SDVOSBs, rejoice! Kingdomware Technologies has unanimously won its Supreme Court battle against the VA. The Court has held that the VA’s “rule of two” is mandatory and applies to all of the VA’s contracting determinations.
I’ll have much more analysis up on SmallGovCon in the coming hours. For now, congratulations to Kingdomware–and all SDVOSBs and VOSBs!
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The 2018 National Defense Authorization Act (NDAA) has generated lots of headlines regarding the so-called “Amazon amendment” and the Act’s prohibition on the Russian IT company Kaspersky Labs products. But gone under reported is a huge change to how the government makes small purchases.
The 2018 NDAA, signed by President Donald Trump on December 12, increases the standard micro-purchase threshold applicable to civilian agencies from $3,000 to $10,000. Last year, the NDAA increased the Department of Defense (DoD) micro-purchase threshold to $5,000. This larger jump for civilian agencies is likely to have large impact on government purchasing.
A micro-purchase is one for goods or services that, due to its relatively low value, does not require the government to abide by many of its ordinary competitive procedures, including small business set asides. Because the contract is, theoretically, such a low amount, the contracting officer can pick virtually whatever company and product he or she wants to satisfy the procurement, so long as the price is reasonable.
Now the civilian micro-purchase threshold is increasing—a lot.
Specifically, Section 806 of the NDAA, titled “Requirements Related to the Micro-Purchase Threshold” states the following: “INCREASE IN THRESHOLD.—Section 1902(a)(1) of title 41, United States Code, is amended by striking ‘$3,000’ and inserting ‘$10,000’.”
Title 41 of the Code generally refers to public contracts between Federal civilian agencies such as the Department of Agriculture, the Department of Education, the Department of State, the Department of Labor, and so on. Title 10, on the other hand, generally refers to the Department of Defense components, such as the Army, Navy, and Air Force, but also a number of smaller components such as the Defense Logistics Agency and the Missile Defense Agency.
Following the change, Section 1902(a)(1) shall read: “Definition.–(1) Except as provided in sections 2338 and 2339 of title 10 . . . for purposes of this section, the micro-purchase threshold is $10,000.”
The NDAA therefore, specifically exempts (or at least does not change) the sections of Title 10 relating to the DoD micro-purchase threshold (sections 2338 and 2339) which will therefore hold steady at $5,000—for 2018 at least (more on that later).
Section 1902 specifies in paragraph (f) that the section shall be implemented by the FAR. The NDAA changes the U.S. Code, but it does not change the FAR. The FAR, meanwhile, currently sets the civilian micro-purchase threshold at $3,500, because it is occasionally adjusted to keep pace with inflation. Although the law has now officially been changed, it’s not clear that civilian contracting officers will begin using the new authority until the corresponding FAR provisions are amended.
Our guess is that, in practice, this change will take some time to implement. We believe most contracting officers will stick to what the FAR says until they are told otherwise. It is just a guess, but it is logical because unlike the U.S. Code, procurement officials rely on the FAR every day. Congress may have said that civilian procurement officials have the authority to treat anything below $10,000 as a micro-purchase, but contracting officers often wait until the FAR Council implements statutory authority before using that authority. As such, until the FAR, or the specific agency the procurement officials work for, recognize the change, our guess is that most COs will follow the FAR until it catches up with the U.S. Code.
Nevertheless, whether it happens today or a year from now, this change is likely to have a big impact on some federal procurements. The 233% increase in the threshold for civilian agencies (a 186% increase if you count from $3,500) will open the door for many more products to be purchased without competition: FAR 13.203 specifies that “[m]icro-purchases may be awarded without soliciting competitive quotations” so long as the contracting officer (or similar authority) considers the price to be reasonable. Just think about the different types of things you can buy with $10,000 as opposed to $3,000, or $3,500.
This change to the micro-purchase threshold, plus the “Amazon amendment” which sets up an online marketplace for sellers, and the fact that the FAR encourages the use of a Governmentwide commercial purchase card to make micro-purchases (FAR 13.301) means that procurement officials will simply be able to swipe, or click for relatively significant buys. Altogether, it could be bad news for some small businesses, particularly those that engage in a lot of “rule of two” set-aside simplified acquisitions under FAR 19.502-2(a). When this change is implemented, and presuming FAR Part 19 is updated accordingly, a chunk of those simplified acquisitions will no longer be reserved for small businesses.
With this change to the civilian threshold, it is hard not to wonder whether the DoD threshold will soon grow to meet it. DoD procurement officials sometimes enjoy greater freedom in purchasing than their civilian counterparts. It would not be shocking to hear DoD voices begin lobbying for the same change on their end soon.
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The 2017 National Defense Authorization Act will increase the DoD’s micro-purchase threshold to $5,000.
Under the conference bill recently approved by both House and Senate, the DoD’s micro-purchase threshold will be $1,500 greater than the standard micro-purchase threshold applicable to civilian agencies.
A micro-purchase is an acquisition by the government of supplies or services that, because the aggregate is below a certain price, allows the government to use simplified acquisition procedures without having to hold a competition, conduct market research, or set aside the procurement for small businesses. In other words, if the price is low enough, the agency can buy it at Wal-Mart using a government credit card, without running afoul of the law.
Although there are many different thresholds, the FAR puts the general micro-purchase threshold at $3,500. But Section 821 of the proposed 2017 NDAA will add a new section to chapter 137 of title 10 of the United States Code giving the DoD its own micro-purchase threshold of $5,000.
It may not sound like much, but that’s nearly a 43% increase from the current micro-purchase threshold (and the threshold that will remain applicable to most agencies). Although DoD procurement officials will undoubtedly enjoy their new flexibility, some small contractors may not be so pleased–after all, once the micro-purchase threshold applies, there is no mandate that the government use (or even consider) small businesses.
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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An agency may modify a contract without running afoul of the Competition in Contracting Act, so long as the the modification is deemed “in scope.” An “out of scope” modification, on the other hand, is improper–and may be protested at GAO.
In a recent bid protest decision, GAO denied a protest challenging an agency’s modification of a contract where the modification was within scope and of a nature that competitors could have reasonably anticipated at the time of award. In its decision, GAO explained the difference between an in scope and out of scope modification, including the factors GAO will use to determine whether the modification is permissible.
The GAO’s decision in Zodiac of North America, Inc., B-414260 (Mar. 28, 2017), involved a U.S. Army Contracting Command solicitation for a contractor to produce a seven-person inflatable combat raiding craft (I-CRC) and a 15-person inflatable combat assault craft (I-CAC). The Army initially issued the solicitation in February 2013.
The solicitation included purchase descriptions, which set forth the product requirements for the boats and motors. Specifically, the submersible outboard motors for the I-CRC and I-CAC required “they propel a fully-loaded craft (2,120 pounds and 4,000 pounds, respectively) at 16 knots during sea state 1 (calm water) within two minutes.” As part of the solicitation, offerors were also informed that they were required to provide two units of each the I-CRC and I-CAC for article testing in accordance with FAR 52.209-4. If the government disapproved the first article, upon the government’s request, the contractor was required to make any necessary changes, modifications, or repairs to the first article or select another first article for testing.
The Army evaluated proposals and awarded the contract. Zodiac, an unsuccessful offeror, protested the award to GAO arguing that the Army should have found the awardee’s proposal technically unacceptable because the awardee’s proposed boats were insufficient to meet the speed requirements detailed by the solicitation. GAO denied the protest in Zodiac of North America, B-409084 et al. (Jan. 17, 2014) finding that Zodiac had proposed the same motors as the awardee, and the Army had reasonably relied on the awardee’s test reports demonstrating the product’s compliance with the solicitation’s speed requirements.
Likely unsatisfied with GAO’s decision, Zodiac subsequently filed a Freedom of Information Act request in October 2016. Through this request, Zodiac learned the Army had modified the contract requirements after the awardee twice failed product testing. The modification revised both the purchase description for the boats and the motors. It resulted in a 10 percent reduction in the propeller weight of the motors, a three-inch dimensional increase in the hard deck floor and storage bag, and removal of the airborne transportability requirement. Believing these revisions of the contract terms amounted to an improper sole source award contract, Zodiac protested again.
GAO explained that the Competition in Contracting Act ordinarily requires “the use of competitive procedures” to award government work. However, “[o]nce a contract is awarded…[it] will generally not review modifications to the contract because such matters are related to contract administration and are beyond the scope of [its] bid protest function.”
While a modification that changes the contract’s scope of work is an exception to this rule, such a modification is only objectionable where there is a “material difference” between the modified contract and the original contract. A material difference exists when “a contract is so substantially changed by the modification that the original and modified contracts are essentially and materially different.” A material difference typically arises when an agency enlarges a contract’s scope of work, the relaxation of contract requirements post-award (as alleged by Zodiac) can also be a material difference.
In assessing whether there is a material difference, GAO will look to:
“[T]he extent of any changes in the type of work, performance period, and costs between the modification and the original contract, as well as whether the original solicitation adequately advised offerors of the potential for the change or whether the change was the type that reasonably could have been anticipated, and whether the modification materially changed the field of competition for the requirement.”
In this case, considering these factors, GAO found that the modification did not substantially change the scope of the original contract, competitors for the initial solicitation could have reasonably anticipated the changes to the contract, and the changes to the contract would not have had a substantial impact on the field of competition for the original contract award. Importantly, the deliverables still functioned as seven-person I-CRCs and 15-person I-CACs, and the awardee remained subject to the same performance period. GAO held that there was not a material difference, and denied Zodiac’s protest.
Zodiac of North America is a useful primer on when a modification crosses the line into an improper sole source award. As demonstrated in Zodiac, the key is whether there is a material difference between the modified contract and the awarded contract.
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The VA will “immediately comply with the Court’s decision” in Kingdomware Technologies, Inc. v. United States, according to a top VA official.
In written testimony offered in advance of a Senate committee hearing tomorrow, the Executive Director of the VA’s Office of Small and Disadvantaged Business Utilization tells Congress that the VA will work to implement the Kingdomware decision, including by improving its market research processes.
In his testimony, Executive Director Thomas J. Leney states that his office has “already engaged VA’s acquisition workforce with new guidance, focusing most urgently on procurements currently in progress, but not yet awarded.” Unfortunately, however, Mr. Leney doesn’t specify what guidance the acquisition workforce has been given regarding ongoing procurements; hopefully that’s something that the Committee members will be able to flesh out at the oral hearing.
Mr. Leney devotes much of his written testimony to pledges to strengthen the VA’s market research processes to identify qualified SDVOSBs and VOSBs. “This means,” he writes, “market research must consist of more than merely finding firms in a particular industry code listed in the System for Award Management.” Mr. Leney explains that VA Contracting Officers “can make better use of Requests of Information, or RFIs, for data-driven decision making.” Additionally, Contracting Officers “need to meet with procurement-ready VOSBs to understand their capabilities and what they are already accomplishing.”
Mr. Leney concludes his written testimony by stating, “embracing the Court’s decision in Kingdomware . . . improves the Veteran experience, both as Veteran small business owners and as Veteran customers receiving the health care and benefits they have earned and deserve.”
Mr. Leney won’t be the only one testifying at tomorrow’s hearing. LaTonya Barton of Kingdomware Technologies will also go before the Senate. In her written testimony, Ms. Barton states:
We hope the VA takes the Supreme Court decision and Rule of Two mandate seriously and diligently works to implement it. We have already lost almost ten years. It is time for the VA to stop looking for loopholes and to redirect that energy into making the mandate work.
Hopefully, Mr. Leney’s comments reflect a genuine change of heart on the VA’s part, and a commitment to truly “embrace” Kingdomware, as Ms. Barton hopes. Time will tell.
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In 2017, Congress placed limits on the utilization of Lowest-Price Technically-Acceptable procurement procedures in Department of Defense acquisitions.
The 2018 National Defense Authorization Act continues this trend by completely prohibiting the use of LPTA procedures for certain major defense acquisition programs.
As we covered last year, the 2017 NDAA included a presumption against the use of LPTA procedures for DoD procurements unless certain criteria were met. The 2017 NDAA also cautioned against the use of LPTA procedures in procurements for knowledge-based professional services, personal protective equipment acquisition, and knowledge based training services in contingency operations outside the United States.
Section 832 of the 2018 NDAA continues this trend by outright prohibiting the use of LPTA procedures for major Department of Defense engineering and development programs. Specifically, Section 832 provides the following instruction:
The Department of Defense shall not use a lowest price technically acceptable source selection process for the engineering and manufacturing development contract of a major defense acquisition program
This raises an important question: What constitutes an “engineering and manufacturing development contract of a major defense acquisition program?” To answer that, we need to look at two separate definitions.
First, the definition for “Engineering and Manufacturing Development Contract” is found in Section 832 of the 2018 NDAA, and refers to “a prime contract for the engineering and manufacturing development of a major defense acquisition program.”
Second, the definition for “major defense acquisition programs” is found in 10 U.S.C. § 2430(a) and refers to a procurement that is not classified and either has been designated a major defense acquisition by the Secretary of Defense; or the estimated total expenditure for R&D, testing, and evaluation will exceed $300 million; or the total program cost will exceed $1.8 billion.
Using these two definitions to read Section 832, LPTA procurement procedures may not be used for Department of Defense prime contracts for engineering and manufacturing development that are either flagged as major defense acquisition programs, or will exceed $300 million in development costs or $1.8 billion in total program costs.
The limitation in Section 832 is only triggered at high dollar thresholds, so the impact it will have on Department of Defense acquisitions is likely minimal. That being said, Section 832 is important because it clearly signals Congress’s desire to further limit the use of LPTA procedures in Department of Defense procurements. Unlike the 2017 NDAA, which merely created a presumption against LPTA procedures, the 2018 NDAA bans LPTA procedures completely for a category of acquisitions. We’ll be keeping an eye out to see whether Congress expands the list of “no LPTA” acquisitions in future years.
Section 832 goes into effect for Fiscal Year 2019.
It’s that time of year where families gather; friends celebrate the New Year; and SmallGovCon recaps interesting features of the new NDAA. We’re still trying to get that last one to catch on. Check back regularly as we continue to cover notable provisions in the 2018 NDAA.
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A common misconception in government contracting is that to be eligible under a particular solicitation, a small business must have the solicitation’s assigned NAICS code listed under its SBA System for Award Management (“SAM”) profile.
Not so. GAO, in a recent decision, affirmed this misconception to be false—it found that an awardee’s failure to list the assigned NAICS code under its SAM profile did not make its proposal technically unacceptable.
Veterans Electric, LLC, B-413198 (Aug. 26, 2016) involved a VA solicitation seeking electrical upgrades at the Wood National Cemetery. The solicitation was set-aside for service-disabled veteran-owned small businesses. The VA issued the solicitation under NAICS code 238210 (Electrical Contractors and Other Wiring Installation Contractors), which carries a size standard of $15 million.
Before getting to the merits of the protest, a brief primer on NAICS codes might be helpful. NAICS codes—short for North American Industry Classification System codes—are simply industry classification codes assigned by the procuring agency for the purpose of collecting, analyzing, and publishing statistical data relating to government contracts. A contracting officer is required to assign the NAICS code that “best describes the principal nature of the product or service being acquired,” and identify and specify the operative size standard for the procurement. FAR 19.102(b). The SBA, moreover, assigns pertinent size standards (either in terms of annual receipts or number of employees) for the different NAICS codes, on an industry-by-industry basis. The codes, then, are particularly relevant in small business set-aside solicitations: if a company exceeds the corresponding size standard, it is “other than small,” and not an eligible offeror.
In Veterans Electric, two offerors—Veterans Electric and Architectural Consulting Group (“ASG”)—submitted offers. After evaluating proposals, the VA awarded the contract to ASG.
Veterans Electric protested the award, challenging ASG’s technical acceptability on two related grounds: first, that ASG’s failure to include NAICS code 238210 in its SAM profile demonstrated that it lacked the requisite technical experience and, second, that ASG’s failure to certify that it met the relevant size standard rendered its proposal unawardable.
GAO rejected Veterans Electric’s arguments. Taking Veterans Electric’s second allegation first, GAO acknowledged that ASG’s proposal and its SAM profile did not list NAICS code 238210. But GAO found convincing the contracting officer’s determination that, because ASG listed several other NAICS codes at or below the relevant the $15 million size standard, ASG obviously certified that it complied with the size standard for this procurement. Veterans Electric did not present any evidence to show otherwise. The contracting officer’s determination was therefore reasonable.
This finding also compelled GAO to deny Veterans Electric’s first allegation. A technical evaluation is within the agency’s discretion, and GAO found no basis to question ASG’s level of technical experience simply because it did not identify the primary NAICS code in its proposal or its SAM profile. GAO wrote:
So long as a company meets the applicable size standard, we are aware of no statutory or regulatory requirement that it have the particular NAICS code identified in the solicitation as its primary code.
GAO denied Veterans Electric’s protest.
Small business contractors are allowed to identify in their SAM profiles their areas of experience, by NAICS codes. And as a matter of practice, companies often list all codes in which they hope to perform work. But as Veterans Electric confirms, whether a small business lists any particular NAICS code under its SAM profile is not conclusive evidence as to its technical experience or acceptability—that evaluation is instead made by the procuring agency after its review of the offeror’s proposal as a whole. So long as that evaluation was reasonable, GAO will not sustain a protest challenging the awardee’s failure to list a NAICS code.
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An offeror’s apparent attempt to engage in a little proposal gamesmanship has resulted in a sustained GAO bid protest.
In a recent case, an offeror attempted to evade a solicitation requirement that proposals be no more than 10 single-spaced pages, by cramming its proposal into less than single-spacing. The GAO wasn’t having it, sustaining a competitor’s protest and holding that the “spacing gamesmanship” had given the offeror an unfair advantage.
The GAO’s decision in DKW Communications, Inc., B-412652.3, B-412652.6 (May 6, 2016) involved a Department of Energy RFQ seeking three fixed-price task orders for various support services. The task orders were to be awarded under a RFQ issued to blanket purchase agreement holders under multiple federal supply schedules, including Schedule 70.
The RFQ stated that quotations should be submitted in three volumes: technical, past performance, and price. With respect to the technical volume, the RFQ informed vendors that quotations would be limited to 10 pages and that material in excess of 10 pages would not be evaluated. The RFQ further provided that “the text shall be 12 point (or larger) single-spaced, using Times New Roman Courier, Geneva, Arial or Universal font type.”
After evaluating competitive quotations, the agency awarded the task orders to Criterion Systems, Inc. DKW Communications, Inc., an unsuccessful competitor, then filed a GAO bid protest challenging the award to Criterion.
During the course of the protest, DKW apparently received Criterion’s technical proposal (I assume, although it is not stated in the decision, that the proposal was provided only to DKW’s outside counsel, under a GAO protective order). DKW then filed a supplemental protest arguing that Criterion had violated the 10-page limit by compressing the line spacing of its technical proposal to be less than the single-spacing required by the RFQ.
The GAO wrote that “[a]s a general matter, firms competing for government contracts must prepare their submissions in a manner consistent with the format limitations established by the agency’s solicitation, including any applicable page limits.” Consideration of submissions that exceed established page limitations “is improper in that it provides an unfair competitive advantage to a competitor that fails to adhere to the stated requirements.”
The GAO noted that Criterion “used different spacing for both volumes 1 and 3, which had no page limitations, than it did for the technical volume, which had a 10 page limit.” In volumes 1 and 3, “Criterion used spacing that yielded approximately 44 lines per page.” However, for the technical volume, Criterion “used dramatically smaller line-spacing for each of the 10 pages, resulting in approximately 66 lines per page.” (The GAO’s PDF decision provides a visual comparison of the spacing differences between the volumes). The GAO continued:
Accordingly, it appears that Criterion implemented compressed line-spacing in a deliberate and intentional effort to evade the page limitation imposed by the RFQ, especially when compared to the other parts of its quotation. Criterion’s significant deviation from the other two volumes of its quotation effectively added approximately three to four pages to the 10-page limitation. In our view, this was a material change from the RFQ’s instructions that gave Criterion a competitive advantage.
The GAO sustained DKW’s protest.
Offerors faced with tight page limitations can be tempted to try to fit as much in those pages as possible. But as the DKW Communications protest shows, attempting to evade a page limit can have serious (and negative) repercussions.
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SDVOSBs and VOSBs are big winners today, as the Supreme Court unanimously ruled that the VA’s “rule of two” is mandatory, and applies to all VA procurements–including GSA Schedule orders.
The Supreme Court’s decision in Kingdomware Technologies, Inc. v. United States, No. 14-916 (2016) means that the VA will be required to truly put “Veterans First” in all of its procurement actions–which is what Kingdomware, and many veterans’ advocates, have fought for all along.
History of the Kingdomware Case
As followers of SmallGovCon and the Kingdomware case know, the battle over the VA’s “rule of two” began in 2006, when Congress passed the Veterans Benefits, Health Care, and Information Technology Act of 2006 (the “VA Act”). The VA Act included a provision requiring the VA to restrict competitions to veteran-owned firms so long as the “rule of two” is satisfied. The VA Act states, at 38 U.S.C. 8127(d):
(d) Use of Restricted Competition.— Except as provided in subsections (b) and (c), for purposes of meeting the goals under subsection (a), and in accordance with this section, a contracting officer of the Department shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.
The two exceptions referenced in the statute (“subsections (b) and (c)”) allow the VA to make sole source awards to veteran-owned companies under certain circumstances. Nothing in the statute provides an exception for orders off the GSA Schedule, or under any other government-wide acquisition contract.
Despite the absence of a statutory exception for GSA Schedule orders, the VA has long taken the position that it may order off the GSA Schedule without first applying the VA Act’s Rule of Two.
In 2011, the issue first came to a head at the GAO. In Aldevra, B-405271; B-405524 (Oct. 11, 2011), the GAO sustained an SDVOSB’s bid protest and held that the VA had violated the law by ordering certain supplies through the GSA Schedule without first applying the Rule of Two. The GAO subsequently sustained many other protests filed by Aldevra and others, including Kingdomware.
But there was one problem: the VA refused to abide by the GAO’s decisions. GAO bid protest decisions are technically recommendations, and while agencies almost always follow the GAO’s recommendations, they are not legally required to do so. The VA kept circumventing the Rule of Two notwithstanding the GAO’s decisions.
Finally, Kingdomware took the VA to federal court. But in November 2012, the U.S. Court of Federal Claims reached a different conclusion than the GAO. In Kingdomware Technologies, Inc. v. United States, 106 Fed. Cl. 226 (2012), the Court ruled in favor of the VA. Relying on the phrase “for purposes of meeting the goals under subsection (a),” the Court determined that the VA Act was “goal setting in nature,” not mandatory. The Court held that the VA need not follow the “rule of two,” so long as the VA had met its agency-wide goals for SDVOSB and VOSB contracting (which, to the VA’s credit, it had).
Kingdomware appealed to the U.S. Court of Appeals for the Federal Circuit. In June 2014, a three-member panel upheld the Court of Federal Claims’ decision on a 2-1 vote. Like the Court of Federal Claims, the Federal Circuit majority held that the VA Act’s “rule of two” was a goal-setting requirement, and that the VA need not apply the “rule of two” so long as its SDVOSB and VOSB goals are satisfied. In a sharp dissent, Judge Jimmie Reyna noted that the statute uses the mandatory word “shall” and argued that the phrase “for purposes of meeting the goals under subsection (a)” was merely “prefatory language” that explained the general purpose of the statute, but did not vary the statute’s mandatory nature.
In June 2015, the Supreme Court agreed to hear Kingdomware’s appeal. Kingdomware and the Government began filing briefs with the Supreme Court (as did a number of Kingdomware supporters, including yours truly). But in a surprising twist, in September 2015, the Government abandoned the “goal setting” argument that had prevailed at two lower courts. The Government conceded that the “rule of two” applies regardless of whether the VA has met its goals–but argued that the statute’s use of the term “contract” excludes GSA Schedule orders (as well as orders under other multiple-award vehicles).
The Supreme Court heard oral arguments on the morning of February 22, 2016. At the Court, Kingdomware’s counsel focused primarily on the mandatory nature of the statutory language, while the VA’s counsel primarily made policy arguments, namely, that it would be difficult and cumbersome for the VA to apply the rule of two in every setting.
After February 22, SDVOSBs and VOSBs waited for the Court’s decision. Now it’s here–and it’s a big, big win.
The Supreme Court’s Kingdomware Decision
The Supreme Court’s opinion, written for an 8-0 unanimous Court by Justice Clarence Thomas, begins by recounting the history of the VA Act, the “rule of two,” and the Kingdomware case itself. The Court then examines whether it has jurisdiction to consider the case (a technical issue raised earlier in the process), and concludes that it does.
Turning to the merits, the Court gets right to business:
On the merits, we hold that [Section] 8127 is mandatory, not discretionary. Its text requires the Department to apply the Rule of Two to all contracting determinations and to award contracts to veteran-owned small businesses. The Act does not allow the Department to evade the Rule of Two on the ground that it has already met its contracting goals or on the ground that the Department has placed an order through the [Federal Supply Schedule].
The Court explains that any issue of statutory construction begins “with the language of the statute.” If the language is unambiguous, and the “statutory scheme is coherent and consistent,” the Court’s review ends there.
The Court writes that “[Section] 8127 unambiguously requires the Department to use the Rule of Two” before applying other procedures. The Court points out that the statute includes the word “shall,” and writes "nlike the word ‘may,’ which implies discretion, the word ‘shall’ usually connotes a requirement.” Accordingly, “the Department shall(or must) prefer veteran-owned small businesses when the Rule of Two is satisfied."
The Court then writes that other portions of the statute confirm that Congress “used the word ‘shall’ . . . as a command.” Therefore, “before contracting with a non-veteran owned business, the Department must first apply the Rule of Two.”
Next, the Court turns to the Government’s shifting rationales for evading the “rule of two.” The Court notes that the Government changed its theory of the case late in the process, but nonetheless addresses the Government’s original argument regarding the goal-setting nature of the statute. The Court writes:
[T]he prefatory clause has no bearing on whether [Section] 8127(d)’s requirement is mandatory or discretionary. The clause announces an objective that Congress hoped that the Department would achieve and charges the Secretary with setting annual benchmarks, but it does not change the plain meaning of the operative clause.
The Court next rejects the VA’s argument that the word “contracts” means that the VA Act doesn’t apply to FSS orders. The Court writes that it would ordinarily not entertain an argument that the Government failed to raise at the lower courts, “ut the Department’s forfeited argument fails in any event.”
The Court explains that “[w]hen the Department places an FSS order, that order creates contractual obligations for each party and is a ‘contract’ within the ordinary meaning of that term.” The Court also explains that an order is a contract “as defined by federal regulations,” particularly FAR 2.101. The Court then goes into additional explanation about why FSS orders are types of contracts.
Finally, the Court rejects the Government’s argument that the Court should defer to the VA’s interpretation of the VA Act. The Court simply writes that “we do not defer to the agency when the statute is unambiguous . . . [t]hus, we decline the Department’s invitation to defer to its interpretation.”
The Court concludes:
We hold that the Rule of Two contracting procedures in [Section] 8127(d) are not limited to those contracts necessary to fulfill the Secretary’s goals under [Section] 8127(a). We also hold that [Section] 8127(d) applies to orders placed under the FSS. The judgment of the Court of Appeals for the Federal Circuit is reversed, and the case is remanded for further proceedings consistent with this opinion.
The Aftermath of the Kingdomware Decision
For SDVOSBs and VOSBs, the Supreme Court’s Kingdomware decision is a huge win. Ever since the VA Act was adopted, the VA has taken the position that it may order off the GSA Schedule without prioritizing veteran-owned businesses. That’s about to change.
I expect that the Kingdomware decision will prove a major boon to SDVOSBs and VOSBs, ultimately resulting in billions of extra dollars flowing to veteran-owned companies. The long battle is over–and SDVOSBs and VOSBs have won.
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After September 30, 2016, unsuccessful offerors will lose the ability to challenge some task order awards issued by civilian agencies.
With the House of Representatives and Senate at odds over the extent to which task orders should be subject to bid protests in the first place, it’s unclear whether that protest right will be restored.
Under the Competition in Contracting Act, a protest challenging a task order award issued by a civilian agency is not permitted unless it falls under either of the following exceptions:
(A) the protest alleges that the order increases the scope, period, or maximum value of the contract under which the order was issued; or
(B) the protest challenges an order valued in excess of $10 million.
41 U.S.C. § 4106(f)(1).
The statute, however, provides that the second exception—allowing protests challenging orders valued at greater than $10 million—expires on September 30, 2016. After that date, an offeror’s ability to protest a task order issued by a civilian agency will be limited to only those protests alleging that the order increases the scope, period, or maximum value of the underlying contract.
It is important to note that this expiration applies only to task orders issued by civilian agencies; offerors can still challenge task orders issued by the Department of Defense, so long as the awards meet the same $10 million minimum. See 10 U.S.C. § 2304c(3)(1).
Congress has started discussing how to address this issue. But the House and Senate remain worlds apart: the House proposes to allow civilian task order protests again, while the Senate wants to do away with task and delivery protests at GAO altogether and instead require the task and delivery order ombudsman to resolve any complaints. H.R. Rep. No. 114-537, § 1862 (p. 348); S. 2943, 114th Cong. § 819.
In fiscal year 2015 (the last year for which statistics are available), GAO closed 2,647 cases; only 335 of them arose from GAO’s special task order jurisdiction. And as we have reported, 45% of protests resulted in a favorable outcome for the protester, either through a formal “sustain” decision or by way of voluntary corrective action. It would be unfortunate to permanently eliminate GAO’s ability to decide protests regarding larger task orders when the statistics indicate that such protests aren’t pervasive and are often meritorious.
So what’s the bottom line? Unless Congress acts, unsuccessful offerors in civilian task order competitions will be able to protest only in very limited circumstances; these offerors must instead bring their complaints before the agency’s task order ombudsman. In the meantime, affected offerors might consider discussing the issue with their elected representatives.
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The GAO ordinarily lacks jurisdiction to consider a protest of a task or delivery order under a DoD multiple-award contract unless the value of the order exceeds $25 million.
In a recent bid protest decision, the DoD confirmed that the 2017 National Defense Authorization Act upped the jurisdictional threshold for DoD task orders from $10 million to $25 million.
The GAO’s decision in Erickson Helicopters, Inc., B-415176.3, B-415176.5 (Dec. 11, 2017) involved a solicitation under the U.S. Transportation Command’s Trans-Africa Airlift Support multiple-award IDIQ contract. The agency sought to procure personnel recovery, casualty evaluation, and airdrop services in various parts of Africa.
In May 2017, the agency issued a task order RFP to all three IDIQ contract holders. After evaluating proposals, the agency awarded the order to Berry Aviation, Inc. AAR Airlift Group, Inc., an unsuccessful offeror, filed a protest challenging the award.
The agency directed Berry to suspend performance of the task order pending the outcome of AAR’s protest. But in the interim, the agency issued a sole source order to Berry to provide the same services.
In August 2017, three days after the agency issued its sole source justification, Erickson Helicopters, Inc. filed a protest challenging the sole source award to Berry. Erickson alleged, in part, that the award to Berry was flawed for various reasons, such as that Berry did not provide fair and reasonable pricing.
The GAO wrote that, under statutory authority modified by the 2017 NDAA, “our Office is authorized to hear protests of task orders that are issued under multiple-award contracts established within the Department of Defense (or protests of the solicitations for those task orders) where the task order is valued in excess of $25 million, or where the protester asserts that the task order increases the scope, period, or maximum value of the contract.”
In this case, many of Erickson’s arguments did not allege that the task order increased the scope, period, or maximum value of the underlying IDIQ. After a detailed analysis, the GAO concluded that the total value of the task order would be “no more than $23,189,823.90.” This amount, GAO said, “is less than the $25 million threshold necessary to establish the jurisdiction of our Office.”
GAO dismissed these portions of Erickson’s protest.
For many years, the GAO had jurisdiction over DoD task order protests valued in excess of $10 million. But in the 2017 NDAA, Congress upped the threshold to $25 million. This significantly varies from the threshold for orders under civilian IDIQs, which remains at $10 million.
It’s easy for prospective protesters to get tripped up by these jurisdictional rules. Jurisdiction may not be the most exciting topic in the world, but anyone wishing to protest a task or delivery order at the GAO must consider whether the GAO has jurisdiction.
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It’s hard to believe that August is already here. Before we know it, the end of the government fiscal year will be here–and if tradition holds, a slew of bid protests related to those inevitable last-minute contract awards.
In our first SmallGovCon Week In Review for August, two big-wig executives who previously plead guilty to charges of conspiracy now face civil claims, some helpful tips on how to prepare for the year-end contracting frenzy, Schedule 70 looks to be improved, a major roadblock for the ENCORE III IT service contract, and much more.
A False Claims Act complaint has been filed by the U.S. Justice Department against two former New Jersey executives accused of defrauding the military. [nj.com]
A federal judge said that the U.S. Department of Health and Human Services showed a “cavalier disregard” for the truth and favoritism during the evaluation of bid proposals for its financial management. [Modern Healthcare]
A watchdog found that a five-year contract originally valued at a fixed price of nearly $182 million ballooned to $423 million. [Government Executive]
A GSA top acquisition official has promised an improved Schedule 70 following an audit that found price discrepancies for identical products and some offered at higher prices than they were commercially available. [Nextgov]
Washington Technology offers eight tips to help contractors prepare for the last month of the government fiscal year. [Washington Technology]
A growing legion of small businesses are trying make federal contracting a bigger part of their revenue as federal small business awards stay above $90 billion for the past two fiscal years. [Bloomberg]
A group of men, women and corporations have been indicted for illegally winning government contracts worth some $350 million by misrepresenting themselves as straw companies controlled by either low-income individuals or disabled veterans. [The State]
The final “blacklisting” rule to prevent businesses that had broken labor laws from working with the federal government is expected soon, and the National Labor Relations Board is preparing to follow the proposal. [Society for Human Resource Management]
The growing number of bid protests appears unavoidable, regardless of the efforts to engage industry before, during and after the bidding process. [Nextgov]
The GAO has sustained protests challenging the terms of the major ENCORE III IT services contract. [Federal News Radio]
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The 2017 NDAA is full of important changes that will affect federal contracting going forward. As Steve wrote about earlier this week, some of these changes relate to government contracting programs (like the SDVOSB program). Still others relate to how the government actually procures goods and services.
One of these important changes severely limits the use of lowest-price technically-acceptable (“LPTA”) evaluations in Department of Defense procurements. Following the change, “best value” tradeoffs will be prioritized for DoD acquisitions. This post will briefly examine when LPTA procurements will and won’t be allowed under the 2017 NDAA.
The 2017 NDAA sets a new DoD policy: to avoid using LPTA evaluations when doing so would deny DoD with the benefits of cost and technical tradeoffs. As a result, the 2017 NDAA limits the use of LPTA procurements to instances when the following six conditions are met:
DoD is able to comprehensively and clearly describe the minimum requirements expressed in terms of performance objectives, measures, and standards that will be used to determine the acceptability of offers;
DoD would recognize no (or only minimal) value from a proposal that exceeded the minimum technical or performance requirements set forth in the solicitation;
The proposed technical approaches will not require any (or much) subjective judgment by the source selection authority as to their respective desirability versus competitors;
The source selection authority is confident that reviewing the bids from the non-lowest price offeror(s) would not result in the identification of factors that could provide value or benefit to the Government;
The Contracting Officer includes written justification for use of the LPTA scheme in the contract file; and
DoD determines that the lowest price reflects full life-cycle costs, including costs for maintenance and support.
By limiting DoD’s use of LPTA to procurements to instances in which these six criteria are met, the 2017 NDAA effectively mandates that for a majority of procurements, the DoD should use best value selection procedures.
But in addition to codifying a presumption against LPTA procurements, the NDAA goes so far as to caution DoD to not use LPTA procurements under three specific types of contracts:
Contracts that predominately seek knowledge-based professional services (like information technology services, cybersecurity services, systems engineering and technical assistance services, advanced electronic testing, and audit or audit readiness services);
Contracts seeking personal protective equipment; and
Contracts for knowledge-based training or logistics services in contingency operations or other operations outside the United States (including Iraq and Afghanistan).
Finally, to verify compliance with this new requirement, the NDAA requires DoD to issue annual reports over the next four years that describe the instances in which LPTA procedures were used for a contract exceeding $10 million.
The 2017 NDAA makes clear Congress’s intent to rework DoD’s contracting programs and procedures. Going forward, Congress wants DoD to utilize best value source selection procedures as much as possible, by severely restricting use of LPTA procedures for DoD contracts.
The House approved the 2017 NDAA on December 2. It now goes to the Senate, which is also expected to approve the measure, then send it to the President. We will keep you posted.
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The FAR Council has published a final rule to require that certain contractor employees complete privacy training.
The final rule requires privacy training for contractor employees who handle personally identifiable information, have access to a system of records, or design, maintain, or operate a system of records.
The final rule has been more than five years in the making: the FAR Council issued a proposed rule regarding privacy training way back on October 14, 2011. The final rule responds to public comments on the proposal and makes some adjustments, although it’s unclear why the FAR Council required half a decade to do so).
The final rule creates a new FAR Subpart 24.3, which will be named “Privacy Training.” New FAR 24.301 will specify that “Contractors are responsible for ensuring that initial privacy training, and annual privacy training thereafter” is completed by contractor employees who: (1) Have access to a system of records; (2) Create, collect, use, process, store, maintain, disseminate, disclose, dispose, or otherwise handle personally identifiable information on behalf of the agency; or (3) Design, develop, maintain, or operate a system of records.
The FAR will define “personally identifiable information” as “information that can be used to distinguish or trace an individual’s identity, either alone or when combined with other information that is linked or linkable to a specific individual.” The definition refers readers to OMB Circular No. A-130 (Managing Federal Information as a Strategic Resource) for additional guidance. (FAR 24.101 already provides other relevant definitions, such as “operation of a system of records).
FAR 24.301 will specify the minimum “key elements” that privacy training must include. These include such things as “the appropriate handling and safeguarding of personally identifiable information,” “procedures to be followed in the event of a suspected or confirmed breach of a system of records or unauthorized disclosure, access, handling or use of personally identifiable information,” and several others. The clause requires the contractor to “maintain, and upon request, to provide documentation of completion of privacy training for all applicable employees.”
The final rule calls for the contracting officer to insert a new clause, FAR 52.224-3 (Privacy Training) in solicitations and contracts when, on behalf of an agency, contractor employees will engage in functions that fall within the privacy training requirement. The clause must be flowed down to all subcontractors who will engage in covered functions. The clause also permits agencies to use an alternate version of the clause to specify that only agency-provided training is acceptable.
Earlier this year, the FAR Council finalized FAR 4.19 (Basic Safeguarding of Covered Contractor Information Systems) and its associated clause, FAR 52.204-21. The final rule builds on this theme, again emphasizing the protection of information held by contractors. The rule takes effect on January 19, 2017.
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To be timely, a GAO bid protest challenging the terms of the solicitation must be filed no later than the proposal submission deadline.
A recent GAO decision affirmed that, at least in some cases, this deadline applies to an offeror’s elimination from competition based on an organizational conflict of interest. Because the offeror knew of its potential conflict and the agency’s position on its eligibility before its proposal was submitted, its post-evaluation protest was untimely. GAO dismissed its protest.
The facts in A Squared Joint Venture, B-413139 et al. (Aug. 23, 2016) are relatively straightforward. A Squared Joint Venture (“A2JV”) was a joint venture formed by two companies, including Al-Razaq Computing Services. Al-Razaq was the incumbent contractor under a contract for acquisition and business support services at NASA’s Marshall Space Flight Center (“MSFC”).
Al-Razaq’s contract allowed it access to MSFC’s procurement-related information and, in some cases, required it to be involved with MSFC’s acquisition efforts. So its contract included a limitation on future contracting that, among other things, prohibited Al-Razaq and any of its subcontractors from performing or assisting with the performance of any other contract issued by MSFC during the performance of the incumbent contract.
In February 2016, NASA issued the follow-on solicitation to Al-Razaq’s incumbent contract. The solicitation sought many of the same acquisition support functions that Al-Razaq was currently performing, and also included an identical limitation on future contracting clause.
Later in February, Al-Razaq’s Acquisition Team Lead met with the contracting officer to discuss whether Al-Razaq personnel performing the incumbent contract could assist with the preparation of the offeror’s proposal. The contracting officer told Al-Razaq that it needed to implement a firewall to separate both the information and personnel associated with its incumbent performance from those personnel preparing the proposal.
A2JV submitted its offer on March 18. But contrary to the contracting officer’s instruction, its proposal was hand-delivered to the MSFC contracting activity by (then-) current and former Al-Razaq program managers under the incumbent effort. In fact, Al-Razaq’s program manager “informed agency officials that he had been involved in the preparation of the A2JV proposal, and had spent 10-12 hours a day for the last two weeks working on the proposal.”
NASA eliminated A2JV’s proposal from competition on May 9, citing its organizational conflict of interest—specifically, its unequal access to information. Explained by GAO, “an unequal access to information OCI exists where a firm has access to nonpublic information as part of its performance of a government contract, and where that information may provide a firm a competitive advantage in a later competition for a government contract.”
Justifying A2JV’s exclusion, the contracting officer explained that Al-Razaq’s incumbent performance includes its support of MSFC procurement activities, and allows Al-Razaq “access to the full breadth of sensitive contractual and financial information necessary for the administration of MSFC contracts.” Al-Razaq was required to screen new business opportunities to avoid a conflict of interest, yet failed to do so. Its use of the existing program manager created an impermissible OCI.
A2JV protested its elimination, challenging the determination that it had unequal access to information and was required to firewall its employees. NASA, in its response, argued that the protest was untimely because it was not filed before the deadline to submit proposals.
GAO agreed with NASA. It explained that “Al-Razaq (and A2JV) was fully aware prior to closing of the fundamental ground rules by which the  competition was being conducted.” To this point, it said “prior to the closing time for the receipt of proposals, A2JV was aware of the operative facts regarding the existence of an actual or potential OCI involving itself, as well as the agency’s position on the offeror’s eligibility to compete[.]” If A2JV believed that a firewall was not necessary, it should have protested that requirement prior to the RFP’s closing date.
A2JV’s untimely protest was dismissed.
Knowing the deadline to file a bid protest can be tricky. If a protest challenges the ground rules of a solicitation, it must be filed by the time proposals are due. As A Squared Joint Venture confirms, GAO will dismiss any protest that does not meet the filing deadline–including, potentially, one involving the government’s position on an alleged OCI.
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It’s been a year of big changes in the government’s SDVOSB programs. First came the Kingdomware Supreme Court decision, which was soon followed by the SBA’s final rule adopting a new “universal” mentor-protege program–and imposing many new requirements on SDVOSB joint ventures.
On Thursday, August 4, 2016 at 1:00 p.m. Central, I will host a free webinar to discuss these important changes. To register, just follow this link and complete the brief electronic form, or call Jen Catloth of Koprince Law LLC at (785) 200-8919.
See you online on Thursday!
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A small but interesting change in the 2017 National Defense Authorization Act will require the DoD to obtain an appropriate justification and approval (“J&A”) before restricting any competition to a particular brand name, or imposing similar restrictions.
In adopting this change, Congress doesn’t mince words, using the term “Anti-competitive Specifications” to refer to instances in which competitions are restricted to particular brand names without appropriate justification.
Section 888 of the 2017 NDAA states that the Secretary of Defense “shall ensure that competition in Department of Defense contracts is not limited through the use of specifying brand names or brand-name or equivalent specifications, or proprietary specifications or standards, in solicitations unless a justification for such specification is provided and approved” in accordance with statutory authority.
FAR 11.105 already imposes restrictions regarding “brand name only” requirements, but the 2017 NDAA seems to go a step beyond FAR 11.105 by including “brand-name or equivalent descriptions” and “proprietary specifications or standards” in its scope. The 2017 NDAA would, however, retain certain exceptions to the justification requirement set forth in the DoD’s acquisition statutes at 10 U.S.C. 2304(f).
In addition to imposing the J&A requirement, the 2017 NDAA provides that within 180 days of enactment, the DoD “shall conduct a review of the policy, guidance, regulations and training related to specifications included in information technology acquisitions to ensure current policies eliminate the unjustified use of potentially anti-competitive specifications.” The DoD is to brief Congress on its review within 270 days of enactment. Within one year, the DoD is to “revise policies, guidance and training” to reflect any recommendations stemming from its review.
It seems clear from Section 888 that Congress is concerned about the potential overuse of brand name (and similar) requirements. We’ll be keeping our eyes peeled around this time next year to see how DoD adjusts its acquisition policies in response.
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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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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The SBA has finalized its “universal” mentor-protege program for all small businesses.
In a final rule scheduled to be published in the Federal Register on July 25, 2016, the SBA provides the framework for what may be one of the most important small business programs of the last decade–one that will allow all small businesses to obtain developmental assistance from larger mentors, and form joint ventures with those mentors to pursue set-aside contracts.
First things first: while I’ve been using the term “universal” mentor-protege program for the last year and a half, the SBA apparently has had a change of heart when it comes to terminology. The SBA now calls its new program the “small business mentor-protege program,” so that’s what I’ll call it, too, from now on.
The SBA’s final rule creates a new regulation, 13 C.F.R. 125.9, entitled “What are the rules governing SBA’s small business mentor-protege program?” The new regulation sets forth the framework of the small business mentor-protege program.
The SBA broadly explains the purpose of the new program in this way:
The small business mentor-protege program is designed to enhance the capabilities of protege firms by requiring approved mentors to provide business development assistance to protege firms and to improve the protege firms’ ability to successfully compete for federal contracts. This assistance may include technical and/or management assistance; financial assistance in the form of equity investments and/or loans; subcontracts (either from the mentor to the protege or from the protege to the mentor); trade education; and/or assistance in performing prime contracts with the Government through joint venture arrangements. Mentors are encouraged to provide assistance relating to the performance of contracts set aside or reserved for small business so that protege firms may more fully develop their capabilities.
Just like the longstanding and popular 8(a) mentor-protege program, the new small business mentor-protege program creates a framework under which mentor firms will provide a wide variety of potential benefits to their proteges.
Qualification as Mentor
As a general matter, “[a]ny concern that demonstrates a commitment and the ability to assist small business concerns may act as a mentor and receive benefits ” from the mentor-protege program. Mentors may be large or small businesses.
In order to qualify, a prospective mentor must demonstrate that it is capable of meeting its commitments to the protege. The SBA will evaluate a prospective mentor’s financial health, such as by reviewing the mentor’s tax returns, audited financial statements, and/or SEC filings (for publicly traded companies). A mentor must “[p]ossess good character” and cannot appear on the government’s list of debarred or suspended contractors. Once approved, a mentor must “annually certify that it continues to possess good character and a favorable financial position.”
A mentor “generally” will have only one protege at a time. However, “SBA may authorize a concern to mentor more than one protege at a time where it can demonstrate that the additional mentor-protege relationship will not adversely affect the development of either protege (e.g., the second firm may not be a competitor of the first firm). While mentors may, with SBA permission, have more than one protege, “Under no circumstances will a mentor be permitted to have more than three proteges at one time . . ..” In its commentary, the SBA explains:
SBA continues to believe that there must be a limit on the number of firms that one business, particularly one that is other than small, can mentor. Although SBA believes that the small business mentor-protege program will certainly afford business development to many small businesses, SBA remains concerned about large businesses benefiting disproportionately. If one firm could be a mentor for an unlimited number (or even a larger number) of proteges, that firm would receive benefits from the mentor-protege program through joint ventures and possible stock ownership far beyond the benefits to be derived by any individual protege.
Importantly, the “three-protege limit” is an aggregate of proteges under the small business mentor-protege program and the separate 8(a) mentor-protege program. In other words, if a mentor already has two proteges under the 8(a) mentor-protege program, the mentor would be limited to a single additional protege under the small business mentor-protege program.
If control of a mentor changes (such as through a stock sale), the mentor-protege agreement can continue under the new ownership. However, after the change in control, the mentor must “express in writing to SBA that it acknowledges the mentor-protege agreement and [certify] that it will continue to abide by its terms.”
Finally, in its proposed rule, the SBA suggested that a firm could not be both a mentor and a protege at the same time. In my public speaking on the mentor-protege program, I questioned this proposal, noting that a firm may be well-established in one line of work, but require mentoring in a secondary line of work. For instance, a company may be a longstanding, well-established plumbing contractor, and well-positioned to mentor a firm in that industry–while at the same time requiring mentoring to break into electrical work.
Perhaps the SBA was listening, because the final rule deletes that restriction. The final rule provides that “SBA may authorize a small business to be both a protege and a mentor at the same time where the firm can demonstrate that the second relationship will not compete with or otherwise conflict with the first mentor-protege relationship.”
Qualification as Protege
To qualify as a protege, a company “must qualify as small for the size standard corresponding to its primary NAICS code or identify that it is seeking business development assistance with respect to a secondary NAICS code and qualify as small for the size standard corresponding to that NAICS code.” However, if the prospective protege is not a small business in its primary NAICS code, “the firm must demonstrate how the mentor-protege relationship is a logical business progression for the firm and will further develop or expand current capabilities.” Further, “SBA will not approve a mentor-protege relationship in a secondary NAICS code in which the firm has no prior experience.”
The portion of the final regulation involving secondary NAICS codes is an important change from the SBA’s proposed rule. The SBA initially proposed that a protege would be required to qualify as small in its primary NAICS code, and could not obtain a mentor if that standard wasn’t met. The final rule appropriately recognizes that a small business may desire mentorship to develop in a new or secondary line of work carrying a larger NAICS code (think of a plumbing contractor that wants to expand to general contracting, for example).
A protege ordinarily will have no more than one mentor at a time, although the SBA may approve a second mentor where certain conditions are met. In no case will the SBA approve more than two concurrent mentors for any single protege.
Written Mentor-Protege Agreement Required
In order to participate in the mentor-protege program, “[t]he mentor and protege firms must enter into a written agreement setting forth an assessment of the protege’s needs and providing a detailed description and timeline for the delivery of the assistance the mentor commits to provide to address those needs . . ..”
Interestingly, as in the 8(a) program, the parties must “[a]ddress how the assistance to be provided through the agreement will help the protege firm meet its goals as defined in its business plan.” I say “interestingly” because 8(a) program participants are required to submit 8(a)-specific business plans to the SBA; other small businesses are not. It’s unclear, then, whether this regulation implicitly requires prospective proteges to have written business plans (which of course is a best practice, and often required for various types of financing–but still, not all small businesses have written business plans).
The mentor-protege agreement must provide that the mentor will provide assistance to the protege for at least one year. However, the agreement must also provide “that either the protege or the mentor may terminate the agreement with 30 days advance notice to the other party . . . and to SBA.”
The written mentor-protege agreement must be approved by the SBA before it takes effect. Additionally, the SBA “must approve all changes to a mentor-protege agreement in advance, and any changes made to the agreement must be provided in writing.” If changes are made to the mentor-protege agreement without the SBA’s permission “SBA shall terminate the mentor-protege relationship and may also propose suspension or debarment of one or both firms . . ..”
The SBA states that it will “establish a separate unit within the Office of Business Development whose sole function would be to process mentor-protege applications and review MPAs and the assistance provided under them once approved.” If this office becomes overwhelmed with applications (a concern a number of commenters raised in response to the proposed rule), SBA could consider using “open enrollment periods” in which mentor-protege applications would be accepted. The final rule does not establish any open enrollment periods at this time, however.
Term of Mentor-Protege Agreement
A single mentor-protege agreement “may not exceed three years, but may be extended for a second three years.” The SBA’s apparent intent is to cap, at six years, the length of time that two companies can be involved in a small business mentor-protege relationship.
In its commentary, the SBA explains:
The mentor-protege program should be a boost to a small business’s development that enables the small business to independently perform larger and more complex contracts in the future. It should not be a crutch that prevents small businesses from seeking and performing those larger and more complex contracts on their own.
Small business proteges must make annual reports to the SBA. Within 30 days of the anniversary of the SBA’s approval of the mentor-protege agreement, the protege must make a report concerning the previous year, including a detailed list of assistance provided by the mentor, federal contracts awarded to the mentor-protege as joint venturers, and so on. The protege must also submit a narrative “describing the success each assistance has had in addressing the developmental needs of the protege and addressing any problems encountered.”
The SBA will review the protege’s annual report to determine whether to reauthorize the mentor-protege agreement (provided that it has not expired). However, no news is good news: “nless rescinded in writing as a result of the review, the mentor-protege relationship will automatically renew without additional written notice or continuation or extension to the protege firm.”
If the SBA determines that the mentor has not provided the promised assistance, the SBA will give the mentor the opportunity to respond. If the SBA is unconvinced by that explanation (or if the mentor offers no explanation), the SBA will terminate the mentor-protege agreement and bar the mentor from acting as a mentor for two years. The SBA may also take other actions to penalize the mentor.
After the mentor-protege relationship has concluded, the SBA will require the protege to submit a final report to the SBA about “whether it believed the mentor-protege relationship was beneficial and describe any lasting benefits to the protege.” If the protege fails to submit the report, the SBA will not approve a second mentor-protege relationship, either under the small business mentor-protege program or the 8(a) mentor-protege program.
The small business mentor-protege program allows the mentor and protege to form joint ventures and compete for set-aside contracts based solely on the protege’s size:
A mentor and protege may joint venture as a small business for any government prime contract or subcontract, provided the protege qualifies as small for the procurement. Such a joint venture may seek any type of small business contract (i.e., small business set-aside, 8(a), HUBZone, SDVOS, or WOSB) for which the protege firm qualifies (e.g., a protege firm that qualifies as a WOSB could seek a WOSB set-aside as a joint venture with its SBA-approved mentor).
The SBA must approve the joint venture agreement before a mentor-protege joint venture may avail itself of the special exception from affiliation provided by the small business mentor-protege program. The joint venture agreement, in turn, must satisfy the requirements of another new regulation the SBA has finalized, which will be codified at 13 C.F.R. 125.8. And because this blog post is already approaching “War and Peace” length, we’ll discuss those new joint venturing requirements in a separate post.
According to the final regulation, “[o]nce a protege firm no longer qualifies as a small business for the size standard corresponding to its primary NAICS code, it will not be eligible for any further contracting benefits from its mentor-protege relationship.” In my mind, though, this prohibition is inconsistent with the SBA’s decision to allow proteges to qualify for the small business mentor-protege program based on secondary NAICS codes. If outgrowing the primary NAICS code precludes joint venturing for set-aside contracts carrying NAICS codes with higher size standards, the value of mentorship in a secondary NAICS code is greatly diminished. Perhaps the SBA will clarify this piece of the rule moving forward.
The final rule provides that “a change in the protege’s size status generally does not affect contracts previously awarded to a joint venture between the protege and its mentor.” The SBA specifies that “[e]xcept for contracts with durations of more than five years (including options), a contract awarded to a joint venture between a protege and mentor as a small business continues to qualify as an award to small business for the life of that contract and the joint venture remains obligated to continue performance on that contract.” For contracts with durations of more than five years, recertification will be required as provided for in 13 C.F.R. 124.404(g)(3)
As is the case under the 8(a) mentor-protege program, the small business mentor-protege program provides a broad “shield” from affiliation. The SBA’s new regulation states that “[n]o determination of affiliation or control may be found between a protege firm and its mentor based solely on the mentor-protege agreement or any assistance provided pursuant to the agreement.” The affiliation exception is not unlimited, however. The new regulation provides that “affiliation may be found for other reasons set forth” in the SBA’s affiliation regulation, 13 C.F.R. 121.103.
Transfer of 8(a) Mentor-Protege Agreements
The final rule provides that when a protege graduates or otherwise leaves the 8(a) Program, but continue to qualify as small, that protege “may transfer its 8(a) mentor-protege relationship to a small business mentor-protege relationship.” The mentor-and protege do not need to reapply, but must “merely inform SBA” of the intent to transfer the mentor-protege relationship to the small business mentor-protege program.
The Road Ahead
The SBA’s new small business mentor-protege program will become effective 30 days after the final rule is officially published on July 25. Whether the SBA will begin accepting applications in late August, however, remains to be seen.
The small business mentor-protege program will be a game-changer in the world of small business contracting. For small and large contractors alike, now is the time to get working to take advantage of this extraordinary new opportunity.
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An agency was entitled to cancel a solicitation when its needs changed–even though the anticipated changes in its needs “might be characterized as minimal.”
In a recent bid protest decision, the GAO confirmed that a procuring agency has broad discretion to cancel a solicitation when the agency’s anticipated needs change, and that discretion extends to cases in which the agency’s changed needs could be addressed by amending the existing solicitation.
The GAO’s decision in Social Impact, Inc., B-412655.3 (June 29, 2016) involved a USAID solicitation for support for the agency’s Monitoring, Evaluation, and Learning Program in Tanzania. After evaluating competitive proposals, USAID initially selecting Management Systems International for award. Social Impact, Inc. then filed a GAO bid protest, challenging the award to MSI.
In response to the protest, USAID notified the GAO that it intended to terminate the award to MSI and cancel the solicitation. Explaining its decision to cancel the solicitation, the agency stated that “Changes in USAID/Tanzania Mission staffing, and its in-house capacity, as well as changes in Agency experience and best practices vis-a-vis monitoring, evaluation, and learning (MEL) activities, dictate that the Mission streamline its MEL activities by moving some of the underlying procurement’s related work, such as the learning component, in-house to maximize efficiency and cost-savings.”
Social Impact filed a GAO bid protest challenging the agency’s decision to cancel. Social Impact argued, in part, that the cancellation was inconsistent with FAR 15.206(e), which states:
If, in the judgment of the contracting officer, based on market research or otherwise, an amendment proposed for issuance after offers have been received is so substantial as to exceed what prospective offerors reasonably could have anticipated, so that additional sources likely would have submitted offers had the substance of the amendment been known to them, the contracting officer shall cancel the original solicitation and issue a new one, regardless of the stage of the acquisition.
Social Impact contended that the changes in USAID’s needs were minimal, and not “so substantial as to exceed what prospective offerors reasonably could have anticipated.” Therefore, Social Impact argued, USAID should have amended the existing solicitation rather than canceling it.
The GAO wrote that “Section 15.206(e) mandates that an agency cancel a solicitation and issue a new one” when the “so substantial” test is satisfied. “There is nothing to suggest, however, that the converse is true, i.e., that an agency is is prohibited from canceling a solicitation when changes in the agency’s requirements do not rise to the level contemplated in Section 15.206(e).” The GAO continued:
To the contrary, our Office has held that, even when the changes could be addressed by an amendment, “[t]he only pertinent inquiry is whether there existed a reasonable basis to cancel, since an agency may cancel at any time when such a basis is present.” Where the record reflects a reasonable basis to cancel, and in the absence of the criteria described in section 15.206(e), the agency has broad discretion in determining whether to cancel or amend a solicitation.
The GAO concluded that “we find the agency’s decision to cancel the solicitation to be reasonable despite the fact that the anticipated changes to the solicitation might be characterized as minimal.” The GAO denied Social Impact’s protest.
As the Social Impact case demonstrates, agencies enjoy broad discretion when it comes to canceling solicitations. Even where an anticipated change in the agency’s needs could be satisfied by amending the existing solicitation, the agency may validly decide instead to cancel it.
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You’ve submitted a great proposal, but then you get the bad news – you lost. As most seasoned contractors know, an unsuccessful offeror often can ask for a debriefing from the agency and in doing so, hopefully get some valuable insight into its decision-making process. Many also understand that the benefits of asking for a debriefing may include extending the timeline for filing a GAO bid protest.
But not all solicitations are subject to the same debriefing regulations, and depending on how the procurement was conducted, an offeror might not be entitled to that extended deadline–as one company recently learned the hard way in the context of a GSA Schedule procurement.
For GAO protests, 4 C.F.R. §21.2(a) governs timeliness. The regulation provides that protests not based on alleged improprieties in a solicitation shall be filed no later than 10 days after the basis of the protest is known, or should have been known (whichever is earlier). The only exception mentioned in the regulation is for protests arising out of conduct from “a procurement conducted on the basis of competitive proposals under which a debriefing is requested, and when requested, is required.” When this exception applies, the protest cannot be filed before the debriefing date, but must be filed no later than 10 days after the debriefing is held.
The important distinction – for our discussion today – in all that statutory legalese above, is “competitive proposals”. As one recent offeror learned, if an RFP is not considered to be conducted on the basis of “competitive proposals”, the debriefing may not extend the timeline to file a protest.
IR Technologies, B-414430 (June 6, 2017), involved a U.S. Marine Corps RFP for IT support of the agency’s ELS2 system, a web-based system that provides data and information on ground equipment and weapon systems. The RFP was a small business set-aside and limited offerors to those who had existing contracts under GSA Schedule 70. The RFP provided that award would be made on a lowest-price, technically-acceptable basis.
IR Technologies submitted a proposal. On February 16, 2017, the agency informed IRT that award had been made to a competitor. The award notice stated that the competitor’s price was $6,996,549–far lower than IRT’s proposed price of $12,194,525.
After it received the notice on February 16, IRT requested a debriefing. The agency provided a written debriefing the same day. IRT then submitted follow-up debriefing questions on February 22, to which the agency replied on March 1st.
On March 6th, IRT filed a protest with the GAO. IRT raised several grounds of protest, including an argument that the awardee’s price was unrealistically low.
The agency and awardee moved to dismiss this ground of protest, arguing that it was untimely because it was not filed within 10 days of when IRT knew or should have known its basis of protest–that is, within 10 days of when IRT received the February 16 notice.
The GAO confirmed that, under its Bid Protest Regulations, a debriefing can extend the time frame to file a GAO bid protest, but only when a procurement is “conducted on the basis of competitive proposals” and where a debriefing is “requested, and when requested, is required.” These nuances can trip up prospective protesters, and that’s exactly what happened here.
The GAO found that the RFP arose out of an FSS procurement conducted pursuant to FAR 8.4. Citing its own prior decisions for support, the GAO wrote that “FSS procurements conducted pursuant to FAR subpart 8.4 are not procurements conducted on the basis of competitive proposals,” and therefore, “the debriefing exception to our timeliness rules does not apply to such procurements.” The GAO continued: “ecause the FSS buy here was not a procurement conducted on the basis of competitive proposals, the exception to our timeliness rules allowing protests to be filed within 10 days of a debriefing does not apply.”
GAO wrote that “IRT’s protest [of price realism] is based on a comparative assessment of [the awardee’s] price to its own–information which IRT knew from the award notice” issued on February 16. GAO held that IRT’s price realism challenge was untimely.
IR Technologies shows that would-be protesters would be wise to pay careful attention to how the solicitation is written. If the RFP contemplates an FSS procurement, the debriefing exception to the timeliness rules under 4 C.F.R. §21.2(a)(2) won’t apply. And although there are other benefits to asking for a debriefing, an extended protest timelines isn’t one of them.
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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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The 2017 National Defense Authorization Act restores the GAO’s recently-expired jurisdiction to hear protests of civilian task and delivery orders valued in excess of $10 million.
The 2017 NDAA also continues to allow the GAO to hear protests of DoD task and delivery orders–but raises the jurisdictional threshold to $25 million.
As we blogged about in November, the GAO’s authority to hear bid protests in connection with civilian task and delivery orders expired on September 30, 2016. Even though DoD task and delivery orders weren’t directly impacted by the expiration, the GAO held, in two recent cases, that it lacked jurisdiction to consider protests of orders issued by DoD under civilian GWACs.
Specifically, in Analytic Strategies, LLC, B-413758.2 (Nov. 28, 2016), the GAO held that it did not have jurisdiction to consider a protest of a task order issued by the DoD under the GSA’s OASIS vehicle; in HP Enterprise Services, LLC, B-413382.2 (Nov. 30, 2016), the GAO made a similar finding with respect to a DoD order under the GSA ALLIANT IDIQ. The GAO held that it was the civilian nature of the underlying IDIQ vehicle that determined jurisdiction, not the identity of the ordering agency.
That’s where the 2017 NDAA comes in. The 2017 NDAA permanently restores the GAO’s ability to hear civilian task and delivery order protests valued in excess of $10 million. The statute maintains the GAO’s jurisdiction over DoD task and delivery order protests, but only for those in excess of $25 million. Ironically, the GAO’s decisions in Analytic Strategies and HP Enterprise Services may come back to haunt the DoD. Now that the GAO has found that DoD orders under civilian IDIQ vehicles are considered “civilian” for jurisdictional purposes, it seems clear that the $10 million threshold–not the new $25 million threshold–will govern protests of such orders once the 2017 NDAA takes effect.
It wasn’t a given that the GAO’s task and delivery order jurisdiction would be restored. Before adopting the conference bill, both House and Senate toyed with the idea of eliminating protests of task and delivery orders entirely. Bid protests serve an important function in the procurement process, as evidenced by the fact that 45% of protests in Fiscal Year 2015 resulted in relief for the protester (either a “sustain” decision or voluntary agency corrective action). Congress made the right call by restoring GAO’s jurisdiction to hear protests of large task and delivery orders.
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Sometimes you may find yourself running late. It happens to the best of us for a multitude of reasons. But what happens to federal contractors when they are running late in performing under a contract and there is “no reasonable likelihood” of timely performance?
Unfortunately for contractors in this position, as illustrated by a recent Civilian Board of Contract Appeals (CBCA) decision, the result may be a default termination.
In Affiliated Western, Inc. v. Department of Veterans Affairs, CBCA No. 4078 (2017), the VA awarded AWI a contract to renovate the surgical unit at a VA Medical Center in Iron Mountain, Michigan. Following mounting issues in contractual performance, the Contracting Officer issued a default termination.
The contractual issues giving rise to the default termination began early on in contract performance. Specifically, the Solicitation “warned potential bidders, that the schedule for the project ‘is very aggressive’ and involves ‘a very important department to the facility.’” AWI, as the awardee, was to provide renovations in five phases within a 400-day deadline. Contract performance started off strained due to architecture and engineering errors and omissions in the contract specifications for which the VA required AWI to perform several changes. All the while the VA and AWI continued debate over schedule submissions, which the VA found inadequate and refused to approve.
The relationship between the parties became further strained. Six months into contract performance, the VA issued its first cure notice. After, AWI failed to complete phase 1 on time, and the VA denied AWI’s requests for contract modification for compensation and time extensions.
Performance issues came to a head when AWI’s subcontractor, one of only two contractors in the remote area of contract performance that held the medical gas certification necessary to perform the project, reported AWI’s failure to make prompt payment despite AWI receiving payment from the VA. Afterwards, the subcontractor walked off the job. Then, less than a year into contract performance, the contracting officer issued a show cause notice citing AWI’s failure to complete phases 1 and 2 within the time required by the modified contract and ultimately issued a default termination in accordance with FAR 52.249-10, Default (Fixed-Price Construction).
AWI appealed the VA’s default termination to the CBCA and sought conversion to a termination for convenience. The CBCA sustained the VA’s default termination finding and denied AWI’s appeal.
In making its decision, the CBCA noted that default termination is “a drastic sanction which should be imposed (or sustained) only for good grounds and on solid evidence.” When a default is based on the contractor’s failure to prosecute the work, the contracting officer must have a reasonable belief that there was “no reasonable likelihood” that the contractor could perform the entire contract effort within the time remaining for contract performance. A termination for failure to make progress “usually occurs where the contractor has fallen so far behind schedule that timely completion becomes unlikely.”
In this case, since the VA established reasonable grounds to believe that AWI may not be able to perform the contract on a timely basis in issuing a cure notice as a precursor to possible default termination, and since AWI had failed to respond to the cure notice with adequate assurances, the VA had met its initial burden of proving that there were good grounds and solid evidence to support the termination.
The burden then shifted to AWI to prove that “there were excusable delays under the terms of the default provision of the contract that render[ed] the termination inappropriate, or that it was making sufficient progress on the contract such that timely contract completion was not endangered.” To recover under this theory of excusable delay, AWI also needed to show: “(1) the delay is of an ‘unreasonable length of time,’ (2) the delay was proximately caused by the Government’s actions, and (3) the delay resulted in some injury to the contractor.”
Applying a critical path schedule analysis to these requirements, the CBCA rejected AWI’s argument that extension of time for part of the project should automatically extend the total performance date. Thus, AWI could not rely on the VA contract modifications to excuse its delay where AWI could not prove it affected AWI’s critical path schedule. Accordingly, the CBCA found that “AWI failed to provide any evidence that it had fulfilled the contract requirement to provide the contracting officer with a schedule identifying the critical path and demonstrating how the schedule would be impacted by the VA’s alleged actions.” The CBCA concluded the VA to have properly terminated AWI for default, and denied AWI’s appeal.
Undoubtedly, federal contractors seek to perform contracts on time and within budget. However, the facts present in AWI demonstrate that when there is “no reasonable likelihood” that the contractor could perform the entire contract effort within the time remaining for contract performance, the end result may be a default termination.
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On Friday, Steven wrote about the framework of the new SBA small business mentor-protégé program. As part of this significant program addition, SBA’s final rule includes details about the requirements a small business joint venture must satisfy in order to be qualified to perform a small business set-aside. This post will briefly discuss those requirements.
A quick disclaimer: as we have detailed previously on SmallGovCon, the SBA will closely evaluate a joint venture agreement in the case of a size protest, and omitting even one piece of required information can render a joint venture ineligible for award. Any joint venture agreement should be prepared and reviewed carefully, to ensure its compliance with the new regulations.
With that admonition in mind, the small business mentor-protégé joint venture requirements (to be set forth at 13 C.F.R. § 125.8) are very similar to the existing 8(a) joint venture requirements (which apply both to 8(a) mentor-protege joint ventures and to “non-mentor-protege” joint ventures for 8(a) contracts).
The regulatory requirements are very different for a joint venture between two small businesses, on the one hand, and a joint venture under the small business mentor-protege program, on the other. In the case of a joint venture between two or more businesses that each qualify as small, the agreement “need not be in any specific form or contain any specific conditions in order for the joint venture to qualify as a small business.” But for a small business mentor-protégé joint venture, the agreement must include provisions that meet the following criteria:
Purpose. Set forth the purpose of the joint venture.
Managing Venturer/Project Manager. Designate a small business as the managing venturer, and an employee of the managing venturer as the project manager. The individual identified as the project manager “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 being employed by the small business if the joint venture is the successful offeror.” Importantly, “the individual identified as the project manager cannot be employed by the mentor and become an employee of the small business for purposes of performance under the joint venture.”
Ownership. State that, if the joint venture is a separate legal entity, it is at least 51% owned by the small business.
Profits. Distribute profits from the joint venture commensurate with the work performed, or in the case of a separate legal entity, commensurate with the ownership interests in the joint venture.
Bank Account. Provide for a special bank account in the name of the joint venture. 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 a set-aside contract 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. 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. Again, if the contract is indefinite, a lesser amount of information will be permitted.
Guaranteed Performance. Obligate all parties to the joint venture to ensure complete performance despite the withdrawal of any venturer.
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 were lifted essentially word-for-word out of the current 8(a) regulations, 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 again was basically copied from the 8(a) 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.
As noted, these requirements closely mirror existing requirements for an 8(a) mentor-protégé joint venture agreement. But at least one key difference exists: for a small business mentor-protégé joint venture agreement, the small business partner must self-certify as to the agreement’s compliance. The regulation states:
Prior to the performance of any contract set aside or reserved for small business by a joint venture between a protégé small business and a mentor authorized by § 125.9, the small business partner to the joint venture must submit a written certification to the contracting officer and SBA, signed by an authorized official of each partner to the joint venture, stating as follows:
The parties have entered into a joint venture agreement that fully complies with [the joint venture agreement requirements];
The parties will perform the contract in compliance with the joint venture agreement and with the performance of work requirements [set forth in the regulation].
Much like an 8(a) joint venture, moreover, a small business mentor-protégé joint venture must meet the applicable performance of work percentage set out in the regulations (at 13 C.F.R. § 125.6). Additionally, the small business partner to the joint venture perform at least 40% of the work performed by the joint venture; this work must be more than administrative or ministerial, so that the protégé member can gain substantive experience.
The regulation further requires the small business partner to issue performance of work reports to the SBA. These reports must describe how the small business is meeting or has met the performance of work requirements for each small business set-aside performed by the joint venture. The small business partner must submit these reports annually and at the completion of any contract.
The SBA’s new final rule, issued only today, provides new opportunities to increase small business participation in federal contracting. And though businesses hoping to participate in the new small business mentor-protégé program can look to the SBA’s existing programs as a guide, key differences between the programs warrant a close review of the new requirements. Follow SmallGovCon for more updates on this important rule.
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