November 11, 2019

SBA Issues Proposed Regulations Signaling Changes to Multiple Small Business Programs

Holland & Knight Government Contracts Blog
David S. Black | Eric S. Crusius | Kelsey M. Hayes

On November 8, 2019, the Small Business Administration (SBA) issued a substantial proposed rule addressing a plethora of potential changes to the regulations governing small business programs. Below is a snapshot of key proposed changes:

Consolidation of the Mentor-Protégé (M-P) Programs. SBA proposes to combine the 8(a) M-P Program and the "All Small" M-P Program under a unified staff. The 8(a) M-P Program commenced in 1998, while the All Small M-P Program was started in 2016. While the goals and benefits of the two programs have been identical, SBA acknowledged that there have been "perceived differences" between the Programs. For this reason, SBA proposes to eliminate the separate 8(a) M-P Program and provide that any kind of small business, including 8(a) concerns, may participate under the All Small M-P Program governed by 13 C.F.R. § 125.9. The primary substantive change from this consolidation appears to be that SBA will no longer require prior approval of joint venture agreements between a mentor and an 8(a) protégé.

Consideration of Potential Size Limit on Mentors. In a change that would limit the pool of mentors available to the protégé community, SBA is considering "whether to limit mentors only to those firms having average annual revenues of less than $100 million." Currently, there is no size limit on mentor eligibility, and large businesses of any size may serve as mentors. SBA noted that it has received suggestions from "mid-size" companies that excluding very large businesses from the pool of eligible mentors "would be beneficial to the mid-size firms and allow them to more effectively compete." SBA notes that its "focus" of the M-P Program "is the protégé firm," and it seeks a program that will provide the "most effective business development assistance" to protégé firms. Against this policy preference, SBA is requesting comments on "whether the size of a mentor should be restricted" and whether "small businesses would be better or worse served by such a restriction."

Proposed End of the "3-in-2" Rule: More Contract Awards but Shorting Bidding Window. SBA proposes to eliminate the three-contract limit for joint ventures between small businesses or parties to an approved M-P Agreement. SBA proposes to limit the time period that such joint ventures can submit offers for new contracts without triggering affiliation to two years from the date of its first award. SBA explains that "removing the limit of three awards to any joint venture would relieve small businesses of the requirement of forming additional joint venture entities to perform a fourth contract within that two-year period." In essence, up until two years after receiving its first award (which would include a novated contract), the joint venture can receive as many contract awards as possible. There would be no limit if the proposed rule takes effect. However, there would be a strict time limit on bidding eligibility, as SBA "believes that a joint venture is not an on-going business entity[.]" Under the proposed rule, a joint venture would be prohibited from submitting any offers for contracts after two years from the date of that first award. Any proposal for an opportunity submitted beyond this two-year period would trigger affiliation between the joint venture members.

Proposed New Size Representations for Task Orders Competed under Unrestricted Multiple Award Contracts (MACs). SBA is not proposing to impose any new size certification requirements for MACs that were initially set-aside for small business. However, SBA has identified a policy concern, where a contractor self-certifies as small for an unrestricted MAC, and "at some point later in time when the concern no longer qualifies as small the contracting officer seeks to award an order as a small business set-aside and the firm uses its self-certification as a small business for the underlying unrestricted MAC." SBA recognized that contractors may currently rely on their size status at the time of offer for the underlying unrestricted MAC and be eligible for a set-aside task order, unless the contracting officer requests a new size certification in connection with a specific order.

After considering the nature and extent of this concern under a variety of MACs, including the Federal Supply Schedule (FSS) Program, SBA proposed the following: "except for orders or Blanket Purchase Agreements issued under any FSS contract, if an order under an unrestricted MAC is set-aside exclusively for small business (i.e., small business set-aside, 8(a) small business, service-disabled veteran-owned small business, HUBZone small business or women-owned small business), a concern must recertify its size status and qualify as such at the time it submits its initial offer, which includes price, for the particular order." SBA believes this "middle ground" is the approach most likely to avoid disruption to the procurement process while ensuring that small business set-aside awards are made to firms that qualify as small at the time of award. The proposed rule would also require a certification at the time of task order proposal submission relating to set-aside orders based on a different socioeconomic status from the underlying set-aside MAC.

Corresponding Proposed Expansion of Size Protests to Include Set-Aside Orders Placed under Unrestricted MACs. Currently, a competitor may protest the size or socioeconomic eligibility of the awardee of a set-aside task order only if the contracting officer requested a recertification in connection with the task order. In order to ensure appropriate policing of its proposed new certification requirement for set-aside task orders issued under unrestricted MACs, SBA is proposing to authorize a size protest relating to such orders. The new size protest authorization would not apply to orders or Blanket Purchase Agreements issued under any FSS contract.  The proposed rule would also authorize a socioeconomic protest relating to set-aside orders based on a different socioeconomic status from the underlying set-aside MAC.

For a comprehensive section-by-section summary of SBA’s proposed rule, please see the document available here.

We will continue to monitor these changes as they go through the rulemaking stage and provide updates as warranted.

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