Small Business Jobs Act of 2010 – Defining Reduced and Late Payments

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Effective January 19, 2017, DoD, GSA, and NASA issued a final rule amending the Federal Acquisition Regulation (FAR) to implement a section of the Small Business Jobs Act of 2010. According to the Federal Register, “this statute requires contractors to notify the contracting officer, in writing, if the contractor pays a reduced price to a small business subcontractor or if the contractor’s payment to a small business subcontractor is more than 90 days past due.”

The new FAR clause 52.242-5 defines a reduced payment as a payment that is for less than the amount agreed upon in a subcontract in accordance with its terms and conditions, for supplies and services for which the Government has paid the prime contractor.

An untimely payment is defined as one that is more than 90 days past due under the terms and conditions of a subcontract, for supplies and services for which the Government has paid the prime contractor.

As I discussed in a previous post, these incidents then get reported into a system called FAPIIS, and a history of delayed payments in FAPIIS will affect a prime’s CPARS rating (Contractor Performance Assessment Reporting System), which could affect eligibility for future contracts.

These new clearer definitions give this ruling some teeth. Since it’s possible to get dinged in a permanent accountable way that will be noticeable to prospective customers, it’s advantageous for primes to pay on time.


2017 NDAA Changes to Mid-Tier Small Business Contracting

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As I wrote earlier on this blog, “Business growth is something that should be celebrated, yet if you’re a small business whose customer is the federal government, your growth can have a noticeable downside.” Namely, being too big to qualify for small business set-asides.

If your business falls into the mid-tier category of being too big to be eligible for set-asides but too small to compete with industry giants, here are the most important changes from the 2017 NDAA (click the links to learn more about each item):

  • Gives certain small subcontractors a new tool to request past performance ratings from the government. If the pilot program works as intended, it may ultimately improve those subcontractors’ competitiveness for prime contract bids, for which a documented history of past performance is often critical (learn more).
  • Will require the GAO to issue a report about the number and types of contracts the Department of Defense awarded to minority-owned and women-owned businesses during fiscal years 2010 to 2015. The GAO will be required to submit its report within one year of the statute’s enactment (learn more).
  • Designed to help ensure that large prime contractors comply with the Small Business Act’s “good faith” requirement to meet their small business subcontracting goals (learn more).
  • Establishes a new prototyping pilot program for small businesses and nontraditional defense contractors to develop new and innovative technologies (learn more).
  • Will extend the life of the Small Business Innovation Research and Small Business Technology Transfer programs (learn more).

We’ll keep digging into these topics and what they mean for your federal contracting success. Stay tuned!


Federal Contractors Can Now Protest Civilian Task Orders Over $10 Million

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We’ve talked before about protests, and when and how to do them, risk factors and warnings, etc., as well as some of the issues and processes. The perception is that there are a lot of protests, and that if YOUR contract award is protested, that’s clearly one too many…

One area that has expanded lately is the use of Multiple-Award (MA) IDIQ contracts, and the task orders underneath them have often been quite large. Originally, you could only protest contracts, but the task orders were immune to protests. Then, the GAO Civilian Task and Delivery Order Protest Authority Act of 2016 (H.R. 5995) became law on December 14, 2016.

Now, a contractor can protest “the issuance or proposed issuance of a civilian federal agency’s task or delivery order contract,” if the value of that order exceeds $10 million.

According to GAO statistics, for FY 2012 there were 2,475 protests filed with the GAO (U.S. General Accountability Office). In 2016 that rose to 2,789, so up a little bit more than 10% over four years. In 2012, protests were sustained, that is to say the protest was accepted, about 18% of the time. In 2016, that was up to 22.5%.

The three most common reasons to protest an order are:

  1. Brand name solicitation – The order references a brand name instead of the generic equivalent (e.g., Pepsi instead of cola).
  2. Out of scope modification – The agency adds work or changes a particular solicitation in a way that is out of the scope of that function. If the winning contractor got more work out of the original task order, the losing contractors were essentially shut out of bidding for those additional tasks.
  3. New information – The third most common reason to protest is new information that leads you to believe that the evaluation was unfair and that the losing contractor was “done wrong” by the government agency for not choosing them.

That third point is a big part of what protests normally come down to, i.e., “I don’t think you evaluated me (and/or the winner) fairly.” That may refer to evaluating price, technical proposal, or past performance.

Two other elements of protests are size standards, i.e., “I think these guys are too big for that NAICS code, even though they won the job,” and OCI (organizational conflict of interest), i.e., “I think the other company won because they were too close to the customer and learned secret information that helped them win.”

Without getting into the weeds, protesting when the evaluation is truly egregious is definitely a risk-reward kind of calculation, as the risks and legal costs can be quite high.


Employee Count NAICS Code Changes from SBA

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This is a guest post from Deltek’s GovWin IQ.

Deltek recently published an in-depth GovWin IQ analysis of the 2017 updates to NAICS code employee count size standards. SBA uses these standards to determine whether a business qualifies as a small business and is eligible for its set aside programs.

Here is a summary of those changes, reprinted with permission from the GovWin IQ report:

1. SBA increases small business size standards for NAICS Sector 31-33, Manufacturing

The SBA has issued a final rule to do the following:

  • Increase small business size standards for 209industries in NAICS Sector 31-33, Manufacturing.
  • Modify the size standard for NAICS 324110, Petroleum Refiners, by
    • increasing the refining capacity component of the size standard to 200,000 barrels per calendar day for businesses that are primarily engaged in petroleum refining; and by eliminating the requirement that 90percent of the output to be delivered be refined by the successful bidder from either crude oil or bona fide feed stocks.
  • Update footnote 5 to NAICS 326211 to reflect current Census Product Classification Codes 3262111 and 3262113.

SBA estimates that about 1,250 additional firms will become small because of revised size standards for the 209 industries in NAICS Sector 31-33.

2. SBA increases employee based size standards for industries in NAICS Sector 42, Wholesale Trade, and NAICS Sector 44 45, Retail Trade

The SBA has issued a final rule that:

  • Increases employee based size standards for 46 industries in North American Industry Classification System (NAICS) Sector 42, Wholesale Trade; Increases the employee-based size standard for one industry in NAICS Sector 44-45, Retail Trade; Retains the current size standards in the remaining industries in those sectors; Retains the current 500-employee size standard for Federal procurement of supplies under the non-manufacturer rule (13 CFR 121.406).

SBA reviewed all 71 industries in NAICS Sector 42 and two industries in NAICS Sector 44-45 that have employee-based size standards as part of its ongoing comprehensive size standards review as required by the Small Business Jobs Act of 2010.

Nearly 4,000 more firms in Sectors 42 and 44-45 will become small and therefore eligible for financial assistance under the revised employee based size standards. These revisions do not affect federal procurement programs. Newly eligible small businesses will generally benefit from a variety of Federal regulatory and other programs that use SBA’s size standards. Such benefits may include, but are not limited to, reduced fees, less paperwork, or exemption from compliance or other regulatory requirements.

3. SBA updates employee-based small business size standards for industries that are not part of Manufacturing (NAICS Sector 31-33), Wholesale Trade (NAICS Sector 42), or Retail Trade (NAICS Sector 44-45)

The SBA has issued a final rule to modify employee-based small business size standards for 36 industries and “exceptions” in SBA’s table of size standards that are not part of NAICS Sector 31-33 (Manufacturing), Sector 42 (Wholesale Trade), or Sectors 44-45 (Retail Trade). Specifically, the rule

  • Increases 30 size standards for industries and three “exceptions.”
  • Decreases size standards from 500 employees to 250 employees for three industries, namely NAICS 212113 (Anthracite Mining); NAICS 212222 (Silver Ore Mining), and NAICS 212291 (Uranium-Radium-Vanadium Ore Mining).
  • Maintains the Information Technology Value Added Resellers (ITVAR) “exception” under NAICS 541519 (Other Computer Related Services) as follows:
    • It retains the 150-employee size standard; and it amends footnote 18 to SBA’s table of size standards by adding the requirement that the supply component of small business set-aside ITVAR contracts (e., computer hardware and software) must comply with the nonmanufacturing performance requirements or nonmanufacturer rule.
    • Eliminates the Offshore Marine Air Transportation Services “exception” under NAICS 481211 (Nonscheduled Chartered Passenger Air Transportation), and NAICS 481212 (Nonscheduled Chartered Freight Air Transportation).
  • Eliminates the Offshore Marine Services “exception” for industries in NAICS Subsector 483 (Water Transportation), and their $30.5 million receipts-based size standards.
  • Removes footnote 15 (the “exception” to Subsector 483) from the table of size standards.

SBA estimates that about 375 additional firms may become small because of increased size standards for the 30 industries and three “exceptions” covered by this rule.

The revised size standards were effective as of February 26, 2016.

Source: SBA website; SBA’s final rule RIN3245-AG51 Regulations.gov (effective February 26, 2016)

This is essential information for small businesses looking to do contract work with the federal government. For more up-to-the-minute intelligence about the federal contracting landscape, check out Deltek’s GovWin IQ.


Restrictions for LPTA Procurements in NDAA FY17

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Contractors have complained for awhile about the government’s overuse of lowest-price, technically acceptable (LPTA) contracts. NDAA FY17 severely limits the use of LPTA evaluations in DoD procurements.

To use an LPTA methodology, the following criteria must now be met:

  • DoD is able to comprehensively and clearly describe the minimum requirements expressed in terms of performance objectives, measures, and standards that will be used to determine the acceptability of offers;
  • DoD would receive little or no additional value from a proposal that exceeded the minimum technical or performance requirements set forth in the solicitation;
  • Little or no specialized judgment would be required by the contract selection authority to discern the differences between competitive proposals;
  • The source selection authority is confident the bids from the non-lowest price offeror(s) would not produce benefits of additional significant value or benefit to the Government;
  • The Contracting Officer includes written justification for use of the LPTA scheme in the contract file; and
  • DoD determines that the lowest price reflects full life-cycle costs, including costs for maintenance and support.

The NDAA also cautions against the use of LPTA for these three types of contracts:

  1. Contracts that predominately seek knowledge-based professional services (like information technology services, cybersecurity services, systems engineering and technical assistance services, advanced electronic testing, and audit or audit readiness services);
  2. Contracts seeking personal protective equipment; and
  3. Contracts for knowledge-based training or logistics services in contingency operations or other operations outside the U.S. (including Iraq and Afghanistan).

As a final tool to gauge compliance, Congress mandated that the DoD publish annual reports for the next four years that explain the rationale for all LPTA contracts exceeding $10 million.


New Small Business Prototyping Program in NDAA FY17

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The National Defense Authorization Act (NDAA) for fiscal year 2017 passed Congress and was signed by the President. As I shared in a previous post, there were several items affecting small business owners.

The Act establishes something called the “Nontraditional and Small Contractor Innovation Prototyping Program.” At SmallGovCon, Ian Patterson notes this is good news for small businesses looking to break into Department of Defense contracting.

The program, which is funded with $250 million from the rapid prototyping fund established by last year’s NDAA, is intended to “design, develop, and demonstrate innovative prototype military platforms.”

In addition, Congress authorized $50 million for some specific projects, including:

  • Swarming of multiple unmanned air vehicles
  • Swarming of multiple unmanned underwater vehicles
  • Unmanned, modular fixed-wing aircraft
  • Vertical takeoff and landing tiltrotor aircraft
  • Integration of a directed energy weapon on an air, sea, or ground platform
  • Commercial small synthetic aperture radar (SAR) satellites with on-board machine learning
  • Active protection system to defend against rocket-propelled grenades and anti-tank missiles
  • Defense against hypersonic weapons, including sensors
  • Other weapon systems the Secretary designates

“In addition to sounding like something out of a science fiction movie,” Patterson writes, “these categories provide insight into some of Congress’s (and DoD’s) prototyping priorities–particularly those in which small and nontraditional contractors are expected to be able to play an important role.”

If one of these projects is a fit for your company, take note!

The program is structured to run through September 30, 2026.


NDAA FY17 – What’s Ahead for Small Business

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The National Defense Authorization Act (NDAA) for fiscal year 2017 passed Congress and was signed by the President in December 2016.

The committee report passed both Chambers of Congress, resolving differences with the White House. According to Chairman of the House Small Business Committee Steve Chabot (R-OH), these common-sense contracting and acquisition reforms will open new doors for small businesses in the coming year and set the stage for additional reforms in the new Congress.

Here is a summary of what’s ahead for small business:

Small business goals and transparency

  • Amends the Small Business Act to ensure that the goals established by the Act are measured against the total contract dollars spent that year rather than allowing SBA to exclude up to 20 percent of all spending
  • Ensures that the goals established by the Act are measured against the total contract dollars spent that year rather than allowing SBA to exclude up to 20 percent of all spending
  • Amends the Small Business Act to require the SBA to annually share a list of regulatory changes affecting small business contracting with the entities responsible for training contracting personnel

Duties of the OSDBU and contracting officers

  • Rewords section 15(a) of the Small Business Act as plain English so that small businesses and contracting agencies will better understand the current requirements of the law
  • Amends section of the Small Business Act to remedy an internal SBA decision that prevents SBA’s procurement center representatives from reviewing consolidated contracts if the contract was set aside or partially set aside for small businesses, even if the acquisition strategy harmed the ability of small businesses to compete for contracts
    • Allows procurement center representatives (PCRs) to review those contracts, which should improve opportunities for small firms
    • This provision was amended to include contracts awarded and performed overseas as being exempt from small business goaling (this amendment covered a tiny fraction of contracts that weren’t otherwise already exempt)
  • Allows the Offices of Small and Disadvantaged Business Utilization (OSDBU) to review agency purchases made using government credit cards to ensure compliance with the Small Business Act
    • Last year that in one agency over $6 billion in such purchases were made without regard to statutory requirements
  • Increased micro-purchase threshold
    • The micro-purchase threshold will be $5,000, which is a $1,500 increase over all civilian agency thresholds
    • This allows agencies to purchase small ticket items without having to go to the time, trouble and expense of competitively bidding each purchase

Subcontracting

  • Ensures that subcontracting goals are accurately reported and implement GAO recommendations on how goals are set

Mentor-Protégé

  • Adds a new paragraph to the Small Business Act creating a pilot program that allows small businesses to apply for past performance credit for work performed as a first-tier subcontractor
  • Amends section 831 of National Defense Authorization Act for Fiscal Year 1991 to allow the Department of Defense to rely upon SBA’s Office of Hearings and Appeals to make size determinations

Small Business Innovation Research (SBIR)/Small Business Technology Transfer (STTR)

  • Institutes a 5-year SBIR/STTR reauthorization, instead of a yearly reauthorization
    • The extension of these programs to 2022 will prevent these popular programs from expiring

SDVOSB definitions unified

  • Unifies the definitions and regulations applicable to the government-wide and Department of Veterans Affairs-specific contracting programs for veterans and service-disabled veterans and moves appeals from the VA’s program to the Office of Hearings and Appeals at the SBA

Cybersecurity for small businesses

  • The conference report also includes a bill to provide cybersecurity resources to small businesses through Small Business Development Centers
    • This bill gives small businesses access to tools, resources, and expertise to help protect their sensitive electronic data from cyber threats
    • The bill calls for SBA and DHS to work with Small Business Development Centers to provide assistance to small businesses

New small business prototyping program

Restrictions for LPTA procurements

Stay tuned for further discussion!


Thoughts on the Incoming Administration

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As I write this post, we have a new administration that will be sworn in shortly. As you read this post, this has already happened. There is a lot more to come in terms of making sure all the cabinet positions get appointed and that people fill the government activities all the way down the line. This is obviously a big deal, since they have 4,000 positions to fill, and got 86,000 online applications and 4,000 referrals.

So in the meantime, I thought I would offer a few words for all of us to think about what we’re doing here. This new administration has established some specific priorities, and we can expect there will be as slight shift in priority from the civil sector over to homeland security and defense.

There may be some serious chaos as they get themselves sorted, get people in place, and get everything built. As with any major change, it’s bound to be unsettling and difficult. Probably the worst effect will be that the usual slippage in awards and RFP release that we ordinarily see in the federal procurement process will be exacerbated by the actual transition.

I’m convinced that overall this change can be very good for all of us in federal contracting. Although defense contractors and homeland security may do slightly better in the long run, there’s going to be a lot of activity across the board, and an uptick in that attention.

Interestingly enough, I had certainly hoped that the latest NDAA had done away with LPTA pricing (watch for future posts about what NDAA 2017 means for small business), but recent presidential direct intervention in cost overrun decisions on weapons systems tells me that we may see some LPTA activity erupt as everybody sorts out what this administration is looking for.

Hang in there, this is a natural course of events. There’s nothing unusual or worse about this group of folks from the last group of folks. And we’ll be doing this together. And I will keep blogging and tell you everything I can about what I know. And hopefully we’ll all prosper together.


Sole Source Contracts for Women-Owned Small Businesses

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As GSA Interact reported on their blog, several new FAR rules will impact small business.

According to the Federal Register, “DoD, GSA, and NASA have adopted as final, with a minor edit, an interim rule amending the Federal Acquisition Regulation (FAR) to implement regulatory changes made by the Small Business Administration (SBA) that provide for authority to award sole source contracts to economically disadvantaged women-owned small business concerns and to women-owned small business concerns eligible under the Women-Owned Small Business (WOSB) Program.”

The Federal Register also notes that the rule puts the WOSB Program “on a level playing field with other SBA Government contracting programs with sole source authority and provided an additional, needed tool for agencies to meet the statutorily mandated goal of 5 percent of the total value of all prime contract and subcontract awards for WOSBs.” 

Of all the SBA contracting programs, the 8(a) set-aside rules were always the best for sole sourcing. Fundamentally, if a KO (contracting officer) was willing (at the program office’s behest) to accept/write a Justification and Approval (J&A), the sole source went through. As well, many times this same authority was extended to 8(a) companies on multiple-award vehicles, so that the covered programs could use the vehicle to do sole sourcing as well.

This new regulation and FAR/DFAR change creates a similar dynamic for EDWOSBs – which is huge, because there are many EDWOSB companies ready for this, and because the 8(a) sole sourcing has come under pressure, particularly after some of the issues that arose in large sole sourcing for Alaskan Native Companies (ANCs) and some less than ethical/legal behavior by companies trying to take advantage of the program. In fact, the 8(a) program seems to have largely been replaced with “small disadvantaged” status, much to the chagrin of many of my friends who have 8(a) status.

This is definitely a major change, considering the 328 EDWOSBs and 974 WOSBs who could have received sole source awards between April 1, 2011 (the implementation date of the WOSB Program) and September 1, 2015.


Consolidation and Bundling

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When federal agencies bundle or consolidate requirements, it can exclude small businesses from qualifying for the work. A new FAR rule effective October 31, 2016  (one of many that will impact small businesses) will address this.

According to the Federal Register, consolidation or consolidated requirement means “a solicitation for a single contract, a multiple-award contract, a task order, or a delivery order to satisfy:

i. Two or more requirements of the Federal agency for supplies or services that have been provided to or performed for the Federal agency under two or more separate contracts, each of which was lower in cost than the total cost of the contract for which offers are solicited; or
ii. Requirements of the Federal agency for construction projects to be performed at two or more discrete sites.

Bundling, they explain, is “a subset of consolidation that combines two or more requirements for supplies or services, previously provided or performed under separate smaller contracts, into a solicitation for a single contract, a multiple-award contract, or a task or delivery order that is likely to be unsuitable for award to a small business concern (even if it is suitable for award to a small business with a Small Business Teaming Arrangement) due to:

i. The diversity, size, or specialized nature of the elements of the performance specified;
ii. The aggregate dollar value of the anticipated award;
iii. The geographical dispersion of the contract performance sites; or
iv. Any combination of the factors described in paragraphs (i), (ii), and (iii) of this definition.

The summary notes that, “There are currently approximately 307,846 small business registrants that can potentially benefit from the implementation of this rule. This rule does not impose any new reporting, recordkeeping or other compliance requirements.”

OK, that’s a lot of technical and legal mumbo-jumbo. The essence here is a few different things. First, in their definition of small business teaming arrangements, this provision recognizes the Mentor-Protégé JV, Contractor Teaming Arrangements (CTAs), and normal JV provisions for use in a contract bundling provision. This is important because often JVs and CTAs are considered “higher risk” in large contract actions, and this provision both defines the various potential arrangements and encourages them.

And secondly, this provides more detail and restrictions to the contract bundling and consolidation routine that so many agencies go through, and which serve as an anti-small business process because of the size of the resulting requirement. This provision explicitly recognizes the small business team types as being valid and therefore limits some of the anti-small business prejudice that becomes prevalent.

As small businesses, we’d like as little consolidation and bundling as we can get. Since this rule better defines how the government can do this, and limits who can do it and how, there will be less of it, and that’s a good thing.


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