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  1. The VA has formally proposed to eliminate its SDVOSB and VOSB ownership and control regulations. Once the proposed change is finalized, the VA will use the SBA’s regulations to evaluate SDVOSB and VOSB eligibility, as required by the 2017 National Defense Authorization Act. As regular SmallGovCon readers know, the differences between the government’s two SDVOSB programs have caused major headaches for veterans. As demonstrated in the recent Veterans Contracting Group saga, the SBA and VA have different SDVOSB eligibility requirements. That means, as was the case in Veterans Contracting Group, that a company can be a valid SDVOSB for VA contracts but not for non-VA contracts, or vice versa. In 2016, Congress addressed the problem. As part of the 2017 NDAA, Congress directed the VA to verify SDVOSBs and VOSBs using the SBA’s regulatory definitions regarding small business status, ownership, and control. Congress told the SBA and VA to work together to develop joint regulations governing SDVOSB and VOSB eligibility. However, a proposed consolidated regulation has yet to be published. Now the VA has proposed to eliminate its separate SDVOSB and VOSB ownership and control requirements, which are found primarily in 38 C.F.R. 74.1, 38 C.F.R. 74.3 and 38 C.F.R. 74.4. In a proposed rule published in the Federal Register last week, the VA notes that “regulations relating to and clarifying ownership and control are no longer the responsibility of VA.” The proposed rule wouldn’t entirely repeal the VA’s existing regulations, but, with respect to the eligibility requirements for size, ownership and control, those regulations would simply refer to the SBA’s rules in 13 C.F.R. part 125. The VA is accepting public comments on the proposal until March 12, 2018. The VA doesn’t say when it expects the rule to become final, but if it follows the ordinary rulemaking process, it will likely be summer at the very earliest. My biggest concern is whether the VA intends to finalize this rule before the consolidated SBA/VA eligibility rules take effect. If that happens, verified SDVOSBs and VOSBs will be stuck with the current SBA ownership and control regulations. And, as we recently saw in Veterans Contracting Group, those rules aren’t always veteran-friendly. In Veterans Contracting Group, a VA-verified SDVOSB wasn’t eligible for a non-VA contract because the company’s governing documents allowed the company to repurchase the veteran’s shares in the event of the veteran’s death, incapacity, or insolvency. This provision was just fine with the VA, which verified the company. But the SBA found that this restriction interfered with “unconditional ownership” under the SBA’s separate SDVOSB regulations. Although the Court of Federal Claims memorably called the SBA’s harsh interpretation “draconian and perverse,” the Court held that the SBA was within its legal rights to impose such strict eligibility requirements. If the VA’s rule “goes final” before a consolidated SBA/VA rule takes effect, every firm in the VA’s VIP database will be subjected to these strict SBA requirements, even when bidding on VA contracts. Undoubtedly, many companies with provisions like those at issue in Veterans Contracting Group have been verified by the VA and rely on their verifications to bid VA work. These companies could be vulnerable to successful SDVOSB status protests if they don’t update their governing documents to reflect the SBA’s stricter rules. Of course, there’s no guarantee that the consolidated SBA/VA rule will fix the problem. The consolidated rule (which, again, has yet to be proposed) could be every bit as strict as the current SBA interpretation of “unconditional ownership.” It’s anybody’s guess what the consolidated rule ultimately will say. But if the VA eliminates its ownership and control requirements before the consolidated rule is finalized, no guesswork is needed: a lot of verified SDVOSBs and VOSBs will suddenly become ineligible for VA set-aside contracts. Stay tuned. View the full article
  2. The FAR mandates that agencies use the AbilityOne program to award contracts for items on the AbilityOne procurement list to qualified nonprofits. The purpose of the program is to increase employment and training opportunities for persons who are blind or have other severe disabilities. With rare exceptions, when an item is on the AbilityOne procurement list, an agency has no choice–it must purchase through AbilityOne, even where the AbilityOne items are included in the procurement of larger services. The GAO recently sustained a protest where the GSA awarded a courthouse lease without requiring that the associated custodial services be procured from an AbilityOne nonprofit. In Goodwill Industries of the Valleys, B-415137 (November 29, 2017), GAO considered whether GSA must use the AbilityOne mandatory source for the custodial service requirements at a courthouse in Charlottesville, Virginia. The courthouse’s custodial services had been added to the AbilityOne procurement list in 2004. Since that time, Goodwill Industries of the Valleys, or a predecessor AbilityOne nonprofit, had performed the services. The courthouse was owned by VVP, LLC, which had leased the building to GSA for several years. During that time, GSA had separately contracted with Goodwill for the custodial services. In 2016, Goodwill learned that GSA intended to issue a new, “full service” lease to VVP, which would include the custodial services. Goodwill filed a GAO bid protest, contending that the inclusion of the custodial services in VVP’s lease violated the Javits-Wagner-O’Day Act (JWOD Act) and the AbilityOne program because Goodwill is the mandatory source of custodial services in the courthouse. The AbilityOne program implements the JWOD Act, whose goal is to “‘increase employment and training opportunities for persons who are blind or have other severe disabilities’ through authorization of the noncompetitive acquisition of specified products and services from qualified nonprofit agencies (NPAs) that employ persons with such disabilities.” The U.S. AbilityOne Commission maintains the procurement list for required purchases under the JWOD Act. The JWOD Act states that agencies “shall procure” products and services from an NPA if the product or service is on the list. The list, published in the Federal Register, provides the specific services (in this case, custodial services at the Charlottesville courthouse) and a specific NPA to provide them (in this case, Goodwill). At GAO, GSA tried a number of arguments to overcome the fact that it had not complied with AbilityOne requirements. Among those arguments, it contended that only the AbilityOne commission can investigate and address violations of the AbilityOne program under a regulation stating that “violations of the JWOD Act or these regulations . . . shall be investigated by the [AbilityOne Commission].” GAO disagreed, noting that its bid protest jurisdiction, as found in the Competition in Contracting Act, allows for GAO to decide any “alleged violation of a procurement statute or regulation.” GSA also asserted that the AbilityOne rules don’t apply to real property leases. GAO answered that a real property lease is a contract, so the procurement statutes, including AbilityOne rules, still apply. Additionally, “the plain language of the JWOD Act and its implementing regulations provides no exception for leases.” Rather, “the language of the Act broadly applies to all procurements that are conducted by ‘an entity of the Federal Government'”, with the only statutory exception “being applicable to acquisitions from Federal Prison Industries, Inc.” GAO wrote that: (1) the custodial services were on the AbilityOne Commission’s procurement list; (2) the JWOD Act requires purchasing from the designated organization if the service is on the list; and (3) Goodwill was the organization on the list. GAO then explained that bundling AbilityOne products or services into a larger procurement does not allow an agency to evade the mandatory AbilityOne requirements: [T]he Act and its implementing regulations expressly provide that, when services on the AbilityOne procurement list are included in the procurement of larger services, the contracting activity “shall require” the contractor for the larger services to procure the AbilityOne services from the organization designated by the AbilityOne Commission. In short, GSA is leasing a building that requires custodial services and, rather than procuring those services through the mandatory source that has been designated pursuant to the JWOD Act (or directing the lessor to do so), GSA has bundled the janitorial services into the lease without regard to the Act. GAO sustained the protest and recommended that GSA contract the custodial services separately with Goodwill or direct VVP to subcontract with Goodwill for the custodial services. GAO also ordered GSA to reimburse Goodwill’s costs in bringing the protest. As the Goodwill Industries decision demonstrates, the AbilityOne preferences are powerful. Agencies cannot evade them by bundling goods or services on the AbilityOne procurement list into larger acquisitions. View the full article
  3. SmallGovCon Week In Review: January 8-12, 2018

    It’s been a big week here at Koprince Law LLC: we published the first volume in our new series of GovCon Handbooks called Government Contracts Joint Ventures. After briefly reaching #1 on Amazon’s Best Sellers list (okay, in a wonky legal sub-sub-subcategory, but still!), we are pleased to know that the Handbook is being so well received. If you’re an active Koprince Law client, you’ll be getting a free copy in the mail soon. If not, you can get a copy on Amazon, for just $9.99 in paperback or $6.99 in Kindle form. While you wait for your copy of Government Contracts Joint Ventures, why not get up to speed on the latest government contracts news? In this edition of SmallGovCon Week In Review, we take a look at changes to the SBA’s Surety Bond Guarantee Program, two key defense acquisition positions are set to be filled, Alliant 2 protestors are trying their hand in the Court of Federal Claims, Bloomberg Government takes a big-picture look at government spending, and much more. The SBA’s Surety Bond Guarantee Program is trying to increase the chances of winning government contracts for small-scale contractors. [Multi Briefs] The 2018 NDAA rules governing the acquisition of commercial items should give those making relatively small purchases more choices, and small businesses more hope for getting a piece of the pie. [Federal News Radio] The White House has announced nominations for two key defense acquisition positions at the DoD and Air Force. [Defense Systems] While the coming year looks promising for federal contracting, there are reasons for concern. [The Washington Post] There are many findings in the Rand Corp.’s bid protest study but two things are clear: the bid protest process is not necessarily broken but contract debriefings certainly are. [Washington Technology] (and see my take here). The battle for the next great IT services governmentwide acquisition contract took a bit of an unusual turn when a protest of the Alliant 2 awards was filed in the Court of Federal Claims. [Federal News Radio] A government watchdog says that the Pentagon task force on Afghanistan reconstruction wasted millions of dollars of taxpayer money. [The Washington Times] Bloomberg Government takes a look at contract spending by the federal government and how it has changed over the past five years. [Bloomberg Government] Industry leaders told the GSA that the Pentagon’s e-commerce platform should balance efficiency with oversight. [Nextgov] The GSA has plans to formalize cyber rules for contractors and will be accepting public comments about the regulations later this year. [Nextgov] View the full article
  4. In a best value acquisition, the final decision is typically made by a Source Selection Authority. But what happens when the SSA disagrees with the ratings assigned by the evaluators, such as a Source Selection Evaluation Board? The SSA has a good deal of discretion, but that discretion isn’t unlimited. In a recent decision, GAO sustained a protest where the SSA’s disagreements with the SSEB didn’t appear to be reasonable. Immersion Consulting, LLC, B-415155 et al. (Dec. 4, 2017) involved the procurement of program management support services by the Department of Defense’s Defense Human Resources Activity. Proposals were to be evaluated on three factors: technical, past performance, and price. Technical approach was the most important factor, followed by past performance, then price. Award was to be made on a best value basis. Immersion and NetImpact Strategies, Inc. were the only offerors to timely submit proposals in response to the Solicitation. In accordance with the Solicitation’s evaluation plan, each company’s proposal was first evaluated by an SSEB. The SSEB awarded Immersion’s proposal three strengths, resulting in an overall technical score of Outstanding. NetImpact’s proposal received two strengths and one weakness, resulting in an overall rating of Acceptable under the technical factor. Immersion and NetImpact’s proposals were evaluated as equal under the past performance factor, and NetImpact offered a lower price. The SSEB’s report was then passed off to the SSA, who was to make the final award decision. After reviewing the SSEB’s findings, the SSA determined strengths and weaknesses should be allocated differently. With respect to Immersion’s Proposal, the SSA agreed with only one of the SSEB’s three assessed strengths. He removed the other two. Similarly, with regard to NetImpact’s proposal, the SSA did not agree with one of the strengths or the weakness identified by the SSEB. These scores were also eliminated. After the SSA’s reevalation, both proposals were scored as Acceptable under the technical factor. Since both Immersion and NetImpact’s proposals were determined to be equal with regard to the technical and past performance factors, price became the determining factor. Because NetImpact proposed a lower price, it was named the awardee. Following the award announcement, Immersion filed a protest with GAO, arguing that the SSA’s independent analysis was flawed. The DoD countered that the SSA had properly documented his revaluation and that the award was proper. In resolving the protest, GAO noted that “[a]lthough source selection officials may reasonably disagree with the ratings and recommendations of lower-level evaluators, they are nonetheless bound by the fundamental requirement that their independent judgments must be reasonable, consistent with the provisions of the solicitation, and adequately documented.” According to GAO, the SSA did not meet that burden. GAO first concluded that the record didn’t support the SSA’s removal of the weakness from NetImpact’s evaluation. The SSA removed the weakness because he “was not convinced” the errors in the NetImpact’s proposal would negatively impact its performance. GAO was unable to determine what the SSA relied on in making this determination. Indeed, GAO found “[t]here is nothing in the contemporaneous record or the agency’s filings documenting what, if anything, the SSA reviewed to support the SSA’s conclusion[.]” Further, there was no evidence that “the SSA discussed the SSEB’s concern with the SSEB.” Without any contemporaneous justification, it was unreasonable for the SSA to remove the weakness. GAO similarly found the SSA’s removal of one of Immersion’s strengths to be unreasonable. According to the SSA, it felt the SSEB’s comments awarding the strength to Immersion were “too general and did not specify how the approach exceeded the [solicitation] requirements.” In GAO’s opinion, however, “the SSEB’s comments were specific and identified the impact of the approach on the quotation, as well as how the approach benefited the government.” As such, GAO found the removal of the strength from Immersion’s proposal to be unreasonable. Finally, since the SSA’s changes to each company’s technical ratings had technically leveled proposals leaving only price to be the determining factor, GAO concluded that the underlying best value source selection decision was flawed. Accordingly, GAO recommended the agency reevaluate proposals and make a new award decision. As GAO’s decision in Immersion Consulting demonstrates, SSA officials may not unilaterally take it upon themselves to rewrite evaluations without appropriate justification. While GAO’s decision does not alter the fact that SSAs enjoy considerable discretion, it does demonstrate that the SSA’s discretion isn’t unlimited. View the full article
  5. I am excited to announce the publication of Government Contracts Joint Ventures, the first in a new series of new government contracting guides we’re calling “Koprince Law LLC GovCon Handbooks.” Packed with easy-to-understand examples and written in plain English, Government Contracts Joint Ventures should help you maximize your understanding of this important option for pursuing federal contracts. What does the Handbook contain? I’m glad you asked. Inside Government Contracts Joint Ventures, you’ll find: Joint Ventures 101. A big-picture overview of government contracts joint ventures, including a comparison with prime/subcontractor teams. Joint Venture Eligibility. Is a joint venture possible? The Handbook covers small business size eligibility, socioeconomic eligibility, and other factors influencing whether a joint venture can bid. Joint Venture Formation. If you’ve decided how to form a joint venture, how do you do it right? The Handbook covers the requirements for joint venture agreements, SAM registration, SBA approval, and more. Joint Venture Performance. Once a joint venture wins a contract, there are other rules to follow. The Handbook discusses work share requirements, SBA certifications, and other performance-related items. Government Contracts Joint Ventures is available on Amazon, and is priced at just $9.99 in paperback and $6.99 in Kindle electronic form. To buy a copy (or heck, several copies–they make great gifts for those special joint venturers in your life!) just visit this link for paperback or this link for Kindle. If you’re an active Koprince Law LLC client in good standing, check your inbox: we’re offering you a free copy. Just reply to the email to let us know to send you one. On behalf of my co-author Candace Shields, and all of my colleagues here at Koprince Law, I hope you enjoy Government Contracts Joint Ventures. And stay tuned–we’ll be publishing more GovCon Handbooks on other important contracting topics in the months to come. View the full article
  6. Only a very small percentage of DoD contracts–0.3 percent, to be precise–are protested, according to a comprehensive and fascinating new report on bid protests issued by the RAND Corporation. The detailed report, which was prepared at the behest of Congress, concludes that DoD bid protests are “exceedingly uncommon,” and typically aren’t frivolous. RAND’s analysts urge policymakers to carefully consider the data when evaluating whether reforms to the bid protest process are necessary–and to “avoid drawing overall conclusions or assumptions about trends from one case when it comes to the efficacy of the bid protest system.” Amen to that. Bid protest “reform” has been a subject of much recent discussion in the government contracting community. In 2016 and again in 2017, the Senate introduced deeply flawed measures aimed at curtailing bid protests. Although most of these proposals didn’t become law, Congress dramatically scaled back the GAO’s jurisdiction over DoD task and delivery order protests, raising the threshold from $10 million to a whopping $25 million. As I wrote late last year, the push to curtail bid protests seems driven by the complaints of some agency officials, who suggest that bid protests are prevalent and frequently frivolous. Sometimes, the media has contributed to these perceptions by writing articles with titles like “Drowning in Protests: Can Agencies Stem the Rising Tide?” But I’ve urged caution, arguing that protests don’t appear to be either prevalent or frequently frivolous. On the prevalence side, according to former OFPP director Dan Gordon, protests occur on less than one percent of acquisitions. And as far as frivolity goes, if protests are typically frivolous, why do protesters succeed nearly half the time? In negotiations over the 2017 National Defense Authorization Act, the conferees elected to remove most of the Senate’s major protest “reform” language. Instead, Congress commissioned a study to determine whether bid protests are having a significant adverse effect on DoD acquisitions. This was a wise approach: before developing a major protest solution, it’s a good idea to determine whether there’s a protest problem in need of solving. Ordinarily, the GAO would conduct a study like the one commissioned by the 2017 NDAA. But the GAO is the forum for most bid protests. Perhaps unfairly (the GAO, after all, is a very professional organization), any bid protest study originating at the GAO could face questions about conflicts of interest–and ultimately, the credibility of the study itself. Enter the RAND Corporation, which was retained to prepare an independent report. That independent report is now here, and it’s comprehensive–clocking in at 114 pages. The study offers a great deal of data and analysis about bid protests, some of which my colleagues and I will discuss in detail in future posts. But for now, let’s cut to the chase. What are RAND’s big-picture findings? First, RAND finds that government and industry have very different perceptions of the bid protest system. DoD personnel “expressed a general dissatisfaction” with the system, believing that protests are filed too frequently, often include “an excessive number of ‘weak’ allegations,” and unduly delay awards. DoD personnel were especially concerned that losing incumbents are motivated to protest by the possibility of obtaining bridge contracts. Industry, on the other hand “views bid protests as a healthy component of a transparent acquisition process, because these protests hold the government accountable and provide information on how the contract award or source selection was made.” If protests were disallowed or curtailed, “companies would likely make fewer bids.” Additionally, industry is concerned with the quality of post-award debriefings. “The worst debriefings were characterized as skimpy, adversarial, evasive, or failing to provide required responses to relevant questions,” RAND reports. RAND concludes,” t became clear over the course of our study that too little information or debriefings that are evasive or adversarial may lead to a bid protest.” Unfortunately, “there is a lack of trust on each side” (government and industry) when it comes to bid protests. Next, RAND turns to the prevalence question. Are DoD bid protests common, as some acquisition personnel and media have suggested? RAND notes that bid protests did, in fact, increase significantly between Fiscal Years 2008 and 2016. (The study didn’t include Fiscal Year 2017, in which GAO bid protests declined 7%). But these increases were little more than drops in the DoD acquisition bucket: “the overall percentage of contracts protested is very small–less than 0.3 percent.” RAND concludes: “[t]hese small protest rates per contract imply that bid protests are exceeding uncommon for DoD procurements.” RAND then makes several recommendations for policymakers. Perhaps most importantly, “policymakers should avoid drawing overall conclusions or assumptions about trends from one case when it comes to the efficacy of the bid protest system.” It’s a very good point. Sure, if you’re the contracting officer on the receiving end of a “weak” protest, it will feel like every acquisition is being frivolously protested. But public policy should be made on the basis of facts, not anecdotes. RAND also, unsurprisingly, recommends that the government improve the quality of post-award debriefings. RAND points to certain Army and Air Force initiatives, as well as the “enhanced debriefings” portion of the 2018 NDAA, as potential models. RAND cautions policymakers against reducing GAO’s bid protest timeline (currently at 100 days), noting that “protests are more frequently filed at the end of the fiscal year” and that “complex cases that go to decision usually take 90-100 days.” RAND also urges caution when it comes to further reducing protest options for task and delivery order protests. “Task-order protests have a slightly higher effectiveness rate than the rest of the protest population,” RAND notes. “The higher rate suggests that there may be more challenges with these awards and that task-order protests fill an important role in improving the fairness of DoD procurements.” Look, this is our firm’s blog, so I’m occasionally entitled to an “I told you so.” The RAND study essentially says what I’ve been up on my soapbox saying for the last few years: that contrary to common misconception, bid protests aren’t common, nor are they typically frivolous. And, as RAND concludes, better communication between government and industry (particularly in debriefings), is likely to reduce protests, not increase them. Of course, the RAND study includes some things my little soapbox rants have omitted, like statistical analysis, interviews with key officials and decision-makers, colorful graphs, and the imprimatur of Congress. (Then again, RAND somehow failed to include my references to Chicken Little and Nathaniel Hawthorne). Congress commissioned a comprehensive study on DoD bid protests, and now that study is here. Let’s hope that policymakers take RAND’s analysis and recommendations to heart. View the full article
  7. Happy New Year! For those currently being impacted by the “bomb cyclone” I hope you are safe and warm and that there is sunshine in your near future. While we haven’t had much snow here in Kansas, we have seen some below-zero temperatures. I’m staying warm and cozy in the office with a “venti” cup of hot coffee, my Koprince Law LLC fleece and the new RAND Corporation report on bid protests (more on that report later today!) It’s Friday, which means that it’s time for the SmallGovCon Week In Review. This week, we take a look at why a government shutdown could be bad for WOSBs, tips for contractors attempting to comply with the DoD’s new cybersecurity mandates, the RAND Corporation releases that major bid protest study, and much more. A look at the financial strain a government shutdown could cause WOSBs. [Bustle] The battle over the $50 billion Alliant 2 IT contract is moving to the judicial arena, as those who missed out evidently are trying another avenue to gain a place on this key vehicle. [Washington Technology] The Department of Defense issued a final rule amending the DFARS to incorporate revised thresholds for application of the World Trade Organization Government Procurement Agreement and the Free Trade Agreements. [Federal Register] ‘That’s the Worst!’: Acquisition regulations we love to hate. [Federal Times] Here are “five golden rules” for contractors to meet the DoD’s new cybersecurity requirements. [Federal News Radio] A major new independent report appears to validate what some of us (ahem) have been saying for awhile: protests are not an excessive burden on the Defense procurement system. [Federal News Radio] Speaking of new reports, here’s one that may fly under the radar: the GAO has released an important study about how contracting officers assign NAICS codes–and how often those assignments are challenged. [U.S. Government Accountability Office] View the full article
  8. 2018 NDAA Bans Some LPTA Procurements

    In 2017, Congress placed limits on the utilization of Lowest-Price Technically-Acceptable procurement procedures in Department of Defense acquisitions. The 2018 National Defense Authorization Act continues this trend by completely prohibiting the use of LPTA procedures for certain major defense acquisition programs. As we covered last year, the 2017 NDAA included a presumption against the use of LPTA procedures for DoD procurements unless certain criteria were met. The 2017 NDAA also cautioned against the use of LPTA procedures in procurements for knowledge-based professional services, personal protective equipment acquisition, and knowledge based training services in contingency operations outside the United States. Section 832 of the 2018 NDAA continues this trend by outright prohibiting the use of LPTA procedures for major Department of Defense engineering and development programs. Specifically, Section 832 provides the following instruction: The Department of Defense shall not use a lowest price technically acceptable source selection process for the engineering and manufacturing development contract of a major defense acquisition program This raises an important question: What constitutes an “engineering and manufacturing development contract of a major defense acquisition program?” To answer that, we need to look at two separate definitions. First, the definition for “Engineering and Manufacturing Development Contract” is found in Section 832 of the 2018 NDAA, and refers to “a prime contract for the engineering and manufacturing development of a major defense acquisition program.” Second, the definition for “major defense acquisition programs” is found in 10 U.S.C. § 2430(a) and refers to a procurement that is not classified and either has been designated a major defense acquisition by the Secretary of Defense; or the estimated total expenditure for R&D, testing, and evaluation will exceed $300 million; or the total program cost will exceed $1.8 billion. Using these two definitions to read Section 832, LPTA procurement procedures may not be used for Department of Defense prime contracts for engineering and manufacturing development that are either flagged as major defense acquisition programs, or will exceed $300 million in development costs or $1.8 billion in total program costs. The limitation in Section 832 is only triggered at high dollar thresholds, so the impact it will have on Department of Defense acquisitions is likely minimal. That being said, Section 832 is important because it clearly signals Congress’s desire to further limit the use of LPTA procedures in Department of Defense procurements. Unlike the 2017 NDAA, which merely created a presumption against LPTA procedures, the 2018 NDAA bans LPTA procedures completely for a category of acquisitions. We’ll be keeping an eye out to see whether Congress expands the list of “no LPTA” acquisitions in future years. Section 832 goes into effect for Fiscal Year 2019. It’s that time of year where families gather; friends celebrate the New Year; and SmallGovCon recaps interesting features of the new NDAA. We’re still trying to get that last one to catch on. Check back regularly as we continue to cover notable provisions in the 2018 NDAA. View the full article
  9. Readers of this blog will know that the GAO interprets its protest timeliness rules quite strictly. A recent GAO case provides us with an opportunity to review a nuanced piece of those timeliness rules. Specifically, how withdrawal of an agency-level protest affects the deadline to file a GAO protest, and what counts as a withdrawal of an agency-level protest versus an “initial adverse agency action.” In this case, the protester lost its GAO protest rights by trying to pursue its agency-level protest with an inspector general’s office rather than with the contracting officer. The GAO’s decision in Aurora Storage Products, Inc., B-415628 (Comp. Gen. Dec 1, 2017) involved a DOJ solicitation for high density file systems. The solicitation was issued as a competitive task order RFQ open to holders of a certain GSA Schedule. Mid-Atlantic Filing Distributors submitted a quotation. The DOJ rejected it because Mid-Atlantic did not hold the underlying GSA Schedule contract. However, according to Mid-Atlantic, it was the “authorized GSA dealer” for Aurora Storage Products, Inc.–which did hold the correct GSA Schedule. Aurora said that Mid-Atlantic had submitted the quotation on Aurora’s behalf. Aurora was informed of the award to another company on October 10. Aurora filed a timely agency-level protest with the contracting officer on October 13. (All the dates mentioned were in 2017). The CO acknowledged the protest on October 17. At this point, things were going alright, at least procedurally. Then Aurora made a mistake. In response to the CO’s acknowledgment of the agency-level protest, Aurora sent an email stating “[t]hank you for your acknowledgment but I have forwarded basically the same request to the [Office of the Inspector General (OIG)].” The email responses also explained that Aurora was not withdrawing its protest, but rather that “[w]e are protesting through the Department of Justice OIG. We do not expect a review from you personally but rather from your OIG.” The CO wrote back to Aurora on October 24 to clarify that “OIG does not typically review and handle protests,” OIG “may decline to consider your allegations at all, and may or may not inform you of this decision,” and to “[p]lease confirm that you nevertheless still do not want a written decision from me but instead wish to pursue this through the OIG.” Aurora responded on October 25: “we do not wish to withdraw our protest,” but also stated that “a review by the [c]ontracting [o]fficer, while advisable internally would be of little use to those protesting. More directly, it is your actions and decisions that we are protesting.” The GAO doesn’t mention what happened over the next few days, but apparently Aurora decided to file a formal bid protest while awaiting a potential response from the OIG. Aurora filed its GAO protest on October 30. GAO timeliness rules mandate that a protest based on other than alleged improprieties in a solicitation must be filed no later than 10 calendar days after the protester knew, or should have known, of the basis for protest, whichever is earlier. 4 C.F.R. § 21.2(a)(2). Where a protest first has been filed with a contracting activity, any subsequent protest to our Office, to be considered timely, must be filed within 10 calendar days of “actual or constructive knowledge of initial adverse agency action.” 4 C.F.R. § 21.2(a)(3). The term “adverse agency action” means any action or inaction on the part of a contracting agency that is prejudicial to the position taken in a protest filed there. 4 C.F.R. § 21.0(e). GAO wrote, as it often does, that its bid protest regulations “contain strict rules for the timely submission of protests.” In this respect, the GAO’s rules “reflect the dual requirements of giving parties a fair opportunity to present their cases and resolving protests expeditiously without unduly disrupting or delaying the procurement process.” GAO held that, since the protest was filed on October 30, it was untimely because this was 20 days after the protester knew of the award decision on October 10, well past the 10-day deadline. But what of the agency-level protest Aurora filed? Normally, filing of an agency-level protest would stop the clock on the GAO protest deadlines until the “knowledge of initial adverse agency action,” as mentioned above. Here, however, GAO held that Aurora had effectively “disavowed its protest by repeatedly stating that it was not seeking a decision from the contracting officer and instead wanted the OIG to review its allegations. These statements clearly indicate that Aurora did not wish the agency to decide its protest in accordance with the procedures set forth in FAR § 33.103,” which indicates agency-level protests are handled by the contracting officer. “In our view,” GAO continued, “these disavowals constituted a constructive withdrawal of Aurora’s agency-level protest since the protester indicated it no longer wished for a decision under the auspices of FAR § 33.103.” Furthermore, “the OIG’s review of, and investigation into, the allegations raised by Aurora is not a ‘protest’ as that term is understood under FAR § 33.103 and our Bid Protest Regulations. Thus, the ultimate action taken by the OIG, whether adverse to Aurora or not, will be separate and apart from the DOJ’s handling of Aurora’s agency-level protest.” Finally, a withdrawal of an agency-level protest is not an adverse agency action because a withdrawal “is an action taken by the protester, not the agency, and therefore, even if the result is ultimately prejudicial to the protester’s position, it does not constitute an adverse agency action.” Because there was no “adverse agency action,” Aurora never got its additional 10-day clock to file a GAO protest that would normally start running after the conclusion of the agency-level protest. Therefore, the 10-day clock started running from notice of the award, and Aurora missed this deadline. GAO dismissed the protest as untimely. As I mentioned earlier, my colleagues have discussed the GAO’s strict timeliness rules in a number of contexts, including when an electronic proposal is received by a government server, where an offeror failed to request a pre-award debriefing, and in determining when the 5:30 pm filing deadline actually ends. While a few of these decisions go the protester’s way, most do not. When the GAO says its timeliness rules are “strict,” it isn’t kidding. This decision is another important twist on GAO timeliness rules, here in the context of a GAO protest filed after an agency-level protest. As Aurora Storage Products demonstrates, an agency-level protest is a protest filed with the contracting officer under the provisions of FAR 33.103, not a complaint filed with an inspector general, ombudsman, or some other official. There is no exception to the strict GAO timeliness rules based on complaints made to inspectors general and the like. Further, when an agency-level protest is filed, if a bidder takes an action that seems like it is withdrawing the agency-level protest (even without explicitly using the word “withdraw”), the bidder can lose the additional window to file the GAO protest that normally runs after receiving an adverse agency action on the agency-level protest. Here, Aurora even explicitly stated that it didn’t wish to withdraw its protest–but contradicted itself by also stating that it didn’t want the contracting officer to issue a decision. That was enough to constitute a “deemed withdrawal.” The GAO’s bid protest timeliness rules are complex and strict. Bidders should be aware of the interplay of the timing rules for agency-level and GAO protests and adhere to them closely. View the full article
  10. The VA Center for Verification and Evaluation unreasonably decertified an SDVOSB based on the results of an SBA SDVOSB decision. According to the U.S. Court of Federal Claims, it was improper for the VA to remove the SDVOSB from the VA’s database without evaluating whether the SBA’s determination was consistent with the VA’s separate SDVOSB requirements. The Court’s decision in Veterans Contracting Group, Inc. v. United States, No. 17-1015C (2017) was the fourth in a series of battles between Veterans Contracting Group, Inc., a VA-verified SDVOSB, on the one hand, and the SBA and VA, on the other. My colleague Shane McCall and I have previously written about each of the other three cases: the SBA Office of Hearings and Appeals decision, the Court’s first decision involving the VA, and the Court’s decision in a case challenging the SBA OHA ruling. All four cases involved an Army Corps of Engineers IFB for the removal of hazardous materials and the demolition of buildings at the St. Albans Community Living Center in New York. The Corps set aside the IFB for SDVOSBs under NAICS code 238910 (Site Preparation Contractors). After opening bids, the Corps announced that Veterans Contracting Group, Inc. was the lowest bidder. An unsuccessful competitor subsequently filed a protest challenging VCG’s SDVOSB eligibility. DoD procurements fall under the SBA’s SDVOSB regulations, not the VA’s separate rules. (As I’ve discussed many times on this blog, contrary to common misconception the government currently runs two separate SDVOSB programs: one under SBA rules; the other under VA rules). The protest was referred to the SBA’s Director of Government Contracting for resolution. The SBA determined that Ronald Montano, a service-disabled veteran, owned a 51% interest in VCG. A non-SDV owned the remaining 49%. The SBA then evaluated VCG’s Shareholder’s Agreement. The Shareholders Agreement provided that upon Mr. Montano’s death, incapacity, or insolvency, all of his shares would be purchased by VCG at a predetermined price. The SBA determined that these provisions “deprived [Mr. Montano] of his ability to dispose of his shares as he sees fit, and at the full value of his ownership interest.” The SBA found that these “significant restrictions” on Mr. Montano’s ability to transfer his shares undermined the SBA’s requirement that an SDVOSB be at least 51% “unconditionally owned” by service-disabled veterans. The SBA issued a decision finding VCG to be ineligible for the Corps contract. When the SBA issues an adverse SDVOSB decision, the SBA forwards its findings to the VA Center for Verification and Evaluation. After receiving the SBA’s findings, the VA CVE decertified VCG from the VetBiz database. The Court and OHA reached different conclusions. As my colleague Shane McCall wrote in this post, the Court concluded that the VA should not have removed VCG from the VetBiz database. While the Court didn’t directly overrule the SBA, the Court wrote that the SBA’s application of the “unconditional ownership” requirements was flawed. The Court cited with approval two cases dealing with the VA’s SDVOSB regulations, AmBuild Co., LLC v. United States, 119 Fed. Cl. 10 (2014) and Miles Construction, LLC v. United States, 108 Fed. Cl. 792 (2013), agreeing with these cases that a restriction on ownership that is not executory (meaning not taking effect until a future event occurs) does not result in unconditional ownership. The Court issued a preliminary injunction ordering the VA to restore VCG to the VetBiz database, but reserved a final decision until further briefing in the case. Things turned out far differently at OHA. As I wrote in a September post, OHA held that the restrictions in VCG’s Shareholders Agreement prevented Mr. Montano from unconditionally controlling the company. OHA issued a decision upholding the SBA’s determination, and finding VCG ineligible for the Corps contract. VCG challenged OHA’s decision at the Court. In a strongly-worded opinion, the Court blasted the SBA’s interpretation of its regulations as “draconian and perverse,” but nonetheless held that the SBA was within its discretion to apply its rules in this harsh manner. The Court upheld OHA’s decision finding VCG ineligible for the Corps contract. That brings us (finally) to the fourth decision in the battle. Here, the question was whether the VA had acted improperly by decertifying VCG from the VetBiz database. As Shane McCall wrote earlier, the Court had already issued a preliminary injunction ordering the VA to restore VCG to the database; the question now was whether the Court would issue a final decision in VCG’s favor on the merits, and enter a permanent injunction. The Court explained, in some detail, the background behind the separate SBA and VA SDVOSB programs. The Court then wrote that the regulation at issue in this case was the VA’s regulation at 38 C.F.R. 74.2(e). Under this regulation, “[a]ny firm registered in the VetBiz VIP database that is found to be ineligible due to an SBA protest decision or other negative finding will be immediately removed from the VetBiz VIP database” and ineligible to participate in the VA SDVOSB program until the SBA decision is overturned or overcome. “This provision is not remarkable in isolation,” the Court wrote, “but due to the differences in the VA and SBA regulations . . . it can create anomalous results.” This is because “protest decisions by SBA, presumably applying SBA’s own regulations, could potentially displace VA’s cancellation and removal process without accounting for the differences between the two agencies’ underlying regulatory eligibility criteria.” The Court held that it “disagrees with the government that Subsection 74.2(e) relieves CVE of any obligation to look beyond the fact that SBA has issued an adverse determination before removing an SDVOSB from the VetBiz VIP database.” The Court continued: [T]he eligibility requirements in the VA and SBA SDVOSB set-aside programs are similar in some respects but are materially divergent in others. The differences are insignificant if and when the SBA protest giving rise to removal from the VIP database treats an area in which the regulations are the same or similar, e.g., the size of the business; if SBA determines that an SDVOSB is not small then it would be justifiably disqualified from both programs. But in this case, an uncritical application of Subsection 74.2(e) would require an SDVOSB’s immediate removal from the VetBiz VIP database if the business fails to meet the SBA’s . . . definition of “unconditional” despite meeting the VA’s definition of the term . . .. The Court wrote that it was “arbitrary for VA to mechanistically apply Subsection 74.2(e) without examining the basis for SBA’s ruling.” Rather, “n light of the distinct definitions of ‘unconditional ownership’ in the two programs, CVE must look beyond the fact of a ruling by SBA, to determine whether it was based on grounds consistent with or contrary to VA’s eligibility regulations.” Because VA failed to undertake such an analysis, “there was no rational connection between the facts found and the choice made, thus rendering CVE’s action arbitrary and capricious.” The Court granted VCG’s motion for the judgment on this part of its appeal, and made the prior injunction permanent. The Court essentially overturned CVE’s decision removing VCG from the VA VetBiz database. In my last post on the Veterans Contracting Group saga, I got a few things off my chest regarding the mess the “two SDVOSB programs” system creates for well-meaning veterans like Mr. Montano. I’ll spare you another soapbox moment, but I hate seeing small businesses (and particularly SDVOSBs) harmed by the legal complexities, interpretations and divergences seen in these cases. Sometime in 2018, the SBA and VA should unveil their proposed joint regulation to consolidate the SDVOSB eligibility requirements. As the Veterans Contracting Group cases make clear, a unified set of rules is sorely needed. Stay tuned. View the full article
  11. The 2018 National Defense Authorization Act (NDAA) has generated lots of headlines regarding the so-called “Amazon amendment” and the Act’s prohibition on the Russian IT company Kaspersky Labs products. But gone under reported is a huge change to how the government makes small purchases. The 2018 NDAA, signed by President Donald Trump on December 12, increases the standard micro-purchase threshold applicable to civilian agencies from $3,000 to $10,000. Last year, the NDAA increased the Department of Defense (DoD) micro-purchase threshold to $5,000. This larger jump for civilian agencies is likely to have large impact on government purchasing. A micro-purchase is one for goods or services that, due to its relatively low value, does not require the government to abide by many of its ordinary competitive procedures, including small business set asides. Because the contract is, theoretically, such a low amount, the contracting officer can pick virtually whatever company and product he or she wants to satisfy the procurement, so long as the price is reasonable. Now the civilian micro-purchase threshold is increasing—a lot. Specifically, Section 806 of the NDAA, titled “Requirements Related to the Micro-Purchase Threshold” states the following: “INCREASE IN THRESHOLD.—Section 1902(a)(1) of title 41, United States Code, is amended by striking ‘$3,000’ and inserting ‘$10,000’.” Title 41 of the Code generally refers to public contracts between Federal civilian agencies such as the Department of Agriculture, the Department of Education, the Department of State, the Department of Labor, and so on. Title 10, on the other hand, generally refers to the Department of Defense components, such as the Army, Navy, and Air Force, but also a number of smaller components such as the Defense Logistics Agency and the Missile Defense Agency. Following the change, Section 1902(a)(1) shall read: “Definition.–(1) Except as provided in sections 2338 and 2339 of title 10 . . . for purposes of this section, the micro-purchase threshold is $10,000.” The NDAA therefore, specifically exempts (or at least does not change) the sections of Title 10 relating to the DoD micro-purchase threshold (sections 2338 and 2339) which will therefore hold steady at $5,000—for 2018 at least (more on that later). Section 1902 specifies in paragraph (f) that the section shall be implemented by the FAR. The NDAA changes the U.S. Code, but it does not change the FAR. The FAR, meanwhile, currently sets the civilian micro-purchase threshold at $3,500, because it is occasionally adjusted to keep pace with inflation. Although the law has now officially been changed, it’s not clear that civilian contracting officers will begin using the new authority until the corresponding FAR provisions are amended. Our guess is that, in practice, this change will take some time to implement. We believe most contracting officers will stick to what the FAR says until they are told otherwise. It is just a guess, but it is logical because unlike the U.S. Code, procurement officials rely on the FAR every day. Congress may have said that civilian procurement officials have the authority to treat anything below $10,000 as a micro-purchase, but contracting officers often wait until the FAR Council implements statutory authority before using that authority. As such, until the FAR, or the specific agency the procurement officials work for, recognize the change, our guess is that most COs will follow the FAR until it catches up with the U.S. Code. Nevertheless, whether it happens today or a year from now, this change is likely to have a big impact on some federal procurements. The 233% increase in the threshold for civilian agencies (a 186% increase if you count from $3,500) will open the door for many more products to be purchased without competition: FAR 13.203 specifies that “[m]icro-purchases may be awarded without soliciting competitive quotations” so long as the contracting officer (or similar authority) considers the price to be reasonable. Just think about the different types of things you can buy with $10,000 as opposed to $3,000, or $3,500. This change to the micro-purchase threshold, plus the “Amazon amendment” which sets up an online marketplace for sellers, and the fact that the FAR encourages the use of a Governmentwide commercial purchase card to make micro-purchases (FAR 13.301) means that procurement officials will simply be able to swipe, or click for relatively significant buys. Altogether, it could be bad news for some small businesses, particularly those that engage in a lot of “rule of two” set-aside simplified acquisitions under FAR 19.502-2(a). When this change is implemented, and presuming FAR Part 19 is updated accordingly, a chunk of those simplified acquisitions will no longer be reserved for small businesses. With this change to the civilian threshold, it is hard not to wonder whether the DoD threshold will soon grow to meet it. DoD procurement officials sometimes enjoy greater freedom in purchasing than their civilian counterparts. It would not be shocking to hear DoD voices begin lobbying for the same change on their end soon. View the full article
  12. The SBA’s strict SDVOSB ownership rules can produce “draconian and perverse” results, but are nonetheless legal, according to a federal judge. In a recent decision, the U.S. Court of Federal Claims condemned the SBA’s SDVOSB unconditional ownership requirements, while holding that the SBA was within its legal rights to impose those requirements on the company in question. The Court’s decision emphasizes the important differences between the SBA and VA SDVOSB programs, because the Court held that although the company in question didn’t qualify as an SDVOSB under the SBA’s strict rules, it was eligible for VA SDVOSB verification under the VA’s separate eligibility rules. The Court’s decision in Veterans Contracting Group, Inc. v. United States, No. 17-1188C (2017), is the third in a series of ongoing battles between the SBA and a self-certified SDVOSB. The cases involved an Army Corps of Engineers IFB for the removal of hazardous materials and the demolition of buildings at the St. Albans Community Living Center in New York. The Corps set aside the IFB for SDVOSBs under NAICS code 238910 (Site Preparation Contractors). After opening bids, the Corps announced that Veterans Contracting Group, Inc. was the lowest bidder. An unsuccessful competitor subsequently filed a protest challenging VCG’s SDVOSB eligibility. DoD procurements fall under the SBA’s SDVOSB regulations, not the VA’s separate rules. (As I’ve discussed various times on this blog, and will again here, the government currently runs two separate SDVOSB programs: one by SBA; the other by VA). The protest was referred to the SBA’s Director of Government Contracting for resolution. The SBA determined that Ronald Montano, a service-disabled veteran, owned a 51% interest in VCG. A non-SDV owned the remaining 49%. The SBA then evaluated VCG’s Shareholder’s Agreement. The Shareholders Agreement provided that upon Mr. Montano’s death, incapacity, or insolvency, all of his shares would be purchased by VCG at a predetermined price. The SBA determined that these provisions “deprived [Mr. Montano] of his ability to dispose of his shares as he sees fit, and at the full value of his ownership interest.” The SBA found that these “significant restrictions” on Mr. Montano’s ability to transfer his shares undermined the SBA’s requirement that an SDVOSB be at least 51% “unconditionally owned” by service-disabled veterans. The SBA issued a decision finding VCG to be ineligible for the Corps contract. When the SBA issues an adverse SDVOSB decision, the SBA forwards its findings to the VA Center for Verification and Evaluation. After receiving the SBA’s findings, the VA CVE decertified VCG from the VetBiz database. VCG then took two separate, but concurrent actions. First, it filed an appeal with the SBA Office of Hearings and Appeals, arguing that the SBA’s decision was improper and that VCG was eligible for the Corps contract. Again, because this was a non-VA job, the SBA’s SDVOSB rules applied to the Corps contract. Second, VCG filed a bid protest with the Court of Federal Claims. VCG’s bid protest didn’t challenge its eligibility for the Corps contract, but instead challenged the VA’s decision to remove VCG from the VetBiz database. The Court and OHA reached different conclusions. As my colleague Shane McCall wrote in this post, the Court concluded that the VA should not have removed VCG from the VetBiz database. While the Court didn’t directly overrule the SBA, the Court wrote that the SBA’s application of the “unconditional ownership” requirements was flawed. The Court cited with approval two cases dealing with the VA’s SDVOSB regulations, AmBuild Co., LLC v. United States, 119 Fed. Cl. 10 (2014) and Miles Construction, LLC v. United States, 108 Fed. Cl. 792 (2013), agreeing with these cases that a restriction on ownership that is not executory (meaning not taking effect until a future event occurs) does not result in unconditional ownership. The Court issued a preliminary injunction ordering the VA to restore VCG to the VetBiz database, but reserved a final decision until further briefing in the case. Things turned out far differently at OHA. As I wrote in a September post, OHA held that the restrictions in VCG’s Shareholders Agreement prevented Mr. Montano from unconditionally controlling the company. OHA issued a decision upholding the SBA’s determination, and finding VCG ineligible for the Corps contract. That brings us to the Court’s recent SDVOSB decision, which involved VCG’s challenge to OHA’s eligibility determination. Unlike the first Court case, the question before the Court in the new case was not whether the VA had properly removed VCG from the VetBiz database, but rather whether OHA had erred by upholding the finding that VCG was ineligible, under the SBA’s SDVOSB rules, for the Corps contract. The Court began by writing that “[t]his post-award bid protest features interactions between complex and divergent regulatory frameworks, giving rise to a harsh, even perverse, result.” The Court then walked through the statutory and regulatory framework, explaining in detail that the government operates two SDVOSB programs, each with its own eligibility rules. The Court noted that Congress has directed the SBA and VA to work together to consolidate their SDVOSB requirements, but to date, “[n]o such implementing regulations have been promulgated.” In this case, the Court said, VCG’s “attempt to rely on this court’s decisions in AmBuild and Miles is misplaced because both cases interpret VA’s procurement regulations, not SBA’s.” The court’s earlier decisions “are irrelevant to bid protests concerning solicitations from the U.S. Army Corps of Engineers and or other non-VA agencies,” which fall under the SBA’s SDVOSB rules. VCG asked the Court to look, by way of analogy, at the SBA’s 8(a) and WOSB programs, both of which define unconditional ownership in a manner that “allows for the succession planning outlined in [VCG’s] shareholder agreement.” In contrast, SBA’s SDVOSB regulations don’t define “unconditional ownership,” which has resulted in OHA applying a very strict definition of the term. This argument didn’t sway the Court, which concluded that the SBA could have looked to its 8(a) and WOSB regulations for guidance in interpreting the SDVOSB “unconditional ownership” requirement, but that the SBA’s “choice not to do so has some basis in the regulations.” The Court pointed out that the SBA’s rulemakers have been aware of OHA’s strict interpretation for more than ten years, but have chosen not to update the regulations in response. The Court concluded: SBA’s omission of a definition of unconditional ownership n the [SDVOSB] program produces draconian and perverse results in a case such as this one. Nevertheless, without at least some indicia of SBA’s intent or inadvertence regarding that omission, the court cannot remake the regulations in reliance on SBA’s actions in the closely related contexts of the 8(a) and WOSB programs. Therefore, OHA’s decision stands and [VCG] is ineligible to participate in SBA’s [SDVOSB] program, even though it is eligible to participate in VA’s correlative program. The Court granted the government’s motion for judgment on the administrative record. For SDVOSB advocates, the Court’s decision is very disappointing, although certainly understandable. The Court’s role isn’t to make public policy, but to decide whether an agency is rationally applying the law. Here, the Court was obviously very frustrated with how the SBA has chosen to interpret “unconditional ownership” in its SDVOSB regulations, but even a “draconian and perverse” rule isn’t necessarily illegal. The Court rightly pinned the blame on the SBA. For years, OHA has interpreted “unconditional ownership” very strictly, but the SBA’s rulemakers have failed to update the regulations to soften the requirement. Veterans Contracting Group shows just how harsh that interpretation is: VCG supposedly wasn’t an SDVOSB in part because Mr. Montano couldn’t dispose of his shares as he saw fit upon his death. Think about that for a second. Not to be morbid, but this circumstance will only arise when Mr. Montano is dead. At that point, unless ownership of the company passes to another service-disabled veteran, the company wouldn’t be an SDVOSB anymore anyway. So how, exactly, does a provision regarding what happens when Mr. Montano dies impact the company’s eligibility for the Corps contract, at a time when Mr. Montano (presumably) was very much alive? When Mr. Montano passes on, he won’t exactly be in a position to dispose of his interest “as he sees fit,” or benefit from the “full value” of those shares. Because he’ll be, you know, dead. And yet, somehow, this provision about what happens when Mr. Montano dies undermined VCG’s SDVOSB eligibility while he was alive. To me, that’s just crazy. The purpose of the SBA’s rules is to ensure that service-disabled veterans own, control and benefit from the set-aside program. That’s a noble goal: as a policy matter, no one wants pass-throughs or “rent-a-vets.” The requirement for “unconditional ownership” sounds like a good way to implement this policy, and applied well, it can be. For example, if VCG’s 49% owner had the right to buy 2% of Mr. Montano’s interest, at any time, for a pre-determined price, it would be fair to say that Mr. Montano didn’t unconditionally own 51%. But cases like Veterans Contracting Group show that the SBA has taken things too far. There’s no good policy reason to prohibit ordinary commercial and estate planning provisions like those at issue in this case. To the contrary, unnecessarily strict rules like these simply discourage non-veterans from investing in SDVOSBs, to the detriment of the very veterans the SDVOSB program is intended to help. And they penalize well-meaning veterans like Mr. Montano, who adopt paperwork that reasonably appears to them as providing for unconditional ownership. Indeed, VCG was verified as an SDVOSB by the VA CVE, which presumably reviewed the same Shareholders Agreement and saw nothing amiss. But even with that VA verification in his back pocket, Mr. Montano lost the Corps contract, and probably has some hefty legal bills to pay, too. Is this really what the SDVOSB program was intended to do? On this point, Veterans Contracting Group is a stark example of the divergence in the SBA and VA SDVOSB regulations. In my experience, many (perhaps most!) veterans think that VA verification applies government-wide, and that if the company is VA-verified, it’s essentially bulletproof for non-VA SDVOSB jobs. Clearly, that ain’t so. The Court’s decision shows that the same company, operating under the same paperwork, can be a VA-verified SDVOSB, but ineligible for non-VA SDVOSB contracts. No doubt, many VA-verified SDVOSBs have documents with commercially reasonable restrictions much like those at issue in Veterans Contracting Group. If those companies plan to bid non-VA jobs, they better take a careful second look at those VA-approved corporate documents before submitting their next non-VA proposal. Fortunately, change is on the way. Sometime in 2018, the SBA and VA ought to unveil their proposed regulation to consolidate the SDVOSB eligibility requirements. Once that regulation takes effect, the problem of the two programs’ divergence will at least be solved–although it may be 2019 before that happens. But Veterans Contracting Group shows that consolidating the two SDVOSB regulations, while undoubtedly a good thing, isn’t enough. The substance of the rules need to change, also, to protect service-disabled veterans while accommodating ordinary commercial and estate planning restrictions like the ones in VCG’s Shareholders’ Agreement. SBA, if you’re reading, here’s a good rule of thumb: when a federal judge calls your rules “draconian and perverse,” it’s a wise idea to strongly consider changing those rules. Here’s hoping the upcoming consolidated regulation does that. View the full article
  13. The U.S. Air Force cannot buy sporks, at least not in many situations. One would think that the recently passed $700 billion defense bill would provide a little wiggle room for the military to buy paper plates and utensils for its civilian contractors, but, according to the GAO, that is not necessarily the case. In Air Force Reserve Command-Disposable Plates and Utensils, B-329316, 2017 WL 5809101 (Comp. Gen. Nov. 29, 2017), GAO determined that disposable plates and utensils are, like food, a personal expense that must be born by the individual user. The ruling begs the question: What does the Air Force and the Government Accountability Office have against sporks? The answer, apparently—and I swear I am not making this up—is that sporks do not advance the mission of the Air Force, therefore, taxpayer money ordinarily cannot buy them. (I should note at this point, dear reader, that the GAO decision this blog is based on does not actually use the word “spork.” Instead it talks about paper plates and “disposable utensils.” But a “spork” is a disposable utensil and it lends an additional air of absurdity, so I am going to keep using it.) How did the United States government come to this anti-spork conclusion, you might be asking. Unlike most of the GAO decisions we cover here at SmallGovCon, the ruling came about not due to a bid protest, but instead because the Air Force asked GAO to provide an advance ruling on the status of these products. Just over a year ago, Grissom Air Reserve Base, located north of Kokomo, Indiana, announced that it had discovered there was too much lead and copper in the water on post to drink, and ordered that the faucet water could not be used for consumption, making coffee, or washing dishes. The base operates 24 hours a day and employs both civilian and military personnel who work 12-hour shifts during which they may not leave the work area. They eat meals in a break room which has a sink, microwave, and toaster. Since discovering the tap water was undrinkable, the Air Force had been buying bottled water for workers. But without potable water, employees had to take their dishes home to wash. In response, the base comptroller authorized the temporary purchase of disposable plates and utensils “to protect the building’s occupants from health related issues associated with unsafe lead and copper concentrations.” That sounds like a reasonable alternative to making Air Force employees wash their dished at home. But the Staff Judge Advocate, the command-level Judge Advocate, and the command-level Financial Management decided that while appropriated funds could be used to purchase drinking water, they could not be used to purchase disposable plates and utensils. They asked GAO to rule. GAO said that the Air Force has a duty to provide drinking water for its employees, and “agencies may use their appropriations to provide bottled water to employees where no potable water is available.” But once the agency provides potable water, “the remaining flexibility lies with individual employees to make choices that suit their preferences.” GAO continued: “employees may choose to 1) purchase and use their own disposable plates and utensils; 2) wash plates and utensils at home and transport them back to the office; or 3) wash plates and utensils using the water provided.” Because employees had these options, “AFRC does not demonstrate a legal necessity to provide these items.” GAO concluded: “ecause the purchase of disposable items is for the personal benefit of AFRC employees, appropriated funds are unavailable.” In other words, sporks, legally speaking, did not advance the Air Force’s mission and were more valuable to the individual employees than it was to the government. Therefore, absent Congressional approval, or significantly differing circumstances, the government cannot use taxpayer dollars to provide them. Since the Spork Act of 2018 seems unlikely, for the time being, the employees of Grissom will have to make do. Meanwhile, here at SmallGovCon, we’ll continue to keep you updated on government contracts legal developments in the new year–be they major Supreme Court rulings, or slightly less groundbreaking updates on the government’s spork policy. View the full article
  14. It’s hard to believe it, but Monday is Christmas. Hopefully you will be able to enjoy some time with family and friends this weekend and maybe even get that special gift you’ve been hoping for under your tree. Before we head off into the holiday weekend, we wouldn’t think of leaving you without the SmallGovCon Week In Review. In this edition, two defense contractors will fork over $1.4 million (and spend some time in the pokey) as a result of a procurement fraud scheme, the GAO releases a study on DoD contracts awarded to minority-owned and women-owned businesses, a contractor will pay a whopping $63.7 million to settle False Claims Act allegations, and more. SmallGovCon Week in Review will be off next week, but we’ll be back with more government contracts news and notes in 2018. Happy holidays! Two San Diego defense contractors will forfeit $1.4 million and serve jail time for their roles in conspiring to commit wire fraud and file false claims against the government. [Times of San Diego] A contractor will pay $63.7 million to settle False Claims allegations relating to improper billing practices and unlawful financial inducements in violation of the Anti-Kickback Act. [United States Department of Justice] A new DoD memorandum allows Contracting Officers, at their discretion, to eliminate cost or price as an evaluation factor when awarding certain multiple-award contracts. [Office of the Undersecretary of Defense] GAO released a report on the number and types of contracts for the procurement of products or services that the DoD awarded to minority-owned and women-owned businesses. [Military Technologies] The Defense Logistics agency wants to beef up its Business Decision Analytics decision tool to better help it better identify and combat procurement fraud. [GCN] View the full article
  15. A recent SBA Office of Hearings and Appeals decision confirms that there is no exception for nonprofit organizations when it comes to affiliation issues. In the case, SBA OHA found affiliation between a self-certified small business and a nonprofit organization based on close family members controlling both the business concern and ​the ​nonprofit.​ Adding in the receipts from the affiliated nonprofit made the business in question ineligible for small business status. In Johnson Development, LLC, SBA No. SIZ-5863 (2017), OHA considered the case of a business (Johnson Development) that was awarded a VA contract for clinic leasing space under NAICS code 531190, Lessors of Other Real Estate Property, with a corresponding $38.5 million annual receipts size standard. While the procurement was unrestricted, small business offerors would receive credit under the evaluation. In its evaluation of proposals, the VA assigned small business credit to Johnson Development under the solicitation’s evaluation scheme. The VA subsequently announced that it had awarded the contract to Johnson Development. An unsuccessful competitor filed a size protest, alleging that Johnson Development was affiliated with several other entities. The SBA Area Office determined that it had jurisdiction over the protest, even though the solicitation was unrestricted, because small business status was beneficial to offerors. The SBA Area Office determined that Johnson Development was owned by Johnson Healthcare Holdings, LLC (JHH), which in turn was owned by James Johnson and his wife, Sallie Johnson. Their children are Milton Johnson and Sumner Rives. The SBA Area Office found the four family members affiliated based on identity of interest and found Johnson Development affiliated with 31 other companies controlled by the family members, including JHH. Apparently, though, these affiliations didn’t push Johnson Development over the $38.5 million size standard. The SBA Area Office then turned to potential affiliation with a nonprofit entity, the James Milton and Sallie R. Johnson Foundation. The SBA Area Office determined that Ms. Rives was the Foundation’s President, and Johnson family members were the only directors and contributors. The SBA Area Office concluded that Johnson Development was affiliated with the Foundation based on common management and familial identity of interest. Johnson Development filed a size appeal with OHA. Johnson Development emphasized that it was a “non-profit, charitable organization.” Johnson Development contended that there was a clear line of fracture between Johnson Development and the Foundation for two reasons. First, because the Foundation’s assets were “contributions for the public benefit” and the Foundation paid no compensation or reimbursement of expenses to any Johnson family member. Second, because all donations contributed to the Foundation was irrevocable, the Foundation was in a “a completely different line of business from [Johnson Development],” and there were no business connections such as loans, customers, or shared facilities between the two. OHA first addressed the big picture issue: can a nonprofit be an affiliate? Citing 13 C.F.R. § 121.103(a)(6), OHA wrote that it “has consistently found no difference between for profit and non-profit entities” under the SBA’s affiliation rules. OHA continued: under the regulation and settled OHA precedent, non-profit concerns are treated no differently than for-profit concerns in determining the size of a challenged concern. They may be found affiliated under the same criteria as other concerns, whether one concern controls or has the power to control the other.13 C.F.R. § 121.103(a)(1). Therefore, the fact the Foundation is a legitimate non-profit organization does not exempt it from being found affiliated with Appellant, and from having its receipts included in the calculation of Appellant’s annual receipts. Having concluded that the Foundation could be an affiliate, OHA then rejected the argument that there was a clear line of fracture between Johnson Development and the Foundation. OHA wrote that, under the SBA’s affiliation rules as they existed at the time, companies controlled by close family members are presumed to be affiliated. Although this presumption can be rebutted by showing a “clear line of fracture,” a clear line of fracture “is a fracture between the family members themselves,” not between the entities in question. Here, “Johnson family members operate the for-profit entities together.” Therefore, “there is no clear fracture between them,” and the presumption of affiliation could not be rebutted. OHA affirmed the SBA Area Office’s size determination and denied the size appeal. This decision is an important reminder that a nonprofit is treated the same as any other entity for affiliation purposes. Contractors shouldn’t make the mistake of thinking that, because nonprofits are treated differently under some laws, they will be treated differently for affiliation purposes. One final note regarding the identity of interest rule for companies owned by close family members. The solicitation in this case was issued in 2015, and proposals were due in April 2016. But in a rulemaking effective June 30, 2016, the SBA tinkered with the identity of interest rule–which arguably can now be read as requiring the entities in question to conduct business with each other for the presumption to apply. We’ll keep our eyes peeled for case law interpreting the updated rule to see how OHA interprets it. View the full article
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