Federal Construction Contracting Blog : Federal Construction Contracting Law Firm : Cohen Seglias Pallas Greenhall & Furman PC : Construction Law, Dredging and Claims

By: Edward T. DeLisle

On August 13th, the Court of Federal Claims temporarily ended a controversy regarding how agencies go about setting aside contracts for certain qualified small businesses. DGR Associates, Inc. v. United States involved a decision by the Air Force to issue a set aside contract for qualified 8(a) companies. The project involved housing maintenance, inspection services and repairs at Eielson Air Force Base in Alaska. The solicitation was challenged by a HUBZone contractor who claimed that the Air Force violated the Small Business Act by failing to give priority to HUBZone contractors. Specifically, the protesting contractor claimed that when the HUBZone program was established in 1997, the legislation required agencies to consider setting aside contracts for HUBZone contractors prior to considering any other small and/or disadvantaged companies for such contracts.

The enabling statute for the HUBZone program states the following:

Notwithstanding any other provision of law ... a contract opportunity shall be awarded pursuant to this section on the basis of competition restricted to qualified HUBZone small business concerns if the contracting officer has a reasonable expectation that not less than 2 qualified HUBZone small business concerns will submit offers and that the award can be made at a fair market price.

Given this language, the protesting contractor took the position that Congress intended to give priority to HUBZones over other small and small, disadvantaged businesses, where government agencies make the decision to issue set aside contracts. The GAO agreed. In May of 2010, the GAO issued a recommendation to the Air Force that it follow clear Congressional authority and set aside the solicitation for HUBZone contractors, if further research suggested that two or more HUBZone contractors could perform the work at a reasonable price.  The Air Force refused to follow this recommendation, taking the position that Congress did not intend such a result. The protesting contractor then took action in the Court of Federal Claims.

Considering the same arguments made before the GAO, the Court of Federal Claims agreed with the conclusion reached in that forum. In rendering its decision, the Court stated as follows:

On the issue of statutory interpretation, the language of the Small Business Act granting priority to the HUBZone program could not be more clear. By using the phrases "notwithstanding any other provision of law ... a contract opportunity shall be awarded on the basis of competition to qualified HUBZone small business concerns," Congress established a priority for the HUBZone program over other competing small business programs.

The Court went on to state that "Congress must alone enact an appropriate amendment" if its intent was something other than to provide priority to HUBZones.

Based upon this decision, until such time as Congress acts, if a contracting officer is prepared to set aside a contract, he or she must determine whether two or more HUBZone contractors can perform the work for a fair price. If the answer to that query is "yes", then the contract must be set aside for HUBZone contractors to the detriment of other small and small, disadvantaged businesses. While one can reasonably expect Congress to take action at some point in the near future, in the short term this could mean more opportunities for HUBZone contractors.

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

• Email This
• Print
• Comments
• Trackbacks
• Share Link

By: Edward T. DeLisle & Lori Wisniewski Azzara

On March 4, 2010, the Small Business Administration released a proposed rule that, if adopted, would significantly expand federal contracting opportunities for eligible women-owned small businesses (“WOSB”). The SBA conducted a study that identified 83 industries, based upon the NAICS code, in which WOSBs are either “underrepresented” or “substantially underrepresented.” Those industries include construction and design-related services, among others. The proposed rule allows for contracting officers to restrict competition to eligible WOSBs, thereby ensuring that they have an equal opportunity to participate in federal contracting opportunities. The proposed rule specifically authorizes the restriction of competition to WOSBs where the anticipated award does not exceed $5 million for manufacturing contracts and $3 million for all other contracts.

“Women-owned small businesses are one of the fastest growing segments of our economy, yet they continue to be under-represented when it comes to federal contracting,” said SBA Administrator Karen Mills. “Across the country, women are leading strong, innovative companies, and we know that securing federal contracts can be the opportunity that helps them take their business to the next level, expand their volume and create good-paying jobs. This proposed rule is a step forward in helping ensure greater access for women-owned small businesses in the federal marketplace.”

To be an eligible WOSB, a business must be 51% owned and controlled, as well as primarily managed, by one or more women. The business must also be “small” in its primary industry, consistent with the SBA’s size standards for that industry. A WOSB can be deemed “economically disadvantaged” as long as its women owners can demonstrate that their ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same or similar line of business. Several factors are considered when determining whether a woman is economically disadvantaged, such as her personal income, her personal net worth and the fair market value of all of her assets. The SBA does impose monetary limitations on these factors. For example, the SBA will presume that a woman is not economically disadvantaged if her adjusted gross yearly income, averaged over the two (2) years preceding certification, exceeds $200,000.00. Moreover, a woman’s personal net worth cannot exceed $750,000.00, but that amount excludes any ownership interest in the WOSB and any equity interest in her primary personal residence. Finally, a woman will not be considered economically disadvantaged if the fair market value of all of her assets, including the value of the WOSB and her primary residence, exceeds $3 million.

The SBA’s proposed rule allows WOSBs to self-certify or to be certified by third-parties, including the government and private certification groups. To prevent fraud and abuse, the SBA intends to engage in a significant number of program examinations to confirm eligibility and to vigorously pursue ineligible firms that attempt to take advantage of the program.

The comment period for the proposed rule ended on May 3, 2010. The SBA is currently reviewing and responding to the comments and will likely issue a final rule at some point in the near future.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group.  Lori Wisniewski Azzara is an Associate in the firm's Construction Group, who focuses her practice on disadvantaged business entities.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

By: Lane F. Kelman

On May 3, 2010, the SBA's definition of the term "employee" of a Historically Underutilized Business Zone ("HUBZone") was amended. The new definition establishes a more definitive but stringent reading of when a person is considered an employee for HUBZone eligibility purposes. (See the SBA's HUBZone regulations). The construction industry in particular will be impacted. The amended definition states:

Employee means all individuals employed on a full-time, part-time, or other basis, so long as that individual works a minimum of 40 hours per month. This includes employees obtained from a temporary employee agency, leasing concern, or through a union agreement or co-employed pursuant to a professional employer organization agreement. SBA will consider the totality of the circumstances, including criteria used by the IRS for Federal income tax purposes and those set forth in SBA's Size Policy Statement No. 1, in determining whether individuals are employees of a concern. Volunteers (i.e., individuals who receive deferred compensation or no compensation, including no in-kind compensation, for work performed) are not considered employees. However, if an individual has an ownership interest in and works for the HUBZone SBC a minimum of 40 hours per month, that owner is considered an employee regardless of whether or not the individual receives compensation.

13 CFR § 126.103

Among other criteria, in order to qualify as a HUBZone, at least 35% of the firm's employees must reside in a designated HUBZone. Previously, when calculating the 35% threshold, only "full-time" or "permanent" employees were considered. In many industries, such as manufacturing, the distinction between a "permanent" and "temporary" employee is clear. In other industries, such as construction, the distinction wasn't always quite as clear. As a result, construction companies did not include its temporary, project specific field labor when calculating the percentage of its employees residing in a HUBZone. Now, however, if "that individual works a minimum of 40 hours per month" then the person is considered an employee.

It is anticipated that the amendment will result in many construction companies being unable to meet the 35% threshold and therefore ineligible as a qualified HUBZone. The change also creates a new dynamic between a contractor and a trade union that supplies manpower, as the contractor, if certified as a HUBZone SBC, will want to draw from a labor pool that resides in a HUBZone. Although the proposed change was made in November of 2009, the construction industry did not provide substantive comments to the proposal.

See the SBA's HUBZone website for more details.

Lane F. Kelman is a Partner in the firm and a member of the Federal Contracting Practice Group
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

By: Edward T. DeLisle

On April 26, 2010, President Obama issued an executive order to study the way in which the government provides assistance to veteran-owned and service-disabled, veteran-owned businesses. This executive order could not have come at a better time. It appears that the government has a two-fold problem: achieving federally mandated goals for veteran-owned and service-disabled companies and eliminating fraud in its small business programs, generally. 

On April 30, 2010, the Government Accountability Office issued a report to the House of Representatives, Small Business Committee concluding that fraud continues to run rampant in the government's small business programs. In an investigation conducted between October of 2008 and January of 2010, the GAO identified fourteen (14) companies that falsely held themselves out as 8(a) eligible and secured work through the government's set-aside programs.  The work obtained by their companies totaled $325 million. This report was issued less than six (6) months after the GAO issued a similar report that focused on fraud relating to contracts set-aside for veterans and service-disabled veterans.

As revealed by the GAO reports, fraud in the federal small business programs is wide-spread and, undoubtedly, has been exacerbated by the economic slowdown. The once robust private sector has run dry. As a result, more and more contractors have become interested in entering the federal marketplace. That has resulted in many more contractors bidding on federal work. This increased competition has generated much interest in small business set-asides, where the field is not nearly as crowded. Unfortunately, not all contractors have entered the small business world consistent with the Federal Acquisition Regulations or the Small Business Administration's regulatory framework.

If fraud was not enough, legitimate small businesses, including veteran-owned and service-disabled, veteran-owned firms, are also being hurt by the failure of the government to hit its contracting goals. As reported by BradentonHerald.com, the Department of Defense represents but one prominent government agency that has fallen short. In recent testimony before the House of Representatives, Veterans' Affairs Subcommittee on Economic Opportunity, a representative of the American Legion cited statistics indicating that less than one percent of DoD's contracts were awarded to service-disabled, veteran-owned companies last year, far less than the Congressionally-mandated three percent goal. While such numbers sound insignificant, they account for billions of dollars government-wide.

President Obama's executive order is aimed at addressing at least some of these issues. The executive order requires the Administrator of the SBA to serve as the chairperson of a government-wide task force designed to do the following, among other things:

* Ensure achievement of the pre-established federal contracting goals for small business concerns owned and controlled by veterans and service-disabled veterans through expanded mentor-protégé assistance and matching small business concerns with contracting opportunities; and
* Increasing the integrity of certifications of status as a small business concern owned and controlled by a veteran or service-disabled veteran.

The task force must issue a formal report to President Obama within one year. After back to back GAO reports depicting systemic problems in the government's small business programs, one can only hope that this administration says "Yes We Can" to small business reform. Lip service to reform is no longer an option. 

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

• Email This
• Print
• Comments
• Trackbacks
• Share Link

A Final Rule governing Service Disabled Veteran-Owned small Business Concerns (“SDVOSB”) was published in the Federal Register on February 8, 2010. This law requires the Department of Veterans Affairs (“VA”) to verify ownership and control of veteran-owned small businesses, including service-disabled veteran-owned small businesses. The final rule also defines the eligibility requirements for businesses to obtain “verified'' status, explains examination procedures, and establishes records retention and review processes.

As reported by Jason Miller, the Executive Director of Federal News Radio in an article published in the SDVOSB Blog, Veteran-Owned and Service Disabled Veteran-Owned Small Businesses must have only one business in the federal contract set-aside program and work in that business full time. The article, entitled “VA Sets Rules for Set-Aside Program,” also emphasizes that “The net effect of this change is that a company that is closely held by veterans would qualify regardless of the size of the employee stock ownership program,” and “Alternatively, a firm that is not closely held by veterans will find it much more difficult to qualify for the Verification Program.”

Veteran-Owned and Service Disabled Veteran-Owned Small Businesses must re-certify annually to the VA that they meet the requirements to obtain set-aside contracts from agencies. The rule comes after the Government Accountability Office told the House Veterans Affairs Committee in December that the service-disabled veteran-owned business program is vulnerable to fraud and abuse. Anyone who seeks to use the services of a disabled veteran, or of an existing SDVOSB, to circumvent the letter and spirit of this program would be well advised to recognize that SDVOSB concerns are under close scrutiny because of the reported abuses.

Michael Payne is a Partner and is the Chairman of the firm's Federal Practice Group.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

By: Michael H. Payne and Edward T. DeLisle

In order to qualify as a Historically Underutilized Business Zone (“HUBZone”) contractor, a firm must be a “small business” based on the size standards provided by the North American Industry Classification System (NAICS); the firm must be at least 51% owned and controlled by citizens of the United States; the firm's principal office (where the greatest number of employees perform their work, excluding contract sites) must be located in a designated HUBZone; and at least 35% of the firm's total workforce must reside in a designated HUBZone. In construction, a company does not need to include its temporary, project specific, field labor force among the 35% of its employees who must reside in a HUBZone.   (See the SBA's HUBZone regulations).

The program encourages small businesses to locate in and hire employees from economically disadvantaged areas. Small firms participating in the program can receive competitive advantages in winning federal contracts. The government generally expects approximately three percent (3%) of all federal contracting dollars to be awarded to HUBZone firms annually. As reported by the HUBZONE Contractors National Council, as of January 8, 2010, there were 9,255 HUBZone-certified small business concerns specializing in the following major industries:

• Construction - 2,984 firms (32% of total)
• Services - 4,176 firms (45.1%)
• Research & Development - 879 firms (9.5%)
• Manufacturing - 1,675 firms (18.1%)
(Numbers total more than 9,255 because some firms appear in more than one industry category.)

Many HUBZone-certified firms are also certified in other set-aside programs. 12.2% of HUBZone firms are also 8(a) small businesses (minority-owned); 8.0% are Service Disabled Veteran-owned firms; and 0.9% are qualified in all three set-aside programs.

The mission of the HUBZone program, as expressed by the SBA, is “to promote job growth, capital investment, and economic development to historically underutilized business zones by providing contracting assistance to small businesses located in these economically distressed communities.” See the SBA’s HUBZone website for more details. In order to apply for HUBZone status, companies are encouraged to apply using the electronic application on the SBA website.
 

Michael H. Payne is the Chairman of the firm's Federal Practice Group. Edward T. DeLisle is a Partner in the firm and a member of the Federal Practice Group. He is a available to assist federal contractors on a whole range of small business issues including HUBZone certification, 8(a)compliance issues, Service Disabled Veteran-Owned Small Business formation, and teaming arrangements.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

By: Edward T. DeLisle

In recent testimony provided to the House of Representative’s Committee on Small Business, a disturbing fact was revealed: millions of dollars earmarked for Service-Disabled Veteran-Owned Businesses (“SDVOSBs”) have been paid to companies that do not qualify for the program. Compounding the problem is the fact that insufficient fraud-prevention programs exist to effectively combat such abuses. This was the conclusion reached by United States Government Accountability Office (the “GAO”) following a case study that included an investigation of ten (10) companies claiming SDVOSB eligibility.

In 2008 alone, $6.5 billion in federal contracts were awarded to companies that self-certified themselves as SDVOSBs. While this figure only represents 1.5% of all government contracts paid in that fiscal year, it is still a very large number. If the federal government ever attains its mandated goal of 3%, many more billions will become available to qualified SDVOSBs. Given the paucity of work in the private sector over the course of the last eighteen (18) months, many companies are attempting to tap into this potential source of revenue. As the GAO pointed out, however, a number of these companies have misrepresented their credentials, effectively taking contracts away from those that truly qualify to receive them.

The companies identified in the GAO case study received approximately $100 million in SDVOSB contracts, and over $300 million in additional 8(a), HUBZone and other non-SDVOSB contracts through the federal government. Certainly, none of these monies should have been paid to the companies in question. Notwithstanding the same, because there are no requirements to terminate contracts when a firm is deemed ineligible, in certain circumstances, companies were permitted to continue performing, despite the government’s determination that the firm did not qualify as an SDVOSB. Many more were not debarred from receiving federal contracts, even though the transgressions noted were obvious and seemingly blatant.

The GAO did note that Department of Veteran’s Affairs (the “VA”) has taken steps to address this problem by introducing an SDVOSB validation process. That process includes confirming an owner’s status as a disabled veteran, as well as his or her control over day-to-day operations. The problem, however, is that the VA’s certification and validation process is not a government-wide system. It is limited to those contracts issued directly by the VA. Because many other federal agencies issue contracts that are earmarked for SDVOSBs, there are considerable gaps in the SDVOSB program.

If your company is an SDVOSB, or if you are interested in forming a company that qualifies for participation in the program, it is very important for you to comply with applicable SBA and procurement regulations. The fierce competition for federal government contracts exposes many companies to size status protests which, if successful, can cause an SDVOSB to lose an award. Our Federal Contracting Practice Group is available to assist you with these important compliance issues.

Edward T. DeLisle is a Partner in the firm and is a member of the firm’s Federal Contract Practice Group. He is extensively involved in the representation of construction contractors on small business issues.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

A protest was filed recently in the United Stated Court of Federal Claims by our firm on behalf of a small business construction contractor challenging a solicitation issued by the Fort Worth District of the U.S. Army Corps of Engineers. The solicitation, No. W9126G-07-R-0123, is one of four similar solicitations for the construction of military projects described as Advanced Individual Training (AIT), Basic Training (BT) Barracks, and Warrior in Transition (WIT) facilities. The construction is being solicited through the use of a negotiated Indefinite Delivery/Indefinite Quantity (“IDIQ”) procurement on a Single Award Task Order (“SATOC”) basis.  Under the terms of the solicitation a single contractor will be selected to perform task orders, without competition, amounting to as much as $330 million over the next three years in an eight state area. The other three similar solicitations contain similar dollar values and apply to similarly extensive geographic areas.

The protest seeks an injunction to prevent the Corps of Engineers from proceeding with the solicitation because of our contention that it is unduly restrictive of competition; it violates the laws prohibiting “bundling” by unlawfully consolidating smaller projects that would have been suitable for small business prime contracting; and, it illegally employs supplies and services indefinite delivery contracting methods under FAR 16.5 to procure large military complexes. There has been a growing outcry from both the small and large business construction communities in recent months regarding the expanded use by the Department of Defense of Indefinite Delivery/Indefinite Quantity solicitations to procure construction, seemingly ignoring the fact that indefinite delivery contracts are typically used to acquire supplies and services on a much smaller scale. It is our opinion that Single Award Task Order Contracts and Multiple Award Task Order Contracts are illegally limiting competition and that they may not be appropriately applied to the procurement of major construction projects. 

It is also disturbing that the amount of construction work that is available for sealed bidding is declining to the point that many construction contractors are being closed out of the federal market. (See our earlier article).  The use of sealed bidding provides the greatest opportunity for competition and ultimately results in the lowest prices to the government. This was confirmed by a recent decision of the Court of Federal Claims that held that sealed bidding was the preferred method for the procurement of maintenance dredging and shore protection work.

Although we cannot predict the outcome of the pending protest, we believe that it is important for the Court to review whether there is legal and rational basis for the use of the IDIQ format to procure major construction. The Corps of Engineers has indefinitely postponed the date for receipt of proposals while this matter is under consideration.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

A recent Government Accountability Office decision, Tessa Structures, LLC, B-298835, highlights the difference between responsiveness and responsibility determinations and the obligation of an agency to refer responsibility determinations to the Small Business Administration (SBA).  The protestor, a small business, responded to a Federal Highway Administration solicitation seeking bids for bridge painting.  As part of its bid, each prospective contractor was required to state the number of days of performance, not to exceed 305 days.  The protestor, Tessa Structures, submitted the low bid and stated that it would perform in 120 days. 

The FHWA reviewed Tessa’s bid and requested that Tessa explain how it would perform in 120 days. Tessa advised the FHWA that it planned to begin at the end of August and complete before Christmas; significantly, as discussed below, Tessa did not include its assumption that it would receive notice to proceed by August 28 with its bid. The FHWA believed that Tessa’s plan to begin at the end of August was contrary to the solicitation because the agency reserved the right to issue a notice to proceed as late as October 24^th.  The FHWA rejected Tessa’s bid as non-responsive, based upon Tessa’s 120 day performance period and its assumption regarding the notice to proceed, without seeking any input from the SBA. 

The GAO determined that Tessa’s bid with a 120 day planned performance period was improperly rejected by the FHWA because the issue of performing within a set period of time was a matter of responsibility, not responsiveness.   The GAO found that because the solicitation specified only a maximum performance period, (305 days) and no minimum period, Tessa could properly bid to perform in a shorter period.  Furthermore, Tessa did not insert anything in its bid that restricted or qualified its performance in contravention of the solicitation. Of particular importance to the GAO was the fact that Tessa did not insert its assumption about the issuance of the notice to proceed in its bid, and, therefore, did not contravene the solicitation’s notice to proceed requirements. Had Tessa provided these assumptions in its bid, it most likely would have been found non-responsive.    

• Email This
• Print
• Comments
• Trackbacks
• Share Link

A recent Court of Federal Claims case, Diversified Maintenance Systems, Inc., December 4, 2006, reinforces the necessity for contracting officers to refer all protests regarding a company’s HUBZone status to the Small Business Administration (SBA). In Diversified, the agency set aside a procurement for HUBZone businesses only. All but two of the seven offerors were disqualified for various reasons. The agency awarded a contract to Cadence Contract Services and the other offeror, Diversified, immediately submitted a protest to the contracting officer, challenging the HUBZone status of the awardee. 

Diversified’s protest alleged that the awardee’s office in Utah was not located in a certified HUBZone and that Utah’s records did not list a HUBZone company by that name at that address.  The contracting officer denied the protest, stating that the awardee’s address in New York was in a HUBZone and that he had verified the HUBZone eligibility of the offeror at the New York address by checking the SBA’s website. Diversified then filed its protest with the Court of Federal Claims. After the litigation began, the government conceded to the Court that the contracting officer had failed to submit the offeror’s protest to the SBA, as required. Consequently, the government requested that the protest be submitted to the SBA. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Office of Federal Contract Compliance Programs (OFCCP) has published a Technical Assistance Guide designed to help federal government construction contractors and subcontractors comply with the federal laws and regulations that prohibit government contractors from discriminating in employment, and require that they undertake affirmative action to ensure equal employment opportunity in their workforces.  It is intended for government contractors who have construction contracts and/or subcontracts.  The obligations of government contractors and subcontractors who hold non-construction contracts differ in significant ways and are covered in a separate guide.

This Guide does not create new legal requirements or change current legal requirements. Instead, it reflects the views of OFCCP and is intended to serve as a basic resource document on OFCCP-administered laws. The legal requirements related to equal employment opportunity that apply to Federal supply and service contractors are contained in the statutes, executive orders, and regulations cited in the Guide. Every effort has been made to insure that the information contained in the Guide is accurate and up to date.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

A new regulation announced by the Small Business Administration on November 15, 2006, to be effective on June 30, 2007, requires small businesses to recertify their size when they are purchased by or merged with a larger business, or at the end of the five-year point of a contract.  The rules are intended to help small businesses obtain more federal contracts and to assure that contracts set aside for small businesses are not going to larger companies.  As reported in the Thompson West publication, the Government Contractor Online Update, “According to SBA Administrator Steven Preston, the changes “will go a long way toward ensuring that contract awards get in the hands of small business owners, federal agencies get the proper credit toward their small business contracting goals and small business contracts are fairly and accurately reported..’”

There are critics of the new policy, however, who contend that the SBA has not gone far enough to prevent larges businesses from intruding into the small business marketplace.  The American Small Business League has commented that “A new policy proposed by the Small Business Administration (SBA) and the Office of Federal Procurement Policy (OFPP) will allow the government to continue reporting awards to large companies as federal small business contracts.” (See the full article).

Pertinent parts of the new regulation are as follows:

• Email This
• Print
• Comments
• Trackbacks
• Share Link