Federal Contracting Reforms Information
- SBA 8(a) Program is BIGGER, STRONGER and BETTER
- NEDA Business Consultants, Inc. is an SDB Private
Certifier
- The SBA 8(a) Business Development (BD) Program
- A. Benchmark Limitations
- B. 8(a) BD Program Eligibility
- C. 8(a) Sole Source Contract Limitations
- D. 8(a) Business Mix Requirements
- E. SIC Codes
- F. 8(a) Joint Ventures
- G. 8(a) Mentor / Protégé Program
- Small Disadvantaged Business (SDB) Regulations
- A. SDB Eligibility and Certification
- B. Special SDB Subcontracting Benchmarks
- C. SDB Procurement Mechanisms
- 1. Price Evaluation Adjustment
- 2. Source Selection Evaluation Factors
- 3. Monetary Incentive for Subcontracting
with SDBs
- SBA "Very Small Business Set-Aside" Pilot
Program
- The HUBZone Program
SBA 8(a)
Program is BIGGER, STRONGER and BETTER
NEDA Business Consultants, Inc. has summarized the published sweeping
changes to the federal government's affirmative action programs and the
way small disadvantaged businesses ("SDBs") and 8(a) firms do
business with the federal government.
We are strongly recommending that you keep this publication as a
reference guide to those changes. If you incorporate elements of the
reform into your business plan, you should be able to accelerate the
growth of your company.
The SBA 8(a) Business Development (BD) Program has been strengthened.
We are especially enthusiastic about the joint venture regulations
governing small businesses and 8(a) firms. SBA approved joint ventures
involving an 8(a) company and another small business are exempt from
"affiliation" rules. We are encouraging joint venture
relationships between 8(a) firms, small businesses and 8(a) graduated
firms. This will allow your company the opportunity to bid on larger
contracts and build your capacity faster.
The 8(a) mentor/protégé program is another great opportunity that
will permit an 8(a) graduate or an 8(a) firm in the transitional stage
to serve as a mentor and own up to 40% interest in a protégé company.
We encourage 8(a) graduates to utilize the new regulations because the
program is definitely designed to assist 8(a) graduates with a
transition vehicle.
Another opportunity for 8(a) graduates is the Small Disadvantaged
Business (SDB) certification process which recognizes the 8(a) graduate
as an SDB for three years following graduation and makes the firm
eligible for price evaluation adjustment and other procurement
mechanisms.
NEDA Business Consultants, Inc. has successfully structured joint
ventures, teaming, and mentor/protégé arrangements in the interest of
the newly formed business entity's ability to bid on larger
requirements. Our legal staff can assist your company in structuring the
legal arrangements to meet the new SBA regulations.
We have been waiting for the new guidelines for two years and totally
agree that the SBA program is bigger, stronger and better; but only if
you avail yourself of these major changes. Call Anna Muller, NEDA
President in Albuquerque or Jose Rocha, NEDA Project Director in El
Paso, to discuss these changes.
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NEDA
Business Consultants, Inc. is an SDB Private Certifier
NEDA Business Consultants, Inc. has been awarded a contract as an SDB
"Private Certifier" by the U.S. Small Business Administration.
Call Anna Muller at (505) 843-7114 in Albuquerque or Jose Rocha at (915)
774-0626 in El Paso to determine if SDB, or 8(a), certification is
beneficial for your company. Private Certifiers review whether an
applicant is "owned and controlled" by disadvantaged
individuals. The application is then forwarded to SBA, which will
determine whether the individual upon whom eligibility is based is
"disadvantaged."
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The SBA 8(a)
Business Development (BD) Program
The SBA's amended regulations governing the 8(a) BD program made
significant changes to the program: (1) "benchmark"
limitations; (2) revised eligibility procedures for admission to the
8(a) program (relaxation of the standard required to show "social
disadvantage" from the "clear and convincing evidence"
test to the "preponderance of evidence" standard); (3)
restrictions on the award of sole source contracts; (4) SBA business mix
requirements; (5) elimination of the requirement that a participant have
specified SIC codes approved by SBA; (6) loosening of certain joint
venture restrictions; and (7) establishment of a mentor/protégé
program for developing 8(a) participants.
A. Benchmark
Limitations
Perhaps the most significant and potentially detrimental component
of the reform initiative is the use of "benchmarks." The
Administration intends to use benchmarks to regulate the use of
preferential procurement programs in particular industries and
geographic regions. A benchmark, in effect, represents a level of SDB
participation that should be expected in a given industry absent
discrimination or its effects. Under the Administration's guidelines,
if actual SDB participation in a particular industry falls below its
corresponding benchmark level, then the use of an SDB
"procurement mechanism" in that industry to increase
participation would be appropriate. Conversely, if actual SDB
participation exceeds the benchmark level, then such measures would be
unnecessary.
The Department of Commerce ("DOC") evaluated 70
industries ("SIC Major Groups") ranging from transportation
to computer services. The survey compared the actual share of federal
contracts directly awarded to SDBs to the share they would be expected
to receive in the absence of discrimination. Based on the benchmarks,
the DOC identified numerous industries in which SDBs have been
underutilized and determined that a 10% price evaluation adjustment
should be employed in those industries.
A significant number of firms will be adversely impacted by the
benchmarks. The DOC has estimated that industries representing only
about 74% of federal contract dollars awarded to SDBs will be eligible
for price credits. In the construction industry, firms in certain
parts of the country will be impacted. For example, according to the
DOC study, SDBs that perform construction work in Pacific states are
overutilized when compared to other firms in the industry with similar
characteristics and the same capacity. Thus, SDBs that perform
construction work in that region will not be eligible for price
evaluation adjustments under the published benchmarking guidelines.
The SBA implements the benchmarking process by providing that
applications for the 8(a) program and contracts set aside for the
program may not be accepted if participation by disadvantaged
businesses in particular SIC Major Groups exceeds the benchmark
limitations. In addition, SBA may use the benchmarks to adjust the
targets, objectives and goals contained in the business plans of 8(a)
firms and initiate graduation proceedings.
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B. 8(a) BD
Program Eligibility
New SBA rules lower the standard for admission into the 8(a) BD
program. SBA is allowing members of groups that are not presumed to be
disadvantaged to qualify as "socially disadvantaged" if they
can show by a "preponderance of the evidence" that they are
disadvantaged. The "preponderance of evidence standard"
would require only that the applicant prove that it is more likely
than not (i.e., greater than 50%) that he or she is disadvantaged. The
lower standards should make it easier for women-owned businesses and
businesses owned by members of other non-designated groups to enter
the program.
The new SBA regulations raise the percentages that
non-disadvantaged individuals, non-disadvantaged firms, and former
8(a) firms may own in an 8(a) participant in the transitional stage of
the program. Specifically, a non-disadvantaged individual or a
non-participant concern with at least a 10% ownership interest in
another participant may own up to a 20% interest in the 8(a) concern.
In addition, a non-disadvantaged individual or concern in the same or
similar line of business may own up to a 20% interest. Further, a
former program participant may own up to a 30% interest in the 8(a)
concern.
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C. 8(a) Sole
Source Contract Limitations
There are now limits on the amount of sole source
awards that 8(a) firms will be eligible to receive. Other than firms
owned by a Native American Tribe or an Alaskan Native Corporation,
8(a) firms will be allowed to receive sole source contracts up to a
specified dollar amount. For firms having a revenue-based primary SIC
code, the dollar limit is five times the size standard corresponding
to the SIC code or $100 million, whichever is less. For firms having
an employee-based primary SIC code, the limit above which no more sole
source 8(a) contracts will be permitted is $100 million. Once that
dollar amount is reached, sole source awards cannot be made except in
limited circumstances.
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D. 8(a)
Business Mix Requirements
SBA has established much stricter remedial measures for firms which
do not meet their competitive business mix targets. Firms which fail
to meet the business mix requirements during any year of the
transitional stage will be ineligible for sole source awards during
the following program year unless the firm corrects the situation. In
addition, firms which do not make a good faith effort to increase
their non-8(a) revenues are subject to program termination.
Competing 8(a) firms may protest the size of other 8(a) firms or
file SIC code appeals in connection with 8(a) competitive
procurements.
SBA has new procedures to approve changes in ownership,
specifically addressing asset transfers by an 8(a) firm. In addition,
SBA has explicitly reserved the right to suspend a participant when a
change of ownership has occurred without the SBA's prior approval.
However, where certain criteria are met, the SBA may add the length of
the suspension to the firm's program term if it ultimately approves
the change of ownership.
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E. SIC Codes
SBA has eliminated the requirement that an 8(a) firm have specified
SIC codes approved by the SBA in its business plan in order to be
eligible for 8(a) contracts. This change eliminates the need for 8(a)
firms to go through the process of adding SIC codes to their business
plans. The government is transitioning from SIC Codes to NAICS (North
American Industry Classification System) Codes.
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F. 8(a) Joint
Ventures
SBA amended the joint venture regulations governing small
businesses and 8(a) firms. SBA-approved joint ventures involving an
8(a) company and another small business are exempt from
"affiliation" rules. SBA has also made it easier for 8(a)
firms to work within the joint venture framework. For example, the new
rule requires that the procuring activity execute an 8(a) contract in
the name of the joint venture (as opposed to the 8(a) joint venture
partner). The joint venture, not the 8(a) joint venture partners, must
perform the applicable percentage of work under the performance of
work requirement.
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G. 8(a) Mentor
/ Protégé Program
SBA has also established the 8(a) mentor/protégé program. The
program permits any 8(a) graduate, 8(a) firm in the transitional
program stage, small business or large business to serve as a mentor
provided certain eligibility criteria are met. Mentors will be allowed
to own up to a 40% interest in a protégé and may joint venture with
the 8(a) firm. To be eligible as a protégé, a firm must: (1) be in
the developmental program stage; (2) never have received an 8(a)
contract; or (3) have a size of less than half the size standard
corresponding to its primary SIC code.
To make sure the goals of the mentor/protégé program are met, the
SBA is imposing specific annual reporting requirements on the protégé.
In its annual business update, the protégé must report on the
assistance the mentor has rendered to the protégé during the
preceding year. If the SBA finds that the mentor has not provided the
assistance set forth in the SBA-approved mentor/protégé agreement,
it may not approve continuation of the agreement.
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Small Disadvantaged
Business (SDB) Regulations
New regulations make sweeping changes to the federal government's
affirmative action programs and the way Small Disadvantaged Businesses (SDBs),
including 8(a) firms, do business with the federal government. While the
new regulations make comprehensive changes to affirmative action in
federal contracting, the most significant changes are: (1)
implementation of an SDB certification process (previously, SDBs could
self certify) and lowering the legal standard for showing "social
disadvantage" for purposes of 8(a) and SDB program entry; (2) use
of "benchmarks" to regulate the use of preferential
procurement programs in particular industries and geographic regions;
and (3) use of "procurement mechanisms" (i.e., price
evaluation adjustments, source selection evaluation factors and monetary
incentives) which are designed to increase the award of contracts and
subcontracts to SDBs.
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A. SDB
Eligibility and Certification
SBA established a certification process for SDBs and defined
eligibility requirements and procedures by which a firm can apply to
be recognized as an SDB, as well as rules for protesting SDB
eligibility.
Eligibility requirements for the SDB program are very similar to
those that apply to the 8(a) program. Only small firms owned by
socially and economically disadvantaged individuals are eligible to
participate in the SDB program. To make it easier for firms to
demonstrate that they qualify as SDBs, the standard of proof for
showing that a concern is socially and economically disadvantaged is
being reduced from a "clear and convincing" evidence test to
a "preponderance of the evidence" standard. In addition, the
maximum personal net worth threshold to be considered
"economically disadvantaged" for the SDB program is
$750,000, as opposed to $250,000 for the 8(a) program.
When a firm is certified as an SDB, it is included on a list of
qualified SDBs in Pro-Net, SBA's central online register. The SDB
certification is effective for a period of three years. However, if a
concern's SDB status is protested and the SBA determines that the firm
is eligible, the three years will begin to run from the date of SBA's
decision on the protest. Even though a firm may be certified and
listed on the SBA online register of certified SDB firms, it must also
self-certify, with respect to each procurement, that it is small and
disadvantaged, and that no material change has occurred since its
formal certification.
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B. Special SDB
Subcontracting Benchmarks
DOC will determine on an annual basis, by SIC Major Group and
region, the authorized SDB procurement mechanisms and applicable
factors (percentages) for SDB awards. Firms which may be adversely
affected by the benchmarks should evaluate whether they have grounds
to challenge how they are applied under the new regulations.
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C. SDB
Procurement Mechanisms
Three different procurement mechanisms will be used to increase the
award of contracts and subcontracts to certified SDBs: (A) a price
evaluation adjustment; (B) a source selection evaluation factor or
subfactor for planned SDB participation; and (C) a monetary incentive
for subcontracting with SDBs.
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One procurement mechanism that the DOC has determined should be
used is a price evaluation adjustment. A price adjustment of 10%
should be employed in specific industries in which there has been
persistent and significant underutilization of minority firms. The
price evaluation adjustment will be applied by increasing the price
of non-SDB offerors by 10% on a line item basis. The price
evaluation adjustment, however, will not be used when it would cause
award to be made at a price that would exceed the fair market price
by more than the applicable percentage factor.
Additionally, the price evaluation adjustment will be used only
in competitive acquisitions in the designated industry. The
adjustment may not be used in acquisitions that: (1) are not greater
than the simplified acquisition threshold; (2) are awarded under the
8(a) program; or (3) are set aside for small business
concerns.
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List
The second procurement mechanism being established is the
imposition of a requirement that procuring agencies evaluate the
extent of SDB participation in performing subcontracts. This
mechanism requirement will apply to full and open competitions
expected to exceed $500,000 ($1 million for construction). However,
it will not be applied to: (1) small business set-asides; (2) 8(a)
set-asides; (3) negotiated acquisitions where the award will be made
to the lowest price, technically acceptable offeror; or (4)
contracts performed outside the United States, its possessions and
territories.
Agencies are to consider a number of factors in developing the
evaluation factors and subfactors to encourage SDB participation.
For example, the evaluation factor should take into account: (1) the
extent to which SDB concerns are specifically identified in a
proposal; (2) the extent of commitment to use SDB concerns (e.g.,
enforceable commitments, such as teaming agreements and joint
venture agreements, are to weighted more heavily than
non-enforceable ones); (3) the complexity and variety of the work
SDB concerns are to perform; (4) the past performance of offerors in
complying with SDB subcontracting goals; and (5) the participation
of SDB concerns in terms of the value of the total acquisition.
When this procurement mechanism is implemented, solicitations for
covered contracts must describe the SDB evaluation factor or
subfactor. The solicitations must also require that offerors provide
with their offers targets, expressed as dollars and percentages of
total contract value, in each of the applicable authorized SIC Major
Groups in which the DOC has found an underutilization of SDBs, and a
total target for SDB participation by the contractor. The
solicitations must also require any SDBs waiving the right to an SDB
price evaluation adjustment to provide a target percentage of work
they intend to perform as the prime contractor.
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3. Monetary
Incentive for Subcontracting with SDBs
The third procurement mechanism is a monetary incentive for
subcontracting with SDBs. The interim regulation provides that
negotiated contracts resulting from solicitations in which SDB
participation is evaluated may provide for a monetary payment to
contractors which meet specified monetary targets for SDB
participation as subcontractors in designated SIC Major Groups. The
payments are to be made when the specified monetary targets are met
unless the contracting officer determines that the use of SDBs was
not due to the contractor's efforts. For example, if the monetary
targets are met because of subcontractor cost overruns or the award
of subcontracts to SDBs that were not disclosed during contract
negotiations, the contracting officer may deny the incentive
payment.
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SBA "Very
Small Business Set-Aside" Pilot Program
The Small Business Administration is offering a break to "very
small businesses" (VSBs) - those with fewer than 15 employees and
less than $1 million in average annual receipts. Under a pilot in 10 SBA
districts, of which New Mexico and El Paso are two, VSBs receive the
first shot at federal contracts valued at $2,500 to $50,000. The service
or activity must be performed in the geographic areas covered by the
pilot program and the VSB must be headquartered in the area.
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The HUBZone Program
The purpose of the HUBZone program is to provide federal contracting
opportunities for qualified small business concerns located in
distressed communities in an effort to promote private-sector
investments and employment opportunities in these communities. There are
three different geographical areas in which these HUBZone businesses
must be located: (1) a qualified census tract; (2) a qualified
non-metropolitan county; and (3) land within the external boundaries of
an Indian reservation. The terms "qualified census tract" and
"qualified non-metropolitan county" are based on high
unemployment and/or low average income. Small businesses interested need
to first determine whether they are located in a HUBZone.
All lands within the outside perimeter of an Indian reservation,
whether tribally-owned and governed or not, are included in the scope of
"land within the external boundaries of an Indian reservation"
and, therefore, in a HUBZone. This was intended to resolve situations
where pockets of Indian land are owned by individuals, creating
checkerboard patterns.
To be a qualified HUBZone small business "HUBZoner", the
enterprise must be within the size standards for its primary industry
classification. In addition, at least 35% of its employees must reside
in a HUBZone. In order to be considered as "residing" in a
HUBZone, an employee either must be registered to vote in a HUBZone or
have resided in the HUBZone for at least 180 days. The eligible small
business must be 100% owned and controlled by U.S. citizens.
An eligible firm must have its principal office in the HUBZone. The
"principal office" is the location where the greatest number
of the concern's employees at any one location perform work. A concern
that has its headquarters in a HUBZone may not qualify for the program
if the majority of its employees are working in another location.
Sole source awards to HUBZoners are permitted. To be eligible for a
sole source award, the anticipated award price of the contract,
including options, may not exceed $5 million for requirements within the
SIC codes for manufacturing, or $3 million for requirements within all
other SIC codes.
In full and open competitions, HUBZoners are eligible for a price
evaluation preference. If a HUBZoner's price is less than 10% higher
than the price offered by the otherwise lowest offeror, the HUBZoner's
price will be considered the lowest. For example, if a HUBZoner submits
an offer of $98 and a large business submits an offer of $93, the
HUBZoner's price displaces the price of the large business because it is
less than 10% higher.
The HUBZone program became effective in 1998. It applies to ten
different departments and agencies: (1) Department of Agriculture; (2)
Department of Defense; (3) Department of Energy; (4) Department of
Health and Human Services; (5) Department of Housing and Urban
Development; (6) Department of Transportation; (7) Department of
Veterans Affairs; (8) Environmental Protection Agency; (9) General
Services Administration; and (10) National Aeronautics and Space
Administration. After September 30, 2000, the HUBZone program will apply
to all federal departments and agencies.
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This is a publication
of
The New Mexico 8(a) & Minority Business Association
Editor: Anna Muller, President
NEDA Business Consultants, Inc.
718 Central Avenue SW
Albuquerque, NM 87102
Ph: (505) 843-7114, Fax: (505) 242-2030
email: info@nedainc.net
