This summer looks like a good one for small businesses, as small-business contracts with the federal government worth more than $2 billion are set to open for competition in the coming months.

The upcoming contract competitions include opportunities across the defense landscape, with requirements ranging from geospatial capabilities to IT and professional services.

Here’s a look at three notable contracts — all specifically set aside for small businesses — that will be open for new competition this May:

Air Force

The Advanced Technical Exploitation Program II contract vehicle provides intelligence services focused on analyzing and making use of data. The existing program has three contractors.

Deltek anticipates four awards in this small-business competition. Contracts are expected to consist of a four-year base period and four one-year options, for a maximum duration of eight years.

The program has $120 million in annual funding, meaning the contract could be worth up to $960 million over eight years. A solicitation release is expected in May.

The Technical and Management Advisory Services contract vehicle will provide advisory and assistance services for aerospace research, development, test and evaluation at the Air Force Flight Test Center.

Deltek anticipates five to seven awards in this small-business competition. Awarded contracts will consist of a five-year ordering period; each task order will last up to three years.

The total effort is valued at $600 million and Deltek expects the solicitation’s release in May.

Army

The Installation Geospatial Information Services program will provide basic installation, energy and environment geospatial capability across the Army. Awardees will develop standard data and functionality, increase geographic information system — or GIS — availability and eliminate redundant capabilities.

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• Evaluation points will be awarded in some fashion for cost-reimbursement experience
• Evaluation points may be awarded for demonstrating IDIQ management experience
• Considering allowing state and local government contracts as relevant experience
• Considering adjusting past performance evaluation points to allow for further distinction between levels of performance (i.e. 4.8-5.0=600 points, 4.6-4.79=500 points, etc.)

Thank you for continuing to follow our special GSA OASIS blog series. Before discussing the requirements for relevant experience and past performance on OASIS and OASIS SB, a disclaimer – all posts are based on information from the OASIS draft RFP and the most current information available on the OASIS Industry Community on GSA Interact. Changes are certain to occur between the draft solicitation and the final RFP; Aronson will identify major changes as soon as we are aware of them.

Before making a final bid decision, interested companies must understand that simply meeting the minimum requirements of the solicitation will not be enough to guarantee an OASIS contract. GSA wants to award to the best of the best, so evaluation points are only awarded to those who exceed the minimum requirements, sometimes by a significant margin. This will be especially important in the evaluation criteria for the five relevant experience examples required from each bidder. Of the possible evaluation points an offeror can earn, more than 75% come from relevant experience and past performance (see Section M.5).

One of the most critical things for potential bidders to understand when selecting relevant experience is that TEAMING WILL NOT BE CONSIDERED at the MASTER contract level. GSA encourages teaming at the task order level, especially because of the high subcontracting goals on the unrestricted contract, but all relevant experience examples must be from prime contracts held by the bidder. Additional considerations regarding using experience from affiliates, subsidiaries, and internal divisions are discussed in the solicitation and on GSA Interact.

Of the five projects provided, at least three must have been for the federal government; maximum points are awarded for using all federal experience. Bonus points are available for projects that included OCONUS work, ancillary services, or multiple performance locations. The initial requirement that at least one of the five projects be a cost-type contract has been removed from both RFPs. All of the relevant experience must be from contracts that could be performed under OASIS and have a primary scope that falls under one of the six core disciplines (project management, engineering, management consulting, scientific, financial and logistics). Please note that this means that any IT component of the projects can only be ancillary.

GSA will review the information reported about each relevant federal experience in the Contractor Performance Assessment Reporting System (CPARS) and posted to the Past Performance Information Retrieval System (PPIRS) database. Prospective bidders should review the information in PPIRS about prospective relevant experience as soon as possible as part of the culling process. Additionally, a past performance rating form is included under Section J.6 for use on federal experience that is not entered/finalized in CPARS and/or non-federal experience, but be sure to factor this into your bid schedule. Note that only past performance rated “Very Good” or “Excellent” earns points and offerors are strongly cautioned that inability of the Government to contact references, verify information, or receive responses to surveys may result in ineligibility for award.

Although the requirements for demonstrating relevant experience are largely similar between OASIS and OASIS SB, there are different requirements for the minimum annual value of the projects as well as the amount of integration coverage of the six core discipline areas, which are summarized below.

OASIS Unrestricted:

• Minimum Annual Contract Value-The total award value for all relevant experience projects must be at least $5.0M a year. Points are not awarded until the $10M threshold.
• Core Discipline Coverage-All projects must demonstrate coverage and integration of at least four of the six core disciplines. Additional points are awarded for projects with five or six of the core disciplines. Official contract documentation is required as proof of the core disciplines performed which could include monthly status reports, invoices, etc. provided in addition to the contract documentation required by the solicitation (L.5.3.2.3).
• Subcontracting Performance-Contractors are required to submit a copy of the Individual Subcontract Report (ISR) or Summary Subcontract Report (SSR) finalized in eSRS and approved by the Contracting Officer for relevant federal experience. Subcontracting performance currently accounts for 22.0% of the available evaluation points. Please review Section L.5.4.3 for more details.

OASIS SB:

• Minimum Annual Contract Value-The total award value for all relevant experience projects must be at least $750K a year. Points are not awarded until the $2.0M threshold. This is a change from the original draft RFP.
• Core Discipline Coverage-All projects must demonstrate coverage and integration of at least three of the six core disciplines. Additional points are awarded for projects with four-six of the core disciplines. Official contract documentation is required as proof of the core disciplines performed which could include monthly status reports, invoices, etc. provided in addition to the contract documentation required by the solicitation (L.5.3.2.3).

Stay tuned for the next post in our special OASIS series, which will cover contractor system requirements and certifications. Please leave any suggested topics in the comments section or email them to me at jaubel@aronsonllc.com. I would appreciate input and feedback.

Generally, to be eligible for the domestic production activities deduction (DPAD), a taxpayer must earn gross receipts from a disposition of qualifying production property. This typically involves a sale and delivery of a manufactured product by the taxpayer to a customer. However, the IRS recently ruled that a government contractor made a disposition for DPAD purposes despite the fact that title to the property reverted back to the contractor (Technical Advice Memorandum 201314043, 04/05/2013). The ruling disposition was not requiring
actual delivery of the property to the government when all of the requirements of the statute are otherwise satisfied.

Pursuant to Federal Acquisition Regulations, many government contracts stipulate that: title to property purchased by the contractor in the performance of the contract is transferred directly to the government before the contractor manufactures or produces the end product. Initially, it would seem that a government contractor could never qualify for the deduction because it would impossible to dispose of property of which it never had title. However, the internal revenue code includes an exception for these types of government contracts, allowing contractors to be eligible for the DPAD.

The particular contracts at issue in the ruling also provided that title to the manufactured product reverted back to the contractor and did not call for actual delivery of the property to the government. The product at issue was used for testing and for the production of prototypes. The delivery of an operational product would have come under future production contracts if the program continued. The ruling concluded that the lack of delivery and the reversion of title to the contractor did not prevent the contractor from taking the DPAD, as all of the requirements for taking the deduction were otherwise satisfied and nothing in statute specifically prevented a reversion of title provision. Government contractors engaged in similar contracts should consider whether they are eligible for the DPAD.

Please contact Aronson LLC’s Tax Services Group at 301.231.6200 for more information.

As participants in the HUBZone Program were painfully made aware in 2011 and 2012, HUBZone district designations are subject to change based upon economic and demographic shifts. If you are a HUBZone small business concern, it is important to keep tabs on the designation status of your district for purposes of your federal contract forecasting, particularly in light of several recent developments. 

Generally, HUBZones are located within one or more qualified census tracts; qualified nonmetropolitan counties; Indian reservation lands; qualified base closure areas; or those areas “redesignated” as HUBZones after losing their qualifying status. If a HUBZone has been redesignated, it may only retain its HUBZone status for three years after the date on which the government had released the information triggering the redesignation. HUBZone designations are determined through data gathered and analyzed by the U.S. Census Bureau, the American Community Survey, and the U.S. Bureau of Labor Statistics. Such data constantly evolves, generating an unfortunate situation of having HUBZone designations which may be revised multiple times per year. Ultimately, a HUBZone designations is meant to reflect a district’s income levels, unemployment rates, Difficult Development Area status (designated by the U.S. Department of Housing and Urban Development), base closure status, and Indian land status. 

This January, HUD published its list of the 2013 qualified census tracts. SBA plans to make these new designations effective as of October 1, 2013 for the HUBZone Program. HUBZone firms should check out their dependent HUBZone addresses at the SBA’s HUBZone maps page, available at http://www.sba.gov/content/hubzone-maps. While the January 2013 data has not yet been fully incorporated into the current HUBZone maps, a table listing all of the January 2013 changes is available at that site. If your currently qualified HUBZone address is no longer part of a qualifying census tract, that address will be “redesignated” as a HUBZone until October 1, 2016. 

In addition to the new data regarding the qualified census tracts, the SBA has also recently released information regarding HUBZone nonmetropolitan county designations. The list of the currently qualifying counties has been updated to reflect newly released 2007-2011 American Community Survey income data, as well as 2013 Difficult Development Area designations. Twenty-two counties have been newly qualified as a result of this update, while thirty-nine have been “redesignated.” The newly released information confirms a general trend towards a decline in the number of nonmetropolitan counties that qualify as HUBZones. A projection of the data reveals that the “redesignated” HUBZone status of 60 nonmetropolitan counties will expire on October 1, 2013; following that, 138 will expire in October of 2014, 78 will expire in 2015, and 39 will expire in 2016. While it is possible that some of these counties may be newly qualified when new unemployment data is released by the Bureau of Labor Statistics in May 2013, if your principal office or employees’ addresses are dependent upon one of these expiring counties, it is best to prepare early for such an outcome. If it is feasible, it might be worth exploring moving office locations to a qualified HUBZone location, or targeting new employee hires from qualified HUBZones. 

In further HUBZone news, the SBA has identified 2,067 currently certified HUBZone firms that have been identified for “recertification” in 2013. HUBZone firms are required to undergo recertification every three years in order to maintain their HUBZone certification. The SBA has advised the affected firms that it, the SBA, will initiate the recertification process – a firm’s HUBZone eligibility will not “automatically expire” while waiting for the SBA to contact it, even if the SBA contacts you after the three-year anniversary of your certification or last recertification. An affected firm will receive a letter in the mail asking it to either recertify or submit a voluntary decertification form within 15 calendar days of receipt. 

For firms that initially certified their HUBZone eligibility in 2007 and wish to recertify their status, you will be asked to submit a full set of supporting documentation to demonstrate that you are currently meeting all HUBZone eligibility requirements, similar to if you were submitting an initial eligibility application. For firms certified in 2001, 2004, or 2010, you will simply be asked to notarize a recertification form stating that you are meeting all of the eligibility requirements. 

HUBZone firms should make sure that maintaining HUBZone compliance is a top priority. If your firm is facing issues because of expiring HUBZone designations, redesignated HUBZone districts, or recertification, and you would like assistance, please contact us.

Kathryn V. Flood, an associate with PilieroMazza, practices in the areas of government contracts, small business administration programs, business and corporate law, and litigation. She can be reached at kflood@pilieromazza.com.

Based on Maryland’s biotechnology investment credit, the new cybersecurity credit allows an investor who invests at least $25,000 in a qualified Maryland cybersecurity company to claim a credit in the amount of 33% of investments made in a Maryland cybersecurity company.  The credit is not refundable, but any unused amount of the credit may be carried forward for seven tax years.   An eligible investment is a contribution to a qualified cybersecurity company in exchange for stock or ownership interest as long as the investor does not acquire an ownership interest in a company that exceeds 25%.

The credit focuses on cybersecurity products rather than services, as the statute requires the investment to be made in a company that is engaged in the development of “innovative and proprietary cybersecurity technology.”   Further, to be considered a “qualified Maryland cybersecurity company,” the company must have been in business for no more than five years, have its headquarters and base of operations in Maryland, and have less than 50 full-time employees.

Applications for eligibility for the credit will be accepted by the Maryland Department of Business and Economic Development on a first-come, first-served basis until the annual credit cap has been reached for the year, which is set at $2 million for fiscal years 2014 and 2015.   The Department has not yet released applications. However, companies should expect to be required to submit substantial documentation to accompany the application, such as a copy of an investment agreement between the qualified investor and the cybersecurity company and a detailed business plan evidencing that the company is primarily engaged in the development of innovative and proprietary cybersecurity technology.

If you have any questions please contact your Aronson tax advisor or Michael L. Colavito at 301.231.6200.

The compensation cap noted above applies when the amount of allowable reasonable compensation exceeds the cap; however, for many small and mid-size contractors reasonable executive compensation will not approach that amount.  FAR 31.205-6(b)(2) states that compensation “must be reasonable for the work performed.”  Comparison of compensation to other firms should take into account companies:

• Of the same size;
• In the same industry;
• In the same geographic area; and
• Engaged in similar non-Government work under comparable circumstances.

The FAR criteria noted above are fairly objective and are typically the basis for the initial assessment of reasonableness by way of salary surveys. There are a number of surveys in the marketplace and each one provides data based on a different underlying data set. Surveys can be based on data that is nationwide, industry specific, limited based on geography, etc.  Contractors should utilize the survey data that best approximates their environment.  Once a preliminary compensation range has been determined contractors can use subjective criteria to influence the specific compensation determination along the range. The subjective criteria, which could cause a contractor to pay an amount higher or lower than the industry average, include, but are not limited to:

1. Experience in the marketplace / industry
2. Clearance level
3. Responsibilities
4. Accomplishments
5. Professional Certifications (CPA, CFE, etc.)
6. Education (MBA, Master’s degree in a relevant area, etc.)
7. Tenure and contribution to the success of the company

Contractors should sufficiently document all factors which have influenced a particular compensation determination in a manner that would allow defense against audit / inquiry.

It is important to note that for a majority of contractors the Defense Contract Audit Agency (DCAA) assesses the reasonableness of contractor compensation, through review by their executive compensation review team in Philadelphia, during audits of contractor Incurred Cost Proposals.  When the DCAA measures reasonableness they utilize the average of no less than three salary surveys (in the past they have used ERI, Radford, and Watson Wyatt, to name a few). The DCAA uses the 50% salary for the executives’ position +/- a range of reasonableness of 10%.  This results in a pretty conservative compensation benchmark for each company.  Recently, there have been court cases that have challenged the DCAA’s compensation calculation methodology based on a number of factors. Please see blog posts related to J.F. Taylor, Inc. and Metron, Inc. for further information.

It should be pointed out that a contractor can pay any amount they feel is necessary to recruit and retain an executive.  However, keep in mind the amount of allowable compensation that can be passed through to the Government is limited by the reasonableness factors, and compensation cap, discussed above.

Please contact Brian Bender at 301.222.8273 or bmbender@aronsonllc.com for questions or assistance with your executive compensation and federal government compliance issues.

On April 30^th, Howard County government contractors and service providers attended GovConnects’ Monthly Business Breakfast Series: “The Current Landscape at Fort Meade for Small Business” at UMUC in Elkridge, Md. for a morning that combined important information with valuable networking opportunities.

Aronson LLC partner Mike Muscatello introduced the first keynote speaker, Colonel Rothstein, Garrison Commander at Ft. Meade.  The Colonel spoke about the Ft. Meade community and the importance of the partnership with local businesses.  He talked to attendees about the ways in which corporate innovation is playing an important role at “Team Meade,” the third largest military installation in the country.

Heather McColl, Associate Director of Outreach & Events at the NSA’s Office of Small Business Program also spoke at the event.  She shared insight about how to do business with NSA to further the mission of protecting the warfighter and focus on including industry partners in the battle to protect the nation’s security. She told attendees that NSA is interested in working with small businesses for the sake of innovation and acquisition efficiency.

The breakfast, which had more than 70 registrants, including government contracting partner Steve Swales and manager Tom Myers, was the premiere event in the series for this new group.  GovConnects is a business-to-government initiative sponsored by the Howard County Chamber of Commerce, which enables government contractors to benefit from the significant growth of the cyber security industry and other federal contracting activity in Maryland.

COMING UP:  Be sure to register for the next GovConnects Monthly Business Breakfast Series: “Preparing an Adequate Incurred Cost Submission” on May 16, 2013, presented by Aronson’s own Donna Dominguez!  Click here to RSVP.

The failure to apply this foundational sales and use tax concept had a costly result for a Virginia lessee in a recent ruling issued by the Virginia Department of Taxation (Virginia Public Document Ruling No. 13-41, 03/21/2013). The lessee was a hotel operator that leased the furniture, fixtures, and equipment associated with the hotels. The lessor acquired the assets and paid sales tax on the purchase of those assets. Thus, the lessor did not present a resale certificate to the vendor from which the assets were purchased, despite intending to resell (or lease) those assets to a third party. The lessor did not charge the lessee sales tax on the lease payments. The Department assessed the lessee for the unpaid sales tax on the lease payments. The taxpayer contested the assessment by arguing that it did not owe sales tax because the lessor had already paid the sales tax at the time of purchasing the assets.

The Department concluded that the lessor should have purchased the property for resale pursuant to a resale exemption certificate, and should have charged sales tax to the lessee. Unfortunately for the lessee, the Department also found that the lessee’s sales and use tax liability cannot be avoided because of the lessor’s noncompliance with the sales tax collection rules, as the legal incidence of Virginia’s sales tax is on the end purchaser. Finally, the fact that the lessor paid sales tax on the initial purchase had no bearing on the lessee’s lease payments also being subject to tax under the law.

The legal conclusion in this ruling was unfortunately correct, but the lack of an equitable result meant that the Commonwealth earned double the revenue. Moreover, assuming that the lessor built in to the lease payments its cost of paying sales tax on the purchase, the lessee essentially paid sales tax twice. Granted, the lessor can file a refund and, if the lessee is lucky, receive a refund from the lessor. However, this after-the-fact option will entail making uneasy requests to the lessor that can hamper a future business relationship. Taking the additional time to get it right up front will avoid the pain felt by the taxpayer in this ruling and, more importantly, prevent the state from getting double the taxes.

For more information on your company’s sales and use tax obligations please contact your Aronson advisor or Michael Colavito at 301.231.6200.

Employee Incentive Compensation: Powerful but Underutilized Tools for Navigating the Challenging Times Ahead: May 15, 8:00 – 10:00 am

Attracting and retaining key employees is a challenge every business faces, and government contractors know that a valuable contract can hinge on making the right staffing choices. Savvy government contractors also recognize the necessity to maximize human capital within the constraints of sequestration, continuing resolution and lowest price technically acceptable contracts. You’re invited to this breakfast workshop to learn about powerful employee incentive compensation strategies that can provide significant competitive advantages for your business. 

• Date: May 15, 2013, 8:00 – 10:00 am
• Speaker: Aronson’s Jim Fennel
• Where: Tower Club, Tysons Corner, Vienna VA 22182

 Register Today

GovConnects’ Monthly Business Breakfast Series – Preparing an Adequate Incurred Cost Submission: May 16, 7:45 – 9:30 am 

GovConnects is a business-to-government initiative sponsored by the Howard County Chamber of Commerce, which enables government contractors to benefit from the significant growth of the cyber security industry and other federal contracting activity in Maryland. Come early for networking and a light continental breakfast at 7:45 a.m.

• Date: May 16, 2013, 7:45 – 9:30 am
• Speakers: Aronson’s Mike Muscatello and Donna Dominguez
• Where: University of Maryland University College Dorsey Station, Elkridge, MD 

Register Today

The boats pulled alongside the Fleet Reserve Club as the warriors, their caregivers and accompanying family members came aboard for a great day of fishing. The boats flew large American flags and other fishermen in the area were encouraged to swing by the boats and say thanks to the warriors for their service and sacrifices. Upon their return, the veterans were the guests of honor at an awards ceremony at the Annapolis Fleet Reserve Club where each received a “Rock on Warriors” t-shirt, and other mementos commemorating the day. Through the generous support of the MSSA and other sponsors, these warriors were able to have a day that they will remember for a long time.