By: Edward T. DeLisle

On August 27th, we posted an article regarding the recent Court of Federal Claims case, DGR Associates, Inc. v. United States. In that case, the protesting contractor took the position that the government agency, the Air Force, failed to follow the direction of Congress in determining how to set aside contracts for small and small, disadvantaged businesses. It proffered that the legislation which created the HUBZone program clearly gave HUBZone companies priority over other small and small, disadvantaged businesses. The statute reads in relevant part:

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

In agreeing with the GAO’s position regarding this issue, the Court reached the following conclusion:

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

The Court then proceeded to set forth the remedy associated with its finding:

By this decision, the Court enters a permanent injunction requiring the Air Force and the Small Business Administration to terminate the unlawful contract awarded to General Trades & Services, and to determine whether the criteria of 15 U.S.C. § 657a(b)(2)(B) are met, such that the contracting opportunity at issue must be set aside and awarded on the basis of restricted competition to a qualified HUBZone small business concern. Defendant is enjoined from awarding the contract in a manner that is inconsistent with this decision.

The Court could not have been clearer. The Air Force was required to assess whether the contract could have been set aside for HUBZone concerns. If the Air Force reached the conclusion that at least two HUBZone companies could perform the work at a fair price, then the contract had to be set aside for HUBZones. While at this point it is not clear what happened following the Court’s decision, based upon two recent GAO decisions, it is obvious that the Air Force and at least one other government agency don’t intend to follow the Court’s directive in other cases.

Matter of: Rice Services, Inc. B-403746, issued by the GAO on September 16, 2010, involved a decision by the Air Force to set aside a contract for 8(a) small business concerns. The protester took the position that the contract should have been set aside for HUBZone companies. In response to the protest, the GAO asked the Air Force "whether it had acted in reliance on the DOJ Memorandum Opinion." In DGR Associates, Inc., the Air Force based its position on a memorandum issued by the Department of Justice, which concluded that the Small Business Act did not require HUBZone prioritization. The GAO, and then the Court of Federal Claims, disagreed with the DOJ’s position. Nonetheless, in response to the GAO’s question in the Rice Services matter, it is clear that the Air Force refused to budge:

[Consistent] with our prior position, the Air Force intends to follow the Memorandum Opinion issued by the Office of Deputy Assistant Attorney General, Office of Legal Counsel, Department of Justice, concluding that there is no statutory requirement to prioritize the HUBZone small business program.

Undeterred, the GAO sustained the protest. Following the reasoning set forth in DGR Associates, Inc., the GAO stated that the language of the HUBZone statute clearly mandated that HUBZone’s were to be given priority over other small and small, disadvantaged businesses. As a result, it issued a recommendation to the Air Force that it "undertake reasonable efforts to ascertain whether it will receive offers from at least two HUBZone concerns…at a fair market price."

In Matter of: Rice Services, Inc. B-402966.2, also issued by the GAO on September 16, 2010, the same protester made an identical challenge, this one involving the Defense Commissary Agency. The DCA attempted to set aside a contract for service-disabled, veteran-owned small businesses and, in doing so, took the same position as the Air Force, that is, that it could do so without first considering whether the contract should be set aside for HUBZone contractors. The DCA suffered the fate as the Air Force. The GAO sustained the protest.

The above illustrates the current tug-of-war between certain executive agencies, as well as the judicial branch, of our government. While one can guess as to what Congress may have intended when it established the HUBZone program, the language of the statute is clear. The Court of Federal Claims and the GAO had no choice but to rule as they did in the cases cited above. If Congress was simply sloppy in drafting the HUBZone program’s enabling legislation, which was probably the case, then only Congress can fix the problem. It will be interesting to see how this battle plays out in the weeks and months to come.

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

A seminar on “How to Win Federal Construction Contracts with Teaming Arrangements” is being held at three different locations.

Dates/Locations:
October 5, 2010 – Hyatt Regency Dallas, TX
October 7, 2010 – Los Angeles Airport Marriott, CA
October 28, 2010 – Hilton Philadelphia Airport, PA

Time:
8:00a.m.-1:00p.m.

Cost:
$195 per person and $95 for each additional person from the same company.

The world of federal construction contracting has changed.

Cohen Seglias Partner and Chairman of the Firm’s Federal Construction Practice Group Michael H. Payne will address the following topics:

  • What is a teaming arrangement?
  • What should be included in a teaming agreement?
  • What types of joint ventures are permitted in federal construction contracting?
  • What are the requirements for a joint venture agreement?
  • How can large business concerns benefit from small business set-asides that seem to exclude them from participation in many federal projects?
  • Are there any circumstances where a large business can affiliate with a small business concern?
  • What happens if two or more small businesses join to form a team?
  • How can Service-Disabled Veteran-Owned Small Businesses, HUBZone contractors, and 8(a) firms leverage their size status and preferential status to maximize participation in larger dollar value procurements?
  • How can a prime contractor take advantage of the past performance of a team member to increase its competitive position?

Whatever your experience level is with teaming arrangements, this seminar will provide you with the tools to navigate the new landscape of federal government contracting.

By: Edward T. DeLisle

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

The enabling statute for the HUBZone program states the following:

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

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

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

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

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

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

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

By: Michael H. Payne & Elise M. Carlin

As recently reported in Washington Technology, on July 29, 2010, President Obama signed the Supplemental Appropriations Act for 2010 into law. This legislation amends the Clean Contracting Act of 2008, and allows the public to access the Federal Awardee Performance and Integrity Information System (FAPIIS), previously off-limits to anyone other than chairmen and ranking members of congressional committees. Under the new law, with the exception of contractors’ past performance evaluations, all information will be available for viewing online.

What Is FAPIIS?

Effective April 22, 2010, FAPIIS was established as part of the 2009 Defense Authorization Act. FAPIIS is managed by the General Services Administration, and was launched as “part of an ongoing initiative by the Administration to increase consideration of contractor integrity and the quality of a contractor’s performance in awarding Federal contracts.” The final rule enacting FAPIIS is found in the Federal Register.

The FAPIIS database contains a wide range of information about contractors’ past performance, and aids contracting officers in selecting contractors who will perform well in order to avoid wasting taxpayer money. According to the Contractor Performance Assessment Reporting System (CPARS) website, FAPIIS “contains information to support award decisions as required by the Federal Acquisition Regulation (FAR). FAPIIS is a web-enabled application that collects information on Terminations for Default, Terminations for Cause, Terminations for Material Failure to Comply, Defective Pricing Actions, Non-Responsibility Determinations, and Recipient Not-Qualified Determinations. Use of FAPIIS promotes awards to entities with a history of proven performance and business integrity.” As stated in the Federal Register, “FAPIIS is designed to improve the Government’s ability to evaluate the business ethics and expected performance quality of prospective contractors and protect the Government from awarding contracts to contractors that are not responsible sources.”

The legislation which brings to light the information contained in FAPIIS was sponsored by Vermont Senator Bernie Sanders. In a recent interview with Government Executive, Sanders supported his position that the public should have access to the same information as contracting officials. “The American people have every reason to expect that their tax dollars are well-spent . . . For this reason, I am pleased that with this new legislation every contractor’s history of illegal behavior will be posted on a publicly accessible online database. I strongly expect that this new public awareness will put an end to handing out taxpayer-financed contracts to corporations with a history of fraud.”

While it is good news to many that the database is now publicly available, the move to make this information easily accessible is a concern to some in the industry. In a public statement, the Professional Services Council (PSC), the self-defined “national trade association of the government professional and technical services industry,” expressed concern that the new law “could create a politically motivated blacklist of vendors and improperly limit the government’s ability to access the best-qualified vendors in the marketplace.”  Alan Chvotkin, Executive Vice President and Counsel for PSC recently stated that “While firms are accountable for their past performance, opening portions of the database that are not now already publicly available elsewhere could risk improperly influencing the evaluation and selection of otherwise qualified bidders because of public pressure to ‘blacklist’ certain vendors.” Mr. Chvotkin continued, “Furthermore, public posting risks the inappropriate and potentially damaging disclosure of company proprietary information while doing nothing to further government oversight or decision making.” He also promised that “Given this major modification to FAPIIS, PSC will be working with GSA and other federal agencies to ensure the proper and fair implementation of the public posting requirement.”

When Will The Information Be Available For Viewing?

The GSA is currently working on putting the new law into action, while also striving to alleviate the concerns of those in the industry. Diane Merriett, spokeswoman for the GSA, recently stated, “We are aware of some industry concerns regarding the disclosure of proprietary data and will address those.” At this time, no firm date has been established for the release of the information to the public.

The Federal Contracting Group at Cohen Seglias Pallas Greenhall & Furman will follow this story and keep you informed of any developments as the implementation of the law progresses.

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

By: Michael H. Payne & Elise M. Carlin

Each year, a significant number of bid protests filed at the GAO are the result of inadequate discussions. Recently, the GAO released two decisions which reiterated the importance of holding meaningful discussions that do not mislead offerors during negotiated procurements.

The purpose of holding discussions in negotiated procurements is to maximize the best value to the government. Discussions are held to give offerors in the competitive range an opportunity to revise their bids to make them more competitive. The Federal Acquisition Regulation (the “FAR”) defines discussions and in what context they occur with an offeror:

Negotiations are exchanges, in either a competitive or sole source environment, between the Government and offerors, that are undertaken with the intent of allowing the offeror to revise its proposal. These negotiations may include bargaining. Bargaining includes persuasion, alteration of assumptions and positions, give-and-take, and may apply to price, schedule, technical requirements, type of contract, or other terms of a proposed contract. When negotiations are conducted in a competitive acquisition, they take place after establishment of the competitive range and are called discussions.

Requirements of Discussions

It is well established in federal procurement law that discussions between the contracting officer of an agency and an offeror must be meaningful. Once discussions have been opened, the FAR dictates that an agency “shall…indicate to, or discuss with, each offeror still being considered for award, significant weakness, deficiencies, and other aspects of its proposal…that could, in the opinion of the contracting officer, be altered or explained to enhance materially the proposal’s potential for award.” In order to be meaningful, a discussion must generally lead an offeror into specific areas of their proposal which require modification. Additionally, discussions should be as specific as practical considerations permit, and give offerors a reasonable opportunity to address any potential weaknesses or deficiencies in its proposal which could impact the offeror’s competitiveness.

Limitations on Discussions

While discussions must be meaningful, they must also not be misleading. Additionally, they must not favor one offeror over another. During discussions, the contracting officer cannot divulge one offeror’s technical solution to another, including any unique technology or innovative and unique uses of commercial items, or any other information that would compromise an offeror’s intellectual property. Additionally, any pricing information cannot be revealed without that offeror’s permission. In terms of pricing information however, the government may inform an offeror that its price is considered too high or too low and explain how that conclusion was reached. It is also within the government’s discretion to inform all offerors if there is a particular price that it has determined to be reasonable based on price analysis, market research or other methods. The government may not disclose the names of any individuals who have provided reference information about an offerors past performance. Lastly, during discussions, the government may not knowingly provide source selection information in violation of the provisions of the FAR that govern procurement integrity, or the savings provisions of the U.S. Code pertaining to Restrictions on disclosing and obtaining contractor bid or proposal information or source selection information. Once discussions have concluded, each offeror must have an opportunity to submit a final proposal revision by a common deadline.
Continue Reading Recent GAO Decisions Highlight the Importance of Meaningful Discussions with Offerors During the Negotiated Procurement Process

By: Michael H. Payne

It is not uncommon, in best value negotiated procurements, for a solicitation to announce that the technical evaluation factors, collectively, are more important than price.  Construction contractors, of course, still remember the days of sealed bidding where the lowest bidder received the award and they are not very receptive to hearing about a subjective technical evaluation that results in an award to a higher priced proposal.  Nevertheless, the Federal Acquisition Regulation allows an award to a higher priced proposal, provided that an appropriate price/technical tradeoff has been made by the agency.

According to FAR 15.101-1(a), “A tradeoff process is appropriate when it may be in the best interest of the Government to consider award to other than the lowest priced offeror or other than the highest technically rated offeror.”  The regulations go on to provide, in FAR 15.101-1(b), that when using a tradeoff process, the following apply:
(1) All evaluation factors and significant subfactors that will affect contract award and their relative importance shall be clearly stated in the solicitation; and
(2) The solicitation shall state whether all evaluation factors other than cost or price, when combined, are significantly more important than, approximately equal to, or significantly less important than cost or price.

The key provision, found in FAR 15.101-1(c), however, provides that “The perceived benefits of the higher priced proposal shall merit the additional cost, and the rationale for tradeoffs must be documented in the file in accordance with 15.406.  This is where, in my opinion, the government frequently falls short.  It should not be enough for federal agencies to simply state that they have greater “confidence” or that they feel “more comfortable” with the higher priced proposal, they should be required to explain why the higher priced proposal is worth the price premium.  Unfortunately, many of the so-called pricetechnical tradeoff analyses that I have seen fall short of amounting to a rational explanation.

The U.S. Court of Federal Claims has held that price cannot be ignored simply because it is to be given less weight than the technical factors, and the Court has also stated an evaluation that fails to give price its due consideration is inconsistent with the Competition in Contracting Act and cannot serve as a reasonable basis for an award.   In this regard, it is important to note that FAR 15.308 provides that “the source selection decision shall be documented, and the documentation shall include the rationale for any business judgments and tradeoffs made or relied on by the SSA, including benefits associated with additional costs.”  Indeed, the Court has stated that “Conclusory statements, devoid of any substantive content, have been held to fall short of this requirement, threatening to turn the tradeoff process into an empty exercise.  Indeed, apart from the regulations, generalized statements that fail to reveal the agency’s tradeoff calculus deprive this court of any basis upon which to review the award decisions.”  Serco Inc. v. United States, 81 Fed.Cl. 463 (2008).

Unfortunately, a contractor who believes that he may have been victimized by an arbitrary pricetechnical tradeoff does not have direct access to the government’s documentation needed to determine whether his suspicions are correct.  It is necessary to first file a protest in order to gain access to the government’s internal documentation and, even then, only the protester’s attorney is permitted to review the documents.  Source selection documents, including a pricetechnical tradeoff analysis, are only made available after the entry of a Protective Order that swears the attorney to secrecy.  Nevertheless, once an experienced federal government contracts attorney reviews the agency’s documents, it will be possible for that attorney to advise the contractor as to whether a valid basis for protest exists.  If the agency’s documentation seems to be in order and makes rational sense, the protest can always be withdrawn.  It is a sad commentary, however, that contractors often need to file a protest in order to determine whether there is a valid basis to protest.

Michael H. Payne is the Chairman of the firm’s Federal Practice Group and frequently advises contractors about whether the government has conducted a proper source selection, and whether a pricetechnical tradeoff was conducted in accordance with the law. 

By: Michael H. Payne

In a negotiated procurement, where a contractor submits a proposal in response to an RFP (Request for Proposals), FAR 15.506(a)(1) states that “An offeror, upon its written request received by the agency within 3 days after the date on which that offeror has received notification of contract award in accordance with 15.503(b), shall be debriefed and furnished the basis for the selection decision and contract award.” It is a good idea to request a debriefing if you did not receive the award because you may learn something that will help you to improve your next proposal, or you may learn that you were treated unfairly and that you may have a basis to file a protest. The offeror who was awarded the contract should also request a debriefing because there may be information about how the proposal can be made even better the next time. In addition, if a disappointed offeror files a protest, an awardee may be in a better position to defend a protest after receiving a debriefing.

The Contracting Officer is not permitted to discuss the details of other proposals, but the regulations, at FAR 15,506(d) do require that:
At a minimum, the debriefing information shall include —
(1) The Government’s evaluation of the significant weaknesses or deficiencies in the offeror’s proposal, if applicable;
(2) The overall evaluated cost or price (including unit prices), and technical rating, if applicable, of the successful offeror and the debriefed offeror, and past performance information on the debriefed offeror;
(3) The overall ranking of all offerors, when any ranking was developed by the agency during the source selection;
(4) A summary of the rationale for award;
(5) For acquisitions of commercial items, the make and model of the item to be delivered by the successful offeror; and
(6) Reasonable responses to relevant questions about whether source selection procedures contained in the solicitation, applicable regulations, and other applicable authorities were followed.

See FAR 15.506 for the rules relating to postaward debriefings.

Michael H. Payne is the Chairman of the firm’s Federal Practice Group and frequently represents contractors during debriefing and provides advice as to whether the contractor’s rights have been violated.

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.

By: Lane F. Kelman

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

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

13 CFR § 126.103

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

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

See the SBA’s HUBZone website for more details.

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

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.