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Koprince Law LLC

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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Koprince Law LLC

In a big victory for proponents of the 8(a) program, the Supreme Court of the United States has denied the Petition for Certiorari filed by Rothe Development, Inc.

Consequently, the decision of the Court of Appeals for the D.C. Circuit finding the statutes establishing 8(a) program to be constitutional will be allowed to stand.

For those of you who are new to the Rothe Development case, it is a long-running constitutional challenge to the SBA’s 8(a) Business Development program. Rothe argued that the statutes implementing the 8(a) program establish a racial classification in violation of the equal protect rights afforded by the Due Process clause of the Fifth Amendment. Rothe contended the statute should be struck down as unconstitutional, which would mean the end of the 8(a) program–or at least the 8(a) program as we know it.

Rothe Development has been making its way through the federal court system since 2015. In an earlier decision, the District Court for the District of Columbia upheld the 8(a) program despite subjecting the statutes to the Supreme Court’s most intense level of legal scrutiny.

Rothe subsequently appealed the decision of the Court of Appeals for the D.C. Circuit. As we covered, the D.C. Circuit concluded that a less demanding level of scrutiny applied, which the 8(a) statutes comfortably passed. Accordingly, the 8(a) statutes were allowed to stand.

After its loss at the D.C. Circuit, Rothe development filed a petition for Certiorari, which we also covered. A Petition for Certiorari is the formal process by which a party not entitled to an appeal as a matter of right may nevertheless request the Supreme Court decide its case. The Supreme Court, however, grants a very limited number of petitions each year.

Rothe Development’s Petition for Certiorari was not granted by the Supreme Court. As a result, the decision reached by the D.C. Circuit finding the 8(a) program to be constitutional will stand.

While Rothe Development ends with the 8(a) program’s survival, the decisions do leave the program open to further legal challenge. Most notably, the difference in legal scrutiny applied between the District Court and the Court of Appeals indicates that there may be more than one reasonable interpretation of the 8(a) programs statutes, which could result in further litigation down the road. Additionally, Rothe (apparently for strategic reasons), challenged only the underlying statutes–not the SBA’s regulations implementing them. A separate constitutional challenge to the regulations remains a possibility.

For now, however, the 8(a) program stands unscathed–and 8(a) supporters can breathe a big sigh of relief.

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Koprince Law LLC

An agency did not act improperly by allowing for oral final proposal revisions, rather than permitting offerors to submit written FPRs following discussions.

In a recent bid protest decision, the GAO held that–at least in the context of a task order awarded under FAR 16.505–an agency could validly accept oral revisions to offerors’ proposals.

The GAO’s decision in SSI, B-413486, B-413486.2 (Nov. 3, 2016) involved an Air Force solicitation seeking a contractor to provide enterprise language, regional expertise, and cultural instruction to the 1st Special Forces Command and Special Operations Forces Language Office.  The solicitation was open to holders of the U.S. Special Operations Command Wide Mission Support Group B multiple-award IDIQ.  The Air Force intended to award two task orders to a single vendor.

The Air Force received initial proposals from 12 vendors, including Mid Atlantic Professionals, Inc. d/b/a SSI.  In its initial evaluation, the Air Force assigned SSI’s proposal “unacceptable” ratings under two non-price factors.

The Air Force elected to open discussions with offerors.  The Air Force sent SSI the results of its initial technical evaluation and invited SSI to meet with the Air Force to provide oral responses and discuss the government’s concerns.

After meeting with SSI, the Air Force reevaluated SSI’s proposal and assigned SSI “good” and “acceptable” ratings for the portions of the proposal that were initially rated “unacceptable.”  However, after evaluating the remaining proposals, the Air Force made award to Yorktown Systems Group, Inc., which received similar non-price scores but was lower-priced.

SSI filed a protest challenging the award to YSG.  SSI alleged, in part, that the Air Force had acted improperly by failing to allow offerors the opportunity to submit written FPRs, and to lower their prices as part of written FPRs.  SSI contended that the Air Force was not allowed to accept oral proposal revisions.

The GAO noted that this acquisition was conducted under FAR 16.505, not under FAR 15.3, which governs negotiated procurements.  The GAO wrote that, under FAR 16.505 and the provisions of SSI’s underlying IDIQ contract, an offeror must be given “a fair opportunity to compete.”  However, “[t]here is no requirement in the contract that the agency solicit and accept written FPRs after conducting discussions.”  Additionally, “there is no indication in the record that the agency conveyed or suggested through its course of dealings with offerors that it intended to solicit written FPRs after the close of discussions.”

The GAO denied SSI’s protest.

The notion of an oral proposal revision seems odd, and probably wouldn’t be allowed in a negotiated procurement conducted under FAR 15.3.  But as the SSI case demonstrates, when an agency is awarding a task order under FAR 16.505, the agency can, in fact, allow for oral FPRs.

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Koprince Law LLC

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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Koprince Law LLC

So-called “common investments” affiliation under the SBA’s affiliation rules arises most frequently when individuals own common interests in at least two operating companies.  But common investments affiliation can also be based on common interests in real estate.

In a recent decision, the SBA Office of Hearings and Appeals held that the SBA had performed an inadequate size determination because the SBA Area Office asked the protested company about common investments in companies–but didn’t directly ask about common investments in real estate.

OHA’s decision in Size Appeal of Costar Services, Inc., SBA No. SIZ-5745 (2016) involved a NAVFAC solicitation for base operations support services.  The solicitation was issued as a small business set-aside under NAICS code 561210 (Facilities Support Services).

After evaluating competitive proposals, NAVFAC announced that Mark Dunning Industries, Inc. was the apparent awardee.  Costar Services Inc., an unsuccessful competitor, then filed a SBA size protest, alleging that MDI was affiliated with various other entities.

Among its allegations, Costar alleged that MDI’s owner, Mark Dunning, shared an identity of interest with Gregory Scott White under the common investments affiliation rule.  MDI contended, in part, that Mr. Dunning and Mr. White jointly owned interests in various real estate properties in Alabama.  Costar attached evidence supporting its contentions.  Costar argued that, because of the identity of interest, MDI was affiliated with companies controlled by Mr. White.

In the course of its size investigation, the SBA Area Office asked MDI whether “Mr. Dunning has any ownership interest or serve as a director or officer in any company with Mr. Scott White?”  MDI responded by stating that the only “business association” between the two men was joint ownership of White & Dunning, LLP, “which is an entity formed for the sole purpose of collecting rent for a single piece of property, a hunting cabin.”

The SBA Area Office determined that Mr. Dunning and Mr. White did not share an identity of interest under the common investments rule, and issued a size determination finding MDI to be an eligible small business for purposes of the NAVFAC procurement.

Costar filed a size appeal with OHA.  Among its contentions, Costar argued that the SBA Area Office had performed an incomplete investigation of the potential for common investments affiliation between Mr. Dunning and Mr. White.

OHA agreed.  It wrote that “[t]he Area Office did not directly inquire into whether Messrs. Dunning and White have common investments in entities that are not companies, nor ask MDI specifically to address” the Alabama properties identified by Costar.  OHA stated that the SBA Area Office had improperly accepted MDI’s responses “without further inquiry,” even though MDI’s representation that Mr. Dunning and Mr. White had no business relationship except their joint ownership of White & Dunning LLP “appear inconsistent with the evidence submitted by” Costar.  OHA granted Costar’s size appeal and remanded the matter to the SBA Area Office for a more thorough investigation of the potential identity of interest between Mr. Dunning and Mr. White.

Costar Services size appeal demonstrates, common investments affiliation need not be based on shared interests in operating companies.  Instead, as OHA suggested, such affiliation can also be based on shared investments in real estate.


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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

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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Koprince Law LLC

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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Koprince Law LLC

In its evaluation of past performance, an agency was permitted to disregard a past performance reference prepared by an offeror’s sister company–which also happened to be in line for a subcontracting role.

In a recent bid protest decision, the GAO upheld the agency’s determination that the sister company’s reference was “inherently biased” and need not be considered in the agency’s past performance evaluation.

The GAO’s decision in PacArctic, LLC, B-413914.3; B-413914.4 (May 30, 2017) involved a DoD Washington Headquarters Services solicitation for advisory and assistance services.  The solicitation, which was set-aside for 8(a) participants, called for the award of a single IDIQ contract.

Proposals were to be evaluated on a best value basis, considering three factors: technical capability, past performance, and price. With respect to past performance, the agency was to evaluate recent and relevant past performance.  The solicitation required offerors to submit past performance questionnaires from their customers for evaluation.

PacArctic, LLC submitted a proposal.  In its proposal, PacArctic included a PPQ completed by the president of PacArctic’s sister company, which shared “common ownership and control” with PacArctic.  The sister company, which was the incumbent contractor, said that PacArctic had performed subcontract work on the incumbent contract.  The sister company’s president rated PacArctic’s past performance as “exceptional.” PacArctic proposed the sister company as one of its subcontractors for the project.

In its evaluation of past performance, the agency elected not to consider the sister company’s PPQ. The agency explained that, because the companies shared common ownership, and because the sister company would be a subcontractor to PacArctic, the sister company was “inherently biased” in PacArctic’s favor.

The agency assigned PacArctic a “Moderate Confidence” past performance score.  The agency then awarded the contract to a competitor, which had received a “High Confidence” score.

PacArctic filed a GAO bid protest.  Among its arguments, PacArctic contended that it was improper for the agency to ignore the sister company’s PPQ.  PacArctic pointed out that nothing in the solicitation precluded a sister company from serving as a past performance reference.

The GAO agreed that the RFP did not prevent a sister company from serving as a reference.  Nevertheless, under FAR 15.305(a)(2)(i), the agency was to consider the “source of the information” as part of its evaluation.  The GAO continued:

Here, where the source of the PPQ was PacArctic’s sister company, which was proposed as a subcontractor in PacArctic’s proposal, we find that the agency reasonably concluded that the PPQ lacked sufficient credibility, given the sister company’s obvious stake in the evaluation.  Accordingly, we find nothing unreasonable regarding the agency’s decision to disregard the PPQ.

The GAO denied PacArctic’s protest.

PacArctic is a subsidiary of an Alaska Native Corporation.  It’s not uncommon for companies falling under the same ANC, tribal, or NHO umbrella to work together, as PacArctic and is sister company did on the incumbent contract.  Even outside of the ANC, tribal and NHO context, many small businesses have affiliates or close working relationships with other entities.  For contractors like these, it’s worth remembering that in a past performance evaluation, the “source of the information” must be considered.  As PacArctic demonstrates, when the source is a sister company, other affiliate, and/or proposed subcontractor, the agency may disregard the information provided.

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Koprince Law LLC

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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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

This is it: the 1,000th SmallGovCon post.  And if you’re reading this, you are a big reason why we’ve hit such a major milestone in less than five years.

Thank you, SmallGovCon readers.

Before I launched SmallGovCon, I thought it would be a good idea to read a bunch of other legal blogs, just to get a sense of how others were doing it.  A few hours in, and I was ready to beat my head against the nearest wall.  While, in fairness, a few of the blogs were quite good, most of them were pretty darn rough.  These not-so-great blogs proved quite inspirational, however: I figured out what annoyed me about them, and resolved to do the exact opposite.

First things first: most of these legal blogs were chock full of unnecessary legalese, arcane Latin phrases, cumbersome in-text citations, and the like.  Sure, we lawyers spend three years in law school learning to read this stuff, but to a regular person, there’s not a whole lot of difference between Legalese and Klingon.  I decided that, because SmallGovCon‘s intended audience was smart government contractors and acquisition professionals–not Ruth Bader Ginsburg–I would write SmallGovCon in plain English.  (And if you are into random jargon, well, there are other websites for that).

The next thing I noticed was that most of these blogs suffered from a serious lack of personality.  Were the authors actual human beings, or jargon-spouting lawyer robots?  Sometimes, it was hard to tell.  I happen to own this shirt, which expresses an important fact about lawyers: we’re people!  Seriously!  In honor of my membership in the human race, I decided that I occasionally would subject SmallGovCon‘s readers to random musings about things near and dear to my heart, like my kids and the Chicago Cubs.  But beyond that, I decided that SmallGovCon wouldn’t be afraid to express a point of view, like we did throughout our coverage of the Kingdomware saga.

During my “blog due diligence,” it also quickly became clear that many of these blogs were updated about as often as the Cleveland Browns make the playoffs.  That is to say, infrequently.  It’s hard to imagine becoming a go-to website in any field–much less a rapidly-changing field like government contracts law–without publishing often.  Would you visit a website with a tagline like “Your Seasonal Guide to a Few Random Things Happening in Government Contracts”?  Yeah, me neither.  So I decided to publish frequently.

Due diligence complete, I launched the blog in late May 2012.  One big question remained: would anyone read it?  Was there an audience for a niche blog on government contracts law?

Hundreds of thousands of page views later, I’ve got my answer.  But the feedback that matters most isn’t from Google Analytics.  It’s from the readers I meet at industry events across the country, who approach me–completely unsolicited–to say how much they enjoy the blog and our free electronic newsletter.  It’s from the readers who take the time to email me to thank me for a particular post, or ask a follow-up question.  It’s from my many LinkedIn connections, who frequently comment on blog posts and spark insightful discussions.  Thanks to you, dear readers, I know that SmallGovCon serves an important role in the procurement community–and that’s what matters most to me.

Of course, SmallGovCon has grown and changed throughout the last several years, too.  My fantastic colleagues at Koprince Law LLC have become co-authors, which has allowed us to broaden our coverage.  We added our “Week In Review” feature to help update readers on important government contracting news.  We recently kicked off our GovCon Voices series to offer perspectives from non-attorney thought leaders.  I’m proud of SmallGovCon, but we’re not resting on our laurels.  My colleagues and I will continue to work to make the site even better.

The first 1,000 posts have come quickly.  Thank you very much for reading.  I hope you’ll stick with us for the next 1,000.

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Koprince Law LLC

This story is about a glider, a balloon, the planet Venus, and Titan, the largest moon of Saturn. This subject matter is the fabric of the universe, but the lesson it teaches is as mundane as linen sheets.

A NASA Small Business Innovation Research offeror cannot always wait for a debriefing to file a GAO bid protest, because if it does, it may run the risk of the protest grounds being untimely.

In general, it often may be good practice for an unsuccessful offeror to wait to file a GAO bid protest until after its debriefing. It’s an arcane area of the law, but under the right circumstances, waiting for a debriefing can allow the protester to gather more ammunition to support its case, and (again, under the right circumstances) the protest nevertheless will be timely if filed within 10 days of the debriefing.

However, according to GAO, those “right circumstances” don’t include NASA SBIR procurements. An aerospace company found this out the hard way in Global Aerospace Corp., B-414514 (July 3, 2017).

Global Aerospace protested a NASA solicitation that was seeking, among other things, research and development proposals for vehicles capable of conducting scientific research on either Venus or Titan (easily the coolest-sounding project I’ve ever blogged about). Before we dig into the details of the case, a quick word about the SBIR program: The purpose of the program is to encourage the participation of small businesses in federally funded research and development. The program is codified at section 9 of the Small Business Act, 15 U.S.C. § 638. As part of the program, participating agencies hold some of their R&D budgets in reserve to fund small business projects.

SBIR contracts, or grants, have three phases. The first provides funding for a company to determine if its proposed project has merit and is feasible. If phase I is successful, the firm may be invited to apply for phase II, which involves more funding and a chance to develop the concept. After phase II, the firm is supposed to obtain non-SBIR funding either from the agency or the private sector to commercialize the project. That’s phase III.

Global Aerospace’s SBIR project began in November 2015, when NASA published a solicitation that included a variety of R&D topics. One topic was “Spacecraft and Platform Subsystems.” It included the subtopic “Terrestrial and Planetary Balloons.” The subtopic explained that NASA was seeking a vehicle of some type for exploration of Venus or Titan. The Venus explorer had to go up and down. The Titan explorer had to go up and down, and move horizontally.

Global Aerospace proposed a glider for Titan exploration. One of its competitors, Thin Red Line USA of Houston, Texas, proposed a balloon. Both proposals were selected for phase I funding.

The award of the phase I contract also served as the request for proposal for phase II. The phase II evaluation was quite complicated.

First, NASA had peer reviewers evaluate both proposals and rank them in a group of all along with all other proposals received for the spacecraft topic, including those from large businesses. The peer reviewers ranked the glider first in the Venus/Titan subtopic and 7th in the spacecraft topic. The balloon ranked second in the Venus/Titan subtopic and 29th overall. NASA did a separate peer review of commercialization potential and gave the glider an “average” and the balloon a “below average.”

The peer reviewers recommended that both the glider and the balloon receive phase II funding. But that was not the end of the evaluation. The next step was for the projects to head to the NASA field center with expertise in the subject matter. The glider, the balloon, and 30 other proposals, went to the Jet Propulsion Laboratory. JPL’s evaluation included a slightly different mandate. It was to review the proposals for technical and commercial merit, and to consider NASA’s priorities and other concerns.

JPL saw the balloon much more favorably. It found it a “simple but robust design” that “would be applicable to both Venus and Titan atmospheric exploration missions, as well as other planetary bodies” and determined it could enable a low-risk exploration mission shortly after completion of phase II. It ranked the balloon ninth (among an unknown total, but at least 30) and designated it high priority. The glider, on the other hand, was ranked 23rd (medium priority).

The evaluation continued from there. The next step was evaluation by the Science Mission Directorate, which was reviewing and prioritizing a larger group of phase II proposals. The SMD reviewed 108 proposals, ranked all 108, and even though it only had funding for 48, recommended funding the top 65 to the Source Selection Official. The SSO issued a memorandum on March 1, 2017, identifying 133 projects (SBIR and otherwise) that NASA had selected for contract negotiations.

When the dust cleared, the glider was on the outside looking in and the balloon was funded.

Global Aerospace, which had proposed the glider, asked for a debriefing. NASA provided one on March 16. Global Aerospace protested the decision on March 27 (within 10 days of the debriefing, as “days” are defined in the GAO’s Bid Protest Regulations, because the 26th was a Sunday) challenging the evaluation of its glider project and the Thin Red Line balloon project. Global Aerospace argued, in part, that the balloon was ineligible for SBIR funding because of the alleged use of a Canadian subcontractor during phase I, and the alleged intent to do so again in violation of the phase II solicitation’s prohibition on R&D outside the United States.

NASA responded that Global Aerospace’s allegations regarding the balloon were untimely. NASA asked the GAO to dismiss this aspect of Global Aerospace’s protest.

Under the GAO’s Bid Protest Regulations, the base rule is that any protest ground (other than to the terms of the solicitation) must be brought within 10 days of when the protester knew or should have known the basis. But there is an important, and frequently used, exception: when a protest challenges a procurement “conducted on the basis of competitive proposals under which a debriefing is requested, and when requested, required,” the initial protest “shall not be filed before the debriefing date offered to the protester, but shall be filed not later than 10 days after the date on which the debriefing is held.”

In other words, when the debriefing exception applies, a protester can base a challenge on items it knew more than 10 days before the debriefing was given–so long as the protest is filed within 10 days of the debriefing. Global Aerospace relied on this exception in filing its challenge to the funding of the balloon. But did the exception apply?

Digging through NASA’s procurement regulations, GAO found that “a competitive selection of research proposals resulting from a general solicitation and peer review or scientific review (as appropriate) solicited pursuant to section 9 of the Small Business Act”–also known as the SBIR program–is conducted on the basis of “other competitive procedures” not “on the basis of competitive proposals.” Thus, GAO concluded, “we find that this SBIR procurement was not conducted on the basis of ‘competitive proposals’ as contemplated by 4 C.F.R. § 21.2(a)(2).”  Because Global Aerospace had known (or should have known) of the Canadian subcontracting allegation more than 10 days before the protest was filed, GAO dismissed this aspect of the protest.

Global Aerospace addresses a nuanced question (the difference between “competitive proposals” and “other competitive procedures”), but it’s an important holding for would-be NASA SBIR contractors. As the decision demonstrates, in a NASA SBIR procurement, a protester cannot rely on the debriefing exception to the GAO’s timeliness rules. Instead, with the exception of protests challenging solicitation improprieties, the GAO’s standard 10-day rule will apply.

As for Global Aerospace, it lost the battle but won the war. Although the GAO dismissed the allegations involving the balloon, Global Aerospace also protested NASA’s evaluation of its own proposal, and those allegations were timely. GAO found that NASA had treated the glider as though it was designed to explore Venus, Titan, and other planetary bodies, when it was clearly designed only for Titan. It sustained the protest and recommended a new SMD review.

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Koprince Law LLC

What goes around, comes around.

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

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

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

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

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

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

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

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

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

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Koprince Law LLC

An offeror with a “relatively weak proposal” can nonetheless file a size protest challenging the small business eligibility of the prospective awardee, provided that the protester was not found technically unacceptable or otherwise incapable of being selected for award.

In a recent size appeal decision, the SBA Office of Hearings and Appeals held that the mere fact that the protester was evaluated as “less than satisfactory” on four out of five non-price factors did not justify dismissing the protester’s size protest for lack of standing.

OHA’s decision in Size Appeal of TMC Global Professional Services, SBA No. SIZ-5792 (2016) involved a DOE NNSA solicitation for the Design, Integration, Construction, Communication, and Engineering 2 (DICCE2) procurement in support of DOE’s nuclear smuggling detection and deterrence efforts.  The solicitation was issued as a small business set-aside under NAICS code 237990 (Other Heavy and Civil Engineering Construction), with a corresponding $36.5 million size standard.

The solicitation called for a “best value” trade-off, under which DOE would consider cost and five non-cost factors.  For four of the non-cost factors, DOE was to assign an adjectival rating of Excellent, Good, Satisfactory, or Less than Satisfactory.  The fifth non-price factor, Past Performance, was to be assigned an adjectival rating of Exceptional, Very Good, Marginal, Unsatisfactory, or Neutral.  In addition to setting forth this ratings system, the solicitation stated that “[a] proposal will be eliminated from further consideration if the proposal is so grossly deficient as to be totally unacceptable on its face or the Offeror does not meet any Pass/Fail criteria.”

TMC Global Professional Services submitted a proposal.  In its evaluation, DOE assigned TMC’s proposal “Less Than Satisfactory” ratings for the first four non-cost factors and a “Neutral” rating for past performance.  However, DOE did not rate TMC as unacceptable or exclude TMC from the competition.  DOE named two competitors as the apparent awardees.

After receiving a pre-award notification, TMC filed a size protest challenging the small business eligibility of one of the awardees.  TMC asserted that the awardee, Tech 2 Solutions, was ineligible because of various alleged affiliations.

The SBA Area Office asked the DOE Contracting Officer to clarify whether TMC “has a reasonable chance to be selected for award” if its size protest were successful.  The Contracting Officer responded that, because TMC was found “Less Than Satisfactory” in four criteria, TMC was not considered for award “when compared to the other offerors’ superior proposals.”

After receiving this response, the SBA Area Office dismissed TMC’s protest for lack of standing.  The Area Office wrote that, according to the Contracting Officer, TMC would not have a reasonable chance of receiving the award if it prevailed in its size protest.  The SBA Area Office reasoned that the purpose of the SBA’s size protest system is to “give standing to those concerns whose successful challenge would enable them to compete for award.”

TMC appealed to OHA.  TMC argued that the SBA erred by dismissing the size protest, and asked OHA to remand the matter for a full size determination of the awardee.

OHA wrote that under the SBA’s regulations, a size protest may be filed by “any offeror that the contracting officer has not eliminated from consideration for any procurement-related reason, such as non-responsiveness, technical unacceptability, or outside the competitive range.”

In this case, “although DOE rated [TMC’s] proposal ‘Less than Satisfactory’ for four of the evaluation factors, such a rating does not necessarily connote that the proposal was technically unacceptable.”  Rather, under the solicitation’s evaluation scheme, “a ‘Less than Satisfactory’ rating indicated that the proposal contained ‘weaknesses that outweigh strengths,’ as opposed to ‘strengths and weaknesses that are generally offsetting,’ which would be needed in order for the proposal to achieve a ‘Satisfactory’ rating.”  And although the solicitation provided that DOE could eliminate an offeror from consideration, DOE “did not eliminate [TMC’s] proposal from the competition and did not discontinue its evaluation of [TMC’s] proposal.”

OHA continued:

The CO’s remark that [TMC] ‘would not have a reasonable chance’ to be selected for award does not compel a contrary result.  Read in context, the CO merely opined that [TMC’s] proposal was unlikely to be chosen ‘when compared to the other offerors’ superior proposals.’  In other words, DOE evaluated proposals and selected the offerors that, in DOE’s judgment, had the strongest proposals.  It does not follow, though, that [TMC] was excluded from the competition or was ineligible for award, simply because [TMC] ultimately was unsuccessful.  Indeed, OHA has recognized that an unsuccessful offeror with a relatively weak proposal still does have standing to protest, if the offeror was not excluded from the competition and could be selected for award if the apparent awardee were disqualified as a result of a size protest.

OHA granted TMC’s size appeal and remanded the case to the SBA Area Office for a full size determination.

There is a common misconception that, in order to file a viable size protest, the protester must be “next in line” for award, or at least–as the SBA Area Office in this case seemed to believe–likely to win the contract if the size protest is successful.  But as the TMC Global Professional Services size appeal demonstrates, the SBA’s size protest regulations don’t impose such requirements.  So long as a company submitted a proposal and was not eliminated from consideration, the company likely will have standing to file a size protest, even if the company’s proposal was “relatively weak.”

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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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Koprince Law LLC

I’ve been spending quite a bit of time on the West Coast lately: I started the week in San Diego as a speaker at the APTAC’s Spring 2017 Training Conference and after a few days in the office will be heading back on the road to present at the 2017 SAME Small Business Symposium in Bremerton, WA. If you will be attending please come say hello!

Before I head back West, it’s time for our weekly look at comings and goings in the world of federal government contracting.  In this week’s SmallGovCon Week In Review, a business owner pleads guilty to defrauding more than 1,000 would-be contractors in a sleazy registration scheme, the GSA’s Alliant 2 unrestricted contract is moving forward, a government official goes on the record as stating that some contractors are “kicking butt,” and much more.

  • Government agencies are paying out millions of dollars to contractors that violate federal labor laws, says government watchdog. [FederalTimes]
  • The GSA’s Transactional Data Reporting program is supposed to eliminate the need for contractor-supplied price and discounting information but there is widespread anecdotal evidence to show that this is not happening. [Federal News Radio]
  • More GSA news: the Assisted Acquisition Services has found itself moving away from IT and into professional services. [Federal News Radio]
  • A national counterintelligence chief gave a pat on the to the contractors who are “kicking butt” in helping agencies head off insider threats. [Government Executive]
  • DHS’s acquisition processes are improving, according to a new GAO audit. [Nextgov]
  • The Alliant 2 unrestricted acquisition is moving forward: GSA has reached the source selection phase and will soon be contacting bidders to verify certain information. [FederalTimes]
  • A sleazy “government contracts registration” scheme has resulted in a guilty plea from a defendant accused of defrauding more than 1,000 would-be contractors. [United States Department of Justice]
  • A small-business advocate has won a day in court with Pentagon attorneys to argue whether the DOD should release internal documents that the plaintiff argues will reveal a government bias against small defense contractors. [Government Executive]

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A former owner and officer of a large business has pleaded guilty to conspiracy charges stemming from an illegal pass-through scheme.

According to a Department of Justice press release, Thomas Harper not only conspired to evade limitations on subcontracting, but obstructed justice during a SBA size protest investigation of his company’s relationship with a putative small businesses.

The DOJ press release states that Harper is the former owner and officer of MCC Construction Company.  Between 2008 and 2012, MCC entered into an arrangement with two 8(a) companies.  Under the arrangement, these companies were awarded set-aside contracts “with the understanding that MCC would, illegally, perform all of the work.”  The scheme was successful: MCC ultimately performed 27 government contracts worth $70 million.

During the relevant time period, the GSA filed a size protest with the SBA, arguing that one of the 8(a) companies was affiliated with MCC.  Then, Harper and others “took steps to corruptly influence, impede, and obstruct the SBA size determination protest by willfully and knowingly making false statements to the SBA about the extent and nature of the relationship between MCC and one of the companies.”

Earlier this year, MCC pleaded guilty to conspiracy charges and agreed to pay $1,769,924 in criminal penalties and forfeiture.  Now, as part of his guilty plea, Harper has personally agreed to pay $165,711 in restitution.  Harper also stands to serve 10 to 16 months in prison under current federal sentencing guidelines.

The limitations on subcontracting are a cornerstone of the government’s small business set-aside programs.  After all, there is no public good to be served if a small business essentially sells its certification and allows a large company like MCC to complete all of the work on a set-aside contract.  Cases like that of Harper and MCC show that the SBA and DOJ are serious about cracking down on illegal pass-throughs.  Hopefully, prosecutions like these will give second thoughts to others who might be tempted to break the law.

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Koprince Law LLC

I recently had the pleasure to discuss important government contracting legal updates and their effects on small businesses, at the 11th Annual Veterans Business Conference at Fort Bliss (in El Paso). The Contract Opportunities Center did a fantastic job organizing the conference, which brought together small businesses and government agencies for a wide-ranging discussion on government contracting. My presentation discussed many of the topics we’ve been following at SmallGovCon, including the SBA’s new small business mentor-protégé program, changes to the limitation on subcontracting, and, of course, the Supreme Court’s Kingdomware decision.

I also enjoyed meeting many of the small business owners and government representatives who attended the event. If you attended the conference, it would be great to hear from you.

Thanks to the COC for a great event—I hope to see you again next year!

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Koprince Law LLC

The woman-owned small business program is in the midst of major changes: from the addition of sole source authority, to lingering questions about what the heck the SBA’s plan is to address the elimination of WOSB self-certification.

I recently joined host “Game Changers” podcast host Michael LeJune of Federal Access for an in-depth discussion of recent WOSB program changes, and where the WOSB program goes from here.  Click here to listen to the podcast, and visit the Game Changers SoundCloud page for more great discussions with government contracting thought leaders.

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Koprince Law LLC

While we patiently await the Supreme Court’s pending decision in Kingdowmware Technologies, Inc. v. United States, there is still plenty happening in the world of government contracting.

This week’s edition of SmallGovCon Week In Review is packed with important news and commentary, including stories on the Army looking to end its ‘use it or lose it’ budgeting, the continued push for category management, a sneaker company looking to nix an exemption in the Berry Amendment, allegations of SDVOSB fraud, and much more.

  • The VA’s chief acquisition officer says that a new acquisition program management framework will be rolled out this summer. [Federal News Radio]
  • The GAO is warning that CIOs in various agencies are undercutting the usefulness of the federal IT dashboard that is meant to offer feds and the public alike a way to keep tabs on how investments are likely to proceed. [FCW]
  • As part of a directive set to take effect July 1, the Army is telling all of its major commands that they cannot cut a program’s funding just because it didn’t spend all of its money the year before. Will this directive help address the persistent “use it or lose it” problem associated with federal contracting? [Federal News Radio]
  • Large and small companies alike are facing the loss of their GSA Schedule 75 contracts, as the GSA doesn’t plan on accepting new offers or renewing current Schedule holders’ contracts for at lease another nine months. [Federal News Radio]
  • In the ongoing debate over category management, one commentator argues that category management is “good news for American taxpayers.” [FCW]
  • President Obama has threatened to veto the 2017 NDAA, in part because of the bill’s acquisition reforms, many of which have support in the contracting community. [Government Executive]
  • Who says sneaker wars only happen in basketball? New Balance is looking to become the sneaker brand of the U.S. Military by lobbying to remove a Berry Amendment exception. [Government Executive]
  • An SDVOSB that was awarded a $3 million contract in the wake of the Joplin, Missouri May 2011 tornado has been indicted for allegedly passing-through the work to a non-SDVOSB and splitting the profits with that company. [KZRG]

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Koprince Law LLC

The 2017 National Defense Authorization Act makes some important adjustments to the criteria for ownership and control of a service-disabled veteran-owned small business.

The 2017 NDAA modifies how the ownership criteria are applied in the case of an ESOP, specifies that a veteran with a permanent and severe disability need not personally manage the company on a day-to-day basis, and, under limited circumstances, permits a surviving spouse to continue to operate the company as an SDVOSB.

As I discussed in a separate blog post last week, the SBA and VA currently operate separate SDVOSB programs, and each agency has its own definition of who qualifies as an SDVOSB.  The 2017 NDAA consolidates these definitions by requiring the VA to use the SBA’s criteria for ownership and control.

In addition to consolidating the statutory definitions, the 2017 NDAA makes three important changes to the ownership and control criteria themselves.

First, the 2017 NDAA specifies that stock owned by an employee stock ownership plan, or ESOP, is not considered when the SBA or VA determines whether service-connected veterans own at least 51 percent of the company’s stock.  This portion of the 2017 NDAA essentially overturns a 2015 decision by the SBA Office of Hearings and Appeals, which held that a company was not an eligible SDVOSB because the service-disabled veteran did not own at least 51% of the company’s ESOP class of stock. (The Court of Federal Claims ultimately upheld OHA’s decision later that year).

Second, the 2017 NDAA continues to provide that “the management and daily business operations” of an eligible SDVOSB ordinarily must be controlled by service-disabled veterans.  However, the 2017 NDAA states that if a veteran has a “permanent and severe disability,” the “spouse or permanent caregiver of such veteran” may run the company.  This provision is very similar to the one currently used by the SBA in its regulations; the VA does not currently have a provision whereby a spouse or permanent caregiver may operate an SDVOSB.

But Congress goes a step beyond the SBA’s current regulations.  In a separate paragraph, the 2017 NDAA states that a company may qualify as an SDVOSB if it is owned by a veteran “with a disability that is rated by the Secretary of Veterans Affairs as a permanent and total disability” and who is “unable to manage the daily business operations” of the company.  In such a case, the statute does not specify that the company must be run by the spouse or permanent caregiver.  In other words, for veterans with permanent and total disabilities, the statute appears to allow control by others, such as (perhaps) non-veteran minority owners.  Historically, the SBA and VA have been very skeptical of undue control by non-veteran minority owners, so it will be interesting to see how the agencies interpret and apply this new statutory provision.

Third, the 2017 NDAA states that a surviving spouse may continue to operate a company as an SDVOSB when a veteran dies, provided that: (1) the surviving spouse acquires the veteran’s ownership interest; (2) the veteran had a service connected disability “rated as 100 percent disabling” by the VA, or “died as a result of a service-connected disability” and (3) immediately prior to the veteran’s death, the company was verified in the VA’s VetBiz database.  When the three conditions apply, the surviving spouse may continue to operate the company as an SDVOSB for up to ten years, although SDVOSB status will be lost earlier if the surviving spouse remarries or relinquishes ownership in the company.

This provision is very similar to the one currently found in the VA’s regulations.  At present, the SBA does not have any provisions whereby a surviving spouse can continue to operate an SDVOSB.

That said, the statutory provision–just like the current VA regulation–is quite narrow.  In my experience, there is a common misconception that a surviving spouse is always entitled to continue running a company as an SDVOSB.  In fact, a surviving spouse is only able to do so when certain strict conditions are met.  In many cases, the veteran in question was not 100 percent disabled and didn’t die as a result of a service-connected disability (or the surviving spouse is unable to prove that the service-connected disability caused the veteran’s death).  And in those cases, the surviving spouse is unable to continue claiming SDVOSB status, both under the VA’s current rules and the 2017 NDAA.

2017 NDAA: The National Defense Authorization Act for Fiscal Year 2017 has been approved by both House and Senate, and will likely be signed into law soon. It includes some massive changes as well as some small but nevertheless significant tweaks sure to impact Federal procurements in the coming year. For the next few days, SmallGovCon will delve into the minutia to provide context and analysis so that you do not have to. Visit smallgovcon.com for the latest on the government contracting provisions of the 2017 NDAA.  

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Koprince Law LLC

The 2017 National Defense Authorization Act will require the GAO to issue a report about the number and types of contracts the Department of Defense awarded to minority-owned and women-owned businesses during fiscal years 2010 to 2015.

If the 2017 NDAA is signed into law, the GAO would be required to submit its report within one year of the statute’s enactment.

The 2017 NDAA requires the GAO to identify minority-owned and women-owned businesses using the categories identified in the Federal Procurement Database System. While this study will not look exclusively at minority-owned and women-owned small businesses, it is worth noting that the Small Business Act establishes a goal that federal executive agencies, including the DoD, award 5 percent of the total value of its prime contracts to women-owned small business, and 5 percent to Small Disadvantaged Businesses, which include many minority-owned firms. The results of GAO’s study under the 2017 NDAA may have the potential of impacting these set-aside goals as well.

If the President signs the NDAA in the coming weeks, the GAO’s report may be issued around this time next year. It will be interesting to see what changes, if any, await minority-owned and women-owned businesses based on the GAO’s findings.

2017 NDAA: The National Defense Authorization Act for Fiscal Year 2017 has been approved by both House and Senate, and will likely be signed into law soon. It includes some massive changes as well as some small but nevertheless significant tweaks sure to impact Federal procurements in the coming year. For the next few days, SmallGovCon will delve into the minutia to provide context and analysis so that you do not have to. Visit smallgovcon.com for the latest on the government contracting provisions of the 2017 NDAA.

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Koprince Law LLC

The increase to DoD’s micro-purchase threshold mandated by the 2017 National Defense Authorization Act is now in effect.

A Class Deviation issued earlier this month provides, effective immediately, that the DoD micro-purchase threshold is $5,000 for many acquisitions.

The new micro-purchase threshold is $1,500 higher than the standard $3,500 micro-purchase threshold.  But there are a few exceptions.

The micro-purchase threshold for certain DoD basic research programs and science and technology reinvention laboratories increases to a whopping $10,000.  However, micro-purchase thresholds below $5,000 remain in effect for certain acquisitions described in the micro-purchase definition under FAR 2.101.

Many contracting officers and contractors have been awaiting the micro-purchase increase, which should increase the speed and efficiency of small DoD acquisitions.  The wait is over.

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Koprince Law LLC

It’s mid-October, and my Chicago Cubs are still playing.  After a thrilling comeback win over the Giants, the Cubs will take on the Los Angeles Dodgers starting tomorrow in the National League Championship Series.  Will this be the year that the Cubs break the Billy Goat Curse and allow their fans to think about The Simpsons instead of the 2003 playoffs when they hear the word “Bartman”?

Time will tell.  But as the baseball playoffs move forward, I’m keeping my eyes on government contracting news–and there’s plenty of it this week.  In the latest SmallGovCon Week In Review,  a large trade group has filed a lawsuit to block the Fair Pay and Safe Workplaces final rule, GSA updates its Dun & Bradstreet contract, Guy Timberlake addresses the potential effects of the 2017 NDAA, and much more.

  • A large construction trade group has filed a lawsuit to block the Fair Pay and Safe Workplaces final rule. [The Wall Street Journal]
  • The Air Force awarded the largest contract during the 2016 fiscal year, thanks to a $30 million agreement with Agile Defense. [Washington Technology]
  • A draft proposal, Implementing Category Management for Common Goods and Services, was published last week in the Federal Register and is now open for public comment. [FCW]
  • The General Services Administration has updated its Dun & Bradstreet contract, which will allow agency acquisition personnel and contractors wider latitude to use the standardized company information for purposes beyond mere identification. [Government Executive]
  • An ex-NASA official has pleaded guilty to making false statements about self-interested interactions with contractors according to the Justice Department. [Government Executive]
  • Bloomberg Government takes a look at five trends shaping federal contracts in fiscal 2017 [Bloomberg Government]
  • With about four months before the end of the Obama administration, the push to recognize, even celebrate, and institutionalize its management agenda is coming fast and furious. [Federal News Radio]
  • Guy Timberlake digs into the proposed changes being considered in the 2017 National Defense Authorization Act and how small businesses will be affected. [GovConChannel]

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