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Koprince Law LLC

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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Koprince Law LLC

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.


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Koprince Law LLC

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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Koprince Law LLC

Sometimes you may find yourself running late. It happens to the best of us for a multitude of reasons. But what happens to federal contractors when they are running late in performing under a contract and there is “no reasonable likelihood” of timely performance?

Unfortunately for contractors in this position, as illustrated by a recent Civilian Board of Contract Appeals (CBCA) decision, the result may be a default termination.

In Affiliated Western, Inc. v. Department of Veterans Affairs, CBCA No. 4078 (2017), the VA awarded AWI a contract to renovate the surgical unit at a VA Medical Center in Iron Mountain, Michigan. Following mounting issues in contractual performance, the Contracting Officer issued a default termination.

The contractual issues giving rise to the default termination began early on in contract performance. Specifically, the Solicitation “warned potential bidders, that the schedule for the project ‘is very aggressive’ and involves ‘a very important department to the facility.’” AWI, as the awardee, was to provide renovations in five phases within a 400-day deadline. Contract performance started off strained due to architecture and engineering errors and omissions in the contract specifications for which the VA required AWI to perform several changes. All the while the VA and AWI continued debate over schedule submissions, which the VA found inadequate and refused to approve.

The relationship between the parties became further strained. Six months into contract performance, the VA issued its first cure notice. After, AWI failed to complete phase 1 on time, and the VA denied AWI’s requests for contract modification for compensation and time extensions.

Performance issues came to a head when AWI’s subcontractor, one of only two contractors in the remote area of contract performance that held the medical gas certification necessary to perform the project, reported AWI’s failure to make prompt payment despite AWI receiving payment from the VA. Afterwards, the subcontractor walked off the job. Then, less than a year into contract performance, the contracting officer issued a show cause notice citing AWI’s failure to complete phases 1 and 2 within the time required by the modified contract and ultimately issued a default termination in accordance with FAR 52.249-10, Default (Fixed-Price Construction).

AWI appealed the VA’s default termination to the CBCA and sought conversion to a termination for convenience. The CBCA sustained the VA’s default termination finding and denied AWI’s appeal.

In making its decision, the CBCA noted that default termination is “a drastic sanction which should be imposed (or sustained) only for good grounds and on solid evidence.” When a default is based on the contractor’s failure to prosecute the work, the contracting officer must have a reasonable belief that there was “no reasonable likelihood” that the contractor could perform the entire contract effort within the time remaining for contract performance. A termination for failure to make progress “usually occurs where the contractor has fallen so far behind schedule that timely completion becomes unlikely.”

In this case, since the VA established reasonable grounds to believe that AWI may not be able to perform the contract on a timely basis in issuing a cure notice as a precursor to possible default termination, and since AWI had failed to respond to the cure notice with adequate assurances, the VA had met its initial burden of proving that there were good grounds and solid evidence to support the termination.

The burden then shifted to AWI to prove that “there were excusable delays under the terms of the default provision of the contract that render[ed] the termination inappropriate, or that it was making sufficient progress on the contract such that timely contract completion was not endangered.” To recover under this theory of excusable delay, AWI also needed to show: “(1) the delay is of an ‘unreasonable length of time,’ (2) the delay was proximately caused by the Government’s actions, and (3) the delay resulted in some injury to the contractor.”

Applying a critical path schedule analysis to these requirements, the CBCA rejected AWI’s argument that extension of time for part of the project should automatically extend the total performance date. Thus, AWI could not rely on the VA contract modifications to excuse its delay where AWI could not prove it affected AWI’s critical path schedule. Accordingly, the CBCA found that “AWI failed to provide any evidence that it had fulfilled the contract requirement to provide the contracting officer with a schedule identifying the critical path and demonstrating how the schedule would be impacted by the VA’s alleged actions.” The CBCA concluded the VA to have properly terminated AWI for default, and denied AWI’s appeal.

Undoubtedly, federal contractors seek to perform contracts on time and within budget. However, the facts present in AWI demonstrate that when there is “no reasonable likelihood” that the contractor could perform the entire contract effort within the time remaining for contract performance, the end result may be a default termination.

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Koprince Law LLC

You’ve hit send on that electronic proposal, hours before the deadline and now you can sit back and feel confident that you’ve done everything in your power – at least it won’t be rejected as untimely – right?

Not so fast. If an electronically submitted proposal gets delayed, the proposal may be rejected–even if the delay could have been caused by malfunctioning government equipment. In a recent bid protest decision, the GAO continued a recent pattern of ruling against protesters whose electronic proposals are delayed. And in this case, the GAO ruled against the protester even though the protester contended that an agency server malfunction had caused the delay.

Western Star Hospital Authority, B-414216.2 (May 18, 2017) involved an Army RFP for emergency medical services.  The RFP required that proposals be submitted no later than 4:00 pm., EST on January 30, 2017, to the Contracting Officer’s email address.

The RFP incorporated FAR 52.212-1 (Instructions to Offerors-Commercial Items).  Paragraph (f)(2) of that clause provides that any “offer, modification, revision, or withdrawal of an offer received at the Government office designated in the solicitation after the exact time specified for receipt of offers is ‘late’ and will not be considered.”

On the date the proposals were due, Western Star emailed four proposal documents to the CO’s email address. The emails were sent at 2:43 p.m., 2:57 p.m., 3:01 p.m. and 3:06 p.m., well before the 4:00 p.m. deadline. For reasons unknown, the emails did not arrive at the initial point of entry to the Government infrastructure until after 6:00 p.m., well after the deadline. The Army rejected the proposal as late.

Western filed a GAO bid protest challenging the Army’s decision. Western argued that it was “guilty of no fault” and that it was “completely unfair and unreasonable to reject its bid because of factors beyond its control.”

Western argued that the agency’s servers were “not accessible,” and furnished a mail log from its service provider supporting its position. The Army disputed Western’s position. The Army provided a statement from its Information Assurance Manager, who said that the emails were “delayed by the protester’s servers” and that the delay “was not the fault or responsibility of the Government, which has no control over commercial providers used by the Protester.”

The GAO declined to resolve the question of whose servers had malfunctioned. Instead, the GAO indicated that Western’s proposal would be considered late regardless of whose equipment had malfunctioned. Citing its own prior authority, the GAO wrote, “[w] have repeatedly found that it is an offeror’s responsibility to ensure that an electronically submitted proposal is received by–not just submitted to–the appropriate agency email address prior to the time set for closing.” Because Western’s proposal “was not received at the agency’s servers until after the deadline for receipt of proposals,” the proposal was late.

The GAO also cited FAR 52.212-1(f)(2)(i)(A), which states that a late proposal, received before award, may be accepted if it was transmitted electronically and received at the initial point of entry to the Government infrastructure no later than 5:00 p.m. one working day prior to the due date. But Western did not submit its proposal by 5:00 one working day prior to the due date, so it could not avail itself of that exception.

The GAO declined to discuss any of the other exceptions to FAR 52.212-1(f)(2), such as the important “government control” exception, stating that the exceptions were “not pertinent” to the issue in Western. As we’ve written before, the Court of Federal Claims disagrees with the GAO when it comes to the question of whether these exceptions apply to electronic proposals, and we think the Court has the better position.

For now, though, Western Star Hospital Authority stands as an important warning to contractors who submit proposals electronically. Under the GAO’s current precedent, a late-submitted electronic proposal is late–even if the lateness was due to malfunctioning government equipment. The only exception recognized by the GAO under FAR 52.212-1 is the “5:00 p.m. one working day prior” exception, and contractors would be wise to take that into account when determining when to submit electronic proposals.

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Koprince Law LLC

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

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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Koprince Law LLC

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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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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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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In a GAO bid protest, recovering costs after an agency takes corrective action turns on whether or not the agency unduly delayed the corrective action.

A recent GAO case shows that, in certain circumstances, an agency may be able to fight a protester almost to the bitter end, then take corrective action without necessarily having crossed the “unduly delayed” line.

In Evergreen Flying Services, Inc., B-414238.10 (Oct. 2, 2017), the Department of the Interior issued a solicitation in September of 2016, asking for private aircraft to help fight wildfires.

DOI wanted to hire up to 33 planes for four years, with an optional six-month extension. The idea was that the planes would be offered to the Bureau of Land Management exclusively for the 2017 fire season.

A month later, DOI received proposals from 15 firms. It evaluated offers and settled on six firms and 33 individual planes (firms could offer the use of multiple aircraft). DOI announced the awards in December 2016.

Evergreen Flying Services, Inc., a small business from Rayville, Louisiana, was one of the unsuccessful offerors. It filed a GAO bid protest the day after Christmas. Four days later, it filed a supplemental protest. Evergreen challenged the agency’s evaluation of its proposal, the best value determination, and the availability of the awardee’s aircraft.

In January 2017, before submitting an agency report, DOI chose to take corrective action. Over the next two months, it reevaluated proposals and increased Evergreen’s ratings, but still did not select it for award. Evergreen protested again, on March 3.

This time DOI fought the protest. It filed a request for dismissal (which GAO denied) and then filed an agency report on April 5. The report included each awardee’s complete schedule of services/supplies, aircraft questionnaires, and DOI’s evaluation sheets for each awardee.

Evergreen poured through the documents, seized on some issues, and filed a supplemental protest (and comments on the agency report) on April 17. The supplemental protest, for the first time, alleged flaws relating to the other offerors and the agency’s evaluation of their proposals, including minor but technical flaws such as unsigned or typewritten names instead of signatures, and reliance on supporting documentation that was outside the solicitation’s five-year window.

GAO asked for a supplemental agency report. Two days before it was due, DOI chose to take corrective action by cancelling the solicitation altogether. DOI said that the fire season was rapidly approaching and it did not have time to reevaluate proposals again. It also said it could acquire the planes it needed through other means: most of the offerors, including Evergreen, had “on-call” contracts with DOI for fire suppression services.

GAO dismissed Evergreen’s latest protests on May 4.

Evergreen and other offerors then protested the decision to cancel the solicitation and lost. The result, therefore, of three protests, two supplemental protests, one agency report, one request for dismissal, and two corrective actions, was zero contracts.

By then, Evergreen (which was using DC-based government contracts lawyers) had, no doubt, spent a significant amount of money on legal fees. It filed a request for a recommendation of costs, arguing that the agency had unduly delayed taking corrective action in the face of a clearly meritorious protest. It had been 235 days (nearly eight months) since the solicitation came out, and 130 days since Evergreen’s initial protest.

GAO wrote that, when a procuring agency takes corrective action in response to a protest, “our Office may recommend reimbursement of protest costs where, based on the circumstances of the case, we determine that the agency unduly delayed taking corrective action in the face of a clearly meritorious protest, thereby causing the protester to expend unnecessary time and resources to make further use of the protest process in order to obtain relief.”  A protest is “clearly meritorious” where “a reasonable agency inquiry into the protester’s allegations would reveal facts showing the absence of a defensible legal position.”  And, with respect to promptness, “we review the record to determine whether the agency took appropriate and timely steps to investigate and resolve the impropriety.”

Because the better part of a year had passed during which time the agency fought the protester by filing a motion to dismiss (which it lost) and an agency report, Evergreen probably thought it had a good case for costs, at least on the “unduly delayed” side of the ledger.

But that is not the way GAO saw it. GAO said that the measure of undue delay is not whether the corrective action was prompt with respect to the protester’s initial grounds, but rather whether the corrective action was prompt with respect to the first “clearly meritorious” grounds of protest.

Thus, in order to recover costs back to the December protest and initial corrective action, “the central consideration . . . is whether Evergreen’s December protest included clearly meritorious protest ground that the agency expressly committed to rectify, but failed to, such that the protester was forced to continue its bid protest litigation to get relief.”

GAO said that the initial December 2016 protests did not include “any protest grounds that we consider clearly meritorious on their face.” As for the second protest, which again DOI fought hard against, GAO said that it was not necessarily meritorious either, just that the “argument required further record development and response from the agency to determine whether the protest ground had merit.”

Finally, GAO said that because the final corrective action took place two days before the supplemental agency report was due, the agency did not unduly delay taking it—adding that the arguments brought after reviewing the awardees’ and the evaluation documents may not have had merit.

In other words, DOI’s corrective action was not delayed. In fact, it was two days early. GAO denied the request for costs. GAO noted that the purpose of recommending costs is not to reward a protester for winning. It is to “encourage agencies to take prompt action to correct apparent defects in competitive procurements.”

Evergreen Flying Service shows that just because a protester “wins” does not mean GAO will recommend an award of costs, even when the protest process takes a long time. In our practice, we often suggest that clients assume that protest costs won’t be reimbursed, even if there is a corrective action or “sustain” decision, and consider an award of costs to be a potential bonus that may (or may not) accompany a successful protest. With the twin hurdles of “undue delay” and “clearly meritorious” to surmount, a recovery of costs is not a given.

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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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The 2017 National Defense Authorization Act gives certain small subcontractors a new tool to request past performance ratings from the government,

If the pilot program works as intended, it may ultimately improve those subcontractors’ competitiveness for prime contract bids, for which a documented history of past performance is often critical.

For small contractors looking to break into the federal marketplace, a lack of past performance ratings can be a major problem. Without government past performance ratings, it can be difficult to prevail in a “best value” competition. Sure, FAR 15.305 provides that the government can consider past projects performed for non-governmental entities, and the same FAR section states than an offeror without a record of relevant past performance should receive a “neutral” rating. But ask most contractors, and they’ll tell you that their perception–for better or for worse–is that an offeror without government past performance references can be at a significant competitive disadvantage.

Perhaps Congress agrees. Section 1822 of the 2017 NDAA creates a pilot program that will allow a “first tier” subcontractor performing on a government contract, which required the prime contractor to develop a subcontracting plan, to submit an application to the appropriate official (agencies will designate a recipient) requesting a past performance rating. Interestingly, the subcontractor will be able to include a suggested rating, but will have to support the suggestion with written evidence, almost as if the subcontractor will have to plead its case. The application will then go to both the agency Office of Small and Disadvantaged Business Utilization and the prime contractor for review. Each will submit an official response within 30 days.

If the OSDBU and prime contractor agree with the suggested rating, the official simply will enter the rating into the government’s past performance system, and the subcontractor will be able to use the rating “to establish its past performance for a prime contract.”

However, if they disagree with the subcontractor’s suggested rating, the disagreeing party will submit a notice contesting the application, the official will provide the subcontractor with the notice, and the subcontractor will have 14 days to submit comments, rebuttals, and additional information. But, interestingly, the review will stop there. No decider will determine whether the subcontractor’s proposed rating was “right” or “wrong.” Instead, the official with then enter a neutral rating into the system along with the original application and any responses.

This pilot program may turn out to be a valuable tool for companies with excellent performance at the subcontract level but little or no prime contract experience. The program’s timing may be fortuitous, as well: it could dovetail nicely with the SBA’s new “All Small” mentor-protege program, as well as the existing SBA 8(a) and DoD mentor-protege programs. As a part of a mentor-protege agreement, a large mentor could subcontract work to the protege, then help the protege apply for (and hopefully receive) an excellent past performance rating for its work.

However, in practice, there would seem to be a few areas where things may go awry. First, since subcontractors are responsible for suggesting their own ratings, this introduces the obvious potential that a subcontractor could attempt to inflate its score–and put its prime contractor in the difficult position of disagreeing with its teaming partner. Also, on the flip side, the procedure allows for the prime contractor to potentially derail a future competitor by disagreeing with a reasonable suggested rating, and thereby ensure through simple disagreement, at best, a neutral rating. Because there is no adjudicative procedure, the subcontractor seems to have no recourse if the prime contractor doesn’t provide a fair response.

Then there is the question of why OSDBUs are expected to weigh in on the specific past performance scores assigned to small subcontractors. Agency OSDBUs are advocates for small businesses, and are involved in various ways throughout the acquisition cycle. That said, it seems unlikely that an OSDBU will, in the typical case, have sufficient knowledge of a particular small subcontractor’s quality of performance to pass independent judgment on what past performance score that subcontractor should receive. Involving agency OSDBUs ordinarily is a good thing, but requiring them to pass judgment on a subcontractor’s past performance might not be the best way to go about it.

Finally, there is the question of just what sort of weight the typical contracting officer will afford to these ratings. Although the rating comes from the contracting agency, the rating itself is established by the subcontractor, prime contractor, and OSDBU. It’s possible that some contracting officers will see these ratings as less persuasive than “ordinary” prime contractor ratings developed by government contracting officials.

Fortunately, Congress seems to have anticipated that the pilot program might need to be improved. The 2017 NDAA requires the GAO to assess the program one year after it is established and report various findings back to Congress, including “any suggestions or recommendation the Comptroller General has to improve the operation of the pilot program.”

The statute calls for the SBA to establish the pilot program, but doesn’t provide a specific deadline for the SBA to do so. Once the program is up and running, it will last for three years,, beginning on “the date on which the first applicant small business concern receives a past performance rating for performance as a first tier subcontractor.” At that point, it will be up to Congress whether to continue the pilot program.

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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.



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The VA has released an Acquisition Policy Flash providing guidance to VA Contracting Officers on implementing the U.S. Supreme Court’s decision in Kingdomware Technologies, Inc. v. United States.

The Policy Flash suggests that the VA is, in fact, moving quickly to implement the Kingdomware decision–and if that’s the case, it is good news for SDVOSBs and VOSBs.

The Policy Flash begins by reiterating the Supreme Court’s major holdings: namely, that the Rule of Two applies to orders placed under the GSA Schedule, and applies even when the VA is meeting its SDVOSB and VOSB subcontracting goals.  The Policy Flash states that the VA “will implement the Supreme Court’s ruling in every context where the law applies.”

As a general matter, the Policy Flash instructs Contracting Officers to conduct robust market research to ensure compliance with the Rule of Two.  The Policy Flash continues:

If market research clearly demonstrates that offers are likely to be received from two or more qualified, capable and verified SDVOSBs or VOSBs and award will be made at a fair and reasonable price, the Rule of Two applies and the action should be appropriately set-aside in the contracting order of priority set forth in VAAR 819.7004.  Contracting officers shall also ensure SDVOSBs or VOSBs have been verified in VIP before evaluating any offers or making awards on an SDVOSB or VOSB set-aside.  Supporting documentation must be maintained in the contract file in the Electronic Contract Management System (eCMS).

With respect to acquisitions currently in the presolicitation phase, Contracting Officers are to continue with existing SDVOSB and VOSB set-asides.  However, “f the original acquisition strategy was not to set-aside the acquisition to SDVOSBs or VOSBs, a review of the original market research should be accomplished to confirm whether or not the ‘Rule of Two’ was appropriately considered . . ..”  If a review finds that the Rule of Two is met, “the action shall be set-aside for SDVOSBs or VOSBs, in accordance with the contracting order of priority set forth in VAAR 819.7004.”

Perhaps most intriguingly, the VA is instructing Contracting Officers to apply the Kingdomware decision to requirements that are in the solicitation or evaluation phase.  For these requirements, “[a] review of the original market research and VA Form 2268 shall be accomplished to confirm whether or not the ‘Rule of Two’ was appropriately considered . . ..”  If this review finds that ther are two or more SDVOSBs or VOSBs, “an amendment should be issued that cancels the solicitation.”  However, the agency can continue with an existing acquisition if there are “urgent and compelling circumstances” and an appropriate written justification is prepared and approved.

The VA apparently will not, however, apply Kingdomware to requirements that have been awarded to non-veteran companies, even where a notice to proceed has not yet been issued.  The Policy Flash sates that “Contracting officers shall coordinate with the HCA, OGC and OSDBU and be prepared to proceed with issuing the notice to proceed if issued within 30 days of this guidance.”

Overall, the Policy Flash seems like a positive step for veterans–both in terms of the speed with which it was issued, and in the decision to apply Kingdomware to existing solicitations, except where an award has already been made.

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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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The SBA Office of Hearings and Appeals lacks jurisdiction to consider whether an entity owned by an Indian tribe or Alaska Native Corporation has obtained a substantial unfair competitive advantage within an industry.

In a recent size appeal case, OHA acknowledged that an unfair competitive advantage is an exception to the special affiliation rules that tribally-owned companies ordinarily enjoy–but held that only the SBA Administrator has the power to determine that an Indian tribe or ANC has obtained, or will obtain, such an unfair advantage.

OHA’s decision in Size Appeal of The Emergence Group, SBA No. SIZ-5766 (2016) involved a State Department solicitation for professional, administrative, and support services.  The solicitation was issued as a small business set-aside under NAICS code 561990 (All Other Support Services), with a corresponding $11 million size standard.

After evaluating competitive proposals, the agency announced that Olgoonik Federal, LLC (“OF”) was the apparent successful offeror.  The Emergence Group, an unsuccessful competitor, then filed an SBA size protest, alleging that OF was part of the Olgoonik family of companies, which received a combined $200 million in federal contract dollars in 2015.

The SBA Area Office found that OF’s highest-level owner was Olgoonik Corporation, an ANC.  Because Olgoonik Corporation was an ANC, the SBA Area Office found that the firms owned by that ANC–including OF–were not affiliated based on common ownership or management.  Because OF qualified as a small business as a stand-alone entity, the SBA Area Office issued a size determination denying the size protest.

Emergence appealed to OHA.  Emergence argued that the exception from affiliation should not apply to OF because Olgoonik had gained (or would gain) an unfair competitive advantage through the use of the exception.  Emergence cited the Small Business Act, which states, at 15 U.S.C. 636(j)(10)(J)(ii)(II):

In determining the size of a small business concern owned by a socially and economically disadvantaged Indian tribe (or a wholly owned business entity of such tribe), each firm’s size shall be independently determined without regard to its affiliation with the tribe, any entity of the tribal government, or any other business enterprise owned by the tribe, unless the [SBA] Administrator determines that one or more such tribally owned business concerns have obtained, or are likely to obtain, a substantial unfair competitive advantage within an industry category.

OHA wrote that the statute “explicitly states that the Administrator must determine whether an ANC has obtained an unfair competitive advantage,” and OHA “has no delegation from the Administrator to decide” whether an unfair competitive advantage exists.  OHA held that it “lacks jurisdiction to determine whether the exception to affiliation creates an unfair competitive advantage in OF’s case.”  OHA dismissed Emergence’s size appeal.

Entities owned by tribes and ANCs ordinarily enjoy broad exceptions from affiliation.  As The Emergence Group demonstrates, those broad exceptions can be overcome by a finding of an unfair competitive advantage–but only the SBA Administrator has the power to make such a finding.

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Joint ventures can be formally organized as limited liability companies–and that should come as no surprise, given how often joint ventures use the LLC form these days.

In a recent size appeal decision, the SBA Office of Hearings and Appeals rejected the argument that, because a company was formed as an LLC, its size should not be calculated using the special rule for joint ventures.  Instead, OHA held, the LLC in question was clearly intended to be a joint venture, and the fact that it was an LLC didn’t preclude it from being treated as a joint venture.

OHA’s decision in Size Appeals of Insight Environmental Pacific, LLC, SBA No. SIZ-5756 (2016) involved a NAVFAC solicitation for environmental remediation at contaminated sites.  The solicitation was issued under NAICS code 562910 (Environmental Remediation Services) with a corresponding size standard of 500 employees.

After reviewing competitive proposals, NAVFAC announced that Insight Environmental Pacific, LLC had been selected for award.  Two unsuccessful competitors then filed size protests challenging Insight’s small business status.

The SBA Area Office determined that Insight had been established as an LLC in 2013.  Insight’s majority owner was Insight Environmental, Engineering & Construction, Inc.; the minority owner was Environmental Chemical Construction.  IEEC was designated as the “small business member” and “Managing Member” of the LLC.

Insight’s operating agreement included a number of provisions indicating that Insight had been formed for a limited purpose.  The operating agreement stated, among other things, that Insight’s purpose was to pursue the specific NAVFAC solicitation at issue, and perform the resulting contract if awarded.  The operating agreement also stated that the LLC would be terminated if NAVFAC announced that Insight would not be awarded the environmental remediation contract.

The SBA Area Office cited the SBA’s affiliation regulations, which define a joint venture as “an association of individuals and/or concerns with interests in any degree or proportion consorting to engage in and carry out no more than three specific or limited-purpose business ventures for joint profit over a two year period, for which purpose they combine their efforts, property, money, skill, or knowledge, but not on a continuing or permanent basis for conducting business generally.”  The SBA Area Office wrote that the operating agreement indicated that Insight was a joint venture, and pointed out that Insight’s own proposal referred to it as a “joint venture” in three places.  The SBA Area Office determined that Insight was a joint venture.

Under the SBA’s prior affiliation regulations, which applied to this procurement, the size of a joint venture ordinarily was determined by adding the sizes of the members of the joint venture.  Applying this affiliation regulation, the SBA Area Office determined that Insight was ineligible for the NAVFAC contract.  (As SmallGovCon readers know, the SBA recently updated its affiliation regulations to specify that a joint venture’s size is determined by comparing the size of each member, individually, to the relevant size standard.  Even if this change had applied to Insight, it presumably wouldn’t have altered the SBA Area Office’s analysis, because ECC apparently was a large business).

Insight filed a size appeal with OHA.  Insight argued that because it was an LLC, the SBA Area Office shouldn’t have treated it as a joint venture.  Instead, Insight contended, the SBA Area Office should have applied the ordinary affiliation rules for other entities.  Under these rules, Insight said, it would be treated as a small business because its minority member, ECC, couldn’t control the company.

OHA cited the regulatory definition of a joint venture, and then quoted another part of the SBA’s affiliation regulations, which states that a joint venture “may (but need not) be in the form of a separate legal entity . . ..”  OHA wrote that Insight “falls squarely within this definition.”  OHA pointed out that Insight was created for the “‘sole and limited purpose’ of competing for and performing the subject NAVFAC PAcific procurement” and that the LLC would terminate if Insight was not awarded the contract.  “It is therefore clear,” OHA wrote, “that [Insight] is not a business operating on ‘a continuing or permanent basis for conducting business generally,’ but rather is a temporary association of concerns engaging in a limited-purpose business venture for joint profit.”

OHA explained that “the fact that [Insight] is organized as an LLC does not alter this conclusion.”  OHA noted that the “regulation specifically states that a joint venture may or may not be organized as a separate legal entity,” and in commentary adopting the regulation, the SBA stated that a joint venture could use the LLC form.  OHA also noted that its own prior case law “has recognized that entities structured as LLCs may still be joint ventures with the joint venture partners affiliated.”  OHA denied Insight’s size appeal.

In the world of government contracting, joint ventures are commonly formed as LLCs.  Insight Environmental Pacific confirms that when an entity meets the definition of a joint venture, it will be treated as a joint venture–even if the entity is an LLC.

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The 2017 National Defense Authorization Act, if signed into law, includes a few changes designed to help small business subcontractors. Among those changes, the bill, which has recently been approved by both the House and Senate, includes language designed to help ensure that large prime contractors comply with the Small Business Act’s “good faith” requirement to meet their small business subcontracting goals.

Section 1821 of the 2017 NDAA is called “Good Faith in Subcontracting,” and is another Congressional effort to put teeth into the subcontracting goals required of large prime contractors (Congress took a crack at this same subject in the 2013 NDAA). The 2017 NDAA makes a handful of additional changes to the law, all of which should help ensure small business subcontracting goals are met.

The 2017 NDAA strengthens the current statutory language by specifying that a large prime contractor is in breach of its prime contract is it fails to provide adequate assurances of its intent to comply with a subcontracting plan (including, as requested, by providing periodic reports and other documents). The statute also provides that agency Offices of Small and Disadvantaged Business Utilization (OSDBUs) will review each subcontracting plan “to ensure that the plan provides maximum practicable opportunity for small business concerns to participate in the performance of the contract to which the plan applies.”

Perhaps most important, the 2017 NDAA requires the SBA to provide a list of examples of failures to make good faith efforts to utilize subcontractors. Such a list should provide guidance to large primes to know specifically what sort of activities would run afoul of the good faith requirement of the Small Business Act. What’s more, such guidance should prevent large primes from pleading ignorance, at least with regards to the provided list of specific examples. The guidance, however, may not come for awhile. The 2017 NDAA gives the SBA 270 days from enactment to put the list of examples together.

The provisions of Section 1821 should be welcomed by small businesses subcontractors, some of whom have complained about a perceived lack of government emphasis on ensuring that primes make good faith efforts to achieve their subcontracting goals. And given the recent Congressional interest in subcontracting plans, it wouldn’t be surprising if additional enforcement mechanisms were proposed in the near future.

2017 NDAA: The National Defense Authorization Act for Fiscal Year 2017 has been approved by both House and Senate, and will likely be signed into law soon. 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. Visit smallgovcon.com for the latest on the government contracting provisions of the 2017 NDAA. 

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What goes around, comes around.

The government sometimes refuses to pay a contractor for a modification when the government official requesting the modification lacks appropriate authority.  But contractual authority isn’t a one-way street benefiting only the government.  A recent decision by the Armed Services Board of Contract Appeals demonstrates that a contractor may not be bound by a final waiver and release of claims if the individual signing on the contractor’s behalf lacked authority.

The ASBCA’s decision in Horton Construction Co., SBA No. 61085 (2017) involved a contract between the Army and Horton Construction Co., Inc.  Under the contract, Horton Construction was to perform work associated with erosion control at Fort Polk, Louisiana.  The contract was awarded at a firm, fixed-price of approximately $1.94 million.

After the work was completed, Horton Construction submitted a document entitled “Certification of Final Payment, Contractors Release of Claims.”  The document was signed on Horton Construction’s behalf by Chauncy Horton.

More than three years later, Horton Construction submitted a certified claim for an additional $274,599.  The certified claim was signed by Dominique Horton Washington, the company’s Vice President.

The Contracting Officer denied the claim, and Horton Construction filed an appeal with the ASBCA.  In response, the Army argued that the appeal should be dismissed because the claim arose after a final release was executed.

Horton Construction opposed the Army’s motion for summary judgment.  Horton Construction contended that “Mr. Chauncy Horton did not have the requisite authority or the intent to release a claim.”

The ASBCA noted that, when a party moves for summary judgment, it must demonstrate “that there are no disputed material facts, and the moving party is entitled to judgment as a matter of law.”  In this case, the information in the record did “not demonstrate the extent to which Mr. Chauncy Horton was authorized to enter agreements between Horton and the Army.”  The ASBCA concluded that “the Army failed to submit sufficient evidence to meet its initial burden, specifically whether Mr. Chauncy Horton was authorized to sign the final payment and final release for appellant.”

The ASBCA denied the government’s motion for summary judgment.

When issues of contractual authority arise, they usually seem to benefit the government.  But, as the Horton Construction case shows, the government cannot have it both ways.  Like the government, a contractor may not be bound by the signature of someone who lacks appropriate authority.

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A contractor’s performance of extra work outside the scope of the contract may go uncompensated if a contractor does not receive appropriate authorization in accordance with the contractual terms.

A Court of Federal Claims decision reinforced that a contractor should only perform work required under the terms of the federal contract or directed by an authorized government agent in accordance with the contractual terms. And importantly, a Contracting Officer’s Representative isn’t always authorized to order additional work–even if that person acts as though he or she has such authority.

The Court’s decision in Baistar Mechanical, Inc., v. United States, No. 15-1473C (2016) involved a ground maintenance and snow removal services contract for the Armed Forces Retirement Home’s property in Washington, D.C., which included 270-acre property providing residence to several hundred retired military members. Baistar successfully bid on and was awarded the contract, which was executed in December 2011. The contract contemplated a five-year period of performance beginning on December 16, 2011.

Baistar alleged that, while it was working on the site, two Contracting Officer’s Representatives requested Baistar’s assistance with the planning and design of the current boiler plant and future plants at the Retirement Home.  Baistar provided the assistance, but was not selected as the contractor for the plant projects. (Although the issue wasn’t raised in the Court’s decision, it’s not entirely clear Baistar would have been eligible for those projects: its role in the planning and design sounds an awful lot like a “biased ground rules” organizational conflict of interest under FAR 9.505-2). Baistar wasn’t paid for its planning and design assistance.

Baistar also alleged that, throughout the period of performance, Baistar performed various other services at the behest of CORs, but wasn’t paid for those services. For example, Baistar contended that the CORs directed Baistar to perform various snow and ice removal services outside the contract.

In July 2015, the government terminated Baistar for default. Baistar then filed a series of claims seeking payment for the extra work Baister believed that it had been asked to perform. After the government denied Baistar’s claims, Baistar filed an appeal with the U.S. Court of Federal Claims.

The government moved to dismiss Baistar’s allegations related to work allegedly ordered by the CORs. The government argued that, under the terms of the contract, the CORs lacked authority to order additional work.

Specifically, the contract provided:

Any additional services or a change to work specified which may be performed by the contractor, either at its own volition or at the request of an individual other than a duly appointed [contracting officer], except as may be explicitly authorized in the contract, will be done at the financial risk of the contractor. Only a duly appointed [contracting officer] is authorized to bind the [g]overnment to a change in the specifications, terms, or conditions of this contract.

The contract added that the contracting officer’s representatives did “not have authority to issue technical direction that…[c]hanges any of the terms, conditions, or specification(s)/work statement of the contract.” (incorporating and quoting DFARS §1052.201-70(c)).

The Court of Federal Claims wrote that “a government agent can bind the government if the agent possesses express or implied actual authority.” No implied authority will exist “when the action taken by the government agent contravenes the explicit terms of the governing contract.” Further, when a contractor works with or enters into an agreement with a government agent, the contractor is responsible for determining whether that agent can effectively bind the government.”

In this case, “[t]he express provisions of the ground maintenance contract grant exclusive authority to the contracting officer, not the representatives, to make any changes regarding scope of worth.” The Court continued:

[T]he . . . contracting officer may have delegated management authority to its representatives, but that delegation was limited by the contract. The contract’s explicit terms gave the contracting officer exclusive authority to order out-of-scope work, and barred the representatives from implied authority to do the same. The fact that the representatives allegedly acted as if they had authority, or even believed they had authority, is insufficient.

The Court granted the government’s motion to dismiss several of Baistar’s causes of action.

When contractors are engaged in day-to-day performance of a government contractor, they often work closely with CORs, technical representatives, contracting specialists, and other agency officials who don’t hold the title “contracting officer.” In fact, it’s not uncommon for the contractor to have very little contact with the contracting officer, which apparently was the case for Baistar.

But even when the contracting officer isn’t involved in the day-to-day work, and even when a COR or other representative acts as though he or she has the authority to order new work or changed work, a contractor must tread carefully. As the Baistar case demonstrates, the government ordinarily isn’t liable for extra work or changed work performed at the behest of government officials who lack appropriate authority–and when it comes to who possesses appropriate authority, the terms of the contract govern.


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Earlier this year, the United States Supreme Court issued its decision in Kingdomware Technologies v. United States. As we’ve noted, this case was a monumental win for veteran-owned small businesses—it requires the Department of Veterans Affairs to set-aside solicitations for SDVOSBs or VOSBs where two or more such offerors will submit a proposal at a fair and reasonable price, even if that solicitation is issued under the Federal Supply Schedule.

A recent GAO decision suggests, however, that Kingdomware’s impact could be felt beyond the world of VA procurements. Indeed, the Supreme Court’s rationale in Kingdomware might compel every agency to set aside any FSS order (or any other order, for that matter) valued between $3,000 and $150,000.

In Aldevra, B-411752.2—Reconsideration (Oct. 5, 2016), the protester relied on Kingdomware to challenge a prior GAO decision that an agency is not required to set-aside an FSS order for small businesses. At issue in the initial protest was an Army National Guard Bureau solicitation under the FSS, seeking an ice machine/water dispenser (valued at $4300). According to Aldevra, the Small Business Act required the solicitation to be set aside for small businesses.

Under the Small Business Act,

Each contract for the purchase of goods and services that has an anticipated value greater than [$3,000] but not greater than [$150,000] shall be reserved exclusively for small business concerns unless the contracting officer is unable to obtain offers from two or more small business concerns that are competitive with market prices and are competitive with regard to the quality and delivery of the goods or services being purchased.

15 U.S.C. § 644(j); 80 Fed. Reg. 38294 (July 2, 2015) (increasing dollar amounts).

Because the solicitation was valued at more than $3,000 but less than $150,000, Aldevra argued that the Small Business Act required the Army to apply the “rule of two” under the Small Business Act.

GAO disagreed, and denied Aldevra’s initial protest. In doing so, it relied on Section 644(r) of the Small Business Act—that section, according to GAO, makes an agency’s use of set-aside procedures for FSS contracts discretionary. GAO further explained that the SBA’s regulations give contracting officers discretion—but do not command them—to set aside orders under multiple-award contracts.

Some eight months after GAO’s initial decision, the Supreme Court issued its Kingdomware decision, interpreting the effect of the Veterans Benefits, Healthcare, and Information Technology Act of 2006’s Rule of Two. According to the Act:

[A] contracting officer of the Department shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.

38 U.S.C. § 8127(d).

The mandatory phrasing of the statute was crucial: the Court held that “Congress’ use of the word ‘shall’ demonstrates that [the Act] mandates the use of the Rule of Two in all contracting before using competitive procedures.” The Court, moreover, specifically found that FSS orders are contracts.

Aldevra jumped on the Kingdomware decision and sought to apply its logic to the Small Business Act. It asked GAO to reconsider its initial decision, arguing that the Supreme Court’s decision compels GAO to find that Section 644(j) similarly required the Army National Guard’s solicitation to be set aside for small businesses.

GAO denied the request. But it did so on a technicality—it ruled that Kingdomware was not made retroactive by the Court, so it could not be applied to the prior decision in Aldevra’s protest. Thus, the issue of whether Section 644(j) requires all solicitations valued between $3,000 and $150,000 be reserved for small businesses is yet to be decided.

Aldevra has successfully advanced the interests of small businesses at GAO before—it was the first to challenge the VA’s failure to follow the Rule of Two, which ultimately led to the Kingdomware decision. Aldevra’s argument here could have the same reach: under Kingdomware’s logic, the Small Business Act might compel all solicitations valued between $3,000 and $150,000 be reserved for small businesses.

Aldevra isn’t alone in its belief that the FAR’s “rule of two” must be applied to orders under the FSS and other acquisition vehicles. The SBA agreed with Aldevra’s interpretation during both its initial protest and request for reconsideration. The support of the SBA–which has considerable discretion to interpret the Small Business Act–could be crucial in the future.

Because Aldevra was decided on a technicality, the important question Aldevra raised remains to be answered. But there is little doubt that before long, Aldevra or another protester will revisit this issue, in connection with a post-Kingdomware acquisition. What happens then could be every bit as important to small businesses as Kingdomware was for SDVOSBs and VOSBs.

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The number of 8(a) sole source contracts over $20 million awarded by the DoD has been “steadily declining since 2011,” when a new requirement was adopted requiring agencies to prepare written justifications of such awards.

According to a recent GAO report, such awards have dropped more than 86% compared to the period before the justification requirement took effect.  The report states that much of the work that was previously awarded on a sole source basis has now been competed.

8(a) Program participants owned by Alaska Native Corporations or Indian Tribes (which the GAO collectively refers to as “tribal 8(a) firms”) are eligible to receive  8(a) sole source contracts for any dollar amount.  In contrast, as the GAO writes, other 8(a) firms “generally must compete for contracts valued above certain thresholds: $4 million or $7 million, depending on what is being purchased.”

Section 811 of the 2010 National Defense Authorization Act did not eliminate the special sole source authority for tribal 8(a) firms, but required a contracting officer to issue a written justification and approval for any sole source 8(a) award over $20 million.  This portion of the 2010 NDAA was incorporated in the FAR in March 2011.  A regulatory update in late 2015 increased the threshold to $22 million, where it remains today.

In 2015, Congress directed the SBA to assess the impact of the justification requirement.  The GAO’s recent report responds to that Congressional directive.  The report demonstrates that large DoD 8(a) sole source awards have dropped dramatically since 2011.  The GAO writes:

From fiscal years 2006 through 2015, the number of sole-source 8(a) contracts started to decline in 2011 and remained low through 2015, while the number of competitive contract awards over $20 million increased in recent years.  Consistent with findings from our past reports, we found that sole-source contracts generally declined both number and value since 2011, when the 8(a) justification requirement went into effect.  DOD awarded 22 of these contracts from fiscal years 2011 through 2015, compared to 163 such contracts in the prior 5-year period (fiscal years 2006 through 2010).

In my eyes, this isn’t just a decline–it’s a dramatic drop in 8(a) sole source awards of 86.5% from one five-year period to the next.

The GAO stated that there is a variety of reasons for the drop, including “a renewed agency-wide emphasis on competition” at DoD, as well as budget declines and declines in the sizes of requirements.  DoD officials “had varying opinions about whether the 8(a) justification was a deterrent to awarding large sole-source 8(a) contracts.”  Some of the officials GAO interviewed “noted that the 8(a) justification review process would deter them, while others said they would award a sole-source contract over $20 million if they found that only one vendor could meet the requirement.”

The report wasn’t all bad news for tribal 8(a) firms.  The GAO wrote that competitive awards to tribal 8(a) firms have increased even as sole source awards have fallen:

Since 2011, tribal 8(a) firms have won an increasing number of competitively awarded 8(a) contracts over $20 million at DOD.  Although these firms represent less than 10 percent of the overall pool of 8(a) contractors, the number of competitively awarded DOD contracts over $20 million to tribal 8(a) firms grew from 26 in fiscal year 2011–or 20 percent–to 48 contracts in fiscal year 2015–or 32 percent of the total.  In addition, since 2011, tribal 8(a) firms have consistently won higher value awards than other 8(a) firms for competitive 8(a) contracts over $20 million.  In fiscal year 2015, the average award size of a competed 8(a) contract to a tribal 8(a) firm was $98 million, while other 8(a) firms had an average award of $48 million.

Despite the good news on the competitive front, tribal advocates are likely to see the GAO report as confirmation of what many have already assumed: that Section 811 of the 2010 NDAA has had a significant negative effect on sole source awards to 8(a) firms owned by ANCs and Indian tribes.  Alaska Congressman Don Young has included language in the 2017 NDAA to repeal Section 811.  Congressman Young included similar language in the 2016 NDAA, but it was removed from the final bill.  We’ll see what happens this year.

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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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SDVOSB joint venture agreements will be required to look quite different after August 24, 2016.  That’s when a new SBA regulation takes effect–and the new regulation overhauls (and expands upon) the required provisions for SDVOSB joint venture agreements.

The changes made by this proposed rule will affect joint ventures’ eligibility for SDVOSB contracts.  It will be imperative that SDVOSBs understand that their old “template” JV agreements will be non-compliant after August 24, and that SDVOSBs and their joint venture partners carefully ensure that their subsequent joint venture agreements comply with all of the new requirements.

If you’ve been following SmallGovCon lately (and I hope that you have), you know that we’ve been posting a number of updates related to the SBA’s recent major final rule, which is best known for establishing a universal small business mentor-protege program.  But the final rule also includes many other important changes, including major updates to the requirements for SDVOSB joint ventures.  For those familiar with the requirements for 8(a) joint ventures, most of the new requirements will look familiar; the SBA states that its changes were intended to ensure more uniformity between joint venture agreements under the various socioeconomic set-aside programs.

The SBA’s final rule moves the SDVOSB joint venture requirements from 13 C.F.R. 125.15 to 13 C.F.R. 125.18 (a change of note primarily to those of us in the legal profession).  But the new regulation is substantively very different than the old.  Below are the highlights of the major requirements under the new rule.  Of course (and this should go without saying), this post is educational only; those interested in forming a SDVOSB joint venture should consult the new regulations themselves, or consult with experienced legal counsel, rather than using this post as a guide.

Size Eligibility 

In order to form an SDVOSB joint venture, at least one of the participants must be an SDVOSB, and must also be a small business under the NAICS code assigned to the procurement in question. The other joint venturer can be another small business, or the partner can be the SDVOSB’s mentor under the new small business mentor-protege program or the 8(a) mentor-protege program:

A joint venture between a protege firm that qualifies as an SDVO SBC and its SBA-approved mentor (see [Sections] 125.9 and 124.520 of this chapter) will  be deemed small provided the protege qualifies as small for the size standard corresponding to the NAICS code assigned to the SDVO procurement or sale.

This piece of the new regulation appears to overturn a recent SBA Office of Hearings and Appeals decision, in which OHA held that a mentor-protege joint venture was ineligible for an SDVOSB set-aside contract because the mentor firm was not a large business.

Required Joint Venture Agreement Provisions

Under the new regulations, an SDVOSB joint venture agreement must include the following provisions:

  • Purpose.  The joint venture agreement must set forth the purpose of the joint venture.  This is not a change from the old rules.
  • Managing Member.   An SDVOSB must be named the managing member of the joint venture.  This is not a change from the old rules.
  • Project Manager.  An SDVOSB’s employee must be named the project manager responsible for performance of the contract.  This, too, is not a change from the old rules.  Curiously, unlike in the rules governing small business mentor-protege joint ventures, the SBA doesn’t specify whether the project manager can be a contingent hire, or instead must  be a current employee of the SDVOSB.  The new regulation also doesn’t address OHA case law holding that a specific individual must be named in the agreement (i.e., it’s insufficient to simply state that “an employee of the SDVOSB will be the project manager.”)  It’s unfortunate that the SBA didn’t address that issue; if the SBA agrees with OHA’s rulings, it would have been nice to have the regulations reflect this requirement so that SDVOSBs understand that a specific name is required.
  • Ownership. If the joint venture is a separate legal entity (e.g., LLC), the SDVOSB must own at least 51%.  This is a change from the old rules, which don’t address ownership.
  • Profits. The SDVOSB member must receive profits from the joint venture commensurate with the work performed by the SDVOSB, or in the case of a separate legal entity joint venture, commensurate with its ownership share. This is a change from the old rule, which applies the 51% threshold to all SDVOSBs.  To me, there is no good reason to distinguish between “informal” and “separate legal entity” joint ventures, especially since the SBA (elsewhere in its final rule) concedes that “state law would recognize an ‘informal’ joint venture with a written document setting forth the responsibilities of the joint venture partners as some sort of partnership.”  In other words, an informal joint venture is a legal entity too, just not one that has been formally organized with a state government.  In any event, the long and short of this change is that we can expect to see many more informal SDVOSB joint ventures.  That’s because, using the informal form, the non-SDVOSB will be able to perform up to 60% of the work and receive 60% of the profits (see the discussion of work split below); whereas in a separate legal entity joint venture, the non-SDVOSB will be limited to 49% of profits, no matter how much work the non-SDVOSB performs.
  • Bank Account.  The parties must establish a special bank account” in the name of the joint venture.  This is a change from the old rule, which is silent regarding bank accounts.  The account “must require the signature of all parties to the joint venture or designees for withdrawal purposes.” All payments to the joint venture for performance on an SDVOSB will be deposited in the special bank account; all expenses incurred under the contract will be paid from the account.
  • Equipment, Facilities, and Other Resources. Itemize all major equipment, facilities, and other resources to be furnished by each venturer, along with a detailed schedule of the cost or value of such items. This is a change from the old rule, which doesn’t require this information to be set forth in an SDVOSB joint venture agreement.  In a recent court decision, an 8(a) joint venture was penalized for providing insufficient details about these items—even though the contract in question was an IDIQ contract, making it difficult to provide a “detailed schedule” at the time the joint venture agreement was executed. Perhaps in response to that decision, the new regulations provide that “if a contract is indefinite in nature,” such as an IDIQ, the joint venture “must provide a general description of the anticipated major equipment, facilities, and other resources to be furnished by each party to the joint venture, without a detailed schedule of cost or value of each, or in the alternative, specify how the parties to the joint venture will furnish such resources to the joint venture once a definite scope of work is made publicly available.”
  • Parties’ Responsibilities.  Specify the responsibilities of the venturers with regard to contract negotiation, source of labor, and contract performance, including ways that the parties will ensure that the joint venture will meet the performance of work requirements set forth in the new rule.  Again, if the contract is indefinite, a lesser amount of information will be permitted.  This is an update from the old rule, which requires information on contract negotiation, source of labor, and contract performance, but does not require a discussion of how the SDVOSB joint venture will meet the performance of work requirements.
  • Ensured Performance. Obligate all parties to the joint venture to ensure complete performance despite the withdrawal of any venturer. This is not a change from the current rule.
  • Records. State that accounting and other administrative records of the joint venture must be kept in the office of the small business managing venturer, unless the SBA gives permission to keep them elsewhere. Additionally, the joint venture’s final original records must be retained by the small business managing venturer upon completion of the contract. These provisions, which are not included in the old rule, seem dated in the assumption that records will be kept in paper form; it instead would have been nice for the SBA to allow for more modern record-keeping, like a cloud-based records system that enables documents to be available in real-time to both parties.
  • Statements. Provide that quarterly financial statements showing cumulative contract receipts and expenditures (including salaries of the joint venture’s principals) must be submitted to the SBA not later than 45 days after each operating quarter of the joint venture. This language, which was basically copied from the 8(a) program regulations, doesn’t specify who might be a “joint venture principal” in a world in which populated joint ventures have been eliminated. The joint venture agreement must also state that the parties will submit a project-end profit-and-loss statement, including a statement of final profit distribution, to the SBA no later than 90 days after completion of the contract.  I find these requirements a bit odd because, unlike for 8(a) joint ventures, the SBA doesn’t pre-approve SDVOSB joint ventures, nor does it seem that the SBA will review a particular SDVOSB joint venture agreement except in the case of a protest.  So why the ongoing requirement for submitting financial records?

While I wish that every SDVOSB would call qualified legal counsel before setting up an SDVOSB joint venture, the reality is that many SDVOSBs attempt to cut costs by relying on joint venture agreement “templates” obtained from a teammate or even from questionable internet sources.  Using SDVOSB joint venture agreement templates is risky enough under the old rules, but will be an even bigger problem after August 24, when all those old templates become severely outdated.  I hope that all SDVOSBs become aware of the need to have updated joint venture agreements meeting the new regulatory requirements, but I won’t be surprised to see some SDVOSB joint ventures using outdated templates in the months to come–and losing out on SDVOSB set-asides as a result.

Performance of Work Requirements

In addition to setting forth many new and changed requirements for SDVOSB joint venture agreements, the new regulation also specifies that, for any SDVOSB contract, “the SDVO SBC partner(s) to the joint venture must perform at least 40% of the work performed by the joint venture.”  That work “must be more than administrative or ministerial functions so that [the SDVOSBs] gain substantive experience.”  The joint venture must also comply with the limitations on subcontracting set forth in 13 C.F.R. 125.6.

And that’s not all: the SDVOSB partner to the joint venture “must annually submit a report to the relevant contracting officer and to the SBA, signed by an authorized official of each partner to the joint venture, explaining how and certifying that the performance of work requirements are being met.”  Additionally, at the completion of the SDVOSB contract, a final report must be submitted to the contracting office and the SBA, “explaining how and certifying that the performance of work requirements were met for the contract, and further certifying that the contract was performed in accordance with the provisions of the joint venture agreement that are required” under the new regulation.

Past Performance and Experience 

Many SDVOSBs will groan at the new paperwork and reporting requirements established under the new regulation.  But the SBA has inserted at least one provision that is a definite “win” for SDVOSBs and their joint venture partners: the new regulation requires contracting officers to consider the past performance and experience of both members of an SDVOSB joint venture.  The regulation states:

When evaluating the past performance and experience of an entity submitting an offer for an SDVO contract as a joint venture established pursuant to this section, a procuring activity must consider work done by each partner to the joint venture as well as any work done by the joint venture itself previously.

Small businesses sometimes assume that agencies are required to consider the past performance and experience of the individual members of a joint venture–but until now, that wasn’t the case.  True, many contracting officers considered such experience anyway, but there have been high-profile examples of agencies refusing to consider the past performance of a joint venture’s members.  Of course, a joint venture is defined as a limited purpose arrangement, so it makes no sense to require the joint venture itself to demonstrate relevant past performance.  This change to the SBA’s regulations is important and helpful.

The Road Ahead

After August 24, 2016, those old template SDVOSB joint venture agreements won’t be anywhere close to compliant, so SDVOSBs should act quickly to educate themselves about the new regulations and adjust any planned joint venture relationships accordingly.  For SDVOSBs and their joint venture partners, the landscape is about to shift.

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