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Koprince Law LLC

While an agency may require a unilateral reduction in a contractor’s price due to a reduced scope of work, the government carries the burden of proving the amount.

In a recent decision, the Armed Services Board of Contract Appeals held that while an agency was entitled to unilaterally reduce the scope of work, the agency had not proven the amount of the unilateral deduction it demanded–and the government’s failure to meet its burden of proof entitled the contractor to the remaining contract price.

In HCS, Inc., ASBCA No. 60533, 08-1BCA ¶ 33,748 (2016), the Naval Air Station at Corpus Christi developed a sink hole, which the Navy believed was attributable to a leak in a buried 8-inch pipe. To correct the problem, the Navy issued a firm-fixed price solicitation for excavation and repair of the damaged pipe section, among other tasks. Offerors were instructed they could expect to replace up to 60 feet of 8-inch pipe.

HCS, Inc. was subsequently awarded the contract at a fixed price of $40,975. After obtaining the necessary permitting, HCS began excavating the damaged pipe sections. During the excavation, HCS discovered there was a previously undisclosed section of 4-inch pipe that ran perpendicular to the 8-inch section the Navy believed was damaged. The 4-inch pipe intersected the 8-inch pipe in a “tee” joint. Upon further inspection, it became clear that the 4-inch pipe was the actual cause of the leak.

HCS consulted with the Contracting Officer’s Representative, who informed HCS that the 4-inch pipe previously provided water to a structure that had since been torn down. The 4-inch pipe had been capped, but was now leaking. HCS explained there were two paths forward. HCS could either splice in a new segment of 8-inch pipe, thereby removing the tee intersection with the 4-inch pipe, or demolish the majority of the discovered 4-inch pipe and recap it, preserving the tee intersection. HCS was instructed to preserve the tee intersection and recap the 4-inch pipe. No 8-inch pipe needed to be replaced.

As a result of the change in work, HCS estimated that the total price to the government would decrease by $1,435. But even though HCS had performed work related to the 8-inch pipe, the Navy contended the costs for the 8-inch pipe work should be removed from the contract. The Navy instructed HCS to submit a cost breakdown of labor, materials and equipment for the entire project. HCS countered that the Navy was only entitled to the documentation for the new work because this was a firm fixed price contract. When HCS did not provide all the documentation the Navy desired, the COR estimated the revised contract work to be worth $19,892.87. The Navy unilaterally lowered the contract price to that amount.

HCS filed a claim seeking payment of the full original contract price. The Contracting Officer (unsurprisingly) denied the claim. HCS then filed an appeal with the ASBCA, arguing that the amount of the Navy’s unilateral deduction was unreasonable and unsupported.

The ASBCA wrote that under the FAR’s Changes clause “the contract price must be equitably adjusted when a change in the contract work causes an increase or decrease in the cost of performance of its work.”  In the case of a “change that deletes contract work,” the government “is entitled to a downward adjustment in contract price to the extent of the savings flowing to the contractor therefrom.”

However, although the government is entitled to a downward adjustment in such cases, “[t]he government has the burden of proving the amount of cost savings due to deletion of work.” A contractor, therefore, “is entitled to receive its contract price, unless the government demonstrates the government is entitled to a price reduction for deleted work.”

In this case, the ASBCA held that “the burden of proof is on the Navy to show the amount of cost savings due to its deletion of work.”  The ASBCA rejected the Navy’s assertion that it was essentially entitled to “re-price” the entire contract, writing, “[w]e are aware of no authority allowing the Navy to delete work from a contract after work performance and then refuse to pay for the work initially specified and performed, and the Navy cites us no legal authority for such action.”

The ASBCA noted that “[a]t trial, the Navy did not specifically challenge the reasonableness of any of the dollar amounts presented by” HCS. “Simply put,” the ASBCA concluded, “the Navy did not carry its burden of proof.  It has made no showing here of entitlement to a price reduction based on deleted work.”

The ASBCA sustained HCS’s appeal, and held that HCS was entitled to recover $23,082, plus interest.

When a contract change results in a reduction in the contractor’s scope of work, the agency is entitled to an equitable adjustment. But, as HCS, Inc. demonstrates, the government–not the contractor–bears the burden of demonstrating that the amount of that downward equitable adjustment is appropriate. In the context of a firm fixed price contract, if the agency cannot provide the necessary proof, the contractor is entitled to the full contract price.


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Koprince Law LLC

President Obama signed the 2017 National Defense Authorization Act into law on December 23, 2016.  As is often the case, the NDAA included many changes affecting government contractors.

Here at SmallGovCon, my colleagues and I have been following the 2017 NDAA closely.  Here’s a roundup of all 16 posts we’ve written about the government contracting provisions of the 2017 NDAA.

That’s a wrap of our coverage for now, but we’ll keep you posted as various provisions of the 2017 NDAA begin to be implemented.  And of course, it won’t be long until we start covering the upcoming 2018 NDAA.

Happy New Year!


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Koprince Law LLC

An agency’s solicitation was not unreasonably vague where the solicitation defined “relevant” past performance to include projects of “a similar dollar value and contract type.”

In a recent bid protest decision, the U.S. Court of Federal Claims rejected a protester’s assertion that the solicitation was required to identify a specific dollar value associated with relevant past performance, finding that the solicitation’s phrasing was sufficient to allow offerors to compete intelligently.

The Court’s decision in WorldWide Language Resources, LLC v. United States, No. 16-424 C (2016) involved an Army solicitation for the Department of Defense Language Interpretation and Translation Enterprise IID (DLITE II) contract, a multiple-award IDIQ contract for linguist services supporting military operations internationally.  The solicitation called for a best value evaluation considering four factors: Technical, Small Business Participation, Past Performance, and Price.

Under the Past Performance factor, the solicitation required offerors submit up to three “relevant and recent” contracts of a “similar size, scope and nature to the scope of the work” identified in the solicitation.  The solicitation originally defined relevant contracts as those “of comparable magnitude and complexity” to those described in the solicitation.  Amendment 7 to the solicitation defined relevant as contracts that are “of a similar dollar value and contract type, and include a similar degree of subcontract/teaming.”

WorldWide Language Resources, LLC filed a pre-award bid protest challenging the terms of the solicitation.  WorldWide argued, in part, that the past performance factor was unreasonably vague because the solicitation did not specify a dollar value for relevant past performance.  WorldWide contended that “it would be impossible to know whether past performance is relevant without a dollar value to which it could be compared.”

The Court wrote that a solicitation must provide “sufficient information to allow offerors to bid intelligently and to allow the agency to meaningfully evaluate competing proposals.” With respect to past performance, “the FAR entrusts the critical determination of what does or does not constitute relevant past performance to [the agency’s] considered discretion.”  An agency’s determination of relevance is especially worthy of deference because it is “among the minutiae of the procurement process which this court will not second guess.”

In this case, the Court held, the solicitation “has adequately described the method by which past performance will be evaluated.”  The information provided in the solicitation was “sufficient for offerors to bid intelligently,” and “[t]he Agency is not required to define relevant past performance with a dollar value.”  The Court denied WorldWide’s protest.

Government solicitations often define relevant past performance in broad terms like those used in the WorldWide Language Resources case.  Although some offerors might prefer a more specific definition, there is no requirement that an agency define relevance by reference to a dollar value.


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Koprince Law LLC

In conducting a cost realism evaluation, an agency was entitled to use an offeror’s historic approved indirect rates and current incumbent direct labor rates to upwardly adjust the offeror’s evaluated cost, in a case where the offeror’s proposed rates were significantly lower.

The GAO recently held that an agency did not err by adjusting a protester’s rates to better align with the protester’s historic indirect rates and current direct rates, where the agency was unable to determine that the protester’s significantly lower proposed rates were realistic.

In AM Pierce & Associates Inc., B-413128 et al. (Aug. 22, 2016), GAO considered a protest by a disappointed offeror challenging the Navy’s evaluation under a solicitation seeking program management support services for the H-60 Helicopter Program Office. The solicitation was completely set-aside for EDWOSBs. The resulting contract was to be awarded on a cost-plus-fixed-fee basis, under a best-value evaluation.

The solicitation said that offerors’ proposed costs would be evaluated for realism, to determine whether the overall costs were realistic for the work to be performed, reflective of the offeror’s understanding of the requirements, and/or consistent with the technical proposal. To facilitate the evaluation, the RFP required offerors to substantiate their proposed direct and indirect labor rates through payroll verification, contingent offer letters, DCAA rate verification or approval letters, or other detailed justification methods. The cost realism analysis would then involve a calculation of each offeror’s evaluated costs, to reflect the estimated most probable costs. This determination would include an evaluation of the offeror’s cost information—including its substantiated labor rates.

Under the technical proposal, offerors were required to complete a “workforce qualifications spreadsheet” for each employee—including contingent or prospective hires—for the base year. The offerors were further required to demonstrate that this information exceeded the personnel labor category requirements outlined in the solicitation. Then, in the cost proposal, offerors were required to provide the proposed rates for employees based on labor categories.

AM Pierce & Associates, Inc. and Island Creek Associates, LLC were two of the six offerors. AM Pierce’s proposal scored higher under several technical subfactors, and its proposed cost was about $2.5 million less expensive than Island Creek’s. But after evaluating cost proposals, the Navy made significant upward revisions to AM Pierce’s proposed costs. Following these revisions, Island Creek’s evaluated cost was about $300,000 less than AM Pierce’s.

The upward adjustment to AM Pierce’s proposed cost resulted from two aspects of its cost proposal.

First, in its cost proposal, AM Pierce offered lower indirect rates than its historical rates, claiming the reduction was based, in part, on a change to its accounting system. Evaluating its proposal, the Navy instead considered AM Pierce’s historical rates, as approved by DCAA.

Second, AM Pierce’s direct rates were adjusted upwards for proposed personnel after the Navy found the proposed rates to be “drastically inconsistent with the rates verified by current and contingent employees.” To determine the most probable cost, the Navy used verified rates for proposed employees in each labor category for the base year and, for option years, used the median of all verified rates for each labor category in which hours would be reduced in option years.

After conducting a best value tradeoff, the Navy awarded the contract to Island Creek.

AM Pierce protested the award. AM Pierce argued that the Navy had erred by upwardly adjusting AM Pierce’s indirect and direct rates.

GAO explained that “[w]hen an agency evaluates a proposal for the award of a cost reimbursement contract, an offeror’s proposed estimated costs are not dispositive because, regardless of the costs proposed, the government is bound to pay the contractor its actual and allowable costs.” Therefore, “an agency must perform a cost realism analysis to determine whether the estimated proposed cost elements are realistic for the work to be performed, reflect a clear understanding of the requirements, and are consistent with the unique methods of performance and materials described in the offeror’s proposal.” An offeror’s proposed costs “should be adjusted, when appropriate, based on the results of the cost realism analysis.”

GAO first addressed the Navy’s evaluation of AM Pierce’s proposed indirect costs. Although AM Pierce argued that a change in its accounting practices justified the lower indirect rates, “DCAA did not approve AMP’s provisional billing rates for 2016, which reflected changes to AMP’s accounting practices, until April 11, 2016, after the agency had completed its cost evaluation.” GAO wrote that “it appears that the agency considered the most realistic and verifiable information available when calculating AMP’s most probable cost,” and denied this aspect of AM Pierce’s protest.

GAO then turned to the evaluation of AM Pierce’s direct labor rates. Noting that the Navy had based its evaluation on AM Piece’s actual current labor rates, GAO wrote that AM Pierce’s argument was little more than an assertion that “the agency should ignore the rates currently being paid to proposed employees in calculating the most probable cost in the base and option years.” Though it is true that current employees might leave and be replaced at lower rates, “the possibility of changes to personnel does not negate the fact that the actual rates currently being paid to personnel proposed by AMP are the most realistic rates available.” The GAO denied this aspect of AM Pierce’s protest, as well.

Cost realism evaluations can be complicated. But AM Pierce underscores two important points: first, that an agency can use historic verified indirect rates instead of unsubstantiated rates proposed by an offeror; second, an agency can upwardly adjust the direct labor rates proposed by an offeror for incumbent employees based on the actual costs for those employees.


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Joint venture partner or subcontractor?  An offeror’s teaming agreement for the CIO-SP3 GWAC wasn’t clear about which tasks would be performed by joint venture partners and which would be performed by subcontractors–and the agency was within its discretion to eliminate the offeror as a result.

A recent GAO bid protest decision demonstrates that when a solicitation calls for information about teaming relationships, it is important to clearly establish which type of teaming relationship the offeror intends to establish, and draft the teaming agreement and proposal accordingly.

Here at SmallGovCon, my colleagues and I discuss teaming agreements and joint ventures frequently.  As important as teaming is for many contractors, one might think that the FAR would be overflowing with information about joint ventures and prime/subcontractor teams.  Not so.  Most of the legal guidance related to joint ventures and teams is found in the SBA’s regulations.  The FAR itself is much less detailed.  FAR 9.601 provides this definition of a “Contractor Team Arrangement”:

“Contractor team arrangement,” as used in this subpart, means an arrangement in which—

(1) Two or more companies form a partnership or joint venture to act as a potential prime contractor; or

(2) A potential prime contractor agrees with one or more other companies to have them act as its subcontractors under a specified Government contract or acquisition program.

So, under the FAR, a Contractor Team Arrangement, or CTA, may take two forms: a joint venture (or other partnership) under FAR 9.601(1), or a prime/subcontractor teaming arrangement under FAR 9.601(2).  The details of how to form each arrangement are left largely to guidance established by the SBA.

Let’s get back to the GAO protest at hand.  The protest, NextGen Consulting, Inc., B-413104.4 (Nov. 16, 2016) involved the “ramp on” solicitation for the NIH’s major CIO-SP3 small business GWAC IDIQ.  The solicitation included detailed instructions regarding CTAs.  Specifically, the solicitation provided that if an offeror wanted its teammates to be considered as part of the evaluation process, the offeror’s team needed to be in the form prescribed by FAR 9.601(1), that is, a joint venture or partnership.  In contrast, the solicitation provided that, for prime/subcontractor teams under FAR 9.601(2), only the prime offeror would be evaluated.

NextGen Consulting, Inc. submitted a proposal as a CTA.  NextGen identified three teammates: WhiteSpace Enterprise Corporation, Twin Imaging Technology Inc., and the University of Arizona.  The teaming agreement specified that NextGen and WhiteSpace were teaming under FAR 9.601(1), whereas Twin Imaging and the University were teaming with the parties under FAR 9.601(2).

The teaming agreement identified “primary delivery areas” for each teammate.  With respect to the 10 task areas required under the solicitation, NextGen was to handle overall contract management and related responsibilities for task areas 2 and 4-10, WhiteSpace was assigned task area 1, Twin Imaging was assigned task area 3, and the University was assigned task areas 1, 4, 5, and 10.  In its proposal, NextGen referred to the capabilities of “Team NextGen” for all 10 task areas.

The NIH found that because the teaming agreement distributed the task areas without regard for whether the teaming relationship fell under FAR 9.601(1) or FAR 9.601(2), it was impossible for the agency to distinguish between the two types of teammates.  The NIH concluded that the resulting confusion about the roles and responsibilities of the parties made it impossible for the NIH to evaluate the proposal in accordance with the solicitation’s requirements–which, of course, called for the evaluation only of FAR 9.601(1) teammates.  The NIH eliminated NextGen from the competition.

NextGen filed a bid protest with the GAO, challenging its exclusion.  NextGen argued that the NIH unreasonably excluded its proposal based upon a misintepretation of the teaming agreement.  NextGen contended that, taken as a whole, the teaming agreement was clear.  NextGen pointed out that the teaming agreement specifically identified itself and WhiteSpace as FAR 9.601(1) teammates, and specifically identified Twin Imaging and the University as FAR 9.601(2) teammates.

The GAO disagreed.  It noted that “the solicitation required that a CTA offeror submit a CTA document to clearly designate a team lead and identify specific duties and responsibilities.”  Contrary to NextGen’s contentions, “[t]he record shows that as a whole, NextGen’s CTA provided conflicting information as to who the team lead was, and failed to clearly identify the specific duties and responsibilities of the team members.”  GAO pointed out that NextGen’s proposal used the term “Team NextGen,” which “did not provide any indication as to what the specific duties and responsibilities of the team members were.”

Joint venture agreements and prime/subcontractor teams are very different arrangements.  As the NextGen Consulting protest demonstrates, it is important for an offeror to understand what type of teaming arrangements it is proposing, and draft its teaming documents and proposal accordingly.


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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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A former 8(a) protege was not automatically entitled to take advantage of the past performance it obtained as part of a mentor-protege joint venture, in a case where the former mentor would not be involved in the new contract.

In a recent bid protest decision, the GAO held that a procuring agency erred by crediting the protege with the joint venture’s past performance without considering the extent to which that past performance relied on the mentor–and the extent to which the mentor’s absence under the new solicitation might impact the relevance of the past performance as applied to the new work.

The case, Veterans Evaluation Servs. Inc., B-412940 et al. (July 13, 2016), involved a solicitation by the VA to acquire medical disability examination services. The VA issued the RFP seeking to award several large IDIQ contracts. Each contract carried a minimum value of $3.7 million and a top value of $6.8 billion. (That’s billion-with-a-b for those scoring at home.)

The RFP split the services area to seven districts throughout the United States and abroad. The VA intended to award two contracts per district 1 through 6, and required the contractors to propose to locate, subcontract with, and train a network of healthcare professionals to perform the examinations.

VetFed Resources, Inc. had been performing the incumbent contract as part of an 8(a) mentor-protege joint venture with QTC Medical Services, Inc.  The mentor-protege arrangement apparently had expired by the time that proposals were due under the RFP.  VetFed independently submitted proposals for districts 1, 2, and 5.  In districts 1 and 5, VetFed proposed to use QTC as its major subcontractor, making available QTC’s provider network and infrastructure. But for district 2, VetFed did not propose to use QTC as its subcontractor.

After evaluating competitive proposals, the VA awarded contracts to VetFed for districts 1, 2, and 5.  In its evaluation of all three districts, the VA rated VetFed’s past performance as good.

Three unsuccessful competitors filed GAO protests challenging the results of the VA’s evaluation.  All three protesters argued that in district 2, VetFed would not be able to take advantage of QTC’s provider network and infrastructure. The protesters argued that VetFed’s good past performance rating was a result of VetFed’s having access to the resources of its former mentor, and that without that access, VetFed did not deserve a good rating.

GAO wrote that “[a]n agency may attribute the experience or past performance of a parent or affiliated company to an offeror where the firm’s proposal demonstrates that the resources of the parent or affiliate with affect the performance of the offeror.” In this regard, “the relevant consideration is whether the resources of the parent or affiliated company–its workforce, management, facilities, or other resources–will be provided or relied upon for contract performance . . ..” For this reason, “it is inappropriate to consider an affiliate’s record where that record does not bear on the likelihood of successful performance by the offeror.”

In this case, GAO wrote that “VetFed’s relevant past performance example is a contract it performed in close cooperation with QTC; the firms performed using a mentor-protégé arrangement, and there is no dispute that QTC’s provider network and IT infrastructure played a material part in VetFed’s successful performance of the predecessor contract. . . . Since the record here does not show that the agency gave consideration to this question, we conclude that its assignment of a good rating to VetFed for its past performance in district 2 was unreasonable.” GAO sustained this part of the protest.

Given SBA’s strong interest in how mentor-protege joint ventures are treated, it is somewhat surprising that GAO didn’t seek SBA’s input on this aspect of its decision–especially since the decision is troubling from the perspective of 8(a) proteges like VetFed. While GAO’s decision is a logical outgrowth of GAO’s longstanding case law regarding the past performance of affiliates, the particular context is unique, and the SBA’s comments might have been instructive.

In sum, GAO essentially said that a protégé might not get full past performance credit for work it performed in a mentor-protégé arrangement unless the mentor sticks around (in this case as a subcontractor). This is bad news for the protégés of the world, who presumably enter into these relationships in large part for the purpose of gaining experience and knowledge so that they can perform larger contracts on their own in the future. Especially with the new universal mentor-protege program coming online on October 1, it will be important for everyone–mentors, proteges, and contracting officers alike–to fully understand exactly how past performance of mentor-protege joint ventures is to be treated.


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An agency acted improperly by excluding an offeror from the competitive range simply because the offeror received a “neutral” past performance score.

In a recent bid protest decision, the GAO wrote that the FAR precludes evaluating an offeror unfavorably because of a “neutral” or “unknown” past performance rating–and that the prohibition on unfavorable treatment prevents an agency from excluding an offeror from the competitive range on the basis of a neutral rating.

The GAO’s decision in Xtreme Concepts Inc., B-413711 (Dec. 19, 2016) involved an Army Corps of Engineers solicitation for the installation of transformers at Millers Ferry Powerhouse in Alabama.  The solicitation, which was issued as a small business set-aside, contemplated a best value tradeoff, considering both price and non-price factors.

Past performance was one of the non-price factors the Corps was to consider. The solicitation specified that only the past performance of the prime contractor would be considered.  (The GAO’s decision does not explain why the Corps chose to deviate from FAR 15.305(a)(2)(iii), which provides that the past performance of a major subcontractor “should” be evaluated).

Xtreme Concepts Inc. submitted a proposal. In its proposal, Xtreme submitted five past performance projects–all of which had been performed by Xtreme’s proposed subcontractor.

In its evaluation, the Corps concluded that, consistent with the solicitation’s instructions, it could not evaluate the subcontractor’s past performance.  The Corps assigned Xtreme a “neutral” past performance rating.  Xtreme’s proposal was the lowest-priced, and Xtreme’s non-price scores (other than past performance) were similar to those of the other offerors.

The Corps then established a competitive range.  The Corps excluded Xtreme from the competitive range, reasoning that Xtreme’s proposal was not among the most highly-rated due to its neutral past performance rating.  The offerors included in the competitive range were all rated “satisfactory confidence” or “substantial confidence” for past performance.

Xtreme filed a GAO bid protest challenging its exclusion. Xtreme argued that it was improper for the agency to exclude its proposal based solely on a neutral past performance rating, especially in light of Xtreme’s low price.

The GAO wrote that “the FAR requires that an offeror without a record of relevant past performance, or for whom information on past performance is not available, may not be evaluated favorably or unfavorably on past performance.”  In this regard, “an agency’s exclusion of an offeror from the competitive range based solely on a neutral or ‘unknown’ past performance rating constitutes ‘unfavorable treatment’ and is improper.”

In this case, the GAO held, “the agency was not permitted by either the terms of the solicitation or FAR 15.305(a)(2)(iv) to evaluate offerors favorably or unfavorably when they lack a record of relevant past performance . . ..”  The GAO sustained Xtreme’s protest.

The FAR protects contractors from being evaluated unfavorably based on a lack of relevant past performance.  As the Xtreme Concepts bid protest demonstrates, the FAR’s prohibition on unfavorable treatment extends to an agency’s competitive range determination.


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Generally speaking, government contractors know that part of the cost of doing business with the federal government is some loss of autonomy. The government writes the rules. It is the 500 lb. gorilla. What it says usually goes.

When contractors try to do things their own way–even in an relatively informal medium such as email–they can sometimes get into trouble, as evidenced by a recent GAO protest decision: Bluehorse Corp., B-414809 (Aug. 18, 2017).

The protest involved a procurement for diesel fuel as part of a highway construction project near Polacca, Arizona, by the Department of Interior, Bureau of Indian Affairs.

The solicitation said that the fuel would be delivered as needed by the construction project. During a question-and-answer session, the contracting officer said that BIA had two 5,000 gallon tanks for storage, and that the agency “typically” orders 4,000 gallons at a time.

Bluehorse Corp., a Reno, Nevada, Indian Small Business Economic Enterprise, provided a quotation that said it had the ability to supply 7,500 gallons per delivery.

The contracting officer selected Bluehorse for award. On June 13, it sent it a purchase order which specified that each delivery would be 4,000 gallons. The purchase order incorrectly stated that the capacity of the tanks was 4,000 gallons each.

In response, Bluehorse and the contracting officer spent the day emailing each other back and forth about the parameters of the deal. Bluehorse was insistent that it should be allowed to deliver 7,500 gallons at a time. The emails escalated in fervor from a polite request that the government clarify the capacity of its tanks to a threat that “f you don’t amend we will simply protest.” Importantly, in one of the emails, Bluehorse said “our offer was made on the ability to make a 7500 [gallon] drop . . . .”

The contracting officer responded that Bluehorse was attempting to provide its own terms by “determining the amount you want to deliver and not what the government is requesting[.]”

When Bluehorse did not respond, the contracting officer rescinded the offer. In the span of a day, the deal had completely fallen apart. Bluehorse protested, saying that the agency relied on unstated evaluation criteria and “inexplicably” limited deliveries to 4,000 gallons.

GAO sided with the 500 lb. gorilla. It said that although the offer initially conformed to the terms of the solicitation (because the initial reference to 7,500 gallon deliveries was a “statement of capability”) when Bluehorse told the contracting officer in its email that the offer was dependent on the ability to deliver 7,500 gallons at a time, Bluehorse had placed a condition on the acceptance of its quotation.

GAO said, “the record supports the agency’s conclusion the protester subsequently conditioned its quotation upon the ability to deliver a minimum of 7,500 gallons of fuel at a time.”

In other words, the contractor tried to change the rules. It did not matter whether the government had the capacity to hold the amount Bluehorse wanted to provide. All that mattered was that the government wanted one thing, and Bluehorse insisted on providing another.

GAO denied the protest.

The government may have been throwing its weight around. But it can. Whether it is diesel fuel, destroyers, or donuts, when the government says it wants X, the contractor typically has to provide X.


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The SBA has changed its affiliation regulations to clarify when a presumption of affiliation exists due to family relationships or economic dependence.

In its major final rulemaking published today, the SBA clears up some longstanding confusion regarding affiliation based on a so-called “identity of interest.”

The SBA’s current “identity of interest” affiliation rule states that businesses controlled by family members may be deemed affiliated–but does not explain how close the family relationship must be in order for the rule to apply.  The SBA’s final rule eliminates this confusion.  It states:

Firms owned or controlled by married couples, parties to a civil union, parents, children, and siblings are presumed to be affiliated with each other if they conduct business with each other, such as subcontracts or joint ventures or share or provide loans, resources, equipment, locations or employees with one another. This presumption may be overcome by showing a clear line of fracture between the concerns. Other types of familial relationships are not grounds for affiliation on family relationships.

By limiting the application of the rule to certain types of close family relationships, the SBA essentially codifies SBA Office of Hearings and Appeals case law, which has long interpreted the rule to apply only to close family relationships.  It’s a good thing to have the types of relationships at issue spelled out in the regulation, rather than buried in a series of administrative decisions.

More interesting to me is the fact that the final rule suggests that the presumption of affiliation doesn’t apply unless the firms in question “conduct business with each other.”  I wonder whether this regulation essentially overturns OHA’s recent decision in W&T Travel Services, LLC.  In that case, OHA held that two firms were affiliated because the family members in question were jointly involved in a third business–even though the two firms in question had no meaningful business relationships.  I will be curious to see how OHA addresses this component of the final rule when cases begin to arise under it.

The SBA’s final rule also codifies OHA case law regarding so-called “economic dependence” affiliation.  As my colleague Matt Schoonover recently wrote, OHA has long held that a small business ordinarily will be deemed affiliated with another entity where the small business receives 70% or more of its revenues from that entity.  The final rule provides:

(2) SBA may presume an identity of interest based upon economic dependence if the concern in question derived 70% or more of its receipts from another concern over the previous three fiscal years.

(i) This presumption may be rebutted by a showing that despite the contractual relations with another concern, the concern at issue is not solely dependent on that other concern, such as where the concern has been in business for a short amount of time and has only been able to secure a limited number of contracts.

As with the rule on family relationships, the codification of the “70% rule” will help small businesses better understand their affiliation risks, without having to delve into OHA’s case law.  In that regard, it’s a positive change.


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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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By the middle of this year, the U.S. Small Business Administration should have a strategy in place to assist small businesses with cybersecurity.

The 2017 National Defense Authorization Act is chock full of interesting legal changes for government contractors, and although we have chronicled it in depth, that does not mean there is not necessarily more to be mined from the whopping 1,587-page legislation.

Buried in section 1841, the 2017 NDAA contains an interesting directive for the new head of the SBA–who, pending Senate confirmation, will be former CEO of the professional wrestling franchise WWE, Linda McMahon. Section 1841 instructs the SBA head to work with the Department of Homeland Security to develop a cybersecurity strategy for small businesses.

Cybersecurity–especially the lack of it–has been in the news quite a bit lately. But cybersecurity is not only a concern for government agencies and massive global conglomerates. Cybersecurity should be a concern for all businesses, no matter how small. Indeed, the hack that led to the release of millions of personal information belonging to government workers has reportedly been linked to a government contractor. And, although popular culture depicts hackers cracking the firewall and breaking the encrypted code, the truth is that many hackers are mostly adept at taking advantage of carelessness and human error.

In order to help small businesses deal with this threat, the 2017 NDAA instructs the new SBA Administrator and the Secretary of Homeland Security to work together to create a strategy for small businesses development centers that will seek to protect small businesses from cybersecurity threats. The content of the strategy, according to the NDAA, must include plans to allow Small Business Development Centers access to existing DHS and other federal agency services, as well as methods for providing counsel and assistance to small businesses, including training, assistance with implementation, information sharing agreements, and referrals to specialists when necessary.

The strategy also must include an analysis of how SBDCs can rely on existing government programs to benefit small businesses, identify additional resources that may be needed, and explain how SBDCs can leverage partnerships with Federal, State, and local government entities to enhance cybersecurity.

The SBA Administrator must collaborate with with the DHS Secretary no later than 180 days after enactment of the bill (President Obama signed the 2017 NDAA on December 23) and submit the strategy to the Committees on Homeland Security and Small Business of the House of Representatives and the Committees on Homeland Security and Governmental Affairs and Small Business and Entrepreneurship of the Senate.

For small contractors, the new policy comes at a good time.  Last summer, the FAR Council issued a final rule titled “Basic Safeguarding of Contractor Information Systems.”  The rule created two new FAR provisions (FAR 4.19 and FAR 52.204-21); together, these FAR provisions impose fifteen specific requirements for safeguarding “covered contractor information systems.”  The new FAR requirements supplement DFARS 252.204-7012 (Safeguarding Covered Defense Information and Cyber Incident Reporting), which imposes several more requirements on covered DoD contractors.  Clearly, policymakers are focusing on ensuring that contractors appropriately protect electronic information.

Many small contractors could use help understanding and complying with the FAR and DFARS cybersecurity requirements and adopting best practices for cybersecurity. Thus, by the middle of this year, the SBA should have a strategy in place to assist small businesses stave off the threat of cyber attack. Only time will tell whether this strategy will prove effective, but the notion of assisting small businesses in this arena is certainly a positive step.


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To encourage joint venturing, the SBA’s size regulations provide a limited exception from affiliation for certain joint venturers: a joint venture qualifies for award of a set-aside contract so long as each venturer, individually, is below the size standard associated with the contract (or one venturer is below the size standard and the other is an SBA-approved mentor, and they have a compliant joint venture agreement). In other words, the SBA ordinarily won’t “affiliate” the joint venturers—that is, add their sizes together—if the joint venture meets the affiliation exception.

Because of this special treatment, it can be easy for the venturers to assume that they are completely exempt from any kind of affiliation. But as the SBA Office of Hearings and Appeals recently confirmed, however, the exception isn’t nearly so broad.

The facts in Veterans Construction Coalition, SBA No. SIZ-5824 (Apr. 18, 2017) are relatively straightforward: AWA Business Corporation (an 8(a) company) and Megen Construction Company (a small business) formed a joint venture called Megen-AWA 2 (“MA2”), to bid on and perform various construction projects at Wright-Patterson Air Force Base, under an 8(a) set-aside solicitation. The solicitation in question was issued under NAICS code 236220 (Commercial and Institutional Building Construction), with a corresponding $36.5 million size standard.

After evaluating competitive proposals, the Air Force announced that MA2 was the apparent awardee. An unsuccessful competitor filed a size protest, arguing that AWA and Megan were affiliated in various ways, including identity of interest (as the companies were owned by brothers), common management (the brother who owned AWA used to be vice president of Megen), and totality of the circumstances (the companies had worked together under other joint ventures before).

In response to these allegations, MA2 argued, in part, that it qualified as a small business because AWA and Megen both fell below the solicitation’s $36.5 million size standard, as required by the joint venture exception from affiliation. The SBA Area Office agreed, but went a step farther: it held that because AWA and Megan were parties to a joint venture, they could not be affiliated on the “general affiliation” grounds of identity of interest, common management, or totality of the circumstances. The SBA Area Office issued a size determination finding MA2 to be an eligible small business.

On appeal, OHA asked the SBA Office of General Counsel to comment on the breadth of the joint venture exception from affiliation found in 13 C.F.R. § 121.103(h)(3). The SBA Office of General Counsel wrote that the provision “created an exception to affiliation on the basis of participation in a joint venture.” The provision does not create a general exemption to affiliation for joint ventures—“[t]hat is, firms exempted from joint venture affiliation . . . still could be found to be affiliates for reasons other than those set forth in § 121.103(h).”

OHA agreed with the Office of General Counsel. OHA wrote that the affiliation exemption at issue “applied to ‘affiliation under paragraph (h),’ which is affiliation based on joint ventures. Logically, then, the exception was confined to contract-specific affiliation based on joint ventures and did not extend to issues of general affiliation[.]” Because the Area Office did not consider the general affiliation allegations (like identity of interest, common management, and totality of the circumstances), OHA remanded to the Area Office for additional analysis.

Sometimes, small businesses think that their participation in a joint venture serves as a broad exemption from affiliation with their partner. Veterans Construction confirms this isn’t true—joint venture partners can still be deemed affiliated for reasons other than their participation in the joint venture. Knowing when such affiliation might be found—and taking steps to minimize any indicia of affiliation—just might save a contract award.


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Native Hawaiian Organizations soon will be able to own HUBZone companies under a new SBA direct final rule published yesterday in the Federal Register.

The new rule implements provisions of the 2016 National Defense Authorization Act, in which Congress instructed the SBA to open the HUBZone program to NHOs.

Under current law, NHOs are unable to majority-own HUBZone companies, even though Indian tribes and Alaska Native Corporations can be HUBZone owners.  The new rule, which will amend the SBA’s HUBZone regulations in 13 C.F.R. 126.103, defines a HUBZone entity to include an entity that is:

(8) Wholly owned by one or more Native Hawaiian Organizations, or by a corporation that is wholly owned by one or more Native Hawaiian Organizations; or

(9) Owned in part by one or more Native Hawaiian Organizations or by a corporation that is wholly owned by one or more Native Hawaiian Organizations, if all other owners are either United States citizens or small business concerns.

The new regulation defines a Native Hawaiian Organization as “any community service organization serving Native Hawaiians in the State of Hawaii which is a not-for-profit organization chartered by the State of Hawaii, is controlled by Native Hawaiians, and whose business activities will principally benefit such Native Hawaiians.”

In addition to adding NHOs to the HUBZone program, the new final rule treats certain “major disaster areas” as HUBZones for a period of five years, treats certain “catastrophic incident areas” as HUBZones for a period of 10 years, and extends HUBZone eligibility for Base Closure Areas and contiguous areas.

The SBA’s direct final rule will take effect on October 3, 2016 unless the SBA receives significant adverse comment from the public.  If that happens (and it’s not expected), the SBA would withdraw and republish the rule to address the adverse comments.

NHOs have long asked that they should be treated like Indian tribes and ANCs for purposes of the HUBZone program.  Soon, that’s exactly what will happen.


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I’m back in the office today after a great workshop with the Kansas PTAC where I spoke about Big Changes for Small Contractors–a presentation covering the major changes to the limitations on subcontracting, the SBA’s new small business mentor-protege program, and much more.  If you didn’t catch the presentation, I’ll be giving an encore presentation next week in Overland Park.

And since it’s Friday, it must be time for our weekly dose of government contracting news and notes.  In this week’s SmallGovCon Week In Review, we take a look at stories covering the anticipated increase in IT spending, the Contagious Diagnostics and Mitigation program is moving into phase 3, the GAO concludes the VA made errors in its contracting of medical exams and more.

  • The overall rate of IT spending will be above $98 billion each year for the next six federal fiscal years. [E-Commerce Times]
  • Tony Scott, U.S. Chief Information Officer, said he will allot time trying to improve how the federal government accepts unsolicited ideas from industry during what may be his last few months as the U.S. Chief Information Officer. [Nextgov]
  • The Enterprise Infrastructure Solutions contract will reshape how agencies procure telecommunications IT starting in 2020, but agencies need to prepare now. [FedTech]
  • The Homeland Security Department and the General Services Administration put two more key pieces in place under the Contagious Diagnostics and Mitigation program. [Federal News Radio]
  • The U.S. GAO is recommending the VA rebid its contracts for conducting medical exams for thousands of vets applying for disability payments after concluding the VA made several prejudicial errors in its process. [TRIB Live]
  • GSA launches a new special item number that will make it easier for agencies to find and buy the health IT services they need. [fedscoop]
  • The SBA has launched online tutorials for entities seeking SBIR funding. [SBA]
  • Three companies have agreed to pay $132,000 to resolve allegations of falsely self-certifying as small businesses in order to pay reduced nuclear material handling fees. [DOJ]

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I am back in Lawrence after a great Midwestern driving trip last week, where I spoke at two fantastic government contracting events.

On Tuesday, I was in Des Moines for the Iowa Vendor Conference.  My presentation focused on debunking common myths surrounding the SBA’s size and socioeconomic programs (think that VetBiz verification applies to all agencies?  Think again!)  Many thanks to the Iowa State University Center for Industrial Research and Service for organizing this great event and inviting me to speak.  Special thanks to Pam Russenberger and Jodi Essex for all their work planning and coordinating the event, and a big “thank you” to the featured keynoter–the one and only Guy Timberlake–for everything he did to make the conference such a great success.

After I spoke at the Iowa Vendor Conference, I hit the road for Norman, Oklahoma for the annual Indian Country Business Summit.  My talk at the ICBS touched on several recent, major changes to the small business contracting regulations, including the new rules for the limitations on subcontracting and universal mentor-protege program.  The ICBS has always been a great event, but it seems to get bigger and better each year.  A big “thank you” to Victoria Armstrong for her amazing work planning the event, as well as the Oklahoma Bid Assistance Network and Tribal Government Institute for hosting.

I’ll be sticking around home for a few weeks, but more travel is on the agenda–I’m excited to be speaking at the Redstone Edge conference in Huntsville, Alabama on September 22.  Hope to see you there!


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In August, I wrote about a highly unusual case in which a company–which had filed 150 protests in the current fiscal year–was suspended from filing GAO bid protests for one year. I recently spoke with Tom Temin on his radio show Federal Drive to talk about GAO’s  decision.

If you missed the live conversation, you can click here to listen to the recorded audio from Federal News Radio. And be sure to tune in to Federal Drive with Tom Temin, which airs from 6-10 a.m EST on 1500 AM in the Washington, DC region and online everywhere.


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Coming as welcome news for collaborative R&D, the 2017 NDAA will extend the life of the Small Business Innovation Research and Small Business Technology Transfer programs.

The conference version of the bill, which seems likely to be on the President’s desk in short order, contains provisions extending both programs for five years.

SBIR and STTR are unique research, development, and commercialization programs overseen by the SBA. Each program calls for a three-phase process. In the first two phases, R&D is funded by the government; the third phase of each program involves commercialization. Although the programs have many similarities, there are also important differences. For example, in the SBIR program, a small business may collaborate with a non-profit research institution; in the SBIR program, such collaboration is required.

Both programs were scheduled to expire on September 30, 2017. The 2017 NDAA extends the lifespan of the programs through September 30, 2022. This extension will allow small businesses to continue their collaboration with research institutions to develop new technologies for a variety of applications—good news for businesses and universities doing research in cutting edge fields.

2017 NDAA: The National Defense Authorization Act for Fiscal Year 2017 appears poised beneath the President’s pen for signing. It includes some massive changes as well as some small but nevertheless significant tweaks sure to impact Federal procurements in the coming year. For the next several days, SmallGovCon will delve into the minutia to provide context and analysis so that you do not have to. Visit smallgovcon.com for the latest on the government contracting provisions of the 2017 NDAA.


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The government’s policy encouraging prompt payment to small business subcontractors has been extended to December 31, 2017.

In a Memorandum issued on January 11, 2017 by the Office of Management and Budget, OMB Director Shaun Donovan ordered that the popular policy be extended to the end of the year, and provided additional direction to agencies regarding their quarterly reports on implementing the accelerated payment policies.

The OMB’s accelerated payment policy was originally implemented by OMB Memorandum M-11-32, “Accelerating Payments to Small Businesses for Goods and Services,” which was issued on September 14, 2011.  Memorandum M-11-32 specified that, to the greatest extent permitted by law, agencies should accelerate payments to small business prime contractors with the goal of making payments within 15 days of receipt of relevant documents (i.e., an invoice and confirmation that the goods and services have been received and accepted). Memorandum M-11-32 did not specify an expiration date.

On July 11, 2012, OMB took the next step under Memorandum M-12-16, “Providing Prompt Payment to Small Business Subcontractors.”  Memorandum M-12-16 provided that, “agencies should, to the full extent permitted by law, temporarily accelerate payments to all prime contractors, in order to allow them to provide prompt payment to small business subcontractors.”  The Memorandum established a goal of “paying all prime contractors within 15 days of receiving proper documentation.”  Unlike Memorandum M-11-32, however, the policy established  by Memorandum M-12-16 was intended as a “temporary, transitional policy,” and was to expire after one year.  In subsequent memorandums, the temporary policy was extended to December 31, 2016.

The OMB later adopted requirements that agencies provide six-month reports on their progress in meeting the accelerated payment goals; OMB subsequently increased the reporting frequency to every three months.  The January 11 Memorandum, numbered Memorandum M-17-13, extends the temporary policy under Memorandum M-12-16 to December 31, 2017.  The new Memorandum also updates the reporting requirements, calling for agencies to make three-month reports on their progress in making accelerated payments to small business prime contractors and to all contractors, as well as “the progress of any other steps that the agency has undertaken to ensure that small business contractors and small business subcontractors are paid in a prompt manner.”

The OMB’s new Memorandum is welcome news for small business subcontractors, some of whom rely on prompt payments to maintain appropriate cash flow.  It’s unclear, of course, how the incoming Administration will view the goals established by Memorandums M-11-32 and M-12-16, but supporting small business has long been a priority for many on both sides of the political aisle.  Hopefully, that means that further extensions (or perhaps even a permanent extension) will be in the works in 2018–but we’ll just have to wait and see.


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We’ve been covering many of the important changes to federal contracting promised as a result of the 2017 National Defense Authorization Act. But among the most consequential might be a provision that requires DoD to compile a report that analyzes the impacts of the current bid protest system on DoD acquistions. This report could ultimately form the basis for potential significant changes to the protest system in future years.

As it was originally working through Congress, some versions of the 2017 NDAA included significant revisions to the bid protest system. Among these revisions were attempts to limit protests filed by incumbent contractors. But rather than adopting these significant changes now, Congress has taken a more measured approach: it is instead requiring DoD to study the bid protest system to determine its efficacy going forward.

Section 885 of the 2017 NDAA requires DoD to contract with a not-for-profit entity or a federally funded research and development center “to carry out a comprehensive study on the prevalence and impact of bid protests on Department of Defense acquisitions, including protests filed with contracting agencies, the Government Accountability Office, and the Court of Federal Claims.” This report, moreover, is to be detailed—the 2017 NDAA includes fourteen elements that must be included, ranging from DoD’s perceptions of the bid protest system and its effects on the structure of solicitations, to impacts on a potential offeror’s thought processes when it comes to bidding on a solicitation.

Rather than transcribing all fourteen elements in detail (they’re available here, just search for “Sec. 885”), this post will briefly discuss two of note.

First, the report must analyze bid protests filed by incumbent contractors, to include “the rate at which such protesters are awarded bridge contracts or contract extensions over the period that the protest remains unresolved,” and an assessment on the cost and schedule of acquisitions caused by protests filed by incumbent contractors. Congress apparently is concerned that incumbent contractors may be filing protests as a means to obtain extensions on their performance and, in doing so, needlessly delaying the acquisition process. Much like early versions of the 2017 NDAA, this provision clearly hints that limitations on protests by incumbent contractors may be coming in the near future.

Second, the report must address “the effect of the quantity and quality of debriefings on the frequency of bid protests.” This provision makes sense. In an effort to avoid providing unsuccessful offerors with ammunition for protests, agencies can sometimes limit the information disclosed in an unsuccessful offeror’s debriefing so as to make the debriefing itself almost useless. But this can backfire: in response, frustrated offerors can resort to the protest process primarily as a means to learn more about the evaluation. By more thoroughly explaining their evaluations in debriefings, agencies might actually limit the number of protests filed. Perhaps this report will spur Congress to augment the requirements for agency debriefings.

The report is due no later than one year within the enactment of the 2017 NDAA. It promises to be a fascinating look at the impact of the bid protest process on DoD procurements. And because DoD is the single largest procuring agency, any recommendations that follow from this report are likely to impact bid protest procedures across every agency.

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 don’t have to. Visit smallgovcon.com for the latest on the government contracting provisions of the 2017 NDAA. 


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With Christmas just two days away, it is time for  many of us to focus on family and friends and enjoy a few days off. I hope that you have an enjoyable holiday season and are able to surround yourself with those that mean the most to you. Before we take a little break for the holidays we are happy to bring you this final 2016 edition of SmallGovCon Week In Review. (We won’t be publishing a Week in Review next week, but will be back with more in 2017).

As we head into the final week of 2016, we take a look at two separate fraud cases where million dollar fines have been assessed, more predictions of how the incoming Trump Administration will affect government contractors, 2017 is shaping up as a competitive year in IT contracting, and much more.

  • The Trump transition and campaign websites provide some insight about the acquisition agenda that the new administration will pursue, as well as other policies that may impact government contractors and federal acquisition personnel. [Washington Technology]
  • A Rhode Island business will pay $1 million dollars to resolve civil allegations that it violated the False Claims Act by submitting, or causing the submission of, claims for reimbursement for funding earmarked for minority, women-owned, or small business that it was not entitled to receive. [The Valley Breeze]
  • Two Arkansas business owners are accused of falsely claiming to be a service-disabled veteran owned business in order to collect more than $15.5 million in federal contracts. [Arkansas Online]
  • Our very own Senior Associate Attorney Matthew Schoonover was interviewed for this article on the controversy surrounding the Trump Washington hotel. [Bloomberg Politics]
  • According to one commentator, the GSA is taking steps to make multiple award schedules more expensive for contractors. [Allen Federal Business Partners]
  • President-elect Donald Trump’s pick for Army Secretary has some people wondering who? But that may be just what the Army needs. [Federal News Radio]
  • 2017 is shaping up to be a very competitive year for IT contracts across the U.S. military branches and Defense Department. [Nextgov]
  • A handful of defense organizations are crying foul on a proposed regulation that may eat into research funding the Defense Department gives to industry. [Federal News Radio]
  • The National Defense Authorization Act of 2017 directs more limited use of Low Price Technically Acceptable procurements, which may be a welcome holiday gift for federal contractors. [Washington Technology]
  • Jason Miller of Federal News Radio takes an in depth look at three changes to federal acquisition agencies that industry should know about. [Federal News Radio]
  • The federal government maintains a database of every contract action above the $3,500 threshold, but despite this expansive data set, the government does not capture meaningful visibility into what agencies are actually buying. [Federal News Radio]
  • Will a potential Trump hiring freeze on federal hiring result in the hiring of more contractors to compensate for a small internal agency workforce? [Government Executive]

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Federal construction contracts incorporate the FAR’s payment and performance bonding requirements as a matter of law, even if the solicitation omits these bonding provisions.

In a recent Armed Services Board of Contract Appeals decision, K-Con, Inc., ASBCA Nos. 60686, 60687, a contractor ran headlong into construction bonding issues when the Army demanded payment and performance bonding for two of its construction contracts despite there being no bonding requirements in either of the contracts. According to the ASBCA, the bonds were required anyway.

K-Con involved two Army procurements for the construction of a laundry facility and communications equipment shelter at Camp Edwards in Massachusetts. The solicitations were both posted through the GSA’s eBuy system. The Contracting Officer inadvertently used Standard Form 1449 (Solicitation/Contract/Order for Commercial Items) despite the procurement being for construction services. As a result, neither of solicitations included provisions requiring payment or performance bonding.

K-Con, Inc. submitted proposals and was awarded both contracts on October 10, 2013. Before work began on either project, the Army requested that K-Con obtain performance and payment bonding. K-Con, however, was unable to obtain the necessary bonding, and proposed an alternative solution. Negotiations progressed slowly. On September 20, 2015—two years after the contract was awarded—K-Con finally obtained the requested bonding. K-Con subsequently completed the contract.

As a consequence of having performance delayed two years, K-Con was forced to pay more for labor and materials than it originally anticipated in its bid. After completing the construction work, K-Con submitted a request for equitable adjustment under each contract. Between the two REAs, K-Con sought a total of $116,336.56. K-Con argued it was entitled to the upward adjustment because performance bonding was not a requirement in either of the original solicitations.

The ASBCA’s discussion of the facts glosses over what happened next. Apparently, however, the Army rejected the REAs, and took the position that bonding had been required by law, even if it wasn’t specified in the solicitations or contracts. Since an REA is not a claim (and the ASBCA lacks jurisdiction over an appeal of a denied REA), the Army must have treated the REAs as claims, or K-Con must have refiled its REAs as claims–the decision doesn’t specify. One way or another, though, the dispute ended up at the ASBCA.

In resolving the case, the ASBCA turned to the longstanding contracting doctrine first developed in G.L Christian & Associates v. United States, 320 F.2d 345 (Ct. Cl. 1963)—the so called Christian doctrine. As the ASBCA explained, “nder the . . . Christian doctrine, a mandatory contract clause that expresses a significant or deeply ingrained strand of public procurement policy is considered to be included in a contract by operation of law.”

In the case of the FAR’s bonding provisions, the ASBCA found that both prongs of the Christian doctrine were met.

First, FAR 28.102-1 requires payment and performance bonding be obtained by contractors for almost all construction contracts exceeding $150,000. FAR 28.102-1 implements a federal statute formerly known as the Miller Act, and currently codified at 40 U.S.C. 3131-3134. When FAR 28.102-1 applies, the solicitation and contract are required to contain the clause at FAR 52.228-15, which imposes the contractual requirement for payment and performance bonds. Because of this legal framework, the ASBCA ruled that “FAR 52.228-15 was a mandatory clause in the contract.”

Second, the ASBCA concluded payment and performance bonding was a “significant component of public procurement policy.”

The ASBCA explained that, with respect to payment bonds, “[a] principal underlying purpose of the payment bond provision is to ensure that subcontractors are promptly paid in full for furnishing labor and materials to federal construction projects.” In particular, “the Miller Act provides subcontractors on federal construction projects with the functional equivalent of a mechanic’s lien available to subcontractors on non-federal projects.” Because the government is immune from most lawsuits, “mechanics’ liens cannot be placed against public property.”

The purpose of a performance bond is to “assure that the government has a completed project for the agreed contract price.” The performance bond “provides protection to the government in situations where the prime contractor defaults in the performance of work or is terminated for default.”

The ASBCA concluded both types of bonding were deeply ingrained features of federal procurement policy. As such, the second prong of the Christian doctrine was satisfied.

The ASBCA held that “the bonding requirements set forth in FAR 52.228-15 were considered to be included in the contracts by operation of law pursuant to” the Christian doctrine. The ASBCA denied K-Con’s appeals.

As K-Con demonstrates, the Christian doctrine allows the government to apply mandatory FAR provisions to contractors even if those provisions were inadvertently omitted in the solicitation. It is thus wise for offerors to carefully review the provisions of a solicitation for the specific terms that the offeror should expect to find. If a particular omission seems too good to be true, odds are it is–and it may be better to raise the issue before proposals are submitted than risk the application of the Christian doctrine down the road.


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Earlier this year, we wrote about an interesting issue brewing in federal contracting: whether the logic behind the Supreme Court’s June 2016 decision in Kingdomware Technologies means that the Small Business Act’s rule of two is mandatory for acquisitions under Federal Supply Schedules. In other words, does the Small Business Act require agencies to set aside orders under the FSS when two or more small business are likely to submit competitive offers?

The SBA believes that the rule of two (see FAR 19.502-2) is mandatory for such orders. GAO has disagreed, saying instead that the Small Business Jobs Act of 2010 and the exclusion of FSS contracts from the application of FAR Part 19 (see FAR 8.405-5(a)(1)(i)) make the small business rule of two discretionary for these orders.

This conflict—GAO believing the Small Business Act’s rule of two is discretionary for orders placed under multiple-award contracts; SBA believing it is mandatory—has existed for several years. But now the SBA is using the Supreme Court’s recent decision to bolster its case: according to a recent SBA internal memorandum, Kingdomware requires the small business rule of two to be given mandatory effect, at least with respect to orders valued between $3,500 and $150,000.

Kingdomware involved the scope of a VA-specific procurement statute, 38 U.S.C. § 8127(d), which required the VA to set aside contracts for SDVOSBs or VOSBs whenever two or more veteran-owned companies would submit an offer at a fair and reasonable price. The VA opposed the application of this provision to FSS orders, saying that orders are not “contracts” and therefore the statutory rule of two did not apply. The Supreme Court unanimously disagreed with the VA’s interpretation, holding that FSS orders are, in fact, contracts and that the 2006 VA Act’s rule of two is mandatory even when the VA wishes to use the FSS.

The SBA jumped on this decision, and wrote in October 2016 that Kingdomware’s rationale “should be applied broadly to similarly worded Federal statutes.” This includes the Small Business Act’s rule of two, which says that “[e]ach contract for the purchase of goods and services that has an anticipated value greater than [$3,500 but less than $150,000] shall be reserved exclusively for small businesses” if two or more small businesses will submit competitive offers. 15 U.S.C. § 644(j)see also 80 Fed. Reg. 38294 (July 2, 2015) (increasing dollar amounts). Because “FSS orders are unmistakably ‘contracts’ under the common law and the Federal Acquisition Regulation,” the SBA believes that FSS orders between $3,500 and $150,000 must be set aside for small businesses, in accordance with the Small Business Act.

Given its interpretation, the SBA’s memorandum urges its Procurement Center Representatives (“PCR”) to evaluate contracts to increase small business participation:

The policies and goals established by law are clear, and agencies have the requisite tools to receive best value at fair market prices exclusively from SBCs when appropriate, regardless of the mechanism the agency chooses to utilize to acquire those goods or services. Therefore, PCRs should, to the extent possible, review requirements between $3,500 and $150,000 which have not been unilaterally set-aside for SBCs, regardless of which mechanism the agency chooses to obtain said requirement, in order to determine if small businesses can reasonably compete for these opportunities. PCRs should endeavor to use their full authority to review contracts and orders to encourage small business participation.

GAO and the Court of Federal Claims will ordinarily afford the SBA “great deference” as to the interpretation of small business statutes and regulations, so SBA’s stance could impact any future protest decisions. The SBA’s interpretation, moreover, effectuates Congress’s broad policy “that the Government should aid, counsel, assist, and protect the interests” of small business concerns and “ensure that a fair proportion of the total purchases and contracts for property and services for the Government are placed with” small businesses. GAO’s past interpretation of the Act (which, again, holds that the rule of two is discretionary for FSS orders) seems to run counter to this purpose, by potentially minimizing the instances under which small businesses get first dibs on federal contracts.

The question of whether the Small Business Act’s rule of two is mandatory or discretionary for FSS orders promises to percolate over the coming weeks and months. And because the federal government buys billions of dollars’ worth of goods and services through FSS contracts, its resolution will be tremendously important to small businesses.


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The curse is broken!  For the first time in 71 years, my Chicago Cubs will play a World Series game in Wrigley Field tonight.  While I wish I could be in Wrigley to cheer them on, the ticket prices are being called “record breaking,” and not in a good way.  So I’ll be watching with my family from the comfort of my couch right here in Kansas–which, if nothing else, will offer the advantage of a better dinner than the ballpark (I’ll take chicken smoked on the Big Green Egg over a ballpark hot dog any day).

But before I head home to watch the first pitch, it’s time for our weekly dose of government contracting news and notes.  In this week’s SmallGovCon Week In Review, a judge has blocked implementation of the Fair Pay and Safe Workplaces Rule, Guy Timberlake sounds the alarm about proposed changes to small business goaling, a group of contract employees have gone on strike in protest of alleged legal violations, and much more.

  • A federal court in Texas has halted enforcement of new rules requiring many U.S. government contractors to disclose labor law violations, including workplace safety violations, when bidding for contracts. [POLITICO]
  • The GSA has introduced new initiatives to better engage small and innovative companies that aren’t traditionally government contractors. [fedscoop]
  • Our friend Guy Timberlake takes a look at what would happen if, all of a sudden, agencies didn’t have to work so hard to meet or exceed their small business goals. [GovConChannel]=
  • The team at the Office of Management and Budget have been thinking creatively on how to deal with unsolicited proposals and generate the best ways to approach the federal IT procurement process. [fedscoop]
  • Fed up truck drivers and warehouse workers employed by federal contractors are striking for 48 hours to draw attention to alleged wage theft and other violations. [workdayMinnesota]
  • Washington Technology lays out four things you need to know about new the contractor requirements for classified networks. [Washington Technology]

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An Alaska Native Corporation subsidiary was not affiliated with its parent company and two sister companies under the ostensible subcontractor affiliation rule, even though the company in question would rely on the parent and sister companies for managerial personnel, financial assistance and bonding.

A recent decision of the SBA Office of Hearings and Appeals highlights the breadth of the exemption from affiliation enjoyed by ANC companies.

OHA’s decision in Size Appeal of Olgoonik Diversified Services, LLC, SBA No. SIZ-5825 (2017) involved a Department of State solicitation seeking a contractor to provide design-build construction services in Baghdad.  The solicitation was issued as a small business set-aside under NAICS code 236220 (Commercial and Institutional Building Construction), with a corresponding $36.5 million size standard.

After evaluating competitive proposals, the agency announced that Olgoonik Diversified Services, LLC was the apparent successful offeror.  An unsuccessful competitor subsequently filed a size protest.  The protester alleged, in part, that Olgoonik was affiliated with other entities under the ostensible subcontractor rule.

The SBA Area Office determined that Olgoonik was established in 2011 as a wholly-owned subsidiary of Olgoonik Development, LLC (“OD”), an ANC holding company.  OD, in turn, was a wholly-owned subsidiary of an ANC.  OD had 11 other subsidiaries besides Olgoonik, referred to as Olgoonik’s “sister companies.”  These sister companies included O.E.S., Inc. (“OES”) and Olgoonik Specialty Contractors, LLC (“OSC”).

The SBA Area Office found that Olgoonik had relied on OES and OSC for the relevant past performance identified in its proposal.  OD would provide bonding and other financial assistance to allow Olgoonik to perform the contract.  All six key employees listed in the proposal (including the Program General Manager responsible for overall project management) were OSC employees.

Although Olgoonik had not named OES or OSC as subcontractors in its proposal, the SBA Area Office found that Olgoonik was unusually reliant on its sister companies for contract performance.  The SBA Area Office issued a decision finding Olgoonik affiliated with OES and OSC under the ostensible subcontractor rule (the SBA also found an affiliation for another reason, which is outside the scope of this post).

Olgoonik filed a size appeal with OHA.  Olgoonik argued that the ostensible subcontractor rule did not apply because OSC and OES were not proposed as subcontractors for the project.  Additionally, Olgoonik argued that a regulatory exemption from affiliation precluded a finding of affiliation.  That exemption, which is found in 13 C.F.R. 121.103(b)(2)(ii), provides, in part, that businesses owned and controlled by Indian Tribes, ANCs, Native Hawaiian Organizations, and Community Development Corporations are not considered affiliated with other businesses owned by these entities “because of their common ownership or common management.”  However, “[a]ffiliation may be found for other reasons.”

OHA first addressed the low-hanging fruit: the fact that OD, OES and OSC were not proposed to be subcontractors on the State Department project.  OHA wrote that it has “consistently held that in order for the ostensible subcontractor rule to apply, the alleged affiliate must actually be a subcontractor of the challenged concern.”  In this case, “there is no record of subcontracting in [Olgoonik’s] proposal,” meaning that OD, OES and OSC could not be Olgoonik’s ostensible subcontractors.

But OHA didn’t stop there: it also found that the SBA Area Office had erred by failing to apply the “common ownership” and “common management” exceptions from affiliation.  OHA wrote that “an ANC transfers personnel among its sister companies as part of the common management of its concerns, and an ANC’s exercise of common management is a clear exception to a finding of affiliation.”  Additionally, OHA explained, “relying on its parent company for financial assistance in justifying a finding of affiliation based on a joint venture or ostensible subcontractor is equally illogical.”  ANCs are “excepted from affiliation based on common ownership, thus it would be reasonable for a subsidiary to rely on its parent company’s financial resources, and for bonding . . ..”

OHA granted Olgoonik’s size appeal.

The SBA’s regulations do not expressly exempt ANCs, Tribes, NHOs and CDCs from ostensible subcontractor affiliation.  But as the Olgoonik Diversified Services size appeal demonstrates, the types of relationships that might ordinarily be deemed indicative of ostensible subcontractor affiliation are often part and parcel of common ownership and management.  Olgoonik Diversified Services confirms that OHA will broadly apply the regulatory exception to cover things such as transferred personnel, financial assistance, and bonding assistance.


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