Federal Construction Contracting Blog

Federal Construction Contracting Blog

Legal Information and Resources for Federal Construction Contractors

Common Pitfalls in Federal Contracting Teaming Arrangements and How to Avoid Them: Tips for Safeguarding your Small-Business Program Eligibility

Posted in Small Business Contracting

Last month, Ed DeLisle and Maria Panichelli’s guest article on federal teaming agreements “Common Pitfalls in Federal Contracting” appeared on Onvia’s website. The article is based on Maria’s very successful webinar series on Teaming Arrangements.  The article and webinars address the benefits and drawbacks of teaming arrangements with a focus on how improper teaming can adversely impact a small business’ size status or eligibility for small business programs. The article also provides tips on avoiding teaming pitfalls and outlines best practices in teaming on federal projects.  You can see the full article below:

It’s no surprise that in today’s market, with a growing number of Federal government contracts set-aside for various types of small businesses, teaming relationships are increasingly popular. Large contractors like teaming because it provides them access to contracts for which they would otherwise be ineligible. Small businesses know that teaming is a good way to break into the federal contracting arena, an arena in which experience and past performance can prove critical to securing a contract. By teaming with a more experienced, larger contractor, a small company can acquire the experience needed to secure future federal contracts on its own. However, teaming is not without its downsides.

For small businesses in particular, teaming can pose significant risks. If done improperly, teaming can destroy a concern’s “small” business status, or otherwise render it ineligible to participate in the various Small Business Administration (“SBA”) programs. Small businesses most often lose their status in one of two ways: (1) a finding of “affiliation” pursuant to 13 C.F.R. § 121.103; or (2) violation of the percentage of work requirements set forth at 13 C.F.R. § 125.6. Small businesses need to be educated about these common pitfalls, and how to avoid them. This article seeks to do just that.


“Affiliation” can alter a small business’ size and render it ineligible to compete for small business set-aside contracts. When two companies are found to be “affiliated,” their respective sizes (determined by either revenue or number of employees) are added together; the total is what is evaluated when determining whether the company is actually “small” based upon the SBA’s “Small Business Size Standards.” If the sizes of the two businesses, added together, exceed the applicable size standard, neither can be considered “small.” Accordingly, a finding of “affiliation” is something small businesses want to avoid.

Affiliation is governed by 13 C.F.R. § 121.103, which explains that “concerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party or parties controls or has the power to control both. It does not matter whether control is exercised, so long as the power to control exists.” (13 C.F.R. 121 § 121.103(1)). In assessing whether or not two businesses are affiliated, the SBA considers factors such as ownership, management, previous relationships with or ties to another concern, and contractual relationships; the SBA may find affiliation even though no single factor is sufficient to constitute affiliation. (13 C.F.R. 121 § 121.103(2, 5)). In the teaming context, affiliation generally occurs in one of two ways.

Teaming Partners

First, a teaming relationship on a single project can result in a finding of affiliation under the “Ostensible Subcontractor” rule. The Ostensible Subcontractor rule holds that a small business that “is unusually reliant” on a subcontractor will be deemed affiliated with that subcontractor for size determination purposes. In other words, a small businesses can run afoul of the SBA’s affiliation rules if the small business teams with a subcontractor on a particular project, but then allows that subcontractor to control that project. In order to determine whether the subcontractor is, in fact, in control of a given project, the SBA will look to a variety of factors, including, but not limited to: whether it is the small business prime contractor or the subcontractor that is performing the vital components of the project; whether the small business prime contractor is financially reliant on the subcontractor; whether the small business has the requisite experience or managerial capability to control the project; and whether it is the small business prime contractor or the subcontractor who is, in reality, controlling the means and methods necessary to successfully complete the project. If the subcontractor appears to be the party in control, the SBA is likely to find that the small business prime contractor and subcontractor are affiliated.

Affiliation can also occur when there is an ongoing relationship between two companies, where one business appears to control the other, or where the two companies appear too closely related or intertwined. In the teaming context, this type of general affiliation can occur if a small business repeatedly teams with the same subcontractor/teaming partner, is financially reliant on its teaming partner, shares employees, office space, equipment or other resources with the teaming partner, or if the small business and its teaming partner have common ownership. Familial relationships, or previous employee/employer relationships are also considered to be signs of affiliation.

By now you should be asking, “How do I avoid affiliation?” The advice we give our clients is simple: maintain control over your company and every project on which you are the prime contractor. If you are going to team with a subcontractor, make sure you do not have other ties to that company. If possible, avoid teaming with companies owned by family members, or companies at which you were previously employed. If you must team with such a company, be very careful that you do not appear reliant on, or intertwined with, that business. Hire your own employees, rent your own office space, and secure your own equipment. Do not allow your company to rely too heavily or regularly on a teaming partner for financial support, and avoid having another business serve as a guarantor of your credit line. Team with different concerns, rather than repeatedly teaming with the same company, especially if you have other ties (financial, familial, or work-related) to that company. Overall, maintain corporate formalities, and ensure that all transactions with other companies are made at arms-length. These tips should help you avoid a finding of general affiliation.

To avoid the perils of the “Ostensible Subcontractor” rule, the same type of principals apply. You may enter into subcontracts, but make sure that you retain control over how the subcontract is performed. Do not rely on subcontractors for financial assistance, or expect them to supply the managerial experience needed to complete the project. Perhaps most importantly, do not allow subcontractors to take over or perform the most vital aspects of the contract. Also, make sure your company performs the requisite percentage of work, as discussed below.

Percentage of Work Requirements

The SBA regulations are very specific about the percentage of work a small business prime contractor must perform on a project to remain eligible for that project, and future small-business set-asides. 13 C.F.R. § 125.6 sets forth these “Prime Contractor Performance Requirements” (aka limitations on subcontracting). Each type of small business has its own requirements, and the percentages further vary depending upon the nature of the contract (services, supplies/products, general construction or specialty construction) being performed. For example, an 8(a) business performing a general construction contract is governed by different self-performance requirements than a SDVOSB performing a supply contract. It is critically important to pay attention to how these percentages are calculated for your particular type of business, and the nature of your contract. In some cases, the required percentage of work is calculated using the total cost of the contract; in others it is calculated using the cost of the contract incurred for personnel. The applicable work percentage requirements for each type of small business can be found as follows:

• 8(a) – 13 C.F.R. § 125.6(a)
• WOSB/EDWOSB – 13 C.F.R. § 125.6(a)
• VOSB/SDVOSB – 13 C.F.R. § 125.6(b)
• HUBZone – 13 C.F.R. § 125.6(c) and § 121.600

If a small business fails to self-perform the amount of work required by these regulations it may have to surrender its small-business status and could thereby lose its ability to compete for future set-aside contracts. It is, therefore, vital to demonstrate to the SBA your compliance with these regulations. To that end, small business prime contractors should include in every teaming agreement (and resulting subcontract) the percentages (by number) and the specific scopes of work (by description) that will be performed by the small business prime contractor.

In summary, it is important for small business contractors to remain cognizant of the rules pertaining to affiliation and self-performance when entering into teaming agreements. Failure to pay attention to these issues could result in the loss of a concern’s eligibility to participate in small business programs. In contrast, if a small business is aware of the issues above, is careful to avoid such pitfalls, and properly structures its teaming relationship, teaming can be a rewarding, and very profitable experience. If you have any questions about how to properly team, contact a legal professional.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group.

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

Is the End Near for Race-Conscious Contracting Programs? Federal Contractor Challenges the 8(a) Minority Business Development Program

Posted in Procurement Information, Protection of Contractor Rights, Small Business Contracting

By: Edward T. DeLisle, Kayleen Egan & Maria L. Panichelli

Is the Small Business Administration’s (“SBA”) minority business development program, also known as the “8(a) Program”  unconstitutional?   The legality of the program has been a hot topic of debate over the year, most recently due to a significant DC District Court case.  That case, Rothe Development Inc. v. U.S. Department of Defense et al., C.A. 1:12-cv-00744, began in 2012 when Rothe Development, Inc. (“Rothe” or “the Company”) filed suit against the Department of Defense (“DOD”) and the SBA, claiming that the 8(a) program violates the Fifth Amendment due process clause.

Scale & Book

The Company argued that race-based laws are constitutional only when they’re narrowly tailored to address a historic wrong.  Claiming that there was not sufficient evidence of historic discrimination in federal contracting, Rothe argued that the DOD and the SBA did not have a compelling government interest justifying the racial classification of businesses.  Rothe further argued that the remedial effect of the 8(a) program was speculative, and that the 8(a) program was not narrowly tailored to remediate discrimination.   According to the company, the government was increasingly setting aside contracts for minority-owned or minority-controlled businesses, and the 8(a) program unfairly prevented it from competing for those contracts by giving companies owned by members of disadvantaged racial groups an unconstitutional advantage.

In May of this year, two conservative interest groups, the Pacific Legal Foundation (“PLF”) and the Mountain States Legal Foundation (“MSLF”),  joined in, filing amicus briefs. These groups argued that the 8(a) program unconstitutionally deprived Rothe (and similarly situated companies) equal protection under the law, in violation of the Due Process Clause of the Fifth Amendment.  Therefore, the NAACP Legal Defense and Educational Fund, Asian Americans Advancing Justice and the Leadership Conference on Civil and Human Rights fired back, filing their own amicus briefs and arguing that Congress was justified in enacting the 8(a) Program because discriminatory policies and practices have prevented the business development of minority entrepreneurs throughout our nation’s history.

The case now sits before the DC District Court on cross-motions for summary judgment, prompting small business insiders to wonder if Rothe will successfully lodge yet another challenge to minority owned businesses. That’s right, Rothe has filed numerous suits challenging the constitutionality of  small business programs over the past few years, most recently Rothe Development Corp. v. U.S. Department of Defense, where Rothe successfully challenged a practice employed by DOD, NASA and U.S. Coast Guard to adjust prices by up to 10 percent to assist “small disadvantaged businesses” and to help the agencies meet the small, disadvantaged contractor goal.  Rothe also previously intervened in a case filed by DynaLantic Corp., which protested the DOD’s decision to set aside a contract for military simulation and training services for minority-owned businesses.  In that case, a D.C. District judge ruled that the 8(a) program was generally constitutional, but found that the DOD couldn’t use the program in the context of military simulation contracts because there was no evidence of discrimination in that industry.

Indeed, over the past few years, the federal courts have dealt two significant blows to government programs designed to increase the amount of contracts awarded to minority businesses.  If the latest Rothe challenge is successful, it would be a huge blow to such programs.  Considering almost 16 billion dollars in federal contracts were awarded to 8(a) contractors in 2012, this ruling could significantly change the way government contracts are awarded.   We will keep you posted as this case progresses.  Stay tuned for more updates.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group.

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

Kayleen Egan is a Summer Associate at Cohen Seglias.

Big Changes for Small Business: Revisions to Protest and Appellate Procedure

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

By: Edward T. DeLisle, Gary J. Repke, Jr. & Maria Panichelli

Attention all small business owners!  As a result of a final rule issued by the FAR Council on July 25, requirements for protesting small businesses size and eligibility status are changing effective August 25, 2014.  This rule, which finalizes an interim rule issued on March 7, 2013, updates size and eligibility status protests and appeal procedures governing small businesses, and provides uniformity for protests involving HUBZones, service-disabled veteran-owned small businesses(“SDVOSBs”), economically disadvantaged women-owned small businesses (“EDWOSBs”) and women-owned small businesses (“WOSBs”).  The biggest changes are outlined below.

Businessman, vectors work

Size Protests

First, with regard to small business size protests, the rule revises FAR § 19.302 to require additional information from a protesting party.  The amended regulation provides that each small business size protest must be accompanied by a written referral letter from the contracting officer, which contains pertinent information regarding the solicitation.  The required  information includes a copy of the concern’s self-certification for size; identification of the applicable size standard; a copy or link to the solicitation; identification of the bid opening date or the date of notification provided to unsuccessful offerors; the date the contracting officer received the protest; and contact information for both the contracting officer and the protesting party.  In addition, the protesting party may now deliver its protest via facsimile or email, in addition to delivering it by hand, telegram, or letter.  To be timely, the protest must be filed within five business days from either the date of bid opening (sealed bids) or the date notification is provided to a successful offeror (negotiated procurement).  A protest filed before the applicable triggering event will be dismissed by the SBA as premature.

The new rule also increases the time for the SBA to make a determination of a protested businesses size from 10 to 15 days.  Under the new rule, the contracting officer may, at the end of 15 days, further extend the amount of time to respond, if necessary.  Most importantly, should the SBA fail to make a size determination, the new rule provides the contracting officer with the discretion to award the contract anyway.

If a protested concern disagrees with the SBA’s size determination, the new rule provides that it is within the discretion  of the SBA’s Office of Hearing and Appeals (“OHA”) to accept an appeal.  The rule further provides that the SBA may, at its sole discretion, reopen a formal size determination to correct an error or mistake if it is within the appeal period, even if no appeal has been filed with OHA.

In addition to these modifications, the rule makes one rather troubling change.  It eliminates the portion of FAR 19.302(f)which allows the protested concern to file SBA Form 355 and a statement responding to the allegations contained in the protest, along with evidence to support that statement.  While the SBA regulations provide for such a response, the deletion of this provision from the FAR is nonetheless an unwelcome change.

Status Protests

The rule also provides for certain changes to status (e.g. HUBZone, EDWOSB, etc.) protests.  First, all status protests and appeals must be made in accordance with the new procedures outlined above for size protests.  If an interested party is protesting both the size and status of the projected successful bidder, that party must file two separate protests.

In the case of VOSB/SDVOSB status protests, or WOSB/EDWOSB protests, the protestor must establish either that the owner(s) cannot provide documentation to show that they meet the appropriate definitional standards, or that the protested concern is not unconditionally owned or controlled by one or more individuals that meet that standard.  Finally, for a HUBZone concern, the SBA will entertain a protest of the business’s status if evidence is presented showing that the business’s principal office is not located in a HUBZone or that less than 35% of the business’s employees reside in a HUBZone.  Absent these specific supporting facts, the SBA must reject the status protest.

If you need any additional assistance in protesting a concern’s size or eligibility status, or appealing your own adverse determination, please do not hesitate to contact us.  Additional information regarding small business size and status protests is also accessible via the SBA’s website.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group.

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

Gary J. Repke, Jr. is a Summer Associate at Cohen Seglias.

SBA Increases Small Business Size Standards for Businesses in Numerous Industries, Including Construction

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

If you participate in federal government procurement programs, either as a prime contractor or as a subcontractor, listen up!  Your small business size status may have changed on July 14, 2014 as a result of an interim rule issued by the SBA. The rule increased revenue-based size standards for numerous industries, including general and specialty construction. The SBA has estimated that approximately 480 additional firms will now be considered “small” under the new size standards. Federal contractors and subcontractors should visit the System for Award Management (SAM) and verify that all profile and certification information are up to date based upon the revised size standards. A summary of the changes to the construction NAICS codes is set forth below.

The SBA cited inflation as the reason for the change; the last time the size standards were adjusted for inflation was back in 2008.  These adjustments are in addition to the recent size standard revisions that were implemented following passage of the Small Business Jobs Act of 2010 (Jobs Act).

The rule made other changes as well, most notably:

  • An adjustment to program-based size standards, with the exception of the new alternative size standard for SBA’s 7(a) and 504 loan programs that was established under the Jobs Act.  The new alternative size standard will remain in effect until SBA establishes a permanent alternative size standard for the 7(a) and 504 loan programs.
  • Deletion of references to surety bond guarantee size standards for contracts awarded in Presidentially declared disaster areas following Hurricanes Katrina, Rita, and Wilma in 2005.
  • Deletion of the determination date for eligibility under the SBA’s Economic Injury Disaster Loan (EIDL) Program in connection with Hurricanes Katrina, Rita, and Wilma.

The SBA encourages contractors to review the new rule and provide feedback.  The comment period closes on August 11, 2014.  Additional information about small business size standards is available on the SBA’s website.

If you need assistance in determining whether you are a “small” business under these newly established NAICS codes, or in general, please do not hesitate to contact us.  Here are the new standards for general and specialty construction:

Subsector 236—Construction of Buildings


NAICS U.S. Industry Title

New Standard

236115 New Single-family Housing Construction (Except For-Sale Builders) $36.5 million
236116 New Multi-family Housing Construction (Except For-Sale Builders). $36.5 million
236117 New Housing For-Sale-Builders $36.5 million
236118 Residential Remodelers $36.5 million
236210 Industrial Building Construction $36.5 million
236220 Commercial and Institutional Building Construction $36.5 million

Subsector 237 Heavy and Civil Engineering Construction


NAICS U.S. Industry Title

New Standard

237110 Water and Sewer Line and Related Structures Construction $36.5 million
237120 Oil and Gas Pipeline and Related Structures Construction $36.5 million
237130 Power and Communication Line and Related Structures Construction $36.5 million
237210 Land Subdivision $27.5 million
237310 Highway, Street, and Bridge Construction $36.5 million
237990but Other Heavy and Civil Engineering Construction $36.5 million
237990 Dredging and Surface Cleanup Activities $27.5 million

 Subsector 238 Specialty Trade Contractors


NAICS U.S. Industry Title

New Standard

238110 Poured Concrete Foundation and Structure Contractors $15 million
238120 Structural Steel and Precast Concrete Contractors $15 million
238130 Framing Contractors $15 million
238140 Masonry Contractors $15 million
238150 Glass and Glazing Contractors $15 million
238160 Roofing Contractors $15 million
238170 Siding Contractors $15 million
238190 Other Foundation, Structure and Building Exterior Contractors $15 million
238210 Electrical Contractors and Other Wiring Installation Contractors $15 million
238220 Plumbing, Heating and Air-Conditioning Contractors $15 million
238290 Other Building Equipment Contractors $15 million
238310 Drywall and Insulation Contractors $15 million
238320 Painting and Wall Covering Contractors $15 million
238330 Flooring Contractors $15 million
238340 Tile and Terrazzo Contractors $15 million
238350 Finish Carpentry Contractors $15 million
238390 Other Building Finishing Contractors $15 million
238910 Site Preparation Contractors $15 million
238990 All Other Specialty Trade Contractors $15 million
238990 Building and Property Specialty Trade Services $15 million

Subsector 221 Utilities


NAICS U.S. Industry Title

New Standard

221310 Water Supply and Irrigation Systems $27.5 million
221320 Sewage Treatment Facilities $20.5 million
221330 Steam and Air Conditioning Supply $15 million

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group.

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

Understanding How to Effectively Team on a Federal Project Webinar

Posted in Small Business Contracting

Teaming is a concept much discussed in the world of federal contracting, yet it is often misunderstood.  

On May 7, 2014 Maria L. Panichelli hosted a webinar for Women Impacting Public Policy (“WIPP”) and Give Me 5 (“GM5″) entitled “There’s No “I” In Team – Understanding How to Effectively Team on a Federal Project.” In it, she discussed the benefits of teaming (from both a small business/prime contractor perspective, and a large business/subcontractor perspective), the proper procedures for forming a teaming agreement, important clauses, common pitfalls, and recent developments in the applicable regulations and case law. You can watch and listen to the hour- long presentation here.

Please visit the GM5 website for information about Maria’s additional upcoming WOSB/EDWOSB webinars.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.

House Small Business Committee Approves Two Bills Designed to Help Small Business Contractors

Posted in Small Business Contracting

A little over a month ago, Rep. Sam Graves, Chairman of the House Committee on Small Business, introduced a pair of bills designed to increase the participation of small business contractors in federal contracting.

The first bill, the Greater Opportunities for Small Business Act (“GOSBA”), would raise the government’s small business contracting goal from 23% to 25%. GOSBA would also raise the government’s current goal for small business subcontracting from 35.9% to 40% percent. Government-wide goals for contracts awarded to small business concerns owned and controlled by service-disabled veterans (3%), HUBZone companies (3%), socially and economically disadvantaged individuals (5%), and small business concerns owned and controlled by women (5%) would remain the same.

Similar bills, such as the Government Efficiency Through Small Business Contracting Act have been proposed (and discussed on this blog) in the past, but have not yielded results. Critics of GOSBA cite to these past failures, and question the wisdom of an increase, pointing out that the government has routinely failed to meet the current goal of 23%. In fact, in 2012, the federal government fell short of its goal by a whopping $3 billion. Prior to that, the last time the government met its goal was 2005.

In response to these criticisms, proponents of GOSBA argue that recent legislative changes affecting small business programs, such as those authorized by the 2013 and 2014 National Defense Authorization Acts, have made it easier for the government to attain more aggressive small business contracting goals. There is some support for this argument and it came in 2013. Last year, the federal government awarded $83.2 billion in contracts to small businesses, which translates to 23.4% of all contracts issued.

The second bill introduced by Rep. Graves is known as the Contract Data and Bundling Accountability Act (“CDBAA”). This bill would update the way data is reported on bundled or consolidated contracts, by requiring the SBA and GAO to oversee agencies’ data collection and reporting. The CDBAA is a direct result of an October 2013 hearing held before the Small Business Subcommittee on Contracting and Workforce. Following that hearing, it was concluded that government agencies have routinely failed to conduct required analyses, or submit necessary data, concerning contract bundling; consequently, Congress has been unable to properly assess the impact that contract bundling has had on small companies. This is corroborated by recent GAO reports.

If passed, the CDBAA would require the SBA to work with other agencies to create and implement a data quality improvement plan aimed at promoting greater accuracy, transparency and accountability in the reporting of contract bundling and consolidation. It would further require the GAO to assess an agency’s success and offer suggestions for further improvement. The CDBAA would also impose certain consequences (unspecified in the bill) on any agency that failed to “properly identify contracts as bundled or consolidated.”

Rep. Graves expressed his hope for the new bills, stating that “[t]hese two pieces of legislation will go a long way towards increasing opportunities for small companies who want to grow and create jobs by doing business with the federal government . . . By increasing the federal-wide goal for contracts to small businesses, and requiring greater accuracy, transparency and accountability in contract bundling and consolidation, we make it easier for small businesses to enter this marketplace and compete for contracts. The federal government spends nearly half a trillion dollars on contracted goods and services, therefore, we must ensure that the money is being spent efficiently, and small businesses have proven that they can do quality work cheaper and often faster.”

The tug-of-war between big and small business on the federal landscape continues. One thing to keep in mind as these bills work their way through committee is the status of the federal workforce. There was an article in Government Executive a few days ago entitled, “Federal Agencies Shed 10,000 Jobs in March.” The article identified the fact that the federal workforce “has trended downward significantly in the last two years” due to sequestration and budget cuts, which were followed by hiring freezes and employee reductions through attrition. According the article, the government has shed about 85,000 jobs in the last year alone. This depletion of government personnel most certainly has had, and will continue to have, an impact on the procurement process. Contract bundling can alleviate stress on a taxed procurement system. However, it can adversely impact small business. Finding the correct balance will not be easy. Let us know your thoughts finding that balance.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.

SBA's Mentor-Protege Program - Are Changes on the Horizon?

Posted in Small Business Contracting

I have been inundated with questions about the SBA’s Mentor-Protege Program over the last six to eight months. That interest is being driven by what Congress included in the National Defense Authorization Act of 2013. After failing to implement changes to the Mentor-Protege Program following the passage of the Small Business Jobs Act of 2010, the SBA was given another push in 2013. As part of the NDAA of 2013, Congress authorized the SBA to expand its Mentor-Protege Program to include companies other than those that are 8(a) certified. I understand that the SBA is actively working on regulations to make this happen and may publish something later this year. For those interested in how the program is currently constituted and what changes may be in the works, please feel free to listen to the webinar that I gave to the Associated General Contractors of America a few months ago. If you have any questions, please feel free to call me.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group.

New OFCCP Affirmative Action Regulations Governing Hiring of Veterans and Disabled Individuals Go Into Effect

Posted in Protection of Contractor Rights

Federal contractors and subcontractors will soon be subject to new regulations, which increase those contractors’ obligations to hire both veterans and individuals with disabilities (“IWDs”). On March 24, 2014, two final rules promulgated by the U.S. Department of Labor’s Office of Federal Contract Compliance Program (“OFCCP”) will go into effect. The veterans rule updates the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (“VEVRAA”), as amended by the Jobs for Veterans Act of 2002; the IWDs rule implements the nondiscrimination and affirmative action regulations of Section 503 of the Rehabilitation Act of 1973 (“Section 503″), which prohibits discrimination by covered federal contractors and subcontractors against individuals on the basis of disability, and requires affirmative action on behalf of qualified IWDs.

Vethireme.jpg The cornerstone of both rules is an adjustment to federal contractors’ and subcontractors’ affirmative action program requirements. As many contractors know, any contractor that meets the dollar threshold ($100,000 for VEVRAA and $50,000 for Section 503) and has 50 or more employees (“Covered Contractors”) is required to have an affirmative action plan (“AAP”). Pursuant to these new rules, Covered Contractors must now include in their AAPs a “hiring benchmark” for veterans and a “utilization goal” for IWDs. In other words, contractors must now set goals with respect to the number of veterans, and IWDs, they plan to hire for federal projects.

The veterans rule directs federal contractors to set this “hiring benchmark” in one of two ways. First, contractors can chose to set a hiring benchmark equal to the national percentage of veterans in the civilian labor force (currently, 8%). The OFCCP publishes this information, and updates it annually. Alternatively, a contractor may set a hiring benchmark by analyzing a combination of national, state and local data, including:

  • The average percentage of veterans in the civilian labor force in the state(s) where the contractor is located over the preceding three years, as calculated by the Bureau of Labor Statistics and published on the OFCCP website;
  • The number of veterans, over the previous four quarters, who were participants in the employment service delivery system in the state where the contractor is located, as tabulated by the Veterans’ Employment and Training Service and published on the OFCCP website;
  • The applicant ratio and hiring ratio for the previous year, based on the data collected by the contractor for its affirmative action plan data analyses;
  • The contractor’s recent assessments of the effectiveness of its external outreach and recruitment efforts; and
  • Other factors, including, but not limited to, the nature of the contractor’s job openings and/or its location, which would tend to affect the availability of qualified protected veterans.

While the second method is more complex, it could yield a significantly lower “benchmark” if the contractor is located in a low-veteran area. Contractors will have to determine which “benchmark” derivation system is best for them. Regardless of how it is derived, the hiring benchmark will be calculated using the percentage of veterans among the employer’s hires, as opposed to current workforce. The benchmark can be applied to affirmative action job groups, EEO-1 categories, or the overall workforce, at the contractor’s election.

The IWDs rule requires contractors to set goals relating to the hiring of IWDs. Here, however, the OFCCP has not left the determination of that benchmark up to the individual contractor, but, rather, has set a blanket 7% “utilization goal” for the employment of qualified IWDs for each of the job groups established in the contractor’s AAP. Utilization is to be measured by job group, with the same seven-percent goal applying for each job group without regard to any data regarding the availability of individuals with disabilities who are qualified for the relevant jobs in the relevant geographic area. Unlike the “hiring benchmarks” required by the veterans rule, the IWDs rule’s “utilization goal” relates to the contractor’s entire workforce, not just new hires.

Other notable effects of these new rules include: periodic reviews of personnel policies and physical/mental job qualifications; the obligation to offer job applicants the opportunity to self-identify as a veteran or IWD; additional internal and external affirmative action policy dissemination requirements; new responsibilities relating to training employees involved in the hiring and disciplinary process; added requirements concerning specific subcontract language relating to federal contractors’ affirmative action responsibilities; and increased obligations concerning the collection and analysis of data relating to the hiring, and employment of, veterans and IWDs. If you have specific questions relating to the obligations imposed by these new rules, contact a legal professional.

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.

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

2014 NDAA Reform Will Allow Primes to Count Lower Tier Subcontractors Toward Small Business Subcontracting Goals

Posted in Small Business Contracting

A little over a week ago I had the privilege of speaking at the Associated General Contractors of America’s national convention in Las Vegas. I was asked by the Director of the Heavy Highway and Federal Division to address a number of “hot topics” in the world of federal contracting. Over the next several weeks, I will share these “hot topics” with you. The first involves the National Defense Authorization Act of 2014 (“NDAA of 2014″).

timeforaction.jpgOn December 19, 2013, the Senate passed the NDAA of 2014, which included several important reforms that affect the SBA’s small business programs. One of the most important changes was the amendment of Section 8(d) of the Small Business Act (15 U.S.C. § 637(d)) (“Section 8(d)”). This amendment will eventually allow prime contractors to count lower-tier small business contractors towards their small business goals where subcontracting plans are required.

Under Section 8(d) of the Small Business Act, there are times when prime contractors must establish “subcontracting plans” consistent with the SBA’s goal of providing “small business concerns, small business concerns owned and controlled by veterans, small business concerns owned and controlled by service-disabled veterans, qualified HUBZone small business concerns, small business concerns owned and controlled by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women . . . the maximum practicable opportunity to participate in the performance of contracts let by any Federal agency.” The “subcontracting plan” must include “percentage goals for the utilization as subcontractors of small business concerns, small business concerns owned and controlled by veterans, small business concerns owned and controlled by service-disabled veterans, qualified HUBZone small business concerns, small business concerns owned and controlled by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women.” Under the current version of Section 8(d), these “percentage goals” can be reached by counting first-tier subcontractors only. Section 1614 of the NDAA of 2014 changes this.

Under the new law, for purposes of determining whether or not a federal prime contractor has attained the percentage goals set forth in a “subcontracting plan,” one must consider the following:

“(i) if the subcontracting goals pertain only to a single contract with the executive agency, the prime contractor shall receive credit for small business concerns performing as first tier subcontractors or subcontractors at any tier pursuant to the subcontracting plans required under paragraph (6)(D) in an amount equal to the dollar value of work awarded to such small business concerns; and

(ii) if the subcontracting goals pertain to more than one contract with one or more executive agencies, or to one contract with more than one executive agency, the prime contractor may only count first tier subcontractors that are small business concerns.”

Based upon the new law, contractors will be able to count not only their first-tier subcontractors, but any tier subcontractor, toward their total small business percentage goals to determine compliance with most “subcontracting plans.” Prime contractors will still need to make a good faith effort to issue subcontracts to small, and small disadvantaged, businesses at the first-tier level. However, the change in the law will make compliance much easier.

This reform will not go into effect until the fiscal year after the SBA issues final regulations to implement the law, so it will be a while before we see any real change, but change is coming. 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. Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.

Building a Compliant WOSB/EDWOSB Webinar

Posted in Small Business Contracting

On February 18, 2014, I hosted a webinar for Women Impacting Public Policy (“WIPP”) and Give Me 5 (“GM5″) entitled “Building a Compliant WOSB/EDWOSB.” It dealt with avoiding and defending against protests and eligibility examinations relating to size, ownership and control. You can watch and listen to my hour- long presentation here.

Please visit the GM5 website for information about my additional upcoming WOSB/EDWOSB webinars. Topics will include Teaming and Joint Venturing, Recent Updates to the Small Business Programs, and more.

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