New SBA rules affect small businesses in significant ways

March 21, 2011 by

Newly-published rules by the Small Business Administration (SBA) address the justification and approval process associated with large sole-source contract awards to 8(a) firms; address parity among 8(a), HUBZone, and SDVOSB firms; set a minimum for the amount of work an 8(a) firm must do when joint venturing with a large business; and propose increases in the small business size standards for some industries.  Public comment is being solicited on the last item.

Specifically, the rules:

  1. Require federal agencies to issue a Justification and Approval prior to the award of 8(a) sole source contracts over $20 million;
  2. Clarify a contracting officer’s ability to use discretion when determining whether an acquisition will be restricted to small businesses participating in the 8(a), HUBZone or service-disabled veteran-owned small business (SDVOSB) programs;
  3. Quantify the amount of work that an 8(a) firm must perform when joint-venturing with a large business; and
  4. Propose increases in the small business size standards for dozens of service industries in NAICS codes 54 and 81.  (The last major size standard changes took place 25 years ago.)

The first two rules were issued as interim rules by the SBA and the Federal Acquisition (FAR) Council, and are effective immediately.  The third item is a proposed rule.  All were published on March 16, 2011 in the Federal Register.

Here are the details on the rules.

Justification and Approval for 8(a) Sole-Source Awards Above $20M

The FAR Council issued an interim rule implementing Section 811 of the National Defense Authorization Act for Fiscal Year 2010 (Pub. L. 111-84), which requires federal agencies to issue a Justification and Approval (J&A) prior to awarding a sole-source contract over $20 million under the 8(a) program.  The J&A must be approved by an appropriate official (as currently defined by FAR 6.304) and made public after award of the contract.  Prior to the enactment of section 811, a sole-source award of a new contract made using the 8(a) contracting authority did not require a J&A, regardless of the dollar value.  Under the interim rule, the J&A must document the reasons for making a sole-source award rather than a competitive award under the 8(a) program.  The rule institutes no new requirements for sole-source 8(a) awards less than or equal to $20 million.  Here is the full text of the rule: Justification and Approval of Sole-Source 8a Contracts 03.16.2011.

Parity Among 8(a), HUBZone, or SDVOSB Programs

The FAR Council issued an interim rule implementing Section 1347 of the Small Business Jobs Act of 2010 (Pub. L. 111-240) and clarifying that there is parity when a contracting officer selects among small businesses participating in the 8(a), HUBZone and SDVOSB programs.  Under the interim rule, contracting officers will have the discretion to determine whether an acquisition will be restricted to one of these three programs.  The full text of the rule is available here: Socioeconomic Program Parity 03.16.2011.

This interim rule also clarifies that:

  • Although there is no order of precedence among the three programs, if a requirement has been accepted by SBA under the 8(a) program, it must remain in the 8(a) program unless SBA agrees to release it;
  • For acquisitions exceeding the simplified acquisition threshold (that is, contracts more than $150,000), contracting officers must consider a set-aside or sole source award to a small business under the 8(a), HUBZone, or SDVOSB programs before proceeding with a small business set-aside; and
  • The small business set-aside requirement under FAR 19.502-2(a) does not preclude award of a contract to a participant in the 8(a), HUBZone, or SDVOSB programs.  SBA regulations give contracting officers the authority to use these programs at dollar levels above the micro-purchase threshold and at or below the simplified acquisition threshold.

It is important to note that the interim rule does not address SBA’s new Women-Owned Small Business (WOSB) program.  The WOSB program will be addressed as a separate interim rule under FAR Case 2010-015 and implement the SBA’s WOSB Federal Contract Program final rule (75 FR 62258, October 7, 2010).  The SBA rule provides for parity between WOSBs and other small business contracting programs.

Minimum Amount of Work 8(a) Firms Must Perform in Joint Ventures

To get access to set-aside contracts, large companies can joint venture with 8(a) companies.  But SBA rules now say that the 8(a) firm must perform at least 40 percent of the work of each joint venture contract.  Previously, the SBA required that the 8(a) company in a  joint venture perform a “significant portion” of a contract’s work.

Service Industries – Small Business Size Standards

The SBA issued a proposed rule increasing the small business size standards for 35 industries and one sub-industry in North American Industry Classification System (NAICS) Code 54, Professional, Scientific and Technical Services, and one industry in NAICS Code 81, Other Services.  Many of the size standards would increase significantly under the proposed rule.  For example, several of the NAICS code 54 size standards will increase from $4.5 million - $7 million, to $14 million - $19 million.  It is estimated that SBA’s proposed size changes would let up to 9,450 additional firms be eligible for small-business contract preferences.  The full text of the proposed rule is available here: Small Business Size Standards – Proposed – 03.16.2011.

The SBA is accepting public comments on the proposed changes to the small business size standards through May 16, 2011.

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