Infotech and the Law: A new day dawns in size recertification

It's finally out: the Small Business Administration's long-awaited, much-debated, final rule establishing size recertification requirements applicable to contracts that run for longer than five years appeared in the Nov. 15 issue of the Federal Register. Here are the highlights:

The general rule. Companies with long-term deals, including governmentwide acquisition contracts, General Services Administration multiple-award schedule contracts and multi-agency contracts, must recertify their sizes within 120 days before the end of the contract's fifth year.

After that, it must do so within 120 days before the agency exercises any option.
SBA officials had proposed annual recertification, but changed their minds
after considering nearly 640 public comments.

Many small businesses and trade groups commented on the negative effect the proposed rule would have on their ability to recoup proposal costs and plan for the future. The Defense, Energy and State departments, GSA and Office of Federal Procurement Policy argued that annual recertification would excessively burden contracting personnel.

Recertification required after acquisitions. When SBA amended its regulations in May 2004, it added a requirement for recertification "at the time a novation or change-of-name agreement has been executed, pursuant to Federal Acquisition Regulation subpart 42.12."

In doing so, SBA inadvertently created a loophole for acquisitions that did not require a novation or name change agreement; that is, acquisitions involving purchase only of stock rather than assets.

That loophole is now closed. A small business acquired by another entity will have to recertify its size status to the procuring agency within 30 days of the acquisition becoming final.

If the contractor then exceeds SBA's "small" specifications, the agency likely need not terminate the contract, but neither will it be able thereafter to count the contract toward its small-business goals.

This rule has major implications for all companies buying, or considering buying, small government contractors. The rule's effective date further increases the significance.

Contracting officers can ask for updated certifications. In my July 24 "InfoTech and the Law" column, I discussed a recent court case that upheld a contracting officer's discretion to demand updated size certifications in connection with task order or delivery order competitions under multiple-award contracts. Some who commented on SBA's proposed rule argued that this discretion should be expressly limited if periodic recertification is required.

SBA disagreed. The new rule preserves the contracting officer's discretion, and clarifies that SBA will determine size as of the date a concern certifies its size as part of its response to the task order or delivery order solicitation.

Size protests. The new rule adopts the familiar five-day filing period for protests of size certifications related to long-term contract awards, the exercise of options and award of task orders or delivery orders.

The five days begin the day the protester is notified of the award.

Effective dates. The final rule, effective June 30, applies to all solicitations and contracts issued thereafter and to all solicitations and contracts then in existence.

This rule has the potential to dramatically affect the way federal agencies contract with small businesses. It also will affect large businesses that acquire and mentor as well as subcontract or team with small businesses. If you sell to the federal government, you should get familiar with this rule.

David Fletcher is an associate in the government contracts practice of DLA Piper Rudnick Gray Cary US LLP in Washington. He can be reached by e-mail at david.fletcher@dlapiper.com.