Friday Flash 10/21/22

Transactional Data Reporting: A Logical Step in the Evolution of the MAS Program

In 2016, the General Services Administration (GSA) issued a final rule to amend the GSA Acquisition Regulation (GSAR) to require that vendors report transactional data from, among other things, GSA Schedules orders. This data includes purchasing information associated with orders for goods and services, like product descriptions, quantities purchased, and prices paid. At the time, GSA had “experimented with collecting transactional data through some of its contracts and found it instrumental for improving competition, lowering pricing, and increasing transparency.” Though many of us in industry had concerns about how this rule would be implemented, in the fullness of time, we have come to see that Transactional Data Reporting (TDR) really represents the next logical step in the evolution of the MAS Program as that program responds to the dynamic commercial market.

Currently, in evaluating Schedules pricing, GSA makes use of two tools: the Commercial Sales Practices (CSP) format which identifies, for each Special Item Number (SIN) under a Schedules contract, the sales and pricing information juxtaposed to pricing (including discounts) provided to an identified Most Favored Customer (MFC), and the Price Reduction Clause (PRC), which requires the identification of a customer that serves as the basis of award and how changes in prices to that customer will affect the government. These tools did not always exist in their current format, as if promulgated in Leviticus. Rather, they evolved over time.

The PRC, for instance, has its roots in the 1950s Article 13 (concerning “Price Reductions”) of the General Provisions for Federal Supply Service contracts. This provision required that, if a contractor reduced the comparable price on a product or service offered to any commercial customer, a proportional reduction had to be made to the Schedules contract price. In 1967, a regulatory revision narrowing what constituted a trigger for a Schedules price reduction was implemented, and that revision evolved over time until, in 1982, GSA instituted the current “basis of award” (BOA) practice, again narrowing the PRC’s scope vis-à-vis what triggers a price reduction notwithstanding the requirement to report price reductions generally.

Regarding commercial sales practices, in 1982, GSA policy required contractors to use the Discount Schedule and Marketing Data (DSMD) form to report their standard commercial practices, discounts, and pricing structure in their initial schedule proposal. Following litigation in the early 1990s that identified the potentially overly broad nature of the DSMD, in 1997, GSA replaced the DSMD with the CSP disclosure, which reduced the information required of contractors. It requires that contractors only supply information on discounts and prices that are better than what the government would receive under the proposed contract. The CSP essentially remains unchanged.

In the wake of this evolution, the government has experienced significant benefit. For one thing, the government now enjoys continuous open seasons under the program, enhancing vendor market participation, which, in turn, increases overall competition, putting downward pressure on pricing. In addition, statutory and regulatory competition requirements now govern the task and delivery order process. Competition now is taking place at the order level, when requirements are definitized, injecting realism into the pricing process. Further, mandatory use of the Schedules has been eliminated, essentially injecting competition on the government side, incenting program and process improvement to attract agency customers. Finally, in the face of the foregoing, the Schedule program has grown from about $3 billion to over $30 billion. At the same time, the scope of audit activity has been reduced. For instance, post-award audit of pre-award information.

Now comes the GSA’s effort to use TDR, which focuses on data derived at the order level. This data is useful for the government and industry. It allows the government to understand the nature of a market that has become increasingly dynamic and to react accordingly with real time data. So too, leveraging the submission of TDR reduces contractors’ cost of doing business by eliminating the PRC administration and risk. All told, TDR is a response to the changing nature of the market. Just as the CSP and PRC represented an evolution of GSA’s contracting tools in commercial practices, TDR is but another step in that evolution.

Notwithstanding the benefits and efficiencies associated with the use of TDR, there are some stakeholders that have expressed concerns about its use. They worry about the reduction in the totality of information provided by contractors, and they question whether TDR will yield the lowest cost alternative to the government. Against the totality of circumstances, however, these concerns may be misplaced.

To begin with, not all reductions in access to information carry negative consequences. As stated, over time, with each evolution of the tools utilized to assess pricing, the government has enjoyed significant benefit notwithstanding the fact that the aperture of the lens focusing on information has narrowed. Without a cost-justified program purpose, it makes no sense to cast away that benefit for the sake of simply accessing more information.

By way of example, consider the nation’s study of outer space. In the past, legions of astronomers would scan the breadth of the universe to fulfill their scientific studies. This practice was good for the time (and, in some circles, it still may be necessary and utilized), but today, with the evolution of technology, scientific missions can be focused and enhanced by utilizing tools, like the James Webb Space Telescope. In a defined region of space dictated by research needs, it would make no sense to avoid the use of that telescope simply because it obviates the need for using many astronomers to gather information on the entire universe at once. So too, without a programmatic driver, it makes no sense to bar GSA from using TDR as a tool to focus on obtaining defined, real-time pricing data.

Regarding whether TDR yields the lowest cost alternative to the government, 41 USC 152(3), when discussing competitive procedures, recognizes that competitive procedures established by the GSA Administrator are to include those resulting “in the lowest overall cost alternative to meet the needs of the Federal Government.” (Emphasis added.) This standard is important because it reflects a recognition that there are multiple program drivers associated with procurement, like time, system compatibility, supply chain continuity, and administrative cost, that impact price and yield a Total Acquisition Cost (TAC). A narrow fixation simply on the lowest price, rather than TAC, could yield a perverse result where the government’s administrative cost of chasing the lowest price exceeds the benefit of isolating that price. Such a result is hinted at in GSA’s proposed TDR rule, where it noted that only 3% of contract price reductions under the PRC came from the tracking customer process, notwithstanding the PRC’s unnecessary compliance cost impact on businesses, especially small businesses. Rather, “[t]he vast majority (approximately 78 percent) came as a result of commercial pricelist adjustments and market rate changes, with the balance for other reasons.”

GSA Federal Acquisition Service Commissioner Sonny Hashmi recently noted that,

TDR improves stewardship of taxpayer dollars by empowering customer agencies to engage in smarter buying behaviors and reduces administrative burden for easier access to the Federal Marketplace. This includes assisting the Government with implementing important public policy objectives such as:

  • protecting national security through supply chain risk management,
  • reducing the impact of climate change through sustainable acquisition,
  • reducing regulatory and administrative burden and,
  • reducing pricing in the MAS Program.

In light of the foregoing, GSA’s desire to evolve its process via the use of TDR is not without merit. It deserves a full airing before being dismissed out of hand.

OMB Notifies Agencies to Not Enforce Vaccine Mandate for Contractors, Despite Narrowing of Nationwide Injunction

Yesterday, the Office of Management and Budget (OMB) published the first of three promised guidance documents for Federal agencies regarding Executive Order (EO) 14042, Ensuring Adequate COVID Safety Protocols for Federal Contractors, issued in September 2021. The order, among other measures, put a vaccine mandate in place for Federal contractors and subcontractors, but it was stopped from taking effect by a nationwide injunction in December 2021. The current guidance document gives Federal agencies three major instructions that direct them to maintain the status quo and not enforce the order, despite the narrowing of the nationwide injunction against the order on October 18:

  • Agencies should not enforce any contract clauses related to Executive Order 14042.
  • Agencies should not modify existing contracts to include 14042 clauses, even when “renewing, extending the term of, placing a new order against, or exercising an option.”
  • No new solicitations should include 14042 clauses, and for new solicitations under existing IDIQ contracts that do include these clauses, agencies should not enforce them.

The full OMB notice can be viewed here.

Per its earlier October 14 notice, which describes OMB’s roadmap for eventually implementing the EO where and when it legally may do so, Federal agencies should take no action to implement the order until OMB and the Task Force issue at least two more planned guidance documents.

Register Now for the 2022 Fall Training Conference, November 16-17

It is already mid-October, which means The Coalition for Government Procurement’s Annual Fall Training Conference – Expectations for Fiscal Year 2023 – is less than five weeks away! Please do consider registering to join us in person on November 16-17 at the Fairview Park Marriott in Falls Church, Virginia, or virtually via Pathable as we live stream every session. This year’s conference highlights the expectations for Federal procurement policies and programs across the government in the new fiscal year. We know you will benefit from hearing timely updates and future developments affecting the procurement community from our speakers and panels that will be comprised of executives and acquisition experts in both government and industry.

Day One – Governmentwide Focus

On November 16, sessions will include a governmentwide focus. Please note this is a departure from previous years where our first day has traditionally had a healthcare focus. Tom Davis, former Congressman and current Holland & Knight Partner, will serve as our morning Keynote and provide analysis of the election results, detailing what happened and what these results mean for the Federal government.
Following Congressman Davis’ remarks, the morning panels will begin with the return of the popular “Rogers Awards,” which will cover recent procurement-related legal matters. Next up is the Acquisition Policy Expectations session, which features an interagency panel of Procurement Executives, including Angela Billups, Executive Director, Office of Acquisition and Logistics, VA; Paul Courtney, Chief Procurement Officer, DHS; Jeff Koses, Senior Procurement Executive, GSA; and John Tenaglia, Director, Defense Pricing and Contracting (DPC), DoD.
During the networking lunch, we have invited GSA Federal Acquisition Service (FAS) Commissioner Sonny Hashmi to deliver a Keynote Address on his vision for FAS in the new fiscal year and thoughts on customer service for both industry and agency partners.

After lunch, attendees will have the opportunity to decide to hear from a panel of GSA FAS Assistant Commissioners on their expectations for FAS procurement programs, or a panel on cybersecurity policies that impact both customer agencies and industry. As always, participants will have various Business Intelligence Panel options to choose from, with sessions that include acquisition system updates, the cloud marketplace, e-commerce, expectations from the Hill, the latest developments on contract vehicles such as SEWP, OASIS+, Alliant, and CIO-SP, and more. Representatives from the Department of Defense (DoD), Department of Homeland Security (DHS), Defense Logistics Agency (DLA), General Services Administration (GSA), National Aeronautics and Space Administration (NASA), National Institutes of Health (NIH), Small Business Administration (SBA), and Department of Veterans Affairs (VA) have all been invited to participate. The full day one draft agenda can be viewed here.

Day Two – Healthcare Focus

As noted above, day two of the conference will focus specifically on healthcare procurement, with the Defense Health Agency (DHA), Defense Logistics Agency (DLA), Department of Health and Human Services (HHS), and VA sharing their initiatives for fiscal year 2023. Michael Parrish, VA Principal Executive and Chief Acquisition Officer, has been invited to deliver the morning Keynote Address on the VA’s acquisition priorities and programs. Phil Christy, OALC Deputy Executive Director, VA and Andrew Centineo, Executive Director, Procurement and Logistics, VHA will follow up the keynote during the Expectations for VA Logistics and Procurement Panel. Participants can then look forward to learning from agency executives and industry leaders during the Expectations for DHA, DLA, and VA Policy and Healthcare Legal Panels. We are fortunate to have Moshe Schwartz, President of Etherton and Associates, wrap up the networking lunch by providing his insights on the healthcare supply chain and legislation. The afternoon Business Intelligent Panels will dive into a number of topics, such as the medical supply chain, pharmaceutical programs, and DLA and VA Medical Surgical Prime Vendor (MSPV) programs. For additional details, view the full agenda for day two here.

Ask the PMO – Stop by to ask your questions in person!

We are thrilled to share that the very popular ‘Ask the PMO’ table will return at the Fall Training Conference. Ask the PMO, which debuted at the 2022 Spring Training Conference, gives attendees the opportunity to engage in dialogue with Program Managers from GSA’s Multiple Award Schedule Program Management Office and the VA’s Federal Supply Schedule (FSS). Attendees can schedule one-on-one meetings throughout the day to ask questions and have their concerns addressed. On November 16, Stephanie Shutt, MAS PMO Director, Steve Sizemore, MAS PMO Deputy Director, and Stacy Lowe, IT Schedule 70 Contracting Officer will be available at the table. On November 17, the VA FSS program will be available to answer member questions. Bob Satterfield, Chief of Services, and Deborah Zuckswerth, Chief of Med Surg B of VA FSS will be present. We hope that everyone takes the opportunity to get their GSA and VA Schedules questions answered and to say hello to their government colleagues who are participating.

Networking Breakfast and Reception

Please join us for an hour each morning for breakfast and networking, and then make sure to stick around at the conclusion of the afternoon breakout sessions as both days will end with an in-person networking reception to allow for participants to connect with one another and continue their discussions on key acquisition topics from the day.

Registration and Sponsorship Opportunities

Register for the Fall Training Conference here. As a friendly reminder, Keystone Members receive unlimited complimentary registrations; Executive Members receive five complimentary registrations; and Premier Members receive two complimentary registrations.

Additionally, this is a fantastic opportunity to help support the Coalition while also getting name and brand recognition for your company. We have a wide variety of sponsorships available for all budgets and would truly appreciate your support!

Thank you to our current sponsors for Day 1: Raytheon, Gold Sponsor; GDIT, Gold Sponsor; Sheppard Mullin, Silver Sponsor; The Gormley Group, Silver Sponsor, and The Center for Procurement Advocacy, Lunch Sponsor. Thank you also to our Day 2 sponsors: AvKARE, Title Sponsor; McKesson, Gold and Lunch Sponsor; and The Center for Procurement Advocacy, Breakfast Sponsor.

If you need assistance with event registration or have sponsorship questions or commitments, please contact Matt Cahill, Vice President of Membership & Marketing, at mcahill@thecgp.org or 202-315-1054.

Coalition to Submit Comments on Transactional Data Reporting

The Coalition has drafted comments in response to GSA’s Federal Register notice requesting public input on an extension of the Transactional Data Reporting (TDR) pilot and is now seeking member feedback. Transactional Data Reporting is a program intended to enhance the ability of the government to make smarter purchasing decisions through the sharing of information. Specifically, it requires participants to submit various transactional data points to GSA monthly.

Informed by the results we received from our survey on TDR last month, we express support for the continuation of the TDR pilot as an option for all Multiple Award Schedule (MAS) contractors. The Coalition supports the introduction of TDR as an option for its ability to improve supply chain resilience, provide price transparency, and promote policy objectives, like sustainable acquisition. In addition, the Coalition expresses support for the development of further training and policy surrounding the program.

Those who wish to provide any feedback and/or additional suggestions on the draft should do so by today, Friday, October 21 at noon EST. GSA’s deadline to submit comments is today. Please click here to see the comments. Feedback may be sent by email to Aubrey Woolley at AWoolley@thecgp.org.

Imaging Committee Meeting with IWAC Leadership, October 26

The Imaging Committee will be having a virtual meeting on October 26, 2022, from 2:00 PM till 3:00 PM. The meeting will be a dialogue between industry and government on Cybersecurity Supply Chain Risk Management (C-SCRM) requirements and accommodating the office of the future. Kristine Stein, Business Development Director of the Integrated Workplace Acquisition Center (IWAC) and John Breen, Projects Branch Chief at IWAC will be representing the General Services Administration.
If you have any questions, please contact Joseph Snyderwine at JSnyderwine@thecgp.org.
To register, click here.

Increased Domestic Content Thresholds under BAA Effective October 25

This March, the Federal Acquisitions Regulation (FAR) Council published a final rule, in accordance with Executive Order 14005, to increase the strength of domestic preferences mandated by the Buy American Act (BAA). Specifically, the new rule, which becomes effective on October 25, makes the following changes to the FAR:

  • The domestic content threshold will increase from 55 percent to 60 percent. It will then rise to 65 percent in 2024 and 75 percent in 2029. The eventual 75 percent increase matches legislation passed last year which states that it is the sense of Congress that the threshold be increased. For contracts whose duration runs through threshold changes, contractors will be required to abide by each new threshold as it comes into effect, unless a senior procurement executive allows an exemption.
  • The rule establishes a fallback provision that will be in effect until 2030 that allows agencies to use the 55 percent threshold if they determine “that there are no end products or construction materials that meet the new domestic content threshold or such products are of unreasonable cost.”
  • The rule establishes a framework for increasing the price preference for “end products and construction material deemed to be critical or made up of critical components.” The actual definition of critical items and critical components will be the subject of future rulemaking.

Generally, the BAA works by applying price preferences to domestic goods and services. If a domestic offer is competitive with a foreign-made offer, and the foreign offer’s price is initially lower, the BAA requires that contracting officers treat the foreign offer as if it were 30 percent more expensive if it is competing with a domestic offer from a small business, and as if it were 20 percent more expensive if the competing offer comes from a large business. The BAA applies to all acquisitions for public use in the United States that exceed the micro-purchase threshold of $3,500 but fall below the thresholds established by the Trade Agreements Act ($183,000 for supplies or services and $7,032,000 for construction contracts). The BAA does not apply to the acquisitions intended for use outside the U.S., or if an agency head determines that BAA-compliant items are too costly or cannot fulfill the required function.

Senators Request Update from GSA on Section 508 Compliance

Federal News Network reported that on October 7, a bipartisan group of Senators wrote a letter to GSA Administrator Robin Carnahan about the accessibility of Federal websites and technology in accordance with Section 508 of the Rehabilitation Act of 1973 (“Section 508”). Section 508 requires that Federal agencies’ electronic and information technology is accessible to people with disabilities. Senators have concerns over the limited data and the lack of reports from agencies on their progress to ensure compliance with the law.

In the letter, the lawmakers wrote that “Accessible websites and technology are extremely important to these populations—and the Federal employees who provide them services—yet there is mounting evidence the government is not meeting its obligations as required by Section 508.” A governmentwide Section 508 compliance summary has not been made public since 2018. A lawmaker noted that enforcement mechanisms were not being followed as anticipated by Congress. The letter requested data from GSA about agency 508 compliance by November 14. Andrew Nielsen, GSA Director of Governmentwide IT Accessibility Programs in the Office of Governmentwide Policy, said that GSA is working on several initiatives to help agencies with Section 508 compliance, including a new tool called the open accessibility conformance report (ACR) which relays data in a “machine readable fashion.” A GSA spokesperson noted the Governmentwide Strategic Plan to Advance Diversity, Equity, Inclusion, and Accessibility in the Federal Workforce highlights GSA’s accessibility efforts. OMB is working with agencies on prioritizing IT accessibility in their discussions about performance and budget.

Join the CMMC 2.0 and Cyber False Claims Act Webinar, October 27

The Coalition is pleased to host attorneys from Crowell & Moring LLP for our next webinar on October 27 at 12 noon EST. Michael Gruden, Tully McLaughlin and Nkechi Kanu will survey the evolution of the Cybersecurity Maturity Model Certification (CMMC) Version 2.0, the concurrent rise of cybersecurity False Claims Act enforcement actions brought by whistleblowers and the Department of Justice, and what these converging developments mean for companies doing business with the Federal Government. To join us for this timely discussion, please click here to register.

Two More Protests Filed Against Polaris

Fedscoop reported that two additional protests have been filed in response to the terms of GSA’s Polaris IT contract vehicle. The protesting organizations argue that the solicitation violates Small Business Administration (SBA) regulations by limiting the number of mentor-protégé joint ventures that can submit proposals. The organizations have also argued that Polaris’ past performance requirements violate SBA regulations regarding considerations of offerors’ past experiences. Polaris currently requires that the protégé submit at least one of its own relevant past experiences or an experience from the joint venture.

Additionally, concerns were raised over Polaris’ requirement that small disadvantaged veteran-owned small businesses (SDVOSB) also compete in the small business pool. Finally, the organizations argued against GSA’s methods for considering the pricing of proposals. These challenges come after GSA agreed to address concerns from a protest filed in April. Polaris has also faced delays in the bid submission process.

DoD Updates Section 889 Blacklist

PilieroMazza reports on their Government Contracts blog that the Department of Defense (DoD) has published its latest update to its list of entities associated with the military of the People’s Republic of China (PRC) or the PRC’s defense industrial base. Since 2021, the Department has been required to keep this list of “Chinese military companies,” publish the unclassified portion of the list and update it on at least an annual basis. The new unclassified additions to the blacklist are:

  • Beijing Zhidao Chuangyu Information Technology Co.,
    Ltd. (Beijing Kownsec)
  • BGI Genomics Co., Ltd. (BGI)
  • China International Engineering Consulting Corporation (CIECC)
  • China National Chemical Corporation Ltd. (ChemChina)
  • China National Chemical Engineering Group
    Corporation (CNCEC)
  • China State Construction Group Co.
  • CloudWalk Technology Co., Ltd. (CloudWalk)
  • CRRC Corporation Limited (CRRC)
  • Dawning Information Industry Co., Ltd. (Sugon)
  • Global Tone Communication Technology Co Ltd. (GTCOM)
  • Shenzhen Dn Innovation Technology Co., Ltd. (DJI)
  • Zhejiang Dahna Technology Co., Ltd. (Dahna)
  • 360 Security Technology Inc. (Qihoo 360)

For contractors, this list has important compliance implications. Under Part A of Section 889 of the 2019 National Defense Authorization Act, the government may not procure equipment, systems or services that use telecommunications equipment/services or video surveillance equipment/video surveillance services from entities on the blacklist or other covered entities specified in the Section. More importantly, under Part B of the same section contractors are forbidden to use equipment, systems or services from covered and blacklisted entities in any of their systems, even if those systems are not related to the contract. Part B became effective for DoD contractors on October 1st after the expiration of that agency’s waiver.

For further information on Section 889 Compliance, we recommend members look at our Section 889 resource, What Federal Contractors Need to Know about Section 889.

AI Training Act Signed into Law

The President signed into law legislation creating an artificial intelligence training program for the acquisition workforce, reports MeriTalk. The bill requires OMB to create a training program for the acquisition workforce addressing the risks artificial intelligence (AI) poses regarding privacy and discrimination. The training will also cover the opportunities AI presents for the Federal government. The bill follows the recommendations for more AI training from the National Security Commission on Artificial Intelligence, which was created by Congress in the 2019 National Defense Authorization Act.

SBA OIG Releases Report on Top Agency FY23 Challenges

The SBA Office of Inspector General (OIG) released a report on the agency’s top management and performance challenges for fiscal year 2023. The report discusses eight major performance challenges that the SBA faces, as well as the issues that contribute to these challenges, many of which have been outlined in previous OIG reports. One major challenge that the SBA must address is managing COVID-19 stimulus spending as the agency faces fraud in programs like the Economic Injury Disaster Loan Program and the Paycheck Protection Program which processes loan forgiveness. The report notes how the COVID-19 pandemic has magnified some of the agency’s issues. Other challenges outlined in the report include:

  • Inaccurate procurement data and eligibility concerns in small business contracting programs;
  • IT investment, system development, and security controls;
  • Risk management and oversight practices for loan programs;
  • Management and monitoring of the 8(a) program;
  • Identification of improper payments in the 7(a) loan program
  • Competing priorities in the Disaster Assistance Program; and
  • Grants management oversight.

Department of Labor Announces New Minimum Wage for Federal Contractors

The Wage and Hour Division (WHD) of the U.S. Department of Labor has issued a notice in the Federal Register raising the minimum wage for workers performing on or in relation with Federal contracts. As mandated in Executive Order 14026, Increasing the Minimum Wage for Federal Contractors, beginning on January 1, 2023, the minimum wage for workers on Federal contracts will be $16.20, with tipped employees receiving a minimum rate of $13.75 an hour. Contracts that were entered into, renewed, or extended prior to January 30, 2022 will still be subject to the lower minimum wage rate established by Executive Order 13658, Establishing a Minimum Wage for Contractors, published on February 12, 2014.

Legal Corner:


Impact of SBA Proposals on Federal Subcontracting

The Legal Corner provides the legal community with an opportunity to share insights and comments on legal issues of the day. The comments herein do not necessarily reflect the views of The Coalition for Government Procurement.

By Samuel S. Finnerty, Partner, PieleroMazza

As PilieroMazza recently noted, SBA released a major proposed rulemaking that will impact government contractors. The proposed rule is focused on SBA’s 8(a) Program (see our client alert highlighting those proposed changes here), but it also impacts the rules for subcontracting on federal projects. This client alert provides contractors with an overview of SBA’s proposals related to the limitations on subcontracting, subcontractor affiliation, and subcontracting plans.

Limitations on Subcontracting (LOS)

SBA’s rules currently provide that the period of time used to determine compliance with the LOS for a total or partial set-aside contract is the base term and then each subsequent option period. SBA thinks this makes sense when one agency oversees and monitors a contract. However, SBA believes that on a multi-agency contract (MAC), under which multiple agencies can issue orders, no one agency can practically monitor and track LOS compliance. Thus, under SBA’s proposed rule, for a set-aside MAC, each ordering agency would be required to measure the contractor’s compliance with the LOS over the period of performance for each order.

If enacted, this proposal could certainly create administrative burden for agencies that are not currently monitoring LOS compliance under these orders. In addition, it could create some concern within the contracting community, as it would require contractors to comply with the LOS for each order issued under their MACs, thereby eliminating the flexibility that comes with measuring LOS compliance over the entire base period and then for each option period. The rule could also create some confusion, at least in the short term, as the Federal Acquisition Regulation (FAR), which contracting officer’s usually follow, has its own LOS rules that do not include this distinction for MACs.

SBA also proposes adding a rule indicating that if a contracting officer determines that a firm failed to comply with the LOS at the conclusion of contract performance, the contracting officer would not be permitted to give a satisfactory or higher (i.e., a positive) past performance rating to the contractor for the appropriate evaluation factor or subfactor (i.e., small business subcontracting). This proposal would not alter the contracting officer’s discretion to require contractors to demonstrate compliance with the LOS where the contracting officer deems it to be appropriate; it would merely provide consequences (i.e., a negative past performance evaluation) when the contracting officer determines that a contractor did not comply with the LOS at the conclusion of contract performance. This rule would further elevate the importance of LOS compliance.

Affiliation Based on Subcontracting

SBA’s affiliation rules provide that a prime contractor and its ostensible subcontractor are treated as a joint venture (JV) and therefore affiliated for size purposes when the subcontractor is not similarly situated (i.e., does not have the same small business status that the prime needed to qualify for award) and either (1) performs the primary and vital requirements of the contract or (2) the prime contractor is unusually reliant on the subcontractor. The proposed rule would make the following changes related to ostensible subcontractor affiliation:

  • The rule clarifies that so long as each concern is small under the applicable size standard (or the prime contractor is small if the subcontractor is its SBA-approved mentor), the ostensible subcontractor/JV arrangement will still qualify as a small business.
  • The rule explains that an ostensible subcontractor analysis should consider whether the subcontractor’s incumbent managers will transfer to the prime contractor and whether the prime contractor relies on the subcontractor’s experience because it lacks relevant experience of its own. This proposal would partially codify a four-factor test that SBA’s Office of Hearings and Appeals created in the Size Appeal of DoverStaffing, Inc., SBA No. SIZ-5300 (2011), and has been using for several years to determine when a prime contractor’s relationship with a subcontractor is suggestive of unusual reliance under the ostensible subcontractor rule. As with the existing rule, SBA would still consider all aspects of the prime contractor’s relationship with the subcontractor and would not limit its inquiry to the factors outlined in DoverStaffing. SBA seeks public comment on this proposed change to the ostensible subcontracting rule.
  • The rule would also clarify that in a general construction contract, the primary and vital requirements of the contract are the management and oversight of the project, not the actual construction or specialty trade construction work performed. SBA recognizes that on general construction contracts, subcontractors often perform the majority of the actual construction work, as the prime contractor must often engage multiple subcontractors specializing in different trades and disciplines. SBA believes the ostensible subcontractor rule for general construction contracts should be applied to the management and oversight of the project—and not to the actual construction or specialty trade construction performed. In other words, SBA’s proposal would confirm that in a general construction contract, the prime contractor must retain management of the contract but can delegate a large portion of the actual construction work to its subcontractors without violating the ostensible subcontractor rule.
  • The rule would also clarify that when a Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) offeror is determined to be a joint venturer with its ostensible subcontractor, SBA will apply the ownership and control requirements for SBIR/STTR joint ventures to the arrangement. This clarification is consistent with how SBA treats entities that are determined to be joint venturers with their ostensible subcontractor for other small business program set-asides. Visit this link for PilieroMazza’s coverage on the extension of the SBIR/STTR Programs.
  • The proposed rule would add a paragraph to each of the SDVOSB, HUBZone, and WOSB/EDWOSB status protest provisions to clarify that any protests relating to ostensible subcontractor affiliation claims will be reviewed by the SBA Government Contracting Area Office serving the geographic area in which the principal office of the protested concern is located. SBA’s Government Contracting Area Offices decide size protests and render formal size determinations. SBA believes they are best suited to decide ostensible subcontractor issues. So, for example, if a status protest filed in connection with a WOSB contract alleges that the awardee should not qualify as a WOSB because (1) the husband of the firm’s owner actually controls the business and (2) a non-WOSB subcontractor will perform primary and vital requirements of the contract, SBA’s WOSB staff in the Office of Government Contracting would review the control issue and the appropriate SBA Government Contracting Area Office would review the ostensible subcontractor issue.

Subcontracting Plans

  • The rule clarifies that a prime contractor cannot count an award to a joint venture—within which it is a partner—towards its subcontracting goals.
  • The rule deletes bank fees from the list of costs excludable from the subcontracting base when a contractor seeks to comply with its subcontracting plan. SBA believes this exclusion gives large contractors little incentive to work with small banks, of which there are over 900 registered in the Dynamic Small Business Search (DSBS). SBA estimates that after subtracting the amount already spent with small-business banks, the new spending with small business subcontractors under the rule would be $228,000 annually.
  • The rule requires large businesses to include indirect costs in their subcontracting plans. Currently, large businesses have the option of including or excluding indirect costs in their individual subcontracting plans. According to SBA, many large businesses opt to exclude indirect costs and, as a result, small businesses that provide services generally considered to be indirect costs—such as legal services, accounting services, investment banking, and asset management—are often overlooked by large contractors. SBA believes that by requiring indirect costs to be included in individual subcontracting plans, large businesses will have an incentive to give work to small businesses that provide those services.

If you have questions about SBA’s proposed changes or need to discuss a subcontracting issue, please contact the author, Sam Finnerty, or another member of PilieroMazza’s Government Contracts Group. Visit this link to access additional coverage on this major new SBA rulemaking.

If your firm is affected by these proposed changes and would like to submit public comments to SBA, please make sure to do so before the deadline on November 8, 2022.

Healthcare Corner:


Coalition Releases VA Electronic Healthcare Records Modernization Resource for Members

Comprehensive information on the VA’s EHR modernization effort can now be found in the Coalition’s Member Resource Portal. The resource details how the VA aims to improve data access and management, a timeline of the VA’s deployment of the new EHR system, and the VA’s future deployment plans.

The timeline organizes all information regarding the VA’s new EHR system, from its initial announcement and development to the current status of deployments. It includes information on delays in deployments, Government Accountability Office (GAO) reports and the VA’s strategic review, new approaches the VA is incorporating in its deployments, and adjustments to the deployment schedule. The slide deck concludes with maps and tables displaying past and future deployments by Veterans Integrated Services Networks (VISN). Hyperlinks are included throughout the presentation to resources that supplement the content in the slides. Please click here to access the slide deck.

For questions about how to access the VA EHR resource on the Member Portal, contact Ian Bell at ibell@thecgp.org.

A View From Main Street
This week’s A View From Main Street features guest author Ken Dodds of Live Oak Bank. The comments herein do not necessarily reflect the views of The Coalition for Government Procurement.

SBA’s Size Rules in Action

Effective November 16, 2020, SBA addressed how size will be determined where an order or blanket purchase agreement (BPA) is set aside for small business under a multiple award contract. [1] If the underlying contract was unrestricted or full and open, size was not a relevant consideration for award of the contract. Consequently, size certifications must be requested for the set aside order and size will be determined at the time of offer for the order. [2] SBA’s size protest timeliness rules were adjusted to make them consistent with the size protest timeliness rules that apply to contracts. Size protests in connection with an order that is set aside for small business under a full and open contract must be filed within 5 business days of notification of the prospective awardee. [3]

Size protests must also be filed within 5 business days of notification of the prospective awardee of an order under a multiple award contract where the procuring agency requested size certifications in connection with the order. [4] Contracts under GSA’s Federal Supply Schedule/Multiple Award Schedule (Schedule) program are awarded to both large and small businesses and the contracts are considered to be full and open. [5] Nevertheless, SBA exempted the GSA Schedule program from the requirement that size certification must be requested in connection with an order set aside for small business. [6] In a size protest involving an order that was set aside for small business under the Schedule, the protester filed a size protest within one day of notice of the awardee and the Area Office accepted the size protest as timely. The awardee did not provide all requested information to the Area Office, so the Area Office drew an adverse inference and found the awardee to be other small. On appeal, SBA’s Office of Hearings and Appeals (OHA) granted the appeal and vacated the size determination because the size protest was untimely. [7] The contracting officer had not requested size certifications in connection with the order. Consequently, the awardee’s size for the order is based on its size certification in connection with the offer for the Schedule contract. A size protest in connection with a contract, including a Schedule contract, must be filed within 5 business days of notice of the prospective award of the contract. [8] The protester was not challenging the awardee’s size for the Schedule contract, nor could it timely do so.

In a size protest involving an 8(a) procurement, the Area Office found the apparent successful offeror, a joint venture, to be small. Under SBA’s rules, the 8(a) concern must be the managing member of a limited liability company (LLC) joint venture. [9] Here, the joint venture claimed that under Michigan state law it did not have to designate a managing member, but under Michigan state law if no member is designated as the managing member, management is vested in all members. Under SBA’s rules, an 8(a) concern must own at least 51% of an 8(a) joint venture LLC. [10] Further, a joint venture is a combination of two or more business concerns, not individuals. [11] The protested concern submitted information that appeared to indicate it was owned by two individuals. If the protested concern is a not a joint venture, it is not a certified 8(a) concern and would not be eligible for award. Finally, under SBA’s rules an 8(a) concern must control the management and administration of the joint venture. [12] The bylaws submitted by the protested concern indicate it is managed by two directors and a majority is required to form a quorum, giving the minority owner negative control. Further, the bylaws provide the minority owner with the power to prevent removal of a director through cumulative voting. SBA’s OHA granted the appeal and remanded to the Area Office for a new size determination. [13]
Have a topic you wish to be covered or a question on how Live Oak Bank can support your business? Email me at ken.dodds@liveoak.bank.
[1] 85 FR 66146.
[2] 13 CFR 121.404(a)(1)(i)(A), (a)(1)(ii)(A).
[3] 13 CFR 121.1004(a)(2)(iii).
[4] 13 CFR 121.1004(a)(2)(ii).
[5] FAR 6.102(d)(3).
[6] 13 CFR 121.404(a)(1)(i)(A), (a)(1)(ii)(A).
[7] Pacific Lighting Management, Inc., SBA No. SIZ-6169 (August 31, 2022).
[8] 13 CFR 121.1004(a)(3)(i).
[9] 13 CFR 124.513(c)(2).
[10] 13 CFR 124.513(c)(3).
[11] 13 CFR 121.103(h)(1)(i), 124.513(a)(1), (b)(1), 125.8(a).
[12] 13 CFR 121.103(h)(1)(i), 124.513(c)(2)(i).
[13] SysCom, Inc., SBA No. SIZ-6171 (September 8, 2022).

GAO Releases Report on Inventory Risks and the Strategic National Stockpile

The Strategic National Stockpile (SNS), maintained under the Department of Health and Human Services (HHS), is a multibillion-dollar repository of drugs, vaccines, supplies, and other medical countermeasures that can be used in emergencies. The Government Accountability Office (GAO) released a report on the inventory planning requirements and the SNS’s failure to communicate risks associated with being below recommended inventory levels.

GAO’s analysis of SNS showed that while the stockpile contained most of the recommended medical countermeasures (MCMs), it often failed to keep them stocked at recommended quantities. In addition, in the inventory review, GAO voiced concerns that items supported by the BioMedical Advanced Research and Development Agency (BARDA) received preferential consideration in purchasing. While HHS officials noted that the gaps in recommended quantities are due to budgetary constraints, the inventory reviews lacked key information needed to both manage these risks and report these challenges to Congress. As a result of the review, GAO made three recommendations.

  • The Assistant Secretary for Preparedness and Response should update procedures for how SNS reviews will be conducted in accordance with statutory requirements, including a description of the roles and responsibilities of its interagency partners in the development of the SNS reviews.
  • The Assistant Secretary for Preparedness and Response (ASPR) should develop and document an approach—whether through the standard operating procedures for the SNS reviews or some other mechanism—for ensuring that MCMs under consideration for SNS procurement receive the same consideration regardless of whether they received development funding from BARDA, in accordance with statutory requirements.
  • ASPR should develop and document an approach for regularly managing the risks associated with the gaps between SNS MCM inventory levels and recommended quantities. Such an approach, which could occur as part of the SNS reviews, should clearly prioritize risks, track progress made in addressing the risks, and estimate resources needed to address risks. This approach should involve communicating this information to key decision makers, including Congress.

HHS concurred with the recommendations.

VA Delays EHR Rollout Again

On October 13, the Department of Veterans Affairs (VA) announced another delay in its Electronic Healthcare Records (EHR) rollout that will push new deployments until at least June 2023. The pause is intended as an “assess & address” period that will allow the VA and its contractors to address existing issues with the system, “especially those that may have patient safety implications.” The announcement also stated that the VA plans to contact every veteran who might have been affected by the EHR’s problems and ask them to contact the VA for resolution.

The pause is the second one announced this year, after VA Secretary Dennis McDonough announced in July that future deployments were on pause until January 2023. The earlier pause came after the appearance of a draft report by the VA Inspector General which documented 148 cases of patient harm due to the system at Mann-Grandstaff Hospital, a VA facility in Spokane, Washington. Since that time, the EHR has continued to experience issues and attracted the attention of lawmakers, who have scrutinized how the VA and its contractors have handled the rollout and their plans for correcting deficiencies.

GSA Acquisition Policy Federal Advisory Committee to Hold Second Public Meeting, October 27

The GSA Acquisition Policy Federal Advisory Committee (GAP FAC), an expert body established to provide recommendations to GSA on certain acquisition policy challenges (the first of which relates to sustainability) will hold its second virtual public meeting from 1 pm to 4 pm EST on October 27. At the meeting, GAP FAC plans to set priorities and establish subcommittees (Policy and Practices, Industry Partnerships, and Acquisition Workforce), continuing the work from the first GAP FAC meeting last month. Each subcommittee will be tasked with producing a long- and short-term recommendation for GSA related to its subject matter. Those interested in attending the upcoming meeting must register by October 26 here.

Final Rule Restricts Use of American Semiconductor Technology by China

The Department of Commerce Bureau of Industry and Security (BIS) released an amendment to the Export Administration Regulations (EAR) implementing necessary controls on advanced computing integrated circuits (ICs), computer commodities that contain such ICs, and certain semiconductor manufacturing items. The new export controls apply end-use controls for items intended for “supercomputers” in the People’s Republic of China (PRC). These actions are taken as a response to PRC’s goal to become the world leader in AI by 2030 and the efforts taken by the PRC to modernize its cyber-attack systems and its data processing for weapons systems.

In addition to the export controls, the rule also imposes new export controls on manufacturing items and activities involved in the production of semiconductors. The notice states that due to the PRC’s military-civil fusion effort, U.S. personnel are now mostly disallowed from working on the production of semiconductors for Chinese entities. The rule follows the CHIPS Act signed into law this year with the goal of strengthening domestic manufacturing while limiting security and supply chain risks related to semiconductors.

DOE Seeks Industry Feedback on Leveraging Defense Production Act

Nextgov reported that the Department of Energy (DOE) published a request for information (RFI) to collect feedback from industry on how the agency can best use Defense Production Act authorities to aid in the domestic manufacturing of clean energy. Specifically, the RFI asks for input on how to use the Defense Production Act for technology supply chain challenges, domestic manufacturing, workforce investment, and energy equity. DOE is also seeking industry feedback on the responses they may take to address these challenges.

President Biden invoked the Defense Production Act with a specific focus on emerging energy technologies like solar power and fuel cells in June 2022. Jennifer Granholm, the U.S. Secretary of Energy, said that “DOE is eager to continue hearing ideas from industry, labor, environmental, energy justice, and state, local and tribal stakeholders about how we can best use this powerful new authority to support the clean energy workforce and technologies needed to combat climate change.” Responses to the RFI are due by 5 pm EST on November 30.