In May of 2022, the Federal Acquisition Regulations (FAR) were finally updated to reflect the applicability of small business regulations outside the United States. This was a long, slow, and partial victory that took almost a decade to come to fruition. Today we’re unpacking what happened and why it matters.
Why does it matter?
The federal government has established goals for small business spend. When reporting on the goals, the base for the calculation should be all available spend. However, prior to 2013, the base excluded any spend which was considered OCONUS (outside the continental US). This had the effect of inflating small business (SB) spend performance, especially for agencies with significant OCONUS spend, including State, USAID and DOD.
When did it start?
Nationnal Defense Authorization Act (NDAA) of 2013, Sec. 1631 clarified that prime and subcontracting goals cannot exclude categories of contracts simply because the contract is not subject to the Federal Acquisition Regulations (FAR). At the time, FAR 19 (Small Business Program) implied that it did not apply to overseas contracts.
The result of the NDAA was that regardless of the FAR and the applicability of FAR 19 to overseas contracts, agency goals and performance against those goals needed to include overseas spend.
The SBA viewed the NDAA provision as requiring all contracts regardless of place of performance to be subject to PCR review and subject to the rule of two. SBA worked with DOD to specifically exempt or exclude certain types of spend.
What did the SBA do?
Subsequent to the NDAA of 2013, in October of 2013, SBA amended its rules to clarify that the Small Business Act applies regardless of the place of performance. The only exception established was for DOD acquisition, specifically:
1) if the acquisition is on behalf of a foreign government
2) if the acquisition is humanitarian in nature or for civic assistance
3) if the acquisition is in support of contingency operation
4) if the acquisition is made pursuant to an agreement with the government of a foreign country in which US armed forces are deployed; subsequently, the rule was amended to add an additional exception for DOD; the additional exception excluded contracts that are both awarded and preformed exclusively outside the US and its territories.
Why weren’t the SBA regulations immediately followed?
As many of our readers will appreciate, when there is a conflict between SBA rules and the FAR; contracting officers will adhere to the FAR; and the FAR council did not immediately move to implement SBA’s revised regulations.
What happened in May?
The FAR Council finally implemented changes in the FAR to incorporate SBA’s 2013 regulatory changes.
Why is it only a partial victory?
Although the SBA regulations at 13 CFR 125.2 do not make application of small business set-aside and sole-source authorities discretionary for overseas acquisitions; the final FAR rules gave discretion to the contracting officer based on the fact that the “Councils recognize that overseas acquisitions are subject to international agreements, treaties, local laws, diplomatic and other considerations that are unique to the overseas environment and may limit the Government’s ability to apply the small business preferences in FAR part 19 on a mandatory basis.”
Do you have further questions about FAR? Email us at team@govcontractpros.com and we’ll do our best to help you get the information you need.
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