COHEN MOHR LLP. Washington, D.C.

Transcription

1 New SBA Regulations Impacting the Time at which Size is Determined for Purposes of Long-Term Federal Contracts and Following a Novation, Merger, or Acquisition for all Federal Contracts Washington, D.C. On November 15, 2006, SBA published a final rule amending the size regulations governing the time at which size of an offeror is determined for long-term federal contracts and governing size following a novation, merger, or acquisition for all federal contracts. This rule has been a long time in the making with the proposed rule initially published over three years ago -- on April 25, Due to the significant change in the tracking requirements for federal agencies that will necessarily result from the new regulations, this final rule is not effective until June 30, The rule will then apply to all solicitations and contracts issued after the effective date, as well as contracts and solicitations in existence at the time of the effective date. The stated objective of the final rule is to ensure that small business size status is accurately represented and reported over the life of long-term federal contracts. A long-term contract is defined to mean any contract, including options, with a duration of more than five years. The regulations state that such contracts include all Multiple Award Schedule (MAS) Contracts, including but not limited to, GSA s Federal Supply Schedule (FSS) contracts and MAS contracts issued by other agencies under authority granted by GSA, Multiple Agency Contracts (MACs), and Government-wide Acquisition Contracts (GWACs). Size Determinations under the Existing Regulations Currently, size on any federal contract is determined as of the date a concern submits a written self-certification that it is small to the procuring activity as part of its initial offer (or other formal response to a solicitation) which includes price CFR (a). A concern that qualifies as a small business at the time it receives a contract is considered a small business throughout the life of that contract. Even where a concern grows to be other than small, the procuring agency may exercise options and still count the award as an award to a small business. 13 CFR (g). 1 If the agency modifies the solicitation so that initial offers are no longer responsive to the solicitation, a concern must recertify that it is a small business at the time it submits a responsive offer, which includes price, to the modified solicitation. 13 CFR (a). November 30, 2006 Page 1 of 5

2 This rule has been applied to all federal contracts, including long-term contracts, and has permitted agencies to count these contracts and orders placed thereunder towards their small business goals 2 throughout the life of contracts ranging from 5-20 years even though the contractor has grown to be large or been acquired by a large business. The New Regulations Require Contractors to Recertify under Long-Term Contracts The new regulations will require contractors to recertify their size on long-term contracts and will no longer allow Federal agencies to count options and orders placed on long-term contracts towards the agency s small business goals where the contractor is no longer able to self-certify as small. The new regulations do not require the agency to terminate contracts held by contractors that are no longer able to self-certify as small and do not preclude the agency from exercising options or placing orders under such contracts. However, an agency s inability to count options towards its small business goals may discourage agencies from exercising options or place orders under its existing contracts held by contractors that are no longer small. Recertification is Required Every Five Years and for Each Option Under the new regulations, a contractor must recertify its small business size prior to the sixth year of contract performance, and every time an option is exercised. Contractors must certify their small business size status no more than 120 days prior to the end of the fifth year of any longterm contract, and no more than 120 days prior to exercising any option thereafter. If the contractor is other than small, the agency can no longer count the options or orders issued pursuant to the contract, from that point forward, towards its small business goals. Recertification does not Change the Terms and Conditions of the Contract Recertification does not change the terms and conditions of any long-term contract. This means that if the contractor was originally subject to certain performance requirements, such as the limitations on subcontracting rule and the nonmanufacturer rule, or was not required to have a subcontracting plan in effect (because it was a small business), the contractor remains subject to the same terms and conditions throughout the life of the contract despite a change in its size. 2 The Small Business Act requires procuring agencies to establish annual small business prime contracting goals and to annually report the number and dollar value of contracts awarded to small business concerns. 15 U.S.C. 644(h)(2)(D). November 30, 2006 Page 2 of 5

3 The Original NAICS Code Applies when Recertifying for Option Years A recertification for an option year will be based on the original NAICS code assigned to the long-contract. However, the applicable size standard will be that in effect at the time of the recertification. A NAICS Code must be Assigned to Every Order Placed under a Long- Term Contract The new regulations mandate that contracting officers assign a NAICS code and a size standard to each order under a long-term contract. The NAICS code and size standard assigned to an order must correspond to a NAICS code and size standard assigned to the underlying long-term contract. A concern will be considered small for that order only if it certified itself as small under the same or lower size standard. For contracts with multiple NAICS codes and size standards, the order will contain the NAICS and size standard from the underlying contract that best corresponds to the work to be performed, and only concerns that have certified that they are small for that same or lower size standard will be deemed to be small for that particular order. If an order is competed amongst contractors, the contracting officer can explicitly require that a concern recertify its size in response to a solicitation for a particular order. Size will be determined as of the date of the offeror s self-representation submitted as part of its response to the solicitation for the order. A size protest may be brought in connection with a size certification for a particular order, as further discussed below. If a concern is found to be other than small in response to such a size protest, the concern is not eligible for award of the order. Note that while this requirement was not previously in the regulations it has been imposed by case law for several years. Size is Determined at the Time that an Order is Placed under a Blanket Purchase Agreement The new regulations provide that a Blanket Purchase Agreement is not a contract. Therefore size at the time that the BPA is awarded is irrelevant. Instead, size will be determined at the time of each order issued under a BPA. Size Protests may Challenge a Recertification if Timely Filed Size protests may be brought regarding size certifications for longterm contracts under the same five-day clock that exists under the current rules for size protests. The clock starts on the date of receipt of notice (including notice received in writing, orally, or via electronic posting) of November 30, 2006 Page 3 of 5

4 the identity of the prospective awardee or award. The same rule applies to protests relating to size certifications made in response to a contracting officer s request for self-certifications in connection with an individual order. Similarly, the same five-day clock exists for protests regarding size certifications made for an option period and starts on the date of receipt of notice (including notice received in writing, orally, or via electronic posting) of the size certification made by the protested concern. The Rules Governing Subcontractor Certifications Are Not Affected By This New Rule This new regulations do not impose any recertification requirement at the subcontractor level for long-term contracts. This means that a subcontractor s size is still determined as of the date it certifies that it is small for the subcontract. SBA may later issue regulations to change subcontractor certifications in the future. 13 CFR (e). A Contractor Must Recertify Its Size After a Contract Novation, Merger, or Acquisition In another significant change, the new regulations require contractors to recertify their size following an approved contract novation, merger, or acquisition. This requirement applies to all contracts and is not limited to long-term contracts. Within 30 days of an approved contract novation, or a merger or acquisition becoming final, a contractor must either (1) recertify its small size to the procuring agency; or (2) inform the procuring agency that it is no longer small, whichever applies. If the contractor is other than small, the agency can no longer count the options or orders issued pursuant to the contract, from that point forward, towards its small business goals. The 30 day requirement is new for contract novations. However, the reporting requirement itself as it relates to contract novations is not and nor is the fact that the agency can no longer count the options or orders towards its small business goals. These requirements were effective on June 21, The extension of this requirement to mergers or acquisitions (where novations are not required) is new. The prior rule applied only where a contract novation or change of name agreement was required and therefore stock sales were not covered since no novation is required for such a sale. Again, the new rule does not require a contracting officer to terminate an existing contract following a novation, merger, or acquisition, November 30, 2006 Page 4 of 5

5 if the contractor is no longer small. The effect is that the agency cannot count the options and orders towards its small business goals. For more information about SBA size regulations, please contact: Laurel Hockey 1055 Thomas Jefferson Street, N.W. Washington, D.C Telephone: (202) Fax: (202) November 30, 2006 Page 5 of 5