SBA Issues Final Rule Establishing Regulations for WOSB and EDWOSB Set-Asides and Sole-Source Contracts

On September 14, 2015, the Small Business Administration published its final rule implementing new regulations for awards to Women-Owned Small Business (WOSB) and Economically Disadvantaged Women-Owned Small Businesses (EDWOSB). Now, as with other "special status" concerns such as 8(a) and Service Disabled Veteran Owned businesses, women-owned businesses will have access to set-aside and sole-source contracting opportunities. The legal basis for this final rule is §825 of the National Defense Authorization Act for Fiscal Year 2015.

 

Under the current WOSB program, SBA reports that WOSBs received approximately $15 billion in contract actions according to FY 2013 small-business goaling reports. The new sole-source authority for awards to EDWOSBs and WOSBs can only be used where a contracting officer’s market research cannot identify two or more WOSBs or EDWOSBs that can perform at a fair and reasonable price but identifies one that can perform. WOSB and EDWOSB competitive set-asides and sole-source contracts can only be awarded in those industries for which WOSB and EDWOSB opportunities are authorized.

 

The final rule announced in the Federal Register is attached here and becomes effective October 14, 2015.

Failure of Prime Contractor to Comply With "Percentage of Work" Requirements Entitles Government to Damages

In a case of first impression, the United States Civilian Board of Contract Appeals upheld a contracting officer’s final decision assessing damages against a prime contractor that failed to comply with the requirement to perform at least 50% of the on-site work. On a contract awarded by the Federal Highway Administration ("FHWA"), prime contractor, Singleton Enterprises ("Singleton") subcontracted the vast majority of its work to Talley Construction ("Talley"). Singleton’s only employees on-site were supervisors, which Singleton apparently borrowed from Talley but paid directly. It was unclear whether Singleton had paid for equipment used on the site, but the CBCA determined that whether or not Singleton had paid for equipment costs, it still performed substantially less than 50% of the value of on-site work.

The FHWA decided that if Singleton did not perform the on-site work, it was not entitled to the benefit of the unit prices it charged for that work. Talley was essentially acting as prime contractor so the FHWA decided it should only pay Singleton what Singleton was paying Talley. To calculate its damages, once the final quantities were determined, the FHWA multiplied Talley’s unit price to Singleton for the work, which was less than Singleton’s unit price to the FHWA for the work. Singleton had already been paid more than the FHWA would have paid based on Talley’s pricing. The appeal upheld not only the FHWA’s decision that it was entitled to recoup its "overpayment" damages from Singleton for not meeting the percentage of work requirement but also the reasonableness of the FHWA’s method of calculating its damages for that breach.

The decision notes that it has no precedential value. However, in similar circumstances, contractors should expect both the Department of Transportation and the Civilian Board of Contract Appeals to act as they did here. See Singleton Enterprises v. Department of Transportation, CBCA No. 2716, June 14, 2012.

U.S. Government Accountability Office Report

The U.S. Government Accountability Office ("GAO") has recently issued a report setting forth statistics for bid protests for the fiscal years 2007 through 2011. See GAO Report here. The report also contains a synopsis of a number of recent notable GAO decisions on various issues including Historically Underutilized Business Zones ("HUBZones") and Service-Disabled Veteran Owned Small Business Concerns ("SDVOSBC").

Both Christopher Solop and Lynn Patton Thompson file pre- and post-award bid protests and practice before the GAO and the United States Court of Federal Claims.

"Redesignated" HUBZones Expiring October 1, 2011 - May Affect Your HUBZone Eligibility

 

On October 1, 2011, "redesignated" HUBZone areas will expire. These areas were previously set to expire at earlier dates, but in 2004, Congress extended and "grandfathered" their HUBZone status until the results of the 2010 Census were published. The original "redesignated" expiration date was June 1, 2011, but it was extended and now will take effect on October 1, 2011. The Small Business Administration is encouraging all currently-certified HUBZone concerns to assess the impact expiration of "redesignated" areas will have on their eligibility to remain in the HUBZone program, whether a concern’s principal office is currently located in a "redesignated" area or if it relies upon the employment of residents in redesignated areas to meet the "35%" rule.

The HUBZone program does not require termination of existing HUBZone contracts if a concern is no longer eligible after October 1, 2011. However, because a concern must be properly certified and eligible as of the date (a) it submitted its initial offer for the contract and (b) the date the contract was awarded, expiration of "redesignated" areas may impact pending offers. Also, regardless of whether a current HUBZone concern has an offer pending for a federal contract, it must always notify the SBA of any "material" change which could impact its HUBZone eligibility. Firms that will no longer qualify for the HUBZone program as of October 1, 2011, can voluntarily de-certify. If that is not done, the SBA will send proposed de-certification letters which must be responded to within thirty (30) days.

Concerns which voluntarily decertify or otherwise become non-compliant with the HUBZone program as of October 1, 2011, can re-apply after ninety (90) days have passed since the date of a voluntary decertification agreement or decertification.

SBA Final Rule Makes Important Changes to Size Regulations, 8(a) Business Development/Small Disadvantaged Business Status Determinations

Effective March 14, 2011, a final rule by the Small Business Administrations implements important changes to various regulations affecting size status and eligibility for the 8(a) Business Development Program/SDB Status Determinations. Substantive changes include the rule on affiliation among joint ventures, calculation of net worth, and new requirements for 8(a) joint venture agreements.

Prior to this new final rule, entities were not affiliated as joint venturers provided they only joint ventured to submit no more than 3 offers on Federal projects over a 2-year period. Under the new rule, joint ventures can be awarded 3 projects over a 2-year period and not be considered affiliates based on their joint venture activities. Joint venturers can now re-constitute their joint venture and be awarded 3 additional projects over subsequent 2-year periods.

Other changes affect the determination of who is economically disadvantaged. In determining one’s net worth, "[f]unds invested in an Individual Retirement Account or other official retirement account that are unavailable to an individual until retirement age without a significant penalty will not be considered in determining an individual’s net worth." Personal income averages for initial and continuing 8(a) program eligibility have also been established by the SBA.

The required contents of 8(a) joint venture agreements will also change effective March 14, 2011. To the extent other SBA contracting-assistance programs rely on the regulation for proper 8(a) joint venture agreements, those other programs will be affected by these changes, as well.

This final rule is extensive and includes other substantive and technical changes. Click here to view the Final Rule.

VA TO REQUIRE ALL SMALL AND VETERAN-OWNED BUSINESSES TO PROVE STATUS

On January 3, 2011, the Department of Veterans Affairs announced that any company identifying itself as small or veteran-owned and desiring to do business with the VA must provide documentation to prove its status. For companies that are currently listed on the VA’s Vendor Information Pages but have not previous been verified as small or veteran-owned, the documentation must be provided within 90 days of receiving a request for it from the VA. Companies that desire to be listed on the VA’s Vendor Information Pages must substantiate their status as small or veteran-owned prior to being listed. These expanded verification requirements are part of the Veterans Benefits Act of 2010, which was signed President Obama on October 13, 2010.  Click here for a copy of the announcement.

SBA Finally Issues Final Rule Establishing Women-Owned Small Business Program

On October 4, 2010, the U.S. Small Business Administration published a final rule in the Federal Register establishing a federal contracting programs for WOSBs.  See Press Release.  In a press release of the same date, the SBA says the new WOSB program will be used to help achieve a statutory goal that 5% of federal contracting dollars go to women-owned small businesses. [insert pdf] Under the program, contracts may be set-aside for competition among WOSBs when the anticipated contract price is not expected to exceed $3 million, except in the case of manufacturing contracts, is not expected to exceed $5 million.

The basic requirements to qualify as a WOSB are that the company be owned and controlled at least 51% by one or more women who are U.S. citizens and "small" according to its primary industry classification. According to the SBA, it will "pursue vigorously punitive action against ineligible firms which seek to take advantage of this program and in so doing deny its benefits to the intended legitimate WOSBs."

Small Businesses Alarmed by What Administration Considers Procurement "Reform"... and Large Businesses Should Be

The Federal Times.com recently reported on proposed procurement "reforms" that will adversely impact business opportunities for small businesses. The term "procurement reform" suggests changes aimed at increasing contracting opportunities, improving fairness in the procurement system, or lowering the cost of goods and services. The Administration’s proposed changes do not aim to do any of these.

The Obama Administration is considering, among other things, converting services typically performed by small businesses from private performance to government performance. According to Federal Times.com, this change would impact service contractors that provide maintenance services, food services, and information technology services which are typically performed by small businesses. Contacting reforms anger small businesses

The Obama Administration is also looking at other changes that will burden small businesses. It is feared that "strategic sourcing", which combines government needs to achieve economy of scale, will limit those needs for goods or services that small businesses can meet. Stricter environmental requirements are likely to make it difficult for small businesses to compete effectively, too. 

Another change is the Administration’s "High Road" contracting policy which would favor the award of federal contacts to employers who pay higher salaries or provide better benefits. The Service Contract Act and Davis-Bacon Act already require service contractors to pay not less than prevailing, that is, market, wage rates. Why is an initiative that would increase costs to business and the government on the agenda?

Some critics claim the High Road initiative will inject more subjectivity into the procurement process while others say it is meant to reward union support for Obama. AFL-CIO union head opposes ‘High Road’ contracting policy. The FederalTimes.com points out that it is likely to damage small businesses. While small businesses do not have the financial resources to outpace the market for wages or benefits, larger companies aren’t likely to have them, either. Could it be that the High Road policy is not meant as a reform to reduce government contracting costs but meant to re-engineer American enterprise through government purchasing—at any cost?

Contracts for Service-Disabled Veteran Owned Small Business Concerns

Service-Disabled Veteran Owned ("SDVO") contracts are one of several types of "set-aside" contracts which permit qualified entities to compete for federal government contracts on other than "full and open" competition terms. SDVO contracts are taking their place among small business set-asides, 8(a) set-asides, and HUBZone set-asides. With submission of its initial offer for a SDVO Small Business Concerns ("SBC") contract set-aside, a concern must certify that:

       

    • it is a SDVO SBC
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    • it is "small" as defined by the NAICS code assigned to the procurement
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    • it will comply with the percentage of work requirements set forth in 13 CFR 125.6
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    • if a joint venture, that both members of the joint venture are small; and
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    • if applicable, it is an eligible nonmanufacturer.

Even if a SDVO meets all of the foregoing on a particular procurement, it must still consider the Small Business Administration’s ("SBA") rules on affiliation, all of which can apply to render a "technically" compliant SDVO as "other than small" and therefore ineligible for the award of SDVO contracts. Whether a SDVO wants to ensure it has not run afoul of the rules prohibiting affiliation between SBCs or a SDVO competitor wants to successfully challenge the SDVO status of a competitor, the SDVO needs to be familiar with the rules by which the SBA determines entities to be affiliated.

For example, a SDVO that is deemed unduly reliant upon a subcontractor for performance of the vital or primary functions of a contract may be deemed to be affiliated with the subcontractor. If the average annual receipts of the SDVO and this "ostensible" subcontractor exceed the applicable size limitation, the SDVO will be deemed ineligible for the SDVO contract. More basic still could be a finding of affiliation based on the "newly organized concern" or shared ownership rules.

Affiliation with a subcontractor may also be found even though a subcontractor is not performing the vital or primary functions of a contract. While bonding assistance alone by a subcontractor generally does not create affiliation between a SBC and a subcontractor, when coupled with other performance assistance, it could result in a finding of affiliation. Other indicia of "assistance" include, but are not limited to, bid preparation by the subcontractor rather than the prime SDVO; the loan of equipment to the SDVO by a subcontractor; office sharing by the SDVO and a subcontractor; and payroll, bookkeeping, and other "back office" assistance by the subcontractor. The proximity of the SDVO’s offices may also come into play when affiliation with a subcontractor is examined. For instance, where a SDVO SBC has been located 1100 miles away from the site of contract performance has been determined by the SBA to render the SDVO unduly reliant upon a subcontractor because the SDVO is too remote to provide meaningful, day-to-day management of the project. However, an SDVO’s location 100 miles away from the site of contract performance has been deemed not too remote.

Whether affiliation exists to render your SDVO or a competitor’s SDVO ineligible for a particular procurement or ineligible generally for the SDVO program is very fact-specific. To minimize the risk of being declared "other than small" SDVOs should carefully review all rules by which the SBA examines allegations of affiliation.

Women-Owned Small Business Set-Asides on Their Way?

 

The Small Business Administration (SBA) plans to implement a Women-Owned Small Business (WOSB) program that includes a full complement of benefits similar to those for the 8(a), HUB-Zone, and other programs. On May 11, 2009, the SBA announced in the Federal Register that it will revoke its previous proposed rule for a WOSB program and promulgate a new rule. Click here for announcement. [.pdf] The SBA says it is "committed to moving forward to implement a successful WOSB procurement program."

To qualify as a WOSB, a company must be small and at least 51% unconditionally and directly owned and controlled by one or more women who are United States citizens. An EDWOSB is a small business that is at least 51% unconditionally and directly owed by one or more women who are United States citizens and economically disadvantaged.

Currently, the WOSB program is limited in scope. It encourages prime contractors to subcontract with WOSBs but does not include many of the significant business opportunities SBA has established for other entities considered socially or economically disadvantaged. For instance, there currently are no set-aside procurements exclusively for competition among WOSBs. Also, there are no sole-source prime contracts for WOSBs. Nor do they enjoy any evaluation preferences in full-and-open competitions as currently exist in other socio-economic programs.

No firm date for issuance of a proposed WOSB program has been established, but the May 11, 2009, notice in the Federal Register anticipates a new announcement some time in July 2009.

Executive Order Requires Hiring of Losing Incumbents Employees

President Obama issued an Executive Order requiring contractors that have won service contracts to hire the non-managerial employees of the losing incumbent. The winning contractor is not permitted to advertise for the non-managerial positions until after the losing contractor’s employees have been given their "right of first refusal". The Order states that "[t]he federal government’s procurement interests in economy and efficiency are served when the successor contractor hires the predecessor’s employees." Although a similar Executive Order was in place during the Clinton Administration, supporters and critics of President Obama's policy are making their voices heard.

Critics are concerned that mandating a predecessor’s employees be retained limits the winning contractor’s flexibility in achieving economy and efficiency. There are concerns also that it gives union-like protection for jobs. One of the exceptions for not hiring a predecessor’s employee is that he or she did not "perform suitably on the job." This language may be used as a sword against successor contractors by non-retained workers who want to contest the decision not to hire them. It might also require that the predecessor contractor hand over the employees’ personnel records. If non-retained workers can sue a contactor for not being hired, that alone may result in winning contractors maintaining "marginal" incumbent employees rather than hiring better skilled or motivated new employees. It may also have a chilling effect on how contractors rate their employees or document their records if there "poor references" may cause an employee not to be hired by a successor contractor.

Supporters of the requirement argue that it increases job stability, decreasing training costs. They point out also that most successor contractors already hired the predecessor’s employees anyway.

General Accountability Office Protests - 2008 Records Show High Activity in Federal Procurement Protests

The General Accountability Office ("GAO") considers protest against the solicitation and award of Federal contracts. Generally, under its "bid protest" function, it handles protests which contest the competitive nature of the terms of a solicitation and its compliance with procurement law and regulation and it handles protests against the propriety of the award of contracts.

Many contractors choose the GAO, as opposed to the Court of Federal Claims, because the laws and regulations permitting the right to protest Federal procurements to the GAO require the stay against a protested procurement action, provided the protest is timely filed. No other forum allows for this "automatic stay". Also, it is one of the least expensive and quickest fora for obtaining a decision. Decisions are generally issued within 120 days from the date of protest.

2008 was one of GAO’s busiest protest years. Over 1600 cases were filed, and the GAO closed over 1500 of them. Although the number of actions filed at the GAO was up 17% from the previous fiscal year, the percentage of sustained actions (actions in favor of the protester) fell from 29% to 21%.

The GAO was originally called the General Accounting Office. Although "Accounting" was changed to "Accountability" in 2004, it’s purpose remains the same: "investigate, at the seat of government or elsewhere, all matters relating to the receipt, disbursement, and application of public funds, and shall make to the President...and to Congress...reports (and) recommendations looking to greater economy or efficiency in public expenditures". It is an investigative arm of Congress.

Department of Defense Suspends SDB Price Evaluation Preference Suspended for One Year

The Director of Defense Procurement has suspended use of the price evaluation preference for Small Disadvantaged Businesses ("SDBs") for a one-year period beginning March 13, 2009.  By law, the ten percent (10%) price evaluation adjustment in favor of SDBs must be suspended for a 1-year period in which the DoD meets or exceeds the 5% goal set for contract awards to SDBs.  In Fiscal Year 2008, the 5% goal was exceeded.  Therefore, during the period March 13, 2009 through March 12, 2010, DoD solicitations will not include any provision allowing application of the price evaluation preference for SDBs in making award decisions.  Notice of the 1-year suspension was published in the Federal Register on February 19, 2009. 

President Obama's Federal Procurement Policies

If President Obama’s first steps into federal procurement policy are any indication, his will be a pro-labor administration. On January 30, 2009, Obama issued Executive Orders he believes will "level the playing field for workers and the unions that represent their interests". One Executive Order requires successor service contractors to hire employees of the predecessor contractor and another requires contractors to notify their employees that they have the right to unionize and bargain collectively. A third Executive Order prevents federal contractors from being reimbursed for expenses incurred for efforts intended to influence workers' decisions to form unions or engage in collective bargaining. Failure to comply could result in debarment of a contractor.

The Executive Order requiring successor service contractors to offer a job to the employees of the former contractor does not apply to managerial and supervisory employees. It also does not apply to services contract under the simplified acquisition threshold. However, it would require that employees of the predecessor contractor be given a "right of first refusal" that would be no less then 10 days, that is, the employee would have at least 10 days to decide whether to accept a position with the successor contractor. The primary thrust of the Executive Order is to protect the "rank and file" federal contractor employees.

The Executive Order prohibiting contractor from being reimbursed for expenses incurred to influence workers’ decision concerning unionization is opposed by the U.S. Chamber of Commerce. The Executive Order presumes that the expenses contractors have incurred and which the administration wants to prohibit are expenses discourage unionization. However, the National Labor Relations Act has been interpreted by the Supreme Court to require uninhibited information concerning unionization, which would include information both on the right to unionize and the right not to unionize. The U.S. Chamber of Commerce views this Executive Order as an infringement on employers’ free speech rights.