New SBA Rule: Potential Game Changer for Teaming (JV & Prime/Sub)
In October, the U.S. Small Business Administration ("SBA") published wide-ranging final rule covering a variety of issues. Briefly, SBA's 200+ page rule, effective on November 16, 2020, not only merged the 8(a) Business Development Mentor-Protégé Program into the All Small Mentor-Protégé Program, but also covered joint ventures, facility clearances, past performance and experience, and others. In this post, we examine SBA's changes related to capabilities, past performance, and experience in small business contracting.
As many contractors know, winning government contracts involves a mixture of good decision-making, great timing, and executing a flawless capture strategy. In this highly competitive market, one way that small contractors can bolster their chances of success is to form a team. Whether a joint venture or a prime/subcontractor relationship, teaming arrangements can often allow a small contractor to bid on work that it would otherwise be ineligible for, or not competitive, on its own.
Yet, even with this option available, the government has largely held a wide degree of discretion when it comes to evaluating past performance and experience of a prime's team members.  Fortunately, SBA's new rule changes a few things that some clients have told me will significantly impact their strategy moving forward.
The article begins with an analysis of SBA's newly created rule addressing the capabilities, past performance, and experience of first-tier subcontractors, and then turns to a similar, but slightly expanded, revised rule regarding joint ventures.
SBA's final rule creates a new regulation, 13 C.F.R. § 125.2(g), that requires federal agencies to consider "capabilities, past performance, and experience" of certain first-tier subcontractors during evaluations. This is significant. As mentioned above, federal agencies have wide discretion when it comes to a prime's ability to "lean on" subcontractor qualifications or experience, which can sometimes put a small business at a disadvantage when their teaming partner brings relevant experience to the table. 
Specifically, the new regulation provides:
Capabilities, past performance, and experience. When an offer of a small business prime contractor includes a proposed team of small business subcontractors and specifically identifies the first-tier subcontractor(s) in the proposal, the head of the agency must consider the capabilities, past performance, and experience of each first tier subcontractor that is part of the team as the capabilities, past performance, and experience of the small business prime contractor if the capabilities, past performance, and experience of the small business prime does not independently demonstrate capabilities and past performance necessary for award.
13 C.F.R. § 125.2(g) (emphasis added). This regulation is fulsome – and welcome news for many small contractors – but there are a few points worth noting. First, the small prime must both propose a "team of small business contractors" and name the first-tier subcontractors in its proposal. In such a case, and if the small prime contractor does not "independently demonstrate capabilities and past performance necessary for award," then its first-tier subcontractor's "capabilities, past performance, and experience" would be treated "as" that of the small prime.
It appears that this rule solves the frustrating issue facing many small businesses: reading a solicitation only to see an evaluation scheme that gives reduced or no credit (or no instructions) regarding the experience of a small prime's first-tier subcontractor. While the rule is great news for small businesses, the rule isn't exactly clear and may be open to interpretation on a few points. As a result, it will be interesting to see how the changes are implemented in practice or in protest litigation. Regardless, this is a big win for small business contracting.
Next, SBA also significantly changed its regulation regarding past performance and experience for joint ventures. Prior to the change, the regulation provided that, when evaluating past performance of a small business joint venture, "a procuring activity must consider work done individually by each partner to the joint venture as well as any work done by the joint venture itself previously." 13 C.F.R. § 125.8(e). 
Like the new teaming regulation above, SBA's rule similarly – but more expansively – changed past performance and experience regarding joint ventures by amending section 125.8(e).
Specifically, the revised regulation provides:
Capabilities, past performance and experience. When evaluating the capabilities, past performance, experience, business systems and certifications of an entity submitting an offer for a contract set aside or reserved for small business as a joint venture established pursuant to this section, a procuring activity must consider work done and qualifications held individually by each partner to the joint venture as well as any work done by the joint venture itself previously. A procuring activity may not require the protégé firm to individually meet the same evaluation or responsibility criteria as that required of other offerors generally. The partners to the joint venture in the aggregate must demonstrate the past performance, experience, business systems and certifications necessary to perform the contract.
13 C.F.R. § 125.8(e) (emphasis added). As one can see, SBA significantly expanded upon its predecessor regulation. Where the previous rule only dealt with "past performance and experience," the new regulation also includes, capabilities, business systems, and certifications.  Time will tell how this rule plays out in practice, or in protest litigation, and whether agencies will require joint venture members to tie the capabilities, past performance, experience, business systems, or certifications to the work they will be performing on a contract.  Regardless, this is another big win for small business contracting.
SBA's final rule has significantly changed the landscape in small business federal contracting in a number of areas. The changes described above bolster small business teaming efforts by ensuring that, in certain cases, agencies give credit to the past performance, experience, and capabilities of teaming partners. Ultimately, in future small business procurement efforts, SBA's new rule could have a significant impact how small contractors plot out their growth strategy.
 For example, in negotiated procurements, the FAR provides that during proposal evaluations, agencies "should take into account past performance information regarding . . . subcontractors that will perform major or critical aspects of the requirement when such information is relevant to the instant acquisition." FAR 15.305(a)(2)(iii) (emphasis added).
 Notably, the Government Accountability Office ("GAO") and the SBA agreed that section 125.8(e) means that agencies were merely required to "consider" the work done individually by each partner. In that light, GAO concluded that it "neither mandate[s] a specific degree of consideration for the mentor and the protégé firm, nor prohibit[s] an agency from limiting the experience that may be submitted by one of the members." Ekagra Partners, LLC, B-408685.18, Feb. 15, 2019, 2019 CPD ¶ 83 at 6-7.
 Interestingly, SBA's rule appears to remedy an issue that arose in a bid protest by a small business mentor-protégé joint venture last year. See ADVENTureOne LLC; Apogee Engineering, LLC, B-408685.23; B-408685.26, September 20, 2019, 2019 CPD ¶ ___ (denying protester's argument that 13 C.F.R. § 125.8(e) prohibits an agency from "requiring each member of a mentor-protégé joint venture to individually meet the systems, certifications, and clearances criteria in order to claim points" under an OASIS small business solicitation).
 To provide a little more context into SBA's rationale, below is a portion of SBA's Section-By-Section Analysis of section 125.8(e):
SBA understands the concern that some procuring activities have required unreasonable requirements of protégé small business partners to mentor-protégé joint ventures. SBA’s rules require a small business protégé to have some experience in the type of work to be performed under the contract. However, it is unreasonable to require the protégé concern itself to have the same level of past performance and experience (either in dollar value or number of previous contracts performed, years of performance, or otherwise) as its large business mentor. The reason that any small business joint ventures with another business entity, whether a mentor-protégé joint venture or a joint venture with another small business concern, is because it cannot meet all performance requirements by itself and seeks to gain experience through the help of its joint venture partner. SBA believes that a solicitation provision that requires both a protégé firm and a mentor to each have the same level of past performance (e.g., each partner to have individually previously performed 5 contracts of at least $10 million) is unreasonable, and should not be permitted. However, SBA disagrees that a procuring activity should not be able to require a protégé firm to individually meet any evaluation or responsibility criteria.
85 Fed. Reg. 66167-68 (October 16, 2020).
. . .