As readers of this blog may know, we at SmallGovCon have been contributing to and reading Bill’s blog for a number of years. We wanted to inform you of some changes at our firm and our blog. Steven Koprince, the founder of Koprince Law LLC and SmallGovCon, has recently decided to move on from actively practicing law and he’ll also be stepping down as editor of our blog. For more information about the exciting things Steve has cooked up for his future plans (which will include working in the federal contracting sphere and slowing down a little), please read his post. We’ll definitely miss him, but he’ll continue to provide insight and guidance for the firm and SmallGovCon.
Rest assured, we will continue to be contributing important posts to Federalsmallbizsavvy.com on into the future. At SmallGovCon, we’ll continue to provide timely legal updates, easy-to-understand explanations, and lively commentary on the federal contracting realm. So, who’ll be taking over Steve’s duties as blog editor? Why, that would be me, Shane McCall. I’ve been practicing law since 2010, and I’ve really enjoyed the chance to flex my non-legal writing muscles some at SmallGovCon since joining Koprince Law. I’m looking forward to taking over the blog editing reins from Steve over the next month.
The other attorney-authors and I at SmallGovCon will continue to provide the latest and greatest in useful, easy-to-follow government contracting updates, with an emphasis on items important for small business contractors.
With that in mind, here are some things that we’ve commented on, but we’ll be watching closely and writing about more at SmallGovCon in 2019. Stay on the lookout for updates and commentary on these matters and many others.
- Small Business Runway Extension Act. Will Congress listen to the drumbeat of displeasure and amend the Act to remove the negative impact on those businesses that have had declining revenues by allowing businesses and SBA to run the numbers under both three-year and five-year look-back periods? Will the SBA listen to Congress and enforce the five-year lookback period for size-based receipts standards?
- Section 809 Panel’s Recommendations. We’ve written a lot and grumbled some about the Section 809 Panel’s advice, which, among many other things, ranges from eliminating most small business set-asides for DoD acquisitions to changing the “once 8(a), always 8(a)” rule. We also know that the Section 809’s panels advice has worked on some issues (read my update on changes to $1 coin regulations to maintain currency with the rules in this area). But it’s unclear how much sway the Panel will have over more substantial DOD procurement matters.
- Limitations on Subcontracting Updates. The limitations on subcontracting will undergo some major revisions in 2019, including a newly-effective DoD class deviation and the FAR Council’s long-awaited proposal for a comprehensive overhaul. These changes will clear up some of the confusion resulting from having different sets of rules for limitations on subcontracting found in the FAR and in the Small Business Administration’s regulations. But surely questions will remain.
We’ve enjoyed appearing as guest authors on Bill’s blog, and we’re glad to continue to do so. Please head over to SmallGovCon for updates on these hot-button issue for 2019, as well as many other topics.
Shane McCall is an attorney at Koprince Law LLC. He assists small businesses in navigating the federal government contracting world by advising on FAR and SBA issues. He regularly litigates bid protests, as well as size and status protests before the SBA. He assists with contract administration issues, including claims. Shane also drafts agreements including joint ventures, and subcontracts. Shane’s writing can be found at SmallGovCon, and he’s appeared in Contract Management magazine.
In late 2017, we wrote that the VA was considering using tiered evaluations to simultaneously 1) comply with the VA’s statutory Rule of Two (and Kingdomware), and 2) address situations in which SDVOSBs and VOSBs might not offer “fair and reasonable” pricing.
Since then, the VA has instituted the tiered evaluation process for certain solicitations, using one of three approaches:
- Tiered Evaluation for SDVOSBs and VOSBs only: Offers made by SDVOSBs are first evaluated. If no SDVOSB submits an offer, or none would result in a award at a fair and reasonable price, then the VA evaluates offers made by VOSBs. If none are submitted, or none would result in a fair and reasonable price, the solicitation is cancelled and resolicited.
- Tiered Evaluation for SDVOSBs, VOSBs, and small business concerns: This approach first evaluates SDVOSB and VOSB offers as described above. But if no SDVOSB or VOSB submits an offer (on none are submitted at a fair and reasonable price), then the VA evaluates proposals from other small businesses, with 8(a) participants and then HUBZone small business concerns being given priority over other small business concerns as required by 38 U.S.C. 8127(i). If none are submitted by these types of entities, then the solicitation is cancelled and then resolicited as an unrestricted procurement.
- Tiered Evaluation for SDVOSBs, VOSBs, small business concerns, and large business concerns: This approach first evaluates SDVOSBs, VOSBs, and small businesses as described above. But if no SDVOSB, VOSB, or small business submits an offer (or none would result in a fair and reasonable price), then the VA evaluates offers from large business concerns. If none are submitted, then solicitation is cancelled and additional market research is conducted to inform a follow-on acquisition strategy.
The VA justifies these tiered evaluation approaches because they may prevent procurement delays. For example, if VA uses a tiered evaluation approach that includes SDVOSBs, VOSBs, small business concerns, and large business concerns, the VA doesn’t have to reissue another solicitation if no SDVOSB or VOSB submits a reasonable offer.
Of course, the practice remains controversial because the tiered evaluation approach isn’t a true set-aside for SDVOSBs. Some argue, for example, that the VA could simply rule out SDVOSB or VOSB offers as not fair and reasonable based on more advantageous pricing offered by non-SBVOSB/VOSB small business concerns (or perhaps even large business concerns) for the same solicitation.
In addition, whether the tiered approach complies with the Supreme Court’s decision in Kingdomware has been an open question–until now. Indeed, a recent case from the Court of Federal Claims supports VA’s use of a tiered evaluation scheme for procurements.
In Land Shark Shredding, No. 18-1568C (Fed. Cl. Mar. 21, 2019), the VA issued a solicitation for a firm, fixed-price FSS contract for on-site document shredding and pill bottle destruction for VA facilities in Florida. The solicitation noted that it was “a Service Disabled Veteran Owned Small Businesses (SDVOSB) set-aside with Small Business Set-aside using a tiered or cascading order of preference.” The tiers of preference were as follows: SDVOSBs, then VOSBs, then all other small businesses, then all other businesses. (In essence, it followed the third approach described above.)
Three offerors submitted proposals: Land Shark (an SDVOSB), a non-SDVOSB small business, and a large business. The SDVOSB’s price was $2.8 million, while the small business’s price was $474,000 (the large business’s price was somewhere in between the two). The small business’s price was closest to the VA’s independent government cost estimate of $490,000. Ultimately, the small business was awarded the contract.
In its protest, Land Shark raised several arguments. Here we’ll focus solely on protester’s two arguments relating to the VA’s tiered evaluation scheme.
First, Land Shark argued that the VA erred by comparing its price to other non-SDVOSB offerors. In Land Shark’s view, this process violated the holding in Kingdomware. In response, the VA argued that because the comparison of quotes was a methodology established by the solicitation, Land Shark should have raised the issue in a pre-award protest.
The Court did not decide whether the protest was untimely, but went right to the merits. In doing so, the Court found that the Kingdomware doesn’t address price comparisons or instruct the VA how it should determine that an SDVOSBs price is fair and reasonable. Specifically, the Court held:
The court agrees with the government that plaintiff has not cited any authority which supports its position. Kingdomware does not address price comparisons, in general, or the specific question of how the VA should determine that a SDVOSB’s prices are fair and reasonable. The Federal Acquisition Regulation (FAR) provision cited by plaintiff is a policy statement that does not regulate procedures for the price evaluation of proposals in procurements such as this one. In sum, plaintiff objects to the price comparison conducted by the VA here because it does not do enough, in plaintiff’s view, to secure government contracts for SDVOSBs. That is a policy argument, unmoored from statute or regulation. Without more, that policy argument is an insufficient ground for this court to invalidate a procurement decision of a federal agency.
Second, Land Shark attacked the use of tiered evaluation process head on. In part, it argued that the process violated the Rule of Two and Kingdomware.
But again, the Court was unconvinced and found that the VA did not violate the Rule of Two:
The VA in this procurement conducted a Rule of Two analysis, as required by Kingdomware, but the VA did not find that this procurement could be entirely set aside for veteran-owned businesses. . . . As defendant notes, the solicitation clearly indicated that, in addition to veteran-owned small businesses and SDVOSBs, small businesses and large businesses were welcome to apply. . . . The court sees no violation of Kingdomware in the agency’s Rule of Two analysis, its use of a cascading system of preferences placing SDVOSBs in the first tier, or in the selection of [the small business] as contract awardee.
While this decision certainly lends support to the VA’s use of a tiered evaluation procurements, it isn’t a wholesale endorsement. The analysis may have been different if Land Shark had, say, offered a fair and reasonable price (the Court found that its price was not fair and reasonable) or, perhaps, if Land Shark had leveled a better-advocated attack against the practice in the context of a pre-award protest (which would have concentrated purely on the legal validity of the tiered evaluation process without the distracting factual issue of fair and reasonable prices).
That said, the decision overall favors the VA. Another challenge–hopefully one that is better planned and executed–will likely arise later. But for now, the VA is unlikely to change course. So expect to see the VA’s continued use of the tiered evaluation scheme in, at least, the near future. If anything changes, we’ll be sure to let you know.
This post originally appeared at http://smallgovcon.com/service-disabled-veteran-owned-small-businesses/court-of-federal-claims-decision-lends-support-to-vas-sdvosb-tiered-evaluation-scheme/ and was reprinted with permission.
This is a guest post by Steven Koprince of SmallGovCon.
An offeror submitting a proposal under a solicitation designated with the Information Technology Value Added Resellers exception to NAICS code 541519 must qualify as a small business under a 150-employee size standard–even if the offeror is a nonmanufacturer.
In a recent decision, the U.S. Court of Federal Claims held that an ITVAR nonmanufacturer cannot qualify as small based solely on the ordinary 500-employee size standard under the nonmanufacturer rule, but instead must also qualify as small under the much smaller size standard associated with the ITVAR NAICS code exception.
By way of background, NAICS code 541519 (Other Computer Related Services) ordinarily carries an associated $27.5 million size standard. However, the SBA’s regulations and size standards table state that an ITVAR procurement is an exception to the typical size standard.
An ITVAR acquisition is one for a “total solution to information technology” including “multi-vendor hardware and software, along with significant value added services.” When a Contracting Officer classifies a solicitation with the ITVAR exception, a 150-employee size standard applies.
ITVAR acquisitions, like others under NAICS code 541419, were long deemed to be service contracts; the nonmanufacturer rule did not apply. But in a recent change to 13 C.F.R. 121.406, the SBA specified that the nonmanufacturer rule applies to the supply component of an ITVAR contract.
When is a nonmanufacturer small? The SBA’s rules are not entirely clear. 13 C.F.R. 121.402(b)(2) states that a company that “furnishes a product it did not itself manufacture or produce . . . is categorized as a nonmanufacturer and deemed small if it has 500 or fewer employees” and meets the other requirements of the nonmanufacturer rule. But 13 C.F.R. 121.402(a) also states that an offeror “must not exceed the size standard for the NAICS code specified in the solicitation.”
So, for an ITVAR acquisition, which size standard applies to a nonmanufacturer: 150 employees or 500? According to the Court, the answer is “both.”
York Telecom Corporation v. United States, No. 15-489C (2017) involved the solicitation for the NASA Solutions for Enterprise-Wide Procurement V GWAC. The procurement was divided into several groups. The group at issue in this case (Category B, Group C) was a small business group. NASA designated the category with the ITVAR exception to NAICS code 541519.
The solicitation included FAR 52.212-1, which provided, in relevant part:
INSTRUCTIONS TO OFFERORS –
COMMERCIAL ITEMS (52.212-1) (JUL 2013)
(a) North American Industry Classification System (NAICS) code and small business size standard. The NAICS code and small business size standard for this acquisition appear in Block 10 of the solicitation cover sheet (SF 1449). However, the small business size standard for a concern which submits an offer in its own name, but which proposes to furnish an item which it did not itself manufacture, is 500 employees.
York Telecom Company submitted an offer for Category B, Group C. After evaluating proposals, NASA awarded a contract to Yorktel. But NASA developed concerns about Yorktel’s size, and referred the matter to the SBA for a size determination.
In its size determination, the SBA Area Office concluded that the applicable size standard for the procurement was 150 employees. Because the SEWP V solicitation had been issued before the changes to 13 C.F.R. 121.406, the SBA Area Office concluded that the nonmanufacturer rule did not apply. The Area Office issued a decision finding Yorktel to be ineligible under the solicitation’s 150-employee size standard. The SBA Office of Hearings and Appeals upheld the SBA Area Office’s decision.
Yorktel took its case to the Court. Yorktel argued that it was a nonmanufacturer, and therefore, its size was governed by a 500-employee size standard–not the ordinary 150-employee ITVAR size standard.
After addressing various procedural issues such as jurisdiction and standing, the Court concluded that Yorktel’s protest was an untimely challenge to the terms of the solicitation. The Court dismissed Yorktel’s protest for this reason.
Interestingly, though, the Court didn’t stop there. It wrote that “even if Yorktel could pursue its challenge of the size standard for the SEWP V Contract in this litigation, this claim is unsupported by the terms of the RFP and the statutory nonmanufacturer rule.”
Discussing FAR 52.212-1(a), the Court wrote:
When read in its entirety, the Court construes the above provision to require that a non-manufacturer first meet the 500 employees or less size standard to compete for the contract and to also impose the more restrictive size standard of 150 employees or less under the NAICS code in order for the non-manufacturer to be eligible for contract award. And so, to the extent that Yorktel qualifies as non-manufacturer under the statutory non-manufacturer rule, the RFP requires that Yorktel meet the more restrictive, 150-employee, size standard to be eligible for contract award.
The Court wrote that its interpretation was buttressed by the Small Business Act, which (in 15 U.S.C. 637(a)(17)), specifies that a nonmanufactuer must “be a small business concern under the numerical size standard . . . assigned to the contract solicitation on which the offer is being made.” The Court concluded that “the statutory non-manufacturer rule, thus, requires that an offeror seeking coverage under the rule satisfy the size standard imposed by the NAICS code for the relevant contract.”
The relationship between the nonmanufacturer rule’s 500-employee standard, on the one hand, and the size standard imposed by a solicitation, on the other, was previously a question merely of academic interest (and then, only to true government contracts law nerds like yours truly.) That’s because almost all of the size standards for manufacturing and supply contracts are 500 employees or greater; it would be no problem for a nonmanufacturer to satisfy the solicitation’s size standard.
In contrast, the ITVAR size standard is much lower than 500 employees. Now that the SBA has amended its regulations to specify that the nonmanufacturer rule applies to the supply component of ITVAR contracts, the Court’s decision in York Telecom Corporation may have major ramifications for other ITVAR nonmanufacturers.
A note from Bill: From our perspective, smaller is always better. We want big revenue numbers and small employee numbers. The important thing is that employee number standards allow you to have subcontractors, those employees don’t count against my employee limit, even though I still have the revenue. That helps us stay smaller, longer, and we like that.
This post originally appeared at http://smallgovcon.com/statutes-and-regulations/itvar-nonmanufacturer-subject-to-150-employee-size-standard-court-says/ and was reprinted with permission.
“The supreme art of war is to subdue the enemy without fighting.” – The Art of War by Sun Tzu
When we talk about the goals of federal business development and capture management at our Bid & Proposal Academy training courses, we pragmatically reduce them to only five:
- Identify opportunities to bid on
- Eliminate competition
- Reduce competition if you can’t eliminate it
- Get the government customer excited about receiving your proposal
- Make it a goal to produce a usable proposal artifact at every step of the capture process, so that writing a winning proposal is a slam dunk.
Goal 2, Eliminate competition, refers to sole source awards. In their simplest form, sole source awards are modifications to add scope to your existing contracts. It works like this: the government has a problem and comes to you. Your technical and BD people meet with the government to discuss the solution and find a contract vehicle to route the work to.
The government issues the modification, and you’ve won new business won without a fight. Both the government and you save a headache and money while getting great value.
The more complex form of sole source awards is getting your firm under a new contract without competing. We‘ll discuss them below, as well as the pending rule changes that are about to make life a bit easier for socioeconomically disadvantaged small businesses.
When can you pursue a sole source award?
We’ve already talked about sole source awards at the end of the federal fiscal year. Sole source awards increase during that time. This allows government entities to make the most of their remaining budgets. This is the simplest and fastest way for the government to navigate through the “use it or lose it” budgetary conundrum.
You can also get sole source awards from your current government customers at any time of the year, provided that the conditions are right. Sole source awards have to fall under one of the seven authorities laid out in the Federal Acquisition Regulation (FAR).
- There is only one responsible source and no other supplies or services will satisfy an agency’s requirements.
- Unusual and compelling urgency
- Industrial mobilization; engineering, developmental, or research capability; or expert services
- International agreement
- Authorized or required by statute
- National security
- Public interest
Many sole source opportunities are awarded under Authorities 1 and 2.
In Authority 1, your company is the only one who can provide a particular product or service, and full and open competition would just result in the contract being awarded to you anyway.
Authority 2 work results from an emergency situation such as a war effort, or a sudden natural disaster for which there is no multiple award contract vehicle that covers that specific scope of work.
What about 8(a), SDVOSB, HUBZone, and WOSB/EDWOSB sole source awards?
These awards fall under Authority 5 listed above. It states that some contracting awards are only available to small businesses who participate in the Small Business Administration’s contracting assistance programs.
Sole source awards have monetary limits. Currently, the limits for socioeconomically disadvantaged businesses such as 8(a) business are $4 million for services and $6.5 million for manufacturing. The exceptions to that are Alaskan Native Corporations (ANC) and Native American Tribal Entities (“super 8(a)s”). They can receive sole source awards for $22 million, and even higher with justification.
Changes may be coming to special sole source award thresholds in 2019
The House of Representatives recently passed a bill (H.R. 190) referred to as “Expanding Contracting Opportunities for Small Business Act of 2019”. On January 17, 2019, the Senate sent the bill to the Committee on Small Business and Entrepreneurship. The last roll call vote was 415-6 in the House, so there is clear bipartisan support.
The majority of these changes would impact 8(a)s, Service-Disabled Veteran-Owned Small Businesses (SDVOSB), Women-Owned Small Businesses, and HUBZone businesses.
Specifically, H.R. 190 would change the award price calculation requirements. H.R. 190 removes the requirement for option years to be included in the award price. That means contracting officers could price the award at just the base period of the contract.
Let’s do the math. If the initial year of the contract is valued at $4 million for services, but the contract includes four 1-year options also valued at $4 million, the overall value of the awarded contract would be $20 million – much closer to the super-8(a) $22 million threshold.
It used to be that $4 million was the total value of the contract, and now it’s just the projected maximum award price for the initial year. Under the current law, a sole source award of this amount wouldn’t be possible. Let’s see if this is how this law will be implemented.
The bill would also increase the sole source manufacturing threshold from $6.5 million to $7 million for all socioeconomically disadvantaged small business types, along with other changes.
A note about sole source awards
Finally, your customer may not come to you when they have room in their budget and need the work done. It’s up to you to anticipate their needs and act. This is when being in tune with your customer’s requirements comes into play. You may have opportunities to suggest sole source contracts as solutions to your customer’s pressing needs. If you’ve trained your project personnel to report back with any needs your government customer has, you’ll be in a great position to take advantage of small (or not so small) opportunities like these.
If you need to sharpen your business development skills to grow your small federal contracting company, we recommend you attend our Foundations of Federal Business Development course or consider getting the Blueprint for Federal Business Development for self-paced study.
Olessia Smotrova, CF.APMP Fellow, is the president of OST Global Solutions, Inc., a federal business development consulting and training company. She has 21 years of experience in government business development, winning more than $20 billion in funded contracts. She is the author of How to Get Government Contracts: Have a Slice of $1 Trillion Pie. Prior to founding OST, she developed business for Raytheon and Lockheed Martin, and wrote for the Financial Times of London.
This is a guest post by Judy Bradt of Summit Insight.
Judy Bradt has surveyed federal contractors about their top business challenges since 2012. Her company, Summit Insight, provides business training, sales plans and mentorship to grow your federal business.
Early results from her 2019 survey show that the number one challenge to landing millions in federal wins is “getting in front of federal buyers.”
Is that true for you?
Tackle that one problem, and 2019 could be your best federal year ever.
Judy says, “There are five steps you can start taking today to get in front of your federal buyer and build the trust to become their first choice next time they are ready to buy.” Here are those steps:
1. Hot wash
A year-end hot wash is where you look at the process, patterns and outcomes of the year, along with lessons learned. What worked, what didn’t, and what’s promising? This gives you a foundation for what’s next.
Sample areas to check are:
• Data: Plan versus actual
• Marketing: Keep/change/drop
• Intelligence: Where wins came from
• Strategy execution improvement
• Win rate and profit
• How can buyers get to us?
Look back at who is winning the contracts you’ve lost. Doing a competitive analysis lets you create opportunities.
• Research players and layers
• See who they love
• Know how they behave
• Start with who you know
• Solve their problem
• Start small. Be persistent
3. Lower risk
Low risk attracts buyers when you can leverage your past performance. Do this by collecting:
• Business process data: systematic capture
• Summary table
• Key case studies
• Examples for tailored capability statements
4. Make it easy
Make it easy for them, with micro-purchase options, simplified acquisition, and by using their favorite vehicles.
Make is easy for you by using these tips for writing winning proposals:
• Better bid/no bid criteria
• A streamlined proposal process
• Mitigate risk
• Write like a pro
• Prevent fatal errors
5. Launch FY19 NOW
• Clean up your collateral like your core capabilities list and certifications
• Refresh your profiles with the Federal government, including GSAAdvantage, System for Award Management, and Dynamic Small Business Search; on state government vendor sites; small and minority certifications (federal, state, local, and commercial supplier diversity); prime contractor portals; social media (e.g. LinkedIn, Twitter, Facebook); and industry association member profiles
• Purge your pipeline (let go the stuff that you’ve realized are long shots you never had a hope of winning)
• Update and organize your contact lists
• Give gratitude by writing thank you letters to everyone who helped or spent time with you in 2018
For more guidance from Judy on how to make FY19 your best year ever, download her complimentary Federal Q1 Launch Checklist, FYE 2018 Edition at http://growfedbiz.com/Q1 (email subscription required).
Judy Bradt, Summit Insight’s founder, brings you 30 years’ experience working with more than 7,000 clients across diverse industries who credit her expertise in achieving wins worth in total over $300 million dollars. In addition to offering free monthly public webinars on federal contract success and high-value public and private training classes, Judy is the Vice President for Education and Training for the National Veterans Small Business Coalition.
This is a guest post by Matthew Schoonover of SmallGovCon.
As Matthew Schoonover reported in a previous post on this site and at SmallGovCon, the SBA has amended its eligibility rules for SDVOSBs. These rules provide important clarity into SDVOSB eligibility going forward.
He explained how the new rule addresses an ongoing conflict between different standards of control that meant a company could be an SDVOSB under the VA’s regulations, but not the SBA’s.
- The new rule also makes important changes to the ownership requirements for an SDVOSB. Among them:
For partnerships, the new rule says that the service-disabled veteran must unconditionally own at least 51% of the aggregate voting interest (rather than at least 51% of every class of partnership interest);
- The new rule clarifies that the SDVOSB’s service-disabled veteran owners must receive at least 51% of the company’s annual distribution of profits and that the ability to share in profits must be commensurate with the veteran’s ownership interest;
- The new rule doesn’t count stock held by ESOPs in the 51% ownership requirement—but only for a “publicly owned business,” which doesn’t apply to the vast majority of SDVOSBs;
- Community property laws will be disregarded in determining compliance with the 51% ownership requirement, a welcome change for veterans living in certain states, who have long been forced to ask their spouses to sign legal documents disclaiming their community property rights;
- The new rule says that that veterans must be able to overcome any supermajority voting requirements and requires verified SDVOSBs to inform the VA of any new supermajority voting requirements adopted after verification;
- The veteran holding the company’s highest officer position generally must be the highest compensated under the new rule—a requirement that’s existed in the VA regulations for many years, but not the SBA’s old regulations; and
- The new rule essentially adopts the VA’s surviving spouse ownership regulation, which allows the veteran’s spouse to take ownership of the SDVOSB upon the veteran’s passing (if certain requirements are met).
If some of these provisions sound familiar, it’s because many of the “new” SBA rules are similar to, or in some cases essentially identical to, existing VA regulations. For some veterans, who may have hoped that using the SBA’s regulations would eliminate some of the more cumbersome VA requirements, the SBA’s adoption of these requirements may be disappointing.
But all-in-all, these new rules bring important clarity to the SBA’s SDVOSB ownership and control requirements. While we can certainly quibble with some of the substantive requirements, it’s important for everyone to understand exactly what a program like the SDVOSB program allows (and doesn’t allow). The SBA’s SDVOSB regulations have long been rather vague—so vague, in fact, that in some cases the SBA’s own Administrative Judges have resorted to using the 8(a) Program regulations to evaluate certain aspects of SDVOSB compliance. Whether one agrees or disagrees with a particular requirement, it’s better to know that it exists, instead of being caught off guard during a protest, when a contract is at stake.
One thing I didn’t directly see addressed, however, is the SBA’s prohibition on rights of first refusal for the veteran’s ownership interest. It’s possible that the “extraordinary action” of allowing a new equity stakeholder would cover a standard right of first refusal, but it would be best to see how the SBA interprets this rule before jumping to conclusions. As Steve noted in his post earlier this week, SDVOSBs and VOSBs should continue to be leery against including any right of first refusal in their ownership documents.
One final note: as Steve wrote about back in April, SDVOSBs and VOSBs have new protest and appeal rights, which also kick in October 1. Among those rights, if a company’s SDVOSB verification application is denied, or its verified status is cancelled, the company can appeal to the SBA’s Office of Hearings and Appeals.
We’ll keep you posted on the implementation and interpretation of these new regulations. In the interim, please give us a call if you have questions about SDVOSB eligibility.
This article was originally published at http://smallgovcon.com/service-disabled-veteran-owned-small-businesses/new-sba-rule/ and was reprinted with permission.
This is a guest post by Matthew Schoonover of SmallGovCon.
In an earlier post, Steve updated SmallGovCon readers on a very important SDVOSB eligibility change: beginning October 1, the VA will begin using the SBA’s eligibility rules to verify SDVOSBs and VOSBs.
The SBA has now followed suit—in a final rule published September 28, 2018, the SBA has amended its eligibility rules for SDVOSBs. These rules provide important clarity into SDVOSB eligibility going forward.
Let’s take a look at some of the most important changes.
The first change that jumped out at me was the SBA’s new definition of “extraordinary circumstances.” By way of background, SmallGovCon readers know that the VA and the SBA have long had differing standards of control—in some cases, the SBA required that a service-disabled veteran exercise absolute control over the SDVOSB, while the VA recognized that non-veteran owners should have a say over some matters in the business. This conflict meant that a company could be an SDVOSB under the VA’s regulations, but not the SBA’s.
The new SBA rules try to bring consistency to this mess. It should come as no surprise, however, that the new rule specifies that service-disabled veterans must control the company’s “daily business operations,” and defines that term as including, “but not limited to, the marketing, production, sales and administrative functions of the firm, as well as the supervision of the executive team, and the implementation of policies.” But the SBA has included a new provision (at 13 C.F.R. § 125.13(m)) that allows non-service disabled veterans to have a say over certain “extraordinary actions.” The new rules set out five—and only five—of these extraordinary actions:
1. Adding a new equity stakeholder;
2. Dissolution of the company;
3. Sale of the company;
4. The merger of the company; and
5. Company declaring bankruptcy.
Other than in the case of these five actions, the SBA’s rules still require the service-disabled veteran to control the company.
Exercising this control, the new SBA rules require that the service-disabled veteran work at the company during normal business hours. Importantly, however, the SBA has not included a full-time devotion requirement, meaning that, in theory, the veteran can have outside engagements, so long as the veteran is able to control the company’s management and daily business operations. But if the veteran is not able to work at the company during its normal business hours, there is a rebuttable presumption that the veteran is not actually in control.
The SBA would also prefer it if the veteran worked close to the company’s headquarters or jobsites. If the veteran “is not located within a reasonable commute” to the company, there’s a rebuttable presumption that he or she does not control the firm.
Under the new rule, various examples are given of circumstances that may cause the SBA or VA to find that the veteran doesn’t satisfy the unconditional control requirement, including cases where the SDVOSB has business relationships “with non-service-disabled veteran individuals or entities which cause such dependence that the applicant or concern cannot exercise independent business judgment without great economic risk.”
This is a guest post by Steven Koprince of SmallGovCon.
The VA will begin using the SBA’s eligibility rules to verify SDVOSBs and VOSBs beginning October 1, 2018.
In a final rule published today in the Federal Register, the VA confirms that the SBA’s eligibility requirements will apply beginning next week–but in my eyes, one very important question remains unanswered.
As regular SmallGovCon readers know, the differences between the government’s two SDVOSB programs have caused major headaches for veterans. Because the two sets of regulations have different eligibility requirements, a company may be an eligible SDVOSB under one set of rules, but not the other.
In 2016, Congress addressed the problem. As part of the 2017 NDAA, Congress directed the VA to verify SDVOSBs and VOSBs using the SBA’s regulatory definitions regarding small business status, ownership, and control. Congress told the SBA and VA to work together to develop joint regulations governing SDVOSB and VOSB eligibility. The VA published a proposed rule earlier this year to eliminate its separate SDVOSB and VOSB eligibility requirements.
Now the VA has issued a final rule, set to take effect in just one week on October 1. The final rule broadly reiterates that the VA is eliminating its separate SDVOSB and VOSB eligibility requirements because “regulations relating to and clarifying ownership and control are no longer the responsibility of VA.” Instead, in verifying SDVOSBs and VOSBs, the VA will use the SBA’s eligibility rules set forth in 13 C.F.R. part 125.
The VA’s final rule answers a few questions from the public about the change. Among the VA’s answers:
- Despite a common misconception, this final rule does not move the verification process from the VA to the SBA. The final rule states, “[a]lthough the authority to issue regulations setting forth the ownership and control criteria for SDVOSBs and VOSBs now rests with the Administrator of the SBA, the [VA] is still charged with verifying that each applicant complies with those regulatory provisions prior to granting verified status and including the applicant in the VA list of verified firms.”
- The “VA and SBA will treat joint ventures the same way,” applying the SBA’s regulatory criteria. This is important because the VA currently does not treat joint ventures the same way as the SBA. Although the VA largely defers to the SBA’s joint venture rules, the VA has been requiring SDVOSB joint ventures to demonstrate that the SDVOSB managing venturer will receive at least 51% of the joint venture’s profits. This conflicts with the SBA’s current regulation, which allows the SDVOSB managing venturer to receive as little as 40% of the joint venture’s profits, depending on how the joint venturers split work.
- Persons “found guilty of, or found to be involved in criminally related matters or debarment proceedings” will be immediately removed from the VetBiz database. Additionally, owing outstanding taxes and unresolved debts to “governmental entities outside of the Federal government” may be disqualifying, but won’t lead to an automatic cancellation.
As you may recall, the SBA proposed to revise its own SDVOSB regulations earlier this year. These proposed rules, when finalized, would apply to both the VA and SBA. The VA’s final rule indicates that the SBA’s final rule also will take effect on October 1. “VA and the SBA believe a single date on which all of the changes go into effect is the most effective path for implementation,” the VA writes. As I sit here today on September 24, I haven’t seen the SBA’s final rule yet, but I assume it will be published any moment. We’ll blog about it on SmallGovCon when that happens.
By consolidating the eligibility requirements for SDVOSBs and VOSBs, the SBA and VA will eliminate a lot of confusion. In that sense, these changes are good news. But I’m concerned about one important item that wasn’t raised in the VA’s response–that is, what happens to currently verified companies who no longer meet the eligibility requirements? In other words, what happens to companies that were verified under the VA’s “old” rules, but won’t qualify as SDVOSBs under the SBA’s “new” rules?
Remember, many companies were verified as SDVOSBs and VOSBs based on the VA’s eligibility requirements, which (until October 1) aren’t identical to the SBA’s. Perhaps most notably, the VA has long permitted companies to use reasonable “right of first refusal” provisions in their corporate governing documents. The SBA, on the other hand, has deemed such provisions impermissible–a position that a federal judge called “draconian and perverse,” but nonetheless within the SBA’s broad discretion.
As I read the SBA’s proposed rules, anyway, the SBA hasn’t changed its position on this issue. And while it sounds wonky, it’s actually very important: right of first refusal provisions are commonplace in operating agreements, bylaws, and shareholders’ agreements prepared by good corporate counsel. It’s a virtual certainty that hundreds, if not thousands, of verified SDVOSBs and VOSBs have such provisions in their governing documents.
Are these companies now vulnerable to protest? Will the VA CVE propose them all for cancellation? Are they somehow grandfathered in? (I highly doubt that, but I suppose you never know). It’s a very important question and I hope one that the SBA and VA will answer soon.
My colleagues and I will keep you posted.
Update (September 28, 2018): The SBA has published its SDVOSB final rule, available here.
This post originally appeared at http://smallgovcon.com/service-disabled-veteran-owned-small-businesses/va-will-use-sba-sdvosb-eligibility-rules-starting-october-1-2018/ and was reprinted with permission.
House Small Business Committee Calls for a Status Update on FAR Revision of Limitations on SubcontractingPosted: October 3, 2018
This post was reprinted from the PilieroMazza Weekly Report for September 21, 2018.
Last week, House Small Business Committee Chairman Steve Chabot and Ranking Member Nydia Velázquez sent a letter to the acting administrator of the Office of Federal Procurement Policy requesting a status update of Federal Acquisition Regulation Case Number 2016-011, titled “Revision of Limitations on Subcontracting.”
Section 1651 of Public Law 112-239, the National Defense Authorization Act for Fiscal Year 2013 (2013 NDAA), made significant changes to the limitations on federal subcontracting, which were reflected in corresponding regulations made by the Small Business Administration (SBA) on May 31, 2016.
Section 1651 of the 2013 NDAA and SBA regulations require that the limitations on subcontracting for full or partial small business set-aside contracts, HUBZone contracts, 8(a) contracts, service-disabled veteran-owned small business contracts, women-owned small business, and economically disadvantaged women-owned small business contracts be evaluated based on the amount paid by the federal government, rather than the previously used cost of labor, or cost of manufacturing calculation.
Significantly, the 2013 NDAA and SBA regulations exclude from the limitations on subcontracting the work performed by first-tier subcontractors that are considered “similarly situated entities.” It has been 6 years since the 2013 NDAA was signed into law and Congress has respectfully requested a status update and timeline. You can find the article here.
This is a guest post by Jack McGuinness of Relationship Impact.
Reenergizing your leadership can have a massive impact on your entire organization. In his final post in the series, Jack McGuinness tackles the topic of accountability.
The business dictionary defines accountability as “the obligation of an individual or organization to account for its activities, accept responsibility for them, and disclose the results in a transparent manner.” Inherent in this definition are three levels of accountability – power, individual and team accountability.
We believe that all three are important in building a great leadership team and a recent HBR article supports our assertion. The article breaks down team performance as follows – in the weakest teams, there is no accountability; in mediocre teams, bosses are the source of accountability; and in high performance teams, peers manage the vast majority of performance problems with one another.
For many leadership teams this last level of accountability where peers hold each other accountable presents a significant challenge. In his bestselling book The Five Dysfunctions of a Team, Patrick Lencioni had the following to say about accountability – “Once we achieve clarity and buy-in, it is then that we have to hold each other accountable for what we sign up to do, for high standards and behavior. And as simple as that sounds, most executives hate to do it, especially when it comes to a peer’s behavior.”
Not surprisingly, there is a strong relationship among the three tips we are presenting in this blog post series. Specifically, leadership teams require a purpose to be accountable to and the skill of engaging in productive dialogue (including giving and receiving feedback) is instrumental to a team’s ability to hold each other accountable. The following are a few steps for helping leadership teams move from poor or mediocre accountability to an environment where a healthy balance exists between individual, power and peer accountability:
- To start, the formal leader needs to clarify and reinforce the importance of the three levels of accountability. Most importantly, the leader must model the behaviors she expects for the team. This includes receiving feedback well and providing timely, direct and respectful feedback. She also needs to clarify that the leader’s role does not exist to settle problems or constantly monitor the team; rather it is focused on creating an environment where peers address concerns immediately, directly and respectfully with each other.
- Next, the leadership team needs to focus on its unique purpose and gain agreement on specific individual and collective accountabilities for decisions and actions required to achieve the purpose. Most importantly, the leadership team needs to take action and demonstrate its ability to effectively perform and adjust course as required.
- Periodically the leadership team should to step back and reflect on progress from two perspectives – what results is the team achieving and how is the team achieving the results. In our experience, reflecting on tangible business issues is the most effective mechanism for addressing a leadership team’s ability to engage in productive dialogue and hold each other accountable directly and respectfully.
Truly great leadership teams are resilient and have the capacity to reenergize and get back in sync after inevitable periods of dysfunction. Team members of great leadership teams recognize that they serve as stewards of their organizations supporting a unique enterprise-wide purpose. Great leadership teams also do the hard work necessary to engage in productive dialogue and hold each other to high performance and behavior.
This post originally appeared at ChiefExecutive.net at https://chiefexecutive.net/tips-reenergizing-leadership-team and was reprinted with permission.