Section 874 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2022 contains what is believed to be the first-ever federal government contracting program designed to specifically encourage and benefit businesses wholly owned through an Employee Stock Ownership Plan (ESOP). Key features of this proposed pilot program — which include sole-source follow-on awards — are discussed below.

Key Features

  • Qualified Business Wholly Owned Through an ESOP: The term “qualified business wholly owned through an Employee Stock Ownership Plan” means an S Corporation for which 100% of the outstanding stock is held through an ESOP.
  • Follow-on Contracts: With respect to a follow-on contract for the continued development, production, or provision of products or services that are the same as or substantially similar to the products or services procured by the DoD under a prior contract held by a qualified business wholly owned through an ESOP, the products or services to be procured under the follow-on contract may be procured by the DoD through procedures other than competitive procedures if the performance of the qualified business wholly owned through an ESOP on the prior contract was rated as satisfactory (or the equivalent) or better in the applicable past performance database.
  • Limitation: A qualified business wholly owned through an ESOP may have a single opportunity for award of a sole-source follow-on contract unless a senior contracting official approves a waiver of the requirement.
  • Verification and Reporting: The secretary of defense is directed to establish procedures under such a pilot program (1) for businesses to verify status as a qualified business wholly owned through an ESOP; (2) for a qualified business wholly owned through an ESOP to certify that not more than 50% of the amount paid under the contract will be expended on subcontracts, subject to such necessary and reasonable waivers as the secretary may prescribe; and (3) to record information on each of the follow-on contracts awarded under the pilot program.
  • Sunset: Any pilot program established under Section 874 “shall expire” five years after the date of the enactment of the FY 2022 NDAA.

Conclusion

If you have any questions about the new proposed ESOP pilot program or any related issues, please do not hesitate to contact Aron Beezley or Lisa Markman.

Bradley’s Government Contracts Practice Group Named Law360 ‘Practice Group of the Year’Bradley is pleased to announce that the firm’s Government Contracts Practice Group was recently named a 2021 Law360 Practice Group of the Year.

“This incredible recognition is the direct result of our group’s hard work and dedication; we could not be more grateful to our incredible clients, who entrust us with a broad array of complex, high-stakes matters,” said Bradley partner and Government Contracts Practice Group co-leader Aron Beezley.

Bradley is one of only six firms in the country to receive this prestigious honor.

To read the full press release, please visit the following link.

PPP Appeal Process OverviewIn 2022, there will inevitably be an uptick in the number of appeals of Small Business Administration (SBA) loan decisions in the Paycheck Protection Program (PPP) context. This is due simply to the passage of time, to the point where a significant number of PPP recipients have applied for or will be applying for forgiveness of their PPP loans — and, unfortunately, some of those recipients have received or will be receiving some form of adverse final determination from the SBA regarding forgiveness. Accordingly, this article provides a user-friendly overview of the PPP appeal process.

Types of Appeals

The SBA Office of Hearings and Appeals (OHA) has jurisdiction over appeals where the SBA has provided the borrower with a PPP final loan review decision, finding that the borrower is:

  1. Ineligible for a PPP loan;
  2. Ineligible for the PPP loan amount received or used the PPP loan proceeds for unauthorized uses;
  3. Ineligible for PPP loan forgiveness in the amount determined by the lender in its full approval or partial approval decision issued to the SBA; and/or
  4. Ineligible for PPP loan forgiveness in any amount when the lender has issued a full denial decision to the SBA. (13 C.F.R. § 134.1201(b))

However, a borrower cannot directly file with OHA an appeal of a decision made by a lender concerning a PPP loan.

Time Limits for Filing an Appeal

An appeal petition must be filed with OHA within 30 calendar days after the appellant’s receipt of the final SBA loan review decision.

Where to File

Appeals must be filed by using the OHA Case Portal.

Deferment Pending Appeal

A timely appeal by a PPP borrower of a final SBA loan review decision extends the deferment period of the PPP loan until a final decision is issued under 13 C.F.R. § 134.1211. The appellant must provide their lender with a copy of the timely appeal petition upon filing in order for the lender to extend the deferment period of the PPP loan until a final decision is issued.

Who May File an Appeal?

Only the borrower on a loan, or its legal successor in interest, for which the SBA has issued a final SBA loan review decision that makes a finding in 13 C.F.R. § 134.1201(b)(1) through (4) has standing to appeal the final SBA loan review decision to OHA. Lenders and individual owners of a borrower entity do not have standing to appeal a final SBA loan review decision.

Appeal Contents

The appeal petition must include the following information:

  1. A copy of the final SBA loan review decision that is being appealed and the date it was received by the borrower. A Notice of Paycheck Protection Program Forgiveness Payment does not provide a borrower with a right to appeal to OHA.
  2. A full and specific statement as to why the final SBA loan review decision is alleged to be erroneous, together with all factual information and legal arguments supporting the allegations. There is no required format for an appeal petition. However, the appeal petition must meet the following requirements:
    1. The maximum length of an appeal petition (not including attachments) is 20 pages. A table of authorities is required only for petitions citing more than 20 cases, regulations, or statutes.
    2. Exhibits and attachments must be clearly labeled.
    3. The name, address, telephone number, email address, and signature of the appellant or its attorney must be included.

An appeal petition that does not contain all of this information may be dismissed, with or without prejudice, at the judge’s own initiative, or upon motion by the SBA. If an appeal is dismissed with prejudice, a borrower generally will not be able to refile.

Notice and Order

Once an appeal is received, an OHA judge will be assigned the matter and issue a Notice and Order establishing the dates and deadlines for the proceeding utilizing the OHA Case Portal.

Administrative Record and Evidence Beyond the Record

The SBA is responsible for producing the administrative record within 20 calendar days after issuance of the Notice and Order. This record must include all non-privileged, relevant documents that the SBA considered in making its final loan review decision or that were before the SBA at the time of the final loan review decision. The SBA is not required to produce all documents pertaining to the appellant borrower and may claim privilege over and withhold certain materials.

If the appellant believes documents are missing from the administrative record, or disagrees about claims of privilege, it may file an objection within 30 calendar days after the issuance of the Notice and Order.

Evidence beyond the written administrative record is generally impermissible. Neither discovery nor oral hearings are permitted in appeals from final SBA loan review decisions. All loan review appeals must be decided solely on a review of the administrative record, the appeal petition, any response, any reply or supplemental pleading, and filings related to objection to the administrative record.

Confidential Information

The regulations contemplate that confidential and proprietary information submitted as part of the appeal is exempt from public disclosure under the Freedom of Information Act (FOIA). Either the SBA or the appellant may seek a protective order to ensure protection and non-disclosure.

Response to Appeal Petition

Only the SBA may respond to an appeal. The SBA response must be timely filed within 45 calendar days from the issuance of the Notice and Order and set for the relevant facts and legal arguments in response to the issues presented on appeal. An appellant reply to SBA’s response is not permitted unless the OHA judge directs otherwise, so it is very important for the appellant’s initial appeal brief to be complete and persuasive.

Standard of Review

The appellant bears the burden of proof, and the standard of review is whether the final SBA loan review decision was based on clear error of fact or law.

Decision on Appeal

The OHA judge will issue an initial decision on the appeal within 45 calendar days after the close of the record, as practicable. Either the SBA or the appellant may either (1) request reconsideration, or (2) request a review by the administrator. If a request for reconsideration or review is not made within 30 calendar days, the initial decision becomes a final decision.

A request for reconsideration must be filed within 10 calendar days after service of the written decision and must clearly show an error of fact or law. A request for review by the administrator must be filed within 30 calendar days after service of an initial decision or a reconsidered initial decision. Final decisions may be appealed to the appropriate federal district court only.

Effects of the Decision

OHA may affirm, reverse, or remand an SBA loan review decision. If remanded back to the SBA for a new loan decision, OHA no longer has jurisdiction over the matter unless a new appeal is filed as a result of a new SBA loan review decision.

Conclusion

It is our hope that the foregoing overview makes the PPP appeal process less confusing and intimidating for PPP borrowers. It is important to note, however, that the SBA’s rules and regulations contain additional requirements beyond the primary requirements discussed above. Accordingly, it is important for borrowers to consult with legal counsel well in advance of initiating a PPP appeal before OHA.

If you have any questions about the PPP appeal process, please do not hesitate to contact Aron Beezley or Nathaniel Greeson.