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SBA Releases New Rules Implementing Small Business Jobs Act of 2010
Practical Law Legal Update 8-535-3587 (Approx. 4 pages)
SBA Releases New Rules Implementing Small Business Jobs Act of 2010
by Practical Law Commercial
| Published on 26 Jul 2013 • USA (National/Federal) |
The Small Business Administration (SBA) has issued two final rules implementing the presumed loss rule (PLR) and the small business subcontracting rule (SBSR) provisions of the Small Business Jobs Act of 2010, with implications to both large and small government contractors.
The Small Business Administration (SBA) has issued two final rules implementing the presumed loss rule (PLR) and the small business subcontracting rule (SBSR) provisions of the Small Business Jobs Act of 2010, with implications to both large and small government contractors.
Presumed Loss Rule
The SBA has recently released the final version of the PLR, which becomes effective August 27, 2013. To be covered by the PLR, a small business contractor must make a willful miscertification regarding its size. While willful is not defined, the SBA has noted that the following factors are important in determining that a contractor has made a willful miscertification:
- The firm's internal management procedures governing size representation or certification.
- The clarity or ambiguity of the representation or certification requirement.
- The efforts made to correct an incorrect or invalid representation or certification in a timely manner.
Adverse determinations of firm size, relative to a firm's certification, do not automatically generate a presumption of willful misrepresentation. Each instance will be determined on a case by case basis.
The PLR also provides that:
- Submitting an offer or registration in the System for Award Management (SAM) can be deemed a certification of a firm's size for PLR purposes.
- Entities must annually recertify their size in order to continue their listing as small or disadvantaged in the SAM.
The PLR works in tandem with the False Claims Act (FCA) to determine the amount of damages a contractor would be liable for because of a misrepresentation made to the government. When the PLR becomes effective, damages will no longer be equal to the difference between the value paid by the government to the contractor and the value of the goods or services the contractor furnished to the government. Rather, damages will be calculated as if the small business contractor provided no value to the government, regardless of any actual value provided.
For more information about the FCA, see Practice Note, Government Contracts: Reduced Risk Through Commercial Item Contracting: Fraud Enforcement Mechanisms.
The SBA expanded the PLR's scope from those listed in the federal acquisition regulations (FAR) to not only include full small business set-asides, but also:
- Reserves.
- Partial set-asides.
- Price evaluation preferences.
- Source selection factors.
- Any other mechanisms not specifically addressed by the FAR.
Implications
To avoid the potentially significant money damages PLR violations present, government contractors should take a number of different steps, depending on their size.
Small businesses should:
- Continually review their size certifications.
- Adopt, or revise and update, internal procedures that affect size certifications, including an update to address representations made on the SAM.
Large businesses should:
- Require small business subcontractors to use current data (for example, employee and revenue numbers) in the certification process to protect against miscertifications.
- For those acting as subcontractors or teaming with small businesses, include provisions protecting against the potential consequences of prime contractor miscertification, including:
- agreement termination; and
- PLR (or other) liability.
To avoid vicarious liability for government contractors' PLR violations, entities interested in investing in or wholly acquiring small business should:
- Emphasize analysis and investigation of the small business' certification in due diligence efforts.
- Include protection against cases of willful misrepresentations in any resulting agreements.
Small Business Subcontracting Rule
The final version of the SBSR becomes effective August 15, 2013. It creates several new reporting and compliance requirements for prime contractors using small businesses as subcontractors. These requirements include:
- Demonstrating good faith efforts to award subcontracts to small businesses in the same proportion as indicated in bid submissions. If a prime contractor fails to meet those proportions, it must provide written justification to the federal government's contracting officer who monitors subcontracting plan performance.
- Annual reporting on small business subcontracting under multi-agency contracts.
To comply with the SBSR, contractors must notify the contracting officer every time an entity:
- Pays a reduced price to a small business contractor.
- Is more than 90 days late in making a payment to a small business subcontractor.
After making these notifications, contracting officers must:
- Consider this information in evaluating prime contractors.
- Report prime contractors with a history of untimely payments.
When the SBSR becomes effective, agencies will be able to take prime contractors' history of non-compliance into account when making award decisions.