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Koprince Law LLC

I am back from a great trip to Sooner Country (Norman, Oklahoma), where it was an honor to be part of the annual Indian Country Business Summit.  I gave two talks at ICBS: one on recent developments in government contracting, and another on crafting effective and compliant teaming agreements and subcontracts.

It was great to see so many familiar faces, including my longtime friend Guy Timberlake, who gave a fantastic presentation on competitive market intelligence.  A big thank you to the Tribal Government Institute and Oklahoma Bid Assistance Network for sponsoring this wonderful event, and Victoria Armstrong and everyone who worked with her to organize it.  And, of course, thank you to all of the clients, old friends, and new faces I met and spoke with at the conference.

I’ve been a road warrior recently, but will be sticking around town for the next few weeks.  Next up on my travel schedule: a half-day, in-depth session on teaming agreements, joint venturing, and mentor-protege programs, sponsored by the Nebraska PTAC.  Hope to see you in Omaha on September 22!

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Koprince Law LLC

When an agency requests that offerors provide past performance references, the agency ordinarily is not precluded from considering outside past performance information.

In a recent bid protest decision, the GAO confirmed that an agency’s past performance evaluation may include information outside the past performance references submitted by the offeror–and the agency can use any negative past performance information to downgrade the offeror’s score.

The GAO’s decision in Fattani Offset Printers, B-415308 (Nov. 20, 2017) involved a USAID solicitation for printing services.  The solicitation called for award to be made on a “best value” basis.  In its evaluation, the agency was to consider several factors and subfactors, including past performance.  The solicitation asked offerors to provide at least five past performance references.

Fattani Offset Printers submitted a proposal.  Fattani’s proposal included five past performance reference letters.  All five reference letters gave Fattani positive reviews.

In its evaluation, USAID reviewed Fattani’s five letters, and contacted three of those references.  USAID also contacted references outside of the five Fattani had provided.  Some of those sources gave Fattani negative reviews.  Based partly on this concern, USAID gave Fattani only 5 out of a possible fifteen points for past performance.  USAID awarded the contract to a competitor at a higher price.

Fattani filed a GAO bid protest, raising several issues.  Among its allegations, Fattani contended that it was improper for the agency to contact additional past performance references because the solicitation did not expressly allow it.

The GAO disagreed.  “Contrary to Fattani’s view,” the GAO wrote, “an agency is generally not precluded from considering any relevant past performance information, regardless of its source.”  Accordingly, “the agency acted reasonably when it solicited additional past performance references beyond those listed in Fattani’s proposal, notwithstanding the fact that the solicitation did not specify that the agency could seek alternate past performance references.”

The GAO denied the protest.

When an agency asks for past performance references, it’s a great opportunity for an offeror to put its best foot forward.  But, as the Fattani Offset Printers case demonstrates, just because an agency requests references doesn’t mean that the agency can’t consider other past performance information.  If the agency wishes, it ordinarily can consider past performance information from other sources, so long as that information is relevant.

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Koprince Law LLC

For small government contractors, joint ventures can be an important vehicle for successfully pursuing larger and more complex opportunities.  As the SBA’s All Small Mentor-Protege Program enters its second full year, the popularity of joint ventures seems to be increasing significantly.

But joint ventures aren’t immune from the FAR’s rules governing organizational conflicts of interest. In a recent decision, the GAO held that an agency properly excluded a joint venture from competition where one of the joint venture’s members–through its involvement in a second joint venture–had assisted in the preparation of the solicitation’s specifications.

HBI-GF, JV, B-415036 (November 13, 2017) involved a Corps of Engineers project to construct cutoff walls for an embankment at Lake Okeechobee, Florida. Gannett Fleming, Inc. was a construction company involved in two joint ventures: HBI-GF and GF-GEI. HBI-GF was a joint venture between Gannett Fleming and Hayward Baker, Inc.  GF-GEI, on the other hand, was a joint venture between Gannett Fleming and GEI Consultants.

GF-GEI held an existing IDIQ contract with the Corps.  In March 2016, GF-GEI was issued a task order to perform an Independent External Peer Review (IEPR) for the design phase of the cutoff wall project. GF-GEI performed the IEPR and made many comments on the design of the project.

The Corps then requested proposals for construction of the cutoff walls project. HBI-GF submitted a proposal.

After review, the Corps excluded HBI-GF’s proposal because of Gannett Fleming’s role in the earlier IEPR of the design phase. In a letter explaining its decision, the Corps said that the agency had investigated a potential OCI, and concluded that there was “evidence of both biased-ground rules OCI and unequal access OCI.”

After receiving the Corps’ letter, HBI-GF filed a GAO protest challenging its exclusion.

GAO explained that, under the FAR, OCIs “can be broadly categorized into three groups: biased ground rules, unequal access to non-public information, and impaired objectivity.” A biased ground rules OCI “may arise where a firm, as part of its performance of a government contract, has in some sense set the ground rules for the competition for another government contract by, for example, writing or providing input into the specifications or statement of work.” In these cases, “the primary concern is that the firm could skew the competition, whether intentionally or not, in favor of itself.” GAO reviews an OCI determination for reasonableness and encourages Contracting Officers to err “on the side of avoiding the appearance of a tainted competition.”

In this case, GAO found the Corps’ OCI determination reasonable based on a “15-page OCI investigation memorandum . . . based on interviews with agency personnel involved in the project; a review of the IEPR report, IEPR task order scope of work, the underlying task order contract, and other relevant IEPR materials; as well as a review of the HBI-GF proposal, a review of the relevant FAR provisions and case law; and consultation with technical advisors and legal counsel.”

GAO noted that the Corps had taken multiple specific recommendations for the design of the project from a Gannett Fleming engineer, such as the size of core samples and personnel requirements. Because Gannett Fleming’s recommendations for design changes were accepted by the agency, Gannet Fleming was in a position “to skew the terms of the competition, intentionally or unintentionally, in its favor.”

GAO denied HBI-GF’s protest.

This decision is a vivid example of how OCIs can affect joint ventures. In HBI-GF, JV, the joint venture entity had no conflict–but one of its members did, based on its work for another joint venture. Given the FAR’s broad policy of avoiding, mitigating and neutralizing OCIs, that was enough to justify exclusion of the joint venture’s proposal. Joint venturers should be aware of these rules and plan accordingly.

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Koprince Law LLC

When we write about bid protest decisions on SmallGovCon, odds are that we’re writing about a GAO decision. For good reason: GAO is the most common forum protesters bring bid protests.

But SmallGovCon readers also know there’s another possible forum for protests: the Court of Federal Claims.

The GAO publishes an annual bid protest report with statistics about the number and effectiveness rate of protests, among other things. But until very recently, we didn’t have much hard data about the frequency and efficacy of COFC protests. The recently-released RAND bid protest report changed that, by including a deep dive on DoD bid protests at COFC.

Let’s take a look.

RAND’s report answers several major questions relating to COFC protests.

How many protests are filed at COFC? From the beginning of 2008 through mid-2017, there were approximately 950 bid protests filed at the Court. These protests were split fairly evenly between DoD protests and non-DoD protests. Although this seems like a lot, the report shows that, based on the total number of acquisitions over this same time period, the frequency of protests at COFC is similar to that at GAO: less than 0.025% of contracts are actually protested. Or, as the report put it, “very few procurements are protested at COFC.”

Who is filing these protests? It would be logical to assume that large businesses are more likely to incur the expense of filing a COFC protest. Not so: the top 11 DoD contractors (by revenue) filed just ten protests between 2008 and 2016—and seven of these were filed by one company. Given this dearth, RAND concludes that “protests at COFC are not part of standard business practice at these firms.” Instead, RAND found that 58% of COFC protests are filed by small businesses.

Which agencies are protested the most? Of DoD agencies, the Army was most frequently protested at the COFC (about 41 percent of all DoD protests at the COFC). The Defense Logistics Agency was the least-protested (only about 9 percent of DoD protests at the COFC).

Which procurements are being protested? Only the largest solicitations out there, right? Surprisingly not. Although the size of contracts protested varies greatly, the average value of protested procurements is only about $1.1 million. A surprisingly large number of COFC protests, moreover, were for contracts valued less than $100,000—about 3.5%.

How long do COFC protests take? Unlike GAO, the Court doesn’t have a hard deadline to resolve protests. Even still, the majority are resolved very quickly: according to RAND, about 75% of COFC protests are resolved within 150 days. The average resolution took 133 days, while the median was 87 days. RAND was quick to caution, however, that some protests may take “considerably longer” depending on the issues involved and whether the Court’s decision is appealed.

Are COFC protests effective? Unfortunately for potential protesters, the RAND report has some discouraging information: out of 459 DoD protests analyzed, only 9% were sustained by the Court. Disappointed protesters appealed the Court’s decisions in about 12% of these protests and, of those, roughly one-fifth eventually earned a sustain.

Does this data suggest that the COFC is hostile to bid protests, or that protesting to the Court isn’t worth it? Absolutely not. Just like with GAO protests, the Court will sustain a protest if it determines the agency made a prejudicial error in its evaluation.

In my opinion, this comparatively-low sustain rate instead confirms the need for better communication between offerors and agencies, including more-thorough debriefings. It’s no secret that providing more information to offerors will reduce protests—including protests before the Court. In fact, we often talk to disappointed offerors who are considering protests mainly because the agency hasn’t adequately explained its evaluation decisions.

It’s also worth noting that many COFC protests are filed after the protester has lost at GAO. (The reverse isn’t true: a losing protester at the Court cannot turn around and file at GAO). This means that some of the protests on the Court’s docket have already been reviewed and rejected by GAO—and thus, the overall strength of the COFC protest pool may be weaker than at GAO.

Finally, as we’ve pointed out various times here at SmallGovCon, the key metric from a protester’s perspective isn’t the sustain rate, but the effectiveness rate—that is, the combination of “sustain” decisions plus voluntary agency corrective actions. At GAO, the effectiveness rate of protests has been above 40% for years, even though the sustain rate is much lower (17%, for example, in Fiscal Year 2017). Corrective actions happen at the COFC too, but the RAND Corporation didn’t have data on how often. As with the GAO, it would be a mistake to evaluate the effectiveness of COFC protests based solely on the sustain rate.

* * *

RAND’s report provides interesting—and surprising—information relating to COFC protests. In the right circumstances, these protests can be an important tool for government contractors (including small businesses) to earn a contract award.

If you’re considering a bid protest, give us a call to discuss your options.

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Koprince Law LLC

Here at Koprince Law LLC, we just celebrated our second anniversary (which we affectionately call our “firmaversary”). Thank you very much to our wonderful lawyers, staff and clients for a fantastic first two years.

It’s time for our weekly dose of the latest and greatest in federal government contracting news–the SmallGovCon Week In Review. In this week’s edition, the Fair Pay and Safe Workplaces rule is gone, contractors weigh in on the President’s “skinny budget” proposal, a new bill would expand the USASpending.gov website, and much more.

  • Contractors weigh in on the highs and lows of President Trump’s proposed “skinny budget.” [Government Executive]
  • The “Contractor Accountability and Transparency Act of 2017” will expand the contracting information available on USASpending.gov and make the contract information more accessible and readable. [Project On Government Oversight]
  • President Donald Trump signed a joint resolution shutting down the Fair Pay and Safe Workplaces rule that supporters said evened the playing field for law-abiding contractors, and opponents singled out as unduly burdensome. [Federal News Radio]
  • The White House released a statement on the revocation of the Fair Pay and Safe Workplaces executive order and other contracting-related executive orders issued by former President Obama. [The White House]
  • Speaking of repeals, the President’s action rolls back pieces of an Obama executive order banning federal contractors from discriminating against employees on the basis of their sexual orientation or identity. [NBC News]
  • When it comes to federal IT acquisition, the workforce is too small, the hurdles are numerous, and modernization is slow. A House subcommittee hears proposals for modernizing Federal IT acquisition. [Federal News Radio]
  • The White House has released a few more details on how exactly it plans to cut $18 billion from some civilian agencies and offset significant boosts to defense and homeland security spending for the rest of fiscal 2017. [Federal News Radio]

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Koprince Law LLC

Greetings from Omaha, where I’ve just wrapped up a great half-day training session sponsored by the Nebraska PTAC.  If you haven’t been to Omaha, you’re missing out: I’m enjoying exploring the Old Market District, and keep wondering when I’ll run into Warren Buffett.

Of course, I’m not about to let a little road trip get in the way of our weekly roundup of government contracts news. In this edition of the SmallGovCon Week In Review, we have an update on an SDVOSB fraud case that we have been following for awhile, a push to close loopholes in the Buy American Act, some promising changes for the SBA Surety Bond Guarantee program, and more.

  • After jurors became deadlocked, a retrial was scheduled in the case of an Arkansas businessman accused of falsely claiming to operate a SDVOSB. [Arkansas Online]
  • Senator Chris Murphy is pushing hard to change federal rules regarding the government buying products from American companies, trying to close loopholes in the Buy American Act.  [New Haven Register]
  • FEMA is seeking contractors to provide meals in the wake of Hurricane Maria, and will begin awarding contracts as soon as possible. [Markets Insider]
  • Congressman Will Hurd is one step closer to making his dream of overhauling federal government information technology procurement a reality. [San Antonio Business Journal]
  • The SBA is considering granting a request for a class waiver of the Nonmanufacturer Rule for Positive Airway Pressure Devices and Supplies Manufacturing. [Federal Register]
  • The SBA has finalized two important changes to its Surety Bond Guarantee Program that will increase contract opportunities for small construction contractors. [SBA]

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Koprince Law LLC

GAO typically affords agencies wide discretion to establish technical restrictions within solicitations.

In a recent decision, however, GAO confirmed that such discretion is not unbounded. When an agency’s technical restriction is unduly restrictive of competition, the GAO will sustain a bid protest.

Global SuperTanker Services, LLC, B-414987 et al., 2017 CPD ¶ 345 (Comp. Gen. Nov. 6, 2017) involved a Forest Service procurement for aerial firefighting aircraft to support the agency’s wildland firefighting objectives. Firefighting aircraft could be called to perform fire suppressant dispersal during either the initial attack or extended attack firefighting phases. The distinction between these two phases has to do with timing. Whereas “nitial attack refers to those actions taken by the first resources to arrive at a wildfire,” extended attack includes “those actions conducted when a fire cannot be controlled by initial attack resources within a reasonable period of time.”

The procurement was structured as a “call when needed” basic ordering agreement. Under this structure, the Forest Service would not incur any costs for days when there was no firefighting activity. Instead it would issue orders to the BOA holders when services were needed, but the BOA holders were under no obligation to fill the order request. Given the unpredictability of Forest Service’s firefighting needs, the agency believed that this arrangement provided the necessary flexibility without incurring costs for time when aircraft was not needed.

The Solicitation also included a technical limitation on tank size for firefighting suppressant. As the Solicitation explained:

The minimum required volume is 3000 gallons (dispensable) and 27,000 pounds of payload. The maximum allowed volume is 5000 gallons (dispensable) and 45,000 pounds of payload…. Aircraft with less than 3000–gallon dispensing capacity or greater than 5000–gallon dispensing capacity will not be considered.

This type of limitation on tank size had not appeared in prior solicitations for similar aerial firefighting services.

Global SuperTanker Services, Inc. owns and operates a heavily modified Boeing 747-400 jumbo jet capable of aerial firefighting (more information can be found here). Given its substantial size, it boasts some impressive specifications, including a dispersal tank that can discharge 19,200 gallons of fire suppressant. Other than its tank capacity, the aircraft could meet all of the Forest Service’s technical specifications.

Interested in competing under the Solicitation, Global SuperTanker sent a letter to the Forest Service requesting an explanation of the tank size limitation. The Forest Service did not respond. Global SuperTanker then filed an agency level protest of the Solicitation’s restriction on tank sizes over 5,000 gallons. The Forest Service denied the protest, citing the fact that the Solicitation was, in part, to support initial attack operations for which tank sizes over 5,000 gallons were ill-suited. The Forest Service also noted that it anticipated issuing a solicitation in 2018 for tankers exceeding 5,000 gallons.

Global SuperTanker then protested at GAO, arguing that the Solicitation’s tank size limitations were unduly restrictive of competition. In response, the Forest Service reiterated its argument that the Solicitation called for initial attack operations, for which large tanker aircraft were not ideal. Additionally, the Forest Service also cited on four studies on aerial firefighting from 1995 to 2012, which the Forest Service argued supported its decision to limit the dispersal tank size under the procurement.

In a lengthy opinion, GAO rejected the Forest Service’s arguments and found the 5,000 gallon tank capacity limitation was, in fact, unduly restrictive of competition.

The GAO wrote that “[t]he determination of the government’s needs and the best method of accommodating them is primarily the responsibility of the procuring agency, since its contracting officials are most familiar with the conditions under which supplies, equipment and services have been employed in the past and will be utilized in the future.”  However, “n preparing a solicitation, a procuring agency is required to specify its needs in a manner designed to achieve full and open competition, and may include restrictive requirements only to the extent they are needed to satisfy its legitimate needs.”  In this respect, “solicitations should be written in as non-restrictive a manner as possible in order to enhance competition.”

Turning to the Forest Service solicitation, GAO first addressed the Forest Service’s argument that the Solicitation was only seeking initial attack operations for which tank sizes over 5,000 gallons were ill-suited. Reviewing the solicitation, GAO noted that aerial tankers for both initial attack and extended attack operations were sought. As GAO explained:

[A]gency officials expressly indicated that the 5,000–gallon limitation was based upon the conclusion that [very large air tankers] were not suited to perform initial attack operations, omitting any discussion of extended attack operations. As a result, the agency’s argument represents a post hoc attempt to justify the 5,000–gallon restriction.

In other words, GAO concluded the solicitation did not support the Forest Service’s position because the solicitation expressly sought both initial attack and extended attack services and that the Forest Service’s argument to the contrary amounted to nothing more than litigation posturing with no basis in the factual record.

GAO then turned its attention to analyzing whether it was reasonable for the Forest Service to conclude that firefighting aircraft with tank capacities exceeding 5,000 gallons were ill-equipped for initial attack phase operations. In support of its position, the Forest Service cited four studies. During the briefing phase, Global SuperTanker vociferously challenged the applicability and validity of the studies cited by the Forest Service to support tank size limitation. As a result, the Forest Service abandoned its arguments on a number of the studies, choosing to rely principally on a 2012 study to support its arguments.

GAO highlighted two findings from the 2012 study in its decision. First, the 2012 study recommended that the “[m]inimum capacity [for firefighting aircraft] should be at least 2000 gallons of retardant, 3000 gallons or more would be preferred.” Second, the study noted that effectiveness of aerial application depended on the type of fire, and that larger tanks were better suited for particular situations, such as in forests with thick canopies. The 2012 study was further undermined by third party publications (including one from GAO) noting there was insufficient data being collected by the Forest Service to assess the effectiveness of various aerial firefighting aircraft.

GAO was unimpressed with the Forest Service’s studies. As it noted, “the 2012 study could be construed to support [Global SuperTanker’s] arguments,” rather than the Forest Service’s. Ultimately, GAO was unpersuaded by the studies because none provided rational support for the Forest Service’s position—that limiting tank size to 5,000 gallons was appropriate for initial attack operations—and a number of sources openly undermined the agency’s position.

Based in part on these findings, GAO wrote that “the agency has failed to provide reasonable justifications for the challenged specification, such that we are unable to conclude that the challenged specification is reasonably necessary for the agency to meet its needs.” GAO sustained Global SuperTanker’s protest.  GAO recommended the Forest Service return to the drawing board and fully document its needs, then incorporate whatever technical specifications are reasonably necessary to effectuate those needs.

So, what can contractors take away from GAO’s decision in Global SuperTanker? The most important take away is that an agency must be able to demonstrate a clear, rational connection between the agency’s needs and the technical limitations imposed by a solicitation. Moreover, the thoroughness of GAO’s review in this case also suggests that GAO is willing to do more than merely take an agency at its word regarding its technical needs. Make no mistake: an agency has broad discretion to establish its minimum needs. But as the Global SuperTanker decision demonstrates, that discretion is not unlimited.

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Koprince Law LLC

As we reach the halfway point of December, we have managed to escape any real signs of winter weather here in Lawrence. Our chances for a white Christmas may also be dwindling as the long range forecast is predicting sunny skies and zero precipitation. But I’m not complaining: bring on the sun and (relative) warmth, I say.

As the holidays approach, there’s plenty happening in the world of government contracts. So if you’re an Eggnog fan (I’m not, but perhaps it’s an acquired taste), pour yourself a tall glass, sprinkle on some cinnamon, and enjoy this edition of the SmallGovCon Week in Review.  This week, the Pentagon has delayed a much-discussed January 1 deadline for contractors to meet the NIST 800-171 standards, a bribery scheme involving a contract at the Hoover Dam has led to the indictment of a longtime former official for the U.S. Bureau of Reclamation in Nevada, government contracts guru Larry Allen discusses how the recent emphasis on preventing sexual harassment may impact contractors, and much more.

  • After knowingly disclosing confidential information to private companies bidding on contracts at Scott Air Force Base the Chief of Project Management has plead guilty to one charge of government procurement fraud. [The Telegraph]
  • Larry Allen to discuss the recent rules regarding sexual harassment on Capitol Hill and takes a look at if contractors will be next to target sexual harassers. [Federal News Radio]
  • A Pennsylvania man has been indicted for conspiring to defraud the United States through repeated bribes and contractor kickbacks related to a U.S. Army renovation project. [Daily Record]
  • President Donald Trump signed a major government technology revamp into law Tuesday as part of the 2018 NDAA. [Nextgov]
  • The GSA cannot proceed with the $50 billion Alliant 2 Unrestricted contract for IT services until the resolution of several protests. [Washington Technology]
  • Ellen Lord, the DoD’s new undersecretary for acquisition, technology and logistics is requesting more “flexibility” to cut down the amount of cost and pricing data it requires companies to cough up when bidding on certain contracts. [Federal News Radio]
  • The DoD intents to award a cloud computing contract next year that could disrupt the entire federal market. [Nextgov]
  • The Pentagon will delay a January 1 deadline for all of its suppliers to meet a set of new regulations largely designed to better protect sensitive military data and weapons blueprints. [Nextgov]
  • An ex-official for the U.S. Bureau of Reclamation in Nevada has been indicted on federal charges for his alleged role in a bribery scheme involving a government contract at the Hoover Dam. [U.S.News]

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Koprince Law LLC

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

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

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

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Koprince Law LLC

I am back in Lawrence after a great trip to Omaha, where I spoke at the SAME Omaha Post Industry Day.  My talk focused on recent legal changes in federal contracting, including pieces of the 2017 National Defense Authorization Act and the SBA’s implementation of the All Small Mentor-Protege Program.

Thank you very much to Anita Larson and the rest of the Planning Committee for organizing this great event and inviting me to speak.  Thank you also to all of the clients, contractors, and government representatives who stopped by my “booth” in the Exhibit Hall to ask questions and chat about the nuances of government contracts law.  As much as I enjoy speaking to large groups, it’s these one-on-one discussions that make for a truly outstanding conference.

Next up for me: the Department of Energy Small Business Conference, which will be right in my backyard (Kansas City) next week.  Hope to see you there!

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Koprince Law LLC

It’s a Sunday afternoon and instead of watching football (CHIEFS!), you’re shopping for a new refrigerator. You explain to the salesman your must-haves: a black refrigerator with a bottom-drawer freezer and an in-door water dispenser. But rather than showing you refrigerators that meet your criteria, he insists on showing you stainless steel models with the freezer on the side.

If the refrigerator doesn’t meet your needs (or your wants), odds are you won’t buy it. The federal government is no different: if it identifies salient characteristics in a solicitation, proposals that deviate from them likely aren’t going to win the award.

This refrigerator-shopping scenario (which, by the way, sounds like a nightmare) is basically what happened in Phoenics Corporation, B-414995 (Oct. 27, 2017). There, the Navy issued a solicitation for a ground-penetrating radar and named three brand-name items that would meet its needs. Alternatively, an offeror could propose a different model if that model met several salient characteristics listed by the Navy.

Included among these characteristics was a requirement that the radar “have an external and removable locking pin to hold arm secure whether in operation or storage mode.” The solicitation further cautioned that an internal gear mechanism was not acceptable.

Phoenics submitted the lowest-priced quote, but its product was deemed unacceptable by the Navy. Although the gear mechanism in Phoenics’ proposed radar “positively locks the arm with an integral locking insert/pin in either the operating or storage mode,” its locking mechanism was not external and removable. Instead, the locking mechanism was “performed via a control button/lever within easy reach of the operator.” Because Phoenics’ proposed radar did not meet the salient characteristics, the Navy found it unacceptable.

Phoenics then filed a GAO bid protest, saying its product basically met the Navy’s salient characteristics. In response, GAO denied this challenge and stated that Phoenics did not refute the agency’s allegation that the locking pin was neither external nor removable. In other words, GAO said that when it comes to salient characteristics, close isn’t good enough.

From my vantage, Phoenics might have had more luck had it challenged the Navy’s identified salient characteristics as part of a pre-award protest. Offerors can be hesitant to challenge the terms of a solicitation for fear it might lead to animosity by the contracting officer.

But in our practice, we find that concern to be somewhat overblown: if done professionally and civilly, a pre-award challenge to ambiguous or unnecessary terms can be advantageous to both offerors (who have clarity over the requirements) and the government (who will get the best possible proposals). Here, for example, Phoenics might have argued that the salient characteristics overstated the government’s minimum needs by excluding a product like the one Phoenics ultimately offered.

In a footnote, GAO suggested the same thing. It wrote that “to the extent that there was a conflict between the brand name products and the salient characteristics, we find that any resulting ambiguity was patent—that is, apparent on its face.” As such, “Phoenics was required to protest any such defect in the terms of the RFQ prior to the date set for receipt of quotations, which it did not.”

As Phoenics Corporation reiterates, an offeror simply won’t be successful if it doesn’t propose what the government wants. And if the government’s salient characteristics appear overly restrictive, the best time for legal action might be before proposals are due—not after award.

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Koprince Law LLC

Only a very small percentage of DoD contracts–0.3 percent, to be precise–are protested, according to a comprehensive and fascinating new report on bid protests issued by the RAND Corporation.

The detailed report, which was prepared at the behest of Congress, concludes that DoD bid protests are “exceedingly uncommon,” and typically aren’t frivolous.  RAND’s analysts urge policymakers to carefully consider the data when evaluating whether reforms to the bid protest process are necessary–and to “avoid drawing overall conclusions or assumptions about trends from one case when it comes to the efficacy of the bid protest system.”

Amen to that.

Bid protest “reform” has been a subject of much recent discussion in the government contracting community.  In 2016 and again in 2017, the Senate introduced deeply flawed measures aimed at curtailing bid protests.  Although most of these proposals didn’t become law, Congress dramatically scaled back the GAO’s jurisdiction over DoD task and delivery order protests, raising the threshold from $10 million to a whopping $25 million.

As I wrote late last year, the push to curtail bid protests seems driven by the complaints of some agency officials, who suggest that bid protests are prevalent and frequently frivolous.  Sometimes, the media has contributed to these perceptions by writing articles with titles like “Drowning in Protests: Can Agencies Stem the Rising Tide?”

But I’ve urged caution, arguing that protests don’t appear to be either prevalent or frequently frivolous. On the prevalence side, according to former OFPP director Dan Gordon, protests occur on less than one percent of acquisitions. And as far as frivolity goes, if protests are typically frivolous, why do protesters succeed nearly half the time?

In negotiations over the 2017 National Defense Authorization Act, the conferees elected to remove most of the Senate’s major protest “reform” language.  Instead, Congress commissioned a study to determine whether bid protests are having a significant adverse effect on DoD acquisitions.  This was a wise approach: before developing a major protest solution, it’s a good idea to determine whether there’s a protest problem in need of solving.

Ordinarily, the GAO would conduct a study like the one commissioned by the 2017 NDAA.  But the GAO is the forum for most bid protests.  Perhaps unfairly (the GAO, after all, is a very professional organization), any bid protest study originating at the GAO could face questions about conflicts of interest–and ultimately, the credibility of the study itself.  Enter the RAND Corporation, which was retained to prepare an independent report.

That independent report is now here, and it’s comprehensive–clocking in at 114 pages.  The study offers a great deal of data and analysis about bid protests, some of which my colleagues and I will discuss in detail in future posts.  But for now, let’s cut to the chase.  What are RAND’s big-picture findings?

First, RAND finds that government and industry have very different perceptions of the bid protest system.

DoD personnel “expressed a general dissatisfaction” with the system, believing that protests are filed too frequently, often include “an excessive number of ‘weak’ allegations,” and unduly delay awards.  DoD personnel were especially concerned that losing incumbents are motivated to protest by the possibility of obtaining bridge contracts.

Industry, on the other hand “views bid protests as a healthy component of a transparent acquisition process, because these protests hold the government accountable and provide information on how the contract award or source selection was made.”  If protests were disallowed or curtailed, “companies would likely make fewer bids.”

Additionally, industry is concerned with the quality of post-award debriefings.  “The worst debriefings were characterized as skimpy, adversarial, evasive, or failing to provide required responses to relevant questions,” RAND reports.  RAND concludes,” t became clear over the course of our study that too little information or debriefings that are evasive or adversarial may lead to a bid protest.”

Unfortunately, “there is a lack of trust on each side” (government and industry) when it comes to bid protests.

Next, RAND turns to the prevalence question.  Are DoD bid protests common, as some acquisition personnel and media have suggested?

RAND notes that bid protests did, in fact, increase significantly between Fiscal Years 2008 and 2016.  (The study didn’t include Fiscal Year 2017, in which GAO bid protests declined 7%).  But these increases were little more than drops in the DoD acquisition bucket: “the overall percentage of contracts protested is very small–less than 0.3 percent.”  RAND concludes: “[t]hese small protest rates per contract imply that bid protests are exceeding uncommon for DoD procurements.”

RAND then makes several recommendations for policymakers.  Perhaps most importantly, “policymakers should avoid drawing overall conclusions or assumptions about trends from one case when it comes to the efficacy of the bid protest system.”  It’s a very good point.  Sure, if you’re the contracting officer on the receiving end of a “weak” protest, it will feel like every acquisition is being frivolously protested.  But public policy should be made on the basis of facts, not anecdotes.

RAND also, unsurprisingly, recommends that the government improve the quality of post-award debriefings.  RAND points to certain Army and Air Force initiatives, as well as the “enhanced debriefings” portion of the 2018 NDAA, as potential models.

RAND cautions policymakers against reducing GAO’s bid protest timeline (currently at 100 days), noting that “protests are more frequently filed at the end of the fiscal year” and that “complex cases that go to decision usually take 90-100 days.”

RAND also urges caution when it comes to further reducing protest options for task and delivery order protests.  “Task-order protests have a slightly higher effectiveness rate than the rest of the protest population,” RAND notes.  “The higher rate suggests that there may be more challenges with these awards and that task-order protests fill an important role in improving the fairness of DoD procurements.”

Look, this is our firm’s blog, so I’m occasionally entitled to an “I told you so.”  The RAND study essentially says what I’ve been up on my soapbox saying for the last few years: that contrary to common misconception, bid protests aren’t common, nor are they typically frivolous.  And, as RAND concludes, better communication between government and industry (particularly in debriefings), is likely to reduce protests, not increase them.

Of course, the RAND study includes some things my little soapbox rants have omitted, like statistical analysis, interviews with key officials and decision-makers, colorful graphs, and the imprimatur of Congress.  (Then again, RAND somehow failed to include my references to Chicken Little and Nathaniel Hawthorne).

Congress commissioned a comprehensive study on DoD bid protests, and now that study is here.  Let’s hope that policymakers take RAND’s analysis and recommendations to heart.

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I am back in Lawrence after two fantastic trips to the West Coast, in very rapid succession.

Last Thursday, I was in Puyallup, Washington for the annual Alliance Northwest conference.  As always, the conference was one of the best events of its type nationwide.  Thank you to Tiffany Scroggs and her colleagues at the Washington PTAC for sponsoring this great event and inviting me to participate.  If you missed Alliance Northwest (and my presentation on the SBA’s All Small Mentor-Protege Program), the presentations are all posted on the conference website.  Check it out, and circle your calendar for next year’s Alliance NW.

Yesterday, I was in Las Vegas for the National Reservation Economic Summit conference.  It was my first time at National RES, and I was very impressed with this outstanding event.  If it weren’t for a very lengthy to-do list back here at the office, I’d happily be enjoying the remaining days of the conference.  A big “thank you” to the National Center for American Indian Enterprise Development for sponsoring National RES and inviting me to speak.

After logging quite a few frequent flyer miles, I’m happy to be closer to home for the next several weeks.  But just because I’ll be in Kansas doesn’t mean that I won’t be engaging in one of my favorite pastimes: speaking at length about government contracting legal issues.  Join me on Thursday for “Obtaining and Maintaining the SBA’s HUBZone Certification,” an online seminar sponsored by my good friends at GOVOLOGY.

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The FAR mandates that agencies use the AbilityOne program to award contracts for items on the AbilityOne procurement list to qualified nonprofits. The purpose of the program is to increase employment and training opportunities for persons who are blind or have other severe disabilities.

With rare exceptions, when an item is on the AbilityOne procurement list, an agency has no choice–it must purchase through AbilityOne, even where the AbilityOne items are included in the procurement of larger services.  The GAO recently sustained a protest where the GSA awarded a courthouse lease without requiring that the associated custodial services be procured from an AbilityOne nonprofit.

In Goodwill Industries of the Valleys, B-415137 (November 29, 2017), GAO considered whether GSA must use the AbilityOne mandatory source for the custodial service requirements at a courthouse in Charlottesville, Virginia.

The courthouse’s custodial services had been added to the AbilityOne procurement list in 2004. Since that time, Goodwill Industries of the Valleys, or a predecessor AbilityOne nonprofit, had performed the services. The courthouse was owned by VVP, LLC, which had leased the building to GSA for several years. During that time, GSA had separately contracted with Goodwill for the custodial services.

In 2016, Goodwill learned that GSA intended to issue a new, “full service” lease to VVP, which would include the custodial services. Goodwill filed a GAO bid protest, contending that the inclusion of the custodial services in VVP’s lease violated the Javits-Wagner-O’Day Act (JWOD Act) and the AbilityOne program because Goodwill is the mandatory source of custodial services in the courthouse.

The AbilityOne program implements the JWOD Act, whose goal is to “‘increase employment and training opportunities for persons who are blind or have other severe disabilities’ through authorization of the noncompetitive acquisition of specified products and services from qualified nonprofit agencies (NPAs) that employ persons with such disabilities.”  The U.S. AbilityOne Commission maintains the procurement list for required purchases under the JWOD Act.

The JWOD Act states that agencies “shall procure” products and services from an NPA if the product or service is on the list. The list, published in the Federal Register, provides the specific services (in this case, custodial services at the Charlottesville courthouse) and a specific NPA to provide them (in this case, Goodwill).

At GAO, GSA tried a number of arguments to overcome the fact that it had not complied with AbilityOne requirements.

Among those arguments, it contended that only the AbilityOne commission can investigate and address violations of the AbilityOne program under a regulation stating that “violations of the JWOD Act or these regulations . . . shall be investigated by the [AbilityOne Commission].”  GAO disagreed, noting that its bid protest jurisdiction, as found in the Competition in Contracting Act, allows for GAO to decide any “alleged violation of a procurement statute or regulation.”

GSA also asserted that the AbilityOne rules don’t apply to real property leases. GAO answered that a real property lease is a contract, so the procurement statutes, including AbilityOne rules, still apply. Additionally, “the plain language of the JWOD Act and its implementing regulations provides no exception for leases.” Rather, “the language of the Act broadly applies to all procurements that are conducted by ‘an entity of the Federal Government'”, with the only statutory exception “being applicable to acquisitions from Federal Prison Industries, Inc.”

GAO wrote that: (1) the custodial services were on the AbilityOne Commission’s procurement list; (2) the JWOD Act requires purchasing from the designated organization if the service is on the list; and (3) Goodwill was the organization on the list.

GAO then explained that bundling AbilityOne products or services into a larger procurement does not allow an agency to evade the mandatory AbilityOne requirements:

[T]he Act and its implementing regulations expressly provide that, when services on the AbilityOne procurement list are included in the procurement of larger services, the contracting activity “shall require” the contractor for the larger services to procure the AbilityOne services from the organization designated by the AbilityOne Commission. In short, GSA is leasing a building that requires custodial services and, rather than procuring those services through the mandatory source that has been designated pursuant to the JWOD Act (or directing the lessor to do so), GSA has bundled the janitorial services into the lease without regard to the Act.

GAO sustained the protest and recommended that GSA contract the custodial services separately with Goodwill or direct VVP to subcontract with Goodwill for the custodial services. GAO also ordered GSA to reimburse Goodwill’s costs in bringing the protest.

As the Goodwill Industries decision demonstrates, the AbilityOne preferences are powerful. Agencies cannot evade them by bundling goods or services on the AbilityOne procurement list into larger acquisitions.

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In a best value acquisition, the final decision is typically made by a Source Selection Authority. But what happens when the SSA disagrees with the ratings assigned by the evaluators, such as a Source Selection Evaluation Board?

The SSA has a good deal of discretion, but that discretion isn’t unlimited. In a recent decision, GAO sustained a protest where the SSA’s disagreements with the SSEB didn’t appear to be reasonable. 

Immersion Consulting, LLC, B-415155 et al. (Dec. 4, 2017) involved the procurement of program management support services by the Department of Defense’s Defense Human Resources Activity. Proposals were to be evaluated on three factors: technical, past performance, and price. Technical approach was the most important factor, followed by past performance, then price. Award was to be made on a best value basis.

Immersion and NetImpact Strategies, Inc. were the only offerors to timely submit proposals in response to the Solicitation.

In accordance with the Solicitation’s evaluation plan, each company’s proposal was first evaluated by an SSEB. The SSEB awarded Immersion’s proposal three strengths, resulting in an overall technical score of Outstanding. NetImpact’s proposal received two strengths and one weakness, resulting in an overall rating of Acceptable under the technical factor. Immersion and NetImpact’s proposals were evaluated as equal under the past performance factor, and NetImpact offered a lower price.

The SSEB’s report was then passed off to the SSA, who was to make the final award decision. After reviewing the SSEB’s findings, the SSA determined strengths and weaknesses should be allocated differently.

With respect to Immersion’s Proposal, the SSA agreed with only one of the SSEB’s three assessed strengths. He removed the other two. Similarly, with regard to NetImpact’s proposal, the SSA did not agree with one of the strengths or the weakness identified by the SSEB. These scores were also eliminated. After the SSA’s reevalation, both proposals were scored as Acceptable under the technical factor.

Since both Immersion and NetImpact’s proposals were determined to be equal with regard to the technical and past performance factors, price became the determining factor. Because NetImpact proposed a lower price, it was named the awardee.

Following the award announcement, Immersion filed a protest with GAO, arguing that the SSA’s independent analysis was flawed. The DoD countered that the SSA had properly documented his revaluation and that the award was proper.

In resolving the protest, GAO noted that “[a]lthough source selection officials may reasonably disagree with the ratings and recommendations of lower-level evaluators, they are nonetheless bound by the fundamental requirement that their independent judgments must be reasonable, consistent with the provisions of the solicitation, and adequately documented.” According to GAO, the SSA did not meet that burden.

GAO first concluded that the record didn’t support the SSA’s removal of the weakness from NetImpact’s evaluation. The SSA removed the weakness because he “was not convinced” the errors in the NetImpact’s proposal would negatively impact its performance. GAO was unable to determine what the SSA relied on in making this determination. Indeed, GAO found “[t]here is nothing in the contemporaneous record or the agency’s filings documenting what, if anything, the SSA reviewed to support the SSA’s conclusion[.]” Further, there was no evidence that “the SSA discussed the SSEB’s concern with the SSEB.” Without any contemporaneous justification, it was unreasonable for the SSA to remove the weakness.

GAO similarly found the SSA’s removal of one of Immersion’s strengths to be unreasonable. According to the SSA, it felt the SSEB’s comments awarding the strength to Immersion were “too general and did not specify how the approach exceeded the [solicitation] requirements.” In GAO’s opinion, however, “the SSEB’s comments were specific and identified the impact of the approach on the quotation, as well as how the approach benefited the government.” As such, GAO found the removal of the strength from Immersion’s proposal to be unreasonable.

Finally, since the SSA’s changes to each company’s technical ratings had technically leveled proposals leaving only price to be the determining factor, GAO concluded that the underlying best value source selection decision was flawed. Accordingly, GAO recommended the agency reevaluate proposals and make a new award decision.

As GAO’s decision in Immersion Consulting demonstrates, SSA officials may not unilaterally take it upon themselves to rewrite evaluations without appropriate justification. While GAO’s decision does not alter the fact that SSAs enjoy considerable discretion, it does demonstrate that the SSA’s discretion isn’t unlimited.

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It’s been a whirlwind of a week here in Kansas. I was fortunate enough to speak yesterday at the 16th Annual DOE Small Business Forum & Expo just up the road in Kansas City. My presentation focused on recent legal updates in federal contracting. It was a wonderful event put on by the Department of Energy and I was glad to be a part of it.

Before we sail off into the weekend, it’s time for the SmallGovCon Week In Review. This edition looks at a plan to make the Transactional Data Reporting rule voluntary, it appears LPTA is still as hated as ever, the federal government notched its 4th consecutive year of hitting the 23% small business contracting goal, and much more.

  • Plans to make the mandatory Transnational Data Reporting rule into a voluntary requirement should be in place by summer. [ExecutiveGov]
  • An interagency working group is about to turn the government’s concept of cloud computing on its head. [Federal News Radio]
  • It turns out that lowest price technically acceptable is still a hated and despised way to run a procurement. [Washington Technology]
  • A former defense contractor from Gig Harbor was sentenced to prison for tax fraud and ordered to pay over $40k in restitution. [Sky Valley Chronicle]
  • The Department of Veterans Affairs is proposing to amend and update portions of its VA Acquisition Regulation. [Federal Register]
  • Nextgov takes a look at how much agencies are actually spending on new contracts. [Nextgov]
  • The SBA announced that the federal government reached its small business federal contracting goal for the fourth consecutive year. That’s great news–but not all is rosy, because the government missed the mark on its HUBZone and WOSB goals. [PR Newswire]
  • A reform bill aimed at DoD’s ability to buy commercial products, contract audits and services acquisition will eventually be folded into the 2018 defense authorization bill. [Federal News Radio]

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July has flown by.  Soon, my kids will be back in school, the leaves will start to turn, and the annual craziness at the end of the government fiscal year will be here.  For now, I’m enjoying a few more weeks of summer.  I hope you are too.

Before we head into the last July weekend of the year, it’s time for the SmallGovCon Week In Review. In this edition: the re-arrangement of personnel over at the GSA’s Federal Acquisition Service, a new measure attached to the annual defense authorization bill aims to prevent the DoD from spending more on service contracts, the purchase of some “unnecessary” uniforms has led to a criminal probe, and much more.

  • A big shakeup with the OASIS program personnel hasn’t settled down yet, as four more contracting officers are moving to the FedSIM program. [Federal News Radio]
  • NCMA Executive Director Michael Fischetti gives his opinion on what to do with recent data that indicates that contract protests are rising while contract awards are declining. [Federal Times]
  • Lawmakers are looking to reinstate a cap on the DoD’s service contract spending next year, amid concerns the Pentagon has unduly outsourced federal work. [Government Executive]
  • Two strategies have emerged on how change to government procurement, but will Congress go along with it? [Federal News Radio]
  • As the Senate proposes provisions in the defense authorization bill to reduce protests it seems as though they may have missed the point. [Washington Technology]
  • Up to $28 million was wasted on pricey forest-camouflage uniforms for Afghan troops who operate in a largely desert environment. Now a top U.S. oversight official is launching a criminal probe into why the Pentagon authorized the purchase. [McClatchy DC Bureau]
  • A former employee of the Army Corps of Engineers pleaded guilty to soliciting more than $320,000 in bribes from Afghan contractors. [Illinois Homepage.net]

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Although a lease may be a “contract” in common parlance, does a lease qualify as a contract under the Contract Disputes Act?

The answer is important, because the Contract Disputes Act provides jurisdiction for the Court of Federal Claims and Board of Contract Appeals to decide challenges to contracting officers’ final decisions.  If a lease isn’t a contract under the Contract Disputes Act, government lessors could be in a bind.

The United States Court of Federal Claims recently decided the issue–and came down on the side of lessors, at least under the facts at hand.

In Lee’s Ford Dock, Inc. v. Secretary of the Army, 865 F.3d 1361 (Fed. Cir. 2017), the Court of Appeals for the Federal Circuit was called on to resolve a dispute between the United States Army Corps of Engineers and Lee’s Ford Dock, a marina operator on Lake Cumberland, Kentucky.

Lake Cumberland is a man-made lake resulting from the damming of the Cumberland River. The dam was constructed in 1951 by the Corps and has been in continuous operation ever since.

In 2000, Lee’s Ford Dock, Inc. entered into a lease with the Corps for roughly 166 acres of land and water real-estate on Lake Cumberland. The lease was for a 25 year term, with an option to extend for an additional 25 years. Importantly, under the lease, the Corps reserved the right to manipulate the water levels of Lake Cumberland.

In 2007, seven years into the lease, the Corps determined the dam was at a high risk of failure and initiated risk reduction measures, including lowering the water level. It was not until 2014 that remedial work on the dam was completed and the water level returned to its pre-2007 levels.

The drawdown of Lake Cumberland had significant ramifications for Lee’s Ford Dock, which was dependent on the higher water-levels for its marina operations. It filed a claim with the contracting officer for damages associated with the depressed water levels and reduced marina revenues. Lee’s Ford Dock alleged these damages totaled at least $4 million dollars.

The Contracting Officer denied the claim, and Lee’s Ford Dock appealed to the Armed Services Board of Contract Appeals. After the ASBCA ruled in the Corps’ favor, Lee’s Ford Dock appealed yet again, this time to the Federal Circuit.

The Corps argued that the Federal Circuit lacked jurisdiction because the case did not arise under the Contract Disputes Act. That forced the Federal Circuit to address a threshold question, is a lease a “contract” subject to the Contract Disputes Act?

Pursuant to Section 7102(a), the Contract Disputes Act generally applies to “any express or implied contract . . . made by an executive agency for” the following:

(1) the procurement of property, other than real property in being;

(2) the procurement of services;

(3) the procurement of construction, alteration, repair, or maintenance of real property; or

(4) the disposal of personal property.

Of the available options, the best chance for jurisdiction would be if the lease was considered personal property that the Corps disposed–the fourth item on the list above.

The Federal Circuit found the lease to constitute a contract for personal property. As the Court explained, “t is well settled that leasehold interests are items of personal property unless a statute commands otherwise.” As the Corps could point to no statute commanding otherwise, the Federal Circuit concluded that Lee’s Ford Dock’s right to operate a marina on the leased premises was personal property.

Next, the Federal Circuit considered whether the Corps “disposed” of property when it entered into the lease. The Court concluded the Corps did dispose of property through the lease and explained its reasoning accordingly:

“Dispose” is a broad term meaning “to exercise control over; to direct or assign for a use; to pass over into the control of some one else; to alienate, bestow, or part with.” By entering into the Lease with [Lee’s Ford Dock], the Corps “bestowed,” “directed,” and “assigned”—and therefore disposed of—a personal property right to [Lee’s Ford Dock] to operate a marina on the leased premises. The Lease therefore embodies a contract for “the disposal of personal property” within the purview of the [Contract Disputes Act].

Finding the lease was personal property that was disposed of by the government, the Federal Circuit concluded it had jurisdiction to decide the case on the merits. But unfortunately for Lee’s Ford Dock, it won the battle but lost the war: the Federal Circuit dismissed a portion of the appeal on different jurisdictional grounds, and affirmed the ASBCA’s ruling as to the remainder of the appeal.

Although Lee’s Ford Dock didn’t win its appeal, the Federal Circuit’s decision establishes an important precedent for those who engage in lease transactions with the government.  While the Lee’s Ford Dock decision was specific to the facts at hand and won’t necessarily apply to every lease, the Court’s broad reading of the Contract Disputes Act is a good thing for contractors.

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If you’re a winner under a solicitation, you can’t challenge the ground rules under which you won–at least under the facts of a recent GAO bid protest decision.

In that decision, GAO concluded that the protestor of a solicitation’s terms lacked standing when the protester was subsequently identified as an awardee under the solicitation.

Daekee Global Co., Ltd., B-414899 et al., (Oct. 10, 2017), involved an IDIQ procurement for ship husbanding services in the Navy’s Seventh Fleet area of operation. Performance of the contract was to occur at both commercial and military ports throughout Korea, Japan, Russia, and Taiwan. The Solicitation broke down the services required into a number of CLINs, which included ship movement, fleet handling, waste disposal, transportation, and cargo loading, among others.

The solicitation anticipated making multiple awards to the lowest priced bidders that did not take exception to the solicitation’s terms. According to GAO, “to be considered for award, offerors needed to submit by the solicitation closing a signed proposal (with acknowledgment of all amendments) that shows the offeror is not taking exception to any solicitation term; includes the certifications and representations contained in the solicitation; and includes unit prices and total prices for all line items and sub line items in the solicitation.” Bidders were also to include a signed letter stating they were not taking exception to any of the solicitation’s terms and possessed the requisite licenses and approvals for operation.

Prior to the closing date for the solicitation, Daekee Global Co., Ltd. filed a protest challenging the terms of the solicitation. Daekee raised a number of concerns with the structure of the solicitation, including concerns about regulatory compliance and the fairness of subsequent task order competitions.

Despite filing a timely protest, Daekee also submitted a proposal in response to the solicitation. While Daekee’s protest was pending, the Navy evaluated proposals and determined Daekee was a presumptive awardee. The Navy planned to make an award to Daekee as soon as the protest’s performance suspension period was lifted.

Because Daekee was a presumptive awardee under the Solicitation, the Navy moved to dismiss the protest, arguing that Daekee was not an “interested party” within the meaning of the GAO’s Bid Protest Regulations. While Daekee was pleased to discover it was a presumptive awardee, it contended its protest should still be resolved on its merits because significant questions regarding the structure of the Navy’s procurement remained outstanding. Specifically, Daekee reiterated concerns about the fairness of competition at the task order level.

GAO was not convinced. According to GAO, the question was one of competitive prejudice. As GAO explained:

Competitive prejudice is a required element of every viable protest, and where none is shown, we will not sustain a protest. In the context of a protest challenging the terms of a solicitation, competitive prejudice occurs where the challenged terms place the protester at a competitive disadvantage or otherwise affect the protester’s ability to compete.

Since Daekee had been identified as an apparent awardee under the Solicitation, GAO concluded Daekee had not been at a competitive disadvantage under the solicitation’s terms. As for Daekee’s allegations regarding the fairness of competition at the task order level, GAO concluded these challenges were premature.

In our experience, it’s not exactly common for an agency to announce, in the midst of a pre-award GAO bid protest, that the protester will be awarded a contract once the protest concludes. That said, Daekee Global Co. suggests that an agency might be able to eliminate any pre-award bid protest simply by announcing an intent to award a contract to the protester. It remains to be seen whether GAO’s decision is truly that broad, or whether there might be exceptions under which a protester could show competitive prejudice despite being named as an awardee.

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Participants in the SBA’s 8(a) Program must timely submit their annual review packages to the SBA.

In a recent decision, the SBA Office of Hearings and Appeals held that the SBA may terminate a participant from the 8(a) Program for failing to provide the required information–even if the 8(a) company’s owner has had personal difficulties that contributed to the failure.

OHA’s decision in KC Consulting, LLC, SBA No. BDPT-563 (2017) involved the 8(a) Program participation of a Michigan-based small business.  On January 8, 2016, KC Consulting received a letter from the SBA requesting that the company provide its 8(a) annual review information.  KC Consulting did not provide the information.  The SBA sent a second letter in March 2016; again, KC Consulting didn’t comply.

On April 12, 2017, the SBA issued a Termination Letter to KC Consulting.  In the letter, the SBA stated that KC Consulting would be terminated from the 8(a) Program because of its repeated failure to submit the required annual review information.

KC Consulting filed an appeal with OHA, arguing that it should not be terminated from the 8(a) Program.  KC Consulting admitted that it failed to submit the annual review information despite SBA’s requests for it.  But KC Consulting explained that its President and Managing Member had been undergoing some personal difficulties: his parents had both passed away, and he was in the midst of divorce proceedings.  KC Consulting said that these issues had a significant impact on the firm, and asked for another year in the 8(a) Program to get the company “back on track.”

OHA noted that the SBA’s 8(a) Program regulations allow the SBA to terminate a participant for “[a] pattern of failure to make required submissions or responses to SBA in a timely manner,” including the timely submission of annual review information.  Here, KC Consulting “admits the violation and confirms SBA’s grounds for termination.”  It is “of no consequence that [KC Consulting’s] violation was not intentional.”

OHA dismissed the appeal.

As the KC Consulting case demonstrates, the SBA takes the 8(a) annual review very seriously.  Although it’s an area of broad discretion, the SBA has the right to terminate a company from the 8(a) Program for repeatedly failing to submit the annual review information, or other relevant information requested by the SBA–even if the 8(a) owner’s personal troubles made compliance more difficult.

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A Program Management Office manager was not a “key employee” within the definition of the SBA’s affiliation regulations, according to the SBA Office of Hearings and Appeals.

In a recent size appeal decision, OHA found that the fact that a small business’s CEO served as another company’s PMO manager did not result in affiliation between the two companies because the individual in question could not control the second company through his PMO manager role.

OHA’s decision in Size Appeal of INV Technologies, Inc., SBA No. SIZ-5818 (2017) involved an Air Force solicitation for training services and support at the Oklahoma City Air Logistics Complex.  The solicitation was issued as a small business set-aside under NAICS code 611430 (Professional and Management Development Training) with a corresponding $11 million size standard.

After evaluating proposals, the Air Force announced that INV Technologies, Inc. was the apparent awardee.  An unsuccessful offeror filed an SBA size protest challenging INV’s small business status.

The SBA Area Office determined that INV’s owner and President, Chandan Jhunjhunwala, also worked as a Program Management Office manager for SNAP, Inc.  INV and SNAP also had other relationships, including a number of subcontracts issued between the companies.

The SBA Area Office issued a size determination finding INV and SNAP to be affiliated.  Among the reasons for affiliation, the SBA Area Office found that Mr. Jhunjhunwala was a key employee of SNAP, meaning that INV and SNAP shared common control.  The affiliation with SNAP caused INV to be ineligible for the Air Force contract.

INV filed a size appeal with OHA, alleging that the SBA Area Office’s decision was erroneous.  Among its arguments, INV contended that Mr. Jhunjhunwala was not a “key employee” of SNAP and could not control that company.

OHA explained that under the SBA’s affiliation regulations, “the touchstone issue is control.  A connection between two concerns does not necessarily cause affiliation.  There must be an element of control present.”

OHA stated that while a “key employee” may be found to control a company, “[a] key employee is one who, because of his position in the concern, has a critical influence over the operations or management of the concern.”  An employee “with no authority to hire and fire or to enter into contracts is not likely to be a key employee.”  Conversely, “an employee who is critical to a concern’s control of day-to-day operations is a key employee.”

In this case, INV was “owned and solely controlled by Mr. Jhunjhunwala.”  However, “the record does not support the conclusion that [Mr. Jhunjhunwala] could control both [INV] and SNAP.”

OHA continued:

Here, the record contains no evidence demonstrating that the Area Office considered Mr. Jhunjhunwala’s role, duties, or authority at SNAP.  Rather, the determination that he is a key employee appears to be based merely on his title.  Further, the record does not support finding him to be a key employee, either.  According to his resume, he provides PMO support, but there is no indication that he has the authority to hire and fire, enter into contracts, or otherwise control the operations of SNAP as a whole.

OHA granted INV’s size appeal and reversed the SBA Area Office’s size determination.

The SBA affiliation rules can seem confusing and complex.  But in one respect, they are simple: affiliation turns on common control.  Although a “key employee” can control a company within the meaning of the SBA affiliation rules, the employee in question must have critical influence over the company’s day-to-day operations.  When an employee doesn’t exercise such influence, he or she will not be found to control the company.

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Whether you are an active small business federal contractor, or an entrepreneur still getting your business off the ground, you are going to need a cybersecurity plan. Many DoD contractors, in particular, face a pending deadline to comply with NIST 800-171, as mandated by DFARS 252.204-7012.

The Kansas SBDC Cybersecurity Center for Small Business wants to help.

Located in downtown Lawrence, Kansas—just across town from us coincidentally—the Cybersecurity Center, housed at the KU Small Business Development Center, is the only SBDC in the country with an office dedicated to helping small businesses contend with the growing threat of data breaches. According to Director Brian S. Dennis, the center can be a resource for small businesses across the country, not just those in the state of Kansas.

Mr. Dennis has been the director of the Cybersecurity Center since it was founded in July. He was gracious enough to answer a few questions:

Q: Don’t hackers target only huge businesses? Why does a small business need to worry about cybersecurity? 

A: The International Data Corporation released a report in 2016 estimating that by 2020 over $101 billion dollars will be spent by companies trying to protect their digital footprint. America’s small businesses have not made a dedicated effort to build cybersecurity into their P&Ls [Profits and Losses]. That lack of funding on the small business side has been noticed by hackers. Small businesses are the backdoor into big business. A Fortune 500 company or the U.S. Government can throw as many dollars as they want at the threat of a cybersecurity breach, but all it takes is one small business vendor to take down the whole thing. A prime example of this is the 2013 Target data breach. The billion dollar retailer announced a huge data breach of customer information and it happened because of a third-party vendor had been granted access to the Target network.  The growing threat of a data breach is forcing the U.S. Government and corporate America to rethink how they choose their vendors.

Q: What causes most cybersecurity breaches?  

A: Almost any cybersecurity professional you speak to today will tell you that if there were no human users, there would be no cybersecurity threat. As end users of systems, we are flawed in our approach to internet safety. Ransomware is a prime example of this. The FBI estimates that $24 million was paid in ransoms in 2015. By 2016 that number was over $1 billion. Ransomware only works when a user on the receiving end of an exchange takes an action. We need to incorporate training across the board that enables each and every user with the knowledge of how to remain safe in the digital age.

Q: It seems like things change so quickly. How can a small business find out if its practices are sufficient or if it is at risk without knowing it? 

A: It all starts with planning. Creating a plan that works and can be tested is paramount to a small business surviving a cyber event. The threat of a digital interruption is looming over all of us and there is no silver bullet that will prevent every single attack or occurrence. But if a small business can build a plan that follows five steps, the likelihood of survival increases. Those steps are:

  1. Identify — What structures and practices do you have in place to identify cyber threats?
  2. Protect — What are the basic practices you have in place to protect your systems?
  3. Detect — What do you use to identify someone or something malicious?
  4. Respond — How will you deal with a breach if and when one occurs?
  5. Recover — How will you get your business back to normal after a breach?

Q: What if a small business is not as secure as it could be—by its nature, a small business has to choose where to put its resources, why does it need to spend money on cyberseucrity? 

A: According to Symantec, nearly half of all cyber attacks these days are targeted on small business. Small businesses are the entry point into larger operations. When your business decides to allocate resources away from cybersecurity, your opportunities will begin to diminish. The hard part is understanding where to potentially shift money and resources to ensure that this can even happen. America’s Small Business Development Center (ASBDC) has over 1,100 business consultants and advisers working across America. Find a local SBDC near you and ask them for help. A good business consultant can help you get a better grasp of your P&Ls and determine where dollars can be set aside for your cyber effort. The service is free, but the commitment is your time and effort.

[Ed. Note: SBDCs are funded in part by the U.S. Small Business Administration, which helps keep consulting costs down—services are often free.]

Q: Seriously though, what’s the worst that could happen? Is a business going to lose its contracts? Something worse?

A: The Federal government is moving swiftly to ensure that its vendors and contractors are secure. The National Institute of Standards and Technology (NIST) has created a framework for cybersecurity that is already being rolled out by the Department of Defense. DOD contractors have to complete the framework by December 31st of this year. And this is just the start. If you make the decision to not properly protect your business and you are doing business with the government, you will lose contracts, that is a guarantee. Losing contracts is just the start. The something worse that is looming on the horizon is the legal responsibility. Several states are looking at what types of recourse clients/consumers will have against a small business that allows data to be breached.

Q: What do you see coming in the future? 

A: There is no crystal ball for guessing what the next cyber threat will look like, but the general consensus is that cyber criminals will continue to prey upon our inability to properly train end users. Ransomware is a direct result of poor training. Attacks that started against users demanding ransoms in the hundreds of dollars range have morphed into attacks against municipalities demanding millions of dollars. Ransomware is easy to send out and easy to collect. Unfortunately, it will be here until someone develops a dedicated way to fight it.

The future will also hold the possibility for more business and industry to pick up the torch of the NIST Framework. The Framework is probably the best start to a business being protected. Banking, insurance and finance industries will be watching closely as the Framework is rolled out this year.

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One common way that contractors attempt to avoid affiliation is by limiting a particular individual to a minority ownership interest (often 49%).

But as a recent SBA Office of Hearings and Appeals case demonstrates, when a company’s owners are spouses (or other close family members), the SBA may disregard the legal ownership split, and treat the family members as one person for purposes of the affiliation rules.

OHA’s decision in Size Appeal of Gregory Landscape Services, Inc., SBA No. SIZ-5817 (2017) involved an Army solicitation seeking grounds maintenance at Fort Rucker, Alabama.  The solicitation was issued as a WOSB set-aside under NAICS code 561730 (Landscaping Services), with a corresponding $7.5 million size standard.

After opening bids, the Air Force announced that Gregory Landscaping Services, Inc. was the apparent awardee.  An unsuccessful competitor then filed a size protest.  Although the size protest was untimely, the SBA saw potential merit to the protester’s allegations.  The SBA adopted the size protest and initiated a size determination.

The SBA determined that Bethany Kellis owned 51% of Gregory.  Her husband, Rhett Kellis, owned the remaining 49%.  Rhett’s parents and siblings controlled Kellis Joint Venture, LLC (which OHA referred to as “KJV”).  Additionally, Rhett’s parents and brother controlled NaturChem, Inc.  Rhett was a minority owner of KJV, and was employed by NaturChem as its Vice President of Sales.

The SBA Area Office determined that “[a]s spouses, Bethany Kelllis and Rhett Kellis are treated as one party with a shared identity of interest as there is no clear line of fracture between them.”  Therefore, “Bethany Kellis and Rhett Kellis each have the power to control [Gregory].”

Next, the SBA Area Office determined that Rhett’s parents and brother controlled KJV and NaturChem, “but they too share an identity of interest with Rhett Kellis.”  Therefore, Gregory was presumed affiliated with KJV and NaturChem.  The only remaining question was whether Gregory could rebut the presumption of affiliation by showing a clear line of fracture between Rhett, on the one hand, and his parents and siblings, on the other.

The SBA Area Office acknowledged that Rhett “holds no ownership interest in NaturChem; that [Gregory] and NaturChem do not share employees, facilities, or equipment; that there are no ‘loans, promissory notes, or other financial assistance” between [Gregory] and NaturChem; that the two companies perform ‘different services’ and are not in the same line of business; and that the business dealings between the companies amount to less than 1% of each company’s annual revenues.”  However, Rhett was an owner of KJV and an officer of NaturChem, and NaturChem had done business with Gregory.  The SBA Area Office found that Gregory had not demonstrated a clear line of fracture between Rhett and his relatives.  The SBA Area Office issued a size determination finding Gregory to be affiliated with KJV and NaturChem.

Gregory filed a size appeal with OHA.  Gregory argued that the SBA Area Office had effectively treated the presumption of affiliation as irrebuttable, and had erred by finding Gregory affiliated with KJV and NaturChem.

OHA wrote that it has “extensive case precedent” interpreting the SBA’s affiliation regulations “as creating a rebuttable presumption that close family members have identical interests and must be treated as one person.” A challenged firm can rebut the presumption by showing a clear line of fracture.  Factors that may be pertinent in showing a clear line of fracture “include whether the firms share officers, employees, facilities, or equipment; whether the firms have different customers and lines of business; whether there is financial assistance, loans, or significant subcontracting between the firms; and whether the family members participate in multiple businesses together.”

In this case, OHA said, Gregory “identified several considerations that would tend to rebut the presumption” of affiliation.”  Nevertheless, “the major obstacle for [Gregory] in establishing a clear line of fracture is Rhett Kellis’s employment at NaturChem.”  OHA explained that “when a family member works at a company owned and controlled by other close family members, this may be grounds for finding no clear fracture between them.”  Additionally, “Rhett Kellis . . . shares a common investment with his parents and brother in KJV.”  On these facts, “the Area Office could reasonably conclude that [Gregory] did not establish a clear line of fracture, and did not rebut the presumption of identity of interest.”  OHA affirmed the Area Office’s size determination.

OHA’s decision in Gregory Landscaping Services demonstrates how the familial relationships affiliation rule can be applied at two levels–both internally and externally.  Although Rhett Kellis was only a 49% owner of Gregory, the SBA aggregated his interest with that of Bethany Kellis, his wife, and found that Rhett Kellis controlled Gregory.  The SBA then looked externally, and presumed Gregory to be affiliated with companies controlled by Rhett’s parents and brother.

Gregory Landscaping Services shows that when a company’s owners are close relatives, legal ownership splits–such as the 51/49 split here–may be disregarded in the SBA’s affiliation analysis.  And the decision is another reminder that small businesses must be very careful about relationships with companies controlled by close family members.  Even where, as here, the companies themselves do little business together, affiliation can exist.

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When my nephew started kindergarten, his vocabulary expanded to include a new phrase: “Rules are rules, and you have to follow the rules!” For my nephew (who, if I’m being honest, can be a bit mischievous), this newfound respect for following rules was adorable.

Government contractors should commit this lesson to heart: you have to follow the rules! As one government contractor recently learned, this includes GAO’s bid protest filing rules. Where a protester doesn’t follow the rules, its protest is likely to be dismissed.

By way of background, GAO’s regulations include strict deadlines relating to protest filings: after a disappointed offeror files its protest, an agency has 30 days to file its response to the protest (called an “agency report”). The protester then must file its reply (or “comments”) to the protest within 10 days from the date it receives the agency report. The importance of complying with this deadline is unambiguous: “The protest shall be dismissed unless the protester files comments within the 10-day period, except where GAO has granted an extension or established a shorter period” for doing so.

That takes us to the case in question, PennaGroup, LLC, B-414840.2, B-414841.2 (Aug. 25, 2017). PennaGroup submitted a bid on the two-phase border wall solicitation and was excluded for not acknowledging several amendments to the solicitation (as required by the agency).

PennaGroup protested at the GAO, and the agency filed its agency report on July 26. PennaGroup’s comments were due by August 7. PennaGroup failed, however, to submit its comments by the deadline.

On August 8, GAO asked PennaGroup to confirm whether it filed comments. It responded by saying that it didn’t think comments were necessary, as its “legal team has reviewed the [agency’s] response and finds no new or factual arguments not fully set forth in length in our Bid Protest.” Essentially, because PennaGroup didn’t think there was anything worth responding to, it just didn’t respond.

The agency then moved to dismiss PennaGroup’s protest. Agreeing with the agency, GAO wrote that its bid protest deadlines are designed to facilitate the expeditious resolution of protests:

To avoid delay in the resolution of protests, our Bid Protest Regulations provide that a protester’s failure to file comments within 10 calendar days “shall” result in dismissal of the protest except where GAO has granted an extension or established a shorter period. But for this provision, a protester could idly await receipt of the report for an indefinite time, to the detriment of the protest system and our ability to resolve the protest expeditiously.

GAO dismissed the protest.

GAO’s logic makes sense—given the short deadline to resolve protests and the potential disruption to the procurement system, parties should abide by the deadlines. PennaGroup’s excuse for not doing so, however, highlights a tension in this requirement (especially from the perspective of protesters wanting to keep legal costs low): should a protester be required to comment on a protest just for the sake of doing so, even if its comments won’t necessarily add any new facts or legal justification? GAO’s decision in PennaGroup confirms that, notwithstanding this tension, protesters must abide by all applicable filing deadlines–including by filing comments within the appropriate time frame.

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The GAO lacks jurisdiction to determine whether an offeror is a service-disabled veteran-owned small business.

In a recent bid protest decision, the GAO rejected the protester’s creative attempt to convince the GAO to take jurisdiction, and confirmed that, for non-VA acquisitions, the SBA has sole authority to determine whether an offeror is an SDVOSB.

The GAO’s decision in OBXtek, Inc., B-415258 (Dec. 12, 2017) involved a DHS RFQ for cybersecurity support services.  The RFQ was issued to holders of the GSA’s OASIS Small Business (Pool 1) IDIQ contract.  The DHS set aside the order for SDVOSBs.

After evaluating quotations, the DHS announced that it would make award to Analytic Strategies, LLC.  OBXtek, Inc., an unsuccessful competitor, subsequently filed a bid protest at the GAO.

OBXtek argued, in part, that Analytic Strategies had misrepresented its SDVOSB status in order to compete for the set-aside RFQ.  Specifically, OBXtek contended that Analytic Strategies had been acquired by another company in August 2016, and was not an eligible SDVOSB at the time it submitted its quotation in mid-2017.

OBXtek conceded that the GAO doesn’t have authority to determine whether a company is an SDVOSB.  However, OBXtek argued that Analytic Strategies’ SDVOSB eligibility wasn’t at issue.  Rather, OBXtek argued, it was asking the GAO to determine whether Analytic Strategies had made a material misrepresentation in its proposal by expressly certifying that it was an SDVOSB.  And, as OBXtek pointed out, the GAO ordinarily has the ability to determine whether an offeror made a material misrepresentation in its proposal.

It was a creative effort, but GAO didn’t buy it.  Under the Small Business Act, the GAO wrote, “the SBA is the designated authority for determining whether a firm is an eligible SDVOSB concern” for most non-VA acquisitions, and “it has established procedures for interested parties to challenge a firm’s status as a qualified SDVOSB concern.”  As a result, the GAO “will neither make nor review SDVOSB status determinations.”

Here, “[w]hile the protester may be correct in asserting that allegations of a vendor submitting a quotation with a material misrepresentation is within our Office’s jurisdiction, the issue as it is here, of whether a vendor is an SDVOSB (and eligible to compete under a set-aside) is a matter within the jurisdiction of the SBA.”  In other words, determining whether Analytic Strategies had made a material misrepresentation would require GAO to determine whether Analytic Strategies was (or was not) an SDVOSB–a determination that the GAO is not permitted to make.

The GAO dismissed this portion of OBXtek’s protest.

As I was reading the case, I kept wondering–why did OBXtek protest to the GAO in the first place?  Ordinarily, the answer would be simple: the company was confused by the nuanced jurisdictional rules of federal bid protests, and simply filed in the wrong place.  But OBXtek, by advancing its creative argument, seemed to understand that the SBA was the right place to file an SDVOSB protest.  So why not file there?

I can only speculate, but it’s possible that OBXtek didn’t think that it could file a viable SBA SDVOSB protest.  Under the SBA’s SDVOSB regulations, a company that qualifies as an SDVOSB at the time of initial offer on a multiple-award contract ordinarily is considered an SDVOSB for the life of that contract, including “for each order issued against the contract.”  There are exceptions to this rule, but if none of them applied, Analytic Strategies might not have been required to be an SDVOSB at the time of its quotation on the DHS order.  If my speculation is correct, OBXtek’s protest might have been an effort to circumvent this rule.

Regardless of the reasons why OBXtek took its case to GAO, the OBXtek, Inc. decision is an important reminder: the GAO cannot determine SDVOSB eligibility.  For most non-VA acquisitions, SDVOSB determinations must be left to the SBA.

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