until the appeal is resolved.”

For these reasons, the COFC granted IFB’s motion for a stay pending appeal.  Under the stay, the VA will be permitted to continue procuring the products in question from IFB until the appeal is resolved.

Interestingly, the VA didn’t take a position on whether the COFC’s ruling should be stayed.  It’s not clear from the public documents why the VA stayed out of the fight, but perhaps the VA is having second thoughts about getting into another long-running legal (and P.R.) battle with veterans.

In any event, the COFC’s ruling is a big disappointment for SDVOSBs and VOSBs, many of whom hoped that the COFC’s May decision would put an end to the question about how the “rule of two” intersects with the AbilityOne program.  Stay tuned.


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It’s been a year of big changes in the government’s SDVOSB programs.  First came the Kingdomware Supreme Court decision, which was soon followed by the SBA’s final rule adopting a new “universal” mentor-protege program–and imposing many new requirements on SDVOSB joint ventures.

On Thursday, August 4, 2016 at 1:00 p.m. Central, I will host a free webinar to discuss these important changes.  To register, just follow this link and complete the brief electronic form, or call Jen Catloth of Koprince Law LLC at (785) 200-8919.

See you online on Thursday!


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

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

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

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

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

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

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

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

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

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

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

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

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


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The 2017 National Defense Authorization Act will essentially prevent the VA from developing its own regulations to determine whether a company is a veteran-owned small business.

Yes, you heard me right.  If the President signs the current version of the 2017 NDAA into law, the VA will be prohibited from issuing regulations regarding the ownership, control, and size status of an SDVOSB or VOSB–which are, of course, the key components of SDVOSB and VOSB status.  Instead, the VA will be required to use regulations developed by the SBA, which will apply to both federal SDVOSB programs: the SBA’s self-certification program and the VA’s verification program.

 

In my experience, the typical SDVOSB believes that VA verification applies government-wide, and relies on that VetBiz “seal” as proof of SDVOSB eligibility for all agencies’ SDVOSB procurements.  But contrary to this common misconception, there are two separate and distinct SDVOSB programs.  The SBA’s self-certification 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 its regulations 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.  And of course, the VA’s regulations require formal verification; the SBA’s call for self-certification.

Despite these important differences, the two programs are largely similar in terms of their requirements.  However, last year, the VA proposed a major overhaul to its SDVOSB and VOSB regulations.  The VA’s proposed changes would, among other things, allow non-veteran minority owners to exercise “veto” power over certain extraordinary corporate decisions, like the decision to dissolve the company.  The SBA has not proposed corresponding changes.  In other words, were the VA to finalize its proposed regulations, the substantive differences between the two SDVOSB programs would significantly increase, likely leading to many more cases in which VA-verified SDVOSBs were found ineligible for non-VA contracts.

That brings us back to the 2017 NDAA.  Instead of allowing the VA and SBA to separately define who is (and is not) an SDVOSB, the 2017 NDAA establishes a consolidated definition, which will be set forth in the Small Business Act, not the VA’s governing statutes.  (The new statutory definition itself contains some important changes, which I will be blogging about separately).

The 2017 NDAA then amends the VA’s statutory authority to specify that “[t]he term ‘small business concern owned and controlled by veterans’ has the meaning given that term under . . . the Small Business Act.”  A similar provision applies to the term “small business concern owned and controlled by veterans with service-connected disabilities.”

Congress doesn’t stop there.  The 2017 NDAA further amends the VA’s statute to specify that companies included in the VA’s VetBiz database must be “verified, using regulations issued by the Administrator of the Small Business Administration with respect to the status of the concern as a small business concern and the ownership and control of such concern.”  At present, the relevant statutory section merely says that companies included in the database must be “verified.”  Finally, the 2017 NDAA states that “The Secretary [of 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.”

So there you have it: the 2017 NDAA consolidates the statutory definitions of veteran-owned companies, and calls for the SBA–not the VA–to issue regulations implementing the statutory definition.  The 2017 NDAA requires the VA to use the SBA’s regulations, and expressly prohibits the VA from adopting regulations governing the ownership and control of SDVOSBs.  These prohibitions, presumably, will ultimately wipe out the two regulations with which many SDVOSBs and VOSBs are very familiar–38 C.F.R. 74.3 (the VA’s ownership regulation) and 38 C.F.R. 74.4 (the VA’s control regulation).

Because both agencies will be using the SBA’s rules, the SBA Office of Hearings and Appeals will have authority to hear appeals from any small business denied verification by the VA.  This is an important development: under current VA rules and practice, there is no option to appeal to an impartial administrative forum like OHA.  Intriguingly, the 2017 NDAA also mentions that OHA will have jurisdiction “of an interested party challenges the inclusion in the database” of an SDVOSB or VOSB.  It’s not clear whether this authority will be limited to appeals of SDVOSB protests filed in connection with specific procurements, or whether competitors will be granted a broader right to protest the mere verification of a veteran-owned company.

So when will these major changes occur?  Not immediately.  The 2017 NDAA states that these rules will take effect “on the date on which the Administrator of the Small Business Administration and the Secretary of Veterans Affairs jointly issue regulations implementing such sections.”  But Congress hasn’t left the effective date entirely open-ended.  The 2017 NDAA provides that the SBA and VA “shall issue guidance” pertaining to these matters within 180 days of the enactment of the 2017 NDAA.  From there, public comment will be accepted and final rules eventually announced.  Given the speed at which things like these ordinarily play out, my best guess is that these changes will take effect sometime in 2018, or perhaps even the following year.

The House approved the 2017 NDAA on December 2.  It now goes to the Senate, which is also expected to approve the measure, then send it to the President.  In a matter of weeks, the 180-day clock for the joint SBA and VA proposal may start ticking–and the curtain may start to close on the VA’s authority to determine who owns or controls a veteran-owned company.

 

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The 2017 National Defense Authorization Act makes some important adjustments to the criteria for ownership and control of a service-disabled veteran-owned small business.

The 2017 NDAA modifies how the ownership criteria are applied in the case of an ESOP, specifies that a veteran with a permanent and severe disability need not personally manage the company on a day-to-day basis, and, under limited circumstances, permits a surviving spouse to continue to operate the company as an SDVOSB.

As I discussed in a separate blog post last week, the SBA and VA currently operate separate SDVOSB programs, and each agency has its own definition of who qualifies as an SDVOSB.  The 2017 NDAA consolidates these definitions by requiring the VA to use the SBA’s criteria for ownership and control.

In addition to consolidating the statutory definitions, the 2017 NDAA makes three important changes to the ownership and control criteria themselves.

First, the 2017 NDAA specifies that stock owned by an employee stock ownership plan, or ESOP, is not considered when the SBA or VA determines whether service-connected veterans own at least 51 percent of the company’s stock.  This portion of the 2017 NDAA essentially overturns a 2015 decision by the SBA Office of Hearings and Appeals, which held that a company was not an eligible SDVOSB because the service-disabled veteran did not own at least 51% of the company’s ESOP class of stock. (The Court of Federal Claims ultimately upheld OHA’s decision later that year).

Second, the 2017 NDAA continues to provide that “the management and daily business operations” of an eligible SDVOSB ordinarily must be controlled by service-disabled veterans.  However, the 2017 NDAA states that if a veteran has a “permanent and severe disability,” the “spouse or permanent caregiver of such veteran” may run the company.  This provision is very similar to the one currently used by the SBA in its regulations; the VA does not currently have a provision whereby a spouse or permanent caregiver may operate an SDVOSB.

But Congress goes a step beyond the SBA’s current regulations.  In a separate paragraph, the 2017 NDAA states that a company may qualify as an SDVOSB if it is owned by a veteran “with a disability that is rated by the Secretary of Veterans Affairs as a permanent and total disability” and who is “unable to manage the daily business operations” of the company.  In such a case, the statute does not specify that the company must be run by the spouse or permanent caregiver.  In other words, for veterans with permanent and total disabilities, the statute appears to allow control by others, such as (perhaps) non-veteran minority owners.  Historically, the SBA and VA have been very skeptical of undue control by non-veteran minority owners, so it will be interesting to see how the agencies interpret and apply this new statutory provision.

Third, the 2017 NDAA states that a surviving spouse may continue to operate a company as an SDVOSB when a veteran dies, provided that: (1) the surviving spouse acquires the veteran’s ownership interest; (2) the veteran had a service connected disability “rated as 100 percent disabling” by the VA, or “died as a result of a service-connected disability” and (3) immediately prior to the veteran’s death, the company was verified in the VA’s VetBiz database.  When the three conditions apply, the surviving spouse may continue to operate the company as an SDVOSB for up to ten years, although SDVOSB status will be lost earlier if the surviving spouse remarries or relinquishes ownership in the company.

This provision is very similar to the one currently found in the VA’s regulations.  At present, the SBA does not have any provisions whereby a surviving spouse can continue to operate an SDVOSB.

That said, the statutory provision–just like the current VA regulation–is quite narrow.  In my experience, there is a common misconception that a surviving spouse is always entitled to continue running a company as an SDVOSB.  In fact, a surviving spouse is only able to do so when certain strict conditions are met.  In many cases, the veteran in question was not 100 percent disabled and didn’t die as a result of a service-connected disability (or the surviving spouse is unable to prove that the service-connected disability caused the veteran’s death).  And in those cases, the surviving spouse is unable to continue claiming SDVOSB status, both under the VA’s current rules and the 2017 NDAA.

2017 NDAA: The National Defense Authorization Act for Fiscal Year 2017 has been approved by both House and Senate, and will likely be signed into law soon. It includes some massive changes as well as some small but nevertheless significant tweaks sure to impact Federal procurements in the coming year. For the next few days, SmallGovCon will delve into the minutia to provide context and analysis so that you do not have to. Visit smallgovcon.com for the latest on the government contracting provisions of the 2017 NDAA.  


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Koprince Law LLC

SDVOSB joint venture agreements will be required to look quite different after August 24, 2016.  That’s when a new SBA regulation takes effect–and the new regulation overhauls (and expands upon) the required provisions for SDVOSB joint venture agreements.

The changes made by this proposed rule will affect joint ventures’ eligibility for SDVOSB contracts.  It will be imperative that SDVOSBs understand that their old “template” JV agreements will be non-compliant after August 24, and that SDVOSBs and their joint venture partners carefully ensure that their subsequent joint venture agreements comply with all of the new requirements.

If you’ve been following SmallGovCon lately (and I hope that you have), you know that we’ve been posting a number of updates related to the SBA’s recent major final rule, which is best known for establishing a universal small business mentor-protege program.  But the final rule also includes many other important changes, including major updates to the requirements for SDVOSB joint ventures.  For those familiar with the requirements for 8(a) joint ventures, most of the new requirements will look familiar; the SBA states that its changes were intended to ensure more uniformity between joint venture agreements under the various socioeconomic set-aside programs.

The SBA’s final rule moves the SDVOSB joint venture requirements from 13 C.F.R. 125.15 to 13 C.F.R. 125.18 (a change of note primarily to those of us in the legal profession).  But the new regulation is substantively very different than the old.  Below are the highlights of the major requirements under the new rule.  Of course (and this should go without saying), this post is educational only; those interested in forming a SDVOSB joint venture should consult the new regulations themselves, or consult with experienced legal counsel, rather than using this post as a guide.

Size Eligibility 

In order to form an SDVOSB joint venture, at least one of the participants must be an SDVOSB, and must also be a small business under the NAICS code assigned to the procurement in question. The other joint venturer can be another small business, or the partner can be the SDVOSB’s mentor under the new small business mentor-protege program or the 8(a) mentor-protege program:

A joint venture between a protege firm that qualifies as an SDVO SBC and its SBA-approved mentor (see [Sections] 125.9 and 124.520 of this chapter) will  be deemed small provided the protege qualifies as small for the size standard corresponding to the NAICS code assigned to the SDVO procurement or sale.

This piece of the new regulation appears to overturn a recent SBA Office of Hearings and Appeals decision, in which OHA held that a mentor-protege joint venture was ineligible for an SDVOSB set-aside contract because the mentor firm was not a large business.

Required Joint Venture Agreement Provisions

Under the new regulations, an SDVOSB joint venture agreement must include the following provisions:

  • Purpose.  The joint venture agreement must set forth the purpose of the joint venture.  This is not a change from the old rules.
  • Managing Member.   An SDVOSB must be named the managing member of the joint venture.  This is not a change from the old rules.
  • Project Manager.  An SDVOSB’s employee must be named the project manager responsible for performance of the contract.  This, too, is not a change from the old rules.  Curiously, unlike in the rules governing small business mentor-protege joint ventures, the SBA doesn’t specify whether the project manager can be a contingent hire, or instead must  be a current employee of the SDVOSB.  The new regulation also doesn’t address OHA case law holding that a specific individual must be named in the agreement (i.e., it’s insufficient to simply state that “an employee of the SDVOSB will be the project manager.”)  It’s unfortunate that the SBA didn’t address that issue; if the SBA agrees with OHA’s rulings, it would have been nice to have the regulations reflect this requirement so that SDVOSBs understand that a specific name is required.
  • Ownership. If the joint venture is a separate legal entity (e.g., LLC), the SDVOSB must own at least 51%.  This is a change from the old rules, which don’t address ownership.
  • Profits. The SDVOSB member must receive profits from the joint venture commensurate with the work performed by the SDVOSB, or in the case of a separate legal entity joint venture, commensurate with its ownership share. This is a change from the old rule, which applies the 51% threshold to all SDVOSBs.  To me, there is no good reason to distinguish between “informal” and “separate legal entity” joint ventures, especially since the SBA (elsewhere in its final rule) concedes that “state law would recognize an ‘informal’ joint venture with a written document setting forth the responsibilities of the joint venture partners as some sort of partnership.”  In other words, an informal joint venture is a legal entity too, just not one that has been formally organized with a state government.  In any event, the long and short of this change is that we can expect to see many more informal SDVOSB joint ventures.  That’s because, using the informal form, the non-SDVOSB will be able to perform up to 60% of the work and receive 60% of the profits (see the discussion of work split below); whereas in a separate legal entity joint venture, the non-SDVOSB will be limited to 49% of profits, no matter how much work the non-SDVOSB performs.
  • Bank Account.  The parties must establish a special bank account” in the name of the joint venture.  This is a change from the old rule, which is silent regarding bank accounts.  The account “must require the signature of all parties to the joint venture or designees for withdrawal purposes.” All payments to the joint venture for performance on an SDVOSB will be deposited in the special bank account; all expenses incurred under the contract will be paid from the account.
  • Equipment, Facilities, and Other Resources. Itemize all major equipment, facilities, and other resources to be furnished by each venturer, along with a detailed schedule of the cost or value of such items. This is a change from the old rule, which doesn’t require this information to be set forth in an SDVOSB joint venture agreement.  In a recent court decision, an 8(a) joint venture was penalized for providing insufficient details about these items—even though the contract in question was an IDIQ contract, making it difficult to provide a “detailed schedule” at the time the joint venture agreement was executed. Perhaps in response to that decision, the new regulations provide that “if a contract is indefinite in nature,” such as an IDIQ, the joint venture “must provide a general description of the anticipated major equipment, facilities, and other resources to be furnished by each party to the joint venture, without a detailed schedule of cost or value of each, or in the alternative, specify how the parties to the joint venture will furnish such resources to the joint venture once a definite scope of work is made publicly available.”
  • Parties’ Responsibilities.  Specify the responsibilities of the venturers with regard to contract negotiation, source of labor, and contract performance, including ways that the parties will ensure that the joint venture will meet the performance of work requirements set forth in the new rule.  Again, if the contract is indefinite, a lesser amount of information will be permitted.  This is an update from the old rule, which requires information on contract negotiation, source of labor, and contract performance, but does not require a discussion of how the SDVOSB joint venture will meet the performance of work requirements.
  • Ensured Performance. Obligate all parties to the joint venture to ensure complete performance despite the withdrawal of any venturer. This is not a change from the current rule.
  • Records. State that accounting and other administrative records of the joint venture must be kept in the office of the small business managing venturer, unless the SBA gives permission to keep them elsewhere. Additionally, the joint venture’s final original records must be retained by the small business managing venturer upon completion of the contract. These provisions, which are not included in the old rule, seem dated in the assumption that records will be kept in paper form; it instead would have been nice for the SBA to allow for more modern record-keeping, like a cloud-based records system that enables documents to be available in real-time to both parties.
  • Statements. Provide that quarterly financial statements showing cumulative contract receipts and expenditures (including salaries of the joint venture’s principals) must be submitted to the SBA not later than 45 days after each operating quarter of the joint venture. This language, which was basically copied from the 8(a) program regulations, doesn’t specify who might be a “joint venture principal” in a world in which populated joint ventures have been eliminated. The joint venture agreement must also state that the parties will submit a project-end profit-and-loss statement, including a statement of final profit distribution, to the SBA no later than 90 days after completion of the contract.  I find these requirements a bit odd because, unlike for 8(a) joint ventures, the SBA doesn’t pre-approve SDVOSB joint ventures, nor does it seem that the SBA will review a particular SDVOSB joint venture agreement except in the case of a protest.  So why the ongoing requirement for submitting financial records?

While I wish that every SDVOSB would call qualified legal counsel before setting up an SDVOSB joint venture, the reality is that many SDVOSBs attempt to cut costs by relying on joint venture agreement “templates” obtained from a teammate or even from questionable internet sources.  Using SDVOSB joint venture agreement templates is risky enough under the old rules, but will be an even bigger problem after August 24, when all those old templates become severely outdated.  I hope that all SDVOSBs become aware of the need to have updated joint venture agreements meeting the new regulatory requirements, but I won’t be surprised to see some SDVOSB joint ventures using outdated templates in the months to come–and losing out on SDVOSB set-asides as a result.

Performance of Work Requirements

In addition to setting forth many new and changed requirements for SDVOSB joint venture agreements, the new regulation also specifies that, for any SDVOSB contract, “the SDVO SBC partner(s) to the joint venture must perform at least 40% of the work performed by the joint venture.”  That work “must be more than administrative or ministerial functions so that [the SDVOSBs] gain substantive experience.”  The joint venture must also comply with the limitations on subcontracting set forth in 13 C.F.R. 125.6.

And that’s not all: the SDVOSB partner to the joint venture “must annually submit a report to the relevant contracting officer and to the SBA, signed by an authorized official of each partner to the joint venture, explaining how and certifying that the performance of work requirements are being met.”  Additionally, at the completion of the SDVOSB contract, a final report must be submitted to the contracting office and the SBA, “explaining how and certifying that the performance of work requirements were met for the contract, and further certifying that the contract was performed in accordance with the provisions of the joint venture agreement that are required” under the new regulation.

Past Performance and Experience 

Many SDVOSBs will groan at the new paperwork and reporting requirements established under the new regulation.  But the SBA has inserted at least one provision that is a definite “win” for SDVOSBs and their joint venture partners: the new regulation requires contracting officers to consider the past performance and experience of both members of an SDVOSB joint venture.  The regulation states:

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

Small businesses sometimes assume that agencies are required to consider the past performance and experience of the individual members of a joint venture–but until now, that wasn’t the case.  True, many contracting officers considered such experience anyway, but there have been high-profile examples of agencies refusing to consider the past performance of a joint venture’s members.  Of course, a joint venture is defined as a limited purpose arrangement, so it makes no sense to require the joint venture itself to demonstrate relevant past performance.  This change to the SBA’s regulations is important and helpful.

The Road Ahead

After August 24, 2016, those old template SDVOSB joint venture agreements won’t be anywhere close to compliant, so SDVOSBs should act quickly to educate themselves about the new regulations and adjust any planned joint venture relationships accordingly.  For SDVOSBs and their joint venture partners, the landscape is about to shift.


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