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Koprince Law LLC

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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Koprince Law LLC

A self-certified woman-owned small business was ineligible for a WOSB set-aside contract because the woman owner’s husband held the company’s highest officer position and appeared to manage its day-to-day operations.

A recent SBA Office of Hearings and Appeals decision highlights the importance of ensuring that a woman be responsible for managing the day-to-day business of a WOSB–and that the woman’s role be reflected both in the corporate paperwork and in practice.

OHA’s decision in Yard Masters, Inc., SBA No. WOSB-109 (2017) involved an Army solicitation for grounds maintenance services.  The solicitation was issued as a WOSB set-aside under NAICS code 561730 (Landscaping Services), with a corresponding $7 million size standard.

After evaluating competitive proposals, the Army awarded the contract to Yard Masters, Inc.  A competitor then filed a WOSB protest, alleging that Yard Masters was ineligible.  The protester contended that a man, Bryce Wade, was Yard Masters’ majority owner and President until recently and that he still exercised control over the company.

In response to the protest, Yard Masters admitted that Bryce Wade had previously been the majority owner, but that he had recently sold stock to his wife, Sally Wade, making her the 51% owner.  Yard Masters also produced Sally Wade’s resume and meeting minutes, showing that Sally Wade was the Chief Executive Officer.

The SBA Area Office examined Yard Masters’ bylaws, and determined that the bylaws “do not create a CEO position” or assign any duties to the CEO.  Instead, the bylaws identified the President (a position held by Bryce Wade) as the “chief executive and administrative officer of the corporation.”  The SBA Area Office also noted that “Bryce Wade signed [Yard Masters’] proposal and its contract documents for the instant procurement,” as well as the company’s tax returns.  The tax returns “identify Bryce, and not Sally, Wade as a compensated officer.”

The SBA Area Office found that Sally Wade did not control Yard Masters, and issued a determination finding the company ineligible for the Army WOSB set-aside contract.

Yard Masters appealed to OHA.  Yard Masters argued, in part, that the corporation’s meeting minutes made clear that Sally Wade had ultimate direction and control of the company.

Yard Masters “argues that Sally Wade is its CEO,” OHA wrote.  “The problem is that the Board did not formally create a position of CEO.”  OHA continued, “[t]he Bylaws were never changed to add the position of CEO.  The Bylaws clearly state that the President is the corporation’s ‘chief administrative and executive officer.’  Bryce Wade holds that position.”  OHA concluded that Yard Masters’ “highest officer position is President, and Bryce Wade, not Sally Wade, holds it.”

OHA also noted that “all actions taken on [Yard Masters’] behalf were taken by Bryce Wade.”  Even after Sally Wade “supposedly had taken control” of the company, “Bryce Wade signed [Yard Masters’] offer” and was listed as the point of contact.  And incredibly, after the WOSB protest was filed, “t was Bryce Wade, not Ms. Sally Wade, who communicated with SBA on [Yard Masters’] behalf.”

OHA denied the appeal and upheld the SBA Area Office’s decision.

The Yard Masters case offers at least three important lessons for WOSBs.

First, corporate paperwork matters.  I can’t count how many times, in my practice, I’ve seen a situation like Yard Masters’, where a company officer is using a title that isn’t established in the governing documents.  In order for a woman to hold the highest officer position in the company, the governing documents need to establish that her role is, in fact, the highest.  Even small, family-owned companies like Yard Masters need to ensure that their corporate documents are up to snuff.

Second, perception matters.  Although there’s not necessarily anything inherently wrong with a man signing contracts and other documents on behalf of a WOSB, it does tend to suggest that the man has outsize influence within the company.  WOSBs ought to be careful about who signs contracts, checks and other corporate documents–as well as who is listed as points of contact in SAM and in proposals.

And third, as a corollary to the previous item, if you’re getting protested for WOSB eligibility, don’t have a man be in charge of communicating with the SBA.  Talk about not sending the right signals.

The SBA is still working in the long-awaited rules that will require all WOSBs to be formally certified.  But in the meantime, Yard Masters is a good reminder self-certified WOSBs need to do their due diligence to ensure that they comply with all WOSB requirements.

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Koprince Law LLC

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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Koprince Law LLC

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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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

In evaluating a WOSB joint venture’s past performance, the procuring agency considered each joint venture member’s contemplated percentage of effort for the solicitation’s scope of work, and assigned the joint venture past performance ratings based on which member was responsible for particular past performance.

The GAO held that the agency had the discretion to evaluate joint venture past performance in this manner–although it is unclear whether a relatively new SBA regulation (which apparently didn’t apply to the solicitation) would have affected the outcome.

The GAO’s decision in TA Services of South Carolina, LLC, B-412036.4 (Jan. 31, 2017) involved an Air Force solicitation seeking services supporting Air Force Information Network operations.  The solicitation was issued on March 13, 2015 and was set aside for WOSBs.

The solicitation called for the award of a fixed-price contract (with a few cost reimbursable line items) for a 12-month base period and four potential option years.  The Air Force was to evaluate proposals on a best value basis, considering technical, past performance, and price factors.

The successful offeror was to perform work in five Mission Areas.  Under a “staffing/management” technical subfactor, offerors apparently were required to provide information regarding the anticipated breakdown of work between teaming partners (or joint venture partners) for each Mission Area.

With respect to past performance, the solicitation stated that offerors should submit past performance information on up to eight recent, relevant contracts performed by the offeror, its subcontractors, teaming partners, and/or joint venture partners.  The solicitation stated that “past performance of either party in a joint venture counts for the past performance of the entity.”

TA Services of South Carolina, LLC was an 8(a) mentor-protege joint venture between Technica, LLC, a woman-owned small business, and AECOM, its large mentor.  TAS submitted a proposal in response to the Air Force solicitation.  TAS provided three past performance contracts performed by AECOM, but none by Technica.

TAS proposed that Technica would provide the majority of the staffing (between 55% and 70%) on four of the five Mission Areas.  AECOM would provide the majority of the staffing on the fifth Mission Area.

In the course of its evaluation, the Air Force independently identified a fourth AECOM contract, but no Technica contracts.  The Air Force concluded that the four AECOM contracts “provided meaningful past performance to enable a confidence level to be determined for the Joint Venture.”  However, “while Technica proposed the majority of staffing in all areas except [one], they demonstrated no past performance.”  The Air Force assigned TAS a “Satisfactory Confidence” past performance rating.  The Air Force awarded the contract to a competitor, which proposed a higher price but received a “Substantial Confidence” past performance score.

TAS filed a GAO bid protest challenging the evaluation.  TAS argued, in part, that the Air Force’s past performance evaluation was inconsistent with the terms of the solicitation.  TAS contended that the solicitation required AECOM’s experience to be treated as the joint venture’s experience, and did not allow the Air Force to assign a lower confidence rating merely because Technica, the lead joint venture member, had not demonstrated relevant experience.

The GAO wrote that, “[a]s a general matter, the evaluation of an offeror’s past performance, including the agency’s determination of the relevance and scope of an offeror’s performance history to be considered, is a matter within the discretion of the contracting agency.”  In this case, “the RFP’s reference to the past performance of a JV partner counting for the mast performance of the JV does not mean the agency could not consider which JV partner was responsible for past performance.”  The GAO continued:

In the case of the protester, despite the fact that one JV partner had relevant past performance of exceptional quality in all mission areas, it remains the case that the other JV partner, which was proposed to perform the majority of staffing in four of the five mission areas, had no relevant past performance.  Given the latter circumstance, we fail to see that satisfactory confidence was an unreasonable performance confidence rating for the JV.

The GAO denied the protest.

The evaluation of a joint venture’s past performance is something I’m asked about frequently–and an area where the FAR provides little guidance.  However, is worth noting that last summer, the SBA overhauled its joint venture regulations, including those applicable to the WOSB program.  The WOSB regulations now provide, at 13 C.F.R. 127.506(f):

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

Nearly-identical language was added to the SBA’s regulations governing joint ventures for small business, 8(a), SDVOSB and HUBZone contracts.

The new regulation took effect more than a year after the solicitation was issued in March 2015, and wasn’t discussed in GAO’s decision.  But had it been effective, would it have changed the outcome?  That’s not entirely clear (and won’t be until a case comes along interpreting the new rule), but my best guess is “no.”

The regulation, by its plain language, specifies that the procuring agency must consider the past performance of individual joint venture members.  The SBA’s Federal Register commentary indicates that the reason SBA adopted this regulation was to prevent agencies from outright ignoring the past performance of joint venture members, and assigning undeserved “neutral” ratings to JVs comprised of experienced members.

In TA Services, of course, the agency did consider AECOM’s past performance, and didn’t assign TAS a “neutral” rating.  The new regulation doesn’t directly require any more than that, although I imagine there will be bid protests in the future about whether the underlying policy prohibits the sort of weighing that occurred here (i.e., is it fair to “penalize” a mentor-protege JV simply because the protege has little relevant experience?)

We’ll have to wait to see how the GAO and Court of Federal Claims resolve these issues in the future.  For now, TA Services of South Carolina seems clear: at least prior to the adoption of the new SBA regulations, and absent a solicitation provision to the contrary, there is nothing wrong with the agency considering each JV partner’s level of effort as part of the past performance evaluation.

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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

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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Koprince Law LLC

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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Koprince Law LLC

Greetings from Oklahoma, where I am wrapping up a busy week of travel that has included speaking engagements both at the Iowa Vendor Conference and The Indian Country Business Summit.

While I’ve been on the road, it has also been a noteworthy week in government contracting news. This week, SmallGovCon Week In Review takes a look at stories about the year end spending frenzy, the Freedom of Information Act may undergo major changes, DoD is barely exceeding 50% when it comes to meaningful competitions, and much more.

  • The projected federal contract spending is on a decidedly upward slant with two issues affecting the year-end spending frenzy. [American City & County]
  • What impact will the outcome of the presidential election have on the government contracting landscape? [GovBizConnect]
  • Federal agencies could soon face a new governmentwide guidance on how they respond to Freedom of Information Act requests, following an upcoming meeting in September. [Federal news Radio]
  • The Office of Federal Procurement Policy has launched a dashboard to hold agencies accountable to meet the goals in the category management memos. [Federal News Radio]
  • With worry that only 56.5 percent of the DoD’s contracted dollars involved a meaningful competition between two or more vendors, they have issued a series of corrective actions to reverse a downward slide that has been ongoing for nearly a decade. [Federal News Radio]
  • Several speculative conclusions can be made based on fiscal 2015 government contracting data and, according to one commentator, the outlook is not positive. [Federal News Radio]
  • The FAR Council published the final rule regarding the Fair Pay and Safe Workplaces Executive Order, which imposes a host of new obligations on government contractors, including an obligation to report various labor law violations during the bid and proposal process. [The Hill]
  • A former MCC Construction Company officer and owner pleads guilty to conspiring to defraud the government. [The United States Department of Justice]

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Koprince Law LLC

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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Koprince Law LLC

GAO’s jurisdiction to hear protests of certain civilian task and delivery orders has been restored.

On December 15, 2016, the President signed the 2016 GAO Civilian Task and Delivery Order Protest Authority Act (the “ 2016 Act”) into law.  The 2016 Act restores GAO’s recently-expired jurisdiction to hear protests of civilian task and delivery orders valued in excess of $10 million.

As we recently blogged about here at SmallGovCon, the 2017 National Defense Authorization Act also restores GAO’s jurisdiction over task and delivery orders. But even while the 2017 NDAA awaits the President’s signature (or potential veto), Congress and the President have enacted separate legislation to permit GAO to resume hearing bid protests of civilian task and delivery orders.

This Act makes permanent the GAO’s authority to hear protests on civilian task or delivery contracts valued in excess of $10 million. It does so by deleting the sunset provision relating to the authorized protest of a task or delivery order under 41 U.S.C. § 4106(f).

While the 2016 Act permanently restores GAO’s jurisdiction over protests involving civilian task and delivery orders valued above $10 million, as noted in a prior blog, the 2017 NDAA will increase the threshold for challenging DoD task and delivery orders to $25 million. For now, however, DoD orders meeting the $10 million threshold, including those issued under civilian contract vehicles, are once again subject to GAO oversight.

The enactment of the 2016 Act reinforces the importance of bid protests in the procurement process, as evidenced by the fact that 46% of protests in Fiscal Year 2016 resulted in relief for the protester (either a “sustain” decision or voluntary agency corrective action). Congress made the right call in restoring GAO’s jurisdiction, and did so even faster than the 2017 NDAA would have allowed.

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Koprince Law LLC

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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Koprince Law LLC

The HUBZone program will see significant changes to its rules as a result of major SBA changes set to take effect in late August.

These changes apply generally to two aspects of the HUBZone program: that relating to the SBA’s processing of HUBZone applications, and a significant expansion of the HUBZone joint venture requirements.

Here at SmallGovCon, we have been writing about the many changes brought about by the SBA’s recently published final rule about Small Business Mentor-Protégé Programs. Among these major changes are the adoption of a small business mentor-protégé program and an overhaul of the rules governing SDVOSB joint ventures. HUBZone companies can also share in the fun, as the SBA has made significant changes to the HUBZone program regulations.

First, revising 13 C.F.R. § 126.306, SBA provides significant new details as to its processing of HUBZone applications. The new regulation will provide, in general:

  • The SBA’s Director Office of HUBZone (“D/HUB”) is authorized to approve or decline applications for certification. SBA will receive and review all applications and request supporting documents. Applications—including all required information, supporting documentation, and HUBZone representations—must be complete before processing; SBA will not process incomplete packages. SBA will make its determination within 90 calendar days after the complete package is received—this is a significantly longer than the period contemplated by the current regulations, which provide that “SBA will make its determination within 30 calendar days after receipt of a complete package whenever practicable.” In practice, SBA hasn’t met this aggressive 30-day deadline; a 2014 GAO report indicated that the average processing time was 116 days from the date of the initial application.
  • SBA may request additional or clarifying information about an application at any time.
  • The burden of proof for eligibility is now squarely placed on the applicant concern. “If a concern does not provide requested information within the allotted time provided by SBA, or if it submits incomplete information, SBA may presume that disclosure of the missing information would adversely affect the business concern or demonstrate lack of eligibility in the area or areas to which the information relates.”
  • The applicant must be eligible as of the date it submitted its application and up until the time the D/HUB issues a decision. The decision on the application will be based on the facts set forth in the application, any information submitted in response to a clarification request, and “any changed circumstances since the date of application.”
  • As to this last requirement, the new regulation states that “[a]ny changed circumstance occurring after an application will be considered and may constitute grounds for decline.” The entity applying for certification has a duty, moreover, to notify SBA of any changes that could affect its eligibility; “[t]he D/HUB may propose decertification for any HUBZone SBC that failed to inform SBA of any changed circumstances that affected its eligibility for the program during the processing of the application.”

In addition to expanding upon the HUBZone application process, the new regulation expands HUBZone joint ventures. 13 C.F.R. § 126.616 will soon provide as follows:


Though the existing HUBZone regulations only allow for a joint venture between two qualified HUBZone entities, the new regulation allows for a HUBZone small business to “enter into a joint venture agreement with one or more” small businesses, with an approved mentor (per the new mentor-protégé regulation), or, if also an 8(a) program participant, an approved 8(a) mentor, for the purposes of submitting an offer on a HUBZone contract. The joint venture itself need not be certified as a qualified HUBZone small business.

This portion of the regulation is a big win for HUBZone contractors. For years, participants in the 8(a), SDVOSB, and WOSB programs have been able to joint venture with non-certified small businesses; only HUBZones were restricted to joint venturing solely with one another. Although SBA’s likely hoped that the requirement would lead to more dollars flowing to eligible HUBZone companies, the policy appears to have backfired: in our experience, few HUBZones joint venture at all for HUBZone contracts. The new regulation will correct this problem and put HUBZones in a similar position as participants in the SBA’s other three major socioeconomic programs.


The new regulation adopts a two-pronged approach for determining the joint venture’s size. For a joint venture that includes at least one qualified HUBZone small business and one or more other business concerns, the joint venture “may submit an offer as a small business for any HUBZone procurement or sale so long as each concern is small under the size standard corresponding to the NAICS code assigned to the procurement.”

For a joint venture between a protégé and its approved mentor (under SBA’s new small business mentor-protégé regulation), the joint venture will be deemed small if the protégé qualifies as small under the solicitation’s operative size standard. Oddly, the portion of the regulation addressing size doesn’t mention the 8(a) mentor-protege program, even though the 8(a) mentor-protege program is discussed elsewhere in the same regulation. Therefore, while it seems likely that SBA intended allow 8(a) mentor-protege joint ventures to qualify for HUBZone contracts, that’s not clear from the regulations, and is something we hope SBA clarifies.

Required Joint Venture Agreement Provisions

Because the existing regulations only allows for joint ventures between qualified HUBZone entities, there are no specific joint venture agreement requirements. SBA (rightly) assumes that, because only qualified HUBZones entities can participate in a joint venture, there is no reason to adopt rules designed to ensure that HUBZones control and benefit from their joint ventures.

The new regulation departs from the limitation on joint venture participation, and allows a HUBZone to joint venture with any small business—whether a qualified HUBZone or not–as well as with large mentor firms. The presumption that the HUBZone will enjoy the benefits from the joint venture is thus negated; as a result, the new regulation includes strict requirements for a HUBZone joint venture agreement. These requirements—which mirror the joint venture agreement requirements for the new small business mentor-protégé program—are summarized below. But as with our other educational posts regarding the new joint venture rules, we must caution against relying on this post in an effort to comply with the new regulations; instead, HUBZone entities—and prospective joint venture partners of HUBZone entities—should consult the new regulations directly or call experienced legal counsel.

  • Purpose. The joint venture agreement must set forth the purpose of the joint venture.
  • Managing Venturer. The joint venture agreement must designate a HUBZone small business as the managing venturer, and an employee of the managing venturer as the project manager responsible for contract performance. The project manager “need not be an employee of the HUBZone SBC at the time the joint venture submits an offer, but, if he or she is not, there must be a signed letter of intent that the individual commits to be employed by the HUBZone SBC if the joint venture is the successful offeror.” The project manager cannot, however, be employed by the mentor and become an employee of the HUBZone managing venturer for purposes of performance under the joint venture. The plain language of the regulation does not appear to prevent an employee from a non-mentor, non-HUBZone small business partner from becoming the project manager, but SBA’s intent in this regard is unclear. Hopefully, SBA will provide clarification on this point.
  • Ownership. The joint venture agreement must state that, with respect to a separate legal entity joint venture, the HUBZone small business owns at least 51% of the joint venture entity.
  • Profits. The agreement must also state that the HUBZone small business will receive profits from the joint venture commensurate with the work it performs or, in the case of a separate legal entity joint venture, commensurate with its ownership interest.
  • Bank Account. The joint venture agreement must provide for a special bank account in the name of the joint venture. The account “must require the signature of all parties to the joint venture or designees for withdrawal purposes.” All payments to the joint venture for performance on a set-aside contract will be deposited in the special bank account; all expenses incurred under the contract will be paid from the account.
  • Equipment, Facilities, and Other Resources. The koint venture agreement must 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. If the contract is indefinite in nature—like an IDIQ or multiple award contract might be—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. The joint venture agreement must 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 and the HUBZone partner(s) to the joint venture will meet the performance of work requirements, “where practical.” Again, if the contract is indefinite in nature, “the joint venture must provide a general description of the anticipated responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance, not including the ways that parties to the joint venture will ensure that the joint venture and the HUBZone partner(s) to the joint venture will meet the performance of work requirements . . . or, in the alternative, specify how the parties to the joint venture will define such responsibilities once a definite scope of work is made publicly available.”
  • Guaranteed Performance. The joint venture agreement must obligate all parties to the joint venture to ensure complete performance despite the withdrawal of any venturer.
  • Records. The joint venture agreement must state that accounting and other administrative records of the joint venture must be kept in the office of the HUBZone 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 HUBZone small business managing venturer upon completion of the contract.
  • Statements. The joint venture agreement must 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. 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.

Limitations on Subcontracting

The HUBZone joint venture program’s performance of work requirements are set forth in this new subsection (d). This regulation also applies a two-pronged approach for compliance.

For a joint venture that is comprised only of qualified HUBZone small businesses, “the aggregate of the qualified HUBZone small businesses to the joint venture—not each concern separately—must perform the applicable percentage of work required by 13 C.F.R. § 125.6. (As SmallGovCon readers know, these limits recently changed under a separate SBA final rule effective June 30, 2016).

For a joint venture between only one qualified HUBZone protégé and another (non-HUBZone) small business concern or its SBA-approved mentor, “the joint venture must perform the applicable percentage of work required by § 125.6 . . . and the HUBZone SBC partner to the joint venture must perform at least 40% of the work performed by the joint venture.” The work performed by the HUBZone small business must be more than ministerial or administrative, so that it gains substantive experience.

Certification of Compliance

As with the small business mentor-protégé program, the new HUBZone joint venture requirements mandate self-certification of the joint venture agreement’s contents: “Prior to the performance of any HUBZone contract as a joint venture, the HUBZone SBC “must submit written certification to the contracting officer that the parties “have entered a joint venture agreement that fully complies with” the requirements. The HUBZone small business must also certify that the parties will perform the contract in compliance with the joint venture agreement and with the performance of work (or limitation on subcontracting) requirements.

Past Performance and Experience

The new regulation also provides significant improvement in the evaluation of a joint venture’s past performance:

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

Steve recently wrote why this change makes sense—because a joint venture is a limited purpose arrangement, it is counter-intuitive to require the joint venture itself to demonstrate relevant past performance. Instead, it makes more sense to allow a procuring agency to consider whether the individual members to the joint venture have any relevant experience.

The Road Ahead

The new HUBZone regulations take effect on August 24, 2016. They represent a significant expansion of opportunities for HUBZone small businesses–but also represent compliance challenges, especially in ensuring that joint venture agreements met all of the requirements of the new rule.

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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 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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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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This week I had the pleasure of speaking at the 20th Annual Government Procurement Conference in Arlington, Texas. It was a great event and I was glad to see so many familiar faces. Next up, I’ll be in Des Moines on August 23rd for the Iowa Vendor Conference, where I’ll be joined by my friend Guy Timberlake for a great day of networking and information sessions.

But even as I log miles on the air and on the highways, there’s no mistaking the fact that we’re in the last days of the government fiscal year–and that means a busy week of government contracting news.  This week, SmallGovCon Week In Review takes a look at stories involving an update to CAGE codes, some Milwaukee businesses under investigation for wrongly portraying themselves as veteran-owned and minority-owned, a lack of oversight allowed contractors to overbill a government customer, a look at the uptick in government spending as the fourth quarter winds down, and much more.

  • The Defense Logistics Agency will, for the first time in 44 years, allow CAGE codes to expire. [Defense Logistics Agency]
  • Has the Homeland Security Department and it’s components gone overboard with agile? [Federal News Radio]
  • Several Milwaukee-area businesses are under investigation for falsely claiming  they were owned by minorities and military veterans in order to win government contracts. [Daily Progress]
  • The Defense Information Systems Agency said it will amend the ENCORE III RFP to fix some of the problems pointed out by protesters that were upheld by the GAO last week. [Federal News Radio]
  • The U.S. Fish and Wildlife Service allowed contractors to overbill the government for more than $130,000 because the agency didn’t “always review contractor invoices to ensure costs claimed were allowable and adequately supported.” [The Daily Caller]
  • A proposed rule from the SBA would update the regulations governing the delivery and oversight of its business lending programs. [Federal Register]
  • The SBA is asking a judge to throw out a lawsuit claiming it uses “creative accounting” for federal contracting benchmarks. [Federal News Radio]
  • The procurement policy world is heating up as summer begins to wind down and we jump into the final stretch of the fiscal year. [Federal News Radio]
  • Companies fraudulently got $268 million in contracts, according to a recent affidavit. [BizTimes]
  • A trifecta of companies protested the Department of Defense TRICARE contract awards, including the winner of the contract. [Federal News Radio]
  • The SBA has launched a new website that helps women-owned small businesses more easily manage eligibility and certification documents for the WOSB Federal Contract Program. [GCN]
  • An increasingly sluggish security review process is forcing some recruiters, contractors and agencies to change the way they enlist new qualified, cleared candidates. [Federal News Radio]

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Good news for small business looking to break into Department of Defense contracting: the 2017 NDAA establishes a new prototyping pilot program for small businesses and nontraditional defense contractors to develop new and innovative technologies.

The DoD is putting its money where its mouth is: the new pilot program is funded with $250 million from the rapid prototyping fund established by last year’s NDAA.

The new pilot program is officially called the “Nontraditional and Small Contractor Innovation Prototyping Program.” Under the program, the authorized funds are to be used to “design, develop, and demonstrate innovative prototype military platforms of significant scope for the purpose of demonstrating new capabilities that could provide alternatives to existing acquisition programs and assets.”

Congress is relying on the DoD to develop many of the program’s parameters. The 2017 NDAA calls for the Secretary of Defense to submit, with its budget request for Fiscal Year 2018, “a plan to fund and carry out the pilot program in future years.”

In the meantime, Congress has authorized $50 million to be made available for the following projects in FY 2017:

(1) Swarming of multiple unmanned air vehicles.

(2) Unmanned, modular fixed-wing aircraft that can be rapidly adapted to multiple missions and serve as a fifth generation weapons augmentation platform.

(3) Vertical takeoff and landing tiltrotor aircraft.

(4) Integration of a directed energy weapon on an air, sea, or ground platform.

(5) Swarming of multiple unmanned underwater vehicles.

(6) Commercial small synthetic aperture radar (SAR) satellites with on-board machine learning for automated, real-time feature extraction and predictive analytics.

(7) Active protection system to defend against rocket-propelled grenades and anti-tank missiles.

(8) Defense against hypersonic weapons, including sensors.

(9) Other systems as designated by the Secretary.

In addition to sounding like something out of a science fiction movie, these categories provide insight into some of Congress’s (and DoD’s) prototyping priorities–particularly those in which small and nontraditional contractors are expected to be able to play an important role.

The 2017 NDAA authorizes the prototyping program through September 30, 2026. As the Secretary of Defense will not submit its implementation plan for the pilot program until its next budget request, it may take some time before the program hits full stride. In the interim, interested contractors can start positioning themselves to take advantage of this new opportunity.

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. Visit smallgovcon.com for the latest on the government contracting provisions of the 2017 NDAA. 

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The analysis of an offeror’s past performance is sometimes a crucial part of an agency’s evaluation of proposals. And an agency’s evaluation of past performance is ordinarily a matter of agency discretion.

Though broad, this discretion is not unlimited. An agency’s past performance evaluation must be consistent with the solicitation’s evaluation criteria. GAO recently reaffirmed this rule, by sustaining a protest challenging an agency’s departure from its own definition of relevant past performance.


At issue in Delfasco, LLC, B-409514.3 (Mar. 2, 2015), was an Army solicitation that sought the production of two types of practice bombs and a suspension lug, used for attaching the bombs to aircraft. Offerors would be graded under a best value evaluation scheme, which had three factors: technical ability, past performance (which included subfactors for quality program problems and on-time delivery), and price. An offeror’s technical ability was significantly more important than its past performance and price; past performance and price were equally weighted.

The past performance evaluation was to consider the relevancy of the offeror’s prior work. Relevant past performance was defined “as having previously produced like or similar items . . . as items that have been produced using similar manufacturing processes, including experience with casting, machining, forging, metal forming, welding, essential skills and unique technologies required to produce the MK-76 with MK-14, BDU-33 and the 25lb Suspension Lug.” The solicitation’s evaluation criteria further explained that relevant past performance is that which “involved similar scope and magnitude of effort and complexities this solicitation requires,” while somewhat relevant past performance “involved some of the scope and magnitude of effort and complexities this solicitation requires.”

Three companies submitted offers under the solicitation. Delfasco—a previous producer of the two bombs and the lug—was one of the offerors. Delfasco’s proposal noted that it had previously produced “millions” of the practice bombs and “thousands” of the suspension lug sought by the Army. It also contemplated using existing practices, technology, personnel, and equipment to continue this production. Nevertheless, the Army gave Delfasco a somewhat relevant past performance rating.

GTI Systems also submitted a proposal. The Army’s evaluation of GTI’s past performance indicated that GTI had much more limited experience than Delfasco. The Army noted that GTI “lacked relevant past performance with respect to two necessary skills identified in the RFP, and only somewhat relevant experience with respect to another skill.” But even though the Army’s evaluation concluded that GTI “does not appear to have relevant experience i[n] all aspects that will be required on this solicitation,” it nonetheless found that GTI’s “past performance does involve a similar scope and magnitude of effort and complexities this solicitation requires giving the offeror an overall relevancy rating of ‘Relevant[.]’”

In sum, then, Delfasco was given a somewhat relevant past performance rating. GTI Systems (“GTI”)—who had never produced these same practice bombs or the suspension lug—was found to have relevant past performance. In part because of this rating difference, GTI was named the awardee.

Delfasco filed a GAO bid protest challenging the Army’s award decision. In the course of the protest, the Army admitted that Delfasco should have received a relevant past performance rating. Nevertheless, the Army argued, the award result would have been the same even if Delfasco had been assigned a relevant past performance rating.

Delfasco contended, however, that the Army’s errors went beyond the somewhat relevant past performance rating initially assigned to Delfasco. Additionally, Delfasco contended, the Army had erred by finding GTI’s past performance to be relevant instead of somewhat relevant.

GAO wrote that an agency’s evaluation of past performance is ordinarily “a matter of agency discretion.” However, that discretion is not unlimited. An agency’s past performance review must be “reasonable and consistent with the solicitation’s evaluation criteria and with the procurement statutes and regulations, [and] adequately documented.”

In this case, GAO found that the Army had not properly exercised its discretion. GAO referred back to the solicitation’s definition of relevant past performance, and noted that the Army found that GTI “had not demonstrated ‘any’ relevant experience” in casting or forging, and only somewhat relevant experience in machining. Thus, GAO found that “GTI has only demonstrated ‘some’ of the skills necessary to produce the bomb bodies.” Given “limited relevant experience,” GTI’s relevant past performance rating was not justified. GAO sustained Delfasco’s protest.

A disappointed offeror protesting a past performance evaluation often faces an uphill battle, given the discretion agencies typically enjoy in conducting their evaluations. But Delfasco affirms that this discretion is not unlimited—where an agency fails to follow its own past performance evaluation criteria, GAO will sustain a protest.


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Picture this scenario: the government hires your company to do a job; you assign one of your best employees to lead the effort. He or she does such a good job that the government hires your employee away. The government then drags its feet on approving your proposed replacement and refuses to pay you for the time when the position was not staffed–even though the contract was fixed-price.

The scenario is exactly what happened to a company called Financial & Realty Services (FRS), and according to the Civilian Board of Contract Appeals, FRS wasn’t entitled to its entire fixed-price contract amount.

In Financial & Realty Services, LLC, CBCA No. 5354, 16-1 BCP ¶ 36472 (Aug. 18, 2016), FRS held a GSA Schedule contract for facilities maintenance and management services. The underlying Schedule contract included FAR 52.212-4 (Instructions to Offerors–Commercial Items).

In 2013, as part of that contract, GSA awarded FRS a task order to manage some federal buildings in the Dallas/Fort Worth [Texas] Service Center, Fort Worth Field Office. The task order, at its most basic, called for FRS to provide a property manager.

The task order was priced in firm fixed annual amounts, and GSA agreed that FRS could invoice in fixed monthly amounts.

Important to later events, the task order required that the property manager to be able to obtain a National Agency Check with Inquiries (NACI) clearance within three months of award and maintain it through the life of the contract. For the first year or so of performance, a FRS employee served in the property manager position. Then, in October 2014, the government solicited and hired the employee away, to do basically the same job he was doing for FRS.

A month later, FRS submitted a potential replacement to GSA, but that candidate took another job in the intervening time before the government gave FRS word that it had approved his/her NACI clearance. FRS then offered a second and a third option in January and February 2015. Finally, in March, the third potential replacement became the property manager.

FRS later submitted invoices for $49,280, seeking payment for the time between October 2014 and March 2015. GSA refused to pay, so FRS filed a claim with the contracting officer seeking payment of the disputed amount. The contracting officer denied the claim, so FRS appealed the denial to the CBCA, alleging that GSA “breached its contract with FRS by thwarting or precluding FRS' performance of the contract and by failing to pay the full contract price.”

GSA moved for the case to be dismissed. In its motion to dismiss, GSA argued there was no factual basis to determine that GSA had acted improperly.

FRS conceded that it did not actually provide a property manager during the relevant time frame. As one might expect, however, FRS argued that the task order was fixed-price (meaning, FRS said, that the government agreed to pay regardless of whether the position was staffed), and that the government actively prevented FRS from performing.

The CBCA disagreed. It pointed out that FAR 52.212-4(i) states that “[p]ayment shall be made for items accepted by the ordering activity that have been delivered to the delivery destinations set forth in this contract.” The CBCA continued:

Notwithstanding the task order’s “fixed price,” GSA was obligated to pay only for services that were delivered and accepted.  Whether GSA could “supervise” the FRS employees who performed the services is immaterial.  In light of the complaint’s allegations that FRS did not staff the task order during the months in dispute, the allegation that GSA “fail[ed] to pay the full Contract price” for that same period . . . does not state a claim on which the Board could grant relief.

As for the fact that the GSA hired FRS’s property manager, the CBCA wrote that FRS “identifies no factual basis to suspect that GSA did anything inconsistent with the normal federal hiring process.” The CBCA determined, “we do not see how an otherwise lawful recruiting or hiring action that an agency was not contractually barred from taking–which is all that has been plausibly alleged–could constitute undue interference entitling a contractor to be paid for work it did not perform.”

Finally, the Board held that GSA had not breached the contract by failing to timely approve a replacement property manager. The CBCA noted that the contract did not include “a contractual duty on GSA’s part to clear job candidates within a specified time . . . .” Under the circumstances, the CBCA found the delays in clearance to be reasonable.

The CBCA dismissed the appeal.

As an impartial observer, it is easy to have sympathy for FRS. It did nothing wrong. In fact, it seemingly did everything right. It staffed the position with someone so good that the government poached the worker away within a year. It suggested multiple replacements, at least one of which took a different job while the government was still in the process of authorizing clearance. It certainly would seem like FRS had reason to be upset, especially since the task order was fixed-price.

But let’s be real here. Fixed-price or not, the government isn’t too keen to pay for something it doesn’t receive from a contractor. As Financial & Realty Services demonstrates, that policy may apply even when the government itself causes the contractor to be unable to deliver.


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The recently-finalized SBA small business mentor-protege program will change the landscape of set-aside contracting–for large businesses and small contractors alike.

I am excited to announce that Koprince Law LLC has partnered with GOVOLOGY to offer a live electronic training on this important new program.  Please join us on August 11, 2016 at 12:00 p.m. Central for this 90 minute training.  The training is open to the public, so please follow this link to register.  If you’re a Koprince Law LLC client or SmallGovCon newsletter subscriber, check your email for a special discount code.

See you online on August 11!

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I am back in Lawrence after a great trip to Huntsville, Alabama, where I spoke at the Redstone Edge Conference.  My presentation focused on the recent major developments in small business contracting, including the changes to the limitations on subcontracting and the new universal mentor-protege program.

Many thanks to Courtney Edmonson, Scott Butler, Michael Steen, and the rest of the team at Redstone Government Consulting for putting together this impressive event and inviting me to participate.  A big “thank you” as well to everyone who attended the presentation, asked great questions, and followed up after the event.

Next on my travel agenda, I’ll be in Wichita this Friday for a comprehensive half-day session on joint venturing and teaming for federal government contracts, sponsored by the Kansas PTAC.  Hope to see you there!

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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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Koprince Law LLC

Women-owned small businesses are increasingly seeking to become certified through one of four SBA-approved third-party WOSB certifiers.  But which third-party certifier to use?

There doesn’t seem to be any single resource summarizing the basics about the four SBA-approved certifiers, such as the application fees, processing time, and documents required by each certifier.  So here it is–a roundup of the key information for three of the four SBA-approved WOSB certifiers (as you’ll see, we’ve had some problems reaching the fourth).

First things first: why should WOSBs and EDWOSBs consider third-party certification?

As part of the 2015 National Defense Authorization Act, Congress eliminated self-certification for WOSB set-asides and sole sources. Despite the statutory change, the SBA continues to insist that WOSB remains a viable option indefinitely while the SBA figures out how to address Congress’s action. But can the SBA legally allow WOSBs to do the very thing that Congress specifically prohibited? I certainly have my doubts, particularly since the SBA has never explained the legal rationale for its position.

For WOSBs and EDWOSBs, third-party certification (which is still allowed following the 2015 NDAA) may be the safest option. There are currently four entities that the SBA has approved as third-party certifiers: the National Women’s Business Owners Corporation (NWBOC), Women’s Enterprise National Council (WBENC), the U.S. Women’s Chamber of Commerce (USWCC), and the El Paso Hispanic Chamber of Commerce (EPHCC). This post summarizes the cost, time, and application fees associated with three of those organizations.

After researching and speaking with three of the WOSB certifiers, we found that all three require a written application, and that the required supporting documents are largely similar. Anticipated processing times vary (and probably should be taken with a grain of salt, as no certifier wants to admit that it is slow). For all certifiers, the anticipated processing time from application to certification begins when a completed application is received. This point was reiterated time and again at each of the three certifiers we were able to reach. To facilitate the prompt consideration of an application, prospective WOSBs should make sure to submit all of the required documents and information the first time around; and to respond promptly if additional information is requested during the application process.

National Women’s Business Owners Corporation (NWBOC)

The NWBOC offers third-party certification to both WOSBs and EDWOSBs. All application information and documents needed are listed in the NWBOC’s application form, which is available on its website. The NWBOC also offer the option for potential WOSBs and EDWOSBs to purchase a tailored application kit to guide applicants through the process of applying. The fee to apply for certification is $400 at a minimum, and an applicant may be charged more if requests for more information are not met in a timely fashion. According to the NWBOC, the current processing time for certification is between 6-8 weeks. A completed application and all required documents must be mailed into the NWBOC before processing will begin.

Women’s Business Enterprise National Council (WBENC)

WOSB Certification through WBENC is free and very quick—for WBENC members. For companies that are already members of WBENC—especially those that are already certified as Women’s Business Enterprises (WBEs)—this option could be both the quickest and cheapest. For companies that are not members of WBENC, the cost for WBENC Membership starts at $350, and can go up based off of the applying company’s revenue. And although WBENC says that WOSB certification for its members is “virtually instant,” the process of becoming a member can take up to 90 days—which means that if a non-member elects to use WBENC, the application process could take 90 days or more. WBENC offers a WOSB application checklist on its website to aid in document production, as well as a guide to completing the application. WBENC suggests that the application be completed after document production, as it is done online and has a 90-day deadline from start to finish—and once it is submitted, no changes can be made. All documents required for the application, including the fee, must be provided before the application will be processed. WBENC only offers WOSB certification, not EDWOSB certification. Prospective EDWOSBs will need to look at another option.

The U.S. Women’s Chamber of Commerce

The USWCC offers WOSB and EDWOSB third-party certification, to both its members and non-members. According to the USCWCC’s website, certification takes between 15-30 days and costs $275 for Business and Supplier members and $350 for non-members. A possible bonus (or deterrent, for some) is that the entire application and document submission is completed online. The USWCC offers both a certification and document checklist and sample application on its website to aid applicants in document production and prepare them to answer the questions on the application, but it cannot be submitted in lieu of the online form. The USWCC also requires the application be completed in one sitting—it cannot be completed partially and saved to be completed later. This means that the applicant should be completely ready to apply prior to starting, or else risk getting almost done and being interrupted and then having to restart from the beginning.

The El Paso Hispanic Chamber of Commerce (EPHCC)

Unfortunately, we found that the EPHCC was difficult to contact, and we were unable to speak with any staffer regarding the EPHCC’s WOSB certification process. If we obtain information about the EPHCC, we will update this post to include it.

These four entities are currently the only ones approved by the SBA for third-party WOSB/EDWOB certification. While the SBA remains adamant that third-party certification remains viable indefinitely, women-owned businesses should decide for themselves whether they are comfortable with the SBA’s position. For women-owned businesses that decide to play it safe while the SBA addresses the 2015 NDAA, third-party certification is the way to go.

Molly Schemm of Koprince Law LLC was the primary author of this post.  

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