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October 16, 2020 - Small Business

SBA Issues Wide-Ranging Final Rule Addressing Government Contracting Programs

SBA Issues Final Rule on Appeals Process for PPP Loan Review Decisions

The Small Business Administration (SBA) today issued a significant final rule addressing numerous issues of interest to Federal contractors.  With one exception, the rule will take effect on November 16, 2020.  We anticipate addressing the more important changes in greater detail in the coming days, but the following is a non-exhaustive list of what we consider the highlights of the 54-page rule:

  • Security Clearances for Joint Venture Offerors. For contracts requiring a facility security clearance, procuring agencies will no longer be allowed to require as a condition of award that a small business joint venture possess a clearance in its own name.  Ordinarily, as long as the lead joint venture member has the required clearance and commits to keeping the contract records at its cleared facility, the joint venture itself will be deemed to satisfy the clearance requirement.  For contracts where the security portion is merely ancillary to the contract’s principal purpose, the non-lead partner (including a large-business mentor) might supply the clearance instead.
  • Capabilities and Past Performance of First-Tier Subcontractors. Procuring agencies will now be required to consider the certifications, qualifications, capabilities, and past performance of first-tier subcontractors that a small business offeror specifically identifies in its proposal if the small business’s own capabilities and past performance are not independently strong enough to justify award.
  • Order-Level Recertifications Under Multiple-Award Contracts. Agencies sometimes award a multiple-award contract as a full set aside or with one or more reserves or pools set aside for small businesses or socioeconomic statuses.  Under the new rule, size and status will flow from the underlying contract to individual orders issued under that contract, and the firm can continue to rely on its original representations for the contract itself unless a contracting officer requests recertification of size or status for a specific order.  However, the big change relates to unrestricted contracts or awards based on a different socioeconomic status or category than the multiple award contract itself.  Where the underlying contract is unrestricted, however, or where the agency sets an order aside for a socioeconomic group for which the underlying contract or pool was not itself set aside, offerors must certify to their status as of the date they submit their offers on the order itself; size protests are specifically authorized in connection with these newly set-aside orders.  This does not apply to Federal Supply Schedule contracts or Blanket Purchase Agreements under those contracts.
  • Merger or Acquisition While Proposals Are Pending. If a small business loses its size status due to a merger or acquisition (including agreements in principle) after it submits its proposal but prior to award, it must recertify its size status to the contracting officer.  Under the new rule, if the transaction occurs within 180 days of the date of initial offer for the contract, the offeror becomes ineligible for award.  If it occurs after 180 days, the firm remains eligible for award, but the agency may not count an award to that firm as a small business contract.  This recertification requirement does not apply when the ownership of a concern that is at least 51 percent owned by tribe, Alaska Native Corporation, or Community Development Corporation (CDC), changes to or from a wholly owned business concern of the same entity, as long as the ultimate owner remains the same.
  • 8(a) Program. In addition to numerous revisions to the 8(a) program in general, the new rule provides new guidance for 8(a) status for companies owned by different members of the same family, as well as a number of provisions applicable to 8(a) companies owned by Alaska Native Corporations, Native Hawaiian Organizations, Indian tribes, and Community Development Corporations.  The rule also provides new guidance for contracts that are placed with the SBA’s 8(a) program, both as competitive and sole-source awards, as well as their follow-on requirements.  The 8(a) mentor-protégé program will be merged into the more recently established All Small mentor-protégé program, with a single set of rules applicable to the single program.
  • 8(a) Mentor-Protégé JV Agreement Approvals. The rule eliminates the requirement that 8(a) participants receive SBA approval for every joint venture agreement and amendment where the 8(a) company’s mentor-protégé joint venture competes for an 8(a) contract.
  • Final Proposal Revisions and Size Status. The rule clarifies that size status for purposes of complying with the nonmanufacturer rule, the ostensible subcontractor rule, and joint venture agreement requirements is determined as of the date of submission of final proposal revisions (or final bid for sealed bidding).  This is an exception to the normal rule that size is determined as of the date of submission of the initial proposal including price.  SBA characterizes this as a clarification of the existing policy preventing an offeror whose initial proposal was compliant from making subsequent, pre-award changes that would render it noncompliant with these particular rules.  As a practical matter, though, the rule as written also will allow an offeror with a noncompliant joint venture agreement to amend the agreement and fix its problems prior to final proposal revisions.
  • Order-Level NAICS Codes. The rule specifies that agencies must assign a NAICS code to each order issued under a multiple-award contract that accurately corresponds to the work to be performed under that order, and the order’s NAICS code must be the same as the one(s) assigned to the underlying multiple-award contract.  The rule prohibits contracting officers from issuing an order under a multiple-award contract if the underlying contract lacks a NAICS code that corresponds to the order’s principal purpose.
  • Economic Dependence/Identity of Interest. The SBA has clarified the rule on affiliation through economic dependence.  The rule retains the general presumption of affiliation where a company derives more than 70 percent of its revenue from an alleged affiliate over the previous three fiscal years, but specifically allows a company to rebut the presumption by showing “that despite the contractual relations with another concern, the concern at issue is not solely dependent on that other concern.”  (Emphasis added.)
  • Three-in-Two Rule Changed. The new rule eliminates the previous three-contract limit for joint ventures composed of two or more small businesses or of mentor-protégé teams.  The duration of such joint ventures continues to be limited: A joint venture cannot continue to submit proposals for new contracts for longer than two years from the date of its first award, but it can be awarded contracts on proposals submitted before that date.  After two years, the joint venture is deemed to be a separate business concern with its joint venture members becoming affiliates for size purposes, even if they are both small businesses or a mentor-protégé team.  Parties may still form multiple joint ventures with the same members, but, at some point, this may result in affiliation.
  • JV Protégé Workshare. The rule clarifies that, in a mentor-protégé joint venture, the protégé firm must itself perform at least 40 percent of the work to be performed by the joint venture and that this workshare is calculated consistent with 13 CFR 125.6(b).  Although the joint venture may rely on similarly-situated subcontractors to comply with the limitations on subcontracting rule, the protégé firm may not rely upon such subcontractors to meet its independent requirement to perform at least 40 percent of the joint venture’s own share of the work.