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Koprince Law LLC

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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Koprince Law LLC

Two Missouri men have been indicted for allegedly perpetrating an SDVOSB “rent-a-vet” scheme to fraudulently obtain 20 contracts totaling more than $13.8 million.

According to a Department of Justice press release, the veteran in question nominally served as the company’s President, but did not control the company’s strategic decisions or day-to-day management–in fact, the veteran apparently was working full-time for the DoD instead of managing the SDVOSB.

The indictment contends that Jeffrey Wilson, who is not a service-disabled veteran, owned a Missouri-based construction company.  According to the DOJ, Wilson conspired with Paul Salavtich, a service-disabled veteran, to obtain SDVOSB set-aside contracts with the VA and Army.

Salavitch was nominally the President of his company, Patriot Company, Inc.  However, the DOJ contends, Mr. Salavitch did not actually manage Patriot’s long-term decisions or day-to-day operations, nor did he work full-time for Patriot.  Instead, Salavitch was a full-time employee with the DoD, based in Leavenworth, Kansas.  The indictment suggests that Mr. Wilson, not Mr. Salavitch, actually controlled the company.

The indictment is rife with examples of conduct that appear to suggest that the conspirators knew that what they were doing was wrong–and were taking steps to try to hide it.  For example, when Patriot was leasing new space, Mr. Wilson stated in an email that he wanted a “thing or two” from Mr. Salavitch “to put in that office that is personal.”  Mr. Wilson stated that the purpose of obtaining these personal items was so “if one stepped into [the office], it would look and feel like Patriot.”

It will be up to a judge or jury to decide why Mr. Wilson made statements like these, but here’s one guess: Mr. Wilson was aware that the VA Center for Verification and Evaluation performs unannounced on-site visits, and, for the benefit of potential VA inspectors, was attempting to create the impression that Mr. Salavitch actually worked out of the Patriot office.

The indictment alleges that Patriot was awarded 20 SDVOSB and VOSB set-aside contracts with the VA and Army, totaling $13,819,522.  The contracts included construction projects across the Midwest; the largest contract was $4.3 million.

Mr. Wilson, Mr. Salavitch and Patriot are charged with conspiracy and four counts of major government contract fraud.  Mr. Wilson is also charged with one count of wire fraud and two counts of money laundering.  The indictment contains forfeiture obligations, which would require Mr. Wilson and Mr. Salavitch to forfeit any property derived from the proceeds of the fraud scheme.  Law enforcement has already seized over $2 million from various financial accounts.

As with any indictment, the defendants are entitled to a presumption of innocence.  But if Mr. Wilson and Mr. Salavitch are found guilty, perhaps they will find themselves better acquainted with Leavenworth than they would have hoped.  I’ll keep you posted.


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Koprince Law LLC

SDVOSB fraud allegations, stemming from a “secret side agreement” between two joint venture partners, have resulted in a grand jury indictment against the companies and their owners.

According to a Department of Justice press release, an SDVOSB and non-SDVOSB executed a joint venture agreement that appeared to meet the SBA’s requirements, but later undermined the JV agreement with a secret agreement that provided that the non-SDVOSB would run the jobs–and receive 98% of the revenues.

The DOJ press release states that Action Telecom, Inc. and A&D General Contracting, Inc. formed a joint venture named Action-A&D, A Joint Venture.  The parties signed a joint venture agreement specifying that Action (which supposedly was an SDVOSB) would be the managing venturer, employ a project manager for each SDVOSB contract, and receive a majority of the JV’s profits.

But six months later, the owners of the two companies “signed a secret side agreement that made clear the JV was ineligible under the SDVOSB program.”  For instance, the side agreement stated that A&D (apparently a non-SDVOSB) would run the joint venture’s jobs and retain 98% of all government payments.  Additionally, consistent with the side agreement, A&D–not Action–appointed the joint venture’s project manager.  The side agreement specified that it superseded the original joint venture agreement, and that its purpose was to allow A&D to “use the Disabled Veteran Status of Action Telecom” to bid on contracts.

The DOJ says that twice, the government asked the joint venture for information about itself.  Both times the joint venture provided the original JV agreement, but not the secret side agreement.

Over time, the joint venture was awarded approximately $11 million in government contracts.

On April 7, a grand jury returned a 14-count indictment against the companies and their owners.  The charges include wire fraud, conspiracy, and major government contract fraud, among others.  The defendants were arraigned on April 21.  The same defendants also face civil charges in a False Claims Act lawsuit pending in California federal court.

As is the case with all criminal defendants, Action, A&D and their owners are presumed innocent.  But if they are found guilty, they deserve some tough penalties.  After all, an SDVOSB joint venture agreement is worthless if the parties develop a secret side agreement to circumvent and undermine the requirements for SDVOSB management and control.  If it turns out that the the government’s allegations are true, the defendants not only defrauded the government (and honest SDVOSBs) but actually thought it was a good ideal to document their fraud in writing.  There used to be a TV show about crooks like that.


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Koprince Law LLC

An SDVOSB set-aside contract was void–and unenforceable against the government–because the prime contractor had entered into an illegal “pass-through” arrangement with a non-SDVOSB subcontractor.

In a recent decision, the Civilian Board of Contract Appeals held that a SDVOSB set-aside contract obtained by misrepresenting the concern’s SDVOSB status was invalid from its inception; therefore, the prime contractor had no recourse against the government when the contract was later terminated for default.

Bryan Concrete & Excavation, Inc., CBCA 2882, 2016 WL 4533096 involved a U.S Marine Corps veteran with a 100% disability rating, Jerry Bryan. Mr. Bryan owned and operated a construction company, Bryan Concrete & Excavation, Inc., which he started in 1999. In 2006, BCE was hired as a subcontractor on a number of projects overseen by Arthur Wayne Singleton.

After learning of Mr. Bryan’s service disabled status, Mr. Singleton urged BCE to start bidding on SDVOSB set-aside contracts. Mr. Singleton offered to assist BCE in getting qualified as an SDVOSB, bidding on federal projects, and managing those projects. During this time, Mr. Bryan and Mr. Singleton entered into a teaming agreement, which stipulated Mr. Singleton would perform all of work on the set-aside contracts for BCE and BCE would pay Singleton for the direct costs and overhead plus 90 percent of the anticipated gross profit. Despite the impermissible pass-through arrangement, BCE self-certified in the VA’s SDVOSB database (this was before the formal verification process required today).

In 2010, the VA issued an SDVOSB set-aside solicitation for chiller and air handling equipment upgrades. BCE submitted a bid, which was alleged to contain a forgery of Mr. Bryan’s signature by Mr. Singleton.  Further complicating matters, Mr. Singleton misrepresented himself to the VA as Mr. Bryan, during discussions of the proposal. BCE was the awarded the contract.

A number of performance issues hampered the of the contract and the VA ultimately terminated the contract default. BCE filed an appeal with the CBCA, seeking to overturn the termination.

During the course of the appeal, the VA learned for the first time that the teaming agreement between Mr. Singleton and Mr. Bryan compromised BCE’s eligibility as an SDVOSB. The VA subsequently moved for the CBCA to grant summary relief for the VA on the ground that BCE’s contract was void from the start and therefore unenforceable because it was obtained by misrepresenting BCE’s SDVOSB eligibility status to the VA.

As the CBCA explained, for the VA to prevail on its motion, it had to demonstrate that BCE had obtained the contract by knowingly making a false statement. The CBCA concluded the VA had met its burden because BCE had received a VA contract by misrepresenting its SDVOSB status. Since the misrepresentation occurred before the contract was awarded, the entire award was tainted from the beginning and thus void ab initio—from the beginning.

BCE countered that even if the contract was void from the start, subsequent dealings with the VA had created implied contracts that BCE had rights under. The CBCA was not impressed by these arguments and concluded:

While BCE may believe that it has the right to enforce a new agreement that ‘adopts the terms of the agreement that has been deemed void,’ whether through equitable estoppel, promissory estoppel, or other legal theories, the law does not work that way. ‘No tribunal of law will lend its assistance to carry out the terms of an illegally obtained contract.’

BCE’s case highlights just how little tolerance there is for concerns who misrepresent themselves to gain SDVOSB set-aside contracts. Not only can the government impose fines, jail terms, and other penalties, but the underlying contract can be considered void from the outset.

Oh, and speaking of jail time–Mr. Singleton was sentenced to two years in prison back in 2013.

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


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Koprince Law LLC

After receiving “numerous” public comments, the VA has confirmed today that the extended three-year SDVOSB and VOSB verification term–originally adopted in February 2017–will remain in effect indefinitely. Before February, SDVOSBs and VOSBs were required to be reverified every two years.

When the VA originally adopted its SDVOSB and VOSB program regulations in 2010, the VA required participants to be reverified annually.  Needless to say, many early participants in the program weren’t happy with the requirement for reverification every year.  (VA might not have been too happy, either, since this undoubtedly created a lot of extra work for it, too).

In 2012, the VA extended the eligibility period to two years.  Then, in February 2017, the VA issued an “interim final rule,” further extending the period to three years.  At the time, the VA said that it would accept public comment on the interim final rule, then issue a final rule responding to those comments.

Now, the final rule is here, and the VA is sticking with the three-year eligibility period.

In the final rule, the VA reiterates that it is confident that “the integrity of the verification program will not be compromised by establishing a three year eligibility period.”  The VA points out that in Fiscal Year 2016, “from a total of 1,109 reverification applications, only 11 were denied,” or less than one percent.  And, the VA writes, there are other means of discovering ineligible participants, including “random, unannounced inspections” and “status protests” by VA contracting officers and other SDVOSBs and VOSBs.  Therefore, the “risk of extending the period from two to three years is very low.”

The VA says that “[n]umerous commenters expressed support for the extension of the eligibility period, asserting that it allows veterans more time to focus on the success of their business, and reduces the administrative burden of gathering and submitting the required documentation.”  Amen to that.

The VA has adopted its original interim rule without change, meaning that the three-year verification period is now in place indefinitely.


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Koprince Law LLC

A North Carolina couple is heading to prison after being convicted of defrauding the SDVOSB and 8(a) Programs.

According to a Department of Justice press release, Ricky Lanier was sentenced to 48 months in federal prison and his wife, Katrina Lanier, was sentenced to 30 months for their roles in a long-running scheme to defraud two of the government’s cornerstone socioeconomic contracting programs.

According to the DOJ press release, Ricky Lanier was the former owner of an 8(a) company.  When his company graduated, Ricky Lanier apparently wasn’t satisfied with the ordinary routes that former 8(a) firms use to remain relevant in the 8(a) world, such as subcontracting to current 8(a) firms and/or becoming a mentor to an 8(a) firm under the SBA’s 8(a) mentor-protege program.

Instead, Mr. Lanier helped form a new company, Kylee Construction, which supposedly was owned and managed by a service-disabled veteran.  In fact, the veteran (a friend of Ricky Lanier) was working for a government contractor in Afghanistan, and wasn’t involved in Kylee’s daily management and business operations.

The Laniers also used JMR Investments, a business owned by Ricky Lanier’s college roommate, to obtain 8(a) set-aside contracts.  As was the case with Kylee, the Laniers misrepresented the former roommate’s level of involvement in the daily management and business operations of JMR.

If that wasn’t enough, “[t]he scheme also involved sub-contracting out all or almost all of the work on the contracts in violation of program requirements.”  In other words, not only were Kylee and JML fraudulently obtaining set-aside contracts, they were also serving as illegal “pass-throughs.”

Over the years, Kylee Construction was awarded $5 million in government contracts and JMR was awarded $9 million.  The Laniers themselves received almost $2 million in financial benefits from their fraudulent scheme.

People like the Laniers undermine the integrity of the set-aside programs and steal contracts from deserving SDVOSBs and 8(a) companies.  Here’s hoping that the prison sentences handed down in this case will not only punish the Laniers for their fraud, but help convince other potential fraudsters that the risk just isn’t worth it.


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Koprince Law LLC

With the finalization of the new SBA Small Business Mentor Protégé Program, other agencies without statutorily-authorized mentor-protege programs must seek SBA approval of their mentor-protege programs within one year, if they wish those programs to continue.

In a final rule scheduled to be effective August 24, 2016, the SBA questioned the need for other agencies (except the Department of Defense) to continue to operate their own mentor-protege programs, but provided a road map for agencies to preserve their separate mentor-protege programs if they wish.

 

As we have discussed in detail on SmallGovCon, the new “universal” small business mentor-protégé program establishes a government-wide program open to all small businesses, consistent with the SBA’s mentor-protégé program for participants in SBA’s 8(a) Program. But the final rule doesn’t just add a new SBA mentor-protege program–it may also signal the end of many other Federal mentor-protege programs.

Under the final rule, a Federal department or agency can no longer operate its own mentor-protégé program, unless: 1) the agency submits a program plan to the SBA, and 2) receives the SBA Administrator’s approval of the plan within one year of the SBA’s mentor-protégé regulations finalization. The requirement for SBA approval does not apply to DoD, which has special statutory authority to operate its own mentor-protege program. However, the SBA approval requirement does apply to most other Federal mentor-protege programs, including those operated by the VA, NASA, DHS, State Department, and so on.

The SBA “received only a few comments” regarding the proposal to require most agencies to obtain SBA approval to continue independent mentor-protege programs. These commenters “agreed with the statutory provisions in questioning the utility of other Federal mentor-protege programs” now that the SBA has established a mentor-protege program open to all small businesses. However, commenters raised two specific concerns about the potential phase-out of other agencies’ mentor-protege programs: 1) Would the new regulations be a disincentive for mentors to utilize their protégés as subcontractors? And, 2) would the SBA have the necessary resources to handle mentor-protégé applications for the entire government?

Many of the other agency-specific mentor-protégé programs incentivize mentors to utilize their protégés as subcontractors. For example, some agencies provide additional evaluation points to a large business submitting an offer on an unrestricted procurement where the large business is using its protege as its subcontractor. Other agencies give a large prime contractor additional credit toward its subcontracting plan goals where the large prime contractor uses its protege as a subcontractor.

The SBA acknowledged that the new small business mentor-protege program “assume more of a prime contractor role for proteges, but would also encourage subcontracts from mentors to proteges as part of the developmental assistance that proteges receive from their mentors.” The SBA declined to adopt specific subcontracting incentives as part of its final rule, but will allow individual procuring agencies the flexibility to do so. The SBA writes:

SBA believes that it is up to individual procuring agencies whether to provide subcontracting incentives for any specific procurement, SBA also believes that these incentives should be authorized and used, where appropriate. As such, this final rule identifies subcontracting incentives as a possible benefit to be provided by procuring activities in appropriate circumstances. The final rule authorizes procuring activities to provide incentives in the contract evaluation process to a firm that will provide significant subcontracting work to its SBA-approved protégé firm.

With respect to the processing of mentor-protege applications, the SBA writes that it is “working to adequately process mentor-protege applications,” but if it is unable to handle the volume of applications and agreements, the SBA may institute “open” and “closed” periods wherein the SBA would only accept mentor-protégé applications in the “open” periods. Since the SBA itself is unable to predict whether it will have the resources to process mentor-protege applications year-round, other agencies will have to decide for themselves whether this uncertainty is a reason to maintain separate mentor-protege programs.

The government’s mentor-protege programs have been in a state of flux since early 2013, when Congressfirst directed the SBAto adopt rules governing other agencies’ mentor-protege programs. In 2017, we should finally get some long-awaited clarity as to whether other agencies’ mentor-protege programs will continue.

 

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By the middle of this year, the U.S. Small Business Administration should have a strategy in place to assist small businesses with cybersecurity.

The 2017 National Defense Authorization Act is chock full of interesting legal changes for government contractors, and although we have chronicled it in depth, that does not mean there is not necessarily more to be mined from the whopping 1,587-page legislation.

Buried in section 1841, the 2017 NDAA contains an interesting directive for the new head of the SBA–who, pending Senate confirmation, will be former CEO of the professional wrestling franchise WWE, Linda McMahon. Section 1841 instructs the SBA head to work with the Department of Homeland Security to develop a cybersecurity strategy for small businesses.

Cybersecurity–especially the lack of it–has been in the news quite a bit lately. But cybersecurity is not only a concern for government agencies and massive global conglomerates. Cybersecurity should be a concern for all businesses, no matter how small. Indeed, the hack that led to the release of millions of personal information belonging to government workers has reportedly been linked to a government contractor. And, although popular culture depicts hackers cracking the firewall and breaking the encrypted code, the truth is that many hackers are mostly adept at taking advantage of carelessness and human error.

In order to help small businesses deal with this threat, the 2017 NDAA instructs the new SBA Administrator and the Secretary of Homeland Security to work together to create a strategy for small businesses development centers that will seek to protect small businesses from cybersecurity threats. The content of the strategy, according to the NDAA, must include plans to allow Small Business Development Centers access to existing DHS and other federal agency services, as well as methods for providing counsel and assistance to small businesses, including training, assistance with implementation, information sharing agreements, and referrals to specialists when necessary.

The strategy also must include an analysis of how SBDCs can rely on existing government programs to benefit small businesses, identify additional resources that may be needed, and explain how SBDCs can leverage partnerships with Federal, State, and local government entities to enhance cybersecurity.

The SBA Administrator must collaborate with with the DHS Secretary no later than 180 days after enactment of the bill (President Obama signed the 2017 NDAA on December 23) and submit the strategy to the Committees on Homeland Security and Small Business of the House of Representatives and the Committees on Homeland Security and Governmental Affairs and Small Business and Entrepreneurship of the Senate.

For small contractors, the new policy comes at a good time.  Last summer, the FAR Council issued a final rule titled “Basic Safeguarding of Contractor Information Systems.”  The rule created two new FAR provisions (FAR 4.19 and FAR 52.204-21); together, these FAR provisions impose fifteen specific requirements for safeguarding “covered contractor information systems.”  The new FAR requirements supplement DFARS 252.204-7012 (Safeguarding Covered Defense Information and Cyber Incident Reporting), which imposes several more requirements on covered DoD contractors.  Clearly, policymakers are focusing on ensuring that contractors appropriately protect electronic information.

Many small contractors could use help understanding and complying with the FAR and DFARS cybersecurity requirements and adopting best practices for cybersecurity. Thus, by the middle of this year, the SBA should have a strategy in place to assist small businesses stave off the threat of cyber attack. Only time will tell whether this strategy will prove effective, but the notion of assisting small businesses in this arena is certainly a positive step.


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The recently-finalized SBA small business mentor-protege program will change the landscape of set-aside contracting–for large businesses and small contractors alike.

I am excited to announce that Koprince Law LLC has partnered with GOVOLOGY to offer a live electronic training on this important new program.  Please join us on August 11, 2016 at 12:00 p.m. Central for this 90 minute training.  The training is open to the public, so please follow this link to register.  If you’re a Koprince Law LLC client or SmallGovCon newsletter subscriber, check your email for a special discount code.

See you online on August 11!


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Circle October 1, 2o16 on your calendar: that’s when the SBA will begin accepting applications for its new universal small business mentor-protege program.

According to the SBA’s new website for the small business mentor-protege program, applications will only be accepted through the SBA’s new certify.sba.gov portal.  The SBA’s new website also has an overview on the small business mentor-protege program itself and a discussion of the eligibility requirements for the program.

For prospective mentors and proteges alike, there’s no time to waste in order to take immediate advantage of the new mentor-protege program.  Watch this space for additional information as the SBA makes it available.


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A small business cannot file a viable SBA size protest if the small business has been excluded from the competitive range, or if its proposal has otherwise found to be non-responsive or technically unacceptable.

In its recent final rule addressing the limitations on subcontracting, the SBA also clarifies when small businesses can–and cannot–file viable size protests.

Under the SBA’s current regulation, a size protest may be filed by “[a]ny offeror whom the contracting officer has not eliminated for reasons unrelated to size.”  Many small businesses and contracting officers have found this regulation confusing, both because it contains a double negative and because it is unclear when an offeror has (or has not) been “eliminated” from a competition.

In its new final rule, the SBA states that its intent “is to provide standing to any offeror that is in line or [under] consideration for award, but not to provide standing for an offeror that has been found to be non-responsive, technically unacceptable, or outside of the competitive range.”  The SBA points out that, while such offerors cannot file viable size protests of their own, “SBA and the contracting officer may file a size protest at any time, so any firm, including those that do not have standing, may bring information pertaining to the size of the apparent successful offeror to the attention of SBA and/or the contracting officer for their consideration.”

The new rule provides that a size protest can be filed  by “[a]ny offeror that the contracting officer has not eliminated from consideration for any procurement-related reason, such as non-responsiveness, technical unacceptability or outside of the competitive range.”  The rule takes effect June 30, 2016.


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

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

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

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

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

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

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

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

OHA denied K4’s size appeal.

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


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Stating that populated joint ventures have now been eliminated, the SBA has revised its 8(a) joint venture regulations to reflect that change.

In a technical correction published today in the Federal Register, the SBA flatly states that an earlier major rulemaking eliminated populated joint venture, and tweaks the profit-sharing piece of its 8(a) joint venture regulation to remove an outdated reference to populated joint ventures.  But even following this technical correction, there are three important points of potential confusion that remain (at least in my mind) regarding the SBA’s new joint venture regulations.

If you’re a SmallGovCon reader (and I’m assuming you are, since you’re here), you know that the SBA made some major adjustments to its rules regarding joint ventures earlier this year.  Among those changes, the SBA amended the definition of a joint venture to state that, among other things, a joint venture “may be in the form of a formal or informal partnership or exist as a separate legal entity.”  If the joint venture is a separate legal entity, it “may not be populated with individuals intended to perform contracts,” although the joint venture may still be populated with one or more administrative personnel.

When the SBA made this change, it apparently forgot to adjust its 8(a) joint venture regulation to reflect the elimination of “separate legal entity” populated joint ventures.  The 8(a) joint venture regulation, 13 C.F.R. 124.513, continued to provide that each 8(a) joint venture agreement must contain a provision “Stating that the 8(a) Participant(s) must receive profits from the joint venture commensurate with the work performed by the 8(a) Participant(s), or in the case of a populated separate legal entity joint venture, commensurate with their ownership interests in the joint venture.”

In today’s technical correction, the SBA writes that “because SBA eliminated populated joint ventures,” the reference to a populated separate legal entity joint venture in 13 C.F.R. 124.513 “is now superfluous and needs to be deleted.”  The SBA has amended 13 C.F.R. 124.513 to provide that an 8(a) joint venture agreement must contain a provision “Stating that the 8(a) Participant(s) must receive profits from the joint venture commensurate with the work performed by the 8(a) Participant(s).”

So far, so good.  But even after this technical correction, I have three important points of confusion regarding the SBA’s new joint venture regulations.

Are all populated JVs eliminated? 

In today’s technical correction, the SBA states that populated joint ventures have been eliminated.  But the regulation itself only prohibits populated joint ventures when the joint venture is a “separate legal entity,” such as a limited liability company.  The SBA may believe that the employees of the joint venture partners are themselves employees of the joint venture when the joint venture is an informal partnership–but that’s unclear from the regulations and the SBA’s accompanying commentary.

Could two companies form an informal partnership-style joint venture, and then populate the partnership with employees who aren’t on either partner’s individual payroll?  That might not be advisable for various reasons, but the possibility appears to be left open in the SBA’s revised joint venture regulations.

Which regulation do 8(a) M/P JVs follow for small business set-asides?  

When an 8(a) mentor-protege joint venture will pursue a small business set-aside contract, the revised regulations suggest that the joint venture agreement must conform with two separate regulations.  And, in the case of the profit-splitting provision that I discussed earlier, the regulations appear to conflict with one another.

Bear with me here, because this involves following a regulatory bouncing ball.  Under the SBA’s size regulations at 13 C.F.R. 121.103(h), in order for an 8(a) mentor-protege joint venture to avail itself of the regulatory exception from affiliation (the exception that allows a joint venture to be awarded a set-aside contract without regard to the mentor’s size), the joint venture “must meet the requirements of 13 C.F.R. 124.513(c) and (d) . . ..”  This requirement applies “for any Federal government prime contract or subcontract,” including non-8(a) contracts.

Turning to 13 C.F.R. 124.513(c), the SBA’s 8(a) joint venture regulation, we see a list of mandatory provisions that the joint venture agreement must contain.  Among those mandatory provisions, as I mentioned previously, is a requirement that the parties divide profits commensurate with work share.  The 8(a) firm’s work share can be as low as 40% of the joint venture’s work, meaning that the 8(a) firm could receive a 40% profit share.

So far, so good.  But let’s say that the joint venture will pursue a small business set-aside contract, not an 8(a) contract.  The SBA’s new regulation governing joint ventures for small business set-aside contracts, 13 C.F.R. 125.8, provides that “every joint venture agreement to perform a contract set aside or reserved for small business between a protege small business and its SBA approved mentor authorized by [13 C.F.R.] 125.9 or 124.520 must contain” a list of required provisions set forth in 13 C.F.R. 125.8(b).  13 C.F.R. 124.520 is the regulation establishing the 8(a) mentor-protege program, which means that the list of required provisions under 13 C.F.R. 125.8 applies to 8(a) mentor-protege joint ventures seeking small business set-aside contracts.

While the list of required provisions in 13 C.F.R. 125.8 is very similar to that of 13 C.F.R. 124.513, there is one major difference.  Under 13 C.F.R. 125.8, the joint venture agreement must contain a provision “stating that the small business must receive profits from the joint venture commensurate with the work performed by the small business, or in the case of a separate legal entity joint venture, commensurate with their ownership interests in the joint venture.”  The 8(a) protege must hold a minimum 51% ownership interest, meaning that the 8(a) must receive at least a 51% profit share.

So let’s say that an 8(a) protege and its large mentor form a limited liability company joint venture to pursue a small business set-aside.  In order to avail themselves of the mentor-protege exception from affiliation, the mentor and protege are required to adopt a joint venture agreement pledging to split profits based on work share, with a potential minimum share of 40% for the 8(a) protege.  But in order to comply with 13 C.F.R. 125.8, the joint venture agreement must pledge to split profits based on each party’s respective ownership interest in the joint venture, with a potential minimum share of 51% for the 8(a) protege.  These provisions are inconsistent, and it’s not clear how a joint venture could readily comply with both.

Can SDVOSB Joint Ventures Use “Contingent Hire” Project Managers?

For mentor-protege joint ventures pursuing small business set-aside contracts, as well as all joint ventures pursuing 8(a), SDVOSB, HUBZone, and WOSB contracts, the SBA’s regulations require that an employee of the Managing Venturer be named the Project Manager responsible for contract performance.  In its revised regulations for small business, 8(a), HUBZone, and WOSB set-asides, the SBA added a new provision stating that “the individual identified as the project manager of the joint venture need not be an employee of the small business at the time the joint venture submits an offer, but if he or she is not, there must be a signed letter of intent that the individual commits to be employed by the small business if the joint venture is the successful offeror.”

This provision makes a lot of sense, because small businesses don’t often have under-employed Project Managers (who are often rather highly compensated) on payroll, just sitting around waiting for potential contracts to be awarded.  Instead, a Project Manager is often formally hired only when a contract award is made.

Strangely, though, unlike for the rest of its small business programs, the SBA did not adopt this “contingent hiring” language in its revised regulation for SDVOSB joint ventures.  That regulation, 13 C.F.R. 125.18, simply states that the joint venture must designate “an employee of the SDVO SBC managing venturer as the project manager responsible for performance of the contract.”

Did the SBA intend to prohibit SDVOSB joint ventures from using contingent hire project managers?  My best guess is that this was an oversight; I don’t see any good reason to differentiate SDVOSB joint ventures from other joint ventures in this regard.  But unless and until the SBA clarifies the matter, it may be risky business for SDVOSB joint ventures to rely on contingent hires to satisfy the Project Manager requirement.

In Conclusion

Almost any major rulemaking ultimately requires some clarifications and corrections, and I’m glad that the SBA is working to clarify the rule it adopted this summer.  That said, some confusion seems to remain, and I hope that further clarification is coming.


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A protester’s failure to be specific enough in an SDVOSB status protest will result in dismissal of the protest.

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

Jamaica Bearings involved a solicitation issued as an SDVOSB set-aside by the Defense Logistics Agency for 77 Parts Kits, Linear AC. Jamaica Bearings Company (JBC) was awarded the contract. JBL System Solutions, Inc. (JBL), an unsuccessful offeror, submitted a timely protest stating, “‘while [JBC] may or may not be owned and operated by a qualified Service Disabled Veteran, they do not meet the qualifications of the SBA to be a Small Business.’ (Protest, at 1),” and added that due to Jamaica Bearing Company’s size, the company should not pretend to be an SDVOSB.

Although the protester offered no evidence to support its claim that JBC “may” not be an eligible SDVOSB, the SBA’s Director of Government Contracting (D/GC) initiated a full investigation of JBC’s SDVOSB eligibility. JBC (for reasons unexplained in OHA’s decision) did not respond to the D/GC’s inquiries. Thus, the D/GC apparently applied an “adverse inference” and assumed that JBC’s response would demonstrate that it was not an eligible SDVOSB. The D/GC issued a decision finding JBC to be ineligible for the DLA contract.

JBC appealed the decision to OHA. JBC argued that it was an eligible SDVOSB and that another SBA office had previously confirmed JBC’s SDVOSB status.  The SBA’s legal counsel filed a response to the appeal, supporting the D/GC’s decision.

Although neither party had raised it in its initial filings, OHA–on its own initiative–asked the parties to address “whether the D/GC should have dismissed the initial status protest by JBL as nonspecific.” Unsurprisingly, JBC responded by stating that the protest was not specific and should have been dismissed; the SBA claimed that the protest was specific.

OHA wrote that, under its regulations, a viable SDVOSB protest must provide specific reasons why the protested SDVOSB is alleged to be ineligible. Insufficient protests must be dismissed. Further, OHA noted, the regulations provide the following example:

A protester submits a protest stating that the awardee’s owner is not a service-disabled veteran. The protest does not state any basis for this assertion. The protest allegation is insufficient.

In this case, OHA wrote, “the protest does not even rise to this level, as the protest simply states that [JBC] ‘may or may not’ be controlled by a service-disabled veteran.” The protest “does not directly allege that [JBC] is not owned and controlled by a service-disabled veteran, and gives no reason which would support such an assertion.”

OHA wrote that “the D/GC was required to dismiss JBL’s protest because it simply failed to be specific enough as to challenge [JBC’s] service-disabled status.” OHA granted JBC’s SDVOSB appeal and reversed the D/GC’s status determination.

As highlighted in Jamaica Bearings, SDVOSB status protest must be “specific.” However, the exact level specificity required under the regulations remains a bit fuzzy (although other OHA decision offer some guidance). Regardless of where the line is drawn in a particular case, Jamaica Bearings confirms that it is not enough for the protester to make an unsupported blanket allegation that an awardee is ineligible.


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The SBA has released a sample template mentor-protege agreement, and accompanying application information, for its new “all small” mentor-protege program.

The template calls for the parties to select from up to six categories of assistance that the mentor may provide, and requires the parties to set forth specific details about the nature of the planned assistance, the timeline for providing it, and milestones for measuring success.  The application form, in turn, requires the protege to have a written business plan, and will require mentors and proteges to complete an online training module if they apply after November 1, 2016.

The template provides six categories of assistance that the mentor may provide the protege: (1) Management and Technical Assistance; (2) Financial Assistance; (3) Contracting; (4) Trade Education; (5) Business Development; and (6) General Administrative.  The protege may select “any or all that apply to your situation.”

Once the appropriate assistance is identified, the protege must then specify its needs within each selected area, what the mentor will do to support those needs, the timeline for meeting the needs, and how to measure whether each of the needs have been successfully met “in accordance with your business plan . . ..”  The SBA’s accompanying instructions confirm that the protege must have a written business plan–and that the business plan must be submitted to the SBA as part of the mentor-protege application.

The template requires the protege to identify any other federal mentor-protege programs in which it is currently participating, and sets forth a variety of other standard terms, such as those involving reports to the SBA, termination of the mentor-protege agreement, and so on.  The template mentor-protege agreement also includes a provision in which the mentor acknowledges that it may be penalized if it fails to provide the promised assistance.

The sample template agreement has been posted on the SBA’s all small mentor-protege program website, but two other documents–the application form itself, and the instructions for applying, have been made available only to those who requested them.  (A contact sent me both documents, which I’ve linked in this paragraph, but those interested in applying should not rely on my copies of the documents, which could become outdated at any time.  Instead, visit the SBA’s website for up-to-date instructions on applying.)

The application is largely straightforward, and repeats much of the substance of the mentor-protege template agreement, including the types of assistance sought.  The application, and the SBA’s online guidance, specify that prospective mentors and proteges will be required to complete an online training module as part of the application process.  However, “this requirement will be waived for October applications only, and until November 1.”  Those applying on or after November 1 will have to provide proof of completion of the online training module.

In October, the SBA will accept emailed electronic applications.  But those who apply in October will have to “finalize the administrative process” in November by creating a profile on certify.sba.gov and uploading the application documents to that website.  Beginning in November, it appears that all applications will be submitted using the certify.sba.gov website.

The SBA’s all small mentor-protege program is now “live.”  For contractors who hope to take advantage of this powerful new program, it may be time to get started.


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The SBA has published a list of active “All Small” mentor-protege agreements.  The list, which is available on the SBA’s website, is dated April 5, 2017.  It’s not clear how often the SBA intends to update the list.

The April 5 list reveals that there are approximately 90 active All Small mentor-protege agreements, covering a wide variety of primary industry classifications.  All major socioeconomic categories (small business, 8(a), SDVOSB, HUBZone, EDWOSB and WOSB) are represented.

There’s no reason why mentor-protege pairings should be a secret.  Kudos to the SBA for publishing the list, which will be useful to contracting officers and industry alike (as well as those of us who are simply curious by nature).


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The SBA has proposed rules to enable contractors to file protests with the SBA Office of Hearings and Appeals challenging the SDVOSB or VOSB status of a company included in the VA’s CVE VetBiz database.  The same set of proposed rules would allow a contractor to appeal to OHA if the VA denies the contractor’s application for inclusion in the CVE database, or cancels an existing verification.

The proposed rules, once finalized, will offer important new protections for SDVOSBs and VOSBs and are the first official step in implementing Congress’s mandate that the SBA and VA consolidate their SDVOSB eligibility requirements.

The SBA’s proposed regulations were published in the Federal Register on September 28, 2017.  The proposed rules fall into two broad categories: CVE protests and CVE appeals.

CVE Protests – Proposed Rules

The SBA proposes to give OHA jurisdiction to decide SDVOSB and VOSB eligibility protests for VA procurements.  These rules don’t apply to SDVOSB protests for non-VA procurements, which will continue to be evaluated under the SBA’s existing rules.

Here are some of the highlights of the SBA’s proposed rules governing CVE Protests:

  • Who can file CVE Protests?  The proposed rules allow “the Secretary of the VA, or his/her designee” to file what the SBA calls a “CVE Protest.”  Additionally, if a small business is awarded a VA contract, “the contracting officer or an offeror” can file a CVE Protest.
  • When are CVE Protests due?  The VA can file a CVE Protest at any time.  If a protest is filed in connection with a VA contract, “[a]n offeror must file a CVE Protest within five business days of notification of the apparent awardee’s identity.”  A contracting officer, on the other hand, “may file a CVE Protest at any time during the life of the VA contract.”
  • Where are CVE Protests filed?  Protests by private parties must be filed with the appropriate contracting officer, who will refer the protest to OHA.  Contracting officers and the VA may file protests directly with OHA.
  • What are the contents of a CVE Protest? A CVE Protest “must be in writing.”  While there is no required format, the protest must contain the solicitation or contract number, if applicable, the name and contact information and signature of the protester and/or its attorney, and pecific allegations supported by credible evidence that the [protested] concern does not meet the eligibility requirements for inclusion in the CVE database.”  OHA will dismiss a protest that fails to meet this “specificity” threshold.
When must the protested company respond?  The protested concern, the VA, the contracting officer and “any other interested party” may respond to a protest or supplemental protest.  The response is due “no later than 15 days from the date the protest or supplemental protest was filed with OHA.” What is the burden of proof?  Once OHA has determined that the protest is timely, specific and within OHA’s jurisdiction, “[t]he protested concern has the burden of proving its eligibility, by a preponderance of the evidence.” What about discovery?  Nope.  “Discovery will not be permitted in CVE Protest proceedings.”  However, “the Judge may investigate issues beyond those raised in the protest and may use other information or make requests for additional information to the protester, the protested concern, or VA.”  OHA will only hold an oral hearing in “extraordinary” circumstances. What happens if OHA sustains a CVE Protest?  If OHA sustains a protest before award of a contract, the contracting officer cannot follow through with the award.  If the protest is sustained after award, “the contracting officer shall either terminate the contract or not exercise the next option.”  Additionally, the VA must immediately remove the company from the CVE database, and the company “may not submit an offer on a future VA procurement until the protested concern reapplies to the Vendor Information Pages Verification Program and has been reentered into the CVE database.” Can OHA’s decision be appealed?  No.  OHA’s decision is “final agency action,” and can only be formally challenged in federal court.  However, there is a process to request reconsideration of the decision.  A request for reconsideration “must clearly show an error of fact or law in the decision.”  An OHA judge “may also reconsider a decision on his or her own initiative.”

For those familiar with the SBA’s size, SDVOSB and WOSB protest processes, these rules will look rather familiar.  Most of the proposed rules for the CVE Protest process don’t vary too much from that of SBA’s other protest processes.  Perhaps the most significant difference is that CVE Protests will be decided directly by OHA rather than another SBA office.  Under current law, size protests are decided by SBA Area Offices; WOSB and non-VA SDVOSB protests are decided by the SBA’s Director of Government Contracting.  OHA serves an appellate function for these protests but will decide CVE Protests directly.

CVE Database Appeals – Proposed Rules

For years, veteran-owned firms have complained that they cannot appeal to an administrative judge if their CVE application is denied or cancelled.  The SBA’s proposed rules would allow those companies to appeal directly to OHA.

Here are some highlights of the SBA’s proposal for CVE Appeals:

  • Who can file a CVE Appeal?  According to the proposed rule, “[a] concern that has been denied verification of its CVE status or has had its CVE status cancelled may appeal the denial or cancellation to OHA.”
When are CVE Appeals due?  A CVE Appeal must bee filed “within 10 business days of receipt of the denial or cancellation.”  OHA will dismiss an untimely CVE Appeal. Where are CVE Appeals Filed?  CVE Appeals are filed directly with OHA.  (The proposed rule, oddly, doesn’t seem to explicitly say so, but instead refers to another OHA regulation, 13 C.F.R. 134.204, regarding filing).  Copies of the appeal must be served on the VA. What are the contents of a CVE Appeal?  Like a CVE Protest, a CVE appeal must be in writing, but there is “no required format.”  However, the CVE appeal must contain: (1) a copy of the denial or cancellation and the date the appellant received it; (2) a statement of why the denial or cancellation is in error; (3) “any other pertinent information the Judge should consider,” and the contract information and signature of the appellant and/or its attorney. Who can respond to a CVE Appeal?  The VA may respond to a CVE Appeal.  The VA has 15 days after OHA files a “notice and order” acknowledging the appeal in which to file a response. What is the burden of proof?  To win a CVE Appeal, the appellant has the burden of proving, by a preponderance of the evidence, that the denial or cancellation “was based on clear error of factor law.” What about discovery?  Like CVE Protests, there is no discovery in CVE Appeals.  OHA will not hold oral hearings. When is the decision due?  OHA “shall decide a CVE Appeal, insofar as practicable, within 60 calendar days after close of the record.”  The record closes on the date the VA’s response is due, meaning that OHA judges will attempt to issue their decisions within 75 days of acknowledging the appeal.  But this isn’t a hard deadline. What happens if OHA grants a CVE Appeal?  If OHA grants a CVE Appeal, the VA “must immediately reinstate or include the appellant, as the case may be, in the CVE database.” Can OHA’s decision be appealed?  No.  As is the case for CVE Protests, OHA’s decision is “final agency action,” and can only be formally challenged in federal court.  However, there is a process to request reconsideration of the decision.  A request for reconsideration “must clearly show an error of fact or law in the decision.”  An OHA judge “may also reconsider a decision on his or her own initiative.”

What Happens Next

Don’t lose sight of the fact that these are proposed rules, not final rules.  Until the rules become final, contractors won’t be able to file CVE Protests or CVE Appeals with OHA.  And, of course, the final rules may vary from the proposed versions.

The public is invited to comment on the proposed rules.  Comments are due by October 30, 2017.  To comment, follow the instructions at the beginning of the Federal Register entry.


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The SBA’s Office of Hearings and Appeals will have authority to hear petitions for reconsideration of SBA size standards under a proposed rule recently issued by the SBA.

Once the proposal becomes a final rule, anyone “adversely affected” by a new, revised or modified size standard would have 30 days to ask OHA to review the SBA’s size standard determination.

By way of background, when a federal agency issues a solicitation, it ordinarily is required to designate one–and only one–NAICS code based on the primary purpose of the contract. Each NAICS code carries a corresponding size standard, which is the upper perimeter a business must fall below to be considered as small under any solicitation designated with that NAICS code.

The size standard is measure by either average annual receipts or number of employees, and varies by industry. So, for example, under current law, NAICS code 236220 (Commercial and Institutional Building Construction) carries a $36.5 million receipts-based size standard. The SBA’s size standards are codified in 13 C.F.R. 121.201 and published in an easier-to-read format in the SBA’s Size Standards Table.

Importantly, size standards are not static. The SBA regularly reviews and adjusts size standards based on the “economic characteristics of the industry,” as well as “the impact of inflation on monetary-based size standards.” In 2014, for example, the SBA upwardly adjusted many receipts-based size standards based on inflation.

The size standards selected by the SBA can have major competitive repercussions. If the SBA chooses a lower size standard for a particular industry, many businesses won’t qualify as “small.” If the SBA selects a higher size standard, some smaller businesses will have trouble effectively competing with larger (but still “small”) competitors.

Despite the importance of size standards in the competitive landscape, there is not an SBA administrative mechanism for a business to challenge or appeal a size standard selected by the SBA (although judicial review is possible). Now, that is about to change. In the 2016 National Defense Authorization Act, Congress vested OHA with jurisdiction to hear petitions challenging the SBA’s size standard selection.

In response to the authority vested in OHA by the 2016 NDAA, the SBA’s proposed rule that sets out the procedural rules for OHA’s reconsideration of size standards petitions. While adhering closely to the procedural rules for SBA size challenges, the new rules for petitions for reconsideration of size standards lay out specific procedural regulations for filing a petition of reconsideration of size standards. The proposed rule addresses the issues of standing, public notification, intervention, filing documentation, finality, and effect on solicitations. The proposed rule also includes size standard petitions as part of SBA’s process for establishing size standards.

Here are some key proposed provisions worth noting:

  • Proposed Section 134.902(a) grants standing to any person “adversely affected” by a new, revised, or modified size standard. That section would also provide that the adversely affected person would have 30 calendar days from the date of the SBA’s final rule to file its petition with OHA. This section of the rule confirms that OHA’s review will be limited to cases in which the SBA actually adopts or modifies a size standard; petitioners will not have authority to challenge preexisting size standards.
  • Proposed Section 134.902(b) would provide that a business entity is not “adversely affected” unless it conducts business in the industry associated with the size standard being challenged and either qualified as a small business concern before the size standard was revised or modified or would be qualified as a small business concern under the size standard as revised or modified.
  • Proposed Section 134.904(a) outlines the technical requirements of filing a Petition. This includes things like including a copy of the final rule and a narrative about why SBA’s size standard is alleged to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with applicable law.
  • Proposed Section 134.906 would permit interested persons with a direct stake in the outcome of the case to intervene and obtain a copy of the Petition.
  • Proposed Section 134.909 sets forth the standard of review as “whether the process employed by SBA to arrive at the size standard ‘was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.” As if that language wasn’t enough, the section clarifies that the petitioner bears the burden of proof.
  • Proposed Section 134.914 would require OHA to issue a decision within 45 days “as practicable.”
  • Proposed Section 134.917 would require SBA to rescind the challenged size standard if OHA grants a Petition. The size standard in effect prior to the final rule would be restored until a new final rule is issued.
  • Proposed Section 134.917 would state that “because Size Standard Petition proceedings are not required to be conducted by an Administrative Law Judge, attorneys’ fees are not available under the Equal Access to Justice Act.
  • Proposed Section 134.918 clarifies that filing a petition with OHA is optional; an adversely affected party may, if it prefers, go directly to federal court.

Given the importance of size standards in government contracting–and given the resources it often takes to pursue legal action in federal court–an internal SBA administrative process for hearing size standard challenges will be an important benefit for contractors. It is important to note that SBA’s proposed rule is merely proposed; OHA won’t hear size standard challenges until a final rule is in place.

Public comments on the rule are due December 6, 2016. To comment, follow the instructions on the first page of the proposed rule.


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The SBA is processing the typical “All Small” Mentor-Protege Program application in a lightning-fast eight days.

Speaking at the National 8(a) Association 2017 Small Business Conference, John Klein, the SBA’s Associate General  Counsel for Procurement Law, confirmed that All Small mentor-protege agreements are being processed very quickly.  I was in the audience this morning for Mr. Klein’s comments, which also included many other interesting nuggets on the SBA’s new All Small Mentor-Protege Program.

Mr. Klein’s comments included the following:

  • Specificity of Mentor-Protege Agreements. When it comes to processing All Small mentor-protege agreements, the SBA is looking for specificity in terms of the assistance that the mentor will provide the protege.  The SBA wants to see the sort of detail that can be tracked and evaluated to determine whether it was actually provided (and, if so, whether it was successful).  Mr. Klein provided an example: a mentor committing to perform a certain type of training for a specific number of hours.
  • Focus on Protege.  The mentor-protege agreement should focus on the benefits that the arrangement will provide to the protege.  The SBA knows that joint venturing is an important reason why mentors and proteges alike pursue mentor-protege arrangements (and joint venturing should be mentioned in the agreement if the parties will pursue it), but joint venturing can’t be the primary focus of a successful mentor-protege agreement.
  • Equity Interest in Protege.  Mr. Klein acknowledged that the regulations allow the mentor to obtain up to a 40% interest in the protege, but he cautioned small businesses to think carefully before giving up a large equity stake in the company.  If the parties do agree to allow the mentor to take an equity interest, the mentor-protege agreement must demonstrate that doing so was beneficial to the protege.  The equity interest cannot appear to primarily benefit the mentor.  Although the mentor is not required to divest its equity interest upon the expiration of the mentor-protege agreement, the parties should be very careful that the equity interest doesn’t result in an affiliation once the mentor-protege agreement expires.
  • Secondary NAICS Codes.  Mr. Klein confirmed that a company looking to be mentored in a second NAICS code must demonstrate that it has previously done work in that NAICS code.  The All Small Mentor-Protege Program allows a company to receive mentoring in a secondary NAICS code, but is not intended for a company that has outgrown its primary NAICS code and is merely search for any NAICS code in which it is still small.
  • Second Protege.  If a mentor wants a second (or third) concurrent protege, it is up to the mentor and protege–in the second or third application, if possible–to demonstrate that the additional protege is not a competitor of the first.  Mr. Klein suggested that there are various ways to do this, such as showing that the second protege is in a different geographic area, industry, or niche than the first.

The All Small Mentor-Protege Program continues to draw a great deal of interest from large and small contractors alike.  It’s very helpful to hear from SBA officials like Mr. Klein exactly what the SBA is looking for when it processes applications.  And of course, it’s wonderful that processing is currently going so quickly.  Here’s hoping that’s one contracting trend that continues.


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The SBA Office of Hearings and Appeals lacks jurisdiction to consider whether an entity owned by an Indian tribe or Alaska Native Corporation has obtained a substantial unfair competitive advantage within an industry.

In a recent size appeal case, OHA acknowledged that an unfair competitive advantage is an exception to the special affiliation rules that tribally-owned companies ordinarily enjoy–but held that only the SBA Administrator has the power to determine that an Indian tribe or ANC has obtained, or will obtain, such an unfair advantage.

OHA’s decision in Size Appeal of The Emergence Group, SBA No. SIZ-5766 (2016) involved a State Department solicitation for professional, administrative, and support services.  The solicitation was issued as a small business set-aside under NAICS code 561990 (All Other Support Services), with a corresponding $11 million size standard.

After evaluating competitive proposals, the agency announced that Olgoonik Federal, LLC (“OF”) was the apparent successful offeror.  The Emergence Group, an unsuccessful competitor, then filed an SBA size protest, alleging that OF was part of the Olgoonik family of companies, which received a combined $200 million in federal contract dollars in 2015.

The SBA Area Office found that OF’s highest-level owner was Olgoonik Corporation, an ANC.  Because Olgoonik Corporation was an ANC, the SBA Area Office found that the firms owned by that ANC–including OF–were not affiliated based on common ownership or management.  Because OF qualified as a small business as a stand-alone entity, the SBA Area Office issued a size determination denying the size protest.

Emergence appealed to OHA.  Emergence argued that the exception from affiliation should not apply to OF because Olgoonik had gained (or would gain) an unfair competitive advantage through the use of the exception.  Emergence cited the Small Business Act, which states, at 15 U.S.C. 636(j)(10)(J)(ii)(II):

In determining the size of a small business concern owned by a socially and economically disadvantaged Indian tribe (or a wholly owned business entity of such tribe), each firm’s size shall be independently determined without regard to its affiliation with the tribe, any entity of the tribal government, or any other business enterprise owned by the tribe, unless the [SBA] Administrator determines that one or more such tribally owned business concerns have obtained, or are likely to obtain, a substantial unfair competitive advantage within an industry category.

OHA wrote that the statute “explicitly states that the Administrator must determine whether an ANC has obtained an unfair competitive advantage,” and OHA “has no delegation from the Administrator to decide” whether an unfair competitive advantage exists.  OHA held that it “lacks jurisdiction to determine whether the exception to affiliation creates an unfair competitive advantage in OF’s case.”  OHA dismissed Emergence’s size appeal.

Entities owned by tribes and ANCs ordinarily enjoy broad exceptions from affiliation.  As The Emergence Group demonstrates, those broad exceptions can be overcome by a finding of an unfair competitive advantage–but only the SBA Administrator has the power to make such a finding.


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Joint ventures can be formally organized as limited liability companies–and that should come as no surprise, given how often joint ventures use the LLC form these days.

In a recent size appeal decision, the SBA Office of Hearings and Appeals rejected the argument that, because a company was formed as an LLC, its size should not be calculated using the special rule for joint ventures.  Instead, OHA held, the LLC in question was clearly intended to be a joint venture, and the fact that it was an LLC didn’t preclude it from being treated as a joint venture.

OHA’s decision in Size Appeals of Insight Environmental Pacific, LLC, SBA No. SIZ-5756 (2016) involved a NAVFAC solicitation for environmental remediation at contaminated sites.  The solicitation was issued under NAICS code 562910 (Environmental Remediation Services) with a corresponding size standard of 500 employees.

After reviewing competitive proposals, NAVFAC announced that Insight Environmental Pacific, LLC had been selected for award.  Two unsuccessful competitors then filed size protests challenging Insight’s small business status.

The SBA Area Office determined that Insight had been established as an LLC in 2013.  Insight’s majority owner was Insight Environmental, Engineering & Construction, Inc.; the minority owner was Environmental Chemical Construction.  IEEC was designated as the “small business member” and “Managing Member” of the LLC.

Insight’s operating agreement included a number of provisions indicating that Insight had been formed for a limited purpose.  The operating agreement stated, among other things, that Insight’s purpose was to pursue the specific NAVFAC solicitation at issue, and perform the resulting contract if awarded.  The operating agreement also stated that the LLC would be terminated if NAVFAC announced that Insight would not be awarded the environmental remediation contract.

The SBA Area Office cited the SBA’s affiliation regulations, which define a joint venture as “an association of individuals and/or concerns with interests in any degree or proportion consorting to engage in and carry out no more than three specific or limited-purpose business ventures for joint profit over a two year period, for which purpose they combine their efforts, property, money, skill, or knowledge, but not on a continuing or permanent basis for conducting business generally.”  The SBA Area Office wrote that the operating agreement indicated that Insight was a joint venture, and pointed out that Insight’s own proposal referred to it as a “joint venture” in three places.  The SBA Area Office determined that Insight was a joint venture.

Under the SBA’s prior affiliation regulations, which applied to this procurement, the size of a joint venture ordinarily was determined by adding the sizes of the members of the joint venture.  Applying this affiliation regulation, the SBA Area Office determined that Insight was ineligible for the NAVFAC contract.  (As SmallGovCon readers know, the SBA recently updated its affiliation regulations to specify that a joint venture’s size is determined by comparing the size of each member, individually, to the relevant size standard.  Even if this change had applied to Insight, it presumably wouldn’t have altered the SBA Area Office’s analysis, because ECC apparently was a large business).

Insight filed a size appeal with OHA.  Insight argued that because it was an LLC, the SBA Area Office shouldn’t have treated it as a joint venture.  Instead, Insight contended, the SBA Area Office should have applied the ordinary affiliation rules for other entities.  Under these rules, Insight said, it would be treated as a small business because its minority member, ECC, couldn’t control the company.

OHA cited the regulatory definition of a joint venture, and then quoted another part of the SBA’s affiliation regulations, which states that a joint venture “may (but need not) be in the form of a separate legal entity . . ..”  OHA wrote that Insight “falls squarely within this definition.”  OHA pointed out that Insight was created for the “‘sole and limited purpose’ of competing for and performing the subject NAVFAC PAcific procurement” and that the LLC would terminate if Insight was not awarded the contract.  “It is therefore clear,” OHA wrote, “that [Insight] is not a business operating on ‘a continuing or permanent basis for conducting business generally,’ but rather is a temporary association of concerns engaging in a limited-purpose business venture for joint profit.”

OHA explained that “the fact that [Insight] is organized as an LLC does not alter this conclusion.”  OHA noted that the “regulation specifically states that a joint venture may or may not be organized as a separate legal entity,” and in commentary adopting the regulation, the SBA stated that a joint venture could use the LLC form.  OHA also noted that its own prior case law “has recognized that entities structured as LLCs may still be joint ventures with the joint venture partners affiliated.”  OHA denied Insight’s size appeal.

In the world of government contracting, joint ventures are commonly formed as LLCs.  Insight Environmental Pacific confirms that when an entity meets the definition of a joint venture, it will be treated as a joint venture–even if the entity is an LLC.


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When many people think of small business federal contractors, they probably picture a local business and not a subsidiary of a foreign entity. But this image isn’t always accurate—small business federal contractors don’t often neatly fit in the mold of local, mom-and-pop shops.

The SBA’s small business regulations confirm this to be true. Indeed, to qualify as a small business for most federal contracting purposes, a company can be a subsidiary of a foreign firm–so long as certain criteria are met. This point was recently affirmed by the SBA Office of Hearings and Appeals, when it found that a domestic affiliate of an international conglomerate qualified as a small business.

In Size Appeal of Global Summit, Inc., SBA No. SIZ-5804 (2017), OHA considered an appeal of a size determination that found LORENZ International to be an eligible small business under an FDA procurement for software maintenance and support services. Among the issues considered was LORENZ’s eligibility as a supposedly-foreign company.

LORENZ is the American subsidiary of LORENZ Archiv, a German company that also owns subsidiaries in Germany, Canada, India, and the United Kingdom. According to the protester (Global Summit, Inc.), because most of the business conducted by this family of companies occurred outside of the United States, LORENZ was not an eligible small business under SBA’s regulations.

The regulations, in pertinent part, define a business concern eligible for assistance from SBA as a small business (including participation in small business contracting programs) as “a business entity organized for profit, with a place of business located in the United States, and which operates primarily within the United States or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.” 13 C.F.R. § 121.105(a)(1).

Citing this definition, OHA wrote that it has “long recognized” that the SBA’s regulations “[do] not bar foreign-owned small businesses from participating in small business set-asides, provided that the small business is based in the U.S. and contributes to the U.S. economy.” In this case, LORENZ provided evidence showing that it had a location in the United States “and has made contributions to the U.S. economy by paying U.S. taxes and employing American workers.” Thus, OHA held, LORENZ qualified as a “business concern eligible for assistance from SBA as a small business.”

What about LORENZ’s parent company and sister companies? The SBA Area Office considered them to be affiliates, but held that the affiliations did not cause LORENZ to exceed the applicable size standard. Global Summit did not present any evidence to demonstrate that the Area Office’s math was wrong.

OHA denied Global Summit’s appeal and affirmed the SBA’s size determination.

At their most basic, SBA’s regulations are designed to foster small business participation in federal contracting programs. Global Summit shows that this participation is encouraged even among small American affiliates of international firms, so long as these businesses have a location in the United States and contribute to the U.S. economy.


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Everyone has that one friend who has an inbox overflowing with emails. You know the one who just can’t seem to delete any old emails, or go through and sort the legit emails from junk.  Well, when it comes to size protests and appeals, government contractors may want to be extra vigilant about checking their email inboxes and spam folders, just in case an important government email arrives.

In a recent decision, the SBA Office of Hearings and Appeals found that the size appeal clock started ticking on the day that the SBA sent an email to a contractor–even though the contractor did “not recall” receiving the email.

Size Appeal of Ordnance Holdings, Inc., SBA No. SIZ-5833 (2017), dealt with a size protest filed by Ordnance Holdings, Inc., which challenged the size status of FPM Remediations, Inc. The SBA Area office evaluated the protest and determined that FPM was a small business.

On March 30, 2017, the Area Office sent a copy of the size determination to Ordnance by certified mail and email. The certified mail was eventually returned to the SBA Area Office as “Unclaimed”. The Area Office then re-transmitted the decision to Ordnance via email on May 9, 2017. On May 10, Ordnance filed a size appeal with OHA, disputing the Area Office’s decision.

Under the SBA’s regulations, size appeals must be filed “within 15 calendar days after receipt of the formal size determination.” Before OHA could consider the size appeal, it needed to resolve whether Ordnance’s appeal was untimely, since it came forty days after the original email notification was sent on March 30. So OHA asked Ordnance to show cause and state why the size appeal should not be dismissed.

Ordnance maintained that it did not receive the size determination (by mail or email) until May 9, when it was transmitted after the hard copy was returned. In response to the question of whether it received the original email, Ordnance simply stated that it “does not recall receiving an email on March 30th”.  Ordnance did not offer any further explanation or evidence to support that the email was never received.

OHA turned to its prior decision in Size Appeal of Continental Solutions, Inc., SBA No. SIZ-5508 (2013) where the firm whose size was challenged denied ever receiving an email transmitting the decision, even though it used the same email address to communicate with OHA on the appeal. In Continental, OHA found that “t was reasonable to infer that [the challenged firm] received the size determination” because it used the same email address in its communications with OHA.

OHA found that the facts in the Ordnance appeal paralleled the facts in Continental.  The email address the Area Office sent the size determination to on March 30 was the same email address Ordnance used to communicate with OHA about the appeal. Ordnance’s lack of any explanation or evidence as to why it didn’t receive the March 30 email didn’t help its case either.

“Insofar as [Ordnance] may have simply overlooked the March 30 email,” OHA wrote, “such negligence is not excusable, as OHA has made clear that each litigant is responsible for properly monitoring its communications.” OHA held that Ordnance was “deemed to have received the size determination on March 30, 2017,” and any appeal was due at OHA “no later than April 14, 2017.” Ordnance’s appeal “was not actually filed until May 10, 2017, and is plainly untimely.”

OHA dismissed the size appeal.

Ordnance Holdings, Inc. serves as a good reminder to contractors who are expecting important communications from the SBA, GAO or any other governmental agency. Contractors would be wise to make sure their inboxes and spam folders are checked regularly, since the burden is on the contractor to prove an email wasn’t received–and it can be a high bar to overcome.


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The SBA Office of Hearings and Appeals reaffirmed recently that a business need not manufacture the most expensive component of an item in order to be considered its manufacturer.

Rather, under the SBA’s size rules, a company may be considered a manufacturer if it adds important functionality to the end product, even if the proportion of total dollar value added by the company is relatively small.

The case, Size Appeals of MPC Containment Systems, LLC & GTA Containers, Inc., SBA No. SIZ-5802 (Jan. 11, 2017), involved a solicitation issued by the DLA to acquire collapsible fabric fuel tanks. Basically, the tanks would need to hold fuel but collapse when empty for easy storage and transport. The procurement was 100% set aside for small businesses and competed under NAICS code 313320 (Fabric Coating Mills). The corresponding size standard was 1,000 employees.

DoD awarded Avon Engineered Fabrications, Inc., the contract on April 11, 2016. Two of Avon’s competitors, MPC Containment Systems, LLC, and GTA Containers, Inc., filed size protests, arguing among other things, that Avon was a subsidiary of Avon Rubber, P.L.C., a publicly-traded British company with over 500 employees, and a number of other businesses.

One of the protesters also argued that Avon was not the manufacturer of the fuel tanks, and that therefore the 500-employee standard of the nonmanufacturer rule should apply. The nonmanufacturer rule allows a small business to sell the manufactured goods of other businesses, presuming certain conditions are met. Among those conditions, the prime contractor must have no more than 500 employees, even if the solicitation’s NAICS code (like the Fabric Coating Mills NAICS code) carries a higher size standard.

The SBA Area Office issued a size determination on August 12, 2016. The SBA Area Office found that Avon was owned by Avon Rubber and Plastics, Inc., which was owned by Avon Rubber Overseas Limited, which is in turn owned by Avon Rubber (the parent publicly-traded British company). Avon was therefore affiliated with its parent company as well as the various holding companies, and sister companies in the Avon Rubber family–a total of 15 companies.

The SBA Area Office then examined whether Avon was the manufacturer of the end items in question.  The SBA Area Office determined that rubber fabric was the most expensive component of the fuel tanks. Rubber fabric accounted for 67% of all material costs and 54% of total product costs. Avon was not the manufacturer of the rubber fabric.

However, Avon would transform rubber fabric and other components into the fuel tanks. The SBA Area Office held that Avon was the manufacturer because, without Avon’s modification and assembly, the final contract deliverables would not exist.

Because Avon was deemed the manufacturer, the Area Office applied the 1,000 employee size standard under NAICS code 313320, not the 500-employee size standard applicable to nonmmanufacturers. The Area Office found that Avon, together with its affiliates, did not exceed the 1,000 employee size standard.

MPC and GTA filed size appeals with OHA. The appeals centered on the question of whether the SBA Area Office had correctly found Avon to be the manufacturer of the fuel tanks. The appellants argued that Avon should not have been considered the manufacturer, and its small business status should have been evaluated under the 500-employee size standard.

OHA wrote that, under the SBA’s regulations, “[t]he manufacturer is the concern that, with its own facilities, performs the primary activities in transforming inorganic or organic substances, including the assembly of parts and components, into the end item being acquired.” The end item “must possess characteristics which, as a result of mechanical, chemical, or human action, it did not possess before the original substances, parts or components were assembled or transformed.” However, “the proportion of value added by the manufacturer can be a very small proportion of the total value, provided that the concern adds important functionality.”

In this case, “although the rubber fabric will be manufactured by a third party, Avon will transform the fabric, through a ‘series of labor and machine steps,’ into collapsible tanks.” Avon’s work is “of crucial importance” because “without Avon’s modification and assembly the coated fabric alone would not function as a collapsible fuel tank.”

OHA held that “the Area Office reasonably determined that Avon will transform raw materials into the end items being acquired, and therefore qualifies as the ‘manufacturer’ within the meaning of” the SBA’s regulations. OHA denied the size appeals.

The question of whether a company is a “manufacturer” for purposes of the SBA’s size rules is determined on a case-by-case basis. As the MPC Containment Systems case demonstrates, a company may qualify as the manufacturer even if the proportion of total value it adds is relatively small.


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