SBA Amends Government Contracting Regulations for Small Businesses

Practical Law Legal Update 5-544-3085 (Approx. 5 pages)

SBA Amends Government Contracting Regulations for Small Businesses

by Practical Law Commercial

Application to MACs

The Jobs Act requires the SBA to establish regulations that:

Set-aside part or parts of MACs for small business.
Reserve one or more awards for small businesses on MACs that are established through full and open competition.
Set-aside orders under MACs awarded pursuant to full and open competition that have not been set-aside or partially set-aside, nor include a reserve for small businesses.

These new regulations apply to MACs issued and used by one or more federal agencies and include the following:

Processes for using partial set-asides. The new regulations are intended to simplify the current process which small businesses must follow under the Federal Acquisition Regulation by allowing a small business to submit an offer on the set-aside portion, the non-set-aside portion or both. The regulations provide that partial set-asides may be used in connection with a MAC when:
- market research indicates that a total set-aside is not appropriate; and
- the procurement can be split into two or more discrete portions (known as "the rule of two").
Processes for using contract reserves. The regulations establish a process for agencies to reserve awards under MACs for small businesses if the requirements cannot be broken into discrete portions that would constitute a partial set-aside. Contracting officers may, but are not required to, set targets in the contracts reflecting a dollar value reserved to small businesses.
Processes for order set-asides. The regulations provide alternative processes when MACs are awarded pursuant to fully open competitive bidding without either partial set-asides or reserves to:
- make commitments to set-aside orders; or
- preserve the right to consider set-asides when the procurement can be divided into discrete portions.
On ramps / off ramps. The regulations provide mechanisms for the small business that wins an award to enter and exit the contract during the period of performance, should it cease to qualify or subsequently become qualified as a small business. While contracting officers have discretion whether or not to off ramp a contractor, any such awards are not considered an award to a small business.
Required documentation. The regulations do not impose a mandate on federal agencies to use either the new set-aside or reserve mechanisms. However, if at least one of these options could be used, contracting officers must formally consider their use. If the mechanisms are not used, the agency must document the reasoning behind the decision. Similarly, whenever an award is made to a small business under a MAC that was not set-aside or reserved, the agency must document its reasoning.
Review by SBA procurement representatives. While the decision to use any of the possible reserve or set-aside options is up to the contracting officers' discretion, the SBA's procurement representative may review any award involving MACs that have no set-asides or were not reserved for small businesses when the new regulations become effective.
Application of size standards to MACs. The new regulations provide alternatives for assigning North American Industry Classification System (NAICS) codes to procurements to ensure that agencies receive proper credit for making awards to small businesses. A contracting officer can either:
- divide a MAC for divergent goods and services into discrete portions (for example, by line item) and assign a NAICS code and size standard to be certified at the base contract level for each portion; or
- assign one NAICS code and size standard to the MAC, if all orders against the MAC can be classified under that code and size standard.
Limitations on subcontracting. When a contract is awarded under a fully open and competitive process or under a contract reserve, the new regulations require contractors to comply with the limitations on subcontracting and the non-manufacturer rule for that order. When an order is made under an order or full set-aside, the contractor must comply with the subcontracting and the non-manufacturer limitations on a performance period basis. In these circumstances, the contracting officer has discretion whether to require compliance with this limitation with every order.
For more information on the small business subcontracting rule, see Legal Update, SBA Releases New Rules Implementing Small Business Jobs Act of 2010.
Agreements. The new regulations require all small business concerns to qualify as small businesses at the time of the initial offer for the following types of agreements:
- blanket purchase agreements (except those issued against a General Services Administration contract);
- basic agreements;
- basic ordering agreements; or
- any other type of agreement that a contracting officer sets-aside or reserves to any type of small business.

Consolidation of Contract Requirements

Consolidation (also known as contract bundling) refers to the combination of multiple awards appropriate for small businesses into a solicitation for bids on a larger contract unsuitable for small businesses. Under the new regulations, agencies may not bundle contracts unless the agency's senior procurement executive or chief acquisition officer:

Considers the negative impact of bundling on small businesses.
Justifies the bundling by showing the benefits substantially exceed the benefits of each approach that would involve a lesser degree of consolidation.

The regulations also require agencies to review currently bundled contracts with the SBA's procurement representative to identify those that could potentially be divided for partial set-asides, full set-asides or reserved.

Practical Implications

Generally, these new rules provide more opportunities for small businesses seeking a federal government contract. However, counsel should be continually aware of the timing and circumstances for small business concerns to qualify as small businesses, especially:

When making an initial offer.
During the period of contract performance for MACs.

For more information on the SBA and small business concerns, see Practice Note, Acquiring a Federal Government Contractor: Avoiding Pitfalls: Small Business Concerns.

SBA Amends Government Contracting Regulations for Small Businesses | Practical Law