Small business federal contractors may soon want to think about getting new luggage. The FAR will be updated to allow for–but not require–small business set-asides in overseas procurements. This has the potential to open up a substantial number of contracting opportunities to small businesses who have the capabilities to compete. The final rule will be effective May 26, 2022. Here are some of the key details to know about.

The rule was originally proposed in 2019 and the FAR Council reviewed 26 comments. The FAR updated is based on similar changes to SBA rules. In an October 2, 2013, final rule, the SBA applied the Small Business Act to overseas acquisitions. That change updated SBA rules at 13 CFR 125.2 to reflect that the Small Business Act applies “regardless of the place of performance”.

But contracting officers usually look first to the FAR when determining how to run a procurement.

The purpose of this rule change is to align the FAR with SBA’s guidance, to “allow for application of FAR part 19 overseas and thereby expand opportunities for small business concerns overseas.” To that end, it will revise FAR 19.000 to state that “Contracting officers may apply this part [FAR Part 19] outside the United States and its outlying areas.”

The rule does recognize, though, that there can be limits on small business set-asides, such as “international agreements, treaties, local laws, diplomatic and other considerations that are unique to the overseas environment and may limit the Government’s ability to apply the small business preferences in FAR part 19 on a mandatory basis.”

Therefore, use of small business set-asides outside the US is discretionary, not mandatory.

The use of small businesses is discretionary due to the unique nature of overseas contracting. For instance, an agency can consider “fair market price, quality, and delivery are some of the factors considered” in making a set-aside decision. But small businesses will gain “experience and knowledge” competing in these markets.

The comments to the rule include an important reminder that has been a perennial question for our blog readers. A foreign-owned company can qualify as a small business, if it is “organized for profit, with a place of business located in the United States, and which operates primarily within the United States or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor” 13 CFR 121.105.

While this is not a mandatory rule, it should encourage use of small business set-asides in overseas procurements. It makes clear that contracting officers can make use of these small business provisions, but only in those circumstances where it makes sense. Because it’s discretionary, it’s hard to know what the impact will be at first, but it is a net positive for small businesses who are able to compete in these markets outside the US.