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Limitations on Subcontracting - Are GSA Locum Tenen Physicians Subcontractors?

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The Government has a requirement for physician services. It has been determined that GSA Schedule 621 I has small and large schedule holders capable of meeting the Government's requirement. To the meet the agency's small business goals, the Contracting Officer intends to set aside the acquisition for small business concerns. The estimated value of this acquisition is $300,000.

The Contracting Officer is now being challenged on the set aside. Those opposed to the set aside have stated that physicians being provided by the GSA staffing firms (found on schedule 621 I) are 1099 independent contractors, and are in effect, subcontractors. As such, there is no way that the small business schedule holders could comply with the "at least 50 percent of the cost of contract performance incurred for personnel" requirement of 52.219-14 Limitations on Subcontracting. Therefore, a total small business set aside is improper; the requirement must be solicited on an unrestricted basis.

The Contracting Officer contends that it is standard practice in the medical staffing industry for physicians to be 1099 employees. However, that does not automatically make them subcontractors for purposes of determining compliance with 52.219-14. Taking into account the totality of information (See 13 CFR 121.106 a)), the physician should still be considered an employee of the concern. The concern dictates where the physician reports, when and how long he or she works, and what responsibilities they will have while working. Therefore, the physicians should not be considered subcontractors for the purpose of determining compliance with 52.219-14.

Thoughts?

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This is unsettled territory.The GAO’s decision in MindPoint Group, LLC, B-409562 (May 8, 2014) might be what is driving the contracting officer's challengers, but in that protest the GAO avoided the question entirely by saying, "since the protester’s own proposal repeatedly treated the systems administrator as an independent contractor or consultant rather than as an employee, there is no basis to question the agency’s conclusion that the individual is not an employee of MindPoint" -- apparently the GAO decided as it did because the proposal, on its face, repeatedly asserted that the system administrator was an independent contractor -- hence the very short decision -- so GAO did not examine whether the system administrator was or was not actually an employee or an independent contractor, but took MindPoint at its word as expressed in its proposal -- "Here, since the protester’s own proposal repeatedly treated the systems administrator as an independent contractor or consultant rather than as an employee, there is no basis to question the agency’s conclusion that the individual is not an employee of MindPoint."

One can reasonably suppose that if the MindPoint proposal was not so expressly clear, the GAO decision would necessarily have been different -- maybe not in outcome, but certainly in the analysis. As far as I know, the analysis has not been done and the bright-line rule has not been crafted yet. That's why I said at the beginning that this is unsettled territory.

If the contracting officer's superiors will permit it, he or she could release the solicitation and see how industry responds -- maybe someone will protest up front, or maybe someone will protest afterwards -- or maybe not.

A similar question was posted in 2011 at DAU's Ask-A-Professor --

Scenario - The AF Med Serv CC is issuing a personal services contract to hire companies to staff AF hospitals with doctors, nurses and other medical personnel at each of the 63 Medical Treatment Facilies. The contract will be a small business set-aside and contains FAR 52.219-14, Limitations on Subcontracting. Under the clause, the contractor must provide 50% of the cost of the services to comply. At Industry Day many contractors stated that virtually all doctors demand compensation as a 1099 contractor and that it would be extremely difficult to meet the 50% rule if it were forced to count these dollars as subcontract dollars. Other facts: 1) US AID Acquisition Regs specifically permit independent contractors to counted as employees; 2) 13 CFR 121.106 tells the contractor to count, as employees, temp or leased employees, or professional employee organizations; 3) the purpose of the clause is to avoid a small business from acting as a front for a large business - that's not happening here; 4) SBA does not respond; 5) no guidance can be found.

Answer: You have accomplished some good research already and I agree that regulations do not directly address your issue. However, since 13 CFR 121.106 counts “all individuals employed on a full-time, part-time, or other basis” in determining size eligibility, it is reasonable that the same logic would apply to the 50% issue you detail in your question. The “other basis” in my opinion would include 1099 independent contractors.
To confirm my interpretation, I contacted Mr Tom Krusemark, the Wright Patterson Air Force Base (WPAFB) Procurement Center Representative for the Small Business Administration. He is aware of this issue and is in agreement with this interpretation. Further, he has requested a legal opinion from SBA HQ and will make it available to you upon receipt.

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