The Small Business Administration (“SBA”) recently proposed regulations to implement the sections of the Small Business Jobs Act of 2010 regarding multiple award contracts and contract bundling. The proposed rule would require agencies to consider the use of small business set-asides and reserves for multiple award contracts. The proposed rule also imposes procedures to discourage agencies from bundling and consolidating contract requirements. The proposed rule was published on May 16, 2012 at 77 Fed. Reg. 29130. SBA seeks public comments by July 16, 2012.

Multiple Award Contracts

Procuring agencies will be required to consider the use of small business set-asides and reserves for multiple award contracts. A contracting officer may: (1) set-aside one or more of the multiple award contracts for small businesses; (2) set-aside certain task or delivery orders issued under multiple award contracts for small businesses; or (3) reserve a multiple award contract for a small business. These procurement actions may be taken for small businesses or any category of small business, such as a Woman-Owned small business concern. If the contracting officer decides not to use a set-aside or reserve, the contracting officer will be required to explain and document this decision in the contract file.

SBA’s proposed rule clarifies that a “multiple award contract” includes Federal Supply Schedule and other multiple award contracts issued by the General Services Administration (“GSA”) or agencies granted Multiple Award Schedules contract authority by the GSA, multiple award task-order or delivery-order contracts issued in accordance with FAR subpart 16.5, and any other indefinite delivery/indefinite quantity (“IDIQ”) contract entered into with two or more sources pursuant to the same solicitation.

SBA recognized that multiple award contracts frequently include work covered by multiple North American Industry Classification System (“NAICS”) codes. Currently, a contracting officer must select the NAICS code that represents the greatest portion of the required work. SBA now proposes that contracting officers may assign multiple NAICS codes and size standards for a multiple award contract solicitation. The contracting officer would identify which NAICS code applies for each portion of the solicitation requirement. The contracting officer would also be required to assign the appropriate NAICS code for each solicitation for a task or delivery order issued under the multiple award contract.

Agencies Must Justify Contract Bundling and Consolidation

SBA also proposes to discourage an agency’s consolidation or bundling of contracts. SBA defines a bundled contract as a consolidated contract where the combined requirements were or could have been performed by small businesses. With respect to consolidation, the proposed rule would prohibit an agency from conducting an acquisition that is a consolidation of contract requirements, unless the senior procurement executive or chief acquisition officer identifies the negative impact of consolidation on small businesses and justifies the consolidation by showing that the benefits substantially exceed the benefits of each possible alternative approach that would involve a lesser degree of consolidation.

With respect to bundling, the rule encourages agencies to post the list of bundled contracts and rationales for them before soliciting offers, rather than after awards have been made. Agencies wishing to bundle contracts will be required to publish on websites a list of bundled contracts and the rationale for doing so. Solicitations for multiple-award contracts above the $2 million substantial bundling threshold must include a request by the agency for offers from any responsible source, including responsible small business concerns and teams or joint ventures of small business concerns. Further, the proposed rule exempts certain small business teaming arrangements from SBA’s affiliation rules.

Other Changes

Additional changes proposed by SBA:

Clarify that after a merger or acquisition, there is a requirement for both the acquiring and acquired firms to recertify their size status, including when a participant in a joint venture is involved in a merger or acquisition.

Authorize the set-asides of blanket purchase agreements, which are not considered contracts, for small businesses.

Clarify that certain costs should be considered as subcontracting costs, rather than costs for materials, by removing the language “or services” in order to provide clarity on costs that should be considered subcontracting costs.

CONTACTS

From McKenna Long & Aldridge
For further information regarding the topic discussed in this update, please contact one of the professionals below, or the attorney or public policy advisor with whom you regularly work.

Richard B. Oliver
213.243.6169

Andrea Fontana
213.243.6159

Congressman Bill Owens (D-NY) introduced the Small Business Growth and Federal Accountability Act of 2012 (H.R. 3779) in January. The bill is designed to ensure that government agencies provide more work for small business concern by authorizing blanket preferences and providing for monetary sanctions for the failure to meet annual goals. Owens is the bill’s lone sponsor.

A congressionally mandated goal requires that federal government agencies award at least twenty-three percent of all prime contracts to small businesses annually and establishes additional goals for other categories of small business concerns, and each federal agency is allowed to set individual small business contracting goals in consultation with the Small Business Administration (SBA). As it stands, however, there are no existing penalties for agencies that do not meet their annual goals.

Under H.R. 3779, this would change. The bill would authorize agencies to give “preference” to small business concerns when procuring goods or services to help reach each agency’s small business contracting goals. Although the term “preference” is not defined, arguably it is intended to include the application of status-based evaluation preferences in full and open competitions in addition to the issuance of small business set asides. The bill would also decrease an agency’s procurement budget by ten percent each year it failed to meet its annual goals. By rule the Appropriations Committee is responsible for rescissions of appropriations and unspent balances from federal agencies, and in a statement Owens called on the Committee to use any such lost funding towards paying down the national debt.

Several questions and implications of the bill are (1) how agencies will weigh cost savings from awarding contracts to large business versus any potential penalties for shortcomings on small business goals; (2) since the penalty is a one-size-fits-all approach, will agencies further decrease efforts at awarding small business contracts if they know they will not be able to achieve one of the applicable goals; and (3) will this lead to the imposition of similar monetary penalties for prime contractors who fail to meet their own annual small business subcontracting goals.

From: Crowell & Moring Government Contracts Forum
Posted by Tiffany Wynn

Section 1683 of the 2013 National Defense Authorization Act, H.R. 4310, as approved last week by the House Committee on Armed Services, proposes an amendment to the Small Business Act to clarify that misrepresentation as to small business status in order to obtain certain prime contracts or subcontracts is an independent basis for suspension or debarment. The proposed legislation would remove the requirement that contractors misrepresenting themselves as small businesses be subject to suspension or debarment “on the basis that such misrepresentation indicates a lack of business integrity that seriously and directly affects the present responsibility to perform any contract awarded by the Federal Government or a subcontract under such a contract.” The revised section 1683 would state only that contractors “be subject to suspension and debarment as specified in subpart 9.4 of title 48.” Like the provision in the Comprehensive Contingency Reform Act, S. 2139, discussed here and the provisions of the Consolidated Appropriations Act of 2012, discussed here, this legislative mandate could be interpreted to impinge on the discretion granted to suspending and debarring officials (SDOs).

First, because SDO’s already have the ability to consider excluding a contractor that has misrepresented its small business status, it is not clear that the proposed amendment has any real impact. But to the extent it demonstrates Congressional intent that such violations more frequently result in suspension or debarment, for the reasons discussed in a previous blog post, less flexibility in suspension and debarment considerations is almost uniformly opposed by government contract practitioners, SDOs, and agencies. Specifically, it is not clear that exclusion is necessary in every instance that a contractor misrepresents itself as a small business, and removing an SDO’s discretion to exclude, improve compliance through an administrative agreement, or take no action arguably would be harmful to the procurement system.

By exercising their regulatory authority, SDO’s not only have the ability to protect the public fisc from contractors lacking the requisite present responsibility, but they also have the ability to influence corporate behavior through administrative agreements. That flexibility allows agencies to continue contracting with companies that may have erred but offer needed goods or services. Further, viable alternatives to exclusion allow SDOs to simultaneously protect the government while allowing innocent employees to continue working at contractors that would be put out of business by exclusion.

Also, we note section 1684 of the 2013 NDAA would require the Small Business Administration to annually report to Congress the number of contractors proposed for suspension or debarment, the office that originated the proposed exclusion, the reasons, the outcome, and the number of suspensions or debarments referred to the Inspector General of the SBA or another agency, or to the Attorney General. This reporting requirement demonstrates a desire by at least some members of Congress to get into the weeds of the suspension and debarment process, placing greater pressure on agencies to increase their use of this powerful administrative tool.

Information provided by Crowell and Moring.

On May 11, 2012, the Department of Defense (DoD) issued an Interim Final Rule expanding an existing voluntary cybersecurity information sharing program between DoD and eligible Defense Industrial Base (DIB) companies (DIB Cyber Pilot), and outlining the eligibility and other operational requirements for participation in the newly expanded program. DoD-Defense Industrial Base (DIB) Voluntary Cyber Security Information Assurance (CS/IA) Activities, 77 Fed. Reg. 27615 (May 11, 2012). The Interim Rule authorizes eligible companies to receive certain threat information in return for sharing information regarding network intrusions that could compromise critical DoD programs and missions. Comments on the Interim Rule are due by July 10, 2012.

The Interim Rule expands the applicable pool of companies eligible to participate in the voluntary CS/IA information sharing program from approximately 37 participants currently participating in the DIB Cyber Pilot, originally launched in June 2011, to approximately 200 participants. To participate in the expanded program, companies must, among other things, enter into a standardized agreement with DoD and meet a number of specific security criteria. Contractors interested in participating should review these eligibility requirements, as well as all policy requirements governing the receipt of information provided by the government, and may apply online athttp://dibnet.dod.mil.

The DIB Cyber Pilot faced scrutiny by Congress earlier this year in response to a study performed by Carnegie Mellon University and commissioned by the Defense Department which examined whether the use of National Security Agency data disclosed to Pilot participants enhanced participants’ ability to detect additional threats.1 The study’s findings were mixed, and observed that the information provided did not dramatically improve detection in light of the already-sophisticated monitoring capabilities of the participating firms.
The Interim Rule also highlights two key issues at the heart of the current legislative debate over cybersecurity legislation: (1) which federal agency is best suited to take a leading role in cybersecurity, and (2) what role public-private information sharing should play in such efforts. The Interim Rule is a DoD-only effort and raises some uncertainty as to the role the Department of Homeland Security (DHS) will play in this and other public-private information sharing initiatives. DHS and DoD issued a privacy impact assessment in January 2012 in which DHS joined DoD’s existing efforts and established the Joint Cybersecurity Services Pilot (JCSP) through which DHS — through the National Cyber Security Division (NCSD) U.S. Computer Emergency Readiness Team (US-CERT) — sought to build upon existing DIBs Pilot Activities by allowing DHS to assume responsibility over any Internet Service Providers (ISPs) currently participating in the DIB Pilot. Although the DoD press release announcing the Interim Rule expressed pleasure with DHS’s participation in the program, the Interim Rule is silent on the possibility of DHS expansion of the program outside of the DIB, and states that DoD is the agency responsible for critical infrastructure protection within the Defense Industrial Base under Homeland Security Presidential Directive 7 (HSPD-7). 77 Fed. Reg. at 27616.

Cyber Update from McKenna, Long & Aldridge. Please contact the following for more information:
Richard B. Oliver
213.243.6169

Agustin D. Orozco
213.243.6152

SBA Proposed Rule Would Create More SBIR and STTR Opportunities for Businesses Partially Owned by Venture Capital Companies, Hedge Funds and Private Equity Firms

The Small Business Administration (“SBA”) recently issued a proposed rule to amend its regulations governing eligibility for the Small Business Innovation Research (“SBIR”) and Small Business Technology Transfer (“STTR”) programs. This proposed rule would implement provisions of the National Defense Authorization Act for Fiscal Year 2012. Specifically, the proposed rule revises the affiliation rules for participants in the SBIR and STTR programs to permit participation by concerns that are majority-owned by multiple venture capital operating companies, private equity firms or hedge funds. The proposed rule also makes changes to the regulations with respect to size protests. See 77 Fed. Reg. 28520-30, May 15, 2012.

For the first time, the proposed rule would allow concerns that are majority-owned by multiple venture capital operating companies, hedge funds or private equity firms (“investment companies”) to participate in the SBIR and STTR programs, as long as no single investment company owns more than 50 percent of the concern. These investment companies must qualify as a domestic business concern, which requires the concern to have a place of business in the U.S. and be incorporated in the U.S. Furthermore, concerns that are majority-owned by multiple investment companies must register with SBA on or before the date they submit a response to an SBIR solicitation and these concerns must indicate in their SBIR proposals that they have completed this registration.

The proposed rule allows these investment companies to participate by modifying the affiliation rules solely for the SBIR and STTR programs. Currently, such concerns would not be eligible, because the concern would be considered to be affiliated with not only the investment companies, but also the other companies owned by these investment companies. SBA’s proposed rule provides that where an SBIR or STTR applicant’s voting stock is widely held or where two or more persons (including investment companies) hold large blocks of voting stock but no one person owns more than 50 percent of the stock, the board of directors controls the applicant.

With respect to size protests for SBIR and STTR contracts, the proposed rule would amend the regulations to state that SBA or the contracting officer/funding agreement officer may file a protest at any time, as long as it is not premature. SBA will not accept a size protest until the awardee has been selected and notified of the award, which is consistent with SBA’s current practice for its contracting programs. Comments on the proposed rule are due on or before July 16, 2012.

Legal Update from McKenna, Long & Aldridge. Please contact the following for more information:
Richard B. Oliver
213.243.6169

Agustin D. Orozco
213.243.6152