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  1. As our regular readers know, a GAO protest challenging an agency’s evaluation decision must be filed within 10 days from the date the protester knew (or should have known) of the protest grounds, or within 10 days from the date the protester receives its debriefing (but only if the debriefing was required and timely requested). 4 C.F.R. § 21.2(a)(2). But sometimes, an agency might give an offeror a reason to protest before it makes its official award determination. In that case, should the offeror wait to file its protest until the agency completes its evaluation? In some cases, no—the protest should be filed within 10 days from the date the agency makes its determination known. This timeliness wrinkle was discussed recently in Bastion Technologies, Inc., B-418432 (May 5, 2020). There, Bastion submitted a bid under a NASA procurement seeking services in support of human space flight programs. The solicitation contemplated that, for the past performance evaluation, NASA would review offerors’ submitted past performance information forms (PPIF). Each form was limited to describing only one contract award, and prime offerors were restricted on submitting more than three contracts per team member. Bastion submitted its proposal on December 16, 2019. It included three PPIFs, each of which discussed multiple contracts. On January 22—before it had completed its source selection evaluation—NASA notified Bastion that it would not consider its PPIFs because they violated the solicitation’s instructions. Believing that NASA’s interpretation of the PPIF requirements exposed a latent ambiguity, Bastion then filed a GAO protest on January 29 (while the evaluation was ongoing). Considering this argument, GAO noted the “unusual procedural posture” it presented. That is, the protest was not properly a pre-award protest challenging the terms of the solicitation, because Bastion did not know of NASA’s interpretation of the PPIF requirement until January 22, after proposals were due. But at the same time, the protest wasn’t truly a post-award protest either, as the evaluation was still ongoing at the time it was filed. Nonetheless, GAO considered Bastion’s argument. “Protests that an agency has evaluated proposals in a manner that is inconsistent with the terms of a solicitation,” GAO noted, “generally are filed after the agency announces its source selection decision[.]” And though GAO will typically dismiss a protest that challenges an evaluation as speculative or premature if the evaluation has not yet been completed, Bastion’s protest presented a wrinkle to this rule: However, where, as here, the agency makes clear its interpretation of the solicitation through substantive written notice during its evaluation, it may render an issue sufficiently final such that our Office’s consideration of the issues is the most efficient, least intrusive method to resolving the dispute. Because NASA “effectively announced its interpretation” of the PPIF requirements to Bastion on January 22, Bastion’s protest challenging that interpretation was timely. This procedural wrinkle addressed, GAO considered (and denied) the merits of Bastion’s arguments. *** We write a lot about timeliness considerations for bid protests. And for good reason: GAO’s protest filing deadlines can be complicated, as Bastion Technologies helps to show. Though complex, these rules are crucial to understand because, if a protest is filed late, GAO won’t consider it. If you have any questions about GAO protests, give me a call. View the full article
  2. There’s been a lot of discussion about “small businesses” lately, but there are still many misconceptions about how large “small businesses” can actually be! In this YouTube video, I breakdown how Uncle Sam decides which businesses are small: If you have questions about the size of your business, you can check out our many, MANY blog posts on the matter & this useful overview of affiliation, or give us a call! View the full article
  3. Happy Memorial Day! I hope everyone has a wonderful holiday weekend as we remember those who have sacrificed for our country. Memorial Day was first observed in 1868. At that time then Congressman and former general James Garfield remarked of those that had died for our country: “For love of country they accepted death, and thus resolved all doubts, and made immortal their patriotism and their virtue.” While we remember their sacrifice, there was also much news in the world of federal contracting. This week saw stories, among others, of the ramifications of the STARS II contract hitting its ceiling, a new approach for multiple award contracts, and the Air Force’s plan to roll out “Skyborg” drones. The downside of a wildly successful governmentwide 8(a) contract. [federalnewsnetwork] Contract suit against U.S. kept from Court of Claims. [newenglandinhouse] Air Force launches search for AI-enabled ‘Skyborg’ drones. [fedscoop] What’s Congress got planned for federal contractors? [federalnewsnetwork] HHS Proposes ‘IT Control Tower’ to Manage Strategic National Stockpile. [nextgov] The current approach to awarding big multiple-award contracts is broken — here’s how to fix it. [federalnewsnetwork] FEMA vehemently denies taking over state contracts for PPE purchases. [thedenverchannel] GSA terminates McKinsey & Co.’s schedule contract. [federalnewsnetwork] View the full article
  4. In what might be a classic “now you tell me” scenario, the SBA issued a new rule May 21 saying that if an applicant failed to count the employees of its foreign affiliates when it was determining its eligibility, the SBA will not hold that against the applicant so long as the application was submitted before the SBA clarified that requirement. The problem with that, however, is that because the safe harbor ended May 18, it’s highly likely that a lot of those businesses already gave their PPP loan back. They’d be forgiven for thinking they had to, as earlier this month Sen. Marco Rubio was indicating that Congress would investigate companies who took PPP funds for which they weren’t eligible. For the record, the general rule is—and has always been—that in order to be eligible for a PPP loan, a concern and its affiliates must have less than 500 employees combined. The regulation explicitly states that, in determining its size, a concern must include both foreign and domestic affiliates. But the SBA has recognized that some of its guidance may have been misleading on that point. On April 15, the SBA issued an interim final rule that said, “You are eligible for a PPP loan if you have 500 or fewer employees whose principal place of residence is in the United States[.]” A fair but oversimplified reading of that statement led some to believe that if the applicant itself had less than 500 U.S.-based employees then it was eligible. The SBA cleared up the confusion on May 5, when it updated its list of Frequently Asked Questions to make it clear that “an applicant must count all of its employees and the employees of its U.S. and foreign affiliates[.]” Because of the somewhat contradictory guidance, the SBA has now decided that it will simply forgive companies that went ahead and applied for a PPP loan so long as the application came in before the SBA addressed the question in its May 5th addition to the FAQ. Specifically, it said: [A]s an exercise of enforcement discretion due to reasonable borrower confusion based on SBA guidance (which was later resolved through a clarifying FAQ on May 5, 2020), SBA will not find any borrower that applied for a PPP loan prior to May 5, 2020 to be ineligible based on the borrower’s exclusion of non-U.S employees from the borrower’s calculation of its employee headcount if the borrower (together with its affiliates) had no more than 500 employees whose principal place of residence is in the United States. Such borrowers shall not be deemed to have made an inaccurate certification of eligibility solely on that basis. Under no circumstances may PPP funds be used to support non-U.S. workers or operations. In other words, “our bad.” But what of businesses who did apply in that window who returned the money after the SBA said on May 5 that foreign affiliates did need to be counted? Can those businesses reclaim the funds? Seems as though they are out of luck. They can’t apply again, because they know for a fact now that they are not eligible. This rule has therefore rewarded companies who misread a single statement by SBA to their own advantage, then ignored later guidance, and elected not to take advantage of the safe harbor. View the full article
  5. On May 15, SBA released the Paycheck Protection Program Loan Forgiveness Application. Because loan forgiveness was a huge component of Paycheck Protection Program, the application is hugely important. While this post won’t do a deep dive into the loan forgiveness rules, we wanted to bring this to the attention of our blog readers. The SBA itself provided some highlights from the loan forgiveness application: Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving their PPP loan Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30 Addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined Please take a look at the application to make sure your company is positioned to maximize eligibility for loan forgiveness, as the rules for calculating the forgiveness amount have some complicated wrinkles. If you have initial questions, you should get in touch with your banking institution or lender. We’ll keep you updated as we know more. View the full article
  6. Over the years, we’ve written a fair number of blogs about how contractors have been either too early or too late to protest. What we haven’t blogged about is a situation where a contractor is premature and late. Unfortunately for one protester, GAO has recently confirmed that you can, indeed, be both too early and too late to protest. GAO’s decision in Kord Technologies, Inc., B-417748.5 (Comp. Gen. Apr. 17, 2020), involved a procurement by the Missile Defense Agency (MDA) for support services at its Advanced Research Center. Kord timely submitted a proposal in response to the Solicitation. Following evaluation of proposals, MDA made an award to DTechLogic, LLC. Kord subsequently protested the award before GAO. Kord’s principal argument was that its proposal should have been more highly rated under the Technical and Contract and Program Management factors. Specifically, Kord argued that its proposal contained numerous features that exceeded the performance requirements specified in the solicitation, so it should have been awarded additional strengths under these areas. In response to the protest, MDA elected to take corrective action. As GAO summarized, the corrective action would include “conducting an inquiry into the protest allegations and reviewing the evaluation and award decision to determine what actions were warranted.” Based upon its review of the record, MDA concluded a new award was necessary. To facilitate this, offerors were instructed to submit final proposal revisions to MDA or confirm that no such changes were necessary. Kord timely submitted final proposal revisions. After preliminary reviews, MDA concluded that Kord’s proposal was not among the most highly rated; therefore, Kord’s proposal was excluded from the competitive range, and eliminated from further competition. When notifying Kord of its elimination, MDA explained that Kord’s proposal had received low marks under the Technical and Contract and Program Management factors—even lower than under the original evaluation. Kord promptly requested a debriefing. Before the debriefing was held, however, Kord again protested before GAO. According to Kord, its protest was to the terms of the corrective action. Specifically, Kord argued that the evaluation of its final revised proposal demonstrated that MDA had once again failed to award Kord’s proposal the strengths it deserved. As Kord’s protest explained, “MDA’s failure to evaluate technical proposals consistent with the terms of the olicitation indicates that the scope of the [a]gency’s promised corrective action fails to remedy the allegations in Kord’s protest[], and therefore, MDA’s corrective action was inadequate and should be re-conducted in a manner that remedies the concern that caused the agency to take corrective action.” In response, MDA argued Kord’s protest should be dismissed because it did not meet GAO’s strict timeliness requirements. In fact, the procedural posture of Kord’s protest invoked two distinct bid protest timeliness concepts. First, MDA argued that Kord’s protest was not of the corrective action, but of the scores it received during the reevaluation. Thus, Kord’s protest did not relate back to the earlier corrective action, but was rather a run-of-the-mill evaluation challenge. MDA’s argument relied on GAO’s bid protest regulations, which state that where a debriefing is required and requested, “the initial protest shall not be filed before the debriefing date offered to the protester[.]” 4 C.F.R. § 21.2(a)(2). It was undisputed by the parties that here a debriefing was required. Since Kord had immediately requested a debriefing after being notified of its elimination, its filing of a protest with GAO before the debriefing was provided rendered the protest premature. Second, MDA further argued that even if the protest was a challenge to the corrective action, any such change would have needed to be protested prior to the deadline for final proposal revision submission. According to MDA’s argument, since Kord had waited until after proposal reevaluate was complete, any challenge to the corrective action was untimely. MDA’s argument relied on a string of GAO decisions that have likened challenges of corrective actions to challenges of solicitation terms. MDA’s challenge then leveraged GAO’s timeliness regulations. According to GAO’s regulations, “n procurements where proposals are requested, alleged improprieties which do not exist in the initial solicitation but which are subsequently incorporated into the solicitation must be protested not later than the next closing time for receipt of proposals following the incorporation.” 4 C.F.R. § 21.2(a)(1). Thus, even if Kord was protesting was the corrective action steps, its protest would still be untimely because the corrective action was akin to a solicitation modification that needed to be challenged prior to proposal resubmission. GAO agreed with MDA on both counts. First, over the strenuous objection of Kord, GAO found that: Kord is alleging that the agency’s evaluation of Kord’s November 2019 [Final Proposal Revision], conducted as part of the corrective action, failed to follow the solicitation’s evaluation criteria in the same way that the agency evaluated Kord’s initial proposal. While Kord claims that the evaluation results simply demonstrate that the agency’s scope of corrective action was improper because it did not “remedy the allegations in Kord’s protest[],” in our view, Kord’s protest is a direct and straightforward challenge to the agency’s evaluation of Kord’s November 2019 Final Proposal Revision. Interpreted as a challenge to its most recent evaluation, Kord’s protest was clearly premature. Despite requesting a debriefing, Kord protested before GAO prior to the debriefing. This clearly violated GAO’s bid protest regulations, resulting in a premature protest. But GAO did not stop there. In a footnote, GAO also weighed whether Kord’s protest would have been timely as a challenge to the corrective action, and similarly found it wanting. After confirming that challenges to proposed corrective actions are tantamount to protests of a solicitation’s terms, GAO held that “[t]o the extent that Kord believed that the agency’s stated intentions for corrective action failed to do enough to correct the alleged errors in the initial procurement, it should have filed a protest prior to the deadline for submission of [Final Proposal Revisions].” Thus, even if construed as a challenge to the terms of the Solicitation, Kord’s protest would have still been untimely. Consequently, GAO dismissed Kord’s protest as untimely without resolving any of the factual arguments raised by Kord. Kord’s protest is an excellent example of a GAO bid protest timeliness conundrum, where any protest would be simultaneously premature or too late. On one hand, Kord sat on its rights to challenge the scope of DMA’s proposed corrective action. On the other hand, it acted too quickly filing a protest raising issues with the new evaluation and award. Thus, Kord has the unpleasant distinction of being a protester who was both too early and too late. View the full article
  7. In this video, I walk you through how to make claims to your contracting officer under the Contract Disputes Act. If you would like assistance preparing a claim, Koprince Law can help. View the full article
  8. SmallGovCon’s @MoriartyGovCon was recently interviewed by @ABC about #PPP & foreign-owned businesses! Check out the article here. View the full article
  9. The SBA’s Office of Inspector General released an early report on SBA’s handling of the Paycheck Protection Program (PPP). The report identified some important areas where SBA has not quite hit the mark in matching the priorities of the Coronavirus Aid, Relief, and Economic Security (CARES) Act with SBA’s implementation and guidance for PPP loans. The “Flash Report,” as the OIG calls it, came out much quicker than most OIG reports because a group of Senators asked for a rapid assessment of SBA’s implementation of the PPP and the related rules and guidance. The amount of money that was disbursed in such a short time is amazing. In the initial round, lenders approved 1.6 million loans totaling $342 billion in 14 days. In the second round of loans, in 10 days up to May 6 lenders approved over 2.4 million loans totaling over $183 billion. As is apparent from those numbers, the second round featured smaller loans going to many more applicants. All told, SBA lenders in 33 days approved loans that totaled more than 20 times the amount of SBA loans ever done in a whole year. With that much money going out in such a short time, it would be nearly inconceivable that some t’s and i’s may not have been crossed and dotted. The report identified four areas where the SBA’s implementation of the PPP didn’t align with the CARES Act. Some of these deal with administrative issues (such as registering loans using TIN), so I’ll focus on the items most important for small businesses. For one thing, SBA failed at prioritizing lending for underserved and rural markets. The CARES Act stated the “Sense of the Senate” (as that section of the bill was titled) was that SBA should issue guidance to lenders and agents to ensure that the processing and disbursement of covered loans prioritizes small business concerns and entities in underserved and rural markets, including veterans and members of the military community, small business concerns owned and controlled by socially and economically disadvantaged individuals . . ., women, and businesses in operation for less than 2 years. SBA simply did not provide this guidance to lenders. Although it wasn’t exactly a requirement (based on use of the word “should”) it was certainly recommended in the CARES Act. Thus, the OIG recommended that SBA advise lenders that they are required to prioritize borrowers in underserved markets as detailed in the legislation. The OIG also recommended a few other steps SBA should take to improve its oversight of the PPP. For instance, SBA could revise the application form to request optional demographic information on the principals of the companies. Similarly, the forms for loan forgiveness should request demographic information. The demographic information would allow SBA to know it was serving the markets that the CARES Act intended serve, such as rural markets. The OIG also noted that SBA should address the negative impact to borrowers from what percentage of loan proceeds are forgivable. Basically, the CARES Act said the proceeds could be used for payroll, mortgages, rent, utilities, or interest, without any restrictions on the amount that could be used for payroll. And the Act allowed for repayment for up to 10 years. In contrast, SBA rules dictated that 75% of the loan had be used for payroll or it would not be forgiven. Plus, repayment would be required within two years for any amount not forgiven. According to the OIG, these two rules, which were not dictated by the CARES Act, could leave tens of thousands of borrowers having to repay some portion of the loan for nonpayroll costs exceeding 25%, and repayment would come in less than two years. In short, the OIG identified some serious concerns with the PPP, echoing some of the same issues we raised in an earlier post. If addressed, these concerns would benefit borrowers by directing loans to those who most need them and making loan forgiveness and repayment easier. We’ll keep you updated on how SBA addresses these concerns. View the full article
  10. Many small businesses are struggling right now. And PPP loans may offer some much-needed relief under the circumstances. But how do you know if it is a good idea to accept the loan for your company? Unfortunately, the only answer is “it depends.” There is no one-size-fits-all response because each company—and the effect of COVID-19 on each company’s business—is different. However, SBA’s recent guidance has provided a few crucial considerations for making this decision. Many businesses meet the general eligibility requirements for assistance from SBA’s Paycheck Protection Program Loan Program. But as we have learned from recent events, that does not mean they should all accept PPP loans. Businesses “still must certify in good faith that their PPP loan request is necessary” to support their ongoing operations. In SBA’s most recent guidance (which we discussed here), SBA has announced that it will be reviewing all PPP loans over $2 million dollars, “in consultation with the Department of the Treasury,” in order to “ensure PPP loans are limited to eligible borrowers in need[.]” Based on that same guidance, those below $2 million are unlikely to be reviewed. We’ve also commented on the potential consequences of taking unnecessary PPP loans. As we cautioned, false certifications could lead to grave consequences (even including jail time). Thus, all businesses seeking PPP loans (especially those in excess of $2 million) should carefully consider whether their “need” for the loan would withstand a more extensive SBA review before accepting. While each business has unique circumstances affecting this analysis, SBA’s guidance has indicated some general considerations that every business should review before making this call. Does the company have access to capital markets or other sources of liquidity that can be accessed both quickly and without significant detriment to the company’s business? Is the company located in an area that has been hit especially hard by the COVID-19 pandemic or an area with more stringent lock-down orders than others? Is the nature of the company’s business or the industry in which the company operates one that has been significantly impacted by this pandemic, and if so, how likely is the industry to bounce back in the future? Has the company had to furlough employees or cut salaries or is it considering either option at this time? Now, let’s look at an example of how these considerations may come into play. Let’s call the company applying for a PPP loan “Dwight’s Garden Parties, LLC,” and let’s assume that Dwight’s is applying for a $2.5 million PPP loan. Dwight’s is a Connecticut company that provides party venues, food and drink, serving staff, and entertainment. Its capital has historically been raised privately, through its 20 shareholders, most of which are the family and friends of the founder. Dwight’s has around 100 employees, who work the events on an as-needed basis. Currently, 75% of Dwight’s employees are furloughed, with the other 25% continuing to provide maintenance services at the company’s venues. Because Dwight’s is applying for a loan in excess of $2 million, it should anticipate that SBA will review the loan. But Dwight’s has a lot going for it to support its need for the loan. First, while Dwight’s may have access to private capital, it is unlikely that such capital can be drawn quickly. However, SBA may look to see whether any capital has recently been drawn from the private sources to determine whether it is in fact accessible. Second, Dwight’s is located in Connecticut, which, according to the CDC, has over 34,000 cases of COVID-19. But another thing SBA may consider is whether the company operates in more rural or urban areas. Third, party planning is undoubtedly an industry that has taken a hit from this pandemic, and it is not likely to bounce back quickly even as stay-at-home and lock-down orders are lifted. And fourth, Dwight’s has already had to furlough employees. Thus, Dwight’s need for the PPP loan is likely to withstand scrutiny. Companies considering a PPP loan would do well to conduct a similar analysis. For questions about this blog post, SBA’s PPP loans, or any of your other federal government contracting needs, contact us at Koprince Law. Also, keep an eye on our blog for daily updates. View the full article
  11. This week on the blog we continued to bring you coverage of COVID-19 related issues, including some timely updates on SBA’s extension of the deadline to return funds under the Paycheck Protection Program. But there was much more federal contracting news this week, including articles about a fill-in for the 8(a) STARS II vehicle, restructuring of government IT procurement units, and a proposed new COVID-19 relief bill that could help federal contractors. GAO: DHS Needs More Oversight for Service Contracts. [nextgov] Federal Whistleblower Says Boss Pushed Him to Purchase Drugs That Hadn’t Been Tested in Humans. [theintercept] NITAAC says it can fill in for STARS. [fcw] Concerns Raised about Service Contractors’ Role at DHS. [fedweek] It’s official: Roat is the new deputy federal CIO. [federalnewsnetwork] Construction loses record-breaking 975K jobs in April amid pandemic. [constructiondive] Navy to divide PEO EIS into two new offices for enterprise IT acquisitions. [fedscoop] USDA approves $1.2B in Contracts for farmers to Families Food Box Program. [aberdeennews] Contractor Group Praises New Stimulus Proposal; VA Releases Mental Health App. [goveexec] View the full article
  12. Since our post yesterday, the SBA has once again updated the safe harbor deadline for paying back Paycheck Protection Program loans to Monday, May 18. As a quick reminder of what we discussed more in depth here, on April 28, the SBA published an interim rule on the PPP, which included a “Limited Safe Harbor with Respect to Certification Concerning Need for PPP Loan Request.” Businesses applying for PPP loans are required to certify that the “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Because many applicants misunderstood or misapplied the relatively undefined certification, the SBA originally gave PPP loan recipients until May 7 to return their loans, no questions asked, if they had made the certification incorrectly. On May 5, confusion remained- so the SBA updated its PPP FAQs, extending the payback deadline to May 14 and promising additional guidance about the safe harbor before the deadline. Yesterday, May 13, the promised additional guidance concerning the good-faith certification was published as Question 46, as we discussed here. The SBA also added Question 47 to its FAQs. Question 47 asks: “An SBA interim final rule posted on May 8, 2020 provided that any borrower who applied for a PPP loan and repays the loan in full by May 14, 2020 will be deemed by SBA to have made the required certification concerning the necessity of the loan request in good faith. Is it possible for a borrower to obtain an extension of the May 14, 2020 repayment date?” Short answer: YES. The SBA responded that it is “extending the repayment date for this safe harbor to May 18, 2020, to give borrowers an opportunity to review and consider FAQ #46.” In addition, “orrowers do not need to apply for this extension.” Finally, the SBA states that the “extension will be promptly implemented through a revision to the SBA’s interim final rule providing the safe harbor.” Given that the previous extension was never formally implemented (as the updated interim rule including the extension to May 14 was marked for publication in the Federal Register on May 13, but quickly withdrawn), we will see whether these revisions make it through in time. In any case, for anyone concerned about returning your PPP loan, breathe (a little) easier–you now have until Monday, May 18! You should still get in touch with your lender ASAP. If you have any questions about this post, or any of the previous posts discussing the safe harbor provision, its updates, or any other matter related to federal government contracting, email us! View the full article
  13. Just hours before the May 14 deadline for businesses to return “unnecessary” Paycheck Protection Program loans without penalties, the SBA has published new guidance on how it will review borrowers’ required good-faith certifications. As we discussed here, on April 28, the SBA published an interim rule on the PPP, which included a “Limited Safe Harbor with Respect to Certification Concerning Need for PPP Loan Request.” When applying for a PPP loan, businesses are required to certify that the “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” However, the relatively vague certification was widely misunderstood and misinterpreted. To that end, the SBA originally gave PPP loan recipients until May 7 to return their loans, no questions asked, if they had made the certification incorrectly. By May 5, there was still significant confusion about how loan money was to be returned. Thus, the SBA updated its PPP FAQ’s, announcing its intention to extend the PPP Safe Harbor period to May 14 and promising “additional guidance on how it will review the certification prior to May 14, 2020.” On May 12, the SBA moved to publish a formal update to its interim rule on the PPP, including the Safe Harbor provision, in the Federal Register the following day. However, according the the Federal Register’s editors “[a]n agency letter requesting withdraw of this document was received after placement on public inspection.” Now, I don’t want to speak for the SBA, but if I were to hazard a guess, I’d say the SBA remembered that it had promised additional guidance on how it would evaluate good-faith certifications somewhere between moving to publish the updated interim rule and withdrawing it. In any case, the SBA’s PPP FAQ guidance, updated today, now includes Question 46: “How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?” First, SBA includes a new safe harbor for “[a]ny borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million[.]” For those borrowers, SBA will presume that they “made the required certification concerning the necessity of the loan request in good faith.” In other words, congratulations! If you got a loan less than $2 million, the SBA will probably not come snooping around to make sure you and your affiliates certified to your need appropriately (unless it has some specific reason to do so)! The SBA justifies this new safe harbor, explaining that “borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.” In addition, it states that the safe harbor is likely to “promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees.” Finally, SBA (essentially) admits that its getting a bit overwhelmed and, as a result, will be limiting its focus to going after big fish: “[G]iven the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.” Next, the SBA explains it will be reviewing certifications made by all borrowers which received a loan more than $2 million. Though, as it states, “borrowers with loans greater than $2 million that do not satisfy” the new safe harbor provision, they “may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance.” The SBA states that, if during its review, the SBA determines that “a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness.” But the SBA still doesn’t explain how it might determine whether or not a business needed the money. As this seems to be the big question on everyone’s mind, we hope more information will follow. Fortunately for a borrower in this situation, however, if said “borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request.” In addition “SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.” This isn’t to say there might not be other penalties for wrongfully certifying in the future, but for now, it looks like SBA would rather just have the money back than worry about imposing punishments. That’s likely to fall to others. If you have any questions or concerns about how to return your PPP loan by May 14, the clock is ticking! Contact your lender as soon as possible. If you have any other questions about this post, or legal needs related to federal government contracting, you can reach out to us here. And, as always, keep your eye on the blog: we’ll keep you updated! View the full article
  14. Under the SBA’s regulations, affiliation between two companies might exist where one company derives 70% or more of its receipts from the other over the preceding three fiscal years. See 13 C.F.R. § 121.103(f)(2). This economic dependence affiliation, as it is called, can be tricky to identify in practice—it is, after all, a rebuttable presumption of affiliation. That is, a company might be able to demonstrate that economic dependence doesn’t exist if, for example, it has only been in business for a limited amount of time and has only been awarded a limited number of contracts. Recently, the SBA’s Office of Hearings and Appeals considered the bounds of the economic dependence affiliation rule and interpreted the three-year look-back period. The factual gist of Oak Grove Technologies, LLC, SBA No. SIZ-6051 (April 20, 2020) is relatively straightforward. After F3EA won an award, Oak Grove filed a size protest alleging, among other things, that F3EA is affiliated with two other companies (Raptor Training Services, or RTS, and ProActive Technologies) through the economic dependence affiliation rule. Specifically, Oak Grove alleged that F3EA earned 70% or more of its receipts from contracts with these two companies over the preceding three completed fiscal years. As a result, Oak Grove believed that F3EA should have been affiliated with them, and found to be an ineligible large business. The SBA Area Office denied Oak Grove’s size protest, saying in part that F3EA did not receive 70% of its receipts from RTS and ProActive. This conclusion, the Area Office noted, did not change whether evaluated year by year or under a 3-year average. Oak Grove appealed this determination, arguing that the Area Office erred by limiting its analysis to the three-year calculation period. F3EA submitted its bid on December 14, 2018—meaning that the three-year calculation period was F3EA’s most recently completed fiscal years (2015, 2016, and 2017). But according to Oak Grove, this analysis failed to consider evidence of financial dependence that arose in the intervening period (in 2018, up to the date of self-certification). On appeal, the SBA OHA denied Oak Grove’s assertion. It did so with quick reference to the SBA’s size regulations: under 13 C.F.R. § 121.404(a), the date to determine a company’s size is the date that it submits a written self-certification that it is small to the procuring activity as part of its initial offer or response that includes price. And under Section 121.103(f)(2), the period of measuring a company’s economic dependence is the three most recently completed fiscal years. Because F3EA submitted its bid on December 14, 2018, the period of measurement was its three most recently completed fiscal years as of that date—in other words, 2015, 2016, and 2017. Neither SBA’s receipts calculation regulations nor the economic dependence regulation allow the SBA to consider information up to the date of self-certification. Thus, Oak Grove’s belief that the SBA should have considered 2018 contracts between F3EA and RTS or ProActive was wrong. The OHA denied Oak Grove’s appeal. For companies concerned about economic dependence affiliation, Oak Grove makes clear that it’s the prior three years that matter. And though the SBA’s regulations identify 70% of receipts as the threshold to give rise to such affiliation, I tend to counsel a more cautious approach—the more a company depends on another company for its revenues (whether 70% of receipts or some lesser amount), the more likely it is that affiliation might exist. If you have any questions about affiliation, please give me a call. View the full article
  15. What can contractors do about unreasonable terms in an agency’s solicitation? Managing Partner Matt Schoonover walks you through the options: View the full article
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