Bass, Berry & Sims attorney Todd Overman authored “Ten Unique Issues to Consider When Buying or Selling a Government Contractor,” outlining 10 helpful tips unique to acquisitions involving government contractors. The areas discussed include:

  1. Structuring the transaction – stock vs. asset purchase?
  2. How to deal with a corporate conversion
  3. Novation tips for the unwary
  4. Will the seller lose its small business set-aside or 8(a) contracts?
  5. Assessing organizational conflict of interest risk
  6. Accounting and business system compliance
  7. What happens to classified contracts?
  8. GSA schedule contract compliance
  9. Optimizing seller’s intellectual property
  10. Managing change of control communications

The full article, “Ten Unique Issues to Consider When Buying or Selling a Government Contractor,” was published by Bloomberg BNA’s Federal Contracts Report on November 17, 2015 and is available online (subscription required).

A recent decision by the Government Accountability Office (GAO) made it clear that ordered items only need to be included on an awardee’s Federal Supply Schedule (FSS) contract at the time the order is issued, and not at an earlier date. On October 2, 2015 GAO denied a protest by AmeriGuard Security Services, Inc. over the issuance of a task order by the Department of Health and Human Services (HHS) to Paragon Systems, Inc. for guard services at multiple HHS facilities. AmeriGuard’s protest asserted that Paragon’s quotation was unacceptable because not all of the services quoted were on Paragon’s FSS contract at the time of bid submission.

HHS initially decided to award the order to Paragon based on a “best-value” evaluation, which took into account factors such as technical capability, technical approach, management approach, past performance, and price. The closing date for initial quotations was March 19, 2015, and then HHS requested revised quotations to be submitted by April 15. The agency issued the task order to Paragon on April 30, and AmeriGuard filed a timely protest alleging that not all of the services quoted were on Paragon’s FSS schedule contract by the time required.  The agency advised GAO that it was taking corrective action, noting that it would verify Paragon’s eligibility for award using documentation obtained directly from GSA to confirm that Paragon had prices for all job classifications and locations by the required time. The agency proceeded to reaffirm the award to Paragon. AmeriGuard protested the reaffirmed award.

In its second protest, AmeriGuard asserted that a vendor must have prices for all job classifications and locations on its FSS contract by the closing date of the RFQ (here, by March 19). Therefore, according to AmeriGuard, Paragon’s requests to modify its FSS schedule contract on March 19 and April 21 (after both bids were submitted) should be ignored since both came after the March 19 closing date for initial quotations.  HHS, on the other hand, maintained that the order was proper because Paragon’s schedule contract had been modified to include the additional items by April 30, the date of the order. GAO agreed with HHS, denying the protest and making it clear that all items ordered need only be on the vendor’s FSS contract at the time the order is issued, and not before.

Next month, I’ll be headed to Las Vegas to discuss the “Fair Pay and Safe Workplaces” proposed rule and accompanying guidance at the Labor Management Cooperation Institute’s (LMCI) Attorneys Conference. The conference aims to bring labor and management lawyers from a diverse array of construction and industrial sectors together to discuss issues of common concern. It will take place from December 4-6, 2015, at the Mirage Hotel in Las Vegas.

A final rule issued on October 30, 2015 removes Cuba from the definition of “state sponsor of terrorism” in two DFARS clauses. The new rule implements the State Department’s action to remove Cuba from the List of State Sponsors of Terrorism. The new rule affects DFARS 252.255-7049, Prohibition on Acquisition of Commercial Satellite Services from Certain Foreign Entities – Representations; and DFARS 252.255-7050, Disclosure of Ownership or Control by the Government of a Country that is a State Sponsor of Terrorism.

Firms in which Cuba has an ownership interest are now eligible to provide commercial satellite services to the United States government. Contractors are also no longer required to disclose ownership or control by the Cuban government in a firm or its subsidiary, and such firm is no longer prohibited from receiving an award (previously, a waiver from the Secretary of Defense was necessary to overcome this prohibition).

These actions stem the President’s December 2014 direction to the State Department to review and report on Cuba’s designation as a State Sponsor of Terrorism in an effort to continue the new path for U.S.-Cuba relations. As mentioned in our April 14 blog post, the State Department recommended rescinding Cuba’s designation, and the Administration submitted its intent to Congress to do so on April 14, 2015.

Read more on what this means for future business in Cuba in our April 14 and August 10 updates.

Although federal government defense spending grew significantly from 2000 to 2010, spending by the Department of Defense (DoD) has been on the decline ever since. The recent cut in defense spending can be attributed to the troop drawdown in Iraq and Afghanistan, as well as the Budget Control Act of 2011. With defense spending expected to decline by 28% between 2011 and 2019, the potential effects will differ across states and counties. The Defense Spending by State Fiscal Year 2014 Report examines defense spending in 2014 at the state and local levels for all 50 states. The report breaks down the $418 billion spent on payroll and contracts in the United States, which was equivalent to approximately 2.4% of U.S. GDP, or $1,312 per U.S. resident, and offers a glimpse into where and in what type of work DoD is spending its resources.

In Tennessee, the DoD report indicates that Tennessee received $2.4 billion in 2014, accounting for 0.8% of the state’s GDP, and $361 per person. The total amount puts Tennessee 36 out of 50 states, and less 1% of total U.S. defense spending. In addition, it represents the fifth consecutive year of a decrease in DoD contract spending in Tennessee. Top contractors in Tennessee for 2014 included Aerospace Testing Alliance, BAE Systems, and UT-Battelle, with contract spending focused on services (37%), supplies (29%), R&D (21%) and construction (14%). In addition, almost 40% of DoD spending on contracts and payroll is focused in three counties: Shelby County (Memphis) with $452.2 million, Coffee County (Tullahoma) with $321.4 million and Sullivan County (Kingsport) with $211.1 million. Thus, although Tennessee did not receive significant defense spending, certain counties seem to reap most of the benefits and are holding on to their share of the overall spending. Furthermore, it is important to note that the report only pertains to DoD spending and does not take into account Department of Energy spending that also benefits certain parts of Tennessee.

John Shoraka, Associate Administrator of Government Contracting and Business Development at the U.S. Small Business Administration (SBA), testified before the House Committee on Small Business Subcommittee on Contracting and the Workforce on October 27, 2015. Concerns were raised regarding the stagnant progress of implementing the expansion of the mentor-protégé program as provided for in the Small Business Jobs Act of 2010 and the National Defense Authorization Act for Fiscal Year 2013 (NDAA).

SBA’s proposed rule, published on February 5, 2015, expands the mentor-protégé program to include all small businesses, which is currently only available to 8(a) small businesses (read more about the proposed rule on our February 11 blog post). The SBA estimates the final rule will be issued in the first quarter of fiscal year 2016 and expects to launch a pilot program in late summer 2016.

Mr. Shoraka testified that a major concern the SBA is facing in implementation of the rule is the lack of funding to manage the expected influx of mentor-protégés – which was not increased with the expansion of the mentor-protégé program.

In a couple of days, I’ll be headed north to Montreal, Canada, to join leading aerospace and defense investment bankers and advisors at the 2015 Fall Meeting hosted by the International Law Section of the American Bar Association. I’ll be speaking at “Headaches and Hot Spots: A Review of the Changing World of M&A in the Global Aerospace and Defense Industry.” Over the past year, there have been major industry consolidations, mergers and transformation initiatives in North America, Europe and Asia, trends which will be highlighted during this session. In addition, it will focus on the role counsel plays in shepherding M&A during tough times.

The 2015 Fall Meeting will be held on October 20-24, 2015 in Montreal, Canada at Fairmont the Queen Elizabeth.

Next week I will head to Oak Ridge to speak at the SCS’ 2015 Annual Government Contracting Seminar. During the session, “Contractors Beware: The Davis Bacon Act and the 2014 Fair Pay and Safe Workplaces Executive Order,” I will discuss the Davis Bacon Act, which requires that contractors and subcontractors on federally funded or assisted contracts for construction, alteration or repair of public buildings and public works pay employees no less than the locally prevailing wages and fringe benefits. This is an area of increased enforcement attention in recent years, heightening the risk to non-compliant contractors. The 2014 Fair Pay and Safe Workplaces Executive Order requires that prospective contractors disclose labor law violations and that violations be considered in the award process, meaning non-compliance on a contract today may have dire consequences for a company’s ability to win contracts tomorrow.  I will also be giving a presentation at the conference on joint venture opportunities with small business concerns.

I hope you can join me on Tuesday, October 20, 2015 at the Doubletree Hotel (215 South Illinois Avenue). To register, visit the SCS website.

I’m heading to Oak Ridge, Tennessee again next week to present “Preparing Your Government Contractor for Sale: How to Maximize Value and the Importance of Internal Controls” with Ted Hotz of Pugh CPAs.

Join us on Tuesday, October 13 from 11:30-1:30 at the Oak Ridge Chamber of Commerce (1400 Oak Ridge Turnpike).

Why should you come? In the last twelve months, transactions in the defense and government services sector have increased in volume by almost 30%, with deals ranging from billion dollar combinations to numerous tuck-in acquisitions. Despite the recent years of federal budget belt-tightening and continued budgetary uncertainty, there is no indication that this trend has reached its peak. Businesses with unique technologies, service capabilities, good internal controls and strong customer relationships are potential targets.

To register, visit the Oak Ridge Chamber of Commerce website.

The Small Business Administration (SBA) issued a final rule on September 14, 2015, expanding contracting officers’ authority to issue sole source awards to Women-Owned Small Businesses (WOSBs) and Economically Disadvantaged Women-Owned Small Businesses (EDWOSBs). This rule takes effect on October 14, 2015 (the “New Rule”).

Prior to the issuance of the New Rule, the WOSB program was the only SBA small business contracting program without a sole source option. The New Rule will put WOSBs on equal footing with SBA’s other socioeconomic small business programs with respect to a sole source award option.

Continue Reading New Rule Possible Boon to WOSB/EDWOSB Contracting Opportunities

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From the Bass, Berry & Sims Blog Network

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