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Morris Manning & Martin, LLP

SBA Issues Final Rule Implementing Several Significant Changes for Small Businesses

10.19.2020

The Small Business Administration (SBA) has issued a final rule, following their proposed November 2019 rule, changing a large number of regulations which affect several aspects of small business set-aside contracting. Key among these changes was the merging of the 8(a) Business Development Mentor-Protégé Program and the All Small Mentor-Protégé Program into one. The proposed rule drew so much attention that SBA extended the comment deadline to allow interested parties to weigh in. With the exception of one provision, the final rule goes into effect on November 16, 2020.

The focus of the rule is the consolidation of SBA's two mentor-protégé programs. Since the All-Small Mentor-Protégé Program was introduced in 2016, many have questioned why the 8(a) Mentor-Protégé Program continued. As of November 16, 2020, the 8(a) Mentor-Protégé Program will no longer exist. All current 8(a) Program Mentor-Protégé relationships may continue to operate as a SBA-approved mentor-protégé relationships under the All Small Mentor-Protégé Program.

The final rule also eliminates the requirement for SBA to approve an 8(a) joint venture agreement before the 8(a) joint venture may be awarded a competitive 8(a) contract. Instead, like joint venture agreements for other SBA programs, no approval will be required. The rule also eliminates the current three-award limit for joint ventures so that a joint venture may exist for two years following the date of its first award, regardless of how many contracts it is awarded.

The rule also makes changes to procurements involving multiple award contracts (MACs). For one, offerors will now be required to recertify their size and status for any task order that is issued as a set-aside under any MAC that was awarded on an unrestricted basis. This change is intended to prevent businesses that have outgrown their size standard from continuing to win set-aside contracts. This change could have a significant impact, as SBA estimates that in 2018, 10% of the set-aside orders that were issued under unrestricted MACs were awarded to businesses that were no longer small. This change does not apply to the Federal Supply Schedule (FSS) program. Similarly, the rule authorizes a socioeconomic protest relating to set-aside orders based on a different socioeconomic status from the underlying set-aside MAC. Additionally, contracting officers will now be able to assign a North American Industry Classification System (NAICS) code to a task order issued under a MAC that differs from the NAICS code assigned to the MAC.

With this rule, SBA took the opportunity to address a number of other issues that affect small business contractors. The rule adds a provision requiring contracting officers to consider the capabilities and past performance of first-tier subcontractors when the first-tier subcontractors are specifically identified in the proposal and the capabilities and past performance of the small business prime do not independently demonstrate capabilities and past performance necessary for award.

The rule also implements a number of changes related to the 8(a) Program. The rule clarifies when a business owner may be eligible for the 8(a) Program even though a member of the owner's immediate family has participated in the Program. The rule also changes the timeline for reapplying in the event that an initial application to the Program is not successful. Under the current regulations, an applicant is required to wait to reapply for 12 months from the date of the final agency decision. Under the new rule, the applicant will be able to reapply in 90 days. The rule also removes the requirement that SBA approve ownership changes in certain situations and expands the geographic area used for an offeror's bona fide offices in procurements with the office requirement. Additionally, the rule allows a company that was recently admitted into the 8(a) Program to begin receiving contracts immediately – as opposed to the current situation in which SBA must first approve the company's business plan.

This rule is extensive and addresses a number of other issues, including, but not limited to: 

  • When recertification is required
  • Provisions that apply to 8(a) firms owned by tribes and Alaska Native Corporations
  • When a protégé may have more than one mentor
  • The performance of work requirements applicable to mentor-protégé joint ventures
  • Employment of administrative personnel by unpopulated joint ventures
  • Security clearance requirements for joint venture offerors
  • How the non-manufacturer rule should be applied in multiple item procurements
  • What constitutes a "follow-on contract"
  • The information that may rebut a finding of affiliation based on economic dependence 

Given the number of issues addressed in the rule, we expect the rule to have far-reaching consequences for small business contractors in the months ahead.

You may view the new rule here. If you have any questions about this legal update or need assistance understanding how the rule will affect you, please reach out to the Government Contracts group.