National Defense Authorization Act

Last month, we reported that the Government Accountability Office’s (“GAO”) statutory authority to hear bid protests on civilian task orders exceeding $10 million had expired, leading to a parade of dismissed protests and disappointed contractors left without legal recourse. As of last week, there is reason to be hopeful, as the House of Representatives and Senate agreed on legislation that promises to permanently restore the GAO’s authority to hear civilian bid protests.  Continue Reading Proposed 2017 NDAA is a Mixed Bag for Government Contractors

The SBA is on a roll!  It seems that ringing in the new year has invigorated the agency, prompting it to act on the various outstanding directives set forth in the National Defense Authorization Act for Fiscal Year 2013 (“NDAA”).

Game_Changer

Last Thursday, the agency issued its long-awaited proposed rule on the expansion of the Mentor-Protégé Program.  There were also proposed changes impacting the 8(a), HUBZone, and other small business programs. We gave you a sneak preview of that rule here, the day before it was issued.  In addition to those proposed mentor-protégé changes, the SBA also recently rolled out a second proposed rule ,which included various changes to the small business regulations. Over the next several weeks, we will provide you with our take on various aspects of these two proposed rules. For purposes of this article, though, we’re going to focus on the changes to the affiliation regulations set forth in the December 29, 2014 proposed rule.  These proposed changes would fundamentally alter the SBA’s analysis regarding the “ostensible subcontractor” rule, economic dependence, and “identify of interest” affiliation.

The rule proposes that a small business would be exempt from ostensible subcontractor affiliation where it subcontracts with a “similarly situated entity.”  In fact, the rule proposes a complete overhaul of contractor performance requirements set forth in 13 C.F.R § 125.6.  Rather than mandate the percentage of work a prime must perform, the revised 125.6(a) limits how much work a prime can subcontract to other contractors, a subtle but important distinction.  Subcontracts issued to “similarly situated entities” are not counted toward the subcontracting limit. For example, under the proposed rule, an 8(a) contractor performing a general construction contract cannot subcontract more than 85% of the contract work to non-8(a) entities.  Similarly, a SDVOSB prime contractor cannot subcontract more than 75% of a specialty construction contract to non-SDVOSB concerns. In these examples, the required 15% or 25% of the work would have to be performed by either the prime itself, or by the prime in combination with a “similarly situated entity” – i.e. a concern that is eligible for the same small business program as the prime.  Strangely enough, the language of the revised regulation does not require any of the work to be self-performed by the prime, so long as the requisite percentage is performed by a combination of the prime and entities that are “similarly situated.”  Consistent with this concept, the proposed revision to §125.6(b) creates an exception to ostensible subcontractor affiliation for prime contractors who subcontract in this manner.  The revised rule would ensure that a prime that subcontracts a majority of its work will not be “affiliated” with its subcontractors, so long as its subcontractors are “similarly situated.”

The second major change to affiliation is the adoption of a bright line test based on economic dependence. Pursuant to the proposed rule (to be inserted at 13 CFR 121.103(f)(2)), if a concern derives 70% or more of its revenue from another company over a fiscal year, the SBA will presume that the concern is economically dependent on that company, and, therefore, that the two businesses are affiliated.  It is not entirely clear from the language of the rule itself whether this will be considered a rebuttable presumption.  But an SBA representative who spoke about the proposed rule last week at the National 8(a) Association’s Winter Conference indicated that it would be rebuttable.

The third major affiliation change set forth in the proposed rule relates to “identity of interest” affiliation under 13 CFR 121.103(f).  In its current form, the regulation provides that:

Affiliation may arise among two or more persons with an identity of interest. Individuals or firms that have identical or substantially identical business or economic interests (such as family members, individuals or firms with common investments, or firms that are economically dependent through contractual or other relationships) may be treated as one party with such interests aggregated. Where SBA determines that such interests should be aggregated, an individual or firm may rebut that determination with evidence showing that the interests deemed to be one are in fact separate.

However, the current rule does not identify what types of family members are subject to the presumption identified in the rule.  The proposed rule would clarify this.  The revised regulation would state, in relevant part:

Firms owned or controlled by married couples, parties to a civil union, parents and children, and siblings are presumed to be affiliated with each other if they conduct business with each other, such as subcontracts or joint ventures or share or provide loans, resources, equipment, locations or employees with one another. This presumption may be overcome by showing a clear line of fracture between the concerns. Other types of familial relationships are not grounds for affiliation on family relationships.

This will certainly make it easier for contractors to tell if they are venturing into dangerous territory when doing business with a family member.

It is very important to keep in mind that these are just proposed changes.  The final rule may vary, so pay attention.  Comments to the rule are due February 27, 2015.  We will keep you posted on the status of the final rule.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.

Maria L. Panichelli is an Associate in the firm’s Federal Contracting Practice Group. Her practice includes a wide variety of federal contracting and construction matters, as well as all aspects of small business procurement.

My firm is a big supporter of the National 8(a) Association and a proud sponsor of its Winter Conference, which is taking place right now in Orlando, Florida. I just left a presentation given by the SBA and several other SBA experts and found out that the SBA will finally issue its new proposed regulations governing the Mentor-Protege Program.

breaking news

The proposed regulations follow the Jobs Act of 2010 and the National Defense Authorization Act of 2013, where Congress asked the SBA to expand the Program to firms other than 8(a) companies. There has been much speculation over the last several years regarding what this overhaul would look like. Well, we’re about to find out. Here are some highlights that I learned today:

First, the SBA is going to create two distinct and different Mentor-Protege Programs, one for 8(a) companies and one for other small businesses. The one designed for other small businesses will be geared to servicing SDVOSBs, HUBZone companies, WOSBs and small businesses, generally. Mentors will still have to demonstrate good financial health, among other things, to qualify as a mentor, but there were indications during today’s presentation that the new regulations would better define the meaning of “good financial health.” For Protégés, it appears as if the proposed regulations will make it easier to qualify. If you are a participant in any of the small business programs covered by the proposed regulation, you can be a protege.

The most important aspect to the proposed rule may be the following: all companies who become Mentor and Protege through the revamped program will be able to take advantage of the exclusion from affiliation. Many speculated that this exclusion might remain with the 8(a) Mentor-Protege Program and not extend to those newly covered by the revised regulations. That does not appear to be the case. All companies will benefit from the exclusion.

There are many more changes coming as part of the proposed rules. Once they are issued on Thursday, we will share our thoughts with you.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.

We’ve all heard about the “glass ceiling” experienced by women in the workplace. The term “glass ceiling” first appeared in an article published by the Wall Street Journal in 1986 and was used to describe the invisible barriers that women faced as they tried to climb the corporate ladder. While things seem to be better today than they once were, I think many would agree that barriers (in some cases substantial barriers) still exist. Certainly, the Small Business Administration agrees.

In October of 2010, after many years of delay, the SBA issued a Final Rule allowing for the implementation of its Women-Owned Small Business Program. The program was gradually introduced and, as originally constituted, was stricken with statutory caps that inhibited its intended effect. Ironically enough, for both Women-Owned Small Businesses (WOSBs) and Economically Disadvantaged Women-Owned Small Businesses (EDWOSBs) set-aside contracts were subject to “ceilings.” For manufacturing contracts, the ceiling was $6.5 million; for any other contract the ceiling was $4 million. Thanks to the National Defense Authorization Act of 2013, however, these ceilings are about to disappear.

On Tuesday, May 7, 2013, in accordance with directives set forth in the NDAA, the SBA issued an Interim Final Rule, removing the statutory cap on WOSB and EDWOSB set-aside contracts. As a result of this change, government agencies will now be able to set-aside contracts for WOSBs and EDWOSBs at any dollar level, providing WOSBs and EDWOSBs with access to much larger federal contracts. Hopefully, this change will also allow the federal government to better meet its statutory contracting goals for women-owned small businesses, which have been consistently missed.

Either way, the shattering of the WOSB “ceilings” promises to greatly increase the number of large-dollar WOSB and EDWOSB set-aside contracts. If you are a WOSB or EDWOSB, you will want to make sure that you are properly registered as soon as possible so that you can take advantage of these opportunities. We’ve posted the requirements in previous articles. For additional information on the SBA’s Women-Owned Small Business Program go to www.sba.gov/wosb.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group.

Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.

We recently posted an article discussing changes to the limitations on subcontracting rules for small business federal contractors.  The changes were marshaled in by Congress as part of the 2013 National Defense Authorization Act (“NDAA” or “the Act”), which actually includes a number of other changes affecting small business contractors.  Several of those changes are designed to assist women-owned small businesses (“WOSB”) and economically disadvantaged women-owned small businesses (“EDWOSB”) in securing more federal work.

The current Woman-Owned Federal Contract Program, which became effective on February 4, 2011 after being mired in political red tape for years, allows contracting officers to set aside contracts for certified WOSBs and EDWOSBs (see our previous blog post concerning how to get certified).  By statute, the federal government must attempt to steer five percent (5%) of all federal contracting dollars to WOSBs and EDWOSBs.  Under the current law, however, reaching this goal has been elusive.  This is, in part, due to the caps in place that govern set-aside contracts for women-owned businesses.  Manufacturing contracts in excess of $6.5 million, and any other contract exceeding $4 million, cannot be set-aside for WOSBs or EDWOSBs.  The NDAA removes this ceiling, allowing women-owned businesses greater access to federal contracts, and, hopefully, enabling the government to actually reach its 5% goal.

The NDAA also includes a provision requiring the SBA to further study and identify those industries in which WOSB and EDWOSBs are “underrepresented.”  Currently, eighty-three (83) NAICS codes have been recognized as those where women have been historically underrepresented.  Contracting officers are permitted to set aside contracts in industries falling within those classification codes, as long as that contract can be awarded at a fair and reasonable price, and the contracting officer has a reasonable expectation that two or more WOSB or EDWOSBs will bid or submit offers.  The identification of additional industries should result in more contracts being set aside for women-owned concerns.

SBA Administrator Karen Mills, who will be stepping down very soon, described the potential benefits of these changes, explaining that women currently own approximately thirty percent (30%) of all small businesses, making women one of the fastest-growing sectors of business owners in the country.  As such, Mills said, “opening the door for women to compete for more federal contracts is a win-win.”  If you are a woman-owned, small business contractor and want these new changes to result in a “win” for you, check your eligibility, and get registered as soon as possible!

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group. Maria L. Panichelli is an Associate in the firm’s Federal Practice Group.