Recently, the SBA proposed big changes for its small business regulations, including some aspects of the 8(a) Program. This blog post is Part 4 in our coverage of these proposed SBA changes and will cover the SBA’s potential changes to the joint venture agreement approval process for 8(a) contracts (here are part 1, part 2, and part 3 of our coverage).
The SBA released a proposed rule on November 8, 2019 with the aim of streamlining its regulations. Among many other changes the SBA proposed to eliminate the requirement that 8(a) Participants competing for 8(a) set-asides as a joint venture submit the joint venture agreement to the SBA for review and approval prior to contract award. This requirement is found at 13 C.F.R. § 124.513(e).
The proposed rule notes that the 8(a) program is the only program in which the SBA must approve a joint venture agreement, which presents a discrepancy between the 8(a) program and all other set-aside programs, such as those for small business, SDVOSB, HUBZone, or WOSB. The elimination of this requirement should bring the 8(a) program in line with the other programs under the SBA and “significantly lessen the burden imposed on 8(a) small business Participants.”
It is important to point out that the proposed elimination of the requirement that 8(a) joint venture agreements be approved by the SBA only applies to joint ventures bidding on competitive 8(a) awards. Joint ventures awarded sole-source 8(a) awards would still be required to submit their joint venture agreement for approval prior to award. The proposed rule justifies this distinction by explaining that 8(a) sole source awards do not permit size protests and without a size protest the only way to ensure the a joint venture is compliant with 8(a) regulations is to have the joint venture agreement approved prior to award.
The SBA also discussed the possible alternative to this elimination and why it was not not feasible. The other alternative is eliminating the requirement for all 8(a) awards and allowing size protests in connection with Sole Source 8(a) contracts. The SBA believed that this alternative was not appropriate because “other Participants are not really interested parties with respect to a sole source 8(a) procurement offered to the 8(a) program on behalf of another participant.”
The SBA estimates that the cost savings of eliminating this requirement will be worth about $59,500. There are currently about 4,500 8(a) participants. Of those, about 10% are in a joint venture created to seek a 8(a) awards. The joint venture agreement review process is very fact intensive and time spent can vary. However, the SBA estimates that an 8(a) participant currently spends about three hours submitting a joint venture agreement to the SBA and responding to questions from the SBA regarding the agreement (note that this is not the time to prepare the joint venture agreement, just to submit to SBA and respond to SBA’s questions). When you apply that estimate to each 8(a) joint venture, it comes out to 1,350 hours of work. When multiplying that by the median wage plus benefits for accountants and auditors, it comes out to a cost savings of $59,500 for 8(a) participants.
This elimination would presumably relieve contractors of the headache of submitting each joint venture agreement to the SBA and subsequently working with the SBA to receive approval before award. This elimination should save contractors time and allow 8(a) participants to more quickly form joint ventures to bid on 8(a) contracts. However, it appears the SBA will increasingly rely on status and size protests to ensure joint ventures are properly formed. This means that 8(a) participants may see an increase in protests after this proposed rule goes into effect. 8(a) participants will have to be more vigilant in preparing their joint venture agreements because they will not get a second chance to correct any errors.
The SBA has requested comments on this rule. Comments may be submitted through www.regulations.gov and must be submitted by January 17, 2020.