1. Everything You Need to Know About Sole Source Contracts October 11, 2018

2. Presented by About PilieroMazza Jon Williams, Partner
Julia Di Vito, Associate
About PilieroMazza
PilieroMazza PLLC is a full-service law firm with offices in Washington, DC and Boulder, CO. We are most well known as a government contracting firm and for 25 years we have helped our clients navigate the complexities of doing business with the federal government. We also provide a full range of legal services including advice on corporate, labor and employment, SBA procurement programs, and litigation matters. Our clients value the diverse array of legal guidance they receive from us and our responsiveness as we guide their growth and secure their success.
Our primary practice areas are:
Government Contracting
Small Business Programs
Labor & Employment
Business & Corporate
Litigation
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3. Overview Types of sole source contracts
What the government needs to do to issue a sole source contract, and how you can help
Timing, posting, and protests
Other Transaction Authority (OTA)
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4. HUBZone Sole Source Contracts
FAR
CO must first consider competitive HUBZone set-aside (i.e., the “Rule of Two”) before HUBZone sole source
This means the CO cannot do a HUBZone sole source if the CO has a reasonable expectation of receiving two or more offers from HUBZone firms at a fair and reasonable price
But, you can be creative in helping the CO to build a case for why there is really only one HUBZone firm that can do the work
HUBZone sole source dollar limits:
$7M for manufacturing contracts
$4M for all other contracts
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5. HUBZone Sole Source Contracts
Not permitted if the requirement has been accepted into the 8(a) program or is currently being performed by an 8(a) firm
HUBZone sole source contracts must be above the simplified acquisition threshold and at a fair and reasonable price
CO must determine the HUBZone small business is responsible with respect to performance and that award can be made at a fair and reasonable price
Award can be made to a joint venture if all other requirements satisfied
SBA may appeal a CO’s decision not to make a HUBZone sole source award
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6. HUBZone Performance Requirements
The FAR has different rules on performance requirements for HUBZone contracts as compared to SBA’s rules
Supplies (non-manufacturer): if over $25,000, must provide end items manufactured or produced by HUBZone small business manufacturers
General construction and construction by special trade contractors: no more than 50% of the cost incurred for personnel will be subcontracted to non-HUBZone concerns
Not applicable to sole source contracts
The SBA rules should control, but be careful to make sure the contract incorporates SBA’s performance requirements
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7. SDVOSB Sole Source Contracts
FAR and VAAR and
For SBA SDVOSB:
Similar to HUBZone, in that the CO must first determine if the “Rule of Two” is satisfied and that award can be made at a fair and reasonable price to a responsible SDVOSB
Dollar limits of $6.5M for manufacturing, $4M for any other contract
For VA VOSB/SDVOSB:
Sole source contracts cannot exceed $5M
Should be easier to do because the VA CO does not need to first determine if the “Rule of Two” is satisfied
However, VA has implemented policies/procedures that effectively limit its statutory sole source authority and require consideration of competition before doing sole source
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8. ED/WOSB Sole Source Contracts
FAR
Sole source was not initially available, but was added in 12/2015
Similar requirements as for HUBZone and SBA SDVOSB, including need to first determine if the “Rule of Two” is satisfied
The sole source contract must also be in a NAICS code available to the EDWOSB or WOSB program
Dollar limits of $6.5M for manufacturing, $4M for any other contract
Debate over 3rd party verification
Is a 3rd party verification necessary to be eligible for an EDWOSB or WOSB sole source contract?
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9. 8(a) Sole Source Contracts
Critical advantage of the 8(a) program over other SBA set-aside programs
Great marketing tool for 8(a) firms
Why is it such a great tool?
Agencies can issue 8(a) sole source contracts below the applicable “competitive threshold” without having to worry about the “Rule of Two”
The “competitive thresholds” for 8(a) contracts are $7M for manufacturing and $4M for all other types of contracts
Once a contract gets in the 8(a) program, it is difficult to get it out
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10. More on 8(a) Sole Source Contracts
May be awarded to 8(a) firms and 8(a) joint ventures
Must be 8(a) eligible at the time of 8(a) sole source award
If you are not in good standing, perhaps because you are not meeting your 8(a) and non-8(a) business mix requirements, SBA will commonly suspend your ability to obtain new 8(a) sole source awards
Limitations on subcontracting apply
Note that requires, among other things, that the 8(a) firm obtain approval from SBA and the procuring agency before utilizing any subcontractors in performance of the contract – this is often overlooked
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11. 8(a) Competitive Thresholds
The 8(a) competitive thresholds of $7M/$4M are subject to increase every five years; next adjustment in 2020
If the anticipated award price for a services project is $3.8M and it is accepted as an 8(a) sole source on that basis, the sole source will still be valid if the contract increases to $4.2M after negotiation
However, the contract price cannot be more than 10% greater than the competitive threshold unless SBA determines there are not at least two 8(a) firms that would submit offers at a fair market price or the procuring agency otherwise justifies a sole source contract
Cannot break up contract into smaller portions to fit each under the competitive threshold
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12. Special 8(a) Rules for ANCs, Tribally-Owned Firms, and NHOs
The $7M/$4M competitive thresholds for 8(a) do not apply to ANCs or Tribally-owned firms, and NHOs are also exempt but only for DoD contracts
These exemptions apply so long as SBA has not already accepted the contract into the 8(a) program as a competitive procurement
An 8(a) sole source contract to ANC/Tribe/NHO cannot exceed $22M without justification and approval
For other 8(a) firms, once they reach the lesser of $100M in combined sole source + competitive 8(a) contracts, or five times the amount of the size standard for their primary industry, the firm is no longer eligible for sole source contracts
But this does not apply to ANCs/Tribes/NHOs
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13. Other Types of Sole Source Awards
Sole source awards are permitted in certain circumstances set forth in FAR Part 6:
Only one responsible source
Unusual and compelling urgency
To keep facility, producer, manufacturer, or other supplier available
To establish or maintain an essential engineering, research, or development capability
To acquire the services of an expert or neutral person for any current or anticipated litigation or dispute
Competition prohibited by international agreement
Statute authorizes or requires a specified source
Competition would compromise national security
Competition is not in the public interest
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14. Limiting Sources for FSS Orders
Federal Supply Schedule orders and BPAs are not subject to FAR Part 6, but ordering agency must justify restricting the number of sources it considers for an FSS order using a Limited Source Justification (“LSJ”), similar to a sole source justification
LSJs are permitted when:
An urgent and compelling need exists, and following the competitive ordering procedures would result in unacceptable delays
Only one source is capable of providing the supplies or services at the level of quality needed because they are unique or highly specialized
In the interest of economy and efficiency, the new work is a logical follow-on to an original FSS order provided that the original order was placed in accordance with the applicable FSS ordering procedures and was issued on a competitive (not sole source) basis
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15. Justification and Approval (“J&A”)
Agencies must complete a J&A to issue sole source contracts except for when a statute requires or authorizes acquisitions in these circumstances:
Brand name commercial item for authorized sale
Qualified Nonprofit Agencies for the Blind or other Severely Disabled
Statutes require award to specific source
8(a) sole source for $22 million or less
If competition is not in the public interest, a determination and findings must be drafted and Congress must be notified of the determination not less than 30 days before award
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16. Contents of the J&A
A J&A typically must address 12 items found in FAR , including:
A description of the supplies or services and estimated value
Statutory authority permitting the sole source
Explanation of the contractor’s unique qualification or nature of the acquisition that requires use of the sole source authority cited
A description of efforts made to ensure that offers are solicited from as many potential sources as is practicable
A determination by the contracting officer that the anticipated cost to the Government will be fair and reasonable
A description of the market research conducted and the results or a statement of the reason market research was not conducted
A listing of the sources, if any, that expressed an interest in writing
A statement of the actions, if any, the agency may take to remove or overcome any barriers to competition before any subsequent acquisition
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17. Publication of the J&A
Typically, the J&A must be published after award
In most cases, the J&A must be published within 14 days after award
For “unusual and compelling urgency” awards, the J&A must be published within 30 days after award
Exceptions to publication
If competition would compromise national security, and the J&A itself would compromise national security if published
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18. Market Research for Sole Source
In most cases, government is expected to perform some market research to justify its decision to issue a sole source contract
FAR Subpart 6.3 and Part 10
Extent of market research depends on what is reasonable under the circumstances
Tips
Important to respond to RFIs
Description of the contract and your unique capabilities are key
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19. Protests of Sole Source Awards – Timing
A competitor cannot challenge size or small business status eligibility on an 8(a), HUBZone, SDVOSB, or WOSB sole source contract
You could request SBA or the CO to initiate their own size or status protest
No specific time that request would be due, but you should request it soon after award
A GAO bid protest is due within 10 days of when you learn of the basis of protest
When you learn of the award or when you could learn of the award (e.g., the posting of the J&A)
A Court of Federal Claims bid protest is due within 6 years of when it accrues, but it is best to file soon after contract award
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20. Protests of Sole Source Awards – Potential Arguments
The J&A does not contain the required contents
The sole source award was not based on the correct authority
The J&A was not posted on time
Lack of documentation
The agency’s market research was flawed or nonexistent
The awardee does not have the qualifications/knowledge the agency says it has (for only one responsible source)
For 8(a) sole source, GAO’s review of actions under the 8(a) program generally is limited to determining whether government officials have violated regulations or engaged in bad faith
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21. Other Transaction Authority (“OTA”)
11 agencies currently have OTA and approximately 40 agencies are asking for it
OTA provides a unique, non-competitive means for an agency to award a contract
Results in a written contract
Not subject to the FAR, DCAA audit, or procurement laws like the Competition in Contracting Act or the Procurement Integrity Act
No dollar limit for the agreements, but there are different approval thresholds depending on the amount of the contract
Used for R&D and “cutting edge” prototype development
Agencies negotiate one-on-one after soliciting capability statements from places like FBO.gov
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22. Agencies Authorized to Use OTA
Department of Defense (DOD)
10 U.S.C. § 2371
Department of Energy (DOE)
42 U.S.C. § 7256
Advanced Research Projects Agency-Energy (ARPA-E)
42 U.S.C. § 16538
Department of Health and Human Services (HHS)
42 U.S.C. § 247d-7e
National Institutes of Health (NIH) (certain programs)
42 U.S.C. § 285b-3;
42 U.S.C. § 284n;
42 U.S.C. § 287a;
Consolidated Appropriations Act, 2015, Pub. L No , div. G, title II, § 213, 128 Stat. 2487
Department of Homeland Security (DHS) (expired end of FY17)
6 U.S.C. § 391
Domestic Nuclear Detection Office (DNDO)
6 U.S.C. § 596
Transportation Security Administration (TSA)
49 U.S.C. § 114(m)
Department of Transportation (DOT)
49 U.S.C. § 5312
Federal Aviation Administration (FAA)
49 U.S.C. § 106(l)
National Aeronautics and Space Administration (NASA)
51 U.S.C. § 20113(e)
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23. $412M in FY17
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24. Questions? Jon Williams Julia Di Vito jwilliams@pilieromazza.com
888 17th Street, NW
11th Floor
Washington, DC
This material is presented with the understanding that the author is not rendering any legal, accounting, or other professional service or advice. Because of the rapidly changing nature of the law, information contained in this presentation may become outdated. As a result, the user of this material must always research original sources of authority and update information to ensure accuracy when dealing with a specific legal matter. In no event will the author be liable for any damages resulting from the use of this material.
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