The Final Rule published on December 17, 2024 by the U.S. Small Business Administration (SBA), pertaining to HUBZone and Other Small Business Programs (89 FR 102448), makes several significant changes to how small businesses must handle recertification of size and status after certain triggering events, including mergers, acquisitions, or sales. These changes directly impact how small businesses maintain eligibility for small business set-aside contracts and other SBA contracting programs, such as the 8(a), HUBZone, ED/WOSB, and SD/VOSB programs.
Key points relating to Mergers & Acquisitions (M&A) include:
1. Consolidation of Recertification Requirements:
The rule moves all recertification provisions to a new section, 13 CFR § 125.12, ensuring uniformity across SBA’s small business contracting programs. This section clearly states the need to recertify size and small business program status if a merger, acquisition, or sale results in a change in controlling interest.
2. Events Triggering Size and Status Recertification:
Under § 125.12, a small business that merges with or is acquired by another business, or that acquires another concern, generally must recertify its size and/or status within 30 days of the transaction’s completion. This ensures the company still meets the eligibility criteria (size, ownership, and control) for small business or particular socio-economic status designations.
3. Effect of Disqualifying Recertification Due to M&A:
If a company recertifies as other-than-small or no longer meeting its small business program status following a merger, acquisition, or sale, the consequences vary depending on the type of contract:
- Single Award Contracts and Unrestricted Vehicles:
The company remains eligible to complete the current period of performance but cannot be counted as a small business or specific type of small business (8(a), WOSB, etc.) for future orders or options. - Multiple Award Contracts (Set-Aside or Reserved):
If the merger, acquisition, or sale involves an other-than-small business or otherwise disqualifies the firm from the small business category, the firm may become ineligible to receive orders set aside for small business or for a particular small business program under that multiple award contract going forward.
4. Timeliness of M&A Event in Relation to Award:
- If a merger, acquisition, or sale occurs within 180 days of the concern’s offer submission but before award, it may render the concern ineligible to receive that contract as a small or socio-economically certified business.
- If the event occurs after 180 days following the offer submission and before award, the firm may still be eligible to receive the award (subject to conditions), but may not be eligible for future set-aside orders or options requiring recertification.
5. Delayed Implementation of Certain Provisions:
The rule includes a delayed effective date (one year after the rule’s effective date) for certain scenarios, allowing businesses time to adjust to the new requirements. This transitional period gives firms undergoing M&A transactions a window to understand and comply with the new rules without immediate loss of set-aside or reserved contracting opportunities.
Summary of M&A Implications:
- Mandatory Recertification: After a merger, acquisition, or sale resulting in a change in controlling interest, small businesses must recertify their size and status to maintain eligibility for small business set-aside and socio-economic set-aside contracts.
- Potential Ineligibility for Future Opportunities: A disqualifying recertification triggered by an M&A transaction can impact a firm’s ability to compete for or receive future small business or socio-economic set-aside orders, particularly under multiple award contracts.
- Goaling and Counting Implications: While a firm may complete performance on existing contracts, agencies will no longer be able to count future orders or option exercises towards small business or socio-economic participation goals if the firm no longer meets the small business criteria post-M&A.
- Advance Planning Needed: Firms anticipating mergers or acquisitions should proactively assess the impact on their small business eligibility and plan for timely recertification to minimize disruption in competing for or receiving set-aside and reserved contract awards.
In essence, the Final Rule standardizes, formalizes, and clarifies how M&A events trigger recertification of size and socio-economic status across all SBA contracting programs, and outlines the downstream effects on contract eligibility and agency goaling. Businesses involved in M&A transactions must be prepared to recertify promptly and understand that loss of small business or socio-economic status can significantly affect their future contracting opportunities.
If you have any questions or would like further assistance please do not hesitate to reach out at team@govcontractpros.com.
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