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  1. SmallGovCon Week In Review: February 5-9, 2018

    It has been a cold week here in Lawrence, Kansas. I hope everyone is staying warm. It’s time to get some hot cocoa (or the Friday afternoon beverage of your choice) and enjoy the top government contracting news and notes for the week. This week’s news includes the release of the major Section 809 Panel’s first acquisition reform report, a Maryland company pays the government more than half a million dollars to settle False Claims Act allegations relating to unallowable costs, HHS agency officials are heading on a cross-country tour to demystify selling to the government, the GAO says that the SBIR and STTR databases are riddled with errors, and much more. The Section 809 Panel put out its first “Report of the Advisory Panel on Streamlining and Codifying Acquisition Regulations.” [Section 809 Panel] An 8(a) contractor has protested a major DoD cloud computing services contract that could be worth up to $950 million. [Federal News Radio] A defense contractor will pay more than $500,000 to settle False Claims Act allegations relating to unallowable costs. [justice.gov] HHS has kicked off a tour to encourage selling to the government. [Nextgov.com] The new GSA Administrator is looking to bring more transparency to the procurement process, especially in the GSA Schedule program. [Federal News Radio] The SBA’s SBIR and STTR program databases are hobbled by errors, according to the GAO. [Fedscoop.com] View the full article
  2. The FAR and DFARS have 27 distinct definitions of the term “subcontract,” according to an acquisition reform panel. In its first report, the Section 809 Panel urges policymakers to adopt a consolidated definition of the term “subcontract,” as well as a common definition of “subcontractor,” a term that has 21 distinct definitions in the FAR and DFARS. The Section 809 Panel was established by Congress in the 2016 National Defense Authorization Act, and tasked with recommending ways to streamline and improve the defense acquisition process. The Panel intends to release a three-volume series of reports on ways to potentially improve and reform DoD acquisitions. The Panel released its first report on January 31. The 642-page report is chock full of interesting information–including the fact that DoD small business contract awards have dropped sharply since FY 2011, something I wrote about earlier this week. But the report also includes some other important nuggets that may fly under the radar, such as the need for common definitions of what it means to be a subcontractor or award a subcontract. The Panel writes that “[t]he FAR currently defines the term contract, an important term widely used throughout the FAR and DFARS.” However, “neither the FAR nor DFARS defines the term subcontract, another term used throughout the FAR and DFARS.” Similarly, the term “subcontractor” is used frequently, but does not have a common definition. The Panel says that both terms have “numerous definitions” under current regulations: A search of the FAR and DFARS produced 27 distinct definitions of the term subcontract. Seventeen of these definitions were essentially the same with only minor differences. The other 10 were unique one way or another, but shared many of the same common elements. *** The FAR and DFARS search also produced 21 distinct definitions of subcontractor. Most of these definitions shared common elements that could be conducive to drafting a single, common definition. Several had a unique element that would require an accommodation. The Panel recommends adopting common definitions of the terms “subcontract” and “subcontractor,” and provides suggested definitions that could be adopted. The Panel’s discussion of this terminology is a very minor part of a very large report. But it struck a chord with me, because clients have asked me many times whether a particular arrangement constitutes a “subcontract” or whether a particular company qualifies as a “subcontractor.” It drives me absolutely batty (yes, that’s official legal terminology), that I have to respond “it depends.” And, as a policy matter, it makes little sense to treat an agreement as a subcontract in certain contexts, but as something else in others. A set of rules that defines the same terms more than 20 different ways is the sort of unnecessary complexity that discourages companies–particularly small businesses–from participating in government contracts in the first place. The Section 809 Panel’s report will come under intense scrutiny, and some of its recommendations will likely garner significant push back from various segments of the government contracting community. But I hope that pretty much everyone can get behind the need for common definitions of important terms like “subcontract” and “subcontractor.” View the full article
  3. The number of DoD small business contract actions has dropped almost 70 percent since Fiscal Year 2011, even as the total number of small business dollars increased significantly. This is one of the important new findings from an acquisition reform panel’s initial report. The Advisory Panel on Streamlining and Codifying Acquisition Regulations–better known as the Section 809 Panel–recently released the first in an anticipated three-volume series of reports on ways to potentially reform and improve DoD acquisitions. The report, which clocks in at a whopping 642 pages, includes a detailed section on DoD small business acquisitions–and suggests that DoD’s focus on achieving dollar-based small business goals has obscured the fact that far fewer small businesses have been awarded DoD contracts in recent years. If you haven’t heard of the Section 809 Panel, don’t feel bad. It’s an important entity, but to date, its work has largely flown under the radar of many in the acquisition community. The Panel is an 18-person group established by Congress in the 2016 National Defense Authorization Act (in Section 809–gotta love the creative naming!), and assigned the task of recommending ways to streamline and improve the defense acquisition process. The Panel’s recommendations are only advisory, but in light of the Congressional mandate, they’re likely to carry quite a bit of weight with policymakers. Some small business advocates have been worried that the Section 809 Panel will be detrimental to small contractors. After all, when it comes to government contracting, terms like “streamlining” sometimes seem to be code for bundling, consolidation, and similar processes. It remains to be seen whether the Section 809 Panel’s recommendations, in the aggregate, will prove beneficial or detrimental to small businesses. From what I can tell so far (keeping in mind that we’re only one-third of the way into the Panel’s reporting), the answer may well depend on where a small business sits in the marketplace. But this post isn’t intended to be a soapbox screed on the Panel’s recommendations as a whole–although that may come at a later date. For now, though, I want to focus on a very important small business statistic buried in the lengthy report: The number of small business contract actions dropped nearly 70 percent from FY 2011 to FY 2016, but during that same timeframe the value of DoD small business contracts rose approximately 290 percent. Small companies are receiving contracts of substantial value from the government, including DoD, but the decline in the number of small business contract actions indicates DoD’s small business contracting is not promoting competition and fostering robustness in the defense market. The Panel blames this decline in part on DoD’s “almost singular focus on the aggregate dollar value of small business contracts.” In other words, under the current small business goaling system, DoD gets credit when it awards a certain percentage of its prime contracting dollars to small businesses–but it makes no difference whether those dollars are divided between 1,000 small businesses or 100,000 small businesses. In Fiscal Year 2016, for example, the DoD awarded 22.94% of its prime contracting dollars to small businesses, and earned an “A” for its efforts. However, there has been a “decline of nearly 100,000 small companies registered in [SAM] to do business with the federal government since 2012,” and DoD’s achievement of its dollar goals masks a sharp drop in the number of contracts awarded to small companies since FY 2011. Of course, the dollar goals were in place long before FY 2011, so there must be more going on here. Why is DoD awarding far fewer small business contracts? The Panel points to various potential factors. For example, some small businesses interviewed by the Panel said that “doing business with DoD is too complex and burdensome.” Among the many complexities, “[a]croynms and jargon that are widely used across DoD are not always comprehensible for small businesses lacking experience in the defense market . . ..” Amen to that. But other issues abound, including the costs of pursuing DoD contracts, the long lead times associated with many DoD procurements, the “lack of clear entry points into the defense market,” and “the potential effects of audits, paperwork, and other [compliance] processes” on small businesses. This all makes sense, but these factors all existed before FY 2011. It seems to me that the Panel, having identified a very important issue and some potential barriers to small business participation in the DoD marketplace, is ignoring the elephant in the room: streamlining itself may be playing a major role in reducing the number of small business awards. While definitive statistics can be hard to come by, you can’t go 15 minutes at the typical government contracts conference without hearing about how agencies are moving toward fewer, larger contracts–regardless of whether those contracts meet the FAR’s technical definitions of consolidation or bundling. And I’m not going to get into the long-running debate over category management and strategic sourcing, but it’s a commonly-held view that these initiatives may be detrimental to broad small business participation in the government marketplace. When contracts become larger and more complex, it follows that fewer small businesses are likely to compete. After all, there are only so many small businesses that can feel confident pursuing and successfully performing set-aside contracts of $25 million, $50 million, $100 million and larger. Indeed, I’ve seen a few large set-aside competitions in which all of the offerors were “non-traditional” small businesses, such as ANC subsidiaries or 8(a) mentor-protégé joint ventures. The Section 809 Panel report identifies a very important problem in DoD’s small business contracting system, and it’s a good idea to look at ways to reduce the costs and administrative burdens of doing business with DoD. It’s also wise to consider whether the current goaling system can be adjusted to include more metrics that aren’t based on aggregate dollars. However, policymakers should examine the potential negative effects of streamlining itself, including initiatives such as strategic sourcing and category management. Without that analysis, any effort to reverse the major decline in small business awards may be missing a large piece of the puzzle. View the full article
  4. A newly released Government Accountability Office report provides a rare peek behind the curtain of how contracting officers assign North American Industry Classification System codes. Contracting officers are required by 13 C.F.R. § 121.402(b) to designate the NAICS code that “best describes” the work to be performed. It sounds simple enough, but the report reveals that it can be tricky. The contracting officers interviewed by GAO as part of its December 2017 Report to the Committee on Small Business, House of Representatives said as much, telling GAO that assigning a NAICS can be challenging, especially “when one or more codes could apply to a contract.” “Best describes” is a lofty principle, but in practice, nothing tells the contracting officer how he or she is supposed to go about determining what NAICS code best describes the work. There are hundreds of codes with wildly different corresponding size standards. Making sense of them all is surely no easy task—especially since none of the agencies studied provide NAICS-specific training. The selection of one code over another can have a massive impact on any procurement. The NAICS code determines whether a business is “small” for the purposes of that procurement. In terms of dollars, size standards vary in annual revenue from $750,000 to $38.5 million. Employee count size standards vary from 100 to 1,500. Thus, that one decision can dramatically affect the contours of the competition. The report, given to Congress in December, was the result of interviews with contracting officers and small business specialists from the Departments of the Army, the Navy, Homeland Security, and Health and Human Services. But, somewhat disappointingly, GAO’s sample size appears to be extremely small. GAO only interviewed one contracting officer per agency. Nevertheless, all four contracting officers told similar tales. The steps they generally take are 1) review the statement of work/performance work statement to get an idea of the type of work being done to assign a preliminary code; 2) conduct/review market research; and 3) seek input from the small business specialist. Reviewing the work, according to those interviewed, includes checking to see what code the work was previously solicited under, if applicable, and whether similar work has been previously procured by the agency. Although all four of the contracting officers said that the market research contributes to the decision, GAO found evidence of market research in only two of the four contracts reviewed. Meanwhile, the mechanism for seeking the input of the small business specialist is simply filing out a form. The small business specialist reviews the form prior to the contracting officer issuing the solicitation. Not to oversimplify a complicated process, but it sounds like the contracting officers generally pick a code after reviewing the work and as long as they do not get any push back, go with that. The obvious drawback to this system is that it is heavily dependent on the contracting officer’s personal judgement. As one contracting officer told GAO, “assigning the NAICS code is subjective and two different contracting officers could review the same contract and find different codes to be appropriate.” GAO, in fact, found evidence that this happens. For example, GAO wrote that an order for “a new closed circuit TV (CCTV) System” went out under NAICS code 541330 (Engineering Services), with a corresponding size standard of $15 million. But an order for “installation of intrusion detection and closed circuit video surveillance” went out under code 541512 (Computer Systems Design Services) with a corresponding size standard of $27.5 million. Thus, although the work was very similar, much larger businesses were eligible to compete for the latter procurement. GAO also noted the challenge associated with IDIQ contracts, because “the statements of work may cover more than one code.” The SBA attempted to give contracting officers more freedom on that front by issuing a rule in 2013 that allowed the assignment of more than one NAICS code to multiple-award contracts. But, according to the GAO findings, contracting officers do not take advantage of the flexibility, in part because there is not a practical mechanism that would allow them to do so. The contract writing systems which feed into the Federal Procurement Data System-Next Generation (FPDS-NG) only allow for one NAICS code per contract. The study also gave industry groups and firms the chance to opine. Unsurprisingly, they “expressed concern that some contracting officers assign NAICS codes because they want specific size standards, not because they are the most appropriate codes[.]” Both HHS and SBA pushed back against that idea. The SBA argued that the “results of NAICS code appeals as an indication that the practice of assigning NAICS codes based on the size standard was not widespread.” But, as we recently pointed out, the relative sparsity of sustained NAICS appeals found in this report does not necessarily mean that a good portion of appeals filed are not successful. Furthermore, the standard on appeal is not whether there is a better NAICS code to describe the work, but whether the code picked was in “clear error of fact or law,” which means that the SBA Office of Hearings and Appeals’ job on appeal is not to determine if the selected code “best describes” the work, just if the selected code was obviously wrong. Unfortunately, the small sample size means that no hard conclusions can be drawn. However, the report highlights the importance of NAICS codes in small business acquisitions, and suggests that policymakers would be wise to undertake further study to determine if the process of assigning NAICS codes can be improved. View the full article
  5. 5 Things has previously discussed 8(a) Program basics and eligibility requirements. But the 8(a) Program isn’t the only socioeconomic program benefiting small businesses. In this post, we’ll begin exploring another crucial program for small businesses: the Historically Underutilized Business Zone—or HUBZone—program. Here are five things you should know about the HUBZone program. What is the HUBZone program? At its most basic, the HUBZone program is designed to provide economic assistance to economically-depressed geographic areas by awarding federal contracts to small businesses that operate and employ workers in those areas. Which geographic areas fall in a HUBZone? The Department of Housing and Urban Development determines which areas qualify as HUBZones, with reference to the latest census data. The SBA then publishes interactive maps that show whether an address falls within a HUBZone. For example, a qualified census tract HUBZone is shown shaded on the map below (just across the street to the south and east from Koprince Law LLC). Companies with their principal offices located in the blue area might qualify to participate in the HUBZone program, if they meet the other eligibility requirements; those outside of the HUBZone would not. Who is eligible to participate as a HUBZone business? There are four basic requirements a “typical” company must meet to participate in the HUBZone program: The company must be at least 51% unconditionally and directly owned and controlled by United States citizens; The company must be a small business under its primary NAICS code; The company’s principal office must be located in a HUBZone; and At least 35% of the concerns employees must live in a HUBZone. These are just the basic criteria. The last two requirements come with their own quirks, so future posts will explore them in greater detail. It’s also worth bearing in mind that these are the eligibility criteria for typical HUBZones—that is, those owned by individuals. There are separate eligibility criteria for companies owned by Indian tribes, Alaska Native Corporations, Native Hawaiian Organizations, and Community Development Corporations. We will explore the requirements for these special HUBZone firms in future posts, as well. When is eligibility determined? HUBZone eligibility is an on-going process. A company has to qualify at the time it submits its offer under a HUBZone contract and at the time of award. And once on the job, the company must “attempt to maintain” its compliance with the regulations. To reiterate: at the time of bid and time of award, the company must be in actual compliance with all eligibility criteria, not just be attempting to maintain compliance. This ongoing eligibility can cause heartburn for some companies, particularly regarding the 35% employee residency requirement. Consider the following scenario: a company has 10 employees (4 of whom reside in a HUBZone) at the time it submits its bid but then, before the award is made, one of its HUBZone-residing employees takes a job elsewhere. At the time of the bid, 40% of its employees lived in a HUBZone; at the time of the award, only 33% did. Through no fault of its own, the company would not be eligible for the award. We’ve seen this scenario happen several times—and have prosecuted and defended protests challenging HUBZone eligibility based on similar circumstances. Maintaining 35% residency supports the underlying goal of the HUBZone program—how would an economically-depressed area reap the benefits from a HUBZone contract if its residents aren’t employed to perform the work? That said, we think SBA ought to consider changing the rules to prevent potentially harsh results like the one seen in the example. Though it might sound daunting, maintaining eligibility isn’t impossible for most firms. It just takes a little vigilance and a strong, effective compliance plan. What’s the benefit to participating? The benefits to participating in the HUBZone program can be enormous: the government’s goal is to award 3% of its prime contracts to HUBZone entities annually. Contracting officers are given broad powers to award contracts to HUBZone entities—including through sole-source awards and set-asides. For contracts issued under full and open competition, moreover, HUBZone companies receive a price evaluation preference. * * * That’s it: five things about HUBZone basics. Look for future posts explaining HUBZone program requirements in more detail. And of course, please call me to discuss eligibility or applying. View the full article
  6. When a contractor submits a sealed bid that includes a mistake, the contractor may be allowed to correct its bid, if there must be clear evidence of the error on the face of the bid. According to a recent GAO decision, however, absent clear evidence, it is unreasonable for an agency to allow a bid correction. Herman Construction Group, Inc., B-415480 (Jan. 5, 2018) involved a construction procurement for renovation and expansion at the Department of Veterans Affairs Palo Alto Health Care System Campus. Five bidders responded to the IFB, including Herman and Talion Construction, LLC. After the bid period closed, the VA announced that Talion Construction, LLC had submitted the lowest bid and been selected for award. Talion’s bid price was $6,635,332. Herman Construction Group, Inc. submitted the second-lowest bid: $7,820,508. After award, Talion contacted the agency and explained it had made a mistake in its bid regarding the cost of drywall installation. Talion asked to revise its bid price to $7,771,658–still the lowest bid, but more than $1 million higher than the awarded bid price. According to Talion, it had used $500,000 as a placeholder for its bid while waiting for a bid from its anticipated subcontractor. The day before bids were due, Talion’s drywall subcontractor faxed its bid of $1,498,770 to Talion for incorporation into the proposal. According to Talion, this number was not included because Talion typically utilizes subcontractor bids made on the day of proposal submission and had failed to include the drywall subcontractor’s bid price in Talion’s final bid. To support its contentions, Talion provided the agency with a copy of the fax it received from its subcontractor the day before bids were due. Talion also provide the agency with both its original and “corrected” bid worksheets. The original bid worksheet retained the $500,000 placeholder whereas the corrected worksheet utilized the $1,498,770 number. Notably, both worksheets still named Talion as the drywall contractor, not the subcontractor. Based on the evidence provided, the agency allowed Talion to correct its bid. Even with the correction, Talion was still the lowest priced bidder and named the awardee. The second place offeror, Herman, subsequently filed a bid protest. While Herman raised multiple allegations regarding the VA’s award to Talion, GAO focused only on the allegation that Talion was unreasonably given the opportunity to correct its bid. In the unique context of sealed bidding, FAR 14.407-3(a) affords agencies the discretion to allow an offeror to correct its bid after the bid submission deadline, provided the correction will only increase the bid, and “clear and convincing evidence establishes both the existence of the mistake and [what] the bid actually intended[.]” For its part, GAO will review all of the evidence used to establish the existence of an error, and “will not question an agency’s decision based on this evidence unless it lacks a reasonable basis.” GAO was not convinced such clear and convincing evidence existed here. While Talion may have known the $500,000 place holder in its bid was an error, GAO wrote “there is nothing irregular about the entry for drywall installation that would lead one to believe that a mistake had been made.” Consequently, there was nothing in the original bid to tip the agency off that there was something amiss with Talion’s bid, particularly since Talion’s bid listed Talion, not its alleged subcontractor, as the drywall installation contractor. Accordingly, GAO considered Talion’s explanation of its internal procedures to be “uncorroborated and self-serving, as well as not offering clear and convincing proof of a mistake, because the explanation has no connection to the worksheet other than the amount of the mistaken value.” Turning its attention to the agency, GAO concluded clear and convincing evidence of a mistake did not exist. Therefore, “the agency improperly permitted Talion to correct the mistake in its bid.” GAO recommended the agency cancel its current award to Talion and either re-award to Talion at its original price, or make award to Herman. GAO’s decision in Herman Construction highlights the importance of accuracy in sealed bidding. Taking Talion at its word, Talion’s internal procedures resulted in Talion submitting an incorrect bid that appeared complete. Self-serving or not, Talion’s statements about its procedures were not enough to constitute “clear and convincing” evidence of a bid mistake in the eyes of GAO. Having made a mistaken bid, Talion was stuck with it. View the full article
  7. I’m back in the office from my great trip to Nashville for the 2018 National 8(a) Association Small Business Conference. This weekend, I’m looking forward to watching the Super Bowl and cheering on the Eagles (or rather, with apologies to our New England-based clients, cheering against the Patriots). Before we prepare for hours of football and outlandish commercials, let’s recap what went on this week in the world of government contracting. This week, we take a look at why it’s a good time to be a federal contractor, why RFIs may be a waste of time and money, a financial fraud case involving a scheme to falsely secure more than $13.8 million in SDVOSB contracts, and much more. PV Puvvada, president of Unisys Federal, sat down with Federal News Radio Executive Editor Jason Miller and discussed why it’s a good time to be a federal contractor [Federal News Radio] A proposed rule by the SBA will provide one definition of ownership and control for VOSBs and SDVOSBs, which will apply to the VA in its verification and Vets First Contracting Program procurements, and all other government acquisitions which require self-certification. [Federal Register] (and see my take here). RFIs may be a waste of time, money, and resources, especially for small businesses. [FCW] (And see Guy Timberlake’s classic “RF-Why” column from a few years ago). Over the years some have questioned whether GSA Schedule prices are fair and reasonable, and such concerns have let to the GSA launching efforts, such as Transactional Data Reporting and horizontal pricing analysis. [Federal News Radio] Here’s an interesting trivia question for all you acquisition lovers in the government: How many rules did the FAR Council finalize during the first year of the Trump administration? [Federal News Radio] There have been several initiatives undertaken across the government space focused on moving the federal procurement process onto commercial e-commerce portals. [Federal News Radio] SDVOSB fraud: the former owners of a construction company have pleaded guilty in federal court to their roles in a “rent-a-vet” scheme to fraudulently obtain more than $13.8 million in federal contracts. [U.S. Department of Justice] View the full article
  8. Thank You, 8(a)s!

    I am back in Lawrence after a wonderful three days at the National 8(a) Association 2018 Small Business Conference in Nashville. I was part of a great panel on Wednesday on the SBA’s All Small Mentor-Protege Program, and spent a lot of time on the trade show floor talking about government contracts with 8(a)s, government leaders, and large businesses. A big “thank you” to Ron Perry, Paula Arevalo, and the rest of the National 8(a) Association for inviting me to participate in this fantastic event. Thank you, also, to everyone who attended my panel or stopped by the Koprince Law LLC booth to say hello. It was great to see so many familiar faces and make many new connections. I’ll be sticking close to home in February, but head to sunny Florida in early March for the APTAC Spring Conference. PTAC counselors, I look forward to seeing you there! View the full article
  9. It happened again this morning. I was at a government contracts conference (which was great, by the way), and stepped away from my trade show booth for a few minutes. While I was gone, someone stole one of my display copies of Government Contracts Joint Ventures, our new GovCon Handbook. It’s not the first time a display copy of one of my books has been pilfered at an industry event. Why do people keep stealing my books at government contracts conferences? Perhaps people are just confused and somehow think the books are free. Nope. The way the books are set up at the booth makes it quite obvious that these are display copies, not giveaways. And of course, no one ever comes up and tries to take one when I’m actually at the booth. But just in case, I tested this theory a few years ago by placing a sign next to my book (at that time, The Small-Business Guide to Government Contracts). The sign said “FOR DISPLAY PURPOSES ONLY.” When I came back from presenting my breakout session, The Small-Business Guide to Government Contracts had grown legs and walked off. I suppose some folks just want to save money. But petty theft isn’t a great way to fund your next family vacation. Besides, Government Contracts Joint Ventures is a mere $9.99 in paperback and $6.99 on Kindle. You can get a copy the honest way for less than it costs to “Build Your Sampler” at Applebee’s. And after you read the nutritional information in the sidebar, you’re going to be happy that you skipped the boneless wings anyway. So all I can conclude is that, unfortunately, like any major gathering of people, a government contracts conference attracts a few dishonest types–the sort who see a chance to steal something, and take it. Not because they’re confused, not because they want to save money, but simply because they’re the sort of people who steal things. Don’t get me wrong. I love government contracts conferences, and undoubtedly the vast majority of people who attend them are honest and ethical. But it’s sad that if I forget to take my display copies with me when I leave my booth (which is what I’ve been doing for a few years now, but forgot to do this morning), the odds are good that those books will mysteriously vanish while I’m gone. So if you’re the lowlife who took Government Contracts Joint Ventures, this morning, please don’t call me if you have questions. I don’t want you as a client–and I feel sorry for your joint venture partners. View the full article
  10. The SBA has released its proposed consolidated rule for SDVOSB eligibility, which was published in the Federal Register today. Once the rule becomes final, it will apply government-wide, to both VA and non-VA SDVOSB contracts. For SDVOSBs, a uniform set of rules is a very good thing. There has been far too much chaos and confusion under the current system, in which the SBA and VA have different SDVOSB eligibility requirements. But how about the substance of the proposal itself? Well, there are certainly some things to like–and some areas that could use improvement. As SmallGovCon readers will recall, the 2017 National Defense Authorization Act directed the SBA and VA to work together on a consolidated SDVOSB eligibility rule, with the SBA taking the lead in the effort. As a result, the SBA’s proposal incorporates some pieces of the existing VA SDVOSB ownership and control rules. The SBA also includes some entirely new provisions, such as an exception to the ordinary control requirements in a handful of “extraordinary” circumstances. Here are some of the highlights (and a few lowlights) of the proposal. Unconditional Ownership The proposed rule would update 13 C.F.R. 125.12 to provide additional guidance about how an SDVOSB must be owned. Unsurprisingly, the rule retains the general requirement that an SDVOSB be “unconditionally and directly owned by one or more service-disabled veterans.” The proposed rule provides an exception for surviving spouses, but only in very limited circumstances: for a surviving spouse to qualify as an SDVOSB owner, the veteran must have either had a 100 percent service-connected disability, or have died as a result of the service-connected disability. The proposed rule also includes an exception for employee stock ownership plans, or ESOPs. Unfortunately, however, the proposed exception is essentially worthless: it says that “n the case of a publicly traded business,” stock owned by an ESOP need not be 51% owned by veterans. But when was the last time you saw a publicly traded SDVOSB? The next time I run across one of those will be the first. For everyone else, there’s still no exception for ESOPs, which is unfortunate. In my view, service-disabled veterans ought to have the flexibility to offer ordinary ESOPs to their employees. The proposed rule adds a requirement that service-disabled veterans receive at least 51 percent of the profits of a corporation, partnership, or LLC. Additionally, a service-disabled veteran’s ability to share in the profits “must be commensurate with the extent of his/her ownership interest in that concern.” For example, if a service-disabled veteran owns 75% of an SDVOSB, he or she must receive 75% of the profits. These profit-sharing requirements aren’t part of the SBA’s current SDVOSB rules, but have been incorporated essentially word-for-word from the VA’s regulations. The proposed rule also provides that service-disabled veterans must receive “100 percent of the value of each share of stock owned by them in the event that the stock or member interest is sold,” and “[a]t least 51 percent of the retained earnings of the concern and 100 percent of the unencumbered value of each share of stock or member interest owned in the event of dissolution of the corporation, partnership, or limited liability company.” Again, these requirements aren’t found in the current SBA SDVOSB regulations, but have long been a part of the VA’s rules. Unconditional Control The proposed rule retains the requirement in 13 C.F.R. 125.13 that, for a company to qualify as an SDVOSB, “the management and daily business operations of the concern must be controlled by one or more service-disabled veterans.” However, “in the case of a veteran with a permanent and severe disability, the spouse or permanent caregiver of such veteran” may control the company. I’m not a fan of the “spouse or permanent caregiver” provision. No, not because I don’t think that veterans with permanent and severe disabilities ought to be able to delegate day-to-day control–to me, that’s fair. My concern is that the SBA’s rule would continue to provide that the caregiver must “have managerial experience of the extent and complexity needed to run the concern.” Now how likely is it that the typical spouse or appointed permanent caregiver has that experience–much less the time and interest, when the caregiver is busy providing for the needs of a severely disabled veteran? I’ll let Mr. Jerry Seinfeld answer that one. In my view, it would be better to allow the veteran to designate a experienced non-caregiver manager, provided that the designated person satisfied certain reasonable criteria (e.g., no conflicts of interest). This would ensure that the company is run by someone who knows what he or she is doing, and allow the caregiver to devote full attention to the disabled veteran, instead of spending his or her time trying to run a business. Unlike the current rule, the proposed rule would define “daily business operations.” The proposed definition states that those operations “include, but are not limited to, the marketing, production, sales, and administrative functions of the firm, as well as the supervision of the executive team, the implementation of policies and the setting of the strategic direction of the firm.” This one’s slightly odd: I think of “setting the strategic direction of the firm” as big-picture management, not a day-to-day operation. Regardless, though, the added definition should provide some additional insight as to what the SBA wants to see when it comes to control. The SBA has provided some additional guidance about when service-disabled veterans will be deemed to control a company’s Board of Directors. This language is largely borrowed from the 8(a) and VA regulations, and I don’t have any particular concerns about it. The proposed regulation includes another odd provision regarding super majority voting: it states that “[o]ne or more service-disabled veterans must meet all super majority voting requirements.” That’s not the odd part, although it seems inconsistent with the limited “extraordinary decisions” language I’ll discuss momentarily. The odd part is the requirement that “an applicant must inform the Department of Veterans Affairs, when applicable, of any super majority voting requirements provided for” in its governing documents. As I read it, this means that VA CVE applicants would have to highlight super majority voting requirements in their governing documents. Does this mean that the SBA doesn’t trust the VA to find these during its document review? And why should the veterans have to identify any requirements that they satisfy? For instance, if a veteran owns 75% of a company, then a 66% super majority voting requirement shouldn’t be problematic, should it? The SBA’s proposed rule adopts some current VA regulations regarding situations where non-veterans may be found to control a company. For instance, the SBA adopts the VA’s position that the service-disabled veteran generally must be the highest-compensated in the company. But the SBA proposal provides additional examples of things that may constitute impermissible control. SBA’s proposal says, for example, that impermissible control may exist “in circumstances where the concern is co-located with another firm in the same or similar line of business, and that firm or an owner, director, officer, or manager, or a direct relative of an owner, director, officer or manager of that firm owns an equity interest in the firm.” The SBA also proposes to adopt a “rebuttable presumption that a service-disabled veteran does not control the firm when the service-disabled veteran is not able to work for the firm during the normal working hours that firms in that industry normally work.” In its comments, SBA says that “[t]his is not a full time devotion requirement” and that a veteran can rebut the presumption by “providing evidence of control.” The SBA doesn’t explain what sort of evidence it will accept, however. The SBA also proposes a problematic new “close proximity” requirement. This one says: There is rebuttable presumption that a service-disabled veteran does not control the firm if that individual is not located within a reasonable commute to firm’s headquarters and/or job-site locations, regardless of the firm’s industry. The service-disabled veteran’s ability to answer emails, communicate by telephone, or to communicate at a distance by other technological means, while delegating the responsibility of managing the concern to others is not by itself a reasonable rebuttal. I don’t like this one. Granted, it’s just a rebuttable presumption–not conclusive ineligibility–but as the world moves more and more in the direction of telecommuting, it’s unfortunate that the SBA views physical location as so important, “regardless of industry.” Also, the “and/or” in the proposed language doesn’t make any sense. Does the veteran have to be close to headquarters, job sites, or both? If both, how is that possible for a company that bids regionally or nationally, and has job sites spread across the country? Finally, the SBA says that it won’t find a lack of control “where a service-disabled veteran does not have the unilateral power and authority to make decisions in ‘extraordinary circumstances.'” But only five actions would count as extraordinary: (1) adding a new equity stakeholder; (2) dissolution of the company; (3) sale of the company; (4) merger of the company; or (5) declaring bankruptcy. Non-veteran owners could have veto power over these five actions, but nothing more. I’m glad that the SBA is recognizing that complete, unfettered unconditional control actually harms service-disabled veterans by scaring away potential investors. But I think this list is too narrow, and misses some fundamental items that the SBA Office of Hearings and Appeals has identified in its size and affiliation cases. These include such things as issuing new shares of stock (which could dilute the interests of minority members, even without adding a new owner), selling all the firms assets, increasing or decreasing the size of the Board of Directors, and selling or disposing of all of the firm’s assets. I hope the SBA will look at broadening this list to better enable service-disabled veterans to attract qualified investors. Next Steps Keep in mind that for now, this is just a proposal, not a law. The SBA is accepting public comments on the proposal on or before March 30, 2018. To comment, go to the Federal Register and follow the instructions. View the full article
  11. GAO interprets its bid protest timeliness rules very strictly, as readers of this blog will know. These timeliness rules typically pertain to the initial protest, but are equally important when a protester files a supplemental protest. Often, supplemental protests are filed after the protester receives the agency’s response and comes to learn new information that wasn’t previously available. If a supplemental protest raises allegations independent of those set forth in the initial protest, the supplemental protest must independently satisfy GAO’s strict timeliness rules. A recent GAO decision shows how easy it can be to slip up on these deadlines when considering a supplemental protest. In Medical Staffing Solutions USA, B-415571 (Dec. 13, 2017), the protester (MSS) objected to the award of a contract to WJM Professional Services, LLC for emergency physician services at an Army fort. MSS timely filed its initial protest on October 16, 2017. The four initial protest grounds were: Failure to evaluate WJM’s lack of past performance. That if WJM had been assigned a neutral past performance rating, it would not have been eligible for award. Improper evaluation of WJM’s technical proposal. An “unreasonable best-value tradeoff evaluation because MSS’s better past performance rating and lower price should have outweighed WJM’s superior technical rating and lack of past performance.” In a GAO bid protest, when an agency intends to respond to a protest on its merits, the agency is required to submit an agency report, which contains the agency’s legal opposition and all relevant documentation. On November 3, the Army submitted a partial agency report containing all relevant documents except for the legal memorandum and contracting officer’s statement of facts. The partial agency report included a Price Negotiation Memorandum, a technical evaluation document, and the relevant portions of WJM’s proposal. On November 15, the due date, the Army submitted the remainder of its agency report. After an agency report is filed, the ball is back in the protester’s court. If the protester wants to continue the process and obtain a GAO decision, the protester must file comments on the agency report within 10 days of receipt. On November 27, MSS filed its comments on the agency report. The comments were filed within the 10-day deadline after receipt of the complete agency report, that is, 10 days after November 15. (If you’re scratching your head wondering how November 27 can be 10 days after November 15, don’t worry, you’re not going crazy. Under GAO’s rules, if the 10th day falls on a weekend or federal holiday, the protester has until the next working day to file its comments. November 25, 2017, was a Saturday). In its comments, MSS seemed to make new allegations based on the information MSS had learned in the November 3 partial agency report. For example, MSS contended that the agency had not properly evaluated the realism of WJM’s price. GAO wrote that any independent protest grounds raised by MSS in its comments on the agency report were untimely. Under the GAO’s timeliness rules, a protest ordinarily must be filed within 10 days of the date the protester knew or should have known of the basis of protest. There’s no exception when the protester learns of the basis of protest as part of a partial agency report. Here, the submission of the partial agency report on November 3 triggered the knew-or-should-have-known date, and the supplemental protest grounds were raised on November 27, well after the 10-day period had ended on November 13. While the calendar math is pretty easy, deciding what constitutes an “independent” protest ground seems much more difficult. GAO does not provide a definition for what makes for an independent protest ground, but it did a comparison of the initial and supplemental protest grounds that sheds a little light on the definition. In MSS’s case, GAO wrote: Whereas the original protest allegations were predicated on the assertion that WJM lacked any relevant past performance, the allegations raised in the comments are predicated on the agency allegedly incorrectly evaluating WJM’s past performance and improperly applying price realism principles. Furthermore, the later-raised allegations provide no support for the original protest grounds because arguing that the agency should have rated WJM’s past performance less favorably does not support the allegation that WJM lacked any past performance. Similarly, arguing that the agency improperly conducted its tradeoff evaluation because the agency improperly conducted a price realism analysis does not support the allegation that the agency improperly failed to consider that WJM had no past performance. GAO dismissed the protest. The price realism distinction seems clear to me. The protestor did not attack the price-realism evaluation in the initial protest but raised it in the supplemental protest. In contrast, the distinction between (a) WJM lacking “relevant past performance” (raised in the initial protest) versus (b) the agency “should have rated WJM’s past performance less favorably” (supplemental protest) is a pretty fine one. It’s hard to think MSS argued in its initial protest that the awardee had no past performance without also arguing that the evaluation of the past performance was flawed. But that was what GAO held. Agencies often produce the entire agency report at the same time, meaning that the comments deadline and supplemental protest deadline are the same. But not always. My take home lesson is: get a supplemental protest on file within 10 days of the first documents received from the agency, rather than having to rely on a comparison of the allegations raised in the initial and supplemental protest to determine if the supplemental grounds are “independent.” And if there’s any doubt as to whether a particular allegation is new, err on the side of caution and consider it a supplemental protest. That way, you potentially avoid losing a protest on such fine distinctions. View the full article
  12. In its past performance evaluation, an agency typically can consider the past performance of an offeror’s affiliate, so long as the offeror’s proposal demonstrates that the resources of the affiliate will affect contract performance. But, as demonstrated in a recent GAO decision involving an Alaska Native Corporation subsidiary, ordinarily there is no requirement that an agency consider an affiliate’s past performance. In other words, unless the solicitation speaks to the issue, the agency’s consideration of an affiliate’s past performance is optional. The GAO’s decision in Eagle Eye Electric, LLC, B-415562, B-415562.3 (Jan. 18, 2018) involved a Social Security Administration solicitation for support services at the National Records Center. The SSA issued the solicitation as a competitive set-aside for participants in the 8(a) Program. The solicitation called for a best-value tradeoff considering three factors: experience, past performance, and price. With respect to experience, offerors were to provide a description of up to three contracts that demonstrated relevant experience. Under the past performance factor, offerors were to have references complete and submit questionnaires for each reference cited in the experience section of the proposal. The solicitation did not state whether the SSA would consider the experience of an offeror’s corporate affiliates. Eagle Eye Electric, LLC submitted a proposal. Eagle Eye is a subsidiary of Bering Straits Native Corporation, an ANC. In its proposal, Eagle Eye submitted information for three contracts. Eagle Eye was not involved in the performance of any of the three. Instead, these contracts had been performed by Eagle Eye’s parent company, Bering Straits, and other subsidiaries of Bering Straits. Eagle Eye wrote that these companies were “committed to provide contract performance advice, assistance and resources” in the performance of the SSA contract. The SSA did not consider the past performance of Eagle Eye’s parent and subsidiary companies. The agency assigned Eagle Eye a “not similar” rating for its experience and “neutral” for past performance. The SSA awarded the contract to a competitor, which was rated “very similar” for experience and “very good” for past performance, but proposed a price more than $6 million more than Eagle Eye’s. Eagle Eye filed a GAO bid protest. Eagle Eye argued that it was improper for the agency to fail to consider the experience and past performance of its affiliates. Eagle Eye pointed out that it had submitted statements from each affiliate, stating that the affiliate was committed to assisting Eagle Eye perform the contract. According to Eagle Eye, the agency therefore was required to evaluate the experience and past performance of each affiliate. The GAO wrote that “[a]n agency may consider the experience or past performance of an offeror’s parent or affiliated company where, among other things, the proposal demonstrates that the resources of the parent or affiliate will affect contract performance, and there is no solicitation provision precluding such consideration.” But “[t]here is, however, no requirement that they do so.” In this case, “the solicitation did not require the agency to consider the experience and past performance of Eagle Eye’s affiliate concerns and therefore, the agency was under no obligation to do so.” The GAO denied Eagle Eye’s protest. For many government contractors (including those owned by ANCs, Indian Tribes, and NHOs), the use of affiliated companies’ past performance is commonplace. And in many cases, agencies accept such experience and past performance, provided that the affiliated companies’ resources will affect contract performance. But as the Eagle Eye Electrical protest demonstrates, unless the solicitation says otherwise, an agency is not required to consider the past performance or experience of an offeror’s affiliates. Where, as here, a solicitation is silent about how such past performance and experience will be evaluated, offerors would be wise to pose a question, if possible, during a pre-proposal Q&A, rather than assuming that the agency’s silence means that such past performance and experience will be considered. View the full article
  13. SmallGovCon Week In Review: January 22-26, 2018

    Next week, I’m off to Nashville for the National 8(a) 2018 Small Business Conference. If you plan to attend the conference, please swing by the Koprince Law LLC booth to say hello and check out copies of Government Contracts Joint Ventures, our recently-published handbook for contractors. Before I head off to Music City we are here to bring you this edition of SmallGovCon Week In Review. This week, Washington Technology looks at the effect of the shutdown on contractors (and what may lie ahead if it happens again in February), Lockheed Martin agrees to a $4.4 million False Claims Act settlement, an Ohio woman faces penalties in an apparent SDVOSB “rent-a-vet” scheme, the city of Huntsville, Alabama kicks off a new HUBZone accelerator program, and much more. Lockheed Martin will pay a $4.4 million dollar settlement to resolve allegations that it violated the civil False Claims Act by providing defective communications to the Coast Guard. [United States Department of Justice] A Tennessee man has been sentenced for his role in a scheme devised to trick the Department of Energy and hide money from the IRS. [Knox News] After a brief shutdown of the government and the threat of another impasse next month, contractors face a fragile financial environment. [WAMU] Contractors survived the shutdown but is the worst yet to come? [Washington Technology] A painting contractor plead guilty to theft from union plans, wire fraud, and discharge of pollutants in connection with Pennsylvania bridge project. [United States Department of Justice] SDVOSB fraud: an Ohio woman faces a fine and possible jail time for unlawfully securing SDVOSB contracts in an apparent “rent-a-vet” scheme. [Dayton Daily News] A new HUBZone accelerator program has launched in Huntsville, Alabama. [WAAY 31 ABC] The General Services Administration is amending the GSAR to clarify the authority to acquire order-level materials when placing an individual task or delivery order against a FSS contract or FSS blanket purchase agreement. [Federal Register] View the full article
  14. Because the NAICS code governs the size standard used to determine whether a company qualifies as a small business, the choice of a NAICS code can dramatically affect the competitive landscape for a set-aside acquisition. The only legal procedure for challenging the NAICS code assigned by the contracting officer is to appeal the assignment to the SBA’s Office of Hearings and Appeals. A NAICS code appeal can be an extraordinarily powerful tool for a business to challenge whether a contracting officer assigned the correct NAICS code in setting aside a procurement. So how often are NAICS code appeals filed, and how often do these NAICS code appeals succeed? A recent GAO report has some answers. The GAO’s report summarizes the use and disposition of NAICS appeals: “Of the 62 NAICS code appeals that were filed in calendar years 2014–2016, OHA dismissed 35, denied 15, and granted 12.” GAO noted that, in the same period, “1.4 million new federal contracts were awarded, and 284 other types of appeals were filed with OHA.” In other words, NAICS code appeals have been a very small part of the federal contracting world, and a small part of all the appeals handled by OHA (which, of course, also decides size appeals and certain other SBA appeals). To put these statistics into context, a little background on NAICS code appeals is in order. Basics of NAICS Code Appeals GAO writes that OHA expedites NAICS code appeals and will issue decisions as soon as practicable. As a result of this expedited treatment, the NAICS code appeal process takes an average of 18 to 30 days to complete. Also noteworthy is that interested parties have a short time frame to file NAICS code appeals. These appeals must be filed within 10 calendar days after issuance of the solicitation or amendment to the solicitation affecting the NAICS code. This, of course, differs from the ordinary rule for protesting a defect in a solicitation. At the GAO and Court of Federal Claims, protests of other solicitation defects ordinarily are timely if filed before the due date for initial proposals. Only small businesses can file NAICS code appeals. While SBA has an independent right to file NAICS code appeals, it only filed 3 out of 62 appeals in the GAO study’s time period. OHA reviews the assignment of the NAICS code for “clear error of fact or law.” The review of a NAICS code assignment is procedurally different from other types of OHA appeals in that OHA is directly reviewing the contracting officer’s action. For other types of appeals, such as size determinations or SDVOSB eligibility determinations, OHA is reviewing the SBA Area Office’s initial determination. What are the common outcomes of NAICS code appeals? GAO’s headline was Most Code Appeals Were Dismissed, but I think the numbers may tell a different tale, just as the headline from a recent report about GAO protests may have missed the mark. As mentioned in the report, most NAICS Code appeals (57%) were dismissed for various reasons. The reasons for dismissal are: not filing before the 10-day deadline the contracting officer cancelled the solicitation the appeal was withdrawn the contracting officer amended the NAICS code the appellant was not authorized to file an appeal Unfortunately, the report does not break down the number of decisions dismissed for each of these reasons. Of these reasons, those involving the contracting officer’s actions are basically out of the control of a potential appellant, but dismissals based on timeliness are within the appellant’s control. Given the short timeline on these appeals (and the variance with the ordinary protest rules for challenging solicitation defects), it’s likely that many were dismissed because the appellant didn’t file within the 10-day period. Of course, not all dismissals are bad news for the appellant. If the result of the appeal was that the contracting officer voluntarily amended the NAICS code, this might be just what the protester was seeking. But without a breakdown of the reasons for dismissal, it’s impossible to determine the overall success rate of NAICS appeals–a metric that would include both favorable OHA decisions and voluntary agency corrective actions. Counting just those NAICS code appeals decided on the merits, about 45% were granted. This is actually a fairly high success rate, especially given the appellant’s burden of proof. Statistically, then, a NAICS code appeal is likely to succeed almost half the time, provided there are no procedural defects. Takeaways There are three major takeaways from these statistics. First, NAICS code appeals are infrequent. In fact, they seem underused. The GAO handles several thousand bid protests each year. In contrast, contractors file about 20 NAICS code appeals annually. Given the power of NAICS appeals to shape the competitive landscape, it seems that some contractors may not be aware of their NAICS appeal rights. Second, the dismissal rate of NAICS code appeals is very high. Some of these dismissals are undoubtedly due to voluntary agency corrective action, but many dismissals are likely caused by defects in the appeals themselves, or misunderstandings about how the procedural rules work. For instance, as we’ve written, the ten-day clock on a NAICS code appeal is not paused by a prospective offeror’s discussions with the contracting officer. A final takeaway, though, is one the GAO did not focus on: of those appeals decided on the merits, nearly half resulted in OHA determining that the contracting officer made a mistake in assigning the NAICS code. For potential appellants, that’s good news. Get the procedural stuff right, and the statistical odds of success aren’t bad. View the full article
  15. GAO bid protests filed by small businesses are (statistically speaking) less likely to succeed than protests filed by large contractors, according to the RAND Corporation’s recent bid protest study. The disparity isn’t the result of discrimination against small businesses, but rather a product of other factors: primarily, the motivation to protest, the understanding of the protest system, and access to legal counsel. RAND raises an important point, but offers no fair and easy solution. Perhaps, given that protests overall are “exceedingly uncommon,” a solution isn’t needed–but it’s wise to think about whether there are ways to help small businesses become better educated about bid protests. During the years RAND studied, small businesses filed the majority of bid protests at GAO and the Court of Federal Claims–53% at the GAO and 58% at the Court. However, “mall-business protests are less likely to be effective and more likely to be dismissed for legal insufficiency.” Indeed, at GAO, “small-business [protesters] are 1.5 times as likely to have their protests dismissed for being ‘legally insufficient.'” The overall effectiveness rate of GAO bid protests (that is, sustain decisions plus voluntary agency corrective actions) is also lower for small businesses than it is for large companies. What accounts for the difference? Well, the biggest factor seems to be the use (or lack thereof) of attorneys. At the Court of Federal Claims, where all protesters are required to use an attorney, “the effectiveness rate for small businesses is the same as for other businesses. ” At GAO, attorneys aren’t required. But, in GAO cases where the protester is represented by an attorney, small business “protest sustained rates are similar to those of larger firms.” This certainly makes sense. I don’t keep stats, but I bet that I’ve talked more people out of protesting than I’ve filed protests (and I’ve filed my share). Small businesses frequently call our firm with potential protests, and they’re often fired up about something the agency did. But often, my colleagues and I have to give them some bad news: the protest has no chance of succeeding. Maybe it’s untimely–that happens a lot. Or maybe the potential protester is trying to challenge something outside the GAO’s jurisdiction, like the sufficiency of the debriefing or the size status of the awardee. Or maybe the potential protester wants to argue that the evaluators were biased, which is almost impossible to prove, and not exactly calculated to make new friends at the agency. What if all of these people hadn’t called me or another government contracts attorney, but just gone ahead and protested? These protests would have been dismissed or denied. Some of the agency officials on the receiving end would have huffed, “that’s a frivolous protest!” But the protester certainly didn’t intend to file anything frivolous–quite the opposite. The protester probably thought he or she had a winning case, but simply didn’t have a thorough understanding of the nuanced and complex bid protest world. Outside the absence of attorneys, RAND says that small businesses’ lower success rate may be caused, in part, because in some cases, “small businesses’ reasons for protesting differ from larger businesses’ reasons.” For instance, “when debriefings are uninformative, small businesses lodge protests to gain an understanding of why they lost a procurement.” Large businesses, in contrast, “generally filed a bid protest only if they thought the government did not follow its source-selection procedures or that an error was made that was substantial enough to change the outcome.” Again, I think that’s largely correct. As I’ve written before, our firm’s clients–as a rule–are more inclined to protest when they leave a debriefing thinking the agency is hiding something. I am not sure I agree that they’re protesting to “gain an understanding” so much as a belief that the agency’s reticence means that there’s a smoking gun lurking in the source selection file. But either way you slice it, the fact remains that better communication with small businesses is very likely to reduce small business bid protests. Finally, RAND writes that small businesses seem less inclined to forego a protest due to the “potential for ‘ill will’ that could be created when they considered filing a protest.” This could be because many small businesses have no other contracts with the agency or contracting officer in question, whereas large businesses “with a substantial number of contracts with the federal government” may be more invested in preserving certain relationships. Here, I think RAND only saw half the picture. Yes, it’s true that I’ve occasionally heard something like “what the heck, this is my only bid with these guys, so I don’t care if I burn bridges.” But I think that most small businesses do care about relationships with government customers, and approach the protest process little differently than our large business clients in that regard. (Also, in my experience, the vast majority of contracting officials understand that respectful disagreements are part of the competitive system, and don’t blackball companies for filing good faith protests). More often, I believe that small businesses are highly motivated to protest because of the relative importance to their overall business of a particular acquisition. For a large business, losing a $10 million contract may be a drop in the bucket, and not worth a protest unless there’s a very obvious error. But for a small business incumbent, that $10 million contract might represent half of the company’s annual revenues. In situations like these, the small business is–very understandably–much more motivated to protest. RAND Corporation offers a few potential options to reduce the disparity between the success rates of protests filed by large and small businesses. But, as RAND essentially concedes, some of these suggestions aren’t very good ideas. RAND says, for instance, that “[o]ne option would be to require all protests at GAO to be filed through legal counsel.” However, RAND continues, “this approach might be viewed as unfair, as small businesses might face more-significant economic barriers to filing than larger businesses.” Yup. Good government contracts lawyers ain’t cheap, and not all small businesses can afford to hire an attorney. Imposing such a requirement would essentially lock the GAO’s doors to the smallest and newest contractors. If it’s a choice between that and accepting some legally deficient “pro se” filings in the GAO’s docket, I say give me the legal deficiencies. Along the same lines, RAND writes that “the current ‘loser-pays’ pilot program for DoD excludes businesses with annual revenues under $250 million.” RAND’s italicized implication seems to be that Congress shouldn’t have exempted small businesses from “loser-pays.” I’ve got a ton of respect for RAND and this comprehensive report (and not just because the report cites SmallGovCon twice–check the footnotes!) But here, I think RAND gets it wrong. For the smallest businesses, imposing a “loser-pays” requirement would be no different than requiring attorneys. They can’t afford it, so they’ll essentially be locked out of the protest process. Or, worse: they’ll essentially bet the company on a protest. The stakes of a major bid protest can be high, but they shouldn’t be that high. RAND finally suggests that “[a]nother option would be to provide legal assistance to small businesses–perhaps through the Small Business Administration.” RAND says that “uch advice might be useful if it is provided early enough that small businesses can determine whether they have valid cases, which could allow them to craft more-persuasive arguments and, possibly, reduce the number of dismissed protests.” This suggestion focuses on the problem of small businesses lacking a full understanding of the complex bid protest system. I’m all for educating small businesses about protests, and would welcome an initiative to help contractors learn more about protest timeliness, GAO’s jurisdiction, and other common reasons why protests are dismissed or denied. That said, policymakers have to be very careful how they go about providing this education. The SBA would be a logical choice to lead such an initiative, but most SBA representatives don’t have the knowledge or experience in this area to provide the right guidance. If policymakers want SBA to educate contractors on bid protests, they ought to be sure that the individuals doing the educating have a deep background in the protest world–even if it means that SBA needs to contract with outside government contracts attorneys to provide some of that education. RAND also seems to suggest that SBA might help potential protesters determine, in individual cases, whether they have valid arguments. This strikes me as highly problematic. It’s one thing for the government to tell contractors, in a vacuum, how the GAO’s jurisdictional and timeliness rules work. It’s quite another for a government employee to weigh in on whether a particular protest should be filed. Our firm doesn’t just represent protesters; we also represent many awardees who intervene in bid protests to help defend their awards. I can only imagine the reaction from these companies when they realize that their taxpayer dollars paid for the SBA to assist the protester in determining whether it had a case. At the end of the day, there may not be a whole lot that can be done to easily and fairly address the lower success rate of bid protests filed by small businesses. And maybe that’s okay. As RAND concluded, only 0.3 percent of DoD acquisitions are protested. Statistics like these simply don’t warrant major exclusionary changes like forcing small businesses to hire attorneys to file protests. View the full article
  16. 2018 NDAA: Changes to the HUBZone Program

    The HUBZone program has received its fair share of coverage on our blog, from recommended changes in the 35% employee-location requirement to SBA regulatory updates to the program. Well, the HUBZone program is once again undergoing some changes thanks to the 2018 National Defense Authorization Act–but note that these changes are not effective until January 1, 2020. These changes include a requirement for an improved online mapping tool, a mandate that HUBZone verifications be processed in 60 days, and more. Here’s a look at some of the most significant HUBZone changes in the 2018 NDAA. Online Tool, Household Income, and Certification Online Tool. Section 1701(h) of the 2018 NDAA directs the SBA to “develop a publicly accessible online tool that depicts HUBZones” that will be updated immediately for any changes to a redesignated area, base closure area, qualified disaster area, or Governor-designated covered area. For qualified census tracts and qualified nonmetropolitan counties, the SBA must update the online tool “beginning on January 1, 2020, and every 5 years thereafter.” The SBA must also “provide access to the data used by the Administrator to determine whether or not an area is a HUBZone in the year in which the online tool was prepared.” HUBZone participants may ask, “but doesn’t SBA already have HUBZone maps? What’s the difference under the 2018 NDAA”? A 2016 decision of the Court of Federal Claims may provide some answers. In that case, the SBA’s HUBZone map said that a certain redesignated tract was still HUBZone qualified, even though that was no longer the case. The Court called the SBA’s characterization of the tract “at best . . . unofficial” and noted that the Department of Housing Urban Development, not the SBA, determines which tracts qualify as HUBZone. The Court upheld an SBA decision sustaining a HUBZone status protest against the company. It certainly seems like Congress had the Court’s decision in mind. The requirement for “immediate” updates will (hopefully) eliminate erroneous information like that at issue in the Court case. Additionally, the requirement for the underlying data will allow HUBZone companies to verify that the HUD data supports the SBA’s characterization of a qualified tract. Qualified Nonmetropolitan County. Section 1701(b) changes the metric for comparing median household income. The old statute said the median household income of a qualified nonmetropolitan county had to be “less than 80 percent of the nonmetropolitan State median household income.” The 2018 NDAA deletes the word “nonmetropolitan” from the clause, meaning that the comparison of income will include all metropolitan counties as well. This should have the effect of increasing the number of qualified nonmetropolitan counties, because metropolitan counties generally have higher income. In addition, the income comparison and unemployment comparison are now based on a 5-year average of economic data, not the most recent data available. Examination and Certification of HUBZone Businesses. The 2018 NDAA has added some statutory requirements to the SBA’s review of businesses hoping to become or continue as a HUBZone small business. While the existing statute mainly left it up to the SBA to create certification regulations, the new statute has some specifics that SBA must follow in reviewing HUBZone status of businesses. For the most part, these changes reflect the rules already found in SBA regulations. One key change is that SBA must “verify the eligibility of a HUBZone small business concern . . . within a reasonable time and not later than 60 days after the date on which” SBA receives documentation. This change should result in HUBZone applications being processed in a timely manner. That said, it could prove difficult for the SBA to effectively implement this change without significant additional resources. When GAO studied the issue a few years ago, it found that the average processing time was 116 days. Achieving a nearly 50% reduction without additional analysts could prove difficult. Hopefully, the bean counters will do their part to help implement this change. Base Closure Areas The 2018 NDAA extends HUBZone eligibility for base closure areas in two key ways. First, the statute now allows the SBA to designate a base closure area as a HUBZone before the base actually closes. This is an important change from prior law, which only allowed HUBZone designation once the base was closed. In the 2018 NDAA, Congress appropriately recognized that the negative economic impact of a base closure begins long before the gates shut for the last time. The 2018 NDAA also extends the length of time that a base closure area may be considered a HUBZone. Under prior law, the designation applied for five years. The 2018 NDAA allows such a designation to last indefinitely, but “not . . . less than 8 years.” Governor-Designated Covered Areas The 2018 NDAA adds a new category to the list of HUBZone areas: “a Governor-designated covered area.” This should result, over time, in increasing the number of HUBZones in the country. The five existing categories are Qualified census tract, Qualified nonmetropolitan county, Redesignated area, Base closure area, and Qualified disaster area. The Governor-designated covered area designation allows a governor to petition the SBA to turn a rural, low-population, high unemployment area of a state into a HUBZone. The SBA, in reviewing the petition, will look at certain factors such as “the potential for job creation and investment in the covered area,” whether the area is part of a local economic development strategy, and whether there are small businesses interested in an area becoming a HUBZone. Once this process is implemented, it creates a formal procedure under which the governor, with the input of small businesses and the blessing of the SBA, can create new HUBZone areas. But governor-designated areas don’t give state officials blank checks to create new HUBZones: a governor will only be allowed to propose one new HUBZone each year. *** The 2018 NDAA makes some important changes to the HUBZone program that should generally have the effect of expanding the program to more areas of the country, giving states (and potentially small businesses) some say in designating HUBZones and making the online mapping tools more transparent. The government has been missing its 3% HUBZone goal by wide margins in recent years. Hopefully, these changes (as well as important regulatory changes SBA adopted in 2016, such as allowing HUBZones to form joint ventures with non-HUBZones) will help reverse this trend. View the full article
  17. SmallGovCon Week In Review: January 15-19, 2018

    Will they or won’t they? That is the question looming today, which is the deadline to temporarily halt a partial shutdown of the government. While we keep our eyes on news from Washington, we have other noteworthy news and commentary in this edition of SmallGovCon Week In Review. This week, we have stories about the implementation of the so-called “Amazon Amendment,” a new bill aims to improve transparency surrounding change orders, a large business pays $1.7 million to settle allegations of overcharges on a GSA Schedule contract, and more. The General Services Administration and the Office of Management and Budget hosted an Industry Day on Section 846 of the 2018 NDAA–the so-called “Amazon Amendment.” [Federal News Radio] A Nebraska Congressman has introduced the “Change Order Transparency for Federal Contractors Act,” which would require agencies to release change order information to bidders on new contracts. [The Ripon Advance] A Chinese mobile phone maker is facing a ban that would prevent its phones and equipment from being used by the U.S. government. [Silicon Angle] The GSA has reopened a “new and improved” Schedule 75, and has added a new enhanced Special Item Number for Office Products & Services. [U.S. General Services Administration] The GSA plans to officialize regulations on how contractors should handle and protect sensitive information for federal clients. [fedscoop] The GO Topeka program is connecting Kansas small businesses with government contracts. If you’re in Kansas, like we are, you owe it to yourself to connect with the Kansas PTAC. [Topeka Capital Journal] Accenture Federal Services LLC has agreed to pay more than $1.7 million to resolve allegations that it overcharged the government under a GSA Schedule contract. [U.S. Department of Justice] Government contracts guru Mark Amtower describes five steps to stand out from the crowd in 2018 to help your business get more government contracting dollars. [Washington Technology] View the full article
  18. When we write about bid protest decisions on SmallGovCon, odds are that we’re writing about a GAO decision. For good reason: GAO is the most common forum protesters bring bid protests. But SmallGovCon readers also know there’s another possible forum for protests: the Court of Federal Claims. The GAO publishes an annual bid protest report with statistics about the number and effectiveness rate of protests, among other things. But until very recently, we didn’t have much hard data about the frequency and efficacy of COFC protests. The recently-released RAND bid protest report changed that, by including a deep dive on DoD bid protests at COFC. Let’s take a look. RAND’s report answers several major questions relating to COFC protests. How many protests are filed at COFC? From the beginning of 2008 through mid-2017, there were approximately 950 bid protests filed at the Court. These protests were split fairly evenly between DoD protests and non-DoD protests. Although this seems like a lot, the report shows that, based on the total number of acquisitions over this same time period, the frequency of protests at COFC is similar to that at GAO: less than 0.025% of contracts are actually protested. Or, as the report put it, “very few procurements are protested at COFC.” Who is filing these protests? It would be logical to assume that large businesses are more likely to incur the expense of filing a COFC protest. Not so: the top 11 DoD contractors (by revenue) filed just ten protests between 2008 and 2016—and seven of these were filed by one company. Given this dearth, RAND concludes that “protests at COFC are not part of standard business practice at these firms.” Instead, RAND found that 58% of COFC protests are filed by small businesses. Which agencies are protested the most? Of DoD agencies, the Army was most frequently protested at the COFC (about 41 percent of all DoD protests at the COFC). The Defense Logistics Agency was the least-protested (only about 9 percent of DoD protests at the COFC). Which procurements are being protested? Only the largest solicitations out there, right? Surprisingly not. Although the size of contracts protested varies greatly, the average value of protested procurements is only about $1.1 million. A surprisingly large number of COFC protests, moreover, were for contracts valued less than $100,000—about 3.5%. How long do COFC protests take? Unlike GAO, the Court doesn’t have a hard deadline to resolve protests. Even still, the majority are resolved very quickly: according to RAND, about 75% of COFC protests are resolved within 150 days. The average resolution took 133 days, while the median was 87 days. RAND was quick to caution, however, that some protests may take “considerably longer” depending on the issues involved and whether the Court’s decision is appealed. Are COFC protests effective? Unfortunately for potential protesters, the RAND report has some discouraging information: out of 459 DoD protests analyzed, only 9% were sustained by the Court. Disappointed protesters appealed the Court’s decisions in about 12% of these protests and, of those, roughly one-fifth eventually earned a sustain. Does this data suggest that the COFC is hostile to bid protests, or that protesting to the Court isn’t worth it? Absolutely not. Just like with GAO protests, the Court will sustain a protest if it determines the agency made a prejudicial error in its evaluation. In my opinion, this comparatively-low sustain rate instead confirms the need for better communication between offerors and agencies, including more-thorough debriefings. It’s no secret that providing more information to offerors will reduce protests—including protests before the Court. In fact, we often talk to disappointed offerors who are considering protests mainly because the agency hasn’t adequately explained its evaluation decisions. It’s also worth noting that many COFC protests are filed after the protester has lost at GAO. (The reverse isn’t true: a losing protester at the Court cannot turn around and file at GAO). This means that some of the protests on the Court’s docket have already been reviewed and rejected by GAO—and thus, the overall strength of the COFC protest pool may be weaker than at GAO. Finally, as we’ve pointed out various times here at SmallGovCon, the key metric from a protester’s perspective isn’t the sustain rate, but the effectiveness rate—that is, the combination of “sustain” decisions plus voluntary agency corrective actions. At GAO, the effectiveness rate of protests has been above 40% for years, even though the sustain rate is much lower (17%, for example, in Fiscal Year 2017). Corrective actions happen at the COFC too, but the RAND Corporation didn’t have data on how often. As with the GAO, it would be a mistake to evaluate the effectiveness of COFC protests based solely on the sustain rate. * * * RAND’s report provides interesting—and surprising—information relating to COFC protests. In the right circumstances, these protests can be an important tool for government contractors (including small businesses) to earn a contract award. If you’re considering a bid protest, give us a call to discuss your options. View the full article
  19. The VA has proposed expanding its definition of the “good character” required to own or control an SDVOSB or VOSB. The VA’s proposed rule would exclude many people convicted of felonies (including felonies unrelated to business integrity), which may raise questions about the rule’s fairness. And I have to wonder–is the VA’s proposal consistent with the Congressional directive requiring the VA to use the SBA’s SDVOSB eligibility rules? As I wrote earlier this week, the VA recently issued a proposed rule to eliminate its SDVOSB and VOSB ownership and control rules. Instead, as directed by Congress in the 2017 National Defense Authorization Act, the VA would defer to the SBA’s regulatory criteria when it comes to small business size, ownership, and control. Well, mostly. The VA’s proposed rule doesn’t seem to eliminate every SDVOSB and VOSB eligibility requirement. Instead, when it comes to two unique VA requirements, regarding “good character” and federal financial obligations, the VA’s proposed rule would actually expand the list of veterans ineligible for VA SDVOSB/VOSB verification, even though many of those same veterans would be able to self-certify their SDVOSBs under the SBA’s rules. Today, I want to focus on the good character piece of the proposal. Under current VA law, SDVOSB and VOSB owners must have good character. The regulation, 38 C.F.R. 74.2(b), says: (b) Good character. Veterans, service-disabled veterans, and surviving spouses with ownership interests in VetBiz verified businesses must have good character. Debarred or suspended concerns or concerns owned or controlled by debarred or suspended persons are ineligible for VetBiz VIP Verification. Clearly, the existing rule prohibits debarred or suspended individuals from owning or controlling verified SDVOSBs and VOSBs. Fair enough. The existing rule doesn’t provide any additional guidance on what “good character” means. The VA’s proposed rule, though, would significantly expand the current definition of good character. Here’s what the VA proposes: (b) Good character and exclusions in System for Award Management (SAM). Individuals having an ownership or control interest in verified businesses must have good character. Debarred or suspended concerns or concerns owned or controlled by debarred or suspended persons are ineligible for VIP Verification. Concerns owned or controlled by a person(s) who is currently incarcerated, or on parole or probation (pursuant to a pre-trial diversion or following conviction for a felony or any crime involving business integrity) are ineligible for VIP Verification. Concerns owned or controlled by a person(s) who is formally convicted of a crime set forth in 48 C.F.R. 9.406-2(b)(3) are ineligible for VIP Verification during the pendency of any subsequent legal proceedings. If, after verifying a participant’s eligibility, the person(s) controlling the participant is found to lack good character, CVE will immediately remove the participant from the VIP database, notwithstanding the provisions of § 74.22 of this part. It’s worth noting that the VA’s proposal goes beyond the FAR’s responsibility-related certifications. FAR 52.209-5 (Certification Regarding Responsibility Matters) and FAR 52.209-7 (Information Regarding Responsibility Matters) don’t require a contractor’s “principal” to disclose all crimes, but rather those directly related to government contracts, or those that are directly relevant to business integrity–such as embezzlement, theft, forgery, bribery, and tax evasion. In contrast, the VA’s proposal would seem to apply to all felonies, regardless of the nature or circumstances. The SBA also has a “good character” component in the 8(a) Program. But the SBA doesn’t apply a one-size-fits-all test. Instead, the SBA’s regulations say that the SBA will “consider the nature and severity of the violation in making an eligibility determination.” The VA’s proposal doesn’t seem to allow for consideration of the nature and severity of the violation (other than considering whether it was a felony). Speaking of the SBA, I also wonder whether the VA’s proposal complies with the 2017 NDAA, which says that the VA must apply the SBA’s SDVOSB/VOSB eligibility rules. Specifically, the 2017 NDAA says that the VA must verify SDVOSBs and VOSBs using Sections 632(q)(2) and (3) of the Small Business Act, which don’t say a darn thing about good character (and still won’t following the ultimate insertion of the 2017 NDAA’s amended language into the statute). The 2017 NDAA directs the VA to apply the SBA’s regulations implementing the Small Business Act, and then says that the VA “may not issue regulations related to the status of a concern as a small business concern and the ownership and control of such small business concern.” Now, it’s true that this prohibition isn’t supposed to take effect until the VA and SBA issue their consolidated regulation, which of course hasn’t happened yet. But as I read the VA’s proposal, it intends its new good character restriction to apply after the joint rule is issued. After all, the main point of the VA’s proposed rule is to pave the way for the consolidation of the two programs’ eligibility requirements by deleting most of the VA’s language relating to SDVOSB ownership and control. It appears, then, that the VA doesn’t think that its new good character proposal is contrary to the Small Business Act’s definitions or the restrictions placed on the VA in the 2017 NDAA. Hmm. I’m curious to see how the VA supports its restriction in light of the Small Business Act’s definitions of SDVOSB and VOSB. Beyond that, I’ll be interested to see how the VA explains its power to issue the regulation. In its decisions, the Supreme Court has written that “the key phrase ‘related to’ expresses a ‘broad pre-emptive purpose.'” Here, the VA is proposing a rule to restrict who can own or control a verified SDVOSB or VOSB. From my vantage point, it certainly seems like the VA is proposing a rule “related to . . . the ownership and control” of SDVOSBs and VOSBs, which would be contrary to the “broad pre-emptive purpose” set forth in the 2017 NDAA. Congress’s goal was to require the VA and SBA to apply uniform, government-wide SDVOSB/VOSB eligibility criteria. (I’m not making a wild guess here–Section 1832 of the 2017 NDAA is titled “Uniformity in Service-Disabled Veteran Definitions.”) But if the VA proposal becomes law, we could be right back in a world of “separate programs, separate requirements.” Under the VA’s proposal, a veteran with (for example) a felony DUI on his or her record couldn’t own or control a VA-verified SDVOSB. However, because the current SBA SDVOSB rules don’t impose a good character requirement, that same individual would be able to self-certify the company as SDVOSB for non-VA purposes. Such a result doesn’t seem to reflect Congress’s intent. No one wants unscrupulous felons to take advantage of government contracting set-aside programs. That said, it’s an open question in my mind whether the VA has legal authority to adopt the restriction it’s proposing. Moving forward, I hope the VA takes a close look at whether its proposed rule complies with the 2017 NDAA. And if it decides that the proposal is compliant, I hope the VA will consider a more nuanced, case-by-case approach to evaluating good character, like the one that’s been used in the 8(a) program for many years. View the full article
  20. The 2018 National Defense Authorization Act (NDAA) has generated lots of headlines regarding the so-called “Amazon amendment” and the Act’s prohibition on the Russian IT company Kaspersky Labs products. But gone under reported is a huge change to how the government makes small purchases. The 2018 NDAA, signed by President Donald Trump on December 12, increases the standard micro-purchase threshold applicable to civilian agencies from $3,000 to $10,000. Last year, the NDAA increased the Department of Defense (DoD) micro-purchase threshold to $5,000. This larger jump for civilian agencies is likely to have large impact on government purchasing. A micro-purchase is one for goods or services that, due to its relatively low value, does not require the government to abide by many of its ordinary competitive procedures, including small business set asides. Because the contract is, theoretically, such a low amount, the contracting officer can pick virtually whatever company and product he or she wants to satisfy the procurement, so long as the price is reasonable. Now the civilian micro-purchase threshold is increasing—a lot. Specifically, Section 806 of the NDAA, titled “Requirements Related to the Micro-Purchase Threshold” states the following: “INCREASE IN THRESHOLD.—Section 1902(a)(1) of title 41, United States Code, is amended by striking ‘$3,000’ and inserting ‘$10,000’.” Title 41 of the Code generally refers to public contracts between Federal civilian agencies such as the Department of Agriculture, the Department of Education, the Department of State, the Department of Labor, and so on. Title 10, on the other hand, generally refers to the Department of Defense components, such as the Army, Navy, and Air Force, but also a number of smaller components such as the Defense Logistics Agency and the Missile Defense Agency. Following the change, Section 1902(a)(1) shall read: “Definition.–(1) Except as provided in sections 2338 and 2339 of title 10 . . . for purposes of this section, the micro-purchase threshold is $10,000.” The NDAA therefore, specifically exempts (or at least does not change) the sections of Title 10 relating to the DoD micro-purchase threshold (sections 2338 and 2339) which will therefore hold steady at $5,000—for 2018 at least (more on that later). Section 1902 specifies in paragraph (f) that the section shall be implemented by the FAR. The NDAA changes the U.S. Code, but it does not change the FAR. The FAR, meanwhile, currently sets the civilian micro-purchase threshold at $3,500, because it is occasionally adjusted to keep pace with inflation. Although the law has now officially been changed, it’s not clear that civilian contracting officers will begin using the new authority until the corresponding FAR provisions are amended. Our guess is that, in practice, this change will take some time to implement. We believe most contracting officers will stick to what the FAR says until they are told otherwise. It is just a guess, but it is logical because unlike the U.S. Code, procurement officials rely on the FAR every day. Congress may have said that civilian procurement officials have the authority to treat anything below $10,000 as a micro-purchase, but contracting officers often wait until the FAR Council implements statutory authority before using that authority. As such, until the FAR, or the specific agency the procurement officials work for, recognize the change, our guess is that most COs will follow the FAR until it catches up with the U.S. Code. Nevertheless, whether it happens today or a year from now, this change is likely to have a big impact on some federal procurements. The 233% increase in the threshold for civilian agencies (a 186% increase if you count from $3,500) will open the door for many more products to be purchased without competition: FAR 13.203 specifies that “[m]icro-purchases may be awarded without soliciting competitive quotations” so long as the contracting officer (or similar authority) considers the price to be reasonable. Just think about the different types of things you can buy with $10,000 as opposed to $3,000, or $3,500. This change to the micro-purchase threshold, plus the “Amazon amendment” which sets up an online marketplace for sellers, and the fact that the FAR encourages the use of a Governmentwide commercial purchase card to make micro-purchases (FAR 13.301) means that procurement officials will simply be able to swipe, or click for relatively significant buys. Altogether, it could be bad news for some small businesses, particularly those that engage in a lot of “rule of two” set-aside simplified acquisitions under FAR 19.502-2(a). When this change is implemented, and presuming FAR Part 19 is updated accordingly, a chunk of those simplified acquisitions will no longer be reserved for small businesses. With this change to the civilian threshold, it is hard not to wonder whether the DoD threshold will soon grow to meet it. DoD procurement officials sometimes enjoy greater freedom in purchasing than their civilian counterparts. It would not be shocking to hear DoD voices begin lobbying for the same change on their end soon. View the full article
  21. The VA has formally proposed to eliminate its SDVOSB and VOSB ownership and control regulations. Once the proposed change is finalized, the VA will use the SBA’s regulations to evaluate SDVOSB and VOSB eligibility, as required by the 2017 National Defense Authorization Act. As regular SmallGovCon readers know, the differences between the government’s two SDVOSB programs have caused major headaches for veterans. As demonstrated in the recent Veterans Contracting Group saga, the SBA and VA have different SDVOSB eligibility requirements. That means, as was the case in Veterans Contracting Group, that a company can be a valid SDVOSB for VA contracts but not for non-VA contracts, or vice versa. In 2016, Congress addressed the problem. As part of the 2017 NDAA, Congress directed the VA to verify SDVOSBs and VOSBs using the SBA’s regulatory definitions regarding small business status, ownership, and control. Congress told the SBA and VA to work together to develop joint regulations governing SDVOSB and VOSB eligibility. However, a proposed consolidated regulation has yet to be published. Now the VA has proposed to eliminate its separate SDVOSB and VOSB ownership and control requirements, which are found primarily in 38 C.F.R. 74.1, 38 C.F.R. 74.3 and 38 C.F.R. 74.4. In a proposed rule published in the Federal Register last week, the VA notes that “regulations relating to and clarifying ownership and control are no longer the responsibility of VA.” The proposed rule wouldn’t entirely repeal the VA’s existing regulations, but, with respect to the eligibility requirements for size, ownership and control, those regulations would simply refer to the SBA’s rules in 13 C.F.R. part 125. The VA is accepting public comments on the proposal until March 12, 2018. The VA doesn’t say when it expects the rule to become final, but if it follows the ordinary rulemaking process, it will likely be summer at the very earliest. My biggest concern is whether the VA intends to finalize this rule before the consolidated SBA/VA eligibility rules take effect. If that happens, verified SDVOSBs and VOSBs will be stuck with the current SBA ownership and control regulations. And, as we recently saw in Veterans Contracting Group, those rules aren’t always veteran-friendly. In Veterans Contracting Group, a VA-verified SDVOSB wasn’t eligible for a non-VA contract because the company’s governing documents allowed the company to repurchase the veteran’s shares in the event of the veteran’s death, incapacity, or insolvency. This provision was just fine with the VA, which verified the company. But the SBA found that this restriction interfered with “unconditional ownership” under the SBA’s separate SDVOSB regulations. Although the Court of Federal Claims memorably called the SBA’s harsh interpretation “draconian and perverse,” the Court held that the SBA was within its legal rights to impose such strict eligibility requirements. If the VA’s rule “goes final” before a consolidated SBA/VA rule takes effect, every firm in the VA’s VIP database will be subjected to these strict SBA requirements, even when bidding on VA contracts. Undoubtedly, many companies with provisions like those at issue in Veterans Contracting Group have been verified by the VA and rely on their verifications to bid VA work. These companies could be vulnerable to successful SDVOSB status protests if they don’t update their governing documents to reflect the SBA’s stricter rules. Of course, there’s no guarantee that the consolidated SBA/VA rule will fix the problem. The consolidated rule (which, again, has yet to be proposed) could be every bit as strict as the current SBA interpretation of “unconditional ownership.” It’s anybody’s guess what the consolidated rule ultimately will say. But if the VA eliminates its ownership and control requirements before the consolidated rule is finalized, no guesswork is needed: a lot of verified SDVOSBs and VOSBs will suddenly become ineligible for VA set-aside contracts. Stay tuned. View the full article
  22. The FAR mandates that agencies use the AbilityOne program to award contracts for items on the AbilityOne procurement list to qualified nonprofits. The purpose of the program is to increase employment and training opportunities for persons who are blind or have other severe disabilities. With rare exceptions, when an item is on the AbilityOne procurement list, an agency has no choice–it must purchase through AbilityOne, even where the AbilityOne items are included in the procurement of larger services. The GAO recently sustained a protest where the GSA awarded a courthouse lease without requiring that the associated custodial services be procured from an AbilityOne nonprofit. In Goodwill Industries of the Valleys, B-415137 (November 29, 2017), GAO considered whether GSA must use the AbilityOne mandatory source for the custodial service requirements at a courthouse in Charlottesville, Virginia. The courthouse’s custodial services had been added to the AbilityOne procurement list in 2004. Since that time, Goodwill Industries of the Valleys, or a predecessor AbilityOne nonprofit, had performed the services. The courthouse was owned by VVP, LLC, which had leased the building to GSA for several years. During that time, GSA had separately contracted with Goodwill for the custodial services. In 2016, Goodwill learned that GSA intended to issue a new, “full service” lease to VVP, which would include the custodial services. Goodwill filed a GAO bid protest, contending that the inclusion of the custodial services in VVP’s lease violated the Javits-Wagner-O’Day Act (JWOD Act) and the AbilityOne program because Goodwill is the mandatory source of custodial services in the courthouse. The AbilityOne program implements the JWOD Act, whose goal is to “‘increase employment and training opportunities for persons who are blind or have other severe disabilities’ through authorization of the noncompetitive acquisition of specified products and services from qualified nonprofit agencies (NPAs) that employ persons with such disabilities.” The U.S. AbilityOne Commission maintains the procurement list for required purchases under the JWOD Act. The JWOD Act states that agencies “shall procure” products and services from an NPA if the product or service is on the list. The list, published in the Federal Register, provides the specific services (in this case, custodial services at the Charlottesville courthouse) and a specific NPA to provide them (in this case, Goodwill). At GAO, GSA tried a number of arguments to overcome the fact that it had not complied with AbilityOne requirements. Among those arguments, it contended that only the AbilityOne commission can investigate and address violations of the AbilityOne program under a regulation stating that “violations of the JWOD Act or these regulations . . . shall be investigated by the [AbilityOne Commission].” GAO disagreed, noting that its bid protest jurisdiction, as found in the Competition in Contracting Act, allows for GAO to decide any “alleged violation of a procurement statute or regulation.” GSA also asserted that the AbilityOne rules don’t apply to real property leases. GAO answered that a real property lease is a contract, so the procurement statutes, including AbilityOne rules, still apply. Additionally, “the plain language of the JWOD Act and its implementing regulations provides no exception for leases.” Rather, “the language of the Act broadly applies to all procurements that are conducted by ‘an entity of the Federal Government'”, with the only statutory exception “being applicable to acquisitions from Federal Prison Industries, Inc.” GAO wrote that: (1) the custodial services were on the AbilityOne Commission’s procurement list; (2) the JWOD Act requires purchasing from the designated organization if the service is on the list; and (3) Goodwill was the organization on the list. GAO then explained that bundling AbilityOne products or services into a larger procurement does not allow an agency to evade the mandatory AbilityOne requirements: [T]he Act and its implementing regulations expressly provide that, when services on the AbilityOne procurement list are included in the procurement of larger services, the contracting activity “shall require” the contractor for the larger services to procure the AbilityOne services from the organization designated by the AbilityOne Commission. In short, GSA is leasing a building that requires custodial services and, rather than procuring those services through the mandatory source that has been designated pursuant to the JWOD Act (or directing the lessor to do so), GSA has bundled the janitorial services into the lease without regard to the Act. GAO sustained the protest and recommended that GSA contract the custodial services separately with Goodwill or direct VVP to subcontract with Goodwill for the custodial services. GAO also ordered GSA to reimburse Goodwill’s costs in bringing the protest. As the Goodwill Industries decision demonstrates, the AbilityOne preferences are powerful. Agencies cannot evade them by bundling goods or services on the AbilityOne procurement list into larger acquisitions. View the full article
  23. SmallGovCon Week In Review: January 8-12, 2018

    It’s been a big week here at Koprince Law LLC: we published the first volume in our new series of GovCon Handbooks called Government Contracts Joint Ventures. After briefly reaching #1 on Amazon’s Best Sellers list (okay, in a wonky legal sub-sub-subcategory, but still!), we are pleased to know that the Handbook is being so well received. If you’re an active Koprince Law client, you’ll be getting a free copy in the mail soon. If not, you can get a copy on Amazon, for just $9.99 in paperback or $6.99 in Kindle form. While you wait for your copy of Government Contracts Joint Ventures, why not get up to speed on the latest government contracts news? In this edition of SmallGovCon Week In Review, we take a look at changes to the SBA’s Surety Bond Guarantee Program, two key defense acquisition positions are set to be filled, Alliant 2 protestors are trying their hand in the Court of Federal Claims, Bloomberg Government takes a big-picture look at government spending, and much more. The SBA’s Surety Bond Guarantee Program is trying to increase the chances of winning government contracts for small-scale contractors. [Multi Briefs] The 2018 NDAA rules governing the acquisition of commercial items should give those making relatively small purchases more choices, and small businesses more hope for getting a piece of the pie. [Federal News Radio] The White House has announced nominations for two key defense acquisition positions at the DoD and Air Force. [Defense Systems] While the coming year looks promising for federal contracting, there are reasons for concern. [The Washington Post] There are many findings in the Rand Corp.’s bid protest study but two things are clear: the bid protest process is not necessarily broken but contract debriefings certainly are. [Washington Technology] (and see my take here). The battle for the next great IT services governmentwide acquisition contract took a bit of an unusual turn when a protest of the Alliant 2 awards was filed in the Court of Federal Claims. [Federal News Radio] A government watchdog says that the Pentagon task force on Afghanistan reconstruction wasted millions of dollars of taxpayer money. [The Washington Times] Bloomberg Government takes a look at contract spending by the federal government and how it has changed over the past five years. [Bloomberg Government] Industry leaders told the GSA that the Pentagon’s e-commerce platform should balance efficiency with oversight. [Nextgov] The GSA has plans to formalize cyber rules for contractors and will be accepting public comments about the regulations later this year. [Nextgov] View the full article
  24. In a best value acquisition, the final decision is typically made by a Source Selection Authority. But what happens when the SSA disagrees with the ratings assigned by the evaluators, such as a Source Selection Evaluation Board? The SSA has a good deal of discretion, but that discretion isn’t unlimited. In a recent decision, GAO sustained a protest where the SSA’s disagreements with the SSEB didn’t appear to be reasonable. Immersion Consulting, LLC, B-415155 et al. (Dec. 4, 2017) involved the procurement of program management support services by the Department of Defense’s Defense Human Resources Activity. Proposals were to be evaluated on three factors: technical, past performance, and price. Technical approach was the most important factor, followed by past performance, then price. Award was to be made on a best value basis. Immersion and NetImpact Strategies, Inc. were the only offerors to timely submit proposals in response to the Solicitation. In accordance with the Solicitation’s evaluation plan, each company’s proposal was first evaluated by an SSEB. The SSEB awarded Immersion’s proposal three strengths, resulting in an overall technical score of Outstanding. NetImpact’s proposal received two strengths and one weakness, resulting in an overall rating of Acceptable under the technical factor. Immersion and NetImpact’s proposals were evaluated as equal under the past performance factor, and NetImpact offered a lower price. The SSEB’s report was then passed off to the SSA, who was to make the final award decision. After reviewing the SSEB’s findings, the SSA determined strengths and weaknesses should be allocated differently. With respect to Immersion’s Proposal, the SSA agreed with only one of the SSEB’s three assessed strengths. He removed the other two. Similarly, with regard to NetImpact’s proposal, the SSA did not agree with one of the strengths or the weakness identified by the SSEB. These scores were also eliminated. After the SSA’s reevalation, both proposals were scored as Acceptable under the technical factor. Since both Immersion and NetImpact’s proposals were determined to be equal with regard to the technical and past performance factors, price became the determining factor. Because NetImpact proposed a lower price, it was named the awardee. Following the award announcement, Immersion filed a protest with GAO, arguing that the SSA’s independent analysis was flawed. The DoD countered that the SSA had properly documented his revaluation and that the award was proper. In resolving the protest, GAO noted that “[a]lthough source selection officials may reasonably disagree with the ratings and recommendations of lower-level evaluators, they are nonetheless bound by the fundamental requirement that their independent judgments must be reasonable, consistent with the provisions of the solicitation, and adequately documented.” According to GAO, the SSA did not meet that burden. GAO first concluded that the record didn’t support the SSA’s removal of the weakness from NetImpact’s evaluation. The SSA removed the weakness because he “was not convinced” the errors in the NetImpact’s proposal would negatively impact its performance. GAO was unable to determine what the SSA relied on in making this determination. Indeed, GAO found “[t]here is nothing in the contemporaneous record or the agency’s filings documenting what, if anything, the SSA reviewed to support the SSA’s conclusion[.]” Further, there was no evidence that “the SSA discussed the SSEB’s concern with the SSEB.” Without any contemporaneous justification, it was unreasonable for the SSA to remove the weakness. GAO similarly found the SSA’s removal of one of Immersion’s strengths to be unreasonable. According to the SSA, it felt the SSEB’s comments awarding the strength to Immersion were “too general and did not specify how the approach exceeded the [solicitation] requirements.” In GAO’s opinion, however, “the SSEB’s comments were specific and identified the impact of the approach on the quotation, as well as how the approach benefited the government.” As such, GAO found the removal of the strength from Immersion’s proposal to be unreasonable. Finally, since the SSA’s changes to each company’s technical ratings had technically leveled proposals leaving only price to be the determining factor, GAO concluded that the underlying best value source selection decision was flawed. Accordingly, GAO recommended the agency reevaluate proposals and make a new award decision. As GAO’s decision in Immersion Consulting demonstrates, SSA officials may not unilaterally take it upon themselves to rewrite evaluations without appropriate justification. While GAO’s decision does not alter the fact that SSAs enjoy considerable discretion, it does demonstrate that the SSA’s discretion isn’t unlimited. View the full article
  25. I am excited to announce the publication of Government Contracts Joint Ventures, the first in a new series of new government contracting guides we’re calling “Koprince Law LLC GovCon Handbooks.” Packed with easy-to-understand examples and written in plain English, Government Contracts Joint Ventures should help you maximize your understanding of this important option for pursuing federal contracts. What does the Handbook contain? I’m glad you asked. Inside Government Contracts Joint Ventures, you’ll find: Joint Ventures 101. A big-picture overview of government contracts joint ventures, including a comparison with prime/subcontractor teams. Joint Venture Eligibility. Is a joint venture possible? The Handbook covers small business size eligibility, socioeconomic eligibility, and other factors influencing whether a joint venture can bid. Joint Venture Formation. If you’ve decided how to form a joint venture, how do you do it right? The Handbook covers the requirements for joint venture agreements, SAM registration, SBA approval, and more. Joint Venture Performance. Once a joint venture wins a contract, there are other rules to follow. The Handbook discusses work share requirements, SBA certifications, and other performance-related items. Government Contracts Joint Ventures is available on Amazon, and is priced at just $9.99 in paperback and $6.99 in Kindle electronic form. To buy a copy (or heck, several copies–they make great gifts for those special joint venturers in your life!) just visit this link for paperback or this link for Kindle. If you’re an active Koprince Law LLC client in good standing, check your inbox: we’re offering you a free copy. Just reply to the email to let us know to send you one. On behalf of my co-author Candace Shields, and all of my colleagues here at Koprince Law, I hope you enjoy Government Contracts Joint Ventures. And stay tuned–we’ll be publishing more GovCon Handbooks on other important contracting topics in the months to come. View the full article