New CIO-SP4 Modification – An Undue Restriction on Competition and a Violation of SBA Regulations?

On June 22, 2021, the National Institutes of Health Information Technology Acquisition and Assessment Center (NITAAC) issued its third modification to the Chief Information Officer-Solutions and Partners 4 (CIO-SP4) Request for Proposals (RFP). Among other things, NITAAC made significant changes to how subcontractors and mentors in Small Business Administration (SBA) approved mentor-protégé programs are treated for purposes of the evaluation. The RFP appears to disallow the use of any subcontractor experience, past performance, or other qualifications, including from small businesses, and it severely limits the use of mentor experience. This 180-degree turn from the latest version of the RFP will impact small businesses seeking to use subcontractors and SBA-approved mentors when submitting their proposals.

Talking with many in the industry, companies all around the country shifted their CIO-SP4 strategies by forming prime / subcontractor relationships, shifting away from the use of joint ventures, and working more closely with their SBA-approved mentors. Now, however, all of those prime / subcontractor teaming relationships are effectively rendered useless, sending small businesses scrambling to reform joint ventures or give up pursuit of CIO-SP4 altogether. Unfortunately, because the Defense Logistics Agency (DLA) has been taking between 20 and 30 days right now to issue Commercial and Government Entity (CAGE) codes, many firms may not have sufficient time to create the joint ventures and secure the necessary CAGE code to successfully bid the work under this revised RFP. We have seen no rationale for these changes other than speculation that this is NITAAC’s attempt to artificially limit competition on CIO-SP4 in violation of the Competition in Contracting Act (CICA).

Specifically, Section L.3.7.1 of RFP was revised to remove language stating that “the experience and abilities of the prime’s subcontractors may be used in the offeror’s proposal,” to now state that “only the prime will be considered in the evaluation for award of the GWAC except as specified under M.4.3 Contract Team Arrangement (CTAs).” Looking at M.4.3 (which is Factor 3 – Past Performance), however, NITAAC revised that provision as well to remove the language that allowed past performance from affiliates and subcontractors (although it remains in Section L.5.7). As such, the RFP now eliminates an offeror’s ability to rely upon subcontractors. There does not appear to be any legitimate justification for this restriction, even though CICA, as interpreted by the Government Accountability Office requires that all federal agencies “specify [their] needs in a manner designed to achieve full and open competition, and may include restrictive requirements only to the extent they are necessary to satisfy the agency’s legitimate needs.”[1] Without any legitimate justification for why this is a necessary restriction, it arguably violates the law.

Further, this restriction makes no allowance for SBA’s new November 16, 2020, regulations, which require that “[w]hen an offer of a small business prime contractor includes a proposed team of small business subcontractors and specifically identifies the first-tier subcontractor[s] in the proposal, the head of the agency must consider the capabilities, past performance, and experience of each first-tier subcontractor that is part of the team as the capabilities, past performance, and experience of the small business prime contractor if the capabilities, past performance, and experience of the small business prime does not independently demonstrate capabilities and past performance necessary for award.”[2] Clearly, the RFP directly contradicts this mandate, as it provides no exception for a FAR 9.601(2) arrangement where the subcontractor is a small business, and, as such, violates the law.

Doubling down on this impropriety, the Q&A released by NITAAC also states that they purposefully amended the solicitation “to clarify that the Government will not consider the members of a CTA defined under FAR 9.601(2) [simply another way to say “subcontractors”] for evaluation purposes except in the limited context of evaluating an Offeror’s proposal under L.5.6.2 [Management Approach – Resources] . . .” Again, this makes it clear that NITAAC is purposefully disallowing subcontractor experience, past performance, and other qualifications from being used in the evaluation. Additionally, it means that subcontractors cannot be used to meet any of the evaluation factors except for Management Approach: Subfactor 2 – Resources. Specifically, subcontractors cannot be used to show Capability Maturity Model Integration certification levels, Earned Value Management Systems, Acceptable Estimating Systems, International Organization for Standardization certifications, Approved Purchasing Systems, or any other requirement of the RFP.

The RFP does seem to allow “partnerships” under FAR 9.601(1). However, as we have said in all our CIO-SP4 resources, SBA does not really recognize a “partnership” as some independent offeror “form” used to bid small business contracts. In our view, a “partnership” under SBA regulations is nothing more than a joint venture in the form of a partnership, instead of a limited liability company (LLC). Worse, it could be viewed by SBA as simply an affiliate, which would mean you lose all the beneficial rules and protections that apply to joint ventures. Thus, it creates concerns regarding affiliation of the partners with each other, negative treatment of the revenues the “partnership” receives from CIO-SP4, at least for the controlling partner, and possible limitations on subcontracting violations depending on how the work is performed by the partners within the “partnership.” So the idea of a non-joint venture “partnership” raises a host of other concerns which may raise their heads in the form of post-award size protests. To avoid this, we recommend that everyone treat these “partnerships” as joint ventures and be sure to follow all applicable SBA regulations that relate to joint ventures.

Given that many companies are now considering a joint venture (i.e., FAR 9.601(1) CTA), there may be another way for joint ventures to bid CIO-SP4 without the need of an independent CAGE code (although the RFP still requires the Data Universal Numbering System number of the CTA). SBA’s joint venture regulations do have rather odd provisions, which we have never actually seen used in practice, but which may be beneficial here for “joint ventures” who are unable to form a partnership or LLC and secure a CAGE code in time for proposal submission. Specifically, 13 C.F.R. § 125.8(f) states that “[t]he procuring activity will execute a contract set aside or reserved for small business in the name of the joint venture entity or a small business partner to the joint venture, but in either case will identify the award as one to a small business joint venture or a small business mentor-protégé joint venture, as appropriate.” Similar language is found in other joint venture regulations. Again, we are not aware of any time this has been used by an agency, and we have not seen cases that address how this is to work in practice. But on its face, it seems to indicate that the “joint venture” could use the CAGE code of the managing member instead of a separate CAGE code for the “partnership” or LLC and still be awarded a contract that would be treated as an award to the joint venture under SBA regulations and FAR 9.601(1). Thus, this could be another way for firms to get around the DLA delays in issuing CAGE codes for CIO-SP4 if a pivot to a joint venture is now required. However, this approach is certainly not without risk. Back in 2018, the requirement that offerors must be registered and active in the System for Award Management (SAM) prior to proposal submission was clarified. A question regarding joint ventures was specifically raised and a commenter asked for an exception to this requirement for joint ventures. In response, the government explained that this was “not practicable” and explained that all offerors, including joint ventures, “should apply for registration [in SAM] immediately upon issuance of the solicitation so that there should be time . . . to be registered in SAM at the time of the submission of an offer.” If you proceed as a joint venture but submit using the managing member’s CAGE code, you run the risk of not complying with FAR 4.1102(a) as well as being viewed as a prime / subcontractor 9.601(2) CTA, rather than a joint venture. Further, please be aware of the added requirement that offerors must be added to the “interested vendors list” in SAM. It is critical that you follow the instructions in Attachment J.7 to submit a proposal.

The RFP also restricts mentor-protégé teams’ ability to rely on the mentor’s experience. Indeed, the RFP notes that “large business” mentors may only provide “one [corporate experience] example for each task area.” The remaining two references per task area must now come from the protégé itself. However, there is not a similar restriction for instances where the mentor is a small business or where the joint venture is comprised of all small businesses and, thus, is not required to have a mentor-protégé agreement. This added language by NITAAC can be viewed as unduly restrictive against small / large business mentor-protégé joint ventures. Indeed, as SBA explained, “it is unreasonable to require the protégé concern itself to have the same level of past performance and experience (either in dollar value or number of previous contracts performed, years of performance, or otherwise) as its large business mentor.” However, SBA did clarify that it “disagrees that a procuring activity should not be able to require a protégé firm to individually meet any evaluation or responsibility criteria.” Accordingly, and given that the RFP is not a bar – only a limitation – on mentor experience, this restriction might be upheld in the event of a protest. Although, limiting the mentor references to one per task area as opposed to two may be too restrictive and inconsistent with SBA’s regulations. The stronger argument, though, is that, as written, the RFP treats joint ventures between a small business protégé and a large business mentor differently from joint ventures between all small businesses where the mentor is a small business. There is no logical basis for this.

Lastly, NITAAC has attempted to clarify what a “clear relationship” means for purposes of claiming corporate experience. Several questions were submitted asking for clarification as to what the term “clear relationship” means. NITAAC responded that the “solicitation will be amended to clarify.” In reviewing the amended solicitation, NITAAC has added that each example “shall convey the offeror’s specific role in their experience example.” In our read, we view the solicitation as requiring offerors to explain how the company whose experience is being claimed participated in the experience example provided.

As is easy to see, the new CIO-SP4 RFP unduly restricts competition and violates federal law. Unfortunately, because NITAAC is looking to exclude as many small businesses as possible from the competition and – it seems – limit competition generally, companies will be forced to protest the solicitation or lose their ability to compete for one of the most important RFPs to be released in recent history.

PilieroMazza’s recent webinar on the CIO-SP4 RFP can be viewed here.

If you have questions about the CIO-SP4 RFP modification or the impact of CIO-SP4 for the government contracting community, please contact Cy Alba and Meghan Leemon, the authors of this client alert, or a member of PilieroMazza’s Government Contracts Group.

[1] Innovative Refrigeration Concepts, B-272370 (Sept. 30, 1996).

[2] 13 C.F.R. § 125.2(g).

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