That s how they Getchya : Avoiding the Ostensible Subcontractor Rule. Government Contractors Assistance & Resource Line LLC

Transcription

1 That s how they Getchya : Avoiding the Ostensible Subcontractor Rule

2 INTRODUCTION 2

3 Panelists Carl A. Gebo is the President and Founder of the Government Contractors Assistance & Resource Line LLC (GCARL) and a partner at the Gebo Law Group, a Government Contracts Law Firm. Roderick N. Hagen is a Senior Project Engineer with Lockheed Martin Space Systems Company at Cape Canaveral Air Force Station, Florida and a GCARL Contributor. Rod has experience as an owner and program manager for multiple SDVOSBs, WOSBs, HUBZone SBs, and 8(a) SBs 3

4 Our Discussion Agenda 1) Define Ostensible Subcontractor & Review Regulations 2) Seven factors test 3) Identify strategies to avoid 4) Review recent protest decisions 5) Discuss similarly situated entity exemption 4

5 Review of Regulations 5

6 Review of Regulations I. 13 C.F.R (h)(4) - A. An ostensible subcontractor is a subcontractor that performs primary and vital requirements of a contract or a subcontractor upon which the prime contractor is unusually reliant. B. A contractor and its ostensible subcontractor are treated as joint venturers, and therefore affiliates, for size determination purposes. C. All aspects of the relationship between the prime and subcontractor are considered, including 1. The terms of the proposal (e.g., contract management, technical responsibilities, percentage of subcontracted work) 2. Agreements between the prime and subcontractor (e.g., bonding assistance, teaming agreement) 3. Whether the subcontractor is the incumbent contractor and is ineligible to submit a proposal because it exceeds the applicable size standard 6

7 Review of Regulations II. Purpose of regulation - The rule is intended to prevent other than small firms from forming relationships with small firms to evade SBA's size requirements. Size Appeal of Fischer Business Solutions, LLC, SBA No. SIZ-5075, at 4 (2009). Note An ostensible subcontractor relationship is merely ONE form of Affiliation covered in 13 CFR

8 Seven Factors Test 8

9 Seven Factors Test 1. Which party will be managing the contract? 2. Which party possesses the requisite background and expertise to carry out the contract? 3. Which party pursued the contract award? 4. What degree of collaboration was there on the proposal effort? 5. Were the tasks allocated to be performed by each party or is there commingling of staff and material? 6. What is the amount of work to be performed by each party? 7. Which party will perform the more complex and costly contract functions? NOT a conclusive test NOT a tally sheet NOT for keeping score A subjective test used by the SBA to support an evaluation of a possible ostensible subcontractor affiliation. 9

10 Strategies to Avoid 10

11 Strategies to Avoid I. If challenged (protested), SBA/OHA will review all available evidence A. Solicitation B. Proposal C. Teaming Agreement(s) (or lack of) D. SBA Form 355 1) Identifying all possible affiliates 2) Total sales receipts for prior 3 years and/or number of employees for prime AND all possible affiliates 3) Information on owners and family members 4) Financial agreements and obligations E. SAM.gov profile F. D&B G. Any available public information H. When examining the relationship between a prime and subcontractor, OHA will look into all aspects of the relationship, including any agreement between the concerns, and whether the subcontractor is the incumbent contractor. Size Appeal of C&C Int'l Computers and Consultants Inc., SBA No. SIZ-5082 (2009). 11

12 Strategies to Avoid II. Best defense a strong, carefully worded Teaming Agreement A. Example: Size Appeal of CymSTAR Services, LLC, SBA No. SIZ-5329 (2012) 1. USAF solicitation for B-52 Training Systems Contractor Logistics Support (CLS), Training Systems Support Center (TSSC) Services, and future Engineering Change Proposals (ECPs) 2. Total Small Business set-aside, NAICS , 1,000 employee size standard 3. Apparent successful offeror ProActive Technologies, LLC 4. Unsuccessful offeror protests claiming ProActive is unusually reliant upon its ostensible subcontractor, Boeing 5. SBA Findings ProActive will perform all of the CLS services and nearly all of the TSSC services Boeing will be performing a considerable percentage of the work on the ECPs, but these are not primary and vital requirements (and) not be awarded as part of the initial award ProActive proposal confirmed that Boeing will not perform more than 49% of the total labor required on the procurement 12

13 Strategies to Avoid II. Best defense a strong, carefully worded Teaming Agreement A. Example: Size Appeal of CymSTAR Services, LLC, SBA No. SIZ-5329 (2012) 5. SBA Findings (continued) ProActive has extensive relevant experience ProActive was totally responsible for preparing this proposal, and that Boeing only provided input and assistance relevant to its areas of performance. ProActive has not hired and does not plan to hire any Boeing employees ProActive will provide all key employees for the contract Conclusion ProActive is NOT affiliated with Boeing under the ostensible subcontractor rule 6. On appeal, OHA review of the teaming agreement revealed: ProActive is to have the primary responsibility for proposal preparation ProActive is to be the sole interface with the Air Force ProActive is to perform no less than 51% of the contract work Neither company will hire the other s employees All key personnel identified in the proposal are ProActive employees 13

14 Strategies to Avoid II. Best defense a strong, carefully worded Teaming Agreement (cont.) A. Address the seven factors test Head-On B. Recognize that there is more to the ostensible subcontractor rule than the seven factors test C. Recognize that there is more to affiliation than just the ostensible subcontractor III. More defense Avoid red flags in your proposal! A. How you refer to yourself in the proposal (Prime) B. How you divide responsibilities C. How you refer to subcontractor D. Who is in leadership position E. Who is primary contact person for the government contact 14

15 Strategies to Avoid IV. Take a long hard look at your key player relationships (companies and individuals) A. Do you have any identity of interest with other individuals/companies? B. What is the prime s source of financing and conditions on it? C. Think about these relationships from an outsider s perspective. V. Have your STORY ready in advance A. Assume your subcontractor relationship will be challenged, especially if 1. You are teamed with ANY large business 2. A subcontractor is proposed for any vital portion of the contract 3. Your subcontractor is the incumbent 4. Your PM is an employee of the subcontractor (even in you plan to hire) B. Review the 7 Factors Test objectively yourself C. Remember that it is NOT a score sheet, factors CAN be mitigated D. Prepare your ostensible subcontractor response while developing the first teaming agreement 15

16 Protest Decisions 16

17 Protest Decisions I. Size Appeal of Shoreline Services, Inc., SBA No. SIZ-5466 (2013) A. HUBZone solicitation for trash collection and disposal services B. Six Sigma Technology, Inc. teamed with subcontractor Waste Management, Inc. C. Shoreline Services protested, alleging ostensible subcontractor: 1. Principal purpose of contract was collection and transportation of refuse and recyclable materials 2. WM will be providing all personnel, trucks, and equipment 3. Six Sigma lacks relevant corporate experience 4. Six Sigma s 6 hours drive away from site D. Six Sigma responded: 1. Principal purpose of contract was NOT refuse collection but rather the management of the waste stream being generated 2. Six Sigma would fulfill managerial roll by scheduling pick-ups, performing QC, and interfacing with the Army 3. WM would collect and transport trash and recyclable materials using WM s own trucks and drivers but managed by Six Sigma 17

18 Protest Decisions SO WHO WON?...still not sure, look at Six Sigma s proposal: E. Confirmed WM would perform all of the trash and recyclable collections, transport, and dispose of these materials F. WM would supply all driver and trucks necessary to perform the contract G. The drivers would be supervised by Mr. X, a WM employee H. Mr. X would report to Six Sigma s President and Project Manager I. Six Sigma would also provide a Project Administrator and Financial Manager HOW ABOUT NOW? J. SBA said Six Sigma IS an eligible small business NOT affiliated with WM 1. Six Sigma would perform the contract s primary and vital requirements 2. Six Sigma was not unduly reliant on it s (large business) subcontractor 3. SBA relied heavily on from CO that rationalized: The physical act of collecting trash and recycling is very simple and can be accomplished by any single able-bodied person with a truck. It requires no skill or expertise. 18

19 Protest Decisions IT S NOT OVER YET K. Shoreline appealed to OHA OHA said: 1. Based on the RFP, the primary purpose of this procurement is the collection and transportation of trash and recyclables 2. Six Sigma is affiliated with WM under the ostensible subcontractor rule 3. Six Sigma is NOT a small business for this procurement II. Size Appeal of Hanks-Brandan, LLC., SBA No. SIZ-5692 (2015) A. NASA 8(a) solicitation for administrative and technical support B. Logical Innovations, Inc. (Logical) teamed with Media Fusion, Inc. (MFI) 1. Media Fusion, Inc. is incumbent, no longer eligible 2. Proposed PM is MFI employee (to be hired by Logical) 3. Nearly all of the performing staff are incumbent (MFI) employees 19

20 Protest Decisions C. SBA/OHA - NOT affiliated under the ostensible subcontractor rule 1. Increased level of scrutiny 2. Logical performing primary and vital requirements 3. Teaming agreement confirmed MFI <50% 4. Hiring incumbent employees encouraged by Exec. Order 13,496 (1/30/09) (Ref: Size Appeal of Four Winds Services, Inc., SBA No. SIZ-5260 (2011)) III. Size Appeal of Loyal Source Government Services, LLC, SBA No. SIZ-5662 (2015) A. Primary and vital requirements determined by solicitation Except when they are not 1. Solicitation for New Equipment Training, Delta New Equipment Training & Field Service Representative Support for howitzers and Improved Position Azimuth Determining System 2. Performance Work Statement (PWS) contractor responsible for providing training and ancillary support personnel and will provide maintenance and repair services. 3. Solicitation allocated 58% of dollars for training 4. Awardee proposal had 64% of dollars and 54% of positions for training performed by its sub. 5. Awardee proposed Program Manager was employee of incumbent (sub) and had not executed commitment letter at time of proposal 6. CO contradicted Area Office regarding Primary & Vital 20

21 Protest Decisions B. Awardee providing more than 50% of total personnel and labor dollars C. Solicitation did not require Letters of Commitment D. Result Not an Ostensible Subcontractor IV. Take Home Points A. Get Clarity on Primary and Vital contract requirements Up Front NAICS code; Allocated Weight in Evaluation; and $$$ are not alone dispositive B. Plan Approach to Performing Contract BEFORE entering Teaming Agreement C. Secure key employees and managers with agreements BEFORE submitting proposal D. Careful consideration when teaming with incumbents E. Due diligence on competitors a must in this space 21

22 Similarly Situated Entity Rule 22

23 Similarly Situated Entity Rule I National Defense Authorization Act (NDAA) A. Signed into law Jan. 3, 2013 B. Introduces similarly situated entities rule that eliminates ostensible subcontractor claims for similarly situated entities C. Result eliminates combining gross receipts (or employees based on assigned NAICS) in a size determination for similarly situated entities D. Applies limitation on subcontracting to contract amounts paid, not just labor costs, for contracts for Services or Supplies E. Eliminates amounts paid to similarly situated entities from inclusion as subcontracted effort F. NOT enabled by SBA regulation or FAR revisions YET! II. SBA Proposed Rule, published 29 Dec 2014 A. Enacts 2013 NDAA B. Comment period closed 27 Feb 2015 C. No word from SBA since?!?! 23

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25 CONTACT US Government Contractors Assistance & Resource Line LLC 1201 Peachtree Street 400 Colony Square, Suite 200 Atlanta, Georgia (404) Government Contractors Assistance & Resource Line LLC 25