Government Contracts Monitor

SBA Issues Interim Final Rule Eliminating the Size Limitations in SBA’s Regulations on Women-Owned Small Business Contract Set-Asides

May 13, 2013

As noted in last week’s article discussing the new “ChallengeHER” Program for Women-Owned Small Businesses recently announced by the Small Business Administration (“SBA”), Congress has eliminated the statutory caps on the value of contracts that can be set-aside for competition among Women-Owned Small Businesses (“WOSBs”) and Economically Disadvantaged Women-Owned Small Businesses (“EDWOSBs”).  This means that contracts of any dollar value size may now be set aside, provided that the Contracting Officer has a reasonable expectation that (i) at least two qualifying companies will submit offers, and (ii) award will be made at a fair and reasonable price.

The caps, formerly set forth in Subparagraph (D) of Section 8(m)(2) of the Small Business Act, 15 U.S.C. § 637(m)(2), and as adjusted by SBA for inflation (see 77 Fed. Reg. 1861 (Jan. 12, 2012)), limited the award value size of contracts that could be set aside to $6.5 million for manufacturing contracts and $4.0 million for all other contracts.  Congress eliminated these caps by striking  Subparagraph (D), per Section 1697(a) of the National Defense Authorization Act for Fiscal Year 2013 (“NDAA”).  The NDAA was signed by President Obama on January 2, 2013.  This statutory change was intended to enhance procurement opportunities for WOSBs and was effective immediately, so it did not require any regulatory implementation.

However, as often is the case, the former statutory caps on the size of contracts that could be set aside had previously been carried forward into SBA’s Regulations implementing the WOSB Program (see 13 C.F.R. Part 127, and specifically former 13 C.F.R. § 127.503(a)(2) & (b)(2)), as well as the WOSB Program provisions of the Federal Acquisition Regulation (“FAR”) (see FAR Subpart 19.15, and specifically FAR 19.1505(b)(2) & (c)(2)).  The continuation of these now outdated regulations is inconsistent with the law as changed by Congress, and could lead to confusion and inadvertent undermining of Congress’s intent in eliminating the caps.

SBA therefore has now issued an Interim Final Rule, amending SBA’s Regulations, effective immediately as of the May 7, 2013 publication date, eliminating the references to such caps.   See 78 Fed. Reg. 26504 (May 7, 2013).  SBA states that its purpose in issuing the new Rule is “to implement Section 1697 of the [NDAA, which] removed the statutory limitation on the dollar amount of a contract that women-owned small businesses can compete for under the [WOSB] Program.  As a result, contracting officers may now set-aside contracts at any dollar level, as long as the other requirements for a set-aside under the program are met.”  Id. 

Interestingly, these size limitations were unique to the WOSB and EDWOSB programs.  No comparable ceilings existed for other similar socio-economic programs.  By eliminating the caps, Congress effectively leveled the playing field with other similar programs.  This is consistent with Congress’s previously stated intent that there be “no order of precedence among [the various socio-economic programs].”  FAR 19.203(a).

Importantly, SBA’s new Rule is effective immediately and applies to all solicitations issued on or after May 7, 2013.  In justifying the publication of an Interim Final Rule, as well as making the Interim Final Rule effective immediately, SBA first stated its “belief” that Section 1697 was effective immediately upon issuance, and that SBA was merely conforming its regulations to the amended statute “without interpretation or policy changes,” and that such changes were necessary so that the SBA regulations would not be “inconsistent with the statute” or “lead to confusion among the public and other federal agencies.”  78 Fed. Reg. at 26505.  SBA next stated that the Small Business Goaling Report for Fiscal Year 2011 shows that the Federal Government awarded only 3.97% of its contracts to WOSBs (click here), thus falling short of the statutory 5% goal for WOSBs.  SBA stated that, by removing the limitations in the SBA Regulations, “SBA will be clarifying that there are more contracting opportunities for WOSBs, which should result in more contracts being awarded to this group of small businesses.  Consequently, SBA believes it is necessary to implement this rule as quickly as possible.”  Id.

This new Rule should not be controversial since, as SBA points out, the Rule merely conforms SBA’s Regulations to the amended statute.  However, SBA is affording the public until June 6, 2013, to submit comments, and explicitly commits to “review any comments received.”  Id.

SBA’s new Rule should help focus attention on the important action taken by Congress in eliminating the former statutory caps limiting the size of contracts that could be set aside for WOSBs and hopefully will enhance contracting opportunities for WOSBs.  Some clients have told us that they often hear that WOSB goals are not an issue for contracting agencies.  However, this may be changing with the Obama Administration’s increasing pressure on agencies to meet all of the small business goals, including last year’s new requirement that performance evaluations of Senior Executive Service(“SES”) personnel overseeing agency acquisition workforces include agency small business contracting goals.  See OFPP June 6, 2012 Memo.  NDAA Section 1633(b) explicitly mandates that the head of each agency take steps to ensure that SES members responsible for acquisition assume responsibility for “the agency’s success in achieving small business contracting goals and percentages.”

However, the lingering outdated similar ceiling language in the FAR may cause some continuing confusion and uncertainty on the part of Contracting Officers.  The FAR Council has opened FAR Case 2013-010 to remedy this discrepancy, but as of the date of this posting, no amendment to the FAR has been published.  In the interim, WOSBs confronting this issue should bring the SBA’s instant Rule and reasoning to the cognizant Contracting Officer’s attention and ensure that the Contracting Officer is aware of the change in law.

For further information on the WOSB Program, see our prior article on the Program and the SBA resources available on the SBA website at http://www.sba.gov/content/women-owned-businesses.

 

Hopewell Darneille is the attorney responsible for the content of this article.