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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?

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In Mission Critical Solutions v. United States, COFC No. 09-864 C (March 2, 2010), the Court of Federal Claims has determined that the HUBZone program takes priority over the 8(a) program.

Mission Critical Solutions ("MCS") was certified as both an 8(a) and HUBZone small business. In 2008, the Department of the Army awarded MCS a one-year sole-source 8(a) contract for just under $3.5 million to provide information technology ("IT") services. For the follow-on requirement, which was valued (including options) at approximately $10.5 million (in excess of the applicable $3.5 million ceiling on sole-source contracts), the Army determined it could not make award to MCS. However, the Army decided it could make a sole-source 8(a) award to Copper River Information Technology, LLC ("Copper River"), an Alaska Native Corporation, if the SBA would approve Copper River as the IT provider for the requirement. SBA accepted the requirement on behalf of Copper River under its 8(a) program and the Army made the award.

MCS protested the sole-source 8(a) award to Copper River to the GAO. MCS argued that the Army was required to compete the requirement as a HUBZone business set-aside. The GAO sustained MCS’s protest. However, the Office of Management and Budget ordered that executive agencies disregard the GAO’s ruling until the Office of Legal Counsel of the United States Justice Department ("OLC") reviewed the matter. After the OLC declared its disagreement with GAO, the Army took the position that it had no authority to take any action inconsistent with the OLC’s position. Thus, MCS’s request for protest costs and a second protest against the award were denied by GAO as "academic", because the Army had stated its position that GAO recommendations could not be followed in the matter. MCS took its protest to the Court of Federal Claims.

Chief Judge Emily Hewitt sided with MCS and declared the Army’s award to Copper River under the 8(a) program not in accordance with law. The Army’s argument that there is parity between the 8(a) and HUBZone requirements was rejected. Judge Hewitt found that the HUBZone statute mandates set-asides for competition among HUBZone concerns whenever there is a reasonable expectation that at least 2 qualified HUBZone firms will submit offers and award can be made at a reasonable price. The plain language of the HUBZone statute at 15 USC § 657a(b)(2) requires such set-asides "[n]otwithstanding any other provision of law". Moreover, whereas contracting officers "may" decide to award contracts under the 8(a) program when the HUBZone statutory set-aside criteria are not met, there is no such discretion for contracting officers when the HUBZone statutory are met. Judge Hewitt enjoined the Army from awarding the IT support services contract without first determining whether the "rule of two" is met "such that the contract opportunity at issue in this case must be awarded on the basis of competition among qualified HUBZone small business concerns."

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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

 

• it is "small" as defined by the NAICS code assigned to the procurement

 

• it will comply with the percentage of work requirements set forth in 13 CFR 125.6

 

• if a joint venture, that both members of the joint venture are small; and

 

• 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.

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The U.S. District Court for the Southern District of Ohio has ruled that the Freedom of Information Act ("FOIA") (5 USC § 552) does not require the Department of the Air Force to release a series of emails sent by one contractor about another contractor’s eligibility to participate in an Air Force contracts program. See Tybrin Corp. vs. United States Department of the Air Force, Case No. 3:08-cv-002 (So. Dist. Ohio)(pdf).

The Air Force’s Consolidated Acquisition of Professional Services ("CAPS") program is a five-year indefinite delivery/indefinite quantity contract under which multiple contract awards can be made. Actual work and services are awarded by the Air Force through subsequent competitions among the awardees. Both Tybrin Corporation and HMRTech2 were CAPS awardees.

In May 2007, Tybrin sent emails to the Air force concerning the eligibility of HMRTech2 to receive awards for work under the CAPS program. In July 2007, the Air Force disqualified HMRTech 2 from further participation in CAPS.

HMRTech2 sought release of the emails form the Air Force, and Air Force officials had determined to release them. Tybrin filed a "reverse FOIA" suit, claiming that the "(b)(4)" exemption under the FOIA prevented disclosure of its emails, and demanding that the Air Force be enjoined from releasing them. The (b)(4) exemption exempts "trade secrets and commercial or financial information obtained from a person and privileged or confidential." 5 USC § 552(b)(4).

Tybrin’s position was that its emails were confidential and commercial. The District Court looked to the District of Columbia Circuit for guidance on whether the emails were subject to release under the FOIA. In 1992, the District of Columbia Circuit adopted the following test to determine whether information was "confidential" and therefore not subject to disclosure under FOIA:

financial or commercial information provided to the Government on a voluntary basis is "confidential" for the purpose of [the (b)(4)] exemption] if it is of a kind that would customarily not be released to the public by the person from whom it was obtained.

Critical Mass Energy Project v. Nuclear Regulatory Commission, 975 F.2d 871, 879 (D.C.Cir.1992)(en banc).

Thus, the Court considered whether Tybrin treated as confidential emails such as the ones sent to the Air Force concerning HMRTech2. The District Court determined that because Tybrin did not release them to the general public and controlled distribution of them even within Tybrin, the emails were treated by Tybrin as confidential.

Tybrin also argued that its emails were "commercial" because it had a "commercial interest" in them. Some courts have held that if the information submitted by an entity does not reveal anything about the nature, character, finances, revenues, or other business information the release of which would hurt the submitter, it is not "commercial" information protected from disclosure. However, again following a District of Columbia Circuit decision, the District Court in Ohio determined that Tybrin had a "commercial interest" in the emails concerning HMRTech 2’s eligibility to participate in CAPS. The Air Force was prohibited from releasing the emails it received from Tybrin.

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