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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


December 2010
Vol. XI, No. 12

CONTENTS


SBA Suspends Two Small Businesses Alleged to be GTSI Fronts
Another Deluge of DFARS Changes
Fourteen More Items Proposed for Biobased Designation
DEAR Updated, Conformed to FAR
Nonmanufacturer Rule Waived for Gloves



SBA Suspends Two Small Businesses
Alleged to be GTSI Fronts

In October, GTSI Corporation was suspended by the Small Business Administration (SBA) for using small business “fronts” to obtain government contracts reserved for small businesses (see the November 2010 Federal Contracts Perspective article “GTSI Suspended, Reinstated”). Though SBA subsequently reinstated GTSI after it agreed to dismiss its chief executive officer and general counsel, and suspend three other employees, the question was: “Why weren’t the small businesses that allowed themselves to be used as fronts for GTSI likewise suspended?” On November 19, the other shoe dropped when MultimaxArray Firstsource (MAF) and EG Solutions, LLC (EGS) were suspended for “a lack of business integrity or business honesty.”

Both small businesses are FirstSource contractors. FirstSource is a Department of Homeland Security (DHS) program consisting of indefinite-delivery/indefinite-quantity (IDIQ) contracts for information technology (IT) hardware, software, and associated services that are reserved for small businesses. One of the clauses in the contract, Federal Acquisition Regulation (FAR) 52.219-14, Limitations on Subcontracting, states, “By submission of an offer and execution of a contract, the offeror/contractor agrees that in performance of the contract in the case of a contract for: (1) Services (except construction). At least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern; [and] (2) Supplies (other than procurement from a nonmanufacturer of such supplies). The concern shall perform work for at least 50 percent of the cost of manufacturing the supplies, not including the cost of materials.”

GTSI was a subcontractor for both MAF and EGS. SBA suspended GTSI because “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, and with contracts not being performed in accordance with applicable law, regulations, and contract terms.”

On November 19, both MAF and EGS were sent letters by Michael Chodos, SBA suspension and debarment official. In the letter to MAF, Mr. Chodos wrote:

     “DHS and SBA have looked into the conduct of MAF as a prime contractor on this contact and have found evidence which shows that MAF entered in a relationship with a subcontractor [GTSI] in order to defraud the government. By the terms of its agreement with its subcontractor, including payment terms, the subcontractor agreed to do most if not all the work necessary to perform the contracts and the work necessary to receive and respond to any contract opportunities. Further evidence shows that the subcontractor in fact performed most if not all of the work required to be performed in connection with the subject contract opportunities. There is also evidence that MAF and its subcontractor attempted to conceal the nature of this relationship from the government and their competitors, after concerns were raised about MAF and its subcontractor’s conduct…
     “I have found that there is adequate evidence that establishes that MAF misrepresented its status in order to obtain or attempt to obtain contracts set-aside for small businesses and that MAF failed to perform those contracts in accordance with all applicable laws and regulations. I also find that there is adequate evidence that MAF committed fraud or a criminal offense in obtaining and attempting to obtain contracts, and in its performance of those contracts; and that there is adequate evidence of a lack of business integrity or business honesty that seriously or directly affects the present responsibility of MAF.”

An identical letter was sent to EGS.

As a result of the indefinite suspension, MAF and EGS will suffer the following “consequences”:

  1. Both companies’ names will be published in the Excluded Parties List System (EPLS) (http://epls.gov), where it will be noted that they have been suspended from receiving new federal contracts or orders.

  2. The companies are excluded from receiving contracts, and agencies shall not solicit offers from, award contracts to, or consent to subcontracts with the companies, unless the agency head determines that there is a compelling reason for such action.

  3. The companies are excluded from conducting business with the government as agent or representative of other contractors.

However, agencies may continue contracts with MAF and EGS that were in existence at the time they were suspended unless the agency head directs otherwise. See FAR Subpart 9.4, Debarment, Suspension, and Ineligibility, for more on the restrictions placed on MAF and EGS.



Another Deluge of DFARS Changes

Still more changes to the Defense FAR Supplement (DFARS) in November: four final rules, two interim rules, three proposed rules, one class deviation, and a follow-up memorandum from Under Secretary for Defense for Acquisition, Technology & Logistics (USD(AT&L)).



Fourteen More Items Proposed for Biobased Designation

The United States Department of Agriculture (USDA) is proposing to add fourteen (14) more sections to Title 7 of the Code of Federal Regulations (CFR), Part 2902, Guidelines for Designating Biobased Products for Federal Procurement (7 CFR Part 2902), to be given preference in federal procurements as provided under Section 9002 of the Farm Security and Rural Investment Act of 2002 (FSRIA)(Public Law 107-171), and to specify the minimum level of biobased content to be contained in the procured products.

The following are the proposed new designated items and their 7 CFR Part 2902 section numbers:

     2902.61, Animal repellents
     2902.62, Bath products
     2902.63, Bioremediation materials
     2902.64, Compost activators and accelerators
     2902.65, Concrete and asphalt cleaners
     2902.66, Cuts, burns, and abrasions ointments
     2902.67, Dishwashing products
     2902.68, Erosion control materials
     2902.69, Floor cleaners and protectors
     2902.70, Hair care products
     2902.71, Interior paints and coatings
     2902.72, Oven and grill cleaners
     2902.73, Slide way lubricants
     2902.74, Thermal shipping containers

As a general rule, procuring agencies must purchase biobased products within these designated items where the purchase price of the procurement item exceeds $10,000 or where the quantity of such items or functionally equivalent items purchased over the preceding fiscal year equaled $10,000 or more, unless products within a designated item: (1) are not reasonably available within a reasonable period of time; (2) fail to meet the reasonable performance standards of the procuring agencies; or (3) are available only at an unreasonable price. The $10,000 threshold applies to federal agencies as a whole and not to agency subgroups such as regional offices or subagencies of the larger federal department or agency.

For more information on the biobased program, all the products in the program, and those proposed for inclusion, go to http://www.biopreferred.gov/. Also see the February 2005 Federal Contracts Perspective article “USDA Publishes Biobased Products Guidelines”; the August 2005 Federal Contracts Perspective article "Agriculture Proposes Six Biobased Items"; the April 2006 Federal Contracts Perspective article “USDA Designates Six Biobased Products for Procurement”; the September 2006 Federal Contracts Perspective article “USDA Proposes 20 More Biobased Products”; the November 2006 Federal Contracts Perspective article “10 More Biobased Items Proposed”; the June 2008 Federal Contracts Perspective article “USDA Adds 27 Items to Biobased Products List, Exempts DOD and NASA from Requirements”; the November 2008 Federal Contracts Perspective article “Nine More Biobased Items Proposed”; the November 2009 Federal Contracts Perspective article “USDA Adds Nine More Biobased Items”; the March 2010 Federal Contracts Perspective article “USDA Proposes Another Nine Biobased Items”; and the November 2010 Federal Contracts Perspective article “Eight More Biobased Products Designated.”



DEAR Updated, Conformed to FAR

The Department of Energy (DOE) has issued amendments to the DOE Acquisition Regulation (DEAR) to make it conform to the FAR, to remove out-of-date coverage, and to update references.

The following DEAR parts are updated:

     Part 919, Small Business Programs
     Part 922, Application of Labor Laws to Government Acquisition
     Part 923, Environment, Conservation, Occupational Safety, and Drug-Free Workplace
     Part 925, Foreign Acquisition
     Part 926, Other Socioeconomic Programs
     Part 952, Solicitation Provisions and Contract Clauses
     Part 970, DOE Management and Operating Contracts

In addition, a new DEAR Part 924, Protection of Individual Privacy, is added. This new part provides the cross reference to DOE’s regulations at 10 CFR Part 1008, Records Maintained on Individuals (Privacy Act), which implement the procedures prescribed at FAR 24.103, Procedures [for determine whether a contract will involve the design, development, or operation of a system of records on individuals to accomplish an agency function].

No comments were submitted on the two proposed rules, so they are finalized without changes. For more on the proposed rules, see the July 2010 Federal Contracts Perspective article “DOE Proposes to Update DEAR.”



Nonmanufacturer Rule Waived for Gloves

The Small Business Administration (SBA) is waiving the nonmanufacturer rule for woven and knit impregnated with flat dipped rubber/plastic gloves under North American Industry Classification System (NAICS) code 315992, Glove and Mitten Manufacturing, Product Service Code (PSC) 9999, Miscellaneous. SBA invited the public to comment on the proposed waiver or to provide information on potential small business sources for these products. One comment was received from a small business distributor, not a small business manufacturer of this type of product. Therefore, SBA has determined that there are no small business manufacturers of this classes of product, and is therefore granting the nonmanufacturing rule waiver. For more on the proposed nonmanufacturing rule waiver, see the September 2010 Federal Contracts Perspective article “Nonmanufacturer Rule Waiver Issued for Lab Equipment.”

The SBA regulation on the nonmanufacturer rule is in Title 13 of the Code of Federal Regulations (CFR), Business and Credit Administration; Part 121, Small Business Size Standards; under paragraph (b) of Section 121.406, How Does a Small Business Concern Qualify to Provide Manufactured Products Under Small Business Set-Aside or MED [Minority Enterprise Development] Procurements? The SBA regulation on the waiver of the nonmanufacturer rule is 13 CFR 121.1202, When Will a Waiver of the Nonmanufacturer Rule Be Granted for a Class of Products? A complete list of products for which the nonmanufacturer rule has been waived is available at http://www.sba.gov/idc/groups/public/documents/sba_program_office/class_waiver.pdf.



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