A final rule issued by the U.S. Small Business Administration (SBA), which has implications and changes regulations across the SBA’s various government contracting programs, became effective on May 30, 2023. These changes apply to all solicitations issued on or after that date. Below is a summary of the changes, organized by category:
8(a) Program Changes
Changes Related to: Applying to and Exiting the Program, Business Development Plans, and Contractual Assistance
1. Fundamental Eligibility Questions: 13 C.F.R. § 124.204 was changed to codify the 4 eligibility questions that must be answered before SBA will review an application, which are already on SBA’s online application system: (a) the applicant must be a for-profit business; (b) every individual owner claiming disadvantaged status must be a U.S. citizen; (c) neither the applicant nor any of the individuals upon whom eligibility is based can have previously participated in the 8(a) Program; and (d) any applicant owned by individuals must have generated some revenue.
2. Narrowed Criteria for Graduation/Early Graduation: 13 C.F.R. § 124.302 was changed such that the analysis the SBA uses to initiate graduation or early graduation from the 8(a) Program no longer includes a financial comparison between the company and non-8(a) businesses in the same or similar line of business. This is because the 8(a) Program was designed for economically disadvantaged individuals; it should be irrelevant whether the business itself is economically disadvantaged
3. Termination Upon Cessation of Operations: 13 C.F.R. § 121.304 was changed to allow the Associate Administrator for Business Development (AA/BD) to immediately terminate a company’s participation in the 8(a) Program if it obtains evidence that the company has ceased operations, and notify the company of its right to appeal.
4. Rules to Apply When a Comprehensive Business Plan is Pending Review: 13 C.F.R. § 124.402 was changed to clarify that, when a participant is the recipient of a sole-source 8(a) award or is the apparent winner of a competitive 8(a) bid, but still have their comprehensive business plan (which has been submitted within 60 days of admission to the Program) pending with the SBA, the SBA will roll their approval of the business plan into their eligibility determination prior to contract award so that the participant does not miss out on the opportunity.
5. Additional 8(a) Award Rules Changes: 13 C.F.R. § 124.501 was changed at several key places. First, it was clarified that 8(a) set-aside competitions can’t be further restricted by requiring an additional SBA program credential, such as WOSB. Next, sole-source orders may now be issued to 8(a) participants on unrestricted multiple award contracts. Also, SBA will review 8(a) eligibility prior to award of an 8(a) contract. Finally, 8(a) construction contracts’ Bona Fide Office requirements were clarified, including that having a contract or an employee in a state qualifies as having a Bona Fide Office in that state.
6. Rules Governing SBA’s Acceptance of a Proposed 8(a) Procurement: 13 C.F.R. § 124.503 was changed as follows:
a. § 124.503(a): The 10 business day acceptance time frame applies only to 8(a) offers made outside the 8(a) Partnership Agreement authority. Also, where there is an 8(a) Partnership Agreement, agencies must still request an eligibility determination prior to making an award, if the contract is below the simplified acquisition threshold.
b. § 124.503(i)(1)(ii): An agency must notify SBA when it wants to issue an order under an 8(a) multiple award contract that contains work previously performed under another 8(a) contract.
c. § 124.503(i)(1)(iv): Business activity target requirements (for 8(a) multi-award contract holders) and competitive business mix target/remedial measures (for joint ventures) will be considered for sole source 8(a) orders. These requirements can be found in § 124.509. Also, in the event of a sole source order to a joint venture, the two-year restriction on JV awards does not apply, and the SBA will not review the Joint Venture Agreement.
d. § 124.503(i)(2)(ii): When issuing an 8(a) competitive order under the Federal Supply Schedule, the procedures of FAR Subpart 8.4 should be used. Offerors much be an eligible participant as of the initial date for receipt of offers in the RFQ, or if there is no solicitation, on the date of award.
7. Sole Source Awards in Excess of Thresholds: 13 C.F.R. § 124.506(d) was amended to state that an 8(a) participant may be given a sole source award in excess of the competitive threshold amounts of Subsection (a)(2) upon a determination by the agency that one of the exceptions of FAR 6.302 exists. A similar change was made regarding Department of Defense (DoD) awards.
8. Relaxed Restrictions Upon Failure to Achieve BATs: 13 C.F.R. § 124.509 was changed to prohibit new sole source 8(a) awards only when the participant has not made good-faith efforts to achieve its non-8(a) business activity targets (BATs), and to set forth methods of establishing such efforts.
9. Waiver Process Changes: 13 C.F.R. § 125.515 was changed to, among other things, require that waiver requests be submitted directly to the AA/BD and must be processed within 90 days. Also, the requirement that the transferee have performed work similar to the work being transferred has been eliminated.
Changes Affecting ANCs, Tribes, NHOs, and CDCs (and the 8(a) Participants They Own)
1. Ownership Substitutions: A former 8(a) Program participant may substitute one disadvantaged owner for another without the normally-required waiver; however, the SBA must approve any such change in ownership in advance. See 13 C.F.R. § 124.105.
2. Applying and Remaining Eligible: 13 C.F.R. § 124.109 was changed as follows:
a. Only federally-recognized tribes need to submit a sovereign immunity waiver, not state-recognized tribes.
b. That waiver is usually required in to be in the entity’s formation document (i.e., Articles of Incorporation or Organization), but for tribes established under tribal law, an analogous incorporating document will suffice.
c. Audited or in-house financial statements may be provided where an Entity-Owned Participant does not file independent tax returns.
3. NHO Rules: 13 C.F.R. § 124.110 was changed to allow Native Hawaiian Organizations (NHOs) to have the same individual conducing the day-to-day operations of two 8(a) Participants simultaneously. Also clarified is that any 8(a) Participant owned by an NHO must be have that ownership be unconditional and at least 51%.
4. Sole-Source Requirements Removed from Competition: 13 C.F.R. § 124.506(b)(2) was revised to clarify that an agency cannot engage in the following process: (a) evidence its intent to fulfill a requirement as a competitive 8(a) procurement (by issuing a competitive 8(a) solicitation or otherwise); (b) cancel the solicitation or publicly change its intent; and then (c) procure the requirement as a sole source 8(a) procurement to an Entity-Owned Participant.
HUBZone, WOSB/EDWOSB, and VOSB/SDVOSB Program Changes
Changes Common to All Three Programs
1. Multiple-Program Solicitations: A procuring agency may not restrict competition to offerors in more than one SBA socioeconomic program, nor may they give evaluation preferences based on the same.
2. Initial Certification Size Standard: A company can meet initial program certification requirements if they qualify as small under any NAICS code in its SAM.gov profile.
3. Multiple Joint Ventures on Same Contract: A company may not be a partner in more than one joint venture that submits in response to a specific socioeconomic set-aside contract.
4. False Information in Application: SBA can decertify a company if it discovers that the company knowingly submitted false information as part of its application, and will deny a company’s application if the application’s inconsistent information makes determining eligibility impossible, or if the applicant submitted false information, whether or not it was material to the decision, and whether or not the application’s supporting documents present the correct information.
VOSB/SDVOSB-Specific Changes
1. Activity Following Successful Status Protest: 13 C.F.R. § 128.500(d) was amended to add that a VOSB/SDVOSB may not submit an offer on a future VOSB/SDVOSB procurement, after being found not to qualify in a size protest, until it reapplies to the program and has been re-designated by the SBA. Further, it must update its status on SAM.gov within two days of such an adverse protest decision.
2. Outside Employment vs. Obligations: 13 C.F.R. § 128.203(i) was amended to refer to “outside employment” rather than outside obligations, in an effort to explicitly synchronize the analysis performed for control of a WOSB and not potentially include discussion of any activities other than employment.
HUBZone-Specific Changes
1. Timeliness of HUBZone Protests: 13 C.F.R. § 126.801(d) was amended to update the timeliness rules for HUBZone protests in several scenarios.
2. Clarified Bases for HUBZone Protests: 13 C.F.R. § 126.801(b) was amended to clarify the bases for filing a HUBZone protest, namely that it did not meet the eligibility requirements, the joint venture offeror did not meet its requirements, the offeror is unduly reliant on non-HUBZone-certified subcontractors, or failed to maintain compliance with the 35% HUBZone residency requirement at specific times.
WOSB/EDWOSB-Specific Changes
1. Evidence of Control Change: 13 C.F.R.§ 127.202(c) now requires not that the woman owner manage the WOSB on a full-time basis, but merely that she not engage in outside employment that prevents her from devoting sufficient time and attention to the WOSB to effectively control its management and day-to-day operations. A woman is presumed not to control the WOSB if she devotes less time to the business than its normal hours of operation, but that presumption can be rebutted.
2. Maintaining Program Eligibility: 13 C.F.R. § 127.400 was amended to replace the requirement of an annual program representation to the SBA with a program examination at least once every three years.
Joint Venture Changes
1. Additional Contracts Beyond Two-Year Period: 13 C.F.R. § 121.103(h) was changed to clarify that, while a specific joint venture cannot receive new contract awards beyond a two-year period beginning with its first award, additional orders under already-awarded contracts can be issued beyond the two-year mark.
2. Restrictions on Populated Joint Ventures: 13 C.F.R. § 121.103 was also changed to clarify that employees of a populated joint venture may not perform contracts awarded to the joint venture, but only those contracts set aside or otherwise reserved for small businesses (similar changes were made to the HUBZone, WOSB, and SDVOSB rules), that is, unless both joint venturers are similarly situated entities, in which case the restriction does not apply. However, even in that case, both partners will be aggregated for the SBA’s size determination under the relevant NAICS code.
3. Ostensible Subcontractor Rule Changes: In construction contracts, a subcontractor can be found to be an “Ostensible Subcontractor” and treated as a joint venture for size determination purposes if the subcontractor engages in “the management, supervision and oversight of the project,” even if the subcontractor performs a low overall share of the work. In all contracts, the question of whether a prime contractor is unusually reliant on the subcontractor, an element of the Ostensible Subcontractor rule, has been codified. The factors added are: (a) the prime contractor's proposed management previously served with the subcontractor on the incumbent contract, and (b) the prime contractor lacks relevant experience and must rely upon its more experienced subcontractor to win the contract.
4. Revenue for Populated Joint Ventures: The SBA clarified that, because populated joint ventures cannot take revenue out of the joint venture in proportion with the work put in (as the joint venture itself did the work), the populated joint venture's revenues must be divided according to each partner’s ownership share in the joint venture.
5. Decisions in Which a Non-Managing Joint Venturer May Participate. 13 C.F.R. § 125.8(b) was revised to add that a non-managing joint venture partner’s approval can be required in “determining what contract opportunities the joint venture should seek and initiating litigation on behalf of the joint venture.” These are just two enumerated examples, but the SBA wanted to clarify those items specifically.
Limitations on Subcontracting Changes
13 C.F.R. § 125.6 has been changed in the following ways:
1. Applying LoS Rules to Multi-Agency Set-Aside Orders: In a multi-agency set-aside contract, the ordering agency determining compliance with Limitations on Subcontracting (LoS) requirements must use the period of performance of the individual order. Single-agency Indefinite Delivery, Indefinite Quantity (IDIQ) contract compliance is still determined at the IDIQ level.
2. New Consequences for Failure to Abide by LoS Rules: Generally, where the LoS requirement is not met, the contracting officer (CO) may not give a rating of satisfactory or higher for the relevant factor in the Contractor Performance Assessment Reporting System (CPARS). The contractor will be given the opportunity to explain “extenuating circumstances” to avoid the penalty, and several examples are provided.
Timing-Related Changes
1. Timing of Size Determination Under Certain IDIQ MACs: In IDIQ Multiple Award Contracts (MACs) where offerors are not required to submit price as part of the offer, size is determined as of the date of the initial offer. For set-aside orders issued under such MACs. the determination is also made as of the date of the initial offer (for the IDIQ MAC). See 13 C.F.R. § 121.404(a).
2. Recertifying in Connection with a Sale or Acquisition: Recertification is required only “when the sale or acquisition results in a change in control or negative control of the concern” not upon any sale of stock. See 13 C.F.R. § 121.404(g).
3. Recertifying Joint Ventures: A joint venture can recertify as small whenever all parties to the joint venture qualify as small at the time of recertification, or where the protégé small business in a still active mentor-protégé joint venture qualifies as small at the time of recertification. See 13 C.F.R. § 121.404(g)(6).
Size Protest Changes
1. Timeliness When Low Bidder Found Ineligible: When a low bidder is protested and found ineligible, such determination starts the same 5-day clock on protesting the next-lowest bidder. See 13 C.F.R. § 121.1004.
2. Rules Upon Adverse Determination in Size Protest: A successfully protested offeror must now updates SAM.gov concerning its size status within two (2) business days, and SBA will take that action itself after that period. Also, the offeror must notify each CO for each outstanding bid or proposal where the offeror in good faith determines the size determination affects its eligibility for the award. Note that this period is delayed by the fifteen (15) day appeal period, and if an appeal is filed, by the duration of that appeal process. However, the size determination is effective immediately. See 13 C.F.R. § 121.1004.