New Rules to Require Federal Agencies to Justify Sole-Source Contracts to 8(a) Firms

The Federal Acquisition Regulations (FAR) Counsel on March 16, 2011 issued an interim rule amending the FAR to implement section 811 of the National Defense Authorization Act for Fiscal Year 2010 (Pub. L. 111-84). The provision requires Federal agencies to provide a written justification prior to awarding a sole-source contract in an amount over $20 million under the 8(a) program by the Small Business Administration (SBA). This written justification must include a description of the agency's needs, a determination that the contract is in the government's best interest, and verification that its costs will be fair and reasonable. It must also be approved by an appropriate official and, after award, made public. Authorized by 15 U.S.C. 637(a), the 8(a) program enables contract awards to be made to small business concerns determined eligible for the 8(a) program by the Small Business Administration (SBA). The regulatory change, which was required in the 2010 Defense Authorization bill, could have serious implications for Alaska Native Corporations (ANCs), which, along with Indian tribes and Native Hawaiian organizations, are eligible to receive 8(a) contracts of any value. All other 8(a) participants are capped at receiving sole-source contracts of $3.5 million for services and $5.5 million for manufacturing. AGC notes that the requirement for a justification is not a ceiling or a “cap” on sole-source awards over $20 million for 8(a) contractors. The statute requires execution of the written justification documenting the reasons for making the award on a sole-source basis rather than competing among the small businesses in the 8(a) program. Prior to the enactment of this requirement, a sole-source award of a new contract made using the 8(a) contracting authority did not require a J&A, regardless of the dollar value, and  the new statute does not institute any requirement for a J&A for sole-source 8(a) awards that are less than or equal to $20 million. Incidentally, the FAR Council noted in the interim rule that the new regulation may “…indirectly benefit the 9,165 currently certified section 8(a) firms by improving their likelihood of a contract award through increased competition.” AGC will continue to analyze this interim rule and submit comments to the FAR Council. The government is accepting public comments on each of the proposed rule changes through May 16. Comments can be submitted through Regulations.gov, or mailed to the General Services Administration, Regulatory Secretariat; attention Hada Flowers, 1275 First Street N.E., 7th Floor, Washington, D.C., 20417. To view a copy of the rule change, click here. For more information, contact Marco Giamberardino at (703) 837-5325 or giamberm@agc.org.