Small Business goals causing big confusion

There is a lot of confusion about Small Business goals that we usually see in Requests for Proposals (RFPs) along with requirements to submit Small Business Subcontracting Plans (SBSPs) and/or Small Business Participation Plans (SBPPs). Hopefully, we can shed a little light on the subject.

Since Small Businesses are credited with most of the technical innovations and job creation in the US, the federal Government has a significant interest in seeing that the small business community remains robust.  One of the ways to help company growth and stability is through profitable federal contracting opportunities.  To this end, the Government established the Small Business Administration (SBA) through enactment of the Small Business Act of 1953.  One of the SBA’s goals is to make sure that Small Businesses win a “fair proportion” of federal contracts. That’s why the Government established prime contracting and subcontracting goals.

Congress has established the following prime contracting goal – 23% of all federal contracts should be awarded to Small Businesses.  Further, Congress established the following socioeconomic goals: Small Disadvantaged Businesses (SDBs) – 5%; Woman-Owned Small Businesses (WOSBs) – 5%; Service-Disabled Veteran-Owned Small Businesses (SDVOSBs) – 3%; and Historically Underutilized Business Zone (HUBZone) Small Businesses – 3%. Note that the Department of Veterans Affairs (VA) also has a mandate to track award to Veteran Owned Small Businesses (VOSBs) because of their unique position, but awards to VOSBs are not usually tracked outside the VA.

While these are goals for federal contracts overall, the SBA also negotiates “Agency-wide” goals with each federal Department or Agency each year which may account for some of the different figures you see.  For example, for FY 2017, the VA had an overall Small Business prime contracting goal of 28.5% and they exceeded that goal by awarding 29.72% to Small Businesses.  They also had an overall Small Business subcontracting goal of 17% which they missed slightly by achieving only 16.60%. (You can see all the Agency goals and achievements for FY 2017 on the SBA website at–small-business-procurement-scorecard-overview .)

The Agency goals may be higher or lower than the national goals.  In addition, the Agency can set goals for each procurement higher than those negotiated with SBA.  However, the sum total of all the Agencies’ goals must meet the goals for the federal Government by statute (i.e., 23%, 5% or 3% depending on socioeconomic category).

Since the Government also tracks the percentage of subcontracts as well as Prime contracts, there is a mandatory requirement that Large Business contractors who win federal contracts over the simplified acquisition threshold must give the “maximum practicable opportunity to participate in contract performance” to SDVOSBs, WOSBs, SDBs, HUBZones, and other Small Businesses that don’t fall into one of those categories.  If the contract is expected to exceed $700,000 (or $1.5M for construction), the Prime must create a SBSP that meets specific detailed requirements.

For some acquisitions (particularly those from Department of Defense), you may have also seen a requirement to create a SBPP.  This participation plan is different from the SBSP in a number of ways and when required, must be submitted by both Large and Small Businesses (unlike the SBSP which is only required from Large Businesses).

The title of the plan is the key to the distinction between the two documents – an SBPP credits the Small Business Prime’s “participation” in achieving the goals and does not mandate any subcontracting (if the goals can be met by the Small Business Prime alone).  The SBSP is limited to Large Businesses who must subcontract to meet Small Business goals.  SBPPs take various forms and do not conform to the specific requirements that the SBSP does

There are numerous nuances to this subject which can’t be covered in this short space, but the “bottom line” is that there are serious consequences to not achieving your Small Business goals so you need to ensure that your plans are constructed properly and reasonably.  If you need help with understanding the Small Business program goals and documents, we may be able to help.

SCOTUS not to hear Rothe appeal

On October 11th, the Supreme Court of the United States (SCOTUS) issued its decision not to hear an appeal of the DC Circuit’s Federal Court of Appeals decision that found the SBA’s 8(a) Business Development (BD) Program constitutional. This is the “current” result of what is known as the “Rothe” case. Rothe Development, Inc. (a Woman-Owned Small Business) started challenging the constitutionality of the 8(a) BD program back in 2012 on grounds that the definition of “socially disadvantaged” business owners is a racial classification that violates Rothe’s right to equal protection under the Due Process Clause of the Fifth Amendment. With the SCOTUS decision not to hear the appeal, the decision of the Court of Appeals stands. That decision which used the lowest of the 3 levels of scrutiny, or a “rational basis” standard, to determine the constitutionality of the law (instead of the more intense “strict scrutiny” standard that would be applied had the Court concluded that the statute was not race-neutral on its face) may still be challenged. It is expected that while the statute, itself, was not found unconstitutional, the SBA implementing regulation, 13 CFR 124.103, might be separately challenged and might have to pass muster under the strict scrutiny test. (Note: Rothe previously challenged the Small Disadvantaged Business (SDB) Program [of which the 8(a) BD program is a subset] back in 2008 which resulted in significant changes to that program.)

SBA All Small Mentor-Protégé Program and Joint Ventures

We have published several articles here over the past year regarding the SBA’s “All Small” Mentor-Protégé Program (MPP). Since that time, the MPP has been shown to be incredibly popular – particularly because of the feature that permits a Large Business Mentor and Small Business Protégé to form a Joint Venture without their employees (or revenue) being aggregated and running afoul of the SBA’s rules of affiliation. However, there are a number of hazards that can affect smooth sailing over SBA’s seas. Regardless of the size or status of either the potential Mentor or Protégé, we can help you navigate those waters to reach your destination. Please contact us to discuss ways in which we can be of service.

SBA publishes instructions regarding the new “universal” Mentor-Protégé Program

How to Apply

Applicants are required to register in the System for Award Management (SAM) prior to creating their profile in  Applicants (both prospective Protégés and Mentors) will be required to complete an online training module as part of the application process, and to upload a certificate of completion to before they are allowed to complete the application process.

The application itself will be entirely electronic, and will require that certain documents – certificate of completion for the online training module, signed Mentor-Protégé agreement(s), size determination letters, and other documents – be uploaded to, or completed in narrative form within that web portal. Although Mentors are not required to provide financial statements and tax returns during the application process, the SBA retains the right to request such documentation during the reporting and evaluation processes.

Dates to watch

The SBA will begin accepting applications for the All Small Mentor Protégé Program on October 1, 2016.

The application, approval and monitoring process will be centralized in the SBA’s HQ office in Washington, D.C.  Applications from prospective participants will only be accepted using the new online application through   Any application received prior to October 1, 2016, or received in any other format other than through the web portal will not be considered.

US Supreme Court rules that VA must use rule of two for all acquisitions

On June 16, 2016, the Supreme Court unanimously ruled that the Department of Veterans Affairs (VA) must limit all competitive procurements [including those using GSA/Federal Supply Schedules (FSS)] to Veteran-Owned Small Businesses (VOSBs)/Service Disabled (SD) VOSBs, so long as the “Rule of Two” is satisfied. This appears to end the dispute between the VA and several SDVOSB/VOSB companies which began after Congress passed the Veterans Benefits, Health Care, and Information Technology Act of 2006 (VA Act). Often called “Vets First,” the intention of the Legislation was to award VA contracts to SDVOSBs and VOSBs when feasible, before awarding to non-SDVOSBs/VOSBs. It states in part, “… (d) ‘Use of Restricted Competition’ – Except as provided in subsections (b) and (c), for purposes of meeting the goals under subsection (a), and in accordance with this section, a contracting officer of the Department shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the awards can be made at a fair and reasonable price that offers best value to the United States.” (Subsection (a) requires the VA Secretary to set annual goals and Subsections (b) and (c) permit VA to make sole source awards.)

Beginning in 2011, the Government Accountability Office (GAO) sustained a series of protests filed against VA by SDVOSBs. In the first protest filed by Aldevra, the GAO stated that the sole issue is whether VA had to use the Rule of Two when ordering supplies from the FSS. Noting that nothing in the VA Act authorized a deviation for certain types of procurements, the GAO decided in Aldevra’s favor. VA issued a memo to all VA contracting offices stating that GAO’s recommendation and its interpretation of the Act should not be followed resulting in several similar protests being filed.

Eventually, one former GAO protester, Kingdomware Technologies, Inc., filed a complaint in the Court of Federal Claims (CoFC) after the VA again used the FSS without conducting a Rule of Two analysis. The issue before the CoFC was one of statutory interpretation, i.e., “whether the terms of the 2006 Act mandate that VA set-aside every acquisition for SDVOSBs or VOSBs if two or more SDVOSBs or VOSBs can provide a fair and reasonable price for the contract before meeting its requirements using the FSS.” Here, VA argued that the Act is only a goal-setting statute and that nothing in the Act restricts VA’s discretion to order against the FSS. The Court agreed with VA.

The CoFC’s decision rested primarily on two points:

  1. Deference shown to an Agency in interpreting its own regulations. Concluding that the “goal setting” language was “at best” ambiguous as to whether it mandates a preference for SDVOSB/VOSBs in all VA procurements, deference should be given to the Agency’s reasonable and rational interpretation.
  2. Legislative history of the Act. Interestingly, the VA noted in the preamble that it rejected a revision to the VAAR which implemented the Act that would have expressly stated that SDVOSB/VOSB preference provisions don’t apply at the FSS order level.  They said that since those rules don’t apply to FSS orders, it wasn’t necessary to add that language to the regulation.

This decision was upheld on appeal at the US Court of Appeals for the Federal Circuit (CAFC), 2-1. Again, the majority cited the preamble to the VAAR which expressly stated that the Rule of Two “does not apply to FSS task or delivery orders.” However, the dissent viewed the goal setting language as “prefatory” and the “shall” imperative unambiguous, concluding that the VA need not be shown deference in its interpretation. (“Statements made in a preamble as part of the notice and comment process cannot override the unambiguous language of the regulations themselves.”)

At the Supreme Court, the VA argued that the Rule of Two only applied when the VA awarded “new contracts on the open market,” and that it did not apply to orders place under pre-existing FSS or other IDIQ contracts. In addition, they detailed the burden imposed by employing the Rule of Two every time the VA needed to order supplies off the FSS and the impact on Veterans. They conceded that “VA contracting officers thus must always consider VOSB set-asides when they award new contacts,” but not when “placing an order under a pre-existing FSS contract.”

The Supreme Court’s 8-0 decision reiterated the CAFC dissent’s points that the text of the Act is unambiguous and requires the Rule of Two be applied in all contracts without an exception for FSS awards and is not dependent upon whether its goals have been met. While the Supreme Court said that the VA originally made the argument that the Rule of Two was to be employed to meet the annual goals but changed its arguments now, the Court nevertheless went on to address that argument. It explained that the lower Court’s interpretation of the prefatory clause “for purposes of meeting goals” would result in an anomaly, i.e., the VOSB preference in contract awards would have to cease once the goals were met.

Next, it dismissed the VA’s (new) argument that orders under pre-existing FSS contracts were exempt since the orders were not “contracts.”

Finally, without ever addressing the “burden” argument, the Court addressed the issue of deference which should be shown the Agency in its interpretation of the Act’s language. Taking the opposite position from the lower Courts, the Supreme Court declared that the statute is unambiguous and, therefore, no deference was owed to the VA’s interpretation. The Court held that the Rule of Two is not limited to those contracts necessary to fulfill the Secretary’s goals and that it applies to FSS orders.

For more information on anything in this article, or other issues in Federal Contracting, please contact Ferlise and Associates at (732) 380-7739.

DOC Study of WOSB Federal Contracting Program

In 2015, the SBA requested a new study from the Department of Commerce (DOC) of the Women-Owned Small Business (WOSB) Federal Contracting Program which resulted in a revised list of the North American Industry Classification System (NAICS) industry groups in which WOSBs are underrepresented/substantially underrepresented. The study found a total of 21 four-digit industry groups that are eligible for Federal contracting (some NAICS sectors are not eligible for Federal contracts under SBA regulations) in which WOSBs are underrepresented (and therefore open only to Economically Disadvantaged (ED) WOSBs for set-aside/sole source awards) and found an additional 92 industry groups in which WOSBs are substantially underrepresented (and therefore open to both EDWOSBs and WOSBs for set-aside/sole source awards). This total of 113 NAICS industry groups is an increase of 30 from the former list of 83 industry groups – some of which were deleted and replaced with other codes. This new list of NAICS codes went into effect in March of this year. The full six-digit NAICS code lists can be found through these SBA website links: EDWOSB and WOSB .

SBA has published its full analysis of the DOC study in the related Federal Register notice that discusses which NAICS codes are no longer designated for use under the WOSB program, as well which NAICS codes are being newly designated for use under the program. Read the DOC WOSB Federal Contract Program report.

For more information on the WOSB program, please contact our office.

Small business subcontracting improvements

The DoD, GSA, and NASA published proposed revisions to the Federal Acquisition Regulations (FAR) on June 10,  2015 in order to implement the changes made by the Small Business Administration (SBA) in its final rule which was published July 16, 2013. The changes stem from the Small Business Jobs Act of 2010 and include amendments to FAR subparts 1.1, 2.1, 15.3, 19.3, and 52.2.

Highlights of the changes include granting the Contracting Officer the authority to require a Small Business (SB) Subcontracting Plan (SP) from those SB awardees who have grown large and are required to rerepresent their size based on the criteria in FAR 19.301-2 provided that the contract contained the FAR Clause 52.219-9 “Small Business Subcontracting Plan.” Also, the new language authorizes Contracting Officers to establish additional SBSP subcontracting goals in terms of total contract dollars (currently, the SB Subcontracting Plan only requires the percentage of dollars planned for subcontracting to small businesses to be based on the total amount of money that will subcontracted. For example, if the total contract value is $1M and the total amount planned to be subcontracted is $250,000, and of that $250,000, $100,000 is planned to go to SBs – then the percentage planned to be subcontracted to SBs is 40%. But, using the total contract value of $1M, the percentage being subcontracted to SBs is only 10%.) It isn’t clear whether the use of the phrase “in addition to the goals established as a percentage of total subcontract dollars” is meant to reflect the establishment of different goals or just allows an additional way to calculate the percentage of the same dollars being spent on subcontracting to SBs.

Another notable change is reflected in the new language in FAR 19.703 in discussing what a prime contractor may rely on to determine whether a subcontractor is small. First, the prime decides what NAICS code is appropriate for the product or service being subcontracted. Then, the prime may accept a subcontractor’s representation of its size/status for that NAICS code if (a) the subcontractor is registered in the System for Award Management (SAM); and (2) the subcontractor represents that the size/status representations made in SAM are current, accurate and complete as of the date of the offer for the subcontract. If the subcontractor is not registered in SAM, the prime can rely on the subcontractor’s written representations that the size/status representations provided with its offer are current, accurate, and complete as of the date of the offer for the subcontract.

In addition, language has been added to the FAR reflecting the SBA’s requirements that an offeror will make assurances in their SBSP to make a good faith effort to “acquire articles, equipment, supplies, services or materials, or obtain the performance of construction work from the small business concerns that the offeror used in preparing the bid or proposal…” and that the offeror “will not prohibit a subcontractor from discussing with the contracting officer any material matter pertaining to payment to or utilization of a subcontractor… .”

For the complete rule and all proposed changes, see The Federal Register, Vol. 80, No. 111, June 10, 2015 which can be accessed at Comments are due by August 10, 2015.

If you would like additional information, please contact us.

WOSB Sole Source Authority

On May 1, 2015, the Small Business Administration (SBA) published a proposed rule to implement Section 825 of the National Defense Authorization Act (NDAA) for 2015. That section of the NDAA included language which grants Contracting Officers the authority to award sole source contracts to Women-Owned Small Businesses (WOSBs) and Economically Disadvantaged Women-Owned Small Businesses (EDWOSBs) in addition to the current authority to set-aside acquisitions for these businesses. Notably, unlike other small business socio-economic categories, WOSB/EDWOSB set-aside/sole source awards will still only be available for certain NAICS codes where women are underrepresented (for EDWOSBs) or substantially underrepresented (for WOSBs). The contracts, including options, cannot exceed $6.5 million for manufacturing and $4 million for all others.

Another significant change to the program is that WOSBs and EDWOSBs must be certified by a Federal Agency, a State government, or a national certifying entity approved by the SBA. However, SBA has said that this requirement will be promulgated by separate rulemaking and will not impact this new authority. In other words, WOSBs/EDWOSBs who are currently self-certified will still be eligible for sole source awards when this new rule goes into effect. Comments are due by June 30, 2015. The complete rule can be accessed at

Please contact us if you would like more information.