A Halloween Surprise: President Trump Revokes Executive Order 13495

Executive Order 13495 has had a bit of a rocky past. Originally issued by President Clinton, the Order has been rescinded and then replaced, depending on the President’s political persuasions. After being reinstated by President Obama in 2009, many (like me) assumed that President Trump would have promptly rescinded it again.

Three years into his administration, President Trump has now acted: on Halloween, he rescinded Executive Order 13495.

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Ostensible Subcontractor Affiliation: Who Manages The Work Matters

So you’ve teamed with an ineligible incumbent contractor to bid on some government work and, to try and maintain continuity, the incumbent would like to retain project management functions. “No big deal,” you think, “I’ll just create a management position to oversee the project manager.”

Actually, it could be a big deal if you’re trying to avoid ostensible subcontractor affiliation. Among the four key factors for determining ostensible subcontractor affiliation is whether the management previously served with the subcontractor under the incumbent contract. And according to a recent SBA Office of Hearings and Appeals decision, creating a figurehead management position to oversee the project manager won’t negate this indicia of ostensible subcontractor affiliation.

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Price Realism: Agency Didn’t Compare Proposed Rates To Incumbent Rates

An incumbent contractor won a protest at GAO recently where it argued that the awardee’s labor rates were too low, because they were lower than the rates the incumbent itself was paying the same people.

GAO faulted the agency for concluding that the awardee’s price was realistic without checking the proposed rates against the incumbent rates. In other words, GAO told the agency to start at the obvious place—the compensation of the current employees.

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Ostensible Subcontractor Affiliation: Hiring Third-Party Employees OK

Under the SBA’s ostensible subcontractor affiliation rule, hiring incumbent employees can be evidence of affiliation, but the importance of that staffing plan in an affiliation analysis depends on what role the incumbent contractor will play in the awardee’s performance of the contract.

In a recent size appeal decision, the awardee proposed to hire 85% of its personnel from the incumbent contractor, but the incumbent wasn’t proposed as a subcontractor–in fact, the incumbent was the company protesting the awardee’s small business size.  Under these circumstances, the SBA Office of Hearings and Appeals held, the awardee’s hiring of incumbent employees did not establish ostensible subcontractor affiliation.

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Unequal Evaluation: Incumbent Not Credited For Retaining Its Own Employees

In its evaluation of proposals, a procuring agency gave a challenger a strength for proposing to recruit incumbent employees, but didn’t give the incumbent contractor a strength–even though the incumbent contractor proposed to retain the very same people.

Unsurprisingly, the GAO found that the evaluation was unequal, and sustained the incumbent’s protest.

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Hiring Incumbent Employees At Low Labor Rates–What Could Go Wrong?

A company bidding to replace an incumbent service contractor cannot presume incumbent workers will take major pay cuts without setting itself up for a potentially successful protest.

FAR 22.12 generally requires successor service contractors to give a right of first refusal to qualified employees under the previous contract. And even when these nondisplacement rules don’t apply, many offerors’ proposals tout their efforts to retain incumbent employees. But asking incumbent employees to take significant pay cuts–and expecting them to accept–is unreasonable and can torpedo a proposal. Case in point: GAO sustained a protest recently against an awardee who had proposed high retention rate of incumbent workers, but lower pay for those positions.

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