Effective March 10, 2007, the Department of Defense (DoD) Procurement and Acquisition Policy has suspended the use of the price evaluation adjustment for businesses qualifying as a Small Disadvantaged Business (SDB) under the Small Business Administration (SBA) Regulations.

The SBA's SDB program provides benefits in federal procurements for small businesses "owned and controlled by socially and economically disadvantaged individuals." 13 C.F.R. § 124.1001(b). The intent of the program is to assist federal agencies in achieving the government-wide goal of five percent SDB participation in prime contracting. To date, the DoD has granted SDBs a ten percent price evaluation adjustment in acquisitions, pursuant to 10 U.S.C. § 2323(e) and FAR Subpart 19.11. Section 801 of the Fiscal Year 1999 Defense Authorization Act, however, requires DoD to suspend this price evaluation adjustment for a period of one year if DoD achieves its five percent goal for contract awards to SDBs over a fiscal year.

Because DoD exceeded its five percent goal for the fiscal year 2006, it has suspended the SDB price evaluation adjustment. The suspension will be in effect for one year and will apply to solicitations issued from March 10, 2007, to March 9, 2008. DoD will evaluate whether to continue the suspension after March 2008 based upon the amount of DoD contract awards to SDBs achieved for fiscal year 2007.

The impact of the suspension on SDBs is made even more dramatic considering that, effective June 30, 2007, SBA will insert three exceptions to its rule that a concern that qualified as a small business at the time it received a contract is considered a small business throughout the life of that contract, including options. Under the change, a contractor will be required to recertify its small business size: (1) if it has gone through a transaction that required a novation of contract; (2) if it is acquired without the need for a novation; or (3) when performing contracts of a duration of more than five years, prior to the end of the fifth year of the contract and prior to the agency's exercise of any option after that fifth year. Most important, under all three exceptions, if the contractor cannot recertify itself as small, the agency administering the contract can no longer count options or orders issued pursuant to the contract toward its small business goals. Thus, not only will SDBs lose their price evaluation preference with DoD for the next year, but the recertification rules will detrimentally impact how agencies can treat SDBs and, accordingly, the way government contractors will value small businesses they are considering acquiring.