Ideas & Insights

Government Contractor News Update – February 2018

Government Contractor News Update – February 2018

Every month MGO’s Government Contractor practice provides this round-up of important news and information affecting the Government Contracting industry.

#1: 2018 NDAA – TINA Threshold to Increase to $2 Million

The threshold for requiring certified cost or pricing data is currently $750,000. This applies to the award of negotiated contracts, subcontracts and modifications (see FAR 15.403-4). This threshold is set by statute.

2018 NDAA Section 811 increases the TINA threshold significantly – from $750,000 to $2 million – for all contracts entered into after July 1, 2018. Section 811 also revises language in 10 USC §2306a(d) from affirmatively requiring the contracting officer (CO) to request information other than cost or pricing data to the “extent necessary,” to requiring the contractor to provide information other than cost or pricing data only “if requested by the contracting officer.”

This is good news for contractors and prospective contractors and should facilitate proposal preparation and contract award. It is not, however, a license for contractors to prepare shoddy proposals. Contracting officers must still ensure that negotiated prices are fair and reasonable and will still, in many cases, require cost or pricing data – just not certified cost or pricing data. This also means that the US government will have a much smaller universe of contracts on which it can conduct Defective Pricing audits.

#2: DOD IT Small Business Spending Continues to Increase

Small-business are likely to see additional DOD IT obligations in FY 2018. Small-business contract obligations have increased each year since FY 2013, and Bloomberg Government expects that trend to continue with an increasing overall budget.

According to Bloomberg, small-business IT obligations remained at 32.3 percent of the total DOD IT spending in FY 2017 and 2016. Small-business IT obligations are expected to surpass $10 billion in FY 2018.

The leading contract vehicles in FY 2017 for all IT spending were:

  • GSA IT-70
  • NASA’s Solutions for Enterprise-Wide Procurement V
  • GSA Alliant Large Business and
  • Navy’s Next Generation Enterprise Network
#3: 2018 NDAA Increases Civilian Micro-Purchase Threshold to $10,000

On December 12, 2017, President Donald Trump increased the standard micro-purchase threshold applicable to civilian agencies from $3,000 to $10,000. Last year, the NDAA increased the Department of Defense (DoD) micro-purchase threshold to $5,000.

A micro-purchase is one for goods or services that, due to its relatively low value, does not require the government to abide by many of its ordinary competitive procedures, including small business set asides. Because the contract is, theoretically, such a low amount, the contracting officer can pick virtually whatever company and product he or she wants to satisfy the procurement, so long as the price is reasonable.

Specifically, Section 806 of the NDAA, titled “Requirements Related to the Micro-Purchase Threshold” states the following: “INCREASE IN THRESHOLD.—Section 1902(a)(1) of title 41, United States Code, is amended by striking ‘$3,000’ and inserting ‘$10,000’.”

Title 41 of the Code generally refers to public contracts between federal civilian agencies such as the Department of Agriculture, the Department of Education, the Department of State, the Department of Labor, and so on. Title 10, on the other hand, generally refers to the DoD components, such as the Army, Navy, and Air Force, but also a number of smaller components such as the Defense Logistics Agency and the Missile Defense Agency. The DoD micro-purchase threshold will stay at $5,000

Section 1902 specifies in paragraph (f) that the section shall be implemented by the FAR. The NDAA changes the US Code, but it does not change the FAR. The FAR, meanwhile, currently sets the civilian micro-purchase threshold at $3,500. Although the law has now officially been changed, civilian contracting officers will more than likely begin using the new authority when the corresponding FAR provisions are amended.

This change is likely to have a big impact on some federal procurements. The increase in the threshold for civilian agencies will open the door for many more products to be purchased without competition. FAR 13.203 specifies that “micro-purchases may be awarded without soliciting competitive quotations” so long as the contracting officer (or similar authority) considers the price to be reasonable. Just think about the different types of things you can purchase with $10,000 as opposed to $3,500.

This change to the micro-purchase threshold, plus the “Amazon amendment,” which sets up an online marketplace for sellers, and the fact that the FAR encourages the use of a government-wide commercial purchase card to make micro-purchases (FAR 13.301) means that procurement officials will simply be able to swipe, or click for relatively significant buys.

Altogether, it could be bad news for some small businesses, particularly those that engage in a lot of “rule of two” set-aside simplified acquisitions under FAR 19.502-2(a). When this change is implemented, and presuming FAR Part 19 is updated accordingly, a chunk of those simplified acquisitions will no longer be reserved for small businesses. We will have to see if the DoD follows suit and increases their threshold for micro-purchases from $5,000 to $10,000.

#4: Evaluation of Affiliate’s Past Performance is Optional

In a past performance evaluation, an agency can typically consider the past performance of an offeror’s affiliate, so long as the offeror’s proposal demonstrates that the resources of the affiliate will affect contract performance.

But, in a recent GAO decision involving an Alaska Native Corporation (ANC) subsidiary, it was determined there is no requirement that an agency consider an affiliate’s past performance. In other words, unless the solicitation speaks to the issue, the agency’s consideration of an affiliate’s past performance is optional.

The GAO’s decision involved a Social Security Administration (SSA) solicitation for support services at the National Records Center. The SSA issued the solicitation as a competitive set-aside for participants in the 8(a) Program.

The solicitation called for a best-value tradeoff considering three factors: experience, past performance, and price. With respect to experience, offerors were to provide a description of up to three contracts that demonstrated relevant experience. Under the past performance factor, offerors were to have references complete and submit questionnaires for each reference cited in the experience section of the proposal. The solicitation did not state whether the SSA would consider the experience of an offeror’s corporate affiliates.

Eagle Eye Electric, LLC – a subsidiary of Bering Straits Native Corporation, an ANC – submitted a proposal to a government agency. The agency assigned Eagle Eye a “not similar” rating for its experience and “neutral” for past performance. The SSA awarded the contract to a competitor, which was rated “very similar” for experience and “very good” for past performance, but proposed a price more than $6 million more than Eagle Eye’s.

Eagle Eye filed a GAO bid protest arguing that it was improper for the agency to fail to consider the experience and past performance of its affiliates. According to Eagle Eye, the agency was therefore required to evaluate the experience and past performance of each affiliate.

The GAO wrote that “an agency may consider the experience or past performance of an offeror’s parent or affiliated company where, among other things, the proposal demonstrates that the resources of the parent or affiliate will affect contract performance, and there is no solicitation provision precluding such consideration.” But “there is, however, no requirement that they do so.”

In this case, “the solicitation did not require the agency to consider the experience and past performance of Eagle Eye’s affiliate concerns and therefore, the agency was under no obligation to do so.”

The GAO denied Eagle Eye’s protest.

#5: Small Business GAO Bid Protests Are Less Successful

According to the RAND Corporation’s recent bid protest study, GAO bid protests filed by small businesses are statistically less likely to succeed than protests filed by large contractors.

For the years RAND studied, small businesses filed the majority of bid protests at GAO and the Court of Federal Claims – 53% at the GAO and 58% at the Court. However, “small-business protests are less likely to be effective and more likely to be dismissed for legal insufficiency.” Indeed, at GAO, “small-business protesters are 1.5 times as likely to have their protests dismissed for being ‘legally insufficient.’” The overall effectiveness rate of GAO bid protests (that is, sustain decisions plus voluntary agency corrective actions) is also lower for small businesses than it is for large companies.

The disparity does not appear to be the result of discrimination against small businesses, but other factors. The biggest factor seems to be the use of attorneys.  At the Court of Federal Claims, where all protesters are required to use an attorney, “the effectiveness rate for small businesses is the same as for other businesses.” At GAO, attorneys aren’t required. But, in GAO cases where the protester is represented by an attorney, small business “protest sustained rates are similar to those of larger firms.”

Outside the absence of attorneys, RAND says that small businesses’ lower success rate may be caused, in part, because in some cases, “small businesses’ reasons for protesting differ from larger businesses’ reasons.” For instance, “when debriefings are uninformative, small businesses lodge protests to gain an understanding of why they lost a procurement.” Large businesses, in contrast, “generally filed a bid protest only if they thought the government did not follow its source-selection procedures or that an error was made that was substantial enough to change the outcome.”

Finally, RAND writes that small businesses seem less inclined to forego a protest due to the “potential for ‘ill will’ that could be created when they considered filing a protest.” This could be because many small businesses have no other contracts with the agency or contracting officer in question, whereas large businesses “with a substantial number of contracts with the federal government” may be more invested in preserving certain relationships.

There may not be a whole lot that can be done to easily and fairly address the lower success rate of bid protests filed by small businesses. According to RAND, with this small percentage it is not likely the GAO will make any changes.

#6: US Department of Defense releases the Trump Administration National Defense Strategy

On Friday, January 19, the DoD released the Trump administration’s first National Defense Strategy. (The NDS is the successor to DoD’s older Quadrennial Defense Reviews.) The document is the second in a series of strategy documents released by the administration since December 2017, building on the National Security Strategy. It is also complementary to the leaked draft Nuclear Posture Review document, albeit different in focus.

The document can be viewed here.

#7: GSA to Update Acquisition Regulation with Data Security, Cyber Incident Reporting Requirements

The General Services Administration has announced plans to amend the GSA Acquisition Regulation to integrate new information security and cyber incident reporting requirements for government contractors and contracting officers as part of its unified regulatory agenda.

A Federal Register notice posted January 12, 2018 says GSA plans to require contractors to protect agency-related data and information systems from cyber threats and other vulnerabilities in compliance with the Federal Information Security Modernization Act of 2014 and other cyber regulations.

Under this proposed rule, the agency will require contracting personnel to integrate into the statement of work GSA-related cyber requirements that will cover contractor systems, mobile devices and cloud platforms. For information security requirements the GSA plans to release the notice of proposed rulemaking for in April 2018 and conclude the comment period in June 2018.

For cyber incident reporting the GSA plans to issue in August 2018 its proposed rule and accept feedback through October 2018. The proposed measure would require contractors to report any incidents that appear to compromise GSA’s information systems and data and would specify the timeframe for reporting such threats. The rule would also call for the agency’s contracting staff to incorporate reporting requirements into contracts and task orders and establish requirements for incidents that involve personally identifiable information.

GSA also plans to set requirements for employee training and collection of images associated with hacked systems under the proposed cyber incident reporting rule.

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