Please see the following link for Fox Rothschild LLP’s Federal Contractors’ Guide to Small Business Administration Set-Aside Contracts, Size Standards, Size Protests, and Affiliation. 

http://www.foxrothschild.com/douglas-p-hibshman/publications/federal-contractors-guide-to-small-business-administration-set-aside-contracts-size-standards-size-protests-and-affiliation/

The federal government sets aside a significant portion of its procurement dollars each year for purchasing goods and services from small businesses.  Small business set-aside procurements and small business contract awards (“Set-Aside Procurements” and “Set-Aside Contracts,” respectively) provide substantial opportunities for a certified small business concern (SBC) to compete for and perform federal contract work. However, SBCs awarded Set-Aside Contracts are frequently subjected to size protests filed with the U.S. Small Business Administration (SBA) by disappointed competitors looking to challenge the awardee’s size, and if successful, to disqualify the awardee from the procurement.

This guide educates federal contractors on the following issues and concepts:

  • SBA Set-Aside Procurements, Set-Aside Contracts, and Size Standards;
  • The parameters and purposes for SBA size protests, how they are filed, and how contractors can avoid and defend against such protests; and
  • The parameters of SBA affiliation, which contractors can use to their advantage to challenge Large Businesses masquerading as small business concerns, and, as importantly, must understand to protect themselves from being adversely affected by a finding of affiliation at the hands of a size protest.

Doug Hibshman is a partner in the firm’s Federal Government Contracts & Procurement; Construction; Litigation; Privacy & Data Security; Mergers & Acquisitions; White-Collar Compliance & Defense; Health Law; and Architecture, Engineering & Design Professional Firms practice groups.  He represents small, medium, and large clients in the defense, health care, engineering, information technology, construction, manufacturing, and services industries with all manner of complex contract, compliance, and litigation issues.  Doug routinely advises and represents clients on all manner of issues related to the SBA small business regulations, to include size protests, size protest appeals, and SBA affiliation mitigation efforts.   

51111658 - don't wait cartoon alarm clock
51111658 - don't wait cartoon alarm clock

Do contractors need to wait for a project to be complete to file a delay claim? The answer is a resounding NO! There is no reason for a contractor to finance a government-caused delay for any longer than absolutely necessary.

The Civilian Board of Contract Appeals (CBCA) recently drove this point home in CTA I, LLC v. Department of Veterans Affairs, CBCA 5826 (2018). In that case, CTA filed an Appeal in August 2017 seeking approximately $2 million in delay, inefficiency, and other costs for impacts occurring between notice to proceed and September 30, 2016. To date, the project is still not complete and the contractor is showing a contract completion date of November 2018, which is over three years late.

Near the close of discovery, the VA moved to stay the Appeal until contract completion on the grounds that until the contract is complete, the full delay impact is unknown.

The CBCA rejected the VA’s motion to stay, noting:

CTA is entitled to try to prove at this juncture that the VA caused compensable delay to activities on the critical path up to and including September 30, 2016, thereby delaying the future completion date. CTA need not wait until contract completion to litigate its delay claim for that completed, discrete period. Indeed, the very thing that defines work on the critical path is that the work has no leeway and must be performed on schedule; otherwise, the entire project will be delayed.

The CBCA further noted that the Suspension of Work clause requires contractors to submit delay claims “as soon as practicable.” Nothing in the FAR requires contractors to wait until contract completion to file a delay claim.

Takeaway:

If a contractor encounters a delay impact, it need not wait until contract completion to submit a delay claim. The process of litigating a delay claim to judgment is surprisingly lengthy and it is often in the contractor’s best interested to get the process started. An added benefit of filing your claim during contract performance is the early accrual of Contract Disputes Act (CDA) interest, which begins to accrue the date your claim is filed.  Although the current CDA interest rate of 2.625% is relatively low, given the size of the claim and the length of the dispute, CDA interest can grow to be quite substantial.

Crisis averted – at least for the time being.

The government shutdowns in January and February 2018 were big news, but ultimately resulted in very little actual downtime for the Federal government.  But does that mean its back to business as usual for government contractors?  Not by a longshot.

As Politico Playbook reported today, March has its own funding deadline.  With political hot-button issues (like immigration reform) still unresolved, there are legitimate concerns that another shutdown looms on the horizon.

In light of this uncertainty, there is no time like the present for firms who do business with the Federal government to get prepared.  That means creating a plan for how to address existing contractual obligations without assuming unnecessary risks in the event that the government does, in fact, shut down (again).  It is far better to think about and address these issues in advance, rather than face the real time pressure of a last minute Capitol Hill budget deal (or failed deal).

Let’s start with the bad news:  your government contract (like almost every other procurement contract) will very likely be impacted by a shutdown.  The Anti-Deficiency Act prohibits Federal agencies from exceeding appropriation limits unless the contract falls into a narrow exception.  For contractors, that means a Stop Work Order.  Remember that the risk of continuing performance in the event that funding is not available may fall on your company.

Now, some good news.  By thinking ahead and planning in advance, you can mitigate that risk and place your business in better position to weather the storm.  Here are a few practical pointers aimed at doing just that:

  • Review Your Contract.  Understanding how the government funds your contract will shed light on how it likely will be treated by the agency in the event of a shutdown.  According to the Office of Management and Budget, most “routine ongoing activities” will not be authorized to continue during a lapse in appropriation.
  • Communicate with the Contracting Officer.  Just like your business, the agency is also likely working on a plan on how to administer on-going contracts during a shutdown.  A mutual understating with the CO will go a long way towards avoiding disputes when the work inevitably ramps back up.
  • Develop Contingency Plans.  Work internally to create a contract specific contingency plan to mitigate risk in the event of a funding issue.  These will vary greatly depending upon the specifics of each procurement, so bringing in outside consulting and expertise to set up an individualized plan may reap benefits, particularly for more complex work.

Of note:  these tips – and the last one in particular – are not limited to government shutdown concerns alone.  Any government contract can experience unanticipated delays or even a long-term suspension of work.  Thinking ahead and creating a plan is the best way for contractors to avoid assuming unnecessary performance risks.

For contractors, defending (and overcoming) bid protests that challenge contract awards based on alleged Organizational Conflicts of Interest (OCI) may hinge on what a contractor does at the very beginning of the procurement process.  Whether the contractor revealed, acknowledged, addressed, and documented potential OCI with the Contracting Officer (CO) could determine the fate of the protest (and, in turn, the contract award).

In a recent decision, GAO sustained a protest asserting that the Department of Health and Human Services (HHS) failed to meaningfully consider the threat of OCI posed by the awardee.

In the opinion, GAO details several material points that all contractors should consider:

  1.  The awardee disclosed to the CO that its parent company might pose an OCI, but the awardee did not believe there was a conflict.
  2. The CO did not address this potential OCI in the pre-award OCI memorandum.
  3. GAO rejected the agency’s argument that the CO did not need to consider the OCI issue presented because the agency had considered and dismissed a similar conflict in a different jurisdiction.

Based on these points, GAO offers a bright line principle that operates in accordance with the FAR:  GAO will not substitute its judgment for the agency’s, provided that the agency gives meaningful consideration to whether a significant conflict of interest exists.  In other words, GAO is saying that if there is no meaningful consideration of potential OCI, as in this case, GAO may sustain a protest on that fact alone.

There are a couple of take-away lessons for contractors:

  • Contractors must always actively search for potential OCI during every procurement.
  • Contractors should take an active role in informing the CO about potential OCI and ensure that the CO adequately documents any potential issues.
  • Contractors cannot rely on OCI waivers in other contracts to determine whether their potential OCI might give rise to a successful protest.

So next time you have a potential OCI issue, do not count on the CO to document the issue properly. Instead, insist that the CO consider the OCI, determine that it is not an issue, and document that process.

The Contract Disputes Act (CDA) provides a remedy for contractors seeking to recover additional time or costs on a government contract (as part of a Claim or Request for Equitable Adjustment).  But when the basis for recovery is tied up in a contract modification, contractors must beware the agency’s standard waiver language – or risk losing the battle before it even begins.

The government utilizes contract modifications to implement any number of contract changes, ranging from minor adjustments to major alterations.  Modifications come in two general varieties:  Unilateral (the government directs the contractor to perform without negotiation) and Bilateral (the government and the contractor agree and both sign off on the change).

Bilateral changes can present a major stumbling block when the government and the contractor are on different pages when it comes to the terms of the change.

Bilateral changes very often include waiver language releasing the agency from any future claims for compensation (time / costs) arising out of the change that are not included in the modification.  Contractors must therefore be conscious of: (1) the compensation included in the modification and (2) whether that compensation makes the contractor whole.

If the contractor believes the terms of the modification fall short, it must specifically reserve the right to pursue damages at a later date before signing.

The importance of modification waiver language was highlighted in a recent Court of Federal Claims (COFC) case involving alleged delay damages on a U.S. Army contract related to the construction of water bottling facilities in the Middle East during the Iraq War.

As one part of the multifaceted claim, the contractor sought to recover based on alleged government-caused delays to the completion of a bottling plant.  The plant was the subject of two separate contract modifications – but the contractor argued that the modifications did not address the specific issue of delay (and, therefore, that it retained the right to seek the costs associated with the delay as part of the appeal).

The government, on the other hand, argued that the delay was incorporated as part of the second modification and therefore released by the contractor through the modification’s standard waiver language (under the legal theory of accord and satisfaction).  The Court sided with the government – specifically relying on the contractor’s failure to include a reservation of rights before signing the second modification.

The takeaway for contractors is clear:  Read and understand your modifications – and if there are any discrepancies, be crystal clear about reserving the right to seek compensation at a later date before you sign.

If you are interested in an overview of the unique framework of laws, regulations, and rules that govern the interpretation of government contracts, I invite you to join me for a live webinar on Monday, December 18.

More information on registration and attending the webinar can be found here.

During the webinar, I will discuss the unique interaction between your business and the Federal government when it comes to contracting in the public sector.  A marked departure from private contracting, businesses must understand how government contracts are formed and administered in order to successfully play the game.  Contractors that fail to understand the rules run the risk of losing out on contract awards or dealing with the often severe consequences of unsuccessful performance.

Additionally, the webinar will cover how government contractors are required to engage with the government when a dispute arises.  We will examine common causes of contract changes, the dispute resolution process (REAs, Claims, and more), and even the procedure for protesting erroneous contract award decisions.

Even if you are not able to attend the webinar, I’m happy to answer any questions related to this (or any other) topic.  You can reach me at nsolosky@foxrothschild.com or (202) 696-1460.

Understanding claims under the Contract Disputes Act is an essential skill for government contractors.  Claims (and related requests for equitable adjustment) are by far the most common remedy for contractors seeking to recover additional time and/or costs from the agency administering the contract.

Part of understanding the claims process is appreciating what kind of impacts do – and do not – lead to recovery for the contractor.  For example, and as I’ve covered before, contractor claims often arise in the context of differing site conditions (i.e., a subsurface, latent, or unknown physical condition at the project site that differs materially what is indicated in or anticipated under the contract).  In order to successfully pursue a claim for a differing site condition, the contractor must understand the concept of “reasonable foreseeability” and document the actual damages incurred due to the changed condition.

Contractors seeking to recover based on project delays must conduct a related – but distinct – analysis.  Generally speaking, the agency administering the contract is bound to act reasonably and timely respond to the contractor.  If a contractor submits an RFI and does not receive a timely response (based either on a contract requirement or other reasonable standard), the government could be on the hook for the time and costs extending out from that delay.

However, any contractor seeking to recover for a delay must first be sure that its own house is in order – that is, that it acted in good faith in interpreting and performing the contract.  A good example is presented in a recent Armed Services Board of Contract Appeals decision, where the Board denied the contractor’s claim for costs relating to alleged government delays.

The contract at issue was for the repair and calibration of a U.S. Air Force power supply unit.  During its performance, the contractor claimed that it submitted requests for clarification related to its duties under certain contract CLINs.  Because the agency did not timely respond to those requests (the contractor argued), the government bears responsibility for the corresponding delays.

In response, the agency offered a simple yet effective defense:  If the contractor consulted its PWS, all of its questioned would have been answered in full.  The Board agreed with the government.  According to the decision, there was no evidence that the contractor was somehow prevented from accessing the PWS and – even though the government certainly could have been more cooperative – all of the information allegedly sought by the contractor was available in the PWS.

The case obviously presents an extreme example – reading the contract would seem to be an essential first step for every new project – but the lesson is still the same.  The government can bear responsibility for delays, but the claim will far easier to support if there are not overriding or even competing faults on the part of the contractor.

It seems that when we discuss GAO bid protests, we most often refer to the post-award variety.  Your company lost a contract award due to a procurement error by the agency (like the failure to adhere to the RFP requirements or properly evaluate proposals) – and the fight is on to win it back.

However, Federal contractors have another effective tool at their disposal – the pre-award protest.

A pre-award protest is based on alleged improprieties in the RFP that are apparent prior to the time set for receipt of initial proposals (or, in the case of an IFB, bid opening).  If a firm detects a solicitation defect while preparing its proposal, a protest concerning that defect must be filed before the deadline set by the agency for the submission of proposals.

Pre-award protests are important for a number of reasons.  First, they are waived if not timely raised.  That is, if your firm loses out on a contract, you cannot turn back the clock to challenge an unclear RFP term.  That ship has sailed.  Second, pre-award protests can an essential part of your firm’s proposal preparation process.  By clarifying the RFP upfront, you can set your firm up to be in the best position to win the award later down the line.

A recent GAO decision presents a great example of the effective use of a pre-award protest.  The protest concerns an RFP issued by the U.S. Department of Agriculture for large air tanker services for wild land firefighting.

After reviewing the solicitation, one potential offeror filed a pre-award protest arguing that the agency’s restriction on retardant tank sizes (no larger than 5,000 gallons) was unduly restrictive.   The protester argued that the restriction unnecessarily excludes larger tanker fleets and is not grounded in a reasonable basis (i.e., not related to the agency’s actual needs).

In responding to the protest, the agency argued that larger tankers are not suitable for a number of technical reasons related to the logistics of coordinating and operating firefighting missions.  The contractor disagreed – and proceeded to poke holes in the agency’s logic with facts and statistics related to (among other things) airfield weight limits, dimensions, and locations.

GAO sustained the protest and directed the agency to go back to the drawing board to reassess its actual needs.  GAO’s decision is less about firefighting management and more an indictment of the agency’s lack of logical planning related to logistics of the tanker size limitation.

By filing the protest, the potential offeror (whose fleet of tankers all exceed the size restriction) not only clarified the RFP, but also opened itself up to a potentially new contracting opportunity.  Federal contractors should be mindful of the potential upside of pre-award protests – even with respect to procurements where your firm starts on the outside looking in.

 

As I have covered here before, every small business owner needs to be aware of the Small Business Administration’s (SBA) ostensible subcontractor rule.

In a nutshell, ostensible contractor affiliation occurs when a small business holds a prime contract – but a subcontractor hired for the job actually ends up controlling the work.  The SBA targets instances where the subcontractor (and not the small business prime) performs the “primary and vital” work of the contract.  Affiliation can also arise under the ostensible subcontractor rule if the small business is “unusually reliant” on its subcontractor.

The typical ostensible subcontractor rule violation involves a small business (prime contractor) and a large business (subcontractor).  For example, if the small business lacks the needed resources or expertise, it can find itself leaning on its large subcontractor to run the project to too great of an extent.  Anytime the large sub takes over a primary role on the project, there is danger of ostensible contractor affiliation.

However, in a recent decision, the SBA’s Office of Hearings and Appeals (OHA) drew out an important distinction in the law.  While the small prime/large sub relationship is more common, the ostensible subcontractor rule remains firmly in play even as between two small businesses.

The OHA decision arises out of a size protest filed in connection with a health services contract offered by the Florida Army National Guard.  After the SBA Area Office found the contract awardee small for purposes of the contract, the protester appealed and argued that the Area Office improperly failed to consider whether the awardee was affiliated with its proposed subcontractor under the ostensible subcontractor rule.

The Area Office based its decision on the size of the proposed contractor/subcontractor team.  Specifically, the Area Office reasoned that – because both firms were small for the purposes of the procurement – even if they formed a joint venture, affiliation by the ostensible subcontractor rule would not be found.  According to the Area Office, the SBA’s regulations intend for joint ventures to be treated as small as long as each of the joint venture members is small, without regard to the ostensible subcontractor rule.

On appeal, OHA disagreed with the Area Office.  OHA pointed out that the ostensible subcontractor rule does not include any exceptions for joint ventures where both members are small. To the contrary, the rule requires SBA to evaluate whether the firms are ostensible subcontractors; if they are, they will be considered joint venturers and affiliated for the purposes of a size determination.

OHA found that it could not accept Area Office’s conclusion that there had been no violation of the ostensible subcontractor rule because it never performed the required analysis.  Accordingly, OHA granted the appeal and ordered the Area Office to make a new size determination, including an examination of whether the participating firms were affiliated under the ostensible subcontractor rule.

 

Every government contractor that begins performance on a new engagement has the same basic goal – superior performance that bolsters the company’s bottom line and garners excellent past performance ratings from the agency.

But, when the contract ends, will your company’s status as a successful incumbent contractor increase the odds of winning future follow-on work from the agency?  While it never hurts to have exemplary past performance, GAO recently cautioned that nothing is guaranteed.

The protest in question (filed by the incumbent contractor) challenged the agency’s best value award decision on a contract to provide security services at a nuclear facility.  Specifically, the contractor argued that the agency’s evaluation of its technical proposal and staffing approach were unreasonable (and, in fact, “inconceivable”).

The agency rated these factors as merely “Good.”  However, based on its past performance as the incumbent, the contractor maintained it deserved “Excellent” ratings.  GAO disagreed, holding that the contractor’s protest lacked merit and was based on a selective reading of the RFP and the agency’s evaluation record.

GAO’s decision provides incumbent contractors with a clear path forward when approaching a proposal for follow-on work.  In a nutshell, highlight your outstanding past performance, but don’t rest on your laurels.  The agency will approach evaluations for the new award with a clean slate, and so should your business.

This lesson learned is particularly significant with respect to a best value competition.  As I’ve discussed previously, contractors approaching a best value procurements have to strike a balance between technical superiority and price.  Here, the contractor appears to have hung its hat too much on the technical side (and, even more narrowly, on its past performance as the incumbent) and, as a result, lost out on the contract.