8(a) Jeopardy – The Sequel

1. 8(a) Jeopardy – The Sequel Jon DeVore Birch Horton Bittner & Cherot, P.C. Washington, D.C. jdevore@dc.bhb.com John Klein Small Business Administration Washington, D.C john.klein@sba.gov

2. Affiliation Affiliation $100 What are the requirements to ensure that a joint venture is properly recognized under the affiliation exception regulation?• The joint venture must be in writing; • Must do business under its own name; and • May be a separate legal entity, and, if it is, then it may also have its own employees. Affiliation $200 Can a contractor/offeror claim the past performance of another entity, such as a sister or parent entity, a subcontractor, or a predecessor company in a proposal?

3. Sometimes. Under certain circumstances and with consideration of affiliation risks. Whether a contractor may claim and receive credit for another entity’s past performance depends on: 1. The relationship to the other entity, 2. Whether the RFP specifies such information will be considered in proposal evaluations, and 3. The relevancy of the past performance experience. This question also raises another issue for small businesses, as claiming others’ past performance, even where expressly allowed, may increase the concern’s risk of affiliation, undue reliance, and ostensible subcontractor violations. Thus, a small business should ask itself two questions – under this specific circumstances, can it claim the past performance of other companies, and, if so, should it claim that past performance in light of increased affiliation risks? Affiliation $300 May a federal agency, under the FAR, suspend an affiliate of an indicted government contractor for the duration of the contractor’s legal proceedings?

4. Yes. They can according to the case Agility Defense & Government Services, Agility International, Inc., v. US Department of Defense, Sec. of Defense, Defense Logistics Agency, D.C. Docket No. 5:11–CV–04111–CLS, (December 2013) heard in the 11th Circuit. That court found that when an agency suspends a government contractor, the agency may also suspend an affiliate of the contractor based solely on its affiliate status. Affiliation $400 Are companies able to hire employees from incumbent contractors (who are large businesses) without fear of affiliation due to Executive Order 13495, which encourages contractors to offer right-of-first-refusal of employment to qualified incumbent non-managerial employees?

5. Yes, but with limitations. There is tension between these two legal principles. Small businesses must walk a careful line to ensure compliance with the E.O. without risking undue reliance on the incumbent contractor. See Professional Security Corp., SBA No. SIZ-5548 (Apr. 14, 2014). Bottom-line: Do not attempt to hire most or all of the incumbent’s employees and attempt to use the incumbent as a subcontractor for a significant portion of work. Affiliation $500 Does compliance with subcontracting limitations ensure there is no evidence of violation of the ostensible subcontractor rule? No. See Professional Security Corp., SBA No. SIZ-5548 (Apr. 14, 2014), where OHA affirmed Area Office’s size determination based on violation of the ostensible subcontractor rule where the division of work proposed (53% / 47%) was compliant with subcontracting limitations.

6. New Laws and Regulations New Laws $100 How did the FY14 NDAA alter small business percentage goals within federal-contractor subcontracting plans? Prime contractors may include any tier of small business subcontractor in the small business utilization percentage goals within the subcontracting plan for single contracts with one agency. Prime contractors may only use first tier subcontractors with plans pertaining to: •More than one contract with one or more executive agencies, or •One contract with more than one executive agency

7. New Laws $200 What effect did FY2010’s National Defense Authorization Act Section 811, which requires Justification and Approvals for federal 8(a) sole-source contracts over $20 million, have on these contracts? A remarkably chilling effect. The value of these “Section 811” contracts went from $3 billion in FY2008 alone (before enactment) to only $2.3 billion total over the next three fiscal years (after enactment).

8. New Laws $300 What trend is expected for federal small business participation goals? A possible increase. The U.S. House of Representatives included a provision in the FY15 National Defense Authorization Act that would increase small business prime participation goals from 23% to 25%. New Laws $400 What are some other new provisions proposed for the FY2015 NDAA? The House has passed its version of the NDAA, while the Senate has marked up its own to include some interesting contracting provisions:

9. House: • Strategic Sourcing Initiative Study & Publication of Justifications of Contract Consolidations • Section 811—Three-Year Extension of and Amendments to Test Program for Negotiation of Comprehensive Small Business Subcontracting Plans • Section 813—Plan for Improving Data on Bundled and Consolidated Contracts • Section 815—Prohibition on Reverse Auctions for Covered Contracts • Senate: • Restatement and revision of requirements applicable to multiyear defense acquisitions to be specifically authorized by law (sec. 821) • Requires the Secretary of Defense to report to the congressional defense committees on the impact of sequestration on the defense small business community.

10. New Laws $500 How has the landscape on Executive Compensation changed recently? The Executive Compensation Cap limits the reimbursement of contractor employee compensation costs and has been recently altered in two ways: who the compensation cap applies to and the cap itself. Whose compensation is capped?Under the pre-existing regulations, the senior executive compensation cap applied to senior executives as defined in FAR 31.2015-6(p). However, new regulations stemming from the FY12 NDAA extend application of the cap to all employees– not just executives – for Department of Defense, NASA and U.S. Coast Guard contracts. Other executive agencies will continue to apply the cap only to senior executives (as defined in the regulation). Note: The Department of Defense (and each individual contracting agency) retains the discretionary authority to carve out exceptions for scientists and engineers to ensure the department has continued access to the needed skills and capabilities of these professionals. How is the cap set?The FY14 NDAA reformed the cap amount: Gone is the complicated formula computed each year (which resulted in a 2012 figure of $952,308). Effective June 24, 2014, the cap will be set at $625,000 and it will be adjusted annually to respond to the U.S. Bureau of Labor Statistics Employment Cost Index.

11. Cases and Protests Cases/Protests $100 If a Procurement Center Representative approves a set-aside or procurement strategy, does that prevent another component of SBA from filing a protest? No. In Red River Computer Co., Inc., SIZ-5512 (Nov. 1, 2013), the SBA’s Director of the Office of Government Contracting (D/GC) did not exceed his authority in bringing a size protest because SBA is not bound by the PCR’s interpretation of size standards. PCRs are SBA employees also, but this was not sufficient to prevent other SBA entities from bringing a size protest.

12. Cases/Protests $200 Do certain types of procurements, such as contracts to service brand-specific government property, inherently create greater risks of affiliation for small businesses? Maybe. In the Red River case, the U.S. Defense Information Systems Agency-Defense Information Technology Contracting Organization (DISA-DITCO) issued an RFP for maintenance of Cisco brand name hardware and software (already acquired by Army). The CO set aside the procurement for small businesses and assigned NAICS Code 541519, Other Computer Related Services. SBA (D/GC) brought a size protest 6 months after Red River began performance on the contract, alleging that Red River was affiliated with Cisco based on the ostensible subcontractor rule and undue reliance. SBA alleged that Cisco would be performing “most if not all of the services required by the solicitation with Cisco employees.” The protest was based not on the proposal, but on the terms of the solicitation and other publically available information.

13. Cases/Protests $300 What are the statuses of the DynaLantic and Rothe cases, which are pending cases that involve the constitutionality of the 8(a) Program? DynaLantic: This appeal settled in January 2014 and was voluntarily dismissed. The settlement included the modification of the district court’s injunction language, and the government agreed to refrain from seeking to vacate the injunction for at least two years. Rothe: This case, which was stayed in November 2013, pending the outcome of the DynaLantic appeal, has resumed. Plaintiff’s Motion for Summary Judgment, filed May 15, 2014, claims Section 8(a)’s racial classification is unconstitutional because Congress did not specifically identify past discrimination to be remedied by the racial classification; therefore, Defendants cannot prove the cause-effect relationships they alleged to be Congress’ justification for the racial classification. Rothe also argued that the government’s evidence to demonstrate the need for such programs is defective and flawed. The government’s response is due by June 16, 2014.

14. Cases/Protests $400 Has the SBA been actively enforcing HUBZone compliance recently? Yes. The SBA has been actively following up on allegations on HUBZone violations and decertifying companies that are not in compliance. The HUBZone Program once enjoyed priority status over the other SBA programs, but the HUBZone preference ended with passage of Small Business Jobs Act of 2010. Most agencies did not meet their HUBZone contracting goals in FY2013, and the federal government only attained 1.75% compared to its 3% goal. This may be due to (1) changes to HUBZone boundaries, (2) increased scrutiny on applicants and participants, and (3) stringency of program requirements.

15. Cases/Protests $500 If a protest is dismissed for lack of specificity, can the protester cure by submitting new evidence on appeal? Probably not.In Jenn-Kans Disposal Service, SIZ-5549 (April 11, 2014), OHA rejected Jenn-Kans appeal, stating that “an insufficiently specific protest cannot be cured on appeal by the submission of new evidence…Appellant had ample opportunity to submit this information in its size protest and failed to do so…” Thus, protestors should ensure that the initial protest is sufficiently specific, as they will likely not be permitted to introduce additional evidence via appeal to remedy a lack of specificity.

16. Mentor-Protégé/Joint Venture MP/JV $100 Must a joint venture be SBA-approved prior to submission of a proposal? Can a procuring agency reject a joint venture’s proposal where the solicitation is limited to 8(a) participants who are certified at the time of proposal submission? No. SBA does not require that joint ventures obtain SBA approval prior to submission of a proposal. However, joint ventures must be approved prior to AWARD of a contract in order to prevent affiliation under the joint venture exception. An agency cannot reject a joint venture’s proposal for lack of SBA pre-approval

17. MP/JV $200 Must a mentor-protégé joint venture receive approval of its mentor-protégé agreement prior to submission of a proposal or just prior to contract award? Prior to proposal submission. In order to qualify for the exemption from affiliation based on a mentor-protégé joint venture, the SBA must approve the mentor-protégé agreement prior to the mentor-protégé team submitting a proposal as a joint venture. MP/JV $300 May a mentor-protégé joint venture rely on an oral communication from the SBA District Office that a mentor-protégé agreement has been approved and submit a proposal without fear of affiliation? No, while SBA regulations require that typical joint ventures obtain SBA approval prior to contract award, mentor-protégé joint ventures must obtain SBA approval of the mentor-protégé agreement prior to submission of proposal by the joint venture. 13 CFR 124.520.

18. This is a bright-line rule, obtaining approval a day or two after proposal submission is too late to qualify for the mentor-protégé joint venture exception to affiliation. See Size Appeal of Lukos-VATC JV, LLC, SIZ-5532 (Feb. 6, 2014). Regulations require approval from SBA’s AA/BD, so District Office approval is not sufficient. That approval is merely the first step in obtaining the necessary approval from SBA AA/BD. Thus, we recommend that mentors and protégés obtain official written notification from SBA that their mentor-protégé agreement has been approved before submitting a proposal as a joint venture. MP/JV $400 Does the 8(a) mentor-protégé joint venture affiliation exception apply to non-8(a) contracts? Yes, as long as the joint venture meets the 8(a) regulatory requirements under 13 CFR 124.513, such as naming the 8(a) protégé as the managing venturer. See Size Appeal of Drace Anderson Joint Venture, SIZ-5531 (2014) (finding that the mentor protégé exception from affiliation is not limited to 8(a) contracts). Thus, as long as the protégé qualifies as small and the JV meets the 8(a) regulatory requirements, the mentor-protégé affiliation exception applies to any federal government prime contract or subcontract.

19. MP/JV $500 What is the status on developing other mentor-protégé programs for other SBA business development programs besides the 8(a) Program? One of the SBA’s priorities during the next 12 months is to issue regulations establishing a newly authorized mentor-protégé program for the Service Disabled Veteran Owned, HUBZone and Women-Owned Small Business Programs, similar to the 8(a) mentor-protégé program.

20. Size Standards Size Standards $100 Could two participants/applicants have the same primary NAICS code but a different size standard without violating the two-year rule? Probably. We are fairly confident that it would not be a violation of 13 CFR 124.109(c)(3)(ii), because the two participants would not share the same size standard, even though they share the same NAICS code. Size Standards $200 What are the penalties for the misrepresentation of size status? There are severe criminal penalties for knowingly misrepresenting the small business size status of the concern in connection with the procurement program. There is also the Presumed Loss Rule, which can apply when a contractor misrepresents his size standards. FCA can treble the damages.

21. Size Standards $300 When does the SBA determine the size status of business concerns? When a firm submits an offer, the SBA determines size as of the initial offer or other formal response to a solicitation, which includes price. The concern applying to be certified in the 8(a) Program must qualify as a small business for its primary industry classification as of the date of its application and the date of certification by the SBA. Size Standards $400 The SBA has issued a new proposed rule altering or reaffirming the size standards for industries within which three NAICS sectors? Sector 42: Wholesale Trade (46 industries’ size standards will change) Sector 44-45: Retail Trade (1 industry’s size standard will change)

22. Size Standards $500 What level of detail is required in an initial size protest? SBA regulations require that a size protest must be “sufficiently specific to provide reasonable notice as to the grounds upon which the protested concern’s size is questioned.” 13 CFR 121.1007(b). If the protest is found to be non-specific, SBA must dismiss it. 13 CFR 121.1007(c). In the protest filed by Jenn-Kans Disposal Service, SIZ-5549 (April 11, 2014), OHA provides guidance on what types of information must be included in the initial protest to meet this existing requirement. • the specific size regulation(s) that was allegedly violated (which would specify the type affiliation violation)• a definitive statement that the accused business is other than small• specific facts, documentation or other specific information to support the claim Note: “It is important to distinguish specificity from accuracy…because ‘there is no requirement that a protest be accurate’ …Accurate protests are not required because much of the information necessary to prove a size protest is not publically available.”

23. Wild Card Wild Card $100 Did the Federal Government meet its Small Business Goals in Fiscal Year 2013? Yes! The SBA is late in announcing, but according to their real time data website, they reached 23.32%: $356.2 billion eligible dollars, $83.5 billion was set aside. SBA is also expected to announce the government surpassing its small disadvantaged business goal, but not have not reached their women-owned, HUB Zone, or service disabled veteran owned small business goals. Wild Card $200 Did the Federal Government meet its set-aside goals for Socio-Economically Disadvantaged Small Businesses in Fiscal Year 2013? Yes for some, no for others:

25. Wild Card $300 How does the SBA interpret the “two-year rule” in 13 CFR 124.109(c)(3)(ii), which prohibits firms owned by Indian tribes and ANCs from gaining admission to the 8(a) program if the tribe/ANC owns another firm that operated in the program in the same primary industry classification as the applicant within the previous two years? The Rule: A Tribe may not own 51% or more of another firm which, either at the time of application or within the previous two years, has been operating in the 8(a) program under the same primary NAICS code as the applicant. A Tribe may, however, own a Participant or other applicant that conducts or will conduct secondary business in the 8(a) BD program under the NAICS code which is the primary NAICS code of the applicant concern. In addition, once an applicant is admitted to the 8(a) BD program, it may not receive an 8(a) sole source contract that is a follow-on contract to an 8(a) contract that was performed immediately previously by another Participant (or former Participant) owned by the same Tribe. IMPORTANT NOTE: A critical change in SBA practice regarding the SBA’s ability to unilaterally change a firm’s primary NAICS codes could substantially impact the “two-year rule.”

26. Wild Card $400 What is a Similarly Situated Entity and how does it affect self-performance? “Similarly situated” means the same type of entity. For instance, if the prime contractor is an 8(a) contractor performing on an 8(a) contract, and the subcontractor is an 8(a) contractor, then the prime contractor and the subcontractor are similarly situated entities and the subcontractor may be counted in fulfilling the self-performance requirements. Wild Card $500 Does a mandatory disclosure rule apply to firms in the 8(a) program? Yes. A disclosure rule applies to all government contractors working on a government contract, in connection with the award, performance or closeout that has a value in excess of $5 million and a performance period of more than 120 days. A contractor must timely disclose "reportable conduct" namely where the contractor has evidence of: a violation of federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States code or violation of the civil False Claims Act.