Winning bid protests all share one common theme – the government erred somewhere in the procurement process and the contractor was unfairly prejudiced as a result.  It is then up to the contractor to expend the time, effort, and resources necessary just to return to the status quo of basic fairness.

Fortunately for contractors, the burden of pursuing a meritorious protest can (sometimes) be lifted.

By law, the GAO has authority to recommend the reimbursement of protest costs (including attorneys’ fees) when it determines that the agency’s actions violated a procurement statute or regulation.  This type of recommendation is most commonly seen when the agency (unsuccessfully) contests a contractor’s protest all the way to a GAO final decision.

The GAO can also make a recommendation for the agency to reimburse protest costs even when the agency elects to take corrective action prior to a final decision.  However, in order to do so, the GAO must find that the agency “unduly delayed” taking action in response to a “clearly meritorious” protest (thus causing the contractor to expend unnecessary time and resources).

Two recent GAO decisions – one granting costs and the other denying costs – help to shed more light on vague standards like undue delay and clearly meritorious.

In the first decision, the GAO recommended the reimbursement of protests costs by the Air Force in connection with a protest over multiple award construction contracts.  The protest challenged the contract awards, arguing that the agency waived solicitation requirements for certain contractors, but not others (a classic “unequal treatment” argument).

The agency did not take corrective action in response to the protest – instead electing to submit an agency report.  After it became apparently that the agency’s own materials actually bolstered the protester’s claim of disparate treatment among offerors, the agency finally decided to take corrective action by canceling the solicitation and terminating the awards.

Following corrective action, the contractor requested reimbursement of its protest costs and GAO agreed.  Specifically, GAO found the protest allegations concerning unequal treatment “clearly meritorious” – noting that the plain language of the RFP and the protest allegations should have alerted the agency to the problem.  In short, GAO determined that the Agency’s position, from the outset, was “not legally defensible.”

On the flipside, the second GAO decision denied a claim for costs where it determined that the agency offered a reasonable rebuttal to the protest allegations.

The decision arises out of a protest over a DLA health support services contract.  The protester argued that the agency should have found the LPTA awardee technically unacceptable due to alleged proposal defects.  The protester also later filed a supplemental protest arguing that the agency engaged in misleading discussions during the evaluation period, relied on information from outside offerors’ proposals, and changed RFP requirements after proposals were submitted.

Following receipt of the protester’s supplement, the agency elected to take corrective action.  The protester promptly requested reimbursement of its fees – but this time, GAO denied the request.

If both of the cases under review ended with corrective action, why did the GAO recommend reimbursement in only one?

The key lies in the timing of the second case.  The GAO concluded that the agency had a reasonable rebuttal to the grounds raised in the initial protest.  However, when the protester filed its supplement, the agency dropped the challenge and promptly took corrective action.  The GAO therefore concluded that there was no undue delay in response to the clearly meritorious (supplemental) protest.

The Takeaway

Bid protests are all about the cost-benefit analysis.  The opportunity to claim what rightfully should have been a lucrative contract award is usually enough to justify the expenditure of time and resources.  However, when the government ignores its own procurement errors and forces a contractor through unnecessary paces, it is good to know that there is a way to claw back those costs.

Government agencies have ample discretion when it comes to corrective action in response to a bid protest.  A recent GAO bid protest shows that contractors must tread lightly when it comes to challenging that discretion.

Unlike negotiations in the private sector, power plays against the government can end in lost contracting opportunities.

The procurement that spawned the protest in question started as a sealed IFB by the U.S. Army Corps of Engineers (USACE) for dredging services.  In response, to the IFB, the Agency received three timely bids – and determined that all three were unreasonably high-priced (in comparison to a government estimate).  USACE therefore determined that it could not award the contract.

The lowest of those bidders submitted an agency-level protest, arguing that its bid was not unreasonably high – rather, the government’s estimate lacked a reasonable basis and was unrealistic.  In response to the agency protest, USACE attempted to engage the contractor in a dialogue concerning how its bid was formulated (in accordance with a USACE Acquisition Instruction, which authorizes the agency to share the details of the government estimate with the apparent low bidder), but the contractor declined to share details regarding its pricing.  Unsurprisingly, USACE then promptly denied the agency-level protest.

The contractor next took its argument to the GAO, where it again protested the government’s cost estimate as unreasonable.  This time, USACE elected to take corrective action and convert the acquisition from a sealed bid to a negotiated procurement.

The contractor again protested – this time arguing that the decision to convert the procurement was unreasonable and that the agency should have awarded the contract under the terms of the IFB at the originally-bid price.  This time, it was the GAO that dismissed the protest and allowed the agency to proceed with its corrective action.

Most interestingly, GAO dismissed the contractor’s challenges concerning the realism of the government’s price estimate as untimely.  According to GAO, the contractor failed to diligently pursue the basis for its protest when it declined to engage in an exchange of pricing information at the agency level.  But for this decision (according to GAO’s reasoning), the contractor would have been armed with a copy of the government’s estimate and equipped with the basis to pursue a protest (before both the agency and at the GAO).  The GAO also dismissed the protest arguments concerning the conversion to a negotiated procurement (again relying on the lack of any basis in the record to scrutinize the government estimate).

The series of protests is not a total loss for the contractor, as it is still eligible to engage in the continued competition and to negotiate its proposed price with the agency.  That said, the contractor finds itself right back where it started — leaving open the question of whether it would have been better served to engage with the agency over price as the lowest-priced bidder in response to the IFB.

Contractors intending to submit a Request for Equitable Adjustment or Claim on a government contract need to be aware of the implications of bilateral modifications.

In simple terms, a bilateral modification is a supplement to your company’s contract with the government that is signed by both you and the government.  The agency can use a bilateral modification to execute any number of contract changes or otherwise modify the terms of the agreement.

Sometimes, however, a contracting officer may use a bilateral modification to execute a change that the contractor believes is outside the scope of the original contract (also known as a Cardinal Change).  In those cases, the contractor has two options: accept the change and perform the work – or refuse to perform and risk a default termination (and all of the devastating negative performance ratings that will follow).

Given that no contractor ever wants to voluntarily take a default termination – that means the only real option is to continue to perform.  Therefore, contractors need to be smart about how to accept a Cardinal Change issued through a bilateral modification.

Specifically, when faced with a bilateral modification including disputed terms (such as scope of work, increased costs, or increased time to perform), contractors must reserve the right to pursue damages at a later date.  An important part of reserving those rights is reading and understanding all of the terms and conditions set forth in the modification.

In particular, contractors must be mindful of waiver language.  That is, specific language (routinely included by the government in bilateral modifications) that releases the agency from future claims for damages.

The impact of such a waiver was on full display in a recent Armed Services Board of Contract Appeals (ASBCA) case, where a contractor agreed to a Termination for Convenience and signed a bilateral modification zeroing out the CLIN deliverables and contract value.  The modification also included language stating the contractor waived any charges against the government due to the cancelation and that all obligations under the contract were concluded.

After signing the modification, the contractor submitted a claim to the agency seeking to recover certain costs associated with the agreed termination.  The agency denied the claim in full, citing the modification language.

On appeal, the ASBCA agreed with the agency and found against the contractor.  Importantly, the Board Judge refused to admit any outside evidence offered by the contractor suggesting that the parties agreed to different terms at the time the modification was signed.  According to the board, the language of the modification was clear, unambiguous, and “unconditional.”

Contractors need to be vigilant about recording and documenting contract changes – as well as preserving their legal right to seek compensation for those changes later down the line.

Small business owners need to be aware of the simple, proactive measures that are available right now to avoid headaches down the road.

One prime example is properly maintaining your SAM.gov profile.  Taking the time to properly check (and periodically re-check) your SAM.gov reps and certs can help to establish and maintain your eligibility in the SBA’s socio-economic programs (like the Women-Owned, Service-Disabled, and HUBZone programs).

For example, a recent SBA size protest considered the case of whether an apparently woman-owned small business was disqualified from receiving a WOSB set-aside contract award based on incorrect information in its SAM profile.  The protest allegations included that the profile included inconsistent representations concerning the business’s size status and WOSB qualifications.

The SBA did not disagree with the basis of the protest – the SAM profile was inconsistent and did not accurately reflect the correct size status for the set-aside contract.  Nevertheless, the SBA denied the protest (and the subsequent appeal), finding that the awardee met the WOSB requirement of being at least 51% owned and controlled by one or more women (regardless of the conflicting SAM representations).

So, is the lesson here that SAM reps and certs don’t matter as long as you meet the SBA’s criteria?  Definitely not.

First, it should go without saying that small businesses should not actively open the door to size protests.  Even if you prevail on the protest (and the potential appeal), you will still have spent valuable time, money, and other resources defending against a preventable action.  It is much more advisable to bolster your company’s size status from all challenges and at every turn.

Second, I do not take this recent opinion as a blank check from the SBA to ignore SAM.gov reps and certs.  If you follow size protest decisions, you’re well aware that the SBA determines issues like affiliation using a “totality of the circumstances” test.  In other words, even if one size issue alone does not establish affiliation – it is still possible that that one issue, when combined with a number of other indicators, could still result in a finding of affiliation.

With that said, I think it is possible that a failure to properly manage a SAM.gov profile – when combined with other issues or facts – could lead to the SBA taking a longer look at your business’s size status in connection with a size protest.  In fact, it already has.

Government contractors responding to RFPs understand the need to read the fine print.

Mostly commonly, we discuss this topic in terms of pure proposal acceptability.  Protest decisions from the GAO and Court of Federal Claims make it abundantly clear that the burden falls on the contractor to follow directions and include all of the required information in all of the right places.  It is for that reason (among others) that we always recommend having an outsider (be it a consultant, a lawyer, or even just another person from your company not involved in preparing the proposal) do a quality check before a proposal is submitted.

A more nuanced issue – but just as important – is understanding the RFP’s evaluation scheme.  That is, not only what information must be submitted, but how that information will be weighed and measured by the Agency.

For example, in the past, we’ve looked at low-price technically acceptable (LPTA) RFPs.  The basic idea on an LPTA procurement is that a contractor need only achieve a minimum passing score on its technical proposal – the Agency will not give bonus points for added bells and whistles.  The much more important part of an LPTA proposal is price. Among those offerors found to be technically acceptable, the award goes to the offeror with the lowest submitted price.  So, the focus on an LPTA proposal should be on getting lean (while maintaining technical acceptability) so that you can get as low as possible (or practical) on price.

But what about Best Value RFPs?  There, the game changes dramatically.  The Agency is not looking just at technical ability or price – but how the two interact in order to maximize the benefit to the government. The award may be made to a higher-priced offeror, but only if that higher price is justified by a proper tradeoff analysis.  Stated differently, is the contractor’s higher price justified by greater technical skill?

Here is a nice, short summary from a recent GAO decision outlining government’s rights and responsibilities under a Best Value RFP:

[Agencies] have discretion to make award to a concern that has submitted a higher-priced, technically superior offer.  An agency’s decision is governed only by the test of rationality and consistency with the solicitation’s stated evaluation criteria.  Source selection decisions must be documented, and must include the rationale for any business judgments and tradeoffs made or relied upon by the source selection authority, but there is no need for extensive documentation of every consideration factored into a tradeoff decision.  Rather, the documentation need only be sufficient to establish that the agency was aware of the relative merits and costs of the competing proposals and that the source selection was reasonably based.

So, what is the BEST approach for Best Value competitions?

Maximize Technical Skill.  Unlike LPTA (where the proverbial C- or D+ proposal could get the award), the key is to go for the A+.  Play to your strengths and show the Agency that your firm is not only capable – but highly skilled and able to deliver the best service.

In maximizing technical skill, you’ll look to add those bells and whistles that show off your firm’s capabilities.  But remember, this isn’t just a talent show.

Keep Price in Mind.  This is where things start to get tricky.  While you’ll want to maximize technical skill and performance, price must always be a touchstone.  In order to accept a higher price, the Agency must be able to document (as part of its Best Value Tradeoff Analysis) that the higher price is justified by demonstrated technical superiority.

The Best Value combination of technical aptitude and price is particularly important for contracts involving complex, multi-disciplinary services because it gives the government the option of accepting a higher price in exchange for better odds of successful future performance.  But what if the Agency gets the formula wrong?  Fortunately, the GAO and Court of Federal Claims have recognized a number of avenues for challenging the Agency’s Best Value Trade Off.

Protesting Best Value Awards.  Bid protests of Best Value award decisions generally fall into one of two buckets: (1) The Agency overvalued the technical aspects of the awardee’s proposal (when a lower-priced offeror that believes that it is on par with the technical skill of the offeror) or (2) The Agency failed to recognize the technical superiority of a proposal (when a higher-priced offeror loses out to a lower-priced and allegedly less skilled awardee).

When properly supported, these allegations will put the Agency’s Best Value Tradeoff Decision under the microscope and open the door for the more skilled and/or lower-priced protester to make its case.

The U.S. Department of Justice is maintaining its momentum in the prosecution of alleged government contracting fraud.  DOJ had its third largest year ever in terms of civil False Claims Act recoveries in Fiscal Year 2016, clawing back $4.7 billion from government contractors accused of misconduct.  And the latest trends for 2017 show that individual corporate executives (not just the companies themselves) should be on high alert in the year ahead.

On December 28, 2016, the U.S. Attorney’s Office in Baltimore announced a $4.535 million settlement with Advanced C4 Solutions, Inc. (Advanced C4).  The settlement resolved claims that the SBA 8(a) small business contractor submitted inflated invoices from its subcontractor, Superior Communications Solutions, Inc. (Superior Communications), under a project management and labor services contract for work at Andrews Air Force Base (Joint Base Andrews).  The contract required Advanced C4 to design, construct, and implement computer technology upgrades in support of the U.S. Air Force personnel working at Joint Base Andrews. The U.S. Navy’s Space and Warfare Systems Command (Navy) awarded and administered the contract.

Under the terms of the contract, Advanced C4 was required to bill its labor costs, as well as those of its subcontractors, according to certain job classifications and the number of hours worked at each classification.  Collectively, the Justice Department, the Air Force’s Office of Special Investigations, DCIS, and the SBA investigated and determined that Advanced C4, and its project manager and vice president Andrew Bennett, passed false invoices from its subcontractor, Superior Communications, (and potentially others) through to the government.

The invoices allegedly charged for hours that were not worked and charged higher rates for personnel that did not meet the job classification requirements. The government paid the invoices, opening the door for False civil False Claims Act charges.

The Justice Department ultimately indicated three people, including Mr. Bennett, as well as a retired Navy contracting official, James T. Shank and John Wilkerson.  Mr. Wilkerson owned Superior Communications and was an employee of Iron Bow Technologies, LLC.  The Air Force also issued a memorandum in support of proposed debarment for all three companies.

The indictments strongly indicate that the Justice Department is following the directive provided by Deputy Attorney General, Sally Quillian Yates in her September 9, 2015 memorandum (The Yates Memo) that directed Department of Justice attorneys to focus on individuals and not just their employers.  According to the Yates Memo, “[o]ne of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing.”

In this case, while the settlement resolved the allegations that Advanced C4’s employee submitted fraudulent invoices, Mr. Bennett and Mr. Shank previously pled guilty to conspiracy to commit wire fraud for their actions on the contract. Mr. Wilkerson is scheduled for trial beginning on January 30, 2017.

Contractors interested in learning more about avoiding False Claims Act liability and establishing a culture of corporate compliance should check out our previous posts about implementing a FAR-complaint Business Ethics and Conduct Program.

After years of pushing by industry groups and the passage of the National Defense Authorization Act for Fiscal Year 2014, the U.S. Small Business Administration (SBA) issued a final rule to amend the federal small business subcontracting plan requirements in order to allow other than small (i.e., large in SBA speak) federal prime contractors to receive credit for lower-tier subcontracting awards to small business concerns (SBCs) and other socio-economically disadvantaged SBCs.  Effective on January 23, 2017, federal prime contractors will no longer be limited to counting only the subcontract awards they make at the first tier towards satisfying their small business subcontracting goals.  They will now be able to count the awards their other than small first tier subcontractors make to SBCs as well.

The amended 13 CFR Section 125.3 reads in relevant part:

Where the prime contractor has an individual subcontracting plan, the prime contractor shall establish two sets of small business subcontracting goals, one goal for the first tier and one goal for lower tier subcontracts awarded by other than small subcontractors with individual subcontracting plans.  Under individual subcontracting plans the prime contractor shall receive credit for small business concerns performing as first tier subcontractors (first tier goal) and subcontractors at any tier … in an amount equal to the dollar value of work awarded to such small business concerns (lower tier goal).

The prime contractor’s performance under its individual subcontracting plan will be calculated using its own reporting at the first tier and its subcontractor’s first tier reports under their plans for lower tier subcontracting goals.  The prime contractor’s performance … must be evaluated based on its combined performance under the first and lower tier goal.

Up until this regulation change, the FAR limited contractors to counting only next tier subcontractors toward achieving goals.  For example, prime contractors were permitted to count only their first tier subcontractors towards the goals identified in subcontracting plans.  A federal contractor could not count a second tier subcontractor towards its goals, even when the second tier subcontractor was a qualified SBC.  Similarly, first tier subcontractors could count only next (second) tier subcontractors to satisfy subcontracting goals.  Because of this limitation, a contractor could still theoretically achieve its goals even if its first tier SBC subcontracted a large portion of its work to a large, second tier contractor.  The result was that a higher tier contractor received subcontracting credit regardless of the fact that the SBC did not perform an equivalent amount of work.  More likely than not, the cause of this problem lay in the pre-electronic submission era where government agencies had to compare separate pieces of paper from large prime and first tier subcontractors.

To put this in context, unrestricted federal procurements over $700,000 ($1.5 million for construction of any public facility) include Federal Acquisition Regulation (FAR) clauses 52.219-8 (Utilization of Small Business Concerns) and 52.219-9 (Small Business Subcontracting Plan), which require prime contractors to make a “good faith effort” to meet or to exceed the procuring agency’s small business subcontracting goals. Under FAR part 19.704, a “flow-down provision,” large subcontractors must also formulate subcontracting plans if they receive a subcontract in excess of the monetary threshold.  The higher tiered contractor is responsible for obtaining, approving and monitoring the subcontracting plans of lower-tiered contractors.  Failure to make this effort could result in liquidated damages, default termination and negative performance evaluations.

Small business concerns (SBCs), HUBZone businesses, women-owned small businesses (WOSBs), economically disadvantaged women-owned small business concerns (EDWOSBs), small disadvantaged businesses (SDBs), veteran-owned small businesses (VOSBs) and service-disabled veteran-owned small businesses (SDVOSBs) count toward achieving subcontracting goals.  In addition, Alaska Native Corporations (ANCs) and Indian tribes satisfy subcontracting goals and, unlike other SBCs, they do not need to qualify as small to count toward subcontracting goals.  Under this regulation change, prime contractors may rely on paper self-certifications as to size or socioeconomic status or a subcontractor’s electronic certification such as size representations or certifications made in the System for Award Management (SAM).

Another important change is that the amended regulation now requires contractors to assign a specific North American Industry Classification System (NAICS) code and corresponding size standard that best describes the principal purpose of the subcontract to each small business subcontract.  Specifically, contractors must provide some sort of written notice of the NAICS code and size standard to potential small business subcontractors before acceptance and award of the subcontract.

The ability to count lower tier SBC subcontract awards is a long awaited change.  That said, federal contractors must carefully understand federal subcontracting plan requirements and how they have changed.  This includes knowing what information other than small contractors need from SBCs and what information they must provide SBCs prior to awarding subcontracts.  The penalties for failure to make good faith efforts to satisfy the requirements are huge.

Bid protests concerning proposal interpretation present an uphill battle for federal contractors.  Both the Government Accountability Office and the Court of Federal Claims take the expansive view that the contractor is responsible for the content of its proposal — and that it is not the agency’s role to play detective or dig through a proposal to piece together responsive information.

For example, a few months ago, we looked a case where the protester’s proposal was rejected for failing to include certain required technical details.  The protester, however, argued that the details were included – just not in the section of the proposal specified by the RFP.  The GAO rejected the argument, finding that it is unreasonable to expect the agency to hunt for important details.

Today, we’re looking at a similar case, but with an important twist.  An RFP from the Department of Homeland Security directed offerors to submit sample past performance projects detailing their technical capabilities in a number of areas.   In response, one offeror mistakenly submitted a duplicate project, resulting in a failure to submit a relevant project in each area required by the RFP.  The agency assigned a material deficiency to the proposal and it was not selected for the award.

As part of its protest, the contractor argued that at least some of the blame for the duplicate submission lies with the agency’s website.  However, absent proof of a technical glitch on the part of the agency, the GAO rejected the argument.

In denying the protest, the GAO included some telling commentary that should serve as a warning for contractors submitting proposals electronically.  For example, GAO noted that the agency specifically warned contractors that heavy website traffic close to the due date for proposals could cause server lag time – so contractors should not wait until the last minute the submit.   GAO also anecdotally noted that the protestor was the only contractor – out of over 150 offerors – to encounter an alleged website problem that materially affected a proposal.

Contractors should take not only the decision – but also GAO’s additional commentary – seriously:

  1.  Follow the RFP.  Whether it’s your first proposal, or your one hundred and first, it always pays to refer back to the RFP.  Contractors should not make assumptions about what content to include in the proposal – or where to include it.
  2. When Submitting a Proposal, there are No Second Chances.  Take the time to get it right the first time.  This should include having a fresh set of eyes – or even an outside attorney or consultant – review a proposal prior to submission.  This double-check is the best method to catch overlooked errors or omissions.
  3. Set the Alarm a Day Early.  Whatever the deadline for submitting proposals, make it a practice to be ready to go a day early (or even earlier, if you can).  It’s not always easy, but having your proposal in the can before the deadline will eliminate the kind of uploading or website errors discussed in this post.

By following these rules, you’ll maximize your odds of winning the contract each time you submit a proposal.

It is common for government contractors to file claims on federal projects where there are government-directed changes to the contract that add time or scope.

But what if – instead of adding time and/or scope – the government de-scopes work from the contract by issuing a partial termination?  A recent successful claim shows that the contractor can still recover its increased costs.

37698358 - monetary penalty. concept sign for the financial punishment in court or sue for damages and compensation

In a decision by the Armed Services Board of Contract Appeals (ASBCA), the Board considered a contract for the provision of food service operations at 18 dining facilities at Fort Leonard Wood, Missouri.  After two years, the agency issued a partial termination for convenience and removed six facilities from the contractor’s scope.  The contractor continued to provide services at the remaining 12 facilities, but could not reach an agreement with the government for the cost of completing the contract.

After negotiations with the government broke down, the contractor filed a certified claim seeking to recover its increased costs.  The government denied the claim, but on appeal, the ASBCA agreed that the partial termination increased the contractor’s costs to complete the contract.  Specifically, the Board looked to calculations of the contractor’s fixed costs – which stayed the same despite the partial termination – and estimated production hours at the remaining facilities.

Notably, in finding in favor of the contractor, the Board rejected the government’s argument that no contract adjustment was required just because the agency failed to meet its estimated requirements.  The government’s argument is based on a common misconception that should not scare contractors away from pursuing claims for damages under Federal Acquisition Regulation (FAR) 52.249-2 (Termination for Convenience of the Government).

In sum, contractors need to be aware of all contract changes – both those that add scope and deductive changes that remove work from a contract.  Both can result in increased costs that can be recovered from the government as part of a request for equitable adjustment or certified claim.

The Small Business Administration’s HUB Zone program seeks to encourage development in historically underutilized business (or HUB) zones.  Like the SBA’s other socio-economic programs, HUBZone contractors are eligible for certain set-aside contracting opportunities, as well as participation in the SBA’s new All Small Mentor Protégé Program.

The HUBZone program is different from other SBA programs in that owning a HUBZone business depends less on who you are (unlike, for example, the SBA’s women-owned or service disabled veteran-owned programs) and more on where your business and its employees live and work.  For example (and among several other requirements), the SBA’s HUBZone rules require that at least 35% of the business’s employees must reside in a HUBZone approved area.

This 35% rule can be particularly problematic for HUBZone contractors.  If a company is close to the line, something as simple as one employee moving (from a HUBZone address to a non-HUBZone address) can be enough to tip the scale away from compliance.  For that reason, we recommend that HUBZone contractors implement a vigorous compliance program that tracks employee residency – and emphasizes to employees the vital importance of keeping the company in the know.

Moreover, a recent Court of Federal Claims decision highlights that HUBZone contractors must keep an eye not only on employee residences – but also the HUBZone map itself.  Much like how voting districts can be redrawn, the SBA periodically publishes updated maps defining what areas are – or are not – included in a designated HUBZone.  So, an employee that lived in a HUBZone five years ago might not live in one today – and the Court’s decision makes clear that it is the business’s responsibility to know that and adjust accordingly.

So what do you do if you fall out of compliance (based on an employee change of residence, an updated HUBZone area map, or for any other reason)?

  • Don’t Panic.  The SBA understands that HUBZone eligibility rests on shifting sands.  In fact, there is an “attempt to maintain” exemption that the SBA uses to avoid decertifying firms that temporarily dip below the 35% threshold.
  • Be Proactive.  By running a compliance program like the one described above, you should be able to avoid falling below the 35% threshold.  However, if a perfect storm arises, you should immediately take affirmative steps (like posting job ads in HUBZones) to show SBA that you are doing what it takes to regain compliance.
  • Notify the SBA Immediately.  Even if you will only be out of compliance with the 35% residency requirement for a matter of weeks or even days, it is always better to keep the SBA on notice of the situation.  Notifying the government upfront will almost always have a better overall outcome (when compared to the government uncovering a lack of compliance during an audit or investigation).  If the SBA finds out about your firm’s non-compliance on its own, it is far more likely to decertify your business – or even take steps to suspend or debar you or your company.
  • Do Not Bid on Any HUBZone Jobs.  While your firm is out of compliance, you can continue to perform existing HUBZone set-aside contracts – but should not bid on any new HUBZone work.  After your regain compliance you can, of course, get back on the horse.