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Breakout Session # 1709 Doyle McBride, Director of Contracts, Qualis Corporation Date April 16, 2008 Time 10:50 – 1

The Impact of the Small Business Recertification Rule Changes of June 2007. Breakout Session # 1709 Doyle McBride, Director of Contracts, Qualis Corporation Date April 16, 2008 Time 10:50 – 11:50. Introduction. Background Information Set-Aside Refresher Why Change the Rules

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Breakout Session # 1709 Doyle McBride, Director of Contracts, Qualis Corporation Date April 16, 2008 Time 10:50 – 1

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  1. The Impact of the Small Business Recertification Rule Changes of June 2007 Breakout Session # 1709 Doyle McBride, Director of Contracts, Qualis Corporation Date April 16, 2008 Time 10:50 – 11:50

  2. Introduction • Background Information • Set-Aside Refresher • Why Change the Rules • Comments to Proposed Rules • Final Rules and Implementation • Impacts of Rule Changes • Other Areas to Watch

  3. Background Information • Small Business Act of 1953 • Created Small Business Administration • Established set-aside programs • Defined “small business” and set size standards • Government Small Business Goal of 23% • Helps build industrial base • Creates more competition • Fosters innovation • Why have SB set-aside contracts?

  4. Gives the little guy a chance

  5. Set-Aside Refresher • Eligibility Based on NAICS Codes • Replaced SIC codes in 1997 (NAFTA) • Based on annual receipts or number of employees • Tied to procurement, not company • Contracting Officer decides, but can be appealed • Self-Certification of Small Business Status • Section K of Solicitation (Clause 52.219-1) • Size can be protested IAW FAR 19.302 • Affiliation and Ostensible Subcontractor Rule often cause for protest • Recertification will provide new opportunities for protest

  6. Set-Aside Refresher What difference does the NAICS code make? 541330 Engineering Services: $4.5M Except, Military and Aerospace Equipment: $25.0M 541712 R&D in …Engineering: 500 employees Except, Space Vehicles & Guided Missiles…: 1000 Also important in full-and-open competitions because of subcontracting requirements

  7. Set-Aside Refresher • Applicable Regulations • 13 CFR 121 and 125 provide details of program • FAR Part 19 provides summary requirements • FAR Clause 52.219-6 or -7 (full or partial set-aside) • FAR Clause 52.219-14 (Limitation on Subcontracting) • FAR Clause 52.219-28 (New “Rerepresentation” clause) • Previous Rules • Certify size at time offer is made • Status remained same for life of contract • Government counted contract toward SB goals for life of contract

  8. Why Change the Rules? • Increased use of long term IDIQ MA contracts • Frequency/number of mergers and acquisitions • Result: Small business set-aside contracts held by large businesses • Small business groups complained • Congress got involved • Problem even noted in “mass market” press

  9. May 2007:“But disbursing taxpayer money is messy, and a quick scan of the companies that received the most small-business dollars in Virginia reveals an anomaly: No. 4 on the list is the $24 billion behemoth General Dynamics.”

  10. Source: Eagle Eye Publishers

  11. Comments to Proposed RulesSource: Federal Register, 11/15/06, Vol. 71, No. 220 • Many small business groups backed recertification on annual basis • Agencies commented that it would be an administrative burden • Other small businesses commented that it would not allow sufficient time to recoup proposal costs or to conduct long-range planning • Several commenters asked about impact to prime subcontracting (none) • Several commenters asked about impact on contract terms and conditions (none) • Many commenters supported “order-by-order” recertification • Several commenters asked about impact on BPA (none “BPA is not a contract’) • Several commenters asked about applicability to existing contracts (it is) • Some suggested 3 year recertification based on rolling average • Some thought changes unnecessary (SBA answer: Fixes “loophole” created with use of long-term MAS contracts • Many wanted SBA to change size standards for NAICS codes (out of scope)

  12. Final Rules and Implementation • New rules effective 6/30/07 (FR 11/15/06) • Applies to new and existing contracts • Recertification before the 6th year of contract and before each option year thereafter • Recertification at the time of merger, novation, or acquisition • KO’s can request recertification per task order • Must recertify in original NAICS code, but use size standard as of date of recertification • If recertifies as other than small, agency can’t count dollars toward small business goals • Does not change contract terms and conditions • Does not impact prime contractor subcontract plans

  13. Final Rules and Implementation • 13 CFR 121 and 124 changed • FAR Parts 19.3 and 19.5 changed • Clause 52.219-28 added to FAR Part 52 • GSA added clause to applicable schedules (must accept by 3/31/08) • NASA released PIC 07-06 on 7/2/07 (do not enter size change in FPDS-NG per FAR 4.602(f) until system modified) • DoD released Memorandum on 7/18/07 (do not enter size change in FPDS-NG per FAR 4.602(f) until further notice)

  14. Impacts of Rule Changes Survey Questions: • What are the impacts of the new small business rules to your organization? • Has your organization changed any policies or practices as the result of these new rules? • Has your organization encountered any particular challenges or issues with the implementation of these new rules? • Do you think these rule changes will result in more opportunities for small business contractors? • Do you think more changes need to be made regarding size standards to provide more opportunities for small business while providing the needed capabilities to government agencies? • Do you think government agencies may decide to re-compete work to help meet their small business goals?

  15. Impacts of Rule Changes Anecdotal evidence shows that there is some confusion regarding the applicability of the rule changes to orders under IDIQ contracts (especially in regard to options within orders)

  16. Impacts of Rule Changes Case Study: AMCOM EXPRESS • Multiple Award IDIQ Contract with some BPAs issued to small business • BPAs are based on prime contractor’s GSA schedule(s) • Primes must recertify at the exercise of Schedule option • Small business primes who have been a party to merger or acquisition and must recertify as other than small cannot bid as prime on orders (pass through to small business subs) • RFI issued to assess possibility of adding new small business primes (partially due to possible MDA work)

  17. Impacts of Rule Changes Case Study: NASA Marshall Space Flight Center • Center has met or exceeded small business goals for last eight years • Several small business prime contractors have been acquired by large businesses • Other small business prime contractors are very close to NAICS code thresholds • Number of qualified small businesses aren’t keeping pace with number losing eligibility • New focus on Mentor-Protégé program to help situation • Center will be challenged to continue to meet goals as recertification eliminates counting of SB dollars

  18. Impacts of Rule Changes Small Business Devaluation: An Unexpected Impact • Many articles have been published since implementation regarding unintended impact on small businesses • New rules make revenue stream of small contractors less predictable, more risky for companies looking to buy • More due diligence required on part of buyer to fully assess impact of recertification on future revenues • Contracting Officers may be forced to re-compete work early to enable them to meet small business goals (either by not exercising options or terminating for convenience) • Buyers will look at intrinsic value of company (areas of competency, excellence) rather than contract revenue stream • Unpredictable revenue streams could also impact ability to raise capital for growth

  19. Other Areas to Watch • SBA comments in final rule indicated possible changes coming for imposing recertification on subcontractors, orders under BPAs, size standard changes • Small Business Fairness in Contracting Act (H.R. 1873) may change goal to 25% (among other things) • Effective 12/24/07, FAR amended to address contractor code of ethics (has an impact to small businesses)

  20. Questions or Comments?

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