SBA originally asserted three grounds for its determination: (i) Allcon’s contractual relationship with Arteaga Construction; (ii) the supposed ability of Ms. Lopez’s father, a non-disadvantaged person, to exert control over Allcon based on “critical funding” he had provided; and (iii) a finding that Allcon had failed to show that it could perform successfully in the 8(a) BD Program.

By the time SBA’s Office of Hearings and Appeals (OHA) issued its decision, SBA had dropped its second and third assertions.  Only one issue remained: whether an ongoing contractual relationship existed between Allcon and Arteaga Construction.  This question lies at the heart of the relevant regulation.

The relevant subsection states:

Ownership of another Participant in the same or similar line of business: (1) An individual may not use his or her disadvantaged status to qualify a concern if that  individual has an immediate family member who is using or has used his or her disadvantaged status to qualify another concern for the 8(a) BD Program. The [fact-finder] may waive this prohibition if the two concerns have no connections, either in the form of ownership, control or contractual relationships, and provided the individual seeking to qualify the second concern has management and technical experience in the industry. Where the concern seeking a waiver is in the same or similar line of business as the current or former 8(a) concern, there is a presumption against granting the waiver. The applicant must provide clear and compelling evidence that no connection exists between the two firms.

13 C.F.R. § 124.105(g)(1).

Here, it did not take OHA long to find that Allcon had failed to show the requisite clear and compelling evidence that the general prohibition should be waived.  SBA based its determination that a contractual relationship existed between Allcon and Arteaga on the fact that the two companies owed each other money.  Allcon contended that SBA had improperly assumed that those debts had not already been paid.  OHA rejected this argument, finding SBA’s conclusion reasonable and noting that the listing of the debts on the two companies’ Accounts Receivable and Accounts Payable reports “strongly suggest[s] that the debts had not been paid or received.”  OHA also found SBA’s assumption that the debts related to the companies’ contractual dealings to be supported by evidence in the record – including Allcon’s admission that the companies had contracted to one another in the past – particularly given Petitioner’s failure to offer an alternative explanation.

Bottom line: If you want to obtain 8(a) certification from SBA, you need to keep your business separate and apart from those of any family members who own a current or former 8(a) company – and take steps to ensure you can establish your independence with clear and compelling evidence.

Eric Whytsell is the attorney responsible for the content of this article.

FNM involved an RFP that required offerors to submit past performance information for up to three recent and relevant contracts and, for each such reference, to provide a past performance questionnaire to the appropriate contracting officer.  FNM, an unsuccessful offeror, alleged the Army unreasonably failed to ascertain and use helpful information about its performance on additional contracts it held – contracts identified by the Army in its review process, but not referenced in FNM’s proposal. FNM’s position was that once the Army was aware of this relevant past performance information, it was obligated to verify the information and use it in the evaluation process.  The GAO disagreed, refusing to “shift the responsibility to the agency for finding information about another contract that FNM could have identified in its proposal, but did not.”

In reaching its decision, the GAO distinguished FNM’s situation from that presented in a previous protest, International Bus. Sys., Inc. B-275554 (Comp. Gen. Mar. 3, 1997), where, while confirming “that there is no legal requirement that all past performance references be included in a valid review of past performance,” the GAO did find that “some information is simply too close at hand to require offerors to shoulder the inequities that spring from an agency’s failure to obtain, and consider, the information.”  The distinguishing feature in IBS is that while, as in FNM, the reviewing agency knew of the previous contract and its relevance, unlike the situation in FNM, (i) IBS had referenced the previous contract in its proposal, and (ii) the Agency was aware of IBS’s exemplary performance on the prior contract.  The relevant official for the prior contract simply had failed to return the past performance assessment form. Under these circumstances the GAO found the reviewing Agency acted unreasonably in failing to consider IBS’s performance on the earlier contract.

The take away:  Highly relevant, favorable past performance must be referenced it an offeror’s proposal in order to make certain it is considered in the evaluation process.

Lindsay Simmons is the attorney responsible for the content of this article.

According to the indictment, E&D “owned no tools and equipment, performed no actual cabling work, borrowed no money, and carried no inventory.”  Nevertheless, E&D included “made up fees, charges, and profits” in its invoices to prime contractors. Therefore, the government alleged that E&D was a sham business that was inserted as an extra subcontractor between prime contractors and Ark just to inflate the invoices.   The indictment alleged that from 2002 to 2008, E&D obtained $33.5 million in subcontracts, and overcharged the Air Force by $6,445,370.

The Defendants were charged with 17 counts: one count of conspiracy to defraud the government, 12 counts of wire fraud, and three counts of major fraud against the government. The jury rendered guilty verdicts on all 17 counts.

The sentencing is set for June 28, 2013.  Based on the nature of the fraud and the calculations in the United States Sentencing Guidelines, the Defendants could face a significant period of incarceration.

Brian Stolarz is the attorney responsible for the content of this article.

The caps, formerly set forth in Subparagraph (D) of Section 8(m)(2) of the Small Business Act, 15 U.S.C. § 637(m)(2), and as adjusted by SBA for inflation (see 77 Fed. Reg. 1861 (Jan. 12, 2012)), limited the award value size of contracts that could be set aside to $6.5 million for manufacturing contracts and $4.0 million for all other contracts.  Congress eliminated these caps by striking  Subparagraph (D), per Section 1697(a) of the National Defense Authorization Act for Fiscal Year 2013 (“NDAA”).  The NDAA was signed by President Obama on January 2, 2013.  This statutory change was intended to enhance procurement opportunities for WOSBs and was effective immediately, so it did not require any regulatory implementation.

However, as often is the case, the former statutory caps on the size of contracts that could be set aside had previously been carried forward into SBA’s Regulations implementing the WOSB Program (see 13 C.F.R. Part 127, and specifically former 13 C.F.R. § 127.503(a)(2) & (b)(2)), as well as the WOSB Program provisions of the Federal Acquisition Regulation (“FAR”) (see FAR Subpart 19.15, and specifically FAR 19.1505(b)(2) & (c)(2)).  The continuation of these now outdated regulations is inconsistent with the law as changed by Congress, and could lead to confusion and inadvertent undermining of Congress’s intent in eliminating the caps.

SBA therefore has now issued an Interim Final Rule, amending SBA’s Regulations, effective immediately as of the May 7, 2013 publication date, eliminating the references to such caps.   See 78 Fed. Reg. 26504 (May 7, 2013).  SBA states that its purpose in issuing the new Rule is “to implement Section 1697 of the [NDAA, which] removed the statutory limitation on the dollar amount of a contract that women-owned small businesses can compete for under the [WOSB] Program.  As a result, contracting officers may now set-aside contracts at any dollar level, as long as the other requirements for a set-aside under the program are met.”  Id. 

Interestingly, these size limitations were unique to the WOSB and EDWOSB programs.  No comparable ceilings existed for other similar socio-economic programs.  By eliminating the caps, Congress effectively leveled the playing field with other similar programs.  This is consistent with Congress’s previously stated intent that there be “no order of precedence among [the various socio-economic programs].”  FAR 19.203(a).

Importantly, SBA’s new Rule is effective immediately and applies to all solicitations issued on or after May 7, 2013.  In justifying the publication of an Interim Final Rule, as well as making the Interim Final Rule effective immediately, SBA first stated its “belief” that Section 1697 was effective immediately upon issuance, and that SBA was merely conforming its regulations to the amended statute “without interpretation or policy changes,” and that such changes were necessary so that the SBA regulations would not be “inconsistent with the statute” or “lead to confusion among the public and other federal agencies.”  78 Fed. Reg. at 26505.  SBA next stated that the Small Business Goaling Report for Fiscal Year 2011 shows that the Federal Government awarded only 3.97% of its contracts to WOSBs (click here), thus falling short of the statutory 5% goal for WOSBs.  SBA stated that, by removing the limitations in the SBA Regulations, “SBA will be clarifying that there are more contracting opportunities for WOSBs, which should result in more contracts being awarded to this group of small businesses.  Consequently, SBA believes it is necessary to implement this rule as quickly as possible.”  Id.

This new Rule should not be controversial since, as SBA points out, the Rule merely conforms SBA’s Regulations to the amended statute.  However, SBA is affording the public until June 6, 2013, to submit comments, and explicitly commits to “review any comments received.”  Id.

SBA’s new Rule should help focus attention on the important action taken by Congress in eliminating the former statutory caps limiting the size of contracts that could be set aside for WOSBs and hopefully will enhance contracting opportunities for WOSBs.  Some clients have told us that they often hear that WOSB goals are not an issue for contracting agencies.  However, this may be changing with the Obama Administration’s increasing pressure on agencies to meet all of the small business goals, including last year’s new requirement that performance evaluations of Senior Executive Service(“SES”) personnel overseeing agency acquisition workforces include agency small business contracting goals.  See OFPP June 6, 2012 Memo.  NDAA Section 1633(b) explicitly mandates that the head of each agency take steps to ensure that SES members responsible for acquisition assume responsibility for “the agency’s success in achieving small business contracting goals and percentages.”

However, the lingering outdated similar ceiling language in the FAR may cause some continuing confusion and uncertainty on the part of Contracting Officers.  The FAR Council has opened FAR Case 2013-010 to remedy this discrepancy, but as of the date of this posting, no amendment to the FAR has been published.  In the interim, WOSBs confronting this issue should bring the SBA’s instant Rule and reasoning to the cognizant Contracting Officer’s attention and ensure that the Contracting Officer is aware of the change in law.

For further information on the WOSB Program, see our prior article on the Program and the SBA resources available on the SBA website at http://www.sba.gov/content/women-owned-businesses.

Hopewell Darneille is the attorney responsible for the content of this article.

The government based its FCA counterclaims on two separate theories.  First, it alleged that the contractor knowingly submitted a false quotation in response to a Request for Quotations.  Second, the government claimed that the contractor falsely asserted that it was an approved manufacturer of the part at issue. The Court made easy work of the first claim under the FCA.  It bluntly held that the contractor “did not violate the FCA when it submitted its electronic quotation in response to the First RFQ because the submission of a quotation is not a claim – the quotation is not a request or demand for money or property” as required by 31 U.S.C. § 3729(c).  Simply stated, “[b]y submitting a quote to supply a product at a given price, [the contractor] was not asking the Government for money.”  Only later, after the Government accepts the quote and contractor delivers a product could there be a claim for money.  Because the contractor never supplied any parts under the Purchase Order covered by the First RFQ, there was no false claim by the contractor simply by virtue of a quotation alone.           

As to the second claim under the FCA, the Court applied the Government Knowledge Defense to deny the counterclaim.  Under the Government Knowledge Defense, “prior Government knowledge of an allegedly false claim may negate the FCA’s scienter requirement.”  The Government Knowledge Defense has previously been recognized and applied in other federal appellate courts, but never before in a decision of the Federal Circuit (or the Court of Federal Claims).  The Court found that the contractor “candidly advised the Government of its [legal] position that it believed it was an approved source, capable of manufacturing the part itself and did not attempt to deceive or mislead the Government in representing its status.  The Government knew that Ulysses had not gone through the Source Approval Request process because Ulysses told it so.  Further, Ulysses persisted in arguing that it should not have had to undergo this process because it had already manufactured the 112 Part for the Government as a component of a larger part. . . Ulysses told the Government the truth about its status, making this a classic case for application of the Government knowledge defense.”

After finding for the contractor on some of its claims and denying all of the Government’s counterclaims, the case now heads to the damages trial phase. Perhaps this case will serve as a cautionary tale for the Government to prevent it from overreaching and overreacting to valid Contract Disputes Act claims with unwinnable FCA counterclaims?  One can hope.

Michael J. Schrier is the attorney responsible for the content of this article.

One of the methods Oh used was “netting” transactions so that the sale price would be negotiated for the subject business that was less than the price listed on the contract for sale.  The contract would then be submitted to the bank, and the loan amount would increase by the amount needed for the down payment, which would conceal the amount of equity the buyer actually had.  Oh would also “paper the file” with fraudulent copies of checks, creating a misleading closing file for SBA review.  Additionally, Oh fronted money to customers through funds belonging to other clients in her escrow account at her law firm or title company.  The various transactions involved multiple car washes and Laundromats, three Japanese restaurants, a Pan-Asian restaurant, a California Tortilla restaurant, and a liquor store.

Oh plead guilty on April 5, 2013 and is scheduled to be sentenced on July 9, 2013, where she will face a potentially significant prison sentence.

Brian Stolarz is the attorney responsible for the content of this article.

The case involved an Army National Guard contract for armed security guard services at the National Guard Armory in Washington DC.  The original contract contained six CLINs priced on a firm fixed-price, monthly basis, for a 3 month base period ending May 31, 2009 (CLIN 1), four option years (CLINs 2-5), and a 4 month option period running from June 1, 2009 through September 30, 2009 (CLIN 6).  After initially exercising CLIN 6 to extend the contract through the end of September 2009 with funding for only 3 of the 4 months, the Army added CLIN 7 to provide the fourth month’s funding, then again bilaterally modified the contract to add CLIN 8, extending the CLIN 6 period through January 31, 2010 and modifying the option year periods accordingly.

Glasgow Investigative Solutions (GIS) apparently had no problem with these changes.  Nor did it complaint when the Army exercised Option Year 1 (through January 31, 2011).  It was only when the Army notified GIS that it intended to only partially exercise the Option Year 2 that the contractor began to raise issues about the Army’s approach.  Despite its concerns, GIS executed a bilateral modification on February 1, 2011 that extended Option Year 1 by two months.  A trio of subsequent contract modifications extended Option Year 1 month by month through the end of June.

In response to the last of those modifications, GIS notified the Contracting Officer that it was executing the modification under protest and intended to submit “a claim stemming from this substantial change in Contract terms.”  The CO responded by explaining that the Army is unable to exercise the entire 1-year contract option due to limited funding and offered to extend the contract for an additional month to July 31, 2011.  GIS accepted the additional extension but maintained its position that the modification was contrary to the original contract terms and expressly reserved its rights.

True to its word, GIS filed a constructive change claim for just under $100,000 and, when the CO failed to issue a decision, appealed to the ASBCA, arguing that FAR 52.217-8: (i) may only be used to extend the contract term after all options have been exercised; and (ii) may only be invoked where there is a follow-on contract and the Government needs to bridge performance between the incumbent and the new contract.  Therefore, according to GIS, the option extensions at issue constituted constructive changes to the contract.  GIS also asserted that the Army had “exhausted” its FAR 52.217-8 extension rights by extending the contract by more than 6 months prior to its exercise of Option year 1 (and the subsequent month-to-month extensions about which GIS complained).

The Army responded by moving for summary judgment, contending that FAR 52.217-8 options may be exercised prior to exercising all contract option years. With respect to the “exhaustion” argument, the Army argued that the ASBCA lacked jurisdiction over this issue because GIS’s pleading did not assert it.

Analyzing the first question – whether the Army had the right to use FAR 52.217-8 to extend the contract before exercising all option years, the Board first reviewed the cases on which GIS relied.  It determined that none of those decisions actually limit the use of FAR 52.217-8 to situations where all contract options have expired and the Government needs to extend the incumbent’s performance until a new contract was awarded.  It also noted that FAR 37.111 identifies delays due to bid protests and alleged mistakes as appropriate circumstances for FAR 52.217-8 extensions.  Thus, the Board concluded, post-option extensions are not the only potential use for FAR 52.217-8 and granted summary judgment in favor of the Army on that issue.

With respect to the issue of its jurisdiction over GIS’ exhaustion argument, the ASBCA noted that CDA jurisdiction depends on the sufficiency of a party’s claim, not its pleading, and found it had jurisdiction because GIS’ new theory did not alter its fundamental claim.  Unfortunately for GIS, the Board made short work of the argument itself, pointing out that FAR 52.217-8 grants authority to unilaterally extend a contract and explaining that the Army’s bilateral modifications (that GIS also executed) did not implicate the clause.  For this reason, the Army retained the authority under FAR 52.217-8 to later extend the contract by up to 6 months.  Again, the Board granted summary judgment for the Army.

Bottom line: Given ongoing budget constraints, you should not be surprised to find yourself facing similar issues in the future.  If you do, remember: when a contract contains FAR 52.217-8, the Government may unilaterally extend it for up to six months without first exercising all the options – and bilateral contract extensions along the way do not count against those 6 months. 

Eric Whytsell is the attorney responsible for the content of this article.

In the coming months, SBA plans to host ChallengeHER events in Phoenix, Seattle, New Orleans, Denver, Atlanta, San Francisco, and New York.  At these events, SBA will play “matchmaker” by connecting WOSBs with contracting decision-makers on both the national and local level.  SBA will instruct WOSBs on how to register with the System for Award Management (SAM) – the government contracting portal for small business owners that want to work with the federal government.  And SBA will provide information regarding the eligibility requirements for WOSB set-aside contracts.  Follow SBA’s website for coming details about these events.     

This campaign is only the latest in a series of government actions taken to increase WOSB participation in federal contracting.  Over the past 40 years, the percentage of small businesses owned by women has increased from 5% to 30%.  Yet SBA has still not achieved its goal of awarding 5% of all federal contracting dollars to WOSBs.  In 2011, WOSBs received only 3.98% of federal contracting dollars.  In the 2013 National Defense Authorization Act (NDAA), Congress eliminated the cap on contract awards for WOSB set-aside.  SBA hopes that without this limitation, WOSBs will have greater access to contracting opportunities.

Katie Calogero is the attorney responsible for the content of this article.

In June 2012, the Army issued a solicitation for full food service at Fort Bragg.  The solicitation was set aside for HUBZone small business concerns and was proposed for a one-year base period and four one-year options.  In the solicitation, the Army expressly stated that there was “no way to accurately forecast the number of meals to be served or to provide interested contractors enough data to submit a reasonable proposal.”  In short, the Army acknowledged that any headcount was “extremely unpredictable” and described the fluctuation of headcount as the “primary element of risk” in supplying meals under the solicitation.

To address this acknowledged uncertainty, the Army devised a unique pricing methodology that was counter to longstanding pricing policies in the food service industry.  Industry practice was to divide the estimated price of performance by the number of meals to be served (e.g., headcount).  In other words, “[h]eadcount drives price per meal.”  The solicitation, however, was for an indefinite-delivery indefinite-quantity (IDIQ) contract priced on a per meal basis.  The solicitation guaranteed a minimum payout of $10,000 for the base period and a potential overall maximum quantity of 15,883,475 meals.  No estimates of actual headcount or likely meals served were provided in the solicitation.  Instead, the solicitation required offerors to determine a “price per meal” and then multiply that cost by the set “MAX QUANTITY” number to arrive at a “MAX AMOUNT” price.  The Army stated that award would be made to the lowest price technically acceptable offer.   

The incumbent contractor submitted a bid under protest and then filed a formal bid protest with the Court of Federal Claims.  The incumbent based its bid on sixteen years of food service experience and the headcounts it had historically experienced at Fort Bragg.  Using the solicitation’s methodology, which was devoid of any actual or projected headcounts or meal number expectations, the incumbent submitted a MAX AMOUNT bid number assuming that the actual headcount would be lower than MAX QUANTITY.  This approach was risky for the incumbent since if the actual headcount turned out to be less than the number on which it based its pricing, the incumbent would be stuck with a relatively low unit price and it could suffer a loss – or at least lower profit.  Conversely, using a lower assumption on headcount could result in a higher unit price, making it less competitive and less likely to be awarded the contract.

The Court found nothing wrong with the Army’s “novel” pricing methodology or with shifting all of the risk of actual headcounts to the contractors.  The Court held that “nothing requires the Army to bear the risk of fluctuating headcount, so long as the Army enables offerors to compete ‘intelligently’ by providing them with the ‘best available information.’”  The Court also found the Army’s pricing methodology to be acceptable, ruling that the “issue is not whether the Army could have selected a pricing methodology that (from plaintiffs’ perspective) was better – the issue is whether the pricing methodology the Army did select is arbitrary, capricious, or otherwise contrary to law.”  In other words, the Court left it to bidders “to either agree to assume the risks or to refrain from competing for the contract.”

Given the increased pressures of sequestration and overall federal government downsizing, contractors should expect that more federal agencies will use pricing methodologies similar to what the Army used here.  Agencies will want to attempt to pass off uncertainty and risk inherent in expected quantities of goods or services under IDIQ contracts to the contractors, even if such methodologies are contrary to longstanding industry practices and have the potential to bring financial ruin to contractors based on bad assumptions they make from incomplete or unknown federal data.  Be careful out there.

Michael J. Schrier is the attorney responsible for the content of this article. 

For example, in February 2012, the United States intervened in an FCA suit against American Commercial College Inc. (“ACC”), a company that operated for-profit colleges in Texas, alleging that ACC falsely certified compliance with the “90/10 Rule,” a federal regulation that prohibits a for-profit college or university from obtaining more than 90% of its yearly tuition from federal Department of Education student aid.

The chart linked here provides a summary of the FCA settlements involving colleges and universities over the past nine years. When the DOJ announced its record FCA recoveries for FY12, it emphasized the important and increasing role whistleblowers play in these cases – they brought a record-setting 647 federal qui tam suits last year, totaling $3.3 billion or three quarters of the total recoveries.

What does this mean going forward?  What can colleges and universities learn from these cases?  There are many lessons, but two in particular we highlight here: the government’s use of implied-certification theory of FCA liability and debarments and suspensions.

Implied-Certification. Whistleblowers and the DOJ are aggressively and successfully pursuing cases based on the implied-certification theory of FCA liability. Under this theory, when a college or university accepts federal funds, that acceptance is considered its implied certification of compliance with all applicable rules and restrictions.   During 2012, the DOJ settled or intervened in false-certification cases in a variety of sectors, including the suit against ACC.  As the government becomes more aggressive in pursuing implied- certification cases, institutions of higher education negotiating settlements should look carefully at who certifies what and how.  Additionally, in the event a FCA case is brought under this theory, such institutions should strive for greater protection under a broad settlement agreement.

Suspension and Debarment.  Agencies are under increasing pressure to use debarment and suspension as an additional way of punishing government contractors.  Being suspended or debarred can be disastrous to colleges and universities that receive significant grant monies or otherwise conduct “business” with the government.  These sanctions can be imposed on those who merely fail to disclose “credible evidence” of a violation of the FCA.  As we’ve reported in the past, Congress wants agencies to be more aggressive in their use of suspension and disbarment.  As a result, it is more important than ever to have a robust compliance program and to be mindful of your disclosure obligations and the risk of debarment as a possible outcome in FCA matters.