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GAO: Key Employee’s Resignation Justified Exclusion From Award

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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Koprince Law LLC

 

“Similarly Situated Entities” Exempt From Ostensible Subcontractor Affiliation, SBA OHA Confirms

A “similarly situated entity” cannot be an ostensible subcontractor under the SBA’s affiliation rules. In a recent size appeal decision, the SBA Office of Hearings and Appeals confirmed that changes made to the SBA’s size regulations in 2016 exempt similarly situated entities from ostensible subcontractor affiliation. OHA’s decision in Size Appeal of The Frontline Group, SBA No. SIZ-5860 (2017) involved an Air Force solicitation for the alteration and fitting of uniforms.  The solicitation was issued as a small business set-aside under NAICS code 811490 (Other Personal and Household Goods Repair and Maintenance), with a corresponding $7.5 million size standard. After evaluating proposals, the Air Force announced that DAK Resources, Inc. was the apparent successful offeror.  An unsuccessful competitor, The Frontline Group, then filed a size protest.  Frontline contended that DAK was affiliated with its subcontractor, Tech Systems Inc., under the SBA’s ostensible subcontractor affiliation rule. The ostensible subcontractor affiliation rule provides that a prime contractor is affiliated with its subcontractor where the subcontractor is performing the “primary and vital” portions of the work, or where the prime is “unusually reliant” on the subcontractor.  However, in June 2016, the SBA amended the ostensible subcontractor regulation, 13 C.F.R. 121.103(h)(4), to specify that “[a]n ostensible subcontractor is a subcontractor that is not a similarly situated entity,” as that term is defined in 13 C.F.R. 125.1. The SBA Area Office determined that the subcontractor, TSI, was a small business under NAICS code 811490.  Accordingly, the SBA Area Office found that TSI was a similarly situated entity, and exempt from being considered an ostensible subcontractor.  The SBA Area Office issued a size determination finding DAK to be an eligible small business. Frontline filed a size appeal with OHA, challenging the SBA Area Office’s determination. OHA noted that the SBA had amended the ostensible subcontractor affiliation rule in 2016 to exempt similarly situated entities.  OHA then wrote that “there is no dispute that DAK, the prime contractor, is small, and no dispute that the subject procurement was set aside for small businesses.”  Further, “DAK and TSI will perform the same type of work on this procurement, and no party contends that the subcontract would be governed by a different NAICS code or size standard than the prime contract.” OHA determined that the SBA Area Office had correctly found TSI to be a similarly situated entity, exempt from consideration as an ostensible subcontractor.  OHA denied Frontline’s size appeal. The Frontline Group confirms that the SBA’s regulatory exemption for similarly situated entities is now in effect.  When a subcontractor qualifies as a similarly situated entity, it is not an ostensible subcontractor.
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GAO: Exception To Protest Timeliness Rules Didn’t Apply To NASA SBIR Competition

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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Koprince Law LLC

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Release of Claims: Contractor Signatory Must Have Authority

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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Insufficient Experience Information Sinks Offeror’s Proposal

An offeror’s failure to provide the type of past performance information mandated by a solicitation led to the offeror’s elimination from consideration for a  major GSA contract. A recent GAO bid protest decision highlights the importance of fully reading and adhering to a solicitation’s requirements–including those involving the type of past performance or experience information required. GAO’s decision in Dougherty & Associates, Inc., B-413155.9 (Sept. 1, 2016) involved the GSA “HCaTS” solicitation, which contemplated the award of multiple IDIQ contracts to provide Human Capital and Training Solutions across the federal government. The solicitation was divided into two Pools based on the offeror’s small business size status. The GSA established a target of 40 awards for each Pool. The solicitation provided for award based on best-value, and included a requirement for past experience, which stated: For an Offeror to be eligible for consideration under a given Pool, the Offeror shall have performed six Relevant Experience Projects [REP], with four of those Relevant Experience Projects under a NAICS Code that corresponds directly to a NAICS Code in the Pool being applied for… Each Relevant Experience Project shall meet the minimum requirements prescribed in Section L.5.2.2. The solicitation also warned potential offerors that their experience “must be substantiated by ‘evidence within a verifiable contractual document,’ adding that an offeror ‘shall only receive credit…if the Government can validate the information,’” and that failure to meet the experience requirements “may result in the proposal being rejected.” Under the terms of the solicitation, an offeror could meet the experience requirements by “submitting for each relevant experience project: a single contract; a single task or purchase order, or a ‘collection of task orders’ that had been placed under a ‘master contract vehicle.”  Finally, the solicitation required for each project that an offeror submit either a single contract/task order/purchase order, or a combination of task orders, “but not both.” The solicitation stated that “if the Offeror submits the single contract and the task order(s)/purchase order(s) awarded against it, the single contract and the task order(s)/purchase order(s) shall not be considered.” The GSA received 115 proposals. Dougherty & Associates, Inc. was one of the offerors; it submitted a proposal for both Pools. In supporting one of its required experience projects, DAI reference a subcontract between DAI and a prime contractor under an Office of Personnel Management contract. DAI also submitted three purchase orders that had been issued under the subcontract. The GSA sought clarification from DAI regarding this experience project. The GSA noted that the project contained three separate purchase orders and “was not identified as a ‘collection of task orders’ … It’s unclear how these 3 orders are linked.” DAI responded by stating that “[w]e did not submit this relevant project as a collection of task orders.” DAI explained that the prime contractor had used purchase orders throughout the period of the subcontract and that “[t]he purchase orders were submitted, as required by the RFP proposal submission instructions, as contractual documents to substantiate … DAI’s scope of work, [key service areas], relevancy, period of performance and project value.” The GSA subsequently notified DAI that its proposal had been eliminated from consideration. GSA explained that the experience project in question “contains three separate purchase orders and was not identified as a ‘collection of task orders.'” DAI filed a GAO bid protest. DAI argued that the GSA had improperly eliminated DAI based on an unreasonable reading of DAI’s proposal. GAO explained that the solicitation required that for each of the six relevant projects “an offeror must submit either a single contract/task order/purchase order, or a collection of task orders–but not both.” GAO continued: Here, notwithstanding these provisions, DAI submitted its OPM subcontract–along with purchase orders issued under that subcontract. Further, DAI acknowledges that the subcontract, itself, does not substantiate the various experience requirements . . .. Finally, DAI declined to comply with the solicitation requirements regarding a collection of task orders/purchase orders–despite the agency’s notification that it was unclear that the purchase orders DAI submitted were sufficiently related. GAO denied DAI’s protest. Dougherty & Associates, Inc. serves as a reminder to fully read and follow the specific requirements of a solicitation to a T–including those involving experience or past performance. While this is true in any solicitation, it is especially so in the case of a large multiple-award IDIQ like HCaTS with dozens (or hundreds) of offerors. In these cases, agencies may be trying to more easily whittle down the playing field, and may be all the more inclined to reject proposals for what seem like minor variances from the terms of the solicitation.   View the full article  

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Contractor’s Email Leads to Lost Contract, Denied Protest

Generally speaking, government contractors know that part of the cost of doing business with the federal government is some loss of autonomy. The government writes the rules. It is the 500 lb. gorilla. What it says usually goes. When contractors try to do things their own way–even in an relatively informal medium such as email–they can sometimes get into trouble, as evidenced by a recent GAO protest decision: Bluehorse Corp., B-414809 (Aug. 18, 2017). The protest involved a procurement for diesel fuel as part of a highway construction project near Polacca, Arizona, by the Department of Interior, Bureau of Indian Affairs. The solicitation said that the fuel would be delivered as needed by the construction project. During a question-and-answer session, the contracting officer said that BIA had two 5,000 gallon tanks for storage, and that the agency “typically” orders 4,000 gallons at a time. Bluehorse Corp., a Reno, Nevada, Indian Small Business Economic Enterprise, provided a quotation that said it had the ability to supply 7,500 gallons per delivery. The contracting officer selected Bluehorse for award. On June 13, it sent it a purchase order which specified that each delivery would be 4,000 gallons. The purchase order incorrectly stated that the capacity of the tanks was 4,000 gallons each. In response, Bluehorse and the contracting officer spent the day emailing each other back and forth about the parameters of the deal. Bluehorse was insistent that it should be allowed to deliver 7,500 gallons at a time. The emails escalated in fervor from a polite request that the government clarify the capacity of its tanks to a threat that “f you don’t amend we will simply protest.” Importantly, in one of the emails, Bluehorse said “our offer was made on the ability to make a 7500 [gallon] drop . . . .” The contracting officer responded that Bluehorse was attempting to provide its own terms by “determining the amount you want to deliver and not what the government is requesting[.]” When Bluehorse did not respond, the contracting officer rescinded the offer. In the span of a day, the deal had completely fallen apart. Bluehorse protested, saying that the agency relied on unstated evaluation criteria and “inexplicably” limited deliveries to 4,000 gallons. GAO sided with the 500 lb. gorilla. It said that although the offer initially conformed to the terms of the solicitation (because the initial reference to 7,500 gallon deliveries was a “statement of capability”) when Bluehorse told the contracting officer in its email that the offer was dependent on the ability to deliver 7,500 gallons at a time, Bluehorse had placed a condition on the acceptance of its quotation. GAO said, “the record supports the agency’s conclusion the protester subsequently conditioned its quotation upon the ability to deliver a minimum of 7,500 gallons of fuel at a time.” In other words, the contractor tried to change the rules. It did not matter whether the government had the capacity to hold the amount Bluehorse wanted to provide. All that mattered was that the government wanted one thing, and Bluehorse insisted on providing another. GAO denied the protest. The government may have been throwing its weight around. But it can. Whether it is diesel fuel, destroyers, or donuts, when the government says it wants X, the contractor typically has to provide X.
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SBA Revises 8(a) JV Regulation–But Confusion Remains

Stating that populated joint ventures have now been eliminated, the SBA has revised its 8(a) joint venture regulations to reflect that change. In a technical correction published today in the Federal Register, the SBA flatly states that an earlier major rulemaking eliminated populated joint venture, and tweaks the profit-sharing piece of its 8(a) joint venture regulation to remove an outdated reference to populated joint ventures.  But even following this technical correction, there are three important points of potential confusion that remain (at least in my mind) regarding the SBA’s new joint venture regulations. If you’re a SmallGovCon reader (and I’m assuming you are, since you’re here), you know that the SBA made some major adjustments to its rules regarding joint ventures earlier this year.  Among those changes, the SBA amended the definition of a joint venture to state that, among other things, a joint venture “may be in the form of a formal or informal partnership or exist as a separate legal entity.”  If the joint venture is a separate legal entity, it “may not be populated with individuals intended to perform contracts,” although the joint venture may still be populated with one or more administrative personnel. When the SBA made this change, it apparently forgot to adjust its 8(a) joint venture regulation to reflect the elimination of “separate legal entity” populated joint ventures.  The 8(a) joint venture regulation, 13 C.F.R. 124.513, continued to provide that each 8(a) joint venture agreement must contain a provision “Stating that the 8(a) Participant(s) must receive profits from the joint venture commensurate with the work performed by the 8(a) Participant(s), or in the case of a populated separate legal entity joint venture, commensurate with their ownership interests in the joint venture.” In today’s technical correction, the SBA writes that “because SBA eliminated populated joint ventures,” the reference to a populated separate legal entity joint venture in 13 C.F.R. 124.513 “is now superfluous and needs to be deleted.”  The SBA has amended 13 C.F.R. 124.513 to provide that an 8(a) joint venture agreement must contain a provision “Stating that the 8(a) Participant(s) must receive profits from the joint venture commensurate with the work performed by the 8(a) Participant(s).” So far, so good.  But even after this technical correction, I have three important points of confusion regarding the SBA’s new joint venture regulations. Are all populated JVs eliminated?  In today’s technical correction, the SBA states that populated joint ventures have been eliminated.  But the regulation itself only prohibits populated joint ventures when the joint venture is a “separate legal entity,” such as a limited liability company.  The SBA may believe that the employees of the joint venture partners are themselves employees of the joint venture when the joint venture is an informal partnership–but that’s unclear from the regulations and the SBA’s accompanying commentary. Could two companies form an informal partnership-style joint venture, and then populate the partnership with employees who aren’t on either partner’s individual payroll?  That might not be advisable for various reasons, but the possibility appears to be left open in the SBA’s revised joint venture regulations. Which regulation do 8(a) M/P JVs follow for small business set-asides?   When an 8(a) mentor-protege joint venture will pursue a small business set-aside contract, the revised regulations suggest that the joint venture agreement must conform with two separate regulations.  And, in the case of the profit-splitting provision that I discussed earlier, the regulations appear to conflict with one another. Bear with me here, because this involves following a regulatory bouncing ball.  Under the SBA’s size regulations at 13 C.F.R. 121.103(h), in order for an 8(a) mentor-protege joint venture to avail itself of the regulatory exception from affiliation (the exception that allows a joint venture to be awarded a set-aside contract without regard to the mentor’s size), the joint venture “must meet the requirements of 13 C.F.R. 124.513(c) and (d) . . ..”  This requirement applies “for any Federal government prime contract or subcontract,” including non-8(a) contracts. Turning to 13 C.F.R. 124.513(c), the SBA’s 8(a) joint venture regulation, we see a list of mandatory provisions that the joint venture agreement must contain.  Among those mandatory provisions, as I mentioned previously, is a requirement that the parties divide profits commensurate with work share.  The 8(a) firm’s work share can be as low as 40% of the joint venture’s work, meaning that the 8(a) firm could receive a 40% profit share. So far, so good.  But let’s say that the joint venture will pursue a small business set-aside contract, not an 8(a) contract.  The SBA’s new regulation governing joint ventures for small business set-aside contracts, 13 C.F.R. 125.8, provides that “every joint venture agreement to perform a contract set aside or reserved for small business between a protege small business and its SBA approved mentor authorized by [13 C.F.R.] 125.9 or 124.520 must contain” a list of required provisions set forth in 13 C.F.R. 125.8(b).  13 C.F.R. 124.520 is the regulation establishing the 8(a) mentor-protege program, which means that the list of required provisions under 13 C.F.R. 125.8 applies to 8(a) mentor-protege joint ventures seeking small business set-aside contracts. While the list of required provisions in 13 C.F.R. 125.8 is very similar to that of 13 C.F.R. 124.513, there is one major difference.  Under 13 C.F.R. 125.8, the joint venture agreement must contain a provision “stating that the small business must receive profits from the joint venture commensurate with the work performed by the small business, or in the case of a separate legal entity joint venture, commensurate with their ownership interests in the joint venture.”  The 8(a) protege must hold a minimum 51% ownership interest, meaning that the 8(a) must receive at least a 51% profit share. So let’s say that an 8(a) protege and its large mentor form a limited liability company joint venture to pursue a small business set-aside.  In order to avail themselves of the mentor-protege exception from affiliation, the mentor and protege are required to adopt a joint venture agreement pledging to split profits based on work share, with a potential minimum share of 40% for the 8(a) protege.  But in order to comply with 13 C.F.R. 125.8, the joint venture agreement must pledge to split profits based on each party’s respective ownership interest in the joint venture, with a potential minimum share of 51% for the 8(a) protege.  These provisions are inconsistent, and it’s not clear how a joint venture could readily comply with both. Can SDVOSB Joint Ventures Use “Contingent Hire” Project Managers? For mentor-protege joint ventures pursuing small business set-aside contracts, as well as all joint ventures pursuing 8(a), SDVOSB, HUBZone, and WOSB contracts, the SBA’s regulations require that an employee of the Managing Venturer be named the Project Manager responsible for contract performance.  In its revised regulations for small business, 8(a), HUBZone, and WOSB set-asides, the SBA added a new provision stating that “the individual identified as the project manager of the joint venture need not be an employee of the small business at the time the joint venture submits an offer, but if he or she is not, there must be a signed letter of intent that the individual commits to be employed by the small business if the joint venture is the successful offeror.” This provision makes a lot of sense, because small businesses don’t often have under-employed Project Managers (who are often rather highly compensated) on payroll, just sitting around waiting for potential contracts to be awarded.  Instead, a Project Manager is often formally hired only when a contract award is made. Strangely, though, unlike for the rest of its small business programs, the SBA did not adopt this “contingent hiring” language in its revised regulation for SDVOSB joint ventures.  That regulation, 13 C.F.R. 125.18, simply states that the joint venture must designate “an employee of the SDVO SBC managing venturer as the project manager responsible for performance of the contract.” Did the SBA intend to prohibit SDVOSB joint ventures from using contingent hire project managers?  My best guess is that this was an oversight; I don’t see any good reason to differentiate SDVOSB joint ventures from other joint ventures in this regard.  But unless and until the SBA clarifies the matter, it may be risky business for SDVOSB joint ventures to rely on contingent hires to satisfy the Project Manager requirement. In Conclusion Almost any major rulemaking ultimately requires some clarifications and corrections, and I’m glad that the SBA is working to clarify the rule it adopted this summer.  That said, some confusion seems to remain, and I hope that further clarification is coming.
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8(a) Program Survives Court Challenge–But Battle Could Continue

The 8(a) Program has survived a major challenge to its constitutionality–but the legal battle over the 8(a) Program’s future may well continue. On Friday, a two-judge majority of the U.S. Court of Appeals for the D.C. Circuit held that the statute that creates the 8(a) Program is not unconstitutional. While the D.C. Circuit’s decision is a big win for proponents of the 8(a) Program, the limited scope of the ruling–and a sharp dissent from that ruling–signal that the fight over the future of the 8(a) Program may not be over. Rothe Development, Inc. v. U.S. Department of Defense, No. 1:12-cv-00744 (D.C. Cir. Sept. 9, 2016), involved the question of whether the Department of Defense could set aside certain procurements exclusively for 8(a) Program participants. Rothe Development, Inc., which is not an 8(a) participant, brought suit against the DoD, arguing that it had been improperly precluded from competing for these contracts. Rothe challenged the constitutionality of the 8(a) Program itself. Rothe attacked the statutory provisions establishing the 8(a) Program, claiming that the underlying 8(a) Program statute “contains a racial classification that presumes that certain racial minorities are eligible for the program,” while denying such a presumption to those who are not members of those groups. Rothe argued that this classification system violated its right to equal protection under the Due Process Clause of the Fifth Amendment. When a court reviews an equal protection challenge, the court will apply a certain “standard of review.”  The standard of review sets forth the burden that the government must meet in order to demonstrate that the challenged law is constitutional. For equal protection purposes, the Supreme Court has established three standards of review: rational basis, intermediate scrutiny and strict scrutiny. Think of these as low, medium, and high scrutiny (or tall, grande, and venti, if you prefer Starbucks terminology). Rational basis is the lowest threshold, and applies to the review of most laws. To survive a rational basis review, a statute merely must be bear some reasonable relation to some legitimate government interest. Strict scrutiny, on the other hand, is the highest level of review. A court must apply strict scrutiny in certain circumstances, such as where a statute, on its face, is not race-neutral. To pass strict scrutiny, the government must show the statute is narrowly tailored to meet a compelling government interest. That, of course, can be a very difficult burden for the government to meet; when strict scrutiny is applied, the court often rules against the government. Turning back to the case at hand, the two-judge majority, after closely reviewing the 8(a) Program’s underlying statute, determined that “the provisions of the Small Business Act that Rothe challenges do not on their face classify individuals by race.” The majority continued: Section 8(a) uses facially race-neutral terms of eligibility to identify individual victims of discrimination, prejudice, or bias, without presuming that members of certain racial, ethnic, or cultural groups qualify as such. That makes it different from other statutes that either expressly limit participation in contracting programs to racial or ethnic minorities or specifically direct third parties to presume that members of certain racial or ethnic groups, or minorities generally, are eligible. Congress intentionally took a different tack with section 8(a), opting for inclusive terms of eligibility that focus on an individual’s experience of bias and aim to promote equal opportunity for entrepreneurs of all racial backgrounds. The majority noted that “in contrast to the statute, the SBA’s regulation implementing the 8(a) program does contain a racial classification in the form of a presumption that an individual who is a member of one of five designated racial groups (and within them, 37 subgroups, is socially disadvantaged.” Importantly, however, Rothe “elected to challenge only the statute,” not the regulation. Therefore, the court determined, “[t]his case does not permit us to decide whether the race-based regulatory presumption is constitutionally sound.” Having determined that the statute was race-neutral on its face, the D.C. Circuit majority applied the rational basis test, not strict scrutiny. The majority found that “[c]ounteracting discrimination is a legitimate interest,” and that “the statutory scheme is rationally related to that end.” The D.C. Circuit held that the 8(a) Program’s statutory provisions did not violate the Fifth Amendment. Judge Karen Lecraft Henderson dissented in part from the majority’s ruling. Judge Henderson pointed out that just about everyone who had looked at the issue previously–Rothe, the government’s counsel, and the lower court–had concluded that the statute did, in fact, contain a racial classification. Judge Henderson wrote that that “section 8(a) contains a paradigmatic racial classification,” and that the court “should apply strict scrutiny in determining whether the section 8(a) program violates Rothe’s right to equal protection of the laws.” Judge Henderson did not say, however, whether she would find the 8(a) Program to be unconstitutional under a strict scrutiny test. There is no doubt that the D.C. Circuit’s decision is a big win for proponents of the 8(a) Program. Not only was the 8(a) program found to pass constitutional muster, the applicable standard of review was determined to be rational basis—the easiest test for a statute to pass. But some of the coverage I’ve seen of the D.C. Circuit’s decision makes it sound like the issue of the 8(a) Program’s constitutionality has been fully and finally resolved. I’m not so sure. As the majority noted, Rothe specifically disclaimed any challenge to 13 C.F.R. 124.103, the SBA regulation establishing who is–and is not–deemed “socially disadvantaged” for 8(a) Program purposes. The majority was very clear that it believes that the regulations themselves are not race-neutral, meaning that any future challenge to the regulations would likely be decided under the much-higher strict scrutiny standard. Additionally, there is no guarantee that the Rothe case itself is over and done. While the Supreme Court doesn’t take many government contracting cases, the recent Kingdomware decision demonstrates that the Court is willing to take on an important contracting case. And in Rothe, the D.C. Circuit’s internal disagreement over what level of scrutiny to apply, coupled with the Court’s willingness to tackle cases involving alleged race-based classifications>, might mean that Rothe ends up on the Supreme Court’s docket. For 8(a) Program proponents, there is good reason to cheer the D.C. Circuit’s Rothe decision, but don’t break out the champagne just yet. Ian Patterson, a law clerk with Koprince Law LLC, was this post’s primary author.   View the full article  

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ASBCA: Government Properly Terminated Contractor for Preliminary Finding of SCA Violation

The government can terminate a contract when the Department of Labor has made a preliminary finding of non-compliance with the Service Contract Act, even if the contractor has not exhausted its remedies fighting or appealing the finding. The 3-0 (unanimous) decision by the Armed Services Board of Contract Appeals in Puget Sound Environmental Corp., ASBCA No. 58828 (July 12, 2016) is troubling because it could result in other contractors losing their contracts based on preliminary DOL findings–perhaps even if those preliminary findings are later overturned. The Puget Sound decision involved two contracts under which Puget Sound Environmental Corporation was to provide qualified personnel to accomplish general labor tasks aboard Navy vessels or at naval shore leave facilities. Both contracts included the FAR’s Service Contract Act clauses. Under that first contract, PSE ran into SCA issues. DOL investigated and PSE entered into a payment plan to remedy the alleged violations. The Navy, knowing about the payment plan, nevertheless entered into another contract with PSE to provide similar services. The second contract, like the first, was subject to the SCA. Early into the performance of the second contract (referred to as Task Order 9) during the summer of 2011, DOL began a new investigation into PSE. DOL’s investigation ultimately concluded that PSE owed its workers over $1.4 million on both contracts for failure to pay prevailing wage rates, and failing to provide appropriate health and welfare benefits and holidays to its covered employees. DOL made some harsh claims, including that PSE had classified skilled maintenance and environmental technicians as laborers and had issued health insurance cards to employees who were stuck with large medical bills after they found the cards were not valid. During the investigation, on September 1, 2011, DOL wrote to the Navy contracting officer and informed the contracting officer of DOL’s preliminary findings. A week later, the contracting officer emailed PSE and told it that the Navy “no longer has need for the firewatch/laborer services provided under task order” 9, and that the Navy was terminating the contract for convenience. That same day, as would eventually come out in discovery, the contracting officer had written an internal email stating that he was concerned about awarding PSE another task order because of the supposed likelihood that PSE would “commit Fraud against [its] employees[.]” Five days later, PSE agreed to allow the Navy to transfer funds due on Task Order 9 to DOL to be disbursed as back wages. Shortly thereafter, on September 15, PSE and the Navy mutually agreed to terminate the contract for convenience. The Navy issued no further task orders, but awarded a bridge contract for the same services to another contractor in October of that year. Just under two years later, on May 17, 2013, PSE submitted a certified claim under the Contract Disputes Act, claiming lost revenue of $82.4 million (based on five years worth of revenue on the contract) and asked for 4% of that number, or $3.3 million in damages. The contracting officer never issued a final decision on the claim, so PSE treated this as a deemed denial and on August 9, 2013, appealed the decision to the ASBCA. On May 12, 2014, DOL’s Office of Administrative Law Judges reviewed the findings of the DOL investigation and concluded that DOL was right to assess the $1.4 million in back pay. The Office of Administrative Law Judges determined that PSE should be debarred for three years. PSE appealed the decision to the Administrative Review Board, which affirmed the ALJ. PSE indicated that it would appeal the ruling in federal court, although it had not done so by the time the ASBCA ruled on PSE’s appeal. At the ASBCA, both PSE and the Navy moved for summary judgment. PSE primarily argued that the Navy terminated the contract in bad faith. PSE said that the contracting officer rushed to judgment and that the termination for convenience was effectively a termination for default, relying on the use of the word “fraud” in the contracting officer’s internal email as evidence of animus. The ASBCA said: “Whether fraud was the best word choice is not the issue before us; the undisputed facts show that the contracting officer had a good faith basis for concluding that PSE failed to pay its employees in accordance with the contracts and that it had deceived those employees by leading them to believe that they had health insurance when, in fact, they did not.” The ASBCA denied PSE’s motion for summary judgment, and granted the Navy’s motion. While the facts of the case are interesting, they’re not all that unique; DOL investigates and prosecutes alleged SCA violations with some frequency. What’s troubling about the Puget Sound case is that the Navy unceremoniously terminated a contractor well before any of the new allegations were fully adjudicated and before PSE had the opportunity to contest DOL’s preliminary findings. Although PSE could still prevail in federal court, the preliminary findings were confirmed by DOL’s ALJ and Administrative Review Board. But preliminary findings are just that–preliminary–and sometimes are overturned. The ASBCA’s decision therefore begs the question: what if a future contractor is terminated based on a preliminary DOL finding that is later overturned? Does Puget Sound Environmental mean that that contractor would have no remedy? It’s certainly a possibility. That said, some there may be ways for other contractors to distinguish Puget Sound Environmental. For one thing, PSE had already agreed to pay back wages on an earlier contract, of which the contracting officer was aware. That earlier settlement likely influenced the contracting officer’s decision; had the DOL’s preliminary findings on task order 9 stood in a vacuum, the contracting officer might have allowed things to play out. Additionally, in reaching its conclusion, the ASBCA wrote that “PSE has not provided us with any evidence that DOL is wrong (and that the contracting officer’s reliance on DOL is actionable.” For example, the ASBCA said, “with respect to the allegation that PSE failed to pay health and welfare benefits, if DOL was wrong and PSE had paid for those benefits, it would have been relatively simple to establish this. But, PSE has failed to provide any such evidence.” In a case where DOL’s preliminary findings were overturned, the contractor would have strong evidence that those preliminary findings were wrong–and hopefully, that it was unreasonable for the contracting officer to rely on those findings. There is an old legal adage that “hard cases make bad law,” which means that when judges allow themselves to be persuaded by sympathy, they make bad decisions. The same can be true when the parties involved elicit little sympathy, as may have been the case here–by not providing evidence that it had actually complied with the SCA, PSE wasn’t likely to win many points with the ASBCA’s judges. That said, the next appellant who comes before the ASBCA with a similar issue may be able to demonstrate that it did, in fact, comply with the SCA, and that DOL’s preliminary findings were wrong. If so, it remains to be seen how the ASBCA will view the termination of that appellant’s contract.
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SDVOSB Fraud: Indictment In $13.8 Million “Rent-A-Vet” Case

Two Missouri men have been indicted for allegedly perpetrating an SDVOSB “rent-a-vet” scheme to fraudulently obtain 20 contracts totaling more than $13.8 million. According to a Department of Justice press release, the veteran in question nominally served as the company’s President, but did not control the company’s strategic decisions or day-to-day management–in fact, the veteran apparently was working full-time for the DoD instead of managing the SDVOSB. The indictment contends that Jeffrey Wilson, who is not a service-disabled veteran, owned a Missouri-based construction company.  According to the DOJ, Wilson conspired with Paul Salavtich, a service-disabled veteran, to obtain SDVOSB set-aside contracts with the VA and Army. Salavitch was nominally the President of his company, Patriot Company, Inc.  However, the DOJ contends, Mr. Salavitch did not actually manage Patriot’s long-term decisions or day-to-day operations, nor did he work full-time for Patriot.  Instead, Salavitch was a full-time employee with the DoD, based in Leavenworth, Kansas.  The indictment suggests that Mr. Wilson, not Mr. Salavitch, actually controlled the company. The indictment is rife with examples of conduct that appear to suggest that the conspirators knew that what they were doing was wrong–and were taking steps to try to hide it.  For example, when Patriot was leasing new space, Mr. Wilson stated in an email that he wanted a “thing or two” from Mr. Salavitch “to put in that office that is personal.”  Mr. Wilson stated that the purpose of obtaining these personal items was so “if one stepped into [the office], it would look and feel like Patriot.” It will be up to a judge or jury to decide why Mr. Wilson made statements like these, but here’s one guess: Mr. Wilson was aware that the VA Center for Verification and Evaluation performs unannounced on-site visits, and, for the benefit of potential VA inspectors, was attempting to create the impression that Mr. Salavitch actually worked out of the Patriot office. The indictment alleges that Patriot was awarded 20 SDVOSB and VOSB set-aside contracts with the VA and Army, totaling $13,819,522.  The contracts included construction projects across the Midwest; the largest contract was $4.3 million. Mr. Wilson, Mr. Salavitch and Patriot are charged with conspiracy and four counts of major government contract fraud.  Mr. Wilson is also charged with one count of wire fraud and two counts of money laundering.  The indictment contains forfeiture obligations, which would require Mr. Wilson and Mr. Salavitch to forfeit any property derived from the proceeds of the fraud scheme.  Law enforcement has already seized over $2 million from various financial accounts. As with any indictment, the defendants are entitled to a presumption of innocence.  But if Mr. Wilson and Mr. Salavitch are found guilty, perhaps they will find themselves better acquainted with Leavenworth than they would have hoped.  I’ll keep you posted.
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GAO: Lower-Paid Incumbents An “Obvious” Price Realism Concern

An offeror’s proposal to hire incumbent personnel–but pay those personnel less than they are earning under the incumbent contract–presents an “obvious” price realism concern that an agency must address when price realism is a component of the evaluation. In a bid protest decision, the GAO held that an agency’s price realism evaluation was inadequate where the agency failed to address the awardee’s proposal to hire incumbent personnel at discounted rates. GAO’s decision Valor Healthcare, Inc., B-412960 et al. (July 15, 2016), involved a VA solicitation to perform outpatient clinic services including primary care and mental health to veterans in Beaver County, Pennsylvania. The solicitation envisioned awarding a fixed-price, indefinite-delivery/indefinite-quantity contract with a base period of one year and four option years. The solicitation called for a “best value” tradeoff, considering price and non-price factors.  With respect to price, the solicitation required the VA to perform a price realism analysis, i.e., determine if the offeror’s price is unrealistically low, such as to reflect a potential lack of understanding of the work. The solicitation specified that in order for an offeror’s price to be considered realistic, “it must reflect what it would cost the offeror to perform the effort if the offeror operates with reasonable economy and efficiency.” Two companies bid on the contract, Valor Healthcare, Inc. (the incumbent contractor) and Sterling Medical Associates. After evaluating competitive proposals, the VA determined that Sterling’s proposal was higher-rated and lower-priced. The VA awarded the contract to Sterling. Valor filed a GAO bid protest challenging the award. Valor argued, among other things, that Sterling’s price was too low and that the agency failed to perform an adequate price realism analysis. GAO explained that where, as in this case, a solicitation anticipates the award of a fixed-price contract, “there is no requirement that an agency conduct a price realism analysis.” An agency may, however, “at its discretion,” provide for the use of a price realism analysis “to assess the risk inherent in an offeror’s proposal.” When a solicitation specifies that the agency will conduct a price realism analysis, the agency must actually perform the analysis, and the resulting analysis must be reasonable. In this case, the GAO found that the contemporaneous record did not include any documentation showing that the agency had evaluated Sterling’s price for realism. In the absence of any supporting documentation, the GAO determined that the VA had not demonstrated that it conducted the required analysis in the first place. The GAO then noted that the majority of offerors’ costs of performance would be labor costs, and that “the majority” of Sterling’s proposed staffing candidates were the incumbent employees under Valor’s contract. However, Sterling’s pricing breakdown sheet showed that Sterling’s labor costs were lower than Valor’s (the amount of the difference was redacted from the GAO’s public decision). The GAO wrote that Sterling’s proposed pay cuts were an “obvious price realism concern” that should have been addressed in the agency’s evaluation. The GAO sustained this aspect of Valor’s protest. As the Valor Healthcare case demonstrates, when an agency elects to perform a price realism analysis, it must actually perform the analysis, and the analysis must be reasonable. Where, as here, the awardee proposes to lower the salaries of incumbent employees, it is unreasonable for the agency not to consider this “obvious” concern in its evaluation.  
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Cost Realism: Agency Must Evaluate Employee Compensation Rates

When an agency performs a cost realism evaluation under a solicitation involving significant labor costs, the agency must evaluate offerors’ proposed rates of employee compensation, not just offerors’ fully burdened labor rates. In a recent bid protest decision, the GAO held that an agency erred by basing its realism evaluation on offerors’ fully burdened labor rates, without considering whether the direct rates of compensation were sufficient to recruit and retain qualified personnel. The GAO’s decision in CALNET, Inc., B-413386.2, B-413386.3 (Oct. 28, 2016) involved a Navy task order solicitation for a range of technical services to be provided to the Naval Sea Systems Command Pacific Enterprise Data Center.  The solicitation was issued to holders of the Navy’s Seaport-e IDIQ contract, and contemplated the award of a cost-plus-fixed-fee task order. Under the solicitation, offerors were to propose personnel in 13 labor categories.  For each labor category, offerors were to provide information on their direct labor rates, as well as the indirect rates to be applied to those direct rates. In its cost evaluation, the Navy collected information about identical labor categories under 22 other contracts, including the incumbent contract.  Using this information, the Navy created a “range” of realistic fully-burdened hourly rates.  These ranges were, in some cases, quite broad.  For example, the Program Manager category ranged from a low of $69.44 per hour to a high of $228.93 per hour. The Navy only found a rate to be unrealistic if it fell below the established ranges.  Of the 186 rates examined by the agency, only three fell below the ranges.  Unsurprisingly, the Navy made few cost adjustments to offerors’ proposals.  The Navy awarded the task order to Universal Consulting Services, Inc., which had the lowest evaluated cost. CALNET, Inc., an unsuccessful competitor, filed a GAO bid protest.  CALNET argued, in part, that the Navy’s cost realism evaluation was inadequate. The GAO wrote that “[w]here, as here, an agency evaluates proposals for the award of a cost-reimbursement type contract, the agency is required to perform a cost realism evaluation to determine the extent to which each offeror’s proposed costs represent what the contract costs are likely to be.”  Such an evaluation ordinarily involves consideration of “the realism of the various elements of each offeror’s proposed cost,” as well as whether each offeror’s proposal “reflects a clear understanding of the requirements to be performed.” In this case, although “the cost of the contract is driven almost entirely by the cost of labor,” the Navy’s cost evaluation “was confined entirely to consideration of fully burdened hourly rates.”  However, “where, as here, a cost-reimbursement contract’s cost is driven in significant measure by labor costs, agencies are required to evaluate the offerors’ direct labor rates to ensure that they are realistic. ”  The policy behind this requirement is logical: “unless an agency evaluates the realism of the offerors’ proposed direct rates of compensation (as opposed to its fully-burdened rates), the agency has no basis to determine whether or not those rates are realistic to attract and retain the types of personnel to be hired.” The GAO found that the Navy “has no basis to conclude whether or not the offerors’ proposed direct rates of compensation are realistic because no analysis of those rates was ever performed.”  The GAO sustained CALNET’s protest. The underlying purpose of a cost realism evaluation is–as its name suggests–to determine whether an offeror’s proposed costs are realistic in light of the solicitation’s requirements.  As the CALNET protest demonstrates, where a cost-reimbursement solicitation includes significant labor costs, it is insufficient for an agency to limit its cost evaluation to fully-burdened labor rates.  Instead, the agency must evaluate each offeror’s direct rates of compensation for realism.
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SBA Required To Dismiss Unspecific SDVOSB Status Protest

A protester’s failure to be specific enough in an SDVOSB status protest will result in dismissal of the protest. The decision of the SBA Office of Hearings and Appeals in Jamaica Bearings Company, SBA No. VET-257 (Aug. 9, 2016), reinforces the SBA’s rule concerning specificity in filing a service disabled veteran-owned status protest. The rule provides, “[p]rotests must be in writing and must specify all the grounds upon which the protest is based. A protest merely asserting that the protested concern is not an eligible SDVO SBC, without setting forth specific facts or allegations is insufficient.” Jamaica Bearings involved a solicitation issued as an SDVOSB set-aside by the Defense Logistics Agency for 77 Parts Kits, Linear AC. Jamaica Bearings Company (JBC) was awarded the contract. JBL System Solutions, Inc. (JBL), an unsuccessful offeror, submitted a timely protest stating, “‘while [JBC] may or may not be owned and operated by a qualified Service Disabled Veteran, they do not meet the qualifications of the SBA to be a Small Business.’ (Protest, at 1),” and added that due to Jamaica Bearing Company’s size, the company should not pretend to be an SDVOSB. Although the protester offered no evidence to support its claim that JBC “may” not be an eligible SDVOSB, the SBA’s Director of Government Contracting (D/GC) initiated a full investigation of JBC’s SDVOSB eligibility. JBC (for reasons unexplained in OHA’s decision) did not respond to the D/GC’s inquiries. Thus, the D/GC apparently applied an “adverse inference” and assumed that JBC’s response would demonstrate that it was not an eligible SDVOSB. The D/GC issued a decision finding JBC to be ineligible for the DLA contract. JBC appealed the decision to OHA. JBC argued that it was an eligible SDVOSB and that another SBA office had previously confirmed JBC’s SDVOSB status.  The SBA’s legal counsel filed a response to the appeal, supporting the D/GC’s decision. Although neither party had raised it in its initial filings, OHA–on its own initiative–asked the parties to address “whether the D/GC should have dismissed the initial status protest by JBL as nonspecific.” Unsurprisingly, JBC responded by stating that the protest was not specific and should have been dismissed; the SBA claimed that the protest was specific. OHA wrote that, under its regulations, a viable SDVOSB protest must provide specific reasons why the protested SDVOSB is alleged to be ineligible. Insufficient protests must be dismissed. Further, OHA noted, the regulations provide the following example: A protester submits a protest stating that the awardee’s owner is not a service-disabled veteran. The protest does not state any basis for this assertion. The protest allegation is insufficient. In this case, OHA wrote, “the protest does not even rise to this level, as the protest simply states that [JBC] ‘may or may not’ be controlled by a service-disabled veteran.” The protest “does not directly allege that [JBC] is not owned and controlled by a service-disabled veteran, and gives no reason which would support such an assertion.” OHA wrote that “the D/GC was required to dismiss JBL’s protest because it simply failed to be specific enough as to challenge [JBC’s] service-disabled status.” OHA granted JBC’s SDVOSB appeal and reversed the D/GC’s status determination. As highlighted in Jamaica Bearings, SDVOSB status protest must be “specific.” However, the exact level specificity required under the regulations remains a bit fuzzy (although other OHA decision offer some guidance). Regardless of where the line is drawn in a particular case, Jamaica Bearings confirms that it is not enough for the protester to make an unsupported blanket allegation that an awardee is ineligible.
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Small Business Set-Asides: When The “Rule Of Two” Becomes The “Rule Of One”

An agency isn’t required to cancel a small business set-aside solicitation if the agency learns that one of the small businesses upon whom the set-aside decision rested is no longer small. In a recent bid protest decision, the GAO confirmed that an agency need not redo its “rule of two” determination when a potential small business competitor outgrows its size standard–even if it could effectively convert a particular solicitation into a “rule of one.” The GAO’s decision in Synchrogenix Information Strategies, LLC, B-414068.4 (Sept. 8, 2017) involved an FDA acquisition for software licenses, maintenance and support and related services.  Before issuing the solicitation, the agency issued a request for information on FedBizOpps, seeking information from businesses regarding their interest in the procurement. The FDA received three responses to the RFI from small businesses.  After evaluating those responses, the FDA concluded that it was reasonably likely to receive at least two or more offers from responsible small businesses.  Accordingly, the FDA issued the solicitation as a total small business set-aside. The agency received two proposals by the original closing date, August 10, 2016.  After evaluating those proposals, the FDA awarded the contract to Lorenz International.  The unsuccessful offeror, GlobalSummit, then filed a GAO bid protest challenging the award. In response, the agency took voluntary corrective action.  It asked both offerors to submit “a new full proposal.”  New proposals were due on May 15, 2017.  The new proposals were to include “all certifications, technical and business information” required by the solicitation. In March 2017, Synchrongenix Information Strategies, LLC “purchased substantially all of GlobalSummit’s assets.”  The purchase created an affiliation between GlobalSummit and Synchrogenix, a large business. As a result, GlobalSummit was no longer small. GlobalSummit asked that the FDA remove the certification requirement.  It explained that, at the time of its original proposal in August 2016, it had qualified as a small business.  However, because of the affiliation with Synchrogenix, it would no longer qualify as small if forced to re-certify in May 2017. The FDA declined to remove the requirement. Synchrogenix (presumably acting as successor-in-interest to GlobalSummit) filed a GAO bid protest.  Synchrogenix argued that the FDA was required to cancel the small business set-aside and reissue the solicitation as unrestricted because there was no longer a reasonable expectation of receiving two or more offers from small businesses.  Instead, Synchrogenix contended, the agency could only expect to receive one offer–from Lorenz.  Synchrogenix argued that proceeding with the acquisition would be tantamount to a de facto sole source award to Lorenz. The GAO sought the SBA’s opinion.  The SBA weighed in on the FDA’s side, stating: There is no requirement in the Small Business Act, the FAR, or SBA regulations, that an agency must redo its market research regarding the “rule of two” prior to requesting revised or newly submitted proposals during the course of a procurement or altogether cancel the solicitation if it becomes aware that only one responsible small business offer will be received in response to an amended solicitation.  The SBA further explained “it is not uncommon that an agency becomes aware, over the course of a procurement, that it will receive only one revised offer from a small business concern.”  The SBA pointed out that small businesses “may drop out of a competition for a variety of reasons . . . such that there is only one responsible small business offeror remaining.”  In such a case, “the agency may make award to that firm, provided award will be made at a fair market price.” The GAO found the SBA’s reasoning persuasive.  “As SBA advised in response to this protest,” GAO wrote, “there is no requirement in law or regulation that an agency must revisit” its rule of two determination when it becomes aware that it will only receive one offer from an eligible small business.  GAO concluded: [t]he fact that, during the course of the procurement, one of the two small business offerors is no longer capable of submitting a revised proposal, does not mean the procurement should be viewed as a de facto sole source procurement.” The GAO denied the protest. The Synchrogenix case makes the point that if an agency’s market research is sufficient to justify a set-aside, the agency need not adjust its determination if it later comes to realize that it will only receive one offer from a qualified small business.  In other words, it can be permissible for a “rule of two” set-aside to effectively turn into a “rule of one” as the acquisition proceeds. Interestingly, it’s not clear to me that Synchrogenix was ineligible for the FDA solicitation in the first place.  Under the SBA’s regulations, size ordinarily is determined as of the date of an initial offer; GlobalSummit met that requirement in August 2016.  While there used to be a provision in the regulations allowing contracting officers to require recertifications in connection with certain amendments, that rule was eliminated a few years ago.  And although SBA’s regulations do call for a company to recertify its size if it is acquired by another entity, the SBA Office of Hearings and Appeals held, in Size Appeal of W.I.N.N. Group, Inc., SBA No. SIZ-5360 (2012), that “[t]his provision does not deal with the date for determining size for contract award,” but instead merely addresses whether the agency can count the award toward its small business goals. It’s a complex area of law, but Sychrogenix might have had better luck if it had protested the FDA’s authority to require a size recertification–or if Synchrogenix had simply submitted an offer and forced the Contracting Officer to go through the SBA size protest process to determine whether Synchrogenix was eligible.
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Limitations On Subcontracting: “Affirmative Demonstration” Of Compliance Not Required

An offeror submitting a proposal for a set-aside solicitation ordinarily need not affirmatively demonstrate its intent to comply with the applicable limitation on subcontracting. In a recent bid protest decision, the GAO confirmed that an offeror’s compliance with the limitations on subcontracting is presumed, unless the offeror’s proposal includes provisions that negate that presumption. The GAO’s decision in NEIE Medical Waste Services, LLC, B-412793.2 (Aug. 5, 2016) involved a VA RFQ for the pick-up and disposal of medical waste.  The RFQ was issued as a SDVOSB set-aside.  Award was to to be made to the lowest-priced, technically-acceptable offeror. The RFQ included FAR 52.219-14 (Limitations on Subcontracting), which requires the contractor to agree that, in the performance of a contract for services (except construction), at least 50 percent of the cost of the contract performance incurred for personnel shall be expended on the employees of the prime contractor.  (Note: because the RFQ was a VA SDVOSB set-aside, the limitations on subcontracting probably should have been governed by VAAR 852.219-10 (VA Notice of Total Service-Disabled Veteran-Owned Small Business Set-Aside), which permits a SDVOSB prime contractor to satisfy its own performance obligations by subcontracting to other SDVOSBs.  For purposes of this protest, however, the differences between FAR 52.219-14 and VAAR 852.219-10 aren’t important). The VA received three quotations.  After evaluating quotations, the VA announced that award would be made to REG Products, LLC.  An unsuccessful competitor, NEIE Medical Waste Services, LLC, subsequently filed a GAO bid protest.  NEIE contended, in part, that REG could not comply with the limitation on subcontracting because the VA’s Vendor Information Pages database indicated that REG had only one employee, and lacked sufficient experience or expertise to perform the requirement without relying on subcontractors. The GAO wrote that “[a]n agency’s  judgment as to whether a small business offeror can comply with a limitation on subcontracting provision is generally a matter of responsibility and the contractor’s actual compliance with the provision is a matter of contract administration.”  Although the GAO ordinarily will not review such issues, “where a quotation, on its face, should lead an agency to the conclusion that an offeror has not agreed to comply with the subcontracting limitations, the matter is one of the quotation’s acceptability,” and is subject to review by the GAO. However, the GAO explained, “[a]n offeror need not affirmatively demonstrate compliance with the subcontracting limitations in its proposal.”  Rather, “such compliance is presumed unless specifically negated by other language in the proposal.”  The protester “bears the burden of demonstrating that the awardee’s proposal should have led the agency to conclude that the awardee did not comply with the limitations.” In this case, the GAO held, “NEIE has not met its burden.”  In that regard, NEIE “has identified nothing on the face of the awardee’s quotation that indicates that REG Products does not intend to comply with the subcontracting limitation.”  Instead, NEIE “expressly states that the RFQ’s terms and conditions were acceptable, without modification, deletion, or addition.”  In the absence of any language in the proposal negating the intent to comply with the limitation on subcontracting, “we find no basis to sustain this protest ground.”  The GAO denied NEIE’s protest. The limitations on subcontracting are an essential component of the government’s set-aside programs, and violations can lead to severe consequences.  But as the NEIE Medical Waste Services case demonstrates, protesting an awardee’s intent to comply with the limitations on subcontracting requires more than speculation–it requires demonstrating that the awardee’s proposal, on its face, takes exception to the subcontracting limitations.
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SDVOSB Programs: 2017 NDAA Sharply Curtails VA’s Authority

The 2017 National Defense Authorization Act will essentially prevent the VA from developing its own regulations to determine whether a company is a veteran-owned small business. Yes, you heard me right.  If the President signs the current version of the 2017 NDAA into law, the VA will be prohibited from issuing regulations regarding the ownership, control, and size status of an SDVOSB or VOSB–which are, of course, the key components of SDVOSB and VOSB status.  Instead, the VA will be required to use regulations developed by the SBA, which will apply to both federal SDVOSB programs: the SBA’s self-certification program and the VA’s verification program.   In my experience, the typical SDVOSB believes that VA verification applies government-wide, and relies on that VetBiz “seal” as proof of SDVOSB eligibility for all agencies’ SDVOSB procurements.  But contrary to this common misconception, there are two separate and distinct SDVOSB programs.  The SBA’s self-certification program (which is the “original” SDVOSB set-aside program) is authorized by the Small Business Act, which is codified in Title 15 of the U.S. Code and implemented by the SBA in its regulations in Title 13 of the Code of Federal Regulations.  The VA’s separate program is codified in Title 38 of the U.S. Code and implemented by the VA in its regulations in Title 38 of the Code of Federal Regulations. There are some important differences between the two programs.  For example, the VA requires that the service-disabled veteran holding the highest officer position manage the company on a full-time basis; the SBA’s regulations do not.  Following a 2013 Court of Federal Claims decision, the VA allows certain restrictions of a veteran’s ability to transfer his or her ownership, but that decision doesn’t necessarily apply to the SBA, which has held that “unconditional means unconditional,” as applied to transfer restrictions.  And of course, the VA’s regulations require formal verification; the SBA’s call for self-certification. Despite these important differences, the two programs are largely similar in terms of their requirements.  However, last year, the VA proposed a major overhaul to its SDVOSB and VOSB regulations.  The VA’s proposed changes would, among other things, allow non-veteran minority owners to exercise “veto” power over certain extraordinary corporate decisions, like the decision to dissolve the company.  The SBA has not proposed corresponding changes.  In other words, were the VA to finalize its proposed regulations, the substantive differences between the two SDVOSB programs would significantly increase, likely leading to many more cases in which VA-verified SDVOSBs were found ineligible for non-VA contracts. That brings us back to the 2017 NDAA.  Instead of allowing the VA and SBA to separately define who is (and is not) an SDVOSB, the 2017 NDAA establishes a consolidated definition, which will be set forth in the Small Business Act, not the VA’s governing statutes.  (The new statutory definition itself contains some important changes, which I will be blogging about separately). The 2017 NDAA then amends the VA’s statutory authority to specify that “[t]he term ‘small business concern owned and controlled by veterans’ has the meaning given that term under . . . the Small Business Act.”  A similar provision applies to the term “small business concern owned and controlled by veterans with service-connected disabilities.” Congress doesn’t stop there.  The 2017 NDAA further amends the VA’s statute to specify that companies included in the VA’s VetBiz database must be “verified, using regulations issued by the Administrator of the Small Business Administration with respect to the status of the concern as a small business concern and the ownership and control of such concern.”  At present, the relevant statutory section merely says that companies included in the database must be “verified.”  Finally, the 2017 NDAA states that “The Secretary [of the VA] may not issue regulations related to the status of a concern as a small business concern and the ownership and control of such small business concern.” So there you have it: the 2017 NDAA consolidates the statutory definitions of veteran-owned companies, and calls for the SBA–not the VA–to issue regulations implementing the statutory definition.  The 2017 NDAA requires the VA to use the SBA’s regulations, and expressly prohibits the VA from adopting regulations governing the ownership and control of SDVOSBs.  These prohibitions, presumably, will ultimately wipe out the two regulations with which many SDVOSBs and VOSBs are very familiar–38 C.F.R. 74.3 (the VA’s ownership regulation) and 38 C.F.R. 74.4 (the VA’s control regulation). Because both agencies will be using the SBA’s rules, the SBA Office of Hearings and Appeals will have authority to hear appeals from any small business denied verification by the VA.  This is an important development: under current VA rules and practice, there is no option to appeal to an impartial administrative forum like OHA.  Intriguingly, the 2017 NDAA also mentions that OHA will have jurisdiction “of an interested party challenges the inclusion in the database” of an SDVOSB or VOSB.  It’s not clear whether this authority will be limited to appeals of SDVOSB protests filed in connection with specific procurements, or whether competitors will be granted a broader right to protest the mere verification of a veteran-owned company. So when will these major changes occur?  Not immediately.  The 2017 NDAA states that these rules will take effect “on the date on which the Administrator of the Small Business Administration and the Secretary of Veterans Affairs jointly issue regulations implementing such sections.”  But Congress hasn’t left the effective date entirely open-ended.  The 2017 NDAA provides that the SBA and VA “shall issue guidance” pertaining to these matters within 180 days of the enactment of the 2017 NDAA.  From there, public comment will be accepted and final rules eventually announced.  Given the speed at which things like these ordinarily play out, my best guess is that these changes will take effect sometime in 2018, or perhaps even the following year. The House approved the 2017 NDAA on December 2.  It now goes to the Senate, which is also expected to approve the measure, then send it to the President.  In a matter of weeks, the 180-day clock for the joint SBA and VA proposal may start ticking–and the curtain may start to close on the VA’s authority to determine who owns or controls a veteran-owned company.   View the full article  

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Cost/Price Evaluation To Be Discretionary For Some DoD IDIQs

Under the 2017 National Defense Authorization Act, the DoD has the discretion to forego a price or cost evaluation in connection with the award of certain multiple-award contracts. The 2017 NDAA  includes some important changes that are sure to impact federal procurements. Section 825 of the NDAA, which allows DoD contracting officers to forego price or cost evaluations in certain circumstances, is one of these changes. By way of background, 10 U.S.C. § 2305(3)(A) previously required that DoD solicitations for competitive proposals clearly establish the relative importance assigned to evaluation factors and subfactors, and must include cost or price to the government as an evaluation factor that must be considered in the evaluation of proposals. Section 825 of the 2017 NDAA, however, alters this section and provides the DoD with discretion as to whether to consider cost and/or price in some competitions for certain multiple-award IDIQ contracts (although not when the orders themselves are later competed). As amended, 10 U.S.C. § 2305(a)(3)(C) provides that if an agency issues a “solicitation for multiple task order or delivery order contracts under [the DoD’s statutory authority governing multiple award contracts] for the same or similar services and intends to make a contract award to each qualifying offeror . . . cost or price to the Federal Government need not, at the Government’s discretion, be considered…as an evaluation factor for the contract award.” Under this new statute, the multiple-award contract must be for “the same or similar services.” Solicitations for multiple-award contracts contemplating the award of orders to secure a wide range of services still require contractors to provide cost and pricing information. Second, the agency must intend to make a contract award to each qualifying offeror. The new statute provides that an offeror is a “qualifying offeror” under the proposed statute if: 1) it is a responsible source, 2) its proposal conforms to the solicitation requirements, and 3) the contracting officer has no reason to believe that the contractor would offer anything other than a fair and reasonable price. Third, this new authority is discretionary, not mandatory. Thus, DoD components may still require cost and pricing information, even when they would have the discretion not to do so. Also worth highlighting, this change only applies to DoD, and does not provide the same discretion to civilian contracting officers. Finally, if the DoD will not consider cost or price, the qualifying offeror is not required to disclose it in response to the solicitation. However, qualifying offerors will still need to provide cost or price at the time of competition on these orders, unless an exception applies. One final caveat to the proposed statutory change is of particular interest to participants in the SBA’s 8(a) business development program. Specifically, the changes outlined here do not apply to multiple task or delivery order contracts if the solicitation provides for sole source task or delivery order contracts be set-aside for 8(a) Program participants. By granting DoD discretion to omit consideration of cost and/or price at the initial multiple-award stage, the statute may ease the burden on both the government and contractors alike, because pricing a multiple-award IDIQ contract is often challenging. For instance, at times, the government has resorted to hypothetical sample tasks to obtain some semblance of pricing, but the sample tasks may not accurately reflect much of the work that the government later procures under the IDIQ–and with no real “skin in the game,” offerors can be tempted to underbid the hypothetical task. In other instances, the government has insisted that offerors provide firm ceiling prices (for example, labor rate ceilings), which creates a conundrum for offerors: bid high and risk losing the IDIQ, or bid low and risk being unable to profit on orders? In settings like these, postponing the price/cost evaluation until the order competition may be a wise move. As the President signed the 2017 NDAA into law on December 23, 2016, it will be interesting to see if DoD exercises any of its price or cost evaluation discretion accorded to it under Section 825. However, chances are that DoD contracting officers will refrain from exercising their new authority until DoD makes changes to the DFARS to provide contracting officers with more guidance on its use.
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SmallGovCon Week In Review: August 29-September 2, 2016

We have been hard a work all week long here at Koprince Law and are ready to take advantage of the Labor Day weekend. Not only is it a long weekend, but it is also the start of the college football season. There is nothing better than football, tailgating and cooler weather to get you in the mood for fall (although our local Kansas Jayhawks haven’t exactly been tearing up the gridiron in recent years). Before you head out the door to enjoy the holiday weekend, it’s time for the SmallGovCon Week In Review. This week’s edition includes articles on the recent implementation of the Fair Pay and Safe Workplaces final rule, a look at the large amount of money spent of professional services and how that spending is (or isn’t) tracked, a proposed rule for streamlining awards for innovative technology projects and much more. Business in government-wide acquisition contracts is booming, with agency buyers turning to the large-scale vehicles for price breaks and convenience. [Washington Technology] Bloomberg BNA has an interesting Q&A session involving the recently released Fair Pay and Safe Workplaces regulations. [Bloomberg BNA] According to one commentator, government contracting is being hurt by the lack of transparency and secrecy with the amount of money flowing through all the contract vehicles across government. [Washington Technology] The Obama administration has finalized plans to bring more scrutiny to potential federal contractors’ histories of violating labor laws, releasing twin final regulations that will implement a 2014 executive order. [Government Executive] A government contractor is required to pay $142,500 to settle civil fraud allegations that their employees engaged in labor mischarging. [Department of Justice] Agencies spend almost $63 billion a year on professional services and there is a new plan to help the government improve how it buys and manages these contracts. [Federal News Radio] A proposed rule has been issued to amend the DFARS to implement a section of the National Defense Authorization Act for Fiscal Year 2016 that provides exceptions from the certified cost and pricing data requirements and from the records examination requirement for certain awards to small businesses or nontraditional defense contractors. [Federal Register]
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Ostensible Subcontractor Affiliation Can’t Be “Fixed” After Final Proposals

Affiliation under the ostensible subcontractor rule is determined at the time of proposal submission–and can’t be “fixed” by later changes. In a recent size appeal decision, the SBA Office of Hearing and Appeals confirmed that a contractor’s affiliation with its proposed subcontractor could not be mitigated by changes in subcontracting relationships after final proposals were submitted. In Greener Construction Services, Inc., SBA No. SIZ-5782 (Oct. 12, 2016), the U.S. Army Contracting Command sought solid waste disposal and recycling services at its Blossom Point Research Facility. The solicitation was set aside for 8(a) Program participants under NAICS code 562111, Solid Waste Collection, with a size standard of $38.5 million. Greener Construction, Inc. submitted its final proposal on September 15, 2015. The proposal included one subcontractor, EnviroSolutions, Inc. No other subcontractors were mentioned. Under the teaming agreement between the parties, EnviroSolutions was to provide the solid waste collection bins, trucks, and drivers for the project. In addition, EnviroSolutions’ supervisory staff were to be on site during the first month of contract performance to assist with personnel training. In fact, of the five key employees identified in Greener Construction’s proposal, four were employed by EnviroSolutions. Greener Construction was also prohibited from adding another subcontractor without EnviroSolutions’ written consent. Greener Construction was awarded the contract on September 25, 2015. An unsuccessful offeror challenged the award alleging that Greener Construction was other than small because it was affiliated with EnviroSolutions and its subsidiaries under the ostensible subcontractor affiliation rule. On July 29, 2016, the SBA Area Office issued its size determination, which found Greener Construction to be “other than small.” The Area Office concluded Greener Construction and EnviroSolutions were affiliated under the ostensible subcontractor rule because EnviroSolutions was responsible for the primary and vital aspects of the solicitation—the collection and transportation of solid waste. Greener Construction appealed the decision to OHA. Greener Construction argued EnviroSolutions would not be solely responsible for performing the primary and vital tasks because, after submitting its final proposal, Greener Construction had made arrangements with other companies to perform these functions. Greener Construction further argued it was actually going to provide the onsite waste receptacles, not EnviroSolutions. OHA was not  convinced. OHA wrote that under the SBA’s size regulations, “compliance with the ostensible subcontractor rule is determined as of the date of final proposal revisions.” For that reason, “changes of approach occurring after the date of final proposals do not affect a firm’s compliance with the ostensible subcontractor rule . . ..” In this case, Greener Construction submitted its initial proposal on September 15, 2015, “and there were no subsequent proposal revisions.” Greener Construction’s proposal “made no mention” of any other subcontractors but EnviroSolutions, and required EnviroSolutions’ consent to add any other subcontractors. Moreover, the proposal stated that EnviroSolutions “will provide front load containers as specified in the solicitation.” Therefore, the arguments advanced by Greener Construction on appeal “are inconsistent with, and contradicted by [Greener Construction’s] proposal and Teaming Agreement.” OHA denied Greener Construction’s size appeal. Greener Construction demonstrates the importance of carefully considering ostensible subcontractor affiliation before submitting proposals. Because ostensible subcontractor affiliation is determined at the time final proposals are submitted, contractors must be mindful of the rule and make sure that the proposal, teaming agreement, and any other contemporaneous documentation reflects an absence of affiliation.
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2017 NDAA Establishes Preference For DoD Fixed-Price Contracts

The 2017 National Defense Authorization Act establishes a preference for the DoD to use fixed-price contracts, and will require executive approval of cost reimbursement procedures for certain high-dollar procurements. Section 829 of the 2017 NDAA is titled, quite simply, “Preference for Fixed-Price Contracts.” Section 829 specifies that, within 180 days after the 2017 NDAA is enacted, the DFARS are to be revised to establish a preference for fixed-price contracts (including fixed-price incentive fee contracts) when a DoD determines which contract type to use for a particular acquisition. It isn’t clear whether Congress intends the DFARS to ultimately include a stronger fixed-price preference than already exists in the FAR. At present, FAR 16.301-2 and FAR 16.301-3 place important limitations on a Contracting Officer’s ability to select a cost reimbursement contract type, including, under FAR 16.301-2, where “[c]ircumstances do not allow the agency to define its requirements sufficiently to allow for a fixed-price type contract.” The 2017 NDAA’s preference for DoD fixed-price contracts does go beyond the FAR in one important respect. Starting on October 1, 2018, a DoD contracting officer will not be permitted to enter into a cost reimbursement contract in excess of $50 million unless the contract is approved by “the service acquisition executive of the military department concerned, the commander of the combatant command concerned, or the Under Secretary of Defense for Acquisition, Technology, and Logistics (as applicable).” The threshold for approval will fall further to $25 million on October 1, 2019. Given the existing FAR restrictions on cost reimbursement contracts, it remains to be seen whether Section 829 will represent a significant shift in DoD procurement policy. DoD’s proposed DFARS amendments, which should be published by mid-2017, will shed some light. 2017 NDAA: The National Defense Authorization Act for Fiscal Year 2017 appears poised beneath the president’s pen for signing. It includes some massive changes as well as some small but nevertheless significant tweaks sure to impact Federal procurements in the coming year. For the next few days, SmallGovCon will delve into the minutia to provide context and analysis so that you do not have to.
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GAO: Unequal Opportunity To Revise Pricing Was Improper

An agency acted improperly by inviting the ultimate contract awardee to revise its pricing, but not affording that same opportunity to a competitor–even though the awardee didn’t amend its pricing in response to the agency’s invitation. According to a recent GAO bid protest decision, merely providing the awardee the opportunity to amend its pricing was erroneous, regardless of whether the awardee took advantage of that opportunity. The GAO’s decision in Rotech Healthcare, Inc., B-413024 et al. (Aug. 17, 2016) involved a VA solicitation for home oxygen and durable medical equipment.  The solicitation contemplated award to the offeror providing the best value to the government, including consideration of four non-price factors and price. After evaluating initial proposals, the VA opened discussions with Rotech Healthcare, Inc. and Lincare, Inc. on July 28, 2015.  The VA’s discussions letter asked both offerors to submit final revised price proposals no later than July 30, 2015. Rotech responded by submitting a revised price proposal on July 29, 2015.  Lincare responded by stating that it stood by its original price. On March 7, 2016, the VA contracting specialist sent an email only to Lincare.  The VA’s email stated: The subject solicitation closed more than 6 months ago, therefore the VA would like your company to verify its offer pricing before a final award decision is made for this contract.  Attached is Lincare’s price proposal for quick reference.  Please respond either confirming the original price offer, or provide alternate price information by 6:00 pm EST on March 9th, 2016. Lincare responded to the VA’s email by stating that it (again) chose not to revise its price proposal. The VA assigned similar non-price scores to the proposals of Lincare and Rotech.  However, Lincare’s proposal was lower-priced.  The VA awarded the contract to Lincare. Rotech filed a GAO bid protest challenging the award.  Rotech argued, among other things, that the VA had improperly opened discussions only with Lintech.  Rotech contended that, had it been provided a similar opportunity, it “reasonably could have submitted lower pricing,” thereby enhancing its chances of award. In response, the VA pointed out that Lincare did not alter its price proposal.  The VA also contended that Rotech was not prejudiced by any error committed by the VA, because Lincare was already the lower-priced offeror. The GAO wrote that “the acid test of whether discussions have occurred is whether the offeror has been afforded an opportunity to revise or modify its proposal.”  And where “an agency conducts discussions with one offeror, it must conduct discussions with all offerors in the competitive range.” In this case, “ecause Lincare was given the opportunity of revising its price, we think that the agency’s invitation constituted discussions,” and “Rotech was improperly excluded” from those discussions.  Rotech’s statement that it “reasonably could have submitted lower pricing” had it been given the opportunity was sufficient to demonstrate that Rotech may have been prejudiced by the VA’s error.  The GAO sustained Rotech’s protest. Agencies have a great deal of discretion in many aspects of the procurement process, but not when it comes to discussions.  As the Rotech Healthcare case demonstrates, when an agency invites one offeror to revise its proposal, that same opportunity must be extended to every other offeror in the competitive range.     View the full article  

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Past Performance Reference From Sister Company Was “Inherently Biased”

In its evaluation of past performance, an agency was permitted to disregard a past performance reference prepared by an offeror’s sister company–which also happened to be in line for a subcontracting role. In a recent bid protest decision, the GAO upheld the agency’s determination that the sister company’s reference was “inherently biased” and need not be considered in the agency’s past performance evaluation. The GAO’s decision in PacArctic, LLC, B-413914.3; B-413914.4 (May 30, 2017) involved a DoD Washington Headquarters Services solicitation for advisory and assistance services.  The solicitation, which was set-aside for 8(a) participants, called for the award of a single IDIQ contract. Proposals were to be evaluated on a best value basis, considering three factors: technical capability, past performance, and price. With respect to past performance, the agency was to evaluate recent and relevant past performance.  The solicitation required offerors to submit past performance questionnaires from their customers for evaluation. PacArctic, LLC submitted a proposal.  In its proposal, PacArctic included a PPQ completed by the president of PacArctic’s sister company, which shared “common ownership and control” with PacArctic.  The sister company, which was the incumbent contractor, said that PacArctic had performed subcontract work on the incumbent contract.  The sister company’s president rated PacArctic’s past performance as “exceptional.” PacArctic proposed the sister company as one of its subcontractors for the project. In its evaluation of past performance, the agency elected not to consider the sister company’s PPQ. The agency explained that, because the companies shared common ownership, and because the sister company would be a subcontractor to PacArctic, the sister company was “inherently biased” in PacArctic’s favor. The agency assigned PacArctic a “Moderate Confidence” past performance score.  The agency then awarded the contract to a competitor, which had received a “High Confidence” score. PacArctic filed a GAO bid protest.  Among its arguments, PacArctic contended that it was improper for the agency to ignore the sister company’s PPQ.  PacArctic pointed out that nothing in the solicitation precluded a sister company from serving as a past performance reference. The GAO agreed that the RFP did not prevent a sister company from serving as a reference.  Nevertheless, under FAR 15.305(a)(2)(i), the agency was to consider the “source of the information” as part of its evaluation.  The GAO continued: Here, where the source of the PPQ was PacArctic’s sister company, which was proposed as a subcontractor in PacArctic’s proposal, we find that the agency reasonably concluded that the PPQ lacked sufficient credibility, given the sister company’s obvious stake in the evaluation.  Accordingly, we find nothing unreasonable regarding the agency’s decision to disregard the PPQ. The GAO denied PacArctic’s protest. PacArctic is a subsidiary of an Alaska Native Corporation.  It’s not uncommon for companies falling under the same ANC, tribal, or NHO umbrella to work together, as PacArctic and is sister company did on the incumbent contract.  Even outside of the ANC, tribal and NHO context, many small businesses have affiliates or close working relationships with other entities.  For contractors like these, it’s worth remembering that in a past performance evaluation, the “source of the information” must be considered.  As PacArctic demonstrates, when the source is a sister company, other affiliate, and/or proposed subcontractor, the agency may disregard the information provided.
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SmallGovCon Week In Review July 11-15, 2016

I’m back in the office after a week-long family beach vacation around the 4th of July.  Kudos to my colleagues here at Koprince Law for putting out last week’s SmallGovCon Week In Review while I was out having some fun in the sun. This week’s edition of our weekly government contracts news roundup includes a prison term for an 8(a) fraudster, a Congressional focus on full implementation of the Supreme Court’s Kingdomware decision, the release of an important new FAR provision regarding small business subcontracting, and more. A businessman from Fairfax, Virginia has been sentenced to 15 months in prison for fraudulently obtaining contracts worth $6 million from a federal program created to help minority-owned small businesses. [IndiaWest] A top Congressional Republican wants to make sure the Department of Veterans Affairs is fully implementing the Supreme Court’s unanimous Kingdomware decision. [The Hill] A look ahead to next spring brings hope of contracting reform and a focus on having an effective cost-comparison system and effective contract management in place. [Federal News Radio] Two former New Jersey construction executives have been sentenced for their roles in a scheme to secure government contracts by bribing foreign officials. [Reuters] The FAR Council has issued a final rule amending the FAR to implement regulatory changes made by the SBA, which provide for a Governmentwide policy on small business subcontracting. [Federal Register] Congress wants the DoD to shed more light on how it is using lowest-price, technically-acceptable contracts–and report back to Congress in the spring. [GovTech Works]
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“Government Control” Didn’t Affect Electronic Proposal Timeliness, Says GAO

One might think that when an electronic proposal is received by a government server before the solicitation’s deadline, the proposal isn’t late. A government server is under government control, so the proposal is timely, right? Not necessarily, at least the way the GAO sees it. As one contractor recently learned, waiting until the last minute to submit a proposal electronically carries significant risk that the proposal will not be considered timely, even if the proposal reaches the government server in time. Peers Health, B-413557.3 (March 16, 2017) involved a Navy RFQ for occupational health disability and treatment guidelines. Quotations were to be submitted no later than 12:00 p.m. EST on November 28, 2016. The RFQ stated that quotations were to be submitted via email to a certain point of contact, and at an email address identified in the solicitation. Alternatively, offerors could submit their proposals by regular or overnight mail. The Solicitation incorporated FAR 52.212-1 (Instructions to Offerors – Commercial Items), which provides, among other things, that proposals not timely received will not be considered for award. Notably, FAR 52.212-1 provides the following exceptions under which the government may accept late proposals: (A) If [the proposal] was transmitted through an electronic commerce method authorized by the solicitation, it was received at the initial point of entry to the Government infrastructure not later than 5:00 p.m. one working day prior to the date specified for receipt of offers; or (B) There is acceptable evidence to establish that it was received at the Government installation designated for receipt of offers and was under the Government’s control prior to the time set for receipt of offers. . . . FAR 52.212-1(f)(2)(i). As the regulation explains, proposals received after the deadline for proposal submission will be considered timely if they are submitted electronically the day before the submission deadline, or if the government received the proposal and was in control of it prior to the submission deadline. Peers submitted its quotation by email at 11:59 a.m. on November 28, 2016—one minute before the deadline. While the government server received the submission at 11:59 a.m., Peers’ email did not reach its final destination (the point of contact identified in the RFQ)  until 3:49 p.m. GAO did not explain what caused the lengthy delay in transmission from the server to the Navy point of contact. The Navy eliminated Peers from the competition, stating that Peers’ quotation was untimely. After Peers learned of the Navy’s decision, it filed a GAO bid protest. Peers argued that under FAR 52.212-1(f)(2)(i)(B), its proposal was timely because the email was received by the government’s server at 11:59 a.m. As such, Peers contended, its proposal was eligible for the timeliness exemption under FAR 52.212-1(f)(2)(i)(B) because it was “received at the government installation designated for receipt of offers and was under the Government’s control prior to the time set for receipt of offers . . . .” GAO was not convinced. GAO explained that in an earlier case, Sea Box, Inc., B-291056, 202 CPD ¶ 181 (Comp. Gen. Oct. 31, 2002), GAO had ruled that only FAR 52.212-1(f)(2)(i)(A) applied to electronically submitted proposals because it spoke directly to the issue of electronic submission. GAO concluded that applying the broader government control exception found in FAR 52.212(f)(2)(i)(B) to electronic submission would make the specific day prior requirements for electronic submission redundant. To the dismay of Sea Box, GAO concluded the government control exception does not apply to electronic submissions. Applying its reasoning from Sea Box, GAO concluded Peers’ proposal submission was untimely because it was neither received by the intended recipient prior to the closing date for proposal submission, nor received before 5:00 p.m. the working day prior to proposals being due. As such, Peers’ proposal was properly eliminated from competition as untimely, even though it had reached a government server before the deadline. Interestingly, the Court of Federal Claims disagrees with the GAO’s reasoning in Sea Box (and, presumably, in Peers Health, as well).  In Watterson Construction Company v. United States, 98 Fed. Cl. 84 (2012), the Court carefully analyzed the regulatory history of the exceptions, and concluded that the “government control” exception does apply to emailed proposals. The Court has since confirmed its ruling, most recently in Federal Acquisition Services Team, LLC v. United States, No. 15-78C (Feb. 16, 2016). In our view here at SmallGovCon, the Court has the better position: and not just because arguing with a federal judge isn’t usually a good idea. The regulation states that a late proposal may be accepted where the electronic commerce “or” the government control exception applies. The plain language of the regulation (and the Court’s careful study of the underlying history) suggest to us that Peers should have won its protest. As we’ve discussed on this blog before, it’s bad news when the GAO and Court disagree about an important matter of government contracting. True, the GAO isn’t required to follow the Court’s rules. However, a bid protest shouldn’t turn on which forum the protester selects. My colleagues and I hope that the GAO reconsiders its position in future protests. Perhaps Peers will take its case to the Court and obtain a different result. For now, contractors should be aware that under the GAO’s current precedent, the only way to ensure that an electronic proposal submission is timely received is to file before 5:00 p.m. the day before proposals are due. If the proposal is submitted later, and gets stuck on the government’s server, a potential protester should make plans to skip the GAO and head directly to the Court of Federal Claims.
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Postal Service Customer Files $50,000 PSBCA Appeal Over Lost Mail

A dissatisfied U.S. Postal Service customer filed an appeal with the Postal Service Board of Contract Appeals, seeking $50,000 in damages resulting from the Postal Service’s failure to deliver a Priority Mail package. The appellant contended that it had a contract with the Postal Service, which was breached when the Postal Service failed to deliver the package.  But the appellant’s cleverness wasn’t enough to prevail: the Board held that it lacked jurisdiction over the appeal. The case of Triumph Donnelly Studios LLC v. United States Postal Service, PSBCA No. 6683 (2017) began in August 2016, when Triumph Donnelly mailed a package from South Carolina to California using Priority Mail.  The package was never delivered, and the Postal Service admitted that the package was lost. The Postal Service automatically insures most Priority Mail packages in the amount of $50.  Triumph filed a claim for this amount, and was reimbursed by the Postal Service. But Triumph wasn’t satisfied with a mere $50.  Triumph filed a claim with the Postal Service’s National Tort Center seeking $50,000.  The National Tort Center denied Triumph’s claim and a subsequent request for reconsideration.  The National Tort Center advised Triumph that its decision was final, and that Triumph’s next legal option would be to file suit in federal district court. Instead, Triumph filed an appeal with the Board, arguing that the Postal Service breached a contract when it lost the Priority Mail package.  The Postal Service asked the Board to dismiss the appeal for lack of jurisdiction. The Board held that the Contract Disputes Act applies to the Postal Service.  Under the CDA, a Board of Contract Appeals has jurisdiction over “any express or implied contract . . . made by an executive agency for (1) the procurement of property, other than real property in being; (2) the procurement of services; (3) the procurement of construction, alteration, repair or maintenance of real property; or (4) the disposal of personal property.” The Board wrote that its jurisdiction is limited “to the four contract types” identified in the CDA.  More specifically, the CDA “does not apply to a contract under which the government provides a service.” Here, the Board determined, “ecause the alleged contractual relationship between the Postal Service and Triumph Donnelly would be just such a contract for the government to provide a service, we hold that it is not covered by the CDA.”  The Board concluded: “imply put, we do not have jurisdiction to decide disputes between the Postal Service and its customers involving delivery of the mail.” The Board dismissed the appeal. Sadly, the PSBCA’s decision doesn’t answer an obvious question: what the heck was in that Priority Mail package, anyway?  Cold cash?  Ultra-rare Nintendo games?  The possibilities are endless, and perhaps raw speculation is more fun than an answer. The Triumph Donnelly case is interesting because of its facts, but it also demonstrates an important point of law: the jurisdiction of a Board of Contract Appeals is limited by the CDA to specific matters–and excludes cases in which the government provides a service.
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