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This week, in UXB-KEMRON Remediation Services, LLC, B-401017 (Oct. 25, 2010), the GAO provided an important reminder about its exacting application of timeliness rules. 

The United States Army Corps of Engineers (“USACE”) published a delivery order proposal request under a multiple award, ID/IQ contract for landmine removal work in Afghanistan. The ID/IQ schedule contract under which the solicitation was issued had a pool of both large and small business entities with expertise in the area of munitions removal and disposal. 

The USACE decided to make the delivery order procurement at issue an unrestricted competition open to both small and large businesses alike. One small-business contract holder, UXB-KEMRON Remediation Services LLC, disagreed with this decision and contacted the Contracting Officer to request that the competition be limited to the pool of small business schedule contractors. When the Contracting Officer rejected this request, UXB-KEMRON filed an “appeal” to the USACE’s Task Order Ombudsman seeking reconsideration of the issue. The appeal was filed nine days prior to the due date for quotes. 

Eight days later, on the eve of the due date for quotes, the Task Order Ombudsman denied UXB-KEMRON’s appeal. The next week, UXB-KEMRON filed a bid protest with the GAO.  

Shortly thereafter, USACE submitted a motion to dismiss the GAO protest on timeliness grounds because it had been filed after the due date for quotes. In response, UXB-KEMRON argued that its “appeal” to the Task Order Ombudsman was an agency-level protest and, per Federal Acquisition Regulation § 33.103, UXB-KEMRON had ten days from the date of denial of the agency-level protest to file a GAO protest, even if the due date for quotes had lapsed. 

GAO agreed with the Government and dismissed the case. The basis for the dismissal was the Comptroller General’s conclusion that an appeal to the Task Order Ombudsman is not an agency-level protest under FAR Part 33 because the Task Order Ombudsman position is a creation of FAR Part 16. In particular, FAR § 16.505(b)(6) states in pertinent part:

Task-order and delivery-order ombudsman. The head of the agency shall designate a task-order and delivery-order ombudsman. The ombudsman must review complaints from contractors and ensure they are afforded a fair opportunity to be considered, consistent with the procedures in the contract.

Though the “appeal” to the Ombudsman may well have contained all of the information necessary for a valid agency-level protest, FAR § 33.103 does not contain any exceptions to the rules for agency-level protests for Ombudsman appeals. Therefore, because the Ombudsman “appeal” was not styled as a bid protest, and because it was addressed to someone other than the Contracting Officer (or other official designated to receive bid protests), GAO refused to treat it as the equivalent of an agency-level protest. As a result, UXB-KEMRON’s time to file at GAO had expired on the day quotes were due. 

This case serves as an important lesson that GAO’s timeliness rules are precisely written and quite unforgiving. Contractors must read these rules carefully and, when unresolved questions remain, contractors should consult with government contracts counsel rather than guess about the appropriate course of action and risk making an error that cannot be undone.  

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It is common knowledge that performance of government contracts requires the contractor to comply with a range of clauses not found in commercial contracting, which are included to advance the federal government’s social and economic policies. For example, the Equal Opportunity clause (FAR 52.222-26) prohibits government prime contractors from discriminating based on race, color, religion, sex, or national origin and requires most contractors to have an affirmative action plan. Additionally, it requires the prime contractor to “flow down” these same prohibitions and requirements to subcontractors. 

The Department of Labor is responsible for enforcing the Equal Opportunity clause, as well as clauses prohibiting contractors and subcontractors from discrimination based on disability (Affirmative Action for Workers with Disabilities, FAR 52.222-36) and on disability and veteran status (Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans, FAR 52.222-35). Historically, the DOL has taken a broad view of who qualifies as a government subcontractor subject to the requirements of these non-discrimination clauses. 

According to the DOL, there are two circumstances in which a person doing business with a government contractor is considered a subcontractor for purposes of the non-discrimination laws:

The first circumstance is when the person provides the Federal contractor with services or property ‘necessary to achievement of’ the prime Federal contract. The second circumstance is when a person ‘performs part of the Federal contract’ on the Federal prime contractor’s behalf.

Office of Federal Contract Compliance Programs v. Bridgeport Hospital  (.pdf), ARB Case No. 00-034 (Jan. 31, 2003) (emphasis added). While the DOL Administrative Review Board ("ARB") determined in Bridgeport that the hospital was not a subcontractor because its provision of medical care pursuant to a contract between it and the government contractor was not “necessary to performance” of the prime government contract, the DOL has reached the opposite decision for hospitals in two cases since then.

First, in Office of Federal Contract Compliance Programs v. UPMC Braddock et al. (.pdf), ARB Case No. 08-048 (May 29, 2009), the DOL ARB determined that the medical services provided by three UPMC hospitals pursuant to an agreement with UPMC Health Plan, which had an HMO contract with the Office of Personnel Management to provide health care services to the Federal Employees Health Benefit Program, qualified the hospitals as subcontractors and subjected them to compliance with the non-discrimination clauses because they performed part of UPMC Health Plan’s government contract. UPMC’s appeal of the DOL ARB’s decision is pending.

Second, on October 18, 2010, a DOL Administrative Law Judge ("ALJ") determined that a Florida hospital that provided medical care to TRICARE beneficiaries qualified as a government subcontractor such that the DOL had jurisdiction to audit the hospital’s compliance with its affirmative action and non-discrimination obligations. See Office of Federal Contract Compliance Programs v. Florida Hospital of Orlando (.pdf), ALJ Case No. 2009-OFC-00002. In this case, the hospital had an agreement with Humana Military Health Services, Inc. (“HMHS”), an entity that performed a government prime contract to provide managed health care services to TRICARE beneficiaries. The hospital argued that it was not performing any of the contractual obligations under the prime contract, so it did not meet DOL’s definition of “subcontractor,” but the DOL ALJ found that the prime contract required the provision of medical services to TRICARE beneficiaries and, by providing medical services to its patients, which were TRICARE beneficiaries, the hospital did perform part of HMHS’ prime contract duties. Whether the hospital will appeal this decision remains to be seen.

The UPMC Braddock and Florida Hospital of Orlando decisions are particularly important to providers of medical services when they have agreements with federal health care program contractors, but are equally instructive to all other government subcontractors with respect to DOL’s broad notion of a “subcontractor” for purposes of enforcing the affirmative action and non-discrimination laws. Whether DOL’s broad definition will be adopted by other agencies responsible for enforcing other flow down clauses contained in government contracts remains to be seen.

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Mana Lombardo and Jonathan Cone contributed to this blog post.

Winning government contracts and grants is vital to the survival of many organizations. It is not surprising then that contractors and grantees sometimes include embellishments and small misstatements in their proposals for government funds. A little puffery never hurt anyone, right? Wrong. Making even a minor factual misstatement or neglecting to provide complete information in a contract or grant proposal may, in some situations, lead the government to allege that it was defrauded and seek to recover three-times the value of the agreement using the civil False Claims Act. Such a significant recovery seems inconsistent with the FCA, which was intended to remedy the government's actual— not consequential— financial harm. The statute has a separate penalty provision that serves a punitive function and provides remuneration over and above making the government whole. While damages in the amount of the entire value of the contract may exceed the government's actual financial loss, the government has obtained that sort of windfall recovery in two recent cases.  Click here to link to read full article, published in BNA's Federal Contract Report, Oct. 5, 2010, 94 FCR 345.

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The big news Friday afternoon and over the weekend was the Small Business Administration’s decision to suspend GTSI—a major government contractor – from receiving new government orders. While the notice of suspension is not yet publicly available, the Washington Post reported that the suspension stems from the government’s view that GTSI engaged in improper relationships with small business contractors. 

SBA identified two reasons for the notice of suspension: (1) adequate evidence of the commission of fraud or a criminal offense in connection with obtaining, attempting to obtain or performing a public contract or subcontract; and (2) adequate evidence indicating a lack of business integrity or business honesty impacting the present responsibility of GTSI. Supporting its decision to suspend GTSI, the SBA explained that:

• “There is evidence that GTSI’s prime contractors had little to no involvement in the performance of contracts, in direct contravention of all applicable laws and regulations regarding the award of small business contracts.”
• “The evidence shows that GTSI was an active participant in a scheme that resulted in contracts set-aside for small businesses being awarded to ineligible contractors.”
• “GTSI actively engaged in conduct concealing the extent of its involvement as a subcontractor.”

Stated differently, the SBA apparently was concerned that GTSI was using small businesses as “fronts” to access federal programs and contracts for which it was not otherwise eligible.

There is a fine line between improper and perfectly legitimate relationships between large and small businesses. Large contractors have been coming up with ways to access small business dollars for some time. There is nothing inherently wrong with this, as there are many different ways an other than small business concern can work with a small business, such as through the SBA’s 8(a) Mentor-Protégé Program.  

However, some companies are not aware of where the lines are drawn, while others have knowingly abused these programs and ignored SBA’s regulations outright, sometimes using small businesses as mere pass-throughs. In these cases, the large business would do the work and receive the revenues, giving the small business a “fee” for the use of its small business status. Obviously, this is not the goal of small business programs. Yet, these abuses have largely gone unchecked because of the SBA’s spotty oversight. Indeed, in March of this year, GAO released a report to the House of Representatives Committee on Small Business explaining that 14 ineligible businesses received $325M in 8(a) sole-source and set-aside contracts. Some of these ineligible firms used certified firms as pass-throughs to perform small business contracts. 

The SBA’s decision to suspend GTSI may be the start of a new, vigilant enforcement regime at the SBA. Accordingly, it may be a good time for both small and big businesses alike to examine the law and their relationships and contracts. Small businesses should be sure that they are making appropriate representations about their status and size, particularly if the company has grown or changed since its last certification. In conducting this review, small businesses should be attuned to various size and affiliation factors, including the ostensible subcontractor rule, which provides that the parties to a teaming arrangement may be affiliated if the subcontractor has too large of a role in contract performance. 

Large businesses should review the subcontracting relationships they have with small businesses. They should ensure that they are not taking any actions that are contrary to the SBA’s regulations, such as using small businesses as pass-throughs. 

If this is the beginning of a new enforcement trend, being proactive is the best course of action, as you may not get a warning shot across the bow. In fact, in a public statement released on Friday, GTSI explained that the SBA suspended it “without prior discussion or notice to GTSI.”

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