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Section 889 and the U.S. Government Supply Chain

Posted By Laura Berry, Wednesday, August 5, 2020
Updated: Wednesday, August 5, 2020
Elizabeth Sullivan

Amidst the continuing pandemic and negotiations on another round of COVID-19 relief in Congress, one thing remains the same for all federal contractors: Section 889 implementation.

Section 889 is a name that does not mean much to the average person, but carries a lot of weight for federal contractors. This is a section in the FY2019 National Defense Authorization Act (NDAA) that seeks to eradicate Chinese telecom from the entire U.S. government supply chain. Why write about it now? The part that impacts federal contractors of all sizes (Part B) goes into effect this month. 
 
Earlier this year, the Department of Defense (DoD) held a public meeting to hear from industry. Of the salient points made, one resounding theme was that definitions will mean everything for implementation. However, industry hasn’t been able to share any definitional clarity because of the rule release delay. The FAR Council published their interim rule in July – Part B goes into effect before the comment period is over, which means contractors will have to comply with the rule starting on August 13, 2020. Public comments can be submitted until September 14. 
 
Here are the five key components for small/midsize contractors to pay attention to.
 
You’ll have a new box to check in SAM.

Contractors will need to annually check a box in SAM verifying that they do not use any covered telecommunications equipment or services. A contractor can choose to say yes, they do use some of these banned equipment/services, which would require an offer-by-offer representation for contracts and task/delivery orders under IDIQs. It is important to know this ban applies to any equipment, system, or service that uses the covered equipment or services as a substantial or essential component of any system, or as critical technology as part of any of a contractor’s systems. Think this rule does not apply to you? Think again – acquisitions of commercial items (including COTS) and contracts at or below the simplified acquisition threshold (SAT) must also adhere to this prohibition. 

 
Definitions are key.

Definitions are critical to the implementation of this rule, which defines words such as “backhaul” and “roaming,” but leaves contractors with uncertainty over what constitutes a covered technology. FAR 4.2101 covers some of these definitions, however there was no further clarity in the rule regarding who is considered “any subsidiary or affiliate of such entities” of the five listed companies (Huawei, ZTE, Hytera, Hikvision, and Dahua). It seems problematic that a small business contractor is expected to research all of the subsidiaries and affiliates of these companies to make sure they are not utilizing any prohibited components. Note to government: why not just provide a list? 

 

Another definitional bone I have to pick is the meaning of “reasonable inquiry.” The rule says that a company is compliant if a “reasonable inquiry” by the company does not show any use of the prohibited equipment or services. So, what exactly does that mean? According to the rule, a reasonable inquiry is something that is designed to uncover any use of these covered telecommunications equipment or services and does not need to be an internal or third-party audit. While I am not a lawyer, I can imagine that every procurement attorney would advise contractors to have some type of legitimate audit of systems in case compliance risks arise.

 
The waiver process is laborious.

Although a waiver sounds reasonable and gives contractors added time to comply (until August 13, 2022), it doesn’t seem designed for small or midsize contractors. In order to get a one-time waiver, the head of an agency has to grant it. Before this happens, a senior agency official for supply chain risk management has to discuss the waiver with the Federal Acquisition Security Council (FASC). And consult with the Office of the Director of National Intelligence (ODNI) to make sure conditions are met. And provide notice to the ODNI and FASC 15 days before granting the waiver. And notify appropriate Congressional committees within 30 days. The FAR Council does acknowledge that this process could take a few weeks and advises to enter at your own risk because “agencies may reasonably choose not to initiate one and to move forward and make award to an offeror that does not require a waiver.” A quick data point: there are 387,967 companies registered in SAM, 74% of which are small. That would mean if every small company decided to submit an offer for a federal award and sought a waiver, that would be 287,096 waivers. 

 
Six contractor actions are necessary for compliance.

A chunk of the rule outlines contractor compliance recommendations. After reading and re-reading these six actions in the rule, I’m left with the same feeling: small contractors need something more detailed than just general guidelines. Generalities like “read and understand the rule and necessary actions for compliance” and “corporate enterprise tracking” sound great, but what exactly does that entail? During more normal times – let alone a pandemic – building out a compliance program can be complicated, not to mention costly. It is important contractors have the detailed information to get it right.

 
Finally, I see dollar signs.

The rule completely underestimates the time it will take contractors to implement and remain compliant with this rule. A whole section is dedicated to this analysis – and quite a few estimates left me scratching my head (you can find these in Section III, Part D). Companies aware of the rule have been spending months trying to prepare and continue to evaluate the components in their government offerings. An important part of complying with the rule to highlight is that a company cannot use any of these prohibited systems/equipment, even if they are not used in its federal contracts. That means no split networks or having one system for U.S. federal business and a difference one for commercial or contracts with other countries. I see more dollar signs.

 
The FAR Council is seeking public comment on the rule – and federal contractors should respond. In Section IV of the rule you can find a list of questions the Council wants industry to answer, and it is worth taking a look at them. One that is also found in the beginning of the rule is whether an expansion of the prohibition should be made to include all company subsidiaries and affiliates. Feedback is also requested on subjects like challenges, costs, and insight into existing systems.
 
One thing all contractors, regardless of size, have in common: they want to be compliant so they can compete. Given the uphill battle small and midsize contractors face when it comes to compliance with Section 889 and many other contracting requirements, advocacy on this issue is critical. WIPP continues to elevate this critical information to policymakers, asking them to consider the needs of women-owned businesses to comply with this new requirement. 

Tags:  Advocacy  federal contracting  leadership  regulatory  WIPP Works In Washington 

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Advocacy Update: WOSB Final Rule Highlights

Posted By Ann Sullivan, WIPP Chief Advocate, Wednesday, May 20, 2020

The U.S. Small Business Administration (SBA) has published its final rule for the Women-Owned Small Business (WOSB) and Economically Disadvantaged Women-Owned Small Business (EDWOSB) certification. 
AnnSullivan
The impetus for this rule is the FY2015 National Defense Authorization Act (NDAA), which directed the SBA to create its own WOSB/EDWOSB certification. At the same time, the Congress authorized the sole source authority for the WOSB/EDWOSB program. WIPP has worked with SBA throughout this process, submitting comments with input from our members. We are thrilled to see that issues we raised were included in the final rule, such as

  •  excluding retirement accounts from net worth;
  •  harmonizing the economic disadvantage qualification across socio-economic contracting programs; and
  • continuing to allow third-party certifiers. 

The benefits of this implementation include simplifying the process for contracting officers to use the program and can rely on SBA certification with confidence. This update will require no additional document review, will replace the WOSB Repository, and will reduce amount of time to complete a certification. 

 

Definition of WOSB: At least 51% owned and controlled by one or more women who are United States citizens. 

Website: certify.SBA.gov 

Effective dates: Rule goes into effect on July 15, 2020. SBA will begin processing certifications on October 15, 2020. 

Highlights:

  1. Retirement accounts will now be excluded from calculations of an economically disadvantaged individual's net worth, irrespective of the individual's age.
  2. Makes 8(a) qualifications for economic disadvantage the same as EDWOSB program. Qualifications include: (a) net worth cannot exceed $750,000; (b) adjusted gross income averaged over the three preceding years cannot exceed $350,000; (c) An individual will generally not be considered economically disadvantaged if the fair market value of all her assets (including her primary residence and the value of the applicant/participant firm) exceeds $6 million and (d) retirement funds are now excluded from net worth calculation.
  3. Only SBA certified WOSBs can use the WOSB set-aside/sole program, but agencies can count  contracts to women outside the program that are only self-certified toward their WOSB goal.
  4. Third-party certifications are accepted as are those certified by the U.S. Department of Veterans Affairs CVE, and 8(a) certifications. 8(a) certified are automatically considered to qualify as EDWOSBs. DBE certifications are not accepted.
  5. A business performing on a long-term WOSB or EDWOSB contract (i.e., one in excess of five years) must represent that it is a certified WOSB or EDWOSB in order for the award to continue to count towards an agency's WOSB goal. For new WOSB and EDWOSB set-aside contracts, a business must be able to demonstrate that it has applied for certification before the date it submitted a bid, and that it has not previously sought and been denied certification. For new WOSB or EDWOSB sole-source contracts, a business must already be certified at the time it seeks to obtain the sole-source contract.
  6. Applications will be processed within 90 days. If denied, an applicant can reapply for certification after 90 days.
  7. Requires annual certification affidavit and recertification every three years.
  8. SBA will give priority to a firm who has been awarded a contract under the program but the application is still pending before the SBA. Determination will be within 15 days.

Tags:  Advocacy  regulatory  SBA  WOSB 

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WIPP Advocacy Roundup - February 2020

Posted By WIPP Advocacy Team, Wednesday, February 26, 2020
Updated: Tuesday, February 25, 2020

WIPP-Supported Women’s History Museum Bill Passed the House

 

The Smithsonian Women's History Museum Act (H.R. 1980) passed the House and is now headed to the Senate. The bill establishes a council that will make recommendations to the Board of Regents of the Smithsonian Museum on the planning, design, and construction of the museum. The bill was sponsored by Rep. Carolyn B. Maloney (D-NY); Rep. Brian Fitzpatrick (R-PA); Rep. Brenda Lawrence (D-MI) and Del. Eleanor Holmes Norton (D-DC). Read WIPP’s March 2018 letter of support for the bill


Meeting with New SBA Administrator Jovita Carranza


Team WIPP Meets Administrator CarranzaOn Wednesday, February 19, WIPP President & CEO Candace Waterman and WIPP Chief Advocate Ann Sullivan met with new SBA Administrator Jovita Carranza. The Administrator knows WIPP’s work from her previous position at the Deputy SBA Administrator under the President George W. Bush’s administration. It was great to see an old friend and update her on our policy priorities. We were happy to hear that women entrepreneurs are a priority of Administrator Carranza. 

Participating in GSA’s Small Business Roundtable with the Federal Acquisition Service

 

Candace Waterman, Ann Sullivan and WIPP Advocacy Team member Elizabeth Sullivan were invited to participate in a roundtable held on Wednesday, February 19 at GSA with the Administrator Emily Murphy to discuss small business participation in Governmentwide Acquisition Contracts (GWACs) and new cybersecurity requirements. WIPP raised the issue of WOSB participation in GWACs and urged Administrator Murphy to consider including WOSBs in any new GWACs.  


WIPP Speaks on Behalf of Women Entrepreneurs at 2020 Small Business Forum Meeting

 

In January, WIPP attended the 2020 Small Business Forum Meeting to discuss the challenges of using the section § 199A deduction. The Tax Cuts and Jobs Act of 2017 included the new Internal Revenue Code § 199A to bring some parity for pass-through entities (S-Corps, LLCs, partnerships).

 

 WIPP advocated for the 20% deduction now afforded to pass-through entities during the 2017 tax reform and spoke at the roundtable, calling for the deduction to be extended to all pass-through entities, not just those in specific industries. 


Five-Year Lookback Not Yet Allowed in SAM

 

WIPP-advocated for the Small Business Extension Act, a change allowing WOSBs to utilize a five-year revenue average for the purposes of size determination, which went into effect in January 2020. However, this change has not yet been reflected in the System for Award Management (SAM). WOSBs have found that when renewing their size status in SAM.gov, the only option is to input a three-year average.

 

 We advise WOSBs seeking to re-certify size status under the new five-year rule to work with legal counsel to document their size until SAM is updated and asking for the ability to change to a five-year revenue average when SAM is updated. 

Tags:  Advocacy  GSA  legislation  regulatory  SBA  taxes 

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Four Steps Congress Should Take to Help WOSBs in the FY2021 NDAA

Posted By Elizabeth Sullivan, WIPP Advocacy Team, Wednesday, February 5, 2020
Updated: Tuesday, February 4, 2020

If you participate in the monthly WIPP Policy Update webinars, you will likely hear us reference the National Defense Authorization Act, or more lovingly known as the “NDAA.” As it remains one of the last “must pass” bills – due to the Constitutional requirement that Congress provides for a common defense – each year presents an opportunity to advocate for changes that will benefit women-owned businesses. So, here is what we think should be included this year: 

Elizabeth Sullivan
  1. Expand investment in women- and minority-owned companies.
    Currently, women-owned businesses receive around 2.8% of all venture dollars. Due to WIPP’s championship of this issue, Senators Marco Rubio (R-FL) and Maria Cantwell (D-WA) introduced the Women and Minority Equity Investment Act of 2019 (S. 1981), which would allow women-owned contracting firms to take investment by women-owned equity firms and still meet the “51% unconditionally owned and controlled” standard set by SBA to participate in the WOSB/EDWOSB program. Representative Robin Kelly (D-IL) introduced an identical bill in the House (H.R. 3633). The same barriers apply to minority-owned businesses. These bills allow minority-owned federal contracting firms to take investment by minority-owned equity firms.

    This legislation is groundbreaking on both sides of the equation. It opens up a path for investment in women-owned businesses who are government contractors, as well as strengthens women investors. Women in investment firms tell us that this change in the law would strengthen their ability to secure greater equity positions within their companies and women-owned companies looking for investment will be incentivized to seek out women-owned investment firms. The same holds true for minority investments under this legislation.

  2. Increase the share of contracts awarded to small businesses


    WIPP fought and won sole source authority for the WOSB program in 2015—gaining parity with other federal contracting programs. While the fight has changed in 2019, the drumbeat is the same: parity. Currently, the sole source dollar limits for WOSBs are $4 million and $6.5 million (manufacturing) over the life of the contract. While this might sound like a lot of money, in the $550 billion federal marketplace, $4 million over 5 years is small potatoes. We have also heard from WOSBs that even though agencies are interested in awarding sole source contracts to them, these dollar limits are too small.

    A shift in government buying calls for a shift in rules for sole source contracts. As government buying continues to trend toward buying through large vehicles and moving away from direct contracts, the ability for small companies to win sole source awards is more crucial than ever. Increasing the award amounts for sole source contracts is extremely beneficial to the small business contracting community, however, it is equally as important to streamline and simplify rules for awarding these contracts. It is not uncommon to hear from small contractors that are told over and over again by the federal workforce the same thing – awarding a sole source contract is too confusing and/or time consuming. 

    WIPP supported H.R. 190, which passed the House and gives all small businesses including WOSBs greater opportunities through sole source contracting. This bill raises the dollar amounts for sole source contracts to $4 million and $7 million to be awarded each year, instead of over the life of the contract. A proposal in the Senate would also raise these thresholds to $8 and $10 million each year. 

    With respect to simplification, WOSBs, HUBZones and SDVOSBs require that a contracting officer must justify through market research that not two or more offers at a reasonable price are expected. The contracting community has interpreted this as “you are the only company in the world that performs this work,” leading to exceedingly few sole source awards. While the missions of these programs are all different, one thing is crystal clear – putting these contracting programs on equal footing with respect to this rule would ease the burden for the federal government and the businesses trying to meet its agencies missions. 

  3. Give small businesses more runway.
    You may be thinking you have heard this one before. That’s because a significant WIPP-supported legislative victory was achieved in 2018, giving small firms more “runway” to transition out of the small business set aside program and into full and open competition. The law allows businesses to average revenues over 5 years rather than the previous three years for purposes of determining size standards. In fact, the law finally went into effect earlier this month. Despite the expanded time this gives many small contractors, there are some that are still left in the lurch – businesses whose work falls under employee-based NAICS

    These companies face the same challenges – bumping out of their size standards and struggling to compete with billion-dollar companies in the full and open marketplace. Therefore, increasing the length of determination for industries measured based on annual average employees would give small companies a little more runway to succeed when they become midsize companies. Using a five-year standard for all industries this would create parity for small businesses in every industry and promote sustainable growth of small businesses.
  4. Share best practices for contracting with small businesses.

    WOSBs continue to find that agencies are reluctant to use small business programs. Recognizing this challenge, WIPP worked with the Homeland Security and Governmental Affairs Committee to introduce The Promoting Rigorous and Innovative Cost Efficiencies for Federal Procurement and Acquisitions (PRICE) Act of 2019 (S. 3038), which addresses agency utilization of small businesses in the federal marketplace.

    Introduced by Senators Gary Peters (D-MI) and Joni Ernst (R-IA), this bipartisan bill requires the Director of the Office of Management and Budget (OMB) to convene the existing Chief Acquisition Officers Council (CAOC) to identify and disseminate best practices in non-defense small business contracting in the federal government. The PRICE Act would positively impact the way in which this valuable information is gathered and shared across the federal government, as well as provide increased opportunities for small businesses by educating the acquisition workforce on best practices for using small business programs. 


As we promote these changes, look for action alerts and other ways to engage from our team. Since it is an election year, there will be limited opportunity to advance this legislation – all the more reason why the NDAA is so important. These four changes would go a long way to help the government meet its 5% goal of contract awards to women-owned companies.

 

 

Tags:  Advocacy  Congress  legislation  regulatory 

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The Ugly Truth About the Cybersecurity Maturity Model Certification (CMMC)

Posted By Angela Dingle, President & CEO, Ex Nihilo; WIPP Board of Directors, Chair, Monday, January 27, 2020

WIPP was one of the first small business organizations to raise the red flag on the compliance standards lying in wait for not only Defense Department prime contractors, but also the thousands of subcontractors in the industrial base, as the Cybersecurity Maturity Model Certification (CMMC) began to roll out at its various agencies. 
Angela Dingle
The intent of the CMMC is to combine various cybersecurity control standards such as National Institute of Standards and Technology Special Publication 800-171, NIST SP 800-53, ISO 27001, ISO 27032, AIA NAS9933 and others into one unified standard for cybersecurity. Much like the Capability Maturity Model Integrated (CMMI), the CMMC is designed to measure the maturity of a company’s institutionalization of cybersecurity practices and processes. It will consist of five levels. 
 
All DOD contractors will be required to achieve a Level 1 certification, as reported in Bloomberg Government. Contractors that handle sensitive information up to classified data will be required to achieve a Level 5 certification. In the future, contractors that lack the desired CMMC level will become ineligible to compete for certain contracts and task orders.
 
Join us next month on February 18 for our first WIPP Member Webinar of the year, “The Ugly Truth About CMMC,” which will be a deeper dive into how CMMC will affect your business in the future, strategies for compliance, and how to manage the cost of implementation.

 

Tuesday, February 18 
2 PM ET / 1 PM ET / 11 AM PT
Register Today

 

Free to WIPP Members / $25 for Non-Members

 



This is a guest blog post from Ex Nihilo, a WIPP Member business. 
Ex Nihilio
Since 2002, Ex Nihilo has been a trusted advisor in the public and private sector, providing objective IT governance, risk management, and compliance services based on a thorough understanding of customer requirements and deep systems integration experience.

Tags:  cybersecurity  guest post  regulatory 

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Regulations & Rules Update - December 2019

Posted By Advocacy Team, Monday, December 23, 2019
Updated: Wednesday, December 18, 2019

Regulatory Recap: Flurry of Federal Contracting Regulations You Should Know About

 

In the past several months, SBA has taken significant actions on contracting policy that affect small government contractors. They are in various stages—some are proposed rules, some are finalized. WIPP Chief Advocate Ann Sullivan outlined the summaries and status of the actions federal contractors should be following. 



Wide-Reaching FAR Rule Touches Every Government Contractor


In the 2019 National Defense Authorization Act (NDAA), Congress directed federal agencies to stop using products and services from six Chinese companies in Section 889 of the bill, in order to combat national security and intellectual property threats that face the United States. Moving quickly, the FAR Council issued an interim final rule in August to implement this change, which has the potential of impacting all government contractors, large or small. Any government action that affects 139,730 small entities will have wide-reaching effects.


Learn more about how it will directly impact your business.

Tags:  federal contracting  regulatory 

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Regulatory Rigmarole: The Devil Is In The Details

Posted By Ann Sullivan, WIPP Chief Advocate, Wednesday, November 6, 2019
Updated: Tuesday, November 5, 2019

Advocacy comes in all forms. While the WIPP Advocacy Team focuses much of our attention on Congressional action, our work with agencies, especially SBA, is every bit as important. Staying vigilant on all fronts is critical to all businesses, large and small. 


As a WIPP Member, you probably already know more than the average person about regulations that impact small business owners – regardless of whether they are proposed, interim-final, or final rules. But, you probably don’t know exactly what that means or how they get to those stages in the first place. 

AnnSullivan

The Process of Rulemaking

 

The first thing to know is that proposed regulations are known as “rules” and the rulemaking process is lengthier than you might expect. When Congress passes a law, the agency then gets to work to implement it. The final product is a new regulation. To get from the passage of a law to a new regulation involves a number of steps by the agencies.  


An agency’s first step is to develop a draft regulation known as a proposed rule. Then, the agency sends the draft to the Office of Information and Regulatory Affairs (OIRA) for review. OIRA is tasked with circulating this regulation among other government agencies, taking into account this feedback. OIRA is a federal office that was created by Congress in 1980. In 1991, an Executive Order directed that the office would formally review all draft proposed and final rules before they were published in the Federal Register.


OIRA makes suggested changes and sends the proposed rule back to the agency. The agency then issues a proposed rule which it publishes on www.regulations.gov for public comment. The comment period is usually open for 60 days, although some only accept comments for 30 days. Comments are not limited to organizations like WIPP – anyone or any entity can provide comments on a proposed rule. 


The agency reviews the public input to revise a final product which typically takes another 60 to 90 days and summarizes its findings and issues a final rule. Done, right? Not quite. The final rule once again goes to OIRA for review – only when this approval process is complete can the new regulation be published as a final rule.


Need more information on the process? Download the SBA’s Office of Advocacy Basic Guideline to Rulemaking and Small Businesses.  


What WIPP Comments On

 

WIPP has commented on a number of important proposed rules on a variety of issues. By commenting on proposed rules, WIPP has the ability to shape the outcome of the regulation. The devil is in the details, so this stage of advocacy is, in many cases, as important as passage of the law. 


In 2019, WIPP submitted comments to SBA on a number of small business contracting rules ranging from the proposed WOSB/EDWOSB certification rule, to the rule implementing the Small Business Runway Extension Act. WIPP also submitted comments to the Department of Defense (DoD) on its proposed Cybersecurity Maturity Model Certification—a far-reaching cyber certification, which will affect every federal contractor and subcontractor.


Just last month, the Federal Acquisition Regulation (FAR) Council recently proposed an interim final rule that will amend the FAR to prohibit the federal government from procuring or obtaining, or extending or renewing a contract to procure or obtain, “any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system” in order to combat the national security and intellectual property threats that face the United States. 


WIPP recognized the wide-reaching importance of this rule and jointly submitted comments in response. It is important to note that the interim rule impacts ALL contractors — not just those that offer information and communication technology. Each contractor is responsible for determining whether telecommunications equipment and services will be provided under both new and existing contracts and orders. 


Learn more about FAR Council


Take Action Now


As we noted in our Advocacy Update last month, the FAR Council has issued a proposed rule to avoid using Lowest Price Technically Acceptable (LPTA) source selection criteria in circumstances that would deny the government the benefits of cost and technical tradeoffs in the source selection process. LPTA has been a long-hated acquisition pricing policy in the small business community. This rule specifically states that LPTA source selection criteria should be avoided for procurements for IT services, cyber security, systems engineering services, and others. 


Submit a comment on this proposed rule by December 2, 2019


Note: One part of the regulatory process to note— when the FAR Council issues a proposed rule it is listed with a “FAR Case” number instead of a “Regulatory Identification Number” (RIN).


It’s tough to keep up with everything as a small business – I know – I am one. That’s why membership in WIPP is critical to your bottom line – we follow and initiate the actions important to women-owned businesses.


Tags:  Advocacy  FAR  regulatory 

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