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The Department of the Navy Office of Small Business Programs PPMAP Results and Systemic Issues

The Department of the Navy Office of Small Business Programs PPMAP Results and Systemic Issues. June 17, 2019. Bradley D. Taylor Assistant Director, DON OSBP. DOD IG Reports Summary of Findings. DODIG-2016-019 Small Business Contracting at MCSC Needs Improvement

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The Department of the Navy Office of Small Business Programs PPMAP Results and Systemic Issues

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  1. The Department of the Navy Office of Small Business Programs PPMAP Results and Systemic Issues June 17, 2019 Bradley D. Taylor Assistant Director, DON OSBP

  2. DOD IG Reports Summary of Findings • DODIG-2016-019 Small Business Contracting at MCSC Needs Improvement • Did not track compliance with small business subcontracting goals; • Did not determine why large businesses were not meeting small business subcontracting goals; and, • Contracts awarded without subcontracting plans or the required determination and approval. • DODIG-2017-072 Two Air Force Centers Small Business Subcontracting Needs Improvement • Did not monitor prime contractors’ compliance with individual subcontracting plans; • Did not determine why subcontracting plans did not meet their small business subcontracting goals; and, • Contracting officials stated that this occurred because administering subcontracting plans was not a high priority. • DODIG-2018-086 Small Business Subcontracting at Two Army Contracting Command • Did not monitor prime contractor’s compliance with subcontracting plans; • Did not determine why prime contractors did not meet their small business subcontracting goals; and, • Accepted an individual subcontracting report that may have misreported subcontract awards. • DODIG-2015-095 Small Business Contracting at MCINCR-RCO Improvement • Did not ensure that prime contractors provided small businesses adequate subcontracting opportunities. House Small Business Subcommittee on Contracting and Workforce held May 17, 2018 found DODIG findings consistent with those found across Federal Government at Hearing

  3. PPMAP / OSBP Summary of Findings • DASN AP Procurement Performance Management Assessment Program (PPMAP) • Inadequate monitoring of prime contractor's subcontract reporting and compliance as well as subcontract performance not being captured in CPARS; • Evaluated subcontract goals not supported by market research and/or past performance; and, • Apparent lack of understanding that subcontracting is a technical requirement of contract performance. • DON OSBP Review of Acquisition Plans • Subcontract Plans incorrectly evaluated v. assessed for acceptability (FAR 19.702); • Small Business Participation not being properly evaluated IAW DFARS 215.304 (c)(i)(B); and, • Evaluated subcontract goals not supported by market research and/or past performance. • DON OSBP Subcontracting Review Deep Dive • CPARS Small Business Subcontracting rating often erroneous or inconsistent with actual performance; • Minimal or no apparent action taken by Contracting Officers to influence improvements of contractor’s subcontracting performance – Acceptance of status quo; and, • BOAs and BPAs reported using SF294/SF295 and are not included in the Electronic Subcontract Report System (eSRS) - Contracting Officers generally do not receive a copy of the reports.

  4. Remedial Actions • DON OSBP Top Subcontracting Focus Areas • DON OSBP & DASN AP develop mandatory training to conduct via webinar focusing on subcontracting (SB Advocates, Contracting Officers, DASN Action Officers) to include: • Evaluating Small Business Participation in Source Selections and ensuring SBP involvement to maximize small business subcontracting opportunities per NMCARS; • Assessing adequacy of proposed subcontracting plans; • Monitoring Subcontracting Plan compliance; • Recording accurate CPARS evaluations; • Maximizing small business participation in sole source procurements; • Ensuring compliance with DODI 5000.02 SBIR/STTR requirements; and, • Addressing small business participation in program reviews with the prime. • ASN RDA communicate subcontracting compliance responsibilities to the workforce (DCMA, PCO, ACO, DPM, COR, etc.). • ASN RDA, along with DASN AP and DON OSBP input, post common Small Business Roundtable themes and actions DON is taking to address the issues on a public website.

  5. Recommended Actions • DON OSBP Recommended Actions • Ensure future Command and PEO Small Business Strategies address actions to increase opportunities for small businesses to participate as subcontractors. • Incorporate a Small Business Performance Objective in acquisition workforce performance plans (as applicable). • DON OSBP disseminate to the acquisition workforce lessons learned from recently conducted AP/AS and PPMAP reviews. • Buying Commands include Subcontracting Performance as a key Management Internal Control Process.

  6. NATIONAL DEFENSE AUTHORIZATION ACT OF 2013 LIMITATIONS ON SUBCONTRACTING Final Rule Effective June 30, 2016 DoD Western Regional Council for Small Business Peter Van Steyn Procurement Center Representative Office of Government Contacting, Area VI

  7. Final Rule Effective June 30, 2016 Final Rule: Covers a number of different aspects of small business federal contracting, including limitations on subcontracting, affiliation, “mixed contracts,” joint ventures and the nonmanufacturer rule, among others.

  8. Similarly Situated Entity What is a “Similarly Situated Entity”? • Subcontractor with the same small business program status as the prime contractor • Subcontractor shall also be small for the NAICS code assigned by the prime contractor to the subcontract • Subcontractor that is a small business participating in the same program in which the set-aside was awarded

  9. Similarly Situated Entity(Continued) • Only a 1st tier subcontractor can be counted as a similarly situated” subcontractor • 1st tier subcontractor must perform the work with its own employees • Lower tier subcontractors (non-similarly situated entity) count toward limitations on subcontracting (even if small business)

  10. Similarly Situated Entity(Continued) Final Rule Makes clear that: • Small business prime contractor need not include the amounts subcontracted to a "similarly situated" subcontractor in determining the subcontracted percentage allowed. • Put another way - work subcontracted to similarly situated subcontractors will count as work done by the prime contractor for Limitation on Subcontracting purposes. The exception for similarly situated subcontractors applies to all four types of contracts described in FAR 52.219-14 (services, supplies, construction and specialty trade)

  11. Subcontracting Compliance Calculation Formulas Section 1651 of the NDAA changed the formula for calculating the limitations on subcontracting under all types of small business set-aside contracts. • Previously, SBA regulations and FAR clause (52.219-14, entitled "Limitations on Subcontracting") required a small business prime contractor to self-perform a certain percentage of the cost of total direct labor on the contract (depending on whether the contract is primarily for services, supply, construction or specialty trade construction) • Services formula has shift from a “labor cost” based calculation to an “amount paid” or “contract value” based calculation • Similarly, the final rule shifts the formula for supply contracts from a “cost of manufacturing” calculation to an “amount paid” calculation

  12. Limitations on Subcontracting As revised by Final Rule (NDAA section 1651), compliance will be determined by a percentage cap on the total amount of the prime contract that may be paid to subcontractors. Services (except construction): Prime contractor will not pay more than 50% of the amount paid by the government to the prime to firms that are not similarly situated. Cost of materials are excluded and not considered to be subcontracted Supplies/products (other than from a nonmanufacturer of such supplies): Prime contractor will not pay more than 50% of the amount paid by the government to the prime to firms that are not similarly situated

  13. Limitations on Subcontracting General construction contracts: Prime contractor will not pay more than 85% of the amount paid by the government to the prime to firms that are not similarly situated Specialty trade contracts: Prime contractor will not pay more than 75% of the amount paid by the government to the prime to firms that are not similarly situated In all such contracts, amounts paid to "similarly situated" entities are not considered "subcontracted" and thus excluded from the limitation

  14. Mixed Contracts Final Rule introduces the term “Mixed Contract” “Mixed contracts” combine services and supplies CO must select a single NAICS code that best describes the principal purpose, or greatest percentage of the contract value Subcontracting limitation then applies to the portion of the award amount that represents the primary or principal purpose of the contract

  15. Mixed Contracts In no case will both a services and supplies/products calculation apply to the same procurement For a contract principally for services, but which also requires supplies, this means that the prime contractor or its similarly situated subcontractors cannot subcontract more than 50 percent of the services to other than small concerns. However, the prime contractor can subcontract all of the supply components to any size business.

  16. Mixed Contracts(Calculation Example) • A procuring agency is acquiring both services and supplies through a small business set-aside. The total value of the requirement is $3,000,000, with the services portion comprising $2,500,000, and the supply portion comprising $500,000. • The contracting officer appropriately assigns a services NAICS code to the requirement. • Thus, because the supply portion of the contract is excluded from consideration, the relevant amount for purposes of calculating the performance of work requirement is $2,500,000 and the prime and/or similarly situated entities must perform at least $1,250,000 and the prime contractor may not subcontract more than $1,250,000 to non-similarly situated entities.

  17. Mixed Contracts(Calculation Example) • Total Contract Value = $3,000,000 • Services = $2,500,000 • Supply = $500,000 • *CO assigned Service NAICS Code • Service Portion = $2,500,000 for calculation of limitation on subcontracting • 50% of $2,500,000 = At least $1,250,000performed by prime contractor or with similarly situation entities.

  18. Set-Aside Contracts Simplified Acquisition Threshold Final Rule: exempts small business set-aside contracts between $3,500 and $150,000 from the limitations on subcontracting. Exemption applies only to small business set-asides. Contracts between $3,500 and $150,000 that are awarded as 8(a), HUBZone, SDVOSB or WOSB set-asides will still be subject to the limitations on subcontracting.

  19. Limitations on subcontracting Penalties Contractors that violate the limitations on subcontracting are subject to the penalties listed in 15 U.S.C. 645(d) except that the fine associated with these penalties will be the greater of either $500,000 or the dollar amount spent in excess of the permitted levels for subcontracting.

  20. Q&A Contact Information Peter Van Steyn U.S. Small Business Administration Government Contracting, Area VI 300 South Forth Street, Suite 400 Las Vegas, NV 89101 (702) 388-6651 peter.vansteyn@sba.gov

  21. Backup Slides

  22. Small Business and Subcontracting

  23. Subcontracting for Small Business

  24. Regulatory Guidance DoD Directive (DoDD) 5000.01, The Defense Acquisition System DoDI 5000.02, Operation of the Defense Acquisition System DoDD 4205.01, DoD Small Business Programs Federal Acquisition Regulation Small Business Professionals are integral members of the acquisition team and need to be involved in acquisition planning early! Acquisitions and Small Business Professionals

  25. 52.219-8 -- Utilization of Small Business Concerns (b) It is the policy of the United States that small business concerns, (including socioeconomic concerns) shall have the maximum practicable opportunity to participate in performing contracts let by any Federal agency, including contracts and subcontracts for subsystems, assemblies, components, and related services for major systems. (c) The Contractor hereby agrees to carry out this policy in the awarding of subcontractsto the fullest extent consistent with efficient contract performance. Note: This policy applies to other than small businesses and small businesses Small Business and Subcontracting

  26. When should small business be considered in acquisition planning? As soon as need is identified and market research begins - FAR 10.001(a)(2) Market research is conducted to determine if: Commercial items are available Extent of competition Small businesses are capable of performing as prime contractors or subcontractors Small Business Consideration

  27. Subcontracting Plan Requirement FAR 19.702 requires that all negotiated and sealed bid acquisitions that are expected to exceed $700,000 ($1.5 million for construction) and that has subcontracting possibilities, shall require the apparently successful offeror/ bidder selected for award to submit an acceptable subcontracting plan (see FAR 19.702(b) for exceptions). Subcontracting Implemented

  28. Subcontracting Plan Considerations Requiring submission of the subcontracting plan with the bids or proposals (vice any other time before contract award) Note: It is customary for the Contracting Officer to require offerors/bidders to submit a subcontracting plan with its offer/bid, though FAR permits its submission within the (any) time limit prescribed by the contracting officer before contract award. Determining (based on the market research), desired acceptable subcontracting goals Determining (based on the market research), anticipated areas suitable for subcontracting Subcontracting Implemented

  29. Evaluation of Small Business Participation Requirement FAR 15.304(c)(4) requires evaluation of small business participation for solicitations involving bundling. DFARS 215.304(c) requires evaluation of small business participation in other than LPTA source selections whenever a subcontracting plan is required. Note: Though evaluation of small business participation is not required for LPTA source selections, it is permissible. See the Source Selection Procedures Appendix C (C.4) Subcontracting Implemented

  30. Evaluation of Small Business Participation Considerations Evaluation criteria DFARS PGI 215.304 for example factors/subfactors Ways to evaluate Department of Defense Source Selection Procedures (section 2.3.4.2.3) Options for rating Department of Defense Source Selection Procedures (section 3.1.4.1) Reporting Subcontracting Implemented

  31. Subcontracting Implemented Assessing Subcontracting Plans Evaluating Small Business Participation The differences

  32. Assessment of a subcontracting plan and evaluation of small business participation are two separate yet related areas; they are treated differently in the source selection DFARS 215.304 (c)(i)(B) states that proposals addressing the extent of small business performance shall be separate from subcontracting plans submitted pursuant to the clause at FAR 52.219-9 and shall be structured to allow for consideration of offers from small businesses. Subcontracting Implemented Assessing Subcontracting Plans Evaluating Small Business Participation The differences

  33. Subcontracting Plan 15 Mandatory Elements IAW FAR 19.704 and FAR 52.219-9 Subcontracting Implemented Separation Achieved • Small Business Participation Commitment Document • (formerly called Small Business Participation Plan, Small Business Utilization Plan, or Enhanced Subcontracting Plan) • Names of subcontractors to be utilized and the products/services they are to provide • Describe type and complexity of products/services to be provided • State extent of utilization quantitatively • Other as necessary A point to ponder – Using the phrase “Small Business Participation Commitment Document” vs. “plan” helps to not confuse it with the subcontracting plan.

  34. Should compliment each other in general, provisions of the subcontracting plan that coincide with the SBPCD should be consistent planned small business subcontracting dollars of the subcontracting plan should be the same as the extent of utilization quantitatively in the SBPCD Subcontracting percentages may be different if SBPCD proposal based on total value of acquisition Type of products/services to be subcontracted should be the same Both should be contractually binding Subcontracting Implemented Subcontracting Plans Small Business Participation Commitment Document (SBPCD) The similarities

  35. Small Business Participation and Source Selection To underscore the significance of small business participation, a good solicitation and source selection evaluation will: (a) Emphasize how the assessment of the subcontracting plan IAW FAR 19.7 is different from the evaluation of small business participation (b) Explain how offers from small business prime offeror’s must be structured and how they will be evaluated (c) State that evaluation of small business participation applies to Comprehensive Subcontracting Plan participants (d) If appropriate for the acquisition, state a baseline small business minimum quantitative requirement (MQR) (not a “goal”) for small business (and socioeconomic categories as well if appropriate) based on market research Subcontracting Implemented

  36. (e) State if small business participation is based on total contract value (TCV). TCV should be defined and if used, explain how percentages and dollars should be stated in the subcontracting plan (if a plan is required) (f) Explain how offers will be rated to include a requirement for other-than-small business offerors to receive a higher evaluation rating for exceeding the baseline MQR if an MQR is used. (g) Evaluate past performance as it relates to small business utilization (h) Determine the realism of the proposed utilization of small businesses (i) Require all offerors to submit periodic reports (monthly, quarterly, whatever is appropriate for the acquisition) on their small business utilization for the contract. Subcontracting Implemented

  37. About Evaluating Small Business Past Performance Evaluation of Past Performance Requirement FAR 15.304 (c)(i) - past performance shall be evaluated in all source selections for negotiated competitive acquisitions expected to exceed the simplified acquisition threshold DFARS 215.305(a)(2) requires that in DoD solicitations that require past performance evaluation and include the clauses at FAR 52.219-8 Utilization of Small Business Concerns and FAR 52.219-9 Small Business Subcontracting Plan, the past performance of offerors in complying with the requirements of those clauses shall be evaluated. Subcontracting Implemented

  38. About Evaluating Small Business Past Performance A past performance evaluation is required for acquisitions meeting the thresholds established in accordance with Director of Defense Procurement and Policy Class Deviation Past Performance Evaluation Thresholds and Reporting 2013-O0018 dated September 24, 2013. For evaluation of small business participation purposes: May include with overall past performance when required based on thresholds May evaluate separately When required overall based on thresholds When not required based on thresholds Subcontracting Implemented

  39. Small Business Past Performance - What to evaluate Examples of elements of small business utilization past performance (compliance with FAR 52.219-8) to evaluate includes: Actual prior use of small businesses Use of small businesses in the socioeconomic categories Types of work performed by small businesses Complexity of the work performed by small businesses Reporting of small business performance in the Contractor Performance Assessment Reporting System (CPARS) History of prompt payments to small businesses Note: Evaluation of small business past performance is not limited to evaluation of performance of other-than-small businesses only, but it includes the evaluation of small businesses’ past performance of utilizing fellow small businesses as well. Subcontracting Implemented

  40. Small Business Past Performance - What to evaluate Additionally, when a subcontracting plan was required, evaluation of small business past performance (compliance with FAR 52.219-9) should include an evaluation of: Performance against subcontracting goals. Compliance with the subcontracting plan in general. Subcontracting Implemented

  41. Small Business Professionals (including SBA PCRs) need to be involved early in acquisition planning Development of the subcontracting strategy for an acquisition is a team effort Subcontracting Plans are assessed and negotiated as a basis for contract award Small Business Participation is evaluated IAW criteria for source selection Small Business Past Performance (compliance with FAR 52.219-8 & 9) is required to be evaluated when past performance is required to be evaluated and may be evaluated otherwise Subcontracting Summary

  42. The Rulemaking Process DENISE L. RANDOLPH Director of Policy Deputy Assistant Secretary of the Navy (Acquisition and Procurement)

  43. Agenda The Rulemaking Process Do You Know…? Doing Business With the Government Useful Websites

  44. The Rulemaking Process

  45. THE RULEMAKING PROCESS • The Federal Acquisition Regulation (FAR) is part of the Code of Federal Regulations (48 CFR Chapter 1). • It is the primary policy and procedure document used by all Federal Executive agencies in the acquisition of supplies, services, and construction (except a few, e.g. FAA). • The FAR has 53 Parts • Instructions to the Contracting Officer (Parts 1-51) • Clauses (Part 52) • Forms (Part 53) • The FAR is required by 41 USC 1303. • The OFFICIAL versions: • FAR: www.Acquisition.Gov/far • DFARS: http://www.acq.osd.mil/dpap/dars/dfarspgi/current/ • NMCARS: http://www.secnav.navy.mil/rda/Pages/NMCARS.aspx

  46. SOURCES OF FAR/DFARS/DFARS PGI CHANGES Legislation IG & GAO Recommendations Court Decisions FAR DFARS PGI OFPP Policy Letters Executive Orders Agency Recommendations Individual Recommendations Industry Recommendations Policy Changes (e.g., USD (AT&L), DPAP)

  47. FEDERAL ACQUISITION REGULATION (FAR) COUNCIL • FAR Council Members: • Office of Federal Procurement Policy (OFPP) • Department of Defense (DoD) • General Services Administration (GSA) • National Aeronautics and Space Administration (NASA) • Responsibilities: • Ensure consistency with the President’s Management Agenda • Resolve impasses between the DAR Council and CAAC

  48. DEFENSE ACQUISITION REGULATION (DAR) COUNCIL • DAR Council Members: • Deputy Director, DPC/DARS, chairs the Council • Military Departments (Army, Navy, Air Force) • Defense Agencies (DCMA, DLA) • Responsibilities: • Promulgate the DFARS and DFARS PGI • Promulgate the FAR (in conjunction with CAAC) • Publish Federal Register (FR) notices, solicit public comments • Proposed and interim rules • Advance notices of proposed rulemaking (ANPR) • Publish Final rules in Federal Register

  49. WHAT IS A RULE? There are three basic types of rules. (Rules are also sometimes called “regulations”). They are: Legislative (sometimes called “Substantive”) Rules. Create legally binding rights and obligations for the agency and the public. For example, a legislative rule - Broadcast towers must have lights to reduce the hazard to aviation. Non-legislative Rules. These rules are of two subtypes: i. Interpretive Rules. Interprets the meaning of statutes or legislative rules. ii. Policy Statements. Tells the public how the agency plans to exercise some discretionary power that it has. For example, a policy statement might explain the typical fines for particular violations of rules. Organizational and Procedural Rules. Describe the agency’s structure and the way in which its determinations are made. For example, such rules may delegate authority to make certain decisions to a particular organization within DOD.

  50. HOW DOES AN AGENCY IDENTIFY THE NEED FOR RULEMAKING? Statutory mandate. Congress may specifically require a rule or the initiation of the rulemaking process to flesh out a statutory provision. Agency identification of a problem. An agency may identify a problem such as an industry behavior that adversely affects consumers. We may have difficulties enforcing existing rules and this may provide evidence of a need to modify the rules. Requests for interpretations of or exemptions from existing rules may demonstrate that a rule needs to be clarified or modified. Or, changes in technology may suggest that it is time to update a rule. Petition for rulemaking. The public has the right to petition an agency to issue, modify, or rescind a rule, and we may agree on the need for action.

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