Proposed FAR Update to Allow Small Business Set-Asides for Contracts Outside USA

Traditionally, small business set-asides are not utilized in Federal contracts performed outside the United States. The SBA allows for contracts performed outside the United States to use set-asides or sole-source awards, but the FAR does not reflect this. Recently, the Department of Defense, General Services Administration, and NASA have proposed an update the FAR that would reflect the allowance of small business set-asides and sole-source awards in contracts performed outside of the United States. 

Historically, SBA regulations did not explicitly permit agencies to apply set-asides to contracts with a place of performance outside of the United States. However, the 2013 Fiscal Year National Defense Authorization Act required the SBA to review and revise its treatment of small business set-aside goals in relation to contracts with performance outside of the United States. Consequently, SBA updated their regulations and began including overseas contracts in their set-aside goals. However, the FAR has not reflected this change in treatment, leading to inconsistent interpretation and application by contracting officers. 

Currently, FAR Part 19 (dealing with small business programs) as written only applies to the United States and its outlying areas. Due to this, contracting officers have typically interpreted the FAR in one of two ways: (1) as prohibiting them from applying set-asides to contracts performed outside the United States, or (2) that FAR Part 19 procedures do not apply to any contracts outside the United States. The DOD, GSA, and NASA have proposed changes to the FAR that would reflect the current SBA approach to small business set-asides and sole-source awards for Federal contracts performed outside the United States. These proposed changes aim to eliminate any contradictory interpretations of FAR Part 19 by contracting officers, and bring small business contracting goals in line with current SBA interpretations.

The updates proposed by the DOD, GSA, and NASA will make it clear that contracting officers may use set-aside and sole-source awards in contracts performed outside the United States. The actual changes to the FAR will occur to FAR Parts 2.101, 19.000(b), and 19.309. In general, these changes remove elements that lead to conflicting interpretations by contracting officers, and add language clearly stating that Federal contracts may be set aside for small business even if they are performed outside the United States.  

According to the commentary accompanying the proposed changes, there were an average of 1,601,915 awards for Federal contracts requiring performance overseas in 2017 and 2018. Out of the 1.6 million contracts, only 13,581 were awarded to approximately 1,954 unique small businesses. These contract awards included BPAs, as well as task and delivery orders. The proposed FAR updates could open these overseas procurements to more small businesses and provide small business with new opportunities to grow their business around the globe. These proposed changes would also provide clear guidance in the FAR for contracting officers going forward. 

We will be keeping an eye on these proposed FAR changes as they progress. Comments related to this proposed change to the FAR are due on or before October 11, 2019. Check back with SmallGovCon for any updates. 

If you have any questions about whether your business would qualify as a small business, or about federal government contracting, please contact us here at Koprince Law, LLC.