Georgia Tech Procurement Assistance Center

Protégé subcontract revenues from mentor hold no basis for economic dependence

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An important benefit of a mentor-protégé agreement (MPA) is that no determination of affiliation may be found between a protégé and its mentor solely because of assistance provided under the agreement.  A recent decision of the Small Business Administration (SBA) Office of Hearings and Appeals (OHA), Avar Consulting, Inc., upheld a size determination which found that a protégé was not affiliated with its SBA-approved mentor through economic dependence, even though the revenues it received from the mentor constituted over 70% of the revenues it received between formation and the date of size self-certification.  A small business government contractor that anticipates future affiliation with a business under the 70% economic dependence rule should consider entering into an SBA-approved small business MPA with that business to prevent future revenues it receives from the business from being considered when economic dependence is assessed.

Continue reading at:  Piliero Mazza

DOJ cracks down on set-aside contracting fraud

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This week, the Department of Justice (“DOJ”) issued two press releases regarding companies and individuals that agreed to settle False Claims Act cases related to government contracting fraud.  United States Attorney Maria Chapa Lopez announced that Sunrise Systems of Brevard, Inc. had agreed to pay the United States $500,000 to resolve allegations that it violated the False Claims Act by submitting claims for government funds in violations of Small Business Administration regulations.  According to the settlement agreement, from December 10, 2013, through February 9, 2016, Sunrise partnered with a minority-owned small business, V&R Enterprises of Jacksonville, Inc., but violated the SBA’s labor and work performance requirements in order to access SBA set-aside funds.  The government alleged that Sunrise performed nearly all of the work on the joint venture project and received nearly all of the profits, in violation of the law.  In another case, Luke Hillier, the majority owner and former Chief Executive Officer of Virginia-based defense contractor ADS, Inc., agreed to pay the United States $20 million to settle allegations that he violated the False Claims Act by fraudulently obtaining federal set-aside contracts reserved for small businesses that his company was ineligible to receive.

Both cases illustrate that it is critically important that companies both large and small know and understand the rules and regulations governing small business set-aside procurements.  This is especially important when it comes to performance of work requirements (limitations on subcontracting), which often require the small business on a set-aside procurement to do a requisite amount of work depending on the type of contract at issue.  On a set-aside contract that is restricted for a certain types of small business, it is often illegal for the small business to subcontract out all of the work to a large subcontractor.  Further, small businesses cannot be deemed affiliates or too closely affiliated with a large business or they could lose their small business size status.  Meaning, if your operations are so intertwined and dependent on a large business that you are essentially just a part of that large business, you could be deemed ineligible for small business set-aside work because you are too affiliated with that large business.  The intent of small business set-aside contracts is to truly help bonafide small businesses.  As a result, a substantial portion of the work and benefits of a set-aside contract need to go to small businesses.  If you need help understanding performance of work requirements, limitations on subcontracting, and the affiliation rules, please reach out to a GTPAC counselor and we would be happy to help.

Press releases:

Jacksonville Contractor Agrees to Pay $500,000 to settle False Claims Act liability

Former CEO of Virginia-Based Defense Contractor Agrees to Pay $20 Million to Settle False Claims Act Allegations Related to Fraudulent Procurement of Small Business Contracts

 

 

Familial relationship affiliation: SBA treats spouses as ‘one party’

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The author of this article, Steve Koprince, is also author of the book entitled “The Small-Business Guide to Government Contracts.”

One common way that contractors attempt to avoid affiliation is by limiting a particular individual to a minority ownership interest (often 49%).

But as a recent SBA Office of Hearings and Appeals case demonstrates, when a company’s owners are spouses (or other close family members), the SBA may disregard the legal ownership split, and treat the family members as one person for purposes of the affiliation rules.

OHA’s decision in Size Appeal of Gregory Landscape Services, Inc., SBA No. SIZ-5817 (2017) involved an Army solicitation seeking grounds maintenance at Fort Rucker, Alabama.  The solicitation was issued as a WOSB set-aside under NAICS code 561730 (Landscaping Services), with a corresponding $7.5 million size standard.

After opening bids, the Air Force announced that Gregory Landscaping Services, Inc. was the apparent awardee.  An unsuccessful competitor then filed a size protest.  Although the size protest was untimely, the SBA saw potential merit to the protester’s allegations.  The SBA adopted the size protest and initiated a size determination.

Keep reading this article at: http://smallgovcon.com/sbaohadecisions/familial-relationship-affiliation-sba-treats-spouses-as-one-party/

SBA finalizes “universal” small business mentor-protege program

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SBA Mentor-Protege Program 07.2016The SBA has finalized its “universal” mentor-protege program for all small businesses.

In a final rule published in the Federal Register on July 25, 2016, the SBA provides the framework for what may be one of the most important small business programs of the last decade – one that will allow all small businesses to obtain developmental assistance from larger mentors, and form joint ventures with those mentors to pursue set-aside contracts.

Keep reading this article at: http://smallgovcon.com/statutes-and-regulations/sba-finalizes-universal-small-business-mentor-protege-program/

 

 

Companies to pay $5.8 million for misrepresenting small business status and failure to pay GSA fees

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Justice Dept. seal - CopyThe U.S. Department of Justice (DOJ) has announced that a group of California-based companies — En Pointe Gov., Inc., En Pointe Technologies, Inc., En Pointe Technologies Sales, Inc., Dominguez East Holdings, LLC and Din Global Corporation — have resolved allegations of violations of the False Claims Act by agreeing to pay the government $5.8 million.

The government alleged that En Pointe Gov., Inc. falsely certified that it was a small business in order to obtain contracts set aside for small businesses.  The government also found that the company under-reported sales under a General Services Administration (GSA) contract in order to avoid the payment of fees.

En Pointe Gov., Inc. is now known as Modern Gov IT, Inc.; En Pointe Technologies Sales, Inc. is now known as Collab9, Inc.; and En Pointe Technologies, Inc. is now known as Dinco, Inc.

“These companies defrauded the government in two ways, each of which cost taxpayers,” said U.S. Attorney Eileen M. Decker for DOJ’s Central District of California. “Small businesses, in some cases, are eligible to receive a preference when government contracts are issued. Large companies that fraudulently solicit and obtain contracts under small business set-aside programs, like the companies in this case, not only abuse the system but also harm legitimate small businesses by taking those contracts away from them.”

In this case, the government alleged that, between 2011 and 2014, the defendants were liable for false representations that En Pointe Gov., Inc. met Small Business Administration (SBA) requirements to obtain work that was only available to small businesses.  In particular, the government alleged that En Pointe Gov, Inc.’s affiliation with the other defendants rendered it a non-small business and, thus, ineligible for the small business set-aside contracts it obtained.

The government also alleged that defendants caused En Pointe Gov., Inc. to file false quarterly reports with the GSA between 2008 and 2015, under-reporting sales made under a GSA schedule contract that allowed other federal agencies to purchase from En Pointe.  Under the terms of the contract, En Pointe was supposed to return to GSA a percentage of its sales receipts.  This is known as an Industrial Funding Fee.

The settlement resolve allegations filed in a lawsuit by Minburn Technology Group, LLC (Minburn), a Virginia company that sells information technology products and services, and Anthony Colangelo, Minburn’s managing member.  The lawsuit was filed under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery.  The Act also allows the government to intervene and take over the action, as it did in this case.  Minburn and Mr. Colangelo will receive approximately $1.4 million.

Source: https://www.justice.gov/opa/pr/information-technology-companies-pay-58-million-misrepresentations-relating-small-business

SBA’s appeals office reaffirms 70% threshold for economic dependence affiliation

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SBA logo smallUnder the Small Business Administration’s affiliation rules, one of the many ways a small business can be deemed affiliated with another is through the economic dependence rule: where a small business derives 70% or more of its revenues from another entity, the SBA ordinarily considers it to be economically dependent upon — and thus subject to the control of — that other entity.

So it was in a recent decision from the SBA’s Office of Hearings and Appeals (“OHA”), which confirmed the so-called “70% rule” for economic dependence.

In Size Appeal of Core Recoveries, LLC, SBA No. SIZ-5723 (Mar. 21, 2016), the SBA Area Office, “acting on an anonymous complaint,” challenged Core Recoveries’ size under NAICS code 561440 (Collection Agencies), which carries a $15 million size standard. The Area Office alleged that Core Recoveries was affiliated with a large business, West Asset Management.

Core denied the Area Office’s allegations, and explained that, as of the date of the SBA’s November 19, 2015 inquiry, “West maintained only 1,616 accounts with [Core Recoveries], which represented only 1.1% of [Core’s] total account volume on that date.” Additionally, Core said that it no longer had an active contract with West.

Nonetheless, the Area Office found Core to be affiliated with West through economic dependence. Under OHA precedent, a small business is automatically deemed affiliated with another entity where the small business derives more than 70% of its revenue from that other entity. (There is a limited exception for new businesses, which didn’t apply here).

Keep reading this article at: http://smallgovcon.com/sbaohadecisions/sba-oha-reaffirms-70-threshold-for-economic-dependence-affiliation/

SBA issues new rules affecting small business affiliation — and lots more

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Federal RegisterBack when the U.S. Congress was adopting the 2013 version of the National Defense Authorization Act (NDAA), it included directives to the Small Business Administration (SBA) to make changes to multiple rules pertaining to small business set-aside contracts and subcontracting.  On Monday, May 31, 2016, the SBA published final rules in the Federal Register implementing each of these changes.

The rule changes are wide ranging, amending SBA’s nonmanufacturer rule and affiliation rules, and for the first time allowing joint ventures to qualify as small for any government procurement as long as each partner to the joint venture qualifies individually as small under applicable size standards.

All of the changes can be seen at: https://www.federalregister.gov/articles/2016/05/31/2016-12494/small-business-government-contracting-and-national-defense-authorization-act-of-2013-amendments.

Here is a summary view of some of the most significant changes being made:

  • Affiliation. In the case of a solicitation for a bundled contract, a small business contractor may enter into a Small Business Teaming Arrangement with one or more small business subcontractors and submit an offer as a small business without regard to affiliation, so long as each team member is small for the size standard assigned to the contract or subcontract. This is a major change.  Previously, small businesses risked losing small business status if combined employees or gross revenues exceeded SBA’ s size standards.  This new concept applies to joint ventures as well.  A joint venture of two or more business concerns may submit an offer as a small business for a federal procurement, subcontract or sale so long as each concern is small under the size standard corresponding to the NAICS code assigned to the contract.  In addition, the new rule provides that firms owned or controlled by married couples — in addition to parties to a civil union, parents, children, and siblings — are presumed to be affiliated with each other if they conduct business with each other, such as subcontracts or joint ventures or share or provide loans, resources, equipment, locations or employees with one another. This presumption may be overcome by showing a clear line of fracture between the concerns. Other types of familial relationships are not grounds for affiliation on family relationships.
  • Procurement Center Representatives.  The SBA has Procurement Center Representatives (PCRs) located at federal agencies and military bases which have major contracting programs.  Under the new rules, PCRs are to review all acquisitions that are not totally set aside for small businesses to determine whether a set-aside or sole source award to a small business is appropriate and to identify alternative strategies to maximize the participation of small businesses in the procurement. PCRs are also to advocate against the consolidation or bundling of contract requirements (which tend to adversely impact small business contract participation), and reviewing any justification provided by the agency for consolidation or bundling. This review includes acquisitions that are Multiple Award Contracts (MACs) where the agency has not set-aside all or part of the acquisition or reserved the acquisition for small businesses. It also includes acquisitions where the agency has not set-aside orders placed against MACs for small businesses.  Also, for the first time, PCRs may receive unsolicited proposals from small businesses.  They are to send such proposals to the agency personnel responsible for reviewing such proposals, and the agency personnel are to provide PCRs with information regarding the disposition of each proposal.
  • Subcontracting to Small Businesses.  A prime contractor that identifies a small business by name as a subcontractor in a proposal, offer, bid or subcontracting plan is now obligated to notify those subcontractors, in writing, prior to identifying the concern in the proposal, bid, offer or subcontracting plan.  Safeguards against naming a subcontractor that the prime really doesn’t intent to use are also strengthened.  The new rules state that anyone who has a reasonable basis to believe that a prime or a subcontractor may have made a false statement with respect to subcontracting plans is to report the matter to the SBA’s Office of Inspector General. All other concerns as to whether a prime contractor or subcontractor has complied with SBA regulations or otherwise acted in bad faith may be reported to the Government Contracting Area Office where the firm is headquartered.  Contractors who are judged to have acted in bad faith may be found to be in material breach of contract and subject to liquidated damages under their contract.
  • Limitations on Subcontracting.  The rules have changed for the amount of work a small business may subcontract out.  In order to be awarded a full or partial small business set-aside contract with a value greater than $150,000, a small business concern now must agree that:

    (1) In the case of a contract for services (except construction), it will not pay more than 50% of the amount paid by the government to it to firms that are not similarly situated.  (Any work that a similarly situated subcontractor further subcontracts will count towards the 50% subcontract amount that cannot be exceeded.)

    (2) In the case of a contract for supplies or products (other than from a non-manufacturer of such supplies), it will not pay more than 50% of the amount paid by the government to it to firms that are not similarly situated. (Any work that a similarly situated subcontractor further subcontracts will count towards the 50% subcontract amount that cannot be exceeded.) Cost of materials are excluded and not considered to be subcontracted.

    (3) In the case of a contract for supplies from a non-manufacturer, it will supply the product of a domestic small business manufacturer or processor, unless a waiver is granted.

    (4) For a multiple item procurement where a waiver has not been granted for one or more items, more than 50% of the value of the products to be supplied by the non-manufacturer must be the products of one or more domestic small business manufacturers or processors.

    (5) For a multiple item procurement where a waiver is granted for one or more items, compliance with the limitation on subcontracting requirement will not consider the value of items subject to a waiver. As such, more than 50% of the value of the products to be supplied by the non-manufacturer that are not subject to a waiver must be the products of one or more domestic small business manufacturers or processors.

    (6) For a multiple item procurement, the same small business concern may act as both a manufacturer and a non-manufacturer.

  • Contracts Set-Aside for Service Disabled Veteran Owned Small Businesses.  Under the new rules, a joint venture comprised of at least one Service Disabled Veteran Owned Small Business (SDVOSB) and one or more other businesses may submit an offer as a small business for a competitive SDVOSB set-aside procurement, or be awarded a sole source SDVOSB contract, so long as each concern is small under the size standard corresponding to the NAICS code assigned to the procurement.

All of these rule changes are effective on June 30, 2016.

 

4 factors can trigger ostensible subcontractor determination

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SBA logo smallOstensible subcontractor affiliation can arise for many reasons–but a small business may be in grave danger of affiliation with its subcontractor when four specific factors are present.

In a recent size appeal decision, the SBA Office of Hearings and Appeals held that a small prime contractor was unusually reliant on its large subcontractor where “four key factors” indicated that the small prime contractor was bringing little to the table but its small business status.

OHA’s decision in Size Appeal of Modus Operandi, Inc., SBA No. SIZ-5716 (2016) involved an Air Force solicitation for research, studies, engineering, and related services.  The solicitation was issued as a small business set-aside under NAICS code 541690 (Other Scientific and Technical Consulting Services), with a corresponding $15 million size standard.

The solicitation was a follow-on to a procurement for similar services, known as the Sustainment Systems Engineering & Acquisition Management Services contract.  BAE Systems Technology Solutions & Services, Inc., a large business, was the incumbent under the SSEAMS contract.

After reviewing competitive proposals, the Air Force awarded the contract to Modus Operandi, Inc.  An unsuccessful competitor subsequently filed an SBA size protest.  The competitor alleged that Modus Operandi had proposed to use BAE as its subcontractor, and that Modus Operandi was affiliated with BAE under the ostensible subcontractor rule.

Keep reading this article at: http://smallgovcon.com/sbaohadecisions/ostensible-subcontractor-affiliation-beware-these-four-key-factors-says-sba-oha/

Ostensible subcontractor rule: Management alone wasn’t enough

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Ostensible Subcontracting RuleThe prime contractor’s management of a contract wasn’t enough to avoid ostensible subcontractor affiliation where the subcontractor would provide the labor, equipment, and facilities for performing the work.

In a recent size appeal decision, the SBA Office of Hearings and Appeals confirmed that, where the subcontractor will provide the goods or services that the agency “actually seeks to acquire,” the subcontractor may be deemed an ostensible subcontractor under the SBA’s affiliation rules.

OHA’s decision in Size Appeal of Hamilton Alliance, Inc., SBA No. 5698 (2015) involved a NAVFAC solicitation seeking a contractor to provide refuse collection and processing, as well as the collection, processing and sale of recyclable waste.  Under the solicitation’s Performance Work Statement, the contractor was to be responsible for providing all labor, supplies, materials, equipment, transportation, facilities, supervision and management necessary to collect and process refuse and recyclable waste.  The solicitation was a SDVOSB set-aside under NAICS code 562119 (Other Waste Collection), with a corresponding $38.5 million size standard.

Keep reading this article at: http://smallgovcon.com/sbaohadecisions/ostensible-subcontractor-rule-management-alone-wasnt-enough/

Small business affiliation: What to know before you own

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SBA logoThe question of qualifying as a small business often considers whether an individual owns and controls her own business. While proper ownership is one type of hurdle– what do you do when you have a stake in not just one, but multiple businesses? To protect your small business status, you have to start by thinking about affiliation.

The SBA’s general rule of affiliation is that two businesses will be considered affiliates if one owns or has the ability to control the other. That sounds simple enough, but – again – the SBA has very specific ideas on what it means to own or control.

The most basic example of affiliation is Common Ownership. If the same person owns more than 50% of two businesses, those businesses are automatically considered affiliates by the SBA (and therefore must include the annual receipts and the employees from both business in all size determinations).

Keep reading this article at: http://www.mondaq.com/article.asp?articleid=461614

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