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Can Employees of Government Contractors use Medical Marijuana?

While many states have enacted legislation permitting marijuana use in some form (you can find more information on marijuana in the workplace in VA, MD, and D.C. here), marijuana use is still prohibited under federal law. Specifically, under the federal Controlled Substances Act, marijuana is prohibited as a Schedule 1 illegal drug. While the Americans with Disabilities Act (“ADA”), prohibits employers from discriminating against qualified individuals on the basis of a disability and requires employers to provide reasonable accommodations to employees with disabilities, the ADA specifically excludes protection for individuals “currently engaging in the illegal use of drugs.” “Illegal use of drugs” refers to drugs that are unlawful under the Controlled Substances Act, including marijuana, leading courts to historically find that employers are not required to provide accommodations for the use of medicinal marijuana under the ADA.

More importantly, federal employees and contractors are subject to the Drug Free Workplace Act, which requires federal contractors to meet certain requirements in order to be eligible for federal contacts. Under this Act, any company that receives a federal contact of at least $100,000 and any organization that receives a federal grant of any amount, must maintain a drug-free workplace policy and a drug-free awareness program. The drug-free policies apply to contract employees who are directly engaged in the performance of contract work. While technically the Act only covers employees working directly on the grant, a drug-free workplace for all employees of the organization is advisable.

Federal contract conditions must be maintained throughout the life of the contract. A contact may be suspended, debarred, or terminated if a contractor is found in violation of the Drug-Free Workplace Act, such as by failing to provide a drug-free workplace. Contractors and individuals that have been debarred will not qualify for federal contacts for a period up to five years. Additionally, companies that fail to timely inform the relevant federal agency of drug violations, may similarly face contract suspension, debarment, or termination.

Recently a new bill has been proposed that would allow federal workers to legally use marijuana without risking their jobs. The “Fairness in Federal Drug Testing Under State Laws Act” would remove limitations on federal employment for anyone legally using marijuana in accordance with state law. Under the bill, if an employee resides in a state that permits private use of marijuana, he can’t be denied employment or suffer any other adverse employment action as a result of a positive marijuana drug test. The bill won’t apply to positions requiring top security clearances or failed drug tests resulting from probable cause, such as suspected impairment on the job. The fate of the bill is unclear and it is important for employers to ensure compliance with current federal law, until this, or a similar bill, actually takes effect. However, the bill does highlight a trend in marijuana legislation and the importance of staying up to date with changing regulations.

Employer Obligations

Despite a state’s employment protections for users of medical marijuana, such protections don’t extend to federal employees or contractors. In the workplace, these federal employees or contractors are subject to federal law. To be in compliance with federal law, specifically the Drug Free Workplace Act, qualifying employers must:

  • Publish a statement notifying employees that the unlawful manufacture, distribution, dispensation, possession, or use of a controlled substance is prohibited in the workplace and specify what actions will be taken for violations of the prohibition;
  • Ensure that each employee engaged in the performance of a federal contract receives a copy of the statement;
  • Notify employees that as condition of employment, the employee must abide by the statement and notify the employer of any criminal drug statute conviction for a violation occurring in the workplace no later than 5 days after the conviction;
  • Establish a drug-free awareness program to inform employees of the dangers of drug abuse in the workplace, the drug-free workplace policy, available drug counseling, rehabilitation, and employee assistance programs, and the potential penalties for violations;
  • Notify the contracting agency within 10 days after receiving notice of an employee’s drug conviction; and
  • Impose a sanction on any employee who is convicted of a criminal drug offense, or require participation in a drug abuse assistance or rehabilitation program.

It is important to note that compliance with the Drug Free Workplace Act does not require employers to terminate employees for drug-related violations. While employers are free to terminate employees who violate the drug-free workplace policy, compliance with the Act only requires a sanction of some kind. The required sanction can be mandatory counseling or some other type of participation in an employee assistance program.

It is also notable that the Drug Free Workplace Act only requires a drug free policy in the workplace. The Act doesn’t regulate employee marijuana use outside of the workplace, with an exception for criminal drug convictions. Additionally, the Drug Free Workplace Act doesn’t require employers to drug test applicants or employees, but also doesn’t prohibit employers from drug testing if they choose to. Employers may decide that drug testing isn’t beneficial, since a positive drug test doesn’t necessarily mean that an employee was using marijuana in the workplace. Employers need to do a cost/benefit analysis for their individual workplaces to decide the policies that work best for them.

Call General Counsel PC Today

Since the law is still evolving, the uncertainty around marijuana in the workplace can make setting workplace policies difficult. General Counsel PC can help you understand the requirements of the Drug Free Workplace Act and create policies to ensure compliance. Our attorneys are specialized in labor and employment law and have experience working with business owners across Maryland, Virginia, and D.C. Call General Counsel PC at 703-556-0411 today to see how we can help you.

Marijuana in the Workplace Under D.C., Maryland, and Virginia Law

With so many states enacting legislation permitting marijuana use in some form, new questions have developed as to employers’ rights regarding marijuana use by employees. 30 states and the District of Columbia currently permit marijuana use for medicinal purposes. Of those states that allow medicinal marijuana, 9 states and the District of Columbia also permit recreational marijuana use, in some form. With more states considering similar legislation, allowance of recreational marijuana use seems to be on the rise. However, despite support for some level of marijuana use among the majority of states, marijuana use is still prohibited under federal law. This inconsistency creates some uncertainty for employers who are unsure how to handle the issue of marijuana in the workplace.

Marijuana Use Under Federal Law

Under the federal Controlled Substances Act, marijuana is prohibited as a Schedule 1 illegal drug. The Americans with Disabilities Act (“ADA”), prohibits employers from discriminating against qualified individuals on the basis of a disability and requires employers to provide reasonable accommodations to employees with disabilities. Since medicinal marijuana is often prescribed to individuals with disabilities recognized under the ADA, a question arises regarding how medicinal marijuana use affects the protections of disabled individuals under the ADA. However, the ADA specifically excludes protection for individuals “currently engaging in the illegal use of drugs.” Such individuals are not considered “qualified individuals with disabilities” under the ADA. The Act defines “illegal use of drugs” as the use of drugs that are unlawful under the Controlled Substances Act. Since marijuana remains prohibited under the Controlled Substances Act, as a Schedule 1 substance, courts have historically found that employers are not required to provide accommodations for the use of medicinal marijuana under the ADA.

Marijuana Use Under D.C., Maryland, and Virginia Law

D.C., Virginia, and Maryland have all taken steps towards legalizing marijuana use, in some form, but each location’s legislation varies greatly. Understanding your state’s policy on marijuana use and the related rights of employees and employers is vital to staying in compliance with changing policies.

Maryland has passed legislation permitting the use of marijuana for medicinal purposes. However, this legislation does not prevent employers from testing for marijuana use and does not protect employees that test positive for any reason.

Virginia has passed a very narrow medical exception to the Virginia Drug Control Act, which classifies marijuana as an illegal substance. Under the Virginia law, possession of marijuana is not legalized, but an affirmative defense is created for individuals with intractable epilepsy who meet specific medicinal marijuana requirements. Virginia does not provide any protections for prospective or current employees that use medicinal marijuana.

D.C. has passed legislation permitting medicinal marijuana use, as well as recreational marijuana use for individuals over the age of 21. Current D.C. employees do not have any employment protections for medicinal or recreational marijuana use. However, under the Pre-Employment Marijuana Testing Act of 2015, employers are prohibited from testing prospective employees for marijuana prior to a conditional offer of employment. Employers are permitted to require prospective employees to take drug tests after a conditional offer of employment has been made.

If you need to know more about the potential risks of violating marijuana laws in DC, or Virginia, contact an experienced criminal law attorney like Jay P. Myktiuk.

What Does this Mean for Employers?

It is important to note that in states that permit use of marijuana for some purpose, no state permits employees to use or be under the influence of marijuana in the workplace. Additionally, no state provides employment protections for employees or job applicants who use marijuana recreationally. However, some states offer limited employment protections for employees and job applicants who use marijuana for medicinal services. In such states, employees or job applicants who are discriminated against due to their medicinal marijuana use may have legal claims under state disability or marijuana laws. As noted above, none of the statutes in D.C., Virginia, or Maryland specifically provide workplace protections for employees using medicinal marijuana. Private employers in these states are free to set their own drug policies, including zero-tolerance, drug-free workplace policies, and to discipline or terminate an employee who violates those policies.

Even in states that allow some form of marijuana use, federal contractors must still maintain zero-tolerance policies. Additionally, the Department of Transportation specifically stated that a state’s allowance of marijuana use will not be a valid explanation for a transportation employee’s positive drug test. The DOT also explained that any safety-sensitive employee subject to drug testing under the DOT’s regulations are not permitted to use marijuana, regardless of a state’s policies.

Recent court decisions may point to a shift in the way courts view medicinal marijuana use. Historically, employees fired for off-duty medicinal marijuana use have lost lawsuits against their employers, because even though medicinal marijuana may be legal under state law, marijuana is still illegal under federal law. However, recent cases have disagreed. In 2017, a Rhode Island court found that an employer couldn’t refuse to hire an individual because of her status as a medical marijuana cardholder and use of medicinal marijuana outside of work. Again in 2017, a Massachusetts court found that a medical marijuana user who was fired for failing a drug test could proceed with her discrimination claim. The court found that although illegal federally, the state’s disability discrimination law permitted employees a right to seek a reasonable accommodation for medicinal marijuana use. Continuing the trend, in 2018 a Connecticut court found that an employer discriminated against a job applicant and violated Connecticut’s medical marijuana law when it refused to hire a medical marijuana user after she tested positive on a pre-employment drug test.  Courts in D.C., Maryland, and Virginia have not yet addressed the issue. However, these court cases show the importance of staying up to date with court decisions depicting how courts view issues regarding termination of employees who use medicinal marijuana.

Since there is still a lot of uncertainty surrounding issues of medicinal marijuana in the workplace, employers need to balance the safety-sensitivity of specific job positions against any potential legal protections for employees with disabilities using medicinal marijuana. Below are some tips for employers to consider to help walk that line:

  • Require employees to acknowledge, in writing, that any medicinal marijuana use is legitimate and won’t be used in the workplace or in a way that may affect their work;
  • Review existing policies to update language with state law to clarify ambiguous language—prohibiting “illegal drugs” may create confusion regarding whether legal medicinal marijuana is permitted;
  • Review the nature of your workplace and determine your tolerance for marijuana use outside of work and what the consequences of an employee testing positive for marijuana will be. For example, jobs that require employees to operate machinery or handle dangerous tools or substances may be concerned with the safety of employees and others as well as their own liability. Employees that work on federal contracts are still prohibited from using marijuana;
  • Caution employees that they may not be under the influence or possess marijuana in the workplace;
  • Consider your current drug testing policy and whether it is still useful in light of changing legislation. Particularly in D.C., ensure that your drug testing policies are in compliance with applicable laws;
  • Continue to monitor changes regarding the use of marijuana in state and federal legislation, as well as court opinions.

Call General Counsel PC Today

Since the law is still evolving, the uncertainty around marijuana in the workplace can make setting workplace policies difficult. General Counsel PC can help you examine the nature of your workplace to determine the best policies for your specific business. Our attorneys are specialized in labor and employment law and have experience working with business owners across Maryland, Virginia, and D.C. Call General Counsel PC at 703-556-0411 today to see how we can help you.

Starting Your Own Business

Video about things to consider before starting a business.

Watch this brief video about things to consider before starting a business.

Starting a business is a lot of work and takes a serious level of commitment. Before you commit to such a huge endeavor, make sure you do your research. What do you need to do to start a business? What are the requirements of starting a business? How do you get started? Below are some of the most important things you should consider before you actually start your own business.

  • Passion and Planning – One of the most important things to consider when starting your own business is to make sure your business involves something you enjoy doing everyday. When you start your own business, you give up your job working 40 hours a day for someone else, to work 80 hours a day for yourself. There is a lot of stress that can come with owning your own business, and you should make sure it will be worth it by choosing a practice area that you enjoy. Then, draft a 3-5 year business plan. This plan will guide you strategically and become an offering document to raise capital when speaking to investors or friends and family, or trying to get a loan from the bank.
  • Choice of Entity – Here, you should start with the end in mind. Why are you starting a business? What are you going to do with it? How are you eventually going to exit and perhaps sell it? These types of questions will dictate which type of entity is right for you. The entity you choose will affect many important aspects of your business, such as taxes, paperwork required, the liability of the owners, and many other legal issues. You may know you want your business to have partners or go public, or that you want to seek capital from institutions. For each of these things, there is a specific type of entity you need to form. Additionally, if you’re planning on ending your business at some point or passing it on to your family, how you structure business agreements during business formation are important.
  • Filing Requirements – Once you figure out what type of entity is the right fit for your business, you need to make sure you get your business properly registered. Depending on the type of business and entity you choose, you may need certain licenses, tax information, and governing documents for your business. For example, to create an LLC in Virginia, you must file Articles of Organization with the Virginia SCC, as well as appoint a registered agent for service of process. Virginia does not require business owners to create operating agreements, but an operating agreement is a very important document for all business owners to have to help establish basic rules about how your business will operate, as well as to guide your business in the event certain situations arise. If your business involves selling goods in Virginia or having employees, you also have to register with the Department of Taxes.
  • Business Relationships – It’s important to consider the people that you’ll deal with on a regular basis once you start your own business, including customers, suppliers, vendors, and employees. Each type of business relationship requires a specific type of agreement to allow you to function effectively and profitably with them as well as to protect your business from long-term risk as your business grows.
  • Other Considerations – The issues discussed above are just the tip of the iceberg for things that future business owners need to consider before getting their businesses started. There are many other things that need to be considered, such as picking a name and making sure it’s legally available for your business, choosing a location that’s in line with the zoning regulations, and getting insurance. First time business owners may not even realize all of the things that need to be figured out before a business can actually be started, which is why it’s important to do your research and talk to someone who knows what needs to happen to make sure things run smoothly while you work to get your business set up and then keep it running just as smoothly.

Starting a business is a big step, with lots of complicated decisions that have long-term consequences. When you’re considering starting a business it is often a good idea to speak to someone who is knowledgeable about operating a business and is also an attorney who knows business law to help you make sure things are in order and consider aspects you may not have thought of. Our attorneys are specialized in business law and have experience working with business owners across Virginia, specifically in Fairfax County, Arlington, Loudoun County, and Prince William. Call General Counsel PC at 703-556-0411 today to learn more about how we can help you structure your business for long-term success.

General Counsel, P.C. attorneys win Virginia’s SECOND largest verdict of 2017

General Counsel Wins Largest Virginia Verdict of 2017

Originally posted on January 25, 2018.

Just days after being notified by Virginia Lawyers Weekly that General Counsel P.C.’s verdict for Heard Construction was the largest in Virginia in 2017, we learned that we were edged out of the title by a Fairfax County medical malpractice case. Managing Partner Merritt Green said that he was told by Virginia Lawyers Weekly that the mistake was pointed out to them by the firm that is now listed as number one. “While we have slipped in the polls, we are still extremely proud of the work that we did on behalf of our client,” Green said.

The firm was notified in late January of our short-lived first place finish. “We were even given the right to post a copy of Virginia Lawyers Weekly issue which stated we were number one on our website, but all is well and congratulations to the new title holder.”

While now “number 2,” the case was the only one of the top 5 verdicts related to a business matter.  The other 4 were all medical malpractice matters.

In August of 2017, General Counsel, P.C. attorneys, Andrew Baxter and Christopher Davis, on behalf of GCPC client, obtained a $3.8M judgment for Heard Construction.

In this case, Heard Construction, took part in an in­vitation for sealed bidding to replace a pier at the Little Creek Naval Base in Norfolk. The defendant, Waterfront Marine, represented that it was a “small” business pursuant to SBA size standards. When Heard Construction discovered that the defendant was actually a “large” business, General Counsel, P.C. attorneys filed a size protest with the SBA. The SBA eventually, determined that the defendant was “other than small,” and, as such, should not have been awarded the government contract at issue.

Thereafter, GCPC attorneys filed a civil lawsuit against Waterfront Marine for tortious interference. After a long litigation process, and a four-day trial, the jury found the defendants liable and awarded the $3.8 Million in damages to Heard Construction.

General Counsel, P.C. attorneys were pleased and honored to obtain such a tremendous result for our client, Heard Construction.

Call General Counsel PC Today

If you are already, or just considering involvement in a lawsuit or government protest, attorneys at General Counsel PC can provide you with the knowledge and assistance necessary to determine the next steps.  Call General Counsel PC at 703-436-9838 today to see how we can help you.

What To Do When Accused of Breach of Contract

If you’ve received a notice of breach of contract sometimes called a demand letter, it means someone believes you’re not living up to your end of a bargain. A breach of contract occurs when one party to a contract doesn’t fulfill any term of a contract, without a lawful excuse. Contract breaches can be troublesome for both small businesses and individuals. Receiving a notice of breach of contract opens up a legal battle that can be stressful, time-consuming, and costly.

Types of Breaches

Breach of contract disputes are very common because they can impact so many different aspects of businesses and there are multiple types of breaches. A breach can be minor or major depending on how crucial the provision that was breached was to the contract as a whole. A breach may also be anticipatory, which means that a party may not actually have breached a contract yet, but acts in such a way as to make the other party believe he intends to breach the contract.  The defenses and remedies available for a breach of contract dispute depend on the type of breach that has occurred.

Common examples of breach of contract include a failure to provide goods or services on time or in full, non-payment for goods or services, providing defective goods or services, or breach of warranties of a contract.

How to Respond to a Demand Letter

The best course of action after receiving a notice of breach of contract, or a demand letter, is to contact an experienced attorney knowledgeable about contract disputes. Contract disputes can be complex and attempting to tackle such an endeavor on your own could result in serious negative results. Instead, seek out an attorney who knows the law, knows the local court rules, and knows the best way to respond to such letters to allow for the highest possibility of success.

It’s best to contact an attorney as soon as possible to ensure no deadlines are missed and to figure out what needs to be done right from the beginning. An attorney will need to review the contract itself, as well as other documentation and correspondence with the other parties. It’s important to provide as much truthful information as possible to ensure that the attorney is working with all of the facts when determining the best legal strategy.

Call General Counsel PC Today

If you have been accused of breach of contract and live or work in the Fairfax, Loudoun, Arlington, Prince William, or anywhere in Virginia, attorneys at General Counsel PC can provide you with the knowledge and assistance necessary to determine the next steps in preserving your legal rights. Our attorneys are specialized in labor and employment law, business law, and litigation and have the experience necessary to help you through these legal hurdles. Knowing your rights and options can help ease some of the burden of dealing with breach of contract disputes. Call General Counsel PC at 703-436-9838 today to see how we can help you.

Expansion of the Mentor-Protégé Program – Form Strategic Alliances

Expansion of the Mentor-Protégé Program – Form Strategic Alliances

Expansion of the Mentor-Protégé Program – Time to form Strategic Alliances

By Sharon O. Steele, Chair Government Contracts Practice Group

General Counsel, P.C. – www.generalcounsellaw.com

ssteele@gcpc.com (703)226-2719

The Small Business Administration (SBA) released the final rule concerning the long-anticipated expansion of the Mentor-Protégé Program.  The final rule creates a Government-wide mentor-protégé program open to all types of small businesses, i.e., Historically Underutilized Business Zone (HUBZone) small businesses, women-owned small businesses (WOSBs), service-disabled veteran-owned small businesses (SDVOSBs), and all small businesses.  Formerly, the 8(a) program was the only SBA program with a mentor-protégé program.  

The final rule amends the SBA’s regulations to implement provisions of the Small Business Jobs Act of 2010 and the National Defense Authorization Act for Fiscal Year 2013 (NDAA). In addition to expanding the mentor-protégé program across all small businesses, the final rule modifies the current 8(a) mentor-protégé program, clarifies the meaning of a joint venture, and implements new compliance requirements to approved joint ventures.   

As a result, it would behoove large businesses to begin making strategic alliances with small businesses as soon as possible, and for small businesses to seek out strategic partners as well.  Firms, both large and small, must be prepared for what could be a major shift in contracting practices.  Once the new program is fully implemented, participation in a mentor-protégé relationship may become the de facto price of admission for pursuing small business set-aside contracts.

This is welcome news for small and large businesses, as many more firms will be able to access the benefits of being a mentor and a protégé.  The impact will be very significant to the government contracting community.  The regulations could result in the expansion of SBA’s mentor-protégé from 389 eligible participants in the 8(a) program to over 2,000 potential participants in the new mentor-protégé program.  And, increased participation could result in protégé firms obtaining as much as $2 billion per year in federal contracts through the program.

The SBA also suggests that because the expanded mentor-protégé program will allow small businesses to compete for larger contracts and a greater number of contracts, it is probable that federal agencies will set aside more contracts for various types of small businesses.  

To help ensure adequate resources and quick enrollment for participants in the new, expanded program, there will be a unit set up within the SBA Office of Business Development solely devoted to processing mentor-protégé applications and assisting such ventures.

Mentor-Protégé Program

Government Contracting – SBA Final Rule – NDAA 2013 Changes

Government Contracting – SBA Final Rule – NDAA 2013 Changes

Back when the U.S. Congress was adopting the 2013 version of the National Defense Authorization Act (NDAA), it included directives to the Small Business Administration (SBA) to make changes to multiple rules pertaining to small business set-aside contracts and subcontracting.  On Monday, May 31, 2016, the SBA published final rules in the Federal Register implementing each of these changes.

The following are some of the most significant changes in detail.  All of the changes can be seen at: https://www.federalregister.gov/articles/2016/05/31/2016-12494/small-business-government-contracting-and-national-defense-authorization-act-of-2013-amendments.

Government Contracting - SBA Final Rule - NDAA 2013 Changes

Part I:  Work Performance by Small Business Concern.  

SBA’s final rule, Small Business Government Contracting and National Defense Authorization Act of 2013 Amendments, implements numerous changes to the requirements that ensures certain amount of work is performed by a small business concern (SBC).  This rule became effective June 30, 2016.

Key Changes

The current method of calculating compliance with the limitations on subcontracting requires the prime contractor to perform a certain percentage of work under a set-aside contract.

The FY2013 NDAA replaced this method with one that limits the percentage of the award amount received by the prime contractor that may be spent on subcontractors. Under this method, work done by “similarly situated” first-tier subcontractors does not count as subcontracted work for purposes of determining compliance with the limitation on subcontracting requirement.  To address concerns as to potential pass-through schemes, SBA is applying the limitations on subcontracting collectively to the prime and any similarly situated first-tier subcontractor, such that any work performed by a similarly situated first-tier subcontractor will count toward compliance with the applicable limitation on subcontracting.  But, any work that a similarly situated first-tier subcontractor subcontracts, to any entity, will count as subcontracted to a non-similarly situated entity for purposes of determining whether the prime/sub team performed the required amount of work.

The method for calculating compliance will continue to be based on the NAICS code assigned to the contract. The limits in the final rule are:

  • 50% for services
  • 50% for supplies
  • 15% for general construction, and
  • 25% for specialty trade construction.

The final rule also makes clear that the cost of materials is excluded from the calculation and not considered to be subcontracted.

Penalties for Non-Compliance

SBA has implemented in the final rule the penalties listed in 15 U.S.C. 645(d) for concerns that violate the limitations on subcontracting requirement contained in the FY2013 NDAA.

Impact on Teaming

The impact of this new method of calculating limitation on subcontracting will be on the way that SBCs choose subcontractors and teaming partners. SBC prime contractors will likely look to target subcontracts to “similarly situated” entities so that those dollars subcontracted will not count against it, and will need to consider status carefully when identifying NAICS codes to assign to subcontracts.

FAR v. SBA Regulations

Between the time that this rule becomes effective and the time that the FAR Council revises the FAR solicitation provisions and contract clauses to marry up with the revised SBA regulations, there will be a period of uncertainty as to which calculation method will apply to procurements.  If a solicitation references the FY2013 NDAA language or new version of 13 C.F.R. § 125.6 but contains FAR 52.219-14 (NOV 2011), use the Q&A process to seek clarity as to how the agency intends to determine offerors’ compliance with the limitations on subcontracting requirement.

To the extent that an agency is using the new calculation method, consider seeking clarity from the agency as to how offerors must demonstrate independent contractors are similarly situated.  Will it be sufficient to merely state in the proposal that a SBC prime contractor will use ‘independent contractors’ and ensure compliance with the limitations on subcontracting provision?  Does an offeror have to separately identify its similarly situated independent contractors in its proposal?  Must an offeror have received certifications from its independent contractors as to size and status prior to proposal submission?  Will these independent contractors be registered on SAM with DUNS numbers and CAGE codes? 

Part II:  Prime Contractors’ Compliance with Subcontracting Plans.

The Small Business Administration’s (SBA) final rule, Small Business Government Contracting and National Defense Authorization Act of 2013 Amendments, implements changes that impact the proposal process which can involve planning and team selection months in advance of proposal submission, contractors need to focus on the new requirements now.

https://www.gpo.gov/fdsys/pkg/FR-2016-05-31/pdf/2016-12494.pdf

Notice to Named Small Business Subcontractors

One of the immediate action items for contractors arising out of the final rule comes from the new requirement that if a large prime contractor identifies a small business concern (SBC) by name as a subcontractor in a proposal, offer, bid or subcontracting plan, the prime contractor must notify the SBC in writing prior to such identification.

Increased Scrutiny on Prime Contractors’ Compliance with Subcontracting Plans

  1. The final rule is likely to lead to increased scrutiny of whether prime contractors are satisfying their small business subcontracting goals over the course of performance, pursuant to the requirements in 13 C.F.R. § 125.3.
  2. The SBA has established a “whistleblower” mechanism to allow potential subcontractors to report fraudulent activity or bad faith behavior by a prime contractor with respect to a subcontracting plan. 13 C.F.R. § 125.3(c)(9).
  3. The final rule lays out the process whereby Commercial Market Representatives (described in 13 C.F.R. § 125.3(e) as “SBA’s subcontracting specialists”) with a reasonable basis to believe that a contractor has made a false statement to the Government or prime contractor must report the matter to the SBA OIG.
  4. Section 13 C.F.R. § 125.3(f) is modified to include that contracting agencies must also perform evaluations of a prime contractor’s subcontracting plan performance, and that SBA’s evaluations of subcontracting plan performance are completed as a supplement to the contracting agency’s review.

Penalties for Failure to Demonstrate Good Faith Compliance Augmented

Currently, the failure to demonstrate a good-faith effort to comply with its small business subcontracting plan and/or to provide a written corrective action plan following receipt of a marginal or unsatisfactory rating regarding subcontracting plan performance can subject a contractor to liquidated damages. The final rule specifies that these two occurrences will now also place the contractor in material breach of the contract and the failure to demonstrate good faith must be considered in any past performance evaluation of the contractor, thereby impacting the contractor on future procurements. 

Part III:  Small Business Recertification.

 Small Business Government Contracting and National Defense Authorization Act of 2013 Amendments implementing the National Defense Authorization Act of 2013 (FY2013 NDAA) Amendments – a new recertification requirement that is triggered following the merger, sale, or acquisition of a firm that has submitted an offer as a small business concern (SBC).

https://www.gpo.gov/fdsys/pkg/FR-2016-05-31/pdf/2016-12494.pdf

A business or concern that represents itself as a small business and qualifies as small at the time of proposal submission is considered to be a small business throughout the life of that contract, unless a recertification requirement has been triggered.

The issue is that if a small business concern could submit a proposal with pricing, certify that it is small, and actually qualify on that date of proposal submission as small, should that small business be able to sell itself following proposal submission or contract award to a large business and allow the large business to benefit for up to five years of contract performance as a “small business”?  The SBA’s answer to that is no.  The SBA’s regulations as currently drafted require recertification in certain circumstances following a merger, sale, or acquisition but only once award has already been made.  In the final rule, SBA imposes new recertification requirements aimed at changes that occur within the window between proposal submission and contract award.

Current Recertification Requirements

The SBA determines the size status of a firm, including its affiliates, as of the date the firm submits an offer to the procuring agency that includes price. See 13 C.F.R. § 121.404(a).

Under the current SBA regulations, the SBA requires SBCs to recertify size status in two (2) circumstances. First, SBCs must recertify to the procuring agency within 30 days of an approved contract novation.  13 C.F.R. § 121.404(g)(1).  If it cannot recertify as small, the offeror must inform the procuring agency that it is other than small.  If the contractor is other than small, the agency can no longer count the options or orders issued pursuant to the contract, from that point forward, towards its small business goals.

Second, where contract novation is not required, SBCs must recertify within 30 days of a transaction becoming final, or inform the procuring agency that it is other than small. 13 C.F.R. § 121.404(g)(2(i). If the contractor is other than small, the agency can no longer count the options or orders issued pursuant to the contract, from that point forward, towards its small business goals. Recertification is required in these circumstances:

(A) When a concern acquires or is acquired by another concern;

(B) From both the acquired concern and the acquiring concern if each has been awarded a contract as a small business; and

(C) From a joint venture when an acquired concern, acquiring concern, or merged concern is a participant in a joint venture that has been awarded a contract or order as a small business.

13 C.F.R. § 121.404(g)(2)(ii).

As drafted, these regulations do not expressly require recertification in situations where a proposal has been submitted but before award is made. Nor do these regulations require that an agency exclude an offeror from a procurement when a small business concern became “large” after the date required for self-certification.

The New Recertification Requirement on Small Businesses

In the final rule, the SBA adds a recertification requirement as 13 C.F.R. § 121.404(g)(2)(ii)(D).  Now, if the merger, sale or acquisition occurs after offer but prior to award, SBCs will have to recertify its size to the contracting officer prior to award.

The final rule also broadens the scope of required recertification in cases where contract novation is not required.

These changes became effective June 30, 2016.

Summary:  The NDAA FY2013 changes are wide ranging, amending SBA’s non-manufacturer rule and affiliation rules, and for the first time allowing joint ventures to qualify as small for any government procurement as long as each partner to the joint venture qualifies individually as small under applicable size standards.  Moreover, this rule becomes effective June 30, 2016. However, changes to the parallel FAR requirements are still needed for regulatory consistency and implementation.

If you have any questions or comments about the contents of this article, please contact General Counsel, P.C. – Government Contracts Practice Group.

Written by Sharon O. Steele, Chair of the Government Contracts Practice Group

 

Ask A Small Business Attorney: How To Set Up A Limited Liability Company?

A small business attorney will tell you that Most small businesses now are being organized as limited liability companies (“LLCs”) because of the limited liability afforded owners of the company and the favorable pass thru income tax treatment of the company’s earnings. In addition, management of the company can either be retained by the owners—that is, the members–of the company, or centralized in one or more managers, who may, but need not, be owners. It is this flexibility in management structure that sets LLCs apart from other forms of business entities.

Ask A Small Business Attorney: Member or Manager Managed LLC?
LLCs managed by its members (so-called Member Managed LLCs) are appropriate where all of the members wish to be actively involved in the management and business operations of the company. On the other hand, if some or most of the members are merely passive investors, do not wish to participate in the management or business of the company, or lack the business skills necessary to manage the business, management of the LLC is usually delegated to those qualified members who want to be involved in the company’s business, or to a skilled outside third party non-member—this is known as a Manager Managed LLC. Managers are usually elected by the members of the LLC.

The Company’s operating agreement, which need not be filed with the state, is an agreement among the members (and non-member manager, if applicable) as to the management, finances, and operation of the LLC and its business. The operating agreement will generally set forth the member votes necessary to act and manage the company in a Member Managed LLC, and the limitations, if any, on the authority of a manager in a Manager Managed LLC to manage the affairs and business of the LLC.  In a Manager Managed LLC, for example, oftentimes the operating agreement will prohibit the manager or managers from acting on certain fundamental matters—often referred to as major decisions– without first securing the prior approval of the members, while in some cases the manager will be given the absolute authority to manage the LLC without any participation by the members.  Likewise, if a Member Managed LLC’s operating agreement only requires a majority vote of members, a member with more than 50% of the membership interests will usually have the right to control the actions of the LLC.

In a Member Managed LLC each of the members is generally deemed to be an agent of the LLC and, as such, legally authorized to act on behalf of and bind the LLC to contracts or other business obligations with third parties without the approval of the other members. Whereas in a Manger Managed LLC, only the manager—and not members who are not named as managers– can act on behalf of the LLC. So, if you intend to have passive investors or members with limited business skills in your LLC and are concerned that an inexperienced investor or member might make imprudent or unauthorized business decisions that could be injurious to your LLC, you would probably want to have a Manager Managed LLC. If, on the other hand, you and your co-owners all want to be involved in the management and day to day business of your LLC and are each capable of doing so, you would most likely want to be a Member Managed LLC.

Whether an LLC is recognized as Member or Manager managed and whether its members can legally bind the LLC depends on the laws of the state in which the LLC was organized. In a vast majority of states, an LLC is deemed by default to be Member Managed by all of its members, as in a general partnership, thus usually giving each member the legal ability to act on behalf of and bind the LLC. However, depending on the laws of its state of organization, an LLC can opt out of the default rule by designating in the articles of organization it files with the state or in its operating agreement that it is to be Manager Managed, thereby preventing any member, other than the manager, from participating in management or legally binding the company. Virginia and Maryland, for example, require that such designation be included in the LLC’s articles of organization filed with the state, while the District of Columbia and Delaware permit that designation to be made in the LLC’s operating agreement.

Professional Guidance from a Small Business Attorney
How an LLC is to be managed can be one of the most important decisions in the organization and structuring of an LLC and should not be made without the advice of legal counsel. Contact a small business attorney at General Counsel PC are well versed and experienced in determining the appropriate management structure for an LLC and would be glad to assist you in making such a decision for your LLC, as well as helping you organize an LLC and drafting its operating agreement. For more information, feel free to call or e-mail Norman Eule at neule@gcpc.com or 703-556-0411.

See your future. Plan your future. Control your business destiny. 

Contact: Norman Eule, neule@gcpc.com
General Counsel, P.C. Corporate and Tax Practice Group

Telephone:  703-556-0411 703-556-0411.

Sole Source Authority for Women-Owned Small Businesses

Is a women-owned small business considered a Women-Owned Small Business (WOSB) by the Small Business Administration (SBA)? Much like, “What color is George Washington’s white horse?” and “How many years did the Hundred Year War last?” the question sounds like a riddle, but the reality is that simply being a women-owned small business does not qualify a business as a SBA WOSB. A WOSB must take certain steps to establish eligibility and must operate in an industry identified by one of eighty-three specific North American Industry Classification System (NAICS) codes.

The WOSB program is one of many set-aside programs the SBA offers to assist small businesses pursuing contract opportunities in the federal market. Some SBA programs, such as small business and Service-Disabled Veteran-Owned Small Business Concern (SDVOSBC) set-asides, only require businesses to review and self-certify their eligibility. Other small business set-asides programs, such as the 8(a) Business Development (BD) and HUBZone programs, require SBA certification before participation. Certification for the WOSB and the Economically Disadvantaged WOSB (EDWOSB) programs are a unique blend of those two approaches.

At the time a women-owned small business submits an offer on a contract reserved for WOSBs or EDWOSBs, the company must be registered in the System for Award Management (SAM), have a current representation posted on SAM that it qualifies as a WOSB or EDWOSB, and have uploaded required documents to the WOSB Program Repository through SBA’s General Login System (GLS). The documents include a WOSB or EDWOSB Program Certification and representation stating, subject to penalties for misrepresentation, the business is a WOSB or EDWOSB, small for the applicable size standard, and at least fifty-one percent owned and controlled by one or more women who are United States citizens. Documents uploaded in the WOSB Program Repository must be kept current and, at a minimum, updated annually. Unlike the 8(a) BD and HUBZone programs, SBA does not issue a certification letter to WOSBs or EDWOSBs, which can leave businesses with a sense of uncertainty about the process. SBA has approved a few third-party certifiers from which it will accept certifications. In truth, the onus for verifying the eligibility of a WOSB or EDWOSB is placed on the contracting officer at the time of the initial offer.

Effective October 14, 2015, SBA established sole source authority for WOSBs and EDWOSBs implementing a provision in the National Defense Authorization Act (NDAA) for Fiscal Year 2015. The sole source authority can only be used if, after thorough market research, the contracting officer cannot identify two or more WOSBs or EDWOSBs that can perform the requirement at a fair and reasonable price, but can identify one WOSB or EDWOSB that can perform. The sole source authority is also limited to contracts $4 million dollars or less, or up to $6.5 million for a manufacturing contract.

In an effort to implement the WOSB and EDWOSB sole source authority promptly, SBA’s new rule did not address NDAA’s requirement for WOSB and EDWOSB certification. WOSB, EDWOSB, and contracting officers should anticipate significant changes to WOSB and EDWOSB certifications based on the new sole source authority.

If you have any questions or comments about the discussed content, please contact Marci Love Thomas at 703-556-0411 703-556-0411 or mlthomas@gcpc.com.

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