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VA Finalizes Verification Rules for Veteran-Owned Small Businesses with More Practical "Ownership and Control" Standard.
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Today the Department of Veterans Affairs (VA) adopted final verification guidelines for Veteran-Owned Small Businesses (VOSBs) participating in contract preference programs of the VA - commonly referred to as the "VetBiz" program. Under the Veterans Benefits, Health Care, and Information Technology Act of 2006 ("the Act") , the VA is authorized to set aside certain procurements for VOSBs, including sole source awards. To ensure that only legitimate VOSBs are eligible for these valuable preferences, VA maintains an online database of eligible VOSBs. VA has promulgated verification rules for use by the Center for Veterans Enterprise within the VA, which verifies the status of applicants for inclusion in the VetBiz database. On February 8, 2010, the VA published a set of interim final rules that modified the CVE verification process, and invited public comment before the rules were made final. Today's final rule adopts the February 8, 2010 rules, but with important changes and clarifications.
Of greatest significance to startup businesses, the VA abandoned that portion of the interim final rule that required a veteran to have only one business in the VetBiz database and to work full-time in that business. Responding directly to comments submitted by Eckland & Blando lawyers that the "full time/one firm" rule conflicted with Congress' clear intent in the Act, the VA agreed and stated that "[t]he full-time requirement, coupled with the single business requirement placed an undue burden on veteran business owners who may have part ownership in several legitimate VOSBs or SDVOSBs."
In place of the "full-time/one firm" rule, the VA agreed with the comments submitted by Eckland & Blando and reverted to previous language that simply required one or more veterans or service-disabled veterans to have requisite management capabilities and show sustained and significant time invested in the business. In accordance with the VA explanation for the change, "sustained and significant time" will depend on the status and nature of the business - less time may be required for a small startup business than for a mature business with many contracts. To enforce this requirement, the final rules require a veteran owner-applicant engaged in management or employment outside the applicant concern to "submit a written statement supplemental to the application which demonstrates that such activities will not have a significant impact on the owner's ability to manage and control the applicant concern." Thus, a veteran may now own more than one business in the VetBiz database, and need not devote full time to the business, as long as a written impact statement is provided and accepted by the CVE.
In addition, the final rules clarify that a veteran-owned business in the VetBiz database may enter into joint venture agreements with other businesses without losing or jeopardizing its status as a verified VetBiz entity. The VA agreed that, while joint ventures are treated as separate entities under state law, participation in a joint venture to perform a single business opportunity does not reduce a veteran owners ability to manage a the verified business entity. For this reason, joint-venture applicants to the VetBiz database are exempt for the requirement to submit a written impact statement.
The new final rules are effective February 18, 2011. Any veteran business owner seeking verification in the VetBiz database must carefully review the new rules to ensure they are in compliance. For veteran owners with outside employment or management commitments, a thoughtful, well-written impact statement will be critical to gaining CVE approval. New and existing VOSBs should also review their organizational documents and VetBiz applications carefully to ensure that they comply with the new rules. For assistance with these or other small business-related matters, contact Tim Connelly at
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New Access to Federal Subcontracting Data
In the July 21, 2010 E&B Alert, we reported that the Federal Funding and Transparency Act ("the Act") had been amended to incorporate subcontract reporting. Last week, the Federal Government continued its implementation of the amended Act by beginning to publicize the names of subcontractors on any prime contracts and federal grants in excess of $25,000. The new reporting requirements make public information that has the potential to be valuable to subcontractors and prime contractors - both in terms of identifying contracting opportunities and contract partners and in terms of accessing information about competitors.
Prior to the amendment of the Act, only government prime contracts and grants were made publicly available. Earlier this fall, the government began to implement the amended Act by publicizing the identity of all subcontracts in connection with prime contracts valued at more than $20 million. However, the reduction of the threshold from $20 million to $25,000 has made a wealth of additional information available to the general public. Not only does this new pool of information provide increased transparency, affording a more accurate trail of federal dollars, but it has the potential to provide an abundance of competitive information for first-tier as well as lower-tiered subcontractors.
By way of example, first-tier subcontractors will now have access to information on the subcontracts of their competitors. Similarly, subcontractors will now have access to a central database of potential contracts and may learn of partnership or teaming agreement opportunities with other subcontractors and prime contractors.
To access the names of all subcontractors on federal contracts and grants greater than $25,000, visit the Office of Management and Budget's web site, www.USASpending.gov. For more information on the Federal Funding and Transparency Act and the opportunities that the publication of subcontract information may provide for your company, contact Mark Blando at
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2010 Bid Protest Statistics Show Record Number of Protests Filed
The Government Accountability Office ("GAO") recently released its bid protest statistics for fiscal year 2010. As we predicted earlier this year, a record number of 2,269 protests were filed in FY 2010, representing a 13% increase over the 1,989 protests filed in FY 2009 and a 26% increase over the 1,652 protests filed in FY 2008. The percentage of merit decisions (those cases that are not dismissed for lack of jurisdiction, failure to follow the GAO's exacting timelines or because the contracting agency grants the relief sought by the contractor) on protests increased by 29% from FY 2009, and the percentage of protests sustained also increased by 25% from FY 2009.
As we previously reported, this increase in the number of protests may reflect contractors' desires to preserve opportunities for government business in tight economic times. A recent report to Congress by the Congressional Research Service also lists an increase in overall government contract spending as another possible explanation for a corresponding rise in bid protests. Fortunately for contractors, an increasing number of protests are being decided on their merits, and a greater number of merit-based decisions are being sustained.
The number of protests resolved by means of alternative dispute resolution (ADR) also bears mention. Although these protests only typically represent around 8% of total resolved protests, they enjoy, on average, a success rate of 94%, a rate 56% greater than protests resolved through the traditional process. While each protest is unique, this data reflects the federal governments' increased willingness to utilize alternative means of dispute resolution to resolve protests.
The Congressional Research Service indicates that the most common grounds for the GAO sustaining bid protests are 1) agencies' lack of maintaining adequate documentation; 2) errors made by contracting officers in conducting discussions with offerors; 3) flaws in cost evaluations; and 4) agencies' not adhering to established evaluation criteria. The bid protest process - already a uniquely cost-effective way to challenge the award of a federal government contract - can be a contractor's best chance at ensuring a fair chance to bid on business opportunities with the federal government.
The complete data on 2010 protests is available online at http://www.wifcon.com/protestsgaostat.htm. The Congressional Research Service Report, "GAO Bid Protests: Trends, Analysis, and Options for Congress" can be found here. For more information please contact Tim Connelly at
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Minnesota State Court Dismisses Various State Law Claims on the Basis of the FAR's Continuity of Services Clause
In what is believed to be a case of first impression, the law firm of Eckland & Blando LLP recently obtained the dismissal of a civil action alleging various claims brought pursuant to state law on the basis that said claims were precluded by the plaintiff's own federal government contract. In a decision dated November 9, 2010, the Honorable Charles A. Porter, Jr., a District Court Judge of the State of Minnesota's Fourth Judicial District ("the Court"), dismissed with prejudice the action captioned The Talus Group v. Topologe, LLC, et. al., in favor of defendants. Although plaintiff's complaint was framed as a state law contract dispute, the Court recognized that federal government contract law was an intrinsic element of the action. Specifically, the Court held that the inclusion of Federal Acquisition Regulation ("FAR") Clause 52.237-3 - "the Continuity of Services Clause" - within the plaintiff's federal government contract, along with the promulgation of Executive Order 13495, precluded the action as a matter of law. In so ruling, the Court expressly noted that federal government contract law principles may not be disregarded in a civil action brought pursuant to state law.
The factual background of this case is not uncommon in the government contract arena. Here, the plaintiff is the predecessor contractor to the United States Fish & Wildlife Service ("USFWS") Region 3 Office. The defendants are two individual employees and their private company-employer (and follow-on government contractor). In 2009, the USFWS chose not to renew the plaintiff's government contract and instead awarded said contract to Topologe, LLC, which later became a defendant in the lawsuit. In conformance with its obligations under federal government contract law to ensure continuity of service and a stable work force for the federal government, principles ensconced in Executive Order 13495 and other federal law, Topologe offered employment to two of the plaintiff's former employees. Both of these employees had worked for the plaintiff on its own USFWS contract and both later became defendants in the lawsuit. The gravamen of plaintiff's complaint alleged state law claims including breach of the employment contracts that plaintiff had entered into with the individual employee defendants, violations by said employees of the covenants not to compete contained in said contracts, and tortious interference with said contracts by the successor government contractor, Topologe.
Pursuant to a Motion to Dismiss brought by Eckland & Blando, defendants maintained that plaintiff's civil action must be dismissed pursuant to Minnesota law by reason that said law precludes the enforcement of contracts that contravene federal law or policy. First, the plaintiff's own government contract with the USFWS contained FAR 52.237-3, the Continuity of Services Clause. In the event that the follow-on USFWS government contract was not awarded to plaintiff, this Clause requires the plaintiff to release its employees to work with the follow-on government contractor. However, plaintiff's employment contracts with the two individual defendants contained non-competition clauses. Because Minnesota law does not recognize contract clauses that directly conflict with law or public policy, and the non-competition clauses directly conflicted with the requirements set forth in the FAR clause, defendants argued that the non-competition clauses are unenforceable as a matter of law. Second, plaintiff's claims conflicted with the public policy set forth in Executive Order 13495, which requires that follow-on contractors extend employment offers to employees terminated by the predecessor contractor. As a result of the conflict between EO 13495 and plaintiff's claims for breach of contract and tortious interference, defendants also argued that these claims could not succeed as a matter of law. Concurring with the defendants, the Court ordered that all claims be dismissed with prejudice.
This case highlights the importance and preeminence of federal government contract law, even in the context of disputes framed as state law claims. As the Court's opinion demonstrates, state courts must remain cognizant of the relationship between federal government contracts and conflicting state law claims. In addition, state courts must be receptive to the fact that federal law and policy may well trump state law claims. For more information about compliance with government contract regulations in general, or The Talus Group v. Ostrander, Franxman, and Topologe, LLC, Case No. 27 cv 10-5297 (Nov. 9, 2010) (click here to read the full decision) case in particular, contact Kate H. Kennedy at
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A Decade Later, Final Rule for Women-Owned Small Business Program Published
The Small Business Administration recently published its long-awaited final rule regarding the Women-Owned Small Business (WOSB) program, also referred to as the Economically Disadvantaged Women-Owned Small Business (EDWOSB) program. 75 Fed. Reg. 62258 (October 7, 2010). This program, created nearly ten years ago by a law enacted during the Clinton Administration, was subject to numerous delays through subsequent administrations and litigation. With the publication of the final rule, the SBA expects to start setting aside contracts for WOSBs in early 2011.
The WOSB program was created to aid the federal government in achieving its goal of awarding five percent of federal contracting dollars to women-owned businesses. To be eligible to participate in the Women-Owned Small Business program, a firm must:
(1) be 51 percent owned and controlled by one or more women, and primarily managed by one or more women, who must be U.S. citizens,
(2) be "small" in its primary industry in accordance with SBA's size standards for that industry, and
(3) be deemed "economically disadvantaged," i.e., its owners must demonstrate economic disadvantage in accordance with the requirements set forth in the final rule.
Importantly, however, there are exceptions to the requirement that the firm be "economically disadvantaged." The final rule identifies 83 industries (identified by "NAICS" codes) in which women-owned small businesses have been determined to be under-represented or substantially under-represented in federal procurements. Businesses in any of these 83 industries do not have to prove an economic disadvantage in order to be eligible to participate in the WOSB program.
Once the rule is fully implemented, agencies will be authorized to set aside specifically for WOSB firms manufacturing contracts of $5 million or less and $3 million or less for other contracts. WOSBs may self-certify their eligibility for the program, or they can be certified by third parties. Businesses that self-certify will need to submit documents demonstrating their eligibility.
A copy of the final rule is available here. For more information on this program and its elements, please contact Mark Blando at
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Recent GAO Decision Underscores Importance of Understanding Buy American Act
The Buy American Act (BAA) requires that federal agencies purchase only domestic-manufactured end products for public use, subject to certain exceptions. The Trade Agreements Act is one such exception. It provides that eligible products from countries specified in the World Trade Organization's "Government Procurement Agreement" (WTO GPA) are entitled to "non-discriminatory" procurement by certain named United States federal agencies. Thus, pursuant to Executive Order No. 12,260, BAA requirements are waived for products subject to the WTO GPA.
Recently, in HID Global, Inc., B-403103 (Sept. 15, 2010), the Government Accountability Office (GAO) denied a protest alleging that the Government Printing Office (GPO) erroneously failed to invoke the TAA exception in a solicitation for passport covers. In this case, the protestor HID Global, Inc. (HID), asserted that a request for proposals issued by the GPO, for specialized passport fabric, was in essence a procurement by the State Department, the intended end-user of the passport fabric.
The identification of the actual procuring agency was significant because the GPO is not among the agencies listed in the WTO GPA, while the State Department is listed. Nonetheless, HID maintained that the State Department's "intimate involvement" in the solicitation process established it as a de facto procuring agency. Because the State Department is listed in the WTO GPA, the protestor argued that the solicitation should have been subject to the more favorable treatment under the TAA exception. As evidence of this "intimate involvement," HID argued that although the RFP stated that "the GPO, in cooperation with its partner, the Department of State" was responsible for conducting the solicitation, it was the State Department itself that actually drafted the solicitation specifications, conducted the procurement, evaluated offerors, and personalized the passports.
The GAO rejected this argument, stating that although the GPO's procurement of passport covers would indeed require a cooperative partnership between the two agencies, it did not consider such evidence "compelling indicia that the State Department was a co-procuring agency," and refused to "ascribe to the State Department a status that the agencies themselves did not."
The HID Global case underscores the often complex nature of the various statutory mandates to federal agencies regarding the country of origin for products purchased for public use. Contractors should be familiar with the operation of the BAA and the WTO GPA's list of agencies when responding to solicitations.
A full-text version of the decision can be found here. For a complete list of federal agencies to which the WTO GPA applies, please see GPA Appendix I, available on the WTO's website (United States, Annex I). For more information, please contact Jeff Eckland at
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The Final Chapter: President Signs Law Creating Equal Treatment for HUBZone and Other SBA Preference Categories
Yesterday, President Obama signed the Small Business Jobs Act of 2010 (H.R. 5297) which mandates equal treatment for HUBZone and other Small Business Administration (SBA) preference categories. As discussed in the E&B Alerts dated May 11, 2009, July 16, 2009, and March 16, 2010, confusion reigned as the GAO and the Executive Branch disagreed over whether procurement officers were required to analyze whether a HUBZone preference applies before turning to other preference categories. As of our last update, the Court of Federal Claims had held that HUBZone preferences did take priority under the then-current statutory regime. See Mission Critical Solutions v. United States, 91 Fed. Cl. 386 (Mar. 2, 2010). Consequently, Congress took legislative action to codify the previous, preferred interpretation of the law pertaining to SBA preferences.
With the passage of the Small Business Jobs Act of 2010, Congress and the President returned HUBZone preferences to equal footing with other SBA preferences, such as veteran-owned small businesses. For additional information or if you have questions on this topic, contact Tim Connelly at 612-236-0160 or
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"Caveat Vendor": Contract Specialist Cannot Override FAR and Invitation for Bids
Last week the GAO upheld the Department of Veteran's Affair's decision to reject a facsimile bid, even though the government official assigned to answer bidders' questions told the contractor at issue that facsimile bids were acceptable. See In re: Heath Constr. Inc., B-403417 (Sep. 1, 2010).
In Heath Construction, the invitation for bids (IFB) designated a specific Contract Specialist to answer bidders' questions, including those regarding the available methods of bid submission. In response, the specialist instructed a bidder that bids would be accepted via facsimile, and gave the bidder a fax number to use. The bidder then submitted a timely bid via facsimile, using the number provided. At the bid opening, however, the Contracting Officer rejected the faxed bid as noncompliant with the IFB instructions. Specifically, the IFB incorporated FAR § 52.214-5, Submission of Bids, which provides that facsimile bids would not be considered unless authorized by the solicitation. In this case, the IFB did not expressly authorize submissions via facsimile.
The contractor then protested the award, arguing that the government point of contact identified in the IFB expressly authorized facsimile bid submissions. The GAO denied the protest because the IFB itself did not authorize facsimile transmissions. The GAO observed that submitting a bid via facsimile gave a potential for competitive advantage to the bidder, because that bidder effectively would be allowed more time to prepare its bid. The GAO therefore concluded that any change to the authorized method of submitting bids would require a formal amendment to the IFB, and only the Contracting Officer was authorized to issue amendments. Thus, the Contract Specialist's statement that facsimile bids would be accepted could not serve to alter the original IFB provisions.
Heath Construction illustrates the principle that Contractors generally cannot rely on representations of government officials that are contrary to the Federal Acquisition Regulation and the solicitation, which define the process for awarding contracts. Contractors must carefully read solicitations, contracts and applicable procurement regulations to determine the proper procedures to follow in responding to solicitations and performing government contracts. If you have questions about the decision or responding to government solicitations, please contact Mark Blando at 612-236-0160 or
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FAR Dollar Thresholds Will Significantly Increase Effective October 1, 2010
Today, the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council announced the final rule to amend key dollar thresholds under the Federal Acquisition Regulation (FAR). 75 Fed. Reg. 53130 (Aug. 30, 2010). The amendment is effective October 1, 2010 and implements Section 807 of the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005, which mandates five-year adjustments for inflation to acquisition-related thresholds based on the Consumer Price Index ("CPI"). This final rule covers both increases to statutory thresholds and increases to other dollar thresholds that appear only in the FAR. However, thresholds related to the Davis-Bacon Act, Service Contract Act, and Trade Agreements Act are not affected by this rule.
Thresholds that would be increased by the proposed rule include:
- Increasing the Simplified Acquisition Threshold from $100,000 to $150,000
(FAR 2.201);
- Increasing the Cost and Pricing data threshold from $650,000 to $700,000
(FAR 15.403-4); and
- Increasing the prime contractor Subcontracting Plan floor from $550,000 to
$650,000, and the Construction Threshold from $1,000,000 to $1,500,000
(FAR 19.702).
Notably, the micro-purchase threshold of $3,000 (FAR 2.101) will not change. Because the CPI was slightly lower than expected, some thresholds from the proposed rule, published on February 4, 2010, that exceeded $13 Million were reduced in this final rule.
To see a complete list of the affected thresholds and amendments to the FAR, visit http://edocket.access.gpo.gov/2010/pdf/2010-21025.pdf. For further information regarding the proposed rule, please contact Tim Connelly at (612) 236-0160 or
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Proposed Amendment to FAR Part 4 Would Require Government-Wide Standardization of Unique Procurement Instrument Identifiers (PIID)
Recently the Civilian Agency Acquisition Council (CAAC) and the Defense Acquisition Regulations Council (DARC) proposed an amendment to FAR Part 4 which would require all federal agencies to standardize the use of unique Procurement Instrument Identifiers (PIID).
The current FAR Part 4 standardizes the use of PIIDs within the Federal Data Procurement System (FDPS), but does not apply to other databases containing federal contract reporting data. The proposed amendment is primarily a response to public complaints regarding the inefficiency, duplication, error, mismanagement, and confusion created by the conflicting contract reporting standards of various federal agencies. The standardization required in the proposed amendment would help bring FAR Part 4 into compliance with reporting requirements established in both the Federal Funding Accountability Act (FFATA) and the American Recovery and Reinvestment Act (ARRA), and would inevitably lead to increased governmental transparency and ease of access to federal contract information.
If the amendment is adopted, FAR Part 4.1601 will require all federal agencies to submit PIID information to the General Services Administration's Integrated Acquisition Environment Program Office, which is charged with maintaining a registry of all agency-unique identification schemes. Each PIID would consist of a unique combination of alpha characters to indicate the agency, followed by alpha-numeric characters designating specific agency-related internal classifications. The alphanumeric identifier would be effective for no fewer than 20 years after a contract award and would be used in each solicitation, contract, agreement, amendment, modification and order, thus providing uniformity and reducing opportunities for duplication and confusion.
The text of the proposed rule can be found here. The public is invited to submit written comments to the proposed rule for consideration in its final formulation on or before October 18, 2010 via the Federal Rulemaking Portal (keyword: FAR Case 2009-023). For more information, please contact Mark Blando at
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