Recent Developments in Small
Business Contracting and
Implementation of the 2010 Small
Business Jobs Act
New Opportunities (and Risks) for Small
and Large Businesses
Presented by
John R. Prairie
Benjamin J. Kohr
October 23, 2013
These slides are accompanied by an oral presentation and should not be relied upon for legal advice
Road Map
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Overview of small business contracting
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Implementation of the Small Business Jobs Act
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Statistics
Policies
Set-asides
Size misrepresentation penalties
Multiple Award Contract set-asides
Small business subcontract reporting requirements
Other new developments
Recent trends
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Small Business Statistics
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Small businesses comprise:
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99.7% of U.S. employer firms
64% of net new private-sector jobs
49.2% of private-sector employment and private-sector payroll
43% of high-tech employment
98% of firms exporting goods
33% of exporting value
Current Administration committed to helping small businesses grow
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Small businesses viewed as the “engines of job creation and
essential to strengthening our national economy.”
Utilization of small businesses will likely continue to be a primary
focus in efforts to bolster stagnating economy
Significant legislative and regulatory activity aimed at boosting
contract dollars spent with small business
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Small Business Statistics (cont’d)
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In fiscal year 2012, 22.25% of Government small business-eligible
purchases went to small businesses
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Increase from 21.65% in fiscal year 2011; closing in on goal of 23%
Department of Defense (DOD) accounted for majority of small
business procurements
Despite effort, concerns remain regarding small business participation
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Prime contracting percentage up from 2011, but overall dollar
amount down ($89.9B vs. $91.5B)
Subcontracting percentage achievement continues to fall (FY12 –
33.6%; FY11 – 35%; FY10 – 35.4%)
Exclusion of procurements from calculations
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FAA/TSA/CIA
Goods sold or work performed overseas
Fedmine and Small Business Committee studies found percentage
closer to 19% without exclusions
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Small Business Policies
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Small Business Act, 15 U.S.C. §§ 631 et seq.
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15 U.S.C. § 631(a) establishes policy to:
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“aid, counsel, assist, and protect” interests of small businesses;
“insure that a fair proportion of the total purchases and contracts or
subcontracts for property and services for the Government . . . be placed
with small-business enterprises”; and
“insure that a fair proportion of the total sales of Government property
be made to such enterprises”
Authorizes small business assistance programs. E.g., 15 U.S.C. §§
631(d),(h), 636(i),(j)
Establishes Government contracting goals (15 U.S.C. § 644(g)):
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23% to small businesses
Not less than 5% to woman-owned small businesses (WOSB) and small
disadvantaged businesses
Not less than 3% to service disabled veteran-owned small businesses
(SDVOSB) and Historically Underutilized Business Zone (HUBZone)
small businesses
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Small Business Policies (cont’d)
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FY2012 statistics on achieving goals (Small Business
Administration (SBA) rates achievement a “B”)
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Small Business Policies (cont’d)
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Congress/White House can reach agreement on small business issues
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Small Business Jobs Act of 2010, Pub. L. No. 111-240
Honoring America’s Veterans and Caring for Camp Lejeune Families
Act of 2012, Pub L. No. 112-154
FY13 National Defense Authorization Act (NDAA), Pub. L. 112-239
Increased effort to push more work to small business
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23% goal constant but bigger push by Congress and Administration
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Small business as innovators and “job creators”
President Obama established Interagency Task Force on Federal
Contracting Opportunities for Small Businesses (Office of Management
and Budget (OMB), SBA, Commerce);
OMB established small business procurement group for senior leaders
to meet and discuss ways to increase agency small business contracting
Stricter bundling rules in Small Business Jobs Act make more
procurements eligible
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Small Business Set-Asides
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Generally, procurement policy favors “full and open” competition
FAR Subpart 19.5 provides exception to promote contracting with
small business by allowing small business set-aside procurements
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Set-aside can be made unilaterally by Contracting Officer (CO)
or by CO with SBA
Can be set aside for small business generally or under one of the
socioeconomic contracting programs
Requirements for set-aside, FAR 19.502-1:
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Determined to be in interest of maintaining/mobilizing full
productive capabilities; or
Assuring that a fair proportion of Government contracts in each
industry category is placed with small business concern; and
The “Rule of Two” is met
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Small Business Set-Asides (cont’d)
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FAR 19.502-2 - The “Rule of Two” for all acquisitions of supplies
and services
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Acquisitions over $3k and under $150k: automatically set aside
for small business unless CO determines no reasonable
expectation to get offer from two or more responsible small
businesses
Over $150k shall be set aside when there is a reasonable
expectation that:
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Offers will be obtained from at least two responsible small
businesses; and
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Award will be made at fair market prices
Small Business Jobs Act affirmed “parity” among federal small
business contracting programs. FAR 19.203(a)
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For acquisitions over $150K, CO must first consider a setaside for a socioeconomic contracting program (8(a),
HUBZone, SDVOSB or WOSB) before small business.
FAR 19.203(c)
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Small Business Set-Asides (cont’d)
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Recent changes to rules governing set-asides under
multiple-award contracts
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Delex Systems, Inc., B-400403, Oct. 8, 2008, 2008 CPD ¶ 181
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“Rule of Two” applies to task/delivery orders under indefinite delivery,
indefinite quantity (ID/IQ) contract
Thus, if two responsible small business ID/IQ holders, task/delivery
order must be set aside
Inconsistent application of decision by agencies
Small Business Jobs Act § 1331 – Requires OFPP and GSA to
establish guidance under which agencies “may, at their discretion”:
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Set aside part(s) of multiple award contract for small businesses;
Set aside orders placed against multiple award contracts for small
businesses; and
Reserve one or more contract awards for small businesses under full
and open multiple award procurements
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Small Business Set-Asides (cont’d)
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Recent changes to rules governing set-asides under
multiple-award contracts (cont'd)
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FAR 19.502-4. Multiple Award Contract Set-Asides
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When conducting multiple award procurements, CO may, at his/her
discretion, reserve one/more contract awards for small businesses, set
aside part(s) of multiple award contract for small businesses, or set
aside orders placed under multiple award contract for small businesses
FAR 8.405-5. Federal Supply Schedules
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Preference program not mandatory, but CO may, at his/her discretion:
 Set aside orders or BPAs for small business concerns
 Set aside orders credited to ordering activity’s small business
goals
 Ordering activities may consider socio-economic status when
identifying contractors for consideration/competition for order or
BPA
78 Fed. Reg. 61114 (Oct. 2, 2013) – New SBA final rule implementing
various provisions of the Small Business Jobs Act governing small business
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set-asides under MACs (See slides 22 –25)
Challenging Small Business Set-Asides
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Growing number of challenges
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Set-asides remain difficult to challenge successfully
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Increased emphasis by agencies on setting aside contracts
Fewer contract dollars available to large businesses due to
sequestration and budgetary constraints
Can protest (pre-award) agency conclusion that two small
businesses are capable of performing at fair price
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Argue that market research is deficient
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Difficult to win on merits because so much discretion given
to agencies
Even if successful, corrective action could uphold a similar finding
Early engagement with the customer, and teaming with a small
business if necessary, remains the most effective option
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Challenging Small Business Set-Asides:
Recent Case Law
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Dynamic Educational Systems, Inc. v. United States, No. 12-730C (Fed. Cl.
Feb. 25, 2013) – Protest denied
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Adams & Associates, Inc. v. United States, No. 12-731C (Fed. Cl. Feb. 25,
2013) – Protest denied
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Same holding as DESI decision
Swank Healthcare, B-407367, Dec. 12, 2012, 2013 CPD ¶ 7 – Protest denied
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Small business set-asides are competitive
15 U.S.C. 644 and FAR 19.502-1 do not require a contract-by-contract “fair
proportion” analysis
Set-aside decision was rational; Court will not second-guess CO’s business judgment
Preference programs of FAR Part 19 are generally not applicable to Federal Supply
Schedule (FSS) procurements under FAR Subpart 8.4
However, agency may, in its discretion, set-aside orders for small business concerns.
VA properly exercised discretion after identifying five small FSS contract holders that
could perform work and receiving two responses
Illustrates the ongoing difficult in successfully challenging a small business
set-aside
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Small Business Jobs Act of 2010
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Designed to stimulate the small business sector and create
jobs
The Small Business Jobs Act of 2010 contained a number
of provisions designed to promote the utilization of small
businesses in government procurements
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Increase small business set-asides
Encourage subcontracting with small businesses
Economic incentives/loans
Identified three goals for utilization of small businesses
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Equal treatment across federal contracting programs
Increased opportunities
Combat fraud, waste, and abuse
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Small Business Jobs Act of 2010
(cont’d)
Significant Sections
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Section 1322 – Requires contractors to “make a good faith effort” to
acquire supplies and services from the small business concerns used
in preparing and submitting their proposal to the contracting agency
(and in the same amount and quality), and to provide a written
explanation to the contracting officer if the contractor fails to do so
Section 1331 – Allows small business set-asides under multiple
award contracts and the GSA Schedule Program
Section 1334 – Requires a prime contractor to notify the contracting
officer in writing whenever a payment to a subcontractor is reduced
or is 90 days or more past due for goods and services provided for the
contract and for which the federal agency has paid the contractor
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Small Business Jobs Act of 2010
(cont’d)
Significant Sections (cont’d)
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Section 1341 – Establishes a number of actions that will result in a
“deemed certification” that the offeror is a small business, including
submission of a bid or proposal for a procurement that is “reserved,
set aside, or otherwise classified as intended for award to small
business concerns”
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Creates a “presumption of loss” to the Government
Section 1342 – Requires annual certifications regarding size status on
the Online Representations and Certifications (ORCA) database
Section 1344 – Requires the SBA to conduct a “detailed review” of
not less than 1/3 of the size standards for small business concerns
every 18 months
Section 1347 – Removes the existing mandatory preference for
HUBZone concerns and creates parity between all socio-economic
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programs
SBA Implementation of Small Business
Jobs Act
Contract Bundling
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Final Rule issued on October 13, 2011 (76 Fed. Reg. 63542)
Agencies required to post a list of all bundled contracts and a
rationale for why the contract was bundled
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Intended to reduce the practice of contract bundling as it restrains
the ability of small businesses to participate
Justification also required for consolidation of two or more separate
requirements lower in cost than the proposed acquisition
Further expanded in 78 Fed. Reg. 61114 to prohibit consolidated
procurements unless:
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Benefits of consolidation “substantially exceed” benefits of
alternatives
Negative impact on small businesses is identified and mitigated
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SBA Implementation of Small Business
Jobs Act (cont’d)
Parity Among Set-Aside Programs
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Final Rule issued March 2, 2012 (77 Fed. Reg. 12930)
Clarified no order of precedence among 8(a), HUBZone,
SDVOSB, or WOSB programs
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Previously, HUBZone program interpreted to be given preference
when setting aside procurements for small business
Below SAT, the requirement to reserve acquisitions for small
business concerns does not preclude CO from awarding a contract
under one of the socioeconomic programs
Above SAT, CO must first consider an acquisition under one of the
socioeconomic programs before considering a small business setaside
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Only exception: if requirement accepted under 8(a) program, it
must remain under 8(a)
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SBA Implementation of Small Business
Jobs Act (cont’d)
Presumption of Loss
 Final Rule implemented on June 28, 2013 (78 Fed. Reg.
38811)
 Where a contractor or subcontractor willfully misrepresents
its small business size status, rebuttable presumption that the
loss to the government is equal to the total dollars expended
on the contract
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In addition to forfeiture of contract payments, rule
authorizes suspension and debarment, civil penalties under
the FCA, and/or criminal penalties under the Small
Business Act
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SBA Implementation of Small Business
Jobs Act (cont’d)
Presumption of Loss (cont’d)
 “Willful misrepresentation” not defined
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A number of acts deemed to be willful certification
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Submission of bid, proposal, application or offer
Encouragement to classify solicitation as set-aside
Database registration
Determination made through judicial or administrative
actions
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Opportunity to present evidence that erroneous
certification was result of good faith error
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SBA Implementation of Small Business
Jobs Act (cont’d)
Presumption of Loss (cont’d)
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Applies to subcontractors who misrepresent status to receive
subcontract award
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While presumption is rebuttable, it appears to be a high bar
Liability can extend to prime contractors absent good faith reliance
on subcontractor representation, e.g., written size determination
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Factors for determining good faith
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Internal management procedures governing size representation or
certification,
Clarity or ambiguity of the representation or certification
requirement
Efforts made to correct in a timely manner
Suggests prime contractors can request affirmative
representations from subcontractors to avoid liability
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SBA Implementation of Small Business
Jobs Act (cont’d)
Multiple Award Contract Set-Asides
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Final Rule issued on October 2, 2013 (78 Fed. Reg. 61114)
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Operates in conjunction with an interim rule (76 Fed. Reg. 68032
(Nov. 2, 2011)) which provides COs with discretion to set aside
all or part of MACs and individual task orders
Guidance on when MACs and task/delivery orders may be partially
set-aside or reserved for small businesses
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Applies to all “multiple award contracts”
Does not supersede “Rule of Two”
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Where rule is not met, must give “meaningful consideration” to
three set-aside options
COs not required to utilize set-aside tools, but must document why
not setting-aside is “consistent with the best interests” of the agency
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SBA Implementation of Small Business
Jobs Act (cont’d)
Multiple Award Contract Set-Asides (cont’d)
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Partial set-aside
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Reservation of contracts
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Where a procurement’s requirements can be broken down into
smaller, discrete, portions (e.g., CLINs), an agency may set aside
a portion(s) for small business
Must satisfy “rule of two” for that portion
Small businesses may submit offers on the set-aside portion, nonset-aside portion, or both
At least two small businesses could perform a portion of the
contractor OR at least one could perform entire contract
Order set-aside
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Commit (or reserve rights) in solicitation to set-aside individual
task/delivery orders
May be applied to existing MACs where “rule of two” met
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SBA Implementation of Small Business
Jobs Act (cont’d)
Multiple Award Contract Set-Asides (cont’d)
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Limitations on Subcontracting/Nonmanufacturing Rule
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Compliance with LOS and nonmanufacturer rule on ID/IQs
previously measured based on performance over guaranteed
minimum
Now measured differently depending on the type of set-aside
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Total and partial set-aside MACs
 Each performance period of the contract (i.e., base term and
each option period thereafter)
 CO has discretion to require based upon period of
performance for each order
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Full and open or reserved set-aside MACs
 Measured over the period of performance of the
task/delivery order
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SBA Implementation of Small Business
Jobs Act (cont’d)
Multiple Award Contract Set-Asides (cont’d)
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Off-Ramp/On-Ramp
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COs have authority to allow new small businesses onto a MAC
during performance
Permits agencies to “off-ramp” small businesses who become
large during performance
Application of Size Standards
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Every MAC and task/delivery order must be assigned a single
NAICS code which accurately reflects nature of work
If a MAC can be divided into discrete categories (e.g., CLINs),
each category should be assigned a separate NAICS code
Orders issued under the category must utilize the appropriate
NAICS code
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If multiple apply, must select the code that “represents the
principal nature” of the work performed
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SBA Implementation of Small Business
Jobs Act (cont’d)
Small Business Subcontracting Reporting Requirements
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Final Rule issued on July 16, 2013 (78 Fed. Reg. 42391)
Prime contractors must make a good faith effort to award
subcontracts to the same small businesses (at the same percentages)
as identified in proposal
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Must provide written justification to CO if fail to do so
Notification, in writing, every time a small business subcontractor
is paid a reduced price for goods and services or is paid more than
90 days after payment is due
Annual reports of small business subcontracting achievements
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SBA Implementation of Small Business
Jobs Act (cont’d)
Small Business Subcontracting Reporting Requirements
(cont’d)
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Requires written notification to CO when prime contractor fails to
use small business subcontractors if:
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The offeror specifically references a small business concern in a
bid or proposal;
The offeror has entered into a written agreement with the small
business concern for purposes of performing the specific contract
as a subcontractor; or
The small business concern drafted portions of the proposal or
submitted pricing and technical information that appears in the
bid or proposal, with the intent or understanding that the small
business concern will perform that related work if the offeror is
awarded a contract
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SBA Implementation of Small Business
Jobs Act (cont’d)
Small Business Subcontracting Reporting Requirements
(cont’d)
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Requires notification of CO by prime contractor if it “pays a
reduced price” to a small business contractor or is late making
payment
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“Reduced price” is a price that is less than the price agreed
upon in a binding contractual document
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Payment to a subcontractor 90 days past due is “late”
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Prime contractor must include the reason for the reduction
in payment or failure to pay in the written notice
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Explanation will be evaluated by CO as part of the
evaluation of the prime contractor’s compliance with its
subcontracting plan
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Subject to liquidated damages under FAR
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SBA Implementation of Small Business
Jobs Act (cont’d)
Small Business Subcontracting Reporting Requirements
(cont’d)
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COs are responsible for monitoring and evaluating prime
contractors’ compliance with small business contracting plans
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CO is authorized to consider when conducting overall
performance evaluation:
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Failing to utilize small business used in preparing proposal
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Reduced or late payment
Authorized to consider whether to require the prime contractor to
enter into a funds control agreement with a neutral third party if
the prime contractor fails to pay subcontractors in a timely
manner or fails to pay the agreed upon contract price without
justification
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SBA Implementation of Small Business
Jobs Act (cont’d)
Small Business Subcontracting Reporting Requirements
(cont’d)
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CO must record the identity of a prime contractor with a history
of unjustified, untimely payments to subcontractors in Federal
Awardee Performance and Integrity Information System
(FAPIIS)
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History of unjustified, untimely payments defined as three
incidents within a 12 month period
A prime contractor may not prohibit a subcontractor from
discussing any material matter pertaining to payment or
utilization with CO
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Other New Developments
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FY13 NDAA included a number of provisions affecting
small business contracting:
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Section 1641 - Expansion of Mentor-Protégé program to allow
all small business concerns to participate
Section 1651 - Changes calculation for the limitation on
contracting to “more than 50% of the amount paid” to the prime
contractor
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No longer cost based
Allows utilization of “similarly situated entities”
Imposes a penalty of $500,000 or the dollar amount expended for
violations
Section 1682 – Removes requirement that suspension/debarment
can only occur where a misrepresentation “indicates a lack of
business integrity”
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Separate provision creates safe harbor for misrepresentations
resulting from good faith reliance on advisory decisions
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Other New Developments (cont’d)
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FY13 NDAA included a number of provisions affecting
small business contracting (cont’d):
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Section 1653 - Failure to comply in good faith with a
subcontracting plan is deemed to be a material breach of the
contract
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May be considered in past performance evaluations
Requires Prime contractors whose contracts require a small
business subcontracting plan must notify a small business before it
identifies the company as a potential subcontractor in a proposal
or in a small business subcontracting plan
SBA required to establish a reporting mechanism that allows a
subcontractor or potential subcontractor to report fraudulent
activity or bad faith by a contractor with respect to a
subcontracting plan
Section 1697 - Removes contract award cap for women-owned
small businesses
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Recent Small Business Trends
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Protests and size challenges
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Consistent with the general trend of increased protests in light of
the current budget environment
Set-aside challenges becoming more prevalent
Increased enforcement efforts
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Additional scrutiny of small business programs generally in wake
of several high-profile scandals
SBA Inspector General and Suspension/Debarment Official
significantly more active
Small business certification issues increasingly getting the
attention of the Department of Justice and U.S. Attorneys’
Offices
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Recent Small Business Trends (cont’d)
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Small business teaming arrangements
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“If you can’t beat them, join them.”
Large businesses becoming more interested in the SBA’s
Mentor/Protégé Program, joint ventures, and acting as
subcontractors to small business
Mergers and acquisitions
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Shrinking federal budget has led to increased consolidation
across the industry
Small businesses leading the way in several key growth areas:
cybersecurity; counterterrorism; intelligence, surveillance and
reconnaissance (ISR); health information technology; and energy
efficiency
Acquisitions of small businesses create unique issues, e.g.,
notification requirements, continuation of current contracts, and
eligibility for future small business awards
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Questions and Contact Information

John R. Prairie
jprairie@wileyrein.com
202.719.7167

Benjamin Kohr
bkohr@wileyrein.com
202.719.7493
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