Blackford Forum

Strategic Changes to the DoD Acquisition Process

By Kate Kennedy on Posted in Procurement Policy

The Department of Defense has announced a strategy to modify its acquisition program.  This strategy, set forth in Implementation Directive Better Buying Power 2.0, identifies best practices to be used by DoD acquisition staff in contracting for goods and services.  Many of the best practices identified are likely to benefit contractors, as the Directive is designed to allow more flexibility and increased efficiency to the contracting process.

BBP 2.0 includes both general principles as well as specific instructions to guide acquisition personnel.   Among the changes that will benefit contractors is the instruction that acquisition personnel select the appropriate contract type and refrain from simply defaulting to the use of firm fixed price contracts without consideration of whether this contract type is compatible with the substance of the contract.  This guidance differs from that set forth in BBP 1.0 – which was released in 2010 and emphasized the use of firm fixed price contracts, by specifically instructing Government personnel to assess each acquisition and utilize the type of contract that will be best for the specific goods and/or services being procured.

Additionally, the Directive provides guidance on the appropriate use of Lowest Price Technically Acceptable versus Best Value tradeoffs as well as how best value should be evaluated.  As noted in our April 22 post, best value and LPTA evaluations can be difficult to distinguish and evaluation factors for each are often ambiguous.  The Directive attempts to resolve the ambiguity surrounding these procurement methods and instructs acquisition personnel not to use LPTA when the evaluation of contractors’ technical proposals will require “subjective judgment,” such as with most professional services contracts.  Additionally, if a best value tradeoff is used by the Government, the Directive instructs that the solicitation should include information pertaining to the Government’s quantification of the value (in relation to the increased premium the Government is willing to pay) for exceeding the threshold of acceptability.

However, it is unclear how other guidance contained in BBP 2.0 will affect contractors.  For example, the Directive also identifies the DoD objective of aligning contractor profits with contract outcomes.  While DoD officials have repeatedly stated that they recognize the importance of ensuring that Defense contracting remains profitable, officials have also directed contracting officers to use profit as a carrot to entice contractors to reduce their costs.  At the moment, however, it is too early to tell how the implementation of this Directive will impact Contractors’ profit margins.

From the 30,000 foot perspective, BBP 2.0 provides valuable guidelines to acquisition staff while also acknowledging that professional judgment is required for implementing a successful contracting program.  Given the significant turnover of acquisition staff as experienced staff retires and is replaced by a new generation, it is likely that there will be some bumps in the road as the experience necessary to effectively make these judgment calls is gained.  However, the guiding principles laid out in BBP 2.0 are more generally more favorable to contractors than those in the prior Directive and we can hope that the added flexibility will produce a more effective, efficient, and favorable contracting environment.  The BBP 2.0 Directive can be accessed here:  https://dap.dau.mil/Pages/NewsCenter.aspx?aid=304.

SBA Issues Guidance on Exceptions to Affiliation

By Kate Kennedy on Posted in Small Business Contracting

The Small Business Administration (“SBA”) recently issued guidance on entity-owned exceptions to affiliation of Alaska Native Corporations (“ANCs”).  These exceptions, which also apply to Indian Tribes, Native Hawaiian Organizations and Community Development Corporations, generally provide that an entity’s size is determined without consideration of any affiliation the entity may have with a parent tribe, tribal government, or any other business entity owned by the tribe.  However, both within the 8(a) BD program and outside of it, there are exceptions to this rule that contractors should be aware of.  The SBA’s April 23, 2013 guidance addresses some of these exceptions and also provides guidance on the rule’s application.

Within the 8(a) BD program, affiliation will not be found between the entity and the tribe or the entity and other tribe-owned business concerns unless the SBA determines that an unfair competitive advantage within the industry category exists.  The SBA’s guidance specifically clarified the meaning of the terms “unfair competitive advantage” and “within an industry category.”  Addressing the second term, the SBA stated that “within an industry category” meant within a specific NAICS code.  With regard to the first term, the SBA stated that an “unfair competitive advantage” could be found where the other tribe owned entities were (a) dominant (b) within the specific NAICS code, (c) in the national market, and (d) relative to other small businesses.  With these clarifications, the SBA communicated to contractors that it is irrelevant if other owned entities are dominant in a local market and, similarly, it is irrelevant if other owned entities are competitive but not dominant in the national market or are dominant but under a separate NAICS code.  The practical message is that 8(a) entities concerned about affiliation with other entities owned by a parent ANC should assess the dominance of the other tribe owned entities on a national scale relative to other small businesses in the specific NAICS code for which the 8(a) operates.  As long as the other entity-owned concerns are not nationally dominant relative to other small businesses for the specific NAICS code, the 8(a) should be free from affiliation concerns.

Outside of the 8(a) BD program, the SBA’s guidance stated that business concerns controlled by an ANC are not affiliated with the ANC but may be affiliated with other business concerns owned by the ANC if certain services, other than common administrative services, are shared among the owned entities.  While the SBA’s guidance did not set forth all circumstances in which affiliation could be found, it did provide some examples.  The specific examples highlighted in the guidance include recruitment, human resources support, and cleaning services – all of which would be “common administrative services” and, therefore, not be cause for affiliation, versus contract administration, business development, and equipment maintenance – all of which fall outside the SBA’s interpretation of common administrative services and could lead to a finding of affiliation.  The most detail the SBA provided in defining “common administrative services” was that the term referred to services unrelated to contract performance or management that could be performed without exercising control of the business concern.  Given this imprecise and open-ended definition, entities owned by ANCs should be wary of sharing services with other ANC owned entities unless the shared services are specifically those identified to date by the SBA as common administrative services:  bookkeeping, payroll, human resources, and cleaning services.  With the recent trend of imposing stricter regulations on ANCs, it is likely that the SBA will further develop this standard over the coming months and years.

Expanded Contracting Opportunities for Women Owned Small Businesses

By Kate Kennedy on Posted in Small Business Contracting

A new rule issued by the SBA and published today significantly broadens the contracting opportunities available for Women Owned Small Businesses (“WOSBs”).  Prior to the issuance of this rule, set asides for WOSBs were restricted to contracts for under $6.5 million (manufacturing contracts) or $4 million (all other contracts).  The new rule eliminates these caps and enables the Government to set aside contracts of any size for WOSBs.  This rule, which is effective immediately and applies to all solicitations issued on or after today’s date, is expected to create more contracting opportunities for WOSBs and strengthen the WOSB program.

Pursuant to the new rule, a contracting officer may set aside any contract for WOSBs or economically disadvantaged WOSBs (EDWOSBs) as long as (1) there is a reasonable expectation that two or more WOSBs or EDWOSBs from industries in which these entities are underrepresented will submit offers for the contract and (2) in the estimation of the contracting officer, an award can be made to one of these entities at a fair and reasonable price.  A full description of the SBA’s new rule can be found here:  http://www.gpo.gov/fdsys/pkg/FR-2013-05-07/pdf/2013-10841.pdf.

Given the increasing competition for federal contracts, set-asides present a valuable opportunity for qualifying contractors.   With the expansion of the WOSB set-aside program and the expected issuance of new regulations expanding the SBA’s mentor-protégé program, it appears that contracting opportunities for small, historically-disadvantaged businesses are increasing.  If you have questions concerning the SBA’s set aside program, please contact Kate Kennedy or Jon DeMella in our Government Contracts Counseling & Litigation Practice.

Best Value Evaluations: LPTA v. Tradeoff

By Kate Kennedy on Posted in Protests

As competition for Government contracts is increasing, it is crucial that offerors craft proposals to emphasize the Government’s stated evaluation criteria.  While this may appear to be commonplace advice, recent protest decisions issued by GAO indicate that there is often a disconnect between an offeror’s proposal and the stated evaluation criteria, specifically with regard to Best Value evaluations.    A proposal for a lowest price technically acceptable evaluation generally will be materially different than a proposal for a tradeoff, yet often contractors do not adequately differentiate between the two evaluations when developing their proposals.  Additionally, even in a tradeoff evaluation, offerors should bear in mind that it is acceptable for the Agency to select a lower rated lower cost proposal.

While many contractors consider Best Value to be synonymous with “trade off,” e.g., where the Agency makes tradeoffs between price and technical factors and may select a proposal that is higher rated and higher priced than a technically sufficient lower priced proposal, in fact Best Value evaluations can also be conducted on a Lowest Priced Technically Acceptable (“LPTA”) basis.  See FAR 15.101-2 (LPTA is appropriate “when best value is expected to result from the selection of the technically acceptable proposal with the lowest evaluated price.”).  Solicitations must specify how the evaluation will be conducted – whether by tradeoff or on a LPTA basis.  To the extent that the solicitation fails to specify, the contractor must clarify the terms prior to the deadline for receipt of proposals either through clarifications with the Agency or by filing a preaward protest.

If the Agency commits to performing a tradeoff in evaluating proposals, it may not later reverse course and simply award the contract to the LPTA proposal on the basis that it satisfied the technical criteria at the lowest price.  Nonetheless, if the Agency determines that the lowest price proposal provides the best value to the Agency after conducting a tradeoff analysis, the Agency may award the contract to the lowest priced offeror.  In practice, this appears to be an increasingly common theme.  See WingGate Travel, Inc., B-405007.14, Apr 12, 2013.  There are numerous protest grounds that can be asserted where an Agency appears to improperly deviate from the stated evaluation criteria, and these may lead to relief for the protestor.  However, it remains true – as with all protests – that the burden on the protesting party is high.

Our recommendation to potential offerors would be to ensure that you understand the basis on which protests will be evaluated and tailor your proposal accordingly.  For example, if the evaluation will be on a LPTA basis, do not add bells and whistles to your proposal, instead simply ensure that you satisfy the technical requirements.  For a tradeoff analysis, an offeror’s strategy should be more nuanced – in some instances, perhaps the agency will deem a higher priced, higher technically rated proposal to be best value, but in the age of sequestration, cutbacks, and funding concerns that we are living in, bear in mind that the Agency’s tradeoff might result in a determination that a lower priced, lower technically rated proposal is the best value to the Government.

We welcome your thoughts and comments.

SBA Issues Proposed Rule Amending Small Business Protests and Appeals Procedures

By Jonathan DeMella on Posted in Protests, Small Business Contracting

Yesterday, the SBA issued proposed regulations that seek to revise its size and status protest and appeal procedures “to ensure that contracts set aside for small businesses are awarded to eligible small business concerns.”   The SBA tells us that these proposed changes “will not have a direct negative impact on any small business concern, since [they are] aimed at preventing businesses that are not small or are ineligible in terms of their status as a HUBZone, SDVOSB, or WOSB concern, from receiving or performing contracts that are set aside for small business concerns.”

I suppose that this is true if you are a small business that has never been on the wrong end of an adverse size determination.  For those of us involved with size and status protests and appeals before the SBA’s Office of Hearings and Appeals (“OHA”), as well as size determinations generally, the entire process can be challenging and sometimes frustrating, never mind the obvious and serious impact of an adverse determination, which, unfortunately, can sometimes be arbitrary.

Among the changes proposed by the SBA are:

  • Increase the amount of time the SBA has, after receiving a protest, to make a size determination of a protested concern, from 10 to 15 business days, and to advise that an award may be made to a protested concern after SBA has determined it to be an eligible small business or has dismissed the protest.
  • Clarify that the contracting officer has the authority to extend the amount of time needed by the SBA to make a size determination.
  • Provide guidance on actions available to the contracting officer in the event a size or status determination is not received within the 15-day timeframe or within any extension granted by the contracting officer.
  • Clarify that it is within the OHA’s discretion to accept an appeal from a size determination, and that the SBA may, at its sole discretion, reopen a formal size determination to correct an error or mistake, if it is within the appeal period and no appeal has been filed with OHA.
  • Include the requirement that, when a post-award appeal is submitted to OHA within the required timeframe, the contracting officer shall consider whether contract performance can be suspended until an OHA Judge renders a decision.
  • Permit the contracting officer to terminate the contract if OHA finds a protested concern to be ineligible for award, and mandate that the contracting office shall not exercise the next option or issue any further task or delivery order to the contractor.

Although I am sure there will be much discussion regarding all of these proposed amendments over the coming months, it is the last two points that, at least for now, I find particularly concerning.  Contracting Officers are in the best position to determine and assess agency needs once performance is underway.  Many contracting vehicles, including Multiple Award Task Order Contracts, Multiple Award Construction Contracts, and base-plus-option year contracts, are founded upon an Agency’s and the CO’s ability to issue a task or delivery order, or exercise an option, without the time and expense necessary to go through a follow-on acquisition.

The proposed rule provides that, in the event there is an adverse size determination and unsuccessful appeal, “the contracting officer shall terminate the contract unless termination is not in the best interest of the Government,” which must be set forth in a written determination by the CO.  The rule also states that, regardless of any such determination, “the contracting officer shall not exercise any options or award any task or delivery orders.”

While it is everyone’s best interest to ensure that only legitimate small businesses are eligible for and receive set-aside awards, this proposed rule, perhaps, goes too far.  There are many instances in which legitimate small businesses are protested by competitors for reasons that are not entirely legitimate (e.g., a fishing expedition), requiring a costly and lengthy defense; instances in which concerns raised by the SBA regarding size or status could be addressed and clarified through a simple meeting or telephone discussion with the SBA Area Office (at present, such meetings do not appear to be possible); and instances in which small business owners are subject to an adverse size determination despite best efforts to stay on the right side of the rules.  Before stripping such companies of contract rights previously awarded through contract suspension and termination, perhaps there is room in the proposed rules to allow such companies a window to address and correct the SBA’s concerns.  Perhaps there is a way the SBA can discriminate between those companies that intentionally violate the SBA’s rule and should not be permitted the benefits of the SBA’s Government Contract programs, in which the contracting officer may terminate the contract, and those which do not.  And, regardless, it likely remains in everyone’s best interest for Agencies and Contracting Officers to determine how and whether such small businesses remain eligible to receive future work through options and task and delivery orders.

Written comments on the proposed rule must be submitted by May 6, 2013.

DynaLantic, ANCs and the 8(a) Program

By Jonathan DeMella on Posted in Small Business Contracting

Today, the Alaska Business Monthly Magazine published my article discussing the August 15, 2012 DynaLantic decision and its potential effect on Alaska Native Corporations.  This article is an expansion of my initial thoughts on this decision, as discussed in an earlier post.  I remain of the belief that DynaLantic will have far reaching effects upon everyone involved with the SBA’s 8(a) program, and I welcome your thoughts and comments.

FAR and DFARS Clause Flowdown

By Jonathan DeMella on Posted in Compliance and False Claims

After reviewing a number of standard form subcontracts for clients over the years, I decided to build a table of FAR and DFARS clauses containing flowdown provisions (see my post on this issue, almost a year ago to the day).  I recently updated this table and, as one might expect, several clauses containing flowdown provisions have changed within the last year.  These clauses include:  FAR 52.203-16, Preventing Personal Conflicts of Interest (Dec 2011); FAR 52.212-5, Contract Terms and Conditions Required to Implement Statutes or Executive Orders – Commercial Items (Aug 2012); FAR 52.222-54, Employment Eligibility Verification (July 2012); FAR 52.230-2, Cost Accounting Standards (May 2012); FAR 52.245-1, Government Property (Apr 2012); DFARS 252.203-7004, Display of Hotline Poster(s) (Sep 2011); DFARS 252.225-7039, Contractors Performing Private Security Functions (Aug 2011), and; DFARS 252.244-7000, Subcontracts for Commercial Items and Commercial Components (DOD Contracts) (Aug 2011). 

If you would like a copy of the table, please contact me.

Native American & Veteran Small Business Conference & Trade Show, September 11-13, Tulalip, WA

By Jonathan DeMella on Posted in Small Business Contracting

Next week, the 2012 Native American & Veteran Small Business Conference & Trade Show will be taking place at the Tulalip Resort and Convention Center in Tulalip, Washington.  I will be presenting the Legislative Update during one of the conference’s many interesting breakout sessions on Wednesday afternoon, September 12. 

This conference focuses on helping small businesses get a better understanding on what it takes to become more successful in Government contracting and what services and resources are available to a small business pursuing the Government market.  This year’s conference shall be well attended by private contractors and various tribal organizations, as well as a number of federal agencies, including the US Army Corps of Engineers, GSA, the Department of Homeland Security, the Department of Veterans Affairs, Joint Base Lewis McChord, NAVFAC, SBA and DCMA, among others. 

If you are in the area and are interested in Government contracting, either as a large or small business, attending this conference is time well spent.   We hope to see you there.  If you have any questions about the conference, please do not hesitate to contact me.

DynaLantic and the Future of the 8(a) Program

By Jonathan DeMella on Posted in Small Business Contracting

On August 15, 2012, a federal trial court in Washington, DC declared that the Department of Defense’s administration of the SBA’s 8(a) set-aside program violated Constitutional equal protection laws.  As significant as was the decision itself, the DoD’s response has been equally, if not more, significant, and federal contractors should now plan for fewer set-aside opportunities under the SBA’s 8(a) business development program.    

In DynaLantic Corp. v. the U.S. Department of Defense, the challenger, DynaLantic, claimed that the DoD’s use of the Section 8(a) program, which is reserved for “socially and economically disadvantaged individuals,” constituted an illegal racial preference that violated its right to equal protection under the Due Process Clause of the Fifth Amendment to the Constitution, as well as provisions within the Civil Rights Act of 1964.  DynaLantic’s case was built on two primary challenges.  The first was a “facial” challenge, which required DynaLantic to prove that there was no set of circumstances under which the 8(a) program was valid or constitutional.   The second was an “as-applied” challenge, which required DynaLantic to show that there was no evidence of racial or ethnic discrimination in DynaLantic’s particular industry (DynaLantic specializes in the design manufacture, installation and support of a wide array of military and commercial training systems) that would justify setting aside a solicitation in that industry under the 8(a) program. 

DynaLantic lost on its facial challenge but, with respect to the as-applied challenge, the Court said: “because the government has not met its burden to show a compelling interest in remedying discrimination in the military simulation and training industry, DynaLantic prevails on its as-applied challenge.”

In response to this ruling, it appears that DoD has suspended awards to all 8(a) companies and has begun cancelling solicitations set aside for 8(a) companies.  Yesterday, the Native American Contractors Association and the United States Hispanic Chamber of Commerce issued a press release denouncing DoD’s response as overreaching and unnecessary, and forecasting that it will result in job losses in a less than stellar economy.

Although the significance of this ruling should be apparent to anyone involved with small business contracting with the federal Government, the implications of the ruling will be not known for some time.  For instance, one can imagine that any company, large or small, can and will challenge set asides under the 8(a) program if there is reason to believe that evidence of racial discrimination within any particular industry in not sufficient to support a set-aside.  The 128-page DynaLantic decision was based, in large part, upon numerous academic “disparity studies” that examined the presence and extent of such discrimination, from which the Court concluded there was insufficient evidence to justify set asides in the military simulation and training industry, although there was sufficient evidence to justify the continuation 8(a) program, at least for the time being.   In the absence of such studies or related evidence of discrimination in any particular industry, one could reasonably conclude from DynaLantic that a set-aside under the 8(a) program would be unconstitutional. 

And what are and should be the implications for Alaska Native Corporations?  ANCs benefit from contracting preferences not available to other 8(a) companies, which derive from a series of laws passed by Congress in the 1980s and early 1990s, including amendments to the Alaska Native Claims Settlement Act of 1971.  Because ANCs are historically distinct from other companies eligible for the 8(a) program – a distinction that has been reflected in our laws for decades – should implementation of DynaLantic by federal agencies account for this distinction?

And then there are the broader questions:  How will the SBA respond?  How will other agencies respond?  Will Contracting Officers be required to justify 8(a) set asides with evidence of racial or ethnic discrimination within the particular industry that is the subject of the solicitation?  What will be the effect on the current NAICS industry classifications?  What if a single classification covers industries that have experienced different levels of racial or ethnic discrimination?  And will there be an appeal?

Suffice it to say I will be watching closely this issue in the weeks and months to follow.

Sign of the Times: Justice Department Adds Whistleblower Ombudsman

By Jonathan DeMella on Posted in Compliance and False Claims, Contractor Reporting

The Justice Department Inspector General recently added a “whistle-blower ombudsman” to its ranks to better support individuals reporting waste, fraud and abuse.  In addition to educating Justice Department employees regarding the importance of whistleblowers, the new ombudsman, former federal prosecutor Robert Storch, will ensure that whistleblower complaints are promptly reviewed, keep whistleblowers updated on the status of complaints, and monitor instances of retaliation against whistleblowers.  In addition, the ombudsman intends to work with other agencies with whistleblower responsibilities, as well as nongovernmental whistleblower advocacy groups.

The addition of this new role with the Justice Department’s Office of Inspector General is consistent with the Government’s recent and steady focus on compliance with statutes and regulations aimed at preventing waste, fraud and abuse, such as the relatively recent amendments to the False Claims Act, the anti-fraud provisions in the Small Business Jobs Act, and FAR 52.203-13, which requires Government contractors to report “credible evidence” of fraud to the Office of Inspector General and to maintain a code of business ethics and conduct.   It is also consistent with recent court decisions, such as the 9th Circuit Court of Appeals August 2, 2012 decision in Hooper v. Lockheed Martin, in which the Court held that contractors who knowingly bid unrealistically low prices on contracts could face liability under the False Claims Act.  In that case, the Court explained that a federal prosecutor would not need to prove intent to deceive but, rather, prove that a company knowingly submitted a low bid that could not be achieved.  And it is also consistent with the GAO’s numerous reports over the last several years addressing waste, fraud and abuse, the most recent of which, “Service Disabled Veteran Owned Small Business Program:  Vulnerability to Fraud and Abuse Remain,” was issued just this month.

We remain in a period of Government contracting where we will see the number of fraud prosecutions and qui tam cases steadily increase.  If one trusts the statistics reported by whistleblower advocacy groups such as Taxpayers Against Fraud, this has been the trend for the last several years.  However one may view this recent addition to the DOJ-IG’s ranks, compliance should remain an issue of considerable importance for companies doing business with the Federal Government.