Wednesday, June 23, 2010

Disabled Veteran Small Businesses Losing Parity

Elizabeth Cochran
Legislative Assistant

ROA participated in a meeting recently in which we learned that due to an interpretation of law Historically Underutilized business Zones (HUBZones) could receive priority over 8(a) Business Development Programs (BDP) which includes service disabled veteran small businesses (SDVSOBs).

Before this happened Federal contracting officers chose among the Small Business Administration’s (SBA) procurement and BDPs – 8(a) (minority-owned businesses), HUBZone, SDVOSBs, and women-owned small businesses (WOSBs) – not granting preference of one over another.

In Mission Critical Solutions v. U.S. the Court of Federal Claims held that SBA requires contract opportunities to be set aside for HUBZone firms whenever two HUBZone firms are available to perform the contract.

In a protest decision that rose from an Air Force contract, the Government Accounting Office (GAO) clearly believes HUBZone small businesses are entitled to absolute contracting priority over 8(a) in all cases where two or more HUBZones are available perform the contract. Without legislative intervention GAO may claim all HUBZone protests in favor of this priority.

Potential impact of these decisions include the following:
  • Undermining opportunities for 8(a), SDVOSBs and WOSBs
  • Substantial Federal contracting will not go to 8(a), SDVOSBs, and WOSBs
  • Tens of billions of dollars in Federal procurement money could be redirected
  • Absolute HUBZone preference could cause an overwhelming economic impact on 8(a), SDVOSBs, and WOSBs
  • A copious amount of protests could flood and choke up the procurement process
In addition to the prospective effects, SDVOSBs already do not receive as much funding as other groups. For example in Fiscal Year (FY) 2008 $29.3 billion went to SDBs of which $16.2 billion went to 8(a) firms; $14.7 billion to WOSBs, and only $6.5 billion to SDVOSBs.

Between August and September each year about 65 percent of Federal contracts for small businesses are decided which amounts to the tens of billions of dollars in potential redirection as mention above.

Another albeit outside impact to minority small businesses and SDVOSBs is that the American Recovery and Reinvestment Act money is coming to a close.

What is to be done? The most important thing is a legislative fix. Senator Mary Landrieu (D, La.) introduced S.3190 Small Business Programs Parity Act of 2010 and HR.3729 was introduced by Congressman Wally Herger (R, Calif.). At this time both bills have five cosponsors. The Senate bill was referred to the Committee on Small Business and Entrepreneurship in March and the House bill was referred to the Committee on Contracting and Technology in October 2009.

The Office of Management and Budget (OMB) and the Office of Legal Counsel for the Department of Justice (DoJ) both have issued opinions stating they are not in favor of GAO’s decisions.

OMB Director Peter Orszag stated in a memorandum about GAO’s decision concerning small business programs, that, “If agencies were to follow the GAO decisions, the Federal Government’s efforts to procure goods and services from 8(a) small businesses and from SDVOSB through the other statutory programs may be negatively impacted.”

The DoJ’s Office of Legal Counsel opinion stated in August 2009, “In our view, SBA’s regulations permissibly authorize contracting officers to exercise their discretion to choose among the three programs in setting aside contracts to be awarded to qualified small business concerns. Further, in accord with this Office’s longstanding precedent, GAO’s decisions are not binding on the Executive Branch.”

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