Overhaul of Small Business Subcontracting Rules

The Federal Acquisition Council published several new contracting rules Thursday, including one designed to increase government subcontracting to smaller businesses.

The new federal acquisition circular adds the terms of a 2013 Small Business Administration rule that made a number of changes to federal small business subcontracting requirements into the Federal Acquisition Regulation, the council said. The rule will go into effect at the beginning of November.

The circular also includes several other changes, such as clarifications meant to reduce confusion for contractors, according to the council, which includes the U.S. Department of Defense, U.S. General Services Administration and NASA.

Contractors will have to assign specific North American Industry Classification System codes — used for collecting statistical data — to subcontracts and to provide socioeconomic status of a subcontractor in notifications to unsuccessful subcontract offerers. In addition, contractors will be barred from blocking subcontractors from discussing payment or utilization issues with a contracting officer.

Contracting officers will also get expanded authority, including the discretion to require that small business subcontracting goals be defined in terms of total contract spending — not just based on required subcontract spending — and to request a new subcontracting plan if and when prime contractors grow beyond small business status.

Officers can also establish subcontracting goals at the task or delivery order level when making procurements under overarching indefinite-delivery, indefinite-quantity contracts, among other changes.The rule also changes the way credit is assigned to federal agencies for meeting their small business contracting goals, allowing agencies that fund a contract — not just those responsible for awarding the deal — to receive credit.

The council had issued a proposed version of the rule in June 2015, following on from the SBA’s final rule, which had been put in place in July 2013, and received several dozen comments on the proposal.

Responding to those comments, the council made several tweaks in the final measure, including clarifying that although contracting officers can establish subcontracting goals for each task order, they cannot ask for new subcontracting plans.

In another tweak, the council also said that prime contractors won’t be held liable for misrepresentations made by a subcontractor regarding size or socioeconomic status, if the contractors otherwise acted in good faith.

The other changes in the circular include revisions to forms related to contracts involving bonds and other financial protections aimed at clarifying liability limitations and reducing confusion for contractors, and updates to outdated references in the regulation to federal guidance on administrative and audit requirements.

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Small Business Administration Mentor-Protege Program Expansion

There are several pending regulatory changes previously designated by the SBA for release this year, including a rule that will clarify the agency’s suspension, revocation and debarment procedures for contracting agents, and another that will ease eligibility requirements for the Historically Underutilized Business Zones Program, which covers businesses located in certain “historically underutilized business” areas.

But the upcoming change that has prompted the most interest for many contractors  is a pending final rule expanding the SBA’s Mentor-Protege Program, first floated in a February 2015 proposed rule.

The program allows small businesses to partner in a joint venture with a larger mentor business that can provide advice and assistance, for instance to help win or implement larger or more complex deals that the small businesses lack the resources to win on their own, while still maintaining eligibility for federal small-business set-aside contracts.

Currently, the program is limited to businesses that participate in the SBA’s 8(a) Business Development Program, which provides assistance for small businesses majority-owned and -operated by “socially and economically disadvantaged” individuals, but is expected to be extended to all businesses otherwise eligible for set-aside contracts under SBA rules.

While the exact shape of the program expansion has yet to be announced, SBA officials have most recently hinted that the rule should be finalized at some point in July, and have indicated that the program’s terms should be effectively identical to the current 8(a) Mentor-Protege Program.

If those prescriptions hold, then the program’s expansion will be overwhelmingly welcomed throughout the small-business contractor community.

Reverse Auctions Once Again Questioned by Lawmakers’

Lawmakers are once again marshaling arguments to restrict the contracting tool called a reverse auction, criticizing agency reliance on a practice dominated by a single private firm at a Thursday hearing of the House Small Business subcommittee.

Rep. Richard Hanna, R-N.Y., who has introduced H.R. 1444 to limit reverse auctions, said that allowing contractors to bid electronically with increasingly lower prices to provide goods and services creates “a race to the bottom” that neither assures quality nor helps channel work to small businesses. “When reverse auctions are used properly, they can save taxpayer dollars,” Hanna said. “Unfortunately, some agencies have used reverse auctions in a manner that evades vigorous competition and contractor protections.” (Credit AP).

Use of the tool at agencies such as the Veterans Affairs Department is dominated by a single Vienna, Va.-based firm called FedBid, which has become controversial for its lobbying practices. The Office of Federal Procurement Policy has been collecting data on the practice, but has yet to issue guidance, noted the panel’s ranking member, Rep. Nydia Velazquez, D-N.Y. (Credit AP).

Dan Gordon, the former administrator of the White House procurement shop now teaching law at  George Washington University, said the best study on the subject—a December 2013 Government Accountability Office report—showed uncertainty as to whether reverse auctions save money or steer work to smaller businesses. “If all you care about is prices, then reverse auctions are for you,” Gordon said.  “But there is also past performance and quality” to consider.  (Credit AP).

He noted that FedBid conducts more than 99 percent of the auctions announced on the government’s FedBizOpps website, “so it’s pretty darn close to a monopoly” in performing a function that, Gordon added, “is closely associated with inherently governmental functions.” (Credit AP).

Because FedBid controls the data — a conflict of interest, he said — agencies often don’t know what fees they’re paying. Sometimes it’s nothing because FedBid waives it. “FedBid does an excellent job,” Gordon said. “So good that agencies say, ‘Let’s go for it,’ which means federal officials are abdicating their responsibility.” (Credit AP).

Private sector witnesses representing veterans and women’s groups promoting small business opportunities were also skeptical, with Davy Leghorn from the American Legion calling reverse auctions “a short cut used because there aren’t enough contracting officers.” (Credit AP).

Hanna’s bill, which he hopes to move out of committee soon, assumes that reverse auctions are “best suited to buying well-defined commodities, but not skilled services with a high degree of variability,” according to a summary. It would ban their use for the procurement of “subjective services like construction and design, as well as products that prevent bodily harm, such as body armor. This would force agencies to use one of the other approved contracting processes, such as a sealed bid procurement or a negotiated procurement when a contract is suitable for award to a small business, or when the procurement is made using a small business program.” (Credit AP). The bill would also require more training of contracting officers in the use of reverse auctions.

FedBid, which did not testify, said in a statement to Government Executive that its leaders were disappointed that no one from the company or industry was invited to the hearing.

”FedBid feels strongly that reverse auctions, when used appropriately, do in fact increase access and opportunity for small business contractors, allowing them to compete on a level playing field,” the statement said. “FedBid does not believe that reverse auctions in any way ‘abdicate’ a contracting officer’s responsibility; rather, they are a tool that they can use as part of their process, rather than a replacement for that process.” (Credit AP).

The firm, which is headed by former Office of Federal Procurement Policy Administrator Joe Jordan, said it supports language from the 2015 Defense authorization bill requiring more training and clarity around the use of reverse auctions.

9 tips to help your small business find government contract opportunities that make sense.

As a Senior Director with Duane Morris Government Strategies I am often asked by SBE, DBE and MBE/WBE clients how to find government contract opportunities that make sense.

Despite recent budget cuts, the U.S. federal marketplace remains a lucrative opportunity for small businesses. The federal government typically spends approximately a half a billion plus in contracts every year and the law requires that 23 percent of these dollars be awarded to small businesses.

Here are 9 tips if you are a SBE, DBE or MBE/WBE to help you find government contract opportunities that make sense.

  1. Familiarize yourself with the rules

Even before a contract opportunity comes you must be prepared. Familiarize yourself with what’s involved with selling to the federal government. It’s quite different than the private sector with much longer lead times and strict bidding and product requirements.

These resources can help:

  • Learn How the Federal Government Buys from Small Businesses
  • SBA’s guide to Getting Started in Government Contracting
  • Government Contracting 101 – These three on-demand, self-paced courses are part of SBA’s Government Contracting Classroom and are a quick way to get to know the landscape.
  1. Understand what the government is buying

Every agency and department has unique goals. Identifying these can help you target a niche or opportunity for your products or services. The government offers potential contractors something that no other sector does – an insight into its budgetary priorities- what the government intends to buy and how much it has to spend is all in the public domain. These budgets offer sufficient context for savvy small businesses to identify opportunities and focus their contracting sales and marketing strategy. Each federal agency or department budget is listed on the Office of Management and Budget (OMB) website.

  1. Zero in on agencies that aren’t meeting their small business goals

Each year the SBA negotiates formal goals with individual agencies to ensure that small businesses get their fair share of federal contracts. Frankly, for several consecutive years, most agencies have fallen short of their targets. Could there be an opportunity here for your business to lend its services and goods to help these agencies hit their targets next year? The Federal Procurement Data System posts scorecards for each agency that can help you make that determination.

  1. Research existing and upcoming opportunities

Once you identify agency initiatives that align with your business offerings, start tracking contract opportunities and solicitations that align with these on sites such as USAspending.gov and FedBizOpps.gov. Market intelligence firms like ONVIA (link is external) or Immix Group (link is external) also have useful blogs (link is external) that highlight upcoming opportunities as well as contracting tips).

  1. Show up

Make a point of attending agency- or industry-specific government events. These are hosted by the private sector but attract the procurement community, influencers and industry experts. Useful sites to explore for upcoming events include GovWin((link is external), GovEvents, and if you’re interested in the lucrative IT government market Digital Government Institute (link is external), ACT-IAC (link is external) and GovMark Council. All are worth checking out.

  1. Find a partner and advocate in the Small and Disadvantaged Business Utilization (“OSDBU”)

Another excellent way of getting in front of government buyers is to take advantage of the Office of the OSDBU outreach events and expos. These serve to connect business owners to government buyers. These events also offer guidance on how small businesses can break into the contracting market and take advantage of programs like the 8(a) Business Development Program—a business development tool, which helps thousands of aspiring entrepreneurs gain a foothold in contracting with financial assistance and teaming opportunities.

  1. Get help from SBA procurement reps

Another vital government resource is SBA’s local Procurement Center Representatives (PCRs). PCRs provide services that include training, counseling and business matchmaking events. Find the PCR in your area.

  1. Don’t go it alone – partner with a government mentor

Anyone embarking on new ventures can benefit from a mentor. The government operates two notable mentor programs that can help you get access to contracts. First is the GSA Mentor-Protégé Program. Open to qualified small businesses, this program helps connect small firms with more experienced ones. The program’s objective is motivating larger companies to lend their knowledge to smaller, less experienced businesses.

Another option is the SBA Mentor-Protégé Program. Open to socially and economically disadvantaged businesses that qualify for SBA’s 8(a) program, this program pairs you with a mentor who has had success in federal contracting.

  1. Additional Resources

For more tips and insights on breaking into and growing your business in the government contracting marketplace, check out these resources:

  • SBA Contracting Guide – A deep dive into getting started, available resources and more.
  • Contracting Blogs – Learn about the latest resources and programs, and get tips on how to succeed.
  • SBA Government Contracting Classroom – Self-paced online courses on all aspects of the contracting process.

SBA Audit Finds Agencies Exaggerating Success of Small Business Contracts

The Small Business Administration’s inspector general’s office released a report this week in which it said that its review of federal agencies identified $400 million in contracts given to ineligible firms that the agencies nevertheless counted when measuring their success at working with small businesses facing socio-economic disadvantages. The report’s findings mean that flawed numbers were reported to Congress and the White House, the latter of which claimed for the first time last year that the government had met its small-business contracting goals. The federal government is required under law to attempt to award 23 percent of its contracts to small businesses, three percent of which is intended for business in economically struggling areas referred to as Historically Underutilized Business (HUB) Zones and five percent of which is intended for businesses facing social and economic disadvantages. The audit identified $208 million in contracts that federal agencies incorrectly claimed was awarded to business in HUB Zones and $219 million in contracts that federal agencies incorrectly claimed was awarded to disadvantaged businesses.

Martin Milita is a Senior Director with Duane Morris Government Strategies were he advocates on behalf of SBE, DBE AND MBE/WBE clients for the procurement of public contracts and offers assistance when clients deal with the complex issues that can arise when working with the  Federal or New Jersey legislature and other national and state offices and agencies.