As we June comes to a close, it’s almost time to celebrate our nation’s independence. I hope all of our readers have a happy and safe 4th of July. We will take a little break from the SmallGovCon Week In Review next week but will be right back at it with a new edition on July 14th.
In this week’s roundup of government contracting news, a study finds that the win rate for incumbent contractors dropped sharply in 2016, a shady North Carolina contractor was found guilty of double billing the government for close to a decade, the SBA launches a new HUBZone map system, and much more.
A new study finds that the incumbent win rate dropped sharply in 2016–from 75 percent to 54 percent. [Federal News Radio]
Alan Thomas was sworn in as Acquisition Chief of the Federal Acquisition Service just two weeks after incumbent Tom Sharpe abruptly resigned. [Government Executive]
The owner of a North Carolina-based defense contractor pleaded guilty to billing the federal government for more than $13.6 million in work that was never performed. [The Virginian-Pilot]
Changes in the Trump administration’s handling of accelerated payments to small businesses, acquisition assessments and report of agency priority goals are being sought by the Professional Services Council. [Government Executive]
According to a GAO report, U.S. Army leaders have not consistently evaluated the efficiency and effectiveness of the department’s contracting operations and will be developing new metrics to assess the effects of organizational changes going forward. [SIGNAL]
The SBA has launched a new HUBZone map which is the first step in the modernization effort of SBA’s federal contracting programs. [CISION]
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The SBA is considering making changes to improve its socioeconomic programs–particularly the 8(a) and HUBZone Programs.
In a talk yesterday at the 2017 Navy Gold Coast Procurement Conference, Robb Wong, the SBA’s recently-appointed Associate Administrator, Office of Government Contracting and Business Development, discussed some of the big changes the SBA is considering. And to my ears, at least, a lot of what Mr. Wong said makes good sense.
Mr. Wong made clear that few decisions have been made at this point; most of the potential changes are only in the discussion phase for now. That said, here are some of the changes the SBA is considering–and why.
First, SBA is considering how to better focus on what the VA would call “procurement readiness.” Mr. Wong pointed out that many small businesses think that getting a socioeconomic certification is the hard part, and that the contracts come easily once a company is certified.
Of course, that’s not the case. Many certified companies aren’t truly ready to do business with the government. That, in turn, can hurt the reputations of the socioeconomic certifications themselves. It may be unfair, but some procuring officials can become gun shy about using a socioeconomic class after a bad experience with an unready company.
So what can the SBA do about the “procurement readiness” problem? According to Mr. Wong, here are some ideas under consideration:
Require training before a company can be certified. This might include training on business development, capture, and execution. Business development is, of course, an integral part of the 8(a) program, but it’s not currently a required component of the SDVOSB, HUBZone, or WOSB programs.
Allow a remedial training period for unsuccessful 8(a) firms. I’ve probably heard it a hundred times in my career: an company gets 8(a)-certified, but has no clue what to do with that certification until four or five years into its program term. Finally,the company figures out how to win 8(a) contracts, but the nine-year program term is already halfway gone. To address this issue, the SBA is considering allowing active 8(a) participants to temporarily put the nine-year term on hold while the leadership gets remedial business development training.
Help companies win contracts and subcontracts. It shouldn’t be entirely up to socioeconomic firms to find contracts, Mr. Wong says–it’s not enough to say “here is a fishing pole, it’s a tool, go use it.” Instead, the SBA wants to be more active in assisting good, qualified small businesses in obtaining prime contracts and subcontracts.
Second, Mr. Wong acknowledges that the procurement world is trending in the direction of consolidation and larger contracts. While this may ultimately mean more total dollars are awarded, it also means that there may be fewer prime contract awards to go around. The SBA is considering ways to help small businesses navigate these macro-level changes in contracting. Some ideas under consideration include:
Calling on procuring agencies to reserve a certain percentage of contract awards (not just contract dollars) for small businesses.
Promoting ways for small businesses to work with one another, and with larger partners, including joint ventures and the new All Small Mentor-Protege Program.
Focusing more on working to obtain subcontracts for small businesses.
Mr. Wong also said that a few specific ideas are under consideration to improve the 8(a) and HUBZone Programs:
Increasing the 8(a) sole source threshold. This is one way, Mr. Wong said, that the SBA could “make 8(a) special again.”
Making HUBZone compliance easier. Mr. Wong lamented the fact that because of the HUBZone Program’s unique requirements (especially the 35% employee residency requirement), some HUBZones “spend more time maintaining compliance than pursuing new contracts.” The SBA is looking for ways to make ongoing compliance simpler.
Addressing HUBZone map changes. The SBA is concerned that HUBZone companies can end up with the short end of the stick when a HUBZone tract is redesignated as non-HUBZone. The SBA is considering how to address this problem.
Updating the 8(a) economic disadvantage rules. The 8(a) net worth threshold (currently $250,000 for initial admission) is old–and may need to be updated.
Only time will tell what becomes of these big picture thoughts, but it’s very heartening to see the SBA thinking about how to improve and modernize its programs–and encouraging to see the SBA discuss these ideas in public and solicit feedback from small businesses and other stakeholders.
I’ll keep you posted.
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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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I don’t know about your part of the country, but here in Lawrence, the temperatures have plunged and it has finally felt like winter for the first time. When temps get cold, I prefer to stay inside with a hot beverage, but I have to hand it to all of the die hard Chiefs fans who scoffed at the single-digit temperatures and spent the evening watching their team defeat the Raiders at Arrowhead Stadium last night.
As we continue our wintry approach to the holidays, it’s been a big week in government contracting. Here on SmallGovCon, we’ve been focusing on the government contracting provisions of the 2017 NDAA, and this week’s SmallGovCon Week In Review has an additional update on the bill’s progress. But that’s not all: our weekly roundup of government contracting news also includes a change to the FAR to reflect SBA regulations regarding multiple-award contracts, previews of contracting under President-elect Trump, and much more.
The 2017 NDAA conference bill has been approved by House and Senate, and is now on President Obama’s desk. Will he sign it? [ExecutiveGov]
Speaking of the 2017 NDAA, it includes provisions restoring the GAO’s ability to hear protests of civilian task and delivery orders in excess of $10 million. [FCW]
Two men who executed “the largest disadvantaged business enterprise fraud in the nation’s history” will not have their sentences adjusted after a court denied a request for leniency. [Central Penn Business Journal]
Washington Technology takes a look at the incoming Trump administration and what is next for contractors. [Washington Technology]
Federal contracts played a factor in United Technologies’ decision to keep a Carrier plant in Indianapolis open at the request of President-elect Trump. [The Washington Post]
A bill protecting whistleblowers who expose what they think is wrongdoing in government contracts has been passed by the U.S. House of Representatives and is expected to be signed by President Obama. [St. Louis Post-Dispatch]
What will be the new administration’s acquisition priorities? Speculation opaquely says increased outsourcing of government activity, but what does that mean? Federal Times tries to answer these and other questions. [Federal Times]
President-elect Trump has nominated Linda McMahon, of World Wrestling Entertainment fame, to head the SBA. [ExecutiveGov]
The FAR Council has proposed important changes to implement regulatory changes made by the SBA, which provide Government-wide policy for partial set-asides and reserves, and set-aside orders for small business concerns under multiple-award contracts. [Federal Register]
The GSA has inked a government-wide deal for Adobe’s “data-centric” security and electronic signature software which the GSA believes could save American taxpayers $350 million. [fedscoop]
A commentator opines that improving government contracting should begin with “dumping the DUNS.” [The Hill]
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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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Despite older case law to the contrary, the GAO ordinarily lacks jurisdiction to decide a protest challenging the award of a subcontract, even where the subcontract is alleged to have been made “for” the government, as in the case of some subcontracts awarded by DOE Management and Operation prime contractors.
In a recent decision, the GAO confirmed that, except in very narrow circumstances, it won’t decide protests challenging subcontract awards.
The GAO’s decision in Peter Vander Werff Construction, Inc., B-415676 (Feb. 6, 2018) involved the award of a subcontract by Lawrence Livermore National Security, LLC. LLNS is a M&O prime contractor to the DOE, responsible for the management and operation of the Lawrence Livermore National Laboratory in California. LLNS’s prime contract included FAR 52.244-5 (Competition in Subcontracting) which specifies that a prime contract shall select subcontractors “on a competitive basis to the maximum extent practicable with the objectives and requirements of the contract.”
In March 2017, LLNS issued a competitive solicitation for the award of multiple master task agreements for general construction and design services. LLNS received 32 offers. After evaluating those offers, LLNS made 16 awards. LLNS informed the remaining offerors, including Peter Vander Werff Construction, Inc., that their offers were unsuccessful.
PVWC filed a GAO bid protest challenging the evaluation. The DOE moved to dismiss the protest, arguing that the GAO lacked jurisdiction.
The GAO wrote that, for several years, it “took jurisdiction over subcontract awards by prime contractors to the federal government where, as a result of the government’s involvement in the award process, or the contractual relationship between the prime contractor and the government, the subcontract, in effect, was awarded on behalf of–i.e., ‘by or for’–the government, and federal procurement laws and regulations otherwise would apply.”
But in 1991, the U.S. Court of Appeals for the Federal Circuit issued a decision interpreting jurisdictional language similar to that governing the GAO. In that case, the Federal Circuit held that the General Service Administration’s Board of Contract Appeals lacked jurisdiction over subcontract procurements conducted “for” a federal agency, unless the prime contractor was a “procurement agent” as narrowly defined in other authority.
After the Federal Circuit issued its decision, the GAO narrowed its jurisdiction over subcontract protests. Since the 1991 decision, the GAO will only take jurisdiction over a subcontract protest in two instances: first, “upon the written request of the federal agency that awarded the prime contract,” and second, “where we find that a subcontract essentially was awarded ‘by’ the government.”
With respect to the second instance, GAO has “considered a subcontract procurement to be ‘by’ the government where the agency handled substantially all of the substantive aspects of the procurement and, in effect, took over the procurement, leaving to the prime contractor only the procedural aspects of the procurement, i.e., issuing the subcontract solicitation and receiving proposals.” In contrast, unlike its pre-1991 cases, the GAO will no longer take jurisdiction of a subcontract that was awarded “for” the government.
In this case, there apparently was no written request by DOE that the GAO decide this matter. Additionally, the GAO found that this was not a subcontract issued “by” the Government. In that regard, the GAO wrote that “the record does not establish that the agency controlled essentially every meaningful aspect of the procurement.” Instead, “the evaluation and ultimate decision was made by LLNS,” the prime contractor.
The GAO dismissed the protest.
As the Peter Vander Werff Construction case demonstrates, the GAO’s jurisdiction over subcontract protests is very narrow. Contrary to older case law, the GAO no longer accepts jurisdiction based on the allegation that a subcontract was awarded “for” the government.
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I am back in Kansas, where it is a balmy 39 degrees, after a great trip to Orlando for the National 8(a) Association Small Business Conference.
The weather in Florida was “for real” balmy, as my kids might say–but as tempting as the sunny outdoors was, the convention hall was packed with representatives from 8(a) companies, large primes, government agencies, and others. You know a conference has great content–and great networking–when attendees voluntarily choose the lecture hall over a nearby sun-drenched pool.
At the Small Business Conference, I was part of a panel focusing on joint venturing and teaming issues. Thank you to my fellow panelists, Shawn Ralston of AECOM and Jesse Binnall of Harvey & Binnall PLLC, for offering some great information and perspectives. Thank you, also, to Ron Perry and the National 8(a) Association leadership for putting together this incredible event and inviting me to participate. And thank you most of all to all those who attended the panel or stopped by the Koprince Law LLC booth. It was wonderful to see so many familiar faces and make so many new connections.
Next on my travel calendar: the Alliance Northwest conference on March 9, where I’ll be speaking in-depth about the legal aspects of the SBA’s new All Small Mentor-Protege Program. If you’re in the Pacific Northwest (or just love a fantastic government contracts conference), I hope to see you there!
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The continuing legal battle over the constitutionality of the 8(a) program’s “socially disadvantaged” criteria may be on its way to the Supreme Court of the United States.
Last September, we covered the decision of the United States Court of Appeals for the D.C. Circuit in Rothe Development, Inc. v. United States Department of Defense, 836 F.3d 57 (D.C. Cir. 2016), where a two-judge majority of the court concluded the 8(a) program did not violate Rothe’s equal protection rights under the Due Process Clause of the Fifth Amendment by establishing a racial classification.
Now, Rothe has filed a Petition for Writ of Certiorari—a formal request that the Supreme Court review (and overturn) the D.C. Circuit’s decision.
By way of background, the main question in Rothe is whether the 8(a) program violates the Fifth Amendment by granting contracting preferences on the basis of race. One of the essential questions in resolving any equal protection challenge is determining the level of scrutiny to which the challenged law will be subjected. Judges can apply three different intensities of scrutiny: rational basis, intermediate, and strict. Think of these like low, medium, and high scrutiny.
Rational basis is the least intense of the scrutiny levels and applies to most laws. To survive a rational basis challenge, a law merely must bear some reasonable relation to a legitimate government interest. Needless to say, most laws reviewed under the “rational basis” test are upheld.
Strict scrutiny, on the other hand, is the most intense level of scrutiny. To survive a strict scrutiny review, the challenged law must be narrowly tailored to meet a compelling government interest. Strict scrutiny is typically applied when a statute is not race-neutral on its face. Many laws do not survive a strict scrutiny review.
In its September decision, the D.C. Circuit majority concluded the statute establishing the 8(a) program is race-neutral. As the court’s majority explained, “Section 8(a) uses facially race-neutral terms of eligibility to identify individual victims of discrimination, prejudice, or bias, without presuming that members of certain racial, ethnic, or cultural groups qualify as such.” Consequently, the D.C. Circuit concluded rational basis was the proper level of scrutiny to apply to the 8(a) statutes. Given the low bar set by rational basis review, the D.C. Circuit concluded the case met constitutional muster.
Rothe’s petition for Supreme Court review challenges the D.C. Circuit’s application of rational basis. Rothe argues that the D.C. Circuit should have reviewed the statute under strict scrutiny, and should have found the statute to violate the Fifth Amendment.
Rothe begins with the long-established principle that “drawing distinctions between citizens based on their race or ancestry is odious to a free people whose institutions are founded upon the doctrine of equality.” Rothe says that “the statutory provisions of the Section 8(a) program contain a paradigmatic racial classification because they distribute burdens and benefits on the basis of race.”
Rothe makes several arguments in support of its petition.
Rothe first argues the D.C. Circuit ignored the plain language of the statute, which Rothe says gives preferences to“’ocially disadvantaged individuals’ based upon ‘their identity as a member of a group without regard to their individual qualities.’” Rothe contends the statute establishes membership in certain racial minority groups as being indicative of social disadvantage; for this reason, Rothe says, the statute is not race-neutral.
Rothe then takes issue with the D.C. Circuit’s holding that the portion of the statute identifying racial classifications was analogous to an unenforceable “preamble.” Rothe writes that the section of the statute containing this language “reads like a definitional section,” and was “voted on and passed” by Congress. Further, Rothe says, “a court should always review the entirety of a statute,” and the D.C. Circuit failed to do so.
Next, Rothe says that the D.C. Circuit erred by finding that the statute was race-neutral because non-minorities are also eligible for the 8(a) program. Rothe concedes that non-minorities can be admitted to the 8(a) program, but writes that members of minority groups “receive an advantage over non-minorities based on their race.” Rothe continues: “this Court applies strict scrutiny whenever the government uses race as a factor in distributing burdens and benefits, regardless of whether race is the sole factor.”
Rothe next dives into the legislative history of the 8(a) program, which Rothe says supports its position. For instance, Rothe writes that a 1978 House-Senate conference committee intended that “the primary beneficiaries of the program would be minorities.”
Finally, Rothe contends that the D.C. Circuit misapplied the doctrine of constitutional avoidance. The doctrine of constitutional avoidance counsels that when a statute is open to multiple reasonable interpretations, courts should select the interpretation that does not present a constitutional issue. Rothe alleges that Section 8(a) is not ambiguous and that the D.C. Circuit had to contort the statutory language to apply the constitutional avoidance doctrine. As such, application of the doctrine was improper and led to the incorrect conclusion.
Rothe concludes by arguing that its case is “an issue of nationwide importance.” Writes Rothe: “[t]here can be little doubt that government contracting is big business, even for small businesses.” Rothe notes that $16.6 billion in 8(a) contracts were awarded in 2015, and says that “when billions of dollars in government contracts are at stake, any preferential treatment has a nationwide, economic impact.”
Now the big question: will the Supreme Court take Rothe’s case? If the Court declines to take the case, the D.C. Circuit’s ruling will stand, solidifying the 8(a) program’s constitutionality–at least for now. But if the Court takes the case, anything is possible.
The raw numbers don’t look good for Rothe. As the Supreme Court’s website says, “[t]he Court receives approximately 7,000-8,000 petitions for a writ of certiorari each Term. The Court grants and hears oral argument in about 80 cases.”
But Rothe’s chances are probably a little better than those numbers would suggest. Rothe’s case presents a constitutional question affecting billions of dollars in government spending. And as the Supreme Court showed in 2015 with Kingdomware, it’s not afraid to take on a major government contracting case.
Continue to check back at SmallGovCon as we keep an eye on the developments in Rothe.
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For small businesses, 8(a)s, SDVOSBs, HUBZones and WOSBs, few legal requirements in the world of government contracts are as important as those surrounding ownership and control. I recently joined host Carroll Bernard of Govology for an in-depth podcast exploring these important requirements, including a discussion of common mistakes and misconceptions.
Follow this link to listen to or download the podcast. And don’t stop there–check out Govology’s other great podcasts with government contracting thought leaders, too.
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Small government contractors lost an important ally last week–and many of us lost a great friend.
Becky Peterson, the longtime Interim Executive Director of the Association of Procurement Technical Centers, passed away on Thursday. Her legacy lives on in the amazing network of PTACs across the country.
I first met Becky a number of years ago, when she and the APTAC leadership team took a chance, and invited a little-known government contracts associate to give a breakout session at the APTAC national conference. Many conferences later, Becky’s amazing blend of professionalism and kindness always stood out. “You’re family here,” she would tell me, giving me a hug. Then she’d pivot into a nuanced issue affecting small contractors, discussing how her PTAC counselors could best make a difference.
Becky strongly believed in the mission of PTACs: to provide government contractors (mostly small businesses) with individualized counseling services, training and assistance in pursuing, winning and successfully performing government contracts. Working with a network of nearly 650 procurement counselors nationwide, Becky sought to arm her team with the information they needed to best counsel their clients. But more than that: she and the APTAC leadership team always emphasized the importance of ethics and compliance, helping make sure that PTAC clients were counseled on much more than just the nuts and bolts of the contracting process.
She fought hard for her organization, working to raise its profile on Capitol Hill and ensure that it continues to receive much-needed political support (and funding). And she didn’t stop fighting: just a few weeks ago, even while she battled illness, she was in Oklahoma helping organize the Indian Country Business Summit. I am heartbroken to know that was the last time I’ll see her.
You shouldn’t feel bad if you didn’t know Becky’s name. She wasn’t one to seek the spotlight for herself. Her focus was on PTACs, and all the wonderful things they do for contractors around the country. In fact, if she could read this post, she’d probably say something like, “that’s very sweet, but enough about me–please remind your readers of the free PTAC counseling they can get right in their own backyards.”
If you haven’t connected with your PTAC, there’s no time like now. Visit the APTAC website to find your local PTAC and schedule an appointment. I think you’ll be impressed with the organization Becky helped build and run.
Those of us who knew Becky will miss her dearly. And those who didn’t will feel the positive effects of her hard work for years to come.
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The SBA has released its proposed consolidated rule for SDVOSB eligibility, which was published in the Federal Register today. Once the rule becomes final, it will apply government-wide, to both VA and non-VA SDVOSB contracts.
For SDVOSBs, a uniform set of rules is a very good thing. There has been far too much chaos and confusion under the current system, in which the SBA and VA have different SDVOSB eligibility requirements. But how about the substance of the proposal itself? Well, there are certainly some things to like–and some areas that could use improvement.
As SmallGovCon readers will recall, the 2017 National Defense Authorization Act directed the SBA and VA to work together on a consolidated SDVOSB eligibility rule, with the SBA taking the lead in the effort. As a result, the SBA’s proposal incorporates some pieces of the existing VA SDVOSB ownership and control rules. The SBA also includes some entirely new provisions, such as an exception to the ordinary control requirements in a handful of “extraordinary” circumstances.
Here are some of the highlights (and a few lowlights) of the proposal.
The proposed rule would update 13 C.F.R. 125.12 to provide additional guidance about how an SDVOSB must be owned. Unsurprisingly, the rule retains the general requirement that an SDVOSB be “unconditionally and directly owned by one or more service-disabled veterans.”
The proposed rule provides an exception for surviving spouses, but only in very limited circumstances: for a surviving spouse to qualify as an SDVOSB owner, the veteran must have either had a 100 percent service-connected disability, or have died as a result of the service-connected disability.
The proposed rule also includes an exception for employee stock ownership plans, or ESOPs. Unfortunately, however, the proposed exception is essentially worthless: it says that “n the case of a publicly traded business,” stock owned by an ESOP need not be 51% owned by veterans. But when was the last time you saw a publicly traded SDVOSB? The next time I run across one of those will be the first. For everyone else, there’s still no exception for ESOPs, which is unfortunate. In my view, service-disabled veterans ought to have the flexibility to offer ordinary ESOPs to their employees.
The proposed rule adds a requirement that service-disabled veterans receive at least 51 percent of the profits of a corporation, partnership, or LLC. Additionally, a service-disabled veteran’s ability to share in the profits “must be commensurate with the extent of his/her ownership interest in that concern.” For example, if a service-disabled veteran owns 75% of an SDVOSB, he or she must receive 75% of the profits. These profit-sharing requirements aren’t part of the SBA’s current SDVOSB rules, but have been incorporated essentially word-for-word from the VA’s regulations.
The proposed rule also provides that service-disabled veterans must receive “100 percent of the value of each share of stock owned by them in the event that the stock or member interest is sold,” and “[a]t least 51 percent of the retained earnings of the concern and 100 percent of the unencumbered value of each share of stock or member interest owned in the event of dissolution of the corporation, partnership, or limited liability company.” Again, these requirements aren’t found in the current SBA SDVOSB regulations, but have long been a part of the VA’s rules.
The proposed rule retains the requirement in 13 C.F.R. 125.13 that, for a company to qualify as an SDVOSB, “the management and daily business operations of the concern must be controlled by one or more service-disabled veterans.” However, “in the case of a veteran with a permanent and severe disability, the spouse or permanent caregiver of such veteran” may control the company.
I’m not a fan of the “spouse or permanent caregiver” provision. No, not because I don’t think that veterans with permanent and severe disabilities ought to be able to delegate day-to-day control–to me, that’s fair. My concern is that the SBA’s rule would continue to provide that the caregiver must “have managerial experience of the extent and complexity needed to run the concern.”
Now how likely is it that the typical spouse or appointed permanent caregiver has that experience–much less the time and interest, when the caregiver is busy providing for the needs of a severely disabled veteran? I’ll let Mr. Jerry Seinfeld answer that one. In my view, it would be better to allow the veteran to designate a experienced non-caregiver manager, provided that the designated person satisfied certain reasonable criteria (e.g., no conflicts of interest). This would ensure that the company is run by someone who knows what he or she is doing, and allow the caregiver to devote full attention to the disabled veteran, instead of spending his or her time trying to run a business.
Unlike the current rule, the proposed rule would define “daily business operations.” The proposed definition states that those operations “include, but are not limited to, the marketing, production, sales, and administrative functions of the firm, as well as the supervision of the executive team, the implementation of policies and the setting of the strategic direction of the firm.” This one’s slightly odd: I think of “setting the strategic direction of the firm” as big-picture management, not a day-to-day operation. Regardless, though, the added definition should provide some additional insight as to what the SBA wants to see when it comes to control.
The SBA has provided some additional guidance about when service-disabled veterans will be deemed to control a company’s Board of Directors. This language is largely borrowed from the 8(a) and VA regulations, and I don’t have any particular concerns about it.
The proposed regulation includes another odd provision regarding super majority voting: it states that “[o]ne or more service-disabled veterans must meet all super majority voting requirements.” That’s not the odd part, although it seems inconsistent with the limited “extraordinary decisions” language I’ll discuss momentarily. The odd part is the requirement that “an applicant must inform the Department of Veterans Affairs, when applicable, of any super majority voting requirements provided for” in its governing documents.
As I read it, this means that VA CVE applicants would have to highlight super majority voting requirements in their governing documents. Does this mean that the SBA doesn’t trust the VA to find these during its document review? And why should the veterans have to identify any requirements that they satisfy? For instance, if a veteran owns 75% of a company, then a 66% super majority voting requirement shouldn’t be problematic, should it?
The SBA’s proposed rule adopts some current VA regulations regarding situations where non-veterans may be found to control a company. For instance, the SBA adopts the VA’s position that the service-disabled veteran generally must be the highest-compensated in the company. But the SBA proposal provides additional examples of things that may constitute impermissible control. SBA’s proposal says, for example, that impermissible control may exist “in circumstances where the concern is co-located with another firm in the same or similar line of business, and that firm or an owner, director, officer, or manager, or a direct relative of an owner, director, officer or manager of that firm owns an equity interest in the firm.”
The SBA also proposes to adopt a “rebuttable presumption that a service-disabled veteran does not control the firm when the service-disabled veteran is not able to work for the firm during the normal working hours that firms in that industry normally work.” In its comments, SBA says that “[t]his is not a full time devotion requirement” and that a veteran can rebut the presumption by “providing evidence of control.” The SBA doesn’t explain what sort of evidence it will accept, however.
The SBA also proposes a problematic new “close proximity” requirement. This one says:
There is rebuttable presumption that a service-disabled veteran does not control the firm if that individual is not located within a reasonable commute to firm’s headquarters and/or job-site locations, regardless of the firm’s industry. The service-disabled veteran’s ability to answer emails, communicate by telephone, or to communicate at a distance by other technological means, while delegating the responsibility of managing the concern to others is not by itself a reasonable rebuttal.
I don’t like this one. Granted, it’s just a rebuttable presumption–not conclusive ineligibility–but as the world moves more and more in the direction of telecommuting, it’s unfortunate that the SBA views physical location as so important, “regardless of industry.” Also, the “and/or” in the proposed language doesn’t make any sense. Does the veteran have to be close to headquarters, job sites, or both? If both, how is that possible for a company that bids regionally or nationally, and has job sites spread across the country?
Finally, the SBA says that it won’t find a lack of control “where a service-disabled veteran does not have the unilateral power and authority to make decisions in ‘extraordinary circumstances.'” But only five actions would count as extraordinary: (1) adding a new equity stakeholder; (2) dissolution of the company; (3) sale of the company; (4) merger of the company; or (5) declaring bankruptcy. Non-veteran owners could have veto power over these five actions, but nothing more.
I’m glad that the SBA is recognizing that complete, unfettered unconditional control actually harms service-disabled veterans by scaring away potential investors. But I think this list is too narrow, and misses some fundamental items that the SBA Office of Hearings and Appeals has identified in its size and affiliation cases. These include such things as issuing new shares of stock (which could dilute the interests of minority members, even without adding a new owner), selling all the firms assets, increasing or decreasing the size of the Board of Directors, and selling or disposing of all of the firm’s assets. I hope the SBA will look at broadening this list to better enable service-disabled veterans to attract qualified investors.
Keep in mind that for now, this is just a proposal, not a law. The SBA is accepting public comments on the proposal on or before March 30, 2018. To comment, go to the Federal Register and follow the instructions.
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Businesses controlled by brothers were presumed affiliated under the SBA’s affiliation rules.
In a recent size determination, the SBA Office of Hearings and Appeals held that a contractor was affiliated with companies controlled by its largest owners’ brother, even though the companies had only minimal business dealings. OHA’s decision highlights the “familial relationships” affiliation rule, which can often trip up even sophisticated contractors–but the decision, which was based on a March 2016 size determination request, did not take into account changes to that regulation that went into effect a few months later.
OHA’s decision in Size Appeal of Quigg Bros., Inc., SBA No. SIZ-5786 (2016) arose from a HUBZone Program application submitted by Quigg Bros., Inc.. On March 30, 2016, the HUBZone Program office asked that the SBA Area Office conduct a size determination on Quigg Bros. to determine whether the company was a small business in its primary NAICS code, 237310 (Highway, Street, and Bridge Construction).
The SBA Area Office determined that Quigg Bros. was owned by six related individuals. The two largest shareholders were John Quigg and Patrick Quigg. The SBA Area Office determined that all six of the owners, including John Quigg and Patrick Quigg, controlled Quigg Bros.
The SBA Area Office then proceeded to examine potential affiliation with various other entities. As is relevant to this post, William Quigg–the brother of John Quigg and Patrick Quigg–controlled three companies: Root Construction Inc. (RC), Barrier West, Inc. (BW), and Cottonwood, Inc. These companies were identified as “related parties” in Quigg Bros.’ financial statements. When the SBA asked for an explanation, Quigg Bros. stated that “ecause we have loaned money to these entities our CPAs feel they are related.” However, Quigg Bros. pointed out, William Quigg was not an owner or officer of Quigg Bros., nor were John Quigg or Patrick Quigg involved as owners or officers of RC, BW, or Cottonwood.
The SBA Area Office issued a size determination finding Quigg Bros. to be affiliated with various other entities, including RC, BW and Cottonwood. The SBA Area Office stated that companies controlled by close family members are presumed to be affiliated. Although the presumption of affiliation may be rebutted, the SBA Area Office apparently found that the loans between Quigg Bros. and the other three companies (as well as other business dealings between the brothers) precluded Quigg Bros. from rebutting the presumption. As a result of its affiliations, Quigg Bros. was found ineligible for admission to the HUBZone Program.
Quigg Bros. filed a size appeal with OHA. Quigg Bros. highlighted the fact that none of its owners had any ownership interest in RC, BW or Cottonwood. Quigg Bros. also pointed out that William Quigg was not an owner or officer of Quigg Bros. Additionally, Quigg Bros. stated, the business dealings between the companies were minimal, and the companies did not share any officers, employees, facilities, or equipment.
OHA wrote that “SBA regulations create a rebuttable presumption that close family members have identical interests and must be treated as one person.” The challenged firm “may rebut this presumption by demonstrating a clear line of fracture between family members.”
In this case, “the Area Office correctly presumed that William Quigg shares an identity of interest with his brothers, and afforded [Quigg Bros.] several opportunities to rebut this presumption.” However, “the record reflects various business dealings between the brothers and their respective companies, including both contracts and loans, as well as join investments” in two other companies. These circumstances “undermine [Quigg Bros.’] claim of clear fracture, as OHA has recognized that ‘where there is financial assistance, loans, or significant subcontracting between the firms,’ and ‘whether the family members participate in multiple businesses together’ are among the criteria to be considered in determining whether clear fracture exists.”
OHA also found that the SBA Area Office did not err by failing to undertake a company-by-company analysis to determine whether Quigg Bros. was affiliated with each of the individual companies controlled by William Quigg. Citing prior decisions, OHA wrote that “if a challenged firm does not rebut the presumption of identity of interest between family members, all of the family members’ investments are aggregated.” OHA upheld the SBA Area Office’s size determination, and denied the size appeal.
In Quigg Brothers, the size determination request came in March 2016, so OHA applied the SBA’s then-existing rules on family relationships. It’s worth noting, however, that the SBA adjusted those rules in a rulemaking effective on June 30, 2016. The SBA’s affiliation rule now states:
Firms owned or controlled by married couples, parties to a civil union, parents, children, and siblings are presumed to be affiliated with each other if they conduct business with each other, such as subcontracts or joint ventures or share or provide loans, resources, equipment, locations or employees with one another. This presumption may be overcome by showing a clear line of fracture between the concerns. Other types of familial relationships are not grounds for affiliation on family relationships.
The plain text of the new rule suggests that–unlike in Quigg Bros. and prior OHA cases–the primary focus of the regulation may be on the businesses, not the family members. In other words, the company-by-company analysis OHA rejected in Quigg Bros. might be required moving forward. Additionally, unlike in prior cases, the new regulation suggests that the presumption doesn’t arise in the first place unless there is a close family relationship and the companies in question conduct business with one another.
Make no mistake: family relationships are still a viable basis of affiliation under the SBA’s revised regulations. But it remains to be seen how the new regulation will affect OHA’s analysis in future cases.
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I am on my way home from San Diego, where I spent yesterday at the APTAC Spring Conference. My presentation focused on recent major legal updates in government contracting, including key provisions of the 2017 National Defense Authorization Act, implementation of the All Small Mentor-Protege Program, and more.
APTAC is a wonderful organization and it is always such an honor to speak at an APTAC national conference. Thank you to Becky Peterson, Teri Bennett, Tiffany Scroggs, and all of the APTAC leadership for inviting me to be part of this spring’s event. And thank you to all the PTAC counselors who asked great questions and had kind words about the presentation (and a few lighthearted jests about KU’s tournament woes, too).
I say it all the time, but it’s worth saying again: if you are a small business in government contracting, you owe it to yourself to see what your local PTAC can do for you. Visit the ATPAC website to get started.
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The VA is considering using so-called “tiered evaluations” to address concerns that SDVOSBs and VOSBs may not always offer “fair and reasonable” pricing, even when two or more veteran-owned companies compete for a contract.
In a session yesterday at the National Veterans Small Business Engagement, a panel of VA acquisition leaders described the potential tiered evaluation process. It’s hard to argue that the VA isn’t entitled to fair and reasonable pricing, but judging from the reaction in the room, some SDVOSBs and VOSBs may wonder whether tiered evaluations are an effort to circumvent Kingdomware.
The VA panel consisted of Thomas Leney, Executive Director of Small and Veteran Business Programs, Jan Frye, Deputy Assistant Secretary for Acquisition and Logistics, and Robert Fleck, Chief Counsel of the Office of General Counsel.
Mr. Leney, who spoke first, said that the Kingdomware decision has been “good for veterans and good for the VA,” and pointed out that the VA’s annual SDVOSB/VOSB spending rose significantly following Kingdomware. That’s good news, of course.
But Mr. Frye said that when Kingdomware was decided in June 2016, the the VA was worried that the decision could, in some cases, result in higher prices and lengthier procurement processes. The VA doesn’t currently have any hard data about whether that’s proven true on a macro level, but has commissioned a study to evaluate it.
In the meantime, Mr. Leney said, there is anecdotal evidence of cases where the VA has paid “excessive prices” to award to veteran-owned companies. The VA hopes that this is a “small problem in a few cases, not a widespread problem,” Mr. Leney said. But apparently anticipating the need for policy changes to address the issue, the VA is considering adopting a tiered evaluation system in some procurements.
Under a tiered evaluation, a solicitation would be set-aside for SDVOSBs or VOSBs, but other companies (including large businesses) would also be able to submit proposals. The agency would start by evaluating the proposals of the top tier–in most cases, likely SDVOSBs. If the VA didn’t receive “fair and reasonable” pricing at that tier, the VA would go down to the next tier (probably VOSBs) and continue down the chain until a “fair and reasonable” offer was available to accept.
The speakers said that using a tiered evaluation approach would prevent procurement delays. As it stands now, if an acquisition has been set aside for SDVOSBs but no SDVOSB offers a fair and reasonable price, the VA must cancel and resolicit. Mr. Leney said that there have been cases where the VA has solicited the same acquisition “two, three or four times” before receiving fair and reasonable pricing. A tiered evaluation would eliminate this problem by allowing the contracting officer to simply go to the next tier, instead of resoliciting.
The speakers indicated that tiered evaluations wouldn’t be used in all acquisitions. Mr. Leney said that the approach likely wouldn’t be used in acquisitions involving complex technical proposals because the VA would be unlikely to receive offers from companies whose proposals might never be considered. On the other hand, the VA seems to think that the approach could work well in less-complex acquisitions, particularly where price is a critical factor.
It’s hard to argue that the VA isn’t entitled to “fair and reasonable” pricing. Fair pricing is, of course, a bedrock principle of federal procurement. But, judging from the mood in the room, the VA is going to have some work to do to convince SDVOSBs and VOSBs that this initiative (if it comes to pass) isn’t an attempt to circumvent Kingdomware.
One key consideration: how is “fair and reasonable” determined? One speaker suggested that if the VA receives pricing that is lower than the prices submitted by SDVOSBs, the Contracting Officer might use that as evidence that the SDVOSB pricing wasn’t fair and reasonable.
Hopefully, that’s not how it would work: there’s a big difference between higher pricing and unreasonable pricing. As one audience member pointed out, if reasonableness is judged based on the pricing submitted by non-veteran offerors (including large businesses), many SDVOSBs and VOSBs would have a tough time competing.
I give the VA leadership credit for coming to a public forum to discuss issues like these. And I’m willing to wait and see the details before passing judgment on the proposal, should the VA decide to implement it.
But the VA must understand that the SDVOSB/VOSB community watched for years as the VA fought tooth-and-nail to evade the statutory preferences under 38 U.S.C. 8127. With that history, some veterans are understandably skeptical that efforts like these are anything other than an attempt to circumvent the Supreme Court’s ruling.
If the VA is going to implement tiered evaluations, or similar tools, the agency will have some convincing to do. Stay tuned.
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The 2018 National Defense Authorization Act put a new twist on potential costs a contractor may incur in filing a GAO bid protest.
While many federal contractors are familiar with the costs arising from a GAO protest, including their attorneys’ fees and consultant and expert witness fees, and some are lucky enough to recoup such costs upon GAO’s sustainment of a protest, under the 2018 NDAA, some large DoD contractors may also be required to reimburse DoD for costs incurred in defending protests denied by GAO.
Under Section 827 of the 2018 NDAA, Congress has instructed the Secretary of Defense to implement a pilot program whereby some large DoD contractors filing GAO bid protests between October 1, 2019 and September 30, 2022, will be required to reimburse the DoD for costs incurred by DoD in defending the protest, if the protest is denied. Specifically, Section 827 provides as follows:
The Secretary of Defense shall carry out a pilot program to determine the effectiveness of requiring contractors to reimburse the Department of Defense for costs incurred in processing covered protests…. In this section, the term ‘‘covered protest’’ means a bid protest that was— (1) denied in an opinion issued by the Government Accountability Office; (2) filed by a party with revenues in excess of $250,000,000 (based on fiscal year 2017 constant dollars) during the previous year; and (3) filed on or after October 1, 2019 and on or before September 30, 2022.
Notably, a “covered protest” only includes those protests filed with GAO challenging DoD procurements. It does not cover agency-level protests to DoD or protests filed with the Court of Federal Claims. It also does not cover protests filed in connection with acquisitions by civilian agencies.
Additionally, only large federal contractors (i.e. contractors with revenues in excess of $250,000,000) will be required to reimburse DoD for costs incurred in filing a protest denied by GAO. Consequently, small, medium, and even many large federal contractors need not worry about this pilot program–although if the program proves successful, Congress could adjust the thresholds in the future.
Finally, the pilot program is only set to run between October 1, 2019 and September 30, 2022. After this time, the Secretary of Defense is required to provide a report to the Committees on Armed Services concerning the feasibility of making the program permanent.
Although the 2018 NDAA outlines the basics for DoD seeking reimbursement of costs incurred in defending a protest denied by GAO, many questions remain.
For one, what if GAO dismisses a protest based on a technicality (i.e. untimeliness) and not based on the merits? The language of the statute uses the word “denied,” which isn’t the same as a dismissal. But one of Congress’s goals is to discourage frivolous protests; one would think that dismissals would be covered, too.
What if GAO denies some grounds and not others? GAO decisions are often a mixed bag, with some allegations sustained and others dismissed or denied. Most protesters view a protest as successful if even one ground is sustained–but will such a result still require the payment costs?
Other questions abound: What costs will a contractor be required to reimburse the DoD? Will multiple unsuccessful protesters be required to split the costs, and in what manner? What if the protest involves both large and small protesters; will the large protester have to foot the bill for the entire protest? Will the DoD later expand this program to cover smaller businesses?
These details should come as the pilot program is implemented in regulation. Perhaps that is why Congress allotted two years for the DoD to implement the pilot program.
And, of course, it remains to be seen what effect, if any, this requirement will have on the number and nature of GAO protests filed by large defense contractors. It’s doubtful that many contractors of $250 million or more would make a go/no go protest decision based on the potential to pay costs. But will these contractors choose to turn to the Court of Federal Claims more often to avoid the cost requirement? Will they increasingly seek ways to resolve GAO protests, such as GAO’s outcome-predictive Alternative Dispute Resolution, that avoid decisions on the merits? Time will tell.
Stay tuned as we continue to follow this issue and delve into other matters surrounding the passage of the 2018 NDAA.
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It is inauguration day, and we are beginning a new chapter in America’s history. We’re expecting lots of government contracting changes in short order (beginning with repeals of some of the Obama Administration’s Executive Orders), so check in with us here on SmallGovCon regularly for updates.
As we honor our nation’s unparalleled tradition of peaceful transitions of power, it’s time for the SmallGovCon Week In Review. In this week’s edition, two commentators weigh in on the GAO’s denial of four protests of the major Alliant 2 GWAC, two major corporations are facing potential debarment stemming from alleged discrimination, Set-Aside Alert discusses how the new Trump Administration will affect small contractors, and much more.
One commentator says that the GAO’s decision to deny four protests of GSA’s Alliant 2 GWAC could end up being a landmark ruling on lowest-price, technically acceptable contracts for services. [Federal News Radio]
More Alliant 2: another commentator says the GAO’s decisions have ramifications beyond a potential $65 billion worth of IT services that it could bring to the federal government over the next 10 years. [Nextgov]
Many small federal vendors are hopeful about the possibility of greater opportunities in defense procurement, and possibly fewer regulations to follow as a federal contractor. [Set-Aside Alert]
Debarment from government contracting could be at stake for Oracle over an employee pay discrimination suit filed by the U.S. Department of Labor. [ZDNet]
President Obama’s Executive Orders dealing with contractor work forces could face reversal now that Donald Trump is President. [Stars and Stripes]
In a lengthy report, the GAO concludes that DoD needs clearer guidance when it comes to privately financed construction projects. [GAO]
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With what is being deemed “The Great American Eclipse” ready to hit the skies on Monday, there is a lot of excitement in the air here in Lawrence. We are just off the path of totality and are expecting 99.3% coverage. My colleagues and family will be outside (with protective eyewear of course) and witness this amazing moment. As for me, I’ll be in San Diego, speaking at the 2017 Department of the Navy Gold Coast Conference which will drop my near total eclipse view down to a partial eclipse of about 58% coverage–but it’s well worth it to be part of this great event.
Before I take off for the West Coast, it’s time for the latest SmallGovCon Week In Review. This week, two Senators have filed an amendment to the 2018 National Defense Authorization Act called the Modernizing Government Technology Act, an “Amazon-like” procurement system might not be too far off, a company is forced to repay millions of dollars amid allegations of overcharging the government, and much more.
The bipartisan Modernizing Government Technology Act is being attached as an amendment to the 2018 National Defense Authorization Act in hopes of improving its chances of being approved. [Federal News Radio]
With six weeks left in FY 2017, budget experts are warning federal contractors to begin planning for a possible government shutdown. [Federal News Radio]
A provision in the House version of the annual National Defense Authorization Act may soon make ordering office supplies, equipment, or even contract services as easy as placing an order on Amazon. [Government Executive]
A contractor will pay $9.2 million dollars to settle allegations of overbilling the U.S. Navy and Coast Guard for labor charges. [WLOX]
Government contracts sales guru Eileen Kent provides some pointers for businesses interested in cashing in on opportunities available at the end of the federal fiscal year. [Government Product News]
A lawsuit by the American Small Business League, heading for trial, alleges that some large defense contractors manipulate data to falsely claim they are meeting their small business subcontracting targets. [Forbes]
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Fall is officially here, and that means that the leaves are turning color, it’s apple-picking season, and football is a big part of my typical weekend (both on TV, and chasing around my three-year-old son as he scores touchdown after touchdown in our living room).
But for those of us involved in federal government contracts, it’s hard to think of the fall without also thinking of the end of the government’s fiscal year, and all that it entails. In this, the final SmallGovCon Week in Review of the 2016 Fiscal Year, we have stories on a large software vendor pulling out of the GSA schedule, Guy Timberlake’s unvarnished–and very important–commentary on a terrible change being proposed to small business goaling, and more.
One of the largest software vendors in the world is telling the General Services Administration, thanks, but we can live without you. [Federal News Radio]
An Army procurement initiative is pursuing a strategy of “ruthless prioritization.” [Federal News Radio]
The General Services Administration gave the go-ahead to 109 vendors who won spots on the Human Capital and Training Solutions unrestricted and small business contracts to begin promoting and selling against the governmentwide acquisition contract. [Federal News Radio]
The SBA seeks comments on a proposed amendment to its regulations governing the small business timber set-aside program so that appraisals on small business set-aside sales be made to the nearest small business mill. [Federal Register]
Guy Timberlake takes a look at rule changes that are being implemented that he feels will kill small business participation in federal contracting. [GovConChannel]
A commentator offers a warning about “one size fits all” procurement solutions. [Washington Technology]
Six industry associations are asking the government to delay the implementation of new rules around safe workplaces and fair pay for at least a year. [Federal News Radio]
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It is KU’s homecoming weekend here in Lawrence. I’m planning to catch KU’s homecoming parade with the family tonight, and then cheer KU onto football victory tomorrow against Oklahoma State (ok, that last part may be wishful thinking).
Of course, before we all head out to enjoy an autumn weekend, it’s time to get caught up on the latest in federal government contracting news. In this week’s SmallGovCon Week In Review, a former State Department employee will spend four years in prison for helping steer contracts to his son’s company, the IRS awards contracts to contractors owing back taxes, one commentator sounds a well-worn (and in my view, essentially incorrect) alarm about bid protests, and much more.
A former State Department employee has been sentenced to more than four years in prison for helping to steer $2 million in government contracts to a company half owned by his son. [KOIN 6]
Many federal agencies-including the IRS itself–are awarding contracts to contractors owing back taxes. [U.S. News]
The FedRAMP overhaul is beginning to pay dividends. [Federal News Radio]
The debate over the scope of the False Claims Act continues, with recent cases focusing on what happens if the government knew about a contractor’s noncompliance but paid anyway. [Bloomberg BNA]
One commentator offers a well-worn “sky is falling” argument regarding bid protests, which includes cherry-picking statistics (like focusing on GAO’s relatively low sustain rate instead of the actual protest success rate) in an effort to make a case against the protest process. (My take: protests are relatively rare, and succeed nearly half the time. Improvements are always possible, but overall the system is working. Please stop whining). [NextGov]
A new DFARS regulation clarifies which kinds of unclassified information contractors need to protect under DoD’s new cyber incident reporting requirement. [Federal Register]
Speaking of the DFARS, a final rule has been issued regarding the mandatory display of hotline posters. [Federal Register]
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I am back in Lawrence after a great trip to San Diego for the 2017 Department of the Navy Gold Coast Small Business Procurement Event. I gave a session at Gold Coast on the SBA’s new All Small Mentor-Protege Program, and enjoyed speaking with contractors, government representatives, and others on the trade show floor.
Thank you very much to the San Diego chapter of the National Defense Industrial Association for sponsoring this fantastic event and inviting me to speak. Thank you also to the fine folks of the San Diego Contracting Opportunities Center and American Indian Chamber Education Fund PTAC for sharing their booth. And a big thank you to the many contractors who attended the session and asked great questions–so many, in fact, that some people stuck around 30 minutes after the session ended to chat.
If you haven’t had the pleasure of attending Gold Coast, I strongly encourage you to put it on your radar screen for 2018. As for me, I’ll be hitting the road again soon: I will be in Norman, Oklahoma next week for the annual Indian Country Business Summit, one of my favorite procurement events each year. Hope to see you there!
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This is a month my office (which represents several different teams) gets excited for. The first week of March Madness is here, which means you may have found yourself being less productive than usual–don’t worry, that’s expected! But even during a time as captivating as the NCAA tournament, the world of government contracting doesn’t slow down.
In this week’s edition of the SmallGovCon Week in Review, a communications company has agreed to pay over $12 million to settle civil False Claims Act allegations, antitrust critics fear that a winner-take-all contract for the Defense Department’s cloud computing could help tech giant Amazon corner the government contract market, a construction company lost $40 million in four years in a scheme to illegitimately gain government contracts, and much more.
A San Diego communications company will pay more than $12 million to settle False Claims Act allegations regarding SBIR contracts. [www.justice.gov]
Amazon’s attempt to land a major Pentagon job has stoked some antitrust fears. [thehill.com]
A construction company owner fraudulently obtained set-aside contracts–but only gets probation. [post-gazette.com]
During Sunshine Week, senators cite issues with FOIA request backlog. [Federal News Radio]
Alliant 2 SB has been awarded–now comes the inevitable protest phase. [Washington Technology]
The Pentagon tells its leaders to talk more with contractors–but less with the press. [Government Executive]
One commentator says that the DoD’s cloud strategy stifles innovation. [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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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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The SBA has proposed rules to enable contractors to file protests with the SBA Office of Hearings and Appeals challenging the SDVOSB or VOSB status of a company included in the VA’s CVE VetBiz database. The same set of proposed rules would allow a contractor to appeal to OHA if the VA denies the contractor’s application for inclusion in the CVE database, or cancels an existing verification.
The proposed rules, once finalized, will offer important new protections for SDVOSBs and VOSBs and are the first official step in implementing Congress’s mandate that the SBA and VA consolidate their SDVOSB eligibility requirements.
The SBA’s proposed regulations were published in the Federal Register on September 28, 2017. The proposed rules fall into two broad categories: CVE protests and CVE appeals.
CVE Protests – Proposed Rules
The SBA proposes to give OHA jurisdiction to decide SDVOSB and VOSB eligibility protests for VA procurements. These rules don’t apply to SDVOSB protests for non-VA procurements, which will continue to be evaluated under the SBA’s existing rules.
Here are some of the highlights of the SBA’s proposed rules governing CVE Protests:
Who can file CVE Protests? The proposed rules allow “the Secretary of the VA, or his/her designee” to file what the SBA calls a “CVE Protest.” Additionally, if a small business is awarded a VA contract, “the contracting officer or an offeror” can file a CVE Protest.
When are CVE Protests due? The VA can file a CVE Protest at any time. If a protest is filed in connection with a VA contract, “[a]n offeror must file a CVE Protest within five business days of notification of the apparent awardee’s identity.” A contracting officer, on the other hand, “may file a CVE Protest at any time during the life of the VA contract.”
Where are CVE Protests filed? Protests by private parties must be filed with the appropriate contracting officer, who will refer the protest to OHA. Contracting officers and the VA may file protests directly with OHA.
What are the contents of a CVE Protest? A CVE Protest “must be in writing.” While there is no required format, the protest must contain the solicitation or contract number, if applicable, the name and contact information and signature of the protester and/or its attorney, and pecific allegations supported by credible evidence that the [protested] concern does not meet the eligibility requirements for inclusion in the CVE database.” OHA will dismiss a protest that fails to meet this “specificity” threshold.
When must the protested company respond? The protested concern, the VA, the contracting officer and “any other interested party” may respond to a protest or supplemental protest. The response is due “no later than 15 days from the date the protest or supplemental protest was filed with OHA.”
What is the burden of proof? Once OHA has determined that the protest is timely, specific and within OHA’s jurisdiction, “[t]he protested concern has the burden of proving its eligibility, by a preponderance of the evidence.”
What about discovery? Nope. “Discovery will not be permitted in CVE Protest proceedings.” However, “the Judge may investigate issues beyond those raised in the protest and may use other information or make requests for additional information to the protester, the protested concern, or VA.” OHA will only hold an oral hearing in “extraordinary” circumstances.
What happens if OHA sustains a CVE Protest? If OHA sustains a protest before award of a contract, the contracting officer cannot follow through with the award. If the protest is sustained after award, “the contracting officer shall either terminate the contract or not exercise the next option.” Additionally, the VA must immediately remove the company from the CVE database, and the company “may not submit an offer on a future VA procurement until the protested concern reapplies to the Vendor Information Pages Verification Program and has been reentered into the CVE database.”
Can OHA’s decision be appealed? No. OHA’s decision is “final agency action,” and can only be formally challenged in federal court. However, there is a process to request reconsideration of the decision. A request for reconsideration “must clearly show an error of fact or law in the decision.” An OHA judge “may also reconsider a decision on his or her own initiative.”
For those familiar with the SBA’s size, SDVOSB and WOSB protest processes, these rules will look rather familiar. Most of the proposed rules for the CVE Protest process don’t vary too much from that of SBA’s other protest processes. Perhaps the most significant difference is that CVE Protests will be decided directly by OHA rather than another SBA office. Under current law, size protests are decided by SBA Area Offices; WOSB and non-VA SDVOSB protests are decided by the SBA’s Director of Government Contracting. OHA serves an appellate function for these protests but will decide CVE Protests directly.
CVE Database Appeals – Proposed Rules
For years, veteran-owned firms have complained that they cannot appeal to an administrative judge if their CVE application is denied or cancelled. The SBA’s proposed rules would allow those companies to appeal directly to OHA.
Here are some highlights of the SBA’s proposal for CVE Appeals:
Who can file a CVE Appeal? According to the proposed rule, “[a] concern that has been denied verification of its CVE status or has had its CVE status cancelled may appeal the denial or cancellation to OHA.”
When are CVE Appeals due? A CVE Appeal must bee filed “within 10 business days of receipt of the denial or cancellation.” OHA will dismiss an untimely CVE Appeal.
Where are CVE Appeals Filed? CVE Appeals are filed directly with OHA. (The proposed rule, oddly, doesn’t seem to explicitly say so, but instead refers to another OHA regulation, 13 C.F.R. 134.204, regarding filing). Copies of the appeal must be served on the VA.
What are the contents of a CVE Appeal? Like a CVE Protest, a CVE appeal must be in writing, but there is “no required format.” However, the CVE appeal must contain: (1) a copy of the denial or cancellation and the date the appellant received it; (2) a statement of why the denial or cancellation is in error; (3) “any other pertinent information the Judge should consider,” and the contract information and signature of the appellant and/or its attorney.
Who can respond to a CVE Appeal? The VA may respond to a CVE Appeal. The VA has 15 days after OHA files a “notice and order” acknowledging the appeal in which to file a response.
What is the burden of proof? To win a CVE Appeal, the appellant has the burden of proving, by a preponderance of the evidence, that the denial or cancellation “was based on clear error of factor law.”
What about discovery? Like CVE Protests, there is no discovery in CVE Appeals. OHA will not hold oral hearings.
When is the decision due? OHA “shall decide a CVE Appeal, insofar as practicable, within 60 calendar days after close of the record.” The record closes on the date the VA’s response is due, meaning that OHA judges will attempt to issue their decisions within 75 days of acknowledging the appeal. But this isn’t a hard deadline.
What happens if OHA grants a CVE Appeal? If OHA grants a CVE Appeal, the VA “must immediately reinstate or include the appellant, as the case may be, in the CVE database.”
Can OHA’s decision be appealed? No. As is the case for CVE Protests, OHA’s decision is “final agency action,” and can only be formally challenged in federal court. However, there is a process to request reconsideration of the decision. A request for reconsideration “must clearly show an error of fact or law in the decision.” An OHA judge “may also reconsider a decision on his or her own initiative.”
What Happens Next
Don’t lose sight of the fact that these are proposed rules, not final rules. Until the rules become final, contractors won’t be able to file CVE Protests or CVE Appeals with OHA. And, of course, the final rules may vary from the proposed versions.
The public is invited to comment on the proposed rules. Comments are due by October 30, 2017. To comment, follow the instructions at the beginning of the Federal Register entry.
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As a general rule, the SBA is prohibited from accepting a solicitation into the 8(a) Business Development Program if the procuring agency previously expressed publicly a clear intent to award the contract as a small business set-aside.
On its face, this restriction seems clear. In practice, it can be anything but—the inquiry usually focuses on whether the agency’s prior intent was definitive enough to count.
In SKC, LLC, B-415151 (Nov. 20, 2017), GAO provided important clarity about this restriction.
In 2011, SKC was awarded a small-business set-aside contract by the Defense Intelligence Agency, for facility support services for DIA’s Directorate of Logistics Operations Center (“DLOC”). Before SKC’s contract ended in September 2016, DLA notified SKC that because of an anticipated change in acquisition strategy, DLA would issue SKC a bridge contract before recompeting the work. As SKC’s contract expired DLA, issued SKC a non-competitive bridge contract with a one-year base period and a single one-year option.
In early 2017, DLA held industry days with potential contractors to discuss upcoming competitions. At those industry days, DLA forecasted the follow-on DLOC award would be set-aside for small businesses. But DLA gave attendees an important caveat: its acquisition forecasts were tentative, and no final decision regarding the procurements had been made.
A couple of months later, however, DLA asked the SBA to accept the DLOC requirement as an 8(a) sole-source award to IKun, LLC. DLA identified the procurement as a new requirement, valued at over $20 million, which would be fulfilled under one base year and two one-year options. After the SBA accepted the requirement into the 8(a) Program, DLA advised SKC that it would not exercise the option under its bridge contract.
SKC then protested to GAO, challenging the validity of the sole-source award. According to SKC, DLA’s decision to procure the work under the 8(a) Program was contrary to its publicly-stated prior intent to award the contract to a small business.
Under the 8(a) Program’s prior intent restriction, the SBA is prohibited from accepting a procurement for an award as an 8(a) contract when
The procuring activity issued a solicitation for or otherwise expressed publicly a clear intent to award the contract as a small business set-aside [or to HUBZones, SDVOSBs, or WOSBs] prior to offering the requirement to SBA for award as an 8(a) Contract. However, the [SBA’s Associate Administrator/Business Development] may permit the acceptance of the requirement under extraordinary circumstances.
Because DLA told industry day attendees in early 2017 that the procurement might be issued as a small business set-aside, SKC asserted that the SBA and DLA violated this restriction.
GAO disagreed, based largely in part on the SBA’s feedback. That is, in response to the protest, GAO requested the SBA to weigh in on whether DLA had publicly expressed a clear intent to issue the solicitation to small businesses. The SBA said no, because DLA provided multiple disclaimers to industry day attendees that its acquisition plan was not final and was subject to change. Neither was there any pre-solicitation notice, synopsis, or solicitation issued for the work that indicated it would be set-aside for small businesses. In short, the SBA concluded that DLA’s statements were not definitive enough to count as a clear public intent.
Affording the SBA deference to interpret its own regulations, GAO agreed with the SBA’s analysis and denied the protest:
SKC has provided no basis for us to disagree with the SBA’s interpretation that 13 C.F.R. § 124.504(a) does not limit SBA’s ability to accept a procurement into the 8(a) program when a procuring agency does not issue a pre-solicitation notice, synopsis, or solicitation to procure the requirement as a small business set-aside, but simply states that the requirement will be issued as a set-aside as part of a forecast with multiple disclaimers that the information is subject to chain.
This decision provides important clarity to the 8(a) Program’s prior intent restriction. It’s not enough for the agency to tell offerors that a solicitation might be set-aside for small businesses; the agency’s intention must be more definitive.
Small businesses and 8(a) participants should take note of this decision given its potential impact to both programs. If you have any questions as to how it might impact your business, please give me a call.
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