SBA Proposed Rule Would Allow PTAC and SBDC Size Status Opinions

Small Business Development Centers and Procurement Technical Assistance Centers would be permitted to issue advisory small business size status opinions under a proposed rule published last week by the SBA.

The proposed rule, which implements a section of the 2013 National Defense Advisory Act, establishes a “safe harbor” from fraudulent misrepresentation penalties for a small business that obtains an advisory size opinion from a SBDC or PTAC.  But the proposed rule acknowledges that SBDCs and PTACs are not required to provide such advisory opinions–and that new funding will not be awarded for this purpose.

The Small Business Act provides for severe penalties–including fines, imprisonment, and contract ineligibility–for misrepresentation of small business status.  In the 2013 NDAA, Congress directed the SBA to establish a “safe harbor” provision, under which a company would not be subjected to the statutory penalties if it self-certified in reliance on an advisory opinion issued by a SBDC or PTAC.

On June 25, the SBA issued a proposed rule implementing the safe harbor provision.  In the preamble to its proposal, the SBA writes that although the rule permits SBDCs and PTACs to issue advisory opinions, “neither SBDCs nor PTACs are required to provide such opinions under the language of the statute.”  The SBA continues, “[i]t is currently unknown how many SBDCs and PTACs will elect to provide such services, particularly given that no additional funding will be awarded to them to cover the cost of these services.”

If a SBDC or PTAC chooses to provide advisory opinions, its advisory opinions must be in writing and include certain required information, including the “individual NAICS code(s) and accompanying size standard(s) to which the advisory opinion applies.”  The SBDC must provide a copy of each advisory opinion to the SBA, together with “copies of the evidence provided by the covered concern to the SBDC or PTAC clearly documenting its annual receipts and/or number of employees as those terms are defined” in the SBA’s regulations.

Once the SBDC or PTAC provides an advisory opinion to the SBA, the SBA will decide within 10 days whether to accept or reject it, and will notify the SBDC or PTAC, as well as the small business in question.  A firm that receives an advisory opinion that it is small may rely upon that opinion for purposes of self-certification until the opinion is rejected by the SBA.  The SBA retains the discretion to initiate a formal size determination for any firm that is the subject of an advisory opinion.

In my mind, the SBA’s proposed rule does not answer some important questions.  For example, what “evidence” is a PTAC or SBDC required to obtain to verify a firm’s size?  Will tax returns or payroll information be sufficient, or will firms be required to provide a SBA Form 355 and other information about alleged affiliates, as would be the case in a formal SBA size determination?  Also, how will the advisory size opinion process work with respect to the ostensible subcontractor rule and non-manufacturer rule, which are both contract specific?  And what events, if any, would trigger a requirement to seek a new advisory opinion?  For instance, if the firm is sold to new owners, could the firm still rely on an advisory size opinion issued under the old ownership?  Or what if a firm operating under a revenue-based size standard simply enters a new fiscal year–can it rely on an advisory opinion issued the previous fiscal year?

Perhaps the SBA’s final rule will answer questions like these.  Comments on the proposed rule are due by August 25, 2014.

Leave a Reply

Your email address will not be published. Required fields are marked *