New SBA Rules:a cautionary tale

The U.S. Small Business Administration recently published its long-awaited final rule providing for a major expansion of its mentor-protege program.  The final rule makes changes broadening the existing 8(a) mentor-protege program;  it also includes regulations creating a new small business mentor-protege program that will be open to all small businesses .

These regulations, will go into effect in two days-Aug. 24, 2016.

One of the changes in the final rule is that in small business set-asides procurements, agencies will be required to consider projects performed by the individual members of a mentor-protege joint venture offeror when evaluating experience/past performance. While the SBA has clearly included this provision in an attempt to help mentor-protege joint ventures, arguably this change does more harm than good to mentor-protege joint ventures.

One thing the new rule solves is that it prohibits agencies from limiting consideration to projects performed by the joint venture itself when evaluating the experience/past performance of a joint venture offeror in a small business set-aside.

Because of the new regulation, these types of restriction are no longer permitted. Certainly, prohibiting these restrictions benefits mentor-protege joint ventures.

However, the new rule does not solve, and possibly worsens, a related and more pressing problem for mentor-protege joint ventures in experience evaluations — where the agency considers the experience of both the mentor and protege, but then downgrades the joint venture’s experience rating on account of the protege’s lack of experience (despite the fact that the mentor has plenty of experience

Unfortunately for mentor-protege joint ventures, the SBA’s new regulations fail to resolve this long-recognized problem. In fact, because the new regulations will require agencies to consider the past performance/experience of both the mentor and protege, the new regulations could very well exacerbate this problem (no longer will an agency have discretion to limit its review to the qualifications of the mentor, despite the fact the SBA has said doing so would be good policy in certain situations).

The new regulation will certainly provide some relief to mentor-protege joint ventures, especially those who are newly formed, since they will be able to meet experience and past performance requirements by demonstrating the joint venture partners individually have relevant experience/past performance, rather than the joint venture itself having to have its own relevant experience/past performance. However, because agencies will no longer have discretion to consider only the mentor’s experience, the new regulation may actually make life harder for mentor-protege joint ventures where the protege has very limited experience of its own.

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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.

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.