Small Business Issues and Programs Archives - Government Contracts Navigator

The SBA’s 8(a) Program—Possible Changes after SFFA and Ultima

When the U.S. Supreme Court struck down affirmative action programs in the college admissions context in late June, it noted that racially conscious government programs must have a “logical end point.” Students for Fair Admissions, Inc. v. Harvard and Students for Fair Admissions v. University of North Carolina (“SFFA”). It has been apparent for some time that the “logical end point” concept could have implications for racially conscious programs in the government contracts context, and indeed it took only three weeks after SFFA for this to manifest in a decision issued by U.S. District Court for the Eastern District of Tennessee, Ultima Servs. Corp. v. U.S. Department of Agriculture. In Ultima, the court relied on reasoning in SFFA to conclude that regulations in the Small Business Administration’s (“SBA”) 8(a) program that establish a rebuttable presumption of social disadvantage to individuals in certain minority groups violate the Fifth Amendment’s Equal Protection rights of individuals who are not members of those minority groups.

SBA’s 8(a) Program

The Small Business Act has been in place for 70 years. Section 8(a) of the Act authorizes the SBA to facilitate increased government contracting opportunities for socially and economically disadvantaged small businesses by working with procurement agencies to set aside certain procurements for 8(a) contractors—contractors who have been accepted into the 8(a) program by virtue of being socially and economically disadvantaged. Contractors who are not in the 8(a) program are ineligible to compete for 8(a) set-aside contracts (although they can participate in such procurements as subcontractors).

Conflicting State and Federal Requirements for Government Contractors . . . Again

Merle M. DeLancey, Jr. ●

In 2021, federal government prime contractors and subcontractors found themselves in a difficult situation with respect to COVID vaccination requirements. More than a dozen states enacted laws prohibiting companies from requiring their employees to be COVID-19 vaccinated or even show proof of COVID-19 vaccination as a condition of employment. At the same time, federal government contracts were subject to mandatory employee vaccination requirements in the FAR and DFARS. (i.e., FAR 52.223-99 Ensuring Adequate COVID-19 Safety Protocols for Federal Contractors (OCT 2021) (DEVIATION) and DFARS 252.223-7999 Ensuring Adequate COVID-19 Safety Protocols for Federal Contractors (Deviation 2021-O0009) (OCT 2021). Luckily, the potential conflict was resolved, on May 9, 2023, when President Biden signed Executive Order (“EO”) 14099, Moving Beyond COVID–19 Vaccination Requirements for Federal Workers, which revoked EO 14042, Ensuring Adequate COVID Safety Protocols for Federal Contractors. EO 14099 directed agencies to rescind any policies that were adopted to implement EO 14042. Thus, the potential conflict between inconsistent federal and state laws concerning COVID-19 vaccinations was mooted.

A new conflict between state and federal procurement requirements may be brewing for federal prime contractors and subcontractors concerning race-based employment preferences and diversity policies after the Supreme Court decision in Students for Fair Admissions v. Harvard and Students for Fair Admissions v. UNC.

Veteran-Owned Small Business Certification Moves from VA to SBA

Merle M. DeLancey, Jr. and Patrick F. Collins ●

Effective January 1, 2023, the certification process for veteran-owned small businesses (“VOSBs”) and service-disabled veteran-owned small businesses (“SDVOSBs”) will be transferred from the Department of Veterans Affairs (“VA”) to the Small Business Administration (“SBA”). Except for implementation transitioning discussed below, to be eligible for sole-source and set-aside acquisitions, VOSBs and SDVOSBs will need to be certified by the SBA.

Previously, VOSB and SDVOSB verifications were made by the VA’s Center for Verification and Evaluation (“CVE”). To be eligible for VA contracts, VOSBs/SDVOSBs had to be verified by the CVE; there was no government-wide certification program, and firms seeking SDVOSB sole-source or set-aside contracts outside the VA only needed to self-certify their status pursuant to Section 36 of the Small Business Act, 15 U.S.C. 657f.

On November 29, 2022, the SBA published a final rule implementing Section 862 of the FY 2021 National Defense Authorization Act (“NDAA”) transferring authority for VOSB/SDVOSB certifications from the VA to the SBA. The final rule consolidates the eligibility requirements for the Veteran Small Business Certification Program, and the SBA is assuming control of VOSB/SDVOSB certification for purposes of nearly all small business federal contracting. SBA also published a Frequently Asked Questions (“FAQ”) page regarding the final rule.

New SBA Rule on Small Business Past Performance Also Has Implications for Large Businesses

Merle M. DeLancey Jr. ●

The U.S. Small Business Administration (“SBA”) recently issued a final rule that creates new opportunities for small businesses to submit relevant past performance, and new requirements for large/other than small prime contractors to provide past performance reviews to first-tier small business subcontractors.

The final rule is intended to help small businesses overcome the hurdle of having minimal past performance to use in competitive procurements. The rule creates new mechanisms to permit small businesses to use the past performance of a joint venture in which it was a member, or to use its performance as a first-tier subcontractor. The new rule takes effect on August 22, 2022.

Report on the State of Competition within the Defense Industrial Base

Brian S. Gocial, Sara N. Gerber, and Tjasse L. Fritz

As the federal government prepares to roll out infrastructure grants and contracts in amounts not seen since the New Deal and the defense industrial base (“DIB”) gears up to support billions in new spending to support Ukraine, a new Department of Defense (“DoD”) report raises serious concerns about the state of competition within the DIB. The report recently released by the Office of the Under Secretary of Defense for Acquisition and Sustainment analyzes the state of competition within the DIB and concluded that it can be summarized in one word: poor. The report discusses the causes for the lack of competition and makes recommendations for improving the solicitation process to increase competition, inspire innovation, reduce prices, and improve quality.

Consolidation

Foremost among the causes for the lack of competition identified by the report is consolidation of the DIB. Of 51 aerospace and defense prime contractors in the 1990s only five exist today. Although the report failed to find significant correlation between this consolidation and increased pricing, the consolidation raises additional concerns for DoD, such as national security, mission risk, and strategic technology innovation. The report notes that “having only a single source or a small number of sources for a defense need can pose mission risk and, particularly in cases where the existing dominant supplier or suppliers are influenced by an adversary nation, pose significant national security risks.” The report recommends that when a merger is likely to harm one of these interests, DoD work closely with the Federal Trade Commission and Department of Justice to take structural or behavioral measures deemed necessary, up to and including blocking the merger.

“Rule of Two” Cheat Sheet

Merle M. DeLancey Jr.

June 2021 marked the five-year anniversary of the Supreme Court’s Kingdomware decision[1], which is best known for broadly interpreting the so-called “Rule of Two” requirement flowing from the Veterans Benefits, Health Care, and Information Technology Act of 2006 (the “VBA”). The Rule has been criticized for delaying Department of Veterans Affairs (“VA”) procurements and increasing the prices the government pays for goods and services. However, the importance of the Rule’s purpose—to prioritize and increase the government’s use of small businesses owned by veterans—cannot be credibly challenged.

Over the past five years, the Federal Circuit, Court of Federal Claims, and Government Accountability Office (“GAO”) protest decisions have created some bright-line rules interpreting the VBA’s Rule of Two. After a brief summary of the Rule of Two, this post lays out these bright-line rules, and concludes with predictions regarding future VBA Rule of Two protests.

Paycheck Protection Program Audits Are Upon Us—Borrowers Prepare!

Merle M. DeLancey Jr., Craig Stetson^*, and Jennifer A. Short

In our last post on this topic, we touched on how the acceptance, use, and forgiveness of Paycheck Protection Program (“PPP”) loans can be viewed in the context of a Defense Contract Audit Agency (“DCAA”) audit. This post focuses on audits and investigations involving PPP loans. Close scrutiny of PPP loans is not a prediction; it is reality. The Small Business Administration (“SBA”) has announced it will audit all PPP loans in excess of two million dollars following a lender’s submission of a borrower’s loan forgiveness application, and it reserves the right to “spot check” any PPP loan of a lesser amount at its discretion. The Department of Justice has already charged multiple individuals with PPP fraud. And this is just the beginning of what many think will be a tidal wave of enforcement activity involving PPP loans.

Overview of the PPP

The PPP is the largest relief measure for small businesses under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The government has made available nearly one trillion dollars in PPP relief funds through four separate funding measures ($349 billion via the CARES Act; $310 billion via the PPP and Health Care Enhancement Act; $284 billion via the Consolidated Appropriations Act of 2021; and $7.25 billion via American Rescue Plan Act of 2021).

The PPP makes available guaranteed SBA loans to small business that meet certain eligibility requirements. In addition, PPP loans can be forgiven fully if used properly to cover specified business expenses such as payroll, rent, utilities, mortgage interest, and other limited uses. As of April 11, 2021, the SBA had approved more than 9.5 million loans totaling more than $755 billion using more than 5,400 lenders.

Pivoting & Positioning Small Businesses for Dynamic (Full & Open) Growth

Dean S. Nordlinger*

Recently, I hosted the second session of Blank Rome’s new on-demand webinar series, “Strategically Speaking,” with featured guests Gilbert Dussek of Gunnison Consulting Group and Kevin Robbins of Blue Delta Capital Partners about the key issues that growing government contracts firms face in their business life cycle as they transform from small to “other-than-small” businesses. You are invited to watch the recording on demand here; I hope you find it helpful and informative.

Dussek has been a successful high-level operator on both large and small govcon platforms and in 2019 became CEO of Gunnison, a leader in software development, data analytics, and enterprise system testing for leading government customers. Robbins has served multiple roles as a consultant to and an owner/investor in govcon companies and is a co-founder of Blue Delta, a growth capital firm focused on the U.S. federal government services marketplace, particularly technology-enabled solutions and services companies.

Our session includes an informative and helpful discussion focused on:

Reviewing Blue Delta’s and Gunnison’s decision to team up:
- Factors that went into Blue Delta’s decision to invest in Gunnison; and
- The driving and differentiating attributes that Blue Delta looks for in “investable” target companies

Strategically growing from an SBSA to full & open govcon company:
- Building, scouting, and acquiring talent; and
- Competitively bidding on and winning, or acquiring, F&O contracts

Identifying and filtering acquisition targets and structuring acquisitions:
- The roles of company culture, chemistry (of personnel), and vision; and
- Sourcing and valuing target companies

Describing Gunnison-Blue Delta’s corporate growth strategy:
- How Blue Delta thinks about portfolio company construction; and
- Gunnison’s near-term and long-term visions and plans

*Dean Nordlinger is a partner in our Corporate practice whose new “Strategically Speaking” webinar series includes discussions with a variety of seasoned professionals and subject matter experts about critical and challenging issues that government contractors and other companies (and business owners) face throughout their life cycle.

Surviving Proposal Weaknesses after Discussions: What Not to Do

Albert B. Krachman

With apologies to Paul Simon, this is another in a series of articles on the 50 ways contractors can lose awards on federal contracts. These cautionary tales should inform anyone in a contractor organization with responsibility for authorizing, preparing, or negotiating competitive federal contract proposals.

Like the inverse of Steven Covey’s Seven Habits of Highly Effective People bestseller, the mistakes that lead to lost awards are well known and include: carelessness, greed, lack of attention to detail, procrastination, and cursory (or omitted) red-team reviews. This article highlights another surefire path to disaster: failing to adequately correct proposal weaknesses after discussions.

This lesson arises out of a clash between BNA and Lexis, legal search titans, over a U.S. Treasury contract. The combatants were seeking award of a contract for electronic research services for IRS staff, described in a GAO Bid Protest decision, LexisNexis, a Division of RELX Inc., B-418885; B-418885.2 (October 8, 2020).

Treasury’s solicitation required that offerors both describe their search solutions in technical proposals, and have a working computing solution, active for government testing. After initial proposal submissions and initial evaluations, the government advised offerors of weaknesses and deficiencies in their proposals and in their computing solutions. Treasury advised Lexis that its proposal suffered from a significant weakness due to Lexis’ computing solution’s return of erroneous search results. Discussions were opened and offerors were permitted to submit final proposal revisions. Offerors were also permitted to correct any deficiencies in their computing solutions before another round of government testing.

COVID Audits and Investigations: The Enforcers

Merle M. DeLancey Jr. and Craig Stetson^*

This is the first in a series of blog posts concerning the audits and investigations related to the contracts and grants awarded, and relief funds provided, in response to the COVID-19 pandemic. As of February 2021, pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which created the Paycheck Protection Program (“PPP”) and supplemental funding such as the Families First Coronavirus Response Act, the United States government has made available an estimated four trillion dollars in relief funds to businesses and individuals, and the Biden administration is proposing roughly two trillion dollars more.

In addition to the relief funds, the Government has easily awarded more than billions in pandemic-related contracts for everything from vaccines to PPE to hand sanitizers. These levels of funding and spending are unprecedented and have been made at breakneck speed (for the government). Based on these factors and lessons from the past, audits of relief recipients and contractors to confirm appropriate use of government funds are inevitable. And the government has said as much. Of course, if an audit reveals potential wrongdoing or malfeasance, relief recipients and contractors should expect follow-on investigations and enforcement activity.

This first post identifies the myriad of entities that are or will be reviewing—and potentially investigating—relief recipient and contractor representations made to obtain, and subsequent use of, government funds.

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