Skip to navigation.
    Print This Page

    Author Archives: Devon E. Hewitt

    1. Small Business Legislative & Regulatory Update

      1 Comment

      Proposed Changes to the FAR Regarding 8(a) Program Contracts

      DoD, GSA and NASA have proposed amending the FAR to provide guidance on an 8(a)’s ability to continue to accept orders after its departure from the program and provisions related to 8(a) protests. The rules were issued, in part, to implement changes made by the SBA in previously published final rule.  See 76 FR 8221 (Feb. 11, 2011).

      The proposed rule provides that 8(a) contractors may continue to accept individual orders under multiple award contracts after they exit the 8(a) program or are no longer small under the relevant NAICS code.  The rule would apply to any multiple award contract that was previously set-aside for 8(a) contractors, including GSA Schedule contracts, Government-wide acquisition contracts (GWACs), and IDIQ contracts.  Agencies may continue to receive credit towards their small business participation goals for orders given to 8(a) contractors after they have exited the program or grown too large, unless the 8(a) contractor was required to make a representation that it was other than small pursuant to FAR 19.301-2 (i.e., prior to the end of the 5th year of contract, the execution of novation agreement or the acquisition of the contractor).

      The proposed rule also states that 8(a) contractors that have completed their term in the program should remain eligible to receive awards as long as they were an eligible 8(a) contractor on the date set for initial receipt of proposals in a solicitation and otherwise meet all other applicable eligibility requirements.

      Finally, the proposed rule also reiterates SBA’s rules regarding when an 8(a)’s eligibility or size may be protested.  An 8(a) contractor’s eligibility may not be challenged in a protest before the GAO, SBA or other administrative forum.  Likewise, the rule prohibits size protests of an 8(a) contractor proposed for a sole-source contract.  Size protests, however, are allowed in competitive 8(a) procurements and are subject to the procedures stated in FAR 19.302.

      The proposed rule was published in the Federal Register on February 3, 2014 at 79 FR 6135.

      Affirmative Action Rules for Certain Veterans and Persons with Disabilities

      Final rules promulgated by the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) regarding Federal contractor and subcontractor hiring practices with respect to veterans and persons with disabilities go into effect March 24, 2014.  The regulations impose affirmative action obligations and hiring goals on contractors with respect to the hiring of protected veterans and persons with disabilities and impose additional recordkeeping and data-collection obligations.

      Contractors with existing affirmative action plans as of March 24 are exempt from complying with the regulations until the end of the current plan year.  Otherwise, contractors must develop plans within 120 days of the commencement of any covered contract.  Thereafter, plans must be reviewed and updated annually.  The rules were published in the Federal Register on September 24, 2014 at 78 FR 58613 and 78 FR 58682.

      The Federal Government May Have Met the 23% Small Business Contracting Goal in FY 2013

      The House Small Business Committee stated at a hearing on March 5 that preliminary data suggests the federal government met the goal of awarding 23% of prime contracts to small business in FY 2013 – the first time the government has done so in the past decade.  According to SBA’s annual procurement scorecard, the government awarded 22.5% ($89.9 billion) of prime contracting dollars to small businesses in FY 2012; the government awarded 21.65% of prime contracting dollars to small businesses in FY 2011.  The announcement was made at a hearing to discuss several recent bills seeking to expand small businesses’ access to federal contracting dollars.  One of those bills, the Greater Opportunities for Small Business Act (H.R. 4093), sponsored by the Chairman of the House Small Business Committee, Sam Graves (R-Mo.), would increase the small business prime contracting goal to 25% and the small business contracting goal from 36% to 40%.

      National Defense Authorization Act for Fiscal Year 2014

      The FY2014 National Defense Authorization Act, Public Law No. 113-66, signed into law by the President on December 26, 2013, contains several provisions of interest to contractors.  Section 1614 provides an incentive to prime contractors to use more small business subcontractors by allowing primes to consider lower-tier subcontractors in meeting their small business goals.

      Section 1611 of the law requires DoD to issue a new regulatory clause for inclusion in small business contracts.  The new clause will require small business contractors to “acknowledge that acceptance of the contract may cause the business to exceed the applicable small business standards” and thereby no longer qualify as a small business.

      SBA Announces Upcoming Rulemaking Priorities

      The SBA recently published a list of its upcoming rulemaking efforts.  In addition to pushing updates to various size standards, SBA’s agenda includes work on proposed rules on Mentor-Protégé and HUBZone programs as well as small business amendments flowing from the 2013 National Defense Authorization Act.  A full list of the upcoming rulemaking efforts can be found here.

      Proposed Debarment of Microtechnologies, LLC

      On December 20, 2013, the SBA proposed to debar Microtechnologies LLC d/b/a MicroTech and its founder and President, Tony Jimenez from contracting with the U.S. Government.  The letter so advising MicroTech can be found here.  SBA issued the letter after the Washington Post published a number of articles suggesting that MicroTech was not a legitimate small business when it certified as a small business and received a number of contracts set aside for small businesses.  SBA proposed to debar MicroTech because it had evidence indicating that MicroTech submitted false and misleading statements to the SBA in connection with MicroTech’s application for admission to SBA’s Section 8(a) Program. Specifically, SBA alleged that MicroTech did not disclose its business and other relationships with two other companies, MicroLink, LLC and GovWare, LLC, in the application.

      SBA suspended MicroTech from government contracting for five weeks while it considered debarment of the company; ultimately, SBA entered into an “Administrative Agreement” with SBA in which Mr. Jimenez agreed to step away from the company’s activities for 30 days.  MicroTech also agreed to implement an ethics and compliance program and to be subject to an ongoing oversight program for three years.

    2. SBA Final Rule Regarding Task and Delivery Order Contracts; Bundling and Consolidation, 78 Fed. Reg. 61114 (October 2, 2013)

      1 Comment

      SBA recently issued a significant rule affecting Multiple Award Contracts (MACs) that implements Section 1331 of the Small Business Jobs Act of 2010.  Section 1331 focuses on several “tools” contracting officers can use to increase small business participation in MACs.  The final rule also addresses procedures related to the “consolidation” and “bundling” of federal contracts.  The final rule follows up SBA’s interim rule issued in November, 2011 which made clear that set-asides may be used in connection with the placement of orders under MACs, notwithstanding the requirement that each contract holder be afforded a fair opportunity to be considered.  SBA proposed the changes addressed in this final rule on May 12, 2012.

      Set forth below are key aspects of the final rule.

      Use of Set-Asides, Partial Set-Asides and Reserves in Connection with MACs.

      The final rule clarifies that the term Multiple Award Contract (MAC) includes Multiple Award Schedule (MAS) contracts issued by GSA or agencies granted MAS contract authority by GSA (i.e., Department of Veterans Affairs).

      Section 1331 Tools

      Contracting Officers currently must set aside a MAC for exclusive small business participation if the contracting officer determines that at least two capable small businesses can meet the contract requirements.  The new rule provides contracting officers with additional tools that they can use at their discretion to increase small business participation in MACs where the “rule of two” cannot be satisfied:  (1) partial set-asides; (2) “reserves” and (3) set-asides of orders under MACs.

      • Partial set-asides may be used when market research indicates that a total set-aside MAC is not appropriate but the procurement can be broken up into smaller or discreet portions or categories and two or more small business concerns are expected to submit an offer on the set-aside portion of the requirement at a fair market price.  The rule allows a small business to submit an offer on the set-aside portion, non-set-aside portion, or both.
      • Reserves may be used when a requirement cannot be broken into discrete components to support a partial set-aside but market research shows that two small businesses could perform part of the contract or one small business could perform the entire contract.  Reserves are used when a MAC is awarded pursuant to full and open competition and the contracting officer “reserves” the award of one or more orders under the MAC for small businesses.
      • Where a MAC is awarded pursuant to full and open competition, without a partial set-aside or without reserves, the new rule allows a contracting officer to make a “commitment” to set-aside orders under the MAC, or preserve the right to consider set-asides, when the “rule of two” is met.  The contracting officer must state this intention in the solicitation.

      The ultimate decision of which, if any, of the tools described above a contracting officer will use is completely within the discretion of the contracting officer.  The rule only requires that contracting officers consider using these tools before awarding a MAC if the “rule of two” cannot be satisfied.  If the contracting officer foregoes using one of the tools above, the contracting officer must document the rationale for so doing in the contract file.

      NAICS Codes

      The rule provides that a contracting officer: (1) assign one NAICS code and corresponding size standard to the MAC if all of the orders issued against that contract can also be classified under that same NAICS code and corresponding size standard; or (2) divide the MAC for divergent goods and services into discrete categories, each of which is assigned a NAICS code with an corresponding size standard.  In the latter case, a business will have to represent its size status for each of the NAICS codes at the time of submitting its initial offer, including price.  For any order issued under the MAC, the NAICS code assigned to the order would be the same as the NAICS code assigned to that category in the contract.  The contracting officer is required to select a single NAICS code for the order which best represents the principal nature of the acquisition for that order (usually the component that accounts for the greatest percentage of contract value).  If the small business represented it was small for that NAICS code at the time of the initial offer, including price, then it will be considered small for that order with the same NAICS code.

      Certification and Recertification

      Size status of a small business concern typically is determined on the date a business self-certifies its size status as part of its initial offer, including price.  With respect to agreements such as BPAs, Basic Ordering Agreements etc., the rule requires a small business to self-certify when it submits its proposal, including price, for the agreement.  The small business need not self-certify for orders issued pursuant to these agreements; however, the business must “qualify” as a small business in order to receive the order. The only exception to this rule is BPAs issued against GSA Schedule MACs.  Since small businesses must self-certify when they submit their proposal, including price for the GSA MAS contract, the small business does not need to also self-certify for any BPA issued against the schedule contract.

      The final rule clarifies two issues with respect to recertification.  The current recertification rule clearly requires a business to recertify if it is acquired by or merged with another entity.  The final rule clarifies that recertification also is required when a small business acquires another entity.  The final rule also clarifies that recertification is required when a participant in a joint venture is involved in a merger or acquisition regardless of whether the participant is the acquired concern or the acquiring concern.

      Limitations on Subcontracting

      The final rule amends the limitation on subcontracting provisions in SBA’s current regulations.  For total or partial set-asides MACs, the small business contractor must meet the limitations on subcontracting performance of work requirements (and related nonmanufacturer rule requirements, if applicable) in each period of the contract (i.e., base year and each option year).  Where an order is set-aside for small business under a full and open MA or a MAC with a reserve, the small business contractor must comply with the limitations on subcontracting/nonmanufacturer rule for that order. A small business’ failure to comply with the limitations on subcontracting/nonmanufacturer rule will be reported by the contracting officer in its evaluation (in PPIRS) of the small business’ contract performance.

      Bundling and Consolidation

      The Small Business Jobs Act included provisions addressing the bundling and consolidation of contracts.  The final rule defines “consolidation” as the solicitation for a single contract or a MAC to satisfy two or more requirements of the federal agency for goods or services that had been provided to or performed for the federal agency under two or more separate contracts each of which was lower in cost that the total cost of the contract for which the offers are solicited, the total cost of which exceeds $2 million (including options).  Under the final rule, an agency may not conduct an acquisition that is a consolidation of contract requirements with a total value of more than $2 million unless the senior procurement executive or chief acquisition officer: (1) justifies the consolidation by showing that the benefits of the consolidated acquisition substantially exceed the benefits of each possible alternative approach that would involve a lesser degree of consolidation and (2) identifies the negative impact on small businesses.

      The Small Business Jobs Act amended the Small Business Act to require agencies to publish on the Web a list of the agency’s bundled contracts and a rationale for each bundled contract.  The final rule encourages agencies to post the list and rationale for bundled contracts at least 30 days prior to the issuance of the bundled solicitation.

      • The Small Business Act states that for bundled contracts, a small business concern may submit an offer that provides for the use of a particular team of subcontractors (prime/sub or joint venture) for the performance of the contract and the agency must evaluate the offer in the same manner as other offers.  The final rule states that if a small business forms a team for this purpose (i.e., enters into a Small Business Teaming Relationship), and each team member is small under the applicable size standard, the team will be considered small.   Generally, small businesses in a joint venture relationship are considered affiliated unless the joint venture meets certain conditions.  The Small Business Teaming Relationship (prime/sub or joint venture) must be in writing and submitted to the contracting officer as part of the proposal.  The exemption from affiliation only applies to Small Business Teaming Relationships formed to bid on bundled MACs.

      The final rule is effective December 31, 2013.  However, in the final rule, SBA recognizes that many of the changes set forth therein will require many years to implement successfully, particular those changes addressing the application of NAICS codes to MACs and MAC orders.

    4. Key Pending and Proposed Regulatory Actions Affecting Small Businesses

      1 Comment

      Pending Small Business Regulatory Actions:

      Acquisition Process:  Task and Delivery Order Contracts, Bundling, Consolidation, 77 Fed. Reg. 29130 (May 16, 2012) (Proposed Rule).

      • Authorizes set-asides of orders issued under Multiple Award Contracts including those on the GSA Schedule; discusses process for applying NAICS codes to orders
      • Addresses contract “consolidation” vs. “bundling;”  consolidation must be justified
      • Exempts “Small Business Teaming Arrangements” from affiliation rule for “bundled” contracts that have a “reserve”

      Status: Final rule not likely to be issued until 2nd Quarter of this year.

      Small Business Size and Status Integrity, 76 Fed. Reg. 62313, 62314 (October 7, 2011) (Comment period closed 12/08/11).

      • Implements Section 1341 of Small Business Jobs Act regarding the “presumed loss rule”
      • Implements Section 1342 of the Small Business Jobs Act regarding annual certification in ORCA
      • Implements Section 1342 of the Small Business Jobs Act “limitation of liability” provision

      Status: Final Rule scheduled to be released 3/13.

      Small Business Subcontracting, 76 Fed. Reg. 61626 (October 5, 2011) (Proposed Rule).

      • Prime must notify CO if it fails to use proposed small business sub
      • Prime must notify CO if payment overdue (by 90 days) or if payment is “reduced”
      • Evaluation of NAICS codes assigned by prime to subcontracts

      Status:  Final Rule set to be released 3/13.

      Proposed Small Business Regulatory Actions:

      Accelerated Payments to Small Business Subcontractors, 78 Fed. Reg. 2893 (Decmber 19, 2012)

      • Implements temporary policy established by OMB in July 2012
      • Comments due February 19, 2013

      Small Business Set-Asides for Research and Development Contracts, 77 Fed. Reg. 47797 (August 10, 2012)

      • Clarifies for Contracting Officers that R&D contracts also should be set-aside for competition among small businesses if there is a reasonable expectation that there are businesses capable of providing the best scientific and technological approaches
      • Comments were due October 12, 2012

      Small Business Jobs Act:  Small Business Mentor-Protégé Programs

      • Regulations addressing SDVOSB, WOSB and HUBZone Mentor-Protégé Programs authorized by the Small Business Jobs Act
      • Has not been released by SBA

      Small Business HUBZone Program

      • Comprehensive revisions of HUBZone regulations
      • Proposed Rule scheduled to be published for notice and comment 10/13

    5. Key Small Business Provisions in the National Defense Authorization Act for FY 2013

      Leave a Comment

      Section 1641 – Small Business Mentor-Protégé Program

      • Authorizes SBA to establish a Mentor-Protégé Program for small businesses
      • Small business Mentor-Protgege Program should be “identical” to 8(a) Mentor-Protégé Program
      • Agencies other than SBA cannot establish a Mentor-Protégé Program unless the agency first submits a plan for approval by SBA (exception for DoD Mentor-Protégé Program/SBIR/SBTT)
      • SBA to issue regulations ensuring consistency among various agency Mentor-Protégé Programs
      • Agencies with existing Mentor-Protégé Programs may continue with those programs until one year following the day on which SBA issues regulations described above
      • Existing Mentor-Protégé relationships not affected; the parties may continue to operate in accordance with their Mentor-Protégé Agreement until such time as the agreement expires and/or terminates
      • SBA must propose regulations regarding the small business and other agency Mentor-Protégé Programs within 270 days after enactment, which will be subject to the notice and comment process
      • Note:  Congress provided SBA with the authority to establish Mentor-Protégé Programs for its SDVOSB, WOSB and HUBZone Programs in the Small Business Jobs Act of 2010.  SBA has yet to propose regulations regarding these new programs.
      Section 1651 – Limitations on Subcontracting
      • Provides that, in the case of services contracts, the small business prime contractor must perform more than 50% of the amount paid the contractor under the contract (as opposed to 50% of the “cost of contract performance incurred for personnel”)
      • Provides that, in the case of supply contracts, the small business prime contractor must perform more than 50% of the amount (less the cost of materials) paid the small business prime contractor (as opposed to the “cost of manufacturing”)
      • Did not address construction contracts but allowed SBA to promulgate, through rulemaking, provisions similar to those for services and supply contracts
      • Exemption provided for “similarly situated” entities; the 50% restriction does not apply if the subcontractor is small and of the same type as the prime (8(a), WOSB, etc.)
      • Establishes penalties for failure to comply with the limitations on subcontracting requirement
      Note:  Under current SBA rules, an exemption from the limitations on subcontracting requirement already exists for “similarly situated” subcontractors of SDVOSB and HUBZone primes.
      Section 1653 – Subcontracting
      • If a prime contractor identifies a small business in its bid or proposal or subcontracting plan the prime must notify the small business that it has done so
      • Agencies must establish a “reporting mechanism”  by which subcontractors can report “fraudulent” activity or “bad faith” by prime contractors with respect to implementing their subcontracting plans
      •  A prime’s failure to meet the subcontracting goals set forth in its subcontracting plan may be considered in the prime’s past performance evaluation
      Note:  A “reporting mechanism” for subcontractors means primes can no longer insert in subcontracts a blanket prohibition on the subcontractor’s contacting the Government regarding the subcontract.
      Section 1661 – Size Standards
      • When SBA establishes or revises size standards, it now must make publicly available the information considered and analysis supporting the size standard or changes thereto
      • SBA may establish a “common size standard” – a single size standard for a grouping of 4-digit NAICS codes, only if SBA publicizes a justification demonstrating the selected size standard is appropriate for each individual industry classification in the group
      Sections 1681 and 1682 – Fraud
      • Limits the liability of a small business for misrepresentation of its size or status if it relies in good faith on an “advisory opinion” issued by a Small Business Development Center or a Procurement Technical Assistance Center
      • The SBDC or the PTAC does not have to issue the opinion
      • The SBDC or the PTAC must send copy of opinion to SBA and if SBA disagrees with opinion, the small business cannot rely on it
      • Smalls businesses may be suspended or debarred for misrepresentation as to size or status without regard to whether they are “presently responsible” as provided in FAR Part 9
      Section 1697 – WOSB Program
      • Removes the $6.5 million (manufacturing) and $4 million (all other contracts) caps on setting aside procurements for competition among WOSBs/EDWOSBs
      Section 1698 – HUBZone Program
      • Base closure/realignment areas will continue to be part of the definition of a HUBZone for another five years

    6. Bid Protest News You Can Use

      1 Comment

      On November 13, the Government Accountability Office made its annual report to Congress which includes the hotly anticipated bid protest statistics report. Ok, not so hotly anticipated, but it is always interesting. Also included in the annual report is a list of cases in which the agency refused to follow GAO’s recommendation for corrective action. Many people don’t understand that, unlike a court, GAO cannot force an agency to take corrective action after it sustains a protest. Why? – because GAO is an arm of Congress and other stuff I can’t remember so, therefore, it’s probably not that important. The only “leverage” GAO has is that it must report to Congress those instances in which the agency has declined to follow GAO’s recommendations. Since GAO is fairly impotent with regard to enforcement of its decisions, you would think that many agencies ignore its recommendations. Not true. It is very rare that an agency declines to follow GAO’s recommendations – presumably because they don’t want GAO to tattle to Congress. For example, in FY 2012, GAO denied 464 protests. The only agency that did not follow GAO’s recommendation for corrective action was the Department of Veterans Affairs. There were a number of cases filed in FY 2012 by Service-Disabled Veteran-Owned Small Businesses(SDVOSBs) and Veteran-Owned Small Businesses (VOSBs) challenging the VA’s decision to order off the Federal Supply Schedules before engaging in market research to determine whether a SDVOSB/VOSB set-aside was appropriate under the VA’s Veterans First Program. While these cases are fairly controversial in the Vets community – given the range of cases filed at GAO, it is significant that VA is the only agency that failed to follow GAO’s recommendation, and then in only in this narrow line of cases. By the way, the VA’s prioritizing FSS schedule buys over SDVOSB/VOSB set-asides has been challenged in the US Court of Federal Claims. Oral argument occurred last week and we are waiting for a decision.

      Ok, the stats. The GAO reported there were 2,475 cases filed in FY 2012, 5% more than in FY 2011. Not that surprising, given the panic surrounding shrinking budgets and everything. While the increase may seem important, when compared to the increases in FY 2008, FY 2009 and FY 2010, 17%, 20% and 16%, respectively, it’s not really notable. GAO issued decisions in 570 protests. The protest sustain rate is still just below 20%, 18.6% for FY 2012, up from 16% in FY 2011. The GAO report contains a statistic called the “Effectiveness Rate” which is defined as the percentage of cases in which the protester received some form of relief from the agency, either as a result of voluntary corrective action or the GAO sustaining the protest. For FY 2012, the rate is 42%, the same rate as FY 2011 and FY 2010. What does this rate tell you? This statistic tells me that while GAO’s sustain rate is less than 20%, agencies, in fact, take corrective action in about 20% of the cases before a protest reaches the decision point. There is one statistic in the report that stands out: the cases in which GAO has used Alternative Dispute Resolution. ADR at the GAO is not like formal ADR with which some people may be familiar. Instead, GAO generally starts the process on its own when it sees a record that it believes likely will result in the granting of a protest. In these instances, GAO “encourages” agencies to take corrective action by noting the deficiencies in the agency record. According to GAO’s annual report, in FY 2012, GAO used ADR in only 106 cases, down from 140 in FY 2011, 159 in FY 2010, and 149 in FY 2009. Not really sure what this means. You would think that as protests increase and the resources GAO allocates to them remains the same, there would be a greater incentive to resolve protests early. If anyone has any theories out there, love to hear them.

      From the perspective of this government contracts lawyer in Northern Virginia, I too have seen an up tick in protests in my practice. In almost half of those cases, the agency took corrective action. What is interesting to me, however, is that both small and large contractors are protesting smaller and smaller procurements. I recently handled a protest against a contract award valued at $6 million and there were two protests, one by a large company, and well-known lawyers represented the protesters. (Not as well-known as me, of course). The contract called for support services and we all know there is very little profit in these types of contracts.
      Finally, one more piece of bid protest news: GAO has proposed charging a filing fee for protests.  It is not a large fee – about $240. The GAO plans to use the fees to fund an electronic docketing system. Most courts charge a filing fee, so this proposal does not come out of the blue. And in most cases, I don’t think it will influence a protester’s decision to file at GAO. However, it might make a difference in some cases. For example, I mentioned earlier in this post that GAO reported to Congress that VA had declined to follow its recommendation in a suite of cases addressing VA’s use of FSS schedules over SDVOSB and VOSB set-asides? These cases were not filed by lawyers but rather representatives of the protesters themselves. Many of these cases were repeat cases, in which the same protester filed a protest each time the VA placed an FSS order. In these cases, $240 a pop adds up.

    7. Federal Court Denies Aldevra-Type Protest

      1 Comment

      On Tuesday, November 27, 2012, the US Court of Federal Claims issued a much-anticipated decision in Kingdomware Technologies, Inc. v. United States. Kingdomware filed a protest at the Court challenging the VA’s use of the Federal Supply Schedule (FSS) to procure Emergency Notification Services instead of first conducting market research to determine whether a set-aside for Service Disabled Veteran Owned Small Businesses (SDVOSBs) or Veteran Owned Small Businesses (VOSBs) was appropriate. Fans of this blog (I know you are out there!) will recall that this issue was addressed in a Government Accountability Office (GAO) protest a while ago by a company called Aldevra. In Aldevra, the GAO held that VA, under the Veterans First Program authorized by Congress, had to consider conducting a set-aside for the benefit of SDVOSBs or VOSBs before using the FSS. The VA famously declined to follow the GAO’s recommendation for corrective action in Aldevra. The Aldevra case spawned a number of similar cases, including a protest filed by Kingdomware Technologies. In each of these Aldevra-type cases, GAO granted the protest. And in each of these protests, the VA refused to take corrective action.

      Kingdomware Technologies was the first of these cases to go to the US Court of Federal Claims. Full disclosure: while I was not formally involved in representing Kingdomware in the protest, I did assist the company’s attorney, Tim Power, in preparing the materials and preparing for oral argument. In the protest, Kingdomware adopted the GAO’s reasoning in the many protests on the issue. Specifically, Kingdomware argued the statute authorizing the Veterans First Program, the Veterans Benefits, Health Care and Information Technology Act of 2006, required the VA to consider setting aside any and all agency acquisitions for SDVOSBs or VOSBs before exploring other procurement possibilities. In support of this argument, Kingdomware cited to the “plain language” of the statute which states that VA “shall”award contracts on the basis of restricted competition to SDVOSBs or VOSBs where the Contracting Officer has a reasonable expectation that two or more SDVOSBs or VOSBs will submit offers at a fair and reasonable price (otherwise known as the “Rule of Two”). More importantly, Kingdomware argued that express language controls over any other interpretations or arguments.

      The Court, however, disagreed with Kingdomware and adopted the VA’s contrary argument, which I’m chagrined to admit, was quite clever. The VA argued the “shall” language included in the Act had to be read in the context of the entire statutory provision at issue. In this regard, the “shall” language appears in a provision addressing the VA’s authority to set goals for SDVOSB and VOSB participation in agency acquisitions. The “shall” language is also preceded by a clause stating, “for the purposes of meeting the goals.” The VA agreed that it was required to consider a SDVOSB or VOSB set aside, but only after the VA has determined that a set aside was necessary to meet the SDVOSB/VOSB participation goals. That determination, furthermore, was discretionary as the participation percentages were simply “goals” or “targets”. Stated another way, because meeting the “goals” was not mandatory, using a SDVOSB or VOSB set-aside to meet the goals also was not mandatory.

      Ultimately the Court agreed and deferred to this interpretation. Before getting there, the Court first reviewed the tenets of statutory interpretation outlined in the seminal Chevron case. Under Chevron, a court must first look to see if the statute clearly addresses the legal issue before the court. If it does, the court must stick to the statutory language. If, on the other hand, the statute does not address the issue, a court may consider various interpretations of the language but generally must defer to the interpretation of the agency charged with implementing the statute. The decision here turned on the Court’s determination that the Act did not address the interaction of the Veterans First Program with an agency’s discretion to use the Federal Supply Schedules. The Court pointed out, correctly I might add, that schedule orders are governed by FAR Part 8 and that FAR Part 8 procedures are explicitly exempt from the small business contracting provisions set forth in FAR Part 19. Since Congress did not address the FAR Part 8 exemption in establishing the Veterans First Program, the Court took the position that Congress must have intended that the schedule orders continue to be exempt from small business contracting requirements, including those set forth in the Act. Accordingly, because the Act did not address the FAR Part 8 exemption, per Chevron, the Court deferred to the VA’s interpretation of the Act.
      In my view, the opinion is extremely well written and well-reasoned. And, notwithstanding the human cry of veterans everywhere, it will be hard to appeal. However, I do think it has an Achilles heel. In some of the Aldevra-type GAO protests, GAO discounted the FAR Part 8/FAR Part 19 argument on the basis that FAR Part 19 only refers to the SDVOSB program administered by the SBA pursuant to the Small Business Act and not to the Veterans First Program established by the Act. The Court dismisses this argument in a footnote to the Kingdomware decision – but I think it has some legs. I simply do not think Congress intended the Veterans First program to be like the other SBA small business contracting programs. I think it was meant to be different and it should be considered differently. I’m just saying.
      For a government contracts nerd like me, the Aldevra legal odyssey has been fascinating. For others, it is more evidence that VA is not truly on the side of Veterans. But I’m going to be honest here – the VA’s arguments are clever and have some merit. This was not an easy case. Also, I don’t believe VA uses the FSS as an acquisition vehicle to avoid giving benefits to SDVOSBs or VOSBs. The VA uses the FSS for the same reason other agencies do; it is a quicker and cheaper way to acquire standard goods and services. You can call me a traitor to the cause, brainwashed or naïve, but in this era of fiscal austerity, isn’t the agency just doing its job? (Cue: throw rotten fruit).

    8. Final Rule Issued Re: Reporting Executive Compensation

      1 Comment

      On July 26, 2012, the FAR Council issued a final rule entitled “Reporting Executive Compensation and First-Tier Subcontract Awards.”  The final rule follows an interim rule issued on the same subject on July 8, 2010.  Both the interim and final rule implement a section of the Federal Funding Accountability and Transparency Act of the 2006 as amended by a section of the Government Funding Transparency Act of 2008, which requires OMB to establish a free, public Web site containing full disclosure of all Federal contract award information.

      Specifically, the interim rule requires a federal contractor that awards a “first-tier” subcontract valued at greater than $25,000 to report that subcontract award, along with specific details regarding the subcontract,  in the FSRS database.  In addition, after receiving a contract award of greater than $25,000 a contractor must report in CCR the names and “total compensation” of each of the five most highly compensated executives for the contractor’s preceding completed fiscal year if the contractor:
      (A) receives 80% or more of its annual gross revenues from federal contracts; (B) receives at least $25 million in annual gross revenues from Federal contracts; and (C) the public does not otherwise have access to this compensation information through SEC filings made by the contractor.  Similarly, following the award of a “first-tier” subcontract valued at greater than $25,000, a prime contractor must report the same type of executive compensation information of its subcontractor.

      The final rule reviews the comments received on the interim rule, but doesn’t change very much about the interim rule.  The most notable changes are as follows:

      • The definition of “first-tier subcontracts” has been modified slightly to clarify that the definition does not include long-term contracts for supplies and materials that are not solely related to an applicable contract.  According to the preamble, this “change” is supposed to give contractors “greater flexibility” in determining what type of company qualifies as a “first-tier” subcontractor but, frankly, I don’t see this to be a significant change – the language is nearly the same as that included in the interim.  If someone can educate me on this, I’d appreciate it!
      • The interim rule included language stating that it did not apply to classified contracts.  A commenter noted that Contracting Officers were interpreting the provision to mean that the contract document itself was classified.  The final rule amends this provision to state instead that nothing in the statute requires disclosure of “classified information.”
      • The final rule deletes another exception to the applicability of the rule: contracts with “individuals.”  The preamble notes that the statute does not contain such an exception.
      • Language has been included to clarify that contractors will have to provide similar data when registering in CCR
      • The final now also clarifies a contractor’s responsibility to correct and inaccurate pre-populated data that appears in FSRS or inaccurate data provided by the contractor.

      A number of critics of the rule have claimed that it will have a disproportionate impact on small business.  Bloomberg BNA Federal Contracts Reports interviewed me on this subject yesterday.  If you are interested in what this Northern Virginia government contracts attorney said about that – check out the link on the Protorae Law website.  Ciao!

    9. Air Force Lifts Booz Allen Suspension

      Leave a Comment

      On February 6 of this year, the Air Force proposed for debarment the San Antonio office of Booz Allen.  The Air Force proposed the San Antonio office for debarment because a former Air Force official who joined Booz Allen brought with him to work and disclosed to others in the office non-public, procurement sensitive information concerning an upcoming Air Force procurement.  Booz Allen intended on competing in the procurement.  The non-public information was not only disclosed to San Antonio Booz Allen personnel, the information also was passed around and used by these personnel, including supervisory personnel, in capture meetings. The nature and sensitivity of the information ultimately was recognized by a pricing analyst who tipped off the Booz Allen’s in-house legal counsel.

      The Air Force’s proposed debarment of Booz Allen is a cautionary tale to those who hire personnel from Government.  It is not enough to get an ethics opinion from the government agency allowing the former official to accept employment with a contractor; a contractor also must ensure that the former government official does not bring non-public, source selection information with him or her to the new place of employment.

      On April 13, 2012, the Air Force entered into an Administrative Agreement with Booz Allen in which the Air Force agreed to terminate the proposed debarment in exchange for Booz Allen’s commitment to take a number of remedial measures.  Chief among these commitments is to have an outside monitor (Affiliated Monitors, Inc.) evaluate Booz Allen’s ethics program and report regularly to Booz Allen and the Air Force regarding Booz Allen’s efforts to inculcate its entire workforce with its “ethics message.”  In addition, Booz Allen agreed to have an outside law firm evaluate Booz Allen’s handling of the matter, including the investigation undertaken by the in-house lawyers and the decisions made on reporting the ethics violations to the Air Force.  A third law firm (what am I, chopped liver?) was retained by Booz Allen to advise it on developing internal protocols for detecting and reporting ethics violations.  The Administrative Agreement’s term is three years.

      The Administrative Agreement and promises made by Booz Allen therein are instructive.  While the retention of outside consultants and law firms likely is too expensive and too resource intensive for any contractor other than those of a size of a Booz Allen, the Administrative Agreement contains other commitments Booz Allen made which any contractor easily can incorporate into its ethics program.  For example, per the Administrative Agreement:

      • Booz Allen now will require all employees, including newly-hired employees, to certify affirmatively that they do not possess non-public or proprietary information from a past employer and do not intend to bring such information to Booz Allen upon their employment.  The cognizant hiring manager also has to certify that he or she has reviewed this policy with the new hire.
      • Booz Allen now requires the source of pricing information included in any proposal to be documented in the capture and proposal files and certified by the Capture Manager.
      • Booz Allen will institute a Preferred Supplier Program which is designed to reward, “in some manner,” suppliers/subcontractors that have instituted compliance and “values-based” ethics programs.
      • Booz Allen will verify the status of all current and  potential employees or consultants by reviewing EPLS.

      Last week, the GSA held an informal round table on “Suspension and Debarment:  What Industry Needs to Know.”  The panel made some interesting points.  One was that suspensions and debarments should not be used in a punitive manner or as a quick method of “scoring political favor.”  The panel acknowledged that the way many agencies use a Notice of Proposed Debarment is as a “Show-Cause Letter,” where a “Show-Cause” letter is, indeed the better option.

      The second point made by the panel was that small businesses are in a unique and particularly tough position with respect to suspension and debarment proceedings.  Most small businesses are not required to go the “full Monty” with respect to ethics and compliance programs.  Many small businesses, however, mistakenly believe that they are no specific ethics or compliance requirements imposed on small businesses by the Government.  In fact, under the FAR, every contractor must have a Code of Business Ethics and Conduct, whether the contractor is small, mid-size or large and whether the contractor has low-value or large-value contracts.  In addition, every contractor must ensure that the values espoused in such Code of Business Ethics and Conduct are implemented within the company.  Larger companies must undertake specific actions with respect to training and compliance; smaller companies are allowed flexibility to develop a compliance program commensurate with the size of the company or complexity of its contracts.  According to Steve Shaw, Air Force Deputy General Counsel for Contractor Responsibility, the more a company does on the “front end” and the “back end”, the less likely it will be debarred.  In other words, a company with a robust ethics program has an advantage should it find itself staring down the barrel of a debarment action.  As does a company that responds quickly and forcefully to any reports of misconduct.  So, for small firms with limited resources and no specific requirements, the choices they make or fail to make could be critical.  The panel emphasized that a small company does not need to have “high-end training with glossy materials.”  What is important, the panel emphasized, was ensuring that company employees receive the company’s policy on ethics and proper business conduct.

      The Booz Allen Administrative Agreement, therefore, is a good play-book for both large and small contractors because it details a broad spectrum of actions a company can take to implement an ethics policy inside a company.  Look forward to this government contracts lawyer’s next blog post on the top ten issues any code of business ethics or compliance program should address.

    10. Small Business Contracting Legislative Update

      Leave a Comment

      March has been a busy month for the House Small Business Committee. In the last month, the committee has reported out over ten separate pieces of legislation affecting small business government contractors. What is particularly noteworthy is that all these bills have bipartisan support. Set forth below is a summary of the reported bills:

      § Government Efficiency Through (GET) Small Business Contracting Act of 2012(HR 3850)
      o   Raises government-wide small business contracting goal from 23% to 25%
      o   Withholds certain senior agency officials’ benefits (sabbaticals or incentive awards) if agency small business goals are not met
      o   Establishes a government-wide small business subcontracting goal of 40%
      § Small Business Advocate (SBAA) Act of 2012 (HR 3851)
      o   Elevates the position of OSDBU Director to a “senior acquisition leader” position in an agency and prohibits the Director from holding any other agency position
      § Early Stage Small Business Contracting Act of 2012(HR 3987)
      o   Increases access to “early stage businesses” (less than 15 employees or less than $1 million annual receipts) by authorizing sole source awards and set-asides to same
      § Small Business Procurement Improvement Act(HR 4118)
      o   Requires federal agencies to include small businesses in multiple-award contract awards “to the maximum extent practicable”
      o   Requires agencies to set-aside for small businesses any acquisition above $2,500 and below $200,000 (currently rule requires mandatory set-asides above Micro Purchase threshold of $3,000 and at or below the Simplified Acquisition Threshold of $150,000)
      § Subcontracting Transparency and Reliability (STAR) Act of 2012(HR 3893)
      o   Requires agencies to publish their insourcing processes
      o   Gives small businesses standing to challenge agency insourcing decisions
      o   Changes standard for Limitations on Subcontracting from “cost of contract performance” to “ amount paid” to small business prime
      § Small Business Opportunity Act of 2012(HR 3980)
      o   Allows OSDBUs and PCRs to be involved early in an agency’s acquisition planning process
      o   Requires agency acquisition plans to address utilization of small businesses
      § Building Better Business Partnerships Act of 2012(HR 3985)
      o   Requires SBA to oversee all civilian agency mentor-protégé programs in order to promote “portability of agreements” between the agencies
      § Small Business Protection Act of 2012(HR 3987)
      o   Requires SBA to issue size standards for each five-digit code NAICS code rather than grouping individual codes together by industry (four-digit NAICS code) for size purposes
      § Contractor Opportunity Protection (COP) Act of 2012(HR 4081)
      o   Provides more robust process to appeal contract bundling actions
      o   Creates third party arbiter of bundling actions
      § Contracting Oversight for Small Business Jobs Act of 2012(HR 4206)
      o   Increases fraud penalties associated with abuse of small business contracting programs
      o   Provides a “safe harbor” provision to protect firms that attempt to comply in good faith by getting a legal opinion
      § Women’s Procurement Program Improvement Act of 2012(HR 4203)
      o   Allows for sole source contract awards
      o   Requires SBA to participate in certification of WOSBs
      o   Remove caps on contracting limits
      Note: Earlier this month the Senate Committee on Small Business introduced the Fairness in Women-Owned Small Business Contracting Act of 2012 (S. 2172) which also allows for sole source contract awards and removes the current caps on contracts that can be awarded under the program
      Other legislation:
      § Improving Contracting Opportunities for Veteran-Owned Small Business Act of 2012(HR 4048)
      o   Reported by the House Veterans Affairs Subcommittee on Economic Opportunity
      o   Modifies the Veterans First statute to refer explicitly to acquisitions from the Federal Supply Schedules as a method for the VA to meets its small business procurement goalsI’ll be posting a blog soon on what’s HOT and what’s NOT on this list.