Over the past few weeks, passage of the Small Business Jobs and Credit Act of 2010, creation of a new Women-Owned Small Business Program, and changes to SBA’s small business size standards have expanded the federal contracting opportunities available to current government contractors and companies looking to enter the federal marketplace for the first time. The new legislation and SBA rules will make more companies eligible to qualify and compete for set-aside contracts. However, these changes are not without the cost of additional burdens and compliance requirements, and all contractors— both large and small—should carefully consider how these new rules will impact their businesses.

Annual Certification Requirement

Among the list of annual certifications contractors must make to the government, small businesses must now also recertify their size status on an annual basis. Previously, contractors had to recertify their size status only in the event of a novation agreement, merger, or acquisition, or before the fifth year of a long-term contract. But now small businesses have the additional burden of making an annual certification that comes with the exposure to harsher penalties if the contractor misrepresents its size status, including reimbursement of any government funds not intended for large businesses and potential loss of set-aside eligibility. Therefore, contractors must be absolutely certain that they do in fact qualify as small under the applicable size standard while taking into consideration all the relevant, and oftentimes complicated, affiliation and size determination rules. If the company can no longer certify its small business status, it will remain eligible for work under its existing set-aside contracts, but the government can no longer count any options or orders from that contract toward its small business contracting goals, which might make contracting with such a business less attractive to the government.

No more HUBZone Priority

Contrary to recent bid protest decisions issued by the GAO and the U.S. Court of Federal Claims, the Small Business Jobs and Credit Act eliminates the preference for HUBZone concerns over 8(a) and other small business set-aside programs. As a result, agencies are no longer required to set aside nEW small BUsInEss laWs EXPanD OPPORTUnITIEs FOR small BUsInEssEs anD aDD COmPlIanCE REQUIREmEnTs FOR all GOvERnmEnT COnTRaCTORs contracts for HUBZone contractors before considering other socio-economic programs. This new law will likely present HUBZone concerns with increased competition for contracts while also presenting other small businesses with more opportunities under awards that were previously set aside under the HUBZone program.

The new Women-Owned small Business Program

After 10 years of delay and debate, a new Women- Owned Small Business ("WOSB") Program will give WOSBs equal opportunity to compete for set-asides on par with the other small business programs. On October 7, 2010, the SBA issued a final rule establishing the WOSB Program for small businesses that are at least 51% owned, controlled, and managed by women and that have been underrepresented in the federal contracting marketplace. Beginning February 4, 2011, economically disadvantaged WOSBs and certain other WOSBs will be eligible to compete for set-aside awards under 83 different NAICS codes for manufacturing contracts up to $5 million and nonmanufacturing contracts up to $3 million.

Other Changes for small Businesses

  • Contracting officers will now have the discretion to consider a prime contractor’s failure to make full or timely payments to its subcontractors as a factor in the prime’s performance evaluation. This new rule requires prime contractors that are required to have a small business subcontracting plan to notify the government when they reduce the amount paid to a subcontractor or when payments owed to a subcontractor become more than 90 days past due. This will potentially give subcontractors greater leverage in performance disputes, because the prime can face a negative past performance rating for withholding payment.  
  • Contracting officers will increase their oversight of contractors' compliance with their small business subcontracting plans and will require written explanations whenever a contractor fails to comply with its proposed plan.
  • The SBA will develop a mentor-protégé program for service-disabled veteran-owned small businesses, HUBZones, and WOSBs, similar to the current mentor-protégé program for 8(a) concerns, as well as a pilot program for collaboration among small businesses that want to team together to compete for larger contracts.
  • The number of bundled contracts that have typically been out of reach to small businesses will be reduced by lowering the bundling threshold from $10 million to $2 million.  
  • Once guidance is issued by the Office of Federal Procurement Policy, agencies may soon also start setting aside task and delivery orders placed against multiple-award ID/IQ contracts exclusively for small businesses.

New size standards  

For the first time in over 25 years, the SBA is undertaking a full-scale review of its size standards. As part of this effort, changes to the size standards for the hospitality, food service, retail, and other service industries will mean that approximately 17,000 companies will become eligible to compete for set-aside contracts as small businesses once the changes take effect on November 5, 2010. The size standard for 69 NAICS code listings for these industries will be increased by millions of dollars, and in one case, the size standard for new car dealers (NAICS Code 441110) will be changed from being measured in terms of annual receipts to the number of employees. In all cases, the new size standards will mean that more businesses will qualify as small and be eligible to compete for small business set-asides.