Kenneth Dodds Director, Office of Policy, Planning & Liaison Small Business Administration September, 2014

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1 Kenneth Dodds Director, Office of Policy, Planning & Liaison Small Business Administration September, 2014

2 78 Fed. Reg (October 2, 2013) effective on or before December 31, 2013 Total Set-Aside, Partial Set-Aside, and Reserve of Multiple Award Contract Set Aside Orders under Reserve or Full and Open Competition

3 Total Set Aside Rule of Two, Parity Analysis Consider on/off ramps (partial and reserve as well) Compete orders among all awardees Performance Requirements (limitations on subcontracting) apply to each period of the contract (i.e., the base period and then each subsequent contract period), CO may require LOS compliance on an order-byorder basis

4 Partial Set Aside A total set-aside is not appropriate Procurement can be broken up into discrete portions or categories (CLINS, SINs, Functional Areas) Two or more SBCs expected to submit offer on set aside portion or category 13 CFR 125.1(n) Orders competed only among SBCs under set aside portion SBCs can also compete for orders under portion that is not set aside

5 Reserve Full and Open, but 2 or more awards to one type of SBC, set aside orders if rule of two is met 2 or more awards to different types of SBCs, set aside orders if rule of two is met 1 award to any type of SBC, direct awards to SBC Award on a bundled contract to business with Small Business Teaming Arrangement (13 CFR 125.1(u)

6 NAICS codes and size standards Contract: (1) One NAICS code and size standard for the contract, or (2) Divide contract into discrete categories and assign NAICS code and size standard to each category Order: Each order must have a NAICS code and size standard

7 Set Aside Task and Delivery Orders LOS and NMR apply to order Total and Partial Set-Asides of MAC contracts Compliance with LOS and NMR applies to the base term and then each option period, but CO may require for each order Reserve LOS and NMR only apply to set aside orders 8(a) SBA District Director may waive LOS for a period or order, provided firm will comply over the entire term of the contract

8 (2) With respect to "Agreements" including Blanket Purchase Agreements (BPAs) (except for BPAs issued against a GSA Schedule Contract), Basic Agreements, Basic Ordering Agreements, or any other Agreement that a contracting officer sets aside or reserves awards to any type of small business, a concern must qualify as small at the time of its initial offer (or other formal response to a solicitation), which includes price, for the Agreement. Because an Agreement is not a contract, the concern must also qualify as small for each order issued pursuant to the Agreement in order to be considered small for the order and for an agency to receive small business goaling credit for the order.

9 Where the contracting officer explicitly requires concerns to recertify their size status in response to a solicitation for an order, SBA will determine size as of the date the concern submits its self-representation as part of its response to the solicitation for the order.

10 Recertification now applies to Program Status: SDVO, WOSB, HUBZone Contracts 13 CFR (e), (h), (f) Recertification applies to both acquired concern and acquiring concern 13 CFR (g)(2)(ii) Prohibits cascading evaluation unless agency has specific statutory authority 13 CFR 125.2(e)(7)

11 COC referral required where CO makes responsibility determination in connection with an order - 13 CFR 125.5(a) COC referral required where CO will not consider SBC for award after evaluating responsibility related evaluation factor on a pass/fail or go/no go basis 13 CFR 125.5(a) COC referral required where CO finds SBC does not meet definitive responsibility criteria 13 CFR 125.5(a)

12 These regulations apply to all types of Federal Government contracts, including Multiple Award Contracts, and contracts for architectural and engineering services, research, development, test and evaluation. Small business concerns must receive any award (including orders, and orders placed against Multiple Award Contracts).which SBA and the procuring or disposal agency determine to be in the interest of assuring that a fair proportion of the total contracts in each industry category are placed with small business concerns 13 CFR 125.2(a)

13 At the SBA's discretion, PCRs will review all acquisitions that are not set-aside or reserved for small businesses above or below the Simplified Acquisition Threshold, to determine whether a set-aside or sole source award to a small business under one of SBA's programs is appropriate and to identify alternative strategies to maximize the participation of small businesses in the procurement. This review includes acquisitions that are Multiple Award Contracts where the agency has not set-aside all or part of the acquisition or reserved the acquisition for small businesses. It also includes acquisitions where the agency has not set-aside orders placed against Multiple Award Contracts for small business concerns. 13 CFR 125.2(b)

14 The procuring agency contracting officer must document the contract file and explain why the procuring agency did not partially set-aside or reserve a Multiple Award Contract, or set-aside orders issued against a Multiple Award Contract, when these authorities could have been used. 13 CFR 125.2(e)(1)(iii)

15 Respondents have questioned whether orders may be set aside for certain socioeconomic categories under contracts that have already been set aside for a broader socioeconomic category-- e.g., whether an order can be set aside for HUBZone SBCs under a total small business set-aside multiple award contract. SBA believes that such an outcome would be unfair to the other small business concerns that competed for and obtained the contract. We also believe that the current differences in program requirements, such as the differences in limitations on subcontracting and the nonmanufacturer rule among the programs, make such an approach impractical. However, we note that SBA will be exploring the differences in performance requirements among the various programs when it implements Section 1651 of the National Defense Authorization Act of Fed. Reg , (October 2, 2013)

16 SBA explained in the proposed rule that when exercising his or her discretion to decide among the three section 1331 authorities, a contracting officer need not follow any particular order of precedence--that is, the contracting officer is not required to consider partial set-asides first, and then reserves and then the set-aside of orders. In other words, if an agency could do a partial set-aside or set-aside orders under a full and openly competed contract, there is no preference for doing the former over the latter. Rather, all three should be considered as part of acquisition planning, and if more than one option is available, the agency should give careful consideration to the option that works best for the agency. 78 Fed. Reg , (October 2, 2013)

17 As stated above, whether the agency ultimately uses any of the three authorities is left to the agency's discretion. However, the agency is ultimately held accountable for taking all reasonable steps to meet its small business goals. In other words, when utilizing this discretion, the procuring agency and contracting officer must consider the statutory requirements and small business contracting goals that are designed to help ensure that small businesses receive a fair proportion of all awards. Consequently, SBA proposed that if the contracting officer decides not to partially set aside or reserve a multiple award contract, or set aside orders against a multiple award contract that is full and openly competed when it could have, then the contracting officer must explain the decision and document it in the contract file. 78 Fed. Reg , (October 2, 2013)

18 SBA explained that the requirement to document a decision not to utilize small businesses is already in the FAR and therefore not a new requirement. However, this change would result in new documentation requirements for orders under multiple award contracts. Agencies must consider small business utilization during acquisition planning. Specifically, agencies must include in the acquisition plan all of the prospective sources of supplies or services that can meet the need, giving consideration to small business and addressing the extent and results of the market research. FAR 7.105(b)(1) Further, the acquisition plan must explain how the proposed action benefits the Government, including when "[o]rdering through an indefinite delivery contract facilitates access to small disadvantaged business concerns, 8(a) contractors, women-owned small business concerns, HUBZone small business concerns, veteran-owned small business concerns, or servicedisabled veteran-owned small business concerns." FAR 7.105(b)(5)(B)(ii). 78 Fed. Reg , (October 2, 2013)

19 Finally, agencies must document their decision to not proceed with a set-aside pursuant to FAR (c), which states that: "The contracting officer shall perform market research and document why a small business set-aside is inappropriate when an acquisition is not set aside for small business, unless an award is anticipated to a small business under the 8(a), HUBZone, servicedisabled veteran-owned, or WOSB programs. 78 Fed. Reg , (October 2, 2013)

20 The majority of respondents believe, and SBA agrees, that the contracting officer should be required to document the decision to not use one of the authorities and that this is not a burden on contracting officers since they are always required to consider the use of small businesses during acquisition planning. In addition, we believe that the rule needs to specifically address this fact in order to avoid any confusion on this issue. However, because this authority is discretionary, we do not believe that agencies should be required to post their rationale online, receive approval from higher authorities, or be held to a higher standard if they failed to meet their small business goals the prior year. We believe that requiring agencies to document the decision is sufficient to ensure that the contracting officer and program managers considered the use of small businesses. 78 Fed. Reg , (October 2, 2013)

21 FAR Use of other sources. If an agency is unable to satisfy requirements for supplies and services from the mandatory sources listed in and 8.003, agencies are encouraged to consider satisfying requirements from or through the non-mandatory sources listed in paragraph (a) of this section (not listed in any order of priority) before considering the non-mandatory source listed in paragraph (b) of this section. When satisfying requirements from non-mandatory sources, see 7.105(b) and Part 19 regarding consideration of small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business (including 8(a) participants), and women-owned small business concerns. (a)(1) Supplies. Federal Supply Schedules, Governmentwide acquisition contracts, multi-agency contracts, and any other procurement instruments intended for use by multiple agencies, including blanket purchase agreements (BPAs) under Federal Supply Schedule contracts (e.g., Federal Strategic Sourcing Initiative (FSSI) agreements accessible at (see also 5.601)). (2) Services. Agencies are encouraged to consider Federal Prison Industries, Inc., as well as the sources listed in paragraph (a)(1) of this section (see Subpart 8.6). (b) Commercial sources (including educational and non-profit institutions) in the open market.

22 Small Business Jobs Act of USC 637(d)(6) 15 USC 637(d)(12) 78 Fed. Reg (Final) July 16, 2013 Effective August 15, CFR Fed. Reg (Proposed) October 5, 2011

23 Prime must notify CO when it fails to pay sub within 90 days, where sub has completed performance and prime has been paid Prime must notify CO when prime used sub to prepare offer, but not in performance CO consider both as part of past performance Firm with history of late payment may be reported in FAPIIS

24 The following should not be included in the subcontracting base: internally generated costs such as salaries and wages; employee insurance; other employee benefits; payments for petty cash; depreciation; interest; income taxes; property taxes; lease payments; bank fees; fines, claims, and dues; Original Equipment Manufacturer relationships during warranty periods (negotiated up front with product); utilities such as electricity, water, sewer, and other services purchased from a municipality or solely authorized by the municipality to provide those services in a particular geographical region; and philanthropic contributions. Utility companies may be eligible for additional exclusions unique to their industry, which may be approved by the contracting officer on a case-by-case basis. Exclusions from the subcontracting base include but are not limited to those listed above. 13 CFR 125.3(a)(1)(iii)

25 Subcontracting goals required under paragraph (c) of this section must be established in terms of the total dollars subcontracted and as a percentage of total subcontract dollars. However, a contracting officer may establish additional goals as a percentage of total contract dollars. 13 CFR 125.3(a)(2)

26 A prime contractor has a history of unjustified untimely or reduced payments to subcontractors if the prime contractor has reported itself to a contracting officer in accordance with paragraph (c)(5) of this section on three occasions within a 12 month period 13 CFR 125.3(a)(3)

27 The contractor may not prohibit a subcontractor from discussing any material matter pertaining to payment or utilization with the contracting officer 13 CFR 125.3(c)(1)(iii)

28 The contractor must assign each subcontract the NAICS code and corresponding size standard that best describes the principal purpose of the subcontract (See ). The prime contractor may rely on subcontractor selfcertifications made in SAM (or any successor system), if the subcontract contains a clause which provides that the subcontractor verifies by submission of the offer that the size or socioeconomic representations and certifications in SAM (or any successor system) are current, accurate and complete as of the date of the offer for the subcontract. A prime contractor or subcontractor may not require the use of SAM (or any successor system) for purposes of representing size or socioeconomic status in connection with a subcontract 13 CFR 125.3(c)(1)(v)

29 The contractor must provide pre-award written notification to unsuccessful small business offerors on all subcontracts over $150,000 for which a small business concern received a preference. The written notification must include the name and location of the apparent successful offeror and if the successful offeror is a small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, or women-owned small business As a best practice, the contractor may provide the pre-award written notification to unsuccessful and small business offerors on subcontracts at or below $150,000 and should do so whenever practical. 13 CFR 125.3(c)(1)

30 An offeror must represent to the contracting officer that it will make a good faith effort to acquire articles, equipment, supplies, services, or materials, or obtain the performance of construction work from the small business concerns that it used in preparing the bid or proposal, in the same scope, amount, and quality used in preparing and submitting the bid or proposal. Merely responding to a request for a quote does not constitute use in preparing a bid or offer. 13 CFR 125.3(c)(3)

31 An offeror used a small business concern in preparing the bid or proposal if: (i) The offeror references the small business concern as a subcontractor in the bid or proposal or associated small business subcontracting plan; (ii) The offeror has a subcontract or agreement in principle to subcontract with the small business concern to perform a portion of the specific contract; or (iii) The small business concern drafted any portion of the bid or proposal or the offeror used the small business concern's pricing or cost information or technical expertise in preparing the bid or proposal, where there is written evidence (including ) of an intent or understanding that the small business concern will be awarded a subcontract for the related work if the offeror is awarded the contract.

32 A prime contractor shall notify the contracting officer in writing if upon completion of the responsibilities of the small business subcontractor (i.e., the subcontractor is entitled to payment under the terms of the subcontract), the prime contractor pays a reduced price to a small business subcontractor for goods and services provided for the contract or the payment to a small business subcontractor is more than 90 days past due under the terms of the subcontract for goods and services provided for the contract and for which the Federal agency has paid the prime contractor. "Reduced price" means a price that is less than the price agreed upon in a written, binding contractual document. The prime contractor shall include the reason for the reduction in payment to or failure to pay a small business subcontractor in any written notice. 13 CFR 125.3(c)(5)

33 CO, in his or her discretion, may require the prime contractor (other than a prime contractor with a commercial plan) to update its subcontracting plan when an option is exercised. CO shall require the prime contractor (other than a contractor with a commercial plan) to submit a subcontracting plan if the value of a modification causes the value of the contract to exceed the subcontracting plan threshold and to the extent that subcontracting opportunities exist. 13 CFR 125.3(c)

34 CO, in his or her discretion, may require a subcontracting plan if a prime contractor's size status changes from small to other than small as a result of a size recertification. Where a subcontracting plan is amended in connection with an option, or added as a result of a recertification or modification, the changes to any existing plan are for prospective subcontracting opportunities and do not apply retroactively. However, since achievements must be reported on the ISR (or the SF-294, if applicable) on a cumulative basis from the inception of the contract, the contractor's achievements prior to the modification or option will be factored into its overall achievement on the contract from inception. 13 CFR 125.3(c)

35 Subcontracting in Source Selection CO may include evaluation factor that considers and compares: Prime s proposed approach to subcontracting The extent to which Prime met subcontracting goals under prior contracts The extent to which Prime timely paid subcontractors under prior contracts Prime s commitment to pay subcontractors within a specified number of days

36 Multiple award contracts. (1) the contracting officer shall require a subcontracting plan for each multiple award indefinite delivery, indefinite quantity contract (including Multiple Award Schedule), where the estimated value of the contract exceeds the subcontracting plan thresholds (2) Contractors shall submit small business subcontracting reports for individual orders to the contracting agency on an annual basis. (3) The agency funding the order shall receive credit towards its small business subcontracting goals. More than one agency may not receive credit towards its subcontracting goals for a particular subcontract. (4) The agency funding the order may in its discretion establish small business subcontracting goals for individual orders, blanket purchase agreements or basic ordering agreements (h)

37 An offeror for a covered contract that intends to identify a small business concern as a potential subcontractor in a bid or proposal for the contract, or in a plan submitted pursuant to this subsection in connection with the contract, shall notify the small business concern prior to making such identification. 15 USC 637(d)(14)

38 (A) For purposes of determining whether or not a prime contractor has attained the percentage goals specified in paragraph (6)-- `(i) if the subcontracting goals pertain only to a single contract with the executive agency, the prime contractor shall receive credit for small business concerns performing as first tier subcontractors or subcontractors at any tier pursuant to the subcontracting plans required under paragraph (6)(D) in an amount equal to the dollar value of work awarded to such small business concerns; and `(ii) if the subcontracting goals pertain to more than one contract with one or more executive agencies, or to one contract with more than one executive agency, the prime contractor may only count first tier subcontractors that are small business concerns. `(B) Nothing in this paragraph shall abrogate the responsibility of a prime contractor to make a good-faith effort to achieve the first tier small business subcontracting goals negotiated under paragraph (6)(A), or the requirement for subcontractors with further opportunities for subcontracting to make a good-faith effort to achieve the goals established under paragraph (6)(D).'. 15 USC 637(d)(16)

39 78 Fed. Reg (June 28, 2013) Presumption of loss equal to the total amount expended on the contract where the firm willfully sought small or socioeconomic award by misrepresentation Deemed certifications by submission of offer Limitations on liability for unintentional errors, technical malfunctions Penalties for misrepresentation include debarment and suspension, civil penalties, criminal penalties

40 FAR (e) The contracting officer shall insert the clause at , Limitations on Subcontracting, in solicitations and contracts for supplies, services, and construction, if any portion of the requirement is to be set aside or reserved for small business and the contract amount is expected to exceed $150,000. This includes multiple-award contracts when orders may be set aside for small business concerns, as described in and (b)(2)(i)(F). Compliance is the responsibility of the KO

41 (1) In the case of a contract for services (except construction), the concern will perform at least 50 percent of the cost of the contract incurred for personnel with its own employees. (2) In the case of a contract for supplies or products (other than procurement from a non-manufacturer in such supplies or products), the concern will perform at least 50 percent of the cost of manufacturing the supplies or products (not including the costs of materials).

42 In the case of a contract for general construction, the concern will perform at least 15 percent of the cost of the contract with its own employees (not including the costs of materials) In the case of a contract for construction by special trade contractors, the concern will perform at least 25 percent of the cost of the contract with its own employees (not including the cost of materials) 13 CFR 125.6(a)(3), (4)

43 Current Regulation: SDVO and HUBZone Set Asides allow similarly situated subcontractors to count towards the performance requirement Current Regulation: HUBZone has 50 percent construction and specialty trade construction performance requirement, and prime must performance 25 or 15 percent minimum, respectively. CO may waive this requirement FAR (d)(3), (4), (d)(3), (4), 13 CFR

44 Current Regulation: WOSB, EDWOSB same performance requirements as Small Business and 8(a) subcontractor performance does not count 13 CFR 125.6(a) 8(a) Joint Ventures Must Report on Compliance for 8(a) contracts to the SBA District Office

45 National Defense Authorization Act of 2013 In the case of a contract for services, may not expend on subcontractors more than 50 percent of the amount paid to the concern under the contract In the case of a contract for supplies (other than from a regular dealer in such supplies), may not expend on subcontractors more than 50 percent of the amount, less the cost of materials, paid to the concern under the contract Similarly Situated Entities - Contract amounts expended by a covered small business concern on a subcontractor that is a similarly situated entity shall not be considered subcontracted Sealift, Inc., B , Jan. 6, 2014

46 Authority to establish program for all small business concerns 15 U.S.C. 657r Authority to review and approve small business mentor protégé programs of other agencies Within one year of final regulations

47 Kenneth Dodds Director, Office of Policy, Planning & Liaison Questions?