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

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.

 

 

When an agency announces its intent to take corrective action in response to a protest, it’s easy for the protester to feel that it has “won”—and to some extent it has. At the very least, its protest has prompted the agency to regroup and remedy one or more perceived problems with the subject procurement. Despite that, the agency’s notice of corrective action does not mean that the protester can sit back and rest on its laurels, or simply hope that the agency’s corrective action will fix the procurement problems identified in its protest. As reiterated in the recent Government Accountability Office (GAO) decision in CPS Professional Services, LLC d/b/a CATHEXIS, B-417928.2 (February 5, 2020), a “successful” protester must carefully—and immediately—analyze the agency’s intended corrective action and challenge any shortcomings it finds. Simply waiting to see what comes from the corrective action is not a viable option.

The underlying protest involved the issuance by the Department of Veterans Affairs (VA) of a task order for program and program management support services. The protester, CATHEXIS, challenged the agency’s award decision to Enterprise Resource Performance, Inc. (ERPi), arguing that, among other things, the VA had failed to evaluate the basis of estimate (BOE) CATHEXIS submitted as part of its proposal in accordance with the agency’s commitment to such an evaluation. CATHEXIS sought to have the Agency “terminate the award to ERPi and (1) award a task order to CATHEXIS as the best value offeror; (2) reevaluate the proposals in accordance with the stated criteria and make a new award determination; or (3) accept proposal revisions, conduct new evaluations correcting the errors described above, perform a new best value analysis, and award a new task order in accordance with the evaluation criteria set forth in the [solicitation].”

In response, the VA sought dismissal of the protest based on its notice of intent to take corrective action. The GAO then dismissed the protest as academic.

On its face, however, the agency’s announced corrective action did not give CATHEXIS everything it sought. More particularly, the VA’s intended corrective action entailed only a re-evaluation of proposals and a new best value determination based on that re-evaluation. It did not provide for the submission or evaluation of revised proposals, the third aspect of the relief CATHEXIS sought in its protest.

Despite this, CATHEXIS decided not to immediately protest the inadequate scope of the announced corrective action. Instead, it waited to do so until after the VA had completed that corrective action (without providing offerors the opportunity to submit revised proposals)—and only then argued that the corrective action did not address the prior errors in the procurement because it did not allow for the submission of revised proposals. The GAO explained that “CATHEXIS nevertheless hoped the corrective action would allow for revised proposals, in order to implement further revisions beyond those contained in its basis of estimate.”

As the GAO pointed out however, just as protests based on alleged solicitation improprieties that are apparent prior to the deadline for submitting proposals must be filed before that deadline, protests challenging the agency’s announced ground rules for performing corrective action and recompetition also must be filed prior to the deadline for submitting revised proposals. More importantly, the GAO went on to note that, “[w]here, as here, no further submissions are anticipated, such challenges must be raised within 10 days of when the scope of the agency’s corrective action was known or should have been known.” In this regard, the GAO rejected outright CATHEXIS’ assertion that it “had no reason to believe the VA’s proposed corrective action would fail to address the primary aspect of its [protest] until after the VA issued an award to ERPi without requesting proposal revisions.” According to the GAO, CATHEXIS knew that the VA did not intend to request revised proposals as soon as it received the notice of corrective action, so it should have protested that scope within 10 days. Because CATHEXIS failed to do so, its protest was dismissed as untimely.

There certainly can be—and often are—corrective action circumstances that give rise to much more complicated questions about what the protester knows or should know about the agency’s intent and how the corrective action will actually play out. But this decision underscores the importance of taking time as soon as the notice of corrective action is received to review what the agency says about its intended corrective action and analyzing whether and to what extent that plan addresses the protest grounds to which it purportedly responds. If you feel that the stated corrective action is inadequate, protest within 10 days. Whatever you do, don’t sit back and hope everything will work out fine then try to protest if it doesn’t.

At the end of December, China acknowledged the existence of the coronavirus. We don’t know how long it has been around or how many people have actually contracted the virus. We do know the virus has spread at an alarming rate and that people with the virus can now be found in 25 countries around the globe.

This burgeoning health crisis is becoming a supply chain problem. China, a major manufacturing hub for materials, products and components being used around the globe, has been significantly impacted.

Facing the alarmingly fast spread of the virus, China took a number of steps – delaying the return to work of millions following the lunar new year celebration, blockading entire cities where the virus is found to be most prevalent, and transporting those with the virus to isolation camps.

In addition, travel, transportation and shipping services to and from China have been cancelled or restricted. Certain airlines have stopped flying to locations in China. Countries are instituting screening and isolation protocols to prevent those persons with symptoms from entering their countries and further spreading the virus.

The Wall Street Journal reports that as of Monday there are “40,787 confirmed cases . . . according to John’s Hopkins Center for Systems Science and Engineering data . . . an increase of 102% from the 20,198 confirmed cases a week earlier.” Though that rate is lower than the 352% growth rate reported last week, these illnesses, city closures, travel bans, and transportation restrictions have impacted the global supply chain. Workers have been unable to get to their factories to produce materials, products and components. Supplies have been delayed or prevented from transport to their destinations. This has impacted sales, the manufacturing of additional products, and the delivery of services elsewhere. Given the expanding reach of the virus, further impacts to the global supply chain are likely.

What Can A Government Contractor Do Now?

Because of the global nature of the supply chain, these problems are likely to impact the public sector supply chain.

Government contractors must comply with the schedule and performance requirements in their contracts. They may be required to deliver in accordance with an established bill of materials or to use only qualified products. Even where they are delivering commercial or other items or services, they may experience problems or delays in obtaining needed materials, products or components. Contractors should start working now to identify the potential risks and impacts of this global problem.

Consider reviewing your contract terms to determine your rights and requirements under your contracts:

  • Are you required to notify your higher tier prime or subcontractor of any risks or delays?
  • Can you substitute products or components if items are delayed or unavailable?
  • Do you have any rated orders under the Defense Production Act (DPA)? If so, you have an obligation to deliver what is required under the set schedule. You also may have a duty to notify the Government or your higher tier contractor if there are performance and schedule risks.

Consider whether your contract provides terms that may allow you to obtain contractual relief:

  • Does the force majeure clause apply to your situation?
  • Are these problems or delays excusable?
  • Are the increased costs of performance recoverable?
  • Is your schedule impacted and can you obtain relief?

These issues may also be applicable to your own supply chain members and further impact your performance.

Consider developing a plan to identify and address these concerns. Being proactive and strategic now may help you to avoid problems down the road.

If you would like to know more about how you might address these and other supply chain risks, contact Susan Warshaw Ebner or your Stinson counsel.