Earlier this month, the U.S. House of Representatives passed two bills that could mean big changes for small businesses.
The first, the “Capturing All Small Businesses Act,” H.R. 5130, aims to change the way that the Small Business Administration (SBA) calculates a company’s number of employees for the purpose of determining that company’s size. This act was authored by House Small Business Committee members Rep. Marc Veasey (D-TX) and Rep. Kevin Hern (R-OK). Rep. Veasey’s website describes the act as “bipartisan legislation that will protect our nation’s small businesses against being prematurely forced out of the ‘small’ business category due to sudden growth.”
To compete for a set-aside contract, federal government contractors need to be considered “small” businesses under the NAICS code applicable to that contract. Whether or not a business is considered “small” is determined by comparing the business’ size to the applicable size standard associated with that NAICS code. Size standards can be measured in terms of average annual receipts, or in terms of employees. We recently blogged about the changes to receipts-based size calculations, enacted as a result of the Small Business Runway Extension Act. The Capturing All Small Businesses Act now proposes that similar changes be made relating to employee-based size calculations. Specifically, the act proposes that the SBA calculate a company’s size based on the average number of employees a business has over a 24-month period, as opposed to the 12-month period that now applies. As explained by Rep. Veasey, “These additional 12 months recognize that many factors, including large contracts or seasonal employment, can cause a small business to take on extra employees temporarily, while in fact they are still a small business for the majority of the year.”
The second act, the “Unlocking Opportunities for Small Businesses Act of 2019,” H.R. 5146, was authored by Rep. Jim Hagedorn (R-MN) and Rep. Dwight Evans (D-PA), both of whom sit on the House’s Small Business Committee. The act aims to assist small businesses competing for federal contracts by expanding the types of past performance that may be considered. Specifically, the act would allow small businesses to leverage past performance experience obtained by the small business as part of a joint venture, or as a first-tier subcontractor. As the House Small Business Committee aptly explains:
Small businesses that wish to perform as prime contractors are often faced with a dilemma. Prime contracts are judged on the basis of past performance. This past performance is judged by work history on prime contracts. Without the requisite work experience, small businesses don’t have the ability to compete for and win prime contracts. But without winning prime contracts, they are unable to develop a record of performance that would allow them to earn a contract.
The purpose of the act is to allow small businesses to build a past performance record through work as subcontractors or JV members, thus allowing them to be more competitive in negotiated procurements where past performance is an evaluation factor.
These bills are now set to go to the Senate.
Maria L. Panichelli (LAW ’07) is a partner and the Chair of the Government Contracting department at Obermayer Rebmann Maxwell & Hippel. She focuses her practice exclusively on federal government contracting and procurement, guiding her clients throughout the entire lifecycle of their federal contracts. She provides comprehensive legal counseling that allows her clients to successfully navigate the complicated legal requirements related to federal contracting while fulfilling their own business goals.
Michael A. Richard is an attorney in Obermayer’s Government Contracting department. His practice is focused exclusively on representing companies that do business with the federal government. Michael litigates claims and bid protests with an emphasis on helping clients secure their contract rights while maintaining their relationships with government agencies.