Tough New Penalties for Size Misrepresentation The new law establishing parity in small business programs also imposes tough penalties on contractors that falsely claim to be small. President Obama signed the Small Business Jobs Act, H.R. 5297, on Sept. 27. It overturns court rulings giving HUBZone companies first priority in set-asides and requires annual recertification of small businesses. In addition, the law creates an automatic presumption of misrepresentation when a small business set-aside contract is awarded to a company that is not small. “The clear purpose of the law is to impose automatic and strict penalties on contractors that mistakenly certify their size status as small,” the Venable law firm wrote in an analysis. “The consequences of such a mistake can be enormous, in terms of both monetary damages and the reputation of the concern. There may also be serious False Claims Act implications based on the statutory presumption of willful and intentional misrepresentation.” Even if a company mistakenly claims to be small, it could be held liable for misrepresentation. “Perhaps the most significant enforcement provision of the new law is the imposition of what is effectively a strict liability standard for size misrepresentations,” Venable said. “In other words, contractors that misrepresent their size status are presumed to be liable for the amount which the government expends on a contract intended for small businesses.” The law permits set-asides for task and delivery orders on multiple award contracts and would allow agencies to reserve one or more awards on multiple award contracts for small firms. Other contracting provisions of the law: Subcontracting. Prime contractors on large contracts will be required to notify the agency when they fail to make full payment to a subcontractor within 90 days. A contracting officer must consider the prime’s record of late payments as part of the evaluation of the company’s past performance. In an effort to stop bait-and-switch subcontracting, the law requires primes to make a good-faith effort to use those subcontractors that were named in the proposal. Mentor-protégé. The law provides for establishment of mentor-protégé programs for woman-owned, HUBZone and service-disabled veteran-owned firms, modeled after the 8(a) program. Bundling. The law reduces the bundling threshold from $10 million to $2 million. For contracts over $2 million, agencies will be required to explore alternatives to bundling and issue a written determination that bundling is “necessary and justified.” The law states that cost savings is not a justification for bundling unless the savings are “substantial.” Agencies may consider such factors as contract quality, acquisition life cycle, and terms and conditions as potential benefits of bundling. When agencies consider whether to consolidate contracts, they must make such decisions “with a view to providing small business concerns with appropriate opportunities to participate as prime contractors and subcontractors in the procurements of the Federal agency.” “These new provisions should significantly improve the transparency of agency bundling decisions and provide affected small businesses with an opportunity to hold agencies accountable,” Venable commented.