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Happy New Year! As we roll into the new year, it’s important to take a look and check in at some of the updates and proposals for small business rules and regulations that are set to take effect in 2019.
Here we highlight two major rules that have been enacted for 2019 and three proposed rules that may have a large effect on how government contractors and other veteran owned companies operate in 2019.
Small Business Runway Extension Act of 2018
This act was passed on December 17, 2018 and adjusted the method which size is determined for small businesses that use NAICS codes determined by gross revenues. Prior to this act, a business’s size for comparison to its size standard was determined based on analyzing the average of the business’ most recently completed three fiscal years of gross revenues. So if your business’ last three complete fiscal year’s gross revenues were $10 million, $15 million, and $17.5 million, your size for comparison to your size standard would be $14.2 million [($10 + $15 + $17.5) / 3] = $14.2 million
This act extends the lookback of the analysis to the past five years. For a growing company, this allows you to remain in the pool of competitive small businesses longer. Take the company from the previous example. If their growth was due to recent developments, their situation may look like this: [($10 million + $10 + $10 + $15 + $17.5) / 5] = $12.5 million.
While this is great for firms who are grasping at every chance to hang on to small business set asides before being cast into the pool of full and open competition, it puts the pressure on smaller firms to sharpen their tools and become even more competitive as more firms are allowed to stay in the small business pool.
DFARS Deviation - Limitations on Subcontracting
On December 3, 2018, the Department of Defense (DoD) signed a Class Deviation for its supplement of the Federal Acquisition Regulation (FAR) that brought it in alignment with the SBA’s regulations on limitations on subcontracting. The updated small business regulations allow small prime contractors to include work subcontracted to “similarly situated entities” when calculating their compliance with limitations on subcontracting. A “similarly situated entity” is one which holds the same certifications as which the prime contractor holds and used to qualify for the set-aside contract. From a practical perspective, this means if an SDVOSB firm is performing an SDVOSB set-aside contract, it may now count work subcontracted out to another SDVOSB (“similarly situated”) towards its limitations on subcontracting. It is important to note that if the prime contractor was also a WOSB performing work on an SDVOSB set-aside contract, it would not be able to count subcontracted work by a WOSB as “similarly situated”, since the contractor did not use its WOSB certification to qualify for the SDVOSB set-aside.
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Proposed FAR Rule - Limitations on Subcontracting
The first proposed rule follows the same path of the DoD DFARS Class Deviation and proposes to update the FAR to match the SBA regulations on limitations on subcontracting. This again includes language to include a prime’s subcontracted work to “similarly situated entities” in its calculations towards its limitations on subcontracting. This proposed rule is open for comment until February 4, 2019.
Proposed End to Self-Certification for SDVOSB
At the end of November, 2018 the House of Representatives introduced the “VA-SBA Act” (Verification Alignment and Service-disabled Business Adjustment Act) a bill that would eliminate the last remaining self-certification in government contracting - the Service-Disabled Veteran-Owned Small Business (SDVOSB) certification. There are currently two routes to become SDVOSB certified in federal contracting. For contracts with the Department of Veterans Affairs (VA), businesses go through the Center for Verification and Eligibility (CVE) process, but for businesses doing business with other federal agencies, a self-certification option still remains. This bill would eliminate the option for businesses to self-certify and roll both certification programs into one formal certification under the auspices of the Small Business Administration (SBA) - not the VA. Control shifting to the SBA follows the shift on October 1, 2018 of the VA adopting SBA’s eligibility requirements for SDVOSB eligibility. The act includes language that would allow for currently self-certified firms a year-long grace period before requiring them to go through a formal certification process. While this is something that will take time to enact and implement, it is still an issue to keep an eye on. History has shown us that changes in programs and systems can create backlogs and certifications are always something to remain proactive with maintaining.
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Proposed HUBZone Program Changes
The SBA closed out 2018 by closing comments on some major proposed changes to its HUBZone (Historically Underutilized Business Zone) Program. There are numerous changes in this proposed rule, here are a few of the high-level proposals:
- If an employee resides in a HUBZone at time of certification, they will remain a “HUBZone employee” for their duration of employment with the firm, regardless if they move - previously this was not the case, if a “HUBZone employee” moved, an owner would have to seek out another employee that resided in a HUBZone to meet the 35% requirement.
- SBA will round to nearest integer instead of rounding up for 35% rule. This means that if the 35% employee requirement comes to 2.1, your requirement would now be 2 employees instead of 3.
- Annual certification for compliance - this would replace multiple points of compliance certification currently required for HUBZone program - at time of proposal submission and at time of award and also replace current three-year certification cycle
There are a lot of potential changes for this highly underutilized program in government contracting. Will it be enough for it to gain traction with contracting officers? Will it be enough for small businesses to find the return valuable enough for the administrative burden? What will be the impact of these government regulations on small business? We’ll have to see what gets approved.
The government contracting landscape is continually shifting. As we enter a new year with fresh opportunities, fresh resolutions, and fresh goals, make sure you’re staying on top of what’s changing in the landscape so you can adjust your strategy accordingly.
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