Source: http://www.wifcon.com/discussion/index.php?/blogs/&view=grid
Timestamp: 2018-11-15 02:53:58
Document Index: 448251257

Matched Legal Cases: ['art 16', 'art 15', 'art 16', 'art 15', 'art 15', 'art 16', '§ 16', 'art 15', 'art 15', '§ 2304', '§ 4106', 'art 52', '§ 21']

Under FAR Part 16 Task Order Solicitation, Agency Can Establish Competitive Range Without Notification
Under FAR Part 15 negotiated procurements, an agency must give notice and an opportunity to request a debriefing to offerors eliminated from the competitive range. But the notice requirement does not apply for task and delivery order procurements under FAR Part 16 where FAR Part 15 is inapplicable. A recent GAO decision highlights this distinction. The Department of Education issued multiple solicitations to meet IT requirements. One RFQ, the PIVOT H solicitation, was for hosting of applications, data, and IT systems services. The PIVOT H solicitation was issued for a task order pursuant to a multiple-award, IDIQ contract program. Under PIVOT H, NTT DATA Services Federal Government, Inc. protested issuance of a task order to IBM, and GAO considered this protest in NTT DATA Services Federal Government, Inc., B-416123 (Comp. Gen. 2018). The RFQ was a best-value tradeoff, considering price and several non-price evaluation factors. The evaluation factors, in descending order of importance, were: technical approach, past performance, and price and subcontracting goals. NTT argued that the agency engaged in improper additional rounds of discussions with IBM and Offeror A, but not with it. The agency erred, according to NTT, because it never made a formal competitive range announcement. GAO rejected this argument, noting that the requirement to notify firms of the competitive range is a FAR Part 15 requirement, which was inapplicable to this RFQ because it was conducted under FAR Part 16. The RFQ stated: Furthermore, “FAR § 16.505(b) states, among other things, that the requirements of FAR subpart 15.3 are inapplicable to task order competitions such as the instant acquisition.” GAO noted that “the record shows that the agency effectively established a competitive range comprised of the firms the agency determined had a reasonable chance for award.” The agency’s documentation stated that Based on this evaluation, GAO determined that eliminating NTT from the competitive range was reasonable. The notice requirements for the competitive range were inapplicable: Under FAR 16.505, then, an agency can effectively establish a competitive range without notifying an offeror or allowing the opportunity for a debriefing, because those are requirements found only under FAR Part 15. As task and delivery order procurements become increasingly popular, offerors should remember that their notification and debriefing rights may be different than expected.
By Wayne Simpson, CFCM, CSCM In 2017 when the new administration entered office, and with both houses of Congress controlled by the same party in the 115th Congress, the Congressional Review Act of 1996 was used dozens of times in the first session of the 115th Congress to rescind Executive Orders, regulations, rules and policies issued by the previous administration. As of June 2018, 17 public laws were enacted using this authority. Fast forward to the 116th Congress convening at Noon Eastern Time January 3, 2019. With both houses of Congress being controlled by different parties in the new Congress, and the Senate controlled by the same party as the Executive Branch, will the newly elected Congress seek to use the Congressional Review Act to attempt to undo changes made during the first two years of President Trump’s Administration? More importantly, will they be successful? Probably not, but it will be interesting to watch. Any attempts will certainly show the opposition’s displeasure with targeted Executive Orders and regulations. Since this law took effect long after many of us had completed seventh grade Civics Class, here’s a quick primer. The Congressional Review Act of 1996 was passed as part of the Small Business Regulatory Enforcement Fairness Act (SBREFA), signed by President Clinton on March 12, 1996. SBREFA provides additional avenues for small businesses to participate in and have access to the Federal regulatory arena. SBREFA gives small businesses more influence over the development of regulations; additional compliance assistance for Federal rules; and new mechanisms for addressing enforcement actions by agencies. The Congressional Review Act is an oversight tool used by Congress to overturn rules issued by an executive agency or executive orders issued by the President. It is most commonly used to address actions of a previous administration. Federal agencies must submit a report to each house of Congress and the Government Accountability Office (GAO) containing a copy of rules issued. The submission to Congress and GAO must include a concise statement of the rule, whether the rule is a “Major Rule” and the rule’s proposed effective date. Members of Congress then have specified time periods to submit/take corrective action using a joint resolution of disapproval. The joint resolution must be approved by both houses of Congress. The joint resolution is then sent to the President for signature. If the President vetoes the joint resolution, Congress can override the President’s veto. If signed by the President, the Congressional Review Act states the “Rule shall not take effect or continue.” The rule may not be reissued in “substantially the same form” as the disapproved rule. Also, provisions that had become effective would be retroactively negated. The Congressional Review Act also prohibits judicial review of any “determination, finding, action or omission” thereunder. The act does not define what would constitute a rule that is “substantially the same” as the nullified rule. But one very recent and excellent example of the Act’s effect on government procurement is the case of E.O. 13673 “Fair Pay and Safe Workplaces” which is no more. Perhaps this is why it is often said “Live by the Executive Order/Die by the Executive Order—Here today/gone tomorrow.” It may also be why the late German author Otto von Bismarck once said: Laws are like sausages, it is better not to see them being made. President Kennedy later communicated this to Americans as well. America has survived 115 Congresses—it will undoubtedly survive the next. About the Author: Wayne Simpson
Government contractors often assume that a foreign-owned company cannot qualify as a small business under the SBA’s government contracting size rules. Not so. As demonstrated by a recent SBA Office of Hearings and Appeals size appeal decision, a foreign-owned entity can qualify as a small business, provided that it has a physical location in the United States and contributes to the U.S. economy. OHA’s decision in A&Y Government Services, LLC, SBA No. SIZ-5966 (2018) involved an Army solicitation for vehicles and spare parts. The solicitation was issued as a small business set-aside under NAICS code 336112. After evaluating proposals, the Army announced that Bukkehave, Inc., or “BHI,” was the apparent successful offeror. BHI is based in Florida, and is a wholly-owned subsidiary of a Danish company, Bukkehave Corporation. An unsuccessful competitor, A&Y Government Services, LLC, then filed a size protest challenging BHI’s small business status. The SBA Area Office noted that BHI was affiliated with its parent company and several other entities. However, when combined with its affiliates, BHI’s employee count still fell below the 1,500-employee threshold for NAICS code 336112. The SBA Area Office issued a size determination finding BHI to be an eligible small business for purposes of the Army contract. A&Y filed an appeal with OHA. A&Y’s appeal stated that BHI “is merely a sales office owned by a FOREIGN corporate entity.” Awarding the work to BHI, A&Y argued, would mean that the money paid by the Army “will go to Denmark.” OHA wrote that, contrary to A&Y’s apparent misconception, “SBA regulations . . . do not bar a foreign owned concern from participating in a small business set-aside, provided that the concern is based in the U.S. and contributed to the U.S. economy through the payment of taxes or otherwise.” In support, OHA cited 13 C.F.R. 121.105(a)(1), the SBA’s regulation defining a “business concern.” In this case, OHA wrote, “BHI is a corporation based in the state of Florida, and . . . BHI contributes to the U.S. economy by paying taxes.” OHA denied A&Y’s size appeal, writing that there was “no basis to conclude that BHI is ineligible for this procurement.” In my experience, many government contractors believe that a foreign-owned entity can never qualify as a small business for purposes of the SBA’s government contracting rules. But as the A&Y Government Services case demonstrates, the truth is more nuanced. It’s not foreign ownership that is the test, but rather a U.S. location and contribution to the American economy.
If, like us, you spend your days reading through the FAR, you might suppose that there are opportunities to streamline the regulations. Congress agreed, at least for DOD acquisitions, and as part of the 2016 National Defense Authorization Act, created the Section 809 panel, an independent advisory panel on streamlining acquisition regulations. The panel is working to improve many aspects of acquisitions law, including, as we’ve written about, the definition of subcontract. A recent, small (but helpful) recommendation was the elimination of a FAR clause involving the $1 coin. The clause in question came out of The Presidential $1 Coin Act of 2005. This law “removed barriers to the circulation of $1 coins.” As part of that goal, the law: FAR clause 52.237-11 provided that “[a]ll business operations conducted under this contract that involve coins or currency, including vending machines, shall be fully capable of accepting and dispensing $1 coins in connection with such operations.” The Section 809 Panel took aim at this FAR clause as part of its review of FAR provisions. In order to remove the FAR clause, the statute underlying it had to be amended. The Section 809 panel recommended its amendment “because the intention of the Act was to increase circulation of the $1 coin, which is not directly related to agencies’ missions.” Congress listened and, as a result, the 2018 NDAA “provides an exception for business operations conducted by a contractor while performing under a Government contract from the requirements to accept and dispense $1 coins.” Although $1 coins were touted as an alternative to dollar bills in the mid-2000s, the coins never caught on with the public. The U.S. Mint stopped producing $1 coins for general circulation in 2011, making the requirement for contractors to accept those coins all the more unnecessary. FAR clause 52.237-11, along with all cross-references, has now been removed. The Section 809 panel has done its job for this clause, and we’ll continue to update our readers on their work as they streamline the acquisition system.
SmallGovCon Week in Review: November 5-9, 2018
This week, Lawrence got its first taste of cold and snow for the season. I have to say, it was not a welcomed arrival. Hopefully it’s warmer in your neck of the woods. Let’s all warm our hearts with this week’s edition of SmallGovCon Week In Review. In today’s WIR, we’ll look at a joint VA/SBA partnership to benefit SDVOSBs, DoD’s effort to use its expanded “middle tier” contracting vehicles, and more government contractors behaving badly. Have a great weekend! A new partnership between the VA and the SBA creates workforce training to benefit veteran-owned small businesses. [WDSU 6 News] The Acquisition office at the Department of Defense plans to utilize “middle tier” acquisition. [Federal News Network] Jason Miller places odds on proposed FAR rules becoming final. [Federal News Network] Northrop Grumman agrees to pay $31.65 million to settle civil and criminal investigations into fraud. [U.S. Department of Justice] Granite Bay man pleads guilty wire fraud related to government-procurement fraud scheme. [U.S. Department of Justice] Two employees of corporation based in South Korea charged in scheme to defraud the United States. [U.S. Department of Justice]
By Tyler Freiberger, While attitudes about Marijuana and state laws controlling the drug continue to shift toward recreational use, the common advice has been that most employers may still terminate employees for even medical use of the drug unless restricted in particular states. In fact, typically the rule has been that if you are a government contractor, you are required to prohibit its use by your employees. While many states have moved toward protecting medical, or even recreational use of marijuana during employees’ off-time, no state prohibits employers for terminating employees to comply with federal requirements. But what that means is becoming murky. Regardless of the state laws controlling, most federal contractors are subject to the rather toothless Drug-free Workplace Act, which remains unchanged in recent years. While the penalties for violating the act could end in disbarment, it is particularly easy to comply with; write a section in your employment handbook saying not to do drugs and threaten to penalize people that do. But the loose requirements of the Act are now causing quite the employment lawyer’s headache. Does the Act actually require contractors to prohibit off the job drug use? At least one Federal Court says no. Connecticut is one of several states that not only allows registered users to obtain medical marijuana, but it actively prohibits discrimination against medical use “ nless required by federal law or required to obtain funding…” When one Nursing home refused to hire an employee whom tested positive for the drug, the employer argued it was subject to the Drug-Free Workplace Act and thus was required to terminate drug users and in this case, refuse to hire one. The court held federal law does not preempt PUMA’s prohibition on employers’ firing or refusing to hire qualified medical marijuana patients, even if they test positive on an employment-related drug test because the act does not require drug testing and does not regulate employees who use illegal drugs outside of work while off-duty. This Connecticut case is currently on appeal. While in my humble opinion may be reversed as it requires a very narrow reading of the Federal Drug Act, and a very broad reading of discrimination (typically saying I don’t want to hire employees that break the federal law is seem as a darn good non-discriminatory reason to fire someone), contractors should certainly have their attention on this issue as it unravels. About the Author: Tyler Freiberger
SBA OHA: Contracting Officer Can’t Extend Size Appeal Deadline
When you hear “15 days,” what’s the first thing that comes to mind? Perhaps, you pay your employees every 15 days. Maybe your birthday or favorite holiday happens to be in 15 days. Or if you’re like me, you might think that 15 days is two days less than Thirteen Days, a great movie about the Cuban Missile Crisis. Whatever your brain conjures up, don’t forget this: 15 days is the time limit to appeal an SBA size determination. Period. And nothing the contracting officer says can change it. A recent OHA decision, Sentient Digital, Inc. d/b/a Entrust Gov’t Solutions, SBA No. SIZ-5963 (2018), proves this point. Back in March 2018, the U.S. Navy Military Sealift Command issued a solicitation, set aside for small businesses, for information technology engineering support services. In early July, the agency alerted unsuccessful offerors that Entrust Government Solutions was the apparent awardee. Shortly thereafter, on July 10, an unsuccessful offeror filed a size protest against Entrust. While SBA’s decision was pending, the agency awarded the contract to Entrust on August 6. A few weeks later, on August 23, SBA issued its decision, finding Entrust other than small based on the ostensible subcontractor rule. The next day, the contracting officer (which was deciding whether it was obligated to terminate the contract) asked Entrust whether it planned to appeal the determination. Given that SBA’s decision only impacted this particular procurement, Entrust responded that it would only appeal if the agency intended to terminate. A week later, the contracting officer confirmed that the agency would not terminate the contract. Relying on this representation, Entrust did not appeal. But two weeks later, and perhaps in a fickle mood, the contracting officer again raised the possibility that the agency might terminate the contract. In fact, the contracting officer stated that unless Entrust appealed SBA’s size determination–even though the deadline had already passed–the agency would likely terminate the contract. As you can imagine, that spurred Entrust into action, and it filed an appeal. Almost immediately, OHA demanded to know why it should not dismiss the appeal as untimely (given that SBA had issued its size determination over 30 days before). As you might expect, Entrust invoked the contracting officer’s earlier promise not to terminate as the rationale for not filing earlier. And it also argued that once the agency instructed it to appeal, it did so within four days. How did OHA react? It dropped the merciless hammer of the filing deadline and dismissed the appeal. Here’s OHA’s blunt analysis: I conclude that I must dismiss the instant appeal. An appellant must file a size appeal within 15 calendar days after receipt of the size determination. . . . Appellant concedes it filed its appeal after the expiration of the deadline. Appellant pleads in mitigation of its actions the long time the Area Office took to issue the size determination and the CO’s initial assurance that MSC would not terminate the award. Neither of these factors is relevant here. The regulation is clear; a size appeal must be filed within 15 days of receipt of the size determination. There are no exceptions. There is nothing in the regulation which permits an appellant to rely upon the word of a procuring agency to extend the time limit for filing a size appeal. Indeed, the regulation prohibits OHA from extending the deadline for filing an appeal. The fact that the CO initially indicated MSC would not terminate the award does not alter the time limit Appellant faced after receiving the size determination. Appellant relied upon the CO’s word to its detriment. The regulation mandates that I dismiss this appeal. So remember: if SBA issues a size determination that you don’t like, appeal it within 15 days. And even if a well-intentioned contracting officer grants you an “extension” or makes some other representation about the deadline’s flexibility, politely thank her and perform a brain dump, because, you know better.
Big changes could be coming to the HUBZone program. On October 31, the SBA published a proposed rule that, if adopted, would bring clarity to the HUBZone regulations. Yesterday, we posted about proposed changes to the HUBZone certification, compliance, and protest processes. In this post, we wanted to bring you up to speed on some of the more substantive revisions to the way HUBZone employees are defined and counted under the proposed rule. Continuing Eligibility of HUBZone Employees Another substantial proposed change is the way in which the SBA will treat HUBZone employees. Under the previous HUBZone regulations, employees were required to maintain residence within a HUBZone in order to qualify as HUBZone employees. As soon as the employee moved to another area, however, that employee would immediately cease to count toward the 35 percent residency requirement of the HUBZone small business. The SBA’s proposed rule dramatically revises the employee eligibility requirements. As the proposed rule explains, “[the] SBA is also proposing that an employee that resides in a HUBZone at the time of a HUBZone small business concern’s certification or recertification shall continue to count as a HUBZone employee as long as the individual remains an employee of the firm, even if the employee moves to a location that is not in a qualified HUBZone area or the area where the employee’s residence is located is redesignated and no longer qualifies as a HUBZone.” The justification to this change makes sense: “omeone who is hired by a HUBZone small business concern and who is then able to better the lives of his or her family by moving to a different location outside a HUBZone area (due to that newly created job) should not face losing his or her job because the HUBZone small business concern cannot maintain its HUBZone eligibility with that individual on the payroll.” Shifting to a grandfathering system for employees is a positive step. As many HUBZone concerns are likely aware, trying to account for the movements of employees—particularly HUBZone employees—can be particularly taxing. By allowing HUBZone small businesses to continue counting employees that formerly resided in a HUBZone toward the required totals, the SBA is substantially increasing the possibility for HUBZone concerns to meet and maintain HUBZone eligibility. Changes to 1099 Contractors and Affiliate Employees One common question we get about HUBZone compliance is whether 1099 contractors count as an employee. The answer, up to now, is usually some variation of “it depends.” The proposed rule tries to clarify the treatment of 1099 contractors through commonality with its size regulations. That is, if a 1099 contractor is an “employee” for size purposes (according to SBA’s Size Policy Statement No. 1), they will also be considered an “employee” for HUBZone purposes: As such, the SBA’s proposed rule seeks to bring greater commonality between the HUBZone and size regulations. Additionally, the proposed rulemaking also clarifies that affiliate employees will be counted as HUBZone employees if “the totality of circumstances demonstrates that there is no clear line of fracture between the concerns.” According to the proposed rule, “[t]his has always been SBA’s policy and this amendment is intended to eliminate ambiguities in the regulation.” Given that the SBA’s policy has always been to include affiliate employees in the calculation, this change may not be as substantial as the change to the treatment of 1099 employees. That being said, the additional clarity provided by the SBA is nevertheless welcome. Owners as Employees Another area the proposed rule clarifies is the treatment of owners as employees. This has been an area of considerable confusion under the SBA’s current rules. Under the current HUBZone regulations, an owner would be deemed an employee if such owner worked 40 hours a month for the HUBZone business, regardless of whether such owner received compensation for his or her efforts. Despite this, there was still some ambiguity as to whether sole owners working less than 40 hours each month count as employees in firms with just a few employees. The SBA’s proposed rule retains the presumption that an owner working 40 or more hours a month is an employee for HUBZone purposes. The proposed rule, however, also clarifies the treatment of sole owners in small firms. As the SBA explains, “the proposed definition adds that if the sole owner of a firm works less than 40 hours during the four-week period immediately prior to the relevant date of review, but has not hired another individual to direct the actions of the concern’s employees, then that owner will be considered an employee as well.” Accordingly, under a proposed rule, a small business that has not hired some type of manager will have its owner considered an employee regardless of the number of hours worked. Businesses with a small number of employees will likely bear the brunt of this rule change. Notably, when a concern only has a few employees, the change in HUBZone eligibility of one employee can substantially impact the HUBZone eligibility of the firm. Consequently, counting owners to be an employee may have a number of adverse impacts on potential HUBZone start-ups. Residency Definitions The SBA has also proposed revising the definition of “reside.” Under the current regulations, an employee being claimed for compliance with the 35 percent residency requirement must demonstrate their principal residence is located within a HUBZone and that the employee intends to live at the location indefinitely. The SBA acknowledges, however, that the term “principal residence” may not accurately describe the SBA’s expectations, and that it has developed no effective means for policing the indefinite residency requirement. As such, the SBA is proposing to remove both of these requirements. Moreover, employees who are performing work overseas in connection with a contract, but maintain a residence within the United States will also be considered employees. According to the SBA, “as long as that employee can provide documents showing he or she is paying rent or owns a home in a HUBZone, then the employee should be counted as a HUBZone resident in determining whether the small business meets the 35 percent HUBZone residency requirement.” In all, the SBA’s changes to the employee eligibility requirements are likely to have a positive impact on HUBZone participation and continued compliance. * * * As we mentioned yesterday, these proposed changes are just that—proposed. The SBA has invited public comments on these rules, which are due December 31, 2018. We’ll keep you posted on whether—and when—any of these revisions are adopted.
Question In your discussion of intellectual property in government contracts, you talked about government purpose rights and how you negotiated with the government for your client to keep the background technology but allow the government to own the form factor. Where both the contractor and the government contribute funding, the parties are left to negotiate… The post Intellectual Property in Government Contracts appeared first on Left Brain Professionals.
When GAO lacks jurisdiction to hear a protest over a task or delivery order, contractors have the right to complain to an ombudsman. Implementation of the ombudsman right, however, has been haphazard at best. Last week, the DoD, GSA, and NASA–the entities comprising the FAR Council–proposed a rule to help alleviate this issue for IDIQ contracts. Generally, 10 U.S.C. § 2304c and 41 U.S.C. § 4106 require each head of an agency that awards MATOC or delivery order contracts to appoint “a senior agency official who is independent of the contracting officer” as the “task and delivery order ombudsman.” The position requires the appointee to review complaints from contractors in order to ensure “that all of the contractors are afforded a fair opportunity to be considered” in certain circumstances where the underlying contract falls outside of GAO’s jurisdiction. Currently, ombudsmen are appointed on an agency-by-agency basis. FAR 16.504(a)(4)(v) requires all IDIQ solicitations which may result in multiple awards, and all other multiple- award IDIQ contracts, to include the ombudsman’s “name, address, telephone number, facsimile number, and email address.” While the FAR Council recognizes that “several agencies created an agency-level contract clause that provides this information to contractors,” not all agencies have, so it can be difficult to track down who an agency’s ombudsman is, let alone find his or her contact information. To that end, the proposed rule first intends to create a clause that will create uniformity across the agencies and provide “contractors with contact information (as a fill-in) for the agency ombudsman” under FAR part 52. Even if an agency’s ombudsman can be identified with ease, many agencies aren’t clear on what an ombudsman is actually required to do. The proposed rule requires the ombudsman’s responsibilities to be spelled out in each applicable MATOC or IDIQ solicitation. Finally, the proposed rule would provide contractors notice that contacting an ombudsman would “not alter the timelines for other processes in the FAR.” If a contract will be used by multiple agencies, the proposed rule also provides an alternative clause to be incorporated in these contracts, indicating that the relevant ombudsman is that of the ordering agency. In addition, the proposed rule includes a second FAR clause, requiring agencies to provide their ombudsmans’ information in “solicitations and contracts for the acquisition of commercial items.” The FAR Council does note, however, that ombudsman rules are unlikely to apply to contracts at or below the simplified acquisition threshold since the value of multiple-award IDIQ contracts are usually above the SAT.” All in all, the proposed rule would be a great step forward for government contractors, allowing them to make use of their right to be heard by an ombudsman more successfully. Stay tuned to SmallGovCon.com to follow the proposed rules progress.
Agency professionals who write contracts sometimes fail to include the basic and necessary elements of a contract. Whether an agency omits necessary elements of the contract deliberately or (more likely) by accident, it’s often the contractor who suffers. This was the case in a recent procurement by FEMA (Federal Emergency Management Agency), which neglected to include several critical parts in an IDIQ contract with Pros Cleaners. When Pros Cleaners never received a task order for any work under the contract, they took the case to the CBCA (Civilian Board of Contract Appeals) claiming breach of contract. Read the full article to learn why the Court sided with the agency and what you can do to make sure your Government contracts are enforceable.
I always knew my legal career would some day overlap with my love of terrible movies, before-they-were-stars trivia, and naval warfare. Today is that day. When I saw that GAO had dismissed a “killer tomato” protest, several things came to mind. First, I thought, wait, are they talking about “Attack of the Killer Tomatoes“? Then I though, wait, wasn’t George Clooney in that—and didn’t he have a terrible 80’s mullet? Naturally, my curiosity got the best of me. I clicked. The protest in question was filed by Geodata Systems Management, Inc., an Ohio company that makes floating naval gunnery target balloons called “Killer Tomatoes.” These things are apparently giant, bright colored floats that the Navy will dump in the ocean and use for target practice. There are a bunch of videos on YouTube of gun boats teeing off on these things. Apparently, they are made by one of two companies: Geodata or American Pacific Plastics Fabricators, Inc., who have been arguing over which business owns the Killer Tomato trademark. In the protest, Geodata said that it is the only that can provide Killer Tomatoes and that the solicitation improperly permitted offerors to procure the floating inflatable targets from its competitor. Geodata said that it, and it alone, is the only company authorized to manufacture the Killer Tomato product. GAO dismissed the protest for two reasons: First, it was late—by two hours and twenty-five minutes. Second, GAO said that an allegation that a solicitation is not restrictive enough of competition is not an adequate basis of protest. In general, the government prefers competition. The timeliness issue is, in my opinion, the attention grabber here. Normally, a GAO protest is timely if filed on the day it is due before 5:30 p.m. Eastern. Geodata’s protest was filed at 5:25 p.m. So what gives? Well, when a protest challenges the terms of a solicitation, it must be filed before the bid opening or “the time set for receipt of initial proposals.” 4 C.F.R. § 21.2(a)(1). The agency here had set the time for the receipt of quotations at 3 p.m. So, although Geodata filed its protest on the correct day, before the customary cutoff time, it was still two hours and 25 minutes late. As this case shows, in matters of timeliness GAO does not consider close to be “good enough.” The takeaway for potential pre-award protesters is to always check when proposals are due as that may affect the bid protest timeline. Now, back to the tomatoes. Before dismissing the protest, the GAO attorney got the pleasure of dropping an all-time footnote (cleaned up). Enjoy: So, there you have it. George Clooney, by the way, is not in “Attack of the Killer Tomatoes.” I was thinking of the sequel “Return of the Killer Tomatoes.” The mullet, however, was real.
Last week, the SBA released a proposal to overhaul the HUBZone Program. The proposed rule will make major changes to almost all aspects of the HUBZone Program, and my colleague Ian Patterson is covering those changes in a series of two posts on SmallGovCon. But while the proposed HUBZone Program rule changes will garner most of the headlines, the SBA also has used the proposed rule as an opportunity to clear up a few very common HUBZone Program misconceptions–such as the notion that so-called “jobsite employees” don’t count toward the 35% HUBZone residency requirement. Here are three of the most important clarifications SBA offered in the proposed HUBZone rule. Independent Contractors HUBZone applicants often believe that bona fide 1099 independent contractors can be used to satisfy HUBZone eligibility requirements. But that’s never been the case. In the proposed rule, SBA says that “independent contractors who receive compensation through Internal Revenue Service (IRS) Form 1099 generally are not considered employees, as long as such individuals are not considered to be employees for size purposes under SBA’s Size Policy Statement No. 1.” The SBA explains: SBA believes that it would not make sense to find an individual to be an employee of a firm when determining the concern’s size, but to then not consider that same individual to be an employee when determining compliance with HUBZone eligibility rules. If an independent contractor meets the employee test under SBA Size Policy Statement No. 1, such individual should be considered an employee for HUBZone eligibility purposes. If someone is truly acting as an independent contractor, that individual is acting as a subcontractor, not an employee. Such an individual does not receive the same benefits as an employee, but is also not under the same control as an employee. The SBA’s guidance is consistent with its statement from May 2016, in which SBA stated that 1099 contractors are not employees for purposes of meeting the limitations on subcontracting. In short, regardless of whether it is size, subcontracting limits, or HUBZone status at issue, the SBA’s message is that government contractors probably cannot have it both ways by counting an individual as a 1099 for purposes of taxes and benefits, but counting the same person as an employee for SBA’s size and socioeconomic programs. Employees of Affiliates If a HUBZone applicant or participant has an affiliate under the SBA’s size rules, do the employees of the affiliate count toward the HUBZone Program’s 35% and principal office requirements? The SBA has long used a “totality of the circumstances” test in such cases–but that test was nowhere to be found in the regulations. Now, the SBA offers some concrete guidance, saying that it will count the employees of an affiliate “if the totality of the circumstances demonstrates that there is no clear line of fracture between the concerns.” The SBA continues: When looking at totality of the circumstances, SBA will review all information, including criteria used by the [IRS] for Federal income tax purposes and those set forth in SBA’s Size Policy Statement No. 1. This means that SBA will consider the employees of an affiliate firm as employees of the HUBZone small business if there is no clear line of fracture between the business concerns in question, the employees are in fact shared, or there is evidence of intentional subterfuge. When it comes to a “clear line of fracture,” the SBA says it will review, “among other criteria,” whether the companies: Operate in the same or similar line of business; operate in the same geographic location; share office space or equipment; share any employees; share payroll or other administrative or support services; share or have similar websites or email addresses; share telephone lines or facsimile machines; have entered into agreements together (e.g., subcontracting, teaming, joint venture, or leasing agreements) or otherwise use each other’s services; share customers; have similar names; have key employees participating in each other’s business decisions; or have hired each other’s former employees. That’s a lot to consider, but it’s very helpful for SBA to clearly set out the “clear fracture” test and a list of criteria that may be considered in the analysis. Of course, I hope we can all agree that in late 2018, almost no one should still be using that abomination of 1980s-era technology, the fax machine. If you’re still using one, may I recommend you consider this handy fax machine disposal demonstration from Office Space. Job Site Employees and the 35% Residency Rule When it comes to the 35% rule, there’s a lot of confusion out there. It’s a very common misconception that employees who work on employee job sites aren’t included in the 35% count. In fact, they are included in the 35% calculation; they’re exempt, instead, from consideration when it comes to determining the company’s principal office. In the new rule, “SBA proposes to clarify that all employees are counted when determining a firm’s compliance with this requirement, regardless of where the employee performs his or her work.” The SBA continues: This has always been SBA’s policy, but it appears that some applicants have misinterpreted SBA’s rules. SBA has received several comments indicating that some in the community mistakenly believe that SBA would look only at those employees performing work in the principal office, and not any employees performing work at job site locations, in determining whether the firm meets the 35% HUBZone residency requirement. This has never been the case. SBA counts all individuals considered “employees” under the HUBZone definition of the term toward the 35% HUBZone residency requirement. The Road Ahead It’s important to remember that the sweeping changes the SBA has proposed to the HUBZone program are just that: proposed changes. The SBA is accepting public comments until December 31, 2018, and will then publish a final rule, likely at some point in mid-to late-2019. Only with the publication of the final rule will the underlying HUBZone regulations change. That said, for HUBZone applicants and participants, these three items I’ve discussed are worth noting right now. With respect to independent contractors, employees of affiliates, and job site employees, the new rules effectively clarify and codify what the SBA is already doing (and has been doing for years).
SmallGovCon Week in Review: October 29-November 2, 2018
The big government contracting news of the week was certainly the SBA’s proposed changes to the HUBZone regulations. But that wasn’t the only news. So let’s recap in this week’s edition of the SmallGovCon Week In Review! Below, we’ll look at the DOD’s plan to audit registered SDVOSBs, an update on the CloudSmart strategy, and more. Have a great weekend (and enjoy that leftover Halloween candy)! DOD announces it will audit registered SDVOSB contractors for set-aside and sole-source contracts. [DisabledVeterans.org] Industry wants clarity to Cloud Smart strategy. [FedScoop] A recent RAND report recommends increasing the use of technology to manage sensitive government information. [ExecutiveGov] The Government will prosecute a U.S. Navy contractor of widespread fraud in $1 billion cleanup of a radiation-contaminated shipyard. [Courthouse News Service] DoD, GSA, and NASA issue a proposed FAR amendment relating to Task Order Ombudsmans. [Federal Register]
The SBA’s Historically Underutilized Business Zone (“HUBZone”) program intends well—by directing awards to contractors in regions that have been passed by economically, the federal government has tried to lift these areas up. But the HUBZone program has exacting regulations, which (ironically) have helped cause it to be an underutilized tool for contracting officers. This could soon change. On October 31, the SBA published a proposed rule that, if adopted, would bring clarity to the HUBZone regulations. In this post, we wanted to bring you up to speed on some of the more substantive proposed changes regarding certification requirements and the HUBZone protest process. Changes to employee definitions and requirements will be handled in another post. Annual Certification Among the largest changes to the HUBZone program is the time at which HUBZone firms will certify their HUBZone program compliance. Currently, HUBZone concerns are required to comply with all of the HUBZone eligibility criteria both at the time of bid submission and contract award. Additionally, HUBZone’s are also required to undergo recertification every 3 years. The eligibility requirements for HUBZone contracts, however, have frequently been a sticking point for participating small businesses. As such, the SBA has proposed revising its regulations to require concerns annually recertify compliance with the HUBZone requirements. Once certified (or recertified), however, the HUBZone small business will be eligible for HUBZone set-aside awards throughout the year, provided the HUBZone concern is small under the appropriate NAICS code. According to the SBA, the revised requirements will ultimately be a benefit to HUBZone Small Businesses. As the SBA explains: On this point, we agree: the requirement that HUBZone firms maintain eligibility at both the time of proposal submission and award has been a frequent issue for HUBZone small business—particularly in light of the employee residency requirement. If adopted, this new recertification requirement would be a welcomed change. Minimum Threshold for Best Efforts One of the hallmarks of the HUBZone program is its requirement that at least 35 percent of a concern’s employees reside within a HUBZone. Under the current regulations, the SBA recognizes that compliance with this requirement can fluctuate as employees move and businesses grow. Accordingly, the current HUBZone regulations require offerors to attempt to maintain compliance with the 35 percent requirement, which is currently defined as “making substantive and documented efforts such as written offers of employment, published advertisements seeking employees, and attendance at job fairs.” The “attempt to maintain” requirement is fairly subjective. The proposed rule tries to eliminate the guesswork, by imposing a presumption that, if the HUBZone’s employee residency drops below 20%, the HUBZone will have failed to use its best efforts to comply. Implementing the 20% threshold may pose a challenge. The SBA acknowledges that small businesses often need to hire additional staff after an award; under the proposed rule, however, the SBA will not penalize offerors for the order in which they hire employees. The SBA provides the following explanation of its intent in its proposed rule: The SBA’s elaborate discussion of up-staffing demonstrates some of the apparent difficulties with enforcing the 20 percent minimum. While the SBA does not want to penalize concerns for hiring staff in a particular order (for good reason), carving out an exception for contract ramp-ons undermines the SBA’s desire for an easily enforceable minimum threshold. For example, when is the contract ramp-on process deemed concluded? Will it be tied to contract transition periods? Could a contractor claim indefinitely that it was still hiring employees to staff its contract? As evidenced by these open questions, the SBA’s proposed attempt to bring clarity to the HUBZone requirements may ultimately create greater confusion. Additionally, the proposed rule may disproportionately impact businesses with fewer employees. For example, the departure of a few HUBZone employees could quickly drop a 5 to 10 person firm out of compliance with the 20 percent requirement, whereas the same number of employees leaving a 50 to 100 employee business would not similarly jeopardize compliance with the 20 percent threshold. Something that may alleviate some of these difficulties is the SBA’s proposal to revise the rounding procedures for calculating the 35 percent requirement. Currently, the HUBZone regulations require participants to round up any time the calculation of 35 percent of the business’ employees resulted in a fraction. Under the proposed rule, however, businesses would be allowed to “round[] to the nearest whole number, rather than rounding up in every instance.” This means that if 35% of a firm’s employees equates to, say, 3.33 employees, SBA would round down to 3 rather than rounding up to 4. While the SBA’s desire to further clarify when a firm will violate the best efforts requirement is a welcome development, the implementation of a minimum threshold may provide more questions than answers. It will be interesting to see how the SBA does so, if the proposed rule is adopted. Protest Process The SBA has also proposed revisions to the HUBZone protest process. Notably, both HUBZone firms and HUBZone joint ventures may be protested by interested parties. Unfortunately, the SBA has also proposed reducing the time for protested concerns to respond to allegations to 3 business days. As the proposed rule explains, “SBA believes that businesses generally respond in a short period of time since an award on a contract is pending and the business has this information readily available.” We’re not on board with this change. In our work assisting clients with responding to these challenges, we can say that small businesses don’t always have this information “readily available.” And even if they do, their attention is usually split between performing their contracts, running their business, and responding to these protests. Limiting the time to respond would only cause them additional stress. * * * The HUBZone program serves an important purpose, by bringing federal spending to lower-income regions. Unfortunately, the current administrative burdens imposed by the HUBZone program have hampered its effectiveness. As such, the SBA’s proposed new rules provide needed opportunity to revitalize the program. These proposed changes are just that—proposed. The SBA has invited public comments on these rules, which are due December 31, 2018. We’ll keep you posted on whether—and when—any of these revisions are adopted.
Recently, the GAO issued a report discussing the VA’s Veterans First Program, made at the request of several members of Congress. The report focused on addressing ongoing implementation challenges regarding compliance with the Rule of Two following the Kingdomware decision. One of the key challenges facing the VA is ensuring that SDVOSBs comply with the limitations on subcontracting. According to the GAO, the VA’s oversight needs improvement. Many of our readers are familiar with the VA’s Veterans First Program, which was established in 2006 to ensure the VA gives preference to SDVOSBs when awarding contracts. Each SDVOSB must, in turn, comply with a number of regulations, including the SBA’s limitations on subcontracting. The limitations on subcontracting are defined by statute and implemented in SBA regulations and various FAR provisions. While differences between the SBA regulations and outdated FAR provisions have led to some frustrations, the purpose of the limits–whether set forth in SBA regulations or a FAR provision–is the same: to ensure that awardees of set-aside contracts don’t subcontract out a majority of the work to otherwise ineligible firms. In May 2016, we talked about the SBA’s enactment of important updates to the underlying limitations. These updates allowed prime contractors to take credit for work performed by “similarly situated” subcontractors, restructured certain calculations for services and supply contracts, and, perhaps most importantly, imposed a general $500,000 fine on businesses violating the limitations. The limitations on subcontracting updates went into effect at the end of June 2016, and the VA updated its own regulations to reflect the changes, at least with respect to SDVOSB and VOSB contracts. (Most other agencies, though, are still using outdated FAR clauses.) Upon review in 2018, however, the GAO first discovered that more than one-third of the contracts reviewed were missing clauses referencing these regulations, or included outdated references which excluded the updates. In response to the GAO’s findings, contracting officials informed the GAO “the contracting officers likely forgot to include the clause or included an outdated version of the clause by mistake.” In addition to missing clauses addressing the 2016 updates, more than 75% of the contracts GAO reviewed didn’t contain the clause establishing the VA’s right to monitor SDVOSBs’ compliance with the limitations on subcontracting. The VA held that “the clause was not included in the contract in some cases because the contracting officers were unaware of the requirement,” though it was established in 2011. As if missing or outdated clauses ensuring subcontracting limitations wasn’t enough, the GAO also determined the VA offered little other oversight regarding compliance with the limitations on subcontracting. Though the VA does have a Subcontracting Compliance Review Program (“SCRP”) within its Risk Management and Compliance Service, its scope is minimal. Since 2011, the SCRP has only “conducted reviews of 95 SD/VOSB and other set-aside contracts out of thousands.” Further, “[m]any of the contracting officers [the GAO] met with were unaware that SCRP existed, or that they could refer potential subcontracting limitations violations to it for review.” In this report, the GAO has recognized what contractors have known for a while: that SBA regulations regarding limitations on subcontracting and VA contract provisions often don’t line up, and Contracting Officers don’t always take steps to ensure compliance. This ultimately creates problems for contractors, who may be uncertain which subcontracting limitation formula applies, or whether they are allowed to avail themselves of the “similarly situated entity” portion of the newer rule. And lax monitoring can create an environment in which non-compliant companies “get away with it,” causing major frustration and discouragement when rule-abiding SDVOSBs see contracts going to those companies. The report ultimately recommended the VA establish “a mechanism to ensure that mandatory clauses relating to subcontracting limitations are consistently incorporated in all contracts that are set aside for SD/VOSBs,” and recommended more extensive training for VA contracting officers pursuant to subcontracting limitations risks and monitoring practices. We will keep readers posted on the VA’s steps to implement these recommendations.
By Jack Delman We promised to keep you updated on the Federal Circuit’s disposition of a case addressing the collide between the Veterans Benefits, Health Care and Information Technology Act of 2006 (VBA) and the Javits-Wagner-O’Day Act (JWOD) in procurements at the Department of Veterans Affairs (VA). Each statute provides valuable award preferences to different disadvantaged small businesses, but which statute has priority? In Kingdomware Technologies., Inc. v. United States, 136 S. Ct. 1969 (2016), the Supreme Court held that except when the VA used its statutorily prescribed noncompetitive and sole-source contracting procedures, it was obligated under section 8127(d) of the VBA to use the “Rule of Two” analysis before awarding a contract to another supplier. The “Rule of Two” requires the award of VA contracts based upon a competition restricted to small businesses owned and controlled by veterans if the contracting officer has a reasonable expectation that 2 or more such businesses will submit offers and an award can be made at a fair and reasonable price that offers best value to the government. Kingdomware did not address the interaction between the VBA and the JWOD. This was decided in the case below. In PDS Consultants, Inc. v. United States, 132 Fed. Cl. 117 (2017), plaintiff, a service-disabled veteran-owned small business, filed a protest with the Court of Federal Claims. The plaintiff, who was engaged in the sale of vision-related products, sought declaratory and injunctive relief requiring the VA to perform the “Rule of Two” analysis under the VBA– for the benefit of veteran-owned small businesses providing these products — prior to awarding any such contracts under the JWOD/AbilityOne List. The court sided with the plaintiff. In brief, the court held that the VA had a legal obligation under the VBA to perform the “Rule of Two” analysis for the relevant procurement of eyewear where such an analysis had not been performed. It enjoined the VA from entering into future contracts with JWOD contractors without first performing this analysis. The defendants appealed to the Federal Circuit. The Federal Circuit affirmed the lower court. PDS Consultants, Inc. v. United States, 2018 WL 5019735 (10/17/2018). In brief, the Court held that the requirements of the more specific – and later enacted –VBA took precedence over the more general and earlier-enacted JWOD statute. The Court concluded that even if a product/service is on the List and ordinarily would result in a JWOD award, the VBA requires that priority be given to veteran-owned small business. As applied to the facts of this case, this required the VA to undertake the “Rule of Two” analysis before procuring the eyewear from any other source, including the JWOD/AbilityOne List. Is it “game over”? Perhaps not. The defendants may seek further court review. And of course, Congress may weigh in again. But for now, chalk this one up for veteran-owned small business! About the Author: Jack Delman, Esq.
Counsel Jack Delman served as a judge on the Armed Services Board of Contract Appeals for 29 years and has extensive experience in the adjudication and mediation of large and complex contract disputes, including equitable adjustments, terminations and cost and pricing issues. Jack has extensive experience with claims analysis, FAR and DOD agency regulations and BCA practice and procedure.
The SBA’s All Small Mentor-Protégé program offers a tremendous opportunity for participants to pursue set-aside contracts as joint venture partners. But misunderstandings and misconceptions about how SBA mentor-protégé joint ventures work are pervasive. One very common misconception is that the SBA must pre-approve a mentor-protégé joint venture. In most cases, that’s not so. In a recent bid protest decision, even the GAO appeared a little confused, repeatedly mentioning SBA approval of a joint venture even though no such approval was required for the contract in question. Before we get to the GAO’s decision, a brief background on SBA mentor-protégé agreements may be helpful. For many years, the SBA operated a special mentor-protégé program for participants in the 8(a) Business Development Program. Under the 8(a) mentor-protégé program, mentor companies (which are usually large businesses) provide various forms of business development assistance to their protégés. Why would a large business agree to provide targeted business development assistance to an 8(a) company? Well, some of them may do it for the warm fuzzy feelings they get by helping small, disadvantaged businesses. But when the SBA established the 8(a) mentor-protégé program, it knew that most prospective mentors would seek a more concrete benefit. So, to encourage prospective mentors and protégés alike to form these business development relationships, the SBA created a special exception to its ordinary joint venture rules. Under the SBA’s size regulations, a joint venture ordinarily qualifies for a set-aside contract only if both members are small under the NAICS code assigned to the acquisition. If, for example, an agency issues a small business set-aside solicitation under NAICS code 541310 (Architectural Services), a joint venture ordinarily cannot qualify unless both members fall below the associated $7.5 million size standard. The 8(a) mentor-protégé program exempts the mentor from the analysis. Under the 8(a) mentor-protégé program, so long as the protégé qualifies for the prime contract by size and socioeconomic status, and so long as the joint venture meets the SBA’s regulatory criteria, the mentor member of the joint venture can be a large business–even a multi-billion dollar large business. SBA mentor-protégé programs are the only way in which a joint venture between a small business and large business can qualify for set-aside contracts. Although 8(a) mentor-protégé joint ventures aren’t limited to pursuing 8(a) contracts, most 8(a) mentor-protégé joint ventures exclusively or primarily pursue 8(a) work. And, under SBA’s 8(a) joint venture regulations, the SBA must approve a joint venture before the joint venture can be awarded an 8(a) contract. Importantly, this SBA joint venture approval requirement is limited to cases in which the joint venture is pursuing 8(a) work. In other words, once a mentor-protégé agreement is approved, any subsequent requirement for SBA approval turns on the type of contract the joint venture will pursue. If the joint venture is pursuing an 8(a) contract, the SBA must separately approve the joint venture before award of that contract (although the SBA is considering eliminating the requirement). If the joint venture will pursue some other type of contract, such as a small business set-aside, the SBA need not–and in fact, will not–pre-approve the joint venture for that contract, although the SBA will review the joint venture for eligibility (including ensuring that the joint venture agreement meets all mandatory regulatory requirements) if a protest is filed after announcement of the award. In late 2016, the SBA established the All Small mentor-protégé program. The ASMPP, as it’s called (because everything in government needs an acronym!), allows any small business–not just an 8(a) participant–to be a protégé. And like the 8(a) mentor-protégé program, the ASMPP regulations allow small protégés and large mentors to form joint ventures to pursue set-aside contracts. Similar to the 8(a) mentor-protégé program, the ASMPP does not impose an SBA pre-approval requirement for joint ventures, except when the joint venture will pursue an 8(a) contract. You don’t have to take my word for it. Here’s what the SBA says on its fact sheet titled “Joint Ventures in the All Small Mentor-Protégé Program”: SBA does not review or approve JV agreements prior to award for non-8(a) contracts. If the JV is seeking to win an 8(a) contract, SBA will follow the 8(a) program rules for reviewing and approving the joint venture agreement. There’s one more nuance we should cover. If a joint venture will pursue a VA SDVOSB or VOSB contract, the joint venture must be separately verified as an SDVOSB or VOSB by the VA’s Center for Verification and Evaluation. Again, this applies only to VA SDVOSB and VOSB contracts; non-VA SDVOSB and VOSB contracts fall under the SBA self-certification rules. Whew, that’s a lot. Let’s sum it up. For a large business and small business to be eligible to win a set-aside contract as joint venture partners, the following pre-approval rules apply: 8(a) Contracts: SBA must approve mentor-protégé agreement and SBA must separately approve joint venture. VA SDVOSB/VOSB Contracts: SBA must approve mentor-protégé agreement and VA CVE must separately verify joint venture; no separate SBA joint venture approval required. All Other Set-Aside Contracts: SBA must approve mentor-protégé agreement; no separate joint venture pre-approval required. No doubt about it: this is confusing stuff. With so many different rules and requirements, it’s no wonder that the procurement community as a whole seems rather uncertain of the rules governing SBA mentor-protégé joint ventures. That finally takes us to the GAO’s decision in HealthRev, LLC; DLH Solutions, Inc., B-416595, B-416595.2 (Oct. 25, 2018). The HealthRev case involved a VA SDVOSB set-aside solicitation for consolidated mail order pharmacy operations. As you know from our lengthy discussion above, if a joint venture consisting of an SDVOSB and a large business wished to submit a proposal for this VA SDVOSB set-aside solicitation, the joint venture would need the SBA to approve a mentor-protégé agreement and the CVE to separately verify the joint venture as an SDVOSB. The SBA would not be required to separately approve the joint venture. HealthRev was a joint venture between an SDVOSB named e-Revs supply chain LLC and DLH, a large business. HealthRev wished to submit an offer for the solicitation. However, by the due date for proposals (July 23, 2018), HealthRev had not been verified by the VA. Apparently, HealthRev had not even submitted a verification application. HealthRev filed a GAO bid protest challenging the terms of the solicitation, arguing in part that the VA had not allowed it sufficient time to become a verified SDVOSB joint venture. The GAO began its analysis by describing the membership of the HealthRev joint venture. That’s where things start to get a little confusing. Discussing the relevant factual background, the GAO wrote that “[t]he joint venture applied for recognition as a qualifying mentor-protégé joint venture under the SBA’s Mentor-Protégé program on June 6, and received the SBA’s approval of the joint venture on July 3.” After discussing HealthRev’s knowledge of the VA’s procurement and HealthRev’s failure to act promptly to establish its joint venture, the GAO again repeatedly suggested that HealthRev needed to obtain the SBA’s prior approval of its joint venture agreement: Notwithstanding all of the agency’s clear information relating to the fact that it intended to set aside the requirement for SDVOSB participation, the protester took no action to establish its joint venture or seek SBA’s approval of that joint venture until June 6, well after the agency announced its intention to acquire the CMOP requirement using an SDVOSB set-aside, and also after the agency issued its RFP. The protester has offered no explanation for why it waited more than a month after the agency announcement of the solicitation to establish its joint venture and seek the SBA’s approval of the arrangement. Further, the unavailability of the agency’s website for applying for certification of the joint venture’s status as an SDVOSB concern during portions of May and June could not have been the cause of HealthRev being unable to apply for verification of its joint venture by VA, since the joint venture was not even approved by the SBA until July 13, well after the website was again available. The SBA denied HealthRev’s protest, writing “n the final analysis, the record shows that the paramount cause of HealthRev being unqualified to offer on the agency’s requirement was the firm’s failure to diligently pursue the SBA’s approval, and the VA’s verification, of the joint venture.” A reader of this GAO decision would very likely come away with the impression that the SBA must pre-approve a joint venture before that joint venture can be awarded a VA SDVOSB set-aside contract. Indeed, by my count, the GAO referred to SBA approval of the joint venture five separate times in its decision. The problem, of course, is that the SBA simply does not pre-approve joint ventures except for 8(a) contracts. So what’s going on here? My best guess is that the GAO, like so many others in the broader procurement community, got a little confused about SBA’s precise role in the mentor-protégé joint venture process–and used imprecise terminology as a result. My assumption is that HealthRev submitted an ASMPP mentor-protégé agreement to the SBA on June 6 and that the SBA approved the mentor-protégé agreement on July 3. Because DLH was a large business, the SBA’s approval of a mentor-protégé agreement was a prerequisite for HealthRev to qualify as an SDVOSB for this procurement. But approving a mentor-protégé agreement is quite different from pre-approving a joint venture agreement–a separate step involving a separate document, and a step the SBA performs only in connection with 8(a) contracts. *** Want to learn more about joint venturing for federal government contracts opportunities? Our firm’s GovCon Handbook, Government Contracts Joint Ventures, is now available on Amazon in print and Kindle forms. Packed with information, examples, and the occasional bad joke, Government Contracts Joint Ventures makes the perfect stocking stuffer for that special government contractor in your life.
SmallGovCon Week in Review: October 22-26, 2018
I was unexpectedly out of the office Friday afternoon, so I didn’t get a chance to post our weekly look at the latest and greatest in government contracting. But better late than never! It’s time for a slightly-delayed version. In last week’s edition of SmallGovCon Week In Review, we have articles about House representatives requesting investigation of the JEDI contract, a report that suggests the 8(a) program is full of ineligible participants (with commentary by Koprince Law LLC partner Matthew Schoonover), GSA creates new a Solicitation Review Tool to better ensure contract compliance, and much more. Happy Monday! The VA has suspended a South Carolina gubernatorial candidate’s company for declining to cooperate with an inspection of his business. [postandcourier.com] Two House representative have requested investigation of the JEDI contract. [nextgov.com] GSA hopes a new pilot program will increase transparency and lead to more competition. [nextgov.com] A former Army employee has pleaded guilty to receiving bribes and directing kickbacks. [justice.gov] A recent report suggests the 8(a) program is full of ineligible participants–but Koprince Law LLC partner Matthew Schoonover says not to read too much into the numbers. [bna.com] A Minnesota federal contractor has agreed to award back pay and interest to 98 female employees to resolve allegations of pay discrimination. [dol.gov] The GSA has created a Solicitation Review Tool to help ensure federal contracts comply with federal regulations. [fcw.com]
The Federal Acquisition Streamlining Act (FASA) requires that Federal agencies seriously consider whether existing commercial items will meet their acquisition requirements before seeking to develop new technologies. In a recent case, Palantir Technologies protested when the Army failed to consider commercial technologies for its second-generation Distributed Common Grounds System (DCGS-A) intelligence system. Read the full article to learn why the COFC’s ruling may set a precedent for more protests from commercial vendors.
Generally, a size protest must be filed within five business days of when the protester receives notice of the identity of the awardee. But there are some nuances to this rule, such as whether a corrective action will extend the deadline and whether the clock starts running upon notice of the prospective awardee or the actual contract award date (Hint: notice of awardee). But when does the 5-day protest period start to run in the context of a Blanket Purchase Agreement issued under a GSA Schedule contract? A recent SBA Office of Hearings and Appeals decision is a reminder that the award of a BPA does not trigger a new 5-day period to file a size protest. In Advanced Management Strategies Group., Inc./Reefpoint Group, LLC, SBA No. SIZ-5905 (2018), OHA considered a protest by Advanced Management Strategies Group of a VA procurement for consulting services. VA issued the RFQ on September 28, 2017. The RFQ contemplated award of one blanket purchase agreement against the awardee’s GSA Schedule contract. A BPA is “a simplified method of filling anticipated repetitive needs for supplies or services by establishing ‘charge accounts’ with qualified sources of supply.” VA would award a task order once the BPA was established. The procurement was set aside for SDVOSBs with a $15 million size standard under NAICS code 541611, Administrative Management and General Management Consulting Services. As part of a question and answer, the VA stated that “[t]he Government is not requiring re-certification of size standard; however, Gov’t will review vendor’s SAM Reps and Certs to determine whether small against $15M size standard upon receipt of quote.” Another answer from the VA said that the “Government does not intend to require recertification of size, but Quoter may submit updated Reps and Certs in its Volume V if it does not wish for the Government to rely on its SAM.gov Reps and Certs.” On February 1, 2018, VA notified ASMG it intended to award the BPA to another company. On February 6, 2018, ASMG filed a size protest challenging the award. When referring the size protest to the area office, the CO stated that the procurement is a BPA and “[t]he Government did not require vendors to recertify size status (but did allow them to do so if the firm desired).” ASMG argued that the CO should have evaluated the competitor’s size at the time of its quote for the BPA award because VA regulations require the agency to ensure an SDVOSB is “verified” prior to making an award of a BPA. OHA rejected this argument, reiterating that size protests are determined under SBA regulations, not VA regulations, and VA regulations acknowledge this. “The VAAR clearly indicates that SBA regulations are controlling for purposes of determining a concern’s size status,” OHA wrote. Under SBA regulations, a size protest relating to a long-term contract, such as the GSA Schedule at issue in this decision, can be filed within five business after any of three events: A BPA does not fit any of these three categories, OHA wrote. It is not a “contract,” an “option,” or an “order.” Therefore, “SBA regulations . . . do not contemplate size protests involving such instruments.” Rather, “a size protest on a BPA issued against a Schedule contract is treated as a size protest on the GSA Schedule contract” itself. Here, ASMG’s size protest “challenged neither the award of the underlying Schedule contract nor the exercise of an option.” While the protest did challenge the award of a BPA, “such a protest is treated as a protest of the GSA Schedule contract.” Because the awardee’s Schedule contract was awarded in 2013, “a protest during 2018 is plainly untimely.” And although the award also included a task order, “that task order did not require recertification.” OHA denied the size appeal, writing “because [ASMGs’] protest was not filed within 5 business days after the award of a long-term contract, the exercise of an option, or the award of an order requiring recertification, the Area Office properly dismissed the protest as untimely.” The rules governing size protests can be tricky and confusing. As the Advanced Management Strategies Group decision shows, size protest against the award of a GSA Schedule BPA is likely to be dismissed as an untimely challenge to the award of the underlying Schedule contract itself. Finally, it’s worth noting that GSA Schedule BPAs are treated differently than “regular” BPAs for purposes of SBA’s size rules. The SBA may, in an appropriate case, entertain a size protest filed against the award of a non-Schedule BPA.
GAO: Competition Alone Doesn’t Mean Prices are Reasonable
When the federal government awards a contract, the government must ensure that the price it pays is “fair and reasonable.” In other words, the government cannot pay a price that is too high. If a contract is awarded on the basis of competitive proposals, an agency may be able to establish price reasonableness by comparing the prices proposed by competing offerors. But as demonstrated in a recent GAO bid protest decision, competition alone doesn’t mean that the prices received are reasonable–the government still must compare offerors’ prices to determine reasonableness. The GAO’s decision in Technatomy Corporation, B-414672.5 (Oct. 10, 2018) involved DISA’s solicitation for the Systems, Engineering, Technology and Innovation multiple-award contract. The SETI contract provides a streamlined process for ordering engineering and technical support services and products globally. The solicitation allowed for two pools of offerors: an unrestricted pool and a pool set-aside for small businesses. The solicitation stated that award would be made on a best value tradeoff basis, considering price and four non-price factors. With respect to price, offerors were required to provide direct labor rates, indirect rates, and profit/fee into a spreadsheet provided by DISA with an estimate of the labor hours for each category. The solicitation stated that DISA would review the fully burdened fixed price labor rates for price reasonableness, using one of the evaluation techniques set forth in FAR 15.404. After evaluating competitive proposals, DISA made award to 14 offerors under the unrestricted pool. The total prices of the awardees ranged from a low of approximately $123 million to a high of nearly $270 million. Technatomy Corporation, which proposed a price of approximately $160 million, was not selected. Technatomy filed a GAO bid protest challenging several aspects of DISA’s evaluation. Among Technatomy’s challenges, it alleged that DISA failed to rationally determine whether the awardees’ prices were fair and reasonable. The GAO wrote that “t is a fundamental principle of federal procurement law that procuring agencies must condition the award of a contract upon a finding that a contract contains ‘fair and reasonable prices.'” The purpose of a price reasonableness analysis “is to prevent the government from paying too high a price for a contract.” An agency “may use various price analysis techniques and procedures to ensure a fair and reasonable price, including the comparison of proposed prices to each other, to prices found reasonable on previous purchases, or to an independent government estimate.” In this case, DISA’s entire price reasonableness evaluation consisted of two sentences: Price reasonableness is ordinarily established by adequate competition (FAR 15.404-1(b)(2)(i)). As this effort has had 35 Offerors provide proposals, it is implicit that price reasonableness has been determined at the macro level. But, although DISA received 35 competitive proposals, GAO found that the agency didn’t compare offerors’ prices. The Price Evaluation Board, GAO wrote, “did not compare offerors’ total proposed prices or their fully burdened fixed-price labor rates.” Likewise, “the contracting officer did not compare prices at any level.” Instead, the contracting officer stated that “the presumption is that all proposed prices are fair and reasonable if there is adequate competition.” The GAO found that this approach was improper. “The mere receipt of multiple proposals is inadequate to assure that prices proposed are fair and reasonable,” GAO wrote. In other words, “the presence of competition alone does not render prices per se reasonable. To conclude that prices are fair and reasonable without the comparison of prices to one another is illogical and inconsistent with the requirements of FAR 15.404-1(b)(2)(i).” The GAO sustained this portion of Technatomy’s protest. In my experience, DISA’s misconception about price reasonableness is rather common. I’ve often heard statements to the effect of “well, there were multiple proposals received, so prices are reasonable.” But as the GAO’s decision in Technatomy Corporation shows, the mere receipt of multiple proposals doesn’t automatically mean that the prices proposed are reasonable. If an agency intends to use the “adequate competition” method of establishing price reasonableness, the agency must actually compare the competitive prices it receives.
Historically, Uncle Sam has struggled to meet its WOSB contracting goals. It wasn’t until 2015, in fact, that the government first met its WOSB contracting goal and, since then, has continued to struggle to meet it. Thankfully, agencies are authorized to use set-asides and sole-source awards to increase WOSB participation. But as a recent GAO decision shows, an agency isn’t required to use either procedure. At issue in EDWOSB Transformer Services, B-416683 (Oct. 15, 2018), was a solicitation issued by the Department of Energy, for construction services at the Ault electrical substation in Colorado. After conducting market research, the government decided to issue the solicitation as a small business set-aside. EDWOSB Transformer is, as its name implies, a woman-owned small business (but, oddly enough, not an economically disadvantaged woman-owned small business). It challenged DOE’s failure to set-aside the procurement for WOSBs on two grounds: first, it argued that the agency’s market research was flawed, which itself led to the unreasonable decision to not set-aside the solicitation for competition among WOSBs; second, EDWOSB Transformer argued that the agency erred by not issuing it a contract on a sole-source basis. GAO ended up denying both arguments, finding that the agency’s set-aside decision was reasonable. Let’s take a look at both analyses: WOSB set-aside. Under the Small Business Act, the federal government is obligated to ensure that small businesses—including WOSBs—receive a “fair proportion” of federal contracts. To help it do so, the federal government has a few tools at its disposal. The first tool is an agency’s ability to set aside competitions for WOSBs. This tool is discretionary, because an agency need not utilize it. Instead, the Act says that an agency may restrict competition for WOSBs if certain conditions are met: as the FAR explains, the agency can exercise this discretion in procurements issued under NAICS codes in which WOSBs are “substantially underrepresented” and if the agency reasonably believes, based on its market research, that two or more WOSBs will submit offers at fair and reasonable prices. FAR 19.1505(c). The second tool isn’t discretionary—but it also doesn’t necessarily compel setting aside an acquisition for WOSBs. The FAR requires agencies to conduct market research to determine whether a contract should be set aside for small businesses. Moreover, the FAR’s small business Rule of Two (found at FAR 19.502-2) requires an agency to set-aside procurements valued at $150,000 or more if the agency’s market research shows that there is a reasonable expectation that two or more small businesses will submit fair market offers. Before setting aside an acquisition for small businesses, however, FAR 19.203(c) requires the agency to “consider” reserving it for 8(a) participants, HUBZone firms, SDVOSBs, or WOSBs. To determine which of these programs to use, the agency must consider a variety of factors as part of its acquisition planning. In any event, there’s no automatic requirement that an agency use one of these designations over another, so this requirement doesn’t automatically mean that WOSBs will get the first chance at any specific procurement. Nevertheless, EDWOSB Transformer protested the agency’s failure to set aside for WOSBs. It argued that the requirement for an agency to consider a WOSB set-aside (as required by FAR 19.203(c)) effectively requires it to conduct the same type of market research that is required to justify a small business set-aside (under FAR 19.502-2(b)). In other words, before setting the procurement aside for small businesses, EDWOSB Transformer argued that the agency would first have to show that the requirements for a WOSB set-aside were not met. GAO rejected this argument, finding the discretionary nature of WOSB set-aside procurements to be determinative: Although agencies “shall” consider set-asides for WOSB concerns prior to setting aside a procurement for small business concerns, neither the FAR nor SBA’s regulations ultimately require agencies to set aside the procurement—even if agencies find that the requirements for set-aside are met. Instead, agencies “may” set procurements aside for WOSB concerns. In contrast, the small business rule of two requires the agency to conduct market research in order to support one of two mandatory outcomes: (1) setting aside a procurement valued over $150,000, or (2) using full and open competition (or an authorized exception to full and open competition). Additionally . . . an agency must set aside any procurement valued above $150,000 where it finds that the small business rule of two has been met . . . . No such requirement exists for WOSBs. Effectively, the fact that neither the Act nor the FAR requires set-asides to WOSBs undermined EDWOSB Transformer’s arguments. GAO was not persuaded by perceived issues with the agency’s market research—it noted that “agencies need not use a particular methodology when conducting market research, and measures such as prior procurement history, market surveys, and advice from the agency’s small business specialist, may all constitute adequate grounds for a contracting officer’s decision.” Reviewing the record of the agency’s market research, GAO found no valid grounds for complaints. Before setting aside the order, DOE evaluated the capabilities of potential WOSB offerors and found that only one provided a narrative that demonstrated relevant capabilities. Moreover, none of these potential WOSB offerors were found to have bid on similar projects in the past. Finally, DOE noted that, as of the time the solicitation was issued, it was already exceeding its annual WOSB participation goals. Based on this market research, DOE concluded that a WOSB set-aside was not proper. GAO agreed with this determination. It held that DOE met the FAR’s requirement to “consider” setting aside the procurement for WOSBs, and the DOE did not err by failing to set the solicitation aside for WOSBs. WOSB sole-source award. Similar to its first argument, EDWOSB Transformer also argued that DOE erred by not issuing it the contract through a sole-source vehicle. Along with the discretion to reserve competition to WOSBs, agencies also have discretion to award sole-source contracts to WOSBs. Under the FAR, an agency must “consider” issuing a sole-source contract to a WOSB before setting aside a competition for small businesses if five broad criteria are met: The acquisition is assigned to a NAICS code in which WOSBs are “substantially underrepresented” in federal procurements; The contracting officer does not reasonably believe that two or more WOSBs would submit an offer at a fair and reasonable price; The award is anticipated not to exceed $6.5 million for work under a construction NAICS code (or $4 million for any other NAICS code); The potential WOSB awardee has been determined to be a responsible contractor; and The award can be made at a fair and reasonable price. FAR 19.1506(b), (c). But even if these criteria are met, the FAR does not compel the agency to issue a sole-source award to the WOSB; instead, the FAR only requires the agency “consider” doing so. Given the lack of a firm requirement to issue a sole-source award, and based on the results of its market research, DOE chose not to award to EDWOSB Transformer under a sole-source basis. Considering the record, GAO again found this decision to be reasonable and denied the protest. *** As we’ve previously covered on SmallGovCon, the federal government has historically struggled to meet its WOSB contracting goal. EDWOSB Transformer helps show why this is so: although agencies have the tools to increase WOSB participation, they’re generally not compelled to use them. Absent a concerted effort by agencies to increase WOSB participation—through set-asides and sole-source awards—our fear is that WOSB participation numbers will remain far too low.