Georgia Tech Procurement Assistance Center

Impacts of SBA’s proposed rule changing size status calculation

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The U.S. Small Business Administration (SBA) recently issued a Proposed Rule implementing the Small Business Runway Extension Act (the Act).  The proposal changes the calculation of a firm’s average annual receipts for purposes of determining eligibility for contracts set aside for small businesses.  Under the current rule, the SBA averages a company’s annual receipts for the preceding three years in order judge whether the company qualifies as a small business or has exceeded the applicable size standard.  If implemented, the Proposed Rule will expand the look-back period to five years.  Companies wishing to comment on the Proposal have until August 23, 2019.

This article examines the effect of the Rule on transactional work involving government contractors.

Summary of the Proposed Rule’s Impacts

The SBA’s size standards establish eligibility for a variety of federal small business assistance programs such as the SBA’s 8(a) Business Development (BD) program, the Historically Underutilized Business Zones (HUBZone) program, the Service Disabled Veteran-Owned Small Business (SDVOSB) program, the Woman-Owned Small Business (WOSB) program and the Economically Disadvantaged Woman-Owned Small Business (EDWOSB) program.  The size standards use annual receipts to determine eligibility for some industries, and use number of employees for others.  The Proposed Rule does not change the calculation method for employee-based standards.

By changing the calculation period from average annual receipts from three to five years, the SBA seeks to allow mid-sized businesses who have just exceeded size standards to regain their small business status, and for advanced small businesses close to exceeding the size standard to retain their small business status for a longer period.  

Continue reading at:  Holland & Knight

Congressional, executive, and legal developments for government contractors to consider

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Regulatory Developments

On June 24, 2019, the U.S. Small Business Administration (“SBA”) finally issued a proposed rule in response to the 2018 Small Business Runway Extension Act, which increased the time period over which receipts are averaged for purposes of calculating a concern’s size from three years to five.  The proposed rule specifies that it will go into effect only after the effective date of a final rule, confirming SBA’s intention to continue to apply the three-year averaging period to any certification submitted prior to the effective date of the final rule.

On May 20, 2019, the U.S. Department of Veterans Affairs (“VA”) issued a class deviation from Department of Veterans Affairs Acquisition Regulation (“VAAR”) 808.002, Priorities for Use of Government Supply Sources, and VAAR Subpart 808.6, Acquisition from Federal Prison Industries, Inc., the two provisions implementing the FAR Part 8 mandatory source priority of AbilityOne Procurement List and Federal Prison Industries contractors.  The class deviation effectively gives Veterans First providers priority over AbilityOne providers in all VA contract opportunities should two or more veteran-owned small businesses (“VOSBs”) or service-disabled veteran-owned small businesses (“SDVOSBs”) be capable of performing the contract at a reasonable price.  The newly implemented class deviation preempts the AbilityOne priority in all VA procurements in favor of a Veterans First priority.  However, “if an award is not made to an eligible . . . VOSB under VAAR Subpart 819.70, the priority use of AbilityOne applies, and supplies and services on the Procurement List are mandatory sources.”  The class deviation was immediately effective and to be implemented in all VA contracts.

On June 11, 2019, the House Armed Services Committee published the draft 2020 National Defense Authorization Act (“NDAA”).  Notable potential changes include a reduction in the monetary threshold for enhanced DoD post-award debriefing rights and a grant of permanent authority for DoD’s Mentor-Protégé Program.  The 2018 NDAA implemented “Enhanced Post-Award Debriefing Rights” for certain DoD procurements.  This change required defense agencies to provide the agency’s written source selection award determination for all small business contracts valued between $10 and $100 million, and all defense contracts valued over $100 million.  Section 828 of the draft 2020 NDAA would reduce the monetary threshold for these enhanced debriefings to only $50 million, significantly increasing the number of procurements for which they must be provided.  Section 881 of the draft NDAA permanently authorizes the DoD Mentor-Protégé Program and requires that the DoD’s Office of Small Business Programs establish mentor-protégé performance goals and periodic reviews.

Continue reading at:  Venable LLP

Clayton County ‘opportunity zone’ which overlaps a HUBZone provides incentives for government contractors

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An Opportunity Zone is a community investment tool established by Congress in the Tax Cuts and Jobs Act of 2017 to encourage long-term investments in low-income urban and rural communities.  Clayton County has set aside funds to grant to small businesses as their down payment for a SBA-backed loan should they choose to relocate to Clayton County’s Opportunity Zone.  The area is also located directly next to the Hartsfield-Jackson International Airport, making exporting a reality for businesses located in the Opportunity Zone.  The Opportunity Zone located in Clayton County overlaps as a HUBZone as well, providing additional potential advantages if the small business qualifies for the HUBZone program (Please note that to qualify for the HUBZone program, not only does your principal place of business need to reside in a HUBZone, but the requisite number of employees, 35%, need to also reside in a HUBZone to qualify). 

You can learn more about the Clayton County “opportunity zone” incentives here:  Atlanta Small Business Network

See also:  SBA posting regarding Clayton County “opportunity zone.”

You can learn more about the SBA HUBZone program here:  SBA HUBZone Program website

SBA OHA: for calculating receipts, look to tax returns

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To calculate a company’s size under a receipts-based NAICS code, the SBA will add the company’s total income to its costs of goods sold, as those amounts are reported on its tax returns.  In fact, the SBA’s regulations are clear that it must use these reported amounts to determine a company’s size status.

What happens, then, when a company’s taxes show “income” that might not really reflect money in the company’s accounts?  The SBA’s Office of Hearings and Appeals recently considered this question, and affirmed a company’s ineligibility based on the income reported in its tax returns.

Continue reading at:  SmallGovCon Blog

 

SBA to end WOSB/EDWOSB self-certification after watchdogs flag ineligible companies

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With one in four dollars spent in federal contracts now going to small businesses, the Small Business Administration is looking to give more teeth to the verification process for companies that claim to meet the criteria for this lucrative market.

For the sixth year in a row, agencies exceeded SBA’s governmentwide small business contracting goal and spent more than $120 billion on small-business contracts, exceeding last year’s record by nearly $15 billion.  Agencies awarded 25 percent of their contract spending to small businesses in fiscal 2018 and earned an overall ‘A’ rating on SBA’s annual small business scorecard.

But next year, SBA expects to have finalized a rule that would close a loophole that allowed for participants in SBA’s Women-Owned Small Business (WOSB) program to self-certify they’re eligible for the program.

The Government Accountability Office reported in March that about 40% of the WOSB-certified businesses in its audit sample were ineligible for the program.  GAO had also expressed concerns about the performance of several third-party WOSB certifiers.

“As a result, SBA cannot provide reasonable assurance that WOSB program requirements are being met and that the program is meeting its goals,” GAO auditors wrote.

Continue reading at:  Federal News Network

Agencies improved on small business goals, but can do more

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Federal agencies improved on their commitment to award contracts to small businesses in 2018, though they still fell behind in goals for contract awards to women-owned small businesses, according to the Small Business Administration’s procurement scorecards released June 25.

The government as a whole received an “A” for 2018 — meaning that it met or exceeded 100 percent of the goals set for small business contracting that year — a grade that it has maintained for the past five years.

The Departments of Education, Commerce and the Treasury led the pack of 24 agencies that were evaluated, each earning an A+ and meeting over 130 percent of the established goals for small business contract awards.

Meanwhile, the Office of Personnel Management, Department of Health and Human Services, the Agency for International Development and the National Science Foundation failed to meet their small business contract goals, with NSF achieving the lowest score at just over 85 percent of their goal.

But despite the overall successes for small business contract awards, some categories of small businesses failed to meet governmentwide metrics.

Continue Reading at:  Federal Times

Senate highlights decline in number of small businesses getting federal contracts

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Recently, a member of the Senate Committee on Small Business & Entrepreneurship called for increased small business participation in federal contracts during a hearing on the SBA’s contracting programs.  Senator Ben Cardin based his concern on a recent report showing that the number of small businesses with federal contracts was at a 10-year low.

The report found that federal agencies had awarded contracts to 32 percent fewer small businesses in 2018 versus 2009.  In contrast, the number of large contractors receiving awards fell only 4% during the same time frame.

The Senator’s take on this report was that, “while contracts are getting bigger and bigger, we are creating an insular club where fewer and fewer businesses successfully compete for government contracts.”  He added, “[t]hat’s contrary to what these set-asides and programs are all about, which is encouraging new small businesses that can bring innovation and job growth to our economy and help our nation.”

Sen. Cardin also noted that, while federal agencies are meeting their goal of spending 23 percent of contracts on small businesses, “the data shows that we have a shrinking base of contractors rather than an expanding base of contractors.”

In other words, fewer small businesses are receiving the benefit of those set asides.

Continue reading at:  SmallGovCon

All small mentor-protégé program 2019 mid-year report

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The Small Business Administration (SBA) began accepting applications for the All Small Mentor-Protégé Program (ASMPP) in 2016 and has seen a surge in applications in each subsequent year.

Under the ASMPP, any small business – including 8(a) small businesses, Historically Underutilized Business Zone (HUBZone) small businesses, veteran-owned and service-disabled veteran-owned small businesses (VOSB/SDVOSBs), woman-owned and economically disadvantaged woman-owned small businesses (WOSBs/EDWOSBs) – may enter into an agreement with a large business under which the large business will provide mentorship and assistance.  In return, the large and small businesses are permitted to joint venture to perform federal small business set-aside contracts.

As of mid-year 2019, below are some fast figures about the ASMPP, as reported by the SBA, that both large and small businesses need to know…

Continue reading at:  BuildSmart

SBA issues proposed rule implementing Small Business Runway Extension Act

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The U.S. Small Business Administration (SBA) just issued its long-anticipated Proposed Rule implementing the Small Business Runway Extension Act (the Act).  In a previous Holland & Knight blog post, they discussed the SBA’s position that the Act would not be effective until the rulemaking process was completed.  If implemented, the Proposed Rule will modify the SBA’s method for calculating annual average receipts used to prescribe size standards for small businesses.  Specifically, the SBA proposes to change its regulations so that a five-year averaging period (instead of three years) is used when calculating the annual average receipts for all SBA receipts-based size standards and other agencies’ proposed size standards for service-industry firms.

Notably, however, the SBA is proposing to restrict the benefit of this change.

First, SBA takes the position in the commentary to the Proposed Rule (consistent with its previous positions and described more fully below) that the change does not go into effect until its rulemaking is completed. Second, the SBA states that the change will not be applied retroactively when it considers size appeals so that SBA will review a size challenge in accordance with the size standard in effect at the time of the challenged company’s certification. Third, the SBA is not changing non-SBA size standards and leaves such changes to the individual agencies. Further, the SBA has not abandoned its position that the Act does not mandate this change. The SBA states that it is only proposing these rules in the interests of economy and because the new rules do not conflict with the SBA’s existing statutory authority and is consistent with Congress’ intent.

The SBA also points out that while this change will benefit growing small businesses, it could detrimentally impact large businesses that are losing revenue. For those businesses, the longer look-back period may cause them to take longer to regain small business size status.

Finally, SBA’s commentary reiterates its position that receipts of a former division count when determining size status while the receipts from a concern’s former subsidiary do not. There was no additional language in the proposed rule to reflect this sentiment, but contractors and practitioners should take notice.

Continue reading at:  Holland & Knight

SBA denies 8(a) status based on applicant’s ability to successfully overcome gender-based discrimination in her field

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OHA recently affirmed the 8(a) status denial of a 100% woman-owned small business performing in the historically male-dominated renewable energy field.  The applicant—who SBA called an “advocate” and “mentor” to women in the industry—detailed specific instances of gender-based-discrimination that plagued her education, employment, and career.  But SBA was unmoved, instead focusing its analysis on the applicant’s triumph over these obstacles—apparently an indication that she was not socially disadvantaged in the first place.  

Continue reading at:  SmallGovCon

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