Small Business Contracting Updates Suggest Heightened Buyer Scrutiny
The Small Business Association (“SBA”) continually revaluates size and status requirements in order to allow small business owners to remain competitive in the government contracting marketplace. For small businesses required to recertify at the turn of the year, these changes could potentially have a significant impact on which opportunities a company is allowed to submit a proposal.
The SBA’s new “Presumption of Loss Rule,” effective August 2013, enforces new provisions that are designed to target firms that misrepresent themselves. Under this rule, presumption of loss is defined as equal to the total amount paid under a contract obtained by misrepresentation. This new provision grants a “presumption of loss to the government based on the total amount expended” on an opportunity when it is deemed a company “willfully sought and received the award by misrepresentation.” To prevent this, firms will be expected to recertify their size status each time they submit a proposal, offer, or bid in the System for Award Management (“SAM”) database; however, at minimum, companies must reconfirm their size standards annually to avoid being removed from any size listings within SAM.
Additionally, the SBA has modified limitations on the use of subcontractors for small business and Service-Disabled Veteran-Owned Small Businesses (“SDVOSB”) set-asides. Under the new limitations, price is used as the standard of measurement, rather than cost. These new provisions state that service companies, excluding construction services, may not expend more than 50% of the amount paid under the contract to subcontractors. The same holds for supplies; the small business may not spend more than 50%, less the cost of materials, on supplies from subcontractors. These changes mean more money now has to flow to the SB / set-aside prime contractor on the contract.
The increasing scrutiny surrounding size and status limitations, recertification requirements, and subcontractor restrictions on set-aside contracts has only made buyers more cautious. This cautiousness increases buyer diligence efforts in these areas and is therefore important for companies to be focused on compliance and, where possible, use these set-aside contracts to build quals, past performance, IP, and customer relationships from which to drive long-term growth.