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SBA Issues Final Rule Establishing VOSB & SDVOSB Certification Program

December 2, 2022
SBA ISSUES FINAL RULE ESTABLISHING VOSB & SDVOSB CERTIFICATION PROGRAM

Earlier this week, on November 29, 2022, the U.S. Small Business Administration (SBA) issued a Final Rule establishing its Service-Disabled Veteran-Owned Small Business (SDVOSB) and Veteran-Owned Small Business (VOSB) Certification Program. 
 
Before 2018, VOSB’s and SDVOSB’s were subject to dual regulations and certification rules enforced separately by the SBA and the Department of Veterans Affairs (VA).  To be eligible for VOSB and SDVOSB set-aside contracts with the VA, small businesses had to comply with regulations promulgated by the VA and had to be verified by the VA’s Center for Verification and Evaluation.  For contracts with all other federal agencies, the SBA’s SDVOSB program and the related SBA regulations provided opportunities for businesses to self-certify their SDVOSB status in order to be awarded SDVOSB sole source or set-aside contracts.
 
Subsequently, as we wrote about in a prior article, under the National Defense Authorization Act for Fiscal Year 2017 (NDAA 2017), the SBA took over responsibility for promulgating regulations setting the SDVOSB eligibility requirements for the VA’s certification program.  Consequently, in 2018, the SBA issued a rule (discussed here) that created a uniform regulatory scheme setting the SDVOSB eligibility requirements for both VA procurements under the VA program and non-VA procurements under the SBA’s SDVOSB program. 
 
More recently, the National Defense Authorization Act for Fiscal Year 2021 (NDAA 2021) further streamlined the certification process for VA and non-VA procurements by transferring responsibility for certifications of VOSB’s and SDVOSB’s for purposes of VA procurements from the VA’s Center for Verification and Evaluation to the SBA, as of January 1, 2023.  NDAA 2021 also phased out the self-certification process for purposes of non-VA procurements and, instead, imposed a certification requirement at the SBA for SDVOSB's seeking sole source and set-aside contracts across the Federal Government.  NDAA 2021, however, also created a one-year grace period after January 1, 2023, during which self-certified SDVOSB’s can file an application with the SBA for SDVOSB certification and continue to self-certify.  Thus, after NDAA 2021, the SBA was solely responsible for certifying VOSB’s and SDVOSB’s for VA procurements and SDVOSB’s for non-VA procurements.
 
The SBA’s Final Rule, issued November 29, 2022, now establishes the Veteran Small Business Certification Program in a new 13 CFR Part 128 that sets forth eligibility requirements for VOSB and SDVOSB certification.  Some notable aspects of the Final Rule are provisions stating that:

  • Rights of first refusal that grant a non-qualifying veteran the contractual right to purchase ownership interests of a qualifying veteran will not affect the unconditional nature of ownership if the terms follow normal commercial practices.

  • Companies may continue to self-certify as SDVOSB’s at the subcontract level and for purposes of SDVOSB goaling credit, although the SBA anticipates sunsetting all self-certifications after five years through a separate rule-making.
     
  • A joint venture comprised of a certified VOSB or SDVOSB and other small businesses or an approved mentor does no have to be separately certified as a VOSB or SDVOSB to submit an offer on a VOSB or SDVOSB contract, as long as the joint venture agreement meets other requirements implemented by the Final Rule and as long as the VOSB or SDVOSB is not a joint venture partner on any other joint venture that submits an offer for a VOSB or SDVOSB set-aside contract.
The Final Rule becomes effective on January 23, 2022, and the Amadeo Law Firm anticipates offering a webinar or other guidance on the SBA’s new VOSB/SDVOSB certification program in the near future.
 

DoD Issues Final DFARS Rules On Nondisclosure Agreements, Fixed-Price Contract Preferences, and Contract Pricing

On October 28, 2022, the U.S. Department of Defense (DoD) issued several final rules that made changes to its regulations in the Defense Federal Acquisition Regulation Supplement (DFARS).  In this edition of The GovCon Bulletin,™ we discuss briefly the Final Rules that made changes to regulations addressing nondisclosure agreements, DoD's preference for fixed-price contracts, and considerations of contract pricing by contracting officers.
 
DOD ISSUES FINAL DFARS RULES ON NONDISCLOSURE AGREEMENTS, FIXED-PRICE CONTRACT PREFERENCES, AND CONTRACT PRICING DATA

DoD Rule Prohibiting Certain Nondisclosure Agreements Becomes Final

As we wrote about in a prior GovCon Bulletin, in June 2022, the U.S. Department of Defense (DoD) issued a Proposed Rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) in order to prohibit DoD agencies from making contract awards to entities that request that their employees sign confidentiality agreements that prohibit or restrict them from reporting waste, fraud, or abuse to a designated DoD representative authorized to receive this information.  As we also stated in that GovCon Bulletin, the regulation at Federal Acquisition Regulation (FAR) at 3.909-1, which applies Government-wide, already prohibits the federal government from contracting with entities that require employees or subcontractors to sign confidentiality agreements restricting them from reporting waste, fraud, or abuse to a designated federal agency investigative or law enforcement representative authorized to receive such information.  Consequently, the Proposed Rule imposed no new requirements on DoD agencies.

More recently, on October 28, 2022, DoD issued a Final Rule that implements the DFARS changes of the Proposed Rule without any alteration.

The Final Rule became effective immediately.

DoD Repeals Preference For Fixed-Price Contracts

In another Final Rule that was issued on October 28, 2022, DoD repealed a preference for fixed-price contracts that was implemented into DFARS in November 2019.  Specifically, a rule issued in November 2019 required contracting officers to first consider fixed-price contracts when determining contract type and to obtain approval from the head of the contracting activity for cost-reimbursement contracts in excess of $25 million awarded on or after October 1, 2019.   

The Final Rule issued more recently, which also became effective immediately, removes all language in DFARS that implemented this preference for fixed-price contracts.

DoD Amends Regulations On Contract Pricing 

On October 28, 2022, DoD issued a Final Rule that made certain changes to how contracting officers assess contract pricing. In particular, the rule amends DFARS 215.403-3 to add a provision that prohibits a contracting officer from making a determination of whether the price of a contract or subcontract is fair and reasonable based solely on historical prices paid by the Government.

Addressing questions raised by commenters, DoD explained in the preamble that the Final Rule does not prohibit contracting officers from utilizing prior cost or price analyses; nor does it prohibit contracting officers from using historical prices paid by the Government to determine prices fair and reasonable.  Rather, the Final Rule prohibits contracting officers from determining the price of a contract to be fair and reasonable based solely on historical prices paid by the Government.  The Final Rule makes conforming changes to DFARS 215.404-1 by requiring consideration of contract pricing using multiple factors.

The Final Rule also makes changes concerning a contractor’s failure to comply with requests for pricing data.  Under FAR 15.403-3(a)(4), which applies generally to all contracts including to DoD contracts, an offeror that does not comply with a requirement to submit contract or subcontract data is ineligible for an award unless the head of the contracting activity determines it is in the best interest of the Government to make the award based on certain criteria.  The Final Rule adds a provision in DFARS 215.403-3 reiterating that an award can be made to an offeror that does not make a good faith effort to comply with a reasonable request to submit pricing data if the head of the contracting activity determines it is in the best interest of the Government to make the award. The Final Rule, however, substitutes the criteria under FAR for making this determination with other criteria that DoD presumably believes is more applicable to DoD agencies.

Lastly, the Final Rule amends DFARS 242.1502(g) to add the requirement that, unless exempted by the head of the contracting agency, a notation is required in the Contractor Performance Assessment Reporting System (CPARS) that, despite receiving an award, the contractor has denied multiple requests for submission of pricing data over the preceding three-year period.

This Final Rule also became effective on October 28, 2022.

The SBA’s 2022 Proposed Rule Changes - Part 5: Changes To Rules On Joint Venturer Affiliation And Contract Bids By Joint Venturers

On September 9, 2022, the U.S. Small Business Administration (SBA) issued a Proposed Rule that anticipates changes to a large number of the SBA’s regulations covering its small business programs.  In this edition of The GovCon Bulletin,™ we discuss briefly the Proposed Rule changes that focus on joint ventures - namely, changes that prohibit a joint venturer’s participation in multiple joint ventures that submit offers on the same contract and changes to the rules concerning affiliation among joint venture partners.  Comments to the Proposed Rule are due November 8, 2022.  
October 5, 2022
 
THE SBA'S 2022 PROPOSED RULE CHANGES - PART 5: CHANGES TO RULES ON JOINT VENTURER AFFILIATION AND CONTRACT BIDS BY JOINT VENTURERS

Limitations On Joint Venturer Contract Bids
The Proposed Rule amends the SBA’s 8(a) Business Development program regulation at 13 CFR 124.513, which describes the circumstances in which a joint venture can be awarded an 8(a) contract.  In particular, the Proposed Rule adds a paragraph to the regulation stating that an 8(a) program participant cannot be a joint venture partner on more than one joint venture that submits an offer for a specific 8(a) contract.  
For the sake of consistency, the Proposed Rule also amends the regulations for the SBA’s HUBZone, WOSB, and SDVOSB programs in order to impose a similar prohibition against a program participant being a joint venture partner on more than one joint venture that submits a bid for a HUBZone, WOSB or SDVOSB contract, respectively. 

The SBA also seeks comments on whether the prohibitions should apply only to 8(a), HUBZone, WOSB, and SDVOSB multiple award contracts or whether it should apply to all 8(a), HUBZone, WOSB, and SDVOSB set-aside contracts or orders. 

Changes To Joint Venturer Affiliation Rules
Under the SBA’s rules, when companies are considered to be affiliates of each other, all of their revenues and employee numbers are aggregated for purposes of determining whether any one of them is considered a small business.  In some instances, therefore, a finding of affiliation with another business can cause an otherwise small business to cross over a small business size standard and no longer be eligible for contracts or orders set aside for small businesses. 

The SBA’s regulation under 13 CFR 121.103 sets out the different circumstances in which the SBA will find companies to be affiliated with each other.  One of the circumstances in which companies may be deemed to be affiliated by the SBA is when companies have entered into a joint venture arrangement.  Paragraph (h) of 13 CFR 121.103, titled “Affiliation based on joint ventures,” addresses issues related to affiliation of joint venture partners.  As recently as 2020, 13 CFR 121.103(h) stated plainly that, except for joint ventures comprised of small businesses and joint ventures comprised of protégés and mentors, companies that submit bids as joint venturers “are affiliated” with each other during the performance of any awarded contract.  This explicit acknowledgment of the SBA’s position on joint venturer affiliation was inexplicably removed from the regulation in 2020.  Nevertheless, the text of 13 CFR 121.103(h) suggests that the SBA’s view has not changed.  Indeed, it seems improbable that the SBA would not deem joint venture partners of a joint venture bidding on a small business contract affiliated if, for example, the joint venture included a large business partner that was not a mentor under the SBA’s mentor-protégé program. 

In any event, the Proposed Rule now makes important changes and clarifications to the joint venturer affiliation rules under 13 CFR 121.103(h).

Paragraph (h) Is Broken Out
In its current form, the introductory paragraph to 13 CFR 121.103(h) is long and somewhat disjointed and collects a myriad of rules related to joint ventures into what the SBA believes is an overly complex paragraph.  Consequently, the Proposed Rule breaks up several of the requirements in the introductory paragraph (h) into separate paragraphs. 

Two-Year Restriction On Contract Awards
The Proposed Rule codifies an SBA policy regarding the number of contract awards that can be made to a joint venture.  Currently, under 13 CFR 121.103(h), a joint venture cannot be awarded contracts after the end of a two-year period that starts on the date of the first contract award without the joint venture partners being deemed affiliated, except that a joint venture may be awarded contracts after that two-year period as long as it submitted the offer prior to the end of that two-year period.

Notwithstanding the regulation, the SBA maintained a policy permitting orders under contracts that were awarded during the two-year period to be issued after the two-year period.  The SBA reasoned that the two-year restriction under the regulation is on the award of additional contracts to the joint venture and not on continued performance on contracts that were already awarded.

In language that has been added to 13 CFR 121.103(h), the Proposed Rule now captures this policy on the issuance of orders after the two-year period.

Populated Joint Ventures
The Proposed Rule also clarifies rules on populated and unpopulated joint ventures.  Currently, under 13 CFR 121.103(h), when a joint venture is formed as a separate legal entity, the joint venture may not be populated with its own employees who are intended to perform under contracts awarded to the joint venture.  Although not stated expressly in the regulation, the partners to a joint venture that violates this prohibition presumably are deemed affiliated.

The Proposed Rule now clarifies that the prohibition against populated joint ventures that are organized as separate legal entities only applies in the context of contracts that are set aside or reserved for small businesses (i.e., small business, 8(a), WOSB, HubZone, and SDOSB contracts.)  As the SBA explained in the preamble to the Proposed Rule, the prohibition against populated joint ventures was initially implemented in the joint venturer affiliation regulation in order to permit the SBA and agencies to more easily track work done by joint venture partners to ensure that a lead small business partner actually performs a significant portion of a small business set-aside contract that is awarded to the joint venture.  In the absence of the prohibition, a large business partner could populate a joint venture with its employees and deprive the small business partner of any real benefits from an awarded small business contract.

The Proposed Rule, thus, adds language in paragraph (h) clarifying that a populated joint venture can be awarded a small business set-aside contract when each of the partners to the joint venture is similarly situated - e.g., when all partners of a joint venture targeting a HUBZone contract are certified HUBZone small businesses.

The Proposed Rule adds further language stating that in determining the size of a populated joint venture, the SBA will aggregate the revenues and employees of all the partners to the joint venture.

Ostensible Subcontractor Rule
The Proposed Rule revises the “Ostensible Subcontractor Rule” set forth in what is now re-designated as 13 CFR 121.103(h)(3).  Currently, under the Ostensible Subcontractor Rule, an ostensible subcontractor is either (i) a subcontractor that is not similarly situated with the prime contractor and that performs primary and vital requirements of a contract or of an order, or (ii) a subcontractor upon which the prime contractor is unusually reliant. 

The Proposed Rule amends the regulation to further state that as long as each business is small under the NAICS code assigned to the contract (or the prime contractor is small and the subcontractor is the SBA-approved mentor to the prime contractor), then the ostensible subcontractor arrangement will be considered a small business.

Currently, the regulation at 13 CFR 121.103(h)(3), as re-designated, states that, for purposes of determining the existence of an ostensible subcontractor relationship, all aspects of the relationship between the prime contractor and subcontractor are considered, including the terms of the proposal, agreements between the prime and subcontractor, and whether the subcontractor is the incumbent contractor and is ineligible to submit a proposal because it exceeds the applicable size standard for that solicitation.

As amended by the Proposed Rule, the regulation identifies another area of potential inquiry - namely, whether the prime contractor relies on the subcontractor's experience because it lacks relevance experience of its own.

Lastly, the Proposed Rule clarifies how the Ostensible Subcontractor Rule should apply to general construction contracts.  General construction contracts routinely involve subcontractors with specialized experience in the specialty construction trades, and the primary role of a prime contractor typically is to superintend, manage, and schedule the work, including coordinating the work of various subcontractors.  The SBA recognized that subcontractors often perform the majority of the actual construction work because the prime contractor frequently must engage multiple subcontractors specializing in a variety of trades and disciplines.

Consequently, the Proposed Rule adds a provision stating that in a general construction contract, the primary and vital requirements of the contract are the management and oversight of the project, not the actual construction or specialty trade construction work performed.

Allocation of Receipts of A Populated Joint Venture
The Proposed Rule clarifies how joint venture revenues are to be allocated to joint venture partners when a joint venture hires individuals to perform on a contract - i.e., the joint venture is a populated joint venture.  Currently, the SBA regulation at 13 CFR 121.103(h)(4), as re-designated, generally requires a business to calculate its own business size by including in its receipts its share of receipts from any joint venture that it is a partner in.  Under the SBA’s rules, a joint venture partner’s share of joint venture receipts is the same percentage as the joint venture partner’s share of the work performed by the joint venture.  However, a joint venture partner of a populated joint venture does not perform any percentage of a contract awarded to the joint venture (since the work is performed by employees hired by the populated joint venture.)

Consequently, as amended by the Proposed Rule, re-designated 13 CFR 121.103(h)(4) requires revenues in a populated joint venture to be divided according to the same percentage as the joint venture partner's percentage ownership share in the joint venture.

The SBA’s 2022 Proposed Rule Changes - Part 4: 8(a) Eligibility Of Tribally-Owned And NHO-Owned Businesses

In early September 2022, the U.S. Small Business Administration (SBA) issued a Proposed Rule making a large number of changes to regulations that cover its small business programs. In our last GovCon Bulletin™ article covering the Proposed Rule, we focused on changes that impact sole source awards and set-asides for Tribally-Owned, ANC-Owned, NHO-Owned And CDC-Owned 8(a) Businesses.  In today’s installment, we briefly discuss the last two changes in the Proposed Rule that are focused on Tribally-owned and NHO-owned business - namely, changes to the eligibility requirements for their participation in the SBA’s 8(a) Business Development (8(a) BD) program.  Comments to the Proposed Rule are due November 8, 2022. 
September 29, 2022
 
THE SBA'S 2022 PROPOSED RULE CHANGES - PART 4: 8(A) ELIGIBILITY OF TRIBALLY-OWNED AND NHO-OWNED SMALL BUSINESSES

8(a) BD Program Eligibility Of Tribally-Owned Small Businesses
The SBA’s regulation at 13 CFR 124.109 sets forth several requirements for a Tribally-owned small business to participate and remain eligible for the SBA’s 8(a) BD program.  Among them are requirements in paragraph (c)(1) that the business must be a separate and distinct legal entity organized or chartered by the Tribe, or Federal or state authorities and that the business’ articles of incorporation, partnership agreement or limited liability company articles of organization must contain express sovereign immunity waiver language, or a “sue and be sued” clause which designates United States Federal Courts to be among the courts of competent jurisdiction for all matters relating to SBA's programs.

Under the Proposed Rule, the waiver of sovereign immunity is now required under 13 CFR 124.109(c)(1) only for businesses owned by Federally recognized Indian tribes, since State-recognized tribes are not deemed sovereign and are already subject to suit.  Also, businesses organized under tribal law may not have articles of incorporation, partnership agreements or limited liability company articles of organization, so the Proposed Rule adds language allowing Tribally-owned businesses organized under tribal law to waive sovereign immunity in any similar documents authorized under tribal law.

The SBA’s regulation at 13 CFR 124.109 also currently requires a Tribally-owned business to have reasonable prospects for success in competing in the private sector if admitted to the 8(a) BD program.  A Tribally-owned applicant can establish potential for success by demonstrating that it has been in business for at least two years, as evidenced by income tax returns for each of the two previous tax years showing operating revenues in the primary industry in which the applicant is seeking 8(a) BD certification.

However, not all Tribally-owned businesses file federal income tax returns.  Consequently, the Proposed Rule adds a provision allowing a Tribally-owned applicant to submit financial statements demonstrating that it has been in business for at least two years with operating revenues in the primary industry in which it seeks 8(a) BD certification. 

8(a) BD Program Eligibility Of NHO-Owned Businesses
The SBA’s regulations at 13 CFR 124.110(d) require a Native Hawaiian Organization (NHO) to control a small business 8(a) BD applicant or participant.  The Proposed Rule adds a new paragraph at (d)(3) clarifying that individuals responsible for the management and daily operations of an NHO-owned business can manage up to two 8(a) BD program participants at the same time.  This change aligns the 8(a) BD program eligibility requirements for NHO-owned business with those that apply to small businesses owned by Tribes and Alaska Native Corporations.

The Proposed Rule also adds a new paragraph to 13 CFR 124.110 specifying unconditional ownership requirements for NHO-owned small businesses. Those requirements currently are only a matter of SBA policy.

As amended by the Proposed Rule, the regulation now states that for corporate entities, an NHO must unconditionally own at least 51 percent of the voting stock and at least 51 percent of the aggregate of all classes of stock; for non-corporate entities, an NHO must unconditionally own at least a 51 percent interest.