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  1. Unless a solicitation for a fixed-price contract provides that the agency can conduct a price realism analysis, it can’t. Even so, agencies sometimes perform this analysis without alerting prospective offerors of the possibility. If they do, however, the ground is fertile for a protest. This issue recently arose in Shearwater Mission Support, LLC, B-416717 (Nov. 20, 2018). There, the Navy issued a solicitation for base operating support services at the Naval Air Facility in El Centro, California. The solicitation contemplated the award of a fixed-price contract. The solicitation provided that offers would be evaluated on a best-value tradeoff basis, considering price and various non-price factors. With respect to price, the solicitation instructed offerors to propose prices for various Exhibit Line Item Numbers, each of which corresponded to services the contractor would provide. The solicitation stated that each offeror’s total price would be evaluated “to ensure a fair and reasonable price,” but did not state that the agency would perform a price realism evaluation. After receiving initial proposals, the agency engaged in discussions with offerors. During these discussions, the agency informed Shearwater that some of its prices appeared to be unreasonably low and that others appeared to be unreasonably high. As a result, Shearwater increased its prices that the agency found were too low and decreased those it found too high. After offerors submitted final proposal revisions (FPR), the agency again informed Shearwater that some of its prices were too low and others were too high. Thus, Shearwater submitted a second FPR which again raised some prices and lowered others. Ultimately, the agency found that Shearwater’s proposal was “essentially equal for all technical factors” with the awardee’s proposal. But the awardee’s proposal price was lower, making the awardee’s proposal the best value for the agency. At GAO, Shearwater argued that the agency had conducted an improper price realism analysis, which led the agency to question Shearwater’s prices as too low. And in response to its discussions with the agency, Shearwater noted that it raised certain prices that ultimately made its proposal price higher than the awardee’s. The agency, on the other hand, argued that the solicitation did not allow for price realism analysis, and that it didn’t conduct one. But GAO found otherwise and noted that the agency was apparently confused between a price realism analysis (i.e., an offeror’s prices are too low) and a price reasonableness analysis (i.e., an offeror’s prices are too high). The contemporaneous price evaluation record thus shows that the agency found that Shearwater’s proposed prices for certain annexes were “unreasonably low” because the agency was concerned that the low prices were “unrealistic” and “may increase performance risk” or indicate an “inherent lack of understanding of the RFP requirements.” These are the hallmarks of a price realism evaluation. Indeed, our Office has repeatedly found that analysis of whether prices are unrealistically low, such that they might indicate a lack of understanding of the technical requirements and could result in rejection of the proposal–as the SSEB report states was done here–constitutes a price realism evaluation. In contrast . . . a price reasonableness evaluation looks at whether the price is too high, not too low. . . . Under the terms of the RFP, Shearwater’s low prices therefore should not have raised any reasonableness concerns. . . . Thus, the agency erred in conducting a price realism analysis and concluding that Shearwater’s proposed prices for certain annexes were “unreasonably low.” GAO also found that the agency had misled Shearwater in discussions by virtue of its price realism analysis and that its misleading discussions caused prejudice: Given the offerors’ equal ratings on the five non-price factors, and the source selection authority’s conclusion that the identically rated proposals were, in fact, technically equal, a lower price could have put Shearwater in line for award. Because the record shows that Shearwater’s pricing was increased in direct response to the agency’s discussion questions–which were based on the improper price realism analysis–we conclude that Shearwater was misled, to its competitive prejudice. We therefore sustain Shearwater’s protest. For fixed-price contracts, an agency will generally always perform—to some degree—a price reasonableness analysis. But, to perform a price realism analysis, an agency must forewarn prospective offerors in the solicitation. So, if an agency performs an unexpected price realism analysis on your proposal, and it causes you prejudice, you’ll likely have a receptive audience at GAO. View the full article
  2. I wanted the pithy introduction to this week’s Week In Review to be a corny Christmas-themed joke. But there’s one problem: I don’t know any! (My dad jokes tend to come on the fly.) If you know any (clean) holiday jokes, send them my way. We’ll try to feature them in next week’s edition! But for this week’s edition, let’s focus on government contracting. We’ll look at the potential Christmas shutdown, GSA’s consolidation of schedule contracts, a VA-pilot program for facility construction, and non-compliance and oversights remain an issue, GAO’s report on noncompetitive contracts, and more. Have a great weekend! Which agencies will be hit from the potential shutdown? [GovExec] GSA consolidates 24 multiple award schedules into a single acquisition vehicle. [FederalTimes] GAO finds DOD and HHS erred in reporting competition data for IT contracts. [GAO] VA pilot program to accept donations for facility construction [GAO] Inspector General criticism of GSA raises questions. [GovExec] GAO report released shows additional guidance needed to improve oversight under the Improper Payments Elimination and Recovery Act. [GAO] Treasury, Labor and Agriculture departments fall short of 2017 compliance for improper payments. [GovExec] OMB unveils its plan to establish the GEAR Center in 2019. [FedScoop] View the full article
  3. With the stroke of a pen, Congress may have just paved the way for some soon-to-be large businesses to remain small for longer. Both the House of Representatives and the Senate have passed a bill that would amend the Small Business Act to change the period of measurement used to determine the size of a business from three years to five. The bill awaits the president’s signature to become law. The Small Business Runway Extension Act of 2018 simply amends Section 3(a)(2)(C)(ii)(II) of the Small Business Act “by striking ‘3 years’ and inserting ‘5 years’.” The House passed the bill on September 25 and the Senate passed it on December 6. It went to the president’s desk for signing on Tuesday (December 11). Leaving aside the sloppy editing (my lord, Congress, why are you striking “years” and replacing it with “years”?), this simple change has the potential to preserve the small-size status of growing businesses for much longer. Businesses are not born fully functional like Athena from the head of Zeus, with the newborn grace of a baby gazelle. Most have at least one lean year as they grow. In many industries, the SBA’s current system calculates a business’s size by adding up the annual receipts of the last three years and dividing by three to get the average. (The rules are a little different for companies that haven’t been in business for three years). That means, by year four of a business’s existence, those lean times no longer get included in the calculus. The purpose of the bill, according to the House Committee on Small Business report, is to “help advanced-small contractors successfully navigate the middle market as they reach the upper limits of their small size standard.” By making the period of measurement five years, even a relatively quickly growing new business can stay small for far longer. According to Congress, the Act will allow businesses more time to prepare for “graduation” to other-than-small status, allowing businesses to develop the infrastructure needed to compete with the Boeings and Lockheeds of the world. The change will also build in some wiggle room for companies to take on additional revenue in a particularly robust fiscal year. Congress said this will “reduce the impact of rapid-growth years which result in spikes in revenue that may prematurely eject a small business out of their small size standard.” In other words, through careful planning, a business could double its receipts in a particular year without exceeding the size standard, because the difference is spread out over a much longer time. Although this change may benefit businesses that have grown at a relatively linear rate, others that, for example, had planned on having a particularly robust year fall out of their calculation, will now face the prospect of remaining “other than small” for an additional two years. One of the things missing from the Congressional record is any idea of how many businesses the change will impact positively, and how many it will impact negatively. If the bill becomes law—and we should say that there is no reason to think that it will not—it will become effective immediately. Although the SBA will need time to update its regulation (found at 13 C.F.R. § 124.104), the text of the Small Business Act will be clear that the measurement period will be five years, not three. Because statutes override regulations, the law will be five years and the SBA will have to follow that rule immediately. View the full article
  4. The FAR Council’s proposed update to the limitations on subcontracting, and the DoD’s subsequent FAR deviation, have been met with widespread approval by small contractors. But for HUBZone Program participants, the proposed rule and DoD deviation contain a glaring problem: a requirement that the HUBZone member of a joint venture take sole responsibility for meeting the applicable limitations on subcontracting. This requirement, which doesn’t apply to joint venturers in other socioeconomic programs, is unfair to HUBZones, and at odds with SBA regulations. Before delving into the FAR Council’s proposed rule, a little background may be helpful. Under the SBA’s regulations, when a joint venture will pursue a set-aside contract, two separate work share requirements apply. First, the SBA has a comprehensive regulation, 13 C.F.R. 125.6, governing the division of work between a prime contractor and its subcontractors. When the prime contractor is a joint venture, the regulation applies to the division of work between the joint venture (which, as the prime contractor, performs work through its members) and third-party subcontractors. You don’t have to take my word for it–the SBA has regulations on this stuff. For the HUBZone Program, 13 C.F.R. 126.616(d) says that the joint venture is responsible for meeting the limitations on subcontracting: (1) For any HUBZone contract to be performed by a joint venture between a qualified HUBZone SBC and another qualified HUBZone SBC, the aggregate of the qualified HUBZone SBCs to the joint venture, not each concern separately, must perform the applicable percentage of work required by [Section] 125.6 of this chapter. (2) For any HUBZone contract to be performed by a joint venture between a qualified HUBZone SBC and a small business concern or its SBA approved mentor . . . the joint venture must perform the applicable percentage of work required by [Section] 125.6 of this chapter and the HUBZone partner to the joint venture must perform at least 40% of the work performed by the joint venture. As you can see, the SBA regulation offers two alternatives. The first applies when the joint venture consists of two or more HUBZone companies–which, in my experience, is rather unusual. The second, more ordinary, circumstance applies when a HUBZone company joint ventures with a non-HUBZone small business or SBA-approved mentor. In either case, the joint venture members, together, constitute the “prime contractor” for purposes of the subcontracting limits. That’s the first work share requirement: the limitations on subcontracting. The second is the internal work share requirement within the joint venture itself. While the joint venture, as the prime contractor, is responsible for meeting the limitations on subcontracting, the SBA doesn’t want joint ventures to be vehicles for pass-throughs. So the SBA’s regulations require that the joint venture member holding the “right” certification (such as HUBZone) perform at least 40 percent of the joint venture’s work. For HUBZone joint ventures, as you saw, 13 C.F.R. 126.616(d)(2), says that “the HUBZone SBC partner to the joint venture must perform at least 40% of the work performed by the joint venture.” As an example of how these two requirements would work in real life, consider a joint venture between a HUBZone company and its non-HUBZone All Small mentor. The joint venture is awarded a $1 million contract for services. Under 13 C.F.R. 125.6, the joint venture, as prime contractor, may subcontract up to $500,000 to entities that are not similarly situated. Assuming that the joint venture subcontracted the maximum $500,000 to a non-HBUZone subcontractor, the joint venture members must perform the remaining $500,000. Of this amount, the HUBZone protege would have to perform at least $200,000 (40% of $500,000, if my mental math is correct). That brings us to the FAR Council’s recent proposal and DoD deviation. The FAR Council proposes to revise FAR 52.219-4, which enacts the HUBZone Price Evaluation Preference. That clause provides that, to receive the price preference, a HUBZone company must agree to comply with the limitations on subcontracting. The proposed revision keeps this requirement (as it should), but that’s where things get odd. Instead of amending the clause to refer to FAR 52.219-14, where the FAR Council otherwise consolidates all of the limitations on subcontracting, the proposed revision to FAR 52.219-4 spells out the subcontracting limitations in Paragraph (d). Then comes Paragraph (e), which says: (e) A HUBZone joint venture agrees that the aggregate of the HUBZone small business concerns to the joint venture, not each concern separately, will perform the applicable requirements specified in paragraph (d) of this clause. That’s it. Notice a little something missing? The proposed Paragraph (e) uses the SBA’s language for joint ventures involving multiple HUBZone companies, but completely omits the much more important language governing joint ventures between HUBZones companies and non-HUBZones, including SBA-approved mentors. Without that important language, Paragraph (e) would seem to apply to any HUBZone joint venture seeking to take advantage of the price preference clause. And applying this language to all HUBZone joint ventures seems directly at odds with the SBA’s regulation. Let’s return to the example above of a joint venture between a HUBZone company and its mentor, but this time let’s assume the joint venture avails itself of the HUBZone price preference and is awarded an unrestricted contract. As before, the value of the contract is $1 million and the joint venture chooses to subcontract $500,000 to a non-HUBZone company. So far, so good. We’re again left with $500,000. So how much must the HUBZone company self-perform? The SBA regulation would say $200,000. But as I read the FAR Council’s proposal, revised FAR 52.219-4 will require the HUBZone protege to perform all $500,000 of the joint venture’s work, with nothing performed by the mentor. After all, how else can the “HUBZone small business concerns to the joint venture” meet the 50% requirement? Treating HUBZone joint ventures this way is inconsistent with the remainder of the FAR Council’s proposal. In proposed FAR 52.219-14(f), which would apply to all set-aside contracts, the FAR Council sets forth the specific limitations on subcontracting in Paragraph (e), then uses this language: (f) A joint venture agrees that, in the performance of the contract, the applicable percentage specified in paragraph (e) of this clause will be performed by the aggregate of the joint venture participants. Yes! That is exactly right! The “aggregate of the joint venture participants” should be responsible for meeting the performance of work requirements–not some subset of the aggregate, like the HUBZone member. The FAR Council’s “aggregate of the HUBZone small business concerns” language applies only to the use of the HUBZone price preference, and not to HUBZone set-aside contracts. So is this language really inconsistent with the SBA’s regulation? My highly professional opinion, is: “darn tootin’ it’s inconsistent.'” The SBA’s regulation applies to any “HUBZone contract,” which is broadly defined, in another SBA regulation, to include “[a]wards to qualified HUBZone SBCs through full and open competition after a price evaluation preference is applied to an other than small business in favor of qualified HUBZone SBCs.” By proposing to require the “aggregate of the HUBZone small business concerns” to meet the performance requirement, the FAR Council has, in my view, created a clear conflict between its proposed rule and the SBA’s active rule. The FAR rule, of course, is just a proposal. But the DoD’s deviation is in effect right now, and it contains the same problem. Even worse, the DoD’s deviation maintains this “aggregate of the HUBZone SBCs” language in FAR 52.219-3 (Notice of HUBZone Set-Aside or Sole Source Award), which applies to all HUBZone contracts. At DoD, then, the deviation would seem to effectively render HUBZone joint ventures all but useless. The restriction the DoD uses exists in the current FAR, from an era in which the SBA only allowed HUBZone firms to joint venture with other HUBZones. But the SBA eliminated this requirement in 2016, and one would have thought that a late-2018 FAR deviation would take the same approach. That said, I can only criticize the DoD so much: the class deviation ain’t perfect, but it’s better than nothing, and will eventually be superseded by a final FAR rule. Now, some of my gentle readers will undoubtedly think I’ve wasted a lot of ink (or rather, pixels) on a relatively minor issue. And in the grand scheme of things, this problem may not rate as highly as some others, like that still-missing SBA women-owned small business certification program. But the Government has consistently fallen well short of its 3% HUBZone goal in recent years, “A” grades notwithstanding. The SBA, to its credit, has been taking action to try to fix the problem. The SBA has removed HUBZone-specific restrictions, like the former requirement that HUBZones could only joint venture with other HUBZones. More recently, the SBA proposed a major overhaul of the HUBZone Program’s rules, in a thoughtful proposed rule that recognizes many of the program’s structural shortfalls. The SBA’s intention, in both regulation and policy, is to eliminate unnecessary “HUBZone only” regulatory roadblocks. Unfortunately, when it comes to HUBZone joint ventures, the FAR proposal and DoD deviation maintain one of those roadblocks. Hopefully, the final FAR rule will eliminate this wrongheaded restriction. In the meantime, though, HUBZone joint ventures find themselves in the same spot they have been for the last several years: uncertain which rule to follow. For years, I’ve been asked which limitations on subcontracting rule a small business should follow: the FAR, or the SBA? The answer hasn’t been clear. HUBZone joint ventures are now looking at a disconnect between the FAR Council’s proposal and DoD deviation, on the one hand, and SBA regulation, on the other. Which governs? Beats me. I’ll keep you posted. View the full article
  5. In these cold winter months, gloves with touchscreen capabilities are all but essential. Recently, the Army sought to procure touchscreen-compatible combat gloves, but required that all goatskin leather used for the gloves be “100% Domestic” in accordance with the Berry Amendment. In Mechanix Wear, Inc., B-416704 (Nov. 19, 2018), however, GAO sustained a protest against this requirement because the item being procured was subject to a Berry Amendment exception. In its initial RFP, the Defense Logistics Agency (“DLA”) included DFARS clause 252.225-7012, “Preference for Certain Domestic Commodities,” which implements the Berry Amendment. The Berry Amendment was originally passed in the early days of World War II to promote DoD’s purchase of U.S. goods. As we’ve previously discussed on this blog, basic products covered by the Berry Amendment include clothing and handwear, or more specifically, gloves. Preparing leather products for use in wearable clothing contains several steps, including skinning the animal, salting or pickling and soaking the skin, removing hair or fur, tanning, and other processes. The original RFP stated “that while pickled-state goat/kidskin from foreign sources could be used, all tanning and processing of the goat/kidskin must be done domestically.” After issuing the original RFP, DLA conducted “market research” about whether skins of this kind, produced from start to finish in the United States, were available. When two sources indicated such skins existed in quantities necessary to meet DLA’s needs, DLA updated its RFP to state that “‘[a]ll Goat/Kidskin ‘MUST’ be 100% Domestic to include all tanning process.’” In response, Mechanix Wear, Inc., a glove manufacturer, protested when it was only able to locate one source for the leather requested, arguing that an exception to the Betty Amendment applied. This exception references a list, located at FAR 25.104(a), a part of the Buy American Act. The exception indicates that Berry Amendment requirements do not apply to this specific list of materials not traditionally available in the U.S. in the quantities demanded by the Government, including, among many others, cobra venom, platinum, olive oil, and most notable here, goat and kidskins. In contrast, the DLA responded market research was required to prove, or disprove, whether an item on the list was truly unavailable in the U.S., based on the list’s context within the Buy American Act. If found to be available based on the market research, DLA argued, the exception should not apply. Ultimately, GAO concluded that the Buy American market research requirements and DFARS Berry Amendment exceptions were pieces of “two similar, but distinct schemes” and that neither the plain language of the relevant FAR and DFAR provisions, nor relevant history of either “demonstrate[d] a clear intention for the market research requirements . . . applicable to the Buy American Act, to apply to Berry Amendment restrictions.” Thus, GAO “recommend[ed] that the agency either (1) provide further reasonable support for its decision to require that these gloves be made with domestic leather, consistent with the applicable regulations; or (2) amend the solicitation’s restriction on goat/kidskins consistent with this decision and the applicable regulations.” In cases like this, requirements can get confusing, especially when certain regulatory requirements incorporate other bodies of regulatory law by reference, as they did in this case. When complex regulatory schemes like these have got your goat, contact Koprince Law; we’re happy to help! View the full article
  6. Koprince Law LLC

    Supreme Court Could Limit Agency Power

    Monday, the U.S. Supreme Court decided to hear a case that could have far reaching implications in agency law—including for government contractors. The Court granted certiorari to a case that could greatly diminish the amount of deference given to agencies interpreting their own regulations. For contractors, a Supreme Court decision to curtail agency deference could lead to increased success rates in bid protests and other disputes. The case, Kisor v. Wilkie, involves a veteran seeking disability benefits dating back the 1980s. According to the petition, the outcome turns on what the word “relevant” means a Department of Veterans Affairs regulation. The lower court found that both the agency and the veteran provided reasonable interpretations of an ambiguous regulation, but previous case law—which Kisor may overturn—required the court to defer in such circumstances to the agency’s interpretation. In other words, when an agency and a party both offer reasonable interpretations of an ambiguous regulation, the tie goes to the agency. The cases establishing this level of deference are 1997’s Auer v. Robbins and 1945’s Bowles v. Seminole Rock & Sand Co. The Auer case articulated that an agency’s interpretation of its own regulation would stand, so long as the interpretation is not “plainly erroneous or inconsistent with the regulation.” This new case could overturn Auer and Seminole, thereby limiting federal agencies’ power across the board. Such a decision could have significant impact in the federal contracting world. For example, last year in Veterans Contracting Group, Inc. v. United States, the U.S. Court of Federal Claims relied in part on Auer to determine that the SBA’s service-disable veteran-owned small business ownership rules were legal, resulting in a business being eligible for the VA’s SDVOSB program, but not the SBA’s SDVOSB program. In a lamenting tone, the court said that the SBA’s interpretation “produces draconian and perverse results in a case such as this one.” But, nevertheless, Auer meant the court had to defer to the SBA’s interpretation, even though the court obviously disagreed. This is not the first time that the Supreme Court has been asked to overturn these cases. As Amy Howe notes on SCOTUSblog.com, “[t]he Auer doctrine has been a target for conservatives and business groups for some time[.]” A 2016 petition asking basically the same thing was denied. So what’s new? Twenty-two percent of the Court is. Since that denial, Justices Gorsuch and Kavanaugh have joined the high court. And if you allow yourself to read the tea leaves, the future of Auer does not look bright. For one thing, the Federal Circuit has a high rate of cases reversed or vacated (83 percent, according to one accounting). And the Federal Circuit itself noted ealier this year, that several Supreme Court justices had already indicated a willingness to revisit Auer, including Justices Alito, Roberts, and Thomas. That’s already three of the five needed to overturn. Thus, the future of Auer may rest on the shoulders of the two newest members of the Court. In other words, Auer may not be long for this world. While its little more than rampant speculation at this point, it is interesting to consider what an overturn would mean. Would that put agencies on equal footing with other parties when interpreting their own regulation? Would the most reasonable interpretation win out? Or would agencies be given some other level of deference? For contractors, one likely result would be an increased level of success in certain bid protests and other disputes. The Veterans Contracting Group protest, for instance, almost certainly would have been sustained if the court hadn’t felt its hands were tied. We’ll soon find out. The case is expected to be argued some time next year. View the full article
  7. Koprince Law LLC

    Thank you, El Paso!

    Last week I had the wonderful experience of giving several presentations at the 13th Annual Veterans Business Conference on base at Fort Bliss (El Paso, Texas). The conference was an excellent opportunity for veteran business owners to come together and learn about opportunities. Organized by the Contract Opportunities Center, the event brought together small businesses and government agencies to meet and learn about wide-ranging topics. I was given the opportunity to discuss the All Small Mentor-Protege Program and joint venturing, size and affiliation issues, and provide the lunch audience with an update on the whirlwind of changes occurring as the U.S. Department of Veterans Affairs and the Small Business Administration work to combine their two Service-Disabled Veteran Owned Small Business programs. If you were there and have questions, please reach out. We all got to listen to the incredibly moving speech of Justin Constantine, retired Lieutenant Colonel in the U.S. Marine Corps. His tale, and the lessons he learned, is certainly one worth taking to heart. Thanks especially to Pablo Armendariz and Melissa Murphy for their steady hand on the wheel. Hope to see you all again soon. View the full article
  8. Koprince Law LLC

    SmallGovCon Week in Review: December 3-7, 2018

    The first week of December went by in a flash. Santa Claus will be here before you know it; hopefully you’ve all been very good this year! In this week’s edition of the SmallGovCon Week In Review, data and cloud computing continue to be hot topics, GAO looks at post-disaster contractor performance, and we see the lengths the DEA is willing to go to have clean floors. Have a great weekend! DoD blazing the trail for back-office cloud computing. [FederalNewsNetwork] New FAR supplement restricts low price source selection.[FederalRegister] 2019: Year of the hybrid cloud. [FedScoop] DOL announces new policies for contract compliance. [DOL] The DEA is hiding surveillance cameras in vacuums. [Govexec] GAO report for disaster related advance contract performance. [GAO] View the full article
  9. Earlier this week, the FAR Council issued a proposed rule to conform the FAR to the SBA’s regulation governing limitations on subcontracting. But the DoD isn’t waiting around while the FAR Council finishes the process. The DoD has issued a comprehensive FAR deviation, effective immediately. The DoD’s FAR deviation will, effectively, temporarily conform the DoD’s use of the FAR to the SBA’s regulation while the FAR Council works on a final rule. The deviation instructs DoD contracting officers to use alternate FAR clauses when issuing small business set-asides, small business partial set-asides, and set-asides or sole source awards to 8(a) Program participants, HUBZones, SDVOSBs, EDWOSBs and WOSBs. The alternate FAR clauses, in turn, use the same formulas as the SBA’s regulation (and underlying statute) to calculate compliance with the limitations on subcontracting. Importantly, the alternate FAR clauses allow small prime contractors to count work performed by “similarly situated entities” toward the primes’ own performance thresholds. The language of the deviations tracks the language of the FAR Council’s proposed rule. Overall, that’s a good thing, but as I mentioned in my post earlier this week, I don’t agree with the requirement in the FAR Council’s proposal (and now the DoD’s alternate clauses), requiring the HUBZone member(s) of a joint venture to comply with the limitations on subcontracting–without, apparently, counting work performed by non-HUBZone members. To me, this requirement incorrectly conflates the limitations on subcontracting with the internal work split requirements of a joint venture. Further, imposing this requirement only on HUBZone joint ventures seems to deviate from the SBA’s policy from mid-2016 onward, which has been to avoid imposing more restrictive provisions on HUBZone contractors than on other socioeconomic categories. That nit aside, the DoD’s action is good news. Small prime contractors have long been confused about which limitations on subcontracting–FAR or SBA–they must follow. At the DoD, at least, that confusion should now effectively be resolved. I hope to see something similar on the civilian side. View the full article
  10. Earlier this year, GAO unveiled its new Electronic Protest Docketing System (“EPDS”) for bid protests. EPDS serves as the central filing system for all bid protests pursued before GAO. As a courtesy, EPDS will automatically generate a courtesy email notice anytime a new document is filed with GAO. In a recent Request for Reconsideration, however, GAO was asked to reconsider its dismissal of a protest after the protester failed to receive the automatically-generated EPDS notice that the Agency Report had been filed. GAO held that the protester in question couldn’t rely on its failure to receive the email to avoid the ordinary timeliness rules applicable to GAO bid protests. Silverback7, Inc.—Reconsideration, B-415311.9 (Comp. Gen. Nov. 15, 2018), involved a procurement for survival, escape, and evasion instruction at Fort Rucker, Alabama. Silverback7 was an unsuccessful offeror and filed a bid protest with GAO through EPDS. GAO subsequently docketed Silverback7’s protest, and sent the standard docketing letter to the parties. Among the items discussed in the docketing letter was GAO’s policy of dismissing protests when the protester fails to file Comments within 10 days of the agency filing its Agency Report with GAO. The parties were advised the Agency Report was due on October 1. Silverback7’s Comments on the Agency Report would be due 10 days later, on October 11. The Agency timely filed its agency report with GAO. Silverback7, however, did not file Comments by this date. A week later, GAO dismissed Silverback7’s protest in an unpublished decision. Following the dismissal, Silverback7 filed a Request for Reconsideration with GAO. Silverback7 argued that dismissal was improper because it was not notified that the agency filed its Agency Report with GAO. According to Silverback7, it had not received any automatically generated email form EPDS when the Agency Report was filed. As such, Silverback7 argued that its failure to timely submit Comments should be excused. GAO did not agree. As a preliminary matter, GAO reviewed its bid protest regulations with respect to notice. As GAO explained: [O]ur regulations establish that the act of filing a document in EPDS puts all parties on notice of the filing, essentially establishing a rule of constructive notice with respect to all EPDS filings. By definition the doctrine of constructive notice imputes knowledge to a party without regard to the party’s actual knowledge of the matter at issue. Thus, according to GAO, the Agency’s mere act of filing the Agency Report in EPDS placed all parties on constructive notice of its presence, regardless of whether a courtesy email was sent. GAO then turned to Silverback7’s principal argument: that its failure to submit Comments on the Agency Report was excusable because it did not receive a courtesy email from EPDS when the Agency filed its Agency Report. GAO was not persuaded. As GAO explained “the auto-generated EPDS email notifications of new filings in a case are a courtesy provided to parties, they are not a substitute for parties actively checking the EPDS docket for new filings and diligently pursuing the case.” GAO also noted that its EPDS instructions and guidance state that “’it is the user’s responsibility to regularly review the docket for new case developments . . . the failure to receive any system generated emails will not excuse a party’s failure to timely respond to case developments.’” As such, failure to receive the automated message is not an excuse for not meeting a deadline. As a final point, GAO noted that its decisions have “consistently explained that a protestor must notify GAO when it fails to receive the report by the due date specified in the initial development letters generated by our Office and request an extension because late receipt does not alter the period for submitting comments.” As such, it was Silverback7’s responsibility to timely notify GAO if it did not receive the agency report by the due date established by GAO. Thus, when Silverback7 did not receive a courtesy email or other message from EPDS regarding the filing of the Agency Report by 5:30 PM EST, it was Silverback7’s responsibility to check the EPDS docket and notify GAO that it had not received the Agency Report. GAO’s decision in Silverback7 is a cautionary tale for protesters relying on GAO’s EPDS system: beware of overreliance on EPDS’s automatically generated filing notification emails. According to GAO, any filing with EPDS places the parties on constructive notice of the filing. Thus, it is prudent to keep close tabs on any active dockets to ensure important filings are not going unnoticed. View the full article
  11. For small government contractors, the disconnect between the SBA’s updated limitations on subcontracting rule and the FAR’s outdated rules has been very confusing. For more than two years, the FAR and SBA regulation have used different formulas to determine compliance, and the SBA rule–but not the FAR–allows the use of “similarly situated entities” on small business set-asides and 8(a) contracts. This has created major headaches for small businesses, who have had no definitive answer to what should be a simple question: “which rule do I follow?” Now, finally, there is some important progress to report in clearing up this discrepancy: yesterday, the FAR Council issued a proposed rule to update the FAR’s limitations on subcontracting provisions and conform them to the SBA’s rule. By way of quick background, way back in January 2013, former President Obama signed the 2013 National Defense Authorization Act into law. The 2013 NDAA made major changes to the limitations on subcontracting. The law changed the way that compliance with the limitations on subcontracting is calculated for service and supply contracts–from formulas based on “cost of personnel” and “cost of manufacturing,” to formulas based on the amount paid by the government. And, importantly, the 2013 NDAA allowed small primes to claim performance credit for “similarly situated entities.” Interestingly, about a year later–well before either the SBA or the FAR Council had amended the corresponding regulations–the GAO issued a decision suggesting (although not directly holding) that the similarly situated entity concept was currently effective. But most contractors and Contracting Officers continued to apply the “old” rules under the FAR and SBA regulations. On May 31, 2016–about three and a half years after the 2013 NDAA was signed into law–the SBA published a final rule implementing the changes, now codified at 13 C.F.R. 125.6. The SBA’s regulation took effect on June 30, 2016. Less than a month later, the VA issued a Class Deviation, incorporating by reference the new SBA regulations for VA SDVOSB and VOSB acquisitions. But for many other procurements, contracting officers continued to include FAR 52.219-14, which uses the old formulas and makes no mention of similarly situated entities. (FAR 52.219-14 applies to small business and 8(a) contracts. For HUBZone, non-VA SDVOSB procurements, and WOSB/EDWOSB contracts, the subcontracting limits are implemented by other clauses). This, of course, has led to a lot of confusion. Does a prime contractor comply with the SBA regulation? The FAR clause? Both? Some contracting officers have taken the position that the FAR clauses govern until they’re amended. But the SBA, of course, wants contractors to follow the SBA regulations. Indeed, a joint venture formed under the SBA’s regulations must pledge to comply with 13 C.F.R. 125.6. It’s been (to use official legal terminology), a hot mess. Now, more than two years after the SBA updated its regulations, the FAR Council has finally taken the first major step toward corresponding changes. Yesterday, the FAR Council published a proposed rule in the Federal Register, which, when finalized, will update the FAR to conform with the SBA’s regulation and the underlying statute. The substance of the proposed FAR rule isn’t terribly surprising, nor should it be. Substantively, the rule largely conforms with the SBA’s rule codified in 13 C.F.R. 125.6. Indeed, in its commentary discussing the proposed rule, the FAR Council repeatedly mentions the intent to align the FAR with the SBA’s regulation. That said, I thought a few points were worthy of mention: FAR 52.219-14 Expanded. Instead of the hodgepodge of FAR clauses governing limitations on subcontracting, the revised FAR proposal would consolidate the limitations on subcontracting for all small business programs in FAR 52.219-14. Nonmanufacturer Rule Changes. The proposed rule would provide more guidance to Contracting Officers and contractors alike regarding the application of the nonmanufacturer rule. Among other things, the proposed rule implements a 2016 SBA change requiring Contracting Officers to notify offerors when a nonmanufacturer rule waiver will apply. The proposed rule would also eliminate the requirement under FAR 19.1303, that, for a HUBZone firm to qualify as a nonmanufacturer, the end manufacturer also must be a HUBZone company. Similarly Situated Entities. The proposed rule would, as expected, allow prime contractors to use similarly situated entities to meet their performance thresholds. This is great news for small businesses, many of whom have wondered whether, in the absence of a FAR change, they can avail themselves of the statutory and SBA provisions regarding similarly situated entities. HUBZone Price Preference. The proposed rule would allow HUBZone firms to obtain the HUBZone price preference by subcontracting to other HUBZones. So far, so good. More troubling, however, the proposed rule states that in a HUBZone joint venture, the “HUBZone small business concerns to the joint venture” would have to meet the applicable limitations on subcontracting. That strikes me as an incorrect conflation of the limitations on subcontracting, on the one hand, and the SBA’s internal work share rules for joint ventures, on the other. We’ll see how this gets addressed in the final rule but I hope the SBA weighs in to help clear this up. The FAR Council is accepting comments on the proposed rule until February 4, 2019. From there, public comments will be considered and a final rule issued, probably sometime in mid-to late-2019. For now, of course, this remains a proposed rule, and the disconnect between the FAR and the SBA regulation remains. But at least things are moving in the right direction. View the full article
  12. The holiday season is upon us, time for cherished traditions. If you’re anything like us at Koprince Law, one of these traditions is reviewing the GAO’s annual bid protest report. The overall picture I got from the report, while perhaps not the best clickbait, is that GAO bid protest figures have remained remarkably steady over the past few years. As it has been for the last few years, close to 50% of protests succeed. This stability is a story worth repeating. The GAO Bid Protest Annual Report to Congress for Fiscal Year 2018 fulfills GAO’s statutory duty to report to Congress (1) each instance in which a federal agency did not fully implement a recommendation made by GAO (2) if any bid protest decision was “not rendered within 100 days after the date the protest is submitted,” and (3) “include a summary of the most prevalent grounds for sustaining protests.” It also summarizes the general statistics for bid protest decisions. If you were holding your breath on these required reports, you can stop. GAO met the 100-day deadline in all cases and the agencies followed all of GAO’s recommendations. This is good and shows the GAO bid protest system is efficient and respected by agencies. The main grounds for sustaining protests are not too revealing, as they are pretty generic, despite additional statutory instructions (in the 2017 NDAA) to provide these grounds. The three most common grounds were: Unreasonable technical evaluation Unreasonable cost or price evaluation Flawed selection decision Here are some key numbers from the report: 2,474 – Number of total protests. The total number of cases was 2,607, but this larger figure includes claims for costs and requests for consideration. 622 – Number of cases decided on the merits, rather than through dismissal. 92 – Number of sustained protests 15% – Percentage of sustained protests 44 – Effectiveness rate (percentage sustained or where agency took corrective action) 0.51% – Percentage of cases with hearings The effectiveness rate is an important metric. As GAO tells it, the effectiveness rate can be viewed as the percentage of protests in which a protester succeeded in “obtaining some form of relief from the agency” either through corrective action or a sustained protest. A corrective action is an admission from the agency that there was some flaw in the evaluation and the agency counsel thought it would lose at GAO. In other words, the effectiveness rate is a measure of whether the protester succeeded in getting another chance at winning the award. The 44% effectiveness rate for 2018 is right around the rate for the last 4 years, which ranged from 43% to 47%. Interestingly, the hearing rate has decreased every year for the last four years, going from 4.7% of cases in 2014 to 0.51% this year. And this is not a consequence of there being more cases filed, as this year’s total of 2,607 cases is right in line with the average of 2,646 over the prior four years. This statistic demonstrates that GAO is relying on hearings less every year (not that GAO held that many hearings in the past). The bottom line, contrary to some calls for reform arguing that there are too many bid protests, is that the total number of protests and the protest success rate have been quite steady over the last five years. The only thing that has really changed is there are less hearings being held. As my colleague Steven Koprince has astutely observed, the problem might not be that there are too many protests. The problem might be “that evaluators are messing up a lot of source selections.” But that is not an issue that bid protest reform can address. View the full article
  13. I’ve long predicted that Congress would eventually adopt a formal, Government-wide SDVOSB certification program (or “verification” program, if you prefer). Maybe my crystal ball is finally right. As my colleague Matt Schoonover wrote last week, a new bill introduced in the House of Representatives would do just that. The full text of the bill has now been published. Here are some of the key details of the Government-wide SDVOSB certification proposal. Government-wide SDVOSB verification won’t happen overnight. The House bill calls for the certification requirement to kick in “2 years after the date of enactment of this Act.” What’s more, the SBA and VA can jointly extend the enactment date “an unlimited number of times by a period of not more than 6 months.” Now, I know that starting up a Government-wide verification program isn’t a simple task, but two years ought to be enough time to get it done. Are extensions–especially unlimited extensions–really necessary? Self-certified SDVOSBs will get a grace period. The House bill says that once the program goes live (an event the bill calls the “transfer date”), a self-certified SDVOSB will have one year to file an application for certification. If the application is filed within the one-year period, the company can continue to rely on its self-certification for non-VA contracts until the SBA makes a decision on the application. Failing to apply within one year, however, will render the self-certification invalid. One can quibble about whether companies should get more or less time, but I think that a grace period is a good idea. Otherwise, SDVOSBs might experience the sort of problems that occurred when the VA’s verification program began. The VA, you may recall, ultimately adopted a short-lived class deviation to the VAAR in an effort to allow expedited treatment of certain applications. It seems that Congress may have learned something from that unpleasant experience. SBA will be in charge. As Matt mentioned in his post, the House bill says that the SBA, not the VA, will be in charge of the Government-wide SDVOSB certification program. Many veterans, who have been frustrated with the VA’s oversight, will cheer this move. And the move makes sense, given that the SBA runs all of the other Government-wide socioeconomic programs. That said, I’d caution veterans to temper their enthusiasm somewhat about this particular change. The VA, it’s true, made a pretty big mess of things in the early years of the CVE, but it has improved quite a bit since then. At the same time, the SBA’s own track record is rather spotty. The SBA’s newest initiative, the All Small Mentor-Protege Program, has been a big success in terms of speed and efficiency. But that’s not true of the 8(a) Program, where applications can sometimes languish for many, many months. I’m going to wait and see how the SBA does before judging whether this move will be a good thing for veterans. SDVOSB sole source threshold will increase. Although it doesn’t have anything directly to do with certification, the House bill would increase the sole source threshold for non-VA SDVOSB contracts. For manufacturing contracts, the sole source threshold would increase from $6.5 million to $7 million. For other contracts, the threshold would jump from $4 million to $5 million. While this is good news for SDVOSBs, only the VA would retain the ability to award SDVOSB sole source contracts even if the agency is aware of multiple qualified SDVOSBs. Outside of the VA, SDVOSB sole source contracts will likely remain rare, because a Contracting Officer can only award a sole source SDVOSB contract when he or she “does not have a reasonable expectation that offers would be received from two or more” SDVOSBs. Ordinarily, my colleagues and I wouldn’t spend so much time discussing a bill. After all, most bills introduced in Congress never become law. But I think that some version of this bill will be adopted. The non-VA SDVOSB program is the only remaining socioeconomic preference program allowing self-certification. (Although see here for my recent take on the WOSB certification program). Congress seems uncomfortable allowing self-certification to continue. Whether as a stand-alone bill, or perhaps part of the 2020 NDAA, my guess is that Government-wide SDVOSB certification is on its way. We will keep you posted. View the full article
  14. Many people skip the footnotes when they read. Why not? There’s rarely anything important in them, right? Not necessarily. In recent NAICS appeal Advanced Concepts Enterprises, Inc., SBA No. NAICS-5968 (Oct. 24, 2018), a single footnote made all the difference. In September 2018, the Missile Defense Agency issued an RFP seeking expansion of existing Ballistic Missile Defense System (BMDS) “test assets.” The “test assets” are used “to realistically emulate/simulate the complex weapon systems of the BMDS” and “include guided missiles and space vehicles tactical hardware and software.” Simply, these assets required updates to include new sensors and tactical systems. The RFP was designated as a WOSB set-aside under NAICS code 541715, “Research and Development in the Physical, Engineering, and Life Sciences (except Nanotechnology and Biotechnology).” While the NAICS code’s corresponding size standard is normally 1,000 employees, an exception exists for “Guided Missiles and Space Vehicles” which extends the size standard to 1,250 employees. However, Advanced Concepts Enterprises, Inc. (the Appellant) filed a NAICS code appeal with the SBA Office of Hearings and Appeals, arguing that NAICS code 541513, Computer Facilities Management Services, which has a corresponding $27.5 million annual receipts size standard, was more applicable. In deciding the case, OHA took a deep dive into the requirements of the RFP. An estimated 41 % of the Full Time Equivalents were dedicated to Network Design, which the Appellant argued did not contain research and development, while three other primary objectives each amounted to less than 17%. Despite the Appellant’s arguments to the contrary, OHA ultimately decided that the Research and Development NAICS code was appropriate. Normally, the NAICS Manual defines “research” as “original investigation undertaken on a systematic basis to gain new knowledge”, and ““experimental development” as “the application of research findings or other scientific knowledge for the creation of new or significantly improved products or processes.” Both a “research” and a “development” component must be present for a “Research and Development” NAICS code to apply. Footnote 11(d), however, presents a slight exception. Footnote 11(d) to 13 C.F.R § 121.201, which provides small business size standards in accordance with their NAICS codes, states that under NAICS code 541715 “‘Research and Development’ for guided missiles and space vehicles includes evaluations and simulation, and other services requiring thorough knowledge of complete missiles and spacecraft.” In other words, when a solicitation deals with guided missiles or spacecraft, the definition of “Research and Development” is broad enough to include almost any task requiring a deep understanding of missiles or spacecraft. OHA hammered home the importance of a broader definition when it comes to guided missiles, stating “the BMDS is an extraordinarily complicated and sophisticated undertaking, compared to ‘hitting a bullet with a bullet.'” OHA concluded that because “[t]he contractor will be servicing the necessary [BMDS] modeling and simulation equipment,” the solicitation “explicitly require[d] . . . a thorough knowledge of missiles, and thus fits into the description of the NAICS exception in Footnote 11(d).” While this decision can also teach us a lot about how guided missile systems work, the most important take away for contractors is the importance of checking out the footnotes. Footnotes were the deciding factor in this case and had a significant impact on the applicable size standard. The same may be true in any case, so make sure you glance at the superscript references. It’s not rocket science! View the full article
  15. Thanksgiving has come and gone, so that means holiday season is upon us! It was a balmy 62 degrees here in Kansas on Turkey Day, and 48 hours later we were in the middle of a blizzard. Gotta love Kansas weather! Stuffed full of turkey and snowed in, we had some time to catch up on what’s been happening in the government contracting world. In this two-week edition of SmallGovCon, we’ll look at GSA’s proposed consolidation to its schedule contracts, a DOL hiring discrimination dispute, Amazon’s role in the federal marketplace, and more. Have a great weekend! GSA delivered on its long-awaited promise to reform the Multiple Awards Schedule program. [Fedscoop] Watch your step when side stepping the Federal Acquisition Regulation! [Fedscoop] The SBA releases its latest HUBZone Program Evaluation. [HUBZoneCouncil] Pentagon still behind on adequate guidance for the GAO. [GovExec] Amazon providing its fair share of federal cloud computing. [CNN] Defense Department rescinded a plan to pay contractors less money. [GovExec] DOJ gets aggressive on bid rigging after military fuel supply investigation. [ChannelNewsAsia] NIH seeking contractors to roll joints. Couch potatoes need not apply! [GovExec] Federal contractors shelled out a combined $16.4 million to settle workplace discrimination. [BlombergLaw] Wrongly accused NASA contractor finally has his day in court. [Forbes] Contracting Officer sentenced to prison for making false statements. [Department of Justice] DOL settles hiring discrimination dispute with building supply contractor. [Department of Labor] Pentagon’s first department wide audit is a major milestone. [GovExec] Federal jury convicts contractor for fraudulently obtaining over $11 million. [Department of Justice] FEMA contractors in Puerto Rico charges total over $1 billion for simple repairs. [NYTimes] View the full article