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SBA Publishes Final Rule That Affects Construction Contracting

June 29, 2016

On May 31, 2016, the US Small Business Administration (SBA) published a final rule amending its regulations to make them easier to understand and use, as well as to increase the chances for small business prime contractors to partner with other businesses while maintaining their standing as an eligible small business. Since the federal government relies heavily on small businesses for construction, these changes should significantly impact construction contracting.

Prior to the final rule, the regulations were regarded as ambiguous or having numerous issues concerning application.  The SBA believes that the final rule provides clarity which should lead to more potential work for small businesses while not imposing any new costs.

 Some of the key areas addressed in the final rule include:

  • Changing the performance requirements applicable to small business and socioeconomic program set-aside contracts and small business subcontracting, and authorizing similarly situated subcontractors to count toward the performance requirements.
  • Allowing a joint venture to qualify as small for any government procurement as long as each partner to the joint venture qualifies individually as small under the size standard corresponding to the NAICS code assigned in the solicitation.
  • Amends SBA’s regulations pertaining to the nonmanufacturer rule and affiliation rules including the treatment of software as a commodity and the elimination of waiver requests for procurements within the Simplified Acquisition Threshold (SAT).

 SBA’s intent with the final rule was to benefit small business concerns by allowing them to use similarly situated subcontractors in the performance of a set-aside contract, thereby expanding the capacity of the small business prime contractor and potentially enabling the firm to compete for and obtain larger contracts. It also strengthens the small business subcontracting provisions, which may result in more subcontract awards to small business concerns.

 The federal government relies on small business for construction to a much greater extent on a percentage basis than it does across all federal procurement. Overall, the federal government spent $437 billion on goods and services in FY15. Of this amount just 22% was performed by small business.  During the same period the federal government spent $31 billion on construction, maintenance of facilities, and materials, 45% of the total was performed by small business.

 The SBA’s rule takes effect June 30, 2016.