A Key New Provision on Subcontracting in the 2013 NDAA |

February 13, 2013

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The new 2013 National Defense Authorization Act (NDAA) will direct agencies to hold relevant senior executives accountable for meeting small-business goals. For example, it will elevate the reporting of the Director of the OSDBU within each agency by requiring direct reporting to the head of the agency.

With its many provisions, the new 2013 NDAA will increase transparency and accountability to ensure small-business contracts are actually benefitting those small businesses for which the contracts are set-aside.

One way Congress is attempting to do that is with major changes to the limitations on subcontracting rules for small business government contractors.

The new NDAA contains an important change to the way small businesses can qualify for set-aside contracts when they are teaming with large businesses.

It used to be that small businesses had to do 50% of the labor (personnel costs) on any contract that was designated as set-aside for small business set-aside. This new act makes it 50% of the total cost of the job. The total costs could obviously include a significant amount of other costs (supplies, etc.). That makes a big difference.

Small businesses will now need to break down their own costs (and those of their subcontractors) to determine which costs are personnel-related and which are not – a process that is very difficult when the sub does not share its cost breakdown.

For example, let’s say I’m paving a parking lot and I want to sub out the work to a big paving company. So part of my costs will be the actual paving materials. I can sub that work out and under the old deal the cost of that pavement wouldn’t count under the portion I had to do myself as the small business.

Under the new deal, though, it does count. If the cost of the stuff plus the personnel costs of the sub ends up being 75% of the total work, leaving my small business doing only 25%, that will no longer be in compliance with the set-aside regulations.

This limits the amount of work small businesses can sub out while still being compliant to the regulations for qualifying for the set-aside status. Some small businesses may not like this change, and not being able to exclude these other direct costs (ODCs) from their sub’s compliance numbers.

This does, interestingly, mean that many small businesses will have to perform more prime contract work. Likely, this is what was intended, that at least 50% of the amount paid by the government on set-aside contracts go to small businesses.

SBA Issues and Legislative Initiatives

The All-Small Mentor-Protégé Program

SBA had a well-established mentor-protégé program (MPP) for SBA 8(a) certified firms but lacked an MPP program for other small business concerns and specifically, one for specialized certified concerns such as WOSB, EDWOSB, SDVOSB, & HubZone. The 2010 Jobs Act and 2013 NDAA gave SBA the authorization to address this by establishing an all-encompassing mentor-protégé program. Ms. Sandi Clifford, deputy director of the All Small Mentor-Protégé Program (ASMPP), visited the Mid-Tier Advocacy (MTA) earlier this year to discuss the program. Here are some of the highlights of this candid and informative discussion: As Ms. Clifford explained, mentor services to protégés include: • Management and technical assistance (internal business management systems) • Financial assistance (in the form of equity investments and/or loans) • Contracting assistance (contracting processes, capabilities acquisitions and performance) • International trade education (learn how to export, international trade business plan, finding markets) • Business development assistance (strategy, finding contracting and partnership opportunities) • General and/or administrative assistance (business processes and support) As administrators of the program, SBA provides: • Central HQ as opposed to 8(a) distributive model • Online application – certify.sba.gov • Online course tutorial requirement • Annual review and evaluation • Template agreements, i.e., MPA (Mentor-Protégé Agreement) Other All-Small Mentor-Protégé Program (ASMPP) details: • A protégé may generally only have one mentor at a time; SBA may approve a second (two is the maximum) where no competition exists, or if the protégé registers under a new NAICS or otherwise requires new mentor skills. • Both protégé and mentor must be for-profit (with exception of protégé being an agriculture cooperative). • A mentor may have no more than three protégés at same time (no lifetime limit). • A participant can be both a protégé and mentor at the same time, if there is no competition or conflict. • The ASMPP is self-certifying and is open to businesses who qualify as small in their primary NAICS code, or who are seeking business development assistance in a secondary NAICs where they also qualify as small. • SBA will not authorize MPAs in second NAICS in which firm has never performed any work; or where firm would only bring “small” status to Mentor and nothing else. • Existing 8(a) firms in last 6 months of the 8(a) program may transfer their MPA to the ASMPP via the online application process. Coordinate with 8(a) office to fine tune the process but there is no reapplication required. • Application requirements include upload of business plan, but no financial statements or tax returns. • JV agreements: ASMPP will not review and approve joint venture agreements. How to apply for the ASMPP: • Applicants are required to register in the System for Award Management (SAM) prior to submitting their mentor/protégé application. • Complete your business profile in certify.SBA.gov. • Evaluate and select your mentor prior to applying. This is not a matching program. SBA will not find a mentor for you. • Begin the ASMPP application process. • Protégés and mentors must complete the online tutorial and have their certificate of completion and all other required documents ready for upload Thank you to Sandi Clifford, Deputy Director, All Small Mentor-Protégé Program, for this helpful overview. TAPE has mentored several small businesses over it’s life as a large business (we’re large in some NAICS codes, though still small in others) and it has been gratifying, satisfying, and integral to our success. As protégés ourselves, we have benefitted from working with some really classy large businesses, and have also had the experience of being a protégé and really getting no tangible benefits. We are currently working with two small businesses, and negotiating ASMPP agreements. You can learn more about the ASMPP on the SBA site. To join MTA and attend future events like this one, please visit www.midtier.org.

Bill Jaffe

August 23, 2017