1. 888 17th St. NW, Ste. 1100 Washington, DC 20006 Tel: 202.857.1000 Fax: 202.857.0200 Presented by: Pamela J. Mazza pmazza@pilieromazza.com Tribal Government Institute 2010 Annual Conference OVERVIEW OF PROPOSED CHANGES TO SBA’s REGULATIONS & BID PROTESTS © PilieroMazza, PLLC 2010

2. 2 SBA PROPOSED CHANGES Joint Ventures The Mentor-Protégé Program Rules for Tribes, ANCs and NHOs Size Determinations 8(a) Eligibility 8(a) Economic Disadvantage

3. © PilieroMazza, PLLC 2010 3 JOINT VENTURES Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 121.103(h) The so-called “3 in 2” rule, which states that two firms are limited to pursuing three contract opportunities under one JV. To pursue an opportunity means to submit an offer. The “3 in 2” limitation would change from three offers to three contract awards under one JV. 13 C.F.R. § 121.103(h)(3)(iii) As OHA confirmed in Size Appeal of SES-TECH Global Solutions, SBA No. SIZ-4951 (2008), the 8(a) JV rules currently apply only to MP JVs that pursue 8(a) contracts. SBA proposes to amend § 121.103(h)(3)(iii) to make clear that any JV seeking to use 8(a) MP status as a basis for an exception to affiliation must follow the 8(a) JV rules set forth in § 124.513(c), (d).

4. © PilieroMazza, PLLC 2010 4 JOINT VENTURES Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 121.103(h)(3)(iii) Two firms in an approved MP arrangement may JV as a small business for any federal procurement, provided certain criteria are met. SBA is seeking comment on whether to permit the MP JV exclusion from affiliation for only 8(a) contracts. This would mean that a large business mentor could not JV with a protégé for small business set-asides.

5. © PilieroMazza, PLLC 2010 5 Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 124.506(b) Provides exemptions from competitive sole source thresholds for 8(a) firms owned by Indian tribes, ANCs and NHOs. The proposed regulation provides that non-8(a) JV partners may not be subcontractors to the JV on 8(a) sole- source contracts. JOINT VENTURES

6. © PilieroMazza, PLLC 2010 6 JOINT VENTURES Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 124.513(c)(3) The 8(a) JV partner must receive 51% of the profits from the JV. Recognizing the inequity this requirement causes when the non-8(a) firm performs more of the work in the JV, SBA proposes to amend this rule to provide that the 8(a) JV partner must receive profits from the JV commensurate with the work the 8(a) partner actually performs.

7. © PilieroMazza, PLLC 2010 7 JOINT VENTURES Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 124.513(d) For 8(a) JVs, the performance of work rule is satisfied through the JV. This means the JV partners may also serve as subcontractors for a significant portion of the JV prime contract. SBA has requested comment on whether it should prohibit non-8(a) JV partners from being subcontractors under any 8(a) prime contract awarded to a JV. 13 C.F.R. § 124.513(d) The 8(a) JV partner must perform a “significant portion” of the work done by the JV. There is no definition of “significant portion” in the current regulation. SBA is proposing to define “significant portion” to mean that the 8(a) JV partner must perform at least 40% of the work done by the JV. This would mean that if the JV performs 50% of a contract, the 8(a) must perform 40% of 50%, or 20% of the entire project.

8. © PilieroMazza, PLLC 2010 8 MENTOR/PROTÉGÉ Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 121.103(b)(6) This rule provides an exemption from affiliation when one firm provides assistance to another under a federal MP program. SBA did not intend the MP exemption to be triggered by MP programs from other federal agencies. Therefore, SBA will modify rules to make clear that the MP affiliation exception will only apply to firms in a MP program specifically authorized by statute (i.e., the SBA or DOD MP programs) or where SBA has authorized an exception for another federal agency’s MP program.

9. © PilieroMazza, PLLC 2010 9 MENTOR/PROTÉGÉ Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 124.520(b) Nonprofits cannot serve as mentors because they are not considered to be a “concern” as that term is used in this regulations and defined in 13 C.F.R. § 121.105. SBA is considering changing the regulation to permit nonprofits to serve as mentors. 13 C.F.R. § 124.520(b)(2) Generally, mentors may have only one protégé at a time unless SBA approves more. Under the proposed rule, SBA would impose an absolute limit of three protégés per mentor at a time

10. © PilieroMazza, PLLC 2010 10 MENTOR/PROTÉGÉ Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 124.520(c)(2) Only firms in good standing in the 8(a) Program are eligible to be a protégé. SBA intends to clarify that this means the benefits of the MP program end once the protégé exits the 8(a) Program. A JV between a mentor and protégé would be expected to complete any contract awarded to the JV while the protégé was in the 8(a) Program. 13 C.F.R. § 124.520(c)(3) Protégés may have only one mentor. Recognizing that in some cases a second MP relationship is warranted, SBA proposes to allow a second mentor in limited circumstances when the second mentor relationship pertains to an unrelated, secondary NAICS code and the first mentor does not have the specific expertise that the second mentor can provide.

11. © PilieroMazza, PLLC 2010 11 MENTOR/PROTÉGÉ Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 124.520(c)(5) Currently, an 8(a) firm is eligible to be a protégé if it is in the developmental stage of the 8(a) Program, has never received an 8(a) contract, or is half their applicable size standard. SBA proposes to prohibit an 8(a) firm in the last year of the program from being eligible as a protégé. SBA seeks comments on the appropriate time before the end of a firm’s program term when protégé eligibility would end.

12. © PilieroMazza, PLLC 2010 12 Consequences of Not Providing Assistance Set Forth in the Mentor/Protégé Agreement - 13 C.F.R. § 124.520(h) Proposed rule: Allows a procuring agency, upon recommendation by the SBA, to issue a stop work order on each contract awarded to a mentor-protégé joint venture if the mentor is not meeting its goals as set forth in the mentor-protégé agreement. Would also provide that, in these circumstances, SBA could terminate the mentor-protégé agreement. In addition, the proposed rule states that if the joint venture’s work is critical and any delay in contract performance would harm the procuring activity, SBA may request that another Participant be substituted for the joint venture to continue performance. MENTOR/PROTÉGÉ

13. © PilieroMazza, PLLC 2010 13 Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 124.109(b)(2) SBA’s Determination of Whether a Tribe is Economically Disadvantaged This regulation currently requires Indian Tribes to demonstrate their economic disadvantage through the submission of “available data showing the Tribe’s economic condition.” SBA considers such factors as: 1.The number of Tribal members 2.The recent Tribal unemployment rate 3.The per capita income of Tribal members 4.The percentage of the local Indian population below the poverty level 5.The Tribe’s access to capital 6.The Tribal assets as disclosed in a current financial statement 7.A list of wholly or partially owned Tribal enterprises or affiliates and the primary industry classification of each. Tribes need only demonstrate their economic disadvantage one time. SBA is proposing to change the way it determines whether a Tribe is economically disadvantaged. Some options include a bright line assets or net worth test. SBA requests comments on whether a Tribe should be required to determine its economic disadvantage more than one time. ANCs, TRIBES & NHOs

14. © PilieroMazza, PLLC 2010 14 Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 124.109(c)(3)(ii) Limits on the Type of Work a Tribally- Owned Entity May Perform Currently, an ANC or Tribally-owned 8(a) applicant cannot have the same primary NAICS code as another Tribal entity that has already been admitted into the 8(a) Program, or that has left the Program within the last two years. However, the regulation allows the applicant to perform secondary work in the same NAICS code as another ANC/Tribal firm. The proposed rule provides that a newly certified ANC or Tribally-owned 8(a) firm may not receive an 8(a) contract in a secondary NAICS code that is the primary NAICS code of another ANC or Tribal entity (or ANC/Tribal entity that has graduated within two years) for two years from the date of admission to the program. As an alternative, SBA is also considering allowing the applicant to perform such secondary work on a limited basis. ANCs, TRIBES & NHOs

15. © PilieroMazza, PLLC 2010 15 ANCs, TRIBES & NHOs Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 124.109(c)(4) Management of a Tribally-Owned Firm: Economic Disadvantage Requirements for Tribal Members Under the current rules, a Tribal member must qualify as economically disadvantaged to manage the daily business operations of a Tribally-owned concern. (In practice, the SBA has not required that Tribal members demonstrate that they qualify as “economically disadvantaged,” as these terms are defined only to SBA to manage the 8(a) firm/applicant.) The proposed rule provides that any Tribal member may participate in the management of a Tribally- owned firm and need not qualify as economically disadvantaged. Therefore, directors and officers would no longer need to submit copies of their individual tax returns to establish their economic disadvantage.

16. © PilieroMazza, PLLC 2010 16 Rule CitationCurrent RuleProposed Changes 13 C.F.R. §124.109(c)(4) Management of a Tribally-Owned Firm: Membership in the Tribe Tribal 8(a) firms must generally be managed by individuals who are members of the Tribe that owns the concern. SBA requests comments on whether this rule is too restrictive and whether membership in any Tribe should suffice. 13 C.F.R. § 124.109(c)(6) Potential for Success Requirement In order for an ANC or Tribally-owned entity that has been in business less than 2 years to be eligible for the 8(a) Program, the ANC/Tribe must demonstrate that it has the potential for success. The proposed rule permits SBA to find that an ANC/Tribally-owned firm has the potential for success where an ANC/Tribe has made a firm written commitment to support the operations of the applicant concern and the ANC/Tribe has the financial ability to do so. ANCs, TRIBES & NHOs

17. © PilieroMazza, PLLC 2010 17 Rule CitationCurrent RuleProposed Changes 13 C.F.R. §124.112(b) Annual Reviews ANCs/Tribes/NHOs must certify as to certain eligibility requirements as part of the annual review process. Annual ANC/Tribal/NHO reviews will require information on the extent to which benefits are reaching individual Alaska natives or the Native community. 13 C.F.R. §124.204(a) ANC Application Review SBA’s Anchorage, Alaska District Office initially reviews all applications from ANC- owned firms ANC 8(a) applicants will be reviewed out of San Francisco, not Anchorage, and SBA may send some cases to Philadelphia ANCs, TRIBES & NHOs

18. © PilieroMazza, PLLC 2010 18 Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 124.519 Sole Source Limits for NHO-Owned Concerns This regulation imposes limits on the amount of 8(a) contract dollars that an 8(a) Participant may receive on a sole source basis. While this regulation does not apply to ANCs and Tribally-owned concerns, NHOs are not exempted. SBA’s proposed regulation would exempt NHOs from this rule. ANCs, TRIBES & NHOs

19. © PilieroMazza, PLLC 2010 19 SIZE ISSUES Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 121.1001(b) SBA’s IG is not currently identified in the regulations as an individual who can request a formal size determination. The IG would have authority to ask for a formal size determination, particularly in the context of an investigation or other review of SBA programs by the IG.

20. © PilieroMazza, PLLC 2010 20 SIZE ISSUES Rule CitationCurrent RuleProposed Changes 13 C.F.R. §§ 124.112, 124.3 Currently neither regulation permits an 8(a) Participant to change its primary NAICS code, even if it can demonstrate that its revenues have evolved from one primary NAICS code to another. The definition of primary NAICS code will be amended to specifically recognize that a Participant may change its primary NAICS code where it can demonstrate that the majority of its revenues during a two year period have evolved from its former primary code to another code. The proposed rule would also add a provision to permit a Participant to request a change in its primary NAICS code with its servicing district office.

21. © PilieroMazza, PLLC 2010 21 8(a) PROGRAM ELIGIBILITY Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 124.102, 124.302 Provides that a firm must qualify as small under its primary NAICS code when it applies for the 8(a) Program. Historically, SBA has permitted firms to remain in the 8(a) Program and receive 8(a) contracts in their secondary NAICS codes as long as they remained small for such secondary codes, even if they no longer qualified as small under their primary NAICS code. In determining whether to graduate an 8(a) firm early, SBA considers a number of factors under section 124.302, including sales trends, degree of sustained profitability and current ability to obtain bonding. SBA proposes to amend section 124.102(a) to require that a firm remain small for its primary NAICS code during its term of participation in the 8(a) Program. Additionally, in determining whether to early graduate an 8(a) firm, this rule proposes to revise section 124.302 to permit SBA to consider, among other factors, whether the firm exceeds the size standard corresponding to its primary NAICS code for two successive program years.

22. © PilieroMazza, PLLC 2010 22 Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 124.104 This regulation authorizes SBA to use personal income as a basis for determining economic disadvantage, but does not identify a specific level of income below which an individual would be considered economically disadvantaged. A threshold of $200,000 has been established through OHA cases. SBA proposes to codify the $200,000 AGI threshold. 8(a) PROGRAM ELIGIBILITY

23. © PilieroMazza, PLLC 2010 23 Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 124.104 The regulations do not currently provide that any particular AGI renders an 8(a) firm ineligible for continued 8(a) participation. However, recently, SBA district offices have been questioning socially disadvantaged 8(a) owners whose income exceeds $200,000. SBA proposes to require a two year average income of $250,000 for continued 8(a) Program eligibility. 8(a) PROGRAM ELIGIBILITY

24. © PilieroMazza, PLLC 2010 24 Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 124.104 The SBA’s SOP provides that S Corporation income that was reinvested in the firm should not be counted towards SBA’s calculations of personal income; however the regulations do not provide the same. The proposed regulation would codify the SOP guidance. Specifically, the proposed regulation states that S Corporation income will not be considered in determining an individual’s annual income or net worth if the S Corporation owner submits evidence that such income was reinvested in the firm or used to pay corporate taxes within 12 months of the distribution of income. 8(a) PROGRAM ELIGIBILITY

25. © PilieroMazza, PLLC 2010 25 Rule CitationCurrent RuleProposed Changes 13 C.F.R. §124.104(b)(2) When married, an individual claiming economic disadvantage also must submit separate financial information for his or her spouse. SBA may consider spouse’s financial situation in determining an individual’s access to capital and credit. 13 C.F.R. § 124.104(c)(2) When determining an owner’s economic disadvantage, SBA excludes the ownership interest in the applicant or Participant and the equity in the primary personal residence in its calculation of net worth. SBA proposes that IRAs and other retirement funds will not count toward an applicant’s personal net worth, so long as the funds cannot be withdrawn early without a significant penalty. 8(a) PROGRAM ELIGIBILITY

26. © PilieroMazza, PLLC 2010 26 Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 124.104(c) This regulation provides that SBA may consider “the fair market value of all assets, whether encumbered or not” in determining whether an individual is economically disadvantaged. The rule does not provide a bright line rule regarding what level of total assets would be impermissible. SBA proposes to find a lack of economic disadvantage when a firm has greater than $3 million in total assets at the time of application for the 8(a) Program, or $4 million in total assets once in the program. 8(a) PROGRAM ELIGIBILITY

27. © PilieroMazza, PLLC 2010 27 Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 124.105(g) This rule currently provides that “individuals determined to be disadvantaged for purposes of one Participant, their immediate family members, and the Participant itself, may not hold, in the aggregate, more than a 20 percent equity ownership interest in any other single Participant.” SBA interprets this rule as precluding an individual from using his or her disadvantaged status to qualify a firm for the 8(a) Program if he has an immediate family member who has used his/her disadvantaged status to qualify another firm for the program. SBA will clarify this interpretation in the new rule. SBA can waive this prohibition. 8(a) PROGRAM ELIGIBILITY

28. © PilieroMazza, PLLC 2010 28 Rule CitationCurrent RuleProposed Changes 13 C.F.R. § 124.106 This rule addresses control of an 8(a) applicant or Participant. The disadvantaged owner must reside in the U.S. and spend part of every month working in the firm’s principal office. SBA has asked for comments regarding whether control should be determined on a case-by-case basis, or should it require physical presence by the individual(s) claiming disadvantage in the headquarters of the applicant or Participant for a minimum amount of time each month. 8(a) PROGRAM ELIGIBILITY

29. © PilieroMazza, PLLC 2010 29 8(a) PROGRAM ELIGIBILITY ADDITIONAL ISSUES Rule CitationCurrent RuleProposed Changes 13 C.F.R. §§ 124.204(c) Incomplete applications cannot be processed and will be returned to the applicant. Clarifies that the burden of proof to demonstrate 8(a) eligibility is on the applicant, and permitting the SBA to assume that any information requested of the applicant, but not submitted, is adverse to the applicant. 13 C.F.R. §§ 124.204(a) San Francisco DPCE receives and reviews applications from ANC applicants. Changes the location of the SBA’s review of the 8(a) applications of ANCs from the Alaska District Office to the San Francisco Division of Program Certification and Eligibility (“DPCE”).

30. © PilieroMazza, PLLC 2010 30 8(a) PROGRAM ELIGIBILITY EXCESSIVE WITHDRAWALS Officers’ Salaries - 13 C.F.R. 124.112(d)(1) Proposed rule: eliminates officers’ salaries from the definition of “excessive withdrawals.” Increasing the Current Excessive Withdrawal Amounts - 13 C.F.R. 124.112(d)(3) Proposed rule: The proposed rule would amend § 124.112(d)(3) to increase the current ‘‘excessive’’ amounts by $50,000 at the two lower levels, and by $100,000 for the highest level. Thus, for firms with sales of less than $1,000,000 the excessive withdrawal amount would be $200,000 instead of $150,000, for firms with sales between $1,000,000 and $2,000,000 the excessive withdrawal amount would be $250,000 instead of $200,000, and for firms with sales exceeding $2,000,000 the excessive withdrawal amount would be $400,000 instead of $300,000. Tying the Excessive Withdrawal Level for Higher Revenue Firms to Each Owner or Officer of the Firm - 13 C.F.R. 124.112(d)(3) Proposed rule: SBA also asks for comments as to whether the excessive withdrawal level for higher revenue firms should be tied to each owner or officer of the firm instead of to the firm as a whole, and, if so, what level should be deemed excessive for an individual.

31. © PilieroMazza, PLLC 2010 31 ADDITIONAL ISSUES Definition of Bona Fide Place of Business for Purposes of 8(a) Construction Procurements - 13 C.F.R. §§ 124.3, 124.507(b)(2)(iv) Proposed rule: definitional change which clarifies that, for purposes of 8(a) construction procurements, a firm will not be required to have any specific type of industry license (such as a General Contractors License) in order to “regularly maintain an office” and have a “bona fide place of business” in the applicable geographical area. Requiring Contracting Officers to Protest the Small Disadvantaged Business Status of Firms That Have Been Early Graduated - 13 C.F.R. §§ 124.304(f)(2) Proposed rule: Requires a contracting officer to protest in order to obtain clarification of the small and disadvantaged business (“SDB”) status of a firm that has been terminated or early graduated from the 8(a) Program.

32. © PilieroMazza, PLLC 2010 32 ADDITIONAL ISSUES Releasing Contracts for Non-8(a) Competition - 13 C.F.R. § 124.504(e) Current rule: It has always been SBA’s policy, and implicit in the regulations, that once a requirement is awarded as an 8(a) contract, any follow-on procurement should generally also be awarded as an 8(a) contract. Proposed rule: codifies the SBA’s “once 8(a), always 8(a)” practice. Non-8(a) Business Activity Targets - 13 C.F.R. § 124.509(a) Current Rule: It is unclear whether orders off the GSA Schedule and subcontracts on 8(a) contracts count against competitive business mix requirements Proposed rule: clarifies the activities that count towards an 8(a) Participant’s competitive mix requirement. Specifically: Work performed by an 8(a) Participant for any Federal department or agency other than through an 8(a) contract, including work performed on orders under the General Services Administration Multiple Award Schedule program, and work performed as a subcontractor, including work performed as a subcontractor to another 8(a) Participant on an 8(a) contract, qualifies as work performed outside the 8(a) BD program.

33. © PilieroMazza, PLLC 2010 33 Audit Requirements - 13 C.F.R. § 124.602 Proposed rule: audited financial statements are only required from Participants with gross annual receipts of more than $5,000,000 Current Rule: audited financial statements are only required from Participants with gross annual receipts of more than $10,000,000. Proposed rule: Reviewed financial statements would be required of all Participants with gross annual receipts between $2,000,000 and $10,000,000, Current Rule: Reviewed financial statements would be required of all Participants with gross annual receipts between $1,000,000 and $5,000,000. ADDITIONAL ISSUES

34. © PilieroMazza, PLLC 2010 34 BID PROTESTS What is a Bid Protest? Who May Protest? Bases for a Bid Protest. Comparing CO, GAO & COFC Protests. Defending a Protest.

35. © PilieroMazza, PLLC 2010 35 WHAT IS A BID PROTEST? A.Challenge to the terms of a solicitation; or B.Challenge to an agency’s award of a contract. C.Not a size protest.

36. © PilieroMazza, PLLC 2010 36 WHO MAY PROTEST? A.Must be an “Interested Party.” 1.Actual or prospective bidder or offeror. 2.Whose economic interest affected by agency action: prejudice.

37. © PilieroMazza, PLLC 2010 37 WHO MAY PROTEST? B.Certain actions cannot be protested with the CO, GAO or COFC: 1.Most IDIQ task orders (no protests). 2.Size or NAICS code appeals (SBA).

38. © PilieroMazza, PLLC 2010 38 WHO MAY PROTEST? C.Protests must be timely. 1.Solicitation defects: before bid opening or proposal receipt. 2.Most other actions: within 10 days of date knew or should have known. 3.Debriefing (if requested and required): not before debriefing, but within 10 days after.

39. © PilieroMazza, PLLC 2010 39 SOME POTENTIAL BASES FOR A BID PROTEST? A.Defect in solicitation. B.Disparate treatment of offerors. C.Misevaluation of offerors’ proposals.

40. © PilieroMazza, PLLC 2010 40 SOME POTENTIAL BASES FOR A BID PROTEST? D.Unstated evaluation criteria. E.Flawed best value decision. F.Evaluation not in accordance with FAR.

41. © PilieroMazza, PLLC 2010 41 COMPARING CO, GAO AND COFC PROTESTS A.Cheaper. 1.Less Discovery. 2.Fewer Oral Hearings. B.Quicker. 1.Decision within 100 days – often sooner. 2.Agency corrective action can occur mere days after filing.

42. © PilieroMazza, PLLC 2010 42 COMPARING CO, GAO AND COFC PROTESTS C.Automatic Stay. 1.Preserves status quo. 2.Potential benefit to incumbents. D.Protective orders commonplace. 1.Preserve trade secrets and confidential information.

43. © PilieroMazza, PLLC 2010 43 DEFENDING A BID PROTEST A.Awardee has right to intervene. 1.Protect contract award. 2.Protect confidential information. 3.Move to dismiss. 4.Comment on Agency Report. 5.Keep informed about case.

44. © PilieroMazza, PLLC 2010 44 DEFENDING A BID PROTEST B.Some potential bases to dismiss a bid protest. 1.Untimely. 2.Lack of prejudice. 3.Inappropriate subject matter for forum.

45. © PilieroMazza, PLLC 2010 45 DEFENDING A BID PROTEST C.Defending a bid protest on the merits. 1.Overall theme: agency actions were appropriate.

46. © PilieroMazza, PLLC 2010 OVERVIEW OF PROPOSED CHANGES TO SBA’s REGULATIONS & BID PROTESTS QUESTIONS Pamela J. Mazza pmazza@pilieromazza.com