SBA Proposes to Change When Companies Need to Recertify Size and Status for Orders

SBA recently proposed changes to a number of its small business rules, as we’ve written about in earlier posts. The same proposed rule includes a small but significant change to when a business has to recertify its size and status for orders under multiple award contracts. Based on the number of times we’ve written about size and status protests for orders under multiple award contracts (see the related content at the bottom of this post for a sampling), this is an area in need of clarity.

The SBA’s proposed rule would change some details about recertification for orders on multiple award contracts, or MACs (I wonder if a particularly large MAC might be called a Big MAC).

Currently, the size status for a company, even on an unrestricted contract, is determined at the time of the offer on the contract, unless the agency exercises an option or requests recertification in connection with an individual order. This means if a company is small at the time of offer on the underlying contract, “the concern is generally considered to be small for goaling purposes for each order issued against the contract, unless a contracting officer requests a new size certification in connection with a specific order.” For example, a company’s size for purposes of a small-business task order relates back to the size certification for the underlying contract, even if the underlying contract is unrestricted.

An example can help illustrate the current rule.

Glinda’s Wands was a small business when it submitted its bid for an unrestricted multiple award contract. It won the contract and then grew to be large. According to the current rule, it is counted as small for each order placed thereafter and there is no opportunity for protest unless the contracting officer required recertification for an order.

Here is the problem that SBA identified–motivation to protest. On an unrestricted multiple award contract, it’s unlikely that competitors would protest the size (or status) of an awardee. Because size doesn’t matter for an unrestricted contract, size status for an order stemming from that contract should not relate back to the time of the offer for the contract. SBA was blunt: “To allow a firm’s self-certification for the underlying MAC to control whether a firm is small at the time of an order years after the MAC was awarded does not make sense to SBA.”

So here’s what SBA proposes to change. Other than on GSA Federal Supply Schedules (often abbreviated FSS), the rule would “require a business concern to recertify its size and/or socioeconomic status for all set-aside orders under unrestricted multiple award contracts.” A company would also have to “recertify its socioeconomic status for all set-aside orders where the required socioeconomic status for the order differs from that of the underlying set-aside” contract. For instance, if the set-aside contract is for small business and the order is for 8(a) participants, offerors on the 8(a) order would have to recertify their 8(a) status as of the date of the offer.

Here is how this would play out under the proposed rule.

As in the prior example, Glinda’s Wands was a small business when it submitted its bid for an unrestricted multiple award contract. It won the contract and then grew to be large. The agency then issues a task order set aside for small businesses. According to the proposed rule, Glinda’s Wands would have to recertify as small, and there would be an opportunity for protest, for the order set-aside for small business. Under the proposed rule, Glinda’s Wands would also have to recertify for each additional order set aside for small businesses.

If the underlying contract was restricted to small business, “the proposed rule would generally set size status as of the date of the offer for the underlying MAC itself.” As under the current rule, a contracting officer has the discretion to request a recertification of size for any order.

A similar rule would apply for socioeconomic status recertification. SBA explains this well:

Where the required status for an order differs from that of the underlying contract (e.g., the MAC is a small business set-aside award, and the procuring agency seeks to restrict competition on the order to only certified HUBZone small business concerns), SBA believes that a firm must qualify for the socioeconomic status of a set-aside order at the time it submits an offer for that order. Although size may flow down from the underlying contract, status in this case cannot.

The current rules for socioeconomic set-asides make socioeconomic status relate back to the time of certification of the underlying contract, rather than the time of the order, regardless of the set-aside status of the underlying contract.

So, why are GSA Federal Supply Schedules exempt from the recertification requirement under the proposed rule? SBA looked at the numbers for fiscal year 2018 and found that “the percent of dollars going to other than small business off of FSS set-asides is limited.” In 2018, SBA calculated that 11.3% of the dollars set-aside for small business off the FSS “went to firms that no longer qualified as small at the time of the order.”

In contrast, non-FSS multiple award contracts ended up going to other than small businesses more frequently. For instance, SBA’s estimate was that 67% of the dollars set-aside for small business off of government-wide acquisition contracts went to “firms that no longer qualified as small under the NAICS code size standard at the time of the order.”

The SBA’s proposed rule would change the way businesses certify size and status for orders under certain multiple award contracts. The SBA’s logic makes sense though. A size or status protest is very unlikely on an unrestricted contract. So it’s reasonable for businesses to certify at the time of the order proposal. If enacted, this rule will require businesses to pay close attention to the set-aside status of the underlying contract and the order to ensure the company’s status is accurate for the appropriate snapshot in time.

There are a few other minor things that SBA is clarifying with respect to size certifications as part of the proposed rule.

  • Size status for “compliance with the nonmanufacturer rule, the ostensible subcontractor rule and joint venture agreement requirements is determined as of the date of the final proposal revision for negotiated acquisitions and final bid for sealed bidding.” The current rule, per SBA, only refers to the nonmanufacturer rule (as I read it, the current rule mentions ostensible subcontractor, but either way it is a good clarification).
  • “[p]rime contractors may rely on the self-certifications of their subcontractors provided they do not have a reason to doubt any specific self-certification.” SBA believes that this has always been the case, but has added this clarifying sentence, nevertheless, at the request of many prime contractors.
  • With regard to joint venture size recertification, “only the partner to the joint venture that has been acquired, is acquiring, or has merged with another business entity must recertify its size status in order for the joint venture to recertify its size.” If a joint venture party becomes large through growth, recertification is not necessary for that party.

As we’ve noted, SBA is proposing a number of changes to small business rules. Federal contractors will need to keep any eye on these changes in order to be prepared once they become effective.