Overhaul of Small Business Subcontracting Rules

The Federal Acquisition Council published several new contracting rules Thursday, including one designed to increase government subcontracting to smaller businesses.

The new federal acquisition circular adds the terms of a 2013 Small Business Administration rule that made a number of changes to federal small business subcontracting requirements into the Federal Acquisition Regulation, the council said. The rule will go into effect at the beginning of November.

The circular also includes several other changes, such as clarifications meant to reduce confusion for contractors, according to the council, which includes the U.S. Department of Defense, U.S. General Services Administration and NASA.

Contractors will have to assign specific North American Industry Classification System codes — used for collecting statistical data — to subcontracts and to provide socioeconomic status of a subcontractor in notifications to unsuccessful subcontract offerers. In addition, contractors will be barred from blocking subcontractors from discussing payment or utilization issues with a contracting officer.

Contracting officers will also get expanded authority, including the discretion to require that small business subcontracting goals be defined in terms of total contract spending — not just based on required subcontract spending — and to request a new subcontracting plan if and when prime contractors grow beyond small business status.

Officers can also establish subcontracting goals at the task or delivery order level when making procurements under overarching indefinite-delivery, indefinite-quantity contracts, among other changes.The rule also changes the way credit is assigned to federal agencies for meeting their small business contracting goals, allowing agencies that fund a contract — not just those responsible for awarding the deal — to receive credit.

The council had issued a proposed version of the rule in June 2015, following on from the SBA’s final rule, which had been put in place in July 2013, and received several dozen comments on the proposal.

Responding to those comments, the council made several tweaks in the final measure, including clarifying that although contracting officers can establish subcontracting goals for each task order, they cannot ask for new subcontracting plans.

In another tweak, the council also said that prime contractors won’t be held liable for misrepresentations made by a subcontractor regarding size or socioeconomic status, if the contractors otherwise acted in good faith.

The other changes in the circular include revisions to forms related to contracts involving bonds and other financial protections aimed at clarifying liability limitations and reducing confusion for contractors, and updates to outdated references in the regulation to federal guidance on administrative and audit requirements.

Small Business Administration Mentor-Protege Program Expansion

There are several pending regulatory changes previously designated by the SBA for release this year, including a rule that will clarify the agency’s suspension, revocation and debarment procedures for contracting agents, and another that will ease eligibility requirements for the Historically Underutilized Business Zones Program, which covers businesses located in certain “historically underutilized business” areas.

But the upcoming change that has prompted the most interest for many contractors  is a pending final rule expanding the SBA’s Mentor-Protege Program, first floated in a February 2015 proposed rule.

The program allows small businesses to partner in a joint venture with a larger mentor business that can provide advice and assistance, for instance to help win or implement larger or more complex deals that the small businesses lack the resources to win on their own, while still maintaining eligibility for federal small-business set-aside contracts.

Currently, the program is limited to businesses that participate in the SBA’s 8(a) Business Development Program, which provides assistance for small businesses majority-owned and -operated by “socially and economically disadvantaged” individuals, but is expected to be extended to all businesses otherwise eligible for set-aside contracts under SBA rules.

While the exact shape of the program expansion has yet to be announced, SBA officials have most recently hinted that the rule should be finalized at some point in July, and have indicated that the program’s terms should be effectively identical to the current 8(a) Mentor-Protege Program.

If those prescriptions hold, then the program’s expansion will be overwhelmingly welcomed throughout the small-business contractor community.

Procurement Lobbying

There are two main types of lobbying, the exact legal definitions of which vary from state to state. The first type of lobbying is direct lobbying. In general terms, direct lobbying involves a person or entity attempting to influence legislation in a way that favors the client. Direct lobbyists typically interact with legislators or government employees involved in creating legislation.

The other main type of lobbying is known as grassroots lobbying. Grassroots lobbying focuses on influencing public opinion in favor of  or opposition to particular legislation. This type of lobbying also encourages members of the public to take action themselves in a variety of ways, such as by contacting their elected officials or signing petitions.

Often ignored by the vendor community is Procurement lobbying. This is of particular importance as federal, state, and local governments purchase trillions of dollars in goods and services.

Procurement lobbying involves appreciating:

  • all procurement lobbying laws in the 50 states, the federal government, and more than 230 municipal jurisdictions, along with common-language descriptions of these same ordinances and statutes.
  • advisory opinions interpreting lobbying laws
  • pay-to-play laws on every government level
  • full descriptions of registration and reporting requirements
  • jurisdictions requiring registration as a lobbyist for procurement activities
  • contingent lobbying prohibitions by jurisdiction
  • summaries of gift laws;

and pre-RFP pursuit, meaning shaping upcoming procurements in conformity with the above points.

It can be difficult to find the right person to talk to in Government Agencies and companies. That’s a major reason why people don’t do pre-RFP pursuit. It’s also why many companies are in perpetual sales mode.

Before you can influence the RFP or gain pre-RFP customer insight, you have to make contact with the right people at the customer. Here are some ways to do that:

  1. Past contracts. Sometimes the best source of data about future purchases starts by identifying who the buyers were for similar purchases in the past. So start with mining the data and looking up past contracts through online databases. The points of contact may not always be up to date, but it’s a good place to start.
  2. Associations. What associations might the customer belong to? Do they publish their membership or attendee lists? Do they hold meetings where you might meet face to face? Do they publish presentations or documents that might mention names?
  3. Councils, standards setting organizations, and committees. Are there any other organizations the customer might participate in? In addition to their membership list, do they publish minutes or other documents that might provide insight or contacts?
  4. LinkedIn profiles. Can you find your points of contact on LinkedIn? If you do, can you find their co-workers and business partners? In addition to searching by demographics, you can also search by acronyms, technical terminology, program names, functional terminology, etc.
  5. LinkedIn groups. Look up what groups on LinkedIn your customers have joined. If they post, see what you can learn. If they read, you have an opportunity to put words in front of them. Just simply knowing what groups they are in can provide insight. If you can’t find your customers’ profiles on LinkedIn, maybe you can find them in a relevant group.
  6. Trade shows and events. What trade shows and events do they host or participate in? Can you get introduced? Can you meet face to face? What can you learn? What can you demonstrate?
  7. Websites and org charts. Does the customer have a website? Does it name names? Does it have an org chart that can help you navigate? Can you do an image search for a relevant org chart?
  8. Publishers. There are companies that research, aggregate, and publish databases that include customer contact information. Some can save you a huge amount of time.
  9. Google. Learn how to use Boolean search operators. Then combine fragments of names, email addresses, titles, projects, technology, locations, etc. to see if you can find the needle in the haystack.
  10. Freedom of Information Act (FOIA).  If it’s a Government customer, you can try doing a FOIA for rosters, staff directories, points of contact, organization charts, committee memberships, attendance lists, etc.
  11. Teaming partners. Who do your subs or primes know? Can you get a referral or introduction?
  12. Alumni. Not yours. Theirs. Where did they go to school? Can you track them down through Alumni organizations or discover someone else who knows them?
  13. Certification registries. If their job requires specific certifications, are there lists or registries of people with that certification?
  14. Look for coordination points. Where does the customer’s organization need to coordinate with the outside world? That’s where people will be visible.
  15. Look for common interests, platforms, tools, and requirements. Show interest in their interests. Be where they will be. Then be helpful when they arrive.

Procurement Lobbyists can assist with all 15 approaches but most importantly they bring years of personal networking: a wide cast of personal relations to allow you to expand your network. Because it’s not about selling. It’s about getting to know each other and working together. It’s about professional development

Reintroduced Bill Would Increase Funding for Infrastructure Projects

By: Martin J. Milita, Jr. Esq., Sr. Director.

A bipartisan group of 11 senators, led by Roy Blunt (R-Mo.), and Mark Warner (D-Va.) have again introduced legislation that would create infrastructure financing authority to help local and state governments leverage private funding for key infrastructure projects. The BRIDGE (Building and Renewing Infrastructure for Development and Growth in Employment ) Act (S.1589), would establish an independent federal lending agency led by a seven-member board of directors and a CEO, all of whom must show financial management expertise and be confirmed by the Senate. “Having project finance experts in-house will help states and localities go toe-to-toe with private sector partners to ensure that taxpayers are getting good value for our investments through public-private partnerships,” Warner explained in a press release.

The Infrastructure Financing Authority would receive up to $10 billion in seed money, which it would use to provide up to 49 percent of a project’s total cost in the form of low-interest loans and loan guarantees. Funding would be made available for all types of transportation infrastructure and water/sewer and energy transmission projects. To be eligible, projects in urban areas would have to cost at least $50 million. Five percent of the agency’s funding would be dedicated to rural projects, which must cost at least $10 million.

The authority would be set up as a wholly owned government corporation, like the Export-Import Bank and Ginnie Mae. The authority is intended to become self-sustaining through the receipt of payments of fees and risk premiums on loans and loan guarantees.

The legislation would create an Office of Technical and Rural Assistance within the authority that would provide technical assistance to state and local governments and parties in public-private partnerships in developing and financing eligible infrastructure projects, including those in rural areas. The office also would create a regional infrastructure accelerator programs that would identify suitable projects and help localities make the best public use of innovative financing tools.

“Infrastructure has long been an integral part of our economy. Across Missouri and the nation, our farmers, ranchers, manufacturers, and workers rely on strong infrastructure and transportation systems to move goods and services as quickly as possible,” Blunt said. “By working together on this bipartisan legislation, we can provide a new tool to help finance infrastructure projects, create good-paying jobs, and position American businesses, large and small, to succeed in the global market.” (Credit AP).

The bill was referred to the Senate Finance Committee. No hearings for the bill have been scheduled.

Please feel free to contact the author or your other Duane Morris Government Strategies LLC contact to learn more about this article and what it may mean to you.

About Duane Morris Government Strategies, LLC (DMGS):

Comprised of 19 experienced professionals representing U.S. and foreign clients at the federal, state and local levels, DMGS is as an ancillary business of international law firm Duane Morris LLP, one of the 100 largest law firms with more than 700 attorneys in the U.S. as well as in the UK and Asia. The firm operates in eight offices including Newark, NJ; Trenton, NJ; Albany, NY; Harrisburg, PA; Philadelphia, PA; Pittsburgh, PA; Columbus, OH; and Washington, DC.

DMGS offers a full range of government relations and public affairs services, including lobbying, grant identification/writing/administration, development finance consulting, procurement, grassroots campaigning, public relations, and crisis planning/crisis management needs.

Reverse Auctions Once Again Questioned by Lawmakers’

Lawmakers are once again marshaling arguments to restrict the contracting tool called a reverse auction, criticizing agency reliance on a practice dominated by a single private firm at a Thursday hearing of the House Small Business subcommittee.

Rep. Richard Hanna, R-N.Y., who has introduced H.R. 1444 to limit reverse auctions, said that allowing contractors to bid electronically with increasingly lower prices to provide goods and services creates “a race to the bottom” that neither assures quality nor helps channel work to small businesses. “When reverse auctions are used properly, they can save taxpayer dollars,” Hanna said. “Unfortunately, some agencies have used reverse auctions in a manner that evades vigorous competition and contractor protections.” (Credit AP).

Use of the tool at agencies such as the Veterans Affairs Department is dominated by a single Vienna, Va.-based firm called FedBid, which has become controversial for its lobbying practices. The Office of Federal Procurement Policy has been collecting data on the practice, but has yet to issue guidance, noted the panel’s ranking member, Rep. Nydia Velazquez, D-N.Y. (Credit AP).

Dan Gordon, the former administrator of the White House procurement shop now teaching law at  George Washington University, said the best study on the subject—a December 2013 Government Accountability Office report—showed uncertainty as to whether reverse auctions save money or steer work to smaller businesses. “If all you care about is prices, then reverse auctions are for you,” Gordon said.  “But there is also past performance and quality” to consider.  (Credit AP).

He noted that FedBid conducts more than 99 percent of the auctions announced on the government’s FedBizOpps website, “so it’s pretty darn close to a monopoly” in performing a function that, Gordon added, “is closely associated with inherently governmental functions.” (Credit AP).

Because FedBid controls the data — a conflict of interest, he said — agencies often don’t know what fees they’re paying. Sometimes it’s nothing because FedBid waives it. “FedBid does an excellent job,” Gordon said. “So good that agencies say, ‘Let’s go for it,’ which means federal officials are abdicating their responsibility.” (Credit AP).

Private sector witnesses representing veterans and women’s groups promoting small business opportunities were also skeptical, with Davy Leghorn from the American Legion calling reverse auctions “a short cut used because there aren’t enough contracting officers.” (Credit AP).

Hanna’s bill, which he hopes to move out of committee soon, assumes that reverse auctions are “best suited to buying well-defined commodities, but not skilled services with a high degree of variability,” according to a summary. It would ban their use for the procurement of “subjective services like construction and design, as well as products that prevent bodily harm, such as body armor. This would force agencies to use one of the other approved contracting processes, such as a sealed bid procurement or a negotiated procurement when a contract is suitable for award to a small business, or when the procurement is made using a small business program.” (Credit AP). The bill would also require more training of contracting officers in the use of reverse auctions.

FedBid, which did not testify, said in a statement to Government Executive that its leaders were disappointed that no one from the company or industry was invited to the hearing.

”FedBid feels strongly that reverse auctions, when used appropriately, do in fact increase access and opportunity for small business contractors, allowing them to compete on a level playing field,” the statement said. “FedBid does not believe that reverse auctions in any way ‘abdicate’ a contracting officer’s responsibility; rather, they are a tool that they can use as part of their process, rather than a replacement for that process.” (Credit AP).

The firm, which is headed by former Office of Federal Procurement Policy Administrator Joe Jordan, said it supports language from the 2015 Defense authorization bill requiring more training and clarity around the use of reverse auctions.

“Is Congress an endangering species?”

For businesses hoping to have an influence on the course of regulation, much of the action has moved from Congress to the executive branch. The last few years have seen an expansive exercise of federal power through the issuance of new regulations, the reinterpretation of existing ones, and the enforcement of both, as well as more novel regulatory approaches. The trend shows through in virtually every regulatory area, and it looks likely to continue through 2015 and beyond.

On the one hand, the Obama administration is proud of its assertive approach, pointing to progress even in the face of what it calls a “do-nothing” Congress. By contrast, congressional Republicans — and some constitutional scholars — have accused the administration of regulatory overreaching.

But one thing seems certain about this new wave of administrative activism: it spells new headaches for business.

More regulation means more compliance costs and challenges. More aggressive enforcement means harsher penalties and more intrusive sanctions for failure to comply. And more key decisions being made by the executive branch — rather than by Congress or the courts — means businesses have to be even more focused and strategic to make their views known and influence the outcomes.

Federal agencies have been testing the limits of their statutory authority. Like the president, agency leaders also see themselves as taking up the mantel that Congress dropped.

For example, no major environmental statute has undergone a major reauthorization since the 1990s. In the meantime, new environmental challenges — greenhouse gases, new findings about substance toxicity, and the like — have emerged. In some cases, there is broad agreement — among stakeholders, if not in Congress — that revisions are needed because the laws as currently written cannot be interpreted to address these newer concerns.

As the number and scope of administrative rules multiply, so do the penalties for non-compliance. If just measured in fines alone, these penalties are rising fast: more than $13 billion in 2014, up from about $7 billion in 2013, according to economist Brandon Garrett at the University of Virginia. (In 2008, the figure was closer to $2 billion.) And, in the realm of consumer protection, for example, the Federal Trade Commission has been increasingly willing to go to court to seek monetary damages or consumer redress rather than settling for an injunction- blocking future non-compliant behavior.

Moreover, enforcement actions are increasingly resulting in much more than a fine and an order to stop the violations. Prosecutors are demanding deep and very specific changes in management and embedding monitors in the company to ensure that they occur. Settlements are requiring corporate policy changes, staff training, remedial community training programs, and more.

Additionally, companies facing even the threat of enforcement actions have allowed regulators to influence their policies in new ways. For example, after a safety crisis, General Motors signed an accord with the National Highway Traffic Safety Administration in which it agreed to implement training policies that expressly disavow statements diluting the safety message in internal communications. The move is part of a growing trend of agencies trying to change corporate culture.

In another case, the Consumer Product Safety Commission is calling on retailers to pull products from their shelves when the agency cannot convince manufacturers to recall them. Retailers are increasingly willing to go along; now that the commission’s civil penalty cap has increased from $1.8 million to $15 million.

Regulators are also becoming more aggressive in their efforts to root out alleged misdeeds, largely through efforts to recruit insiders. For example, in 2013 the government enhanced whistleblower protections for employees of government contractors and extended the protections to subcontractors. When coupled with significant awards afforded to whistleblowers, the protections amount to deputizing the workers of America to blow the whistle on their employers and act as a partner in enforcement.

The recent regulatory expansionism will continue through 2015 — and likely beyond — thanks to a striking confluence of events.

  • Firstly, the third year of a president’s term tends to be the most aggressive in terms of policymaking. Midterm elections are over, political appointees are firmly in place, and the administration is acting with its legacy in mind. By contrast, in 2016, the administration may face pressure to pull back on rulemaking for the sake of pre-election politics or transitional smoothing.
  • Secondly, the 2013 decision by Democrats to strip Republicans’ ability to filibuster the president’s nominees has resulted, for the first time in a decade, in a federal appeals bench — including the all-important D.C. Circuit — in which judges appointed by Democrats considerably outnumber Republicans. These judges are generally thought to be more receptive to the regulators in legal challenges to the administration’s authority.
  • Thirdly, a U.S. Supreme Court ruling in 2013, City of Arlington v. FCC, appears to give agencies wide discretion in deciding the scope of its statutory authority. Arlington continues a tendency running back 30 years for courts to defer to agencies when there is ambiguity about whether the agency is allowed to act under its authority established by Congress. As a result, unless Congress clearly mandates otherwise, agencies can expand their authority as far as they see fit. And since their statutory authority tends to be quite broadly stated, agencies have a lot of leeway.

Companies struggling with compliance do have a range of options, however.  As they devise their compliance strategy, companies may want to seek guidance from agencies on how their rules might apply to them; seek waivers, exceptions and mitigating guidelines; and develop sound policy reasons to have the agency construe its rules in a manner that achieves the regulatory goal but is less onerous for a company.

Congress still has a role to play in affecting an industry’s regulatory burden. For one, a legislator can write letters or hold hearings in an attempt to influence agencies on important issues. Congress can constrain agency actions by appropriations riders or budgetary restrictions. And legislative wins are still possible for companies that can find issues that can be agreed by both sides of the aisle as job creators.

It is more important than ever to build and sustain relationships with relevant agencies. That means interacting with them regularly and educating them about issues important to your industry. The goal is to build your reputation and their comfort level well before any sensitive issues come up, such as potential enforcement actions or proposed regulations you want to fight.

As in the case of agency leaders, it’s important for companies to establish ongoing relationships with relevant members of Congress, rather than reaching out only when they need something from them.

New Jersey Gov. Chris Christie Absolute Veto- “Made in America Bill”.

New Jersey Gov. Chris Christie on Thursday vetoed a package of bills that would have required the use of U.S.-manufactured goods for a greater number of public contracts, including 50% US. sourced components, contending that the measures would hurt international development and increase costs for the public.

New Jersey already requires U.S.-manufactured goods for public works contracts, local public contracts, state construction contracts and local school contracts, but S1881 — which the state Legislature sent to the governor in December — would have covered all state contracts, including those of state universities. Companion bills sought to impose similar requirements on four bi-state agencies: the Port Authority of New York and New Jersey, Delaware River Joint Toll Bridge Commission, Delaware River Port Authority, and Delaware River and Bay Authority.

Christie said in his veto messages that the bills would “constrain purchasing decisions by setting artificial thresholds of reasonableness based almost exclusively on price.”

As a strong indicator where he stands on corporate inversions, Christie also had kind words for foreign-headquartered companies, which he said are responsible for more than 225,000 jobs in the state.

“These global companies seek global marketplaces that will support their investments. Those companies, in turn, infuse billions of dollars into New Jersey’s economy, not only in direct investment and jobs, but indirectly to thousands of other New Jersey businesses that provide goods and services to support their operations,” the governor said. “In stark contrast, these bills will chill international development and increase costs borne by taxpayers.”

While lawmakers tried to build flexibility into the proposed requirements by allowing public entities to secure waivers if U.S.-made products weren’t available or were too expensive, Christie said the end result would have been a more-complex bidding process and more-burdensome reporting requirements.

“Rather than helping Americans, these bills will simply drive up the price of doing business, and threaten job creation,” the governor said. “Building economic walls around our state, or our nation, will not improve the lives of our citizens.”

In a statement, Senate President Steve Sweeney, D-Gloucester, stated that  the veto was  a missed opportunity to support domestic businesses.

“The ‘made in America’ bills are more than an expression of economic patriotism. They could have been an effective way of boosting the state’s economy,” said Sweeney, a sponsor of the measures. “The recovery in New Jersey has lagged behind other states, so we should be doing all we can to generate economic growth and to promote economic opportunity.”

But the governor’s action won praise from the New Jersey Business and Industry Association.

“Governor Christie made the right decision,” NJBIA President Michele Siekerka said in a statement. “The bill would be unworkable given the nature of modern global supply chains, which make it difficult to find goods with U.S.-sourced components.”