On Friday, Steven wrote about the framework of the new SBA small business mentor-protégé program. As part of this significant program addition, SBA’s final rule includes details about the requirements a small business joint venture must satisfy in order to be qualified to perform a small business set-aside. This post will briefly discuss those requirements.
A quick disclaimer: as we have detailed previously on SmallGovCon, the SBA will closely evaluate a joint venture agreement in the case of a size protest, and omitting even one piece of required information can render a joint venture ineligible for award. Any joint venture agreement should be prepared and reviewed carefully, to ensure its compliance with the new regulations.
With that admonition in mind, the small business mentor-protégé joint venture requirements (to be set forth at 13 C.F.R. § 125.8) are very similar to the existing 8(a) joint venture requirements (which apply both to 8(a) mentor-protege joint ventures and to “non-mentor-protege” joint ventures for 8(a) contracts).
The regulatory requirements are very different for a joint venture between two small businesses, on the one hand, and a joint venture under the small business mentor-protege program, on the other. In the case of a joint venture between two or more businesses that each qualify as small, the agreement “need not be in any specific form or contain any specific conditions in order for the joint venture to qualify as a small business.” But for a small business mentor-protégé joint venture, the agreement must include provisions that meet the following criteria:
Purpose. Set forth the purpose of the joint venture.
Managing Venturer/Project Manager. Designate a small business as the managing venturer, and an employee of the managing venturer as the project manager. The individual identified as the project manager “need not be an employee of the small business at the time the joint venture submits an offer, but, if he or she is not, there must be a signed letter of intent that the individual commits to being employed by the small business if the joint venture is the successful offeror.” Importantly, “the individual identified as the project manager cannot be employed by the mentor and become an employee of the small business for purposes of performance under the joint venture.”
Ownership. State that, if the joint venture is a separate legal entity, it is at least 51% owned by the small business.
Profits. Distribute profits from the joint venture commensurate with the work performed, or in the case of a separate legal entity, commensurate with the ownership interests in the joint venture.
Bank Account. Provide for a special bank account in the name of the joint venture. The account “must require the signature of all parties to the joint venture or designees for withdrawal purposes.” All payments to the joint venture for performance on a set-aside contract will be deposited in the special bank account; all expenses incurred under the contract will be paid from the account.
Equipment, Facilities, and Other Resources. Itemize all major equipment, facilities, and other resources to be furnished by each venturer, along with a detailed schedule of the cost or value of such items. In a recent court decision, an 8(a) joint venture was penalized for providing insufficient details about these items—even though the contract in question was an IDIQ contract, making it difficult to provide a “detailed schedule” at the time the joint venture agreement was executed. Perhaps in response to that decision, the new regulations provide that “if a contract is indefinite in nature,” such as an IDIQ, the joint venture “must provide a general description of the anticipated major equipment, facilities, and other resources to be furnished by each party to the joint venture, without a detailed schedule of cost or value of each, or in the alternative, specify how the parties to the joint venture will furnish such resources to the joint venture once a definite scope of work is made publicly available.”
Parties’ Responsibilities. Specify the responsibilities of the venturers with regard to contract negotiation, source of labor, and contract performance, including ways that the parties will ensure that the joint venture will meet the performance of work requirements. Again, if the contract is indefinite, a lesser amount of information will be permitted.
Guaranteed Performance. Obligate all parties to the joint venture to ensure complete performance despite the withdrawal of any venturer.
Records. State that accounting and other administrative records of the joint venture must be kept in the office of the small business managing venturer, unless the SBA gives permission to keep them elsewhere. Additionally, the joint venture’s final original records must be retained by the small business managing venturer upon completion of the contract. These provisions, which were lifted essentially word-for-word out of the current 8(a) regulations, seem dated in the assumption that records will be kept in paper form; it instead would have been nice for the SBA to allow for more modern record-keeping, like a cloud-based records system that enables documents to be available in real-time to both parties.
Statements. Provide that quarterly financial statements showing cumulative contract receipts and expenditures (including salaries of the joint venture’s principals) must be submitted to the SBA not later than 45 days after each operating quarter of the joint venture. This language, which again was basically copied from the 8(a) regulations, doesn’t specify who might be a “joint venture principal” in a world in which populated joint ventures have been eliminated. The joint venture agreement must also state that the parties will submit a project-end profit-and-loss statement, including a statement of final profit distribution, to the SBA no later than 90 days after completion of the contract.
As noted, these requirements closely mirror existing requirements for an 8(a) mentor-protégé joint venture agreement. But at least one key difference exists: for a small business mentor-protégé joint venture agreement, the small business partner must self-certify as to the agreement’s compliance. The regulation states:
Prior to the performance of any contract set aside or reserved for small business by a joint venture between a protégé small business and a mentor authorized by § 125.9, the small business partner to the joint venture must submit a written certification to the contracting officer and SBA, signed by an authorized official of each partner to the joint venture, stating as follows:
The parties have entered into a joint venture agreement that fully complies with [the joint venture agreement requirements];
The parties will perform the contract in compliance with the joint venture agreement and with the performance of work requirements [set forth in the regulation].
Much like an 8(a) joint venture, moreover, a small business mentor-protégé joint venture must meet the applicable performance of work percentage set out in the regulations (at 13 C.F.R. § 125.6). Additionally, the small business partner to the joint venture perform at least 40% of the work performed by the joint venture; this work must be more than administrative or ministerial, so that the protégé member can gain substantive experience.
The regulation further requires the small business partner to issue performance of work reports to the SBA. These reports must describe how the small business is meeting or has met the performance of work requirements for each small business set-aside performed by the joint venture. The small business partner must submit these reports annually and at the completion of any contract.
The SBA’s new final rule, issued only today, provides new opportunities to increase small business participation in federal contracting. And though businesses hoping to participate in the new small business mentor-protégé program can look to the SBA’s existing programs as a guide, key differences between the programs warrant a close review of the new requirements. Follow SmallGovCon for more updates on this important rule.
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In a GAO bid protest, recovering costs after an agency takes corrective action turns on whether or not the agency unduly delayed the corrective action.
A recent GAO case shows that, in certain circumstances, an agency may be able to fight a protester almost to the bitter end, then take corrective action without necessarily having crossed the “unduly delayed” line.
In Evergreen Flying Services, Inc., B-414238.10 (Oct. 2, 2017), the Department of the Interior issued a solicitation in September of 2016, asking for private aircraft to help fight wildfires.
DOI wanted to hire up to 33 planes for four years, with an optional six-month extension. The idea was that the planes would be offered to the Bureau of Land Management exclusively for the 2017 fire season.
A month later, DOI received proposals from 15 firms. It evaluated offers and settled on six firms and 33 individual planes (firms could offer the use of multiple aircraft). DOI announced the awards in December 2016.
Evergreen Flying Services, Inc., a small business from Rayville, Louisiana, was one of the unsuccessful offerors. It filed a GAO bid protest the day after Christmas. Four days later, it filed a supplemental protest. Evergreen challenged the agency’s evaluation of its proposal, the best value determination, and the availability of the awardee’s aircraft.
In January 2017, before submitting an agency report, DOI chose to take corrective action. Over the next two months, it reevaluated proposals and increased Evergreen’s ratings, but still did not select it for award. Evergreen protested again, on March 3.
This time DOI fought the protest. It filed a request for dismissal (which GAO denied) and then filed an agency report on April 5. The report included each awardee’s complete schedule of services/supplies, aircraft questionnaires, and DOI’s evaluation sheets for each awardee.
Evergreen poured through the documents, seized on some issues, and filed a supplemental protest (and comments on the agency report) on April 17. The supplemental protest, for the first time, alleged flaws relating to the other offerors and the agency’s evaluation of their proposals, including minor but technical flaws such as unsigned or typewritten names instead of signatures, and reliance on supporting documentation that was outside the solicitation’s five-year window.
GAO asked for a supplemental agency report. Two days before it was due, DOI chose to take corrective action by cancelling the solicitation altogether. DOI said that the fire season was rapidly approaching and it did not have time to reevaluate proposals again. It also said it could acquire the planes it needed through other means: most of the offerors, including Evergreen, had “on-call” contracts with DOI for fire suppression services.
GAO dismissed Evergreen’s latest protests on May 4.
Evergreen and other offerors then protested the decision to cancel the solicitation and lost. The result, therefore, of three protests, two supplemental protests, one agency report, one request for dismissal, and two corrective actions, was zero contracts.
By then, Evergreen (which was using DC-based government contracts lawyers) had, no doubt, spent a significant amount of money on legal fees. It filed a request for a recommendation of costs, arguing that the agency had unduly delayed taking corrective action in the face of a clearly meritorious protest. It had been 235 days (nearly eight months) since the solicitation came out, and 130 days since Evergreen’s initial protest.
GAO wrote that, when a procuring agency takes corrective action in response to a protest, “our Office may recommend reimbursement of protest costs where, based on the circumstances of the case, we determine that the agency unduly delayed taking corrective action in the face of a clearly meritorious protest, thereby causing the protester to expend unnecessary time and resources to make further use of the protest process in order to obtain relief.” A protest is “clearly meritorious” where “a reasonable agency inquiry into the protester’s allegations would reveal facts showing the absence of a defensible legal position.” And, with respect to promptness, “we review the record to determine whether the agency took appropriate and timely steps to investigate and resolve the impropriety.”
Because the better part of a year had passed during which time the agency fought the protester by filing a motion to dismiss (which it lost) and an agency report, Evergreen probably thought it had a good case for costs, at least on the “unduly delayed” side of the ledger.
But that is not the way GAO saw it. GAO said that the measure of undue delay is not whether the corrective action was prompt with respect to the protester’s initial grounds, but rather whether the corrective action was prompt with respect to the first “clearly meritorious” grounds of protest.
Thus, in order to recover costs back to the December protest and initial corrective action, “the central consideration . . . is whether Evergreen’s December protest included clearly meritorious protest ground that the agency expressly committed to rectify, but failed to, such that the protester was forced to continue its bid protest litigation to get relief.”
GAO said that the initial December 2016 protests did not include “any protest grounds that we consider clearly meritorious on their face.” As for the second protest, which again DOI fought hard against, GAO said that it was not necessarily meritorious either, just that the “argument required further record development and response from the agency to determine whether the protest ground had merit.”
Finally, GAO said that because the final corrective action took place two days before the supplemental agency report was due, the agency did not unduly delay taking it—adding that the arguments brought after reviewing the awardees’ and the evaluation documents may not have had merit.
In other words, DOI’s corrective action was not delayed. In fact, it was two days early. GAO denied the request for costs. GAO noted that the purpose of recommending costs is not to reward a protester for winning. It is to “encourage agencies to take prompt action to correct apparent defects in competitive procurements.”
Evergreen Flying Service shows that just because a protester “wins” does not mean GAO will recommend an award of costs, even when the protest process takes a long time. In our practice, we often suggest that clients assume that protest costs won’t be reimbursed, even if there is a corrective action or “sustain” decision, and consider an award of costs to be a potential bonus that may (or may not) accompany a successful protest. With the twin hurdles of “undue delay” and “clearly meritorious” to surmount, a recovery of costs is not a given.
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Federal contractors frequently find themselves in the position of needing to establish their past performance credentials to secure future contracts – the government’s form of a reference check. The government often performs these reference checks by requesting completed past performance questionnaires, or PPQs, which the government uses as an indicator of the offeror’s ability to perform a future contract.
But what happens when a contractor’s government point of contact fails to return a completed PPQ? As a recent GAO decision demonstrates, if the solicitation requires offerors to return completed PPQs, the agency need not independently reach out to government officials who fail to complete those PPQs.
By way of background, FAR 15.304(c)(3)(i) requires a procuring agency to evaluate past performance in all source selections for negotiated competitive acquisitions expected to exceed the simplified acquisition threshold. The government has many means at its disposal to gather past performance information, such as by considering information provided by the offeror in its proposal, and checking the Contractor Performance Assessment Reports System, commonly known as CPARS.
PPQs are one popular means of obtaining past performance information. A PPQ is a form given to a contracting officer or other official familiar with a particular offeror’s performance on a prior project. The official in question is supposed to complete the PPQ and return it–either to the offeror (for inclusion in the proposal) or directly to the procuring agency. Among other advantages, completed PPQs can allow the agency to solicit candid feedback on aspects of the offeror’s performance that may not be covered in CPARS.
But the potential downside of PPQs is striking: the FAR contains no requirement that a contracting official respond to an offeror’s request for completion of a PPQ or similar document within a specific period (or at all). Contracting officials are busy people, and PPQ requests can easily fall to the bottom of a particular official’s “to-do” list. And procuring agencies sometimes contribute to the problem by developing lengthy PPQs that can be quite time-consuming to complete. For example, in a Google search for “past performance questionnaire,” the first result (as of the date of this blog post) is a NASA PPQ clocking in at 45 questions over 11 pages. A lengthy, complex PPQ like that one almost begs the busy recipient to ignore it.
That brings us to the recent GAO bid protest, Genesis Design and Development, Inc., B-414254 (Feb. 28, 2017). In Genesis Design, GAO denied a protest challenging the rejection of an offeror’s proposal where the offeror failed to adhere to the terms of the solicitation requiring offerors to submit three PPQs completed by previous customers.
The protest involved the National Park Service’s request for the design and construction of an accessible parking area and ramp at the Alamo Canyon Campground in Ajo, Arizona. The solicitation required offerors to provide three completed PPQs from previous customers to demonstrate that the offerors had successfully completed all tasks related to the solicitation requirements. The solicitation provided the Park Service with discretion to eliminate proposals lacking sufficient information for a meaningful review. The Park Service was to award the contract to the lowest-priced, technically acceptable offeror.
Genesis Design and Development, Inc. submitted a proposal. However, the PPQs Genesis provided with its proposal had not been completed by Genesis’ prior customers. Instead, the PPQs merely provided the contact information of the prior customers, so that the Park Service could contact those customers directly.
The Park Service found Genesis’ proposal was technically unacceptable, because Genesis failed to include completed PPQs. The Park Service eliminated Genesis from the competition and awarded the contract to a competitor.
Genesis filed a GAO bid protest challenging its elimination. Genesis conceded that the PPQs had not been completed by its past customers, but stated that it “reasonably anticipated that the agency would seek the required information directly from its clients.” Genesis contended that it “is often difficult to obtain such information from its clients because they are often too busy to respond in the absence of an inquiry directly from the acquiring activity.”
GAO wrote that “an offeror is responsible for submitting an adequately written proposal and bears the risk that the agency will find its proposal unacceptable where it fails to demonstrate compliance with all of a solicitation’s requirements.” Here, “the RFP specifically required offerors to submit completed PPQs,” but “Genesis did not comply with the solicitation’s express requirements.” Accordingly, “the agency reasonably rejected Genesis’ proposal.” GAO denied Genesis’ protest.
GAO’s decision in Genesis Design should serve as an important warning for offerors: where the terms of a solicitation require an offeror to return completed PPQs from its previous customers, the offeror cannot assume the procuring agency will contact the customers on the offeror’s behalf. Instead, it is up to the offeror to obtain completed PPQs.
In our view here at SmallGovCon, the Genesis Design decision, and other cases like it, reflect a need for a FAR update. After all, Genesis was exactly right: contracting officers are sometimes too busy to prioritize responding to PPQs. It doesn’t make good policy sense for the results of a competitive acquisition to hinge on whether a particular offeror is lucky enough to have its customers return its PPQs, instead of on the merits of that offeror’s underlying past performance.
Policymakers could address this problem in several ways, such as by imposing a regulatory requirement for contracting officials to respond to PPQ requests in a timely fashion, or by prohibiting procuring officials from requiring that offerors be responsible for obtaining completed PPQs. Hopefully cases like Genesis Design will spur a regulatory change sometime down the road. For now, offerors bidding on solicitations requiring the completion of PPQs must live with the uncertainty of whether the government will reject the offeror’s proposal as technically unacceptable due to the government’s failure to complete a PPQ in a timely manner.
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The SBA is processing the typical “All Small” Mentor-Protege Program application in a lightning-fast eight days.
Speaking at the National 8(a) Association 2017 Small Business Conference, John Klein, the SBA’s Associate General Counsel for Procurement Law, confirmed that All Small mentor-protege agreements are being processed very quickly. I was in the audience this morning for Mr. Klein’s comments, which also included many other interesting nuggets on the SBA’s new All Small Mentor-Protege Program.
Mr. Klein’s comments included the following:
Specificity of Mentor-Protege Agreements. When it comes to processing All Small mentor-protege agreements, the SBA is looking for specificity in terms of the assistance that the mentor will provide the protege. The SBA wants to see the sort of detail that can be tracked and evaluated to determine whether it was actually provided (and, if so, whether it was successful). Mr. Klein provided an example: a mentor committing to perform a certain type of training for a specific number of hours.
Focus on Protege. The mentor-protege agreement should focus on the benefits that the arrangement will provide to the protege. The SBA knows that joint venturing is an important reason why mentors and proteges alike pursue mentor-protege arrangements (and joint venturing should be mentioned in the agreement if the parties will pursue it), but joint venturing can’t be the primary focus of a successful mentor-protege agreement.
Equity Interest in Protege. Mr. Klein acknowledged that the regulations allow the mentor to obtain up to a 40% interest in the protege, but he cautioned small businesses to think carefully before giving up a large equity stake in the company. If the parties do agree to allow the mentor to take an equity interest, the mentor-protege agreement must demonstrate that doing so was beneficial to the protege. The equity interest cannot appear to primarily benefit the mentor. Although the mentor is not required to divest its equity interest upon the expiration of the mentor-protege agreement, the parties should be very careful that the equity interest doesn’t result in an affiliation once the mentor-protege agreement expires.
Secondary NAICS Codes. Mr. Klein confirmed that a company looking to be mentored in a second NAICS code must demonstrate that it has previously done work in that NAICS code. The All Small Mentor-Protege Program allows a company to receive mentoring in a secondary NAICS code, but is not intended for a company that has outgrown its primary NAICS code and is merely search for any NAICS code in which it is still small.
Second Protege. If a mentor wants a second (or third) concurrent protege, it is up to the mentor and protege–in the second or third application, if possible–to demonstrate that the additional protege is not a competitor of the first. Mr. Klein suggested that there are various ways to do this, such as showing that the second protege is in a different geographic area, industry, or niche than the first.
The All Small Mentor-Protege Program continues to draw a great deal of interest from large and small contractors alike. It’s very helpful to hear from SBA officials like Mr. Klein exactly what the SBA is looking for when it processes applications. And of course, it’s wonderful that processing is currently going so quickly. Here’s hoping that’s one contracting trend that continues.
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An SDVOSB set-aside contract was void–and unenforceable against the government–because the prime contractor had entered into an illegal “pass-through” arrangement with a non-SDVOSB subcontractor.
In a recent decision, the Civilian Board of Contract Appeals held that a SDVOSB set-aside contract obtained by misrepresenting the concern’s SDVOSB status was invalid from its inception; therefore, the prime contractor had no recourse against the government when the contract was later terminated for default.
Bryan Concrete & Excavation, Inc., CBCA 2882, 2016 WL 4533096 involved a U.S Marine Corps veteran with a 100% disability rating, Jerry Bryan. Mr. Bryan owned and operated a construction company, Bryan Concrete & Excavation, Inc., which he started in 1999. In 2006, BCE was hired as a subcontractor on a number of projects overseen by Arthur Wayne Singleton.
After learning of Mr. Bryan’s service disabled status, Mr. Singleton urged BCE to start bidding on SDVOSB set-aside contracts. Mr. Singleton offered to assist BCE in getting qualified as an SDVOSB, bidding on federal projects, and managing those projects. During this time, Mr. Bryan and Mr. Singleton entered into a teaming agreement, which stipulated Mr. Singleton would perform all of work on the set-aside contracts for BCE and BCE would pay Singleton for the direct costs and overhead plus 90 percent of the anticipated gross profit. Despite the impermissible pass-through arrangement, BCE self-certified in the VA’s SDVOSB database (this was before the formal verification process required today).
In 2010, the VA issued an SDVOSB set-aside solicitation for chiller and air handling equipment upgrades. BCE submitted a bid, which was alleged to contain a forgery of Mr. Bryan’s signature by Mr. Singleton. Further complicating matters, Mr. Singleton misrepresented himself to the VA as Mr. Bryan, during discussions of the proposal. BCE was the awarded the contract.
A number of performance issues hampered the of the contract and the VA ultimately terminated the contract default. BCE filed an appeal with the CBCA, seeking to overturn the termination.
During the course of the appeal, the VA learned for the first time that the teaming agreement between Mr. Singleton and Mr. Bryan compromised BCE’s eligibility as an SDVOSB. The VA subsequently moved for the CBCA to grant summary relief for the VA on the ground that BCE’s contract was void from the start and therefore unenforceable because it was obtained by misrepresenting BCE’s SDVOSB eligibility status to the VA.
As the CBCA explained, for the VA to prevail on its motion, it had to demonstrate that BCE had obtained the contract by knowingly making a false statement. The CBCA concluded the VA had met its burden because BCE had received a VA contract by misrepresenting its SDVOSB status. Since the misrepresentation occurred before the contract was awarded, the entire award was tainted from the beginning and thus void ab initio—from the beginning.
BCE countered that even if the contract was void from the start, subsequent dealings with the VA had created implied contracts that BCE had rights under. The CBCA was not impressed by these arguments and concluded:
While BCE may believe that it has the right to enforce a new agreement that ‘adopts the terms of the agreement that has been deemed void,’ whether through equitable estoppel, promissory estoppel, or other legal theories, the law does not work that way. ‘No tribunal of law will lend its assistance to carry out the terms of an illegally obtained contract.’
BCE’s case highlights just how little tolerance there is for concerns who misrepresent themselves to gain SDVOSB set-aside contracts. Not only can the government impose fines, jail terms, and other penalties, but the underlying contract can be considered void from the outset.
Oh, and speaking of jail time–Mr. Singleton was sentenced to two years in prison back in 2013.
Ian Patterson, a law clerk with Koprince Law LLC, was the primary author of this post.
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You’ve hit send on that electronic proposal, hours before the deadline and now you can sit back and feel confident that you’ve done everything in your power – at least it won’t be rejected as untimely – right?
Not so fast. If an electronically submitted proposal gets delayed, the proposal may be rejected–even if the delay could have been caused by malfunctioning government equipment. In a recent bid protest decision, the GAO continued a recent pattern of ruling against protesters whose electronic proposals are delayed. And in this case, the GAO ruled against the protester even though the protester contended that an agency server malfunction had caused the delay.
Western Star Hospital Authority, B-414216.2 (May 18, 2017) involved an Army RFP for emergency medical services. The RFP required that proposals be submitted no later than 4:00 pm., EST on January 30, 2017, to the Contracting Officer’s email address.
The RFP incorporated FAR 52.212-1 (Instructions to Offerors-Commercial Items). Paragraph (f)(2) of that clause provides that any “offer, modification, revision, or withdrawal of an offer received at the Government office designated in the solicitation after the exact time specified for receipt of offers is ‘late’ and will not be considered.”
On the date the proposals were due, Western Star emailed four proposal documents to the CO’s email address. The emails were sent at 2:43 p.m., 2:57 p.m., 3:01 p.m. and 3:06 p.m., well before the 4:00 p.m. deadline. For reasons unknown, the emails did not arrive at the initial point of entry to the Government infrastructure until after 6:00 p.m., well after the deadline. The Army rejected the proposal as late.
Western filed a GAO bid protest challenging the Army’s decision. Western argued that it was “guilty of no fault” and that it was “completely unfair and unreasonable to reject its bid because of factors beyond its control.”
Western argued that the agency’s servers were “not accessible,” and furnished a mail log from its service provider supporting its position. The Army disputed Western’s position. The Army provided a statement from its Information Assurance Manager, who said that the emails were “delayed by the protester’s servers” and that the delay “was not the fault or responsibility of the Government, which has no control over commercial providers used by the Protester.”
The GAO declined to resolve the question of whose servers had malfunctioned. Instead, the GAO indicated that Western’s proposal would be considered late regardless of whose equipment had malfunctioned. Citing its own prior authority, the GAO wrote, “[w] have repeatedly found that it is an offeror’s responsibility to ensure that an electronically submitted proposal is received by–not just submitted to–the appropriate agency email address prior to the time set for closing.” Because Western’s proposal “was not received at the agency’s servers until after the deadline for receipt of proposals,” the proposal was late.
The GAO also cited FAR 52.212-1(f)(2)(i)(A), which states that a late proposal, received before award, may be accepted if it was transmitted electronically and received at the initial point of entry to the Government infrastructure no later than 5:00 p.m. one working day prior to the due date. But Western did not submit its proposal by 5:00 one working day prior to the due date, so it could not avail itself of that exception.
The GAO declined to discuss any of the other exceptions to FAR 52.212-1(f)(2), such as the important “government control” exception, stating that the exceptions were “not pertinent” to the issue in Western. As we’ve written before, the Court of Federal Claims disagrees with the GAO when it comes to the question of whether these exceptions apply to electronic proposals, and we think the Court has the better position.
For now, though, Western Star Hospital Authority stands as an important warning to contractors who submit proposals electronically. Under the GAO’s current precedent, a late-submitted electronic proposal is late–even if the lateness was due to malfunctioning government equipment. The only exception recognized by the GAO under FAR 52.212-1 is the “5:00 p.m. one working day prior” exception, and contractors would be wise to take that into account when determining when to submit electronic proposals.
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The period of performance under a government contract, measured in “days,” meant calendar days–not business days, as the contractor contended.
In a recent decision, the Armed Services Board of Contract Appeals applied the FAR’s general definition of “days” in holding that a contractor had not met the contract’s performance schedule.
The ASBCA’s decision in Family Entertainment Services, Inc., ASBCA No. 61157 (2017) involved an Army contract for grounds maintenance services at Fort Campbell, Kentucky and the surrounding area. The contract was awarded to Family Entertainment Services, Inc. in May 2015.
(Side note: Family Entertainment Services apparently performed the contract under a “doing business as” name; IMC. That was probably a good call on the contractor’s part, because “Family Entertainment Services” doesn’t exactly conjure up mental images of landscaping).
The government subsequently issued a task order to FES. The task order specified that mowing services would be completed every 14 days. However, FES was unable to consistently provide the mowing services within 14 calendar days.
In August 2015, the government terminated a portion of the contract for convenience. FES then filed a claim for $81,692.34. FES argued, in part, that the government had not properly computed the performance schedule, which FES said should have been measured in business days, not calendar days. The Contracting Officer denied the claim, and FES appealed to the ASBCA.
At the ASBCA, FES argued that the contract’s use of the term “days” was ambiguous, and should be meant to refer to business days. The ASBCA disagreed.
The ASBCA noted that the contract included FAR 52.212-4 (Contract Terms and Conditions–Commercial Items). That clause incorporates FAR 52.202-1 (Definitions), which states, in relevant part: “[w]hen a solicitation provision or contract clause uses a word or term that is defined in the Federal Acquisition Regulation (FAR), the word or term has the same meaning as the definition in FAR 2.101, in effect at the time the solicitation was issued . . . .”
FAR 2.101 succinctly says: “Day means, unless otherwise specified, a calendar day.”
Applying the FAR provisions in question, the ASBCA wrote that “there is only one reasonable way to interpret the contract.” FES’s “opinion that ‘day’ should mean ‘work day’ is not a reasonable interpretation of the contract.”
The ASBCA denied the appeal.
The definition of “day” can make all the difference when it comes to various deadlines under which contractors must operate. The FAR 2.101 definition doesn’t apply in every setting. For example, FAR 33.101 includes some important nuances when it comes to protests and claims. And, of course, the contractor and government can always contractually agree to a different definition, including a definition based on business days.
That said, oftentimes there is no other relevant FAR provision, and no agreed-upon contractual definition. In those cases, as Family Entertainment Services indicates, the definition in FAR 2.101 will likely apply–and that means calendar days.
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Yesterday was a huge victory for SDVOSBs and VOSBs, as the Supreme Court unanimously ruled that the VA’s “rule of two” is mandatory, and applies to all VA procurements – including GSA Schedule orders.
The Kingdomware decision has drawn news coverage and discussion from across the country. This special Kingdomware edition of the SmallGovCon Week In Review collects some of the many articles on this important precedent. Enjoy!
SmallGovCon – Victory! SDVOSBs Win In Kingdomware Supreme Court Decision
The Hill – Justices side with veteran-owned small business over VA
SCOTUSblog – Opinion analysis: Unanimous Court hands victory to veterans in contracting dispute
Georgia Tech Procurement Assistance Center – Supreme Court unanimously rules in favor of VOSBs in case involving the VA’s use of GSA Schedule contracts
VETLIKEME – We Won! We Won! Supreme Court Upholds Vet Preference in Kingdomware
Federal Times – Supreme Court rules against VA in disabled vets contract dispute
USA Today – Veteran-owned businesses win at Supreme Court
PBS – Justices rule against VA in disabled vets contract dispute
Jurist – Supreme Court rules for veteran-owned business
Courthouse News Service – Veteran-Owned Business Wins High Court Reversal
The Washington Post – High court says law requires more contracts for veteran-owned small business
RT – VA violated disabled vets law, deprived contract to vet owned business – Supreme Court
Law360 (subscription required) – High Court VA Ruling Gives Small Biz Big Opportunities
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The SBA has published a list of active “All Small” mentor-protege agreements. The list, which is available on the SBA’s website, is dated April 5, 2017. It’s not clear how often the SBA intends to update the list.
The April 5 list reveals that there are approximately 90 active All Small mentor-protege agreements, covering a wide variety of primary industry classifications. All major socioeconomic categories (small business, 8(a), SDVOSB, HUBZone, EDWOSB and WOSB) are represented.
There’s no reason why mentor-protege pairings should be a secret. Kudos to the SBA for publishing the list, which will be useful to contracting officers and industry alike (as well as those of us who are simply curious by nature).
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Populated joint ventures will no longer be permitted in the SBA’s small business programs, under a new regulation set to take effect on August 24, 2016.
The SBA’s major new rule, officially issued today in the Federal Register, will be best known for implementing the long-awaited small business mentor-protege program. But the rule also makes many other important changes to the SBA’s small business programs, including the elimination of populated joint ventures.
Under current law, a joint venture can be either populated or unpopulated. A populated joint venture acts like an actual operating company: it brings employees onto its payroll, and performs contract using its own employees. An unpopulated joint venture, on the other hand, does not use its own employees to perform contracts. Instead, an unpopulated joint venture serves as a vehicle by which the joint venture’s members can collectively serve as the prime contractor, with each joint venture member performing work with its own employees.
The SBA’s new regulation changes the definition of a joint venture to exclude populated entities. The revised regulation, which will appear in 13 C.F.R. 121.1o3(h), defines a joint venture, in relevant part, as follows:
For purposes of this provision and in order to facilitate tracking of the number of contract awards made to a joint venture, a joint venture: must be in writing and must do business under its own name; must be identified as a joint venture in the System for Award Management (SAM); may be in the form of a formal or informal partnership or exist as a separate limited liability company or other separate legal entity; and, if it exists as a formal separate legal entity, may not be populated with individuals intended to perform contracts awarded to the joint venture (i.e., the joint venture may have its own separate employees to perform administrative functions, but may not have its own separate employees to perform contracts awarded to the joint venture).
In its commentary explaining the change, the SBA focused on joint ventures between mentors and proteges, both in the 8(a) mentor-protege program and the SBA’s new small business mentor-protege program. The SBA stated that “a small protege firm does not adequately enhance its expertise or ability to perform larger and more complex contracts on its own in the future when all the work through a joint venture is performed by a populated separate legal entity.” SBA further explained:
If the individuals hired by the joint venture to perform the work under the contract did not come from the protege firm, there is no guarantee that they would ultimately end up working for the protege firm after the contract is completed. In such a case, the protege firm would have gained nothing out of that contract. The company itself did not perform work under the contract and the individual employees who performed work did not at any point work for the protege firm.
Although the SBA’s commentary focused almost exclusively on mentor-protege joint ventures, the regulatory change appears in the SBA’s size regulations, which apply both inside and outside of the new small business mentor-protege program. It appears, therefore, that populated joint ventures will not only be impermissible for mentor-protege joint ventures, but will also be impermissible for joint ventures between multiple small businesses.
In my experience, most small government contractors already prefer unpopulated joint ventures, largely because of the administrative inconveniences associated with populating a limited-purpose entity like a joint venture. Nevertheless, a not-insignificant minority has long preferred the populated joint venture form. Come August 24, 2016, those contractors will have to say goodbye to the possibility of forming new populated joint ventures for set-aside contracts.
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An incumbent contractor won a protest at GAO recently where it argued that the awardee’s labor rates were too low, because they were lower than the rates the incumbent itself was paying the same people.
GAO faulted the agency for concluding that the awardee’s price was realistic without checking the proposed rates against the incumbent rates. In other words, GAO told the agency to start at the obvious place—the compensation of the current employees.
The decision in SURVICE Engineering Company, LLC, B-414519 (July 5, 2017) involved a price realism analysis of rates proposed for workers to provide engineering, program management, and administrative services at Eglin Air Force Base. (Steve Koprince blogged about the unequal evaluation component of this case here.)
The solicitation called for a fixed-price labor-hour contract and required offerors to submit a professional compensation plan. The Air Force said it would evaluate the plan pursuant to FAR 52.222-46, which includes a price realism component.
Price realism, for the uninitiated, is an evaluation of whether an offeror’s price is too low. In the context of a fixed-price labor hour contract like the Air Force solicitation, “this FAR provision anticipates an evaluation of whether an awardee understands the contract requirements, and has proposed a compensation plan appropriate for those requirements.”
The Air Force initially concluded that the price proposed by Engineering Research and Consulting Inc., or ERC, was too low, comparing the price to “Government estimates.” But after discussions and revisions, the agency decided that the revised salary ranges were acceptable. The Air Force awarded the contract to ERC.
The protester, SURVICE Engineering Company, LLC, as the incumbent, obviously knew what it was currently paying the employees who were doing the work. SURVICE figured that the only way ERC could have proposed such a low price was to slash compensation. In fact, ERC had proposed exactly that, but still said it would retain many of the incumbent personnel. (GAO has previously noted that proposing to capture incumbents but pay lower rates brings up obvious price realism concerns.)
SURVICE argued that the evaluation was unreasonable because the agency did not evaluate the complete plan, did not compare the plan to incumbent rates, and still found ERC’s proposal acceptable.
GAO agreed, stating that “the record is silent as to whether, in the end, any of ERC’s rates were lower than incumbent rates but nevertheless acceptable to the Air Force.”
It concluded, “the Air Force did not reasonably compare ERC’s salaries to incumbent salaries, a necessary step to determine whether the proposed salaries are lower than incumbent salaries. Accordingly, we find that the agency failed to reasonably evaluate whether ERC offered ‘lowered compensation for essentially the same professional work,’ as envisioned by FAR provision 52.222-46. We therefore sustain this aspect of [SURVICE]’s protest.”
SURVICE won this aspect of the protest because GAO faulted the Air Force for not taking an obvious step, but it is also a good reminder that seeking to underbid the competition by slashing incumbent pay rates can raise significant price realism concerns.
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In its past performance evaluation, an agency typically can consider the past performance of an offeror’s affiliate, so long as the offeror’s proposal demonstrates that the resources of the affiliate will affect contract performance.
But, as demonstrated in a recent GAO decision involving an Alaska Native Corporation subsidiary, ordinarily there is no requirement that an agency consider an affiliate’s past performance. In other words, unless the solicitation speaks to the issue, the agency’s consideration of an affiliate’s past performance is optional.
The GAO’s decision in Eagle Eye Electric, LLC, B-415562, B-415562.3 (Jan. 18, 2018) involved a Social Security Administration solicitation for support services at the National Records Center. The SSA issued the solicitation as a competitive set-aside for participants in the 8(a) Program.
The solicitation called for a best-value tradeoff considering three factors: experience, past performance, and price. With respect to experience, offerors were to provide a description of up to three contracts that demonstrated relevant experience. Under the past performance factor, offerors were to have references complete and submit questionnaires for each reference cited in the experience section of the proposal. The solicitation did not state whether the SSA would consider the experience of an offeror’s corporate affiliates.
Eagle Eye Electric, LLC submitted a proposal. Eagle Eye is a subsidiary of Bering Straits Native Corporation, an ANC.
In its proposal, Eagle Eye submitted information for three contracts. Eagle Eye was not involved in the performance of any of the three. Instead, these contracts had been performed by Eagle Eye’s parent company, Bering Straits, and other subsidiaries of Bering Straits. Eagle Eye wrote that these companies were “committed to provide contract performance advice, assistance and resources” in the performance of the SSA contract.
The SSA did not consider the past performance of Eagle Eye’s parent and subsidiary companies. The agency assigned Eagle Eye a “not similar” rating for its experience and “neutral” for past performance. The SSA awarded the contract to a competitor, which was rated “very similar” for experience and “very good” for past performance, but proposed a price more than $6 million more than Eagle Eye’s.
Eagle Eye filed a GAO bid protest. Eagle Eye argued that it was improper for the agency to fail to consider the experience and past performance of its affiliates. Eagle Eye pointed out that it had submitted statements from each affiliate, stating that the affiliate was committed to assisting Eagle Eye perform the contract. According to Eagle Eye, the agency therefore was required to evaluate the experience and past performance of each affiliate.
The GAO wrote that “[a]n agency may consider the experience or past performance of an offeror’s parent or affiliated company where, among other things, the proposal demonstrates that the resources of the parent or affiliate will affect contract performance, and there is no solicitation provision precluding such consideration.” But “[t]here is, however, no requirement that they do so.”
In this case, “the solicitation did not require the agency to consider the experience and past performance of Eagle Eye’s affiliate concerns and therefore, the agency was under no obligation to do so.”
The GAO denied Eagle Eye’s protest.
For many government contractors (including those owned by ANCs, Indian Tribes, and NHOs), the use of affiliated companies’ past performance is commonplace. And in many cases, agencies accept such experience and past performance, provided that the affiliated companies’ resources will affect contract performance.
But as the Eagle Eye Electrical protest demonstrates, unless the solicitation says otherwise, an agency is not required to consider the past performance or experience of an offeror’s affiliates. Where, as here, a solicitation is silent about how such past performance and experience will be evaluated, offerors would be wise to pose a question, if possible, during a pre-proposal Q&A, rather than assuming that the agency’s silence means that such past performance and experience will be considered.
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The U.S. Small Business Administration, Office of Hearings and Appeals recently affirmed–for now–its narrow reading of the so-called interaffiliate transactions exception.
In a recent size appeal decision, Newport Materials, LLC, SBA No. SIZ-5733 (Apr. 21, 2016), OHA upheld a 2015 decision in which OHA narrowly applied the exception, holding that interaffiliate transactions count against a challenged firm’s annual receipts unless three factors are met: 1) the concerns are eligible to file a consolidated tax return; 2) the transactions are between the challenged concern and its affiliate; and 3) the transactions are between a parent company and its subsidiary.
The Newport Materials size appeal involved an Air Force IFB for the repair/replacement of roadways, curbing and sidewalks. The Air Force issued the IFB as a small business set-aside under NAICS code 237310 (Highway, Street, and Bridge Construction), with a corresponding $36.5 million size standard.
After opening bids, the Air Force announced that Newport Materials, LLC was the apparent awardee. A competitor then filed a size protest challenging Newport Materials’ small business eligibility.
The SBA Area Office determined that Newport Materials was 100% owned by Richard DeFelice. Mr. DeFelice also owned several other companies, including Newport Construction Corporation. Mr. DeFelice had previously owned 100% of Four Acres Transportation, Inc. However in January 2015, Mr. DeFelice transferred his interest in Four Acres to Newport Construction. Therefore, Four Acres was a wholly-owned subsidiary of Newport Construction. Four Acres’ entire business apparently consisted of performing payroll activities for Newport Construction.
In evaluating Newport Materials’ size, the SBA Area Office added the revenues of Newport Construction, which was affiliated due to Mr. DeFelice’s common ownership. The SBA Area Office then considered whether to add the revenues of Four Acres, as well. Newport Materials argued that Four Acres’ revenues should be excluded under the interaffiliate transactions exception in order to prevent unfair “double counting” of the Newport Construction’s revenues.
The SBA Area Office disagreed. Citing the 2015 OHA decision, Size Appeals of G&C Fab-Con, LLC, SBA No. SIZ-5649 (2015), the Area Office held that Four Acres’ revenues could not be excluded under the interaffiliate transactions exception. The Area Office found that “Four Acres and Newport Construction are legally prohibited from filing a consolidated tax return because they are both S Corporations.” Additionally, “the exclusion applies only to transactions between the challenged firm and an affiliate, not to transactions among affiliates of the challenged firm, as is the case here because [Newport Materials] is not a party to the transactions.” And finally, because the transactions in question happened before January 2015, “Newport Construction and Four Acres were not parent and subsidiary when the transactions occurred . . ..”
Newport Materials filed an appeal with OHA, arguing that previous OHA decisions, including G&C Fab-Con, were distinguishable and should not govern the outcome in this case. Newport Materials also argued that OHA’s narrow interpretation of the interaffiliate transactions exception was bad public policy.
In a brief opinion, OHA disagreed, holding that there was “no basis to distinguish the instant case from OHA precedent.” It concluded by rejecting Newport Materials’ policy arguments as beyond OHA’s purview: “Arguments as to which policy objectives should, ideally, be reflected in SBA regulations are beyond the scope of the OHA’s review, and should instead be directed to SBA policy officials.”
Those policy officials’ ears must have been burning. As Steve Koprince wrote in this space recently, SBA issued a Policy Statement on May 24, 2016 indicating it intends to broadly apply the interaffiliate transactions exception moving forward and specifically will not require concerns to be eligible to file a consolidated tax return. The policy statement said that “effective immediately” the exception will apply “to interaffiliate transactions between a concern and a firm with which it is affiliated under the principles in [the SBA’s affiliation regulation].” Thus, Newport Materials may already be essentially overturned.
What is not clear is how OHA will interpret the new policy. Believe it or not, there may still be some wiggle room for interpretation. The Policy Statement only specifically addresses the first of the three factors discussed in Newport Materials, the eligibility to file a consolidated tax return. Consolidated tax returns were at the heart of the G&C Fab-Con decision; the SBA policy makers evidently thought OHA got it wrong in that case and issued the Policy Statement to overturn OHA’s decision. However, the Policy Statement does not specifically address whether the transactions have to be between the challenged firm and an affiliate instead of the transactions occurring between affiliates of the challenged firm (as was the case in Newport Materials). The Policy Statement also does not specifically address whether the transactions have to be between a parent company and its subsidiary in order to qualify for the interaffiliate transactions exception.
That said, the Policy Statement uses broad language that the SBA policy makers likely intended to overturn all three limitations described in Newport Materials: “SBA believes that the current regulatory language is clear on its face. It specifically excludes all proceeds from transactions between a concern and its affiliates, without limitation.”
Whether or not OHA agrees remains to be seen.
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In evaluating a WOSB joint venture’s past performance, the procuring agency considered each joint venture member’s contemplated percentage of effort for the solicitation’s scope of work, and assigned the joint venture past performance ratings based on which member was responsible for particular past performance.
The GAO held that the agency had the discretion to evaluate joint venture past performance in this manner–although it is unclear whether a relatively new SBA regulation (which apparently didn’t apply to the solicitation) would have affected the outcome.
The GAO’s decision in TA Services of South Carolina, LLC, B-412036.4 (Jan. 31, 2017) involved an Air Force solicitation seeking services supporting Air Force Information Network operations. The solicitation was issued on March 13, 2015 and was set aside for WOSBs.
The solicitation called for the award of a fixed-price contract (with a few cost reimbursable line items) for a 12-month base period and four potential option years. The Air Force was to evaluate proposals on a best value basis, considering technical, past performance, and price factors.
The successful offeror was to perform work in five Mission Areas. Under a “staffing/management” technical subfactor, offerors apparently were required to provide information regarding the anticipated breakdown of work between teaming partners (or joint venture partners) for each Mission Area.
With respect to past performance, the solicitation stated that offerors should submit past performance information on up to eight recent, relevant contracts performed by the offeror, its subcontractors, teaming partners, and/or joint venture partners. The solicitation stated that “past performance of either party in a joint venture counts for the past performance of the entity.”
TA Services of South Carolina, LLC was an 8(a) mentor-protege joint venture between Technica, LLC, a woman-owned small business, and AECOM, its large mentor. TAS submitted a proposal in response to the Air Force solicitation. TAS provided three past performance contracts performed by AECOM, but none by Technica.
TAS proposed that Technica would provide the majority of the staffing (between 55% and 70%) on four of the five Mission Areas. AECOM would provide the majority of the staffing on the fifth Mission Area.
In the course of its evaluation, the Air Force independently identified a fourth AECOM contract, but no Technica contracts. The Air Force concluded that the four AECOM contracts “provided meaningful past performance to enable a confidence level to be determined for the Joint Venture.” However, “while Technica proposed the majority of staffing in all areas except [one], they demonstrated no past performance.” The Air Force assigned TAS a “Satisfactory Confidence” past performance rating. The Air Force awarded the contract to a competitor, which proposed a higher price but received a “Substantial Confidence” past performance score.
TAS filed a GAO bid protest challenging the evaluation. TAS argued, in part, that the Air Force’s past performance evaluation was inconsistent with the terms of the solicitation. TAS contended that the solicitation required AECOM’s experience to be treated as the joint venture’s experience, and did not allow the Air Force to assign a lower confidence rating merely because Technica, the lead joint venture member, had not demonstrated relevant experience.
The GAO wrote that, “[a]s a general matter, the evaluation of an offeror’s past performance, including the agency’s determination of the relevance and scope of an offeror’s performance history to be considered, is a matter within the discretion of the contracting agency.” In this case, “the RFP’s reference to the past performance of a JV partner counting for the mast performance of the JV does not mean the agency could not consider which JV partner was responsible for past performance.” The GAO continued:
In the case of the protester, despite the fact that one JV partner had relevant past performance of exceptional quality in all mission areas, it remains the case that the other JV partner, which was proposed to perform the majority of staffing in four of the five mission areas, had no relevant past performance. Given the latter circumstance, we fail to see that satisfactory confidence was an unreasonable performance confidence rating for the JV.
The GAO denied the protest.
The evaluation of a joint venture’s past performance is something I’m asked about frequently–and an area where the FAR provides little guidance. However, is worth noting that last summer, the SBA overhauled its joint venture regulations, including those applicable to the WOSB program. The WOSB regulations now provide, at 13 C.F.R. 127.506(f):
When evaluating the past performance and experience of an entity submitting an offer for a WOSB program contract as a joint venture established pursuant to this section, a procuring activity must consider work done individually by each partner to the joint venture, as well as any work done by the joint venture itself previously.
Nearly-identical language was added to the SBA’s regulations governing joint ventures for small business, 8(a), SDVOSB and HUBZone contracts.
The new regulation took effect more than a year after the solicitation was issued in March 2015, and wasn’t discussed in GAO’s decision. But had it been effective, would it have changed the outcome? That’s not entirely clear (and won’t be until a case comes along interpreting the new rule), but my best guess is “no.”
The regulation, by its plain language, specifies that the procuring agency must consider the past performance of individual joint venture members. The SBA’s Federal Register commentary indicates that the reason SBA adopted this regulation was to prevent agencies from outright ignoring the past performance of joint venture members, and assigning undeserved “neutral” ratings to JVs comprised of experienced members.
In TA Services, of course, the agency did consider AECOM’s past performance, and didn’t assign TAS a “neutral” rating. The new regulation doesn’t directly require any more than that, although I imagine there will be bid protests in the future about whether the underlying policy prohibits the sort of weighing that occurred here (i.e., is it fair to “penalize” a mentor-protege JV simply because the protege has little relevant experience?)
We’ll have to wait to see how the GAO and Court of Federal Claims resolve these issues in the future. For now, TA Services of South Carolina seems clear: at least prior to the adoption of the new SBA regulations, and absent a solicitation provision to the contrary, there is nothing wrong with the agency considering each JV partner’s level of effort as part of the past performance evaluation.
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An 8(a) joint venture failed to obtain SBA’s approval of an addendum to its joint venture agreement—and the lack of SBA approval cost the joint venture an 8(a) contract.
In Alutiiq-Banner Joint Venture, B-412952 et al. (July 15, 2016), GAO sustained a protest challenging an 8(a) joint venture’s eligibility for award where that joint venture had not previously sought (or received) SBA’s approval for an addendum to its joint venture agreement.
At the big picture level, SBA’s 8(a) Business Development Program Regulations contain strict requirements that an 8(a) entity must satisfy before joint venturing with another entity for an 8(a) contract. For instance, the 8(a) joint venture must have a detailed joint venture agreement that, among other things, sets forth the specific purpose of the joint venture (usually relating to the performance of a specific solicitation). Where the joint venture seeks to modify its joint venture agreement (even to allow for the performance of another 8(a) contract), the Regulations require prior approval of any such amendment or addendum by the SBA. 13 C.F.R. § 124.513(e).
At issue in Alutiiq-Banner was a NASA 8(a) set-aside solicitation that sought to issue a single-award IDIQ contract for human resources and professional services. In late March 2016, CTRM-GAPSI JV, LLC (“CGJV”), an 8(a) joint venture between GAP Solutions and CTR Management Group, was named the contract awardee. As part of this award, the contracting officer made a responsibility determination that included an undated letter from the SBA stating that “CTRMG/GAPSI JV” was an eligible 8(a) joint venture under the solicitation.
Alutiiq-Banner Joint Venture protested this evaluation and award decision on various grounds, including that CGJV was not an eligible 8(a) entity and, thus, should not have received the award.
According to Alutiiq-Banner, CTRM-/GAPSI JV (the entity that submitted the proposal) and CTRM-GAPSI JV, LLC (the awardee) were different entities. The awardee-entity did not exist until an official corporate registration was filed for the joint venture until April 2016; NASA, however, completed its evaluation and made its award the month prior. Because CGJV did not exist until after the award, it was not the firm that submitted the proposal—it was a newly-created and legally-distinct entity that was not approved by the SBA for this 8(a) award.
NASA, in response, characterized Alutiiq-Banner’s arguments as trying to make a mountain out of a molehill. That is, NASA said the protest challenged the awardee’s name, and that any differences were “insignificant clerical issues.” Because NASA identified the entities that prepared the proposal and that was awarded the contract under the same DUNS number and CAGE code, there was “no material doubt of the awardee’s identity.”
GAO sought SBA’s input as to whether the awardee was a different entity than the SBA had approved for award as a joint venture. According to the SBA, they were the same entities. But apparently, the SBA’s approval of CGJV’s joint venture agreement upon which the contracting officer relied in finding CGJV a responsible entity was outdated; it did not relate to the addendum that allowed CGJV to perform under this particular solicitation. Thus, the SBA said that CGJV’s failure to obtain approval for this addendum to its joint venture agreement violated the SBA’s regulations. As a result, the SBA said that it would rescind its approval of CGJV’s award eligibility, and recommended that the award be terminated.
In response to the SBA’s recommendation, both CGJV and NASA instead requested that GAO stay its decision on Alutiiq-Banner’s protest pending approval of CGJV’s joint venture agreement addendum. GAO refused to do so, noting its statutory obligation to decide protests within 100 days.
GAO sustained Alutiiq-Banner’s protest, agreeing with the SBA that the award to CGJV was improper. It wrote:
[T]here appears to be no significant dispute that CGJV did not seek the approval for this award as required under the 8(a) program, and the SBA did not have a basis to approve the award—both of which are required by the SBA’s regulations as a precondition of awarding the set-aside contract to a joint venture.
GAO thus recommended the award to CGJV be terminated and, as part of NASA’s re-evaluation, that NASA and the SBA confirm that the selected awardee is an eligible 8(a) participant before making the award decision.
It’s a common misconception that 8(a) joint ventures are approved “in general,” that is, that once SBA approves a joint venture for one contract, the joint venture “is 8(a)” and can pursue other 8(a) contracts without SBA approval. Not so. As Alutiiq Banner demonstrates, an 8(a) joint venture must obtain SBA’s separate approval for each 8(a) contract it wishes to pursue. Failing to get that approval may cost a joint venture the contract—something CGJV learned the hard way.
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The increase to DoD’s micro-purchase threshold mandated by the 2017 National Defense Authorization Act is now in effect.
A Class Deviation issued earlier this month provides, effective immediately, that the DoD micro-purchase threshold is $5,000 for many acquisitions.
The new micro-purchase threshold is $1,500 higher than the standard $3,500 micro-purchase threshold. But there are a few exceptions.
The micro-purchase threshold for certain DoD basic research programs and science and technology reinvention laboratories increases to a whopping $10,000. However, micro-purchase thresholds below $5,000 remain in effect for certain acquisitions described in the micro-purchase definition under FAR 2.101.
Many contracting officers and contractors have been awaiting the micro-purchase increase, which should increase the speed and efficiency of small DoD acquisitions. The wait is over.
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The 8(a) Program regulations will undergo some significant changes as part of the major final rule recently released by the SBA, and effective August 24, 2016.
Here at SmallGovCon, we’ve already covered big changes to the SDVOSB Program and HUBZone Program brought about by the new SBA rule. But the 8(a) program is affected by the new rule too, and important changes involving eligibility, the application process, sole source awards, NHOs, and more will kick in later this month.
The final rule implements the following major changes:
In order to be admitted to the 8(a) Program, a company must be controlled by one or more individuals who are considered socially disadvantaged. While members of certain groups are presumed socially disadvantaged, others (such as Caucasian women and disabled Caucasian veterans) must individually prove their social disadvantage by a preponderance of the evidence.
The SBA’s current regulations leave a lot to be desired when it comes to explaining how an applicant must prove his or her individual social disadvantage. This lack of clarity leads to confusion; many applicants, for example, incorrectly believe that the SBA is simply looking for a list of all of the bad things that have happened in their lives. This confusion, of course, causes many applications to be returned or denied.
The SBA’s new regulation attempts to provide some more clarity. The final rule specifies that “[a]n individual claiming social disadvantage must present facts and evidence that by themselves establish that the individual has suffered social disadvantage that has negatively impacted his or her entry into or the business world in order for it to constitute an instance of social disadvantage.” In that regard, “[e]ach instance of alleged discriminatory conduct must be accompanied by a negative impact on the individual’s entry into or advancement in the business world in order for it to constitute an instance of social disadvantage.” And SBA “may disregard a claim of social disadvantage where a legitimate alternative ground for an adverse employment action or other perceived adverse action exists and the individual has not presented evidence that would render his/her claim any more likely than the alternative ground.”
Importantly, the SBA includes two examples demonstrating how the analysis works. For instance, one of those examples provides:
A woman who is not a member of a designated group attempts to establish her individual social disadvantage based on gender. She certifies that while working for company Y, she was not permitted to attend a professional development conference, even though male employees were allowed to attend similar conferences in the past. Without additional facts, that claim is insufficient to establish an incident of gender bias that could lead to a finding of social disadvantage. It is no more likely that she was not permitted to attend the conference based on gender bias than based on non-discriminatory reasons. She must identify that she was in the same professional position and level as the male employees who were permitted to attend similar conferences in the past, and she must identify that funding for training or professional development was available at the time she requested to attend the conference.
When SBA released its proposal to implement these changes to the social disadvantage rules, some people familiar with the 8(a) Program were concerned that these changes were being proposed in order to make it more difficult for individuals to prove social disadvantage. But I don’t view it that way. To my eyes, the change merely attempts to better explain how the SBA already evaluates social disadvantage, and doesn’t seem to impose any new burdens on applicants. Hopefully my optimistic view will be borne out in practice.
Experience of Disadvantaged Individual
The current 8(a) Program regulations don’t require that a disadvantaged individual possess managerial experience in the specific industry in which the 8(a) applicant is doing business. Instead, the regulations state that the disadvantaged individual “must have managerial experience of the extent and complexity needed to run the concern.” Nevertheless, in my experience, the 8(a) application analysts have often focused on the industry-specific experience of the disadvantaged individual, rather than the individual’s overall managerial experience.
The SBA’s new regulations should ease the burden on 8(a) applicants to demonstrate industry-specific experience. The new rule states that “[m]anagement experience need not be related to the same or similar industry as the primary industry classification of the applicant or Participant.” In the preamble to its new rule, the SBA writes that it “did not intend to require in all instances that a disadvantaged individual must have managerial experience in the same or similar line of work as the applicant or Participant.” The SBA explains:
For example, an individual who has been a middle manager of a large aviation firm for 20 years and can demonstrate overseeing the work of a substantial number of employees may be deemed to have managerial experience of the extent and complexity needed to run a five-employee applicant firm whose primary industry category was in emergency management consulting even though that individual had no technical knowledge relating to the emergency management consulting field.
But the rule change doesn’t mean that industry-specific experience will never be considered. In the preamble, the SBA states that more specific industry-related experience may be required in “appropriate circumstances,” such as “where a non-disadvantaged owner (or former owner) who has experience related to the industry is actively involved in the day-to-day management of the firm.”
8(a) Application Processing
As I discussed in a blog post in April 2016, 8(a) Program participation is down 34% since 2010, and the SBA is attempting to reverse the decline by–in part–streamlining and improving the application process. The new rule includes some baby steps in that direction, including:
The SBA will no longer require that all 8(a) applicants submit IRS Form 4506T (Request for Transcript of Tax Return).
The SBA will require all applications to be submitted electronically, instead of allowing hard copy applications (for which processing times are often very slow).
The SBA has deleted the requirement for “wet” signatures and will allow application documents to be electronically signed.
In cases where an applicant has a criminal record, the SBA has always referred the application to its Office of Inspector General, delaying the process. The SBA now will exercise reasonable discretion in determining whether such a referral is appropriate. For example, “an application evidencing a 20 year old disorderly conduct offense for an individual claiming disadvantaged status when that individual was in college should not be referred to OIG where that is the only instance of anything concerning the individual’s good character.”
Perhaps most importantly for most applicants, the SBA will no longer require a narrative statement of each applicant’s economic disadvantage. These statements have served little practical purpose, as the SBA has long evaluated economic disadvantage by reference to an individual’s income and net worth. The final rule acknowledges that economic disadvantage is based on “objective financial data,” rendering the narratives unnecessary.
8(a) Program Suspensions
The new regulation allows an 8(a) Program participant to voluntarily suspend its nine-year term when one of two things happen: (1) the participant’s principal office is located in an area declared a major disaster area; or (2) there is a lapse in federal appropriations. The SBA explains that these changes were “intended to allow a firm to suspend its term of participation in the 8(a) BD program in order to not miss out on contract opportunities that the firm might otherwise have lost due to a disaster or a lapse in federal funding.”
If a firm elects to suspend its term, the participant “would not be eligible for 8(a) BD program benefits, including set-asides . . . but would not ‘lose time’ in its program term due to the extenuating circumstances” caused by the disaster or lapse in federal funding.
Management of Tribally-Owned 8(a) Participants
The final rule adopts new language specifying that “[t]he individuals responsible for the management and daily operations of a tribally-owned concern cannot manage more than two Program Participants at the same time.” The SBA clarifies:
An individual’s officer position, membership on the board of directors or position as a tribal leader does not necessarily imply that the individual is responsible for the management and daily operations of a given concern. SBA looks beyond these corporate formalities and examines the totality of the information submitted by the applicant to determine which individual(s) manage the actual day-to-day operations of the applicant concern.
The new rule further clarifies that “Officers, board members, and/or tribal leaders may control a holding company overseeing several tribally-owned or ANC-owned companies, provided they do not actually control the day-to-day management of more than two current 8(a) BD Program participant firms.”
Native Hawaiian Organizations
Under the current rule governing participation in the 8(a) Program by companies owned by Native Hawaiian Organizations, “SBA considers the individual economic status of the NHO’s members,” and a majority of the individual members must qualify as economically disadvantaged. The individual members of the NHO are held to the same income and net worth requirements as other socially disadvantaged individuals under 13 C.F.R. 121.104.
After receiving a great deal of feedback from the Native Hawaiian community, the SBA changed its perspective, writing in the preamble to the final rule that “basing the economic disadvantage status of an NHO on individual Native Hawaiians who control the NHO does not seem to be the most appropriate way to do so.” The preamble continues:
The crucial point is that an NHO must be a community service organization that benefits Native Hawaiians. It is certainly understood that an NHO must serve economically disadvantaged Native Hawaiians, but nowhere is there any hint that economically disadvantaged Native Hawaiians must control the NHO. The statutory language merely requires that an NHO must be controlled by Native Hawaiians. In order to maximize benefits to the Native Hawaiian community, SBA believes that it makes sense that an NHO should be able to attract the most qualified Native Hawaiians to run and control the NHO. If the most qualified Native Hawaiians cannot be part of the team that controls an NHO because they may not qualify individually as economically disadvantaged, SBA believes that is a disservice to the Native Hawaiian community.
To implement this changed policy, the final rule adopts a system much like that already used by the SBA in evaluating applications from companies owned and controlled by Indian tribes. The final rule states that “n order to establish than an NHO is economically disadvantaged, it must demonstrate that it will principally benefit economically disadvantaged Native Hawaiians.” To do this, the NHO must provide economic data on the condition of the Native Hawaiian community it intends to serve, including things like the unemployment rate, poverty level, and per capita income. Once a particular NHO establishes its economic disadvantage in connection with the application of one firm owned and controlled by the NHO, it ordinarily need not reestablish its economic disadvantage in connection with a second 8(a) firm.
The final rule also clarifies that the individual members or directors of an NHO need not have the technical expertise or possess a required license in order for the NHO to be found to control an 8(a) company. Rather, as with “regular” 8(a) companies, the individual members or directors ordinarily need only possess the managerial experience of the extent and complexity necessary to run the company. But as with those “regular” 8(a) companies, the SBA may examine industry-specific experience “in appropriate circumstances,” such as where a non-disadvantaged owner (or former owner) who has experience related to the industry is involved in the day-to-day management of the firm.
Sole Source 8(a) Awards
Earlier this summer, I blogged about an SBA Office of Inspector General report, which found that DoD 8(a) sole source awards over $20 million to companies owned by Indian tribes and ANCs has dropped by more than 86% since 2011, when Congress adopted a requirement that a Contracting Officer issue a written justification and approval for any sole source award over $20 million (a regulatory update in 2015 increased the threshold to $22 million).
To date, the the 2011 statutory requirements have been implemented only in the FAR. The final rule updates the SBA’s regulations to require that a procuring agency that is offering a sole source requirement that exceeds $22 million to confirm that the justification and approval has occurred. However, “SBA will not question and does not need to obtain a copy of the justification and approval, but merely ensure that it has been done.”
In its preamble, the SBA explains that the J&A requirement appears to have caused confusion:
SBA believes that there is some confusion in the 8(a) and procurement communities regarding the requirements of section 811. There is a misconception by some that there can be no 8(a) sole source awards that exceed $22 million. That is not true. Nothing in either section 811 or the FAR prohibits 8(a) sole source awards to Program Participants owned by Indian tribes and ANCs above $22 million. All that is required is that a contracting officer justify the award and have that justification approved at the proper level. In addition, there is no statutory or regulatory requirement that would support prohibiting 8(a) sole source awards above any specific dollar amount, higher or lower than $22 million.
Perhaps the SBA’s commentary will help clarify for Contracting Officers that sole source authority remains for contracts over $22 million; the 2011 statute and corresponding regulations merely require a J&A.
Changes in Primary Industry Classification
The final rule allows the SBA to change an 8(a) Program participant’s primary industry classification “where the greatest portion of the Participant’s total revenues during the Participant’s last three completed fiscal years has evolved from one NAICS code to another.” The SBA will, as part of its annual 8(a) Program review, “consider whether the primary NAICS code contained in a participant’s business plan continues to be appropriate.”
If the SBA believes that a change is warranted, the SBA will notify the 8(a) Program participant and give the participant the opportunity to oppose the SBA’s plan. And, “[a]s long as the Participant provides a reasonable explanation as to why the identified primary NAICS code continues to be its primary NAICS code, SBA will not change the Participant’s primary NAICS code.”
The SBA’s preamble notes that the portion of its proposal dealing with changes in primary NAICS codes received the most comments of any portion of the proposed rule–apparently even more so than comments on the universal mentor-protege program, which was established under the same final rule. While NAICS codes aren’t always the most exciting things in the world, it’s easy to see why this proposal caused so much concern.
For “regular” 8(a) companies owned by socially and economically disadvantaged individuals, a change in NAICS code can affect ongoing 8(a) eligibility. That’s because, under 13 C.F.R. 124.102, an 8(a) company must qualify as small in its primary NAICS code. If the SBA reassigns an 8(a) company from a NAICS code designated with a higher size standard to one designated with a lower standard, it could put the company at risk of early graduation.
For example, consider an 8(a) company with $20 million in average annual receipts, admitted to the 8(a) Program under NAICS code 236220 (Industrial Building Construction), which carries a $36.5 million size standard under the current SBA size standards table. Now let’s say that same company has earned almost all of its revenues performing plumbing work. If the SBA reassigns the company to NAICS code 238220 (Plumbing, Heating, and Air-Conditioning Contractors), with an associated $15.0 million size standard, the company is suddenly no longer small in its primary industry, threatening its ongoing 8(a) Program status.
But the preamble makes clear that much of the angst over the SBA’s proposal came from individuals representing tribal and/or ANC interests. Under 13 C.F.R. 124.109, a tribe or ANC “may not own 51% or more of another firm which, either at the time of application or within the previous two years, has been operating in the 8(a) Program under the same primary NAICS code as the applicant.” While the rule permits such firms to operate in secondary, related NAICS codes, a reassignment to the same NAICS code as another 8(a) Program participant owned by the same tribe or ANC would cause major problems.
In its final rule, the SBA acknowledges these concerns, but doesn’t back off its position. The final rule provides:
Where an SBA change in the primary NAICS code of an entity-owned firm results in the entity having two Participants with the same primary NAICS code, the second, newer Participant will not be able to receive any 8(a) contracts in the six-digit NAICS code that is the primary NAICS code of the first, older Participant for a period of time equal to two years after the first Participant leaves the 8(a) BD program.
It remains to be seen how the SBA will implement the new policy on primary NAICS codes, but there can be little doubt that the new regulation will put some ANCs and tribes at risk.
The SBA’s final rule takes effect on August 24, 2016. And while the new small business mentor-protege program will generate most of the headlines, it’s essential for 8(a) Program participants (and potential applicants) to be aware of the major 8(a) Program changes established under the same final rule.
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The nonmanufacturer rule will not apply to small business set-aside contracts valued between $3,000 and $150,000, according to the SBA.
In its recent major rulemaking, the SBA exempts these small business set-aside contracts from the nonmanufacturer rule, meaning that small businesses will be able to supply the products of large manufacturers for these contracts without violating the limitations on subcontracting.
In its rulemaking, the SBA explains its new exemption as a way to increase small business awards:
SBA believes that not applying the nonmanufacturer rule to small business set-asides valued between $3,500 and $150,000 will spur small business competition by making it more likely that a contracting officer will set aside an acquisition for small business concerns because the agency will not have to request a waiver from SBA where there are no small business manufacturers available.
The SBA points out that it can take “several weeks” for the SBA to process a nonmanufacturer rule waiver request, and suggests that contracting officers are unlikely to pursue waivers for lower-dollar procurements, choosing instead to simply release such solicitations as unrestricted. The new rule will expand current authority, which allows an exemption for simplified acquisitions below $25,000.
The SBA’s new rulemaking also includes several other important changes related to the nonmanufacturer rule:
The SBA clarifies that procurements for rental services should be classified as acquisitions for services, not acquisitions for supplies. The SBA notes that “renting an item is not the same thing as buying a item.” This clarification means that offerors for solicitations for rented products shouldn’t need to worry about the nonmanufacturer rule (although they will need to comply with the applicable limitation on subcontracting).
In some cases, a single procurement seeks multiple items, and only some of them are subject to nonmanfacturer rule waivers. In such a case, the new rule provides, “more than 50% of the value of the products to be supplied by the nonmanufacturer that are not subject to a waiver must be the products of one or more domestic small business manufacturers or processors.” The new regulations includes an example of how this concept should work in practice.
The SBA has adopted a requirement that a contracting officer notify potential offerors of any nonmanufacturer rule waivers (whether class waivers or contract-specific waivers) that will be applied to the procurement. The SBA writes that “[w]ithout notification that a waiver is being applied by the contracting officer, potential offerors cannot reasonably anticipate what if any requirements they must meet in order to perform the procurement in accordance with SBA’s regulations.” The notification “must be provided at the time a solicitation is issued.”
The SBA has expanded its authority to grant nonmanufacturer rule waivers. Under current law, waivers must be granted before a solicitation is issued. The new rule allows the SBA to grant waivers after a solicitation has been issued so long as “the contracting officer provides all potential offerors additional time to respond.” In an even bigger change, the new rule allows the SBA to grant nonmanufacturer rule waivers after award, if the agency makes a modification for which a waiver is appropriate.
The SBA has clarified that the nonmanufacturer rule (including waivers) applies to certain types of software. The SBA writes that “where the government buys certain types of unmodified software that is generally available to both the public and the government . . . the contracting officer should classify the requirement as a commodity or supply.” However, “if the software being acquired requires any custom modifications in order to meet the needs of the government, it is not eligible for a waiver of the NMR because the contractor is performing a service, not providing a supply.”
The SBA’s changes to the nonmanufacturer rule take effect on June 30, 2016.
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The GAO’s jurisdiction to hear most protests in connection with task and delivery order awards under civilian multiple award IDIQs has expired.
In a recent bid protest decision, the GAO confirmed that it no longer has jurisdiction to hear protests in connection with civilian task and delivery order awards valued over $10 million because the underlying statutory authority expired on September 30, 2016.
The Federal Acquisition Streamlining Act of 1994 established a bar on bid protests concerning military and civilian agency task and delivery orders under multiple-award IDIQs. FASA, as it is known, allowed exceptions only where the protester alleged that an order improperly increased the scope, period, or maximum value of the underlying IDIQ.
The 2008 National Defense Authorization Act adopted another exception, which allowed the GAO to consider protests in connection with orders valued in excess of $10 million. The 2008 authority was codified in two separate statutes–Title 10 of the U.S. Code for military agencies, and Title 41 of the U.S. Code for civilian agencies.
In 2011, the provision adopted by the 2008 NDAA expired. However, because of the way that the sunset provision was drafted, the GAO held (and correctly so, based on the statutory language), that it had authority to consider all task order protests, regardless of the value of the order.
In the 2012 NDAA, Congress reinstated the GAO’s authority to hear bid protests over $10 million, and included a new sunset deadline–September 30, 2016. This time, however, Congress changed the statutory language to ensure that if September 30 passed without reauthorization, the GAO would lose its authority to hear protests of orders valued over $10 million, rather than gaining authority to hear all task and delivery order protests.
That takes us to the GAO’s recent decision in Ryan Consulting Group, Inc., B-414014 (Nov. 7, 2016). In that case, HUD awarded a task order valued over $10 million to 22nd Century Team, LLC, an IDIQ contract holder. Ryan Consulting Group, Inc., another IDIQ holder, filed a GAO protest on October 14, 2016 challenging the award.
The GAO began its decision by walking through the statutory history, starting with FASA and ending with the expiration of the 2012 NDAA protest authority. GAO wrote that “our jurisdiction to resolve a protest in connection with a civilian task order, such as the one at issue, expired on September 30, 2016.”
In this case, GAO wrote, “it is clear that Ryan filed its protest after our specific authority to resolve protests in connection with civilian task and delivery orders in excess of $10 million had expired.” While GAO retains the authority to consider a protest alleging that an order increases the scope, period, or maximum value of the underlying IDIQ contract, Ryan made no such allegations. And although Ryan asked that the GAO “consider grandfathering” its protests, GAO wrote that “we have no authority to do so.”
GAO dismissed Ryan’s protest.
As my colleague Matt Schoonover recently discussed in depth, the expiration of GAO’s task order authority applies only to civilian agencies like HUD, and not to military agencies. The GAO retains jurisdiction to consider protests of military task and delivery orders valued in excess of $10 million.
Matt also discussed a Congressional disagreement over whether, and to what extent, to reinstate GAO’s task and delivery order bid protest authority. That issue will likely be resolved in the 2016 NDAA, which should be signed into law in the next couple months. We’ll keep you posted.
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The Armed Services Board of Contract Appeals recently dismissed a government claim that Lockheed Martin Integrated Systems, Inc. (LMIS), failed to comply with its prime contract terms by not adequately managing its subcontractors and therefore all subcontract costs (more than $100MM) were unallowable.
Although the government claim was directed at a large contractor, some of the amount in question, presumably, included invoiced amounts by small business subcontractors. At least by implication, had the government prevailed, it could have resulted in requirements for prime contractors to become far more demanding and intrusive in terms of subcontractor documentation and/or access to subcontractor records.
At issue in Lockheed Martin Integrated Systems, Inc., ASBCA Nos. 59508, 59509 (2016) was DCAA’s assertion and the Contracting Office agreement, that a prime, in accordance with FAR 42.202(e)(2), Assignment of Contract Administration, must perform in the role of the CO, CAO and DCAA when managing subcontracts. DCAA went on to assert that this responsibility includes, among other things, requiring subcontractors to submit Incurred Cost Proposals (ICP) to the prime and the prime performing an audit on that ICP, or requesting an assist audit by DCAA.
Because LMIS had no documentation requiring its subcontractors to submit ICPs, the government asserted a breach of contract and therefore questioned all subcontract costs as unallowable. Fortunately, the Board adamantly disagreed, stating that FAR 42.202 (the whole basis on which subcontract cost were questioned) is not a contractual clause nor a clause incorporated by reference. The Board concluded that FAR 42.202 is a regulation pertaining only to the government’s administration of contracts and nowhere is it implied that a prime take on the role of CO, CAO or DCAA for its subcontractors.
Whew, good news for contractors, right? Some may assume the outcome of this case will force DCAA to relent on its current obsession with prime management of subcontracts. If you have had the fortune of an ICP audit or a Paid Voucher audit recently, you understand my statement, “current obsession with prime management of subcontracts.” These audits, in particular, place significant emphasis on the processes and procedures in place which demonstrate and document the prime’s management of subcontracts.
Many small business primes have expressed concern about DCAA’s requests and expectations, during these audits, and what impact it may have on the allowability of historical subcontract cost. In my professional opinion, I doubt DCAA is going to take a step back in its auditing approach, nor relent in its expectation of subcontractor monitoring. But, at least now there is precedent stating that primes are not auditors and it’s not the prime’s responsibility to require subcontractor ICPs nor audit subcontractor ICPs.
So, what is the prime’s responsibility for monitoring subcontractors? First, note that the responsibility of the prime to “manage” subcontractors stems not from FAR 42.202 but rather from other regulations and at different phases of the contract process.
FAR 9.104-4(a) – Subcontractor Responsibility: “Prospective prime contractors are responsible for determining the responsibility of their prospective subcontractors.”
FAR 15.404-3(b) – Subcontract Pricing Considerations: “Prime contractor shall perform appropriate cost or price analysis to establish the reasonableness of subcontract prices and include the results in the price proposal.”
FAR 52.216-7 (d)(5) – Allowable Cost and Payment: “The prime contractor is responsible for settling subcontractor amounts and rates included in the completion invoice or voucher and providing status of subcontractor audits to the contracting officer upon request.
Primes must still ensure subcontractor capability and contract compliance. This is best achieved by implementing policies motivated towards an on-going monitoring approach and well documented subcontract files. Best practices considerations include, but are not limited to the following:
Perform and document Price Analysis or Cost Analysis. Although this documentation primarily supports cost estimates, it ultimately supports the reasonableness of subcontract costs as a component of prime ICPs.
Obtain subcontractor self-certifications (accounting system, provisional rates, ICP submission); note, however, that self-certifications without any corroborating data is risky.
Insert subcontract clauses with access to specified records and/or the requirement of third party verification (reasonable assurance, but not an audit). For example, a subcontract clause with rights to detailed subcontractor supporting records such as time sheets, travel expense receipts intermittently. The purpose is to selectively document that the subcontractor can support costs invoiced.
Focus on billing policies and procedures providing reasonable assurance of satisfactory subcontract performance.
Define managing subcontracts in the context of review and approval of subcontractor invoices (substation of hours, rates). Avoid references to “audits” unless expressly required by a specific contract.
Consider contract close-out expediencies
Quick close-out and/or DCAA Low Risk (concept)
Convert to FFP (FAR 16.103(c)) with support for the fixed price)
Third party reviews (agreed upon procedures/limited transaction verification)
Regardless of the outcome and what evolves from the ASBCA cases, primes are ultimately responsible for the allowability of subcontract costs. There is always risk that subcontractor cost will be challenged at the prime contract level. However, these ASBCA cases confirm that the contractual requirements imposed on primes is far less onerous than anything envisioned by DCAA.
Courtney Edmonson, CPA is the VP of Small Business Consulting at Redstone Government Consulting and provides contract compliance services to small business government contractors. Her areas of expertise include pricing and cost volume proposals, indirect rate forecasting and modelling, incurred cost proposals, and DCAA compliance. Courtney is the lead instructor for the Federal Publication Seminars course, “Government Contractor Accounting System Compliance”, and provides instruction for other compliance courses including, “Preparation of Incurred Cost Submissions”, “FAR 31, Cost Principles”, and “Cost Accounting Standards.” Courtney graduated from Jacksonville State University with a Bachelor of Science and obtained a Master of Accountancy from the University of Alabama in Huntsville. She is also a Certified Public Accountant.
Redstone Government Consulting – 4240 Balmoral Drive, SW Suite 400 Huntsville, AL 35801 www.redstonegci.com
Phone: 256-704-9840 Email: email@example.com
GovCon Voices is a regular feature dedicated to providing SmallGovCon readers with candid news, insight and commentary from government contracting thought leaders. The opinions expressed in GovCon Voices are those of the individual authors, and do not necessarily reflect the opinions of Koprince Law LLC or its attorneys.
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A North Carolina couple is heading to prison after being convicted of defrauding the SDVOSB and 8(a) Programs.
According to a Department of Justice press release, Ricky Lanier was sentenced to 48 months in federal prison and his wife, Katrina Lanier, was sentenced to 30 months for their roles in a long-running scheme to defraud two of the government’s cornerstone socioeconomic contracting programs.
According to the DOJ press release, Ricky Lanier was the former owner of an 8(a) company. When his company graduated, Ricky Lanier apparently wasn’t satisfied with the ordinary routes that former 8(a) firms use to remain relevant in the 8(a) world, such as subcontracting to current 8(a) firms and/or becoming a mentor to an 8(a) firm under the SBA’s 8(a) mentor-protege program.
Instead, Mr. Lanier helped form a new company, Kylee Construction, which supposedly was owned and managed by a service-disabled veteran. In fact, the veteran (a friend of Ricky Lanier) was working for a government contractor in Afghanistan, and wasn’t involved in Kylee’s daily management and business operations.
The Laniers also used JMR Investments, a business owned by Ricky Lanier’s college roommate, to obtain 8(a) set-aside contracts. As was the case with Kylee, the Laniers misrepresented the former roommate’s level of involvement in the daily management and business operations of JMR.
If that wasn’t enough, “[t]he scheme also involved sub-contracting out all or almost all of the work on the contracts in violation of program requirements.” In other words, not only were Kylee and JML fraudulently obtaining set-aside contracts, they were also serving as illegal “pass-throughs.”
Over the years, Kylee Construction was awarded $5 million in government contracts and JMR was awarded $9 million. The Laniers themselves received almost $2 million in financial benefits from their fraudulent scheme.
People like the Laniers undermine the integrity of the set-aside programs and steal contracts from deserving SDVOSBs and 8(a) companies. Here’s hoping that the prison sentences handed down in this case will not only punish the Laniers for their fraud, but help convince other potential fraudsters that the risk just isn’t worth it.
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Each party to a GSA Schedule Contractor Teaming Arrangement must hold the Federal Supply Schedule contract in question.
As demonstrated by a recent GAO bid protest decision, if one of the parties to the GSA CTA doesn’t hold the relevant FSS contract, the CTA may be found ineligible for award of an order under that contract.
The GAO’s decision in M Inc., d/b/a Minc Interior Design, B-413166.2 (Aug. 1, 2016) involved a VA RFQ for healthcare facility furniture and related services. The VA issued the RFQ using the GSA’s eBuy system, and intended to award multiple Blanket Purchase Agreements to successful vendors holding GSA Schedules 71 or 71 II K.
The RFQ allowed vendors to submit quotations using GSA CTAs. If a vendor elected to use a CTA, the lead vendor was required to submit all CTA agreements, identify each CTA vendor and its respective GSA Schedule contract numbers, and specify each CTA vendor’s responsibilities under the BPAs.
M Inc. d/b/a Minc Interior Design submitted a quotation as the lead vendor of a team that included Penco Products, Inc. Minc’s quotation did not identify a current FSS contract number for Penco, nor did Minc identify any services that Penco was currently performing under an FSS contract.
In its evaluation of Minc’s proposal, the VA determined that Penco did not hold an FSS contract. As a result, the VA determined that Minc’s quotation was unacceptable.
Minc filed a GAO bid protest challenging the VA’s decision. Minc argued, among other things, that it had been unreasonable for the VA to rate its quotation as unacceptable based on Penco’s lack of an FSS contract.
The GAO wrote that “an agency may not use schedule contracting procedures to purchase items that are not listed on a vendor’s GSA schedule.” Furthermore, “the GSA considers each vendor competing through a CTA to be a prime contractor with respect to the items it would provide in support of the team’s quotation, and thus must hold an FSS contract.”
In this case, “issuance of a BPA under Minc’s quotation would thus have impermissibly used FSS contracting procedures to enter into a BPA with Penco despite its not having a current FSS contract.” The GAO denied Minc’s protest, holding, “[t]he VA reasonably determined that Minc’s quotation was unacceptable due to the inclusion of a CTA with a firm that lack an FSS contract.”
GSA Contractor Teaming Arrangements can be a highly effective way for two or more Schedule contractors to combine their resources, capabilities, and experience. But as the M, Inc. bid protest demonstrates, the members of a GSA CTA must all hold the relevant Schedule contract–or risk exclusion from the competition.
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If you’re a small business owner interested in government contracts, you’ve probably heard about the SBA’s 8(a) Business Development Program. The 8(a) Program itself is complex, but its potential benefits are tremendous. In this post, I’ll break down some of the very basics about the 8(a) Program, leaving some of its complexities for upcoming posts.
Let’s get to it: here are five things you should know about the 8(a) Program.
What is the 8(a) Program?
Like SBA’s other contracting programs, the 8(a) Program is a business development program—its purpose is to assist eligible disadvantaged small businesses compete in the American economy through business development.
What are the benefits to participating?
Participating in the 8(a) Program opens several doors to success. Each year, the federal government’s goal is to award at least 5% of all prime contracts to small disadvantaged businesses, which include 8(a) Program participants. To meet this goal, the government issues billions of dollars of awards annually to 8(a) Program participants through sole-source awards and set-asides. Participants are also allowed to join in mentor/protégé and joint venture relationships to further increase their ability to participate in the American economy. Additionally, the SBA provides targeted business development counseling to 8(a) participants.
Is your business eligible to participate?
Given these incentives, the desire to participate in the 8(a) Program is obvious. But can your business participate?
SBA has laid out detailed eligibility requirements. A future post will discuss them in greater detail but, in general, a business typically must be small under its primary NAICS code, and be unconditionally owned and controlled by one or more socially- and economically-disadvantaged individuals who are of good character. (There are some separate requirements for businesses owned by Indian Tribes, Alaska Native Corporations, Native Hawaiian Organizations, and Community Development Corporations.) The business, moreover, must maintain its eligibility throughout the course of its participation.
One more thing: 8(a) Program participation is a one-time thing. So if your business has previously participated in the 8(a) Program, or if you’re a disadvantaged individual that has already participated, the SBA won’t allow you to participate again—although Tribes, ANCs, NHOs and CDCs have some different rules.
How long can your business participate in the 8(a) Program?
The presumptive term is 9 years. But this term can be shortened by the participant or the SBA—if, for example, the concern is successful enough to graduate from the Program or fails to maintain its eligibility. The term cannot be lengthened, although it can be temporarily suspended in rare instances.
How can your business apply?
Applications must be submitted electronically to the SBA and must include any supporting information requested by the SBA (like corporate organization documents and personal and business tax returns). Your local SBA office should be able to provide a list of all required documents.
Participating in the 8(a) Program can be a great way to grow your small business. Look for additional 5 Things posts discussing its requirements and benefits in greater detail. In the meantime, please call me if you have any questions about eligibility or applying for the Program.
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What goes around, comes around.
The government sometimes refuses to pay a contractor for a modification when the government official requesting the modification lacks appropriate authority. But contractual authority isn’t a one-way street benefiting only the government. A recent decision by the Armed Services Board of Contract Appeals demonstrates that a contractor may not be bound by a final waiver and release of claims if the individual signing on the contractor’s behalf lacked authority.
The ASBCA’s decision in Horton Construction Co., SBA No. 61085 (2017) involved a contract between the Army and Horton Construction Co., Inc. Under the contract, Horton Construction was to perform work associated with erosion control at Fort Polk, Louisiana. The contract was awarded at a firm, fixed-price of approximately $1.94 million.
After the work was completed, Horton Construction submitted a document entitled “Certification of Final Payment, Contractors Release of Claims.” The document was signed on Horton Construction’s behalf by Chauncy Horton.
More than three years later, Horton Construction submitted a certified claim for an additional $274,599. The certified claim was signed by Dominique Horton Washington, the company’s Vice President.
The Contracting Officer denied the claim, and Horton Construction filed an appeal with the ASBCA. In response, the Army argued that the appeal should be dismissed because the claim arose after a final release was executed.
Horton Construction opposed the Army’s motion for summary judgment. Horton Construction contended that “Mr. Chauncy Horton did not have the requisite authority or the intent to release a claim.”
The ASBCA noted that, when a party moves for summary judgment, it must demonstrate “that there are no disputed material facts, and the moving party is entitled to judgment as a matter of law.” In this case, the information in the record did “not demonstrate the extent to which Mr. Chauncy Horton was authorized to enter agreements between Horton and the Army.” The ASBCA concluded that “the Army failed to submit sufficient evidence to meet its initial burden, specifically whether Mr. Chauncy Horton was authorized to sign the final payment and final release for appellant.”
The ASBCA denied the government’s motion for summary judgment.
When issues of contractual authority arise, they usually seem to benefit the government. But, as the Horton Construction case shows, the government cannot have it both ways. Like the government, a contractor may not be bound by the signature of someone who lacks appropriate authority.
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A “similarly situated entity” cannot be an ostensible subcontractor under the SBA’s affiliation rules.
In a recent size appeal decision, the SBA Office of Hearings and Appeals confirmed that changes made to the SBA’s size regulations in 2016 exempt similarly situated entities from ostensible subcontractor affiliation.
OHA’s decision in Size Appeal of The Frontline Group, SBA No. SIZ-5860 (2017) involved an Air Force solicitation for the alteration and fitting of uniforms. The solicitation was issued as a small business set-aside under NAICS code 811490 (Other Personal and Household Goods Repair and Maintenance), with a corresponding $7.5 million size standard.
After evaluating proposals, the Air Force announced that DAK Resources, Inc. was the apparent successful offeror. An unsuccessful competitor, The Frontline Group, then filed a size protest. Frontline contended that DAK was affiliated with its subcontractor, Tech Systems Inc., under the SBA’s ostensible subcontractor affiliation rule.
The ostensible subcontractor affiliation rule provides that a prime contractor is affiliated with its subcontractor where the subcontractor is performing the “primary and vital” portions of the work, or where the prime is “unusually reliant” on the subcontractor. However, in June 2016, the SBA amended the ostensible subcontractor regulation, 13 C.F.R. 121.103(h)(4), to specify that “[a]n ostensible subcontractor is a subcontractor that is not a similarly situated entity,” as that term is defined in 13 C.F.R. 125.1.
The SBA Area Office determined that the subcontractor, TSI, was a small business under NAICS code 811490. Accordingly, the SBA Area Office found that TSI was a similarly situated entity, and exempt from being considered an ostensible subcontractor. The SBA Area Office issued a size determination finding DAK to be an eligible small business.
Frontline filed a size appeal with OHA, challenging the SBA Area Office’s determination.
OHA noted that the SBA had amended the ostensible subcontractor affiliation rule in 2016 to exempt similarly situated entities. OHA then wrote that “there is no dispute that DAK, the prime contractor, is small, and no dispute that the subject procurement was set aside for small businesses.” Further, “DAK and TSI will perform the same type of work on this procurement, and no party contends that the subcontract would be governed by a different NAICS code or size standard than the prime contract.”
OHA determined that the SBA Area Office had correctly found TSI to be a similarly situated entity, exempt from consideration as an ostensible subcontractor. OHA denied Frontline’s size appeal.
The Frontline Group confirms that the SBA’s regulatory exemption for similarly situated entities is now in effect. When a subcontractor qualifies as a similarly situated entity, it is not an ostensible subcontractor.
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