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 clearthe 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.

Government contractors know the odds on GAO bid protests – are they are not all that good.  Even with a noticeable uptick, the statistics reveal that less than 1/4 (about 23%) of all bid protests were sustained in FY 16.  Even factoring in voluntary agency corrective action, the odds of a positive outcome are still worse than a coin flip (about 46%).

So, the question is how can you make those odds work for your business?

First, pick the right battle.  As I discuss in The Practical Guide to Filing (and Winning) GAO Bid Protests, certain kinds of cases tend to fare better at the GAO.  These cases include pre-bid solicitation errors and obvious evaluation missteps by the government.  More nuanced issues – or cases requiring in depth legal analysis – are better suited to the Court of Federal Claims (COFC).

The difference largely lies in the mission of each venue.  The GAO’s trademark is speed and efficiency.  A contractor can obtain a mandatory stay of contract award or performance just based on filing a timely protest – so the GAO’s stated goal is to resolve all protests within 100 days of filing.  Protest administration at the COFC, on the other hand, is more akin to traditional litigation.

Each venue offers pros and cons that can vary on a case-by-case basis.  So, contractors should certainly think before mechanically filing a protest (because “that’s what we always do”).

The other way to beat the odds at GAO is to avoid common contractor pitfalls.  Even though some areas of procurement administration seem (and probably are) inequitable – that does not necessarily mean they will support a protest.

For example, in a recent decision, GAO rejected a contractor’s protest related to its adjectival ratings.  The contractor argued that the agency conducted an improper best-value tradeoff analysis where two offerors received identical adjectival ratings – but the agency still elected to award to the higher-priced offeror.

GAO disagreed, finding that the contractor’s arguments focused too narrowly on the assigned ratings.  The record showed that, within those ratings, the agency conducted a proper tradeoff analysis, including documenting the technical merits of the proposals against their respective offered prices.  In the end, the agency determined that the technical benefits of the awardee’s proposal warranted the government paying the premium price.

The lesson for contractors is not to rely too heavily on adjectival ratings.  Particularly when it comes to best value procurements, the government has significant discretion to put a finer point on proposals with the same overall rating.

When this situation arises, contractors are well-served to thoroughly explore the agency’s best value decision during the required post-award debriefing.  If the debriefing reveals holes in the analysis, then a protest could be worth the time and effort.  On the other hand, if the best value decision is properly documented, a protest based only on adjectival ratings is likely not worth the investment.

This is not a unique story – but there is still a lesson for Federal contractors to learn.

A recent GAO decision considered an electronic proposal submitted by email just prior to the 4:00 p.m. deadline.  Although the contractor beat the clock, the proposal did not arrive in the contracting officer’s electronic mailbox until about two hours later – after the deadline.

The Federal Acquisition Regulation (FAR) takes a hardline (but easy to follow) position on untimely proposal submissions.  Late is Late.  With some very limited exceptions, proposals received in the designated government office after the exact time specified are late and will not be considered.

The contractor’s argument to GAO is a familiar one – surely, a contractor that hits “send” on an electronic proposal can rely on that transmission.  After all, the proposal is out of its hands and there was no indication of an error or electronic bounce-back.  Not so, says GAO.

After a lengthy back and forth between the contractor and the government over whose system was responsible for the delivery delay, the GAO ruled that it does not matter.  The FAR places the burden on the contractor to ensure that the electronic proposal has sufficient time to make its way through any filters or email traffic.  Specifically, FAR 15.208(a)(1) provides that a late proposal can still be timely if it is “transmitted through an electronic commerce method authorized by the solicitation,” and “received at the initial point of entry to the Government infrastructure” not later than 5:00 p.m. one working day prior to the deadline for the receipt of proposals.

In other words, if you electronically submit your proposal one day early, you can get off the hook if a government transmission problem delays its arrival in the contracting officer’s mailbox.

While it may seem one-sided to shift the burden for a successful transmission away from the government, that is nothing new for experienced government contractors.  In fact, in this case, it may even provide a benefit.

I am a longtime advocate of contractors submitting proposals a day early.  It solves lots of last minute logistical problems.  While we see many “late is late” problems for contractors that submit proposals at the 11th hour, I have yet to see a case where a contractor was unable to resolve a transmission problem over the course of 24 hours.

It is not always realistic, but getting your proposal teed up a day early is worth the effort.

 

Earlier this month, we had the pleasure of opening the 2017 Associated General Contractors of America Federal Contractor Conference in Washington, DC with a presentation focused on the emerging issue of Cybersecurity in Federal contracting.  Data breaches are big news in the private sector, but the issue has remained somewhat under the radar for public contracts – until now.

New rules and regulations (with the imminent promise of more on the way) are setting the stage for Cybersecurity to be the next big government enforcement target under the Civil False Claims Act (which the Department of Justice used to claw back $4.7 Billion in recoveries from Federal contractors in FY 2016 alone).

The New Cybersecurity FAR Clause

A Final Rule published by the Department of Defense, NASA, and the General Services Administration in 2016 created a new Federal Acquisition Regulation subpart (4.19) and contract clause (52.204-21) that deal exclusively with Cybersecurity.

The Regulation broadly applies to “covered contractor information systems” that process, store, or transmit “Federal contract information.”  These terms are interpreted expansively to cover any information provided by or transmitted to the Federal government in connection with contract performance.  In other words, if the new clause is not included in your Federal contracts yet, it soon will be.

The Regulation imposes 15 “basic” security controls for contractors.  The controls are intended to impose minimum safeguarding measures that the government believes any responsible contractor should have in place as part of the cost of doing business.  A complete list of the security controls is available here.

The DFARS Cybersecurity Clause

Compliance with FAR clause 52.204-21 should be viewed by contractors as a baseline Cybersecurity requirement – but it does not take the place of other, more complex requirements.

For example, DoD contractors must comply with DFARS 252.204-7012 (Safeguarding Covered Defense Information & Cyber Incident Reporting).  The DFARS clause is more far-reaching than the FAR clause, and includes investigation and rapid reporting requirements for breach incidents.  It also requires compliance with NIST 800-171 (Protecting Controlled Unclassified Information in Nonfederal Systems and Organizations) by no later than December 31, 2017.

Other requirements related to the handling of Classified and Controlled Unclassified Information also remain in place.  And we fully expect more (and more demanding) Cybersecurity requirements to be published by the government in the coming months and years.

The Contractor’s Guide to Cybersecurity Compliance

For Federal contractors, the future is now.

Cybersecurity requirements will soon be included in almost every Federal contract, so the only question is how to achieve and maintain compliance.

The good news is that compliance with FAR 52.204-21 is a great first step.  Again, the government considers the Regulation to be a basic safeguarding requirement that every responsible contractor should have in place.  If your business does not have at least those 15 security controls covered right now, it is time to figure out why.

To track and maintain compliance with expanding requirements, we also recommend making Cybersecurity part of your Federal Business Ethics and Compliance Program.

All Federal contractors have (or should have) a written Contractor Code of Business Ethics and Conduct.  The Code should be a living document that your business routinely updates and uses in connection with internal audits and employee training.

By adding Cybersecurity to your Ethics Program and written Code, you are ensuring that it becomes a part of your company’s culture.  You are also increasing the likelihood that Cybersecurity breaches, or other instances of non-compliance, are identified by your Internal Control System – not by the government.

Cybersecurity is an emerging, complex subject – but that does not mean that the government will relax its enforcement efforts while your business gets up to speed.  In fact, we think the opposite is true.  Contractors that do not make Cybersecurity compliance a priority now will be behind the power curve and are more likely to face harsh consequences (including False Claims Act allegations, suspension, or debarment) later down the road.

 

The contractual duty of “good faith and fair dealing” is well established in private contracts.  Depending on your jurisdiction, there is very likely either a formal or an informal rule that parties to a contract must deal with each other honestly and in good faith.  This is (usually) not a written contract term – rather, the duty is implied automatically in order to reinforce the parties’ intent when entering into the agreement.

But, did you know that the same kind of duty exists in public contracts – and runs as a two-way street between contractors and the Federal government?  It is true.  And it can help your business in the pursuit of time or damages from the government as part of an REA or Claim.

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Implicit in every government contract is the duty for the government to treat the contractor fairly and act in good faith.  Courts discussing this duty place both affirmative and negative obligations on the government.  In other words, the government (1) must take active steps to enable the contractor’s performance and (2) must not willfully or negligently interfere with said performance.

Allegations concerning a breach of the duty of good faith and fair dealing can arise in almost any contractual context.  For example, it is very common to see such claims in the context of delay and disruption claims.  The contractor seeks direction or guidance from the government on how to proceed with certain contract performance details – but the response from the government is delayed, unhelpful, or does not come at all.

A recent Court of Federal Claims decision also advises that contractors can proceed with fairly broad allegations concerning the government’s breach of good faith and fair dealing as part of an appeal.  Specifically, in response to a motion to dismiss by the government, the Court ruled that a such a claim does not need to be tied to a specific contractual obligation in order to demonstrate a violation.

The decision is a win for contractors because it recognizes that contract performance does not take place within a vacuum.  Even if there is no toehold to assert a breach tied to a specific obligation, the duty of good faith and fair dealing exists to ensure that the “reasonable expectations of the parties are respected” by both sides.

Contractors dealing with the government at almost any stage of contract performance would do well to give serious thought to the duty of good faith and fair dealing.  While it is a “big picture” concept, it can have very real implications when a dispute arises – including a meaningful impact on recoveries for claims and appeals.

I’d like to you invite you to join Fox’s Government Contracts team of Reggie Jones, Doug Hibshman and Nick Solosky at the upcoming 2017 Associated General Contractors of American Federal Contractor Conference in Washington, DC.

We will lead a presentation and discussion entitled “Updated Federal Regulations Contractors Must Know – Cyber Security, Ethics & Compliance, SBA All-Small Program & More,” from 3:30 to 5:30 p.m. on Monday, May 1, 2017.

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The presentation will offer insights into the new cybersecurity requirements facing federal contractors – including unpacking the FAR and DFARS cybersecurity clauses and the steps that contractors need to get to get (and stay) compliant.  Cybersecurity is a cutting edge issue, but failing to stay ahead of the curve could land contractors in hot water.

In addition to cybersecurity, we’ll also be detailing the hot button government contracting issues of 2017.  For example, we’ll outline what all contractors – both large and small – need to know about the SBA’s “All Small” Mentor-Protégé Program (and how it could open the door to new business development opportunities for contractors).  We’ll also pull straight from the headlines by covering the new administration and the President’s “Buy American, Hire American” initiative.

If you’re unable to make it to DC or attend the presentation in person, we can still discuss cybersecurity or any other Federal contracting regulations with you.  Please feel free to contact us for more details.

A response to an RFP is the government contractor’s chance to put its best foot forward and stand out from the crowd.  Particularly when it comes to best value procurements, this is your chance to tell the contracting officer that your company does it best (whatever it is).

But, a recent bid protest decision reminds us that contractors must carefully walk the line between well-deserved boasting and playing make-believe.

The protest concerns a U.S. Department of the Navy IDIQ contract.  The RFP required contractors to submit detailed information documenting their relevant depth and breadth of experience on similar contracts.  In other words, the agency wanted the ultimate awardee to prove it has the chops to do the work required under the contract.

The agency rejected one contractor’s proposal as technically unacceptable because it lacked specific details concerning prior projects.  Instead, the contractor submitted only general information about its past work – and instead focused on hypothesizing about the stellar work that it could perform, if given the opportunity.

On review, the Court of Federal Claims sided with the Navy.  It is reasonable, the Court concluded, for an agency to require contractors to submit satisfactory evidence of qualifying past performance experience.  The contractor’s decision to submit general (not specific) information concerning its prior contract performance and focus on hypothetical statements of future potential did not meet the RFP’s requirements.

For contractors – and especially greener contractors – the Court’s decision presents and chicken-and-egg scenario.  It is difficult to win a contract award including a past performance element when your firm has limited experience.  But how can you get the experience without the award?

Two thoughtsFirst, as this case demonstrates, this is one area where you can’t “fake it till you make it.”  Focus on actual, supportable experienceSecond, if your firm’s past performance is really holding you back, consider teaming options for situations where the RFP allows you to lean on the past performance experience of a partner or subcontractor.

Government contractors must be prepared to perform their Federal contracts – even in the face of a dispute with the government over essential contract terms.  Failing to perform can have devastating consequences, including default termination.

In a recent case before the Armed Services Board of Contract Appeals, the Board considered a U.S. Army Corps of Engineers’ contract for HVAC system upgrades.  After the contract was awarded, the contractor promptly raised concerns over the Agency’s design.  The Agency acknowledged the disagreement, but directed the contractor to complete the project as originally intended.

The dispute did not end there.

Rather than accept the government’s decision and complete the project, the contractor continued to lobby the Agency to consider a re-design.  The Agency again refused – and matters only got worse.  The Agency and the contractor repeatedly butted heads over seemingly simple issues, such as the format of project submittals.  Finally, after issuing multiple Notices to Cure and receiving no response from the contractor, the Agency cut bait default terminated the contractor.

The contractor appealed the determination, arguing that the problems on the project were all caused by the Agency’s design errors – as well as the Agency’s failure to acknowledge and resolve those errors.  These arguments did not persuade the Board and the appeal was denied.

The Board’s decision includes some fairly detailed analysis concerning the competency of the Agency’s decision making.  Was the design defective?  Did the Agency wrongfully refuse to consider the contractors proposed alternatives?  The Board answered all of these questions in the negative.

In my opinion, however, the far more important aspect of the Board’s decision stays out of these technical weeds.  The Board explained that the contractor’s failure to continue the work during the contract dispute justified the default termination.

While the Board hinted that the contractor’s failure to perform could have been deemed “excusable” under the right set of facts, that would not be my advice.  Experience shows that government contractors very rarely come out on the winning end of a dispute when they refuse to perform.

Consider the options:

  • On one hand, a contractor that performs during a dispute has a better chance of completing a job with a satisfied customer.  And any issues of excess costs or delays resulting from the dispute can be taken up as part of a claim or REA – so a contractor that continues to perform is not releasing the ability to recover later if the government really is responsible (just be sure to read that bilateral modification or final payment form before you sign it).
  • On the other hand, a contractor that refuses to perform knows that its work is not getting done and that its customer is unhappy.  While it may ultimately prevail, will that victory be worth the damaged relationship?

Against this backdrop, government contractors should also consider the power of the performance evaluation.  A contractor that works through a dispute is far more likely to get the passing marks (or even flying colors) that will help in future past performance evaluations.  Can the same be said for the refusing contractor?  Performance ratings matter – and they tend to stick with your business – particularly when a default termination is part of the equation.

Timing and circumstances matter.  Sometimes a conflict presents an obstacle to performance so great that it cannot be overcome.  My experience shows that should be the exception to the rule.  Whenever possible, government contractors should perform through a contract dispute and simultaneously position themselves to recover those costs/time later down the line.