1. Federal Contracts Report Page 1 of 2
134{4 Federal Contracts ReportTM
Source: Federal Contracts Report: News Archive > 2011 > 11/01/2011 > News > Small Business: Attorney: SBA Should Do
More to Ensure That Agencies Treat Small Businesses Fairly
96 FCR 450
Small Business
Attorney: SBA Should Do More to Ensure
That Agencies Treat Small Businesses Fairly
A recent Small Business Administration final rule confirms policies that make it harder for small companies to get help
from SBA if they believe agencies are treating them unfairly in the administration of 8(a) set-aside contracts, a
procurement attorney recently told BNA.
According to Bruce Shirk, special counsel in the Government Contracts and Regulated Industries practice group at
Shepphard Mullin, SBA should do more than just "lure" small businesses into 8(a) contracts. Although SBA obviously
cannot administer these contracts itself, he said, it should provide basic advocacy so procuring agencies do not take
advantage of companies in terminations for convenience or other administrative actions.
Although the rule (76 Fed. Reg. 8,222, 2/11/11) made extensive changes to the 8(a) program, Shirk's comments
focused on a few provisions pertaining to contract administration. Specifically, the rule:
• clarifies that tracking compliance with the performance-of-work requirements is a contract administration
function which is performed by the procuring agency;
• requires contracting officers to submit copies to SBA of all modifications and options exercised within 15
business days of their occurrence, or by another date agreed upon by SBA.
According to SBA, these changes address the delegation of contract administration, not program administration. But
Shirk said that regardless, the rule potentially leaves small business contractors vulnerable to abuse by procuring
agencies.
Describe the main problem with the rule as you see it.
The problem is that it's not a change in SBA policy; it's a confirmation of SBA policy. When SBA identifies an 8(a)
opportunity and approves a set aside, SBA becomes the prime contractor. However, partnership agreements SBA has
with procuring agencies delegate everything in terms of contract administration to the agencies. That means as a
practical matter, an 8(a) firm interacts with the agency rather than SBA. The only requirement is that SBA must be
notified before the agency terminates an 8(a) contract or enters into a novation agreement. There's no requirement
for the agency to monitor things like whether the 8(a) firm is being treated fairly and performing the required quantity
of work. That's a problem, because small businesses are very easy to kick around.
Why do you think SBA has taken this approach?
It believes it doesn't have the resources to get involved in contract administration and management. And that's true-
you can't expect SBA to be involved in day-to-day administration of contracts.
In that case, what is unreasonable about SBA's position?
There's no reason why SBA can't make sure that 8(a) firms are treated fairly. For example, with the upcoming budget
cuts, agencies are going to be very careful about what they consider reimbursable costs when contracts are
terminated for convenience. That doesn't mean agencies are automatically going to set out to cheat contractors, but
they can. Small firms often don't have the resources to fight these things if there's a fairness issue. If the agency plays
hardball, at that point the small business is out a lot of money and is left without an advocate because SBA has
essentially abandoned that role. Somewhere between the practical policy of turning over contract administration to
agencies and saying "we're helpless if something goes wrong," there has to be a middle ground.
How has this situation affected your clients?
I have a telecommunications client that had a contract with a particular Defense Department entity. My client did a lot
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of work on the contract, and then the agency decided it didn't need the system that was being installed, so it
terminated the contract for convenience. Since then, the terminating CO has disregarded certain contract provisions
and the fact that the CO ratified all the work that was done, and has taken other positions that are clearly
unreasonable. My client lost a very substantial amount of money and went to SBA, which basically said it was unable
to help.
How do you respond to SBA's claim that the rule addresses contract, rather than program, administration?
You could argue that performance-of-work requirements are what the 8(a) program is all about. And when SBA says
it's still managing the program, it's missing the point. The program is touted as one that really helps disadvantaged
small businesses, but I don't see how you can claim you're doing great things for these firms when you literally lure
them into these contracts and then leave them without any kind of assistance if they run into problems with
administration. So the distinction is clever, but it disguises the fact that contract administration, if not done in a
manner that avoids abusing small businesses, can have serious impacts on the 8(a) program's overall objectives.
What should SBA do to fix these issues?
SBA should be required to have an office staffed with people who have procurement expertise and can help 8(a)
contractors with administration problems. Also, it should be clarified that SBA's representatives in the agencies are
obligated to defend the interests of 8(a) firms. There also should be procedures for what SBA should do when it
receives notice that there's a dispute, because you can't just abandon these firms once you beckon them in. It's not
that SBA needs to stop terminations; it just has to make sure small businesses are treated fairly. Right now, the
agency's Office of Advocacy is a policy office and doesn't advocate for contractors. We need an office that advocates
for 8(a) firms when they get into trouble through no fault of their own. SBA can't represent the firms or go to court on
their behalf, but it should generally advocate in its capacity as prime contractor. There's authority under the Small
Business Act to do all of this without a new rulemaking.
What are some concrete steps that 8(a) contractors can take to cope in the meantime?
In the context of terminations for convenience or change orders, as an 8(a) business, you first need to identify exactly
who has contracting authority. You also need to know your contract better than the CO knows it, because the
procuring agency is not always wrong in a dispute. Then you need to be very sure you're actually getting direction
from a contractually authorized authority when you take on additional work. Time and again, small businesses aren't
careful enough about this, and they do work based on direction from someone without contractual authority. At the
very least, copy the CO on everything before you do the work. If there's a problem, go to as manY places in SBA as
you can, because SBA representatives in the procuring agency might not be sympathetic.
by Jeff Kinney
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Reproduced with permission from Federal
Contracts Report, 96 FCR 450 (Nov. 1, 2011).
Copyright 2011 by The Bureau of National
Affairs, Inc. (800-372-1033) http://www.bna.com
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