Partnering Arrangements

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.

 

If you’re a government contractor, you likely already know about the Small Business Administration’s new Small Business Mentor-Protégé Program (now also being referred to as the “All Small” Mentor-Protégé Program by the SBA).  If you’re playing catch-up, you can find our initial thoughts on the Program here, our summary of Program pros and cons here, and our strategies for effective mentor-protégé teaming here.

The SBA started accepting applications for the Program on October 1, 2016.  During this early roll-out period, applicants initiated enrollment by simply emailing the SBA and going through an interactive information disclosure.  October applicants should expect to receive an update from the SBA soon prompting them to complete the administrative application process.  This will include certifying at SBA.gov and uploading files into the SBA’s on-line repository.

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Starting November 1, 2016, all applicants (that is, both prospective mentors and protégés) will be required to complete an on-line training module.  This requirement is waived for October applicants. The SBA is hopeful that the full on-line application process (available through SBA.gov) will result in faster processing times for applicants.

As a reminder, the SBA website now offers a mentor-protégé agreement template that prospective applicants can utilize.  While the template is fine for purposes of a basic outline, we advise against total reliance on any form document.  Your partnering relationship is unique, and your ultimate agreement should reflect how each party intends to maximize the benefits of its participation.

Under the Small Business Administration’s regulations, two firms may partner as a joint venture to perform a small business set-aside contract, provided that each partner is a small business under the size standard assigned to the contract.  But, a recent SBA decision highlights the fact that simply entering into a joint venture does not excuse each member of the joint venture from SBA scrutiny over affiliation.

In this recent case, a U.S. Department of Defense, Missile Defense Agency contract for business operations support was awarded to a joint venture composed of two (allegedly) small businesses.  Following a size protest, the SBA took a closer look at each member of the JV and didn’t like what it found.

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While one of the JV partners was in fact small, the other had a problem.  Specifically, citing to the economic dependence rule, the SBA found that the second firm derived more than 70% (and, in fact, close to 100%) of its business from one source (a large business) over a three year period.  Based on this dependence, the SBA determined that the firms are affiliated.

This is bad news not only for the (now no longer small) firm, but also the JV itself.  Because each member of the JV is not small, the SBA determined that the JV is not small for purposes of this procurement.  In other words, the JV lost the contract.

This case highlights two important points.  First, it is essential for small businesses to understand the SBA’s rules on affiliation and be confident in their size.  Size protests unfold quickly, so information about your business’s size should be at your fingertips — and nothing should come as a surprise.  Second, the case reinforces the importance of smart teaming on government contracts.  If you pick the wrong dance partner, you could find your time and effort in pursuing (and even winning) a contract award is ultimately wasted.

If you are interested, you can learn a lot more about smart and strategic teaming in this presentation.

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 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.

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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 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.

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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.

Last week, I once again had the pleasure of presenting at the Design-Build Institute of America’s Federal Project Delivery Symposium in Washington, DC.  I was joined on the panel by Reggie Jones (the Chair of Fox Rothschild’s Government Contracts practice) and Michael Daniels of W.M. Jordan.  Our presentation from last year on the increasing impact of the False Claims Act on Government Contractors is available here.

This year, we focused on project teaming arrangements.  Teaming (particularly between large and small businesses) can open up new avenues and contracting opportunities in the Federal sector – but just because you can get new work through teaming doesn’t necessarily mean that you should.  The relationship with your new teammate will have a significant impact on the success of the project – and also on your company’s bottom line.

We choose a baseball “theme” for the presentation because – like in sports – successful project delivery teams can use intangibles like chemistry, communication, and cooperation to make the team even greater than the sum of its parts.  In particular, our presentation focuses on all of the work your firm should put in up front to make sure that a teaming arrangement will be a profitable one.  This involves sitting down across the table and ensuring that you and your teammate:

  • Share common corporate values and culture
  • Are fully compatible (in areas like technology, software, and accounting systems); and
  • Agree on how to divide all of the rewards and risks involved in performing the contract

We also spent a good deal of time discussing what makes a good teaming agreement.  Much more than a piece of paper or a handshake, a well drafted teaming document is essential for contractors before entering into a team.  Starting from 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).

You can access the slides here.  Please feel free to contact me directly with any questions about the presentation or teaming agreements generally.

Thank you to DBIA for the opportunity to reach a great audience.  I look forward to being back next year!

Yesterday, the Small Business Administration (SBA) issued new proposed rules that could dramatically change the landscape for small businesses, as well as large federal contractors that team with small business concerns.

With narrow, limited exceptions, the SBA regulations currently provide that two businesses that joint venture to perform federal contracts will be considered affiliated.  Affiliation can cause a real problem for small businesses.  Specifically, affiliation with a large business means the loss of small business size status and no longer being able to pursue small business set-aside contracts or subcontracts under a large business’s Small Business Subcontracting Plan.

The most notable exception to affiliation applies to participants in the SBA’s 8(a) mentor-protégé program.  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.  Of course, the 8(a) protégé must qualify as a small business under the particular NAICS code assigned to the procurement and meet the minimum performance requirements set forth in the SBA regulations (typically the joint venture must perform 15% of the work on a construction contract and the protégé must perform 40% of that 15%).  Nonetheless, the 8(a) mentor-protégé program has allowed small businesses to enter joint venture agreements with larger businesses to pursue federal contracts.  The advantage is clear.  An approved 8(a) mentor-protégé team can tap into the larger business’s bonding capacity and include the larger business’s experience when submitting proposals for 8(a) and other set-aside contracts.

The SBA’s proposed rules would expand this shield from affiliation by adding a new mentor-protégé program that includes all small business concerns, not just 8(a) concerns.  That means all small businesses, including participants in the HubZone, Women-Owned Small Business (WOSBs and EDWOSBs), and Service-Disabled Veteran Owned Small Business programs (SDVOSBs), will have the opportunity to become SBA approved mentor protégé teams with larger businesses. Further, these new mentor-protégé teams will be able to enter joint venture agreements to chase small business set-aside contracts and to act as small businesses under larger business’s Small Business Subcontracting Plans.  Before these proposed rules, only 8(a) mentor protégé participants enjoyed that shield from the rules of affiliation.

The implications for small and large business owners could be huge.  We suspect that small businesses, including SDVOSBs, HUBZones, and WOSBs, that do not choose to participate in the new program will face stiff competition from, and potentially be at a competitive disadvantage with respect to, the new mentor-protégé joint ventures.

 

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As the calendar turns to February, many of us have already let slide our personal resolutions for the New Year.  However, even if you’ve already forgotten what the inside of your gym looks like, there are still some achievable resolutions that you can keep.

The Small Business Administration (SBA) published a list of seven resolutions that – if kept – will have a positive impact on your business’s growth and profitability in 2015:

1. Update Your Business Plan.  Your small business plan should be considered a “living document” that is updated regularly to reflect recent experiences and lessons learned.  The New Year is a great time to dust off your plan and evaluate how your business is adapting to changing times.

2. Take Stock of Your Finances.  Small business owners need to regularly take stock of the company’s balance sheets – the heartbeat for businesses of all sizes!  This review can include an internal checkup or, when necessary, require the expertise of a qualified advisor.

3. Out with the Old . . .  Take an honest look at what is working for your business and – just as importantly, what efforts (marketing, staffing, etc.) are not paying off.  Small businesses in particular should also take stock of their position in the marketplace.  Are you missing opportunities to expand your footprint through teaming opportunities?

4. Search Out Mentors.  Small business owners at all stages can use an honest, helpful mentor.  This path can include participating in an SBA sponsored small business development program.  Are you taking full advantage of the opportunities afforded to disadvantaged, veteran-owned, and women-owned small businesses?

5. Get More Clicks.  The SBA cites a 2013 study by Forrester Research Inc. showing that by 2017, nearly 60 % of all U.S. retail sales will involve the internet.  Almost any small business can benefit from updating and enhancing its web presence. Are you effectively reaching your potential customers?

6. Understand the ACA.  Small businesses with 100 (or even 50) or more employees absolutely must get their arms around the Affordable Care Act.  However, even smaller firms can opt to provide coverage for their employees.  Understanding the regulations can help your business avoid potential pitfalls.

7. Get Creative!  There is no better time than now for your business to take it to the next level.  Finding ways to stand out from the crowd can make all the difference.

Just because an 8(a) small business and a large business have been approved to participate in the Small Business Administration’s (SBA) 8(a) mentor-protégé program under 13 CFR § 124.520 does not mean that any joint venture between the two companies will be automatically exempt from the rules of affiliation.

In a recent, first of its kind, decision, a joint venture consisting of an approved mentor-protégé team was awarded, and then lost, a multi-million dollar U.S. Army Corps of Engineers (Corps) small business set-aside contract to design and build an Army Reserve Center because the SBA found the joint venture partners to be affiliated under the SBA’s rules of affiliation (13 CFR § 121.103).

After award, the contracting officer questioned whether the joint venture agreement submitted by the joint venture partners satisfied the SBA’s rules and initiated a size protest with the SBA Area Office.  The Area Office determined that the joint venture agreement did not itemize all major equipment, facilities, and other resources to be provided by each party, failed to specify the responsibilities of the parties, and did not show how the joint venturers would meet the minimum performance requirements.

In Size Appeal of: Kisan-Pike, A Joint Venture, SBA No. SIZ-5618, 2014, the SBA’s Office of Hearings and Appeals (OHA) affirmed the SBA Area Office’s size determination that a joint venture between 8(a) protégé, Kisan Engineering Company, P.C., and it mentor, The Pike Company, Inc. exceeded the size standard for a small business general contractor because the two joint venture partners were affiliated.

Under 13 CFR § 124.513(c)(6) and (7), a valid joint venture must contain provisions:

• Itemizing all major equipment, facilities, and other resources to be furnished by each party to the joint venture, with a detailed schedule of cost or value of each; [and]

• Specifying the responsibilities of parties with regard to negotiation of the contract, source of labor, and contract performance, including ways that the parties to a joint venture will ensure that the joint venture and the 8(a) partner(s) to the joint venture will meet the performance of work requirements set forth in paragraph (d) of this section.

In the Kisan-Pike joint venture agreement, the joint venture partners tried to satisfy the first requirement with the simple statement:  “Upon award of the contract, Kisan and Pike will provide equipment, facilities, and other resources to the Joint Venture required to execute the contract.”

The SBA found neither this statement, nor the joint venturer’s claim that it was sufficiently detailed because it was a design build contract and they could not confirm the construction plan before the Corps approved the design to be persuasive.  The SBA noted that the Phase II proposal contained proposed design drawings and a detailed construction schedule, so presumably, the joint venture would have some idea of what equipment and resources each could provide.

With respect to the source of labor and contract performance, the joint venture agreement stated that the president of the protégé would negotiate and manage the contract, but did not designate specific tasks to either Kisan or Pike.  The agreement also only noted that the joint venture must perform 15% of the cost of the contract incurred for personnel with its own employees (not including the cost of material).  The SBA found that simply stating the minimum performance requirements is insufficient to meet the requirement.

The Area Office also found (and OHA confirmed) that the agreement did not meet the requirements set forth in 13 CFR § 124.513(d), which requires the 8(a) protégé to perform at least 40% of the work performed by the joint venture and that the protégé’s work consist of “more than administrative of ministerial functions.”  All the agreement did was make “broad” and “generic” representations that Kisan will perform at least 40% of the work without any details or plan.

Most interesting to participants in the SBA 8(a) mentor-protégé program, OHA rejected the argument that mentors and protégés are presumably unaffiliated when there is an SBA-approved mentor-protégé agreement. 13 CFR § 124.520(d)(4) states: “No determination of affiliation or control may be found between a protégé firm and its mentor based on the mentor/protégé agreement or any assistance provided pursuant to the agreement.”  OHA explained that the Area Office did not find affiliation based on the mentor-protégé agreement itself, but rather the Area Office determined that the exception of mentor-protégé joint ventures is not available because the agreement did not meet the requirements set forth in the SBA regulations.