Last month, we reported that the Government Accountability Office’s (“GAO”) statutory authority to hear bid protests on civilian task orders exceeding $10 million had expired, leading to a parade of dismissed protests and disappointed contractors left without legal recourse. As of last week, there is reason to be hopeful, as the House of Representatives and Senate agreed on legislation that promises to permanently restore the GAO’s authority to hear civilian bid protests.  Continue Reading Proposed 2017 NDAA is a Mixed Bag for Government Contractors

Change Ahead SignEarlier this week, we blogged about a final rule issued on May 31 by the Small Business Administration (“SBA”), which made several major changes to the small business regulations. This new rule implements changes mandated by the 2013 National Defense Authorization Act, (“NDAA”) and finalizes the proposed rule issued by the SBA back in December of 2014.

Continue Reading Big Changes to Limitations on Subcontracting Requirements

Business People Meeting Discussion Communication ConceptAs we blogged Wednesday, this week the Small Business Administration (“SBA”) published a lengthy final rule that implements the long-awaited small business regulation changes mandated by the National Defense Authorization Act (“NDAA”) of 2013. The rule makes a number of very important changes affecting Federal contractors.  One of the more important changes makes it easier for small businesses to form joint ventures (JVs) to compete for government procurements and removes prior, and often confusing, restrictions.

Continue Reading SBA Makes It Easier for Small Businesses To Joint Venture for Federal Contracts

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The Small Business Administration (“SBA”) has had a very busy week. First, on May 24, 2016, the agency issued “Statement of General Policy No. 3” (“the Statement”) clarifying the hotly debated inter-affiliate sales exclusion (an issue relating to the counting of annual receipts for purposes of determining size). Then, yesterday, the agency published a lengthy final rule, which implements the long-awaited small business regulation changes mandated by the National Defense Authorization Act (“NDAA”) of 2013. Collectively, the Statement and the rule make a number of very important changes affecting Federal contractors. Some of the most important changes are: Continue Reading SBA Issues Important Changes and Clarification Concerning Small Business Regulations

The SBA is on a roll!  It seems that ringing in the new year has invigorated the agency, prompting it to act on the various outstanding directives set forth in the National Defense Authorization Act for Fiscal Year 2013 (“NDAA”).

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Last Thursday, the agency issued its long-awaited proposed rule on the expansion of the Mentor-Protégé Program.  There were also proposed changes impacting the 8(a), HUBZone, and other small business programs. We gave you a sneak preview of that rule here, the day before it was issued.  In addition to those proposed mentor-protégé changes, the SBA also recently rolled out a second proposed rule ,which included various changes to the small business regulations. Over the next several weeks, we will provide you with our take on various aspects of these two proposed rules. For purposes of this article, though, we’re going to focus on the changes to the affiliation regulations set forth in the December 29, 2014 proposed rule.  These proposed changes would fundamentally alter the SBA’s analysis regarding the “ostensible subcontractor” rule, economic dependence, and “identify of interest” affiliation.

The rule proposes that a small business would be exempt from ostensible subcontractor affiliation where it subcontracts with a “similarly situated entity.”  In fact, the rule proposes a complete overhaul of contractor performance requirements set forth in 13 C.F.R § 125.6.  Rather than mandate the percentage of work a prime must perform, the revised 125.6(a) limits how much work a prime can subcontract to other contractors, a subtle but important distinction.  Subcontracts issued to “similarly situated entities” are not counted toward the subcontracting limit. For example, under the proposed rule, an 8(a) contractor performing a general construction contract cannot subcontract more than 85% of the contract work to non-8(a) entities.  Similarly, a SDVOSB prime contractor cannot subcontract more than 75% of a specialty construction contract to non-SDVOSB concerns. In these examples, the required 15% or 25% of the work would have to be performed by either the prime itself, or by the prime in combination with a “similarly situated entity” – i.e. a concern that is eligible for the same small business program as the prime.  Strangely enough, the language of the revised regulation does not require any of the work to be self-performed by the prime, so long as the requisite percentage is performed by a combination of the prime and entities that are “similarly situated.”  Consistent with this concept, the proposed revision to §125.6(b) creates an exception to ostensible subcontractor affiliation for prime contractors who subcontract in this manner.  The revised rule would ensure that a prime that subcontracts a majority of its work will not be “affiliated” with its subcontractors, so long as its subcontractors are “similarly situated.”

The second major change to affiliation is the adoption of a bright line test based on economic dependence. Pursuant to the proposed rule (to be inserted at 13 CFR 121.103(f)(2)), if a concern derives 70% or more of its revenue from another company over a fiscal year, the SBA will presume that the concern is economically dependent on that company, and, therefore, that the two businesses are affiliated.  It is not entirely clear from the language of the rule itself whether this will be considered a rebuttable presumption.  But an SBA representative who spoke about the proposed rule last week at the National 8(a) Association’s Winter Conference indicated that it would be rebuttable.

The third major affiliation change set forth in the proposed rule relates to “identity of interest” affiliation under 13 CFR 121.103(f).  In its current form, the regulation provides that:

Affiliation may arise among two or more persons with an identity of interest. Individuals or firms that have identical or substantially identical business or economic interests (such as family members, individuals or firms with common investments, or firms that are economically dependent through contractual or other relationships) may be treated as one party with such interests aggregated. Where SBA determines that such interests should be aggregated, an individual or firm may rebut that determination with evidence showing that the interests deemed to be one are in fact separate.

However, the current rule does not identify what types of family members are subject to the presumption identified in the rule.  The proposed rule would clarify this.  The revised regulation would state, in relevant part:

Firms owned or controlled by married couples, parties to a civil union, parents and children, and siblings are presumed to be affiliated with each other if they conduct business with each other, such as subcontracts or joint ventures or share or provide loans, resources, equipment, locations or employees with one another. This presumption may be overcome by showing a clear line of fracture between the concerns. Other types of familial relationships are not grounds for affiliation on family relationships.

This will certainly make it easier for contractors to tell if they are venturing into dangerous territory when doing business with a family member.

It is very important to keep in mind that these are just proposed changes.  The final rule may vary, so pay attention.  Comments to the rule are due February 27, 2015.  We will keep you posted on the status of the final rule.

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.

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

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

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

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

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

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

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.

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.

On January 3, President Obama signed into law the 2013 National Defense Authorization Act (“NDAA” or “the Act”).   The Act seeks to change a number of acquisition provisions applicable to contractors doing business with the federal government.

One important change involves the limitation on subcontracting rules relating to small businesses.  The NDAA calls for changes to those rules when it comes to supply and service contracts.  Moreover, while the NDAA does not seek to change the current limitations on small business subcontracting in the construction context, its implementing regulations will add new provisions, applicable to all government contracts, which could make it easier for all small business contractors to issue subcontracts.

Under the NDAA, a small business contractor in the service context “may not expend on subcontractors more than 50 percent of the amount paid to the concern under the contract.”  The current rule, as set forth at 13 C.F.R. § 125.6(a)(1), provided that “the [small business] concern will perform at least 50 percent of the cost of the contract incurred for personnel with its own employees.”  The key distinction is the modification of the way in which costs are calculated.  Currently, only personnel costs matter; 50% of the personnel costs must be borne by the small business prime.  Once the regulations implementing the NDAA are enacted, the rule will be modified to reflect “total cost.”  Small business contractors will have to perform 50 percent of the total cost themselves.

Supply contracts will change in a similar manner.  Currently, a small business supplier to the government  must perform at least 50 percent of the cost of manufacturing its supplies or products, not including the cost of materials.  13 C.F.R. § 125.6(a)(2).  The new rule will provide that a small business contractor cannot expend more than 50 percent of the amount paid to it by the government (less the cost of materials).

The NDAA does not alter the limitations on subcontracting already in place for general or specialty construction.  A small business prime contractor will still be required to perform at least 15 percent of the cost of the contract with its own employees (not including the costs of materials) in the context of general construction. 13 C.F.R. § 125.6(a)(3).  In the case of specialty trade contractors, a small business prime must still perform at least 25 percent of the cost of the contract with its own employees (not including the costs of materials). 13 C.F.R. § 125.6(a)(4).

Despite the above, the NDAA seeks to add an entirely new provision, applicable to all small business contracts, which may allow a small business construction contractor to exceed the regulatory subcontracting limits.  Apparently fearing that certain small contractors would be adversely affected by the new rules concerning self-performance, Congress included a provision pertaining to “similarly situated entities.”  Under this provision, a small business prime contractor may be able to satisfy its own performance requirements through subcontracting if the subcontractor is, itself, a small company.

This provision could cause big changes in the way small contractors do business.  Because the NDAA left the specific details concerning this provision to the SBA, much will depend on the specific nature of the implementing regulations, so stay tuned.  Those regulations should be in place later this year.

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.