Hello Q4: SBA Clarifies 8(a) Sole Source Rules, Individually-Owned 8(a) Entities Have More Options for Larger Awards

By Joshua Duvall and David Yang

The government’s fiscal year (“FY”) is coming to an end on September 30, which means the need for agencies to spend “use it or lose it” contracting dollars will steadily increase over the next couple of months. And, while the contracting space typically sees a concomitant uptick in bid protests in September and October due to the influx of late Q4 contract awards, this year, we may also see an uptick in something else due to a recent Small Business Administration (“SBA”) regulatory update: sole source 8(a) awards.

As many contractors may recall, in 2020, the Department of Defense (“DOD”) amended its regulations to increase the threshold for 8(a) companies to receive sole source awards without obtaining a justification and approval (“J&A”). The amended DOD regulations under DFARS 206.303 caused the then-existing $22M threshold to skyrocket to $100M. (For civilian agencies, the lower threshold was later increased to $25M.) Thus, 8(a)s could receive a DOD sole source under $100M without a J&A. Yet, because SBA’s rules remained undisturbed, that increase mainly affected entity-owned 8(a) concerns (ANCs, Tribal Concerns, NHOs).

That is, individually-owned 8(a) entities were largely unable to take advantage of the increase because, generally, 13 C.F.R. § 124.506 limited individually-owned 8(a) sole-source contracts to under its $4.5M (or $7M manufacturing) competitive thresholds. Contracts above the thresholds are required to be competed if “[t]here is a reasonable expectation that at least two eligible Participants will submit offers at a fair market price” and the requirement was not previously sole sourced to a Tribally-owned or ANC-owned concern.

SBA’s regulatory update changed that landscape by providing needed clarity as to when an individually-owned 8(a) may be awarded a sole source contract.

In April, SBA issued a rule (effective May 30) that made a host of changes to SBA’s 8(a) program, including its sole source rules. Specifically, SBA amended 13 C.F.R. § 124.506(d) to clarify the circumstances under which an individually-owned 8(a) could be awarded a sole source contract and to clarify that the FAR and DFARS provisions regarding J&As for sole source awards above $25M (civilian) and $100M (DOD) are applicable to individually-owned 8(a) concerns.

For the former, SBA provided clarity by changing the rule to expressly allow individually-owned 8(a)s to receive a sole source award above the $4.5M and $7M competitive thresholds where one of the exceptions to competition set forth in FAR 6.302 exists. For the latter, SBA amended the rule to clarify that an agency may not issue a sole source contract that exceeds $25M (civilian) or $100M (DOD) to an individually-owned 8(a) concern unless the agency justifies the award under FAR 19.808–1 or DFARS 219.808–1(a). This was added to the regulation because, as SBA commented, “the FAR and DFARS [J&A] provisions are not restricted to entity-owned Participants.”

Simply put, SBA’s rule may very well be a game changer for individually-owned 8(a) entities as SBA clarified that those entities can indeed receive sole source awards of significant value. As amended, SBA’s regulation at 13 C.F.R. § 124.506(d) states: [1]

• (d) Sole source above thresholds. Where a contract opportunity exceeds the applicable threshold amount and there is not a reasonable expectation that at least two eligible 8(a) Participants will submit offers at a fair price, the AA/BD may accept the requirement for a sole source 8(a) award if he or she determines that an eligible Participant in the 8(a) portfolio is capable of performing the requirement at a fair price. The AA/BD may also accept a requirement that exceeds the applicable competitive threshold amount for a sole source 8(a) award if he or she determines that a FAR exception (48 CFR 6.302) to full and open competition exists (e.g., unusual and compelling urgency). An agency may not award an 8(a) sole source contract under this paragraph for an amount exceeding $25,000,000, or $100,000,000 for an agency of the Department of Defense, unless the contracting officer justifies the use of a sole source contract in writing and has obtained the necessary approval under FAR § 19.808–1 or DFAR § 219.808–1(a).

Finally, as previously discussed on this blog, individually-owned 8(a) entities are eligible to receive sole source awards for a longer period of time. Last November, in a rule to increase various 8(a) thresholds for inflation, SBA revised its regulations to allow individually-owned 8(a) entities to remain eligible for sole source awards so long as their total lifetime aggregate of competitive and sole source 8(a) awards do not surpass $168.5M (an increase from $100M). [2]

Takeaway

SBA’s clarifications are welcome news for individually-owned 8(a) entities, particularly as we push further into Q4. Under the clarified rule, an individually-owned 8(a) may receive a sole source contract above $4.5M ($7M for manufacturing): (1) where there is not a reasonable expectation that another 8(a) will submit an offer at a fair price (and one 8(a) can perform at a fair price) or (2) where the agency justifies the sole source contract under FAR 6.302. Further, because the “provisions [under FAR 19.808–1 or DFARS 219.808–1] are not restricted to entity-owned Participants,” SBA clarified that individually-owned 8(a) entities may even receive sole source awards above $25M (civilian) or $100M (DOD) when properly justified (or under those amounts, and without a J&A, where there is not a reasonable expectation that another 8(a) will submit an offer at fair price).

About Joshua Duvall 

Joshua Duvall is a Shareholder in the Washington, D.C. Office of Maynard Nexsen’s Government Solutions Practice Group. Josh is frequently called upon by government contracting executives and industry leaders to navigate their most pressing problems and business opportunities, drawing on his broad experience in the complex world of doing business with the federal government, including protests, litigation, compliance, cybersecurity, transactions, and even small business matters. He regularly counsels and represents civilian and defense contractors in bid protests before the U.S. Government Accountability Office, U.S. Court of Federal Claims, U.S. Court of Appeals for the Federal Circuit, and federal agencies; protests and appeals before the U.S. Small Business Administration (size, status, NAICS); teaming, joint venture, and subcontract agreements; mergers and acquisitions (M&A), asset purchase, and government contract novation; claims and disputes; regulatory matters (FAR, DFARS); cybersecurity (CMMC); GSA schedule issues; and other complex matters with a nexus to federal procurement. Prior to joining Maynard, Josh founded and managed a boutique government contracts law firm in Washington, D.C., where he counseled and represented small – 8(a), WOSB/EDWOSB, HUBZone, SDVOSB – and mid-size contractors in a variety of government contracting, business, and cybersecurity matters. Josh is Vice-Chair of the Bid Protest and Membership Committees for the ABA Section of Public Contract Law, is a Certified Information Systems Security Professional (CISSP), and is a frequent presenter and author on government contracts and cybersecurity issues.

About David Yang 

Dave is a Shareholder in Maynard Nexsen’s Government Solutions Group. He focuses his practice on the representation of government contractors of all sizes and industries in all aspects of the federal, state, and local procurement cycle. He assists recipients and contractor clients with successfully navigating their way through the myriad of requirements pertaining to grants, cooperative agreements, and other forms of federally-assisted programs. With over twenty years of substantial experience, Dave has handled bid and size protests in all forums, including before the U.S. Government Accountability Office, the U.S. Court of Federal Claims, and the Small Business Administration. He has successfully defended numerous False Claims Act claims and litigation. In addition, Dave frequently counsels clients and provides compliance assistance with regards to DCAA audits, internal investigations, mandatory disclosures, cost and pricing, supply chain integrity, including domestic sourcing requirements, cybersecurity, data rights and intellectual property. His transactional experience includes representing both buyers and sellers in mergers, acquisitions, joint ventures, and other strategic transactions. Prior to joining the firm, Dave was a partner in the D. C. office of a global law firm and in the Seattle, Washington office of a boutique firm focused almost exclusively in the construction and federal contracts space.

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[1] The prior version of Section 124.506(d) stated: “(d) Sole source above thresholds. Where a contract opportunity exceeds the applicable threshold amount and there is not a reasonable expectation that at least two eligible 8(a) Participants will submit offers at a fair price, the AA/BD may accept the requirement for a sole source 8(a) award if he or she determines that an eligible Participant in the 8(a) portfolio is capable of performing the requirement at a fair price.”

[2] On July 19, 2023, the interim provisions of SBA’s rule were finalized “without change.”  Small Business Size Standards: Adjustment of Monetary-Based Size Standards, Disadvantage Thresholds, and 8(a) Eligibility Thresholds for Inflation, 88 Fed. Reg. 46,048 (July 19, 2023).

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