What to Expect in Government Construction Contracting

August 27, 2009August 27, 2009

Presented by:Presented by:

Robert E. KorrochRobert E. Korroch

Williams MullenWilliams Mullen

Part One:Primer on Government

Contracting

What is Different When the Owner is

the Government?

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Contracting with the sovereign– The requirement for competition– Socio-economic programs– The political factor

The government’s contracts are comprehensive– Federal Acquisition Regulations (“FAR”)– FAR provisions and clauses– Agency FAR supplements

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The government’s contracts contain unique requirements– Contractor duty to proceed during a dispute– Government’s unilateral right to terminate for its

convenience– Termination for default

The government is a powerful customer– Limited waivers of sovereign immunity– Numerous ways to “remedy” poor performance

Before You Bid

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Bid Should Take into Consideration Costs of Complying with Labor

Standards

Davis Bacon Act Copeland (Anti-Kickback) Act Contract Work Hours and Safety

Standards Act Collective Bargaining Agreements Equal Opportunity Regulations

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Be Prepared to Implement Compliance Programs

Written code of business ethics and conduct

Due diligence to prevent and detect criminal conduct and promote culture of compliance– Timely self-disclosure

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Compliance Programs

Business Ethics Awareness and Compliance Program– Training programs– Internal control system

Anti Kickback Act Gratuities Buy American

The Dilemma of Transparency—When to Self

Report

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More to do Before You Bid: CCR and ORCA Registration

Central contractor registration:– www.ccr.gov

Online representations and certifications application:– https://orca.bpn.gov

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Finding Opportunities

Focus Market research

– Customers in your region– Pre-solicitation and pre-bid conferences– Internet resources (e.g., www.fbo.gov)

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Study the Solicitation

Understand the evaluation factors that will be the basis for award

Understand the source selection criteria Evaluate the type of contract to

understand how risk of cost overruns is being shifted--Two ends of the spectrum:– Cost reimbursement contract: Government

(Owner) assumes the risk of cost overruns– Firm-Fixed Price contract: Contractor assumes

risk of cost overruns

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Risk Shifting

Myth: “I only bid firm-fixed price, so I don’t need a complicated accounting system.”

Truth: High likelihood of Government gaining access to cost data even under FFP– Requests for equitable adjustment under the

changes, suspension of work, and other clauses

– Claim for costs pursuant to a Termination for Convenience claim

Part Two:Hot Topics: Challenges that Arise from Teaming to Win Small Business Set-Aside Contracts

ACOE Update

Teaming For Small Business Set-Aside

Contracts

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The Teaming Push—Why?

Customer demands specialized technology, competencies, and highly skilled work force

Source selection criteria require depth of experience and past performance

Successful proposals are expensive to write

Not every bidder wins

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Small Business Set Aside Programs—The Other Reason for Teaming

Small business set-asides 8(a) Program HUBZone SBC SDVO SBC

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Size Standards: What is Small?

NAICS assigned to each procurement

Size standard based on either:

– Annual receipts: Total receipts over most recently completed three fiscal years divided by three; or

– Number of employees: Average number of employees for each of the pay periods for the preceding completed 12 calendar months.

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“Team Arrangement”

FAR uses the term “Team Arrangement” Generally describes two kinds of

relationships:– Joint Venture: Two or more companies form a

partnership or joint venture to act as potential prime contractor; or

– Teaming Agreement: A potential prime contractor agrees with one or more other companies to have them act as its subcontractors under a specified Government contract or acquisition program.

FAR 9.601

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FAR Policy

Government will recognize team arrangements; provided arrangements are identified and company relationships are fully disclosed in an offer.

FAR 9.603

Joint Venture

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Joint Ventures Rare for Small Business Set-Asides

A joint venture usually results in the creation of a new entity that would be considered to be large for SBA size purposes

Joint ventures for small business set-aside projects are not advisable except when they fall under special rules, e.g.– 8(a) Mentor and Protégé– JV among specially qualified small businesses

for an acquisition that exceeds one-half of the size standard

Teaming Agreement Overview

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Key Components of a Teaming Agreement

Identify the solicitation (the “program”) Specify each party’s responsibilities in

proposal preparation Exclusivity Process for entering into a subcontract Terms of the subcontract

– Agreed division of the statement of work– Subcontract pricing

Why All of This Detail in a Teaming Agreement?

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The Evil That Lurks inTeaming Arrangements: Affiliation

In determining the concern's size, SBA counts the receipts, employees, or other measure of size of the concern whose size is at issue and all of its domestic and foreign affiliates, regardless of whether the affiliates are organized for profit.

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Affiliation Scenario

Procurement is total small business set- aside– Small business prime teams with large

business sub

Size status is protested/award is lost Bidder accused of false certification or

submitting false claims

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Affiliation Definition

Concerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party or parties controls or has the power to control both. It does not matter whether control is exercised, so long as the power to control exists.

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Bases for Affiliation

SBA will consider the totality of the circumstances.

SBA may find affiliation even though no single factor is sufficient to constitute affiliation.

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Bases for Affiliation

Ownership of stock or options Common management Identity of interest Newly organized concern rule Joint ventures

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Ostensible Subcontractor

A contractor and its ostensible subcontractor are treated as joint venturers, and therefore affiliates, for size determination purposes.

An ostensible subcontractor is a subcontractor that performs primary and vital requirements of a contract, or a subcontractor upon which the prime contractor is unusually reliant.

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Ostensible Subcontractor

Prime contractor unusually reliant on subcontractor– Bonding assistance (construction)– Cooperation in writing the proposal– Prime planning to use sub’s facilities– Cooperation in performing the work

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Ostensible Subcontractor

Subcontractor performing primary and vital requirements– Sharing of key employees– Prime planning to hire sub’s employees– Technical assistance– Contract management– Percentage of work

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Ostensible Subcontractor

SBA is particularly suspicious when the subcontractor is the incumbent contractor and is ineligible to submit a proposal because it exceeds the applicable size standard for that solicitation.

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Minimum Percentage of Work Requirements

For set-aside service contract, small business concern must perform at least 50 percent of the cost of the contract incurred for personnel with its own employees;

In the case of a contract for general construction, the concern will perform at least 15 percent of the cost of the contract with its own employees (not including the costs of materials). [50% for HUBZone]

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The Size Status Protest

Procedure Outcomes Awardee’s disadvantage:

– The first team to have its award protested loses

Collateral consequences:– False Statement: Knowingly and intentionally

certifying a large business as small.– False Claim: Certifying that a business is small

to obtain a benefit from the Government.

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Avoid the Pitfalls

Small business primes: Think twice about teaming with the large business incumbent.

Large business: Be willing to relinquish control to the small business prime.

Use Teaming Agreements, but show in the Agreement that the small business prime is running the show.

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Avoid the Pitfalls

In the Proposal: Discuss the Teaming Agreement and the small business prime contractor’s independence.

Be prepared to defend against a size status protest if you win (goes back to performing due diligence in choosing your teaming partner).

Two More Hot Topics

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New FAR Requirements

E-Verify– Clause will be incorporated in covered contracts

awarded after Sep. 8, 2009

Project Labor Agreements– E.O. 13502 (Feb. 2, 2009) encourages agencies

to consider requiring PLAs for construction projects over $25M

– Proposed FAR amendment issued July 14, 2009

– Comment period extended 30 days on August 18, 2009

Robert E. “Bob” KorrochRobert E. “Bob” KorrochNewport News, VA

757.249.5100

rkorroch@williamsmullen.com

North Carolina Virginia Washington, D.C. London, England

www.williamsmullen.com

Contact Information