On November 12-13, 2019, the U.S. Small Business Administration (SBA) hosted its 5th Annual Mentor Protégé Conference where SBA’s John Klein, Associate General Counsel for Procurement Law, answered questions from the audience regarding various mentor-protégé issues. Mr. Klein provided some key insights regarding recent and upcoming SBA rulemakings that will have a significant impact on small business government contractors. We outline some of these updates below, and will also host a breakfast seminar on November 18, 2019 where Mr. Klein and Pamela Mazza will offer an in-depth discussion on these and other changes (please visit this link for more information).
- On November 13, 2019,SBA sent a final rule to the Federal Register for publication that will implement comprehensive revisions to the regulations governing the Historically Underutilized Business Zone (HUBZone) Program. These revisions, as proposed in October 2018, are available here. A couple of the key changes are: (1) an individual will continue to be treated as a HUBZone resident if that individual worked for the firm and resided in a HUBZone at the time the concern was certified or recertified as a HUBZone—even if the area where the individual lives no longer qualifies as a HUBZone or the individual has moved to a non-HUBZone area; (2) HUBZone firms will only be required to certify on an annual basis, meaning such concerns will no longer be required to expressly qualify as a HUBZone at the time of each offer for a HUBZone contract and award.
- In addition to the revisions proposed in October 2018, the final HUBZone rule will also implement a significant change to the regulations that was proposed during public comment. Specifically, the final rule will indicate that when a company buys an office located in a HUBZone or enters into a long-term, 10-year lease for such office space, intending the space to be its principal office, the concern will be able to meet the principal office HUBZone criterion for a period of at least 10 years—even if at some point after the property is purchased or leased, the office location no longer qualifies as a HUBZone. The idea behind this rule is that the HUBZone program should incentivize and reward companies that invest in HUBZones.
- Mr. Klein also noted that SBA’s proposed rule, issued on June 24, 2019, implementing the Small Business Runway Extension Act (Act) is being finalized and will be published in the Federal Register in the next couple of weeks. The Act has been the subject of much concern because although Congress intended the Act to change the relevant time period SBA uses to calculate average annual receipts for size purposes from 3 to 5 years, SBA has taken the position that the Act had no such effect because Congress inadvertently amended the wrong section of the Small Business Act. Nevertheless, to promote consistency, SBA’s soon to be finalized rule (which is available in its proposed form here) will change SBA’s size standards to provide for a 5-year averaging period for calculating annual average receipts for all receipts-based size standards. Notably, the final rule will include a 2-year “phase in” period, an item PilieroMazza attorneys advocated for during the public comment period. This “phase in” will allow contractors, for a period of two years, to choose whether they wish to certify using a 3-year or 5-year lookback. In other words, rather than thrusting some small business into the dicey waters of “other than small” status by immediately subjecting them to a 5-year receipts calculation, SBA will give these concerns two years to transition to the new 5-year rule, after which all companies will be subject to a 5-year calculation. That being said, it is unclear how the final rule will treat firms that assumed the Act was already effective and, as such, have already certified using a 5-year calculation. This is an issue we will ask Mr. Klein to address during our upcoming seminar.
- SBA’s final rule implementing the Act will also contain a provision that was not included in the proposed version and was adopted by SBA in response to public comment. Specifically, because of the alleged burden that the 5-year rule would impose on participants in SBA’s Section 7(a) loan programs, these programs will not be covered by the 5-year rule and, instead, SBA will issue a separate proposed rule to address these concerns.
Lastly, Mr. Klein gave a high-level overview of the comprehensive changes SBA recently proposed to its 8(a) and mentor-protégé programs. As we outlined previously, these changes would have significant implications for the government contracting community. Consequently, to update the industry and to facilitate a meaningful dialogue on this topic, PilieroMazza is hosting a seminar on November 18, 2019, from 7:30 AM – 10:30 AM EST at The Ritz-Carlton, Tysons Corner. During our two-hour seminar, Mr. Klein will join Pamela Mazza, Managing Partner of PilieroMazza, to provide government contractors with a comprehensive understanding of the proposed changes and an opportunity to comment. For more details and to register, please visit this link. All comments to this proposed rule must be submitted by January 17, 2020.
Samuel Finnerty, the author of this Client Alert, is a member of the Firm’s Government Contracts, Small Business Programs & Advisory Services, and Government Contracts Claims and Appeals practice groups.