GAO Reviews Agency Oversight of Small Business Subcontracting Plans

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This is a guest post by Haley Claxton of Koprince Law LLC.

Recently, GAO published a report on small business subcontracting plan compliance, concluding that agency oversight of these plans need improvement.

As many of our readers know, some federal contracts require large business prime contractors to utilize small business subcontractors under a small business subcontracting plan, as described in FAR 52.219-9. For context, in 2019, federal agencies “awarded more than 5,000 contracts requiring a small business subcontracting plan, and obligated more than $300 billion to contracts with required small business subcontracting plans.”

If a small business subcontracting plan is in place, contractors are required to report on any subcontracting achievements and make a “good-faith” effort to keep to the plan. In addition, some regulations and procedures require contracting officers to review the subcontracting plan before or after award to make sure certain information is included in the plan. Agencies are also required to provide SBA Procurement Center Representatives (or PCRs) the opportunity to review the proposed contract and associated subcontracting plan.

After a contract is in place, the FAR requires contracting officers to ensure that subcontracting reports are submitted via the eSRS web platform within a certain amount of time. Contracting officers must then review and decide whether to accept these reports. In addition to reviewing the reports, agencies are also required to perform annual evaluations of all contractor performance though CPARS (the Contractor Performance Assessment Reporting System). One aspect of the annual CPARS evaluation, where applicable, is compliance with the contractor’s small business subcontracting plan.

Despite the amount of oversight agencies appear to have over contractor compliance with small business subcontracting plans on paper, some folks at the Department of Defense were concerned about how much actual oversight agencies were providing to ensure contractors complied with their plans. Thus, GAO looked into how four representative agencies (the DLA, the Navy, GSA, and NASA) provide oversight. It found that the DoD was right to be concerned.

First, GAO looked to pre-award procedures for reviewing subcontracting plans. It found that COs from all four representative agencies reviewed and approved subcontracting plans as required in most, but not all, cases. More problematically, however, the “[a]gencies also could not demonstrate they followed procedures related to PCR reviews in about half of the contracts reviewed.” Put differently, most of the time, the SBA wasn’t involved in reviewing subcontracting plans before contract award, as required. 

Next, GAO turned to agency overview of contractor compliance with their subcontracting plans post-award. GAO found this overview was pretty “limited.” Even though each representative agency did offer some amount training to contracting officers on subcontracting plans, GAO found that these contracting officers did not ensure contractors met their reporting requirements in most of the reviewed contracts. In addition, even where reports were submitted as required, many were not reviewed in the manner anticipated.

As a result of its investigation, GAO offered ten recommendations for the reviewed agencies and the SBA. These recommendations are outlined here, but in summary, they ask the relevant agencies to make sure they have steps in place to ensure appropriate review of subcontracting plans and contractor compliance with those plans.

Overall, an increased focus on compliance with subcontracting plans is likely to have an effect on many contractors–hopefully ensuring more contracting dollars go to small business subcontractors. For more on small business subcontracting plans, check out our related blog posts here

This post originally appeared on the SmallGovCon blog at https://smallgovcon.com/statutes-and-regulations/room-for-improvement-gao-reviews-agency-oversight-of-small-business-subcontracting-plans/ and was reprinted with permission.


California Consumer Privacy Act Enforcement Effective July 1

This is a guest post by David T. Shafer and Emily J. Rouleau of PilieroMazza PLLC.

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Despite requests for delay due to COVID-19, California Attorney General Xavier Becerra has affirmed that enforcement of the California Consumer Privacy Act (CCPA) has started, effective July 1, 2020. The CCPA is a huge step forward in data privacy law, granting California consumers robust data privacy rights and increased control over their personal information. Previous PilieroMazza coverage of the CCPA can be viewed here and here.

While the CCPA has been in effect since January 1, 2020, companies that do business with California consumers will now risk penalties for noncompliance. Below is key information for companies seeking to ensure CCPA compliance and to avoid enforcement action.

Approval of Final Regulations

The Office of the California Attorney General submitted the final proposed CCPA regulations package to the California Office of Administrative Law (OAL) on June 1, 2020, for review. OAL has 30 working days, plus an additional 60 calendar days to review the package.

Once approved, the final regulation text will be filed with the Secretary of State and become enforceable by law. OAL is not expected to make significant changes to the regulations, so a full analysis of the rule will likely be necessary for the creation and implementation of a robust CCPA compliance program.

Compliance Tips

To understand whether or not you are subject to potential enforcement,, first determine if you fall within CCPA’s compliance criteria. Critically, the statutorily defined terms “consumer” and “personal information” are far broader than comparable statutes and regulations found in other jurisdictions, though that itself is currently the subject of debate in many state legislatures.

The enlargement of these terms causes CCPA’s jurisdiction to be larger than it appears on the face of the statute. Below are certain high-level questions that can help a business determine if it meets certain threshold standards:

  • Do you, or any of your subsidiaries or affiliates, engage in business in California?
  • Do you do business with contacts or employees who reside in California?
  • Does your business have over $25 million in annual gross revenues?
  • Does your business buy, sell, or receive personal information?

If you fit certain initial criteria, we recommend identifying the type of personal information your business collects. As briefly mentioned above, CCPA broadly defines personal information as any information that directly or indirectly identifies, describes, or can be reasonably linked to a particular consumer.

CCPA grants consumers significant rights to the use of their personal information, including general notice rights. It is here that companies can take proactive steps to prepare for CCPA’s implementation.

More specifically, CCPA grants consumers the right to know what personal information a business collects, sells, or discloses about them. Additionally, several sections of CCPA require businesses to make affirmative disclosures to consumers by way of privacy policies and other notices.

With the expiration of CCPA’s safe harbor and subsequent July 1, 2020 enforcement, steps that can be immediately taken may include, but are not limited to, the following:

  • updating notices and privacy policies;
  • reviewing data flows including data mapping and classification;
  • segregating data and IT systems between regulated and non-regulated data repositories;
  • implementing cookie banners and web beacons in accordance with CCPA-compliant privacy policies;
  • implementing individual request processes (including opt-out and deletion); and
  • implementing training to meet CCPA’s new requirements.

What to Watch

The California Secretary of State recently announced that the California Privacy Rights Act (CPRA) will be on California’s November 3, 2020, ballot. If approved by voters, the CPRA would significantly update and amend the CCPA, allowing California consumers to block businesses from using a new category of information known as “sensitive personal” information and establishing a new enforcement authority to protect data privacy rights.

PilieroMazza’s attorneys will continue to monitor the CCPA, along with legal developments for data privacy in other states. For assistance with CCPA implementation in your business, please contact the authors of this client alert, Dave Shafer and Emily Rouleau, or a member of the Firm’s Cybersecurity & Data Privacy Group.

This post originally appeared on the PilieroMazza website at https://www.pilieromazza.com/california-consumer-privacy-act-enforcement-effective-july-1/ and was reprinted with permission.


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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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


Small Business Updates in NDAA 2020

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Restricting LPTA in Federal Contracting

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

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

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

There are eight criteria established for the use of LPTA:

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

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

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

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

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

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


Paycheck Protection Program Reform Bill Passed

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This post was created with assistance from Washington Premier Group.

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

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

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

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

Extension of Loan Forgiveness Period:

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

Extension of Loan Repayment Period:

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

Payroll Expenditure Requirement:

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

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

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

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

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

Added Flexibility for Rehiring Workers:

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

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

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

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

Extension of Loan Deferral Period:

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

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

Expanded Eligibility for Payroll Tax Deferral:

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

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

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

What’s on the Horizon for the PPP?

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

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


DOD Issues New CARES Act, Section 3610 Guidance

This is a guest post by Cy Alba of PilieroMazza PLLC.

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Guidance from the Department of Defense (DOD) has finally been issued related to Section 3610 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which allowed for payments to federal contractors to keep non-working employees at the ready to return to work when required to do so. The new guidance can be found here.

As we noted in a previous blog, the CARES Act allows contracting officers to pay contractors at the “minimum applicable billing rates” for any employees who cannot perform work at a government site or government-approved contractor site due to a shutdown of said site because of COVID-19. That is a statutory allowance and, as such, cannot be changed by any agency action. However, there has been confusion about specific terms in the statute and conflicting guidance coming out of various agencies. While this new guidance does not clear up the inconsistencies, it does help clarify how DOD is going to treat contractor requests for 3610 funding.

First, the new guidance clearly states:

  • the authority provided by Section 3610 is a permissive authority and the contracting officer is not required to reimburse any or all of the requested paid leave costs;
  • any reimbursement under Section 3610 is subject to the availability of funds;
  • the contracting officer has sole discretion to make decisions on a contractor’s affected status and the amount of any Section 3610 reimbursement;
  • contractors must not be reimbursed (or otherwise paid) twice for the same costs;
  • the contracting officer has the right to determine the amount reimbursed under Section 3610 and at what level (e.g., contract, division, segment, company, or corporate) the costs will be reimbursed;
  • contractors must segregate COVID-19 paid leave costs in their books and records;
  • contractors may not request, and shall not receive, Section 3610 reimbursement for any hours related to employees a contractor has furloughed or laid off—such hours must be excluded from any request for Section 3610 reimbursement;
  • paid leave reimbursement under Section 3610 excludes any profit or fees; and
  • contracting officers shall document any COVID-19 paid leave reimbursement decisions in a memorandum for record (MFR)—a template that contracting officers may use to complete the MFR will be provided separately, but this template should be tailored to the specific circumstances and is not a substitute for a contracting officer’s independent thought or reasoned judgment.

While some of this is not consistent with a plain reading of the CARES Act itself (specifically, there is no indication that fee or profit is excluded—quite the opposite, as the Act says “minimum applicable billing rates,” not costs), this is the guidance that DOD has chosen to adopt. And because, as noted above, the granting of 3610 funding is entirely discretionary, the cognizant contracting officer can simply give contractors a “take-it-or-leave-it” offer. It is highly unlikely that a contractor could actually sue to seek any additional 3610 funding, or any funding at all under Section 3610, as it not mandatory.

It is also critical to note that this guidance states that you cannot “double dip” by using both 3610 funding and forgiven Paycheck Protection Program (PPP) loans for the same expenses. This is not a shock to those who have been following the guidance and pendulum of thinking on this, but this new guidance does make it much more explicit. It also now requires contractors to take the affirmative step of notifying any contracting officer who has received, or is reviewing, a request for 3610 funding. This is to ensure that contracting officers do not pay 3610 funds to contractors who have received, or will receive, PPP loan forgiveness. Additionally, it is also meant to notify contracting officers of other situations where the contractor has received any other tax credit or other funding which could cover the same costs being requested, or which may have already been paid with 3610 funding. This is to allow the contracting officer to deny 3610 funds, or to demand reimbursement of already-paid 3610 funding.

While this may seem like a change, it should also be noted that most accountants who are well versed in government contract issues have already been instructing clients that any amounts of PPP loan forgiveness or other tax credits would likely be owed back to the government for cost-reimbursable contracts, at the very least, and possibly all contracts in some cases. So this new guidance simply solidifies the reality that a government contractor cannot “double dip” by seeking funding from two different government programs for the same costs.

The guidance includes a number of instructions for how contractors and the government should work together to construct 3610 funding requests and how to determine the appropriate amounts to be paid. Comments from industry are due to osd.dfars@mail.mil before 5:00 PM ET on Friday, May 22, 2020. Please review the guidance here and send your comments to marketing@pilieromazza.com by 5:00 PM ET on May 21, 2020, so we can then gather comments into one document.

PilieroMazza is working to prepare a fulsome write-up on this new guidance and, on May 20, 2020, Cy Alba presented a new webinar on the PPP loans and 3610 funding crossover. You can access the webinar and slides on demand here.

PilieroMazza is monitoring the rapidly changing COVID-19 crisis and will provide updates when more guidance is released by the government. We also invite you to visit the Firm’s COVID-19 Client Resource Center to access further resources that will help businesses navigate the effects of the COVID-19 pandemic. If you need immediate assistance, please contact us at covid19@pilieromazza.com.

This post was originally released as a PilieroMazza Client Alert at https://www.pilieromazza.com/dod-issues-new-cares-act-section-3610-guidance and was reprinted with permission.


How SBA’s Final Rule Will Impact WOSB and 8(a) Businesses

This is a guest post by Meghan Leemon of PilieroMazza PLLC.

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Just under one year ago, we wrote about the Small Business Administration’s (SBA) proposed rule regarding implementing a certification requirement for Women-Owned Small Businesses (WOSBs) / Economically Disadvantaged Women-Owned Small Businesses (EDWOSBs) and revised economic disadvantage criteria for 8(a) eligibility. SBA’s final rule was recently published, implementing just that. The rule will impact businesses seeking to compete for government contracts under the WOSB and 8(a) Business Development programs.

WOSB / EDWOSB Certification

Effective October 15, 2020, WOSB / EDWOSBs will be required to be certified as such in order to pursue WOSB / EDWOSB set-asides, as well as those seeking to be awarded a multiple-award contract with pools reserved for WOSB / EDWOSBs. Notably, the new regulation provides that, in order to submit an offer on a specific WOSB / EDWOSB set-aside requirement, the company must either be certified as a WOSB / EDOWSB or “represent that it has submitted a complete application for WOSB or EDWOSB certification to SBA or a third-party certifier and has not received a negative determination regarding that application . . . .”

The rule explains that a company may apply to SBA for WOSB / EDWOSB certification, and that it may submit evidence that it is either a women-owned and controlled small business certified by the Department of Veterans Affairs’ Center for Verification and Evaluation as a Service-Disabled Veteran-Owned Small Business or Veteran-Owned Small Business or certified as a WOSB / EDWOSB by an approved third-party certifier. Additionally, a certified 8(a) participant qualifies as an EDWOSB. The final rule states that SBA will make a determination within 90 days after receipt of a complete package, whenever practical. If SBA or a third-party certifier declines certification, that concern must wait 90 days to reapply, and there is no appeal process.

While self-certification will no longer be accepted as of October 15, 2020, the other regulations regarding the certification process are set to be effective on July 15, 2020. It appears that SBA may be providing for a three-month window to allow companies to seek certification prior to October 15, 2020, but it is currently unknown as to exactly when SBA will begin accepting WOSB / EDWOSB applications.

8(a) Economic Disadvantage Eligibility Criteria

As it applies to the 8(a) program regulations, the final rule is effective July 15, 2020. Through the final rule, SBA has revised the 8(a) initial economic disadvantage criteria to be consistent with the EDWOSB requirements. Accordingly, there will no longer be a distinction between initial entry into and continued eligibility for the 8(a) program. The three economic disadvantage criteria will be as follows: $750,000 net worth, $350,000 adjusted gross income, and $6 million total assets.

Notably, SBA has also revised the regulation to provide that funds invested in an individual retirement account or other official retirement account “will not be considered in determining an individual’s net worth.” Presently, the regulation does not speak to an individual’s age, but SBA has interpreted the regulation to state that if an individual has reached retirement age, then it will include the value of such account in calculating an individual’s net worth. The revised regulation clarifying that the value of a legitimate retirement account, regardless of the account holder’s age, is not included will be a welcome change. The same exclusion should also apply for purposes of the total assets test.

Should you have any questions as you prepare for WOSB / EDWOSB certification and / or regarding your eligibility for the 8(a) program, please contact Meghan Leemon, the author of this alert, or a member of PilieroMazza’s Government Contracts Group.

Meghan Leemon is a member of the Government Contracts, Small Business Programs & Advisory Services, and Government Contracts Claims and Appeals practice groups.

This article was originally published as a PilieroMazza Client Alert at https://www.pilieromazza.com/sba-implements-wosb-edwosb-certification-requirement-and-revises-economic-disadvantage-criteria-for-8a-eligibility-including-treatment-of-retirement-accounts and was reprinted with permission.


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

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

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

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

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

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


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