Hot Topics In GOV CON - 03/04/2021

Hot Topics
In Government Contracting
Virtual Conference – Thursday, MAR 04 (8am-11:30am)
AGENDA
Session 1 – CMMC – Where Are We Now?
Session 2 – Strategically Using the SBA’s Mentor-Protege Program
Session 3 – Competitive vs Profitable Pricing – Can You Have It All
Session 4 – NDAA, EO’s & Federal Contracting Opportunities In The
Biden Administration
Session 5 – Back to Business – PPP Eligibility and Forgiveness in 2021

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WEDNESDAYS 2021 – DFARS
MONTHY 2021 – Q&A CAFE

The Government Freelance Exchange
The best end-to-end online solution matching high quality freelance talent
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Contact sales@govflex.com
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C3 Integrated Solutions is a full-service IT provider, helping
DoD contractors achieve CMMC compliance through cloud-
based solutions including Microsoft 365 GCC and GCC High.
C3’s unique, step-by-step CMMC Readiness Program
helps companies comply with NIST 800-171 and CMMC.
No matter where you are on your journey to
CMMC compliance, C3 can help.
Learn more at https://C3isit.com/cmmc-ready

Justine Witkowska-Baker
bakerjus@fnb-corp.com
410-518-6885
First National Bank is a $42 Billion full service
Commercial Bank. Solutions include PPP, Deposits,
Investments, Commercial Real Estate, Equipment
Finance & Leasing, and more. We assist businesses in
increasing cash flow by accelerating receivables and
increasing earnings on deposits, while saving time &
money by leveraging Conventional and SBA Credit
Facilities.

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J Schaus & Associates – Washington DC – hello@JenniferSchaus.com

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Zachary Prince
Smith Pachter McWhorter PLC
zprince@smithpachter.com

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Bill Wootton
C3 Integrated Solutions LLC
bwootton@c3isit.com

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Agenda
Interim Rule Update
CMMC AB Rollout
Pilot Program
Ongoing Implementation Issues

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DFARS Clause 7012
Background
• Original CUI clause
• NIST 800-171 Standard
• FedRAMP Moderate equivalent for
CSP’s
• Clauses (c) through (g)
Update
• No changes
• Still in effect
• Existing contracts
• New contracts

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DFARS Clause 7019
Background
• Formalizes DCMA Audit Program
• Basic – Self Assessment
• Med/High – DCMA Administered
• Result uploaded to SPRS
• Must be completed prior to next award
after Nov. 30, 2020
• POAM acceptable
Update
• Mad rush to “answer the mail”
• SPRS uploads difficult and problematic
• Still unclear how scores will be used
• Contractors first “wake up call”

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DFARS Clause 7020
Background
• Provides government access to
systems, facilities and personnel
• Requires flow down clause that
“subcontractors have current
assessment at time of award”
• Applies to all subcontractors in
supply chain
Update
• No direct access to SPRS
• Look for primes to start driving the
compliance conversation
• Questionnaires
• Selectivity in partnering

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DFARS Clause 7021
Background
• Deploys CMMC as expected
• Five levels of FCI/CUI
• C3PAO audits
• Pass/Fail
Update
• Assume 9-12 months to get ready
• Practices
• Processes
• Demonstrate maturity
• Expect course corrections

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CMMC AB Updates
• Statement of Work released through FOIA in February 2021:
• Will split off the part of the organization that trains and tests assessors, creating the CMMC Assessors and
Instructors Certification Organization (CAICO).
• AB to retain responsibility of accrediting assessors that will do the cybersecurity audits.
• Split not mandated before October 31, 2022
• SOW replaces previous MOU, gives DoD increased oversight role
• Requires financial decisions be reported to DoD
• Mandates quarterly reviews
• As of January, there are 100 assessors that have received provisional approval and 73 approved third-party
assessment organizations (3PAOs).

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CMMC Pilot
Programs
(source: CMMC-AB
Townhall)

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CMMC Ongoing Implementation Issues
• Defining CUI/CDI:
• Contractors continue to struggle with basic definitions
• Government does not adequately mark data
• May designate data as CUI/CDI after the fact
• DFARS definition are extremely broad
• Includes CUI (broad categories that can and do
change) that is:
Collected, developed, received, transmitted, used,
or stored by or on behalf of the contractor in
support of the performance of the contract.
• Equitable adjustments for compliance:
• If -7019 and -7020 clauses are
imposed through modification,
should entitle contractor to recover
costs
• Could invalidate options if done
unilaterally

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CMMC Ongoing Implementation Issues
• How will the assessments be used?
• Unclear whether scores will become factors in procurements
• Part of responsibility determination or a substantive evaluation factor?
• Major impact on protestability of determinations.
• Non-compliance as basis for:
• Termination for defaults – see Arcade Travel Inc. d/b/a Boersma Travel Servs., ASBCA No. 62009, 20-1 BCA ¶ 37,641
(T4D of commercial item contractor)
• Withholding progress payments
• False Claims – see United States v. Aerojet Rocketdyne Holdings, Inc., 381 F. Supp. 3d 1240 (E.D. Cal. 2019)

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Questions From Our Speakers
Zachary & Bill:
True or False?
Q1 – What does it take so long to become Level 3 compliant?
Q2 – What’s the first thing a contractor should do to become compliant?
Q3 – What happens if the agency unilaterally adds -7019 or -7020 to my ongoing contract?
Q4 – What are the ramifications for non-compliance?

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LIVE AUDIENCE QUESTIONS

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Shayn Fernandez
Rockridge Venture Law
shayn@rockridgelaw.com

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Anthony Anikeeff
Williams Mullen
aanikeeff@williamsmullen.com

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• What is the Mentor-Protégé Program?
• Started with the 8(a) Mentor Protégé Program and extended into the All Small Mentor-Protégé
Program before merging into the Mentor Protégé Program.
• If done properly, two or more small businesses or a large business and a small business can joint
venture as a small business or other type of socioeconomic concern, and compete for set-aside
contracts.
• Can provide an exception to affiliation.

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• Why Participate in the Mentor-Protégé Program?
• Benefits to a Protégé
• Guidance on systems, accounting, marketing, strategic planning, and the procurement process.
• Financial assistance in the form of equity (up to 40%) and debt investment.
• Leverage the Mentor’s past performance, experience, and reputation.
• Benefits to a Mentor
• New pool of contract opportunities (e.g., if other than small) and large workshare allocation (up to 60%).
• Improved skill sets (e.g., internal employee teaching or enterprise level) and new customer relationships.
• Potential investment or acquisition target or long-term relationship.
• Resource for innovation.

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• How to Participate?
• Qualifications
• Protégé size and socioeconomic eligibility.
• Mentor character and skill qualifications.
• Formation & Approval
• SBA Approval of the Mentor-Protégé Agreement.
• Joint Venture as an unpopulated separate legal entity (e.g., separate EIN, SAM, DUNS, CAGE).
• Compliant Joint Venture Operating Agreement (e.g., mandatory provisions).
• Performance
• Limitations on subcontracting (JV can subcontract no more than 50% unless sub is similarly situated).
• Internal workshare split if there is a large business or a specific socioeconomic category (e.g., 60-40%).

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Shayn & Anthony:
True or False?
Q1 – The Mentor must be “other than small”
Q2 – The Joint Venture cannot have any employees of its own?
Q3 – The SBA most pre-approve the Joint Venture Operating Agreement?
Q4 – The joint venture takes on the identity of the protégé?
Please note: This presentation contains general, condensed summaries of actual legal matters, statutes and opinions for information purposes. It is not meant
to be and should not be construed as legal advice. Individuals with particular needs on specific issues should retain the services of competent counsel.

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Jacob Barclay
Barclay Group
jacob@barclaygroupllc.com

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Heather Teed
EOP Consulting
heatherteed@eopconsulting.
com

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It is paramount to view each solicitation through the following
lens:
• Contract Type & Associated Risk
• Proposal Evaluation Requirements:
• Cost Realism Analysis
• Price Realism vs. Reasonableness Analysis

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Strategies for Competitive & Profitable Pricing:
• Benchmark Analysis on Direct Labor
• Indirect Rate Analysis
• Cost Impact/Recovery
• Incumbent Staff Analysis (“Greening” the workforce)
• Level-of-Effort Efficiencies

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When the client recognizes a clear value for their money and your business makes a reasonable profit you realize that
you “can have it all.” So how does one achieve this objective? Data (and lots of it!), Defined Value, and Flexibility.
Since competition-driven pricing relies on making decisions based on the prices of your competitors, you must have a
system to collect, analyze, and share data. To know which price will achieve the most profitable market share requires a
solid understanding of this competitive range compared to the client’s acquisition trends, budget constraints and risk
threshold. Ultimately, making informed decisions to “have it all” comes down to the timing and use of relevant data.
Successful companies will begin and validate this data prior to entering the active proposal bid phase.

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Avoid Price Wars and Undercut Pricing by Using Defined Value
Competitive pricing can drive pricing wars. Slashing prices to meet a competitor’s lowest price may risk profitability and create
unrealistic market conditions within the client/market segment. This can be avoided when using defined value.
Adding value without adding cost enables you to promote services and solutions to the Government at a more profitable rate
and differentiates your solution from your competitors. Evaluate existing tools, processes, systems, or resources to determine
where you can offer value. This is most powerful when you can point to past performance.
To document value you must have a comprehensive understanding of your solution and approach. This is achieved in
collaboration between non-cost and cost/price teams.

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Each Opportunity is Unique – Be Flexible
Beware of Following the Herd. Competitive based pricing can lead to a lack of innovation and the unique solutions your client
seeks. Leverage key elements of your competitors' offerings but be willing to adapt, modernize, or change to meet evolving
market demands and profitability goals.
Conduct evaluations of your indirect costs early in the capture phase to determine if material changes, impacted rates, and/or
defining new cost pools makes sense. Engage with your financial and accounting experts to ensure you are operating at the
most efficient levels. What automation, tools, practices, processes, or systems can be implemented to drive price efficiency
over time?

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Jacob & Heather:
Q1– What tools or methods are best for collecting Competitive Data?
Q2 – What factors should be considered to determine a profit goal?
Q3 – Do you think the final FAR rule (Feb. 16, 2021) limiting LPTA is going to change the market?
Q4 – How to unseat a long-standing incumbent?

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Christine Couvillon
Government Contracts and
Federal Litigation
Thompson Coburn
ccouvillon@thompsoncoburn.com

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Steven Koprince
Founder & Senior Partner, Koprince Law LLC
Founder & regular contributor, SmallGovCon blog
“Friend of APTAC” honoree
Dad, husband & beach bum!
785-200-8919
skoprince@koprince.com

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Themes
• China and Focus on Foreign Threats
• Cybersecurity
• Defense Industrial Base (DIB) Security
• Expanding Other Transaction
Authority
Cybersecurity Provisions of Note
• Defense Industrial Base (“DIB”) participation in threat
sharing program
• § 1737
• Assistance for small manufacturers for CMMC
• § 1642
• DIB Threat Hunting Program
• § 1739

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Supply Chain Provisions of Note
• Supply of Strategic Materials for DOD
• Order of Priority (§ 848)
• Reporting Gaps in Supply Chain
• § 851
• Sourcing for Rare Earth Metals
• § 824
• Enhanced Domestic Content Preference
• § 825
Foreign Ownership Provisions of Note
• Disclosure of Beneficial Owner in FAPIIS (§ 885)
• “beneficial owner” means
• voting power
• investment power
• Periodic Reports on FOCI Compliance (§ 819)
• “appropriately responding to changes in
contractor or subcontractor beneficial ownership”
• Builds on 2020 NDAA provision

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Increasing OTA Availability
• Other Transaction Authority
• Not a contract, grant, or cooperative agreement
• Outside of FAR processes
• Listing of OT authority consortia (§ 833)
• OTA authority to National Cyber Director (§ 1752)
• NIST to use OTAs for AI R&D (§ 5301)
• OT for Secure Microelectronics (§ 9903)

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E.O. on Supply Chain Review
• Focus on 4 industries immediately (100 days):
• Pharmaceuticals
• Semiconductors
• Rare earth metals
• High-capacity batteries
• Year-long review:
• Defense
• Public Health
• Communications
• Energy
• Transportation
• Food Production

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Small Business Size Eligibility
SIZE CALCULATION: EMPLOYEE-BASED
• 2021 NDAA (§ 863):
• Requires SBA use 24-month period instead of 12-month period to calculate average
employee count under relevant NAICS codes (mainly manufacturing & supply)
• Change will help growing business but could harm shrinking businesses
• Change effective Jan. 1, 2022

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Governmentwide SDVOSB Certification
• 2021 NDAA (§ 862) eliminates SDVOSB self-certification for non-VA contracts:
• CVE will be transferred from VA to SBA and will verify SDVOSBs government-wide
• Certification requirement for non-VA contracts begins January 1, 2023
• After program is implemented, one-year “grace period” for self-certified SDVOSBs

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8(a) Program Term Extension
• 2021 NDAA (§ 869) and COVID relief bill allow certain 8(a) Program participants to extend
their program terms by one year:
• Maximum term 10 years instead of 9
• Available to active 8(a) Participants between March 13 and September 9, 2020
• Some graduated firms can be readmitted
• Business Activity Target remains 50% in 10th year

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8(a) Program Term Extension
SMALL BUSINESS PAST PERFORMANCE
• 2021 NDAA (§868):
• Requires large prime contractors to provide small businesses with past performance
reviews in certain cases, and procuring agencies to consider them (
• Allows small businesses, in some cases, to claim past performance credit for work
performed as member of a JV

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Steven:
Q1– When governmentwide SDVOSB verification begins on January 1, 2023, will the SDVOSB eligibility requirements change, too?
Q2 – The new NDAA allows a small business to use the past performance it gained as a joint venture member--but what about using
the past performance of a major subcontractor?
Christine:
Q1– How does the Enhanced Domestic Content Preference at Sec. 825 interact with Buy America and Buy American?
Q2 – What kinds of businesses are eligible for OTA consortia?

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Evan St. John
General Counsel PC
estjohn@gcpc.com

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Neena Shukla, CPA, CFE, CGMA, FCPA, CTP
PBMares, LLP
nshukla@pbmares.com

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 Consolidated Appropriations Act 2021 signed on December 27, 2020
o Reopen to first time PPP borrowers for loans up to $10 million ($20 million corporate group cap)
o Allows Second Draw loan for existing PPP borrowers, up to $2 million ($4 million corporate group cap)
o No collateral requirements; no personal guarantees; no prepayment penalties; repayment terms: 1% for 60 months.
o Must have completed First Draw – if have not, can still take out First Draw using First Draw requirements.
• Who is eligible? General qualifications for Second Draw:
o Operating as of February 15, 2020.
o Had a 25% reduction in gross receipts during a quarter in 2020 compared to 2019 (or 25% drop in total year)
o No more than 300 employees (aggregates foreign and domestic affiliates into one count)

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 Entity types eligible:
 All basic entity types (corporations, LLCs, LPs, sole proprietorships, etc.)
 Certain nonprofits, veterans organizations, tribal business concerns, self-employed individuals, independent
contractors all eligible. If using 1099 contractors, they can apply for their own loans.
 Prior disqualifications lifted – As of February 22, 2021 executive order, lifting ban on non-fraud felony convictions,
those delinquent on federal student loans, clarified that noncitizen US residents are eligible.
 Existing disqualifications: federally illegal activity (marijuana), household employers, entities in bankruptcy, hedge
fund/private equity firms, political/lobbying entities,

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 Calculating Loan Size
 Multiply business’s average total monthly payroll in either (1) the one year period prior to the loan date or (2)
2019 or 2020 calendar year, by 2.5x.
 NAICS Code 72 (primarily restaurants and hotels) can use a 3.5x multiplier.
 Self-employed: 2.5x net profit in 2019 or 2020 on Form 1040 Schedule C up to $100k, divided by 12.
 Forgiveness
 Must submit certification within 10 months of end of use period.
 Must use 60% on payroll, funds must be used in an 8-24 week period.
 If received $150k or less, will not have to submit specific spending records, but must be prepared for audit.

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 PPP Fund Usage (expanded):
 (60%) Payroll, including group life, disability, vision, and dental insurance expenses;
 (40%) Eligible nonpayroll
 Rent;
 Covered mortgage interest and utilities;
 Covered property damage costs
 Covered supplier costs – if essential to the operations of the business;
 Covered operations expenditures – business, cloud, payment processing and payroll software
 Covered worker protection expenditures –expenses that allow a business to comply with state/federal
guidance. PPE, expansion of indoor/outdoor space, physical barriers, and ventilation or filtration systems.

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Accounting for PPP Loans and Forgiveness
The accounting for PPP assistance depends upon the following:
• Is the assistance considered a loan
• A payment for a good or service
• An income tax credit
• Or a grant
Individual circumstances will need to be considered, however most will account for PPP assistance as either debt or government
grants

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PPP Loans as Debt
- ASC 470, Debt - Debt treatment appropriate as PPP is a legal form of debt
- ASC 835, Interest – Interest accrued over the term of the loan at effective rate. Not required to impute
market rate interest
- Debt is derecognized when debt is extinguished under ASC 405-20, Liabilities (i.e. when paid off or legally released)
- PPP loan is forgiven when SBA pays the amount it determines is eligible for forgiveness
- Criteria for forgiveness, watch new developments
- Amount forgiven recognized in the income statement as a gain upon extinguishment
- ASC 230, Statement of Cash Flows – Cash inflow/outflow from financing, Interest is outflow from operating
and any gain recognized is noncash reconciling item to net income from operations.

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What does PPP Loan Forgiveness mean for Government Contractors?
• OMB Guidance April 17, 2020 (updated April 24)
FAR 31.201-1,
“Composition of Total Cost, states that total cost is the sum of the direct and indirect costs allocable to the contract
less any allocable credits. To the extent that PPP credits are allocable to costs allowed under a contract, the
Government should receive a credit or a reduction in billing for any PPP loans or loan payments that are forgiven.
- The loan must be forgiven for a credit
- No Double dipping!

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Which Contracts affected?
• Flexibly-priced contracts
• Affects primarily cost reimbursement
• Complexity with what portion of credit the government is due
• Direct costs or indirect
• Those where certification of cost and pricing required
• FAR 31.205-5 Credits principle applies
• Includes Fixed price contracts
• Disclose during price negotiations that PPP funds were received, forgiven etc.

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Evan:
Q1– Do I need to provide documentation showing the reduction in gross receipts in excess of 25% with my application?
Q2 – Can I apply for the Second Draw if I haven’t used the full loan amount of the First Draw?
Neena:
Q1 – Should I seek forgiveness on direct or indirect expenses?
Q2 – What about PPP and other COVID – 19 relief efforts under the CARES ACT such as negotiated equitable adjustments
under section 3610?

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THANK YOU FOR ATTENDING!
Hello@JenniferSchaus.com
202-365-0598

Hot Topics In GOV CON - 03/04/2021

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