The Government Contracts Monitor will be on vacation for the rest of 2015. We will resume blogging in January 2016.
Until then, we wish you Happy Holidays and a Joyous New Year!
On December 4, 2015, DOD, GSA and NASA adopted a Final Rule, effective immediately, amending the Federal Acquisition Regulation (FAR) to implement (i) President Obama’s Executive Order (EO) 13672, and (ii) the Department of Labor (DOL), Office of Federal Contract Compliance Policy (OFCCP)’s implementing Final Rule (previously discussed here). EO 13672 amends EOs 11246 and 11478 to add sexual orientation and gender identity to the prohibited bases of discrimination under the “Equal Opportunity Clause” required in all covered contracts and subcontracts. This new FAR Final Rule follows and adopts as final, without any changes, the Interim Rule published and effective April 10, 2015, as corrected on May 7, 2015.
The FAR Rule applies to all contracts and subcontracts entered into or modified after April 10, 2015 that are subject to the FAR Equal Opportunity Clause 52.222-26. That Clause is prescribed for all contracts over $10,000 that are not completely exempted. The principal change effected by EO 13572 and its implementing regulations is to add sexual orientation and gender identity to the prohibited bases of discrimination under the Equal Opportunity Clause. Interestingly, OFCCP’s Final Rule did not define “sexual orientation” or “gender identify.” However, OFCCP separately developed materials that include definitions of these terms. The FAR Rule relies on these definitions.
The FAR Rule essentially requires contractors and subcontractors to (1) amend their policies, documents and employee handbooks to incorporate the identified new discrimination bases, (2) incorporate and flow-down the new language in all covered subcontracts, (3) provide non-segregated facilities, including restrooms, for covered persons (discussed here), and (4) post the mandatory new DOL EO poster supplement (here).
Contractors and subcontractors working on covered contracts that have not already done so should promptly review their current policies, including employee handbooks and subcontract flow-down clauses as well as posted EO posters, to ensure compliance with Executive Order 13672 and the implementing final OFCCP and FAR regulations.
Hopewell Darneille is responsible for the contents of this short take.
© Jackson Kelly PLLC 2015
Two recent decisions by the Small Business Administration (SBA)’s Office of Hearings and Appeals (OHA) raise the question of why parties file appeals concerning fact-based issues if they don’t want to review the record on which the challenged determinations were based. The decisions also vividly demonstrate the practical problems and litigation risks such parties run when they don’t timely review and use the record to make their case.
The first decision is the Size Appeal of Orion Constr. Corp., SBA No. SIZ-5694, Nov. 24, 2015. This case involved a challenge to an Area Office decision finding Orion to be other than small based upon an identity of interest between the 100% owner of Orion and his wife, who owned a separate company with which Orion sometimes joint ventured. On appeal, Orion did not challenge the identity of interest determination. Rather, Orion sought, among other things, to challenge the Area Office’s average annual receipts (AAR) calculations as to the respective companies. Specifically, Orion asserted that the Area Office may have double-counted certain joint venture receipts. Orion, however, did not examine the appeal file during the course of the appeal. Orion therefore had not reviewed, and was not in a position to point to specific errors in, the Area Office’s AAR calculations.
OHA noted initially that an appellant at OHA bears the burden of proving, by a preponderance of the evidence, that a challenged size determination is based on a clear error of fact or law. Turning to the specific challenge, OHA stated that what it characterized as Orion’s double-counting “suggestion” was “unconvincing because Appellant does not directly address the Area Office’s calculations, which are set forth in the appeal file.” (Emphasis added.) OHA stated that “[t]o make a robust argument … Appellant could have, and should have, availed itself of the opportunity to examine the appeal file and critique the Area Office’s calculations.” (Emphasis added.)
The second decision, issued the same day, is VetPride Services, Inc., SBA No. VET-250, Nov. 24, 2015. The appeal in this case challenged the SBA Director of Government Contracting (D/GC)’s determination denying two VetPride protests concerning the Service-Disabled Veteran-Owned Small Business Company (SDVO SBC) status of the awardee of two contracts that VetPride wanted. VetPride argued that the D/GC’s determination “does not use factual information to support its conclusions” that the acknowledged service-disabled veteran (i) held the highest officer position in the company, and (ii) controlled the company’s day-to-day operations. However, like Orion, VetPride neither timely requested access to nor reviewed the protest file. Therefore, and again like Orion, VetPride was not able to point to anything in the record that might have helped undermine the validity of the D/GC’s decision.
OHA honed right in on this failure, stating “that part of the reason Appellant’s arguments are so weak is that Appellant forewent the opportunity to gather more information to mount a more robust attack.” OHA noted that its docketing Notice and Order had specifically identified VetPride’s failure to request a protective order when filing the appeal. The Order stated that, in the absence of a protective order, VetPride would not be served with the record underlying the challenged D/GC determination. Nevertheless, VetPride did not request a protective order or otherwise seek to review the appeal file during the time the record remained open. OHA stated that “[h[ad Appellant done so [i.e., reviewed the record], it could have supplemented the appeal with more informed arguments, as 13 C.F.R. § 134.207 allows.” OHA concluded that “[t]he weakness of Appellant’s arguments, therefore is partly due to Appellant’s inaction.” (OHA did note that because the record did support the D/GC’s determination, “it is virtually certain that Appellant would not prevail” even if it had acted otherwise.)
Interestingly, the Appellant in VetPride did belatedly request a protective order after the record closed, and later sought to amend its appeal and filed a reply as to the merits. However, OHA (i) denied the motion to amend as being too late and outside the narrow scope of the pending dismissal issues, and (ii) excluded the reply. The Orion Appellant also sought to file a belated reply after the record close. OHA similarly denied that proposed reply as unauthorized and too late.
These decisions do not, however, explain why parties appeal fact-based decisions when they don’t want to review the record on which they are based. The record is particularly important in OHA appeals, especially where the appellant is the original protestor. This is because much of what happens during the initial protest review – whether dealing with a size protest or a status challenge – goes on behind closed doors and is not visible. As Orion demonstrates, this is true not only as to the protestor, but also with respect to the protested party as to certain issues, such as the calculation of AAR.
Obviously, if an appellant is proceeding pro se, a decision to forego record review is understandable, and indeed is inherent in going pro se, since access to confidential material at OHA is limited to outside counsel. 13 C.F.R. § 134.205(d). However, the appellants in both of the subject cases were represented by outside counsel.
One possible factor could be a desire to control and limit costs. However, as these decisions well demonstrate, any perceived cost-savings come at a substantial price and adverse risk to winning on the merits. Moreover, in both cases here, the appellants may well have spent more in the end, due to their various after-the-fact Motions to Amend and proposed Reply filings.
The bottom line is that, if you are going to go to the effort and expense of filing an appeal, you need to be willing to pony up the cost of reviewing the record. As in a GAO or court bid protest, if the record does not substantiate your size or status protest, you can withdraw the appeal and avoid wasting further time and costs. However, if the record does justify proceeding, you can do so with confidence and a strengthened hand based on real facts, as opposed to speculation and hope.
Hopewell Darneille is the attorney responsible for the contents of this Article.
© Jackson Kelly PLLC 2015
As businesses grow and change over time, practical aspects of their internal governance often change as well. If the owners’ day-to-day practices gradually diverge from their originally agreed upon approaches, it can be easy to forget the governing documents and what they say. Owners of small business contractors, however, do so at their peril. As the recent Small Business Administration (SBA) Office of Hearings and Appeals (OHA) decision in Potomac River Group, LLC, SBA No. SIZ-5689 (October 21, 2015) makes clear, in the context of determining size status, what a concern’s governing documents say is much more important than how its owners have chosen to deal with one another.
This appeal relates to a size dispute in connection with a small business set-aside contract for security services. When Potomac River Group (PRG) won the subject contract, a competitor filed a size protest. The resulting SBA Area Office size determination found PRG to be other than small based on affiliation. The area office based its finding on an application of the terms of PRG’s Operating Agreement (OA) in light of the owners’ relative percentage of ownership. When it submitted its initial proposal, PRG was owned by Frank Frysiek (48.54%), Intelligent Decisions, Inc. (48.54%) and Jacqueline von Wodtke (2.92%). Mr. Frysiek is President, Manager and CEO while Ms. Von Wodtke serves as Secretary and Vice President of Finance. The OA in place when PRG submitted its proposal established a 75% supermajority voting requirement for “[a]ll determinations, discussions, approvals and actions affecting the Company and its business and affairs.” Despite the fact that the OA also provided for delegation of authority to one or more elected Managers, an act of the Members still required an affirmative vote of Members holding at least 75% of the Voting Units.
The Area Office found PRG affiliated with Intelligent Decisions (ID), reasoning that the relevant OA gave both Mr. Frysiek and ID power to control PRG – and meant that Mr. Frysiek could not take action without ID’s consent. Because ID is a large business, the affiliation made PRG ineligible for the small business set-aside. It made no difference to the Area Office that that PRG subsequently revised its OA to remove the supermajority voting requirements or that Ms. von Wodtke sold her shares to Mr. Frysiek.
PRG appealed, arguing that the Area Office had elevated form over substance and submitting sworn declarations claiming that, notwithstanding the provisions of the original OA, Mr. Frysiek had final authority and made all decisions for PRG without any input, influence or vote by ID. More particularly, PRG asserted that its Members did not rely upon the OA, never voted on any actions, and vested all control in Mr. Frysiek, who alone had final authority and control over PRG's decisions, including which sales opportunities to pursue, the pricing of products, hiring, firing and employee discipline, determining compensation and benefits, approving company distributions, negotiating contracts, and administering contract performance and invoicing. According to PRG, ID had no authority or means to alter or direct any financial decisions or reporting, decide the timing of tax filings, or sign checks. PRG also pointed to the revised OA that removed the supermajority voting requirements and made clear that full control rested solely with Mr. Frysiek.
SBA’s OHA made short work of PRG’s arguments, explaining that (i) PRG’s size must be determined as of the time it submitted its initial offer (and self-certification regarding size); and (ii) affiliation may turn on the power to control regardless of whether such power is exercised. In this case, since PRG is a limited liability company (LLC) and the OA was its governing document when it submitted its offer, determining whether ID had the power to control PRG turned on the contents of PRG’s original OA. Because the relevant OA provided that all actions to manage PRG required a 75% vote and the 75% vote could not be reached by fewer than all three owners, ID had “the ability to block any ‘determinations, discussions, approvals and actions affecting the company and its business and affairs’, and any act of Appellant's Members requires its approval.” OHA found the declarations PRG submitted to explain the owners’ actual practice in running the company to be irrelevant. As OHA explained, the OA gives ID veto power over any company actions under the Agreement, regardless of whether or not ID chooses to exercise that power. The decision also expressly rejects PRG’s assertion that such a conclusion elevates form over substance and states: “Rather, it is a recognition of the actual, legal power given to ID by the Agreement, based upon the plain language of the Agreement itself.” This type of negative control mandates a finding that ID is affiliated with Appellant.
The lesson should be clear: small businesses must regularly review their governing documents to ensure that they accurately describe the manner in which the company is operated – and that they avoid affiliation and other issues that can render the concern other than small. You will not have the opportunity at a later date to explain away what the governing document says.
Eric Whytsell is responsible for the contents of this Article.
© 2015 Jackson Kelly PLLC
Agency comments during discussions often articulate a weakness or deficiency. Sometimes, however, the Government is also simply asking questions – identifying specific issues that should be addressed – and affording an offeror the opportunity to explain its proposal. When that happens, contractors need to be ready to capitalize on that opportunity to explain, but not always necessarily to change, their proposals. Failure to do so is what sunk a protester in the decision in P3I, Inc.; Quantech Services, Inc., B-405563.4; B-405563.5; B-405563.6; B-405563.7 (August 6, 2015).
The case involved two protests of the Air Force’s decision to award a task order for engineering and technology acquisition support services. One of the two protesters, Quantech Services, Inc., asserted that the Air Force conducted prejudicial and misleading discussions by causing it to significantly increase its cost/price.
The request for proposals (RFP) required, among other things, that the cost/price proposal clearly demonstrate an effective approach for accomplishing the stated requirements and stated that cost/price would be evaluated using one or more techniques in Federal Acquisition Regulation (FAR) to determine if the proposed costs were reasonable and realistic. In addition, the evaluation for realism was to consider the extent to which the offeror’s proposed costs indicated a clear understanding of the requirements, whether the proposal reflected a sound approach to satisfying the requirements, and whether the proposed labor escalation and indirect factors were reasonable. The RFP also explained that a government estimate of most probable cost (GEMPC) of the offeror’s proposed cost would be used to evaluate realism and stated that a significant difference between the offeror’s proposed cost and the GEMPC would be considered an indicator that the offeror does not understand the requirement. Best value was to be determined using the GEMPC rather than the offeror’s proposed costs.
Quantech learned during discussions that the Air Force considered its initial proposed cost/price of $53,796,895 to be unrealistic and made changes to its Full Time Equivalent labor levels (FTEs) and labor skill mix that resulted in a total evaluated price of $73.5M. Quantech’s estimated resourcing levels were below the Government’s expected minimally acceptable levels and Quantech had failed to adequately justify the claimed efficiencies to substantiate the lower resource levels.
The relevant Evaluation Notice (EN) required Quantech to acknowledge that it’s Final Proposal Revision (FPR) included the appropriate FTE levels; labor skill mix; and/or rationale as to the viability of its proposed resources to meet the performance requirements. The FPR request stated that the Air Force anticipated Quantech would “either adjust [its] proposed resources or provide additional explanation of how [it] will accomplish the tasks with the resources proposed, or both.” In response, Quantech increased its staffing and cost/price by $19.7 million (to $73.5 million) in hopes that its proposal would be considered realistic.
When the Air Force awarded the task order to another offeror for a price lower than $73.5 million, Quantech protested, claiming that the Air Force had instructed it to increase its proposed staffing and cost/price by an amount that made its cost/price too high. The Government Accountability Office (GAO) rejected the notion that Quantech was misled, noting that both the EN and the agency’s request for FPRs specifically advised Quantech that it could elect to provide additional information to explain how it could accomplish the tasks with the resources it proposed, adjust its resources, or both. Quantech’s decision to raise its resource levels was thus an exercise of its business judgment rather than the result of misleading discussions. As the GAO pointed out, “If Quantech believed that its initial proposed resources (FTEs and skill mix) were reasonable, then the protester had the opportunity to explain its position to the agency.”
Unfortunately, Quantech instead choose to abandon its original proposal and simply make the changes the Air Force had suggested. The lesson? If a contractor believes that its original, low proposal is realistic and the agency offers to consider additional explanation of that proposal, a contractor should always take the opportunity to better educate the Government on why the proposed price is realistic as well as low.
Eric Whytsell is responsible for the contents of this Article.
© 2015 Jackson Kelly PLLC
On December 4, 2015, DOD, GSA and NASA adopted a Final Rule, effective immediately, amending the Federal Acquisition Regulation (FAR) to implement (i) President Obama’s Executive Order 13658, establishing a minimum wage for employees working on covered federal contracts and subcontracts, and (ii) the Department of Labor (DOL)’s Final Rule (previously discussed here). The Final Rule essentially follows and adopts as final, with only minor changes, the Interim Rule issued December 14, 2014, previously discussed here.
As previously discussed here, DOL recently published a Notice, increasing the $10.10 minimum to $10.15, and the minimum hourly tipped wage to $5.85, effective January 1, 2016. DOL also published an updated version of the Executive Order 13658 poster (available here), that all covered contractors and subcontractors are required to post, to notify workers on covered contracts as to the applicable minimum wage rate under the Executive Order.
Contractors and subcontractors working on covered contracts should review their current policies (including employee handbooks) and pay practices to ensure compliance with Executive Order 13658 and its implementing regulations, as now finalized. Effective January 1, 2016, they also must (1) post the updated Executive Order 13659 Poster, and (2) start paying no less than the new minimum $10.15 hourly wage to all covered employees (or $5.85 to tipped employees). Please remember that covered employees include not only direct workers, but also any employees who spend 20% or more of their time supporting covered contracts. If you are a prime, you are responsible for compliance by, and are jointly and severally liable with, your subcontractors.
If the increased 2016 rates cause labor cost increases for primes or their subcontractors, they may request a price adjustment after January 1, 2016, per FAR 22.1904(b) and Subsection (3)(i) of FAR Clause 52.222-55. Such increases are limited to the actual increased wage and associated labor costs, such as social security and unemployment taxes, and cannot include any amount for general and administrative costs, overhead or profit.
Hopewell Darneille is responsible for the contents of this Short Take.
© Jackson Kelly PLLC 2015
A recent decision by the Small Business Administration (SBA)’s Office of Hearings and Appeals (OHA) provides a good reminder that concerns filing size protests need to do their homework and submit supporting evidence with their protests. Protestors should not rely on the SBA to investigate or look for materials that might be relevant to the issues raised in the protest, much less look for and investigate other issues. Moreover, OHA typically will not consider new evidence – information not provided to the Area Office – even where it goes to the credibility of statements by the protested concern to the Area Office. Size Appeal of Wescott Electric Co., SBA No. SIZ-5691, Nov. 5, 2015.
Wescott filed the instant size protest, challenging a proposed award to Innovative Support Solutions, Inc. (ISS), which had identified Broadway Electric, Inc. (BEI) as a subcontractor. Wescott alleged that ISS was “a Small Business front for [BEI],” which actually would perform the work and provide assets to obtain the required bonding. Wescott alleged that the two companies were affiliated through common management and the newly-organized concern rule, and asserted that the two companies had shared the same address and phone numbers in 2013. Wescott, however, did not submit any evidence supporting these allegations.
The Area Office found the allegations sufficiently specific, and processed the size protest, requiring ISS to respond. ISS provided its completed SBA Form 355, its proposal and other documents, and a sworn declaration from its President. Based thereon, the Area Office concluded that ISS was small. In so doing, the Area Office addressed each of Wescott’s allegations and legal theories, as well as the ostensible subcontractor rule, and found that none provided a basis for finding ISS other than small, and that any bonding assistance being provided was not sufficient to find affiliation in the absence of other factors.
Wescott appealed to OHA, complaining that the Area Office’s analysis was “restricted to available records on hand and obtained from [ISS and BEI] as opposed to other outside sources.” Wescott argued that, as a result, the Area Office “failed to uncover and consider relevant information that would have shown the affiliation between [ISS and BEI],” and that ISS and BEI had “a long-standing business relationship in the nature of a joint venture,” and raised questions as to the accuracy of information in the Area Office’s decision.
In support of these arguments, Wescott provided new evidence, showing that ISS’s President previously was employed by BEI, that ISS and BEI shared the same business address until April 2013, and that ISS and BEI together had won seven contracts in the last two years. Wescott, however, did not file a motion for leave to submit this new evidence, nor did Wescott explain why it had not provided this evidence to the Area Office with the size protest or during the Area Office’s size review.
Naturally, ISS opposed admission of the new evidence.
OHA, predictably, excluded the new evidence on two grounds. First, Wescott did not have “good cause,” because the evidence was available at the time Westcott filed the protest, and Wescott had not offered any rationale as to why it did not provide the information to the Area Office. Second, Wescott had not filed the required motion, which omission typically is “fatal” to an attempt at introducing new evidence. OHA reiterated that its review is based on the evidence in the record at the time the Area Office made its determination. New evidence will be admitted on appeal only on a motion establishing good cause, and demonstrating that the new evidence (1) is relevant to the issues on appeal, (2) does not unduly enlarge the issues, and (3) clarifies facts as to the issues.
Turning to the merits, OHA stated that Westcott’s arguments reflected “a misunderstanding of the legal process governing size protests and size determinations. SBA regulations provide that a size protest ‘must include specific facts,’ and that ‘[w]here materials supporting the protest are available, they should be submitted with the protest.’ An area office will base its decision ‘primarily on the information supplied by the protestor or the entity requesting the size determination and that provided by the concern whose size status is at issue.’ In addition, ‘SBA will give greater weight to specific, signed, factual evidence than to general, unsupported allegations or opinions.’” Here, the Area Office considered Wescott’s various allegations, but properly gave greater weight to ISS’s sworn statements.
OHA further stated that “[t]he Area Office was not required to, and did not, expand the scope of its review beyond the issues raised by [Wescott],” and “reasonably chose to confine its review to the issues raised in the protest.”
The lesson for erstwhile size protestors is to do some homework before filing. First, undertake at least a rudimentary internet search of the usual sources, including SAM, SBA’s Small Business Dynamic System and FPDS-NextGen, as well as the relevant state corporation records and the protested company’s website, and Facebook and Linked-In pages. Second, state the protest allegations specifically and broadly to cover all possible justifiable protest grounds based on the information found and any other known information. Third, submit copies of all pertinent materials supporting the stated protest grounds with the initial size protest.
While the threshold for filing a size protest is low, and the five business-day filing time is tight, you need to do your homework and support your protest if you want to win. Do not rely on SBA to investigate and do your work for you. As Wescott demonstrates, the Area Office is not required to go beyond the issues raised in the protest, and does not have to independently investigate and go beyond what the parties provide. Therefore, help the Area Office do its job by doing your homework up-front, and give the Area Office the information it needs to ask the right questions and rule in your favor.
Hopewell Darneille is responsible for the contents of this Article.
© Jackson Kelly PLLC 2015