This week on NVTC’s blog, member company Venable shares “The Limitation on Subcontracting and Small Business Subcontracting Plans,”part 1 of their five part series on the SBA’s Proposed Rules to Implement the 2013 NDAA. 


The current limitation on subcontracting rule, or the “50 percent rule,” requires small business prime contractors on set-aside services contracts to incur no less than 50 percent of the cost of performance for labor. A similar methodology applies to materials and construction contracting. To implement requirements of the 2013 NDAA, the SBA proposes to alter the rule as follows:
No more than 50 percent of the amount paid by the government to the prime may be paid to firms, at any tier, that are not similarly situated, and in addition

  • Any work that a similarly situated entity subcontractor further subcontracts to an entity that is not similarly situated will count toward the 50 percent subcontract amount.
  • A similar 50 percent limitation applies to the amount paid by the government for supply contracts; a 15 percent limitation is applied to the amount paid by the government for construction contracts.

Accordingly, under the new rule a small business prime is barred from subcontracting more than 50 percent of the amount paid by the government under the prime contract, unless a subcontract is to a similarly situated entity, i.e., a subcontractor with the same small business program status as the prime contractor. Thus, a HUBZone small business prime contractor can subcontract to another HUBZone small business subcontractor without it counting toward the 50 percent limitation. That HUBZone small business prime contractor, however, will have to count a subcontract to a woman-owned small business toward the 50 percent limitation, because it is not a similarly situated entity.

The SBA has gone a step further from Congress. The 2013 NDAA focused only on prime contractor restrictions. This limitation, however, could allow a similarly situated subcontractor – to which the 50 percent limitation does not count – to further subcontract some or all of the value of its contract to a large business. Thus, on a $100,000 set-aside, a HUBZone small business prime contractor could subcontract $75,000 of the amount paid by the government to another HUBZone small business. That subcontractor, in turn, could subcontract some – or all – of its subcontract to a large business. The SBA proposes to block that loophole by imposing limitations to contractors at any tier, and specifies that subcontracts to entities that are not similarly situated will count toward the rule’s limitations. This would bar the HUBZone small business subcontractor in the example above from subcontracting too much work to a large business subcontractor.

The wording of the proposed new rules also would dramatically simplify the methodology for determining how the percentage of subcontracting is calculated. For both services and supplies, the percentage is calculated simply as a percentage of the amount paid by the government to the prime. This is a substantial change from the current calculation methodology, as services contractors who have spent time and effort determining the “cost of contract performance incurred for personnel” will attest.

The SBA has proposed significant penalties for small business prime contractors that misrepresent compliance with the rule. Those penalties include imprisonment for up to 10 years, and a fine that is the greater of $500,000 or the dollar amount spent in excess of the permitted levels for subcontracting.

The Bottom Line: What You Should Know

Under the SBA’s proposed rule, small business primes must be vigilant in tracking the amount of work subcontracted throughout their subcontracting chain, particularly the work subcontracted by similarly situated entities. Failure to keep track of subcontracting could result in the contracting team exceeding the 50 percent limitation on subcontracting without the prime contractor’s knowledge, and risk an accusation that the prime misrepresented compliance with the rule.

Small Business Subcontracting Plan Requirements

The SBA proposes to toughen up requirements pertaining to small business subcontracting plans, which could have significant consequences for large business prime contractors.

  • Reporting Fraudulent Activity or Bad Faith: The SBA proposes to allow small business concerns and commercial market representatives (CMRs) to report fraudulent activity or bad faith behavior by large business prime contractors with respect to their subcontracting plans. Reports would be made to the SBA’s Area Office where the firm is headquartered.
  • Strengthening Corrective Action Plans: Large business prime contractors failing to provide a written corrective action plan after receiving a marginal or unsatisfactory rating for their subcontracting plans will be subject to material breach of contract, which will be considered in the contractor’s past performance evaluation.
  • Data Collection and Reporting: The SBA proposes to require agencies to collect, report, and review data on the extent to which each contractor meets its goals and objectives as set out in subcontracting plans.

This proposed rule, coupled with the recent rule allowing small business subcontractors to communicate directly with contracting officers about a lack of payment, will affect how large business prime contractors and their small business subcontractors interact. Failure by a large business prime contractor to reconsider a strained relationship with a small business subcontractor could lead to an allegation of fraudulent activity or bad faith with respect to small business subcontracting plan compliance. This proposal by the SBA leaves no recourse for the prime contractor to respond to allegations of fraudulent activity or bad faith, which could have significant adverse effects for contractors.

The Bottom Line: What You Should Know

Under the SBA’s proposed rule, large businesses must be aware of increasing scrutiny about small business subcontracting. The SBA’s proposed rule does not specify that any of the data collected on its subcontracting plan will be limited. Therefore, representations as to plan compliance under one contract must be consistent with plan compliance under another contract, or a large business prime runs the risk of allegations of making false statements to its agency customers.

Submitting Comments

Contractors wishing to submit comments on these proposed rules can do so through regulations.gov by searching for RIN: 3245-AG58. Comments are due by February 27, 2015.


Continue following Venable’s Small Business Series for additional analysis and take-aways from the SBA’s proposed rule implementing the 2013 NDAA. If you have any questions about how these proposed rules could affect your business, please contact any of Venable’s authors: Keir Bancroft, Paul Debolt, Dismas Locaria, Rob Burton, Rebecca Pearson, James Boland, Nathaniel Canfield, or Anna Pulliam.

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Information Stewardship: Our Role in the 21st Century

February 23rd, 2015 | Posted by Sarah Jones in Guest Blogs - (Comments Off)
Today on NVTC’s blog, guest blogger Sean Tibbetts of member company Cyber Timez Inc. discusses our roles as information stewards of the 21st century and our responsibility to ensure that data is used efficiently, accurately, positively and safely.

With Great Power Comes Great Responsibility

Sean Tibbett

Sean Tibbetts

Information Technology has become a pervasive force at all levels of organizations whether their focus is government, business, recreation, education or a combination of them all. Device convergence has resulted in the technology utopian goal of constantly connected devices in the hands of data consumers providing access to information that has never been easier. The phrase “with great power comes great responsibility” has never been more true than in our modern, connected culture. Information is power and the more information for which we are responsible the more power we directly or indirectly inherit. As the Information Stewards of the 21st century it is our primary responsibility to ensure this data is used efficiently and accurately for the betterment of those who both give and receive the information we provide while avoiding causing harm to those that provide that data to us.

Data Driven Decision Making

Data driven decision making is key to the success or failure of any technology connected effort. The Internet may be the greatest tool ever released on mankind for “leveling the playing field” when it comes to access to pertinent data for decision making processes. Organizations from a one man jack-of-all-trades to companies employing tens of thousands of people all require access to data to determine which efforts are working well versus areas needing further scrutiny. As we review the type and content of the data they need it becomes clear that the requirements of any organization regardless of size tend to be the same: accurate data resulting in actionable information. Most organizations recognize that they need access to information about the client base they serve. This information can be categorized into three repeatable, programmable and usable data silos resulting in tools better enabling decision makers to reach organizationally positive conclusions.

Usage Data

The first and probably most obvious data silo is usage data. Whether tracking website views or app taps every organization needs to know how their information is accessed and used. Usage data may be as simple as how many times a page was loaded to a more complex model of how many times a page was loaded by operating system and browser sorted by time on site from specific referrers. Suddenly determining what should be “above the fold” on that simple web page isn’t so simple. Luckily for technology solutions of any size there are a myriad of tools available both free and for a fee that provide this type information in multiple forms from simple graphs to complex data slices represented with exportable pivot tables. Using this data to help guide our decision making process ensures users get the information they need.

Location Data

The second largest data silo used for decision making tends to be based on location data. Location data can vary from where a user is standing in a store aisle using Bluetooth beacons to an approximation of what country they are in based on IP address. Understanding where a user is physically combined with the how they use your tool provides greater insight into what type of data should be delivered to them at the appropriate place. If we know the country in which the user is in then our information needs to be translated to the appropriate language with useful local references. While using location data can be extremely valuable for technologies such as push notifications for sales at a nearby retail outlet, technologists also need to always keep in mind the privacy concerns and rights of their users. Using location and usage data together help guide our decision making process to ensure users get information they need in the place they need it most.

User Demographics

The third, and likely most valuable, data silo is user demographic information. Demographics can be as simple as knowing a user’s gender or as complex as gender based purchasing decisions sliced by median income in a given zip code. User demographics are a powerful decision making tool, but must be managed efficiently. While combining web search histories with current location data and gender information to push advertisements for certain products may be a good thing; it could also be very damaging if a child is using the device and suddenly gets an advertisement for lingerie because they walked past the ladies section of the store. Understanding the demographics of whom the current user is is critical and key to any information presentation model. Using demographic, location and usage data together help guide our decision making process to ensure the right users get the right information in the right place.

Conclusion

All of this data collection leads us to one conclusion: accurate data is absolutely necessary for decision making. We stand on the greatness built by the generations before us. They gave us the Internet, TCP/IP stack and the World Wide Web to gather and exchange information. As the Information Stewards of the 21st century it is our job to ensure that these tools are used to provide the best user experience possible by combining the most accurate data available in a manner that results in the ultimate goal of all data collection: actionable information. Technologists today should have their own Hippocratic Oath and take it to heart: I will collect and provide data for the good of my users according to my ability and my judgment and never do harm to anyone.


About the Author
Sean Tibbetts is the CEO and co-founder of Cyber Timez Inc. His information technology career spans over 20 years beginning as an owner/operator of a classic dial-up bulletin board system and as a contributor to multiple open source projects in the early nineties. He has participated on and led teams to design, develop and implement case management systems, the world’s fastest OCR and data entry engines and health care data mining systems. His current focus is on mobile technologies with a strong focus on wearable devices and the Internet of Things.

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3 Reasons Why M&A Will Continue to Thrive in 2015

February 17th, 2015 | Posted by Sarah Jones in Guest Blogs | Member Blog Posts - (Comments Off)

This week on NVTC’s blog, guest blogger Gretchen Guandolo of member company Clearsight Advisors discusses the success of M&A in 2014 with the return of gargantuan deals, largely seller-friendly transaction structures and premium valuations, and offers three reasons why 2015 will be just as successful.


dollar-exchange-rate-544949_1280In what was widely considered a banner year for M&A, 2014 was the return of gargantuan deals, largely seller-friendly transaction structures and premium valuations. In spite of the turbulent equity markets being driven by fluctuating oil prices, a gathering storm in Europe, and uncertainty around rising interest rates, we at Clearsight are already seeing the makings of a very big M&A year. Globally, investment banks are seeing increased deal flow and expanding pipelines. Our team is already out to market with several deals that are garnering high demand and premium valuations from a number of unique buyer groups. We expect the rising M&A tide to continue through 2015, as we believe demand for niche leadership positioning, strong growth trajectories, and seasoned management teams is unlikely to dissipate. First, a few fun facts from 2014 that will continue the momentum through 2015:

  • In 2014 there was $3.5 trillion worth of global M&A activity, which is up 47 percent from the year before
  • Global private equity investments totaled at $561.9 billion. That’s the highest figure since 2007, and a 43 percent bump over 2013 – with 60 percent of 2014 buyout activity focused on add-on investments
  • Venture capitalists disbursed a massive $87.8 billion (compared to $50.3 billion for 2013) via 7,731 deals
  • Companies raised around $249 billion in global IPOs in 2014, which was the busiest year for new listings since 2010

So what do we expect for this year?

  • There is likely to be a frenzy of activity in certain verticals, including: healthcare, energy and technology. Technology continues apace with no sign of slowdown and while the energy sector is harder to predict, one thing is clear – disruption in a regulated industry makes for a great M&A environment
  • Investor interest in certain technologies is likely to grow. Some of our favorites include: customer experience, big data, and human capital management. Technologies that enable us to get into the minds of customers and lead them on a journey to experience and buy a product has become the goal of retailers, financial services companies and even government! We see the market of big data continue to evolve and mature. This year will be a great growth year for data analytics consulting businesses who leverage Hadoop and other open source technologies to deliver predictive behavior, lower costs and drive increased revenue. Human capital technologies will continue to surge as employers seek out the best talent and retain and train individuals in a hyper competitive market.
  • As seen in 2014, both private equity and strategic acquirers will drive robust market competition. Nearly all of our processes include both strategic and financial buyers and as private equity grows increasingly aggressive in pricing in an effort to put money to work, we see strategic buyers dominating 2015.

Growth will continue to be the main driver of valuations throughout 2015. Premium multiples go to the companies with a demonstrated high growth track record and robust pipeline for future growth. Growth eclipses profitability through 2015.

 

 

 

 

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NVTC provides Northern Virginia’s technology business community with a strong, proactive political advocacy presence in Richmond to help ensure that state policies and investments represent the priorities of NVTC member companies and foster a pro-business environment that is supportive of the technology industry and technology-based economic growth. NVTC’s public policy team has been in Richmond throughout this legislative session, focusing on key legislation of value to our members.

Feb. 10 marked crossover at the General Assembly, the deadline for each chamber to act on its own bills. Crossover not only marks the mid-point of the legislative session, but also gives a clear look at legislation that was approved by at least one chamber as well as legislation that will not move forward this session. Check out NVTC’s Crossover Report for summaries and status updates on legislation of interest to Northern Virginia’s technology community.

We welcome feedback on these and other legislative issues relevant to our members. Contact NVTC’s public policy team at any time with questions, ideas or suggestions:

  • NVTC Vice President of Policy Josh Levi (jlevi@nvtc.org 703-904-7878 x214)
  • NVTC Public Policy Manager Troy Murphy (tmurphy@nvtc.org 703-904-7878 x 218)

For more information about NVTC’s advocacy efforts, visit www.nvtc.org/advocacy and follow us on Twitter @NVTCTechPolitic.

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