Koprince Law LLC

SBA recently revised its affiliation regulations in a number of ways, some of which we have already discussed here. We have likely sounded pretty upbeat about most of SBA’s recent updates thus far, as the majority do seem to be a step in the right direction–adding clarity to SBA’s rules and furthering the policies SBA seeks to enforce. Well, not trying to rain on any parades here, but at least one of SBA’s recent regulatory updates, (at least in our humble opinion) has the potential to confuse federal contractors regarding SBA’s affiliation rules. That update revised the language in SBA’s “Two-Year Rule” for small business joint ventures–though, it really didn’t change the substance or effect of the rule, at all. Let’s take a closer look. At this point in the article, you may be (quite reasonably) asking yourself how we got on the topic of SBA’s affiliation rules, given the title of the article is focused on joint ventures (and if you are sitting there wondering what joint ventures and affiliation even are, don’t stress it; here is a Back to Basics blog on joint ventures, and here is one on affiliation, and here is one on the different types of affiliation). Well, we are talking about affiliation here because SBA’s small business joint venture rules pertaining to the required content of a joint venture agreement (and various other socioeconomic categories of small business joint venture rules doing the same) do not actually contain any term limitations for joint ventures. SBA’s “Two-Year Rule” for joint ventures isn’t a actually joint venture rule at all. You guessed it–it is an affiliation rule. All this means is that SBA doesn’t tell joint ventures they can’t continue bidding work after two years–SBA will just find the joint venturers to be affiliates at that point, if they do so (don’t worry, we will talk more specifics of the rule shortly). Unfortunately, that fact alone–that SBA’s term limit for small business joint ventures is essentially buried in SBA’s affiliation rules, rather than in any of SBA’s joint venture rules–leads to confusion. Indeed, many federal contractors participating in small business joint ventures seem to either be completely unaware of the two-year-term limitations or to completely misunderstand them (even prior to the recent update). For a little bit of history on the “Two-Year Rule,” it used to be the “Three-in-Two Rule,” which limited joint ventures to three awards within a two-year period. But a few years ago–in what most everyone in the government contracting world seems to consider an excellent rule revision–SBA did away with the “three” part of the “Three-in-Two Rule” for joint ventures. While this significantly minimized the amount of paperwork and administrative burden on joint venture parties that wanted to perform more than three contracts together, it left in place the two-year term limitation. SBA’s most recent affiliation rule, before this latest change, regarding the two-year term limitation for joint ventures said the following: Once a joint venture receives a contract, it may submit additional offers for a period of two years from the date of that first award. An individual joint venture may be awarded one or more contracts after that two-year period as long as it submitted an offer including price prior to the end of that two-year period. SBA will find joint venture partners to be affiliated, and thus will aggregate their receipts and/or employees in determining the size of the joint venture for all small business programs, where the joint venture submits an offer after two years from the date of the first award. 13 C.F.R. § 121.103(h) (January 5, 2022, to May 30, 2023). Now, this is again just in my humble opinion, but I thought the language from this version of the rule did a pretty decent job of explaining the rule. Just in the first sentence, it tells you that the two-year-clock starts from the “date of that first award” and it is the submission of “additional offers” that is prohibited after that two-year-clock ends. And the sentences that follow the first sentence here just elaborate on that point, explaining that the joint venture can continue to receive awards and perform contracts after that clock runs–it merely cannot submit more bids from that point on. The updated language for SBA’s current “Two-Year Rule” follows: [A] specific joint venture generally may not be awarded contracts beyond a two-year period, starting from the date of the award of the first contract, without the partners to the joint venture being deemed affiliated for the joint venture. However, a joint venture may be issued an order under a previously awarded contract beyond the two-year period. Once a joint venture receives a contract, it may submit additional offers for a period of two years from the date of that first award. An individual joint venture may be awarded one or more contracts after that two-year period as long as it submitted an offer prior to the end of that two-year period. SBA will find joint venture partners to be affiliated, and thus will aggregate their receipts and/or employees in determining the size of the joint venture for all small business programs, where the joint venture submits an offer after two years from the date of the first award. 13 C.F.R. § 121.103(h). Interestingly, in reviewing the history of this rule, it appears that SBA actually tried inserting this language once before for a brief period between the era of the “Three-in-Two Rule” and January 2022–but ended up removing it. But now, its back again. I copied a good portion of the rule into this quote, to make sure that it is clear that a lot of the rule actually stayed the same. But I am a bit concerned that SBA’s added language actually adds more confusion than clarification. Specifically, if anyone were to read just the first sentence copied above and stop there, it could lead to an incorrect application of this rule. It actually says that you “generally” cannot “be awarded contracts” after the two-year clock runs. Yes, it then goes on to make an exception for awards that were bid prior to the expiration of the two-year clock–which, in effect, is basically what the rule already did. It just feels (again, at least to me) like this added language increases the chances that contractors will misinterpret and misapply the rule. But I truly hope I am wrong! Finally, I did just want to note that the new rule–like the old one–still clarifies that joint venture parties are allowed to keep working as a joint venture team once the two years is up. They just need to create a new joint venture (meaning a new agreement and a new entity, with all the registration and filing that entails). Joint ventures provide an incredible opportunity for companies to team up for work they may not otherwise be (1) eligible for, or (2) able to perform on their own. They also give contracting agencies sort of a two-for-one special that can be really beneficial to the government and tax-payers. But they do have a lot of rules that go with them. And some of those rules might not be where you think they are. If you are not careful, you could risk affiliation. Questions about this post, joint ventures, affiliation, or any other government contracting matter? Email us. Need legal assistance? Call us at 785-200-8919. Looking for the latest government contracting legal news? Sign up here for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook. The post SBA Revisions to the “Two-Year Rule” for Joint Ventures: a Reminder to Read the Entire Rule first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

Touted as a “game-changer” when it was first introduced in 2016, the U.S. Small Business Administration’s All Small Mentor-Protégé Program isn’t new anymore. Known now as simply the “SBA Mentor-Protégé Program,” it is still extremely powerful for large and small contractors alike. In this course, Koprince McCall Pottroff LLC government contracts attorneys Stephanie Ellis and I will explain the ins and outs of the Mentor-Protégé Program, covering the program’s eligibility requirements, its potent benefits (including the ability to form special mentor-protégé joint ventures), the application process, and common misconceptions and pitfalls. Free Registration Link here. Hope you will join us! The post Event: SBA Mentor Protege Program Webinar hosted by Texas El Paso APEX Accelerators, June 27, 10:00am-11:30am MDT first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

While SBA has taken over SDVOSB certification from the VA (along with some other rule changes), some things remain the same. One thing which we think will never change, is that making sure the language in your agreements is clear, is vital for the federal contractor (and indeed all businesses). While this is obvious for things like operating agreements and bylaws, documentation like meeting minutes should be clear as well. In a recent appeal of a denial of SDVOSB certification, a company had to go through what must have been a frustrating ordeal that might have been prevented with just a little extra language in the meeting minutes, only to have to deal with further frustration due to a couple of details. Perrilliat Enterprises, Inc. (Perrilliat) is a construction contractor in Nevada formed in 2019. At the time it applied for SDVOSB certification, its bylaws provided that “[t]he corporation shall have 1 director and collectively they shall be known as the board of directors.” That director was the service-disabled veteran sole owner of Perrilliat. So far so good, as 13 C.F.R. 128.203 requires that for an SDVOSB corporation, the board must be controlled by one or more service-disabled veterans. It also provided that for a quorum to exist and a company meeting to be held, at least “1 member of the board of directors and 1 officer” had to be present. While the bylaws provided for one director, they established three officers: President, Secretary, and Treasurer. As part of Perrilliat’s SDVOSB application, it provided meeting minutes for “Board Meetings” that occurred on February 28, 2019, and August 30, 2022. For both of these meetings, the minutes noted that three individuals were in attendance: The owner and two other people. Neither of these two other people were service-disabled veterans. At the 2019 meeting, the owner was named the President of Perrilliat and the other two individuals were named the Secretary and the Treasurer. The minutes provided that Perrilliat only has one board member, but did not specify who that individual was. The meeting minutes for the 2022 meeting described that earlier that year a “Board Retreat” was held, with the President/Owner, the Secretary, and the Treasurer in attendance. On March 27, 2023, SBA denied Perrilliat’s SDVOSB application. The reviewer stated that Perrilliat had not shown that the company’s board was fully controlled by service-disabled veterans. The reviewer’s reasoning is that the meeting minutes indicated three people were present at the two meetings, and so these individuals must be the directors of the company. As the bylaws provided that one director and one officer was needed to establish a quorum, the reviewer concluded that “[b]ecause Appellant has ‘three directors and three officers’, only one of whom is a service-disabled veteran, non-qualifying individuals could potentially convene a meeting without” the service-disabled veteran. Additionally, because there were two non-service-disabled veteran directors versus the one service-disabled director/owner, the non-service-disabled veterans could outvote the owner, or at the very least block actions he wanted to take. As you might have guessed by this point, SBA’s Office of Hearings and Appeals (OHA) did agree with Perrilliat that SBA had clearly erred in its evaluation. The meeting minutes did not state that all three individuals present were directors of the company. In fact, they said there was just one director! But even if the board did have three directors in 2019, the 2021 bylaws would have negated that: “According to the Bylaws, Appellant is governed by a Board of Directors comprised of one individual. The Bylaws were signed solely by Stewart Perrilliat — Appellant’s President, owner, and a service-disabled veteran — who represented himself as ‘all the initial directors or incorporators of this corporation.’ The Bylaws further state that one Director and one officer are needed to establish a quorum, and that approval by ‘a majority’ of the Board members is necessary to make decisions. Accordingly, if Stewart Perrilliat is Appellant’s sole Director, it appears that he alone could establish a quorum and unilaterally control Appellant’s Board.” Finally, OHA observed that even disregarding all the above, the service-disabled veteran owner was the sole owner of Perrilliat, and so he might control the board regardless. So, this means Perrilliat got approved for SDVOSB certification then with the decision, right? Unfortunately, this was not the case: “Although Appellant has identified errors in the D/GC’s decision, Appellant has not conclusively shown that it is an eligible SDVOSB. Additional review and clarification is thus appropriate. Notably, Appellant points to no specific evidence that Stewart Perrilliat is Appellant’s sole Director. While Appellant’s Bylaws do state that Appellant’s Board will be comprised of one Director, the identity of that one Director is unspecified. Furthermore, other information in the record appears to contradict Appellant’s claim that its Board consists of only one Director. The minutes of the August 30, 2022 Board meeting, for instance, refer to a ‘Board Retreat earlier this year’, during which the Board ‘[b]rainstormed’ on Appellant’s mission and strategic objectives. Appellant does not attempt to explain how these statements can be reconciled with its contention that its Board is comprised of only one Director.” As a result, the matter was merely sent back to SBA for further review, resulting in additional time spent in review with the SBA’s Veteran Small Business Certification (VetCert) program. Now, SBA clearly made a number of mistakes in its evaluation, and Perrilliat was absolutely right on that. But, even with that all said, just a couple missing details means that, instead of Perrilliat getting its SDVOSB certification there and then, it had to continue the review process. Little things like the meeting minutes not restating that the service-disabled veteran owner was the director and describing a 2022 meeting of the officers as a “Board Retreat” were enough to create a genuine question as to who controlled the company at the time of certification. It seems minor, but it is these little details that make the difference when applying for SDVOSB certification, and indeed any sort of certification with SBA. Questions about this post? Email us. Need legal assistance? Call us at 785-200-8919. Looking for the latest government contracting legal news? Sign up here for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook. The post Clarity is Key: An Example of Why Clear Language is Important for Showing SDVOSB Control first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

Happy Friday! Monday is our newest federal holiday, Junteenth. Courtesy of History.com, Juneteenth (short for “June Nineteenth”) marks the day when federal troops arrived in Galveston, Texas in 1865 to take control of the state and ensure that all enslaved people be freed. The troops’ arrival came a full two and a half years after the signing of the Emancipation Proclamation. Juneteenth honors the end to slavery in the United States and is considered the longest-running African American holiday. On June 17, 2021, it officially became a federal holiday. I hope you will enjoy the activities in your community. In our town of Lawrence, Kansas, there is a parade, a free concert and lots of educational events this weekend. I’m really looking forward to it! GSA published a great press release on Junteenth, that we have included below. Lots of activity in the Federal government world this week. We have included some articles that we think are of interest. Have a great weekend! GSA reflects on Juneteenth amid continued equity push for Black communities [GSA] NAICS Codes & Identifying Bids More Than Meets The Eye [MyGovWatch] Government Efficiency and Effectiveness:Opportunities to Reduce Fragmentation, Overlap, and Duplication and Achieve Billions of Dollars in Financial Benefits [GAO] US Department of Labor Recovers More Than $171K in Back Pay, Benefits for 11 Workers Shortchanged by Florida Construction Subcontractor [DoL] $321 Million FEMA Resource Contract Backed By GAO After Protests [BlmbgLaw] Report: GAO Denies Protest of Army Joint Light Tactical Vehicle Contract Award Decision [GovConWire] FACT SHEET: Biden Administration Celebrates the 75th Anniversary of Women’s Integration into the Armed Forces [WH] Bot brigade marching through Interior to accelerate digital transformation [FedNewsNet] White House extends secure software attestation deadlines, offers clarifying guidance [FedNewsNet] GSA Offers Update on New Pool for 8(a) Vendors Under Multiple Award Schedule [ExecGov] Evolving compliance challenges in the US government contracts market [FinWorld] GSA joins EPA in putting the brakes on how employees use generative AI [FedNewsNet] Residents of Guam still recovering after typhoon [FedNewsNet] Department of Labor to Hold Online Seminars to Educate Current, Prospective Federal Contractors on Prevailing Wage Requirements [DoL] The post SmallGovCon Week in Review: June 12-16, 2023 first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

A recent COFC decision yielded some important insights about government contracting. We already wrote about some joint venture aspects of the decision. But the decision also touched on whether GSA’s solicitation violated federal procurement law by excluding price as an evaluation factor at the indefinite delivery indefinite quantity (IDIQ) level for a procurement. In the SH Synergy, LLC v. United States, No. 22-CV-1466 (Fed. Cl. Apr. 21, 2023) decision, the Court of Federal Claims took a look at, among other things, small business joint ventures’ participation in the Polaris solicitation based on a challenge to the terms of the Polaris solicitation. The decision also examined whether a solicitation can ignore price at the IDIQ level and leave price evaluation solely to the order stage. The short answer–no. Price must be evaluated at the IDIQ level, at least for procurements such as Polaris. “Under the Polaris Solicitations, GSA will award IDIQ contracts to the highest technically rated qualifying (HTRQ) offerors.” Offerors self-score based on four evaluation factors: (1) Relevant Experience; (2) Past Performance; (3) Systems, Certifications, and Clearances; and (4) Risk Assessment. The highest self-scored proposals, after an Acceptability Review, would receive awards. And GSA expected to award certain number of awards for different pools such as WOSB and SDVBOSB. The court noted that, generally, agencies must “include cost or price to the Federal Government as an evaluation factor that must be considered in the evaluation of proposals.” 41 U.S.C. § 3306(c)(1)(B). But Polaris did not include any cost or price evaluation. GSA based the exclusion of price on 41 U.S.C. § 3306(c)(3), which provides an exception for “certain indefinite delivery, indefinite quantity multiple-award contracts . . . for services acquired on an hourly rate.” 41 U.S.C. § 3306(c)(3). This statute has not been incorporated into the FAR yet, but GSA incorporated it through a GSA class deviation. The court looked closely at the statutory language allowing for an exclusion of price evaluation at the IDIQ level only when an agency is procuring ““task or delivery orders based on hourly rates” under 41 U.S.C. § 3306(c)(3). The court reasoned: by including the phrase “task or delivery orders” immediately before the phrase “based on hourly rates,” Congress has unambiguously expressed its intent to limit the type of task orders eligible for the exception in Section 3306(c)(3) to only those “based on hourly rates.” See 41 U.S.C. § 3306(c)(3). The phrase “based on hourly rates” as used in Section 3306(c)(3) includes the transitive verb form of “base,” which means “to make, form, or serve as a base for[;] . . . to find a base or basis for — usu[ally] used with on or upon.” In turn, the noun form of “base” is defined as “the fundamental part of something.” Something is “fundamental” if it is “of central importance.” (citations omitted) So, time-and-materials and labor-hour contracts are based on hourly rates, but if hourly rates are merely “embedded in the contractor’s bid amount,” such as in a firm fixed price context, that is not enough to meet the statutory language to be “based on hourly rates.” The Polaris solicitation included task order types not based on hourly rates: “Section 3306(c)(3) permits procuring agencies to avoid evaluating price at the IDIQ level only if the IDIQ contracts issued under the procurement ‘feature’ task orders ‘based on hourly rates,’ meaning time-and-materials and labor-hour task orders.” These type of task orders must “make up a featured, or predominant, portion of the task orders issued under the contract.” And “if GSA wishes to rely on Section 3306(c)(3) to avoid evaluating price at the IDIQ level, GSA must amend the Polaris Solicitations’ terms to clearly feature time-and-materials and labor-hour task order.” Therefore, the court ordered GSA to amend the solicitation to either feature hourly-rate based task orders or to evaluate price and cost at the IDIQ level. This case represents an important aspect of procurements, that the Solicitation must comport with applicable law, including statutory law. Here, the exception to evaluating price at the IDIQ level is quite narrow, and Polaris is not allowed to utilize that exception unless it meets the narrow exception. Questions about this post? Email us or give us a call at 785-200-8919. Looking for the latest government contracting legal news? Sign up here for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook. The post Exception to the Rule: Evaluating Price at IDIQ Versus Order Level Is a Limited Exception first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

Subcontracting is a hot topic in the federal government contracting world. Large businesses placing bids on federal procurements are often required to have a small business subcontracting plan, while small businesses are limited to exactly how much work they can subcontract out. The FAR and SBA rules contain the details relevant to small businesses’ limitations on subcontracting. These regulations are, in general, pretty straightforward. Well, at least when it comes to total small business set asides for one specific type of work. Further, there are a ton of resources available to help small business federal contractors understand these limits. Just googling “limitations on subcontracting” comes up with webinars, blogs, federal government sites, and even YouTube videos on the topic, but most only focus on the more general limitations. There aren’t nearly as many resources that take on the topic of partial set asides, but these limitations are important as well. In this post, I am going to walk you through how these limitations apply to partial set asides to show that contracts partially set aside for small businesses are not nearly as intimidating as they may seem. Partial Set Asides Partial set asides are essentially exactly what it sounds like: Federal Government contracts in which part, but not all, of the services, supplies, or construction will be performed solely by a small business or a specific category of small business. For a full rundown of when a partial set aside is permitted, look no further than FAR 19.502-3. Here is SBA’s definition: means, for a Multiple Award Contract, a contracting vehicle that can be used when: market research indicates that a total set-aside is not appropriate; the procurement can be broken up into smaller discrete portions or discrete categories such as by Contract Line Items, Special Item Numbers, Sectors or Functional Areas or other equivalent; and two or more small business concerns, 8(a) BD Participants, HUBZone SBCs, SDVO SBCs, WOSBs or EDWOSBs are expected to submit an offer on the set-aside part or parts of the requirement at a fair market price. Partial set-aside (or partially set-aside) means, for a Multiple Award Contract, a contracting vehicle that can be used when: market research indicates that a total set-aside is not appropriate; the procurement can be broken up into smaller discrete portions or discrete categories such as by Contract Line Items, Special Item Numbers, Sectors or Functional Areas or other equivalent; and two or more small business concerns, 8(a) BD Participants, HUBZone SBCs, SDVO SBCs, WOSBs or EDWOSBs are expected to submit an offer on the set-aside part or parts of the requirement at a fair market price. 13 CFR 125.1. For today’s purpose, it is less important to know in what circumstances a partial set aside is permitted, and more important to know what limitations apply. Thankfully, the same rules found in 13 C.F.R. § 125.6 and FAR 19.505 that apply to contracts that are completely set aside for one category of small business or another, such as 8(a) or woman owned small businesses, also apply to contracts that are partially set aside. In such a situation, the limitations of subcontracting will apply only to the portion of the procurement set aside for small businesses. Application The National Park Service (NPS) is in the process of planning a Fourth of July extravaganza held annually at a national park. To fulfill its needs, NPS knows it needs two different contract line items (CLIN): CLIN 1 and CLIN 2. CLIN 1 is set aside for small businesses, but CLIN 2 is something that can only be procured from a large business. NPS needs 500 units of CLIN 1 and 500 units of CLIN 2. Because NPS cannot get all of the CLINs from a small business, NPS makes the decision to procure CLIN 2 from a large business and the request is approved. NPS then awards the contract for 500 of CLIN 1 to Small Business (SB), and the contract for 500 of CLIN 2 to Large Business (LB). Importantly, a “business concern will not have to comply with the limitations on subcontracting (see § 125.6) and the nonmanufacturer rule for any order issued against the Multiple Award Contract if the order is competed and awarded under the portion of the contract that is not set-aside.” 13 C.F.R. § 125.2. Now, the language of 13 C.F.R. § 125.6 states that a small business must agree that, “it will not pay more than 50% of the amount paid by the government to it to firms that are not similarly situated” for services and supplies. Note that this number goes up to a maximum of 75% for specialty construction contractors, and 85% for general construction contractors. Therefore, it is important to know the value of the contract to determine whether SB is compliant with the limitation. Here, CLIN 1, which is awarded to SB is worth $50,000, and CLIN 2, which is awarded to LB is worth $50,000. This makes the total contract value $100,000. SB is able to provide 80% of CLIN 1, or 40% of the overall value of the solicitation, but needs to subcontract the remaining 20% of CLIN 1, or 10% of the overall value of the solicitation to an “other than small business” (OTSB). If SB subcontracts 20% of CLIN 1 from OTSB, is SB in compliance with the limitations on subcontracting? The answer to this question is yes. SB will remain in compliance with the limitations on subcontracting if it subcontracts 20% of CLIN 1, or 10% of the overall solicitation, to OTSB. Remember, the contract for 500 units of CLIN 1 was set aside for small businesses. SB is only subcontracting with OTSB so that it may provide all 500 of CLIN 1. Because the cost for SB to subcontract the additional 20% of CLIN 1 needed was $10,000, or 20% of the overall set aside value of $50,000, SB did not “pay more than 50% of the amount paid by the government to it to firms that are not similarly situated.” Therefore, the small business is in compliance with the limitations on subcontracting and can now provide all 500 of CLIN 1 to NPS. You may be wondering, “how are the limitations on subcontracting met if 60% of the value of the solicitation is paid to businesses that do not qualify as small?” Remember, in the situation of a partial small business set aside, the limitation on subcontracting only applies to the portion of the solicitation that is set aside for small businesses. As you can see, the limitations on subcontracting that apply to contracts partially set aside for small businesses are only slightly more difficult than a total set aside. The calculation is done the same way. The only difference is that the limitation is only applicable to the small business’s contract. Questions about this post? Email us or give us a call at 785-200-8919. Looking for the latest government contracting legal news? Sign up here for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook. The post Limitations on Subcontracting: Partial Set Asides first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

Happy Friday, Readers! As temperatures climb in this now official Kansas summer, so does federal government spending. But with more spending, comes more responsibility. A lot has happened this week! The FAR council proposed to ban TikTok for contractors. NASA is planning some extensive tech development, with the help of small businesses. And NOAA issued a massive $8 billion RFP for scientific and professional services acquisition. Enjoy the articles below and your weekend! Now that the debt ceiling debate has been settled, it’s back to business as usual for contractors, right? [FedNewsNet] An update on a contractor cybersecurity rule VA imposed this year [FedNewsNet] NASA Selects Small Business, Research Teams for Tech Development [NASA] Ownership and Control and Contractual Assistance Requirements for the 8(a) Business Development Program; Correction [FAR] NOAA issues final RFP for oceans portion of $8B scientific and professional services procurement [FedScoop] After debt fight, Congress turns its attention to defense budget [FedTimes] NASA Boosts Over 200 Space Sector Small Business With $45 Million Funding [TechTimes] Air Force Offers Insight Into Comprehensive Construction, Engineering Program [GovConWire] NYC Aims to Double Contract Work for Women and Minority-Owned Businesses [Blmbrg] DOD Issues Updated Guidance on Digital Capability Acquisition [ExecGov] The post SmallGovCon Week in Review: June 5-9, 2023 first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

Uncle Sam only wants to do business with ethical contractors — and not all of the government’s ethics rules are intuitive. In this webinar, government contracts attorney, Nicole Pottroff, explains the ins and outs of the key ethics rules contractors should know, including organizational conflicts of interest, contingent fees, collusion, gratuities, the False Claims Act, and the Procurement Integrity Act. The presentation concludes with an in-depth look at what a compliant Ethics Plan and Internal Compliance Program should include. We hope you will join us. Registration link here. The post Event: Ethics in Federal Government Contracting Webinar hosted by Govology, June 15, 1:00pm EDT first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

In the world of Federal Government Contracting, it often feels like there are 20 different ways that your business or your business’s awards can be protested. In addition to size protests and bid protests (at both GAO and the COFC), there is also what is commonly referred to as a “status protest.” A status protest, while certainly less common than size protests and bid protests, still presents its own unique factors, procedures, and corresponding risks that contractors should be aware of. In this next installment of our Back to Basics series, we will walk you through a status protest and what impact a status protest may have on a federal contractor’s business. What is a status protest? The best place to start with a discussion regarding status protests is simply “what is a status protest?” Status protests are basically protests in which a business (or in some cases the Contracting Officer (“CO”) or Small Business Administration (“SBA”) itself) has the opportunity to protest another business’s socio-economic contracting program status (SDVOSB, WOSB, HUBZone, etc.). We won’t go too far into the weeds of jurisdiction or standing; but generally, for one business to file a status protest against another business, it will need to be in relation to a specific contract award. And the protester will generally need to be an unsuccessful offeror on that same contract. Basically, the protester will assert that the awardee does not meet the eligibility requirements for a specific socio-economic contracting program set-aside status (importantly, it must be the status the contract is set-aside for), and as such, should not receive the contract award. Often these protests will be confused or lumped in with size protests due to their similarity (and the fact that size protests are often referred to as “size status protests”), but they are completely separate from a size protest. Which statuses can be protested? If a business feels that an awardee doesn’t meet the eligibility or status requirements for the following programs (for a specific contract set aside for that program), then a status protest may be filed: HUBZone WOSB/EDWOSB SDVOSB/VOSB You may have noticed that the SBA’s 8(a) Program is not listed. Well, under 8(a) Program regulations, another business or participant cannot protest the 8(a) status of a business, but it can of course protest the size status of an 8(a) business. However, the SBA or contracting officer (“CO”) can protest the small disadvantaged business (“SDB”) status of a proposed subcontractor or subcontract awardee in certain situations or other businesses can submit information to the SBA or CO trying to persuade them to initiate a SDB status review (discussed further below). Where are status protests filed and who reviews them? Status protests are heard by the SBA either through the relevant contracting program office, or the SBA Office of Hearings and Appeals (“OHA”), depending on the status being protested. For HUBZone status protests, a protester “must submit its written protest to the contracting officer” and “may submit protests by email to hzprotests@sba.gov.” For WOSB/EDWOSB status protests, a protester would deliver their protest “in person, by facsimile, by express delivery service, e-mail, or by U.S. mail” to the contracting officer “if the protestor is an offeror for the specific contract.” For protests of SDVOSB/VOSB status, “[a]ll challenges to the inclusion in the certification database of a VOSB or SDVOSB based on the status of the concern as a small business concern or the ownership or control of the concern, shall be heard by the Office of Hearings and Appeals of the Small Business Administration.” However, SBA still directs protesters to send their status protests to the contracting officer. So in general, to file a status protest, a protester would typically file their status protest with the contracting officer for the contract at issue. That contracting officer then forwards all protests to the appropriate SBA program office within its Office of Government Contracting Business Development, regardless of if the protest was timely or specific–or in the case of an SDVOSB/VOSB status protest, will forward the protest to OHA. In order for the protest to be timely, in a negotiated acquisition, the protest must be received prior to the close of business on the fifth business day after notification of the award was given by the contracting officer to the offerors. For sealed bid acquisitions, the contracting officer must receive the status protest prior to the close of business on the fifth business day after the bid opening. Interestingly, status protests could also be undertaken by the SBA or contracting officer themselves in certain situations. So, a business may not only be protested by another business, but also by the SBA or contracting officer. As hinted above, the 8(a) Program regulations state that “[t]he eligibility of a Participant for a sole source or competitive 8(a) requirement may not be challenged by another Participant or any other party, either to SBA or any administrative forum as part of a bid or other contract protest” but the “size status of the apparent successful offeror for a competitive 8(a) procurement may be protested.” So an 8(a) Program participant technically can’t have it’s status as an 8(a) Participant protested, but can have it’s size protested, through typical size protest means (see our blog post on size protests here). That being said, SBA does state that a business could request the SBA review the small disadvantaged business (“SDB”) status of a business, and if SBA feels there is enough credible information calling into question the SDB status of the subject business, SBA may initiate its own review. To file this type of request, protesters would send their request and supporting information to the SBA Associate Administrator for Business Development. How do status protests work? In general, the goal of each status protest is to examine the eligibility of the protested company under that specific program. So, for example, if someone protested the WOSB status of a program, the appropriate office within the SBA would review aspects of the protested business for continued eligibility for participation in the WOSB program, such as whether the required amount of ownership is held by a woman, and whether the woman owner has the required amount of control. It would function that same way for each respective program (other than the 8(a) Program, who has a different unique process discussed above). The SBA gives itself fifteen (15) business days after it receives the protest to issue a decision. Of course, the SBA can request an extension of this deadline from the contracting officer, as many of these status protests can be fairly complex with them looking at ownership structures, and control of businesses. Also, the contracting officer may still complete award of the contract in the meantime if they determine in writing that there is an “immediate need” to award that contract. But that contracting officer must include a written explanation within the contract file justifying this decision and send a copy of the explanation to the SBA Director for Government Contracting. As these status protests deal with the nature and structure of businesses, they will often involve the SBA requesting intricate business documents like operating agreements, articles of organization, ownership statements, and written responses or explanations to the protest allegations. SBA will analyze these documents, as well as any follow-up communications with the protested business during the fifteen days, compare them with the protest’s allegations and relevant regulations, then decide whether the protested business still meets the eligibility requirements for the respective socio-economic contracting program. Once the SBA comes to its decision, it will notify the contracting officer, protester, and the subject business in writing of its decision. Why does a status protest even matter? While the process seems fairly focused on the award of a contract, it doesn’t only put at risk a singular contract award, it also places the status of a business at risk. Obviously, if a business was awarded a set-aside contract, and the status protest resulted in them not being found eligible for the contract’s socio-economic contracting program set-aside designation, then that contract award is no longer awarded to that business. However, on top of that, each program lists further repercussions. For HUBZone status protests, if a business is found “ineligible” and the status protest is sustained, then “SBA will decertify the concern and remove its designation as a certiied HUBZone small business concern in DSBS.” For EDWOSB/WOSB status protests, if a business is found to be “ineligible” through a status protest, it “will be decertified from the program and may not submit an offer as a WOSB or EDWOSB on another procurement until it is recertified.” For SDVOSB/VOSB status protests, a business found not to qualify for this status through a status protest “may not submit an offer on a future VOSB or SDVOSB procurement until the protested concern reapplies to the Veteran Small Business Certification Program and has been designated by SBA as a VOSB or SDVOSB into the certification database.” While 8(a) Program regulations are not clear on the consequences to a subcontractor not being found to be a SDB, it is likely that similar consequences to the ones articulated in the HUBZone, EDWOSB/WOSB, and SDVOSB/VOSB programs would be incurred by a contractor who represented themselves as an SDB on any prime contract, but was later found not to be an SDB. While depending on the situation, there may be an appeal option or recertification option for a contractor who is found no longer eligible through a status protest, a negative status protest finding will still turn a contractor’s business upside down, as they can no longer hold-themselves out as the status that was protested, nor bid on contracts that are set-aside for that particular status. A negative status protest finding can have far-reaching effects on any contractor found ineligible, and thus, should be taken very seriously, despite it being less common than other protests. If a contractor finds themselves having their status protested, much of the success will depend on how well that business complied with their specific contracting program’s regulations. Often, this is something a skilled federal contracting lawyer can assist with before any protest is even filed. So, if you are wondering about whether your business is in compliance with your contracting program’s status requirements, have received a status protest, feel that an awardee doesn’t meet the proper status requirements, or you just have questions on federal government contracting, make sure to reach out to a skilled federal contracting lawyer, as the negative effects of a status protest can be quite impactful on a business. Questions about this post? Or need help with a government contracting legal issue? Email us. Looking for the latest government contracting legal news? Sign up for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook. The post Back to Basics: Status Protests first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

GAO recently sustained a bid protest to a General Services Administration (GSA) acquisition for warehousing and deployment services at the strategic national stockpile–a literal “stockpile” of the nation’s largest supply of critical pharmaceuticals, medical equipment and supplies, and emergency supplies. GSA issued this solicitation and conducted this acquisition on behalf of the Administration for Strategic Preparedness and Response (ASPR), an operating agency of the Department of Health and Human Services (HHS). But according to GAO, in evaluating offerors under its solicitation, here, GSA failed to provide offerors with the meaningful discussions required by the FAR. So, GAO sustained the protest and recommended that GSA: reopen the procurement to conduct meaningful discussions with offerors, accept and evaluate revised proposals after doing so, and make a new award decision on that basis. GAO’s decision in Life Science Logistics, LLC, B-421018.2 (Apr. 19, 2023), involved a solicitation issued by GSA, on behalf of the ASPR agency of the HHS, seeking a contractor to provide a fully-managed service solution to the strategic national stockpile. By way of brief background, the ASPR is the agency that “leads the nation’s medical and public health preparedness for response to, and recovery from, disasters and public health emergencies[.]” A key component of the ASPR’s mission is this strategic national stockpile, “which contains the nation’s largest supply of potentially life-saving pharmaceuticals, medical supplies, medical equipment, and emergency supplies[.]” GSA’s solicitation sought warehousing services and deployment services “for pharmaceutical products and disaster relief supplies and equipment intended to support government disaster relief and preparedness efforts.” Specifically, it sought a contractor to provide ASPR with “the necessary expertise with suitable storage, management of medical products, monitoring, logistics, reporting, and emergency staging for delivery of government-provided medical supplies for a national emergency at Site F.” GSA issued the solicitation under Federal Acquisition Regulation (FAR) parts 12 and 15, contemplating award of a contract with a five-year base performance period and five one-year option periods. The solicitation said award would be made using a best-value tradeoff based on three non-price factors, in descending order of importance: (1) technical approach; (2) management approach; and (3) past performance. And it said that all nonprice evaluation factors, when combined, would be considered significantly more important than price. The solicitation said a proposal receiving a rating of “not acceptable” for any factor would be ineligible for award, and that GSA would not evaluate any price proposals if the corresponding technical proposal failed to receive an overall technical rating of at least “acceptable.” The solicitation said that GSA’s intention was to make this award without conducting discussions but that GSA also “reserved the right to hold discussions if it determined during the evaluation of proposals that discussions were necessary.” GSA received two timely proposals for the solicitation. GSA conducted a conformance check of the two proposals, convened a Q&A session with each offeror, established a competitive range, and held discussions with both offerors. As relevant to the instant protest, GSA’s discussions with the protester only covered GSA’s “concerns regarding potential contamination of [protester]’s proposed site, schedule slippage related to possible excavation, and the rates for two labor categories.” After discussions, GSA reviewed the two offerors’ proposals and discussion question responses and assigned each offeror adjectival ratings. The protester was initially rated: Good for its technical approach; Excellent for its management approach; Acceptable for its past performance; and Good overall. Its evaluated price was $198,444,382. And the awardee was initially rated: Excellent for its technical approach; Excellent for its management approach; Excellent for its past performance; and Excellent overall. And its evaluated price was $236,437,623. Upon the filing of a timely protest at GAO, GSA took voluntary corrective action to amend the solicitation, solicit proposal revisions, conduct a new evaluation, and make a new award decision. So, the initial protest was dismissed accordingly. During its corrective action, GSA issued solicitation amendment 3, revising the solicitation’s statement of work, instructions, and evaluation criteria. Specifically, it “added a requirement to submit standard blueprints for the proposed facility on 24-inch by 36-inch paper, in color, sufficiently detailed to depict the solicitation requirements.” Amendment 3 was also issued with a cover letter stating that GSA was requiring the complete resubmission of all proposals–noting that any prior proposal submissions would not be reviewed as part of GSA’s reevaluation. It also stated that GSA again reserved the right to make award from the revised proposals without discussions. GSA received proposals from the same two initial offerors, and the protester’s revised proposal was not materially different than its initial proposal. GSA again performed a conformance check, evaluated the new proposals, and held virtual Q&A technical clarification sessions with each offeror. But this time around, GSA did not engage in discussions with either offeror. This time, the protester was rated: Not Acceptable for its technical approach; Excellent for its management approach; Acceptable for its past performance; and Not Acceptable overall. And its price was not evaluated based on the assigned ratings from the reevaluation. The awardee, this time around, was rated: Excellent for its technical approach; Excellent for its management approach; Acceptable for its past performance; and Excellent overall. And its evaluated price from the reevaluation was $238,674,507. For its technical approach, GSA assigned the protester’s proposal four significant weaknesses and two weaknesses based on: (1) the security drawings lacking the required specifications and details; (2) failure to provide the necessary access and egress points in the facility; (3) failure to provide multiple routes to the highway system; and (4) failure to provide sufficient accessibility to the parking lots. Specifically, GSA said the protester failed to show adequate understanding the facility space requirements, submitted drawings omitting critical details of the security requirements, and failed to “depict a posture of understanding the complexities of delivering the complex facility conditioning required of ASPR’s mission.” Because its technical approach was found unacceptable, the protester’s price was not evaluated, and GSA did not conduct a best-value tradeoff. Instead, GSA again made the award to the initial awardee. Upon GSA’s re-award of the solicitation to the awardee, the protester filed another timely protest at GAO challenging GSA’s re-evaluation and award decision. Specifically, the protester challenged GSA’s evaluation of its technical proposal, arguing that its initially-submitted and latter technical proposals were not materially different, and “because GSA failed to raise in discussions during the initial evaluation the significant weaknesses that resulted in its proposal being rated as not acceptable in the subsequent evaluation, it did not conduct meaningful discussions.” In response, GSA disputed the assertion that the protester’s latter proposal was “materially unchanged” from its initial proposal. GSA also argued that: it was not required to provide the protester with meaningful discussions because its corrective action evaluation was to be “de novo,” meaning it was to be a new evaluation or an evaluation “from the beginning”; and it had warned offerors via the cover letter to amendment 3 that GSA was not intending to conduct discussions. GAO began its discussion with some long-standing, more general rules regarding agency discussions, rooted in the FAR and GAO precedent, stating: To be meaningful, discussions must lead an offeror into those areas of its proposal that require modification, amplification, or explanation. At a minimum, the agency must discuss all deficiencies, significant weaknesses and adverse past performance information to which the offeror has not had an opportunity to respond. Then, turning to the facts of the instant protest, GAO covered what an agency is required to do in this regard when it requests and re-evaluates revised proposals after a corrective action (or similar agency action), stating: When an agency seeks revised proposals, its reevaluation may identify flaws in a materially-unchanged proposal that the agency would have been required to discuss with the offeror, had the flaws been identified when the proposal was initially evaluated. In that situation, the agency must reopen discussions in order to disclose its concerns, thereby giving all offerors similar opportunities to revise their proposals. GAO elaborated on this requirement, stating: In this context, the requirement to reopen discussions is predicated on the fact that the underlying evaluated concern should have been apparent to the agency when it initially evaluated proposals prior to conducting discussions. For example, we have sustained protests for failing to reopen discussions where the agency’s initial evaluation was inconsistent with evaluation criteria or otherwise inadequate. Then, applying these standards to the case at hand, GAO explained: Here, as discussed above, when GSA evaluated the protester’s [initial] proposal, the agency rated the proposal as good under the technical approach factor and did not assess any significant weaknesses. Then, when the agency evaluated [protester]’s (essentially unchanged) [latter] proposal, [GSA] assessed four significant weaknesses and rated the proposal as not acceptable under the technical approach factor. Despite GSA’s argument that the initial and latter proposals are materially different, it is undisputed that the content giving rise to the significant weaknesses was present in both proposals but overlooked in the prior evaluation. In support of these findings, GAO specifically noted GSA’s failure at the protest hearing to identify any material changes between protester’s initial and latter proposals in regard to several of the specifications. GAO also pointed out GSA’s response to the question of why the issues giving rise to the Not Acceptable rating in the latter proposal were not taken into account in evaluation of the initial proposal–to which GSA responded: “Because we realized that we said that we were going to evaluate it in a specific way, but we weren’t checking for all the details that we should have been.” As such, GAO noted there was no dispute of the fact that the drawings in the protester’s proposal that gave rise to the significant weaknesses were “materially the same in both proposals.” GSA, instead, argued that protester included in its latter proposal an aerial photograph of the site at issue that ultimately resulted in GSA assessing the three significant weaknesses. It was this aerial photo, according to GSA, that made the issues “apparent for the first time.” But GAO was not buying it. GAO explained that GSA had already acknowledged multiple times that the initial proposal drawings showed the same issues and same failures to meet the solicitation’s access/egress requirements. And thus, GAO said that the access/egress-based significant weakness raised by GSA in its reevaluation should have been “apparent without the addition of the aerial photo,” and GAO also said, “the same reasoning applies to the significant weaknesses that pertain to accessibility of the parking lot and the number of routes to the highway system from the site.” GAO then turned to GSA’s second argument–that it was not required to open new discussions after its corrective action “because the corrective action evaluation was a ‘de novo‘ evaluation[.]” In that regard, GAO found “the agency’s attempt to negate its obligation to provide meaningful discussions on this basis unavailing.” GAO further explained: While the agency may have intended to restart the competition entirely anew, this was not conveyed to the offerors. The agency only instructed offerors to submit new proposals and advised that prior proposal submissions would not be reviewed as part of the reevaluation. There was nothing about disregarding the initial round of discussions with [protester], which identified some areas of concern with [protester]’s proposed approach, but not others. As such, because the issues giving rise to the significant weaknesses in the protester’s proposal were apparent in both the initial and latter proposals–but GSA did not advise the protester of the significant weaknesses in its initial proposal–GAO found that GSA’s discussions were not meaningful. And it sustained the protest on that basis, recommending that GSA: reopen the procurement; conduct “appropriate and meaningful discussions” with both offerors; request and evaluate revised proposals; and make a new award decision. * * * Given the amount of discretion GAO typically affords contracting agencies regarding the methods and procedures they choose to utilize in any given evaluation, this GAO decision sets an important boundary on that discretion. Where an agency does decide to conduct discussions with offerors at any time during its evaluation or reevaluation, those discussions must be meaningful–(at a minimum) pointing offerors to any deficiencies, significant weaknesses, or adverse past performance information apparent to the agency at that time. Indeed, even an agency’s corrective action, solicitation of revised proposals, and/or purported “de novo” evaluation of such revised proposals does not relieve agencies of the requirement to make any discussions it conducts meaningful. Questions about this post? Or need help with a government contracting legal issue? Email us. Looking for the latest government contracting legal news? Sign up for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook. The post GAO Sustains Protest to GSA Strategic National Stockpile Acquisition Based on Agency’s Failure to Conduct Meaningful Discussions first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

Happy Friday! We hope you had a great week and can take time to enjoy your weekend. We’ve been receiving a lot of rain here in the Midwest lately. The rain gauge was completely full and topped out at 4 1/2″ in a 12 hour span of time, this past week. Everything outside is looking beautiful and I’m guessing there will be a lot of lawn mowing going on this weekend. We’ve included several articles that hopefully provide some good information concerning federal government contracting this week. Enjoy your weekend! Murky Laws Keep Contractors Wary of Losses in Next Debt Crisis [BlmLaw] President Biden, House Speaker McCarthy Reach Deal on Borrowing Limit [GovConWire] DISA’s plan to solve the facility clearance conundrum for small businesses [FedNewsNet] Biden and McCarthy reach a final deal to avoid US default and now must sell it to Congress [FedNewsNet] Agencies launch initiative to better identify minority-owned contractors [NextGov] GSA, SBA to Boost Contracting Opportunities for 8(a) Firms via Revised Partnership Agreement [GovConWire] What’s in that 99-page debt ceiling deal for contractors? [FedNewsNet] Don’t Miss These 3 Key Cyber Contract Opportunities [GovConWire] Former chief scientist for GTRI pleads guilty to conspiring to defraud Georgia Tech and the CIA [DoJ] GSA and SBA launch initiative to broaden small federal contracting landscape [FedScoop] USDA plots departmentwide cloud move with STRATUS contract [FedScoop] Agencies launch initiative to better identify minority-owned contractors [FCW] The post SmallGovCon Week in Review: May 29- June 2, 2023 first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

For small businesses and their teammates, few topics in government contracting are as confusing as the limitations on subcontracting for set-aside and socioeconomic sole source contracts. And if that isn’t stressful enough, the “LoS” is an area of heavy enforcement: get it wrong, and a contractor can face major penalties. The nonmanufacturer rule is one that is also commonly misunderstood in the federal government contracting realm. But it is also one we encounter quite often in our role assisting federal contractors. In this course, government contracts attorneys, Nicole Pottroff & Stephanie Ellis, from Koprince McCall Pottroff LLC will help you make sense of the limitations on subcontracting and nonmanufacturer rule. Using a step-by-step process and plenty of examples to help bring the rules to life will help you ensure that you understand and comply with these essential rules. Hope you will join us! Registration link here. The post Event: Limitations on Subcontracting and the Nonmanufacturing Rule Webinar hosted by Texas El Paso APEX Accelerators, June 6, 10:00-11:30am MDT first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

A couple of weeks ago, I explored the Court of Federal Claims case of SH Synergy, LLC v. United States. In that blog, linked below, I looked at the first question raised in the protest that centered on the question of whether a mentor with two approved mentor protégé joint ventures with two different protégés under the SBA’s Mentor-Protégé Program is restricted from placing competing offers for a solicitation. The answer to that was yes, they are restricted pursuant to 13 C.F.R. § 125.9. Because this decision was chocked full of useful information, and as promised, I’m back to look at the second issue tackled in this mammoth COFC opinion: did the solicitation’s terms, which required mentor-protégé joint ventures, woman-owned small business joint ventures, and service-disabled veteran owned small business joint ventures to be evaluated in the same manner as offerors, generally, violate procurement regulations? As you will see, the answer to that question is also yes, and it appears that this decision has already had an impact on other procurements. The second part of this opinion looks at 13 C.F.R. § 125.8(e), which states that procuring agencies evaluating joint ventures formed as part of an SBA approved Mentor-Protégé Agreement “must consider work done and qualification held individually by each partner to the joint venture as well as any work done by the joint venture itself previously.” Further, “[a] procuring activity may not require the protégé firm to individually meet the same evaluation or responsibility criteria as that required of other offerors generally.” However, that doesn’t mean that MPJVs are not required to have the past performance, experience, business systems, and certifications necessary to perform the contract. It does mean that the joint venture, in the aggregate, must be able to demonstrate such requirements. In light of the language contained in § 125.8(e), the plaintiffs in SH Synergy claimed that parts of the solicitation violated the regulation in two ways. First, the solicitation required that MPJVs to submit “a minimum of one Primary Relevant Experience Project or Emerging Technology Relevant Experience Project must be from the Protégé or the offering Mentor-Protégé Joint Venture.” But the plaintiffs’ didn’t take issue with the fact that the protégé in an MPJV must submit at least one relevant experience project, whether individually or through the JV itself. Rather, plaintiffs claimed that this requirement put a higher level of scrutiny on MPJVs than it did on offerors generally, because offerors that were not part of an MPJV were permitted to “obtain all Relevant Experience Projects from subcontractors,” even though protégés in an MPJV could not. Second, the solicitation required MPJVs relevant experience projects to be evaluated “using the same evaluation criteria and points scale as projects submitted by offerors generally.” Focusing on the first issue, COFC determined that the agency did not violate SBA regulations by requiring the protégé in an MPJV to submit an individually performed relevant experience project. Nor did it by allowing prime contractors generally to obtain their relevant experience projects from subcontractors. While the plaintiffs acknowledged that the language of § 125.8(e) required agencies to “consider the capabilities and past performance of each member of the [MPJV] as the capabilities and past performance of the joint venture,” they asserted that giving the prime contractors flexibility in choosing the projects they would submit for evaluation, including those from their subcontractors, violated SBA regulations. However, just like there is a regulation applicable to experience requirements for MPJVs, there is also a regulation applicable to experience requirements for small business prime contractors. And that regulation, 13 C.F.R. § 125.2(g) permits small business prime contractors using a team of small business subcontractors to submit the capabilities, past performance, and experience for each first-tier subcontractor that is part of the team. Moving on to the second issue up for discussion today, COFC considered the protesters’ claim that the solicitation violated § 125.8(e) when it applied the same evaluation criteria to assess relevant experience projects of MPJVs as it did to offerors generally. As I mentioned earlier, § 125.8(e) states that, “[a] procuring activity may not require the protégé firm to individually meet the same evaluation or responsibility criteria as that required of other offerors generally.” If you recall the discussion in my first blog post on this decision, GSA planned to “award IDIQ contracts to the highest technically rated qualifying proposals based on how well the proposals score[d] on the Solicitations’ standardized points system,” with the same point system applying to all offers. A key issue identified by the plaintiffs was related to the primary relevant experience projects that each offeror was required to submit. This was an issue for the protégés in a MPJV because all offerors were required to submit primary relevant experience projects with the same contract value: $10M. With an even application, protégés, which are generally in the earlier stages of business growth and are often reliant on their mentor’s assistance—that is the point of the Mentor-Protégé Program, after all—are disadvantaged if they are required to submit the same size project as, say, an other than small business offeror. Therefore, because the solicitation assigned points in the same manner to all offerors, the solicitation violated § 125.8(e). And, in the end, COFC agreed, and required GSA to amend the solicitation to be in compliance with § 125.8(e). You may be thinking, “Sure, this applies to MPJVs, but you also mentioned WOSBs and SDVOSBs. How does this apply to them?” I’m so glad you asked! While COFC did not dedicate any space within the opinion specifically to either of those categories, the plaintiffs had made the same assertions on behalf of WOSBs and SDVOSBs through 13 C.F.R. § 127.506 and 13 C.F.R. § 128.402, respectively, which contain similar language. COFC addresses these regulations in footnotes throughout the opinion, and determines that they, too, cannot be evaluated in the same manner as offerors generally, but stops short of offering any guidance on how MPJVs, WOSBJVs, and SDVOSBJVs must be evaluated in relation to each other. Interestingly, we have already seen an impact from this opinion on other procurements. The Transformation Twenty-One Total Technology Next Generation 2, or T4NG2 as it’s commonly referred to, has had what appear to be two amendments to its solicitation in response to the decision in SH Synergy. On May 11, 2023, the Department of Veterans Affairs amended the solicitation to change the scoring applicable to MPJVs. Then, on May 25, 2023, it issued another amendment that changed the scoring applicable to WOSBJVs and SDVOSBJVs, showing a clear desire by the VA to comply with the SBA regulations. And it is likely that this method of scoring will continue with other IDIQ awards that are evaluated in a similar fashion. I know my interest is piqued to see whether any forthcoming protests will look at the dynamic between evaluations for MPJVs, WOSBJVs, and SDVOSBJVs. Questions about this post? Or need help with a government contracting legal issue? Email us. Looking for the latest government contracting legal news? Sign up for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook. The post COFC Part II: Evaluation of Mentor-Protégé Joint Ventures first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

Happy Friday and we hope you are looking forward to a nice, long weekend. Monday, May 29 is Memorial Day and an official federal holiday, but do you know when and why it was established? If not, here’s a brief history lesson. After the Civil war, in late 1860s, Americans in various towns and cities had begun holding springtime tributes to countless fallen soldiers. In 1966 the federal government declared Waterloo, New York as the official birthplace of Memorial Day because it hosted an annual, community-wide event, during which businesses closed and residents decorated the graves of soldiers with flowers and flags. In 1968, Congress passed the Uniform Monday Holiday Act, which established Memorial Day as the last Monday in May and declared Memorial Day a federal holiday. So, now you have the background story of how this day was established. We hope you all have a wonderful weekend and here are some recent articles, including ones on a pending default, VA contracts, and small disadvantaged businsses. Biden-Harris Administration to Launch New Initiative to Increase Federal Contracting with Small Disadvantaged Businesses [SBA] U.S. Office of Personnel Management Employee Pleads Guilty to Conflict of Interest Violation [DoJ] DOJ IG Horowitz reviews a decade of Bureau of Prisons crisis oversight [FedNewsNet] Veterans Affairs: Observations on IT Contracting Trends and Management Oversight [GAO] OPM employee pleads guilty to steering millions in government contracts to family business [WTOP] US Department of Labor Asks Judge to Force Federal Contractor to Provide Documents, Info Needed for Equal Employment Opportunity Evaluation [DoL] WHAT THEY ARE SAYING: GSA’s Buy Clean Inflation Reduction Act Requirements for Low Carbon Construction Materials [GSA] Infant formula producers probed by FTC over bids for government contracts [FinTimes] A default isn’t a shutdown, but agencies could treat it that way [FeedNewsNet] F-35 Program: DOD Needs Better Accountability for Global Spare Parts and Reporting of Losses Worth Millions [GAO] CIO-SP4 protests move toward final decision [WashTech] A Government Accountability Office representative told House lawmakers that Veterans Affairs’ IT obligations have been “increasingly concentrated with a small group of vendors. [NextGov] How GSA’s Technology Transformation Services is Harnessing Change in Tech Modernization [GovConWire] The post SmallGovCon Week in Review: May 22-26, 2023 first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

GSA has produced a number of successful contract vehicles over the years, one of which was the One Acquisition Solution for Integrated Solution or “OASIS.” This vehicle, used to acquire professional services (not including information technology) for the government, was so successful that GSA is in the process of preparing its sequel, OASIS+. On March 6, 2023, the agency issued its second draft RFP, and the final RFP is expected soon. In light of this, we’re going to go through some of the planned provisions for OASIS+ for small businesses, with special attention to the provisions on teaming arrangements and joint ventures. First, a caveat: All of the below is from the second RFP draft. The final draft may contain different provisions, so be sure to review it when it is released. This is just a preview. The Competition Now, GSA plans to split OASIS+ in two: One part is an unrestricted competition open to all federal contractors, and one for small businesses, the latter of which (OASIS+ SB), we will focus on here. It appears there will not be a separate competition for say 8(a)s and WOSBs for awards of OASIS SB+ main contracts. You will be competing with all other small businesses that bid for OASIS+ SB. But, awardees will be given contracts based on their socio-economic categories and can expect task orders that will be set aside for those categories. Credits Bids will be reviewed and awarded credits if they meet various criteria. The draft notes: “The qualifying threshold for all small business and socioeconomic set-asides (e.g. small business, 8(a), HUBZone, WOSB, SDVOSB) has been set at 36 out of the available 50 credits.” What sort of things will earn a bidder credits? Here are the areas that can earn a bidder credits: Qualifying Project Experience (Work similar to the work that will be awarded under OASIS+) Federal Prime Contractor Experience (General experience with federal contracting as a prime) Systems, Rates, and Clearances (Accounting systems, government facility clearance) Certifications (ISO, CMMI) Past Performance The draft breaks these down further, so check it out for more details. Teaming Arrangements As expected, OASIS+ SB permits the usage of teaming arrangements, either in the form of creating a partnership/joint venture with another entity or by agreeing to use another company as a subcontractor. We will discuss the joint ventures below, but we first wanted to note an important caveat on teaming with subcontractors. At Section L.5.1.3.2, on page 146, it states: “An Offeror may agree with one (1) or more other small businesses to have them act as its first-tier subcontractors under a potential OASIS+ award.” This appears to suggest that larger subcontractors cannot be used in this sort of teaming arrangement. Further down, the language appears to confirm that: “If one or all members of the teaming agreement exceed all size standards within a particular Domain, the Offeror(s) may still submit a proposal under the Unrestricted OASIS+ solicitation separately to be considered for award as an “Other than Small Business” as long as they technically qualify under the specific evaluation criteria for that solicitation.” This language is curious. It appears that, for OASIS+ SB, offerors cannot use large businesses as subcontractors, or at least they can’t use such subcontractors in their proposal. We think that GSA’s aim here is to prevent offerors from using large business subcontractor experience in their proposals, but the language seems to create some uncertainty as to whether offerors can team with large subcontractors at all under OASIS+ SB, even if the offeror doesn’t try to use the large subcontractor’s experience in its proposal. In any event, it appears per this draft language that large subcontractors are prohibited. It remains to be seen if this language as written, will be kept in the final RFP, but if it is, we think it is something worth asking for clarification on if offerors are unclear about it. This language is a bit unexpected in its scope. We think it is very limiting on offerors in its effects, and we are curious to see if GSA might modify it or provide some clarification. We recommend that, if you plan on bidding and are unsure about the language, that you ask about it in any question sessions for the RFP. Joint Ventures As for joint ventures, we want to start with an important reminder: Populated joint ventures between similarly situated entities are going to eligible for small-business set asides as of May 30, 2023! Assuming OASIS+ SB is released after that date, this will be an option. There are some other interesting considerations here. Bidders apparently can use the experience of (small) subcontractors to the joint venture for Qualifying Project Experience and Federal Prime Contractor Experience as well as Past Performance. Another thing worth noting is that for “Systems, Rates, and Clearances” and “Certifications,” offerors submitting as a joint venture can have the claimed system, certification, or clearance in the name of the joint venture itself or in the name of a member of the joint venture. Note, however, that a subcontractor of the joint venture having one of these systems, certifications, or clearances will not be accepted. One other thing to note is that the language appears to permit mentor-protégé joint ventures, but it also states that if any members exceed all size standards under a particular task area (what they call a “Domain”) that the joint venture must instead submit its proposal under the unrestricted OASIS+ solicitation as the joint venture will be considered an “Other than Small Business.” This language contradicts the affiliation exception for mentor-protégé joint ventures, and we are curious if this language will receive some clarification. Summary There are a few interesting provisions in the most recent draft of the RFP for OASIS+ SB. The unclear provisions on large subcontractors raise some interesting questions, and the provisions do grant some fair flexibility for joint venturers. Of course, this is just the second draft. Once the final version is released, no doubt we’ll see some differences, so be sure to keep your eye out. Questions about this post? Or need help with a government contracting legal issue? Email us. Looking for the latest government contracting legal news? Sign up for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook. The post OASIS+ Small Business: A Preview first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

As readers of SmallGovCon know, SBA interprets its small business joint venture rules vary strictly. A small business joint venture must follow all of SBA’s requirements down to the letter, or risk being found noncompliant. In a recent case, SBA’s Office of Hearings and Appeals (OHA) examined how a joint venture was managed under the state law of Michigan and found that the joint venture was noncompliant with small business rules. In Size Appeal of: Syscom, Inc., SBA No. SIZ-6195, 2023 (2023), SBA’s Office of Hearings and Appeals (OHA) considered a size protest arising from an Air Force procurement for Integrated Solid Waste Management set aside for 8(a) Participants under a size standard of $41.5 million. SNI United, LLC (SNI) was the apparent awardee, and SysCom, Inc. (SysCom or Appellant) challenged SNI’s size. SNI was a joint venture (JV) composed of an 8(a) participant, 1-855-US-TRASH, LLC (US Trash), and a small business, Six Nations, Inc. (Six Nations). SysCom alleged that the joint venture was noncompliant because, among other reasons, US Trash didn’t control day-to-day management and managers from Six Nations controlled the JV. An initial size determination said that SNI was a small business, but after an appeal OHA sent it back to the Area Office to take another look, stating that “although SNI represented to the Area Office that it is a joint venture between two business concerns, majority-owned and controlled by US Trash, its Managing Venturer, these assertions appear inconsistent with Michigan state law as well as with other evidence in the record, much of which SNI itself submitted to the Area Office.” Interestingly, the Area Office said, on remand, that it “cannot decide the enforceability or scope of this provision or the other peculiarities of [SNI’s] organization and their effect on its control. Any inquiry into ‘whether SNI’s business and ownership structures meet SBA joint venture requirements’ is premature . . . .” The Area Office also noted it has no “expertise in interpreting or applying Michigan state law”, nor does it have “the luxury of time nor other assistance and resources to undertake such an effort”. The Michigan statue in question states: Unless the articles of organization state that the business of the limited liability company is to be managed by 1 or more managers, the business of the limited liability company shall be managed by the members, subject to any provision in an operating agreement restricting or enlarging the management rights and duties of any member or group of members. If management is vested in the members, both of the following apply: (a) The members are considered managers for purposes of applying this act, including section 406 regarding the agency authority of managers, unless the context clearly requires otherwise. (b) The members have, and are subject to, all duties and liabilities of managers and to all limitations on liability and indemnification rights of managers. Mich. Comp. Laws § 450.4401. On appeal, OHA reiterated that an 8(a) joint venture must designate an 8(a) participant as its “managing venturer”, responsible for “controlling the day-to-day management and administration of the contractual performance of the joint venture”. 13 C.F.R. § 124.513(c)(2). But OHA noted a particularity of Michigan law that caused a problem for the joint venture. Michigan law stipulates that, unless a particular Manager or Managing Member is identified in an LLC’s operating agreement or articles of organization, all members are deemed to be managers of the LLC. SNI informed the Area Office that it does not have an operating agreement, and according to SNI’s Articles of Organization, US Trash is not designated as the Manager or Managing Member of SNI. Given this record, then, the Area Office properly found a “clear contradiction” between SNI’s JVA and Michigan law, and correctly concluded that Michigan law must take precedence. It follows that US Trash is not the Managing Venturer of SNI, in contravention of 13 C.F.R. § 124.513(c)(2). But there was also a problem with the JV’s Board of Directors, consisting of only two people, one from each joint venture member. Under this setup, “Ms. McMahan (one of SNI’s two Directors) can exert negative control over SNI by, for example, declining to attend Board meetings, thereby blocking a quorum. . . .” SNI argued that that “Ms. McMahan’s control over SNI is illusory, because Mr. Hamad, as SNI’s majority shareholder, may unilaterally remove her from the Board.” But the bylaws stated: “no Director shall be removed if the number of votes recorded against his removal would be sufficient, if cumulatively voted at an election of the entire Board of Directors to elect one or more Directors.” Under this language, “it does not appear that Mr. Hamad, with only 51% ownership, has a sufficiently large ownership interest in SNI to unilaterally remove Ms. McMahan from SNI’s Board.” This decision makes it clear that having a written joint venture agreement and operating agreement is a must. And that written document must clearly set forth who is the managing venturer and manager of the joint venture and possibly designate the managing member as well. While this decision focused on Michigan law, other states may have similar rules. As we’ve said before, be careful setting up your joint venture. Questions about this post? Or need help with a government contracting legal issue? Email us. Looking for the latest government contracting legal news? Sign up for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook. The post OHA: Ill-Defined Joint Venture Agreement and State Law Requirements Means JV was Invalid first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

It’s Friday, once again, and time for another week in review. We hope you had a great week. This week in federal government contracting news there were several articles on the VA electronic health records contract, the debt talks, as well as plenty of examples of why one should never try to pull one over on the federal government without facing the consequences. Enjoy your weekend! Industrial funding fee pain relievers [FedNewsNet] Former U.S. Army Employee Arrested In Bribery And Kickbacks Scheme Involving Defense Contracts [DoJ] Requested policy change at OMB [Congress] VA renews EHR contract, sets higher penalties for performance metrics missed by vendor [FedNewsNet] What would happen to contractors in case of a debt default? [FedNewsNet] Fake solicitation highlights growing attacks against federal officials [FedNewsNet] VA puts Oracle Cerner on a short leash in $10B health records contract [FCW] VA seeks cyber operations help [FCW] VA and Oracle Cerner reach agreement on electronic health record contract extension [FedScoop] CISA issues draft attestation form for government software providers [FedScoop] How contractors can prepare for a very big year in contracting [FedNewsNet] U.S. Resolves Civil Claims Against Medical Device Manufacturer for Falsely Claiming that Chinese Components Sold to the Federal Government Were American Made [DoJ] Rochester Man Pleads Guilty To Wire Fraud For Falsifying Documents Submitted To The Army [DoJ] US Department of Labor, Permaswage Reach Agreement to Resolve Gender Pay Discrimination, Disability Discrimination at Gardena, California, Facility [DoL] The post SmallGovCon Week in Review: May 15-19, 2023 first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

Those who work within the federal government contracting world are likely to have noticed that, lately, many large indefinite delivery, indefinite quantity (IDIQ) contracting vehicles are soliciting offers. However, with large contracting vehicles, which are often worth billions of dollars and promise many awards, there are often many protests. And Polaris, Transformation Twenty-One Total Technology Next Generation 2 (T4NG2), and Chief Information Officer – Solutions and Partners 4 (CIO-SP4), to name just a few of such solicitations, are no exception. Although many bid protests are filed with the Government Accountability Office (GAO), the Court of Federal Claims (COFC) also has jurisdiction over such matters, and COFC decisions are usually more indepth and the review of information from the agency more robust than at GAO.. This post will discuss the first of three main issues SH Synergy, LLC v. United States, and, because there is so much useful information packed into the decision’s 75 pages, we’ll plan a separate post for other issues. First, a very general description of the process offerors must endure while responding to these large IDIQ solicitations. Throughout the proposal drafting process, potential offerors plan and strategize to organize teams and submit proposals that they believe will be among the best of the best, and, therefore, have the highest likelihood of landing a coveted award—and even then, it does not guarantee award of any actual work. It merely awards the offeror the opportunity to submit a proposal for a task order under the IDIQ. Offerors join together in strategic teams intended to best target the solicitation’s requirements, whether through formal joint ventures or less formal teaming arrangements. In addition to the sheer magnitude of time dedicated to preparing a solid team and proposal, offerors also spend tens of thousands of dollars, or even hundreds of thousands, throughout this initial proposal process. Taking the foregoing into account, it is easy to see why so many protests occur. Now, on to the real reason you all are here. SH Synergy, LLC v. United States, No. 22-CV-1466 (Fed. Cl. Apr. 21, 2023) is a COFC decision that takes a look at, among other things, small business joint ventures’ participation in the Polaris solicitation. Small business joint ventures include either the option of joint ventures created by parties in a formal Mentor-Protégé Agreement (MPA) per 13 C.F.R. § 125.9, or small business joint ventures created between multiple small businesses. While all types of small business set-asides allow for small business joint ventures, general small business joint ventures, which can include any type of socioeconomic category per 13 C.F.R. § 125.8(a), are the most applicable in this situation. If you are interested, you can find the requirements of joint ventures for the other socioeconomic categories here, here, and here. From a mile high view, the SBA’s Mentor-Protégé Program permits, small business protégés to work with their (most often) other than small business mentor, with reduced risk of affiliation. Notably, a mentor may have more than one protégé, up to three to be exact, but SBA regulations require that a mentor with multiple protégés abide by a couple of additional rules. First, the protégés may not be competitors of each other, and the mentor must demonstrate that the additional mentor-protégé relationship will not adversely affect the development of either protégé. Second, a mentor with more than one protégé may not submit competing offers through separate joint ventures, each with one protégé. And therein lies the first issue: SH Synergy and VHC Partners, both plaintiffs protesting the solicitation, shared the same mentor, and because of this fact, neither of the joint ventures were permitted to bid on the small business pool. The court first noted that 13 C.F.R. § 125.9’s plain language was clear: “[a] mentor that has more than one protégé cannot submit competing offers in response to a solicitation for a specific procurement through separate joint ventures with different protégés.” Additional language within § 125.9 and the Federal Register further supported SBA’s intent to have § 125.9 apply both before and after admission to the Mentor-Protégé Program. Therefore, any restrictions within § 125.9 applied to both joint ventures, including the restriction that prohibits different joint ventures that share the same mentor from submitting competing bids. Once COFC determined that § 125.9 applied to mentor-protégé relationships after admission to the program, it turned its focus to the protesters’ next argument; that submitting offers at the IDIQ level, instead of at the task order level, does not include competing offers, as that term is used in § 125.9. Unfortunately for the protesters, their reasoning here fell short as well. This was because language within the solicitation stated that “GSA will evaluate, verify, and rank the proposals against one another to ensure only the highest-rated, technically qualified offerors receive award.” Even though the first phase of evaluations only involved the self-scoring to determine whether offerors can meet the needs of GSA, the eventual ranking and verification process “inherently compares the relative strength of each proposal against proposals submitted by competing offerors.” Essentially, because offerors would eventually be ranked against each other, the protesters would violate § 125.9 if both submitted proposals to the small business category. Note, however, that because one of the protesters was a woman-owned small business, and the other was a service-disabled veteran owned small business, they were permitted to submit a proposal to the WOSB or SDVOSB pool, as applicable, because each pool was compared only with those offerors in the same pool, and not all offerors generally. And with that, came the end of the protesters’ first claim, in which we learned that: SBA’s rules governing its Mentor-Protégé Program, and any joint ventures created in association with it, apply both before and after admission to the program; and Competition between joint ventures does not need to occur in the very first round of evaluations for offers to be considered “competitive bids,” eventual competition at any phase of evaluation is enough to restrict mentor-protégé joint ventures that share a mentor from submitting an offer in the same pool. This is an important decision showing that agencies will enforce the restriction on a mentor’s protegés from competing against each other, and good on the agency for doing so. Questions about this post? Or need help with a government contracting legal issue? Email us. Looking for the latest government contracting legal news? Sign up for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook. The post COFC Confirms: Mentor-Protege JVs from the Same Mentor Can’t Bid Against Each Other first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

Most contractors, when starting their journey into the world of federal contracting eventually run into the same question: What size is my business? In the world of federal contracting, the size of your business can determine whether you can bid on certain procurements, participate in certain programs, and more. Miscalculating or misrepresenting your business size could open you up to size protests, and other severe repercussions. So, knowing the accurate size of your business could be critical to the success or failure of your federal contacting business. But don’t fear, in this edition of our Back to Basics series, we will discuss some of the basics around calculating the size of your business and why it all matters. What does “size” mean for federal contracting? As Julie Andrews so astutely sang in Sound of Music, “Let’s start at the very beginning, a very good place to start.” When talking about calculating size, the first thing to ask is, what does size even mean? While this may seem like a fairly simple question, it can have varying answers based on who you are asking, and why you are asking it. Often businesses will informally gauge their business “size” by looking at other businesses in their industry and comparing themselves. This will lead to the inevitable thought of, “I guess I am pretty small compared to that company” or “wow I’ve got a lot of employees and revenue compared to that business that does what I do in this town, so I guess I am a large business.” While that may make for good shop talk at your next industry convention or at your local coffee shop, when it comes to federal contracting, the Small Business Administration (SBA) demands something much more concrete. In the realm of federal contracting, when an agency or other business discusses the “size” of a certain business, what they are truly meaning is, are you smaller, or bigger than the size standard establishes for the applicable NAICS code? Size for federal contracting is categorized by NAICS code, either specified in the solicitation you would like to bid on, or that you chose to represent your business’s primary industry. Specifically, the SBA expects a business claiming to be small to “not exceed the size standard for the NAICS code specified in the solicitation.” That is what size roughly means when you are dealing with federal contracting. What is a NAICS code? Given the last answer, some contractors’ next question may be, “what is a NAICS code?” (side-note, when saying NAICS, remember that it is pronounced “naykes” like the word “cakes”, although if you pronounce it differently, that is allowed). NAICS code is short for North American Industry Classification Code System, and each NAICS code is a six digit number that directly correlates to a defined industry, and size standard. Contractors must select a primary NAICS code to represent what their company does when registering their business on SAM.gov and participate in different federal contracting programs. (A list of the NAICS Codes, as well as the industries and sizes assigned to them is published by the SBA here). For example, if I decided that I was finally bored of watching my extensive movie collection, and I wanted to start a business making movies for the Government, I would likely choose for my business, NAICS code 512110, whose assigned industry is “Motion Picture and Video Production”, which has assigned to it currently a $40,000,000 size standard (don’t worry we will get to what that all means below). Of course, businesses can be multi-faceted, so I could have my primary NAICS be 512110, but then also do other work in other related NAICS codes, making those my “secondary NAICS codes.” In addition to this, each solicitation will have a single NAICS code assigned to it by the procuring agency “which best describes the principal purpose of the product or service being acquired.” Going back to my example, if the Government wanted some private contractors to produce films for the Government, they would probably issue a solicitation with the earlier discussed NAICS Code 512110 assigned to it, thus putting offerors on alert to what size standard may apply as well as what that the agency believes best describes the work they will be looking for. While a contractor’s self-assigned NAICS code can determine what size a contractor needs to be to classify itself as a small business for contracting programs (such as SDVOSB, 8(a) etc.), the NAICS code that is assigned to a procurement determines if a contractor is small enough for that specific procurement. (Important side note, there are ways to appeal or contest NAICS codes that are assigned to solicitations, which we don’t have time to go into here, but if you are interested in that, I encourage you to check out our post about NAICS code appeals here.) How to determine the size of your business With the definition of size and what dictates the size standard out of the way, we can finally get to the big question at hand, how do you determine the size of your business for federal contracting? As hinted to above, it all relies on the NAICS code. If you are a contractor and want to apply to participate in a small business program, such as the 8(a) Program, one of the multitude of requirements for that program is to simply be a small business. This is a situation in which you would look at your primary NAICS code to see what the assigned size for that NAICS code currently is (the sizes are regularly updated for inflation etc.). You then conduct the necessary size calculation (discussed below), and if your final calculation is smaller than the assigned size for that NAICS code, then you are “small”. If not, then you are “other than small” (SBA doesn’t use the words “large business”). So, for my earlier examples, my pretend filmmaking business would need to be smaller than $40,000,000. For a solicitation, a contractor would look at the procurement documentation itself to see what NAICS code the agency assigned the solicitation, then do the needed calculation to determine if they would qualify as a “small business” for that procurement. So, shifting gears from the movies, to music, let’s say an agency wanted a contractor to produce a recording of a concert it was organizing. Presumably that agency would utilize NAICS Code 512250, Record Production and Distribution, which carries a size standard of 900 employees. If I had also started a record production line of business at my hypothetical movie business, due to my love of music (this would be an example of a secondary NAICS code), and wanted to bid as a small business on this procurement, I would need to have my size calculations result in fewer than 900 employees. While reading this, I am sure you had a couple things pop into your mind: 1) How do I “calculate” the size, like you keep referring to?; and 2) there are size standards based on revenue AND employees? Don’t worry, that’s exactly what we will cover next. How do you calculate size under an employee size standard? As alluded to, there are two types of size standards, a receipts-based size standard, and an employee-based size standard. The regulations and table of size standards will list these out for each NAICS code, so when faced with a size question, you can reference those to see exactly which standard and size applies to the NAICS code at issue. First, we will look at how to compute size under an employee-based size standard. Continuing with my examples from above, let’s pretend that there is a contract assigned NAICS Code 512250, Record Production and Distribution, which carries a size standard of 900 employees. SBA states that when determining your business’ size for an employee size standard, you calculate the average number of employees based upon the “numbers of employees for each of the pay periods for the preceding completed 24 calendar months.” This includes employees of any domestic and foreign affiliates. Additionally, part-time employees are counted the same as full-time employees. Using our example, for simplicity’s sake, we will assume I have been in business for over 24 months, so I would gather information on how many employees (including part time employees) I had for each pay period, add them all up, then divide by the number of pay periods I had during those 24 months. If the result of that calculation is below 900, then I am “small” for that solicitation. If your business has not been in operation for 24 months, you use the average number of employees for each of the pay periods that you have been in business. Also if you have any affiliates, then the SBA has specifics on how to properly calculate your “average” employees. In general, you would add the average number of employees of your business with the average number of employees for each affiliate, but there are additional wrinkles for when they became affiliates, or if they are former affiliates. How do you calculate size under a receipts-based standard? The other size standard is based on receipts (or for lack of a better word, money), not number of employees. Utilizing our earlier examples, lets propose that the government wanted to have someone produce a movie about the World War I museum in nearby Kansas City, Missouri, and issued a solicitation under NAICS code 512110. As discussed, that NAICS Code carries with it a $40,000,000 size standard. If my hypothetical film business wanted to bid on that solicitation as a small business, our receipts based size calculation would need to be below $40,000,000. To make this calculation, first you need to figure out what “receipts” are. SBA states that to calculate receipts based size standards, you first need to determine what constitutes “receipts”. SBA explains that receipts include “all revenue in whatever form received or accrued from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.” This is basically the “total income” (or for a sole proprietorship “gross income”), plus “cost of goods sold” as shown on a business’ tax forms. This may seem like quite a big amount of revenue to include, as you may be accustomed to multiple types of write offs, deductions etc. on your taxes, but SBA does not allow such reductions. For determining size, SBA has a narrow list of what can be excluded from the “receipts” and those are the only items that may be excluded. SBA makes it quite clear that “[a]ll other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer’s request, investment income, and employee-based costs such as payroll taxes, may not be excluded from receipts.” Now that we have defined what “receipts” are, the calculation itself can be examined. To determine size based on a receipts size standard, a business will take its annual receipts for the past five completed fiscal years (which as you recall is total income plus costs of goods sold) and divide it by five. If you have fully completed five fiscal years, then that’s as simple as it gets. Looking at my example, let’s say my fictitious film company has been going for at least five years, and for the past five years has the following financial info: Year 1: Total Income of $3,000,000, and costs of goods sold of $250,000. This makes Year 1 receipts: $3,250,000 (i.e., Total Income + Costs of Goods Sold). Year 2: Total Income of $5,000,000, and costs of goods sold of $350,000. This makes Year 2 receipts: $5,350,000 Year 3: Total Income of $15,000,000, and costs of goods sold of $500,000. This makes Year 3 receipts: $15,500,000. Year 4: Total Income of $13,000,000 and costs of goods sold of $400,000. This makes Year 4 receipts: $13,400,000. Year 5: Total Income of $20,000,000 and costs of goods sold of $650,000. This makes Year 5 receipts: $20,650,000. To find my size, I would do the following equation: ($3,250,000 + $5,350,000 + $15,500,000 + $13,400,000 + $20,650,000) / 5 = SIZE This would result in my hypothetical size being $11,630,000, well below the size standard of $40,000,000, making my hypothetical film studio “small” for that specific procurement. However, life and business is rarely simple, so SBA does provide directions on if your business has not been in business for five years, or possibly had a short year in its five years. If a business has been in business for less than five years, the business simply takes the total receipts for the period the business has been operating divided by the number of weeks it has been in business, multiplied by 52. If a business has one short year within its five completed fiscal years, to determine its size, it will take its total receipts for that short year, and the four other full fiscal years, divide them by the total number of weeks in the short year and four full years, then multiply that number by 52. Why does this matter? Being able to accurately calculate size has far reaching implications across the federal contracting landscape. First, when you register on SAM.gov you must represent whether you are small or not, and what your primary NAICS code is. This is basically your name tag that will be used for all your federal contracting interactions, meaning it needs to be accurate to avoid any sort of false representations or certifications. Agencies may rely on the information on SAM to determine your size and eligibility, so keeping that information, including size, accurate and up to date is crucial. Also, your ability to participate in certain small business contracting programs may be prohibited if you are not small, or you could face ramifications for falsely stating you are “small”. For example, in addition to meeting the other requirements of the 8(a) Program, you must also be a small business in your primary NAICS code. You could perfectly meet every other aspect of eligibility for the 8(a) Program, but if your business is not small, you simply cannot be admitted into the program, or if your size subsequently changes, it will put your participation in that program at risk. This goes for other small business contracting programs as well, such as the SDVOSB program. A small business will commonly need to meet a certain size to bid on and be awarded contracts. In my examples, we discuss how the NAICS assigned to the solicitation will determine if I am “small” for those hypothetical contracts or not. If those contracts were specifically set-aside for “small business” under those NAICS codes, then ONLY businesses that are small under that assigned NAICS code could bid on and be awarded that contract. If you happen not to be small, competitors may file size protests against you, putting your award at risk (there could be false representation concerns too). Also, important to note is the risk of affiliation. We discuss this in another Back to Basics that you definitely should read, but in short, if you are found as an affiliate of another business under SBA’s rules you combine both business’ sizes which could make your business and the affiliate too large for certain procurements or small business program participation. What starts as a simple question of “is your business small” can actually mean so much more in federal contracting, sending you down a rabbit hole of employee pay periods, and receipts calculations. That’s why it is so important to arm yourself with as much knowledge as possible regarding size and how it is calculated. While this Back to Basics does exactly what it says, and provides some basics for contractors to understand, the world of size calculations, determinations, representations, and protests can be quite nuanced and fact specific. So, be sure to take your time to read the regulations and size standards, and reach out to a qualified federal contracts attorney when there is any doubt, as these complicated issues can truly mean the life or death of a contract award. Questions about this post? Or need government contracting legal assistance? Email us. Looking for the latest government contracting legal news? Sign up for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook. The post Back to Basics: Calculating Small Business Size first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

If you are an avid SmallGovCon reader and a small business government contractor, you are probably no stranger to at least the basics of SBA’s size standards and its size and affiliation regulations (if not, check out some of our other blogs on the subject and keep an eye out for our upcoming new, second edition of the “SBA Small Business Size and Affiliation Rules” handbook). But either way, did you know, if you are pursuing or participating in one of SBA’s other small business socioeconomic programs (8(a) Program, HUBZone, WOSB, SDVOSB, etc.), there may be additional requirements you must meet regarding your company’s size in order to be eligible for such small business socioeconomic statuses? I am not going to go too far into the general size standards set by the SBA (and if that is a huge bummer to you, again, no worries–our new, updated handbook on the “SBA Small Business Size and Affiliation Rules” is coming very soon!). But in a very condensed nutshell, each contract set aside by the federal government has an assigned North American Industry Classification System (NAICS) code–and each NAICS code carries a specific size standard with it. To bid on one of those set-aside contracts as a small business (whether you are also 8(a), HUBZone, WOSB, SDVOSB, etc., and whether the contract is also set aside for one of those socioeconomic statuses or not), you have to be considered small under that contract’s NAICS code–using SBA’s rules for calculating your size (found in part 121 of SBA’s regulations). Some size standards are based on annual receipts and some are based on your number of employees–but regardless, you will need to meet the standard set by the specific contract you are bidding, period. The rules I am about to discuss are rules SBA set in addition to the general size rules–so keep that in mind. 8(a) Program The 8(a) Program, naturally, has some of the strictest rules for qualifying as a small business 8(a) Program participant. I say “naturally” because the 8(a) Program also carries with it some of the most sought after benefits of all of SBA’s programs. Amongst the plethora of other eligibility requirements, the 8(a) Program also lays out detailed rules on maintaining your small business size status. The 8(a) Program’s basic eligibility rule says: a concern meets the basic requirements for admission to the 8(a) BD program if it is a small business which is unconditionally owned and controlled by one or more socially and economically disadvantaged individuals who are of good character and citizens of and residing in the United States, and which demonstrates potential for success. You might be thinking at this point, great! I am totally a small business under some of the NAICS codes out there, so I am good right? Well, spoiler alert, that is simply not good enough for SBA’s golden child of socioeconomic statuses. In order to get into the 8(a) Program, you also need to “pick” a primary NAICS code for your company–and be (and remain) small under that size standard too (note: pick is in quotations, as it is not a simple selection process; you must be able to show SBA that is the accurate NAICS code for most of the work you do). The 8(a) Program size rules say: What size business is eligible to participate in the 8(a) BD program? (a)(1) An applicant concern must qualify as a small business concern as defined in part 121 of this title. The applicable size standard is the one for its primary industry classification . . . (2) In order to remain eligible to participate in the 8(a) BD program after certification, a firm must generally remain small for its primary industry classification, as adjusted during the program. SBA may graduate a Participant prior to the expiration of its program term where the firm exceeds the size standard corresponding to its primary NAICS code, as adjusted, for three successive program years, unless the firm demonstrates that through its growth and development its primary industry is changing, pursuant to the criteria described in 13 CFR 121.107, to a related secondary NAICS code that is contained in its most recently approved business plan. The firm’s business plan must contain specific targets, objectives, and goals for its continued growth and development under its new primary industry. So, you not only need to be considered small under the NAICS code of any small business or 8(a) Program set-aside contract you wish to bid–but you also cannot exceed the size standard of your primary NAICS code for three years in a row, or you will get the boot. SBA calls this “early graduation” from the 8(a) Program so you don’t feel quite so bad–but it does mean you are out of the 8(a) Program for good. And if you are sitting there thinking to yourself, “so, I will just pick a higher size standard for my primary NAICS code!” That is easier said than done. To do that, you would need to demonstrate to SBA (through financial documents, taxes, contracts, etc.) that your company did in fact migrate to performing the majority of its work under a different NAICS code. In that regard, the 8(a) Program Definitions say: A Participant may change its primary industry classification where it can demonstrate to SBA by clear evidence that the majority of its total revenues during a three-year period have evolved from one NAICS code to another. So, to be a small business 8(a) Program participant, you will need to meet these size rules. And to be a small business 8(a) Program participant that can actually bid on a contract–you will need to meet SBA’s size standard for that contract as well. I will quickly note, there are some affiliation exceptions for Tribal-Owned, ANC, and NHO entities–so keep that in mind if you qualify as one of those and are calculating your size. SDVOSB/VOSB Program For the SBA’s SDVOSB and VOSB Program, there are also some additional rules for maintaining a certain size. But they are not quite as strict as the 8(a) Program. SBA’s SDVOSB/VOSB Eligibility rules state: What are the requirements a concern must meet to qualify as a VOSB or SDVOSB? (a) Qualification as a VOSB. To qualify as a VOSB, a business entity must be: (1) A small business concern as defined in part 121 of this chapter under the size standard corresponding to any NAICS code listed in its SAM profile; (2) Not less than 51 percent owned and controlled by one or more veterans. (b) Qualification as an SDVOSB. To qualify as an SDVOSB, a business entity must be: (1) A small business concern as defined in part 121 of this chapter under the size standard corresponding to any NAICS code listed in its SAM profile; (2) Not less than 51 percent owned and controlled by one or more service-disabled veterans or, in the case of a veteran with a disability that is rated by the Secretary of Veterans Affairs as a permanent and total disability who are unable to manage the daily business operations of such concern, the spouse or permanent caregiver of such veteran. Additionally, in the SDVOSB/VOSB Definitions, it says the following: “Small business concern (SBC)” means, a concern that, with its affiliates, meets the size standard corresponding to any North American Industry Classification System (NAICS) code listed in its SAM profile, pursuant to part 121 of this chapter. At the time of contract offer, a VOSB or SDVOSB must be small within the size standard corresponding to the NAICS code assigned to the contract. Thus, unlike the 8(a) Program rules, which focus solely on your size under your primary NAICS code (as demonstrated by your work history), the SDVOSB/VOSB rules allow you to consider yourself a small business for purposes of inclusion in SBA’s SDVOSB/VOSB Program as long as you are small under at least one of the NAICS codes you have listed in SAM. But don’t forget, that does not automatically qualify you for small business, SDVOSB, or VOSB set-asides–you still need to be small under the NAICS code for the set-aside contract you want to bid. WOSB/EDWOSB Program SBA’s WOSB Program and EDWOSB Program also sets some additional size requirements for its participants–but again, not quite as intensely as the 8(a) Program has. In fact, there is a (frankly, quite inexplicable) nuance in these regulations, as the size rules for the WOSB Program participation and EDWOSB Program participation are not the same. Though, generally, these two sets of rules parrot one another (except for the economic disadvantage requirements of the EDWOSB Program)–the size rules do not. SBA’s WOSB/EDWOSB rules state: What are the requirements a concern must meet to qualify as an EDWOSB or WOSB? (a) Qualification as an EDWOSB. To qualify as an EDWOSB, a concern must be: (1) A small business as defined in part 121 of this chapter for its primary industry classification; and (2) Not less than 51 percent unconditionally and directly owned and controlled by one or more women who are United States citizens and are economically disadvantaged. (b) Qualification as a WOSB. To qualify as a WOSB, a concern must be: (1) A small business as defined in part 121 of this chapter; and (2) Not less than 51 percent unconditionally and directly owned and So, curiously, one could participate in the WOSB Program at any size they want–though, again, they could not bid any small business work or WOSB work if they did not qualify as small for that work’s NAICS code. But to participate in the EDWOSB Program, you must maintain your small business size status under your primary NAICS code to remain in the program (and again, must also be small for any set-aside work you bid). Apparently, this nuance may be the result of some Congressional tinkering and corresponding SBA rule changes–but as of now, we don’t see any changes on the horizon. HUBZone Program And last, but certainly not least, is SBA’s HUBZone Program. For the HUBZone Program, SBA’s size rules state: (1) An applicant concern, together with its affiliates, must qualify as a small business concern under the size standard corresponding to its primary industry classification as defined in part 121 of this chapter. (2) In order to remain eligible as a certified HUBZone small business concern, a concern must qualify as small under the size standard corresponding to one or more NAICS codes in which it does business. So, for the HUBZone Program (somewhat similar to, but still not quite as strict as the 8(a) Program size rules), there are sort of two rules. One for getting into the program; and one for staying in the program. To get into the HUBZone program, a company must be small under its primary NAICS code. But once you are in, you can stay in by demonstrating that you remain small under at least one NAICS code in which your company does work. I will also note, there is an exception to these rules for “small agricultural cooperatives” HUBZone’s, which says: “in determining size, the small agricultural cooperative is treated as a ‘business concern’ and its member shareholders are not considered affiliated with the cooperative by virtue of their membership in the cooperative.” * * * Whelp, in a nutshell, those are SBA’s rules for participating in its socioeconomic programs for small businesses. These rules–and oh so many more–will be covered in great detail in the upcoming “SBA Small Business Size and Affiliation Rules” handbook, second edition, so keep your eye out for that one! Questions about this post? Email us. Need legal assistance? call at 785-200-8919. Looking for the latest government contracting legal news? Sign up for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook. The post Size Standards Applicable to SBA’s Socioeconomic Programs first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

Happy Friday, Readers! The second week of May brought with it some rainy weather in the midwest. It’s difficult to stay ahead of getting the grass mowed when the grass is growing so quickly. Everything looks very lush and green here and the spring flowers are very colorful, as well. Only a few more weeks until school is out! Parents, are you ready? We’ve included some interesting articles, from federal government contracting news this week, for you to read as you sit back and relax this weekend. There was multiple stories about efforts to increase a diverse small business supplier base, as well as news on some large multiple award contracts. Enjoy! Texas Man Who Lied About Origin of Chinese-Made Products Sentenced to 4 Years In Prison, Ordered to Pay $1.15 Million [DoJ] Biden-Harris Administration provides new tools to help federal agencies find diverse suppliers, advance equity in procurement [GSA] SBA seeks to grow shrinking pool of small businesses getting federal contracts [FedNewsNet] CIO-SP3 procurement extended through October [FedScoop] White House and GSA launch platforms to improve equity in federal procurement [FedScoop] 6 Small Businesses Land Spots on $298M FAA Weather Observation Service Contract [GovConWire] 3 Major Federal IT Contract Opportunities [GovConWire] Does the GSA have the best data to work with during price negotiations with contractors? [FedNewsNet] Construction Business Operator Sentenced To Two Years In Prison For Failing To Pay More Than $4.4 Million Of Payroll Taxes [DoJ] DoD Issues Progress Payment Update [DoD] It’s official: No more COVID vaccine mandate for federal workers and contractors [FCW] GSA tools flag diverse suppliers for procurement officials [FCW] Do you know the 5 challenges unique to transforming how the government does business? [FedNewsNet] Ownership and Control and Contractual Assistance Requirements for the 8(a) Business Development Program; Correction [FedReg] The post SmallGovCon Week in Review: May 8-12, 2023 first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

13 C.F.R. § 125.6 sets out the limitations on subcontracting for all small business set-asides (including 8(a), SDVOSB/VOSB, HUBzone, and WOSB/EDWOSB set asides.) These limitations on subcontracting are crucial for any small business federal contractor to be familiar with, and we have discussed how they work here. But, while the regulation does provide for certain legal penalties for violations of these limitations, up until SBA’s recent rule change, it didn’t provide for any direct consequences for a company’s past performance (although conceivably an agency could mention limitations on subcontracting as part of a CPARS review). Furthermore, SBA now will require that compliance with the limitations be looked at on an order-by-order basis for multi-agency set aside contracts where more than one agency can issue orders under the contract, and for full and open contracts where the task order is set aside for small businesses. All this is effective May 30, 2023, and we explore these changes here. On April 27, 2023, SBA released its long-awaited rule change that it first proposed back on September 9, 2022. We have explored what this change does in general and, more specifically, its impact on the ostensible subcontractor rule for size affiliation. Now, we are going to explore another way in which this rule will change things for federal contractors: the limitations on subcontracting. Task Order by Task Order Limitations on Subcontracting In its discussion of the old rule in the April 27, 2023 issuance of the new rule, SBA noted: “Section 125.6(d) provides that the period of time used to determine compliance for a total or partial set-aside contract will generally be the base term and then each subsequent option period. This makes sense when one agency oversees and monitors a contract. However, on a multi-agency set-aside contract, where more than one agency can issue orders under the contract, no one agency can practically monitor and track compliance.” This was true. For these contracts, where multiple agencies are involved and will each issue task orders, the contracting officers would not be aware of how the contractor was doing compliance-wise regarding orders issued by other agencies. While the COs could require the contractor to comply on an order-by-order basis, they did not have to. SBA felt this was an oversight, and so now, the rule will state as follows: “However, for a multi-agency set aside contract where more than one agency can issue orders under the contract, the ordering agency must use the period of performance for each order to determine compliance.” 13 C.F.R. § 125.6(d). In other words, for these set-aside contracts, where there are task orders and different agencies can issue task orders under the contract, the contractor will need to show its compliance with the limitations on subcontracting separately for each order. In addition to this, SBA added another portion to the rule: “For an order set aside under a full and open contract or a full and open contract with reserve, the agency will use the period of performance for each order to determine compliance unless the order is competed among small and other-than-small businesses (in which case the subcontracting limitations will not apply).” 13 C.F.R. § 125.6(d). This means that for unrestricted contracts that nonetheless allow for set aside task orders, if the order is indeed set aside, the contractor will need to show compliance with the limitations under that order. For all the other set-asides, however, the rule will remain that unless the CO says otherwise, the contractor just has to show compliance with the limitations on subcontracting from the perspective of the whole contract combined. To clarify, this means that going past the limitations for a task order is not necessarily a problem if the contractor makes up for it with the rest of the contract. If a contractor is not sure how an agency is measuring compliance, though, it’s always good to check with the agency. Consequences for Violations of Limitations of Subcontracting While 13 C.F.R. § 125.6 did provide for penalties for violations of the limitations of subcontracting, it did not provide for any impact on a contractor’s past performance. SBA decided to change that. Now, contracting officers are to evaluate compliance with the limitations where they apply: “(e) Past Performance Evaluation. Where an agency determines that a contractor has not met the applicable limitation on subcontracting requirement at the conclusion of contract performance, the agency must notify the business concern and give it the opportunity to explain any extenuating or mitigating circumstances that negatively impacted its ability to do so.” 13 C.F.R. 125.6(e). The effects of the rule can be serious. If the contractor does not provide an extenuating or mitigating circumstance, or the agency find the concern’s failure to meet the limitations were due to factors within its control, “the agency may not give a satisfactory or higher past performance rating for the appropriate factor or subfactor in accordance with FAR 42.1503.” 13 C.F.R. § 125.6(e)(1). (While FAR 42.1503 has allowed for past performance evaluation based on “failure to comply with limitations on subcontracting,” the new SBA rule is much more robust). Furthermore, even if the CO accepts the contractor’s excuse, the CO cannot give a satisfactory or higher rating unless “the individual at least one level above the contracting officer concurs with that determination.” 13 C.F.R. § 125.6(e)(2). In other words, the CO needs to get approval to make that call. What are these extenuating circumstances? Well, it will depend on each case, but the regulation provides examples: “Extenuating or mitigating circumstances that could lead to a satisfactory/positive rating include, but are not limited to, unforeseen labor shortages, modifications to the contract’s scope of work which were requested or directed by the Government, emergency or rapid response requirements that demand immediate subcontracting actions by the prime small business concern, unexpected changes to a subcontractor’s designation as a similarly situated entity (as defined in § 125.1), differing site or environmental conditions which arose during the course of performance, force majeure events, and the contractor’s good faith reliance upon a similarly situated subcontractor’s representation of size or relevant socioeconomic status.” 13 C.F.R. § 125.6(e)(2)(i). Note that the language says “could” lead to a satisfactory/positive rating. Don’t assume that because one of these factors are present that that means you’re in the clear. The agency still has to agree with you on it. Furthermore, “an agency cannot rely on any circumstances that were within the contractor’s control, or those which could have been mitigated without imposing an undue cost or burden on the contractor.” 13 C.F.R. § 125.6(e)(2)(ii). If you could have reasonably prevented or mitigated the problem, you will be out of luck. The limitations on subcontracting already were seriously important for contractors to pay attention to. Now, they are even more important as there is a more direct path for a CO to impose a past performance penalty on a small business. While the new rule does take into account those situations where the contractor could not reasonably comply with the limitations on subcontracting, it does not suggest that any excuses for violations will be accepted readily by the government. If you become aware that meeting the limitations might become an issue and its something you really can’t reasonably do anything about, we now even more strongly recommend you maintain good communications with your CO on this. It could make the difference not just for legal penalties, but for your company’s past performance too. These new tighter rules show SBA is going to be taking the limitations on subcontracting even more seriously, so contractors should follow suit. Questions about this blog? email us at info@koprince.com Need legal assistance? Give us a call at 785-200-8919. Looking for the latest government contracting legal news? Sign up for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook. The post SBA New Rule: Guidelines for Compliance with Limitations on Subcontracting in 13 C.F.R. 125.6 first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

Happy Friday and happy May! I don’t know about you, but it sure seems like the pace picks up in the spring, as the weather gets warmer. The kids are getting ready for the summer break, there are graduations and weddings to attend and of course, it’s time to start mowing the lawn and preparing the gardens, too. We hope amid all the activities you have a chance to relax this weekend and, in the meantime, here are a few articles from the federal government contracting world, including updates on some prominent GSA acquisitions and the formal end of vaccine requirements for contractors. Have a great weekend! Billions in funding, not enough oversight resources, IGs tell Congress [FedNewsNet] Over half of GAO’s high-risk areas stem from critical skills gaps [FedNewNet] NIH Contracts Office Says Protests Delaying Start of IT [BGov] The Biden-⁠Harris Administration Will End COVID-⁠19 Vaccination Requirements for Federal Employees, Contractors, International Travelers, Head Start Educators, and CMS-Certified Facilities [WH] US to lift most federal COVID-19 vaccine mandates next week [FedNewsNet] Court hits GSA over handling of Polaris small biz contract [WashTech] Is there a ‘revolving door’ between private companies and the Pentagon? [FedNewsNet] Does the National Cybersecurity Strategy spell the end of the government market for commercial software? [FedNewsNet] Court of Federal Claims decision results in a ‘sea change’ for federal acquisition [FedNewsNet] Long Island Man Pleads Guilty to Bribing Federal Official to Obtain Nearly $1 Million in Federal Contracts [DoJ] Defendants Sentenced in Air Force Contract Fraud Case [DoJ] OMB’s upcoming AI guidance calls on agencies to ‘step up’ use of emerging tools [DoJ] Sen. Ernst leads bills seeking higher standard for federal small business contracting goals [FedNewsNet] FCW Insider Chat: Cybersecurity [FCW] 6 major multibillion dollar tech procurements to watch in 2023 [FCW] GAO appoints Beth Killoran as chief information officer [FedScoop] The post SmallGovCon Week in Review: May 1-5, 2023 first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

You may have noticed that SBA issued a final rule last week that created sweeping changes to the SBA’s 8(a) Program regulations, but along with that, SBA made sure to slip in a change to the ostensible subcontractor rule that has been a sticking point for many contractors when facing affiliation concerns. With this final rule, SBA will update the regulations to provide contractors certain ways to defend against potential ostensible subcontractor rule affiliation, depending on the type of contract at issue. This represents a shift in thinking, related to how to combat allegations brought under this affiliation rule and could present some new wrinkles for contractors to consider when setting up subcontracting arrangements. As avid readers of SmallGovCon know, we posted last week about some of the aspects of SBA’s recent final rule updating the 8(a) Program’s regulations. But it is important to point out, that within that final rule, is a change to the ostensible subcontractor rule that could affect a wide array of contractors, not only 8(a) Program participants. First, it is important to quickly review what the ostensible subcontractor rule is. Last year, we posted one of our “Back to Basics” on affiliation and another one of the different affiliation types, both of which we highly recommend contractors review to get acquainted with the implications of affiliation, as we don’t have the time to dive into all its subtleties here. That being said, affiliation is basically when certain factors lead the SBA to see two contractors, for all intents and purposes, as one contractor, and thus their size is combined. One of the many ways to be found affiliated with another contractor is the ostensible subcontractor rule. Currently, under 13 C.F.R. § 121.103(h)(2), to be found as a contractor’s “ostensible subcontractor”, and thus making both contractors affiliated, the following elements must be met: The subcontractor performs the “primary and vital requirements of a contract” OR The prime contractor is “unusually reliant” on the subcontractor AND The subcontractor cannot be a similarly situated entity as the prime contractor (which is defined by 13 C.F.R. § 125.1). The SBA, when making affiliation determinations based on these elements, will take into account “all aspects of the relationship between the prime and subcontractor”. In determining whether the prime contractor is “unusually reliant” on the subcontractor, or whether the subcontractor is performing the “primary and vital requirements of a contract,” the journey taken by the SBA is a very fact-intensive one and consequently really depends on the contract at issue, as well as the nuances of the relationship between the two contractors. We have previously talked here about some of the different analysis that occurs with ostensible subcontracting cases, but it really boils down to this: if the subcontractor is performing the work at the heart of the contract, or the prime contractor cannot perform without the subcontractor, then the ostensible subcontractor rule may be met. However, with the update recently released by SBA, this determination process is facing a change in which contractors may be able to take action to lessen risk of ostensible subcontractor affiliation. In the final rule issued last week, SBA updates 13 C.F.R. § 121.103 to move the ostensible subcontractor rule to section (h)(3) and keep the elements discussed above, but update the “factors” that would be considered by SBA. The final rule articulates that, for general construction contracts, the SBA has added to the regulation that “the primary and vital requirements of the contract are the management, supervision and oversight of the project, including coordinating the work of various subcontractors, not the actual construction work performed.” For general construction contractors, this provides a clear line to follow in order to help prevent ostensible subcontractor concerns centered around subcontractors performing the “primary and vital” requirements of a contract. The revisions to the rule, once effective, will clearly state to all, that as long as there aren’t any subcontractors performing the management, supervision, or oversight of the general construction project, then there is a low likelihood that the subcontractor is performing the primary and vital requirements of the contract. It will greatly reduce the risk that a subcontractor, on a general construction contract, will be seen as affiliated with the prime contractor under the ostensible subcontractor rule. However, it is important to note that this regulation language does not alleviate businesses of ensuring they are not unusually reliant on the subcontractor, and it only applies to general construction contracts. That being said, general construction contracts are not the only types of contracts that the final rule provided with some new defenses to ostensible subcontracting. SBA is also updating the regulation to state, that for a “contract or order set-aside or reserved for small business for services, specialty trade construction or supplies” SBA will not find that the primary and vital requirements are being performed by the subcontractor, or that the prime contractor is unusually reliant on the subcontractor, if the prime contractor can “demonstrate that it, together with any subcontractors that qualify as small businesses, will meet the limitations on subcontracting” found in 13 C.F.R. § 125.6. Therefore, contractors performing service, specialty trade construction, or supplies contracts, if set-aside for small businesses, can potentially avoid ostensible subcontractor concerns, by simply making sure to abide by the limitations on subcontracting. SBA case law used to be unclear on this, noting that for instance, compliance with limitations on subcontracting “is a matter of contractor responsibility, beyond OHA’s jurisdiction.” Shoreline Servs., Inc., SBA No. SIZ-5466 (May 28, 2013). OHA had also made clear that the two rules are separate, even though analysis of each may look at similar facts. Lynxnet, LLC, SBA No. SIZ-5612, 2014 (Nov. 7, 2014). Now, the two rules are closely intertwined, and SBA will have to look at limitations on subcontracting as part of ostensible subcontractor analysis. We published a “Back to Basics” on limitations on subcontracting last year, that you can review to refresh your understanding of limitations on subcontracting, as we once again can’t go in-depth here on its nuances, but in general, the limitations on subcontracting rule sets limits on how much work assigned to a prime contractor may be subcontracted by the prime contractor to subcontractors that are not similarly situated. For service and supply contracts, only 50% of the contract work may be subcontracted, and for specialty construction, only 75% of the contract work may be subcontracted. So, under this final rule, if a prime contractor on a small business service, supply, or specialty trade construction contract, can show that they, along with any small business subcontractors (or other similarly situated subcontractors under SBA’s socioeconomic programs), have met the limitations on subcontracting requirements, it will be interpreted by the SBA that the subcontractors are not performing primary and vital elements of the contract. Also, that the prime contractor is not unusually reliant on the subcontractor, thus defeating the ostensible subcontractor rule. Both of these changes represent some new, very clear ways for contractors to defend against ostensible subcontractor rule allegations, and if properly heeded may alleviate ostensible subcontractor affiliation concerns for many contractors. These options, likely can be easily met with careful planning and formation of a teaming agreement and/or proposal. While under the current rule, contractors must be very aware of the specific relationship and work done between them and their subcontractors. Once this rule becomes effective, it should provide some relief to contractors trying to navigate this oft-utilized affiliation rule, but it is important to keep in mind that this change is not effective until May 30, 2023. So until then, the old rules are still in effect. Questions about this blog? email us at info@koprince.com Questions about this post? Email us. Need legal assistance? call at 785-200-8919. Looking for the latest government contracting legal news? Sign up for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook. The post New Defenses to the Ostensible Subcontractor Rule are Coming first appeared on SmallGovCon - Government Contracts Law Blog.View the full article

It’s Friday, Readers! Hope everyone is ready for the weekend. The NFL Draft is right down the road in Kansas City this weekend and if you’re an NFL fan (as is almost required in Kansas City), I’m sure you are anxiously awaiting to see if your favorite players will be selected. What better way to welcome the weekend than with a bit of football excitement and a review of what’s been happening in the government contracting world? In this week’s roundup, there were several articles concerning DoD contracts and some cautionary tales on why defrauding the federal government is a really bad decision. Enjoy your weekend! GOP senator demands DEA boss explain no-bid contracts, hires [FedNewsNet] Protests may complicate awards for $60B VA IT contract [WashTech] Alleged transgression costs major government contractor $22M [FedNewsNet] L3 Technologies Settles False Claims Act Allegations Relating to Double-Charging for Certain Material Costs [DoJ] How the Air Force stuck with CACI for $5.7B IT contract [WashTech] The rest of fiscal 2023 is shaping up to be an extra-rocky time for contractors [FedNewsNet] Former Contracting Officer for the Department of Defense Pleads Guilty in Conspiracy to Defraud the Government [DoJ] Air Force $5.7B EITaaS contract freed from protests [FedNewsNet] IT2EC NEWS: For Some Vendors, Defense Conferences, Contracts Are Gravy [NatDefMag] DOD Construction Contracts: Contractor Proximity to Work Sites Varied [GAO] SBA to Expand Veterans Business Outreach Centers to 6 Additional States in 2023 [Inc] The post SmallGovCon Week in Review: April 24-28, 2023 first appeared on SmallGovCon - Government Contracts Law Blog.View the full article