The SBA 8(a) mentor-protege affiliation “shield” does not prevent a mentor and protege from being affiliated under the so-called ostensible subcontractor rule, according to a recent decision of the SBA Office of Hearings and Appeals.
In Size Appeal of InGenesis, Inc., SBA No. SIZ-5436 (2013), SBA OHA held that the broad exception from affiliation for 8(a) proteges and their mentors does not prevent the SBA from deeming the companies affiliated under the ostensible subcontractor rule.
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.
Congress has enacted major changes to the limitations on subcontracting rules for small government contractors.
The 2013 National Defense Authorization Act, signed into law by President Obama on January 3, contains two important changes to the subcontracting limits. First, for services contracts, compliance with the limitations on subcontracting will be based on the total amount paid to the small business, not the cost of the contract incurred for personnel. Second, small businesses will be able to meet their own performance requirements by subcontracting to other small companies.
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.
Small government contractors sometimes rely on subcontractors to help satisfy experience, certification, past performance, and other solicitation requirements. But if one recent GAO bid protest decision is an indication of things to come, procuring agencies may begin requiring more information up front about major subcontractors–including a copy of the final subcontract agreement itself.
Bidding against an incumbent prime contractor often presents unique challenges. In some cases, the incumbent has been highly successful, and the procuring agency may hope to award the follow-on to the same company. Even if the agency is not predisposed to favor the incumbent, the incumbent often knows more than its challengers about how the new procurement will actually operate “in real life.”
But just because an incumbent has unique information about the ongoing procurement does not mean that the procuring agency is necessarily required to level the playing field by releasing that information to challengers. For instance, in one recent GAO bid protest decision, the GAO held that the procuring agency was not required to release the names of the incumbent’s subcontractors or other proprietary and confidential information about the incumbent contract.
Small subcontractors sometimes find themselves facing a cash flow crunch when they take on new work. Under some subcontract payment clauses, a small subcontractor might not be entitled to payment until 30 days or more after the prime contractor receives payment from the government for the subcontractor’s work. Even subcontracts with more generous payment terms often require small subcontractors to make significant up-front investments in terms of employee salaries, materials, and the like before receiving payment.
The Office of Management and Budget apparently recognizes that there is a problem, because yesterday OMB issued a memorandum entitled “Providing Prompt Payment to Small Business Subcontractors,” setting forth three steps the government is taking to address the matter. One of these steps–if it comes to fruition–may even have some “teeth.”