DHG – National Defense Authorization Act for FY 2013

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Dixon Hughes Goodman Thought Leadership | January 2013

National Defense Authorization Act for FY 2013 – Small Business Impact

Gregg Funkhauser CPA, MSTGregg Funkhouser, Partner-In-Charge, Government Contracting Industry Group

Enacted January 2, 2013, the National Defense Authorization Act (“NDAA”) contains provisions designed to drive more government contracts to small business, hold government officials accountable and punish those who abuse small business programs. The government has a small business contracting goal across all agencies of 23%. As of 2012, the government has missed this target for eleven straight years. With sequestration looming, any increase in small business contracting could help lessen the impact of impending spending cuts.

Small Business Opportunities

Dixon Hughes Goodman’s Government Contracting Group reported that under the 2010 Small Business Jobs Act, SBA was authorized to establish Mentor-Protégé programs for veteran-owned, women-owned and hub zone businesses similar to the 8(a) Mentor-Protégé (MP) program which waives affiliation rules for the mentor. We have waited for proposed regulations to be released for comment, but SBA has not issued any to date. Due to this lack of response, NDAA requires SBA within 270 days to issue regulations creating a Mentor-Protégé program for small business which is “identical” to the 8(a) MP program “except that the Administrator may modify the program to the extent necessary given the types of small business concerns included as protégés. (H.R. 4310-466 Sec. 45 (a) (2)). Only SBA and DOD programs can have a Mentor-Protégé that waives affiliation unless SBA approves an agencies plan. However, once qualified as a MP you are qualified as a MP for all government agencies. It will interesting to see if SBA rolls out only an small business MP program or if it enacts MP separate programs for veterans, women and hub zones.

This is a great opportunity to team with a mentor as the government applies pressure to meet its small business goals. In addition, since mentors may own up to 40% of a protégé and have up to three protégés, large businesses which participates as a mentor will have the opportunity to secure a share of small business contracts. This is a potential win/win situation but understand the mentor must be approved by SBA, support the protégé as promised, and report annually on that support to SBA. Mentors who do not perform can and will be removed.

When a small business primes a contract there can be an issue with the amount of work the prime performs and how much is subcontracted to small business. For service contracts the old law required the Small Business Prime (SBP) to perform at least 50% of the labor costs but did not take into account total costs of the contract. Therefore, it was hard to determine how much of the contract the SBP actually performed. Under the new law, the SBP may not subcontract out more than 50% of the total contract price. For supply contracts, the SBP may not subcontract out more than 50% of total contract price except for material costs. For constructions contracts, SBA must seek public comments and from that feedback prove similar provisions. There are exceptions for subcontracts for “Similarly Situated Entities” such as an 8(a) SBP that contracts to another 8(a) entity.

Other favorable changes include provisions which limit contract bundling. Set-asides for women-owned business were limited to contracts which did not exceed 6.5 million for manufacturing and 4 million for services. These limits have been repealed and agencies may set aside procurements for any dollar amount. SBA has also been mandated to determine size standards for every industry.

Reporting and Governance Requirements

Participants in the 8(a) program are used to dealing with their Business Opportunity Specialist (BOS) to whom they report to annually and are monitored by to remain in the program. There have been inconsistencies in the quality of the BOS as well as inconsistency in the application of the many rules and regulations of the program. Within a year of enactment, NDAA creates the Defense Acquisition University which will provide training in the requirements of the Small Business Act and all businesses which operate under the SBA umbrella. In addition, all BOS will be required to obtain a Level 1 Federal Acquisition Certificate in Contracting. However, current BOS will be exempt from this requirement for five years.

Senior executives will be held responsible for an agency’s achievement of their small business goals. Their participation in the promoting and meeting small business goals will be considered in their compensation, bonus and promotion. In addition, NDAA has numerous goals and reporting requirements to track and report progress.

A small business ombudsman has been created for defense audit agencies. The duties of this position will be to advise the Director of DCAA on policy issues related to small business. The ombudsman will remain independent of the audit function. They will champion and advise the director on policy affecting small business and any matters related to small business concern.

Finally, additional monetary penalties as well as suspension and debarment provisions will ensure those not complying with the intent of NDAA will be dealt with severely. We will monitor and report on the regulations that SBA implements some of which will be required within 270 days. Hopefully, these changes will bring additional opportunity to small business and assist the government in meeting their small business goals.

For further information, please contact Gregg Funkhouser at 703.970.0416 or gregg.funkhouser@dhgllp.com.

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