Legal Developments for Government Contractors to Consider

There have been several legal developments in the past month that may affect and be of interest to government contractors. This article gives a brief overview of some of those developments.

Continuing Resolution Averts Government Shutdown, For Now

On September 27, President Trump signed a continuing resolution, titled the "Continuing Appropriations Act, 2020, and Health Extenders Act of 2019," thus preventing a federal government shutdown until November 21, 2019. Doing so allows Congress additional time to pass appropriations bills for the entire fiscal year.

Use of LPTA Award Processes

DOD Final Rule Restricting Use of LPTA

On September 26, the Department of Defense (DOD) issued a final rule that amends the Defense Federal Acquisition Regulation Supplement (DFARS) to set restrictions on DOD's use of the lowest price technically acceptable (LPTA) selection process based upon provisions in the National Defense Authorization Acts (NDAA) for Fiscal Years (FY) 2017 and 2018. This rule finalizes without change the rule that DOD proposed on December 4, 2018. The final rule establishes eight criteria for use of an LPTA process, found at 48 C.F.R. § 215.101-2-70:

1. Minimum requirements can be described clearly and comprehensively and expressed in terms of performance objectives, measures, and standards that will be used to determine the acceptability of offers;
2. No or minimal value will be realized from a proposal that exceeds the minimum technical or performance requirements;
3. The proposed technical approaches will require no, or minimal, subjective judgment by the source selection authority as to the desirability of one offeror's proposal versus a competing proposal;
4. The source selection authority has a high degree of confidence that reviewing the technical proposals of all offerors would not result in the identification of characteristics that could provide value or benefit;
5. No or minimal additional innovation or future technological advantage will be realized by using a different source selection process;
6. Goods to be procured are predominantly expendable in nature, are nontechnical, or have a short life expectancy or short shelf life;
7. The contract file contains a determination that the lowest price reflects full life-cycle costs; and
8. The contracting officer documents the contract file describing the circumstances justifying the use of the LPTA source selection process.

These limitations and prohibitions apply to any acquisition that utilizes the LPTA source selection process, including to acquisitions for either supplies or services, to orders placed under Federal Supply Schedules, to the acquisition of commercial items, and to simplified acquisitions. The final rule further instructs contracting officers to avoid using LPTA processes for some specific acquisitions (such as for cybersecurity services) to the maximum extent practicable and sets prohibitions on the use of LPTA processes for other acquisitions (such as for personal protective equipment where failure could result in casualties).

The final rule became effective October 1, 2019.

GAO Report on Use of LPTA

On September 26, the same day that DOD released the final rule on the use of the LPTA source selection process, the GAO released a new report, GAO-19-691, "Federal Contracting: Information on Agencies' Use of the Lowest Price Technically Acceptable Process." The FY 2017 and 2019 NDAAs included provisions for the GAO to report on the use of the LPTA process for contracts above $5 million. Based upon samples, the GAO estimated that in FY 2018 DOD components used the LPTA process for approximately 25% of competitive contracts and orders above $5 million, whereas select civilian agencies used the LPTA process for approximately 7% of competitive contracts and orders above $5 million.

While the final DFARS rule was released on the same day as the GAO report, the corresponding FAR proposed rule (required by Section 880 the FY 2019 NDAA) for civilian agencies was anticipated for the end of September 2019, but has not yet been issued.

Status of Five-Year Standard for Small Business Size

In December 2018, Congress passed and President Trump signed H.R. 6330, the Small Business Runway Extension Act of 2018, which amended the Small Business Act—15 U.S.C. § 632(a)(2)(C)(ii)(II)—to change the basis for determining the size of a business concern from the annual average gross receipts of the company over a period of three years to five years. The SBA's regulations at 13 C.F.R. § 121.104(c), however, continued to maintain the three-year standard and the SBA had indicated that formal rulemaking was required in order for the Runway Extension Act to take effect. Shortly after the House of Representatives introduced H.R. 2345—Clarifying the Small Business Runway Extension Act—in April 2019, which instructed the SBA to issue a final rule implementing the Runway Extension Act by December 2019, the SBA issued a proposed rule on June 24, 2019 to amend its regulations.

The question of whether the five-year, rather than three-year, standard should apply even though changes to the SBA's regulations had not yet been finalized has remained an open issue, however. Recent cases, however, have provided some needed clarity for contractors that may be affected by the different standards on how such scenarios will be resolved.

On August 16, 2019, the GAO granted deference to the SBA's interpretation in denying a protest that a GSA solicitation was inconsistent with the Runaway Extension Act because it would follow the three-year size standard. Additionally, on August 27, 2019, SBA's Office of Hearings and Appeals (OHA) denied a size appeal that challenged the Area Office's determination that the Runway Extension Act is not presently effective.

Therefore, both the GAO and OHA have deferred to the SBA's interpretation of the Runway Extension Act. At the present time, the three-year standard for determining small business size remains in effect until the SBA issues a final rule amending its regulations to implement the five-year standard.

SBA OIG Reports

All Small Mentor-Protégé Program

The SBA Office of Inspector General (OIG) released a new evaluation report—"Evaluation of SBA's All Small Mentor-Protégé Program"—on September 17 that analyzed whether the SBA had implemented sufficient controls to ensure that it was conducting initial All Small Mentor-Protégé Program (ASMPP) application reviews and annual evaluations in accordance with regulations and whether it was measuring program success. The SBA OIG found that (1) key controls to prevent unqualified mentors from receiving ASMPP benefits were missing, (2) program controls were effective at ensuring that small businesses developed as intended, and (3) the SBA did not adequately measure benefits of the program. The OIG provided four recommendations:

The Administrator should require the Associate Administrator for the Office of Government Contracting and Business Development to:

1. Develop and implement application review and annual evaluation procedures to ensure mentors are qualified, including implementing mandatory use of the mentor certification form;
2. Develop and implement procedures to ensure quality and consistency in application reviews and annual evaluations, including maintaining adequate documentation to support completion of each step in the application review and annual evaluation processes;
3. Prioritize staff resources to ensure application reviews and annual evaluations are conducted in accordance with regulatory and program requirements; and
4. Ensure that certify.SBA.gov has the functionality needed for program officials to conduct application reviews and annual evaluations.

The SBA agreed with recommendations (1), (2), and (4) and the OIG determined that the SBA had resolved these three recommendations, but not recommendation (3).

Suspension and Debarment

The SBA OIG released a new audit report—"Audit of SBA's Suspension and Debarment Process"—on September 18 that analyzed whether sufficient controls exist at the SBA to prevent suspended or debarred companies from receiving contracts through the preference programs and small business loans. The SBA OIG found that (1) $6.7 million in loans were approved without review of the System for Award Management (SAM) for suspended or debarred entities, (2) delayed action by suspending and debarring officials resulted in $80.3 million in contracts to entities who demonstrated causes for debarment, and (3) failure to document suspension and debarment decisions could expose SBA to legal action. The OIG provided six recommendations:

The SBA Administrator should require the Associate Administrator for the Office of Capital Access to:

1. Update SOP 50 10 50 (J) to include an express requirement for lending partners to review SAM for applicants' and borrowers' eligibility and to maintain documentation in the loan file to support their review; and
2. Rescind the SBA loan guaranty for the $2.9 million loan and assess the lender's eligibility for continued participation in the SBA lending program.

The Administrator should require suspending and debarring officials to:

3. Finalize internal suspension and debarment policies and include guidelines for timely processing of referrals and updating SAM;
4. Dedicate resources to monitor and process suspension and debarment referrals;
5. Establish and implement controls to ensure the accuracy of reporting on suspension and debarment actions to the OIG, the Interagency Suspension and Debarment Committee, and Congress; and
6. Establish and implement formal policy requiring SBA suspending and debarring officials to document and retain their declination decisions.

The SBA agreed with recommendations (1) and (6) and partially agreed with recommendations (2), (3), (4), and (5). The OIG determined that the SBA's proposed corrective actions resolved recommendations (1), (4), and (5), but did not fully address recommendations (2), (3), and (6).

Additional GAO and CRS Reports

Awards to Mid-Sized Businesses

The GAO released a new report, GAO-19-523, "Federal Contracting: Awards to Mid-Sized Businesses and Options for Increasing Their Opportunities," on September 16. The GAO analyzed the extent of federal contracting opportunities for mid-sized businesses (defined as having revenue or employees up to five times more than the applicable small business size standard) between 2008 and 2017 and found that of the 5,339 small businesses awarded set-aside contracts in 2008 and awarded either any set-aside or competitive federal contract in 2013, only 104 became mid-sized by 2013. The GAO identified three options to increase opportunities for mid-sized firms: (1) creating a mid-sized set-aside category, (2) changing consideration of past performance, and (3) modifying size standards.

Small Business Research Programs

The GAO released a new report, GAO-19-620, "Small Business Research Programs: Many Agencies Took Longer to Issue Small Business Awards Than Recommended," on September 26. In accordance with the provision of the FY 2019 NDAA, the GAO conducted a review of agencies' timeliness of Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) proposal review and awards. The SBA's SBIR/STTR Policy Directive recommends that agencies issue awards within 180 days (15 months for the National Institutes of Health and National Science Foundation). The GAO found that 76% of the 15,453 SBIR and STTR awards that it reviewed for 2016-2018 were issued within the time period recommended in the Policy Directive, but the percentage varied significantly between agencies.

SBA's 8(a) Program

The Congressional Research Service (CRS) released a new report—"SBA's '8(a) Program': Overview, History and Current Issues"— on September 20 that provides a historical analysis of SBA's 8(a) Program; an overview of the program requirements, organizational structure, and application process; and current issues facing the program, including a decline in program participants, deficiencies in oversight of continuing eligibility, and trouble evaluating the program's effectiveness.

SBA's SBIC Program

CRS released a new report—"SBA Small Business Investment Company Program"— on September 4 that provides an overview of the SBA's Small Business Investment Company (SBIC) Program, including eligibility, application, capital investment, and reporting requirements; program statistics; and recent legislative activity to expand the program.