In a significant new proposed rule, the Small Business Administration (SBA) proposes to alter a number of regulations, including those governing size recertifications following mergers and acquisitions. We have previously discussed (in this article and this article) recent decisions of the SBA Office of Hearings and Appeals (OHA) and Government Accountability Office (GAO), which held that such recertifications generally are not required in connection with pending proposals under General Services Administration (GSA) Federal Supply Schedule (FSS) orders and Blanket Purchase Agreements (BPAs).
The regulations as they currently stand state that an offeror’s size status for award eligibility purposes is generally determined by its size as of the date of award of its underlying FSS contract (or its most recent recertification in connection with an FSS option exercise). In the cases we discussed previously, OHA and GAO held that SBA’s regulations requiring a size recertification after a merger or acquisition do not apply to pending proposals for FSS orders and BPAs. Thus, unless an ordering contracting officer requires a size recertification in connection with a particular FSS order or BPA, a formerly small business that loses its small size due to a transaction remains eligible for award of the order. It also may continue to bid on small business set-aside FSS orders and BPAs unless an ordering contracting officer requires a size recertification in connection with a particular order or BPA. The practical benefit of this rule is consistency for contractors and contracting officers, while not disincentivizing firms from growing. But, under the SBA’s new proposed rule, this may change.
Proposed Applicability of Recertifications to Orders Under Multiple-Award Contracts
The new proposed rule states that “SBA believes both GAO and OHA misinterpret SBA’s regulations.” The proposed rule will revise the governing regulations to reflect what SBA argues it always intended them to mean. Under the proposed rule, the general rule continues to be that contractors under small business set-aside/reserved multiple-award contracts generally are treated as small for the life of the contract, including any task orders to be awarded (as is already the case). Contractors under non-set-aside/non-reserved multiple-award contracts are eligible for set-aside orders and BPAs only if they can certify as small in connection with their order/BPA offer (which is also generally the rule now). The proposed rule articulates three exceptions to this general rule:
First, for any FSS order or BPA, a company’s size continues to be measured as of the date of its underlying FSS contract award (or the date of its recertification in connection with its most recent FSS option exercise). This is an exception to the general rule, articulated above, because FSS contracts are not small business set-asides or reserves.
There is a new proposed exception to this exception, however, if a size recertification is required for any reason—including when one is triggered by a merger or acquisition. In such instances, there will be a later date for determining size (depending on the kind of recertification), and a company that is unable to recertify as small is ineligible to compete for that set-aside FSS order or BPA. In the case of a recertification due to a merger or acquisition, if the recertification results in the company becoming other than small, the company will be other than small for the FSS contract itself, and all FSS orders and BPAs going forward. This status change affects both goaling credit and eligibility for award. This exception would essentially reverse the recent OHA and GAO holdings, which say that, under the FSS program, merger-and-acquisition recertifications are not required for pending proposals and have no effect on future set-aside awards where recertification with proposal submission is not required.
Second, for 8(a) sole-source awards issued under multiple-award contracts (including FSS contracts), the prospective awardee must qualify as small and meet all other eligibility criteria at the time of any 8(a) sole source award. This exception means the company must qualify as small for the size standard corresponding to the NAICS code assigned to the order “as of the date the order is offered to the 8(a) BD program,” even if the underlying multiple-award contract was a small business set-aside.
Third, whenever a recertification is required (even under a set aside BPA or contract) under the proposed new 13 C.F.R. § 125.12, the contractor may not rely on its size status for its underlying multiple-award contract. Instead, the contractor’s size status for the affected order or BPA (both as to goaling and award eligibility), will be governed by the new recertification.
In the case of a recertification required by the ordering contracting officer in connection with the order, the recertification affects only that order. The date for determining size will be the date of submission of the initial proposal for that order.
In the case of a recertification triggered by a transaction, the date for determining size will be the date of recertification itself, which must be “within 30 calendar days of an approved novation, merger, acquisition, or sale, including agreements in principle, of or by a concern or an affiliate of the concern, which results in a change in controlling interest.” If the company is unable to recertify as small, SBA will treat that as a “disqualifying recertification,” making the company ineligible for any further set-aside orders or options under a multiple-award contract (including under an FSS contract). This will be the case even if a contracting officer does not seek a new recertification in connection with the task order proposal submission. The proposed rule clarifies that this is so even when a merger or acquisition occurs more than 180 days after an order proposal submission.
New Timeliness Rule for Size Protests
What if an offeror thinks the prospective awardee of a set-aside order under a set-aside multiple-award contract or FSS contract is other-than-small due to a merger or acquisition? Under the current rules, another offeror is able to file a timely size protest only if the contracting officer has requested recertification from all offerors in connection with that order.
The new rule proposed to provide increased protest rights to other contract holders with respect to set-aside orders. Under the proposed rule, in connection with any size recertification relating to a multiple-award contract required by the new Section 125.12, “any contract holder on that multiple award contract may also request a formal size determination concerning a recertifying concern’s status as a small business.” A size protest by a fellow contract holder would presumably have to be filed under the existing deadline, i.e., within five business days after the procuring agency first identifies the prospective or actual awardee for the order.
More to Come
The proposed rule would significantly change other things, as well. We anticipate discussing other major changes in future blog posts. Stay tuned!