As Sam Finnerty of PilieroMazza recounted in this blog post, in December 2018 the U.S. Small Business Administration (“SBA”) issued a proposed rule to implement several provisions of NDAA 2016 and 2017, as well as the Recovery Improvements for Small Entities After Disaster Act of 2015 (“RISE Act”).
As we all know, there have been many major disasters like the fires in California, and hurricanes that happen every year. In these situations, the Federal Emergency Management Agency (FEMA) has a process in place to have the President declare a national disaster and designate a disaster area. The SBA also has separate size standards for small businesses in a “major disaster or emergency area.”
The SBA’s new provisions are important for small business owners because they provide additional incentives and credits for using local small businesses in response to these disasters. As a point of fact, this rule applies to any contracting within the disaster area, not necessarily a contract associated with disaster recovery.
There are some limitations, for example you need to have your main operating office in the disaster area, plus they want 50% of your revenue generated there and 50% of your employees located there. However, the SBA will consider other factors if your business doesn’t quite meet those standards.
The fundamental issue is that firms within a disaster area now get extra benefit in the form of a small business credit awarded to the government agency issuing the contract. This is obviously good for small business because the more incentives people have to use small business, the better it is for those businesses.
As Sam Finnerty explained on the PilieroMazza blog, “On December 4, 2018, the U.S. Small Business Administration (‘SBA’) issued a proposed rule (‘Rule’) to implement several provisions of the National Defense Authorization Acts (‘NDAA’) of 2016 and 2017 and the Recovery Improvements for Small Entities After Disaster Act of 2015 (‘RISE Act’), as well as other clarifying amendments.”
These changes will likely be implemented in March 2019. We’ll be taking a closer look at several of these, beginning with subcontracting plans. Finnerty writes:
“Consistent with the 2017 NDAA, the Rule states that it shall be a material breach of contract when a contractor or subcontractor fails to comply in good faith with its subcontracting plan requirements, including failing to provide reports and/or cooperate in studies or surveys to determine the extent of compliance. The Rule provides a number of examples of what constitutes a failure to make ‘good faith’ efforts, including, among others, (1) failing to timely submit subcontracting reports and (2) failing to pay small business subcontractors in accordance with the terms of the contract. The Rule also provides that failure to make a good faith effort may be considered in any past performance evaluation of the contractor.
With respect to subcontracting plans, the Rule also requires other than small prime contractors with commercial subcontracting plans to include indirect costs in their subcontracting goals. According to SBA, the burden imposed by this change would be de minimis, as approximately 95% of the firms with commercial subcontracting plans in 2017 already included indirect costs in their subcontracting goals.”
Normally, subcontracting plans are required for large businesses where the RFP requires a certain amount of small business participation. Unfortunately, most small businesses have experienced inconsistencies between what they thought they were going to get from their subcontract and what actually ends up happening.
So NDAA 2016 and 2017 contained changes that were designed to put some teeth into the potential penalties for non-compliance on the part of large businesses. First of all, the rule essentially creates the potential for a contracting officer to find the large business in breach of contract when they fail to comply. That is a much stronger penalty standard than the kind of scolding which was basically all they could do at present.
A few of the things that are required are one, as silly as it sounds, is to not only submit timely formal subcontracting reports, but also to cooperate when the SBA or any small business agency is doing a study or a survey. The second issue is to honor their payment terms with their small business subcontractors, who are highly dependent on their subcontract revenue coming in on time because of loans and other commitments. Too often a large business will withhold payment for some mythical time related to their accounting system that has nothing to do with whether the work had been completed.
The third issue is that subcontracting plans will include not just direct costs but what are called indirect costs. What this does is increase the accounting accountability of these issues.
Stay tuned for our continued look at these important small business issues.
The Small Business Runway Extension Act of 2018 (H.R. 6330), authored by U.S. Senator Ben Cardin (D-Md.), Ranking Member of the U.S. Senate Committee on Small Business & Entrepreneurship, passed on December 6th and has now been signed by the President.
As explained in this press release, this legislation (also know as the “5-year look back”) ensures that small business size standards are calculated using average annual receipts from the previous five years, instead of the previous three. This change will significantly reduce the impact of years wherein businesses experience unexpectedly rapid growth, often causing them to prematurely lose their small business status.
While Tonya pointed out that this bill doesn’t help most mid-tiers, it is an incremental start at addressing some of the problems that a growing firm faces as they begin to grow beyond small.
She also passed along a note of thanks from Barbara Ashe, Executive Vice President of the Montgomery County Chamber of Commerce, who thanked MTA for our support as a Coalition Partner in the Midsize Initiative. Ms. Ashe wrote: “Not only does this legislative change open the door to other initiatives for companies bumping up against small business standards, we also successfully changed the term from ‘mid-tier’ to ‘midsize businesses’ in an effort to clarify the businesses we are seeking to assist.”
On January 24, 2018, a final General Services Acquisition Regulation (GSAR) rule was issued that incorporates order-level materials (OLMs) into the Multiple Award Schedule (MAS) program. On selected schedules, agencies can now acquire not just the products and services they’ve come to rely on from GSA, but also the associated items required to make use of them at the order level.
From GSA: “OLMs are supplies and/or services acquired in direct support of an individual task or delivery order placed against a Schedule contract or BPA. OLM pricing is not established at the Schedule contract or BPA level, but at the order level. Since OLMs are identified and acquired at the order level, the ordering contracting officer (OCO) is responsible for making a fair and reasonable price determination for all OLMs.
OLMs are procured under a special ordering procedure that simplifies the process for acquiring supplies and services necessary to support individual task or delivery orders placed against a Schedule contract or BPA. Using this new procedure, ancillary supplies and services not known at the time of the Schedule award may be included and priced at the order level.”
So what are the new benefits of this policy, and why should you care?
- OLMs increase the flexibility of contracts using the various GSA Schedules, especially the ones that focus on services, to provide a total solution to meet the actual customer requirements.
- OLMs reduce customer agency procurement/administrative costs and makes leveraging GSA Schedules that much easier – of course GSA likes this because they get the order through the MAS, along with any associated fees (the downside is that the company gets OLM “revenue,” which generally is just a pass-through fee, not a profit margin, and therefore is using up revenue).
- Contracting officers are happy because it reduces contract duplication by eliminating the need to set up new commercial IDIQs and/or open market procurements for ODCs (“Other Direct Costs”).
- OLMs potentially eliminate the need for Government Furnished Equipment (GFE), and anything that reduces the burden on the customer/contracting officer to track things is HIGHLY desirable.
- Contracting officers like the fact that MAS terms and conditions apply to OLMs, which ensures customer buys are compliant with FAR and other guidelines.
As a contractor, how do you include OLMs under a Schedule order?
The special ordering procedures are contained in General Services Administration Acquisition Regulation (GSAR) clause 552.538-82 Special Ordering Procedures for the Acquisition of Order-Level Materials, which may be incorporated into contracts under OLM-authorized Schedules. This clause, along with a dedicated Special Item Number (SIN) for Order-Level Materials, allows ordering activities to include OLMs in Schedule orders.
It is important to remember:
- Prices for OLMs are not established in the Schedule contract or BPA.
- OLMs are established and acquired at the order level, and the ordering activity contracting officer is responsible for making the determination that prices for all OLMs are fair and reasonable.
- OLM procedures may be used to purchase OLM products or services to support delivery orders (products) or task orders (services) under authorized GSA Schedules.
- OLMs may be added to any order-type, i.e. Firm Fixed-Price, Time & Materials (T&M), or Labor Hour. However, the OLM CLIN (contract line item number) must be T&M, but it can be the only T&M CLIN on the order. i.e., OLMs may be added to a Firm Fixed-Price order, but the OLM CLIN itself must be T&M.
Current Authorized OLM Schedules
- 00CORP – Professional Services Schedule
- 03FAC – Facilities Maintenance and Management
- 56 – Buildings And Building Materials / Industrial Services and Supplies
- 70 – Information Technology
- 71 – Furniture
- 84 – Security, Fire, & Law Enforcement
- 738X – Human Capital Management and Administrative Support Services
A GSA OLM Ordering Guide is coming soon. In the meantime, check out these resources:
- Training: Understanding Order-Level Materials (OLMs) [PDF – 248 KB]
- Training: Order-Level Materials – Vendor Webinar [PDF – 3 MB]
- Order-Level Materials SIN Description [PDF – 50 KB]
- Summary of Support Item Types for GSA Schedules Program Orders [PDF – 102 KB]
- Order-Level Materials FAQs #1 (April 25, 2018) [PDF – 120 KB]
- Order-Level Materials FAQs # 2 (August 8, 2018) [PDF – 112 KB]
- Download OLM training for federal agency customers and industry partners
This bill, which applies only to the Department of Defense, will amend section 3903 of title 31, United States Code, to establish accelerated payments applicable to contracts with certain small business concerns. This bill would require the government to establish a goal of paying all small business contractors within 15 days of receiving a proper invoice. The bill also establishes a similar goal for government contractors that have small business sub-contractors.
This bill is a win-win-win for small businesses, taxpayers, and the community.
For small businesses: “Small business contractors rely on a consistent and reliable flow of income in order to keep their operations running smoothly. The Accelerated Payments for Small Businesses Act will help ensure these businesses receive their payments in a timely and accountable manner. This consistency will enable businesses to focus on improving their services and expanding production.” – Representative Steve Knight (R-CA)
“The Accelerated Payments for Small Businesses Act [will] ensure that all transactions among small business contractors are treated with the respect and equity they deserve. Making this commitment will yield a tremendous return further incorporating small businesses including those that are women-owned, minority-owned, veteran-owned, and HUBZone contractors.” – Representative Adriano Espaillat (D-NY)
For the taxpayers: “[This bill means that] small business prime contractors and prime contractors that subcontract with small businesses can continue to do business and not pass on any unnecessary costs to the taxpayer” – House Small Business Committee Chairman Steve Chabot (R-OH)
For the community: “For small companies, payment delays can mean cash flow problems, constraining their expansion and slowing job growth. By accelerating payments to small companies, this legislation will help small contractors meet payroll, reinvest in their operations and create good paying jobs along the way.” – House Small Business Committee Ranking Member Nydia Velázquez (D-NY)
It also affects a company having the resources in time to pay subcontractors and even our 1099 consultants and SMEs, increasingly used in this rapidly innovating economy. We’ve talked in other venues about financing options, but anything which reduces the cost of credit and makes payments better, also saves money for the contractor.
The SBIC program is an investment program with a Small Business Administration (SBA) guarantee that increases access to capital for high-growth, start-up businesses.
This provision in the NDAA, H.R. 2364, 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.
The bill will assist small business in obtaining venture capital and private equity (source). Anything we can do to stimulate the flow of more investment from normal capital flows, like banks and chartered SBICs, is definitely a good thing for small businesses. And as you know, that’s the engine of growth that we follow in this blog.
While this may seem a small thing, these SBICs are major players in the growth and financing of small businesses across the country and in “main street” America. And the good news is this is one of those drafted regulations that can be adjusted fairly easily and produce substantial results. Across the board, we’ve actually tripled the funding available for these SBIC entities.
H.R. 2763 – The Small Business Innovation Research and Small Business Technology Transfer Improvements ActsPosted: December 5, 2018
One of the things we’re seeing a lot of in the Federal sector right now is an emphasis on innovation and on finding new ways to do things. So, it’s not surprising that the 2018 NDAA addressed this in part.
This provision in the NDAA 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.
H.R. 2763, the Small Business Innovation Research and Small Business Technology Transfer Improvements Act 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 NDAA also 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.
This is important because the funding now can go to organizations, especially small businesses. This is a new proviso and gives agencies far more flexibility in awarding innovative technologies even a direct Phase II award.
The provision 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.
It also 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.
This provision also calls for greater transparency from the Small Business Administration (SBA) on the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs.
The voters didn’t quite create a blue wave, although the numbers moving from Republican to Democrat have definitely made the House a very blue-ish territory. Of course the Democrats aren’t any more monolithic than the Republicans were, and pressure from the Democratic left wing, especially leading up to a presidential election, may create interesting reading in the Washington, D.C. bubble.
But what will it mean for us as Federal contractors?
One possibility is that we’ll keep on avoiding the “continuing resolutions” – the last two years we’ve had full budgets and this year we got that in before the new FY started, for the first time in a decade. I’m hoping that we can continue down this path, and give the Federal budget makers and the folks who divide it up and authorize spending, the time to get it done.
I don’t know about your company, but mine has been responding to RFIs and RFPs in the 1st FY quarter like the floodgates have opened, and that’s a good thing, because awards will come in time to actually enjoy the spending for most of a full year.
Another possibility is that we’ll return to those continuing resolutions – this will be bad, but not catastrophic, as solid budgets are in place from the past two years that can be used to move forward.
The thing I fear the most is that there will be paralysis, as the two sides don’t really put running the country first, and will allow the budgets to be taken hostage by the political process. This would be a bad thing, and I certainly hope we’re not headed back there.
Happy Thanksgiving, happy holidays, and we’ll see what the New Year brings.
This is a guest post by Matthew Schoonover of SmallGovCon.
As Matthew Schoonover reported in a previous post on this site and at SmallGovCon, the SBA has amended its eligibility rules for SDVOSBs. These rules provide important clarity into SDVOSB eligibility going forward.
He explained how the new rule addresses an ongoing conflict between different standards of control that meant a company could be an SDVOSB under the VA’s regulations, but not the SBA’s.
- The new rule also makes important changes to the ownership requirements for an SDVOSB. Among them:
For partnerships, the new rule says that the service-disabled veteran must unconditionally own at least 51% of the aggregate voting interest (rather than at least 51% of every class of partnership interest);
- The new rule clarifies that the SDVOSB’s service-disabled veteran owners must receive at least 51% of the company’s annual distribution of profits and that the ability to share in profits must be commensurate with the veteran’s ownership interest;
- The new rule doesn’t count stock held by ESOPs in the 51% ownership requirement—but only for a “publicly owned business,” which doesn’t apply to the vast majority of SDVOSBs;
- Community property laws will be disregarded in determining compliance with the 51% ownership requirement, a welcome change for veterans living in certain states, who have long been forced to ask their spouses to sign legal documents disclaiming their community property rights;
- The new rule says that that veterans must be able to overcome any supermajority voting requirements and requires verified SDVOSBs to inform the VA of any new supermajority voting requirements adopted after verification;
- The veteran holding the company’s highest officer position generally must be the highest compensated under the new rule—a requirement that’s existed in the VA regulations for many years, but not the SBA’s old regulations; and
- The new rule essentially adopts the VA’s surviving spouse ownership regulation, which allows the veteran’s spouse to take ownership of the SDVOSB upon the veteran’s passing (if certain requirements are met).
If some of these provisions sound familiar, it’s because many of the “new” SBA rules are similar to, or in some cases essentially identical to, existing VA regulations. For some veterans, who may have hoped that using the SBA’s regulations would eliminate some of the more cumbersome VA requirements, the SBA’s adoption of these requirements may be disappointing.
But all-in-all, these new rules bring important clarity to the SBA’s SDVOSB ownership and control requirements. While we can certainly quibble with some of the substantive requirements, it’s important for everyone to understand exactly what a program like the SDVOSB program allows (and doesn’t allow). The SBA’s SDVOSB regulations have long been rather vague—so vague, in fact, that in some cases the SBA’s own Administrative Judges have resorted to using the 8(a) Program regulations to evaluate certain aspects of SDVOSB compliance. Whether one agrees or disagrees with a particular requirement, it’s better to know that it exists, instead of being caught off guard during a protest, when a contract is at stake.
One thing I didn’t directly see addressed, however, is the SBA’s prohibition on rights of first refusal for the veteran’s ownership interest. It’s possible that the “extraordinary action” of allowing a new equity stakeholder would cover a standard right of first refusal, but it would be best to see how the SBA interprets this rule before jumping to conclusions. As Steve noted in his post earlier this week, SDVOSBs and VOSBs should continue to be leery against including any right of first refusal in their ownership documents.
One final note: as Steve wrote about back in April, SDVOSBs and VOSBs have new protest and appeal rights, which also kick in October 1. Among those rights, if a company’s SDVOSB verification application is denied, or its verified status is cancelled, the company can appeal to the SBA’s Office of Hearings and Appeals.
We’ll keep you posted on the implementation and interpretation of these new regulations. In the interim, please give us a call if you have questions about SDVOSB eligibility.
This article was originally published at http://smallgovcon.com/service-disabled-veteran-owned-small-businesses/new-sba-rule/ and was reprinted with permission.
This is a guest post by Matthew Schoonover of SmallGovCon.
In an earlier post, Steve updated SmallGovCon readers on a very important SDVOSB eligibility change: beginning October 1, the VA will begin using the SBA’s eligibility rules to verify SDVOSBs and VOSBs.
The SBA has now followed suit—in a final rule published September 28, 2018, the SBA has amended its eligibility rules for SDVOSBs. These rules provide important clarity into SDVOSB eligibility going forward.
Let’s take a look at some of the most important changes.
The first change that jumped out at me was the SBA’s new definition of “extraordinary circumstances.” By way of background, SmallGovCon readers know that the VA and the SBA have long had differing standards of control—in some cases, the SBA required that a service-disabled veteran exercise absolute control over the SDVOSB, while the VA recognized that non-veteran owners should have a say over some matters in the business. This conflict meant that a company could be an SDVOSB under the VA’s regulations, but not the SBA’s.
The new SBA rules try to bring consistency to this mess. It should come as no surprise, however, that the new rule specifies that service-disabled veterans must control the company’s “daily business operations,” and defines that term as including, “but not limited to, the marketing, production, sales and administrative functions of the firm, as well as the supervision of the executive team, and the implementation of policies.” But the SBA has included a new provision (at 13 C.F.R. § 125.13(m)) that allows non-service disabled veterans to have a say over certain “extraordinary actions.” The new rules set out five—and only five—of these extraordinary actions:
1. Adding a new equity stakeholder;
2. Dissolution of the company;
3. Sale of the company;
4. The merger of the company; and
5. Company declaring bankruptcy.
Other than in the case of these five actions, the SBA’s rules still require the service-disabled veteran to control the company.
Exercising this control, the new SBA rules require that the service-disabled veteran work at the company during normal business hours. Importantly, however, the SBA has not included a full-time devotion requirement, meaning that, in theory, the veteran can have outside engagements, so long as the veteran is able to control the company’s management and daily business operations. But if the veteran is not able to work at the company during its normal business hours, there is a rebuttable presumption that the veteran is not actually in control.
The SBA would also prefer it if the veteran worked close to the company’s headquarters or jobsites. If the veteran “is not located within a reasonable commute” to the company, there’s a rebuttable presumption that he or she does not control the firm.
Under the new rule, various examples are given of circumstances that may cause the SBA or VA to find that the veteran doesn’t satisfy the unconditional control requirement, including cases where the SDVOSB has business relationships “with non-service-disabled veteran individuals or entities which cause such dependence that the applicant or concern cannot exercise independent business judgment without great economic risk.”