Keeping Small Businesses "Small" for Longer Periods

There are many Government programs that accrue benefits to small businesses. One of the best, for small businesses at least, are the Federal Government's small business contracting and subcontracting goals and the contracts that are "set aside" for small businesses to help the Government achieve those goals. SBA loans are also at the top of the list of Government benefits for small businesses. SBA loans offer working capital at reasonable rates - sometimes to small businesses who might not otherwise qualify for loans.

Small businesses are determined by their size, either headcount or revenue. Those standards vary widely depending upon industry. for example, the SBA size standards for food service contractors, accounting offices, and roofing contractors are $41.5 million, $22 million, and 16.5 million respectively. Manufacturing and Wholesaling businesses tend to be stated in terms of number of employees while Construction, professional, scientific, and technical service industries tend to be stated in sales dollars.

The problem with these rigid measurements is that a company that wins one or two major contracts might suddenly be removed from SBA benefits because they "size out". Sometimes however, those peaks are only temporary and when the contract(s) end, the companies revert to their normal sizes.

Last month, two Congressmen (a Democrat and a Republican) introduced legislation designed to mitigate the effects of sudden growth, protecting small businesses from being prematurely forced out of the small business category. The bill would grant small businesses additional time to transition before competing in the open market. According to the press release accompanying this bill,

SBA's (Small Business Administration) programs are designed to support small businesses that fall below certain size standards. Once those thresholds are exceeded, businesses face new challenges such as no longer being eligible to qualify for SBA loans, contracts and other assistance, and having to compete in the open market against much larger businesses. Sudden growth in the form of receiving one or two sizable contracts results in spikes in employee count, which in turn may place a small business prematurely out of the size standard and limits their time to grow.

This new bill, entitled "Caputring All Small Business Act of 2019" provides a solution to this problem. It does so by lengthening the calculation period used to determine average employee count from the preceding 12 months to 24 months.

SBA Surety Bond Guarantees - Lower Fees Trial Extended Another Year

The SBA (Small Business Administration) just announced a one-year extension of the temporary decrease in the guarantee fees that it charges all Surety companies and Principals on each guaranteed bond issued in SBA's Surety Bond Guarantee (SBG) Program.

SBA's SBG program is a pretty good deal. Under this program, SBA guarantees a certain percentage of bid, payment, and performance bonds for small and emerging contractors who cannot obtain bonds through regular commercial channels. The SBA guarantee incentives sureties to provide bonding for small businesses and thereby assists small businesses in obtaining greater access to contracting opportunities. SBA gets to establish such fees for small business concerns and premiums for sureties as it deems reasonable and necessary. The guarantee fees are assessed against both the small business concern and the surety. These fees, in turn, are deposited into a revolving fund to cover the program's liabilities and certain program expenses.

Back in October 2018, the Surety fees were reduced from 26 to 20 percent of the bond premium, and the Principle fee decreased from $7.29 to $6 per thousand dollars of the contract amount. These lower fees were set to expire next month, September 2019 but SBA now believes it needs more data to fully evaluate the effect of the lower fees on the SBG program. What are the risks to the program? Do these lower fees generate enough money in the revolving fund to keep it afloat?

To acquire more data and provide more time to study it, the SBA has extended the trial period for the lower fee amounts another year. Its a good deal for small businesses.

Fewer Contractors Participating in SBA Programs Despite Increase in Dollars Awarded

Last week we reported on SBA's (Small Business Administration) scorecard for achieving small business contracting (and subcontracting) goals (see Federal Government Surpasses its Small Business Contracting Goals for Fiscal Year 2018). That's the good news. More than $121 billion dollars in contracts were awarded to small businesses in fiscal year 2018 which marked a $15 billion increase over fiscal year 2017 awards.

The not-so-good news however is that these dollars are being awarded to few and few small businesses. Fewer small businesses are benefiting from these programs designed to benefit disadvantaged business, service disabled veteran owned small businesses, and women-owned small businesses.

Why is that happening? That's one of the questions that the Senate Committee on Small Business and Entrepreneurship wanted answered at a hearing last month where they discussed the re-authorization of SBA's contracting programs. Witnesses testifying at the hearing identified the problem and some of the reasons why small businesses have been discouraged from entering the Federal marketplace. However these testimonies fell short of offering a quick fix to the problem of the shrinking number of small businesses.

The number of contractors working on prime contracts is at its lowest level despite a steady rise in Government contracting spending. In fiscal year 2018, the vendor count was about 115 thousand which is a 27 percent drop over the last 10 years. One reason for this has been a shift of emphasis from prime contracting to subcontracting (including teaming agreements, joint ventures, and mentor-protege strategies). Such subcontracting opportunities are not easy to find so small business are hampered in their ability to know which prime contractors to approach and which agencies to target for subcontracting opportunities.

One panelist did not support the recommendation of the Section 809 Panel to eliminate small business programs for readily available products and services under $15 million, and instead instituting a 5 percent price preference for small businesses. Rather than eliminate these programs, the panelist recommended changes to simplify and streamline small business purchasing programs. Easier said than done, we suppose.

One change that has already been passed but not put into regulations is the ability to count an average of five years of revenue instead of the current three years to determine size. This new law will geatly assist businesses experiencing growth in the federal marketplace.

One thing that no one has mentioned are the size standards. Perhaps the pre-determined revenue and headcount standards are too high. Lower them and the Government might just find some of the larger companies 'sizing out' of SBA's small business programs leaving opportunity for more small businesses to compete for the work.

Federal Government Surpasses it Small Business Contracting Goals for Fiscal Year 2018

The SBA (Small Business Administration) announced yesterday that the Federal Government achieved its small business contracting goals for the sixth consecutive year. The Federal Government overall, awarded more than 25 percent of Federal contract dollars to small businesses. This percentage equates to about $121 billion or about $15 billion more than fiscal year 2017.

Comparing fiscal year 2018 performance with that of 2017, awards to small businesses were up in all categories. The only category where the Federal Government fell short of its goal was awards to Women Owned Small Businesses. So there's an opportunity there for women-owned small businesses.

Here is a summary of achievements by category:

SBA tracked performance on 23 different Agencies including themselves. 19 of those Agencies received a score of 'A' or 'A+'. Three Agencies received a 'B' grade (AID, HHS, and OPM) and one received a 'C' grade (NFS).

Legislation to Help Small Business Subcontractors Get Paid On Time

Subcontractors to Government contractors are often vulnerable to the whims and idiosyncrasies of those prime contractors. We know of cases and have heard many anecdotes where primes do not pay their subcontractors for work performed on a timely basis. Sometimes prime contractors, contrary to procurement regulations, do not pay their subcontractors until they themselves have been reimbursed by the Government. For small business subcontractors, delayed payments can put severe strains on their finances, cash flow, and profitability.

Help may be on the way.

Each Federal agency has an Office of Small and Disadvantaged Business Utilization (OSDBU) whose purpose is to provide "maximum practicable opportunities" to small business concerns when acquiring goods and services. Most agencies use the OSDBU name so they're easy to find when searching a particular agency. In the Defense Department, the organization is referred to as the "Office of Small Business Programs".

Earlier this year, legislation was introduced in the House (and has already passed the House vote) that would lend assistance to small business subcontractors who are not being paid by their Government prime contractors in a timely manner. This bill utilizes the services of OSDBUs to assist small businesses in receiving timely payments from their prime contractors.

Here is how it will work.

1. If a subcontractor has not received payment for performance within 30 days of the completion of such performance, it has 15 days to notify (i) the Office of Small and Disadvantaged Business Utilization (OSDBU) of the Federal agency and (ii) the prime contractor of such lack of payment.

2. After receiving the notification, the OSDBU must investigate. The OSDBU will verify the subcontractor's contention that payment has not occurred and importantly, determine whether non-payment is the result of a restriction placed on the prime contractor by the Federal agency.

3. During the investigatory period, the prime contractor may respond to both the subcontractor and the OSDBU with relevant verifying documentation to either (i) prove payment or (ii) allowable status of nonpayment (i.e. the Government imposed a restriction on the Prime contract/contractor).

4. If the OSDBU verifies the lack of payment and determines that it was not due to an action of the Federal agency, the OSDBU will notify the prime contract and give them 15 days to make payment.

5. If the prime contractor does not make full payment in 15 days, the OSDBU shall ensure that such failure to pay is reflected in the CPARS (Contractor Performance Assessment Reporting System).

Will this work? Perhaps. No Government contractor wants to have negative comments attributed to them in the CPAR system.

Certificate of Competency - How it Works in Practice

Yesterday we discussed SBA's Certificate of Competency (COC) process which provides small businesses to receive a second look when a contracting officer has excluded them from consideration on a procurement because the company could not satisfy certain evaluation criteria to prove their capability to perform a Government contract. Today we want to illustrate how that works in practice by examining a recent GAO (Government Accountability Office) bid protest decision where a company was restored to "competency" as the result of the SBA review. If you missed yesterday's post, click here to read it.

In 2018, the EPA (Environmental Protection Agency) issued a solicitation for soil remediation at a Superfund site. The solicitation stated that award would be based on a lowest-priced, technically acceptable (LPTA) basis, based on two non-price factors: technical capability and past performance. The technical capability factor consisted of three sub-factors: corporate experience, key personnel, and project management plan. The corporate experience and key personnel sub-factors set forth various minimum requirements: five years of residential earth-moving experience and for project manager, at least five years experience as a project manager in environmental hazardous substance or hazardous waste.

The EPA received ten bids including one from Eagle Eye. However, an EPA technical evaluation panel found deficiencies in Eagle Eye's proposal under both the corporate experience and key personnel sub-factors. Specifically, the evaluators determined that Eagle Eye did not meet the minimum corporate experience requirements, and that its project manager and site superintendent did not meet the minimum key personnel experience requirements. Accordingly, the panel concluded that Eagle Eye's proposal was technically unacceptable.

Thereafter, the EPA referred its determination to the SBA under its COC procedures. The SBA didn't agree with the EPA and issued a COC for Eagle Eye, indicating that the firm was considered responsible to performed the proposed procurements. In its determination, the SBA found that Eagle Eye's COC application included information demonstrating that the offeror met the solicitations corporate experience and key personnel requirements, even if that information was not part of Eagle Eye's proposal.

After the COC determination, the EPA found Eagle Eye's proposal to be the lowest-price, technically acceptable offer and awarded the contract to Eagle Eye.

One of the other offeror's protested the award on the basis that the EPA should not have asked SBA for a competency determination. That protest was denied.

Read the full GAO protest decision here.

Certificate of Competency

Small businesses that have been excluded from consideration on a procurement because they did not meet certain specified evaluation criteria (such as past performance) may have be able to have the Government take a second look at a contracting officer's determination.

Under the Small Business Administration's (SBA) Certificate of Competency (COC) program, contracting officers must refer to the SBA a determination that a small business is not responsible, if that determination would preclude the small business from receiving an award (see FAR 19.6). Additionally, the SBA's regulations specifically require a contracting officer to refer a small business concern to SBA for a COC determination when the contracting officer has refused to consider a small business concern for award of a contract or order after evaluating the concern's offer on a non-comparative basis (e.g. pass/fail, go/no go, or acceptable/unacceptable) under one or more responsibility-type evaluation factors (such as experience of the company or key personnel or past performance).

Once the referral is made to the SBA by a contracting officer, SBA will notify the (prospective) vendor accordingly and offer them the opportunity to submit a COC application. If the vendor chooses to submit a COC application, SBA will perform an independent review of the application (including review of any additional information that was not requested but which the vendor considers pertinent to the determination) and make a determination.

The Small Business Act gives the SBA the conclusive authority to review a contracting officer's determination that a small business concern is not responsible. If the SBA refuses to issue a COC, it is unlikely that the GAO will review the SBA determination unless there is shown to be possible bad faith on the part of Government officials or that SBA failed to follow its own published regulations or failed to consider vital information bearing on the firm's responsibility due to the manner in which the information was presented to or withheld from the SBA by the contracting officer.

SBA - Size Restrictions Now Based on 5-Year Averaging

On Monday, this week, the President signed into law several bills, one of which was H.R. 6330, the Small Business Runway Extension Act of 2018" (SBREA). The SBREA modifies the method for prescribing size standards for small businesses. Basically, this is a one-word change but it will, in most cases, benefit small businesses. The Law amends 15 USC 14A, Section 632(a)(2)(C)(ii)(iii) by changing the number '3' to '5'.

For purposes of 15 USC 14A, a small-business concern is one that is independently owned and operated and is not dominate in its field of operations. To be a small business, the firm must not exceed certain size standards consisting of employment numbers and average annual average gross receipts over a period of time. Previously, the average was calculated over a period of three years. Under the new law, the average is to be calculated over a five-year period.

The objective of the legislation is to allow small business to stay small businesses longer. Instead of calculating revenues based on the trailing three-year average, small businesses can calculate average revenues based on the last five years. This works for growing companies - those who the Government has chosen to benefit. However, the converse is also true. Companies that are losing revenues may well stay in the non-small business category longer.

Calculating annual revenues based on averages, whether three or five years, smooths out a lot of the volatility in revenue recognition inherent in small businesses and start-ups. Far more companies will benefit from a five-year averaging scenario than those that might be harmed by it.

SBA's Surety Bond Guarantee Program

Under the SBA's Surety Bond Guarantee (SBG) Program, the SBA guarantees bid, payment and performance bonds for small and emerging contractors who caqnnot obtain surety bonds through regular commercial channels.

SBA's guarantee gives Sureties an incentive to provide bonding for small businesses and thereby, assists small businesses in obtaining greater access to contracting opportunities. SBA's guarantee is an agreement between a Surety and SBA that SBA will assume a certain percentage of the Surety's loss should a contractor default on the underlying contract.

Pursuant to its statutory authority "to establish such fee or fees for small business concerns and premium or premiums for sureties as it deems reasonable and necessary", and to administer the SBG Program on a prudent and economically justifiable basis, SBA assess a guarantee fee against both the small business concern and the Surety and deposits these fees into a revolving fund to cover the program's liabilities and certain program expense.

Since 2006, the fee charged to the Sureties has been 26 percent of the bond premium and the fee charged to small businesses has been $7.29 per thousand dollars of the contract amount. Prior to that, the fees were less but the SBA determined that the program's revolving fund was insufficient to cover projected, unfunded liabilities.

Since the last fee increase in 2006, the fees have been more than sufficient to support the program and as a result, a surplus has accumulated in the fund. This means that the SBA can lower its fees until the surplus is depleted. Beginning in October, the Surety fee will decrease from 26 percent to 20 percent of the bond premium and the small business fee will decrease from $7.29 to $6.00 per thousand dollars of the contract amount.

This decrease will remain in effect for at least one year. During the year, SBA will study and analyze whether the lowered fees can be sustained. If not, the fees will revert to the previous schedules.

Good news for small businesses.

SBA Might Be Awarding Contracts to Ineligible Women-Owned Business

The SBA Women-Owned Small Business Program is intended to provide greater access to Federal contracting opportunities for firms that are women-owned small business (WOSBs) and economically disadvantaged women-owned small businesses (EDWOSBs) that meet program requirements. In the 2015 NDAA, Congress provided more access to the program by authorizing the sue of sole-source contracts for program set-aside contract but it also required that firms be certified by a Federal agency, a State government, the SBA Administrator, or a national certifying entity approved by SBA. In October 2015, SBA issued regulations that allowed contracting officers to award program contracts on a sole-source basis. According to the Inspector General of the SBA however, SBA did not implement the required certification process.

This month, the SBA Office of Inspector General (SBA-IG) issued its report on an audit to determine whether contractors awarded on a sole-source basis complied with the requirements of the program and whether firms that received set-aside contracts on a sole-source basis conformed to the self-certification requirements. The SBA-IG studied 56 contracts averaging about $1 million each that were awarded over a 16-month period ending April 2017. That was a pretty representative sample-size as it included 81 percent of all awards during that period.

The results of the SBA-IG's audit were not encouraging. Of the 56 contracts sampled, contracting officers and firms did not comply with Federal regulations for 50 of them. As a result, the U.S. Small Business Administration had no clue whether these contracts were awarded to firms that were eligible to receive sole-source contracts.

The SBA-IG recommended that SBA establish and implement a certification process as required by the NDAA and made several other recommendations designed to improve SBA's oversight of the program.

SBA agreed to make some changes in the program but the SBA-IG was not at all satisfied with SBA's proposed corrective actions. Although SBA agreed to implement a certification process, its time-frame for doing so was unreasonable, according to the SBA-IG. SBA did agree to review each and everyone of the 56 sole-source awards and conduct eligibility reviews and to initiate debarment proceedings on any contractor that falsified its status. If you are one of those 56 contractors, you can expect queries and data requests real soon.

The SBA-IG admonished the SBA for its lack of due diligence. It wrote: "SBA ... must ensure that it takes all necessary measures to ensure the integrity of the program. This includes conducting more frequent eligibility reviews, addressing incomplete data and errors, and coordinating with the Office of Federal Procurement Policy and the General Services Administration to strengthen controls ..."

You can read the full Inspector General's report here.

Federal Government Achieves Small Business Contracting Goal in Fiscal Year 2017

The U.S. Small Business Administration (SBA) announced Tuesday that the Federal government met its small business federal contracting goal for the fifth consecutive year, awarding 23.88 percent of federal contracting dollars to small businesses. That 24 percent (rounded) works out to $105.7 billion, an increase of $6 billion over the previous year (fiscal year 2016) and the first time the total contracted amount surpassed $100 billion.

Of the five categories tracked (small business, small disadvantaged business, service disabled veteran owned small business, women owned small business and HUBZone business, the only two categories where the federal government did not meets its goal were women owned small business (5% goal vs. 4.7% actual) and the HUBZone designation (3% goal vs 1.7% actual).

Looking at the data by agency, eight of 25 or so agencies tracked received an 'A' score (or higher) including the big four: Defense Department, NASA, Homeland Security, and Energy. The Agency for International Development (AID) received only a 'C' rating.

If there was any disappointment in these scorecard numbers its the fact that while the dollars increased, the actual percentages went down from the previous fiscal year. Small businesses got a smaller percentage of a bigger pie. Of course one wouldn't know that by reading SBA's press release. It requires a little digging to uncover.

You can read more about SBA's report card here.

Fewer Regulations Saved $913 Million for Small Businesses

Every year, the Small Business Administration (SBA) Office of Advocacy reports on efforts to relieve the burden of new regulations on small businesses. These efforts are the result of the Regulatory Flexibility Act (RFA) that requires federal agencies to evaluate the impact of new rules on small businesses and to consider flexible approaches to complying with those rules.

Here's the good news, according to the SBA. In fiscal year 2017, changes to proposed federal regulations saved small businesses $913 million in regulatory costs. How did they achieve such savings? The savings are explained in the Annual Report which you can download and read here. The report details how 16 regulatory and (more significantly) deregulatory actions by six agencies achieved the $913 million in savings.

Chief among the reasons really had nothing to do with SBA's. It was the result of a couple of executive orders (EOs) designed to reduce the number of new regulations (see below). Recall the President's order that every agencies must repeal two regulations for every new regulations that it proposes. Because of this EO, there have been only two changes to the Federal Acquisition Regulations under the current administration.

Whether you believe SBA's cost savings estimate or, like us, believe it to be based on subjective non-quantifiable estimate, the point is that fewer regulations will result is tangible cost savings and those cost savings are more significant to small businesses who typically lack economies of scale and do not have the resources of larger businesses to comply.

EO 13771 Reducing Regulation and Controlling Regulatory Costs: Whenever an executive department or agency publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed.

EO 13777 Enforcing the Regulatory Reform Agenda: The head of each agnecy shall designate an agency official as its Regulatory Reform Officer (RRO) Each RRO shall oversee the implementation of regulatory reform initiatives and policies to ensure that agencies effectively carry out  regulatory reform.

One of the first regulations to fall under the current administration was the onerous Fair Pay and Safe Wrokplaces rule, of which we have reported previously (see Fair Pay and Safe Workplaces Rules - Dead).

The SBA's Certificate of Competency (COC) Program

The SBA's Certificate of Competency (COC) program allows a small business to appeal a contracting officer's determination that it is unable to fulfill the requirements of a specific Government contract on which it is the apparent low bidder. When the small business applies for a COC SBA specialists conduct a detailed review of the firm's capabilities to perform on the contract. If the business demonstrates the ability to perform, the SBA issues a COC to the contracting officer requiring the award of that specific contract to the small business. The COC program helps ensure that the small business, especially those which are newly entering into the Federal procurement arena, are given a fair opportunity to compete for and receive Government contracts.

Note here that the COC focus is on a firm's ability to perform. The contracting officer might be concerned about the firm's technical expertise, its financial capability, or its capacity. Whatever the responsibility related concern might be, the small business has the right to appeal a contracting officer's determination.

A recent bid protest decision illustrates the difference between being responsible and not complying with the requirements of a solicitation.

Sea Box, a small business, protested the award of a contract to a competitor under a RFP (Request for Proposal) issued by GSA (General Services Administration) for relocatable simulator shelters (RSS) for the Air Force. GSA considered Sea Box's proposal to be unacceptable. Sea Box argued that GSA was required to refer its unacceptable proposal to the SBA (Small Business Administration) because the basis for eliminating Sea Box's bid from competition was related to responsibility.

The solicitation contained two pass/fail criteria. One of those criterion specified that GSA would reject any proposal that did not include a statement confirming that the RSS solution had been rated to operate at a secret classification level in accordance with characteristics specified in the solicitation. In order to demonstrate that they met the criterion, bidders were required to submit documentation that demonstrated in writing how the offerors' solution complied with the standards and documentation that demonstrated that its product had been previously certified/accredited by a Government security agency.

After reviewing Sea Box's proposal, the contracting officer determined that it failed to satisfy the pass/fail requirement because Sea Box did not submit a statement that confirmed its solution had been rated to operate at a secret classification level. As a result, GSA did not give further consideration to Sea Box's proposal.

Sea Box protested arguing that GSA eliminated its proposal from consideration based on a responsibility-related criteria, such that its unacceptable proposal should have been referred to the SBA. GSA argued that its rejection of Sea Box's proposal was not based on Sea Box's responsibility, but was instead based on whether Sea Box's product met the requirements of the solicitation.

The Comptroller General (CG) agreed with GSA finding that Sea Box did indeed fail to provide the required certification. As for Sea Box's contention that GSA was required to refer the proposal to SBA, the CG disagreed.

Where an agency finds the proposal of a small business to be unacceptable under a responsibility-related factor, that is, a factor pertaining to its ability to perform, such as whether it has adequate corporate experience or production equipment and facilities, the determination is essentially one of non-responsibility, meaning that referral to the SBA, which has the ultimate authority to determine the responsibility of small business concerns, is required. Where an agency rejects a proposal as technically unacceptable on the basis of factors not related to responsibility, however, referral to the SBA is not required. Likewise, where an agency rejects a proposal as technically unacceptable on the basis of a factor that is arguably responsibility related, but the finding of unacceptability is based on the offer's failure to submit specific documentation required by the solicitous, referral to the SBA is not required.

You can read the entire GAO decision here.

SBA Expands its Mentor-Protege Program

The U.S. Small Business Administration (SBA) amended its regulations last week to implement provisions of the Small Business Jobs Act of 2010 (takes awhile to go from statute to regulation, it seems) and the 2013 NDAA (National Defense Authorization Act). The new rule establishes a Government-wide mentor-protege program for all small business concerns, similar to the SBA's own mentor-protege program for participants in SBA's 8(a) business development program.

The 2010 Jobs Act was designed to protect the interests of small businesses and increase opportunities in the Federal marketplace. Congress recognized that mentor-protege programs serve an important business development function for small business and authorized SBA to establish separate mentor-protege programs for service disabled veterans, HUBZones, and women-owned small businesses.

The 2013 NDAA authorized SBA to establish a mentor-protege program for all small business concerns. This section provided that small business mentor-protege programs must be identical to the 8(a) mentor-protege program, with a few exceptions. It also prohibits individual agencies from setting up their own mentor-protege programs unless the SBA approves.

The regulations themselves are quite voluminous. You can read them here. One of the provisions allows any small business to form a joint venture with any larger, for-profit mentor business that is in sound financial condition thereby giving them access to advice and assistance, while, at the same time, maintain their eligibility for federal small-business set-aside contracts.

Some have asked the benefits of the program to the mentor. There are a few. Mentors can enter into joint-venture arrangements with proteges to compete for, and perform on, certain federal government contracts that wouldn't have been open to them as a stand-alone firm. Also, mentors can own up to 40 percent of the protege to help it raise capital.

New Resource for Small Businesses Seeking R&D Funding

The SBA (Small Business Administration) has released a new set of online tutorials to help small businesses navigate the SBIR (Small Business Innovation Research) program. Small businesses can learn about the program through a combination of videos and text. Best of all, there is no registration, no fees and no restrictions on who can access the site.

Within the tutorials, there are ten courses comprised of more than fifty modules. The courses include:

• SBIR/STTR program basics
• Government agencies that use the program (including differences in implementations)
• Agency solicitations
• How to find R&D topics
• Registration requirements
• Preparing a responsive proposal (good topic for everyone, not just SBIR solicitations)
• Finding partners
• Accounting and finance (many companies find out too late their systems are not adequate)
• SBIR data rights
• Cybersecurity for small business

There are several modules under each course. The "Accounting and Finance" course, for example, includes the following four modules:

1. FAQ regarding budgeting basics
2. What are the requirements of an approved accounting system?
3. What are indirect rates and how do I develop them?
4. What are eligible and ineligible expenses?

While these modules tend to be somewhat basic, they are succinct descriptions and introductions to companies considering the opportunities afforded through the SBIR program. They at least set forth the Government's expectations of the business systems contractors will need before acceptance into the program. If you have innovative ideas from tinkering around in your garage but have no company or business infrastructure, you're probably not going to get too far. On the other hand,  the barriers to entry are not too high so that with a modicum of organizational structure, you might attract some Government funding for your R&D ideas.

Access the SBA tutorials here.

DoD Usage of Sole-Source Procurements to 8(a) Firms Continues to Decline

The Small Business Administration's (SBA's) 8(a) program is the Federal Government's primary vehicle for developing small businesses. Tribal 8(a) firms, such as firms owned by Alaska Native Corporations, can with sole-source contracts for any dollar amount in the 8(a) program, while other 8(a) firms generally must compete for contracts valued above certain dollar thresholds.

Back in March 2011, the FAR (Federal Acquisition Regulation) was amended to include a new requirement for a written justification for sole-source 8(a) awards over $20 million, where previously no justification was required.

The Appropriations Act of 2015 contained a provision requiring GAO to assess the impact of the 8(a) justification at the Department of Defense. That GAO assessment report was recently issued. It addresses (i) trends among DoD sole-source and competitive 8(a) awards from fiscal years 2006 through 2015 and (ii) the factors to which DoD officials attribute these trends. GAO reviewed 14 sole-source contracts over $20 million, nine of which were followed by additional contracts for the same requirement.

GAO found that the number of sole-source contracts over $20 million at the Department of Defense has been steadily declining since 2011 when the new requirement for a written justification for these contracts went into effect. In contrast, the number of competitive 8(a) contracts over $20 million has increased in recent years.

Since September 2014, DoD has awarded only two sole-sourced 8(a) contracts, one for vehicle maintenance and repair and the other for engineering services. The contracting officer for the vehicle maintenance and repair contract told that GAO that these services would not be needed in the future. The contracting officer for the engineering services contract indicated that the last time for a sole-source award - in the future, awards for engineering services competition.

Contracting officers interviewed for this study overwhelmingly cited an agency-wide emphasis un using competition to obtain benefits, such as better pricing, as a reason for the decline in the use of sole-source 9(a) contracts over $20 million. Other factors included declining budgets and contract values falling under the $20 threshold that didn't require justification.

The GAO made no recommendations. You can read the full GAO report here.

SBA Cutting Corners to Sign Up New "8(a)" Business Development Firms

The Small Business Administration (SBA) 8(a) business development program provides economically and socially disadvantaged, small business owners with business development assistance and preference-based Federal contracts. The SBA has established stringent eligibility criteria for entrance into the program including (i) American citizenship, (ii) majority owned controlled and managed by socially and economically disadvantaged individuals, (iii) a potential for success, and (iv) showing good character. From January through May 2015, the SBA approved 249 firms applications for the 8(a) program.

The SBA's Office of Inspector General (OIG) recently published an audit report on its assessment of whether the 8(a) applicants met the SBA's eligibility criteria for the program. The results were not encouraging. Of the 249 firms approved for the 8(a) program, the OIG selected 48 of them to determine whether they qualified. Of the 48 selected, reviewers recommended not approving 46 of them because the firms did not meet one or more criteria for eligibility. These concerns included potential for success, economic disadvantaged, whether the disadvantaged individuals exerted control of the company among others. In two cases, the reviews questioned whether the applicants demonstrated good character. Some of the applicants approved were previously rejected by SBA.

Not to be undone, the director of the Office of Certification and Eligibility (OCE) and the Associate Administrator for Business Development (AA/BD) gathered  additional information for 18 of the 46 firms and based on this information, approved the 18 firms for entrance into the 8(a) program. However, for the remaining 28 firms (or 30 firms if you trust the OIG's math), the AA/BD approved the firms without documenting how the areas of concern raised by lower-level reviewers were resolved. As a result, the OIG concluded that it was not clear whether those 28 firms (or 30 firms) should have been approved into the 8(a) program.

The OIG noted that during the past year within SBA, the 8(a) program has experienced a change in leadership, identified an aggressive growth plan for the coming years, began testing a streamlined application process, and shifted responsibilities for continuing eligibility reviews. This new emphasis on expanding the program most likely contributed to the management override of lower-level concerns and recommendations.

The OIG recommended that the SBA improve its documentation of 8(a) eligibility. The SBA, of course, concurred, promising to do a better job of documenting applicants' qualifications.

You can read the entire OIG report here.

SBA Has Free Training Resources for Government Contracting

If you are like us, you receive numerous offers (perhaps daily) of training, seminars, and conferences related to Government contracting. We've taken a few of these ourselves, participated in some, and a few years back offered training as part of business. Typically, these offerings are very good with excellent content and experienced and competent speakers. But they are also expensive. One could easily spend $2,000 and more to register for a two-day seminar/conference. If you have to travel to get there, that's added cost. There are alternatives to spending a lot of money. The Small Business Administration, for example, offers a number of FREE online training modules that cover many topics of interest for companies desiring to enter the Government contracting arena. Let's look at a few.

Learn How to Prepare Government Contract Proposals. This is a 30 minute course comes with a 50 page workbook and explains the Government's contract solicitation process and describes how to prepare a proposal. Topics include:

• Building the foundation
• Types of solicitations
• Standard forms
• How to actually write the proposal
• Cost and pricing
• Relationships and the wisdom of others
• Resources and assistance

You can burn through this course in 30 minutes but if you take the time to follow and study many of the "links" provided in the course, it will take longer.

Government Contracting 101, Parts 1,Part 2, and Part 3. These three courses lasting 30, 18, and 33 minutes each respectively, cover topics that help small business understand Government contracting programs. All three courses come with workbooks. Part 1 provides a small business introduction to Government contracting, describing prime and subcontracting assistance programs, SBA certification programs as well as woman-owned and veteran-owned business programs. Parts 2 and 3 provides a lot of information on how the Government buys and how to sell to the Government.

There are many other free training courses available in SBA's Learning Center (59 as of today). If you're interested in Government contracting, using SBA's resources is an economical way to proceed.

What is the "Ostensible Subcontractor Rule"

The "ostensible subcontractor rule" is a concept that arises when the SBA (Small Business Administration) is determining whether a firm is considered a small business for purposes of bidding on Government contracts.

The ostensible subcontractor rule treats a prime contractor and its subcontractor as joint ventures and therefore affiliates, for size determination purposes when the subcontractor performs primary and vital requirements of a contract or the prime contractor is unusually reliant upon the subcontractor. This rule is designed to prevent other than small firms from forming relationships with small firms to evade SBA size requirements.

To determine whether the relationship between a prime contractor and a subcontractor violates the rule, SBA considers all aspects of the relationship including the terms of the proposal (such as contract management, technical responsibilities, and the percentage of subcontracted work), agreements between the prime and subcontractor (such as bonding assistance of the teaming agreement), and whether the subcontractor is the incumbent contractor and is ineligible to submit a proposal because it exceeds the applicable size standard for that solicitation.

The SBA evaluates ostensible subcontractor affiliation on a case-by-case basis. Factors that may be relevant include prime contractors that rely upon the subcontractor to provide key personnel, the relative inexperience of the prime contractor, the subcontractor supplying critical bonding, financing, or equipment, the subcontractor drafting the proposal, profit sharing arrangements, and hiring subcontractor rank and file employees, among many others.

A recent SBA size determination case illustrates the application of some of these concepts (see Size Appeal of Giacare and Medtrust JV (Giacare/Medtrust) versus Global Dynamics (GDL). In a solicitation issued by the Army Material Command, GDL submitted a proposal whereby it would perform 51 percent of the effort and OMV, a subcontractor, would perform the remaining 49 percent. GDL would also supply the full-time senior project manager to be responsible for day-to-day contract management and communication with the Government.

When the Army announced that GDL was the winning bidder, Giacare/Medtrust appealed on the basis that GDL was in violation of the ostensible subcontractor rule. Giacare/Medtrust alleged that GDL was a young company that began conducting business in 2010, had modest revenues, fewer than 10 employees, and little experience with contracts as large as the subject ID/IG (up to $200 million).

The SBA denied the protest based on three considerations. First, OMV (the subcontractor) employees will be under GDL's supervision. Second, GDL is not dependent on OMV for financial resources because GDL has sufficient financial resources to run the contract. Finally, GDL has experience in the health care industry (the nature of the contract).

Reminder to File Subcontract Reports

Contractors receiving a contract for more than the simplified acquisition threshold (currently $150 thousand) agree to utilize small businesses, small disadvantaged businesses, women-owned small businesses, historically underutilized business zone small businesses, veteran-owned small businesses, and serviced-disabled veteran-owned small business concerns participate in the performance of the contract to the extent practicable. Contractors receiving a contract or a modification to a contract expected to exceed $700 thousand must submit a subcontracting plan that provides maximum practicable opportunities for those types of businesses (see FAR 19.702).

In conjunction with these subcontracting plans for contracts greater than $700, contractors are required to submit semi-annual reports of the small business subcontracting progress to the Government. These semi-annual reports must be entered into the Individual Subcontract Report (ISR) module in the Electronic Subcontracting Reporting System (eSRS). The ISR is the electronic equivalent of the Standard Form 294, Subcontracting Report for Individual Contracts. The SF 294 is still used for certain contracts (e.g. classified contracts) but the electronic version is generally required.

These reports compare actual dollars awarded to the various classifications of small businesses with the contractor's goals for awards to those categories. Where do the goals come from? Usually the contractors goals conform to the Federal Government's goals. If they do not, contractors will probably be receiving a call from their contracting officers asking why not. Refer to the SBA website for the current goal percentages.

The cost to comply with the subcontract reporting requirements is not insignificant. The Government estimates that contractors will expend 40 hours per year to comply. This, in our opinion, is significantly understated however some larger contractors have implemented systems to facilitate the collection and reporting process.