WT Business Beat

By Nick Wakeman

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Nick Wakeman

Can a cloud contract be set aside for small businesses? Maybe not.

General Dynamics' IT business is taking a stand against a cloud contracting that the Centers of Medicaid and Medicare Services wants to set aside for small businesses only.

GDIT is the incumbent thanks to a string of acquisitions that go back a decade so, they want to keep the work. But their protest also raises some broader questions.

The company apparently is arguing CMS should not make the contract an SB set-aside because Small Business Administration rules require that 51 percent of the work be done by the small business primes.

In this case, there is no way a small business prime could do 51 percent of the work. By the contract's nature, the cloud infrastructure provider will capture the bulk of work and dollars whether it be Amazon Web Services or Microsoft.

That doesn’t mean that a small business prime can’t deliver value to the project through consulting, program management and other services.

I wrote about this 2016 when SBA updated its regulations to comply with the 2013 National Defense Authorization Act.

CMS could have avoided this by competing the contract on an unrestricted basis. The 51 percent rule doesn’t apply. Even if a large company like GDIT were to win, the bulk of the revenue still would flow to the cloud provider and not the prime. That isn't against the rules for full-and-open contracts.

GDIT declined to comment, but another source predicted this protest will not go to a full decision. CMS will likely pull back the solicitation and make adjustments.

The protest was filed April 21 and a decision is due July 30, unless there is that expected corrective action.

For the legal geeks out there, arguments about small business rules often fall under the categories of “limitation on subcontracting,” and “the non- manufacturer rule” or alternately the “manufacturer rule.”

The non-manufacturer rule could be what CMS argues because SBA has a waiver process in place and a list of products that currently have waivers. Cloud computing is not on the waiver list, but SBA does have a process to obtain individual waivers for specific contracts.

In theory, CMS could take a corrective action to request either a class waiver or individual waiver from SBA. We’ll have to wait and see.

But this about more than a single contract to me. A significant number of small businesses are in the partnership networks of AWS and Microsoft. If those small businesses have to meet the 51-percent requirement, then they’ll be locked out of the cloud business.

This one is worth paying attention to.

For the M&A geeks out there: GDIT filed the protest under CSRA LLC, and here is where a bit of GDIT’s genealogy comes into play.

The actual incumbent goes by the name Buccaneer Computer Systems and Service Inc. Vangent acquired Buccaneer in 2010, then General Dynamics acquired Vangent in 2011. GD acquired CSRA in 2018. I'm inferring that GDIT pulled together various parts of its IT business under the CSRA legal moniker.

It’s remarkable to me that the Buccaneer name has been novated out of existence over the last 10 years. I would think CSRA would on its way out as well, but that’s just me.

Posted by Nick Wakeman on Apr 28, 2020 at 9:41 AM

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