Helping individuals, companies, and organizations understand key legal and practical considerations for promoting compliance and making better business decisions in these types of federal, state, and local government contracting matters MORE

Sometimes the most basic rules can be the easiest to forget. One case in point relates to the key role of competitive prejudice in successful protests. No matter how often contractors hear it, this reality bears repeating, early and often: competitive prejudice is an essential element of a viable protest. In protest after protest, disappointed bidders either forget this fundamental rule or misjudge the strength of their argument that the government’s actions prejudiced their ability to compete. The Government Accountability Office’s recent decision in 100 Westminster Partners, LLC, B-418216; B-418216.2; B-418216.3 (January 27, 2020) provides yet another stark example of the importance of competitive prejudice. Simply put, without it you will not win.

The matter involved the award of a lease for office space to Providence Financial Plaza (Providence), LLC by the General Services Administration (GSA) under a request for lease proposals (RLP). The RLP contemplated a 15-year lease of approximately 20,000 square feet of office space in Providence, Rhode Island, for the United States Attorneys’ Office (USAO). As relevant here, the solicitation provided that the agency would determine the lowest price by conducting a present value price evaluation. Significantly, the award was to be made to the lowest-priced technically acceptable offeror.

The GSA received technically acceptable lease proposals from Providence and the protester, Westminster Partners, LLC (Westminster). After conducting the present value price evaluation, the agency calculated that Providence’s evaluated price was $34.13 per square foot (SF), and Westminster’s was $39.19 per SF. Concluding that Providence submitted the lowest-priced, technically acceptable proposal, the GSA awarded it the lease.

Westminster protested, raising a number of grounds, including the claims that the agency (i) failed to include replication costs in its present value price evaluation and (ii) improperly used the same relocation costs for Westminster and Providence even though Westminster would be moving tenants one floor while Providence would have to relocate tenants to a new building. The RLP explained that the agency would perform a present value price evaluation of the proposed rent per SF, which would result in a gross present value price, then add replication costs (a tenant improvement allowance) and the cost of relocation.

As noted above, the agency’s initial present value evaluation resulted in evaluated prices for Providence and Westminster of $34.13 / SF and $39.19 / SF, respectively. However, the agency did not consider relocation costs for either offeror in the initial evaluation, because the tenant would be required to move whether the lease was awarded to Westminster or Providence.

In response to the protest, the agency reviewed the present value analysis and noted that it had used the wrong replication cost figure for Westminster and had failed to include the relocation costs for either offeror. After the GSA corrected those errors and recalculated the present value analysis using the methodology set forth in the RLP, the offerors’ evaluated prices changed to $35.33 / SF for Providence and $43.04 / SF for Westminster. Thus, while Westminster was correct that the agency made mistakes in the initial evaluation, those mistakes did not change the outcome. Providence remained the lowest-priced, technically acceptable offeror. And since Westminster did not demonstrate that the GSA’s errors were prejudicial, the GAO denied the present value price evaluation protest ground.

While the lack of competitive prejudice is not always as objectively demonstrable as in this matter, the basic rule applies to all protests: unless the protestor shows prejudice, it cannot prevail even if all of its factual assertions turn out to be 100% accurate. Put another way, there’s no point in pursuing a protest claim unless you can prove prejudice. If you can’t, you’re wasting your time.

On February 10, 2020, in National Women’s Law Center v. Office of Management and Budget, the U.S. District Court for the District of Columbia ordered the Equal Employment Opportunity Commission’s (EEOC’s) collection of gender and race pay data complete. This marks the end of a long-fought battle that has been raging since 2016 over whether and how the EEOC could require covered employers to submit pay data as part of the EEO-1 Report that these companies are already required to complete each year.

Covered employers include private companies with 100 or more employees and federal contractors with 50 or more employees. Covered employers are required to file the EEO-1 Report each year, identifying the number of employees in various job groups by race and sex (“Component 1”). The long-fought battle concerned whether to add gender and race pay data (“Component 2”) to the EEO-1 Report.

On January 29, 2016, the EEOC announced proposed revisions to the Employer Information Report (EEO-1) that would require collection of pay data beginning in 2017. On September 29, 2016, the White House’s Office of Management and Budget (OMB) under President Obama approved the revised EEO-1 Report. However, after President Trump took office, the OMB brought a lawsuit in the U.S. District Court for the District of Columbia and successfully stayed that requirement on August 29, 2017, prior to the date on which covered employers had any legal obligation to gather and submit pay data.

Various groups challenged the OMB’s stay, and initiated litigation to have the pay data requirement reinstated. On March 5, 2019, the U.S. District Court for the District of Columbia vacated the decision of the OMB to stay and reconsider the EEOC’s 2016 revised EEO-1 Component 2 pay data collection. On May 2, 2019, the EEOC announced that it will collect 2017 pay data along with 2018 pay data by September 30, 2019.

As a result, the EEOC began collecting pay data in a revised EEO-1 form, OMB Control No. 3046-0007, for calendar years 2017 and 2018 in mid-July 2019. The revised EEO-1 form organized pay data into categories of race, sex, ethnicity, and job group. That information was then sorted into one of 12 pay bands, creating a grid. The revised EEO-1 form does not expire until April 5, 2021.

Initially, the District Court set a deadline of September 30, 2019 for collecting pay data. However, the deadline was pushed back when the Court determined that more employers needed to submit their data. As of February 7, 2020, 89% of all eligible employers had submitted pay data to the EEOC.

Despite the collection being complete, the EEOC and the OMB are still appealing the District Court’s orders. The government claims that the Court exceeded its authority by reviving and instituting the Obama-era pay reporting requirement and setting how and when the collection of pay data could occur.

On September 11, 2019, the EEOC announced in the Federal Register that it intends to submit to OMB a request for a three-year approval of Component 1 of the EEO-1 and does not intend to submit to OMB a request to renew Component 2. The Office of Federal Contract Compliance Programs (OFCCP) has said it will not request, accept, or use Component 2 pay data, but it will continue to use Component 1 data.

Even though the EEOC and the OFCCP are purportedly not actively collecting and/or using compensation information in the EEO-1 report, it is critical that all employers—particularly government contractors—regularly conduct pay equity analyses in preparing for OFCCP audits. Compensation information is requested as part of OFCCP audits, separate and apart from the EEO-1 Report. Disparities in compensation remain a focus of OFCCP and allegations of discrimination in compensation have resulted in litigation and significant settlements in recent years.

In fact, in 2019, OFCCP obtained a record $40,569,816 in monetary settlements for affected class members, which is $16 million more than the next highest year. The three-year total of monetary settlements for 2017-2019 is the highest three-year period on record and exceeded the prior seven years (2010-2016) combined. Recently, OFCCP reached a $5 million settlement with Intel Corp. to resolve pay discrimination allegations brought by African American and Hispanic American employees at its facilities in Arizona, California and Oregon.

Contractors whose protests result in the challenged agency’s taking corrective action may attempt to recover their protest costs, particularly when they feel that the corrective action was unduly delayed. As the recent Government Accountability Office (GAO) decision in INTELiTEAMS, Inc.—Costs, B-418123.2, B-418180.2 (February 25, 2020) demonstrates, however, the operative date for determining the timeliness of corrective action for this purpose is generally the date of the agency’s announcement rather than the date the corrective action is completed.

In INTELiTEAMS, Inc., the protester sought to be reimbursed for the costs of filing and pursuing its protests challenging the issuance of two task orders for support services by the Department of Justice, Federal Bureau of Investigation (FBI). Those protests both challenged the agency’s evaluation of INTELiTEAMS’ proposals and the best-value decisions—and resulted in the agency’s informing the GAO that it was taking corrective action by reevaluating quotations and making a new best-value determination. The GAO responded by dismissing both protests as academic.

INTELiTEAMS subsequently sought to recover the costs associated with filing and pursuing the two protests, asserting in both instances that the agency has unduly delayed taking corrective action in the face of its clearly meritorious protests, thus entitling it to costs. More particularly, INTELiTEAMS pointed out that, despite the passage of over a month since the agency stated that it was going to take corrective action, a new best-value award decision has still not been issued. In response, the agency claimed that it did not unduly delay corrective action in either case because it announced its intent to take corrective action in relation to both protests on or before the day the agency report was due. According to the FBI, when an agency takes corrective action prior to the due date set for receipt of the agency report, the GAO generally considers such action to be prompt, and will not recommend the reimbursement of costs.

The GAO agreed with the agency, noting that it may recommend reimbursement of protest costs if, based on the circumstances of the case, it determines that the agency unduly delayed taking corrective action in the face of a clearly meritorious protest, thereby causing the protester to expend unnecessary time and resources to make further use of the protest process in order to obtain relief. However, as the FBI noted, the GAO generally views an agency’s corrective action as prompt (i.e., not unduly delayed) where the corrective action is taken prior to the due date and time for submission of the agency report.

According to the GAO, that is precisely what happened here, so neither action was unduly delayed and a recommendation that the agency reimburse the protester’s costs was not warranted.

The GAO also explained that INTELiTEAMS had failed to allege a cognizable basis of protest because, while it objected to the length of time that the agency was taking to complete the proposed corrective action, the protester has not identified any violation of procurement law or regulation by the agency. In this regard, INTELiTEAMS did not claim that the FBI was required to have completed its corrective action sooner, or assert that any alleged delay is contrary to law or regulation, or even allege any bad faith by agency personnel. Without more, the bare assertion that the corrective action is taking too long is not sufficient to establish that an agency violated applicable law or regulation.

The lesson? Not every “delay” is an undue delay that merits cost recovery. If you want to seek reimbursement for your protest costs due to a perceived delay in an agency’s corrective action, focus on the date the corrective action was announced, not the completion date—unless the delay in completing the corrective action results from a violation of applicable law or regulation.

A cornerstone of the Small Business Administration (SBA) size regulations is that a business’s size is determined by measuring its size in addition to the size of its affiliates. The recent SBA Office of Hearings and Appeals (OHA) decision in Size Appeal of: Cazador Investments LLC (Appellant), SBA No. SIZ-6048, 2020 WL 897975, discusses one of several ways that affiliation may be found under the SBA regulations: identity of interest, which may be based on familial ties among businesses.

The underlying procurement in this matter was set aside for small businesses. On September 25, 2019, the contracting officer announced that Appellant was the apparent awardee of the contract for “relocation, storage, maintenance, appraisal, and disposal services” with the U.S. Marshals Service (USMS) Asset Forfeiture Division. Of relevance, in its proposal, Appellant referred to Nielsen Beaumont Marine, Inc. (NBMI) as a “teaming partner” and subcontractor and proposed to lease and use NBMI facilities to store vessels, aircrafts, and seized assets. Appellant also proposed to retain NBMI’s National Seized Asset Manager as a consultant or employee of Appellant.

Two unsuccessful offerors protested the award on the basis of Appellant’s size. Essentially, because Appellant was owned and operated by Hunter Beaumont and NBMI was owned and operated by Mr. Beaumont’s father, the protesters argued that Appellant was other than small as it was either a front company for or affiliated with NBMI—and combined, the two firms did not meet the applicable size standard. Following its investigation, SBA’s Area Office sided with the protesters and issued size determinations finding that Appellant was not a small business.

Under the affiliation regulations, “[f]irms owned or controlled by married couples, parties to a civil union, parents, children, and siblings are presumed to be affiliated with each other if they conduct business with each other, such as subcontracts or joint ventures or share or provide loans, resources, equipment, locations or employees with one another. This presumption may be overcome by showing a clear line of fracture between the concerns.” 13 CFR § 121.103(f)(1).

The decision cited OHA precedent where the familial identity of interest presumption was rebutted: where the family members have no business relationship or involvement with each other or where the family members are estranged. Moreover, according to OHA, de minimis dealings among businesses may still permit a finding of clear fracture. However, the decision also made clear that “when the concerns in question ‘propose to continue to work together on the contract at issue,’ this ‘almost mandates a finding of no clear fracture.'”

Here, the parent-child relationship among the respective owners gave rise to a presumption that Appellant and NBMI are affiliated. The burden then shifted to Appellant to rebut this presumption. Appellant made several arguments in an attempt to show that there were clear lines of fracture between it and NBMI: the two “d[id] not share officers, employees, equipment, or anything else relating to the operation of their business,” the two businesses had different customers, NBMI did not provide financial assistance to Appellant, and Appellant was not required to and decided it would not use NBMI in its performance of the contract.

However, OHA was not persuaded by Appellant’s arguments. According to OHA, the record was replete with facts that supported the reasonableness of the Area Office’s determination: Appellant proposed NBMI as a teaming partner or subcontractor, Appellant proposed to lease and use NBMI facilities to perform under the contract, Appellant proposed to retain an NBMI employee as Appellant’s consultant or employee under the contract, NBMI loaned money to Appellant in the prior year, NBMI provided Appellant and its owner with numerous contracts and opportunities for professional development, and father and son jointly invested and controlled another entity.

The important takeaway here: small businesses trying to leverage business relationships to win and perform set-aside contracts must take into account the circumstances that give rise to a presumption of affiliation. Affiliation is presumed in a number of circumstances (including identity of interests by doing business with family), and affiliation with a business that renders your size status other than small will make you ineligible to win a small business set-aside award. When drafting proposals and establishing relationships, look to SBA regulations and OHA decisions to determine how to structure the relationship to best ensure that affiliation does not exist.

On Tuesday, March 3, 2020, Stinson partners Susan Warshaw Ebner and Eric Whytsell will be presenting on “Cybersecurity Maturity Model Certification (CMMC): Guarding the Keys to the Kingdom” at a National Defense Industrial Association (NDIA) Rocky Mountain Chapter event in Colorado Springs, Colorado. The presentation will highlight the evolution of and latest information about the CMMC, what Defense Industrial Base (DIB) companies can expect during the CMMC implementation, and how the Department of Defense (DoD) will incorporate CMMC in solicitations for contracts starting in FY21. Click here to register.