Small Business Committee Meeting With Ken Dodds March 21, 2019 Many thanks to Holland & Knight LLP for hosting
Upcoming Events • Cyber and Supply Chain Security Committee, March 27 • Legislative and Market Dynamics Breakfast Forum, April 2 • VA NAC Industry Day “Member Reception”, April 3 • Spring Healthcare Forum, April 10 • Spring Training Conference, May 16 • Joe Caggiano Memorial Golf Tournament, Aug 21 Slide 2
Guest Speakers: Ken Dodds, Government Contracting Industry Expert at Live Oak Bank (former SBA Director of Policy, Planning and Liaison) Mitchell Bashur, Associate from Holland & Knight LLP
Coalition for Government Procurement Small Business Committee Meeting March 21, 2019
Agenda » The Small Business Runway Extension Act » Regulatory developments ˗ Proposed New Limitations on Subcontracting requirements and accompanying DoD Class Deviation ˗ Proposed New Limitations on Small Business Subcontracting Plan requirements ˗ Proposed rules to remake the HUBZone Program 5
The Small Business Runway Extension Act of 2018 – Small Business Contracting
Small Business Contracting » A powerful tool for helping small businesses compete for and win federal contracts » The government-wide » Methods to Meet Goals statutory goals are as follows: Include: ˗ 23% for all small business ˗ Sole Source Awards classifications; ˗ Set-Aside Contracting ˗ 5% for 8(a) / small ˗ Evaluation Preferences disadvantaged businesses; ˗ Subcontracting ˗ 5% for women-owned small Requirements businesses; ˗ Joint Ventures (exception to ˗ 3% for HUBZone businesses affiliation) ˗ 3% for SDVOSB 7
Small Business Contracting » FY 2017 Small Business Spending Small Business Total Contract Small Business Goal Actual Category Dollars Dollars % % Small Business $442.5 Billion $105.6 Billion 23% 23.87% Small $442.5 Billion $40.2 Billion 5% 9.09% Disadvantaged Business Women-Owned $442.5 Billion $20.9 Billion 5% 4.71% SDVOSB $442.5 Billion $17.9 Billion 3% 4.05% HUBZone $442.5 Billion $7.3 Billion 3% 1.65% 8
Small Business Contracting » All classes of small business must qualify as “small” under the size standard corresponding to the NAICS code identified in the Solicitation ˗ Revenue-based standards (historically a three-year average) ˗ Employee-based standards (twelve-month average) ˗ SBA Affiliation Rules » Offerors Self-Certify as to Size at Time of Proposal ˗ Subject to SBA size protest 9
Key SBA Compliance Issue – Calculating Size » Key SBA compliance issue – calculating size • Size certifications ˗ Know your size! When and how size is calculated o Gross receipts for three* most recently completed financial years for services o Rolling 12 month average # of employees for manufacturing • Representations in SAM.gov – automatically calculated upon entering revenue 10
Small Business Runway Extension Act of 2018
SBREA – FULL Text SECTION 1. SHORT TITLE. This Act may be cited as the “Small Business Runway Extension Act of 2018”. SEC. 2. MODIFICATION TO METHOD FOR PRESCRIBING SIZE STANDARDS FOR BUSINESS CONCERNS. Section 3(a)(2)(C)(ii)(II) of the Small Business Act (15 U.S.C. 632(a)(2)(C)(ii)(II)) is amended by striking “3 years” and inserting “5 years” .
SBREA – Current Legal Status » Is SBREA Immediately Effective? ˗ View of Congress: • The SBREA directly amended the Small Business Act without providing that effectiveness was delayed until rulemaking was completed. • Under established principles of statutory construction, “the omission of an express effective date simply indicates that, absent clear congressional direction, it takes effect on its enactment date .” Johnson v. United States , 529 U.S. 694 (2000).
SBREA – Current Legal Status » Is SBREA Immediately Effective? ˗ Congress intended the SBREA to apply to SBA • “H.R. 6330 lengthens the time in which the Small Business Administration (SBA) measures size through revenue, from the preceding three years.” ( S. R EP . 115-431 at 3-4 the average of the past 3 years to the average of the past 5 years.” ( H.R. R EP . 115-939 at 2) • “The [SBREA] amends the Small Business Act by lengthening the time the SBA measures size through revenue, using the average of the preceding five years instead of)
SBREA – Current Legal Status » Is SBREA Immediately Effective? • Legal Argument: The three- year standard in SBA’s current regulations (13 C.F.R. § 121.104(c)) was invalidated by the conflict with the amended Small Business Act , under well-established principles of administrative law: • “It is well -settled that when a regulation conflicts with a subsequently enacted statute, the statute controls and voids the regulation .” Farrell v. United States , 313 F.3d 1214, 1219 (9th Cir. 2002). • “A regulation, valid when promulgated, becomes invalid upon the enactment of a statute in conflict with the regulation .” Scofield v. Lewis , 251 F.2d 128, 132 (5th Cir. 1958).
SBREA – Current Legal Status » Is SBREA Immediately Effective? ˗ View of SBA: • Three-year average will continue to apply until SBA completes its rulemaking. • Congress did not intend SBREA to apply to SBA because it amended 15 U.S.C. 632(a)(2) (C) rather than 632 (a)(2) (A). • There is no “conflict” with SBA’s regulations because Subsection (C) applies to other Federal agencies with small business size standards, but not SBA .
SBREA – Current Legal Status » Is SBREA Immediately Effective? ˗ 15 USC 165(a)(1)-(2) ˗ (a) Small business concerns ˗ (1) In general ˗ For the purposes of this chapter, a small-business concern, including but not limited to enterprises that are engaged in the business of production of food and fiber, ranching and raising of livestock, aquaculture, and all other farming and agricultural related industries, shall be deemed to be one which is independently owned and operated and which is not dominant in its field of operation.
SBREA – Current Legal Status » Is SBREA Immediately Effective? ˗ 15 USC 165(a)(1)-(2) ˗ (2) Establishment of size standards ˗ (A) In general ˗ In addition to the criteria specified in paragraph (1), the Administrator may specify detailed definitions or standards by which a business concern may be determined to be a small business concern for the purposes of this chapter or any other Act. ˗ (B) Additional criteria ˗ The standards described in paragraph (1) may utilize number of employees, dollar volume of business, net worth, net income, a combination thereof, or other appropriate factors.
SBREA – Current Legal Status » Is SBREA Immediately Effective? ˗ 15 USC 165(a)(1)-(2) ˗ (C) Requirements ˗ Unless specifically authorized by statute, no Federal department or agency may prescribe a size standard for categorizing a business concern as a small business concern, unless such proposed size standard- ˗ (i) is proposed after an opportunity for public notice and comment; ˗ (ii) provides for determining- ˗ (I) the size of a manufacturing concern as measured by the manufacturing concern's average employment based upon employment during each of the manufacturing concern's pay periods for the preceding 12 months;
SBREA – Current Legal Status » Is SBREA Immediately Effective? ˗ 15 USC 165(a)(1)-(2) ˗ (C) Requirements . . . ˗ (ii) provides for determining- . . . ˗ (II) the size of a business concern providing services on the basis of the annual average gross receipts of the business concern over a period of not less than 5 years; ˗ (III) the size of other business concerns on the basis of data over a period of not less than 3 years; or ˗ (IV) other appropriate factors; and ˗ (iii) is approved by the Administrator.
SBREA – Current Legal Status » Is SBREA Immediately Effective? ˗ View of SBA: • Although SBA's position is that the amended section does not apply to it, it understands Congress's intent and is in the process of rulemaking to amend its regulations • This process will likely be through a proposed and final rule process
Impact on Contractors » Impact of SBREA on Contractors with declining revenues • Certain businesses may become large , which was not intended by Congress Business concerns with higher revenues in its 4 th and • 5 th years, which may have been large, but declining recent years resulted in them becoming small, including those more successful previous years could have their average revenues above the size threshold
Possible Legislative Fix
Possible Fix: Clarifying Legislation » To quickly resolve legal uncertainty, one fix is additional legislation that would: ˗ Clarify the SBREA and subsection (C) applies to SBA ˗ Establish a transition period that really does take effect immediately: Starting now and until the end of 2020, contractors can choose either the three-year or the five- year standard, whichever makes them small . ˗ After transition period, move permanently to the five-year standard effective January 1, 2021. ˗ Hearings set by the House Small Business Committee for March 26, 2019
Regulatory developments Limitations on Subcontracting
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