New SBA Rule Would Help Small Businesses Qualify for Federal Programs

By Carol L. O’Riordan

The Small Business Administration has released a proposed rule that would affect the operation of several special business preference programs for federal contracts, such as the 8(a) program for disadvantaged small businesses, the HUBZone program for businesses in historically underutilized business zones, and the program to aid businesses run by service-disabled veterans (SDVO program).

The rule contains several distinct provisions, and in general we believe that if the SBA decides to adopt it as a final rule, that would have a positive impact on those programs and on the competitiveness of small businesses in government contracting. The deadline for comments on the rule is February 27, 2015, and the draft rule, including provisions for how to comment on it, can be found here.  We will make several blog posts here that discuss various aspects of the rule.

First, the SBA proposes to amend 13 C.F.R. § 121.103(h) to broaden the exclusion from affiliation for small business size status, in such a way as would allow two or more small businesses to engage in a joint venture for any procurement without being considered “affiliated“ with regard to the performance of that procurement requirement. If considered “affiliated,” then their size would be aggregated to determine whether or not they were still a small business, and they might end up being excluded from that status.

Currently, there is an exclusion from affiliation for two or more small businesses that form a joint venture for certain procurements, but it only applies when the procurement is “bundled” or “large.” The new rule would provide that the exclusion always applies, regardless of the size or nature of the procurement.

We strongly support this change, and we urge our clients and others to comment in support of this change.

We agree with the SBA that this change would encourage more small businesses to form joint ventures, in furtherance of the strongly expressed congressional and national goal to promote small businesses’ participation in federal contracts.

Moreover, this change would respond to results from the new Small Business Teaming Pilot Program, which was managed by the SBA. The program’s results showed that small businesses had more opportunities and greater success on small contracts than on large contracts; thus, to promote successful small business involvement, it is desirable to remove any possible “affiliation” problems on small as well as large contracts.

Finally, the amendment would fit well with a new provision, already on the books, that allows a small business prime contractor to subcontract to as many similarly situated subcontractors as desired. If a small business prime contractor can subcontract significant portions of a contract to one or more other small businesses and, in doing so, will still meet the test of being a small business and not find itself to be “affiliated” with the other small businesses, the same should be true for joint ventures, in our view.


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