By: Ann Sullivan
If you’ve read any of my blogs on regulations, you know that
regulations are published on Regulations.gov. You also know that there is a process to take a proposed regulation all
the way to the final release. In case
you missed it, regulations are called “rules” in government speak.
In the past several months, SBA
has taken significant actions on contracting policy that affect small
government contractors. They are in
various stages—some proposed rules, some finalized. Since this has been difficult to keep track
of, below is a summary and status of the actions federal contractors should be
following. Most of our summaries have
been prepared by the law firm PilieroMazza because we couldn’t have said it
better.
1. SBA Adopts a Five-Year Calculation Instead of the Current Three-Year Size Calculation for Revenue Based Size Standards. Effective
January 6, 2020. Final Rule.
· This regulation implements a change in the law through
legislation known as the Small Business Runway Extension Act passed in 2018.
Key
changes to the HUBZone Program include:
· An
individual will continue to be treated as a HUBZone resident if that individual
worked for the firm and resided in a HUBZone at the time the concern was
certified or recertified as a HUBZone—even if the area where the individual
lives no longer qualifies as a HUBZone or the individual has moved to a
non-HUBZone area; HUBZone firms will only be required to certify on an annual
basis, meaning such concerns will no longer be required to expressly qualify as
a HUBZone at the time of each offer for a HUBZone contract and award; for
compliance purposes, HUBZone firms must maintain at least 20% HUBZone residents
as employees when performing on HUBZone contracts, or SBA will propose the firm
for decertification.
· HUBZone
firms have an affirmative duty to notify SBA if they fall below the 20% attempt
to maintain the standard; when a company buys an office located in a HUBZone or
enters into a long-term, 10-year lease for such office space, intending the
space to be its principal office, the concern will be able to meet the
principal office HUBZone criterion for a period of at least 10 years—even if at
some point after the property is purchased or leased, the office location no
longer qualifies as a HUBZone. The idea behind this rule is that the
HUBZone program should incentivize and reward companies that invest in
HUBZones.
3. Implementation of Changes Contained in FY2016 and FY2017 NDAA and the RISE Act. Effective December 30, 2019. Final Rule.
Subcontracting Plans
· Consistent
with the 2017 NDAA, the Rule provides that it will be a material breach of
contract when a contractor or subcontractor fails to comply in good faith with
its subcontracting plan requirements, including failing to provide reports
and/or cooperate in studies or surveys to determine the extent of
compliance. The Rule provides a number of examples of what constitutes a
failure to make “good faith” efforts, including, among others, (1) failing to
timely submit subcontracting reports and (2) failing to pay small business subcontractors
in accordance with the terms of the contract. According to SBA, the
examples set forth in the Rule are not intended to be inclusive and factors
beyond those identified in the Rule may be considered in determining whether
good faith efforts were made. The Rule also provides that failure to make a
good-faith effort may be considered in any past performance evaluation of the
contractor.
· With respect
to subcontracting plans, the Rule also requires other than small prime
contractors with commercial subcontracting plans to include indirect costs in
their subcontracting goals.
Small Business Contracting in Disaster Areas
· As provided
in the RISE Act, SBA is establishing contracting preferences for small business
concerns (“SBC”) located in disaster areas and will provide agencies with
double credit for awards to such concerns. SBA will use the existing
Federal Acquisition Regulation definitions to provide that an agency will
receive credit for an “emergency response contract” awarded to a “local firm”
that qualifies as an SBC under the applicable size standard for a “major
disaster or emergency area.”
· According to
the Rule, a concern is “located in a disaster area,” if, during the last twelve
months, it had its main operating office in the area and that office generated
at least half of the firm’s gross revenues and employed at least half of the
firm’s permanent employees. The Rule
provides a number of factors that SBA will consider if the firm does not meet
the foregoing criteria in order to determine whether the firm resides or
primarily does business in a disaster area.
NMR Size Standard Does Not Apply to ITVAR
Procurements
· The Rule
amends the NMR to expressly state that a firm may qualify as an SBC to provide
manufactured products or other supply items as a nonmanufacturer if, among
other things, it does not exceed 500 employees “(or 150 employees for the
Information Technology Value Added Reseller exception to NAICS Code 541519,
which is found at § 121.201, footnote 18)”. According to SBA, because
contractors under the ITVAR exception are non-manufacturers, it would make no
sense for SBA to retain a 150-employee size standard if concerns could also
qualify under the NMR 500-employee size standard.
Allowing a
Set-Aside Within a Set-Aside
· The Rule
provides contracting officers the authority to set aside orders for a
socio-economic small business program (e.g., 8(a), HUBZone, SDVO, WOSB) under a
multiple award contract (“MAC”) awarded as a generic small business set-aside. This is significant because although SBA has
considered implementing such a rule in the past, it has chosen not to, in part
because it was concerned that such a rule would unfairly deprive SBCs of an
opportunity to compete for orders issued under their MACs.
4. Mentor/Protégé, Joint Ventures and 8(a) Changes. Proposed
rule. Status: Public comment period
ends January 17, 2020.
Mentor-Protégé Programs
The proposed rule would:
· Merge the
8(a) Mentor-Protégé Program into the All Small Mentor-Protégé Program; clarify
eligibility criteria for proposed mentors and request comments on whether
mentors should be restricted to mid-sized firms; provide flexibility for
mentors with protégés with principle places of business in Puerto Rico; provide
relief from the two mentors over the life of a protégé rule; and; provide
generally that protégés should be performing work under the North American
Industry Classification System (NAICS) code used to qualify for the program.
Joint Ventures
The proposed rule would:
· Eliminate
joint venture approval requirements for competitive 8(a) contracts, but not
sole source awards; eliminate the “three in two” rule; disallow substitution of
joint venture partners who exceed the size standard for long-term contracts
prior to recertification; and allow joint ventures to be populated with FSOs
and provide guidance to agencies on when to allow joint ventures to bid on
contracts requiring a clearance.
Multiple-Award Contracts (MAC)
The proposed rule would:
· Require contracting
officers to assign the most appropriate single NAICS code to each order under
an MAC, whether for a supply or a service to ensure compliance with the
non-manufacturer rule, requiring that each NAICS code be included in the
underlying MAC; require an offeror to certify as to size and status in order to
qualify at the time it submits its initial offer including price for an order
under an UNRESTRICTED MAC, except for orders or BPAs
issued under an FSS contract; require that, where the socio-economic status is
first required at the order level, firms must qualify at that time; and permit
size and status protests where the underlying MAC was unrestricted, except for
BPAs and orders issued under an FSS schedule.
Certification
Self certification
· The proposed
rule would allow a prime to rely on the self-certification of its
subcontractor, provided the prime does not have a reason to doubt the
certification.
Recertification
· The proposed
rule would clarify that if a party to a joint venture becomes acquired or
merges, only that partner (and not the non-affected partner) must recertify in
order to qualify the joint venture to recertify; a firm that mergers between
proposal submission and award does not qualify for award if it could not or did
not recertify, though size protests are permitted; and tribal entities are not
required to recertify where ownership changes but the firm is owned to the same
extent (i.e. 51%) by the ultimate entity.
8(a) Program
The proposed rule would:
· Define
“follow on contract” for purposes of retaining requirements in the program; loosen
the prohibition on immediate family members owning 8(a) firms; allow for
certain changes of ownership to occur without prior SBA approval; clarify SBA
policy on voluntary withdrawals and early graduations from the program; and under
some circumstances, allow firms to seek and obtain a multiple contract waiver
from the sole-source restrictions for failure to comply with the business
activity targets where certain extenuating circumstances exist that apply to
multiple contracts.
Small Business Rules
The proposed rule would:
· Require that
mixed contracts include any combination of services, supplies, or construction though
construction was inadvertently omitted from the proposed rule; require
that contracting officers consider past performance of first-tier
subcontractors for certain bundled or consolidated contracts and for MACs over
a certain dollar threshold; clarify that affiliation may be found under the
newly organized concern rule where both former and current officers,
directors, principal stockholders, managing members, or key employees of one
company organize a new company in the same or a related industry; and request
comments on how the non-manufacturer rule should be applied to multiple item
procurements where one or more of the items are subject to a class waiver.
