Legal Landscape: SBA Expands the WOSB/EDWOSB Contract Program, Importance of the Economic Loss Rule and Self-Reporting Requirement Changes
Welcome to the fourth edition of Legal Landscape, a series we have developed with Onvia’s blog to provide government contractors with a quick, but thorough, summary of important legal developments and regulations in government contracting, as well as a plain-English explanation of how those developments may affect contractors at all levels of government. Contractors should keep in mind that state and local agencies often look to changes in federal regulations as a guide for future changes at their respective levels. Changes recently made in the federal arena are likely to trickle down to state and local governments.
SBA Expands WOSB/EDWOSB Program
As many of you know, the federal government attempts to steer a percentage of government contracts to small businesses by “setting aside” certain contracts exclusively for those businesses. With regard to women-owned businesses, there is a 5% contracting goal, meaning that the government aims to award at least 5% of all federal government contracts to women-owned businesses.
To that end, the Small Business Administration’s (SBA) contract program for Women-Owned Small Businesses (WOSB) and Economically Disadvantaged Women-Owned Small Businesses (EDWOSB) authorizes federal contracting officers to set a contract aside for WOSBs or EDWOSBs under certain limited circumstances:
An agency may set a contract aside for a WOSB if the contract’s NAICS code relates to an industry in which WOSBs are considered substantially underrepresented and federal contracts can be set aside for EDWOSBs if the NAICS code relates to an industry in which WOSBs are considered underrepresented.
- There is a reasonable expectation that at least two WOSBs will submit offers that meet the requirements of the acquisition at a fair and reasonable price
- The acquisition is for a good or service in a North American Industry Classification System (NAICS) industry code in which WOSBs are substantially underrepresented.
Similarly, a contracting officer can set a contract aside for EDWOSBs if:
- The contract is issued under a NAICS code associated with an industry where WOSBs are underrepresented.
In other words, federal contracts can be set aside for WOSBs if:
- The contract’s NAICS code relates to an industry in which WOSBs are considered substantially underrepresented and
Federal contracts can be set aside for EDWOSBs if:
- The NAICS code relates to an industry in which WOSBs are considered underrepresented.
Because EDWOSBs are necessarily WOSBs, EDWOSBs are eligible for contracts set aside for either WOSBs or EDWOSBs.
Shortly after the inception of the WOSB/EDWOSB program, the SBA issued lists of the industries in which it considered women to be underrepresented or substantially underrepresented. However, in many people’s view, these lists (which were based on a 2007 report authored by the Kauffman-Rand Institute for Entrepreneurship Public Policy), excluded many industries in which women were operating at a clear disadvantage due to gender.
Recognizing this, Congress amended the Small Business Act in 2014. The amended version of the Act required the SBA to conduct a new study concerning WOSB/EDWOSBs, and, in particular, the industries in which these businesses were truly underrepresented. The resulting report – which is worth a read – concluded that women-owned businesses were less likely to win federal contracts in 254 of the 304 industries included in the study. Meanwhile, Congress passed the National Defense Authorization Act for Fiscal Year 2015 (NDAA), which mandated that certain changes be made to the WOSB/EDWOSB program. In March 2016, the SBA enacted those changes, expanding the list of industries in which a contract can be set-aside for WOSBs or EDWOSBs.
The expansion includes many notable additions including the addition of numerous construction-related NAICS industries to the WOSB set-aside approved list such as Residential Building Construction (2361), Nonresidential Building Construction (2362), Utility System Construction (2371), Highway, Street, and Bridge Construction (2373), and Heavy and Civil Engineering Construction (23710). Other notable changes include the addition of Services to Buildings and Dwellings (5617), as well as education-related (6113, 6114, 6116, 6117) industries and medical-related (6211, 6214, 6215, 6219, 6221, 6231) industries to the WOSB-approved list, as well as the addition of Wired Telecommunications Carriers (5171) and Waste Collection (5621) to the EDWOSB-approved list.
Key takeaway for government contractors:
As part of this expansion, a number of industries formerly listed as those in which women were “substantially underrepresented” have moved over to the “underrepresented” list. That means that, while contracts in these industries could previously only be set aside only for EDWOSBs, they now can be set aside for WOSBs. While EDWOSBs are still eligible to compete for WOSB contracts, it does widen the competition. For that reason, while WOSBs generally see this expansion as a huge win, some EDWOSBs feel it has negatively impacted their competitive edge. We will have to wait and see what the ultimate result is, and how it impacts the total number of contracts awarded to WOSBs and EDWOSBs.
The Economic Loss Rule and the Ability to Sue Design Professionals without a Contract
A recent Maryland case, Balfour Beatty Infrastructure, Inc. v. Rummel Klepper & Kahl, LLP serves as a strong reminder that you always have to be aware of the applicable laws in a jurisdiction when negotiating terms, and protecting your rights on a new project. That case, like many others, turned on a doctrine commonly known as the “Economic Loss Rule,” the applicability of which varies from state to state.
In some states, contractors can sue a design professional, even in the absence of a contract between the contractor and that professional, on the basis of the professional’s negligence. This is, however, the minority rule. In the majority of states, contractors do not have this type of remedy available to them because the courts apply the Economic Loss Rule to bar such claims. Indeed, in most states, a contractor cannot sue a design professional for purely financial losses (as opposed to property damage or personal injury) if there was no contract between the contractor and the professional. This is true even when the contractor suffers loses allegedly caused by the design professional.
The Balfour Beatty case is an illustrative example of this rule: The City of Baltimore engaged a design & engineering firm, Rummel Klepper & Kahl, LLP (RK & K), in connection with a public works project (the Project) involving renovations to a water treatment plant. Balfour Beatty Infrastructure, Inc. (BB) was hired as the contractor for the Project. BB had a contract with the City, but not with RK & K. BB ultimately experienced issues on the Project, which it attributed to the design errors made by RK&K. BB, therefore, sued RK & K on the basis of negligent misrepresentation as well as professional negligence. The court rejected BB’s claims, citing the Economic Loss Rule. The court reasoned that the claim was based on a public construction contract, and that only purely economic damages were being sought for negligence claims. Therefore, the court affirmed the dismissal of BB’s claim.
Key takeaway for government contractors:
As stated above, different states have different views on the applicability of the Economic Loss Rule, and the various – in some states, numerous and broad – exceptions thereto. Accordingly, when you become involved in a project, it is very important for you to make sure that you understand how any non-contractual claims against a design professional will be treated in the applicable jurisdiction relating to that project. If you are in a jurisdiction that does not allow these types of claims, or allows them only in certain circumstances, you will want to consult your attorneys, so that you can ensure you are otherwise protecting your interests.
Fair Pay and Safe Workplaces Executive Order
On July 31, 2014, President Obama signed Executive Order 13673. Subsequently, last year, the Department of Labor issued proposed guidance, and the Federal Acquisition Regulatory Counsel published proposed changes to the Federal Acquisition Regulations (“FAR”), implementing the order. Of all the Executive Orders signed by Obama during his tenure as president,Executive Order 13673 could be the most important for Federal government contractors. This is because it imposes substantial obligations on contractors.
Executive Order 13673 applies to any Federal government procurement contract where the estimated value of goods or services is over $500,000.00. To be eligible for any such contract, a Federal government contractor must, among other things, make certain disclosures concerning the violation(s) of labor laws by itself or its subcontractors.
More specifically, contractors must now self-report (at the time of bidding and periodically or on a semi-annual basis thereafter) any negative finding (including administrative merits determinations, arbitral awards or decisions, and civil judgments rendered against them) concerning non-compliance with certain laws (including violations of the National Labor Relations Act, the Fair Labor Standards Act, the Migrant and Seasonal Agricultural Worker Protection Act, the Service Contract Act, the Davis-Bacon Act, the Occupational Safety and Health Act, the Vietnam Era Veterans readjustment Assistance Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Family and Medical Leave Act, Section 503 of the Rehabilitation Act, Title VII of the Civil Rights Act, Executive Order 11246, Executive Order 13658, or any analogous state statutes or regulations) in the preceding three (3) years.
Federal contractors must also disclose similar information regarding its subcontractors. Specifically, the contractor must disclose if its subcontractors were found guilty of violating any of the above-named laws in the last three years, on contracts exceeding $500,000.00. The contractor has a further obligation to pass through these reporting requirements to the subcontractor itself. In other words, the prime contractor must require its subcontractors to independently self-report violations of the referenced statutes in the preceding three years and to update that disclosure every six months. Finally, the contractor is required to consider its subcontractors’ disclosed violations when determining whether it is appropriate to enter into a subcontract with that subcontractor.
On the government side, the Executive Order will require each agency to designate a “Labor Compliance Advisor.” That Labor Compliance Advisor will assist the agency’s contracting officers in determining if the reported violations should affect the contractor’s ability to receive the award. Specifically, they will determine whether the violations are “serious, repeated, willful or pervasive”. They will also analyze whether the disclosed violations have been sufficiently remedied, and whether the contractor remains a “responsible source that has a satisfactory record of integrity and business ethics.” The Labor Compliance Advisor can, in their discretion, refer a contractor to the applicable debarment authorities based on these conclusions.
The White House has stated that these new requirements were enacted with numerous goals in mind, including the following: to Hold Corporations Accountable; Crack Down on Repeat Violators; Promote Efficient Federal Contracting; Protect Responsible Contractors; Focus on Helping Companies Improve; Give Employees a Day in Court; Streamline Implementation and Overall Contractor Reporting. These are all admirable goals.
Key takeaway for government contractors:
It is important to keep these new reporting requirements in mind going forward. Obviously, all Federal Contractors now have even more reason to make sure their labor policies are up to date, and that they are not risking any labor law violations. In addition, it will become increasingly important to vet subcontractors for any potential violations. We will keep you posted on any further developments in future editions of this series.