GAO: Small Biz Joint Ventures Can Use Member FCLs to Pursue DoD Contracts

Wed, October 13th 2021

In August, the Government Accountability Office (“GAO”) provided a boost for small business joint ventures (“JV”) that are pursuing defense contracts in holding that the plain language of the 2020 National Defense Authorization Act (“NDAA”) prohibits the Department of Defense (“DoD”) “from issuing solicitations that require a joint venture, rather than the members of the joint venture, hold the required facility clearance.”

The decision is welcome news for small business JVs where each member holds the required facility security clearance (“FCL”), as the decision may result in more contracting opportunities with DoD.

The protest of InfoPoint LLC, B-419856, August 27, 2021, 2021 CPD ¶ __ involves a mentor-protégé JV’s challenge to an Air Force solicitation that required offerors – including JVs – to hold a top secret FCL at the time of proposal submission. Following Q&As, the protester lodged a protest on grounds that the FCL provision was inconsistent with the Small Business Act and the Small Business Administration’s (“SBA”) JV FCL regulation at 13 C.F.R. § 121.103. [1] At GAO’s invitation, the SBA also filed a brief, arguing that the Air Force’s FCL provision violated the Small Business Act, 13 C.F.R. § 121.103, and the 2020 NDAA.

Briefly, 13 C.F.R. § 121.103 provides, in part, that “[a] joint venture may be awarded a contract requiring a facility security clearance where either the joint venture itself or the individual partner(s) to the joint venture that will perform the necessary security work has (have) a facility security clearance.” The 2020 NDAA further provides that “[a] clearance for access to a Department of Defense installation or facility may not be required for a joint venture if that joint venture is composed entirely of entities that are currently cleared for access to such installation or facility.” [2]

Here, GAO agreed with the protester (and SBA) that the solicitation provision requiring the JV to hold an FCL at the time of proposal submission was inconsistent with statute and regulation. GAO was not persuaded by the Air Force’s position that SBA’s regulation was not mandatory, that GAO should “give deference to the statutory delegation of authority to DOD concerning security clearances,” and that implementing the 2020 NDAA “would create challenges arising from conflicts with existing regulations and policies.”

In sustaining the protest, GAO concluded that the 2020 NDAA contains an “unambiguous command” that prohibits DoD agencies from issuing solicitations that require JVs to hold a FCL where each of its members hold the required FCL. [3] GAO likewise concluded that 13 C.F.R. § 121.103 is consistent with the 2020 NDAA with regard to the protester’s argument that the solicitation unreasonably requires a small JV to hold the required FCL at the time of proposal submission, regardless of whether the individual JV members hold the required FCLs.

Takeaway

This decision is welcome news for small businesses JVs that are competing for defense contracts wherein each JV member holds the required FCL. Notably, because each of the protester’s members held a top secret FCL, GAO ultimately did not address the issue of whether tension existed between SBA’s JV FCL regulation and the 2020 NDAA. [4] Moreover, because the 2020 NDAA applies to DoD procurements, it is also unclear how this decision will play out for civilian agencies.

Additionally, while this protest involved a small business JV under a set-aside solicitation, GAO noted that “the 2020 NDAA does not, on its face, limit its application to small business joint ventures.” Thus, it will be interesting to see whether large businesses lean on this decision in a similar challenge under an unrestricted procurement. Ultimately, because DoD has not yet issued regulations on the JV provision in the 2020 NDAA, it’s a waiting game to see how this will unfold.

[1] The Small Business Act provides that where a JV doesn’t have experience, agencies “shall consider the capabilities and past performance of each member of the joint venture as the capabilities and past performance of the joint venture.” See 15 U.S.C. § 644(e)(4)(B)(ii). SBA’s implementing regulations, which were part of its October 2020 final rule, provide that:

  • Facility security clearances. A joint venture may be awarded a contract requiring a facility security clearance where either the joint venture itself or the individual partner(s) to the joint venture that will perform the necessary security work has (have) a facility security clearance.
    • (i) Where a facility security clearance is required to perform primary and vital requirements of a contract, the lead small business partner to the joint venture must possess the required facility security clearance.
    • (ii) Where the security portion of the contract requiring a facility security clearance is ancillary to the principal purpose of the procurement, the partner to the joint venture that will perform that work must possess the required facility security clearance.

13 C.F.R. § 121.103(h)(4).

[2] Pub. L. No. 116-92 § 1629; 133 Stat. 1198, 1741 (2019).

[3] GAO also concluded that because the 2020 NDAA contained no effective date, it took effect immediately, on December 20, 2019, when the 2020 NDAA was enacted.

[4] The Air Force also argued that 13 C.F.R. § 121.103 is inconsistent with the 2020 NDAA. Specifically, the language in the 2020 NDAA concerned a JV in which each member held the required FCL, while SBA’s regulation provides that a contract may be awarded where either the JV itself or its members that would perform the work held the required FCL. Ultimately, because the protester’s members each had a top secret FCL, GAO concluded that the protester satisfied both the 2020 NDAA and 13 C.F.R. § 121.103 and determined that it “need not address at this time whether the SBA regulation at section 121.103 is inconsistent with the 2020 NDAA with regard to whether all members of the joint venture must have facility clearances.”

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