The Small Business Administration (SBA) proposed a rule that will significantly affect government contract holders. This rule intends to clarify and condense existing certification policies, but appears that the proposed changes will majorly impact the eligibility for small business set-aside contracts, mergers and acquisitions, and could have other consequences for small businesses.

Size status and certification has been handled by each classification’s respective section of the FAR. The rule aims to combine all business size classifications under one regulation, 13 C.F.R. § 125.12. While this seems to be a step toward efficiency, it will change current practices understood by business for their size and status.

Under current practices a contractor’s size and status are determined at the award and remain under that size/status classification for the remainder of the contract, with a few exceptions. This rule changes that standard. SBA is identifying triggering events that require a contractor to recertify under a contract or order. Triggering events include novation, merger, acquisition, or sale; 120 days prior to Long-term contracts/MAS option renewal, requested by contracting officer or change in structure of the company (or either member of a JV). The new SBA rule states that “size is determined as of the date that the triggering event occurred.” There are other changes we will discuss, but the key for GSA contract holders to understand is that if they are awarded a contract as a small business, but a later disqualifying recertification occurs under a task order, they will no longer be able to pursue other set-aside orders under the contract and will need to pivot to full and open opportunities only and you will not be eligible for options on any small business set-aside SINs.

Additional changes addressed under the rule include the following:

HUBZone Changes

SBA is proposing to change rules that affect socioeconomic program recertification. Previously, the regulations were in multiple parts (regulations (part 121 for size; part 124 for 8(a); part 126 for HUBZone; part 127 for WOSB; and part 128 for SDVOSB). Although these changes have been minimally updated throughout the years, the rules have not always been consistent across all small business programs. Therefore, SBA is proposing to delete the different regulation parts and combine them into a single regulation part at 13 C.F.R. SBA believes this consolidation will also help correct the incorrect interpretations of the SBA rule adopted by the Government Accountability Office (GAO) and SBA’s Office of Hearings and Appeals (OHA). The new rule will change the definition of “employee” to increase the number of minimum work hours needed for an individual to count as an employee. The new definition requires that all employees, to be counted, must work at least 80 hours in the previous four weeks. Additionally, HUBZone companies will need to be eligible on the date of offer for the contract which will relieve the burden of the recertification annually. Instead, the recertification will be every three years.

Size and Negative Control

SBA is empowering 8(a) and Woman-owned small businesses in Joint Ventures by ensuring the negative-control rules are consistent across SBA programs. Negative- control rules allow the small business to have control in the JV even if they are a minority shareholder. The language would help to clarify that under “extraordinary circumstances” a minority shareholder may have some decision-making authority. SBA will find that a lack of control does not exists when a qualifying individual or business does not have the unilateral power and authority to make decisions regarding: (1) adding a new equity stakeholder; (2) dissolution of the company; (3) sale of the company or all assets of the company; (4) the merger of the company; (5) the company declaring bankruptcy; and amendment of the company’s governance documents to remove the shareholder’s authority to block any of the above mentioned circumstances. These exceptions to negative control are being implemented to promote consistency with other SBA contracting programs.

This would permit all small businesses to seek equity funding without becoming affiliated with the investors solely because of a broad interpretation of the negative-control rule. SBA specifically requests comments as to whether the identified exceptions are sufficient or whether one or more additional exceptions should also be included in the regulations.

Business Size and 8(a) Business Development Recertification Regulations

SBA is proposing to reorganize and simplify the date used to determine size certifications. Currently the size of the company is determined by a NAICS code that is assigned to the contract. If the company qualifies as small during the submission of their offer and the contract is awarded, the company is generally considered to be small for the life of the contract.

This proposed rule states that when a contracting officer requests size recertification with respect to a specific order or agreement, the size is determined as of that date for that specific order or agreement only. The recertification does not apply to other contracts. If an initially-small contract holder has grown to be considered other than small and could not recertify as small for a specific order or agreement it may continue to qualify as small for their other orders or agreements..

Other factors that will trigger a recertification include a merger, sale, acquisition, or as part of a long-term contract option renewal. If the company is no longer considered to be a small business during recertification and they are in the process of an offer for a small business set aside, they will no longer be eligible. Concerning a multiple award small business set aside, the company would no longer be eligible for orders set aside for small businesses.

The SBA’s proposed rule changes may be challenging to understand. If you are unsure how these updates might affect your government contracts, it’s a good idea to seek professional guidance. FedMap Coaches are available to help you navigate the complexities of the new regulations, including changes to HUBZone, 8(a), WOSB, and VetCert programs. Whether you need clarity on recertification, size determination, or joint venture structures, FedMap Coaches can provide tailored advice to ensure you’re fully prepared for these changes and their potential impact on your business

How Does the New Rule Affect My Company Now?

The new rule is not in effect yet. Currently, the proposed rule is open for comments with are due October 7, 2024. Comments can be made via mail or online at the Federal eRulemaking Portal.

If this rule goes into effect, be aware of the new rules and certification regulations. Ensure that the company recertifies the business size within 30 calendar days of an agreement of a qualifying event, within 120 days prior to the end of the fifth year of a contract that exceeds five years, or when requested to do so by the contracting officer (CO) in response to a solicitation for a set aside agreement.

If the recertification causes the company to become disqualified as a small business the following are the effects:

• • Eligibility on Future Task Orders: For all events, other than a CO request, the company is now ineligible for set aside or reserved orders under a multiple award contract.
  • Eligibility on Pending Proposals: Novations, mergers, acquisitions, or sales that occur within 180 days prior to award, the company is now ineligible to obtain that award.
  • Eligibility for Options: Aside from a contracting officer request on a specific agreement or order, the company remains eligible to receive options under the single award set aside or reserve awards and unrestricted awards. However, the company is not eligible for options under multiple award small business set asides.
  • Eligibility after a CO request: The company is ineligible for the specific order or agreement that the CO request was in respect to. The company remains eligible for other set aside or reserved awards and unrestricted awards.

Coley GCS has 24 years’ experience helping small businesses with GSA contracts and business development. Our FedMap Community is built for like-minded business professionals to team, learn and network to grow in the Federal market.  Contact us today by email hello@coleygsa.com, phone 210-402-6766 or book a time to discuss how we can help you accelerate and sustain government contracting success.

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