Just last week, we looked at the importance for small business contractors to check their SAM.gov profiles to make sure they are properly certified as small.  Incorrect information can lead to a variety of problems, not the least of which is potentially losing out on a small business set-aside contracting opportunity.

36995065 - set of check mark, check box icons

This point was refined by a newly published opinion from the Government Accountability Office.  As part of the GAO protest, a disappointed offeror alleged that the awardee on a VA electrical services contract lacked the technical expertise required by the solicitation.  Specifically, (among other things) the protest argued that the awardee’s SAM profile did not specifically list the NAICS code applicable to the procurement.

The GAO disagreed and dismissed the protest – stating that it could not identify a regulation requiring an offeror to have a particular NAICS code included in its profile.

So, are SAM profiles back to the Wild West?  Not so fast.  Part of the reason that the GAO dismissed the protest was that the awardee was certified under other NAICS codes requiring the same (or even smaller) size standard.  Also, by taking proper steps to certify under the NAICS codes where your business primarily operates, your business will be in a position to fend off challenges like these altogether.

So, the advice remains the same.  Take the time to check and spruce up your SAM profile (and any other publically available databases listing information about your business).

Small business owners have lots of items on their to-do lists.  In addition to actually running the business, there are many administrative tasks required to make sure that you meet the applicable small business size standards and maintain those standards year-after-year (in order to avoid, or at least minimize, vulnerability to an SBA size protest).

Among the (sometimes admittedly) tedious tasks associated with remaining eligible for small business contract awards is registering in the required government databases.  Over the past five years, this process has been considerably streamlined by the rollout of the System for Award Management (www.SAM.gov).  SAM is a no-cost, government website where contractors must register and provide certain identifying information about their business.

One of the areas covered by a SAM profile is a business’s size – and specifically whether it qualifies as “small” under the applicable size standards.

The importance of paying proper attention to your SAM profile was highlighted in a recent SBA size protest concerning a small business set-aside contract for the lease of two bucket trucks at Marine Base Camp Lejune, North Carolina.

In the protest, a disappointed offeror argued that the awardee did not meet the size qualifications required by the contract.  Although the SBA’s Office of Hearings and Appeals (OHA) found that the protest lacked real specificity (and therefore was subject to being dismissed) – it nevertheless sustained the protest.

41803629 - businessman reading documents with magnifying glass concept for analyzing a finance agreement or legal contract

Why did a protest lacking in specifics get OHA’s attention?  It pointed out that the awardee’s SAM profile itself stated that the contractor is not “small” under the contract size standard.  That fact alone was enough for OHA to send the protest back to the SBA area office for further review.

This story should serve as a helpful reminder that even basic information should be reviewed periodically.  The attention to detail will pay off with less headaches in the long run.

Novations are the government contracting equivalent of M&A in the private sector – the process through which a government contract can be transferred from one business to another (without violating the Anti-Assignment Act).

There are many reasons that a novation might be necessary.  A business holding a government contract could be acquired by another business (that now wants to take over and perform the contract).  Or a government contractor could divest assets during a bankruptcy proceeding.  The common denominator is a material change in the identity of the business that will perform under a contract with the government.

The novation process set out in FAR 42.1204 is deceptively simple.  According to this regulation, a formal Novation Agreement is granted when the government determines that the transfer is in the “best interest” of the government and supported by appropriate documentation (set forth in checklist format).

In reality, novation is a fluid and unpredictable process.  But, by thinking proactively about the transfer in advance, you can ease the administrative burden and set your business up for the future successful performance of a new contract.

Contract

Plan Ahead (If Possible)

FAR 42.1204 does not establish any timeline or schedule for the novation process.  Even if you have all of your “checklist” documents prepared and ready for primetime, there is no guarantee that your Novation Agreement will get the rubber stamp that you hope for (in fact, it probably won’t).

Look carefully at the contract that is being transferred.  By understanding the expectations and deadlines, you’ll minimize the chance of penalties caused by a longer-than-anticipated novation process.

You Might Not Check Every Box

Just because FAR 42.1204 has a list of required documents does not mean that your business (or the business transferring the contract) will be able to check all of those boxes.  For any number of reasons, there may be a document here or there that is not in your records.

Before creating unnecessary work for yourself, contract the ACO (administrative contracting officer) that will handle the novation.  By discussing your particular circumstances, you may be able to agree on a smaller or different set of documents that will satisfy that government’s process.

But beware.  Exceptions or concessions that are approved for one novation may not work for the next.  Whether it’s a different ACO or a change in the government’s expectations, plan on treating each contract novation like a unique process (which, when you think about it, it is).

Stay Flexible and Be Ready to Supplement

The novation process is marked by a back-and-forth process between the contractor and the government.  The ACO may ask for more – or different – information from what was included in your opening submission (even if you think your information is totally comprehensive).

Contractors that want to improve their proposal drafting skills (and win more contract awards) should always keep an eye on the news and learn from others’ mistakes.  Understanding an agency’s award rationale can provide a competitive advantage and keep you well-positioned to receive the next contract.

And, sometimes, simply following instructions and staying within the lines can make the difference between winning and losing.

lose

Take, for example, a recent GAO decision discussing the merits of an agency’s technical evaluation.  The protest argued that the agency unreasonably overlooked technical details included in the “past performance” and “personal experience” sections of the contractor’s proposal.

The problem with this argument is that the details in question should have been included in the “technical approach” section of the proposal — as indicated in the RFP.  According to the GAO, there is “no merit in the [argument] that the agency should have looked to other proposal sections for information regarding the firm’s technical approach.”

The takeaway here is an easy one – read the RFP instructions carefully and follow them closely.  If technical data or other information is requested by one section of an RFP, provide that specific data in the corresponding section of your proposal.  Don’t assume that – just because you’ve already included the information elsewhere – the agency will take the time and effort to track it down (even if it appeared just a few pages or even paragraphs earlier in the proposal).

The general rule is that you want to make life as easy as possible for the person evaluating your proposal.  Make it a routine best practice to check each proposal for the key elements required by the RFP before hitting send.

The SBA’s new “small business mentor-protégé program” is causing quite a stir.  As we covered yesterday, the new final rule opens the door for all small businesses (not just those in the 8(a) program) to receive assistance from large business mentors – and more importantly – to form mentor-protégé joint ventures to compete for small business set-aside contracts (including those offered under the SBA’s socioeconomic programs, such as WOSB, SDVOSB, and HUBZone) without the danger of affiliation.

This new program is a game-changer for small business owners.  Now, instead of competing for set-aside work against fellow small businesses, you might find yourself up against a JV backed by the might of a large business.  The result is an uneven playing field where a “true” small business is up against a stacked deck.  There is also a paradigm shift for large business owners, as the SBA is now offering unprecedented access to set-aside contracts previously reserved for performance by only small businesses.

The first instinct for many will be to rush out and find a dance partner.  That is, another business —  large or small, as the case may be — to team with so that you’ll be on even footing when competing for those small business set-aside contracts.

But is a teaming arrangement right for your business?  We suggest thinking strategically and looking before you leap.

38286462 - goldfish jumps in to a fishbowl in to liberty isolated on white background

Long before the SBA announced its new program, teaming arrangements presented an avenue for businesses (and, in particular, large and small teammates) to uncover new contracting opportunities.  But just because you can get new work through teaming doesn’t necessarily mean that you should.

Before jumping into a new project delivery team, Federal contractors (both large and small) should consider intangibles like chemistry, communication, and cooperation.  Teaming with a business that does not share your corporate values, risk tolerance, or project management approach will undoubtedly negatively affect project performance – and, eventually, your bottom line.

For example, in order to participate in the new SBA program, the parties must submit a written Mentor-Protégé Agreement for review and approval by the SBA.  The Agreement should address the small business protégé’s needs, as well as when and how the large business mentor will address those needs.

This Agreement should not be hastily pulled together to make sure that your new JV is first-in-line when the program opens for business next month.  Instead, we recommend a thoughtful process that considers the wants-and-needs of both the large and small teammate.  A solid foundation will make sure both sides start off on the right foot and have a clear picture of how the relationship will unfold (and hopefully continue).

If you are interested in learning more about successful Federal project delivery teaming, I recommend taking a look at the slides from my recent presentation on the subject.  They may help you find the right path if you are considering jumping into the new mentor-protégé pool.

The future is now for government contractors.  A new Small Business Administration (SBA) regulation finalizes the long-anticipated expansion of the small business mentor-protégé program.  This major policy shift vastly expands access to set-aside contracts previously reserved for performance only by small businesses.  Government contractors – both small and large – need to create a game plan for how to take advantage of this shifting landscape.

At the heart of the new program is the SBA’s decision to allow small business protégés to joint venture with large business mentors to compete for federal work — all without worrying about affiliation.  These new mentor-protégé joint ventures can compete for any federal work — including small business set-aside contracts — provided only that the protégé qualifies as small for the procurement.  In the rule, the SBA specifically provides that no determination of affiliation or control can be based solely on the mentor-protégé agreement, or any assistance provided by the mentor under that agreement

Previously, this shield from affiliation was reserved only for the 8(a) program.  Now, all small businesses (including participants in the HubZone, Women-Owned Small Business (WOSB and EDWOSB), and Service-Disabled Veteran Owned Small Business programs (SDVOSB)) will have the opportunity to form SBA approved mentor-protégé teams with larger businesses.  By entering into a new mentor-protégé team, these joint ventures can compete for and win small business set-aside contracts (including contracts offered under the SBA’s socio-economic programs).

The SBA’s final rule sets out all of the particulars of the new small business mentor-protégé program, including:

  • How a business can qualify as a mentor or protégé
  • The requirements for a written Mentor-Protégé Agreement, and
  • How the SBA will process what is expected to be a flood of new program applications.

The rule becomes effective in 30 days (August 24, 2016) – so now is the time to figure out where your business stands, find a mentor or protégé, and start the application process.

While there is much left to be sorted out in terms of how the rule translates from on-paper to in-practice, we anticipate that small businesses (including SDVOSBs, HUBZones, and WOSBs) will face heavily increased competition on set-aside contracts from peers now backed by the support and assistance of a large business.

41771912 - businessman knocking on a door to "opportunity" office concept for aspirations, progress meeting or promotion

Is your business ready to tackle these new challenges?

As we previously broke down in detail here, an Organization Conflict of Interest (OCI) exists when work performed on a federal contract leads to an unfair competitive advantage or impaired objectivity.  Federal contractors must establish appropriate safeguards against OCI because a finding of OCI can lead to losing a contract or, worse, suspension or debarment from future federal work.

One of the more common issues that leads to OCI is unequal access to information.  Unequal access to information can arise when a contractor has access to non-public information on a federal contract that later turns out to provide an unfair competitive advantage in future procurements.

35615443_m

But, what if you current hold a federal contract (or multiple federal contracts) where your business and employees routinely access such confidential data?   Is it realistic (or even possible) to form a firewall between your business and the nuts and bolts of your federal work?

In a recent decision, the GAO considered a contractor’s access to agency information obtained during its work as a subcontractor at the agency’s program office.  According to GAO, a contractor may possess unique information, advantages, and capabilities due to its prior experience under a government contract without qualifying as an OCI.  The key is not allowing that incumbent contractor advantage to spill over into preferential treatment by the agency.

The responsibility to avoid an OCI based on preferential treatment falls on both the agency and the contractor.  For example, the GAO notes that an agency can neutralize the appearance of unequal access by releasing information to all procurement offerors.  For the contractor, internal safeguards should be in place to identify the possibility of OCI and – if not appropriately mitigated by the agency – disclosed in advance.

Constant vigilance is required to stay out in front of OCI issues and avoid the potentially devastating consequences.

For small businesses, understanding the Small Business Administration’s rules concerning affiliation is vital for establishing and maintaining a certain size threshold.  Relationships that are deemed too close by the SBA can lead to a finding of affiliation and, ultimately, the loss of the ability to chase set-aside work.

The rules of affiliation are notoriously ambiguous.  While general guidelines exist, there are no absolutes.  The SBA will look to the “totality of the circumstances,” so each relationship must be carefully examined.

Today, we are looking the concept of “economic dependence.”  In a nut shell, economic dependence occurs when a small business is dependent on another company for a disproportionate amount of its revenue.  In other words, 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.

The SBA provides some guidance when it comes to the concept of economic dependence.  The magic number is 70% — if a small business derives 70% or more of its revenue from the other business, there is a presumption of dependence (and, therefore, affiliation).  Caution: there are rarely hard and fast rules when it comes to the SBA and affiliation.  Economic dependence can still be found at less than 70% if other factors are present.

11743532_s

The concept of dependence is also vital to small businesses participating (or that want to participate) in the SBA’s 8(a) program.  There, economic dependence is viewed in a big picture way.  Dependence is present when the small business is so reliant on its counterpart that it cannot exercise independent business judgment without great economic risk.

Again, concepts like independent business judgment and economic risk can be difficult to quantify or nail down.  When it comes to the SBA and affiliation, it always makes sense to come back to control.  The hallmark of affiliation is one business’s ability to control another.  So, if you are concerned that your small business is too economically dependent on another business, ask yourself what drives your business decisions.  Is it your business’s best interests – or the interests of another company?

If you had to think about it . . . its time to have a conversation about affiliation and how to diversify.

If you are interested in recent decisions concerning the SBA’s take on affiliation and economic dependence, check out the recent decision in The DESA Group, Inc., where the U.S. District Court for the District of Columbia remanded to the SBA for further investigation into a finding of economic dependence.

The Small Business Administration recently denied an appeal by a disqualified joint venture on a small business set-aside contract.  The SBA found that — even though the JV was able to show evidence of an SBA-approved mentor-protégé agreement — the agreement was expired at the time the JV bid for the contract.  The lack of an active agreement was determined by the SBA to be fatal to the JV’s attempt to bid on the contract.

37048889_s

The JV in question is Wiss Joint Venture, a partnership between Dae Sung LLC, an 8(a) participant, and its mentor LB&B Associates Inc.   Without the protection from affiliation provided by the mentor-protégé program (and, more precisely in this case, evidence of a current and up-to-date agreement approved by the SBA), Wiss and Dae Sung were considered affiliated and too large to compete for the set-aside contract.

The Wiss JV case – and other recent SBA cases on the topic, such as North Star Magnus Pacific Joint Venture – is significant in the current government contracting climate for a few reasons.  Of course, the cases tell us that 8(a) mentor-protégé program participants should be sure that their SBA-approved JV agreements are current before bidding on a contract.  But, even beyond the surface level, the cases demonstrate the importance of planning ahead, entering into strategic partnerships, and always documenting your work:

  1. First, the Wiss case highlights the importance of the up-coming expansion of the SBA’s mentor-protégé program.  As we’ve discussed extensively on this site (see conversations here and here), the changes will open up the current protection afforded only to 8(a) program participants to all small businesses.  In the short term, this will lead to potentially unprecedented access to small business set-aside work – particularly for large businesses that are currently too large to compete for those contracts.  However, we wonder whether the big picture result of the expansion will lead to small businesses without a large business dance partner being boxed out of the set-aside game.
  2. Second, the decision reminds us of the importance of teaming arrangements in federal contracting.  As we discuss here, teaming on federal projects can lead to increased contracting opportunities – but also come with a fair amount of risk if you pick the wrong partner.  In the Wiss case, there is absolutely nothing to suggest that the relationship between Dae Sung and LB&B is anything but solid – but there was obviously some level of miscommunication leading to an expired mentor-protégé agreement and, as an end result, a missed contracting opportunity.
  3. Third, and finally, the case emphasizes the importance of documentation on federal projects.  Given the ever increasing number of federal regulations requiring compliance, it is essential for contractors to create a file and document important activities.  Indeed, in the Wiss case, the JV argued that the SBA’s Illinois District Office approved an extension of the lapsed mentor-protégé agreement when it conducted Dae Sung’s annual 8(a) program review, but it could not provide the evidence.

The hallmark of the government’s Service-Disabled Veteran-Owned Small Business programs is ownership and control of the business by a qualifying service-disabled veteran of the U.S. military.  So what happens when you intentionally violate that rule to take advantage of program benefits?  The answer won’t surprise you – and it should serve as a reminder of the powerful enforcement stick the government wields.

7957715_s

Today’s unfortunate example is Hayner Hoyt Corporation – a Syracuse based contractor that agreed to pay in excess of $5 million to resolve allegations that it intentionally exploited the SDVOSB program for contracting opportunities.  Specifically, the government alleged that Hayner Holt officials exerted control over a purported (and now defunct) SDVOSB.  While a service-disabled veteran figurehead was placed at the head of the operation, all of the actual control, day-to-day management, and decision making was in the hands of Hayner Holt and its affiliates.  In reality, the responsibilities of the service-disabled “president” of the SDVOSB included taking inventory and snow removal.

While these allegations may be a blatant example of government contracting fraud, it bears repeating that most government investigations and lawsuits are based on conduct that falls far short of this example.  In fact, in today’s enforcement environment, many allegations of so-called fraud come down to nothing more than failing to know the rules.

For example, again looking at the SDVOSB program, did you know that a service-disabled veteran must obtain written verification that she qualifies for the program?  Failing to obtain that verification could land a contractor operating an SDVOSB in the same kind of trouble as Hayner Hoyt – even without the elaborate scheming.

The only true way to avoid these pitfalls is a robust ethics plan that creates a culture of institutional compliance.  Do you know the current state of your Code of Business Ethics and Conduct?