Impact 2022 - SBA Proposal Rules

INITIAL THOUGHTS

Wow. It's like the SBA woke up one morning and said, "You know, the small business community is in trouble. More than half of DoD's industrial base (contractors) have left the market. So, let's put a couple dozen attorneys into a room and fix every issue that small businesses have told us to fix."

The proposed rule is 311 pages. I know more than a dozen attorneys that specialize in federal acquisition and they are going to have a field day trying to summarize the proposed changes. Seriously, good luck outlining these changes.

I'm not going to cover every proposed change. After three hours reviewing the Federal Register, I made notes on 30 proposed changes. There were more but I took notes on the ones most likely to impact RSM Federal clients and Federal Access Members.

For all the federal law firms, we need some webinars. Don't wait for the rule to be final. Many consultants are going to start talking about these proposed changes as if they have already taken place. There's going to be confusion in the market. Please let me know dates and times for your webinars and we'll market them to our clients and members.

LET'S FIX EVERYTHING (High Level Overview)

One of the first things that jumps-out is that the SBA is taking a smart approach to its socio-economic programs. They are working to standardize requirements across all statuses. Today, the requirements, how they certify, and how they apply regulations for size, status, affiliation, joint venturing, etc. is different between programs. This proposed rule is a major step forward in standardizing across the status programs. The SBA is creating "global changes." We don't always think of the government as strategic, but there were several mentions in the the proposed rules about VOSB and SDVOSB. This is excellent because SBA doesn't take over Veteran certifications until January 2023.

I'm taking bets on whether the SBA actually takes over Veteran certifications in January, but that's a post for another day.

Final notes before we dive in. If I missed something, let me know! We're a community. Hey, WOSB, the last two in the list are big ones. You may want to jump to the bottom.

Whether you are small business or large business, SBA needs feedback. Please submit your comments back to SBA on the Federal Register. It's not hard. Just type your thoughts.

DETAIL

No More Bundling of Small Business BPA Contracts

A bundled requirement is a type of consolidated requirement in which multiple small-business requirements are consolidated into a single, larger requirement that is not suitable for award to small businesses. There are two BPAs outlined by SBA: 1) GSA's Federal Supply Schedule BPAs (FAR 8.4) and BPA's established under Simplified Acquisition (FAR 13). In recent decisions, the GAO allowed bundling of two or more contracts and took the contracts away from small business...because SBA didn't specifically address BPAs.

👉 Completely concur with SBA to add BPAs to the other procurement actions on bundling. The SBA wants feedback on whether the updated rule should apply both single-award and multiple-award BPAs? That's a simple yes, it should apply to both.

Making Agencies Show Real Cost Analysis When They Want To Bundle

SBA proposes to clarify that an analysis comparing the cumulative total value of all separate smaller contracts with the estimated cumulative total value of the bundled procurement is required as part of the analysis of whether bundling is necessary and justified. Some have argued that the Small Business Act does not require a cost/price analysis. This is a simple mechanism to protect the small business community.

👉 It's about time. Yea, it's going to create more work for contracting officers, but this is critical to the small business community. With 50% of small business industrial base disappearing from DoD the last 10 years and a sharp increase in strategic sourcing and category management, the small business community needs less to worry about. Protecting small business contracts from consolidation and bundling is a major plus.

8(a) Joint Ventures - Unlimited Number of Contracts

Clarifying language that 8(a) JVs can win unlimited number of contracts during the two year period. No change. SBA says too many folks couldn't understand the last regulation update.

👉 This isn't new but there are still a bunch of small business counselors and consultants that believe the old rule of only three contracts remains in effect. Nope.

8(a) Joint Ventures - Two Year Period and Size Recertification

The proposed rule would clarify that the two-year limitation on contract awards to joint ventures does not apply to recertification.

8(a) Joint Ventures - Populated vs Unpopulated

Proposed rule will clarify that unpopulated JVs only apply to small business set-asides, including all socio-economic set-asides. This ensures SBA is able to verify that a large venturer in the JV doesn't do all the work whereby the small business is a pass-through. But, the regulation will also stipulate that a small business JV can be populated as long as each of the partners to the JV are similarly situated (both 8a, HUBZone, WOSB, SDVSOB, etc.)

👉 I like this proposed rule for several reasons. It allows smaller companies, especially those that are similarly situated entities to stand-up a populated JV and still compete for set-asides.

8(a) Joint Venture - Populated and Counting Receipts

Now this is a major proposed change. Recognizing that some JVs are populated for purposes other than performing set-aside contracts, SBA intends to update current regulation where the revenues on a given contract must be divided according to the same percentage as the JV partner's percentage share in the JV.

👉 Again, this is designed to ensure that a small business on a set-aside contract is not being used as a passthrough. I'm good with this change.

8(a) Joint Venture - Being On Two or More JVs For the Same MAC

There are some 8(a) firms that are on two or three different JVs, all bidding on the same multiple award contract. Various contracting officers and small businesses have raised concerns. The core issue is one company can have pricing intelligence and sharing among the teams. The proposed rule is that an 8(a) can only be on one JV for any specific multiple award contract.

👉 I predict this will be the most contentious of all the updates. I recognize not all companies are ethical. Being on multiple teams creates potential conflicts of interest. Pricing can be skewed. SBA wants feedback on this. Should the regulation apply only to multiple award contracts or also definite contracts set-aside for SDVSOB, WOSB, and HUBZone? In this case, I feel contracts that are not multiple award, are different, from a business perspective, than definite single award contracts. It would be a mistake for SBA to make a blanket rule, from a business perspective, that does not allow a company to be on multiple teams. What if you're a product company and you're the only company that sells your product? Even though I tell my clients to pick a horse and you'll likely make more money if you pick one team, I don't feel the government should add a regulation that impacts general business strategy. I concur with SBA from a multiple award contract perspective - but not a Definite Contract (DC) perspective.

8(a) Rule Change - Applying for 8(a) BD Program

Current rules for applying for 8(a) and proving economic disadvantage requires the business owner to provide "terms and restrictions" of Individual Retirement Accounts (IRAs). SBA does not believe this should me automatically included in an application and should only be provided to the SBA when requested to do so.

8(a) Two Year Rule - Applying for 8(a) BD Program

Under today's rules, the SBA is supposed to verify that a company has the contract, financial, technical, and management capability to be successful in government sales. The concern, as outlined by SBA, has been a perception that this requires private sector past performance with private sector revenues. The new rule will stipulate that if an 8(a) applicant does not have private sector past performance, then state, local, or federal contracts meet the past performance requirements.

👉 This is one issue that many of us are aware of. Like most of these proposed changes, I think this is excellent for minority and socially disadvantaged firms. Good job SBA.

8(a) Contracts and Change of Ownership

Clarification to 8(a) BD Program ownership requirements for existing 8(a) contracts where there is change of ownership. SBA will determine if the individual purchasing / taking over the 8(a) company qualifies as socially and economically disadvantaged and has not previously participated in the 8a program (one-time eligibility restriction). SBA believes this will be more of a prevalent issue for tribal and ANC entities as there is no one-time eligibility requirement.

👉 I think this is fairly common sense but if your company has an 8(a) sole-source or set-aside contract and you sell the company, the new owner needs to be actively in the 8(a) program to continue the contract and prevent the government from recompeting it. I can't tell if this is really new or clarification, but the genesis behind this rule is to say, "If you've already been in the 8(a) program, buying an existing 8(a) company doesn't bypass the one-time eligibility restriction. If you've already had your nine years in 8(a), buying a company that's 8(a) isn't going to make you 8(a) again. How's that for simplification?

8(a) Change of Ownership and SBA Approval

Regulations allow change in 8(a) ownership without receiving prior SBA approval. However, there are apparently some family-owned 8(a) firms that are dividing up ownership interest in order to bypass ownership rules. The updated rule states that SBA will aggregate the interests of all immediate family members.

👉 I've actually seen several family-owned 8(a) firms do this. No more.

8(a) BD Program - "Go directly to jail; do not pass go, do not collect $200"

If you owe money to the government, you're not getting 8(a) certified. 

8(a) BD Program - Business Plan Before Contract Award

The proposed rule would clarify that SBA must approve a participant's business plan (in the first 60 days) before the firm is eligible to receive 8(a) contracts.

👉 This is an interesting rule. Some firms have 8(a) contracts pending their certification. For those wondering how that's done - it's called a strong pre-acquisition sales strategy! They know what they're doing! SBA hasn't really done much on this front other than to indicate, as part of the rule, that they will fast-track approval of the business plan as part of its eligibility determination. My thoughts - it's as if the SBA has received a ton of complaints and is stating the obvious while not really changing much. Here's my question: What happens if SBA doesn't approve the business plan and requests that you make extensive changes? Won't the eligibility determination be on hold? How long will contracting officers wait? This one has me scratching my head.

8(a) BD Program - "There Can Be Only One!"

Yea, that's a quote from Highlander. This rule clarifies SBA's current position that would prohibit a contracting activity from restricting an 8(a) competition to participants that are also certified HUBZone, WOSBs, or SDVOSB.

👉 The fact that they have to modify the rule for this makes me want to go upstairs and take a diazepam. At least the updated rule will ensure contracting officers don't do this anymore.

Prohibit Moving an 8(a) Contract from Definite to Indefinite Delivery Contract

An 8(a) incumbent contractor may be seriously hurt by moving a procurement from an 8(a) sole source or competitive procurement to an 8(a) multiple award contract to which the incumbent is not a contract holder. SBA believes this contradicts the purpose of the 8(a) BD Program.

👉 I've seen quite a few 8(a) incumbents be told by their contracting officer that the recompete will be on a contract vehicle they don't have. I agree with this update.

8(a) Contract - No More Automatic Moves From 8(a) to WOSB and SDVOSB

Releasing contracts from the 8(a) Program is one of those activities that most contracting officers just don't attempt. However, there are a number of contracting officers that believe a contract awarded under the 8a program can be removed as long as the recompete is small business, WOSB, HUBZone, or SDVOSB. Regulation will be updated from "SBA will release" to "SBA may release" from 8a; and that SBA must still review and approve before an agency moves it to another socio-economic status.

👉 SBA says, "That's a negative!" Whether we're talking 8(a), WOSB, SDVOSB, or any other status, I believe the incumbent (assuming they're doing a good job) should absolutely be allowed to recompete their contract. This point is critical to the growth of a small business. You need to retain contracts and grow with new ones. Kudos to the SBA for looking at this from a business perspective!

8(a) Follow-On Contract - Must Check with SBA If Not Going To Incumbent

SBA wants to update the regulations where the contracting officer is not allowed to automatically sole-source a follow-on / recompeted 8(a) contract to an 8(a) other than the incumbent, without SBA reviewing. Per SBA, if the contract is critical to the incumbent's overall business development, SBA requires it be a part of that decision process.

👉 SBA wants feedback on whether a specific provision on this subject should be included. In my opinion, regardless of set-aside, if the incumbent worked hard to win the contract and has done a good job, they should be allowed to recompete. I argue that a provision should be added.

8(a) "Good Faith" Efforts to Target Non-8(a) Contracts

Current regulations establish non-8(a) business activity targets to ensure that participants do not develop an unreasonable reliance on 8(a) awards. SBA requires "good faith" efforts to meet non-8(a) goals. Industry has asked a lot of questions on this. Rule would add two efforts the firm can use to validate "good faith" effort. 1) Proof firm has submitted offers on non-8(a) procurements; or 2) explain the extenuating circumstances that adversely impacts their efforts to obtain non-8(a) contracts. Impacts may include government funding, continuing resolutions, budget uncertainties, increased competition driving prices down, or prime contractors awarding less works than expected.

👉 This is excellent for 8(a) firms. This provides simple coverage for 8(a) firms that are having challenges. Regardless of updating this regulation, more effort needs to be placed on training and educating small business on real tactics and strategies required to be successful. (Hey SBA, send me a PM).

Ostensible Subcontractor Rule Updated for Construction Contracts

Proposed changes will transfer the ostensible subcontractor rule for management and oversight of a construction contract from the actual work and specialty trade construction, to management and oversight.

Another change to the Ostensible Subcontractor Rule is a result of size appeals and affiliation rules. Two additional factors will be added to the ostensible subcontracting rule. They are 1) reliance on incumbent management, and 2) reliance on subcontractor's experience.

👉 Management and Oversight - This is a double-edged sword for very small businesses. I look at this as a business issue, not a federal acquisition issue. This ensures the small contractor is not simply doing the work, but as Prime, is ultimately responsible for management and oversight. This makes sense. Being prime means you have overall management and oversight of the contract.

👉 Reliance Incumbent Management and Subcontractor's Experience - THIS is an issue. One of the reasons many small businesses enter into a Joint Venture is to 1) gain a level or volume of past performance it needs to grow and win larger contracts, and 2) joint venturing with a larger firm allows the small business, regardless of being prime or sub, to claim prime past performance. Although the SBA states that SBA Area Offices will have discretion to consider and weigh all factors in rendering a formal size determination, this puts small business in a difficult position and make it more difficult for small businesses to win contracts! Considering that half of small businesses in the Defense industrial base (DIB) have left the market; with similar loss across the civilian federal agencies, there needs to be a better solution. Granted, agencies and commands need to have strong confidence in their small business contractors, but this rule would violate one of the core tenets of the 8(a) Development Program. I don't like this proposed change.

Small Business Recertification and Multiple Award Contracts

SBA will clarify when the government must recertify the size of a small business. If a small business has been awarded an Indefinite Delivery Contract (IDC)/IDIQ, the government is not required to recertify size status on follow-on task orders under the IDC. The clarification is that size recertification is required on all sole-source awards. For example, a company is on STARS III, is no longer small, but has two years left on STARS III. They can still compete for task orders but are not allowed sole-source awards.

👉 This is pretty much just a clarification. Most of industry is aware that even if you graduate 8(a), you get to keep the remaining option years on the multiple award contract. This proposed rule clarifies (poking industry in the chest) that if you've graduated the 8(a) program, you're not getting any more sole-source contracts. This is fair. No issues.

Who Can Initiate a Size Protest?

Today, the rules are different for WOSB, SDVOSB, HUBZone, and 8a. The proposed change is to adopt the language currently pertaining to small business set-asides and competitive 8(a) contracts and applying to all of SBA's programs. "Thus, any offeror that the contracting officer has not eliminated from consideration for any procurement-related reason could initiate a size protest in each of those programs."

👉 Sort of funny, but the rule will also clarify that you can't protest the size of a company that did not win the award. (Think about that for a minute...)

Status Protests - Primary & Vital Activities by Non-Similarly Situated Entities

The proposed rule would add a paragraph to each of the SDVOSB / HUBZone / WOSB / EDWOSB status protest provisions to clarify that any protests relating to whether a non-similarly situated subcontractor will perform primary and vital aspects of the contract will be reviewed by the SBA Government Contracting Area Office.

👉 If you're the prime, you are expected to be managing primary and vital activities. The SBA is shooting a shot across the bow that they are watching for non-similarly situated entities that are subcontractors and performing activities that the prime should be performing. I concur with this.

48 Hour Rule - No Longer Small or Qualify for Set-Asides?

Section 863 of the National Defense Authorization Act for Fiscal Year 2022 amended section 5 of the Small Business Act for requirements for updating size and socio-economic status. Three new requirements. 1) Small business must update SAM.gov within two days after a determination by SBA that the small business is no longer small or status certification is no longer valid. 2) If the small business does not update it status in SAM.gov, SBA will do it for them. 3) The small business must notify all contracting officers with pending bids in source selection that they have a different size or status determination.

👉 These are fair requirements. You either qualify or you don't. Since almost every solicitation states you must be small (under the selected NAICS) and if set-aside, must be certified in SAM.gov (or VA's CVE database) when you submit your bid, not an unexpected clarification. However, the third requirement for notifying CO's who have your pending bids is important to note. IF you don't notify all the COs with pending bids and you win a contract, the new rule will likely let the government cancel the award. I'm okay with this.

Clarification to Non-Manufacturer Rule

For a multiple-item set-aside contract, in order to qualify as a small business nonmanufacturer, at least 50 percent of the value of the contract must come from either small business manufacturers or from any businesses for items which have been granted a waiver to the nonmanufacturer rule. The proposed rule would provide that once SBA reviews and concurs with an agency's request, SBA's waiver applies only to the specific item(s) identified, not to the entire contract. This rule also proposes to add a provision that would prohibit contract-specific waivers for contracts with a duration of longer than five years, including options.

Tribal and Alaska Native Corporations (ANC)

👉 There are several proposed rules for Tribal and ANC; none of which negatively impact Tribal/ANC or positively increase competitive position for non Tribal/ANC. Moving on...

WOSB - Primary NAICS Immaterial - Just Be Small Under Selected NAICS

WOSB and EDWSOB - the proposed rule would provide that the applicant must demonstrate that it qualifies as small under the size standard corresponding to any NAICS code under which it currently conducts business activities. SBA wants to clarify the regulation that a WOSB does not have to be small under their primary NAICS code used during certification. As long as the WOSB is small under the NAICS code being used for the procurement, their primary NAICS is immaterial.

👉 This is a great update. I may have missed it, but I didn't see where this applied to the other status programs. However, even if it was not mentioned, I assume SBA will standardize like they have for many of the other proposed changes. Probably shouldn't assume. I'll make a note of this in my response to the proposed rules.

WOSB - Certification and More Than One Job or Company

Proposed rule that allows a woman to certify WOSB and own / run more than one company. Current rules state the woman can engage in outside employment but only if it's outside of normal working hours and does not prevent her from giving sufficient time and attention to control of entity and control of daily operations. SBA believes that this requirement is overly restrictive.

👉 Proposed rule is to revise limitations on outside activities. As long as the woman has ultimate managerial and supervisory control over both the long-term decision making and day-to-day management and administration of the business, she can run two companies or even work for another company while managing her company. This is a major improvement from a pure business perspective. Not sure who at SBA recommended this, but kudos.

Costs and Cost Savings

Cost of $500,000 - wow, even with standardization of rules across all programs, the fact that SBA believes they can execute and support all these rules for a net cost of $500K is...well...hard to fathom. There must be shells.

Summary

It is clear that the SBA recognizes the serious challenges in the small business community. Many of these proposed changes are designed to give small businesses, with a predominant focus on 8(a), every possible advantage. I'm very impressed with most of the proposed updates. There are a couple proposed changes that must have been proposed by someone on drugs, but the majority make sense and are good for industry.

SBA - kudos!

Award-winning business coach, professional speaker, and # 1 bestselling author with 35 years in the government market, Mr. Frank is a leading authority on bridging government acquisition strategy with corporate business strategy. Author of the bestselling books "An Insider’s Guide to Winning Government Contracts," and "The Government Sales Manual," his clients have won more than $13.5 billion in government contracts. His training sessions, highly educational and thought-provoking, are consistently rated the top sessions at national conferences. Mr. Frank has been honored with SBA’s award for Veteran Business of the Year; Industry Small Business Advocate of the Year by the Society of American Military Engineers (SAME); and in 2021, Mr. Frank was inducted into the Government Sales Hall of Fame with the inaugural Lifetime Achievement Award. Former Military Intelligence Officer. Serves on multiple Boards and is Chairman Emeritus for the Veterans Advocacy Foundation. Two graduate degrees including an MBA. An avid outdoor enthusiast, Girl Scout and Boy Scout leader. 

If you want to talk to Mr. Frank, please PM him here on LinkedIn.