Small Business Contracting

A summary pulled from Small Biz Basics. This page summarizes key themes and important information regarding small business contracting, drawing from a series of presentations and training materials.

Overview of Federal Contracting for Small Businesses

• Navigating the System: Federal contracting regulations, primarily the Federal Acquisition Regulation (FAR), govern contracts between businesses and the US government. Small businesses new to federal contracting should familiarize themselves with these regulations and their supplements (e.g., DFARS for the Department of Defense). Key resources include SAM.gov for registration and opportunity searches, as well as the SBA Dynamic Small Business Search (DSBS) for finding small businesses and verifying eligibility.
  • “Applies to all federal contracts unless noted.”
  • “Solicitations will have provisions and contracts will have clauses.”
• NAICS Codes and Size Standards: The North American Industry Classification System (NAICS) categorizes businesses based on economic activity. Each NAICS code has a size standard (revenue-based or employee-based) that determines whether a business qualifies as “small.” Businesses must carefully monitor their size relative to their primary NAICS code, as exceeding the threshold can impact eligibility for set-aside programs.
  • “NAICS codes classifies businesses according to the type of economic activity.”
  • “The definition of small is going to vary by industry.”
  • “The SBA is going to be responsible for setting those uh thresholds.”
• Contract Types: The government uses various contract types, including Firm-Fixed Price (FFP), Fixed Price with Economic Price Adjustment (FP-EPA), Indefinite Delivery Indefinite Quantity (IDIQ), Time and Materials (T&M), and Basic Ordering Agreements (BOA). Small businesses should understand the nuances of each type, particularly focusing on common types for small businesses like FFP and IDIQ.
  • “Most people are most familiar with is the firm fixed price, the FFP.”
  • “Most Idiq’s are usually five years as well, so you get a base base plus four option years.”
  • “A time-and-materials contract may be used only when it is not possible at the time of placing the contract to estimate accurately the extent or duration of the work or to anticipate costs with any reasonable degree of confidence.”
• Key Clauses and Statutes: Federal contracts include clauses that differ from commercial agreements. Critical areas include:
  • The Christian Doctrine: Certain clauses are so fundamental that they are implied even if omitted.
    • “There are some clauses that are so important to federal government contracting. So those clauses coming out in a far 52. Some of those clauses are so important and so fundamental to doing business with the government that even if the government failed to put it on your contract, it can still be read into it.”
  • Anti-Assignment Act: Prohibits transfer of contracts without government consent.
    • “If you’re going to be on the federal side, you don’t have that same flexibility. You have to get permission.”
  • Anti-Kickback Statute: Prohibits offering or accepting anything of value to influence government decisions.
    • “Any person who knowingly engages in this type of conduct can be imprisoned for up to 10 years and be find.”
  • False Claims Act: Imposes severe penalties for knowingly submitting false claims to the government.
    • “If you are knowing submitting a false claim to the government, you um can be liable for treble damages. That that should say treble, not double uh damages plus um a penalty of 11,000 for each false claim. $11,000 per claim.”
  • Subcontracting Opportunities: Large businesses often subcontract work to small businesses. This presents a valuable entry point for small businesses to gain experience and past performance. Small businesses should actively seek subcontracting opportunities and leverage resources like SAM.gov and DSBS to find potential partners.

Small Business Set-Aside Programs

The government has implemented various programs to support small businesses and ensure they receive a fair share of federal contracts:

• Small Disadvantaged Business (SDB) Program: This umbrella program encompasses several specific socio-economic programs aimed at assisting businesses owned and controlled by individuals who have faced historical disadvantage. Federal agencies are mandated to set goals for contract awards to SDBs.
• 8(a) Business Development Program: The oldest and most well-known SDB program, 8(a) offers development assistance and exclusive contracting opportunities for businesses owned and controlled by socially and economically disadvantaged individuals.
  • “Each one has some nuances in their programming, but the 8A stands aside.”
  • “So, for example, if if the owner has a mortgage on their personal primary residence, that does get debited from the amount. So, you know, that’s a nice uh benefit of the calculation. It takes into account that many of us carry mortgages on our primary residence and then you don’t have to deal with that.”
  • “They’ll do a little digging and they’ll look at the owner of the company.”
• Historically Underutilized Business Zone (HUBZone) Program: This program targets businesses located in economically distressed areas. Businesses must meet specific criteria related to location and ownership.
  • “What we’re talking about is a company that is located in a qualified census track based upon um some various factors that we’re going to get into in just a moment.”
• Women-Owned Small Business (WOSB) Program: This program provides opportunities for businesses at least 51% owned and controlled by women. A subset, the Economically Disadvantaged Women-Owned Small Business (EDWOSB) program, further targets women who face economic disadvantage.
  • “The idea here again is you’re going to level the playing field for women that own businesses and that the government is going to um set those aside to help to help create an environment in which women can be more competitive uh by really competing women against women instead of competing women against you know all different sized companies.”
• Service-Disabled Veteran-Owned Small Business (SDVOSB) Program: This program supports businesses owned and controlled by veterans with service-connected disabilities. Like the WOSB program, it aims to increase contracting opportunities for this specific group.
  • “It is specifically needed to aid and stimulate [SDVOSB] enterprises and it directs the acquisition officials to take appropriate action to facilitate preserve and strengthen the the [SDVOSB] portion and to ensure full participation in the free market enterprise.”

Small Business Subcontracting Plans

Large businesses bidding on federal contracts exceeding certain thresholds must submit Small Business Subcontracting Plans outlining their strategies for utilizing small businesses.

• Goals and Good Faith Efforts: The government sets overall small business subcontracting goals, and each agency negotiates specific goals with the SBA.
  • “In addition, the SBA negotiates a small business subcontracting goal based on recent achievement levels.”
• Compliance and Penalties: Large businesses are expected to make good faith efforts to achieve their subcontracting goals. Failure to comply can result in penalties, including liquidated damages.
  • “If you’re the large business, you have to make good faith efforts to actually hit your goals and do the work that you said you were going to do with those small businesses.”

Joint Ventures and Teaming Agreements

Small businesses can leverage joint ventures and teaming agreements to enhance their competitiveness in federal contracting.

• Joint Ventures: Two or more businesses can form a separate legal entity to pursue a specific contract opportunity. This allows businesses to combine resources and expertise.
• Teaming Agreements: Businesses can establish teaming agreements to collaborate on proposals without creating a new legal entity. These agreements are generally non-binding but define roles and responsibilities.
• Mentor-Protégé Programs: These programs, often within the 8(a) program, pair experienced businesses (mentors) with developing businesses (protégés) to provide guidance and support.
  • “Now, let’s talk about one of my favorite topics, the sale of a business.”
  • “The SBA mentor protege you have to the small business in any mentor protege has to be considered small under their applicable NYX code, the North American Industrial Classification.”

Affiliation and Its Impact on Small Business Status

Affiliation refers to the close relationship between businesses that can affect their individual small business status.

• Factors Determining Affiliation: The SBA considers various factors, including ownership, control, management, and previous business relationships, to determine affiliation.
  • “Now the the enemy of teaming agreements and joint ventures especially in the small business world is this thing called affiliation.”
• Impact on Eligibility: If the combined size of affiliated businesses exceeds the size standard for the relevant NAICS code, they may be ineligible for set-aside programs.
  • “And that is the effect is that the government is supposed to add together the prime and the sub or they’re supposed to add together the mentor and the protege. And if together they equal what they exceed the small business threshold in the next code, then they’re considered not small.”

Graduating from Small Business Status

Businesses that grow beyond the size standard for their primary NAICS code graduate from small business status.

• Transitioning to Large Business: Businesses should prepare for graduation by diversifying their client base, developing a robust marketing strategy, and exploring non-federal opportunities.
  • “They’re actually only mandated for ADA, but because they’re so helpful to AA companies, they might be replicable.”
  • “So, are you getting revenue that’s across different sectors? Are you getting revenue that brings it in to show that you are not just fully reliant on ADAS?”
• ADA Transitional Stage: Businesses graduating from the 8(a) program enter a transitional stage, during which they must demonstrate increasing non-8(a) revenue to ensure successful transition to the open market.
  • “This isn’t year one. This isn’t the first year you get your AA. This is the fifth year you’ve had your AA. It’s when you’re in your transitional stage.”
  • “ADA participants are required to make good faith efforts to obtain business outside of the ADA program.”

Sale of a Small Business

The sale of a small business, particularly one involved in government contracting, requires careful consideration of various factors.

• Ownership and Control: The structure of ownership and control, especially for socio-economic programs, significantly impacts the sale process and potential eligibility for future contracts.
  • “Things that you have to consider, and I always say do this in advance because you want to be thinking about these earlier on so you’re planning for it.”
• Intellectual Property (IP) Assets: Thoroughly assess the ownership and usage rights of intellectual property, including technical data and patents, to ensure a smooth transfer of assets and compliance with government regulations.
  • “So, what you want to know is um you want to make sure that you’re evaluating upfront what IP does the company own? If I’m if I’m the owner of the company, what do I own? Um what am I potentially selling to somebody else? And then what IP do I have the rights to use?”
• Data Security and Compliance: Evaluate the company’s handling of sensitive data, including CMMC and export control compliance, to avoid potential issues and liabilities after the sale.
  • “So, if you’ve got CUI data, covered unclassified information, are you going to be able to to just transfer that to your new owner? or if you are the new owner, what’s that going to mean?”
• Organizational Conflicts of Interest (OCI): Analyze potential conflicts of interest arising from the sale, especially in areas like healthcare contracting, to mitigate risks and ensure compliance with government regulations.
  • “And then I’ve got a whole another slide because this is how big the um the sale process is. I mean, it’s it’s not small.”
• Novations and Assignments: Depending on the nature of the sale, a novation (transfer of all rights and obligations) or an assignment (transfer of specific rights, often payment) may be required to continue existing government contracts.
  • “Novations take a while. They usually take about a year. So, you need to give yourself plenty of time to be prepared for that.”
  • “Assignments: in most instances, you can assign your payments.”

This summary provides an overview of essential information for small businesses engaged in or considering federal contracting. For specific guidance, consult legal and contracting professionals.