“The fact that small business is an essential element of our economy and thus of national security has been recognized by the federal government for some years. Since 1942 the Congress has enacted several laws to ensure the health and vigor of small businesses. The last law now in effect is the Small Business Act of 1953. In many of its provisions the act stresses procurement particularly; and, in conjunction with the Procurement Act of 1947, has stipulated that the Department of Defense shall give special emphasis and attention to assisting small business.”
–Rear Admiral S. R. Clark, USN, when introducing SBA administrator Wendell B. Barnes at the Navy Industrial College of the Armed Forces in 1958
History demonstrates that the small business community is critical for a robust, equitable, and quick recovery from a natural disaster. We’ve seen it time and again after hurricanes, floods, forest fires, and earthquakes. Our government leaders are quick to jump on the small business bandwagon on the campaign trail or in front of cameras, but actions are more important than words.
So how has the COVID-19 response been thus far?
Unfortunately, so far, both statutory as well as directives from OMB, have totally missed the mark in engaging and promoting small business contractors in the recovery process. OMB’s memo on April 10, 2020 issued guidance for implementation of supplemental funding provided in response to COVID-19 with zero mention of prioritizing small businesses in the recovery process.
The CARES Act, of course did have significant funding for loans to small businesses. But when it came to contracting provisions, only one item stands out: Section 3610.
How Section 3610 of the CARES Act Helps Government Contractors
Section 3610 provides payroll relief for government contractors that are impacted by the current public health emergency. It also authorizes a federal government agency to reimburse paid leave provided by a government contractor to its employees.
Who qualifies for reimbursement under Section 3610? Several requirements need to be satisfied for a given government contractor employee:
- Employees who cannot perform work on federal government facilities due to closures or access restrictions
- Employees who are unable to telework because job duties cannot be performed remotely during the public health emergency
- The expense must be to retain employees in a ready state
If these requirements are satisfied, the contractor can be reimbursed for expenses associated with providing paid leave to the qualifying employees.
The challenge is that this authority is discretionary. So even if the criteria are satisfied, the Act does not guarantee that a contracting officer will utilize this authority and provide the permitted reimbursement. Furthermore, a contract modification is necessary before a contractor can utilize this provision.
However, the Act does not allow for reimbursement of expenses associated with implementing shelter in place orders and managing a remote workforce. Costs such as below, which have been incurred by government contractors, should be reimbursed as contractors transition to working off-site:
- Costs associated with establishing and managing a remote workforce
- Costs associated with stop workage and restarting contract work post COVID-19
- Costs associated with replacing contract staff as a result of COVID-19 (Often when a contract is stopped, contract personnel find other opportunities; once the emergency is over, the contractor incurs expenses to recruit new staff. Additional time is also needed to onboard new staff and get necessary clearances.)
- Any other costs incurred as a result of COVID-19
5 Ways the Government Can Support Small Business Moving Forward
If government leaders really want to support the small business community and the federal contractors that provide innovative, efficient, and responsive products and services, they should include contracting provisions in future recovery initiatives.
Small businesses must be encouraged and nurtured to participate in recovery spending. Spending small and spending local impacts our communities and neighborhoods, injects fiscal recovery funds into small, local firms, and ensures that the most underserved communities play a strong and vital role in economic recovery.
Some small business contracting initiative could include:
- Increase small business goals for all recovery funds to 30 percent.
This will insure that the most underserved communities play a major role in the recovery process. Alternatively, if a higher goal is not politically achievable, small businesses should receive a 10 percent price preference when competing on full and open contract requirements.
- Suspend Category Management Goals for all agencies for the balance of the calendar year and for all recovery funds.
Category Management as implemented over the past several years has limited the opportunities for small business to participate in the federal marketplace. Data shows that the number of small businesses participating in the federal marketplace over the last several years has been significantly reduced. Bloomberg Government published a report stating that the number of federal contractors working on prime contracts is at its lowest level in ten years despite a steady rise in government contract spending in recent years. The fiscal 2018 vendor count stood at 115,000, a 27 percent drop from fiscal 2009. This is in large part due to Category Management and consolidation of contracts.
- Extend the 8(a) program for one year for current participants since this year has been practically lost.
Agencies have been drastically hampered by the COVID-19 emergency. 8(a) firms are in a business development program and significantly benefit from participation and interaction with the SBA and federal agencies. Matchmaking, Industry Days, and agency engagement are critical to the growth and development of 8(a) firms. In the current environment, agency small business personnel and contracting officials do not have the resources, man-hours or technical infrastructure to support the development of 8(a) firms remotely. Extending program participation by one year will allow current 8(a) firms to make up for the lost time.
- Increase sole source thresholds and make them uniform.
Sole source thresholds for the 8(a) program as well as the other socio-economic programs have not been updated significantly for at least a decade. With the trend toward larger and more complex contracts, and the current need for the federal government to engage the most innovative, flexible and responsive small businesses in the world to combat COVID-19, sole source thresholds should be at least doubled, and made uniform across all socio-categories.
Current 8(a) thresholds are: $7 million for manufacturing requirements or $4 million for all other requirements. The other socio-categories vary (WOSB and SDVOSB are $6.5/$4; HUBZone is $7.5/$4).
- For all recovery funds, make sole source requirement for WOSB, HUBZone and SDVOSB similar to 8(a).
The 8(a) program has a very streamlined and efficient sole source authority. A contracting officer can directly engage an 8(a) firm within the sole source thresholds (i.e. $4 and $7 million) in an expedited fashion without having to document a justification and seek an approval from higher authorities. The other socio categories do not enjoy the same streamlined sole source authority.
Sole source processes in the other socio categories require significant market research, elaborate justifications, as well as approval from higher contracting authorities. This makes sole source awards in other socio categories very difficult. As a result, sole source awards to WOSBs, HUBZone and SDVOSB firms are rare. In the current environment, where the federal government needs quick access to the best suited businesses, government contracting officials should be able to sole source requirements quickly and efficiently to the qualified small businesses regardless of socio-category.
Back to the 1958 speech at the Navy Industrial College of the Armed Forces. The Admiral welcomes SBA Administrator Wendell B. Barnes. And Barnes says this: “It is the enterprisers and the small locally owned businesses which are not only the backbone of our nation, which make us have prosperity, or which cause the economy to fall off when we have a bad situation, but also they are the very bulwark of our liberty.” 62 years later, history indeed does reveal the importance of the appropriate government response to natural disasters of all kinds. It also shows how critical small business is to the very fabric of our country.
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