As noted in our earlier blog entry, the National Defense Authorization Act of 2013 (“NDAA”), signed by President Obama on January 3, 2013 included significant changes affecting small business contracting. The changes largely came as a result of the House Armed Services Committee special “Panel on Business Challenges in the Defense Industry.”
Under Section 1641, the NDAA is expanding the mentor-protégé program for “all small business concerns,” from its present application that only applies to 8(a) disadvantaged businesses. The NDAA directs the Small Business Administration (“SBA”) to create mentor-protégé programs for each type of small business concern, for example HUBZone businesses, Service Disabled and Veteran Owned businesses, and Women-Owned small businesses, among others. The NDAA requires the SBA to issue regulations establishing these mentor-protégé programs within 270 days.
The mentor-protégé program as it presently exists, applies to 8(a) disadvantaged businesses, and allows large businesses to act as mentors to small businesses. This permits the two companies to form a joint venture and bid on small business contracts without violating size or affiliation rules. Section 1641 should expand the number of potential protégés and create greater opportunities for large companies to serve as mentors.
The NDAA also changed the regulations on subcontracting calculations. Previously, a small business was required to incur to incur at least 50 percent of the labor costs for service or supply contracts and 25 to 15 percent of the labor cost for general or specialty construction contracts. Sections 1651 and 1652 of the NDAA, change the calculations from “price” to “cost”, requiring a comparison of prime contract price to subcontract prices. The NDAA also creates penalties (of $500,000 or the dollar amount expended in excess of the permitted level, whichever is greater) for violating limits. The changes apply to the following contracts:
- For service contracts, not more than 50 percent of the amount paid to the contractor with a small business set aside for a services contract can be spent on subcontractors.
- For supply contracts, the small business may not expend more than 50 percent of the prime contract price on subcontractors, less the cost of materials.
- For construction contracts, the SBA will determine the percentage after obtaining public comments.
Section 1681 creates a “safe harbor” for a firm that mistakenly represented itself as a “small business.” However, this very narrowly construed provision only provides a safe harbor if the company can show (1) it relied on an opinion provided by a Small Business Development Center or an entity participating in the Procurement Technical Assistance Program; and (2) the written opinion must have been submitted for review to the General Counsel of the Small Business Administration beforehand.
Section 1695 expands the bonding capacity of the SBA. The SBA now has the ability to guaranty surety bonds for small business contracts up to $6.5 million, an increase from the prior $2 million limit. Additionally, if the CO certifies that a guarantee is necessary for the small business to obtain bonding and that it is in the government’s best interests, Section 1695 permits the SBA to guarantee a bond for up to $10 million. The hope is that the increased bonding opportunities through the SBA will now allow small business to actively compete for the larger construction and/or service contracts.
Changes were also made to the Women-Owned small business program ceilings on set-aside contracts. Under Section 1697, the dollar limits for set-asides for women-owned small businesses agencies have been removed in their entirety.
We will continue to apprise you of any updates as these changes are implemented by the SBA over the course of 2013.