Small Business Legal and
Regulatory Update: Changes
Affecting Both Large and Small
Contractors
February 14, 2013
NCMA
Raleigh/Durham
1
Small Business Updates
1. Legislative
Action
◦ New laws (NDAA, SBJA)
◦ House Small Business Committee initiatives
2. Executive
Action
◦ New regulations interpreting statutes
◦ Bid/Size Protests (interpreting regulations and
statutes)
3. Judicial
Action
◦ Court of Federal Claims cases
The Small Business Jobs Act of 2010 directed rulemaking authorities to
update FAR provisions which affect small business programs, but most
updates have yet to be made final in the FAR.
The 2013 NDAA amended the Small Business Act, which is 1953 legislation
that created the Small Business Administration. Where regulatory updates
are authorized, they have yet to be implemented.
Multiple-Award Contract Set-Asides
 Jobs Act of 2010 authorized Interim Final Rule published by
FAR Council on November 2, 2011 (effective that date), 76
FR 68032
 FAR Subpart 8.4 amended to clarify that agencies may
set aside orders and blanket purchase agreements under
the GSA Schedule
 FAR Subpart 12.2 now acknowledges that discretionary
set-asides may be used under multiple-award contracts
 FAR Subpart 16.5 and 19.5 amended to clarify that
agencies may set-aside orders for small businesses in
connection with multiple-award contracts (and orders
thereunder)
Task and Delivery Order Contracts
 Proposed Rule published on May 16, 2012 (77 FR 29130).
 Anticipated to be final by mid/late-2013
Reason: Small businesses expend time and money to obtain
(MACs) with the Federal Government but end up being outcompeted for awards by large businesses.
 Rules authorize:
 More Set-Asides under Multiple Award Contracts (MACs)
 Partial Set-Asides under MACs
 Contract Reserves under MACs
 Order Set-Asides under MACs
 Rules require documentation when one of the above tools are
used
Task and Delivery Order Contracts
 Agencies may set-aside parts of MACs for small
businesses;
 Where the MAC procurement can be broken up into
smaller discrete parts and where the set-aside part is
expected to receive at least two bids from small
businesses at fair market price.
 Agencies may reserve one or more MAC awards for
small businesses; and
 As long as market research shows that at least two
small businesses could perform that portion.
Task and Delivery Order Contracts
 Agencies may set-aside orders under MACs or include a
reserve for small businesses.
 Where neither partial set-asides nor reserves are used,
agencies can still “commit” to setting aside orders
under a MAC in the future.
Bundling and Consolidation
SBJA Section 1311 – Consolidation (proposed rule May 16,
2012, no scheduled Final Rule)
 “Consolidation” = a solicitation that seeks offer for two or
more requirements that had been performed previously under
two or more contracts at a cost less than the cost of the
contract for which offers are solicited
 Agencies cannot consolidate contracts for a contract valued at
greater than $2 million without market research, justification
and assurances that small businesses will included
 NDAA 2013 eliminated $5 million, DoD-specific review
threshold an imposed government-wide $2 million review
threshold.
Bundling and Consolidation (Cont’d)
SBJA Section 1312 – Bundling (Final rule effective Nov.
28, 2011)
 “Bundling” is consolidation of two or more requirements
previously performed by small businesses
 SBA must establish a Government-wide policy
on bundling
 Agencies must create a website and publish a list and
rationale for bundled contracts
Small Business Size and Status
Integrity
Proposed Rule published on Oct. 7, 2011, 76 FR 62313 (will
be final March 2013)
 Implements “presumption of loss” rule  if a business
misrepresents size, government will have an irrefutable
presumed loss of the value of the contract (fixes an
otherwise nebulous damage calculation)
 Government would recover under False Claims Act
NDAA: SDO can now debar/suspend for
misrepresentations regardless of present
responsibility
Small Business Size and Status
Integrity (Cont’d)
 Proposed Rule also implements “limitation of liability”
provision  contractors can’t be held liable for unknowing
misrepresentations or technical errors
 NDAA FY 2013 further limits liability where contractor
relied in good faith on an “advisory opinion” from the
Small Business Development Center” or a “Procurement
Technical Assistance Center”
 SBDC/PTAC must send letter to SBA, but letter can be
relied upon unless SBA affirmatively disagrees
 Senate balked at “legal opinion” safe-harbor, but it’s
likely that SBDCs/PTACs will be rubber stamping legal
opinions.
Small Business Subcontracting
SB Jobs Act authorized a Proposed Rule, published on Oct. 5,
2011, 76 FR 61626 (will be final March 2013)
 No more “bait and switch”  If SubK plan required, prime
must use the small business that assisted in preparing its
offer, and notify the contracting officer (CO) in writing
if/why it fails to do so.
 Prime must notify CO if and why it reduces payments to a
small business subcontractor or when payments are 90
days past due
 Prime cannot prohibit a subcontractor from discussing any
“material matter” with the CO
Small Business Subcontracting (Cont’d)
NDAA 2013:
 If prime identifies a small business in its bid/proposal, it
must notify the small business
 Agencies now required to establish a “reporting
mechanism” by which subcontractors can report
“fraudulent” or “bad faith” actions by primes in
implementing their SubK plans
 Goes hand-in-hand with proposed rule prohibiting
primes from keeping subs from contacting the
government.
Small Business Subcontracting (Cont’d)
 Enforcement: Prime’s failure to meeting SubK goals (from
its SubK plan) may be considered as negative past
performance
Accelerated Payments To Small
Business Subcontractors
Proposed Rule published on Dec. 19, 2012, 77 FR 75089
(comments due Feb . 19, 2013)
 Creates FAR Clause mandating that primes who are paid
on an accelerated basis must then pay small business
subcontractors on an accelerated basis, even where
subcontract imposes a later payment due date.
 This Clause implements OMB policy memorandum from
July 2012, which encouraged paying primes within 15
days of paperwork
Small Business Set-Asides for Research
and Development
Proposed Rule published on Aug. 10, 2012, 77 FR 47797
(comments were due Oct. 12, 2012)
 Clarifies for COs that R&D contracts shall set-aside for
small businesses if there is a reasonable expectation that
there are two or more businesses capable of “providing
the best scientific and technological approaches” at fair
market prices
 This authority existed previously, but was vague. This rule
would make clear that the basis for setting-aside lies in
the objective evidence obtained from the market research
conducted
Small Business Mentor-Protégé
Programs
 2010 Jobs Act authorized mentor-protégé programs for
SDVOSB, WOSB, and HUBZone (No proposed regulations
yet)
 NDAA 2013 authorized mentor-protégé programs for all
small businesses (not just socioeconomic classes)
 Agencies other than SBA (except for DoD) that wish to
have a program must have approval of SBA  to ensure
consistency among programs
 Some agencies were wrongly telling their program
participants that they were exempt from SBA’s
affiliation rules (but only SBA-approved JVs were
exempt)
Limitation on Subcontracting Clause
 NDAA 2013, Section 1651, changes accounting methods:
 Service contracts  Compliance now measured by
“>50% of amount paid to the small prime contractor”
under the contract
 Replaces “>50% of the cost of contractor
performance incurred for personnel”
 Supply contracts  Compliance now measured by
“>50% of the amount (less the cost of materials) paid
to the small prime”
 Replaces “>50% of the cost of manufacturing”
Limitation on Subcontracting Clause
(Cont’d)
 NDAA extended exemptions to small businesses who
subcontract to “similarly situated” entities
 Before this change, small businesses were actually
discouraged from subcontracting to other small
businesses!
 Section 1652 of the NDAA set a penalty for violation of the
clause  the greater of $500,000 or the dollar amount
expended, in excess of permitted levels, on subcontractors
 Before this change, there were no express penalties for
violations of the clause (could only protest violator’s
proposal as “nonresponsive” to Clause’s requirements)
Size Standards and Set-Asides for
WOSB
Section 1661 of the NDAA FY 2013
 SBA must publish information it used to formulate/revise
size standards
 SBA allowed to use a “common size standard” for a group
of 4-digit NAICS codes, but only if SBA publishes a
justification for how that standard is appropriate for each
individual industry classification
Section 1697 of the NDAA FY 2013
 Removes caps on setting-aside procurements for
WOSBs/EDWOSBs (formerly $6.5 million for
manufacturing; $4 million for other contracts)
Protest Overview
 Essentially three (3) types of protests:
 (1) Pre-award
 Challenges the terms of the solicitation (must be filed
before bids are due)
 Venue: Agency, GAO, or COFC
 (2) Post-award
 Challenges evaluations and government’s choice of
awardee
 Venue: Agency, GAO, or COFC
 (3) Size-protest
 Asserts that a competitor has violated the Small
Business Regulations (13 CFR)
 Venue: SBA only
U.S. District Court: The 8(a)
Program is Unconstitutional?
 Dynalantic Corp. v. U.S. Department of Defense
(D.D.C., August 15, 2012).
 Not a protest
 U.S. District Court for the District of Columbia ruled
that the government’s 8(a) program — which offers
preferences for “socially and economically
disadvantaged individuals” — is unconstitutional when
used by the Department of Defense (DoD) to procure
simulation and training equipment.
U.S. District Court: The 8(a) Program is
Unconstitutional? (Cont’d)
Consequences:
 More federal court challenges in other markets
 More protests (if COFC/GAO accept reasoning)
 Preemptive cancellation of set-asides
Unknowns:
 Definition of industry and sufficiency of evidence of
past discrimination
 Possibly overturned on appeal
COFC: Agencies Can Impose High Small
Business Subcontracting Goals
 Firstline Transportation Security, Inc. v. United States,
COFC No. 12-601C (Nov. 27, 2012)
 Pre-award protest
 Court of Claims upheld practice of agencies setting
high small business subcontracting goals in a
solicitation.
 Court said that the high goals (40% in this case)
need not be tied to robust market research.
 Court also upheld practice of applying small
business subcontracting goals to all contract dollars,
not just subcontracting dollars.
COFC: Agencies Can Impose High Small
Business Subcontracting Goals (Cont’d)
 Holding gives agencies looking to boost small business
utilization another arrow in their quiver.
 Agency could procure full and open, but impose high
subcontracting goals in the solicitation that require
large businesses to do their best in meeting those
goals or risk being eliminated from competition.
 Indirect method to “de facto set-aside”
for small business participation.
COFC: Agencies Can Impose High Small
Business Subcontracting Goals (Cont’d)
 Holding gives agencies looking to boost small business
utilization another arrow in their quiver.
 Agency could procure full and open, but impose high
subcontracting goals in the solicitation that require
large businesses to do their best in meeting those
goals or risk being eliminated from competition.
 Indirect method to “de facto set-aside”
for small business participation.
Aldevra is Over: COFC Finally Says VA Not
Required to Set-Aside FSS Purchases
 Kingdomware Technologies, Inc. v. United States
(COFC, Nov. 27, 2012).
 COFC overruled GAO’s Aldevra cases, siding with the
VA in interpreting the Veteran’s First Program to
exempt FSS purchases from mandatory set-asides.
 Veterans First Program requires VA to consider
setting aside to SD/VOSBs before exploring other
procurement possibilities, but the Act does not
address the FAR Part 8 (FSS) exemption to FAR Part
19.
 Where the FAR is silent, agency interpretation prevails.
Resellers Don’t Violate SBA’s
Nonmanufacturer Rule
 Size Appeal of Wear-Mark, Inc., SBA No. SIZ-5397,
5403 (Sept. 2012)
 Nonmanufacturer rule = SBA rule preventing small
business prime resellers from being “pass-throughs”
for large manufacturers
 SBA OHA upheld reseller’s status as a
nonmanufacturer retailer of flags where reseller
took ownership of flags in a “drop shipping
arrangement” but did not take physical possession
Predictions for FY 2013
 Despite backlog of regulatory updates, House Small
Business Committee intends to be prolific
 SBA increasingly opposed to “bundling”, but many political
hurdles.
 Federal Strategic Sourcing Initiatives (BPAs) growing in
popularity, but many officials within SBA are angered
by this
 GSA’s “Demand Based Model” poses threat to small
business utilization, but SBA/House Small Business
Committee appears to have succeeded in convincing GSA
to delay/cancel implementation
Questions?
Stephen (Steve) P. Ramaley, Esq.
Attorney, Centre Law Group
1953 Gallows Rd., Ste. 650
Tysons Corner, VA 22182
Phone: (703) 288-2800 (x232)
E-mail: sramaley@centrelawgroup.com