This bill amends the Small Business Investment Act of 1958 to increase the maximum amount of outstanding leverage (i.e., borrowing power) made available to any licensed small business investment company from $150 million to $175 million. This bill was signed into law on June 21, 2018.
According to a press release from the Small Business Investor Alliance (SBIA), “Small Business Investment Companies (SBICs) are highly regulated private equity funds that invest exclusively in domestic small businesses. Created in 1958, the small businesses backed by SBICs have created 3 million new jobs and supported an additional 6.5 million jobs, according to a recent Library of Congress study.
The individual fund limit was last raised in 2009 to $150 million; the current push to $175 million keeps pace with inflation and increases the amount of capital fund managers can deploy to small businesses nationwide.”
While this may not seem like much, remember that many of the small businesses that are being invested in by these funds are fairly small, and the investments are correspondingly small. Also, it is worth remembering that these SBICs are not singular companies, but multiple entities that are available for small business investment start-up capital.
This is a case of Congress remembering that small businesses are the engine of job growth, and although larger businesses create numbers, this is how the economy grows.
If you’re looking for investment capital, particularly if your business model seeks outside capital, these SBICs are a good alternative to private equity or even outside investors.
The SBA’s Microloan Program is designed to provide small amounts of capital across a broad spectrum of small businesses mostly owned by low-income individuals. Think of businesses that can be started for a 25-50k sum, and this is where the SBA gets the lending authority, as those borrowers may have less collateral.
H.R. 2056 amends the Small Business Act to increase from $5 million to $6 million the total amount of loans outstanding and committed to any particular intermediary (excluding outstanding grants) from the SBA business loan and investment fund for the remaining years of the intermediary’s participation in the program.
There is some complicated terminology in this aspect, but basically an intermediary is a lending agency (like a bank). So the amount each lending intermediary can have outstanding is increased, which allows for more loans. Yay! More loans means more businesses start up.
SBA-designated microloan intermediary lenders may expend up to 50% (currently, 25%) of the intensive marketing, management, and technical assistance grant funds they receive from the SBA to provide information and technical assistance to small business concerns that are their prospective borrowers.
This provision allows funds to be set aside for essential help and consulting to these borrowers in cases where they need assistance getting started with basics like marketing, management, or technical assistance. Yay again, because this allows for more recipients to get more assistance, and that’s always a good thing.
The SBA shall:
- compare the operations of a representative sample of eligible intermediaries that participate in the microloan program and of eligible intermediaries that do not,
- study the reasons why the latter do not participate,
- recommend how to encourage increased participation by intermediaries in the microloan program, and
- recommend how to decrease the associated costs for intermediary participation.
The Government Accountability Office shall evaluate:
- SBA oversight of the microloan program, including oversight of participating intermediaries; and
- the specific processes the SBA uses to ensure program compliance by participating intermediaries and overall microloan program performance.
These two sections basically set up studies (this is a very typical action in the world of the NDAA). The SBA shall study what’s working and some things that Congress felt might not be working, and the GAO shall study the SBA’s processes. These are good things, as long as the studies get done and published. There are no deadlines or due dates here, something I wish would get added in more often.
This may not seem like much, but this is the engine of people leaving low-income situations by starting up their own businesses. YAY – more and more good!
On May 24, 2018, the House passed H.R. 5515, the National Defense Authorization Act FY2019. This bill authorizes FY2019 appropriations and sets forth policies for Department of Defense (DOD) programs and activities, including military personnel strengths. It does not provide budget authority, which is provided in subsequent appropriations legislation.
Rep. Mac Thornberry’s (Chair, Armed Service Com.) comments on included reforms:
“For the 58th year, the House has passed an NDAA, one that puts the men and women in uniform first and is another large step in rebuilding and repairing our long-neglected military. Our service members selflessly fight for our freedom every day, and in return, we must ensure that they have the best training, equipment, and support our nation can provide. This bill also continues to reform the Pentagon to help speed up decision-making and get equipment to our warfighters faster.”
The provisions set ahead in the NDAA for 2019 in regards to small business(es) are promising. Rep. Steve Chabot’s (Chair, Small Business Committee) comments regarding small business protections:
“Small businesses play an immeasurable role in keeping America safe and strong. Not only are they the lifeblood of the economy, but they also the lifeblood of our nation’s industrial base. The common sense reforms in this bill will open new avenues for small businesses to flourish in our economy.”
In a series of posts, we will look into six NDAA FY19 bills that will impact small business, summarized below:
H.R. 2056, the Microloan Modernization Act
(Sec. 3) This bill amends the Small Business Act, with respect to the Small Business Administration (SBA) Microloan Program (assisting low-income individuals to start and operate a small business), to increase from $5 million to $6 million the total amount of loans outstanding and committed to any particular intermediary (excluding outstanding grants) from the SBA business loan and investment fund for the remaining years of the intermediary’s participation in the program.
(Sec. 4) SBA-designated microloan intermediary lenders may expend up to 50% (currently, 25%) of the intensive marketing, management, and technical assistance grant funds they receive from the SBA to provide information and technical assistance to small business concerns that are their prospective borrowers.
(Sec. 5) The SBA shall:
● compare the operations of a representative sample of eligible intermediaries that participate in the microloan program and of eligible intermediaries that do not,
● study the reasons why the latter do not participate,
● recommend how to encourage increased participation by intermediaries in the microloan program, and
● recommend how to decrease the associated costs for intermediary participation.
(Sec. 6) The Government Accountability Office shall evaluate:
● SBA oversight of the microloan program, including oversight of participating intermediaries; and
● the specific processes the SBA uses to ensure program compliance by participating intermediaries and overall microloan program performance.
H.R. 4754, the Change Order Transparency for Federal Contractors
Amends the Small Business Act to provide prospective construction contractors with information about an agency’s policies on the administration of change orders to allow such contractors to make informed business decisions regarding the pricing of bids or proposals.
This bill was received in the Senate and read twice and referred to the Committee on Small Business and Entrepreneurship on May 9, 2018.
H.R. 2333, the Small Business Investment Opportunity Act
(Sec. 2) This bill amends the Small Business Investment Act of 1958 to increase the maximum amount of outstanding leverage (i.e., borrowing power) made available to any licensed small business investment company from $150 million to $175 million. This bill was signed into law on June 21, 2018.
H.R. 2364, the Investing in Main Street America Act
(Sec. 2) This bill amends the Small Business Investment Act of 1958 to increase from 5% to 15% of its capital and surplus, the amount a national bank, a member bank of the Federal Reserve System, a nonmember insured bank (to the extent permitted under applicable state law), or a federal savings association may invest in one or more small business investment companies (SBICs), or in any entity established to invest solely in SBICs. The increase is subject to the approval of the appropriate federal banking agency.
H.R. 5337, the Accelerated Payments for Small Businesses Act (applies only to the Department of Defense)
To amend section 3903 of title 31, United States Code, to establish accelerated payments applicable to contracts with certain small business concerns. This bill was referred to the House Committee on Oversight and Government Reform on March 20, 2018.
H.R. 2763, the Small Business Innovation Research and Small Business Technology Transfer Improvements Act (significant portions)
This bill amends the Small Business Act to require:
● the Small Business Administration’s (SBA’s) annual report on the Small Business Information and Research (SBIR) and Small Business Technology Transfer (STTR) programs to be submitted by December 31, and
● each federal agency required to establish an SBIR program to submit its annual report on such program by March 30.
The bill requires (current law authorizes) the Department of Defense (DOD), for any contract under the Commercial Readiness Program with a value of at least $100 million, to:
● establish goals for the transition of Phase III technologies in subcontracting plans, and
● require a prime contractor to report the number and dollar amount of contacts entered into for Phase III SBIR or STTR projects.
The bill authorizes all agencies participating in the SBIR program, during FY2018-FY2022, to provide SBIR Phase II awards for a project to a small business concern without regard to whether such concern was provided a Phase I award for such project.
The bill changes the temporary pilot program that a covered agency may establish for the allocation of SBIR and STTR program funds for awards for technology development, testing, evaluation, and commercialization assistance for SBIR and STTR phase II technologies, or to support the progress of research, research and development, and commercialization conducted under such programs to phase III, to a permanent Civilian Agency Commercialization Readiness Program.
The bill extends until September 30, 2022, the deadline until which the SBA shall allow each agency required to conduct an SBIR program to use not more than 3% of program funds for administrative, oversight, and contract processing costs.
On July 18, 2018, the House Small Business Committee approved H.R. 6369, the Expanding Contracting Opportunities for Small Business Act, and H.R. 6382, the Clarity on Small Business Participation in Category Management Act. Among other provisions important to women, the bills seek to increase opportunities for women-owned and other minority-owned businesses.
Regarding the news, Vivian Ling, House Small Business Committee – Majority stated:
“This is a very, very modest proposal to update the size formula from a 3-year look-back to a 5-year look-back. I discussed a number of alternatives with SBA, and after much discussion, this was the only option they were comfortable with.”
H.R. 6369 essentially takes three major actions. The first action is that option years are no longer included in the award price for sole source contracts.
To account for this fact, the maximum award prices were changed from $5M to $7M for contract opportunities assigned an SIC code for manufacturing and from $3M to $4M for all other contract opportunities. Exclusion of option years was applied to sole source contracts, those controlled by service-disabled veterans, women, and women in substantially underrepresented industries.
The second action is that the SBA is to notify the House Small Business Committee and the Senate Small Business and Entrepreneurship Committee when it has established two programs: one to certify concerns of female small business owners, and one to certify concerns of service-disabled veteran small business owners.
This is a significant change requiring certification of “real” WOSBs. Right now the program is self-certified, except in cases using sole source contracts when the contracting officer is required to verify that the business is certified by one of the four designated WOSB certifiers.
The third program is that the GAO will carry out a study to ensure that sole source awards are properly classified and are being awarded to eligible firms. This report is to be delivered to Congress within 18 months after the certification programs begin. The SBA must also report to Congress with the actions it took following the GAO study.
H.R. 6382, otherwise known as the “Clarity on Small Business Participation in Category Management Act of 2018,” amends the Small Business Act to require the Administrator of the Small Business Administration to report certain information to the Congress and to the President, and for other purposes.
Specifically it requires reporting on:
(i) the total amount of spending government wide in such designation;
(ii) the dollar amount of contracts within such category awarded to each of the following—
(I) HUBZone small business concerns;
(II) small business concerns owned and controlled by women;
(III) small business concerns owned and controlled by service-disabled veterans; and
(IV) socially and economically disadvantaged small business concerns.
These changes are a big deal for small firms, especially WOSBs.
In a recent blog post we described a procurement method known as other transaction agreements (OTA) that has become increasingly popular to access valuable war-fighting technologies, especially from non-traditional defense companies.
We highlight a structure used by Army Contracting Command – New Jersey (ACC-NJ) that leverages a consortia of companies that agree to participate under a common ruleset to submit white papers in response to the government’s interest in emerging technologies.
10 USC 2371b (Other Transaction Authority for Prototype Projects) provides significant flexibility in how DoD can use OTAs for prototype projects. Another methodology in use by DoD’s Defense Innovation Unit Experimental (DIUx) bypasses the use of consortia and solicits ideas directly from industry with a focus on non-traditional defense companies.
DIUx was stood up in 2016 to “develop new partnerships with the private sector in communities in Silicon Valley and America’s many other great innovation hubs” to “put commercial-based innovation in the hands of America’s soldiers, sailors, airmen and marines.” That same year DIUx initiated a first-of-its-kind acquisition framework called the Commercial Solutions Opening (CSO) by which DIUx solicits solutions to problems that our warfighters are facing.
To effectively work with non-traditional innovators DIUx divided the CSO into several phases: Solicitation, Phase 1 Evaluation, Pitch, Phase II Evaluation, Kick-offs, Proposal, Negotiation and Awards, and OT Modifications as applicable.
In the solicitation phase, DIUx posts areas of interest (AOIs) on its website. Instead of complex requirements and specifications, AOIs describe problems to be solved or particular technologies DoD is interested in. In response to solicitations posted on the DIUx website, companies submit either a short 5-page white paper or a presentation not to exceed 15 slides. In their submission they simply describe their technology and their company.
In Evaluation Phase I, DIUx uses four factors for evaluation:
- Relevance: Is the company’s solution relevant to the AOI?
- Technical merit: Does the proposed solution feasibly address the AOI?
- Business viability: Is the company viable enough to perform the work?
- Innovation: Does the solution represent a truly unique and innovative approach?
If the company receives a favorable evaluation they will be asked to pitch their idea either in person or through video conference. During the pitch phase the company and DIUx discuss the technology and potential use cases in more detail as well as a rough order of magnitude (ROM) of the costs involved.
After the pitch DIUx re-evaluates the technology based on the Phase 1 factors and three additional Phase II factors: cost, schedule, and data rights. Based on a positive evaluation the agreements officer (AO) will issue a Request for Prototype Proposal (RPP).
Once the RPP is issued DIUx schedules a kickoff meeting with the company, the DoD customer and the AO. At the kickoff meeting, the DoD team will explain the proposal process, which is a collaborative process wherein the contractor will develop the statement of work in collaboration with the government. During this process the government team and contractor discuss different ideas and send drafts of the proposal back and forth.
In the proposal process a final statement of work has been collaboratively developed, accordingly the technical aspects of the proposal have already been evaluated and the government performs a final cost/price evaluation based upon non-traditional government methods which might include return on investment.
After evaluation the agreements officer will negotiate the terms and conditions of the OT with the company. Since the government and the company have worked collaboratively, this is usually a relatively quick process. Often the company is willing to sign the baseline OT without any modifications.
Once the project is underway the government may want to modify the scope of the OT based upon requirements changes or even because of emerging technology. As long as the scope changes are within the original AOI, the government and the contractor work together to update the project scope and modify the OT.
The CSO process outlined above and OTs have allowed DIUx to effectively access innovative technologies from non-traditional defense companies. It offers another way to do this without the use of consortia by reaching out directly to the technology companies and leveraging the OT authorities recently given to the Department of Defense.
Early in 2018, Edmund Amorisi of Smith Pachter McWhorter PLC and and Bill Walters of Dixon Hughes Goodman LLP presented a comprehensive summary of the key provisions of the FY 2018 NDAA. As they explained, Sec. 802 emphasizes DoD’s ongoing interest in intellectual property issues.
It directs DoD establish a “cadre of intellectual property experts” to “ensure a consistent, strategic, and highly knowledgeable approach to acquiring or licensing [IP] by providing expert advice” to the acquisition workforce. Sec. 802 also authorizes DoD to contract with a private-sector entity for “specialized expertise” to support the cadre.
Currently there are FAR and DFAR provisions to protect intellectual property, both the portion that the government should own after something new is developed, and the portion that the contractor brings to the table. However, this expertise does not exist in the regular contracting workforce. So this provision really goes into detail about intellectual property and directs the DoD to establish some intellectual property expertise that they can use.
Any company with an innovation will have a real issue about bringing their innovation into the contracting community because they may not be properly protected to keep their IP. Too often contractors don’t pursue their innovative ideas because they don’t want their innovation to become the property of the government.
So this provision is really about allowing innovation to play a part, and that’s a very good thing.
While we at TAPE provide services, other companies provide products, or a combination of the two. In terms of federal contracting, commercial items are all the things that are stuff, for example office supplies like pencils and paper clips.
What Sec. 846 of NDAA 2018 is trying to do is establish Amazon-like online portals where contracting officers and authorized people can simply go online and order their products and commercial items.
That would replace the current process, which in many cases is ordering these supplies off GSA schedules, and will make it easier and more efficient for government buyers to do their job. The problem is whether this takes away opportunities for competition. How do you regulate all of these things?
There is still work to be done to determine who is included in the portal, how search results are delivered, what kind of e-commerce portal do you create, and how this relates to the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS).
Until we figure out these things, I don’t think this portal will happen immediately. There doesn’t seem to be a rush to implement this, and this might be partially because GSA sees this as a competitor to their own portal. But I also don’t think we’ll be waiting too long.
We’ve been taking a closer look at some of the most relevant changes to the 2018 National Defense Authorization Act (NDAA), which includes several provisions designed to reduce the number of protests.
According to the U.S. Government Accountability Office (GAO), “federal agencies are required to award government contracts in accordance with numerous acquisition laws and regulations. If a party interested in a government contract believes that an agency has violated procurement law or regulation in a solicitation for goods or services, or in the award of a contract, it may file a bid protest with our Office.”
With contracting dollars being so tight over the last 10 years, every loss was a big deal, and large losses in particular resulted in long and involved protests. This led to us seeing more and more contracts being protested, which is creating a lot of problems.
So there are a number of things that this provision attempts to do, including to increase the amount of information flow in the debriefing (see: how to take full advantage of a debriefing).
That’s a double-edged sword for both the government and the contractor. On the one hand, it will help bidders better understand the decisions and help them shape future proposals for more success.
For example, they will now allow businesses pursuing contracts of $100 million or greater to see a redacted version of the source selection decision document. This is the recommendation document that goes to the source selection authority (SSA) – the panel that decides who to select among the bids – and is an incredible source of information. Small businesses may request the same disclosure for contracts valued at $10 million or more.
On the other side, these changes will produce a lot more documentation and paper trails, and sometimes when a contractor learns more about a decision, it actually increases the possibility of protest.
Another potential down side is a potential pilot program of charging protesters if they’re unsuccessful when a protest is made and denied. This compensates for the fact that the government has to spend money to defend the protest.
That means you’ll have to really think twice because there is the potential to incur hard costs (where before it was just your legal fees).
The hope in all of this is to get rid of frivolous protests that are only meant to extend existing contracts. Unfortunately, some incumbents who are about to be replaced start a protest knowing that for the 4-6 months while it’s in process, they can still be performing and collecting their money. While the protest is going on the government is prohibited to hire the new company. This is an unfair practice and definitely needs to stop. Time will tell if these changes are successful in doing that.
Simplified acquisition is “a contracting method which seeks to reduce the amount of work the government must undertake to evaluate an offer. Because source selection is less arduous under simplified acquisition, the dollar value of contracts allowable under simplified acquisition …is capped.” (Georgia Tech Contracting Education Academy.)
In the NDAA 2018, this simplified acquisition threshold increased from $100,000 to $250,000, in order to expand opportunities and increase participation of small and disadvantaged businesses – service-disabled, women-owned, small, and small disadvantaged (what used to be known as 8(a)).
What that means is that contracts valued up to $250,000 – a pretty fair amount to most small businesses – don’t have a justification and authorization requirement (known as a J&A). The government contracting officer can just issue a purchase order to the small business.
The Truthful Cost or Pricing Act (TINA) (previously known as the Truth in Negotiations Act) was instituted to protect government agencies from unfair pricing practices by contractors. NDAA 2018 also bumps up the threshold for which contracts need this particular oversight – from $750,000 to $2 million. From a government standpoint, this means fewer regulations associated with a larger pool of contract dollars.
As we head into the year-end federal purchasing blitz, everybody just got their budgets and they have to spend all of their money by September 30th. These changes give small business contractors important opportunities to get bigger amounts of money in sole sourcing.
In some cases, you can give yourself an advantage by bringing your own customer or prospective customer to the table and setting yourself up to win. But what if you didn’t bring the customer? Is it still worth trying? It depends.
When it comes to multiple-award IDIQ contracts, the more detailed the proposal evaluation criteria and proposal instructions, the better – but only when you’ve worked with the customer to correspond those details to your company’s specific past performance. Otherwise, you could be putting yourself in competition with someone who did. Here are two specific clues that that’s the case:
- Key resumes – the more key resumes that there are, and the more detailed the resume requirements, the faster you should run away. If they’re specifying 10 or more key people and they have extensive requirements for what those key people need to have, you’re never going to win. Even if you were to find matching people, they’re not THE people that the customer wants. They wrote the requirements that way because they want a specific set of people.
- Past performance – similarly, if the proposal criteria include a whole host of technical systems and functions that you’re supposed to have done, it means the customer already has somebody in mind who has all those requirements.
So if you’re deciding whether or not to bid on a proposal for a customer you didn’t bring to the table, measure carefully against these two factors before making your choice.
Something else you might want to avoid when you’re considering potential multiple-award IDIQ proposals are LPTA (“lowest-price technically acceptable”) jobs. Most people who are successful at bidding on LPTA jobs have very, very low indirect rates. It is highly unlikely that you’re going to beat them at their game and still manage to keep your good people and your reputation with those people; and run your business successfully the way you want to run it; with the culture that you want to foster in your business.
At TAPE, we rarely if ever bid on LPTA jobs. The expectation is that you’re going to deliver the same qualified staff at a dramatically lower rate and we just don’t think we can do it, nor do we want do. It’s not the kind of culture we want to run.
So unless you brought the customer to the table and you’re fairly sure you’re the only one who can win, be very careful before choosing to bid on a multiple-award IDIQ task order.