In a recent decision, the Government Accountability Office (GAO) sustained a protest challenging the terms of a solicitation because it required that a joint venture (JV) pursuing an Air Force contract hold a facility clearance (FCL), which is prohibited by the National Defense Authorization Act (NDAA) of 2020 and U.S. Small Business Administration (SBA) regulations.  This decision has significant implications for JVs pursuing classified contracts and underscores the value of protests as a useful procurement tool for government contractors.

  1. Background

As relevant background, in November 2020, the SBA enacted a number of significant rule changes, one of which states that a JV may be awarded a contract requiring an FCL where either the JV itself or the individual partner(s) to the JV has/have an FCL.  This rule makes sense because a JV is a limited-purpose, unpopulated entity that relies on the capabilities, past performance, experience, certifications, and business systems of its members.  Thus, SBA’s rules recognize that the small business JV lead is only required to have an FCL if having the FCL is necessary to perform the primary and vital requirements of the contract.  Otherwise, SBA’s rules state that an FCL is only required to be held by the JV member performing the cleared portion of the JV’s work.

This rule has been a welcome change for JVs because, under the prior regime, it was unclear whether a JV could rely on the FCLs of its members.  As a result, when a solicitation required an offeror to hold an FCL, many companies were left scrambling to obtain an FCL for a JV that had no employees and no contracting history—something which is not always easy to do.  While the new rule would seem to provide clarity, it has faced challenges.  This is because SBA does not manage the FCL process for the federal government.  That is done by the Defense Counterintelligence and Security Agency, which has indicated that it will not follow SBA’s new rule and will continue to require a JV to obtain an FCL when awarded a classified contract.  As a result, JVs continue to face a quandary when determining how to compete for set-aside contracts that require FCLs.  Thanks to GAO, some of this confusion may now be over.

  1. The Case Against Joint Venture Facility Clearances

The case at issue is InfoPoint LLC, B-419856 (Aug. 27, 2021).  In that case, InfoPoint, LLC (InfoPoint) filed a pre-award protest challenging the terms of a fair opportunity proposal request issued on April 22, 2021 requiring that an offeror, including a JV, possess a top secret FCL at the time of proposal submission.  In its protest, InfoPoint argued that the foregoing provision violates the Small Business Act and SBA regulations. SBA joined the protestor’s argument, and further contended that the new SBA rule on JV clearances, outlined above, is consistent with a provision in the 2020 NDAA, which states that “[a] clearance for access to a Department of Defense installation or facility may not be required for a joint venture if that joint venture is composed entirely of entities that are currently cleared for access to such installation or facility.”  GAO agreed with SBA and the protestor and sustained the protest.

In particular, GAO concluded that the 2020 NDAA prohibits the Department of Defense (DOD) from requiring that a JV hold an FCL if the members of the JV each hold the required FCL.  Moreover, GAO held that the new SBA rule discussed above is consistent with the 2020 NDAA.  In turn, GAO found that InfoPoint met the requirements for holding an FCL because both members of the JV held the top secret FCL required under the solicitation.   

Notably, in sustaining the protest, GAO rejected the Air Force’s arguments that (1) the 2020 NDAA does not prohibit the FCL provision in the solicitation because the agency has not yet issued regulations implementing this statute and (2) the term “may” in SBA’s new rule grants procuring agencies discretion to choose whether to require the JV, or the individual JV members, to hold the required FCLs.  While this decision confirms that DOD agencies are expressly prohibited from issuing solicitations that require a JV—rather than its members—to hold an FCL, it leaves several questions unanswered. 

  1. Unanswered Questions

First, InfoPoint leaves open the possibility that despite SBA’s regulations, an agency may be able to require that all members of a JV hold an FCL.  Indeed, while SBA’s rules permit a JV, in certain circumstances, to qualify for cleared work when neither the JV nor all of its members possess an FCL, the 2020 NDAA provision outlined in InfoPoint states only that a JV cannot be required to possess an FCL if all of its members possess an FCL.  GAO acknowledged this distinction in InfoPoint but chose not to address “at this time whether the SBA regulation . . . is inconsistent with the 2020 NDAA with regard to whether all members of the joint venture must have facility clearances.” 

Second, because the NDAA does not apply to non-DOD agencies—a fact highlighted by the Air Force in InfoPoint—it is unclear how this decision will impact solicitations issued by those agencies.  Consequently, we will be keeping an eye on both topics going forward and will be sure to provide updates.   

If you have any questions regarding this decision and how it may impact your company, please contact Sam Finnerty or a member of PilieroMazza’s Government Contracts Group.