December 04, 2019

Congressional, Executive, and Legal Developments for Government Contractors to Consider

6 min

Regulatory Developments

On November 8, 2019, the U.S. Small Business Administration (SBA) issued a proposed rule in response to President Trump's government-wide regulatory reform initiative. As part of SBA's review, the proposed changes are wide-reaching and will impact all aspects of the small business acquisition community. Some of the major changes include the following:

  1. merge the 8(a) Business Development (BD) Mentor-Protégé Program and the All Small Mentor-Protégé Program to streamline SBA functions;
  2. delete the requirement for 8(a) participants to submit their joint venture to SBA for approval prior to award;
  3. revise or clarify several 8(a) BD program regulations;
  4. require business concerns to recertify their size and/or socioeconomic status for all set-aside orders under unrestricted multiple award contracts (MACs), with the exception of Blanket Purchase Agreements (BPAs) and orders under the General Services Administration's (GSA) Federal Supply Schedule (FSS);
  5. require business concerns to recertify their socioeconomic status for set-aside orders when the socioeconomic status required is different from the underlying set-aside MAC contract (e.g., HUBZone set-aside order with an underlying small business set-aside MAC); and
  6. allow size and/or socioeconomic protests at the order level for set-aside orders under an unrestricted MAC.

These changes are not inclusive of all of SBA's regulatory changes. More details can be found under SBA's Section-by-Section analysis and in Venable's article, "U.S. Small Business Administration Proposes New and Clarified Rules to Better Support its Mission." The public may comment on these proposed changes until January 17, 2020.

On November 22, 2019, the Department of Defense (DoD), GSA, and National Aeronautics and Space Administration (NASA) released a final rule amending the Federal Acquisition Regulation (FAR) to require contractors and subcontractors to report counterfeit parts or suspected counterfeit parts and critical/major nonconformances to the Government-Industry Data Exchange Program. Contractors and subcontractors have 60 days to report counterfeit or suspected counterfeit items to the contracting officer, an increase of 30 days from the original requirement. Furthermore, the final rule has changed the scope of the rule significantly, excluding several types of contracts and focusing on certain supplies. For example, the final rule does not apply to (1) commercial items, including commercially available off-the-shelf (COTS) items; (2) contracts or subcontracts at or below the simplified acquisition threshold (SAT); (3) medical devices subject to the Food and Drug Administration (FDA) reporting requirements; (4) foreign corporations with no office, place of business, or paying agency in the United States; (5) counterfeit or suspected counterfeit items that are part of an ongoing criminal investigation; and (6) nonconforming items from an organization that confirms the items have not been released to other customers. Finally, the new rule focuses on supplies with a higher quality standard, instead of applying to all supplies, and places restrictions on amending the subcontract flow-down clause. The final rule becomes effective December 23, 2019.

The Corporate Transparency Act, sponsored by Congresswoman Carolyn B. Maloney (D-NY), passed the House and went to the Senate for a vote on October 23, 2019. Congresswoman Maloney, along with Congressmen Peter King (R-NY) and Tom Malinowski (D-NJ), introduced this bill to force companies to reveal their beneficial owners to prevent "bad actors from using anonymous shell companies to thwart law enforcement and hide their illicit activities." "House Passes Maloney Bill to Crack Down on Anonymous Shell Companies." The bill's purpose is to target criminals who seek to benefit from relaxed state laws on the formation of a corporation or limited liability company. Once the anonymous shell company is created, the perpetrators commit crimes while hiding under the guise of the shell company (e.g., terrorism, proliferation financing, drug and human trafficking, money laundering, tax evasion, counterfeiting, piracy, securities fraud, financial fraud, and foreign corruption). Federal agencies, such as the Department of Justice (DOJ), have noted difficulties in pursuing these individuals because of the lack of beneficial ownership information. To overcome the current difficulties faced by our federal agencies, House Bill 2513 requires corporations and limited liability companies to identify their beneficial owners when these companies are formed. Federal contractors may be subject to the requirements of this bill. The administrator for federal procurement policy will revise the FAR within one year from the date of enactment to require contractors or subcontractors to submit beneficial ownership information as part of their bid or proposal when the value of the contract will exceed the SAT.

Recent Cases and Administrative Decisions

On November 18, 2019, in Zolon PCS, LLC, B-417930, the Government Accountability Office (GAO) denied a protest arguing that the National Geospatial-Intelligence Agency (NGA) unreasonably excluded its proposal from the competitive range. Specifically, the protester argued that the NGA unreasonably assigned deficiencies excluding the protestor's proposal after initially deeming the proposal to be "materially compliant." The GAO held that the compliance assessment was to determine whether proposals followed the instructions and did not determine whether minimum evaluation standards were met. Accordingly, the GAO denied this protest allegation.

On November 14, 2019, in 22nd Century Technologies, Inc., B-416669.7, the GAO rejected a request for reconsideration of a previously denied protest. Initially, the protester argued that it should have received additional credit beyond the solicitation's highest past performance rating. The GAO responded, saying, "[w]e find nothing in the solicitation to indicate that a proposal that exceed[s] the standard by which past performance would be assessed must be given additional credit, whether by rating or evaluation narrative." The GAO clarified its earlier decision stating that the protest was denied because there was no valid basis of protest. Accordingly, the GAO did not reach the merits in the protest and denied the protester's request for reconsideration, as there had been no error in GAO's initial dismissal.

Contracting Reviews, Audits, and Assessments

On November 26, 2019, the Office of the Inspector General (OIG) for the DOJ released an investigative summary finding that a former employee of the Federal Bureau of Prisons (BOP) suffered reprisals for making a protected disclosure under 41 U.S.C. §4712(a). The OIG investigation found that the employee's disclosure contributed to the decision to put this employee on a probationary six-month period before being terminated. The OIG failed to find, by clear and convincing evidence, that the probation or termination would not have occurred, but for the employee's disclosure. Instead, the OIG limited its conclusion to the finding that the employee suffered reprisals as a result of his/her disclosure. The BOP will make a final determination of whether there is a "sufficient basis to conclude the contractor subjected the employee to prohibited reprisals, and must either issue an order denying relief or take one or more of the statutorily enumerated actions as a remedy." For now, the OIG's findings were sent to the employee, the contractor, and the BOP.