Panoptic Enterprises’


Federal Acquisition Developments, Guidance, and Opinions

May 2019
Vol. XX, No. 5
[pdf version]


SBA Issues Combined SBIR Program and STTR Program Policy Directive
VA Increases Contracting Goals for Veteran Businesses
DOD Shakes Up the DFARS
USTR Waives Restrictions for Australia
Proposed DEAR Rule on Intellectual Property Withdrawn
GSA Finalizes Local Authority to Buy Off Schedule 84
CAAC Issues Deviation on Subcontracting Limitations

SBA Issues Combined SBIR Program and
STTR Program Policy Directive

The Small Business Administration (SBA) has combined the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) program policy directives into a single document because the general structure of both programs is the same. Both programs use a phased process to solicit proposals and award funding agreements for research and research and development (R&D) to meet stated agency needs or missions: Phase I, Experimental or Theoretical Research; Phase II, Development of the Research Conducted in Phase I; and Phase III, Commercial Application of the Research Developed in Phase II. This single document clarifies the data rights and Phase III preference afforded to SBIR and STTR small business awardees, adds definitions relating to data rights, and clarifies the benchmarks for progress toward commercialization.

The SBIR program requires all agencies with R&D budgets of more than $100,000,000 to set aside 3.2% of their R&D budgets for small businesses. Approximately $1.7 billion is awarded to small businesses through the SBIR program each year.

The following 11 agencies take part in the SBIR program:

The STTR program requires all agencies with R&D budgets of more than $1 billion to set aside 0.45% of their R&D budgets for small businesses. Approximately $200,000,000 is awarded to small businesses through the STTR program each year.

The following five agencies participate in the STTR program:

Under both the SBIR and STTR programs, a small business is defined as a concern with no more than 500 employees (regardless of the applicable small business size standard) and is more than 50% owned and controlled by U.S. citizens.

The primary difference between the SBIR and the STTR programs is that small businesses must have a single nonprofit research institution as a partner to participate in the STTR program. The nonprofit research institution must be located in the U.S. and must be either: (1) a nonprofit college or university; (2) a domestic nonprofit research organization; or (3) a federally funded research and development center (FFRDC).

Both the SBIR and STTR programs expire on September 30, 2022.

The Small Business Act requires the SBA to issue a policy directive providing guidance to the federal agencies participating in the SBIR and STTR programs. Because of the similarity of the two programs, SBA decided to combine the two policy directives into one policy directive that covers both programs.

In April 2016, SBA issued a proposed rule to merge the two policy directives and to clarify the important issues relating to both programs, particularly concerning data rights, Phase III awards, and benchmarks toward commercialization achievement. SBA specifically requested comments on its clarification of the federal government’s data rights in SBIR/STTR data during an SBIR/STTR protection period of not less than 12 years (increased from four years). In addition, SBA asked for comments on the federal government’s unlimited rights in SBIR/STTR data after the protection period; the elimination of the extension of the protection period when a subsequent, related SBIR/STTR award is made; the language regarding prototypes; and the proposed establishment of a time limit of six months for SBIR/STTR awardees to correct or add omitted markings on SBIR/STTR data it has delivered. (For more on the proposed rule, see the May 2016 Federal Contracts Perspective article “SBA Proposes Joining SBIR and STTR Policies.”)

Forty-two comments were submitted on the proposed rule. The comments supported combining the SBIR and STTR policy directives, the proposed clarifications of SBIR/STTR data rights during the protection period, and the clarifications of the Phase III preference requirement and process (along with the majority of other proposed changes). However, several commenters, primarily small businesses, objected to the proposed removal of the ability to extend data rights through subsequent awards, the proposed 12-year protection period, and to the proposal that the government receive unlimited rights in SBIR/STTR data after the protection period expires. Commenters pointed out that these changes would reduce the incentive for small businesses to participate in the program and are antithetical to the small business commercialization goals of the programs.

The executive summary of the notice states, “SBA recognizes that to be efficient and effective at stimulating small business innovation, the SBIR/STTR programs must maintain the features of the programs that create strong incentives for small businesses to participate, and SBA must scrutinize whether changes to the SBIR/STTR policy directive are consistent with the goals of the programs. As a result, SBA is removing these specific proposed changes from this amendment and will work closely with the participating agencies to identify ways to address the related administrative concerns discussed in the proposed policy directive in a way that does not weaken the data rights protection of appropriately marked SBIR/STTR data.”

VA Increases Contracting Goals for Veteran Businesses

The Department of Veterans Affairs (VA) has announced that it is increasing its goals for contracting with veteran-owned small businesses (VOSBs) and service-disabled veteran-owned small businesses (SDVOSBs) by 5% of its total contract dollars, from 10% to 15% for SDVOSBs, and from 12% to 17% for VOSBs (SDVOSBs are a subset of VOSBs). The previous goals were established by VA in 2010.

These goals are established in compliance with paragraph (a) of Title 38 of the U.S. Code, Section 8127 (38 USC 8127), Small Business Concerns Owned and Controlled by Veterans: Contracting Goals and Preferences, which states, “In order to increase contracting opportunities for small business concerns owned and controlled by veterans and small business concerns owned and controlled by veterans with service-connected disabilities, the Secretary [of VA] shall (A) establish a goal for each fiscal year for participation in [VA] contracts (including subcontracts) by small business concerns owned and controlled by veterans who are not veterans with service-connected disabilities...and (B) establish a goal for each fiscal year for participation in department contracts (including subcontracts) by small business concerns owned and controlled by veterans with service-connected disabilities...”

This increase is in response to the Supreme Court’s 2016 unanimous decision in Kingdomware Technologies, Inc. v. United States (No. 14-916). In 2012, the VA procured emergency notification services through the Federal Supply Schedule (FSS) from a non-VOSB. Kingdomware Technologies protested to Government Accountability Office (GAO) that the VA procured multiple contracts through the FSS without employing the “rule of two,” which is specified in paragraph (d) of 38 USC 8127: “a contracting officer of the [VA] shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States” (emphasis added). The VA argued that the “rule of two” did not apply in this particular situation because the VA had already achieved its annual minimum goal for awards to veteran-owned small businesses. Though the GAO determined that the VA’s actions were unlawful, the VA declined to follow the GAO’s nonbinding recommendation.

Kingdomware filed suit in the Court of Federal Claims, which ruled in favor of the VA. Kingdomware appealed to the Court of Appeals for the Federal Circuit, and the Court of Appeals upheld the decision of the Court of Federal Claims. However, upon appeal to the Supreme Court, the Supreme Court overturned the Court of Appeals' decision and ruled in favor of Kingdomware. “Unlike the word ‘may,’ which implies discretion, the word ‘shall’ usually connotes a requirement...Accordingly, the [VA] shall (or must) prefer veteran-owned small businesses when the rule of two is satisfied.”

In his announcement of the new goals, VA Secretary Robert Wilkie said, “Three years ago, the U.S. Supreme Court underscored our mandate to do business with service-disabled and other veteran entrepreneurs. We have increased the dollars awarded each year, but now it’s time to update the goals to reflect this new commitment. We need to lock in the gains we have made and continue to build for the future.”

In FY 2017 (the last year for which official data is available), VA awarded $5.1 billion in contracts to SDVOSBs and $5.4 billion to VOSBs. These figures represent 19.5% and 20.6%, respectively, of VA’s total procurement of $26.1 billion.

Paragraph (i) of 38 USC 8127 directs VA to consider SDVOSBs first and VOSBs second, before considering other small business program preferences. Other federal agencies are covered by an SDVOSB program administered by the Small Business Administration (SBA), which has a goal of only 3% for awards to SDVOSBs (no goal for VOSBs). At these agencies, the governmentwide SDVOSB program has equal priority with other small business socioeconomic programs.

For more on Kingdomware Technologies, Inc. v. United States, see the July 2016 Federal Contracts Perspective article “Supreme Court Issues Two Acquisition-Related Decisions.”

DOD Shakes Up the DFARS

After taking it easy in March, the Department of Defense went on a tear in April, issuing eight final rules, one interim rule, seven proposed rules, and one deviation. A majority of the final rules clean up the Defense Federal Acquisition Regulation Supplement (DFARS), deleting obsolete and duplicate clauses and making editorial changes (such as adding telephone numbers and website addresses for offices cited in the DFARS). While some of the proposed rules also clean up the DFARS, most of the proposed rules, the interim rule, and the deviation implement provisions of various National Defense Authorization Acts (NDAA).

USTR Waives Restrictions for Australia

The Office of the U.S. Trade Representative (USTR) has agreed to waive discriminatory purchasing requirements for eligible products and supplies of the Republic of Australia beginning on May 5, 2019, because on that date Australia will become a party to the World Trade Organization Government Procurement Agreement (WTO GPA), and it has agreed to provide reciprocal competitive government procurement opportunities to U.S. products and services and to suppliers of such products and services.

Because of this waiver, the FAR will be amended to add Australia to the list of WTO GPA “designated countries” wherever the list appears in the FAR: FAR 22.1503, Procedures for Acquiring End Products on the List of Products Requiring Contractor Certification as to Forced or Indentured Child Labor; FAR 25.003, Definitions; FAR 25.407, Agreement on Trade in Civil Aircraft; FAR 52.222-19, Child Labor – Cooperation with Authorities and Remedies; FAR 52.225-5, Trade Agreements; FAR 52.225-11, Buy American Act – Construction Materials under Trade Agreements; and FAR 52.225-23, Required Use of American Iron, Steel, and Manufactured Goods – Buy American Act – Construction Materials Under Trade Agreements.

Proposed DEAR Rule on Intellectual Property Withdrawn

The Department of Energy (DOE) is withdrawing the proposed rule that would have amended the DOE Acquisition Regulation (DEAR) intellectual property and technology transfer clauses to conform to the FAR changes made to the FAR by a final rule in Federal Acquisition Circular (FAC) 2005-21. DOE has determined that it will not proceed with this rulemaking and is withdrawing the proposed rule. The changes that were proposed will be incorporated into a larger rulemaking that will update the entire DEAR.

For more on the proposed rule, see the December 2013 Federal Contracts Perspective article “Energy to Address Patents, Data, and Copyrights.” For more on the final rule in FAC 2005-21, see the December 2007 Federal Contracts Perspective article “FAC 2005-21 Rewrites FAR Part 27 in Plain English.”

GSA Finalizes Local Authority to Buy Off Schedule 84

The General Services Administration (GSA) is finalizing, without changes, the interim rule that amended GSA Acquisition Regulation (GSAR) part 538, Federal Supply Schedule Contracting, to permit state and local governments to purchase from Federal Supply Schedule (FSS) 84, Total Solutions for Law Enforcement, Security, Facility Management Systems, Fire, Rescue, Special Purpose Clothing, Marine Craft, and Emergency/Disaster Response. The interim rule implemented the Local Preparedness Acquisition Act (Public Law 110-248).

In the final rule notification, GSA states, “No public comments were submitted in response to the interim rule. The program has been operating under the interim rule since 2008 without concern and with no statutory changes. Therefore, there are no changes from the interim rule made in the final rule. This action represents administrative clean-up...”

For more on the interim rule, see the October 2008 Federal Contracts Perspective article “State and Local Governments Can Buy Off Schedule 84.”

CAAC Issues Deviation on Subcontracting Limitations

The Civilian Agency Acquisition Council (CAAC), which represents the civilian agencies in maintaining the FAR (except for the National Aeronautics and Space Administration and the Coast Guard, which are members of the Defense Acquisition Regulations Council [DARC]), has followed the lead of the DOD and issued a class deviation from the FAR regarding limitations on subcontracting for small business concerns.

The members of the CAAC and the DARC have worked with the FAR Council (which administers the FAR) on a proposed rule to bring the FAR into conformance with revisions made by the Small Business Administration (SBA) to its regulations to implement the NDAA for FY 2013 (Public Law 112-239), Section 1651, Limitations on Subcontracting, which changed and standardized the limitations on subcontracting and the nonmanufacturer rule. DOD decided not to wait for a final rule to be issued, so it issued a class deviation directing DOD contracting officers to use alternate clauses to those in the FAR that address limitations on subcontracting. The alternate clauses in the DOD class deviation are practically identical to those in the proposed rule. Now the CAAC has issued an identical class deviation allowing civilian agencies to direct their contracting officers to use the same alternate clauses that are in the proposed rule and the DOD class deviation.

For more on the proposed FAR rule and the DOD class deviation, see the January 2019 Federal Contracts Perspective article “Amendments Proposed to Limitations on Subcontracting.”

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