By: Eric Whytsell
The Small Business Administration (SBA) recently issued a final rule strengthening penalties for small businesses that misrepresent their size and/or special socioeconomic status. As previously explained here, the proposed rule adopted the aggressive approach manifest in the small business size and status integrity provisions of the Small Business Jobs Act of 2010. While the new rule largely tracks the provisions SBA originally proposed, it recognizes the highly fact-specific nature of the central question of “willfulness” and scales back the most mechanistic aspects of the proposed rule.
For example, in the final rule, the presumption of loss resulting from willful misrepresentation of size or status remains equal to the entire amount of award expended, but “upon additional reflection” SBA has decided it should be rebuttable instead of “irrefutable.”
Similarly, while the proposed rule attempted to mitigate the adverse impact of possible mistakes by limiting liability in instances of “unintentional error or technical malfunctions,” the final rule adds “or other situations” (statutory language omitted from the proposed rule) to “more accurately capture the breadth of situations in which liability is to be limited.” SBA also made wording changes “to make clear that the question of whether a misrepresentation is willful is a fact-based decision that will be made not by SBA but by a judge, jury, or decider of fact.” Other changes clarify the discretion given to the finder of fact when making this determination and the fact that prime contractors acting in good faith may rely on the representations of their subcontractors.
Even with those changes, however, the new rule promises to help SBA achieve its stated goal of decreasing the number of instances where ineligible businesses have received Federal awards that were intended for small businesses or small businesses with special socioeconomic status.
Like the proposed version, the final rule identifies a number of specific actions that will be deemed affirmative, willful and intentional certifications of small business size and socioeconomic status, including:
- 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.
The new rule also adopts the heightened requirements for certification set forth in the proposed rule, including the requirements that (i) every proposal and award application contain size and/or status certifications signed by an authorized official on the same page that identifies the claimed size or status; and (ii) small businesses must annually re-certify their sizes and/or statuses (although references to the Online Representations and Certifications Application (ORCA) have been changed to the System for Award Management (SAM)). In addition, if a concern fails to re-certify its status each year, it will no longer be listed in SAM as having that status.
The bottom line for contractors? While this final rule may afford more opportunity to avoid liability based on the specific facts and circumstances of a given case, it still establishes more stringent standards and harsher penalties to address the problem of misrepresentation of size and status. As a result, contractors need to be more careful than ever when claiming a specific size or status.
Eric Whytsell is the attorney responsible for the content of this article.
© Jackson Kelly 2013