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Carrots, Sticks, and Fixes in the New Small Business Jobs and Credit Act

October 1, 2010

The Small Business Jobs and Credit Act of 2010, Public Law 111-240, signed by the President on September 27, 2010, offers carrots for small businesses, but also significant sticks affecting small and large businesses alike.

While the Act's headline-grabber is the legislative "fix" for HUBZone parity, which is explained below, other changes are likely to have broader impact

First, Part IV of the Act sharpens the Government's weapons against fraud in small-business programs.  Section 1341 introduces a new rule declaring that an offeror's mere submission of a proposal for a small-business set-aside contract, or even its mere registration in a database to be considered for a set-aside, shall be deemed an "affirmative, willful and intentional" certification that the offeror meets the applicable small business size and status requirements.  This provision significantly eases the Government's burden to prove that an offeror made a false certification about its size status, and the Government's burden to prove that the false certification was intentional. 

The problem, of course, is that Section 1341 could snare those who make innocent, unintentional mistakes, such as by misinterpreting the affiliation rules.  Congress anticipated this objection and directed in Section 1341 that the Small Business Administration develop regulations to "provide adequate protections" in "cases of unintentional errors."  While we await the SBA regulations, this "deemed intentional" certification creates risk for any company or individual seeking award of a contract, subcontract, grant, cooperative agreement, or cooperative research and development agreement that is set-aside for small businesses.  Offerors must take extra care to ensure that they are in compliance with the set-aside requirements before submitting a proposal or applying for a grant.  In addition, large companies that acquire small businesses must take immediate steps after the acquisition to ensure that the acquired company does not submit proposals for small-business set-asides.  

In addition, Section 1343 directs the Government to issue a "Government-wide policy on prosecution of small business size and status fraud."  Reading Sections 1341 and 1343 together, it can be inferred that Congress is pushing for a crackdown on fraud in small business programs.

Another change concerns payment of small business subcontractors.  In short, prime contractors should be wary of stiffing small-business subcontractors.  Section 1334 creates a new obligation; a prime contractor with a Small Business Subcontracting Plan must notify the contracting officer whenever the prime contractor reduced, or delayed for more than 90 days, payments to small businesses, and explain why it did so.  If the contracting finds the prime contractor's delayed or reduced payment to be "unjustified," the contracting officer "shall consider the unjustified failure" in "evaluating the performance of the prime contractor."  In other words, a prime contractor that delays or reduces payment to its small-business subcontractors risks a negative past-performance evaluation, unless it had a persuasive reason for doing so.

Section 1345 of the Act targets the mentor-protégé program, directing GAO to study the program "to determine whether the programs and relationships are effectively supporting the goal of increasing the participation of small business concerns in Government contracting."  GAO's report is due 180 days after enactment.  It remains to be seen whether this report will result in further legislation affecting the mentor-protégé program.

Other changes introduced in the Act focus more specifically on small business concerns.  As noted, Section 1347 establishes (some would say re-establishes) parity amongst preference programs for small business concerns; Historically Underutilized Business Zone ("HUBZone") concerns; service-disabled, veteran-owned concerns; and women-owned concerns.  This provision legislatively reverses recent Government Accountability Office and the Court of Federal Claims decisions holding that agencies are statutorily required to give priority to HUBZone preferences.  The SBA publicly and vigorously disagreed with the decisions, arguing that Congress intended parity amongst preference programs.  The Administration sought a legislative "fix," and the result is Section 1347.

Additionally, many of the Act's sections provide financial breaks, marketing assistance, and tax incentives for small, disadvantaged, and other qualifying businesses.  Sections 1101 to 1136, and 4101 to 4112 funnel capital to these businesses, by facilitating SBA and other loans, by providing Government assistance in international marketing, and by other measures.  Sections 2001 to 3010 offer tax breaks and tax incentives to small businesses. 

Finally, Sections 1311 to 1313 of the Act require the FAR Council to develop new regulations to address (read: reduce) contract bundling, and direct agencies to publish on their websites a list of, and rationale for, any "bundled" contracts solicited or awarded.  The Act further requires agencies to consider, during acquisition planning, the impact on small businesses from the consolidation of requirements into a single contract.  The provisions seem to reflect an attempt to nudge agencies away from "bundled" contracts, to create more contracting opportunities for small businesses.  The real impact, if any, will likely become apparent from regulations to come. 

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Marc F. Efron
Retired Partner – Washington, D.C.