House Passes Bill to Increase Potential Size of Sole Source Awards

Amidst the news cycle focusing on the government shutdown, there is some other action in the House of Representatives that recently caught our eye.

The House recently passed a bill called the “Expanding Contracting Opportunities for Small Businesses Act of 2019.” If the bill becomes law, we will see a dramatic expansion in the size of sole source contracts for SDVOSBs, WOSBs, and HUBZones.

H.R. 190 proposes changes to how contracting officers may award sole source contracts based on certain socioeconomic certifications or self-certifications. (There are other ways for sole source contracts to be awarded, such as national security, and “urgent and compelling,” which are not part of the bill, and not discussed here).

As it stands, FAR Part 19 allows contracting officers to award sole source contracts to 8(a)s, SDVOSBs, HUBZones and WOSBs under certain conditions. While the exact requirements vary for each socioeconomic category, some core concepts are identical.

Except in the 8(a) Program and VA SDVOSB/VOSB program, a CO may not sole source under FAR Part 19 if there are likely two or more qualified concerns likely to submit offers. Sole sourcing is only available if there are qualified concerns able to perform the contract at fair and reasonable pricing. Finally, and most importantly in context of H.R. 190, a sole source contract under FAR Part 19 may not exceed certain dollar thresholds. Under current law, when calculating the award price of a sole source contract issued under FAR Part 19, the CO must include the anticipated price of all options.

H.R. 190 would change these requirements for HUBZone, service-disabled veteran-owned, and woman-owned small businesses by eliminating the words “including options” from the spending limit portions of the cited regulations. The changes would allow a contracting officer to award a sole source contract if, among other things, the “anticipated award price of the contract” does not exceed the established dollar figures for manufacturing NAICS code contracts or other contracts. As the bill states, it would “eliminate the inclusion of option years in the award price for sole source contracts,” basing the threshold only on the base period of the contract. That’s a big change.

H.R. 190 also unifies the sole source thresholds at $7 million for manufacturing NAICS code contracts and $4 million for other contracts.

For example, let’s suppose that a solicitation calls for bottled water manufacturing under NAICS code 312112. This bottled water is not just any bottled water. In the entire world, there is only one spring where the water provides super human strength. Understandably, the Army wants a constant supply of this water for soldiers, and would like to award to an SDVOSB. The problem, however, is that only one SDVOSB company, You Need Our Water, LLC, has access to the spring. The Army intends to issue a one-year, $5 million contract for bottling this water. The contract allows for the potential of five, one-year options valued at $4 million each.

Under the current regulations, the contracting officer would not be able to issue a sole source award to You Need Our Water, LLC under FAR Part 19 because “the anticipated award price of the contract, including options” is $25 million (the award of $5 million plus five, $4 million options). This exceeds the $6.5 million threshold established under 13 C.F.R. § 125.23.

Under H.R. 190, the contracting office would be able to issue a sole source award to You Need Our Water, LLC because the $6.5 million threshold only applies to the anticipated award price of the base year. It does not matter that there is the potential for $20 million in options. The “anticipated award” is only addressing the $5 million price tag of year one.

While there may not be a spring from which superpower elixirs burst forth, there are more realistic contracts which small business concerns may be uniquely qualified to address. A company could be the only SDVOSB that manufactures a specific life-saving medical product for our service members under NAICS code 325414. Another company could be the only HUBZone in a region with the necessary equipment, personnel and expertise to perform a specialty construction project under NAICS code 238210. Yet another company could be the only WOSB with the qualifications and licenses necessary to perform specialized laboratory testing under NAICS code 541380.

Hopefully you noticed that 8(a) concerns are not included in the list of companies whose sole source limits would be increased under H.R. 190. This could change as the bill advances through the legislative hoops, but it also may not. As it stands, removing “including options” from the regulations could have huge ramifications for SDVOSBs, HUBZones and WOSBs, but not for 8(a)s, where the rules wouldn’t change.

On January 16, 2019, H.R. 190 passed the House of Representatives by a vote of 415-6. As of January 22, 2019, the bill is being considered by the Senate Committee on Small Business and Entrepreneurship. The significance of H.R. 190 passing the House should not be lost as only 6% of bills introduced in the last Congress even got a vote. Half of the bills that received a vote became law.

H.R. 190, if passed in its current form, would be a substantial shift from existing practice. These changes may be welcome, especially by concerns that hold unique manufacturing patents or are otherwise uniquely positions in their industry or geographic region. These changes may be shunned by others, especially by 8(a) concerns, which are mysteriously excluded.

Regardless, the democratic process works best with public participation. We encourage you to contact your local representative to discuss your thoughts on H.R. 190.