SBA Cutting Corners to Sign Up New "8(a)" Business Development Firms

The Small Business Administration (SBA) 8(a) business development program provides economically and socially disadvantaged, small business owners with business development assistance and preference-based Federal contracts. The SBA has established stringent eligibility criteria for entrance into the program including (i) American citizenship, (ii) majority owned controlled and managed by socially and economically disadvantaged individuals, (iii) a potential for success, and (iv) showing good character. From January through May 2015, the SBA approved 249 firms applications for the 8(a) program.

The SBA's Office of Inspector General (OIG) recently published an audit report on its assessment of whether the 8(a) applicants met the SBA's eligibility criteria for the program. The results were not encouraging. Of the 249 firms approved for the 8(a) program, the OIG selected 48 of them to determine whether they qualified. Of the 48 selected, reviewers recommended not approving 46 of them because the firms did not meet one or more criteria for eligibility. These concerns included potential for success, economic disadvantaged, whether the disadvantaged individuals exerted control of the company among others. In two cases, the reviews questioned whether the applicants demonstrated good character. Some of the applicants approved were previously rejected by SBA.

Not to be undone, the director of the Office of Certification and Eligibility (OCE) and the Associate Administrator for Business Development (AA/BD) gathered  additional information for 18 of the 46 firms and based on this information, approved the 18 firms for entrance into the 8(a) program. However, for the remaining 28 firms (or 30 firms if you trust the OIG's math), the AA/BD approved the firms without documenting how the areas of concern raised by lower-level reviewers were resolved. As a result, the OIG concluded that it was not clear whether those 28 firms (or 30 firms) should have been approved into the 8(a) program.

The OIG noted that during the past year within SBA, the 8(a) program has experienced a change in leadership, identified an aggressive growth plan for the coming years, began testing a streamlined application process, and shifted responsibilities for continuing eligibility reviews. This new emphasis on expanding the program most likely contributed to the management override of lower-level concerns and recommendations.

The OIG recommended that the SBA improve its documentation of 8(a) eligibility. The SBA, of course, concurred, promising to do a better job of documenting applicants' qualifications.

You can read the entire OIG report here.

Email Notification vs. Hard-Copy Notification

Here's something to tuck into the back of your mind should you ever find yourself in a situation where a few days one way or another matters when filing an appeal.

The Army Corps of Engineers awarded a contract to HK&S Construction to perform repairs to a jetty at Block Island, Rhode Island in September 2014. On June 5, 2015, the contracting officer terminated the contract for default. We don't know why the contract was terminated for default but ultimately it doesn't matter for purposes of this discussion. What does matter is the date that the contractor was notified of the termination for default (TforD).

As stated, the Government notified the contractor that it was terminating the contract on June 5, 2015. The notification was sent via email on the same date as an attachment. The email advised that a hardcopy of the attached letter had been mailed overnight via Federal Express. The mailed notice of termination was received by HK&S on June 8, 2015, three days after the emailed copy.

Once a contract has been terminated for default, the contractor has only 90 days to appeal the contracting officer's decision. HK&S filed its appeal with the ASBCA (Armed Services Board of Contract Appeals) on September 4, 2015 - 91 days after the email notification but only 88 days after receipt of the hard copy notice. The Government then moved to dismiss the contractor's ASBCA appeal because it was one day late. The ASBCA denied the Government's motion on the basis that the date the contractor received the hard copy notification applied for determining the 90 day period, not the date that the email copy was sent and received.

The Board ruled:

Sending multiple copies of a contracting officer's final decision without indicating which of them is intended to begin the running of the appeal period entitles the contractor to compute the date from receipt of the last copy. However, where an appellant has previously requested to receive correspondence by means of a particular medium, an earlier copy of the decision received through that medium may start the 90-day appeal clock.

Since the Government's email did not specify which of the two notifications was intended to begin the running of the appeal period. Consequently HK&S was entitled to compute the commencement of the appeal period from its receipt of the hard-copy notification.

Its probably not a good idea to wait until the last minute when filing an appeal. The contractor got lucky in this case.

SBA Has Free Training Resources for Government Contracting

If you are like us, you receive numerous offers (perhaps daily) of training, seminars, and conferences related to Government contracting. We've taken a few of these ourselves, participated in some, and a few years back offered training as part of business. Typically, these offerings are very good with excellent content and experienced and competent speakers. But they are also expensive. One could easily spend $2,000 and more to register for a two-day seminar/conference. If you have to travel to get there, that's added cost. There are alternatives to spending a lot of money. The Small Business Administration, for example, offers a number of FREE online training modules that cover many topics of interest for companies desiring to enter the Government contracting arena. Let's look at a few.

Learn How to Prepare Government Contract Proposals. This is a 30 minute course comes with a 50 page workbook and explains the Government's contract solicitation process and describes how to prepare a proposal. Topics include:

• Building the foundation
• Types of solicitations
• Standard forms
• How to actually write the proposal
• Cost and pricing
• Relationships and the wisdom of others
• Resources and assistance

You can burn through this course in 30 minutes but if you take the time to follow and study many of the "links" provided in the course, it will take longer.

Government Contracting 101, Parts 1,Part 2, and Part 3. These three courses lasting 30, 18, and 33 minutes each respectively, cover topics that help small business understand Government contracting programs. All three courses come with workbooks. Part 1 provides a small business introduction to Government contracting, describing prime and subcontracting assistance programs, SBA certification programs as well as woman-owned and veteran-owned business programs. Parts 2 and 3 provides a lot of information on how the Government buys and how to sell to the Government.

There are many other free training courses available in SBA's Learning Center (59 as of today). If you're interested in Government contracting, using SBA's resources is an economical way to proceed.

Estimates for Complying with Government Regulations

From time to time, the FAR Councils publish notices asking for public comments regarding an extension to a previously approved information collection requirement. These notices are required under the provisions of the Paperwork Reduction Act.

These are primarily formalities and most of the time, no one from the public bothers to comment. We don't pay much attention to them either except when they pertain to matters that we write about in this blog and even then, we read them only to learn what the Government's estimate for contractor hours required to comply with the collection requirements.

As an example, today the FAR Councils published a notification pertaining to purchasing systems. FAR Part 44 discusses contractor purchasing system reviews (CPSRs), the objective of which is to evaluate the efficiency and effectiveness with which a contractor spends Government funds and complies with Government policy when subcontracting.

A CPSR provides the administrative contracting officer (ACO) a basis for granting, withholding, or withdrawing approval of a contractor's purchasing system. A review is generally required for contractors expected to receive $25 million or more in the upcoming 12 months but that threshold can be raised or lowered depending upon perceived risk to the Government.

A CPSR covers such things as market research accomplished, price competition obtained, pricing policies and techniques, methods of evaluating subcontractor responsibility, implementation of small business goals, compliance with Cost Accounting Standards, management controls systems, and more.

The FAR Councils estimate that the Government will perform 1,580 CPSR reviews per year. That estimate doesn't sound out of line. But here is what's laughable. They estimate that contractors will expend an average of 25 hours preparing for and supporting each CPSR. We have been involved in many CPSR reviews, primarily as Government auditors in support of DCMA (Defense Contract Management Agency) review teams and have never experienced one where the contractor expends only 25 hours. Contractors are more likely to spend ten times that number of hours by the time the review is completed.

Where the Defense Department Spends its Money

The USS Minnesota is a Virginia-class fast attack submarine that cost the Government $2.7 billion. The builder, Huntington Ingalls Industries announced in 2013 that it had delivered the USS Minnesota eleven months ahead of schedule. The boat didn't get too far however. Soon after sea trials began, a defective weld was discovered in a hard to access spot and for the last two plus years, the boat has been in port undergoing repairs. The same defect has been found in two other submarines in the class.

This post is not about defective submarines however. It is about comparative cost of military programs. As mentioned, the USS Minnesota cost $2.7 billion. A Nimitz-class aircraft carrier cost a bit more than that at 4.5 billion. The fly-away cost on the B-2 Spirit was $737 million (in 1997 dollars). An F-22 Raptor cost $150 million (in 2009 dollars) while the F-35 Joint Strike Fighter is costing a paltry $135 million.

But, get a load of this. The Department of Defense recently awarded an ID/IQ (indefinite-delivery, indefinite quantity) contract for linguist support services supporting military operations and exercises throughout the world. The total value of this procurement is estimated at $9.8 billion over a ten-year period. Is that possible? Ten billion for translators! For that price, DoD could buy a couple of Nimitz-class carriers, or a carrier and a Virginia-class submarine with a few F-22s or F-35s thrown in.

So, what do these linguists do? Well, they communicate with other foreign military units, the host nation government , and the local population, in order to gather information for force protection. They transcribe, translate, and interpret information gathered from a variety of sources to meed operational requirements. There is an intelligence gathering element to their jobs.

So, how many linguists will $10 billion buy over a 10 year period? We don't really know because we haven't seen any proposals or contracts but if you consider each one earns $100,000 per year with fringe benefits, that would work out to 10,000 linguists.

Honestly, we had no idea that the Government was spending that much money for interpreting and translating services.

Responsibility Determinations - Refresher

Yesterday we discussed the U.S. Court of Federal Claims decision to essentially vacate a contracting officer's responsibility determination because it was not based on factual data. The decision actually called the contracting officer's decision arbitrary and capricious (i.e. impulsive or unpredictable). Being called arbitrary and capricious is not a tag to have associated with one's name, especially a contracting officer who, above all else, strives to be fair and objective in all matters pertaining to Government contracting. Those are fighting words.

Now we've discussed several times over the years the components of a responsibility determination. Perhaps the most comprehensive coverage was a seven-part series in November 2013. But by way of review, we'll summarize them here. The requirements to be deemed "responsible" come from FAR (Federal Acquisition Regulations) 9.104-1 which reads:

To be determined responsible, a prospective contractor must:

1. have adequate financial resources to perform the contract, or the ability to obtain them; 
2. be able to comply with the delivery or performance schedule; 
3. have a satisfactory performance record; 
4. have a satisfactory record of integrity; 
5. have the necessary organization to perform the work; 
6. have the necessary production, and technical equipment, and facilities; and 
7. be otherwise qualified and eligible to receive an award under applicable laws. 

If you recall yesterday's write-up on the Remington bid protest, the Court was particularly skeptical that Colt qualified under items 1 and 6; financial resources and production facilities.

Concerning the production facilities, FAR 9-104-3 defines evidence to support the existence of necessary production facilities to include commitments or explicit arrangements that will be in existence at the time of contract award, to rent, purchase, or otherwise acquire the needed facilities, equipment, other resources, or personnel. So, a prospective bidder need not actually have the facilities but must be able to show a firm commitment to acquire the needed resources. In the Remington case, the availability of the production facilities was in doubt at the time of the award due to uncertainties surrounding Colt's bankruptcy proceedings.