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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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.
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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Earlier this year, the United States Supreme Court issued its decision in Kingdomware Technologies v. United States. As we’ve noted, this case was a monumental win for veteran-owned small businesses—it requires the Department of Veterans Affairs to set-aside solicitations for SDVOSBs or VOSBs where two or more such offerors will submit a proposal at a fair and reasonable price, even if that solicitation is issued under the Federal Supply Schedule.
A recent GAO decision suggests, however, that Kingdomware’s impact could be felt beyond the world of VA procurements. Indeed, the Supreme Court’s rationale in Kingdomware might compel every agency to set aside any FSS order (or any other order, for that matter) valued between $3,000 and $150,000.
In Aldevra, B-411752.2—Reconsideration (Oct. 5, 2016), the protester relied on Kingdomware to challenge a prior GAO decision that an agency is not required to set-aside an FSS order for small businesses. At issue in the initial protest was an Army National Guard Bureau solicitation under the FSS, seeking an ice machine/water dispenser (valued at $4300). According to Aldevra, the Small Business Act required the solicitation to be set aside for small businesses.
Under the Small Business Act,
Each contract for the purchase of goods and services that has an anticipated value greater than [$3,000] but not greater than [$150,000] shall be reserved exclusively for small business concerns unless the contracting officer is unable to obtain offers from two or more small business concerns that are competitive with market prices and are competitive with regard to the quality and delivery of the goods or services being purchased.
15 U.S.C. § 644(j); 80 Fed. Reg. 38294 (July 2, 2015) (increasing dollar amounts).
Because the solicitation was valued at more than $3,000 but less than $150,000, Aldevra argued that the Small Business Act required the Army to apply the “rule of two” under the Small Business Act.
GAO disagreed, and denied Aldevra’s initial protest. In doing so, it relied on Section 644(r) of the Small Business Act—that section, according to GAO, makes an agency’s use of set-aside procedures for FSS contracts discretionary. GAO further explained that the SBA’s regulations give contracting officers discretion—but do not command them—to set aside orders under multiple-award contracts.
Some eight months after GAO’s initial decision, the Supreme Court issued its Kingdomware decision, interpreting the effect of the Veterans Benefits, Healthcare, and Information Technology Act of 2006’s Rule of Two. According to the Act:
[A] contracting officer of the Department shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.
38 U.S.C. § 8127(d).
The mandatory phrasing of the statute was crucial: the Court held that “Congress’ use of the word ‘shall’ demonstrates that [the Act] mandates the use of the Rule of Two in all contracting before using competitive procedures.” The Court, moreover, specifically found that FSS orders are contracts.
Aldevra jumped on the Kingdomware decision and sought to apply its logic to the Small Business Act. It asked GAO to reconsider its initial decision, arguing that the Supreme Court’s decision compels GAO to find that Section 644(j) similarly required the Army National Guard’s solicitation to be set aside for small businesses.
GAO denied the request. But it did so on a technicality—it ruled that Kingdomware was not made retroactive by the Court, so it could not be applied to the prior decision in Aldevra’s protest. Thus, the issue of whether Section 644(j) requires all solicitations valued between $3,000 and $150,000 be reserved for small businesses is yet to be decided.
Aldevra has successfully advanced the interests of small businesses at GAO before—it was the first to challenge the VA’s failure to follow the Rule of Two, which ultimately led to the Kingdomware decision. Aldevra’s argument here could have the same reach: under Kingdomware’s logic, the Small Business Act might compel all solicitations valued between $3,000 and $150,000 be reserved for small businesses.
Aldevra isn’t alone in its belief that the FAR’s “rule of two” must be applied to orders under the FSS and other acquisition vehicles. The SBA agreed with Aldevra’s interpretation during both its initial protest and request for reconsideration. The support of the SBA–which has considerable discretion to interpret the Small Business Act–could be crucial in the future.
Because Aldevra was decided on a technicality, the important question Aldevra raised remains to be answered. But there is little doubt that before long, Aldevra or another protester will revisit this issue, in connection with a post-Kingdomware acquisition. What happens then could be every bit as important to small businesses as Kingdomware was for SDVOSBs and VOSBs.
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A large business couldn’t demonstrate that it was eligible to pursue a bid protest challenging a VA SDVOSB sole source contract award.
In a recent decision, the U.S. Court of Federal Claims held that a protester, which was a large business under the NAICS code assigned to the SDVOSB sole source contract, had not demonstrated standing to challenge the contract award. The sole source contract in question wasn’t just any contract, either–but a contract to oversee the VA’s verification process for SDVOSBs and VOSBs.
The matter at issue in Loch Harbour Group, Inc. v. United States, No. 16-1114C (2016) began when the VA issued a solicitation in June 2016, seeking proposals from contractors to oversee the VA’s verification process. After the solicitation was issued, a prospective offeror filed a pre-award protest with the GAO. In August, the VA cancelled the solicitation.
After cancelling the solicitation, the VA awarded a sole source contract to GCC Technologies, LLC, an SDVOSB and one of the incumbent contractors, to perform the verification services. The VA supported its award by reference to the same federal statute at issue in the Supreme Court’s Kingdomware decision. That statute, 38 U.S.C. 8127, allows the VA to make a sole source contract award to an SDVOSB when the anticipated price is below $5 million and certain other factors are met.
Loch Harbour Group, Inc. filed a protest with the Court, challenging the SDVOSB sole source award to GCC. LHG asked the Court to issue a temporary restraining order and a preliminary injunction preventing GCC from performing the contract until LHG’s protest was resolved.
The Court wrote that in order to have standing to bring a viable bid protest, LHG was required to “prove it is either an ‘actual or prospective bidder or offeror whose direct economic interest would be affected by the award of the contract or failure to award the contract.'” The Court noted that the June 2016 solicitation and the subsequent sole source award to GCC both designated the same NAICS code and size standard, and that “it is undisputed that LHG is not a small business” under that NAICS code. (The Court’s decision doesn’t specify which NAICS code and size standard were assigned). The Court continued:
Given this, it is reasonable to assume that this NAICS code would also apply to a new solicitation for this work and that LHG would be ineligible to compete for the award of that contract. And so, LHG has not demonstrated thus far in the litigation that it has standing to bring its protest.
The Court also held that, even if it had standing to pursue the protest, LHG had not demonstrated that it was likely to succeed on the merits of the case. The Court wrote that the VA’s justification for its sole source award specifically stated that the award complied with the SDVOSB sole source authority of 38 U.S.C. 8127, and that the record in front of the Court did not support LHG’s contention that the award didn’t comply with the statute. The Court denied LHG’s request for injunctive relief.
The Court’s decision doesn’t necessary spell an end to LHG’s protest; it is conceivable that LHG could prevail on its case even after losing its motion. But, should LHG continue to pursue its protest, it would seem to have an uphill battle, as the Court made it very clear that an ineligible large business ordinarily lacks standing to challenge an SDVOSB sole source award.
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In conducting a cost realism evaluation, an agency was entitled to use an offeror’s historic approved indirect rates and current incumbent direct labor rates to upwardly adjust the offeror’s evaluated cost, in a case where the offeror’s proposed rates were significantly lower.
The GAO recently held that an agency did not err by adjusting a protester’s rates to better align with the protester’s historic indirect rates and current direct rates, where the agency was unable to determine that the protester’s significantly lower proposed rates were realistic.
In AM Pierce & Associates Inc., B-413128 et al. (Aug. 22, 2016), GAO considered a protest by a disappointed offeror challenging the Navy’s evaluation under a solicitation seeking program management support services for the H-60 Helicopter Program Office. The solicitation was completely set-aside for EDWOSBs. The resulting contract was to be awarded on a cost-plus-fixed-fee basis, under a best-value evaluation.
The solicitation said that offerors’ proposed costs would be evaluated for realism, to determine whether the overall costs were realistic for the work to be performed, reflective of the offeror’s understanding of the requirements, and/or consistent with the technical proposal. To facilitate the evaluation, the RFP required offerors to substantiate their proposed direct and indirect labor rates through payroll verification, contingent offer letters, DCAA rate verification or approval letters, or other detailed justification methods. The cost realism analysis would then involve a calculation of each offeror’s evaluated costs, to reflect the estimated most probable costs. This determination would include an evaluation of the offeror’s cost information—including its substantiated labor rates.
Under the technical proposal, offerors were required to complete a “workforce qualifications spreadsheet” for each employee—including contingent or prospective hires—for the base year. The offerors were further required to demonstrate that this information exceeded the personnel labor category requirements outlined in the solicitation. Then, in the cost proposal, offerors were required to provide the proposed rates for employees based on labor categories.
AM Pierce & Associates, Inc. and Island Creek Associates, LLC were two of the six offerors. AM Pierce’s proposal scored higher under several technical subfactors, and its proposed cost was about $2.5 million less expensive than Island Creek’s. But after evaluating cost proposals, the Navy made significant upward revisions to AM Pierce’s proposed costs. Following these revisions, Island Creek’s evaluated cost was about $300,000 less than AM Pierce’s.
The upward adjustment to AM Pierce’s proposed cost resulted from two aspects of its cost proposal.
First, in its cost proposal, AM Pierce offered lower indirect rates than its historical rates, claiming the reduction was based, in part, on a change to its accounting system. Evaluating its proposal, the Navy instead considered AM Pierce’s historical rates, as approved by DCAA.
Second, AM Pierce’s direct rates were adjusted upwards for proposed personnel after the Navy found the proposed rates to be “drastically inconsistent with the rates verified by current and contingent employees.” To determine the most probable cost, the Navy used verified rates for proposed employees in each labor category for the base year and, for option years, used the median of all verified rates for each labor category in which hours would be reduced in option years.
After conducting a best value tradeoff, the Navy awarded the contract to Island Creek.
AM Pierce protested the award. AM Pierce argued that the Navy had erred by upwardly adjusting AM Pierce’s indirect and direct rates.
GAO explained that “[w]hen an agency evaluates a proposal for the award of a cost reimbursement contract, an offeror’s proposed estimated costs are not dispositive because, regardless of the costs proposed, the government is bound to pay the contractor its actual and allowable costs.” Therefore, “an agency must perform a cost realism analysis to determine whether the estimated proposed cost elements are realistic for the work to be performed, reflect a clear understanding of the requirements, and are consistent with the unique methods of performance and materials described in the offeror’s proposal.” An offeror’s proposed costs “should be adjusted, when appropriate, based on the results of the cost realism analysis.”
GAO first addressed the Navy’s evaluation of AM Pierce’s proposed indirect costs. Although AM Pierce argued that a change in its accounting practices justified the lower indirect rates, “DCAA did not approve AMP’s provisional billing rates for 2016, which reflected changes to AMP’s accounting practices, until April 11, 2016, after the agency had completed its cost evaluation.” GAO wrote that “it appears that the agency considered the most realistic and verifiable information available when calculating AMP’s most probable cost,” and denied this aspect of AM Pierce’s protest.
GAO then turned to the evaluation of AM Pierce’s direct labor rates. Noting that the Navy had based its evaluation on AM Piece’s actual current labor rates, GAO wrote that AM Pierce’s argument was little more than an assertion that “the agency should ignore the rates currently being paid to proposed employees in calculating the most probable cost in the base and option years.” Though it is true that current employees might leave and be replaced at lower rates, “the possibility of changes to personnel does not negate the fact that the actual rates currently being paid to personnel proposed by AMP are the most realistic rates available.” The GAO denied this aspect of AM Pierce’s protest, as well.
Cost realism evaluations can be complicated. But AM Pierce underscores two important points: first, that an agency can use historic verified indirect rates instead of unsubstantiated rates proposed by an offeror; second, an agency can upwardly adjust the direct labor rates proposed by an offeror for incumbent employees based on the actual costs for those employees.
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It’s mid-October, and my Chicago Cubs are still playing. After a thrilling comeback win over the Giants, the Cubs will take on the Los Angeles Dodgers starting tomorrow in the National League Championship Series. Will this be the year that the Cubs break the Billy Goat Curse and allow their fans to think about The Simpsons instead of the 2003 playoffs when they hear the word “Bartman”?
Time will tell. But as the baseball playoffs move forward, I’m keeping my eyes on government contracting news–and there’s plenty of it this week. In the latest SmallGovCon Week In Review, a large trade group has filed a lawsuit to block the Fair Pay and Safe Workplaces final rule, GSA updates its Dun & Bradstreet contract, Guy Timberlake addresses the potential effects of the 2017 NDAA, and much more.
A large construction trade group has filed a lawsuit to block the Fair Pay and Safe Workplaces final rule. [The Wall Street Journal]
The Air Force awarded the largest contract during the 2016 fiscal year, thanks to a $30 million agreement with Agile Defense. [Washington Technology]
A draft proposal, Implementing Category Management for Common Goods and Services, was published last week in the Federal Register and is now open for public comment. [FCW]
The General Services Administration has updated its Dun & Bradstreet contract, which will allow agency acquisition personnel and contractors wider latitude to use the standardized company information for purposes beyond mere identification. [Government Executive]
An ex-NASA official has pleaded guilty to making false statements about self-interested interactions with contractors according to the Justice Department. [Government Executive]
Bloomberg Government takes a look at five trends shaping federal contracts in fiscal 2017 [Bloomberg Government]
With about four months before the end of the Obama administration, the push to recognize, even celebrate, and institutionalize its management agenda is coming fast and furious. [Federal News Radio]
Guy Timberlake digs into the proposed changes being considered in the 2017 National Defense Authorization Act and how small businesses will be affected. [GovConChannel]
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In August, I wrote about a highly unusual case in which a company–which had filed 150 protests in the current fiscal year–was suspended from filing GAO bid protests for one year. I recently spoke with Tom Temin on his radio show Federal Drive to talk about GAO’s decision.
If you missed the live conversation, you can click here to listen to the recorded audio from Federal News Radio. And be sure to tune in to Federal Drive with Tom Temin, which airs from 6-10 a.m EST on 1500 AM in the Washington, DC region and online everywhere.
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I am back in Lawrence after a great trip to Philadelphia, where I spoke at the 11th Annual Veterans Business Training and Outreach Conference. My presentation focused on recent legal changes important to SDVOSBs and VOSBs, including major changes to the SDVOSB joint venture requirements and the new “all small” mentor-protege program.
Many thanks to Clyde Stoltzfus and his team at the Southeast Pennsylvania PTAC for organizing this great event and inviting me to speak. And of course, a big “thank you” as well to everyone who attended the presentation, asked great questions, and followed up after the event.
Next on my travel agenda, I’ll be at the National Veterans Small Business Engagement in Minneapolis from November 1-3. I will present four Learning Sessions at the NVSBE, and will spend my “spare” time manning the Koprince Law LLC booth on the tradeshow floor. If you’ll be attending the 2016 NVSBE, I look forward to seeing you there!
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Competition is the touchstone of federal contracting. Except in limited circumstances, agencies are required to procure goods and services through full and open competition. In this regard, an agency’s decision to limit competition to only brand name items must be adequately justified.
GAO recently affirmed this principle in Phoenix Environmental Design, Inc., B-413373 (Oct. 14, 2016), when it sustained a protest challenging the Department of the Interior, Bureau of Land Management’s decision to restrict its solicitation for herbicides on a brand name basis.
The solicitation at issue in Phoenix Environmental Design specifically named five herbicides, and contemplated that BLM would issue a purchase order to the vendor that offered to provide those five herbicides on a best value basis. Because the estimated value of these commercial—about $5,500—fell below the simplified acquisition threshold, BLM issued the solicitation using commercial item and simplified acquisition procedures (under FAR Parts 12 and 13, respectively).
Phoenix Environmental Design, Inc. filed a pre-award GAO bid protest challening BLM’s decision to limit the solicitation to brand name herbicides. Phoenix argued that BLM’s decision was unduly restrictive of competition. To support its protest, Phoenix pointed to a list of commercial herbicides—described by Phoenix as equal to the brand names identified in the solicitation—that were approved for use on BLM land.
BLM opposed the protest, saying that the brand name herbicides requested were currently approved for use under the agency’s pesticide use proposal (“PUP”). To use a specific pesticide on BLM land, there must be an approved PUP listing the specific pesticide. So, BLM said that it was “justified in using brand name only herbicides in this case because if it desires to use other equal pesticides that are not on the PUP, it will be required to amend the PUP to include these pesticides, which will take up to six months.”
Resolving the protest, GAO noted that agencies are required to obtain competition to the maximum extent practicable. As part of this requirement, agencies are generally prohibited from soliciting quotations based on personal preference or from restricting the solicitation to suppliers of well-known and widely distributed makes or brands. “In a simplified acquisition,” GAO wrote, the FAR allows an agency to “limit a solicitation to a brand name item when the contracting officer determines that the circumstances of the contract action deem only one source is reasonably available.”
Applying these principles, GAO found BLM’s decision to restrict competition to the brand name herbicides to be unreasonable. Though BLM said that all of the specified herbicides were approved for use under the PUP, it failed to support this statement with adequate documentation. To the contrary, based on the information provided, GAO concluded that “there is no current PUP that covers three of the herbicides that the agency is procuring under a brand name only specification.”
Faced with this information, BLM said that it has discretion to purchase a product prior to the completion of a PUP. Specifically, BLM said that its purchase of the brand name items was justified because it was finalizing a (yet-to-be-approved) PUP that included them. This explanation, however, was inconsistent with BLM’s justification for restricting competition to name brands in the first place—BLM had said that it could not purchase the generic herbicides because they were not listed on the PUP. GAO found this inconsistency to be unreasonable, writing that BLM “cannot simply rely on the PUP to limit competition, where it has not provided a reasonable basis for excluding items from the PUP.”
Because BLM failed to reasonably justify its reasons for limiting the competition to only brand name items, GAO sustained Phoenix’s protest.
On occasion, an agency might have a good reason to limit a solicitation to only brand name items. But where it doesn’t have a good reason—or where those reasons aren’t adequately documented—GAO will often find the solicitation to be unduly restrictive of competition. That’s exactly what happened in Phoenix Environmental Design.
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It is KU’s homecoming weekend here in Lawrence. I’m planning to catch KU’s homecoming parade with the family tonight, and then cheer KU onto football victory tomorrow against Oklahoma State (ok, that last part may be wishful thinking).
Of course, before we all head out to enjoy an autumn weekend, it’s time to get caught up on the latest in federal government contracting news. In this week’s SmallGovCon Week In Review, a former State Department employee will spend four years in prison for helping steer contracts to his son’s company, the IRS awards contracts to contractors owing back taxes, one commentator sounds a well-worn (and in my view, essentially incorrect) alarm about bid protests, and much more.
A former State Department employee has been sentenced to more than four years in prison for helping to steer $2 million in government contracts to a company half owned by his son. [KOIN 6]
Many federal agencies-including the IRS itself–are awarding contracts to contractors owing back taxes. [U.S. News]
The FedRAMP overhaul is beginning to pay dividends. [Federal News Radio]
The debate over the scope of the False Claims Act continues, with recent cases focusing on what happens if the government knew about a contractor’s noncompliance but paid anyway. [Bloomberg BNA]
One commentator offers a well-worn “sky is falling” argument regarding bid protests, which includes cherry-picking statistics (like focusing on GAO’s relatively low sustain rate instead of the actual protest success rate) in an effort to make a case against the protest process. (My take: protests are relatively rare, and succeed nearly half the time. Improvements are always possible, but overall the system is working. Please stop whining). [NextGov]
A new DFARS regulation clarifies which kinds of unclassified information contractors need to protect under DoD’s new cyber incident reporting requirement. [Federal Register]
Speaking of the DFARS, a final rule has been issued regarding the mandatory display of hotline posters. [Federal Register]
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In order for an employee to count as a HUBZone resident for purposes of a specific HUBZone contract, the employee must reside in an officially designated HUBZone on the contract award date.
A recent decision of the U.S. Court of Federal Claims is a cautionary tale for HUBZone companies, which are responsible for ensuring that the 35% employee residency requirement is met on the award date.
The decision of the U.S. Court of Federal Claims in Dorado Services, Inc. v. United States, No. 16-945C (2016) involved an Air Force solicitation for municipal solid waste collection and disposal for installations at Joint Base San Antonio. The solicitation was issued as a 100% set-aside for HUBZones.
After evaluating competitive proposals, the Air Force awarded the contract to Dorado Services, Inc. on October 29, 2015. An unsuccessful offeror, GEO International Management, Inc., filed a HUBZone status protest with the SBA, challenging Dorado’s HUBZone eligibility. GEO contended that Dorado could not have satisfied the HUBZone program’s employee residency requirement on the date of its offer or the date or on the October 29 award date.
To become certified in the HUBZone program, most companies must meet two primary criteria. (The eligibility criteria vary for HUBZones owned by Indian tribes, Alaska Native Corporations, Native Hawaiian Organizations and Community Development Corporations. Those separate rules are not relevant here). First, the company’s principal office must be located in a HUBZone. And second, at least 35 percent of the company’s employees must live in a HUBZone.
Importantly, these criteria (as well as the other HUBZone eligibility criteria) continue to apply after the company is certified as a HUBZone program participant. In order to be eligible for a HUBZone set-aside contract, the company must meet all of the relevant eligibility criteria–including the 35% residency requirement–both on the date of its offer and the date of award.
In this case, Dorado contended that it had 82 employees and that 32 of those employees (or 36.5%) resided in a HUBZone on the date of award. However, after a great deal of internal back-and-forth, the SBA issued a determination finding that Dorado did not meet the 35% employee residency requirement on the date of award, for several reasons.
One of the SBA’s reasons concerned the status of eight employee, all of whom lived in a single census tract. That tract had once been a “qualified census tract,” that is, an ordinary HUBZone. On October 1, 2012, the tract became a “redesignated area.” A redesignated area still qualifies as a HUBZone, but only for a three-year period of time. The tract’s status expired on October 1, 2015–about a month before the award date. The SBA determined that the eight employees who resided in this tract did not qualify as HUBZone residents on the date of award.
After exhausting its internal remedies with the SBA, Dorado filed a bid protest in the U.S. Court of Federal Claims, challenging the SBA’s HUBZone decision. Dorado contended, in part, that the eight individuals should have been counted as HUBZone residents because SBA’s HUBZone maps contained conflicting information for the census tract where those residents lived. Dorado pointed out that the maps stated that the tract was a “previously Qualified Census Tract . . . whose status is: Redesignated until October 1, 2015.” However, even after October 1, 2015, the SBA maps continued to state “YES, this location is HUBZone qualified.”
The Court first determined that it has jurisdiction to consider a protest regarding the SBA’s decision of an awardee’s HUBZone status for a HUBZone set-aside contract. Turning to the merits of the case, the court found that “SBA’s treatment of the . . . eight individuals is of paramount importance in this case” because Dorado “cannot meet the 35% residency requirement if those eight individuals are not counted as HUBZone residents.”
The Court noted that the Department of Housing and Urban Development, not the SBA, determines which census tracts are “qualified.” The SBA itself “does not have discretion when it comes to designating HUBZones.” Thus, the Court wrote, “the text under the maps constitutes, at best, an unofficial characterization of the census tract; it has no bearing on whether that census tract is, in fact, a HUBZone.”
The Court then wrote that Dorado should have more carefully checked its employees’ HUBZone residency in relation to the Air Force contract award:
[T]he record fails to support Dorado’s apparent argument that it placed reliance on the text under the maps to its detriment. As Dorado itself noted at oral argument, a contractor cannot predict in advance when an agency will decide to make an award. So a contractor attempting to ensure in advance that it would comply with the 35% residency requirement would logically check on its employees’ residency status before submitting its offer and thereafter. Had Dorado done so here (and assuming the maps included the same text at that time), then the text would have put Dorado on notice that the eight employees would no longer live in a HUBZone as of October 1, 2015. This, in turn, would have given Dorado an opportunity to plan its hiring accordingly.
The Court found that the eight individuals in question did not live in a qualified HUBZone tract on the date of award, and entered judgment against Dorado.
The HUBZone program’s regulations can be confusing, and none more so than the 35% residency requirement. The Dorado Services case demonstrates a very important principle that is often misunderstood by HUBZone contractors: it is not enough for a contractor to be HUBZone certified to qualify for a HUBZone set-aside contract; the contractor also must be in active compliance with all HUBZone eligibility requirements (including the 35% residency requirement) on the date of offer and the date of award.
The Court’s discussion also reflects a “best practice” for HUBZone contractors. As the Court suggested, given that employees can move and that HUBZone tracts themselves can expire, it is important that HUBZone contractors take ownership of their eligibility by actively monitoring compliance with the 35% residency requirement and taking action to address any potential shortfalls–especially when a potential HUBZone contract award is pending.
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While an agency may require a unilateral reduction in a contractor’s price due to a reduced scope of work, the government carries the burden of proving the amount.
In a recent decision, the Armed Services Board of Contract Appeals held that while an agency was entitled to unilaterally reduce the scope of work, the agency had not proven the amount of the unilateral deduction it demanded–and the government’s failure to meet its burden of proof entitled the contractor to the remaining contract price.
In HCS, Inc., ASBCA No. 60533, 08-1BCA ¶ 33,748 (2016), the Naval Air Station at Corpus Christi developed a sink hole, which the Navy believed was attributable to a leak in a buried 8-inch pipe. To correct the problem, the Navy issued a firm-fixed price solicitation for excavation and repair of the damaged pipe section, among other tasks. Offerors were instructed they could expect to replace up to 60 feet of 8-inch pipe.
HCS, Inc. was subsequently awarded the contract at a fixed price of $40,975. After obtaining the necessary permitting, HCS began excavating the damaged pipe sections. During the excavation, HCS discovered there was a previously undisclosed section of 4-inch pipe that ran perpendicular to the 8-inch section the Navy believed was damaged. The 4-inch pipe intersected the 8-inch pipe in a “tee” joint. Upon further inspection, it became clear that the 4-inch pipe was the actual cause of the leak.
HCS consulted with the Contracting Officer’s Representative, who informed HCS that the 4-inch pipe previously provided water to a structure that had since been torn down. The 4-inch pipe had been capped, but was now leaking. HCS explained there were two paths forward. HCS could either splice in a new segment of 8-inch pipe, thereby removing the tee intersection with the 4-inch pipe, or demolish the majority of the discovered 4-inch pipe and recap it, preserving the tee intersection. HCS was instructed to preserve the tee intersection and recap the 4-inch pipe. No 8-inch pipe needed to be replaced.
As a result of the change in work, HCS estimated that the total price to the government would decrease by $1,435. But even though HCS had performed work related to the 8-inch pipe, the Navy contended the costs for the 8-inch pipe work should be removed from the contract. The Navy instructed HCS to submit a cost breakdown of labor, materials and equipment for the entire project. HCS countered that the Navy was only entitled to the documentation for the new work because this was a firm fixed price contract. When HCS did not provide all the documentation the Navy desired, the COR estimated the revised contract work to be worth $19,892.87. The Navy unilaterally lowered the contract price to that amount.
HCS filed a claim seeking payment of the full original contract price. The Contracting Officer (unsurprisingly) denied the claim. HCS then filed an appeal with the ASBCA, arguing that the amount of the Navy’s unilateral deduction was unreasonable and unsupported.
The ASBCA wrote that under the FAR’s Changes clause “the contract price must be equitably adjusted when a change in the contract work causes an increase or decrease in the cost of performance of its work.” In the case of a “change that deletes contract work,” the government “is entitled to a downward adjustment in contract price to the extent of the savings flowing to the contractor therefrom.”
However, although the government is entitled to a downward adjustment in such cases, “[t]he government has the burden of proving the amount of cost savings due to deletion of work.” A contractor, therefore, “is entitled to receive its contract price, unless the government demonstrates the government is entitled to a price reduction for deleted work.”
In this case, the ASBCA held that “the burden of proof is on the Navy to show the amount of cost savings due to its deletion of work.” The ASBCA rejected the Navy’s assertion that it was essentially entitled to “re-price” the entire contract, writing, “[w]e are aware of no authority allowing the Navy to delete work from a contract after work performance and then refuse to pay for the work initially specified and performed, and the Navy cites us no legal authority for such action.”
The ASBCA noted that “[a]t trial, the Navy did not specifically challenge the reasonableness of any of the dollar amounts presented by” HCS. “Simply put,” the ASBCA concluded, “the Navy did not carry its burden of proof. It has made no showing here of entitlement to a price reduction based on deleted work.”
The ASBCA sustained HCS’s appeal, and held that HCS was entitled to recover $23,082, plus interest.
When a contract change results in a reduction in the contractor’s scope of work, the agency is entitled to an equitable adjustment. But, as HCS, Inc. demonstrates, the government–not the contractor–bears the burden of demonstrating that the amount of that downward equitable adjustment is appropriate. In the context of a firm fixed price contract, if the agency cannot provide the necessary proof, the contractor is entitled to the full contract price.
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If you are a service-disabled veteran owned small business or veteran-owned small business, there’s no bigger event than the annual National Veterans Small Business Engagement.
This year’s NVSBE will be in Minneapolis, and is less than a week away. I am excited to announce that I’ll be presenting four Learning Sessions at the 2016 NVSBE on a variety of legal topics important to SDVOSBs and VOSBs.
The NVSBE’s schedule is subject to change, so please check at the convention site for any adjustments, as well as for the location of each Learning Session. But as of now, my presentation schedule is as follows:
The Ins and Outs of the Nonmanufacturer Rule. Nov. 2, 9:00 a.m. to 9:45 a.m.
SDVOSB Joint Ventures: A Legal Primer. Nov. 2, 11:10 a.m. to 11:55 a.m.
SBA Size and Socioeconomic Programs: Myths vs. Realities. Nov. 3, 9:00 a.m. to 9:45 a.m.
Effective and Compliant Teaming Agreements. Nov. 3, 11:10 a.m. to 11:55 a.m.
If you will be attending the NVSBE, I hope to see you at my Learning Sessions. And if you’d like the chance to chat about other issues (or just to share my amazement that my Chicago Cubs are actually in the World Series), please stop by the Koprince Law LLC booth on the trade show floor, where I’ll be spending most of my “non-Learning Session” time.
The NVSBE is a tremendous event every year, and the 2016 NVSBE should be no different. See you there!
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The curse is broken! For the first time in 71 years, my Chicago Cubs will play a World Series game in Wrigley Field tonight. While I wish I could be in Wrigley to cheer them on, the ticket prices are being called “record breaking,” and not in a good way. So I’ll be watching with my family from the comfort of my couch right here in Kansas–which, if nothing else, will offer the advantage of a better dinner than the ballpark (I’ll take chicken smoked on the Big Green Egg over a ballpark hot dog any day).
But before I head home to watch the first pitch, it’s time for our weekly dose of government contracting news and notes. In this week’s SmallGovCon Week In Review, a judge has blocked implementation of the Fair Pay and Safe Workplaces Rule, Guy Timberlake sounds the alarm about proposed changes to small business goaling, a group of contract employees have gone on strike in protest of alleged legal violations, and much more.
A federal court in Texas has halted enforcement of new rules requiring many U.S. government contractors to disclose labor law violations, including workplace safety violations, when bidding for contracts. [POLITICO]
The GSA has introduced new initiatives to better engage small and innovative companies that aren’t traditionally government contractors. [fedscoop]
Our friend Guy Timberlake takes a look at what would happen if, all of a sudden, agencies didn’t have to work so hard to meet or exceed their small business goals. [GovConChannel]=
The team at the Office of Management and Budget have been thinking creatively on how to deal with unsolicited proposals and generate the best ways to approach the federal IT procurement process. [fedscoop]
Fed up truck drivers and warehouse workers employed by federal contractors are striking for 48 hours to draw attention to alleged wage theft and other violations. [workdayMinnesota]
Washington Technology lays out four things you need to know about new the contractor requirements for classified networks. [Washington Technology]
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An agency failed to meet its obligations to properly publicize a simplified acquisition valued between $15,000 and $25,000 where the agency placed the solicitation in a three-ring binder at the reception desk in a government office–and that office was closed during most of the relevant time.
In a recent decision, the GAO affirmed that principle that even when the dollar value of a simplified acquisition doesn’t meet the requirement for electronic posting on FedBizOpps, the agency still must take reasonable steps to maximize competition.
GAO’s decision in Bluehorse Corp., B-413533 (Oct. 28, 2016) involved a Bureau of Indian Affairs solicitation for diesel fuel for a school district served by the BIA in New Mexico.
After identifying an emergency need for the diesel fuel, the BIA prepared an RFQ on Saturday, July 30. The RFQ was prepared under the procedures for the streamlined acquisition of commercial items under FAR 12.6, and called for a performance period of delivery from August 2, 2016 through April 30, 2017.
The RFQ stated that because it was an “emergency requirement,” the deadline for receipt of quotations would be August 1, 2016. Since the contracting officer did not expect the award to meet the FAR’s threshold for electronic posting on FedBizOpps ($25,000), she instead sent the RFQ by email to three firms she had identified as eligible Indian Economic Enterprises.
In addition to sending the RFQ to the three IEEs, the contracting officer placed a copy of the RFQ in a three-ring binder kept at a reception desk of the BIA Navajo Region Contracting Office in Gallup, New Mexico. That office was closed on Saturday, July 30 and Sunday, July 31.
The BIA received two quotations by August 1. Both quotations were from vendors who had received the RFQ by email. The BIA awarded the contract to one of those vendors at a price of $20,800.
After learning of the award, Bluehorse Corporation filed a GAO bid protest. Bluehorse (which was not one of the three firms that had been sent the RFQ by email) argued that it was eligible to compete for the contract and capable of supplying the diesel fuel, but had been denied a fair opportunity to compete. In particular, Bluehorse contended that the BIA failed to publicize the requirement properly, which effectively precluded Bluehorse from submitting a quotation.
The GAO wrote that when a procurement is expected to be valued between $15,000 and $25,000, the contracting officer must “display . . . in a public place, or by any appropriate electronic means, an unclassified notice of the solicitation or a copy of the solicitation,” and that the solicitation “must remain posted for at least 10 days or until after quotations have been opened, whichever is later.”
In this case, the GAO held, the BIA did not properly publicize the RFQ:
The BIA’s actions here fell short of the minimum standards for obtaining maximum practicable competition when using simplified acquisition procedures with respect to both publication of the requirement and soliciting sources. We do not regard the Saturday placement of the solicitation in a binder, in an office that was effectively closed to the public on a weekend, for quotations that were due by 2 p.m. on Monday, as meeting the requirement for public posting.
The GAO held that “the BIA’s actions fail to show appropriate concern for fair and equitable competition,” and sustained Bluehorse’s protest.
Competition is the cornerstone of the government contracting process, even for most simplified acquisitions. As the Bluehorse protest demonstrates, even simplified acquisitions between $15,000 and $25,000 must be reasonably publicized to allow for competition.
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An offeror’s proposal to hire incumbent personnel–but pay those personnel less than they are earning under the incumbent contract–presents an “obvious” price realism concern that an agency must address when price realism is a component of the evaluation.
In a bid protest decision, the GAO held that an agency’s price realism evaluation was inadequate where the agency failed to address the awardee’s proposal to hire incumbent personnel at discounted rates.
GAO’s decision Valor Healthcare, Inc., B-412960 et al. (July 15, 2016), involved a VA solicitation to perform outpatient clinic services including primary care and mental health to veterans in Beaver County, Pennsylvania. The solicitation envisioned awarding a fixed-price, indefinite-delivery/indefinite-quantity contract with a base period of one year and four option years.
The solicitation called for a “best value” tradeoff, considering price and non-price factors. With respect to price, the solicitation required the VA to perform a price realism analysis, i.e., determine if the offeror’s price is unrealistically low, such as to reflect a potential lack of understanding of the work. The solicitation specified that in order for an offeror’s price to be considered realistic, “it must reflect what it would cost the offeror to perform the effort if the offeror operates with reasonable economy and efficiency.”
Two companies bid on the contract, Valor Healthcare, Inc. (the incumbent contractor) and Sterling Medical Associates. After evaluating competitive proposals, the VA determined that Sterling’s proposal was higher-rated and lower-priced. The VA awarded the contract to Sterling.
Valor filed a GAO bid protest challenging the award. Valor argued, among other things, that Sterling’s price was too low and that the agency failed to perform an adequate price realism analysis.
GAO explained that where, as in this case, a solicitation anticipates the award of a fixed-price contract, “there is no requirement that an agency conduct a price realism analysis.” An agency may, however, “at its discretion,” provide for the use of a price realism analysis “to assess the risk inherent in an offeror’s proposal.” When a solicitation specifies that the agency will conduct a price realism analysis, the agency must actually perform the analysis, and the resulting analysis must be reasonable.
In this case, the GAO found that the contemporaneous record did not include any documentation showing that the agency had evaluated Sterling’s price for realism. In the absence of any supporting documentation, the GAO determined that the VA had not demonstrated that it conducted the required analysis in the first place.
The GAO then noted that the majority of offerors’ costs of performance would be labor costs, and that “the majority” of Sterling’s proposed staffing candidates were the incumbent employees under Valor’s contract. However, Sterling’s pricing breakdown sheet showed that Sterling’s labor costs were lower than Valor’s (the amount of the difference was redacted from the GAO’s public decision). The GAO wrote that Sterling’s proposed pay cuts were an “obvious price realism concern” that should have been addressed in the agency’s evaluation. The GAO sustained this aspect of Valor’s protest.
As the Valor Healthcare case demonstrates, when an agency elects to perform a price realism analysis, it must actually perform the analysis, and the analysis must be reasonable. Where, as here, the awardee proposes to lower the salaries of incumbent employees, it is unreasonable for the agency not to consider this “obvious” concern in its evaluation.
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Wow! After 108 years, my Chicago Cubs are the World Series champions! I was in Minneapolis for this year’s National Veterans Small Business Engagement (which was an amazing event), and split my Game 7 viewing between the hotel bar and my room. I wish I could have been at Wrigley Field, and I wish that my grandfather (who really started the family on the whole Cubs thing) could have been alive to see it. But I am sure somewhere he is smiling along with all the other Cubs fans who couldn’t see this moment.
While my week consisted mostly of convention halls and Cubs, there was no shortage of news in the world of government contracting. In this week’s SmallGovCon Week In Review, a company was able to continue contracting with the VA even after it was indicted and convicted of fraud, a new report indicates that WOSBs are still being shut out of opportunities to earn major government contracts, a look ahead to the election and what changes may lie for federal contractors, a contractor gave a high-ranking government official free living space–and didn’t violate the ethics rules–and much more.
A company was convicted of falsely claiming SDVOSB status in order to obtain more than $100 million in government contracts–and the company continued to receive VA contract money even after it was convictred. [CBS Boston]
A new report released by Women Impacting Public Policy shows that women owned small businesses are still being shut out of major government contracts. [Forbes]
With the November 8 election just a few days away, a new report by data and analytics firm Govini shows how the outcome of highly-contested races in five key battleground states may affect federal spending in those states. [Government Executive]
A victory in the federal courts for California software company Palantir is either a win for just one company or a much broader decision that will impact how the government buys commercial technology. [Washington Technology]
The Pentagon’s gift rules allowed an Army National Guard General to accept rent-free living space from a defense contractor because the contractor is a personal friend. [Government Executive]
Contractors, take note: the Office of Government Ethics has published a final rule overhauling the ethics rules for executive branch employees. [Federal News Radio]
A government contracts consulting firm identifies 20 key opportunities–including many major recompetes–on the horizon in 2017. [Federal News Radio]
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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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I am back in Lawrence after a great trip to Minneapolis last week for the 2016 National Veterans Small Business Engagement. At the NVSBE, I presented four Learning Sessions: one on the nomanufacturer rule, the second on SDVOSB joint ventures, the third on best (and worst) practices in prime/subcontractor teaming agreements, and the fourth on common myths in the SBA’s size and socioeconomic set-aside programs (no, a contractor is not required to list a solicitation’s specific NAICS code in the contractor’s SAM profile).
It was great to see so many familiar faces and make so many new acquaintances. A big thank you to the organizers for putting on this fantastic event and inviting me to speak. Thank you, also, to all of the contractors, acquisition personnel and others who attended my Learning Sessions, asked insightful questions, and stuck around to chat afterwards. Another “thank you” who those who stopped by the Koprince Law LLC booth on the trade show floor to talk about government contracts law and collect a spiffy Koprince Law pen. And finally, thank you to all of the veterans who attended the NVSBE–and those who didn’t–for your service to our country.
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The GAO’s jurisdiction to hear most protests in connection with task and delivery order awards under civilian multiple award IDIQs has expired.
In a recent bid protest decision, the GAO confirmed that it no longer has jurisdiction to hear protests in connection with civilian task and delivery order awards valued over $10 million because the underlying statutory authority expired on September 30, 2016.
The Federal Acquisition Streamlining Act of 1994 established a bar on bid protests concerning military and civilian agency task and delivery orders under multiple-award IDIQs. FASA, as it is known, allowed exceptions only where the protester alleged that an order improperly increased the scope, period, or maximum value of the underlying IDIQ.
The 2008 National Defense Authorization Act adopted another exception, which allowed the GAO to consider protests in connection with orders valued in excess of $10 million. The 2008 authority was codified in two separate statutes–Title 10 of the U.S. Code for military agencies, and Title 41 of the U.S. Code for civilian agencies.
In 2011, the provision adopted by the 2008 NDAA expired. However, because of the way that the sunset provision was drafted, the GAO held (and correctly so, based on the statutory language), that it had authority to consider all task order protests, regardless of the value of the order.
In the 2012 NDAA, Congress reinstated the GAO’s authority to hear bid protests over $10 million, and included a new sunset deadline–September 30, 2016. This time, however, Congress changed the statutory language to ensure that if September 30 passed without reauthorization, the GAO would lose its authority to hear protests of orders valued over $10 million, rather than gaining authority to hear all task and delivery order protests.
That takes us to the GAO’s recent decision in Ryan Consulting Group, Inc., B-414014 (Nov. 7, 2016). In that case, HUD awarded a task order valued over $10 million to 22nd Century Team, LLC, an IDIQ contract holder. Ryan Consulting Group, Inc., another IDIQ holder, filed a GAO protest on October 14, 2016 challenging the award.
The GAO began its decision by walking through the statutory history, starting with FASA and ending with the expiration of the 2012 NDAA protest authority. GAO wrote that “our jurisdiction to resolve a protest in connection with a civilian task order, such as the one at issue, expired on September 30, 2016.”
In this case, GAO wrote, “it is clear that Ryan filed its protest after our specific authority to resolve protests in connection with civilian task and delivery orders in excess of $10 million had expired.” While GAO retains the authority to consider a protest alleging that an order increases the scope, period, or maximum value of the underlying IDIQ contract, Ryan made no such allegations. And although Ryan asked that the GAO “consider grandfathering” its protests, GAO wrote that “we have no authority to do so.”
GAO dismissed Ryan’s protest.
As my colleague Matt Schoonover recently discussed in depth, the expiration of GAO’s task order authority applies only to civilian agencies like HUD, and not to military agencies. The GAO retains jurisdiction to consider protests of military task and delivery orders valued in excess of $10 million.
Matt also discussed a Congressional disagreement over whether, and to what extent, to reinstate GAO’s task and delivery order bid protest authority. That issue will likely be resolved in the 2016 NDAA, which should be signed into law in the next couple months. We’ll keep you posted.
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An agency did not act improperly by allowing for oral final proposal revisions, rather than permitting offerors to submit written FPRs following discussions.
In a recent bid protest decision, the GAO held that–at least in the context of a task order awarded under FAR 16.505–an agency could validly accept oral revisions to offerors’ proposals.
The GAO’s decision in SSI, B-413486, B-413486.2 (Nov. 3, 2016) involved an Air Force solicitation seeking a contractor to provide enterprise language, regional expertise, and cultural instruction to the 1st Special Forces Command and Special Operations Forces Language Office. The solicitation was open to holders of the U.S. Special Operations Command Wide Mission Support Group B multiple-award IDIQ. The Air Force intended to award two task orders to a single vendor.
The Air Force received initial proposals from 12 vendors, including Mid Atlantic Professionals, Inc. d/b/a SSI. In its initial evaluation, the Air Force assigned SSI’s proposal “unacceptable” ratings under two non-price factors.
The Air Force elected to open discussions with offerors. The Air Force sent SSI the results of its initial technical evaluation and invited SSI to meet with the Air Force to provide oral responses and discuss the government’s concerns.
After meeting with SSI, the Air Force reevaluated SSI’s proposal and assigned SSI “good” and “acceptable” ratings for the portions of the proposal that were initially rated “unacceptable.” However, after evaluating the remaining proposals, the Air Force made award to Yorktown Systems Group, Inc., which received similar non-price scores but was lower-priced.
SSI filed a protest challenging the award to YSG. SSI alleged, in part, that the Air Force had acted improperly by failing to allow offerors the opportunity to submit written FPRs, and to lower their prices as part of written FPRs. SSI contended that the Air Force was not allowed to accept oral proposal revisions.
The GAO noted that this acquisition was conducted under FAR 16.505, not under FAR 15.3, which governs negotiated procurements. The GAO wrote that, under FAR 16.505 and the provisions of SSI’s underlying IDIQ contract, an offeror must be given “a fair opportunity to compete.” However, “[t]here is no requirement in the contract that the agency solicit and accept written FPRs after conducting discussions.” Additionally, “there is no indication in the record that the agency conveyed or suggested through its course of dealings with offerors that it intended to solicit written FPRs after the close of discussions.”
The GAO denied SSI’s protest.
The notion of an oral proposal revision seems odd, and probably wouldn’t be allowed in a negotiated procurement conducted under FAR 15.3. But as the SSI case demonstrates, when an agency is awarding a task order under FAR 16.505, the agency can, in fact, allow for oral FPRs.
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It’s been quite the week! We began with a Presidential election to remember and are ending the week with a celebration of the veterans who have served our country. On behalf of the entire team here at Koprince Law LLC, thank you to the many veterans who read SmallGovCon. Your sacrifice and dedication to our country is truly a debt that can never be repaid.
Election coverage dominated the headlines this week, but there was no shortage of government contracts news. In this week’s SmallGovCon Week In Review, the DoD has changed its policy on independent research and development, Washington Technology takes a first look at what the Trump Administration will mean for federal contractors, the Court of Federal Claims is hearing a case that could decide whether the Kingdomware decision applies to AbilityOne procurements, and much more.
Does the Kingdomware case apply to AbilityOne procurements? That question may be resolved in a case pending at the Court of Federal Claims. [Winston-Salem Journal]
The Federal Acquisition Service undertook a strategic organizational realignment of the workforce and processes which has a goal for the government to act as one – but will also improve organizational efficiencies and effectiveness in the delivery of acquisition solutions and services. [Federal News Radio]
The Defense Department changed its policy on independent research and development last week, requiring companies to consult with the Pentagon about research done party on the government’s dime. [Federal News Radio]
Washington Technology takes an early look at what a Trump presidency looks like for federal contractors. [Washington Technology]
The GAO upheld the protest of an incumbent vendor who lost a contract award in a case that points to the high level of complexity involved in IT and government contracting. [FCW]
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When an agency performs a cost realism evaluation under a solicitation involving significant labor costs, the agency must evaluate offerors’ proposed rates of employee compensation, not just offerors’ fully burdened labor rates.
In a recent bid protest decision, the GAO held that an agency erred by basing its realism evaluation on offerors’ fully burdened labor rates, without considering whether the direct rates of compensation were sufficient to recruit and retain qualified personnel.
The GAO’s decision in CALNET, Inc., B-413386.2, B-413386.3 (Oct. 28, 2016) involved a Navy task order solicitation for a range of technical services to be provided to the Naval Sea Systems Command Pacific Enterprise Data Center. The solicitation was issued to holders of the Navy’s Seaport-e IDIQ contract, and contemplated the award of a cost-plus-fixed-fee task order.
Under the solicitation, offerors were to propose personnel in 13 labor categories. For each labor category, offerors were to provide information on their direct labor rates, as well as the indirect rates to be applied to those direct rates.
In its cost evaluation, the Navy collected information about identical labor categories under 22 other contracts, including the incumbent contract. Using this information, the Navy created a “range” of realistic fully-burdened hourly rates. These ranges were, in some cases, quite broad. For example, the Program Manager category ranged from a low of $69.44 per hour to a high of $228.93 per hour.
The Navy only found a rate to be unrealistic if it fell below the established ranges. Of the 186 rates examined by the agency, only three fell below the ranges. Unsurprisingly, the Navy made few cost adjustments to offerors’ proposals. The Navy awarded the task order to Universal Consulting Services, Inc., which had the lowest evaluated cost.
CALNET, Inc., an unsuccessful competitor, filed a GAO bid protest. CALNET argued, in part, that the Navy’s cost realism evaluation was inadequate.
The GAO wrote that “[w]here, as here, an agency evaluates proposals for the award of a cost-reimbursement type contract, the agency is required to perform a cost realism evaluation to determine the extent to which each offeror’s proposed costs represent what the contract costs are likely to be.” Such an evaluation ordinarily involves consideration of “the realism of the various elements of each offeror’s proposed cost,” as well as whether each offeror’s proposal “reflects a clear understanding of the requirements to be performed.”
In this case, although “the cost of the contract is driven almost entirely by the cost of labor,” the Navy’s cost evaluation “was confined entirely to consideration of fully burdened hourly rates.” However, “where, as here, a cost-reimbursement contract’s cost is driven in significant measure by labor costs, agencies are required to evaluate the offerors’ direct labor rates to ensure that they are realistic. ” The policy behind this requirement is logical: “unless an agency evaluates the realism of the offerors’ proposed direct rates of compensation (as opposed to its fully-burdened rates), the agency has no basis to determine whether or not those rates are realistic to attract and retain the types of personnel to be hired.”
The GAO found that the Navy “has no basis to conclude whether or not the offerors’ proposed direct rates of compensation are realistic because no analysis of those rates was ever performed.” The GAO sustained CALNET’s protest.
The underlying purpose of a cost realism evaluation is–as its name suggests–to determine whether an offeror’s proposed costs are realistic in light of the solicitation’s requirements. As the CALNET protest demonstrates, where a cost-reimbursement solicitation includes significant labor costs, it is insufficient for an agency to limit its cost evaluation to fully-burdened labor rates. Instead, the agency must evaluate each offeror’s direct rates of compensation for realism.
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A solicitation’s evaluation criteria are tremendously important. Not only must offerors understand and comply with those criteria in order to have a chance at being awarded the contract, but the agency must abide by them too. Where an agency does not, it risks that a protest challenging the application of an unstated evaluation criteria will be sustained.
So it was in Phoenix Air Group, Inc., B-412796.2 et al. (Sept. 26, 2016), a recent GAO decision sustaining a protest where the protester’s proposal was unreasonably evaluated under evaluation criteria not specified in the solicitation.
At issue in Phoenix Air Group was a Department of the Interior solicitation seeking commercial electronic warfare aircraft test and evaluation services for the Department of the Navy, at various locations throughout the United States. Under the solicitation, the successful offeror was to provide the turbo-jet aircraft, flight and ground crews, and electronic technicians needed to conduct flight operations consistent with military standards in the form the electronic warfare testing missions under a single IDIQ contract.
Sections A and B of the solicitation provided detailed technical requirements for the scope of work. Together, these sections required offerors to propose at least five specifically-identified aircraft that would accommodate specific modifications to allow them to tow certain equipment behind them and meet several stated performance aspects.
Evaluations would be conducted under a two-step approach. First, proposals would be reviewed for acceptability—basically, to make sure that the offeror had assented to the solicitation’s terms, provided all information requested, had not taken exception to requirements, and proposed aircraft that met the minimum aircraft requirements. For those proposals deemed technically acceptable, Interior would then conduct a best value tradeoff evaluation of each offer’s capability and its total evaluated price.
The offeror capability evaluation was based on three subfactors, the most important of which (and the one pertinent for this post) was the aircraft operations capability subfactor. Under the solicitation, Interior was to assess this subfactor for “the performance risk associated with an offeror’s capability to perform the commercial aircraft services” described in Sections A and B.
Interior’s evaluators established a go/no-go checklist for assessing compliance with Sections A and B. The evaluators then assigned Phoenix Air Group several weaknesses and two deficiencies, relating to its failure to submit a property management plan and include weight and balance checks performed on its submitted aircraft information forms. Interior awarded the contract to one of Phoenix Air’s competitors.
Phoenix Air protested the evaluation and award, arguing (among other things) that the aircraft operations capability evaluation relied on unstated evaluation criteria. Phoenix Air said that the solicitation “instructed offerors to discuss general topics such as ‘overall management, maintenance, and pilot capabilities,’ ‘plans for conducting the flight services,’ and their ‘capability to provide the required storage and maintenance of Government furnished property.’” Phoenix Air’s proposal met all of these requirements by providing general narratives as to each. But instead of following this evaluation criteria, Interior graded proposals based on their “specific commitments to particular specifications, such as whether the proposal contained a property management plan, and whether the offeror responded to each of over 100 specification requirements in RFP Sections A and B.”
GAO wrote that “[a]n agency may properly evaluation considerations that are not expressly identified in the RFP if those considerations are reasonably and logically encompassed within the stated evaluation criteria, so long as there is a clear nexus linking them.” However, “an agency may not give importance to specific factors, subfactors or criteria beyond that which would reasonably be expected by offerors reviewing the stated evaluation criteria.”
GAO wrote that “[w]e do not think that a reasonable offeror should have understood from the stated evaluation criteria, or from the information requested in the offeror capability form, that specific responses to each of the specifications in RFP Sections A and B and a property management plan were important proposal elements.” Because Interior’s application of these unstated evaluation criteria significantly lowered Phoenix Air’s score, the GAO sustained Phoenix Air’s protest.
Complying with a solicitation’s stated evaluation criteria is critical, for both offerors and the agency. And as Phoenix Air Group shows, an agency’s unreasonable departure from those criteria can lead to a sustained protest.
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Joint venture partner or subcontractor? An offeror’s teaming agreement for the CIO-SP3 GWAC wasn’t clear about which tasks would be performed by joint venture partners and which would be performed by subcontractors–and the agency was within its discretion to eliminate the offeror as a result.
A recent GAO bid protest decision demonstrates that when a solicitation calls for information about teaming relationships, it is important to clearly establish which type of teaming relationship the offeror intends to establish, and draft the teaming agreement and proposal accordingly.
Here at SmallGovCon, my colleagues and I discuss teaming agreements and joint ventures frequently. As important as teaming is for many contractors, one might think that the FAR would be overflowing with information about joint ventures and prime/subcontractor teams. Not so. Most of the legal guidance related to joint ventures and teams is found in the SBA’s regulations. The FAR itself is much less detailed. FAR 9.601 provides this definition of a “Contractor Team Arrangement”:
“Contractor team arrangement,” as used in this subpart, means an arrangement in which—
(1) Two or more companies form a partnership or joint venture to act as a potential prime contractor; or
(2) A potential prime contractor agrees with one or more other companies to have them act as its subcontractors under a specified Government contract or acquisition program.
So, under the FAR, a Contractor Team Arrangement, or CTA, may take two forms: a joint venture (or other partnership) under FAR 9.601(1), or a prime/subcontractor teaming arrangement under FAR 9.601(2). The details of how to form each arrangement are left largely to guidance established by the SBA.
Let’s get back to the GAO protest at hand. The protest, NextGen Consulting, Inc., B-413104.4 (Nov. 16, 2016) involved the “ramp on” solicitation for the NIH’s major CIO-SP3 small business GWAC IDIQ. The solicitation included detailed instructions regarding CTAs. Specifically, the solicitation provided that if an offeror wanted its teammates to be considered as part of the evaluation process, the offeror’s team needed to be in the form prescribed by FAR 9.601(1), that is, a joint venture or partnership. In contrast, the solicitation provided that, for prime/subcontractor teams under FAR 9.601(2), only the prime offeror would be evaluated.
NextGen Consulting, Inc. submitted a proposal as a CTA. NextGen identified three teammates: WhiteSpace Enterprise Corporation, Twin Imaging Technology Inc., and the University of Arizona. The teaming agreement specified that NextGen and WhiteSpace were teaming under FAR 9.601(1), whereas Twin Imaging and the University were teaming with the parties under FAR 9.601(2).
The teaming agreement identified “primary delivery areas” for each teammate. With respect to the 10 task areas required under the solicitation, NextGen was to handle overall contract management and related responsibilities for task areas 2 and 4-10, WhiteSpace was assigned task area 1, Twin Imaging was assigned task area 3, and the University was assigned task areas 1, 4, 5, and 10. In its proposal, NextGen referred to the capabilities of “Team NextGen” for all 10 task areas.
The NIH found that because the teaming agreement distributed the task areas without regard for whether the teaming relationship fell under FAR 9.601(1) or FAR 9.601(2), it was impossible for the agency to distinguish between the two types of teammates. The NIH concluded that the resulting confusion about the roles and responsibilities of the parties made it impossible for the NIH to evaluate the proposal in accordance with the solicitation’s requirements–which, of course, called for the evaluation only of FAR 9.601(1) teammates. The NIH eliminated NextGen from the competition.
NextGen filed a bid protest with the GAO, challenging its exclusion. NextGen argued that the NIH unreasonably excluded its proposal based upon a misintepretation of the teaming agreement. NextGen contended that, taken as a whole, the teaming agreement was clear. NextGen pointed out that the teaming agreement specifically identified itself and WhiteSpace as FAR 9.601(1) teammates, and specifically identified Twin Imaging and the University as FAR 9.601(2) teammates.
The GAO disagreed. It noted that “the solicitation required that a CTA offeror submit a CTA document to clearly designate a team lead and identify specific duties and responsibilities.” Contrary to NextGen’s contentions, “[t]he record shows that as a whole, NextGen’s CTA provided conflicting information as to who the team lead was, and failed to clearly identify the specific duties and responsibilities of the team members.” GAO pointed out that NextGen’s proposal used the term “Team NextGen,” which “did not provide any indication as to what the specific duties and responsibilities of the team members were.”
Joint venture agreements and prime/subcontractor teams are very different arrangements. As the NextGen Consulting protest demonstrates, it is important for an offeror to understand what type of teaming arrangements it is proposing, and draft its teaming documents and proposal accordingly.
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