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  1. When preparing a proposal for a Government solicitation, ensuring that your product or service meets all of the requirements specified by the Government’s solicitation is essential. Simple enough, right? Not necessarily. One of the most frequent pitfalls in proposal preparation is assuming the Government understands your products and industry as well as you do, which may not be the case. A recent GAO bid protest demonstrates that a “well-written proposal” sometimes must include information that a contractor might expect the Government evaluation team ought to know. The protester in Government Scientific Source, Inc., B-416777 (Comp. Gen. Oct 18, 2018) recently made just that all-too-common error. In the case, the protester was an unsuccessful awardee of a VA contract for “electronic analytical balances.” The Solicitation provided a number of brand-name balances as examples under a “brand name-or-equal specification,” indicating that alternatives to the brand-name models were acceptable. However, alternatives were still required to have “nine salient characteristics.” These specified characteristics included “a ‘[r]emovable pan for cleaning to reduce risk of contamination.’” The Solicitation specified the “technical evaluation would use . . . descriptive literature” provided by each bid submitter “to evaluate whether the quoted products were technically acceptable, and to assess the degree and extent to which the RFQ requirements were satisfied.” Ultimately, the VA determined that the protester did not show that the balances it proposed included the required removable pan. The protester filed a GAO bid protest, arguing that its product obviously included removable pans, though not specified, because removable pans were “an industry standard for all balances, regardless of manufacturer.” Though the removable pans may have been an “industry standard,” GAO pointed to the protester’s responsibility to submit “a well-written quotation, with adequately detailed information, that clearly demonstrates compliance with the solicitation requirements and allows a meaningful review by the procuring agency.” Here, GAO concluded “the illustrations in [the protester’s] quotation [did] not show the pans in its balances are removable, nor does the text indicate the presence of removable pans.” Though the removable pans may have been considered a given by the protester, and others in the protester’s line of work, assuming that the agency understood the protester’s products as well as those in the industry would was the protester’s fatal flaw. This case presents vital lessons for all government contractors. When submitting a bid, it’s wise to spell out how the product or service meets every requirement indicated in the solicitation, and never assume the Government is as industry-savvy as you. View the full article
  2. Koprince Law LLC

    SmallGovCon Week in Review: October 15-19, 2018

    I had a great time last week at the National HUBZone Conference in Chantilly, Virginia. If you were there, please reach out to say hi! In this week’s edition of SmallGovCon Week In Review, we’ll look at GSA’s new eBuy pilot program, insight into the SBA OIG’s 8(a) eligibility findings, new WHD-compliance tools from the U.S. Department of Labor, the impact of debriefings on bid protests, and much more. Have a great weekend! GSA announces it will run a year-long “eBuy Open GSA First” pilot program. [FedScoop] Research suggests that poor debriefings often lead to bid protests. [Washington Technology] More information about the SBA OIG’s report on 8(a) eligibility. [Bloomberg] The U.S. Department of Justice announces that Indal Technologies has agreed to pay $3.5 million to resolve allegations that it sold defective helicopter systems to the Navy. [U.S. Department of Justice] The U.S. Department of Labor announces launch of new online tools to assist American small businesses. [U.S. Department of Labor] Tech companies facing protest from workers and activists when working for the government. [FCW] Amazon chief, Jeff Bezos, defends working with the government on military and national security related technology. [Fortune] View the full article
  3. When pursuing a bid protest before the Government Accountability Office, it is never a good idea to presume that you’ll get your attorneys’ fees paid by the agency. If you are fortunate enough to recover attorneys’ fees , GAO’s general standard is to recommend paying the fees associated with all the protest grounds being pursued, whether or not they were meritorious. But although this is the general posture, it is not always the case. For example, in CSRA LLC-Costs, B-415171.3 (Aug. 27, 2018), the protester’s initial key argument was that the awardee had proposed to use incumbent workers who had not given their permission to be included in the proposal. The agency took corrective action and GAO dismissed the protest. But, the protester, CSRA LLC, of San Diego, Calif., evidently believed that the corrective action was too restrictive. The agency’s corrective action was to discuss staffing, but it refused to allow offerors to make other changes to their proposals (another of GAO’s longstanding rules is that when opening discussions, in general, offerors should be permitted to make whatever changes to which they see fit). CSRA protested the corrective action arguing that its terms were too restrictive and that it was mere pretext to avoid a GAO decision on the merits. Rather than take corrective action again, the agency filed a report arguing that it had the discretion to take corrective action as it saw fit and that it was not a pretext to avoid a decision on the merits. A month passed and the agency suddenly changed its mind to take corrective action again. It said it would allow offerors to revise other aspects of their proposals. The protester asked GAO to recommend the agency pay the costs associated with pursuing the second protest. CSRA explained that it had prepared its proposal based on the individuals’ capabilities named in the staffing plan, and that changes to the staffing plan would have a ripple effect through the whole proposal. GAO agreed and said that the agency should have allowed offerors to revise other parts for their proposals as well. But, as to the pretext argument, GAO would not bite. CSRA had cited a case saying “where a protester alleges that the agency’s rationale for cancellation [of a solicitation] is a pretext, that is, that the agency’s actual motivation is to avoid awarding a contract on a competitive basis or to avoid the issuance of a decision by [GAO] on the merits of the protest, we will closely examine the reasonableness of the agency’s actions in canceling the acquisition.” GAO said that that case was distinguishable because here the solicitation was not cancelled. Therefore, GAO said that the argument was not “clearly meritorious” and is severable from the clearly meritorious argument about the scope of proposal revisions. GAO did not recommend paying fees associated with the second issue. So, why did GAO depart from the general rule that protesters should be reimbursed for all arguments made, not only the successful ones? Well, for one thing, neither of the protests were sustained. Both ended when the agency voluntarily chose to take corrective action. GAO will still sometimes award fees after corrective action, but only when the agency unduly delays taking corrective action in the face of a “clearly meritorious” protest. The test for delay is generally whether the agency took corrective action before or after the agency report. If the corrective action comes before the agency report, usually GAO will not find that the agency delayed. Here, because the agency waited to take corrective action until after it argued against the protest in the agency report, it delayed. So, the question then became whether the delay was in the face of a clearly meritorious protest. One could argue that if a protest includes one obviously meritorious protest ground, that makes it a clearly meritorious protest. But that is not what GAO decided here. It decided it would only grant relief (i.e., recommend paying fees) for the clearly meritorious grounds included in the second protest. The nature of the second argument may have played a role in GAO’s decision not to award fees for it as well. The protester allegation was essentially one of bad faith. It had argued that the first corrective action was essentially a ruse. But government officials are presumed to act in good faith. GAO may not have wanted to send the message that it was rewarding a protester for an allegation of bad faith on the part of the agency. Note: Want to learn more about recovering attorneys’ fees and costs at the GAO? Click here for an in-depth article published by two Koprince Law LLC attorneys in the Summer 2017 issue of the American Bar Association’s publication “The Procurement Lawyer.” View the full article
  4. Ever since the Supreme Court’s Kingdomware decision was handed down in 2016, an important question has remained: who has priority at the VA for items on the AbilityOne List? Yesterday, the Federal Circuit Court of Appeals provided the answer. The VA is required to prioritize service-disabled veteran-owned or veteran-owned small businesses when the Rule of Two is met, even when it buys items on the AbilityOne List. The issue in PDS Consultants, Inc. v. United States was the conflict between the Javits-Wagner-O’Day Act (“JWOD”) and the Veterans Benefits, Healthcare, and Information Technology Act (the “VA Act”). By way of background, the JWOD was enacted in 1938 to provide employment opportunities for blind and severely disabled persons. It does so by requiring agencies (including the VA) to give contracting priority to nonprofits that employ blind and disabled persons when purchasing certain items (found on the AbilityOne List). Signed into law in 2006, the VA Act requires the VA to give contracting priority to SDVOSBs and VOSBs, including by restricted competitions issued under the Rule of Two. In other words, two different statutes mandate two different contracting priorities applicable to the VA—one favoring blind and disabled persons, the other SDVOSBs and VOSBs. In 2010, procurements for certain eyewear products and services in two VA service networks (VISNs 2 and 7) were added to the AbilityOne List. In 2016, the AbilityOne list was expanded to include eyewear in VISN 6. PDS Consultants—an SDVOSB that sells vision-related products—filed a bid protest in the Court of Federal Claims challenging this addition. In a resounding victory for SDVOSBs, the Court ruled that the VA is required to perform a Rule of Two analysis for all procurements that post-date the VA Act’s passage in 2006. In other words, the Court ruled that SDVOSBs have priority at the VA even under procurements for items on the AbilityOne List. The United States (along with an AbilityOne entity) appealed this decision to the Federal Circuit. In general, the argument was one of statutory interpretation: according to the Government, the VA Act only applies in non-mandatory, competitive awards. Because it believes the JWOD mandates non-competitive procurements in favor of AbilityOne entities in certain instances, the Government argued that the VA is not required to give priority to SDVOSBs or VOSBs when buying from the AbilityOne list. The Federal Circuit rejected the Government’s argument. Echoing the Supreme Court in Kingdomware, the Federal Circuit held that the VA Act “applies to all contracts—not only competitive contracts.” “[W]hen the Rule of Two is triggered,” the Federal Circuit continued, “the VA must apply competitive mechanisms to determine to whom the contract should be awarded.” From this background, the Court was able to (fairly easily) resolve the apparent conflict between the two statutes. It noted first that the VA Act is a specific statute (applying only to VA procurements and triggered only when the Rule of Two is satisfied) while the JWOD is more general (applying to all federal agencies). And as a matter of statutory construction, a specific statute (like the VA Act) takes precedence over a more general one. Moreover, the Court found that applying the VA Act in a manner that gives precedence to SDVOSBs and VOSBs furthers the VA’s mission: to support and champion the veteran community. What’s more, the Court noted that the VA Act was passed well-after the JWOD. And ordinarily, “when two statutes conflict, the later-enacted statute controls.” The Court was willing to “infer that Congress” knew of the JWOD when it passed the VA Act, and intended the VA Act “to control in its narrower arena, and the JWOD to dictate broader procurements outside of the VA.” Finally, the Court found support for its conclusion in Kingdomware. It noted that the Supreme Court ruled the VA Act’s requirement to set-aside contracts in favor of SDVOSBs is mandatory and that the Rule of Two applies to all VA procurements. The Court noted: Competitive or not, placing an item on the List, or choosing an item therefrom under the JWOD, is a form of awarding a contract. And under § 8127(d) and Kingdomware, the VA, in such a situation, is required to first conduct a Rule of Two analysis. The Court concluded that, “where a product or service is on the List and ordinarily result in the contract being awarded to a nonprofit qualified under the JWOD, the [VA Act] unambiguously demands that priority be given to veteran-owned small businesses.” There are, no doubt, important policy implications in this decision. But those decisions are for Congress to make. And having considered the statutory framework, the Federal Circuit has affirmed that SDVOSBs and VOSBs must be given contracting priority by the VA whenever the Rule of Two is met. View the full article
  5. The Air Force’s large NETCENTS-2 IDIQ vehicle did not require orders to be set-aside under the small business pool, except for orders valued between the micro-purchase threshold and simplified acquisition threshold. In a recent decision, the GAO held that although the NETCENTS-2 contract in question says that Contracting Officers “should” perform a “rule of two” small business set-aside analysis for orders valued over the simplified acquisition threshold, it does not require that such an analysis be performed–meaning that Contracting Officers can validly award such orders to large businesses, even if two or more small business NETCENTS-2 holders exist. Like many large IDIQs, the NETCENTS-2 IDIQ has dedicated small business pools. The NETCENTS-2 contract for NetOps and Infrastructure gives the following instructions to Contracting Officers regarding use of the small business pool: a. Each acquisition of services that has an anticipated dollar value exceeding the micro-purchase threshold, but not over the simplified acquisition threshold shall be competed in the NetOps Small Business Companion Contracts pool of awardees . . . . b. For orders exceeding the simplified acquisition threshold the task order Contracting Officer should conduct market research to determine whether or not there is a reasonable expectation of receiving offers from at least two small business companion contractors. If market research reveals that at least two small businesses in the Small Business Companion contract are capable of performing the work, the task order should be competed in the NetOps Small Business Companion contract pool of awardees. If a task order is competed in the NetOps Small Business Companion contract pool of awardees and the task order contracting officer receives no offers, or no acceptable offers from a small business companion contract ID/IQ awardee, the RFP shall be withdrawn and the requirement, if still valid, shall be resolicited in the NetOps full and open pool of ID/IQ contracts awardees. That brings us to the GAO’s decision in Technica Corporation, B-416542, B-416542.2 (Oct. 5, 2018). The case involved a NETCENTS-2 task order issued on a sole source basis to Leidos Innovations Corporation, a large business. Under the task order, Leidos was to provide various IT network services under a program known as the Air Force National Capital Region Information Technology requirement. Technica Corporation, a small business, was the incumbent contractor and a NETCENTS-2 contract holder. Technica filed a GAO bid protest challenging the sole source award to Leidos. Among its allegations, Technica contended that the Air Force was required to set aside the order for small businesses. The GAO wrote that FAR 16.5, which generally governs the award of task orders, says that agencies “may, at their discretion,” set aside orders for small businesses. According to the GAO, this provision, as well as the underlying statutory authority, “make clear that agencies are not required to set aside an order for small businesses, absent specific contractual language obligating the agency to do so.” Turning to the NETCENTS-2 contact itself, the GAO noted that “the contract states that for orders exceeding the simplified acquisition threshold, agencies ‘should’ conduct market research regarding small business vendors, and ‘should’ set aside task orders for small business vendors if there is a reasonable expectation of receiving proposals from two or more such firms.” The GAO contrasted the use of the term “should” in this sentence with the use of the word “shall” in the paragraph discussing orders between the micro-purchase threshold and simplified acquisition threshold. The GAO wrote: We conclude that for orders valued above the simplified acquisition threshold, the use of the term “should” in the NETCENTS-2 contract does not require the agency to assess whether to conduct market research for the purpose of determining whether to set aside an order for small businesses, nor does the contract require the agency to set aside an order if market research shows that two or more small businesses are capable of performing the work. Instead, these set-aside actions for orders above the simplified acquisition threshold are discretionary on the part of the agency. The GAO denied the protest. For small business NETCENTS-2 contract holders, the GAO’s decision in Technica Corporation is disappointing. Even though the Air Force “should” prioritize small businesses, “should” is not the same as “shall,” and the Air Force need not conduct a rule of two analysis for orders valued over the simplified acquisition threshold. View the full article
  6. In order to protest a procurement at GAO, the protester must be an “interested party.” An interested party is an “actual or prospective bidder or offeror whose direct economic interest would be affected by the award of the contract or by the failure to award the contract.” But does the identity of the protester have to be the same as the offeror under the procurement? GAO recently offered some guidance on that question. In Intermarkets Global USA, LLC, B-415969.2,B-415969.4, (2018), Intermarkets Global USA, LLC (IMG US) protested an award of a contract by the Defense Logistics Agency. A company named Intermarkets Alliance submitted a proposal for the DLA contract. DLA asked Intermarkets Alliance some clarifying questions about its identity. Intermarkets Alliance explained it was a joint venture of two companies, Intermarkets Alliance (IMG) and USFI, Inc. The first company was referred to as “Intermarkets Alliance,” or “IMG Alliance,” or “IMG,” in the proposal, and the firm is a Jordanian Company registered in Jordan. The proposal further explained that “[e]ach of these companies may have a role in this solicitation and any resultant contracts – but all roles are executed under the umbrella of IMG Alliance or in the name of IMG Alliance.” The DLA awarded the contract to a competitor. IMG US then filed a GAO bid protest. In response, DLA filed a motion to dismiss, arguing that IMG US, which filed the protest, was different than Intermarkets Alliance, which submitted the proposal for the procurement. IMG US argued that it was an interested party because the proposal of Intermarkets Alliance indicated it was “submitting the proposal on behalf of, and with authority from, all IMG companies.” IMG US explained that the owners of the IMG Companies had moved to the US and then created IMG US. Therefore, the “offeror submitting the proposal–the IMG companies–remains identical,” and the “only change is that the protesting entity–IMG US–is the current representative of the IMG companies in the place of [Intermarket Alliance].” GAO did not accept the protester’s argument. Even if the resources or employees of the IMG Companies would be used to perform the contract, the protester has to be the same party that will be contracting with the government. Here, the party that interacted with the government and held itself out as the offeror, even through the debriefing period, was Intermarkets Alliance, not IMG US. GAO noted that “even after the creation of IMG US in November, 2016, there is nothing in the record to indicate any change in the identity of the proposed offeror, or any change in the proposed IMG Alliance Group of entities that would be performing the contract, or any change at all in Intermarket Alliance’s proposal.” Nothing in the proposal or any documentation related to the proposal indicated that the offeror had changed from Intermarkets Alliance to IMG US, such as proof that IMG US was a successor in interest to Intermarkets Alliance. (One way to establish successor-in-interest standing is through a novation). Therefore, IMG US was not in privity of contract with the government and was not an interested party. The take-home lesson from this decision is to be sure that the party filing the protest is the same party that made the offer on the solicitation. If not, be prepared to show how the protester is a successor in interest to the offeror, or the protest will stand a good chance of being dismissed. View the full article
  7. The Buy American Act generally requires construction contractors to use domestically-made materials, unless an exception applies. One important exception allows contractors to use foreign-produced materials when the cost of domestic material is six percent more expensive. To quality under this exception, however, a contractor must provide certain information outlined by the FAR with its bid. But what if a contractor doesn’t provide every piece of required information? Is its proposal automatically doomed as non-responsive? Not necessarily. A recent case shows that offerors may have some wiggle-room. In Addison Constr. Co., B-416525 et al. (Sept. 4, 2018), the Department of Energy issued a solicitation for the construction of certain electrical transmission equipment. The solicitation incorporated FAR 52.225-9 which, among other things, requires the contractor to use “domestic construction material” to perform the contract unless an exception, like the one referenced above, applies. The solicitation also incorporated FAR 52.225-10, which directs the contracting officer to reject, as non-responsive, any bid that uses “foreign construction material” and no exception applies. To invoke the unreasonable cost exception, an offeror must provide certain information, outlined in FAR 52.225-9, in its bid. For example, an offeror must include the price, quantity, unit of measure, and a description of the foreign and domestic materials at issue, along with a detailed justification for the use of foreign construction materials, a reasonable survey of the market, and a completed price comparison table. Also, the provision requires the offeror to list the time of delivery or availability of the materials, the construction project’s location, specific supplier information (e.g., name, address, telephone number), a copy of each supplier’s response to the market survey, and “other applicable supporting information.” Addison, the protester, submitted a bid requesting an exception to the Buy American Act, on the basis of unreasonable cost for three items. Addison’s bid included much of the information required to invoke the exception. But it did not provide 1) the name, address, telephone number, and contact information for the suppliers that had been surveyed, 2) a copy of the suppliers’ responses, or 3) any other supporting information. Given this missing information, the agency rejected Addison’s bid as nonresponsive. It argued that, without the information, it could not determine whether unreasonable cost exception applied. GAO disagreed. Two key points are worth mentioning. First, in previous cases, GAO has held that offerors, when invoking the unreasonable costs exception, must provide key information required by FAR 52.225-9 —i.e., the amount of foreign construction material it plans to use and the price of the material–to ensure that it can’t manipulate its overall price, and thus its relative standing, after bid opening. Other information, however, is much less critical and an offer can be responsive without it. GAO explained: Here, we find that, based on the information provided in Addison’s bid, the bid was responsive. In this regard, while the bid did not include all of the information required under FAR clause and provision 52.225-9 and 52.225-10 respectively, it nonetheless included sufficient information for the agency to understand the foreign material being provided, and the quantity and costs of such material. Thus, while the bid was missing required supporting documentation and details, the omission of this information would not enable Addison to alter the price, or relative standing, of its bid. Second, GAO noted that the agency could conduct its own investigation to determine the applicability of the unreasonable cost exception because the missing information would not have allowed Addison to alter its acceptance of the solicitation’s terms after bid closing: n our view, the agency is permitted to conduct its own investigation to determine the applicability of the requested Buy American Act exception provided that the information not included would not be the type that would enable a bidder to alter or amend the price, or relative standing, of its bid. . . . Here, the missing information, which includes such information as the contact information for the foreign supplier contacted by the protester, would not allow Addison to alter its acceptance of the [solicitation’s] terms. Accordingly, we conclude that the agency erred in determining that the missing information required the rejection of the exception request. Ultimately, GAO sustained the protest and recommended that the agency reimburse Addison for its protest costs. Despite this case, if you plan on taking advantage of the unreasonable cost exception, it’s always best to provide all the required information under FAR 52.225-9. Doing so will likely elicit a more favorable response from the agency in the first instance. But if you leave out certain non-critical information and the agency rejects your bid as non-responsive, GAO may afford your offer a second chance. View the full article
  8. Koprince Law LLC

    SmallGovCon Week in Review: October 8-12, 2018

    As the workweek comes to a close, our thoughts are with everyone who has been affected by Hurricane Michael. In government contracts news, there was plenty happening this week. In the latest SmallGovCon Week in Review, three people have been indicted on charges relating to procurement fraud, a new study creates a “sweetheart index” to analyze whether political donations affect government contract awards, IBM is the second company to file a pre-award protest against the Pentagon’s cloud contract, and much more. Have a great weekend! Three people have been indicted on charges relating to procurement fraud and unlawfully disclosing and obtaining bid information on a contract worth $1.5 million. [justice.gov] The U.S. Army Corps of Engineers awarded the Kansas City District 1,360 contracts worth more than $328 million for fiscal year 2018. [dvidshub.net] A new study analyzes how likely businesses that are political donors receive government contracts. [wfyi.org] A defense contractor has agreed to a million-dollar settlement after allegations that it wrongfully obtained contracts with the Defense Department. [wtoc.com] IBM has filed a pre-award protest against the Pentagon’s massive cloud contract. [nextgov.com] GSA and OMB are working on a strategy to execute the so-called “Amazon Amendment,” legislation crafted to help speed the procurement process through e-commerce portals. [publicspendforum.net] Google has made the decision to not bid on Defense Department’s $10 billion cloud procurement. [federalnewsnetwork.com] View the full article
  9. Koprince Law LLC

    Thank You, Live Oak Bank & GMU!

    I am back in Kansas after a whirlwind trip to Washington, DC where I was part of a fantastic governing contracting event sponsored by Live Oak Bank and George Mason University. My panel focused on the legal and practical issues that companies face when they grow out of their small business size standards–an important topic that doesn’t get nearly as much attention as it should. Many thanks to Jackie Robinson-Burnette, Erin Andrew, Tess Mackey, Jerry McGinn and everyone else who planned and coordinated this event. Thanks also to my fellow panelists, Gloria Larkin and Rosetta Rodwell–and to everyone who asked questions and stuck around afterwards to chat–for a great discussion about government contracts. And a big thank you to the chefs at Ray’s the Steaks, where I had dinner for the first time in about six years. Tasty as ever! Next on my travel agenda: New Orleans, where I’ll be attending the 2018 National Veterans Small Business Engagement and SAME Small Business Conference. Hope to see you there! View the full article
  10. As readers of this blog might know, the government contracts claims process is set by statute and includes a number of requirements, such as being certified if the dollar amount is over $100,000. But a possibly lesser-known requirement is that, in order to be valid, a claim must request that the contracting officer issue a “final decision” on the claim. In a recent decision, the Armed Services Board of Contract Appeals opined on this requirement. The ASBCA reviewed the claim requirement in Hejran Hejrat Co. Ltd, ASBCA No. 61234, 18-1 B.C.A. (CCH) ¶ 37039 (Apr. 23, 2018). The Army Corps of Engineers awarded Hejran Hejrat Co. LTD (HHL) a contract to lease armored utility vehicles for use in Afghanistan. After a bid protest, corrective action, and a modification, the contract price was decreased from $9,364,707 to $8,787,800. In July 2012, USACE indicated it would not exercise an option. HHL then informed USACE that it was due additional payments and some vehicles were missing and submitted three invoices requesting $4,137,964 of additional compensation. The contracting officer responded: This letter is in response to your three (3) invoices HHL-USACE/015, HHL-USACE/016 and HHL-USACE/016 submitted for contract W5J9JE-l 1-C-0I l5 on 22 August 2013. Although you used the word “claim” and “compensation” in your email and invoices, I have treated this as a request for equitable adjustment (REA) because it is not clear that you were seeking a contracting officer’s final decision. The CO also asked if HHL “intended to submit a claim or sought a contracting officer’s final decision.” In a January 2014 email, HHL responded that it had not intended the earlier email with the three invoices (from July 2012) to be considered an REA. But, the January 2014 email further explained that “We therefore ask you to treat this email together with the supporting documents as a REA. In the event that you decide to treat this email as REA and still reject our request for the adjustment of payments, we would then proceed with issuing a certified claim.” The email included justification for why it was owed additional money, such as missing vehicles, and asked again that “this email . . . be treated as a REA.” In March 2015, an officer of HHL sent an email to the agency requesting payment, giving reasons why it was owed money, and stating that the “clauses and points reflected in REA (Request for Equitable Adjustment) in reference to contract# W5J9JE-11-C-0115, to the best of my knowledge are true.” In May 2015, the CO sent a “Response to REA” document back to HHL. This document contained no indication that it should be treated as the CO’s “final decision” and the CO noted that HHL “may have a claim on the things discussed in our decision.” The new USACE CO found no merit to the REA in March 2017 and advised HHL to follow the procedure in the contract’s disputes clause. But the CO did not issue a contracting officer’s final decision. The ASBCA, in reviewing this matter on appeal, started with the basic requirements of a claim. The four requirements are (1) the amount of the claim, (2) the basis of the claim, (3) a request for final decision by the CO, and (4) a certification if the amount is over $100,000. Here, while HHL included the amount and basis of the claim (and could have remedied the certification issue before final judgment), it never requested a contracting officer’s final decision in six years of communication. HHL “declined to ask for a final decision or identify the invoices, or any of its submissions, as a claim. HHL demonstrated that it understood the significance of the contracting officer’s inquiry.” HHL tried to argue that USACE had treated its communications as a claim. But ASBCA did not accept this argument, holding that the “contracting officer’s characterization of a submission by a contractor cannot establish that a CDA claim has been submitted.” Therefore, ASBCA dismissed the appeal. This case is a stark reminder that, generally speaking, all elements of a claim must be in place for it to be treated as a claim under the FAR and applicable statutes. One of those four requirements is the request for a final decision. If the contractor does not make such a request, the claim may well fail. View the full article
  11. Only an “interested party” can bring a GAO bid protest. This generally means that a protester must be “an actual or prospective bidder or offeror” with a “direct economic interest” in the contract’s award. You might ask: is there such a thing as an offeror without a direct economic interest in the outcome of the contract award? It can happen–and a novation may be relevant. In a recent case, GAO held that a pending novation meant that the protester didn’t meet the standard necessary to file a protest. In Wyle Labs., Inc., B-416528 (Sept. 7, 2018), U.S. Customs and Border Control issued a solicitation for various support services. But the agency limited the procurement to firms holding one of GSA’s OASIS IDIQ contracts for professional, scientific and technical services. Wyle held an OASIS contract at the time the agency released the solicitation. Just after the solicitation issued, however, Wyle transferred its “assets and liabilities used in or relating to the performance” of its OASIS contract to another company (GAO’s decision redacted the other company’s identity, so for the purposes of this post I’ll call the company “ABC Corp.”). Under the companies’ agreement, Wyle agreed to cooperate and assist ABC Corp. in submitting proposals before a novation was granted (see FAR 42.1204 for a discussion of novation–the avenue by which a government contract is transferred to a third party). And in fact, Wyle and ABC Corp. submitted a bid for the solicitation, explaining that Wyle would “serve as the prime contractor until novation of its OASIS . . . contract assets” and would perform “requisite prime contract administration responsibilities only during the novation period.” After novation, however, ABC Corp. would become the prime contractor and assume the all contract responsibilities. Before submitting its bid, Wyle filed a protest with GAO arguing that the solicitation unduly restricted competition given how the agency limited the submission of past performance information. The agency moved to dismiss Wyle’s protest arguing that Wyle was not an “interested party.” Without much analysis, GAO found that Wyle met the first half of the “interested party” requirement because Wyle was an actual bidder under GAO’s regulations. So GAO turned its attention to the second requirement —i.e., whether Wyle had a “a direct economic interest in the procurement that would be affected by the award of a contract or the failure to award a contract.” GAO’s analysis focused on three salient facts: 1) Wyle submitted the bid solely to comply with Wyle’s contractual obligations to ABC Corp. under their asset transfer agreement; 2) the bid was prepared by ABC Corp.; and 3) ABC Corp. would perform all the work under the task order. Given these facts, GAO found that Wyle had “not demonstrated how the limited prime contract administration responsibilities it indicates that it will provide as the prime contractor reflect that Wyle has a direct economic interest in the procurement.” Significantly, GAO latched onto the key fact that Wyle had no intention of performing any substantive work under the task order. Thus, GAO held: Where, as here, Wyle’s purpose as the “prime contractor” is a legal requirement of its third-party asset purchase agreement with [ABC Corp.] and Wyle’s only duties as the prime contractor are the administrative responsibilities required to allow [ABC Corp.] and its subcontractors to perform under the task order until the novation is finalized, and where Wyle acknowledges that it does not intend to perform any work required under the solicitation, we do not believe that the protester has demonstrated sufficient direct economic interest in the procurement to qualify as an interested party. GAO then dismissed the protest, never reaching the protest’s merits. This case teaches an important lesson: a contractor can’t be a mere placeholder and invoke GAO’s jurisdiction. Put differently, before GAO entertains a protest, it wants to see a protester that will play a bona fide role in contract performance. In our firm’s experience, novations often involve deals like that between Wyle and ABC, under which the party seeking the novation (in this case, Wyle) essentially agrees to subcontract all or almost all of its work to the “new” contractor (here, ABC) pending the approval of the novation. But as this case demonstrates, a relatively commonplace novation arrangement may impact the ability to file a bid protest. View the full article
  12. Koprince Law LLC

    SmallGovCon Week in Review: October 1-5, 2018

    It promises to be a beautiful (albeit rainy) fall weekend here in Lawrence. We hope that your weekend is shaping up nicely, too. In this week’s edition of SmallGovCon Week In Review, an update on the National Cybersecurity Strategy, key mistakes small business contractors should avoid, tips on how to get IT contracts, and much more. Have a great weekend! New National Cyber Strategy has dramatic changes for government contractors. [jdsupra.com] Key mistakes that small business contractors should avoid. [federalnewsradio.com] Former CIO of the US federal government gives tips on how to get IT contracts. [theregister.co.uk] The greater Washington, DC area is the largest recipient of contract dollars in the nation. [globest.com] GSA issues CAAC Letter to implement a section of John S. McCain National Defense Authorization Act (NDAA) for FY 2019. [acquisition.gov] Air Force terminates contract due to contractor’s ties to U.S.-sanctioned Russian oligarch. [about.bgov.com] The way the government resolves fraud allegations is often dictated by how the government learns of suspected wrongdoing. [defenseone.com] Department of Labor investigation finds Iowa company violated SCA and CWHSSA and required to pay $678,296 in back wages, overtime, and fringe benefits. [dol.gov] Senators call for investigation of FEMA awarding contracts to companies with little or no experience doing the work required. [mcclatchydc.com] View the full article
  13. In a strongly-worded opinion, a federal judge decried a “labyrinth of legal and regulatory hoops and hurdles” imposed on the VA as a result of the famous Kingdomware Supreme Court decision–and suggested that Congress could exercise a “kill switch” to curtail or even eliminate the SDVOSB and VOSB contracting preferences the Supreme Court unanimously affirmed. While I have no reason to suspect that Kingdomware is in any danger of being overturned or curtailed by Congress, its certainly not great news for SDVOSBs and VOSBs that a federal judge seems to be pushing for that very thing. First things first: if Kingdomware was a Supreme Court decision, how could it be overturned? Isn’t the Supreme Court the highest court in the land? The Supreme Court decision captured the public’s attention, but the Supreme Court didn’t invent the “rule of two” at issue in the case. Instead, the Supreme Court was asked to interpret the breadth of the underlying statute, 38 U.S.C. 8127, and affirmed that the statute creates broad preferences for SDVOSBs and VOSBs when it comes to contracting with the VA. Congress, of course, writes statutes, including 38 U.S.C. 8127. If Congress wished, it could amend or repeal the statute, and the change would become law with the President’s signature (or perhaps without, although that’s rarer). That takes us to the recent decision of the Court of Federal Claims in Electra-Med Corp. v. United States, No. 18-927C (2018). The case involved the VA’s Medical-Surgical Prime Vendor-Next Generation program. Under the MSPV program, the VA awards several contracts to so-called Prime Vendors. Each contract covers a specified geographical area. The VA can then place orders with Prime Vendors to obtain certain medical supplies, which are available on the VA’s MSPV “Master List.” The VA struggled to populate the Master List. By March 2018, the Master List contained only 7800 out of the 80,000 items that the VA anticipated as necessary to support its healthcare network. To address the issue, the VA sought to outsource to the Prime Vendors the selection of the items to be contained on the Master List. The VA issued a Class Justification and Approval to allow the Prime Vendors to modify the process of creating the Master List and allow the Prime Vendors to select the items on the Master List. In June 2018, Electra-Med Corporation and three other plaintiffs filed a complaint in the Court of Federal Claims. The plaintiffs contended that the J&A was legally insufficient to justify the sole-sourcing of thousands of medical and surgical supply items, many of which the plaintiffs alleged they could provide. Among their allegations, the plaintiffs argued that allowing the Prime Vendors to select items for the Master List violated the “rule of two” under 38 U.S.C. 8127 and Kingdomware. The plaintiffs contended that because they are SDVOSBs, the VA could not allow the Prime Vendors to select non-SDVOSBs to provide products for the Master List without first applying the rule of two and considering SDVOSB and VOSB sources for those products. The VA and the Prime Vendors said that the prime vendors would be bound by their small business participation plans, which would protect SDVOSBs and VOSBs. Judge Eric Bruggink didn’t agree. He wrote that “[t]here is no legal requirement that the [Prime Vendors] consider whether two VOSBs can provide an item that they source for the Master List, nor is there any requirement that they limit their consideration to such businesses.” Because the Prime Vendors are “private purchasers untethered to the FAR, VA regulations, and procurement statutes,” the VA could not rely on the Prime Vendors to enforce the rule of two. Instead, Judge Bruggink held, “[p]laintiffs are correct that 38 U.S.C. 8127 is violated by the VA’s outsourcing of its selection of supply vendors.” So far, so good, right? The SDVOSBs seemed to win. But although Judge Bruggink held that the VA had violated the rule of two, he seemed to wish that the law would allow him to find differently. He wrote: The bevy of protests filed in this court and at GAO since the Supreme Court’s decision in Kingdomware are evidence enough that these requirements are strict and difficult to follow in the mean and no doubt doubly so when the law requires that they be applied without fail or exception. And yet the law remains. Only Congress has the kill switch. While Judge Bruggink ruled that the plaintiffs were right on the merits, he declined to enter an injunction to prevent the VA from continuing to populate the Master List through the Prime Vendors. Judge Bruggink focused primarily on the “compelling problems” of ensuring “high quality healthcare to veterans.” Disrupting the supply chain, Judge Bruggink held, would harm this important public interest. In this section of his opinion, Judge Bruggink again took aim at the Kingdomware preferences (and the contracting process more generally), writing: In this case, the VA is hamstrung by the myriad requirements and preferences layered onto the process of federal purchasing, and especially the preferences unique to the VA. The complaint here is exhibit A. Plaintiffs are correct that Congress has granted to them and bidders generally a variety of rights when it comes to selling things to the VA. It is for Congress and the voters to weight the merits of the benefits and burdens imposed by such a labyrinth of legal and regulatory hoops and hurdles. This case presents a circumstance in which the VA could not timely clear the hurdles. The result is a danger to veterans’ healthcare and increased cost to the government. Despite holding that the plaintiffs had shown that the VA had violated the law, Judge Bruggink denied the protest. For SDVOSBs and VOSBs, the outcome in Electra-Med is troubling. Even though the VA was clearly violating the rule of two, that violation effectively was allowed to stand–and one of the reasons Judge Bruggink allowed the violation to stand was his opinion that the “rule of two” preferences imposed by statute, and affirmed by Kingdomware, are unduly strict. And while I have no reason to believe anything of the sort is under serious consideration, Judge Bruggink’s suggestion that Congress think about a “kill switch” for the rule of two is also highly concerning. But, in fairness, Electra-Med was hardly a run-of-the-mill case. The unique nature of the MSPV program–and its impact on veterans healthcare–may mean that Electra-Med isn’t a sign of things to come in future cases, but an outlier in which a judge felt that the rule of two had to bend in favor of even more important policy considerations. It’s also true, of course, that federal procurement is complicated, and the rule of two places additional requirements on the VA to prioritize contracting with veteran-owned companies. But I hardly think that the “bevy of protests” filed since Kingdomware is evidence that the law is strict or difficult to follow in the typical case. Rather, it simply seems to me evidence that the VA isn’t always faithfully following the law, and that the veterans’ community is willing to hold the VA’s feet to the fire when it sees potential violations. Think of it this way: if the police stop a lot of inebriated drivers at a sobriety checkpoint, this doesn’t mean that DUI laws are too strict or confusing–it just means that drivers are violating those laws. While I don’t have any inside information, it won’t surprise me in the least if Electra-Med ends up in the Federal Circuit on appeal. My colleagues and I will follow up with another post if that happens. In the meantime, we’ll see what effect, if any, Judge Bruggink’s decisions (and his commentary) has on lawmakers, the public, and other judges who may be deciding protests involving Kingdomware and the rule of two. View the full article
  14. It’s easy to forget that roughly a year ago, Equifax was hacked, which compromised the personal information of roughly 145.5 million individuals. The scope of the breach was concerning for a number of reasons, not the least of which was the fact that Equifax was providing identity verification services for three federal agencies at the time it was attacked. In a recent report, GAO reviewed how these agencies responded to the attack. While not making any specific recommendations at this time, GAO’s report does highlight the extent to which federal agencies were not fully prepared for cyberattacks on private contractors. Prior to the Equifax breach, the IRS, the Social Security Administration, and USPS contracted with Equifax to provide identity verification services. These agencies relied on Equifax’s databases to verify the identities of individuals applying for various services. For example, the IRS used Equifax servers to verify identities for tax return purposes. Following the Equifax cyberattack, agencies took a variety of steps to assess the situation and make proactive changes to their contracts with Equifax. Foremost was notifying impacted individuals. While there was no breach of agency systems in connection with the Equifax attack, there was nevertheless concern that impacted individuals may have had an increased risk for identity theft. Accordingly, one of the first actions taken by the impacted agencies was to notify impacted individuals. Additionally, the impacted agencies took a number of contractual actions to improve the response in the event of future breaches. For example, the Social Security Administration made modifications to its current contracts with Equifax to “require prompt notification of any future breach[.]” This was a significant concern, as Equifax did not immediately notify agencies following the initial breach. Similarly, the IRS also updated its contracts to require Equifax “notify IRS within one hour after a breach is discovered, rather than within the previous time frame of 24 hours.” The IRS and USPS also made contract modifications and policy changes to improve cybersecurity provisions. As the GAO explained in its report, the “IRS updated its internal cybersecurity contractor requirements and controls related to incident handling.” Additionally, the USPS “initiated discussions with the National Institute of Standards and Technology to determine risks associated with the knowledge-based verification questions it had been using with Equifax’s identity-proofing service.” The USPS subsequently revised the questions it used for identity verification. Finally, prior to the breach, Equifax was serving as an incumbent contractor for the IRS providing tax payer identity verification services. These services were subsequently competitively re-procured through Experian. Equifax protested the Experian award before GAO, which caused the IRS to issue a sole-source bridge contract for identity verification services while the protest was pending. This contract extension was issued despite Equifax acknowledging its data breach a few weeks earlier. The IRS, however, subsequently issued a stop work order for the work. After Equifax’s GAO protest was denied, the IRS transitioned the new work to its contract with Experian. While not making any recommendations, the GAO report did acknowledge a number of potential issues with the response. Among these was the fact each of the affected agencies initiated its own internal investigation “because they said it was unclear whether any single federal agency had responsibility for coordinating government actions in response to a breach of this type in the private sector.” This is a significant issue, particularly given the increasing frequency of cyber-attacks on private companies. In all, the Equifax breach highlights the difficulties agencies face when private contractors encounter data security issues. As noted by GAO, the impacted agencies did not have a standard set of procedures for addressing large cyberattacks on private contractors. As cyber-security has only become a more pressing issue following the Equifax attack, developing a robust set of procedures for addressing cyber breaches is likely to become increasingly important in federal government contracting. View the full article
  15. New, consolidated SDVOSB eligibility regulations kicked in on October 1. The new regulations replace the old VA and SBA rules, which provided separate eligibility standards for SDVOSBs. Veterans have long been confused by the fact that the Government operated two separate SDVOSB programs, each with its own standards. The consolidated rule will eliminate that confusion, and that’s a very good thing. There are also several other pieces of the new SDVOSB eligibility rule that veterans should like–but also some that aren’t so great, or that require further clarification as to how they’ll be applied. My colleague Matt Schoonover provided a broader overview of the new regulations earlier last week. Now it’s time for me to get on my soapbox. Without further ado, here’s my list of the good, bad, and the downright ugly from the new SDVOSB regulations. The Good More Clarity. The SBA’s old SDVOSB regulations could be maddeningly vague, particularly when it came to the question of what the SBA meant by “unconditional control.” In fact, in a handful of cases, the SBA’s Administrative Judges used the 8(a) Program regulations as a reference point for interpreting SDVOSB requirements. Whether one likes or dislikes the new regulations, they at least provide veterans with much more clarity than the SBA’s old SDVOSB regulations, making compliance easier. Bye-Bye “Draconian and Perverse.” The new rules seem to do away with perhaps the most egregious interpretation of “unconditional” that I’ve seen. In late 2017 and early 2018, the SBA took the position that a veteran did not “unconditionally” own his company because the company’s bylaws said that the veteran’s ownership would transfer to the 49% owner in the event of the veteran’s death or incapacity. A federal judge famously called the SBA’s position “draconian and perverse,” but nonetheless within the SBA’s broad powers. The new regulation excludes “death or incapacity” from the definition of “unconditional ownership,” appearing to effectively overturn SBA’s prior precedent. But the new regulation is much less clear about whether ordinary rights of first refusal–such as those that simply say that each owner must offer his or her shares to the others before selling to third parties–is permissible. (More on that below). Forget About Community Property. Married veterans living in so-called “community property” states have long been forced to ask their spouses to legally disclaim their legal ownership rights in SDVOSBs. The new regulations provide that “[o]wnership will be determined without regard to community property laws,” eliminating this burdensome requirement. No Full-Time Devotion. Veterans–particularly those running start-ups–have been frustrated with the VA’s old requirement that the veteran holding the highest officer position work “full time” for the SDVOSB. The new regulations dial back on this requirement. The regulations specify that there is a rebuttable presumption that a person who does not work for the company during normal working hours does not control the company. But, as the SBA says in the commentary accompanying the new regulations, “[a]s a rebuttable presumption, this is not a full-time devotion requirement and can be rebutted by providing evidence of control.” The Bad A Physical Test in an Online World. As telecommuting and location-independent work skyrocket in the Internet age, the new regulations take a giant step backward. They say that “there is a rebuttable presumption that a service-disabled veteran does not control the firm if that individual is not located within a reasonable commute to [the] firm’s headquarters and/or job-sites locations, regardless of the firm’s industry.” Not only does this unnecessary test discourage reasonable telecommuting–by disabled individuals, no less, some of whom have physical limitations making commuting difficult–it is also maddeningly unclear in its use of the term “and/or.” Many government contractors work regionally, nationally or even internationally, with jobsites spread hundreds of miles apart. If, for example, a company is headquartered in Kansas City but has jobsites in Virginia and California, then what? Is the veteran okay if he or she lives close to the Kansas City headquarters, even though the jobsites are nowhere nearby? Would a California residence suffice, if this is the primary jobsite, even though the Missouri headquarters is far away? Or perhaps the SBA expects veterans to have ready access to teleportation technology, making for an easy commute to all three locations? Caregiver Confusion. The regulations say that, in the case of a veteran with a permanent and severe disability, the spouse or permanent caregiver of the veteran can run the company’s management and daily business operations. Now, don’t get me wrong–I support the notion that veterans with permanent and severe disabilities ought to be able to appoint someone else to run the company’s daily operations. But why should that person be the veteran’s own spouse or permanent caregiver? A spouse or caregiver may not have the industry or business know-how necessary to run the company successfully, much less effectively control all aspects of its daily operations. And the reverse is true, too: I’d hate to think of a veteran choosing a personal caregiver based on an individual’s business savvy, instead of that person’s ability as a caregiver. Additionally, while the new regulations don’t impose a full-time devotion requirement, they do generally require that the individual running daily operations be working during normal business hours. But shouldn’t an appointed caregiver be, um, caregiving during some of those hours? If it were up to me, I’d allow the veteran to appoint a non-caregiver business manager, and ditch the requirement that the person appointed be the spouse or caregiver. The Downright Ugly Primary NAICS Code. The new regulations appear to say that a company cannot qualify as an SDVOSB unless it is small in its primary NAICS code. The regulations define an SDVOSB as a type of “small business concern,” and defines “small business concern” as “a concern that, with its affiliates, meets the size standard corresponding to the NAICS code for its primary industry . . ..” If this is the intent, it would be a big change to prior SBA regulations, and could dramatically and unfairly limit the ability of a particular company to qualify for SDVOSB contracts. For example, consider a solicitation set aside for SDVOSBs under NAICS code 236220 (Commercial and Institutional Building Construction), with a corresponding $36.5 million size standard. As I read it, if a company had $30 million in average annual receipts, it could bid on the solicitation if its primary NAICS code was 236220, or some other NAICS code with a size standard exceeding $30 million. But if the same company had a primary NAICS code like 238140 (Masonry Contractors), with a $15 million size standard, it would be ineligible. I hope I’m wrong about how this will be applied, because it sounds very unfair–and could lead to some real gamesmanship when it comes to companies self-certifying their primary NAICS codes in SAM. Rights of First Refusal. As I mentioned above, the new SBA regulations seem to allow rights of first refusal in the case of the veteran’s death or incapacity. That’s a step in the right direction. But what about an ordinary right of first refusal, simply stating that if one owner (including the veteran) wishes to sell, he or she must offer the interest to the other owners first? Such provisions are commonplace in corporate documents, and have been permitted by the VA since mid-2013. Many companies in the VetBiz database undoubtedly have such restrictions in their bylaws and operating agreements. It’s unclear whether those companies remain eligible SDVOSBs under the new regulations. The new regulations do specify that “adding a new equity stakeholder” is an “extraordinary” item over which a non-veteran may exercise veto power. That’s good, as far as it goes, but not all of these transactions involve a new stakeholder. For example, let’s say that a company has a veteran owner with 51% and two non-veteran owners, each with 24.5%. As I read it, each of the non-veterans would be unable to prevent the veteran from transferring his or her entire share to the other non-veteran, because no “new equity stakeholder” would be added. More troubling, the new regulations discuss the “extraordinary” exceptions in the portion of the regulations dealing with unconditional control; the SBA has historically found that right of first refusal provisions violate the requirement for unconditional ownership. Hopefully, this uncertainty will be resolved in favor of allowing reasonable right of first refusal provisions, but if not, I’m worried that many currently-verified SDVOSBs could be deemed ineligible. The Road Ahead There is a lot to like in the SBA’s consolidated SDVOSB regulations, but some real areas of concern, as well. As these rules get applied and interpreted in practice, my colleagues and I will keep you posted–and I hope that the SBA will be willing to quickly make tweaks to its new rules if any interpretations prove unfair. View the full article
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