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Koprince Law LLC

An agency’s spam filter prevented an offeror’s proposal from reaching the Contracting Officer in time to be considered for award–and the GAO denied the offeror’s protest of its exclusion.

A recent GAO bid protest decision demonstrates the importance of confirming that a procuring agency has received an electronically submitted proposal because even if the proposal is blocked by the agency’s own spam filter, the agency might not be required to consider it.

GAO’s decision in Blue Glacier Management Group, Inc., B-412897 (June 30, 2016) involved a Treasury Department RFQ for cybersecurity defense services. The RFQ was issued as a small business set-aside under GSA Schedule 70.

The RFQ required proposals to be submitted by email no later than 2:00 p.m. EST on November 9, 2015. The RFQ advised that the size limitation for electronic submissions was 25MB.

Blue Glacier Management Group, Inc. electronically submitted its proposal at 10:55 a.m. EST on the due date. The total size of BG’s attachments was below the 25MB limitation specified in the RFQ.

But unbeknownst to BG or the contracting officer, the email was captured in the agency’s spam filter. The contracting officer did not receive the proposal email or any type of quarantine/spam notification. Five other proposals were timely received from other offerors without incident.

BG sent a follow-up email to the contracting officer on January 29, 2016, over two months after it first submitted its proposal. But, because the contracting officer did not recognize BG as a recent offeror for the proposal, she did not respond.

Another month passed before BG followed up again by phone on February 26, 2016. The contracting officer indicated that, from her standpoint, it appeared that BG had not submitted a proposal. BG explained that it had submitted a proposal and thought it was being considered for the award.

BG re-submitted its proposal via email on February 26, 2016, just as it had done on November 9. The contracting officer again did not receive it. The contracting officer consulted with the agency’s IT department and discovered the February 26 email had been captured in the spam filter. However, the IT department was unable to recover the original November 9 email because the agency’s email network automatically deletes emails in the spam filter after 30 days.

At this point, Treasury was in the final stages of evaluating proposals. The contracting officer declined to evaluate BG’s re-submitted proposal.

BG filed a GAO bid protest challenging the agency’s decision. BG’s argued, in part, that BG was not to blame for the fact that its proposal (which complied with the 25MB size limit) had been blocked by the agency’s spam filter.

The GAO wrote that “it is the vendor’s responsibility, when transmitting its quotation electronically, to ensure the delivery of its quotation to the proper place at the proper time.”  However, there is an exception where a proposal is under “government control” at the proper time. In order for the government control exception to apply, “a vendor must have relinquished custody of its quotation to the government so as to preclude any possibility that the vendor could alter, revise or otherwise modify its quotation after other vendors’ competing quotations have been submitted.”

In this case, “because Blue Glacier did not seek prompt confirmation of the agency’s receipt of its quotation, Blue Glacier’s November 9 email was automatically deleted from the agency’s system after 30 days.” The GAO continued:

Accordingly, the agency has no way to confirm the contents of the Blue Glacier email that entered the Treasury Fiscal Services network on November 9; that is, it has no way to confirm that the November 9 email included a quotation identical to the quotation furnished by the protester on February 26. Whether the protester actually altered its quotation is not the issue; rather, the issue is whether, under the circumstances, there is any possibility that the protester could have altered its quotation. This requirement precludes any possibility that a vendor could alter, revise or otherwise modify its quotation after other vendors’ competing quotations have been submitted. Because Blue Glacier was not precluded from altering its quotation here, the government control exception is inapplicable in this instance.

The GAO denied Blue Glacier’s protest.

Electronic proposal submission is increasingly common, and offers many advantages. But, as the Blue Glacier Management Group decision demonstrates, electronic submission can also carry unique risks–like agency spam filters.  As shown by Blue Glacier Management Group, it’s a very good idea for offerors to confirm receipt of electronic proposals, just in case.

Note: Megan Carroll, a summer law clerk with Koprince Law LLC, was the primary author of this post.

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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

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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Koprince Law LLC

Last year, during consideration of the 2017 National Defense Authorization Act, the Senate proposed to “reform” the GAO bid protest process by forcing some unsuccessful protesters to pay the government’s costs, and (more controversially) by denying incumbent protesters profits on bridge contracts and extensions.

Congress ultimately chose not to implement these measures.  Instead, Congress called for an independent report on the effect of bid protests at DoD–a wise move, considering that major reforms to the protest process shouldn’t be undertaken without first seeing whether hard data shows that protests are harming the procurement process.

But now, six months before that report is due, the Senate has re-introduced its flawed bid protest proposals as part of the 2018 NDAA.

Earlier this month, the Senate Armed Services Committee issued its report on the 2018 NDAA.  The SASC report recommends that the 2018 NDAA include two major changes concerning GAO bid protests.

First, the bill states that when a “party with revenues in excess of $100.0 million during the previous year” files a GAO bid protest, that party will be required “to pay the Department of Defense costs incurred for processing [the] protest . . . where all elements of such protest are denied in an opinion” by the GAO.

Second, the bill would “require contractors who file a protest on a contract on which they are the incumbent to have all payments above incurred costs withheld on any bridge contracts or temporary contract extensions awarded to the contractor as a result of a delay in award resulting from the filing of such protest.”  The bill would, however, allow the protester to recover its profits under two circumstances: if the solicitation in question is cancelled, or if the GAO “issues an opinion that upholds any of the protest grounds filed under the protest.”

There have been some minor tweaks, but these changes are nearly identical to the provisions that the Senate proposed during consideration of the 2017 NDAA.  And in my opinion, the Senate has it wrong–again.

Presumably, the point of these “reforms” is to discourage losing offerors from filing bid protests, and in particular, to discourage frivolous bid protests by losing incumbents.  But are bid protests rampant?  Are frivolous bid protests rampant?  And are major DoD acquisitions being unduly delayed by protests?

These are the sorts of important questions that the independent report is likely to address.  Although the independent report isn’t due for a few more months, existing data casts doubt on the underlying presumption that protests are frequent, frivolous and causing undue delays.

On the frequency question, Dan Gordon–the former head of the OFPP–did the math, and concluded that, for the years he analyzed, “etween approximately 99.3 percent and 99.5 percent of procurements were not protested.”  This fits with the raw data: in Fiscal Year 2016, only 2,789 bid protests were filed with GAO.

On the frivolity side, even though protesters have the burden of proof, the success rate of GAO protests in FY 2016 was 46%.  This is not an anomaly: year after year, GAO protesters succeed more than 4 out of 10 times.  That’s not to say, of course, that there are no frivolous protests whatsoever, but when almost half of protests succeed, it’s hard to believe that frivolity is a rampant problem.

And what about delays?  Yes, when a GAO bid protest is filed within a certain time frame, it will initiate an automatic suspension of award or performance, as the case may be.  But a procuring agency can override the stay if there is an urgent and compelling need to award the contract.

Even when the agency doesn’t override, the GAO issues its decisions within 100 days after a protest is filed.  To GAO, the 100-day deadline is no mere guidepost–the GAO meets this deadline every single time (except in a few cases during the government shutdown of 2013). The agency can also request that the GAO resolve the protest even faster, using a 65-day express option or another accelerated schedule. The GAO bid protest process is designed to be relatively quick and efficient, and the GAO operates with that goal in mind.

But let’s put the statistics aside and assume for a moment that frequent frivolous protests are causing massive delays to DoD procurements.  I don’t think the Senate’s proposal solves this hypothetical problem.

The portion of the legislation dealing with protest costs may save the government a few bucks, but it’s very unlikely to make a dent in the number of protests.  The way I see it, companies generating $100 million or more in annual revenues already invest thousands upon thousands of dollars in legal fees and internal costs when they file protests.  These larger companies are very unlikely to be dissuaded by the potential of an additional “internal costs” charge if the protest is unsuccessful.

The second item–the one involving bridge contracts and extensions–is much more troubling.  Some (but not all) of my concerns:

  • Many GAO bid protests are resolved in the protester’s favor in ways other than a formal GAO “sustain” decision.  Most frequently, this involves voluntary agency corrective action–something that happened nearly 24% of the time in FY 2016.  As I read the Senate’s current version of the 2018 NDAA, the incumbent protester would still be required to forfeit all profits associated with any bridge contract or extension when the agency takes corrective action.  A corrective action essentially is a win for the protester–so why should the protester be penalized?
Sometimes, large procurements draw multiple protests.  If a losing incumbent is one of, say, five protesters, will the incumbent still be required to perform at cost?  The bill isn’t clear, but it doesn’t seem to make sense to penalize the incumbent in this situation. Many contracts are fixed-price; indeed, Congress recently affirmed its strong preference for DoD contracts to be awarded on a fixed-price basis.  The Senate 2018 NDAA seems to require that any bridge contract or extension to the incumbent be awarded on a cost-reimbursement basis instead.  Not only does this run against policy, but it’s likely to cause major headaches for contracting officials, who will be forced to fundamentally convert the contract type at the very moment the agency needs a quick and easy extension. Speaking of the apparent requirement that the bridge or extension be a cost reimbursement contract, what if the contractor’s accounting system isn’t adequate for cost reimbursement contracts?  Does everyone have to wait around for a DCAA audit?  Good luck with that. What if the underlying contract is for commercial items?  FAR 16.301-3(b) provides that “[t]he use of cost-reimbursement contracts is prohibited for the acquisition of commercial items . . ..” The GAO isn’t the only place a protest can be filed.  If an incumbent is concerned about potentially coughing up its profits on a bridge contract or extension, it can protest at the Court of Federal Claims.  There are no automatic stays at the Court, but a protester can seek a temporary injunction, and agencies sometimes voluntarily stay a procurement pending a Court protest.  Court protests don’t appear to be affected by the legislation.  So will the Senate bill just encourage forum shopping? Nothing requires an incumbent to sign a bridge contract.  Some incumbent protesters may simply say, “thanks, but no thanks,” to the possibility of performing work at cost.  If this happens, the agency may be in a bind, needing important work to continue immediately but without the ability to bridge the incumbent to meet that need.

Beyond all that, I’m skeptical that the second item will do much to reduce bid protests.  Sure, an incumbent takes the risk that it won’t profit from the bridge contract or extension if it loses the protest, but it won’t perform that work at a loss.  On the other hand, if the incumbent wins the protest, it may get its contract back-and might even be awarded its attorneys’ fees and costs.  Under these circumstances, it seems that the risk/reward analysis often will still favor a protest.

The Senate bill is a deeply flawed attempt to fix a problem that doesn’t necessarily exist.  Hopefully this premature and ill-conceived language will be removed in subsequent versions of the 2018 NDAA.  My colleagues and I will keep you posted.

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Koprince Law LLC

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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Koprince Law LLC

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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Koprince Law LLC

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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Koprince Law LLC

I am pleased to announce that SmallGovCon is now being republished on what I think is the nation’s best and most venerable government contracting legal website: WIFCON.com.  You can find us on WIFCON.com’s blogs page from now on (and, of course, right here at SmallGovCon.com).

I was probably less than a month into my first government contracts job (summer associate at a law firm based in Tysons Corner) when a more senior attorney recommended that I check out WIFCON.com. I’ve been following it religiously ever since.

Packed with information about statutes, regulations, bid protests, audits, enforcement actions, and more, WIFCON.com is a government contracting lawyer’s dream come true.  And best of all, it’s updated almost daily, so the information is always up-to-date.

It’s an honor to be able to contribute to such an incredible resource.  If you’re not familiar with WIFCON.com, I encourage you to check it out.  And of course, keep checking back here at SmallGovCon for more legal news and notes for small government contractors.

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Koprince Law LLC

An agency ordinarily is not required to perform calculations to determine whether an offeror’s proposal complies with a solicitation’s requirements, according to the GAO.

In a recent bid protest decision, the GAO rejected the protester’s argument that, in determining whether the proposal satisfied certain requirements, the agency should have used the information in the proposal to perform certain calculations.

The GAO’s decision in Mistral, Inc., B-411291.4 (Feb. 29, 2016) involved a DHS small business set-aside solicitation to obtain new mobile video surveillance systems.  The solicitation called for a best value evaluation considering three factors: technical, past performance, and price.

After taking corrective action in response to a bid protest, the DHS opened discussions with offerors in the competitive range, including Mistral, Inc.  In its written discussion questions for Mistral, the DHS asked Mistral to provide “an analysis and calculations” Mistral used to justify “the performance claims for Critical Failure Rate and Achieved Availability as prescribed in Section L of the solicitation.”  In response, Mistral’s final proposal revision directed the DHS to “the Excel spreadsheet (all formulas embedded)” submitted to the agency on a CD-ROM.

When the DHS examined the CD-ROM submitted by Mistral, it found only a PDF of the required information–not an Excel file.  Although Mistral provided a table with calculations, the DHS was unable to access the embedded calculations contained in the original Excel spreadsheet.  The DHS assigned Mistral a risk for failing to provide the formulas, and an overall “Satisfactory” rating for its technical proposal.  The DHS awarded the contract to a competitor, which also received a “Satisfactory” technical rating, but proposed a lower overall price.

Mistral filed a bid protest with the GAO.  Mistral argued, in part, that the agency could have derived the calculations and formulas from the information provided in the PDF, and therefore should not have assigned a risk for the supposed absence of this information.

The GAO wrote that Mistral “does not explain how this could or should be done.”  And, “[m]ore importantly . . . an agency is not required to perform calculations or adapt its evaluation to comply with an offeror’s submission in order to determine whether a proposal was compliant with stated solicitation requirements.”  The GAO continued:

Stated differently, the question is not what the agency could possibly do to cure a noncompliant submission, but rather, what it was required to do.  Based on our review of the record, we agree with the agency’s conclusions that without the substantiating evidence to support Mistral’s performance claims as required by the solicitation, and requested by the agency during discussions, it was reasonable to assign a medium risk to Mistral’s proposal in this area. 

The GAO denied Mistral’s protest.

The Mistral, Inc. protest is a good reminder that it is up to an offeror to prepare a thorough, well-written proposal, including all information required by the solicitation.  It is not the agency’s responsibility, in the ordinary course, to perform calculations using the information provided by the offeror to determine whether the proposal meets the solicitation’s requirements.

And of course, Mistral is also a warning to offerors to be sure that electronic proposals are submitted in the appropriate format.  Although PDFs are commonly used in the submission of electronic proposals, there are circumstances in which a PDF may not get the job done–such as in Mistral, where the underlying Excel calculations, which weren’t available in PDF format, were important to the evaluation.

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Koprince Law LLC

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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Koprince Law LLC

The year is flying by.  Believe it or not, Thanksgiving is next week.  While my colleagues and I prepare to overdose on turkey and stuffing (and my personal Thanksgiving favorite–copious amounts of pie), our focus today is on the top stories that made government contracting headlines this week.

In this edition of SmallGovCon Week In Review, all nine bid protests filed against the TRICARE award were denied, the FAR Council proposes a rule to clarify how Contracting Officers are to award 8(a) sole source contracts in excess of $22 million, Set-Aside ALERT offers an in depth look at HUBZone set-asides in 2016, the Obama Administration’s government contracting Executive Orders may be reversed by President-Elect Trump, and much more.

  • All nine bid protests filed by health insurers who came out on the losing end of the Defense Department’s TRICARE awards have been denied. [Federal News Radio]
  • The General Services Administration will launch a cloud-based shared service contract-writing system that will offer federal agencies a turnkey, comprehensive contract writing and administrative solution beginning next year. [Nextgov]
  • The FAR Council has issued a proposed rule to clarify the guidance for sole-source 8(a) contract awards exceeding $22 million. [Federal Register]
  • Writing in Bloomberg Government, Tom Skypek offers four steps on how to turn around a failing contract. [Bloomberg Government]
  • As 2016 draws to a close, Set-Aside ALERT provides an in-depth look at where things stand with the SBA’s HUBZone program. [Set-Aside ALERT]
  • Federal IT executives and industry experts say between the election, expected slow or non-existent budget growth and uncertainty in leadership, most of the change will happen below the surface. [Federal News Radio]
  • According to one commentator, Donald Trump’s election is likely to provide federal contractors with one of the biggest items on their wish list: the reversal of most if not all of the Executive Orders President Barack Obama has directed at them over the past eight years. [Bloomberg BNA]
  • Federal CIOs are asking Congress for the authority to stop major IT procurements if they have concerns about cyber security. [fedscoop]
  • The VA has issued a solicitation notice for a 10 year, $25 billion, professional services contract known as VECTOR, which will be set aside for service-disabled veteran-owned small businesses. [Bloomberg Government]

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Koprince Law LLC

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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Koprince Law LLC

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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Koprince Law LLC

An agency isn’t required to cancel a small business set-aside solicitation if the agency learns that one of the small businesses upon whom the set-aside decision rested is no longer small.

In a recent bid protest decision, the GAO confirmed that an agency need not redo its “rule of two” determination when a potential small business competitor outgrows its size standard–even if it could effectively convert a particular solicitation into a “rule of one.”

The GAO’s decision in Synchrogenix Information Strategies, LLC, B-414068.4 (Sept. 8, 2017) involved an FDA acquisition for software licenses, maintenance and support and related services.  Before issuing the solicitation, the agency issued a request for information on FedBizOpps, seeking information from businesses regarding their interest in the procurement.

The FDA received three responses to the RFI from small businesses.  After evaluating those responses, the FDA concluded that it was reasonably likely to receive at least two or more offers from responsible small businesses.  Accordingly, the FDA issued the solicitation as a total small business set-aside.

The agency received two proposals by the original closing date, August 10, 2016.  After evaluating those proposals, the FDA awarded the contract to Lorenz International.  The unsuccessful offeror, GlobalSummit, then filed a GAO bid protest challenging the award.

In response, the agency took voluntary corrective action.  It asked both offerors to submit “a new full proposal.”  New proposals were due on May 15, 2017.  The new proposals were to include “all certifications, technical and business information” required by the solicitation.

In March 2017, Synchrongenix Information Strategies, LLC “purchased substantially all of GlobalSummit’s assets.”  The purchase created an affiliation between GlobalSummit and Synchrogenix, a large business. As a result, GlobalSummit was no longer small.

GlobalSummit asked that the FDA remove the certification requirement.  It explained that, at the time of its original proposal in August 2016, it had qualified as a small business.  However, because of the affiliation with Synchrogenix, it would no longer qualify as small if forced to re-certify in May 2017.

The FDA declined to remove the requirement.

Synchrogenix (presumably acting as successor-in-interest to GlobalSummit) filed a GAO bid protest.  Synchrogenix argued that the FDA was required to cancel the small business set-aside and reissue the solicitation as unrestricted because there was no longer a reasonable expectation of receiving two or more offers from small businesses.  Instead, Synchrogenix contended, the agency could only expect to receive one offer–from Lorenz.  Synchrogenix argued that proceeding with the acquisition would be tantamount to a de facto sole source award to Lorenz.

The GAO sought the SBA’s opinion.  The SBA weighed in on the FDA’s side, stating:

There is no requirement in the Small Business Act, the FAR, or SBA regulations, that an agency must redo its market research regarding the “rule of two” prior to requesting revised or newly submitted proposals during the course of a procurement or altogether cancel the solicitation if it becomes aware that only one responsible small business offer will be received in response to an amended solicitation. 

The SBA further explained “it is not uncommon that an agency becomes aware, over the course of a procurement, that it will receive only one revised offer from a small business concern.”  The SBA pointed out that small businesses “may drop out of a competition for a variety of reasons . . . such that there is only one responsible small business offeror remaining.”  In such a case, “the agency may make award to that firm, provided award will be made at a fair market price.”

The GAO found the SBA’s reasoning persuasive.  “As SBA advised in response to this protest,” GAO wrote, “there is no requirement in law or regulation that an agency must revisit” its rule of two determination when it becomes aware that it will only receive one offer from an eligible small business.  GAO concluded: [t]he fact that, during the course of the procurement, one of the two small business offerors is no longer capable of submitting a revised proposal, does not mean the procurement should be viewed as a de facto sole source procurement.”

The GAO denied the protest.

The Synchrogenix case makes the point that if an agency’s market research is sufficient to justify a set-aside, the agency need not adjust its determination if it later comes to realize that it will only receive one offer from a qualified small business.  In other words, it can be permissible for a “rule of two” set-aside to effectively turn into a “rule of one” as the acquisition proceeds.

Interestingly, it’s not clear to me that Synchrogenix was ineligible for the FDA solicitation in the first place.  Under the SBA’s regulations, size ordinarily is determined as of the date of an initial offer; GlobalSummit met that requirement in August 2016.  While there used to be a provision in the regulations allowing contracting officers to require recertifications in connection with certain amendments, that rule was eliminated a few years ago.  And although SBA’s regulations do call for a company to recertify its size if it is acquired by another entity, the SBA Office of Hearings and Appeals held, in Size Appeal of W.I.N.N. Group, Inc., SBA No. SIZ-5360 (2012), that “[t]his provision does not deal with the date for determining size for contract award,” but instead merely addresses whether the agency can count the award toward its small business goals.

It’s a complex area of law, but Sychrogenix might have had better luck if it had protested the FDA’s authority to require a size recertification–or if Synchrogenix had simply submitted an offer and forced the Contracting Officer to go through the SBA size protest process to determine whether Synchrogenix was eligible.

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Koprince Law LLC

Welcome back after a hopefully enjoyable long 4th of July weekend! Although this week is a shortened one, there was no shortage of news floating around the county.

This week’s SmallGovCon Week In Review looks at the number of suspensions and debarments of government contractors, a proposed penalty for Pentagon contractors trying to game the system, a case of fraud and much more.

  • Government contractors shouldn’t be celebrating that the number of suspensions and debarments dropped in fiscal 2015. [Federal News Radio]
  • The Federal Risk and Authorization Management Program rolled out the final version of the high impact baseline, a framework for authorizing third party vendors to host some of the government’s most sensitive data. [FederalTimes]
  • The National Labor Relations Board is preparing to report alleged labor law violations by government contractors. [Bloomberg BNA]
  • One of the biggest questions with the final Alliant 2 Unrestricted and Small Business RFPs is whether to team, but many contractors are finding the options presented in the final RFPs confusing. [Washington Technology]
  • One of the legislative proposals the Senate will debate this week would penalize Pentagon contractors that game the bid protest system. [FederalSmallBizSavvy.com]
  • The Strategic Sourceror explains what the Women-Owned Small Business Program is, and why businesses should become certified. [The StrategicSourceror]
  • A possible 20 year sentence could be handed down to a woman who accepted bribes in exchange for using her company as a “straw” contractor that allowed nonminority-owned firms to circumvent regulations for federally funded transportation projects. [MyCentralJersey.com]
  • A federal whistleblower lawsuit alleging that information technology companies duped the government in order to win money specifically set aside for small businesses has agreed to pay $5.8 million dollars. [Los Angeles Business Journal]

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Koprince Law LLC

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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Koprince Law LLC

The SBA has corrected a flaw in the profit-splitting provisions of its new joint venture regulations.

Under the corrected regulations, which became effective on December 27, all of the SBA’s joint venture regulations–those for small businesses, SDVOSBs, HUBZones, 8(a)s, and WOSBs–will require that each joint venturer receive profits commensurate with the work it performs.  The SBA’s revisions clear up an inconsistency between the 8(a) joint venture regulations and the regulations for the SBA’s other set-aside programs, and eliminates a potential disincentive for joint venturers to avail themselves of the protections of a formal legal entity such as a limited liability company.

Effective August 2016, the SBA overhauled its joint venture regulations.  Among the major changes, the SBA eliminated so-called “populated” joint ventures and made numerous additions and revisions to the regulations governing mentor-protege joint ventures, SDVOSB joint ventures, and joint ventures for other set-aside contracts.

For those of us whose day-to-day work involves drafting joint venture agreements, it soon became apparent that the profit-sharing provisions of the new regulations were flawed.  As I wrote in an October post on SmallGovCon, the SBA’s revised 8(a) joint venture regulation stated that all joint ventures must split profits based on each joint venturer’s work share.  But for mentor-protege joint ventures pursuing small business set-aside contracts, as well as for joint ventures pursuing SDVOSB, HUBZone and WOSB contracts, the regulations stated that a “separate legal entity” joint venture (e.g., an LLC) would split profits commensurate with each party’s ownership interest in the joint venture.  In these programs, only joint ventures formed as informal partnerships would split profits based on each party’s work share.

This led to an important inconsistency: as I pointed out in my October post, in order for a “separate legal entity” 8(a) mentor-protege joint venture to receive the exception from affiliation for a small business set-aside contract, the regulations required the joint venture to split profits based on ownership and based on work share.  It wasn’t clear how the joint venture could do both.

The inconsistency in the prior regulation discouraged 8(a) mentor-protege joint venturers from establishing an LLC or other separate legal entity: by choosing an informal partnership, the joint venturers could avoid the regulatory inconsistency.  But even for other joint ventures, the regulations created a disincentive to form a separate legal entity.  By forming an informal partnership, the non-managing member could perform up to 60% of the work and receive a commensurate share of the profits.  In contrast, in an LLC or other separate legal entity, the non-managing member could still perform up to 60% of the work, but could receive no more than 49% of the profits.

In the preamble to its correction, the SBA states that “it would not make sense to require a firm to receive 51% of the profits for doing only 40% of the work.”  The SBA explains that “SBA’s intent was for profits to be commensurate with the work performed by each member of the joint venture” for all of the set-aside programs, not just the 8(a) program.  The SBA then revises the regulations governing joint ventures for small business, HUBZone, SDVOSB, and WOSB set asides to provide that the joint venture agreement must contain a provision stating that the managing member “must receive profits from the joint venture commensurate with the work performed” by the managing member.

In any major regulatory overhaul, there will inevitably be flaws of some sort.  Kudos to the SBA for recognizing the problems with its joint venture profit-splitting requirements and acting quickly to correct those flaws.

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Koprince Law LLC

A “similarly situated entity” cannot be an ostensible subcontractor under the SBA’s affiliation rules.

In a recent size appeal decision, the SBA Office of Hearings and Appeals confirmed that changes made to the SBA’s size regulations in 2016 exempt similarly situated entities from ostensible subcontractor affiliation.

OHA’s decision in Size Appeal of The Frontline Group, SBA No. SIZ-5860 (2017) involved an Air Force solicitation for the alteration and fitting of uniforms.  The solicitation was issued as a small business set-aside under NAICS code 811490 (Other Personal and Household Goods Repair and Maintenance), with a corresponding $7.5 million size standard.

After evaluating proposals, the Air Force announced that DAK Resources, Inc. was the apparent successful offeror.  An unsuccessful competitor, The Frontline Group, then filed a size protest.  Frontline contended that DAK was affiliated with its subcontractor, Tech Systems Inc., under the SBA’s ostensible subcontractor affiliation rule.

The ostensible subcontractor affiliation rule provides that a prime contractor is affiliated with its subcontractor where the subcontractor is performing the “primary and vital” portions of the work, or where the prime is “unusually reliant” on the subcontractor.  However, in June 2016, the SBA amended the ostensible subcontractor regulation, 13 C.F.R. 121.103(h)(4), to specify that “[a]n ostensible subcontractor is a subcontractor that is not a similarly situated entity,” as that term is defined in 13 C.F.R. 125.1.

The SBA Area Office determined that the subcontractor, TSI, was a small business under NAICS code 811490.  Accordingly, the SBA Area Office found that TSI was a similarly situated entity, and exempt from being considered an ostensible subcontractor.  The SBA Area Office issued a size determination finding DAK to be an eligible small business.

Frontline filed a size appeal with OHA, challenging the SBA Area Office’s determination.

OHA noted that the SBA had amended the ostensible subcontractor affiliation rule in 2016 to exempt similarly situated entities.  OHA then wrote that “there is no dispute that DAK, the prime contractor, is small, and no dispute that the subject procurement was set aside for small businesses.”  Further, “DAK and TSI will perform the same type of work on this procurement, and no party contends that the subcontract would be governed by a different NAICS code or size standard than the prime contract.”

OHA determined that the SBA Area Office had correctly found TSI to be a similarly situated entity, exempt from consideration as an ostensible subcontractor.  OHA denied Frontline’s size appeal.

The Frontline Group confirms that the SBA’s regulatory exemption for similarly situated entities is now in effect.  When a subcontractor qualifies as a similarly situated entity, it is not an ostensible subcontractor.

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Koprince Law LLC

It’s a well-known aspect of federal contracting: if a contractor wishes to formally dispute a matter of contract performance, the contractor should file a claim with the contracting officer.

But if the contractor is working under a task or delivery order, which contracting officer should be on the receiving end of that claim—the one responsible for the order, or the one responsible for the underlying contract?

As a recent Civilian Board of Contract Appeals decision demonstrates, when a contractor is performing work under a Federal Supply Schedule order, a claim involving the terms of the underlying Schedule contract must be filed with the GSA contracting officer.

Consultis of San Antonio, Inc. v. United States, CBCA No. 5458 (March 31, 2017) involved an appeal relating to a task order award by the VA to Consultis under its GSA Federal Supply Schedule Contract, for various information technology services. During performance, one of Consultis’ employees raised concerns about wage rates, so the Department of Labor conducted an inquiry to determine the applicability of the Service Contract Labor Standards under the task order. The DOL found that, while the Service Contract Act was incorporated in Consultis’ GSA Schedule contract, the appropriate wage determinations were not. It therefore recommended that GSA and VA add them to the task order.

Both GSA and the VA initially declined to add the wage determinations to the task order. Some six months later, however, the VA’s contracting officer issued a unilateral modification that did so. About two months after that, Consultis requested a supplemental payment from the VA as a result of these wage determinations, saying that it would pay the increased wages as soon as the VA provided the payment. After additional correspondence, the VA’s contracting officer issued a “final decision” denying Consultis’ request, noting that compliance with the labor standards is a contractor’s responsibility. GSA’s contracting officer apparently was involved in this decision.

Consultis appealed this denial to the Civilian Board of Contract Appeals. But after a review of the appeal, the Board questioned whether the VA contracting officer’s final decision was sufficient to trigger the Board’s jurisdiction.

Specifically, the Board noted that “FAR 8.406-6 requires that disputes pertaining to the terms and conditions of contracts be referred to the schedule contracting officer for resolution . . . whereas disputes pertaining to performance may be handled by the ordering activity contracting officer.” The Board found that this provision required GSA’s contracting officer—not the VA’s—to decide Consultis’ claim:

Although the focus of this appeal is the applicability of the wage determinations to the task order contract, the resolution of that issue necessarily requires an examination of the terms and conditions of the schedule contract. . . . We are not persuaded that clauses mandated by statute in the FSS contract, including those mandating compliance with the SCLS, cannot be enforced if they are not expressly incorporated into the task order contract. The task order comes into existence under the schedule contract. . . . Whether the VA contracting officer merely made explicit (by issuing the modification) what the contract already requires is an issue of contract interpretation that is appropriate for consideration by the GSA contracting officer. At the very least, it is a mixed issue, involving both performance and contract interpretation, which . . . also requires a decision from the GSA contracting officer.

Because GSA’s contracting officer did not issue final decision, the Board ruled that it did not have jurisdiction to consider Consultis’ appeal. It therefore dismissed the appeal for lack of jurisdiction.

Though the principle that a contracting officer must first issue a final decision before a contractor may appeal that decision seems relatively straightforward, Consultis demonstrates that its real-world application is sometimes not. For disputes involving FSS contracts, contractors should consider which contracting officer—either the ordering agency’s or the GSA’s—should consider the claim; if the claim is not decided by the appropriate contracting officer, the Board will not have jurisdiction to consider any appeal.

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Koprince Law LLC

Last month, Steve wrote about a new Class Deviation rule adopted by the VA that, in effect, would limit the VA’s use of class waivers as part of its decision to restrict competition to SDVOSBs (or otherwise issue solicitations as sole source awards). But in an apparent contradiction to this Class Deviation rule, GAO recently denied a challenge to an SDVOSB set-aside decision for a manufacturing solicitation, based in large part on SBA’s adoption of a class waiver for the particular NAICS code.

Before delving into the facts of the protest decision, a brief background may be helpful:

The Veterans Benefits, Healthcare, and Information Technology Act of 2006 sought to provide SDVOSBs and VOSBs a leg-up in contracting opportunities at the VA. One of the main tools employed by Congress was a mandatory Rule of Two, which requires the VA to set-aside a solicitation if two or more SDVOSBs will submit an offer at a fair and reasonable price. The Supreme Court famously upheld the broad scope of this mandate in the Kingdomware case.  And as we’ve written, GAO will sustain a protest if the VA fails to follow this Rule (or doesn’t undertake reasonable market research).

Walker Development & Trading Group, B-414365 (May 18, 2017) considered the application of the Rule of Two from the opposite perspective: one of a non-SDVOSB challenging a VA solicitation seeking quotations for mobile cardiac outpatient telemetry, holter monitoring, and cardiokey devices for patient care. The solicitation was issued under a manufacturing NAICS code—334510 (Electrical and Electrotherapeutic Apparatus Manufacturing)—but the VA advised potential offerors that the SBA had issued a nonmanufacturer rule class waiver for that code.

After conducting market research that identified two interested and capable SDVOSB concerns, the VA set the competition aside for SDVOSBs. Walker Development, a non-SDVOSB, protested this restriction, saying that the market research was inadequate.

Considering this challenge, GAO began by noting the discretion contracting officers typically enjoy when deciding whether to set aside a procurement for SDVOSBs. “No particular method of assessing the availability of capable small businesses is required,” GAO wrote, but instead, “the assessment must be based on sufficient facts to establish its reasonableness.” If so, GAO will not question the decision to set aside the solicitation.

In making this determination, moreover, an agency does not have to first actually determine the responsibility of potential offerors. All that is required is that an agency “make an informed business judgment that there is a reasonable expectation of receiving acceptably priced offers from small business concerns that are capable of performing the contract.”

GAO found the VA’s market research to be adequate. The contracting officer conducted a review of prior acquisition history and searched various contracting databases (including VA’s vetbiz.gov), posted a sources sought notice, and emailed ninety-one different vendors about the procurement. After receiving responses, the VA concluded that at least two interested SDVOSBs would submit offers at fair and reasonable prices and, thus, set the solicitation aside.

Walker did not provide any basis to question that competition between these two firms would result in the award being made at a reasonable price. Instead, it said that the VA erred by not considering whether the SDVOSBs would meet the limitation on subcontracting and comply with the requirements of the nonmanufacturer rule.

As Steve recently wrote, to comply with the limitation on subcontracting in manufacturing contracts, SBA’s regulations require that the SDVOSB prime contractor must either (1) pay no more than 50% of the amount paid by the government to it to firms that are not similarly situated or (2) qualify as a nonmanufacturer (by representing that it will supply the product of a domestic small business manufacturer or processor unless a waiver is granted by the SBA).

Here, SBA granted a class waiver for the products at issue. GAO found this waiver to be determinative, writing that “[w]hen SBA issues a waiver of the nonmanufacturer rule, a firm can supply the product of any size business without regard to the place of manufacture.” Thus, GAO found “no merit to the protester’s contention that the agency’s market research failed to consider whether the firms identified had the capability to perform and could comply with the [nonmanufacturer] rule.”

GAO denied Walker Development’s protest.

Coming so close on the heels of the VA’s adoption of a Class Deviation to the VAAR, the Walker Development decision is quite interesting. The decision confirms SBA’s authority to grant a waiver of the nonmanufacturer rule and, when SBA does so, the waiver applies in the contest of an SDVOSB “Rule of Two” analysis. The VA’s Class Deviation, however, attempts to usurp this authority by reserving for its Heads of Contracting Activity the authority approve the use of a class waiver for a particular VA solicitation—strongly suggesting that the VA believes that it can simply ignore existing SBA class waivers in the Rule of Two analysis. This wouldn’t be the first time SBA and the VA butted heads on an SDVOSB contracting issue. Time (and further protests) will tell who is right.

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The period of performance under a government contract, measured in “days,” meant calendar days–not business days, as the contractor contended.

In a recent decision, the Armed Services Board of Contract Appeals applied the FAR’s general definition of “days” in holding that a contractor had not met the contract’s performance schedule.

The ASBCA’s decision in Family Entertainment Services, Inc., ASBCA No. 61157 (2017) involved an Army contract for grounds maintenance services at Fort Campbell, Kentucky and the surrounding area.  The contract was awarded to Family Entertainment Services, Inc. in May 2015.

(Side note: Family Entertainment Services apparently performed the contract under a “doing business as” name; IMC. That was probably a good call on the contractor’s part, because “Family Entertainment Services” doesn’t exactly conjure up mental images of landscaping).

The government subsequently issued a task order to FES.  The task order specified that mowing services would be completed every 14 days.  However, FES was unable to consistently provide the mowing services within 14 calendar days.

In August 2015, the government terminated a portion of the contract for convenience.  FES then filed a claim for $81,692.34.  FES argued, in part, that the government had not properly computed the performance schedule, which FES said should have been measured in business days, not calendar days.  The Contracting Officer denied the claim, and FES appealed to the ASBCA.

At the ASBCA, FES argued that the contract’s use of the term “days” was ambiguous, and should be meant to refer to business days.  The ASBCA disagreed.

The ASBCA noted that the contract included FAR 52.212-4 (Contract Terms and Conditions–Commercial Items).  That clause incorporates FAR 52.202-1 (Definitions), which states, in relevant part: “[w]hen a solicitation provision or contract clause uses a word or term that is defined in the Federal Acquisition Regulation (FAR), the word or term has the same meaning as the definition in FAR 2.101, in effect at the time the solicitation was issued . . . .”

FAR 2.101 succinctly says: “Day means, unless otherwise specified, a calendar day.”

Applying the FAR provisions in question, the ASBCA wrote that “there is only one reasonable way to interpret the contract.”  FES’s “opinion that ‘day’ should mean ‘work day’ is not a reasonable interpretation of the contract.”

The ASBCA denied the appeal.

The definition of “day” can make all the difference when it comes to various deadlines under which contractors must operate.  The FAR 2.101 definition doesn’t apply in every setting.  For example, FAR 33.101 includes some important nuances when it comes to protests and claims.  And, of course, the contractor and government can always contractually agree to a different definition, including a definition based on business days.

That said, oftentimes there is no other relevant FAR provision, and no agreed-upon contractual definition.  In those cases, as Family Entertainment Services indicates, the definition in FAR 2.101 will likely apply–and that means calendar days.

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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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A company bidding to replace an incumbent service contractor cannot presume incumbent workers will take major pay cuts without setting itself up for a potentially successful protest.

FAR 22.12 generally requires successor service contractors to give a right of first refusal to qualified employees under the previous contract. And even when these nondisplacement rules don’t apply, many offerors’ proposals tout their efforts to retain incumbent employees. But asking incumbent employees to take significant pay cuts–and expecting them to accept–is unreasonable and can torpedo a proposal. Case in point: GAO sustained a protest recently against an awardee who had proposed high retention rate of incumbent workers, but lower pay for those positions.

The GAO decision, A-P-T Research, Inc., B-413731.2 (Apr. 3, 2017) involved a NASA solicitation seeking a contractor to provide safety and mission assurance support services. A-P-T Research, Inc. was the incumbent contractor.

The solicitation envisioned awarding a single cost-plus-fixed-fee contract to the offeror judged the best value to the government. It asked offerors to propose costs related to five safety and mission assurance engineer labor categories, three specialist labor categories, and an analyst labor category. One of the evaluation factors asked offerors to specify an incumbent capture rate and to justify the methods used to achieve it. The same factor included an assessment of the employee compensation plan. The cost factor indicated that the government would perform a realism analysis.

Alphaport, Inc. submitted a proposal. Alphaport proposed to retain a large percentage of the incumbent workforce (the precise percentage was redacted from GAO’s public decision). Alphaport’s proposed direct labor rates were considerably lower than APT’s. In its final evaluation, NASA found that Alphaport’s most probable cost was $48.1 million, versus $57.0 million for APT.

NASA compared Alphaport’s proposed direct labor rates to date from salary.com and the Economic Research Institute. NASA determined that the rates were “within an average range (in some cases slightly below average)”. Although it initially expressed doubts about Alphaport’s ability to retain incumbent staff, NASA was satisfied with Alphaport’s explanation in discussions, and did not assign Alphaport a weakness for its total compensation plan.

NASA picked Alphaport for award on December 23, 2016, in part because of its lower-evaluated cost. APT filed a bid protest challenging, among other things, the evaluation of Alphaport’s compensation from both a technical factor standpoint and a matter of cost realism.

GAO agreed, finding that “the record contains no meaningful explanation of how the agency concluded that Alphaport would be able to retain . . . the incumbent employees at the compensation offered.” GAO continued:

Our review of the contemporaneous record here reveals only conclusory and general statements that the agency’s earlier concerns about the realism of Alphaport’s compensation were addressed during discussions.  Specifically, there is no explanation of how the agency has reconciled its earlier concerns about the apparent inconsistency between Alphaport’s claims that it would retain a high percentage of incumbent personnel, despite the significant decreases it had proposed in compensation.  The record does not, for example, suggest that NASA had identified specific reasons that SMA engineers would agree to lower-than-average compensation levels, such as the work being perceived as relatively simple, an abundance of eligible candidates in the market keeping compensation levels low, or counterbalancing fringe benefits.

GAO sustained the protest.

GAO’s decision in A-P-T Research is in keeping with a similar decision last year, in which GAO held that an offeror’s proposal to retain incumbent workers while asking them to take a pay cut was an obvious price realism concern. As both cases indicate, expecting professionals to stick around when their salaries are slashed, at least without a good explanation as to why the employees would accept those cuts, seems naive–and calls into question whether the offeror can deliver what was promised in the proposal.

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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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Circle October 1, 2o16 on your calendar: that’s when the SBA will begin accepting applications for its new universal small business mentor-protege program.

According to the SBA’s new website for the small business mentor-protege program, applications will only be accepted through the SBA’s new certify.sba.gov portal.  The SBA’s new website also has an overview on the small business mentor-protege program itself and a discussion of the eligibility requirements for the program.

For prospective mentors and proteges alike, there’s no time to waste in order to take immediate advantage of the new mentor-protege program.  Watch this space for additional information as the SBA makes it available.

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