On September 9, 2022, SBA released a proposed rule (RIN 3245-AH70, the “Proposed Rule”) in the Federal Register (2022-18068). While the Proposed Rule primarily focuses on changes to the 8(a) Business Development Program, it also impacts other federal small business programs and federal procurement practices, including the bona fide place of business rule (“BFO Rule”). The BFO Rule enforces the statutory requirement that, to the maximum extent practicable, 8(a) construction contracts “shall be awarded within the county or State where the work is to be performed.” 15 U.S.C. 637(a)(11). In this article, we provide an overview of the provisions relating to the BFO Rule so you can best prepare for what’s to come.
BFO Rule expected to return in FY24
In 2021, SBA announced a temporary moratorium on the BFO Rule (the “Moratorium”), on the grounds that it was not “practicable” to enforce this rule while many federal employees were authorized to telework throughout the pandemic. With the subsequent renewals which extended the Moratorium through September 30, 2023, there was speculation that the agency could permanently suspend enforcement of the BFO Rule altogether. SBA has since stated that it does not have the authority to unilaterally and permanently end enforcement of the BFO Rule because the requirement is rooted in the statutory language in the Small Business Act. In short, SBA says it “will be ‘practicable’ at some point” to resume enforcement.
As of October 1, 2023, 8(a) firms should prepare to submit BFO request packages to SBA at least 20 days prior to the date that offers are due on an 8(a) procurement. Per the 2020 rule change, BFO packages submitted to SBA at least 20 days before offers are due are presumed to be approved, and SBA will make a determination on the BFO status as part of the contract eligibility determination if it has not already processed the BFO approval by that time.
Possible Statutory Elimination of BFO Requirement
While SBA is gearing up to resume the BFO requirement in FY24, there has been talk about legislative action to remove the statutory requirement altogether. Legislative language to that effect has been introduced in both the U.S. House of Representatives and U.S. Senate; however this proposal would need to be passed in the House and Senate and then signed into law by the President in order to take effect. Make sure to contact your congressional delegation to share your thoughts on this issue.
Reining in Federal Procurement Personnel
Since the Moratorium was first implemented, some have cited the “maximum extent practicable” language referenced above to assert that individual agency personnel can either broaden or eliminate this requirement altogether based on what’s most expedient for the procurement at hand. However, SBA rebukes this assertion in the Proposed Rule with a declaration that Congress’ intent must be carried out unless SBA itself determines that enforcement of this statute is not practicable.
Revising BFO requirements
SBA is proposing to revise some of its more stringent requirements for when a BFO approval package is required, and what benchmarks 8(a) firms will be required to demonstrate in order to receive approval of a BFO package. The Proposed Rule signals the following:
Where an 8(a) Participant is currently performing a contract in a specific state, it would qualify as having a bona fide place of business in that state.
This is intended to apply specifically where an 8(a) company is performing on a construction contract, and the procuring activity likes the work that the 8(a) company is doing, to facilitate additional awards of 8(a) construction contracts to the company. However, this does not apply to contiguous states – if you wish to pursue work in contiguous states, you must establish and seek approval of a BFO.
At-home offices are eligible for BFO consideration.
As the topography of the workforce has changed as a result of the remote work revolution, SBA is now open to considering BFO approval for at-home offices where a full-time employee reports. This is expected to relieve significant recurring costs of a commercial lease and utility payments.
No need to provide a state-issued driver’s license.
SBA has clarified that there is no requirement that a specific employee must permanently reside in a specific location, and thus, it is putting a stop to some SBA District Offices’ practices of requiring a state-issued driver’s license as part of the BFO approval process. SBA goes further to say that an 8(a) participant should be able to rotate employees in and out of a specific location as it sees fit, as long as one individual (but not necessarily the same individual) remains at the location.
Multiple Location Contracts
The Proposed Rule clarifies SBA’s existing requirements regarding contracts to be performed in multiple locations (crossing BFO boundaries), as follows:
Single Award 8(a) Construction Contracts
An 8(a) firm is eligible for a single award 8(a) construction project that spans multiple locations as long as it has a BFO in the location where the majority of work is to be performed.
Multiple Award 8(a) Construction Contracts
An 8(a) firm is required to establish a BFO in any location where work is to be performed. Likewise, an 8(a) firm is eligible to receive orders on a MAC in any jurisdiction where it currently has a BFO.
This Proposed Rule provides many clarifications on SBA’s intent, and provides some relief to 8(a) firms who seek to expand their services outside of their primary geographic location. The Proposed Rule also provides insight into what we can expect to see in the coming months as SBA intends to resume enforcement of the BFO Rule while Congress weighs eliminating the statutory requirement of the same. Whether you support these proposals or have concerns, it is important to make your voice heard. SBA is accepting public comments on the Proposed Rule until November 8, 2022, so make sure to submit comments.
Today John Klein, SBA Associate General Counsel for Procurement Law, announced that the moratorium on SBA’s bona fide place of business requirement will be extended at least through September 2023.
Last month at the National Center for American Indian Enterprise Development’s (“NCAIED”) Reservation Economic Summit (“RES”) conference in Las Vegas, NV, SBA Administrator Isabel Guzman announced an extension of the moratorium on SBA’s bona fide place of business requirement past its original expiration date of September 30, 2022; thus, 8(a) construction companies can continue to enjoy the benefits of this moratorium for an undetermined period of time after its original expiration. While the new expiration date of the moratorium has not yet been announced, we will update this page when that information becomes available. GovContractPros applauds this administration’s actions to ease regulations and enable 8(a) construction companies to perform contracts without burdensome geographic restrictions.
Original Post 11/13/2021
Almost two years have passed since the onset of the pandemic. And yet, it continues to impact government contracting. On August 25, 2021, the U.S. Small Business Administration (SBA) announced that it will temporarily suspend the rule on 8(a) construction contracts that required 8(a) participants to have a bona fide place of business within the geographic area of the contract at time of award. This moratorium is in effect through September 30, 2022, although administrative extensions are possible.
We at GovContractPros applaud SBA’s modification. It temporarily removes an unnecessary burden on 8(a) firms to participate in federal contracting requirements. We have assisted several small disadvantaged firms to navigate these complex program requirements. We support any efforts to place 8(a) construction contracts on par with all other 8(a) contracts and welcome all eligible firms to offer their services to the government regardless of zip code.
While this administrative moratorium allows some temporary breathing room for 8(a) construction firms, we hope that Congress will take decisive action to permanently eliminate the bona fide office requirement prior to the September 30, 2022 expiration on SBA’s administrative action. The bona fide office rule is unusual, unnecessary, and unseen in any other industry. It serves no purpose other than to restrict eligible offerors to those who sign a year-long office lease and hire full-time staff on payroll prior to negotiating an 8(a) contract award. In addition, the methodology for determining which geographic locations, metropolitan statistical areas, and contiguous jurisdictions qualify for a particular award is cumbersome and leads to confusion among federal procurement personnel about the talent pool they can engage on a requirement.
The current administration has placed an emphasis on casting a broader net to engage nontraditional actors in the federal contracting ecosystem. The current House and Senate majorities, in this window of unified government, should work with the administration to streamline eligibility for all 8(a) contracts.