This proposal seeks to bring uniformity to procurement thresholds following the increase of the micro-purchase threshold from $3,000 to $10,000 in the NDAA for FY 2018.
A procurement threshold is the lowest level at which you can award a contract as a sole source to one particular company rather than opening it up for competition. This applies when a job is so small that trying to find enough companies to compete for the work would be too costly for the government.
So this new proposal increases that threshold to also apply to multiple-award contracts, not just single. What this means is if I, as a federal contractor, already have a multiple award IDIQ contract with a government agency, they can issue these micro-purchase orders without competition, as long as they do not exceed $10,000 in value. This makes it more fair to all contractors whether they’re in single or multiple award contracts.
There’s always a risk that the contracting officers will break the jobs up into smaller increments, particularly in DoD where the micro-threshold level is higher. That we will see only with practice, as it were.
At TAPE we’re always interested in more opportunities for sole sourcing, because that allows a customer relationship to flourish. Hopefully this proposal will have that effect.
We’ve been discussing the Office of Management and Budget (OMB)’s six proposals for streamlining the acquisition process and improving the acquisition environment, intended to be included in the FY 2020 National Defense Authorization Act (NDAA).
Proposal 3 is about uniformity in procurement thresholds. So right now purchases starting at $2 million must adhere to cost accounting standards (CAS), but complete coverage doesn’t start until you’re at $50 million. This change will eliminate these wide differences by raising the basic threshold to $15 million.
That means you will only need to start paying attention to CAS at $15 million, and full coverage still starts at $50 million. The reason for this change is that there were already some exemptions established at various other threshold levels that caused confusion about when the basic CAS really apply.
The reason this is important for us as small businesses is that full CAS coverage is very comprehensive and has a lot of details, and it’s really hard for a small business to manage this. That’s why you don’t hit full CAS coverage until $50 million. At that point you presumably have the infrastructure in place to handle the extra requirements.
One other legalistic thing being done is that they’re decoupling the CAS thresholds from the similar thresholds in what’s called the TINA (Truth in Negotiations Act), because there’s some concern that by putting them together, issues and problems come up in both.
The Office of Management and Budget (OMB) has proposed six ways to help streamline the acquisition process and improve the acquisition environment, intended to be included in the FY 2020 National Defense Authorization Act (NDAA).
The second proposal is to do away with the Defense Cost Accounting Standard Board (CASB). The issue here is that there is a Defense CASB, and there’s a federal one as well. The result is, unfortunately, is that the two different sets of cost accounting standards created can often be, well, different. So what this OMB initiative is going to try and do is eliminate the Defense CASB and consolidate everything into this one place under the federal board.
Of course, not everyone is going to be happy about this. There will be differences between the standards, and things from the Defense CASB that somebody’s been taking advantage of and doesn’t want to give up, or conversely, anything changed from the Federal CASB will have proponents and systems that cater to that function. We’ll have to figure out what those things are. Reconciling these two will be a nightmare, but it’s always better to have one rather than two things carrying out the same function.
And don’t forget that there are computer systems that handle acquisition and contract issues and cost accounting, and those will need to be adjusted.
What this demonstrates is that nothing in contracting and acquisition is ever as simple as “just do this.” So much of our regulated activity gets caught up in the very regulations being implemented; it’s never simple to change.
But, we’ll keep working on it…
The fundamental problem with acquisitions is that they take too long, by whatever standards people may be applying. The Office of Management and Budget (OMB), who oversees the performance of federal agencies, has proposed six ways to help streamline the acquisition process and improve the acquisition environment – changes they intend to be part of the FY 2020 National Defense Authorization Act (NDAA).
In a series of posts, we’ll look at each of these six proposals. First up, is to establish acquisition test programs.
You may remember our discussion about other attempts to streamline acquisitions through other transactional authorities and consortia. What the OMB is saying here is let’s set up some innovation in procurement and acquisition and allow individual agencies to test stuff out and cultivate the kind of innovation you might see in Silicone Valley and other high-tech areas.
Someone will still need to approve you to try out your idea, but then you can do so even if it’s not entirely in compliance with the FAR. The idea is to test stuff out, see whether it works, and then that would result in recommendations for future actual changes.
This all fits into the concept of agile development that so many are people are into right now. One example is the Air Force Kessel Run program (for all you Star Wars fans). It’s essentially a place where they’re doing software development in small bits – what they call agile scrums – and they can literally run from requirements to testing, fielding, etc. in months rather than years.
Establishing acquisition test programs is a really good idea. It will fit within what the 809 panel was doing, and it will also fit the government’s move toward innovation.
When you price a government contract, some of your costs are considered direct costs and others are considered indirect costs. The most basic direct cost is labor – specifically the cost of paying the employees who work directly on that contract. Those costs are billable to the government agency who hired your company.
You also have labor costs that aren’t billable to the government because those employees aren’t working directly on that contract. Some of these indirect costs include paying the salaries of your company president, your HR person, or your reception staff.
There are other indirect labor costs, known as fringe benefits, which are things like vacation pay and sick time. You are responsible for these costs as an employer but they are not directly billable to the government.
A cost pool is a calculation that combines these different but related types of indirect costs, and provides you with a percentage, e.g., 2X base salary, that you can include in your bid price to make sure those indirect costs are accounted for.
You would go through this same calculation for overhead costs, such as office space for billable versus non-billable employees, and direct versus indirect general and administrative costs.
I’m making this very simple (here’s a blog post that goes into more detail), but government cost accounting requires you to have these pools and rates established in order for your bid to have appropriate approval by a government cost analyst who might be evaluating the bid. Not to mention protecting yourself in case of an audit by the DCAA (Defense Contract Audit Agency – your processes could be also audited by the Defense Contract Management Agency).
As a small business in the federal contracting space, it’s important to understand cost accounting, cost analysis, indirect rates, cost pools, and all of these concepts in order to understand where you can cut costs and be more price competitive. You’ll still definitely want to consult legal and accounting experts, but educating yourself upfront will help save you time and money along the way.
We’re continuing our look at several new SBA provisions that were announced in December 2018. Sam Finnerty of PilieroMazza wrote an excellent explanation of each change, and here we’ll look closer at some revisions pertaining to LOS (limitations on subcontracting) compliance.
Now these are a somewhat arcane set of issues. The bottom line is that the prime contractor in a small business set-aside contract is required to do 51% of the work. That can be calculated in many different ways, predominantly established as being 51% of the labor dollars. Therefore that imposes a limitation on subcontracting, essentially meaning that you can’t subcontract more than 49% of the total value of a contract.
Keep in mind that there is a whole other set of rules and regulations to do with buying things, as opposed to buying labor. If, for example I am in a construction contract, I may need a whole bunch of materials – wood, cement, whatever – and those purchases must also comply with the size standard and limitations on the subcontracting. Be sure to consult a contracts attorney on this, somebody who understands the Federal Acquisition Regulations or the DFARS.
At TAPE we had the experience of dealing with a set-aside contract with $1,000,000 of labor, and there were some odd things that happened in the definition when you had an independent employee. There are some Department of Labor regulations about when a 1099 independent person has to count as an employee. So when the SBA regulations force you to treat that independent contractor as a subcontractor but at the same time you’re required to treat them and pay them as an employee, that creates a dichotomy of the treatment of that employee in the contract.
Let’s say there is a subcontractor we use repeatedly, such as an inspector. I may wind up using them for 1,000 hours over the course of time, so the Department of Labor says that’s really an employee not a contractor. On the other hand, the SBA rules were different because the person was defined as a contractor, meaning those limitations of 51% and 49% rules applied, and you may have a completely separate treatment.
These new rules reconcile all that confusion. If the Department of Labor rules says they must be an employee then you can also count them on as employee within the limitations of subcontractor (LOS) compliance.
In essence, when you need particular expertise that you hire from the outside, be sure you’re treating those people in compliance with the regulations of the SBA and the Department of Labor. If you have a situation where you’re using outside experts and maybe using one in particular a lot, my strong advice is to work with your contracts attorney or somebody who understands the FARS, DFARS and the SBA regulations.
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.
So we know that a contract is either unrestricted, which means anybody can bid, or it’s set aside for small businesses. A contract can be a generic small business set aside, or it can be specifically protected for one of the SBA’s socioeconomic small business programs, i.e., a woman-owned small business (WOSB), a service-disabled veteran-owned small business (SDVOSB), a HUBZone business in a historically underutilized business zones, or an 8(a) small business owned by socially and economically disadvantaged people or entities.
In the past, when a generic multiple-award contract (MAC) was set aside for any small business, it used to be that everyone within that winning pool could bid on all the task orders from that contract.
With this new rule that will be implemented by SBA and eventually populated down into the Federal Acquisition Regulation (FAR), agencies will now be able to set aside task orders for a more specific group (WOSB, SDVOSB, etc.) under a multiple-award contract originally awarded as a general small business set-aside.
As Sam Finnerty points out in this PilieroMazza blog post about several SBA changes, in the past the SBA “was concerned that such a rule would unfairly deprive SBCs [small business concerns] of an opportunity to compete for orders issued under their MACs. In the Rule’s preamble, SBA explains that other actions it has taken in recent years have alleviated these concerns. However, SBA is requesting comments on whether it would impact the ability of SBCs to compete for and receive orders.”
Under this new rule, an agency would have a certain number of awards specified for generic small businesses, but would actually be allowed to go down another level. So even though you may have won the contract as a small business, you’re not guaranteed that every task order is available to you, as they would under the current rules of the road. Some orders may be further set aside and if you don’t qualify for that program, you couldn’t bid on the order.
So this change would restrict certain rights, but it gives the federal agency more room to make sure the right activity comes to the right vehicle, and will also help them keep their small business credits going.
As for small businesses, we want the agency to come to this vehicle and this change makes it attractive to them by allowing them to get additional credits, not just small business credits but credits for using specially certified businesses as well. This is particularly important at the end of the year when everything is done in a rush and they’re looking to get in their numbers.
The hope of course is that they will continue to come back to that vehicle, and maybe some of those task orders will be ones that your small business does qualify for. Stuff escapes the system all the time and we’re trying to get to the point where they don’t have to go somewhere else. Ultimately we want them to meet all their requirements in this vehicle and to keep all the agency work together.
“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.
On January 24, 2018, a final General Services Acquisition Regulation (GSAR) rule was issued that incorporates order-level materials (OLMs) into the Multiple Award Schedule (MAS) program. On selected schedules, agencies can now acquire not just the products and services they’ve come to rely on from GSA, but also the associated items required to make use of them at the order level.
From GSA: “OLMs are supplies and/or services acquired in direct support of an individual task or delivery order placed against a Schedule contract or BPA. OLM pricing is not established at the Schedule contract or BPA level, but at the order level. Since OLMs are identified and acquired at the order level, the ordering contracting officer (OCO) is responsible for making a fair and reasonable price determination for all OLMs.
OLMs are procured under a special ordering procedure that simplifies the process for acquiring supplies and services necessary to support individual task or delivery orders placed against a Schedule contract or BPA. Using this new procedure, ancillary supplies and services not known at the time of the Schedule award may be included and priced at the order level.”
So what are the new benefits of this policy, and why should you care?
- OLMs increase the flexibility of contracts using the various GSA Schedules, especially the ones that focus on services, to provide a total solution to meet the actual customer requirements.
- OLMs reduce customer agency procurement/administrative costs and makes leveraging GSA Schedules that much easier – of course GSA likes this because they get the order through the MAS, along with any associated fees (the downside is that the company gets OLM “revenue,” which generally is just a pass-through fee, not a profit margin, and therefore is using up revenue).
- Contracting officers are happy because it reduces contract duplication by eliminating the need to set up new commercial IDIQs and/or open market procurements for ODCs (“Other Direct Costs”).
- OLMs potentially eliminate the need for Government Furnished Equipment (GFE), and anything that reduces the burden on the customer/contracting officer to track things is HIGHLY desirable.
- Contracting officers like the fact that MAS terms and conditions apply to OLMs, which ensures customer buys are compliant with FAR and other guidelines.
As a contractor, how do you include OLMs under a Schedule order?
The special ordering procedures are contained in General Services Administration Acquisition Regulation (GSAR) clause 552.538-82 Special Ordering Procedures for the Acquisition of Order-Level Materials, which may be incorporated into contracts under OLM-authorized Schedules. This clause, along with a dedicated Special Item Number (SIN) for Order-Level Materials, allows ordering activities to include OLMs in Schedule orders.
It is important to remember:
- Prices for OLMs are not established in the Schedule contract or BPA.
- OLMs are established and acquired at the order level, and the ordering activity contracting officer is responsible for making the determination that prices for all OLMs are fair and reasonable.
- OLM procedures may be used to purchase OLM products or services to support delivery orders (products) or task orders (services) under authorized GSA Schedules.
- OLMs may be added to any order-type, i.e. Firm Fixed-Price, Time & Materials (T&M), or Labor Hour. However, the OLM CLIN (contract line item number) must be T&M, but it can be the only T&M CLIN on the order. i.e., OLMs may be added to a Firm Fixed-Price order, but the OLM CLIN itself must be T&M.
Current Authorized OLM Schedules
- 00CORP – Professional Services Schedule
- 03FAC – Facilities Maintenance and Management
- 56 – Buildings And Building Materials / Industrial Services and Supplies
- 70 – Information Technology
- 71 – Furniture
- 84 – Security, Fire, & Law Enforcement
- 738X – Human Capital Management and Administrative Support Services
A GSA OLM Ordering Guide is coming soon. In the meantime, check out these resources:
- Training: Understanding Order-Level Materials (OLMs) [PDF – 248 KB]
- Training: Order-Level Materials – Vendor Webinar [PDF – 3 MB]
- Order-Level Materials SIN Description [PDF – 50 KB]
- Summary of Support Item Types for GSA Schedules Program Orders [PDF – 102 KB]
- Order-Level Materials FAQs #1 (April 25, 2018) [PDF – 120 KB]
- Order-Level Materials FAQs # 2 (August 8, 2018) [PDF – 112 KB]
- Download OLM training for federal agency customers and industry partners