SBA’s Office of Advocacy has published a useful document that, “sketches the ecosystem or life-cycle of small business financing.” The document uses a FAQ format to allow readers to browse specific topics. In its answers, the SBA uses data compiled from a number of industries to provide averages or totals that can be used for differing types of firms.
You can find the document here: http://www.sba.gov/sites/default/files/Finance%20FAQ%208-25-11%20FINAL%20for%20web.pdf
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Posted by Kevin Learned
When teaming, be careful of the Small Business Administration’s rules regarding “affiliation.” The affiliation rules (including a related rule addressing limitations on subcontracting) are intended to discourage program abuses to ensure that small businesses, not large businesses, are benefiting from SBA’s contracting programs. As an example, if a small business joint ventures with a large business, SBA will usually find that the joint venture partners are affiliated and will then proceed to combine the receipts/revenues of the two companies to determine whether the combined receipts of the affiliated entities exceed the permissible size standard for the procurement. If the NAICS code assigned to the procurement has a $7 million size standard and the combined receipts of the joint venture partners exceed $7 million, then the joint venture will not ordinarily be eligible to participate in the competition. However, if both joint venture partners are small under the assigned size standard, then an exception to the affiliation rule might be available.
The affiliation rules are not precise and there is no bright line test that can be relied upon in every situation. There is, for example, the “ostensible subcontractor rule” which provides that SBA may find affiliation, in an otherwise acceptable subcontracting relationship, if the small business prime contractor is found to be unacceptably reliant or dependent on its subcontractor. For example, if the large subcontractor has done the marketing and written the proposal, SBA will in almost all cases find this degree of dependence/reliance to be unacceptable and find affiliation. Affiliation can also be found where there is common ownership or stock-sharing between the teaming partners or owners or where the officers and key staff of a newly organized small business were previously employed by the teaming partner. Finally, there are exceptions to the rules — for Native American and Alaska Native corporations, for participants in the SBA 8(a) Program, and for SBA-approved Mentor-Protégé participants.
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Posted by Kevin Learned
Some Common Issues with Separation Pay Plans
Clients often ask us if there are any legal issues if their separation pay plans (often referred to as severance plans) extend payments beyond an employee’s termination date. Such plans may raise potential ERISA (the Employee Retirement Income Security Act) and 409A (IRS regulations relating to non-qualified deferred compensation plans) issues to the extent that they give rise to an employee receiving a legally binding right to receive payments after the year in which the related services are performed.
ERISA
Any severance plan that requires ongoing administration for the payment of benefits (i.e., any plan that provides for more than a lump sum payment) is likely subject to ERISA (see Fort Halifax Packing Co., Inc. v. Coyne, 481 US 1 (1987)). Even if a client does not intend for a severance plan to be an ERISA plan, it may become a “de facto plan” or an ERISA-governed plan. For most of our smaller clients, we advise structuring severance plans to limit ERISA liability rather than adopt a formal ERISA plan and following burdensome ERISA requirements. Suggested steps include:
For clients with a large number of employees subject to a severance plan (particularly 100 or more), or for clients who plan on terminating a large number of employees, we advise that such clients put significant thought into adopting a formal plan that meets all applicable ERISA requirements.
409A
Treas. Reg. Sec. 1.409A-1(b)(9)(iii) specifically exempts, “A separation pay plan that […] provides for separation pay only upon an involuntary separation from service.” So, if severance is payable only if the employee’s employment is terminated by the company (with or without cause) (an involuntary termination), it is exempt.
If severance is also payable if the employee terminates employment (a voluntary termination), then it is not exempt from 409A unless termination is pursuant to a window program meeting certain dollar limit and timing restrictions (think a voluntary early retirement plan) (see Treas. Reg. Sec. 1.409A-1(b)(9)(iii)), or if the voluntary termination is for “good reason” (see Treas. Reg. Sec. 1.409A-1(n)(2)). “Good reason” must be defined to require actions taken by the company resulting in a “material negative change” to the employee, such as a change in, “the duties to be performed, the conditions under which such duties are to be performed, or the compensation to be received for performing such services.” The payments should also be similar to the payment received upon an involuntary termination, and the employee should also be required to give the company notice of the good reasons (within 90 days of occurrence) and a reasonable opportunity to cure (at least 30 days).
Exception: Pursuant to Treas. Reg. Sec. 1.409A-1(b)(9)(i), If the severance plan acts as a substitute for, or replacement of, amounts deferred by the company under a separate non-qualified deferred compensation plan, it will not be able to take advantage of these exemptions. For example, if an employee loses his right to deferred compensation upon termination employment but instead severance payments, the severance payments may be construed as an acceleration of the deferred compensation. This can easily be overcome if the severance payments stay in effect even after the deferred compensation vests on its own.
In summary, severance arrangements that are typically included in executive employment agreement can be drafted to meet the exemptions from 409A so long as they are carefully tailored to comply with the requirements set forth above. Careful attention must be paid to agreements that provide for severance payments upon a termination of employment by the employee. 409A issues can still be mitigated if the exemptions are not met, but doing so will require more detailed expert analysis of the particular severance plan.
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Posted by Kevin Learned
So say the reporters at Bloomberg: http://www.bgov.com/news_item/DfYSph_xdgO_txs3zlFR9g (available by subscription only).
The theory is that as government agencies have their budget cuts, they’ll demand that government contractors cut prices on the products and services they provide. This price pressure will therefore encourage government contractors to combine and preserve their margins by reducing costs as a percentage of revenue.
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Posted by Kevin Learned
Two recent opinions out of Delaware, one from the Delaware Supreme Court and one from the Delaware Chancery Court, have addressed the duty of loyalty owed by controlling persons (including managers and majority owners) of limited liability company to minority members and the rights of members to inspect the books and records of limited liability companies.
In William Penn Partnership v. Saliba, C.A. No. 111 (Del. Feb. 9, 2011), the Delaware Supreme Court found that the managers of Del Bay Associates, LLC (“Del Bay”), Bryce and Bill Lingo (the “Lingos”), breached their fiduciary duties to the minority owners of Del Bay. In addition to acting as the managers of Del Bay, the Lingos were also the managing partners of the William Penn Partnership, the 50% owner of Del Bay. In this case, the Lingos were found to have utilized a “deceptive and manipulative sales process” in the sale of a hotel owned by Del Bay to another entity controlled by the Lingos and in which they and their family held an economic interest. What was interesting in this case is that the sales price used by the Lingos ending up being HIGHER than the appraisal value of the hotel that had been commissioned by the minority members and a separate appraisal commissioned by the court. However, the Lingos were found to have withheld and/or misrepresented material facts about the sale process to the minority owners.
In essence, the court held that the Lingos owed the minority members a fiduciary duty to provide them fair dealing in addition to a fair price. In confirming the award of attorneys fees in favor of the minority owners (despite there being no monetary damages due to the higher sales price), the court found that the Lingos, “failed to meet their burden of establishing the entire fairness of the transaction because their prelitigation conduct rose to egregiousness.” (emphasis added). In short, William Penn Partnership v. Saliba teaches controlling persons of limited liability companies that when engaging in interested party transactions, the controlling persons should provide minority owners with fair and open access to all information related to the transaction in addition to ensuring that the terms are fair to the company and the minority owners.
In Sanders v. Ohmite Holding, LLC, C.A. No. 5145-VCL (Del. Ch. Feb. 21, 2011), the Delaware Chancery Court found that a member of a limited liability company was entitled to inspect the books and records of the company that are necessary for the member to fulfill his purpose, even if the books and records pre-date the member’s formal admission to the company. In this case, Max Sanders (“Sanders”) became a member of Ohmite Holding, LLC (“Ohmite”) after an assignment of limited liability company interests from a former member who was a debtor of Sanders. When Sanders was informed that his ownership interest in Ohmite had been diluted as a result of equity issuances that pre-dated the assignment of interests to Sanders, Sanders sought access to Ohmite’s books and records related to those issuances. The stated purpose of the document request was to evaluate the value of Sanders’s interest, the status of Ohmite and the legitimacy of the dilution of Sanders’s interest. Ohmite denied the document as a “fishing expedition.” The court granted Sanders’s document request, pointing out that his requests were reasonable under the Delaware LLC Act, and that there were no applicable restrictions on members’ inspection rights under Ohmite’s operating agreement.
The fact that a member is entitled to review a limited liability company’s books and records related to equity issuances that dilute a member’s interests is not surprising. However, the negative inference to the reasoning set forth in Sanders v. Ohmite Holding, LLC is that a limited liability company might be able to restrict a member’s inspection rights for books and records pre-dating admission to membership regardless of the purpose if explicitly set forth in the company’s operating agreement.
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Posted by Kevin Learned
Owners of a Veteran-Owned Small Business (VOSB) or a Service-Disabled Veteran-Owned Business (SDVO) should be aware that this Thursday, March 10 is the deadline to verify your business’s status on the VA’s VIP database and be eligible to participate in the Veterans First Contracting Program. Make sure to access and log into your profile on www.vip.vetbiz.gov and complete the verification process by this Thursday.
Here’s the letter that the VA sent to veteran business owners back in December regarding the need to verify business status: http://www.va.gov/osdbu/docs/PL11-275_VerificationActLetterToFutureApplicants.pdf
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Posted by Kevin Learned
Be advised that the deadline for applications to present at Business Alliance’s Grubstake Breakfast is February 9th. That’s this Wednesday! For more information visit: http://www.businessalliance.org
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Posted by Kevin Learned
A freelance professional, whether a management consultant, a graphic designer or a bookkeeper, obtains clients by building a relationship with his or her clients based on knowledge and trust. Too often, however, the relationship sours because the parties either have not thought out some important issues or because the parties have differing opinions on those issues. For this reason, every freelance professional should have a Services Agreement that he or she enters with each client. A well-drafted Services Agreement can help you maintain a positive relationship with your clients throughout the life cycle of the engagement. This article identifies the top ten issues that your Services Agreement should address.
Define in detail the services that you will perform for your client. Be as specific as possible. Frequently, if your client refuses to pay, the client will argue that you did not perform the services you were obligated to perform. Specifying the services will help you prove the exact services that you did agree to perform.
The services to be performed may be defined in the body of the Services Agreement, or, if it works better, in an attachment to the Services Agreement. They may also be defined on a matter-by-matter basis—using task orders to set out a particular set of services and change orders to modify the list of services.
In addition to specifying the services that you will provide, also identify who will provide the equipment necessary to carry out your services. For example, if you agree to give a presentation, who will provide the conference room space, podium, and projector? You should avoid any misunderstandings on these issues by covering equipment in your Services Agreement.
You want to get paid by your client. The Services Agreement should specify the amount that the client will pay you, both for the base services and for any additional work that may need to be performed. Many disagreements arise when more extensive work is required to achieve the client’s goals. The Services Agreement should also specify when the client is going to pay you, whether that is within 15 days of receipt of their monthly bill or upon completion of the project.
Also, you should specify which out-of-pocket expenses, if any, will be reimbursed to you by the client.
Of course, some of your clients will not pay you, regardless of the language of the Services Agreement. You can use the Services Agreement to encourage each client to pay by providing that the client will be charged interest, attorney’s fees, and other costs of collection if the bill is not paid on time. Give your client reason to pay you first.
The Services Agreement should also indicate how long your contractual relationship with your client will last. Is it documenting a one-shot deal? Or does the agreement reflect a long-term arrangement where the client will order your services as needed via task orders?
If the Services Agreement will be renewable, include terms that specify when it is going to take place.
Also, specify the ways in which the relationship may end. You will probably want to build in an escape clause that you, and perhaps your client, may cancel the contract with a particular number of days notice. You will probably also want to provide for the agreement to terminate immediately if the client does something particular bad; make sure to tightly define that list of bad things.
Freelance professionals use their ideas to create value for their clients. Those ideas, and the products of those ideas, may be protectable intellectual property. Specify in the Services Agreement whether you or your client (or both of you) will own the intellectual property created under the Agreement.
The client is hiring you because you have some expertise that they do not have. What you don’t want is for the client to use you to develop their own expertise and then not compensate you for the information that they’re taking from you. Similarly, you most likely will view some of your client’s confidential information in the course of providing services for that client. Your client and you may bind yourselves in the Services Agreement to keep each other’s confidential information secret.
Sometimes, you or your client will prefer to keep the existence of your business relationship secret. To avoid misunderstandings, the Services Agreement should include provisions that detail whether the parties may publicize their business relationship and how that publicity may take place.
As a freelance professional, your relationships with individuals you place on a client job may be critical to your business. You want to avoid having your client cut you out of the loop by directly hiring a person you placed. The Services Agreement may include non-solicitation provisions that forbid your client from hiring your workers without compensating you.
In the process of negotiating the Services Agreement, your client may request that you not provide services to their competitors. Consider the consequences carefully before agreeing to limit your future client base, and ensure that the restrictions are the same as what you discussed with your client. If you agree to such restrictions, make sure you are being fairly compensated.
No matter how well thought-out your Services Agreement, you will have disputes with some of your clients. The Services Agreement should specify the mechanism for resolving disputes: when claims must be made; where the claims will be heard (e.g., in your home jurisdiction or the client’s); and who will decide whether the claims or meritorious (e.g., judge or arbitrator).
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Posted by Brandon Okes
Several Virginia statutes and regulations apply to procurements made by the Virginia state government and local Virginia governments and quasi-governmental agencies (such as city-owned utilities).
The vast majority of procurement by Virginia’s state and local governments occurs under the auspices of the Virginia Public Procurement Act (the “VPPA”). For local governments, the VPPA requires that each locality adopt a Purchasing Resolution that gives the specific rules for that particular jurisdiction.
The VPPA applies to the acquisition of goods, services, construction and insurance. Thus, small and medium-sized businesses that want to sell goods, services or insurance or perform construction for state and/or local government should develop an understanding of the VPPA and the Purchasing Resolutions for the localities in which they will bid for work.
For the procurement of services, VPPA makes important distinctions between professional services-such as a doctor, architect, engineer or other licensed professional-and non-professional services.
The VPPA does not apply to the purchase of real estate. It also does not applyto infrastructure projects in which a private company will have an ownership interest; those are covered by separate rules set out in the Public-Private Education Facilities and Infrastructure Act of 2002 (the “PPEA”).
The VPPA states a preference for competitive procurement methods. Presumably, competition ensures that the government does not overpay for goods and services. Under the VPPA, non-competitive procurement is permitted only under specifically-defined exceptions. The most notable of these exceptions are purchases under $50,000, emergency purchases and sole-source purchases.
The government purchasing agents use one of two competitive procurement methods: competitive sealed bidding or competitive negotiation. The essential difference between the two is that the purchasing agency uses sealed bidding if it knows exactly what it wants, and uses competitive negotiation if it only generally knows what it wants. This is where the procurement categories have their significance-the VPPA assigns different default and permitted procurement methods depending on what is being purchased.
The VPPA assumes that the government should know exactly what it wants when it purchases goods or non-professional services, and requires the agency to justify using negotiation for those purchases. The VPPA assumes that government agencies can never know exactly what they want from professional services providers, and requires that negotiation be used for those purchases. Construction has its own niche. If the construction services are paired with architectural and engineering services in a design-build contract, then the VPPA requires negotiation be used. In traditional construction contract situations where the construction services are contracted for separate from the design services, the construction aspect must be procured through sealed bids.
Regardless of which competitive procurement method is used, the purchasing agency must publicize its procurement activity. Most agencies, including local governments, use the eVA system provided by the state government to automate the procurement notice process. Businesses interested in selling to state and local government in Virginia should register on eVA to receive relevant notices. The web address for the eVA system is http://www.eva.state.va.us/.
When using the sealed bidding process, the purchasing agency initiates the procurement process with an “Invitation to Bid.” The Invitation to Bid includes a specific description of what the agency wants to procure. It must be posted for at least 10 days, though as a practical matter most purchasing agencies post it for a longer period. Bidders must get their bids in by the deadline laid out in the Invitation to Bid.
The VPPA requires the purchasing agency to award the contract to the “responsive and responsible” bidder with the lowest price. The law is fairly rigorous on this point. The agency cannot reject all of the bids simply to avoid awarding the contract to a particular bidder. (It can, however, reject all of the bids if it believes that a rebid will increase competition.) The agency cannot use a determination of irresponsibility as an easy way out; the agency must justify any determination that a low bidder was not responsible.
When using the competitive negotiation process, the purchasing agency initiates the procurement process with a “Request for Proposals.” The Request for Proposals includes a general description of what the agency wants to procure and a list of the specific factors that the purchaser will use to evaluate the proposals. It must be posted for at least 10 days, though as a practical matter most purchasing agencies post it for a longer period. Offerors must get their proposals in by the deadline set forth in the Request for Proposals.
The VPPA requires the purchasing agency to award the contract to the “best” offeror with whom the agency can negotiate a contract. The purchaser identifies the “best” offeror by having a committee review all of the proposals that come in and interviewing at least two of the offerors. (The process of selecting the offerors to interview is known as “short-listing.”) The agency then negotiates with its highest-ranked offeror. The agency can move down the list of offerors if it does not reach an agreement with its first choice.
As with sealed bidding, the VPPA includes provisions that resist having contracts driven to pre-determined vendors. The agency cannot reject all of the proposals simply to avoid awarding the contract to a particular offeror, though it may reject all of the offers if it believes that a new round of proposals will produce stronger proposals.
An important distinction from sealed bidding is that the offeror with the lowest price will not necessarily be the one with the “best” proposal. The committee evaluates all aspects of the proposal for what will best achieve the purchaser’s goals; price is not the only factor.
The first exception to the competitive procurement requirements is one that most benefits small businesses-small purchases. As noted above, the VPPA broadly exempts purchases under $50,000 from competitive procurement requirements. As a practical matter, the smallest purchases have the fewest procedural requirements. Each county or other purchasing agency may define its own small purchase threshold. For example, Fairfax County defines small purchases as any under $5,000.
For small purchases, vendor contact with the purchasing agency is key since there will not be a formal bid or proposal. These contracts go to the vendors that the agencies know to call. Indeed, Fairfax County expresses a preference for companies already registered on eVA or with which it has already contracted.
The second exception to the competitive procurement requirements, open market purchases, is basically a big brother to the small purchase exception. The open market exception also falls under the VPPA’s broad exemption of purchases under $50,000; the primary distinction from small purchases is that open market purchases generally require an informal bidding procedure. Again, each county or other purchasing agency may define its own threshold; the only absolute is that the purchases must be under $50,000.
For example, Fairfax County’s Purchasing Resolution prescribes use of the open market method for purchases between $5,000 and $50,000. The County requires three oral or written quotes for purchases below $10,000 and four written unsealed bids for purchases between $10,000 and $50,000.
As with small purchases, potential vendors must put themselves in position to be asked for a quote by the purchasing agency.
The third exception to the competitive procurement requirements is often a bane of small businesses. If the purchasing agency determines that “there is only one source practicably available” for the purchase, then it may make the purchase directly from that source. The VPPA employs public scrutiny to check abuse of this determination, by requiring that the agency post notice that it awarded a sole source contract.
The fourth exception to the competitive procurement requirements is when a government agency must make an immediate purchase to avoid “dimunition of essential service,” such as a purchase of extra salt and sand in the midst of snowstorms. As with sole source contracts, public scrutiny is the check on agency use of this exception; agencies must post notice of any emergency procurement they make.
The fifth exception comes from a bit of flexibility built into the VPPA. If a local government makes a determination that purchasing insurance will be best facilitated by non-competitive methods, such as purchasing through a broker, then the government may avoid competitive procurement methods in purchasing insurance. For example, Fairfax County, in its Purchasing Resolution, has determined that it is best served by purchasing insurance through its broker.
The VPPA and the county Purchasing Resolutions do allow an end-run around all of these procurement methods-purchasing off of a contract already signed by another government agency. The contracts typically used for this purchase include state-wide contracts and cooperative purchasing arrangements such as the Washington Metropolitan Council of Governments.
Invitations to Bid will often include an option to allow a particular bid to apply to other agencies. Checking the appropriate boxes is an easy way for small businesses to magnify the power of their efforts to reach out to potential government purchasers.
Vendors may obtain registrations that give them a leg up in the procurement process. Every potential vendor should register on Virginia’s eVA system; that registration will put the business in a position to take advantage of all of the procurement opportunities that come across that system. eVA-registered vendors may also sign up to receive emails whenever procurement opportunities arise for particular categories of goods or services.
If a business is small (250 or fewer employees and $10 million or less in annual gross receipts) then the business may also register to participate in the state’s SWaM certification program. If the business also is owned and controlled by a woman, minority or service-disabled veteran, then it may obtain a certification to that effect. Although Virginia does not have any set-aside programs for SWaM-certified businesses, purchasing agencies target outreach programs at certified businesses and encourage large prime contractors to subcontract to SWaM-certified businesses.
The purchasing agency will only consider bids or proposals that are responsive to the Invitation to Bid or Request for Proposal. This boils down to a simple rule: follow the purchasing agency’s instructions.
Note that brand names listed in an Invitation to Bid or Request for Proposal are not a material requirement. Rather, the VPPA specifies that any equivalent product will suffice. Vendors not providing the brand name requested should include product literature and other evidence that will demonstrate to the purchaser that it would be getting an equivalent to the brand name product.
The VPPA uses the term “responsible” as a catch-all for the intangible qualities of a potential vendor. Officially, the purchasing agency needs only make a determination of responsibility in a competitive bidding situation. However, the same factors that determine responsibility in the competitive bidding likely also will be discussed by a panel determining the “best” proposal in a competitive negotiation situation. Further, these factors will probably also be, in one form or another, on the minds of agency personnel making non-competitive procurements. As such, businesses that want to be vendors to state and local government should ensure that they are responsible vendors with respect to the particular contracts they are seeking.
Ultimately, responsible vendors are those that select contracting opportunities that match their business’s abilities. Each purchasing agency’s purchasing rules define what factors it considers in making a responsibility determination. Fairfax County’s ten-factor list is illustrative. The factors center on whether (a) the business is capable of performing the contract and (b) the business has demonstrated that it can be trusted to perform in good faith.
1. The ability, capacity and skill of the bidder to perform the contract or provide the service required;
2. Whether the bidder can perform the contract or provide the service promptly, or within the time specified, without delay or interference;
3. The character, integrity, reputation, judgment, experience and efficiency of the bidder;
4. The quality of performance of previous contracts or services;
5. The previous and existing compliance by the bidder with laws and ordinances relating to the contract or services;
6. The sufficiency of the financial resources and ability of the bidder to perform the contract or provide the service;
7. The quality, availability and adaptability of the goods or services to the particular use required;
8. The ability of the bidder to provide future maintenance and service for the use of the subject of the contract;
9. Whether the bidder is in arrears to the County on debt or contract or is a defaulter on surety to the County or whether the bidder’s County taxes or assessments are delinquent; and
10. Such other information as may be secured by the County Purchasing Agent having a bearing on the decision to award the contract.
State and local government contracts come with more strings attached than do contracts with private entities. This section details some of the key differences, including (1) increased oversight of compliance issue, (2) restrictions on making changes to bids or proposals, (3) mandatory administrative procedures for the appeal of purchasing agents’ decision, and (4) mandatory administrative procedures for resolution of disputes related to contract performance.
Because the state and local government do not want to give money to businesses that are not adhering to state and local public policies-especially tax laws-businesses that receive procurement dollars come under particular scrutiny from the relevant enforcement authorities. Businesses that make bids or offers for government contracts should expect to certify their compliance with Virginia state and local taxes-including local business licenses-and their compliance with federal immigration laws. For larger contracts, a business may also be required to certify that its hiring practices are non-discriminatory. Certain contracts also carry a requirement that the business certify a drug-free workplace.
These oversight requirements are magnified if a contract is funded by federal government grants, because the business then must comply both with the VPPA’s specific compliance requirements but also with the compliance requirements that Congress included with the grant. For example, construction projects funded with federal dollars may require certification that workers are being paid a “prevailing wage.” For this reason, potential bidders and offerors should carefully determine whether the contract they are examining comes with federal oversight.
The VPPA also contains stringent anti-bribery provisions, and businesses must be careful to heed those rules. In particular, businesses should avoid any significant gifts or other inducements to individuals who are making the contracting decisions for the government.
One additional restriction to be aware of: your marketing materials cannot suggest that the state or local government endorses your product or service. Be aware of this rule when designing your advertising after you obtain a contract.
Businesses should expect that they will be held to the bid or offer they make to the government. In general, a business may withdraw its bid or offer at will before the deadline for submitting the bid or offer but may not withdraw its bid or offer once the deadline has passed.
The general rule has limited exceptions, such as an error totaling numbers on a construction contract bid. But a business’s regret of an intentionally low-balled offer is not an exception. For this reason, the business should be certain of its bid or offer before it submits it to the government.
A government purchaser has more remedies for a dispute against a vendor than does a private sector purchaser. As with private sector contracts, the government can sue the vendor for contract-related damages if it believes that the vendor breached the contract. But the government also has the administrative remedy of suspending the vendor’s right-and the vendor’s owner’s right-to participate in government procurement. The government may even permanently debar a vendor or individual.
With regard to identifying contract-related damages, contracts under the VPPA allow the purchasing agency to audit the books of the vendor for three years after completion of the contract. Nearly all private sector contracts would require both parties to go to court before they could have access to the other party’s books.
For contract performance-related issues, vendors have many of the same remedies against the government purchaser that they would have against a private sector purchaser, but the vendor must meet notice requirements before it may pursue contract damages.
First, a vendor must notify the purchaser if it has a claim for money or other relief related to its performance on a contract. The vendor should try to resolve any dispute amicably. If those efforts fail, the vendor must send a detailed description of the claim to the relevant purchasing agent. The purchasing agent then makes a decision on the claim within 30 days. If the purchasing agent rejects the claim, the vendor may appeal that decision to the circuit court within six months.
Vendors also have remedies available under the VPPA that are not available in private sector contracts. These remedies primarily are focused on the decision of the individual or board making the final contracting decision.
A vendor may appeal the contracting officer’s determination that the vendor is not a responsible bidder, that the vendor is suspended or debarred, and/or that the vendor may not withdraw a bid or offer. A vendor who is not awarded a particular contract may also protest the contracting officer’s award of the contract to another vendor on grounds that required VPPA procedures were not followed or that the contracting officer improperly made the procurement on a non-competitive basis such as sole source or emergency.
Because the government wants to be able to start work quickly, these appeals generally must be made to the relevant circuit court within ten days of the decision to which the vendor objects. The odds are stacked against vendors in these appeals; the court will not reverse the contracting officer’s decision unless it finds that decision was arbitrary and capricious.
You can better position your business to take advantage of contracting opportunities with state and local government by knowing the basics of Virginia procurement law. Use eVA and your contacts with purchasing agencies to stay apprised of contracting opportunities. Respond to opportunities in a manner that presents your business as responsive and responsible by following directions and being capable of performing on the contract in good faith. Be aware of the particular ways that the parties must resolve conflicts let under the VPPA. With this knowledge in hand, you will open the door to the multi-billion dollar market for state and local government procurement in Virginia.
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Posted by Brandon Okes
Virginia Governor Bob McDonnell signed five bills into law yesterday that provide incentives to business located in or relocating to Virginia. He signed the bills at the Center for Innovative Technology and Northern Virginia Technology Council in Herndon. Four of the bills are of particular interest.
One bill grants an income tax deduction on capital gains related to investments made in science-based or bio-tech startups between July 1, 2010, and June 30, 2013, encouraging investments in those businesses.
Another provides for temporary (45-day) licensing of professionals from other states, easing the transition for licensed professionals who move to or expand into Virginia.
A third bill establishes a grant program that may ultimately provide $22 million to the Ignite Institute, a Fairfax County-based nonprofit engaging in molecular diagnostics and drug development.
A fourth bill broadens the eligibility rules for the Governor’s Development Opportunity Fund and the Virginia Economic Development Incentive Grant, giving the governor more flexibility in tailoring incentives to lure growing businesses into Virginia.
The Washington Post has a writeup of the event, and the governor’s office has a press release detailing the new laws.
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Posted by Brandon Okes
For recent developments in the ever-important jurisprudence of hot chicken sandwiches, last month the Fourth Circuit reversed the U.S. District Court in Alexandria for granting summary judgment to McDonald’s and a McDonald’s franchisee for claims involving negligently prepared fast food:
In the Virginia case, Sutton, 62, of Brooksville, Fla., who assembles and repairs carnival rides, testified that he was with family and friends when he stopped at a McDonald’s at the Daniel Boone Truck Stop in Duffield, Va., at about 1:30 a.m. He said he had to flag down employees who were loitering outside to prepare his order.
When he bit into the sandwich, “grease flew all over his mouth,” according to friend Bill Giffon.
Sutton testified that his lips were blistered and bleeding the next morning. His wife testified that the burns made it difficult, if not impossible, for her to kiss her husband. Several months after the incident, a doctor treated Sutton with lip balm.
For these injuries, the plaintiff is seeking $2 million for lost wages, medical bills, and pain and suffering.
As an initial matter, the Fourth Circuit reversed the district court’s grant of dismissal to McDonald’s Corporation. In McDonalds’ motion to dismiss, it argued that the corporation had no agency relationship with the franchisee restaurant where the incident with the allegedly negligent chicken occurred, and that therefore only the franchisee was a proper defendant in the matter. McDonald’s motion was supported only by an affidavit from its general counsel — and with no franchise agreement attached to the motion. For this oversight and for the judge’s over-eagerness in dismissing the law suit, McDonald’s will pay by continuing to remain party to the suit. The Fourth Circuit found that summary judgment was improper as the plaintiff had not been able to obtain all the discovery he was entitled to seek and had tried to acquire, namely the franchise agreement between McDonald’s and the Franchisee.
Secondly, the Fourth Circuit reversed the district court’s finding that, as a matter of law, Sutton had failed to present any evidence of a standard of care. Sutton argued on appeal that the sub-dermal pocket of grease was in itself sufficient evidence, or, alternatively, that the evidence he presented had in fact established an applicable standard of care.
After noting that Sutton was not, as a matter of law, contributorily negligent merely for biting into a hot sandwich, the court denied his argument that the grease itself provided a prima facie case.
Although “[u]nder Virginia law, a plaintiff need not present evidence of a standard of care in an unwholesome foods case.” However, in order to show that the case he is presenting is in fact an unwholesome foods case, the plaintiff must show “that the food product contained foreign matter.” The court denied Sutton’s argument on this ground, cautioning that “a sub-dermal pocket of hot grease” is not foreign to a chicken sandwich. According to the Fourth Circuit,
Though [Plaintiff] is right that hot grease is a foreign substance to chicken generally, hot grease is necessary and expected (even desired) for fried chicken.
The court ultimately sided with Sutton, however, in finding that the plaintiff had presented sufficient evidence of a standard of care in the form of a reasonable consumer expectation. The standard of care was shown through two separate lines of evidence.
First, immediately following the accident, a McDonald’s employee had informed Sutton that “[t]his is what happens to the sandwiches when they aren’t drained completely.” The court found this constituted evidence of “actual industry practice.” Second, the court found that Sutton’s companions’ reactions to his injury, and their obvious alarm at the prospect of a chicken sandwich exploding with hot grease, was evidence of “what reasonable purchasers considered defective.”
The consumers did not expect Sutton’s fried chicken sandwich to contain a hot pocket of grease, and the [Franchisee's] employee’s statement serves as strong corroboration for the reasonableness of this expectation. These facts reveal “what society demand[s] or expect[s] from” a fast-food, fried chicken sandwich. Under Virginia law, this constitutes evidence of a standard of care.
2 Comments | Civil Litigation, Franchise Law | Tagged: Civil Litigation, negligence, torts | Permalink
Posted by Susan Simpson
The National Law Journal reports on the introduction of the “Incorporation Transparency and Law Enforcement Assistance Act” in the U.S. Senate, in which the federal government would require states to to collect information on who controls or benefits from a new company, and would provide federal penalties for any false information provided during a company’s creation. The bill is a reaction to the fear that out of the roughly two million companies created each year, a few are shell companies created to launder money and finance terrorist efforts.
Leave a Comment » | Corporate Law | Permalink
Posted by merrittgreen
For most, 2009 was a year to forget. The economic crunch was tough on businesses in this area, although Virginia has fared better than many other states. According to an article in today’s Washington Post, things are looking up for 2010: “Federal spending, the engine that drives the region, should fuel a slow but robust recovery that will materialize sooner here than in most other parts of the country, local economists say. Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University, forecast that the region’s economy will grow 2.8 percent in 2010 and 4.0 percent in 2011. That would surpass projections for the U.S. economy to grow 2.2 percent in 2010 and 2.8 percent in 2011.” Not all is positive, however; unemployment may get worse before it gets better, and commercial real estate may hit new highs in vacancy rates.
Leave a Comment » | Corporate Law | Permalink
Posted by merrittgreen
The most recent edition of Virginia Lawyers Weekly has an article about a lawsuit filed by three yoga instructors seeking to prevent Virginia from being able to force those who teach yoga to have to be licensed in order to teach. The State Council of Higher Education for Virginia’s position is that all vocational instruction is required by law to be regulated, so accordingly the Council had plans, starting 2010, to require all yoga instructors to pay a $2,500 application fee for a license, plus $500 each year to renew the license, and require adherence to standards issued by the Arlington-based Yoga Alliance. The yoga instructors, members of a vocation not generally known for its profitability, argue that Virginia should not be serving as the gatekeeper to yoga, much less bilking money out of the programs.
Many small business owners are unaware that Virginia requires licensing for a wide variety of vocations. Businesses should check out the Virginia Department of Professional and Occupational Regulation to get current on the requirements. In particular, many contractors who began their business as nothing more than a truck, their tools, and their hands, are typically surprised to learn that they need a Class A, B, or C contractor’s license to so much as fix a windowsill in Virginia. Failure to do so can result in criminal penalties as well as headaches on the civil side if your customer refuses to pay you. Contact James N. Markels to learn more.
Leave a Comment » | Administrative Law, Corporate Law | Permalink
Posted by merrittgreen
A big part of the Sarbanes-Oxley Act was its creation of the Public Company Accounting Oversight Board that would help regulate accounting companies in the wake of Enron and WorldCom. The Board is part of the Executive Branch, subject to oversight from the Securities and Exchanges Commission. The SEC appoints the five-member Board (while the President appoints the SEC), and Board members are subject to removal only “for cause,” and not for policy positions. But all Executive branch entities must be subject to the President’s power, so the question becomes whether the Board’s subjugation to the SEC is enough to make it constitutionally beholden to presidential authority. Yesterday, the U.S. Supreme Court heard argument in Free Enterprise Fund v. Public Company Accounting Oversight Board, in which the petitioners argued that the Board was unconstitutional because the President lacked sufficient power and authority over the Board.
Interestingly, Court-watchers seemed to be of two minds on how argument went. Tony Mauro of the National Law Journal thought the Court would likely uphold the Board, while Lyle Denniston of SCOTUSBlog saw some significant concessions made by defenders of the Board, such as the fact that the President could not directly remove any Board member, but would have to ask the SEC, pretty-please, to do it. Justice Antonin Scalia then said that he himself could do as much, thus implying that the President had no more authority than a Justice over the Board.
Whether the Board survives constitutional challenge will lie in whether the Court views the question as between how much influence the SEC has over the Board, or how much influence the President has over the Board. Those Justices that see the SEC as a suitable proxy for the President will likely uphold the Board, while those Justices that demand direct presidential oversight will likely vote to strike it down. From Denniston’s view of oral argument, it seems as though the Court eventually started asking questions from the latter view, and that bodes well for the petitioner.
Leave a Comment » | Appellate Law, Corporate Law | Permalink
Posted by merrittgreen
This article from Law.com’s Corporate Counsel states, “Companies are successfully pushing their outside counsel to abandon the billable hour,” citing a survey of corporate counsel in which 39 percent reported paying “more money this year under alternative fee arrangements than they did in 2008.” The article goes on to conclude “that the legal profession is finally moving away from the billable hour — for good.”
But as Mark Twain might say, reports of the billable hour’s death appear greatly exaggerated. While alternative fee arrangements may be gaining in popularity, they are still a drop in the bucket next to the billable hour. As the article notes, 69 percent of those in-house counsel attorneys surveyed “said that 10 percent or less of their total spending on outside counsel was done off the clock in 2009,” with only 6 percent reporting that “more than half of their spending on law firms was done under alternative fee arrangements.”
Leave a Comment » | Corporate Law | Permalink
Posted by merrittgreen
In another indication that the relationship between corporations and their outside counsel is changing, an article in the Virginia Lawyers Weekly investigates a new website hosted by the Association of Corporate Counsel that lets in-house counsel rate their outside law firms. Cost concerns are a driving factor, as well as the ability of law firms to work within a budget. Law firms that prided themselves on their size, scope, and expertise may find themselves dinged if they aren’t responsive to corporate counsel concerns.
Naturally, some law firms are worried about this, especially since the ratings will be hidden from non-members, at least for now. This article in the ABA Journal reflects the potential uncertainty of such rankings. However, this site may be an important tool in encouraging corporate law firms to better meet the expectations of in-house counsel.
Leave a Comment » | Corporate Law | Permalink
Posted by merrittgreen
In oral arguments for Hertz, Inc. v. Friend, a majority of justices on the U.S. Supreme Court appeared to favor using a company’s headquarters as its “principal place of business” for the purposes of determining where a company resides, and rejecting the 9th Circuit’s approach that considered where the company does the most business, according to this article by the National Law Journal. Justice Ginsburg noted that under the 9th Circuit’s test, “California is going to be the big winner in this. It’s going to be able to keep all those cases in its state court because so many multistate corporations, I would imagine, would come out, just the way Hertz does[, and do more business in California than in any other state].” In other words, simply by being a big state with a lot of people it means that corporations will tend to do more business in California, and thus be stuck in California’s plaintiff-friendly state courts when sued there under the 9th Circuit’s test. That seemed to not sit well with the justices. In a follow-up question by Chief Justice Roberts, he asked counsel for the trial court plaintiffs where Seattle-based Starbucks’ principal place of business would be under the 9th Circuit’s test. The answer: California. “That’s a surprise,” retorted Justice Scalia.
Leave a Comment » | Appellate Law, Corporate Law | Permalink
Posted by merrittgreen
The Internet has made it easier than ever for disgruntled consumers and employees to vent their opinions online, whether by creating their own website like www.[name of company]sucks.com or using a site like Ripoff Report. Often these critics choose to remain anonymous. Naturally, companies don’t tend to like this kind of attention, and frequently ask us what can be done about it.
A new article in the New York Law Journal examines efforts by businesses to sue the posters and the website hosts to quell such speech, and concludes that litigation is rarely the best answer. Even when a post might actually be legally defamatory, reaching out to the consumer/former employee or being more proactive in pushing the company’s message online may be better (and cheaper) solutions. Given that the Communications Decency Act has rendered Internet service providers immune from liability, and courts have generally declined to force those providers to disclose the identities of users that post critical or defamatory material, it may be just the cost of doing business today that company deal with some amount of online criticism.
UPDATE: Just to show that law firms are not immune to this problem, the New Jersey Law Journal reports that Levinson Axelrod has sued its former associate, Edward Heyburn, for creating and maintaining a gripe site aimed specifically at the law firm. Heyburn apparently did not take too well at being fired by the firm, and created the site to mock pretty much everything about his former employer, including the appearance of several partners. The firm has alleged claims of cybersquatting and unfair competition, among others, but has interestingly not alleged defamation. Heyburn has no intention of removing the gripe site, and reports a huge increase of traffic. This case may prove the limitations of litigation, but we will continue to monitor the matter.
3 Comments | Civil Litigation, Corporate Law | Permalink
Posted by merrittgreen
A new article in the National Law Journal, covering Association of Corporate Counsel’s annual meeting, details how in-house counsel are finding themselves dragged into litigation more often, either as fact witnesses or defendants. In one case, in-house counsel for World Health Alternatives, Inc. found himself as a defendant against claims that he breached his fiduciary duties to the company, wasted corporate assets, and professional negligence, among other claims, in an adversarial action that was part of the company’s bankruptcy. Even though the in-house counsel did not benefit personally from any of the alleged acts, the bankruptcy court allowed the claims to go forward, thus demonstrating that in-house counsel won’t always be shielded from personal liability. Those claims were ultimately settled.
In-house counsel have also found themselves being deposed more often regarding discovery issues like spoliation or destruction, especially if the company does not have an information technology department that can answer any questions about electronic data retention.
Leave a Comment » | Civil Litigation, Corporate Law | Permalink
Posted by merrittgreen
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