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We Build Our Relationships One Client at a Time Joint Ventures SAME Charleston Post Industry Day May 8 th, 2013 David Rose Principal Attorney Rose Consulting.

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Presentation on theme: "We Build Our Relationships One Client at a Time Joint Ventures SAME Charleston Post Industry Day May 8 th, 2013 David Rose Principal Attorney Rose Consulting."— Presentation transcript:

1 We Build Our Relationships One Client at a Time Joint Ventures SAME Charleston Post Industry Day May 8 th, 2013 David Rose Principal Attorney Rose Consulting The 2013 National Defense Authorization Act and its Effects on Small Businesses

2 We Build Our Relationships One Client at a Time The NDAA of 2013  Passed on January 3, 2013  This date is very important as will become clear  Significant legislation affects small businesses in many areas  Over 250 pages of the NDAA changes the Small Business Act  Very common way of changing law – using stronger legislation to push the change

3 We Build Our Relationships One Client at a Time Where did the Changes Occur?  The changes affect the Sm. Bus. Act in the following areas:  Mentor Protégé Program Expansion  Changes to how we administer the Limitations in Subcontracting (and adding penalties)  More enforcement for Subcontracting Plans  Increased penalties for false size certs  Safe Harbor provision applies  More review of Gov’t In-sourcing  Raising SBA Surety Bond Limits  Removal of contract cap for WOSBs

4 We Build Our Relationships One Client at a Time The new Mentor Protégé Program  Or Is It!  The Administrator is authorized to establish a mentor-protege program for all small business concerns.  The mentor-protege program established under paragraph (1) shall be identical to the mentor-protege program of the Administration for small business concerns that participate in the program under section 8(a)  except that the Administrator may modify the program to the extent necessary given the types of small business concerns included as proteges.  REGULATIONS- Not later than 270 days after publ.

5 We Build Our Relationships One Client at a Time The New Mentor Protégé Program  270 days after this act is passed the Administrator shall:  issue, subject to notice and comment, regulations with respect to mentor-protégé programs  which shall address, at a minimum, the following (A) Eligibility criteria for program participants, including any restrictions on the number of mentor-protégé relationships permitted for each participant. (B) The types of developmental assistance to be provided by mentors, including how the assistance provided shall improve the competitive viability of the protégés. (C) Whether any developmental assistance provided by a mentor may affect the status of a program participant as a small business concern due to affiliation. (D) The length of mentor-protégé relationships. (E) The effect of mentor-protégé relationships on contracting. (F) Benefits that may accrue to a mentor as a result of program participation.

6 We Build Our Relationships One Client at a Time The New Mentor Protégé Program  What does all this mean?  The NDAA further expands the mentor-protégé program by permitting all small business concerns to qualify for protégé status. This newly-expanded program must function identically to the program established for the 8(a) companies. While the SBA has not yet issued regulations on the mentor- protégé program created in the Jobs Act, the NDAA directs the SBA to issue, subject to notice and comment, regulations pursuant to the even broader mandate of section 1641 within 270 days from the enactment of the NDAA.  It’s the “Exception” language that may allow the Mentor Protégé Program for other businesses to differ  How much remains to be seen, but it will be a fight

7 We Build Our Relationships One Client at a Time The Limitations in Subcontracting  What are the new changes?  In the case of a contract for services, may not expend on subcontractors more than 50 percent of the amount paid to the concern under the contract  Was 50 percent of the total direct labor on a small business set-aside contract for services.  In the case of a contract for supplies (other than from a regular dealer in such supplies), may not expend on subcontractors more than 50 percent of the amount, less the cost of materials, paid to the concern under the contract  Construction projects - The percentage applicable to any such requirement shall be determined in accordance with paragraph (1). – no longer labor dollars!

8 We Build Our Relationships One Client at a Time The Limitations in Subcontracting - Penalties  The NDAA provides that the penalty for violation of the limitation on subcontracting shall be the greater of $500,000 or the dollar amount expended, in excess of permitted levels, on subcontractors.  The existing law provided no express penalties or other mechanisms to enforce the limitations on subcontracting rule.  Under the old rules, a large business subcontractor theoretically could earn more than 50 percent of the total revenue paid under a set-aside contract, because the 50 percent limitation in FAR applied only to labor costs and imposed no limitation on costs for materials or other direct costs.

9 We Build Our Relationships One Client at a Time Subcontracting Plans  The NDAA provides that the failure of any contractor or subcontractor to comply in good faith with any [subcontracting] plan required of such contractor "[s]hall be a material breach of such contract or subcontract that may be considered in any past performance evaluation of the contractor.“  Prior to the NDAA, agencies were permitted to consider an offeror's past achievement of its subcontracting goals as an evaluation factor. Moreover, FAR (k) already stated that a contractor's failure to comply in good faith with its subcontracting plan constituted a material breach of the contract.  The NDAA also adds a requirement that an offeror must notify a small business concern prior to identifying the small business concern as a potential subcontractor in a proposal or in a subcontracting plan submitted to the government.  The SBA allows any subcontractor or potential subcontractor to report fraud or bad faith conduct by a contractor with respect to its subcontracting plan

10 We Build Our Relationships One Client at a Time Size Certifications  The NDAA appears to increase the likelihood that a contractor will be suspended or debarred for misrepresenting its status as a small business or subcategory of small business.  The NDAA simultaneously creates a safe harbor for good faith compliance efforts. This section insulates from liability any contractor that acts in good faith upon a written advisory decision from a Small Business Development Center ("SBDC") or an entity participating in the Procurement Technical Assistance Cooperative Agreement Program. SBDCs provide management assistance to current and prospective small business owners.  The SBA has been directed to issue rules defining what constitutes an adequate advisory opinion for the purposes of this section not later than 270 days after the date of enactment of this section.  The SBA Administrator must issue a compliance guide to assist companies in accurately determining their status as small business concerns. (within 270)

11 We Build Our Relationships One Client at a Time In-Sourcing  The NDAA seeks to provide small business contractors some protection from "in-sourcing" efforts by federal agencies -- that is, efforts by federal agencies to shift to federal civilian employees functions currently performed by contractors.  Section 1691 states that each agency's Director of Small and Disadvantaged Business Utilization ("DSDBU") will review and advise regarding any in-sourcing decision pertaining to a small business concern.  SBA procurement center representatives must consult with the DSDBU of the particular agency and other agency personnel with regard to any decision to in-source any function performed by a small business concern.  The NDAA also directs the Office of Management and Budget, within 270 days from the enactment of the NDAA, to publish procedures for federal agencies to follow in deciding whether to in-source functions currently performed by small business concerns.

12 We Build Our Relationships One Client at a Time SBA Surety Bond Limitations  Congress placed a provision in the NDAA which increased the contract maximum, and now requires the SBA to guarantee, surety bonds for any work order or contract that, at the time of bond execution, does not exceed $6.5 million.  Prior to the new NDAA, it was set at $2.0 Million  This will provide small business contractors a great deal more capacity and leverage to compete for larger contracts

13 We Build Our Relationships One Client at a Time Removal of Contract Cap for WOSBs  Susan B. Anthony can breath a little easier  The NDAA removes the contract award cap for women-owned small businesses.  Prior to this change, contracting officers were permitted to set aside a contract for women-owned small businesses only if the anticipated award price of the contract, including options, did not exceed $5 million for manufacturing contracts and $3 million for all other types of contracts.

14 We Build Our Relationships One Client at a Time What is a small business?  Organized for profit  Place of Business in the U.S., operates primarily in the U.S., or makes a significant contribution to the U.S. economy (taxes, use of American products/labor)  Does not exceed the small business size standard for the procurement  Each North American Industrial Classification System (NAICS) code has a small business size standard 13 CFR

15 We Build Our Relationships One Client at a Time Joint Ventures  A joint venture is an association of individuals and/or concerns with interests in any degree or proportion by way of contract, express or implied, consorting to engage in and carry out no more than three specific or limited-purpose business ventures for joint profit over a two year period, for which purpose they combine their efforts, property, money, skill, or knowledge, but not on a continuing or permanent basis for conducting business generally.  This means that the joint venture entity cannot have more than 3 contracts over a two year period, starting from the date of the submission of the first offer (3-in-2 rule). New Rule March 2011  13 CFR (h)

16 We Build Our Relationships One Client at a Time Joint Venture vs. Prime/Sub Relationship  SBA affiliation regulations purposely do not define “teams” or “teaming agreements”  Joint Ventures  Formal joint venture (Separate legal entity, such as LLC)  Informal (no new entity formed)  Prime Subcontractor Relationships

17 We Build Our Relationships One Client at a Time Teaming Arrangement: FAR “Contractor team arrangement,” as used in this subpart, means an arrangement in which—  Two or more companies form a partnership or joint venture to act as a potential prime contractor  A potential prime contractor agrees with one or more other companies to have them act as its subcontractors under a specified Government contract or acquisition program.

18 We Build Our Relationships One Client at a Time What are the Benefits?  General benefit for all concerns both large and small:  The joint or team is able to compete for larger more technically complex contracts by combining the capabilities and past performance of various team members.  FAR 9.601

19 We Build Our Relationships One Client at a Time  Joint Venture exceptions from Affiliation  A joint venture is a small business concern when the combined revenue/employees of all joint venture partners do not exceed the small business size standard.  Exception, a joint venture is considered small when each joint venture partner is small, if:  The procurement is bundled; or  For a procurement having a receipts based size standard, the dollar value of the procurement exceeds ½ the size standard; or  For a procurements having an employee based size standard, the dollar value of the procurement exceeds $10 million.  13 CFR (h)(3)

20 We Build Our Relationships One Client at a Time Points for Prime/Sub Relationships  Agencies may consider an offeror’s subcontractor’s capabilities and experience under relevant evaluation factors where the RFP does not prohibit the consideration of a subcontractor’s experience in the evaluation of proposals (Roca Management Education & Training, Inc., January 15, 2004, GAO, B ).  The prime contractor is solely responsible for meeting all contract requirements, including the Limitations on Subcontracting percentage  Must watch out for Ostensible Subcontractor relationship with its subcontractor(s)

21 We Build Our Relationships One Client at a Time What is an Ostensible Subcontractor?  An ostensible subcontractor is a subcontractor that performs primary and vital requirements, or a subcontractor upon which the prime contractor is unusually reliant.  A contractor and its ostensible subcontractor are treated as joint venturers, and therefore affiliates, for size determination purposes.  13 CFR (h)(4)

22 We Build Our Relationships One Client at a Time What is an Ostensible Subcontractor?  Recent Case on Affiliation and Ostensible Subcontractors – Griffin_v.pdf Griffin_v.pdf  Morris ‐ Griffin v. C&L Service Corporation, 2010 WL (E.D. Va)  Large HUD loan processing company teamed with janitorial 8(a) company to win 8(a) set-aside contact to process loans for HUD – found to have fraudulently circumvented the SBA rules by using a nominal 8(a) contractor.

23 We Build Our Relationships One Client at a Time Points for Joint Ventures  Do not violate the “3-in-2 rule” – three contracts won in two year period, by the same joint venture entity.  If you violate the rule, general affiliation will be found.  13 CFR (a) requires formal approval by SBA of all joint ventures pursuing 8(a) contracts.  Performance of work requirements apply to cooperative efforts of the joint venture entity.

24 We Build Our Relationships One Client at a Time Formal 8(a) Joint Ventures (cont’d)  For competitive 8(a) procurements that meet 13 CFR (b)(1)(ii):  8(a) firm can joint venture with one or more other businesses and the joint venture is considered small so long as each is small under the size standard for the procurement, and;  The size of at least one 8(a) member of the joint venture must be less than ½ the size standard for the procurement

25 We Build Our Relationships One Client at a Time Formal 8(a) Joint Ventures (cont’d)  For joint venture between 8(a) protégé and SBA approved mentor:  The joint venture is considered small so long as the 8(a) protégé is small for the procurement.  13 CFR (b)(3)  The joint venture may bid as a small business on any federal prime procurement.  13 CFR (h)(3)(iii)

26 We Build Our Relationships One Client at a Time Where Can I Find the CFR Federal Regulations (CFR) on-line:  Size regulations CFR Part 121 8(a) & SDB regulations CFR Part 124 Government Contracting Programs – 13 CFR Part HUBZone Program – 13 CFR Part 126 Service Disabled Veteran Program – 13 CFR 125 Women-Owned Small Business Program-13 CFR 127

27 We Build Our Relationships One Client at a Time David A. Principal Attorney(678) (o)/(770) (c) Rose Consultinghttp://www.roseconsultingllc.org If you have additional questions, please contact Dave directly: Law Firm


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