Rule Change for Small Business

Article by Sarah Schauerte: Rule Change Alert for Small Business Contractors

On Tuesday, May 31, the Small Business Administration (“SBA”) published a final rule in the Federal Register, amending several of its regulations to implement provisions of the National Defense Authorization Act of 2013, as well as to make changes to its regulations concerning the nonmanufacturer rule, affiliation, and joint ventures. It isn’t the most interesting piece of reading you’ll ever encounter, but given its wide scope, it might be worth checking out to see if and how it affects how your small business.

Here are a few of the highlights:

• Affiliation. The rule clarifies that one firm will be presumed to be “affiliated” with another for purposes of determining size if the concern in question derived 70% or more of its receipts from another concern over the previous three fiscal years (consistent with case law from the SBA’s Office of Hearings and Appeals). This presumption is rebuttable. (13 CFR 121.2013).
• Annual Receipts. The rule further defines the definition of “annual receipts” (as it is used to determine size) (13 CFR 121.104). This has confused contractors and been a contentious issue in size protests.
• Nonmanufacturer Rule. The rule clarifies the nonmanufacturer rule, further stating that the rental of an item qualifies as a “service” and will be treated as such in the application of the nonmanufacturer rule and the limitation on subcontracting (“LOS”). It also notes that the nonmanufacturer rule and the LOS performance requirements do not apply to set-asides with an estimated value between $3,500 and $150,000. (13 CFR 121.406).
• Size Protest Standing. The rule clarifies standing for initiating a size protest or requesting a formal size determination, stating that this includes “any offeror that the contracting officer has not eliminated from consideration for any procurement-related reason, such as non-responsiveness, technical unacceptability, or outside of the competitive range.” The prior language included a double negative, which was confusing even for attorneys. (13 CFR 121.1001).
• Limitations on Subcontracting. It clarifies that a prime contractor may subcontract work to a “similarly-situation” (i.e., in the same socioeconomic category) entity and have that count toward the LOS requirements. Not complying with LOS requirements is an easy way to either be found non-responsive in your offer, or to get into trouble (including such penalties as debarment), so it’s important to remain educated on this topic. (13 CFR 125.6).
• Joint Ventures. It alters the rules for joint ventures, noting that the joint venture will be considered “small” so long as each concern is “small” under the NAICS code assigned to the procurement. It also notes the joint venture’s obligation to comply with the LOS requirements set forth at 13 CFR 125.6 (13 CFR 125.15).

For a detailed account of the originally-proposed rule, the comments received and the SBA’s response/analysis, and the final rule (which goes into effect on June 30, 2016, visit this page. Remember – as a small business contractor, it’s your obligation to stay informed on rule updates!

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