Morrison Foerster’s Government Contracts Insights provides our in-depth analysis of developments and trends impacting government contracting. Through Insights, our attorneys offer a real-time assessment of the statutory, regulatory, legal, and business-related developments and trends that are shaping the industry. We also examine a full array of non-U.S. public procurement issues, mindful that our clients compete in a global marketplace.Morrison Foerster’s nationally recognized Government Contracts and Public Procurement practice represents the world’s leading companies in the aerospace and defense, intelligence, cybersecurity, information technology, financial and professional services, education, healthcare, infrastructure, and logistics support sectors. We are enlisted to address our clients’ most complex and important legal issues. Our work includes contract and subcontract negotiation and other transactional matters, business and regulatory compliance counseling, internal investigations, bid protests, and a wide array of enforcement and litigation matters. Our clients range from Fortune 50 companies to small and medium-sized companies just entering the public sector. We advise both U.S. and non-U.S. companies involved in municipal, state, federal, and non-U.S. procurement matters.<h2>ABOUT MORRISON FOERSTER</h2>Morrison Foerster is a leading global law firm that transforms complexity into advantage for its clients. Our clients include some of the largest financial institutions, banks, consulting and accounting firms, and Fortune 100, technology, and life sciences companies. Highlighting the firm’s commitment to client service, leadership in market-changing deals and impact litigation, and values-based culture, Morrison Foerster has been repeatedly recognized as one of the top 10 firms on The American Lawyer’s A-List. Year after year, the firm receives significant recognition from Chambers and The Legal 500 across their various guides, including Global, USA, Asia‑Pacific, Europe, UK, Latin America, and FinTech Legal. Our lawyers passionately care about delivering legal excellence while living our values. Morrison Foerster has a long-standing commitment to creating a culture that respects and celebrates differences, while providing an inclusive environment. The firm has achieved Mansfield Certification Plus since 2018 as a result of successfully reaching at least 30 percent women, communities of color, and LGBTQ+ lawyer representation in a notable number of current leadership roles and committees. The firm also has a long history of commitment to the community and society through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education and fostering the wellbeing of children, advocating for veterans, promoting international human rights, enforcing the right to asylum, and safeguarding the environment.

Social

Search

GAO Protest Timeline

govcon-gao-protest-timeline-thumb.jpg

Govcon GAO Post Award Protest Timeline Article

Contract Disputes Act Claim Timeline

govcon-contract-disputes-timeline-thumb.jpg

The Bayh-Dole Act

govcon-bayhdole-thumb.jpg

Anatomy of a Protest

govcon-federalclaimsprotest-thumb.jpg

Allowability of Legal Costs

govcon-allowabilityoflegalcosts-thumb.jpg

Procurement Integrity Act

240715-procurement-integrity-act-resized.jpg

Govcon-Resources

Tina is Co-chair of Morrison Foerster’s Government Contracts & Public Procurement practice. She represents a wide variety of government contractors including information technology, defense, biotechnology, and pharmaceutical companies, with a focus on general contract counseling and compliance, particularly concerning intellectual property, and cybersecurity matters and federal grant funding.Tina counsels contractors on compliance with federal, state and local acquisition and ethics regulations and with the evolving myriad of requirements pertaining to data security and cybersecurity. She has been involved with numerous internal investigations and compliance reviews, and with mandatory and voluntary disclosures to agencies, and litigation of False Claims Act matters.Tina routinely advises clients concerning:<ul><li>Prime-subcontractor relationships</li><li>Sources of supply and country of origin requirements</li><li>Price reductions and price reporting issues</li><li>Organizational conflicts of interest</li><li>Safeguarding of intellectual property and other proprietary interests</li><li>Licensing and data rights issues</li><li>Handling of classified materials and controlled unclassified information</li><li>Agency suspension and debarment proceedings</li></ul>She also assists clients with due diligence and other activities related to the acquisition of government contracting concerns, and with the drafting and negotiation of teaming agreements, subcontracts, licensing agreements, and cooperative research and development agreements. She also assists clients applying for federal grants (including SBIR and STTR agreements), and those who seek to obtain other transactional authority agreements, as well as those competing for state and local government work.Tina’s litigation experience includes government contracts claims litigation in federal courts and before boards of contract appeals, bid protests before the Government Accountability Office and the Court of Federal Claims, and complex disputes in federal courts, including civil fraud and False Claims Act litigation and reverse Freedom of Information Act litigation.Prior to joining Morrison Foerster, Tina worked at another large national firm and as a trial attorney in the Office of the General Counsel of the Navy, Navy Litigation Office.<h4>Representative Experience</h4><ul><li>Negotiation of largest CHIPS Act federal funding agreement between multinational semiconductor corporation and U.S. Department of Commerce.</li><li>Negotiated prime contract and major subcontracts related to the Department of Energy’s next generation supercomputer program, including extensive IP rights negotiations and negotiation of associated patent rights waivers.</li><li>Negotiated series of other transaction authority agreements with DARPA and associated subcontracts with more than a dozen research universities on behalf of a firm biotech client, including complex IP rights allocations and material transfer agreements.</li><li>Assist clients with FedRAMP authorization process and with development of license agreements for software products sold to federal, state and local government agencies.</li><li>Cyber incident response counseling to some of the largest companies and organizations impacted by security incidents.</li><li>Advises clients on Bayh-Dole reporting of inventions and IP strategies for contracts and grants.</li><li>Conducts due diligence for major government contract mergers and acquisitions.</li></ul>

reynolds_tina_blog_150x150.png

reynolds_tina_common_640x280.jpg

reynolds_tina_heroretina_2700x1160.jpg

reynolds_tina_mobileretina_750x1040.jpg

reynolds_tina_social_600x600.jpg

Partner

Tina is co-chair of Morrison Foerster’s Government Contracts & Public Procurement practice. She counsels a wide variety of government contractors on compliance with federal acquisition and ethics regulations. She drafts and negotiates contracts on their behalf and has been involved with numerous internal investigations and compliance reviews, and with bid protest, contract claims, and False Claims Act litigation. She also advises on M&A transactions involving government contractors.

Tina D. Reynolds

Jim Tucker is of counsel in Morrison Foerster’s Government Contracts and Public Procurement Practice Group and is based in the firm’s Washington, D.C. office.Jim’s practice runs the gamut of litigation and counseling in federal procurement matters, with an emphasis on bid protests, Cost Accounting Standards disputes, and small business matters. He has represented both protesters and awardees in scores of protests before the Government Accountability Office, the Court of Federal Claims, and procuring agencies, in acquisitions ranging from small business procurements to multibillion-dollar contracts of global significance. His representative protest matters span the aerospace sector, the Intelligence Community, base operations and logistics, healthcare, nuclear and environmental work, and information technology and software acquisitions. His protests have included both classified and unclassified programs. In addition to prevailing in published decisions, Jim has also secured favorable corrective action on behalf of clients in a wide variety of protests that were resolved without a published decision.Jim’s work also focuses on disputes over cost allowability and compliance with the Cost Accounting Standards, and he has appeared before the Armed Services and Civilian Boards of Contract Appeals, in size and status protests before Small Business Administration (SBA) area offices, and appeals before the SBA Office of Hearings and Appeals. Jim regularly counsels clients on contract interpretation, organizational conflicts of interest, and small business compliance.Jim graduated with high honors from the George Washington University Law School, where he focused his studies on federal procurement law, was a member of the Law Review, and interned with the General Services Administration’s suspension and debarment office. Jim also holds a degree in theology magna cum laude from the Pontifical Gregorian University in Rome and a bachelor’s degree in classical languages and literature summa cum laude from the University of Kentucky, where he graduated Phi Beta Kappa.

tucker_james_blog_150x150.png

tucker_james_common_640x280.jpg

tucker_james_heroretina_2700x1160.jpg

tucker_james_mobileretina_750x1040.jpg

tucker_james_social_600x600.jpg

Of Counsel

Jim maintains an active practice in bid protests before the Government Accountability Office and contracting agencies and counsels clients in contract disputes and compliance obligations.

Jim Tucker is of counsel in Morrison Foerster’s Government Contracts and Public Procurement Practice Group and is based in the firm’s Washington, D.C. office. Jim’s practice runs the gamut of litigation and counseling in federal procurement matters, with an emphasis on bid protests, Cost Accounting Standards disputes, and small business matters.

James Tucker

<div style="margin-bottom: 15px;" class="videoWrapper"><iframe class="sticky-video" title="Meet Alex Ward, Government Contracts Practice Co-Chair" src="https://www.youtube-nocookie.com/embed/TkliwdSlTaQ?rel=0" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen="1" title="iframe"></iframe></div>J. Alex Ward is co-chair of Morrison Foerster’s Government Contracts and Public Procurement group. His practice covers a full range of government contracts matters, including investigations, bid protests, claims, general litigation, corporate transactions, and counseling. Alex strives in all matters is to provide his clients the highest level of efficient and effective representation.Alex represents contractors in internal and external investigations, disclosures to the government, and qui tam litigation, with great success in reducing or eliminating his clients’ exposure through active engagement with the government. His work in this area includes obtaining numerous declinations and dismissals of False Claims Act cases in their earliest stages, sparing his clients the cost, risk, and exposure of litigation.He has also served as lead counsel in dozens of bid protests involving military and civilian agency procurements of a wide range of products and services, including all manner of pre- and post-award protests in the GAO, the U.S. Court of Federal Claims, and state tribunals, as well as appeals to the U.S. Court of Appeals for the Federal Circuit and size protest appeals before the SBA’s Office of Hearings and Appeals.Alex handles all aspects of the claims process, from the initial assessment and drafting of requests for equitable adjustment through litigation in the Boards of Contract Appeals and the Court of Federal Claims. Alex’s practice also covers the full gamut of other controversies confronting government contractors, including prime-sub, teaming partner, employer-employee, competitor, and indemnification disputes. His litigation work also includes a wide variety of pro bono engagements, in which he has represented both individual and institutional clients in matters ranging from immigration and criminal defense to sustainable procurement and protection of the environment.Prior to joining the firm, Alex served in the U.S. Army as a commissioned officer and an Assistant to the General Counsel of the Army responsible for civil works and international matters, and as a clerk for judges on the U.S. Courts of Appeals for the Armed Forces and the D.C. Circuit. He is a member of the Boards of the Morrison & Foerster Foundation and the Chesapeake Bay Foundation and of Law360’s Government Contracts Editorial Board.

ward_alex_blog_150x150.png

ward_alex_common_640x280.jpg

ward_alex_heroretina_2700x1160.jpg

ward_alex_mobileretina_750x1040.jpg

ward_alex_social_600x600.jpg

Alex is co-chair of Morrison Foerster’s Government Contracts and Public Procurement practice. His practice covers a full range of government contracts matters, including bid protests, claims, investigations, corporate transactions, and counseling.

J. Alex Ward

favicon.ico

favicon-16x16.png

favicon-32x32.png

apple-touch-icon.png

MoFo Favicons

Morrison Foerster’s Government Contracts Insights blog provides an in-depth analysis of news, developments, and trends impacting government contracting and procurement. Through Insights, attorneys from our nationally recognized Government Contracts and Public Procurement practice will offer a real-time assessment of the statutory, regulatory, legal, and business-related developments that are shaping the industry. This blog will also examine a full array of U.S. and non-U.S. public procurement issues, mindful that our clients compete in a global marketplace.Read about our <a href="http://govcon.mofo.com/editors/">Authors</a>.Never miss a post. Subscribe to get real-time updates.

Brad is a partner in Morrison Foerster’s Litigation Department, Managing Partner of the Austin office, and Chair of the firm’s Israel practice. He is the former Co-Chair of the firm’s Global Litigation Practice and the Government Contracts + Public Procurement Practice.

Bradley Wine

gov-con-feature-image-thumb1.jpg

Welcome to the Government Contracts Insights Blog

Welcome to the Government Contracts Insights Blog

gov-con-feature-image_(1)1.jpg

The United States Capitol building

Morrison Foerster’s Government Contracts Insights blog provides an in-depth analysis of news, developments, and trends impacting government contracting and proc

Announcements & Press

Blog - Terms of Use

Blog - Privacy Policy

Blog - Blog Disclaimer

Blog - Attorney Advertising

morrison-foerster-blog-logo.png

Provides insights and reports on the most current class actions lawsuits and product liability issues that affect consumer-facing companies.

Class Dismissed Blog

Class Dismissed

Looks behind the headlines to explore the trends, identify the opportunities, analyze the issues, and provide guidance for science and technology-based companies.

MoFo Tech

Mofo Tech

News and thought leadership from lawyers who are adding value to the legal profession and the communities we call home.

  External-Link

MoFo + Blog

Mofo+

Stay on top of emerging issues and stay informed of developments related to the law and business of social media.

Socially Aware

Our Government Contracts Insights blog provides in-depth analysis of developments and trends impacting U.S. government contracting and non-U.S. public procureme

Government Contracts Insights

  Linkedin

MoFo LinkedIN

Blog - Govcon RSS

Stay Connected

Never miss a post from Government Contracts Insights. Enter your email below to stay up-to-date.

Subscribe

The latest updates and analysis from Morrison Foerster

Morrison Foerster - Footer

Blogs -  Home Button

Home

Blog - Topics

Acquisition Regulations

Artificial Intelligence + Robotics

Compliance

Coronavirus

Cybersecurity & Data Privacy

Data Rights

Defense

Domestic Preferences

False Claims Act

Federal Procurement

Foreign Corrupt Practices Act

Grants

Health Care

Intellectual Property

International Public Procurement

Labor & Employment

Mergers & Acquisitions

National Security

Protests & Litigation

Resources

Schedule Contracting

Small Business

Topics

Blog - Editors

Editors

Blog - About

About

Blog - Subscribe

More

James A. Tucker

The Tortured Regulations Department: SBA’s New Rule and Its Effect on Investments

Bid Protest Spotlight: Standing, Relationships, Responsibility

House’s Passage of the SAMOSA Act Signals Policy Shift Towards Government-Wide Enterprise Software Licensing

New DFARS Regulation on Small Business Affiliate Past Performance

Bid Protest Spotlight: Unclear Criteria, Data Rights, Conflicts

LinkedIN

In a lengthy and complex effort, the U.S. Small Business Administration (SBA) issued a <a href="https://www.federalregister.gov/documents/2024/12/17/2024-29393/hubzone-program-updates-and-clarifications-and-clarifications-to-other-small-business-programs" target="_blank">final rule</a> on December 17, 2024, that amended many requirements related to small business contracting. As with most rules, there are some good, some bad and some unknown factors. In this first post on the new regulations, we focus only on the changes with the greatest effects on investments in and M&A transactions of small businesses: (1) updates to permissible minority shareholder controls and (2) a substantial rewrite of post-acquisition recertification rules. We previously discussed the <a href="https://govcon.mofo.com/topics/size-recertifications-following-mergers-and-acquisitions-coming-changes-to-the-small-business-regulations" target="_blank">proposed version</a> of this rule. The final rule takes effect on January 16, 2025, although some (but not all) requirements related to recertifications on multiple-award contracts will not take effect until one year later, on January 17, 2026.Minority ControlsFor SBA’s purposes, business size is measured by the aggregate of a business concern and all its affiliates under common control. Such control can be established by affirmative means – by majority ownership or voting interests, for example – or through negative controls exerted by a minority shareholder, which, if one is not careful, can inadvertently jeopardize a company’s small business eligibility. Until now, practitioners have relied on a large body of case law at SBA’s Office of Hearings and Appeals (OHA) to cobble together a generally recognized set of negative controls that are sufficient to create affiliation, and those that are not – lists that varied confusingly between size and socioeconomic programs. With this final rule, SBA will expressly permit the same six minority controls across all programs and include a catchall provision that aligns with existing OHA precedent. These specific controls allow minority shareholders to block certain “extraordinary” actions by the small business without creating affiliation that could undermine eligibility for small business programs. This welcome change provides much needed certainty for how minority controls will affect affiliation status and further opens the door to minority investors in 8(a), woman-owned, and veteran-owned, and service-disabled veteran-owned small businesses (SDVOSBs).Five of the six minority controls were already enumerated in the affiliation rule for veteran-owned small businesses and SDVOSBs, and they will now be added to the SBA’s general affiliation rules and affiliation rules for 8(a) and woman-owned small businesses:<ul><li>“Adding a new equity stakeholder or increasing the investment amount of an equity stakeholder”;</li><li>“Dissolution of the company”;</li><li>“Sale of the company or all assets of the company”;</li><li>“The merger of the company”; and</li><li>“The company declaring bankruptcy.”</li></ul>A sixth minority control will be added to the existing allowed minority controls in the veteran-owned small business rule and the newly enumerated minority controls for the general affiliation rule and the affiliation rules for 8(a) and woman-owned small businesses:<ul><li>“Amendment of the company’s corporate governance documents to remove the shareholder’s authority to block any of the actions” that constitute allowable minority control.</li></ul>Previously, the general affiliation rule and affiliation rules for 8(a) and woman-owned small businesses did not include any enumerated exceptions, although precedent from OHA had identified some exceptions.Finally, a seventh catchall category in all four affiliation rules will allow minority shareholders to block any other “extraordinary action” through a provision that is “crafted solely to protect the investment of the minority shareholders, and not to impede the majority’s ability to control the concern’s operations or to conduct the concern’s business as it chooses.” In a time when the U.S. government is actively encouraging outside investments in government contractors, these changes are welcome. They will help businesses participating in any of SBA’s programs grow and hopefully make investor negotiations more straightforward. These changes also help meet the goal of simplifying agency regulations and making them more readily understandable outside the legal community. The result of these efforts brings the government market one step closer to the commercial market, although investors should still be careful about using standard forms that do not precisely align with SBA’s guidance, as discussed in our <a href="https://govcon.mofo.com/topics/venture-capital-investment-in-a-small-business-know-the-sba-rules-first-" target="_blank">previous blog post</a>.RecertificationsSBA has also attempted to simplify (or at least reduce the word count) of its recertification rules. This portion of the final rule attempts to provide more consistency in the effect of size recertifications following a merger, acquisition, or other change in control. To accomplish this goal, SBA has substantially rewritten the existing rules and moved them into a single new recertification rule at 13 C.F.R. § 125.12 to be cross-referenced by the regulations for each size and socioeconomic program. As before, recertification of size and status will be required from buyer and seller within 30 days of a merger, acquisition, or other transaction that results in a change of control.<a href="#_ftn1" target="_self">[1]</a> However, the effects of that recertification have now changed significantly, at least with respect to eligibility for future task orders on small business multiple-award contracts.In short, under the new regulations, when a concern represents itself as Other Than Small following a transaction with a large concern, it is:1. For Single-Award Set-Aside Contracts: Eligible to continue performing, have options exercised, and receive orders.2. For Multiple-Award Set-Aside Contracts: Not Eligible to bid on future orders or have options exercised.3. For Pending Proposals: a. Eligible for award of single-award set-asides if the proposal was submitted at least 180 days prior to the acquisition.b. Not Eligible for award of pending proposals for single-award set-asides submitted within the last 180 days.c. Not Eligible for pending multiple-award set-aside contract proposals or task order proposals under multiple-award set-aside contract vehicles, no matter when submitted.4. For GSA Schedule Contracts: Not Eligible for award of pending or future set-aside orders or blanket purchase agreements (BPAs). This is a stark departure from the current rule, which, in the interests of competition and consistency, generally permitted former small businesses to continue competing for task orders under multiple-award set-aside contracts and performing through all option periods and permitted contractors to continue bidding as small businesses through their GSA schedule contracts and related BPAs.<a href="#_ftn2" target="_self">[2]</a> SBA takes the express position in its summary of the final rule that these changes will not have a retroactive effect, but that is likely in the eye of the beholder. In any event, SBA has offered some relief to small businesses concerned about the value of their existing contracts: the rules above will not affect (1) eligibility for task order awards (including pending proposals) under multiple-award set-aside contracts if the acquisition occurs prior to January 17, 2026; and (2) eligibility for any options to be exercised prior to January 17, 2026. Note that neither of these exceptions appear to apply to GSA Schedule Contracts. This limited – but significant – one-year grace period before the rule takes effect for options and orders on multiple-award set-aside contracts is likely to drive significant M&A activity in 2025.New Exception: Small Company Buys Small CompanyIn a concession to industry and a change from the proposed rule, the final rule includes separate provisions for small companies that become other than small because of a merger with or sale to another small business, when the combined entity is no longer small. In this situation, the surviving entity will remain eligible for set-aside orders and options under existing multiple-award contracts; however, such orders and options will not count toward the procuring agency’s small business contracting goals. In other words, SBA has maintained the current rule for small-small acquisitions, exempting such transactions from the new rules applicable to large-small acquisitions. TakeawaysIn some ways, SBA’s new rules related to investment are more intuitive than the status quo. In particular, the minority shareholder negative control rules will provide real transparency and consistency for small businesses seeking non-control investments (and their investors). However, the recertification changes are likely to have a number of knock-on effects that SBA will have to address including decreasing the value of small businesses with multiple-award contracts, making the transition to a mid-size contractor harder and reducing competition for small business task orders – not to mention likely causing a spike in small business transactions in 2025.    Ethan Sterenfeld, a Law Clerk in our Washington, D.C., office, contributed to the writing of this article.<hr class="divider"><a href="#_ftnref1" target="_self">[1]</a> In a departure from the proposed rule, a mere agreement in principle will not trigger the recertification requirement, and the 30-day window will run instead from the effective date of the transaction.<a href="#_ftnref2" target="_self">[2]</a> Buyers should also keep in mind that recertification is required from both the acquired concern and the acquiring concern under the current and new regulations.

The Tortured Regulations Department: SBA’s New Rule and Its Effect on Investments 

Anser Advisory

ARKA

Arlington Capital

Battle Investment Group

Behrman Capital

Cadmus

Chainalysis

CollabraLink

Definitive Logic

Emmes

Enlightenment Capital

Grant Thornton

Griffon Corporation

eTelligent

L3Harris

Jacobs

LinQuest Corporation

Micross

Sagewind

Sedgwick

Sigma Defense

teKnoluxion

The Building People

VariQ

specht_damien_blog_150x150.png

specht_damien_common_640x280.jpg

specht_damien_heroretina_2700x1160.jpg

specht_damien_mobileretina_750x1040.jpg

specht_damien_social_600x600.jpg

Damien is a partner in the firm’s Government Contracts & Public Procurement practice. He represents clients in all facets of government contracts transactions, as well as regulatory counseling, subcon

Damien Specht

Damien C. Specht

bell_locke_blog_150x150.png

bell_locke_common_640x280.jpg

bell_locke_heroretina_2700x1160.jpg

bell_locke_mobileretina_750x1040.jpg

bell_locke_social_600x600.jpg

Locke Bell is a partner in the firm’s Government Contracts & Public Procurement practice.

Locke Bell

Jim Tucker is of counsel in Morrison & Foerster’s Government Contracts and Public Procurement Practice Group and is based in the firm’s Washington, D.C. office.
Jim’s practice runs the gamut of litiga

young_alissandra_blog_150x150.png

young_alissandra_common_640x280.jpg

young_alissandra_heroretina_2700x1160.jpg

young_alissandra_mobileretina_750x1040.jpg

young_alissandra_social_600x600.jpg

Associate

Ali Young is an associate in the Government Contracts practice in Morrison Foerster’s Washington, D.C. office.

Alissandra Young McCann

Ali Young is an associate in the Government Contracts practice in Morrison Foerster’s Washington, D.C. office.

Alissandra McCann

shutterstock_1043656987_small.jpg

The Tortured Regulations Department: SBA’s New Rule and Its Effect on Investments

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

On October 25, 2024, the Small Business Administration (SBA) published <a href="https://www.govinfo.gov/content/pkg/FR-2024-10-25/pdf/2024-24716.pdf" target="_blank">a proposed rule</a> to mandate a Rule of Two analysis for most task and delivery order competitions, except under Federal Supply Schedule (FSS) contracts.  The proposed rule implements a recommendation the Office of Federal Procurement Policy (OFPP) made earlier this year (which we covered <a href="/topics/omb-says-agencies-should-perform-a-rule-of-two-analysis-and-set-aside-requirements-for-task-orders-under-multiple-award-contracts" target="_self">in this article</a>).  The SBA has invited public comments, which are due by December 24, 2024.BackgroundFor many years, the Rule of Two has required agencies to set aside acquisitions for small businesses based on whether two or more responsible small businesses were expected to submit offers at fair market prices. See FAR 19.502-2. For acquisitions valued between the micro-purchase threshold and the simplified acquisition threshold, there is a presumption of a set-aside, “unless the contracting officer determines there is not a reasonable expectation of obtaining offers from two or more responsible small business concerns that are competitive in terms of fair market prices, quality, and delivery.” FAR 19.502(a). For acquisitions valued above the simplified acquisition threshold, the contracting officer must set aside a procurement if there is a “reasonable expectation” that offers will be obtained from at least two responsible small businesses at fair market prices. FAR 19.502(b).It is essentially undisputed that the Rule of Two applies to most procurements for stand-alone contracts valued at more than micro-purchase threshold.  And it is essentially undisputed that the Rule of Two does not apply to FSS orders under FAR Subpart 8.4.  But, as task and delivery order procurements have proliferated under multiple-award Indefinite Delivery, Indefinite Quantity (IDIQ) contracts, controversy has arisen over whether the Rule of Two is mandatory for these task and delivery order procurements under FAR Subpart 16.5.  Following a statutory change in 2010, the Government Accountability Office’s position has been that the Rule of Two is not obligatory in such procurements, leaving full discretion to the contracting officer.  One judge of the Court of Federal Claims, by contrast, has held that the Rule of Two remains mandatory in most procurements outside the FSS, and should be applied even before an agency determines whether to use an existing IDIQ contract to procure requirements.  See Tolliver Grp. v. United States, 151 Fed. Cl. 70 (2020).In response to the confusion, and to promote increased task and delivery order awards to small businesses, OFPP issued a policy memorandum earlier this year, stating that “agencies should set aside orders over the micro-purchase threshold (MPT) for small business contract holders when the contracting officer determines there is a reasonable expectation of obtaining offers from two or more small business contract holders under the multiple-award contract that are competitive in terms of market prices, quality, and delivery.”  The SBA’s new proposed rule seeks to codify that recommendation and make it mandatory.If the new rule is adopted, we can expect both an increase in set aside activity on existing multiple award contracts and litigation about why task orders were not set aside.  In conjunction with SBA’s other pending proposed rules on mentor-protégé joint ventures and recertifications under multiple-award contracts, this rule is likely to create real headwinds for recently graduated small businesses and mid-size businesses that hold multiple-award contracts and expected to continue to win work on those contracts for the coming years.Key Features of the Proposed Rule<ol><li>Rule of Two Applicable at the Order Level: SBA proposes to make the Rule of Two mandatory for orders valued at more than the micro-purchase threshold, except when an order is placed under the FSS program, or an exception to fair opportunity applies, “or where agency procedures reflect an appropriate exception.” The Rule of Two analysis would be limited to holders of the multiple-award contract itself, with a set-aside ordinarily required if “the contracting officer determines there is a reasonable expectation of obtaining offers from two or more small business contract holders under the multiple-award contract that are competitive in terms of fair market price, quality, and delivery.” The rule would not dictate which multiple-award vehicle the agency chooses.</li><li>Documentation Requirements for Orders Competed Under Multiple-Award Contracts with Fewer Than Two Small Business Holders: “If the agency chooses to issue an order under a multiple award contract that has one or no small business contract holders, the agency must document the rationale for that decision, including the market research conducted by the agency, coordinate that documentation with the small business specialist, and ensure that the small business specialist has a reasonable opportunity to respond.” This documentation requirement falls short of requiring the application of the Rule of Two prior to choosing a particular multiple-award contract vehicle (which, according to Tolliver, the underlying statute requires).</li><li>Agencies May Develop Agency-Specific Exceptions: The proposed rule contemplates that agencies may develop agency-specific exceptions. SBA offered some possible examples: “to address supply chain and national security risks, to address goods or services that no small businesses provide and would not provide in the future, or to respond to a major disaster or emergency.” Such exceptions would be developed in consultation with agency small business officials and SBA, and must be published. We would expect notice-and-comment rulemaking for inclusion in agency FAR supplements to be the most appropriate way to create such exceptions.</li><li>New Documentation and Coordination at the IDIQ Level: At the IDIQ level, the new rule would add new documentation and coordination requirements when an agency plans to establish a multiple-award contract above a specified size without set-asides or reserves and the number of small business awardees is expected to be less than 30 percent of all awards. SBA hopes these new requirements will help small businesses constitute at least 30 percent of new multiple-award contract holders and make it easier to satisfy the Rule of Two under those contracts.</li><li>Engagement of Small Business Specialists in Order Set-Aside Decisions: The new rule would require agencies to provide their own small business specialists with documentation of their rationale for not setting aside orders valued at more than the micro-purchase threshold.</li></ol>

SBA Proposes to Require the Rule of Two for Most Task and Delivery Order Competitions

In a <a href="https://www.govinfo.gov/content/pkg/FR-2024-08-23/pdf/2024-18325.pdf" target="_blank">significant new proposed rule</a>, 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 <a href="/topics/oha-rules-company-remains-eligible-for-award-of-small-business-set-aside-schedule-orders-even-after-acquisition-by-a-large-business" target="_self">this article</a> and <a href="/topics/gao-finds-company-s-bpa-bid-remains-eligible-for-award-despite-a-transactional-recertification-and-change-in-size-status-in-connection-with-its-underlying-federal-supply-schedule-contract" target="_self">this article</a>) 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 ContractsThe 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 ProtestsWhat 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 ComeThe proposed rule would significantly change other things, as well.  We anticipate discussing other major changes in future blog posts.  Stay tuned!

Size Recertifications Following Mergers and Acquisitions: Coming Changes to the Small Business Regulations

This summer has seen two notable updates that parties to mentor-protégé joint ventures (MPJVs) should be aware of.First, buried in a <a href="https://www.federalregister.gov/documents/2024/07/22/2024-16011/tribal-consultation-for-hubzone-program-updates-and-clarifications-and-potential-reforms-under" target="_blank">Notice</a> that the U.S. Small Business Administration (SBA) issued on July 22, 2024, is a request for comments regarding updates that involve potential major implications for MPJVs. As most are aware, a joint venture between an SBA-approved mentor and protégé is exempt from standard affiliation rules and, as a result, can pursue work for which only the protégé would qualify. This structure was meant to be an incentive for larger firms to mentor and assist smaller ones. As of this writing, more than 1800 mentor-protégé pairs have found this incentive significant enough to participate in the SBA program. Now, SBA is considering muting this incentive by either eliminating the affiliation exception for MPJVs for (1) multiple award contracts or, alternatively, for (2) contracts or orders with a duration longer than five years. SBA is apparently concerned that MPJVs have been too successful and are winning an inordinate number of such contracts. If it seems odd to see an agency attempting to tamp down the success of its own program, that is because it is. If implemented, SBA’s proposed changes would significantly  limit the potential value of the mentor-protégé program for current and future MPJVs. This is because, as anyone watching the industry knows, more and more work is being awarded through GSA Schedules and government-wide multiple award vehicles that almost always have a duration that is longer than five years. Essentially, SBA would limit MPJVs to one-off awards in a way that no other small business program is limited. Without the exception from affiliation, MPJVs would no longer be eligible for award of multiple award contracts, or contracts or, alternatively, orders with a duration that is longer than five years. SBA’s concerns appear to be driven by (a) the success of MPJVs on long-term contracts (at the expense of other concerns) and (b) the life of the JV entities extending for significantly longer than the six-year mentor-protégé period. As to the first, SBA’s concern that MPJVs are winning too much work at the expense of standalone small businesses may be valid, but one would hope that it is outweighed by the benefits of the mentor’s work with the protégé. If the benefits of the relationship are falling short, SBA should focus there and not on the success of MPJVs themselves. As to the second possible concern, we are not aware of MPJVs existing in perpetuity. Instead, they exist as long as it takes to complete the work they have committed to completing and then to close out those contracts. That is the minimum the government should expect, rather than putting an artificial cap on their lifespan. SBA’s proposals here are also likely to have negative effects for standalone small businesses. Without MPJVs, agencies may find the small business rule of two difficult to satisfy and, as a result, larger contracts will simply be awarded on a full and open basis. A better solution would be to study what benefits protégé firms are receiving and how long-term protégé outcomes could be improved (if at all). Contracting Officers could also consider capping the number of MPJV awards for particular contracts or creating an MPJV pool if they share SBA’s concerns (which isn’t evident at the moment). Comments are due by September 17, 2024, but SBA did not indicate when it might issue a final rule.Second, the Eleventh Circuit issued a decision in <a href="https://media.ca11.uscourts.gov/opinions/pub/files/202213598.pdf" target="_blank">Yorktown Systems Group Inc. v. Threat Tec LLC</a> regarding a dispute between a mentor and its protégé.  Specifically, Yorktown, the mentor, was able to preliminarily enjoin the protégé, Threat Tec, from terminating a subcontract between the MPJV and the mentor for convenience. The lower court found, and the Eleventh Circuit agreed, that the protégé breached its fiduciary duty and could not hide behind the termination for convenience clause to “turn on the mentor” and act in its own interests to cut the mentor out of its share of work. The court went as far as saying the protégé’s actions were “the epitome of disloyalty.” Disputes among mentor and protégé pairs occur, but rarely do they spill over into court. This case serves as a reminder that just because a protégé is in control of an MPJV does not necessarily mean it has the unilateral right to unjustifiably terminate subcontracts between the MPJV and the mentor without repercussions. This case should also serve as a comfort to potential mentors who worry about protégés being given too much power over MPJVs due to SBA’s regulations requiring protégés to have control.It will be interesting to see how these issues play out in the future.

Summertime Sadness for Mentor Protégé Joint Ventures

The Small Business Administration (SBA) Office of Hearings and Appeals (OHA) has yet again clarified that a company’s size change in connection with a merger-and-acquisition event generally does not prevent the company from continuing to bid on set-aside orders under its General Services Administration Federal Supply Schedule (FSS) contract. The new OHA decision is Size Appeal of LinTech Global, Inc., SBA No. SIZ-6287 (2024). The decision highlights widespread confusion—including within SBA itself—as to what the governing regulations mean.The case involved a company that was awarded a GSA FSS contract in 2020. At that time, it certified as small under NAICS Code 541512. In mid-2022, the company was awarded a small business set-aside Blanket Purchase Agreement (BPA) under its FSS contract. In late 2022, the company was acquired and experienced a change in control. In early 2023, it timely recertified as other-than-small pursuant to FAR 52.219-28 and 13 C.F.R. § 121.404(g)(2). A few months after recertifying as large, the company bid on a small business set-aside task order under its FSS BPA. The contracting officer did not seek recertifications in connection with the order. The company was selected as the apparent awardee, which sparked a size protest from a disappointed bidder.The SBA Area Office dismissed the size protest as untimely because the contracting officer had not requested a recertification in connection with the order. The SBA Area Director, however, then filed her own size protest (which is always timely), asserting that the contractor became ineligible to bid on any FSS set-aside procurements once it recertified as other-than-small in connection with the FSS contract itself. The SBA Area Office sided with its Area Director and determined the company to be ineligible to bid on the FSS order because it was no longer small.The company appealed to OHA. Citing the text of 13 C.F.R. § 121.404(g), the company argued that its required recertification under the FSS contract did not alter its eligibility to bid on small business set-aside orders under the FSS contract, absent a request to recertify in connection with a particular order—which did not occur here. SBA’s Office of the General Counsel took the opposition position and defended the Area Office’s adverse size determination:<blockquote>SBA has been clear since updating its rules for [MACs] that recertification because of merger and acquisition means replacing the original certification on the contract, and that after the firm recertifies it would no longer be eligible for contracts (task orders) set-aside for small businesses. . . .</blockquote><blockquote>Contrary to [Appellant’s] argument, the [e]ffect of recertifying size for a [MAC] (whether priced, unpriced, restricted, unrestricted, whether schedule or not) has not changed since 2013.  Large companies cannot buy into small business contracting and contracts.  Mergers and acquisitions require a recertification, and that recertification replaces the original certification and renders the large business ineligible for future small business contracts (in this case task orders).</blockquote>Size Appeal of LinTech Global, Inc., SBA No. SIZ-6287 at *11-*12 (2024). SBA argued that, whatever one might say about the clarity of the regulation, its intent has been “extremely clear” for many years and the intent of the “base rule” for multiple-award contracts can be summed up as “when a recertification occurs [in connection with a merger-and-acquisition event], the new certification replaces the old, and the old certification ‘no longer exists.’” Id. at *11.  SBA argued the regulation, with its multiple nested paragraphs and various permutations, is meant to enshrine a longstanding “overarching policy goal” that “large entities should not be permitted to buy their way into small business set-asides through a merger or acquisition.”  Id. at *18.OHA acknowledged SBA’s policy and intent arguments, but rejected them as contrary to the text of the regulation itself: “In order to be given legal effect, though, SBA’s general policy must be reflected in the regulations themselves. The plain text of § 121.404(g), and OHA case precedent, confirm that Appellant here was eligible to compete for, and be awarded, the instant task order.” Id.Rather than be swayed by policy arguments, OHA hewed to its prior case law, consistent with the GAO’s recent decision in <a href="https://www.gao.gov/assets/870/864489.pdf" target="_blank">Washington Business Dynamics, B-421953, B-421953.2, Dec. 18, 2023</a> (which we covered <a href="/topics/gao-finds-company-s-bpa-bid-remains-eligible-for-award-despite-a-transactional-recertification-and-change-in-size-status-in-connection-with-its-underlying-federal-supply-schedule-contract" target="_self">in this blog</a> a few months ago). Rejecting SBA’s formulation of the “extremely clear” “base rule,” OHA provided a different summary rule:<blockquote>[D]ue to an acquisition, Appellant became other than small after its MAC was originally awarded but prior to submitting an offer for a task order that [is] set-aside for small businesses.  Appellant’s acquisition triggered a requirement to recertify at the contract level, thereby limiting the procuring agency from exercising options or counting awards towards small business goals.  13 C.F.R. § 121.404(g).  Neither the plain language of the regulation nor OHA case law, though, bars the contractor from competing for, or being awarded, future task orders, even if those orders are set aside or restricted for small business.</blockquote>Id. The outcome would have been different if the ordering contracting officer had requested a size recertification at the order level. But, absent such a request, the company remained eligible to bid on and be awarded set-aside orders under its FSS contract.Takeaways:<ul><li>An agency’s intended policies and contrary intentions must be reflected in the clear terms of its promulgated regulations.</li><li>As a general rule, subject to exceptions, a previously small FSS contractor may continue to bid on set-aside FSS orders even after it recertifies as a large business following a transaction. Absent a request for recertification at the FSS order level, the recertification affects size goaling credits, and not award eligibility under the current regulations.</li><li>The regulations governing award eligibility following a transaction are complicated, filled with exceptions, and difficult even for lawyers to untangle. Unless SBA reissues the regulations in much simpler and clearer form, small businesses being acquired and companies doing the acquiring would do well to seek counsel from attorneys who are well versed in these rules.</li><li>The same company may be eligible for new set-aside awards under one contract, but ineligible under another contract. And, even under the same contract, eligibility may depend on the particulars of specific orders.</li></ul>

The Small Business Administration (SBA) Office of Hearings and Appeals (OHA) has yet again clarified that a company’s size change in connection with a merger-and-acquisition event generally does not prevent the company from continuing to bid on set-aside orders under its General Services Administration Federal Supply Schedule (FSS) contract. 

OHA Rules Company Remains Eligible for Award of Small Business Set-Aside Schedule Orders Even After Acquisition by a Large Business

The U.S. Office of Management and Budget (OMB) has issued <a href="https://www.whitehouse.gov/wp-content/uploads/2024/01/REV_Increasing-Opportunities-to-Small-Businesses-under-MACs-CATS-Final-Copy-1-25-24.pdf" target="_blank">a policy memorandum</a> with a goal of promoting small business participation under multiple-award indefinite delivery/indefinite quantity contracts (MACs). One of the memorandum’s three areas of focus – and the focus of this article – is the “[a]ward of orders under new and existing agency and government-wide multiple-award contracts.” Although the memorandum’s policies will require notice-and-comment rulemaking to take effect, OMB is encouraging agencies to begin implementing them now. The policy garnering the most attention is a directive that contracting officers “should” conduct a Rule of Two analysis before competing task orders under MACs and “should” document any decision not to set aside such requirements for small business concerns. This would constitute a significant shift in the treatment of task orders. The Rule of TwoOne of the touchstones of federal small business contracting is the “Rule of Two,” codified at Federal Acquisition Regulation (FAR) 19.502-2. For acquisitions valued at more than the micro-purchase threshold, but no more than the simplified acquisition threshold, a contracting officer ordinarily must set the procurement aside for small business concerns “unless the contracting officer determines there is not a reasonable expectation of obtaining offers from two or more responsible small business concerns that are competitive in terms of fair market prices, quality, and delivery.” FAR 19.502-2(a). For acquisitions valued at more than the simplified acquisition threshold, the contracting officer must set aside the procurement for small business concerns when there is a reasonable expectation that offers will be received from at least two responsible small business concerns, at fair market prices. FAR 19.502-2(b). The FAR makes clear that the Rule of Two and other FAR Part 19 preferences do not apply to orders under Federal Supply Schedule (FSS) contracts, although contracting officers have the discretion to set aside those orders for small business concerns, too. See FAR 8.405-5(a)(1). But how (if at all) does the Rule of Two apply to acquisitions using MACs? For example, if an agency has a requirement, and it knows of four responsible small businesses that are willing and able to perform the requirement at fair market prices, may the agency issue an in-scope task order for that work under an existing MAC that has no small business contract-holders? What about an existing MAC with both large and small contract-holders: may the agency compete the task order among all the holders, without using a set-aside, even if there are two small business contract-holders willing and able to do the work? Legal DisagreementThe Government Accountability Office (GAO) has noted that the Small Business Jobs Act of 2010 permits contracting agencies, “at their discretion” and “notwithstanding the fair opportunity requirements under” 10 U.S.C. § 3406(c), to set aside orders placed against multiple award contracts for small business concerns. See ITility, LLC, B-419167, Dec. 23, 2020, 2020 CPD ¶ 412 at 10-14.  The GAO reasons that this discretionary language means an agency is not required to perform a Rule of Two analysis before selecting a MAC to fill a requirement, and (once a MAC is selected) is not required to set the order competition aside for small businesses even if the Rule of Two is satisfied under that contract or otherwise. Id. at 19.Judge Solomson at the Court of Federal Claims and the Small Business Administration (SBA) have read the same statute and regulations very differently. In their analysis, FAR 19.502-2’s directive to set aside “any acquisition” that satisfies the Rule of Two necessarily includes acquisitions by task order – even when the overall MAC is not set aside. See Tolliver Grp., Inc. v. United States, 151 Fed. Cl. 70, 55 (2020). These authorities point to FAR 8.404(a)’s specific carve-out for FSS procurements as evidence that “where the FAR intends to make the Rule of Two entirely inapplicable to the selection of a particular procurement vehicle, the FAR knows how to do so.” Id. at 56. In their view, if the Rule of Two did not apply prior to selection of a MAC vehicle, the FAR would have said so. And, in their reading, the fact that the Small Business Jobs Act clarified agencies are permitted to set aside task orders under MACs did not make the Rule of Two optional before deciding what vehicle to use for the procurement. Thus, under Tolliver, if an agency has reason to expect two or more responsible small business concerns would submit proposals to fill specific requirements at fair market prices, the agency must set those requirements aside for small businesses, even if the agency has access to a MAC where there are no small business contract-holders or where set-asides otherwise would be discretionary. Broadly speaking, the Tolliver holding reflects the SBA’s own reading of the Small Business Jobs Act and the set-aside regulations with respect to MACs (in contrast to longstanding practice, which conforms more closely to the GAO’s position). New OMB Memorandum  Enter the new OMB memorandum. The memorandum articulates a policy that, apart from certain stated exceptions, agencies “should” set aside an order for small business concerns if the Rule of Two is met. The memorandum appears to contemplate that the Rule of Two analysis should occur before an agency decides whether to meet its requirements using an existing MAC. The results of that analysis should then inform the decision of which MAC to use, or whether not to use a MAC at all. The memorandum also provides that contracting officers “should” document any decision not to set aside an order, including in cases where a chosen MAC has no or only one small business contract-holder. This documentation is to include an explanation for why the agency decided to choose a particular MAC to fill the requirements, and what market research showed concerning availability of small businesses not on the chosen vehicle. The memorandum envisions that the SBA will receive copies of such documentation for acquisitions above a certain value. The memorandum states that the SBA and FAR Council have begun drafting proposed regulatory amendments to implement the policies set forth in the memorandum. Although these policies will not go into effect until the regulatory amendments have gone through notice-and-comment rulemaking and have been duly promulgated, OMB “encourages early agency adoption of these management steps.”Takeaways1. For the time being, the memorandum’s policies lack the force of law, although OMB encourages agencies to begin implementing them voluntarily now. Until new regulations are promulgated, the GAO will likely not sustain a protest for a failure to employ the Rule of Two in connection with a task order procurement. And, in accordance with Tolliver, at least one judge on the Court of Federal Claims is likely to sustain a protest on this basis even without new regulations. 2. The SBA and the FAR Council will have to decide what to do with all the “shoulds” in the memorandum. Ordinarily, “should” means one is encouraged to do something but not strictly required to do so. This falls on middle ground somewhere between the Court’s Tolliver decision (mandating a Rule of Two analysis before choosing a MAC) and the GAO’s ITility decision (leaving set-aside decisions and the Rule of Two wholly to the procuring agency’s discretion if it chooses to use a MAC). 3. If the SBA and FAR Council decide that a Rule of Two analysis is required for all MACs across the federal government, it would constitute a significant shift in the previously discretionary regime. Large firms on mixed-size MACs will likely see significant decreases in expected opportunities, even on existing contracts.4. None of the memorandum’s discussion of MACs applies to competitions under FSS contracts. Everyone appears to agree that agencies do not have to undertake a Rule of Two analysis before placing orders or competing Blanket Purchase Agreements under the FSS program.

OMB Says Agencies “Should” Perform a Rule of Two Analysis and Set Aside Requirements for Task Orders Under Multiple-Award Contracts

OMB Says Agencies “Should” Perform a Rule of Two Analysis and Set Aside Requirements for Task Orders Under Multiple-Award Contracts

The U.S. Office of Management and Budget (OMB) has issued a policy memorandum with a goal of promoting small business participation under multiple-award indefinite delivery/indefinite quantity contracts (MACs). 

Small business regulations create one of the stickier wickets in bid protest litigation. Although the Small Business Administration (SBA) has exclusive authority to determine a company’s size and socioeconomic status, the Government Accountability Office (GAO) sometimes must wrestle with size and status questions to adjudicate bid protests. The GAO’s recent decision in <a href="https://www.gao.gov/assets/870/864489.pdf" target="_blank" dir="ltr">Washington Business Dynamics, B-421953, B-421953.2, Dec. 18, 2023</a>, includes a lengthy analysis of a particularly complicated question: the effect of a merger or acquisition on a pending quotation for an order or Blanket Purchase Agreement (BPA) under a Federal Supply Schedule (FSS) contract. In this decision, the GAO held that, although a company recertified its size under an FSS contract following a merger or acquisition, that recertification did not trigger a further recertification in connection with its pending quotation for a BPA under that FSS contract. That, at least, was the outcome under the regulations as they stood at the time and the facts of this particular case.Factual BackgroundThe protest involved an Office of Personnel Management (OPM) Request for Quotations (RFQ) for a BPA under Federal Acquisition Regulation (FAR) Subpart 8.4. OPM issued the RFQ to service-disabled veteran-owned small businesses (SDVOSB) holding FSS contracts for professional services. The RFQ did not request vendors to recertify their size or status in connection with the procurement.On February 1, 2023, the protester (which was the incumbent for these services) submitted its quotation in response to the RFQ. At that time, and as of the date of its initial offer for its underlying FSS contract, the protester was an SDVOSB. On June 28, 2023, which was 147 days after it submitted its quotation, the protester was acquired by a non-SDVOSB firm and lost its SDVOSB status as a result. In accordance with FAR 52.219-28(b)(2), the protester timely notified OPM under the protester’s incumbent BPA of the acquisition and that it was no longer an SDVOSB.OPM completed the procurement for the new BPA, documented that the protester was no longer an SDVOSB, and awarded the BPA to a vendor with a lower price and equal non-price ratings. The protest followed.AnalysisAs a threshold matter—and the question on which this article focuses—OPM requested that the GAO dismiss the protest because the protester’s change in size status allegedly meant it was no longer eligible for award of the BPA. According to OPM, because the protester ceased to be an SDVOSB within 180 days after the submission of its BPA quotation, the protester was ineligible for award pursuant to 13 C.F.R. § 121.404(g)(2)(iii). That regulation, in the form it existed at release of the RFQ, provided:If the merger, sale or acquisition occurs after offer but prior to award, the offeror must recertify its size to the contracting officer prior to award.  If the merger, sale or acquisition (including agreements in principal [sic]) occurs within 180 days of the date of an offer and the offeror is unable to recertify as small, it will not be eligible as a small business to receive the award of the contract.  If the merger, sale or acquisition (including agreements in principal [sic]) occurs more than 180 days after the date of an offer, award can be made, but it will not count as an award to small business.13 C.F.R. § 121.404(g)(2)(iii) (emphasis added). SBA subsequently amended this regulation to provide that it applies not only to offers for the award of a contract, but also to offers for the award of an order or agreement; it appears unlikely this change would have altered the outcome here, but that is an open question, as the GAO found the amendment had no effect on this procurement. The GAO sought input from SBA, which apparently agreed with OPM and the awardee that the acquisition required the protester to recertify in connection with the procurement and, because the transaction occurred within 180 days after submission of the protester’s quotation for the BPA, the protester’s change in status made it ineligible for award.The GAO disagreed and found that OPM’s and SBA’s interpretation of the governing SBA regulations was unreasonable. In the GAO’s view, these recertification and ineligibility provisions do not apply to quotations for orders and BPAs under an FSS contract.  In Odyssey Systems Consulting Group, Ltd., B-419731 et al., July 15, 2021, 2021 CPD ¶ 260, the GAO previously considered the 180-day rule in the context of a task order competition under a non-FSS multiple-award contract, where the contract was previously set aside for small business. In that context, where the contracting officer had not specifically required a recertification in connection with the order, the GAO held that an offeror remains eligible for award of the order, regardless of any transactions or size status changes inside or outside the 180-day window. As we have <a href="https://govcon.mofo.com/topics/220222-january-2022-bid-protest-roundup" target="_blank" dir="ltr">previously discussed</a>, SBA’s Office of Hearings and Appeals (OHA) has made the same determination. See Size Appeal of Odyssey Systems Consulting Group, Ltd., SBA No. SIZ-6135 (2021).Turning to the FSS BPA competition at issue here, the GAO began by quoting OHA’s recognition of the general rule that “a prime contractor that is small at the time of the contract award remains small for all orders issued under the contract, unless the [contracting officer], in his or her role discretion, chooses to request recertification on an individual order-by-order basis.” Size Appeal of EBA Ernest Bland Assocs. PC, SBA No. SIZ-6139 (2022), 2022 WL 529352 at *5.The GAO acknowledged that there are exceptions to this general rule. One of the exceptions applies to subsequent set-aside competitions under unrestricted multiple-award contracts. In such contexts, “a concern must recertify its size status and qualify as a small business at the time it submits its initial offer, which includes price, for the particular order or Blanket Purchase Agreement.” 13 C.F.R. § 121.404(a)(1)(i)(A) (for unrestricted multiple-award contracts assigned a single NAICS code); see also 13 C.F.R. § 121.404(a)(1)(ii)(A) (same for unrestricted multiple-award contracts assigned multiple NAICS codes). By the terms of the regulations themselves, however, this exception to the general rule does not apply to “orders and Blanket Purchase Agreements issued under any Federal Supply Schedule contract.” 13 C.F.R. § 121.404(a)(1)(i)(A); see also 13 C.F.R. § 121.404(a)(1)(ii)(A). Thus, there is no standalone requirement for vendors to recertify in connection with offers for orders or BPAs under an FSS contract. The GAO noted that SBA’s OHA has expressly held the same thing. Size Appeal of Oxford Gov. Consulting LLC, SBA No. SIZ-5732 (2016), 2016 WL 4990545 at *2 (“[R]ecertification is not required under a BPA issued against an FSS.”); see also Size Appeal of EBA Ernest Bland Assocs. PC, SBA SIZ No. 6139 (2022), 2022 WL 529352 at *6 (finding that, absent a specific order-level recertification requested by the contracting officer, there was no requirement to recertify at the FSS-order level).The GAO briefly noted that, for contracts already awarded, 13 C.F.R. § 121.404(g)(2)(i) (like FAR 52.219-28(b)) requires a contractor to recertify as small or notify the agency of a change in status under an awarded contract within 30 days after a merger, sale, or acquisition, where contract novation is not required. If the contractor is no longer small, the agency may continue to exercise options and issue new orders under the contract but can no longer count them towards its small business goals. This post-award recertification/notification requirement does not apply to pending offers.The GAO finally turned to 13 C.F.R. § 121.404(g)(2)(iii), which articulates the 180-day rule for pending offers. This rule is a creature of regulation and does not come from any specific statutory requirement. If a transaction occurs more than 180 days after the offer submission, and that causes a concern to exceed the size status, then, similar to 13 C.F.R. § 121.404(g)(2)(i), the concern remains eligible for the set-aside award, but the agency may not count the award towards its small business goals. If, however, the transaction occurs within 180 days after offer submission, then the concern will be ineligible to receive the award. The GAO agreed with the protester that 13 C.F.R. § 121.404(g)(2)(iii) is inapplicable to pending offerors for FSS orders or BPAs. The GAO observed that set-aside orders and BPAs issued against the FSS are expressly exempt from recertification requirements. 13 C.F.R. §§ 121.404(a)(1)(ii)(A), 121.404(a)(2). It also noted that SBA’s OHA has previously held that a transaction requiring an FSS contract-level recertification under 13 C.F.R. § 121.404(g)(2)(i) does not trigger a similar recertification obligation with respect to pending quotations for orders or BPAs under that FSS contract. Size Appeal of EBA Ernest Bland Assocs. PC, SBA SIZ No. 6139 (2022), 2022 WL 529352 at *4. Thus, consistent with this OHA holding, the GAO found the transaction had no effect on the protester’s eligibility for award of the BPA here.The GAO acknowledged, in a footnote, that the SBA raised policy reasons to support its position that the recertification regulations apply to all orders and agreements, including those under the FSS. But policy considerations cannot override the text of the regulations, which the GAO found expressly exempted FSS orders and agreements.The GAO, in another footnote, highlighted the “incongruous” results that would flow from OPM’s and SBA’s interpretation. Under the agencies’ interpretation, if the protester had been acquired before offer submission, then 13 C.F.R. § 121.404(a)(1)(ii)(A) would govern the subsequent BPA competition, under which the protester would not be required to recertify in connection with the offer and would be eligible for award. The GAO reasoned that, because there was no apparent reason for such an absurd result, the agencies’ preferred interpretation did not appear reasonable.The GAO noted its decision was “limited to the unique factual circumstances presented in this case,” but that was enough to find the protester was eligible for award and thus was an interested party with standing to protest. Unless the SBA amends its regulations, though, this decision will be instructive for FSS contractors in the not so “unique factual circumstances” of undergoing transactions while they have FSS order or BPA bids pending.Takeaways<ol><li dir="ltr">Small business regulations are complicated, as a general rule. And, as the GAO observed in Odyssey Systems, the regulations governing transactions in particular are “not a model of clarity.” Companies with small business contracts and proposals (and those interested in acquiring them) should seek legal counsel prior to any merger or acquisition.</li><li dir="ltr">Don’t assume the rules applicable to contracts are also applicable to orders and BPAs, or that the rules governing FSS orders and BPAs are the same as those governing non-FSS orders and agreements.</li><li dir="ltr">Careful parsing of the regulatory text is always necessary. What the small business regulations require and what the SBA intended them to require are not necessarily the same thing. Although the GAO will give due deference to SBA’s views, this and similar protest decisions show the GAO will not endorse an SBA interpretation that it finds is inconsistent with the text of a regulation.</li></ol>

GAO Finds Company's BPA BID Remains Eligible for Award Despite a Transaction, Recertification, and Change in Size Status in Connection with Its Underlying Federal Supply Schedule Contract

GAO Finds Company's BPA BID Remains Eligible for Award Despite a Transaction, Recertification, and Change in Size Status in Connection with Its Underlying Federal Supply Schedule Contract

Small business regulations create one of the stickier wickets in bid protest litigation. 

On December 22, 2023, President Biden signed the <a href="https://www.congress.gov/bill/118th-congress/house-bill/2670" target="_blank" dir="ltr">National Defense Authorization Act for Fiscal Year 2024</a> into law after bipartisan congressional majorities approved the bill earlier in the month. The annual bill authorizes appropriations and sets policy for the Department of Defense (“DoD”) and generally reflects the priorities of the House and Senate Armed Services Committees. Below, we review select provisions likely to be of greatest interest to government contractors. Many of these provisions will only take effect after the government promulgates implementing regulations, following notice-and-comment procedures.Noteworthy ProvisionsContract Administration<ul><li>Expansion of Multiyear Contracts. A need for industrial base stability can now justify multiyear procurement contracts. Previously, multiyear contracts were only permissible if the DoD determined they would bring “significant savings” to the total price that the government would pay over the course of the contract. In expanding the availability of multiyear contracts, Congress determined that reliance on cost savings only was too restrictive and that promoting defense industrial base stability was sufficient justification for longer contracts. (Section 820)</li><li>Extension of Inflation Relief. The DoD will have more time to write inflation adjustments into fixed-price contracts as the NDAA extends an inflation relief program first enacted in the Fiscal Year 2023 NDAA by a year, until December 31, 2024. The program allows DoD contracting officers to make price adjustments to contracts as compensation for high inflation, even for fixed-price contracts that do not otherwise provide for economic price adjustment. (Section 824)</li><li>Waiver of Procurement Rules for Replenishment of Stockpiles. Emergency acquisition authorities can now be invoked to replace military supplies that have been provided to allies. This provision expands upon emergency acquisition authorities at 10 U.S.C. §  3601, which allow the military to waive certain procurement rules, including competition requirements, in emergency situations. The provision was designed to accelerate the pace at which the United States can refill its stockpiles of weapons and other equipment that have been sent to Ukraine. (Section 831)</li><li>Earned Value Management System Exemption. DoD contracts and subcontracts for purchase of software will be exempt from Earned Value Management System requirements. The DoD has 180 days from the NDAA’s enactment to update the Defense Federal Acquisition Regulation Supplement (DFARS) to implement this provision. (Section 827)</li></ul>Contracting Innovation<ul><li>Increasing Use of Commercial Products and Services. As part of its continued efforts to simplify the process for DoD acquisition of commercial goods and services, Congress has directed the Under Secretary of Defense for Acquisition and Sustainment to prepare a report about the feasibility of several measures that would reduce administrative barriers to procuring commercial goods and services. The first measure would “establish a default determination” that products and services the military buys are commercial. Another measure would direct more acquisitions under FAR Part 12, which contains specialized procedures for commercial purchases. (Section 875)</li><li>Supply Chain Scrutiny. The supply chains of five weapons platforms will receive greater scrutiny under a DoD pilot program. The pilot program should “identify critical suppliers” and “potential risks to and vulnerabilities of” those suppliers. The program could also be used to develop strategies to expand production of each platform’s components. New technologies, such as artificial intelligence and machine learning, could aid in the identification and analysis of supply chain vulnerabilities. (Section 856)</li><li>DoD to Obtain Enhanced Data Rights. Congress wants the DoD to experiment with innovative intellectual property strategies to acquire more data rights in information technology products. The suggested new strategies include holding intellectual property data in an escrow account or the innovative use of royalties and licenses. Each military department must select one acquisition program for the new strategies, and an additional program will come from one of the DoD agencies or field activities. DoD components have until May 1, 2024, to designate the data rights pilot programs. (Section 808)</li><li>New Technology Acquisition Model. The DoD will run a pilot program to buy “technology-supported” capabilities on an “anything-as-a-service” model. This acquisition model should “provide users on-demand access, quickly add newly released capabilities, and bill based on actual usage at fixed price units.” The pilot program should only include capabilities for which there is a measurable outcome that can be compared to results using more traditional acquisition methods. Contracts could be signed quickly under this pilot program: the provision directs the military to enter into a contract or agreement within 100 days of providing public notice for each capability that it seeks to buy. (Section 809)</li></ul>Small Businesses<ul><li>Affiliate Past Performance May Be Considered. Contracting officers may now consider the past performance of a small business’s affiliated companies as the past performance of the small business in proposal evaluation. The DFARS must be amended by July 1, 2024, to implement the provision. (Section 865)</li><li>New SDVOSB Certification Requirement. Contractors and subcontractors will no longer be able to self-certify their status as service-disabled veteran-owned small businesses (SDVOSB). This provision will take effect at the beginning of the first fiscal year after the Small Business Administration (SBA) promulgates regulations implementing an SBA certification process. Contractors that have previously self-certified as SDVOSBs will have one year after the NDAA’s enactment to file for certification with the SBA. If contractors file within that one-year period, their self-certification will remain valid until the SBA rules on their certification applications. (Section 864)</li><li>Change to Federal SDVOSB Goals. The goal for SDVOSB contracting has been increased to five percent across the whole federal government, up from three percent. The government-wide goal had stood at three percent of the total value of prime and subcontract awards for more than two decades. (Section 863)</li></ul>Antitrust<ul><li>Expanded Role for DoD in Antitrust Reviews. The DoD could take on a greater role in antitrust enforcement for the defense industry going forward. The NDAA requires companies to notify the DoD of certain defense-related transactions, specifically mergers and acquisitions that must be reported to the Department of Justice and Federal Trade Commission under section 7A of the Clayton Act. Notably, an earlier Senate draft also would have required notice to DoD of other types of investments and joint ventures involving major defense contractors, not just mergers and acquisitions, but this provision was not included in the final bill. (Section 857)</li></ul>Greenhouse Gas Reporting<ul dir="ltr"><li dir="ltr">Delay and Elimination of Reporting Requirements. The DoD may not require nontraditional defense contractors to report greenhouse gas emissions at all and may not compel other contractors to submit greenhouse gas reports for at least a year, starting with the enactment of the NDAA. The provision includes exceptions, so certain contractors might be forced to disclose emissions to verify other reports or disclosures. (Section 318)</li></ul>Sanctions and Other Foreign Country-Related Restrictions<ul><li>No Contracts to Russian Energy Partners. DoD cannot award contracts to companies that partner with Russian state-owned oil or gas companies or any other company that extracts oil or gas in Russia. The provision includes humanitarian aid exceptions. It will expire at the end of 2029 without congressional renewal. (Section 804)</li><li>No Consulting Advice to Russia or China. Consulting firms cannot work for the DoD if they also work with Chinese or Russian government clients or sanctioned companies in those countries, unless they receive a waiver and implement a mitigation plan. (Section 812)</li></ul>Noteworthy Omission<ul dir="ltr"><li dir="ltr">Bid Protest Fee Shifting Provision Fails Again. The NDAA did not include a provision, which had passed the House, that would have created a “loser pays pilot program” for bid protests at the Government Accountability Office. Under the draft provision, contractors with more than $250 million in annual revenues that lost a bid protest at the GAO would have been required to reimburse the DoD for the cost of fighting the protest. A nearly identical provision passed into law in the Fiscal Year 2018 NDAA but was repealed before taking effect.</li></ul>Ethan Sterenfeld, a Law Clerk, contributed to the writing of this post.

Tina is a partner in Morrison & Foerster’s Government Contracts practice. She represents a wide variety of government contractors including information technology, defense, biotechnology, and pharmace

Tina Reynolds

Notable Provisions of the FY 2024 National Defense Authorization Act