On April 27th, the U.S. Small Business Administration (“SBA”) published a final rule making changes to the regulations governing the 8(a) program. This final rule is SBA’s implementation of the proposed rules issued by the SBA on September 9, 2022, and we summarized the changes adopted by the final rule here.
While many of the SBA’s regulatory changes are intended to document existing SBA policies and practices, the SBA did implement a number of substantive changes. Accordingly, over the next several weeks, we will be going through various parts of the final rule and conducting a discussion and analysis of the changes. We anticipate addressing the following areas in this series:
Size Determinations and Multiple Award Contracts (§ 121.404 and § 124.503)
In this update, we are addressing changes to the regulations governing size determinations and Multiple Award Contracts (“MACs”).
As part of the eligibility requirements to enter the 8(a) program and other SBA small business programs (i.e., small business set-aside, 8(a), women-owned small business (WOSB), HUBZone, and service-disabled veteran-owned small business (SDVOB) contracts), or to receive a small business set-aside contract, an entity must not exceed the SBA’s applicable size standard for their primary North American Industry Classification System (“NAICS”) code. Size standards are typically described in terms of number of employees or annual receipts. When calculating a particular entity’s size, in most situations the SBA counts both the revenue and employees of that particular entity and the revenue and employees of any affiliate.
There are two primary times when an 8(a) entity’s size is determined:
When examining an 8(a) entity’s size during the SBA’s annual review of their eligibility to remain in the 8(a) program, the size standard for the entity’s primary NAICS code is used. However, when an entity makes an offer for an 8(a) contract or small business set-aside contract, the entity must be small based on the size standard for the NAICS code assigned to that specific contract.
The general rule is that if an entity is small at the time the entity submits an offer plus price for a contract, that entity will be able to perform that contract throughout the life of the contract, even if they subsequently become “other than small,” i.e. exceed the size standard of the NAICS code assigned to that contract.
Application of this general rule, however, can raise questions when Multiple Award Contracts are involved. Under MACs, several different entities are awarded the same contract vehicle, and they then compete for task orders under that MAC.
In its regulatory changes, the SBA provided clarity as to when, in the context of MACs under which task orders are being issued, an entity’s size will be measured for purposes of determining their eligibility to receive 8(a) or small business set-aside task orders.
For sole source 8(a) awards, the SBA clarified that an 8(a) entity must still be small for their applicable NAICS code at the time of award of a sole source 8(a) task order, even if the entity had been small at the time of the initial award of the Multiple Award Contract. The SBA explained that:
It has always been SBA’s interpretation of its statutory authority that a firm must be an eligible Participant on the date of any 8(a) sole source award. As noted, an eligibility determination includes size. As such, the final rule adopts the language proposed that a Participant must currently qualify as a small business for any sole source award.
This means that if an 8(a) entity is small when awarded a hypothetical five-year Multiple Award Contract, but becomes “other than small” at the end of the base year of that contract, it can no longer be awarded 8(a) sole source contracts for the remaining four years of the Multiple Award Contract.
A different rule applies to small business task orders that are not 8(a) sole source awards.
For MACs set aside for small businesses (i.e. only small businesses were eligible to receive the MAC), size will be determined at the time of the entity’s offer for the MAC and not at the time of each individual task order, unless a contracting officer requests size recertification with respect to an individual task order. This means that if an entity is small at the time they submit an offer for a MAC, they will be small for all task orders issued under that MAC unless the contracting officer specially requests a size recertification with respect to a specific task order.
A different rule applies to unrestricted MACs. For unrestricted MACs (i.e. small and “other than small” entities could receive the MACt), size will be determined at the time of the offer for individual task orders that are set aside for small businesses, and not at the time of offer for the initial MAC. This means that if a business is small at the time of their initial offer for an unrestricted MAC, they will need to continue to be small for any task order issued under that unrestricted MAC that is set aside for small businesses.
The SBA explained that:
In SBA’s view, when a contracting officer sets aside an order for a small business under an unrestricted multiple award contract, the order is the first time that size status is important because competition is being limited under the contract. That is the first time that some firms will be eligible to compete for the order while others will be excluded from the competition because of their size status. SBA never intended to allow a firm’s self-certification for the underlying unrestricted multiple award contract to control whether a firm is small at the time an order is set aside for small business years after the multiple award contract was awarded.
The SBA’s rejection of the request to permit small businesses to qualify for small businesses set-asides under unrestricted MACs based on their size at the time of award of the MAC, as opposed to the time of the order under the MAC, is a helpful reminder that, for small business set-asides under an unrestricted MAC, the offeror must be small:
- at the time of offer in regards to the order, and
- under the size standard applicable at the time of the offer, and not the size standard applicable at the time of award of the MAC.
Comparison of the Prior Rules with the New Rule:
§ 121.404 When is the size status of a business concern determined?
(a) Time of size. SBA determines the size status of a concern, including its affiliates, as of the date the concern submits a written self-certification that it is small to the procuring activity as part of its initial offer or response which includes price.
(1) Multiple award contracts. With respect to Multiple Award Contracts, orders issued against a Multiple Award Contract, and Blanket Purchase Agreements issued against a Multiple Award Contract:
(i) Single NAICS. If a single NAICS code is assigned as set forth in § 121.402(c)(1)(i), SBA determines size status for the underlying Multiple Award Contract at the time of initial offer (or other formal response to a solicitation), which includes price, based upon the size standard set forth in the solicitation for the Multiple Award Contract, unless the concern was required to recertify under paragraph (g)(1), (2), or (3) of this section.
(A) Unrestricted Multiple Award Contracts. For an unrestricted Multiple Award Contract, if a business concern (including a joint venture) is small at the time of offer and contract-level recertification for the Multiple Award Contract, it is small for goaling purposes for each order issued against the contract, unless a contracting officer requests a size recertification for a specific order or Blanket Purchase Agreement. Except for orders and Blanket Purchase Agreements issued under any Federal Supply Schedule contract, if an order or a Blanket Purchase Agreement under an unrestricted Multiple Award Contract is set-aside exclusively for small business (i.e., small business set-aside, 8(a) small business, service-disabled veteran-owned small business, HUBZone small business, or women-owned small business), a concern must recertify its size status and qualify as a small business at the time it submits its initial offer, which includes price, for the particular order or Blanket Purchase Agreement. However, where the underlying Multiple Award Contract has been awarded to a pool of concerns for which small business status is required, if an order or a Blanket Purchase Agreement under that Multiple Award Contract is set-aside exclusively for concerns in the small business pool, concerns need not recertify their status as small business concerns (unless a contracting officer requests size certifications with respect to a specific order or Blanket Purchase Agreement).
(B) Set-aside Multiple Award Contracts. ForExcept as set forth in § 124.503(i)(1)(iv) for sole source 8(a) orders, for a Multiple Award Contract that is set aside or reserved for small business (i.e., small business set-aside, 8(a) small business, service-disabled veteran-owned small business, HUBZone small business, or women-owned small business), if a business concern (including a joint venture) is small at the time of offer and contract-level recertification for the Multiple Award Contract, it is small for each order or Blanket Purchase Agreement issued against the contract, unless a contracting officer requests a size recertification for a specific order or Blanket Purchase Agreement.
(ii) Multiple NAICS. If multiple NAICS codes are assigned as set forth in § 121.402(c)(1)(ii), SBA determines size status at the time a business concern submits its initial offer (or other formal response to a solicitation) which includes price for a Multiple Award Contract based upon the size standard set forth for each discrete category (e.g., CLIN, SIN, Sector, FA or equivalent) for which the business concern submits an offer and represents that it qualifies as small for the Multiple Award Contract, unless the business concern was required to recertify under paragraph (g)(1), (2), or (3) of this section. If the business concern (including a joint venture) submits an offer for the entire Multiple Award Contract, SBA will determine whether it meets the size standard for each discrete category (CLIN, SIN, Sector, FA or equivalent).
(A) Unrestricted Multiple Award Contracts. For an unrestricted Multiple Award Contract, if a business concern (including a joint venture) is small at the time of offer and contract-level recertification for discrete categories on the Multiple Award Contract, it is small for goaling purposes for each order issued against any of those categories, unless a contracting officer requests a size recertification for a specific order or Blanket Purchase Agreement. Except for orders or Blanket Purchase Agreements issued under any Federal Supply Schedule contract, if an order or Blanket Purchase Agreement for a discrete category under an unrestricted Multiple Award Contract is set-aside exclusively for small business (i.e., small business set, 8(a) small business, service-disabled veteran-owned small business, HUBZone small business, or women-owned small business), a concern must recertify its size status and qualify as a small business at the time it submits its initial offer, which includes price, for the particular order or Agreement. However, where the underlying Multiple Award Contract for discrete categories has been awarded to a pool of concerns for which small business status is required, if an order or a Blanket Purchase Agreement under that Multiple Award Contract is set-aside exclusively for concerns in the small business pool, concerns need not recertify their status as small business concerns (unless a contracting officer requests size certifications with respect to a specific order or Blanket Purchase Agreement).
(B) Set-aside Multiple Award Contracts. ForExcept as set forth in § 124.503(i)(1)(iv) for sole source 8(a) orders, for a Multiple Award Contract that is set aside or reserved for small business (i.e., small business set-aside, 8(a) small business, service-disabled veteran-owned small business, HUBZone small business, or women-owned small business), if a business concern (including a joint venture) is small at the time of offer and contract-level recertification for discrete categories on the Multiple Award Contract, it is small for each order or Agreement issued against any of those categories, unless a contracting officer requests a size recertification for a specific order or Blanket Purchase.
(iii) SBA will determine size at the time of initial offer (or other formal response to a solicitation), which includes price, for an order or Agreement issued against a Multiple Award Contract if the contracting officer requests a new size certification for the order or Agreement.
(iv) For an indefinite delivery, indefinite quantity (IDIQ),a Multiple Award Contract, where concerns are not required to submit price as part of the offer for the IDIQ contract, size for the contract will be determined as of the date of initial offer, which may not include price. Size for set-aside orders will be determined in accordance with subparagraphs (i)(A), (i)(B), (ii)(A), or (ii)(B), as appropriate.
(2) Agreements. With respect to “Agreements” including Blanket Purchase Agreements (BPAs) (except for BPAs issued against a GSA Schedule Contract), Basic Agreements, Basic Ordering Agreements, or any other Agreement that a contracting officer sets aside or reserves awards to any type of small business, a concern must qualify as small at the time of its initial offer (or other formal response to a solicitation), which includes price, for the Agreement. Because an Agreement is not a contract, the concern must also qualify as small for each order issued pursuant to the Agreement in order to be considered small for the order and for an agency to receive small business goaling credit for the order.
§ 124.503 How does SBA accept a procurement for award through the 8(a) BD program?
(i) Task or Delivery Order Contracts, including Multiple Award Contracts —
…
(iv) An agency may issue a sole source award against a Multiple Award Contract that has been set aside exclusively for 8(a) Program Participants, partially set-aside for 8(a) BD Program Participants or reserved solely for 8(a) Program Participants if the required dollar thresholds for sole source awards are met. Where an agency seeks to award an order on a sole source basis (i.e., to one particular 8(a) contract holder without competition among all 8(a) contract holders), the agency must offer, and SBA must accept, the order into the 8(a) program on behalf of the identified 8(a) contract holder. To be eligible for the award of a sole source order, a concern must be a current Participant in the 8(a) BD program at the time of award.
(A) To be eligible for the award of a sole source order, a concern must be a current Participant in the 8(a) BD program at the time of award of the order, qualify as small for the size standard corresponding to the NAICS code assigned to the order on the date the order is offered to the 8(a) BD program, and be in compliance with any applicable competitive business mix target established or remedial measure imposed by § 124.509. Where the intended sole source recipient is a joint venture, the 8(a) managing partner to the joint venture is the concern whose eligibility is considered.
(B) Where an agency seeks to issue a sole source order to a joint venture, the two-year restriction for joint venture awards set forth in § 121.103(h) does not apply and SBA will not review and approve the joint venture agreement as set forth in § 124.513(e)(1).
