On April 27, 2023, the U.S. Small Business Administration (SBA) issued a final rule implementing a number of changes to its regulations. The final rule applies to all solicitations issued on or after the effective date, May 30, 2023. The final rule can be found here. While there were numerous changes implemented by the final rule, a few of the notable changes will be highlighted in this article.
Ownership. The final rule revised 13 C.F.R. § 124.105 to allow an 8(a) Participant or former Participant that is performing one or more 8(a) contracts to substitute one disadvantaged individual or entity for another disadvantaged individual or entity. This can now be accomplished without those contracts being terminated or requesting a waiver under 13 C.F.R. § 124.515, as long as SBA approval in obtained prior to the change. The SBA believes this situation is most likely to occur where an Alaska Native Corporation (ANC), tribe, Native Hawaiian Organization (NHO), or Community Development Corporation (CDC) seeks to replace the principal of a former 8(a) Participant, because the one-time eligibility restriction does not apply to those entities. A tribe, ANC, NHO or CDC can own more than one business concern that participates in the 8(a) Program. As such, an entity could purchase a former Participant and complete performance of any remaining 8(a) contracts.
Contractual Assistance. The final rule also made four significant clarifications to language in 13 C.F.R. § 124.501 with regard to the award of 8(a) contracts.
- To address confusion over whether a contracting officer can limit an 8(a) competition for an 8(a) contract, or an order set-aside for 8(a) competition under an unrestricted contract, to Participants having more than one certification (g., must be both 8(a) and HUBZone), the rule added a sentence to § 124.501(b). The added language clarifies that a contracting activity is prohibited from restricting an 8(a) competition to Participants that are also certified HUBZone small businesses, certified WOSBs, or certified SDVO small businesses.
- The final rule clarifies that an agency may award an 8(a) sole source order against a multiple award contract that was not set aside for competition only among 8(a) Participants. The SBA believes this type of 8(a) sole source order is beneficial to both 8(a) Participants, who benefit from increased contracting opportunities, and to procuring agencies, who can take advantage of pre-negotiated terms and pricing.
- Due to confusion as to what an eligibility determination entails when a joint venture is the apparent successful offeror in a competitive 8(a) procurement, the SBA clarified that its eligibility determination relates solely to the 8(a) partner to the joint venture. The SBA will determine whether the 8(a) partner to the joint venture is eligible for award, but will not review the joint venture agreement to determine compliance with 13 C.F.R. § 124.513. The SBA also will not review joint venture agreements in connection with one or more individual sole source orders under an 8(a) multiple award contract.
- The SBA also made several clarifications to the bona fide place of business requirements in 13 C.F.R. § 124.501(k) for sole source and competitive 8(a) construction contracts. Though there are numerous changes to note, the temporary moratorium on application of the rule established during the pandemic and intending to run through September 30, 2023, remains unaffected. The final rule’s changes to the bona fide place of business requirements clarify the following:
- A Participant with a bona fide place of business anywhere in a particular state is deemed eligible for an 8(a) construction contract throughout that entire state (even if the state is serviced by more than one SBA district office). This clarification appears to contradict the Small Business Act, which requires 8(a) construction contracts be awarded within the county or State where the work is to be performed to the “maximum extent practicable.”
- A Participant will not be able to use performance on a contract in one state to allow it to be eligible for an 8(a) contract in a contiguous state, unless it officially establishes a bona fide place of business in the location in which it is currently performing the contract (or in that contiguous state or another state touching that contiguous state).
- Where a Participant is currently performing a contract in a specific state, it qualifies as having a bona fide place of business in that state for one or more additional 8(a) construction contract in that state.
- A Participant can establish a bona fide place of business in a specific geographic location through a full-time employee in a home office, even if the employee is not a “resident” of the state where he/she is conducting business. A Participant merely needs to demonstrate that one or more employees are operating in an office within the identified geographic location. A Participant can rotate employees in and out of a specific location as it sees fit, and as long as one individual (but not necessarily the same individual) remains at that location, it can be considered a bona fide place of business.
- For a single award 8(a) construction contract requiring work in multiple locations, a Participant is eligible if it has a bona fide place of business where a majority of the work is to be performed. For a multiple award 8(a) construction contract, a Participant simply needs to have a bona fide place of business in any location where work is to be performed.
Populated versus unpopulated joint ventures. The final rule clarifies that a joint venture (JV) which exists as a separate entity, may not be populated with individuals intended to perform set-aside contracts awarded to the JV, unless all parties to the JV are “similarly situated entities”. Similarly situated entities have the same small business socioeconomic status (i.e., 8(a), VOSB, SDVOSB, WOSB, HUBZone) and are considered small for the size standard under the applicable North American Industry Classification System (NAICS) code assigned to the contract.
Determining size of a populated JV. The SBA will determine the size of a populated JV by aggregating the revenues or employees of all partners to the JV. In other words, for a populated JV to be awarded a set-aside contract, it must still be small under the NAICS assigned to that contract after aggregating the revenues or employees for all partners to the joint venture.
Recertification requirements for joint ventures. The SBA’s final rule added subparagraph (6) to 13 C.F.R. § 121.404(g), which sets forth the general rule that a JV can recertify as small “where all parties to the joint venture qualify as small at the time of recertification, or where the protégé small business in a still active mentor-protégé joint venture qualifies as small at the time of recertification.” Subparagraph (6) states that “[a] joint venture can recertify as small even though the date of recertification occurs more than two years after the joint venture received its first contract award (i.e., recertification is not considered a new contract award under § 121.103(h)).” Since recertification is not considered to be a new contract award, a JV can recertify its size status even if it has been more than two years since the JV received its first contract.
Unlimited-in-two. A specific JV entity formed under SBA’s regulations generally may not be awarded contracts beyond a two-year period, starting from the date of the award of the first contract, without the partners to the JV being deemed affiliated. That is, once a JV receives a contract, it may submit additional offers for a period of two years from the date of that first award and may be awarded one or more contracts after that two-year period, as long as it submitted an offer including price prior to the end of that two-year period. The SBA’s final rule clarifies the language in 13 C.F.R. § 121.103(h) to confirm the restriction pertains to the award of additional contracts rather than on the continued performance of contracts previously awarded. Orders can be issued under previously awarded contracts beyond the two-year period, because the restriction applies to additional contracts and not to continued performance on contracts that were already awarded.
The SBA’s final rule brings noteworthy changes to various socioeconomic procurement programs that can be complex to navigate. If you have questions about the final rule or the implemented regulations, please contact a member of the Taft Government Contracts team.
Taft summer associate Celeste Friel contributed to this article.