On January 3, 2013, President Obama signed into law the 681-page National Defense Authorization Act for Fiscal Year 2013 ("NDAA"). Fiscal Year 2013 runs from October 1, 2012 through September 30, 2013; however, the impact of many of the provisions will live long beyond those dates. Among NDAA's provisions are a number that pertain to federal contracting. They are not limited to military contracts. Smith Currie finds two areas of immediate and prominent interest: (1) small business programs and (2) geographical military authorizations. Below is a brief description of certain small business related sections of the NDAA and how each might impact contractors doing business with the federal government as well as a list of authorizations by state.


  • Section 1631; Small business contracting goals: 23% of all prime contracts are to go to small business concerns; program specific goals are as follows: SDVO SBC—3%, HUBZone —3%, Disadvantaged businesses —5'/o, Women owned businesses —5%.

There was no change to 25% as proposed earlier. Breaking down the goals to address specific programs leads to further "Balkanization" of small business programs and complicates subcontract award and reporting requirements and further administratively burdens the government and contractors. Studies by the Government Accountability Office and others have noted that the programs are duplicative.

  • Section 1641; Mentor-Protege programs: authorizes the SBA to establish a mentor-protege program for all small business concerns; the program is to be modeled after the 8(a) mentor-protege program; the SBA is to issue regulations related to the mentor-protege program within 270 days (that is, in early October 2013); based on past history, that deadline will likely be missed.

The 8(a) mentor-protege program has been the "gold standard" for avoiding "affiliation concerns." See 13 CFR 121.103,"How does SBA determine affiliation?" There is no indication in the statute whether the affiliation exception enjoyed by 8(a) mentor-protege participants will be extended to other programs. As the new regulations are proposed for comment, Smith Currie will monitor the status of the affiliation rules and the impact on federal contractors.

The proposed regulations are intended to create a standard structure across all civilian agencies (DoD is excluded; however, the DoD mentor-protege program created under an earlier DoD Authorization Act continues). The proposed regulations are intended to address:

  • Eligibility criteria for participants, such as the number of mentorprotege relationships one company can have;
  • Types of assistance mentors can provide;
  • Whether any assistance may affect a small company's size status due to the affiliation (the "gold standard" mentioned above);
  • Length of a mentor-protege relationship;
  • Effects of the relationship on contracting;
  • Benefits a mentor may get from the relationship;
  • Reporting requirements while a company is in the program;
  • Reporting requirements after participation ends;
  • Acceptance of a mentor-protege pair under all similar federal program;
  • How to ensure proteges benefit and are protected against a mentor that affects a size status or that yield more economic benefits for the mentor than the protege.
  • Section 1651;Limitations on subcontracting: under a contract set aside for small contractors performing non-construction services, a small business cannot subcontract ("may not expend on subcontractors") more than 50 % of the amount paid to the small business concern; for supply contracts (other than "regular dealer,"), the small business may not spend more than 50% of the contract amount, less the cost of materials.

Construction contracts are going to be treated separately. The SBA will issue additional regulations as specified in the NDAA. The SBA sometimes seems not to understand the construction industry and how it is organized (more subcontracting at more levels (or tiers) than most government contracts) and the regulations can be tricky. For example, the earlier regulations address the "cost" of the contract, which would not include profit. The new rules recite the amount paid to the small business contractor, which is the price, not the cost.

  • Section 1652; Penalties: violations of the limitations on subcontracting provisions will incur a fine of either $500,000 or the dollar amount in excess of the limit expended on subcontractors; the greater fine will be applied.
  • Section 1653 will require prime contractors to notify subcontractors that are listed as potential subcontractors in any bid or proposal. It will also establish a reporting mechanism for subcontractors to report fraud or bad faith connected to a subcontracting plan.
  • Section 1681;Increased Penalties for Fraud: limits the liability of a small business that has relied in good faith upon a written advisory opinion from a Small Business Development Center; requires SBA within 270 days to issue a new Small Business Compliance Guide to assist business concerns in determining their status.

The statute imposes no obligation on the SBA to issue such advisory opinions. Smith Currie predicts that the Compliance Guide will, for the most part, merely repeat the statutory and regulatory language.


  • Sections 2101, 2201, 2301 and 2401 of the NDAA include authorizations for a wide range DoD and DoD-related construction and land acquisition projects. While these numbers can be used as an indication of possible upcoming projects, Congress must still appropriate the funds for a specific project in a separate bill before any solicitation can be issued.

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