Column: FAR Methods Removing 8(a) Set-Asides
By Ralph C. Thomas III, government contracts attorney
and former associate administrator of the OSDBU of NASA
(Editor’s Note: Read Ralph Thomas interview and SBA’s response elsewhere in this issue.)
In a previous edition of this publication, it was reported that 8(a) set aside awards have dropped dramatically in the last four years from $17.2 billion in fiscal 2017 to about $11.6 billion in fiscal 2021.
One of the reasons for this phenomenon might be that more effort apparently is being concentrated on nontraditional procurement methods that have the effect of eliminating 8(a) set-aside contracts.
This article will address two of those methods. They consist of two little-known procurement techniques that allow agencies to unilaterally remove 8(a) set-aside contracts from the 8(a) program.
This is significant because once the Small Business Administration approves a requirement for an 8(a) set-aside, under law that set-aside must remain within the 8(a) program when it is recompeted, unless the SBA approves its removal. Since SBA rarely agrees to removal, the expectation of 8(a) longevity has persisted for many years.
Under existing regulations, agencies generally need to ask permission from the SBA in a formal procedure to remove an 8(a) set-aside from the 8(a) program.
However, two methods are being used that circumvent that process. The two methods are the “FSS Exemption” and the “New Requirement Exception.”
The FSS Exemption
The “FSS exemption”, or FAR 8.404, has been in existence for more than a decade. Under this exemption, an agency that desires to reprocure an 8(a) set-aside contract as a Federal Supply Schedule (FSS) procurement is allowed to do so without obtaining SBA’s approval.
Normally, an agency must follow the formal procedure set forth in the SBA regulations that requires the concurrence (one that is rarely given) from the SBA before an agency can reprocure an 8(a) requirement outside of the 8(a) Program. However, with the FSS exemption, the agency does not have to follow such procedures. Agencies do not even have to notify the 8(a) contractor or the SBA of its intentions.
Indeed, this FSS exemption seems to blatantly contradict the SBA’s statutory authority to administer the 8(a) Program. To allow a FAR exemption to take precedent over the SBA in deciding what contracts are removed from the 8(a) program is to ignore the precedence that the Small Business Act (a statute) has over the FAR (a regulation).
There is no exemption in any SBA statute or regulation which recognizes the FAR’s “FSS exemption.” The SBA itself has never recognized such an exemption. In at least one recent Government Accountability Office bid protest, SBA asserted to the GAO that it does not accept the FSS exemption as a waiver to an agency from following SBA’s regulatory requirements for removing a contract from the 8(a) Program.
However, complicating the picture, a U.S. Court of Federal Claims in 2006 upheld the FSS exemption. (K-Lak Corp. v. United States, 93 Fed. Cl. 749 (2010).)
It is unknown how many dollars and contracts this tactic has cost 8(a) contractors. However, there is evidence that some agencies are utilizing the FSS exemption and it has been referenced in some GAO protests.
The New Requirement Exception
The second procurement method eliminating 8(a) contracts is called the “new requirement” exception. 13 C.F.R. 124.504(d), which states essentially that an 8(a) contract can be reprocured as a non-8(a) procurement, if the contract is determined to be a “new requirement.”
Whether a particular requirement is “new” includes consideration of:
- Whether the scope has changed significantly, requiring meaningfully different types of work or capabilities;
- Whether the magnitude of value of the requirement has changed by at least 25% for equivalent periods of performance; and
- Whether the end user of the requirement has changed.
In making a determination of whether an 8(a) contract is a “new requirement”, an agency will generally add tasks to the 8(a) contract that appear to be more complicated and sophisticated that an 8(a) contractor can perform, while the value of the contract will be increased over 25 percent to comply with the regulation. The agency is then the sole decider of whether the requirement meets the “new requirement” definition.
After that, the agency has to only “notify” the SBA of its determination. The SBA then has five days to appeal. However, the “appeal” is to the head of the agency that made the “new requirement” determination in the first place.
If the 8(a) contractor chooses to file a GAO bid protest, the SBA usually has a major role in determining how the protest will be decided, as the GAO will usually ask the SBA for comments as guidance to determining whether or not the procurement meets the definition of a “new requirement.” Ironically, the SBA, which exists to be the advocate for small businesses, including those that are 8(a), is put in the uncanny position of either stopping an agency’s attempt to remove contracts from the 8(a) program or giving the go-ahead for an agency to do so.
The SBA has done both, resulting in millions of dollars and contracts to be unilaterally eliminated from the 8(a) program by some agencies. In the Eminent IT LLC case before the GAO (https://bit.ly/35jd6nm), the SBA opposed the “new requirement” and the 8(a) contract stayed in the program. However, in the TeamGov Inc. protest (https://bit.ly/3scyHa0), the SBA reversed its earlier position, resulting in two 8(a) contracts being lost to the SBA’s own program. (Editor’s Note: Mr. Thomas represented TeamGov)
Conclusion
Changes are necessary to both the FAR’s FSS exemption and the SBA’s “new requirement” exception regulation in order to get back to the business of finding ways to keep and increase contracts in the 8(a) program rather than using procurement methods to eliminate 8(a) contracts from the 8(a) program and the dollars that go with it. In order to prevail, it will take strong and persistent advocacy on the part of the 8(a) contractors and their supporters.
Ralph Thomas can be reached by email at rthomas@rctlaw.com.
