In the Size Appeal of Gregory Landscape Services, Inc., the U.S. Small Business Administration (“SBA”) Office of Hearings and Appeals (“OHA”) heard an appeal following a Size Determination in which the SBA Area Office held that Gregory Landscape Services, Inc. (“Appellant”) was not a small business under the applicable size standard associated with the subject procurement. Through its decision, OHA made clear that a protest based on identity of interest through a familial relationship (see 13 CFR 121.103(f)) will only be presumed if the protested firm is given clear notice that identity of interest it being claimed and the precise familiar relationships at issue. Continue Reading Application of the Presumption of Affiliation Based on Identity of Interest Requires Clear Notice to Protested Firm
Recently, the U.S. Export-Import Bank (EXIM) issued a proposal that would align its size standards for determining whether a business qualifies as a “small business” with the Small Business Administration’s (SBA) current SBA Loan Program standards. Such a change would decrease inconsistencies among the entities, and potentially increase EXIM lending opportunities for small businesses that otherwise do not meet the SBA’s industry-based size standards as defined under the North American Industry Classification System (NAICS).
The EXIM Bank Charter requires the EXIM Bank to make at least 25 percent of its overall loan, guarantee, and insurance authority to supporting financing of exports by “small business concerns,” as defined by the Small Business Act, Section 3. Historically, the EXIM Bank relied on the SBA’s industry-based size standards to determine which participants in its programs may be considered small businesses. Continue Reading Export-Import Bank Proposes to Adopt Small Business Jobs Act Standard for Size Determination
Last month, the U.S. Court of Appeals for the D.C. Circuit handed down an opinion in Rothe Development, Inc. v. U.S. Department of Defense affirming a lower court’s 2015 decision denying a challenge to the constitutionality of Small Business Administration’s (“SBA”) 8(a) business development program (“8(a) Program”). However, reading the majority and dissenting opinion leads one to seriously question whether the book is truly closed on this case and/or other challenges to the constitutionality of the 8(a) Program.
As the D.C. Circuit put it, the 8(a) Program permits the SBA “to enter into contracts with other federal agencies, which the SBA then subcontracts to eligible small businesses that compete for the subcontracts in a sheltered market.” To be eligible to participate in the 8(a) Program, a business must be owned by “socially and economically disadvantaged” individuals, meaning persons “who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as a member of a group without regard to their individual qualities.”
In the Rothe Development case, plaintiff Rothe, who was not an 8(a) Program participant (and who claimed it was not economically and socially disadvantaged and therefore not eligible for the 8(a) Program), filed a lawsuit against the U.S. Department of Defense (“DoD”) and SBA in federal court challenging the constitutionality of the 8(a) Program. Rothe alleged that the 8(a) Program violated Rothe’s right to equal protection under the Due Process Clause of the Fifth Amendment. Importantly, Rothe’s challenge was limited to whether the statutory provisions defining “socially disadvantaged” small business owners (15 U.S.C. § 637(a)(5)) were facially unconstitutional.
In June 2015, the U.S. District Court Judge Ketanji Brown Jackson issued summary judgment in favor of DoD and SBA, ruling that the 8(a) Program was constitutional on its face. Judge Jackson ruled that because the statutory provision at issue (15 U.S.C. § 637(a)(5)) contained a racial classification, the strict scrutiny test applied. However, Judge Jackson also ruled that the statutory provision was facially constitutional under the strict scrutiny test because the government satisfied both elements of the test: (1) the government articulated an established compelling interest for the 8(a) Program—namely, remedying race-based discrimination and its effects, and (2) the 8(a) Program is narrowly tailored to achieve the established compelling interest.
Rothe appealed, and this month the D.C. Circuit denied Rothe’s appeal. Interestingly, even though the D.C. Circuit found the statute constitutional, the D.C. Circuit’s reasoning significantly departs from the reasoning in Judge Brown Jackson’s decision. A two-judge majority on the D.C. Circuit concluded that the challenged statutory provision did not contains a racial classification, Continue Reading SBA’s 8(a) Program Survives Constitutionality Challenge … For Now
James F. Nagle will give a special presentation at The Seminar Group’s upcoming 23rd Annual Washington Construction Law conference on September 15 at the Hilton Seattle. In Jim’s federal construction law presentation, he will provide an update on the False Claims Act, new programs from the Small Business Administration and other new developments affecting construction law. Guests of Jim are eligible for a $100 discount with the promo code “FAC100.” Continue Reading Join James Nagle at the 23rd Annual Washington Construction Law Conference on September 15th
In the U.S. Small Business Administration (SBA) Office of Business Development’s most recent report to Congress, SBA’s statistics reflect that approximately 23 percent of companies that complete the 8(a) program either cease to exist, substantially curtail operations, or have no available information within three years of graduation from the program. Some of these recent graduates were previously protégés in the 8(a) mentor-protégé program, and many could certainly benefit from becoming protégés again under SBA’s new small business mentor-protégé program. But will former protégés be eligible to become protégés again under the new program? In theory, the answer is yes. However, there are restrictions in the new program that former 8(a) protégés will need to keep in mind when applying to be protégés in SBA’s new small business mentor-protégé program.
Restrictions on the Number and Duration of Mentor-Protégé Relationships
One of the challenges for SBA in crafting the new regulations was creating a maximum duration and number of mentor-protégé relationships under the new program, as well as making corresponding changes to the 8(a) program. This was not an issue in the past under SBA’s 8(a) mentor-protégé program because mentor-protégé relationships would terminate as a result of the protégé graduating from the 8(a) program (except for on already awarded contracts). But, since contractors do not “graduate” after a set time from the other small business and socio-economic programs, SBA felt it was necessary to set term-limits on mentor-protégé relationships. Continue Reading Dissecting the Changes to SBA’s Mentor-Protégé Program: Will Former 8(a) Proteges be Eligible to Become Proteges Once Again?
Yesterday, we provided an overview of eleven of the biggest changes coming as a result of SBA’s release of its final rule expanding the mentor-protégé program to all small business. One of the changes we noted was that, in small business set-asides procurements, agencies will be required to consider projects performed by the individual members of a mentor-protégé joint venture offeror when evaluating experience/past performance.
Today we dissect this specific change, and examine whether it actually benefits mentor-protégé joint ventures. Arguably, this change does more harm than good to mentor-protégé joint ventures.
One thing the new rule solves is that it prohibits agencies from limiting consideration to projects performed by the joint venture itself when evaluating the experience/past performance of a joint venture offeror in a small business set-aside. While such restrictions (as ridiculous they were) were sometimes upheld by GAO when protested, these restrictions were not common, and when an agency lacked a legitimate reason for these restrictions they were often found unduly restrictive of competition and improper by GAO. So, since these restrictions were not common place, and often an agency voluntarily lifted such restrictions if protested, the benefit to mentor-protégé joint ventures from this new rule may be rather limited.
On the other hand, the new rule does not solve, and possibly worsens, a related and more pressing problem for mentor-protégé joint ventures in experience evaluations — where the agency considers the experience of both the mentor and protégé, but then downgrades the joint venture’s experience rating on account of the protégé’s lack of experience (despite the fact that the mentor has plenty of experience). Continue Reading Dissecting the Changes to SBA’s Mentor-Protégé Program: Do the New Past Performance/Experience Rules for Joint Ventures Actually Benefit Mentor-Protégés?
This week, the U.S. Small Business Administration (SBA) published its long awaited final rule providing for a major expansion of its mentor-protégé program. These regulations, which represent monumental changes to the federal contracting landscape (for small and large businesses), will go into effect August 24, 2016. In the coming days and weeks we will publishing a number of posts breaking down the impact of these changes in greater detail.
Today, we begin by highlighting eleven of the most important changes coming next month as a result of these new regulations:
- SBA has created a second mentor-protégé program, which will be open to all small businesses, with benefits similar to those available under SBA’s existing 8(a) mentor-protégé program
SBA will be starting a second mentor-protégé program open to all small business, with benefits and requirements similar to those in SBA’s existing 8(a) Mentor-Protégé Program. Mentor-protégé joint ventures approved under the new small business program will be considered a small business for any procurement that the protégé, on its own, would be considered small. For example, an approved mentor-protégé joint venture under the small business program, with the protégé being a WOSB, will qualify as small for any small business set-aside or WOSB set-aside that the protégé would qualify for on its own, but would not qualify for 8(a) or SDVO or HUBZone set-asides. SBA will continue running the 8(a) mentor-protégé program separately (with some revisions), and SBA has tailored the 8(a) and small business mentor-protégé programs to be as similar as possible. An 8(a) firm will be eligible to submit a mentor-protégé application under either program.
- Protégés no longer have to be quite as small to qualify for SBA’s mentor-protégé programs
Previously, to be a protégé under the 8(a) mentor-protégé program, a firm had to be less than half the size of the size standard applicable to its primary NAICS code, or being in the developmental stage of the 8(a) program, or have never received an 8(a) contract. Under the new regulations, a firm will only need be smaller than the size standard of its primary NAICS code. This new rule will apply to both the 8(a) and small business mentor-protégé programs.
- Mentor-Protégé joint ventures will be tracked through SAM.gov
In order to facilitate the tracking of awards to mentor-protégé joint ventures, all mentor-protégé joint ventures in either SBA program will be required to register the joint venture as a separate entity in SAM.gov, with its own unique DUNS number and CAGE code. The firm’s SAM.gov registration must also be identify the firm as a joint venture, and must identify the members of the joint venture.
- There will be no open/closed enrollment periods (for now)
Because of the expansion of the mentor-protégé program to all small businesses, SBA anticipates an influx in applications to the program. As a result of this expected influx, SBA had considered utilizing open and closed enrollment periods. Instead, for now, SBA will accept applications to the new mentor-protégé program at any time. However, SBA has left open the possibility of switching to open/closed enrollment periods in the future if the need arises. To help facilitate the review and approval of applications, a separate unit will be created within SBA’s Office of Business Development whose sole function will be to process mentor-protégé applications. In addition, contrary to previous statements by SBA, the new program is not being launched merely on pilot basis.
- The end of “populated” mentor-protégé joint ventures
Until now, 8(a) mentor-protégé joint ventures could be “populated” (persons performing the contract work would be employed directly by the joint venture) or “unpopulated” (persons performing the contract would be employed by the partners to the joint venture). Because of the difficulties in tracking the benefits gained by the protégé in a populated joint venture, SBA will required all mentor-protégé’s in either of its program to be unpopulated (though they may still be populated with administrative personnel). Continue Reading Eleven Major Changes Coming to SBA’s Mentor-Protégé Program
The nonmanufacturer rule is one of the more complicated small business rules. Under 13 CFR § 121.406(b), a small business may qualify as a nonmanufacturer if it 1) does not exceed 500 employees; 2) is primarily engaged in the retail or wholesale trade and normally sells the type of item being supplied; 3) takes ownership or possession of the item(s) with its personnel, equipment or facilities in a manner consistent with industry practice; and (4) will supply the end item of a small business manufacturer, processor or producer made in the United States. Recently, in Third Coast Fresh Distribution, LLC, ASBCA No. 59696, the ASBCA determined that a contractor’s failure to comply with this requirement in an applicable contract was grounds for a termination for cause (i.e. default termination). Continue Reading ASBCA Confirms Violation of the Nonmanufacturer Rule is Grounds for Termination for Cause
Timely given that last week was National Women in Construction Week, the United States Small Business Administration (SBA) recently published a notice in the Federal Register expanding the use of 113 new North American Industry Classification System (NAICS) Industry groups for women-owned business (WOSB) set-asides. Such a determination was made following a study requested by the SBA which found that WOSBs are underrepresented and substantially underrepresented in such industry groups.
On March 3, 2016, the Small Business Administration (SBA) released the findings of a two-year study investigating the industries in which WOSBs are underrepresented in Federal contracting. Under section 8(m) of the Small Business Act (15 U.S.C § 637), the SBA is responsible for administering the WOSB Program, the purpose of which is to ensure that WOSB’s have an equal opportunity to participate in Federal contracting. The SBA’s administration of the WOSB Program also helps the Federal government attain its goal of awarding five percent of its prime contract dollars to WOSBs.
The SBA had commissioned at least one study since 2000 to identify the Federal contracting industries in which women are unrepresented. However, in 2014, Congress amended the Small Business Act to require the SBA to submit an updated report to Congress on this issue by January 2, 2016, followed by an updated report every five years. In response, the SBA requested the U.S. Commerce Department’s Office of the Chief Economist (OCE) conduct such a study, the purpose of which was to reevaluate the NAICS industry groups and identify in which groups WOSBs are underrepresented and substantially underrepresented in Federal contracting. In conclusion, the OCE found that in 254 of the 304 industries WOSBs are “less likely” to win federal contracts, and in 109 of the 304 industries WOSBs have “significant[ly] lower odds” of wining federal contracts than otherwise similarly situated non-women owned businesses. As a result of these findings, the SBA authorized the use of 113 new NAICS industry groups for WOSB and Economically Disadvantaged WOSB set-asides. Effective March 3, 2016, contracting officers will be able to make set-aside awards to WOSBs in 92 designated NAICS industry groups where WOSBs are “substantially underrepresented,” and to EDWOSBs in 21 additional NAICS industry groups where WOSBs are “underrepresented.”
Recently, the United States Small Business Administration Office of Hearing and Appeals (“SBA-OHA”) provided a reminder of the risk that a contract awardee takes by not promptly responding to a size protest. The awardee in Size Appeal of OxyHeal Medical Systems, Inc, SBA No. SIZ-5707 (2016) learned the hard way when, after it failed to timely respond to protest concerning its size, SBA applied the adverse inference rule to find the awardee other-than-small and, as a result, ineligible for its contract award.
In this case, the the Air Force awarded a small business set aside contract to OxyHealth Medical Services (OHMS) for hyperbaric chamber maintenance support services. Rohmann Services, Inc. (RSI), an unsuccessful offeror for that contract, filed a size protest arguing that OHMS was not a small business due to its alleged affiliation with another company.
As required by the applicable regulations, the SBA Area Office notified OHMS about the size protest, and requested OHMS respond to RSI’s allegation, return a completed SBA Form 355, and provide other specific documentation relevant to the Area Office’s size investigation. The Area Office gave OHMS six days to respond. When the Area Office did not receive a response by the deadline, it emailed a final warning to OHMS: “Your response was due at this office COB yesterday. If I don’t receive your response by 3 p.m. today, I will assume your firm is not responding to the protest. . . .” Then, citing SBA’s ‘adverse inference’ rule (13 C.F.R. § 121.1008(d)), the Area Office warned OHMS that due to its failure to submit requested information regarding its size within the time allowed by SBA, the Area Office could “presume that missing information would demonstrate that [OHMS] is other than a small business.” All of the Area Office’s communications were directed to OHMS’s Director of Finance. Unbeknownst to the Area Office, OHMS’s Director of Finance was “frantically busy” and “only skimming emails” at the time, as she was also managing OHMS’s accounting and HR departments due to recent vacancies in those positions. Continue Reading Failing to Promptly Respond to a Size Protest: The Easiest Way to Lose a Contract Award