Court of Federal Claims Reaffirms the Small Business Act's Preference for HUBZone Business Concerns
On Friday, the Court of Federal Claims reaffirmed the Small Business Act's ("the Act") preference for HUBZone businesses over 8(a) businesses. DGR Associates, Inc. v. United States & General Trades & Services, Inc., No. 10-396C (Fed. Cl. Aug. 13, 2010). In sustaining DGR's protest and permanently enjoining the award to General Trades & Services Inc., an 8(a) small business, the Court rejected executive agency memoranda stating that the Small Business Act does not mandate a preference for HUBZone businesses over 8(a) businesses and instead ruled in conformance with its previous decisions and those of the GAO that the language of the Act sets forth an unequivocal preference for HUBZone business concerns.
Quoting from the Act, the Court held that the following language explicitly set forth a preference for HUBZone businesses: "notwithstanding any other provision of law . . . a contract opportunity shall be awarded on the basis of competition to qualified HUBZone small business concerns . . . ." Rejecting the interpretation of the Act proffered by various concerned executive agencies (including the Office of Management and Budget, the Department of Justice's Office of Legal Counsel and the Office of the Under Secretary of Defense, Director, Defense Procurement and Acquisition Policy), the Court noted that the memoranda's conclusions were founded on the belief that Congress "could not have intended a priority for the HUBZone program," rather than the clear text of the Act, upon which the Court relied.
The Court's ruling confirms its previous holding that the Act contains an unambiguous HUBZone preference. See Mission Critical Solutions v. United States, 91 Fed. Cl. 386 (2010), appeal docketed, No. 2010-5099 (Fed. Cir. Apr. 2, 2010) (preference applied against Service-Disabled Veteran-Owned Small Business concern). The Court's ruling is also in conformance with GAO decisions related to the Act's HUBZone preference. See DGR Assocs., Inc., B-402494 (Comp. Gen. May 14, 2010); see also Mission Critical Solutions, B- 401057 (Comp. Gen. May 4, 2009); Int'l Program Group, Inc., B-400278 et al., (Comp. Gen. Sept. 19, 2008).
While the Court in DGR Associates unequivocally reiterated that the Small Business Act contains an explicit preference for HUBZone businesses, pending legislation could undermine the basis for the Court's position. H.R. 6022, sponsored by Rep. Joe Courtney of Connecticut, would amend the Act to replace the phrase "a contract opportunity shall be awarded" with "a contract opportunity may be awarded." By replacing "shall," signifying a mandatory obligation, with "may," connoting a permissive rather than obligatory act, it is likely that courts and the GAO would no longer interpret the legislation as setting forth an explicit preference for HUBZone business over 8(a) businesses and SDVOSBCs. As such, while the courts currently hold that the Act contains a mandatory preference for HUBZone businesses, this could very well change if the amendments to the Act proposed in H.R. 6022 are enacted.
The Court of Federal Claims decision can be accessed at www.uscfc.uscourts.gov. H.R. 6022 can be accessed at www.govtrack.us. E&B will keep you posted on future developments related to H.R. 6022 and the HUBZone preference. For more information, please contact Jeff Eckland at
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or (612) 236-0160. |
Disappointed Bidder Must Challenge SDVOSBC Eligibility before the Department of Veteran's Affairs - Not the GAO
The GAO recently denied a bid protest alleging an apparent bid winner was not eligible for a contract set aside exclusively for service-disabled veteran-owned small business concerns (SDVOSBC).
In TEC/WEST-TEC JV, B-402573.3 (July 30, 2010), the disappointed bidder alleged that the designated awardee was not eligible for the SDVOSBC set-aside because the service-disabled managing partner did not control the day to day operations of the joint venture, and because component firms of the joint venture exceeded regulatory limits on the number of contracts that can be awarded to a joint venture. In its decision, the GAO held that the Department of Veterans Affairs (VA) retains authority to designate, and maintain a list of, eligible SDVOSB Concerns. Drawing an analogy to the Small Business Administration's (SBA) designations of small businesses size status, the GAO determined that it lacked jurisdiction to review protests of a company's eligibility for SDVOSB set-asides. Thus, because the challenge was brought in an inappropriate forum, the GAO denied the protest.
When dealing with procurements involving set-asides, challenges to a competitor's status must be brought before the agency with authority to determine eligibility for the program at issue, such as the SBA or the VA. However, keep in mind that while the GAO will not review challenges to a contractor's eligibility for a set-aside, it retains jurisdiction over protests involving other aspects of a decision to award a set-aside contract. The text of the decision is available at http://www.wifcon.com/cgen/4025733.pdf.If you have any questions about the SDVOSBC contracting or other set aside programs, please contact Tim Connelly at
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or (612) 236-0160. |
FAR Rule Amended to Require Subcontract and Executive Compensation Reporting
Recently, the Federal Acquisition Regulation (FAR) § 52.204-10, "Reporting Executive Compensation and First-Tier Subcontract Awards," was amended to incorporate subcontract reporting requirements for first-tier subcontracts and executive compensation under the Federal Funding Accountability and Transparency Act of 2006 (FFATA). The new clause must be included in all new unclassified contract awards valued at $25,000 or more. Additionally, all indefinite delivery contracts whose ordering periods extend beyond July 8, 2010 must also be modified to include the clause. Importantly, "first-tier subcontract" as defined by the rule "excludes supplier agreements with vendors, such as long-term arrangements for materials or supplies that would normally be applied to a contractor's general and administrative expenses or indirect costs."
The reporting requirement will be phased-in over a nine-month period. Effective immediately, any newly awarded subcontract must be reported if the prime contract award was greater than or equal to $20,000,000. As of October 1, 2010, the rule imposes this reporting obligation on prime contracts equal to or greater than $550,000. Finally, as of March 1, 2011, all subcontracts under prime contracts of at least $25,000 must be reported.
Under the rule, contractors are responsible for reporting the following information for each first-tier subcontract via the FFATA Subaward Reporting System (FSRS) portal:
1. Unique Identifier (DUNS Number) for the subcontractor and its parent company;
2. Name of the subcontractor;
3. Amount of the subcontract award;
4. Date of the subcontract award;
5. Description of the products or services (including construction) being provided;
6. Subcontract number (assigned by contractor);
7. Subcontractor's physical address, including the Congressional District;
8. Subcontractor's primary performance location, including the Congressional District;
9. The prime contract number, and order number if applicable;
10. Awarding agency name and code;
11. Funding agency name and code;
12. Government contracting office code;
13. Treasury Account Symbol (TAS); and
14. The applicable North American Industry Classification System code (NAICS).
Additionally, contractors are required to report the names and total compensation of each of the five most highly compensated executives for themselves and any first-tier subcontractor awarded a contract of $25,000 or greater at the end of the month following the award and annually thereafter if (i) the contractor or subcontractor received more than $25,000,000 of annual gross revenue from Federal contracts and subcontracts, loans, grants, and cooperative agreements (and the total of such federal revenue is 80% or more of the firm's total revenue); and (ii) the public does not otherwise have access to information about the compensation of the executives through reports filed under the Securities Exchange Act or the Internal Revenue Code.
The text of FAR 52.204-10 is available at https://www.acquisition.gov/FAR/current/html/52_200_206.html#wp1141649. For more information, please contact Mark Blando at
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or (612) 236-0160. |
Minnesota False Claims Act Goes Into Effect Today
The Minnesota False Claims Act ("MFCA") takes effect today: Thursday, July 1, 2010. The MFCA allows the state, and certain private parties suing on behalf of the state, to recover money damages for false or fraudulent claims submitted to the state, or a political subdivision of the state, by a government contractor or grantee. While Minnesota joined 25 other states in passing this state counterpart to the Federal False Claims Act on May 16, 2009, the MFCA becomes effective today and only applies to claims submitted on or after July 1, 2010. The MFCA can be found at https://www.revisor.mn.gov/statutes/?id=15C&view=chapter.
A person is liable under this act if he or she knowingly: (1) presents a false or fraudulent claim for payment; (2) makes or uses a false record or statement to get a claim paid or approved; (3) conspires to defraud the state by presenting a false claim or using a false record to obtain payment or approval; (4) delivers to the state less money or property than the amount for which the person receives a receipt; (5) prepares or delivers a receipt that falsely represents the money or property used by the state; (6) buys, or receives as a pledge, public property from an officer or employee of the state who lawfully may not sell or pledge the property; or (7) makes or uses a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the state.
The MFCA does not apply to, among other things, false claims that are due to mere negligence, inadvertence or mistake, or claims made by a non-managerial employee without an employer's knowledge. In addition, a contractor can avoid liability by repaying any damages within 45 days of the date it learns of a false claim from an "original source" - a person with independent knowledge of the false claim who reports the false claim to the state.
A person who violates the act is liable for $5,500-$11,000 per false or fraudulent claim, plus three times the amount of damages sustained by the state or political subdivision. A prosecuting attorney has authority to investigate and bring a civil action under the MCFA. In addition, a whistleblower - or "relator" - may commence a qui tam lawsuit in his or her own name. The relator's share of recovery can range from 15 to 30%, depending upon if and when a prosecuting attorney chooses to join the lawsuit. A prevailing party also may be awarded attorney fees in a MFCA case.
It is important that state contractors become familiar with Minnesota's new law because violations of the MFCA can: (i) create an incentive for whistleblowers to report violations; and (ii) result in treble damage awards. Thus, every contractor should take appropriate measures to ensure that adequate controls are in place to avoid potentially false claims.
For more information on the MFCA, please contact Jeff Eckland at
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Important Final Recovery Act Amendments to the FAR
Today, the FAR Councils published several final rules in Federal Acquisition Circular (FAC) 2005-42 (75 Federal Register 115, Jun. 16, 2010), including several important final rules dealing with transparency and accountability in the use of Recovery Act funds. The most significant new rules are summarized below.
1. American Recovery and Reinvestment Act of 2009 - Publicizing Contract Actions (FAR Case 2009-010). Implements earlier OMB guidance for increased accountability and transparency by publicizing certain contracting actions in connection with contracts funded by the Recovery Act.
2. American Recovery and Reinvestment Act of 2009 - GAO/IG Access (FAR Case 2009-011). Gives the Comptroller General authority to audit contracts, subcontracts, supplemental agreements, and task or delivery-order contracts and to interview contractor and subcontractor employees under contracts using Recovery Act funds. Agency Inspectors General receive the same authorities, except the authority to interview subcontractor employees.
3. American Recovery and Reinvestment Act of 2009 - Whistleblower Protections (FAR Case 2009-012). Prohibits non-Federal employers from discharging, demoting, or discriminating against an employee for disclosing information concerning wrongdoing in connection with contracts funded under the Recovery Act.
4. New Designated Country - Taiwan (FAR Case 2009-014). Allows contracting officers to purchase goods made in Taiwan, if the acquisition is covered by the World Trade Organization Agreement on Government Procurement.
5. Public Disclosure of Justification and Approval Documents for Noncompetitive Contracts - Section 844 of the National Defense Authorization Act for Fiscal Year 2008 (FAR Case 2008-003). Requires that a justification for using noncompetitive "brand name" specifications must be posted with the solicitation for at least 30 days.
6. Electronic Subcontracting Reporting System (eSRS) (FAR Case 2005-040). Implements the Electronic Subcontracting Reporting System (eSRS); replacing the Standard Forms (SF) 294 and 295 as the mechanism for submitting reports required by the small business subcontracting program.
FAC 2005-42 is available at http://edocket.access.gpo.gov/2010/pdf/2010-14184.pdf.
For more information, please contact Tim Coinnelly at
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, or by phone at (612) 236-0160.
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Department of Labor Publishes New Rule Requiring Federal Contractors and Subcontractors to Notify Employees of Rights under Federal Labor Laws
On Wednesday, May 19, 2010, the U.S. Department of Labor published a final rule requiring all Federal contractors and subcontractors to notify their employees about their rights under the National Labor Relations Act (NLRA). The rule, found at 29 C.F.R. Part 471, also states that all Federal contracts and subcontracts must include a provision requiring Federal contractors and subcontractors to post the notice. The rule, which implements Executive Order 13496, signed by President Obama on January 30, 2009, states that notices to employees must be physically posted in and around plants and offices where other notices to employees are posted. The rule applies to prime contractors as well as all tiers of subcontractors, based on the broad definition of "contract" set forth in the rule. Moreover, the term "subcontract" is to be construed broadly to encompass contracts for commercial items as defined in the Federal Acquisition Regulations, 48 CFR § 2.101.
The required notice (i) lists the right of employees under the NLRA to form, join, and support a union and to bargain collectively with their employer; (ii) provides examples of unlawful employer and union conduct that interferes with those rights; and (iii) indicates how employees can contact the National Labor Relations Board with questions or to file a complaint. Possible sanctions for noncompliance with the notice requirement include the suspension or cancellation of an existing contract and debarment from future Federal contracts and subcontracts. Exceptions to the posting requirement exist for prime contracts under the Simplified Acquisition Threshold, currently at $100,000, and subcontracts below $10,000.
Under the new rule, Federal government contractors must be sure to include the notice requirement in all subcontracts. Additionally, all Federal contractors and subcontractors should post the required notice immediately in physical form as well as electronic form if notices to employees are currently posted electronically. Copies of the required notice can be acquired from (1) the Federal contracting departments and agencies; (2) OLMS at (202) 693-0123 or www.olms.dol.gov; or (3) field offices of the Department of Labor's OLMS or Office of Federal Contract Compliance Programs.
The full text of the Department of Labor's new rule is available at: http://www.dol.gov/olms/regs/compliance/EO13496.htm. For more information, please contact Mark Blando at (612) 236-0160 or
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GAO Resolves Tie Between Bidders By Drawing Lots
The GAO recently resolved a challenge to a procurement of the Army Corps of Engineers for an aquatic herbicide by drawing lots among three of four offers with identical proposed unit prices. In Vetcorp, Inc., B-402519 (May 14, 2010), the GAO approved the agency's reliance on FAR 14.408-6, Equal Low Bids, and rejected the protester's contention that it should have received a HUBZone evaluation preference. In this unusual case, the agency contended that the solicitation was a sealed bid acquisition under FAR Part 14 to justify its reliance on FAR 14.408-6. The GAO, noting that the solicitation inclu ded some typical commercial item clauses and that the agency did not open the offers in public as is required in a sealed bid acquisition, found instead that the solicitation was a form of commercial item acquisition under FAR Part 12. The GAO went on to find that an agency may use procedures in FAR Parts 13 ("Simplified Acquisition Procedures"), 14 ("Sealed Bidding") or 15 ("Contracting By Negotiation") in a commercial item acquisition.
In this case, the GAO said that the Corps was allowed to use the equal low bids rule at FAR 14.408-6, which gave a preference, in order, to small business concerns in labor surplus areas, and then to other small business concerns. If this order of precedence does not resolve the tie, FAR 14.408-6 requires that the agency award the contract by drawing lots in front of three witnesses, which the agency did in this case. The protester also contended that it should have received an evaluation preference of 10% based on the HUBZone rules at FAR 19.1307(a). After consulting with the Small Business Administration, however, the GAO concluded that the HUBZone evaluation preference could not be used to favor one small business concern over another.
Contractors should be aware of the differences between sealed bids and proposals, and recognize that when contracting for commercial items under FAR Part 12, the government may use simplified acquisition procedures, sealed bidding procedures or negotiated acquisition procedures. A careful review of the solicitation, including the synopsis, the evaluation criteria, and other key elements is often necessary to ensure a contractor understands how its response will be evaluated.
For additional information, please contact Jeff Eckland at (612) 236-0160 or
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. The GAO decision is available at http://www.wifcon.com/cgen/402519.pdf. |
Obama Administration Remains Committed to Recovery Act Oversight
Yesterday, the Office of Management and Budget ("OMB") issued a Memorandum containing detailed guidance for federal agencies' monitoring of ARRA recipients' compliance with the American Recovery and Reinvestment Act's ("ARRA") reporting requirements. While directed to federal agencies, recipients of ARRA funds should take notice of this memorandum as it signals an increase in federal agencies' oversight of recipient reporting under Section 1512 of the ARRA.
As a result of this Memorandum it is likely that ARRA recipients will experience increased contact with federal agencies. The OMB Memorandum calls for agencies to contact:
- Any recipient that has not filed its report prior to three days before the close of the reporting period;
- New recipients prior to the beginning of each reporting period to notify the recipient of their obligations under Section 1512; and
- Any recipients who have not satisfied Section 1512's reporting requirements for past reporting periods in order to ensure compliance in future reporting.
ARRA recipients should be aware of the potentially severe ramifications resulting from non-compliance with Section 1512's reporting requirements. While the purpose of the OMB Memorandum is to facilitate compliance through increased involvement by federal agencies, the Memorandum sets forth numerous consequences for recipients that fail to comply. The consequences for failure to comply with Section 1512's reporting requirements for one reporting period include restricting access to the awarded funds and monetary sanctions. If a recipient fails to comply with the reporting requirements for two consecutive reporting periods, the agency may enter the failure on the recipient's performance record, terminate the federal contract, and may suspend or debar the prime recipient.
Recipients of ARRA funds should be aware that the OMB Memorandum will create increased oversight of ARRA reporting by federal agencies and should take notice of the potentially severe sanctions for noncompliance. If you have questions regarding compliance with ARRA's reporting requirements, contact Tim Connelly at
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or (612) 236-0160. The May 4, 2010 Memorandum is available at: http://www.whitehouse.gov/omb/assets/memoranda_2010/m-10-17.pdf.
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Rule Requiring Bid Protests to be Filed Prior to the Close of Solicitation Reaffirmed and Expanded by Court of Federal Claims
The Court of Federal Claims recently reaffirmed an important rule for contractors who challenge the award of a federal government contract based on an obvious (or "patent") error in the solicitation. In Shamrock Foods Company, (Shamrock Foods Company v. United States, No 10-109C (April 22, 2010), a case involving the protest of an award to provide food and beverage services to Fort Bliss, Texas, the Court confirmed that a protestor must object to obvious errors in the terms of the solicitation prior to the close of the bidding process. The Court applied this so-called "Waiver Rule" to deny Shamrock's protest and set forth new, detailed explanations of the extent to which this rule applies to bid protests.
First, the Court rejected the protestor's argument that the Waiver Rule did not apply to a plaintiff that refrains from participating in the solicitation process. Shamrock asserted that because it did not compete for the contract, it was not required to assert its objections prior to the close of the solicitation. Noting that only "interested parties" - i.e., those with a stake in the outcome of the solicitation - have standing to protest, the Court pointed out that a party that fails to submit a bid does not have the requisite interest in the outcome of the solicitation and therefore does not have standing to protest the award. Accordingly, the Court determined that Shamrock did not have standing to protest.
Second, the Court rejected the argument that the Waiver Rule did not apply because Shamrock was "not aware of the full details" of the contract until after the bidding period had concluded. The Court determined that not knowing a contract's details before the close of the solicitation process was irrelevant where Shamrock's arguments addressed the mechanisms by which the contract was procured, not the details of its performance. Therefore, even if Shamrock had standing to protest the award, the protest would be untimely and all objections to the solicitation process would be forfeited under the Waiver Rule.
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Government Proposes Policy Defining"Inherently Governmental Functions"
The Office of Federal Procurement Policy (OFPP) recently issued a proposed policy letter (the "policy") to provide guidance to Executive Departments and agencies on circumstances when work must be reserved for performance by Federal government employees. See http://edocket.access.gpo.gov/2010/pdf/2010-7329.pdf.
The policy categorizes government work into (1) inherently governmental, (2) functions closely associated with inherently governmental functions, (3) critical functions, and (4) non-critical functions. The policy adopts, for government-wide use, the definition of "inherently governmental function" set forth in the Federal Activities Inventory Reform ("FAIR") Act, P.L. 105-270, which is "a function that is so intimately related to the government interest as to require performance by Federal Government employees." For further guidance, the policy not only expands upon the definition of "inherently governmental," but also includes lists of examples of inherently governmental functions and functions closely associated with inherently governmental functions. Additionally, the policy defines a "critical function" as one that is "necessary to effectively perform and maintain control if its mission and operations," or would put the agency at risk of mission failure if outsourced.
In accord with settled practice, the policy provides that contractors may not perform inherently governmental functions. With regard to functions closely associated with inherently governmental functions, "special consideration" is given to federal employees, and, if ultimately performed by contractors, "greater attention" and oversight is mandated. Further, the policy seeks to ensure that "federal employees perform critical functions to the extent necessary for the agency to operate effectively and maintain control of its mission and operation." Finally, also in accord with past practice, there are no restrictions on contracting out non-critical work.
The policy, if implemented in its current form, will lead to significantly fewer contracting opportunities for service providers by expanding the number of "government-only" tasks. The new standards may also influence interactions between contractors and government acquisition officials during the transition and implementation of the policy. OFPP invites interested parties from both the public and private sectors to provide comments to be considered in the formulation of the final policy letter. Interested parties should submit comments in writing on or before June 1, 2010.
For additional information, please contact Tim Connelly at
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or (612) 236-0166. |
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