Government Contracts: Advantages for Small Business Concerns

23 February 2017 Dashboard Insights Blog
Authors: Erin L. Toomey

Linda McMahon, former chief executive officer of World Wrestling Entertainment, was confirmed by the Senate on February 14, 2017, to lead the Small Business Administration (SBA).

It’s expected her work will revolve around growing jobs. Whether or not she’s able to body slam that task into submission, it is yet to be seen how the SBA, under her leadership, will attempt to achieve its pre-existing goals.

Moving forward, the U.S. government has a goal to award 23 percent of U.S. government contracts to small business concerns. To assist federal agencies in meeting these statutory small goals, the SBA administers a number of programs to promote contract awards to certain types of small businesses. Collectively, these programs present a significant business opportunity for small businesses in the automotive sector.

What is a Small Business Concern?

Under the Small Business Act, a “small business concern” (SBC) is defined as a business that is “independently owned and operated and which is not dominant in its field of operation.” Under SBA regulations and the Federal Acquisition Regulation (FAR), to qualify as an SBC, a business cannot exceed the small business size standard for the relevant procurement action. The SBA size standards are based on either the company’s number of employees or their annual receipts. Importantly, in these instances, the SBA regulations and the FAR require the contractor to include all domestic and foreign “affiliates” in the calculations.

A number of SBA programs aim to create federal contracting opportunities for specific types of SBCs, including the:

  • 8(a) Business Development Program
  • Veteran-Owned Small Business Program
  • Service-Disabled Veteran-Owned Small Business Program
  • Women-Owned Small Business Program
  • Historically Underutilized Business Zone (HUBZone) Program

Advantages for Small Business Concerns

The FAR requires contracting officers to set aside acquisitions over $150,000 for SBCs when there is a reasonable expectation that at least two offers from SBCs will be obtained and an award will be made at fair market prices. Set-aside contracts and the set-aside portion of partial set-aside contacts include FAR clause 52.219-14, Limitation on Subcontracting. In May 2016, the SBA issued a number of changes to the Limitation on Subcontracting requirements, focusing on the total payments by the government to the prime contractor, as opposed to the cost of contract performance. Further, the revised regulations allow small business prime contractors to count work performed by “similarly situated entities” as work performed by the SBC, by excluding work performed by the similarly situated entity from the meaning of subcontracted work for purposes of determining compliance with the applicable limitation on subcontracting.

The SBA administers a number of different government-sponsored mentor organizations and resource programs including the Mentor-Protégé Program, which aims to develop strong protégé firms through business development assistance provided by a mentor and to help protégé firms successfully compete for federal government contracts. The SBA issued a series of changes to the program in July 2016, transforming it into an all-inclusive mentor-protégé program. Under the new program, large business concern “mentors” will help enhance the capabilities of small business concern “protégés” by providing assistance on several fronts, including management and technical, financial and contracting assistance, and trade education.

Compliance

Compliance with small business subcontracting requirements is essential for both large and small businesses. In addition to affecting a contractor’s eligibility and ability to compete for federal acquisitions, misrepresentations of size status can lead to criminal fraud charges or civil False Claims Act liability for entities that provide such false information. Further, willful misrepresentations of size status are deemed to result in a total loss to the government, and a contractor can be assessed damages in the amount of the total contract award, even if the contract was otherwise fully performed to contract specifications. A small business prime contractor can be subject to significant penalties for failing to comply with FAR clause 52.219-14, Limitation on Subcontracting, in small business set-aside prime contracts, including suspension or debarment from future federal government contracting. As a result, it is critical that both large businesses and SBCs are aware of the SBA’s laws and regulations governing the small business programs referenced herein, and ensure that small business certifications are accurate when submitted, in particular taking into account the SBA’s affiliation rules.

For Additional Information About These Developments and More

Foley’s experienced Automotive Industry Team has prepared a full report, entitled “Top Legal Issues Facing the Automotive Industry in 2017,” that examines the road ahead regarding antitrust, security, labor and employment, M&A, and more. Download it today.

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