Author Archives: Devon E. Hewitt

1. Small Business Administration Legislative and Regulatory Update

   October 29, 2020 3:37 pm Leave a Comment

   Significant Regulatory Changes Issued by SBA on October 16, 2020

   The Small Business Administration (SBA) released a final rule on October 16 in which it made significant changes to a number of its programs.  The highlights are set forth below:

   • • Consolidation of the Section 8(a) and All Small Mentor/Protégé Programs. The final rule consolidates the SBA’s Section 8(a) Mentor/Protégé Program with its All Small Mentor/Protégé Program which was established in 2016.  The rule is effective on November 16.  While both Mentor/Protégé Programs had similarities, the consolidation makes a big change with respect to Section 8(a) Mentor/Protégé joint ventures.  Under the existing Section 8(a) Mentor/Protégé Program regulations, a joint venture between a Section 8(a) Program Participant and its Mentor had to be approved prior to award of a contract to the joint venture pursuant to a Section 8(a) competitive procurement.  The new rule eliminates that requirement although Section 8(a) joint ventures still will need SBA’s approval before receiving a sole source award.

   • • Revision of the “3 in 2” Rule. Another change included in the new regulation addresses the “3 in 2” rule.  Under the prior rule, a joint venture created under SBA’s set-aside programs could receive only 3 contract awards in 2 years if it wanted to be exempt from SBA’s “affiliation” rules.  The new rule eliminates the three-contract award restriction.  A joint venture still cannot bid on contracts after its two years are up, but it now can receive more than 3 contracts within that period.  However, as is the case under the current regulation, the parties to a joint venture whose two-year program has expired may form a new joint venture.  And as also is the case under the current regulation, the two-year term for the new joint venture will begin on the date the new joint venture receives its first contract award.

   • • Joint Venture Security Clearances. Many agencies require joint ventures bidding on contracts requiring a facility security clearance to have the facility security clearance itself, although a joint venture often has not yet received a contract award and, typically, is unpopulated.  Some agencies, on the other hand, will award a joint venture a classified contract as long as the lead joint venture member has the requisite clearance and agrees to keep the contract records at its cleared facility.  The new regulation prohibits an agency from requiring a joint venture to have a security clearance in its own name, provided that one or more members of the joint venture holds the facility security clearance.  However, the facility security clearance must be held by the joint venture member who will perform he work requiring the clearance.  In addition, where a facility security clearance is needed to perform the “primary and vital” part of the agency’s requirements, the small business member to the joint venture must have the facility clearance.

   • • Subcontractor Past Performance. Not all agencies allow small business offerors to use the offeror’s proposed subcontractor’s past performance to satisfy a solicitation’s past performance requirements.  The new regulation now requires agencies to consider a small business offeror’s first tier subcontractor past performance if the small business prime contractor does not have the past performance qualifications demanded by the agency.  But there are two caveats: (1) the first-tier subcontractor must be a small business and (2) the small business subcontractor must be included in the small business prime’s proposal.

   • • Recertification for Orders Issued Under Multiple Award Contracts. The new regulation confirms that if a company has certified that it is a small business, or a certain type of small business, at the time it is awarded a multiple-award contract explicitly set aside for small businesses or that type of small business, it can continue to rely on that certification for any order issued under the contract unless the Contracting Officer requests offerors to recertify their size or status for that order.  The new rule, however, includes changes to the recertification requirement for multiple award contracts awarded on an unrestricted basis.   If an agency sets-aside an order  for a small business under such a multiple award contract, an awardee intending to bid on the order must certify to its size on the date it submits its offer for the order.  Similarly, if a multiple award contract is set aside for a specific type of small business, an offeror must recertify prior to award of an order that is set aside for another type of small business.  For example, if a multiple-award contract is set aside for small business and the agency sets-aside an order for SDVOSBs, offerors must certify their SDVOSB status at the order level.   The new rule, however, does NOT apply to orders issued under Federal Supply Schedule contracts or Blanket Purchase Agreements issued under those contracts.

   • • Recertification after Merger, Acquisition or Sale. SBA’s existing regulations require a small business offeror that has experienced a merger, acquisition, or sale after submitting its proposal in response to a solicitation but before an award must recertify its size prior to the award.  In response to complaints from small businesses regarding the existing rule, the new rule states that, if the transaction occurs within 180 days of the small business’ initial offer, and  if the recertification results in the business no longer being “small”, it cannot receive the award.  However, if the transaction occurs after the 180 days and the recertification results in the business no longer being small,  the newly “large” business may receive the award but the agency may not count the award as one to a small business for purposes of meeting the agency’s contracting goals.

   • Clarification of Workshare Requirements. Small businesses often confuse the different work share requirements included in SBA’s regulations.  One workshare rule limits the ability of a small business prime contractor to subcontract work received by the small business under its small business set-aside prime contract.  This rule is known as the “limitations on subcontracting” rule and it restricts a small business from subcontracting more than 50% of the amount an agency pays the small business under its small business set-aside prime contract.  The other workshare requirement relates to the amount of work a “protégé” must perform in a Mentor/Protégé joint venture which is 40% of the work performed by the joint venture.  A small business can satisfy this workshare requirement by including the value of the work performed by a “similarly situated entity.”  A similarly situated entity is a subcontractor that has the same status on which the small business prime relied in receiving the small business set-aside prime contract award.  The new regulation clarifies that the “similarly situated entity” exception does not apply to the “protégé” workshare rule.  A protégé, therefore, cannot rely on a “similarly situated” subcontractor as a means of fulfilling the 40% workshare requirement included in Mentor/Protégé joint venture agreements.

   Woman Owned Small Business Certification Requirement

   Reminder: as of October 15, SBA requires all Women Owned Small Businesses (WOSBs) and Economically Disadvantaged Small Businesses (EDWOSBs) must be certified as such by either SBA or a third party (other agencies or a certifying entity approved by SBA).  Certification by SBA is free; the application for certification can be found at beta.certify.sba.gov.  If a WOSB/EDWOSB has already been certified by a third party, the business still must upload the relevant documents to this portal.  (Documents related to a company’s WOSB certification previously uploaded to SBA’s certify.SBA.gov portal will be available only through March 31, 2021).  If a WOSB/EDWOSB already has applied for certification with SBA and has not yet received a response, the company may continue to participate in WOSB/EDWOSB set-aside procurements.   SBA has published a useful chart identifying the various certification options available to small businesses interested in receiving certification as a WOSB/EDWOSB.  Once a WOSB/EDWOSB is properly certified, it must attest to SBA annually that it fulfills the eligibility requirements for the WOSB/EDWOSB program and must notify SBA within 30 days of any “material” change that could affect its eligibility for the program.  WOSBs/EDWOSBs must undergo a full program examination every three years.  The certification requirement only applies to those WOSBs/EDWOSBs that intend to participate in procurements set-aside for WOSBs/EDWOSBs under SBA’s WOSB/EDWOSB program, WOSBs/EDWOSBs who have not been formally certified may certify as WOSBs/EDWOSBs for contracts awarded outside SBA’s program and agencies can continue to count those awards against their set-aside goals.

   Executive Order on Diversity Training by Federal Contractors

   On September 22, 2020, President Trump signed an Executive Order entitled “Combatting Race and Sex Stereotyping.”   The Executive Order prohibits federal contractors and grant recipients from providing “diversity” training to their employees that includes “divisive concepts.”  These divisive concepts include training which suggests that the U.S. or an individual is “inherently racist, sexist, oppressive, whether consciously or unconsciously.”  For example, the Executive Order bars training materials that teach that “men and members of certain races are . . . inherently sexist and racist.”  The President signed the Executive Order after the Office of Management and Budget issued a memorandum which chastised agencies for holding diversity training that referred to “white privilege” or other “critical race theory.”  The Executive Order restrictions will be incorporated in federal contracts entered on or after November 21, 2020.  Prime contractors, likewise, will have to “flow-down” these requirements to their subcontractors and vendors.

   The Office of Federal Contract Compliance Programs (OFCCP) will have responsibility for enforcing the Executive Order.  The Executive Order requires OFCCP to establish a hotline to investigate complaints about contractors using training practices prohibited by the Executive Order.  OFCCP announced on September 28, 2020 that it had put the hotline into place and published an email address pursuant to which it could receive reports of noncompliance with the order.  On October 21, the Department of Labor issued a Request for Information to contractors and their employees seeking information about the company’s diversity training.

   The Executive Order likely will be challenged in court.  And if Trump is not re-elected, the Executive Order likely will be rescinded by the new President.

2. Tips for Small Businesses in the Event of a Government Shutdown

   January 22, 2018 2:56 pm Leave a Comment

   Despite assurances from Congress that a shutdown will be avoided in the future, it still is a real possibility. Hopefully, you already have received some helpful guidance from your contracting officer about the effect such a shutdown will have on your particular contract and the actions you should take in such event.  The Department of Defense, in fact, has published guidelines for contractors in the event of a Government shutdown; some civilian agencies, such as the Department of Energy, the Department of State and the Department of Homeland Security, have issued guidance as well.  In addition, the Office of Management and Budget has provided guidance to contractors should the shutdown require furloughs for government employees.

   If you haven’t received any specific guidance from your contracting officer or from the agency for which you perform the work, here are answers to some general questions that small government contractors may have in the event of a Government shutdown:

   • Will the Panda Cam stay on?
     • The National Zoo’s Giant Panda Cam continued streaming during the last shutdown, and likely will continue to do so if there is a shutdown in the future.  However, it always could be turned off at any time.

   • Should I continue performing my contract?
     • If your contracting officer has issued you a “Stop Work” order, you must stop work.
     • If you have not received a “Stop Work” order, you should continue to perform provided your contract is “fully funded” or not otherwise subject to federal appropriations.  Most fixed price contracts are fully funded upon award. Most cost type contracts are not.  Cost type contracts include FAR clauses such as “Limitation of Cost,” “Limitation of Funds” or “Availability of Funds.”
     • If your contract is incrementally funded, only work to the extent funding is available.  If you perform work that has not been funded, you probably will not get reimbursed for the work.
     • Typically a shutdown does not affect an agency’s “essential personnel;” likewise, some contracts that provide for “essential” services, such as those for Homeland Security, likely will continue uninterrupted in the event of a shutdown.

   • What if I am unable to continue performing my contract?
     • Document thoroughly your efforts to perform the contract and identify in detail the obstacles that prevented you or your employees from performing the contract work.  Remember that, even if a federal facility may be closed during a shutdown, that closure may not prevent your employees from having access to the site and continuing to work.
     • Make efforts to mitigate any costs associated with the inability of your employees to continue to work on the contract; document these efforts as well.

   • If I can’t perform my contract, what should I do with my employees?
     • If possible, have employees that otherwise would be doing contract work do work charged as overhead to the company, such as proposal preparation work.
     • Generally speaking, if your employees are “non exempt” (subject to the Fair Labor Standards Act) you have more flexibility in choosing an option.  Employers may furlough non-exempt employees, reduce their hours and reduce their pay (provided it is above the statutory minimum wage rate).  Most importantly, employers do not have to pay non-exempt employees for time not worked.
     • Employers with “exempt” employees do not have as many options.  While employers may reduce the pay or hours of an exempt employee, doing so could affect their “exempt” status.  Employers also have to pay exempt, salaried employees a full week’s salary even though the employee does not actually work the full week.  On the other hand, employers may be able to ask these employees to take Paid-Time-Off.
     • As the examples above demonstrate, it’s best to consult your employment lawyer before taking any action to mitigate the costs of idle employees.

   • Will I be able to recover any costs that result from the shutdown?
     • Maybe.  It largely depends on your contract. If you receive a “Stop work” order under FAR 52.242-15, you should be able to recover at least some of your costs associated with the shutdown provided you have done your best to mitigate the costs you incurred as a result of the shutdown.  Also review the FAR clause; any request for reimbursement has to made within 30 days of the end of the period of work stoppage.
     • Even if it is not clear whether you will be reimbursed for the costs you incur as a result of the shutdown, document those costs under a separate charge code and minimize those costs to the extent possible.

   Obviously, communication is key.  Communicate early and often with your contracting officer before a possible shutdown.  Be transparent with your employees.  Update them as you learn information and discuss with them any plans you will implement if a shutdown occurs.  Send a message that you are in it together with them.  As for the costs associated with a shutdown, your ability to be reimbursed for those costs depends first on your efforts to mitigate your costs and second, your efforts to document those costs carefully and consistently in a detailed manner. So, do both.

   If you have any questions about any of the above, please feel free to reach out to the Government Contracts and Employment Law teams at Protorae Law for assistance.

3. Better Debriefings On The Horizon?

   January 11, 2017 4:51 pm Leave a Comment

   Contractors are frequently frustrated with agency debriefings.  A common complaint is that debriefings generally provide little insight into the agency’s source selection process.  The White House is trying to change that.  On January 5^th, the Acting Administrator for Federal Procurement Policy at OMB issued a memorandum entitled “Myth-busting 3” Further Improving Industry Communications with Effective Debriefings.  The memorandum is addressed to Chief Acquisition Officers, Senior Procurement Executives and Chief Information Officers.  The memorandum is one in a series of “myth-busting” memorandums addressing efforts to improve communications with industry during the acquisition lifecyle.  In this regard, the memorandum identifies a number of “myths” associated with debriefings that may prevent agencies from maximizing the value of debriefings to both agencies and industry.

   Two of the myths discussed in the memorandum are of particular interest.  One is that debriefings lead to protests. In response to this common misconception, the memorandum states that effective debriefings can reduce the frequency of protests because one of the major reasons contractors file protests is to get more information regarding the evaluation.  The memorandum also makes the comment that robust debriefings help instill confidence in contractors that the agency has engaged in a fair source selection process.

   Another myth highlighted by the memorandum is that agencies should provide minimal feedback for acquisitions through the Federal Supply Schedules.  According to FAR Part 8, the agency is only required to provide a “brief explanation” for the award decision as opposed to FAR Part 15 procurements where various topics must be discussed during a debriefing.  The memorandum acknowledges that FSS acquisitions do not require the disclosure of information of the kind required for debriefings related to typical FAR Part 15 procurements, but points out that agencies aren’t precluded from offering more information.  The memorandum states a “best practice” in these types of acquisitions would be to provide a “thorough and effective explanation of the basis of the award.”  The memorandum notes that NASA, DoD and DHS have policies encouraging agencies to provide more information in these types of debriefings.

   The memorandum ultimately recommends that agencies consider establishing or adopting a debriefing guide that sets forth best practices and recommendations for debriefings.  The memorandum notes that certain agencies such as DHS, NASA, DoD and the Department of Treasury already have such guidelines.

   It will be interesting to see if this memorandum will have any real impact on debriefings in 2017.  It may well be that the best way to influence contracting officers is to provide contractors with the memorandum or make them aware of existing guidance already published internally by the agency.

    

4. The Impact of Kingdomware on Task Order Set-Asides

   September 30, 2016 12:22 pm Leave a Comment

   By now, most lawyers and individuals active in the Veteran Owned Small Business (VOSB) and Service Disabled (SDVOSB) community are aware of the U.S. Supreme Court’s recent decision in Kingdomware Techs. Inc., v. United States, 136 S.Ct. 1969 (June 16, 2016).  The case addressed a provision in the Veterans Benefits, Health Care, and Information Technology Act of 206, which states that the VA “shall” restrict competition to VOSBs when, based on market research, the contracting officer reasonably expects that at least two eligible VOSBs will submit offers and the award can be made at a fair and reasonable price.  This is known as the Rule of Two.  In Kingdomware, the VA procured a contract for emergency notification services through GSA’s Federal Supply Schedule program, rather than exploring setting aside the requirement for competition among VOSBs per the Rule of Two.  Arguing that the Rule of Two was just a tool at VA’s disposal to help it meet its contracting goals, VA took the position that the rule was not mandatory if VA had already satisfied its contracting goals, which it had at the time of Kingdomware.   The Supreme Court disagreed, holding that the “shall” language in the statute made the Rule of Two mandatory for every acquisition.

   While this holding is now well-known, what is lesser known is a secondary argument made by the VA on appeal and addressed by the Court.  In addition to arguing that the Rule of Two was not mandatory if VA had met its contracting goals, VA also argued that the Rule of Two only applied to “contracts.”  Since the work procured in Kingdomware was the subject of a task order against a schedule contract, the VA argued that the “task order” was not a contract and therefore not subject to the Rule of Two. The Supreme Court, however, rejected this argument as well, noting that the definition of “contract” in the Federal Acquisition Regulation included task orders.

   It is this secondary ruling that may be Kingdomware’s greatest legacy.  While the Court’s rejection of the VA’s position that the Rule of Two didn’t apply if VA had met its contracting goals is significant, this ruling is limited to VA’s acquisitions.  The ruling that task orders are also contracts may have an impact on the small business contracting community as a whole.  That is because the Small Business Act also has a “Rule of Two.”  Specifically, the Small Business Act provides that each “contract” for goods or services with an anticipated value between $3,500 and $150,000 shall be reserved exclusively for small business concerns unless the contracting officer is unable to obtain offers from two or more small businesses at competitive prices. GSA has long held that orders against FSS contracts are exempt from the Small Business Act’s Rule of Two because the orders are not contracts.  Now that the Court has clarified that orders are, in fact, contracts, there is precedent for the argument that all FSS orders valued between $3,500 and $150,000 are subject to the Small Business Act’s Rule of Two.

   Indeed, the SBA has taken this position before the Government Accountability Office.  SBA first took this position in a case called Aldevra which was decided prior to Kingdomware.  Relying on language in the FAR and SBA regulations, GAO rejected SBA’s position and decided that setting aside orders for small businesses under multiple-award contracts was at the agency’s discretion and not mandatory.  That opinion, however, depended on GAO’s view that task orders were distinct from contracts.  Now that Kingdomware has been decided, SBA is banking on the GAO rescinding its prior holding in Aldevra on this basis in a case now pending before GAO.  Accordingly, stay tuned for the next chapter in the Kingdomware odyssey.

5. The Small Business Administration’s New Recertification Rule

   September 20, 2016 11:43 am Leave a Comment

   A small business concern that certified as small at the time it submitted its initial proposal, including price, is considered small for the life of a set-aside contract even if the concern subsequently grows to be “other than small.”  This is a basic rule of small business contracting.  The question that always follows is what happens when a contractor has to recertify its size status? Under the current U.S. Small Business Administration (SBA) regulations, a small business concern has to recertify its small business status in a number of instances, including after there has been a merger, acquisition or novation of a contract involving the concern.  Specifically, if during contract performance a small business concern has acquired a company or been acquired by another company or merged into another company, it has to recertify its size.  Even if the concern recertifies as “other than small,” the regulations are fairly clear that the small business contractor gets to keep the contract.  The only difference recertification as “other than small” makes is that the agency can no longer take small business credit for the contract revenue after the recertification.

   In a regulation issued on May 31, 2016, SBA has implemented a new recertification rule that may challenge these basic premises.  Under the new rule, a small business concern that has participated in a merger, acquisition or novation after a proposal has been submitted but before award must recertify its size status prior to award. Under the basic premises noted above, if the concern recertifies as other than small, this recertification should not affect the contract award as the small business was small at the time of proposal submission including price.  Thus, the only impact such a recertification should have is to deprive the agency of the ability to credit the contract revenue against its small business contracting goals.

   While this is what should happen, it may not happen.  When a small business concern recertifies its status during performance of a contract, even if permitted, an agency typically will not want to terminate the contract and recompete the work. The situation is different if the recertification occurs prior to award.  Since the point of setting aside a contract for small business concerns is to have the small business concern perform the work, recertification of a concern as other than small before award may cause an agency to reconsider awarding the contract to that concern.  Similarly, such a recertification also could invite protests from that concern’s competitors.  The protester could argue that the parties to the transaction were affiliated at the time the concern submitted the proposal based on a letter of intent or other agreement in principle.

   Unlike prior recertification rules that make clear the impact of recertification, this new rule is silent on its consequences. Therefore, the new rule introduces uncertainty for those concerns contemplating a merger or acquisition which was not present with the existing recertification rules.

6. Small Business Mentor-Protégé Program

   August 24, 2016 10:18 am Leave a Comment

   On July 25, 2016, the U.S. Small Business Administration published its long-awaited final rule implementing a Small Business Mentor-Protégé Program.  This program is in addition to and not a substitute for SBA’s existing Section 8(a) Mentor-Protégé Program.  SBA’s existing Section 8(a) Mentor-Protégé Program is limited to Section 8(a) concerns which are companies that are socially and economically disadvantaged.  SBA’s Small Business Mentor-Protégé Program is open to all small businesses including Women-Owned Small Businesses, Service Disabled Veteran-Owned Small Businesses and HUBZone businesses.  While the Small Business Mentor-Protégé Program is distinct from the Section 8(a) Program, it is modeled on the Section 8(a) Mentor-Protégé Program.  In addition to establishing a new Small Business Mentor-Protégé Program, the new rule includes changes to both the Section 8(a) and HUBZONE programs.  These changes are also discussed below.

   The key aspects of the SBA’s new Small Business Mentor-Protégé Program are as follows:

   • Applications for the Small Business Mentor-Protégé Program will be directed to a special unit within the SBA’s Office of Business Development. SBA will start accepting applications October 1, 2016.  While in the proposed rule SBA indicated it might impose “open” and “closed” periods for application processing, SBA has not adopted this approach in the final rule.  SBA requires applicants to register in the System for Award Management and go through training before submitting an application.  Applications are to be submitted through SBA’s web portal: certify.sba.gov.
   • Mentors must be “for profit” entities and can be any size. Mentors may also be Protégés.  Mentors can have up to three Protégés across the 8(a) and Small Business Protégé Programs but must first demonstrate that each additional agreement will not hinder the development of the Protégé under a prior agreement.  For example, a second Protégé should not be a competitor of the first Protégé.
   • Protégés must be small under their primary NAICS code but a Protégé may be able to secure a Mentor-Protégé Agreement under a secondary NAICS code if the Protégé has done business under that NAICS code. A Protégé may only have two Mentors at one time as long as the second Mentor-Protégé relationship is in a secondary NAICS code or provides specific assistance not provided under the Protégé’s first Mentor-Protégé relationship.
   • Mentor-Protégé Agreements will have a term of three years, but can be extended for an additional three years.
   • All Joint Venture agreements must be in writing. If a Joint Venture is a separate legal entity such as a limited liability company or a corporation, the Joint Venture must be “unpopulated.” This means the Joint Venture cannot have its own employees other than a few administrative employees.  The Joint Venture must be registered in the System for Award Management and must have a separate DUNS number and CAGE code.  Agencies must now credit the past performance of the Joint Venture members to the Joint Venture rather than expecting the Joint Venture itself to have a past performance history.
   • Other agency Mentor-Protégé programs may continue for one year after the effective date of SBA’s new rule (August 24, 2016). Except for the DoD Mentor-Protégé Program, all other programs must have SBA’s approval to continue past the one year.  A Mentor-Protégé relationship from a non-SBA program may be transferred to the SBA’s Small Business Mentor-Protégé Program under certain conditions.  Specifically, the Protégé must demonstrate that the Mentor will provide different assistance under the new Mentor-Protégé Agreement or that it will provide assistance that had not yet been provided under the original Mentor-Protégé Agreement.

   The new rules also made changes to the Section 8(a) Program, the highlights of which are:

   • An applicant to the 8(a) Program who is not part of a group that the regulations presume are socially disadvantaged must make a stronger showing of “social disadvantage”.
   • An applicant no longer must submit IRS Form 560T.
   • The requirement for a written narrative demonstrating “economic disadvantage” has been eliminated.
   • The new rule provides that the management experience that must be demonstrated by the owner of a Section 8(a) concern does not need to relate to the concern’s primary NAICS code.
   • Applications must now be filed electronically and the requirement of a “wet signature” no longer exists.
   • SBA is no longer required to refer an application to the SBA’s Office of Inspector General in every instance where an application presents evidence of possible criminal conduct.
   • The new rule allows SBA to change the primary industry classification listed in a Section 8(a) concern’s business plan where the greatest portion of the firm’s total revenues during a three-year period has evolved from one NAICS code to another. SBA will inform the concern of its intention and the concern will have the opportunity to argue for keeping the original NAICS code as its primary NAICS code.
   • 8(a) concerns may suspend their participation in the program under two new circumstances: (1) where the concern’s principal office is in an area declared a major disaster area and (2) where there is a lapse in federal appropriations.

   The new rules also made changes to the HUBZone Program, the highlights of which are:

   • SBA will issue a decision on HUBZone applications within 90 calendar days after receipt of a complete application package “whenever practicable.”
   • SBA may draw adverse inferences from incomplete or missing information in the package that has been requested by SBA.
   • An applicant must be eligible for the HUBZone program not only on the date it submits its application but also up to and including the time SBA issues its decision on the application. Any changed circumstances occurring after submission of the application must be disclosed.
   • HUBZone businesses may now joint venture with other small businesses or with a large business Mentor under the new Small Business Mentor-Protégé Program.

7. Teaming Agreement Tips and Tricks

   August 17, 2016 11:05 am Leave a Comment

   If you are a small business, most likely you will first encounter a teaming agreement when you’ve been asked to be a proposed subcontractor for a procurement.  You will asked to sign a teaming agreement drafted by the proposed prime.  In the majority of cases, you will not have any real leverage to rewrite the agreement.  However, you may get the opportunity to make some tweaks here and there.  This article outlines those areas worth a second look.

   1. Participation in Development of the Proposal. Every teaming agreement has a section detailing each party’s responsibilities for preparing the proposal.  Make sure that this section of the teaming agreement obligates the proposed prime to include your name in the proposal as a team member for a specified area of work.  Under current small business regulations, if a large business fails to use a proposed subcontractor during contract performance, it must report such failure to the Contracting Officer.
   2. Exclusivity. Most primes want their proposed subcontractors to be exclusive to the team, which means the proposed subcontractor cannot team with any other company.  While this is not an unreasonable provision, make sure the provision dies with the end of the teaming agreement.  If the proposed prime pulls out of the procurement, you want to ensure your ability to team with another contractor.
   3. Confidentiality. Teaming agreements almost always contain a provision requiring the parties to keep the other party’s disclosed proprietary information confidential.  The provision should clearly state that the proposed prime cannot disclose the information to any third party except for the government.  If there are multiple team members collaborating on the proposal, the confidentiality provision should provide that all team members will sign a confidentiality agreement that protects the information disclosed between team members.
   4. Subcontract Award. The teaming agreement will provide that the prime will negotiate a subcontract with the proposed subcontractor in the event it receives award of the prime contract.  From the subcontractor’s perspective, the most important provision in a teaming agreement is a promise from the prime that it will award a certain amount of work to the proposed subcontractor.  This is often called a “workshare” provision.  While such a provision is good to include in a teaming agreement, generally such provisions are not enforceable.  What a proposed subcontractor can do instead of or addition to including a workshare provision in the agreement is to make sure the subcontract can’t be terminated at the discretion of the prime.  One way to do this is to include in the teaming agreement a promise from the prime that it will exercise all options in the subcontract corresponding to the options exercised by the government under the prime contract.  The teaming agreement also should provide that the prime will not terminate the subcontract for its convenience unless the prime contract is terminated for convenience of the government.
   5. Pricing. A common complaint among small businesses is that, after a prime has received award of a prime contract, the prime asks the small business to lower its prices for the subcontract.  There are a couple of ways to avoid this scenario.  First, include a provision in the teaming agreement that allows the proposed subcontractor to review the final price proposal submitted to the government.  This way the proposed subcontractor can determine whether the pricing included in the proposal reflects the pricing proposed by the subcontractor for its work.  Second, include a provision in the agreement that states that the pricing set forth in any subcontract between the parties reflect the pricing included in the proposal or provided by the proposed subcontractor.

   Making these adjustments in the standard teaming agreement template provided by the prime will go a long way to ensuring that a small business ultimately benefits from the assistance it provided the prime in preparing the proposal.

8. Supreme Court Rules in favor of VOSBs and SDVOSBs

   June 30, 2016 11:56 am Leave a Comment

   The Supreme Court recently issued a decision in Kingdomware Technologies, Inc. v. United States which will have the result of increasing the number of opportunities Veteran Owned Small Businesses (VOSBs) and Service Disabled Veteran Owned Small Businesses (SDVOSBs) will have at the U.S. Department of Veterans Affairs (VA).

   The Veterans Benefits, Health Care and Information Technology Act of 2006 requires the Secretary of Veterans Affairs to set annual goals for contracting with service-disabled and other veteran-owned small businesses.  In an effort to achieve these goals, the Act contains a separate provision which requires the VA to award contracts to VOSBs/SDVOSBs when there is a reasonable expectation that two or more such businesses will bid for the contract at a “fair and reasonable price that offers best value to the United States.”  This provision is known as the Rule of Two.

   Historically, the VA has taken the position that the Rule of Two only applied where necessary for the agency to meet its annual small business contracting goals.  If the agency had met its goals, the VA believed it was not required to follow the Rule of Two.  Most importantly, the VA took the position that it was not required to apply the Rule of Two to acquisitions made under Federal Supply Schedule contracts.  Kingdomware challenged this position at the Government Accountability Office (GOA) and won.  The VA, however, refused to follow GAO’s recommendation in the case.  Kingdomware then sued the VA in federal court.

   On appeal, the Supreme Court disagreed with VA and rejected the VA’s arguments.  The Supreme Court held that the Rule of Two is mandatory and should apply to all of the agency’s acquisitions using competitive procedures.  As a result of this decision, VA will now have to use the Rule of Two for those acquisitions it otherwise would have procured under a FSS contract.

9. SBA Issues New Rule on Limitations on Subcontracting

   June 22, 2016 11:21 am Leave a Comment

   On May 31, 2016 the U.S. Small Business Administration (SBA) issued regulations implementing certain provisions of the National Defense Authorization Act for FY 2013.  One of the key provisions in the new rule addresses “Limitations on Subcontracting.”  Contracting Officers must include FAR 52.219-14, Limitations on Subcontracting, in every contract set-aside for small businesses.  The clause requires the small business prime contract to perform a certain percentage of the prime contract itself.  The FAR clause reflected SBA regulations on the same issue.  These SBA regulations have now been revised per the new SBA rule.  One of the important changes is that the limitations apply to the total amount paid to the small business prime rather than the cost of the contract which had previously been the case.  The limitations on subcontracting are as follows:

   • For services contracts, a small business prime cannot subcontract more than 50% of the total amount paid the small business prime
   • For supply contracts, a small business prime cannot subcontract more than 50% of the total amount paid the small business prime, excluding the cost of materials
   • For construction contracts, a small business prime cannot subcontract more than 85% of the total amount paid the small business prime, excluding the cost of materials
   • For contracts involving special trades, a small business prime cannot subcontract more than 75% of the total amount paid the small business prime, excluding the cost of materials

   The most significant change to SBA’s existing limitations on subcontracting rules is the manner in which these rules will be applied.  The new rule states that “similarly situated entities” who receive work from a small business prime will not be considered a subcontractor for purposes of the new limitations on subcontracting rule.  Stated another way, the amount subcontracted to a “similarly situated entity” is considered part of the work performed by the prime, not work that is subcontracted.  A “similarly situated entity” is a business that is small under the NAICS code assigned the subcontract and which has the same small business program status as the prime contractor.  For example, in a procurement set aside for HUBZones, the “similarly situated entity” must also be a HUBZone in order to be exempt from the limitations on subcontracting rule.  In addition, the “similarly situated entity” has to perform the work with its own employees.  Independent contractors are considered subcontractors for purposes of the rule and can qualify as “similarly situated entities” as long as they meet the definition.

   Contractors should be aware that these changes apply only to SBA’s rules regarding limitations on subcontracting.  Presumably, the FAR will adopt these changes and issued a new FAR clause on Limitations on Subcontracting.  Until such time, it is unclear which rule will apply, the one stated in the FAR clause that reflected the old regulations, or the new regulations described above.

10. A Mentor-Protégé Joint Venture is Not Eligible to Bid on a SDVOSB Set-Aside Contract

    May 16, 2016 2:21 pm Leave a Comment

    The U.S. Small Business Administration (SBA) regulations require a joint venture intending to bid on a Service-Disabled Veteran-Owned Small Business (SDVOSB) set-aside contract to satisfy certain requirements, the most important of which is that all members to the joint venture be “small.”  The joint venture also must provide that the service-disabled veteran (SDV) receive 51% of the profits of the joint venture.  These requirements are different from those applicable to 8(a) Mentor-Protégé joint ventures.  Although Mentors need not be “other than small,” most Mentor companies are large businesses.  Also, for unpopulated Mentor-Protégé joint ventures, the SBA regulations provide that the profits should be allocated to the members of the joint venture commensurate with the work performed by each member. An 8(a) member of a Mentor-Protégé joint venture need only perform 40% of the work performed by the joint venture; accordingly, an 8(a) member of a Mentor-Protégé joint venture only needs to receive 40% of the profits of the joint venture.

    These differences in the regulations notwithstanding, conventional wisdom has been that a Mentor-Protégé joint venture is eligible to bid on any type of set-aside contract, including a SDVOSB set-aside contract.  The reason for this view is because the SBA regulations state that a Mentor-Protégé joint venture may bid for “any Federal government prime or subcontract.”  In a recent case, however, the SBA’s Office of Hearings and Appeals (OHA) says this language has limited application.  In the Matter of EKCG, LLC, SBA No. VET-255 (April 6, 2016), OHA explains that the SBA regulations provide that a Mentor-Protégé joint venture is exempt from the doctrine of affiliation.  This means that the SBA cannot find that a small business Protégé is affiliated with its Mentor.  Thus, where the Mentor is “other than small,” SBA will not aggregate the size of each member of the joint venture to find the joint venture itself “other than small.” Because of this affiliation exception, OHA explained Mentor-Protégé joint ventures are considered small for any type of federal procurement. 

    OHA, however, held that was the entire meaning and extent of the affiliation exemption.  While the affiliation exemption allows a Mentor-Protégé joint venture to be considered small for any procurement, OHA stated the exemption does not mean that the Mentor-Protégé joint venture is exempt from other eligibility requirements for certain set asides.  Stated another way, OHA’s decision means that a Mentor-Protégé joint venture will always qualify for small business set asides because size is the only eligibility characteristic a company must demonstrate to compete in this type of set-aside.  A Mentor-Protégé joint venture also will always qualify for an 8(a) set-aside because the Mentor-Protégé regulations stem from SBA’s 8(a) Program and regulations.  A Mentor-Protégé joint venture, however, will not automatically be eligible for a SDVOSB, and by extension, a HUBZone or Women-Owned Small Business (WOSB), set-aside, because these types of joint ventures have other requirements unrelated to size that a joint venture must satisfy in order to be eligible to receive a set-aside contract award.