On October 7, the Small Business Administration (SBA) issued a proposed ruleto strengthen penalties for small businesses that misrepresent their size and/or special socioeconomic status. Under the proposed rule, any business that willfully seeks and receives a Federal award[1] by misrepresenting itself as a small business or a small business with special socioeconomic status[2] will be required to repay the entire amount of award that the business has received at the point the misrepresentation is discovered. In the past, contractors have successfully argued that, despite being ineligible for the original set aside procurement, they should be allowed to keep some or all of the award because the Government received a benefit from the goods or services provided. However, under the proposed rule, there will be an “irrefutable presumption” that the misrepresentation caused a loss to the Government equal to the entire amount of award expended.
Additionally, the proposed rule creates certain actions that will be deemed affirmative, willful and intentional certifications of small business size and socioeconomic status. These actions are:
- Submission of a bid or proposal for a Federal award reserved, set aside, or otherwise classified as intended for award to a small business or a small business with special socioeconomic status
- Submission of a bid or proposal for a Federal award which in any way encourages a Federal agency to classify the bid or proposal, if awarded, as an award to a small business or a small business with special socioeconomic status.
- Registration on any Federal electronic database for the purpose of being considered for a Federal award as a small business or a small business with special socioeconomic status.
To account for possible mistakes, the proposed rule limits liability in instances of unintentional error or technical malfunctions that demonstrate that the misrepresentation of size or status was not willful. This provision also states that consideration will be given to the firm’s internal management procedures governing size or status certifications, the clarity or ambiguity of the certification requirement, and the efforts made to correct an incorrect or invalid certification in a timely manner.
The proposed rule also increases requirements for certification. Under the proposed rule, each bid or application for Federal award must contain a certification of the small business size or status of the concern, and that certification must be signed by an authorized official on the same page that contains the size or status claimed by the concern. Additionally, SBA will require small businesses to annually re-certify their sizes and/or statuses in the Online Representations and Certifications Application (ORCA). If a business fails to re-certify its status after a year, its status will no longer be listed in ORCA.
The original penalties for misrepresentation will still be listed in the regulations as additional penalties on top of the new “irrefutable presumption” of loss. They are: (1) suspension or debarment; (2) civil penalties under the False Claims Act and the Program Fraud Civil Remedies Act; and (3) criminal penalties pursuant to sections 16(a) and 16(d) of the Small Business Act (15 U.S.C. 645(a), (d)), the False Claims Act (31 U.S.C. 3729-33), and 18 U.S.C. 1001.
SBA explains that these proposed rules and associated new penalties will decrease the number of instances where ineligible businesses have received Federal awards that were intended for small businesses or small businesses with special socioeconomic status. Look here for information on any final rule SBA publishes on size or status misrepresentation.
Katie Calogero is the attorney responsible for the content of this article.
[1]The rule applies to all Federal grants, contracts, subcontracts, cooperative agreements, and cooperative research and development agreements. Collectively, these sources of federal funding will be referred to as “award” or “awards.”
[2]The proposed rule applies to the following special socioeconomic statuses: women-owned, service-disabled veteran-owned, 8(a), small disadvantaged, and HUBZone.