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On October 1, 2011, "redesignated" HUBZone areas will expire. These areas were previously set to expire at earlier dates, but in 2004, Congress extended and "grandfathered" their HUBZone status until the results of the 2010 Census were published. The original "redesignated" expiration date was June 1, 2011, but it was extended and now will take effect on October 1, 2011. The Small Business Administration is encouraging all currently-certified HUBZone concerns to assess the impact expiration of "redesignated" areas will have on their eligibility to remain in the HUBZone program, whether a concern’s principal office is currently located in a "redesignated" area or if it relies upon the employment of residents in redesignated areas to meet the "35%" rule.

The HUBZone program does not require termination of existing HUBZone contracts if a concern is no longer eligible after October 1, 2011. However, because a concern must be properly certified and eligible as of the date (a) it submitted its initial offer for the contract and (b) the date the contract was awarded, expiration of "redesignated" areas may impact pending offers. Also, regardless of whether a current HUBZone concern has an offer pending for a federal contract, it must always notify the SBA of any "material" change which could impact its HUBZone eligibility. Firms that will no longer qualify for the HUBZone program as of October 1, 2011, can voluntarily de-certify. If that is not done, the SBA will send proposed de-certification letters which must be responded to within thirty (30) days.

Concerns which voluntarily decertify or otherwise become non-compliant with the HUBZone program as of October 1, 2011, can re-apply after ninety (90) days have passed since the date of a voluntary decertification agreement or decertification.

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Effective March 14, 2011, a final rule by the Small Business Administrations implements important changes to various regulations affecting size status and eligibility for the 8(a) Business Development Program/SDB Status Determinations. Substantive changes include the rule on affiliation among joint ventures, calculation of net worth, and new requirements for 8(a) joint venture agreements.

Prior to this new final rule, entities were not affiliated as joint venturers provided they only joint ventured to submit no more than 3 offers on Federal projects over a 2-year period. Under the new rule, joint ventures can be awarded 3 projects over a 2-year period and not be considered affiliates based on their joint venture activities. Joint venturers can now re-constitute their joint venture and be awarded 3 additional projects over subsequent 2-year periods.

Other changes affect the determination of who is economically disadvantaged. In determining one’s net worth, "[f]unds invested in an Individual Retirement Account or other official retirement account that are unavailable to an individual until retirement age without a significant penalty will not be considered in determining an individual’s net worth." Personal income averages for initial and continuing 8(a) program eligibility have also been established by the SBA.

The required contents of 8(a) joint venture agreements will also change effective March 14, 2011. To the extent other SBA contracting-assistance programs rely on the regulation for proper 8(a) joint venture agreements, those other programs will be affected by these changes, as well.

This final rule is extensive and includes other substantive and technical changes. Click here to view the Final Rule.

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On October 4, 2010, the U.S. Small Business Administration published a final rule in the Federal Register establishing a federal contracting programs for WOSBs.  See Press Release.  In a press release of the same date, the SBA says the new WOSB program will be used to help achieve a statutory goal that 5% of federal contracting dollars go to women-owned small businesses. [insert pdf] Under the program, contracts may be set-aside for competition among WOSBs when the anticipated contract price is not expected to exceed $3 million, except in the case of manufacturing contracts, is not expected to exceed $5 million.

The basic requirements to qualify as a WOSB are that the company be owned and controlled at least 51% by one or more women who are U.S. citizens and "small" according to its primary industry classification. According to the SBA, it will "pursue vigorously punitive action against ineligible firms which seek to take advantage of this program and in so doing deny its benefits to the intended legitimate WOSBs."

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In March, the United States General Accountability Office ("GAO") issued its finding and recommendations concerning fraud in the 8(a) Program. 8(a) Program Report. During its investigation, GAO discovered that at least 14 ineligible firms had received $325 million in sole-source and set-aside contracts. The GAO investigation discovered evidence of an entity fraudulently reporting adjusted net worth; an entity that was merely an extension of a graduated 8(a) firm; a top executive who was not disadvantage controlling the management and operation of the certified firm; an entity that was merely a shell company for a large construction firm managed by a non-disadvantaged individual; failure on the part of the president of an entity to report ownership in significant assets to the SBA; an entity that continued to receive 8(a) contract after it graduated from the 8(a) program by using other certified firms as pass-throughs; and a president who falsely reported his annual salary to the SBA.

The GAO report contains extensive details on the 14 entitles that were investigated and recommendations to the SBA for addressing the seemingly pervasive fraud in the SBA 8(a) Program. The report makes for interesting reading. More importantly, however, it should serve as a warning to individuals and entities "gaming" the SBA’s 8(a) Program that greater scrutiny of applicants and certified firms can be expected.

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Service-Disabled Veteran Owned ("SDVO") contracts are one of several types of "set-aside" contracts which permit qualified entities to compete for federal government contracts on other than "full and open" competition terms. SDVO contracts are taking their place among small business set-asides, 8(a) set-asides, and HUBZone set-asides. With submission of its initial offer for a SDVO Small Business Concerns ("SBC") contract set-aside, a concern must certify that:

 

• it is a SDVO SBC

 

• it is "small" as defined by the NAICS code assigned to the procurement

 

• it will comply with the percentage of work requirements set forth in 13 CFR 125.6

 

• if a joint venture, that both members of the joint venture are small; and

 

• if applicable, it is an eligible nonmanufacturer.

Even if a SDVO meets all of the foregoing on a particular procurement, it must still consider the Small Business Administration’s ("SBA") rules on affiliation, all of which can apply to render a "technically" compliant SDVO as "other than small" and therefore ineligible for the award of SDVO contracts. Whether a SDVO wants to ensure it has not run afoul of the rules prohibiting affiliation between SBCs or a SDVO competitor wants to successfully challenge the SDVO status of a competitor, the SDVO needs to be familiar with the rules by which the SBA determines entities to be affiliated.

For example, a SDVO that is deemed unduly reliant upon a subcontractor for performance of the vital or primary functions of a contract may be deemed to be affiliated with the subcontractor. If the average annual receipts of the SDVO and this "ostensible" subcontractor exceed the applicable size limitation, the SDVO will be deemed ineligible for the SDVO contract. More basic still could be a finding of affiliation based on the "newly organized concern" or shared ownership rules.

Affiliation with a subcontractor may also be found even though a subcontractor is not performing the vital or primary functions of a contract. While bonding assistance alone by a subcontractor generally does not create affiliation between a SBC and a subcontractor, when coupled with other performance assistance, it could result in a finding of affiliation. Other indicia of "assistance" include, but are not limited to, bid preparation by the subcontractor rather than the prime SDVO; the loan of equipment to the SDVO by a subcontractor; office sharing by the SDVO and a subcontractor; and payroll, bookkeeping, and other "back office" assistance by the subcontractor. The proximity of the SDVO’s offices may also come into play when affiliation with a subcontractor is examined. For instance, where a SDVO SBC has been located 1100 miles away from the site of contract performance has been determined by the SBA to render the SDVO unduly reliant upon a subcontractor because the SDVO is too remote to provide meaningful, day-to-day management of the project. However, an SDVO’s location 100 miles away from the site of contract performance has been deemed not too remote.

Whether affiliation exists to render your SDVO or a competitor’s SDVO ineligible for a particular procurement or ineligible generally for the SDVO program is very fact-specific. To minimize the risk of being declared "other than small" SDVOs should carefully review all rules by which the SBA examines allegations of affiliation.

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The Small Business Administration (SBA) plans to implement a Women-Owned Small Business (WOSB) program that includes a full complement of benefits similar to those for the 8(a), HUB-Zone, and other programs. On May 11, 2009, the SBA announced in the Federal Register that it will revoke its previous proposed rule for a WOSB program and promulgate a new rule. Click here for announcement. [.pdf] The SBA says it is "committed to moving forward to implement a successful WOSB procurement program."

To qualify as a WOSB, a company must be small and at least 51% unconditionally and directly owned and controlled by one or more women who are United States citizens. An EDWOSB is a small business that is at least 51% unconditionally and directly owed by one or more women who are United States citizens and economically disadvantaged.

Currently, the WOSB program is limited in scope. It encourages prime contractors to subcontract with WOSBs but does not include many of the significant business opportunities SBA has established for other entities considered socially or economically disadvantaged. For instance, there currently are no set-aside procurements exclusively for competition among WOSBs. Also, there are no sole-source prime contracts for WOSBs. Nor do they enjoy any evaluation preferences in full-and-open competitions as currently exist in other socio-economic programs.

No firm date for issuance of a proposed WOSB program has been established, but the May 11, 2009, notice in the Federal Register anticipates a new announcement some time in July 2009.

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