What to Expect in Government Construction Contracting August 27, 2009 Presented by: Robert E. Korroch Williams Mullen

Part One: Primer on Government Contracting

What is Different When the Owner is the Government?

4  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

5  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

7 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

8 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

9 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

11 More to do Before You Bid: CCR and ORCA Registration  Central contractor registration: –  Online representations and certifications application: –

12 Finding Opportunities  Focus  Market research –Customers in your region –Pre-solicitation and pre-bid conferences –Internet resources (e.g.,

13 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

14 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

17 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

18 Small Business Set Aside Programs— The Other Reason for Teaming  Small business set-asides  8(a) Program  HUBZone SBC  SDVO SBC

19 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.

20 “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

21 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

23 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

25 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?

27 The Evil That Lurks in Teaming 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.

28 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

29 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.

30 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.

31 Bases for Affiliation  Ownership of stock or options  Common management  Identity of interest  Newly organized concern rule  Joint ventures

32 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.

33 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

34 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

35 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.

36 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]

37 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.

38 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.

39 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

41 New FAR Requirements  E-Verify –Clause will be incorporated in covered contracts awarded after Sep. 8, 2009  Project Labor Agreements –E.O (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” Korroch Newport News, VA North Carolina  Virginia  Washington, D.C.  London, England Contact Information