Written by:  Jonathan Cannon, Carissa Siebeneck Anderson, and Jon M. DeVore

This year, the 116th Congress has begun to take action on a number of issues relating to small businesses and government contracting. This post highlights some key areas that we are following at Birch Horton. These are: Expanding Contracting Opportunities for Small Business Act of 2019, The 809 Panel Report, and the Clarifying the Small Business Runway Extension Act.

The Expanding Contracting Opportunities for Small Business Act of 2019

Legislative Status. On January 17, 2019, the House passed the Expanding Contracting Opportunities for Small Business Act of 2019 (H.R. 190). This legislation passed with near unanimous bi-partisan support with a 415/6 vote count.[1]  The Bill has been referred to as the Senate Small Business and Entrepreneurship Committee, but they have yet to move on the proposed legislation.

Increase Caps for Certain Sole Source Awards. This Bill intends to help small disadvantaged businesses—HUBZones, Service-Disabled Veteran-Owned Small Businesses (SDVOSBs), women-owned small businesses (WOSBs), and economically disadvantaged women-owned small businesses (EDWOSBs)—obtain sole-source contracts. The legislation increases the dollar amount of sole-sourced contracts that can be awarded. Anticipated awards could now be up to $7 million for manufacturing procurements (replacing the current $5m limit, and $6.5m for qualifying women-owned businesses), and up to $4 million for other contract opportunities (replacing the $3m sole source cap for HUBZone or SDVOSB, and $4m for women-owned businesses). While the 8(a) sole source caps were not raised in the original Bill in the House, we understand that versions of the Senate bill do include similar provisions applicable to the 8(a) Program.

Option Years Would Be Excluded from Calculations. Perhaps the most significant proposed change is that new sole source maximums would no longer include option years. Instead, maximums apply only to the first contract year effectively doubling, tripling, or more, the maximum allowable sole source awards. There has been some confusion about the impact on 8(a) regulations, but the House bill does also remove option years from the 8(a) sole source cap calculation as well.[2]

This proposal has been met with mixed reviews by some in the SBA 8(a) Program because the change will likely increase competition for larger contracts that have been previously unavailable to individually-owned small businesses. The change will also potentially increase the size and overall number of sole source contracts, which could be good for all eligible businesses, including firms owned by Tribes, Alaska Native Corporations (ANCs) and Native Hawaiian Organization (NHO) owned firms.

Other Actions. Additionally, this new legislation mentions the need for the SBA Administrator to notify the respective legislative committees when it has established programs that certify small business owned and controlled by women and service-disabled veterans. Currently, contracting officers must obtain SBA verification of eligibility before awarding contracts. It is worth noting that SBA issued a recent proposed rule to create the statutorily-mandated WOSB/EDWOSB certification programs.[3] SBA has testified to Congress that the new certification program will likely not be fully implemented until January, 2021. The bill also requests a GAO report regarding WOSBs and SDVOSBCs.

Clarifying the Small Business Runway Extension Act

Legislative Status. Introduced in the House. On May 1, 2019 The House Small Business Committee approved by voice the “Clarifying the Small Business Runway Extension Act” (H.R. 2345).

Purpose. The “Clarifying the Small Business Runway Extension Act” requires the Administrator of the SBA to issue a final rule to implement the Small Business Runway Extension Act no later than December 17, 2019. This bill would ensure that the previously passed Runway Extension act would apply to and include the SBA, which was unclear from the original legislation. Passage of this bill would require the SBA to implement a transition plan within 90 days of enactment.

The original “Small Business Runway Extension Act” (H.R. 6330 115th Congress) changed the small business size calculation to a five-year average (replacing the three-year average that existed before the legislation passed). SBA responded to the legislation stating that it did not change the size calculation in the statute (as was likely intended by Congress), but SBA agreed to take the necessary steps to implement a similar five-year average into its regulations regarding size standards. This perceived legislative drafting error caused significant confusion.

Impact. Moving to a five-year average will have a significant impact on the number of eligible small businesses, which are based on either the number of employees or on gross receipts. The small business size thresholds determine eligibility for SBA resources, programs, and assistance including small business federal contracting opportunities. Supporters argued that the problem with the three-year period is that one strong year in such a small window could lead to a business being prematurely eliminated from the program. Extending the average to include five years should even out a company’s high and low years, to get a better long-term picture of small business size despite one booming contract year. The five-year average will also extend the time a growing business could remain a small business, as growth years will be averaged over previous smaller years.

The 809 Panel Results

In the 2016 NDAA (Public Law 114-92), Congress created in section 809 a panel with the purpose of “streamlining acquisition regulations.” The panel was responsible for reviewing acquisition regulations to streamline and improve the efficiency of the defense acquisitions process.

The results of this report were recently published was over 1000 pages of research with 98 recommendations of ways to streamline and improve the acquisition system. Of the recommendations, there were two points that were potentially alarming for small business contractors. These were Recommendations 75 and 80. Recommendation 75 addresses revising regulations, instructions or directives to eliminate non-value added documents or approvals that could allow the release of contract opportunities from 8(a) programs if the SBA failed to respond in 15 days. (Currently, SBA must approve an agency’s request to take a procurement opportunity out of the 8(a) Program.) Recommendation 80 dealt with preservation of preference for procuring commercial products and services for small business set-asides. Recent Office of Management and Budget directives regarding some of the recommendations indicates that the rule of “once an 8(a) contract, it shall stay an 8(a) contract” will not likely change.

Fortunately, it does not look like the Senate will adopt any of the panel’s recommendations into the report in the 2020 NDAA. While this may not be an immediate concern, it is worth noting that discussion has begun regarding a number of these issues.

 

[1]  This is notable since only 6% of bills introduced in the last Congress even got a vote, while half of the bills that did receive a vote became law.

[2] The confusion among commentators likely resulted from the inconsistent way in which the House legislation was written.  The sole source provisions regarding WOSB, HUBZone, and SDVOSBC were overtly replaced in the Bill, while “including options” language was stricken from Section 8 of the Small Business Act in one sentence in Sec. 2(d) of the House Bill in one sentence.

[3] See Women-Owned Small Business and Economically Disadvantaged Women-Owned Small Business-Certification (May 14, 2019), available at https://www.federalregister.gov/documents/2019/05/14/2019-09684/women-owned-small-business-and-economically-disadvantaged-women-owned-small-business-certification.  Comments on this proposed rule are due July 15, 2019.