WIPP Comment on SBA Proposed Rule (Subcontracting)
Wednesday, April 15, 2015
April 5, 2015
(Filed electronically at http://www.regulations.gov)
Ms. Brenda Fernandez
U.S. Small Business Administration
Office of Policy, Planning and Liaison
409 3rd St., SW 8th Floor
Washington, D.C. 20416
Re: Comments relating to RIN 3245-AG58, Proposed rule implementing Small Business Government Contracting and National Defense Authorization Act of 2013 Amendments
Dear Ms. Fernandez,
On behalf of our coalition of 4.7 million women business owners and 78 organizations, Women Impacting Public Policy (WIPP) is pleased to submit comments on the Small Business Administration (SBA) Proposed Rule (“rule”) regarding small business contracting, issued December 29, 2014. As a leading advocate for women entrepreneurs engaged in or considering entering the federal marketplace, we appreciate the thorough effort by the SBA to implement small business contracting reforms.
Given the breadth of the rule, WIPP is commenting on certain sections individually, each with recommendations for the SBA in authorizing the final regulations. Women entrepreneurs continue to struggle to access federal contracts at both the prime and subcontracting levels. While the federal government is yet to reach its 5% goal of prime contracts awarded to women, progress is being made.
New Limitations on Subcontracting
The rule changes the method for calculating limitations on subcontracting on set-aside contracts. Currently, small businesses must incur 50% of the labor costs with their own employees. This requires tracking all personnel costs throughout the life of the contract. Under the new rule, the calculation would simply be 50% of the value of the contract.
WIPP supports this change as proposed by SBA, with clarifying questions below. In 2011, WIPP testified before Congress that this change would simplify subcontracting requirements and remove unnecessary, and sometimes unavailable, calculations of personnel cost. WIPP supports SBA’s decision to allow individual industry groups to request changes of the percentage to reflect industry practices. WIPP believes that a “one-size-fits-all” approach will not work and, therefore, supports efforts to align with industry practices.
In response to the rule’s sections on limitations on subcontracting, WIPP seeks the following clarifications:
1) The rule references the “amount paid by the government to the prime contractor” (§125.6(a)(1)) as the determinant for subcontracting limitations (50%). Given the fluctuations in actual amounts involved in federal contracts (e.g. amount in the initial solicitation, amount actually invoiced, etc.), is there a safe harbor for small businesses that may miss the 50% threshold due to these changes? Alternatively, is there a more specific “amount” definition for this section?
2) Companies are likely to submit individual responses asking SBA to amend the percentage to align with industry practices. In §125.6(g)(3), SBA proposes a comment period of “not less than 30 days.” What, if any, will be the transition relief for industries where 50% is not aligned with industry practices?
3) The government is increasingly using indefinite-delivery indefinite-quantity (IDIQ) contracts to procure services, particularly information technology. How does SBA envision prime contractors to forecast subcontracting amounts for task orders on these contracts? Will the rules proposed for the 8(a) Business Development Program in §124.510(b) apply to all small business contracting programs and set-asides?
Similarly Situated Entities
The subcontracting limitations in the proposed rule have a caveat for similarly situated entities. In §125.1(x), SBA defines a similarly situated entity as a “subcontractor that has the same small business program status as the prime contractor.”
Work subcontracted to a similarly situated entity (i.e. EDWOSB subcontracting to an EDWOSB) is excluded from the subcontracting limitation listed above. The SBA refers to these arrangements as Small Business Teaming Arrangements (SBTAs). Essentially, work performed by the same type of business as the set-aside is considered work performed by the prime contractor.
WIPP supports this change and testified on its value for women business owners. In our view, this exception will allow SBTAs to tackle larger and more complex opportunities. This allows small business innovation to be brought to scale on significant acquisitions.
In the rule, SBA is concerned about possible abuse under SBTAs. Specifically, the worry is that a similarly situated subcontractor could then subcontract out any amount to a non-qualified (large) business, circumventing the purpose of the set-aside. To combat this, SBA proposes two policies: 1) require prime contractors and similarly situated entities to perform “significant portions of the work, as well as retain a significant portion of the contract award,” and 2) additional reporting requirements for subcontractors.
In WIPP’s view, efforts to prevent abuse of similarly situated entities, while admirable, should not create a new reporting system. Instead of adding compliance burdens, WIPP recommends SBA use its auditing and investigative prerogatives after implementation to assess fraud or abuse. Additionally, the “definition of significant portion of work” is not included in the proposed rule (see clarification question #2 below).
With regard to similarly situated entities and SBTAs, WIPP asks the following clarifying questions:
1) In the proposed rule (§125.1(x)), the type of concern to determine if a similarly situated entity relationship appears to be determined by the program under which a contract was set-aside. The definition is also slightly altered in the preamble (p. 77956, col. 3, lns. 4-9). For clarification, if a small business that is qualified for other contracting programs (e.g. HUBZone, WOSB, 8(a)) wins a small business set-aside contract, would any small business be considered a similarly situated entity or only a business that had matching certifications? Similarly, given the WOSB Federal Contract Program has two designations, EDWOSB and WOSB, but are both part of the same set-aside program, would they be considered the same for the purposes of establishing similarly situated entities?
2) In the preamble (p. 77957, col. 1, ln. 7), SBA notes that in order to combat abuse, it has “retained a requirement that firms…perform a required amount of work themselves.” Later (ln. 13) SBA refers to “significant portions of work.” How will this portion be determined?
Exemptions for Simplified Acquisition Contracts
Contracts valued between $3,000 and $150,000 are considered “simplified acquisitions” by the federal government and are universally set-aside for small business. In the rule, SBA proposes to exempt these contracts from both the subcontracting limitations and, separately, the non-manufacturer rule.
WIPP supports exempting simplified acquisition contracts from additional regulations.
Increased Role of Procurement Center Representatives
The additional responsibilities afforded to Procurement Center Representatives (PCRs) will strengthen their ability to advocate for small businesses when contracts are being considered for consolidation. The proposed rule would clarify two responsibilities and add one additional one: 1) clarifies that PCRs can review consolidated contracts and shall advocate for the “maximum practicable utilization” of small businesses; 2) PCRs will consult with agency Office of Small and Disadvantaged Business (OSDBU) on the insourcing of a contract performed by a small business; and 3) allows PCRs to receive unsolicited proposals from small business concerns and provide them to appropriate agency personnel for consideration.
WIPP testified before Congress about the negative impact of contract bundling and consolidation on women-owned businesses. The additional abilities given to PCRs should mitigate contract bundling. WIPP supports these changes.
Affiliation and Joint Ventures
The rule provides greater clarity with regard to affiliation of companies, which in turn can affect company size considerations. In particular, it would explicitly define “identity of interest” as “firms owned or controlled by married couples, parties to a civil union, parents and children, and siblings are presumed to be affiliated with each other if they conduct business with each other” (§121.103(f)(1)). This further clarifies the current regulation, which simply notes that affiliation arises when companies “have identical or substantially identical business or economic interests.”
Also important, the presumption of affiliation in the proposed rule would be rebuttable – that is, it can be overcome by demonstrating clear separations. Similarly, affiliation would be presumed for companies deriving at least 70% of its receipts from the other company. Current regulations do not specify the percentage for affiliation through economic dependence. Again, this can be rebutted.
WIPP appreciates SBA’s efforts to specify what can lead to affiliation.
Annual Receipts and Recertification
The rule addresses a possible misinterpretation of earlier statute with regard to including passive income in company annual receipts. This rule would clarify that all income is to be included (with the only exceptions listed in §121.104). WIPP appreciates the clarification.
In addition, a gap in SBA regulations with regard to recertification following a merger of acquisitions is addressed, requiring the company to recertify for mergers and acquisitions completed prior to award. WIPP supports the change because it ensures that small businesses are the ultimate recipients of small business contracts.
Size Protests and NAICS Appeals
The rule would modify which parties have standing to file size protests. Specifically, SBA would allow “any offeror that the contracting officer has not eliminated from consideration for any procurement related reason” to bring a size protest. This clarifies the ways companies can lose standing – i.e. if they have been eliminated for procurement-related reasons (e.g. non-responsiveness, technical unacceptability). WIPP agrees with the spirit of the clarification, and hopes this change will limit unnecessary protests.
With regard to NAICS appeals, SBA asks about the timeline for certain elements of a NAICS appeal. WIPP believes that the current timeline of ten days seems very short to take all the necessary, complicated steps to protest. WIPP recommends a lengthier protest period that is uniform with other protest timelines—giving additional simplicity to procurements.
Thank you for the opportunity to comment.
Women Impacting Public Policy
 Exceptions are provided for construction industries: general construction (15%), specialty construction (25%).
April 5, 2015
Filed electronically at http://www.regulations.gov