January 27, 2015

Performance Requirements and Small Business Contracting

6 min

Part 2 of our 5-part discussion of the SBA's proposed rules, which implement the requirements under the 2013 NDAA, focuses on Identity of Interest, Size Protests, NAICS Appeals, and Certificates of Competency.

Identity of Interest

The SBA's proposed rule clarifies what constitutes an "identity of interest" leading to affiliation. The current regulation states that affiliation arises when two or more people or entities "have identical or substantially identical business or economic interests." The proposed rule specifies in more detail that "firms owned or controlled by married couples, parties to a civil union, parents and children, and siblings are presumed to be affiliated with each other if they conduct business with each other." This presumption is rebuttable, and can be overcome by demonstrating a "clear line of fracture." Notably, under the proposed rule, types of familial relationships other than those specified expressly do not lead to a presumption of affiliation.

The SBA also proposes a presumption of identity of interest by virtue of economic dependence if a concern derives at least 70% of its receipts from another entity. The current rule does not specify an exact percentage that leads to economic dependence, and the SBA believes that this additional guidance will offer greater clarity. The proposed rule indicates that this presumption can be rebutted, for example when a new entity has only received a few contracts.

The Bottom Line: What You Should Know

Contractors should carefully evaluate and track their existing relationships to ensure unintended affiliations have not arisen. The proposed rule also offers significant additional guidance to contractors moving forward, by specifying exactly what familial relationships and percentage of economic dependence lead to a presumption of affiliation. Contractors should bear in mind, however, that even if their business relationships do not trigger a presumption of affiliation via identity of interest, the SBA still considers affiliation under a totality of the circumstances; other factors, therefore, could still lead to a finding of affiliation.

Size Protests

The SBA's proposed rule would redefine the parties that have standing to file a size protest. The proposed change refines the language to allow "[a]ny 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," to bring a size protest. According to the SBA, the "intent is to provide standing to any offeror that is in line or consideration for award," but bar protest by offerors that have been eliminated for reasons unrelated to size.

Additionally, the SBA proposes to add a regulatory provision authorizing the SBA's Director, Office of Government Contracting, to initiate a formal size determination in connection with eligibility for Service-Disabled Veteran-Owned as well as Women-Owned and Economically-Disadvantaged Women-Owned small business concerns.

The Bottom Line: What You Should Know

Under the proposed rule, contractors will have more clarity as to the circumstances under which they may bring a size protest. The proposed rule is explicit that entities eliminated from a competition for procurement related reasons do not have standing to initiate a size protest. Moreover, contractors should be aware that the SBA Director, Office of Government Contracting, may initiate a formal size determination.

NAICS Appeals

The SBA has requested comments on the appropriate timeline for filing a NAICS code appeal. Currently, a company must serve and file an appeal from a contracting officer's NAICS code or size standard designation "within 10 calendar days after the issuance of the solicitation or amendment affecting the NAICS code or size standard." This current rule was designed to work within procurements where offerors have 30 days from the date the solicitation is issued to submit an offer. However, in light of the fact that the 30-day window is not applicable to all procurements, and that NAICS code appeals are frequently decided within days of the procurement closing, the SBA is analyzing whether the rule is adequate for those procurements that do not require offerors to submit offers within 30 days after the solicitation is issued.

To determine an appropriate timeline, the SBA intends to consider the following factors:

  • How much time does the contracting officer need to amend the solicitation and notify interested parties of the pending NAICS code appeal?
  • How much time is needed for an interested party to draft and file a response to the NAICS code or size determination?
  • How much time is needed by the Office of Hearings Appeals to review the record and determine whether the NAICS code assignment "is based on a clear error of fact or law and issue a decision?"

In addition, the SBA seeks comments on what impact a NAICS code appeal should have on a solicitation. The current regulations require a contracting officer to "stay the solicitation." The SBA seeks comments on whether the regulations should be amended to state that the contracting officer or the agency should delay the response date for the bid or offer.

The Bottom Line: What You Should Know

Contractors should continue to monitor this provision to see whether the timelines for a NAICS code appeal are amended. If there ultimately is a change, contractors must ensure that appeals and any comments thereon are timely.

Certificates of Competency

The SBA proposes to amend the Certificate of Competency (COC) Program where an apparently successful offeror for an IDIQ task order or contract is found non-responsible due to its financial capacity. Under the proposed change, if a contracting officer finds an offeror for an IDIQ task order or contract non-responsible due to its financial capacity, the SBA Area Director would review the concern's "maximum financial capacity." Should the Area Director issue a COC, it will be for a specific amount that sets the limit of the firm's financial capacity for that contract. While the proposed change permits a contracting officer to exceed this amount, it prohibits the contracting officer from denying the firm an award based on financial grounds if the firm has not reached the identified capacity limit set out in the COC.

The Bottom Line: What You Should Know

Under the proposed rule, small businesses must take reasonable steps to ensure that they can readily demonstrate a high maximum financial capability. If a COC is issued that establishes the firm's maximum financial capability, companies should monitor their financial capacity so that they are in a position to persuade the contracting officer to exceed the financial capacity limitation, or ensure that they do not pursue a task order that might put them over their identified financial capacity and potentially render them ineligible for contract award.

Submitting Comments

Contractors wishing to submit comments on these proposed rules can do so through regulations.gov by searching for RIN: 3245-AG58. Comments are due by February 27, 2015.

Continue following Venable's Small Business Series for additional analysis and take-aways from the SBA's proposed rule implementing the 2013 NDAA. If you have any questions about how these proposed rules could affect your business, please contact any of our authors: Keir Bancroft, Paul Debolt, Dismas Locaria, Rob Burton, Rebecca Pearson, James Boland,  or Nathaniel Canfield.