Sweeping Final Rule Amends SBA Regulations, Part 3: Procurement Center Representative Responsibilities, Size Protests, NAICS Appeals, Nonmanufacturer Rule, Adverse Impact and Construction Requirements, and the Certificate of Competency

July 11, 2016​

Part 3 of Our Summary of SBA's Sweeping Amendments To Its Regulations!

On June 30, 2016, the U.S. Small Business Administration’s (SBA's) final rule amending SBA regulations to implement provisions of the National Defense Authorization Act of 2013 (NDAA 2013) became effective.

In Part 1 of our summary, which you can read here, we reviewed the changes to the HUBZone Program, Subcontracting Plans, Affiliation - Identity of Interest & Economic Dependence, Small Business Joint Ventures, Calculation of Annual Receipts, Recertification, & the SBIR/STTR Programs.

In Part 2 of our summary, which you can read here, we reviewed the final rule’s changes to the rules concerning Limitations on Subcontracting.

In this edition of The GovCon Bulletin,™ we summarize the final rule's changes to the regulations on Procurement Center Representative Responsibilities, Size Protests, NAICS Appeals, Nonmanufacturer Rule, Adverse Impact and Construction Requirements, and the Certificate of Competency.

Mark Amadeo

Procurement Center Responsibilities

The final rule incorporates several revisions made to the Small Business Act by NDAA 2013 that are related to Procurement Center Representatives (PCRs).  Those revisions are aimed at clarifying that PCRs have the ability to review barriers to small business participation in Federal contracting and to review any bundled or consolidated solicitation or contract.  For example, the final rule added language to § 125.2(b)(1)(i)(A) and to § 125.2(b)(1)(ii) stating that PCRs advocate for the maximum practicable utilization of small business concerns in Federal contracting, including advocating against the unjustified consolidation or bundling of contract requirements.

The final rule also added a new § 125.2(b)(1)(iv), which states that PCRs will consult with the agency's Office of Small and Disadvantaged Business Utilization (OSDBU) regarding an agency's decision to convert an activity performed by a small business concern to an activity performed by a Federal employee. In addition, the final rule also added new § 125.2(b)(1)(v), which allows PCRs to receive unsolicited proposals from small business concerns and to provide those proposals to the appropriate agency's personnel for review and disposition.

The final rule also implements the elimination under NDAA 2013 of separate Breakout PCR's, which under the pre-amended regulations were responsible for recommending the breakout for competition of items and requirements which previously had not been competed. The final rule amends § 125.2(b)(1) and (2) in order to reassign the responsibilities held by BPCRs to PCRs.

The final rule also amends § 125.2(c)(1) by adding new paragraphs (vi) and (vii), which incorporate requirements under NDAA 2013 that each Federal department or agency provide opportunities for the participation of small business concerns during acquisition planning processes and in acquisition plans and that each Federal department or agency invite the participation of the appropriate OSDBU Director in acquisition planning processes and provide the Director with access to acquisition plans. .

Size Protests

SBA amended § 121.1001(a), which specifies who may initiate a size status protest. Some businesses and contracting officers found the prior language unclear because it contained a double negative, stating that any offeror that had not been eliminated for reasons not related to size could file a size protest. As amended by the final rule, § 121.1001(a) now more clearly states that any offeror that has not been eliminated from consideration for a procurement related reason, such as non-responsiveness, technical unacceptability or as outside the competitive range may initiate a protest.

In addition, the final rule added a new § 121.1001(b)(11) that authorizes the SBA's Director, Office of Government Contracting, to initiate a formal size determination in connection with eligibility for the SDVO SBC and the WOSB/EDWOSB programs.

NAICS Appeals

The SBA sought comments on the appropriate timeline for filing a NAICS code appeal. § 121.1103(b)(1) states that “[a]n appeal from a contracting officer's NAICS code or size standard designation must be served and filed within 10 calendar days after the issuance of the solicitation or amendment affecting the NAICS code or size standard.”  Most of the comments were supportive of the existing time limit so the SBA decided not to alter the timeliness rules for NAICS code appeals.

Nonmanufacturer Rule

The final rule makes several changes to regulations related to the nonmanufacturer rule. The statutory nonmanufacturer rule, found in Section 8(a)(17) of the Small Business Act, is an exception to the limitations on subcontracting and provides that a business may not be denied the opportunity to compete for a supply contract simply because it is not the actual manufacturer or processor of the product.

The final rule clarifies, in § 121.406(d), that neither the nonmanufacturer rule nor the limitations on subcontracting apply to small business set-aside contracts valued between $3,000 and $150,000.

In order to provide more clarity SBA also added new language in § 121.406(b)(4) stating that the rental of an item is a service and not a supply and will be treated as such for purposes of the nonmanufacturer rule and the limitation on subcontracting. In § 121.406(e), the SBA added additional language regarding how the nonmanufacturer rule should apply to multiple item acquisitions.

The SBA also made several changes to § 121.1203 regarding waivers to the nonmanufacturer rule. SBA amended § 121.1203(a) to specifically authorize the SBA to grant a waiver for an individual contract award after a solicitation has been issued, provided the contracting officer agrees to provide all potential offerors additional time to respond. § 121.1203(b), as amended by the final rule, allows waivers to be granted after a contract has been awarded when the contracting officer has determined that the modification is within the scope of the contract and the agency followed the regulations prior to issuance of the solicitation and properly and timely requested a waiver for any other items under the contract, where required. SBA also added § 121.1203(d), which deals with waivers to the nonmanufacturer rule for the purchase of certain software that can be readily treated, and is almost universally perceived, as a supply item rather than a service - specifically, readily available software that is generally available to both the public and private sector unmodified.

In the final rule, SBA amended § 121.201 by adding a footnote to NAICS code 511210, Software Publishers, explaining that this is the proper NAICS code to use when the government is purchasing software that is eligible for a waiver of the nonmanufacturer rule. The 2012 NAICs manual explains that this industry comprises establishments primarily engaged in computer software publishing or publishing and reproduction. Establishments in this industry carry out operations necessary for producing and distributing computer software, such as designing, providing documentation, assisting in installation, and providing support services to software purchasers. The SBA believes that this accurately reflects the type of companies that would be producing and supplying the government with the type of software eligible for a waiver.  SBA reiterated that the custom design or modification of software for the government will generally continue to be treated as a service. If the software being acquired requires any custom modifications in order to meet the needs of the government, it is not eligible for a waiver of the nonmanufacturer rule because the contractor is performing a service and is not providing a supply.

The SBA also amended § 121.406(b)(5) to make a technical correction. Section 121.406(b) addresses how a nonmanufacturer may qualify as a small business concern for a requirement to provide a manufactured product or other supply item. Before the amendment, paragraph (b)(5) stated that the SBA's Administrator or designee may waive the requirement set forth in paragraph (b)(1)(iii) that requires nonmanufacturers to supply the end item of a small business manufacturer, processor or producer made in the United States. The citation to paragraph (b)(1)(iii) was incorrect and so the SBA amended this paragraph to include the correct citation to paragraph (b)(1)(iv).

In the final rule the SBA amended § 121.406(b)(7) to clarify that SBA's waiver of the nonmanufacturer rule has no effect on requirements external to the Small Business Act which involve domestic sources of supply, such as the Buy American Act and the Trade Agreements Act.

In order to clarify whether the nonmanufacturer rule applies, or whether a general or specific waiver is attached to a procurement, SBA added a new § 121.1206 to require contracting officers to receive specific waivers prior to posting a solicitation, and also to provide notification to all potential offerors of any waivers that will be applied (whether class or specific) to a given solicitation. 

Adverse Impact and Construction Requirements

SBA amended § 124.504, which generally addresses when the SBA must conduct an adverse impact analysis for the award of an 8(a) contract. SBA is not required to perform an adverse impact analysis for new requirements. Before SBA’s amendment, paragraph (c)(1)(ii)(B) stated that “Construction contracts, by their very nature (e.g., the building of a specific structure), are deemed new requirements.” SBA clarified the definition of “new requirement” for construction contracts by specifying that generally, the building of a specific structure is considered a new requirement. However, recurring indefinite delivery or indefinite quantity (IDIQ) procurements for construction services are not considered new.

Certificate of Competency

SBA amended § 125.5(f), which addresses SBA's review of an application for the Certificate of Competency (COC) program. SBA inserted new § 125.5(f)(3) to address how SBA should review an application for a COC based on a finding of non-responsibility due to financial capacity where the applicant is the apparent successful offeror for an IDIQ task order or contract. The changes provide that the SBA's Area Director will consider the firm's maximum financial capacity and if such COC is issued, it will be for a specific amount that serves as the limit of the firm's financial capacity for that contract. The contracting officer cannot deny the award of an order or contract on the basis of financial incapacity if the firm has not reached the financial maximum identified by the Area Director.

SBA also revised 13 CFR 121.408(a), which provides the size procedures for the COC program. The revision is a technical correction. This paragraph currently refers to 13 CFR 121.1009 to explain how SBA would initiate a formal size determination; however, § 121.1009 relates to the process SBA uses to make a formal size determination. The correct regulatory reference is to 13 CFR 121.1001(b)(3)(ii), which explains how the SBA initiates a formal size determination for the COC program.

SBA also revised 13 CFR 121.409 to remove the second sentence, which stated that in an unrestricted procurement, the small business concern must supply a domestically furnished product. This sentence may or may not have been true, depending on whether or how the Buy American Act or the Trade Agreements Act apply to the procurement. The Small Business Act itself does not impose such a requirement on full and open or unrestricted procurements.