WelcomeOnviaLegalLandscape to the fourth edition of Legal Landscape, a series we have developed with Onvia’s blog to provide government contractors with a quick, but thorough, summary of important legal developments and regulations in government contracting, as well as a plain-English explanation of how those developments may affect contractors at all levels of government. Contractors should keep in mind that state and local agencies often look to changes in federal regulations as a guide for future changes at their respective levels. Changes recently made in the federal arena are likely to trickle down to state and local governments. Continue Reading Legal Landscape: SBA Expands the WOSB/EDWOSB Contract Program, Importance of the Economic Loss Rule and Self-Reporting Requirement Changes

On March 3, 2016, the SBA announced that it has expanded the list of industries in which a contract can be set-aside for women-owned small businesses (“WOSB”) or economically disadvantaged women-owned small businesses (“EDWOSB”). This expansion was mandated last year by section 825 of the National Defense Authorization Act for Fiscal Year 2015 (“NDAA”), which required numerous changes be made to the SBA’s WOSB/EDWOSB contracting program.

Continue Reading In a Major Win for Women Owned Businesses, SBA Expands WOSB/EDWOSB-Eligible Industry List

You probably already know about set-aside programs offered by the Small Business Administration (SBA) and the Department of Veterans Affairs (VA), but did you know that provisions in your corporate governance documents could ruin your eligibility for those programs? Ed DeLisle and Maria Panichelli’s new article for Onvia covers critical corporate governance provisions that could potentially destroy your status under the VA’s new guidelines. “Three Provision Pitfalls in Small Business Corporate Governance Documents” contains critical information and the most problematic governance provisions for Service-Disabled, Veteran-Owned and Veteran-Owned Small Businesses (SDVOSB/ VOSB) including definitional clauses or clauses dealing with authority, supermajority provisions and involuntary transfer provisions as well as limitations on transfer provisions. Learn more in the full article below:

The federal government offers a multitude of programs designed to assist small businesses. The Small Business Administration (SBA) is certainly at the forefront of such programs, but it is not the only agency. The Department of Veterans’ Affairs’ (VA) has created a very popular program of its own for Service-Disabled, Veteran-Owned and Veteran-Owned Small Businesses (SDVOSB/ VOSB). Many contractors generally know about the benefits of participating in these programs. Some may even know about the applicable eligibility requirements. But what many contractors don’t know is that provisions in their corporate governance documents could destroy their eligibility for such programs. This article seeks to educate contractors about the three most common provisions affecting small business program eligibility.

The federal government’s Small Business Programs – the SBA’s 8(a)HUBZone,
VOSB/SDVOSB and WOSB/EDWOSB Programs, as well as the VA’s VOSB/SDVOSB Program – share certain eligibility requirements. Specifically, in addition to the threshold requirement of being a “small” business, each program requires at least 51% “unconditional ownership,” as well as “unconditional control,” of that business by particular individuals. For example, a veteran or service-disabled veteran has to unconditionally own at least 51% of a company and unconditionally control that company in order for that company to be considered a VOSB or SDVOSB, respectively. Similarly, a woman or an economically disadvantaged woman needs to unconditionally own and control a business if that business wishes to be considered an eligible WOSB or EDWOSB.

Figuring out who must have ownership and control of the concern is the easy part: Definition sections of the applicable regulations are found here: 13 C.F.R. §§§ 124.01124.03 and 124.04  for 8(a) businesses; 13 C.F.R. § 126.200 for HUBZone concerns; 13 C.F.R. Part 125  for the SBA VOSB/SDVOSB program; 38 C.F.R. § 74.2 for the VA VOSB/SDVOSB program; and 13 C.F.R. §§ 127.102 and 127.200 for the WOSB/EDWOSB program. The difficult part is figuring out how the definitions are defined: How must these individuals own and control the company? The regulations tell us that ownership and control must be unconditional. But what does unconditional really mean? Said a different way, under what circumstances do these agencies consider ownership or control to be conditional? That is where trouble often lurks. Many times, a finding of conditional ownership or control is based on a provision or requirement found in a company’s operating agreement, shareholder’s agreement or by-laws. Several of the most problematic provisions are discussed below.

1) Definitional Clauses or Clauses Dealing with Authority

Corporate governance documents almost always contain a provision outlining who the members or owners are, or defining who will manage the entity. While these provisions are not problematic per se, they can cause issues when roles are not clearly defined or authority appears to be shared.

Example
The powers of the Company shall be exercised by or under the authority of, and the business and affairs of the Company shall be managed under the direction of, one or more managers. The Manager(s) shall be: Jane Doe, John Doe and Yogi Berra.

The problem with this clause is that it gives the impression that all three of these individuals have equal decision-making authority. What if Mr. Berra is the majority owner, and the service-disabled veteran upon whom the company’s SDVOSB eligibility depends? This provision, as written, would seem to indicate that he does not have ultimate authority over the company but, rather, shares control with the other two managers. Even if the corporate governance document otherwise demonstrates that Yogi is the 66% owner, or specifies that no decision can be made by the company without Yogi’s approval, the SBA and VA could very well question whether unconditional control exists based upon this clause. For that reason, it often makes more sense to name only the majority owner(s), upon whom eligibility depends, as managers or managing members. The remaining individuals can be given other titles.

2) Supermajority Provisions

As the name indicates, supermajority provisions are provisions that require an ownership vote of more than a simple majority to effectuate material change.

Example
Removal of Members: Members may be removed from the LLC by an affirmative vote of more the 66% of the LLC members.

The problem with these types of provisions is that they can divest a majority owner of his or her power to unconditionally control the company. Consider the following example: Bob, a service disabled veteran, owns 51% of Bob’s Electric Company, LLC and has applied for SDVOSB verification through the VA. The operating agreement contains a supermajority provision which requires at least a 2/3 vote to remove a member. Because Bob owns only 51%, he cannot, without the consent of other members, effectuate this change. In other words, Bob does not have unfettered authority to remove another member on his own. Therefore, in the eyes of the VA, Bob does not unconditionally control his company and Bob’s Electric is not a legitimate SDVOSB. For this reason, supermajority provisions should be avoided if a business wishes to participate in the Small Business Programs. The sole exception is if the majority owner owns more than is required under the supermajority provision (using the example above, this would mean Bob owned 67% or more) and therefore, could effectuate change without the consent of the minority owners.

3) Involuntary Transfer Provisions and Limitations on Transfer Provisions

Involuntary transfer provisions encompass an array of provisions, each of which operates to divest an owner of his or her ownership interest without consent. Common examples include a transfer upon insolvency or bankruptcy, a transfer upon criminal conviction or a transfer upon incapacity or death.

Example
Transfer Upon Insolvency:
 Upon the insolvency of any member, that member must transfer his or her shares to the other member at a price determined by [document pricing provisions].

Similarly, limitations on transfer provisions prevent a member or shareholder from freely transferring his or her ownership interest. Some examples include provisions that provide for a right of first refusal (i.e., a requirement that the selling or transferring member/shareholder must offer to sell his or her interests to other members/shareholders before any other individual or entity) or provisions that require consent of other members before a sale of ownership interest can be made.

Example
Restrictions on Transfer:
 No Member shall sell, assign, pledge, give or otherwise transfer or encumber in any manner or by any means whatsoever, any interest in a Membership Interest whether now owned or hereafter acquired without having obtained the prior written consent of all of the members of the Company.

The SBA and VA commonly view provisions like this as placing “conditions” on ownership. In the agencies’ view, if an owner can be divested of its ownership without his or her consent, or if an owner does not have unfettered freedom to sell his or her ownership interest, that owner does unconditionally own the company. That said, in a 2013 case litigated by our firm, the Court of Federal Claims ruled that in certain cases, rights of first refusal are permissible, and do not render an owner’s control as conditional. However, it is important to keep in mind that the COFC’s decision in that case addressed VA regulations that pertain to SDVOSBs under that program only. It is not entirely clear if the SBA’s similarly-worded regulations would be interpreted in the same way. For this reason, and just to be safe, it is probably a better idea to exclude these types of provisions altogether.

Conclusion

The provisions identified here are not the only provisions that can cause eligibility issues — but contractors who learn to avoid these three common pitfalls will be way ahead of the game! Of course, the advice in this article represents general guidelines only and each company must assess for itself how best to draft its corporate governance documents. Drafting an operating agreement, shareholders agreement or by-laws that simultaneously address all of the company’s needs, balance the interests of the various owners, and comply with all relevant SBA and VA regulations can be a daunting task. If contractors have any questions about how to draft the best corporate governance documents for their company, the best course of action is to contact a legal professional to assist.

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.

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.

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.

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.

On February 11, 2014, I hosted a webinar entitled “The Perks, Procedures, and Pitfalls Relating to WOSB Certification” for Women Impacting Public Policy (“WIPP”) and Give Me 5 (“GM5”). You can watch and listen to the hour- long presentation here.

Please visit the GM5 website for information about my additional upcoming WOSB/EDWOSB webinars. Topics will include how to deal with Protests and Eligibility Examinations, 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.

 

 

 

 

 

We’ve all heard about the “glass ceiling” experienced by women in the workplace. The term “glass ceiling” first appeared in an article published by the Wall Street Journal in 1986 and was used to describe the invisible barriers that women faced as they tried to climb the corporate ladder. While things seem to be better today than they once were, I think many would agree that barriers (in some cases substantial barriers) still exist. Certainly, the Small Business Administration agrees.

In October of 2010, after many years of delay, the SBA issued a Final Rule allowing for the implementation of its Women-Owned Small Business Program. The program was gradually introduced and, as originally constituted, was stricken with statutory caps that inhibited its intended effect. Ironically enough, for both Women-Owned Small Businesses (WOSBs) and Economically Disadvantaged Women-Owned Small Businesses (EDWOSBs) set-aside contracts were subject to “ceilings.” For manufacturing contracts, the ceiling was $6.5 million; for any other contract the ceiling was $4 million. Thanks to the National Defense Authorization Act of 2013, however, these ceilings are about to disappear.

On Tuesday, May 7, 2013, in accordance with directives set forth in the NDAA, the SBA issued an Interim Final Rule, removing the statutory cap on WOSB and EDWOSB set-aside contracts. As a result of this change, government agencies will now be able to set-aside contracts for WOSBs and EDWOSBs at any dollar level, providing WOSBs and EDWOSBs with access to much larger federal contracts. Hopefully, this change will also allow the federal government to better meet its statutory contracting goals for women-owned small businesses, which have been consistently missed.

Either way, the shattering of the WOSB “ceilings” promises to greatly increase the number of large-dollar WOSB and EDWOSB set-aside contracts. If you are a WOSB or EDWOSB, you will want to make sure that you are properly registered as soon as possible so that you can take advantage of these opportunities. We’ve posted the requirements in previous articles. For additional information on the SBA’s Women-Owned Small Business Program go to www.sba.gov/wosb.

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.

We recently posted an article discussing changes to the limitations on subcontracting rules for small business federal contractors.  The changes were marshaled in by Congress as part of the 2013 National Defense Authorization Act (“NDAA” or “the Act”), which actually includes a number of other changes affecting small business contractors.  Several of those changes are designed to assist women-owned small businesses (“WOSB”) and economically disadvantaged women-owned small businesses (“EDWOSB”) in securing more federal work.

The current Woman-Owned Federal Contract Program, which became effective on February 4, 2011 after being mired in political red tape for years, allows contracting officers to set aside contracts for certified WOSBs and EDWOSBs (see our previous blog post concerning how to get certified).  By statute, the federal government must attempt to steer five percent (5%) of all federal contracting dollars to WOSBs and EDWOSBs.  Under the current law, however, reaching this goal has been elusive.  This is, in part, due to the caps in place that govern set-aside contracts for women-owned businesses.  Manufacturing contracts in excess of $6.5 million, and any other contract exceeding $4 million, cannot be set-aside for WOSBs or EDWOSBs.  The NDAA removes this ceiling, allowing women-owned businesses greater access to federal contracts, and, hopefully, enabling the government to actually reach its 5% goal.

The NDAA also includes a provision requiring the SBA to further study and identify those industries in which WOSB and EDWOSBs are “underrepresented.”  Currently, eighty-three (83) NAICS codes have been recognized as those where women have been historically underrepresented.  Contracting officers are permitted to set aside contracts in industries falling within those classification codes, as long as that contract can be awarded at a fair and reasonable price, and the contracting officer has a reasonable expectation that two or more WOSB or EDWOSBs will bid or submit offers.  The identification of additional industries should result in more contracts being set aside for women-owned concerns.

SBA Administrator Karen Mills, who will be stepping down very soon, described the potential benefits of these changes, explaining that women currently own approximately thirty percent (30%) of all small businesses, making women one of the fastest-growing sectors of business owners in the country.  As such, Mills said, “opening the door for women to compete for more federal contracts is a win-win.”  If you are a woman-owned, small business contractor and want these new changes to result in a “win” for you, check your eligibility, and get registered as soon as possible!

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.

By: Edward T. DeLisle & Maria L. Panichelli

Last year, after over a decade of discussion, the Small Business Administration (SBA) finally implemented a federal contracting program specifically designed to assist small businesses owned by women. This program authorizes contracting officers to set aside federal contracts for eligible WOSBs (woman-owned small businesses) and EDWOSBs (economically disadvantaged women-owned small businesses). As we previously discussed, this program became officially effective on February 4, 2011 and was scheduled for gradual implementation over a period of months. It was expected to assist federal agencies in achieving the previously existing statutory procurement goal of awarding five percent (5%) of federal contracting dollars to WOSBs.

A year after going into affect, it is clear that the program is off to a slow start. Only about 10,000 WOSBs have been self-certified via the WOSB Program Repository, though there are certainly many more businesses out there that meet the eligibility criteria. If you are one of those businesses, you could be missing out on huge opportunities. As such, it is important for you to determine whether you meet the eligibility criteria for participation in the program.

What are those criteria, you ask? As a threshold matter, the business must be considered “small” in its primary industry in accordance with SBA’s size standards for that industry. In addition, to be considered an eligible WOSB or EDWOSB, a firm must be at least 51% owned and controlled by one or more women, or economically disadvantaged women. 13 C.F.R. 127.200. “Ownership” must be direct; it cannot be through an affiliate or association with others. 13 C.F.R. 127.201. The SBA defines "control" as a situation where the business owner has long-term decision-making and the day-to-day, full-time management and administration responsibilities for business operations. 13 C.F.R. 127.202.

In order to avoid abuse of the program by companies not truly owned and controlled by women, the SBA has enacted additional safeguards. Specifically, the woman owners must have managerial experience of the extent and complexity needed to run the company. The woman manager need not have the technical expertise or possess a required license (if applicable), if she can demonstrate that she has ultimate managerial and supervisory control over those who possess the required licenses or technical expertise. However, the SBA has stated that if a man possesses the required license and has an equity interest in the firm, he may be found to control the concern. 13 C.F.R. 127.202.

For those businesses that meet the requirements above, the WOSB and EDWOSB programs offer huge advantages. Five percent of all federal spending is the procurement goal for WOSB/EDWOSBs, and there is also a five percent subcontracting goal to WOSBs. With only about 10,000 businesses out there registered to compete, your chances of securing a government contract are vastly improved if you and eligible and participate in the program. In addition, there is no term limit to the WOSB and EDWOSB programs, and mentor-protégé programs are available.

In short, if you meet the program requirements, you should get registered for participation in the program as soon as possible. In the alternative, if you are thinking of starting a business that might be eligible, don’t wait! The SBA has not set forth a minimum amount of time the firm must be in business; therefore, a woman may establish a business, meet the requirements, self-certify, and win a government contract under this program in a short period of time.

Once you have determined that your business is eligible, registration in the program is rather easy. First, in preparation for registration/certification, businesses should become familiar with the WOSB Program’s Compliance Guide. The next step is to register the business in the Central Contracting Registry (CCR) or in the System for Award Management (SAM) (the government’s new registration system previously discussed here), once it is implemented. Then, log onto the SBA’s General Login System (GLS), and access the WOSB Program repository. Upload/categorize all required documents (a complete list of required documents can be found in the WOSB Program’s Compliance Guide). Then, complete the applicable certification form(s) available on the SBA website and register the business’s status as either a WOSB or EDWOSB, through either the Online Representations and Certifications Application (ORCA), or SAM. Lastly, get out there and start bidding!

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.