By Mahmood Bakkash and Joe Kirkwood
On Friday, August 23, 2024, the Small Business Administration (SBA) proposed a new rule regarding its small business programs. It’s a massive update with some very important changes, so we have broken it down into the key features below.
Like any proposed rule, these items may not go into effect as proposed or may never go into effect, but we will provide an update when and if they do.
If any of these items are particularly important to your business and future strategy, please contact us for a more detailed discussion of the nuances and potential impact.
The proposed rule would amend the SBA small business program rules by:
• Slightly broadening the scope of actions a minority shareholder can have the right to block in a Service-Disabled Veteran Owned Small Business (SDVOSB).
• Applying that new broadened scope of actions to the 8(a) Business Development (8(a)) and Women-Owned Small Business (WOSB) programs. Previously the scope was governed by case law; the new scope is less restrictive on minority owners (i.e. investors).
• Also applying the new broadened scope of actions to the affiliation rules. Previously the scope was governed by case law; the new scope is more restrictive on minority owners invested in non-8(a)/WOSB companies.
• Clarifying the size and status recertification/determination rules, especially regarding date of determination, GSA FFS contracts, eligibility after an acquisition, and the opportunity to protest an order award on ostensible subcontractor grounds.
• Consolidating the size and status recertification/determination rules across programs into one new rule, 13 CFR §125.12.
• Amending the joint venture affiliation rules so that the Protégé in a Mentor-Protégé Joint Venture (MPJV) must perform the primary and vital requirements of the contract and not be unusually reliant on its joint venture partner (this would be applicable to all JVs, but especially important to MPJVs).
• Allowing procuring activities to demonstrate at least a minor level of past performance as part of a joint venture’s offer.
• Requiring governing documents of an MPJV entity to specify that when a mentor seeks to sell its interest in a MPJV, the Protégé has a right of first refusal to purchase that interest.
• Adding Protégé rights to amend or terminate the Mentor Protégé Agreement (MPA) in the event of the acquisition of the Mentor by a third party, if the third party is not situated to fulfill the MPA’s requirements.
• Requiring that Protégés not only not be affiliated with the Mentor, but also that Mentors may not “employ or otherwise control the managers or key employees of the Protégé.”
• Requiring any company purchasing a Mentor, but already has its own Protégé on the same multiple award contract (MAC) to exit one of the joint ventures.
• Changing 8(a) rules, including increasing the maximum ownership percentage by non-disadvantaged individuals, requiring two (2) years of tax returns in the application instead of proving revenue in primary NAICS code, and more.
• Changing HubZONE rules regarding when a company must be eligible (including at time of offer), moving to triannual recertifications, requiring 51% of teleworking employees to be located in a HubZONE to qualify, and more.
• Standardizing various requirements and rules across all small business programs.