HUBZone | The Contracting Education Academy

January 31, 2011 By AMK

HUBZone program faces economic uncertainties

Small companies in economically depressed regions have lost their priority status when it comes to set-aside contracts.

Acquisition officials are no longer required to check for companies in Historically Underutilized Business Zones before awarding a contract. Instead, they can choose to set aside a contract for any type of small business, such as those in the Small Business Administration’s 8(a) Business Development Program.

As a result, HUBZone companies might get fewer contracts as set-asides go to more popular programs.

Congress took away the HUBZone program’s priority status last year by changing the legal wording. The Small Business Jobs and Credit Act of 2010 changed the word “shall” to “may” in the language that governs HUBZone contracting. The so-called Rule of Two previously required contracting officers to award a contract to a HUBZone firm if there were at least two such companies that could offer reasonable bids on the project. By changing the requirement to an option, the government has put the HUBZone program on an equal footing with the other major set-aside programs.

There had been an ongoing debate among the Obama administration, Government Accountability Office and U.S. Court of Federal Claims about whether the “shall” actually meant “shall.” Whichever interpretation officials took, the wording muddied the waters, and Congress just cleared them up.

However, the HUBZone program might now fall behind the other types of disadvantaged small businesses, such as those owned by service-disabled veterans and women, experts say.

“I believe current environmental factors at play still favor service-disabled veteran-owned small businesses,” said Guy Timberlake, CEO and chief visionary officer at the American Small Business Coalition. “But the impending launch of the women’s procurement program on Feb. 4 seems to have significant momentum and could be a game changer in the small-business community.”

On top of all that, the HUBZone program has had a lot of bad press. Business owners have to certify that the place where the company does most of its work is in a HUBZone before they can get the designation. In 2008, GAO investigators found at least 10 businesses in the Washington, D.C., area that were not meeting that requirement. And in 2009, GAO reported more fraudulent companies in the HUBZone program.

Clearly, agency officials weren’t checking on businesses. As part of its investigation, GAO auditors successfully certified bogus companies for the HUBZone program by using the addresses of the Alamo in Texas and a public storage facility in Florida.

The fraud problems were overshadowed by the shall vs. may debate. But with that resolved, such activities will likely get more scrutiny.

“Buyers may recall that not all businesses who call themselves HUBZones are — at least according to GAO,” said Larry Allen, president of Allen Federal Business Partners and former president of the Coalition for Government Procurement. Now that agencies are aware of the problem, federal officials are more likely to make sure HUBZone firms are what they say they are.

The checkups are laudable, but they could have a detrimental effect on legitimate HUBZone companies. “If [government] buyers think that it takes too much time, they may use another acquisition method,” Allen said.

Thriving on its own

Meanwhile, advocates say the program is strong enough to succeed on its own merits.

Ron Newlan, chairman of the HUBZone Council advocacy group, said the program is mature enough to survive without the legal preference. “Contracting officers know about the program and have used it for years,” he said. “I’m sure they’re going to continue to do so.”

Furthermore, the federal government’s spending has increased dramatically since 2001, making the pie large enough for everyone to get their fair share, he added.

HUBZone companies received an average of 2.8 percent of federal prime-contracting dollars in fiscal 2009, which is short of the 3 percent annual goal. Still, it was a slight increase from the 2.3 percent awarded in 2008, according to the Small Business Administration’s annual reports.

Although the federal acquisition workforce might be familiar with the program, many new members of Congress don’t know anything about it. The HUBZone Council’s leaders are developing relationships with the new lawmakers to protect the program from budget cuts. One of its strategies is highlighting HUBZone success stories.

“We have story after story about how people would not have jobs or medical insurance if not for the HUBZone program,” Newlan said.

– by Matthew Weigelt – Jan. 25, 2011 – Federal Computer Week.

December 1, 2010 By AMK

Contract disputes reach an all-time high

For the fourth consecutive year, the number of bid protests filed with the Government Accountability Office has increased significantly, a trend some analysts attribute to recent growth in federal procurement spending and the rising value of individual contract awards.

In fiscal 2010, contractors submitted an all-time high of 2,299 protests, according to statistics GAO released to congressional leaders last week. This represents a 16 percent increase over fiscal 2009, when contractors filed 1,989 contract award challenges.

All but 73 of the 2010 cases have been closed; most were dismissed based on procedural rules, withdrawn by the protester, or resolved through mediation before GAO reached a decision. Of the 441 cases that did make it to the final stage, GAO decided 82, or 19 percent, in favor of the company that filed the protest. That figure is up slightly from fiscal 2009 but down significantly from fiscal 2006, when the sustainment rate peaked at 29 percent.

While the sustainment rate remains relatively low, contractors have found other ways to settle the disputes in their favor. Very often, agencies will eliminate the middle agent and renegotiate directly with the contractor. The 2010 effectiveness rate — based on a contractor receiving “some form of relief from the agency,” frequently the reopening of the contract — was 42 percent, the data show. That’s more than double the sustainment rate.

Agencies heeded GAO’s recommendation in all but three cases in 2010, each of which were filed by small firms operating in Historically Underutilized Business Zones. A 2009 GAO decision found HUBZone contractors legally had a preference over other types of small businesses when competing for set-aside contracts. The Obama administration disagreed and instructed agencies to ignore GAO’s recommendation. Congress restored small businesses parity in September.

The swell of bid protests coincides with an overall increase in the federal government’s contract spending in recent years.

A February 2009 Congressional Research Service report found the number of contracts signed between fiscal 2001 and fiscal 2008 increased by almost 600 percent to more than 4 million, while the total value of those contracts nearly doubled. During that same period, the number of bid protests increased by 37 percent, CRS found. The majority of all contract actions, however, were not disputed.

“Spending on contracts has gone higher and higher and that has led to an increase in the total number of bid protests,” said Ralph White, who heads GAO’s bid protest division.

There are other possible explanations for the spike in contract protests. Some analysts point to the increased dollar value of individual awards and longer contract durations, which make it harder for firms to let go of contract opportunities.

“These are tough economic times and they are getting tighter in the government space,” said Rich Rector, chairman of the government contracts practice at the Washington law firm DLA Piper. “It could drive people not to be as sanguine when they lose a contract.”

GAO’s jurisdiction over contract reviews also has expanded in recent years. In 2007, Congress instructed the watchdog to hear protests for task and delivery orders on existing multifirm contracts, public-private job competitions under Office of Management and Budget Circular A-76, and Transportation Security Administration contracts.

Of the nearly 2,300 fiscal 2010 bid protests, 189 were related to GAO’s new authority over task and delivery orders. In 2009, contractors filed 168 task order protests. GAO no longer keeps separate data on TSA contracts, White said, and there is a governmentwide moratorium on A-76 competitions.

The bid protest figures also can be somewhat deceiving because GAO counts each supplemental filing by a protesting party as a new case. Nonetheless, the supplemental protests filed annually represent a relatively small percentage of the total, White said.

– by Robert Brodsky – GovExec.com – December 1, 2010

November 19, 2010 By AMK

SBA takes closer look at federal contractors

The Small Business Administration is stepping up its efforts to ensure contractors aren’t fudging the truth in order to win government deals.

The SBA in fiscal year 2010 visited more than 1,000 small business contractors participating in its popular HUBZone program, up from some 700 visits the year before and fewer than 100 in 2008. The program is aimed at linking small firms in economically distressed areas with federal contracting opportunities.

“We need to go out and see that these firms are who they say they are,” said Joseph Jordan, the SBA’s associate administrator for government contracting and business development. “The vast majority of these firms are well-intentioned and well-behaved, but occasionally you find a bad actor.”

In the first half of 2009, the SBA conducted just seven site visits, but it began increasing surveillance activity in the second half of the year, visiting an additional 700 firms. The visits are part of a wider SBA effort to combat fraud connected with its growing contracting programs.

The SBA earlier this year suspended one of the government’s most prolific IT contractors, GTSI Corp., accusing it of scheming to get a piece of government contracts for which it was ineligible.

“It was actually the first time we saw a top 50 contractor suspended for doing something they’d been doing for years,” said Chris Gunn, a spokesman for the American Small Business League, a small business advocacy group.

The SBA and GTSI, which did not return phone calls seeking its comments, eventually reached an agreement under which several top executives resigned and the suspension was lifted. But similar cases against other companies are emerging.

“There is a tremendous volume of additional firms who are doing very similar things,” Mr. Gunn said.

The SBA earlier this month told biotech firm Siga Technologies Inc., which was on the verge of winning a $2.8 billion smallpox-drug contract, that it did not qualify for the award because it is owned by the same large firm that owns such companies as Revlon Inc.

SIGA is appealing the ruling, saying the smallpox-drug contract should not be awarded as a small business set-aside. In a statement this week, SIGA suggested it could be “the only supplier that capable of delivering the requested 1,700,000 courses of therapy in a timely manner.”

Still, similar rulings from the SBA could be on the horizon.

The Government Accountability Office in 2009 issued a report citing widespread fraud in the SBA’s HUBZone program.

Of a review of 36 firms in four cities, the GAO found 19 weren’t actually eligible for the contracts they won.

“One Alabama firm listed its principal office as ‘Suite 19,’ but when GAO investigators performed a site visit they found the office was in fact trailer 19 in a residential trailer park. The individual living in the trailer had no relationship to the HUBZone firm,” the report said.

Combined, the 19 companies were improperly awarded $30 million in HUBZone contracts in 2006 and 2007, the GAO said.

– by MEENA THIRUVENGADAM – The Wall Street Journal – Nov. 19, 2010 – meena.thiruvengadam@dowjones.com

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