Government Contracts Monitor

GAO Sustains Limiting the Number of Projects Allocable to a Large Business Mentor's Experience, but Rejects Treating a Mentor-Protégé Joint Venture Differently than a Prime/Subcontractor Contractor Teaming Agreement

March 17, 2019

One of the principal advantages of an approved Mentor/Protégé Agreement (MPA) is that the Mentor and Protégé can enter into a joint venture (JV) that can compete as small for any contract for which the Protégé would be eligible (see, e.g., 13 C.F.R. § 125.109(d)(1)). In turn, one of the principal advantages of a JV - now enshrined in statute and regulation - is that in evaluating experience and past performance a procuring activity must “consider” work done individually by each of the joint venturers, as well as any work previously done by the JV itself. Unfortunately, some uncertainty has arisen as to this wording, and neither the statute nor regulations spell out precisely what this means, and specifically how much “consider[ation]” must be accorded to the work done individually by each of the joint venturers. This has resulted in agencies taking various approaches and, in some instances, attempting to limit, in different ways, the extent to which a Protégé can rely upon its Mentor’s experience and past performance. It therefore is important for offerors to carefully analyze the specifics of individual solicitations in structuring their respective bids and proposals, and deciding whether to protest solicitation terms.

The Government Accountability Office (“GAO”) recently addressed this issue in Ekagra Partners, LLC, B-408685.18, Feb. 15, 2019, and provided some important guidance, and a disappointing result. M/P joint venturers need to be aware of and carefully consider this decision in evaluating future solicitations and structuring proposals. Specifically, GAO ruled that (1) the Small Business Act, as amended, and the implementing SBA Regulations, “neither mandate a specific degree of consideration for the mentor and the protégé firm, nor prohibit an agency from limiting the experience that may be submitted by one of the members,” and (2) an agency therefore can permissibly limit such so long as the agency presents a justification that "is rational and can withstand logical scrutiny.” GAO further determined that (1) it was rational for an agency to limit the number of Mentor projects that could be cited by the JV offeror in order to “meaningful consider the experience of the protégé,” even if such renders the JV ineligible, but (2) it was not rational to treat a M/P JV differently than a Prime/Subcontractor CTA in considering subcontractor experience, since the agency failed to establish any significant differing administrative burdens in evaluating one vs. the other.

While the latter ruling is helpful, the former raises serious issues and is extremely problematic, and appears contrary to, and substantially undermines, the legislative intent and entire purpose of the M/P program. Indeed, in a decision several years ago, GAO, in sustaining an agency’s considering a mentor’s experience and past performance, affirmatively cited SBA’s previously stated view that “it appeared contrary to the intent of SBA’s 8(a) mentor-protégé program for a procuring agency to downgrade a proposal based on the lack of experience/past performance of a protégé,” since “in order to be a protégé, an entity must lack experience.” (Wolf Creek Federal Services, Inc., B-409187, Feb. 6, 2014.)

Ekagra involves the currently ongoing open-season On-Ramp for the Small Business Pool 1 Indefinite-Delivery, Indefinite Quantity (IDIQ) contracts under GSA’s One Acquisition System for Integrated Services (OASIS) program. The various OASIS pools or contract groups allow agencies to place orders for flexible and innovative solutions for complex professional services. GSA announced that it intends to award 190 new IDIQ contracts in Pool 1. This procurement therefore has naturally attracted considerable attention and anticipated competition.

GSA initially awarded contracts in Pool 1 in 2014. The solicitation at that time required M/P JVs to demonstrate experience for the JV itself, and explicitly prohibited offerors from relying on the experience of the individual joint venture members, evidencing GSA’s restrictive approach. Congress subsequently amended the Small Business Act to require agencies "to consider the capabilities and past performance of each member of the joint venture as the capabilities and past performance of the joint venture.” (15 U.S.C. § 644(q)(1)(C).) SBA’s implementing regulation states that “When evaluating the past performance and experience of … a joint venture established pursuant to this section, a procuring agency must consider work done individually by each partner to the joint venture as well as any work done by the joint venture itself previously.” (13 C.F.R. § 125.8(e).)

These statutory and regulatory changes meant that GSA had to change its procurement scheme for the instant On-Ramp. GSA therefore decided to permit M/P JVs to submit large business mentor projects. However, GSA limited the number of such projects to less than the required minimum, meaning that a protégé that does not have qualifying projects on its own cannot meet the experience requirements and would be ineligible to compete. Specifically, the RFP required offerors to demonstrate experience in two categories: (1) pool qualification projects, which required two projects, only one of which could be a Mentor project, and (2) relevant experience (primary) projects, which required a minimum of three and maximum of five projects, of which only two could be Mentor projects. GSA also limited offerors to two Mentor projects in a third category – relevant experience (secondary) projects – as to which offerors could receive additional self-scored credit in certain areas for up to five or 10 additional projects.

The RFP also distinguished JV and Prime/Subcontractor CTAs, and prohibited offerors from combining the characteristics of these two forms. This meant, for example, that a JV could not utilize, and take advantage of, the experience/past performance of subcontractors that were not members of the JV. Similarly, a JV could not be a subcontractor in a Prime/Sub CTA.

Ekagra timely protested both of these RFP requirements in a pre-proposal protest. Because of the small business program implications, GAO invited SBA’s participation and comments.

GAO sustained Ekagra’s Protest as to the second issue, but denied the Protest as to the first issue. First, as noted above, GAO concluded that nothing in the statute or regulations explicitly prohibits the challenged RFP solicitation terms. Thus, notwithstanding what would appear to be pretty clear mandatory statutory language that “the agency shall consider the capabilities and past performance of each member of the joint venture as the capabilities and past performance of the joint venture,” GAO held, without any reasoned statutory analysis, that such language does not “prohibit an agency from limiting the experience that may be submitted by one of the members.” (Emphasis added) This decision appears plainly wrong on the face of the statute, since, if such experience is to be “consider[ed] … as the capabilities and past performance of the joint venture,” there is no basis for an agency to distinguish between such capabilities and past performance based upon who performed the work – they are now all attributable directly to the JV. Moreover, the end result is clearly contrary to the statutory determination to establish and promote the M/P Program.

GAO’s decision appears to have been influenced, at least in part, by SBA’s less than zealous advocacy. GAO specifically noted that SBA had stated that “neither SBA regulations nor the Small Business Act specifically address the relative consideration that an agency must give to the past performance of a large business member in a mentor-protégé joint venture, as compared to a small business protégé.” GAO further noted that SBA stated that, while it may address this issue in future regulations, “presently SBA’s regulations are limited to stating that the agency “must consider work done individually by each partner to the joint venture,” including a large business mentor. SBA thus effectively conceded GSA’s rationale.

GAO, having thus determined that there was no violation of statute or regulation, turned to whether the agency’s limitations on competition were rational, and specifically whether the imposed requirements were “reasonably necessary to meet the agency’s needs.” As stated by GAO, in such cases GAO “examines the adequacy of the agency’s justification for a restrictive solicitation term to ensure that it is rational and can withstand logical scrutiny.” (Emphasis added.)

Applying this standard, GAO determined that GSA’s limitations on the number of large business mentor projects were rational. However, GAO held that the disparate treatment accorded the differing CTAs was not rational, and sustained Ekagra’s Protest as to that issue.

Specifically, as to the mentor projects limitations, GAO concluded, based on the record before it, that GSA had “reasonably explain[ed] that limiting the amount of experience that may be credited to a large business mentor ensures that the agency will be able to meaningfully consider the experience of the protégé member of the joint venture.” In this regard, GSA had argued that limiting the number of mentor-performed projects was necessary to ensure that the small business protégé is capable of performing the work,” “[g]iven the tremendously important responsibilities assigned to the Protégé in performance” as the majority owner and managing partner of the M/P JV. GSA also asserted that allowing a M/P JV to “rely primarily upon the qualifications of their Other Than Small team members’ experience, without any limitation or restriction,” gives the JV a “fundamentally unfair advantage” compared to other small businesses. This latter stated rationale reflects GSA’s true bias, and would undercut the entire purpose and intent of the statutory-authorized M/P Program. Not surprisingly, GAO did not endorse this latter rationale. However, the adopted rationale is equally destructive and contrary to the M/P Program intent, as reflected by SBA’s above cited language in the Wolf Creek decision.

As to GSA’s attempted distinction between the differing CTA structures and prohibition on combining the characteristics thereof and barring JVs from including and relying upon the experience of subcontractors, GAO stated that FAR 9.601 does not require offerors to elect between two forms of CTAs. Nor does FAR 9.601 prohibit a JV offeror from having other firms as subcontractors. GAO further rejected GSA’s argument that the asserted distinction was reasonable because it avoids “significant administrative burdens” in assessing the documentation that offerors must submit. GAO noted that GSA acknowledged that it must distinguish between prime and first tier subcontractors when evaluating a prime/sub CTA, and stated that GSA did not explain why it would be significantly more difficult to distinguish between JV members and the JV’s first tier subcontractors. GAO therefore determined that GSA’s prohibition on JVs entering into CTAs with subcontractors, and using such entities’ experience, is unduly restrictive of competition. However, GAO pointedly noted, in a footnote, that GAO was not addressing how much weight an agency must accord to a subcontractor’s experience. GAO stated that it previously has held that the significance of, and weight to be assigned to, a subcontractor’s experience is a matter of contracting agency discretion. This pointed qualification somewhat undermines the effect of GAO's ruling, and suggests a way for an Agency to limit the effects thereof. The weight to be accorded, however, would presumably be the same for a JV prime as any other prime.

This decision contains a number of important pointers for erstwhile M/P joint venturers:

First, one needs to carefully review each solicitation as to how experience and past performance will be evaluated, and identify any restrictions as to the consideration of the experience and/or past performance of the respective venturers and any proposed subcontractors;

Second, one needs to consider whether any solicitation restrictions on competition should be challenged, and if so, protest such in a timely manner before the initial proposal closing;

Third, pending SBA modification and clarification of its regulations, or a contrary court decision, an Agency may be able to limit the extent to which it will accept or weigh the experience and/or past performance of a JV's large business mentor participant, to the extent the Agency can establish a reasonable justification for the stated limitation(s); and

Fourth, the JV must carefully consider and appropriately structure its bidding strategy in light of any stated limitations, so as to ensure proposal compliance and best position the parties for bidding success.

Hopefully, SBA will reconsider and clarify its position and regulations as to these issues, so as to preserve and promote the purposes and advantages of the M/P Program, and ensure that such are not undermined, as here, by an agency’s lack of support. In such regard, SBA, as well as GAO and the Courts, should focus more on the actual structure and functioning of the individual MPA, and the extent to which the Mentor is integrated into ensuring successful performance, than just the prior experience and/or past performance of the Protégé. As SBA has stated previously, given that the M/P Program anticipates a general lack of Protégé experience, particularly at the outset, allowing agencies to focus, as here, primarily on the Protégé's experience will foreclose or limit the M/P JV's ability to compete, and frustrate and destroy the ultimate intent and benefits of the M/P Program.

Attorneys

Hopewell Darneille