Today, we take a look at the culmination of a long fight over the size status of a joint venture competing for a Federal contract.  After losing battles at the Small Business Administration (SBA) Area Office and Office of Hearings and Appeals (OHA) – the joint venture finally won the war when the Court of Federal Claims (COFC) declared that SBA incorrectly applied the economic dependence test.

A quick refresher on SBA economic dependence:  In a nutshell, the SBA will find two firms affiliated through economic dependence when a small business is dependent on another company for a disproportionate amount of its revenue.  Without a steady flow of business from its counterpart, the small business would be unable to survive (let alone thrive).  When one business is economically dependent on another, there is a presumption of affiliation.

That was precisely SBA’s finding with respect to the joint venture that teamed up to bid on a Department of Defense Missile Defense Agency support contract.  The SBA Area Office found the joint venture was “other than small” for purposes of the contract (and, therefore, ineligible for award).  OHA agreed, confirming that one of the joint venture partners was affiliated with a third entity (and therefore had to include that entity’s average annual receipts in its size calculation).  As a result of this affiliation, the joint venture partner was deemed to be a large business under the relevant size standard, thus disqualifying the joint venture.

Specifically, SBA found the two firms affiliated because the purported small business received more than 70% of its revenue from the third firm, thus creating an “identity of interest due to economic dependency.”  According to OHA’s decision, “as a matter of law, a firm that derives 70 percent or more of its revenue from another firm is economically dependent on that firm.”

On appeal to COFC, the joint venture argued that SBA misapplied the presumption of economic independence as a bright line rule – as opposed to a rebuttable presumption.  Here, the mitigating factors weighing against affiliation included the fact that the small firm had only been operating a short time and held a small number of contracts (which distorted the 70% figure relied on by OHA).  The joint venture also presented evidence of the firm’s attempts to diversify and expand to other sources of revenue.

The COFC was persuaded by these arguments and remanded size determination back to the Area Office for a new review.  In its decision, the court affirmed that the 70% standard  is highly indicative of economic dependence – but still not an absolute rule.  COFC determined that OHA failed to consider properly the mitigating factors presented.

This is a fascinating case study and a great example of a firm forcing SBA to faithfully apply its own regulations.  But – importantly – it also needs to be taken with a grain of salt and viewed as the exception to the rule.

The fact remains that there is a rock solid basis to support the SBA’s use of the 70% threshold as a standard for finding affiliation based on economic dependence – both in the regulations and in the case law.  If your business receives even close to 70% of its receipts from one business – there is a definite cause for concern.  This case confirms that your business has the ability to try and rebut the presumption of affiliation – but that can be a steep mountain to climb.

If you are concerned about your firm losing its size standard due to economic dependence – now is the time to think about proactive strategies for diversifying.  Relying on a winning rebuttal argument with the SBA is betting against the house.

In a recent post, I discussed new legislation that could signal an uptick in Best Value procurements for complex service-based contracts.  In the view of many (including me), more Best Value RFPs is a win/win for both contractors and the government.

As a quick refresher, Best Value procurements utilize a Best Value Tradeoff Analysis, which gives the agency the ability to weigh proposal costs and benefits and award the contract to the offeror that will provide the “best value” to government – even if that comes at a higher price than another acceptable offer.  By contrast, Lowest-Price Technically-Acceptable (LPTA) awards can be challenging on complex service-based contracts, where skilled performance is often not suited to a lean or even shoestring budget.

Contractors bidding on Best Value procurements need to think strategically and be mindful of both price and technical excellence.  Having the lower price or exceeding the RFP requirements – independently or even in tandem – may not be enough.  A recent GAO decision highlights how mastering the interplay of these two factor is the key to sustained Best Value success.

The protest concerns the Department of the Interior’s decision to award an FSS task order to a higher-priced offeror on a Best Value basis.  GAO denied the protest, finding that the agency reasonably documented the relative strengths of the proposals and weighed them against the quoted prices.

Digging deeper into the protest, the protester argued that the agency did not reasonably take into account the qualifications and experience of its proposed personnel – noting that its proposal exceeded the RFP requirements in a variety of ways.  In response, the agency noted that it did, in fact, give the protester credit for its solid experience, including assigning a “high confidence” rating to its past performance proposal.

However, for a Best Value award – meeting or (in this case) even vastly exceeding the RFP requirements in one area is often not enough.  The agency performed a detailed review of the offerors’ strengths and compared them in the context of their respective prices.  Based on this proper tradeoff analysis (according to GAO), the agency found the higher priced offer provided better value to the government and made the award.

GAO’s decision offers an important lesson to government contractors competing Best Value procurements – don’t get complacent!  Unlike LPTA procurements (where the RFP sets the bar), RFP requirements should not be viewed as anything other than the baseline.  Contractors should parse those requirements for areas where it can add value and then highlight all of those betterments in its proposal.

A short reminder to join me on Thursday, August 24, 2017 for lunch (11:30 am to 1:30 pm) and learn about the Small Business Administration’s All Small Mentor Protégé Program. The event is sponsored by Design-Build Institute of America Mid-Atlantic and will be held at Maggiano’s in Tysons Corner.

For months, we poured over the proposed and final rules – speculating about how the Program would look and operate.  Now it is here.  With the SBA accepting and processing applications at a healthy clip, there is no better time than the present to get up to speed.

During the event, we will walk through the basics of the All-Small Program, including the application and approval process.  We will also talk about big picture issues, including the Program’s general shield against affiliation and the most important questions for contractors (both large and small) considering taking the leap.

The event will also offer insights for contractors that have already investigated the Program.  For example, we will discuss the newly published requirements for mentor-protégé agreements and joint venture agreements formed between Program participants.  Careful consideration of the issues captured in these agreements can make the difference between a successful partnership . . . and the undesirable alternatives.

I hope that you can join us on the 24th.  I am happy to chat after the presentation about any specific questions facing your business.  If you can’t make the event, you can always contact me here to discuss your questions.

For government contractors frustrated by Federal agencies’ use of Lowest-Price Technically-Acceptable solicitations on complex services contracts – help may be on the way.

As I’ve discussed before, LPTA procurements can have a chilling effect on contractors that are able to provide increased technical benefits to the government – but at an increased price.  LPTA solicitations encourage contractors to get as lean as possible – focusing on price and only minimum technical competency.

A Bill currently before the U.S. House of Representatives proposes to limit the use of LPTA and leave it to the agency to weigh the “benefits of cost and technical tradeoffs in the source selection process.”  In other words, a Best Value Tradeoff approach.

If passed into law, the Bill would appear to been a boon for highly-skilled contractors capable of providing Federal agencies with great value at an increased (but still reasonable) price.  The Bill specifically earmarks certain industries where Best Value solicitations would take precedence over LPTA contracting:

  • Information technology services, cybersecurity services, systems engineering and technical assistance services, advanced electronic testing, audit or audit readiness services, or other knowledge-based professional services;
  • Personal protective equipment; and
  • Knowledge-based training or logistics services in contingency operations or other operations outside the United States, including in Afghanistan or Iraq.

I will continue to track the progress of this Bill as makes it way towards becoming law.  It should certainly be on the radar for Department of Defense contractors providing any of the broad range of services outlined above.

Government contractors usually find themselves appearing before the Government Accountability Office (GAO) on a bid protest for one of two reasons:  (1) you believe that the government erroneously did not award a contract to your business or (2) your business holds a contract award that is challenged by a disappointed offeror.  Either way, there is a contract on the line that likely means a great deal to you (and your business).

In the past, we’ve discussed strategies for filing protests – which includes considering the important question of whether the GAO is the proper venue for the protest.  We’ve also offered practical advice on winning bid protest arguments.

But, should you find yourself on the losing end of a bid protest decision (and at extreme risk of losing that important contract for good), the GAO offers a last resort – the Request for Reconsideration.

GAO Reconsideration is a bit of a misnomer, so it is helpful to first discuss it in terms of what it is not, before turning to what Reconsideration actually entails.

First, Reconsideration is not an appeal.  In fact, there is no true “appeal” at GAO.  While disappointed protesters still have the option of turning to litigation at the Court of Federal Claims, that is a separate and distinct process – a clean slate.

Reconsideration also is not a “do over” or second bite at the apple with the GAO.  Contractors should never hold back an argument at the GAO because it is an extremely streamlined process (100 days from protest to decision).  Arguments that are not well stated the first time cannot be revisited.

So, what is Reconsideration, exactly?

In a nutshell, GAO provides for Reconsideration where the protester can identify specific legal or factual errors in the decision denying the protest.  Repeating or restating the same arguments (and hoping for a different result) will not get it done.  Needless to say, it is a high standard – making for a low probability for success.

In a recent bid protest decision, GAO narrowed the opening for what protesters can argue on Reconsideration even further.

In connection with a Defense Logistics Agency diesel fuel services contract, the protester challenged the agency’s failure to set the procurement aside for performance by service-disabled veteran-owned small businesses.  GAO disagreed and dismissed the protest, concluding that the contracting officer performed reasonable market research.

The contractor sought Reconsideration, but was again denied.  GAO’s decision primarily relies on the most common rationale – the protester did not raise issues of fact or errors of law in the underlying opinion.  Thus, GAO classified the Request for Reconsideration as “mere disagreement” with the protest decision.

Importantly, GAO also rejected the protester’s argument that the agency failed to produce key documents needed to prosecute the protest.  There was, indeed, a dispute during the protest concerning whether certain key documents were protected source selection documents (and therefore not subject to disclosure) – but GAO classified that dispute as a protest matter, not a separate ground for Reconsideration of the decision on the merits.

While this is a post about Requests for Reconsideration at GAO – the takeaway for contractors should be focused more on bid protest procedure.  Reconsideration of an adverse protest decision is possible – but rare.

Contractors should focus on strategy in advance and think about how to frame the best argument (leaving nothing in reserve).  Moreover, if there is a dispute (like the battle for responsive documents in this case), contractors should take affirmative steps to protect their interests before a decision is handed down.  By the time Reconsideration rolls around, its likely too late.

Join me on Thursday, August 24, 2017 for lunch (11:30 am to 1:30 pm) and learn about the Small Business Administration’s All Small Mentor Protégé Program. The event is sponsored by Design-Build Institute of American Mid-Atlantic and will be held at Maggiano’s in Tysons Corner.

For months, we poured over the proposed and final rules – speculating about how the Program would look and operate.  Now it is here.  With the SBA accepting and processing applications at a healthy clip, there is no better time than the present to get up to speed.

During the event, we will walk through the basics of the All-Small Program, including the application and approval process.  We will also talk about big picture issues, including the Program’s general shield against affiliation and the most important questions for contractors (both large and small) considering taking the leap.

The event will also offer insights for contractors that have already investigated the Program.  For example, we will discuss the newly published requirements for mentor-protégé agreements and joint venture agreements formed between Program participants.  Careful consideration of the issues captured in these agreements can make the difference between a successful partnership . . . and the undesirable alternatives.

I hope that you can join us on the 24th.  I am happy to chat after the presentation about any specific questions facing your business.  If you can’t make the event, you can always contact me here to discuss your questions.

Contractors seeking to recover additional time and/or costs on government contracts typically choose to proceed with either a Request for Equitable Adjustment (REA) or a Claim.  These remedies fall under the general umbrella of the Disputes clause (FAR 52.233-1).

Often times, REAs and Claims can be a study in contrasts.  From a procedural perspective, submissions to the government are the subject of numerous technical hurdles that require strict compliance.  For example, a Claim must be “certified” by the contractor if it includes a demand for a sum certain in excess of $100,000.  The proper certification language is set forth at FAR 33.207(c).  An REA does not require a corresponding certification unless it submitted to an agency of the Department of Defense, in which case the certification found at DFARS 252.243-7002 is required.

On the other hand, resolving REAs and Claims often involves informal negotiations and compromises.  Contractors seeking to resolve disputes with the government are well served by remaining flexible and engaging in the kind of give-and-take usually reserved for the alternative dispute resolution universe.

In order to achieve maximum effectiveness in resolving disputes, government contractors need to be able to excel with a foot in both worlds – that is, maintaining compliance with the applicable rules and regulations while remaining open to outside-the-box solutions.  Straying too far in either direction can result in a negative outcome.

For example, a recent Armed Services Board of Contract Appeals (ASBCA) decision highlights the case of a contractor that failed to comply with some hard and fast rules during its settlement negotiations with the government.  As a result, the Board denied its appeal – leaving the contractor empty handed.

The appeal involved an Army contract for the operation of a solid waste burn pit in Afghanistan.  The government terminated the contract for convenience and directed the contractor to submit a settlement proposal.  In response, the contractor submitted a properly certified claim for $160,000 in costs on October 24, 2013.  Just four days later, the contracting officer issued a final decision denying the claim and informing the contractor of its right to appeal (90 days, if filing at the ASBCA).

Even after the contracting officer’s final decision, the parties continued to negotiate.  The contractor floated a comprehensive settlement agreement including all labor and leased equipment expenses.  The contracting officer responded that the government intended to deny the proposal due to a lack of supporting documentation, but also invited the contractor to supplement the proposal.  The contractor responded with a revised settlement proposal.  Critically, the contractor did not certify this revised submission, which was also later denied by the government.

About three years later, the contractor filed its Notice of Appeal from the government’s denials with the ASBCA.  The government promptly filed a motion seeking to dismiss the appeal as untimely because it was filed well beyond the 90 day deadline included in the contracting officer’s final decision.  The Board agreed and dismissed the claim.  Tangentially, the Board also commented that it lacks jurisdiction over the contractor’s revised proposal due to the lack of a proper certification.

This decision offers a variety of lessons for contractors pursuing or considering claims against the government.  First, the case highlights the substantial latitude for negotiations during the dispute resolution process.  While they did not bear fruit here, the government and the contractor exchanged multiple volleys with the opportunity to refine and supplement the original submission.  Contractors should endeavor to keep an open line of communication during the REA/Claim process and promptly respond to requests for supplemental information.

The case also provides contractors with some good examples of what not to do.  Here, the contractor failed to certify its claim and then made matters worse by waiting an unreasonable amount of time to pursue its appeal.  Most claim miscues can be corrected or at least mitigated if they are discovered early in the process.  However, in this case, the nearly three year delay was simply impossible to overcome.

 

The baseline rule for SBA size protests is that a business’s size (for a receipts-based size standard) is determined by looking at the average annual receipts for the last three completed fiscal years.  But what if a contractor does not have a tax return on file for the most recent fiscal year?

A recent Small Business Administration (SBA) Office of Hearings & Appeals (OHA) decision answered that question in a remarkably succinct way:  It Doesn’t Matter.

The decision arises out of the appeal of an SBA area office determination that a contractor exceeded the size standard for a Department of Homeland Security Program Management, Administrative, Operations, and Technical Services set-aside contract.  The area office calculated the apparent-awardee’s size by looking to the contractor’s average annual receipts and utilizing tax returns from the three most recent fiscal years.  Because the contractor’s average annual receipts exceeded the procurement’s $14 million size standard, the SBA determined it was not small and could not be awarded the contract.

On appeal, the contractor argued that SBA should not have relied on its most recent tax return because the return was not filed with the IRS until several months after it self-certified as small for the contract.  Based on that evidence, the contractor proposed that the SBA area office should have looked to the three years’ worth of returns actually on file at the time of self-certification for its size determination.

OHA emphatically rejected the contractor’s position.  The decision states that it is “settled law” that tax returns filed after the date of self-certification may be used by the area office if the returns are available at the time of the size determination.

For a contractor focused on staying below the relevant size threshold, the focus of this opinion is clear: the lack of a filed tax return will not turn back the clock.

The proper measurement of your business’s receipts is the last three completed fiscal years immediately preceding self-certification – even if there is a filing extension or other reason that the most recent tax return is not yet on file at the time of self-certification.  The important question is whether the return is available at the time of the SBA’s review.

Moreover, even if a tax return is not available, the SBA area office can utilize any other available information (including regular books of account and audited financial statements) to support its size calculation.

 

We often discuss the need for government contractors to Read and React when responding to a solicitation:  (1) Read the RFP and understand all of the requirements and limitations and (2) React to the RFP’s evaluation scheme by playing the appropriate strengths and minimizing weaknesses.  And sometimes, the best reaction is knowing the value of beefing up your proposal in the right areas — even when it will increase your overall price.

The best example when it comes to shifting proposal strategies is Lowest Price Technically Acceptable (LPTA) vs. Best Value.

The goal on an LPTA procurement is to achieve technically acceptability while keeping price as lean as possible.  On the other hand, when responding to a Best Value procurement, the game changes dramatically.  The Agency is looking at the intersection of technical competency and price in order to maximize the benefit to the government.  The award can go to even the highest priced offeror – provided that the higher price can be justified through additional benefits to the agency.

A recent GAO decision highlights the tightrope that government contractors must walk when responding to RFPs.

The protest concerns the National Institutes of Health’s award of a contract for event management and video production services.  The RFP called for award on a Best Value basis, considering the following three factors:  (1) technical, (2) price, and (3) past performance.

The protest challenged the agency’s decision that the unsuccessful offeror’s proposal created a “potential risk” based on its option year pricing.  Specifically, the agency concluded that the offeror’s decision to decline any increases in option year pricing jeopardized the company’s ability to retain qualified personnel on the job (because, presumably, those employees would not be in line for compensation increases year over year).

The protester disagreed and presented some compelling facts to support its position.  The protester argued that it maintains a robust employee retention program and cited statistics regarding its favorable retention record.  Moreover, the protester noted that its competitive compensation plan undercuts the agency’s concerns.

The agency chalked all of this information up as “mere disagreement” with the agency’s reasonable concerns and dismissed the protest.

There was nothing “wrong” or non-responsive about the offeror’s proposal.  But with Best Value evaluations, the agency has the ability to dig into the numbers and uncover what it believes is the most advantageous offer.  In this case, the agency determined it was worth the extra bump in option year pricing to ensure employee retention.  That kind of value judgment (when properly documented by the agency) is difficult to overcome as part of a bid protest.

The key for contractors responding to a Best Value RFP is to anticipate what is important to the agency and reinforce your business’s unique ability to satisfy those needs — even if it means a higher overall price.

This Thursday, June 29 (1:00 – 2:30 EST), I will be hosting a webinar to discuss document retention requirements for government contractors.

Implementing corporate document retention policies is an essential business practice for two reasons:

First, there is a legal duty for contractors to comply with contractual document retention requirements.  If the government requests to inspect your company’s records (for example, as part of a DCAA audit) and they are not available, it opens the door to some serious negative consequences (like False Claims Act allegations).

Second, proper document management is essential to supporting claims for time and costs against the government.  If a contractor fails to maintain its records for the specified period, the contracting officer can disallow all or part of the claimed cost that is not adequately supported.  In other words, failed document retention polices can have a real world impact on your business’s bottom line.

During the webinar, I’ll cover the basics of document retention – plus how it impacts more nuanced topics like electronic transfers and storage, the Freedom of Information Act, and the new hot-button issue – Cybersecurity.

Finally, the webinar will cover best practices for document retention under the FAR.  Specifically, I’ll discuss how a contractor can utilize a FAR 52.203-13 Code of Business Ethics and Conduct to not only master document retention practice – but also to implement an overall culture of compliance.

If you are unable to attend the webinar, please feel free to contact me.  I’ll be happy to share the information – or discuss any specific issues facing your business.