On February 11, 2015, the U.S. Small Business Administration issued its final rule implementing statutory revisions that encourage use of small business status advisory opinions from Small Business Development Centers (SBDCs) or Procurement Technical Assistance Centers (PTACs).  Specifically, the new rule implements provisions of the National Defense Authorization Act of 2013 that establish limitations of liability from fraud penalties under 15 U.S.C. § 645(a) for individuals or companies that misrepresent business concerns as “small” based upon good faith reliance upon advisory opinions from SBDCs or PTACs.  The rule also specifies the review process for these advisory opinions.

This new rule provides a safe harbor for fraud liability arising under 15 U.S.C. § 645(a), which governs “false statements” to the Small Business Administration.  Under § 645(a), anyone who “makes any statement knowing it to be false . . . for the purpose of influencing in any way the action of the Administration, or for the purpose of obtaining money, property, or anything of value” to a fine and possible imprisonment.  This safe harbor applies only to false statements made in connection with misrepresentation of status as a small business concern.  The rule specifically notes that a business concern’s size status may still be subject to a size protest in connection with specific procurements.

The statute is clear that there is no obligation for SBDCs or PTACs to issue these opinions, and the SBA noted in response to comments on the proposed rulemaking that it does not have authority to mandate these opinions, particularly in light of the fact that PTACs are administered by the Department of Defense.  In addition, the advisory opinions are subject to review by the SBA’s Office of Procurement Law, which has 10 business days to accept or reject the advisory opinion.  Despite these limitations, the new rule still offers a potential solution for business concerns faced with questions regarding eligibility for small business status set-asides.

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Photo of Scott A. Freling Scott A. Freling

Scott Freling represents civilian and defense contractors, at all stages of the procurement process, in their dealings with federal, state, and local government customers and with other contractors. He has a broad-based government contracts practice, which includes compliance counseling, internal investigations, strategic procurement…

Scott Freling represents civilian and defense contractors, at all stages of the procurement process, in their dealings with federal, state, and local government customers and with other contractors. He has a broad-based government contracts practice, which includes compliance counseling, internal investigations, strategic procurement advice, claims and other disputes, teaming and subcontracting, and mergers and acquisitions. He represents clients in federal and state court litigation and administrative proceedings, including bid protests before the Government Accountability Office and the U.S. Court of Federal Claims. He also represents clients in obtaining and maintaining SAFETY Act liability protection for anti-terrorism technologies. Mr. Freling’s experience covers a wide variety of industries, including defense and aerospace, information technology and software, government services, life sciences, renewable energy, and private equity investment in government contractors.

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Photo of Nooree Lee Nooree Lee

Nooree is a Special Counsel in Covington’s Government Contracts practice.  He represents government contractors in all aspects of the procurement process and focuses his practice on the regulatory aspects of M&A activity as well as foreign military sales and other international contracting matters.

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