New Legislation Prohibiting Use of Experience Modification Factor For Contractor Eligibility

One of the new legislative changes that goes into effect in Virginia on July 1, 2016 is a prohibition against using any experience modification factor as a condition of any bidder's or offeror's eligibility to participate in a solicitation for construction. Interestingly, while the prohibition was added to the Virginia Public Procurement Act (VPPA), the language in the act expands application to both VPPA and non-VPPA offers to contract issued on or after July 1, 2016. As defined in the adopted bill, "experience modification factor" is defined as "a value assigned to an employer as determined by a rate service organization in accordance with its uniform experience rating plan required to be filed pursuant to subsection D of [Virginia Code Section] 38.2-1913."

Virginia Supreme Court Confirms Employee Firings on the Spot

My law partner Anne Bibeau, who focuses her law practice on employment and labor law matters, provided this summary of the Virginia Supreme Court's recent decision in the case of Johnson v. William E. Wood & Associates, Inc.:




In a recent opinion involving a fired realtor, the Virginia Supreme Court confirmed that at-will employees can be fired on the spot, without any prior notice to the employee. The decision was unanimous, and noted that while the firing notice “must be reasonable,” advance notice was not required because, among other things, that would be contrary to the flexibility at the heart of the at-will employment doctrine and undermine the indefinite duration which is implicitly an element of at-will employment.

In Virginia, unless the employer and employee agree otherwise, employment is “at will,” meaning that either the employer or employee may end the employment relationship at any time and for any (legal) reason, upon “reasonable notice.” The plaintiff in that case, Johnston v. William E. Wood & Associates, Inc., argued that “reasonable notice” meant advanced notice. The Virginia Supreme Court shot down that argument, holding that to be “reasonable,” notice of the termination need only be effective notice. In other words, the employer only has to make clear to the employee that the employment relationship has ended, so that the employee knows to stop work. Advance notice of the termination is not required unless the employer has promised to give advance notice or the federal WARN Act, which addresses mass layoffs and plant closings, applies.

The court’s decision was not a change in the law, but blocked a determined effort by plaintiffs’ attorneys to chip away at the at-will employment doctrine, which is already circumscribed by other laws limiting the reasons for employment termination. As before, employers need to be mindful that their employee policies, handbooks, offer letters, and other communications with their employees—both written and oral—do not promise or imply that the employment relationship will last for a particular period, or that the employee will only be fired for cause or after advanced notice. Employers should consult with an employment attorney about whether to require employees give advance notice of resignation. The best practice is to emphasize that the employment is at-will and can end at any time and for any reason.

SBA Issues Final Rule Regarding Affiliation, Calculation of Annual Receipts, Limitations on Subcontracting, and Joint Ventures

In its Final Rule issued May 31, 2016, the Small Business Administration issued rules implementing the 2013 National Defense Authorization Act. The Final Rule has a myriad of aspects applicable to awards in various small business programs, and this short summary is not intended to address them all; but rather instead this summarizes some of the provisions regarding affiliation, calculation of annual receipts, limitations on subcontracting and joint ventures.

Affiliation:
The Final Rule expressly allows certain arrangements without establishing affiliation, while precluding others subject to rebuttable presumptions; including:

• Small Business Teaming Arrangements are allowable without regard to affiliation for “bundled contracts” so long as each team member is small for the size standard assigned to the contract or subcontract.
• Firms owned or controlled by married couples, parties to a civil union, parents, children, and siblings are presumed affiliated if they conduct business with each other or share or provide loans, resources, equipment, locations, or employees; although the presumption can be overcome by showing clear lines of fracture between the concerns.
• SBA may presume identity of interest based on economic dependence if 70% or more of receipts over the previous 3 fiscal years are derived from another concern; although
• the presumption is rebuttable by showing lack of sole dependence; and
• business concerns owned and controlled by an Indian Tribe, ANC, NHO, CDC, or wholly owned entities of an Indian Tribe, ANC, NHO, or CDS, are not considered affiliated by another concern owned by that entity based solely on the contractual relationship between the two concerns.

Calculation of Annual Receipts:
The Final Rule defines how SBA will calculate annual receipts when determining size. In short, receipts include all revenue (including passive income) from whatever source received or accrued; generally meaning the concern's total income (or gross income for sole proprietorships) plus the cost of goods sold as defined and reported to the IRS. Exclusions are identified in the Final Rule.

Limitations on Subcontracting:
Compliance is now determined by a percentage cap on the total amount of the prime contract paid to first tier subcontractors that are not “similarly situated” entities, instead of the previous limitation based on  costs. A similarly situated entity is a small business that participates in the same SBA program that qualified the prime contractor as an eligible offeror.

There is no requirement to apply the prime contract NAICs code to subcontracts. Instead, the prime contractor assigns the code applicable to the scope of work on each subcontract. The percentage limits set by statute are:

• 85% for general construction contracts;
• 75% for specialty trade construction contracts; and
• 50% for service and supply contracts.

The method for calculating compliance with the limitations is complex, depends on whether the contract is for construction, supplies or services, or mixed supplies and services. Among other things, the cost of materials is typically not included, and there are exceptions when “nonmanufacturers” supply the product of a domestic small business manufacturer or processor.

While work done by a similarly situated first tier subcontractor does not count toward the limitations, any work that a similarly situated subcontractor further subcontracts will count towards the limitation.

Joint Ventures: 
The Final Rule allows a joint venture to qualify as small for any government procurement when each partner to the joint venture qualifies individually as small under the size standard corresponding to the NAICS code assigned by the government in the solicitation.

Recertification:
Under this Final Rule, when an acquisition or merger occurs after the offer date but prior to award the offeror must recertify its size to the contracting officer prior to award.

This article is for educational purposes only and is not intended as legal advice. For more information about this or other construction or government contracts topics, please contact the authors of this article, Neil Lowenstein and Mike Sterling, or any of the other members of the Vandeventer Black Construction and Public Contracts Law Team at www.vanblacklaw.com.