For veteran-owned small businesses (“VOSBs”) that hold a Federal Supply Schedule (“FSS”), the 2016 Supreme Court Kingdomware decision was supposed to be a major coup against the VA. The Supreme Court reversed a lower court decision to hold that the “Rule of Two” is mandatory – when it comes to orders off the FSS, contracting officers are required to set them aside for VOSBs if, after conducting market research, they have a “reasonable expectation that two or more. . . VOSBS. . . will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.” 38 U.S.C. 8127(d). The VA utilizes the hierarchy set forth at VAAR Subpart 819.70, which entails first attempting to set aside a contract for SDVOSBs, then for VOSBs, then small businesses, and finally, other-than-small businesses.
And what is “market research?” According to a July 2016 policy memorandum that was issued to implement Kingdomware, contracting officers must:
- Search the VetBiz VIP database by NAICS code.
- Determine if two or more SDVOSBs/VOSBs are listed by the NAICS code.
- Determine if these identified SDVOSBs/VOSBs are capable of performing the work and likely to submit an offer/quote at a fair and reasonable price that offers the best value to the government.
Ever since the Kingdomware decision came down, VOSBs have been complaining that the VA has not been following it. On the VA’s end, the complaint is that it can’t get a “fair and reasonable price” by setting aside solicitations for VOSBs and SDVOSBs.
Now, the VA’s solution is tiered evaluation, which it presented at the National Veteran Small Business Engagement in December and expounded upon in a June 20 town hall presentation held by Tom Leney, the executive director of the VA’s Office of Small & Disadvantaged Business Utilization.
As explained by Mr. Leney, tiered evaluation is used to ensure that the VA receives a “fair and reasonable price” and to prevent the time and expense of re-soliciting a contract (due to not receiving two or more offers from SDVOSBs or VOSBs, or receiving a fair and reasonable price).
There are three different types of tiered evaluation, all of which utilize the same process for evaluating offers: the VA will open competition to all categories identified (noting that it is utilizing tiered evaluation), and consider offers by order of preference, moving down to the next tier if it is unable to make an award at a fair and reasonable price:
- Tiered evaluations limited to SDVOSBs and VOSBs.
- Tiered evaluations limited to SDVOSBs, VOSBs, and small businesses.
- Tiered evaluations including large business concerns.
This makes sense, to a degree. If the VA is encountering trouble making an award at a “fair and reasonable price,” it saves the VA time and effort to use tiered evaluation. However, as Mr. Leney pointed out, whether a price is “fair and reasonable” is determined by comparing it to the Independent Government Cost Estimate (“IGCE”). Okay fine, but what about that IGCE? What if it’s out of date? What if the scope of work has changed? What if it’s two percent less than the price offered by an SDVOSB? Can the VA make the award? What about three percent? Where are the guidelines for evaluating prices compared with the IGCE? If the veteran companies’ prices are one percent higher than the IGCE, can the VA use tiered evaluation to justify making the award to a small business or a large business instead?
Mr. Leney also noted that if found that the IGCE is not realistic, the VA could then cancel the solicitation. However, there was no information provided as to how the VA would make that determination or the path forward.
If the intent and effect is truly to prevent re-solicitations due to the VA setting aside work to SDVOSBs and VOSBs but ultimately not being able to make the award, great. But right now, tiered evaluation is concerning because of the lack of firm guidance or parameters for the VA to follow. And without firm guidance or parameters, the worry is that tiered evaluation is more of a loophole than a solution.
What do you think?
Like this cake, VA tiered evaluation has four layers: SDVOSB, VOSB, small, and other-than-small.
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This has nothing to do with fair and reasonable and everything to do with lowest price. Why else would all offers be opened at the same time?
According to Tom Leney, the VA will first evaluate the offers at the first tier, and then, if not “fair and reasonable,” move on to the next tier. But the problem is the discretion and lack of guidance in that determination as to whether the price received at that tier is “fair and reasonable.” What is “fair and reasonable?” That question is still unanswered.
That is not what his training slides said. Very distinctly..open all bids at the same time.
Slide #6 is confusing in stating that all prices are visible, but my understanding is they evaluate by tier. This is how they’re instructed to evaluate offers in the VA policy memorandum issued on tiered evaluations: https://www.va.gov/oal/docs/business/pps/ppm201804.pdf.
Scott, I respectfully disagree that this had nothing to do with fair and reasonable pricing. But do agree with the premise of having to do with low pricing. As a former Director of Contracting within the VA, I can assure you there are many SDVOSB’s that are trying to make a quick buck by hiking the price of goods where they think they can get by with it.
As is stated below in other responses, the ‘Independent’ Government Cost Estimate is many times really just a quote from a business the customer is used to doing business with. Or, a poorly thought out guess as to what it should/may cost them. Either way, the IGCE is typically poor. And, why do we — the Government buyer — really need an IGCE anyway? If there is adequate competition, the IGCE is not even required. Many people in the Government miss this point.
That being said, and if your competition is limited to SDVOSB’s only, how do you know you have a fair and/or reasonable price? As a Government buyer, I would only know I have a fair and reasonable price if I compared ALL offers. As a Government Contracting Officer, it would be my duty to make a determination as to what was fair and reasonable. If the difference in price between a SDVOSB and a Small Business was 5% on a $100 item, I should make the award to the SDVOSB. That is fair. However, if the competition remains the same, but the difference in price is 5% on a $10M item, I would likely make the decision to award to the Small Business because I don’t believe the extra $500K is fair, nor reasonable.
This is a very complex issue, that many want to put into the ‘easy button’ context (as I believe the author of this original post has done, much to my dismay and as many others have ahead of her). MANY Contracting Officers in the VA are spending countless hours in soliciting, cancelling, and re-soliciting offers because of either promises from SDVOSB’s that cannot be met, prices from SDVOSB’s that are unreasonable, and/or frivilous protests of offers because someone feels the Government ‘owes them’ business.
I heard more than once from different SDVOSB’s that the VA ‘owed them’ a contract because of the Kingdomware decision. I too am a Vet after serving for 30 years in the Air Force. I went to the VA to be part of a solution to their procurement woes, but became disenfranchised with the attitude of many SDVOSB’s, or SDVOSB’s that were ‘pass-through’ companies only. No one is owed Government business because of a SCOTUS decision. Business is earned through hard work, good marketing and fair pricing.
Lastly, to answer your question as to “…Why else would all offers be opened at the same time?” Because the Government Contracting Officer doesn’t know if the price provided by the SDVOSB is fair and reasonable until they can see all offers for the item, from all potential offerors at the same time. If they can’t do that, the Gov’t might as well go back to sealed bidding for everything and take the Contracting Officer’s decision making authority away from them.
Having 41 years in Government Logistics and 20 of that as a Contracting Officer I feel very qualified to comment/discuss this issue. The first problem is that Government Cost Estimates are usually poorly thought out and prepared and are often actually provided by one of the companies planning to submit an offer. Matter of a fact several times in my career Government personnel submitted cost estimates and forgot to wipe out the company letterhead. There has never been a standard for how close to the government estimate is close enough! Many people think its 10%, however I’ve awarded contracts competitively that were 50% off and after further research found that both the estimate and offers were valid. So whats a reasonable solution.
We are not dealing with invitations to bid (IFB’s) where the price is final and the government cost estimate is not usually reliable.
The solution to me is to open all of the first tier offers and do a basic price analysis on the offers. If the low first tier offer is within 10% of any two of the offers submitted by both tiers, make the award to the low first tier offer. If not within 10%, go to the second tier and award to the low offeror using the same within 10% criteria. If no acceptable offers in first or second tier, disolve the set-aside and go to the third tier.
With all due respect and not intending to insult or disparage anyone, “Government Cost Estimates” are often WAGS (Wild S Guesses) at best.
i have a lot of hands on experience with the subject matter and in my experience the standard/mandated procedures are usually more like the Wild, Wild, West and the training for and practice of actually preparing valid, well thought out Government Cost Estimates is handled very weakly. A much better was of handling price reasonableness is cost/price comparison of multiple offers.
I would really like to know, “What is the elephant in the room”? This isn’t rocket science and the real issue (whatever that is) isn’t on the table. For years the way SDB’s were given preference was to add 10% to all of the other bids just for evaluation purposes. Then, if the SDB was low they got the award. There is a logical, workable way to process the offers and VA needs to go on record with a set procedure. If a fixed percentage related to other offers is the case then put it in VA Procurement Policy and enforce it. I may be a Dinosaur (72) with 41 years Logistics and 12 years as a Veteran Business counselor, but its clear to me that someone or some agency doesn’t want the problem solved. It may be a personnel (manpower) issue or a territorial dispute. My recommendation is that VA convene a working group with representatives from all affected parties and come up with a solution. Government can be counted on to need more people and some promotions to solve anything. There is a lot of experience and resources available within VA to devise a workable solution. Someone in power should identify the roadblocks and keep them out of the working group!
John, thank you for your insightful and informed comments. Mr. Tom Leney subscribes to this blog and I’ll email him to ask if he’s seen this comment (though, while astute, I would think the idea of a working group would be an obvious and practical solution to nailing down the specifics of tiered evaluation which is currently encapsulated in a short policy memorandum). I’ll share any updates.
Thank you ALL for your comments. As an SDVOSB doing business with the VA and other DOD/federal agencies for 25 years it IS often frustrating to respond to poorly defined statements of work, unrealistic IGCEs, tightening budgets, and other factors. Reverse auctions where Small business drive each other’s prices down also hurt small businesses. Lowest Price technically Acceptable awards may help the budget but in no way guarenrtees the customer is getting the best solution to their complex problem or requirement–only the cheapest. I don’t mind losing a bid to another SDVOSB because sometimes you win and sometimes you lose, BUT. not having a clear, consistent and transparent process for selecting and awarding contracts IS very frustrating for us spending the time and money to respond to RFIs & RFPs & RFQs. I think Tom Leney is doing a great job in providing access to COntracting Officers which is helpful and encourging. This could and shouldbe donemore with matching/pairing of SDVOSBs & VOSBs with appropraite COs–I was recently matched with a CO that knew NOTHING of my world and I knew NOTHING of his hospital infrastructure duties-0-this is a waste of everyone’s time and and money and frustrating. I encourage the VA to review WHO signed up for the Meet and Greet and what services they are selling and have sufficient VA CO’s there to meet with them.
And yes, thank you to EVERYONE for commenting. This is important dialogue to have and the different perspectives chiming in are both welcome and enlightening.