Federal Government Surpasses it Small Business Contracting Goals for Fiscal Year 2018

The SBA (Small Business Administration) announced yesterday that the Federal Government achieved its small business contracting goals for the sixth consecutive year. The Federal Government overall, awarded more than 25 percent of Federal contract dollars to small businesses. This percentage equates to about $121 billion or about $15 billion more than fiscal year 2017.

Comparing fiscal year 2018 performance with that of 2017, awards to small businesses were up in all categories. The only category where the Federal Government fell short of its goal was awards to Women Owned Small Businesses. So there's an opportunity there for women-owned small businesses.

Here is a summary of achievements by category:

SBA tracked performance on 23 different Agencies including themselves. 19 of those Agencies received a score of 'A' or 'A+'. Three Agencies received a 'B' grade (AID, HHS, and OPM) and one received a 'C' grade (NFS).

Legislation to Help Small Business Subcontractors Get Paid On Time

Subcontractors to Government contractors are often vulnerable to the whims and idiosyncrasies of those prime contractors. We know of cases and have heard many anecdotes where primes do not pay their subcontractors for work performed on a timely basis. Sometimes prime contractors, contrary to procurement regulations, do not pay their subcontractors until they themselves have been reimbursed by the Government. For small business subcontractors, delayed payments can put severe strains on their finances, cash flow, and profitability.

Help may be on the way.

Each Federal agency has an Office of Small and Disadvantaged Business Utilization (OSDBU) whose purpose is to provide "maximum practicable opportunities" to small business concerns when acquiring goods and services. Most agencies use the OSDBU name so they're easy to find when searching a particular agency. In the Defense Department, the organization is referred to as the "Office of Small Business Programs".

Earlier this year, legislation was introduced in the House (and has already passed the House vote) that would lend assistance to small business subcontractors who are not being paid by their Government prime contractors in a timely manner. This bill utilizes the services of OSDBUs to assist small businesses in receiving timely payments from their prime contractors.

Here is how it will work.

1. If a subcontractor has not received payment for performance within 30 days of the completion of such performance, it has 15 days to notify (i) the Office of Small and Disadvantaged Business Utilization (OSDBU) of the Federal agency and (ii) the prime contractor of such lack of payment.

2. After receiving the notification, the OSDBU must investigate. The OSDBU will verify the subcontractor's contention that payment has not occurred and importantly, determine whether non-payment is the result of a restriction placed on the prime contractor by the Federal agency.

3. During the investigatory period, the prime contractor may respond to both the subcontractor and the OSDBU with relevant verifying documentation to either (i) prove payment or (ii) allowable status of nonpayment (i.e. the Government imposed a restriction on the Prime contract/contractor).

4. If the OSDBU verifies the lack of payment and determines that it was not due to an action of the Federal agency, the OSDBU will notify the prime contract and give them 15 days to make payment.

5. If the prime contractor does not make full payment in 15 days, the OSDBU shall ensure that such failure to pay is reflected in the CPARS (Contractor Performance Assessment Reporting System).

Will this work? Perhaps. No Government contractor wants to have negative comments attributed to them in the CPAR system.

DCAA's Help for Small Business Contractors

Everyone has heard the line that goes like this: Hi, we're from the Government and we're here to help". Its a humorous line because its antithetical to what really happens when the auditor comes knocking. Its unlikely that any contractor will get help from a DCAA auditor these days because the Agency takes the notion of being independent very seriously. That is not to say however that DCAA won't help - you just have to find the right person. It won't be an auditor but the Agency has a few non-audit staff dedicated to assisting small businesses.

To find these folks, go to the section on DCAA's public website containing resources devoted to helping small business contractors and subcontractors understand the audit requirements and common audit processes (see Audit Process Overview).

The site contains a link to its venerable Information for Contractors pamphlet that we've referenced a few times on this blog. The latest version is from 2012 but still relevant.

The site also contains contract information (phone and email) for the Agency's small business focal point. We have heard good things about the services offered by the focal point from contractors (or prospective contractors) who have chanced to contact them. If you're looking for some training, you might get lucky and find some nearby scheduled training. And its free.

If your comfortable with viewing training slides, there are eight PowerPoint presentations available for download. For new contractors, these are great introductions to managing and administering Government contracts. The eight presentations include:

1. Accounting system requirements - use this to self-assess whether your accounting system is ready for Government contracting
2. Contract briefs
3. Incurred cost submissions
4. Monitoring subcontracts - lots of emphasis lately on how well contractors manage their subs
5. Proposal adequacy - 
6. Provisional billing rates
7. Public vouchers
8. Real-time labor evaluations - highly recommended if you have or anticipate cost-type contracts.

If you're a small business and especially if you're a small business new to Government contracting, the resources on DCAA's "Help for Small Business" website is a great place to learn some of the fundamentals of Government contracting.

Makes One Wonder About the Veracity of Small Business Contracting Achievements

There was a question and answer posted to DoD's "Ask A Professor" yesterday that got us to wondering whether double counting is going on with respect to the Government's tally of awards to small business entities.

Each year, the SBA (Small Business Administration) establishes goals for awarding contracts to Small Businesses, Women owned Small Business, Small Disadvantaged Businesses, Service Disabled Veteran Owned Small Businesses and HUBZone small businesses. It gave themselves an "A" for fiscal year 2016 for exceeding its goals in three of the five categories and almost meeting its goals in the other two.

We know very little about the source of the data for these performance reports. Someone originates the data and enters it into a database somewhere. So this brings us back to the "Ask A Professor" question:

Are prime contractors permitted to use a company that qualifies as two or more socio-economic groups, and received (sic) credit in each group?

The question was premised on a contractor who claimed nine million dollars in small business subcontracts but when the individual socio-economic groups were tallied, they totaled $14.5 million.

DoD answered as follows:

Yes, a prime contractor is permitted to use a company that qualifies as two or more socio-economic groups and receive credit in each group as there are many small businesses that qualify for the different socio-economic programs. Neither the FAR or SBA regulations restrict this practice and in fact it is a smart way to help reach all of the goals in a subcontracting plan. 

We don't think its smart at all. We think its dishonest. Doubling up like that means that small businesses are not getting nearly the amount of contracting dollars that are being reported.

A minority disabled-veteran woman owned business in a HUBZone would get counted four times.

Who's Gonna Fill Their Shoes *

The Federal Government has established statutory goals for ensuring that small businesses get their fair share of Government contracts. For example, 23 percent of prime contracts must go to small businesses. Three percent of prime and subcontracts must go to service-disable veteran-owned small businesses. Given the size of Government procurement, that represents a lot of money.

The U.S. Small Business Administration, Office of Advocacy issued a report last month based on data from the U.S. Census Bureau's Survey of Business Owners. The SBA reported that there are 2.5 million businesses were majority owned by veterans but only 442 thousand of them had employees. The other 2.1 million were non-employers. 99.9 percent of the businesses were "small businesses. 7.3 percent of veteran owners had service-connected disabilities.

Veteran business owners are much older than business owners in general. In 2012, 74 percent of veteran business owners were age 55 and over. This is much higher than the national average of 41 percent. But here's the problem as we see it. There are not enough veterans or service-disabled veterans in the pipeline to take over when the current generation  retires.

More than half of all veterans are age 65 and older. 70 percent are 55 and older. Compare that with non-veterans where only 27 percent of the populations is 55 and older. Only 15 percent of veterans are in the age group of 25 - 45 when they are most likely to be starting businesses. This disparity is largely due to the "Viet Nam" bubble but its this View Nam bubble that is running businesses right now.

Many prime contractors are having difficulty meeting their small-business subcontracting goals including the three percent that goes to service-disabled veteran-owned small businesses. This problem will become even more chronic as the numbers of such businesses decline. Perhaps Congress will need to reduce the targets.

In the meantime, there are and will be great business opportunities out there for veteran-owned small business enterprises, especially those owned by service-disabled veterans (SDVOSBs).

* With apologies to George Jones

Proposed Legislation to Increase Small/Minority/Disadvantaged Subcontracting Goals

On May 4th, companion bills were introduced in the Senate and House that are designed to increase participation of small businesses in Government contracting. Both bills are titled the same - Assuring Contracting Equity (ACE) Act of 2017.

The Bills contain several provisions to raise the SBA (Small Business Administration) contracting goals and (supposedly) to increase transparency. These include:

• Raising the SBA's government-wide small business contracting goal from 23 to 25 percent.
• Increasing the contracting goal from 5 percent to 10 percent for businesses owned by veterans, women, and economically disadvantaged individuals.
• Making the reporting requirements more transparent and prohibiting reporting practices that artificially inflate the appearance of contracting to minority-owned businesses (good luck on that effort).
• Requiring the SBA to disclose the percentage of contracts that are awarded to small business from all federal contracting dollars.
• Consider past subcontracting compliance in award decisions.

Raising small business, minority, and disadvantaged subcontracting goals are pretty straight-forward provisions. The reporting requirements designed to increase transparency however are bound to be controversial if for no other reason than it adds more, perhaps onerous, reporting requirements on prime contractors and upper-tier subcontractors. This runs counter to efforts of the current administration to reduce regulations that create barriers to sound business practices and cause many businesses to eschew Government work.  Also, the provisions that past subcontracting compliance can affect award decisions sounds very similar to the so-called "black-listing" provisions that were so controversial in the Fair Pay and Safe Workplaces rules that were overturned earlier this year by Congress and the President.

We have no idea how far these Democrat-sponsored bills will progress through the legislative process. If it were limited to increasing thresholds instead of laying on a lot of new reporting requirements as well, it might have a better shot.

Proposed Legislation to Notify Small Businesses of Free Procurement Assistance

Senators Gary Peters (D-MI) and Susan Collins (R-ME) have introduced legislation to help protect small businesses from falling victim to fraud when they register to procure federal contracts. The "Procurement Fraud Prevention Act" would require small businesses to be notified that free assistance is available for help in procuring government contracts through federal programs. Free assistance is available through the various Procurement Technical Assistance Centers (PTACs) the Small Business Administration (SBA) and other organizations.

Many business owners are unaware that these resources exist and fall victim to scams that mislead them into paying high sums of money for contract procurement assistance. Procurement Technical Assistance Centers (PTACs) provide local, in-person counseling and training services for small business owners. They are designed to provide technical assistance to buisnesses that want to sell products and services to federal, state, or local governments. The Procurement Technical Assistance Program is administered by the Defense Logistics Agency.

PTACs can help determine whether a particular small business is ready for government contract, help register them in the proper places (e.g. SAM or System for Award Management). They can help determine eligibility for small business certifications such as woman owned, disadvantaged, veteran-owned and HUBZone. The PTACs also have the resources to search prior contracts to see what kind of contracts have been awarded to similar business.

You can find your local PTAC from SBA's Website. There are also specialized PTAC such as Native American PTACs who focus on businesses owned by native Americans.

Whether this bill passes or not, businesses interested in selling to the Government should make a point of visiting their local PTAC. Can't hurt, its free.

Another "Rent-a-Vet" Scam Uncovered

In August 2014, a contractor plead guilty for using fronting companies to secure 45 contracts totaling $23 million that were set aside for Service-Disabled Veteran-Owned Small Businesses (SDVOSBs). In June 2015, a Grand Jury indicted three people from Puerto Rico for the same kind of scheme - calling it a multi-million dollar fraud. Just last month, the Justice Department announced another similar scheme where a company owner used stolen names and social security numbers to obtain $3 million in contracts that had been set aside for SDVOSBs.

Yesterday, the Justice Department announced another like-minded fraudster. The owner of a "sham Veteran Owned Company" has been sentenced to 30 months in prison and a fine of $1 million for falsely claiming SDVOSB status in securing more than $100 million in Government construction contracts.

In this case (you can read DOJ's full press release here), a fellow set up a construction company after recruiting a disable Korean War veteran to act as the company's "straw owner" for the sole purpose of obtaining federal construction contracts that had been set aside under the SDVOSB program. When the Korean War veteran's health deteriorated so he could no longer function, the true owner went out and hired another disabled veteran to serve as the figurehead owner. Since 2006, the company was able to obtain contracts worth more than $113 million under this ruse.

In 2010, one of the company's competitors challenged a bid on the basis that "it appeared that the true owner, not one of the veterans, was the person running the company. The true owner went out and hired a "large Boston law firm" to assist him, helping him to backdate documents that contained false and misleading information. That fooled the SBA (Small Business Administration) who subsequently denied the bid protest (we wonder what the law firm's culpability is in this matter).

After that scare, the owner started siphoning off money in such a way that it would not look like compensation. He did not want the books to show that he made more than the rented disabled veteran. There was a $900,000 "gift" made to the owner. There were also deposits to private bank accounts totaling $2.5 million.

Somebody, somewhere was working behind the scenes however because it wasn't too long before a grand jury issued subpoenas against the company, its owners, and other witnesses and the scheme began to unravel. The owner was found guilty by a jury last June and sentenced earlier this week to two and a half year in prison.

SBA Publishes 2015 Small Business Procurement Scorecard

The Small Business Administration released it annual Small Business Procurement Scorecards for fiscal year 2015 yesterday. These scorecards provide an assessment of each federal agency's annual small business contracting achievement against its goal using a grade of A+ down to F. Overall, the federal government received an A on the government-wide scorecard.

The federal government reached its small business federal contracting goal for the third consecutive year, awarding nearly 26 percent of all federal contract awards to small businesses. The goal was and still is 23 percent. The 26 percent equates to $91 billion in contracts. Also noteworthy from the Government's perspective is for the first time in history, the Government met its Congressionally-mandated goal of 5 percent of "eligible" awards to women-owned small businesses. The Government also achieved all-time highs in meeting its goals for service disabled veteran-owned and small disadvantaged businesses.

On an Agency level, no Agency received less than a B although three Agencies received lower scores than the previous year. Three Agency's were specifically called out for their "noteworthy" performance; GSA, Transportation, and SBA.

We can't help but think the Government is playing around with definitions - particularly with the term "eligible contracts". We couldn't find SBA's definition of eligible contracts but it is evidently a sub-set of total contracts. For example, DOD's fiscal year 2015 procurement budget was somewhere in the neighborhood of $500 billion. DOD reported that it had achieved nearly 25 percent of dollars awarded to small businesses. That should be about $125 billion ($500 billion times 25%). Yet the reported award dollars associated with that 25% was only d$52 billion.

Another example that suggests the SBA's scorecards are based on, perhaps, subjective elements, is their admission that the underlying data is subject to interpretation.

While each federal agency is responsible for ensuring the quality of its own contracting data, SBA conducts additional analyses to help agencies identify potential data anomalies. As part of its ongoing data quality efforts, the SBA is working with federal agency procurement staff to provide tools to facilitate review of data, implement improvements to procurement systems and conduct training to improve accuracy.

Nevertheless, even allowing for these anomalies, the overall trend in federal procurement awards to small businesses is upwards.

Cannot Agree to Do Something and then Fail to Perform Accordingly

In February 2014, DLA (Defense Logistics Agency) awarded a contract to Third Coast Fresh Distribution LLC (TCF) to deliver fresh fruits and vegetables in the Dallas, TX area. The contract was a small business set-aside and contained a "non-manufacturer" clause which required the contractor to take ownership or possession of the items with its personnel, equipment or facilities in a manner consistent with industry practice.

After contract award, an unsuccessful bidder protested arguing that TCF did not qualify as a small business entitled to a set-aside contract because of its affiliation with other entities. SBA denied the size protest and also found that TCF complied with the non-manufacturer rule because it would take ownership and possession of the produce from the growers at its 65,000 square foot warehouse, store it, and deliver the produce itself.

During the first month of performance, the contracting officer became aware that a different company, Brothers Produce, was making deliveries under the contract. When confronted with that observation, TCF admitted that it was using Brothers Produce as a subcontractor to make deliveries. The contracting officer then asked the SBA for another size-determination based on the new facts. This time, the SBA opined that TCF was not a small business because it violated a specific contract requirement, namely the non-manufacturer rule.

After receiving the updated SBA size-determination, the contracting officer terminated the contract for cause, stating that TCF had failed to perform in the manner it represented to both the SBA and the contracting officer. TCF appealed the termination for cause to the  ASBCA (Armed Services Board of Contract Appeals) asking for the termination to be converted to a Termination for Convenience and for additional contract costs incurred up to the date of wrongful termination.

The ASBCA denied the appeal. The ASBCA stated that the clear purpose of the non-manufacturer rule is to prevent brokerage-type arrangements whereby small 'front' organizations are set up to bid on government contract, but furnish the supplies of a large concern. It would be senseless if contractors could merely say they will comply with the non-manufacturer rule at the time of proposal, but not have to perform accordingly. The undisputed facts demonstrate that TCF did not comply with a condition and performance requirement of the contract.

You can read the entire ASBCA case here.

Government Sets Contracting Record for Women-Owned Small Businesses

The U.S. Small Business Administration (SBA) recently announced that the Federal Government surpassed the five percent contracting goal for Women-Owned small Businesses (WSOB) for the first time ever.

Now, according to the SBA, the five percent threshold is no longer a goal - its a foundation from which to build. According to SBA, women-owned businesses already employ eight million American workers but when it comes to receiving Government contracts, women are still under-represented. To counter this, the SBA added 36 new industry categories where women can now compete for set-aside contracts and sole-source awards.

The SBA announcement included the following facts:

• In fiscal year 2015, 5.05% or $17.8 billion of all federal small business eligible contracting dollars were awarded to WOSBs.
• The Federal Government surpassed its 23 percent small business procurement goal for the third straight year, awarding an all-time high of 25.75 percent or $90.7 billion.
•  For the fourth consecutive year, the Federal Government exceeded its contracting goal for Service-Disabled Veteran-Owned Small Businesses (SDVOSBs) and Small Disadvantaged Businesses (SDBs), achieving 3.93 percent or $13.8 billion and 10.06 percent or 35.4 billion respectively.

If you would like to read the complete SBA press release, click here.

DCAA Guide for Small Businesses

The Department of Defense, Office of Small Business Programs offers a DCAA (Defense Contract Audit Agency) Resource Guide for Small Business Innovation Research/Small Business Technology Transfer (SBIR/STTR) Programs.

This guide is available for download by following this link.

The purpose of these programs is to strengthen the role of innovative small business concerns in Federally-funded research or research and development. Specific program purposes are to (i) stimulate technological innovation (ii) use small business to meed Federal research and development needs, (iii) foster and encourage participation by socially and economically disadvantaged small businesses and by women-owned small businesses, in technological innovation, and (iv) increase private sector commercialization of innovations derived from Federal research and development, thereby increasing competition, productivity and economic growth.

The SBIR program is divided into three phases, I, II, and III. Under Phase I, there is very little Government oversight on how funds are spent. Awards are made competitively but once awarded, the recipients are given a pot of funds to see what they can do. If successful, contractors might be able to move on to Phase II (usually limited to $1 million and two years performance). Phase II contracts are very much like typical cost-reimbursable Government contracts and this is where SBIR contractors suddenly become aware of DCAA, the need for "adequate" accounting systems, provisional billing rates, and annual incurred cost submissions. Most are not equipped or prepared for the audit onslaught.

This is where the aforementioned DCAA Resource Guide may be helpful. Although most of the information in the guide is found on DCAA's website and there are numerous links to content on that website, the guide organizes and presents the information in a way that is useful to small businesses just getting started in Government contracting.


Topics include, preaward accounting system surveys, price proposals, incurred cost proposals, small business seminars (powerpoint slides), checklists, tools, and many other links.

By the way, DCAA maintains a small business focal point. You can call them at 571-448-2008 or email: DCAA-OAL-SmallBusinessFocalPoint@dcaa.mil. Based on anecdotal feedback, your mileage may vary when using this resource.

Certificates of Competency (CoC)

A Certificate of Competency (CoC) is the certificate issued by the Small Business Administration (SBA) stating that the holder is responsible for the purpose of receiving and performing a specific Government contract. Thus, a CoC does not apply to any contract the holder might choose to bid on - only the specific solicitation for which it was granted. Responsibility includes, but is not limited to, capability, competency, capacity, credit, integrity, perseverance, tenacity, and limitations of subcontracting.

The CoC program empowers the SBA to certify to Government contracting officers as to all elements of responsibility of any small business concern to receive and perform a contract. It does not extend to questions concerning regulatory requirements imposed and enforced by other Federal agencies.

If a contracting officer determines an apparent successful small business offeror to be non-responsible, he/she must refer that small business to the SBA for a possible CoC.

Once a case has been referred to the SBA, there is an application process that the small business prospective contractor must go through for the purpose of furnishing sufficient competent evidential matter to support a competency determination. The SBA review is not limited to just the information included in the prospective contractors application. Most likely, the SBA will solicit information from other Government agencies with knowledge of and experience with the prospective contractor. The SBA will also query the contracting officer on the rationale for finding the company to be non-responsive.

If the SBA declines to issue a Certificate of Competency, the prospective contractor can appeal the determination to the United States Court of Federal Claims. It seems to us however that the chances of having an SBA CoC denial overturned is slim. We found three cases where determinations were appealed and in each case, the SBA decision was not overturned.

New Self-Reporting Rule for Contractors

The FAR councils are proposing to amend the Federal Acquisition Regulation to implement a provision of the Small Business Jobs Act of 2010. That statute requires contractors to self-report to the contracting officer in writing if the contractor pays a reduced price to a small business subcontractor or if a payments to a small business subcontractor is more than 90 days past due. The proposed modification also requires contracting officers to record the identity of contractors with a history of late or reduce payments to small business subcontractors in the Federal Awardee Performance and Integrity Information System (FAPIIS). This provision applies to all contracts, even commercial items.

This new rule is intended to help (i) create greater cash flow certainty which is critical for small business subcontractors and (ii) reduce a potential barrier to their participation in federal contracting.

The proposed regulation provides two new definitions:

Reduced payment means a payment that is for less than the amount agreed upon in a subcontract in accordance with its terms and conditions, for supplies and services for which the Government has paid the prime contractor.
Untimely payment means a payment to a subcontractor that is more than 90 days past due under the terms and conditions of a subcontract, for supplies and services for which the Government has paid the prime contractor.

Presumably, under these definitions, if the Government hasn't paid the prime, this provision does not apply.

The FAPIIS reporting requirement kicks in when the contracting officer has determined that reduced and untiely payments are unjustified to small business subcontractors, based on an evaluation of a contractor's written explanation for a reduced or an untimely payment when determining whether the reduced or untimely payment is justified. A history of unjustified reduced or untimely payments occurs when it happens three or more times in a 12-month period.

The proposed regulation does not address the consequences for non-reporting.

You can read the full text of the proposed regulation here.

Proposed VA Veteran-Owned Small Business (VOSB) Verification Guidelines

The Department of Veterans Affairs (VA) is seeking to find an appropriate balance between preventing fraud in it's contracting programs and providing a process that would make it easier for more VOSBs (Veteran-Owned Small Businesses) to become verified.

The VA verification program has been the subject of audits by the GAO (Government Accountability Office) and the VA's Office of Inspector General. Both have found that fraud exists and continues to exist in the verification program.

To help prevent fraud, the VA has issued proposed amendments to its regulations governing the verification program. The proposed regulations are quite voluminous but if you are a VOSB needing verification, it is important reading. The proposed rules;

• Clarify the eligibility requirements for businesses to obtain "verified" status
• Adds and revises some definitions,
• Reorders requirements
• Redefines the definition of "control", and
• Explains the examination procedure and review process.

The definition of "ownership and control" is where most of the fraud occurs. A small business concern must be owned and controlled by one or more eligible veterans, service-disabled veterans or surviving spouses.  Control means the strategic policy, long-term decision-making authority, and the management of daily business operations for the VOSB. Control is not the same as ownership. Individuals managing the concern must have managerial experience of the extent and complexity needed to run the concern. A veteran need no have the technical expertise or possess a required license to be found to control an applicant or participant if he or she can demonstrate that he or she has ultimate managerial and supervisory control over those who possess the required licenses or technical expertise.

Regular readers of this blog will be aware that many fraud cases involving the VOSB program are the result of a non-veteran firm using the credentials of a VOSB in order to secure a contract. Whether these new rules will reduce fraud in the program remains to be seen.

Reminder to File Subcontract Reports

Contractors receiving a contract for more than the simplified acquisition threshold (currently $150 thousand) agree to utilize small businesses, small disadvantaged businesses, women-owned small businesses, historically underutilized business zone small businesses, veteran-owned small businesses, and serviced-disabled veteran-owned small business concerns participate in the performance of the contract to the extent practicable. Contractors receiving a contract or a modification to a contract expected to exceed $700 thousand must submit a subcontracting plan that provides maximum practicable opportunities for those types of businesses (see FAR 19.702).

In conjunction with these subcontracting plans for contracts greater than $700, contractors are required to submit semi-annual reports of the small business subcontracting progress to the Government. These semi-annual reports must be entered into the Individual Subcontract Report (ISR) module in the Electronic Subcontracting Reporting System (eSRS). The ISR is the electronic equivalent of the Standard Form 294, Subcontracting Report for Individual Contracts. The SF 294 is still used for certain contracts (e.g. classified contracts) but the electronic version is generally required.

These reports compare actual dollars awarded to the various classifications of small businesses with the contractor's goals for awards to those categories. Where do the goals come from? Usually the contractors goals conform to the Federal Government's goals. If they do not, contractors will probably be receiving a call from their contracting officers asking why not. Refer to the SBA website for the current goal percentages.

The cost to comply with the subcontract reporting requirements is not insignificant. The Government estimates that contractors will expend 40 hours per year to comply. This, in our opinion, is significantly understated however some larger contractors have implemented systems to facilitate the collection and reporting process.

Growing Out of Small Business Size Status

A recent Comptroller General decision highlights what should happen under procurement regulations when a company grows out of its small business status and holds a contract that was awarded prior to growing out of its small business status.+

In 2009, the Air Force issued a solicitation for  IT services. The solicitation was set aside for service-disabled, veteran-owned small businesses (SDVOBs) holding ID/IQ (Indefinite-Delivery/Indefinite-Order) contracts with GSA. The solicitation called for a base period of five years and a five year option.

A company named OBXtek won the award. Five years later (in 2014), the Air Force exercised the five year option. However, when the Air Force exercised the option, OBXtek was no longer a small business - it had grown.

Another company protested the Air Force's option exercise on the basis that OBXtek was no longer a small business and the award was set aside for small businesses. The protestor argued that the contracting officer failed to exercise due diligence with respect to OBXtek's SDVOSB status (among other things).

The Comptroller General (CG) denied the protest. Essentially, the CG (with help from the Small Business Administration) ruled that an offeror's size status is determined at the time it submits its proposal, not at the time that it is issued a task order.

Whistleblower (and her attorney, of course) Have a $3.6 Million Payday

The Justice Department announced late last week that it had reached a settlement with a company and its former president in a case where the company misrepresented itself as a woman-owned small business. By misrepresenting its status, the company was awarded millions of dollars in subcontracts that were set aside for women-owned small businesses.

The former President went to great lengths to support its status as a woman-owned small business, even fooling DCMA's (Defense Contract Management Agency) Comprehensive Subcontracting Plan Group whose mission was to ensure that defense contractors and subcontractors meet all of the requirement for hiring small businesses, including WSOBs (Women-owned small businesses).

The fraud may never have come to light were it not for a former employee who blew the whistle on the scheme by filing a Qui Tam (or whistleblower) suit. The Government intervened in 2012 and settlement was just announced last week. The former company president agreed to a settlement of $20 million. For her part in the case, the whistleblower will receive $3.6 million - not a bad payday.

Through her attorney, the whistleblower said she was "pleased with the outcome." No doubt that is an understatement.

You can read more details of the Government's case by clicking here.

Prime Contractors Must Self-Report Delayed or Reduced Payments Made to Small Business Subcontractors

The Small Business Jobs and Credit Act of 2010 requires prime contractors to self-report to the contracting officer when the prime contractor makes late or reduced payments to small business subcontractors. In addition, the Act also requires contracting officers to record the identy of contractors with a history of late or reduced payments to small business subcontractors in the Federal Awardee Performance and Integrity Information System (FAPIIS).

These requirements, although becoming effective back in August 2013, never made their way to the Federal Acquisition Regulations and as a result, seemingly very few contractors and government personnel were aware of the requirements.

That is about to change. The FAR Councils have just published an interim rule that revises FAR Part 42 to include in the past performance evaluation, reduced or untimely payments reported to the contracting officer by the prime contractor that are determined by the contracting officer to be unjustified. That's well and good but first, contractors are going to have to self-report late or reduced payments made to small business concerns. It seems unlikely that contractors will have systems in place to track such information. Second, contracting officers are going to have to make a judgment call on whether the late/reduced payments were justified. Quite probably, like most contract compliance issues, contracting officers will accept contractor supplied justifications. Third, contracting officers will need to report the information into FAPIIS. We already know from prior internal Government audits that the compliance rate for FAPIIS reporting is very low (but getting better).

There is no penalty for contractors who fail to self-report except perhaps as part of an accounting system or billing system review where such failure could be considered a deficiency.

The Government's Shoddy Market Research Practices

The Government says that it is continuously seeking ways to increase the participation of small businesses in Government contracting (how about streamlining the GSA Schedule process, for starters?). One of Defense's BBP (Better Buying Power) 3.0 initiatives that we discussed last April is to compile a new set of tools that will enhance market research:

The premise here in this initiative is that there is a lot of small businesses out there that could be solicited for work if only Government acquisition personnel had better market research tools. With the proper "tools", the Government could perform market research and ferret out those small businesses that are disengaged or not aware of Government contracting opportunities. With the proper "tools", the Government's acquisition corps could find small businesses to produce "innovative solutions for the Department". So, if some company has a better, more efficient, or more cost effective method of providing goods and services, the Government's market research activities will find them and bring them under contract.

One use of agencies market research is to determine whether there are sufficient number of small businesses available to meet an agency's needs and if so, the solicitation can be set aside (reserved) for small businesses. Sometimes however agencies get rather sloppy in their market research endeavors. Consider a recent GAO bid protest that ruled the VA's (Veteran's Administration) market research did not support a conclusion that at least two small businesses could meet the agency's needs.

The VA needed radiopharmaceuticals so it searched two databases for small businesses operating under a certain NAICS code. It found some and assumed that they were qualified and therefore set aside the solicitation for small businesses only. However, the particular NAICS code included a large array of different types of businesses manufacturing all types of pharmaceuticals, including cold medicines and lip balms.

One company, a competitor that couldn't bid because it wasn't a small business, challenged the adequacy and sufficiency of the VA's market analysis. The GAO sustained the protest, finding that the VA had not adequately focused its market research on radiopharmaceuticals manufacturers, and that the agency did not even consider whether the companies it identified could be considered manufacturers or simply suppliers of the product. Further, there was not indication in the market research report, or otherwise, that any of the identified companies have the required nuclear pharmacy licenses to perform under the contract.

You can read the entire GAO Bid Protest decision here.