This is a guest post by Cy Alba of PilieroMazza PLLC.
Yesterday, we discussed the emergency loan programs and loan forgiveness opportunities for small businesses in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). However, it is critical to understand that there other avenues for relief that do not have to wait for SBA or private lenders to start processing such loans. Specifically, OMB Memorandum M-20-18 gave Contracting Officers (“CO”) broad authority and specifically states that all contracting personnel should “feel fully empowered to use acquisition flexibilities.” Further, Section 3610 of the Act, entitled “Federal Contractor Authority,” specifically states that COs have authority to continue paying contractors in order to maintain employment for contractor personnel, even if the contract is subject to a stop work order or other delay. Again, this is true even if no work is being performed on the contract.
More specifically, the CARES Act states that:
…funds made available to an agency by this Act or any other Act may be used by such agency to modify the terms and conditions of a contract, or other agreement, without consideration, to reimburse at the minimum applicable contract billing rates not to exceed an average of 40 hours per week any paid leave, including sick leave, a contractor provides to keep its employees or subcontractors in a ready state, including to protect the life and safety of Government and contractor personnel, but in no event beyond 9/30/2020. Such authority shall apply only to a contractor whose employees or subcontractors cannot perform work on a site that has been approved by the Federal Government due to facility closures or restrictions, and who cannot telework because their job duties cannot be performed remotely during the public health emergency for COVID-19.
While the wording of this provision is not entirely clear for every contractual circumstance, this allowance by Congress, combined with the clear guidance from OMB that all COs should feel “fully empowered” to exercise all contracting flexibilities, gives every contractor a strong argument to support continued payment on contracts which have been suspended in some way due to the COVID-19 crisis. Even if you are working on a Firm-Fixed Price (“FFP”) contract, or a contract where payments are made via deliverables or some similar method, the Act gives COs authority to modify the contract to transform any standard payment or negotiated amounts to per hour contract billing rates for all of your employees. In fact, the Act, along with the OMB guidance, gives COs near unfettered discretion to craft a fair and reasonable alternative on a contract-by-contract basis to ensure employees are working and a company’s bills are being paid throughout this crisis and without reliance upon the SBA 7(a) loans or other emergency disaster loans.
It should also be noted that the Act uses the phrase “minimum applicable contract billing rates” when describing the amount to be reimbursed to contractors. It does not state that only direct costs paid to the employee are to be reimbursed. Therefore, there is a good argument that the amounts to be reimbursed under the Act are the actual contract rates, if such rates are already in the contract, including all indirect costs and even profit. As noted above, the Act and the OMB memorandum gives COs the ability to add negotiated rates to a FFP or other deliverable-based contract that does not have hourly rates. These too should be “contract billing rates” and not merely the direct costs paid to the employee.
All this said, there is an open question about how owners—especially small business owners who rely on monthly or bi-monthly income streams to pay their bills and feed their families—are supposed to be paid if COs attempt to take a position that profits are disallowed. Again, I note that the law itself does not disallow profits, or limit reimbursements just to costs, so COs are more than capable of continuing to pay the fully loaded rates to contractors and, given the immense impact this is having on everyone (from the lowest level employee to the highest executive), it is only fair and reasonable that the phrase “minimum contract billing rates” includes the actual fully loaded rate negotiated for a contract or a fully loaded rate to be negotiated for contracts that are not Time and Materials or Labor Hour type contracts. Of course, as we know more or the details are fleshed out, we will continue to update our clients.
To that end, and in order to better assist businesses during this national emergency, PilieroMazza has created the PilieroMazza COVID-19 Client Resource Center to counsel clients on legal issues stemming from the evolving spread of COVID-19 in the United States (check this page regularly for updates). The Firm’s COVID-19 Client Response Team’s focus includes addressing questions involving all aspects of our practice, such as labor and employment concerns, workplace safety and contingency plans, business interruption, contract disputes, as well as finding the best path through this crisis for your business.
This PilieroMazza Client Alert originally appeared at https://www.pilieromazza.com/contracting-officers-can-pay-you-even-if-the-contract-is-shut-down and was reprinted with permission.
A guest post by David T. Shafer, Associate, PilieroMazza PLLC.
The unprecedented impact of the COVID-19 pandemic on small businesses has caused the Small Business Administration (SBA) to institute an Economic Injury Disaster Loan (EIDL) program aimed at aiding those affected by the pandemic. Whether you’re a government contractor or a commercial business, we’re breaking down for you the who, what, where, when, and how of the SBA’s detailed EIDL application process.
1. WHO: Eligible Businesses
a. To be eligible, in addition to other conditions, an applicant must be a small business, small agricultural cooperative, or a private non-profit organization.
b. The business’s principal office must be located in a state that has an EIDL declaration (see list below).
c. The SBA must determine the business to be creditworthy. Loans that exceed $25,000 must be secured by collateral to the extent possible and, if the business has no collateral to pledge, assets of the business’s owners may need to be pledged as collateral.
d. Applicants must show that they have the ability to repay all loans.
e. EIDL assistance is available only to a small business when SBA determines that such business is unable to obtain credit elsewhere. If you have not explored obtaining financing through other avenues (SBA or other), please contact a trusted advisor who can help align your objectives with an appropriate lender and/or investor.
2. WHAT: Economic Injury Disaster Loan
a. EIDLs are loans issued to eligible business by SBA under its own authority, following a request to the SBA from a state or territory’s governor that the businesses in their respective area have been adversely affected by the COVID-19 pandemic, as provided for in the recent Coronarvirus Preparedness and Response Supplement Appropriations Act.
b. An EIDL is a loan for a business to pay fixed debts, payroll, accounts payable and other liabilities. The actual amount of each loan is limited to the economic injury suffered by the business as determined by SBA, up to a maximum of $2 million, which maximum can be waived by SBA if the business is a major source of employment. “Economic injury” has been interpreted to mean that the business is unable to meet its obligations and to pay its ordinary and necessary operating expenses. Importantly, such loans do not replace lost sales or revenue, and such losses will not be considered an economic injury.
c. The maximum interest rate is 3.75% for small businesses.
d. The maximum term of each loan is 30 years, though the period of time to repay the loan is determined on a case-by-case basis depending on the business’s creditworthiness.
3. WHERE: Eligible States and Territories
Listed below are states that have received an EDIL declaration at the time of this alert. States in [bold/italics] have not yet received a declaration [as of March 20, 2020], though we anticipate that they will shortly. If your business’s principal office is in one of the states or a county or city that borders these states, you may be eligible for SBA assistance.
District of Columbia
4. WHEN: SBA has already started processing applications.
5. HOW: Starting the Application Process
For additional information, please visit SBA Disaster Loan Assistance, call the SBA Disaster Assistance Customer Service Center at 1-800-659-2955 (TTY: 1-800-877-8339), or email firstname.lastname@example.org. If you would like to contact PilieroMazza for assistance navigating the program, please contact Dave Shafer at email@example.com.
a. Businesses should review their current insurance policies, other assistance programs, and other banking relationships currently in place to determine whether obtaining an EIDL is an “event of default” or can otherwise adversely affect their financing agreements and arrangements that are currently in place.
b. The COVID-19 pandemic is an unprecedented national crisis that will put a strain on governmental resources which, in turn, may cause delays in the processing of loan applications. Accordingly, SBA officials have repeatedly stressed that applicants should thoroughly complete their applications before submission to ensure they are able to be processed the first time they are submitted.
If you have questions about SBA’s Economic Injury Disaster Loan Program or any component of the application, please contact Dave Shafer at firstname.lastname@example.org or at 410.500.5551. We also invite you to visit the firm’s “COVID-19 Client Resource Center” to access resources that will help small businesses navigate the COVID-19 pandemic.
This post originally appeared on the PilieroMazza blog at https://www.pilieromazza.com/breaking-down-sbas-covid19-economic-injury-disaster-loan.
This is a guest post by Haley Claxton of Koprince Law LLC.
Last May, we reported on proposed changes to the SBA’s Women Owned Small Business Program Certification Process. Now, the SBA’s website includes updated information about what those changes may mean for existing and new WOSBs.
As you may recall, in 2019, the SBA (at long last) proposed updates to its WOSB/EDWOSB Program in response to Congress’ 2015 NDAA. The 2015 NDAA required the SBA to remove the option for businesses to self-certify as small businesses owned and controlled by women and replace it with a more robust certification process operated directly by the SBA. The proposed updates intend to do just that.
The SBA indicates that we can expect “that the regulations enacting the statutory requirement will be published on June 30, 2020, and will be effective 30 days later.” But what will this mean for currently certified businesses?
For current third-party certified WOSBs and EDWOSBs, SBA will require re-certification “three years after the date of their most recent re-certification as a third-party certified firm.” Re-certification may be completed through the SBA’s new certification process or again through a third-party certifier.
For WOSBs and EDWOSBs who are currently self-certified with active WOSB or EDWOSB set-aside contracts, SBA clarifies that “[a] firm that was eligible as a WOSB or EDWOSB at the time of offer for the contract is considered a WOSB or EDWOSB throughout the life of the contract.” Even so, where a contract has a duration of more than five years, including options, businesses must be recertified “by SBA or an approved third-party certifier prior to the end of the fifth year of the contract.” For those familiar with SBA’s size status rules, this requirement is similar to the rule for maintaining size status on long-term contracts.
Finally, for WOSBs and EDWOSBs who are currently self-certified with no active WOSB or EDWOSB set-aside contracts, the requirements are a little more complex. If you fall under this category and haven’t been protested or examined by the SBA in the two years prior to the effective date of the new rules, get ready to start preparing your application – you will need SBA or third-party certification before you are considered an eligible WOSB/EDWOSB. In contrast, if you have been protested or examined in the two years prior to the effective date and received a positive final decision, you “must re-certify within 30 days of [your] certification anniversary if there have been no material changes since [your] last certification.” From there, you will have to “undergo a full document review and re-certification” at the end of year 3.
New applicants will be able to start from scratch and certify through the SBA directly when the rule becomes effective, or will still have the option to certify through third-party certifiers. In addition, women-owned businesses already certified through the Department of Transportation’s Disadvantaged Business Enterprise program (DBE), or the Department of Veteran Affairs’ Center for Verification and Evaluation (CVE) are at an advantage: these kinds of certification will be considered equivalent to SBA certification.
The SBA has provided an FAQ and plans to provide more updates on its webpage here. We will also continue to cover the changes as they develop, so keep an eye on the blog. And, as always, if the new rules have you scratching your head, you can call or email us at Koprince Law LLC!
This post originally appeared at SmallGovCon at http://smallgovcon.com/women-owned-small-business-program/this-just-in-sba-provides-updates-on-wosb-certification-changes/ and was reprinted with permission.
This is a guest post by John Abel and Haley Lawrie of Winvale.
The GSA MAS Consolidation is here, and things are changing FAST for government contractors. Not to worry, Winvale is here with all the information your company needs to help successfully navigate the new MAS solicitation updates. We’ve seen the updates and how they affect new offerors, but let’s take a look at how current contractors will be affected.
ALL GSA Schedule holders will be receiving a notice for Mass Modification A812 – MAS Consolidation over the course of the next week or so. Some of those reading this may have already received the notice, depending on Schedule number. Below is a schedule for the release dates of the mass mod across all 24 GSA legacy Schedules:
|Mass Mod A812 Release Date||Legacy Schedule Number|
|Friday, 1/31||03FAC, 23V, 36, 48, 51V, 58 I, 599|
|Monday, 2/3||00CORP (PSS)|
|Tuesday, 2/4||00CORP (PSS) Cont.|
|Thursday, 2/6||70 Cont.|
|Friday, 2/7||56, 66, 67, 71, 71 II K, 72, 73,|
|Monday, 2/10||736, 738X, 75, 751|
|Tuesday, 2/11||76, 78, 81 I B, 84|
Why is the MAS Mass Mod happening?
GSA is making active efforts to modernize and simplify the federal acquisition process by consolidating the current GSA Schedules. This mass modification will be the most important to date for GSA Contractors.
24 Schedules have been consolidated into 1 Multiple Award Schedule, 12 Large Categories, 83 Subcategories, and 316 newly formatted Special Item Numbers. GSA wants to eliminate any duplicate Schedules while continuing to meet the needs of its government buyers.
When do you need to take action on Mass Mod A812?
It is imperative that you check your email regularly to ensure that you’ve received the mass modification notice. If your contract administrator has not received the email by the corresponding date for your specific schedule, contact your GSA Administrative Contracting Officer (ACO) as soon as possible. (Don’t know who your ACO is? Find them here.)
Not only is it essential for contractors to ensure acceptance of this mass modification in order to reap the benefits of the consolidation, it is also mandatory, with a 90-day window for acceptance after the initial email notification is received. Within this mass modification, contractors will be required to:
- Review and accept 210 FAR and GSAM clauses
- Review the updated terms and conditions for the MAS
- Map existing SINs on your current Schedule to new SINs under the applicable Large Categories
If you have taken exception to any solicitation clauses in previous Mass Modifications, these exceptions will not carry over and that process must occur again.
How do you know what SINs you will have awarded after the Mass Mod?
It is important to note that awarded products/services, pricing, contract number, and the period of performance for your GSA Contract will NOT change. While the Contract Type and Special Item Numbers (SINs) will change, the pricing components of your contract won’t change. You don’t need to apply for a new contract and the Mass Mod will not automatically consolidate your contracts down to one contract per your DUNs number.
GSA will provide a mapping of your current SINs to the new SINs that will go into effect upon acceptance. If you are wondering what new SINs your contract will be mapped to, we can help.
Overall, changes from this MAS consolidation will be contingent on Mass Mod A812, but there are a few things on the backend that contractors must complete in order to be fully compliant and ensure proper use of the GSA Schedule to its full potential moving forward. Although accepting the mass modification will update a number of fields within GSA’s internal systems, contractors must still manually complete the updates through programs like SIP to reflect the new MAS structure on GSA eLibrary and GSA Advantage!.
After accepting the mass mod, contractors will need to perform a SIP upload to initiate a “merge” of the legacy SINs to the new SINs within 30 days acceptance. This will ensure that all records remain current with the new MAS solicitation structure and terms and conditions so that buyers will be able to conform to the new structure when seeking out contracting partners.
How will this impact your current GSA Schedule Maintenance?
To ensure there are no hiccups when accepting the Mass Mod, GSA is suspending the ability to submit requests in eMod for “Add SIN” and “Delete SIN” modifications under the legacy Schedules on Jan. 30, 2020. The ability to process “Add SIN” and “Delete SIN” modifications will be restored March 14, 2020. All other modification types will still be accepted throughout Phase II of MAS Consolidation.
With regards to sales reporting, SINS are effective immediately when you sign the Mass Mod, and you will see both legacy SINs and new MAS SINs in SRP for the first sales reporting period after the Mass Mod approval date. After that reporting period has been completed, future reporting periods will only display the new MAS SINs.
The MAS Consolidation may seem like a huge hurdle to overcome, but it is a step in the right direction for GSA and your GSA Schedule contract. To make it easier for our clients, Winvale is hosting a webinar on Tuesday, February 25 about the MAS Consolidation and how it impacts your contract.
If you can’t make the webinar, feel free to contact our consulting team today for more information on how these updates will affect your company’s GSA Schedule and a more in-depth look into the changes. Winvale offers full-service GSA Schedule support from our experienced professionals specializing in SIP, FAR compliance, GSA Advantage! and Schedule compliance.
This post originally appeared on the Winvale blog at https://info.winvale.com/blog/gsa-mas-consolidation-phase-2-current-gsa-contractors and was reprinted with permission.
Acquisition Provisions in 2020 NDAA – 852 Special Pathways for Rapid Acquisition of Software Applications and UpgradesPosted: January 29, 2020
This provision directs the secretary of defense to streamline and coordinate the requirements, budget, and acquisition process in order to rapidly field software applications and software upgrades to embedded systems in a period of not more than one year from the time that the process is initiated.
It will also require the collection of data through continuous engagement with the users of that software, so as to enable engineering and delivery of additional versions in periods of not more than one year each.
We’ve talked earlier about the government’s commitment to innovation, shown through changes to the SBA’s Small Business Information and Research (SBIR) and Small Business Technology Transfer (STTR) programs.
Then a few years ago, the DoD began to pick up a third method called other transaction agreements (OTAs), which allow for more flexible, commercial–like, and novel business solutions than the Federal Acquisition Regulation. OTAs have been enormously successful in delivering technology fast, with rapid development and so forth, with the Army having spent something like 3-and-a-half billion dollars in FY 2018 under OTAs.
This provision 852 directs the secretary to begin to look at all sorts of ways to accelerate fielding acquisition specifically for software purchases and new software engineering, including embedded systems like weapons and simulators. This does bring up the same problem mentioned in Section 831 and elsewhere, which is the need for cybersecurity and integrity – important any time you’re building new stuff.
Acquisition innovation is likely to be a hot topic for the next several years, as DOD and the whole Government grapples with the effects of the rules and regulations that have burdened procurement processes and made the cost of responses perilously high. This will be a continuing part of the conversation throughout the GovCon community.
Watch this space for more on this topic.
This is a guest post by Sam Finnerty of PilieroMazza PLLC, highlighting some upcoming changes to the SBA’s HUBZone program, a program that limits competition for certain contracts to businesses in historically underutilized business zones.
These changes were designed to keep investment flowing into HUBZones and make sure they don’t lose their HUBZone status just because things got better. We don’t want making things better to stop the investment train.
As always, consult an attorney about how these changes might apply to your business.
On November 12-13, 2019, the U.S. Small Business Administration (SBA) hosted its 5th Annual Mentor Protégé Conference where SBA’s John Klein, Associate General Counsel for Procurement Law, answered questions from the audience regarding various mentor-protégé issues. Mr. Klein provided some key insights regarding recent and upcoming SBA rulemakings that will have a significant impact on small business government contractors.
On November 13, 2019,SBA sent a final rule to the Federal Register for publication that will implement comprehensive revisions to the regulations governing the Historically Underutilized Business Zone (HUBZone) Program. These revisions, as proposed in October 2018, are available here. A couple of the key changes are:
(1) an individual will continue to be treated as a HUBZone resident if that individual worked for the firm and resided in a HUBZone at the time the concern was certified or recertified as a HUBZone—even if the area where the individual lives no longer qualifies as a HUBZone or the individual has moved to a non-HUBZone area;
(2) HUBZone firms will only be required to certify on an annual basis, meaning such concerns will no longer be required to expressly qualify as a HUBZone at the time of each offer for a HUBZone contract and award.
In addition to the revisions proposed in October 2018, the final HUBZone rule will also implement a significant change to the regulations that was proposed during public comment. Specifically, the final rule will indicate that when a company buys an office located in a HUBZone or enters into a long-term, 10-year lease for such office space, intending the space to be its principal office, the concern will be able to meet the principal office HUBZone criterion for a period of at least 10 years—even if at some point after the property is purchased or leased, the office location no longer qualifies as a HUBZone. The idea behind this rule is that the HUBZone program should incentivize and reward companies that invest in HUBZones.
For more information on this and other topics impacting government contractors, please contact a member of PilieroMazza’s Government Contracts Group.
Samuel Finnerty, the author of this Client Alert, is a member of the Firm’s Government Contracts, Small Business Programs & Advisory Services, and Government Contracts Claims and Appeals practice groups.
This post originally appeared on the PilieroMazza blog at https://www.pilieromazza.com/this-just-in-sbas-implementation-of-hubzone-changes-and-small-business-runway-extension-act-coming-soon and was adapted and reprinted with permission.
This is a guest post by PilieroMazza Partner Megan Connor and PilieroMazza Associate Anna Wright, members of PilieroMazza’s Government Contracts and Small Business Programs & Advisory Services practice groups.
Effective January 6, 2020, SBA will change the period of measurement for receipts-based size calculations from three years to five years. This change is the result of the Small Business Runway Extension Act of 2018 and SBA’s final rulemaking on December 5, 2019. This is a long-awaited change and will have far-reaching impacts for government contractors.
Importantly, SBA is adopting a two-year transition period, until January 6, 2022, during which firms may choose to use either the current three-year calculation or the new five-year calculation. After January 6, 2022, all companies must use the five-year period of measurement in determining their size under a receipts-based calculation. PilieroMazza strongly advocated for a transition period before Congress and in its comments to SBA’s rulemaking.
This shift from using a three-year period to a five-year period for the average annual receipts calculation will affect all of SBA’s receipts-based size standards, though the change in calculation will not yet apply to the SBA Business Loan and Disaster Loan Programs, which will be handled in a separate rulemaking. SBA did not address in its rulemaking how SBA would view contractors that have been using the five-year period of measurement since the Runway Extension Act became law nearly a year ago.
If you would like to know more about these changes and their potential impact on your company, please contact a member of PilieroMazza’s Government Contracts Group.
This is a guest post by Pamela J. Mazza, Managing Partner, PilieroMazza, PLLC.
On November 8, 2019, SBA published a proposed rule to merge its mentor-protégé programs and amend many of its rules governing the 8(a) program and small businesses. The proposed rule would have significant implications for the government contracting community. Comments are due by January 17, 2020, and PilieroMazza’s highlights are below.
The proposed rule would:
- Merge the 8(a) Mentor-Protégé Program into the All Small Mentor-Protégé Program;
- Clarify eligibility criteria for proposed mentors and request comments on whether mentors should be restricted to mid-sized firms;
- Provide flexibility for mentors with protégés with principle places of business in Puerto Rico;
- Provide relief from the two mentors over the life of a protégé rule; and
- Provide generally that protégés should be performing work under the North American Industry Classification System (NAICS) code used to qualify for the program.
The proposed rule would:
- Eliminate joint venture approval requirements for competitive 8(a) contracts, but not sole source awards;
- Eliminate the “three in two” rule;
- Disallow substitution of joint venture partners who exceed the size standard for long-term contracts prior to recertification; and
- Allow joint ventures to be populated with FSOs and provide guidance to agencies on when to allow joint ventures to bid on contracts requiring a clearance.
Multiple-Award Contracts (MAC)
The proposed rule would:
- Require contracting officers to assign the most appropriate single NAICS code to each order under an MAC, whether for a supply or a service to ensure compliance with the non-manufacturer rule, requiring that each NAICS code be included in the underlying MAC;
- Require an offeror to certify as to size and status in order to qualify at the time it submits its initial offer including price for an order under an UNRESTRICTED MAC, except for orders or BPAs issued under an FSS contract;
- Require that, where the socio-economic status is first required at the order level, firms must qualify at that time; and
- Permit size and status protests where the underlying MAC was unrestricted, except for BPAs and orders issued under an FSS schedule.
- The proposed rule would allow a prime to rely on the self-certification of its subcontractor, provided the prime does not have a reason to doubt the certification.
The proposed rule would that:
- If a party to a joint venture becomes acquired or merges, only that partner (and not the non-affected partner) must recertify in order to qualify the joint venture to recertify;
- A firm that mergers between proposal submission and award does not qualify for award if it could not or did not recertify, though size protests are permitted; and
- Tribal entities are not required to recertify where ownership changes but the firm is owned to the same extent (i.e. 51%) by the ultimate entity.
The proposed rule would:
- Define “follow on contract” for purposes of retaining requirements in the program;
- Loosen the prohibition on immediate family members owning 8(a) firms;
- Allow for certain changes of ownership to occur without prior SBA approval;
- Clarify SBA policy on voluntary withdrawals and early graduations from the program; and
- Under some circumstances, allow firms to seek and obtain a multiple contract waiver from the sole-source restrictions for failure to comply with the business activity targets where certain extenuating circumstances exist that apply to multiple contracts.
Tribally-Owned Applicants and Participants
The proposed rule would require that:
- Where a tribe, ANC, NHO, or CDC is reorganizing but ultimate ownership does not change, no prior SBA approval is required;
- If SBA changes the primary NAICS code of a program participant because the participant has not been operating in its designated primary code for the past three years, another tribal entity be immediately qualified to apply using that code: although the program participant stated that code as its primary NAICS code, it really was not the primary NAICS code, so that code is now available for another 8(a) applicant;
- Appeals be authorized where SBA has changed a firm’s primary NAICS code;
- Potential for success be satisfied by a letter from a Section 17 corporation or some other economic development corporation or tribally owned holding company, so long as it can show financial strength;
- Tribal entities not be required to submit small business subcontracting plans, as long as they are small for the NAICS code assigned to the contract; and
- The excessive withdrawal rule generally not be applied to entities at least 51% owned by a tribe, ANC, NHO, or CDC.
Small Business Rules
The proposed rule would:
- Require that mixed contracts include any combination of services, supplies, or construction, though construction was inadvertently omitted from the proposed rule;
- Require that contracting officers consider past performance of first-tier subcontractors for certain bundled or consolidated contracts and for MACs over a certain dollar threshold;
- Clarify that affiliation may be found under the newly organized concern rule where both former and current officers, directors, principal stockholders, managing members, or key employees of one company organize a new company in the same or a related industry; and
- Request comments on how the non-manufacturer rule should be applied to multiple item procurements where one or more of the items are subject to a class waiver.
This post was originally published on the PilieroMazza blog at https://www.pilieromazza.com/blog-sba-publishes-important-proposed-rule-changes-to-8a-and-mentorprotg-programs and was reprinted with permission.
Note from Bill: The goal here is to make the rules consistent for everybody, and this is a very good thing. As a matter of speculation, it is possible we are also heading towards some kind of consolidation between the service-disabled veteran-owned small business program and the 8(a program), which are not exactly the same but probably could be treated the same. It looks like the SBA is moving in that direction, however that is not official yet by any means.
Section 806 of the FY2020 NDAA directs the Under Secretary of Defense for Acquisition and Sustainment to review how the Department of Defense uses fixed-price contracts.
This is a topic that comes up periodically. To the uninitiated, it would seem that a fixed-price contract will result in larger profits, but that is not always the case.
We first have to understand that while it seems that fixed-price contracts have the potential for higher profits, they also have the potential for substantial losses. Assuming that there are no changes made, you will be obligated to deliver some set of things or services or things with services, at a fixed price, and it just isn’t necessarily clear when you go into this arrangement that the arrangement will be profitable.
It is true that you’ve priced it as a contractor to be profitable, however, circumstances change and the project can be different than you anticipated. Yet you’re still obligated to deliver that same set of things or services or things with services, for that same fixed price.
For example, let’s say I’m obligated to deliver 100 people throughout the country at various locations to do some clerical work. I’m required for those workers to have a certain level of skills, and a certain type of clearance. Well, I actually might deliver fewer people for a short period of time, because some people are in transit, or some have quit and not yet been replaced, but I’m still getting paid as if all 100 workers are still in place.
That’s good for me because I’ve getting paid a fixed price for 100 people and there’s only 95 on the job. Of course this is assuming that the number of people I’m not delivering doesn’t upset the client or cause me to miss deadlines or create problems that threaten my contract.
On the risk side, let’s say we’re in a very low unemployment rate, with correspondingly upward pressure on wages and skillsets. While I’ve told my client I’d deliver those 100 people for $65,000 each, now I’ve got to pay my employees $70,000 in order to get the required level of skill and so forth. Then my current people see what the new people are making and they want more money as well. Wages are up, which is good for people in general, but as a contractor I have to pay more and can’t charge the client more because we have a fixed-price contract.
So the reason fixed-price contracts are often won with a lesser value is because the risk is higher and therefore the margin that I pitch is higher. Often we build in contingencies as well, which might mean I think I can hire at $60,000, so I pitch at $65,000. But I could still end up having have to hire some at $68,000 or $70,000 so now I’m starting to lose money on those people.
This provision brings us into the study phase. The 2020 NDAA directs the Defense Department to look at the circumstances in which fixed-price contracts are used and awarded, and the experience from the government’s perspective.
Understand that the legislators are including many different forms of contracting that include the words fixed price that aren’t necessarily completely fixed, which has muddied the waters a little bit. They’ve included cost plus fixed fee, another form of fixed-priced contracting, and fixed labor rates. This will all come out in the wash.
They set a pretty aggressive deadline of February 2020 for the Under Secretary to brief the congressional defense committees on the findings of the review. If you have any comments once the NDAA is approved, let us know and we should be able to put our oar in the water through the Mid-Tier Advocacy group.
The 17-person 809 panel was tasked with finding ways to streamline and improve the defense acquisition process. I met with the 809 Panel in February 2017 and I found it important to speak about the challenges facing mid-tier companies.
Another question the panel asked me to address was what are the differences between contracting with the Department of Defense and a commercial sector.
New entrants, such as “Silicon Valley” companies, entering via OTAs and other mechanisms will eventually confront the same challenges as traditional players in the defense sector. This is particularly the case as they achieve success, become established, and play by the same rules as traditional government contractors.
These new entrants must prepare to operate in a defense contracting business environment. Described below are key differences between the commercial and DoD business environments, which impact directly on the business models companies operating in those environments adopt:
1) Commercial Environment:
- Customer/company commercial contractual practices reflect the need to adhere to general legal contractual requirements as defined by local, State, and federal government and are far less complex and formal than the practices encountered when working with DoD and to comply with the FAR/DFAR.
- Commercial marketplace involves rapid customer decision making and compressed timelines.
- Commercial marketplace includes flexible contractual arrangements that foster rapid business deals.
- In general, there is no requirement to meet specific socio-economic/small business targets in contracting.
- Customers have more flexibility to develop and establish criteria for selecting venders.
- Awarded work often involves rapid delivery of products and services.
- Companies focus on rapidly closing deals, maintaining continuous cash flow, and minimizing peaks and valleys in revenue/profit streams.
- Companies maintain robust sales and marketing capacity to continuously sustain and grow business.
- Commercial companies offering products/services relevant to DoD market sector stress continuous R&D and product scaling and improvement in order to sustain competitive position.
- Losing companies in commercial transactions have little recourse to protest customer’s decision.
2) DoD Contracting Environment:
- Contractual practices are guided by FAR and DFAR, unless waived, such as OTAs; procedures are formal and time intensive.
- Customer procurement strategies, criteria, and practices reflect guidelines provided by Executive Branch, Congress, DoD, and DoD agencies, which leads to complex customer requirements.
- Customer decision making involves multiple layers of leaders; all must adhere to specified procedures, which is time intensive.
- Contractual arrangements promote adherence to intent and letter of the law rather than focusing on rapid award of contracts.
- DoD agencies must stress adherence to socio-economic/small business targets.
- DoD agencies allocate significant time and resources to develop criteria, specifications, and requirements for contractual competitions; companies operating in the defense market space establish business model that are influenced by those government characteristics.
- Companies focus on obtaining access to contract vehicles, winning task orders or full & open competitions, and protecting incumbent work.
- Awarded work often involves multi-year contracts; this reduces the challenges associated with short duration commercial work.
- Companies address continuous cash flow and minimizing peaks and valleys in revenue/profit streams by sustaining numerous concurrent contracts.
- Successful defense-oriented companies maintain BD teams that focus on account management/business intelligence, capture, and proposal development.
- While many defense companies by their nature focus on R&D and building new capacity to remain competitive, they are influenced in their investments by the need to invest in activities required to meet DoD certifications and requirements (e.g., financial and security compliance, ISO-standards, CMMI-standards, etc.).
- DoD is generally unwilling to compensate companies for being innovative; viewed as a value-added trait.
- Companies operating in the defense market sector must obtain and sustain key certifications to remain competitive, such as ISO 9001:2008/2015, ISO 20000, ISO 27001, CMMI-3 & 4, NIST compliance, etc. This involves major internal investments.
- Losing companies in DoD transactions can protest large procurements; this impacts government procurement strategies and timelines.
Companies must design their organizations to optimize performance relative to the customers they serve, and as I’ve shown, the commercial market is very different form the Government market.
Given this, the DoD will be challenged in enticing non-traditional companies to enter the DoD market sector. While the DoD can offer short-term relief to the various barriers to entry, non-traditional players in that market sector will eventually have to adapt business models that support congressional and DoD policy requirements.
Randy J. (“RJ”) Kolton is VP of Mid-Tier Advocacy Group, and Senior Vice President (SVP), Business Development for Data Systems Analysts (DSA), Inc., a mid-sized, employee-owned company that is a leader in delivering business driven information technology and consulting solutions and services to the Federal Government and industry. Building on experience spanning more than five decades, DSA has deep expertise and comprehensive understanding of the operational, security, collaboration, and identity management challenges our customers must address.