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.

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.

One of the primary risks facing construction contractors is subsurface or unexpected physical conditions discovered after the work begins (commonly known as a Differing Site Condition).  When such conditions are encountered on a federal government project, contractors need to: (1) properly document the condition, (2) notify the government, and (3) preserve the right to bring a Request for Equitable Adjustment or Certified Claim.

Typically, any Differing Site Condition inquiry begins at Federal Acquisition Regulation 52.236-2.  The regulation defines a Type I differing site condition as a subsurface or latent physical condition at the site that differs materially from those indicated in the contract.  A Type II condition is defined as an unknown condition, unusual in nature, that differs materially from the conditions ordinarily encountered or typically expected of the work provided in the contract.

These definitions seem straightforward – either the conditions encountered align with the contract, or they do not.  However, contractors should not take documenting or proving Differing Site Conditions lightly.  There is still much room for disagreement.

One area where contractors and the government commonly diverge is whether the disputed site conditions were “reasonably foreseeable.”  That is, should the contractor have anticipated the conditions based on all of the information available to the contractor when it bid the project.

This particular issue was recently litigated before the Armed Services Board of Contract Appeals (ASBCA) in a dispute over an Army Aviation Support Facility construction contract.  In a nutshell, the contractor and the government disagreed about whether the soft, saturated soils encountered during excavation for the project constituted a Type I Differing Site Condition.

In discussing the issue of reasonable foreseeability, the Board specifically considered the government’s claim that the contractor had access to the site (during a pre-bid site visit) and, therefore, the ability to discover the condition.  The Board disagreed.  The site visit included a visual inspection only – no invasive investigation was permitted.  While Type I Differing Site Conditions do not literally need to be below ground, that made a difference in this case.

The ASBCA concluded that the contractor proved – by a preponderance of the evidence – that the soil conditions at the site were unsuitable for construction.  As a result, it awarded the contractor damages associated with the unexpected soil remediation costs.

Thinking specifically about Type I Differing Site Conditions, contractors should keep the following elements in mind:

  • Is the condition encountered materially different from that indicated in the contract?
  • Is the condition encountered reasonably unforeseeable based on the information provided by the government at the time of bidding
  • Did your firm reasonably interpret the contract and the related documents provided by the government? and
  • Did your firm incur actual damages due to the difference between the expected condition and the condition actually encountered?

If you can answer all of these questions in the affirmative, then your firm is likely entitled to an upward contract adjustment from the government.

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.

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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.

For small business government contractors, the question of affiliation should always be at the top of the list of priorities.  A finding of affiliation between your business and another business (and, in particular, a large business) could be enough to lose your small business size status – and the ability to compete for those coveted set-aside contracts.

One of the few recognized exceptions to affiliation is an approved mentor-protégé relationship under the Small Business Administration’s (SBA) 8(a) business development program.  In short, an 8(a) protégé can joint venture with its SBA-approved large business mentor and still qualify as a small business for any federal government contract or subcontract – without the fear of affiliation.

While it may seem a bit obvious or a simple matter of housekeeping, the SBA’s Office of Hearing and Appeals recently issued a stern warning that the exception to affiliation depends of having an approved mentor-protégé agreement in place.  Specifically, OHA concluded that failure to obtain the proper documentation resulted in a finding of affiliation and precluded eligibility for a small business set-aside contract — even when the two firms involved had a long history of participation in the mentor-protégé program.

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This decision serves as an important reminder for firms currently partnering as part of the 8(a) program to stay current – but it should also be a wake-up call for all of the businesses out there planning to take advantage of the SBA’s imminent (groundbreaking) expansion of the mentor-protégé program.

Now that the SBA is accepting expanded mentor-protégé program applications, it is a great time to take stock of how to make the program work for your business.  As we recently highlighted, partnering between government contractors can open the door to new and exciting opportunities – but it works best for those firms that conduct proper due diligence.

Is your mentor-protégé agreement working for you?  Now is the time to find out and (if necessary) make the appropriate course corrections.

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.

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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?

We are currently in the midst of an unprecedented uptick in the prosecution of (alleged) government contractor fraud under vehicles such as the False Claims Act and agency suspension and debarment programs.  Generally speaking, the government uses these methods to claw back Federal contracting dollars from contractors suspected of engaging in unethical practices and fraud.

Add another one to the list – the U.S. Department of Transportation (USDOT) Disadvantaged Business Enterprise (DBE) Program is in the news, as the government is cracking down on contractors alleged to have misrepresented their DBE standing in order to reap Program benefits.

In a nutshell, the Program requires state and local transportation agencies that receive USDOT assistance to establish goals and facilitate DBE participation on transportation projects.  To be certified as a DBE, a contractor must be a small business owned and controlled by socially and economically disadvantaged individuals.

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Recently, the owners of a Pennsylvania contractor pled guilty to defrauding the DBE Program to the tune of nearly $19 million by setting up a sham entity designed to look like a woman-owned minority business.   The fraud, which lasted more than 15 years, involved 224 federally funded projects.

While this extreme example involves an obvious case of fraud that all contractors should know to avoid – there is still a lesson to be learned:

The increased level of government enforcement is not limited to contractors intentionally behaving badly.  The government is lowering the threshold for culpability – meaning that contractors that make inadvertent mistakes – or simply do not know the rules – are being caught in the crossfire.

For contractors participating in set-aside programs like the USDOT DBE Program, it is particularly important to make sure that your business satisfies the participation requirements before getting started.   Failure to know the rules could result in allegations of fraud and severe penalties, including fines, jail time, and debarment.

As a Federal contractor, you already know that the FAR requires you to retain certain project records (books, documents, etc.) for audit and inspection purposes – typically for a period of at least three years after final payment.  But did you know that the regulations allow contractors to cut the clutter by converting paper records to an electronic format?

FAR 4.703(c) includes an express provision allowing contractors to “[duplicate or store] original records in electronic format.”  The benefits of e-storage are well-known and obvious.  Electronic records take up less space and make it significantly easier to find what you need in short order.

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But, before you start to purge all of your company’s paper files, bear in mind these key FAR requirements for electronic storage and retention:

·         The e-file must maintain the contractor’s complete records.  In other words, it is not just enough to save your electronic copies.  If you are clearing our paper copies, the entire file must be scanned or otherwise converted to an e-copy.

·         The contractor must establish procedures for ensuring that the scanning or imaging process for converting paper files is effective and preserves the entire document (including signatures, text, graphics, etc.); and

·         The contractor must create an efficient indexing system for providing timely and convenient access to files.  In other words, if the government comes calling with an audit, you must be able to promptly locate the requested files.

One last important note – if you create electronic files today,  that does not mean that you can toss all of your paper files tomorrow.  The FAR still requires you to retain the original paper file for at least one year after it is scanned.

It’s a frustrating position for government contractors:  you have plenty of small businesses working on your job, but cannot count them towards your subcontracting goals because they are not first-tier subs.  Good news!  Things are about to change.

The U.S. Small Business Administration (SBA) is finally proposing to amend its regulations to allow large business prime contractors (“other than small” contractors in SBA speak) to count second and third tier small business subcontract awards towards their federal small business subcontracting goals on unrestricted federal projects.  The comment period ends officially on December 7, 2015, but signs are good that the proposed rule will help ensure that small business participation is more accurately reported on federal projects.

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With limited exceptions, unrestricted federal procurements over $650,000 ($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 contractors and their first tier subcontractors to make a “good faith effort” to meet or to exceed the procuring agency’s small business subcontracting goals.  Failure to make this effort could result in liquidated damages, default termination, and negative performance reviews.  The contractor is required to submit an Individual Subcontract Report (ISR) and Summary Subcontracting Report (SSR). The ISR is submitted semiannually with the procuring agency during contract performance and upon contract completion. The SSR is submitted annually with civilian procuring agencies, or semiannually with the DoD. Both forms are submitted through the Electronic Subcontracting Reporting System (eSRS).

Until this proposed rule, a large small prime contractor could not count a second-tier 8(a) or other small business subcontractor (SDVOSB, EDWOSB, HUBZone, etc.) if the first-tier subcontractor was not a small business concern.  This situation led to an absurd result:  a large prime contractor would get no credit for a subcontract to a large business – even if the large first-tier then subcontracted 70% of the work to small businesses.  However, the large prime would get full credit from a subcontract to a small business, even if the small business then turned around and subcontracted a substantial portion of the work to a large business.

The proposed new rule gets the point: what matters most is having small businesses working – not whether there are first-tier subs.

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.  It is not clear whether the proposed rule will allow large subcontractors to count its lower tier subcontractors towards its subcontracting goals.  The proposed rule states only that it “also proposes to implement the statutory requirements related to the subcontracting plans of all subcontractors that are required to maintain such plans, including the requirement to monitor subcontractors’ performance and compliance towards reaching the goals set out in those plans as well as their compliance with subcontracting reporting requirements.”

Lastly, one potential complicating factor is that large primes will be required to list the size standard in its solicitations when they solicit bids from subcontractors.  Depending on the type of work being subcontracted, it can be hard to identify the size standard correctly as there are literally hundreds of North American Industry Classification Standards (NAICS) codes, from which to choose.