On October 2, 2013, the SBA released a new final rule implementing regulations designed to increase small business participation in government contracting with respect to multiple award and consolidated contracts (“Final Rule”). The Final Rule, effective as of December 31, 2013, implements key portions of the Small Business Jobs Act of 2010.
The Final Rule implements quite a few new regulations, however three of the changes stand out as possibly having the largest impact on small businesses: (1) Agencies now have three new options to increase opportunities for small businesses on multiple award contracts; (2) Agencies cannot consolidate contract requirements without documenting the reasoning and impact on small businesses; and (3) Small businesses can now form teams to compete on consolidated contracts without concern for affiliation, as long as all team members are small under the procurement. Each of these new rules is discussed in more detail below:
Small Business Set-Asides on Multiple Award Contracts
Contracting officers have the discretion to set aside for small businesses a portion of the work on multiple award contracts, and these new regulations outline three separate methods of achieving this. A contracting officer is not required to utilize any of these methods, but rather must consider the methods before making an award of a multiple award contract. If the contracting officer decides not to utilize these methods, the rationale for the decision must then be documented. On the other hand, if it is announced that one of these methods will be used, the agency must follow through.
- Partial Set-Asides
Where a procurement can be broken up into smaller, discrete units (such as CLINs), the contracting officer may set aside a portion of the multiple award contract exclusively for small business participation. Certain conditions must be met for a partial set-aside, namely that market research must demonstrate that the “Rule-of-Two” will be met (the agency will receive fair market offers from at least two small businesses for the set-aside portion of the work). In this case, the contracting officer can set-aside a portion of the work for small businesses utilizing any of the SBA small business programs (8(a), SDVOSB, etc.). Orders on the set-aside portion will be competed amongst only small businesses receiving an award for the partial set-aside.
Under the current regulations, in order for a small business to be considered for a set-aside portion of a multiple award contract, it must submit an offer on the non-set-aside portion of the contract, as well. The Final Rule eliminates this requirement. Under the new regulations (13 C.F.R. § 125.2(e)), small business offerors will have the option of submitting an offer on only the set-aside portion of the multiple award contract, the non-set-aside portion, or both. If a small business offeror submits a proposal only on the set-aside portion of the work, it will only be able to compete for orders under that set-aside portion of the contract. Conversely, small businesses submitting offers on both the set-aside and non-set-aside portions of the work can compete for orders under either portion of the contract.
- Reserve Awards
In procurements that cannot easily be broken up into smaller units, agencies still have the option of increasing opportunities for small business participation at the order level. Where market research shows that the “Rule-of-Two” will not be met for the entire requirement, but will be met on a certain portion of the requirement, the contracting officer can “reserve” an award for small businesses for that specific portion. The contracting officer can then compete the applicable order(s) exclusively among the small business awardees. This can be done with all small businesses, or limited to a specific group of small businesses (HUBZone, WOSB, etc.).
Similarly, where a contracting officer determines that there is only one small business that can perform the entire requirement, but there is no reasonable expectation of receiving fair market offers from more than one small business, a “reserve” award can be made to the single small business. In this case, the contracting officer may then issue orders directly to that one small business awardee for the portion of work it can perform.
- Set-Aside of Orders
Where market research shows that the “Rule-of-Two” will be met for the requirement of an individual order, a contracting officer can then set-aside the order for small business participants. The order set-asides can be utilized for any of the individual small business programs, or among all small businesses.
Consolidation of Contracts
“Consolidation” of contracts occurs when an agency combines the requirements from two or more separate contracts into a single contract or a multiple award contract, where the total costs exceeds $2 million. A “bundled” contract is the consolidation of requirements from multiple contracts into a single contract or multiple award contract that is likely to be unsuitable for small business participation. The Final Rule implements a new regulation (13 CFR § 125.2(d)) which prohibits an agency from consolidating contract requirements unless a senior acquisition official does the following:
- Conducts adequate market research;
- Identifies possible alternate procurement approaches;
- Makes a written determination justifying the consolidation;
- Identifies negative impacts the acquisition strategy will have on small businesses; and
- Ensures that steps will be taken to include small businesses in the procurement.
Because a “bundled” contract is by definition a consolidation of contract requirements, agencies must also follow these new regulations for any bundled procurements. In addition, the Final Rule adds notification and publication requirements for bundled contracts. When an agency contemplates bundling requirements into a single contract or multiple award contract, it must provide notice of the intent to bundle to any small businesses currently performing the requirements. This notice must occur at least 30 days prior to the issuance of the solicitation of bundled requirements. Further, the agency must publish on its website a list of all bundled requirements along with the rationale for each decision to bundle.
Small Business Teaming Arrangements
In order to encourage small businesses to compete with larger businesses on high value contracts, the Final Rule implements regulations which allow for small businesses to team up on a bundled procurement without running afoul of affiliation regulations. A “Small Business Teaming Arrangement” can be either a joint venture comprised of small businesses, or a team comprised of a small business prime contractor and small business subcontractors. This does not really introduce anything new for small businesses, as the SBA does not usually find affiliation simply by virtue of two or more small businesses joining forces for a single procurement, whether as a joint venture or as a prime/sub team. However, the Final Rule does implement a potentially important change to how small business prime/sub teams will be evaluated on bundled procurements.
Generally, when evaluating proposals agencies will only consider the experience and capabilities of a prime contractor, unless the solicitation specifically states that subcontractor experience will also be considered. However, the Final Rule introduces a new provision (13 CFR § 125.3(i)) which requires contracting officers to evaluate offers from teams of small businesses the same as it does all other offers on bundled procurements, with due consideration to the capabilities of all subcontractors. Small businesses forming teams to compete for these bundled contracts will be required to submit their written teaming agreement to the agency along with the proposal.
Small businesses usually find themselves on the outside looking in when it comes to multiple award and consolidated contracts. Typically, the requirements in these contracts are so vast that a small business simply cannot compete with larger companies that have far more capabilities due to their sheer size. However, in a lot of cases, small businesses are more than capable of performing at least some of the requirements on these broad contracts. Given the high dollar value that is typical of these types of contracts, these small portions can be quite significant for a small business. The ultimate impact of these new regulations is unclear at this stage, however the Final Rule does seem to represent a positive step towards an increase in small business participation on high-dollar multiple award and consolidated contracts.