Today, SBA published a proposed rule to merge its mentor-protégé programs and amend many of its rules governing the 8(a) program and small businesses. The proposed rule would have significant implications for the government contracting community. Comments are due by January 17, 2020, and PilieroMazza will host a seminar on November 18, 2019, from 7:30 AM – 10:30 AM EST at The Ritz-Carlton, Tysons Corner. Our seminar will feature Pamela Mazza, Managing Partner of PilieroMazza, and John Klein, Associate General Counsel for Procurement Law at the Small Business Administration (SBA) and one of the key drafters of the proposed rule, and it will provide a head start to government contractors in understanding the proposed changes and enable attendees to comment. For more details and to register, please visit this link. Below are our highlights.
The proposed rule would:
- Merge the 8(a) Mentor-Protégé Program into the All Small Mentor-Protégé Program;
- Clarify eligibility criteria for proposed mentors and request comments on whether mentors should be restricted to mid-sized firms;
- Provide flexibility for mentors with protégés with principle places of business in Puerto Rico;
- Provide relief from the two mentors over the life of a protégé rule; and
- Provide generally that protégés should be performing work under the North American Industry Classification System (NAICS) code used to qualify for the program.
The proposed rule would:
- Eliminate joint venture approval requirements for competitive 8(a) contracts, but not sole source awards;
- Eliminate the “three in two” rule;
- Disallow substitution of joint venture partners who exceed the size standard for long-term contracts prior to recertification; and
- Allow joint ventures to be populated with FSOs and provide guidance to agencies on when to allow joint ventures to bid on contracts requiring a clearance.
Multiple-Award Contracts (MAC)
The proposed rule would:
- Require contracting officers to assign the most appropriate single NAICS code to each order under a MAC, whether for a supply or a service to ensure compliance with the non-manufacturer rule, requiring that each NAICS code be included in the underlying MAC;
- Require an offeror to certify as to size and status in order to qualify at the time it submits its initial offer including price for an order under an UNRESTRICTED MAC, except for orders or BPAs issued under an FSS contract;
- Require that, where the socio-economic status is first required at the order level, firms must qualify at that time; and
- Permit size and status protests where the underlying MAC was unrestricted, except for BPAs and orders issued under an FSS schedule.
- The proposed rule would allow a prime to rely on the self-certification of its subcontractor, provided the prime does not have a reason to doubt the certification.
The proposed rule would that:
- If a party to a joint venture becomes acquired or merges, only that partner (and not the non-affected partner) must recertify in order to qualify the joint venture to recertify;
- A firm that merges between proposal submission and award does not qualify for award if it could not or did not recertify, though size protests are permitted; and
- Tribal entities are not required to recertify where ownership changes but the firm is owned to the same extent (i.e. 51%) by the ultimate entity.
The proposed rule would:
- Define “follow on contract” for purposes of retaining requirements in the program;
- Loosen the prohibition on immediate family members owning 8(a) firms;
- Allow for certain changes of ownership to occur without prior SBA approval;
- Clarify SBA policy on voluntary withdrawals and early graduations from the program; and
- Under some circumstances, allow firms to seek and obtain a multiple contract waiver from the sole-source restrictions for failure to comply with the business activity targets where certain extenuating circumstances exist that apply to multiple contracts.
Tribally-Owned Applicants and Participants
The proposed rule would require that:
- Where a tribe, ANC, NHO, or CDC is reorganizing but ultimate ownership does not change, no prior SBA approval is required;
- If SBA changes the primary NAICS code of a program participant because the participant has not been operating in its designated primary code for the past three years, another tribal entity be immediately qualified to apply using that code: although the program participant stated that code as its primary NAICS code, it really was not the primary NAICS code, so that code is now available for another 8(a) applicant;
- Appeals be authorized where SBA has changed a firm’s primary NAICS code;
- Potential for success be satisfied by a letter from a Section 17 corporation or some other economic development corporation or tribally owned holding company, so long as it can show financial strength;
- Tribal entities not be required to submit small business subcontracting plans, as long as they are small for the NAICS code assigned to the contract; and
- The excessive withdrawal rule generally not be applied to entities at least 51% owned by a tribe, ANC, NHO, or CDC.
Small Business Rules
The proposed rule would:
- Require that mixed contracts include any combination of services, supplies, or construction, though construction was inadvertently omitted from the proposed rule;
- Require that contracting officers consider past performance of first-tier subcontractors for certain bundled or consolidated contracts and for MACs over a certain dollar threshold;
- Clarify that affiliation may be found under the newly organized concern rule where both former and current officers, directors, principal stockholders, managing members, or key employees of one company organize a new company in the same or a related industry; and
- Request comments on how the non-manufacturer rule should be applied to multiple item procurements where one or more of the items are subject to a class waiver.
Pamela Mazza, the author of this Client Alert, is the Managing Partner of PilieroMazza.
On September 24, 2019, the Department of Labor (DOL) announced its final rule to change the Fair Labor Standards Act’s (FLSA) salary basis test, which is integral to classifying an employee as exempt from overtime payments. In order to designate an employee as FLSA overtime exempt, an employer must ensure that the employee meets both a salary basis test, which establishes a salary threshold, and a duties test, which establishes the types of responsibilities and knowledge required to be eligible for an exemption. The salary basis requirement is currently $455 per week, or $23,660 per year. PilieroMazza previously blogged about the proposed DOL overtime exemption rule here. Effective January 1, 2020, the final rule will increase the threshold amount to $684 per week or $35,568 per year, a slight increase from the originally proposed amount. Employers, including government contractors, with salaried employees making under $35,568 annually need to determine if it makes business sense to convert employees to non-exempt status or to raise their salary. Not understanding this requirement could lead to costly DOL violations.
The final rule also allows employers to include up to 10% of the salary in nondiscretionary bonuses and incentive pay. The rule also increases the compensation requirement for highly compensated employees—who are subject to minimal duties test requirements— from $100,000 to $107,432, significantly lower than what was proposed.
The DOL estimates that 1.2 million additional workers will be entitled to minimum wage and overtime pay as a result of the increase to the standard salary level. DOL also estimates that over 100,000 workers will be entitled to overtime pay as a result of the increase to the Highly Compensated Employees compensation level.
Like all employers, government contractors will face the prospect that some employees would be newly eligible for overtime under the new rule. In that case, the contractor may choose to convert them to hourly, non-exempt workers or raise their salaries as an alternative to paying overtime.
If a contractor chooses to convert employees to non-exempt and to pay an hourly rate, there could be a price impact on contracts bid before this rule is effective. For example, if a government contractor works on a contract covered by the Service Contract Act or the Davis-Bacon Act, designating an employee as non-exempt makes that employee eligible for the prevailing wages and fringe benefits. This could significantly impact cost of performance because those employees may have to work overtime.
Employers with salaried employees under $35,568 annually need to determine if it makes business sense to convert employees to non-exempt or raise their salary. It is also a good time to revisit whether these positions still meet the requirement of the duties test, the second component of exemption testing. Although the test has not changed, many violations stem from misunderstanding this requirement.
September 30, 2019 marks the newly announced deadline for employers who submit annual EEO-1 reports to report employee 2018 pay data to the Equal Employment Opportunity Commission (EEOC). The EEOC revealed the new deadline in a federal court submission last week. UPDATE: Since the original blog on this topic was published, the court issued an order confirming the September 30, 2019 deadline, and requiring the EEOC to collect a second year of data in addition to the 2018 pay information. The EEOC has also since announced its decision to collect 2017 pay data which will also be due this September. Employers (government contractors and commercial businesses) should work with an experienced labor and employment attorney to ensure they comply before the September 30, 2019 deadline.
Employers with 100 or more employees and federal contractors with 50 or more employees (and a contract or subcontract of $50,000 or more) have long been required to submit employment demographic data by race/ethnicity, gender, and job categories. Importantly, the new pay data reporting requirements apply only to businesses with 100 or more employees, regardless of government contractor status.
In September 2016, the Office of Management and Budget (OMB) approved revisions to the EEO-1 filings, including a new requirement to submit compensation and hours worked data. Implementation of this so-called “Component 2” was stayed, however, in August 2017, following a Trump administration OMB decision that the revisions were overly burdensome and posed privacy concerns.
OMB’s decision was recently overturned in a March 2019 court determination, which required employers to report the Component 2 data. However, the date that the EEOC would require that such data be submitted was unknown until the EEOC submitted its feedback in reaction to the court’s ruling.
The collection of Component 2 compensation and hours worked data will be a significant endeavor for employers and for the EEOC. Pay data for the year must be broken into 12 pay bands for each EEO job category by race/ethnicity and gender. An employee’s pay band is determined by the income listed in box 1 of the employee’s W-2 form. Regarding hours worked, employers will be required to report the total hours worked by all the employees accounted for in each pay band. For full-time, exempt employees, employers are permitted to report 40 hours per week for a full-time employee (or 20 hours for part-time employees).
According to the EEOC’s statement, due to the sheer volume of the data that is included in Component 2 collection, the EEOC will need to outsource the collection of the data to a contractor. Whereas the previous demographic collection only required 140 data fields, the Component 2 data will include 3,360 data fields of pay data. Importantly, the Component 2 deadline does not effect an employer's obligation to file EEO-1 demographic data, which was due by May 31, 2019.
Employers should immediately begin examining the data they will need to submit and comparing it against employees in protected classes to ensure there are no disparate impact concerns. UPDATE: On July 15, 2019, the Component 2 electronic filing system went live, meaning that companies can now submit data to the system. FAQs, sample forms, and upload file specifications are available online here.
Sarah Nash, the author of this Client Alert, is an Associate in the following practice groups: Labor & Employment, Litigation, Intellectual Property & Technology Rights, Audits & Investigations, and Native American Law.