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Koprince Law LLC

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

If you’ve been reading SmallGovCon regularly (and I certainly hope that you have!), the name Ian Patterson may ring a bell.  Ian has been a law clerk at Koprince Law LLC since May 2015, and has been credited as the primary author of many SmallGovCon blog posts during that time, including an important recent post on the Rothe Development 8(a) case.

I am pleased to announce that Ian has been admitted to the Bar and is now an Associate Attorney at Koprince Law.  Please feel free to browse Ian’s biography for more information about the latest addition to our growing team, and check back here soon for more of Ian’s writings on government contracts law.

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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

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

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

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

The SBA has released a sample template mentor-protege agreement, and accompanying application information, for its new “all small” mentor-protege program.

The template calls for the parties to select from up to six categories of assistance that the mentor may provide, and requires the parties to set forth specific details about the nature of the planned assistance, the timeline for providing it, and milestones for measuring success.  The application form, in turn, requires the protege to have a written business plan, and will require mentors and proteges to complete an online training module if they apply after November 1, 2016.

The template provides six categories of assistance that the mentor may provide the protege: (1) Management and Technical Assistance; (2) Financial Assistance; (3) Contracting; (4) Trade Education; (5) Business Development; and (6) General Administrative.  The protege may select “any or all that apply to your situation.”

Once the appropriate assistance is identified, the protege must then specify its needs within each selected area, what the mentor will do to support those needs, the timeline for meeting the needs, and how to measure whether each of the needs have been successfully met “in accordance with your business plan . . ..”  The SBA’s accompanying instructions confirm that the protege must have a written business plan–and that the business plan must be submitted to the SBA as part of the mentor-protege application.

The template requires the protege to identify any other federal mentor-protege programs in which it is currently participating, and sets forth a variety of other standard terms, such as those involving reports to the SBA, termination of the mentor-protege agreement, and so on.  The template mentor-protege agreement also includes a provision in which the mentor acknowledges that it may be penalized if it fails to provide the promised assistance.

The sample template agreement has been posted on the SBA’s all small mentor-protege program website, but two other documents–the application form itself, and the instructions for applying, have been made available only to those who requested them.  (A contact sent me both documents, which I’ve linked in this paragraph, but those interested in applying should not rely on my copies of the documents, which could become outdated at any time.  Instead, visit the SBA’s website for up-to-date instructions on applying.)

The application is largely straightforward, and repeats much of the substance of the mentor-protege template agreement, including the types of assistance sought.  The application, and the SBA’s online guidance, specify that prospective mentors and proteges will be required to complete an online training module as part of the application process.  However, “this requirement will be waived for October applications only, and until November 1.”  Those applying on or after November 1 will have to provide proof of completion of the online training module.

In October, the SBA will accept emailed electronic applications.  But those who apply in October will have to “finalize the administrative process” in November by creating a profile on certify.sba.gov and uploading the application documents to that website.  Beginning in November, it appears that all applications will be submitted using the certify.sba.gov website.

The SBA’s all small mentor-protege program is now “live.”  For contractors who hope to take advantage of this powerful new program, it may be time to get started.

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Koprince Law LLC

A procuring agency erred by failing to seek clarification of obvious errors in an offeror’s proposal, according to a recent ruling by the U.S. Court of Federal Claims.

In Level 3 Communications, LLC v. United States, No. 16-829 (2016), the Court held that although a Contracting Officer has discretion over whether to seek clarification of a proposal, this discretion is not unlimited. By failing to clarify obvious errors, the Contracting Officer’s decision was arbitrary, capricious, and an abuse of discretion.

The decision builds on a 2013 case, BCPeabody Construction Services, Inc., No. 13-378C (2013), in which the Court reached a similar conclusion. But so far, the GAO has drawn a hard line, essentially holding that an agency’s discretion in this area is unlimited.

Under the terms of the solicitation, DISA sought construction and maintenance of a Structured, High Availability Telecommunications Circuit between Wiesbaden, Germany and Arifjan, Kuwait. The solicitation requested offers for a fixed-price, indefinite-term delivery order for telecommunications, installation, service, and maintenance for an estimated 60-month period.

The solicitation provided that offerors were to submit offers to install and maintain two circuit paths: (1) a “protect path” to traverse the waters between Germany and Kuwait, and (2) a “working path” to traverse dry land. Neither path could traverse or touch a list of nations, including Iran. The solicitation stated that DISA would award the contract to the offeror that submitted the lowest-priced, technically acceptable quote with consideration of technical sufficiency, ability to meet required service date, past performance, and total price.

Level 3 Communications, LLC, the incumbent contractor, and Verizon Deutschland GmbH, along with six other offers, submitted offers by the October 28, 2015, deadline. DISA’s Technical Evaluation Team originally evaluated L3’s proposal and determined it was “technically acceptable.”

The Contract Specialist, however, responded to the TET’s finding and reminded the TET of three issues with L3’s proposal: 1) L3 failed to submit its quote in a .kmx/kml file; 2) L3 failed to state that its subcontractor for the nation of Turkey was an accredited National Long Line Agencies (“NALLA”) subcontractor; and 3) L3’s circuit route between Istanbul, Turkey, and Budapest, Hungary, was “completely UNCLEAR” due to gaps in L3’s diagram. Despite the TET’s request for clarification of these issues, the Contracting Officer decided not to request clarification from L3.

Without this information, the TET changed its prior decision finding L3’s offer “technically acceptable” to finding the offer “technically unacceptable.” After the TET found Verizon’s proposal was “technically acceptable,” DISA awarded the contract to Verizon at a price of $38.6 million more than L3 had bid.

After receiving notice of the award to Verizon, L3 filed a bid protest with the GAO. The GAO denied the protest, finding that DISA’s evaluation was reasonable. Although the GAO’s decision did not directly address the question of clarifications, the GAO wrote more generally that “the agency had no obligation to seek out and favorably consider information that the protester was in fact required to have included in its quotation.”

Subsequently, L3 filed a compliant in the U.S. Court of Federal Claims. Among its arguments, L3 alleged that the Contracting Officer had violated the FAR by failing to seek a clarification from L3 regarding the lack of .kmz routing map and in determining that L3’s working path traversed Iran, although L3’s written statement was to the contrary.

The Court agreed with L3. First, the Court found that inquiry about the absence of .kmz files in L3’s offer would be a “clarification” and not a “discussion.” Relying on its previous holding in BCPeabody, the Court noted that although FAR Part 15 is worded permissively, “the United States Court of Federal Claims has determined that a CO’s decision not to seek ‘clarifications’ can constitute an abuse of discretion under certain circumstances.” As noted in a previous blog, the Court in BCPeabody held that the Army Corps of Engineers abused its discretion by failing to clarify an obvious mistake, in that case the submission of identical project information sheets.

In Level 3 Communications, the Court too found that the CO’s decision not to seek “clarification” was arbitrary and capricious and an abuse of discretion. In making this finding, the Court relied on the facts that the omission of the .kmz file was an oversight easily corrected, L3 had provided written representation that the path did not touch Iran, and L3 proposed that its working path would follow the same path as the circuit it provided as the incumbent.

This decision highlights an emerging split between GAO and the Court of Federal Claims concerning the “broad discretion” of a CO to seek clarification of clerical errors and whether a failure to do so can be arbitrary, capricious, and an abuse of discretion. For instance, in Cubic Simulation Systems, Inc., GAO denied a protest arguing that Department of Army should have allowed an offeror to clarify a clerical error in its proposal. In Cubic Simulation Systems, GAO specifically stated that it was not required to follow the holding in BCPeabody.

While GAO may differ on its position, the Court of Federal Claims has provided its marker: despite CO’s broad discretion regarding whether to seek clarifications, that discretion can be abused. As Level 3 Communications illustrates, it may be an abuse of discretion for the CO to fail to allow an offeror to clarify an obvious error.

In our opinion, the Court of Federal Claims has the better policy. Unfettered discretion is rarely a good thing, and sometimes an agency’s failure to seek clarification is nonsensical. In Level 3 Communications, for example, the agency’s decision not to seek clarification–if allowed to stand–would have left taxpayers on the hook for $40 million, the difference in price between the proposals of L3 and Verizon.

We hope that the GAO will reconsider its position and align itself with the Court’s decisions in BCPeabody and Level 3 Communications–both because the Court’s view is better from a public policy perspective and because doing so would discourage forum shopping. For now, would-be protesters concerned about an apparent abuse of discretion in this area may be best served by skipping the GAO and filing directly with the Court of Federal Claims.

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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

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 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

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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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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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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An unsuccessful offeror lacked the ability to file a valid SBA size appeal involving the size status of a competitor, because the unsuccessful offeror was eliminated from the competitive range–and its elimination had been upheld in a GAO bid protest decision.

In a recent size appeal decision, the SBA Office of Hearings and Appeals confirmed that an offeror that cannot possibly be awarded the contract ordinarily lacks standing to file a size appeal.

OHA’s decision in Size Appeal of Straughan Environmental, Inc., SBA No. SIZ-5767 (2016) involved a NASA solicitation for environmental consulting services.  The solicitation was set aside for small businesses under NAICS code 541620.

Straughan Environmental, Inc. submitted a proposal.  After evaluating initial proposals, NASA established a competitive range, which did not include Straughan.  Straughan filed a GAO bid protest challenging its exclusion from the competitive range.  The GAO denied Straughan’s bid protest.

NASA subsequently announced that Integrated Mission Support Services, LLC, an SBA 8(a) mentor-protege joint venture, was the apparent successful offeror.  After learning of the award to IMSS, Straughan filed an SBA size protest.  The SBA Area Office ultimately found IMSS to be an eligible small business.

Straughan then filed a size appeal with SBA OHA.  In response, IMSS filed a motion to dismiss.  IMSS argued that, because Straughan had been eliminated from the competitive range, it was ineligible for the contract.  Accordingly, IMSS contended, Straughan was not adversely affected by the size determination finding IMSS to be a small business, and lacked standing to file a valid size appeal.

OHA agreed with IMSS.  OHA wrote that under its regulations, “any person adversely affected by a size determination” may file a size appeal.  In previous cases interpreting this regulation, OHA has held that an appellant ordinarily must be “an otherwise eligible small business offeror on the procurement.”  OHA explained:

The rationale behind this policy is that, if an otherwise eligible small business offeror were to prevail on its appeal, there is a chance it could ultimately be awarded the contract.  This possibility is what causes an unsuccessful offeror to be adversely affected by a size determination favorable to a rival.

In this case, Straughan “is not an otherwise eligible small business offeror on this procurement because NASA excluded [Straughan’s] proposal from the competitive range, and GAO affirmed this result by denying [Straughan’s] bid protest challenging its elimination from the procurement.”  Straughan “cannot be awarded the contract, regardless of whether it prevails on appeal at OHA.”  Therefore, Straughan “is not adversely affected by the instant size determination and lacks standing to bring this appeal.”

OHA dismissed Straughan’s size appeal.

An unsuccessful offeror’s standing to file a size protest or size appeal is relatively broad; unlike in some GAO bid protests, the protester or appellant need not demonstrate that it was next in line for award.  But, as the Straughan Environmental size appeal demonstrates, standing to file a size appeal is not unlimited.  Where, as in Straughan Environmental, the putative appellant was excluded from the competitive range, the appellant ordinarily will lack standing to file a size appeal.

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When the SBA evaluates a size protest, it is not required to investigate issues outside of those raised in the size protest itself.

A recent decision of the SBA Office of Hearings and Appeals demonstrates the importance of submitting a thorough initial size protest–and confirms that the SBA need not investigate issues outside of the allegations raised in the protest.

OHA’s decision in Size Appeal of K4 Solutions, Inc., SBA No. SIZ-5775 (2016) involved a TSA procurement.  The TSA acquisition in question contemplated the award of a single BPA to a business holding a GSA Schedule 70 contract.  The RFQ was issued as a total small business set-aside.

After evaluating quotations, the TSA announced that Systems Integration, Inc. was the apparent successful offeror.  K4 Solutions, Inc., an unsuccessful competitor, then filed a size protest.  K4 alleged that SII had been acquired by Rimhub Holdings, Inc. in 2014, and thus was affiliated with Rimhub.  The size protest did not address the question of whether SII had been required to recertify its size under its Schedule 70 contract upon the acquisition by Rimhub.

The SBA Area Office dismissed the size protest as untimely.  The Area Office stated that, for a long-term contract like Schedule 70, a size protest may be challenged at three points in time: (1) when the long-term contract itself is initially awarded; (2) when an option is exercised; or (3) upon the award of an order, if the Contracting Officer specifically requests size recertification in conjunction with the order. (OHA has held in an earlier case that merely bidding on a set-aside order does not constitute a recertification under this rule).

In this case, the TSA had not requested a recertification in connection with the order, and there was no option at issue.  Therefore, the Area Office determined, “size was determined from the date of SII’s self-certification for the GSA Schedule Contract,” and there was “no available mechanism for [K4] to challenge SII’s size in connection with” the TSA RFQ.

K4 filed a size appeal with OHA. K4 argued that, under 13 C.F.R. 124.404(g)(2), SII had been required to recertify its size within 30 days of being acquired by Rimhub. K4 argued that its protest was timely because it was filed within five business days of when K4 learned that SII had continued to represent itself as a small business following the acquisition.

OHA wrote that an Area Office “has no obligation to investigate issues beyond those raised in the protest.”  In this case, the recertification issue raised by K4 on appeal “was not raised in [K4’s] underlying size protest.”  Accordingly, “given that [K4’s] protest did not allege that SII was required to recertify its size . . . the Area Office could reasonably choose not to explore this issue n the size determination, and [K4] has not demonstrated that the Area Office committed any error in its review.”

OHA denied K4’s size appeal.

An unsuccessful offeror doesn’t have much time to file a size protest–just five business days from receiving notice of the prospective awardee, in most cases.  But even with such a short time frame, a size protester must submit the most thorough protest possible.  As the K4 Solutions case demonstrates, the SBA has no obligation to investigate an issue that the protester didn’t raise.

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While we are diving into fall weather here in Kansas, my colleagues and I are thinking of everyone on the East Coast dealing with Hurricane Matthew.  We hope that everyone makes it through the storm safe and sound.

Hurricane Matthew is at the top of the news headlines this week, but there’s still plenty happening in the world of government contracting.  In this edition of SmallGovCon Week In Review, we bring you articles final FAR rule restricting awards to companies with unpaid tax liabilities, two separate cases regarding alleged discrimination by government contractors, a new beta version of a Freedom of Information Act Wiki was launched, a major expansion of the HUBZone program, and much more.

  • The FAR Council has adopted, without changes, an interim rule I reported on last year, which restricts most contract awards to companies with unpaid federal tax obligations. [Government Publishing Office]
  • The United States Department of Labor is suing a Silicon Valley firm, which handles $340 million of federal contracts, for allegedly discriminating against Asian job applicants. [Parent Herald]
  • Using a category management approach to optimize spending, the GSA’s Human Capital and Training Solutions Unrestricted contract is intended to increase access to 77 qualified vendors offering, efficient, cost-effective management and training support. [Federal Times]
  • The Small Business Administration is correcting a final rule that described the limitations on subcontracting that apply to set aside contracts. [Federal Register]
  • A Freedom of Information Act Wiki was launched that acts as a free and collaborative resource and allows a rapid account of new developments so everyone has the most up-to-date information about the law in a useful, online format. [CJR]
  • A global technology manufacturing company has been sued by the U.S. Department of Labor for compensation discrimination against female assembly workers who were found to be making less than their male counterparts. [The Salem News]
  • President Obama is being urged to issue a directive against anti-gay bias in federal contracting. [The Washington Post]
  • Oracle’s decision to abandon the GSA Schedules as a channel to sell its products might just be the tip of the iceberg of problems in the government market. [Washington Technology]
  • A new report shows that women-owned firms are 21 percent less likely to win government contracts. [Biz Journals]
  • In an important change that’s flown beneath the radar, the SBA removed what it said was an unnecessary requirement in the HUBZone program, allowing for a major expansion of the program. [Set-Aside Alert]

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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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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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Congress is taking a hard look at how to promote increased competition in federal contracting.

Among the provisions in the 2017 National Defense Authorization Act is a requirement for the GAO to prepare a report on how the DoD enters into and uses indefinite delivery contracts–and recommendations for changes to promote competition with respect to indefinite delivery contracts.

Section 886 of the 2017 NDAA calls for the GAO to study indefinite delivery contracts entered into by the DoD in Fiscal Years 2015, 2016 and 2017. The GAO is then to prepare and submit a detailed report to Congress.

The report is to address five discrete topics. Of these, two are informational requests for data on the number and value of indefinite delivery contracts awarded by the Department of Defense. More interesting are the remaining three categories.

First, the report is to provide a comprehensive review of the DoD’s policies for entering into indefinite delivery contracts, including a discussion of what guidance, if any, DoD contracting officers are given regarding “the appropriate number of vendors that should receive multiple award indefinite delivery contracts.”

Second, the report is to include specific case studies of indefinite delivery contracts. These studies are to specifically address “whether any such contracts may have limited future opportunities for competition for the services or items required.”

Finally, the report is to provide guidance and recommendations for revising existing laws, regulations and guidance to enhance competition with respect to indefinite delivery contracts.

The report is to be submitted to Congress no later than March 31, 2018.

The report is part of the 2017 NDAA’s broader focus on enhancing competition, which includes (among other things) additional restrictions on using “brand name or equivalent” specifications and a review of DoD contracts awarded to minority-owned and women-owned contractors. The report should make for interesting reading when it arrives in 2018.

President Obama signed the 2017 NDAA into law on December 23, 2016.

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There is a lot of excitement brewing here in our neck of the woods. We are cautiously awaiting a potential ice storm that is expected to hit town today and roll through the weekend, our Kansas Jayhawks are in action against Oklahoma State on Saturday and a win will likely seal them as the new number 1 seed in the polls and of course the Kansas City Chiefs have their AFC divisional round game against the Pittsburgh Steelers on Sunday. I’m no fan of cold weather, so I’ll be watching the Jayhawks from Allen Fieldhouse and the Chiefs-Steelers game from the comfort of my living room.

While we await “icemaggedon” here in Kansas, it’s time for the SmallGovCon Week In Review. This week’s government contracting news includes three updates to the FAR affecting, a new survey shows that small businesses are spending more time and money trying to win contracts, a federal court rules that a large prime’s subcontracting plan was exempt from disclosure under the Freedom of Information Act, and more.

  • According to an annual survey, small businesses upped their efforts to bid on federal contracts, reporting a 72 percent increase in time and money devoted to winning a share of the government’s procurement budget. [Government Executive]
  • The GSA is issuing a final rule amending the GSAR to clarify that the ordering-agency task and delivery order Ombudsman has jurisdiction and responsibility to review and resolve fair opportunity complaints on tasks and delivery orders placed against GSA multiple-award contracts. [Federal Register]
  • The DoD won an appeals court decision that denied a demand from a small business advocacy group that they be required to disclose its subcontracting plan submitted under a long-standing Pentagon program. [Government Executive]
  • Proposed revisions of the National Industrial Security Program would add provisions incorporating executive branch insider threat policy and minimum standards as well as make other administrative changes to be consistent with recent revisions to the NISPOM and with updated regulatory language and style. [Federal Register]
  • The FAR Council has issued a final rule to implement regulatory clarifications made by the Small Business Administration regarding the 8(a) Program–including by adding the longstanding “once 8(a), always 8(a)” policy to the FAR. [Federal Register]
  • Federal agencies exceeded $144 billion in improper payments in Fiscal Year 2016, according to the GAO. [Federal News Radio]

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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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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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Happy Friday! Here at Koprince Law, we’ve been busy posing for pictures for our new firm website (coming soon) and enjoying our annual trip to the Taste of Lawrence event last night, where we were able to enjoy food from local restaurants, hear live music and interact with the community.

Even with all that fun we have managed to bring you this edition (albeit a little later in the day) of SmallGovCon Week In Review. In this week’s edition, we bring you the latest on the ENCORE III bid protest, a look at the how a continuing resolution will affect contractors, underfunding of efforts to investigate whistleblower claims, and more.

  • A $5 billion, ten-year agreement with a subsidiary of Lockheed Martin was rescinded due to concerns over the sale of the subsidiary to Leidos. [Defense News]
  • The Government Accountability Office detailed its rationale in the ENCORE III bid protest, saying that the reason for the “sustain” decision wasn’t that the Defense Information Systems Agency wanted to award spots on the ten-year contract on a lowest-price technically acceptable basis. [Federal News Radio]
  • Federal contracting companies have come to terms with the fact that the new fiscal year will begin next month with a congressional stopgap budget measure. [Washington Business Journal]
  • A memorandum entitled Commercial Items and the Determination of Reasonableness of Price for Commercial items has been rescinded and new guidelines have been issued in its place. [Office of the Under Secretary of Defense]
  • The Pentagon’s acting inspector general told Congress this week a chronic underfunding of his office played a major role in the extensive delays surrounding its investigations into whistleblower reprisal claims. [Federal News Radio]
  • The GSA has issued a proposed regulation to incorporate Other Direct Costs into the Multiple Award Schedule program. [GSA]
  • Intelligence agencies are increasingly turning to contractors for talented information specialists and scientists as the in-house talent pool wanes. [Federal News Radio]

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With the Olympics coming to a close this Sunday, we can look forward to getting back to our usual sleeping patterns without the lure of athletes seeking gold in Rio. So while preparations are ongoing for the closing ceremony and the eventual torch hand off to Tokyo, we continue to work to bring you the top government contracting news and notes for the week.

In this week’s SmallGovCon Week in Review, a businessman will serve prison time after stealing a veteran’s identity and using it to obtain SDVOSB contracts, the first protest of the Alliant 2 solicitation has been filed, faulty military helmets manufactured at a Texas prison under a government contract have been recalled, and much more.

  • A six-year prison sentence was handed down to a businessman stealing a disabled veteran’s identity and using the information to seek $2.7 million in government contracts. [CBS DFW]
  • Has the VA acted too hastily when it quickly complied with the U.S. Supreme Court’s “rule of two” decision in the Kingdomware Case? [Federal News Radio]
  • A $2.25 million fine will be paid out by a research and development company, financed largely by federal government funding, to resolve allegations that they violated the False Claims Act by seeking disbursements from federal agencies for falsified labor costs. [United States Department of Justice]
  • The first protest has come just six weeks after the GSA released the request for proposals for the massive IT services multiple award contract known as Alliant 2. [Federal News Radio]
  • Government marketing expert Michelle Hermelee, CSCM, discusses two of the new GSA initiatives and what they mean for federal contractors. [Government Product News]
  • Small businesses that contract with the federal government fear proposed changes to regulations will push them out of the bidding process. [The Hill]
  • Mid-tier companies of smaller size are finding it impossible to compete on Alliant 2 Unrestricted and are voicing complaints that could result in a pre-award protest. [Washington Technology]
  • More than 126,000 helmets manufactured at a Texas prison under a government contract were recalled after inspectors found major defects, including serious ballistic failures. [The Washington Times]
  • Industry now has another two weeks to submit bids for Alliant 2, the largest IT contract released in the past decade, after an extension by the General Services Administration. [Nextgov]

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