Under the current rule, a contractor eligible for a multiple award indefinite delivery indefinite quantity (IDIQ) contract set aside for specific types of businesses at the time of award generally remains eligible for set aside orders under the IDIQ contract, even after a disqualifying recertification (i.e., a recertification that the contractor no longer qualifies for the socioeconomic category for which the contract was set aside or reserved). SBA’s regulations also require that a contractor recertify its socioeconomic status within 30 days of a novation, acquisition or merger, and before the sixth year and every option thereafter on long-term contracts. The proposed rule would change this long-standing recertification rule. Under the proposed rule, a contractor will be ineligible for new set aside orders and agreements under IDIQ contracts after making a disqualifying recertification. Further, the contractor will be ineligible for the exercise of any new options on the contract after making a disqualifying recertification. If implemented, this change will likely have significant implications for government contractors undergoing mergers and acquisitions.
The proposed rule would make numerous other changes. While this alert does not endeavor to summarize all of them, some of the more noteworthy are as follows:
- SBA proposes to provide for a list of six specific “extraordinary circumstances” over which minority shareholders may have decision-making authority without a finding of negative control under SBA’s affiliation rules, and providing for the same exception under the 8(a) business development, women-owned small business (WOSB) and veteran small business certification (VetCert) programs. The VetCert program governs SBA’s certification of veteran-owned small businesses (VOSBs) and service-disabled veteran-owned small businesses (SDVOSBs). These six extraordinary circumstances are: (1) adding a new equity stakeholder; (2) dissolution of the company; (3) sale of the company or all assets of the company; (4) the merger of the company; (5) the company declaring bankruptcy; and (6) amendment of the company’s governance documents to remove the shareholder's authority to block any of the aforementioned changes. This change would essentially codify the current state of the law as interpreted by Office of Hearings and Appeals (OHA).
- SBA proposes to make several minor changes to the 8(a) business development program regulations that would have the effect of expanding the pool of companies eligible to participate in the program.
- SBA proposes to increase the percentage of ownership interest that non-disadvantaged individuals and other business concerns may own in an 8(a) business development program participant. The proposed rule would allow up to 20% (an increase from 10%) of such ownership in the development stage of the program, and up to 30% (an increase from 20%) in the transitional stage. The proposed rule would also modify the change of ownership rules, such that an 8(a) concern need not obtain SBA’s approval prior to the change of ownership if the non-disadvantaged individuals own less than 30% (an increase from 20%) of the concern’s ownership interest both before and after the transaction. Instead, the 8(a) concern would be required to notify the SBA within 60 days of the occurrence of such a transaction.
- SBA believes that it is potentially no longer necessary to consider community property laws in determining whether a concern is “unconditionally” owned by disadvantaged individuals and is seeking comments on this subject.
- SBA proposes to give qualifying owners of 8(a) concerns and WOSBs the ability to grant the right of first refusal to purchase their interest in the concern to non-qualifying individuals (such as non-disadvantaged individuals, or in the case of WOSBs, men). The ability to grant such a right of first refusal would be consistent with the current VetCert program.
- SBA proposes changes to the ownership requirements of 8(a) business development, WOSB and VetCert programs to ensure uniformity, such that a concern applying for certification under multiple programs need only comply with one set of rules.
Interested parties may submit comments to the SBA regarding this proposed rule by October 7, 2024. The proposed rule will not go into effect until SBA receives and considers comments from the public and issues a final rule.