When it comes to hiring former government employees, criminal law prohibits certain conduct (like attempting to hire a contracting officer who is currently evaluating your proposal). But just because a hire meets the letter of the law does not mean that it won’t cause an organizational conflict of interest, or OCI.
That’s exactly what happened in the GAO’s decision in TeleCommunication Systems, Inc., B-404496.3 (Oct. 26, 2011)–and it cost a contractor an award.
“Veterans First” really means “Veterans First,” even if the VA would prefer to conduct an unrestricted procurement under the General Services Administration’s Federal Supply Schedule rather than conducting market research to see if the procurement can be set-aside for service-disabled veteran-owned small businesses. So said that GAO in an important bid protest decision for SDVO small businesses, Aldevra, B-405271 (Oct. 11, 2011).
In Aldevra, the VA attempted to purchase certain supplies for a VA Medical center through the GSA Schedule on an unrestricted basis. Aldevra, a SDVOSB, filed a protest with the GAO, arguing that before using the GSA Schedule, the VA should have conducted market research to determine whether two or more offers would be received from eligible SDVOSBs, and if so, should have set-aside the competition for SDVOSBs.
Back in 1976, Boston (the band, not the city), released its self-titled debut album, featuring the hit “More Than a Feeling.” The tune is still a staple on classic rock stations everywhere. Before you curse me for getting the song stuck in your head, think of it as an easy way to remember a critical aspect of the “non-manufacturer” size rule. Simply put, it’s about more than employees.
When an agency issues a solicitation for supplies or products, it’s easy for small businesses to assume that non-manufacturer rule applies, meaning that a business qualifies as “small” so long as it has less than 500 employees. But, as the SBA’s Office of Hearings and Appeals has confirmed, a company can only submit a valid offer if your company meets all five “prongs” of the non-manufacturer rule. Having less than 500 employees only gets you part of the way there.
If your small business is thinking about acquiring all or most of another company by way of an asset purchase agreement, you may wonder what effect it will have on your small business size status. Yes, your company will be bigger now that it used to be, and will have to take that into account going forward. But you may not be aware that an asset purchase agreement could create an affiliation problem and affect your size status looking backward, too.
When a small business draws close to its size standard ceiling, it may consider forming a small business “spin-off” company as one way to keep itself in the small business set-aside game. Done right, a spin-off may be able to successfully compete for and win small business set-aside contracts.
But be careful: if the spin-off doesn’t pass muster with the SBA, the “newly organized concern” affiliation rule may cause the spin-off to be ineligible for small business set-aside contracts, as occurred in Size Appeal of eTouch Federal Systems, LLC, SBA No. SIZ-5280 (2011), a decision of the SBA’s Office of Hearings and Appeals.
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.
Small government contractors competing on set-asides are in a unique position. Unlike in the commercial world (and on unrestricted government contracts), small primes in the set-aside arena routinely subcontract to larger and more powerful companies. Sometimes these large subcontractors aren’t used to being in a secondary role, and can make life difficult for their smaller primes.
Case in point: subcontractors sometimes balk at providing small government prime contractors with their direct labor, fringe benefit, General and Administrative, or other pricing information, preferring to simply offer a fixed-price lump sum. Even when the government is uninterested in such details, having a full breakdown can help ensure compliance with the FAR’s subcontracting limits. But as one prime contractor found out, when the government wants a pricing breakdown, failing to include a subcontractor’s information can be fatal.
One small contractor recently learned this lesson the hard way.