#GovConThoughts: DOD Publishes Final Rule on Past Performance of Small Business Affiliates
[My #govconthoughts series provides a quick take on recent developments in the government contracting space.]
Today, the Department of Defense ("DOD") issued a final rule implementing Section 865 of the National Defense Authorization Act for Fiscal Year 2024 ("2024 NDAA"), which requires DOD to consider the relevant past performance of an affiliate of a small business prime in competitive acquisitions. This is good news for small business as it solidifies that they will be able to leverage affiliate past performance when bidding on certain defense contracts.
Briefly, under the final rule, DOD amended DFARS 215.305 to add the following section:
(C) When evaluating the past performance of an offeror that is a small business concern in response to a competitive solicitation, contracting officers shall consider relevant past performance information provided for affiliates of the offeror.
This relatively straightforward amendment means that, for DOD solicitations that invoke the competitive procedures under FAR Part 15, contracting officers must, as part of their proposal evaluations, "consider" the relevant past performance of an affiliate of a small business offeror. While this is a relatively simple change, four things are worth noting.
First, the rule confers by regulation a mandatory requirement ("shall") upon agencies to consider affiliate past performance. This departs both from the FAR which provides that agencies "should take into account" – but are not obligated to consider – past performance from certain sources other than the prime offeror, see FAR 15.305, and from existing GAO caselaw which has repeatedly found that agencies may, but are not required to, consider affiliate past performance. See, e.g., Eagle Eye Electric, LLC, B-415562, B-415562.3, Jan. 18, 2018, 2018 CPD ¶ 33 (denying protest that agency failed to consider affiliate past performance because the RFP did not require it and because agencies are not otherwise required to do so).
That being said, and interestingly, DOD's Source Selection Procedures ("SSP") provide details on the evaluation of affiliates, but the language in the SSP includes caveats that are not present in the final rule – namely, that the prime must show that the affiliate will perform a significant and critical aspect of the contract. [1] While the SSP language appears to be a high standard, it is generally in line with GAO's longstanding position in Eagle Eye (and others), which generally says that agencies may properly consider affiliate past performance where "the proposal demonstrates that the resources of the parent or affiliate will affect contract performance." Eagle Eye, supra at 3.
Second, "affiliates" in this context is not the same as affiliates in SBA's size regulations because the FAR defines the term. And under the FAR, so long as a company or person controls or can control another concern or vice versa (or a third party controls both), the companies are affiliates. See FAR 2.101. Thus, under a plain reading of the rule, a small business prime offeror can submit – and the agency must consider – relevant past performance of a subcontractor that is a recently-acquired affiliate of the small prime or that is a sister company of an entity-owned 8(a) small prime (ANC, Indian Tribe, NHO).
Third, the rule only requires agencies to "consider" the submitted past performance – it does not speak to the degree of consideration. We have seen this "consider" issue play out in GAO bid protests involving SBA's joint venture rules, so this is something to be mindful of when bidding. See, e.g., Ekagra Partners, LLC, B‑408685.18, Feb. 15, 2019, 2019 CPD ¶ 83 (stating that "the 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.").
Fourth and finally, because this new rule resides in the DFARS section on contracting by negotiation, and is not cabined to small business procurements, the rule applies to both unrestricted and set-aside acquisitions.
Takeaway
DOD's rule implementing the 2024 NDAA is welcome news for small businesses, as contracting officers are now required by regulation to consider the relevant past performance from an affiliate of a small prime in competitive DOD procurements. It will be interesting to see how this rule unfolds in competitive DOD solicitations and in bid protest decisions, as well as how DOD navigates the discrepancy between the plain language of the rule and the high standard under the SSP.
__________
[1] From the SSP section 3.1.6.1:
Affiliate companies, sister companies, teaming arrangements, joint venture agreement, etc., will be considered provided that sufficient documentation is included in the proposal. The primary offering entity must demonstrate that the affiliate will perform significant and critical aspects of the contract if awarded. Documentation includes a copy of the signed arrangement such as documented affiliation, a copy of the teaming agreement, a copy of the joint venture agreement, etc.
. . .
Comments