New Rules Create Opportunities for Government Contractors

In the last several months, the government issued new regulations that can benefit all government contractors and especially small businesses. Berenzweig Leonard wanted to summarize them so government contractors can take advantage of these opportunities as well as be aware of the two “Cautions” we describe at the end.  

NEW SBA RULES

The SBA adopted new rules that (1) let a small business prime use the work of another small business to meet the 50% performance of work requirement; and (2) let all small businesses qualify as protégés to joint venture with large business for small business set-aside work.  

1. Now, when complying with the performance of work requirements in the Limitation on Subcontracting clause:  

• A small business prime does not have to reach that 50% on its own. A small business first-tier subcontractor may contribute to the prime’s 50% performance requirement so long as both are the “same” kind of small business; e.g., an 8(a) prime and an 8(a) first-tier sub, HUBZone prime and HUBZone first-tier sub, now called “similarly-situated entities.”
  
• Compliance must be year-by-year. Compliance cannot be met over the total life (e.g., base year plus options years) of the contract.  
  
• The total contract award (cost plus profit) will be used to measure compliance. Gone is compliance based on the cost of personnel.

2. Now, under the greatly expanded Mentor-Protégé program:

• Any small business can be a protégé. Thus, a large business mentor may joint venture with any small business protégé to compete for small business contracts. However, to be eligible to joint venture for a HUBZone contract, for example, the protégé must be a HUBZone small business.
  
• Any small business can be a mentor. Not only a large business can be a mentor; any small business can also be a mentor. Thus, a small business may joint venture, for example, with a HUBZone small business to compete for a HUBZone contract.     

NEW FAR RULES

New FAR rules penalize large businesses that abuse small business subcontractors.

Large businesses must report “bait-and-switch” of small business subcontractors. The large business’s Small Business Subcontracting Plan must contain “assurances” that it will make a good faith effort to use a small business during contract performance as its solicitation promised; failure to use small business subcontractors must be reported to the contracting officer at the end of performance, apparently for the contracting officer’s use in the contractor’s past performance evaluation.

Large businesses cannot silence small businesses. The Subcontracting Plan must also contain assurances that the contractor will not prohibit a subcontractor from discussing payment or utilization issues with the contracting officer.

TWO CAUTIONS 

First, although government contractors must pay close attention to these changes because they affect future contract opportunities, retroactivity should not be a concern. These new regulations will not change existing contracts.    

Second, delay in applying to the SBA for the Mentor-Protégé program can be costly. Because the SBA expects a flood of applications, the SBA itself has raised the possibility of closing the application process down temporarily. Contractors should file Mentor-Protégé applications as soon as possible after August 24, 2016, the effective date of the new regulations.

Terrence O'Connor is the Director of Government Contracts for Berenzweig Leonard, LLP, a business law firm in the D.C. region. Terry can be reached at toconnor@berenzweiglaw.com.