The Department of Justice (“DOJ”) recently announced a $5.2 million settlement with Numet Machining Techniques, LLC and affiliated entities (collectively, “Numet”) concerning alleged misrepresentations of size and ownership in connection with pursuing U.S. Government contracts. The Numet settlement is an important reminder to the contractor community that representations and certifications—particularly those concerning small business status—should be made with due caution and that the discovery of incorrect representations during M&A due diligence can be a significant finding. In this post, we explore the recent Numet settlement, examine the Small Business Administration (“SBA”) size and affiliation rules, and offer guidance to companies assessing the significance of incorrect representations.
Small Business
Paycheck Protection Program Expands and Offers Opportunity for Second Draw Loans
By Sarah Schuler on
On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act opened up the Paycheck Protection Program (“PPP”) to additional organizations and authorized a second draw of PPP loans. The U.S. Small Business Administration (“SBA”) has issued guidance on changes to the original Program and new second draw loans, and the Program has been partially reopened for both first and second draw loans as of January 13, 2021. Loans will initially only be available through community financial institutions, but SBA has indicated that additional lenders will once again be able to participate in the Program on January 15, 2021, with a full reopening scheduled for January 19, 2021.
Similar to the Program’s original rollout, a number of questions remain with respect to SBA’s implementation of the Act. SBA is also delaying guidance on changes to loan forgiveness, which may once again place borrowers in the position of taking out loans without knowing whether they will be fully forgiven. However, SBA has now been managing the Program for almost ten months, and borrowers will hopefully not be subject to the same level of policy shifts and reversals that was experienced during the Program’s original rollout.
The Act makes first and second draw loans available until March 31, 2021, but there is a good chance that all available funds will be allocated before that date.…
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Signs of Progress with the Limitations on Subcontracting, but Outstanding Questions Remain
A recently proposed rule would update the Federal Acquisition Regulation (“FAR”) to incorporate statutory changes to limitations on subcontracting that have been in effect since 2013. The U.S. Small Business Administration (“SBA”) has long since revised its own regulations to implement these changes, but some contracting officers have been reluctant to follow these changes in the SBA regulations because the FAR contains contradictory provisions.
The proposed rule is a sign of progress. In particular, it should add significant clarity to the current disconnect between the FAR and SBA regulations. However, the proposed rule is not perfect, and a number of recent developments highlight that outstanding questions remain.…
DoD OIG Audit: What SDVOSBs Need to Know
By Michael Wagner & Brooke Stanley on
The Department of Defense Office of Inspector General (“OIG”) recently announced that it was initiating an audit to determine whether agencies within DoD awarded Service-Disabled Veteran-Owned Small Business (“SDVOSB”) set-aside and sole-source contracts to eligible companies. The audit is set to begin this month, and likely will evaluate the number and value of contracts awarded to SDVOSBs under set-asides and sole-source procurements, as well as whether and how agencies confirm that awardees qualify as SDVOSBs at the time of award. The audit, which comes six years after the OIG previously determined that DoD did not have adequate controls in place to ensure the integrity of the SDVOSB set-aside program, signals that SDVOSB eligibility issues are likely to become a greater point of emphasis in future enforcement proceedings.
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DoD Implements Streamlining Awards for Innovative Technology Projects
By Herbert Fenster, Sandy Hoe & Raymond Biagini on
On January 9, 2018, Department of Defense (“DoD”) issued Class Deviation 2018-O0009, designed to reduce barriers to entry for innovative entities through streamlining the awards process for research and development contracts. This Class Deviation allows for the use of simplified acquisition procedures and excuses certain procurement obligations when DoD awards contracts and subcontracts valued…
FAR Council Clarifies 8(a) Sole Source Justification Requirements for High Value Contracts
By Jay Carey & Ryan Burnette on
On October 15, the Federal Acquisition Regulatory Council (FAR Council), issued a proposed rule to clarify contracting officer and agency responsibilities when justifying sole source awards exceeding $22 million dollars made through the Small Business Administration’s 8(a) program. The revisions directly address recommendations from a December 2012 Government Accountability Office (GAO) report titled, “Slow Start to Implementation of Justifications for 8(a) Sole-Source Contracts,” which, among other things, highlighted agency “confusion” about the existing justification requirements in the FAR.
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Confidentiality Agreements Continue To Pose Potential Compliance Trap for Contractors
Federal contractors who require employees to sign confidentiality agreements—including those selling only commercial products or in small quantities—need to examine their agreements closely. For the last two years, the government has sought to prohibit confidentiality agreements that restrict employees’ ability to report fraud, waste, or abuse to “designated investigative or law enforcement representative[s]” for federal agencies authorized to receive that information.”[1] Most recently, the Department of Defense issued a new class deviation on November 14, 2016 prohibiting DoD from using funds from recent appropriations to contract with companies using overbroad confidentiality agreements.[2] While these restrictions may not be new, the deviation’s broad application and significant consequences mean that contractors should give close scrutiny to ensure any agreements with employees comply with the prohibition.
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D.C. Circuit Upholds Constitutionality of SBA’s 8(a) Program
By Jennifer Plitsch & Terra White Fulham on
Posted in Small Business
Earlier this month, in Rothe Development, Inc. v. Department of Defense, the D.C. Circuit upheld the constitutionality of the Small Business Administration (“SBA”) 8(a) program by rejecting arguments that the Small Business Act contains an unconstitutional classification based on race. Although the decision will likely be seen as a positive development for small business government contractors and other 8(a) program supporters, the court’s opinion leaves the door open for further challenges to the 8(a) program based on the SBA’s implementing regulations.
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Changes to Small Business Subcontracting On the Horizon
By Scott A. Freling & Alexander Hastings on
Posted in Procurement Policy, Small Business
Last week, the Federal Acquisition Regulation (“FAR”) Council issued a Final Rule to implement regulations adopted by the Small Business Administration in 2013. The Final Rule significantly amends FAR Parts 19 and 52 by imposing additional small business-related obligations on prime contractors and clarifying the consequences of failing to satisfy those obligations. The Final Rule largely tracks the proposed rule, which we previously discussed. It will be effective November 1, 2016.
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SBA Considers Potential Consequences of Kingdomware Technologies
By Herbert Fenster on
As we discussed in a recent post, the Supreme Court’s decision in Kingdomware Technologies, Inc. v. United States left a number of questions unanswered regarding the implementation of set-aside requirements for veteran-owned small businesses under Federal Supply Schedule (“FSS”) contracts. The decision has already had repercussions outside the set-aside context, with the Court of Appeals for the Federal Circuit recently applying Kingdomware’s reasoning in Coast Professional, Inc. v United States to confirm bid protest jurisdiction under the Tucker Act for orders placed under FSS contracts.
Congressional testimony subsequent to Kingdomware also now confirms that a number of agencies are considering whether the Supreme Court’s decision has broader implications for other small business programs. Specifically, the U.S. Small Business Administration (“SBA”) has publically recognized that the Supreme Court’s reasoning may extend beyond a relatively narrow statute governing U.S. Department of Veterans Affairs (“VA”) set asides and require significant changes to long-standing principles established under the Small Business Act. As result, the VA’s and the SBA’s interests may no longer be aligned as the agencies attempt to reconcile currently differing implementations of related set-aside programs.…
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