On December 19, 2022, DoD issued a DFARS proposed rule that seeks to (1) implement the data-rights portions of the May 2, 2019 Small Business Innovation Research Program and Small Business Technology Transfer Program Policy Directive (SBIR/STTR Policy Directive), and (2) impose significant changes to technical data and computer software marking requirements. The SBIR/STTR portion of the proposed rule follows DoD’s advance notice of proposed rulemaking issued on August 31, 2020 (see 85 FR 53758) and incorporates the eight written public comments that DoD received. The proposed changes to marking requirements go beyond the SBIR/STTR Policy Directive and respond to the Federal Circuit’s decision in The Boeing Co. v. Secretary of the Air Force, 983 F.3d 1321 (Fed. Cir. 2020).
Department of Defense Establishes Office of Strategic Capital to Enhance Investment in National Security Critical Technology
On December 1, 2022, Department of Defense (DoD) Secretary Lloyd J. Austin III announced the establishment of the DoD Office of Strategic Capital (OSC). The mission statement of the OSC is to build an “enduring technical advantage” for the United States by helping partner contractors with private investment to develop national security critical technologies, including those related to advanced materials, next-generation biotechnology, and quantum science. OSC will coordinate with existing organizations such as the Defense Advanced Research Projects Agency (DARPA) and the Defense Innovation Unit (DIU), which promotes acceleration of the military use of commercial technologies.
The OSC intends to offer what it characterizes as “patient” extended-term capital to help contractors obtain financing between the early laboratory-testing and prototyping phases and the full-scale development of products that can be used by the DoD warfighter. In addition to traditional vehicles like contracts and grants, this investment will likely take the form of loans and loan guarantees.
Congress Passes Last Minute Three-Year SBIR/STTR Reauthorization Including New National Security-Related Restrictions and Requirements
On September 30, 2022, President Biden signed the SBIR and STTR Extension Act of 2022 (the Act), reauthorizing the Small Business Innovation Research (SBIR), Small Business Technology Transfer (STTR), and six pilot programs for three years, until September 30, 2025. The Act includes new due diligence and reporting requirements, award restrictions, and clawback provisions related to national security risks—particularly regarding firms with ties to China, Russia, North Korea, and Iran—and increased minimum performance standards for multiple SBIR/STTR award winners. The passage and signing of the Act averted a potential lapse of these programs, which were set to expire the day of the reauthorization.
DOJ Reaches Settlement in Fraud Case Regarding Misuse of the Mentor-Protégé Program
On January 12, 2022, the U.S. Attorney’s Office for the District of Colorado announced a $1.15 million civil settlement in a case implicating misuse of the Small Business Administration’s (SBA) Mentor-Protégé Program. The settlement is to be partially paid by both the SBA-approved mentor and protégé relating to conduct associated with winning and performing two set-aside awards.
Native American Services Corp. (NASCO) was the mentor to Mirador Enterprises, Inc. (Mirador), a small business and participant in the SBA’s 8(a) Program. The contracts at issue in this settlement were two Army set-asides for construction projects at Fort Carson—one set-aside for small businesses and one for 8(a) participants. At the time that Mirador submitted offers as a prime contractor for each of these procurements, Mirador qualified both as a small business and as an 8(a).
The problem, as alleged by DOJ, was that NASCO prepared the bids with the intent that NASCO would primarily perform the contracts. DOJ further alleged that, after the Army made award to Mirador, NASCO took the lead in the performance of these two contracts and provided assistance that far exceeded what was permitted under the Mentor-Protégé relationship.
Once the government raised concerns about NASCO’s “improper level of involvement,” the parties purportedly doubled down and took steps to conceal how they were actually performing. As laid out in DOJ’s press release:
- The parties tried to make it appear that NASCO was transferring employees to Mirador, but these employees remained under NASCO’s control;
- NASCO provided information to Mirador employees to make them appear more involved or knowledgeable about the contracts than they actually were; and
- NASCO drafted correspondence for Mirador’s signature, to be submitted to the government.
Of the $1.15 million civil settlement, NASCO will pay $750,000 and Mirador $400,000.
There are two takeaways from this settlement.
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All Things Protest: Big Decisions for Small Businesses
Crowell & Moring’s “All Things Protest” podcast keeps you up to date on major trends in bid protest litigation, key developments in high-profile cases, and best practices in state and federal procurement. In this episode, host Olivia Lynch is joined by Michael Samuels to discuss a recent decision from the Small Business Administration’s Office of
Biden Administration Announces Streamlining of Paycheck Protection Program as Part of White House Covid Plan
On September 9, 2021, President Biden announced a six-pronged plan to combat COVID-19, which Crowell previously discussed here. One prong of the plan is to protect the economy, an aspect of which is the streamlining of the existing Paycheck Protection Program (“PPP”) loan forgiveness process.
Under the PPP, loans to small businesses can be
Assessing Good Faith Efforts to Comply with a Small Business Subcontracting Plan
The Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) published a final rule, effective September 10, 2021, that updates the Federal Acquisition Regulation to conform to two changes regarding small business subcontracting, namely by providing examples of what does—and what does not—constitute good faith efforts to comply with a small business subcontracting plan, as well as when indirect costs must be used in commercial subcontracting plans.
The NDAA at issue: Section 1821 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2017 (section 1821(c) of Pub. L. 114–328; 15 U.S.C. 637) requires the Small Business Administration (SBA) to amend its regulations to provide examples of activities that would be considered a failure to make a good faith effort to comply with a small business subcontracting plan.
SBA Implementation: SBA issued a final rule at 84 FR 65647, dated November 29, 2019, to implement section 1821 of the NDAA for FY 2017. SBA added a non-exclusive list of examples of what could and could not be considered good faith efforts to comply with a small business subcontracting plan at 13 C.F.R. § 125.3(d)(3).
Proposed Rulemaking: DoD, GSA, and NASA published a proposed rule on June 3, 2020, at 85 FR 34155, to implement section 1821 of the FY 2017 NDAA.
Key Change of the Rule:
As noted above, SBA updated 13 C.F.R. § 125.3(d)(3) in 2019 to provide contracting officers guidance on evaluating whether a prime contractor made a good faith effort to comply with its small business subcontracting plan. The final rule updates FAR 19.705-7, Compliance with the subcontracting plan, to provide similar examples of activities that contracting officers may consider when evaluating whether the prime contractor made a good faith effort to comply with its small business subcontracting plan. Per commentary in the rule, this change provides contracting officers with consistent and uniform examples to identify and hold large prime contractors accountable for failing to make a good faith effort to comply with their subcontracting plans.
Similar to the SBA final rule, FAR 19.705-7(d) now discusses the corrective actions available to contracting officers when a contractor fails to make a good faith effort to comply with the subcontracting plan and that, in this context, “a failure to make a good faith effort to comply with a subcontracting plan is a material breach, sufficient for the assessment of liquidated damages, and also for other remedies the Government may have.” The final rule also updates FAR 19.705-6 to address the contracting officer’s responsibilities vis-à-vis a small business subcontracting plan, including initiating action to assess liquidated damages in accordance with FAR 19.705-7.
Commentary in the final rule makes clear that it does not implicate when a small business subcontracting plan is required—merely what activities would be considered a failure to make a good faith effort to comply with such a plan. That means that the rule does not change (1) whether a small business subcontracting plan is required in the acquisition of commercial items, including commercially available off-the-shelf items, nor (2) does it expand the applicability of the small business subcontracting plan requirement to contracts at or below the simplified acquisition threshold.
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FAR Conformed to the “New” Limitations on Subcontracting Methodology at 13 C.F.R. § 125.6
The Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) published a final rule, effective September 10, 2021, that finally updates the methodology to calculate compliance with the limitations on subcontracting.
The NDAA: Section 1651 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2013 (15 U.S.C. 657s) revised and standardized the limitations on subcontracting, including the nonmanufacturer rule, that apply to small business concerns.
Implementation in SBA’s Regulations: The Small Business Administration (SBA) implemented section 1651 of the FY 2013 NDAA in a final rule published at 81 FR 34243 on May 31, 2016, which became effective on June 30, 2016.
Proposed Rulemaking to Update the FAR: DoD, GSA, and NASA published a proposed rule at 83 FR 62540 on December 4, 2018, to implement regulatory changes made by the SBA.
Key Set of Changes Made to the FAR:
The final rule updates the methodology for complying with the limitations on subcontracting. FAR 19.505 and FAR clause 52.219-14 provide that a small business concern subject to the limitations on subcontracting will pay no more than a certain percentage of the amount paid by the Government for contract performance to subcontractors that are not similarly situated entities. As with 13 C.F.R. § 125.6, the relevant thresholds are set as follows:
- For a contract assigned a services NAICS code, the small business concern must not pay more than 50% of the amount paid by the Government for contract performance to non-similarly situated subcontractors;
- For a contract assigned a NAICS code for supplies or products (other than a procurement from a nonmanufacturer), the small business concern must not pay more than 50% of the amount paid by the Government for contract performance, excluding the cost of materials, to non-similarly situated subcontractors;
- For a contract assigned a general construction NAICS code, the small business concern must not pay more than 85% of the of the amount paid by the Government for contract performance, excluding the cost of materials, to non-similarly situated subcontractors; and
- For a contract assigned a special trade contracting NAICS code, the small business concern must not pay more than 75% of the amount paid by the Government for contract performance, excluding the cost of materials, to non-similarly situated subcontractors.
GAO Rules that DoD May Not Require a Small Business Joint Venture Itself to Hold Facility Clearance
In an August 27, 2021 decision, GAO sided with protester InfoPoint LLC (“InfoPoint”), and the Small Business Administration (“SBA”) which was invited to submit comments, in finding that a Department of Defense (“DoD”) solicitation provision requiring a small business joint venture offeror to itself hold a facility clearance was inconsistent with the National Defense
SBA To No Longer Rely on Economic Necessity Questionnaires in Processing PPP Forgiveness Applications
On July 29, 2021, the Small Business Administration announced in an FAQ that it is discontinuing any reliance on the Loan Necessity Questionnaires, which the SBA had required of each borrower, that together with its affiliates, received Paycheck Protection Program loans with a principal amount of $2 million or greater. As we’ve previously discussed,