L & R Alert June 2014


June, 2014
H.R. 4435, the National Defense Authorization Act for Fiscal Year 2015
On May 22, 2014, the House passed H.R. 4435, The National Defense Authorization Act for Fiscal Year 2015 (“NDAA FY15”) by a vote of 325 to 98.  The NDAA FY15 included a number of provisions of interest to government contractors.  The Senate is not expected to take up the defense bill until the fall.
Section 811 – Extension and Modification of DoD’s Subcontracting Plan Test Program
Section 811 of the NDAA FY15 would amend the existing DoD Subcontracting Plan Test Program and extend the program by three years to December 31, 2017.  Participation in the program would now require having at least three DoD contracts worth at least $100 million total (up from three contracts worth $5 million total).  Section 811 would also require the covered plans to include all of the Federal government’s small business participation goals (e.g., HUBZone and SDVOSB). 
Participants must report on a semi-annual basis the total amount of first-tier subcontract dollars awarded by military department, major defense acquisition program, NAICS code, and by contract if it is a service contract and worth more than $100 million.  Participants must also report their costs in negotiating, reporting and complying with the comprehensive subcontracting plans, as well as those costs avoided through the utilization of a comprehensive plan.  According to the Committee, the additional data points are necessary in order to better understand whether the program is meeting its original goal of fostering small business subcontracting opportunities in a cost efficient manner.  Failure to make “good faith” efforts to comply with the plan subject a company to liability for liquidated damages pursuant to section 8(d)(4)(F) of the Small Business Act (15 U.S.C. § 637(d)(4)(F)).  Such a failure may also be considered in the evaluation of the company’s past performance.
Section 812 – Transfer of Control of VA SDVOSB Program to SBA
Section 812 of the NDAA FY15 would make a number of changes to the Department of Veterans Affairs SDVOSB program, including giving the SBA the sole responsibility for the verification process for SDVOSBs.  SBA and the VA are required to detail the transfer of control and administration of the program pursuant to a memorandum of understanding within 180 days of the passage of the NDAA FY15.  Before the SBA can begin processing applications, it must adopt new regulations, which are supposed to be issued within 270 days of executing the memorandum.  The SBA and VA are required to meet every 180 days thereafter to discuss improving mutual collaboration and the opportunities of SDVOSBs and VOSBs.  Section 812 also unifies SDVOSB definitions contained in the Small Business Act (15 U.S.C. § 632) and the VA’s implementing statutes (38 U.S.C. § 8127).
Section 813 – Improving Data on Bundling
Section 813 would require the SBA to develop a plan to improve the quality of data reported on bundled and consolidated contracts.  Specifically, the plan must address the proper identification and mitigation of contract bundling, establish consequences for the failure to properly identify a bundled or consolidated contract, and assign data verification responsibilities.  The committee believed that “properly labeling a contract as bundled or consolidated is important to small business competition, as the process of contract labeling triggers a series of reviews and mitigation steps that promote opportunities for small business.“ GAO is required to study the effectiveness of SBA’s plan and report to Congress in 2018. 
Section 815 – Limitations on the use of Reverse Auctions
Section 815 would prohibit the use of reverse auctions in small business design and construction service contracts or where the technical qualifications of an offeror are relevant to award.  Section 815 also limits the use of reverse auctions where only one offer is received or where offerors cannot submit revised bids.  The changes would apply to all contracts suitable for award to a small business concern or awarded pursuant to the Small Business Act.  The changes reflect the Committee’s concern that “auctions can harm small businesses, reduce competition, and render higher purchase prices.” 
Section 817 – Increase in Small Business Goals
Section 817 would raise the Federal goal of contracting with small businesses from 23 percent to 25 percent.  It would also establish a subcontracting goal for small business participation on subcontracts equal to 40 percent of all subcontracting dollars.
Strategic Sourcing Study and J&A Publication
The NDAA FY 15 directs the Comptroller of the GAO to conduct a study of the impact of the Federal Strategic Sourcing Initiative on the small business industrial base.  The Act would also require agencies to publish its justification for using strategic sourcing prior to issuing the solicitation.
Sole Source Opportunities for Women Owned Small Business
The NDAA FY 15 authorizes sole source awards to women owned small businesses of up to $4 million ($6 million if the contract involves manufacturing).  In order to be eligible, the business must either be owned by an economically disadvantaged woman or engaged in an industry where women owned businesses are substantially underrepresented.  The provision would also shorten the time between reports on Substantially Underrepresented Industries from five years to two years.
For more information, contact Devon E. Hewitt, Chair of SECAF’s Legislative & Regulatory Committee and Partner at Protorae Law:  dhewitt@protoraelaw.com
Small Business Size Standards: Employee Based Size Standards in Wholesale Trade and Retail Trade, Proposed rule, 79 Fed. Reg. 28631, May 19, 2014,
The U.S. Small Business Administration proposes to increase employee based size standards for 46 industries in North American Industry Classification System (NAICS) Sector 42, Wholesale Trade, and one industry in NAICS Sector 44–45, Retail Trade and retain the current size standards in the remaining industries in those sectors. SBA also proposes to retain the current 500-employee size standard for Federal procurement of supplies under the nonmanufacturer rule. As part of its ongoing comprehensive size standards review, SBA reviewed all 71 industries in NAICS Sector 42 as well as the two industries in NAICS Sector 44–45 that have employee based size standards. The proposed revisions, if adopted, will primarily affect eligibility for SBA’s financial assistance programs. This proposed rule is one of a series of proposed rules that will review size standards of industries grouped by NAICS Sector.
SBA must receive comments to this proposed rule on or before July 18, 2014.
For more information, contact Devon E. Hewitt, Chair of SECAF’s Legislative & Regulatory Committee and Partner at Protorae Law:  dhewitt@protoraelaw.com
GAO Reports that Agencies Need to Spend More on SBIR/STTR Programs
GAO’s John Neumann, Acting Director for Natural Resources and Environment, testified recently before the U.S. Senate Committee on Small Business and Entrepreneurship that eight (8) of the eleven (11) agencies participating in the Small Business Innovation Research (SBIR) program, and four (4) of the five (5) agencies participating in the Small Business Technology Transfer (STTR) program, fell short of their SBIR/STTR spending requirements for FYs 2006-2011. 
The SBIR/STTR programs require participating agencies to spend a percentage of their “extramural R&D” budgets on these programs (currently 2.6% for SBIR, and 0.35% for STTR).  Agencies blamed the shortfall on appropriations received late in the year, which threw off their budget calculations.  GAO concluded that the Small Business Administration (SBA), which administers the SBIR/STTR programs, had not provided sufficient guidance on how agencies should calculate spending requirements after an unforeseen increase in appropriations.  GAO notes, however, that SBA is taking steps to address this problem.
Compounding the problem is the failure of many agencies to annually disclose to SBA their methodologies for calculating this “extramural R&D” budget.  GAO was most alarmed by agencies who excluded certain R&D programs without a brief explanation for why they were excluded, as required by law. 
Looking forward, if the SBA addresses these problems and participating agencies respond appropriately, the small business community should see a rise in SBIR/STTR awards.  At the very least, this report should pressure SBA to require participating agencies to be more transparent with their extramural R&D budgets, which could lead to marketing opportunities at agencies that have fallen behind on their spending requirements.
For more information, please contact Steve Ramaley (sramaley@milesstockbridge.com), an attorney with Miles & Stockbridge PC.  
Baseline Framework to Reduce Cyber Risk to Critical Infrastructure
On February 12, 2013, the Whitehouse released Executive Order 13686 titled “Improving Critical Infrastructure Cybersecurity.”  This EO was created pursuant to the President’s increasing concern about the susceptibility of the United States’ critical infrastructure to cyber-attacks; the EO was also created in response to Congress’ inability to pass comprehensive cybersecurity legislation that included critical infrastructure protection provisions. 
Section 7 of EO 13686, Baseline Framework to Reduce Cyber Risk to Critical Infrastructure, describes the task that the National Institute of Standards and Technology (NIST) was given to create a Cybersecurity Framework that “provide[s] a prioritized, flexible, repeatable, performance-based, and cost-effective approach, including information security measures and controls, to help owners and operators of critical infrastructure identify, assess, and manage cyber risk.”  On February 12, 2014, NIST released Version 1.0 of the “Framework for Improving Critical Infrastructure Cybersecurity” which is comprised of three main tenets: “[the] core, tiers and profiles. The core presents five functions—identify, protect, detect, respond and recover—that taken together allow any organization to understand and shape its cybersecurity program. The tiers describe the degree to which an organization's cybersecurity risk management meets goals set out in the framework and "range from informal, reactive responses to agile and risk-informed." The profiles help organizations progress from a current level of cybersecurity sophistication to a target improved state that meets business needs.”
The Framework was designed to be relevant despite the size of the organization.  While Version 1.0 is a solid start, NIST recognizes that the Framework will be a living document that evolves along with the technology and threat landscape. 
For more information see:
1.      Executive Order – http://www.whitehouse.gov/the-press-office/2013/02/12/executive-order-improving-critical-infrastructure-cybersecurity
2.      NIST Framework Release Announcement – http://www.nist.gov/itl/csd/launch-cybersecurity-framework-021214.cfm
3.      The Framework – http://www.nist.gov/cyberframework/upload/cybersecurity-framework-021214.pdf
You may also contact Tina Williams at tina.williams@us-dgs.com