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  1. It’s an exciting time in the federal contracting world. The House and Senate negotiators have resolved their differences on the 2020 NDAA and it should be passed soon. In addition to the article below, you can review our coverage on some of the major provisions that would affect contractors and we’ll also provide updates with any major changes coming out of the final version. But that’s not the only news. There are are also updates on the flurry of recent SBA rule changes and a new SBA administrator, the DOD’s new cybersecurity model, and a security clearance loophole. SBA ‘beats the odds’ by finalizing several major contracting regulations. [federalnewsnetwork] Government taking steps to better support commercial space industry. [spacenews] DoD will help small companies meet cyberspace requirements. [defense.gov] House, Senate agree on Defense bill adding paid leave for feds, US Space Force. [federalnewsnetwork] Security clearance loophole allowed ex-NSA hackers to work for UAE. [reuters] Congress targets OTAs, cyber investments in defense policy bill. [fcw] Trump’s pick for SBA head vows to double down on agency’s cyber portfolio. [federalnewsnetwork] Cybersecurity Requirements Likely for Defense Contracts by June 2020. [defense.gov] The Key PRC Issue: Do the benefits outweigh the costs?[federalnewsnetwork] View the full article
  2. Fraud is an ever pressing concern in federal contracts, and the federal government goes to great lengths to minimize the risks to introduce fraud into the procurement system. Unfortunately, a recent GAO report highlighted how complex ownership structures can be leveraged to obscure fraudulent contracting activities. Worse still, complex ownership structures are most frequently leveraged to perpetrate small business set-aside fraud. GAO’s report is a direct response to concerns raised by the House Armed Services Committee. When reporting on the 2018 NDAA, the Committee noted that Department of Defense contractors could use complicated ownership structures to conceal unreasonable cost structures or create hidden monopolies. In light of these concerns, the Committee called on GAO to investigate the types of fraud that complicated ownership structures could conceal, as well as assess steps the Department of Defense has taken to mitigate these risks. The GAO report focused on companies that utilized complicated ownership structures to make corporate ownership difficult to trace. GAO deemed these types of organizations “opaque corporate structures” and defined that term as “business governance that may conceal or obfuscate entities or individuals who own, control, or benefit financially from a business.” With respect to methodology, GAO reviewed closed Defense Criminal Investigative Organizations cases, Department of Justice prosecutions, and GAO bid protest decisions to identify instances where contractors used opaque ownership structures to obtain federal contracts for which they were not otherwise eligible. The review was limited to cases that had been closed between the 2012 and 2018 calendar years. All told, GAO identified 32 instances where complicated ownership structures were used to mislead federal procurement officials to obtain contracts. GAO’s report goes on to identify a number of different risks that stem from opaque ownership structures. These risks include price inflation, circumventing small business set-aside requirements, and non-domestic contract supply chain infiltration. While each of these risks is troubling, subversion of the small business set-aside requirements was far and away the most common risk associated with opaque ownership structures. According to GAO, “[o]f the 32 cases we reviewed, we identified 20 cases in which DOD contractors or DOD contractor employees were found guilty, pled guilty, or settled with the government for representing themselves as eligible to receive set-aside contracts.” This is to say that of the 32 cases GAO identified where opaque ownership structures resulted in procurement fraud, nearly two-thirds involved small business set-aside misrepresentations. Concerningly, GAO was able to succinctly summarize the way in which contractors were able to use ownership structures to obtain small business set-asides for which they did not qualify: These contractors falsified self-reported information and made false certifications to the government to claim eligibility by using eligible individuals as figurehead owners. In these cases, the figurehead owners did not actually maintain the level of beneficial ownership or control of the contractor required by federal regulations, or the contractors simply used the names of eligible individuals when communicating with the government to bid on and win contracts. Given the ease with which GAO was able to summarize how otherwise ineligible contractors were able to use ownership structures to obtain federal awards, opaque ownership structures present a significant risk to small business contracting. In light of the potential for fraud, GAO did note that the Department of Defense has taken some proactive steps to check the risks associated with opaque ownership structures. As GAO explained, the FAR was amended in 2014 to require prospective contractors to report “immediate and highest-level entity owner, but not their beneficial owner, as part of contractors’ annual registration process in SAM.” Certain Department of Defense agencies, such as the Defense Logistics Agency, have also revised how contractor responsibility is evaluated to better capture ownership concerns. Even with these steps, deciphering the ownership structures of defense contractors remains challenging. According to GAO, “state governments determine the type of information collected during company formation and . . . most states collect minimal ownership information as part of this process.” Additionally, “there is no centralized information source or registry on company ownership information in the United States.” As a consequence, verifying ownership representations is a time consuming process. Department of Defense officials acknowledged that due to time and resource constraints, this type of verification only occurs in procurements involving classified work or implicating national security concerns. Despite the Department of Defense’s efforts to combat fraud in its procurement systems, GAO nevertheless concluded that work remained to be done. Specifically, while some Department of Defense offices have initiated programs designed to reduce the contracting fraud risks associated with opaque ownership structures, GAO noted that a comprehensive department wide risk assessment was likely required. Ultimately, GAO’s report on opaque ownership highlights risks in the small business pool. Set-asides represent an exclusive pool of contract dollars available only to those business that are eligible. The exclusivity of these contract dollars and the smaller group of eligible participants can make set-asides a tempting target for ineligible contractors. As GAO’s report makes plain, complicated ownership structures can be—and have been—used by unscrupulous ineligible contractors to fraudulently obtain set-aside contracts. One thing GAO’s report did not address is how the SBA’s size and status protest process can serve an important role in policing the integrity of small business set-asides. As a general matter, the SBA’s socioeconomic set-aside programs (other than the HUBZone program) require both unconditional control and ownership by one or more individuals. A number of the SBA’s programs offer protest options for unsuccessful offerors to challenge the set-aside status of an awardee when facts exist that reasonably demonstrate the awardee is otherwise ineligible for the procurement. As such, small businesses play an important role in policing the integrity of the set-aside system, particularly when opaque ownership structures otherwise obscure the ineligibility of an offeror. View the full article
  3. The SBA has published a final rule that would allow for quite the change to small business set-aside multiple award contracts (MACs) and orders issued under them. This final rule amends the SBA’s regulations to authorize task and delivery orders issued under a small business set-aside MAC, to be set-aside for HUBZone businesses, 8(a) businesses, SDVOSBs, or WOSBs. While agencies had set aside orders under MACs before, SBA has now clarified its regulations to allow socioeconomic set-asides of orders under small business set-aside MACs. On November 29th, the SBA published a Final Rule updating its regulations and discussing comments submitted regarding these updates. Among changes to subcontracting plans and limitations on subcontracting, the SBA made changes to its regulations dictating how task and delivery orders may be set aside under multiple award contracts set-aside for small business. Back in 2013 the SBA first brought up the prospect that individual orders under a small business MAC could be set-aside for certain small business socioeconomic programs (HUBZone, WOSB etc.). However, SBA noted at the time that the small business programs had major differences in their limitations on subcontracting, and non-manufacturer rule requirements. This made it difficult for agencies to determine what rules would apply to each set-aside order. In 2016 the SBA fixed these discrepancies and agencies also started pursuing the strategy of allowing order set-asides under set-aside MACs. Therefore the SBA determined it was the proper time to revisit the concept that orders under a MAC can be restricted to specific small business programs. Through this final rule, the SBA is updating 13 C.F.R. § 125.2(e)(6) to remove the words “full and open”. Agencies, with SBA’s blessings, can set aside orders under socioeconomic categories under a small business set-aside MAC. In SBA’s words, this will “allow agencies to set aside orders for a socioeconomic small business program (8(a), HUBZone, SDVO, WOSB) under a MAC that was awarded under a total small business set-aside.” The SBA states that it received twenty-two comments regarding the allowance of socioeconomic set-asides under a small business MAC. Of those twenty-two, twelve comments supported the change and ten opposed it. The main concerns of the comments opposed to this change are: (1) it seems unfair to the original small business awardees of a MAC to allow socioeconomic set-asides under those contracts where it was not originally contemplated; (2) allowing these order set-asides will reduce the number of offerors for the orders that are set-aside; and (3) small businesses would be discouraged from bidding on these MACs because they have no assurances that future orders would be set-aside for their specific small business program. The SBA addressed the concerns by stating that the final rule will not affect any already awarded MACs unless socioeconomic set-asides were already contemplated in their respective solicitations. Additionally, the SBA asserted that going forward, small business will know at the time of offer what kind of set-asides, if any, may be available under the MAC at the time of award and future orders. It appears SBA is referring to the requirement that contracting officers insert FAR 52.219–13, Notice of Set–Aside of Orders, in solicitations and contracts to notify offerors if an order or orders are to be set aside for small business concerns. So, it appears that currently awarded MACs will likely not be impacted by this final rule. However, any MACs awarded going forward could be impacted. Contractors should closely review future multiple award solicitations to determine whether socioeconomic set-asides for orders are a possibility and plan their bidding accordingly. This additional authority from SBA may encourage more agencies to restrict orders for 8(a), HUBZone, SDVO, WOSB businesses. View the full article
  4. The SBA Office of Hearings and Appeals denied an SDVOSB-status protest recently where the protester’s main argument amounted to an allegation that the owner of a competitor failed to identify on social media that he had a service-related disability. OHA called the allegation “completely without merit.” BMK Ventures, Inc. protested the service-disabled veteran-owned status of Beacon Point Associates, LLC in October. Beacon point had been reverified as SDVOSB by the Department of Veterans Affairs Center for Verification and Evaluation only two weeks earlier. The protest alleged that the owner of Beacon, Thomas Jefferson Summerour, Jr. was not a service disabled veteran because his LinkedIn profile said he was in the Navy for 20 years but fails to claim that he was “disabled during his military service” on that or any other social media platform. The protester also noted that Mr. Summerour seemed to own another business that could distract from his running of Beacon Point. Beacon Point responded by arguing that the protester “appears to believe that users of social media platforms are required to list personal information such as whether they have received a disability rating from the VA.” OHA asked for more information about the alleged side business, so Beacon Point explained that Mr. Summerour owns Beacon Point Properties, LLC, a real estate holding company that owns the property where Beacon Point is located. The company also explained that Mr. Summerour works all operating hours of Beacon Point, usually arriving 30 minutes prior to the opening of operations and leaving 30 minutes after closing. OHA found that the allegation regarding social media accounts to be baseless. Protestor’s claim that Mr. Summerour is not a service-disabled veteran because he did not so indicate on his personal social media accounts is completely without merit, and fails to meet the requirement of the regulation for a protest of the service-disabled veteran status of the owner of a challenged concern. The fact that Mr. Summerour does not disclose his personal information regarding his disability status on public platforms, like LinkedIn and Facebook, is not grounds which can sustain a protest. Meanwhile, OHA found no evidence that owning a holding company to maintain the property where the SDVO business is located distracted Mr. Summerour from controlling his business. OHA said: “[T]here is nothing to support Protestor’s allegation that Mr. Summerour does not work for Beacon during normal business hours, and therefore, none to support its contention that Mr. Summerour does not control Beacon.” OHA concluded that Beacon Point had proven its eligibility and denied the protest. View the full article
  5. The end of the year brings different traditions for different folks. Around these parts, Lawrence is celebrating its old fashioned Christmas Parade downtown. Old fashioned in this case means all horses and no motorized vehicles. It’s a fun event. But for government contractors (and their lawyers), the end of the year is a great time to reflect on changes to the federal contracting legal landscape. In that vein, Public Contract’s (AKA Pub K) free Annual Review 2019 will take place via webcast on December 12 from 9 am to 4:30 pm. For those looking for some detailed discussion of government contracting issues over the past year from some seasoned presenters, this is the place. Over the past couple weeks there has also been a lot of interesting updates in federal contracts, including a GAO report highlighting how lack of contractor ownership transparency can mask national security threats as well as other contractor scams, companies vying for the government e-commerce portals, and small contractors are struggling to meet cybersecurity standards. The GAO report will make for good reading as it has a lot of examples of ownership concerns for those looking to avoid fraud issues in government contracting. Pub K’s Annual Review 2019. [pubkgroup] What the federal cloud market could look like in 5 years. [federaltimes] Congress passes deal to avert Thanksgiving government shutdown, but December shutdown looms. [militarytimes] Frustrations grow with new Beta.Sam.gov. [washingtontechnology] Amazon, Walmart, eBay Eye Potential $50B Market for Federal Online Purchases. [govconwire] The US Defense Department lost $875 million to scams involving shell companies. [quartz] OTA Prototyping Nearly Triples To $3.7B: GAO. [breakingdefense] Google Cloud gets FedRAMP High authorization.[fedscoop] Small Contractors Struggle to Meet Cyber Security Standards, Pentagon Finds. [govexec] Grenade launcher firing pins lead to $1 million settlement against Capco. [gjsentinel] Small Business Facts: Spotlight On Veteran-Owned Employer Businesses. [advocacy.sba.gov] Is government’s disability procurement program eroding? [federaltimes] View the full article
  6. The VA and SBA have numerous regulations defining the eligibility requirements for participation in the veteran-owned and service-disabled veteran-owned small business programs. To help laypersons better understand these regulatory hurdles the VA publishes Verification Assistance Briefs. These “are resources to assist applicants in obtaining VA Verification for the Veterans First Contracting Program” and understand SBA’s ownership and control criteria. The VA recently updated all of its existing Briefs and added some new ones. Read on for an overview of the 26 Briefs and a more detailed look at some of the more notable ones. The VA has broken its Briefs into four categories: Eligibility, Ownership, Control, and Small Business Criteria. 17 of these Briefs are updates to ones that were previously several years out-of-date, and the remaining 9 are first-time Briefs. Structurally, the Briefs each (1) address a unique question, (2) provide the regulatory language addressing that question, and (3) paraphrase the regulations in an attempt to make them easier to understand. In some Briefs, such as Good Character Eligibility Requirement, the third component is just a regurgitation of the regulation. While simply paraphrasing regulatory language might not be that helpful, the VA does expand its insights on other Briefs, highlighted below. Proving Veterans Are Entitled to Receive At Least 51 Percent of Annual Distribution of Profits Whether a veteran-owned or service-disabled veteran-owned small business (VOSB and SDVOSB, respectively), the regulations require that the veteran(s) own at least 51% of the company and that the veteran(s) receive at least 51% of the annual distribution of profits. This Brief adds some key points to this regulatory context. First, the Center for Verification and Evaluation (CVE) looks at several documents to determine compliance with the 51% rule. Not only will it review tax filings, but also “state and municipal statutes . . . the company’s by-laws, operating agreement, organizational documents, and other company business documents.” Second, there is a distinction between receiving profit vs the right to receive a profit. “Veterans are not required to draw profits from the company” Instead, CVE is concerned that veterans are entitled to receive at least 51% of the annual distribution of profits. This is a key distinction to keep in mind, especially since the veteran(s) may choose to forgo distributions and reinvest in the business. Reinvesting profits likely will not be an issue so long as the veteran(s) are entitled to receive at least 51% of the annual distribution of profit. Demonstrating Control of a Limited Liability Company In our experience, one of the most common areas of confusion is the level of control veterans must have over their companies. On the surface, this is a straight-forward answer: the veteran(s) must control the VOSB or SDVOSB. But how do super-majority or unanimous voting requirements impact this control? While these types of requirements are frequently found in business agreements, they may be noncompliant with the regulations. This Brief touches on many different control requirements found throughout the regulations. First, the veteran(s) must own “[n]ot less than 51 percent” of the company. Second, the veteran(s) must also control “the management and daily business operations of the concern[.]” Third, and specific to LLCs, the veteran(s) “must serve as managing members, with control over all decisions of the limited liability company.” Notably absent from the Brief is any mention of minority-owner control. While the Brief states that the veteran(s) must own a majority of the company and control management and daily business operations, the lack of any additional guidance implies there is wiggle room for allowing non-veteran owners to participate in these functions to some degree. Just one example of what could, and maybe should, have been added to this Brief: subject solely to the exception outlined below, non-veteran owners cannot have power to veto action by the veteran(s). There are a few exceptions to this non-veteran control, as listed in the Brief under 13 C.F.R. § § 125.13(m) and 125.11. Those exceptions are classified as “extraordinary circumstances” and are: Adding a new equity stakeholder; Dissolution of the company; Sale of the company; The merger of the company; and Company declaring bankruptcy. The VA touches on this control topic in three other Briefs: (1) Determining Board Governance and Control, (2) Determining Dependence on Non-Veterans or Non-Veteran Entities, and (3) Understanding Control of Long-Term Decision Making and Day-to-Day Operations (also includes helpful language on franchise agreements and signing authority). While having these resources is helpful, consolidating discussions of control into a single brief could have made for an easier user experience. Be sure to look through all four of these Briefs when you are reviewing veteran control issues as they all might have something relevant. Conducting Business Under an Alias or an Assumed Name This is one of the few Briefs which is a real value-add, primarily since the concept is not addressed in the regulations. This Brief is void of regulatory background and focuses only on VA’s recommendations for how to proceed if you want to operate your company under a name other than that registered with the state. “Alias,” “Assumed Name,” and “Doing Business As” (d/b/a) all get to the same concept: that your company is registered under one name but does business under another name. For example, Bob Jones sets up a business under his own name. Instead of calling the business “Bob Jones,” which gives no indication of the type of business Bob specializes in, Bob registers an alias of “Bob’s Beautiful Baskets” to accentuate his basketmaking abilities. Similar alternative naming mechanisms may be used by LLCs, Corporations, and other businesses, depending on state law. The Brief is useful in providing veterans guidance on how to document these alternative names. As a first step, the alternate name must be registered in accordance with state or local law. The veteran then may, but is not required to, list its alternate names on its VIP profile or on VA Form 0877. If an alternate name is listed in either of these areas, the veteran must register the alternate name with the applicable state or local government body and provide documentation of this registration. Appealing a Denial of Verification or the Cancellation of a Participant’s Verified Status Many of the Briefs are sparse in supplemental explanations. Surprisingly, this Brief on appealing a denial or cancellation of verified status followed this trend. This Brief provides regulatory background on some of the reasons a denial or cancellation may occur and then summarily hands the reins over to the Small Business Administration, which now processes appeals. Instead of providing a reference to SBA materials or allowing SBA to collaborate on the Brief for more insight, the VA provides two minor points. First, “[t]he rules governing appeals are published at 13 CFR part 134.” Second, “[a]ppeals must be filed within 10 business days of receipt of the denial or cancellation.” In the absence of detailed guidance from the Brief, remember that, while each denial or cancellation is unique, SDVOSBs have the right to notice and an opportunity to respond. SmallGovCon has many additional resources addressing SDVOSB denial or cancellation and appeals of the same. Some are found in the related items below, others can be found through our search function. Understanding and complying with the regulations may leave you feeling like Harry Potter in the Triwizard Tournament: overwhelmed and confused about how you got in this mess in the first place. The VA’s Verification Assistance Briefs are a good place to start, and provide some good insights, but will not get you to the finish line. Please do not hesitate to reach out to us for help navigating this process. View the full article
  7. At SmallGovCon, we’ve closely followed the SBA’s implementation of the Small Business Runway Extension Act. After much confusion caused by the delayed implementation of the Act, there’s finally a light at the end of the tunnel: the 5-year receipts calculation period will become effective January 6, 2020. Importantly, the SBA’s final rule implements relief for businesses that will be adversely affected by the change to a 5-year receipts calculation period. Let’s take a look. By way of background, Congress passed the Small Business Runway Extension Act on December 17, 2018, seeking to give growing small businesses additional “runway” before graduating out of their size standard. To do so, it changed the time for which receipts must be calculated—from “not less than 3 years” to “not less than 5 years.” The SBA, however, balked at making the 5-year receipts calculation period immediately effective. In doing so, it advanced a series of arguments that (much to my chagrin) were later upheld by the SBA’s Office of Hearings and Appeals. Even though the SBA is adamant that the Runway Extension Act doesn’t apply to the SBA, it nonetheless issued a proposed rule in June 2019 that would change the receipts calculation period set forth in 13 C.F.R. § 121.104, from 3 years to 5. The SBA has now published the final rule to implement the 5-year receipts calculation, which will become effective on January 6, 2020. The rule clarifies that the 5-year calculation period applies to all receipts-based size standards, regardless of industry. Beginning January 6, therefore, the SBA will determine a company’s size by calculating its average annual receipts (that is, its total income added to its cost of goods sold, as reported on the company’s tax returns) over its preceding five completed fiscal years—if this amount falls below the corresponding size standard, the company is considered a small business. Though helping small businesses remain competitive for as long as possible is certainly an admirable goal, a switch to a 5-year receipts calculation period would undeniably hurt some businesses. Thankfully, the SBA has adopted a commonsense solution: until January 6, 2022, the SBA will allow firms to choose either a 3-year or a 5-year receipts calculation period. This two-year transition period will help prevent small businesses with declining revenues from being penalized through the automatic inclusion of higher-year revenues. But candidly, I’m not yet sure how it will work. The SBA will modify its (infamous) Form 355, to allow contractors to elect a 3-year or a 5-year calculation period. But will this be a one-time election, or will contractors be able to switch back and forth between the different calculation periods as it suits their needs? Will the election be an option for contractors to select in beta.sam.gov? Can a contractor argue that it’s small under either standard if faced with a size protest, or must it identify the receipts calculation period in advance before submitting a bid? The final rule doesn’t really answer these questions, so I’ll be interested to see how the calculation period election process plays out. There are a few caveats to keep in mind with this new rule: The change to a 5-year receipts calculation applies (for now) to small business and socio-economic programs and contracting eligibility. It does not impact the size calculation for business loan and disaster loan assistance—although the SBA has said it will seek comment on a modification of those programs in separate rulemaking. Size under employee-based size standards (i.e., for manufacturing and supply-based NAICS codes) are not affected by the Runway Extension Act or the SBA’s implementation of it; thus, calculation of the number of employees will continue as before under 13 C.F.R. § 121.106. The SBA clarified that the “former affiliate rule” does not allow a concern to adjust its past receipts after it sells or acquires a segregable division that is not a separate legal entity. *** Overall, the SBA’s implementation of the Runway Extension Act is a positive development. Remember: the 5-year calculation period goes into effect on January 6, 2020; until then, the 3-year calculation period will continue to apply. If you have any questions about this proposed rule or size calculations, please give me a call. View the full article
  8. The SBA recently proposed a rule that would amend the infamous three-in-two (AKA 3-in-2) rule for joint ventures. SBA’s current regulations provide that a joint venture can be awarded no more than three contracts over a two-year period. While SBA plans to keep the two-year lifespan for joint venture awards, it plans to get rid of the three contract maximum. The SBA released the proposed rule in November with the aim of streamlining small business regulations. The elimination of the three-in-two rule was just one of SBA’s major revisions to the regulations. This blog post is the sixth in a line of blogs on SBA’s proposed changes (here are Part 1, Part 2, Part 3, Part 4, and Part 5 of our coverage). The three-in-two rule is codified at 13 C.F.R. § 121.103(h) and currently states that a specific joint venture entity generally may not be awarded more than three contracts over a two year period, starting from the date of the award of the first contract, without the partners to the joint venture being deemed affiliated for all purposes. Under the rule, the two-year clock starts on the date of the first contract award. The joint venture can then be awarded up to two additional contracts during that two-year period. The three-in-two rule can be tricky, however, because SBA measures compliance with the rule for additional awards as of the date of the initial offer including price. This means that, under certain circumstances, a joint venture could be awarded more than three contracts during the two-year period. If a joint venture submits multiple proposals before its third contract award, it could still receive any of those awards without risking affiliation. But it cannot submit any additional proposals after its third award. So under the three-in-two rule, the parties to the joint venture may be found generally affiliated if the joint venture bids on any additional contracts after its first three awards or after the two-year mark hits, whichever comes first. Even if the joint venture is awarded all three contracts during its first year, it cannot bid on any more contracts after that point (without risking affiliation), regardless of the time left on the clock. And even if the joint venture is only awarded one contract during the two-year period, it cannot bid on additional contracts once the two-year period is up. In practice, the three-in-two rule has resulted in the same entities simply forming new joint ventures after every three contract awards. As the same two companies can continue to compete for contracts as a joint venture either way, the rule really just adds logistical steps to the process. It requires the companies to create a new joint venture and execute a new agreement in order to keep receiving awards—sometimes even within the same year, if it receives three awards by that time. While at “some point” SBA may find general affiliation under the rule based on multiple joint ventures, there is no bright line in the rule as to when that point would arise. For an example of how the three-in-two rule works, lets say Dunder Mifflin and Schrute Farms formed a joint venture called Beet Paper Pulp, LLC. Lets also say Beet Paper was awarded three contracts on February 5, 2017, February 8, 2018, and May 6, 2018. Then, on July 20, 2018, Beet Paper submits a proposal for a DoD solicitation. Because Beet Paper had already been awarded three contracts when it submitted its proposal, the SBA may find Dunder Mifflin and Schrute Farms to be generally affiliated, even though this is within the two-year period. SBA explains that the three-in-two rule was put in place to “capture SBA’s intent on limited scope and duration,” as “SBA believes that a joint venture is not an on-going business entity, but rather something that is formed for a limited purpose and duration.” But it appears that SBA has realized that a limit on the lifespan of joint ventures alone is sufficient to meet this goal. The proposed rule explains: The change removing the limit of three awards to any joint venture would relieve small businesses of the requirement of forming additional joint venture entities to perform a fourth contract within that two-year period. The proposed rule attempts to lessen the burden on small businesses, while still preserving SBA’s belief that a joint venture is not intended to be an on-going business entity. The rule was proposed in response to growing concerns within the government contracting industry that “the three-contract limit unduly restricts small business and can disrupt normal business operations.” And this was clearly not SBA’s intent. As SBA explains: SBA does not seek to impose unnecessary burdens on small businesses but continues to believe that a joint venture should be a limited duration vehicle. In response to these concerns, SBA proposes to eliminate the three-contract limit for a joint venture, but continue to prescribe that a joint venture cannot exceed two years from the date of its first award. SBA’s proposed rule would amend the introductory text to 13 C.F.R. § 121.103(h) to revise the joint venture requirements and remove the three-contract limitation entirely. It would leave the two-year time limit in place, however. So, the initial contract award would still start the two-year clock. But now, the same joint venture could be awarded any of the contracts it bids on during those two years. This means there would no longer be a need to start multiple joint ventures within the same two-year period simply because three awards were already made. In other words, the quantity of contracts awarded to the joint venture would not affect its eligibility for future awards in any way. The proposed rule states: “SBA will find joint venture partners to be affiliated, and thus will aggregate their receipts and/or employees in determining the size of the joint venture for all small business programs, where the joint venture submits an offer after two years from the date of the first award.” This would apply regardless of whether it was awarded one, twenty-one, or some other number of contracts during that time-frame. For an example of how the proposed rule would work, lets take our example from above. Remember, the first award was February 5, 2017. Under the proposed rule, it would be just fine for Beet Paper to submit the July 20, 2018 proposal for (and even be awarded) the DoD solicitation, regardless of how many awards were made, because the proposal was submitted before the two-year mark. However, if Beet Paper submitted another proposal on a VA solicitation on February 7, 2019, it would risk affiliation because this date was past the two-year mark. Even with the two-year limit staying in place, the proposed rule should reduce the need to form new joint venture entities. The only time two businesses would need to execute a new joint venture to receive future awards is after the two-year period from the first contract award has run. View the full article
  9. Recently, we wrote about the Congress’ Women’s Business Centers Improvements Act of 2019 (H.R. 4405). Since the Act passed the House in October, SBA has independently codified improved rules for the Women’s Business Center Program. As a reminder, the Women’s Business Center Program (or “WBC Program”) was first introduced by SBA in 1988. Currently, SBA lists 116 different centers located across the United States. By law, SBA is authorized to provide grant assistance to private, nonprofit organizations to carry out 5-year projects to benefit small businesses owned and controlled by women. While the WBC Program is entirely separate from SBA’s WOSB/EDWOSB program, the centers can also provide assistance to WOSBs. In general, WBCs provide a number of resources for women entrepreneurs, including business tools, training, and other resources. For an example of services provided by WBCs, check out this website. Overall, the WBC Program is most similar to the SBA’s Small Business Development Center (“SBDC”) Program, which offers counseling, training and technical management assistance to small businesses. In 2016, SBA issued a proposed rule for the WBC Program, outlining potential program requirements and requesting public comment. At long last, SBA is now finalizing that rule as an entirely new part of SBA’s regulations. Because the WBC Program can provide key assistance to many contractors, it’s good to highlight what the new rules do. To begin with, 13 C.F.R. § 131.110 “defines 57 words and phrases used in the management and oversight of the WBC Program.” It explains that WBCs “represent a national network of educational centers throughout the United States and its territories that assist women in starting and growing small businesses.” In the following subsections, the regulations explain the kinds of entities that can serve as WBCs (non-profits with 501(c) certifications) and those that are ineligible, as well as the operating requirements for any WBC. 13 C.F.R. § 131.330 describes the services WBC’s must be equipped to provide to prospective entrepreneurs and existing small businesses, including training, counseling, and other specialized services which will “enhance a small business concern’s ability to access capital, such as business plan development, financial statement preparation/analysis, and cash flow preparation/analysis.” Many of the remaining rules describe the federal grants WBCs may receive and how it may utilize them. Currently, Congress has capped annual WBC grants at $150,000, but there is at least one bill working its way through the Senate that might increase that number. All in all, the new rules provide clearer guidelines about WBC assistance. They go into effect January 24, 2020. If you have any questions about the WBC rules, or the new WOSB certification rules (which we anticipate will go into effect around the New Year) give us a call! View the full article
  10. SBA recently proposed changes to a number of its small business rules, as we’ve written about in earlier posts. The same proposed rule includes a small but significant change to when a business has to recertify its size and status for orders under multiple award contracts. Based on the number of times we’ve written about size and status protests for orders under multiple award contracts (see the related content at the bottom of this post for a sampling), this is an area in need of clarity. The SBA’s proposed rule would change some details about recertification for orders on multiple award contracts, or MACs (I wonder if a particularly large MAC might be called a Big MAC). Currently, the size status for a company, even on an unrestricted contract, is determined at the time of the offer on the contract, unless the agency exercises an option or requests recertification in connection with an individual order. This means if a company is small at the time of offer on the underlying contract, “the concern is generally considered to be small for goaling purposes for each order issued against the contract, unless a contracting officer requests a new size certification in connection with a specific order.” For example, a company’s size for purposes of a small-business task order relates back to the size certification for the underlying contract, even if the underlying contract is unrestricted. An example can help illustrate the current rule. Glinda’s Wands was a small business when it submitted its bid for an unrestricted multiple award contract. It won the contract and then grew to be large. According to the current rule, it is counted as small for each order placed thereafter and there is no opportunity for protest unless the contracting officer required recertification for an order. Here is the problem that SBA identified–motivation to protest. On an unrestricted multiple award contract, it’s unlikely that competitors would protest the size (or status) of an awardee. Because size doesn’t matter for an unrestricted contract, size status for an order stemming from that contract should not relate back to the time of the offer for the contract. SBA was blunt: “To allow a firm’s self-certification for the underlying MAC to control whether a firm is small at the time of an order years after the MAC was awarded does not make sense to SBA.” So here’s what SBA proposes to change. Other than on GSA Federal Supply Schedules (often abbreviated FSS), the rule would “require a business concern to recertify its size and/or socioeconomic status for all set-aside orders under unrestricted multiple award contracts.” A company would also have to “recertify its socioeconomic status for all set-aside orders where the required socioeconomic status for the order differs from that of the underlying set-aside” contract. For instance, if the set-aside contract is for small business and the order is for 8(a) participants, offerors on the 8(a) order would have to recertify their 8(a) status as of the date of the offer. Here is how this would play out under the proposed rule. As in the prior example, Glinda’s Wands was a small business when it submitted its bid for an unrestricted multiple award contract. It won the contract and then grew to be large. The agency then issues a task order set aside for small businesses. According to the proposed rule, Glinda’s Wands would have to recertify as small, and there would be an opportunity for protest, for the order set-aside for small business. Under the proposed rule, Glinda’s Wands would also have to recertify for each additional order set aside for small businesses. If the underlying contract was restricted to small business, “the proposed rule would generally set size status as of the date of the offer for the underlying MAC itself.” As under the current rule, a contracting officer has the discretion to request a recertification of size for any order. A similar rule would apply for socioeconomic status recertification. SBA explains this well: Where the required status for an order differs from that of the underlying contract (e.g., the MAC is a small business set-aside award, and the procuring agency seeks to restrict competition on the order to only certified HUBZone small business concerns), SBA believes that a firm must qualify for the socioeconomic status of a set-aside order at the time it submits an offer for that order. Although size may flow down from the underlying contract, status in this case cannot. The current rules for socioeconomic set-asides make socioeconomic status relate back to the time of certification of the underlying contract, rather than the time of the order, regardless of the set-aside status of the underlying contract. So, why are GSA Federal Supply Schedules exempt from the recertification requirement under the proposed rule? SBA looked at the numbers for fiscal year 2018 and found that “the percent of dollars going to other than small business off of FSS set-asides is limited.” In 2018, SBA calculated that 11.3% of the dollars set-aside for small business off the FSS “went to firms that no longer qualified as small at the time of the order.” In contrast, non-FSS multiple award contracts ended up going to other than small businesses more frequently. For instance, SBA’s estimate was that 67% of the dollars set-aside for small business off of government-wide acquisition contracts went to “firms that no longer qualified as small under the NAICS code size standard at the time of the order.” The SBA’s proposed rule would change the way businesses certify size and status for orders under certain multiple award contracts. The SBA’s logic makes sense though. A size or status protest is very unlikely on an unrestricted contract. So it’s reasonable for businesses to certify at the time of the order proposal. If enacted, this rule will require businesses to pay close attention to the set-aside status of the underlying contract and the order to ensure the company’s status is accurate for the appropriate snapshot in time. There are a few other minor things that SBA is clarifying with respect to size certifications as part of the proposed rule. Size status for “compliance with the nonmanufacturer rule, the ostensible subcontractor rule and joint venture agreement requirements is determined as of the date of the final proposal revision for negotiated acquisitions and final bid for sealed bidding.” The current rule, per SBA, only refers to the nonmanufacturer rule (as I read it, the current rule mentions ostensible subcontractor, but either way it is a good clarification). “[p]rime contractors may rely on the self-certifications of their subcontractors provided they do not have a reason to doubt any specific self-certification.” SBA believes that this has always been the case, but has added this clarifying sentence, nevertheless, at the request of many prime contractors. With regard to joint venture size recertification, “only the partner to the joint venture that has been acquired, is acquiring, or has merged with another business entity must recertify its size status in order for the joint venture to recertify its size.” If a joint venture party becomes large through growth, recertification is not necessary for that party. As we’ve noted, SBA is proposing a number of changes to small business rules. Federal contractors will need to keep any eye on these change in order to be prepared once they become effective. View the full article
  11. Despite technological advance, some (perhaps even you) still cling to the notion that a signature, written by a human hand, is the only official kind. In other words, if a person doesn’t personally affix her “John Hancock” in cursive script or some other creative form, then the document really isn’t signed. If this thought sounds familiar, I’m here to liberate you. You are no longer bound like a medieval prisoner to your tube filled with ink. You can use an electronic signature in your contract work with the U.S. Government, including certifications connected to claims submitted under the Contract Disputes Act. The issue of an electronic signature recently took center stage in a case before the Armed Services Board of Contract Appeals: URS Federal Services, Inc., ASBCA No. 61443 (Oct. 3, 2019). There, a contractor submitted a claim for over $100,000, which FAR 52.233-1 requires to be certified and signed by a company official. So, the contractor’s vice president affixed the following electronic signature to the contractor’s certification, which he created using PDF software installed on his office computer: The Government argued that this electronic signature did not comply with the Contract Dispute Act’s certification requirements, largely because the Government couldn’t determine whether the signature was genuine on its face. More specifically, the Government argued that to be “verifiable” an electronic signature had to be authenticated with a “validated, trustworthy certificate underlying the digital signature.” Because the Contract Disputes Act does not define “signature,” the ASBCA first looked to the FAR’s definition. There, the term is defined as “the discrete, verifiable symbol of an individual that, when affixed to a writing with the knowledge and consent of the individual, indicates a present intention to authenticate the writing.” It also specifically includes “electronic symbols.” ASBCA also looked to the dictionary definition of “verifiable,” which means “capable of being verified” and “verify,” which means “establish the truth, accuracy or reality of.” Using these definitions, the board rejected the Government’s position because it was not supported by either the FAR or the Contract Disputes Act. And more importantly, ASBCA was unwilling to deviate from what it already accepts as a verifiable signature: the good ol’ ink signature. Indeed, ASBCA reasoned that no ink signature allows a reader to know who executed it unless the reader intimately knows the certifier’s handwriting; and even that knowledge has its limits because the signature could be manipulated by tracing or photo-copying the signature. ASBCA made it clear that it would hew to its routine practice of accepting ink signatures and that digital signatures would not be burdened with demands not required by their handwritten counterparts. In the end, ASBCA concluded that, as a matter of law, “if one can later establish that a mark is tied to an individual, it is verifiable”–a conclusion that complies with the open policy toward electronic signatures in the E-Sign Act. Applying these legal principles, ASBCA held that the claim documents, which included the electronic signature above, originated from the signer’s email account. And the evidence indicated that the digital signature originated with the signer because the program–used to create the signature–required a password and credentials unique to him. For ASBCA, this evidence was enough to hold that the digital signature belonged to the purported signer and was verifiable. This is an important decision because e-signatures will only become more prevalent, and there’s little reason to insist on the traditional handwritten signature in today’s commerce. But I will note that ASBCA’s decision here does not apply to typewritten signatures (i.e., /s/ John Doe). Elsewhere, we’ve discussed another case where ASBCA held that these signatures do not meet the Contract Disputes Act’s signature requirement for claim certifications. Overall, this decision should also give contractors confidence that they can use digital signatures (but not typewritten signatures) in their transactions with the federal government. I can hear the chants already: “Unyoke yourselves fellow contractors from the tyrannical allure of your ballpoint (or gel) pens. Long live digital signatures!” View the full article
  12. It’s no secret that federal government contracting has the reputation of being a seemingly endless morass of regulations. In fact, the confusion frequently associated with federal contracting was on full display in a recent GAO protest that implicated the SBA’s nonmanufacturer rule, the Buy American Act, and the Trade Agreements Act. In a procurement that invited bids from both large and small businesses, a large business contractor argued that the application of certain small business contracting regulations would unfairly advantage the small business participants. GAO disagreed, and dismissed the protest because any advantage was the result of the regulations operating as intended. Sometimes it pays to be a small business. Becton, Dickinson and Company, B-417854 (Comp. Gen. Nov. 15, 2019) involved a VA procurement for medical supplies in support of the Medical Surgical Prime Vendor 2.0 program. The objective of the Solicitation was to establish blanket purchase agreements for various medical and surgical implements. The Solicitation was structured to leverage a tiered evaluation, which gave preference to various types of small businesses ahead of large businesses. The four applicable tiers, in descending order of preference, were as follows: a. Service-Disabled Veteran-Owned Small Business (SDVOSB) concerns; b. Veteran-Owned Small Business (VOSB) concerns; c. Small Business concerns with Historically Under-utilized Business (HUB) Zone small business concerns and 8(a) participants having priority; and d. Large business concerns. If no award was made to the first preference category, the VA would proceed to evaluate offerors for the next preference category. For example, if no award was made to an SDVOSB concern, the VA would amend the Solicitation to remove the SDVOSB set-aside preference, then proceed to evaluate offers from the next tier. This process would be repeated for each successive tier. Given that the Solicitation sought vendors to provide various types of medical supplies, the Solicitation incorporated the nonmanufacturer rule as well as the Buy American Act and the Trade Agreements Act. It is the interplay of these statutes and regulations that ultimately led to the protest by Becton, Dickinson. First, the nonmanufacturer rule requires, among other things, any offeror competing for a small business set-aside that will not supply its own manufactured goods to provide end item of a domestic small business manufacturer. 13 C.F.R. § 121.406(b). The nonmanufacturer rule does have a few notable exceptions, however. For example, in the event the SBA determines there are no domestic small business producers of certain items, it may waive the domestic small business manufacturer requirement. This is to say that a small business could qualify for a small business while supplying the product of a non-domestic large business. In the case of the Medical Surgical Prime Vendor 2.0 program, a waiver of the nonmanufacturer rule applied. Second, the Buy American Act establishes a preference for products produced in the United States with at least 50 percent of the components being domestic products. FAR 25.101(b). This preference is implemented through a price differential applied during proposal evaluations, which artificially inflates the evaluated price of non-domestic goods. Notably, the Buy American Act expressly applies to small business set-asides. Additionally, the Buy American Act may be waived where the Contracting Officer determines the supplies are not “mined, produced, or manufactured in the United States in sufficient and reasonably available commercial quantities and of a satisfactory quality.” FAR 25.103(b). Third, the Trade Agreements Act also enforces domestic preferences, but will also allow products from specific trading partners to be provided to the government with “nondiscriminatory treatment.” FAR 25.402(a)(1). This is to say that products supplied from approved trading partners will not be subject to pricing differentials. As relevant here, however, the Trade Agreements Act does not apply to small business set-aside procurements. FAR 25.401(a)(1). Since the Medical Surgical Prime Vendor 2.0 program procurement had a tiered evaluation structure, the solicitation incorporated each of these regulations, but would only apply certain provisions based on the type of set-aside procurement that was being evaluated. In its protest, Becton, Dickinson raised two arguments. First it argued that the Trade Agreements Act should apply to small businesses. According to Becton, Dickinson, since the procurement was subject to a waiver for the nonmanufacturer rule, application of the Buy American Act to small businesses and Trade Agreements Act to large businesses resulted in unfair treatment because small businesses could provide the end product of any non-domestic manufacturer, whereas large businesses would be limited by the Trade Agreements Act to provide American or specific trade partner products. Second, Becton, Dickinson argued the Solicitation’s treatment of the Buy American Act and Trade Agreements Act was inconsistent with SBA nonmanufacturer rule regulations, which state that a waiver of the nonmanufacturer rule’s domestic preference does not exempt the small business concern from compliance with the Buy American Act of Trade Agreements Act. GAO did not agree. In its decision, GAO began by noting that in order to have jurisdiction over any bid protest, the protest itself must allege facts and law that, if left uncontradicted, would establish there was a likelihood the protester would prevail in its protest. So far as GAO was concerned, neither of Becton, Dickerson’s protest grounds met this threshold. GAO first disposed of Becton, Dickinson’s argument that the Trade Agreements Act should apply to small businesses as well as large businesses. Since the solicitation used a tiered structure where various socioeconomic set-aside categories were evaluated for award ahead of large businesses, GAO concluded it was not unreasonable for the Buy American Act to apply to the small business set-aside evaluations, and the Trade Agreements Act to apply to the large business pool, should awards be made to that pool. As GAO explained: The FAR explicitly provides that the [Buy American Act] applies to small business set-asides and that the [Trade Agreements Act] does not apply to acquisitions set aside for small businesses. We therefore see nothing improper about the VA applying the [Buy American Act] FAR clauses, and declining to apply the [Trade Agreements Act] FAR clauses, to quotations submitted by [small businesses]. As such, this Becton, Dickinson protest ground was dismissed. GAO next addressed Becton, Dickinson’s argument that the structure of the solicitation was contrary to SBA regulations. The regulation at issue, 13 C.F.R. § 121.406(b)(7), provides the following caveats on nonmanufacturer rule waivers: SBA’s waiver of the nonmanufacturer rule means that the firm can supply the product of any size business without regard to the place of manufacture. However, SBA’s waiver of the nonmanufacturer rule has no effect on requirements external to the Small Business Act which involve domestic sources of supply, such as the Buy American Act or the [Trade Agreements Act. While the SBA regulations did clarify that a nonmanufacturer rule class waiver would not similarly exempt compliance with the Buy American Act or Trade Agreements Act, GAO nevertheless concluded Becton, Dickinson had failed to raise a cognizable legal challenge because the Buy American Act provided procedures for evaluating proposals providing foreign end products. According to GAO, “we do not find it inconsistent with the regulation that [a small business] may submit foreign end products in accordance with the waiver of the nonmanufacturer rule when the [Buy American Act] and the implementing regulations provide instructions for evaluating offers that include foreign end products.” Becton, Dickison’s second protest ground was similarly dismissed by GAO. GAO’s decision in Becton Dickinson demonstrates how small and large businesses sometimes compete under different rules. While the Buy American Act and nonmanufacturer rule were applicable to offers supplied by small businesses, the Trade Agreements Act governed proposals for large businesses. In this instance, application of the Buy American Act may have been slightly more advantageous than the Trade Agreements Act; however, according to GAO, this was not an error, but rather the proper application of various regulations. Sometimes it pays to be a small business. View the full article
  13. SmallGovCon readers, have a great Thanksgiving! We won’t be posting our weekly roundup next week due to the holiday, but we’ll catch up on any missed news the following week. In the mean time, enjoy this week’s roundup of federal contracting news. Also be sure to enjoy the family, friends, and food at your Thanksgiving table. My personal favorite–stuffing! Below are some interesting updates about GSA’s investigation into the rocky transition to beta.sam.gov, a guilty plea in a “Rent-A-Vet” Scheme, and Naval Surface Warfare Center Dahlgren Division establishing New Business Opportunities. GSA promises to figure out why transition from FedBizOpps struggled. [federalnewsnetwork] State Department to launch IT Acquisitions Office. [fedscoop] Pentagon Procurement and the Laws of Physics. [pogo] San Diego Contractor Pleads Guilty in $11 Million “Rent-A-Vet” Scheme. [justice.gov] Man accused of defrauding NASA Plum Brook pleads guilty. [sanduskyregister] DOD Has Processes for Identifying Training Needs and Maintaining Visibility over Contracts. [gao.gov] NSWC Dahlgren’s OTA Opens the Door to New Business Opportunities. [navsea.navy.mil] View the full article
  14. GAO issued a bid protest decision that sustained a protest in part, dismissed it in part, and denied it in part. Contractors can learn from this that even if all the arguments do not work, all it takes is one. High Noon Unlimited, Inc. protested the U.S. Marine Corps decision to buy rifle magazine pouches off High Speed Gear, Inc. There was a large difference in price between the two offerors, with High Noon offering approximately $2.2 million while High Speed charged just under $3.6 million. High Noon made several initial arguments: First, that High Speed’s pouches did not meet the solicitation’s weight requirements; second, that the product did not meet the “ease of removal” requirement; and third, that the decision was based on “marine preference” which was, apparently, an undisclosed evaluation factor. The Marines responded with an Agency Report that GAO found so heavily redacted that “the protester was not afforded an adequate record” to base its comments. As such, GAO asked the agency to provide a less guarded version and gave High Noon an extension on its comments deadline. When High Noon filed its comments, it continued to make the first two arguments, but, according to GAO, dropped the third and replaced it with an argument that the agency should not have made an upward revision to the government estimate. The agency argued that High Noon abandoned all of its protest grounds because the more nuanced and informed approach to the comments were actually new and untimely arguments. GAO disagreed. It said, “we conclude that two of High Noon’s arguments were advanced in its original protest and maintained in its comments; we therefore find that these two arguments were not abandoned and consider them on the merits.” Ultimately the protest came down to a matter of scale. Well, the use of one, to be more specific. GAO determined that High Noon’s first argument had merit because High Speed’s product had been weighed without its modular lightweight load-carrying equipment clips. Had it been weighed correctly, it might have not met the weight requirements of the solicitation. GAO said: “Since the record does not establish that the High Speed product met the RFP’s threshold requirement for weight, we conclude that the agency erred in finding that High Speed’s product is technically acceptable.” The argument that the pouches could not be attached or removed without a tool, however, was not as effective, because the agency was able to attach and detach the pouch without a tool in under three minutes. High Noon’s third argument, about the unreasonable adjustment of the estimate could have been viewed as a supplemental protest ground. But that means it would have been due 10 days after the protester learned of it. GAO is strict about supplemental protest deadlines. In this case, the protester learned that the estimate had been adjusted from the first, heavily-redacted version of the agency report. Though GAO gave an extension to file comments, any supplemental protest grounds learned of from the first report would still have been due 10 days after they were learned. Because this argument was made 14 days after the initial agency report, it was, in GAO’s eyes, untimely. Therefore, GAO sustained the first argument, denied the second, and dismissed the third. View the full article
  15. Recently, the SBA proposed big changes for its small business regulations, including some aspects of the 8(a) Program. This blog post is Part 4 in our coverage of these proposed SBA changes and will cover the SBA’s potential changes to the joint venture agreement approval process for 8(a) contracts (here are part 1, part 2, and part 3 of our coverage). The SBA released a proposed rule on November 8, 2019 with the aim of streamlining its regulations. Among many other changes the SBA proposed to eliminate the requirement that 8(a) Participants competing for 8(a) set-asides as a joint venture submit the joint venture agreement to the SBA for review and approval prior to contract award. This requirement is found at 13 C.F.R. § 124.513(e). The proposed rule notes that the 8(a) program is the only program in which the SBA must approve a joint venture agreement, which presents a discrepancy between the 8(a) program and all other set-aside programs, such as those for small business, SDVOSB, HUBZone, or WOSB. The elimination of this requirement should bring the 8(a) program in line with the other programs under the SBA and “significantly lessen the burden imposed on 8(a) small business Participants.” It is important to point out that the proposed elimination of the requirement that 8(a) joint venture agreements be approved by the SBA only applies to joint ventures bidding on competitive 8(a) awards. Joint ventures awarded sole-source 8(a) awards would still be required to submit their joint venture agreement for approval prior to award. The proposed rule justifies this distinction by explaining that 8(a) sole source awards do not permit size protests and without a size protest the only way to ensure the a joint venture is compliant with 8(a) regulations is to have the joint venture agreement approved prior to award. The SBA also discussed the possible alternative to this elimination and why it was not not feasible. The other alternative is eliminating the requirement for all 8(a) awards and allowing size protests in connection with Sole Source 8(a) contracts. The SBA believed that this alternative was not appropriate because “other Participants are not really interested parties with respect to a sole source 8(a) procurement offered to the 8(a) program on behalf of another participant.” The SBA estimates that the cost savings of eliminating this requirement will be worth about $59,500. There are currently about 4,500 8(a) participants. Of those, about 10% are in a joint venture created to seek a 8(a) awards. The joint venture agreement review process is very fact intensive and time spent can vary. However, the SBA estimates that an 8(a) participant currently spends about three hours submitting a joint venture agreement to the SBA and responding to questions from the SBA regarding the agreement (note that this is not the time to prepare the joint venture agreement, just to submit to SBA and respond to SBA’s questions). When you apply that estimate to each 8(a) joint venture, it comes out to 1,350 hours of work. When multiplying that by the median wage plus benefits for accountants and auditors, it comes out to a cost savings of $59,500 for 8(a) participants. This elimination would presumably relieve contractors of the headache of submitting each joint venture agreement to the SBA and subsequently working with the SBA to receive approval before award. This elimination should save contractors time and allow 8(a) participants to more quickly form joint ventures to bid on 8(a) contracts. However, it appears the SBA will increasingly rely on status and size protests to ensure joint ventures are properly formed. This means that 8(a) participants may see an increase in protests after this proposed rule goes into effect. 8(a) participants will have to be more vigilant in preparing their joint venture agreements because they will not get a second chance to correct any errors. The SBA has requested comments on this rule. Comments may be submitted through www.regulations.gov and must be submitted by January 17, 2020. View the full article
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