Five subcontractors and two individuals have paid the government nearly $1.9 million to resolve allegations that they violated the False Claims Act by falsely representing themselves as small disadvantaged businesses.
According to a Department of Justice press release, the subcontractors self-certified as SDBs to their prime contractors, and those self-certifications were then passed on to the government.
It sounds like a tale from Bizarro World: under a recent Department of Homeland Security solicitation, a small business received a “Neutral” score for the small business participation factor, while its large competitor was awarded a “Good” score for the same factor.
One might think that the GAO would sustain a bid protest, especially because the small business in question planned to self-perform nearly two-thirds of the contract work. Think again. The GAO denied the protest, holding that under the solicitation, offerors could only receive small business participation credit for subcontracting to small businesses, not for self-performing at the prime contract level.
The United States Court of Federal Claims has denied a challenge to the Transportation Security Administration’s establishment of a 40% small business subcontracting goal–measured by total contract price, not total subcontracting dollars.
In Firstline Transportation Security v. The United States, No,. 12-601C (2012), Judge Thomas Wheeler rejected arguments that the TSA’s 40% small business subcontracting goal was unreasonable, contrary to the FAR, and improperly established a partial small business set-aside.
An Ohio-based construction company has paid $500,000 to settle federal False Claims Act allegations related to the Department of Transportation’s Disadvantaged Business Enterprise program, according to a statement published by the U.S. Department of Justice.
This case is particularly interesting because the allegations made by the government sound an awful lot like circumstances that, I have heard, may occur on many government projects requiring small business subcontracting plans. Some in the industry have complained that sometimes, a small and/or socioeconomically disadvantaged business is named as a subcontractor under a large prime’s subcontracting plan, but the small business is expected to pass all or most of the work through to a large, second-tier sub.
It’s not that different from what happened in Ohio, and now the prime contractor in question is half a million dollars poorer. The settlement begs the question: will the government use the False Claims Act to root out this type of subcontracting plan abuse in the near future?
George W. Bush famously declared himself to be “the decider.” Although some comedians had fun with the phrase, it’s hard to argue with Bush’s underlying assessment; as head of the government, the President has a lot of decisions to make. But when it comes to whether you qualify as “small” for purposes of a federal subcontract, it may surprise you to learn that the government isn’t the decider at all.
For a subcontract, the prime contractor—not the government—decides what NAICS code (and corresponding size standard) applies. The NAICS code the prime contractor selects for your subcontract need not be the same NAICS code assigned to the prime contract as a whole, and you may have the opportunity to lobby the prime contractor to change the NAICS code to one you believe is better-suited for the procurement–and your small business eligibility.
Small businesses sometimes complain that large prime contractors are not always held accountable for failing to meet their small business subcontracting goals. If that complaint sounds familiar, you may be cheered by the GAO’s decision in a bid protest filed by one very well-known large prime contractor. In that case, the prime’s history of meeting (or perhaps, not always meeting) its small business subcontracting goals was a critical factor causing the large prime to lose out on a contract.
If your small business competes on an unrestricted (aka “full and open”) solicitation, you probably don’t submit a small business subcontracting plan. After all, small businesses are typically exempt from the subcontracting plan requirement, so why do the extra paperwork (and potentially foreclose subcontracting opportunities with large businesses?)
However, even on unrestricted procurements, you must be careful to forego a subcontracting plan only if you are actually small under the NAICS code assigned to the procurement. Otherwise, you could end up losing a contract, as one unfortunate contractor discovered in eTouch Federal Systems, LLC, B-404894.3 (Aug. 15, 2011), a GAO bid protest decision.