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SBA Adjusts Small Business Size Standards For Inflation

July 23, 2019
SBA ADJUSTS SMALL BUSINESS SIZE STANDARDS FOR INFLATION 

Late last week, on July 18, 2019, the U.S. Small Business Administration (SBA) issued an Interim Final Rule that adjusts small business size standards, effective August 19, 2019. Small business size standards, which are typically expressed as either the number of employees in a business or the average annual receipts of a business, represent the largest size that a business may be in order to be classified as a small business for SBA and federal contracting programs and preferences.

The SBA periodically conducts a review of small business size standards and makes adjustments for two reasons: because of changes in industry structure and federal market conditions and because of inflation. The SBA’s last inflation adjustment was in 2014, and in the preamble to its Interim Final Rule, the SBA indicated that with this latest inflation adjustment behind it, the SBA intended to turn its attention in the near future to industry and federal market conditions to determine if further adjustments are needed.

As for the latest inflation adjustments, the SBA explained that a number of businesses may have lost their small business eligibility solely because of inflation-related revenue growth since the 2014 inflation adjustment. Consequently, the SBA’s Interim Final Rule raises the receipts-based size standards for 518 industries and 9 subindustries, as well as the asset-based size standards for 5 industries.

The SBA’s methodology, which is explained in the Interim Final Rule’s preamble, culminates in the following inflation adjustments:

  • All receipts-based size standards (excluding the $750,000 agricultural size standard) are increased by multiplying their current levels by 1.0837 and rounding to the nearest $500,000.
  • The current size standard of $750,000 for 46 agricultural industries is multiplied by 1.4026 to arrive at a non-rounded size standard of $1.05 million, which is rounded down to $1.0 million.
  • The asset-based size standard for 5 finance and insurance industries of $550 million is multiplied by 1.0837 to arrive at $596 million, which is rounded to $600 million.

The full list of new small business size standards can be found in the Interm Final Rule. For example, the size standard for industries under NAICS code 541511 (Custom Computer Programming Services) and 541512 (Computer Systems Design Services) is now $30.0 million. And the new small business size standard for each of the industries under NAICS Subsector 236 (Construction of Buildings) is now $39.5 million.

In publishing the latest inflation adjustment as an Interim Final Rule, the SBA chose to forgo the typical process of publishing a proposed rule for public comment before issuing a final rule. In the SBA’s view, a number of businesses have lost small business eligibility since the last inflation adjustment and any delay in implementation of the inflation-adjusted size standard could cause significant harm to those businesses as well as the businesses that are expected to exceed the current size standards because of inflation-driven revenue growth. Comments to the Interim Final Rule must be received on or before September 16, 2019. 

To download a copy of the Interim Final Rule go here, and to read other articles from The GovCon Bulletin™ go here.

New Rule On Task-Order And Delivery-Order Ombudsman – What’s That You Say?

November 5, 2018
NEW RULE ON TASK-ORDER AND DELIVERY-ORDER OMBUDSMAN - WHAT'S THAT YOU SAY? 

On November 1, 2018, the Department of Defense, General Services Administration, and the National Aeronautics and Space Administration published a proposed rule that requires a federal agency to use a standard notice to inform contractors about the agency's task-order and delivery-order ombudsman.

Specifically, the proposed rule amends FAR 16.506 to require agencies to insert a newly created FAR clause under FAR 52.216 in solicitations and contracts that contemplate multiple award indefinite-delivery, indefinite-quantity (IDIQ) contracts.  The new FAR clause, in turn, identifies the name, address, phone number and e-mail address for the agency ombudsman or provides a link where the information can be found.  The clause also encourages contractors to address complaints with the contracting officer before contacting the ombudsman and warns that consulting with an ombudsman will not alter or postpone protest deadlines.

A contractor new to federal government contracting may be asking who or what a task-order and delivery-order ombudsman is.  The rules for IDIQ’s under FAR 16.505 require federal agencies to designate a task-order and delivery-order ombudsman who must “review complaints from contractors and ensure that they are afforded a fair opportunity to be considered, consistent with the procedures in the contract.”

So understanding clearly who the ombudsman is and how to contact him or her is important, particularly since the rules limit protests of IDIQ task and delivery orders.  FAR 16.505 sets forth only two circumstances in which protests of orders under delivery-order contracts or task-order contracts are permitted:

(1) If the protest is on the grounds that the order increases the scope, period, or maximum value of the underlying contract; or

(2) If the value of the order exceeds a minimum threshold – namely, $25 million for contracts with NASA, DoD and the Coast Guard, and $10 million for contracts with all other agencies.

What’s more, protests permitted under the second circumstance – i.e. that are permitted because the task order exceeds minimum threshold values – can only be filed with GAO.  Agency level protests and protests filed with the Court of Federal Claims are, therefore, precluded.

Consequently, in instances in which protests are not permitted, the only avenue that may be open to a contractor that has a complaint about a task or delivery order is review by the agency task-order and delivery-order ombudsman. 

To download a copy of the proposed rule go here, and to read other articles from The GovCon Bulletin™ go here.

SBA Issues Final Uniform Rule On SDVOSB Ownership And Control

October 5, 2018
SBA ISSUES FINAL UNIFORM RULE ON SDVOSB OWNERSHIP AND CONTROL  

As we wrote about here, earlier this year the U.S. Small Business Administration (SBA) proposed a regulation implementing the mandate under the National Defense Authorization Act for Fiscal Year 2017 (NDAA 2017) giving the SBA exclusive responsibility for formulating a uniform definition of a “small business concern owned and controlled by service-disabled veterans” to be used for procurements set aside for service-disabled veteran-owned small businesses (SDVOSB’s) both by the Veteran’s Administration (VA) and by non-VA federal agencies.  Late last week, the SBA issued its final rule and in creating a uniform regulatory scheme for VA and non-VA procurements the final rule, summarized below, tracks the SBA’s earlier proposed rule with few changes.

Definitions and Ownership Requirements

The final rule makes changes to SBA regulations under 13 CFR 125.11, by adding definitions for terms taken from the SBA’s 8(a) Business Development program that now also govern SDVOSB’s like Daily Business Operations, Negative Control, Participant, and Unconditional Ownership.

In addition, as amended by the final rule, 13 CFR 125.11 requires a “small business concern owned and controlled by service-disabled veterans” to be a “small business concern,” which is defined as a “concern” that, with its affiliates, meets the applicable NAICS code size standard for its primary industry under part 121 of the SBA regulations.  As reiterated in the final rule’s preamble, as a “concern” under part 121, the small business must meet the requirements under 13 CFR 121.105(a)(1) that the firm be “for profit,” with a place of business located in the United States, and which operates primarily within the United States or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.

The final rule also adds a definition for “extraordinary circumstances,” which sets forth five circumstances under which a service disabled veteran (SDV) would not have full control over a firm's decision-making process, but nevertheless would not cause a firm to be ineligible.

The final rule’s definition of “small business concern owned and controlled by service-disabled veterans” includes small business concerns (i) that are not less than 51% owned by one or more SDV's or, in the case of any publicly-owned business, that not less than 51% of the stock (not including any stock owned by an ESOP) of which is owned by one or more SDV's; and (ii) the management and daily business operations of which are controlled by one or more SDV's or, in the case of a veteran with permanent and severe disability, the spouse or permanent caregiver of such veteran.

As required by NDAA 2017, the final rule’s definition for “small business concern owned and controlled by service-disabled veterans” also includes a new category for small business concerns that are at least 51% owned by one or more SDV's that have a disability rated by the VA as a permanent and total disability and who are unable to manage the daily operations of the business.  Alternatively, in the case of a publicly-owned business, ownership by such SDV’s must be of not less than 51% of the company's stock (not including stock owned by an ESOP).

Unconditionally and Directly Owned

The final rule makes several changes to 13 CFR 125.12, which explains that a SDVOB must be least 51% unconditionally and directly owned by one or more SDV. In the case of a partnership, the final rule requires one or more SDV’s to unconditionally own at least 51% of the “aggregate voting interest” of the partnership rather than of every class of partnership interest. In the case of corporations that are publicly owned, the final rule excludes stock owned by an ESOP.

Dividends and Distributions

The final rule includes minimum dividend and distribution requirements that are intended to ensure SDV owners actually receive the benefits and value that typically accompany majority equity ownership.  Specifically, as amended by the final rule, 13 CFR 125.12 requires SDV owners of partnerships, corporations and limited liability companies to receive at least 51% of the annual distribution of profits, 100% of the value of any stock or member interest that is sold, and at least 51% of retained earnings and 100% of unencumbered value of stock or member interest in the event of dissolution.

Ownership by Surviving Spouses

In addition to requiring ownership to be subject to community property laws, the final rule opens up ownership to a third category of owners – namely surviving spouses.  Specifically, as amended by the final rule, 13 CFR 125.12 states that a small business concern owned and controlled by an SDV continues to qualify as such a concern upon the death of an SDV as long as (i) the surviving spouse of the deceased veteran acquires such veteran's ownership interest in such concern; (ii) the veteran had a service-connected disability rated as 100 percent disabling by the VA or such veteran died as a result of a service-connected disability; and (iii) immediately prior to the death of such veteran and during the period it is otherwise an SDVOSB the small business concern is included in the VA’s VetBiz database.

A surviving spouse can continue to operate the SDVOSB until the tenth anniversary of the veteran’s death, the date he or she remarries, or the date he or she relinquishes ownership, whichever comes first.

SDVOSB Control

The final rule amends the SBA rules under 13 CFR 125.13 concerning control over an SDVOSB.  For example, provisions under 13 CFR 125.13(e) describe circumstances under which SDV’s will be deemed to control the Board of Directors of a corporation, including when super majority voting requirements are in place.

Several of the other changes to 13 CFR 125.13 are intended to clarify the role that non-SDV owners can take without effecting SDVOSB eligibility.  However, as amended, 13 CFR 125.13 begins with the proposition that non-SDV’s may not control the business and then sets forth seven circumstances in which there will be a rebuttable presumption that a non-SDV controls or has the power to control a firm.

The final rule also adds rebuttable presumptions on the control of a business with regard to business hours worked and proximity to the business locations.  Specifically, 13 CFR 125.13 states that there is a rebuttable presumption that an SDV does not control a business if he or she is not able to work for the firm during normal business hours.  In addition, there is a rebuttable presumption that an SDV does not control a business if he or she is not located within a reasonable commute to a firm’s headquarters or job locations.  Under these circumstances, an SDV’s ability to communicate by phone, e-mail, or other technological means while delegating responsibility for managing the business to others will not in itself constitute a reasonable rebuttal. 

To download a copy of the final rule go here, and to read other articles from The GovCon Bulletin™ go here.

SBA Proposes Changes to SDVOSB Ownership and Control Rules

February 2, 2018
SBA PROPOSES CHANGES TO SDVOSB OWNERSHIP AND CONTROL RULES 

Earlier this week, on January 29, 2018, the U.S. Small Business Administration (SBA) published a Proposed Rule addressing ownership and control of Service-Disabled Veteran-Owned Businesses (SDVOSB’s). The Proposed Rule follows through on changes to the ownership requirements under the Department of Veterans Affairs (VA’s) programs that were anticipated by the SBA in its last semiannual Regulatory Agenda and that are mandated by NDAA 2017.  As we explained in our prior Bulletin covering the semiannual Regulatory Agenda (here), NDAA 2017 vested the SBA with responsibility for formulating one uniform definition of a “small business concern owned and controlled by service-disabled veterans” to be used for SDVOSB procurements by both the VA and by non-VA agencies.  NDAA 2017 also indicated that the definition should encompass certain categories of small businesses owned and controlled by service-disabled veterans (SDV’s).

SDVOSB Ownership

The Proposed Rule implements several of the NDAA 2017 requirements on ownership of an SDVOSB by making changes to the SBA regulation under 13 CFR 125.11, which sets out important definitions. 

U.S. Small Businesses

As an initial matter, as amended by the Proposed Rule, 13 CFR 125.11 requires a “small business concern owned and controlled by service-disabled veterans” to be a “small business concern,” and now defines “small business concern” to be a “concern” that, with its affiliates, meets the applicable NAICS code size standard for its primary industry under part 121 of the SBA regulations.  As the SBA stated in the preamble to the Proposed Rule, small businesses, therefore, must meet all of the requirements under part 121, including the requirement under 13 CFR 121.105(a)(1) that the firm be “for profit,” with a place of business located in the United States, and which operates primarily within the United States or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.

Owned By SDV and Managed By SDV or Spouse (if SDV Permanently and Severely Disabled)

As required by NDAA 2017, the Proposed Rule’s definition of “small business concern owned and controlled by service-disabled veterans” retains, with one modification discussed below, the following category of small business concerns under the current rule: small business concerns (i) that are not less than 51% owned by one or more SDV's or, in the case of any publicly-owned business, that not less than 51% of the stock of which is owned by one or more SDV's; and (ii) the management and daily business operations of which are controlled by one or more SDV's or, in the case of a veteran with permanent and severe disability, the spouse or permanent caregiver of such veteran.

In the case of publicly-owned businesses, however, the Proposed Rule now excludes stock owned by an ESOP, which is also now a defined term.  The Proposed Rule now also includes a definition for "daily business operations."

Owned By SDV Who Is Rated By The VA Permanently and Totally Disabled

As required by NDAA 2017, the Proposed Rule’s definition for “small business concern owned and controlled by service-disabled veterans” includes a new category for small business concerns that are at least 51% owned by one or more SDV's that have a disability rated by the VA as a permanent and total disability and who are unable to manage the daily operations of the business.  Alternatively, in the case of a publicly-owned business, ownership must be of not less than 51% of the company's stock (not including stock owned by an ESOP).

Unconditionally and Directly Owned

The Proposed Rule makes several changes impacting the rule under 13 CFR 125.12 for determining when a small business concern is at least 51% unconditionally and directly owned by one or more SDV.

In the case of a partnership, the current rule requires unconditional ownership of at least 51% of "every class of partnership interest."  Where a partnership includes general and limited partners, therefore, SDV’s currently are required to be both general and limited partners.  The Proposed Rule, however, requires one or more SDV’s to unconditionally own at least 51% of the “aggregate voting interest” of the partnership rather than of every class of partnership interest.

In the case of corporations that are publicly owned, the Proposed Rule excludes stock owned by an ESOP. 

The Proposed Rule also includes minimum dividend and distribution requirements that are intended to ensure SDV owners actually receive the benefits and value that typically accompany majority equity ownership.  As amended by the Proposed Rule, 13 CFR 125.12 requires SDV owners of partnerships, corporations and limited liability companies to receive at least 51% of the annual distribution of profits, 100% of the value of any stock or member interest that is sold, and at least 51% of retained earnings and 100% of unencumbered value of stock or member interest in the event of dissolution.

Lastly, in addition to requiring ownership to be subject to community property laws, the Proposed Rule opens up ownership to a third category of owners – namely surviving spouses. Specifically, 13 CFR 125.12 adds a provision stating that a small business concern owned and controlled by an SDV continues to qualify as such a concern upon the death of an SDV as long as (i) the surviving spouse of the deceased veteran acquires such veteran's ownership interest in such concern; (ii) the veteran had a service-connected disability rated as 100 percent disabling by the VA or such veteran died as a result of a service-connected disability; and (iii) immediately prior to the death of such veteran and during the period it is otherwise an SDVOSB the small business concern is included in the VA’s VetBiz database.

A surviving spouse can continue to operate the SDVOSB until the tenth anniversary of the veteran’s death, the date he or she remarries, or the date he or she relinquishes ownership, whichever comes first.

SDVOSB Control

In addition to amending ownership rules, the Proposed Rule amends the SBA rules under 13 CFR 125.13 concerning control over an SDVOSB. The changes are intended, in part, to clarify the role that non-SDV owners can take without diluting SDV control.

The Proposed Rule adds new provisions relating to control over the Board of Directors of a corporation.  For example, in instances in which a super majority voting requirement exists for shareholders to approve corporation actions, the SDV or SDV’s must own at least the percent of voting stock necessary to overcome the super majority requirement.

The Proposed Rule also states that unexercised rights to change control or management of a business do not, in themselves, constitute control and management regardless of how quickly or easily the rights can be exercised.

The Proposed Rule also adds rebuttable presumptions on the control of a business with regard to business hours worked and proximity to the business locations.  Specifically, the Proposed Rule states that there is a rebuttable presumption that an SDV does not control a business if he or she is not able to work for the firm during normal business hours.  In addition, there is a rebuttable presumption that an SDV does not control a business if he or she is not located within a reasonable commute to a firm’s headquarters or job locations.  An SDV’s ability to communicate by phone, e-mail, or other technological means while delegating responsibility for managing the business to others will not in itself constitute a reasonable rebuttal.

To download a copy of the Proposed Rule go here, and to read other articles from The GovCon Bulletin™ go here.