Joe Whitcomb
SIZE AND STATUS PROTESTS: HOW AND WHEN TO FILE
Joseph:
All right. We've got a few more people funneling in, but we'll go ahead and get started because we want to be respectful of everyone's time. We sent out an invite, or rather a reminder, about an hour before the 10:00 Mountain Time, about an hour before this kicked off with some instructions, so hopefully, I know I got some feedback on the last one that some people had some difficulty getting into the room. Hopefully those technological issues have been worked out. So I'm going to kick it off.
Joseph:
Hello everyone, and welcome back to another version of David versus Goliath, and 10 weapons small businesses and general councils need to win. If this is your first webinar with us, welcome. If you have joined us before, we are flattered and welcome back.
Joseph:
Today, we're going to start the first of what will be a multi-part series in post award bid protest. Specifically, we're going to be covering size standard protest and socioeconomic status protests. Both are governed by the Small Business Administration or SBA, and both must be submitted within a very limited timeframe. With me today is [Dani Terolli 00:01:03], she is one of our associate attorneys in our firm, and has moderated all of our previous webinars. The structure of today's webinar will be primarily a Q & A. The questions are the variety that we regularly get from clients and from prospective clients on what to do immediately following the award of a contract or the government's notice of potential award. These types of questions usually creep in when you, as the disappointed offer, are convinced that the awardee either does qualify because it is too large, or because it doesn't meet within the socio-economic set-aside criteria.
Joseph:
The time today will be split with the first 20 minutes of question and answer being between Dani and me, and we will try to reserve the last 10 minutes to answer questions that you, as the audience, may have, and there should be a Q & A button on your screen. You can submit questions that way, and then of course we'll moderate, Dani will moderate those and we'll have an opportunity to touch on those. A few of you have already started to send chats. All right, and Tom is in the background and he will be helping you guys with any technical issues or any questions. If I'm not speaking up loudly enough, just let us know through the chat, and I'll try to adjust.
Joseph:
All right. So without further ado, I'll let Dani shoot the first question, and that be the last thing I read today.
Dani:
Thanks Joe, so I guess to get us started, why don't you tell the audience what a side standard protest actually is.
Joseph:
All right. So a side standard protest to the nerds in the room, like myself, will sound a little self-explanatory. So I believe that most people, most of the companies represented on today's meeting are small businesses. You hear that term thrown around a lot in the media, but small business hat is a defined term by the Small Business Administration. The easiest way for me to present that is our law firm, and they're all controlled by NAICS codes. So our law firm's NAICS code is 54000, office of attorneys. The size standard for office of attorneys, I believe as the most recent publication of the SBA size standards, is $12 million. And that is $12 million as per year, as demonstrated by literally the very top line revenue receipts of your company as average over the last three or five years. And when I say three or five years, the SBA recently promulgated rules that allowed owners or companies to pick either three or five years, depending on what is the most advantageous to that company.
Joseph:
So, for example, if you had a particularly large, let's say last year was a particularly good year and you exceeded that size standard in that one year by a meaningful amount and going back only three years, took you over the size standard for that, let's say that $12 million or whatever the size is for your NAICS, but it might be advantageous to go back five years and you're allowed to do that. Eventually the rules shift to where you have to choose the five years, but the interim period after the rule was promulgated, you can still do three or five. That's the standing of the rule now. So a size standard protest is generally when you as the disappointed offer, the one who didn't get the award, believes for some good reason that the does not fit within that size standard criteria, that either you believe for some good reason that they either make too much money or in some NAICS codes, it's not managed by money or governed by money, it's governed by the number of employees.
Joseph:
Let me let you ask the next question, so I don't want to...
Dani:
I was just going to ask you that. So now that we understand a size standard protest, what is the time limitation for somebody to actually file one?
Joseph:
So the way the rule reads is that you have five business days from the date of the government's notice of intent to award, not counting the date of the award. So if today is Thursday, if the government sent you an email or notice on SAM beta, of an awardee that wasn't you, then you wouldn't count today, you would count Friday, Monday, Tuesday, Wednesday, Thursday. Thursday would be the day that your size status protest was due. And it is due to the contracting officer before the end of their business day, that contracting officer's business day. And then it's up to the contracting officer to the SBA, which we'll talk about next.
Dani:
So with that being said, what kind of information should a disappointed offer be looking for in determining whether to file a protest regarding size?
Joseph:
The reason that question is so important, I'll tell you again, the reason that question is so important is that you are not allowed under the rule to simply allege without more that your opponent or the awardee is large. You can't simply say, I think they are, or it seems like they would be, or they'd have to be. That won't get the job done. The most common way that a size standard protest comes in, is when you are aware, for whatever reason, that the small business is teaming or joint venturing with another, either another small business, or potentially you see it very often where they're subcontracting or teaming with a large business, and the way those come in and there's going to be, and we'll talk about this more as Q&A goes on, but you have assessment subcontractor, you can have two small businesses that if they're affiliated and you combine their receipts, and that would exceed that size standard, or if you combined their personnel, it would exceed their size standard.
Joseph:
So the things that you're generally looking for as a disappointed offer is some reason, again, it could be that they're teaming with someone. The most common reasons that I hear about is a disappointed offer, let's say us as a law firm, we see that the awardee is a brand new law firm that just hung their shingle yesterday, or a month ago. Or we may look them up in SAM and realize that they only registered in SAM a week ago, a month ago, and it's a $10 million or $100 million dollar project. So in your mind, you're thinking, there's just no way they could perform this contract. So they must be reliant on someone else, or you know from whatever channel that from a teaming agreement or whatever, that the awardee is teaming with a large company to perform. And then you're allowed to go, and that'll be your source, the basis of your allegation that they exceed the size standard.
Dani:
So at the beginning of the webinar, you mentioned that we were also going to be talking about status protests. So why don't you talk a little bit about the differences between size and status protests?
Joseph:
Thank you Dani. So again, a size standard protest churns entirely on the receipts that either the amount of revenue or the number of personnel that the awardee is employing or receiving, and combined often, and we'll talk about the doctrine of affiliation, and before we move on to status, I was thinking that maybe some of these questions [inaudible 00:08:45], but one of the ways that the basis for your size standard protest, when you are dealing with a teaming group, or an awardee that has a teaming agreement or joint, is most commonly referred to as extensible subcontract. So that means that let's say, for example, my law firm was awarded a contract and we submitted a teaming agreement with a large multinational law firm. And we're going to be teaming with them. But this particular contract is for $100 million in legal services a year, and you happen to know for whatever reason that the most revenue that our firm has ever generated is 10 million in a year.
Joseph:
You might reasonably scratch your head and say, well, there is no way that Wickham Solensky is going to perform the, and the key term there is, primary and a central role of the contract. Let's give you another example. Let's pretend for the sake of this conversation today, that it is a patent contract, and you look on our website and you learn, hey, turns out Wickham Solensky doesn't really do any patent law. And this is a hundred million dollar a year patent contract. And apparently they've got a teaming agreement with a law firm, a boutique large law firm that that's all they do, is patent law. Then you would rightly assume that it's simply a pass through, it's an STB OSB set aside, Wickham Solensky is an STB OSB, they went after the award, but their intent and their attention is to simply pass along all of that work to the large law firm, and not really do any of that work, and certainly not do the primary and central roles. So that's the assessment subcontractor. So that's one of the reasons you're going to look for.
Joseph:
Now, shifting over to the status protests, and this would still... There is some overlap. So, the status protest typically turns on the term undue reliance. So in that same example that I gave, one of the arguments for undue reliance is relying on a necessary and essential license. And many of you may not know this, but your practice patent law, you have to pass a separate bar. Actually, you have to take the patent bar. Again, that's geeky and I know it doesn't matter to many of you, but it would be important in that protest, because you'd look and say, look, Joe, doesn't advertise that he's passed the parent bar. It looks like none of his 15 attorneys have passed the patent bar. How in the heck is he going to do this? Well, he must be relying on the patent license of this other law firm. That is an undue reliance on a non STB OSB, and that's where that status protest could come in.
Joseph:
So you can see it sometimes also, let's say in the construction space, where you have a non construction company, and let's say for the sake of this conversation, that the solicitation reads that the awardee must have a general contractor's license. And in this case, the STB OSB or the woman owned business, or the minority owned business has teamed up with a general contracting firm that has the GCs license, and the awardee does not have the GCs license. That would be a good solid basis for the STD OSB or a woman owned being overly reliant on the non STD OSB, or non woman owned, or non HUD zone, or non minority owned companies licenses.
Joseph:
So that's for a status protest, and what you're doing, and remember, to qualify, anybody who is on this call, or on this Zoom meeting who is in that socioeconomic space. And when you hear me say that I'm referring to woman owned, STD OSB, VOSP, 8A, minority owned, those are all verification. Those are all statuses that turn on an individual or a group of people that own that company. And as you all have heard me, perhaps, talk about before, in our company, as an example, I am the service disabled vet upon whom our status terms. So that means unless I have other service disabled bets within the management of my company, that I have to be the owner, the day-to-day manager, and I have to be essentially the chief executive of that company. So imagine the scenario where you suspect that it's a woman business, and the woman who upon whom that status turns, you suspect they never go into the... You have a good reason by the way, not just suspicion, you have good reason to believe that the woman never goes into the company, doesn't make any managerial decisions, is not the chief executive, is not the highest paid. Then that would be the grounds for you to raise a status protest.
Joseph:
Now, again, the way the law reads, is a bald allegation without more will not do the job. I know that's a little nerdy. What you need is some, even if it's circumstantial evidence, you need some evidence to support your allegation. Like, they make an announcement that they have just hired a new president to their company who isn't, and I've actually seen this in a status protest, that is not a veteran, so in a STB OSB or USB status. You might say, well, wait a minute, that company is controlled by a non veteran, or that company is controlled by a male in a woman owned setting, or that company is controlled by a non-minority, in a minority owned setting. So that would be the basis of your status protest if it was not a teaming agreement.
Joseph:
Now, if it's a teaming agreement, again, you simply argue, or a joint venture, you might argue undue reliance on that non STB OSB, non woman owned, non 8A company, that you believe is performing or funding, or is somehow creating an undue reliance on that company. And I will tell you guys, to those who are listening, if you are suspicious of this, that a good place to do immediate research on the company, see if you can find any evidence, and then, again, this is a self-serving statement, but this is one of the things that attorneys, law firms, whether it's ours or others or others like us do well, help you to put together those arguments. But remember, the starter gun for doing these size or status protest is when you receive notice either by SAM beta or [inaudible 00:15:32] or email, that there has been an award. And you know the name of the awardee, that's when your five business day started up again. So time is not your friend in these, as we've said many, many times before. The time to move is immediately. We, For example, would like to have at least two or three of those business days to be able to put together that status protest or size protest, and get it submitted to the contracting officer.
Dani:
So John, you've actually actually hit all of our questions right now. So I'm going to open the floor for all the participants, if you want to start filtering questions.
Joseph:
All right. I don't know. Let's see what we have in our Q & A.
Joseph:
All right, yep. How do you establish the 50/50 labor cost sub contracting split on firm fixed price contracts? That's actually a great, that comes from Robert. So Robert, that's a great question. It's also a little bit of a David one. So when you talk about the 50/50 labor cost on sub contracting split, you're referring to the limitations in sub contracting, which is a separate issue, but it is related to this issue. The old rule, prior to July of 2016, and if you're reading far part 52-219-14, you're reading some of that language that still refers to the 50/50 labor cost. That was under the old rule, before 13 CFR 125, and I know I'm nerding out on some of you, 13 CFR 125.6, which changed in July of 2016.
Joseph:
So the rule new as of July of 2016, is that in a socioeconomic set aside, like in the STB OSP space that we are in, the prime contractor, the awardee may not subcontract out more than 50% of the total contract value to other than a similarly situated subcontractor. So if it's an STD OSB set aside, and I'm the awardee, I can subcontract 100% of that contract as long as it's to another STB OSB contractor. If it is to another small business, which were large, I may not subcontract more than 50% of that total contract value. So if it's a $100,000 contract, I can't sub out more than 50%.
Joseph:
Now, if it is a construction contract, the split is different. If it's a GC, a general contracting contract, it's a 15/85 split. So if you're the awardee, you must perform as measured by money, 15% of that contract value after you pull out your supply cost. So I think in terms of a million dollar construction contract with $250,000 in supply cost, you pull out that 250,000 you're left with 750,000. Now, the prime must perform 15% or capture 15% of that contract value and can sub out 85% of it. If it is a specialty contract, think plumbing, electrical, roofing, still on the construction space, but specialized, then the split goes to 25/75, and that's how that is established. Again, your allegation turns on the one... Think about the one trick pony or the one person show, who is a general contractor and subs out and their teaming partner is, I think, Walsh Construction is an example. Or it's a defense contract, and the one person contractor with no employees is subbing to Lockheed Martin Northrop.
Joseph:
Then you can intelligently allege that the one trick pony is not performing 50% or even 15% of that particular contract. And that's what happens, guys, when it goes to the SBA, the SBA does the investigation and they look for receipts, and they look for a performance plan, and they are interfacing with the awardee, and the onus is on the awardee to prove to the SBA that they're going to actually perform at least 15, 25 or 50% of that contract value. And Robert, if that doesn't answer your question as thoroughly as you need it to, this goes to anybody who has asked questions today, my email address is, and you've already received emails from me, you can respond to those, Joe@WickhamLawPC, I'm happy to respond to those questions in more detail, or obviously you guys can reach out to me and we can schedule a face-to-face council.
Dani:
There's also one in the chat, if you want to take that one over, it says, how does one handle situations where the government does not notify of award, intent to award or refuses to provide requested feedback?
Joseph:
All right, that's another great question. The government is obligated. And again, as I said earlier, the starter gun is when you were notified. So if they refuse to tell you who the award is, that is actually the stump of GAO bid protest. You can go to the GAO post award and say, hey, they're not letting us know who the awardee is. They've deprived me of my rights to assign a status protest. They are legally obligated to publicly notice the awardee of any contract, either on SAM beta or in your inbox, they must make a public notification. And if they drag their feet for 10 days after the award, and then finally notify you, that's the starter gun for your five days. It is not on you that when they award... The starter gun is when they award, if they drag their feet on on noticing you on your ward, then they're dragging their feet on the statute of limitations.
Joseph:
So the moment you're notified is when you are allowed to, and I've had instances where the government took six months, and they did a justification and an analysis, JNA on a sole source justification. And it took them eight months to finally notice anybody who the awardee was. And that's when the starter gun was, and when they did that, we went in and we were successful in that protest. So if they fail to notice you, continue to persist, don't relent. The minute they let you know, that's when the five day starter gun kicks off.
Dani:
We have another great question about sole source. So it says, can we recommend or ask the contracting officer to sole source a contract as an STB OSB company?
Joseph:
Absolutely, absolutely. And that's covered by 38 USCA 8127, it's either C or E. E is the one I'm most regularly relying on, that's the set aside the statute, but it's also covered under the bar. But absolutely, you could send an email and you can say, "Hey, I think this would be a great opportunity." And the VA in particular has a great deal of latitude up to $5 million without meaningful justification for a set aside. All the other agencies, to do a sole source from STB OSB, all they really have to determine is that we want to award you an STD OSB, and you as the contractor are the only game in town. That is a sufficient justification for any contract award under $5 million. So it's absolutely a smart tactical play, you're allowed to do it. There's nothing unsure about doing that.
Dani:
There's one other [inaudible 00:23:32] too.
Joseph:
Let me share, I might have jumped on you guys. This question comes from Robert, also, how do I protest a set aside small business contract that was awarded to a supply company for a service contract and they are using a billion dollar company for work? So that would fall under that extensible subcontractor protest. Going into the supply company's website, and there was nothing stated on there that they do any of this kind of service work. So again, that falls under the extensible subcontractor, you're arguing or alleging that the subcontractor is doing the primary and essential goal of the contract. That's where the subcontractor rule comes in.
Dani:
We have Chris down below, which states, what if an STB OSB minority owned and woman owned business team up to meet the status or size requirements to win an award? Do they have the choice to create a separate LLC or joint venture terms that meet specific requirements to win as a team?
Joseph:
[inaudible 00:24:39], you could all be far part 9, I want to say .4 or .5, but don't quote me on that, it encourages teaming agreements. It says, contracting officers must give deference to teaming agreements. You can use a joint venture, but make sure, remember, the government can only set aside to one socio-economic at a time. So if it's an STB OSB set aside, make sure if you're doing a joint venture that, that STB OSB owns at least 51% of that joint venture and is self-performing as measured by money at least 50% of the contract value. Now, there is another layer that's a little more nuanced that goes into a mentor protege program. So if you have a mentor protege in place, then that rule changes a little bit, where the prime contractor, being that STB OSB or minority owned only has to self perform 40%. They still have to own 51% of a joint venture, but they only have to self-perform 40% of the contract. In a supply or social manufacturing contract, in the construction contract universe, it's still 15 or 25%.
Dani:
So it looks like we're coming close to 11:30. So I'm going to read one last question, which reads, does the after supply costs apply to the 50/50 split, for example, a hundred thousand dollar contract, 20% parts cost, 60% labor costs, 20% profit. The match sub is 40 or 50k.
Joseph:
Yeah, so profit is not a factor, labor cost is not a factor. So if it's a hundred thousand dollar contract with $20,000 in supply costs, you're not allowed to sub out more than $40,000 on that a hundred thousand dollars contract.
Joseph:
Here's one, when a contract officer emails you an RFI, are they required to send you the solicitation, or you must look for it on beta SAM? There's a squishy answer related to that. So there is no hard and fast rule that states the contracting officer must publish on SAM beta. It says they must publicly publish. There's also a sub category of rules as it relates to the, I want to say limitation of contract is stuck in my head, under $250,000. When a contract falls under $250,000, then the contracting officer can use... Simplified acquisition [inaudible 00:27:12], that's what I was looking for. if it falls under that, then the contracting officer can use more limited supplies.
Joseph:
They still have to publicly announce the award on either SAM Beta or USA Spending or something. They can't keep it under wraps unless it's under $10,000. Under $10,000 contracting officers can do pretty much whatever they want, but up over 10,000 and under 250,000, then they have to make a public announcement. That's as far as rule goes, it does not state SAM Beta or Federal Supply, or [inaudible 00:27:49], they just have to make a public announcement somehow.
Dani:
Do you think we have [inaudible 00:27:56] another?
Joseph:
Yep.
Dani:
All right, so that's if you're successful with a protest, what's the remedy?
Joseph:
So I love that question. So if you are successful, so the SBA comes back and states that the awardee is not eligible for award because of either size or status, what happens then is that awardee is disqualified from award. The contracting officer then has the option, and what they should do, and what happens most commonly is they go to the person or company in the number two spot. They are allowed, if they want, they can re solicit, but what they cannot do, let's say it was an STD OSB set aside, and there were five offers. And number one is deemed by the SBA as not eligible for either size or status. What the government cannot do is then cancel and re compete and make it anonymous to the USB. That's out of bounds.
Joseph:
What they can do is change the conditions, but really that awardee is still going to be non eligible. So they what they do most commonly in, I would say 90% of the instances, they just go to the person in the number two spot and make the award. So with that ladies and gentlemen, we have answered all the questions, and I really, really appreciate all of the questions came in. I really appreciate, again, everyone's participation on this. We are going to, we're shooting lots of different camera angles on this. We're going to edit this video and get it out to all the participants and everyone who couldn't make it today.
Joseph:
Thanks again so, so much. And we will do this again. I think we're going to do two of these in November, dealing with post [inaudible 00:29:39] protest on the non STB OSP space. Thanks so much and have a great rest of the week and weekend.