SBA Seeks Comments on JV Facility Security Clearance Issue
As many small business government contractors know, forming a joint venture ("JV") can be a great way to compete for government contracts. Indeed, combining technical capabilities or past performance can unlock revenue not otherwise available to each JV member individually. Yet, with all of the upside, there are some issues that can hinder a JV's chances of success.
One area that can be particularly thorny is facility security clearances ("FCL"). For example, last July, GAO dismissed a protest challenging the agency's decision to eliminate the protester from competition for failing to obtain an interim or final FCL early in the procurement––and prior to award––despite all of the JV members, individually, holding the appropriate FCL. [1] As one can imagine, this has the potential to stop a procurement effort in its tracks. However, the Small Business Administration ("SBA") is aware of this issue and is looking for a solution.
On November 8, 2019, the SBA issued a proposed rule seeking comments on how to address the JV FCL issue in its final rule. Comments are due by January 17, 2020.
The SBA's proposed rule notes that
It has also been brought to SBA's attention that some procuring agencies will not award a contract requiring a facility security clearance to a joint venture if the joint venture itself does not have such clearance, even if both partners to the joint venture individually have such clearance. SBA does not believe that such a restriction is appropriate and seeks comments on how best to address that in a final rule. SBA is considering a provision which would require either the joint venture itself or the lead small business partner to the joint venture to have the required facility security clearance. If such a provision were finalized, a joint venture lacking its own separate facility security clearance could still be awarded a contract requiring such a clearance provided the lead small business partner to the joint venture had the required facility security clearance and committed to keep at its cleared facility all records relating to the contract awarded to the joint venture. Additionally, if it is established that the security portion of the contract requiring a facility security clearance is ancillary to the principal purpose of the procurement, SBA believes that the non-lead partner to the joint venture (which may include a large business mentor) could possess such clearance. SBA specifically requests comments on this possible provision as well as other recommendations regarding how best to address this perceived problem.
Though commendable, SBA's current idea may present challenges because it involves the clearances of individual JV members and not the JV itself. As GAO has noted, the National Industrial Security Program Operating Manual, or NISPOM, "does not contain an exception for unpopulated joint ventures even in instances where all of the members possess facility clearances." [2] That is, a JV must still obtain a FCL even where all of the JV members have FCL's. Indeed, the FCL Orientation Handbook makes clear that "[i]f a classified contract is awarded to the JV, the JV needs a Facility Clearance."
So, merely allowing for the lead small business partner to hold the FCL would likely be problematic. The same would likely be true for SBA's second suggestion. On first thought, this could be remedied if SBA convinces the Defense Counterintelligence and Security Agency ("DCSA") (formerly the Defense Security Service, or DSS) to carve out an exception for small business JV's. After all, under SBA regulations, small business JV's are of limited duration and must be unpopulated (i.e., there are no JV employees performing work under the contract). [3] Though, since SBA's interests may not align with DCSA's interests, this might not be a realistic solution.
Should DCSA decide to not create an exception for small business JV's, the solution may require some creativity. In that respect, the solution could involve the timing of when the JV receives a final FCL (not interim). For example, SBA's rule could involve delaying awards pending a final determination from DCSA granting the JV's FCL. In that situation, the question then becomes how long after a proposed award should DCSA have to complete the process? Five days? Ten days? Balancing each agency's interest in commencing performance with SBA's interest in protecting small business JV's and DCSA's interests related to ensuring that only cleared contractors have access to classified information will necessarily enter the calculus.
Regardless of the challenges ahead, it's great to see SBA take action as the FCL issue is one that has stymied small business JV's for quite some time. Ideally, the solution should provide some flexibility in allowing small business JV's to compete for awards without fear of being penalized for failing to obtain a FCL prior to the award decision.
It will be interesting to see how this unfolds.
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[1] See ProTech Services USA, LLC, B-41784, July 19, 2019, 2019 CPD ¶ 260 (determining that the JV protester failed to meet a material solicitation requirement requiring offerors to hold an interim or final FCL by a certain date prior to award despite all JV members holding the required FCL).
[2] See Management and Technical Services Alliance Joint Venture, B-416239, June 25, 2018, 2018 CPD ¶ 218 at 3.
[3] See 13 C.F.R. § 121.103(h).
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