Legal Meets Practical

In a recent decision, the U.S. Court of Federal Claims (“CoFC”) upheld the VA’s decision to cancel an award to the incumbent contractor on the basis of a conflict of interest and exclude that contractor from the follow-on order.

This case sounds a little garden variety, doesn’t it? Organizational conflict of interest (“OCI”) has its own section in the Federal Acquisition Regulation, and it’s a common bid protest ground. When you look at the facts, however, this becomes one of the most interesting (and important) bid protests in recent months.

First of all, the incumbent’s prior contract and the follow-on work at issue are vital to the Veteran-Owned Small Business (“VOSB”) community. These contracts are integral to determining who receives VA set-aside work for VOSBs and Service-Disabled VOSBs (“SDVOSBs”). As such, it’s important the contract is in the right hands.

In support of the VA’s Center for Verification and Evaluation (“CVE”), Monterey Consultants, Inc. (“Monterey”) acted as a gatekeeper to the VA’s set-aside program (the Veterans First Contracting Program). If you’re listed in its database, the VetBiz Registry, you can do set-aside work for the VA as a VOSB or SDVOSB. If you’re not, you can’t. Simple as that. In performing under its initial contract (a Blanket Purchase Agreement, or “BPA”), Monterey played a big role in reviewing and processing the applications to the program.

Second of all, the OCI was blatant. If you want to read more about the CoFC’s finding, you can access the full case here, but here are a few facts relating to the OCI:

• The RFQ included a specific section covering OCIs. In relevant part, that section stated that “Contractors performing on other contracts in support of Verification shall be presumed to have an OCI with respect to this contract and are ineligible to quote on this requirement, due to the integrated nature of work perform[ed] under this solicitation and existing contracts.” Monterey submitted its proposal – and won the award – although it was clear that it had previously provided verification services under its BPA.

• When the contracting officer investigated the OCI, he discovered that, prior to the Request for Quotation’s (“RFQ”) public release, all of Monterey’s and its subcontractor’s personnel had access to non-public information regarding the RFQ, including the requirements, independent government cost estimates, acquisition plan, market research, and evaluation criteria.

• The contracting officer also discovered that Monterey personnel provided services to the Office of Small and Disadvantaged Business Utilization directly relating to the preparation of the solicitation. Notably, one employee of Monterey’s subcontractor both prepared pre-solicitation documents and was involved in the development of Monterey’s proposal.

• Monterey had not provided an OCI mitigation plan with its proposal.

When the VA informed Monterey of its intention to rescind its contract, Monterey didn’t take this lying down. It filed suit in the CoFC, challenging not only the VA’s decision, but the eligibility of the second contractor in line for the award. (Only three proposals from responsible offerors were received for the contract). When a size determination by the Small Business Administration (“SBA”) sided with the second contractor – Loch Harbour Group, Inc. – Monterey went full throttle with attacking the OCI allegations.

In the end, the CoFC was unswayed by Monterey’s arguments. In particular, it noted Monterey’s access to acquisition documents – including ones not released to the public – holding that these facts, as well as others in the record, created “on its face, the potential for an OCI.” Monterey “therefore had a duty to mitigate that conflict or face ineligibility to bid on the follow-on solicitation.” The CoFC continued:

“The CO reasonably viewed the facts as establishing a potential OCI. Plaintiffs thus had a duty to mitigate that conflict prior to bidding on the follow-on work. The CO found its efforts in that regard to be inadequate in view of the absence of a mitigation plan. Given the discretion we afford on review of agency action in this regard, we cannot say that the CO acted arbitrarily and capriciously with regarding to his conclusion of a potential, unmitigated OCI.”

The lesson here isn’t to pick your battles, as I wouldn’t have wanted to lose this contract either. In my opinion, the lesson here is to carefully choose your weapons for battle – the existence of OCI was indisputable, but maybe an airtight mitigation plan would have resulted in a victory.

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Did you know that by the end of this year, there will be no more homeless veterans? That’s right. In 2010, the U.S. Department of Veterans’ Affairs (VA) announced a five-year plan to end veteran homelessness. This means that by the end of this year, we can expect that there will be no more homeless veterans in America.

Of course, we know that’s not going to happen. Even with endless resources and an aggressive, bulletproof plan, the VA couldn’t deliver on this promise. It might as well have told us it would deliver us the stars.

That is the first point of this blog. VA, we know you can’t achieve the impossible. Don’t set unreasonable goals, and then you won’t be criticized for not meeting them.

The second, and more important, point is the VA has done good work in this arena, and it should be recognized for it.

According to statistics from the U.S. Department of Housing and Urban Development (HUD), as of August 2014, there are 49,933 homeless veterans living in the United States. This is based on HUD’s Point-in-Time Count it conducts every January to estimate the number of homeless veterans. While it is likely that not all veterans are accounted for, this number represents a significant 33% drop in veteran homelessness since 2010.

Part of this drop is attributed to the VA’s Supportive Services for Veteran Families (SSVF) Program, where the VA awards grants to private, non-profit organizations and consumer cooperatives that provide services to very low-income Veteran families living in – or transitioning to – permanent housing. (More information can be found here).

Today, Secretary of Veterans Affairs Robert A. McDonald announced the award of nearly $93 million in 3-year grants under this Program. These grants will help approximately 45,000 homeless and at-risk Veterans and their families, providing additional resources as it applies to 24 non-profit agencies in 15 communities across 11 states. (The full list of organizations impacted by this grant is available here).

“The Department of Veterans Affairs is committed to using evidence-based approaches such as SSVF to prevent homelessness and produce successful outcomes for Veterans and their families,” said Secretary McDonald. “This is a program that works, because it allows VA staff and local homeless service providers to work together to effectively address the unique challenges that make it difficult for some Veterans and their families to remain stably housed.”

Through the homeless veterans initiative, VA committed more than $1 billion in FY 2014 to strengthen programs that prevent and end homelessness among veterans. The VA provides a range of services to homeless Veterans, including health care, housing, job training and education.

As President Obama has said, “[W]e’re not going to rest until every Veteran who has fought for America has a home in America.”

Those are lovely words. Now make them count.

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*UPDATE – On Monday, April 13, it was announced that Ms. Paul has resigned. She refers to the incident as a “misunderstanding” and claims that harassment forced her out of the job.

Less than two weeks ago, I blogged about an email circulated by a senior-level VA employee that joked about veteran suicide. This email prompted many veterans service organizations (VSOs) to rally for the employee’s removal, especially in light of the employee’s role as a licensed social worker entrusted with caring for transitioning combat veterans.

Now it looks like these VSOs might get their wish.

Today, the Indiana Behavioral Health and Human Services Board voted to impose a 90-day suspension of Ms. Robin Paul’s license. This is only two weeks after the VA placed Ms. Paul on paid administrative leave following the outcry over the email. (Ms. Paul is a case manager for the Roubedash VA Medical Center’s STICC – the Seamless Transition Integrated Care Clinic. She makes approximately $88,000 a year in that position).

“Due to the nature of Ms. Paul’s work at the VA medical center in a transitional clinic for veterans dealing with mental health issues, the state felt that she did represent a clear and immediate danger based on the nature and contents of the email,” Deputy Attorney General Laura Sahm told the Indiana Behavioral Health and Human Services Board.

Ms. Paul will remain on paid administrative leave while an internal VA investigation takes place. Julie Webb, a spokeswoman for VA Roudebush, denied that the move was a form of discipline.

VA, are you sure you want to say that? Aren’t you already in enough trouble for not keeping your employees in check? (For another blog on that subject, see here).

As background, the email that has gotten everyone so fired up had the subject line: “Naughty Elf in the STICC,” and it included four photos of a Christmas elf character in various rooms of the STICC. For example, one photo included a note next to the character that read “Out of Xanax please help!” Another photo (featured at bottom) depicted the elf hanging from a strand of Christmas lights and a caption that read “Caught in the act of suicidal behavior (trying to hang himself from an electrical cord).”

The truly disturbing thing about the photos is they were tailored specifically to the medical center; i.e., someone went to the trouble to create them. It is unclear whether that person was Ms. Paul; all we know is she passed them along to her staff.

An online petition calling for the Ms. Paul to be fired has more than 6,000 signatures as of mid-March. May the people be heard!

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“I’m so uncomfortable here.”

“I really shouldn’t be here. Oh my God, I shouldn’t be here.”

These were the quotes of a Project Manager who served on the Market Survey Team (MST) evaluating property sites for a new Department of Veterans’ Affairs (VA) healthcare center, after she realized that properties to be reviewed included those owned by her extended family member.

After uttering those words, the Project Manager effectively left it at that. Rather than recuse herself from the evaluation process due to the appearance of impropriety, the Project Manager instead participated in the selection and provided scores for the land she thought most suited the project. Later, when her family member was selected, a staff member of the local newspaper queried the VA, asking how the Project Manager’s position as the assistant chief engineer wouldn’t have been able to sway other committee members. The VA never responded to this inquiry.

Following a thorough investigation, in a 28-page VA Office of Inspector General Report (OIG) released on March 10, 2015, the VA OIG found that while there was no actual conflict of interest, the Project Manager’s action of not recusing herself from the source selection created the appearance of a conflict of interest.  The VA also found that the Project Manager’s supervisors erred by not conferring with an agency ethics official prior to allowing the Project Manager to participate in the selection.

The VA OIG issued a recommendation that the Deputy Under Secretary for Health and Operations Management determine whether “appropriate administrative action” against the Project Manager and her supervisors was necessary. It also recommended that the involved individuals take refresher ethics training directly related to the matters described in the report. Last, it prodded the VA’s Office of General Counsel to “review this entire matter from start to end.”

Maybe it’s just me, but this entire situation seems like an incredible waste of tax dollars. I’m not suggesting that this situation did not warrant investigation, but that the situation never should have existed in the first place. Not only did this Project Manager know about the possible conflict of interest, but so did numerous individuals involved with the source selection. Despite this, the Project Manager’s involvement continued, and the result is an extensive investigation that surely cost tens of thousands of dollars, as well as a costly review of the matter by the VA’s General Counsel. This is not to mention the considerable time the VA has wasted – not only by the hours spent investigating the impropriety, but by the time spent by the employees in ethics training.

And I have to ask – is it really necessary to tell someone that evaluating a proposal submitted by their family member might look a bit shady?

In the future, when a procurement official’s first statement while being led to the selection table is “oh my God, I shouldn’t be here,” maybe the second statement should be, “I’ll see you all later.”

Access the VA OIG report on this matter VAOIG-12-03002-102.pdf.

Did you find this article informative? If so, access Sarah Schauerte’s legal blog on veteran and small business issues at: https://legalmeetspractical.com.

Not since Garfield has a cartoon garnered so much attention…but the attention sure ain’t positive.

On March 9, 2015, a story broke regarding an email circulated by an Indianapolis VA Medical Center (“Center”) employee, where the employee used cartoons to poke fun at possibly the most unfunny subject ever – veteran suicide.

The culprit is Ms. Robin Paul, a licensed social worker who manages the Center’s transitional clinic for returning veterans. This is a woman who is supposed to have empathy and sensitivity to the plight of veterans in an extremely vulnerable situation.

The email that has created a blogging storm across the country (see the comments to the story as posted on military.com here) depicts an elf in various rooms of the Center. One photo depicts him peering between the legs of a female doll. “Trying his skills as a primary care provider (doing a pap),” the email says. Another shows the elf next to a sticky note with the words, “Out of XANAX — please help!” A caption says, “Self-medicating for mental health issues when a CNS would not give him his requested script.” A third photograph shows the elf hanging from a strand of Christmas lights. “Caught in the act of suicidal behavior (trying to hang himself from an electrical cord),” reads the caption.

Apparently, the email was sent in the pre-holiday season, around November 18. Veterans service organizations across the country have issued many public statements on the issue, calling for Ms. Paul to be fired and asking why the VA did nothing about the email for nearly four months. It doesn’t help that the entire country is already fired up about the waiting time manipulation scandal at Phoenix.

A veteran client sent me the article on this subject in military.com, and I was reluctant to blog on the topic. The rage directed at Ms. Paul was palpable, and I almost felt slightly empathetic for one careless email having created such a stir.

Then I thought about the situation some more. I am a veterans advocate, and a lawyer, and everyone tries to make light of their jobs to alleviate stress. This is why I love a good dead lawyer joke. I would not, however, under any circumstances or context, come anywhere close to touching a veteran mental health issue with a joke. I cannot wrap my head around the concept of someone senior in the VA doing so. Ms. Paul has a fiduciary duty to care for the veterans she is charged to protect, and circulating an email like this isn’t simply careless. It demonstrates a lack of empathy and basic decency, which is dangerous considering her job.

That’s a message directly to you, Secretary McDonald. Consider her job. Consider eliminating it.

*Did you find this article informative? If so, sign up for Sarah Schauerte’s legal blog on veterans issues at: https://legalmeetspractical.com.

*Did you find this article depressing? If so, look below for two genuinely funny cartoons, by Bill Watterson (Calvin and Hobbes and Gary Larson (The Far Side), respectively (and respectably).

In response to the scandal which rocked the Department of Veterans Affairs (VA) last year, which included several scathing Inspector General reports regarding wait times, the firings of several high-ranking employees, and the resignation of Secretary Erik Shinseki, two bills designed to reform the broken VA passed the U.S. House of Representatives on March 2, 2015.

The Long-Term Care Veteran Choice Act will give veterans the ability to transfer to a non-VA medical foster home for long-term health care needs instead of staying in a VA facility. This, however, is met with scrutiny from many veterans service organizations, especially the American Legion, which has been vocal about  opposing privatization or vouchering out of VA care as a long-term solution. This comes on the heels of a veterans Choice Card, which was established last year to allow veterans facing long wait times or a long drive to a VA facility to go to a private provider.

The second bill will allow the VA Secretary to force senior executives to repay bonuses, a safeguard against the current practice which rewards bonuses despite gross incompetence. The VA paid more than $380,000 in cash bonuses in 2013 to top executives at 38 hospitals that are under investigation for falsifying wait times or where there have been excessive delays in patient care

H.R. 280 would require notifying affected employees before they had to repay the money, and would give them an opportunity for a hearing conducted by the Secretary. But the Secretary’s decision would be final and not subject to review by “any other agency or any court,” according to the text of the bill. The idea is to give the VA chief another tool to punish those engaged in misconduct – in this instance by allowing the department to rescind bonuses those employees have received.

But the legislation does not specify criteria that would be grounds for ordering a repayment, giving the Secretary broad discretion. Also, note that it only applies to those at an executive level – it won’t apply to the vast percentage of VA employees.

If Secretary McDonald wants to make people forget about the unfortunate statement he made last January, implementing this accordingly would be a good way to do so. It would also be wonderful if he could actually fire those individuals responsible, but we all know what kind of red tape that presents. (General rule of thumb regarding government employment: unless you light something on fire, you can’t get fired).

The bills are now before the Senate. Stay tuned for updates.

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With one flip statement, new VA Secretary Robert McDonald may have isolated millions of veterans and called into question his ability to repair the broken VA system.

During a January exchange with a homeless veteran, Secretary McDonald stated that he was in Special Forces. Secretary McDonald now says he misspoke in an attempt to find “common ground” with the veteran. In fact, Secretary McDonald has never served in the Special Forces – he completed Army Ranger training and then served in the 82 Airborne Division.

A CNN report that was published on February 24 compared Secretary McDonald’s statement to that of Connecticut Sen. Richard Blumenthal, a Democrat whose 2010 campaign was rocked after he claimed to have served in Vietnam. Blumenthal spent six years in the Marine Corps Reserves, but was never actually sent to Vietnam.

Since I am generally critical of the VA, I feel it is acceptable, under these circumstances, to say that we should give Secretary McDonald a break. If one reads the reports and news articles on this subject, it becomes apparent that the man made one awkward misstatement; and while unfortunate, it does not make him any less capable of improving the VA. And right now, we really need a Secretary we can believe in.

When Secretary McDonald took over from the inept Secretary Shinseki six months ago, he was effectively charged with repairing a potentially irreparable system, and there was no doubt he would be criticized regardless of what he did. Accordingly, making a cringe-worthy statement doesn’t help.

However, it is important that veterans know what Secretary McDonald has done since he took the reigns from Secretary Shinseki a few months ago. If you’re going to criticize him, criticize him because he isn’t delivering on making the VA system better for our veterans. The following are some of the steps and missteps he’s taken since assuming the Secretary position:

• VA Firings. In a report on NBC news on February 21 , Secretary McDonald relayed that 900 people have been fired since he became Secretary. Of those 900, however, 487 were “probationary” employees, meaning that they would have had nothing to do with the VA medical center wait times. Also, the NBC news report noted that during FY 2013, Secretary Shinseki fired over 2,000 VA employees, while the number of  employees fired under Secretary McDonald during his first year isn’t supposed to come anywhere near that.  Further, while Secretary McDonald relayed that 60 individuals who manipulated wait times were fired, some news reports relay this simply isn’t true.

• Availability.  Secretary McDonald is not just a figurehead. He has given out his personal cell phone number at the many veteran functions he has attended since becoming Secretary, and he insists that veterans call him “Bob.” If you watch any video with Secretary McDonald, he has a candidness and a genuineness that was lacking with Secretary Shinseki. He has also paid visits to over 85 VA hospitals, facilities and cemeteries since becoming Secretary.

• Increased Scrutiny on VA Medical Facilitiess. In light of allegations regarding veteran medical care, the new Secretary has launched new investigations of many medical facilities. (In general, the VA’s Office of Inspector General has launched investigations of over one hundred facilities since Secretary Shinseki resigned). One of these includes the Tomah, Wisconsin VA medical health care center, where a Marine recently died due to the over-prescribing of opiates.

Keep in mind that the new VA Secretary is dealing with everything VA-related. He’s also choked by red tape. Any progress he makes, it’s going to be slow; and he’ll never be able to make everyone happy.

The thing is, he should be thinking of that too. Secretary McDonald, you don’t need to be claiming you were in Special Forces just because the veteran you’re speaking to is, or that you’ve fired every single person accountable for the scandals at VA health centers. For the most part, people know that you’ve inherited a broken system, and they know you’re only one man. But this is why it is so much more important for you to be careful about what you say and the representations you make.

Everyone is watching.

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*Update! The CVE is now sending out emails to all businesses and representatives listed in the VetBiz registry, alerting them to the different types of webinars and when they are offered (email passed below in Comments section). This level of clarity will maximize the value offered by the webinars.

For veteran-owned businesses (VOSBs) pursuing set-aside work with the U.S. Department of Veterans’ Affairs, they know all about the Center for Verification and Evaluation (CVE). The CVE is tasked with examining a variety of documents and information to determine whether a business meets the eligibility criteria for VA set-asides, in a process called verification.

For a long time, going through the CVE has not been fun. I’m not going to go into details, but let’s just say the complaints have been long and loud since the verification process began several years ago. Some veteran advocates want the Small Business Administration to take over verification, and bills have been introduced in Congress to that end.

Recently, however, the CVE has taken a positive step towards making the process better. And when I say “positive,” I don’t mean a memo. (“We recommend everyone here at the VA do better. We will first draft a memo, to define the word ‘better.'”). The CVE is now conducting webinars for businesses going through the re-verification process. And these webinars are better than the PowerPoint presentations that were uploaded to VetBiz.gov in 2012 – they have some meat to them to actually help veterans get through the process. They’re also conducted by some of the higher-ups in the CVE, and since the webinar includes a forum open for questions, veteran business owners have the opportunity for real feedback. (Or to, you know, yell at the CVE directly).

As the CVE has gone through its growing pains and made its mistakes, it has gotten flak. Similarly, when it has made positive developments, it should be getting some praise too. It’s only fair.

This might not be happening as it relates to the webinar, however. I learned about it through a veteran business owner. This veteran business owner forwarded me the email the CVE had sent and noted: 1) the webinar was the same day he received the invite (and he could not attend on such short notice); and 2) it noted the wrong date that the business’s verification would expire. (If the date had been correct, the notice of the webinar would have been sent with less than a month to go).

Upon closer examination of the email, however, I saw that the veteran business owner had several dates to choose from in order to attend the webinar. (The slides were also sent after it was concluded, which was nice). And the re-verification date is surely easy to fix – since the CVE sends out reminders to re-verify 120 days ahead of time, can’t it send out the webinar email with it?

These are such small details, while the bigger work is preparing the slides and conducting the webinar. But by missing these small details, it gives room for complaint. The veteran business owner simply opens the email and thinks, “Thanks, guys.”

So CVE, we’re glad you’re taking the initiative of presenting a webinar on the actual substance of the re-verification process. But give folks a reason to take notice. Put it on your website (more prominently – I found it on the “You Asked, We Listened” VetBiz webpage, but it took some time). Slap an archive recording on YouTube. Make the slides easily available on VetBiz.gov. And make available the answers to the most common questions asked during the webinars. I am sure there are many that crop up often and are not facts-specific so indeed one answer does fit all. Not only would this benefit veteran business owners (and reduce calls to the Help Desk), but it would make it clear that you’re working to improve the verification process.

They say no good deed goes unpunished, but no good deed should go unrewarded, either.

Did you find this article informative? If so, sign up for Sarah Schauerte’s legal blog at: https://legalmeetspractical.com. Also, access Sarah’s comprehensive VetBiz Guidebook (addressing everything from revivification to cancellation to common eligibility issues) here, and her webinar tackling the verification process here.

On January 22, the House Committee on Veterans’ Affairs (VA) Subcommittee on Disability Assistance and Memorial Affairs held a hearing to address the litany of issues regarding disability compensation claims pending before the VA Regional Offices and the Board of Veterans’ Appeals.

The takeaway? Getting your claim bounced to the appeals queue is like being sentenced to purgatory.

One of the most vocal contributors during the hearing was the American Legion. It noted that decisions on about 288,000 veterans’ benefits claims have been appealed. “With appealed claims, you can no longer think in terms of how many days you’ve been waiting,” the Legion stated in its written testimony. “Appealed claims are measured in terms of how many years the veteran has been waiting.”

Veterans who have appealed their disability claims wait an average of 1,937 days for final decisions, according to numbers listed in the VA’s Monday Morning Workload Report of January 5. That time span is about 500 days longer than a standard four-year enlistment in the military. When these claims are granted, there is no penalty assessed to the VA for failures that caused the delay – not even interest. It is merely backdated to the originally-filed date. (There is, however, a penalty assigned to the veteran who misses a deadline or drops the ball in some way – if a form is not sent in on time, the veteran will lose out on the originally-filed date).

Zachary Hearn, on behalf of the Legion, told the Subcommittee that nearly 75 percent of claims presented at the BVA have either been improperly denied at a VA regional office, or inadequately developed and denied prematurely. Many claims were also appealed because claims adjudicators failed to follow their legally mandated duties to assist veterans.

“While the VA asserts it does not place a higher priority on the amount of claims adjudicated,” Hearn said, “its current work-credit structure does not address accuracy in its metric, which rewards speed over quality.”

Once a BVA judge remands a claim, instructions are forwarded to VA’s Appeals Management Center for further development. Hearn said these remands, or returned claims, come with clear and distinct instructions from the judges, yet the Legion consistently sees cases remanded multiple times, despite the instructions. The organization refers to it as  the “hamster wheel” of remands, where a veteran remains in adjudication purgatory, waiting for VA to conduct proper development and finally render a decision.

While VA has published accuracy rates above 90 percent for claims processing, the Government Accountability Office reported last November that the Veterans Benefits Administration “does not follow accepted statistical practices and thus generates imprecise accuracy data.”

While we are dealing with a broken, rusted process that has shown little signs of improvement (including as it relates to the VA’s fully-developed claims process), at least suggestions for positive change are in the public record. As the Legion noted, if the VA eliminated its work-credit structure (which emphasizes quantity of claims adjudication rather than quality), this would lower the error rate.

And, while this should be obvious, the VA simply needs more claims personnel, and more training. I often interface with the folks at Roanoke in my practice, and while I have had the pleasure to speak with many individuals who truly care about the mission at hand, the simple truth is they’re overworked and understaffed. That can’t be good for the morale.

Access the live webcast of the January 22 testimony here.

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On December 29, 2014, the Small Business Administration (SBA) released a proposed rule implementing the National Defense Authorization Act (NDAA) of 2013, which reforms numerous aspects of the SBA regulations, including the limitations on subcontracting rule, affiliation principles, and the eligibility of small business joint ventures. These changes will impact the regulations at 13 CFR Parts 121, 124, 125, 126, and 127 (small business size regulations, 8(a), government contracting programs, HUBZone, WOSB, respectively).

Any business competing for small business set-asides in the federal arena should take a look, but for easy reference, here’s a snapshot of the most important proposed changes:

Limitations on Subcontracting. While the prime contractor is still required to perform 50% or more of the work under both service and supply contracts, the method of calculating the 50% will change. The proposed rule shifts the formula from a “cost-based” analysis that looks at the percentage of total personnel or manufacturing costs spent on subcontractors, to a “percentage of the total award amount” that is spent on subcontractors. Under the new method, the small business prime may not spend more than 50% of the total award amount on subcontractors that are not similarly situated to the prime (i.e., others in the same socioeconomic category). This provision is intended to ensure that the majority of work under a small business set-aside contract is performed by a contractor with the applicable size and socioeconomic status, and not passed through to large businesses or ineligible small businesses beyond the applicable limits.

Affiliation Due to Identity of Interest. The proposed rule would establish rebuttable presumptions of affiliation based on family relationships and circumstances when a concern derives more than 70% of its revenue from another entity. The proposed rule also adds an affiliation exclusion for a joint venture where each party to the joint venture qualifies as small under the applicable size standard.

Joint Ventures.  The proposed rule would broaden the exclusion from affiliation for small business size status, to allow two or more small businesses to joint venture for any procurement without being affiliated with regards to the performance of that particular procurement. The SBA proposes this in part to encourage joint venturing, which furthers the government-wide goals for small business participation in federal government contracting.

Size Protests. The proposed rule would clarify the regulation that specifies who may initiate a size protests. The current language contains a confusing double negative (“Any offeror that has not been eliminated for reasons not related to size may file a size protest.”). The change will clarify the intent to provide standing to any offeror in line for the award, but not to an offeror that was found non-responsive, technically unacceptable, or outside the competitive range.

Other Changes. The SBA proposes to make changes to other provisions as well, including those concerning the non-manufacturer rule, and North American Industry Classification System Code (NAICS) appeals procedures, and the calculation of annual receipts.

If implemented, over the next few years, these changes will likely impact small businesses doing federal work in one way or another. It is important that these business owners review the changes in order to: 1) comment, if necessary; and 2) understand how legal obligations are affected by the rule changes.

To access the full text of the proposed changes (which includes the commentary and the link to submit your own input), click here. Comments are due on or before February 27, 2015.

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