Given the substantial benefits small businesses enrolled in the 8(a) Business Development Program receive, the Small Business Administration (SBA) has strict eligibility standards. To qualify for admission into the Program, a small business must be “unconditionally owned and controlled by one or more socially and economically disadvantaged individuals…” 13 C.F.R §124.10. While disadvantaged entities can have business relationships with non-disadvantaged entities they must be wary of not crossing the line from independence to dependence. When a relationship between a disadvantaged and non-disadvantaged entity becomes so close that independent business judgment by the disadvantaged entity is compromised, it can result in the disadvantaged entity’s termination from the 8(a) program.   A recent case decided by the SBA serves as a friendly reminder of this important limitation.

Continue Reading Reminder from SBA: Don’t Cross the Line and Become “Unduly Reliant”

We recently authored an article on False Claims Act (FCA) enforcement actions brought against pharmaceutical and medical device manufacturers during the past year. In the article, we analyzed the recent settlements for Ansun Biopharma, Inc. (formerly known as NexBio, Inc.); Smith & Nephew, Inc.; McKesson Corporation; and Stryker Corporation and Alliant Enterprises.

The article, “Lessons Learned From FCA Settlements With Pharmaceutical and Medical Device Manufacturers,” was published in BNA Medical Devices Law & Industry Report on February 18.

Following the federal government’s example, states are increasingly looking to their own false claims act (“FCA”) statutes to combat procurement and healthcare fraud. This trend is being driven by two main factors: (1) the huge recoveries by the Department of Justice (“DOJ”) under the federal FCA – $5.7 billion in Fiscal Year 2014 alone; and (2) a federal statute that provided a financial incentive for states to mirror their own FCAs on the federal FCA with regard to healthcare fraud. This state-level activity represents a new front in the battle against procurement fraud, one that government contractors must be aware of to fully analyze and mitigate risks when contracting with state entities.

Currently, 33 states and the District of Columbia have a false claims statute. Of these, 11 states have FCAs that are limited to healthcare fraud; the remaining statutes penalize a broad range of false claims. Many – but not all – of these state FCAs have provisions allowing for whistleblowers to file qui tam actions on behalf of the state government and to share in any recovery.

Continue Reading A New Front in the Battle Against Fraud – the Continued Expansion of State False Claims Act Liability

The Small Business Administration (SBA) issued a final rule limiting liability from fraud penalties for firms and individuals who misrepresent their small business size status if they acted in good faith reliance upon a small business status advisory opinion (“Advisory Opinion”) issued by Small Business Development Centers (SBDCs) or Procurement Technical Assistance Centers (PTACs). While not perfect, the final rule provides a process for businesses to receive some guidance from SBA prior to making size representations in connection with award of federal procurements.

First, the rule establishes certain criteria that Advisory Opinions must meet. For instance, an Advisory Opinion must contain a written analysis explaining the reasoning underlying the determination that a concern meets or exceeds size standards and must contain a copy of an SBA Form 355. Additionally, Advisory Opinions must take into account the principles of affiliation. Furthermore, copies of evidence documenting compliance with size standards must be provided by the business and attached to the Advisory Opinion. Following public comments on the proposed rule, the SBA included in the final rule specific types of evidence a firm may provide including payroll records, time sheets and federal income tax returns.

Continue Reading SBA Finalizes Safe Harbor Rule for Small Business Size Representations

When a contractor intends to subcontract 70% or more of the total cost of the work to be performed on a certain contract or order this is considered a pass-through contract.  Concerns that contractors are being overpaid for no, or negligible, added value for work performed by lower-tier subcontractors is one of the biggest issues in pass-through contracts.  Section 802 of the NDAA for FY 2013 mandated the Department of Defense (DOD), the Department of State (State) and the United States Agency for International Development (USAID) to issue guidance and regulations to ensure contracting officers take additional steps prior to awarding pass-through contracts.  Specifically, contracting officers must consider alternative contracting arrangements and make a written determination that the contracting approach selected is in the best interest of the government prior to awarding pass-through contracts.  GAO recently conducted an audit on these three agencies to evaluate progress of the implementation of these requirements.

In its report, GAO found that the three agencies’ review and justification of pass-through contracts is incomplete.  While USAID and State have taken some action to implement Section 802, DOD has yet to take any action.  Moreover, none of the agencies were found to have provided guidance to assist contracting officers in performing these additional tasks.  Thus, contracting officers have been left with little to no direction on how to perform the required analysis of alternate acquisition approaches or determine the feasibility of contracting directly with the proposed subcontractors.  Furthermore, contracting officers have not been advised as to what type of documentation is necessary or where to record their determinations.

Continue Reading GAO Finds that Agencies Have Failed to Provide Oversight Guidance for Pass-through Contracts

On February 5, 2015, the U.S. Small Business Administration (SBA) issued a Proposed Rule that would establish a government-wide mentor-protégé program (“Proposed Rule”). Currently, the 8(a) Business Development Program is the only SBA program with a mentor-protégé program, but the Proposed Rule would result in the expansion of the mentor-protégé program to all small business contractors. The Proposed Rule would amend SBA’s regulations to implement provisions of the Small Business Jobs Act of 2010 and the National Defense Authorization Act for Fiscal Year 2013 (NDAA). In addition to expanding the mentor-protégé program across all small businesses, the Proposed Rule would make changes to the current 8(a) mentor-protégé program, clarify the meaning of a joint venture, and implement new compliance requirements to approved joint ventures.

Continue Reading SBA Proposes New Mentor-Protégé Program to Expand Teaming Opportunities for Large and Small Businesses

I am participating on a panel discussion in the upcoming American Bar Association webinar, “Key Issues in Government Contractor Mergers and Acquisitions.” The webinar will be Thursday, February 12 from 1:00 – 2:30 p.m. EST.

Listeners will learn best practices for conducting business transactions when government contractors are involved. The panel will address the following questions:

  • What is the current state of the government contractor M&A marketplace?
  • What risks and opportunities are presented by contractors with small business set-aside contracts?
  • What are the unique diligence issues often seen in deals involving government contractors?
  • How should parties deal with foreign investment and/or foreign operation and control of U.S. based government contractors?
  • What are the best practices for transactions involving classified contracts?
  • How should parties avoid common traps associated with novation and other change of control requirements?

A recent Government Accountability Office (GAO) decision, International Business Machines Corporation, B-410639, et al., Jan. 15, 2015, highlights the need for contractors to ensure that both they and their subcontractors are free of or can sufficiently mitigate any organizational conflicts of interest (OCIs).

On January 15, 2015, the GAO denied IBM’s bid protest over an award of an indefinite-delivery/indefinite quantity contract to upgrade a Department of Defense payroll system.  IBM protested its elimination from the competition because key personnel from its proposed subcontractor, Booz Allen Hamilton, were involved in developing the statement of work, solicitation and other key acquisition documents and strategies, resulting in a “biased ground rules” OCI.

Continue Reading Beware of Your Subcontractor’s Organizational Conflicts of Interest

U.S. ex rel American Systems Consulting Inc. v. ManTech Advanced Systems International, No. 14-3269 (6th Cir.)

The Sixth Circuit recently affirmed the dismissal of a False Claims Act (FCA) suit against ManTech Advanced Systems International (ManTech). At issue was whether a change in ManTech’s key personnel in a contract was a material false statement. By way of background, ManTech and American Systems Consulting Inc. (ASCI) were in competition for a Defense Information Technology Contracting Organization contract for inventory management support. Each offeror was required to submit a specific individual as the prospective Program Manager and address his skills and qualifications. Both ManTech and ASCI identified a prospective Program Manager but ASCI failed to address his specific skills and qualifications. ManTech received a higher score based on the experience of their proposed Program Manager and was ultimately awarded the contract. However, after initial proposals were submitted, the specific individual ManTech proposed resigned and ManTech did not advise the government nor did they modify their proposal. Subsequently, ASCI filed an FCA action against ManTech, alleging ManTech fraudulently induced the government into awarding it the contract by misrepresenting the person who would act as Program Manager.

Continue Reading Change in Personnel Not Material False Statement Under False Claims Act

I recently co-authored an article with my former colleagues at Crowell & Moring, Angela Styles, Peter Eyre and Jason Crawford, reviewing how a notice of proposed debarment under the procurement regulations came to have the same impact as a suspension. In the article we suggest that agencies increase the use of show cause notices, and that consideration be given to amending the procurement regulations so that a notice of proposed debarment no longer triggers a government-wide exclusion.

The article, “How Proposed Debarment Became Equal to Suspension,” was published on February 2 on Law360.

From the Bass, Berry & Sims Blog Network
From the Bass, Berry & Sims Blog Network

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