Transcript Agenda - National 8(a) Association

HOW TO EFFECTIVELY TEAM ON A
FEDERAL PROJECT
Presented By:
EDWARD T. DELISLE, ESQ.
National 8(a) Association Winter Conference
Orlando, FL
February 4, 2015
AGENDA
1.
Teaming: A Primer
2.
Why Team?
3.
Is Teaming Right for Your Company?
4.
Essential Elements in Good Teaming Agreements
5.
Key Considerations/Size Status Concerns
6.
Protecting Your Interests
7.
Enforceability
8.
Recent Developments
PERTINENT REGULATIONS
 Federal Acquisition Regulation (“FAR”)
 Agency Supplemental Acquisition
Regulations
(may supplement, but never contradict, the FAR)
 Agency Guidance
TEAMING AGREEMENTS
A Primer
FAR 9.601 Definitions of a “Team Arrangement”
A “Contractor team arrangement,” as used in this subpart,
means an arrangement in which–
(1) Two or more companies form a partnership or joint venture
to act as a potential prime contractor; or
(2) A potential prime contractor agrees with one or more other
companies to have them act as its subcontractors under a
specified Government contract or acquisition program.
TEAMING AGREEMENTS
A Primer
FAR 9.602 on “Team Arrangements”
Such Arrangements may be desirable from both a
Government and industry standpoint in order to enable
the companies involved to1. Complement each other’s unique capabilities; and
2. Offer the Government the best combination of
performance, cost, and delivery for the system or
produce being acquired.
TEAMING AGREEMENTS
A Primer
FAR 9.603 on “Team Arrangements”
The Government “will recognize the integrity and validity
of contractor team arrangements, provided, the
arrangements are identified and company relationships
are fully disclosed in an offer, or for arrangements
entered into after submission of an offer, before the
arrangement becomes effective. The Government will
not normally require or encourage the dissolution of
contractor team arrangements…”
TEAMING AGREEMENTS
A Primer
FAR 9.604 Limitations on Teaming:
Teaming Agreements may not:
 Violate Antitrust Statutes
 Limit Government’s rights to
 Require consent to subcontracts;
 Determine the responsibility of the prime
contractor; or
 Hold prime responsible for performance
WHY TEAM?
The Rules of the Game Have Changed
- Are You Prepared?
What you Need to Know:
 Sealed Bidding (FAR Part 14) is Less Common
 Contracting by Negotiation (FAR Part 15) is More Common
 Need to understand difference: Lowest Price v. “Best Value”
-
Need to understand difference: Lowest Price v. “Best Value”
 Important Acronyms in Federal Contracting
 IDIQs
 MATOCs (and SATOCs)
 A New Acronym/Type of Contracting that You Need to be Aware of:
LPTA – Lowest Price Technically Acceptable
 Increasing Number of **SMALL BUSINESS SET-ASIDES**
Contracting by Negotiation
Understanding the Process…
 Typical Evaluation Factors









Past Performance
Experience w/ Similar Work
Proposed Technical Approach/Solutions
Management Organization
Proposed Schedule
Technical Experience and Expertise
Key Personnel Qualifications
Small Business Subcontracting Plan
Price (but remember, its not Sealed Bidding)
The Questions…
There are lots of good reasons for entering
into teaming agreements
 How do I get into Federal Contracting if I Have Not Done
Federal Work Before?
 How do I, as a “small” business, get “big” (i.e. high dollar,
high complexity) contract experience?
 How do I, as a “large” business concern, take advantage
of the increasing number of “small” business program
set- aside contracts?
(Remember that teaming is not a tough sell to large concerns – they have a lot to gain too.
Big businesses want access to small business set-aside contracts. They need your small
business program eligibility. Small businesses therefore have a decent amount of
negotiating power when it comes to teaming arrangements)
THE ANSWER: TEAMING
Some Benefits of Teaming
1.
Merge Skills and Assets
2.
Leverage Capabilities to Provide Client with Best Value
3.
Strengthen Important Evaluation Factors or “Discriminators”
(Large Concern Helps Small Business) to Maximize “Best Value”





4.
Technical Expertise
Past Performance
Experience
Customer Knowledge
Cost Performance
Small Business Contracting Advantages (Small Business Helps
Large Concern)
What is meant by
“Small Business Contracting Advantages”?
Types of Small Business Concerns:
 Threshold Requirement – “SMALL”
 8(a) – Disadvantaged Businesses
 HUBZone – Historically Underutilized Business Zone Businesses
 VOSB/SDVOSB – Veteran-Owned /Service-Disabled Veteran-Owned Small
Businesses
 WOSB/EDWOSB – Women-Owned/Economically Disadvantaged WomenOwned Small Businesses
Types of Teams
8(a) Prime Contractor, Large Subcontractor: All of the
small business programs provide certain types of small
businesses an advantage over the competition. As a
result, Large Businesses like to team with Small
Businesses so that they can reap the benefits of these
“Small Business Contracting Advantages.” In most
situations, then, 8(a) companies will team with large
concerns.
But it does not have to be that way. In the alternative, an
8(a) could team with another type of small business to
combine capabilities, or take advantage of that business’
eligibility pursuant to another small business program.
IS TEAMING RIGHT FOR YOU?
Is Teaming Right for You?

What are your Company’s Goals?

What are your Company’s Strengths and Weaknesses?

Is the Company capable of functioning as a Prime? / Would the
“discriminators” discussed earlier weigh more heavily in your favor with a
teammate?


Large Businesses often have the Technical Expertise, Experience, and Key Personnel
that Source Selection Teams are looking for
What effect will teaming have on my small business/8(a) status?


When done correctly (discussed later), teaming should not negatively impact your
status.
Essential that you strike a balance between strengthening your “discriminators”
through reliance on teammate, and self-performance (remember there are selfperformance requirements – 13 C.F.R. 125.6).
Who Should You Team With?
 What type of business arrangement is
appropriate and why?
 Joint Venturing v. Teaming
 What’s the relationship between the parties?
 For small businesses, remember that your small
business status provides negotiating power
 What’s the endgame?
ESSENTIAL PROVISIONS & KEY
CONSIDERATIONS
Essential Provisions
 Relationship of the Parties (Roles and
Responsibilities)
 Exclusivity
 Awarding a Subcontract/Flow Down Provisions
 Communications with Client
 Protection of Proprietary Information/Non-Disclosure
Agreements
 Term and Termination
 Governing Law
 Limitation of Liability
 Disputes and Resolution Process
 Non Solicitation of Employees
Critical Considerations
What Can Go Wrong?
 Destroying “Small” Size Status or Otherwise Nullifying
Small Business Program Eligibility.
 How? Two common ways:
 “Affiliation”
 Work Percentage Requirements
Draft your Teaming Agreement to Address and Overcome these Concerns!
“AFFILIATION”
 Concerns are “Affiliates” when one controls or has the
power to control the other, or a third party or parties
controls or has the power to control both. (13 C.F.R.
121.103)
 General Affiliation -- A large/non-disadvantaged business is
too closely related to, or intertwined with, the small
disadvantaged business on a large scale basis.
 “Ostensible Subcontractor” -- A large/non-disadvantaged
business has excessive “control” or the power to control a
small business concern on a particular procurement.
“AFFILIATION”
SBA Considerations:

The Totality of the Circumstances

Clear Line of Fracture

Identity of Interest

Newly Organized Concern

Control or Power to Control
 Affirmative or Negative Control
 New Proposed 70% Bright Line Test, discussed in upcoming slides

Ownership, Management

Previous Relationships (Family, Business, Other)
“AFFILIATION”
Examples of Affiliation

Common Ownership

Family Relationship

Common Management

Common Location

Sharing Key Employees

Bonding Indemnification – NOT per se “Affiliation”

SBA has consistently held that bonding assistance alone does not prove that a
large firm and a small firm are affiliates, but it can support a finding of affiliation
in connection with other indicia of affiliation.
“AFFILIATION”
How to Combat “Affiliation”
Teaming partners can avoid “affiliation”
determination by entering into arms-length
transaction.
(Note: Joint Ventures are presumed to be affiliated with each
other, except when they form an SBA-approved Joint Venture.)
Work Percentage Requirements
SBA Regulations are Very Specific about the
Percentages of Work the Prime Contractor must Self
Perform.
For 8(a) Businesses, Several Relevant provisions:

13 C.F.R. § 124.510 - What percentage of work
must a Participant perform on an 8(a)
contract?

13 C.F.R. § 125.6 - Prime contractor performance
requirements (limitations on subcontracting).
Work Percentage Requirements
13 C.F.R. § 124.510 What percentage of work must
a Participant perform on an 8(a) contract?
 (a) To assist the business development of
Participants in the 8(a) BD program, an 8(a)
contractor must perform certain percentages of
work with its own employees. These percentages
and the requirements relating to them are the
same as those established for small business setaside prime contractors, and are set forth in
§ 125.6 of this title.
Work Percentage Requirements
§ 125.6 Prime contractor performance requirements (limitations on subcontracting).

(a) In order to be awarded a full or partial small business set-aside contract, an 8(a) contract, a
WOSB or EDWOSB contract pursuant to part 127 of this chapter, or an unrestricted procurement
where a concern has claimed a 10 percent small disadvantaged business (SDB) price evaluation
preference, a small business concern must agree that:

(1) In the case of a contract for services (except construction), the concern will perform at
least 50 percent of the cost of the contract incurred for personnel with its own
employees.

(2) In the case of a contract for supplies or products (other than procurement from a nonmanufacturer in such supplies or products), the concern will perform at least 50 percent of
the cost of manufacturing the supplies or products (not including the costs of
materials).

(3) In the case of a contract for general construction, the concern will perform at least 15
percent of the cost of the contract with its own employees (not including the costs of
materials).

(4) In the case of a contract for construction by special trade contractors, the concern will
perform at least 25 percent of the cost of the contract with its own employees (not
including the cost of materials).
Work Percentage Requirements
CAREFUL! Note how the percentages are calculated:
Contractors often think that the percentage requirements relate to the
WHOLE CONTRACT PRICE. They don’t. (At least not yet…)
For example:
 In the case of a contract for general construction, the concern
will perform at least 15 percent of the cost of the contract with its
own employees (not including the costs of materials).
 In the case of a contract for construction by special trade
contractors, the concern will perform at least 25 percent of the
cost of the contract with its own employees (not including the
cost of materials).
Work Percentage Requirements
Each Small Business Program Has its Own
Work Percentage Requirements
 HUBZone
 13 C.F.R. § 125.6 (c) and 13 C.F.R. § 126.600
 VOSB/SDVOSB
 13 C.F.R. § 125.6 (b)
 WOSB/EDWOSB
 13 C.F.R. § 125.6 (a)
Work Percentage Requirements
How to Combat Potential Problems with
Work Percentage Requirements
 Prime Contractor and Subcontractor roles are
generally defined in teaming agreement provisions.
 Make sure Prime Contractor scope of work is
appropriately, and very specifically, defined.
 Explicitly state percentage of work (be sure to use the
right calculation) to be performed by each party in
teaming agreement provisions. Also describe in
narrative form the type of work.
PROTECTING YOUR INTERESTS
PROTECTING YOUR INTERESTS
There is no “I” in Team…
…but there is a “ME””
Learning how to advocate for yourself
with respect to key provisions is critical
Some examples:
Definition of Subcontractor’s Work
Pro-Prime Teaming
Agreement
Pro-Sub Teaming Agreement
 Definition of
Subcontractor’s Work is
Conditional, subject to
Customer instructions,
applicable laws,
additional team members,
etc.
 Definition of
Subcontractor’s Work is
Specifically set forth in
the SOW (specify
percentage of work
awarded and specific
tasks or functions)
Prime’s Commitment to Sub
Pro-Prime Teaming
Agreement
Pro-Sub Teaming Agreement
 Reasonable best efforts to
secure Customer’s approval
on selection of Sub
 Prime Selects Sub
 Choice of Sub is Subject to
Customer’s approval
 Prime shall award Subcontract
unless Customer objects in
writing
 Exclusivity
 Prime may bring in additional
team members
 Prime/Customer Can Make
Adjustments to Sub’s Portion
of Contract effort
 Prime Specifically Outlines
Sub’s contribution and SOW
 No Adjustment to Sub’s portion
of Contract effort without Sub’s
consent
Subcontract
Pro-Prime Teaming
Agreement
Pro-Sub Teaming Agreement


Prime shall award Subcontract in
attached form

No modifications of Sub’s work
without Sub’s consent

No Prime Commitments which
adversely affects Sub’s technical or
cost proposal

Prime obligated to award
Subcontract unless Customer
expressly objects in writing

No other “out” for the Prime



Shall use best efforts to negotiate a
subcontract or Sub required to
accept Subcontract in attached form
Modification of Sub’s work permitted
in Subcontract or Task Orders
Prime given liberty to award
subcontracts to other companies if
Subcontract not signed within X
days
Liquidated damages payable by Sub
for failure to conclude Subcontract
Control over Customer Relationship
Pro-Prime Teaming
Agreement
 Prime to decide on all
communications to
Customer
 Sub not to communicate to
Customer
 Sub not to make press
releases
 Prime controls bid protest /
all litigation decisions
Pro-Sub Teaming Agreement
 Participate in project
meetings/presentations
Limitations on Liability
Pro-Prime Teaming
Agreement
 Liability of Prime to Sub is
limited to the extent to
which Owner is liable to
Prime
 All damages recoverable by
Sub from Prime are limited
to damages recoverable by
Prime from Owner
 Sub indemnifies Prime and
Owner
Pro-Sub Teaming Agreement
 Limiting liability to sub’s
negligence
 Damages not limited to
those recoverable from
Owner
Payment Terms
Pro-Prime Teaming
Agreement
Pro-Sub Teaming Agreement
 Sub paid after Prime paid
(commonly referred to as
“pay when paid” clause –
check enforceability)
 Specific payment terms
(labor rates, ODCs,
overhead, G&A and profit
if cost reimbursement)
Speaking of Enforceability. . .
IS YOUR TEAMING AGREEMENT
ENFORCEABLE?
ENFORCEABILITY OF GENERIC TEAMING AGREEMENTS
Make sure your agreement passes the test…
Cyberlock Consulting, Inc. v. Info. Experts, Inc. (E.D.Va 2013) is
instructive:
 The Court held that a teaming agreement expressing that the parties
would negotiate a subcontract in the future was just an “agreement to
agree” and thus unenforceable.
 In Cyberlock, subcontractor on contract with U.S. Office of Personnel
Management (“OPM”) could not require prime, its teaming partner, to
award a subcontract providing Cyberlock 49 percent of the work.
 The Cyberlock decision confirms government contractors cannot rely on
generic teaming agreements promising work under a future
subcontract.
 Instead they need to negotiate more definite subcontract terms and
conditions that will result in a prime contract award.
 Another potential solution? Attach a draft subcontract to the Teaming
Agreement as an attachment.
RECENT DEVELOPMENTS
RECENT DEVELOPMENTS

The Small Business Regulations are one of the most frequently revised set of
regulations.

There have been a lot of proposed changes to the Small Business Regulations
in the past 2 years in particular, most of which were promulgated through
legislation relating to the yearly National Defense Authorization Act (“NDAA”).

Most of these “rules” are still in the “proposed” or “interim” stages.

In some cases, even where the rule has been “finalized,” it requires the SBA to
take action and formally revise the regulation, and the SBA might not have done
so yet.

Nonetheless, it is important to be aware of these rules, and how they might
affect teaming.
RECENT DEVELOPMENTS:
CHANGES TO PERCENTAGE OF WORK REQUIREMENTS
National Defense Authorization Act of 2013 -- January 3, 2013

NDAA directed SBA to change the applicable regulations with respect to the
percentage of work requirements for certain of the SBA small business programs.
(See National Defense Authorization Act of 2013, H.R. 4310 (112th) § 1651).

Specifically, the NDAA directed the SBA to issue regulations changing the manner in
which the percentage of work requirements should be calculated.
 Remember the previous slide advising caution about calculating Labor costs?
(“Current Language of “at least 15 percent of the cost of the contract with its own
employees (not including the costs of materials).”
 This switched the calculation to a “Total Contract Cost” calculation (for at least
some kids of contracts).

Applies to non-construction service and supply contracts; potentially applied
construction contracts as well.

No action from the SBA . . . until now.
RECENT DEVELOPMENTS:
CHANGES TO PERCENTAGE OF WORK
REQUIREMENTS
Proposed Rule issued December 29, 2014 (79 Fed. Reg. 77955)
 Implements NDAA 2013 and Makes Sweeping Changes to the
Regulations Concerning Subcontracting Limitations
 For service and supply contracts, switch from “cost of personnel”/”manufacturing
costs” calculation to a formula based on the amount paid to prime contractor (i.e.
Total Contract Price). As of yet, no change in construction contracts.
 Change overall approach – Rather than mandate how much a prime has to
perform, it limits how much a prime can subcontract to other contractors.
 Same purpose/same effect, but a different way of looking at it.
 Allows for certain exceptions, i.e. “similarly situated entity” – contractors can
now meet their own performance requirements by subcontracting to the
same type of entity.
RECENT DEVELOPMENTS:
CHANGES TO PERCENTAGE OF WORK
REQUIREMENTS
Proposed Rule issued December 29, 2014 (79 Fed. Reg. 77955) (cont.)

Revises 13 C.F.R. § 125.6, which governs the limitations of subcontracting for small
business set-aside contracts. Key revisions include:

For services contracts, “no more than 50% of the amount paid by the government to the prime
may be paid to firms, at any tier, that are not similarly situated.”

For supply contracts (other than from a nonmanufacturer), “no more than 50% of the amount paid
by the government to the prime may be paid to firms, at any tier, that are not similarly situated.”

“Whether particular specific entities perform the forecasted amount of work is not material, as
long as the similarly situated entities collectively meet the performance of work requirement.”
• -
RECENT DEVELOPMENTS:
CHANGES TO PERCENTAGE OF WORK
REQUIREMENTS
Proposed Rule issued December 29, 2014 (79 Fed. Reg. 77955) (cont.)

With respect to 8(a) contractors in particular, NDAA revises 13 C.F.R. § 124.510 and 13
C.F.R. § 125.6:
 For IDIQ contracts, an 8(a) prime contractor may satisfy the requirement to perform
the appropriate amount of work by subcontracting to similarly situated entities.
 For 8(a) set-aside contracts for services, “no more than 50% of the amount paid by
the government to the prime may be paid to firms, at any tier, that are not similarly
situated.”
 For 8(a) set-aside contracts for supplies (other than from a nonmanufacturer), “no
more than 50% of the amount paid by the government to the prime may be paid to
firms, at any tier, that are not similarly situated.”
 “Whether particular specific entities perform the forecasted amount of work is not
material, as long as the similarly situated entities collectively meet the performance
of work requirement.”
RECENT DEVELOPMENTS:
CHANGES TO PERCENTAGE OF WORK
REQUIREMENTS
Proposed Rule issued December 29, 2014 (79 Fed. Reg. 77955) (cont.)
Other notable changes include:
 Certification of Compliance – Small businesses seeking set-aside contracts must
certify that they will be able to meet the applicable limitations on subcontracting.
 Identification of Subcontractors and Percentages of Work – if a prospective prime
contractor intends to use “similarly situated entities” to make up part of its selfperformance requirement, the prime must identify those entities as part of its offer.
The percentage of the prime contract award that will be spent on each “similarly
situated entity” subcontractor must be identified in a written agreement between the
prime and the proposed sub. This must be signed by all parties.
 Notification of Changes – The prime must notify the CO of all changes relating to the
proposed subs, subcontract award amounts, or if anything changes regarding
performance of work by subcontractors that are not “similarly situated entities.”
RECENT DEVELOPMENTS:
AFFILIATION
Proposed Rule issued December 29, 2014 (79 Fed. Reg. 77955) (cont.)
This proposed rule changes more than subcontracting limitations. It also
proposes changes with regard to “affiliation” pursuant to 13 C.F.R. 121.103:
 Under the SBA’s proposal, an exception to the “ostensible subcontractor” type
affiliation would be created for similarly situated entities.
 For example, a small business would be exempt from ostensible subcontractor
affiliation with another small business for a small business set-aside contract, an
8(a) participant with another 8(a) participant for an 8(a) set-aside contract, and so
on.
 If this goes into effect, remember that that the definition of a “similarly situated
entity” depends on the type of contract at issue.
RECENT DEVELOPMENTS:
AFFILIATION
Proposed Rule issued December 29, 2014 (79 Fed. Reg. 77955) (cont.)
Other notable changes regarding affiliation include:
 Changes to 13 C.F.R. 121.103(f)(1) – These changes will include further clarification
regarding the type of relationships between individuals that will create a presumption of
affiliation due to an identity of interest. Specifically, SBA proposes to insert language
clarifying that a presumption of affiliation exists for firms that conduct business with each
other and are owned and controlled by persons who are married couples, parties to a civil
union, parents and children, and siblings. This is a rebuttable presumption. This proposed
rule is based on size appeal decisions that have been issued interpreting this regulation.
This basically codifies the analysis that is already utilized.
 Changes to 13 C.F.R. 121.103(f)(2) – A proposes to adopt a presumption that SBA
established for the SBIR Program with respect to economic dependence. If a firm derives
70% or more of its revenue from another firm over the previous fiscal year, SBA will
presume that the one firm is economically dependent on the other and, therefore, that the
two firms are affiliated. Currently there is no fixed percentage that SBA applies when
evaluating this criteria.
RECENT DEVELOPMENTS:
JOINT VENTURES
Proposed Rule issued December 29, 2014 (79 Fed. Reg. 77955) (cont.)
This proposed rule would also change the Joint Venture rules:
 SBA proposes to amend 13 C.F.R. 121.103(h) to 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 regard to the performance of that procurement requirement.
Currently, in addition to the exclusion from affiliation given to an 8(a)
protégé firm that joint ventures with its mentor for any small business
procurement, there is also an exclusion from affiliation between two or
more small businesses that seek to perform a small business
procurement as a joint venture where the procurement is bundled or large
SBA proposes to remove the restriction on the type of contract for which
small businesses may joint venture without being affiliated for size
determination purposes.
RECENT DEVELOPMENTS:
ADVERSE IMPACT AND CONSTRUCTION REQUIREMENTS
Proposed Rule issued December 29, 2014 (79 Fed. Reg. 77955) (cont.)
The SBA proposes to amend 13 C.F.R. 124.504 to clarify when a procurement for construction
services is considered a new requirement. This section generally addresses when SBA must
conduct an “adverse impact analysis” for the award of an 8(a) contract.
• SBA is not required to perform an adverse impact analysis for new requirements. Currently,
paragraph (c)(1)(ii)(B) states that “Construction contracts, by their very nature (e.g., the building
of a specific structure), are deemed new requirements.”
• SBA proposes to clarify the definition of “new requirement” for construction contracts by
specifying that generally, the building of a specific structure is considered a new requirement.
However, recurring indefinite delivery or indefinite quantity (IDIQ) procurements for construction
services are not considered new.
• SBA has found that agencies have misinterpreted the current language of 13 C.F.R.
124.504(c)(1)(ii)(B) to consider recurring IDIQ construction services procurements as new. SBA
intends to clarify that such recurring requirements are not considered new.
• A determination of whether a construction contract is recurring or new will have to be made on
a case by case basis, and there is a process in place that allows SBA to file an appeal with the
procuring agency when there is a disagreement.
QUESTIONS?
EDWARD T. DELISLE, PARTNER
COHEN SEGLIAS PALLAS GREENHALL & FURMAN PC
30 S. 17TH ST., 19TH FLOOR
PHILADELPHIA, PA 19103
215.564.1700
[email protected]
WWW.COHENSEGLIAS.COM
WWW.FEDCONBLOG.COM