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  1. With the finalization of the new SBA Small Business Mentor Protégé Program, other agencies without statutorily-authorized mentor-protege programs must seek SBA approval of their mentor-protege programs within one year, if they wish those programs to continue. In a final rule scheduled to be effective August 24, 2016, the SBA questioned the need for other agencies (except the Department of Defense) to continue to operate their own mentor-protege programs, but provided a road map for agencies to preserve their separate mentor-protege programs if they wish. As we have discussed in detail on SmallGovCon, the new “universal” small business mentor-protégé program establishes a government-wide program open to all small businesses, consistent with the SBA’s mentor-protégé program for participants in SBA’s 8(a) Program. But the final rule doesn’t just add a new SBA mentor-protege program–it may also signal the end of many other Federal mentor-protege programs. Under the final rule, a Federal department or agency can no longer operate its own mentor-protégé program, unless: 1) the agency submits a program plan to the SBA, and 2) receives the SBA Administrator’s approval of the plan within one year of the SBA’s mentor-protégé regulations finalization. The requirement for SBA approval does not apply to DoD, which has special statutory authority to operate its own mentor-protege program. However, the SBA approval requirement does apply to most other Federal mentor-protege programs, including those operated by the VA, NASA, DHS, State Department, and so on. The SBA “received only a few comments” regarding the proposal to require most agencies to obtain SBA approval to continue independent mentor-protege programs. These commenters “agreed with the statutory provisions in questioning the utility of other Federal mentor-protege programs” now that the SBA has established a mentor-protege program open to all small businesses. However, commenters raised two specific concerns about the potential phase-out of other agencies’ mentor-protege programs: 1) Would the new regulations be a disincentive for mentors to utilize their protégés as subcontractors? And, 2) would the SBA have the necessary resources to handle mentor-protégé applications for the entire government? Many of the other agency-specific mentor-protégé programs incentivize mentors to utilize their protégés as subcontractors. For example, some agencies provide additional evaluation points to a large business submitting an offer on an unrestricted procurement where the large business is using its protege as its subcontractor. Other agencies give a large prime contractor additional credit toward its subcontracting plan goals where the large prime contractor uses its protege as a subcontractor. The SBA acknowledged that the new small business mentor-protege program “assume more of a prime contractor role for proteges, but would also encourage subcontracts from mentors to proteges as part of the developmental assistance that proteges receive from their mentors.” The SBA declined to adopt specific subcontracting incentives as part of its final rule, but will allow individual procuring agencies the flexibility to do so. The SBA writes: SBA believes that it is up to individual procuring agencies whether to provide subcontracting incentives for any specific procurement, SBA also believes that these incentives should be authorized and used, where appropriate. As such, this final rule identifies subcontracting incentives as a possible benefit to be provided by procuring activities in appropriate circumstances. The final rule authorizes procuring activities to provide incentives in the contract evaluation process to a firm that will provide significant subcontracting work to its SBA-approved protégé firm. With respect to the processing of mentor-protege applications, the SBA writes that it is “working to adequately process mentor-protege applications,” but if it is unable to handle the volume of applications and agreements, the SBA may institute “open” and “closed” periods wherein the SBA would only accept mentor-protégé applications in the “open” periods. Since the SBA itself is unable to predict whether it will have the resources to process mentor-protege applications year-round, other agencies will have to decide for themselves whether this uncertainty is a reason to maintain separate mentor-protege programs. The government’s mentor-protege programs have been in a state of flux since early 2013, when Congressfirst directed the SBAto adopt rules governing other agencies’ mentor-protege programs. In 2017, we should finally get some long-awaited clarity as to whether other agencies’ mentor-protege programs will continue. View the full article
  2. SmallGovCon Week In Review: August 1-5, 2016

    It’s hard to believe that August is already here. Before we know it, the end of the government fiscal year will be here–and if tradition holds, a slew of bid protests related to those inevitable last-minute contract awards. In our first SmallGovCon Week In Review for August, two big-wig executives who previously plead guilty to charges of conspiracy now face civil claims, some helpful tips on how to prepare for the year-end contracting frenzy, Schedule 70 looks to be improved, a major roadblock for the ENCORE III IT service contract, and much more. A False Claims Act complaint has been filed by the U.S. Justice Department against two former New Jersey executives accused of defrauding the military. [nj.com] A federal judge said that the U.S. Department of Health and Human Services showed a “cavalier disregard” for the truth and favoritism during the evaluation of bid proposals for its financial management. [Modern Healthcare] A watchdog found that a five-year contract originally valued at a fixed price of nearly $182 million ballooned to $423 million. [Government Executive] A GSA top acquisition official has promised an improved Schedule 70 following an audit that found price discrepancies for identical products and some offered at higher prices than they were commercially available. [Nextgov] Washington Technology offers eight tips to help contractors prepare for the last month of the government fiscal year. [Washington Technology] A growing legion of small businesses are trying make federal contracting a bigger part of their revenue as federal small business awards stay above $90 billion for the past two fiscal years. [Bloomberg] A group of men, women and corporations have been indicted for illegally winning government contracts worth some $350 million by misrepresenting themselves as straw companies controlled by either low-income individuals or disabled veterans. [The State] The final “blacklisting” rule to prevent businesses that had broken labor laws from working with the federal government is expected soon, and the National Labor Relations Board is preparing to follow the proposal. [Society for Human Resource Management] The growing number of bid protests appears unavoidable, regardless of the efforts to engage industry before, during and after the bidding process. [Nextgov] The GAO has sustained protests challenging the terms of the major ENCORE III IT services contract. [Federal News Radio] View the full article
  3. Native Hawaiian Organizations soon will be able to own HUBZone companies under a new SBA direct final rule published yesterday in the Federal Register. The new rule implements provisions of the 2016 National Defense Authorization Act, in which Congress instructed the SBA to open the HUBZone program to NHOs. Under current law, NHOs are unable to majority-own HUBZone companies, even though Indian tribes and Alaska Native Corporations can be HUBZone owners. The new rule, which will amend the SBA’s HUBZone regulations in 13 C.F.R. 126.103, defines a HUBZone entity to include an entity that is: (8) Wholly owned by one or more Native Hawaiian Organizations, or by a corporation that is wholly owned by one or more Native Hawaiian Organizations; or (9) Owned in part by one or more Native Hawaiian Organizations or by a corporation that is wholly owned by one or more Native Hawaiian Organizations, if all other owners are either United States citizens or small business concerns. The new regulation defines a Native Hawaiian Organization as “any community service organization serving Native Hawaiians in the State of Hawaii which is a not-for-profit organization chartered by the State of Hawaii, is controlled by Native Hawaiians, and whose business activities will principally benefit such Native Hawaiians.” In addition to adding NHOs to the HUBZone program, the new final rule treats certain “major disaster areas” as HUBZones for a period of five years, treats certain “catastrophic incident areas” as HUBZones for a period of 10 years, and extends HUBZone eligibility for Base Closure Areas and contiguous areas. The SBA’s direct final rule will take effect on October 3, 2016 unless the SBA receives significant adverse comment from the public. If that happens (and it’s not expected), the SBA would withdraw and republish the rule to address the adverse comments. NHOs have long asked that they should be treated like Indian tribes and ANCs for purposes of the HUBZone program. Soon, that’s exactly what will happen. View the full article
  4. It’s the day after you submitted an offer for a big government contract, when one of your key personnel walks into your office. “Thanks for everything you’ve done for me,” she says, “but I’ve decided to take an opportunity elsewhere.” Employee turnover is a part of doing business. But for prospective government contractors, it can be a nightmare. As highlighted in a recent GAO bid protest, a offeror was excluded from the award simply because one of its proposed key personnel resigned after the proposal was submitted. It’s a harsh result, but it highlights that contractors must not only attract key personnel—they must also retain them. At issue in URS Federal Services, B-413034 et al. (July 25, 2016), was a solicitation issued under the Navy’s SeaPort-e multiple-award IDIQ contract vehicle, which sought engineering and technical services at the Naval Surface Warfare Center in Dahlgren, Virginia. Proposals would be evaluated on a best value basis, under three factors: technical, past performance, and cost. The technical factor—the most important factor under the evaluation criteria—had three subfactors, relating to an offeror’s technical understanding/capability/approach, workforce, and management plan. The workforce subfactor consisted of two elements. Under the staffing plan element, the Navy would evaluate “the degree to which the Offeror’s [sic] plan to support all areas of the [statement of work] with qualified people based on the staffing plan/matrix, as well as the availability of those individuals.” Though the RFP required offerors to propose 35 full-time equivalent personnel, it did permit offerors to propose “pending hire” personnel where the contractor had not yet identified a firm candidate for a position. The key personnel résumés element, then, was to be evaluated to assess the degree to which résumés of key personnel meet the pertinent qualifications. The RFP, moreover, required résumés to be provided that best demonstrated offeror’s ability to successfully meet the task order requirements. URS Federal Services, Inc. submitted a proposal. URS submitted the resume of a certain individual (who was not identified by name) to fulfill a key role as a senior software engineer. The individual in question was proposed to work only half as much as a full-time employee, or “0.5 FTE” in human resources lingo. After URS submitted its proposal, the proposed senior software engineer resigned. URS’s proposal was evaluated as being technically unacceptable, due to an unacceptable rating under the workforce subfactor. Specifically, the Navy faulted URS because, in part, it proposed to fulfill 0.5 FTE of the senior software engineer key personnel requirement with the individual who had resigned from URS after its proposal was submitted. URS protested this finding of unacceptability, arguing that this person’s departure was not URS’s fault. It further said that this personnel substitution was simply a “ministerial action” under the contract, and should not have been assigned a deficiency. GAO explained that when an agency learns that a key person is no longer available, “the agency has two options: either evaluate the proposal as submitted, where the proposal would be rejected as technically unacceptable for failing to meet a material requirement, or reopen discussions to permit the offeror to correct this deficiency.” Therefore, GAO wrote, “URS’ submission of a key person who was not, in fact, available reasonably supported the assignment of an unacceptable rating to the firm’s proposal.” GAO also rejected URS’s argument that the substitution of its personnel was a “ministerial act” under the contract: t is apparent from the RFP that the replacement of key personnel was within the discretion of, and subject to the approval of, the contracting officer. More importantly, as discussed above, the submission of key personnel résumés was a material requirement of the RFP, and the unavailability of the identified key personnel reasonably formed the basis of an unacceptable rating. Likewise, and contrary to URS’s contention, the record reasonably supports the assignment of a deficiency to URS’s proposal. GAO held that the unavailability of one of its proposed key personnel was a material failure by URS to meet one of the RFP’s requirements. The Navy reasonably assigned URS a deficiency and found its proposal to be unacceptable. GAO denied URS’ protest. Losing a key employee can be disruptive to a government contractor’s mission and its morale. But as URS Federal Services shows, losing a key employee can also cost a contractor an award. Where a solicitation requires the identification of key personnel, offerors should do their very best to propose personnel who can—and will—be available to perform the work. View the full article
  5. The recently-finalized SBA small business mentor-protege program will change the landscape of set-aside contracting–for large businesses and small contractors alike. I am excited to announce that Koprince Law LLC has partnered with GOVOLOGY to offer a live electronic training on this important new program. Please join us on August 11, 2016 at 12:00 p.m. Central for this 90 minute training. The training is open to the public, so please follow this link to register. If you’re a Koprince Law LLC client or SmallGovCon newsletter subscriber, check your email for a special discount code. See you online on August 11! View the full article
  6. SDVOSB Updates: Free Webinar August 4, 2016

    It’s been a year of big changes in the government’s SDVOSB programs. First came the Kingdomware Supreme Court decision, which was soon followed by the SBA’s final rule adopting a new “universal” mentor-protege program–and imposing many new requirements on SDVOSB joint ventures. On Thursday, August 4, 2016 at 1:00 p.m. Central, I will host a free webinar to discuss these important changes. To register, just follow this link and complete the brief electronic form, or call Jen Catloth of Koprince Law LLC at (785) 200-8919. See you online on Thursday! View the full article
  7. The 8(a) Program regulations will undergo some significant changes as part of the major final rule recently released by the SBA, and effective August 24, 2016. Here at SmallGovCon, we’ve already covered big changes to the SDVOSB Program and HUBZone Program brought about by the new SBA rule. But the 8(a) program is affected by the new rule too, and important changes involving eligibility, the application process, sole source awards, NHOs, and more will kick in later this month. The final rule implements the following major changes: Social Disadvantage In order to be admitted to the 8(a) Program, a company must be controlled by one or more individuals who are considered socially disadvantaged. While members of certain groups are presumed socially disadvantaged, others (such as Caucasian women and disabled Caucasian veterans) must individually prove their social disadvantage by a preponderance of the evidence. The SBA’s current regulations leave a lot to be desired when it comes to explaining how an applicant must prove his or her individual social disadvantage. This lack of clarity leads to confusion; many applicants, for example, incorrectly believe that the SBA is simply looking for a list of all of the bad things that have happened in their lives. This confusion, of course, causes many applications to be returned or denied. The SBA’s new regulation attempts to provide some more clarity. The final rule specifies that “[a]n individual claiming social disadvantage must present facts and evidence that by themselves establish that the individual has suffered social disadvantage that has negatively impacted his or her entry into or the business world in order for it to constitute an instance of social disadvantage.” In that regard, “[e]ach instance of alleged discriminatory conduct must be accompanied by a negative impact on the individual’s entry into or advancement in the business world in order for it to constitute an instance of social disadvantage.” And SBA “may disregard a claim of social disadvantage where a legitimate alternative ground for an adverse employment action or other perceived adverse action exists and the individual has not presented evidence that would render his/her claim any more likely than the alternative ground.” Importantly, the SBA includes two examples demonstrating how the analysis works. For instance, one of those examples provides: A woman who is not a member of a designated group attempts to establish her individual social disadvantage based on gender. She certifies that while working for company Y, she was not permitted to attend a professional development conference, even though male employees were allowed to attend similar conferences in the past. Without additional facts, that claim is insufficient to establish an incident of gender bias that could lead to a finding of social disadvantage. It is no more likely that she was not permitted to attend the conference based on gender bias than based on non-discriminatory reasons. She must identify that she was in the same professional position and level as the male employees who were permitted to attend similar conferences in the past, and she must identify that funding for training or professional development was available at the time she requested to attend the conference. When SBA released its proposal to implement these changes to the social disadvantage rules, some people familiar with the 8(a) Program were concerned that these changes were being proposed in order to make it more difficult for individuals to prove social disadvantage. But I don’t view it that way. To my eyes, the change merely attempts to better explain how the SBA already evaluates social disadvantage, and doesn’t seem to impose any new burdens on applicants. Hopefully my optimistic view will be borne out in practice. Experience of Disadvantaged Individual The current 8(a) Program regulations don’t require that a disadvantaged individual possess managerial experience in the specific industry in which the 8(a) applicant is doing business. Instead, the regulations state that the disadvantaged individual “must have managerial experience of the extent and complexity needed to run the concern.” Nevertheless, in my experience, the 8(a) application analysts have often focused on the industry-specific experience of the disadvantaged individual, rather than the individual’s overall managerial experience. The SBA’s new regulations should ease the burden on 8(a) applicants to demonstrate industry-specific experience. The new rule states that “[m]anagement experience need not be related to the same or similar industry as the primary industry classification of the applicant or Participant.” In the preamble to its new rule, the SBA writes that it “did not intend to require in all instances that a disadvantaged individual must have managerial experience in the same or similar line of work as the applicant or Participant.” The SBA explains: For example, an individual who has been a middle manager of a large aviation firm for 20 years and can demonstrate overseeing the work of a substantial number of employees may be deemed to have managerial experience of the extent and complexity needed to run a five-employee applicant firm whose primary industry category was in emergency management consulting even though that individual had no technical knowledge relating to the emergency management consulting field. But the rule change doesn’t mean that industry-specific experience will never be considered. In the preamble, the SBA states that more specific industry-related experience may be required in “appropriate circumstances,” such as “where a non-disadvantaged owner (or former owner) who has experience related to the industry is actively involved in the day-to-day management of the firm.” 8(a) Application Processing As I discussed in a blog post in April 2016, 8(a) Program participation is down 34% since 2010, and the SBA is attempting to reverse the decline by–in part–streamlining and improving the application process. The new rule includes some baby steps in that direction, including: The SBA will no longer require that all 8(a) applicants submit IRS Form 4506T (Request for Transcript of Tax Return). The SBA will require all applications to be submitted electronically, instead of allowing hard copy applications (for which processing times are often very slow). The SBA has deleted the requirement for “wet” signatures and will allow application documents to be electronically signed. In cases where an applicant has a criminal record, the SBA has always referred the application to its Office of Inspector General, delaying the process. The SBA now will exercise reasonable discretion in determining whether such a referral is appropriate. For example, “an application evidencing a 20 year old disorderly conduct offense for an individual claiming disadvantaged status when that individual was in college should not be referred to OIG where that is the only instance of anything concerning the individual’s good character.” Perhaps most importantly for most applicants, the SBA will no longer require a narrative statement of each applicant’s economic disadvantage. These statements have served little practical purpose, as the SBA has long evaluated economic disadvantage by reference to an individual’s income and net worth. The final rule acknowledges that economic disadvantage is based on “objective financial data,” rendering the narratives unnecessary. 8(a) Program Suspensions The new regulation allows an 8(a) Program participant to voluntarily suspend its nine-year term when one of two things happen: (1) the participant’s principal office is located in an area declared a major disaster area; or (2) there is a lapse in federal appropriations. The SBA explains that these changes were “intended to allow a firm to suspend its term of participation in the 8(a) BD program in order to not miss out on contract opportunities that the firm might otherwise have lost due to a disaster or a lapse in federal funding.” If a firm elects to suspend its term, the participant “would not be eligible for 8(a) BD program benefits, including set-asides . . . but would not ‘lose time’ in its program term due to the extenuating circumstances” caused by the disaster or lapse in federal funding. Management of Tribally-Owned 8(a) Participants The final rule adopts new language specifying that “[t]he individuals responsible for the management and daily operations of a tribally-owned concern cannot manage more than two Program Participants at the same time.” The SBA clarifies: An individual’s officer position, membership on the board of directors or position as a tribal leader does not necessarily imply that the individual is responsible for the management and daily operations of a given concern. SBA looks beyond these corporate formalities and examines the totality of the information submitted by the applicant to determine which individual(s) manage the actual day-to-day operations of the applicant concern. The new rule further clarifies that “Officers, board members, and/or tribal leaders may control a holding company overseeing several tribally-owned or ANC-owned companies, provided they do not actually control the day-to-day management of more than two current 8(a) BD Program participant firms.” Native Hawaiian Organizations Under the current rule governing participation in the 8(a) Program by companies owned by Native Hawaiian Organizations, “SBA considers the individual economic status of the NHO’s members,” and a majority of the individual members must qualify as economically disadvantaged. The individual members of the NHO are held to the same income and net worth requirements as other socially disadvantaged individuals under 13 C.F.R. 121.104. After receiving a great deal of feedback from the Native Hawaiian community, the SBA changed its perspective, writing in the preamble to the final rule that “basing the economic disadvantage status of an NHO on individual Native Hawaiians who control the NHO does not seem to be the most appropriate way to do so.” The preamble continues: The crucial point is that an NHO must be a community service organization that benefits Native Hawaiians. It is certainly understood that an NHO must serve economically disadvantaged Native Hawaiians, but nowhere is there any hint that economically disadvantaged Native Hawaiians must control the NHO. The statutory language merely requires that an NHO must be controlled by Native Hawaiians. In order to maximize benefits to the Native Hawaiian community, SBA believes that it makes sense that an NHO should be able to attract the most qualified Native Hawaiians to run and control the NHO. If the most qualified Native Hawaiians cannot be part of the team that controls an NHO because they may not qualify individually as economically disadvantaged, SBA believes that is a disservice to the Native Hawaiian community. To implement this changed policy, the final rule adopts a system much like that already used by the SBA in evaluating applications from companies owned and controlled by Indian tribes. The final rule states that “n order to establish than an NHO is economically disadvantaged, it must demonstrate that it will principally benefit economically disadvantaged Native Hawaiians.” To do this, the NHO must provide economic data on the condition of the Native Hawaiian community it intends to serve, including things like the unemployment rate, poverty level, and per capita income. Once a particular NHO establishes its economic disadvantage in connection with the application of one firm owned and controlled by the NHO, it ordinarily need not reestablish its economic disadvantage in connection with a second 8(a) firm. The final rule also clarifies that the individual members or directors of an NHO need not have the technical expertise or possess a required license in order for the NHO to be found to control an 8(a) company. Rather, as with “regular” 8(a) companies, the individual members or directors ordinarily need only possess the managerial experience of the extent and complexity necessary to run the company. But as with those “regular” 8(a) companies, the SBA may examine industry-specific experience “in appropriate circumstances,” such as where a non-disadvantaged owner (or former owner) who has experience related to the industry is involved in the day-to-day management of the firm. Sole Source 8(a) Awards Earlier this summer, I blogged about an SBA Office of Inspector General report, which found that DoD 8(a) sole source awards over $20 million to companies owned by Indian tribes and ANCs has dropped by more than 86% since 2011, when Congress adopted a requirement that a Contracting Officer issue a written justification and approval for any sole source award over $20 million (a regulatory update in 2015 increased the threshold to $22 million). To date, the the 2011 statutory requirements have been implemented only in the FAR. The final rule updates the SBA’s regulations to require that a procuring agency that is offering a sole source requirement that exceeds $22 million to confirm that the justification and approval has occurred. However, “SBA will not question and does not need to obtain a copy of the justification and approval, but merely ensure that it has been done.” In its preamble, the SBA explains that the J&A requirement appears to have caused confusion: SBA believes that there is some confusion in the 8(a) and procurement communities regarding the requirements of section 811. There is a misconception by some that there can be no 8(a) sole source awards that exceed $22 million. That is not true. Nothing in either section 811 or the FAR prohibits 8(a) sole source awards to Program Participants owned by Indian tribes and ANCs above $22 million. All that is required is that a contracting officer justify the award and have that justification approved at the proper level. In addition, there is no statutory or regulatory requirement that would support prohibiting 8(a) sole source awards above any specific dollar amount, higher or lower than $22 million. Perhaps the SBA’s commentary will help clarify for Contracting Officers that sole source authority remains for contracts over $22 million; the 2011 statute and corresponding regulations merely require a J&A. Changes in Primary Industry Classification The final rule allows the SBA to change an 8(a) Program participant’s primary industry classification “where the greatest portion of the Participant’s total revenues during the Participant’s last three completed fiscal years has evolved from one NAICS code to another.” The SBA will, as part of its annual 8(a) Program review, “consider whether the primary NAICS code contained in a participant’s business plan continues to be appropriate.” If the SBA believes that a change is warranted, the SBA will notify the 8(a) Program participant and give the participant the opportunity to oppose the SBA’s plan. And, “[a]s long as the Participant provides a reasonable explanation as to why the identified primary NAICS code continues to be its primary NAICS code, SBA will not change the Participant’s primary NAICS code.” The SBA’s preamble notes that the portion of its proposal dealing with changes in primary NAICS codes received the most comments of any portion of the proposed rule–apparently even more so than comments on the universal mentor-protege program, which was established under the same final rule. While NAICS codes aren’t always the most exciting things in the world, it’s easy to see why this proposal caused so much concern. For “regular” 8(a) companies owned by socially and economically disadvantaged individuals, a change in NAICS code can affect ongoing 8(a) eligibility. That’s because, under 13 C.F.R. 124.102, an 8(a) company must qualify as small in its primary NAICS code. If the SBA reassigns an 8(a) company from a NAICS code designated with a higher size standard to one designated with a lower standard, it could put the company at risk of early graduation. For example, consider an 8(a) company with $20 million in average annual receipts, admitted to the 8(a) Program under NAICS code 236220 (Industrial Building Construction), which carries a $36.5 million size standard under the current SBA size standards table. Now let’s say that same company has earned almost all of its revenues performing plumbing work. If the SBA reassigns the company to NAICS code 238220 (Plumbing, Heating, and Air-Conditioning Contractors), with an associated $15.0 million size standard, the company is suddenly no longer small in its primary industry, threatening its ongoing 8(a) Program status. But the preamble makes clear that much of the angst over the SBA’s proposal came from individuals representing tribal and/or ANC interests. Under 13 C.F.R. 124.109, a tribe or ANC “may not own 51% or more of another firm which, either at the time of application or within the previous two years, has been operating in the 8(a) Program under the same primary NAICS code as the applicant.” While the rule permits such firms to operate in secondary, related NAICS codes, a reassignment to the same NAICS code as another 8(a) Program participant owned by the same tribe or ANC would cause major problems. In its final rule, the SBA acknowledges these concerns, but doesn’t back off its position. The final rule provides: Where an SBA change in the primary NAICS code of an entity-owned firm results in the entity having two Participants with the same primary NAICS code, the second, newer Participant will not be able to receive any 8(a) contracts in the six-digit NAICS code that is the primary NAICS code of the first, older Participant for a period of time equal to two years after the first Participant leaves the 8(a) BD program. It remains to be seen how the SBA will implement the new policy on primary NAICS codes, but there can be little doubt that the new regulation will put some ANCs and tribes at risk. In Conclusion The SBA’s final rule takes effect on August 24, 2016. And while the new small business mentor-protege program will generate most of the headlines, it’s essential for 8(a) Program participants (and potential applicants) to be aware of the major 8(a) Program changes established under the same final rule. View the full article
  8. An agency’s spam filter prevented an offeror’s proposal from reaching the Contracting Officer in time to be considered for award–and the GAO denied the offeror’s protest of its exclusion. A recent GAO bid protest decision demonstrates the importance of confirming that a procuring agency has received an electronically submitted proposal because even if the proposal is blocked by the agency’s own spam filter, the agency might not be required to consider it. GAO’s decision in Blue Glacier Management Group, Inc., B-412897 (June 30, 2016) involved a Treasury Department RFQ for cybersecurity defense services. The RFQ was issued as a small business set-aside under GSA Schedule 70. The RFQ required proposals to be submitted by email no later than 2:00 p.m. EST on November 9, 2015. The RFQ advised that the size limitation for electronic submissions was 25MB. Blue Glacier Management Group, Inc. electronically submitted its proposal at 10:55 a.m. EST on the due date. The total size of BG’s attachments was below the 25MB limitation specified in the RFQ. But unbeknownst to BG or the contracting officer, the email was captured in the agency’s spam filter. The contracting officer did not receive the proposal email or any type of quarantine/spam notification. Five other proposals were timely received from other offerors without incident. BG sent a follow-up email to the contracting officer on January 29, 2016, over two months after it first submitted its proposal. But, because the contracting officer did not recognize BG as a recent offeror for the proposal, she did not respond. Another month passed before BG followed up again by phone on February 26, 2016. The contracting officer indicated that, from her standpoint, it appeared that BG had not submitted a proposal. BG explained that it had submitted a proposal and thought it was being considered for the award. BG re-submitted its proposal via email on February 26, 2016, just as it had done on November 9. The contracting officer again did not receive it. The contracting officer consulted with the agency’s IT department and discovered the February 26 email had been captured in the spam filter. However, the IT department was unable to recover the original November 9 email because the agency’s email network automatically deletes emails in the spam filter after 30 days. At this point, Treasury was in the final stages of evaluating proposals. The contracting officer declined to evaluate BG’s re-submitted proposal. BG filed a GAO bid protest challenging the agency’s decision. BG’s argued, in part, that BG was not to blame for the fact that its proposal (which complied with the 25MB size limit) had been blocked by the agency’s spam filter. The GAO wrote that “it is the vendor’s responsibility, when transmitting its quotation electronically, to ensure the delivery of its quotation to the proper place at the proper time.” However, there is an exception where a proposal is under “government control” at the proper time. In order for the government control exception to apply, “a vendor must have relinquished custody of its quotation to the government so as to preclude any possibility that the vendor could alter, revise or otherwise modify its quotation after other vendors’ competing quotations have been submitted.” In this case, “because Blue Glacier did not seek prompt confirmation of the agency’s receipt of its quotation, Blue Glacier’s November 9 email was automatically deleted from the agency’s system after 30 days.” The GAO continued: Accordingly, the agency has no way to confirm the contents of the Blue Glacier email that entered the Treasury Fiscal Services network on November 9; that is, it has no way to confirm that the November 9 email included a quotation identical to the quotation furnished by the protester on February 26. Whether the protester actually altered its quotation is not the issue; rather, the issue is whether, under the circumstances, there is any possibility that the protester could have altered its quotation. This requirement precludes any possibility that a vendor could alter, revise or otherwise modify its quotation after other vendors’ competing quotations have been submitted. Because Blue Glacier was not precluded from altering its quotation here, the government control exception is inapplicable in this instance. The GAO denied Blue Glacier’s protest. Electronic proposal submission is increasingly common, and offers many advantages. But, as the Blue Glacier Management Group decision demonstrates, electronic submission can also carry unique risks–like agency spam filters. As shown by Blue Glacier Management Group, it’s a very good idea for offerors to confirm receipt of electronic proposals, just in case. Note: Megan Carroll, a summer law clerk with Koprince Law LLC, was the primary author of this post. View the full article
  9. SmallGovCon Week In Review: July 25-29, 2016

    It’s been a very busy week in government contracting with the SBA issuing its final rule on the small business mentor-protege program. It has given us here at Koprince Law a lot to read over and blog about so that SmallGovCon readers can stay abreast of all of the changes packed inside this lengthy document. But as important as the mentor-protege rule is for small and large contractors alike, it’s not the only government contracts news making headlines this week. In this week’s SmallGovCon Week in Review, you’ll find articles on proposed new whistleblower protections, opportunities for small businesses at the close of the fiscal year, significant pricing discrepancies under GSA Schedule contracts, and much more. A new bipartisan measure would give subgrantees and personal services contractors the same whistleblower protections currently afforded contractors, grant recipients and subcontractors. [Government Executive] An advocacy group for small businesses is once again claiming that giant corporations are reaping billions from federal small business contracts. [Mother Jones] It’s not too late to get in on the fourth quarter government spending bonanza so long as you are a company that has some prospects in the pipeline. [Federal News Radio] DoD’s new procurement evaluation process is moving toward objectivism and a more mathematical system of judgement, as part of an overall shift in favor of Lowest Price Technically Available evaluations. [Federal News Radio] Officials at five Army components failed to fully comply with rules for evaluating contractors’ past performance when awarding those firms work. [Government Executive] An audit report shows that Army officials did not consistently comply with requirements for assessing contractor performance. [Office of Inspector General] IT reseller contracts present significant challenges for the GSA’s schedules program, according to a GSA IG report. [Office of Inspector General] Nearly half of the Democratic House caucus asked defense authorization conferees to remove “harmful language” narrowing the application of the Fair Play and Safe Workplaces executive order. [Bloomberg BNA] Small businesses can find plenty of opportunities as the curtain comes down on the federal fiscal year. [Government Product News] An update to the Freedom of Information Act was signed into law earlier this month and mandates a presumption of openness, and adds new appeal rights for citizens whose requests are denied. [Federal News Radio] View the full article
  10. The HUBZone program will see significant changes to its rules as a result of major SBA changes set to take effect in late August. These changes apply generally to two aspects of the HUBZone program: that relating to the SBA’s processing of HUBZone applications, and a significant expansion of the HUBZone joint venture requirements. Here at SmallGovCon, we have been writing about the many changes brought about by the SBA’s recently published final rule about Small Business Mentor-Protégé Programs. Among these major changes are the adoption of a small business mentor-protégé program and an overhaul of the rules governing SDVOSB joint ventures. HUBZone companies can also share in the fun, as the SBA has made significant changes to the HUBZone program regulations. First, revising 13 C.F.R. § 126.306, SBA provides significant new details as to its processing of HUBZone applications. The new regulation will provide, in general: The SBA’s Director Office of HUBZone (“D/HUB”) is authorized to approve or decline applications for certification. SBA will receive and review all applications and request supporting documents. Applications—including all required information, supporting documentation, and HUBZone representations—must be complete before processing; SBA will not process incomplete packages. SBA will make its determination within 90 calendar days after the complete package is received—this is a significantly longer than the period contemplated by the current regulations, which provide that “SBA will make its determination within 30 calendar days after receipt of a complete package whenever practicable.” In practice, SBA hasn’t met this aggressive 30-day deadline; a 2014 GAO report indicated that the average processing time was 116 days from the date of the initial application. SBA may request additional or clarifying information about an application at any time. The burden of proof for eligibility is now squarely placed on the applicant concern. “If a concern does not provide requested information within the allotted time provided by SBA, or if it submits incomplete information, SBA may presume that disclosure of the missing information would adversely affect the business concern or demonstrate lack of eligibility in the area or areas to which the information relates.” The applicant must be eligible as of the date it submitted its application and up until the time the D/HUB issues a decision. The decision on the application will be based on the facts set forth in the application, any information submitted in response to a clarification request, and “any changed circumstances since the date of application.” As to this last requirement, the new regulation states that “[a]ny changed circumstance occurring after an application will be considered and may constitute grounds for decline.” The entity applying for certification has a duty, moreover, to notify SBA of any changes that could affect its eligibility; “[t]he D/HUB may propose decertification for any HUBZone SBC that failed to inform SBA of any changed circumstances that affected its eligibility for the program during the processing of the application.” In addition to expanding upon the HUBZone application process, the new regulation expands HUBZone joint ventures. 13 C.F.R. § 126.616 will soon provide as follows: General Though the existing HUBZone regulations only allow for a joint venture between two qualified HUBZone entities, the new regulation allows for a HUBZone small business to “enter into a joint venture agreement with one or more” small businesses, with an approved mentor (per the new mentor-protégé regulation), or, if also an 8(a) program participant, an approved 8(a) mentor, for the purposes of submitting an offer on a HUBZone contract. The joint venture itself need not be certified as a qualified HUBZone small business. This portion of the regulation is a big win for HUBZone contractors. For years, participants in the 8(a), SDVOSB, and WOSB programs have been able to joint venture with non-certified small businesses; only HUBZones were restricted to joint venturing solely with one another. Although SBA’s likely hoped that the requirement would lead to more dollars flowing to eligible HUBZone companies, the policy appears to have backfired: in our experience, few HUBZones joint venture at all for HUBZone contracts. The new regulation will correct this problem and put HUBZones in a similar position as participants in the SBA’s other three major socioeconomic programs. Size The new regulation adopts a two-pronged approach for determining the joint venture’s size. For a joint venture that includes at least one qualified HUBZone small business and one or more other business concerns, the joint venture “may submit an offer as a small business for any HUBZone procurement or sale so long as each concern is small under the size standard corresponding to the NAICS code assigned to the procurement.” For a joint venture between a protégé and its approved mentor (under SBA’s new small business mentor-protégé regulation), the joint venture will be deemed small if the protégé qualifies as small under the solicitation’s operative size standard. Oddly, the portion of the regulation addressing size doesn’t mention the 8(a) mentor-protege program, even though the 8(a) mentor-protege program is discussed elsewhere in the same regulation. Therefore, while it seems likely that SBA intended allow 8(a) mentor-protege joint ventures to qualify for HUBZone contracts, that’s not clear from the regulations, and is something we hope SBA clarifies. Required Joint Venture Agreement Provisions Because the existing regulations only allows for joint ventures between qualified HUBZone entities, there are no specific joint venture agreement requirements. SBA (rightly) assumes that, because only qualified HUBZones entities can participate in a joint venture, there is no reason to adopt rules designed to ensure that HUBZones control and benefit from their joint ventures. The new regulation departs from the limitation on joint venture participation, and allows a HUBZone to joint venture with any small business—whether a qualified HUBZone or not–as well as with large mentor firms. The presumption that the HUBZone will enjoy the benefits from the joint venture is thus negated; as a result, the new regulation includes strict requirements for a HUBZone joint venture agreement. These requirements—which mirror the joint venture agreement requirements for the new small business mentor-protégé program—are summarized below. But as with our other educational posts regarding the new joint venture rules, we must caution against relying on this post in an effort to comply with the new regulations; instead, HUBZone entities—and prospective joint venture partners of HUBZone entities—should consult the new regulations directly or call experienced legal counsel. Purpose. The joint venture agreement must set forth the purpose of the joint venture. Managing Venturer. The joint venture agreement must designate a HUBZone small business as the managing venturer, and an employee of the managing venturer as the project manager responsible for contract performance. The project manager “need not be an employee of the HUBZone SBC at the time the joint venture submits an offer, but, if he or she is not, there must be a signed letter of intent that the individual commits to be employed by the HUBZone SBC if the joint venture is the successful offeror.” The project manager cannot, however, be employed by the mentor and become an employee of the HUBZone managing venturer for purposes of performance under the joint venture. The plain language of the regulation does not appear to prevent an employee from a non-mentor, non-HUBZone small business partner from becoming the project manager, but SBA’s intent in this regard is unclear. Hopefully, SBA will provide clarification on this point. Ownership. The joint venture agreement must state that, with respect to a separate legal entity joint venture, the HUBZone small business owns at least 51% of the joint venture entity. Profits. The agreement must also state that the HUBZone small business will receive profits from the joint venture commensurate with the work it performs or, in the case of a separate legal entity joint venture, commensurate with its ownership interest. Bank Account. The joint venture agreement must provide for a special bank account in the name of the joint venture. The account “must require the signature of all parties to the joint venture or designees for withdrawal purposes.” All payments to the joint venture for performance on a set-aside contract will be deposited in the special bank account; all expenses incurred under the contract will be paid from the account. Equipment, Facilities, and Other Resources. The koint venture agreement must itemize all major equipment, facilities, and other resources to be furnished by each venturer, along with a detailed schedule of the cost or value of such items. If the contract is indefinite in nature—like an IDIQ or multiple award contract might be—the joint venture “must provide a general description of the anticipated major equipment, facilities, and other resources to be furnished by each party to the joint venture, without a detailed schedule of cost or value of each, or in the alternative, specify how the parties to the joint venture will furnish such resources to the joint venture once a definite scope of work is made publicly available.” Parties’ Responsibilities. The joint venture agreement must specify the responsibilities of the venturers with regard to contract negotiation, source of labor, and contract performance, including ways that the parties will ensure that the joint venture and the HUBZone partner(s) to the joint venture will meet the performance of work requirements, “where practical.” Again, if the contract is indefinite in nature, “the joint venture must provide a general description of the anticipated responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance, not including the ways that parties to the joint venture will ensure that the joint venture and the HUBZone partner(s) to the joint venture will meet the performance of work requirements . . . or, in the alternative, specify how the parties to the joint venture will define such responsibilities once a definite scope of work is made publicly available.” Guaranteed Performance. The joint venture agreement must obligate all parties to the joint venture to ensure complete performance despite the withdrawal of any venturer. Records. The joint venture agreement must state that accounting and other administrative records of the joint venture must be kept in the office of the HUBZone small business managing venturer, unless the SBA gives permission to keep them elsewhere. Additionally, the joint venture’s final original records must be retained by the HUBZone small business managing venturer upon completion of the contract. Statements. The joint venture agreement must provide that quarterly financial statements showing cumulative contract receipts and expenditures (including salaries of the joint venture’s principals) must be submitted to the SBA not later than 45 days after each operating quarter of the joint venture. The joint venture agreement must also state that the parties will submit a project-end profit-and-loss statement, including a statement of final profit distribution, to the SBA no later than 90 days after completion of the contract. Limitations on Subcontracting The HUBZone joint venture program’s performance of work requirements are set forth in this new subsection (d). This regulation also applies a two-pronged approach for compliance. For a joint venture that is comprised only of qualified HUBZone small businesses, “the aggregate of the qualified HUBZone small businesses to the joint venture—not each concern separately—must perform the applicable percentage of work required by 13 C.F.R. § 125.6. (As SmallGovCon readers know, these limits recently changed under a separate SBA final rule effective June 30, 2016). For a joint venture between only one qualified HUBZone protégé and another (non-HUBZone) small business concern or its SBA-approved mentor, “the joint venture must perform the applicable percentage of work required by § 125.6 . . . and the HUBZone SBC partner to the joint venture must perform at least 40% of the work performed by the joint venture.” The work performed by the HUBZone small business must be more than ministerial or administrative, so that it gains substantive experience. Certification of Compliance As with the small business mentor-protégé program, the new HUBZone joint venture requirements mandate self-certification of the joint venture agreement’s contents: “Prior to the performance of any HUBZone contract as a joint venture, the HUBZone SBC “must submit written certification to the contracting officer that the parties “have entered a joint venture agreement that fully complies with” the requirements. The HUBZone small business must also certify that the parties will perform the contract in compliance with the joint venture agreement and with the performance of work (or limitation on subcontracting) requirements. Past Performance and Experience The new regulation also provides significant improvement in the evaluation of a joint venture’s past performance: When evaluating the past performance and experience of an entity submitting an offer for a HUBZone contract as a joint venture established pursuant to this section, a procuring activity must consider the work done individually by each partner to the joint venture as well as any work done by the joint venture itself previously. Steve recently wrote why this change makes sense—because a joint venture is a limited purpose arrangement, it is counter-intuitive to require the joint venture itself to demonstrate relevant past performance. Instead, it makes more sense to allow a procuring agency to consider whether the individual members to the joint venture have any relevant experience. The Road Ahead The new HUBZone regulations take effect on August 24, 2016. They represent a significant expansion of opportunities for HUBZone small businesses–but also represent compliance challenges, especially in ensuring that joint venture agreements met all of the requirements of the new rule. View the full article
  11. SDVOSB joint venture agreements will be required to look quite different after August 24, 2016. That’s when a new SBA regulation takes effect–and the new regulation overhauls (and expands upon) the required provisions for SDVOSB joint venture agreements. The changes made by this proposed rule will affect joint ventures’ eligibility for SDVOSB contracts. It will be imperative that SDVOSBs understand that their old “template” JV agreements will be non-compliant after August 24, and that SDVOSBs and their joint venture partners carefully ensure that their subsequent joint venture agreements comply with all of the new requirements. If you’ve been following SmallGovCon lately (and I hope that you have), you know that we’ve been posting a number of updates related to the SBA’s recent major final rule, which is best known for establishing a universal small business mentor-protege program. But the final rule also includes many other important changes, including major updates to the requirements for SDVOSB joint ventures. For those familiar with the requirements for 8(a) joint ventures, most of the new requirements will look familiar; the SBA states that its changes were intended to ensure more uniformity between joint venture agreements under the various socioeconomic set-aside programs. The SBA’s final rule moves the SDVOSB joint venture requirements from 13 C.F.R. 125.15 to 13 C.F.R. 125.18 (a change of note primarily to those of us in the legal profession). But the new regulation is substantively very different than the old. Below are the highlights of the major requirements under the new rule. Of course (and this should go without saying), this post is educational only; those interested in forming a SDVOSB joint venture should consult the new regulations themselves, or consult with experienced legal counsel, rather than using this post as a guide. Size Eligibility In order to form an SDVOSB joint venture, at least one of the participants must be an SDVOSB, and must also be a small business under the NAICS code assigned to the procurement in question. The other joint venturer can be another small business, or the partner can be the SDVOSB’s mentor under the new small business mentor-protege program or the 8(a) mentor-protege program: A joint venture between a protege firm that qualifies as an SDVO SBC and its SBA-approved mentor (see [Sections] 125.9 and 124.520 of this chapter) will be deemed small provided the protege qualifies as small for the size standard corresponding to the NAICS code assigned to the SDVO procurement or sale. This piece of the new regulation appears to overturn a recent SBA Office of Hearings and Appeals decision, in which OHA held that a mentor-protege joint venture was ineligible for an SDVOSB set-aside contract because the mentor firm was not a large business. Required Joint Venture Agreement Provisions Under the new regulations, an SDVOSB joint venture agreement must include the following provisions: Purpose. The joint venture agreement must set forth the purpose of the joint venture. This is not a change from the old rules. Managing Member. An SDVOSB must be named the managing member of the joint venture. This is not a change from the old rules. Project Manager. An SDVOSB’s employee must be named the project manager responsible for performance of the contract. This, too, is not a change from the old rules. Curiously, unlike in the rules governing small business mentor-protege joint ventures, the SBA doesn’t specify whether the project manager can be a contingent hire, or instead must be a current employee of the SDVOSB. The new regulation also doesn’t address OHA case law holding that a specific individual must be named in the agreement (i.e., it’s insufficient to simply state that “an employee of the SDVOSB will be the project manager.”) It’s unfortunate that the SBA didn’t address that issue; if the SBA agrees with OHA’s rulings, it would have been nice to have the regulations reflect this requirement so that SDVOSBs understand that a specific name is required. Ownership. If the joint venture is a separate legal entity (e.g., LLC), the SDVOSB must own at least 51%. This is a change from the old rules, which don’t address ownership. Profits. The SDVOSB member must receive profits from the joint venture commensurate with the work performed by the SDVOSB, or in the case of a separate legal entity joint venture, commensurate with its ownership share. This is a change from the old rule, which applies the 51% threshold to all SDVOSBs. To me, there is no good reason to distinguish between “informal” and “separate legal entity” joint ventures, especially since the SBA (elsewhere in its final rule) concedes that “state law would recognize an ‘informal’ joint venture with a written document setting forth the responsibilities of the joint venture partners as some sort of partnership.” In other words, an informal joint venture is a legal entity too, just not one that has been formally organized with a state government. In any event, the long and short of this change is that we can expect to see many more informal SDVOSB joint ventures. That’s because, using the informal form, the non-SDVOSB will be able to perform up to 60% of the work and receive 60% of the profits (see the discussion of work split below); whereas in a separate legal entity joint venture, the non-SDVOSB will be limited to 49% of profits, no matter how much work the non-SDVOSB performs. Bank Account. The parties must establish a special bank account” in the name of the joint venture. This is a change from the old rule, which is silent regarding bank accounts. The account “must require the signature of all parties to the joint venture or designees for withdrawal purposes.” All payments to the joint venture for performance on an SDVOSB will be deposited in the special bank account; all expenses incurred under the contract will be paid from the account. Equipment, Facilities, and Other Resources. Itemize all major equipment, facilities, and other resources to be furnished by each venturer, along with a detailed schedule of the cost or value of such items. This is a change from the old rule, which doesn’t require this information to be set forth in an SDVOSB joint venture agreement. In a recent court decision, an 8(a) joint venture was penalized for providing insufficient details about these items—even though the contract in question was an IDIQ contract, making it difficult to provide a “detailed schedule” at the time the joint venture agreement was executed. Perhaps in response to that decision, the new regulations provide that “if a contract is indefinite in nature,” such as an IDIQ, the joint venture “must provide a general description of the anticipated major equipment, facilities, and other resources to be furnished by each party to the joint venture, without a detailed schedule of cost or value of each, or in the alternative, specify how the parties to the joint venture will furnish such resources to the joint venture once a definite scope of work is made publicly available.” Parties’ Responsibilities. Specify the responsibilities of the venturers with regard to contract negotiation, source of labor, and contract performance, including ways that the parties will ensure that the joint venture will meet the performance of work requirements set forth in the new rule. Again, if the contract is indefinite, a lesser amount of information will be permitted. This is an update from the old rule, which requires information on contract negotiation, source of labor, and contract performance, but does not require a discussion of how the SDVOSB joint venture will meet the performance of work requirements. Ensured Performance. Obligate all parties to the joint venture to ensure complete performance despite the withdrawal of any venturer. This is not a change from the current rule. Records. State that accounting and other administrative records of the joint venture must be kept in the office of the small business managing venturer, unless the SBA gives permission to keep them elsewhere. Additionally, the joint venture’s final original records must be retained by the small business managing venturer upon completion of the contract. These provisions, which are not included in the old rule, seem dated in the assumption that records will be kept in paper form; it instead would have been nice for the SBA to allow for more modern record-keeping, like a cloud-based records system that enables documents to be available in real-time to both parties. Statements. Provide that quarterly financial statements showing cumulative contract receipts and expenditures (including salaries of the joint venture’s principals) must be submitted to the SBA not later than 45 days after each operating quarter of the joint venture. This language, which was basically copied from the 8(a) program regulations, doesn’t specify who might be a “joint venture principal” in a world in which populated joint ventures have been eliminated. The joint venture agreement must also state that the parties will submit a project-end profit-and-loss statement, including a statement of final profit distribution, to the SBA no later than 90 days after completion of the contract. I find these requirements a bit odd because, unlike for 8(a) joint ventures, the SBA doesn’t pre-approve SDVOSB joint ventures, nor does it seem that the SBA will review a particular SDVOSB joint venture agreement except in the case of a protest. So why the ongoing requirement for submitting financial records? While I wish that every SDVOSB would call qualified legal counsel before setting up an SDVOSB joint venture, the reality is that many SDVOSBs attempt to cut costs by relying on joint venture agreement “templates” obtained from a teammate or even from questionable internet sources. Using SDVOSB joint venture agreement templates is risky enough under the old rules, but will be an even bigger problem after August 24, when all those old templates become severely outdated. I hope that all SDVOSBs become aware of the need to have updated joint venture agreements meeting the new regulatory requirements, but I won’t be surprised to see some SDVOSB joint ventures using outdated templates in the months to come–and losing out on SDVOSB set-asides as a result. Performance of Work Requirements In addition to setting forth many new and changed requirements for SDVOSB joint venture agreements, the new regulation also specifies that, for any SDVOSB contract, “the SDVO SBC partner(s) to the joint venture must perform at least 40% of the work performed by the joint venture.” That work “must be more than administrative or ministerial functions so that [the SDVOSBs] gain substantive experience.” The joint venture must also comply with the limitations on subcontracting set forth in 13 C.F.R. 125.6. And that’s not all: the SDVOSB partner to the joint venture “must annually submit a report to the relevant contracting officer and to the SBA, signed by an authorized official of each partner to the joint venture, explaining how and certifying that the performance of work requirements are being met.” Additionally, at the completion of the SDVOSB contract, a final report must be submitted to the contracting office and the SBA, “explaining how and certifying that the performance of work requirements were met for the contract, and further certifying that the contract was performed in accordance with the provisions of the joint venture agreement that are required” under the new regulation. Past Performance and Experience Many SDVOSBs will groan at the new paperwork and reporting requirements established under the new regulation. But the SBA has inserted at least one provision that is a definite “win” for SDVOSBs and their joint venture partners: the new regulation requires contracting officers to consider the past performance and experience of both members of an SDVOSB joint venture. The regulation states: When evaluating the past performance and experience of an entity submitting an offer for an SDVO contract as a joint venture established pursuant to this section, a procuring activity must consider work done by each partner to the joint venture as well as any work done by the joint venture itself previously. Small businesses sometimes assume that agencies are required to consider the past performance and experience of the individual members of a joint venture–but until now, that wasn’t the case. True, many contracting officers considered such experience anyway, but there have been high-profile examples of agencies refusing to consider the past performance of a joint venture’s members. Of course, a joint venture is defined as a limited purpose arrangement, so it makes no sense to require the joint venture itself to demonstrate relevant past performance. This change to the SBA’s regulations is important and helpful. The Road Ahead After August 24, 2016, those old template SDVOSB joint venture agreements won’t be anywhere close to compliant, so SDVOSBs should act quickly to educate themselves about the new regulations and adjust any planned joint venture relationships accordingly. For SDVOSBs and their joint venture partners, the landscape is about to shift. View the full article
  12. On Friday, Steven wrote about the framework of the new SBA small business mentor-protégé program. As part of this significant program addition, SBA’s final rule includes details about the requirements a small business joint venture must satisfy in order to be qualified to perform a small business set-aside. This post will briefly discuss those requirements. A quick disclaimer: as we have detailed previously on SmallGovCon, the SBA will closely evaluate a joint venture agreement in the case of a size protest, and omitting even one piece of required information can render a joint venture ineligible for award. Any joint venture agreement should be prepared and reviewed carefully, to ensure its compliance with the new regulations. With that admonition in mind, the small business mentor-protégé joint venture requirements (to be set forth at 13 C.F.R. § 125.8) are very similar to the existing 8(a) joint venture requirements (which apply both to 8(a) mentor-protege joint ventures and to “non-mentor-protege” joint ventures for 8(a) contracts). The regulatory requirements are very different for a joint venture between two small businesses, on the one hand, and a joint venture under the small business mentor-protege program, on the other. In the case of a joint venture between two or more businesses that each qualify as small, the agreement “need not be in any specific form or contain any specific conditions in order for the joint venture to qualify as a small business.” But for a small business mentor-protégé joint venture, the agreement must include provisions that meet the following criteria: Purpose. Set forth the purpose of the joint venture. Managing Venturer/Project Manager. Designate a small business as the managing venturer, and an employee of the managing venturer as the project manager. The individual identified as the project manager “need not be an employee of the small business at the time the joint venture submits an offer, but, if he or she is not, there must be a signed letter of intent that the individual commits to being employed by the small business if the joint venture is the successful offeror.” Importantly, “the individual identified as the project manager cannot be employed by the mentor and become an employee of the small business for purposes of performance under the joint venture.” Ownership. State that, if the joint venture is a separate legal entity, it is at least 51% owned by the small business. Profits. Distribute profits from the joint venture commensurate with the work performed, or in the case of a separate legal entity, commensurate with the ownership interests in the joint venture. Bank Account. Provide for a special bank account in the name of the joint venture. The account “must require the signature of all parties to the joint venture or designees for withdrawal purposes.” All payments to the joint venture for performance on a set-aside contract will be deposited in the special bank account; all expenses incurred under the contract will be paid from the account. Equipment, Facilities, and Other Resources. Itemize all major equipment, facilities, and other resources to be furnished by each venturer, along with a detailed schedule of the cost or value of such items. In a recent court decision, an 8(a) joint venture was penalized for providing insufficient details about these items—even though the contract in question was an IDIQ contract, making it difficult to provide a “detailed schedule” at the time the joint venture agreement was executed. Perhaps in response to that decision, the new regulations provide that “if a contract is indefinite in nature,” such as an IDIQ, the joint venture “must provide a general description of the anticipated major equipment, facilities, and other resources to be furnished by each party to the joint venture, without a detailed schedule of cost or value of each, or in the alternative, specify how the parties to the joint venture will furnish such resources to the joint venture once a definite scope of work is made publicly available.” Parties’ Responsibilities. Specify the responsibilities of the venturers with regard to contract negotiation, source of labor, and contract performance, including ways that the parties will ensure that the joint venture will meet the performance of work requirements. Again, if the contract is indefinite, a lesser amount of information will be permitted. Guaranteed Performance. Obligate all parties to the joint venture to ensure complete performance despite the withdrawal of any venturer. Records. State that accounting and other administrative records of the joint venture must be kept in the office of the small business managing venturer, unless the SBA gives permission to keep them elsewhere. Additionally, the joint venture’s final original records must be retained by the small business managing venturer upon completion of the contract. These provisions, which were lifted essentially word-for-word out of the current 8(a) regulations, seem dated in the assumption that records will be kept in paper form; it instead would have been nice for the SBA to allow for more modern record-keeping, like a cloud-based records system that enables documents to be available in real-time to both parties. Statements. Provide that quarterly financial statements showing cumulative contract receipts and expenditures (including salaries of the joint venture’s principals) must be submitted to the SBA not later than 45 days after each operating quarter of the joint venture. This language, which again was basically copied from the 8(a) regulations, doesn’t specify who might be a “joint venture principal” in a world in which populated joint ventures have been eliminated. The joint venture agreement must also state that the parties will submit a project-end profit-and-loss statement, including a statement of final profit distribution, to the SBA no later than 90 days after completion of the contract. As noted, these requirements closely mirror existing requirements for an 8(a) mentor-protégé joint venture agreement. But at least one key difference exists: for a small business mentor-protégé joint venture agreement, the small business partner must self-certify as to the agreement’s compliance. The regulation states: Prior to the performance of any contract set aside or reserved for small business by a joint venture between a protégé small business and a mentor authorized by § 125.9, the small business partner to the joint venture must submit a written certification to the contracting officer and SBA, signed by an authorized official of each partner to the joint venture, stating as follows: The parties have entered into a joint venture agreement that fully complies with [the joint venture agreement requirements]; The parties will perform the contract in compliance with the joint venture agreement and with the performance of work requirements [set forth in the regulation]. Much like an 8(a) joint venture, moreover, a small business mentor-protégé joint venture must meet the applicable performance of work percentage set out in the regulations (at 13 C.F.R. § 125.6). Additionally, the small business partner to the joint venture perform at least 40% of the work performed by the joint venture; this work must be more than administrative or ministerial, so that the protégé member can gain substantive experience. The regulation further requires the small business partner to issue performance of work reports to the SBA. These reports must describe how the small business is meeting or has met the performance of work requirements for each small business set-aside performed by the joint venture. The small business partner must submit these reports annually and at the completion of any contract. The SBA’s new final rule, issued only today, provides new opportunities to increase small business participation in federal contracting. And though businesses hoping to participate in the new small business mentor-protégé program can look to the SBA’s existing programs as a guide, key differences between the programs warrant a close review of the new requirements. Follow SmallGovCon for more updates on this important rule. View the full article
  13. Populated joint ventures will no longer be permitted in the SBA’s small business programs, under a new regulation set to take effect on August 24, 2016. The SBA’s major new rule, officially issued today in the Federal Register, will be best known for implementing the long-awaited small business mentor-protege program. But the rule also makes many other important changes to the SBA’s small business programs, including the elimination of populated joint ventures. Under current law, a joint venture can be either populated or unpopulated. A populated joint venture acts like an actual operating company: it brings employees onto its payroll, and performs contract using its own employees. An unpopulated joint venture, on the other hand, does not use its own employees to perform contracts. Instead, an unpopulated joint venture serves as a vehicle by which the joint venture’s members can collectively serve as the prime contractor, with each joint venture member performing work with its own employees. The SBA’s new regulation changes the definition of a joint venture to exclude populated entities. The revised regulation, which will appear in 13 C.F.R. 121.1o3(h), defines a joint venture, in relevant part, as follows: For purposes of this provision and in order to facilitate tracking of the number of contract awards made to a joint venture, a joint venture: must be in writing and must do business under its own name; must be identified as a joint venture in the System for Award Management (SAM); may be in the form of a formal or informal partnership or exist as a separate limited liability company or other separate legal entity; and, if it exists as a formal separate legal entity, may not be populated with individuals intended to perform contracts awarded to the joint venture (i.e., the joint venture may have its own separate employees to perform administrative functions, but may not have its own separate employees to perform contracts awarded to the joint venture). In its commentary explaining the change, the SBA focused on joint ventures between mentors and proteges, both in the 8(a) mentor-protege program and the SBA’s new small business mentor-protege program. The SBA stated that “a small protege firm does not adequately enhance its expertise or ability to perform larger and more complex contracts on its own in the future when all the work through a joint venture is performed by a populated separate legal entity.” SBA further explained: If the individuals hired by the joint venture to perform the work under the contract did not come from the protege firm, there is no guarantee that they would ultimately end up working for the protege firm after the contract is completed. In such a case, the protege firm would have gained nothing out of that contract. The company itself did not perform work under the contract and the individual employees who performed work did not at any point work for the protege firm. Although the SBA’s commentary focused almost exclusively on mentor-protege joint ventures, the regulatory change appears in the SBA’s size regulations, which apply both inside and outside of the new small business mentor-protege program. It appears, therefore, that populated joint ventures will not only be impermissible for mentor-protege joint ventures, but will also be impermissible for joint ventures between multiple small businesses. In my experience, most small government contractors already prefer unpopulated joint ventures, largely because of the administrative inconveniences associated with populating a limited-purpose entity like a joint venture. Nevertheless, a not-insignificant minority has long preferred the populated joint venture form. Come August 24, 2016, those contractors will have to say goodbye to the possibility of forming new populated joint ventures for set-aside contracts. View the full article
  14. The SBA has finalized its “universal” mentor-protege program for all small businesses. In a final rule scheduled to be published in the Federal Register on July 25, 2016, the SBA provides the framework for what may be one of the most important small business programs of the last decade–one that will allow all small businesses to obtain developmental assistance from larger mentors, and form joint ventures with those mentors to pursue set-aside contracts. First things first: while I’ve been using the term “universal” mentor-protege program for the last year and a half, the SBA apparently has had a change of heart when it comes to terminology. The SBA now calls its new program the “small business mentor-protege program,” so that’s what I’ll call it, too, from now on. The SBA’s final rule creates a new regulation, 13 C.F.R. 125.9, entitled “What are the rules governing SBA’s small business mentor-protege program?” The new regulation sets forth the framework of the small business mentor-protege program. Program Purpose The SBA broadly explains the purpose of the new program in this way: The small business mentor-protege program is designed to enhance the capabilities of protege firms by requiring approved mentors to provide business development assistance to protege firms and to improve the protege firms’ ability to successfully compete for federal contracts. This assistance may include technical and/or management assistance; financial assistance in the form of equity investments and/or loans; subcontracts (either from the mentor to the protege or from the protege to the mentor); trade education; and/or assistance in performing prime contracts with the Government through joint venture arrangements. Mentors are encouraged to provide assistance relating to the performance of contracts set aside or reserved for small business so that protege firms may more fully develop their capabilities. Just like the longstanding and popular 8(a) mentor-protege program, the new small business mentor-protege program creates a framework under which mentor firms will provide a wide variety of potential benefits to their proteges. Qualification as Mentor As a general matter, “[a]ny concern that demonstrates a commitment and the ability to assist small business concerns may act as a mentor and receive benefits ” from the mentor-protege program. Mentors may be large or small businesses. In order to qualify, a prospective mentor must demonstrate that it is capable of meeting its commitments to the protege. The SBA will evaluate a prospective mentor’s financial health, such as by reviewing the mentor’s tax returns, audited financial statements, and/or SEC filings (for publicly traded companies). A mentor must “[p]ossess good character” and cannot appear on the government’s list of debarred or suspended contractors. Once approved, a mentor must “annually certify that it continues to possess good character and a favorable financial position.” A mentor “generally” will have only one protege at a time. However, “SBA may authorize a concern to mentor more than one protege at a time where it can demonstrate that the additional mentor-protege relationship will not adversely affect the development of either protege (e.g., the second firm may not be a competitor of the first firm). While mentors may, with SBA permission, have more than one protege, “Under no circumstances will a mentor be permitted to have more than three proteges at one time . . ..” In its commentary, the SBA explains: SBA continues to believe that there must be a limit on the number of firms that one business, particularly one that is other than small, can mentor. Although SBA believes that the small business mentor-protege program will certainly afford business development to many small businesses, SBA remains concerned about large businesses benefiting disproportionately. If one firm could be a mentor for an unlimited number (or even a larger number) of proteges, that firm would receive benefits from the mentor-protege program through joint ventures and possible stock ownership far beyond the benefits to be derived by any individual protege. Importantly, the “three-protege limit” is an aggregate of proteges under the small business mentor-protege program and the separate 8(a) mentor-protege program. In other words, if a mentor already has two proteges under the 8(a) mentor-protege program, the mentor would be limited to a single additional protege under the small business mentor-protege program. If control of a mentor changes (such as through a stock sale), the mentor-protege agreement can continue under the new ownership. However, after the change in control, the mentor must “express[] in writing to SBA that it acknowledges the mentor-protege agreement and [certify] that it will continue to abide by its terms.” Finally, in its proposed rule, the SBA suggested that a firm could not be both a mentor and a protege at the same time. In my public speaking on the mentor-protege program, I questioned this proposal, noting that a firm may be well-established in one line of work, but require mentoring in a secondary line of work. For instance, a company may be a longstanding, well-established plumbing contractor, and well-positioned to mentor a firm in that industry–while at the same time requiring mentoring to break into electrical work. Perhaps the SBA was listening, because the final rule deletes that restriction. The final rule provides that “SBA may authorize a small business to be both a protege and a mentor at the same time where the firm can demonstrate that the second relationship will not compete with or otherwise conflict with the first mentor-protege relationship.” Qualification as Protege To qualify as a protege, a company “must qualify as small for the size standard corresponding to its primary NAICS code or identify that it is seeking business development assistance with respect to a secondary NAICS code and qualify as small for the size standard corresponding to that NAICS code.” However, if the prospective protege is not a small business in its primary NAICS code, “the firm must demonstrate how the mentor-protege relationship is a logical business progression for the firm and will further develop or expand current capabilities.” Further, “SBA will not approve a mentor-protege relationship in a secondary NAICS code in which the firm has no prior experience.” The portion of the final regulation involving secondary NAICS codes is an important change from the SBA’s proposed rule. The SBA initially proposed that a protege would be required to qualify as small in its primary NAICS code, and could not obtain a mentor if that standard wasn’t met. The final rule appropriately recognizes that a small business may desire mentorship to develop in a new or secondary line of work carrying a larger NAICS code (think of a plumbing contractor that wants to expand to general contracting, for example). A protege ordinarily will have no more than one mentor at a time, although the SBA may approve a second mentor where certain conditions are met. In no case will the SBA approve more than two concurrent mentors for any single protege. Written Mentor-Protege Agreement Required In order to participate in the mentor-protege program, “[t]he mentor and protege firms must enter into a written agreement setting forth an assessment of the protege’s needs and providing a detailed description and timeline for the delivery of the assistance the mentor commits to provide to address those needs . . ..” Interestingly, as in the 8(a) program, the parties must “[a]ddress how the assistance to be provided through the agreement will help the protege firm meet its goals as defined in its business plan.” I say “interestingly” because 8(a) program participants are required to submit 8(a)-specific business plans to the SBA; other small businesses are not. It’s unclear, then, whether this regulation implicitly requires prospective proteges to have written business plans (which of course is a best practice, and often required for various types of financing–but still, not all small businesses have written business plans). The mentor-protege agreement must provide that the mentor will provide assistance to the protege for at least one year. However, the agreement must also provide “that either the protege or the mentor may terminate the agreement with 30 days advance notice to the other party . . . and to SBA.” The written mentor-protege agreement must be approved by the SBA before it takes effect. Additionally, the SBA “must approve all changes to a mentor-protege agreement in advance, and any changes made to the agreement must be provided in writing.” If changes are made to the mentor-protege agreement without the SBA’s permission “SBA shall terminate the mentor-protege relationship and may also propose suspension or debarment of one or both firms . . ..” The SBA states that it will “establish a separate unit within the Office of Business Development whose sole function would be to process mentor-protege applications and review MPAs and the assistance provided under them once approved.” If this office becomes overwhelmed with applications (a concern a number of commenters raised in response to the proposed rule), SBA could consider using “open enrollment periods” in which mentor-protege applications would be accepted. The final rule does not establish any open enrollment periods at this time, however. Term of Mentor-Protege Agreement A single mentor-protege agreement “may not exceed three years, but may be extended for a second three years.” The SBA’s apparent intent is to cap, at six years, the length of time that two companies can be involved in a small business mentor-protege relationship. In its commentary, the SBA explains: The mentor-protege program should be a boost to a small business’s development that enables the small business to independently perform larger and more complex contracts in the future. It should not be a crutch that prevents small businesses from seeking and performing those larger and more complex contracts on their own. Annual Reporting Small business proteges must make annual reports to the SBA. Within 30 days of the anniversary of the SBA’s approval of the mentor-protege agreement, the protege must make a report concerning the previous year, including a detailed list of assistance provided by the mentor, federal contracts awarded to the mentor-protege as joint venturers, and so on. The protege must also submit a narrative “describing the success each assistance has had in addressing the developmental needs of the protege and addressing any problems encountered.” The SBA will review the protege’s annual report to determine whether to reauthorize the mentor-protege agreement (provided that it has not expired). However, no news is good news: “nless rescinded in writing as a result of the review, the mentor-protege relationship will automatically renew without additional written notice or continuation or extension to the protege firm.” If the SBA determines that the mentor has not provided the promised assistance, the SBA will give the mentor the opportunity to respond. If the SBA is unconvinced by that explanation (or if the mentor offers no explanation), the SBA will terminate the mentor-protege agreement and bar the mentor from acting as a mentor for two years. The SBA may also take other actions to penalize the mentor. After the mentor-protege relationship has concluded, the SBA will require the protege to submit a final report to the SBA about “whether it believed the mentor-protege relationship was beneficial and describe any lasting benefits to the protege.” If the protege fails to submit the report, the SBA will not approve a second mentor-protege relationship, either under the small business mentor-protege program or the 8(a) mentor-protege program. Joint Venturing The small business mentor-protege program allows the mentor and protege to form joint ventures and compete for set-aside contracts based solely on the protege’s size: A mentor and protege may joint venture as a small business for any government prime contract or subcontract, provided the protege qualifies as small for the procurement. Such a joint venture may seek any type of small business contract (i.e., small business set-aside, 8(a), HUBZone, SDVOS, or WOSB) for which the protege firm qualifies (e.g., a protege firm that qualifies as a WOSB could seek a WOSB set-aside as a joint venture with its SBA-approved mentor). The SBA must approve the joint venture agreement before a mentor-protege joint venture may avail itself of the special exception from affiliation provided by the small business mentor-protege program. The joint venture agreement, in turn, must satisfy the requirements of another new regulation the SBA has finalized, which will be codified at 13 C.F.R. 125.8. And because this blog post is already approaching “War and Peace” length, we’ll discuss those new joint venturing requirements in a separate post. According to the final regulation, “[o]nce a protege firm no longer qualifies as a small business for the size standard corresponding to its primary NAICS code, it will not be eligible for any further contracting benefits from its mentor-protege relationship.” In my mind, though, this prohibition is inconsistent with the SBA’s decision to allow proteges to qualify for the small business mentor-protege program based on secondary NAICS codes. If outgrowing the primary NAICS code precludes joint venturing for set-aside contracts carrying NAICS codes with higher size standards, the value of mentorship in a secondary NAICS code is greatly diminished. Perhaps the SBA will clarify this piece of the rule moving forward. The final rule provides that “a change in the protege’s size status generally does not affect contracts previously awarded to a joint venture between the protege and its mentor.” The SBA specifies that “[e]xcept for contracts with durations of more than five years (including options), a contract awarded to a joint venture between a protege and mentor as a small business continues to qualify as an award to small business for the life of that contract and the joint venture remains obligated to continue performance on that contract.” For contracts with durations of more than five years, recertification will be required as provided for in 13 C.F.R. 124.404(g)(3) Affiliation Exception As is the case under the 8(a) mentor-protege program, the small business mentor-protege program provides a broad “shield” from affiliation. The SBA’s new regulation states that “[n]o determination of affiliation or control may be found between a protege firm and its mentor based solely on the mentor-protege agreement or any assistance provided pursuant to the agreement.” The affiliation exception is not unlimited, however. The new regulation provides that “affiliation may be found for other reasons set forth” in the SBA’s affiliation regulation, 13 C.F.R. 121.103. Transfer of 8(a) Mentor-Protege Agreements The final rule provides that when a protege graduates or otherwise leaves the 8(a) Program, but continue to qualify as small, that protege “may transfer its 8(a) mentor-protege relationship to a small business mentor-protege relationship.” The mentor-and protege do not need to reapply, but must “merely inform SBA” of the intent to transfer the mentor-protege relationship to the small business mentor-protege program. The Road Ahead The SBA’s new small business mentor-protege program will become effective 30 days after the final rule is officially published on July 25. Whether the SBA will begin accepting applications in late August, however, remains to be seen. The small business mentor-protege program will be a game-changer in the world of small business contracting. For small and large contractors alike, now is the time to get working to take advantage of this extraordinary new opportunity. View the full article
  15. SmallGovCon Week In Review: July 18-22, 2016

    I’m back in the office today after a great workshop with the Kansas PTAC where I spoke about Big Changes for Small Contractors–a presentation covering the major changes to the limitations on subcontracting, the SBA’s new small business mentor-protege program, and much more. If you didn’t catch the presentation, I’ll be giving an encore presentation next week in Overland Park. And since it’s Friday, it must be time for our weekly dose of government contracting news and notes. In this week’s SmallGovCon Week In Review, we take a look at stories covering the anticipated increase in IT spending, the Contagious Diagnostics and Mitigation program is moving into phase 3, the GAO concludes the VA made errors in its contracting of medical exams and more. The overall rate of IT spending will be above $98 billion each year for the next six federal fiscal years. [E-Commerce Times] Tony Scott, U.S. Chief Information Officer, said he will allot time trying to improve how the federal government accepts unsolicited ideas from industry during what may be his last few months as the U.S. Chief Information Officer. [Nextgov] The Enterprise Infrastructure Solutions contract will reshape how agencies procure telecommunications IT starting in 2020, but agencies need to prepare now. [FedTech] The Homeland Security Department and the General Services Administration put two more key pieces in place under the Contagious Diagnostics and Mitigation program. [Federal News Radio] The U.S. GAO is recommending the VA rebid its contracts for conducting medical exams for thousands of vets applying for disability payments after concluding the VA made several prejudicial errors in its process. [TRIB Live] GSA launches a new special item number that will make it easier for agencies to find and buy the health IT services they need. [fedscoop] The SBA has launched online tutorials for entities seeking SBIR funding. [SBA] Three companies have agreed to pay $132,000 to resolve allegations of falsely self-certifying as small businesses in order to pay reduced nuclear material handling fees. [DOJ] View the full article
  16. SmallGovCon Welcomes Candace Shields

    I am very pleased to announce that Candace Shields is joining our team of government contracts bloggers here at SmallGovCon. Candace comes to us from the Social Security Administration, where she was an Attorney Advisor for several years. As an associate attorney at Koprince Law LLC, Candace’s practice focuses on federal government contracts law. Please check out Candace’s online biography and great first blog post, and be sure to visit SmallGovCon regularly for the latest legal news and notes for small government contractors. View the full article
  17. The ongoing federal movement to prevent fraud waste, and abuse in the contracting process continues. And as demonstrated in a recent federal court decision, the government retains its ability to refuse to pay a procurement contract tainted by fraud. In the recent decision of Laguna Construction Company, Inc. v. Ashton Carter, Appeal Number 15-1291, the U.S. Court of Appeals for the Federal Circuit affirmed that a procurement contract tainted by violations of the Anti-Kickback Act is voidable under the doctrine of prior material breach. In 2003, the government awarded Laguna Construction Company a contract to perform work in Iraq. Under the contract, Laguna received 16 cost-reimbursable task orders to perform the work, and awarded subcontracts to a number of subcontractors. In 2008, the government began investigating allegations that Laguna’s employees were engaged in kickback schemes with its subcontractors. In October 2010, Laguna’s project manager pleaded guilty to conspiracy to pay or receive kickbacks, conspiracy to defraud the United States, and violations of the Anti-Kickback Act, which broadly prohibits prime contractors from soliciting or accepting kickbacks in exchange for awarding subcontracts. The project manager admitted that, for approximately three years, he allowed subcontractors to submit inflated invoices to Laguna, and profited from the difference. In February 2012, three principal officers of Laguna were charged with receiving kickbacks for awarding subcontracts. The company’s Executive Vice President and Chief Operating Officer also was charged with conspiring to defraud the United States by participating in a kickback scheme from December 2004 to February 2009, which he pleaded guilty to in July 2013. After performing work until 2015, Laguna sought payment of past costs. The government refused a portion of these costs alleging that it was not liable because Laguna had committed a prior material breach by accepting subcontractor kickbacks under the contract. The Armed Services Board of Contract Appeals agreed, stating that Laguna “committed the first material breach under this contract, which provided the government with a legal excuse not to pay [Laguna’s] invoices.” Laguna appealed to the Federal Circuit. Laguna argued, in part, that any alleged breach was not material because the Government may audit and reconcile costs, thereby “assur[ing] that the Government will incur no damages.” The Federal Circuit explained that, the prior material breach doctrine, a contractor’s claim against the government may be barred when the contractor breaches the contract through “fraud-based” contract.” The court further explained that its decision comported with the Supreme Court’s instruction “that the government must be able to ‘rid itself’ of contracts that are ‘tainted’ by fraud, including kickbacks and violation of conflict-of-interest statutes,” citing to the Supreme Court’s prior rationale that: [E]ven if the Government could isolate and recover the inflation attributable to the kickback, it would still be saddled with a subcontractor who, having obtained the job other than on merit, is perhaps entirely unreliable in other ways. This unreliability in turn undermines the security of the prime contractor’s performance–a result which the public cannot tolerate, especially where, as here, important defense contracts are involved. In this case, the court wrote that Laguna “committed the first material breach” by agreeing to accept kickbacks from its subcontractors. The court held that “[t]he Board properly determined that these criminal acts constituted material breach that may be imputed to Laguna, since both employees were operating under the contract and within the scope of their employment when they ‘manipulated the contracting process.'” The court denied Laguna’s appeal, and affirmed the ASBCA’s decision. This decision provides a cautionary example of one of the many risks involved in accepting kickbacks for awarding subcontracts. The Anti-Kickback Act continues to provide for criminal, civil, and administrative penalties–and some of those penalties were assessed against Laguna’s employees. But the Laguna case demonstrates that violations of the Anti-Kickback Act (and other fraud-based breaches of a government contract) also may excuse the government from paying a contractor’s claim for additional contract costs. View the full article
  18. SBA OHA: Joint Ventures Can Be LLCs

    Joint ventures can be formally organized as limited liability companies–and that should come as no surprise, given how often joint ventures use the LLC form these days. In a recent size appeal decision, the SBA Office of Hearings and Appeals rejected the argument that, because a company was formed as an LLC, its size should not be calculated using the special rule for joint ventures. Instead, OHA held, the LLC in question was clearly intended to be a joint venture, and the fact that it was an LLC didn’t preclude it from being treated as a joint venture. OHA’s decision in Size Appeals of Insight Environmental Pacific, LLC, SBA No. SIZ-5756 (2016) involved a NAVFAC solicitation for environmental remediation at contaminated sites. The solicitation was issued under NAICS code 562910 (Environmental Remediation Services) with a corresponding size standard of 500 employees. After reviewing competitive proposals, NAVFAC announced that Insight Environmental Pacific, LLC had been selected for award. Two unsuccessful competitors then filed size protests challenging Insight’s small business status. The SBA Area Office determined that Insight had been established as an LLC in 2013. Insight’s majority owner was Insight Environmental, Engineering & Construction, Inc.; the minority owner was Environmental Chemical Construction. IEEC was designated as the “small business member” and “Managing Member” of the LLC. Insight’s operating agreement included a number of provisions indicating that Insight had been formed for a limited purpose. The operating agreement stated, among other things, that Insight’s purpose was to pursue the specific NAVFAC solicitation at issue, and perform the resulting contract if awarded. The operating agreement also stated that the LLC would be terminated if NAVFAC announced that Insight would not be awarded the environmental remediation contract. The SBA Area Office cited the SBA’s affiliation regulations, which define a joint venture as “an association of individuals and/or concerns with interests in any degree or proportion consorting to engage in and carry out no more than three specific or limited-purpose business ventures for joint profit over a two year period, for which purpose they combine their efforts, property, money, skill, or knowledge, but not on a continuing or permanent basis for conducting business generally.” The SBA Area Office wrote that the operating agreement indicated that Insight was a joint venture, and pointed out that Insight’s own proposal referred to it as a “joint venture” in three places. The SBA Area Office determined that Insight was a joint venture. Under the SBA’s prior affiliation regulations, which applied to this procurement, the size of a joint venture ordinarily was determined by adding the sizes of the members of the joint venture. Applying this affiliation regulation, the SBA Area Office determined that Insight was ineligible for the NAVFAC contract. (As SmallGovCon readers know, the SBA recently updated its affiliation regulations to specify that a joint venture’s size is determined by comparing the size of each member, individually, to the relevant size standard. Even if this change had applied to Insight, it presumably wouldn’t have altered the SBA Area Office’s analysis, because ECC apparently was a large business). Insight filed a size appeal with OHA. Insight argued that because it was an LLC, the SBA Area Office shouldn’t have treated it as a joint venture. Instead, Insight contended, the SBA Area Office should have applied the ordinary affiliation rules for other entities. Under these rules, Insight said, it would be treated as a small business because its minority member, ECC, couldn’t control the company. OHA cited the regulatory definition of a joint venture, and then quoted another part of the SBA’s affiliation regulations, which states that a joint venture “may (but need not) be in the form of a separate legal entity . . ..” OHA wrote that Insight “falls squarely within this definition.” OHA pointed out that Insight was created for the “‘sole and limited purpose’ of competing for and performing the subject NAVFAC PAcific procurement” and that the LLC would terminate if Insight was not awarded the contract. “It is therefore clear,” OHA wrote, “that [Insight] is not a business operating on ‘a continuing or permanent basis for conducting business generally,’ but rather is a temporary association of concerns engaging in a limited-purpose business venture for joint profit.” OHA explained that “the fact that [Insight] is organized as an LLC does not alter this conclusion.” OHA noted that the “regulation specifically states that a joint venture may or may not be organized as a separate legal entity,” and in commentary adopting the regulation, the SBA stated that a joint venture could use the LLC form. OHA also noted that its own prior case law “has recognized that entities structured as LLCs may still be joint ventures with the joint venture partners affiliated.” OHA denied Insight’s size appeal. In the world of government contracting, joint ventures are commonly formed as LLCs. Insight Environmental Pacific confirms that when an entity meets the definition of a joint venture, it will be treated as a joint venture–even if the entity is an LLC. View the full article
  19. The analysis of an offeror’s past performance is sometimes a crucial part of an agency’s evaluation of proposals. And an agency’s evaluation of past performance is ordinarily a matter of agency discretion. Though broad, this discretion is not unlimited. An agency’s past performance evaluation must be consistent with the solicitation’s evaluation criteria. GAO recently reaffirmed this rule, by sustaining a protest challenging an agency’s departure from its own definition of relevant past performance. At issue in Delfasco, LLC, B-409514.3 (Mar. 2, 2015), was an Army solicitation that sought the production of two types of practice bombs and a suspension lug, used for attaching the bombs to aircraft. Offerors would be graded under a best value evaluation scheme, which had three factors: technical ability, past performance (which included subfactors for quality program problems and on-time delivery), and price. An offeror’s technical ability was significantly more important than its past performance and price; past performance and price were equally weighted. The past performance evaluation was to consider the relevancy of the offeror’s prior work. Relevant past performance was defined “as having previously produced like or similar items . . . as items that have been produced using similar manufacturing processes, including experience with casting, machining, forging, metal forming, welding, essential skills and unique technologies required to produce the MK-76 with MK-14, BDU-33 and the 25lb Suspension Lug.” The solicitation’s evaluation criteria further explained that relevant past performance is that which “involved similar scope and magnitude of effort and complexities this solicitation requires,” while somewhat relevant past performance “involved some of the scope and magnitude of effort and complexities this solicitation requires.” Three companies submitted offers under the solicitation. Delfasco—a previous producer of the two bombs and the lug—was one of the offerors. Delfasco’s proposal noted that it had previously produced “millions” of the practice bombs and “thousands” of the suspension lug sought by the Army. It also contemplated using existing practices, technology, personnel, and equipment to continue this production. Nevertheless, the Army gave Delfasco a somewhat relevant past performance rating. GTI Systems also submitted a proposal. The Army’s evaluation of GTI’s past performance indicated that GTI had much more limited experience than Delfasco. The Army noted that GTI “lacked relevant past performance with respect to two necessary skills identified in the RFP, and only somewhat relevant experience with respect to another skill.” But even though the Army’s evaluation concluded that GTI “does not appear to have relevant experience i[n] all aspects that will be required on this solicitation,” it nonetheless found that GTI’s “past performance does involve a similar scope and magnitude of effort and complexities this solicitation requires giving the offeror an overall relevancy rating of ‘Relevant[.]’” In sum, then, Delfasco was given a somewhat relevant past performance rating. GTI Systems (“GTI”)—who had never produced these same practice bombs or the suspension lug—was found to have relevant past performance. In part because of this rating difference, GTI was named the awardee. Delfasco filed a GAO bid protest challenging the Army’s award decision. In the course of the protest, the Army admitted that Delfasco should have received a relevant past performance rating. Nevertheless, the Army argued, the award result would have been the same even if Delfasco had been assigned a relevant past performance rating. Delfasco contended, however, that the Army’s errors went beyond the somewhat relevant past performance rating initially assigned to Delfasco. Additionally, Delfasco contended, the Army had erred by finding GTI’s past performance to be relevant instead of somewhat relevant. GAO wrote that an agency’s evaluation of past performance is ordinarily “a matter of agency discretion.” However, that discretion is not unlimited. An agency’s past performance review must be “reasonable and consistent with the solicitation’s evaluation criteria and with the procurement statutes and regulations, [and] adequately documented.” In this case, GAO found that the Army had not properly exercised its discretion. GAO referred back to the solicitation’s definition of relevant past performance, and noted that the Army found that GTI “had not demonstrated ‘any’ relevant experience” in casting or forging, and only somewhat relevant experience in machining. Thus, GAO found that “GTI has only demonstrated ‘some’ of the skills necessary to produce the bomb bodies.” Given “limited relevant experience,” GTI’s relevant past performance rating was not justified. GAO sustained Delfasco’s protest. A disappointed offeror protesting a past performance evaluation often faces an uphill battle, given the discretion agencies typically enjoy in conducting their evaluations. But Delfasco affirms that this discretion is not unlimited—where an agency fails to follow its own past performance evaluation criteria, GAO will sustain a protest. View the full article
  20. GAO: Agency’s Order Exceeded BPA Scope

    An agency’s attempt to order under a Federal Supply Schedule blanket purchase agreement was improper because the order exceeded the scope of the underlying BPA. In a recent bid protest decision, GAO held that the agency had erred by attempting to issue a sole-source delivery order for cloud-based email service when the underlying BPA did not envision cloud services. The bid protest, Tempus Nova, Inc., B-412821, 2016 CPD ¶ 161 (Comp. Gen. June 14, 2016), pitted a Microsoft-authorized dealer against a Google-authorized dealer regarding the IRS’s email service. In 2013, the IRS issued a BPA to Softchoice Corporation under Softchoice’s FSS contract for maintenance and software updates to the IRS’s existing inventory of Microsoft products and services. The BPA gave the IRS perpetual licenses for some specific listed Microsoft products and included “the right to install on, use, or access . . . the latest version of each product[.]” GAO described the BPA as a vehicle for the IRS to “keep its existing portfolio of software licenses up-to-date with the latest versions of Microsoft products.” In the summer of 2014, the IRS issued a delivery order against the BPA to acquire an “Office Pro Plus” license, which GAO found included an Office 365 Cloud-based email service. Tempus Nova, Inc., an authorized seller of Google products and services, learned about the delivery order through an email exchange with the IRS and filed a GAO bid protest, complaining that the order was an improper sole-source acquisition of e-mail-as-a-service (EaaS). EaaS is a cloud-based subscription service or product that does not involve installing software. Tempus Nova therefore argued that it was outside of the scope of the BPA. GAO noted that “FSS delivery orders that are outside the scope of the underlying BPA” are improper because they have not been appropriately competed. In determining whether a delivery order is outside the scope of an underlying contract or BPA, the GAO “considers whether there is a material difference between the delivery order and the underlying BPA.” GAO further explained: Evidence of a material difference is found by reviewing the BPA as awarded, and the terms of the delivery order issued, and considering whether the original solicitation adequately advised offerors of the potential for the type of work contemplated by the delivery order. The overall inquiry is whether the delivery order is of such a nature that potential offerors reasonably would have anticipated competing for the goods or services being acquired through issuance of the delivery order. In this case, the IRS argued that Office 365 is merely the “latest and greatest” version of Office Pro Plus (which was specifically identified in the BPA). GAO disagreed. It wrote that Office Pro Plus “is, in fact, an Office 365 cloud-based product, which is distinct from the ‘Office Professional Plus’ licenses owned by the agency.” Therefore, GAO concluded, “[t]he record demonstrates that under the delivery order, the agency acquired ‘Office Pro Plus’ subscriptions–a cloud-based Microsoft Office 365 product–even though the portfolio of software assets identified in the BPA did not include any cloud-based products.” GAO found that “the delivery order at issue in the protest amounts to an improper, out-of-scope, sole source award.” GAO sustained the protest. Agencies have rather broad flexibility to use vehicles like BPAs to obtain goods and services. But as the Tempus Nova case demonstrates, that flexibility is not unlimited: an order that exceeds the scope of an underlying BPA is improper. View the full article
  21. SmallGovCon Week In Review July 11-15, 2016

    I’m back in the office after a week-long family beach vacation around the 4th of July. Kudos to my colleagues here at Koprince Law for putting out last week’s SmallGovCon Week In Review while I was out having some fun in the sun. This week’s edition of our weekly government contracts news roundup includes a prison term for an 8(a) fraudster, a Congressional focus on full implementation of the Supreme Court’s Kingdomware decision, the release of an important new FAR provision regarding small business subcontracting, and more. A businessman from Fairfax, Virginia has been sentenced to 15 months in prison for fraudulently obtaining contracts worth $6 million from a federal program created to help minority-owned small businesses. [IndiaWest] A top Congressional Republican wants to make sure the Department of Veterans Affairs is fully implementing the Supreme Court’s unanimous Kingdomware decision. [The Hill] A look ahead to next spring brings hope of contracting reform and a focus on having an effective cost-comparison system and effective contract management in place. [Federal News Radio] Two former New Jersey construction executives have been sentenced for their roles in a scheme to secure government contracts by bribing foreign officials. [Reuters] The FAR Council has issued a final rule amending the FAR to implement regulatory changes made by the SBA, which provide for a Governmentwide policy on small business subcontracting. [Federal Register] Congress wants the DoD to shed more light on how it is using lowest-price, technically-acceptable contracts–and report back to Congress in the spring. [GovTech Works] View the full article
  22. The U.S. Small Business Administration, Office of Hearings and Appeals recently affirmed–for now–its narrow reading of the so-called interaffiliate transactions exception. In a recent size appeal decision, Newport Materials, LLC, SBA No. SIZ-5733 (Apr. 21, 2016), OHA upheld a 2015 decision in which OHA narrowly applied the exception, holding that interaffiliate transactions count against a challenged firm’s annual receipts unless three factors are met: 1) the concerns are eligible to file a consolidated tax return; 2) the transactions are between the challenged concern and its affiliate; and 3) the transactions are between a parent company and its subsidiary. The Newport Materials size appeal involved an Air Force IFB for the repair/replacement of roadways, curbing and sidewalks. The Air Force issued the IFB as a small business set-aside under NAICS code 237310 (Highway, Street, and Bridge Construction), with a corresponding $36.5 million size standard. After opening bids, the Air Force announced that Newport Materials, LLC was the apparent awardee. A competitor then filed a size protest challenging Newport Materials’ small business eligibility. The SBA Area Office determined that Newport Materials was 100% owned by Richard DeFelice. Mr. DeFelice also owned several other companies, including Newport Construction Corporation. Mr. DeFelice had previously owned 100% of Four Acres Transportation, Inc. However in January 2015, Mr. DeFelice transferred his interest in Four Acres to Newport Construction. Therefore, Four Acres was a wholly-owned subsidiary of Newport Construction. Four Acres’ entire business apparently consisted of performing payroll activities for Newport Construction. In evaluating Newport Materials’ size, the SBA Area Office added the revenues of Newport Construction, which was affiliated due to Mr. DeFelice’s common ownership. The SBA Area Office then considered whether to add the revenues of Four Acres, as well. Newport Materials argued that Four Acres’ revenues should be excluded under the interaffiliate transactions exception in order to prevent unfair “double counting” of the Newport Construction’s revenues. The SBA Area Office disagreed. Citing the 2015 OHA decision, Size Appeals of G&C Fab-Con, LLC, SBA No. SIZ-5649 (2015), the Area Office held that Four Acres’ revenues could not be excluded under the interaffiliate transactions exception. The Area Office found that “Four Acres and Newport Construction are legally prohibited from filing a consolidated tax return because they are both S Corporations.” Additionally, “the exclusion applies only to transactions between the challenged firm and an affiliate, not to transactions among affiliates of the challenged firm, as is the case here because [Newport Materials] is not a party to the transactions.” And finally, because the transactions in question happened before January 2015, “Newport Construction and Four Acres were not parent and subsidiary when the transactions occurred . . ..” Newport Materials filed an appeal with OHA, arguing that previous OHA decisions, including G&C Fab-Con, were distinguishable and should not govern the outcome in this case. Newport Materials also argued that OHA’s narrow interpretation of the interaffiliate transactions exception was bad public policy. In a brief opinion, OHA disagreed, holding that there was “no basis to distinguish the instant case from OHA precedent.” It concluded by rejecting Newport Materials’ policy arguments as beyond OHA’s purview: “Arguments as to which policy objectives should, ideally, be reflected in SBA regulations are beyond the scope of the OHA’s review, and should instead be directed to SBA policy officials.” Those policy officials’ ears must have been burning. As Steve Koprince wrote in this space recently, SBA issued a Policy Statement on May 24, 2016 indicating it intends to broadly apply the interaffiliate transactions exception moving forward and specifically will not require concerns to be eligible to file a consolidated tax return. The policy statement said that “effective immediately” the exception will apply “to interaffiliate transactions between a concern and a firm with which it is affiliated under the principles in [the SBA’s affiliation regulation].” Thus, Newport Materials may already be essentially overturned. What is not clear is how OHA will interpret the new policy. Believe it or not, there may still be some wiggle room for interpretation. The Policy Statement only specifically addresses the first of the three factors discussed in Newport Materials, the eligibility to file a consolidated tax return. Consolidated tax returns were at the heart of the G&C Fab-Con decision; the SBA policy makers evidently thought OHA got it wrong in that case and issued the Policy Statement to overturn OHA’s decision. However, the Policy Statement does not specifically address whether the transactions have to be between the challenged firm and an affiliate instead of the transactions occurring between affiliates of the challenged firm (as was the case in Newport Materials). The Policy Statement also does not specifically address whether the transactions have to be between a parent company and its subsidiary in order to qualify for the interaffiliate transactions exception. That said, the Policy Statement uses broad language that the SBA policy makers likely intended to overturn all three limitations described in Newport Materials: “SBA believes that the current regulatory language is clear on its face. It specifically excludes all proceeds from transactions between a concern and its affiliates, without limitation.” Whether or not OHA agrees remains to be seen. View the full article
  23. A group of companies has agreed to pay $5.8 million to resolve a False Claims Act case stemming from alleged affiliations among the companies. According to a Department of Justice press release, the settlement resolves claims that En Pointe Gov Inc (now known as Modern Gov IT Inc.) falsely certified that it was a small business for purposes of federal set-aside contracts, despite alleged affiliations with four other companies–all of whom will also pay a portion of the settlement. The government alleged that, between 2011 and 2014, En Pointe Gov Inc. falsely represented that it was a small business. “In particular,” the press release states, “the government alleged that En Pointe Gov Inc.’s affiliation with the other defendants rendered it a non-small business, and, thus, ineligible for the small business set-aside contracts it obtained.” The government also alleged that En Pointe under-reported sales made under its GSA Schedule contract, resulting in underpayment of the Industrial Funding Fee. The issue came to light as the result of a lawsuit filed by an apparent competitor, Minburn Technology Group, and Minburn’s managing member. Minburn filed the lawsuit under the False Claims Act’s whistleblower provisions, which allow private individuals to sue on behalf of the government. Miburn and its managing member stand to receive approximately $1.4 million as their share of the settlement. View the full article
  24. An agency was entitled to cancel a solicitation when its needs changed–even though the anticipated changes in its needs “might be characterized as minimal.” In a recent bid protest decision, the GAO confirmed that a procuring agency has broad discretion to cancel a solicitation when the agency’s anticipated needs change, and that discretion extends to cases in which the agency’s changed needs could be addressed by amending the existing solicitation. The GAO’s decision in Social Impact, Inc., B-412655.3 (June 29, 2016) involved a USAID solicitation for support for the agency’s Monitoring, Evaluation, and Learning Program in Tanzania. After evaluating competitive proposals, USAID initially selecting Management Systems International for award. Social Impact, Inc. then filed a GAO bid protest, challenging the award to MSI. In response to the protest, USAID notified the GAO that it intended to terminate the award to MSI and cancel the solicitation. Explaining its decision to cancel the solicitation, the agency stated that “Changes in USAID/Tanzania Mission staffing, and its in-house capacity, as well as changes in Agency experience and best practices vis-a-vis monitoring, evaluation, and learning (MEL) activities, dictate that the Mission streamline its MEL activities by moving some of the underlying procurement’s related work, such as the learning component, in-house to maximize efficiency and cost-savings.” Social Impact filed a GAO bid protest challenging the agency’s decision to cancel. Social Impact argued, in part, that the cancellation was inconsistent with FAR 15.206(e), which states: If, in the judgment of the contracting officer, based on market research or otherwise, an amendment proposed for issuance after offers have been received is so substantial as to exceed what prospective offerors reasonably could have anticipated, so that additional sources likely would have submitted offers had the substance of the amendment been known to them, the contracting officer shall cancel the original solicitation and issue a new one, regardless of the stage of the acquisition. Social Impact contended that the changes in USAID’s needs were minimal, and not “so substantial as to exceed what prospective offerors reasonably could have anticipated.” Therefore, Social Impact argued, USAID should have amended the existing solicitation rather than canceling it. The GAO wrote that “Section 15.206(e) mandates that an agency cancel a solicitation and issue a new one” when the “so substantial” test is satisfied. “There is nothing to suggest, however, that the converse is true, i.e., that an agency is is prohibited from canceling a solicitation when changes in the agency’s requirements do not rise to the level contemplated in Section 15.206(e).” The GAO continued: To the contrary, our Office has held that, even when the changes could be addressed by an amendment, “[t]he only pertinent inquiry is whether there existed a reasonable basis to cancel, since an agency may cancel at any time when such a basis is present.” Where the record reflects a reasonable basis to cancel, and in the absence of the criteria described in section 15.206(e), the agency has broad discretion in determining whether to cancel or amend a solicitation. The GAO concluded that “we find the agency’s decision to cancel the solicitation to be reasonable despite the fact that the anticipated changes to the solicitation might be characterized as minimal.” The GAO denied Social Impact’s protest. As the Social Impact case demonstrates, agencies enjoy broad discretion when it comes to canceling solicitations. Even where an anticipated change in the agency’s needs could be satisfied by amending the existing solicitation, the agency may validly decide instead to cancel it. View the full article
  25. An agency ordinarily is not required to perform calculations to determine whether an offeror’s proposal complies with a solicitation’s requirements, according to the GAO. In a recent bid protest decision, the GAO rejected the protester’s argument that, in determining whether the proposal satisfied certain requirements, the agency should have used the information in the proposal to perform certain calculations. The GAO’s decision in Mistral, Inc., B-411291.4 (Feb. 29, 2016) involved a DHS small business set-aside solicitation to obtain new mobile video surveillance systems. The solicitation called for a best value evaluation considering three factors: technical, past performance, and price. After taking corrective action in response to a bid protest, the DHS opened discussions with offerors in the competitive range, including Mistral, Inc. In its written discussion questions for Mistral, the DHS asked Mistral to provide “an analysis and calculations” Mistral used to justify “the performance claims for Critical Failure Rate and Achieved Availability as prescribed in Section L of the solicitation.” In response, Mistral’s final proposal revision directed the DHS to “the Excel spreadsheet (all formulas embedded)” submitted to the agency on a CD-ROM. When the DHS examined the CD-ROM submitted by Mistral, it found only a PDF of the required information–not an Excel file. Although Mistral provided a table with calculations, the DHS was unable to access the embedded calculations contained in the original Excel spreadsheet. The DHS assigned Mistral a risk for failing to provide the formulas, and an overall “Satisfactory” rating for its technical proposal. The DHS awarded the contract to a competitor, which also received a “Satisfactory” technical rating, but proposed a lower overall price. Mistral filed a bid protest with the GAO. Mistral argued, in part, that the agency could have derived the calculations and formulas from the information provided in the PDF, and therefore should not have assigned a risk for the supposed absence of this information. The GAO wrote that Mistral “does not explain how this could or should be done.” And, “[m]ore importantly . . . an agency is not required to perform calculations or adapt its evaluation to comply with an offeror’s submission in order to determine whether a proposal was compliant with stated solicitation requirements.” The GAO continued: Stated differently, the question is not what the agency could possibly do to cure a noncompliant submission, but rather, what it was required to do. Based on our review of the record, we agree with the agency’s conclusions that without the substantiating evidence to support Mistral’s performance claims as required by the solicitation, and requested by the agency during discussions, it was reasonable to assign a medium risk to Mistral’s proposal in this area. The GAO denied Mistral’s protest. The Mistral, Inc. protest is a good reminder that it is up to an offeror to prepare a thorough, well-written proposal, including all information required by the solicitation. It is not the agency’s responsibility, in the ordinary course, to perform calculations using the information provided by the offeror to determine whether the proposal meets the solicitation’s requirements. And of course, Mistral is also a warning to offerors to be sure that electronic proposals are submitted in the appropriate format. Although PDFs are commonly used in the submission of electronic proposals, there are circumstances in which a PDF may not get the job done–such as in Mistral, where the underlying Excel calculations, which weren’t available in PDF format, were important to the evaluation. View the full article
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