Almost a year ago, we wrote of a memorandum from the Office of Federal Procurement Policy urging agencies to strengthen the debriefing process. OFPP’s rationale was simple: because effective debriefings tend to reduce the number of protests, agencies should be inclined to enhance the debriefing process.
Congress seems to have taken note: the 2018 National Defense Authorization Act requires the Department of Defense to make significant improvements to the debriefing process. That said, those improvements are limited to large DoD acquisitions, leaving many small businesses stuck with the much more limited debriefing rights currently available under the FAR.
NDAA Section 818—entitled Enhanced Post-Award Debriefing Rights—imposes three significant changes of which contractors should be aware.
First, the NDAA bolsters the amount of information offerors will receive under DoD debriefings. For small business awards valued between $10 million and $100 million—and for any contract valued over $100 million, regardless of the awardee’s status—defense agencies must disclose the agency’s written source selection award determination (redacted as necessary to protect other offeror’s confidential information).
This is a significant increase in the amount of information disclosed as part of debriefings: currently, agencies need only disclose basic information about the awardee’s scores and a summary of the rationale for award.
Second, the NDAA also makes clear that written or oral debriefings will be required for all contract awards and task or delivery orders valued at $10 million or more.
This also represents a significant expansion of debriefing rights: now, the FAR only requires debriefings under negotiated procurements (FAR part 15) and for task and delivery orders valued over $5.5 million (FAR 16.505).
Third, the NDAA requires agencies to give offerors the ability to ask questions following receipt of the debriefing—specifically, within two business days after receiving the debriefing.
True, the FAR already requires agencies to allow offerors the ability to ask questions; but oftentimes, agencies require questions to be posed before the debriefing is received. I’ve always thought this requirement is nonsensical, as it’s tough for an offeror to know what questions to ask if it lacks any information about the evaluation. Congress apparently agrees and now wants to make clear that questions must be allowed after the debriefing is received.
Congress also seeks to improve the debriefing process by giving some teeth to the requirement that agencies accept questions. That is, although the FAR already contemplates that offerors be given the opportunity to ask questions, agencies sometimes ignore this mandate and close the debriefing before questions can be asked. The NDAA hits back at this practice: it says that a contractor’s bid protest clock does not start ticking until the government delivers its response to any questions posed by an offeror. In other words, the longer the agency waits to allow for and respond to questions, the more time a protester will have to develop potential protest arguments.
All told, the NDAA makes significant changes to the post-award debriefing process in DoD procurements. These changes are a big step in the right direction but not a perfect solution to the problem OFPP identified. The changes will apply only to DoD, not civilian agencies. And even for small businesses, enhanced debriefings will only be available for large acquisitions of $10 million or greater. As a result, many small businesses won’t be entitled to enhanced debriefings, even in DoD acquisitions.
Perhaps, though, the rollout of this enhanced debriefings process will prove that, contrary to a common agency perception, better post-award communication actually decreases protests. If so, agencies might begin offering enhanced debriefings even when they’re not required, which would be a real win for everyone in the contracting community.
President Trump signed the 2018 NDAA into law on December 12. It’s only a matter of time before these changes take effect.
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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 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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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 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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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 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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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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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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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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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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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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Citing an abuse of the protest process, the GAO has suspended a company’s right to file bid protests for a period of one year.
The GAO’s unusual action was taken after the contractor in question filed 150 bid protests in the ongoing fiscal year alone, most of which have been dismissed for technical reasons. The GAO’s decision also cites “baseless accusations” made by the protester, including accusing GAO officials of being “white collar criminals” and asserting that “various federal officials have engaged in treason.”
The GAO’s decision in Latvian Connection LLC, B-413442 (Aug. 18, 2016) arose under a task order issued by DISA to ManTech Advanced Information Systems, Inc. for engineering services. The task order in question was issued in 2013, and ManTech completed full performance on January 31, 2016.
After ManTech had completed full performance, Latvian Connection LLC filed a bid protest challenging the task order award. Latvian Connection alleged that DISA had erred by failing to issue the task order solicitation as a small business set-aside and by failing to publish the solicitation on the FedBizOpps website.
Apparently, this particular protest was the proverbial straw that broke the camel’s back. While the GAO’s decision addressed the particular task order in question, the GAO focused in large part on Latvian Connection’s widespread use of the protest process.
The GAO started by explaining that “our records show that, thus far this fiscal year, Latvian Connection has filed 150 protests with our Office.” Of those protests, 131 have been decided: one was denied on the merits, and “[t]he remaining protests were dismissed, the most common reason being that Latvian Connection was not an interested party.” Further, “[a] number of Latvian Connection’s most recent protests, like the instant protest, have been attempts to challenge acquisitions where the contract in question was awarded years ago.”
But it wasn’t just the number and nature of Latvian Connection’s many protests that drew the GAO’s ire; the GAO also found the content of those protests troubling. The GAO wrote that “Latvian Connection’s protests are typically a collection of excerpts cut and pasted from a wide range of documents having varying degrees of relevance to the procurements at issue, interspersed with remarks from the protester. The tone of the filings is derogatory and abusive towards both agency officials and GAO attorneys.” The GAO continued:
While its protests typically revolve around the two central issues noted above, Latvian Connection also routinely makes baseless accusations. In recent months, Latvian Connection has claimed that agency and GAO officials are white collar criminals; that the actions of agency procurement officials have violated the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968; that various federal agency officials have engaged in treason; that GAO has violated the Equal Access to Justice Act, 5 U.S.C.§ 504; and that agency and GAO officials have engaged in activities that amount either to engaging in, or covering up, human trafficking and slavery.
The GAO dismissed the protest against the ManTech contract award both for lack of standing and lack of jurisdiction. The GAO then turned again to Latvian Connection’s protest history. The GAO noted that, although Latvian Connection had protested hundreds of acquisitions under which the government has sought a wide variety of goods and services, “[p]ublicly available information provides no evidence that Latvian Connection has successfully performed even a single government contract, and there is no evidence in the many cases presented to our Office to suggest that Latvian Connection engages in any government business activity whatsoever beyond the filing of protests.” The GAO then stated:
The wasted effort related to Latvian Connection’s filings is highlighted by its latest series of protests (including the current protest) challenging acquisitions that were conducted years ago, where performance is complete and there is no possible remedy available. These protests have placed a burden on GAO, the agencies whose procurements have been challenged, and the taxpayers, who ultimately bear the costs of the government’s protest-related activities. When presented with evidence, as here, that Latvian Connection does not hold the umbrella ID/IQ contract under which the order was issued, or that the order involves an amount lower than the statutory threshold for GAO’s task order jurisdiction, Latvian repeatedly fails to engage with the issues. Instead, the company simply files a lengthy, often unrelated, harangue that does not address the threshold issues that must be answered by any forum as part of its review.
We conclude that the above-described litigation practices by Latvian Connection constitute an abuse of our process, and we dismiss the protest on this basis. Although dismissal for abuse of process or other improper behavior before our Office should be employed only in the rarest of cases, it is appropriate here where we find that Latvian Connection’s abusive litigation practices undermine the integrity and effectiveness of our process.
In addition, the GAO wrote, “because of these abusive litigation practices, and to protect the integrity of our bid protest forum and provide for the orderly and expedited resolution of protests, we are suspending Latvian Connection from protesting to our Office for a period of one year as of the date of this decision.” The GAO remarked that it does “not take these actions lightly,” but “[n]onetheless, on balance, suspending for one year Latvian Connection’s eligibility to file protests with our Office may incentivize the firm to focus on pursuing legitimate grievances in connection with acquisitions for which there is evidence that Latvian Connection actually is interested in competing.”
The GAO concluded:
Our bid protest process does not provide, and was never intended to provide, a platform for the complaints of businesses or individuals that, to all outward appearances, have no actual interest in, or capability to perform, the government contracting opportunities to which they have objected. Nor, as a forum for the expeditious and inexpensive resolution of bid protests, are we required to endure baseless and abusive accusations.
A reader of the GAO’s decision might conclude that all of Latvian Connection’s protests have been frivolous. Not so. SmallGovCon readers will recall that last year, the GAO actually sustained two of Latvian Connection’s protests, involving FedBid reverse auctions and these decisions established (at least in my eyes) important precedent concerning agencies’ responsibilities when using FedBid. The GAO also sustained a third Latvian Connection protest in a case confirming that offerors are not presumed to be “on notice” of agency postings on websites other than FedBizOpps.
In fairness to Latvian Connection, then, it is clear that at least a handful of its many protests have been meritorious. That said, I can’t begin to imagine why a single company would feel the need to file 150 protests in the span of one not-yet-completed fiscal year. And while I haven’t had the opportunity to review the contents of Latvian Connection’s protest filings myself, I believe that the protest system works best where the litigants (even though adversarial) treat each other with basic norms of courtesy and respect. If Latvian Connection failed to meet this standard–as suggested by the various “baseless accusations” referenced in the GAO decision–then that failure alone is detrimental to the protest process.
The Latvian Connection case may become known for the effect it will have on a single company, but I think it’s broader than that: the GAO knows that allowing abuse of the protest system harms those who use the system in the way it was intended, and risks political intervention that might harm all contractors’ ability to file good faith protests. And in a world where 45% of GAO protests result in a favorable outcome for the protester, there can be little doubt that the good faith use of the protest system serves an important public purpose. Contractors can ill afford a Congressional rollback of their protest rights. As the Latvian Connection case demonstrates, the GAO itself possesses the inherent authority to sanction what it believes to be abuse of the protest system, and will exercise that authority in an appropriate (and rare) case.
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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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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: firstname.lastname@example.org
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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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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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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A self-certified woman-owned small business was ineligible for a WOSB set-aside contract because the woman owner’s husband held the company’s highest officer position and appeared to manage its day-to-day operations.
A recent SBA Office of Hearings and Appeals decision highlights the importance of ensuring that a woman be responsible for managing the day-to-day business of a WOSB–and that the woman’s role be reflected both in the corporate paperwork and in practice.
OHA’s decision in Yard Masters, Inc., SBA No. WOSB-109 (2017) involved an Army solicitation for grounds maintenance services. The solicitation was issued as a WOSB set-aside under NAICS code 561730 (Landscaping Services), with a corresponding $7 million size standard.
After evaluating competitive proposals, the Army awarded the contract to Yard Masters, Inc. A competitor then filed a WOSB protest, alleging that Yard Masters was ineligible. The protester contended that a man, Bryce Wade, was Yard Masters’ majority owner and President until recently and that he still exercised control over the company.
In response to the protest, Yard Masters admitted that Bryce Wade had previously been the majority owner, but that he had recently sold stock to his wife, Sally Wade, making her the 51% owner. Yard Masters also produced Sally Wade’s resume and meeting minutes, showing that Sally Wade was the Chief Executive Officer.
The SBA Area Office examined Yard Masters’ bylaws, and determined that the bylaws “do not create a CEO position” or assign any duties to the CEO. Instead, the bylaws identified the President (a position held by Bryce Wade) as the “chief executive and administrative officer of the corporation.” The SBA Area Office also noted that “Bryce Wade signed [Yard Masters’] proposal and its contract documents for the instant procurement,” as well as the company’s tax returns. The tax returns “identify Bryce, and not Sally, Wade as a compensated officer.”
The SBA Area Office found that Sally Wade did not control Yard Masters, and issued a determination finding the company ineligible for the Army WOSB set-aside contract.
Yard Masters appealed to OHA. Yard Masters argued, in part, that the corporation’s meeting minutes made clear that Sally Wade had ultimate direction and control of the company.
Yard Masters “argues that Sally Wade is its CEO,” OHA wrote. “The problem is that the Board did not formally create a position of CEO.” OHA continued, “[t]he Bylaws were never changed to add the position of CEO. The Bylaws clearly state that the President is the corporation’s ‘chief administrative and executive officer.’ Bryce Wade holds that position.” OHA concluded that Yard Masters’ “highest officer position is President, and Bryce Wade, not Sally Wade, holds it.”
OHA also noted that “all actions taken on [Yard Masters’] behalf were taken by Bryce Wade.” Even after Sally Wade “supposedly had taken control” of the company, “Bryce Wade signed [Yard Masters’] offer” and was listed as the point of contact. And incredibly, after the WOSB protest was filed, “t was Bryce Wade, not Ms. Sally Wade, who communicated with SBA on [Yard Masters’] behalf.”
OHA denied the appeal and upheld the SBA Area Office’s decision.
The Yard Masters case offers at least three important lessons for WOSBs.
First, corporate paperwork matters. I can’t count how many times, in my practice, I’ve seen a situation like Yard Masters’, where a company officer is using a title that isn’t established in the governing documents. In order for a woman to hold the highest officer position in the company, the governing documents need to establish that her role is, in fact, the highest. Even small, family-owned companies like Yard Masters need to ensure that their corporate documents are up to snuff.
Second, perception matters. Although there’s not necessarily anything inherently wrong with a man signing contracts and other documents on behalf of a WOSB, it does tend to suggest that the man has outsize influence within the company. WOSBs ought to be careful about who signs contracts, checks and other corporate documents–as well as who is listed as points of contact in SAM and in proposals.
And third, as a corollary to the previous item, if you’re getting protested for WOSB eligibility, don’t have a man be in charge of communicating with the SBA. Talk about not sending the right signals.
The SBA is still working in the long-awaited rules that will require all WOSBs to be formally certified. But in the meantime, Yard Masters is a good reminder self-certified WOSBs need to do their due diligence to ensure that they comply with all WOSB requirements.
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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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It’s the day after you submitted an offer for a big government contract, when one of your key personnel walks into your office. “Thanks for everything you’ve done for me,” she says, “but I’ve decided to take an opportunity elsewhere.”
Employee turnover is a part of doing business. But for prospective government contractors, it can be a nightmare. As highlighted in a recent GAO bid protest, a offeror was excluded from the award simply because one of its proposed key personnel resigned after the proposal was submitted.
It’s a harsh result, but it highlights that contractors must not only attract key personnel—they must also retain them.
At issue in URS Federal Services, B-413034 et al. (July 25, 2016), was a solicitation issued under the Navy’s SeaPort-e multiple-award IDIQ contract vehicle, which sought engineering and technical services at the Naval Surface Warfare Center in Dahlgren, Virginia. Proposals would be evaluated on a best value basis, under three factors: technical, past performance, and cost. The technical factor—the most important factor under the evaluation criteria—had three subfactors, relating to an offeror’s technical understanding/capability/approach, workforce, and management plan.
The workforce subfactor consisted of two elements. Under the staffing plan element, the Navy would evaluate “the degree to which the Offeror’s [sic] plan to support all areas of the [statement of work] with qualified people based on the staffing plan/matrix, as well as the availability of those individuals.” Though the RFP required offerors to propose 35 full-time equivalent personnel, it did permit offerors to propose “pending hire” personnel where the contractor had not yet identified a firm candidate for a position. The key personnel résumés element, then, was to be evaluated to assess the degree to which résumés of key personnel meet the pertinent qualifications. The RFP, moreover, required résumés to be provided that best demonstrated offeror’s ability to successfully meet the task order requirements.
URS Federal Services, Inc. submitted a proposal. URS submitted the resume of a certain individual (who was not identified by name) to fulfill a key role as a senior software engineer. The individual in question was proposed to work only half as much as a full-time employee, or “0.5 FTE” in human resources lingo.
After URS submitted its proposal, the proposed senior software engineer resigned. URS’s proposal was evaluated as being technically unacceptable, due to an unacceptable rating under the workforce subfactor. Specifically, the Navy faulted URS because, in part, it proposed to fulfill 0.5 FTE of the senior software engineer key personnel requirement with the individual who had resigned from URS after its proposal was submitted.
URS protested this finding of unacceptability, arguing that this person’s departure was not URS’s fault. It further said that this personnel substitution was simply a “ministerial action” under the contract, and should not have been assigned a deficiency.
GAO explained that when an agency learns that a key person is no longer available, “the agency has two options: either evaluate the proposal as submitted, where the proposal would be rejected as technically unacceptable for failing to meet a material requirement, or reopen discussions to permit the offeror to correct this deficiency.” Therefore, GAO wrote, “URS’ submission of a key person who was not, in fact, available reasonably supported the assignment of an unacceptable rating to the firm’s proposal.”
GAO also rejected URS’s argument that the substitution of its personnel was a “ministerial act” under the contract:
t is apparent from the RFP that the replacement of key personnel was within the discretion of, and subject to the approval of, the contracting officer. More importantly, as discussed above, the submission of key personnel résumés was a material requirement of the RFP, and the unavailability of the identified key personnel reasonably formed the basis of an unacceptable rating. Likewise, and contrary to URS’s contention, the record reasonably supports the assignment of a deficiency to URS’s proposal.
GAO held that the unavailability of one of its proposed key personnel was a material failure by URS to meet one of the RFP’s requirements. The Navy reasonably assigned URS a deficiency and found its proposal to be unacceptable. GAO denied URS’ protest.
Losing a key employee can be disruptive to a government contractor’s mission and its morale. But as URS Federal Services shows, losing a key employee can also cost a contractor an award. Where a solicitation requires the identification of key personnel, offerors should do their very best to propose personnel who can—and will—be available to perform the work.
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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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This story is about a glider, a balloon, the planet Venus, and Titan, the largest moon of Saturn. This subject matter is the fabric of the universe, but the lesson it teaches is as mundane as linen sheets.
A NASA Small Business Innovation Research offeror cannot always wait for a debriefing to file a GAO bid protest, because if it does, it may run the risk of the protest grounds being untimely.
In general, it often may be good practice for an unsuccessful offeror to wait to file a GAO bid protest until after its debriefing. It’s an arcane area of the law, but under the right circumstances, waiting for a debriefing can allow the protester to gather more ammunition to support its case, and (again, under the right circumstances) the protest nevertheless will be timely if filed within 10 days of the debriefing.
However, according to GAO, those “right circumstances” don’t include NASA SBIR procurements. An aerospace company found this out the hard way in Global Aerospace Corp., B-414514 (July 3, 2017).
Global Aerospace protested a NASA solicitation that was seeking, among other things, research and development proposals for vehicles capable of conducting scientific research on either Venus or Titan (easily the coolest-sounding project I’ve ever blogged about). Before we dig into the details of the case, a quick word about the SBIR program: The purpose of the program is to encourage the participation of small businesses in federally funded research and development. The program is codified at section 9 of the Small Business Act, 15 U.S.C. § 638. As part of the program, participating agencies hold some of their R&D budgets in reserve to fund small business projects.
SBIR contracts, or grants, have three phases. The first provides funding for a company to determine if its proposed project has merit and is feasible. If phase I is successful, the firm may be invited to apply for phase II, which involves more funding and a chance to develop the concept. After phase II, the firm is supposed to obtain non-SBIR funding either from the agency or the private sector to commercialize the project. That’s phase III.
Global Aerospace’s SBIR project began in November 2015, when NASA published a solicitation that included a variety of R&D topics. One topic was “Spacecraft and Platform Subsystems.” It included the subtopic “Terrestrial and Planetary Balloons.” The subtopic explained that NASA was seeking a vehicle of some type for exploration of Venus or Titan. The Venus explorer had to go up and down. The Titan explorer had to go up and down, and move horizontally.
Global Aerospace proposed a glider for Titan exploration. One of its competitors, Thin Red Line USA of Houston, Texas, proposed a balloon. Both proposals were selected for phase I funding.
The award of the phase I contract also served as the request for proposal for phase II. The phase II evaluation was quite complicated.
First, NASA had peer reviewers evaluate both proposals and rank them in a group of all along with all other proposals received for the spacecraft topic, including those from large businesses. The peer reviewers ranked the glider first in the Venus/Titan subtopic and 7th in the spacecraft topic. The balloon ranked second in the Venus/Titan subtopic and 29th overall. NASA did a separate peer review of commercialization potential and gave the glider an “average” and the balloon a “below average.”
The peer reviewers recommended that both the glider and the balloon receive phase II funding. But that was not the end of the evaluation. The next step was for the projects to head to the NASA field center with expertise in the subject matter. The glider, the balloon, and 30 other proposals, went to the Jet Propulsion Laboratory. JPL’s evaluation included a slightly different mandate. It was to review the proposals for technical and commercial merit, and to consider NASA’s priorities and other concerns.
JPL saw the balloon much more favorably. It found it a “simple but robust design” that “would be applicable to both Venus and Titan atmospheric exploration missions, as well as other planetary bodies” and determined it could enable a low-risk exploration mission shortly after completion of phase II. It ranked the balloon ninth (among an unknown total, but at least 30) and designated it high priority. The glider, on the other hand, was ranked 23rd (medium priority).
The evaluation continued from there. The next step was evaluation by the Science Mission Directorate, which was reviewing and prioritizing a larger group of phase II proposals. The SMD reviewed 108 proposals, ranked all 108, and even though it only had funding for 48, recommended funding the top 65 to the Source Selection Official. The SSO issued a memorandum on March 1, 2017, identifying 133 projects (SBIR and otherwise) that NASA had selected for contract negotiations.
When the dust cleared, the glider was on the outside looking in and the balloon was funded.
Global Aerospace, which had proposed the glider, asked for a debriefing. NASA provided one on March 16. Global Aerospace protested the decision on March 27 (within 10 days of the debriefing, as “days” are defined in the GAO’s Bid Protest Regulations, because the 26th was a Sunday) challenging the evaluation of its glider project and the Thin Red Line balloon project. Global Aerospace argued, in part, that the balloon was ineligible for SBIR funding because of the alleged use of a Canadian subcontractor during phase I, and the alleged intent to do so again in violation of the phase II solicitation’s prohibition on R&D outside the United States.
NASA responded that Global Aerospace’s allegations regarding the balloon were untimely. NASA asked the GAO to dismiss this aspect of Global Aerospace’s protest.
Under the GAO’s Bid Protest Regulations, the base rule is that any protest ground (other than to the terms of the solicitation) must be brought within 10 days of when the protester knew or should have known the basis. But there is an important, and frequently used, exception: when a protest challenges a procurement “conducted on the basis of competitive proposals under which a debriefing is requested, and when requested, required,” the initial protest “shall not be filed before the debriefing date offered to the protester, but shall be filed not later than 10 days after the date on which the debriefing is held.”
In other words, when the debriefing exception applies, a protester can base a challenge on items it knew more than 10 days before the debriefing was given–so long as the protest is filed within 10 days of the debriefing. Global Aerospace relied on this exception in filing its challenge to the funding of the balloon. But did the exception apply?
Digging through NASA’s procurement regulations, GAO found that “a competitive selection of research proposals resulting from a general solicitation and peer review or scientific review (as appropriate) solicited pursuant to section 9 of the Small Business Act”–also known as the SBIR program–is conducted on the basis of “other competitive procedures” not “on the basis of competitive proposals.” Thus, GAO concluded, “we find that this SBIR procurement was not conducted on the basis of ‘competitive proposals’ as contemplated by 4 C.F.R. § 21.2(a)(2).” Because Global Aerospace had known (or should have known) of the Canadian subcontracting allegation more than 10 days before the protest was filed, GAO dismissed this aspect of the protest.
Global Aerospace addresses a nuanced question (the difference between “competitive proposals” and “other competitive procedures”), but it’s an important holding for would-be NASA SBIR contractors. As the decision demonstrates, in a NASA SBIR procurement, a protester cannot rely on the debriefing exception to the GAO’s timeliness rules. Instead, with the exception of protests challenging solicitation improprieties, the GAO’s standard 10-day rule will apply.
As for Global Aerospace, it lost the battle but won the war. Although the GAO dismissed the allegations involving the balloon, Global Aerospace also protested NASA’s evaluation of its own proposal, and those allegations were timely. GAO found that NASA had treated the glider as though it was designed to explore Venus, Titan, and other planetary bodies, when it was clearly designed only for Titan. It sustained the protest and recommended a new SMD review.
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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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