While it is understandable why people focus on the 50 states and the federal district (D.C.), the United States is not just those areas. In addition to the states, the United States has 14 territories. Five of these have a permanent population: Puerto Rico, the Northern Marianas Islands, Guam, American Samoa, and the U.S. Virgin Islands. Up until recently, Puerto Rico received preferential treatment for the surplus property program and under the mentor-protégé program, but the other four territories did not. However, a new final rule by the SBA is finally extending these privileges to all the permanently populated U.S. territories. In this post, we will explore just what that entails.
Surplus Property Program
To start, it may be worth discussing what the surplus property program is. First, it really is less a single program than a collection of programs. As you might imagine, the federal government often ends up with significant amounts of surplus goods and equipment that it will not otherwise use. Most of this property simply goes to states and their agencies, however, certain small businesses (such as 8(a) participants and veteran-owned small businesses (VOSBs)) can apply to receive the property from the state through the state’s State Agency for Surplus Property (SASP). Provided the business uses the property in certain ways, the state will donate that property to the business. Quite a valuable resource, obviously!
In 2018, Congress passed the National Defense Authorization Act (NDAA) for Fiscal Year 2019. Section 861 of that act provided that SBA may transfer technology or surplus personal property to small business concerns in Puerto Rico, if the small business otherwise meets the requirements for such transfer, regardless if the business is an 8(a) Program participant or VOSB. As such, SBA created a rule on November 2, 2020 that implemented this new law at 13 C.F.R. 129.301. As a result, Puerto Rican small businesses were added to the list of companies that could receive federal surplus property. However, this did not extend to America’s other territories.
As a result, when preparing the National Defense Authorization Act for Fiscal Year 2021 about a month after this new rule was issued, Congress included a provision in Section 866 that “covered territory businesses” would receive priority for surplus property transfers for four years starting on January 1, 2021. The provision defined “covered territory businesses” as small business concerns with their principal offices located in either the U.S. Virgin Islands, American Samoa, Guam, or the Northern Marianas Islands.
With that, SBA immediately had to go back to the drawing board to implement these new rules. The new rule extends the surplus personal property preference to the other permanently inhabited U.S. territories. In other words, small businesses with a principal place of business in these territories are now able to access the surplus property program even if they aren’t 8(a) participants or VOSBs. And note, that’s “small businesses with a principal place of business,” not just businesses registered in one of those territories. Therefore, even if the small business is registered in Delaware, so long as its principal place of business is in one of Puerto Rico, the Northern Marianas Islands, Guam, American Samoa, or the U.S. Virgin Islands, the surplus property preference applies.
At the same time, the new rule also extends certain advantages Puerto Rican businesses have with regards to the mentor-protégé program to these territories. When the mentor-protégé program was consolidated in October 2020, the rule that implemented that consolidation also made three changes to benefit Puerto Rican businesses:
- First, the first two mentor-protégé relationships between a specific mentor and a small business that has its principal office located in the Commonwealth of Puerto Rico, will not count against the limit of three protégés that a mentor can have at one time. In other words, if a mentor has two protégés that are Puerto Rican small businesses, it can still have three other protégés for a total of five.
- Second, the rule provides contracting incentives to mentors that subcontract to Puerto Rican protégés by giving positive consideration for the mentor’s past performance evaluation.
- Third, the rule provides contracting incentives to mentors that subcontract to Puerto Rican protégés by applying costs incurred in training those proteges towards subcontracting goals.
Now, mentors will be treated similarly with regards to protégés with their principal place of business in the Northern Marianas Islands, Guam, American Samoa, and the U.S. Virgin Islands. And, again, note that is “protégés with their principal place of business” in one of those territories, not just protégés registered in one of those territories.
This rule change only makes sense as the government is continuing to show more interest in the nation’s territories outside of the 50 states and the federal district, something that frankly has been long overdue. And, with a significant number of federal contracts in places like Guam, this rule change could really benefit a lot of small businesses and their mentors.
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