Jan 21, 2015

SBA Proposes Changes to Limitations on Subcontracting, Nonmanufacturing, and Affiliation Rules

By Barbara Kinosky, Esq. and Mitchell Bashur, Esq.

To welcome in the New Year, SBA has proposed significant changes to small business regulations. These wide ranging changes implement provisions of the National Defense Authorization Act of 2013 related to small business set-asides and subcontracting. SBA is seeking comments on the proposed regulations, which are due by February 27, 2015. Click on the link if you want to post.  https://federalregister.gov/a/2014-29753 .   Here’s our quick read list of areas affected:

  • Change the calculation method for limitations on subcontracting for services and supplies to 50% of the amount paid by the government, instead of the cost of personnel or the cost of manufacturing the supplies. We believe this will be easier for compliance and eliminate the issues with juggling statement of work divisions between primes and subcontractors.
  • Add similarly-situated entity exception for limitations on subcontracting. This means that on small business set asides two or more small businesses can team together on 50% of the work and still subcontract out the balance and be in compliance.   And here is a new acronym – Small Business Teaming Arrangements (SBTA).
  • Exclude certain small business set-asides from limitations on subcontracting and nonmanufacturer rules based on the value of the contract.
  • Add penalties of the greater of $500,000 or the dollar amount spent over the permitted ceilings for businesses that violate the limitations on subcontracting.
  • Change affiliation and ostensible subcontractor rules for joint ventures. First, remove the limitation on the small-business joint venture exception to affiliation that the procurement be bundled or large. Second, create an exception to ostensible subcontractor affiliation for similarly situated entities.
  • Increase actions available to the government if a contractor fails to provide a written corrective action plan after receiving a marginal or unsatisfactory rating for its subcontracting plan performance.
  • Add additional guidance on affiliation rule based on identity of interest.
  • Clarify when recertification of size is required following a merger or acquisition.
  • Clarify that an offeror who that is in line or consideration for award has standing to initiate a size protest, but an offeror found to be non-responsive, technically unacceptable or outside the competitive range does not.
  • Add requirement of notification of nonmanufacturer rule class waivers by contracting officers.
  • Clarify treatment of software for nonmanufacturer rule.

In addition, SBA seeks comments on the following issues without proposing changes:

  • Whether prime contractors should be required to report to the contracting officer concerning meeting the performance of work requirements, and frequency and method of reporting.
  • What is the appropriate timeline for filing a NAICS code appeal and what the effect of a NAICS code appeal should have the solicitation?

Have an insatiable quest for more information? Join us at Annual Review 2015 (http://centrelawgroup.com/annual-review/) to learn more about all the new rules, regulations and cases in 2014 to now.

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