As PilieroMazza noted recently here, SBA released a major proposed rulemaking that will impact government contractors. While the proposed rule is heavily geared toward SBA’s 8(a) Program, SBA included proposals for many of its other small business programs as well. This client alert provides contractors with an overview of SBA’s proposals related to Woman-Owned Small Business (WOSB) and HUBZone Programs, as well as joint ventures and nonmanufacturer rule (NMR) waivers.
As you may be aware, SBA’s regulations provide for strict ownership and control requirements for its socioeconomic programs. One of these requirements is that the qualifying woman must manage the company on a full-time basis and be devoted full-time to the company during the normal working hours of businesses in the same or similar line of business. In the proposed rule, SBA explained that it believes this is overly restrictive. SBA proposes to revise this requirement to provide that the qualifying woman cannot engage in outside obligations that prevent her from devoting sufficient time and attention to the business to control its management and daily operations. SBA understands that a woman can devote sufficient time to the WOSB after normal working hours without preventing her from controlling the WOSB.
If you are currently certified by SBA as a WOSB/EDWOSB (Economically Disadvantaged Women-Owned Small Business), you are likely familiar with the requirement that companies must undergo an annual attestation each year, and a full program examination every three years. SBA now proposes to omit the annual attestation requirement, and simply keep the program examination every three years. This is how the certification process currently works for Service-Disabled Veteran-Owned Small Businesses (SDVOSBs) certified by CVE, and how SBA has proposed handling SDVOSB certifications when that process shifts to SBA beginning January 1, 2023.
Presently, SBA’s regulations provide that in order to qualify as an EDWOSB, the company must be a small business under its primary NAICS code. However, for WOSBs, the regulation simply states that the company must be a small business. In the proposed rule, SBA proposes revising the regulation to require applicants to simply demonstrate that it qualifies as small under any NAICS code which it currently conducts business. This would likely be a welcome change, as a company must qualify as small for each contract, which may or may not be under its primary NAICS code.
In December 2019, SBA implemented a significant overhaul of its HUBZone rules. By comparison, the current proposals for the HUBZone rules are far less significant. Several SBA proposals confirm a few current understandings regarding how SBA processes HUBZone applications and when SBA may remove a firm from the HUBZone Program, while other of the proposals are designed to standardize the language used throughout many of SBA’s set-aside programs.
Perhaps most importantly, SBA clarifies SAM registration guidance for HUBZone JVs. As many know, certifying a HUBZone JV on SAM is not as easy as one would think because of confusion between SAM and SBA’s DSBS database. Until these systems are updated to resolve the confusion, SBA proposes amending the HUBZone rules to help HUBZone firms and contracting officers understand how to determine when an offeror is an eligible HUBZone JV, a particularly challenging process. The proposed rule states that the HUBZone JV should be designated as such in SAM with the HUBZone-certified JV partner identified.
The new rule also seeks to clarify the basis on which a HUBZone protest may be filed. The proposed rule sets out five scenarios for a HUBZone protest.
- A business may protest the determination that they did not meet the HUBZone eligibility requirements.
- A JV may protest that it does not meet the requirements of § 126.616.
- A business may protest the determination it is unduly reliant on a subcontractor that is not HUBZone certified.
- A business may protest the determination that a non-HUBZone subcontractor is performing the primary and vital requirements of the contract.
- A business may protest the determination it was unable to maintain compliance with the 35% HUBZone residence requirement as of its initial HUBZone anniversary date.
Joint ventures are limited purpose entities, and SBA’s regulations currently provide that a joint venture may not bid on new contracts after two years from the date of the first award to the joint venture without the partners to the joint venture being deemed affiliated for the joint venture. PilieroMazza often receives questions on how this works for IDIQ contracts or other similar contracts where orders may be issued long after the two-year initial award date. For purposes of the two year rule, orders are not separate contracts. SBA proposes making this clear in its regulations and the proposed rule provides that joint ventures may be issued orders under a previously awarded contract beyond the two-year period. Further, SBA clarifies that for joint ventures that are awarded long-term contracts and must recertify at the five-year mark, that recertification is not a new contract. Accordingly, if the parties to the joint venture are small and/or the parties have an SBA-approved mentor-protégé agreement, then the joint venture could recertify as small.
SBA also proposes clarifies its stance on populated joint ventures, which were effectively eliminated in 2016 for set-aside contracts. As proposed, SBA will permit populated joint ventures for set-aside contracts where each of the joint venture partners were similarly situated (i.e., all partners seeking a HUBZone contract are certified HUBZone small business concerns). For populated joint ventures and receipts, revenues will be divided according to ownership. For 8(a) joint ventures, SBA’s regulations currently provide that SBA will not review or approve the joint venture for 8(a) competitive contracts, but review and approval is still needed for 8(a) sole-source contracts. Many companies use an 8(a) joint venture to pursue both competitive and sole-source awards, and often times, agencies look to award a sole-source order under a multi-award competitive contract. The question arose as to what document(s) SBA should be reviewing in the event of a sole-source award in this instance. The proposed rule provides that SBA will not review and approve the joint venture for 8(a) sole-source awards under a competitively awarded 8(a) contract (but will still determine whether the 8(a) partner is eligible for award).
SBA’s mentor-protégé regulation currently provides that a mentor with more than one protégé cannot submit competing offers in response to a solicitation for a specific procurement through separate joint ventures with different protégés. SBA is proposing to include a similar concept across all socioeconomic joint ventures. Specifically, SBA proposes including in each socioeconomic joint venture regulation (i.e., 8(a), SDVOSB, HUBZone, and WOSB) a provision stating that the qualifying party to the joint venture cannot be a joint venture partner on more than one joint venture for a specific contract.
SBA also proposes amending its mentor-protégé regulation to add language to provide that if a mentor is a parent or subsidiary of a larger family of companies, that the mentor may identify one or more subsidiaries in the mentor-protégé agreement that can assist the protégé, including participating in joint ventures.
SBA proposes clarifying how contract-specific NMR waivers work for multi-item procurements. Only contracting officers are permitted to request contract-specific NMR waivers. The proposed rule would require the contracting officer to specifically identify each item in the multi-item procurement for which the waiver is sought, and, if SBA grants the waiver, it will only apply to items the contracting officer specifically identified.
SBA also proposes prohibiting contract-specific NMR waivers for contracts longer than five years (including options). SBA believes small business manufacturers for a contract could change greatly in five years, so the agency does not think contract-specific waivers should apply to contracts longer than five years. As an alternative, SBA is considering limiting the duration of contract-specific waivers to five years. In this alternative, a contracting officer could obtain a contract-specific NMR waiver for a contract longer than five years, but the waiver would only cover the first five years of the contract. If the contracting officer wants to extend the waiver beyond the first five years of the contract, they have to submit a new request to SBA. In PilieroMazza’s view, SBA’s alternative is a much better way to address its concerns about changes in the manufacturing landscape that may occur during the first five years of a contract.
Finally, PilieroMazza noted that SBA proposes clarifying the applicability of contract-specific NMR waivers. The proposed rule would make clear that such waivers only apply to the contract for which it is granted. This means contract-specific NMR waivers would not apply to modifications outside the scope of the contract or new contracts, including follow-on or so-called “bridge” contracts. Since these would all be new contracts, the contracting officer would need to submit another request to SBA for a new contract-specific NMR waiver to cover the new contract.
If you have any questions about the proposed rules discussed above or would like to further explore SBA’s WOSB and HUBZone Programs, joint ventures, or NMR waivers, please contact the authors of this client alert, Jon Williams and Meghan Leemon, or another member of PilieroMazza’s Government Contracts Group. Special thanks to Annie Hudgins for her assistance with this client alert.