Federal Construction Contracting Blog

Federal Construction Contracting Blog

Legal Information and Resources for Federal Construction Contractors

Proposed Rule Would Give Federal Contractors a New Way to Report Agency Mismanagement and Misconduct

Posted in Protection of Contractor Rights, Small Business Contracting

Over the last few years the world of federal contracting has seen an increased focus on the False Claims Act, the prevention of fraud, and the strengthening of fraud-related penalties. 2015 will certainly be no different. However, the new year brings with it a slightly different take on fraud prevention, one aimed not at the contractor, but on the government. Mobile phone with scam message speech bubble

On January 22, 2015, the United States’ Office of Special Counsel (“OSC”) issued a proposed rule that would give federal contractors and subcontractors a new way to report agency wrongdoing. The rule implements a “pilot program” identified in the National Defense Authorization Act (“NDAA”) of 2013, the purpose of which is to “enhance contractor protection from reprisal for a disclosure of information that the contractor reasonably believes is evidence of gross mismanagement of a Federal contract or grant; a gross waste of Federal funds; an abuse of authority relating to a Federal contract or grant; a substantial and specific danger to public health or safety; or a violation of law, rule or regulation related to a Federal contract or grant.” (Public Law 113-1421, 41 U.S.C. 4712). Consistent with the NDAA, the proposed rule would allow employees of federal contractors and subcontractors to disclose wrongdoing of government employees if they work at, or on behalf of, a U.S. government component for which OSC has jurisdiction to accept disclosures. (See OSC’s Website for more detail.)

So what does this mean for federal contractors and subcontractors? Well, it means that federal contractors and subcontractors who observe mismanagement or misconduct by a federal agency can bring their complaints directly to the OSC. Contractors can also go to OSC if they believe they have suffered retaliation for prior disclosures or statements made about agency misconduct. The hope is that this new program can provide contractors a more effective way to report wrongdoing within the government.

Comments to the rule are due March 24, 2015. We will keep you posted on any new developments.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.

Maria L. Panichelli is an Associate in the firm’s Federal Contracting Practice Group. Her practice includes a wide variety of federal contracting and construction matters, as well as all aspects of small business procurement.

How to Effectively Team on a Federal Project

Posted in Contractor Information Sources, Federal Procurement Policy, Procurement Information, Small Business Contracting

Join partners Michael Payne and Ed DeLisle at the 2015 National 8(a) Association Winter Conference in Orlando, Florida for their presentation, “How to Effectively Team on a Federal Project.” In this discussion, Michael and Ed will explore the importance of well-crafted teaming agreements and how they are viewed by courts of various jurisdictions. They will also explore the practical implications of negotiating terms from both the prime and subcontractor perspectives, as well as cover the nuts and bolts of executing teaming arrangements on federal projects. For more information, or to register, please visit the National 8(a) Association website.

8a logo

Cohen Seglias is a proud sponsor of the 2015 National 8(a) Association Winter Conference, which focuses on the federal, legal and business updates that impact the ever-changing world of federal contracting. This year’s conference will be held in conjunction with the TRIAD Winter Meeting, bringing over 85 additional Small Business Liaison Officers to the National 8(a) conference attendees.

With more than 500 companies and key government stakeholders represented, this is an event you can’t afford to miss!

Michael H. Payne is the Chairman of the firm’s Federal Contracting Practice Group and, together with other experienced members of the group, frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues, and dispute resolution.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.

Court of Federal Claims Reaffirms VOSB/SDVOSB's Right to Due Process During Protests, Rejects VA's Interpretation of Revised Protest Regulations

Posted in Contract Performance Issues, Protection of Contractor Rights, Small Business Contracting

Several months ago, we told you about Ambuild Company v. LLC v. U.S., a very important case pending before the Court of Federal Claims (“COFC”).  The AmBuild case was of particular interest to our firm because it concerned the interpretation of a Department of Veterans’ Affairs (“VA”) regulation, which the VA revised following an adverse ruling in our case, Miles Construction, LLC v. United States.  AmBuild was of particular interest to SDVOSBs because of its potential impact on their due process rights in the context of status protests. Gavel and book

Well, the COFC issued its opinion.  The decision is a major victory for veteran-owned businesses, wherein the Court rejects the VA’s attempt to circumvent the ruling in Miles, and reaffirms that the VA cannot cancel a concern’s SDVOSB status without first allowing it an opportunity to respond to potential eligibility issues.

As those of you that follow this blog know, Miles involved the cancellation of our client’s SDVOSB status.  The cancellation stemmed from a protest lodged by a competitor.  However, the VA’s basis for cancellation was something that was never raised in that competitor’s protest.   Rather, the cancellation was based upon a new issue that the VA brought up on its own when deciding the protest, which Miles knew nothing about prior to cancellation.  When Miles protested the cancelation of its status, the COFC found that the VA had violated Miles’ due process rights.  The Court reasoned that an agency performing an investigatory function must provide the investigated party with notice, and afford that party an opportunity to meaningfully participate in the investigation.  The Court said: “an interpretation of 48 C.F.R. § 819.307(c) [the regulation pertaining to SDVOSB/VOSB eligibility protests] that does not allow this basic procedural due process is plainly erroneous and cannot be upheld.”

Following the Miles decision, the VA revised its regulations.  The amended version of 48 C.F.R. § 819.307 (which went into effect on September 30, 2013) added language that gave the VA the ability to determine the status of a protested concern based upon “a totality of the circumstances.”  (48 C.F.R. 819.307(e)).  In AmBuild, the VA relied on this language, arguing that it allowed the VA to consider facts or issues not specifically raised by the protesting party when reviewing a concern’s SDVOSB status.  In effect, the VA argued that “totality of the circumstances” meant that it could review any potential issue affecting a concern’s eligibility under the SDVOSB Program, whether or not it was raised as part of a protest.

In the AmBuild decision, the COFC squarely rejected the VA’s argument.  The Court again emphasized the importance of a protested party’s due process rights, and the necessity of giving a protested party a chance to respond to any allegations affecting its status.  It stated that: “The requirements of due process rest at the core of our nation’s Constitution and governmental institutions and are ingrained in our national traditions. . .”  As a result, “[b]efore adverse action is to be taken by an agency, the individual immediately concerned should be apprised not only of the contemplated action with sufficient precision to permit his preparation to resist, but, before final action, he should be apprised of the evidence and contentions brought forward against him so that he may meet them.”  Accordingly, the Court reasoned that the VA’s “strained construction” of 48 C.F.R. § 819.307 “would convert [the VA's] scope of review into a general license to act on a protest without giving notice of issues not raised by the protesting party or contracting officer but rather generated sua sponte by [the VA]. The requirements of procedural due process cannot be so easily cast aside.”  The Court concluded that the 2013 amendment to 48 C.F.R. § 819.307 may be interpreted to establish a scope of review only – not to abrogate the requirements of procedural due process.  Thus, going forward, the “totality of the circumstances” language in 48  C.F.R. § 819.307(e) must be read to include only those issues to which the protested party was afforded an opportunity to respond.   That is, the VA may consider the totality of the information available relating to a protested concern’s eligibility for the SDVOSB Program, but only within the context of the issues raised in the protest itself.  The Court ruled that AmBuild was entitled to reinstatement to the VetBiz database, that it must be considered for the award of the contract at issue in the protest, and that AmBuild was entitled to its costs of suit.

This is a major victory for VOSB/SDVOSBs.  AmBuild reaffirms that the VA cannot cancel a concern’s VOSB/SDVOSB status without explicitly notifying that concern of any and all potential issues concerning its eligibility status, giving that concern an opportunity to provide a meaningful response, and allowing that concern to participate in the investigatory process.  It will be interesting to see if the VA attempts to amend its regulations again to circumvent the ramifications of this decision.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.

Maria L. Panichelli is an Associate in the firm’s Federal Contracting Practice Group.

Best Practices in Construction Webinar

Posted in Contractor Information Sources, Small Business Contracting

On December 3, Jennifer Horn and Maria Panichelli presented the second webinar in their core construction curriculum series for Women Impacting Public Policy and Give Me 5%. The presentation, entitled “Best Practices in Construction,” covered suggested best practices for before, during, and after conclusion of a construction project, in the context of both state and federal jobs. The presentation provides tips on contracting, documentation, compliance, and claims prevention strategies. Start implementing business practices that make the difference between a profitable construction project and one that exposes your company to financial risk now! Check out: “Give Me 5: Best Practices in Construction,” here.

Jennifer M. Horn is a Partner at Cohen Seglias and a member of the Construction Group. She concentrates her practice in the areas of construction litigation and real estate.

Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.

Webinar on Federal Acquisition Regulations and Federal Procurement for WIPP and Give Me 5%

Posted in Contractor Information Sources, Small Business Contracting

On November 12, Jennifer Horn and Maria Panichelli presented the first webinar in their core construction curriculum series on the Federal Acquisition Regulations and Federal Procurement for Women Impacting Public Policy and Give Me 5%. The presentation covered the bidding process for both sealed bidding and negotiated procurement. Improve your understanding of FAR and its application in the construction context by checking out “Give Me 5: Construction Unit FAR 101 – Part 1, The Fundamentals of the Federal Acquisition Regulations and Federal Procurement: The Bidding Process,” here.

Construction Opportunities for American Prime Contractors in Israel

Posted in Contractor Information Sources, Procurement Information

My partner, Ed DeLisle, and I recently attended two Industry Days sponsored by the Army Corps of Engineers (“USACE”).  The first one was held in New York City on October 20th, and the second one was held in Tel Aviv on November 5, 2014. The purpose of the programs was to introduce American and Israeli construction contractors and A/E firms to the upcoming opportunities in Israel. Information was provided on the general scope of USACE design build and design bid build projects within Israel; typical infrastructure and facilities being procured; potential repair, maintenance and construction opportunities to support Israeli Ministry of Defense (“MoD”) facilities in Israel; as well as information on the solicitation and proposal process. The projects are funded by the Foreign Military Finance program and it is projected that  hundreds of millions of dollars in military construction will be undertaken by the Corps in the near future, with significant expenditures in the next year.Israel Construction Site

The contracts, for the most part, will be solicited as Multiple Award Task Order Contracts (“MATOC”), but there will also be some stand-alone projects that will be solicited through individual Requests for Proposals. An important requirement of the program is that all of the contracts must be awarded to American companies, and those companies will generally be expected to perform at least 25% of the work with their own forces. That 25% does not necessarily involve field labor, and may be made up of activities associated with construction management. The idea is to assure that American companies benefit financially from the program and that they remain responsible for project completion. The Corps is understandably wary of companies that serve only as “brokers,” and expects the American contractors to be fully engaged in the performance of the projects.

Since most American companies will not want to incur the expense of sending their own labor forces to Israel, teaming arrangements with Israeli subcontractors will be vital.  Fortunately, there are a number of very capable Israeli construction contractors interested in the work and many of them attended the Industry Day in Tel Aviv. At this point, however, there are more available Israeli subcontractors than there are American companies participating as primes, so the Corps is interested in generating more participation by American firms.

Given recent events, the first thing that many people will think about is whether it is safe to work in Israel. The answer is “yes,” not only because the extent of the turmoil is often exaggerated by the media, but because all of these projects will be performed on Israeli military bases. Even the recent rocket attacks from Gaza did virtually no damage because of the overwhelming success of the Iron Dome missile defense system. I can tell you that Ed and I were not concerned at all about our safety while in Israel and the daily life of Israeli citizens was entirely normal. That being said, American sureties are inherently risk averse and some contractors are having difficulty obtaining bonding. Although the Corps is currently requiring payment and performance bonds, there is also a possibility that some solicitations may permit Bank Letter Guarantees as the Corps has done in the past.

If you are interested in learning more about this program and the opportunities for American construction contractors, please contact us. We can put you in touch with both American and Israeli companies, as well as the knowledgeable people in the Corps of Engineers.  The program is administered by the Europe District of the Corps located in Wiesbaden, Germany.

Michael H. Payne is the Chairman of the firm’s Federal Practice Group and, together with other experienced members of the group, frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues, and dispute resolution…

Jennifer M. Horn and Maria L. Panichelli To Begin Core Construction Curriculum Series for WIPP and Give Me 5%

Posted in Contractor Information Sources, Federal Procurement Policy, Small Business Contracting

Please join Jennifer M. Horn and Maria L. Panichelli as they begin their “Core Construction Curriculum” series for Women Impacting Public Policy’s Give Me 5% program.

WIPP is a national nonpartisan public policy organization advocating on behalf of its coalition of 4.7 million businesswomen including 75 business organizations. WIPP identifies important trends and opportunities and provides a collaborative model for the public and private sectors to increase the economic power of women-owned businesses.  Give Me 5%, named after the 5% federal contracting goal for women-owned businesses, was created to educate women business owners on how to apply for and secure federal procurement opportunities. GiveMe5 is working to improve the WOSB Procurement Program to increase access to contracts for women entrepreneurs.

Give me 5

Jennifer and Maria will begin the Core Construction Curriculum series with two webinars.  On November 12th at 2:00pm they will be presenting Give Me 5: Construction Unit FAR 101 – Part 1, The Fundamentals of the Federal Acquisition Regulations and Federal Procurement: The Bidding Process.  The Federal Acquisition Regulations or “FAR” can be confusing whether you are new to federal contracting or have been contracting with the government for years. This webinar will focus on improving participants’ understanding of FAR and its application in the construction context. The presentation will cover the bidding process for both sealed bidding and negotiated procurement. You can find a description of the presentation and registration information, here.

On December 3rd at 2:00pm Jennifer and Maria will be presenting Best Practices in Federal Construction. Whether you a contractor working on federal, state or private projects, certain construction practices should be followed to ensure that you and your company are protected on the project. Observing best business practices can mean the difference between a profitable construction project and one that exposes your company to financial risk. This Webinar will focus on best construction practices before, during and at the conclusion of a construction project.  Read more and register, here.

We will keep you posted on additional webinar topics and times. If you have suggested topics, feel free to contact Jennifer or Maria.

Jennifer M. Horn is a Partner at Cohen Seglias and a member of the Construction Group. She concentrates her practice in the areas of construction litigation and real estate.

Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.

Contemporaneous Documentation is Not Always a Good Thing

Posted in Contractor Information Sources, Protection of Contractor Rights

There is no question that documentation is an important part in the resolution of any construction dispute. Particularly contemporaneous documents – documents that are created at the time that events occur. Quality control reports, daily logs, and timely letters all fall into the “contemporaneous” category. Another type, however, has an instantaneous characteristic that not only makes it contemporaneous, but so current as to be potentially dangerous – e-mail. This form of documentation cannot only be useful to record events virtually as soon as they occur, but it also has become a vehicle for the expression of emotions without the benefit of reflection.

Sending sms

Every contractor, for example, has had the occasion to be angered by something that another contractor, vendor, or owner has done during the performance of a construction project. If the subject of that anger, or disagreement, could lead to a request for additional compensation, there is often a knee-jerk reaction to put something in writing. Many of us have hurriedly drafted a letter and then, feeling better for having written it, crumpled the paper and tossed it into the nearest wastebasket. It has a therapeutic value and no harm is done. In our Information Age, however, with the ability to compose e-mail messages on our computers, iPads, and smartphones, the opportunity for reflection is gone as soon as we hit the “Send” button.

As an attorney, this often creates a serious problem when those messages are sent by a prime contractor to a sub, or by a sub to the prime. What both parties seem to fail to recognize is that these instantaneously transmitted messages not only record past events and express current thoughts, they may also have a dramatic effect on the future outcome of a dispute. What happens when the prime accuses the sub of poor workmanship and later seeks to blame the owner for providing a defective specification that actually caused the problem? That e-mail message, sent hastily to the subcontractor before all the facts were known, may become a useful document to the owner during litigation. The question, on cross-examination, will be “Isn’t is true that you believed that the problem was poor workmanship by your subcontractor, and not any defect in the specifications?” If the problem really is a defective specification, the ill-advised e-mail message has provided a potential defense to the owner and has introduced uncertainty into the dispute where none may have otherwise existed.

The lesson in all of this is that all parties should think about the possible consequences of the emotions and feelings they are expressing. There is no question that the facts, such as the working conditions, equipment, and manpower at the site must be recorded promptly and accurately. If the accurate recording of events affects the outcome of a dispute, it probably means that justice has been done. Expressions of emotions and opinions that are not well thought-out are in a different category, however and, when conveyed in e-mail messages, they are an unwelcome byproduct of the Information Age. E-mail messages, and all forms of Electronically Stored Information (“ESI”), are just as discoverable by the other side as paper documents. My advice is to be careful and think about the possible future impact of writing, and instantaneously transmitting, things that do not need to be said. Not every form of contemporaneous documentation is a good idea.

Michael H. Payne is the Chairman of the firm’s Federal Practice Group and, together with other experienced members of the group, frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues, and dispute resolution.

Déjà Vu All Over Again?

Posted in Contractor Information Sources, Small Business Contracting

As a child growing up just outside of New York City, I was a big New York Yankees fan. My grandfather used to love telling me stories about how far Mickey Mantle could hit a ball and what a tremendous pitcher Whitey Ford was, not just for his time, but for all time. And then there was Yogi Berra. My grandfather loved Yogi Berra. He loved Yogi as much for his colorful nature, as he did for his catching prowess. His absolute favorite Berra quote was “It’s like déjà vu all over again.” It happens to be my favorite as well (although “The future ain’t what it used to be” is a very close second) and it immediately came to mind as I recently reviewed the initial pleadings in Ambuild Company, LLC v. The United States Department of Veteran’s Affairs, Court of Federal Claims, Civil Action No. 14-786C.

Yogi Berra

Back in February of 2013, the Court of Federal Claims issued its ruling in Miles Construction, LLC v. United States, No. 12-597C (February 14, 2013). Miles was a case that I litigated on behalf of a service-disabled veteran-owned company that nearly lost a contractual opportunity, along with its SDVOSB status, following a protest. The facts were as follows: Miles Construction was a SDVOSB that had been previously verified by the VA. A few months after being verified, Miles submitted a bid on a solicitation set-aside for SDVOSB concerns. A disappointed bidder filed an agency protest with the VA, challenging Miles’ eligibility. Specifically, the protestor alleged that Miles’ service-disabled veteran owner did not “unconditionally control” the company, as required by 38 C.F.R. § 74.4. OSDBU notified Miles of the protest, asking it to “respond directly to the allegations made in the status protest.” Miles promptly responded and addressed each of the allegations. OSDBU accepted Miles’ position regarding each of the allegations lodged by the protesting party, yet sustained the protest anyway. Why? Not because of issues relating to “unconditional control,” but, rather, based upon an alleged failure of the service-disabled veteran to exhibit “unconditional ownership” over Miles, something never brought to Miles’ attention. Miles lost both the contract and its verified status based upon this decision.

We challenged OSDBU’s decision in a proceeding before the Court of Federal Claims and ultimately prevailed. Miles was reinstated as a verified SDVOSB and was later awarded the contract at issue in the case. One of the more important aspects of that decision pertained to due process. Citing to the Administrative Procedures Act, the court stated that where an agency performs an investigatory function, as OSDBU did in Miles, an interested party (like Miles) must be given notice of what’s happening so that it can meaningfully participate in that process. That did not happen. Miles was not given an opportunity to address the “unconditional ownership” issues that led to its immediate dismissal from the VA’s SDVOSB program. The court concluded that an agency cannot proceed in such a manner. It cannot issue what amounts to a death sentence without first allowing the accused a chance to defend itself. The court said it best: “an interpretation of 48 C.F.R. § 819.307(c) [the regulation pertaining to SDVOSB/VOSB eligibility protests] that does not allow this basic procedural due process is plainly erroneous and cannot be upheld.” That sounds about as straight forward as it gets, but not so fast. Let’s consider Ambuild, which was filed last month.

Ambuild Company, LLC was the apparent low bidder on a construction project at a VA Medical Center in Syracuse, New York. The second lowest bidder protested, challenging Ambuild’s SDVOSB eligibility. It alleged that Ambuild was affiliated with another company from which it was obtaining impermissible financial assistance. Both the SBA (strictly on issues relating to size) and the VA investigated the allegations and Ambuild was given the opportunity to respond. Ambuild did respond. Shortly thereafter, the SBA issued its decision. It found that there was no affiliation between Ambuild and the other company identified in the protest, meaning that Ambuild was, in fact, small. About a month later, the VA issued its decision. While it rejected each of the allegations lodged by the protesting party, it upheld the protest anyway. It did so based upon an independent review of Ambuild’s Operating Agreement and an ownership issue that it found as part of that review. Ambuild was unaware of this issue and, as such, did not address issues of ownership as part of its response to the protest. The VA’s finding left Ambuild ineligible for award and resulted in its removal from the CVE database as a verified SDVOSB company. Sound familiar?

Despite the Miles decision, the VA believes that its position in Ambuild is justified. You see, following Miles, the VA revised its regulations. Ambuild has characterized that change as follows:

“They VA [] relies on an amendment to 48 C.F.R. § 819.307, which went into effect September 30, 2013, apparently in direct response to this Court’s decision in Miles I. In an effort to circumvent the due-process protections mandated in Miles I, this amendment gives the CVE the ability to ‘determine the SDVOSB or VOSB status of the protested concern based upon a totality of the circumstances…’ 48 C.F.R. § 819.307(e). According to the VA, this language permits the CVE to ‘consider facts or issues not specifically raised by the protesting party that impact the SDVOSB/VOSB status…’ 78 FR 59861-01, Rules and Regulations of the Department of Veteran’s Affairs, by Robert C. McFetridge, September 25, 2013. Under this interpretation, and as evidenced by the OSDBU Decision, a protest against a SDVOSB for any reason permits the VA to conduct a full-blown compliance review examining every potential status issue, each and every time a protest is filed.”

In other words, the VA attempted to address some of the issues raised in Miles by revising the regulations governing eligibility protests. In this regard, it seems clear that the VA would like to conduct a “full-blown compliance review” in each case where such a protest is filed. While this, in and of itself, may not be objectionable, it is unclear how the VA will address the issue of due process. The Miles case was quite clear that procedural due process, that is, the right to meaningfully respond to an agency inquiry that could result in the loss of something legally tangible, must be afforded. Based upon an initial review of the facts in Ambuild, the protested party was not given the process to which it was entitled. Moreover, it appears that if due process was, in fact, given to Ambuild, it could have allayed the VA’s concerns. It’s still early and more facts could emerge, but this certainly does appear to be déjà vu all over again.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.

Previously published in VetLikeMe.

 

Court Upholds Rights of Small Business Dredging Contractors

Posted in Bid Protests, Dredging, Small Business Contracting

In a bid protest argued by our firm before the United States Court of Federal Claims on September 23, 2014, the Court ruled in favor of our client, RLB Contracting, Inc., (RLB) in a matter involving the designation of the dredging exception to NAICS code 237990, which is for “Other Heavy and Civil Engineering Construction.” 13 C.F.R. § 121.201 (2014). The solicitation for the “South Lake Lery Shoreline Protection and Marsh Creation Project” was set aside for small business concerns by the Natural Resource Conservation Service, but the exception to NAICS code 237990 that applies when a project is considered to be dredging was not invoked. At the time, the exception lowered the small business size standard from $33.5 million to $25.5 million for dredging and required that the successful contractor “must perform at least 40 percent of the volume dredged with its own equipment or equipment owned by another small dredging concern.” 13 C.F.R. § 121.201, Footnote 2. (Currently, the applicable small business size standards are $36.5 million and $27.5 million respectively).

Dredging

The small business regulation found at 13 C.F.R. 121.402(b)(2) states that “[a] procurement is usually classified according to the component which accounts for the greatest percentage of contract value.” In this case, RLB presented evidence that the agency had internally estimated that over 50% of the work involved dredging and that the agency had made its NAICS code designation based on an erroneous calculation that only 10% of the work involved dredging. RLB first appealed the NAICS code designation to SBA’s Office of Hearings and Appeals (“OHA”), arguing that the agency applied the incorrect NAICS code size standard. OHA denied the appeal on the basis that the project included other items of work in addition to dredging. However, OHA did no analysis as to the contract value or relative importance of those “other items.” RLB then brought its protest to the United States Court of Federal Claims, again arguing that the agency violated the regulations by failing to apply the dredging exception. RLB also argued that the agency had failed to provide correct information to OHA, and that OHA had refused to consider supplemental information furnished by counsel for RLB. The Court ruled that OHA’s decision was incorrect as a matter of law because OHA’s “decision does not give primary consideration” to “the relative value and importance of the components of the procurement” and did not concern itself with whether the agency classified the procurement “according to the component [of work] which accounts for the greatest percentage of contract value.” 13 C.F.R. § 121.402(b)(1)-(b)(2) (2014).

The Court was critical of the agency for not including pertinent documents in the Administrative Record which demonstrated that the agency knew that the dredging work accounted for the greatest percentage of contract value, and was further critical of OHA for concluding that other, relatively minor, elements of the work supported the agency’s contention that the project did not predominantly involve dredging. As a result, the Court entered a permanent injunction and remanded the matter to the Contracting Officer with instructions “to make a new determination of whether the dredging exception applies based on all available current information.” The Court further stated that “If item 7, Excavation Marsh Creation Dredging, is the most valuable item of work, the contracting officer must give primary consideration to it.”

This decision is an important victory for the small business dredging industry because it makes it clear that federal agencies are not free to circumvent the protection afforded to small business dredging contractors, under the exception to NAICS code 237990, by characterizing work generally as civil construction even though the dominant item of work is dredging. The exception is designed to prevent brokering by non-dredging small business concerns who, after receiving an award, could subcontract virtually all of the dredging work to a large business dredging concern.

Michael H. Payne is the Chairman of the firm’s Federal Practice Group and, together with other experienced members of the group, frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues, and dispute resolution.

Robert Ruggieri is a Senior Associate in the firm’s Federal Practice Group.