Section 872 – Reauthorization and Improvement of Department of Defense Mentor-Protégé Program

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Section 872 of the 2020 NDAA makes many notable changes to the Department of Defense’s (DoD) Mentor-Protégé Program. Besides permanently authorizing the program, Section 872 required DoD’s Office of Small Business Programs to establish performance goals and periodic reviews to be submitted to the congressional defense committees by February 1, 2020. This serves to improve outcomes, define expectations, and set measurable goals for the DoD Mentor-Protégé Program going forward.

Notably, Section 872 changes the definition of a “disadvantaged small business concern” to align with how small businesses are defined in other programs. To be considered small, the original definition required a business to have “less than half the size standard corresponding to its primary North American Industry Classification System code.” The new definition states that a disadvantaged small business concern must not exceed the size standard corresponding to its primary NAICS code.

Note that this change has already been approved and signed by the President, and applies to fiscal year 2020, ending in September 2020.

In spite of the fact that this seems like a trivial matter, it is important to understand that unlike mentor-protégé programs in other departments, the DOD program has a healthy budget (typical agreements of $750,000 to $1M or $2M) that can in fact get passed through the mentor for the benefit of the mentor-protégé partnership, i.e., mostly the protégé.

The important thing to understand is that this allows the DOD to pay the mentor for money that is used by the mentor-protégé agreement in ways that benefit the protégé in the future. Because this is a money granting program, it’s authorized not in annual increments (though it’s still budgeted annually), but in multiple-year increments.

As noted above one of the changes with reauthorization was an alignment of the definition of small businesses with other definitions in other classification systems like NAICS codes. If those definitions are different you could be small in one place and not small in another.

One of the interesting things about this legislation is that the new definition says you cannot exceed the size standard of the primary NAICS code but doesn’t say how much work must be in that code.

Why is that important? At TAPE, for example, we have work in three or four different NAICS codes. We do a lot of work in 541611 (administrative), which is a size standard of $16.5M, and we’re larger than that. On the other hand, we have a lot of work in in 541512 and 541513 (IT), which have a size standard of $30.5M, which we’re within so we’re considered small, and 541330 (engineering), which has a size standard of $41.5M, where we’re also small.

So we do some of our work in a NAICS code for which we are large, which is perfectly okay. It just means if it was recompeted we’d have to compete as a large business, or find a small business partner.


Section 823 – Modification of Justification and Approval Requirement for Certain DOD Contracts

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After three or four months of working from home, it’s good to go back to one of the things that passed in 2019 and was signed by the President back before any of this happened.

This legislation affects lots of us, including joint ventures that involve an 8(a) protégé, or are led by an 8(a). It’s also particularly close to my heart, and may just be the most wonderful section that ever exists. Why? Because 823 also happens to be my birthday!

Section 823 of the 2020 NDAA increases the threshold for justification and approval for 8(a) Program sole-source awards. While the 2010 NDAA required justification and approval for 8(a) Program sole-source awards valued at or above $20 million (later increased to $22 million), Section 823 of the 2020 NDAA increases this threshold to $100 million. 

[Note from Bill: $20M is a long way from the $4M threshold in place when I first started out!]

This change will benefit entity-owned 8(a) Program participants because, under the Federal Acquisition Regulation (FAR) and Small Business Administration’s (SBA) regulations, those are the only participants eligible for sole-source awards above the competitive thresholds ($7 million for manufacturing contracts and $4 million for all other contracts).

What this new legislation means is that if the contracting officer makes the determination that there is a single source that can perform a certain piece of work, and you can couch the language in such a way that states you are the only person that can do so, you can now get a sole-source contract for up to $100M. That is pretty cool!

For contracting officers, there is usually a threshold or limit as to what they can sign for (and this limit is now decidedly higher for 8(a) awards), before the award needs to be approved by another level of command or even by the Pentagon. Still, there is a big distinction in time and energy between a contract that anyone can compete on (e.g., in a vehicle), and a sole-source contract.

There’s still an approval process, but they don’t have to compete the award. They just need to write a J&A and get it approved by the appropriate levels of authority based on the number of dollars involved. Then lo and behold, they can award a contract.


Small Business Updates in NDAA 2020

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Note from Bill: The following document was sent to us on behalf of the Small Business Administration by Donna Ragucci of the Federal OSDBU Council.

The National Defense Authorization Act (NDAA) for Fiscal Year 2020 authorizes FY2020 appropriations and sets forth policies regarding the military activities of the Department of Defense (DOD), military construction, and the national security programs of the Department of Energy (DOE).

Below is a list of small business-related FY 2020 updates/changes to the NDAA. We’ll highlight each one here, and then delve into more detail in future posts:

SEC. 870. REQUIREMENTS RELATING TO CREDIT FOR CERTAIN SMALL BUSINESS CONCERN SUBCONTRACTORS.

Highlight: If the subcontracting goals pertain to more than one contract with one or more Federal agencies, or to one contract with more than one Federal agency, the prime contractor may only receive credit for first tier SB subcontractors.

Note from Bill: Interesting nuance here. So multi-award contracts or ANY contract that spans multiple agencies, only the first tier subs apply for SB credit. This mostly applies to large businesses, but can also affect “similarly situated entity” use in multiple award GWACS.

SEC. 871. INCLUSION OF BEST IN CLASS DESIGNATIONS IN ANNUAL REPORT ON SMALL BUSINESS GOALS.  (House bill)

Highlight: In addition to the requirements listed in this section for each best in class designation, the Administrator shall include new requirements in the in Best In Class Small Business Reporting.

Note from Bill: The Best in Class designation is rapidly taking hold, and many agencies are opting out of having their own vehicles and using the BIC. This change allows for more reporting of BIC vehicles and defines legislatively, the requirements.

SEC. 873. ACCELERATED PAYMENTS APPLICABLE TO CONTRACTS WITH CERTAIN SMALL BUSINESS CONCERNS UNDER THE PROMPT PAYMENT ACT.

Highlight: To the fullest extent permitted by law, the head of an agency will establish an accelerated payment date (with a goal of 15 days after a proper invoice for the amount due is received) if a specific payment date is not established by contract.

Note from Bill: Good for all us smalls, because the fact is, the sooner we get the funds, the better.

SEC. 874. POSTAWARD EXPLANATIONS FOR UNSUCCESSFUL OFFERORS FOR CERTAIN CONTRACTS.

Highlight: Upon receipt of a written request from an unsuccessful offeror for a task order or delivery order in an amount greater than the SAT and less than or equal to $5,500,000 issued under an IDIQ contract; the CO must provide a brief explanation as to why such offeror was unsuccessful.

Note from Bill: So, interesting, this used to be $10M, so the size threshold has gone down (good for us in seeking info), but they mention “brief explanation,” which is frustrating. Brief is NEVER good.

SEC. 875. SMALL BUSINESS CONTRACTING CREDIT FOR SUBCONTRACTORS THAT ARE PUERTO RICO BUSINESSES OR COVERED TERRITORY BUSINESSES.

Highlight: Businesses receive contracting credit for subcontractors that are Puerto Rico Businesses and covered territory businesses. Covered territory businesses are located in the United States Virgin Islands, American Samoa, Guam, and The Northern Mariana Islands.

Note from Bill: A simple change that allows Puerto Rican and territorial companies to be included in US designations for SB credits.

SEC. 876. TECHNICAL AMENDMENT REGARDING TREATMENT OF CERTAIN SURVIVING SPOUSES UNDER THE DEFINITION OF SMALL BUSINESS CONCERN OWNED AND CONTROLLED BY SERVICE-DISABLED VETERANS.

Highlight: In section 3(q)(2) of the Small Business Act is amended (bb) in the case of a surviving spouse of a veteran with a service-connected disability rated as less than 100 percent disabling who does not die as a result of a service-connected disability, is 3 years after the date of the death of the veteran.

Note from Bill: This is useful, because it does mean that for a business designated as SDVOSB when the veteran passes, the surviving spouse has three years to “wind things up.” Definitely a good idea.

SEC. 880. ASSISTANCE FOR SMALL BUSINESS CONCERNS PARTICIPATING IN THE SBIR AND STTR PROGRAMS.

Highlight: The PCR (procurement center representative) is to consult with the appropriate personnel from the relevant Federal agency to assist small business concerns in participating in the SBIR or STTR program (with commercializing research developed under such a program) before a small business is awarded a contract from a Federal agency.

Note from Bill: This affects small businesses doing R&D, and is useful to give the SB staff a say in the process to ensure small businesses are utilized on SBIR and STTR  awards.


Protect Your Past Performance

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A government agency’s evaluation of your past performance can often be the difference between winning or losing your bid. In fact we are increasingly receiving RFPs in which the only written material supplied to the government are past performance references.

When we do a contract for the government, the agency is obligated to rate our performance in different areas from 5 to 1 (excellent, very good, satisfactory, marginal, or unacceptable). These reference ratings are then stored in a web-based application called the Contractor Performance Assessment Reporting System (CPARS).

We recently did an RFP where they listed elements from their PWS (Performance Work Statement, which is essentially a list of work you’re supposed to do). We were required to take those PWS elements and map them to the information from the past performance reference that we were giving. Then they would go and consult CPARS, which means the contract in your reference had to have been in place for a year, and the CPARS entry already approved.

For example, one of the PWS elements was project management. We were required to give a written response that yes we do project management and we’ve done it on a past project. Then we had to go the contract documents for that past project, to the actual PDF of the signed contract documents, and put an electronic sticky note where the contract states we were required to do project management reports.

In the end, we submitted 400+ pages of old contract documents with electronic sticky notes on various pages, along with detailed notes in the RFP about where to refer to these pages in the past performance contract.

There is a lot more movement towards using past performance as the only award criteria, and so you really need to focus as a vendor on disputing your CPARS if they’re not appropriated, understanding your rating criteria, and working directly with your CORs and KOs to make sure everything gets into your past performance record.

For better or worse, agencies are given broad discretion in how they evaluate past performance. As such, it is critical that when working with the federal government that contractors understand not only what steps they should take to cultivate and utilize positive past performance, but also the steps they should take to defend their past performance from attacks. Here are some key items for your team to discuss:

  • general rules governing past performance evaluations;
  • ways in which a prime contractor can utilize different sources of past performance information;
  • best practices for obtaining positive CPARS ratings; and
  • how and when to challenge negative CPARS ratings.

Restricting LPTA in Federal Contracting

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In the fall of 2019, the United States Government Accountability Office (GAO) released a report about agencies’ use of the lowest price technically acceptable (LPTA) process in federal contracting.

As background, in 2017 section 813 of the NDAA started to create some limitations on using LPTA and when it would be appropriate. Then section 880 of the NDAA FY 2019 required that those changes be applied to civil agencies as well.

As part of that, Congress required the GAO, which acts sort of like Congress’s review agency, to develop some reports on various aspects of the LPTA world – they were looking for large dollar value issues and so forth.

There are eight criteria established for the use of LPTA:

  1. The agency can clearly describe the minimum requirements in terms of performance objectives, measures, and standards that will be used to determine acceptability of offers.
  2. The agency would realize no, or little, value from a proposal exceeding the solicitation’s minimum technical requirements.
  3. The proposed technical approaches can be evaluated with little or no subjectivity as to the desirability of one versus the other.
  4. There is a high degree of certainty that a review of technical proposals other than that of the lowest-price offeror would not identify factors that could provide other benefits to the government.
  5. The contracting officer has included a justification for the use of the LPTA process in the contract file.
  6. The lowest price reflects full life cycle costs, including for operations and support.
  7. DOD would realize little or no additional innovation or future technological advantage by using a different methodology.
  8. For the acquisition of goods, the goods being purchased are predominantly expendable in nature, nontechnical, or have a short life expectancy or shelf life.

The important thing about this, from our perspective, is that Congress is making a determination and imposing requirements on DoD and now on the civil agencies that LPTA has a limited space.

Specifically, there has to be a determination that the agency does not need technical trade-offs. If the agency has technical trade-offs then they can’t use LTPA. Furthermore, if there are specific trade-offs between cost and technical activity that is also not conducive to using LPTA.

From our perspective as an observer of the process, it’s clear that there were increasingly non-applicable uses of LPTA, which led to some very anomalous decisions. The net result was that subject matter experts with education, talent, and experience became too expensive to use – they were being priced out of the market.

If there was someone willing to allegedly supply these SMEs for substantially less, that person automatically won an LPTA contract. But then when they tried to hire SMEs at these discounted rates the SMEs just went elsewhere to people who would pay them fairly.

This produced ugly contracts, when half the staff would leave either in the transition time frame or shortly thereafter, and who you lost were the really good people. Fortunately this set of legislation has reigned in the excesses between the two NDAAs. Fundamentally, we must thoroughly understand not just when to use LPTA but why it makes sense (or doesn’t).


NDA 2020 Section 831 – Modernizing Acquisition Processes to Mitigate Risk

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The description of this provision reads: The Secretary of Defense shall streamline and digitize the existing Department of Defense approach for identifying and mitigating risks to the defense industrial base across the acquisition process, creating a continuous model that uses digital tools, technologies, and approaches designed to ensure the accessibility of data to key decision-makers in the Department.

Essentially, the government is directing DoD to adjust their risk mitigation framework so that downstream suppliers are also included.

They are looking specifically at these supply chain risks:

  1. material sources and fragility;
  2. counterfeit parts;
  3. cybersecurity of contractors;
  4. vendor vetting in contingency or operational environments; and
  5. other risk areas as determined appropriate.

And these risks posed by contractor behavior:

  1. fraud;
  2. ownership structures;
  3. trafficking in persons;
  4. workers’ health and safety;
  5. affiliation with the enemy; and
  6. other risk areas as deemed appropriate.

Let’s say I am a contractor serving the Department of Defense. I may be supplying an assembly of some kind, a device or a simulator or something. However, I’m just the integrator, not the person actually building the digital pieces.

Now, what happens if some of the parts that I’m using come from a forbidden foreign supplier? Or my manufacturing plant is in a prohibited foreign country. Or the country is not forbidden but they are doing a project (e.g., building a 5G network) using companies that are on the prohibited list.

So you can begin to see that there are tons of implications and risks that track across the entire industrial base, down to whose chips I am using in my digital manufacturing and whose chips I am using to assemble my products. So while this provision seems like a simple thing to update the risk mitigation framework, it represents an enormous issue across the entire DoD.


Paycheck Protection Program Reform Bill Passed

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This post was created with assistance from Washington Premier Group.

  1. Both chambers of Congress have passed the Paycheck Protection Program Flexibility Act of 2020 and the bill went to President Trump’s desk for his signature.
  2. The measure extends the Paycheck Protection Program loan forgiveness period from eight weeks to 24.
  3. The bill lowers the threshold created by the Small Business Administration guidance from 75 percent to 60 percent of the covered loan amount that must be used for payroll costs to receive loan forgiveness.
  4. The measure allows the loan repayment period to be extended from two to five years.
  5. Finally, the Act extends the Paycheck Protection Program’s safe harbor loan forgiveness deadline for rehiring workers from June 30, 2020 to December 31, 2020.

The Senate on Wednesday passed H.R. 7010, the Paycheck Protection Program (PPP) Flexibility Act of 2020. The bill, which passed the House last week on a 417-1 vote, was signed by President Trump on June 5, 2020.

While the measure will provide greater flexibility to small businesses that have received forgivable loans under the PPP, Senate Majority Leader Mitch McConnell (R-KY) has stated that additional work will be needed on the program, indicating that Senate Committee on Small Business and Entrepreneurship Chairman Marco Rubio (R-FL) and Sen. Susan Collins (R-ME) will continue working on technical fixes to the PPP in the coming weeks. Chairman Rubio has expressed particular concerns about House Democrats’ decision to recess for the entire month, noting that the chamber’s recess could make a legislative fix to address additional technical errors more difficult.

Below, please find an overview of key provisions in the PPP Flexibility Act:

Extension of Loan Forgiveness Period:

  1. At present, PPP loan funds must be spent within eight weeks of a borrower receiving the loan.
  2. The PPP Flexibility Act extends this PPP loan forgiveness period from eight weeks to 24.
  3. However, the language allows PPP recipients receiving a loan before the enactment of the bill to elect the eight-week period.

Extension of Loan Repayment Period:

  1. Currently, the PPP offers two-year loan terms at a 1 percent fixed rate.
  2. The PPP Flexibility Act would allow the loan repayment period to be extended from two to five years. This provision will only impact borrowers whose PPP loans are disbursed after the bill’s enactment.
  3. Regarding existing PPP loans, the Act does not prohibit lenders and borrowers from mutually agreeing to modify the maturity terms of a covered loan.

Payroll Expenditure Requirement:

  1. Pursuant to a Small Business Administration (SBA) Interim Final Rule (IFR) issued on April 15, 2020 (85 Fed. Reg. 20811), the general allowable uses of loan proceeds restrict non-payroll expenses such as rent or mortgage payments to 25 percent of the overall PPP loan.
  2. The PPP Flexibility Act attempts to modify this requirement to provide greater flexibility at a new ratio of 40 percent on non-payroll expenses and 60 percent on payroll costs. However, the PPP Flexibility Act only modified the forgiveness provisions of the original CARES Act, not the general allowable uses of loan proceeds in the SBA IFR.
  3. The drafting of this provision may prove to be problematic for businesses seeking relief under the PPP.

The CARES Act created the PPP in two separate sections. Section 1102 delineates the parameters of the PPP loan program, including the allowable uses of loan proceeds, which include payroll, rent, utilities and interest on certain debt. Section 1106 established the parameters for loan forgiveness. Neither section requires that a certain percentage of loan proceeds be used for payroll.

The April 15, 2020 SBA IFR states that “at least 75 percent of the PPP loan proceeds shall be used for payroll costs.” Under the IFR, if a small business receives a $100,000 loan, but is only able to spend $60,000 on payroll, the small business appears to be required to return $20,000 to the lender because they cannot use the entire $100,000 for other allowable uses. The current IFR would not allow the small business to use more than $20,000 on other allowable loan uses, resulting in a loan of only $80,000.

The PPP Flexibility Act would amend Section 1106 of the CARES Act relating to loan forgiveness to provide that in order to receive loan forgiveness, 60 percent of the loan proceeds must be spent on payroll. The measure does not amend Section 1102 of the Act relating to the allowable uses of loan proceeds and thus does not alter the SBA’s regulatory requirement that 75 percent of the loan proceeds must be used for payroll.

If the Act remains in its current form and the IFR is not modified, PPP loan recipients will still be required to return loan proceeds to their lenders if they cannot use 75 percent of the proceeds on payroll. While the PPP Flexibility Act would ensure that a small business receiving a $100,000 loan would be able to receive forgiveness for a total of $80,000, it would not alleviate the need for the small business to return $20,000 of the original $100,000 loan if it can only use $60,000 for payroll to meet the IFR requirements for allowable uses.

Added Flexibility for Rehiring Workers:

Current guidance indicates that a PPP borrower’s loan forgiveness amount will be reduced if the average number of full-time equivalents (FTEs) during the related eight-week period is less than the average number of FTEs during the reference period chosen by the PPP borrower.

The PPP Flexibility Act stipulates that the forgiveness amount will not be reduced due to a reduced FTE count if the borrower can prove that they unsuccessfully attempted to rehire employees and hire “similarly qualified employees” prior to December 31, 2020. The measure also provides that forgiveness will not be reduced due to a reduced FTE count if the borrower can demonstrate that they were unable to return to the “same level of business activity” as prior to February 15, 2020 due to safety requirements.

The PPP currently includes a safe harbor for restoring average FTE and salaries/wages prior to June 30, 2020.

The PPP Flexibility Act extends this safe harbor deadline to December 31, 2020.

Extension of Loan Deferral Period:

At present, the PPP allows for a deferral of payments for a period of six months.

The PPP Flexibility Act would extend the PPP loan deferral period to the date on which the amount of loan forgiveness is remitted to the lender. If a borrower does not apply for forgiveness within ten months, they must begin to make payments.

Expanded Eligibility for Payroll Tax Deferral:

The CARES Act prohibited borrowers from taking advantage of the payroll tax deferral after a PPP loan was partially or completely forgiven.

The PPP Flexibility Act would remove this ban and allow all borrowers to be eligible for the CARES Act’s payroll tax deferral.

Timelines: The legislation pushes the PPP program’s expiration from Jun. 30. to Dec. 31.

What’s on the Horizon for the PPP?

Prior to Senate passage of H.R. 7010, Sens. Ron Johnson (R-WI) and Mike Lee (R-UT) — who had expressed concerns and opposition to the House-passed bill — secured a letter from key Small Business Committee members in both chambers clarifying that the intent of the legislation is not to reauthorize the program through the end of the year without additional reforms.

Small Business Committee Chairman Marco Rubio (R-FL) and Sen. Susan Collins (R-ME) have also indicated they are working on a technical change to the legislation that would ensure business can have their loans forgiven in some form regardless of whether they reach the 60 percent threshold. Additionally, there has been a bipartisan push in Congress to expand PPP eligibility to 501(c)6 organizations and other currently ineligible nonprofits in the next round of COVID-19 relief legislation.


New FAR Rule: Partial Set-Asides and Reserves, Small Business Set-Asides Under Multiple-Award Contracts

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DoD, GSA, and NASA have issued a final rule amending the Federal Acquisition Regulation (FAR) to implement regulatory changes made by the Small Business Administration, which provide Governmentwide policy for partial set-asides and reserves, and for set-asides of orders for small business concerns under multiple-award contracts. The rule went into effect March 30, 2020.

As part of the implementation of reserves of multiple-award contracts, the proposed rule removed the term “reserve” in the FAR where it is not related to reserves of multiple-award contracts.

This final rule makes the following significant changes from the proposed rule:

  • Removal of the term “HUBZone order.” This term has been removed throughout the final rule.
  • Requirement to assign a North American Industry Classification System (NAICS) code. The final rule clarifies that NAICS code(s) must be assigned to all solicitations, contracts, and task and delivery orders, and that the NAICS code assigned to a task or delivery order must be a NAICS code assigned to the multiple-award contract. This clarification appears at FAR 19.102, with cross references in 8.404, 8.405-5, and 16.505.
  • Requirement to assign more than one NAICS code and associated size standard for multiple-award contracts where a single NAICS code does not describe the principal purpose of both the contract and all orders to be issued under the contract. In the proposed rule, the date for implementation of this particular requirement was listed as January 31, 2017. For the final rule, this date has been extended to October 1, 2022. This is when Governmentwide systems are expected to accommodate the requirement. This date also allows time for Federal agencies to budget and plan for internal system updates across their multiple contracting systems to accommodate the requirement. Use of this date in the final rule means that the assignment of more than one NAICS code for multiple-award contracts is authorized only for solicitations issued after October 1, 2022. Before this date, agencies may continue awarding multiple-award contracts using any existing authorities, including any addressed in this rule, but shall continue to report one NAICS code and size standard which best describes the principal purpose of the supplies or services being acquired.
  • Rerepresentation of size status for multiple-award contracts with more than one NAICS code. FAR 19.301-2 is revised to clarify that, for multiple-award contracts with more than one NAICS code assigned, a contractor must rerepresent its size status for each of those NAICS codes. A new Alternate I is added for the clause at 52.219-28 to allow rerepresentations for multiple NAICS codes, and a prescription is added at 19.309(c). Alternate I will be included in solicitations that will result in multiple-award contracts with more than one NAICS code.
  • Rerepresentation for orders under multiple-award contracts. The clause at 52.219-28 is revised to relocate the paragraph addressing rerepresentation for orders closer to the beginning of the clause and to renumber subsequent paragraphs.
  • Representation of size and socioeconomic status. FAR 19.301-1 is revised to clarify that, for orders under basic ordering agreements and FAR part 13 blanket purchase agreements (BPAs), offerors must be a small business concern identified at 19.000(a)(3) at the time of award of the order, and that a HUBZone small business concern is not required to represent twice for an award under the HUBZone Program. A HUBZone small business concern is required to represent at the time of its initial offer and be a HUBZone small business concern at time of contract award.
  • Applicability of the limitations on subcontracting to orders issued directly to one small business under a reserve. The final rule clarifies that the limitations on subcontracting and the nonmanufacturer rule apply to orders issued directly to one small business concern under a multiple-award contract with reserves. This clarification appears in multiple locations in parts 19 and 52. The final rule also clarifies the limitations on subcontracting compliance period for orders issued directly, under multiple-award contracts with reserves, to small businesses who qualify for any of the socioeconomic programs. These clarifications appear in subparts 19.8, 19.13, 19.14, and 19.15, and in the clauses at 52.219-3, 52.219-14, 52.219-27, 52.219-29, and 52.219-30.
  • Compliance period for the limitations on subcontracting. The final rule revises the proposed text at sections 19.505, 19.809, 19.1308, 19.1407, and 19.1507 to be consistent with the implementing clauses for those sections. The clauses reflect that the contracting officer has discretion on whether the compliance period for a set-aside contract is at the contract level or at the individual order level.
  • Fair opportunity and orders issued directly to one small business under a reserve. The final rule addresses orders issued directly to one small business under a reserve at FAR 16.505.
  • Conditions under which an order may be issued directly to an 8(a) contractor under a reserve. The final rule clarifies in 19.804-6 the conditions under which an order can be issued directly to an 8(a) contractor on a multiple-award contract with a reserve.
  • Set-asides of orders under multiple-award contracts. At FAR 19.507, the prescription for Alternate I of the clause at 52.219-13 is revised to apply to any multiple-award contract under which orders will be set aside, regardless of whether the multiple-award contract contains a reserve.
  • Consistent language for “rule of two” text. FAR 19.502-3, 19.502-4, and 19.503 are revised for consistency with FAR 19.502-2(a), which most closely matches the “rule of two” in the Small Business Act (15 U.S.C. 644(j)(1)).
  • Documentation of compliance with limitations on subcontracting. The requirement for contracting officers to document contractor compliance with the limitations on subcontracting is removed from subparts 19.5, 19.8, 19.13, 19.14, and 19.15. FAR part 4 and subpart 42.15 already prescribe documentation of contractor compliance with various contract terms and conditions, including the limitations on subcontracting. FAR subpart 42.15 is revised to clarify that performance assessments shall include, as applicable, a contractor’s failure to comply with the limitations on subcontracting.
  • Clarification of “domestically produced or manufactured product.” FAR 19.6 is revised to use the phrase “end item produced or manufactured in the United States or its outlying areas” instead of “domestically produced or manufactured product.”
  • Subcontracting plans for multiple-award contracts with more than one NAICS code. FAR subpart 19.7 is revised to provide guidance to contracting officers on how to apply the requirement for small business subcontracting plans to multiple-award contracts assigned multiple NAICS codes. With the requirement to assign multiple NAICS codes, it will be possible for a contractor to be both a small business concern and an other than small business concern for a single contract.
  • HUBZone price evaluation preference and reserves. FAR subpart 19.13 is revised to clarify that the HUBZone price evaluation preference shall not be used for the reserved portion of a solicitation for a multiple-award contract. The price evaluation preference shall be used in the portion of a solicitation for a multiple-award contract that is not reserved. In addition, the clause at 52.219-4 is revised to remove the proposed text that stated the HUBZone price evaluation preference did not apply to solicitations that have a reserve for HUBZone small business concerns, since that is not accurate.
  • Performance by a HUBZone small business concern. FAR 19.1308 is revised to specify performance by a HUBZone small business concern instead of performance in a HUBZone. The related changes that were proposed in the clause at 52.219-4, paragraph (d)(2), are not being adopted as they are no longer accurate.
  • Separate provision for reserves and clause for orders issued directly under a reserve. The final rule provides a new solicitation provision at 52.219-31, Notice of Small Business Reserve, and prescription at 19.507 to address information and requirements that are related to reserves of multiple-award contracts and are appropriate for inclusion only in the solicitation. These requirements and information were proposed as part of the clause at 52.219-XX (now 52.219-32); however, since they only apply prior to contract award, the final rule relocates them to a separate provision. The final rule also revises the clause at 52.219-32 to address only orders issued directly to one small business under a reserve. The title of the clause reflects the revised content.

Click here for a link to the FAR rule, or read more at GSA Interact.


Acquisition Provisions in 2020 NDAA – 852 Special Pathways for Rapid Acquisition of Software Applications and Upgrades

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This provision directs the secretary of defense to streamline and coordinate the requirements, budget, and acquisition process in order to rapidly field software applications and software upgrades to embedded systems in a period of not more than one year from the time that the process is initiated.

It will also require the collection of data through continuous engagement with the users of that software, so as to enable engineering and delivery of additional versions in periods of not more than one year each.

We’ve talked earlier about the government’s commitment to innovation, shown through changes to the SBA’s Small Business Information and Research (SBIR) and Small Business Technology Transfer (STTR) programs.

Then a few years ago, the DoD began to pick up a third method called other transaction agreements (OTAs), which allow for more flexible, commercial–like, and novel business solutions than the Federal Acquisition Regulation. OTAs have been enormously successful in delivering technology fast, with rapid development and so forth, with the Army having spent something like 3-and-a-half billion dollars in FY 2018 under OTAs.

This provision 852 directs the secretary to begin to look at all sorts of ways to accelerate fielding acquisition specifically for software purchases and new software engineering, including embedded systems like weapons and simulators. This does bring up the same problem mentioned in Section 831 and elsewhere, which is the need for cybersecurity and integrity – important any time you’re building new stuff.

Acquisition innovation is likely to be a hot topic for the next several years, as DOD and the whole Government grapples with the effects of the rules and regulations that have burdened procurement processes and made the cost of responses perilously high. This will be a continuing part of the conversation throughout the GovCon community.

Watch this space for more on this topic.


NDAA FY 2020 Section 806 – Fixed-Price Contracting

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Section 806 of the FY2020 NDAA directs the Under Secretary of Defense for Acquisition and Sustainment to review how the  Department of Defense uses fixed-price contracts.

This is a topic that comes up periodically. To the uninitiated, it would seem that a fixed-price contract will result in larger profits, but that is not always the case.

We first have to understand that while it seems that fixed-price contracts have the potential for higher profits, they also have the potential for substantial losses. Assuming that there are no changes made, you will be obligated to deliver some set of things or services or things with services, at a fixed price, and it just isn’t necessarily clear when you go into this arrangement that the arrangement will be profitable.

It is true that you’ve priced it as a contractor to be profitable, however, circumstances change and the project can be different than you anticipated. Yet you’re still obligated to deliver that same set of things or services or things with services, for that same fixed price.

For example, let’s say I’m obligated to deliver 100 people throughout the country at various locations to do some clerical work. I’m required for those workers to have a certain level of skills, and a certain type of clearance. Well, I actually might deliver fewer people for a short period of time, because some people are in transit, or some have quit and not yet been replaced, but I’m still getting paid as if all 100 workers are still in place.

That’s good for me because I’ve getting paid a fixed price for 100 people and there’s only 95 on the job. Of course this is assuming that the number of people I’m not delivering doesn’t upset the client or cause me to miss deadlines or create problems that threaten my contract.

On the risk side, let’s say we’re in a very low unemployment rate, with correspondingly upward pressure on wages and skillsets. While I’ve told my client I’d deliver those 100 people for $65,000 each, now I’ve got to pay my employees $70,000 in order to get the required level of skill and so forth. Then my current people see what the new people are making and they want more money as well. Wages are up, which is good for people in general, but as a contractor I have to pay more and can’t charge the client more because we have a fixed-price contract.

So the reason fixed-price contracts are often won with a lesser value is because the risk is higher and therefore the margin that I pitch is higher. Often we build in contingencies as well, which might mean I think I can hire at $60,000, so I pitch at $65,000. But I could still end up having have to hire some at $68,000 or $70,000 so now I’m starting to lose money on those people.

This provision brings us into the study phase. The 2020 NDAA directs the Defense Department to look at the circumstances in which fixed-price contracts are used and awarded, and the experience from the government’s perspective.

Understand that the legislators are including many different forms of contracting that include the words fixed price that aren’t necessarily completely fixed, which has muddied the waters a little bit. They’ve included cost plus fixed fee, another form of fixed-priced contracting, and fixed labor rates. This will all come out in the wash.

They set a pretty aggressive deadline of February 2020 for the Under Secretary to brief the congressional defense committees on the findings of the review. If you have any comments once the NDAA is approved, let us know and we should be able to put our oar in the water through the Mid-Tier Advocacy group.


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