We’ve been taking a look at new compromise language released about the creation of an online marketplace for DOD COTS purchases.
In this final post, we’ll look at some of the concerns people have about the program. The first is about data security. Another improvement over the original Section 801 language is the way the compromise bill deals with the treasure trove of data to which the portal providers will have access.
The previous Thornberry language precluded the online marketplace provider from selling or giving those data to third parties, but imposed no constraint on the provider’s use of those data for its own strategic purposes. Consequently, if a provider also were a seller, the provider could have used sales data from its competitors strategically to tailor its own offering and price its own products.
The new language precludes this by requiring the portal provider to agree “not to use for pricing, marketing, competitive, or other purposes, any information related to a products from a third-party supplier featured on the commercial e-commerce portal….” While this is improved language, it will not be easy for GSA to police this requirement. No doubt, the GSA OIG already is thinking through how it can help.
Notwithstanding the many improvements in the Section 846 language, the extensive breadth of the new program continues to concern many.
- First, the e-commerce portals will accommodate purchases up to the Simplified Acquisition Threshold. While more limited than the original Section 801 language, this still will direct a significant volume of DoD COTS purchasing into the hands of commercial entities.
- Second, while the language is focused on DoD purchasing, it expressly states the portal must be able to accommodate Government-wide purchasing. In other words, DoD is just the starting point. We can expect to see the program expanded to all agencies over time.
- Third, and perhaps most importantly, a companion provision of the NDAA provides that if a product previously has been purchased through a commercial items vehicle (e.g., a FAR Part 12 contract), it cannot be purchased via a more structured procurement (e.g., a FAR Part 15 contract) in the future without jumping through certain hoops.Indeed, the text expressly states that monies given to DoD may not be used to fund a FAR Part 15 procurement if the products being procured previously were purchased through a FAR Part 12 procurement. This new language appears to be designed to make it extremely difficult for DoD (and other agencies in the future) to circumvent the new portals by creating full and open commercial items competitions.
On the topic of commerciality, it is worth noting that, in addition to the e-commerce portal provisions of the compromise bill, the NDAA also includes a number of provisions designed to expand the Government’s use of commercial items purchasing vehicles and expand the number of products qualifying as commercial items.
These new provisions direct DoD to undertake a broad review of its current regulations, contracts, and subcontract flow-down terms to get rid of non-commercial clauses and provisions that have crept into DoD programs over the years. Indeed, the new language directs the Defense Acquisition University to develop new, meaningful training for COs to help them master commercial items acquisitions. This is a welcome development.
Finally, in addition to the positive changes for large businesses, small businesses also have something to cheer about in the compromise language. Section 846 makes clear purchases through the new e-commerce portals are deemed purchases from prime contractors such that the ordering agencies still get their small business purchasing credit.
The language also expressly states that agencies still can set aside their purchases for small businesses as they did before. (These provisions also suggest small business designation will be one of the several attributes portal providers will be required to display on their websites.)
In the end, the new language is a significant improvement over the original House proposal, but it leaves many questions unanswered. Section 846 directs OMB and GSA to fill in those blanks. And it provides for multiple reviews (including a detailed, phased-in GAO review) of how well OMB and GSA do their job.
Time will tell what the new program looks like. But we can be certain of one thing at the moment. The commercial items procurement landscape will change. It just may take longer than Rep. Thornberry had hoped.
As we continue our analysis of NDAA Section 846’s online marketplace provisions, let’s look at who can be a portal provider, and how they will work. We can see that the new language significantly reduces (but does not eliminate) the obstacles to becoming an official portal provider. Previously, Section 801 incorporated requirements only a handful of companies in the world (if that many) could have met.
Section 846 is less restrictive. It defines an acceptable portal as a “commercial solution providing for the purchase of commercial products aggregated, distributed, sold, or manufactured via an online portal.” It directs GSA to “consider” portals that are “widely used in the private sector” and that “have or can be configured to have” frequently updated supplier and product selections, as well as an assortment of product and supplier reviews.
As before, the language still expressly states the portal cannot be managed by the Government or designed for the primary use by the Government. Thus, neither GSA Advantage nor FedMall can satisfy the Section 846 requirements.
Unlike the House version of the bill, Section 846 does NOT state the portal providers will be selected without competition – a provision that greatly concerned not only industry, but many GSA officials as well. To the contrary, Section 846 states that current procurement laws will apply to the program unless explicitly exempted. This new language suggests GSA will have to develop some sort of competitive process to select the portal providers.
Whether that means GSA will conduct a full-and-open, head-to-head competition among potential portal providers or an everyone-who-meets-the-requirements-gets-in type competition (like GSA uses to award Schedule contracts) is unclear. In either case, the removal of the “non-competitive” language from Section 801 is a material improvement over the House bill.
As with Section 801, Section 846 vests significant responsibility in GSA to come up with a means to ensure products sold through the portals are screened to meet applicable statutory requirements. This likely refers to regimes like the Trade Agreements Act (“TAA”), the Buy American Act (“BAA”), environmental requirements, security requirements, and the like.
The language leaves it to GSA to figure out whether it will provide the necessary product data to the portal providers or will develop a mechanism for the providers to obtain those date on their own, presumably directly from the suppliers/manufacturers.
In either case, the continuing importance of product attribute data suggests neither suppliers nor portal providers should view the new procurement process as one devoid of obligations and/or risks.
On the flip side of the obtain-data-from-GSA coin, the new compromise language includes an expected submit-data-to-GSA obligation on the part of portal providers. Specifically, pursuant to Section 846, portal providers will have to collect and provide “order information” to GSA.
While GSA is left to determine what sort of “order information” it needs, chances are the resulting list will be similar to the data currently required through GSA’s TDR program.
Notwithstanding the Section 846 language directing OMB and GSA to ensure the awarded portals meet certain requirements, the compromise bill clearly reflects an effort on the part of Congress to minimize meddling in the structure of existing commercial ordering platforms.
In fact, the Conference Report accompanying the compromise bill encourages GSA “to resist the urge to make changes to the existing features, terms and conditions, and business models of available e-commerce portals, but rather demonstrate the government’s willingness to adapt the way it does business.”
This encouragement becomes a bit more pointed in the next sentence: “Pursuant to a diligent review of existing law and regulation, the conferees direct the Administrator to be judicious in requesting exceptions.”
Section 846 doesn’t have much to say about how agencies will purchase through the portal. Rather, it leaves most of that to GSA and OMB to figure out down the road. At this point, however, the language provides the authorized portals will be limited to COTS purchases. (The language actually uses the term “commercial products,” but strangely redefines the term to mean COTS items.)
Importantly, the language no longer includes the prior indecipherable provision that purchases would be deemed to meet all competitive requirements merely by virtue of there being more than one supplier selling the product.
Here again, the removal of the non-competitive language represents an improvement over the prior language. (The new language, however, provides no insight regarding the “protestability” of orders placed through the new portals, which currently is one of the only means industry has to hold agencies accountable for flawed purchasing decisions.)
Probably the most important change regarding purchasing relates to the prior Section 801 language that precluded ordering agencies from altering the marketplace provider’s standard terms and conditions.
That prohibition raised serious concerns over how fair a marketplace’s standard terms would be in a near-monopoly situation. The prohibition also raised significant questions about how the Government would deal with critical policy imperatives; things like data security, the Anti-Deficiency Act, socio-economic goals, country of origin rules, and the like.
The new language resolves at least some of those questions by providing that purchases through the portals “shall be made, to the maximum extent practicable, under the standard terms and conditions of the portal….”
This is not unlike the language currently used in FAR Part 12 procurements requiring that “contracts for the acquisition of commercial items shall, to the maximum extent practicable, include only those clauses … determined to be consistent with customary commercial practice.”
Since it will not be easy to define when a commercial term must be accepted by the Government or not, however, this likely will be an area for future litigation – just as it has been under FAR Part 12.
Stay tuned for a final look at this new language, and some concerns that remain.
There has been a lot of speculation about the future of commercial items purchasing within the Federal Government since Representative Mac Thornberry circulated his “Section 801” proposal to hand over the bulk of DoD COTS (commercial-off-the-shelf products) purchasing to one or two existing online commercial marketplaces. Industry groups mobilized, companies called their legislators, and the media contributed several stories describing the widespread criticism of the House NDAA proposal. To the surprise of many, however, the Senate seems to have heard industry’s concerns or at least some of them.
The compromise language that just emerged from the House/Senate Conference, designated Section 846 of the 2018 NDAA, reflects significant improvements from the original Thornberry bill. While the new compromise language still moves the Government significantly down the path toward the creation of an online marketplace, which almost certainly will change the way DoD (and likely other federal agencies) will purchase COTS items, the new approach resolved many of the most problematic provisions of the original House bill.
Unlike Section 801, which contemplated a quick, non-competitive award to an existing commercial marketplace provider to handle DoD COTS purchasing, Section 846 directs OMB and GSA to create a phased-in implementation plan and schedule to develop, evaluate, and implement the new online marketplaces (now called “e-commerce portals”) over the better part of three years.
The new language identifies a three-phase approach:
- Phase 1 gives OMB and GSA 90 days to develop an implementation plan and schedule.
- Phase 2 gives OMB and GSA a year after the plan/schedule is complete to conduct market research and to consult with federal agencies, potential e-commerce portal providers, and potential suppliers. Among other things, the “consultation” contemplated in this phase will focus on how current commercial portals function, the standard terms and conditions of such portals, and to what extent the currently-existing portals would have to be modified to meet Government needs.
This phase will also involve an assessment of data security, consideration of issues of concern to “non-traditional” Government contractors, and a review of the impact of fees charged by portal providers. On the issue of fees, the Conference Report accompanying the compromise language offered this warning to GSA: “The conferees are aware of various fee-based and other business-to-business arrangements to feature products offered by certain vendors in many commercial e-commerce portals. The conferees expect the Administrator to ensure that any contract or other agreement entered into for commercial e-commerce portals under this program preclude such business-to-business arrangements.”
- Phase 3 gives OMB and GSA two years (from the creation of its Phase 1 plan/schedule) to develop guidance for the use of the portal, “including protocols for oversight” of procurements through the new program.
As OMB and GSA progress through these three phases under the watchful eye of Congress and the GAO, their efforts will be guided by other provisions of Section 846 that differ significantly from Section 801.
In two follow-up posts, we’ll look more closely at how the new language handles who can be a portal provider and how the portals will work, and then we’ll discuss some concerns about this new program.
Way back when, there was an NDAA provision that said that Prime contractors had to provide a report of which subcontractor they actually used. This was necessary because small businesses were forever complaining that they would be on a Prime’s team but never got any business. The Prime won task orders, but they used other subs that were more favored – even though many times these other subs were not part of the original bid.
Then another NDAA provision was added which gave subs ability to go directly to the contracting officers and indicate that they were not getting paid (or not getting paid promptly). This was followed by still other NDAA provisions that served to strengthen the OSDBU – trying to give the OSDBUs more “teeth” in their enforcement of true equity in subcontractor relationships.
The specific intent here is to strengthen the contracting officer, OSDBU, and subcontractors’ ability to enforce equity in the subcontracting relationship. Truth be told, Primes are just not very good, or uniform, at treating subs as an actual “partner.”
Now comes SEC. 1821. GOOD FAITH IN SUBCONTRACTING, in this year’s NDAA:
‘‘(20) shall review all subcontracting plans required by paragraph (4) or (5) of section 8(d) to ensure that the plan provides maximum practicable opportunity for small business concerns to participate in the performance of the contract to which the plan applies.’’. (c) GOOD FAITH COMPLIANCE.—Not later than 270 days after the date of enactment of this title, the Administrator of the Small Business Administration shall provide examples of activities that would be considered a failure to make a good faith effort to comply with the requirements imposed on an entity (other than a small business concern as defined under section 3 of the Small Business Act.”
What this does is to ensure that the large business must report on actual usage of the small businesses that bid with it on the original subcontract. This will highlight using other small businesses, and not using the originals.
TRANSPARENCY, that’s the ticket to compliance.
This is a guest post by Jason Miller of Federal News Radio.
It’s been a year since the Office of Federal Procurement Policy released and accepted comments on its draft circular around category management.
With little-to-no activity on the draft circular over the past year, it seems OFPP is taking a less permanent route to further institutionalize this approach to buying.
Federal News Radio has learned OFPP sent a draft memo out for comment across the agencies earlier this summer, focusing on demand management and “best-in-class contracts.”
Several sources confirmed agencies submitted comments and OFPP is reviewing them.
Government sources familiar with the draft memo say OFPP wants agencies to set goals for using “best-in-class contracts,” and implement demand management by analyzing procurement data and making decisions on who to buy from and how to buy from those vendors.
One source said the draft memo would require agencies to negotiate with OFPP a percentage of work that would have to go through some of the currently 29 governmentwide, multiple-award contracts that have been designated “best-in-class.” These include several General Services Administration contracts, such as OASIS for professional services and Alliant for IT services, as well as the governmentwide acquisition contracts run by NASA and the National Institutes of Health.
“Each agency’s goal would be different because it would be based on what you buy and what you think you should be buying,” said the source, who requested anonymity in order to speak about the pre-decisional memo. “OFPP will look at what you bought in the past and determine what percentage should be bought through these contracts. You will then negotiate with OFPP, much the same way we do with small business goals.”
Multiple government sources say they have real concerns about the memo and have expressed them to OFPP.
Another government source familiar with the memo said they are not a fan of the “best-in-class” designation because it’s based too much on labor rates or categories, and not based on whether the vendor can do the work the agency needs.
“To be ‘best-in-class,’ you have to demonstrate that the vendor is best in class,” the source said. “I understand using it for some things, like delivery services, but for anything mission-related or more complicated, I’m not sure you can just look at the basic information and decide a contract is ‘best-in-class.’”
Lesley Field, the acting OFPP administrator — who, by the way, has been acting for more than a year— said at the Professional Services Council’s Vision Forecast Conference on Nov. 2 that agencies use rigorous criteria to determine “best-in-class.”
“We developed the requirements with a lot of government agencies in mind. It’s not just one agency, but there were customers at the table helping with the requirements,” Field said. “We want to take advantage of volume pricing. We want to have benchmarks for what industry is driving toward. We want to make sure is there data-driven demand and we have to validate our savings methodologies.”
But the criteria for “best-in-class,” according to GSA’s website, are much less rigorous than what Field described.
GSA says to be “best-in-class” a contract must:
- Allow acquisition experts to take advantage of pre-vetted, governmentwide contract solutions;
- Support a governmentwide migration to solutions that are mature and market-proven;
- Assist in the optimization of spend, within the governmentwide category management framework;
- Increase the transactional data available for agency level and governmentwide analysis of buying behavior.
Field said OFPP, GSA and other agencies look at those contracts to make sure they meet all these criteria as well as others, such as ensuring they support contracting with small businesses.
Roger Waldron, president of the Coalition for Government Procurement, said his members and others in the federal community are concerned about the impact the “best-in-class” designation could have on the marketplace.
“To the extent that ‘best-in-class’ contracts are selected, it’s like picking winners and losers. It could lead to less competition and higher prices in the long run,” Waldron said. “Industry also is scratching their collective heads about what criteria should be used, and even if it’s the right idea. Best-in-class predisposes that it’s the right way to go, but what if it’s a platform or new idea instead of just a contract?”
Waldron said the Federal Acquisition Regulations already tell agencies there are priority sources of supply, so if OFPP wants to hold agencies accountable for using these “best-in-class” contracts, what does it mean for the small business community?
“Is best-in-class establishing a different framework for priorities?” he said. “We don’t understand why OFPP isn’t going through a typical rulemaking process. The Obama administration put out the circular and asked for some comment on it. We submitted a series of comments and questions, and to date, we’ve received no response from the executive branch. I’m not sure how OFPP can implement category management and best-in-class without addressing industry questions and concerns. It doesn’t demonstrate a real partnership.”
Industry isn’t the only place where collaboration may be falling short.
The second government source said OFPP has talked — but not to the acquisition community — about category management and the use of “best-in-class” contracts.
“I’ve been told our comments will be addressed,” the source said. “This is a leftover initiative from the last administration and they are just keeping it going without taking a new look at the effort.”
Sources said OFPP should bring the Chief Acquisition Officer’s Council together to discuss category management and what “best-in-class” really means before creating what some may view as a mandate to use these designated contracts.
Government and industry experts say OFPP should reconsider what “best-in-class” really means.
The government source said maybe it’s around acquisition practices and not contracts.
Waldron said maybe OFPP should consider identifying key characteristics of contracts to drive the best value.
“The only thing we have is criteria that were identified in the draft circular that are all process-driven, not outcome-driven,” he said. “Plus, the definition of best-in-class in government seems to be different than best-in-class in the private sector.”
Sources say one problem with the entire category management effort is it’s being driven by GSA and they stand to gain from the effort.
The first government source said OFPP needs to be more flexible in how it requires agencies to use these contracts. The source said they can’t understand how the GSA Schedules are considered “best-in-class,” given how many vendors there are and the fact that the prices aren’t great to start.
“The way GSA negotiates them means you are not getting the best price, because anyone can get on it as long as you are a legitimate company, you don’t have any failed past performance and can offer a decent price,” the source said. “To me, ‘best-in-class’ means you negotiated and are getting a good deal. Best-in-class should minimize my work and Schedule 70 doesn’t do that, and that’s where I get a little nervous because OFPP is going to an extreme. Best-in-class should be contracts that are products or services that are proven, efficient and cost-effective. You are after quality, timely delivery and cost-effective buying. Right now, the criteria is too loosely written.”
This post originally appeared on the Federal News Radio site at https://federalnewsradio.com/reporters-notebook-jason-miller/2017/11/ofpp-drafts-memo-to-replace-category-management-circular/ and was reprinted with permission. You can also click here to listen to Jason Miller discuss the topic on the Federal Drive podcast with Tom Temin.
The Promoting Value Based Procurement Act was forwarded by House Oversight lawmakers in September 2017. Its purpose is to require executive agencies to avoid using lowest price technically acceptable source selection criteria in certain circumstances, and for other purposes.
This is an important change that has been coming down the pike for several years. Increasingly, government procurement officials and their customers, the actual government activities, have noticed again and again, that “lowest price technically acceptable” contracts are a problem – especially after award.
LPTA was originally designed to give the contracting officers a tool to force lower prices and make easier bid decisions. They could assess the technical response on a pass-fail, then just award the lowest price bidder. Yet the end result has been disastrous, such companies who’ve lowered their labor prices so much that they’re unable to hire at those low rates.
These practices have already led to the decline of LPTA contracts, but this legislative initiative codifies that effect and makes it extremely difficult to use LPTA.
I discussed this with my favorite experienced (now retired) contracting officer (CO), and he did raise one interesting side effect: he postulated that we’ll see ‘better’ proposals. I disagreed, but we do agree that we’ll see more technology and innovation proposed in best value procurements; people will look for where they can get discriminators and have the right technical outcome.
In conclusion – we’ll see! In the meantime, for more insights on this legislation, see this NextGov article: House Panel Moves Bill Urging Federal Buyers to Consider Quality, Not Just Cost.
We’ve been taking a look at the biggest changes affecting small businesses in the National Defense Authorization Act for FY 2018. In a previous post we looked at H.R. 1773, meant to clarify terminology and improve uniformity, and today we’ll move on to H.R. 1774.
H.R. 1774, Developing the Next Generation of Small Businesses Act of 2017
This act aims to expand the entrepreneurial development programs to further the important work being done by the House Armed Services Committee on procurement reform, by ensuring that SBA is effectively introducing the next generation of entrepreneurs to the opportunities afforded by federal procurement contracts.
Within H.R. 1774, the following bills are found:
- H.R.1702 – Small Business Development Centers Improvement Act of 2017 – This bill amends the Small Business Act with respect to the authority of the Small Business Administration (SBA) to use certain SBA programs, including the small business development center (SBDC) program, to provide grants, financial assistance, loans, export assistance, and subcontracting opportunities on federal contracts to specified small businesses, organizations, state governments, universities, companies, and other entities that assist smaller enterprises.
- H.R.1680 – Women’s Business Centers Improvements Act of 2017 – The bill revises the duties of the Office of Women’s Business Ownership and declares it is the Office’s mission to assist women entrepreneurs to start, grow, and compete in global markets by providing quality support with access to capital, access to markets, job creation, growth, and counseling.
- H.R.1700 – SCORE for Small Business Act of 2017 – This bill amends the Small Business Act to reauthorize the SCORE program (Service Corps of Retired Executives) for FY2018-FY2019. The program is renamed as simply the SCORE program.
So this NDAA is a little less “bold” – more has been packed into other versions of NDAAs over the years that had a material impact. The items here in H.R. 1774 focus on SBA programs, which are impacting the overall health of small businesses, but do not address the really punishing occasional prejudice that can occur during and after contract procurement.
Remember, too, that the hurricanes will have some material impact on how SBA sees their mission, as they struggle to help small businesses in SE Texas/Louisiana, then Florida and the Gulf Coast, and finally the Caribbean.
Stay tuned, more will be coming in the budget, in the NDAA for FY19, and as tax reform/tax cuts hit the legislative calendars.
As we shared in a previous post, on July 14, 2017 the House passed H.R. 2810, the FY2018 National Defense Authorization Act.
Focusing on small businesses, the NDAA is comprised primarily of two main pieces of legislation. We’ll cover one in this post, and follow up with a separate post about the other.
H.R. 1773, the Clarity for America’s Small Contractors Act of 2017
This act amends the Small Business Act to improve reporting on small business goals, achieve uniformity in procurement terminology, clarify the role of small business advocates, and for other purposes.
It modernizes the Small Business Act to ensure that the language used is clear and consistent across federal procurement programs. Heaven knows that the lingo used in legislation is designed for lawyers and lobbyists, and certainly not for the actual small businesses they are addressing.
It strengthens the small business advocates within the Small Business Administration (SBA), who routinely work with Department of Defense contracts by promoting competition and making sure laws are followed, including the NDAA. We know that some small business advocates are not as strong advocates, and legislation that empowers them can only improve things for everyone involved.
The bill implements common sense reforms to ensure transparency and accountability by requiring that important information be provided that clearly shows where taxpayer dollars are being spent on which small business programs. This has always been an issue – small business impact is not easy to track, and then you have complications like mid-tier businesses and sometimes active opposition from the large businesses. Again these are good things – not fixing legislative issues, but strengthening the processes.
Within H.R. 1773, the following bills are found:
- R.1597 – Commercial Market Representatives Clarification Act – This bill amends the Small Business Act to specify the principal duties of Commercial Market Representatives, government contracting staff stationed at area Small Business Administration (SBA) offices and reporting to specified senior SBA officers.
- R.1641 – To amend the Small Business Act to clarify the responsibilities of Business Opportunity Specialists, and for other purposes. – This bill amends the Small Business Act to declare that the exclusive duties of a Business Opportunity Specialist reporting to the senior official (or designee) appointed by the Small Business Administration (SBA) with certain SBA loan responsibilities, including the procurement program for small business concerns owned and controlled by service-disabled veterans and the Historically Underutilized Business Zone (HUBZone) program, shall be to implement specified SBA loan programs, and complete other duties related to contracting programs.
- R. 1693 – Improving Contract Procurement for Small Businesses through More Accurate Reporting Act of 2017 – This bill amends the Small Business Act to require the Small Business Administration to report to the President and Congress an analysis of the number and dollar amount of prime contracts awarded by federal agencies each fiscal year to small business concerns.
- R.1640 – To amend the Small Business Act to ensure uniformity in procurement terminology, and for other purposes. While this might seem the least important, fixing definitions so everyone is on the same page is a big deal.
All told, these changes are mostly about the processes that govern our small business management, but truly do make incremental improvements that will make a difference.
Stay tuned for a separate post about the other important NDAA FY18 act that affects small businesses.
This is a guest post from Mark Amadeo, principal at Amadeo Law Firm, PLLC.
Last week the SBA published its semiannual Regulatory Agenda (the “Agenda”), which is a summary of current and projected regulatory actions and completed actions. The Agenda (which can be downloaded here) highlights several anticipated changes to regulations that impact small business government contractors, including women-owned small businesses (WOSB’s), service-disabled veteran owned small businesses (SDVOSB’s) and HUBZone small businesses. Below are several of the anticipated changes that government contractors should look out for in the very near future.
WOSB & EDWOSB certification procedures
As we wrote about in a prior edition of The GovCon Bulletin™ (here), the National Defense Authorization Act for Fiscal Year 2015 (NDAA 2015) imposed several mandates on the SBA’s WOSB program, including a requirement that a firm be certified as a WOSB or economically-disadvantaged women owned small business (EDWOSB) under one of four options: By a federal agency, by a state government, by the SBA, or by a national certifying entity approved by the SBA.
The SBA subsequently issued an advanced notice of proposed rule-making on December 18, 2015, again described in the same edition of the The GovCon Bulletin,™ in which the SBA raised several pointed questions and sought public input on each of the four proposed certification options. The comment period ended on February 16, 2016 and now the SBA intends to issue a new rule that will propose certification standards and procedures.
In addition, the new rule will revise procedures for continuing eligibility, program examinations, protests and appeals. Although not much is known about the specific changes, the SBA did make clear that the new certification procedures will include an electronic WOSB and EDWOSB application and certification process.
NDAA 2016 & 2017 mandated rules
The Agenda also anticipates that in the near future the SBA will implement a variety of rule changes required under the National Defense Authorization Act for Fiscal Year 2016 (NDAA 2016) and National Defense Authorization Act for Fiscal Year 2017 (NDAA 2017), including requirements concerning SDVOSB ownership and control, a pilot program granting past performance ratings to subcontractors, and subcontracting report compliance.
1. SDVOSB ownership and control rules
The Agenda indicates that the SBA will issue a proposed rule establishing a uniform definition of a “small business concern owned and controlled by service-disabled veterans” that will be used for SDVOSB procurements by both the Veterans Administration (VA) and by non-VA agencies. Before NDAA 2017, the definition for purposes of VA SDVOSB procurements was contained in VA statutes under former 38 U.S.C. 8127(l), while a different definition for non-VA procurements was contained in SBA legislation under 15 U.S.C. 632(q)(2). Meanwhile, regulations fleshing out the SDVOSB definitions for purposes of VA procurements are under the VA’s regulations in 38 CFR Part 74 and, for purposes on non-VA procurements, under the SBA regulations in 13 CFR Part 125.
NDAA 2017, however, requires a government-wide uniform definition by amending 38 U.S.C. 8127 to refer back to 15 U.S.C. 632 for one controlling definition. Moreover, NDAA 2017 clears the way for the SBA to provide the sole and definitive guidance on what it means to be owned and controlled by a service-disabled veteran by prohibiting the VA from issuing regulations relating to either small business status or the ownership and control of a small business.
As for the new uniform definition of “small business concern owned and controlled by service-disabled veterans,” NDAA 2017 provides three categories of businesses that will meet the definition:
First, a small business concern (i) not less than 51 percent of which is owned by one or more service-disabled veterans or, in the case of any publicly owned business, not less than 51 percent of the stock (not including any stock owned by an ESOP) of which is owned by one or more service-disabled veterans; and (ii) the management and daily business operations of which are controlled by one or more service-disabled veterans or, in the case of a veteran with permanent and severe disability, the spouse or permanent caregiver of such veteran;
Second, a small business concern (i) not less than 51 percent of which is owned by one or more service-disabled veterans with a disability that is rated by the Secretary of Veterans Affairs as a permanent and total disability who are unable to manage the daily business operations of such concern; or (ii) in the case of a publicly owned business, not less than 51 percent of the stock (not including any stock owned by an ESOP) of which is owned by one or more such veterans; and
Third, a small business concern that met either of the two requirements described above immediately before the death of a service-disabled veteran who was the owner of the concern, the death of whom causes the concern to be less than 51 percent owned by one or more service-disabled veterans, if (i) the surviving spouse of the deceased veteran acquires such veteran’s ownership interest in such concern; (ii) the veteran had a service-connected disability rated as 100 percent disabling by the VA or such veteran died as a result of a service-connected disability; and (iii) immediately prior to the death of such veteran and during the period it is otherwise an SDVOSB the small business concern is included in the VA’s VetBiz database.
A surviving spouse in the third category can only continue to operate the SDVOSB until the tenth anniversary of the veteran’s death, the date he or she remarries, or the date he or she relinquishes ownership, whichever comes first. As for the small businesses in the first two categories, small business owners should take note of the exclusion of stock owned by an ESOP in the determination of whether ownership requirements are met for a publicly owned business.
2. Pilot program for qualified subcontractors to obtain past performance ratings
NDAA 2017 also authorized the SBA to establish a pilot program that would enable first tier small business subcontractors without any past performance rating to, nevertheless, obtain past performance ratings for work done as subcontractors.
Under the proposed pilot program a subcontractor must submit to a designated official an application for a past performance rating for work done under a government contract within either 270 days of the completion of the subcontractor’s work or 180 days after the completion of the prime contractor’s work, whichever is earlier.
The subcontractor is required to include with the application evidence of the past performance factors that it seeks to be rated on, as well as its own suggested past performance ratings. The designated official must then forward the application to the covered contract agency’s Office of Small and Disadvantaged Business Utilization (OSDBU), as well as to the prime contractor. Thereafter, the OSBDU and the prime contractor must submit a response to the subcontractor’s application.
NDAA 2017 provides procedures if there is agreement or disagreement over proposed past performance ratings, as well as a procedure for a small business subcontractor to respond to any disagreements by the OSDBU or a prime contractor over proposed past performance ratings.
3. Failure to act in good faith in submitting timely subcontracting reports will be a material breach of the contract
NDAA 2017 also makes changes to the Small Business Act that makes a failure to act in good faith in providing timely subcontracting reports a material breach of a government contract. NDAA 2017 requires the SBA to provide examples of activities that would be considered a failure to make a good faith effort to comply with requirements.
Comprehensive changes to the HUBZone program
Lastly, the SBA Agenda anticipates significant changes to the SBA’s HUBZone program. Although short on any specifics, the Agenda indicates that “comprehensive” revisions will be made to the HUBZone program and regulations under Part 126 of the SBA’s regulations.
The SBA indicates that its focus will be to make it easier for participants to comply with program requirements and to maximize program benefits, to determine if regulations should be modified, streamlined, expanded or repealed to make the HUBZone program more effective and/or less burdensome on small business concerns, and to maintain a framework that identifies and reduces waste, fraud, and abuse in the program.
The SBA has invited the public to comment on any aspect of its Agenda. (Note from Bill: Look for contact information under each specific section of SBA’s Agenda summary.)
This article was originally posted on LinkedIn at https://www.linkedin.com/pulse/sbas-agenda-anticipates-significant-rule-changes-wosb-mark-amadeo/ and was reprinted with permission.
Mark Amadeo has served as outside counsel to Fortune 200, medium, small, and non-profit companies, local government entities, and government contractors. A skilled advocate who has vigorously pursued and defended claims on behalf of clients in federal and state courts throughout the country, Mr. Amadeo offers a unique litigation perspective that helps government contracting clients avoid traps and pitfalls that can lead to time-consuming and expensive litigation. Sign up for the Amadeo Law Firm’s The GovCon Bulletin™ to receive new insights and announcements by email.
What is the status of the National Defense Authorization Act (NDAA)?
As of July 14th, 2017 the House passed H.R. 2810, the FY2018 National Defense Authorization Act.
Ranking Member Nydia M. Velázquez commented:
“The NDAA bill contains a package of bipartisan, small business legislative proposals that will help small firms win their share of federal contracts, strengthen entrepreneurial development programs and assist cutting edge firms as they bring new technologies and products to market.”
What is the purpose of the NDAA?
This bill aims to authorize appropriations for fiscal year 2018 for military activities of the Department of Defense, for military construction, and for defense activities of the Department of Energy, to prescribe military personnel strengths for such fiscal year, and for other purposes.
Nine members of the Small Business Committee introduced contracting and entrepreneurial development bills this year, which are included in the final draft of the NDAA.
Chairman Steve Chabot of the Small Business Committee commented:
“I am proud that many of the bipartisan bills the House Small Business Committee has worked on were included in the bill. I thank Chairman Thornberry for his hard work putting together this year’s National Defense Authorization Act and for recognizing the vital role small business reforms play in our nation’s security. These provisions will ensure small businesses have a greater opportunity to compete for federal contracts, and bring entrepreneurial development programs up-to-date to better equip our small federal contractors.”
Stay tuned for our follow-up posts about the biggest changes affecting small businesses in NDAA FY18.