Small Business Procurement Law Update: Recent GAO and OHA Cases Agency Regulations and Guidance

February 3, 2015

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GAO Cases

» Several recent small business regulations and requirements from the 2010 JOBS Act have been addressed by GAO through its bid protest process, including: ˗ ˗ ˗ ˗ When Task Orders can/must be set-aside under IDIQ/MAC contracts The extent to which agencies must support and document their decision to consolidate requirements Whether a requirement is “new” and therefore not subject to the JOBS Act’s bundling provisions Agencies’ ability/requirement to use small business set-asides for contracts to be performed overseas » Several recent cases address other important issues, including: ˗ ˗ When an “adverse impact” analysis is required when moving a small business set-aside requirement into the 8(a) program What constitutes a “new requirement” for purposes of moving a requirement out of the 8(a) program 2

The Rule of Two and Task Orders

» JOBS Act Section 1331 directed that FAR and SBA regulations be developed addressing when agencies may, at their discretion, set aside orders under Multiple Award Contracts » Revisions to 13 CFR 125.2 (Oct. 2, 2013) make clear that contracting officers have the authority to set aside task orders.

» » Edmund Scientific Company, B-410179, (Nov 12, 2014): raised the question of whether a set-aside is required when the elements of the “Rule of Two” have been met.

˗ GAO’s holding: No an agency is not required to set aside task orders under a MAC contract » GAO expressly found that the Delex case had been superseded by Section 1331 of the JOBS Act and the revisions to the SBA’s regulations » Takeaway: Agencies have discretion whether to set aside task orders under MACs 3

Consolidation of Requirements

» The JOBS Act (Section 1313) requires agencies to consider the impact of consolidation on small business by,

inter alia,

conducting market research, by considering the impact on small business and making a written determination that consolidation is “necessary and justified.” » American Toner & Ink, et al, B-409528 (June 9, 2014): 21 protests filed over GSA’s “OS3” office supply contract on the grounds of improper consolidation.

» ˗ GAO held: The Agency’s decision, as set forth in an 11 page memo, was sufficient to meet the JOBS Act’s requirements. GAO also : Held the JOBS Act’s consolidation provisions are similar to those under the Small Business Act and CICA and GAO’s case law applying those provisions should continue to apply » ˗ Rejected Protesters’ and SBA’s arguments that more detailed, data-driven analysis was required Of note: SBA’s procurement center rep “non-concurred” in the agency’s consolidation decision, but no appeal was made by the PCR » Query: Would the Court of Federal Claims view the issue differently?

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When is a Requirement “New” and not subject to requirements regarding Bundling?

» » JOBS Act Section1313; FAR 2.101

Bundling by definition is “consolidating 2 or more … requirements … previously …performed under separate small contracts into a … single contract.” » Edmund Scientific Company, B-410179, (Nov 12, 2014) GAO found ˗ Certain aspects of the protested requirement were not previously performed by small businesses and the requirement was therefore “new” ˗ As such it could not be considered a consolidated requirement » Query: Would the Court of Federal Claims look at this issue differently?

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Using Set-Asides in Overseas Contracts

» » » Maersk Line, Ltd., B-410280, (Dec 1, 2014) Protester challenged small business set-aside on the grounds that FAR Part 19.000(b) states that set-asides do not apply to contracts performed overseas.

» GAO found that the contract would be performed in the United States and therefore the FAR part 19 set-aside requirements applied.

˗ ˗ SBA argued that its revised regulations state that FAR part 19 applies “regardless of the place of performance.” 13 C.F.R. § 125.2(a); 78 Fed. Reg. 61,114 (Oct. 2, 2013)). GAO held that it did not need to address this argument because it found the work would be performed domestically.

Appears to acknowledge that SBA’s “regardless of place of performance” provisions could hold sway and may upend prior GAO precedent.

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Moving Requirements into the 8(a) Program: Adverse Impact

» Recent GAO cases hold that a requirement previously performed by a small business can be moved into the 8(a) program where: » » ˗ ˗ ˗ The incumbent no longer qualifies as a “small business”: Professional Services Corp, B-410606 (Jan. 2015): Incumbent was found to be affiliated with its subcontractor and therefore no longer a small business ˗ ˗ Therefore no adverse impact analysis was required The requirement is “new”; see Alpa Technologies and Services, Inc., B 408762.2 (Feb. 12, 2014) Evidence suggested that the protested requirement was at least 25% greater in magnitude than the previous requirement and was therefore ‘new’ under 13 CFR 124.504(c) Therefore no adverse impact analysis was required GAO also rejected protester’s argument that the SBA’s acceptance of “consolidated” requirements violated SBA’s regulations 7

Moving Requirements out of the 8(a) Program: “New” requirements can be moved outside the program

» SBA’s regulations provide that once a requirement is in the 8(a) program it must remain in the 8(a) program » That same regulation 13 CFR124.504(d) provides the rule does not apply if there is a “new requirement” but that term (“new”) is not defined in that particular section of the regulation » ˗ ˗ eAlliant, B-407332.4, (Dec 23, 2014): GAO held that the definition of “new” requirement set forth in the “adverse impact” regulation applies when determining if a requirement can be removed from the 8(a) program SBA concurred that it was a new requirement Potentially important for graduating/graduated 8(a)s » ˗ ˗

See also

: HRCI-MPSC PASS, LLC, B-408919, (Jan. 8, 2014) Applied a similar rationale to find a bridge contract was a “new” requirement SBA argued that the “new requirement” language applied only to “adverse impact” determinations and was not directly applicable in cases involving removal of work from the 8(a) program.

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Select Recent OHA Cases of Relevance

» Manufacturing/Resellers: ˗ Sea Box, Inc.

– what constitutes “manufacturing”? (consider also potential changes to “footnote 18” regarding IT value-added resellers » Adjusting to Labor-friendly Executive Orders: ˗ Lynxnet – hiring incumbent personnel does not evidence unusual reliance under the ostensible subcontractor rule. (following a growing line of cases) » ˗ Joint Ventures: Kisan-Pike – Mentor-protégé Joint Venture agreement did not meet requirements of 124.513 and therefore parties were affiliated » ˗ Proposal terms and Solicitation context Kaiyuh Services – • the Area Office objected to Appellant's use of the ronouns “we” and “our,” and to the characterization of Appellant and ESS working as a “team,” such practices are commonplace in Government contracting, and OHA has repeatedly held that they are not suggestive of reliance • Proposal length was very short and RFP did not request information on staffing, key personnel, etc.

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Select Recent OHA Cases of Relevance – procedural matters

» Kisan-Pike II – District Office’s rejection of joint venture agreement is beyond OHA’s jurisdiction » » » » » » Kaiyuh Services (Recon) -- Right to intervene expires at the close of the record at OHA Engineering Logistics – Size protests must be specific – but they don’t have to be right at the end of the day AIS Engineering – Task orders under long-term contracts can only be protested if the contracting officer expressly requests recertification for that task order Al Razaq – Announcement of the prospective awardee starts the clock for size protests Quality Technology – receipt of a “snap shot” electronic notice identifying prospective awardee starts the clock ASI-Sumo JV – Protested party bears responsibility for explaining evidence in the record to the Area Office » Axxon International – Respondent must present a complete Form 355 response 10

Recent SBA Guidance and Practice Pointers

» SBA Guidance on shared Business Development services » SBA Guidance on limits on management of ANC/Tribal/NHO subsidiaries by individuals » Reporting Existence of Third Party and Related Party Agreements to SBA 11

Other Recent Regulatory Changes Of Note

Recent Rule Changes now in effect: i.

ii.

iii.

iv.

v.

June 2013 – Implementation of the Small Business and Jobs Act “Integrity Provisions” principally through the addition of 13 CFR 121.108.

July 2013 – Small Business Subcontracting October 2013 – MAC contracting June 2014 – Correction to 125.6 omission in MAC rule June 12, 2014 Interim Final Rule with Inflation Adjustment to Monetary Based Size Standards Recent Rules – Comments Closed, Awaiting Final Rule i.

ii.

iii.

iv.

Advisory Small Business Size Decisions Manufacturing NAICS Code Size Standard Review Non-Manufacturer Rule Changes Agent Revocation Procedures (comment period extended to February 14, 2015) 12

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