Koprince Law LLC

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  1. The VA’s Verification Assistance Brief for SDVOSB and VOSB joint ventures flat-out misstates the law regarding the manner in which joint venture profits must be split. SDVOSBs and VOSBs often rely on Verification Assistance Briefs to guide them through the CVE verification process, and CVE analysts sometimes use Verification Assistance Briefs, too. Which begs the question: how many CVE-verified joint ventures are legally invalid? The VAAR provides that a joint venture can be eligible for a VA SDVOSB or VOSB set-aside contract so long as the joint venture (among other things) adopts a joint venture agreement meeting the requirements of the SBA’s SDVOSB regulations. So far, so good–joint ventures are complex enough; the last thing we need is a separate, VA-specific list of SDVOSB joint venture requirements. Effective August 24, 2016, the SBA overhauled its requirements for SDVOSB joint ventures. The SBA moved the regulations from 13 C.F.R. 125.15 to 13 C.F.R. 125.18, and made many substantive changes and additions. The SBA made a further correction, effective December 27, 2016, which governs how profits are split. The current regulation on profits is codified at 13 C.F.R. 125.18(b)(2)(iv), which states that every SDVOSB joint venture agreement must contain a provision “tating that the SDVO SBC(s) must receive profits from the joint venture commensurate with the work performed by the SDVO SBC.” (Here’s a link to the Federal Register, which officially adopted this formula as law). That brings us to the VA’s Verification Assistance Brief on joint ventures. Now, to be fair, I’m a fan of the Verification Assistance Briefs as a general matter. I like that the CVE has made the effort to put verification information in a user-friendly and accessible format. But the Verification Assistance Briefs are only helpful if they contain accurate and up-to-date information. As of the date of this post, the SDVOSB/VOSB joint venture regulation does not. According to the Verification Assistance Brief: 4. The joint venture agreement must contain a provision “tating that the SDVO SBC must receive profits from the joint venture…commensurate with their ownership interests in the joint venture…” 13 CFR § 125.18(b)(2)(iv). Later on the Brief reiterates: The SDVOSB or VOSB must receive a distribution of profits commensurate with its ownership interests in the joint venture. Wrong, wrong, wrong! This hasn’t been accurate since December 2016. Far from being helpful, then, this Verification Assistance Brief is dangerous. It invites SDVOSBs and VOSBs to submit legally deficient joint venture agreements. It invites CVE analysts to approve legally deficient joint venture agreements. And, to the extent that the CVE has approved deficient SDVOSB or VOSB joint ventures (and I’d bet a fair bit that it has), it exposes those joint ventures to the possibility of successful SDVOSB status protests. Has the CVE simply been slow to update its information to reflect the December 2016 change? Well, the Verification Assistance Brief (which, by the way, is the “Featured” Brief on the VA OSDBU website) says that it was “Reviewed and Revised May 2017.” Yikes. It needs a re-review, and fast. One more thing: if the CVE has approved any JVs containing the wrong profit-splitting provision, the CVE ought to unilaterally contact those companies and ask them to revise their JV agreements now. It would be a horrible thing if a well-meaning JV were to lose an SDVOSB eligibility protest–and a contract–simply because it followed an incorrect Verification Assistance Brief. View the full article
  2. The government missed its Fiscal Year 2016 HUBZone goal by a country mile, and didn’t hit the 5% WOSB goal, either. But according to the SBA, the government deserves an “A” for its FY 2016 small business achievements. That’s some rather generous scoring, wouldn’t you say? On May 18 ,the SBA issued a press release announcing that the government had exceeded its 23% small business goal for the fourth straight year. The SBA’s report card gave the government an overall “A” grade for its achievements. Among individual agencies, 18 received grades of “A+” or “A,” four received a “B,” and one earned a “C.” No agency received a “D” or “F.” Exceeding the 23% goal is a good thing, and something we shouldn’t take for granted. It wasn’t that long ago that I was blogging about a string of failures in that regard. But are the FY 2016 results really “A” level work? Let’s take a look at some of the not-so-great specifics: Overall small business achievement was down significantly: from 25.75% in FY 2015 to 24.34% in FY 2016. Small disadvantaged achievement dropped too: from 10.06% in FY 2015 to 9.52% in FY 2016. After hitting the 5% WOSB goal in FY 2015, the government backslid. The FY 2016 result: 4.79%. HUBZone awards took another step backward: from 1.81% in FY 2015 to 1.67% in 2015. That’s right: the government barely exceeded half of the 3% HUBZone goal. Of the five prime contract categories tracked (small business, SDB, SDVOSB, HUBZone, and WOSB), only SDVOSBs saw an increase, and it was tiny: 3.98% in FY 2016 versus 3.68% the prior year. Things weren’t much better on the subcontracting side. There, although overall subcontracting achievement was up slightly over the prior year, the government missed its overall 33.7% goal, and also missed the HUBZone and SDVOSB goals by wide margins. The government exceeded its WOSB and SDB subcontracting goals, but achievement in both categories dropped versus FY 2015. I could go on. And you know what, I think I will. The Department of Energy, for instance, earned an “A” for its small business achievement, despite the fact that it mustered a mere 0.38% for HUBZones, versus a 3% goal. Oh, and the DOE also “achieved” 0.76% for SDVOSBs, versus a 3% goal. The DoD got an “A” despite missing its HUBZone and WOSB goals by considerable margins. The DOJ scored an “A” with a measly 1.05% to HUBZones. The State Department earned a coveted “A+” despite missing its HUBZone goal. And so on. The SBA published its FY 2016 Scorecard Grade Calculation Methodology, and I’m sure someone smart at math can give me the ins and outs of how the numbers work. But you don’t need a degree in statistics to think that a system is broken if it allows agencies (and the government as a whole) to earn high small business goaling scores for middling performance. In a world with so many women-owned small businesses, it is downright embarrassing for the government to miss its meager 5% WOSB goal. And with new tools available to make it much easier to contract with HUBZone firms (such as the ability to joint venture with non-HUBZones), it’s absurd that the government is moving backwards on its HUBZone achievement. Here’s what I think: neither the government nor any agency should get an “A” if it doesn’t meet every single one of its prime contracting goals, and an “A+” should be awarded only if every prime contracting and subcontracting goal is met. Additionally, the scoring methodology should take into account year-to-year performance; top scores should not be awarded if an agency is moving backwards. This stuff matters. If agencies can earn top scores despite missing major components of their goaling, why should they try to get any better? Why should the DOE care if it improves on its 0.76% HUBZone achievement, if it can tout an “A”? For that matter, what incentive is there for the government as a whole to hit its socioeconomic goals if it is awarded “A” grades for meeting only some of them? There’s been a lot of talk in the media about the way the SBA calculates goaling achievement. But the grades the SBA assigns are every bit as important as the numbers the SBA reports. And if you ask me, the FY 2016 grades are way off the mark. View the full article
  3. It’s been a whirlwind of a week here in Kansas. I was fortunate enough to speak yesterday at the 16th Annual DOE Small Business Forum & Expo just up the road in Kansas City. My presentation focused on recent legal updates in federal contracting. It was a wonderful event put on by the Department of Energy and I was glad to be a part of it. Before we sail off into the weekend, it’s time for the SmallGovCon Week In Review. This edition looks at a plan to make the Transactional Data Reporting rule voluntary, it appears LPTA is still as hated as ever, the federal government notched its 4th consecutive year of hitting the 23% small business contracting goal, and much more. Plans to make the mandatory Transnational Data Reporting rule into a voluntary requirement should be in place by summer. [ExecutiveGov] An interagency working group is about to turn the government’s concept of cloud computing on its head. [Federal News Radio] It turns out that lowest price technically acceptable is still a hated and despised way to run a procurement. [Washington Technology] A former defense contractor from Gig Harbor was sentenced to prison for tax fraud and ordered to pay over $40k in restitution. [Sky Valley Chronicle] The Department of Veterans Affairs is proposing to amend and update portions of its VA Acquisition Regulation. [Federal Register] Nextgov takes a look at how much agencies are actually spending on new contracts. [Nextgov] The SBA announced that the federal government reached its small business federal contracting goal for the fourth consecutive year. That’s great news–but not all is rosy, because the government missed the mark on its HUBZone and WOSB goals. [PR Newswire] A reform bill aimed at DoD’s ability to buy commercial products, contract audits and services acquisition will eventually be folded into the 2018 defense authorization bill. [Federal News Radio] View the full article
  4. One common way that contractors attempt to avoid affiliation is by limiting a particular individual to a minority ownership interest (often 49%). But as a recent SBA Office of Hearings and Appeals case demonstrates, when a company’s owners are spouses (or other close family members), the SBA may disregard the legal ownership split, and treat the family members as one person for purposes of the affiliation rules. OHA’s decision in Size Appeal of Gregory Landscape Services, Inc., SBA No. SIZ-5817 (2017) involved an Army solicitation seeking grounds maintenance at Fort Rucker, Alabama. The solicitation was issued as a WOSB set-aside under NAICS code 561730 (Landscaping Services), with a corresponding $7.5 million size standard. After opening bids, the Air Force announced that Gregory Landscaping Services, Inc. was the apparent awardee. An unsuccessful competitor then filed a size protest. Although the size protest was untimely, the SBA saw potential merit to the protester’s allegations. The SBA adopted the size protest and initiated a size determination. The SBA determined that Bethany Kellis owned 51% of Gregory. Her husband, Rhett Kellis, owned the remaining 49%. Rhett’s parents and siblings controlled Kellis Joint Venture, LLC (which OHA referred to as “KJV”). Additionally, Rhett’s parents and brother controlled NaturChem, Inc. Rhett was a minority owner of KJV, and was employed by NaturChem as its Vice President of Sales. The SBA Area Office determined that “[a]s spouses, Bethany Kelllis and Rhett Kellis are treated as one party with a shared identity of interest as there is no clear line of fracture between them.” Therefore, “Bethany Kellis and Rhett Kellis each have the power to control [Gregory].” Next, the SBA Area Office determined that Rhett’s parents and brother controlled KJV and NaturChem, “but they too share an identity of interest with Rhett Kellis.” Therefore, Gregory was presumed affiliated with KJV and NaturChem. The only remaining question was whether Gregory could rebut the presumption of affiliation by showing a clear line of fracture between Rhett, on the one hand, and his parents and siblings, on the other. The SBA Area Office acknowledged that Rhett “holds no ownership interest in NaturChem; that [Gregory] and NaturChem do not share employees, facilities, or equipment; that there are no ‘loans, promissory notes, or other financial assistance” between [Gregory] and NaturChem; that the two companies perform ‘different services’ and are not in the same line of business; and that the business dealings between the companies amount to less than 1% of each company’s annual revenues.” However, Rhett was an owner of KJV and an officer of NaturChem, and NaturChem had done business with Gregory. The SBA Area Office found that Gregory had not demonstrated a clear line of fracture between Rhett and his relatives. The SBA Area Office issued a size determination finding Gregory to be affiliated with KJV and NaturChem. Gregory filed a size appeal with OHA. Gregory argued that the SBA Area Office had effectively treated the presumption of affiliation as irrebuttable, and had erred by finding Gregory affiliated with KJV and NaturChem. OHA wrote that it has “extensive case precedent” interpreting the SBA’s affiliation regulations “as creating a rebuttable presumption that close family members have identical interests and must be treated as one person.” A challenged firm can rebut the presumption by showing a clear line of fracture. Factors that may be pertinent in showing a clear line of fracture “include whether the firms share officers, employees, facilities, or equipment; whether the firms have different customers and lines of business; whether there is financial assistance, loans, or significant subcontracting between the firms; and whether the family members participate in multiple businesses together.” In this case, OHA said, Gregory “identified several considerations that would tend to rebut the presumption” of affiliation.” Nevertheless, “the major obstacle for [Gregory] in establishing a clear line of fracture is Rhett Kellis’s employment at NaturChem.” OHA explained that “when a family member works at a company owned and controlled by other close family members, this may be grounds for finding no clear fracture between them.” Additionally, “Rhett Kellis . . . shares a common investment with his parents and brother in KJV.” On these facts, “the Area Office could reasonably conclude that [Gregory] did not establish a clear line of fracture, and did not rebut the presumption of identity of interest.” OHA affirmed the Area Office’s size determination. OHA’s decision in Gregory Landscaping Services demonstrates how the familial relationships affiliation rule can be applied at two levels–both internally and externally. Although Rhett Kellis was only a 49% owner of Gregory, the SBA aggregated his interest with that of Bethany Kellis, his wife, and found that Rhett Kellis controlled Gregory. The SBA then looked externally, and presumed Gregory to be affiliated with companies controlled by Rhett’s parents and brother. Gregory Landscaping Services shows that when a company’s owners are close relatives, legal ownership splits–such as the 51/49 split here–may be disregarded in the SBA’s affiliation analysis. And the decision is another reminder that small businesses must be very careful about relationships with companies controlled by close family members. Even where, as here, the companies themselves do little business together, affiliation can exist. View the full article
  5. Having started my journey in the federal contracting community close to 30 years ago, I’ve seen quite a few changes in policy and process that have both improved and degraded the ability of small business concerns to participate as contractors and subcontractors. I’m not referring solely to changes where the language targeted small business, I’m also including those intending to change how business is done based on a specific commodity, contract cost type, procurement method, agency mission or government-wide initiative. In this, my first contribution to GovCon Voices, I’m taking a look back at recent proposed changes that resulted in lots of conversations with my friend Steve Koprince, a slew of articles and blogs and way too many anxious moments awaiting the outcomes. This is the second of a three part series I’m calling ‘The Good, the Bad and the Just Plain Ugly Changes That Almost Were!’ The Bad (Part 2) In the final days of calendar year 2014, the Small Business Administration issued a proposed rule that would create much discussion about substantive changes to small business subcontracting. As mentioned in Steve Koprince’s January 2015 post to SmallGovCon, these proposed changes were focused on how small business subcontracting limits are calculated,and how those limits are enforced. While many of the changes would be welcomed, one provision spelled out rules that would be detrimental to small business concerns should these changes become final. The previously mentioned SmallGovCon article explains this proposed change that’s entitled: Identification of Subcontractors “The proposed rule states that if a prospective prime contractor intends to use similarly situated entities to comply with the applicable limitation on subcontracting, the prime contractor “must identify the similarly situated entities in its offer . . .” Further, the “percentage of the prime contract award that will be spent on each similarly situated entity must be identified in a written agreement” between the prime contractor and similarly situated subcontractor. The written agreement “must identify the solicitation number at issue, be signed by each entity, and be attached to the prime contractor’s offer.”” This Could Leave a Mark! If we understand that a ‘Similarly Situated Entity’ is a small business concern participating in the same SBA program as an eligible small business offeror and awardee (the prime contractor), this proposed change was perched to place significant burdens on small business. Consider this. For companies pursuing acquisition programs such as GSA ALLIANT, NASA SEWP, CMS SPARC and any number of agency-specific and government wide contract vehicles of similar ilk, there are not defined requirements where firm partnerships and work-share can be established. At this stage relationships are based on what’s anticipated to occur and are subject to change at the task order level if the right mix of experience, capabilities and capacities are not in-hand. For these pursuits, teaming and subcontracting is dynamic, to say the least. As opposed to requirements programs tied to specific business or mission objectives, such as the MSC Shipboard Managment Infrastructure System (SMIS) or the BLS Consumer Price Index (CPI) Maintenance, where offerors have an opportunity to form partnerships based on defined needs. While it would have been interesting to see how this would have been implemented given the pervasiveness of multiple-award contract vehicles, I’m happy to speculate about what would have been. Rest In Peace (or Not!) Interestingly, the strain imposed on small federal contractors would far outweigh the burdens placed on ‘other than small business’ prime contractors, whose activities account for many more dollars and much greater impact on small business and federal contracting overall. It would have also increased the cost of doing business, specifically the cost of acquiring business (we call it C.A.B. Fare) for small business. When you factor in proposed changes referenced as ‘Notification of Changes’ and ‘Penalties’ (Penalties made it into the final rule – see 13 C.F.R. 125.6(h)), it seems Uncle Sam intended to overcompensate for its shortcomings in enforcing the small business subcontracting performance of habitual offenders (‘other than small business concerns’), at the expense of the small business community. Your comments and questions are always welcome! Stay tuned for part 3 featuring ‘The Good’ change that almost was. Peace! Guy Timberlake, The Chief Visionary http://www.theasbc.org | @theasbcguy | @govconguy |@govconchannel “The person who says it cannot be done should not interrupt the person doing it.” Guy Timberlake, Chief Visionary Officer and Co-Founder, The American Small Business Coalition, LLC (410) 381-7378 x200 | founder@theasbc.org ‘Go-To’ Guy Timberlake is an accomplished veteran of federal contracting with nearly 30 years of experience, knowledge and relationships acquired in support of civilian, defense and intelligence agency programs since Operation Desert Storm. He’s called ‘Edutainer’ for his ability to make mundane discussions about business essential topics (like finding and winning federal contracts and subcontracts!) interesting, and presenting them so they are practical and sticky. Most important is that Guy is a devoted husband, a proud father and loves pizza night with his family and friends. ‘Go-To-Guy’ is the nickname given to him by his defense customers in the 1990’s. GovCon Voices is a regular feature dedicated to providing SmallGovCon readers with candid news, insight and commentary from government contracting thought leaders. The opinions expressed in GovCon Voices are those of the individual authors, and do not necessarily reflect the opinions of Koprince Law LLC or its attorneys. View the full article
  6. I have food memories of the 1990s–my Duke Blue Devils won back-to-back titles, it was the heyday of Seinfeld, and Furbies were all the rage. (Ok, Furbies aren’t exactly a fond memory for much of anyone). But somehow, despite soaking up all kinds of ’90s culture, I missed out on one of the biggest live acts of the decade: Garth Brooks. But better late than never. Tomorrow night, I’ll catch the 2017 version of Brooks’ country crooning–part of seven shows he is playing over the course of just two weekends in Kansas City (yep, KC loves some Garth). Before I go enjoy a country music time warp–followed by a Mother’s Day celebration–it’s time for some government contracting news. In this week’s SmallGovCon Week in Review, a former USACE program manager is accused of bid rigging, the GSA is working on translating President Trump’s priorities into acquisition policy, and more. A former program manager for the Army Corps of Engineers in Nebraska is accused of rigging bids on nine contracts in exchange for about $33,000 worth of bribes. [The Oregonian] The GSA starts translating President Trumps priorities into acquisition policy. [Federal News Radio] A longtime DoD contractor in Afghanistan reflects on some lessons learned. [GovExec] A contractor who worked on the Navy’s supply and transport arm is facing a five-count indictment for his alleged role in a bribery scheme that allegedly netted him $3 million. [Federal Times] The SBA will start adoption of the Digital Accountability and Transparency Act but the CFO and Associate Administrator don’t have much faith in the new law. [Federal News Radio] Agencies “embrace of FedRAMP is still uneven,” a new report concludes. [FCW] More bad behavior: a former Army contractor pleads guilty to a bribery scheme involving contracts at Aberdeen Proving Ground. [Department of Justice] View the full article
  7. The Supreme Court’s landmark ruling in Kingdomware Technologies, Inc. v. United States does not require SDVOSBs to recertify their eligibility in connection with individual GSA Schedule task orders. In a recent decision, the SBA Office of Hearings and Appeals held that Kingdomware doesn’t affect the SBA’s SDVOSB eligibility regulation for multiple-award contracts, which specifies that if a company qualifies as an SDVOSB at the time of the initial offer for a multiple-award contract, it ordinarily qualifies as an SDVOSB for all orders issued under the contract. OHA’s decision in Redhorse Corporation, SBA No. VET-263 (2017) involved a GSA RFQ seeking transition ordering assistance in support of the Network Services Program. The RFQ contemplated the award of a task order under the GSA Professional Services Schedule. The order was set aside for SDVOSBs under NAICS code 541611 (Administrative Management and General Consulting Services). The GSA contracting officer did not request that offerors recertify their SDVOSB eligibility in connection with the order. After evaluating quotations, the GSA announced that Redhorse Corporation was the apparent awardee. An unsuccessful competitor subsequently filed a protest challenging Redhorse’s SDVOSB status. The SBA Director of Government Contracting sustained the protest and found Redhorse to be ineligible for the task order. Redhorse filed an SDVOSB appeal with OHA. Redhorse argued that it was an eligible SDVOSB under the Professional Services Schedule and was not required to recertify its status for the order. Therefore, Redhorse contended, the SDVOSB protest should have been dismissed. OHA agreed with Redhorse and granted the appeal. The competitor then filed a request for reconsideration. The competitor argued, in part, that OHA’s decision was at odds with Kingdomware. According to the competitor, Kingdomware establishes that “any new order off of a multiple award contract . . . is an independent contract in and of itself,” and therefore requires a new SDVOSB certification. OHA wrote that the competitor hadn’t discussed Kingdomware in its initial appeal, and couldn’t raise it belatedly in a request for reconsideration. But for good measure, OHA addressed the issue anyway. OHA wote that “because Kingdomware decided the narrow question of whether task orders must be set aside for veteran-owned small businesses pursuant to 38 U.S.C. 8127(d), Kingdomware does not affect SBA’s existing regulations pertaining to protests against task orders and recertification under long-term, multiple-award contracts.” OHA continued: Kingdomware, then, is not inconsistent with the regulation at issue here, 13 C.F.R. 125.18(e)(1), which states that “if an [SDVOSB] is qualified at the time of initial offer for a Multiple Award Contract, then it will be considered an [SDVOSB] for each order issued against the contract, unless a contracting officer requests a new [SDVOSB] certification in connection with a specific order. The CO did not request recertification for the instant task order, so Redhorse remains an [SDVOSB] for this task order based on its earlier certification at the GSA Schedule contract level. OHA dismissed the request for reconsideration and affirmed the original decision. As we approach the one-year anniversary of Kingdomware next month, it remains to be seen how broadly the decision will affect government contracting. So far, OHA has held that Kingdomware doesn’t affect size protest timeliness and–as it ruled in Redhorse Corporation–doesn’t require SDVOSBs to recertify for individual GSA Schedule task orders. But the SBA has also taken the position that Kingdomware should apply to the FAR’s small business “rule of two,” not just the SDVOSB/VOSB “rule of two” under 38 U.S.C. And in the meantime, the VA seems to have implicitly determined that Kingdomware doesn’t apply to acquisitions subject to SBA nonmanufacturer rule waivers, but hasn’t provided any legal rationale (at least not of which I am aware) for that position. Needless to say, there will be plenty more protests, appeals and other decisions about the broader impact of Kingdomware. Stay tuned. View the full article
  8. We previously have written about the trending preference toward fixed-price contracts, and away from cost reimbursement contracts, in defense procurements. The Defense Department’s supplement to the FAR (known as DFARS), in fact, already includes restrictions on using cost-reimbursement or time and materials contracts. Now the President has come out in favor of fixed-price defense contracting. In a Time Magazine article published today, President Trump signaled strong support for the fixed-price contracting preference, going so far as to “talk of his plans to renegotiate any future military contracts to make sure they have fixed prices.” The article, called “Donald Trump After Hours,” is wide-ranging and does not delve into specifics as to how President Trump might reshape defense contracting. But in language a bit too salty for this blog, he makes clear that time and materials contracts aren’t his favorite method of contracting. It’s unclear what the practical effect of President Trump’s preference for fixed-price contracts might be. Will the President push for more specific laws or regulations mandating his contract preferences? Will Secretary Mattis or other Trump appointees issue additional internal guidance? We don’t know, but will continue to follow this issue. View the full article
  9. The Service Contract Act requires contractors to pay certain provide no less than certain prevailing wages and fringe benefits (including vacation) to its service employees. The amount of vacation ordinarily is based on an employee’s years of service—and service with a predecessor contractor counts. The FAR’s Nondisplacement of Qualified Workers provision, in turn, requires follow-on contractors to offer a “right of first refusal” to many of those same incumbent employees. A follow-on contractor is to be given a list of incumbent service personnel, but that information ordinarily isn’t available at the proposal stage. So what happens when a follow-on contractor unknowingly underbids because it isn’t aware how much vacation is owed to incumbent service personnel? The answer, at least in a fixed-price contract, is “too bad for the contractor.” So it was in SecTek, Inc., CBCA 5036 (May 3, 2017)—there, the Civilian Board of Contract appeals held that a contractor must pay employees retained from the incumbent nearly $170,000 in wage and benefit costs based on its underestimate of those costs in its proposal. In 2015, the National Archives and Records Administration issued a request for quotations to provide security services at two NARA buildings. This solicitation fell under the Service Contract Act and also included the FAR’s the Nondisplacement of Qualified Workers clause (FAR 52.222-17). In other words, the successful contractor had to provide a right of first refusal to qualified service employees, and honor years of service incurred by those employees with the predecessor contractor. The solicitation included a wage determination that informed offerors that incumbent employees’ benefits were defined in part under a collective bargaining agreement. Under this agreement, the predecessor contractor had agreed to provide its employees with the following levels of vacation time: 2 weeks, for employees with 1-4 years of service; 3 weeks, for employees with 5-14 years of service; and 5 weeks, for employees with 15+ years of service. Before submitting its final quote, SecTek asked whether the government would provide a list of the incumbent contractor’s security officers, including their seniority, before proposals were submitted. The government did not, citing the FAR’s provision that this list must instead be provided after award. Without this list, SecTek was forced to guess the amount of vacation that would be due incumbent personnel. SecTek estimated that the average length of service for incumbent personnel was only three years and provided 80 hours of vacation time for all guards. SecTek’s fixed price offer was $40,918,522.84. It was awarded the contract and, ten days later, was given a seniority list of the predecessor contractor’s service employees. After award, SecTek learned that some of the incumbents service employees were owed more than 80 hours of vacation, given their seniority. So SecTek sought an equitable adjustment of its contract for this vacation time, totaling nearly $170,000. NARA denied this request, saying that it fully complied with the FAR’s requirements in disclosing the seniority list. SecTek then filed a formal certified claim seeking a contract adjustment. After NARA refused to timely respond, SecTek appealed the deemed denial to the Civilian Board of Contract Appeals. The issue, on appeal, was relatively straightforward: did NARA’s failure to provide SecTek with a seniority list of the incumbent contractor’s service employees before contract award entitle SecTek to a price adjustment reflecting those employees’ true vacation time? According to SecTek, the government’s refusal to provide this information precluded it from knowing the actual level of vacation pay that it would be required to pay the incumbent contractor’s employees; had it been provided this information, it could have priced its offer accordingly. The Board denied SecTek’s appeal, finding that NARA did not violate any FAR provision by refusing to provide the incumbent contractors’ seniority levels before the award. Just the opposite, in fact: Although information about the seniority of the predecessor contractor’s employees may have been helpful in estimating the level of benefits extended to those employees, this does not mean that the information must be, or even could have been, provided in advance of the contract award. . . . The Government . . . is not entitled to request the list [from the incumbent contractor] until thirty days prior to the expiration of the contract. In addition, the Government is not permitted to release the seniority list to the successor contractor until after contract award. The Government furnished the seniority list to SecTek on August 28, 2014—ten days after contract award and in full compliance with the FAR requirement. Because NARA could not have properly provided SecTek with the incumbent contractor employee seniority list before the award, it did not bear any responsibility for SecTek’s low estimate of incumbent employee vacation time. The Board noted that the contract had been awarded on a fixed-price basis, and that “the general rule in fixed-price contracting is that, in the absence of a contract provision reallocating the risk, the contractor assumes the risk of increased costs not attributable to the government.” Here, SecTek “bore the risk that its cost projections might prove to be insufficient,” and SecTek alone was on the hook for the additional vacation time costs. Through no fault of its own, SecTek underestimated the amount of vacation time due incumbent employees (which it was required to make make good faith efforts to hire) and, as a result, must absorb nearly $170,000 in additional benefit costs. SecTek, Inc. shows that when the Service Contract Act and Nondisplacement of Qualified Workers provisions intersect on a fixed-price contract, the result can be harsh. View the full article
  10. I am back in Lawrence after a great trip to Omaha, where I spoke at the SAME Omaha Post Industry Day. My talk focused on recent legal changes in federal contracting, including pieces of the 2017 National Defense Authorization Act and the SBA’s implementation of the All Small Mentor-Protege Program. Thank you very much to Anita Larson and the rest of the Planning Committee for organizing this great event and inviting me to speak. Thank you also to all of the clients, contractors, and government representatives who stopped by my “booth” in the Exhibit Hall to ask questions and chat about the nuances of government contracts law. As much as I enjoy speaking to large groups, it’s these one-on-one discussions that make for a truly outstanding conference. Next up for me: the Department of Energy Small Business Conference, which will be right in my backyard (Kansas City) next week. Hope to see you there! View the full article
  11. An Alaska Native Corporation subsidiary was not affiliated with its parent company and two sister companies under the ostensible subcontractor affiliation rule, even though the company in question would rely on the parent and sister companies for managerial personnel, financial assistance and bonding. A recent decision of the SBA Office of Hearings and Appeals highlights the breadth of the exemption from affiliation enjoyed by ANC companies. OHA’s decision in Size Appeal of Olgoonik Diversified Services, LLC, SBA No. SIZ-5825 (2017) involved a Department of State solicitation seeking a contractor to provide design-build construction services in Baghdad. The solicitation was issued as a small business set-aside under NAICS code 236220 (Commercial and Institutional Building Construction), with a corresponding $36.5 million size standard. After evaluating competitive proposals, the agency announced that Olgoonik Diversified Services, LLC was the apparent successful offeror. An unsuccessful competitor subsequently filed a size protest. The protester alleged, in part, that Olgoonik was affiliated with other entities under the ostensible subcontractor rule. The SBA Area Office determined that Olgoonik was established in 2011 as a wholly-owned subsidiary of Olgoonik Development, LLC (“OD”), an ANC holding company. OD, in turn, was a wholly-owned subsidiary of an ANC. OD had 11 other subsidiaries besides Olgoonik, referred to as Olgoonik’s “sister companies.” These sister companies included O.E.S., Inc. (“OES”) and Olgoonik Specialty Contractors, LLC (“OSC”). The SBA Area Office found that Olgoonik had relied on OES and OSC for the relevant past performance identified in its proposal. OD would provide bonding and other financial assistance to allow Olgoonik to perform the contract. All six key employees listed in the proposal (including the Program General Manager responsible for overall project management) were OSC employees. Although Olgoonik had not named OES or OSC as subcontractors in its proposal, the SBA Area Office found that Olgoonik was unusually reliant on its sister companies for contract performance. The SBA Area Office issued a decision finding Olgoonik affiliated with OES and OSC under the ostensible subcontractor rule (the SBA also found an affiliation for another reason, which is outside the scope of this post). Olgoonik filed a size appeal with OHA. Olgoonik argued that the ostensible subcontractor rule did not apply because OSC and OES were not proposed as subcontractors for the project. Additionally, Olgoonik argued that a regulatory exemption from affiliation precluded a finding of affiliation. That exemption, which is found in 13 C.F.R. 121.103(b)(2)(ii), provides, in part, that businesses owned and controlled by Indian Tribes, ANCs, Native Hawaiian Organizations, and Community Development Corporations are not considered affiliated with other businesses owned by these entities “because of their common ownership or common management.” However, “[a]ffiliation may be found for other reasons.” OHA first addressed the low-hanging fruit: the fact that OD, OES and OSC were not proposed to be subcontractors on the State Department project. OHA wrote that it has “consistently held that in order for the ostensible subcontractor rule to apply, the alleged affiliate must actually be a subcontractor of the challenged concern.” In this case, “there is no record of subcontracting in [Olgoonik’s] proposal,” meaning that OD, OES and OSC could not be Olgoonik’s ostensible subcontractors. But OHA didn’t stop there: it also found that the SBA Area Office had erred by failing to apply the “common ownership” and “common management” exceptions from affiliation. OHA wrote that “an ANC transfers personnel among its sister companies as part of the common management of its concerns, and an ANC’s exercise of common management is a clear exception to a finding of affiliation.” Additionally, OHA explained, “relying on its parent company for financial assistance in justifying a finding of affiliation based on a joint venture or ostensible subcontractor is equally illogical.” ANCs are “excepted from affiliation based on common ownership, thus it would be reasonable for a subsidiary to rely on its parent company’s financial resources, and for bonding . . ..” OHA granted Olgoonik’s size appeal. The SBA’s regulations do not expressly exempt ANCs, Tribes, NHOs and CDCs from ostensible subcontractor affiliation. But as the Olgoonik Diversified Services size appeal demonstrates, the types of relationships that might ordinarily be deemed indicative of ostensible subcontractor affiliation are often part and parcel of common ownership and management. Olgoonik Diversified Services confirms that OHA will broadly apply the regulatory exception to cover things such as transferred personnel, financial assistance, and bonding assistance. View the full article
  12. Feliz Cinco de Mayo! Whether you are celebrating the Mexican Army’s “unlikely victory over French forces at the Battle of Puebla” back in 1862 or just looking for an excuse to grab a cold margarita on the patio, I hope you have a wonderful May 5. Even though it’s not an official holiday here in the U.S., it’s still Friday–and that means it’s time for our weekly roundup of government contracts news. This edition of SmallGovCon Week In Review includes a defense contractor heading to prison in connection with a $53 million fraud and gratuity scheme, the GAO provides six recommendations to reduce fraud, waste, and abuse, California lawmakers debate “blacklisting” contractors who work on the President’s proposed border wall, and more. With last week’s potential government shutdown temporarily averted, contractors breathed a sigh of relief, but what happens in a few months? Forbes takes a look at the toll a shutdown would take on women federal contractors. [Forbes] Federal News Radio gives us a look at eight trends its expects to continue into 2018 for federal contractors. [Federal News Radio] A defense contractor will be spending five years in prison after being sentenced for a $53 million fraud and gratuity scheme. [United States Department of Justice] The GAO makes six recommendations to reduce fraud, waste and abuse in small business research programs. [GAO] What can Congress and the administration do now to speed up the modernization of IT procurement? [Defense Systems] California lawmakers are debating whether to blacklist contractors who help build the president’s proposed border wall. (My opinion: regardless of one’s political leanings, punishing contractors for working on federal government contracts of any type is a very bad idea). [NPR] Government contracts guru Mark Amtower busts seven pervasive contracting myths. [Washington Technology] View the full article
  13. A NAICS code appeal can be a powerful vehicle for influencing the competitive landscape of an acquisition. A successful NAICS code appeal can dramatically alter a solicitation’s size standard, causing major changes in the number (and sizes) of potential competitors. But a NAICS code appeal cannot be filed until the solicitation is issued. As the SBA Office of Hearings and Appeals recently confirmed, a NAICS code appeal cannot be filed with respect to a presolicitation. OHA’s decision in Marvin Test Solutions, Inc., SBA No. NAICS-5826 (2017) involved a Navy procurement for Common Aircraft Armament Test Set systems and Pure Air Generator System Adapter Set units. On March 28, 2017, the Navy published a presolicitation notice. The presolicitation notice indicated that the forthcoming solicitation would be classified under NAICS code 334519 (Other Measuring and Controlling Device Manufacturing), with an associated 500-employee size standard. On April 13, 2017, Marvin Test Solutions filed a NAICS code appeal with OHA. Marvin alleged that the procurement should be classified under NAICS code 336413 (Other Aircraft Parts and Auxiliary Equipment Manufacturing), with an associated 1,250-employee size standard. OHA noted that under the SBA’s regulations, “[a] NAICS code appeal must be filed within 10 calendar days after issuance of the initial solicitation.” OHA explained that “mere publication of a presolicitatoin notice does not guarantee that the procuring agency will issue a solicitation or that it will assign the NAICS code anticipated in the presolicitation.” OHA continued: “[p]ublication of a presolicitation notice does not constitute a NAICS code designation within the meaning of [the SBA’s regulations] and, therefore, an appeal of a presolicitation notice must be dismissed as premature.” OHA dismissed Marvin Test Solutions’ NAICS code appeal. While Marvin Test Solutions confirms that it is too early, when a presolicitation notice is issued, to file a NAICS code appeal, it doesn’t mean that a prospective contractor must sit on its hands until the solicitation is issued. The period after a presolicitation notice is issued provides a window to lobby the contracting officer to change the NAICS code, and–if that fails–get a head start on drafting a persuasive NAICS code appeal. Given the limited 10-day window in which a NAICS code appeal is viable, that head start can be quite beneficial. On a final note, speaking of that 10-day window: because Marvin Test Solutions’ NAICS code appeal was premature, Marvin Test Solutions will get a second chance to file its appeal if the solicitation is issued under NAICS code 334519. But Marvin Test Solutions is lucky that the March 28, 2017 publication was only a presolicitation, and not the solicitation itself. By my count, Marvin Test Solutions filed its NAICS code appeal 16 days after the presolicitation was issued. Had the March 28 publication been the solicitation itself, Marvin Test Solutions’ NAICS code appeal likely would have been dismissed as untimely–and there would be no second bite at the apple. View the full article
  14. To encourage joint venturing, the SBA’s size regulations provide a limited exception from affiliation for certain joint venturers: a joint venture qualifies for award of a set-aside contract so long as each venturer, individually, is below the size standard associated with the contract (or one venturer is below the size standard and the other is an SBA-approved mentor, and they have a compliant joint venture agreement). In other words, the SBA ordinarily won’t “affiliate” the joint venturers—that is, add their sizes together—if the joint venture meets the affiliation exception. Because of this special treatment, it can be easy for the venturers to assume that they are completely exempt from any kind of affiliation. But as the SBA Office of Hearings and Appeals recently confirmed, however, the exception isn’t nearly so broad. The facts in Veterans Construction Coalition, SBA No. SIZ-5824 (Apr. 18, 2017) are relatively straightforward: AWA Business Corporation (an 8(a) company) and Megen Construction Company (a small business) formed a joint venture called Megen-AWA 2 (“MA2”), to bid on and perform various construction projects at Wright-Patterson Air Force Base, under an 8(a) set-aside solicitation. The solicitation in question was issued under NAICS code 236220 (Commercial and Institutional Building Construction), with a corresponding $36.5 million size standard. After evaluating competitive proposals, the Air Force announced that MA2 was the apparent awardee. An unsuccessful competitor filed a size protest, arguing that AWA and Megan were affiliated in various ways, including identity of interest (as the companies were owned by brothers), common management (the brother who owned AWA used to be vice president of Megen), and totality of the circumstances (the companies had worked together under other joint ventures before). In response to these allegations, MA2 argued, in part, that it qualified as a small business because AWA and Megen both fell below the solicitation’s $36.5 million size standard, as required by the joint venture exception from affiliation. The SBA Area Office agreed, but went a step farther: it held that because AWA and Megan were parties to a joint venture, they could not be affiliated on the “general affiliation” grounds of identity of interest, common management, or totality of the circumstances. The SBA Area Office issued a size determination finding MA2 to be an eligible small business. On appeal, OHA asked the SBA Office of General Counsel to comment on the breadth of the joint venture exception from affiliation found in 13 C.F.R. § 121.103(h)(3). The SBA Office of General Counsel wrote that the provision “created an exception to affiliation on the basis of participation in a joint venture.” The provision does not create a general exemption to affiliation for joint ventures—“[t]hat is, firms exempted from joint venture affiliation . . . still could be found to be affiliates for reasons other than those set forth in § 121.103(h).” OHA agreed with the Office of General Counsel. OHA wrote that the affiliation exemption at issue “applied to ‘affiliation under paragraph (h),’ which is affiliation based on joint ventures. Logically, then, the exception was confined to contract-specific affiliation based on joint ventures and did not extend to issues of general affiliation[.]” Because the Area Office did not consider the general affiliation allegations (like identity of interest, common management, and totality of the circumstances), OHA remanded to the Area Office for additional analysis. Sometimes, small businesses think that their participation in a joint venture serves as a broad exemption from affiliation with their partner. Veterans Construction confirms this isn’t true—joint venture partners can still be deemed affiliated for reasons other than their participation in the joint venture. Knowing when such affiliation might be found—and taking steps to minimize any indicia of affiliation—just might save a contract award. View the full article
  15. An agency may modify a contract without running afoul of the Competition in Contracting Act, so long as the the modification is deemed “in scope.” An “out of scope” modification, on the other hand, is improper–and may be protested at GAO. In a recent bid protest decision, GAO denied a protest challenging an agency’s modification of a contract where the modification was within scope and of a nature that competitors could have reasonably anticipated at the time of award. In its decision, GAO explained the difference between an in scope and out of scope modification, including the factors GAO will use to determine whether the modification is permissible. The GAO’s decision in Zodiac of North America, Inc., B-414260 (Mar. 28, 2017), involved a U.S. Army Contracting Command solicitation for a contractor to produce a seven-person inflatable combat raiding craft (I-CRC) and a 15-person inflatable combat assault craft (I-CAC). The Army initially issued the solicitation in February 2013. The solicitation included purchase descriptions, which set forth the product requirements for the boats and motors. Specifically, the submersible outboard motors for the I-CRC and I-CAC required “they propel a fully-loaded craft (2,120 pounds and 4,000 pounds, respectively) at 16 knots during sea state 1 (calm water) within two minutes.” As part of the solicitation, offerors were also informed that they were required to provide two units of each the I-CRC and I-CAC for article testing in accordance with FAR 52.209-4. If the government disapproved the first article, upon the government’s request, the contractor was required to make any necessary changes, modifications, or repairs to the first article or select another first article for testing. The Army evaluated proposals and awarded the contract. Zodiac, an unsuccessful offeror, protested the award to GAO arguing that the Army should have found the awardee’s proposal technically unacceptable because the awardee’s proposed boats were insufficient to meet the speed requirements detailed by the solicitation. GAO denied the protest in Zodiac of North America, B-409084 et al. (Jan. 17, 2014) finding that Zodiac had proposed the same motors as the awardee, and the Army had reasonably relied on the awardee’s test reports demonstrating the product’s compliance with the solicitation’s speed requirements. Likely unsatisfied with GAO’s decision, Zodiac subsequently filed a Freedom of Information Act request in October 2016. Through this request, Zodiac learned the Army had modified the contract requirements after the awardee twice failed product testing. The modification revised both the purchase description for the boats and the motors. It resulted in a 10 percent reduction in the propeller weight of the motors, a three-inch dimensional increase in the hard deck floor and storage bag, and removal of the airborne transportability requirement. Believing these revisions of the contract terms amounted to an improper sole source award contract, Zodiac protested again. GAO explained that the Competition in Contracting Act ordinarily requires “the use of competitive procedures” to award government work. However, “[o]nce a contract is awarded…[it] will generally not review modifications to the contract because such matters are related to contract administration and are beyond the scope of [its] bid protest function.” While a modification that changes the contract’s scope of work is an exception to this rule, such a modification is only objectionable where there is a “material difference” between the modified contract and the original contract. A material difference exists when “a contract is so substantially changed by the modification that the original and modified contracts are essentially and materially different.” A material difference typically arises when an agency enlarges a contract’s scope of work, the relaxation of contract requirements post-award (as alleged by Zodiac) can also be a material difference. In assessing whether there is a material difference, GAO will look to: “[T]he extent of any changes in the type of work, performance period, and costs between the modification and the original contract, as well as whether the original solicitation adequately advised offerors of the potential for the change or whether the change was the type that reasonably could have been anticipated, and whether the modification materially changed the field of competition for the requirement.” In this case, considering these factors, GAO found that the modification did not substantially change the scope of the original contract, competitors for the initial solicitation could have reasonably anticipated the changes to the contract, and the changes to the contract would not have had a substantial impact on the field of competition for the original contract award. Importantly, the deliverables still functioned as seven-person I-CRCs and 15-person I-CACs, and the awardee remained subject to the same performance period. GAO held that there was not a material difference, and denied Zodiac’s protest. Zodiac of North America is a useful primer on when a modification crosses the line into an improper sole source award. As demonstrated in Zodiac, the key is whether there is a material difference between the modified contract and the awarded contract. View the full article