Congress restores small business contracting parity

The small business contracting parity debate is finally over.

On Monday, President Obama signed legislation that re-establishes equality among each of the small business subcategories that competes for government contracts.

The 2010 Small Business Jobs Act, which also provides tax cuts for undersized firms and creates programs to support private sector lending, makes a technical revision to the 1953 Small Business Act by replacing the word "shall" in the Historically Underutilized Business Zone statute with the word "may."

The old language in the Small Business Act stated that a procurement officer shall award contracts based on limited competition to HUBZone small businesses. But, the statutes creating the service-disabled veteran-owned small business program and the Small Business Administration's 8(a) Business Development Program used the word "may" when referring to set-aside contracts.

The Government Accountability Office and the U.S. Court of Federal Claims determined the difference unambiguously established a preference for HUBZone firms.

The Small Business Administration lobbied lawmakers for months to support legislation that would place contractors in the 8(a) and service-disabled veteran-owned small business programs -- and the pending women-owned small businesses program -- on equal footing with HUBZone companies. HUBZone companies are located in economically depressed neighborhoods.

"This clarification will help federal agencies meet each of the government's small business contracting goals," said SBA spokeswoman Hayley Matz.

The agency now will work with the Federal Acquisition Regulatory Council to "put in place, as expeditiously as possible, provisions implementing parity among all of SBA's contracting and business development programs," Matz said.

But, some small businesses are worried the new legislation could spell the end of the HUBZone program. "This is going to seal the fate of the HUBZone program," said Jim Slagle, executive vice president for sales and marketing at Mission Critical Solutions, a Tampa, Fla. HUBZone firm that first challenged the parity statute in court. "They are not going to prioritize HUBZone firms. I don't know that we will survive this."

The federal government has not met its goal of awarding 3 percent of all contract dollars to HUBZone small businesses, while it generally exceeds its 5 percent goal for small disadvantaged businesses -- a category that includes the 8(a) program.

Sen. Olympia Snowe, R-Maine, and ranking member of the Small Business and Entrepreneurship Committee, sponsored the parity language in the Small Business Jobs Act. Snowe, however, did not vote for the overall legislation because of its cost and questions surrounding the structure of several lending programs.

The jobs act also:

  • Directs SBA to establish a mentor-protégé program to assist small businesses owned by women, service-disabled veterans and those operating in HUBZones. The initiative would be modeled after the 8(a) mentor-protégé program.
  • Requires OMB's Office of Federal Procurement Policy to establish a governmentwide policy for contract bundling -- a process in which several small contracts are consolidated and awarded to one firm, often out of the reach of small businesses. Prior to bundling a contract, procurement officials would be required to conduct market research and to have a senior acquisition official sign off on the decision. The rationale for bundling then would be publicly disclosed.
  • Instructs OFPP to develop guidance that would allow agencies to set aside orders placed against multiple-award contracts exclusively for small businesses. The policy would apply to indefinite delivery-indefinite quantity contracts and task and delivery-order awards.
  • Establishes a pilot program for collaboration and joint ventures involving small business contractors. Under the five-year program, $5 million in federal grants will be awarded to eligible small business teams seeking to compete for larger procurement contracts.
  • Mandates small businesses recertify their size status annually. The law also establishes a governmentwide policy for prosecuting companies that fraudulently disclose themselves to be a small business.

The parity controversy was sparked in May 2009 when Mission Critical Solutions, which had lost out on an Army IT contract to an 8(a) minority-owned small business, filed a protest with GAO. The company argued, and GAO agreed, that HUBZone firms were legally at the top of the small business pecking order and the government should have given Mission Critical Solutions the first crack at the contract.

The ruling sparked a fury of activity, with the Office of Management and Budget and Justice Department issuing rare contradictory memos instructing agencies to disregard GAO's nonbinding decision because it could "significantly limit the discretion" of contracting officers.

In a separate case, the Court of Federal Claims, a body whose rulings are binding, later decided in favor of Mission Critical Solutions. Justice has appealed that decision, although it is unclear how the new legislation will affect that case.

GAO since has ruled in favor of two HUBZone firms that filed similar contract protests. And in August the Court of Federal Claims issued its second ruling on the matter, arguing the Air Force first should have considered DGR Associates Inc., a HUBZone firm, before awarding a contract at Eielson Air Force Base in Alaska to an 8(a) small business.

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