GSA Hosts Inaugural Meeting of Committee to Advise High Level Acquisition Changes

By Samantha Holt | Government Relations Analyst

Last month, the General Services Administration (GSA) held its inaugural meeting of the Acquisition Policy Federal Advisory Committee (GAP FAC). The GAP FAC advises GSA’s Administrator on how the agency’s acquisitions tools and authorities can drive positive regulatory, policy, and process changes. There are three things government contractors should take away from this meeting:

 

1.     While GAP FAC identified climate and sustainability federal acquisition issues as the initial focus, many committee members brought up challenges faced by small business contractors. The Small Business Administration’s (SBA) Deputy Associate Administrator of the Office of Government Contracting and Business Development, Antonio Doss, is part of the Committee and drove this discussion. Some of the issues identified were:

• Focusing on GSA schedule barriers of entry for small, disadvantaged businesses (SDBs)

• Creating policies that tackle the climate and sustainability issues but do not create new barriers for SDBs

• Constructing teaming framework that make it easier for small businesses to bid and win large contract opportunities

• Introducing strategies that support the longevity of small businesses within federal procurement

• Creating resources to support small, disadvantaged businesses with the climate and sustainability federal acquisition regulatory, policy, and process changes

 

2.     GSA expressed its willingness to support pushing these and other small business changes with the Federal Acquisition Regulatory (FAR) Council. This is important for the small business community because there are often significant lag times between SBA final rulemaking and implementation of these changes in the FAR. 

 

3.     All GAP FAC full committee and subcommittee meetings are open to the public. Written comments can be submitted at gapfac@gsa.gov. Additionally, there are three subcommittees – Policy and Practices, Industry Partnerships, and Acquisition Workforce. While subcommittee meetings have not been announced, keep an eye out for them here.

 
The next GAP FAC meeting is on October 27, 2022 from 1pm – 4pm EST. 

Small Business Wins in the House's FY2022 National Defense Authorization Act Amendments

On September 23, the House passed H.R. 4350, the FY2022 National Defense Authorization Act (NDAA). Accompanying the 1,362 pages of legislation were  476 amendments offered by lawmakers. Included in the amendments were several wins for MSGI clients: HUBZone Contractors National Council, GovEvolve, and Montgomery County Chamber of Commerce (MCCC). These amendments are huge win for the small business community and are the result of months of advocacy. 

• Floor #352 - Transfers decisions for HUBZones to OHA. 
• Floor #314 – Clarifies that the HUBZone price preference applies to task orders. 
• Floor #365 – Raises sole source thresholds for all socioeconomic programs from $4/$7.5 to $8/$10 million (does not eliminate option years, this is total over the life of the contract). 
• Floor #26– Raises small business contracting goals. 
• Floor #186 – Creates category management exemptions for tier 0 contracts. 
• Floor #412 –Requires a company to update their small business status in SAM/notify KO’s if status changes within 2 days. 
• Floor #149–Adds cyber counseling capability to SBDCs. 
• Floor #337 – Requires DoD Report impact of CMMC on small businesses. 

Considering the ongoing hardships resulting from the COVID-19 pandemic, adoption of these changes would assist small businesses seeking to succeed in the federal marketplace. In October, MSGI pushed for these amendments to be included in the Senate’s version of the FY2022 NDAA by writing a letter to Senate Small Business Committee Chair, Ben Cardin of Maryland and Ranking Member, Rand Paul of Kentucky. The letter was supported by MSGI clients listed above, as well as the Women Veterans Business Coalition (WVBC), the Small and Emerging Contractors Advisory Forum (SECAF), the Women Construction Owners and Executives (WCOE), and hundreds of independent small businesses across the country. 

Read the Small Business Amendments Support Letter here. 

Access a detailed list of small business amendments in the House FY2022 NDAA here. 

Senate Passes Bipartisan PRICE Act, Legislation Supported by MSGI Clients GovEvolve, HUBZone Contractors National Council, the Montgomery County Chamber of Commerce, and the Women Veterans Business Coalition

Win for small business contractors today – a bipartisan bill that encourages interagency collaboration to utilize small business contractors has passed the Senate. The Promoting Rigorous and Innovative Cost Efficiencies for Federal Procurement and Acquisitions (PRICE) Act expands opportunities for small companies by requiring the Office of Management and Budget (OMB) to work with federal acquisition leaders to share best practices, including awarding more contracts to small businesses.

Reintroduced by Senators Gary Peters (D-MI), Chair of the Senate Homeland Security and Governmental Affairs Committee (HSGAC), and Joni Ernst (R-IA), MSGI clients GovEvolve, HUBZone Contractors National Council, the Montgomery County Chamber of Commerce, and the Women Veterans Business Coalition, supported this legislation. Client quotes in the HSGAC press release include: 

“Small business participation in the federal marketplace is key to ensuring a strong industrial base, however, small businesses find that agencies continue to be reluctant to utilize these programs,” said Michelle Burnett, Executive Director. HUBZone Contractors National Council. “The PRICE Act provides increased opportunities for HUBZone companies by encouraging the acquisition workforce to share innovative best practices to increase small business participation across the federal government.”

“Small IT companies are at the forefront of innovation, but often face barriers when selling to the federal government,” said Eminence Griffin, Executive Director, GovEvolve. “The PRICE Act addresses the need for modernizing the federal acquisition system and will be transformative for small business IT contractors around the country.”

Read the bill text here. Read the press release from the Senate Committee on Homeland Security and Governmental Affairs here. 

MSGI Clients Participate in House Small Business Roundtable to Discuss Supply Chain Issues in the Aftermath of COVID-19

Small businesses face increasing supply chain challenges due to the ongoing impacts of COVID-19. Highlighting this important issue, the bipartisan House Small Business Caucus held a roundtable with small business leaders to discuss their challenges and brainstorm solutions. 

MSGI clients Jackie Wilson, CEO of American Fashion Network; Chris Oliver, GovEvolve member and President of ID Technologies; Qin Li, CEO of Soliel LLC; and Rosemary Swierk, President of Direct Steel and Construction shared their experiences with Caucus Co-Chairs, Rep. Chris Pappas (D-NH) and Rep. Kevin Hern (R-OK). In addition, over 35 Congressional offices participated in the robust discussion. 

Issues of price increases, scarcity of raw materials, and intensified security risks were at the center of the discussion. Recommendations from the panel included adopting federal initiatives to buy products made in America, raising small business contracting sole source limits, establishing a NAICS code for IT resellers, and allowing price adjustments to federal contracts to accommodate the costs associated with price increases for goods and services.

We are grateful for the enthusiasm of the Co-Chairs to confront the challenges facing small businesses, and we look forward to continued collaboration in the future. 

MSGI Congressional Hearing Recap - House Small Business Committee Hearing "Innovation as a Catalyst for New Jobs: SBA’s Innovation Initiatives"

 MSGI Congressional Recap

Hearing Title: Innovation as a Catalyst for New Jobs: SBA’s Innovation Initiatives

Committee: House Small Business Committee, Subcommittee on Economic Growth, Tax, and Capital Access

Chair: Rep. Sharice Davids (D-KS)

Ranking Member: Rep. Dan Meuser (R-PA)

Date: July 14, 2021

Witnesses

Mr. E. LaVerne Epp
Executive Chair
KU Innovation Park
Testimony

Mr. Benjamin Robert Johnson
Chairman
Innovation Advocacy Council
Testimony

Dr. Gabriel R. Burks
Vice President and Head of Research and Development
FrostDefense Envirotech Inc.
Testimony 

Mr. Jeffrey Maguire
Managing Partner and Co-Founder
Clearly Clean Products, LLC
Testimony

Main Points of Discussion

Growth Accelerator Fund Challenge and Regional Innovation Clusters

• Chair Davids (D-KS) Questions:
• Dr. Burks, what was your experience participating in a growth accelerator? How did it impact your business long-term? 
• Response: It has been a tremendous experience, lots of professionals and resources available. They host events that are in line with early-stage development. We can interact with other companies to build relationships. 
• Mr. Johnson, from your perspective, you spend a decent amount of time talking about a robust regional ecosystem, is there anything else you would like to add?
• Response: Each region is unique, programs like regional innovation clusters allow regions to define what their strength is, it is not one size fits all. We can bring this to rural communities and better engage women and minorities that are left behind. 

Access to Capital

• Chair Davids (D-KS) Question:
• Mr. Epps, venture capital funding is centralized. What approach have you taken to address this challenge?
• Response: We try to cluster investors, like small cluster groups. However, a shortage of capital is a problem for us. An incentive for venture fund capital investment would be very helpful. 
• Rep. Newman (D-IL) Question: 
• Dr. Burks and Mr. Johnson, getting the right people in the right jobs is critical, what if we extended the Community Navigator Pilot Program? Where incubators and business groups could get funding to give companies expertise in specific areas. 
• Response from Dr. Burks: I think that kind of supplement would be tremendous.  
• Response from Mr. Johnson: I think that model is promising for people to connect with SBA resources. For us, the Regional Innovation Cluster was that hub. Bringing additional resources to the Regional Innovation Cluster program is a unique opportunity. 
• Rep. Chu (D-CA) Question:
• I have reintroduced the Investing in Main Street Act, H.R. 4256, that will allow a bank or federal savings association to invest up to 15% of their capital and surplus in SBICs. Mr. Epp, SBICs are backed by SBA and last year they made 1/4 of their investments to underserved businesses. What is the importance of private investment in startups and how can SBIC's help them grow and succeed?
• Response: Small company investors are always looking for match funding, they often don’t want to be the first in. This type of funding “opens the floodgates.” 
• Mr. Johnson, I have also introduced the PROGRESS Act, H.R. 2680, that will create two new tax incentives to address the disparity of women obtaining capital to start a business. Could you talk about how incentivizing third party investment into the smallest of businesses can improve their outcomes? 
• Response: We see the hurdles of hiring the first employee as the main challenge. Anything that can help bring on a hire is important. 
• Rep. Evans (D-PA) Question:
• Dr. Burks, access to capital is a persistent issue for entrepreneurs, particularly for black businesses and women. What types of funding have you used?
• Response: We have used the University of Illinois, the National Science Foundation (NSF) SBIR Program, the Illinois Incubator, and we have gotten investment from private vineyards. This has funded a multitude of things. 
• How does this work? 
• Response: The incubator recognized our idea as having potential. From there, you continue to grow and apply for other funding. If you get the NSF SBIR, you can use that funding to further develop your efforts. The incubator is supposed to give you the support you need so eventually you can leave and become a self-sustaining business.

Taxes and the Current Economy

• Ranking Member Meuser (R-PA) Questions:
• Mr. McGuire, The Tax Cuts and Jobs Act created a more competitive environment for small businesses, what would happen if it was repealed?
• Response: It will impact the amount of money we can reinvest into our expansion. If the tax rates increase, the amount of capital we will have will decrease because the money will go to taxes. 
• The bonus depreciation (which allows for full and immediate expensing of capital investments) is a particular concern to you. How was this advantageous to your company
• Response: We added 5 production lines to our facility, we were able to depreciate the costs against income taxes which allowed us to invest millions of dollars back into our lines and continue to grow our company. The only way to innovate is to have the resources to innovate. Without the tax cuts we would have stopped growing forward. 
• What are your thoughts on patents?
• Response: Patents for small business are very important for growth. 
• Dr. Burks, what is the biggest need for startup companies?
• Response: Biggest challenge is putting an initial team together, assistance early on is important. Also, having flexibility is important. 
• Rep. Young Kim (R-CA) Questions: 
• Mr. Johnson, what would a higher capital tax rate do to early-stage funding? 
• Response: We don’t often hear about tax issues from our entrepreneurs, we hear that they need support - connecting with capital and developing products. The policy environment needs to be two sided, a decrease in regulation as well as developing the entrepreneurial ecosystem.
• Mr. McGuire, would you agree that a higher capital tax rate would put our small businesses at a disadvantage?
• Response: The capital tax rate will affect investment in companies, but it won’t stop it. When you mess with capital gains you will impact small businesses negatively. 
• Mr. McGuire, how will increase in prices or inflation affect you?
• Response: We have seen 15 – 30% increase in raw material costs. 
• Rep. Van Duyne (R-TX) Questions:
• Mr. McGuire, do you think your company’s rapid growth would have been possible today? Is the economic environment today compared to before the pandemic less friendly to business innovation?
• Response: It was easier to hire before the pandemic - we are trying to deal with having the appropriate people. I don’t see the current situation getting better in the next 6 months.
• When you think about the tax proposals coming from this Administration, how would it affect small business capital at large?
• Response: It will be difficult, most small businesses are self-funded. You cannot build a business in an environment with tax increases. 
• Mr. Epp, without sacrificing waste, fraud, or abuse protections, how can we eliminate some of the paperwork for small businesses participating in the innovation programs?
• Response: The accelerator program lacks restrictions and paperwork, and it works very well, we need more of that.

MSGI Congressional Hearing Recap - House Small Business Committee Hearing "Jobs! Jobs! Jobs!"

MSGI Congressional Hearing Recap

Committee: Committee on Small Business Subcommittee on Innovation, Entrepreneurship, and
Workforce Development

Hearing Title: Jobs! Jobs! Jobs!

Subcommittee Chair: Representative Jason Crow (D-CO)

Ranking Member: Representative Young Kim (R-CA)

Date: June 30, 2021

Witnesses

Mr. John R. Dearie
President
Center for American Entrepreneurship
Testimony 

Dr. J.D. LaRock
President and Chief Executive Officer
Network for Teaching Entrepreneurship
Testimony 

Ms. Denyse Airheart
Business Pathways Director
Mi Casa Resource Center
Testimony 

Mr. Craig Etkin
President and Chief Executive Officer
Intelligence360
Testimony 

Main Issues Discussed

Reaching Underserved Communities

• Chair Crow (D-CO) Questions: 
• Ms. Airheart, what is the primary barrier that entrepreneurs face when starting a business
• Response: Systemic issues in the community. For example, the Latinx population want to work together, but there is a lack of leadership. We work to shepherd individuals through training, looking at access to capital. Many individuals in underserved areas do not see leaders who look like them. 
• Can you expand on "support ecosystems?” 
• Response: Yes, they can be modeled in different ways, such as peer to peer connection. Ultimately you want to see the stickiness: they can hire locally, invest locally, retain local talent. Support ecosystems build the steppingstones. We are looking for business not to leave distressed communities but reinvest in them. 
• Rep. Phillips (D-MN) Question:
• Only 3 urban areas in the country account for 80% of all venture capital investment: Silicon Valley, New York City, Boston. Mr. Dearie, what role can Congress play to help with distribution of this funding to areas that are starved of it?
• Response: We hear this problem at every roundtable. There is not an equitable distribution of venture capital funding. I suggest the provisions found in the New Business Preservation Act. It creates a program where public funds are matched with private dollars in a 1 to 1 match in heartland states. 
• Dr. LaRock, what specific steps can Congress take to inspire young people for entrepreneurship?
• Response: The foundational concepts of the Next Generation Entrepreneur Corps Act (NextGen). I also think that our education system, including high schools and middle schools, need to start integrating career exploration. There needs to be more funding for youth entrepreneurship. 
• Rep. Newman (D-IL) Question: 
• Mr. Dearie and Dr. LaRock, what are the top 3 issues that Congress can address?
• Response from Mr. Dearie: First, entrepreneurship remains white and male. As a pathway to economic empowerment, we need to place priority in making entrepreneurship more inclusive. Following that, access to capital and access to properly skilled people.
• Response from Dr. LaRock: Focus effort on disparities that exist, we must build in equity. I also believe that mentorship is vital, as well as opportunities in the education system, such as community colleges. 
• Rep. Bordeaux (D-GA) Question:
• Ms. Airheart, are there things that we could be doing to help with minority owned businesses better access programs?
• Response: Yes, we must create awareness of what is available. Funding for programs like the women’s business centers is critical because these programs are accessed by the new builders of the new America. 

Problems with Job Creation

• Ranking Member Kim (R-CA) Question: 
• There has been difficulty finding workers for jobs. Mr. Dearie, can you elaborate how we can increase worker’s skills and help them develop new ones?
• Response from Mr. Dearie: Access to skilled workers is equally as important as access to capital. The U.S. educational system is failing to produce sufficient workers. STEM education is important as is the great underused education system: community colleges. There needs to be more communication between businesses and educators. 
• Response from Dr. LaRock: Career and technical education is important.

Burdens on Entrepreneurs

• Chair Crow (D-CO) Question:
• Ms. Airheart, what barriers should we remove, and what would that look like? 
• Response: Many entrepreneurs must make the choice between going to college or starting a business because of student loan debt. Costs and lack of access to childcare are also incredibly challenging to women. Also, financial education: many people lack the skills and confidence to pursue capital investment.
• Rep. Garbarino (R-NY) Question: 
• Many of the businesses in my district have left because of bad infrastructure, Mr. Dearie, what do we start with?
• Response: Physical infrastructure is very important, but so is childcare. In WW2 we had a national childcare system because women were working, this led to a booming economy. 
• Mr. Etkin, costs of goods are high, what are we hearing about inflation from small businesses
• Response: It has been shocking to see the price differences on lumber and steel. Our timelines are disrupted, but this is a complex issue – not based only on one policy.
• Ranking Member Kim (R-CA) Question:
• How will sharply increasing taxes hinder small businesses from growing or hiring people?
• Response from Mr. Dearie: The broad consensus is that we need to invest more in infrastructure, but the tax issue we hear is on tax complexity rather than marginal rates. People struggle with the constant uncertainty. 
• Response from Mr. Etkin: I get feedback that now is not the time to handcuff business and job creators with taxes. We need to focus on critical infrastructure - when you move outside of that, you put into question the priority of bringing back jobs.
• Dr. LaRock, what price pressures would you like to see eliminated?
• Response: The proliferation of regulation. More than taxes, regulatory burdens, and administrative burdens. 

SBA Role in Reversing the Decline of Entrepreneurship

• Rep. Bordeaux (D-GA) Question:
• Mr. Dearie, can you elaborate on why the decline in entrepreneurship is happening?
• Response: The research shows the decline on new businesses is pervasive- happening in all 50 states, all but 50 metro areas, all industry sectors. We don’t understand why this is happening. 
• Chair Crow (D-CO) Question:
• Mr. Dearie, how is access to SBA capital better for entrepreneurs than access to traditional/commercial lenders? 
• Response: Banks are not the ideal source of capital for startups. Banks don’t want to damage the balance sheets. SBA bridges the gap between venture capital and angel investment type of funding and banks by assuming some of the risk.

MSGI Congressional Hearing Recap - House Small Business Committee Hearing "CMMC Implementation: What It Means for Small Businesses"

 MSGI Congressional Hearing Recap

Committee: House Small Business Committee, Subcommittee on Oversight, Investigations, and Regulations

Hearing Title: CMMC Implementation: What It Means for Small Businesses

Subcommittee Chair: Representative Dean Phillips (D-MN)

Ranking Member: Representative Beth Van Duyne (R-TX)

Date: June 24, 2021

Witnesses

Mr. Jonathan T. Williams
Partner
PilieroMazza PLLC
Testimony

Mr. Scott Singer
President
CyberNINES
Testimony 

Ms. Tina Wilson
Chief Executive Officer
T47 International, Inc.
Testimony 

Mr. Michael Dunbar
President
Ryzhka International LLC
*Testifying on behalf of the HUBZone Contractors National Council
Testimony 

Main Issues Discussed

Cost of CMMC Implementation

• Chair Phillips (D-MN) Questions:
• Mr. Williams, the cost of CMMC can be burdensome, how can we strike a balance with cost and protecting cybersecurity?
• Response: Keep as many small businesses as possible at Level 1. The businesses will have adequate protections but will avoid the costs of Level 3. We need a controlled approach where small businesses don’t have to take on Level 3 information.
• Are there funding streams to help small businesses?
• Response: I am not aware of any, but it is a great idea. Smaller firms cannot afford the investment up front. Existing mentor protégé programs work very well, mentors can help with CMMC.  
• Ms. Wilson, what is your experience with CMMC?
• Response: I learned about it when attending an industry day, I understand how it works in a broader perspective. T-47, my business, must secure a specialist because CMMC is very complex.  

Overlapping Requirements

• Ranking Member Van Duyne (R-TX) Question:
• Mr. Dunbar, do you believe the CMMC duplicates any standards that are already present?
• Response: Yes, it is built on an existing standard. The reason behind CMMC is there was no third-party assessment. Why create an existing standard? Why not add on the third-party assessment to an existing standard?
• Rep. Evans (D-PA) Question:
• Ms. Wilson, can you mention just a few other certifications you have to comply with?
• Response: We have invested in the ISO certifications, SBA’s annual 8(a) certification, WOSB certification, defense counterintelligence security certification. The CMMC process has been the most challenging because there is no transparency.

Lack of Transparent Information on CMMC

• Ranking Member Van Duyne (R-TX) Questions:
• Mr. Dunbar, where do you get the information on CMMC? How can we make it easier?
• Response: We get the information from LinkedIn. There is no consistent message or method coming from the Department of Defense (DOD). Even the CMMC FAQ page is not streamlined. 
• Is there a role for the SBA?
• Response: There should be a role for the SBA. I think the DOD has sidelined them in the same way that small businesses have been ignored.
• Mr. Singer, what is the penalty if a business doesn’t comply?
• Response: You are out of business with the DOD.
• Can you point to one or two things that would make understanding this easier for small businesses?
• Response from Mr. Singer: The prime contractors need to step up and play a bigger role, they have the resources and the teams to do so. There needs to be more support for the whole supply chain.
• Response from Ms. Wilson: To ensure that everyone has the same information there needs to be a concerted effort across all industries. 
• Response from Mr. Williams: Regarding the flow down of information, the prime contractor has a lot of power. The challenge is that the questions are not being answered on the main issues. 
• Response from Mr. Dunbar: A lot of small businesses work from home now. Small businesses will be subject to home inspections, the risk of this is incalculable. Small businesses need the ability to protect themselves. 
• Rep. Evans (D-PA) Question: 
• Mr. Dunbar, what is your recommendation to businesses just learning about CMMC?
• Response: I don’t have an answer. We are trying to find the information, which has not been clear.
• Response from Mr. Singer: It is important for companies to find reputable partners to help them through the process. I think Level 3 businesses, such as small manufactures, are just now starting to understand this. Businesses that qualify as Level 1's may not understand that CMMC will affect them yet.

Determining Levels for Small Businesses 

• Rep Evans (D-PA) Question: 
• Mr. Wilson, what would be the ideal way for small businesses to be taken care of?
• Response: Offer up costs to pay for Level 1 and Level 2 certifications. This way, DOD has some level of comfort. The other businesses can go out and secure other levels if needed. 
• Rep. Meuser (R-PA) Questions: 
• Mr. Dunbar, what is the DOD’s feedback on if Level 1 is satisfactory? What do they say about you, and suppliers like you, regarding Level 1?
• Response: Part of the problem is that we aren’t hearing a lot. We don’t know if we will we need to keep chasing technology as we go along. 
• What is the cost difference from Level 1 to Level 3?
• Response: 10 to 20-fold cost difference.
• How much more secure is Level 1 to Level 3?
• Response: From where I am currently, I am secure. 
• Rep. Hagedorn (R-MN) Question:
• Mr. Dunbar, wouldn’t it make more sense if the government imposed reasonable standards?
• Response: I agree, the key word is the definition of reasonable, DOD believes that these numbers are reasonable. My company has 6 people, this is not reasonable. 
• Chair Phillips (D-MN) Question:
• Mr. Singer, how likely is full CMMC implementation by 2026 when there is such a lack of assessors?
• Response: It will be very difficult to get there with the current progress of 100 provisional assessors and 2 C3PAOs. The timeline is very stretched, we need more than 8,000 assessment team members to make this happen. There needs to be flexibility for the third-party assessors. Not everyone needs to be at Level 3. There needs to be an understanding of risk to the supply chain. 
• Mr. Williams, how concerned are you that the CMMC initiative will be adopted by civilian agencies and become a baseline?
• Response: It is certainly a possibility. I would view what is happening at DOD as a trial.  

MSGI Congressional Hearing Recap - House Small Business Committee Hearing “Prioritizing Small Underserved and Rural Businesses in the SBIR/STTR Programs”

MSGI Congressional Hearing Recap

Committee: House Small Business Committee, Subcommittee on Underserved, Agricultural, and Rural Development 

Hearing Title: “Prioritizing Small Underserved and Rural Businesses in the SBIR/STTR Programs”

Subcommittee Chair: Jared Golden (D-ME)

Ranking Member: Jim Hagedorn (R-MN)

Date: June 23, 2021

Witnesses

Dr. Joshua A. Henry
President and Founder
GO Lab, Inc.
Testimony

Ms. Nancy Min
Founder
ecoLong
*Testifying on behalf of the Clean Energy Business Network (CEBN)
Testimony

Dr. Angelique Johnson
Founder and Chief Executive Officer
MEMStim LLC
Testimony

Dr. David Green
Chief Executive Officer
Physical Sciences Inc.
*Testifying on behalf of the New England Innovation Alliance (NEIA)
Testimony

Main Issues Discussed

Targeting SBIR/STTR to Rural and Underserved Communities

• Ranking Member Hagedorn (R-MN) Question:
• To all witnesses, I am concerned that these awards would be given based on preference on identity or race, like what we have seen with the Restaurant Revitalization Fund having a “priority group.” 
• Response from Dr. Johnson: The program needs to stay merit based. These are not research grants; they are small business research grants. The merit should come from impact on economy and environment. Provide more assistance on the front end, such as "Phase 0" programs that businesses can use to develop a prototype and be successful in Phase 1. 
• Chair Golden (D-ME) Questions: 
• Dr. Henry and Dr. Johnson, can you gauge the impact that SBIR/STTR funding has on rural and underserved communities?
• Response from Dr. Henry: Representation is an issue because rural communities have different values than big cities. The people reviewing these applications are viewing them with a "city" lens. They are looking at scientific merit rather than economic merit.
• Response from Dr. Johnson: There is no consideration of an applicant’s background when determining who will get the grant. We need to look at ways to widen the array of applicants.
• Dr. Johnson, how could the SBIR/STTR programs be better targeted to underserved communities?
• Response: They need to go beyond the academic population and partner with startup ecosystems like SBDC's. 

Difficulty of Grant Applications

• Chair Golden (D-ME) Question: 
• Dr. Henry, can you discuss the bureaucratic struggles of the SBIR application?
• Response: We found it to be the hardest of the federal grants to apply for, it varies across agencies and includes numerous addendums to the questions. Maine has full time consultants that work on this. There is no feedback from reviewers when a feedback is denied from consideration. 
• Rep. Tenney (R-NY) Question:
• Ms. Men, some businesses have trouble getting through the technical and bureaucratic process of the grant applications, should we provide additional technical assistance?
• Response: Yes, we have taken advantage of technical support services in other circumstances, it has been very useful. 
• Rep. Williams (R-TX) Questions: 
• Dr. Green, is there an agency that administers this program the best? How can others follow?
• Response: The Department of Defense (DOD) has a very effective program because it ties the SBIR to agency needs. Department of Energy (DOE) & the National Institute of Health (NIH) have very deep peer review processes, which is helpful. 
• Dr. Henry, could you elaborate on changes that could be made to streamline the application process without compromising security?
• Response: Process is unnecessary, we have won bigger awards with smaller applications.

Best Practices for Success in the Program

• Ranking Member Hagedorn (R-MN) Question:
• Dr. Green, can you explain how you have done well with the SBIR program? 
• Response: We look at all aspects of the problem and the best path to market. There are many stages, this often involves partnerships with other businesses.
• Rep. Tenney (R-NY) Question: 
• Dr. Green, what can New York do to ensure we get more SBIR/STTR grants?
• Response: It is essential for small businesses who are peers to come together and share best practices.
• Chair Golden (D-ME) Question:
• Dr. Green, how did you start your company in the 1970's?
• Response: We existed for a decade before there was SBIR, we supported the government through research and development contracts. We learned that it is better to partner with companies that can do things we can't.

Strengthening the SBIR/STTR Programs

• Rep. Stauber (R-MN) Question:
• Dr. Green, as we look toward reauthorization, what would you recommend we include or remove in these programs?
• Response: No more barriers that make the programs more difficult. I would urge the Congress to continue to make sure that award decisions are made in a timely manner and keep the programs merit based. 
• Ranking Member Hagedorn (R-MN) Question:
• To all witnesses, do you have comments on whether we need to do more to help people?
• Response from Dr. Green: 3% administrative funds are adequate, but they can be administered differently to target other populations. I also suggest reauthorizing the pilot programs and making them permanent. 

 

MSGI Congressional Hearing Recap - House Small Business Committee Hearing “Utilization of Small Contractors in the Infrastructure Plan”

 

MSGI Congressional Hearing Recap

Committee: House Small Business Committee, Subcommittee on Contracting and Infrastructure

Hearing Title: “Utilization of Small Contractors in the Infrastructure Plan”

Subcommittee Chair: Representative Kweisi Mfume (D-MD)

Ranking Member: Representative Maria Salazar (R-FL)

Date: June 10, 2021

Witnesses

Ms. Sheila Ohrenberg

National President, Women Construction Owners and Executives (WCOE)

President, Sorella Group

Testimony

Mr. Ralph Thomas III

Executive Director Emeritus, National Association of Minority Contractors (NAMC)

Attorney, Law Offices of Ralph C. Thomas III PLLC

Testimony

Mr. Josh Bone

Executive Director

ELECTRI International

Testimony

Dr. Annie Mecias-Murphy

Co-Owner & President

JA&M Developing Corp.

Testimony

Main Issues Discussed

Participation of Minority-Owned and Women-Owned Small Businesses 

• Chair Mfume (D-MD) Questions:
• Mr. Thomas, please detail your experience with Amtrak.
• Response: We were working through the Department of Transportation’s (DOT) DBE program on the project.  We performed within budget and on time, the goal was 15% actual action was 17%. The excuse of “we can't find minority businesses” no longer and should never apply.
• Mr. Boon, do recruitment strategies change based on the segment of the population you are trying to attract? How can we attract women and minorities more effectively?
• Response: We must use different methods. Women bring a lot of new skill sets, there are a lot of misconceptions that construction is male driven. We need to educate young girls that this industry is changing, such as shifting to off-site construction and is increasingly driven by technology.
• Mr. Thomas, what are the biggest obstacles that need to be addressed in the infrastructure bill to reach minorities?
• Response: We need a stronger approach to compliance and enforcement. The DOT has a 10% contracting goal for disadvantaged small businesses. However, 23/50 states do not comply or hit this goal, they ask for waivers. Organizations should be funded for the purpose of identifying small, disadvantaged contractors, since many people are unaware.  If Sole source threshold was higher, it would create more opportunities, smaller companies would like this.

Timely Payment to Contractors 

• Ranking Member Salazar (R-FL) Question: 
• Mr. Boon, I am concerned about delays in payments to subcontractors. Can you expand on your suggestion on getting paid on time?
• Response: Capital is king, small businesses have limited funds. When you are a subcontractor of a subcontractor of a subcontractor, it takes a long time to get money. I suggest expanded opportunities for these businesses to work directly with the large companies.
• Response from Dr. Macias-Murphy: Paid when paid clause, can be 60, 90, 120 days – very detrimental to small businesses who don’t have large reserves of money. Prompt payment is a theory rather than a reality. 
• Ranking Member Salazar (R-FL) Question: 
• Mr. Boon, how can Congress help? 
• Response: The paperwork, the bureaucratic part is the problematic – there needs to be a quicker way of going through the leaps and hurdles.

Project Labor Agreements (PLAs), the PRO Act, Unions

• Ranking Member Salazar (R-FL) Question: 
• Dr. Mecias- Murphy, explain the issue of favoring unionized workers over non-unionized workers. What would this look like?
• Response: It would completely take us out from being able to bid on these projects. 80% of the workforce is not part of a union, we would not qualify. 
• Chair Mfume (D-MD) Question: 
• Mr. Boon, can you talk about the importance of unions?
• Response: Electri is not affiliated with unions, but National Electrical Contractors Association (NECA) has no issues - we haven’t seen strikes. 
• Representative Meuser (R-PA) Question: 
• I am favorable to trades. Unions have great apprenticeship programs. However, PLAs are not inclusionary. This is the reason companies have issues with them. The PRO Act removes state rights, states should be able to determine such things on their own. Dr. Mecias-Murphy, how would the PRO Act effect your business?
• Response: The increase in taxes would be harmful. It would impact us financially in a huge way. There was a 3–4-month delay of projects during COVID, we went 4-6 months with no new projects. 
• Representative Newman (D-IL) Question: 
• More than 80% of the time when there is a PLA in place it is beneficial. PLAs require a very specific payment chronology on top of the federal law. PLAs don’t exclude non-unions; they just protect unions and promote safety. Dr. Mecias-Murphy, what are the top 3 things that frustrate you about PLAs?
• Response: First, PLA’s restrict businesses like a “merit-based company” if the certain provisions in the PLA aren’t in place. Second, is the issue of protesting. I will be the one who had to deal with the strikes from labor unions. Third, the increased cost for having unions on the jobs, I have seen this in Florida.

Tax Increases in the American Jobs Plan

• Ranking Member Salazar (R-FL) Question: 
• Dr. Mecias-Murphy, how did the Tax Cuts and Jobs Act help you?
• Response: We experienced a lot of cash flow; my employee was able to purchase their first home.

Labor Shortage & Workforce Development

• Representative Newman (D-IL) Question: 
• Mr. Thomas, can you share what would be helpful to you with workforce training and development?
• Response: We were happy to see more funds for workforce development projected in the American Jobs Plan, but the focus must be on diversity. There hasn’t been a move towards workforce development in DOT since 2017.
• Representative Hagedorn (R-MN) Question: 
• Labor shortage is a huge problem. We must encourage our Governors to forgo extra unemployment benefits – people need to be pushed into the workforce. I have introduced H.R. 2691, a bill that would permit 529 plans (tax advantage savings plan for saving for future education costs) to be used for certain non-degree technical training certificate programs and apprenticeship programs. Dr. Mecias -Murphy, how have you encouraged workforce development?
• Response: We have been able to go into Boys and Girls clubs and expose the students to our industry. We have seen that working with middle and high school students is very important, it exposes students to the future of work. From this effort, close to 40 students have been hired by one of our member companies.

Organizational Protesting

• Representative Stauber (R-MN) Question: 
• Currently there is a pipeline replacement project in Minnesota. This project will supply jobs for small contractors and should be celebrated. However, Democrats are bussing in protestors from large cities and disrupting the process. Dr. Mecias-Murphy, what are the dangers of protestors showing up? What would this do to your small businesses?
• Response: Safety is important to us. People don’t realize that a day of delay can be catastrophic. It can delay you two or four weeks sometimes. It also disrupts cash flow for small businesses -workers cannot go into work, then they cannot get paid. The Biden Administration has cancelled Keystone Pipeline project, ruining many small business contracting opportunities.

4 Takeaways on What Small Businesses Need from R&D

By Rebecca Pselos | MSGI Partner
President of Kite Tail Strategy 

This week the House Small Business Committee held a hearing on the Small Business Innovation and Research (SBIR) and Small Business Technology Transfer (STTR) programs.  These programs require reauthorization this year otherwise they expire in the fall.  Members and witnesses reinforced concerns that the U.S. is falling behind other countries when it comes to research and development and subsequent commercialization of new technologies.  SBIR/STTR provide a necessary path for the U.S. to support small businesses - our most innovative sector. The hearing highlighted four main recommendations for lawmakers to consider.  

1. Increase funding for small businesses. Less than 10 percent of federal research and development funding goes to small businesses; however, they are the most innovative sector.  Other countries, including the E.U. and China, are directing as much as 20 percent to small businesses.  In addition, other countries are targeting certain areas such as robotics, energy technology, and biomedical engineering.  Having SBIR/STTR prioritize funds for specifics areas has not occurred to date, but it may be time to do so to help the U.S. compete with other countries. 

2. More assistance for commercialization. Often referred to the Valley of Death, the transition from Phases 1 and 2 to commercialization (Phase 3) is challenging.  In theory, federal funding and venture capital complement each other - the first supporting research and the second supporting commercialization.  Venture capital requires a business to demonstrate commercial viability in order to justify an investment. A SBIR recipient has a difficult time demonstrating this when they finish Phase 1 and 2 making Phase 3 elusive for many. Again, this problem places the U.S. at a disadvantage compared to other countries that are assisting with commercialization.  Of note, Representative Houlahan referenced H.R. 652 - Research Advancing to Market Production (RAMP) for Innovators Act.  The bill provides commercialization services under the SBIR and STTR programs.

3. Support women-owned and minority-owned businesses. Minorities and women have a harder time accessing seed capital.  Women hold less than 20 percent of tech jobs and less than 5 percent of leadership positions in tech companies.  Part of this problem is that there is a significant funding gap from venture capital firms for women-owned businesses. 

4. Ease entry in the program, and make the program attractive.  Twenty-five percent of SBIR winners are new to the program.  This statistic generated several questions - how can the government encourage more businesses to partake in the program and should existing recipients be limited on the number of awards they can receive.  Witnesses strongly advocated for changes that address the fact that small businesses have limited resources and expertise to write award-winning application, even though they have extremely valuable ideas; manage the grants; and keep employees on payroll while they wait for Phase 2 funding, which can take up to 2 years.  Hurdles that make the program less attractive, especially when there is no guarantee of completing Phases 2 and 3.  Witnesses also explained why limiting the number of awards to individual businesses would be detrimental.

Senate Hearing Highlights Importance of Acquisition Workforce Training and Leveraging Small Businesses for Tech Contracts

By Rebecca Pselos | MSGI Partner 
President of Kite Tail Strategy 

This week the Subcommittee on Readiness, Senate Armed Services Committee held a hearing on acquisition reform to help inform the FY22 National Defense Authorization Act (NDAA). Witnesses were asked to comment on how to achieve a quicker acquisition system while reducing risks. Ms. Stacy Cummings performing the duties of Under Secretary of Defense for Acquisition and Sustainment (USD(A&S)), Department of Defense (DOD); Ms. Shelby Oakley, Director, Contracting and National Security Acquisitions, Government Accountability Office (GAO); and Dr. Raymond O’Toole, Acting Director, Operational Test and Evaluation, DOD (DOT&E) testified as the witnesses. 

Overall, the April 28th hearing highlighted 2021 procurement issues relevant to both defense and civilian agencies - quicker acquisitions, role of small businesses, emerging tech, and cybersecurity. In addition to DOD’s acquisition authorities and policy, the importance of traditional metrics of acquisitions success - cost and schedule - were mentioned. As were new factors to consider, such as value to the end-user and contribution to maintaining a competitive edge against U.S. competitors. DOD alluded to some authorities they’ll likely seek to change in this year’s NDAA - DoD’s Commercial Solutions Opening program and DOT&E authority. 

Ms. Cummings highlighted DoD’s Adaptive Acquisition Framework (AAF) as a recent reform to emphasize speed and agility. The framework established six acquisition pathways. Ms. Cummings added her office is working on improving data analytics to determine the success of the framework. GAO applauded the effort to measure success, but cautioned that the reform may be undermined if acquisitions are not based on sound business cases. Metrics should go beyond cost and schedule to include the value to the end user.    

Additionally, Ms. Cummings said that Defense Acquisition University (DAU) training will be revamped to align with the framework. Historically, the defense acquisition workforce has been taught a one-size fits all approach for acquisitions. The revised training will focus on different AAF pathways. I imagine DAU’s updated training will increase awareness of authorities benefiting non-traditional and small businesses and that awareness will spill over to civil agencies’ procurement shops.    

When asked about engaging with non-traditional and small businesses to leverage technology, Ms. Cummings provided two examples. DOD utilized recent contracting authorities to engage with these entities to respond to Covid-19. The authorities included Commercial Solutions Opening which accounted for roughly $7 billion in obligations related to the pandemic (just under half of the program’s total $16 billion in FY20 obligations). Under AAF, DOD has competed systems’ individual components among non-traditional and small businesses which then partner with Primes to integrate innovation.  

While GAO recognized that one of the key priorities of DOD’s new acquisition framework is to improve its ability to benefit from commercial innovation, GAO found the department has been challenged in developing and integrating innovative technologies into its weapon systems. GAO recommended DOD find the right balance of disruptive and incremental technology solutions and create an environment that attracts businesses that do not typically sell or develop solutions for DOD’s use. DOD will also need to address intellectual property and cybersecurity to fully take advantage of new technology. 

Dr. O’Toole agreed with GAO that focusing on incremental, open systems would allow DOD to speed up delivery for the warfighter. The approach would quickly field minimal viable capabilities which can be upgraded later. Moreover, the approach helps promote innovation and maintain a competitive edge against U.S. competitors. Dr. O’Toole went further to say the incremental approach needed to also be applied to testing. However, a larger concern he raised was cybersecurity. Of the programs DOT&E assessed in FY20, virally none were survivable against relevant cyber threats. 

Bipartisan Tone Continues in Guzman Nomination Hearing

By Eliza Joyner

The Senate Small Business Committee held the nomination hearing of Isabel Guzman last week to be the next Small Business Administration (SBA) Administrator. Guzman is no stranger to the SBA or small business ecosystem. She served as Senior Advisor and Deputy Chief of Staff during the Obama Administration and has since served as California’s Small Business Advocate. 

Committee Chair Ben Cardin (D-MD) began the hearing by highlighting the urgent need for strong leadership at the SBA. It is no secret that the SBA has played a monumental role in the fight against COVID-19. If confirmed, Guzman will be entering the agency during a pivotal time, as the SBA rolls out the second round of the Paycheck Protection Program (PPP) and additional Economic Injury Disaster Loan Program (EIDL) grants. As such a large undertaking, there was much controversy surrounding the first round of the PPP, primarily focused on the disparity of loan disbursement among minority communities and lack of data transparency from the SBA. In her testimony, Guzman assured the Committee that she would serve as a voice for all small businesses while championing diversity and support of minority businesses. 

There was a range of concerns raised by members of the Committee, but the persistent topic of discussion remained on how to better serve minority-owned small businesses. Chair Cardin and Senators Coons (D-DE) and Hirono (D-HI), reiterated the need for targeted outreach to minority communities through community-based lenders like CDFI’s, as well as financial education and technical training to make the programs more accessible. All members of the Committee appeared hopeful about the second round of the PPP and EIDL advances, many referencing newly added subsidies, such as the Shuttered Venue Operators Grants. These grants provide aid to small businesses in the entertainment industry that do not fit within the parameters of the PPP. Senators Shaheen (D-NH) and Ernst (R-IA) asked Guzman how she planned to get the program running, and how she was going to maintain its tenure. Guzman promised that Shuttered Venue Operators Grants would be a top priority of hers, and that she would work with her team to make sure they were administered effectively. 

Another common theme amongst the Committee was the issue of data transparency, specifically concerning the first round of the PPP. Chair Cardin, and Senator Shaheen, spoke to the importance of communication between the agency and the Committee. They asked Guzman if she would be committed to active, open communication between the agency and the Committee. Guzman promised to work with her staff and the Committee to ensure that all SBA programs and relationships remained strong and effective. 

There was also bipartisan concern over the exclusion of convicted criminals’ ability to access SBA loan programs. In the first round, people convicted of non-economic crimes were prohibited from accessing the loans if they had been convicted within the last five years. Following fierce pushback, this rule was reduced to one year. Nonetheless, Senators Booker (D-NJ) and Scott (R-SC) argued that the existence of this rule at all is unjust. Both senators urged Guzman to consider repealing it entirely. 

A departure from the usual tone of bipartisanship was the issue of Affiliation Standards in the PPP. Republican Senators Ernst and Hawley (R-MO) took issue with Planned Parenthood receiving PPP funds, arguing that the organization did not fit the criteria for consideration. While both sides agreed on the need for clarification, Hawley pressed Guzman, asking her to commit to the rules outlined in the CARES Act and to promise that Planned Parenthood would not receive any more funding. Guzman agreed to uphold the rules of the CARES Act but did not comment on the Planned Parenthood case specifically. Note that her predecessor Jovita Carranza took the same stance in an oversight hearing last year on PPP, saying she could not comment publicly on any one borrower. 

Overall, there was obvious bipartisan support for the nomination of Ms. Guzman, with most Democrats and Republicans offering congratulations on her nomination. Although she kept her responses short, she highlighted the focus of equity in the new Biden Administration. If confirmed, she will certainly bring minority businesses to the forefront of consideration and appears eager to access all the systems and technology available to her.  

Five Things Small Businesses Want from the New President

By Ann Sullivan

 

1.  An effective vaccination program. Small businesses, especially vulnerable during the pandemic, need to get employees back to work and customers through their doors. Clear communication from the President and public health officials and a robust vaccination plan will accomplish just that.  

 

2. Capital to weather the pandemic. The Paycheck Protection Program (PPP) got lots of things right – the two rounds of loans assisted many small businesses. However, adjusting to changes caused or accelerated by the pandemic are far from over. Businesses have had to make significant changes, such as investments in technology infrastructure. This spans across industries – accommodating working from home or shifting to take out/delivery services, just to name a few. It is unclear if or when the workforce will return to their workplaces five days a week. 

 

While the second round of PPP funding passed in December expanded covered expenses, the need for capital has never been greater. The temptation by government is to simply pile money on top of existing programs. That has not necessarily been successful—women still get just 4% of all commercial capital and businesses in underserved communities were the last to receive PPP funds. Federal loan programs for these businesses need an overhaul.

 

3. Greater access to public sector contracts. During the pandemic, public sector (federal/state/local) contracting is a way to reposition successful commercial businesses. However, the current set of acquisition policies and federal agency initiatives are really designed to keep them out. Citing efficiency, the federal government buys in large quantities from large companies but in the process relegates smaller businesses to providing goods and services through large prime contractors, rather than buying directly from small businesses.  This strategy results in fewer small federal contractors – which has had a ripple effect on the economy. Access, by the way, does not mean a handout. It just means having a fair shot at winning the business.

 

4. Changing the tax code from “one size fits all.” Although the last tax rewrite made some much-needed changes for small businesses that are organized as pass-throughs as opposed to C corporations, considerable work remains. The Treasury Department should review every deduction/tax credit and its impact on small business vis-à-vis large businesses and make regulatory adjustments and recommended changes to the law that require Congressional action.

 

5. Make small businesses stakeholders in the clean energy future. If small businesses are not at the table, the new Administration’s goal to build a “modern, sustainable infrastructure and deliver an equitable clean energy future” won’t get much traction. If involved, they will find ways to create revenue and business growth. Their unique ability to pivot and innovate will give life to the opportunities the new Administration envisions.

Is There Any End in Sight? 5 Reasons Why You Can’t Quit.

By Ann Sullivan

 

I was on a call recently with fellow business leaders and one of them articulated what I have been thinking. Is there any end in sight? Meaning COVID-19, meaning nasty politics and gridlock on important issues, meaning decreased revenues and meaning people in a pretty bad mood. If you are a business owner, you have dreams of simply walking away saying “I quit.” But you can’t—here are five reasons why.

 

1. You have invested too much into the business to walk away. As satisfying as walking away sounds, why would you throw away all that time and effort that it takes to build a business. More than 50% of businesses fail in the first year. If you made it past that mark, you overcame a big hurdle – the odds are with you.

 

2. You like being your own boss. In a study by Guidant Financial, 55% of respondents said being their own boss was their biggest motivation for owning their business. Business owners don’t necessarily excel in playing corporate politics – they live with the consequences of their own decisions. Plus, being your own boss has the potential for greater income than working for someone else.  

 

3. You’re in good company. Depending on what survey you choose, nearly 1/3 of all small businesses in the US are non-operational due to COVID. If you are in business, you’ve beat the odds, so chances are you’ll climb out of this.  

 

4. You have been given an unusual chance to reposition and get creative. This opportunity doesn’t happen very often but COVID-19 forced us to think about pursuing new business lines and add new capabilities. Not that we wanted to do this – life was pretty good when the revenues were strong, but every business needs a refresh at some point. 2020 just gave us the kick in the pants we probably needed.

 

5. You can’t fix the political world. Having been in the political arena for a long time, I remember when politicians were much more collegial. Even though you can’t fix the political divide, what you can do is vote, volunteer, contribute to candidates that share your views and work for a better future for you and your employees. 

Amidst the continuing pandemic one thing remains the same for all federal contractors– Section 889 implementation.

By Elizabeth Sullivan

Disclaimer: This is longer than our usual blog posts – the rule was 86 pages, so bear with me through this one.  

 

Section 889 – a name that does not mean much to the average person, but carries a lot of weight for contractors. This is a section in the FY2019 National Defense Authorization Act (NDAA) that seeks to eradicate Chinese telecom from the entire U.S. government supply chain. Why write about it now? The part that impacts federal contractors of all sizes (Part B) goes into effect in less than a month.

 

Earlier this year, the Department of Defense (DoD) held a public meeting to hear from industry. Of the salient points made, one resounding theme was that definitions will mean everything for implementation. However, industry hasn’t been able to share any definitional clarity because of the rule release delay. The FAR Council published their interim rule last week – Part B goes into effect before the comment period is over, which means contractors will have to comply with the rule starting on August 13, 2020. Public comments can be submitted until September 14. 

 

Here are the five key components for small/midsize business contractors to pay attention to.

 

You’ll have a new box to check in SAM. Contractors will need to annually check a box in SAM verifying that they do not use any covered telecommunications equipment or services. A contractor can choose to say yes, they do use some of these banned equipment/services, which would require an offer-by-offer representation for contracts and task/delivery orders under IDIQs. It is important to know this ban applies toany equipment, system, or service that uses the covered equipment or services as a substantial or essential component of any system, or as critical technology as part of any of a contractor’s systems. Think this rule does not apply to you? Think again – acquisitions of commercial items (including COTS) and contracts at or below the simplified acquisition threshold (SAT) must also adhere to this prohibition. 

 

Definitions are key. Definitions are critical to the implementation of this rule, which defines words such as “backhaul” and “roaming,” but leaves contractors with uncertainty over what constitutes a covered technology. FAR 4.2101 covers some of these definitions, however there was no further clarity in the rule regarding who is considered “any subsidiary or affiliate of such entities” of the five listed companies (Huawei, ZTE, Hytera, Hikvision and Dahua). It seems problematic that a small business contractor is expected to research all of the subsidiaries and affiliates of these companies to make sure they are not utilizing any prohibited components. Note to government: why not just provide a list? 

 

Another definitional bone I have to pick is the meaning of “reasonable inquiry.” The rule says that a company is compliant if a “reasonable inquiry” by the company does not show any use of the prohibited equipment or services. So, what exactly does that mean? According to the rule, a reasonable inquiry is something that is designed to uncover any use of these covered telecommunications equipment or services and does not need to be an internal or third-party audit. While I am not a lawyer, I can imagine that every procurement attorney would advise contractors to have some type of legitimate audit of systems in case compliance risks arise.

 

The waiver process is laborious. Although a waiver sounds reasonable and gives contractors added time to comply (until August 13, 2022), it doesn’t seem designed for small or midsize contractors. In order to get a one-time waiver, the head of an agency has to grant it. Before this happens, a senior agency official for supply chain risk management has to discuss the waiver with the Federal Acquisition Security Council (FASC). And consult with the Office of the Director of National Intelligence (ODNI) to make sure conditions are met. And provide notice to the ODNI and FASC 15 days before granting the waiver. And notify appropriate Congressional committees within 30 days. The FAR Council does acknowledge that this process could take a few weeks and advises to enter at your own risk because “agencies may reasonably choose not to initiate one and to move forward and make award to an offeror that does not require a waiver.” A quick data point: there are 387,967 companies registered is SAM, 74% of which are small. That would mean if every small company decided to submit an offer for a federal award and sought a waiver, that would be 287,096 waivers. 

 

Six contractor actions are necessary for compliance. A chunk of the rule outlines contractor compliance recommendations. After reading and re-reading these six actions in the rule, I’m left with the same feeling: small contractors need something more detailed than just general guidelines. Generalities like “read and understand the rule and necessary actions for compliance” and “corporate enterprise tracking” sound great, what exactly does that entail? During more normal times – let alone a pandemic – building out a compliance program can be complicated, not to mention costly. It is important contractors have the detailed information to get it right.

 

Finally, I see dollar signs. The rule completely underestimates the time it will take contractors to implement and remain compliant with this rule. A whole section is dedicated to this analysis – and quite a few estimates left me scratching my head (you can find these in Section III, Part D). Companies aware of the rule have been spending months trying to prepare and continue to evaluate the components in their government offerings. An important part of complying with the rule to highlight is that a company cannot use any of these prohibited systems/equipment, even if they are not used in its federal contracts. That means no split networks or having one system for U.S. federal business and a difference one for commercial or contracts with other countries. I see more dollar signs.

 

The FAR Council is seeking public comment on the rule – and federal contractors should respond. In Section IV of the rule you can find a list of questions the Council wants industry to answer, and it is worth taking a look at them. One that is also found in the beginning of the rule is whether an expansion of the prohibition should be made to include all company subsidiaries and affiliates. Feedback is also requested on subjects like challenges, costs and insight into existing systems.

 

One thing all contractors, regardless of size have in common – they want to be compliant so they can compete. Given the uphill battle small and midsize contractors face when it comes to compliance with Section 889 and many other contracting requirements, advocacy on this issue is critical.