Join partners Michael Payne and Ed DeLisle at the 2015 National 8(a) Association Winter Conference in Orlando, Florida for their presentation, “How to Effectively Team on a Federal Project.” In this discussion, Michael and Ed will explore the importance of well-crafted teaming agreements and how they are viewed by courts of various jurisdictions. They will also explore the practical implications of negotiating terms from both the prime and subcontractor perspectives, as well as cover the nuts and bolts of executing teaming arrangements on federal projects. For more information, or to register, please visit the National 8(a) Association website.

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Cohen Seglias is a proud sponsor of the 2015 National 8(a) Association Winter Conference, which focuses on the federal, legal and business updates that impact the ever-changing world of federal contracting. This year’s conference will be held in conjunction with the TRIAD Winter Meeting, bringing over 85 additional Small Business Liaison Officers to the National 8(a) conference attendees.

With more than 500 companies and key government stakeholders represented, this is an event you can’t afford to miss!

Michael H. Payne is the Chairman of the firm’s Federal Contracting Practice Group and, together with other experienced members of the group, frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues, and dispute resolution.

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

Last month, Ed DeLisle and Maria Panichelli’s guest article on federal teaming agreements “Common Pitfalls in Federal Contracting” appeared on Onvia’s website. The article is based on Maria’s very successful webinar series on Teaming Arrangements.  The article and webinars address the benefits and drawbacks of teaming arrangements with a focus on how improper teaming can adversely impact a small business’ size status or eligibility for small business programs. The article also provides tips on avoiding teaming pitfalls and outlines best practices in teaming on federal projects.  You can see the full article below:

It’s no surprise that in today’s market, with a growing number of Federal government contracts set-aside for various types of small businesses, teaming relationships are increasingly popular. Large contractors like teaming because it provides them access to contracts for which they would otherwise be ineligible. Small businesses know that teaming is a good way to break into the federal contracting arena, an arena in which experience and past performance can prove critical to securing a contract. By teaming with a more experienced, larger contractor, a small company can acquire the experience needed to secure future federal contracts on its own. However, teaming is not without its downsides.

For small businesses in particular, teaming can pose significant risks. If done improperly, teaming can destroy a concern’s “small” business status, or otherwise render it ineligible to participate in the various Small Business Administration (“SBA”) programs. Small businesses most often lose their status in one of two ways: (1) a finding of “affiliation” pursuant to 13 C.F.R. § 121.103; or (2) violation of the percentage of work requirements set forth at 13 C.F.R. § 125.6. Small businesses need to be educated about these common pitfalls, and how to avoid them. This article seeks to do just that.

Affiliation

“Affiliation” can alter a small business’ size and render it ineligible to compete for small business set-aside contracts. When two companies are found to be “affiliated,” their respective sizes (determined by either revenue or number of employees) are added together; the total is what is evaluated when determining whether the company is actually “small” based upon the SBA’s “Small Business Size Standards.” If the sizes of the two businesses, added together, exceed the applicable size standard, neither can be considered “small.” Accordingly, a finding of “affiliation” is something small businesses want to avoid.

Affiliation is governed by 13 C.F.R. § 121.103, which explains that “concerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party or parties controls or has the power to control both. It does not matter whether control is exercised, so long as the power to control exists.” (13 C.F.R. 121 § 121.103(1)). In assessing whether or not two businesses are affiliated, the SBA considers factors such as ownership, management, previous relationships with or ties to another concern, and contractual relationships; the SBA may find affiliation even though no single factor is sufficient to constitute affiliation. (13 C.F.R. 121 § 121.103(2, 5)). In the teaming context, affiliation generally occurs in one of two ways.

Teaming Partners

First, a teaming relationship on a single project can result in a finding of affiliation under the “Ostensible Subcontractor” rule. The Ostensible Subcontractor rule holds that a small business that “is unusually reliant” on a subcontractor will be deemed affiliated with that subcontractor for size determination purposes. In other words, a small businesses can run afoul of the SBA’s affiliation rules if the small business teams with a subcontractor on a particular project, but then allows that subcontractor to control that project. In order to determine whether the subcontractor is, in fact, in control of a given project, the SBA will look to a variety of factors, including, but not limited to: whether it is the small business prime contractor or the subcontractor that is performing the vital components of the project; whether the small business prime contractor is financially reliant on the subcontractor; whether the small business has the requisite experience or managerial capability to control the project; and whether it is the small business prime contractor or the subcontractor who is, in reality, controlling the means and methods necessary to successfully complete the project. If the subcontractor appears to be the party in control, the SBA is likely to find that the small business prime contractor and subcontractor are affiliated.

Affiliation can also occur when there is an ongoing relationship between two companies, where one business appears to control the other, or where the two companies appear too closely related or intertwined. In the teaming context, this type of general affiliation can occur if a small business repeatedly teams with the same subcontractor/teaming partner, is financially reliant on its teaming partner, shares employees, office space, equipment or other resources with the teaming partner, or if the small business and its teaming partner have common ownership. Familial relationships, or previous employee/employer relationships are also considered to be signs of affiliation.

By now you should be asking, “How do I avoid affiliation?” The advice we give our clients is simple: maintain control over your company and every project on which you are the prime contractor. If you are going to team with a subcontractor, make sure you do not have other ties to that company. If possible, avoid teaming with companies owned by family members, or companies at which you were previously employed. If you must team with such a company, be very careful that you do not appear reliant on, or intertwined with, that business. Hire your own employees, rent your own office space, and secure your own equipment. Do not allow your company to rely too heavily or regularly on a teaming partner for financial support, and avoid having another business serve as a guarantor of your credit line. Team with different concerns, rather than repeatedly teaming with the same company, especially if you have other ties (financial, familial, or work-related) to that company. Overall, maintain corporate formalities, and ensure that all transactions with other companies are made at arms-length. These tips should help you avoid a finding of general affiliation.

To avoid the perils of the “Ostensible Subcontractor” rule, the same type of principals apply. You may enter into subcontracts, but make sure that you retain control over how the subcontract is performed. Do not rely on subcontractors for financial assistance, or expect them to supply the managerial experience needed to complete the project. Perhaps most importantly, do not allow subcontractors to take over or perform the most vital aspects of the contract. Also, make sure your company performs the requisite percentage of work, as discussed below.

Percentage of Work Requirements

The SBA regulations are very specific about the percentage of work a small business prime contractor must perform on a project to remain eligible for that project, and future small-business set-asides. 13 C.F.R. § 125.6 sets forth these “Prime Contractor Performance Requirements” (aka limitations on subcontracting). Each type of small business has its own requirements, and the percentages further vary depending upon the nature of the contract (services, supplies/products, general construction or specialty construction) being performed. For example, an 8(a) business performing a general construction contract is governed by different self-performance requirements than a SDVOSB performing a supply contract. It is critically important to pay attention to how these percentages are calculated for your particular type of business, and the nature of your contract. In some cases, the required percentage of work is calculated using the total cost of the contract; in others it is calculated using the cost of the contract incurred for personnel. The applicable work percentage requirements for each type of small business can be found as follows:

• 8(a) – 13 C.F.R. § 125.6(a)
• WOSB/EDWOSB – 13 C.F.R. § 125.6(a)
• VOSB/SDVOSB – 13 C.F.R. § 125.6(b)
• HUBZone – 13 C.F.R. § 125.6(c) and § 121.600

If a small business fails to self-perform the amount of work required by these regulations it may have to surrender its small-business status and could thereby lose its ability to compete for future set-aside contracts. It is, therefore, vital to demonstrate to the SBA your compliance with these regulations. To that end, small business prime contractors should include in every teaming agreement (and resulting subcontract) the percentages (by number) and the specific scopes of work (by description) that will be performed by the small business prime contractor.

In summary, it is important for small business contractors to remain cognizant of the rules pertaining to affiliation and self-performance when entering into teaming agreements. Failure to pay attention to these issues could result in the loss of a concern’s eligibility to participate in small business programs. In contrast, if a small business is aware of the issues above, is careful to avoid such pitfalls, and properly structures its teaming relationship, teaming can be a rewarding, and very profitable experience. If you have any questions about how to properly team, contact a legal professional.

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.

Join the Federal Construction Group of Cohen, Seglias as it presents, "Unraveling the Mysteries of Federal Construction Contracting," at two different locations.

Dates/Locations:
March 29, 2011 – Hyatt Regency Savannah, GA
March 31, 2011 – Hyatt Regency Grand Cypress Orlando, FL

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

Cost:
$195.00 per person and $95 for each additional person from the same company.

Attendees will learn about the following topics:

  • Understanding the FAR and how a Federal construction contract works
  • The RFP procurement process
  • Preparing winning proposals on “best value” solicitations
  • Understanding the IDIQ/MATOC process
  • How to successfully team on Federal projects
  • Knowing when, and whether, to file a bid protest
  • Negotiating contract modifications
  • Maintaining proper project documentation
  • Obtaining prompt payment
  • Preparing and submitting Requests for Equitable Adjustment and Claims
  • Protecting your rights through the dispute resolution process

Regardless of your experience level, this seminar will help you understand these key concepts and develop strategies for both obtaining federal contracts and profiting from them.

Please click here for complete seminar details and registration form.  For questions, please contact Rachel McNally at (215) 564-1700 or rmcnally@cohenseglias.com.

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.

Please click here for complete seminar details and registration form. For questions, please contact Rachel McNally at (215) 564-1700 or email rmcnally@cohenseglias.com.

A seminar on “How to Win Federal Construction Contracts with Teaming Arrangements” is being held on February 23, 2010, at the Hyatt Regency Grand Cypress Hotel in Orlando, Florida. The program is scheduled to take place from 8:00 a.m. to 1:00 p.m. and the seminar fee is $195, with a fee of $95 for additional people from the same company.

As contractors are well aware, the world of federal construction contracting has changed. Sealed bidding has largely given way to contracting by negotiation (“best value’), and the government is using task order contracts for construction more frequently. These large dollar value multi-year procurements are often beyond the economic reach of many small and medium-sized contractors. The negative effect on small businesses has not gone unnoticed.

The way to survive and thrive in this new world of federal construction contracting is to engage in various forms of teaming arrangements. These include joint ventures, committed subcontracting, large and small business teaming agreements, and small business subcontracting. In fact, the government often includes provisions in solicitations that encourage and promote teaming and joint ventures. These provisions permit small and medium-sized businesses to compete for contracts they would otherwise be deemed ineligible.  To further foster small business participation, the government also uses set-aside procurements that limit competition to HUBZone business, Service Disabled Veteran Owned firms, or 8(a) concerns.

This seminar is being presented by the law firm of Cohen Seglias Pallas Greenhall & Furman and the 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? hatever your experience level is with teaming arrangements, this seminar will provide you with the tools compete in the new landscape of federal government contracting.

To register, please respond by February 18, 2010 by clicking here.  For questions, please contact Crystal Garcia at (215) 564-1700 or email cgarcia@cohenseglias.com.

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.