FAR provisions are contributing to declining 8(a) set-asides: attorney

8(a) set-asides fell sharply in fiscal 2018; slumping since

      As previously reported exclusively by Set-Aside Alert, 8(a) set-aside awards experienced a dramatic drop in fiscal 2018 and have remained fairly stagnant since then.

      Now there are reports that agencies may be utilizing two little-noticed provisions in the Federal Acquisition Regulation to allow 8(a) set-aside contracts, upon their expiration, to be replaced by other types of contracts and removed from the 8(a) program.

      This pattern may be contributing to the ongoing slump in 8(a) set-asides, according to government contracting attorney Ralph Thomas, formerly NASA’s associate administrator for the office of Small and Disadvantaged Business Utilization.

      By law, 8(a) set-asides, once granted, generally must remain within the Small Business Administration’s 8(a) Business Development Program when renewed or recompeted, unless the SBA allows their removal from the program, which rarely happens.

      However, agencies are taking advantage of two procedures in the FAR that allow them to circumvent the need to obtain SBA’s permission, Thomas told Set-Aside Alert in an exclusive interview.

      Thomas says agencies are utilizing two FAR clauses to remove 8(a) contracts from the 8(a) program:

• The New Requirement exception, which allows an 8(a) set-aside contract to be eliminated from the 8(a) program upon recompete if, going forward, it is considered a “new requirement;” and
• The Federal Supply Schedule (FSS) exemption, in which an 8(a) set-aside can be dissolved upon expiration if it is being replaced by an FSS contract.

      “These are good ways to get rid of an 8(a) contract,” Thomas told Set-Aside Alert in an exclusive interview. “The agencies don’t have to go through the usual procedures.”

      Both of the FAR clauses are exceptions to the usual procedures described in the law that set up the 8(a) program. Those procedures specify that 8(a) set-asides, once granted, must stay in 8(a) unless SBA agrees to remove them.

      “Laws supersede regulations, and not the other way around,” Thomas said. For 8(a) set-asides, “it’s supposed to be ‘Once in 8(a), Always in 8(a).”

      Agencies in some cases are using the FAR’s New Requirement Exception to gain access to emerging new technologies that may not be available through an 8(a) set-aside. And some agency officials simply “do not like being stuck with 8(a) indefinitely,” Thomas said.

      At the same time, the use of these FAR procedures is being challenged as improper in a number of Government Accountability Protests, with mixed results.

      In a protest by Eminent IT LLC in 2020, the GAO did not agree to removal of an 8(a) set-aside to accommodate an alleged new requirement. But in a protest by TeamGov Inc.in 2021, in which Thomas co-represented TeamGov, the GAO did approve a new requirement, allowing removal of an 8(a) set-aside from the 8(a) program.

      According to Thomas, both cases also referenced agency considerations of the FSS exemption as well, but the GAO did not address the validity of that exemption. However, the Court of Federal Claims recognized a valid FSS exemption claim in the K-Lak Corp. case in 2006, he said.

      In Thomas’ opinion, the SBA’s position on the two FAR procedures has been unclear. “SBA is supposed to be the champion of small business but it is coming down on both sides of the issue,” he said.

      SBA officials were not immediately available to comment. 8(a) set-asides

      As Set-Aside Alert previously reported, 8(a) set-aside contracts plunged from $17.2 billion in fiscal 2017 down to $11.1 billion in fiscal 2018--a 36% drop-- and have remained slumped since then, totaling $11.6 billion in fiscal 2021.

      The drop in 8(a) set-asides has occurred among several trends:

• Small business and HUBZone set-asides previously examined by Set-Aside Alert also experienced steep falls in fiscal 2018;
• Total small business awards increased from fiscal 2017-2020, rising from $106 billion to $146 billion, a 38% increase, according to SBA data; and
• Total federal contract awards also rose substantially from fiscal 2017-2020. Total contract spending increased from $510 billion to $668 billion during that period, a 31% hike. In fiscal 2021 it decreased to $632 billion.

      The trends suggest that federal agencies may have relied less on small business set-asides because the huge influx of funding made it easier to achieve their small business goals without set-asides.

      Agency staff may have had less time for set-asides, since set-asides generally require more research and paperwork in comparison with non-set-aside contracts of the same value.

More information:
TeamGov: https://www.gao.gov/assets/b-419865.2.pdf
Eminent IT: https://www.gao.gov/assets/b-418570.pdf

(URLs in Set-Aside Alert have been shortened by the bit.ly URL shortener)

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