Building a Compliant WOSB/EDWOSB Webinar

By: Maria L. Panichelli

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.

A New Rule Designed to Assist Small Business Subcontractors

By: Edward T. DeLisle & Amy Kirby

On November 25th, the DOD, GSA and NASA issued a final rule incorporating a new clause into the FAR regarding accelerated payments to small business subcontractors on Government projects. The new rule, which takes effect December 26, 2013, requires large business prime contractors receiving accelerated payments from the Government to, in turn, accelerate payments to all of their small business subcontractors. The purpose of the new clause is to ensure that small business subcontractors are paid as promptly as possible.

The clause will be inserted into all new solicitations and resulting contracts issued after the effective date, including those contracts for the acquisition of commercial items. Unfortunately, the rule does not create any new remedies, where accelerated payments must be issued and they are not. Under such circumstances, the Government can discontinue accelerated payment to the prime contractor, but nothing more.

One interesting aspect of the new rule is that large business prime contractors cannot prevent their small business subcontractors from speaking to the contracting officer about the status of payment. Subcontract Agreements often state the exact opposite. Prime contractors typically do not want their subcontractors asking the contracting officers questions of any kind, let alone questions regarding payment. While this is certainly understandable, by virtue of the new rule, large business prime contractors will not have the same legal support for their position.

There’s not a lot to sink your teeth into here. However, the fact that small business subcontractors can go right to the contracting officer about payment issues without fear of legal retribution is at least something. If you have any questions about this, or other, aspects of the new rule, please contact us. The information contained above was reported yesterday by Law360.

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

Department of Defense May Get its Own "Vets First" Program

By: Edward T. DeLisle & Maria L. Panichelli

Many of you are already familiar with the Department of Veterans Affairs’ Vets First Program. That program, created in 2006 through the enactment of the Veterans Benefits, Health Care and Information Technology Act of 2006, allows the VA to set-aside certain contracts for SDVOSB and VOSB concerns. The intent of the VA’s Vets First program is “to increase contracting opportunities for small business concerns owned and controlled by veterans with service-connected disabilities.” This goal is accomplished by favoring SDVOSB and VOSB companies over other disadvantaged groups when the VA sets aside a procurement for small business. In its first seven years, the program has resulted in tens of millions of dollars in contracts for SDVOSB and VOSB companies.

Clearly recognizing the many benefits of the VA’s program, Congress is looking to expand it. On June 14, 2013, Rep. Michael Fitzpatrick (R- Penn.) introduced, and the House unanimously passed, an amendment to the National Defense Authorization Act of 2013. If enacted, this amendment would require the Department of Defense to perform a study analyzing the potential benefits of adopting its own “Vets First” Program. The amendment directs DoD to work with the SBA and the VA for purposes of developing a report detailing “the impacts of Department of Defense contracting with [VOSBs and SDVOSBs] on veteran entrepreneurship and veteran unemployment,” among other things. First, however, the bill must gain Senate approval. SDVOSB contracting has received much attention over the last several years, so it will be interesting to see what happens in the Senate. We will keep you posted on the progress of the amendment.

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.
 

Cohen Seglias Wins Big Case for Service-Disabled Veteran-Owned Small Businesses

By: Edward T. DeLisle

For many Veterans and Service-Disabled Veterans attempting to do business with the Department of Veterans Affairs, the hope outlined in the Veterans Benefits, Health Care, and Information Technology Act of 2006 (the “Act”) has largely been elusive.  The Act called for the VA to give “priority to [] small business concern[s] owned and controlled by veterans” when soliciting work.  As the program developed, it was left to the VA to devise a system to verify companies as veteran owned small businesses (“VOSBs”) and service-disabled veteran owned small businesses (“SDVOSBs”), the latter of which were to receive first priority in contracting opportunities with the VA.  The verification system that took root in 2010 has frustrated many a veteran, as it has prevented legitimate companies from obtaining verified status and resulted in many others to lose their status.  In an important decision published last week, which we argued, the Court of Federal Claims has attempted to right the ship.

Miles Construction, LLC v. United States, No. 12-597C (2013) involved a construction contract set aside for SDVOSBs.  Our client, Miles, a verified SDVOSB, was the prospective awardee.  A competitor protested the award, raising issues of control by the minority shareholder of Miles, a non-service disabled company.  While the VA decided that the issues raised by the protestor had no merit, it nonetheless upheld the protest following an independent review of Miles’ governing documents.  According to the VA, three provisions of Miles’ operating agreement violated the VA’s verification regulations.  The most important provision involved a “right of first refusal.” That provision required the service-disabled veteran to offer the minority shareholders of Miles the right to purchase the veteran’s shares prior to any sale.  The VA took the position that such a provision denied the service-disabled veteran unconditional ownership, a prerequisite to verification.  On that basis, not only did the VA sustain the protest, eliminating Miles from competition, but it also removed Miles from its verified list of SDVOSB companies.  Miles would not be eligible for any further contracts set aside for such concerns.  Following our challenge of this decision on behalf of Miles, the court saw it differently.

The court determined that the VA’s interpretation of its own regulations was arbitrary and capricious.  While the regulations did, in fact, require “unconditional ownership” by the service-disabled veteran, that requirement did not preclude standard “right of first refusal” language.  The court concluded that such provisions fall within the ambit of “normal commercial practice” and do “not affect the veteran’s unconditional ownership.”  Further, the court found that Miles was not provided with an adequate opportunity to respond to the allegations that led to the VA sustaining the protest.  On this point, the court opined that “[a]n agency should not act without affording the entity whose award or projected award is protested with notice of an alleged defect and an opportunity to respond.”  Calling such a position lacking in “basic procedural due process,” the Court held that the VA’s decision to sustain the protest was “plainly erroneous.”

Miles is a major victory for veterans and service-disabled veterans, who have been stung by a lack of common sense and fair play at the hands of the very agency that is supposed to be there to assist them.  Many have questioned the VA’s position on “rights of first refusal,” including members of Congress.  Now, a court has ruled that such provisions in an SDVOSB’s operating agreement cannot, in and of themselves, prevent one from being verified by the VA.  The ruling makes practical sense and is certainly consistent with the governing regulations.  As the decision is extremely important to SDVOSBs, expect to see further comment from us in the days and weeks to come.

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

Congress Enacts Major Changes Regarding Limitations on Subcontracting

By: Edward T. DeLisle & Maria L. Panichelli

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.
 

SBA Expands the Definition of "Small" Business with Regard to Dredging and Land Subdivision Contracts

By: Edward T. DeLisle & Maria L. Panichelli
 
Yesterday, the U.S. Small Business Administration (“SBA”) proposed certain size standard changes, which could expand the number of contractors eligible for “small” business status in relation to construction contracts under NAICS Code 23.

Specifically, the SBA issued a proposed rule that would increase the size standard associated with NAICS Code 237210 (which relates to contracts dealing with Land Subdivision) from seven million dollars in average annual receipts over three years to twenty-five million dollars. Similarly, the SBA proposed an increase in the size standard for NAICS Code 237990, relating to contracts involving Dredging and Surface Cleanup Activities, from twenty million dollars to thirty million dollars.

The SBA explained that, if adopted, these size standard increases will expand the small business share of total receipts in all industries within NAICS Sector 23, dealing with the construction industry, from about 49.7 percent to 50 percent. The SBA further estimated that these changes would result in an additional 400 contractors being deemed eligible for “small” business set aside contacts under NAIC Codes 237210 and 237990. The SBA stated that these changes would benefit three primary groups: (1) Businesses that are above the current size standards, who may gain small business status under the proposed rule, enabling them to participate in federal small business assistance programs; (2) Growing small businesses that are close to exceeding the current size standards, who will be able to retain their small business status under the proposed higher size standards, thereby enabling them to continue their participation in the programs; and (3) Federal agencies will have a larger pool of small businesses from which to draw for their small business procurement programs.

Under the proposed rule, the remaining NAICS codes relating to the construction industry would retain their current size standards.

The SBA is accepting comments on the proposed rule through September 17, 2012.

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 Relies on 8(a) Regulations to Deny SDVO Eligibility Due to Minority-Owner Loans

By: Edward T. DeLisle & Maria L. Panichelli

In a recent opinion, SDVOSB Appeal of Rush-Link One Joint Venture, SBA No. VET-228 (2012), the United States Small Business Administration (“SBA”) Office of Hearings and Appeals (“OHA”) used two 8(a) program regulations, namely 13 C.F.R. § 124.106(g) and 13 C.F.R. § 124.3, to determine whether a joint-venture met the eligibility requirements for the Service-Disabled Veteran Owned (SDVO) Small Business Program. Specifically, the OHA found that the joint-venture was not eligible for participation in the program; certain loans from minority owners imposed impermissible restrictions on the service-disabled veteran/majority-owner’s ownership.

Rush-Link One Joint-Venture (“Rush-Link”) was a joint-venture between Link Contracting, Inc. (Link), which held a 51% interest in the joint-venture, and Rush Construction, Inc. (Rush). Following the award of a SDVO set-aside contract to Rush-Link, a competitor challenged the joint-venture’s eligibility for the SDVO program.

For a small business concern to qualify as an eligible SDVO, a service-disabled veteran must directly and unconditionally “own” at least 51% of the firm. 13 C.F.R. § 125.9. The service-disabled veteran also must “control” both the long-term decision-making and the day-today management of the firm. 13 C.F.R. § 125.10(a). For a joint-venture to be SDVO-eligible, the joint-venture agreement must contain a provision designating an SDVO participant as the managing venturer, and designating an employee of the managing venturer as the project manager. 13 C.F.R. § 125.15(b)(2)(ii).

Applying these provisions to Rush-Link, the SBA Director for Government Contracting (“DGC”) concluded that Mr. George A. Carpenter, the president and 55%-owner of Link, was a service-disabled veteran. However, he found that Carpenter did not “own” Link within the meaning of the SDVO Program regulations, based on the existence of several promissory notes that divested Carpenter of certain ownership rights. More specifically, the terms of these promissory notes – given to three minority-owners of Link in exchange for critical loans provided to the company – restricted Carpenter’s ability to transfer his interest or receive dividends or distributions. Therefore, in reliance upon 13 C.F.R. § 124.106(g), which states that a person “controls” a company if he or she “provides critical financing” to the company or exercises control “through loan arrangements,” the DGC concluded that Carpenter’s ownership was impermissibly restricted by the promissory notes. The DGC reached this conclusion, even though 13 C.F.R. § 124.106(g) is an 8(a) regulation intended to govern small-disadvantaged businesses, and is not part of the regulations governing the SDVO program.

On appeal, Link cited 13 C.F.R. § 124.3, another 8(a) regulation, for the proposition that “ordinary” loans following “normal commercial practices” should not be the basis for finding that a small business owner does not control his or her company. The OHA acknowledged this was correct, but concluded that the loans in question here were “commercially irregular” because the holders of the promissory notes were not banks or other commercial lenders, but minority owners of the company itself. Based on this conclusion, the OHA determined that the promissory notes impermissibly restricted Carpenter’s ownership, and that Link was therefore not an eligible SDVO business. The necessary result of such a finding was that the joint-venture between Link and Rush (which is not itself a SDVO business) was also ineligible for the SDVO program pursuant to 13 C.F.R. § 125.15(b)(2)(ii).

Oddly, neither the DGC nor the OHA addressed the propriety of using 8(a) regulations to determine eligibility under the SDVO program. Therefore, going forward, participants in all the various SBA small business set-aside programs should be aware, not only that loans that result in restrictions on ownership rights might invalidate “ownership” for the purposes of eligibility, but also that regulations may be utilized and interpreted across programs to determine a business’ eligibility.

In addition to the above, SDVOSB Appeal of Rush-Link One Joint Venture, SBA No. VET-228 (2012) provided some interesting insights concerning how a company’s internal corporate structure might affect the “control” requirements relating to SDVO eligibility under 13 C.F.R. § 125.10(a). Stay tuned for an update on what an SDVO should and should not include in its corporate governance documents.

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.
 

Six New Bills Emerge to Assist Small Businesses

By: Edward T. DeLisle & Maria L. Panichelli

On March 7, 2012, a package comprised of six bills, (H.R. 3850--112th Congress: Government Efficiency through Small Business Contracting Act of 2012 (2012); H.R. 3851--112th Congress: Small Business Advocate Act of 2012 (2012); H.R. 3893--112th Congress: Subcontracting Transparency and Reliability Act of 2012 (2012); H.R. 3980--112th Congress: Small Business Opportunity Act of 2012 (2012); H.R. 4121--112th Congress: Early Stage Small Business Contracting Act of 2012 (2012); H.R. 4118--112th Congress: Small Business Procurement Improvement Act of 2012 (2012)), each designed to increase the number of federal contract opportunities for small businesses, cleared the House of Representatives’ Small Business Committee.

The most notable of the bills is the Government Efficiency Through Small Business Contracting Act (H.R. 3850). It would raise the government’s business goals for procurement contracts awarded to small business concerns, codified at section 15 (g) of the Small Business Act, from 23% to 25% of all prime contract awards per fiscal year. In addition, the bill proposes to increase the current goal of subcontracting to small business from 35.9% to 40% percent. Government-wide goals for procurement contracts awarded to small business concerns owned and controlled by service-disabled veterans (3%), qualified HUBZone small business concerns (3%), small business concerns owned and controlled by socially and economically disadvantaged individuals (5%), and small business concerns owned and controlled by women (5%) will remain the same. An amendment proposed by Rep. Gary Peters, D-Mich., would have raised the set-aside for economically and socially disadvantaged businesses from 5% to 7.5%, but it was withdrawn.

The Small Business Advocate Act (H.R. 3851) elevates agency Small and Disadvantaged Business Utilization offices both in terms of salary and duties. Specifically, it amends the Small Business Act to require the Director of Small and Disadvantaged Business Utilization (established in each federal agency having procurement powers) to be compensated at least at the GS-15 rate and allows such a position to be compensated up to a Senior Executive Service level. It also adds, as additional duties of each Director, the following:

(1) reviewing and advising on decisions to convert an activity performed by a small business to an activity performed by a federal employee;

(2) providing advice and comments on acquisition strategies, market research, and justifications related to small business;

(3) providing training to small businesses and contract specialists;

(4) carrying out exclusively the duties enumerated under the Act and, while Director, not holding any other title, position, or responsibility, except as necessary to carry out such duties; and

(5) reporting annually to the congressional small business committees on the provision of small business and contract specialist training.

Lastly, it amends the Federal Acquisition Streamlining Act of 1994 to require the Small Business Procurement Advisory Council to: (1) conduct reviews of each Office of Small and Disadvantaged Business Utilization to determine compliance with Small Business Administration (SBA) requirements, (2) identify best practices for maximizing small business utilization in federal contracting, and (3) report annually to the small business committees on such reviews and best practices.

The Subcontracting Transparency and Reliability Act (H.R. 3893) would amend the Small Business Act to prohibit a small business receiving a guaranteed loan through the Small Business Administration from expending more on subcontractors than: (1) 50% of the loan amount received, in case of a contract for services other than construction; (2) 85%, in the case of a contract for general construction; (3) 75%, in case of a contract for construction by a special trade contractor; and (4) 50%, in the case of a contract for supplies (other than from a regular dealer in such supplies). This bill would require the small business, in case of a contract for supplies from a regular dealer, to supply the product of a domestic small business manufacturer or processor, unless the SBA grants a waiver. The Bill authorizes the SBA Administrator to: (1) modify the above percentage limits when necessary to reflect conventional industry practices; and (2) establish a subcontractor percentage limit for contracts not covered by (1) through (4), above, and provides penalties for violations of such limits.

Under the bill, each subcontracting plan submitted to federal agencies is required to contain assurances that the offeror or bidder will: (1) report on subcontracting activities throughout the life of the contract, and (2) cooperate with any study or survey required by the federal agency or the SBA to determine the extent of compliance with the subcontracting plan. The bill directs the Administrator to ensure that the federal subcontracting reporting system to which such reports are submitted is modified to notify the Administrator, the appropriate contracting officer, and the appropriate Director of Small and Disadvantaged Business Utilization if an entity fails to submit a required report. It also provides that a contractor’s failure to submit such a report constitutes a breach of contract for which appropriate action may be taken. If an agency procurement center or commercial market representative determines that a subcontracting plan fails to provide the maximum practicable opportunity for small businesses to participate, under the bill, such representative may delay acceptance of the plan for a 30-day period for plan alteration.

The bill also allows a federal agency to convert a function from performance by a small business to performance by a federal employee only if: (1) the agency has made publicly available the procedures for such a decision, and (2) the procedures require such decisions to be reviewed by the appropriate Office of Small and Disadvantaged Business Utilization and procurement representative. (H.R. 3893--112th Congress: Subcontracting Transparency and Reliability Act of 2012. (2012).

The Small Business Opportunity Act (H.R. 3980), amends the Small Business Act to replace the position of “breakout procurement representative” within the Small Business Administration with the position of “procurement center representative.” Pursuant to the bill, such representatives must review any acquisition plan for a procurement requirement and make recommendations regarding procurement method determinations and acquisition plans. The bill would remove the requirement that these representatives review restrictions on competition, instead requiring them to review barriers to small business participation in federal contracting, as well as any bundled or consolidated solicitation or contract. The representatives must: (1) have electronic access to any acquisition plan developed or in development with respect to a procurement activity, (2) be an advocate for the maximum practicable utilization of small businesses in federal contracting, and (3) be notified of and included in all applicable acquisition planning processes.

The bill directs the Defense Acquisition University and the Federal Acquisition Institute to each provide a course on contracting requirements under the Small Business Act, and requires each federal department or agency having contracting authority to: (1) enumerate opportunities for participation by small businesses during all acquisition planning processes and in all acquisition plans, and (2) invite the participation of the appropriate Director of Small and Disadvantaged Business Utilization and procurement representatives in such planning processes and provide Director and representative access to all acquisition plans in development.

The Early Stage Small Business Contracting Act (H.R. 4121) would amend the Small Business Act to direct the Administrator of the Small Business to establish and carry out a program to provide increased access to federal contract opportunities for early stage small businesses (a business with no more than 15 employees and average annual receipts of no more than $1 million). The bill requires the Administrator to identify appropriate federal procurement contracts for award under the program and allows a contracting officer to award: (1) a sole source contract under the program if an entity is determined to be a responsible contractor and the officer does not reasonably expect that two or more early stage businesses will submit offers, and (2) contracts on the basis of competition restricted to early stage businesses if the officer reasonably expects that at least two early stage businesses will submit offers and that the award can be made at a fair market price. It requires all program contract awards to be counted toward goals for small business participation in federal procurement contracts.

Small Business Procurement Improvement Act (H.R. 4118) would amend the Small Business Act to provide for increased small business participation in multiple award contracts, and for other purposes. Specifically, the bill would add to section 15(g) of the Small Business Act a requirement that the President shall establish “government-wide goals for the total dollar value of all task orders and delivery orders placed against multiple award contracts, blanket purchase agreements, and basic ordering agreements awarded to small business concerns, small business concerns owned and controlled by service disabled veterans, qualified HUB-Zone small business concerns, small business concerns owned and controlled by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women.”

What does all this mean? Based upon the bi-partisan nature of the support for these bills, it means that there is agreement across the aisle that small businesses are deemed an important factor in the country’s economic recovery. Expanding the government’s goals for small, and small disadvantaged, businesses, for example, will assist in steering federal dollars to those who may not have otherwise had access to those dollars. Small companies benefitting from the receipt of federal contracts will hire employees and buy goods and services to support those contracts. Large businesses will, and certainly should, play a role in the legislative process as the bills wind their way out of committee. We will follow the progress of each bill and report back with any findings.

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.

 

Will Agencies Be Penalized for Missing Their Small Business Goals?

 By: Edward T. DeLisle

On January 18, 2012, Representative Bill Owens (D.-N.Y.) introduced a bill entitled, “The Small Business Growth and Federal Accountability Act” (H.R. 3779).  The Act is designed to “hold accountable Federal departments and agencies that fail to meet goals relating to the participation of small business concerns.” In order to achieve this goal, the Act goes on to state that “[if] a Federal department of agency does not meet a covered goal with respect to a fiscal year, that department or agency, in the succeeding fiscal year, may not expend for the procurement of goods or services an amount that is greater than 90 percent of the amount expended for the procurement of goods or services…”

If enacted, the bill would essentially penalize a federal department or agency by slashing its budget by 10% if that department or agency fails to hit its established small business procurement goals. As it currently stands, federal departments and agencies are required to expend 23% of their annual procurement dollars on small business awards. The problem, however, is that there is no penalty if an agency fails to meet this goal. If this bill becomes law that would certainly change. The question becomes: How would federal agencies react to it? The bill does state that “[t]o meet a covered goal, the head of a Federal department or agency may give preference to a small business concern when procuring goods or services.” While it does not define the type of preference that may be given, this concept opens the door to any number of possibilities that could impact the procurement process. For example, will a system emerge during the bill review process that is akin to the 10% price preference currently in existence for the HUBZone program?  We will simply have to wait and see.  The bill is currently being reviewed by the House Small Business Committee.

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

SBA Updates Set-Aside and Protest Procedures for Women-Owned Small Businesses

By: Edward T. DeLisle

On Thursday, January 12, 2012, the Small Business Administration issued an interim final rule, which alters the protest procedures pertaining to its Women-Owned Small Business (WOSB) Program. The changes serve two primary functions. First, when the SBA implemented the WOSB program by publishing a final rule in the Federal Register on October 7, 2010, it established set-aside thresholds of $5 million for contracts pertaining to manufacturing and $3 million for all other contracts. As part of the new interim rule, those thresholds have increased to $6.5 million and $4 million, respectively, to account for inflation.

Second, the changes ushered in as part of the interim rule, make the protest procedures for the WOSB Program consistent with the SBA’s other set-aside programs. For example, under the procedures that existed before issuance of the interim rule, if a contracting officer received a protest on a WOSB set-aside and, nonetheless wished to make an award, that contracting officer would have to issue a written determination concluding that doing so was required to prevent significant harm to the public interest. This requirement is inconsistent with the procedure outlined for other programs. Under the interim rule, a contracting officer may issue an award, despite a protest, if he or she makes the simple determination that doing so is necessary to protect the public interest.

As there have been few reported protests involving the WOSB Program, the new rules should not cause wide-spread confusion. If you are considering a protest, however, you are encouraged to read the changes and consult with a legal professional if you have any questions.

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

VA's Ambiguous Solicitation Leads to Successful Protest

By: Edward T. DeLisle

Over the last several years, the scrutiny over federal small business programs has grown. That scrutiny has led to changes in policy and legislation designed to curb potential fraud in the procurement process. Because these changes have been implemented in such a short period of time, however, it is not unusual for the government to issue solicitations for small business set-aside contracts that are confusing, or even contradictory. In Commandeer Construction Company, Inc., B-405771, December 29, 2011, that is precisely what occurred resulting in a successful protest.

Commandeer Construction involved a solicitation that was set aside for Service-Disabled, Veteran-Owned Small Businesses (SDVOSBs), a program that has experienced much change in recent years. In 2006, the VA was given the authority to restrict competition to SDVOSBs as part of the Veterans Benefits, Health Care, and Information Act (the "Act"). 38 U.S.C. 8127(d). As the GAO explained in Commandeer Construction, pursuant to the Act, an SDVOSB set-aside contract may only be issued to entities listed in a database of veteran-owned small businesses maintained by the VA. The VA has chosen to use what it has termed its "Vendor Information Pages" ("VIP"), which can be found at www.vetbiz.gov, as its official listing of veteran-owned and service-disabled, veteran-owned concerns.

Subsequent to issuance of the Act, the VA issued VAAR 804.1102, which states that all VOSB and SDVOSB entities must be listed in its VIP database by January 1, 2012 in order to be eligible for set-aside contracts for such entities. By December 31, 2011, all VOSB and SDVOSB entities must not only be listed, but must also be "verified," in order to receive new contract awards under the Veteran's First program, a program operated exclusively by the VA. While firms were once permitted to self-certify their status as VOSBs and SDVOSBs, as part of Veterans Benefits Act of 2010, the VA instituted a more rigorous qualification process. Consistent with this new review procedure, which was designed to weed out fraud, the VA's "Center for Veterans Enterprise" ("CVE") was given the authority to render eligibility determinations for these programs. If a firm wished to obtain a set-aside contract as a VOSB or a SDVOSB entity, it would have to be verified by CVE.

In an effort to assist in the transition from a self-certifying system to one requiring government approval, the VA issued what it called its "Memorandum from VA Acting Associate Deputy Assistant Secretary for Procurement Policy, Systems Oversight and Accompanying Class Deviation from VA Acquisition Regulation" (the "Memorandum"). The Memorandum referenced what the VA described as a "class deviation." Based upon this class deviation, any "apparently successful offeror" that had not already been verified by CVE, could become verified on an expedited basis, and obtain an award of a VOSB or SDVOSB set-aside contract, provided CVE approved its status. Later, the VA clarified its position regarding who may qualify for a “class deviation,” taking the position that a company was not eligible for “either award or Fast Track Verification," unless it was visible in the VA’s VIP database. Commandeer Construction addressed the interplay between the class deviation identified in the Memorandum and the VA’s attempt to subsequently clarify what it meant.

In Commandeer Construction, the VA issued an IFB for a construction contract that was set aside for eligible SDVOSB firms. The solicitation stated that the award would be made to an SDVOSB firm that had “been verified for ownership and control and [was] so listed in the [VIP] database.” The IFB also included the “class deviation” language referenced above. What was not included as part of the IFB, however, was the Memorandum (and accompanying deviation), or the clarification made to the deviation, which was issued after the fact.

On August 8, 2011, the protesting party, Commandeer Construction, submitted an application to the CVE for approval as an SDVOSB. Thereafter, on August 30, 2011, Commandeer submitted its bid. As its bid was the lowest of those submitted, Commandeer was in line for an award. As it was not listed in the VIP database, however, the contract specialist for the VA intended to contact Commandeer for purposes of explaining the process of obtaining expedited verification.

Prior to contacting Commandeer, the VA contract specialist apparently learned of the clarification for the first time and discussed its meaning and significance with other VA officials. Based upon these discussions, the VA contract specialist decided that Commandeer was ineligible for award and informed it of such by letter dated August 31, 2011. At the time, CVE had not rendered a final decision on Commandeer’s SDVOSB eligibility.

Commandeer protested VA’s decision, taking the position that rejecting its bid was improper based upon the expedited review procedures outlined in the solicitation. The VA countered that the deviation clause, upon which Commandeer relied for potential eligibility, was never meant to apply to entities that were absent from the VIP database. According to the VA, the deviation clause was merely an effort to provide assistance to those firms that had already self-certified, but had not yet been CVE verified under the new review procedures. Commandeer Construction at 4.

The GAO based its decision on a strict reading of the solicitation. The deviation clause in the solicitation specifically stated that “the apparent successful offeror” would be given an opportunity to have its SDVOSB status reviewed on an expedited basis, if it was not “currently listed as verified” in the VIP database. While the VA may not have intended for the deviation to apply to firms not already listed in its VIP database, the GAO concluded that the solicitation itself did not provide that qualification. As such, Commandeer’s understanding that it could qualify for award pursuant to the expedited review procedure was reasonable. Based upon this finding, the GAO recommended that the VA complete its review of Commandeer’s verification documents and, if found to be eligible for SDVOSB status, award it the contract.

As the government continues to alter its approach in exercising control over small business programs, mistakes, such as those in Commandeer Contracting, will happen. Contractors must exercise care in reviewing and responding to any solicitation. If, during the course of the review process, an ambiguity is discovered, bring it to the attention of the contract specialist, contracting officer, or source selection authority immediately. Doing so will benefit all bidders and quite possibly prevent a pre-bid protest. For those ambiguities that are not readily detectible, and are only revealed at the time of contract award, be prepared to discuss your concerns with an attorney familiar with such issues right away, as a protest is likely your only source of recourse. For those participating in the government’s various small business programs, the fast-paced nature of regulatory change has opened these programs up to issues such as those presented in Commandeer Contracting. Bid and beware.

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

The Department of Veteran Affairs Ushers in Mentor-Protégé Program

By: Edward T. DeLisle

On December 22, 2010, the VA announced that it had selected the first twenty (20) mentor-protégé teams to participate in its newly minted Mentor-Protégé Program. The program is designed to assist firms that have already been verified as veteran-owned or service-disabled, veteran-owned small businesses by the VA. Eligible firms are permitted to team with mentors, who are expected to provide developmental assistance to their protégé(s). In return for providing assistance to protégé firms, the VA has stated that mentors can expect “proposal evaluation consideration” with regard to proposals submitted on “best value” solicitations. Moreover, large business prime contractors serving as mentors can receive subcontracting plan credits in connection with a specific VA contract. Protégé firms are limited to one mentor at a time and can only participate in the program twice. There are no specific limitations such as this placed on mentor firms.

The VA expects to name five (5) more mentor-protégé teams this month. After this month, the next set of teams will be selected in August, 2011. For additional information on the program, interested contractors should review the VA’s Mentor-Protégé Program Guidebook.

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

SBA Proposes Rule to Expand Federal Contracting Opportunities for Women-Owned Small Businesses

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.

The White House Acts

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. 
 

The HUBZone Program and Federal Construction

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.