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What the Heck is a HUBZone?

We regularly take calls from people and companies that are interested in registering in the HUBZone program. Believe it or not, it’s the simplest of the Socio-Economic set asides in principle. Well, maybe the Woman Owned Small Business (WOSB) designation is simpler. Are you a woman? Do you own and operate the company? Prove it and you’re certified. Actually, so is Veteran Owned (Veteran? Own and operate the company?), and so is Service-Disabled Veteran Owned (Veteran? Service-disabled? Own and operate the company?).

Ok maybe HUBZone’s not the most straightforward, but in principle it’s fairly simple:

  • Your primary business location must be located in a HUBZone
  • More than 35% of your employees must live in a HUBZone

Of course, in application, it isn’t quite that easy, and that’s where we come in. Here are the requirements broken down into their component parts:

1. What’s a HUBZone?

“HUBZone” stands for Historically Underutilized Business Zone. These are tracts designated by the Census as historically under-utilized by business. You can find them on this HUBZone Map.

They are updated as often as several times a year. If you are in a HUBZone and the HUBZone is scheduled to be  de-designated, you will have a period of time to move your primary business location to another HUBZone.

2. What does it mean to be “located in” a HUBZone?

That’s the easiest one. Your physical address has to be there. But, whatever the address is, whether your “primary business location,” or an employee’s residence, it has to be legit. No virtual offices (you can rent space in a place that also houses virtual offices but your office space must be big enough to house the number of people you claim work there). No employees living at relatives’ houses.

3. What’s “Your primary business location”?

That is the place of business, other than a client site, where the largest number of employees work. For most service companies, it’s the headquarters which is where all your back-office people are located, and likely where some of your on-contract people are located, too. It could, however, be a regional office if your regional employees aren’t on a client site and there’s more of them than at your headquarters.

For products and some services companies, it could be a factory, manufacturing, distribution, or warehousing facility other than your headquarters if the two are separated and if you have more workers at that location than you have at your headquarters.

4. What’s an “employee”?

Start with your W-2s. Those are all employees if they work more than 40 hours per month, which is roughly 10 hours per week (but note the requirement is monthly, not weekly). Others such as 1099s or volunteers could be considered employees depending on the type of work they do.

5. What does “35%” mean?

Just that. 35%. The difficulty is not in the percentage itself, it’s in maintaining the percentage as your company grows. For example, if a company has one employee, that employee has to live in a HUBZone. If there are two employees, one of the two has to live in a HUBZone. So if there are two partners, one should live in a HUBZone. But when those two partners hire a 3rd employee, that employee must live in a HUBZone (one of three is only 33%). The 4th does not (two of four), and neither does the fifth in this scenario (two of five is 40%).

Another issue arises when a service company gets a large contract. If you have 10 employees and five live in a HUBZone, when you get your big win for 10 more employees, you have to make sure that at least two of those 10 lives in a HUBZone to keep you at 35% (seven of 20). Plus, you may want to maintain a cushion so that an unexpected resignation does not take you immediately out of compliance.

6. What does “live in a HUBZone” mean?

Your employees’ primary residence. The meaning of this is often pretty clear, but the proof required may not be. If you have interns, employees who have recently moved, or an otherwise fluid workforce, you may have employees who don’t live at the address on their drivers’ license. You can use voter registration cards, leases, mortgages, or utility bills to prove an employee’s address, but for anything “non standard” you have to have an affidavit signed by the employee explaining why they don’t live where their identification card says they live. That can become difficult to obtain particularly in the “look-back” period I talk about below if your HUBZone status is challenged.

7. And finally, what happens next?

You file for and receive your HUBZone certification. But that’s not it. HUBZone is a perpetual program, meaning that as long as you fit all the HUBZone requirements – and you are a small business – you remain in the program.

But, there’s a catch: record-keeping. You must not only comply with the requirements, you must keep records that demonstrate your compliance. If your HUBZone status is protested, the SBA will determine that status based on two points in time: (1) When you submitted your proposal; and (2) When the contract is awarded. Those two points can be months to over a year or two years apart. If your status is protested, you will have to produce at least 4 weeks of payroll records and other records demonstrating your HUBZone status on each of those two dates.

Keep your records, and you’ll avoid a lot of difficulty if your status is challenged.

Do you have questions about becoming HUBZone certified? Contact Randolph Law to learn more about the program and how HUBZone certification can open the door for government contract opportunities.


Fair Pay and Safe Workplaces – What Is “Responsibility”?

This past Monday Judge Crone of the U.S. Court for the Eastern District of Texas granted a nationwide Temporary Restraining Order prohibiting the OMB or the Department of Labor from beginning enforcement of most of the Fair Pay and Safe Workplaces Regulations that were scheduled to go into effect on Tuesday.

This means that the labor law violation reporting requirements and the prohibition on pre-dispute arbitration agreements for Title VII or sexual harassment claims do not come into effect now, but that the paycheck transparency requirements, which are scheduled to go into effect January 1 of 2017, are still on schedule.

Contractors should still be on notice that the requirements could still go in effect, but there’s no requirement to start reporting now.

The Order can be found here, and is a very good read. It lays out plainly and in detail Judge Crone’s concerns with the regulatory requirements. As I read it, Judge Crone’s main concern is that the mandate makes complaints from administrative bodies into reportable “violations” before the contractors have an opportunity to contest those complaints. From the Judge’s Order:

“The Executive Order, FAR Rule, and DOL Guidance explicitly conflict with those labor laws that already specify debarment procedures, after full hearings and final adjudications, for contractors who violate the requirements specifically directed at government contracting, i.e., DBA, SCA, Rehabilitation Act, VEVRAA, Executive Order 11246, and Executive Order 13658. It defies reason that Congress gave explicit instructions to suspend or debar government contractors who violate these government-specific labor laws only after a full hearing and final decision, but intended to leave the door open to government agencies to disqualify contractors from individual contract awards without any of these procedural protections.” (p. 16) (emphasis added)


“The Order and Rule appear to conflict directly with every one of the labor laws they purport to invoke by permitting disqualification based solely upon “administrative merits determinations” that are nothing more than allegations of fault asserted by agency employees and do not constitute final agency findings of any violation at all.” (p. 17) (emphasis added)

The second highlighted passage gets to the heart of the matter, and the heart of the contracting community’s issue with the rule: Because the rule requires reporting of ‘administrative merits determinations’ if effectively requires the reporting of allegations of wrongdoing regardless of whether those allegations were substantiated. For example, again from the Order, the EEOC issues approximately 3,000 “reasonable cause notices” a year but only litigates approximately 150 of those and a substantial proportion of those 150 are found to be meritless. The reasonable cause notices serve effectively as complaints of wrongdoing, not as adjudication that the complained about wrongdoing actually occurred.

This dovetails with the second part of the rule, where a contractor’s “mitigation strategy” is taken into account in determining whether a contractor that has reported violations under this rule should be found non-responsible and therefore ineligible for award. As Judge Crone notes, this requirement forces contractors to potentially settle or otherwise mitigate cases that could have been found meritless had the contractor defended them before a neutral adjudicating body.

The mechanism by which the rule disqualifies contractors from participating in a specific contract is that the Contracting Officer can use violations reported under this rule to find a contractor “non-responsible” and thereby ineligible for award even if the contractor otherwise would be.

Responsibility determinations mostly consist of capacity review – physical plant, financial resources, personnel resources, production facilities, construction facilities, organization, operational processes, proper clearances, proper certifications, etc. FAR 9. 104-1. However, there is one line in the responsibility standards that asks Contracting Officers to make an ethical review. Subsection (d) requires contractors to “have a satisfactory record of integrity and business ethics.” FAR 9.104(d). The Government in its opposition to the TRO request pointed specifically to that section of the responsibility criteria as an example that Contracting Officers already review violations of law and regulation when determining responsibility: “Long-standing existing law requires contractors to make a variety of disclosures of certain tax delinquencies, criminal convictions, indictments, civil judgments, and charges, in order to enable contracting officers to make the required responsibility determination. See, e.g., FAR §§ 52.209-5, 52.209-7.” (Opposition To TRO Motion, p. 3).

Judge Crone found that while the current responsibility regulation and its enforcement requires reporting of what I’ll call “adjudicated wrongdoing” the new regulations require reporting of purported wrongdoing that has not been adjudicated.

What it all comes down to is that Judge Crone found that contractors would have to report items that are effectively nothing more than allegations of labor law violations, and directly conflict with the labor laws themselves because they side-track the judicial process by which contractors could defend themselves against the allegations.

A direct operational result of the decision is that the enforcement of the labor law reporting and prohibition on certain arbitration agreement is stayed indefinitely. Contractors should be aware that that could change and enforcement could begin. But secondarily, the decision is important reading for an understanding of the interplay between the FAR, DOL regulations, government contracting, and contractors’ obligations under other laws. It lays out very thoroughly how policy (penalize contractors who take unfair advantage of their employees) doesn’t always effectively translate to regulation (penalize contractors who’s employees file claims, regardless of the merit of those claims).

You can find the memorandum and order here.


Check your HUBZone Status

In 2011 and 2012, as a follow up to the 2010 Census data collection, the SBA removed a large number of former HUBZones from the HUBZone designation. Because the SBA did not want to decertify HUBZone companies without giving those companies an opportunity to transition their operations, the SBA created a HUBZone status called “redesignated” for those former HUBZones that were losing their HUBZone status, and then gave HUBZone companies in those “redesignated” areas a three year grace period to move operations and re-confirm that they conformed to the HUBZone requirements. For nearly 600 companies, that three year grace period ends in 2015.

First, a little background on the HUBZone program. This program began with the HUBZone Empowerment Act, which became law as part of the Small Business Reauthorization Act of 1997. The SBA regulates and implements the program, which includes: determining what businesses are eligible to enter the HUBZone Program, maintaining a database of qualified HUBZone businesses, and adjudicating protests and issues related to the award of HUBZone contracts.  The SBA designates areas as HUBZone areas based on information from several sources including, the U.S. Bureau of Labor Statistics, Department of Defense, Department of Housing and Urban Development, Bureau of Indian Affairs and the U.S. Census Bureau.

In 2000 and again in 2004 the Small Business Reauthorization Act was amended, both amendments allowing for businesses to maintain their status in the “redesignated areas.” These amendments also allowed for the 3 year grace period.

The three year window on this transition is now about to close.  As a result, the nearly 600 small businesses located within these areas are set to lose their HUBZone status and the associated federal contracting benefits. There is no formal program to notify HUBZone companies of the potential future status of current, and “redesignated” HUBZones. If you are a HUBZone company, it is your responsibility to monitor the current and potential future status of the HUBZone within which your primary business location is located, and the HUBZones within which your employees live. Failing to do this could result in your business unintentionally losing its HUBZone status, whether from this specific “redesignation” or generally from some other redesignation of HUBZones.

While many HUBZones are only reviewed every 10 years, after the census, some are reviewed more frequently, in some cases as often as annually. To be safe regarding your HUBZone status, you should monitor your status bi-annually in a general sense, and should specifically review your compliance with HUBZone requirements every time you submit a HUBZone proposal, and every time you are awarded a HUBZone contract. The SBA’s HUBZone mape is a very useful tool in monitoring compliance, not only showing current HUBZones, but also each HUBZone’s history, and if known, any future planned changes in the zone’s status.

You can find the HUBZone map tool here: <a href=’http://map.sba.gov/hubzone/maps/’>http://map.sba.gov/hubzone/maps/</a>

While the possibility of a HUBZone designated area losing such status is cause for concern, HUBZone certification still offers many benefits and is considerably easier to gain access to than the other SBA small business concerns. If your firm is interested in becoming HUBZone certified or if your firm is facing issues because of expiring HUBZone designations or redesignated HUBZone districts and you would like assistance, please contact us.


Basics of Federal Contracting Series, Part I – Proposal Basics

This is part one of a series on the basics of Federal Government Contracting. Stay tuned for Part II – Pricing Methods, next week.

The purpose of this article is to briefly discuss pointers on preparing a successful government contract proposal. This article will also discuss contract pricing related to government contracts.

Preparing a response to a government procurement request is an important task, which should be approached with diligence and professionalism. Writing a successful proposal is about doing knowing the objective of the solicitation, preparing and responding clearly and appropriately, aligning your proposal with the government’s needs and articulating what makes you the best solution provider. These elements are critical to successful proposal writing.

First, it is crucial to carefully read the solicitation, including all applicable schedules, clauses and attachments. The solicitation is designed to provide prospective bidders with all of the information needed to write a successful proposal. The agency that prepared the solicitation expects you to read and follow it carefully. The reality is, if you do not comply with all requirements in the solicitation, your proposal may be deemed “nonresponsive”.  Also of equal importance is to review and understand the FAR regulations governing the specific type of solicitation. FAR regulations are completed and it is always best to have a team of people who are well versed to assist with proposals.

A good proposal will clearly articulate how the bidder can solve the problem or fill the need outlined in the government’s solicitation. Understanding the government’s needs is important. Even more important, however is how your company plans to execute or deliver an appropriate solution. It is, after all about convincing a government review panel that your proposal solves a specific problem or need and is the best fit.  Your proposal must be clear, concise and be able to substantiate the work to be performed. Some of the mistakes to be avoided are (1) mistakes in understanding the solicitation request and overall regulations that come into play (2) incomplete or late submission (3) unclear objectives and focus; too much fluff and not substance (4) not understanding best value considerations (5) unrealistic pricing (6) failure to address evaluation factors and (6) errors in the submission.

Contract pricing is an important aspect of procurement and a particularly important component in developing a strategy to win federal contracts. There are two factors that should be taken into consideration when discussing contract pricing and these are:

Government’s perspective- Understand that the federal government wants an optimal deal which is fair and reasonable for which the contracting officers and agencies conduct considerable market research.

Contractor’s perspective-A small company wanting to do business with the government is responsible for developing a contract pricing strategy that is reasonable, competitive, but profitable. Pricing therefore becomes one of the most important variables in a proposal.


The pricing you propose in response to a government solicitation will be influenced by your ability to negotiate or not negotiate as some contracts are negotiable contracts while others are sealed- bid contracts. The FAR states that any contract awarded using other than sealed bidding procedures is considered a negotiated contract. Procedures for contracting by sealed bidding (FAR 14) require the government to evaluate bids without discussions and award to the responsible bidder whose bid, conforming to the invitation for bids; will be most advantageous to the government considering only price and price related factors. Negotiations are not permitted prior to the contract award.

Procedures for contracting by negotiation (FAR 15) permit negotiations prior to contract award. However, a solicitation under procedures for contracting by negotiation may or may not actually include negotiations.

The four types of contract pricing are (1) product pricing (2) service pricing (3) best value pricing and (4) lowest price technically acceptable.

  • The formula for product pricing is a sum of material costs, labor costs, estimated overhead expenses and profit margin. [Product pricing= Material Costs + Labor Costs + Overhead Expenses + Profit].
  • The formula for service pricing is based on the sum hourly overhead expense, hourly wage and profit. [Service pricing=Hourly Overhead Expense + Hourly Wage + Profit].
  • “Best Value” refers to competitive, negotiated procurements in which the Government reserves the right to select the most advantageous offer to the Government by evaluating and comparing factors in addition to cost or price. “Best Value” procurement enables the Government to purchase technical superiority even if it means paying a premium price.
  • “Lowest price technically acceptable” is where a contract award is made solely on the basis of the lowest evaluated price of proposals meeting or exceeding the acceptability standards for non-cost factors.

As discussed above, writing a government contract proposal requires a thorough understanding of various agency rules and FAR regulations. The Attorneys at Randolph Law have extensive knowledge and understanding of the FAR regulations and can assist you with submitting a successful proposal.


Are Your Ready For 8(a) Certification?


The Small Business Administration’s 8(a) Certification is a special set-aside program for small businesses owned by disadvantaged individuals to help them compete with bigger businesses. Essentially, some government contracts require a percentage of the work to be given to 8(a)-Certified small businesses. This means that when your small business bids on the 8(a) work in a contract, you would only be competing with other 8(a)-Certified businesses for the work and not the entire pool of applicants. Because there are fewer fish in this 8(a) pond, the chances of winning a bid are considerably higher. However, just because you’re a small business doesn’t mean that you can easily get 8(a) Certification.

What is the SBA looking for?

Socially AND Economically Disadvantaged Owner

Social Disadvantage

The SBA states that “Under federal law, socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias within American society because of their identification as members of groups without regard to their individual qualities.” Social disadvantage is presumed for Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, Subcontinent Asian American. This only means that individuals from these groups do not need to write a narrative explaining why they are socially disadvantage. Individuals outside of these groups can also be socially disadvantaged, but must present convincing evidence in a written narrative that the SBA evaluates on a case-by-case basis. There are three critical elements that must be present in these situations:

  1. An objective (e.g., observable) feature that distinguishes you from others,
  2. Personal experiences of social disadvantage (e.g., discrimination) in American society because of that distinguishing feature, and
  3. A negative impact on getting jobs or advancing your career because of that distinguishing feature.

Economic Disadvantage

The SBA states that “economically disadvantaged individuals are [those] whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities.” Unlike social disadvantage, there is no presumption of economic disadvantage for individuals and all who apply must write a narrative explaining their economic disadvantage. These narratives are often very similar to social disadvantage narratives, but must demonstrate that a lack of assets or credit inhibited your ability to get jobs, advance your career, or compete with other businesses.

Tips for Writing the Narratives

Make it personal! Reliving the past can be painful, but the SBA needs to know exactly how you’ve been hurt in order to compel them to give help you by awarding 8(a) Certification.

Be detailed! Generic statements about being discriminated or disadvantaged is not persuasive. Your narrative must include facts about your life. There may never be concrete evidence of discrimination if someone is good at hiding it, but the SBA needs you to provide enough evidence so that they can plausibly connect the dots.

Small Business WITH a Likelihood of Success

Ownership and Control

The disadvantaged individual must directly own at least 51% of the business. There can be no shell companies in between and there can be no restrictions or conditions on the ownership. The disadvantaged owner must work full-time as the small business’s highest office and run the business’s day-to-day operations. If a non-disadvantaged individual can give the disadvantaged owner directives or make independent business decisions without the disadvantaged owner’s consent, watch out, because the SBA may decide that you don’t exercise direct control over your company. Typical delegation of duties is fine, though, because those duties have essentially been pre-approved by the disadvantaged owner.

“Small” Business

The limit on your business’s size all depends on the type of business you’re in. Get your NAICS code and head over to https://www.sba.gov/tools/size-standards-tool to see if you qualify. Some industries are limited by the number of employees while others are limited by the average annual receipts. In fact, “small” can still be quite large. For example, a Personal Computer Manufacturer (NAICS Code: 334111) is a small business as long as it has fewer than 1000 employees, while an HVAC Contractor (NAICS Code: 238220) is a small business as long as it receives less than $15 Million annually in receipts. Even if you don’t think you’re a small business, it never hurts to check!

Likelihood of Success a.k.a. Small, But Not Too Small

Many 8(a) applicants expect the 8(a) Certification bring it work, which it very well might do, BUT the SBA is typically only willing to award certification to businesses that are likely to succeed, meaning businesses with a successful history of prior work. This is the chicken and the egg problem for many applicants. Without the 8(a) Certification it may be difficult to find work, but without a history of successful work, it may be difficult to get the 8(a) Certification.

How much work is enough? How many clients do you need? There are no concrete minimum numbers as applications are evaluated case-by-case, but the more you have, the more likely you are to get that 8(a) Certification.

Having only a few clients represents a unique problem for the SBA’s control requirement. Think of it like this:
Let’s say you only have one client. If you don’t do what that client asks, they will probably find another business to do the work, but without them you will make no money. So what do you do if you want to stay in business? Whatever the client asks you to do.

Your economic dependence on the client allows them to control you. It is extremely difficult to argue against this, and the best counter is simply to have multiple clients to spread the risk of losing one of them.

Is Your Business Ready?

Carefully consider the SBA’s requirements and decide if your business satisfies them. If you think you are close to meeting them, but are unsure, it may be worthwhile to simply apply anyway. In the worst case scenario, your application may be rejected and you would have to reapply next year. However, your time will not have been wasted because the application process may reveal SBA concerns that you may not have considered, or you may be surprised to find yourself 8(a)-Certified before you know it.


Bid Protests – How An Agency Evaluates Proposals

664179_Page_01-791x1024jpgKey to a contractor’s understanding of the bid protest process is understanding how an agency evaluates proposals in a sealed bid procurement, and what rights a contractor has to protest the agency’s evaluation. Take a look at the recent GAO decision in Gaver Technologies, Inc. www.gao.gov/assets/670/664179.pdf, and read both the facts and the legal analysis carefully. This is a rare decision where the GAO agreed that the Agency was unreasonable in its evaluation of the proposals.

The stock phrase in any GAO decision on a contractor’s claim that the selection was somehow “unfair” is a variation of “The GAO will not substitute its own judgment for the Agency’s,” and “Although the contractor may not agree with the Agency’s technical evaluation, mere disagreement with that evaluation is not a valid grounds for protest.” What that means is that just because a contractor may think the Agency’s decision is unfair, wrong, short-sighted, or any other thing calls into question the Agency’s judgment or skill in selecting vendors, doesn’t mean the contractor has a valid protest grounds. For the contractor to have valid grounds for a protest, the Agency’s decision must be so unfair, so wrong, so short-sighted, or so whatever that is is “unreasonable.” Or, alternatively, and this is more likely, either (1) the Agency’s decision must be inconsistent with the “stated evaluation factors” – meaning that the Agency wrote in the RFP that it would evaluate based on a set of criteria and then evaluated based on an entirely different set of criteria, or (2) The Agency didn’t document the basis for its selection.

Turning to the Gaver Technologies decision by way of example: The solicitation was a NASA solicitation for professional, administrative, computational, and engineering (PACE) services. As part of the evaluation, the RFP stated that offerors would be evaluated based on their “Proposed innovative processes…the Offeror suggests for accomplishing…the tasks required in the SOW.”

To evaluate the proposals, NASA constituted a Source Evaluation Board (SEB) which reviewed all of the proposals and produced a written report and recommendation to a Source Selection Authority (SSA), the person tasked with making the decision on which contractor to award a contract to. This is the standard means by which an Agency evaluates proposals. There are variations on who constitutes the SEB, and there may be sub-boards, or multiple boards evaluating separate parts of the proposal (price, technical, management), but the general set-up of a group of people evaluating and then making a written recommendation with supporting documentation to a single person who makes the decision, is common.

The SEB evaluated Gaver positively on its innovative approaches, and pointed out specifically five innovations it felt were particularly strong. When that evaluation went to the SSA, she agreed that the innovations were strengths, but weighed against those strengths her concerns that the cost of implementing those innovations was not accounted for in the proposal, meaning that either the innovations would not be implemented or that the innovations would be implemented, but would cost the Agency money. Or, in my opinion, she thought the innovations without cost being factored in were either proposal fluff – promise the moon and then under-deliver once you have the contract – or were a “bait and switch” – promise the moon but under-price it, then go in and ask for a contract mod once you’ve got the contract.

Although the SSA discounted all of Gaver’s proposed innovations, she only specifically addressed a few of those innovations as examples. The GAO, unusually, granted a hearing for the purpose of determining in more detail what the SSA’s funding concerns were. At the hearing, the SSA identified a different basis for her decision that the innovations were not strengths, which was that the proposed innovations were not described in sufficient detail for a proper evaluation. At that same hearing, the SEB chair, in describing the SEB’s report to the SSA, stated that contrary to the SSA’s claim, the SEB’s evaluation of Gaver’s proposal had covered the costs associated with its proposed innovations, and had determined that (1) there would be no additional cost associated with implementing the innovations; and (2) That Gaver had stated that there would be no additional cost associated with implementing the innovations.

Given the SEB’s testimony and the written record that contradicted the SSA’s claim that there was no discussion or analysis of the cost of innovations, and the SSA’s own changing testimony that her real issue with Gaver’s proposed innovations was that they weren’t sufficiently detailed, the GAO determined that the SSA’s decision was unreasonable and was contrary to the stated RFP criteria which required a offeror be rewarded for offering innovative technical approaches, and therefore granted the protest.

It seems likely that the SSA had legitimate concerns about Gaver’s proposal of innovative approaches. Whether she thought they were “pie in the sky” type items that would never be implemented, and would detract from the real work NASA was hiring Gaver to do, or whether she thought they were good ideas but would cost more money, and that cost wasn’t revealed in the proposal, isn’t clear.

So with all that detailed discussion, what’s the take away? Two things – (1) A contractor is not likely to get a GAO decision on a protest overturning a technical evaluation. This decision is an exception that “proves the rule” in that the SSA’s decision was (a) contrary to the SEB recommendation; (b) unusually poorly documented; and (c) contradicted by the SSA’s own testimony. Most of the time, if a contractor thinks a decision was “unfair,” the contractor is out of luck. The decision has to be so “unfair” that it is unreasonable. (2) SEB recommendations and SSA decision memos are not available to contractors at the outset of a bid protest, so the contractor had to file the protest blind. The contractor may have had a belief that it had more than just an unfairness argument based on other information, or the contractor may have just decided it was worth the outlay to file the protest. Either way, it had to file blind, and it had to have an outside attorney to review the protected, selection sensitive, information.

All in all, a good decision to review for an understanding of the difference between a contractor believing it was evaluated unfairly, and an evaluation actually being deemed unreasonable or against the stated criteria.

If you have bid protest questions, call me or email me.

Chris Shiplett
Randolph Law, PLLC
(p) 703-652-3039
(e) chris.shiplett@randolphlawonline.com


What Do I Do With The Contracts? – Issues In Buying Or Selling A Government Contractor

I usually get the request after the buyer and the seller have agreed on a structure for a purchase or a merger and they are working through their due diligence and papering the deal: “Ok, we’re ready to go with this purchase (or sale), how do we transfer the contracts.”

Transferring the contracts should not be an afterthought in the deal, the transfer of the contracts should in many cases be the prime consideration, around which the deal is structured, because in many cases – and particularly for small contractors – the contracts themselves are the primary asset that brings value to the company being sold.

In general, the Anti-Assignment Act prohibits the transfer of government contracts to a third-party. However, there are exceptions to that blanket transfer prohibition. Those exceptions, and the rules for how to request approval of a transfer under those exceptions, are set out in the FAR at section 42.1204. A contractor that attempts a purchase or sale without thoroughly evaluating the rules of FAR 42.1204, and without conscientiously following the procedure described in that section, runs the very significant risk of having a request to transfer denied, or of having the contract cancelled, thereby risking the very asset that gives the company value.

The first question the parties to a transaction should consider is whether the transaction is such that the contracts are “being transferred” at all.

As described in FAR 42.1204, if there is a change of ownership of a contract “as a result of a stock purchase,” but there is no legal change in the contracting party, and the contracting party remains in control, there is no “transfer” of the contract such that the government must consent to the transfer.

However, if there is a stock purchase (or for a limited liability company or partnership the equivalent to a stock purchase), there may be other issues the contractor must consider. For example, if the contractor is certified in a set-aside program, is there still “direct ownership” by a qualified individual; If the contractor is subject to NISPOM regulation, are the security issues implicated by the transfer of ownership; For all contractors, does the change of ownership implicate responsibility issues that must be addressed; and etc. and etc.

If there is a direct asset purchase, then the contractor must consider the Anti-Assignment Act, and must appropriately seek out the exceptions to the prohibition on transfers. As described in FAR 42.1204, there are two situations in which the Government may consent to the transfer of a contract:

1) The contractor is transferring all of its assets; or

2) The contractor is transferring the entire portion of its assets involved in performing the contract.

In either of those cases, if the government consents, it will execute with the contractor what is called a “Novation Agreement” which will “novate” the contract, meaning substitute the new contractor for the old contractor in the agreement.

A contractor that wants a novation has to ask for it. Naturally, there is an appropriate way to do that. That is to submit a “novation package” to the contracting officer. As in any transaction between a contractor and the Government, the Government must have adequate documentation of the proposed transaction to allow the Contracting Officer to fulfill his or her duty not to obligate the Government recklessly or unlawfully. So, at a minimum, a novation package must contain the following:

(1) The document describing the proposed transaction, e.g., purchase/sale agreement or memorandum of understanding.

(2) A list of all affected contracts between the transferor and the Government, as of the date of sale or transfer of assets, showing for each, as of that date, the —

(i) Contract number and type;

(ii) Name and address of the contracting office;

(iii) Total dollar value, as amended; and

(iv) Approximate remaining unpaid balance.

(3) Evidence of the transferee’s capability to perform.

(4) Any other relevant information requested by the responsible contracting officer.

(f) Except as provided in paragraph (g) of this section, the contractor shall submit to the responsible contracting officer one copy of each of the following documents, as applicable, as the documents become available:

(1) An authenticated copy of the instrument effecting the transfer of assets; e.g., bill of sale, certificate of merger, contract, deed, agreement, or court decree.

(2) A certified copy of each resolution of the corporate parties’ boards of directors authorizing the transfer of assets.

(3) A certified copy of the minutes of each corporate party’s stockholder meeting necessary to approve the transfer of assets.

(4) An authenticated copy of the transferee’s certificate and articles of incorporation, if a corporation was formed for the purpose of receiving the assets involved in performing the Government contracts.

(5) The opinion of legal counsel for the transferor and transferee stating that the transfer was properly effected under applicable law and the effective date of transfer.

(6) Balance sheets of the transferor and transferee as of the dates immediately before and after the transfer of assets, audited by independent accountants.

(7) Evidence that any security clearance requirements have been met.

(8) The consent of sureties on all contracts listed under paragraph (e)(2) of this section if bonds are required, or a statement from the transferor that none are required.

FAR 42.1204(e)

It’s a complicated process, and you want to get it right, and you want to make sure that the deal doesn’t get hung up waiting for novation.

If you want to ask us questions about novation agreements, the novation process, or how to think about your government contracting work in the context of a merger or an acquisition, please call or email me.

Chris Shiplett
Randolph Law, PLLC
(p) 703-652-3039
(e) chris.shiplett@randolphlawonline.com


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