Don't miss the presentation: The Current State of M&A at AMIS Summit 2019’s Government Contract Industry Forum.

I’m very pleased to share that I will be presenting at the JAMIS Summit 2019’s Government Contract Industry Forum. My presentation will focus on the current state of M&A within the industry.

The JAMIS Summit gathers experts within the finance/accounting, program/project management, purchasing, business development, human resources, and executive leadership arenas to network, learn and exchange insight on current trends and industry knowledge.


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Late last month, the Small Business Administration’s (SBA) Office of Hearings & Appeals (OHA) issued a decision adhering to its prior line of cases discussing when present effect will be given to an indication of interest (IOI) between a small business and its potential large business acquirer for size determination purposes.  As with prior cases, OHA conducts a fact-intensive analysis to determine whether the parties had an agreement in principle at the time the small business submits its bid on a federal procurement.  The case, Size Appeal of Enhanced Vision Systems Inc., SBA No. SIZ-5978, offers some helpful tips on how to avoid an affiliation finding when negotiating an IOI and still pursuing small business set-aside opportunities.

Background

On October 5, 2017, the U.S. Department of Veterans Affairs, Office of Acquisition Operations – Strategic Acquisition Center (VA) issued a small business set-aside RFP for in-home video magnification closed-circuit televisions.  The solicitation had a 1,250 employee size standard.  Proposals were due on December 12, 2017.  Enhanced Vision Systems, Inc. (EVS) timely submitted its proposal and was subsequently acquired by Freedom Scientific, Inc., a subsidiary of VFO Holdings, BV.  The contracting officer notified bidders that EVS was the apparent successful offeror.  In response, FedBiz IT Solutions LLC (FedBiz), an unsuccessful offeror, challenged the awardee’s size arguing that EVS had already entered into negotiations at the time of its initial offer, and therefore should be considered affiliated with VFO, the acquiring large business.  The Area Office sustained the protest, finding EVS and VFO affiliated, and therefore exceeded the employee size standard for the procurement.


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Taylor Hillman and I recently discussed how small Alabama businesses can enter the world of federal contracts. The All Small Mentor-Protégé Program (ASMPP) was established by the Small Business Administration (SBA) to extend business development assistance to all small businesses and help them achieve success in competing for federal government contracts. Only 20 of the 511 approved Mentor-Protégé Agreements had Alabama addresses as of May 5, 2018, despite one of the ASMPP’s top 10 district offices being located in Alabama, showing the potential for growth of the program within the state.

The SBA created an all-inclusive program with the Service Disabled Veteran Owned Small Businesses, Women Owned Small Businesses, HUBZones, and others, to streamline and enhance the program. Protégés can learn valuable lessons from mentors, including financial support; assistance in navigating the federal procurement bidding, acquisition and performance processes; business development advice including strategic planning and opportunity identification; and guidance on internal business management systems.
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What are the recent changes in rules that could impact your small business and teaming partners in federal contracting in 2019? The Small Business Administration (SBA) and Federal Acquisition Regulatory (FAR) Council have recently finalized and issued proposed rules implementing provisions of past NDAAs that could alter how you team and ensure compliance with set-aside requirements on future procurements.

I will address these issues at an upcoming meeting of the Society of American Military Engineers, as well as highlight some lessons learned from SBA’s All Small Mentor Protégé Program as the program enters its third year.


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December of 2018 brought many potential changes to the U.S. Small Business Administration’s (SBA) regulations that impact small businesses. First, on December 4, 2018, the SBA issued a lengthy proposed rule implementing several provisions of the National Defense Authorization Acts (NDAA) of 2016 and 2017, and the Recovery Improvements for Small Entities After Disaster Act of 2015 (RISE Act), as well as other clarifying amendments.  Then, on December 17, 2018, President Trump signed Public Law No. 115-324, the Small Business Runway Extension Act, which modifies the method for determining the size standards for small businesses.

SBA’s Proposed Rule

 The SBA’s proposed rule offers clarification on numerous topics, including but not limited to, recertification requirements, material breach of subcontracting plans for failure to comply in good faith, the inclusion of indirect costs in commercial subcontracting plans, setting aside an order under a set-aside multiple award contract (MAC), the status of independent contractors as employees in certain situations, and limitations on subcontracting compliance.  Comments on the proposed rule are due on February 4, 2019.  Some of the most significant proposed rules are summarized below.


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On December 21, 2018, the U.S. Government Accountability Office (GAO) published a report analyzing contract and grant awards of Small Business Innovation Research (SBIR) funding to small businesses owned by multiple venture capital (VC) companies, hedge funds, or private equity firms between 2015 and 2018.  In 2011, agencies were given the authority to award SBIR funds to small businesses owned by multiple venture capital companies, hedge funds, or private equity firms (investment companies and funds), however these awards were not to exceed either 25% or 15% of the agencies’ SBIR budgets depending on which agency was making the award.  The GAO found that of the 11 federal agencies participating in the SBIR program, only three agencies (the Department of Health and Human Services’ National Institutes of Health (NIH), the Department of Energy’s Advanced Research Projects Agency-Energy (ARPA-E), and the Department of Education’s Institute for Education Sciences) awarded contracts or grants to small businesses majority-owned by multiple venture capital operating companies, hedge funds, or private equity firms.  These three agencies made a total of 62 awards and obligated $43.6 million to such businesses from 2015 to 2018, only amounting to 0.1% to 2.7% of the three agencies’ total SBIR awards.
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On November 5, 2018, the Federal Circuit held in a precedential decision that bonding requirements in FAR 52.228-15, “Performance and Payment Bonds—Construction,” were read into all construction contracts by operation of law at the time of award, pursuant to the Christian doctrine.  FAR 52.228-15 requires an offeror in any construction contract valued over $150,000 to furnish performance and payment bonds:

Performance and Payment Bonds—Construction (OCT 2010)

(b) Amount of required bonds. Unless the resulting contract price is $150,000 or less, the successful offeror shall furnish performance and payment bonds to the Contracting Officer as follows:

(1) Performance bonds (Standard Form 25). The penal amount of performance bonds at the time of contract award shall be 100 percent of the original contract price.
(2) Payment Bonds (Standard Form 25-A). The penal amount of payment bonds at the time of contract award shall be 100 percent of the original contract price.


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I recently authored an article for Strategic Consulting Solutions, Inc. (SCS) GovCon Advisor – a monthly news source for the government contracts industry. The article outlines the requirements of the Small Business Administration’s (SBA) All Small Mentor-Protégé Program (ASMPP), focusing on the Mentor-Protégé Agreement (MPA) and the recent Hendall case. As I point out, “The

  • Mandatory declarations of certain transactions now required
  • Certain changes to pre-existing regulations also announced and effective immediately
  • Mandatory declaration requirement may not ease burden on parties filing with CFIUS

On October 11, the U.S. Treasury Department took the first steps to implement the significant changes introduced under the Foreign Industrial Review and Risk Modernization Act (FIRRMA). FIRRMA broadens the mandate of the Committee on Foreign Investment in the United States (CFIUS), which reviews foreign investments in the United States that could impact U.S. national security.

Most notably, the Treasury Department is establishing a pilot program that imposes new obligations on foreign parties making investments, even non-controlling investments, in U.S. businesses involved in 27 explicitly designated industries. The pilot program defines such investments as “pilot program investments.”


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Conditioned Agreements to Negotiate (CAN)

When acquiring or selling small businesses, government contractors need to be cognizant of the Small Business Administration’s (SBA) “present effect rule.” Under this rule, SBA will find that certain letters of intent (LOI) or other agreements to merge have a “present effect” on the buyer’s ability to control the small business seller. Numerous decisions by the SBA’s Office of Hearings and Appeals (OHA) have discussed the acceptable parameters of LOIs.

In a recent decision, OHA further refined the elements considered in the determination of whether an LOI amounts to an “agreement in principle.”
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