Our last blog article focused on the ability of an SDVOSB to control his company remotely thanks to the advancements of technology. Well, technology can be both a blessing and a curse. It can allow you to work from pretty much anywhere, but, as we all know, there are certain places where you should simply avoid using the technology available to you, such as when you are behind the wheel. The hazards of texting while driving has become a major problem and, as a result, it’s been rendered illegal in many states. Based upon recent changes to the FAR, now the federal government is getting into the act.

Pursuant to FAR Subpart 23.11 (incorporated into every government contract through clause 52.223-18) a government contractor should adopt and enforce a policy banning employees from texting whenever an employee is: (1) driving a vehicle owned or rented by the company; (2) driving a vehicle owned by the government; or (3) driving a privately owned vehicle when performing any work on behalf of the government. Moreover, contractors are required to “flow down” this anti-texting clause to all of its subcontractors, if the value of the subcontract exceeds the “micro-purchase threshold” (currently $3,000).

More importantly, 52.223-18 requires federal contractors to “conduct initiatives” to educate employees about the dangers of texting while driving; these initiatives should be “commensurate with the size of the business.” If you are a large government contractor, this likely means that the government will expect some sort of training in addition to a written policy or employee handout covering this topic. If you are conducting periodic ethics training (and you should be), you can likely incorporate any necessary training on anti-texting as part of those sessions. If you do not conduct periodic ethics, and other government contracting, training to refresh yourself regarding what the government requires of its contractors, you should certainly consider doing so. If you have any questions, please feel free to contact us.

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.

In today’s world, it is not at all uncommon for employees, or even owners of companies, to “telecommute” or “work remotely” from time to time. It’s one of the many great things that technological advancement has provided. In fact, many say that it’s too easy to stay connected to the office, making it impossible ever really getaway. As I walk down Market Street in Philadelphia every day, I see person after person glued to their phone, checking messages and responding to email incessantly (present company included). In fact, I’m on a flight to Phoenix at this very moment writing this article, which I will email to my assistant and have posted for all of you to read. It’s incredibly easy to work from anywhere at any time. Until recently, however, the Veterans Administration did not subscribe to this theory. It interpreted its regulations to mean that a service-disabled veteran could not manage his or her business remotely. A few weeks ago, the Court of Federal Claims issued an opinion that changed all that. KWV, Inc. v. United States, No. 12-882C (2013) should provide much more flexibility to service-disabled veterans in our ever-changing world.

KWV involved a Rhode-Island based service-disabled veteran-owned business (“SDVOSB”) that was owned and managed by a Korean War veteran with more than thirty years of construction experience. KWV was awarded a contract set-aside for SDVOSBs by the VA, and drew an agency protest from a disgruntled competitor, Alares LLC (“Alares”). Alares challenged KWV’s SDVOSB status, arguing that the service-disabled veteran did not actually “control” the company within the meaning of 38 C.F.R. § 74.4 because he lived in Florida for part of the year. Alares claimed that the veteran’s sons, both of whom worked for the company in Rhode Island, actually controlled the company.

The VA’s Office of Small and Disadvantaged Business Utilization (“OSDBU”) agreed with Alares; it found that, because the service-disabled veteran resided in Florida for a portion of the year, he could not maintain sufficient control over the day-to-day management of KWV. The OSDBU therefore held that KWV was ineligible for the contract, and revoked KWV’s SDVOSB status, rendering it unable to bid on future SDVOSB set-aside contracts issued by the VA. KWV then appealed this decision to the United States Court of Federal Claims, seeking injunctive relief, and got it.

The Court found that the service-disabled veteran’s decision to live in Florida for part of the year did not preclude him from “controlling” KWV within the meaning of 38 C.F.R. § 74.4. Judge Lettow (the same judge that presided over the Miles case, a case that we won on behalf of an SDVOSB, and wrote about last month) stressed that the veteran “employs various electronic means to keep track of the day-to-day business of KWV,” which was revealed during the proceeding. The court concluded that this was an acceptable means of controlling KWV’s operations, per the requirements of 38 C.F.R. § 74.4.

Based upon this finding, the Court issued a preliminary injunction, setting aside the VA’s decision to sustain the protest. The Court also ordered the VA to restore KWV’s SDVOSB eligibility.

This case represents a very important development for SDVOSB owners. The VA must now recognize that “control” under 38 C.F.R. § 74.4 is not dependent upon an owner’s physical presence at an office or site. Rather, service-disabled veterans can remotely manage the day-to-day affairs of their SDVOSBs, provided that they fulfill the other prerequisites regarding “control.” This is great news for SDVOSB owners, who, like many of us, must manage our affairs far from afar sometimes…even at 37,000 feet.

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.

The Federal Acquisition Regulatory Council (“FAR Council”) is expected to finalize as many as nine regulations in the upcoming year. One of the most interesting of the proposed rules would require prime contractors to accelerate payments to small business contractors.

FAR council issued notice of this proposed rule on December 19, 2012. The proposed rule is the latest step toward implementing policies put in motion by the July 2012 “M-12-16” memo, issued by Jeff Zients, the acting director of the Office of Management and Budget (“OMB”). In that memo, OMB asked agency heads to accelerate payments to small business contractors, by, inter alia, encouraging prime contractors to promptly pay their small-business subcontractors. Following issuance of the M-12-16 memo, several agencies issued directives instructing their Contracting Officers to begin inserting a new clause into all contracts – a clause which requires prime contractors, upon receipt of accelerated payments from the government, to pay small business subcontractors on an accelerated timetable to the maximum extent practicable.

The proposed rule would compel ALL agencies to include this new prompt-payment language into any new solicitations and resultant contracts. In its current form, the proposed clause (as set forth in the notice) provides no specific guidance concerning the definition of “accelerated.”

The sad fact of the matter is that the proposed rule does not provide subcontractors any new rights under the Prompt Payment Act, nor does it affect the application of the interest provisions of the Prompt Payment Act. Under current Prompt Payment Act provisions, interest begins to run when an agency does not pay a contractor an amount due “by the required payment date.” This new accelerated payment policy will not change the “required payment date” for purposes of calculating the interest penalty. Nonetheless, if it goes into effect, the proposed rule would at least provide small businesses with the ability to demand accelerated payment if the appropriate circumstances present themselves.

Comments on the proposed rule were required by February 19, 2013. Stay tuned for updates.

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

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

Since 2010, when the VA instituted its process to verify service-disabled, veteran-owned small businesses, we have received call after call from companies that have been denied verification. Denial, of course, can have a devastating effect. Without receiving verified status, a company cannot qualify for contracts set-aside by the VA for SDVOSB companies. Many times, when we receive these calls and then review the basis for denial, all we can do is shake our collective heads in disbelief. A simple phone call would have very likely paved the way to verified status. Instead, the company is stuck with attempting to fix the problem through the reconsideration process, which is uncertain and never quick, and must consider the distinct possibility that it will have to wait six (6) months from a final decision to reapply. This has raised the ire of many a veteran. Well, for those veterans who have advocated for change, help appears to be around the corner.

On Tuesday afternoon, Business Wire reported that on May 1, 2013, the VA will begin providing SDVOSB applicants the opportunity to correct “minor deficiencies” found in their documentation prior to a denial being issued. The idea is to add an element of common sense to the process and avoid denying applicants who really do deserve verification. The new process will work as follows:

Firms determined to have problematic issues that are easily corrected will be contacted by the Center for Veterans Enterprise and informed of CVE’s preliminary findings. The applicant will then have 48 hours to respond, indicating a willingness to correct the issues and provide revised documentation addressing the preliminary findings. As part of this new process, the applicant will be referred to verification-assistance counselors to enhance the probability that any deficiencies are overcome.

This is great news for our veterans and it is our understanding that other changes may be in the works. As we hear about what the VA intends to introduce, we will pass along that information to you.

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

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.

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.

We’ve warned you before against relying on informal, or oral, directives from a Contracting Officer; get it in writing!   A recent case before the Armed Services Board of Contract Appeals reminds us that contractors also need to be wary about who from the government is giving those directives.

In EEC International, ASBCA No. 55781 (Dec. 28, 2012), the contractor asserted claims against the government, alleging that constructive changes to the contract resulted in higher performance costs.  Specifically, the contractor alleged that the government’s construction representative, as well as the contracting officer’s representative, interfered with its means and methods and directed the contractor to make many changes to its scope of work.  According to the contractor, the construction representative and contracting officer representative also constructively accelerated its performance.

The Board did not address the merits or credibility of the contractor’s claims.  It instead concluded that even if events occurred as the contractor claimed, it was barred from entitlement because neither the construction representative nor the contracting officer’s representative was authorized to modify the contact.  The Board concluded that only the contracting officer had such authority, and the contractor had not alleged that the contracting officer directed it to take the actions at issue.  Although the contractor argued that the acts of the construction representative and contracting officers representative were implicitly ratified by a higher authority who had knowledge of the facts, as well as the authority to bind the government, the Board rejected this argument.

The hard lesson: taking direction from someone other than the contracting officer is done at a contractor’s peril.  We certainly feel that the Board’s decision was harsh here.  Contracting officers are most often not those with whom the contractor has regular communications and there are situations where directives from others may be binding.  However, as budgets shrink and possible sequestration looms, anticipate that agencies will rely more and more heavily on defenses such as this.  We’re already seeing it happen.  So contractors should avoid taking direction from anyone but the individual explicitly vested with authority to bind the government.  If you find yourself in a difficult position, where you feel compelled to proceed without proper written authorization, contact an experienced legal professional for assistance.

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.

Michael Payne & Ed DeLisle will be presenting at the National 8(a) Association 2013 Winter Conference in Orlando, FL on February 5th. They will be speaking on the topic How to Win Federal Contracts and Make a Profit. The conference is being held at the Disney World Yacht Club Resort and tickets are still available.  

For more information, or to register, please visit the National 8(a) Association website. 

Please join our Federal Contracting Practice Group for a Networking Cocktail Reception preceded by a precise presentation on Avoiding the Pitfalls in Federal Construction Contracting.

This networking event will facilitate interaction between large and small businesses that are looking to understand how to win federal construction contracts. The presentation, led by Federal Contracting Chair, Michael Payne, will provide an overview of the following topics:

• Top 10 list of pitfalls to avoid
• Tips on how to deal with the hazards
• Understanding how to protect your rights

The Federal construction market is accountable for over $100 billion worth of spending annually. If you are interested in learning more about federal contracting opportunities, this networking event is a great place to connect with other companies and learn inside tips from our Federal Contracting Partners, who boast years of experience working with Federal agencies.


Date:
November 8, 2012

Time:
4:00pm-4:30pm Registration
4:30pm-5:30pm Seminar
5:30pm-7:30pm Cocktail Reception

Location:
The Union League of Philadelphia
140 South Broad Street
Philadelphia, PA 19102

Cost:
$50 per person

Please register early as space is limited.