By Maria Panichelli
Attorney at Law, Cohen Seglias Pallas Greenhall & Furham PC &
Jennifer Horn, Partner, Cohen Seglias Pallas Greenhall & Furman PC
In recent years, teaming has become an increasingly popular mechanism for winning federal government contracts. Many women-owned small businesses (“WOSBs”) like teaming because it is a good way to break into the federal contracting arena. In that arena, where past performance is key, WOSBs and other small businesses can team with larger companies, and use the larger companies’ past performance record to help secure a contract award. Small businesses can also use teaming partners to obtain higher-dollar contracts; by teaming with a large business, a small business can gain the financial or bonding support necessary to compete for more expensive projects, which might otherwise have been out of reach. In addition, through teaming arrangements, small contractors can utilize the resources of their teaming partners during contract performance, thereby successfully and efficiently completing larger, more complex projects and acquiring the experience (and positive performance evaluations) needed to compete for future federal contracts on their own. In short, teaming can offer small business contractors a number of advantages.
That said, when done improperly, teaming can also pose significant risks for a small business. It can destroy a concern’s “small” business size status, or otherwise render it ineligible to participate in the various Small Business Administration (“SBA”) programs. Most often, this occurs in one of two ways: (1) violation of the percentage of work requirements set forth at 13 C.F.R. § 125.6; or (2) a finding of “affiliation” pursuant to 13 C.F.R. § 121.103. This article seeks to educate small businesses about these common pitfalls and, more importantly, advise small businesses on how to avoid these dangers.
Percentage of Work Requirements
The SBA regulations set forth strict requirements concerning the amount of work a small business prime contractor must self-perform on each contract that it is awarded. If the small business contractor fails to meet these “percentage of work” requirements, it can be precluded from participating in the various SBA small business programs. It is, therefore, critically important that small businesses comply with all applicable limitations on subcontracting.
However, understanding what limitations apply to a given business or contract can be more complicated than one might expect. Each type of small business has its own requirements regarding limitations on subcontracting, and the percentages further vary depending upon the nature of the contract (services, supplies/products, general construction or specialty construction) being performed. For example, an 8(a) business performing
a general construction contract is governed by completely different self-performance requirements than a SDVOSB performing a supply contract.
Contractors must also pay attention to how these percentages are calculated. In some cases, the required percentage of work is calculated using the total cost of the contract; in others it is calculated using the cost of the contract incurred for personnel only. Small businesses must make sure to keep these distinctions in mind when reviewing all of the applicable regulations (namely, 13 C.F.R. § 125.6 and § 121.600) and calculating their self-performance requirements.
Once the applicable limits have been determined, a small business contractor should share that determination with the procuring agency. It is wise to demonstrate to the government, at every stage, that both teaming partners are aware of, and have properly calculated, the applicable percentage of work requirements, and, further, that both parties have every intention of complying with those requirements. To that end, small business prime contractors should include in every teaming agreement (and resulting subcontract) the percentages (by number) and the specific scopes of work (by description) that will be performed by the small business prime contractor.
Affiliation
In everyday life, “affiliation” has no negative connotation. However, in the context of small business contracting, affiliation is a very bad word. A finding of affiliation can destroy a small business’ eligibility and prevent it from competing for small business set-aside contracts.
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