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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An agency’s decision to award a contract as an 8(a) sole source is a “business decision” for which the agency has broad discretion–and a potential protester challenging the agency’s use of that discretion will have an uphill battle.
In a recent bid protest decision, the GAO confirmed that government officials are presumed to act in good faith, and that the presumption extends to the decision to award an 8(a) sole source contract instead of competing the work in question.
The GAO’s decision in NTELX, Inc., B-413837 (Dec. 28, 2016) involved a Consumer Product Safety Commission procurement for the operation and maintenance of CPSC’s international trade data system risk assessment methodology (“RAM”) software system.
In 2010, the CPSC awarded an 8(a) sole source contract for the development of the initial RAM system. NTELX, Inc. was a subcontractor under the original contract, and developed the system using its proprietary software. The CPSC subsequently awarded a second contract, also as an 8(a) sole source, for the development of a “RAM 2.0” system. The second contract was awarded to TTW Solutions, Inc., an 8(a) Program participant. Unlike the first contract, the RAM 2.0 contract used open source software. NTELX served as a subcontractor to TTW.
In 2016, the CPSC awarded a new 8(a) sole source contract to TTW, this time for the continued operation and maintenance of the RAM 2.0 contract. Apparently the relationship between TTW and NTELX had soured, and NTELX was not offered a subcontract.
NTELX filed a GAO bid protest challenging the new 8(a) sole source award to TTW. NTELX argued that the CPSC acted in bad faith and violated the FAR’s competition requirements by making an 8(a) sole source award to TTW. NTELX argued that it was the only contractor that could successfully perform the work, and that an award to TTW was irrational.
The GAO noted that 8(a) contracts may be awarded “on either a sole source or competitive basis.” Further, “because of the broad discretion afforded the SBA and the contracting agencies under the applicable statute and regulations, our review of actions under the 8(a) program generally is limited to determining whether government officials have violated regulations or acted in fraud or bad faith.” Government officials “are presumed to act in good faith and a protester’s claim that contracting officials were motivated by bias or bad faith must be supported by convincing proof; our Office will not attribute unfair or prejudicial motives to procurement officials on the basis of inference or supposition.”
In this case, the CPSC stated that TTW was capable of performing the contract; the GAO declined to second-guess the CPSC’s determination in that regard. “Therefore,” the GAO wrote, “although NTELX may disagree with the agency’s business decision to award TTW an 8(a) sole source contract for RAM 2.0, it has failed to demonstrate that the agency has engaged in any fraud or bad faith.”
The GAO denied NTELX’s protest.
So long as a procuring agency abides by the inherent limitations of the 8(a) sole source program–most notably, the dollar limitations–the agency (with the SBA’s approval) has broad discretion to choose to award an 8(a) sole source contract. As the NTELX, Inc. decision demonstrates, a protester trying to make the case that the agency abused its discretion will face a difficult challenge.
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Affiliation under the ostensible subcontractor rule is determined at the time of proposal submission–and can’t be “fixed” by later changes.
In a recent size appeal decision, the SBA Office of Hearing and Appeals confirmed that a contractor’s affiliation with its proposed subcontractor could not be mitigated by changes in subcontracting relationships after final proposals were submitted.
In Greener Construction Services, Inc., SBA No. SIZ-5782 (Oct. 12, 2016), the U.S. Army Contracting Command sought solid waste disposal and recycling services at its Blossom Point Research Facility. The solicitation was set aside for 8(a) Program participants under NAICS code 562111, Solid Waste Collection, with a size standard of $38.5 million.
Greener Construction, Inc. submitted its final proposal on September 15, 2015. The proposal included one subcontractor, EnviroSolutions, Inc. No other subcontractors were mentioned.
Under the teaming agreement between the parties, EnviroSolutions was to provide the solid waste collection bins, trucks, and drivers for the project. In addition, EnviroSolutions’ supervisory staff were to be on site during the first month of contract performance to assist with personnel training. In fact, of the five key employees identified in Greener Construction’s proposal, four were employed by EnviroSolutions. Greener Construction was also prohibited from adding another subcontractor without EnviroSolutions’ written consent.
Greener Construction was awarded the contract on September 25, 2015. An unsuccessful offeror challenged the award alleging that Greener Construction was other than small because it was affiliated with EnviroSolutions and its subsidiaries under the ostensible subcontractor affiliation rule.
On July 29, 2016, the SBA Area Office issued its size determination, which found Greener Construction to be “other than small.” The Area Office concluded Greener Construction and EnviroSolutions were affiliated under the ostensible subcontractor rule because EnviroSolutions was responsible for the primary and vital aspects of the solicitation—the collection and transportation of solid waste.
Greener Construction appealed the decision to OHA. Greener Construction argued EnviroSolutions would not be solely responsible for performing the primary and vital tasks because, after submitting its final proposal, Greener Construction had made arrangements with other companies to perform these functions. Greener Construction further argued it was actually going to provide the onsite waste receptacles, not EnviroSolutions.
OHA was not convinced. OHA wrote that under the SBA’s size regulations, “compliance with the ostensible subcontractor rule is determined as of the date of final proposal revisions.” For that reason, “changes of approach occurring after the date of final proposals do not affect a firm’s compliance with the ostensible subcontractor rule . . ..”
In this case, Greener Construction submitted its initial proposal on September 15, 2015, “and there were no subsequent proposal revisions.” Greener Construction’s proposal “made no mention” of any other subcontractors but EnviroSolutions, and required EnviroSolutions’ consent to add any other subcontractors. Moreover, the proposal stated that EnviroSolutions “will provide front load containers as specified in the solicitation.” Therefore, the arguments advanced by Greener Construction on appeal “are inconsistent with, and contradicted by [Greener Construction’s] proposal and Teaming Agreement.” OHA denied Greener Construction’s size appeal.
Greener Construction demonstrates the importance of carefully considering ostensible subcontractor affiliation before submitting proposals. Because ostensible subcontractor affiliation is determined at the time final proposals are submitted, contractors must be mindful of the rule and make sure that the proposal, teaming agreement, and any other contemporaneous documentation reflects an absence of affiliation.
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GAO bid protests succeeded almost half the time in Fiscal Year 2017.
According to the GAO’s latest Bid Protest Annual Report, the effectiveness rate of GAO bid protests was 47% in the recently-completed fiscal year. The statistics are striking, because they come just as Congress is finalizing the 2018 National Defense Authorization Act, which includes measures aimed at reducing bid protests. But with bid protests succeeding at a nearly 50% clip, why does the protest “reform” debate seem to center almost entirely on discouraging contractors to protest, rather than on decreasing the number of flawed source selection evaluations?
The GAO’s annual report indicates that 17% of protests were sustained in Fiscal Year 2017. That’s the stat that will get bandied about by those who contend that protests are largely frivolous. “Less than a fifth of protests get sustained!” they’ll say. But using the sustain rate as evidence of protest frivolity is misleading.
When a protest is filed at GAO, the procuring agency has two options: fight the protest, or voluntarily take “corrective action” to address the flaws alleged by the protester. Although agencies rarely say it out loud, a decision to take corrective action typically is a tacit admission that the evaluation was flawed. In other words, the agency counsel has reviewed the protest and thought, “I’m not sure I can win this one.” When an agency has a losing hand, corrective action is the right move.
The GAO knows this, and uses the effectiveness rate statistic to measure how often the protester obtains “some form of relief from the agency . . . either as a result of voluntary corrective action or our Office sustaining the protest.” And as I mentioned at the outset, that all-important statistic was at a sky-high 47% in FY 2017. That’s higher than in any recent year, although not a major outlier: the effectiveness rate has been 43% or higher since FY 2013.
Recently, Congress has been debating so-called reforms to the bid protest process. I discussed the proposals in-depth in a July post, but the underlying rationale appears to be that protests are ever-increasing and typically frivolous. Thus, protest “reform” is aimed almost entirely at discouraging contractors to protest in the first place–or outright prohibiting certain protests. For example, the 2017 National Defense Authorization Act jacked the GAO’s jurisdictional threshold for most DoD task and delivery order protests from $10 million to $25 million. Lose a $22 million DoD order? Sorry, no protest allowed. The Senate’s versions of the 2017 and 2018 NDAAs would have imposed other poorly-conceived restrictions.
Why is there a popular belief that protests are both pervasive and frivolous? The discussion seems driven by the sky-is-falling comments of some agency officials, who make it sound like every other acquisition is being frivolously protested. One former high-ranking official even went full-on Scarlet Letter and suggested creating a “shame list” for losing protesters. (Hint: the result of every GAO protest already is available on the GAO’s website).
Sure, it stinks when you’re the contracting officer on the receiving end of a protest, but the fact remains that protests only occur on a very low percentage of acquisitions. Headlines like “Drowning in Protests” may catch some eyeballs, but they’re not particularly factual. Indeed, GAO protests were down 7% in Fiscal Year 2017, while the effectiveness rate was up. But you probably won’t see many articles with headlines like “Not Drowning in Protests.”
That’s not to say that frivolous protests never occur, although GAO has the power to deal with that problem on its own. My point, rather, is that protest “reform” efforts seem to focus almost entirely on getting contractors to protest less often, without acknowledging that some of the best ways to decrease protests involve internal government reforms rather than punitive measures directed at contractors.
What could government be doing to reduce protests?
Well, when 47% of protests succeed (despite the protester having the burden of proof!) it means that evaluators are messing up a lot of source selections. Also, when the GAO’s stats suggest it’s essentially a coin flip as to whether a protested source selection was defensible, that’s reason for a potential protester to move forward, even without a slam dunk initial case. Improving source selection training and processes would improve the underlying source selections, which would be the best thing anyone could do to reduce protests.
Additionally, as OFPP has pointed out, improved communication with industry–particularly in debriefings–is likely to reduce protests, as well. In debriefings, agencies often act like they’re guarding Coke’s secret formula, rather than discussing the outcome of a competitive procurement. Our clients sometimes come away from post-award debriefings with little more than a just-the-facts-ma’am recitation of the minimal information required by FAR 15.506–or worse, a PowerPoint debriefing in which three-quarters of the slides simply regurgitate generic information about the FAR and solicitation’s evaluation factors. I understand the agency’s thought process (“the more information we give them, the more they’re likely to use it against us”), but it’s often dead wrong. The client walks out of the debriefing (or closes the PowerPoint slideshow) feeling as though the agency is hiding something. In my experience, minimalist debriefings increase protests.
Congress seems to recognize that OFPP may be on to something, because the conference version of the 2018 NDAA includes a provision entitled “Enhanced Post-Award Debriefing Rights,” which would require the DoD to provide additional information in certain debriefings. Unfortunately, this provision is limited to DoD awards of $100 million or more, although small businesses and “nontraditional contractors” could request an enhanced debriefing in the case of an award exceeding $10 million.
The move toward enhanced debriefings is a step in the right direction, but I worry that it won’t be enough to address the underlying issue–and not just because enhanced debriefings will be limited to large DoD procurements. So long as many agency officials believe that the best policy in a debriefing is to supply the bare minimum required by law, offerors may still walk away with the sense that the agency is hiding something. Congress can’t legislate a culture change, but that’s really what’s needed to make debriefings truly effective in reducing protests.
Like any other contracting process, the bid protest process should always be evaluated to see if it can be improved. But the GAO’s statistics (and those compiled by others) make very clear that the sky isn’t falling. I’m not suggesting a public “shame list” for agency officials who poorly plan or execute an acquisition. But instead of squawking about how bid protests are ever-increasing and frequently frivolous, acquisition officials ought to get their own houses in order first.
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It’s been more than a year since the SBA issued a final rule overhauling the limitations on subcontracting for small business contracts. The SBA’s rule, now codified at 13 C.F.R. 125.6, changes the formulas for calculating compliance with the limitations on subcontracting, and allows small businesses to take credit for work performed by similarly situated subcontractors.
But the FAR’s corresponding clauses have yet to be changed, and this has led to a lot of confusion about which rule applies–especially since many contracting officers abide by the legally-dubious proposition that “if it ain’t in the FAR, it doesn’t count.” Now, finally, there is some good news: the FAR Council is moving forward with a proposed rule to align the FAR with the SBA’s regulations.
By way of quick background, way back in January 2013, former President Obama signed the 2013 National Defense Authorization Act into law. The 2013 NDAA made major changes to the limitations on subcontracting. The law changed the way that compliance with the limitations on subcontracting is calculated for service and supply contracts–from formulas based on “cost of personnel” and “cost of manufacturing,” to formulas based on the amount paid by the government. And, importantly, the 2013 NDAA allowed small primes to claim performance credit for “similarly situated entities.”
Interestingly, about a year later–well before either the SBA or the FAR Council had amended the corresponding regulations–the GAO issued a decision suggesting (although not directly holding) that the similarly situated entity concept was currently effective. But most contractors and contracting officers continued to apply the “old” rules under the FAR and SBA regulations.
On May 31, 2016–about three and a half years after the 2013 NDAA was signed into law–the SBA published a final rule implementing the changes. The SBA’s regulation took effect on June 30, 2016. Less than a month later, the VA issued a Class Deviation, incorporating by reference the new SBA regulations for VA SDVOSB and VOSB acquisitions. But for many other procurements, contracting officers continued to include FAR 52.219-14, which uses the old formulas and makes no mention of similarly situated entities. (FAR 52.219-14 applies to small business, 8(a) and WOSB contracts. For HUBZone and non-VA SDVOSB procurements, the subcontracting limits are implemented by other clauses, which use the old formulas but allow the use of similarly situated entities).
This, of course, has led to a lot of confusion. Does a contractor comply with the SBA regulation? The FAR clause? Both? Some contracting officers have taken the position that the FAR clauses govern until they’re amended. But the SBA, of course, wants contractors to follow the SBA regulations. Indeed, a joint venture formed under the SBA’s regulations must pledge to comply with 13 C.F.R. 125.6. It’s a mess.
Now, it seems, the FAR Council seems to be making progress on eliminating the FAR/SBA discrepancy. (The FAR Council is a shorthand term for the body of defense and civilian agency representatives who propose and implement changes to the FAR. If you’re interested in how this works, FAR 1.2 is chock full of fun and exciting details).
In its most recent list of “Open FAR Cases,” published on June 9, 2017, the FAR Council says that it is working on a “Revision of Limitations on Subcontracting.” Specifically, the new FAR rule “mplements SBA’s final rule” from last year, and “[a]lso implements SBA’s regulatory clarifications concerning the application of the limitations on subcontracting, nonmanufacturer rule, and size determination of joint ventures.”
As of June 5, the CAAC–that’s the civilian side–has concurred “with draft interim FAR rule.” FAR Council staff are “preparing to send to OFPP after DoD approval to publish.”
This is important news for a couple reasons. First, this means that the draft rule is well along in the process. Review by the Office of Federal Procurement Policy is one of the final steps before a rule or proposed rule is published in the Federal Register. Second, it appears that the FAR Council intends to adopt an interim rule, rather than a proposed rule. An interim rule takes effect immediately (or very soon) after publication, and then can be adjusted after receipt of public comments. A proposed rule, on the other hand, doesn’t take effect until public comment is received and a final rule is published. In other words, if the FAR Council uses an interim rule, the changes will take effect a lot sooner.
It likely will still be a few months until an interim rule is published, but it appears that an end to the confusion is on the horizon. Stay tuned.
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Joint ventures can be formally organized as limited liability companies–and that should come as no surprise, given how often joint ventures use the LLC form these days.
In a recent size appeal decision, the SBA Office of Hearings and Appeals rejected the argument that, because a company was formed as an LLC, its size should not be calculated using the special rule for joint ventures. Instead, OHA held, the LLC in question was clearly intended to be a joint venture, and the fact that it was an LLC didn’t preclude it from being treated as a joint venture.
OHA’s decision in Size Appeals of Insight Environmental Pacific, LLC, SBA No. SIZ-5756 (2016) involved a NAVFAC solicitation for environmental remediation at contaminated sites. The solicitation was issued under NAICS code 562910 (Environmental Remediation Services) with a corresponding size standard of 500 employees.
After reviewing competitive proposals, NAVFAC announced that Insight Environmental Pacific, LLC had been selected for award. Two unsuccessful competitors then filed size protests challenging Insight’s small business status.
The SBA Area Office determined that Insight had been established as an LLC in 2013. Insight’s majority owner was Insight Environmental, Engineering & Construction, Inc.; the minority owner was Environmental Chemical Construction. IEEC was designated as the “small business member” and “Managing Member” of the LLC.
Insight’s operating agreement included a number of provisions indicating that Insight had been formed for a limited purpose. The operating agreement stated, among other things, that Insight’s purpose was to pursue the specific NAVFAC solicitation at issue, and perform the resulting contract if awarded. The operating agreement also stated that the LLC would be terminated if NAVFAC announced that Insight would not be awarded the environmental remediation contract.
The SBA Area Office cited the SBA’s affiliation regulations, which define a joint venture as “an association of individuals and/or concerns with interests in any degree or proportion consorting to engage in and carry out no more than three specific or limited-purpose business ventures for joint profit over a two year period, for which purpose they combine their efforts, property, money, skill, or knowledge, but not on a continuing or permanent basis for conducting business generally.” The SBA Area Office wrote that the operating agreement indicated that Insight was a joint venture, and pointed out that Insight’s own proposal referred to it as a “joint venture” in three places. The SBA Area Office determined that Insight was a joint venture.
Under the SBA’s prior affiliation regulations, which applied to this procurement, the size of a joint venture ordinarily was determined by adding the sizes of the members of the joint venture. Applying this affiliation regulation, the SBA Area Office determined that Insight was ineligible for the NAVFAC contract. (As SmallGovCon readers know, the SBA recently updated its affiliation regulations to specify that a joint venture’s size is determined by comparing the size of each member, individually, to the relevant size standard. Even if this change had applied to Insight, it presumably wouldn’t have altered the SBA Area Office’s analysis, because ECC apparently was a large business).
Insight filed a size appeal with OHA. Insight argued that because it was an LLC, the SBA Area Office shouldn’t have treated it as a joint venture. Instead, Insight contended, the SBA Area Office should have applied the ordinary affiliation rules for other entities. Under these rules, Insight said, it would be treated as a small business because its minority member, ECC, couldn’t control the company.
OHA cited the regulatory definition of a joint venture, and then quoted another part of the SBA’s affiliation regulations, which states that a joint venture “may (but need not) be in the form of a separate legal entity . . ..” OHA wrote that Insight “falls squarely within this definition.” OHA pointed out that Insight was created for the “‘sole and limited purpose’ of competing for and performing the subject NAVFAC PAcific procurement” and that the LLC would terminate if Insight was not awarded the contract. “It is therefore clear,” OHA wrote, “that [Insight] is not a business operating on ‘a continuing or permanent basis for conducting business generally,’ but rather is a temporary association of concerns engaging in a limited-purpose business venture for joint profit.”
OHA explained that “the fact that [Insight] is organized as an LLC does not alter this conclusion.” OHA noted that the “regulation specifically states that a joint venture may or may not be organized as a separate legal entity,” and in commentary adopting the regulation, the SBA stated that a joint venture could use the LLC form. OHA also noted that its own prior case law “has recognized that entities structured as LLCs may still be joint ventures with the joint venture partners affiliated.” OHA denied Insight’s size appeal.
In the world of government contracting, joint ventures are commonly formed as LLCs. Insight Environmental Pacific confirms that when an entity meets the definition of a joint venture, it will be treated as a joint venture–even if the entity is an LLC.
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A dissatisfied U.S. Postal Service customer filed an appeal with the Postal Service Board of Contract Appeals, seeking $50,000 in damages resulting from the Postal Service’s failure to deliver a Priority Mail package.
The appellant contended that it had a contract with the Postal Service, which was breached when the Postal Service failed to deliver the package. But the appellant’s cleverness wasn’t enough to prevail: the Board held that it lacked jurisdiction over the appeal.
The case of Triumph Donnelly Studios LLC v. United States Postal Service, PSBCA No. 6683 (2017) began in August 2016, when Triumph Donnelly mailed a package from South Carolina to California using Priority Mail. The package was never delivered, and the Postal Service admitted that the package was lost.
The Postal Service automatically insures most Priority Mail packages in the amount of $50. Triumph filed a claim for this amount, and was reimbursed by the Postal Service.
But Triumph wasn’t satisfied with a mere $50. Triumph filed a claim with the Postal Service’s National Tort Center seeking $50,000. The National Tort Center denied Triumph’s claim and a subsequent request for reconsideration. The National Tort Center advised Triumph that its decision was final, and that Triumph’s next legal option would be to file suit in federal district court.
Instead, Triumph filed an appeal with the Board, arguing that the Postal Service breached a contract when it lost the Priority Mail package. The Postal Service asked the Board to dismiss the appeal for lack of jurisdiction.
The Board held that the Contract Disputes Act applies to the Postal Service. Under the CDA, a Board of Contract Appeals has jurisdiction over “any express or implied contract . . . made by an executive agency for (1) the procurement of property, other than real property in being; (2) the procurement of services; (3) the procurement of construction, alteration, repair or maintenance of real property; or (4) the disposal of personal property.”
The Board wrote that its jurisdiction is limited “to the four contract types” identified in the CDA. More specifically, the CDA “does not apply to a contract under which the government provides a service.”
Here, the Board determined, “ecause the alleged contractual relationship between the Postal Service and Triumph Donnelly would be just such a contract for the government to provide a service, we hold that it is not covered by the CDA.” The Board concluded: “imply put, we do not have jurisdiction to decide disputes between the Postal Service and its customers involving delivery of the mail.”
The Board dismissed the appeal.
Sadly, the PSBCA’s decision doesn’t answer an obvious question: what the heck was in that Priority Mail package, anyway? Cold cash? Ultra-rare Nintendo games? The possibilities are endless, and perhaps raw speculation is more fun than an answer.
The Triumph Donnelly case is interesting because of its facts, but it also demonstrates an important point of law: the jurisdiction of a Board of Contract Appeals is limited by the CDA to specific matters–and excludes cases in which the government provides a service.
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I’m back in the office after a week-long family beach vacation around the 4th of July. Kudos to my colleagues here at Koprince Law for putting out last week’s SmallGovCon Week In Review while I was out having some fun in the sun.
This week’s edition of our weekly government contracts news roundup includes a prison term for an 8(a) fraudster, a Congressional focus on full implementation of the Supreme Court’s Kingdomware decision, the release of an important new FAR provision regarding small business subcontracting, and more.
A businessman from Fairfax, Virginia has been sentenced to 15 months in prison for fraudulently obtaining contracts worth $6 million from a federal program created to help minority-owned small businesses. [IndiaWest]
A top Congressional Republican wants to make sure the Department of Veterans Affairs is fully implementing the Supreme Court’s unanimous Kingdomware decision. [The Hill]
A look ahead to next spring brings hope of contracting reform and a focus on having an effective cost-comparison system and effective contract management in place. [Federal News Radio]
Two former New Jersey construction executives have been sentenced for their roles in a scheme to secure government contracts by bribing foreign officials. [Reuters]
The FAR Council has issued a final rule amending the FAR to implement regulatory changes made by the SBA, which provide for a Governmentwide policy on small business subcontracting. [Federal Register]
Congress wants the DoD to shed more light on how it is using lowest-price, technically-acceptable contracts–and report back to Congress in the spring. [GovTech Works]
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The HUBZone program has received its fair share of coverage on our blog, from recommended changes in the 35% employee-location requirement to SBA regulatory updates to the program. Well, the HUBZone program is once again undergoing some changes thanks to the 2018 National Defense Authorization Act–but note that these changes are not effective until January 1, 2020.
These changes include a requirement for an improved online mapping tool, a mandate that HUBZone verifications be processed in 60 days, and more. Here’s a look at some of the most significant HUBZone changes in the 2018 NDAA.
Online Tool, Household Income, and Certification
Online Tool. Section 1701(h) of the 2018 NDAA directs the SBA to “develop a publicly accessible online tool that depicts HUBZones” that will be updated immediately for any changes to a redesignated area, base closure area, qualified disaster area, or Governor-designated covered area. For qualified census tracts and qualified nonmetropolitan counties, the SBA must update the online tool “beginning on January 1, 2020, and every 5 years thereafter.” The SBA must also “provide access to the data used by the Administrator to determine whether or not an area is a HUBZone in the year in which the online tool was prepared.”
HUBZone participants may ask, “but doesn’t SBA already have HUBZone maps? What’s the difference under the 2018 NDAA”? A 2016 decision of the Court of Federal Claims may provide some answers. In that case, the SBA’s HUBZone map said that a certain redesignated tract was still HUBZone qualified, even though that was no longer the case. The Court called the SBA’s characterization of the tract “at best . . . unofficial” and noted that the Department of Housing Urban Development, not the SBA, determines which tracts qualify as HUBZone. The Court upheld an SBA decision sustaining a HUBZone status protest against the company.
It certainly seems like Congress had the Court’s decision in mind. The requirement for “immediate” updates will (hopefully) eliminate erroneous information like that at issue in the Court case. Additionally, the requirement for the underlying data will allow HUBZone companies to verify that the HUD data supports the SBA’s characterization of a qualified tract.
Qualified Nonmetropolitan County. Section 1701(b) changes the metric for comparing median household income. The old statute said the median household income of a qualified nonmetropolitan county had to be “less than 80 percent of the nonmetropolitan State median household income.” The 2018 NDAA deletes the word “nonmetropolitan” from the clause, meaning that the comparison of income will include all metropolitan counties as well. This should have the effect of increasing the number of qualified nonmetropolitan counties, because metropolitan counties generally have higher income. In addition, the income comparison and unemployment comparison are now based on a 5-year average of economic data, not the most recent data available.
Examination and Certification of HUBZone Businesses. The 2018 NDAA has added some statutory requirements to the SBA’s review of businesses hoping to become or continue as a HUBZone small business. While the existing statute mainly left it up to the SBA to create certification regulations, the new statute has some specifics that SBA must follow in reviewing HUBZone status of businesses. For the most part, these changes reflect the rules already found in SBA regulations.
One key change is that SBA must “verify the eligibility of a HUBZone small business concern . . . within a reasonable time and not later than 60 days after the date on which” SBA receives documentation. This change should result in HUBZone applications being processed in a timely manner. That said, it could prove difficult for the SBA to effectively implement this change without significant additional resources. When GAO studied the issue a few years ago, it found that the average processing time was 116 days. Achieving a nearly 50% reduction without additional analysts could prove difficult. Hopefully, the bean counters will do their part to help implement this change.
Base Closure Areas
The 2018 NDAA extends HUBZone eligibility for base closure areas in two key ways. First, the statute now allows the SBA to designate a base closure area as a HUBZone before the base actually closes. This is an important change from prior law, which only allowed HUBZone designation once the base was closed. In the 2018 NDAA, Congress appropriately recognized that the negative economic impact of a base closure begins long before the gates shut for the last time.
The 2018 NDAA also extends the length of time that a base closure area may be considered a HUBZone. Under prior law, the designation applied for five years. The 2018 NDAA allows such a designation to last indefinitely, but “not . . . less than 8 years.”
Governor-Designated Covered Areas
The 2018 NDAA adds a new category to the list of HUBZone areas: “a Governor-designated covered area.” This should result, over time, in increasing the number of HUBZones in the country.
The five existing categories are Qualified census tract, Qualified nonmetropolitan county, Redesignated area, Base closure area, and Qualified disaster area. The Governor-designated covered area designation allows a governor to petition the SBA to turn a rural, low-population, high unemployment area of a state into a HUBZone. The SBA, in reviewing the petition, will look at certain factors such as “the potential for job creation and investment in the covered area,” whether the area is part of a local economic development strategy, and whether there are small businesses interested in an area becoming a HUBZone.
Once this process is implemented, it creates a formal procedure under which the governor, with the input of small businesses and the blessing of the SBA, can create new HUBZone areas. But governor-designated areas don’t give state officials blank checks to create new HUBZones: a governor will only be allowed to propose one new HUBZone each year.
The 2018 NDAA makes some important changes to the HUBZone program that should generally have the effect of expanding the program to more areas of the country, giving states (and potentially small businesses) some say in designating HUBZones and making the online mapping tools more transparent.
The government has been missing its 3% HUBZone goal by wide margins in recent years. Hopefully, these changes (as well as important regulatory changes SBA adopted in 2016, such as allowing HUBZones to form joint ventures with non-HUBZones) will help reverse this trend.
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The 2017 National Defense Authorization Act, if signed into law, includes a few changes designed to help small business subcontractors. Among those changes, the bill, which has recently been approved by both the House and Senate, includes language designed to help ensure that large prime contractors comply with the Small Business Act’s “good faith” requirement to meet their small business subcontracting goals.
Section 1821 of the 2017 NDAA is called “Good Faith in Subcontracting,” and is another Congressional effort to put teeth into the subcontracting goals required of large prime contractors (Congress took a crack at this same subject in the 2013 NDAA). The 2017 NDAA makes a handful of additional changes to the law, all of which should help ensure small business subcontracting goals are met.
The 2017 NDAA strengthens the current statutory language by specifying that a large prime contractor is in breach of its prime contract is it fails to provide adequate assurances of its intent to comply with a subcontracting plan (including, as requested, by providing periodic reports and other documents). The statute also provides that agency Offices of Small and Disadvantaged Business Utilization (OSDBUs) will review each subcontracting plan “to ensure that the plan provides maximum practicable opportunity for small business concerns to participate in the performance of the contract to which the plan applies.”
Perhaps most important, the 2017 NDAA requires the SBA to provide a list of examples of failures to make good faith efforts to utilize subcontractors. Such a list should provide guidance to large primes to know specifically what sort of activities would run afoul of the good faith requirement of the Small Business Act. What’s more, such guidance should prevent large primes from pleading ignorance, at least with regards to the provided list of specific examples. The guidance, however, may not come for awhile. The 2017 NDAA gives the SBA 270 days from enactment to put the list of examples together.
The provisions of Section 1821 should be welcomed by small businesses subcontractors, some of whom have complained about a perceived lack of government emphasis on ensuring that primes make good faith efforts to achieve their subcontracting goals. And given the recent Congressional interest in subcontracting plans, it wouldn’t be surprising if additional enforcement mechanisms were proposed in the near future.
2017 NDAA: The National Defense Authorization Act for Fiscal Year 2017 has been approved by both House and Senate, and will likely be signed into law soon. It includes some massive changes as well as some small but nevertheless significant tweaks sure to impact Federal procurements in the coming year. For the next few days, SmallGovCon will delve into the minutia to provide context and analysis so that you do not have to. Visit smallgovcon.com for the latest on the government contracting provisions of the 2017 NDAA.
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Patent ambiguities present in the solicitation for an Indefinite Delivery/Indefinite Quantity procurement must be protested prior to the close of proposal submission for the base contract—waiting to protest at the task order level may be too late.
A recent GAO decision shows that when an IDIQ solicitation contains an obvious ambiguity, the rule is “speak now or forever hold your peace.” By the time task order competitions get rolling, the chance to protest will likely be gone.
In Draeger, Inc., B-414938, __ CPD ¶ __ (Comp. Gen. Sept. 21, 2017), the Defense Logistics Agency was conducting an IDIQ procurement for various medical monitoring devises, including anesthesia monitoring systems. The base contract was originally awarded in 2007, but provided an open season at the end of each contract period where DLA would consider products from new offerors.
Draeger was awarded a base contract during the 2013 open season. Before submitting its proposal, Draeger expressed uncertainty as to whether it had the capacity to provide anesthesia equipment to meet the agency’s needs due to ambiguities in the RFP. Nevertheless, Draeger was awarded a base contract and later received task order awards.
On July 12, 2016, DLA issued a new task order to offerors for anesthesia machines. After reviewing proposals from offerors, including GE and Draegar, DLA awarded the task order to GE. Draeger filed a GAO bid protest challenging the award.
Draeger alleged the task order was outside the scope of the IDIQ Base Contract. According to Draeger, an anesthesia monitor is different from an anesthesia machine. Since the base contract did not expressly mention anesthesia machines, Draeger alleged that the DLA could not order those machines off the Base Contract.
GAO dismissed Draeger’s protest as untimely. Under 4 C.F.R. § 21.2(a), “[p]rotests based upon alleged improprieties in a solicitation which are apparent prior to bid opening or the time set for receipt of initial proposals shall be filed prior to bid opening or the time set for receipt of initial proposals.” In the unique context of open season contracts that reopen based on contract amendments, GAO explained that “a protest based upon alleged improprieties apparent on the face of the solicitation must be filed no later than the time set for receipt of proposals under the amendment.”
According to GAO, Draeger identified ambiguities regarding the anesthesia equipment in the RFP for the Base Contract; therefore, it should have protested the alleged ambiguities prior to the close of proposals for the Base Contract. GAO was particularly unimpressed with Draeger’s arguments because Draeger had previously received task order awards under the RFP for anesthesia machines. Accordingly, GAO concluded that “Draeger should have protested any apparent ambiguity regarding the type of anesthesia equipment contemplated under the ID/IQ RFP, prior to the January 6, 2014, deadline . . . for submission of proposals for the 2013 open season.”
GAO’s decision in Draeger is a cautionary tale to offerors—if there are ambiguities apparent on the face of an IDIQ RFP, the proper time to challenge those ambiguities is prior to proposal submission for the base contract. Challenges at the task order level regarding patent ambiguities present in the RFP for the base contract will likely be untimely.
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Civilian agencies may issue class deviations to quickly implement provisions of the 2018 National Defense Authorization Act increasing the micro-purchase threshold to $10,000 and the simplified acquisition threshold to $250,000.
In a memorandum for civilian agencies issued on February 16, the Civilian Agency Acquisition Council says that agencies may elect to adopt interim authority allowing their Contracting Officers to take advantage of these higher thresholds, even as the FAR Council goes through the formal process of codifying those changes.
The memorandum states that an official FAR Case has been opened to “implement that appropriate statutory changes in the FAR that are compelled” by the 2018 NDAA. However, “agencies may have a need to use the increased thresholds prior to publication of the FAR changes.” Therefore, the memorandum “constitutes consultation in accordance with FAR 1.404 with the Chair of the CAAC allowing agencies to authorize a class deviation to implement the changes.”
The CAAC’s memorandum makes it relatively easy for agencies to adopt class deviations: the CAAC provides agencies with the relevant FAR text, together with “highlights of the appropriate FAR citations needing changes to implement the increased thresholds.” The highlighted provisions may serve “as a basis for issuing a class deviation.”
The CAAC memorandum “is effective immediately, and remains in effect until the increased thresholds are incorporated into the FAR or is otherwise rescinded.”
It’s very important to note that the CAAC memorandum is not itself a class deviation. Instead, it authorizes civilian agencies to adopt their own class deviations while the FAR Case is pending. If I don’t miss my guess, many Contracting Officers are going to be pushing their agencies for class deviations to take advantage of this new authority more quickly.
We’ll keep you posted.
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The VA has released an Acquisition Policy Flash providing guidance to VA Contracting Officers on implementing the U.S. Supreme Court’s decision in Kingdomware Technologies, Inc. v. United States.
The Policy Flash suggests that the VA is, in fact, moving quickly to implement the Kingdomware decision–and if that’s the case, it is good news for SDVOSBs and VOSBs.
The Policy Flash begins by reiterating the Supreme Court’s major holdings: namely, that the Rule of Two applies to orders placed under the GSA Schedule, and applies even when the VA is meeting its SDVOSB and VOSB subcontracting goals. The Policy Flash states that the VA “will implement the Supreme Court’s ruling in every context where the law applies.”
As a general matter, the Policy Flash instructs Contracting Officers to conduct robust market research to ensure compliance with the Rule of Two. The Policy Flash continues:
If market research clearly demonstrates that offers are likely to be received from two or more qualified, capable and verified SDVOSBs or VOSBs and award will be made at a fair and reasonable price, the Rule of Two applies and the action should be appropriately set-aside in the contracting order of priority set forth in VAAR 819.7004. Contracting officers shall also ensure SDVOSBs or VOSBs have been verified in VIP before evaluating any offers or making awards on an SDVOSB or VOSB set-aside. Supporting documentation must be maintained in the contract file in the Electronic Contract Management System (eCMS).
With respect to acquisitions currently in the presolicitation phase, Contracting Officers are to continue with existing SDVOSB and VOSB set-asides. However, “f the original acquisition strategy was not to set-aside the acquisition to SDVOSBs or VOSBs, a review of the original market research should be accomplished to confirm whether or not the ‘Rule of Two’ was appropriately considered . . ..” If a review finds that the Rule of Two is met, “the action shall be set-aside for SDVOSBs or VOSBs, in accordance with the contracting order of priority set forth in VAAR 819.7004.”
Perhaps most intriguingly, the VA is instructing Contracting Officers to apply the Kingdomware decision to requirements that are in the solicitation or evaluation phase. For these requirements, “[a] review of the original market research and VA Form 2268 shall be accomplished to confirm whether or not the ‘Rule of Two’ was appropriately considered . . ..” If this review finds that ther are two or more SDVOSBs or VOSBs, “an amendment should be issued that cancels the solicitation.” However, the agency can continue with an existing acquisition if there are “urgent and compelling circumstances” and an appropriate written justification is prepared and approved.
The VA apparently will not, however, apply Kingdomware to requirements that have been awarded to non-veteran companies, even where a notice to proceed has not yet been issued. The Policy Flash sates that “Contracting officers shall coordinate with the HCA, OGC and OSDBU and be prepared to proceed with issuing the notice to proceed if issued within 30 days of this guidance.”
Overall, the Policy Flash seems like a positive step for veterans–both in terms of the speed with which it was issued, and in the decision to apply Kingdomware to existing solicitations, except where an award has already been made.
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As a general rule, an agency is only required to evaluate a fixed-price offer for reasonableness (that is, whether the price is too high). Agencies are not required to evaluate fixed-price offers for realism (that is, whether the price is too low) and, in fact, cannot do so unless the solicitation advises offerors that a realism evaluation will be conducted.
GAO recently reaffirmed this principle when it denied a protest challenging an agency’s refusal to consider the realism of offerors’ fixed prices as part of a corrective action, even though the agency suspected that at least one offeror’s price was unrealistically low.
Under FAR 15.404-1(d)(3), an agency may evaluate fixed-price contracts for realism “in exceptional cases,” but it is not required to do so. Ripple Effect Communications, B-413722.2 (Jan. 17, 2017), confirmed the breadth of an agency’s discretion to evaluate—or not—fixed price offers for realism.
Ripple Effect involved a challenge to the terms of a corrective action following Venesco, LLC’s protest challenging an award made to Ripple. Venesco argued in its protest that the Army improperly declared its price to be unrealistic, in part because the solicitation was ambiguous as to whether offerors’ fixed prices would be evaluated for realism. The Army then announced that the procurement would be resolicited, and made clear that price realism would not be evaluated.
Ripple then protested the scope of this corrective action, arguing that the Army should be required to evaluate offerors’ prices for realism. Ripple noted that the Army’s evaluation of Venesco’s proposal already revealed concerns with Venesco’s labor rates, “which were far below the average of all evaluated proposals in all but one labor category.” Thus, “it would be unreasonable for the agency not to consider the risk posed by Venesco’s prices.”
In response to these arguments, the Army noted that it never intended to evaluate offerors’ proposed prices for realism. And although Venesco’s debriefing noted concern with unrealistic prices, the Army called this a “conclusory finding” that was not actually based on a completed price realism evaluation. In any event, offerors’ ability to submit revised proposals (including prices) mitigated any need for a price realism evaluation.
GAO agreed with the agency and denied the challenge to the corrective action. In doing so, it relied on an agency’s broad discretion to evaluate (or not) price realism under fixed-price solicitations:
Because the solicitation contemplates the award of a fixed-price contract, the agency’s intended evaluation approach is consistent with the Federal Acquisition Regulation (FAR), which establishes that an agency “may . . . in exceptional cases,” provide for a price realism evaluation when awarding a fixed-price contract, but is not required to do so. Given the agency’s broad discretion to decide whether to include a price realism evaluation in this instance, we have no basis to conclude that the agency’s decision was unreasonable.
Denying Ripple’s protest, GAO reaffirmed the principle that agencies have broad discretion to evaluate fixed-price offers for realism. Ripple Effect shows the breadth of this discretion—even where an agency has reason to suspect an offeror’s fixed-price might be unrealistically low, it is not required to evaluate that price for realism unless the solicitation specifically says otherwise.
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A contractor’s performance of extra work outside the scope of the contract may go uncompensated if a contractor does not receive appropriate authorization in accordance with the contractual terms.
A Court of Federal Claims decision reinforced that a contractor should only perform work required under the terms of the federal contract or directed by an authorized government agent in accordance with the contractual terms. And importantly, a Contracting Officer’s Representative isn’t always authorized to order additional work–even if that person acts as though he or she has such authority.
The Court’s decision in Baistar Mechanical, Inc., v. United States, No. 15-1473C (2016) involved a ground maintenance and snow removal services contract for the Armed Forces Retirement Home’s property in Washington, D.C., which included 270-acre property providing residence to several hundred retired military members. Baistar successfully bid on and was awarded the contract, which was executed in December 2011. The contract contemplated a five-year period of performance beginning on December 16, 2011.
Baistar alleged that, while it was working on the site, two Contracting Officer’s Representatives requested Baistar’s assistance with the planning and design of the current boiler plant and future plants at the Retirement Home. Baistar provided the assistance, but was not selected as the contractor for the plant projects. (Although the issue wasn’t raised in the Court’s decision, it’s not entirely clear Baistar would have been eligible for those projects: its role in the planning and design sounds an awful lot like a “biased ground rules” organizational conflict of interest under FAR 9.505-2). Baistar wasn’t paid for its planning and design assistance.
Baistar also alleged that, throughout the period of performance, Baistar performed various other services at the behest of CORs, but wasn’t paid for those services. For example, Baistar contended that the CORs directed Baistar to perform various snow and ice removal services outside the contract.
In July 2015, the government terminated Baistar for default. Baistar then filed a series of claims seeking payment for the extra work Baister believed that it had been asked to perform. After the government denied Baistar’s claims, Baistar filed an appeal with the U.S. Court of Federal Claims.
The government moved to dismiss Baistar’s allegations related to work allegedly ordered by the CORs. The government argued that, under the terms of the contract, the CORs lacked authority to order additional work.
Specifically, the contract provided:
Any additional services or a change to work specified which may be performed by the contractor, either at its own volition or at the request of an individual other than a duly appointed [contracting officer], except as may be explicitly authorized in the contract, will be done at the financial risk of the contractor. Only a duly appointed [contracting officer] is authorized to bind the [g]overnment to a change in the specifications, terms, or conditions of this contract.
The contract added that the contracting officer’s representatives did “not have authority to issue technical direction that…[c]hanges any of the terms, conditions, or specification(s)/work statement of the contract.” (incorporating and quoting DFARS §1052.201-70(c)).
The Court of Federal Claims wrote that “a government agent can bind the government if the agent possesses express or implied actual authority.” No implied authority will exist “when the action taken by the government agent contravenes the explicit terms of the governing contract.” Further, when a contractor works with or enters into an agreement with a government agent, the contractor is responsible for determining whether that agent can effectively bind the government.”
In this case, “[t]he express provisions of the ground maintenance contract grant exclusive authority to the contracting officer, not the representatives, to make any changes regarding scope of worth.” The Court continued:
[T]he . . . contracting officer may have delegated management authority to its representatives, but that delegation was limited by the contract. The contract’s explicit terms gave the contracting officer exclusive authority to order out-of-scope work, and barred the representatives from implied authority to do the same. The fact that the representatives allegedly acted as if they had authority, or even believed they had authority, is insufficient.
The Court granted the government’s motion to dismiss several of Baistar’s causes of action.
When contractors are engaged in day-to-day performance of a government contractor, they often work closely with CORs, technical representatives, contracting specialists, and other agency officials who don’t hold the title “contracting officer.” In fact, it’s not uncommon for the contractor to have very little contact with the contracting officer, which apparently was the case for Baistar.
But even when the contracting officer isn’t involved in the day-to-day work, and even when a COR or other representative acts as though he or she has the authority to order new work or changed work, a contractor must tread carefully. As the Baistar case demonstrates, the government ordinarily isn’t liable for extra work or changed work performed at the behest of government officials who lack appropriate authority–and when it comes to who possesses appropriate authority, the terms of the contract govern.
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The 2017 National Defense Authorization Act gives certain small subcontractors a new tool to request past performance ratings from the government,
If the pilot program works as intended, it may ultimately improve those subcontractors’ competitiveness for prime contract bids, for which a documented history of past performance is often critical.
For small contractors looking to break into the federal marketplace, a lack of past performance ratings can be a major problem. Without government past performance ratings, it can be difficult to prevail in a “best value” competition. Sure, FAR 15.305 provides that the government can consider past projects performed for non-governmental entities, and the same FAR section states than an offeror without a record of relevant past performance should receive a “neutral” rating. But ask most contractors, and they’ll tell you that their perception–for better or for worse–is that an offeror without government past performance references can be at a significant competitive disadvantage.
Perhaps Congress agrees. Section 1822 of the 2017 NDAA creates a pilot program that will allow a “first tier” subcontractor performing on a government contract, which required the prime contractor to develop a subcontracting plan, to submit an application to the appropriate official (agencies will designate a recipient) requesting a past performance rating. Interestingly, the subcontractor will be able to include a suggested rating, but will have to support the suggestion with written evidence, almost as if the subcontractor will have to plead its case. The application will then go to both the agency Office of Small and Disadvantaged Business Utilization and the prime contractor for review. Each will submit an official response within 30 days.
If the OSDBU and prime contractor agree with the suggested rating, the official simply will enter the rating into the government’s past performance system, and the subcontractor will be able to use the rating “to establish its past performance for a prime contract.”
However, if they disagree with the subcontractor’s suggested rating, the disagreeing party will submit a notice contesting the application, the official will provide the subcontractor with the notice, and the subcontractor will have 14 days to submit comments, rebuttals, and additional information. But, interestingly, the review will stop there. No decider will determine whether the subcontractor’s proposed rating was “right” or “wrong.” Instead, the official with then enter a neutral rating into the system along with the original application and any responses.
This pilot program may turn out to be a valuable tool for companies with excellent performance at the subcontract level but little or no prime contract experience. The program’s timing may be fortuitous, as well: it could dovetail nicely with the SBA’s new “All Small” mentor-protege program, as well as the existing SBA 8(a) and DoD mentor-protege programs. As a part of a mentor-protege agreement, a large mentor could subcontract work to the protege, then help the protege apply for (and hopefully receive) an excellent past performance rating for its work.
However, in practice, there would seem to be a few areas where things may go awry. First, since subcontractors are responsible for suggesting their own ratings, this introduces the obvious potential that a subcontractor could attempt to inflate its score–and put its prime contractor in the difficult position of disagreeing with its teaming partner. Also, on the flip side, the procedure allows for the prime contractor to potentially derail a future competitor by disagreeing with a reasonable suggested rating, and thereby ensure through simple disagreement, at best, a neutral rating. Because there is no adjudicative procedure, the subcontractor seems to have no recourse if the prime contractor doesn’t provide a fair response.
Then there is the question of why OSDBUs are expected to weigh in on the specific past performance scores assigned to small subcontractors. Agency OSDBUs are advocates for small businesses, and are involved in various ways throughout the acquisition cycle. That said, it seems unlikely that an OSDBU will, in the typical case, have sufficient knowledge of a particular small subcontractor’s quality of performance to pass independent judgment on what past performance score that subcontractor should receive. Involving agency OSDBUs ordinarily is a good thing, but requiring them to pass judgment on a subcontractor’s past performance might not be the best way to go about it.
Finally, there is the question of just what sort of weight the typical contracting officer will afford to these ratings. Although the rating comes from the contracting agency, the rating itself is established by the subcontractor, prime contractor, and OSDBU. It’s possible that some contracting officers will see these ratings as less persuasive than “ordinary” prime contractor ratings developed by government contracting officials.
Fortunately, Congress seems to have anticipated that the pilot program might need to be improved. The 2017 NDAA requires the GAO to assess the program one year after it is established and report various findings back to Congress, including “any suggestions or recommendation the Comptroller General has to improve the operation of the pilot program.”
The statute calls for the SBA to establish the pilot program, but doesn’t provide a specific deadline for the SBA to do so. Once the program is up and running, it will last for three years,, beginning on “the date on which the first applicant small business concern receives a past performance rating for performance as a first tier subcontractor.” At that point, it will be up to Congress whether to continue the pilot program.
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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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In determining whether a prime contractor and subcontractor are affiliated under the ostensible subcontractor rule, the SBA is supposed to consider the totality of the relationship between the parties. But when it comes to determining whether the ostensible subcontractor rule has been violated, not all components of the prime/subcontractor relationship are created equal.
In a recent decision, the SBA Office of Hearings and Appeals confirmed that there are “four key factors” that are strongly suggestive of ostensible subcontractor affiliation–especially if the subcontractor will perform a large percentage of the overall contract work.
OHA’s decision in Size Appeal of Charitar Realty, SBA No. SIZ-5806 (2017) involved a GSA solicitation for custodial, landscaping and grounds maintenance at two federal courthouses. The solicitation was issued as an 8(a) set-aside under NAICS code 561720 (Janitorial Services), with a corresponding $18 million size standard. The solicitation required, among other things, that offerors provide at least three past performance references, completed over the last three years, for similar work.
After evaluating competitive proposals, the SBA announced that Charitar Realty was the apparent successful offeror. An unsuccessful competitor then filed a size protest. Although the size protest was found to be untimely, the SBA believed that the protest raised valid concerns. The Director of the SBA’s Fresno District Office initiated his own size protest against Charitar.
Charitar’s proposal identified itself as the prime contractor and Zero Waste Solutions, Inc. as its subcontractor. ZWS was the incumbent contractor, but had graduated from the 8(a) Program and was not eligible for the follow-on contract.
The proposal stated that “the allocation of financial risk, responsibility, and profit sharing will be 51% [Charitar] and 49% [ZWS].” The proposal included three past performance references: two for ZWS and one for Charitar. The project performed by Charitar was much smaller in scope and value.
The proposed Project Manager was a current employee of ZWS, who had agreed to move to Charitar’s payroll if Charitar won the prime contract. Additionally, the SBA Area Office found that Charitar’s “entire workforce” would be hired from ZWS.
The SBA Area Office determined that Charitar was unusually reliant upon ZWS. The SBA Area Offices deemed the firms affiliated under the ostensible subcontractor rule. The affiliation caused Charitar to be ineligible for award.
Charitar appealed to OHA. Charitar argued that the SBA Area Office had erred by finding a violation of the ostensible subcontractor rule.
OHA began its opinion by reiterating that the ostensible subcontractor rule “provides that when a subcontractor is performing the primary and vital requirements of the contract, or when the prime contractor is unusually reliant upon the subcontractor, the two firms are affiliated for purposes of the procurement at issue.” The rule is intended ” to prevent [large] firms from forming relationships with small firms to evade SBA’s size requirements.”
To determine whether a relationship violates the ostensible subcontractor rule, the SBA Area Office “must examine all aspects of the relationship, including the terms of the proposal and any agreements between the firms.” However, OHA’s prior case law has “identified ‘four key factors’ that have contributed to the findings of unusual reliance.” OHA explained that those four factors are:
(1) the proposed subcontractor is the incumbent contractor and is ineligible to compete for the procurement; (2) the prime contractor plans to hire the large majority of its workforce from the subcontractor; (3) the prime contractor’s proposed management previously served with the subcontractor on the incumbent contract; and (4) the prime contractor lacks relevant experience and must rely upon its more experienced subcontractor to win the contract.
When these four factors are present, “violation of the ostensible subcontractor rule is more likely to be found if the proposed subcontractor will perform 40% or more of the contract.”
In this case, all four of the “key factors” were present. ZWS was “ineligible to submit its own proposal” under the solicitation. Charitar “will staff its portion of the contract almost entirely with personnel hired from ZWS.” Charitar proposed “a ZWS employee to manage the contract” as Charitar’s Project Manager. And although Charitar had some experience in the industry, Charitar produced no evidence that it had “ever performed” a contract of the size defined as “Similar Work” in the solicitation. Finally, ZWS was proposed to perform 49% of the work, “a larger proportion than the 40%” that heightens the risk of ostensible subcontractor affiliation.
OHA affirmed the SBA Area Office’s size determination.
Ostensible subcontractor affiliation is intensely fact-specific, and the SBA will examine the totality of the relationship between the parties. But as the Charitar Realty case demonstrates, the risk of ostensible subcontractor affiliation increases significantly where the “four key factors” identified in the case are present–particularly where the subcontractor will perform more than 40% of the work.
Because ostensible subcontractor affiliation is so fact-specific, it’s difficult to be 100% sure that any specific relationship will pass muster. That said, avoiding the four key factors will likely go a long way toward showing the SBA that there has been no ostensible subcontractor violation.
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They say that two things in life are guaranteed – death and taxes – and status as a federal contractor may not exempt one from the latter, according to a recent Armed Services Board of Contract Appeals decision.
In Presentation Products, Inc. dba Spinitar, ASBCA No. 61066 (2017), the ASBCA held the contractor was liable to pay a state tax, and the government had no duty to reimburse the contractor. The problem arose from the fact that the contractor did not incorporate state tax costs into its proposed price, despite being required to pay the taxes under the terms of the contract and applicable state law.
Under the terms of the firm fixed-price contract, Presentation Products Inc. (doing business as Spinitar) was to provide the Army with installation of a video conferencing system in Fort Shafter Flats, Hawaii. The solicitation included FAR 52.212-4 (Instructions to Offerors–Commercial Items), which provides, in paragraph (k): “Taxes. The contract price includes all applicable Federal, State, and local taxes and duties.”
Hawaii places a general excise tax (or GET) on businesses rather than a sales tax on customers, which is not automatically waived when the customer is the federal government. The GET is an excise tax imposed on the gross revenues of businesses “derived from the privilege of doing business in Hawaii.” Under Hawaii’s GET, businesses are not required to collect GET from their customers, but may pass it on to customers upon agreement by the customer.
Seemingly under the belief the contract would not be subject to Hawaii’s GET, Spinitar’s proposal stated “[t]he above prices do not include any applicable sales taxes. Hawaii’s GET tax reimbursement policy implemented for federal purchases will be utilized.” The contract incorporated the terms of the solicitation, including FAR 52.212-4(k).
Upon commencing performance of the contract, Spinitar learned the goods and installation services being provided were subject to Hawaii’s GET of 4.5 percent, amounting to $7,624.14. Spinitar submitted a claim to the contracting officer, arguing that it should be reimbursed by the federal government. The contracting officer denied Spinitar’s claim.
In appealing its case to the ASBCA, Spinitar relied on the fact that it expressly noted in its price proposal that it had not included the GET in its price and that “Hawaii’s GET tax reimbursement policy implemented for federal purchases will be utilized.” Therefore, Spinitar argued, the government should reimburse Spinitar for the GET payment.
The ASBCA wrote that Spinitar “appeared to be surprised to learn from conversations with the Hawaii Department of Taxation that the GET exemption for goods sold to the federal government would not apply” to its contract. Spinitar was wrong, and “[t]he government is not liable for Spinitar’s mistake.” The ASBCA denied Spinitar’s appeal.
Government contractors often assume that all goods and services provided to the federal government are exempt from state taxes. Not so.
While this is a very complex area of law, Spinitar demonstrates that there is no blanket “federal contractor exemption” from state taxes. Accordingly, prior to submitting a proposal, federal contractors should do their homework and learn whether the contract they are bidding on will be subject to applicable state taxes. Failure to do so could leave the contractor responsible for taxes not included within the contractor’s proposed pricing–and the government won’t be liable for the contractor’s mistake.
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When issues arise in performance of a federal contract, a contractor may seek redress from the government by filing a claim with the contracting officer. However, commencing such a claim may result in an exercise of patience and waiting by the contractor.
The Contract Disputes Act, as a jurisdictional hurdle for claims over $100,000, requires a contractor to submit a “certified claim” to the agency. The CDA also requires the contracting officer, within sixty days of receipt of a certified claim, to issue a decision on that claim or notify the contractor of the time within which the decision will be issued.
That second part of the equation can lead to some frustration on the part of contractors. As seen in a recent Civilian Board of Contract Appeals decision, a contracting officer may, in an appropriate case, extend the ordinary 60-day time frame by several months.
In Stobil Enterprise v. Department Veterans Affairs, CBCA No. 5616 (2017), the VA awarded Strobil a contract to provide housekeeping and dietary services for an inpatient living program at a VA facility. After encountering contractual issues, Stobil initially filed a claim in the amount of $166,000. The VA denied this claim, and Stobil appealed. The CBCA dismissed Stobil’s appeal because the underlying claim hadn’t included the required certification.
Stobil then went back to the drawing board and filed a certified claim, “based on the same contracts and similar issues as those presented” in the first claim. But the certified claim was in the amount of $321,288.20, plus a whopping $2.3 million in interest. Stobil filed its certified claim on November 28, 2016.
By way of a January 27, 2017 letter, the contracting officer notified Stobil that the contracting officer would issue a decision on the certified claim by March 31, 2017. According to the contracting officer, the decision would be issued about four months after Stobil had filed its claim–or about twice as long as the 60-day time frame set forth in the CDA.
Apparently frustrated with the delay, Stobil requested the CBCA direct the contracting officer to issue its decision sooner. The CBCA declined this request.
In its rationale, the CBCA noted that the CDA doesn’t require a contracting officer to issue a decision within 60 days, but instead provides the contracting officer the option of notifying the contractor of the time within which the decision will be issued. The CDA doesn’t provide an outer limit on the period in which the decision may be extended beyond 60 days. Instead, the question is whether the delay was reasonable in light of the specific facts and circumstances of the case.
The CBCA continued:
Typically, in evaluating undue delay and reasonableness [of the date proposed by the contracting officer for issuance of a decision on a claim], a tribunal considers a number of factors, including the underlying claim’s complexity, the adequacy of contractor-provided supporting information, the need for external technical analysis by experts, the desirability of an audit, and the size of and detail contained in the claim.
The CBCA explained that while the VA had previously issued a decision on Stobil’s claims involving similar matters,”Stobil nearly doubled the amount of its claim from its former appeal . . . and is also now seeking around $2.3 million in interest.” This is, the CBCA said, “by no means a slight up-tick in money sought, such that the contracting officer should be able to rely primarily on whatever documentation Stobil previously submitted” with its initial claim. The CBCA agreed with the VA that with the significantly increased monetary demand and possibility of new items requiring review, the contracting officer was not “unduly delayed” in issuing a decision. The CBCA concluded that the VA’s timeline for issuing a decision on the certified claim was “reasonable, constituting only a modest delay.”
It’s commonly understood that a claim filed pursuant to the Contract Disputes Act must be decided within 60 days. But as the Stobil Enterprise case demonstrates, agencies have the discretion to extend the 60-day period significantly, provided that the extension is deemed “reasonable.” Here, the contracting officer essentially doubled the underlying 60-day period, but was guilty of nothing more than a “modest delay.” Contractors availing themselves of the claims process should be prepared to play the waiting game.
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For Federal Supply Schedule procurements, agencies are not required to evaluate past performance references of subcontractors, unless the solicitation provides otherwise.
As one offeror recently discovered in Atlantic Systems Group, Inc., B-413901 (Jan. 9, 2017), unlike negotiated procurements, where agencies “should” evaluate the past performance of subcontractors that will perform major or critical aspects of the contract, offerors bidding under FSS solicitations should not assume that a subcontractor’s past performance will be considered.
Atlantic Systems involved a solicitation for technical, engineering, management, operation, logistical, and administrative support for the Department of Education’s cybersecurity risk management program. The solicitation was set aside for SDVOSB concerns that held Schedule 70 contracts.
Pursuant to the solicitation, offerors were to be evaluated for both corporate experience and past performance. In order to enable the agency to conduct the past performance/experience evaluation, each “offeror” was to provide evidence of the experience “of the organization” with similar projects or contracts.
For corporate experience, offerors were to provide between 3 and 5 performance examples that demonstrated the offeror’s capabilities “with similar projects or contracts, in terms of the nature and objectives of the project or contract; types of activities performed; studies conducted; and major reports produced.” Similarly, under the past performance factor, offerors were to provide between 3 and 5 performance examples “performed in the past  years that were similar in size, scope, and complexity” to the solicitation. The solicitation did not specify how the agency would treat a subcontractor’s past performance.
Under both corporate experience and past performance categories, Atlantic Systems provided two examples of its own performance and two examples from its subcontractor. In its evaluation, the agency did not consider the subcontractor’s past performance. Rather, “since the solicitation asked for experience and past performance for the organization, offeror, the agency only considered the information provided for the entities in whose name the offers were submitted.” Based in part on this determination, the agency rated Atlantic Systems as “does not possess” for corporate experience, and “neutral” for past performance. The agency awarded the order to a competitor.
Atlantic Systems filed a bid protest at GAO. Atlantic Systems contended, in part, that the agency had erred by failing to consider the past performance and experience of its subcontractor. Atlantic Systems pointed out that in a prior bid protest, Singleton Enterprises, B-298576 (Oct. 30, 2006), GAO sustained the protest, holding that the solicitation contained a “latent defect”: the agency had reasonably concluded that “offeror” meant only the prospective prime contractor; the protester had reasonably believed otherwise.
But Singleton was a negotiated procurement; offers were evaluated under FAR Part 15. FAR 15.305(a) states that agencies “should” consider the past performance of a subcontractor that will perform major or critical aspects of the contract. FAR 15.305(a) was central to GAO’s ruling in Singleton, because it created a reasonable expectation that a subcontractor’s past performance would be considered.
Here, in contrast, “the solicitation was issued pursuant to FAR part 8,” which applies to FSS procurements. FAR Part 8 “does not suggest that in evaluating an offeror’s past performance an agency should also consider the past performance of its proposed subcontractors.” Accordingly, “we do not find that the solicitation here is ambiguous, and it was reasonable for the agency to consider the experience and past performance of the offeror (i.e., the entity that submitted the offer) and not its subcontractors.”
As a policy matter, it’s fair to wonder if the underlying rule for consideration of a subcontractor’s past performance should vary depending on which Part of the FAR applies to the acquisition. But as a practical matter, Singleton Enterprises stands for an important principle: if an FSS solicitation does not specifically indicate that a subcontractor’s past performance will be considered, there is no guarantee that it will be.
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The GAO has suspended a protester for “abusive litigation practices,” for the second time.
Last year, the GAO suspended Latvian Connection LLC from participating in the GAO bid protest process for one year, after the firm filed 150 protests in the course of a single fiscal year. Now, citing “derogatory and abusive allegations,” among many other concerns, the GAO has re-imposed its suspension–this time, for two years.
The GAO’s decision in Latvian Connection LLC–Reconsideration, B-415043.3 (Nov. 29, 2017) arose from an Air Force solicitation for the construction of relocatable building facilities in Kuwait. Latvian Connection LLC filed a GAO bid protest, arguing that the Air Force improperly awarded the contract to a foreign entity that is not a U.S. small business and improperly failed to post the solicitation on FedBizOpps.
Latvian Connection filed its protest on August 28, 2017. As SmallGovCon readers will recall, on August 18, 2016, the GAO took the unusual step of suspending Latvian Connection from filing bid protests for a period of one year, citing the company’s “abusive” protest practices. Latvian Connection’s protest of the Air Force award was filed just days after the one-year ban expired.
The Air Force filed a request for dismissal, arguing, among other things, that the protest was untimely because it was filed more than a month after Latvian Connection learned of the basis of protest. The GAO suspended the requirement for the agency to file a formal response to the protest, pending GAO’s decision on the motion to dismiss. (GAO often suspends the requirement for a formal agency report when it intends to dismiss a protest, to prevent the agency from unnecessarily investing time and resources preparing a formal response.)
The suspension of the agency report didn’t sit well with Latvian Connection. The company asserted that the suspension of the agency report was “prejudicial,” and threatened that if the GAO attorney did not recuse himself, Latvian Connection would file a complaint with the GAO’s Office of Inspector General. The GAO attorney did not recuse himself, and Latvian Connection followed through with its threat, filing an OIG complaint requesting that the GAO attorney be investigated.
Shortly thereafter, the GAO dismissed Latvian Connection’s protest as untimely. Latvian Connection then filed a request for reconsideration of the dismissal decision.
GAO wrote that Latvian Connection’s request for reconsideration, “includes no new information, evidence, or legal argument addressing the timeliness of the protest.” Instead, “the request only repeats the arguments that Latvian Connection made during the protest, and expresses disagreement with our decision to dismiss the protest as untimely.” Under the GAO’s bid protest rules, “imply repeating arguments made during our consideration of the original protest and disagreeing with our prior decision does not meet our standard for reversing or modifying that decision.” The GAO dismissed the request for reconsideration for these reasons.
But the GAO didn’t stop there. It wrote, “[w]e also dismiss the request for reconsideration for continuing abuse of GAO’s bid protest process.” GAO explained that it had previously banned Latvian Connection from filing bid protests for a period of one year, and revealed that when the one-year suspension period was nearing its end “our Office wrote Latvian Connection to remind the firm of a number of important legal requirements for filing and pursuing protests.”
But “[d]espite the prior suspension, and despite our August 18 letter, Latvian Connection’s request for reconsideration, as well as its underlying protest and other recent filings, exhibit the same abusive litigation practices that previously led our Office to suspend Latvian Connection.” Not mincing words, the GAO said: “Latvian Connection’s pleadings are incoherent, irrelevant, derogatory, and abusive.”
By way of example, GAO wrote that “in its response to the request for dismissal of the underlying protest, Latvian Connection alleged that by suspending the requirement for the agency report pending resolution of the dismissal request, the GAO attorney assigned to the case was covering up for agency and GAO wrongdoings, and aiding and abetting DOD discrimination of agency veteran-owned small businesses.” Similarly, “in the instant request for reconsideration, Latvian Connection alleged, without any substantiation, that GAO is covering up white collar criminal activity by DOD and the Air Force.”
GAO wrote that in another protest filed on November 3, “there were several links to internet videos published by Latvian Connection’s CEO.” The GAO continued:
These videos are profane, inappropriate, and threatening. In fact, Latvian Connection routinely threatens to publish videos disparaging agency and GAO officials, or threatens to file complaints against them to state bar officials or agency inspectors general, whenever the protester disagrees with a potential procedural or final decision. Despite Latvian Connection’s apparent belief, such threats will not result in a different answer from our Office. Our forum is not required to tolerate threats, profanity, and such baseless and abusive accusations.
GAO said that Latvian Connection’s protests, “continue to place a burden on GAO, the agencies whose procurements were challenged, and the taxpayers, who ultimately bear the costs of the government’s protest-related activities.” The GAO concluded that “Latvian Connection’s protests and litigation practices undermine the effectiveness and integrity of GAO’s bid protest process and constitute an abuse of process.”
For these reasons, the GAO suspended Latvian Connection and its CEO “from filing bid protests at GAO for a period of 2 years from the date of this decision.” Additionally, GAO wrote, “if Latvian Connection continues its abusive litigation practices after the end of this new suspension period, our Office may impose additional sanctions, including permanently barring the firm and its principal from filing protests at GAO.”
As I wrote last year, it’s fair to note that the GAO previously sustained at least three of Latvian Connection’s many protests, including two protests establishing (at least in my eyes) important precedent involving agencies’ responsibilities when using FedBid. Not all of Latvian Connection’s protests have been frivolous.
That said, there should be no place in the protest process for the sort of tactics the GAO describes in its recent decision. Like any adversarial process, the protest process demands that litigants treat each other with basic courtesy and decency. Unwarranted threats, unsupported allegations of malfeasance, and abusive and profane language should have no place in the protest system, even where a protester (like Latvian Connection) isn’t represented by counsel.
Beyond that, GAO is exactly right when it points to the burden on GAO, agency attorneys, and ultimately the taxpayers in responding to frivolous protests. The American taxpayer, and the public servants who represent them, shouldn’t have to expend resources and time responding to hundreds of protests that never should have been filed in the first place. Allowing such protests to continue undermines the integrity of the protest system–a system which itself is under attack by those who (incorrectly) assume that most protests are frivolous.
The GAO’s suspension of Latvian Connection demonstrates that statutory changes aren’t required to prevent abuse of the bid protest system. The GAO can, and will, take matters into its own hands in a rare, but appropriate, circumstance.
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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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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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An agency has been caught creating fake source selection documents to pad its file in response to several GAO bid protests.
A recent GAO bid protest decision shows that, after award, the agency created new source selection documents and revised others, then pretended those documents had been part of the contemporaneous source selection file. And although the agency’s conduct resulted in the cancellation of a major procurement, it’s not clear whether the agency employees who created the fake documents will face any punishment.
The GAO’s decision in EDC Consulting et al., B-414175.10 et al. (June 9, 2017) involved the DHS solicitation for the Flexible Agile Support for the Homeland or “FLASH” procurement. The solicitation was to result in 8 to 12 IDIQ contracts, with an estimated value of $1.54 billion. The solicitation called for a “best value” tradeoff considering technical merit, staffing, past performance, and price.
DHS made initial award decisions in November 2016, but after several GAO bid protests were filed, the agency elected to perform a reevaluation. The reevaluation involved a technical evaluation team and price evaluation team, each of which prepared consensus reports. The TET chair and contracting officer conducted a best value analysis and recommended awards; the ultimate award decisions were made by a source selection authority.
On March 6, 2017, the SSA made award to 11 offerors, all of which had been recommended by the TET chair and contracting officer. The March 6 source selection decision document stated that the best value decisions were based on the documents in the source selection file.
Nine unsuccessful offerors, including EDC Consulting, LLC, filed protests at the GAO. During the course of the protest “a question was raised as to whether the documents supporting the agency’s source selection decisions, filed with the agency reports (AR), had been prepared or revised after the March 6 decisions were made.”
The GAO asked the DHS to respond. On May 1, the DHS’s counsel admitted that the price evaluation report was “incorrect” and that “some of the information provided in the AR . . . was prepared or changed after award.” These post-award changes involved “the insertion of a multi-page table, as well as the creation of several memoranda regarding the price realism evaluation and findings.” Additionally, “[a]fter award, the agency revised the Technical Evaluation Report and [the] Best Value Tradeoff Analysis.”
The GAO, obviously, was deeply concerned. After a series of conference calls, it informed the parties that it intended to conduct a hearing to address various matters, “including the agency’s preparation and submission of the altered documents.” This, itself, is rather unusual, as most GAO bid protests are resolved without hearings. (The GAO held hearings in 2.5% of cases in Fiscal Year 2016).
The DHS apparently had no desire to be cross-examined about its conduct. On May 26, just a few days before the hearing was to occur, the DHS announced that it would terminate all of the awards and cancel the procurement. In its notice of corrective action, the DHS stated that because documents had been created and revised after award, “DHS has determined that the evaluation process and documents do not meet DHS’ standards for award.” DHS also said that there were other pieces of the solicitation that needed to be resolved to meet “DHS’ evolving mission needs.”
There must be something in the water, because this is the second time in less than two months that an agency has been caught creating fake “contemporaneous” documents to defend against a bid protest. As I wrote in late April, the Court of Federal Claims sharply criticized the U.S. Special Operations Command for creating backdated market research to support a set-aside decision.
Judge Thomas Wheeler’s comments in that case apply equally to DHS’s conduct here. Judge Wheeler said:
The integrity of the administrative record, upon which nearly every bid protest is resolved, is foundational to a fair and equitable procurement process. While the Government has accepted responsibility for its misconduct, the importance of preventing a corrupted record cannot be overstated. The Court encourages USSOCOM to take all reasonable steps to ensure that its contracting office appreciates the necessity of conducting a well-documented, well-reasoned procurement and producing a meticulous and accurate record for review. The Court will not tolerate agency deception in the creation of the administrative record.
I’ve said it before, and I’ll say it again–in my experience, the vast majority of agency officials are honest, honorable people. But the integrity of the competitive contracting process is harmed when agency officials don’t live up to those standards. Indeed, the mere perception that the game might be rigged is extraordinarily harmful–what reason is there for a company to participate in the process if it appears that the agency won’t play fair?
The GAO’s decision doesn’t mention what sanctions, if any, the DHS employees responsible for the misconduct might face. DHS has a chance to send a strong message by terminating, or otherwise severely punishing, those responsible. We’ll see what happens.
For now–and I can hardly believe I’m saying this–contractors and their counsel who receive source selection documents as part of a protest might want to check when those documents were created. Just in case.
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