small business legal and regulatory updatechanges affectingbothlargeandsmall contractors small...
TRANSCRIPT
Small Business Legal and Regulatory Update: Changes
Affecting Both Large and Small Contractors
1
February 14, 2013
NCMA Raleigh/Durham
1.Legislative Action ◦New laws (NDAA, SBJA)
◦House Small Business Committee initiatives
2.Executive Action ◦New regulations interpreting statutes
◦Bid/Size Protests (interpreting regulations and statutes)
3.Judicial Action◦Court of Federal Claims cases
Small Business Updates
The Small Business Jobs Act of 2010 directed rulemaking authorities to update FAR provisions which affect small business programs, but most updates have yet to be made final in the FAR.
The 2013 NDAA amended the Small Business Act, which is 1953 legislation that created the Small Business Administration. Where regulatory updates are authorized, they have yet to be implemented.
Multiple-Award Contract Set-Asides
Jobs Act of 2010 authorized Interim Final Rule published by FAR Council on November 2, 2011 (effective that date), 76 FR 68032 FAR Subpart 8.4 amended to clarify that
agencies may set aside orders and blanket purchase agreements under the GSA Schedule
FAR Subpart 12.2 now acknowledges that discretionary set-asides may be used under multiple-award contracts
FAR Subpart 16.5 and 19.5 amended to clarify that agencies may set-aside orders for small businesses in connection with multiple-award contracts (and orders thereunder)
Task and Delivery Order Contracts Proposed Rule published on May 16, 2012 (77 FR
29130). Anticipated to be final by mid/late-2013Reason: Small businesses expend time and money to
obtain (MACs) with the Federal Government but end up being out-competed for awards by large businesses.
Rules authorize: More Set-Asides under Multiple Award Contracts
(MACs) Partial Set-Asides under MACs Contract Reserves under MACs Order Set-Asides under MACs
Rules require documentation when one of the above tools are used
Task and Delivery Order Contracts
Agencies may set-aside parts of MACs for small businesses;Where the MAC procurement can be broken
up into smaller discrete parts and where the set-aside part is expected to receive at least two bids from small businesses at fair market price.
Agencies may reserve one or more MAC awards for small businesses; andAs long as market research shows that at
least two small businesses could perform that portion.
Task and Delivery Order Contracts
Agencies may set-aside orders under MACs or include a reserve for small businesses.Where neither partial set-asides nor reserves are
used, agencies can still “commit” to setting aside orders under a MAC in the future.
Bundling and Consolidation
SBJA Section 1311 – Consolidation (proposed rule May 16, 2012, no scheduled Final Rule) “Consolidation” = a solicitation that seeks offer for two
or more requirements that had been performed previously under two or more contracts at a cost less than the cost of the contract for which offers are solicited
Agencies cannot consolidate contracts for a contract valued at greater than $2 million without market research, justification and assurances that small businesses will included NDAA 2013 eliminated $5 million, DoD-specific
review threshold an imposed government-wide $2 million review threshold.
Bundling and Consolidation (Cont’d)
SBJA Section 1312 – Bundling (Final rule effective Nov. 28, 2011)
“Bundling” is consolidation of two or more requirements previously performed by small businesses
SBA must establish a Government-wide policy on bundling
Agencies must create a website and publish a list and rationale for bundled contracts
Small Business Size and Status IntegrityProposed Rule published on Oct. 7, 2011, 76 FR 62313 (will be final March 2013) Implements “presumption of loss” rule if a
business misrepresents size, government will have an irrefutable presumed loss of the value of the contract (fixes an otherwise nebulous damage calculation) Government would recover under False Claims
ActNDAA: SDO can now debar/suspend for misrepresentations regardless of present
responsibility
Small Business Size and Status Integrity (Cont’d) Proposed Rule also implements “limitation of
liability” provision contractors can’t be held liable for unknowing misrepresentations or technical errors
NDAA FY 2013 further limits liability where contractor relied in good faith on an “advisory opinion” from the Small Business Development Center” or a “Procurement Technical Assistance Center” SBDC/PTAC must send letter to SBA, but letter
can be relied upon unless SBA affirmatively disagrees
Senate balked at “legal opinion” safe-harbor, but it’s likely that SBDCs/PTACs will be rubber stamping legal opinions.
Small Business Subcontracting
SB Jobs Act authorized a Proposed Rule, published on Oct. 5, 2011, 76 FR 61626 (will be final March 2013) No more “bait and switch” If SubK plan required,
prime must use the small business that assisted in preparing its offer, and notify the contracting officer (CO) in writing if/why it fails to do so.
Prime must notify CO if and why it reduces payments to a small business subcontractor or when payments are 90 days past due
Prime cannot prohibit a subcontractor from discussing any “material matter” with the CO
Small Business Subcontracting (Cont’d)
NDAA 2013: If prime identifies a small business in its
bid/proposal, it must notify the small business Agencies now required to establish a “reporting
mechanism” by which subcontractors can report “fraudulent” or “bad faith” actions by primes in implementing their SubK plans Goes hand-in-hand with proposed rule
prohibiting primes from keeping subs from contacting the government.
Small Business Subcontracting (Cont’d)
Enforcement: Prime’s failure to meeting SubK goals (from its SubK plan) may be considered as negative past performance
Accelerated Payments To Small Business Subcontractors
Proposed Rule published on Dec. 19, 2012, 77 FR 75089 (comments due Feb . 19, 2013) Creates FAR Clause mandating that primes who are
paid on an accelerated basis must then pay small business subcontractors on an accelerated basis, even where subcontract imposes a later payment due date. This Clause implements OMB policy
memorandum from July 2012, which encouraged paying primes within 15 days of paperwork
Small Business Set-Asides for Research and Development
Proposed Rule published on Aug. 10, 2012, 77 FR 47797 (comments were due Oct. 12, 2012) Clarifies for COs that R&D contracts shall set-aside
for small businesses if there is a reasonable expectation that there are two or more businesses capable of “providing the best scientific and technological approaches” at fair market prices
This authority existed previously, but was vague. This rule would make clear that the basis for setting-aside lies in the objective evidence obtained from the market research conducted
Small Business Mentor-Protégé Programs
2010 Jobs Act authorized mentor-protégé programs for SDVOSB, WOSB, and HUBZone (No proposed regulations yet)
NDAA 2013 authorized mentor-protégé programs for all small businesses (not just socioeconomic classes) Agencies other than SBA (except for DoD) that
wish to have a program must have approval of SBA to ensure consistency among programs Some agencies were wrongly telling their
program participants that they were exempt from SBA’s affiliation rules (but only SBA-approved JVs were exempt)
Limitation on Subcontracting Clause NDAA 2013, Section 1651, changes accounting
methods: Service contracts Compliance now measured
by “>50% of amount paid to the small prime contractor” under the contract Replaces “>50% of the cost of contractor
performance incurred for personnel” Supply contracts Compliance now measured
by “>50% of the amount (less the cost of materials) paid to the small prime” Replaces “>50% of the cost of
manufacturing”
Limitation on Subcontracting Clause (Cont’d) NDAA extended exemptions to small businesses
who subcontract to “similarly situated” entities Before this change, small businesses were
actually discouraged from subcontracting to other small businesses!
Section 1652 of the NDAA set a penalty for violation of the clause the greater of $500,000 or the dollar amount expended, in excess of permitted levels, on subcontractors Before this change, there were no express
penalties for violations of the clause (could only protest violator’s proposal as “nonresponsive” to Clause’s requirements)
Size Standards and Set-Asides for WOSBSection 1661 of the NDAA FY 2013 SBA must publish information it used to
formulate/revise size standards SBA allowed to use a “common size standard” for a
group of 4-digit NAICS codes, but only if SBA publishes a justification for how that standard is appropriate for each individual industry classification
Section 1697 of the NDAA FY 2013 Removes caps on setting-aside procurements for
WOSBs/EDWOSBs (formerly $6.5 million for manufacturing; $4 million for other contracts)
Protest Overview Essentially three (3) types of protests:
(1) Pre-award Challenges the terms of the solicitation (must
be filed before bids are due) Venue: Agency, GAO, or COFC
(2) Post-award Challenges evaluations and government’s
choice of awardee Venue: Agency, GAO, or COFC
(3) Size-protest Asserts that a competitor has violated the
Small Business Regulations (13 CFR) Venue: SBA only
U.S. District Court: The 8(a) Program is Unconstitutional?
Dynalantic Corp. v. U.S. Department of Defense (D.D.C., August 15, 2012). Not a protest
U.S. District Court for the District of Columbia ruled that the government’s 8(a) program — which offers preferences for “socially and economically disadvantaged individuals” — is unconstitutional when used by the Department of Defense (DoD) to procure simulation and training equipment.
U.S. District Court: The 8(a) Program is Unconstitutional? (Cont’d)
Consequences: More federal court challenges in other markets More protests (if COFC/GAO accept reasoning) Preemptive cancellation of set-asides
Unknowns: Definition of industry and sufficiency of
evidence of past discrimination Possibly overturned on appeal
COFC: Agencies Can Impose High Small Business Subcontracting Goals
Firstline Transportation Security, Inc. v. United States, COFC No. 12-601C (Nov. 27, 2012) Pre-award protest
Court of Claims upheld practice of agencies setting high small business subcontracting goals in a solicitation. Court said that the high goals (40% in this
case) need not be tied to robust market research.
Court also upheld practice of applying small business subcontracting goals to all contract dollars, not just subcontracting dollars.
COFC: Agencies Can Impose High Small Business Subcontracting Goals
(Cont’d) Holding gives agencies looking to boost small
business utilization another arrow in their quiver.
Agency could procure full and open, but impose high subcontracting goals in the solicitation that require large businesses to do their best in meeting those goals or risk being eliminated from competition.
Indirect method to “de facto set-aside” for small business participation.
COFC: Agencies Can Impose High Small Business Subcontracting Goals
(Cont’d) Holding gives agencies looking to boost small
business utilization another arrow in their quiver.
Agency could procure full and open, but impose high subcontracting goals in the solicitation that require large businesses to do their best in meeting those goals or risk being eliminated from competition.
Indirect method to “de facto set-aside” for small business participation.
Aldevra is Over: COFC Finally Says VA Not Required to Set-Aside FSS
Purchases Kingdomware Technologies, Inc. v. United States
(COFC, Nov. 27, 2012). COFC overruled GAO’s Aldevra cases, siding
with the VA in interpreting the Veteran’s First Program to exempt FSS purchases from mandatory set-asides. Veterans First Program requires VA to
consider setting aside to SD/VOSBs before exploring other procurement possibilities, but the Act does not address the FAR Part 8 (FSS) exemption to FAR Part 19.
Where the FAR is silent, agency interpretation prevails.
Resellers Don’t Violate SBA’s Nonmanufacturer Rule
Size Appeal of Wear-Mark, Inc., SBA No. SIZ-5397, 5403 (Sept. 2012) Nonmanufacturer rule = SBA rule preventing
small business prime resellers from being “pass-throughs” for large manufacturers
SBA OHA upheld reseller’s status as a nonmanufacturer retailer of flags where reseller took ownership of flags in a “drop shipping arrangement” but did not take physical possession
Predictions for FY 2013 Despite backlog of regulatory updates, House
Small Business Committee intends to be prolific
SBA increasingly opposed to “bundling”, but many political hurdles. Federal Strategic Sourcing Initiatives (BPAs)
growing in popularity, but many officials within SBA are angered by this
GSA’s “Demand Based Model” poses threat to small business utilization, but SBA/House Small Business Committee appears to have succeeded in convincing GSA to delay/cancel implementation
Questions?
Stephen (Steve) P. Ramaley, Esq.Attorney, Centre Law Group1953 Gallows Rd., Ste. 650Tysons Corner, VA 22182
Phone: (703) 288-2800 (x232)E-mail: [email protected]