Major regulatory overhaul of SBA mentor-proteges, JVs, 8(a), recerts. etc. in effect on Nov. 16
8(a) and All Small mentor-protege programs combined;
Requirement to recertify size/status for MAC task orders
The Small Business Administration announced that next month it will implement a major overhaul of regulations affecting small business federal contractors.
In a lengthy and comprehensive final rule published on Oct. 16, the SBA outlined dozens of changes in regulations that will go into effect on Nov. 16, including:
- Elimination of the 8(a) Mentor/Protégé Program, which will be merged into the All-Small Mentor/Protégé Program;
- Removal of the requirement that 8(a) participants seeking to be awarded an 8(a) contract as a joint venture must submit the joint venture agreement to SBA for review and approval prior to contract award;
- A requirement--which originated in a controversial “technical correction” (see story on page 2)--that a small business must recertify its size and/or socioeconomic status for set-aside task orders under unrestricted multiple award contracts;
- Revisions of several 8(a) rules, including looser restrictions on family members of participants;
- Changes to the nonmanufacturer rule and limitations on subcontracting; and
- Changes to the “Three-In-Two” rule for joint ventures.
The SBA said the changes are part of the Trump Administration’s regulatory reform agenda, which is aimed at reducing “confusion” and “duplication” in regulations, among other goals.
The proposed rule was issued in November 2019. The SBA received 189 comments on the proposal.
Merger of mentor-protege programs
The 8(a) Mentor-Protege program was set up in 1998 to help the disadvantaged 8(a) firms obtain business assistance from larger firms. Congress in 2016 authorized the SBA to create the All Small Mentor-Protege Program allowing any small business to be a protege.
Under the final rule:
- The 8(a) Mentor-Protege Program will be eliminated;
- All 8(a) Mentor-Protege relationships already approved by SBA will continue to operate under the All Small program;
- The reconsideration process for declined mentor-protégé agreements will be eliminated;
- A firm of any size will be allowed to be a mentor as long as it can show that it has the ability and commitment to assist small business proteges;
- While a mentor cannot have more than three protégés at one time, that rule and others are relaxed for small proteges in Puerto Rico;
- SBA may approve a mentor-protege relationship under a company’s secondary NAICS code if the company can demonstrate it has performed work in that code or a related code;
- SBA will not count mentor-protégé relationships terminated within 18 months of approval against the protege’s two-mentor lifetime limit, with some exceptions; and
- Proteges will be allowed to request that SBA terminate the mentor relationship for poor performance.
Joint Venture Rule Changes
The final rule makes several changes to joint venture rules, including:
- 8(a) participants will not need to submit their joint venture agreements to SBA for review and approval before being awarded a competitive 8(a) contract;
- The “3-in-2” rule is changed so the three-contract limitation for joint ventures is removed, but the two-year joint venture duration limit is maintained;
- In some cases, joint ventures may require the security clearance of only one of its members; and
- SBA confirms that a protege must perform at least 40% of the work of a joint venture, and cannot include subcontracted work to a similarly-situated entity.
Multiple-Award Contracts
The final rule makes several significant changes to multiple-award contracts. The final rule requires that:
- A small business must certify size and status at the time it submits its initial offer, including price, for a task order under an unrestricted Multiple-Award Contract (MAC). This does not apply to task orders or BPAs issued under the Federal Supply Schedule, also known as the Multiple-Award Schedules. However, there is an exception allowed when a MAC has a pool of certified small businesses. The firms in the pool do not need to recertify for a task order.
- If a socio-economic status is first required at the task order level, the firm must qualify at the time of the task order;
- Contracting officers must assign the most appropriate single NAICS code to each task order under a MAC to align with the non-manufacturer rule;
Certification and recertification
The final rule makes several changes and clarifications, including:
- A required recertification of a firm sets the firm’s status for future options and task orders;
- If a party to a joint venture is acquired or merges, only that partner must recertify in order to make the joint venture eligible for recertification; and
- If a small business seeking a set-aside is sold between proposal submission and award it must recertify its size status prior to award. If it is no longer small after the sale, and the sale is within 180 days of proposal submission, it is ineligible for award. If the sale is more than 180 days after submission, the award can be made but it does not count toward small business goals.
8(a) Program
The final rule modifies and clarifies various provisions, including:
- It describes factors that define a follow-on requirement, including whether the scope of work has changed; whether the magnitude of the requirement, and value of the contract, have changed by at least 25%, including all periods of performance; and whether the end user of the requirement has changed.
- The rule requires that when an agency wishes to remove a follow-on requirement from the 8(a) program it must receive SBA’s permission;
- Regarding immediate family members, the final rule loosens the current restrictions. Currently, an immediate family member of an 8(a) participant is not eligible to apply.
Under the new rule, the restriction would apply only if there is common ownership or management, the companies share facilities or the companies have a contractual relationship that was not conducted at arm’s length.
- It removes the presumption against applicants to 8(a) who have gained their management or technical experience working for a family member;
- For an 8(a) applicant who was denied, the final rule allows reapplication after 90 days. Currently, the wait time is 12 months;
- The final rule allows 8(a) sole source prohibition waivers to be processed at the SBA district office level; and
- It provides that an 8(a) participant may not receive sole source 8(a) contracts if it has received more than $100 million in 8(a) competitive and sole source contracts while in the 8(a) program;
There are many additional small changes regarding affiliation, subcontracting, tribes and other aspects of small business contracting.
More information:
Rule notice: https://bit.ly/2HudDHl
PilieroMazza summary: https://bit.ly/3ope5aM
Bradley Arant Boult Cummings LLP memo: https://bit.ly/2Hxtc0V
