SBA 8(a) Regulation Changes

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Long-awaited changes to the regulations governing the 8(a) program will be published on February 11, 2011. The final rule as made available for public inspection on February 10, 2011 is available here. Below is a summary of the significant rule changes.

Native 8(a) Specific Changes

  • Economic Disadvantage for tribes – (asset or net worth test ignores historical data and unique circumstances of tribes) – kept current approach, but clarified that SBA does not expect a tribe to demonstrate economic disadvantage as part of every tribally-owned application.
  • 8(a) Contracts in Secondary NAICS Codes - Firm owned by tribe, ANC, NHO or CDC may not receive a sole source 8(a) contract that is a follow-on contract to an 8(a) contract immediately performed previously by another Participant (or former Participant) owned by the same tribe/ANC/NHO/CDC. The Primary NAICS code means the six digit code having the same size standard (e.g., 541330 Engineering Services, $4.5M, is different from Military & Aerospace Equipment and Military Weapons, $27M).
  • Potential for Success – tribe, ANC, NHO, CDC has made a firm written commitment to support the operations of the applicant concern and the entity has the financial ability to do so.
  • Tribal Management – can be by a tribal member of any tribe and the individual does not need to be disadvantaged.
  • Report Benefits - Requires firms owned by tribes, ANCs, NHOs, and CDCs to report benefits flowing back to Natives/disadvantaged communities. Benefits will be reported at the tribe/ANC/NHO/CDC parent corporation level, not the individual 8(a) firm level. Delayed implementation for 6 months to allow further discussions with tribal/ANC community, and to make revisions if necessary.
  • NHO's - Majority of an NHO's members must establish that they individually qualify as economically disadvantaged. First firm, same thresholds as individually-owned firms for initial eligibility; 2nd and other firms thereafter, must qualify under thresholds for continued eligibility. NHO must control board of directors of applicant or Participant. The individual responsible for day-to-day management of NHO-owned firm does not have to prove personal social and economic disadvantage.

Joint Ventures Size

  • Joint venture must be in writing and may, but need not, be in the form of a separate legal entity. JV's, may but need not, be populated (i.e., have its own separate employees).
  • They may not be awarded more than three contracts over a 2 year period w/o a finding of general affiliation. This begins two years starting from the date of the award of the first contract; but compliance (after the first contract award) is determined as of the date of the initial offer including price.
  • JVs may ultimately be awarded more than three contracts. For example, after the second award but within 2-year period, the JV submits offers for three procurements; it may be awarded a contract in response to all three of those offers, giving the joint venture five total contracts.
  • JVs may be awarded a contract beyond the 2-year period provided the offer occurred prior to two years from the date of the first contract award.
  • Same two entities may form additional joint ventures and each may be awarded three contracts over 2 years.

8(a) Joint Ventures

  • 8(a) partner to the joint venture must perform at least 40% of the work performed by the joint venture (replaces "significant portion" language in the previous regulations).
  • Differentiates between populated and unpopulated joint ventures:
    • Project manager: in an unpopulated JV (or JV populated only with administrative personnel) the employee of 8(a) managing venturer must be project manager; In a populated JV with individuals intended to perform contracts, the JV must demonstrate how performance of the contract is controlled by the 8(a) managing venture.
    • Performance of work: In an unpopulated JV (or JV populated only with administrative personnel) the amount of work done by all the partners will be aggregated and 8(a) partner must perform at least 40% of all work done by JV (includes all work done by non-8(a) partner and any of its affiliates at any subcontracting tier); In a populated JV with individuals intended to perform contracts, the non-8(a) JV partner, or any of its affiliates, may not act as a subcontractor to the JV or any subcontractor of the JV.
  • Performance of Work Reports: In each annual review, must report how the firm is meeting performance of work requirements for each JV 8(a) contract. At completion of every 8(a) contract awarded to a JV, the firm must explain how performance of work requirements were met.

Mentor/Protégé Program

  • Assistance to be provided must be tied to protégé's SBA-approved business plan.
  • Specifically allows non-profit mentors.
  • Mentor can have up to three protégés at one time.
  • Mentor must demonstrate its favorable financial health – deleted requirement that mentor must submit federal tax returns in all cases.
  • Benefits derived from M/P relationship end once protégé leaves the program and exclusion from affiliation ends.
  • Protégé can have second mentor, corresponding to an unrelated, secondary NAICS code.
  • A firm cannot be both a protégé and a mentor at the same time.
  • A new M/P relationship cannot be approved within six months of the end of a firm's program term.
  • Permits M/P joint venture to be small for federal subcontracts (DOE).
  • M/P agreement must be approved before the two firms can submit a JV offer as a small business.
  • must comply with the 8(a) JV requirements (other than SBA approval) to receive exclusion from affiliation on non-8(a) contracts.
  • If a M/P Agreement is declined, must wait 60 days. If a M/P Agreement is declined firms now have a specific reconsideration process.
  • Provides consequences for a mentor that fails to provide the agreed-upon assistance to the protégé:
    • Notify mentor – provide opportunity to respond;
    • Terminate M/P Agreement;
    • Ineligible to be a mentor for 2 years;
    • May recommend stop work order for each contract mentor and protégé are performing as a JV and have received the exclusion from affiliation;
    • Where protégé can independently complete performance, may authorize substitution of the protégé firm for the JV; and
    • May constitute grounds for Government-wide suspension or debarment.

Primary NAICS Code Size

  • SBA may graduate a Participant where the firm exceeds the size standard corresponding to its primary NAICS code, as adjusted, for three successive program years. <
  • There is no graduation if the firm can demonstrate that, through its growth and development, its primary NAICS code is changing to a secondary NAICS code in its adjusted business plan.

Applicant and Participant Representatives (also known as "One Percenters" or "Marketeers")

  • Compensation received by any packager, agent or representative of any 8(a) applicant or Participant for assisting in obtaining certification, 8(a) contracts or other assistance must be reasonable in light of services provided.
  • Fee cannot be a percentage of gross contract value.
  • Packagers, agents or representatives may be suspended from assisting 8(a) applicants or Participants for good cause.

Excessive Withdrawals

  • Term withdrawal excludes officers' salaries; but SBA will count those salaries if it believes the firm is attempting to circumvent the regulations through the payment of salaries.
  • Because salaries are excluded, the amounts will be in the aggregate:
    • Firms with sales up to $1M, $250,000;
    • Firms with sales between $1M and $2M, $300,000;
    • Firms with sales exceeding $2M, $400,000.
  • Excessive Withdrawal Limits do not apply to tribes, ANCs, NHOs, CDCs where withdrawal is made for the benefit of the tribe/ANC/NHO/CDC or the Native or shareholder community.
    • It does apply to withdrawals that do not benefit the relevant entity or community.
    • Large salary to a non-disadvantaged individual will be treated as an excessive withdrawal.
  • The SBA will evaluate the totality of circumstances in determining whether withdrawal is excessive.

Applicant and Participant Representatives (also known as "One Percenters" or "Marketeers").

  • Compensation received by any packager, agent or representative of any 8(a) applicant or Participant for assisting in obtaining certification, 8(a) contracts or other assistance must be reasonable in light of services provided.
  • Fee cannot be a percentage of gross contract value.
  • Packagers, agents or representatives may be suspended from assisting 8(a) applicants or Participants for good cause.

If you have any questions about these regulation changes, please contact S. Lane Tucker or your Stoel Rives attorney.

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