Georgia Tech Procurement Assistance Center

The definition of a subcontractor, and why it matters

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What is a subcontractor?

The answer to this question seems obvious – a subcontractor is a contractor that contracts with the prime contractor to perform a scope of work on a construction project.

However, it is not always easy to distinguish a subcontractor from a materials supplier (sometimes referred to as a “materialman”). That distinction is important in the context of claims by lower-tier subcontractors or materials suppliers on payment bonds, such as those provided by prime contractors on federal and state public works projects. That is, a lower-tier subcontractor or materials supplier may not be entitled to recovery from a payment bond if its contract is with a materials supplier instead of a subcontractor. Therefore, identifying the role of the party with whom a contractor is contracting is a key task the prudent contractor will perform at the outset of a project.

This distinction is most important in the context of federal public works projects. For those projects, the Miller Act restricts claimants on payment bonds to those who had a contract with the prime contractor and those who had a contract with a subcontractor, provided that in the latter case the claimant provides notice to the prime contractor. In other words, if a firm has a contract with a materials supplier, as opposed to a subcontractor, the firm does not have entitlement to payment under the bond. Courts look at the “total relationship” between the parties to determine if the party in question is a subcontractor or materials supplier.

Courts have applied a balancing test to make this determination, with some factors weighing in favor of a subcontractor relationship and other factors weighing in favor of a materials supplier relationship.

Keep reading this article at: https://idahobusinessreview.com/2019/02/28/the-definition-of-a-subcontractor-and-why-it-matters/

Miller Act applies even if contract does not contain a bonding requirement

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United States Court of Appeals for the Federal Circuit recently held, in K-Con, Inc. v. Secretary of Army, that the bonding requirements under the Miller Act apply to federal government construction contracts, even when the bonding provisions were not part of the contract.

The Miller Act, as implemented at FAR 28.102-1, requires that before any contract of more than $150,000 is awarded for the construction, alteration, or repair of any public building or public work of the Federal Government, a person must furnish to the Government, performance and payment bonds, which become binding when the contract is awarded.  

The Appeals Court cited a doctrine first articulated in G. L. Christian & Assocs. v. United States, 312 F.2d 418 (popularly known as the Christian Doctrine) in arriving at this decision.

Under the Christian Doctrine, a court may insert a clause into a government contract by operation of law if:

  1. that clause is mandatory under applicable federal administrative regulations; and
  2. it expresses a significant or deeply ingrained strand of public procurement policy.

The court found that the Miller Act bonding requirements are mandatory, because FAR Sections 28.102-1 and 28.102-3 require the bonds and direct the insertion of the clauses into federal government construction contracts.  The court further found that Miller Act bonding requirements are “deeply ingrained” in public procurement policy.  The Miller Act bonding requirements were thus held to be incorporated into federal government construction contracts by operation of law, at the time the contracts were awarded, under the Christian Doctrine.

Keep reading this article at: https://www.jdsupra.com/legalnews/the-miller-act-applies-even-if-contract-34807

SBA makes changes to its surety bond program

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The U.S. Small Business Administration (SBA) has noted two important changes to its Surety Bond Guarantee (SBG) Program that will increase contract opportunities for small contractors, supporting them to grow their business operations.  The changes became effective on September 20, 2017.

The changes have the effect of increasing the guarantee percentage in the Preferred Surety Bond Program from no more than 70 percent to no more than 90 percent.  The SBA’s guarantee is now 90 percent if the original contract amount is $100,000 or less, or if the bond is issued to a small business that is owned and controlled by socially or economically disadvantaged individuals, veterans, service disabled veterans, or certified HUBZone and 8(a) businesses.  All other guarantees are 80 percent.

In addition, the eligible contract amount for the Quick Bond Application (Quick Bond) increased to $400,000 from $250,000.  The Quick Bond is a streamlined application process, with reduced paperwork requirements, that is used in the Prior Approval Program for smaller contract amounts.  SBA’s review and approval requires minimal time, allowing small businesses to bid on and compete for contracting opportunities without delay.

Through its SBG Program, consisting of the Prior Approval and the Preferred Surety Bond Programs, the SBA guarantees bid, payment and performance bonds for contracts that do not exceed $6.5 million, and up to $10 million with a federal contracting officer’s certification.  The SBA’s guarantee encourages the surety company to issue a bond that it would not otherwise provide for a small business.

For more information on the SBA’s Surety Bond Guarantee Program, visit www.sba.gov/surety-bonds.

“Reverse” False Claims Act liability extended to bonding companies

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On Monday, the U.S. District Court for the District of Columbia ruled that bonding companies can be held liable for treble damages under the False Claims Act for issuing surety bonds to construction companies that falsely claim to be a Service-Disabled Veteran-Owned Small Business (SDVOSB).

In a novel reverse False Claims Act case, whistleblower Andrew Scollick alleged that the bonding companies “knew or should have known” the construction companies were shell companies acting as a front for larger non-veteran owned entities violating the government’s contracting requirements.

A reverse false claim action can occur when defendants knowingly make a false statement in order to avoid having to pay the government when payment is otherwise due in violation of 31 U.S.C. § 3729(a)(1)(G) (reverse false claims).  See United States ex. rel. Scollick v. Narula, Case No: 14-cv-01339-RCL (District Court, District of Columbia. July 31, 2017).

Under the Miller Act, government construction contractors must post bid bonds, performance bonds, and payment bonds that guarantee that the contractor will perform the work according to the terms of the contract. In this case, the contract terms required that the construction be performed by a SDVOSB entity.  Michael Kohn, of Kohn, Kohn & Colapinto, who represents the whistleblower, argued that given their role in providing a surety bond to the contractor the bonding companies would know whether the invoicing being billed against the contract is being performed by a SDVOSB.  The district court agreed and found that a “reverse false claims” violation occurred because the bonding company knew or should have known that the construction organization was not a SDVOSB and the act of issuing surety bonds furthered the fraud.  As a result, the bonding companies were held legally obligated to return to the government funds the bonding company knew to be paid to contractor firms fraudulently posing as SDVOSBs. Being held liable under the False Claims Act means that treble damages will be awarded for every dollar up to the amount of the bond that the government paid out under each contract.

Because of the substantial dollar amounts involved, it is not all that uncommon for contractors to falsify service-disabled veteran status. Holding bonding companies liable when they have reason to know of the fraud could have an immense impact on stamping out such contract fraud. “Holding bonding companies liable for treble damages in these types of case will have a huge impact on preventing fraud in government contracts and will help ensure these contracts go to disabled veteran-owned companies as intended,” said Kohn.

The Scollick case alleges that two of the largest surety bonding companies, Hanover Insurance Company and Hudson Insurance Company, knowingly bonded dozens of Veteran Administration construction contracts totaling more than $12.5 million with the knowledge that the bonded contractors did not qualify as service-disabled, veteran-owned small businesses.

 

Source: http://www.webwire.com/ViewPressRel.asp?aId=211708

The dotted line: How to navigate ‘the 3 Cs’ of construction bonding

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“Payment and performance bonds required.”  Those words can signal a giant dead end for some contractors who would like to bid on public work or large private projects but haven’t yet waded into the bonding world. However, the bonding process doesn’t have to be mysterious or sweat-inducing as long as companies are equipped with the right information.

SuretyThe most common types of construction bonds are performance and payment bonds, which are kinds of surety bonds. A payment bond guarantees the owner that the contractor will pay all the supplier and subcontractor bills associated with the project, and the performance bond is the owner’s assurance the project will be completed in a timely manner and with high quality.

Those who have bumped into bonding requirements on past jobs might have seen a “bid bond” requirement. This is a bond that guarantees the owner that the contractor will be able to meet the requirements of the contract for the amount of the submitted bid.  But if a company has bonding capability for performance and payment bonds, these aren’t usually a problem to secure.

Keep reading this article at: http://www.constructiondive.com/news/the-dotted-line-how-to-navigate-the-3-cs-of-construction-bonding/413514/

Webinar on surety bonds to be presented April 17th

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The U.S. Small Business Administration’s Surety Bond Guarantee Program helps small business get bonded.  If you wish to learn about this program, you are invited to participate in a free, live webinar on Thursday, April 17, 2014 from 10:00 to 11:00 am EDT.

This webinar is ideal for  small businesses with:

  • Limited financial resources
  • No prior bonded work experience
  • Been in business less than three years
  • Desire to increase your current bonding capacity

The webinar will cover Contract Bonds, including:

  • What they are and why they are required
  • How to get pre-qualified
  • Working capital and bank support

The webinar also will provide complete information about SBA’s Surety Bond Guarantee Program, including:

  • Program eligibility
  • Required information
  • Application process and fees

Advance registration is required.  Please register online at http://events.sba.gov/eventmanagement/EventRegistration.aspx?id=9a6d088f-24b1-e311-abc5-02bfa56e2a24 

Date:                    Thursday, April 17, 2014

Time:                    10:00 am – 11 am

Internet:        https://connect16.uc.att.com/sba/meet/?ExEventID=87462470 (copy the link into your browser to attend).

Phone:            888-858-2144 and then enter meeting code 7462470# to connect by phone.

Prepare in advance for the conference at: https://connect16.uc.att.com/sba/Prepare

For more information please contact Ms. Melanie Bryant at 404-331-0100, ext. 603 or melanie.bryant@sba.gov.

SBA issues final rule on surety bond guarantee program

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In a rule (79 Fed. Reg. 2084) scheduled to go into effect on Feb. 12, 2014, the Small Business Administration (SBA) is modifying its Surety Bond Guarantee Program to incorporate certain provisions of the National Defense Authorization Act of Fiscal Year 2013 (NDAA).  This includes provisions that increase the contract amounts for which SBA is authorized to guarantee bonds, grant SBA the authority to partially deny liability under its bond guarantee, and prohibit SBA from denying liability based on material information that was provided as part of the guarantee application in the Prior Approval Program.

The rule also makes changes to the Quick Bond Guarantee Application and Agreement, the timeframes for taking certain actions related to claims, and the dollar threshold for determining when a change in the Contract or bond amounts meets certain criteria or requires certain action. Finally, the final rule eliminates references to the provisions of the American Recovery and Reinvestment Act of 2009 (Recovery Act) that has expired.

The new rule can be downloaded here: 79 Fed. Reg. 2084

SBA introduces ‘Quick Bond’ application

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SBA has developed a new streamlined application to help small business owners bid and compete for contracting opportunities.

The Quick Bond Guarantee Application Agreement is for contracts less than $250,000 and combines the contractor application and SBA’s agreement with the surety to guarantee the bond into one easy-to-use form. The new form, the Quick Bond Guarantee Application and Agreement (SBA Form 990A) is available here.

The streamlined application reduces paperwork for both contractors and surety companies participating in SBA’s Prior Approval Program. The Quick Bond Guarantee Application Agreement helps:

  • Reduce processing time,
  • Streamline application requirements,
  • Speed up the application approval process.

For more information on surety bonds and SBA’s Surety Bond Guarantee Programs, visit SBA.gov/Surety-Bonds.

SBA opens its review of small business regulations

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Are you a small business owner frustrated with outdated and often cumbersome regulations from the Small Business Administration? Then SBA wants to hear your suggestions on whether those rules should be streamlined, expanded, or possibly withdrawn altogether.

On Monday, SBA published a notice in the Federal Register asking the public to weigh in on the impact of its regulations and the best way to improve them.

“The primary objectives of this review are to make SBA’s regulatory program more cost-effective and less burdensome on participants in the agency’s programs while continuing to promote economic growth, innovation and job creation,” the notice said. “SBA seeks public input on the design of a plan to use for periodic retrospective review of its regulations and an initial list of the rules to be reviewed under the plan.”

The proposal comes on the heels of President Obama’s January executive order calling for a governmentwide review of all federal regulations. The order said inefficient, out-of-date and burdensome regulations could be repealed if they were stifling private sector job growth.

The order instructs agencies to develop a plan for reviewing their regulations by mid-May. The plan, along with any supporting data, would then be made public, Obama wrote.

While the SBA notice did not cite specific regulations, it did say the retrospective review would focus on small business investment companies, surety bond guarantee, business loans, disaster loans, government contracting and Historically Underutilized Business Zones.

SBA recently concluded an exhaustive review of its 8(a) Business Development Program and now is examining size regulations. Neither will be subject to the new review.

The agency wants the public to comment not only on specific regulations, but also on how it should devise its preliminary plan “with a defined method and schedule for identifying certain significant rules that may be obsolete, unnecessary, unjustified, excessively burdensome, or counterproductive.” Comments also should address how SBA can best evaluate and analyze its regulations and obtain accurate and objective cost data.

Commenters should consider the economic burden the regulation imposes on small business entities and whether the rule is duplicative or overlapping; paperwork could be reduced by allowing electronic submissions; the regulation has been discredited by new scientific information; and the issue could be better handled by trade organizations without federal involvement.

“Comments should focus on regulations that have demonstrated deficiencies,” the notice said. “Comments that rehash debates over recently issued rules will be less useful. The public should focus on rule changes that will achieve a broad public impact, rather than an individual, personal, or corporate benefit.”

Sen. Olympia Snowe, R-Maine, ranking member of the Senate Committee on Small Business and Entrepreneurship, encouraged the public to participate in the review.

“Excessive regulations are suffocating the entrepreneurial spirit of America’s almost 30 million small businesses and, regrettably, small firms with fewer than 20 employees bear a disproportionate burden of complying with these rules,” Snowe said in a statement. “To spur job creation and economic growth, it is incumbent upon every level of government to simultaneously pursue sound incentives and eliminate the laws and policies already on the books that are proven impediments to these objectives.”

Earlier this month, Snowe and Sen. Tom Coburn, R-Okla., introduced the Small Business Regulatory Freedom Act, which would require agencies to calculate the direct and indirect economic impact of federal regulations. Small business review panels would be installed at all agencies and small businesses also would be allowed to challenge proposed regulations in court.

Comments for the SBA notice must be submitted by April 13. Comments can be submitted electronically at regulations.gov, or mailed to the SBA Office of the General Counsel, 409 Third Street SW., Washington, D.C., 20416.

The review plan, along with an initial list of regulations that will be evaluated, is expected to be complete by late May or early June and will be available on SBA’s Open Government Web page.

—  by Robert Brodsky – GovExec.com -March 15, 2011

Minority engineering firm grows business with assistance from GMBEC

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In 1998, the outcome of a legal case changed the course of Barry Bennett’s life. Bennett, who was working for a geotechnical and environmental engineering firm in Atlanta at the time, had provided expert testimony for a family-owned company that was suing a large manufacturer for non-payment.

“After several months, the small company finally prevailed and we celebrated that evening in Buckhead. The owner of the company said I did a great job and asked why I didn’t do this for myself,” recalled Bennett, now president of Metals & Materials Engineers, LLC (MME). “I told him I had a one-income family with four small children, and I couldn’t afford to start a business and put all of these people at risk. He looked at me and said, ‘Barry, all of the reasons you just gave me for not starting a business are the reasons you should.’ I went home that night and couldn’t sleep.”

It was at that pivotal moment that the idea started for MME, an Atlanta-based, minority-owned engineering firm that has been providing technical experience in metallurgy, civil engineering, engineering sciences and utility services since 2001. Today the company has two major divisions – materials engineering/metallurgy studies and civil engineering/infrastructure analysis – and employs 70 people across three locations. MME’s customers run the gamut from law firms to municipalities to large manufacturers.

“Over the past five years, the emphasis has been on the infrastructure side because that’s where the growth was. Approximately 75 percent of our company is focused on the civil and infrastructure arena,” Bennett noted. “Part of my business plan and long-term goal is to create a 50-50 split between the two operations. Currently, the growth is on the metallurgy side because municipalities are struggling with lost revenues and a decreased tax base.”

Because of the company’s relatively young age and shift in focus, Bennett was intent on taking advantage of any and all opportunities available to his SBA 8(a) certified company, a designation that means the company meets the requirements of being a small business, is unconditionally owned and controlled by one or more socially and economically disadvantaged people who are U.S. citizens, and demonstrates potential for success. Most importantly, having 8(a) certification means a business can bid on government projects not available to uncertified companies.

“About two years ago, we had an opportunity to enter into a mentor-protégé relationship with Atlanta Gas Light, and through that relationship, the Georgia Minority Business Enterprise Center was brought in to provide some guidance and counseling to the minority businesses that participated in that program,” said Bennett. “I had some one-on-one conversations with Donna Ennis, the project director, and Maria Mar Hill, a business advisor, and I realized they provided additional services.”

The Georgia Minority Business Enterprise Center (GMBEC) is operated by the Georgia Tech Enterprise Innovation Institute, providing business and technical assistance that helps emerging and existing minority business enterprises (MBEs) experience significant growth and sustainability, and have long-term economic impact through the creation of jobs and revenue. Part of a national network of centers established to increase the number of MBEs and strengthen existing ones, GMBEC provides services in business assessment, access to capital and finance management, access to markets, strategic business consulting and business process improvement. Bennett says that his interactions with GMBEC have proven to be invaluable to his business.

“I’m an engineer by training. Prior to that I had limited management training, so I knew that was one of the areas I could use some help in, certainly on the accounting side. They started talking to me, showing me how I could improve on this shortcoming,” he said. “We entered into a contractual agreement for them to just give me guidance on some of my procurement or banking issues, how to improve on our certification packages – just a full array of executive business counseling that I never had before.”

Working with Hill, Bennett began to examine MME’s banking issues and re-structured some of the company’s loans for a monthly savings of $30,000. She also encouraged him to purchase the company’s 10,500-square-foot headquarters building in Suwanee – which he had been renting since 2001 – resulting in a more lucrative credit line and a savings of $4,000 a month.

“There’s not a single major transaction that I undertake without Maria’s counseling, guidance and support,” Bennett said. “I really believe that if I hadn’t had this service from Georgia Tech, it would have been very difficult to survive under these terrible economic circumstances.”

Hill also assisted Bennett with his application to the Governor’s Mentor Protégé Connection program, a unique opportunity for a select group of Georgia’s emerging businesses to improve business practices, develop relationships and promote business growth. The program partners a small business with a leading Georgia-based corporation to focus on areas such as new markets and global expansion; professional development, business training and networking; business operations improvements; and cutting-edge business practices and mentoring. In February, MME was partnered with Southern Company for the year-long program.

“Barry and his staff are extremely talented professionals,” said Melissa Evans, Georgia Power’s staff supplier diversity consultant. “It is always exciting and rewarding for us at Georgia Power to identify a top performing minority-owned business.”

Currently, Bennett is in the process of putting together a master service agreement with Southern Company to provide non-destructive testing and metallurgical services throughout all Southern Company plants. MME will begin with the Georgia and Alabama plants, and then take advantage of other opportunities in Florida and Mississippi as the project progresses, giving them tremendous opportunities to grow. Hill, described by Bennett as someone he “trusts exclusively,” agrees that MME is well-poised for growth and long-term success.

“MME is the type of company that allows the GMBEC to fulfill its mission of successfully growing businesses and creating employment in the state of Georgia. The company has been very successful leveraging internal and external resources and relationships resulting in significant growth,” she said. “MME has the capacity, capability and dedicated staff to continue to achieve great business success.”

GMBEC celebrated its sixth year at Georgia Tech in 2009, and over that time it helped clients secure more than $232 million in procurement contracts, financing, and sales; assisted minority companies with creating more than 3,000 jobs; and provided one-on-one technical assistance to some 450 firms and advice, guidance, and resources to thousands of others. The program received the 2010 Special Recognition Award from the Georgia Hispanic Chamber of Commerce, 2006 Institution Award from the Greater Atlanta Economic Alliance and has been recognized by its federal sponsor as an outstanding performance center since 2005.

GMBEC works with existing high-impact firms in manufacturing, construction, warehousing, transportation, technology and professional services. Assistance ranges from identification of funding sources to process and infrastructure improvement to securing new business. To qualify for GMBEC assistance, companies must have 51 percent minority ownership and minimum annual revenues of $500,000.

About Enterprise Innovation Institute:

The Georgia Tech Enterprise Innovation Institute helps companies, entrepreneurs, economic developers and communities improve their competitiveness through the application of science, technology and innovation. It is one of the most comprehensive university-based programs of business and industry assistance, technology commercialization and economic development in the nation.

Research News & Publications Office

Enterprise Innovation Institute

Georgia Institute of Technology

75 Fifth Street, N.W., Suite 314

Atlanta, Georgia 30308 USA

Media Relations Contacts: Nancy Fullbright (912-963-2509); E-mail: (nancy.fullbright@innovate.gatech.edu) or John Toon (404-894-6986); E-mail (john.toon@innovate.gatech.edu).

Writer: Nancy Fullbright

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