GAO Weighs In on Applicability of Small Business Runway Extension ActThe Government Accountability Office (GAO) recently denied two consolidated bid protests alleging that a solicitation issued by the General Services Administration (GSA) was inconsistent with the Small Business Runway Extension Act of 2018 in that the solicitation included a three-year — rather than a five-year — lookback period for the purpose of determining an offeror’s small-business size status. As discussed below, the GAO’s decision in these two protests is a particularly noteworthy development regarding the much-debated applicability of the Act’s five-year lookback period.

Background on the Small Business Runway Extension Act

  • On December 17, 2018, President Trump signed into law a bill — known as the Small Business Runway Extension Act of 2018 (H.R. 6330) — that amended the Small Business Act to require that the size of a federal contractor be measured by an average of five years, rather than three years, of revenue for the purpose of determining small business program eligibility. As several commentators noted at the time, the bill did not have a specific effective date, and thus it should be presumed to be effective immediately under long-standing principles of statutory interpretation.
  • On December 21, 2018, however, the Small Business Administration (SBA) issued an Informational Notice stating that, in the SBA’s view, “[t]he change made by the Runway Extension Act is not presently effective and is therefore not applicable to present contracts, offers, or bids until implemented through the standard rulemaking process,” and that, “[u]ntil SBA changes its regulations, businesses still must report their receipts based on a three-year average.”
  • On June 24, 2019, the SBA issued a proposed rule “to change its regulations on the calculation of annual average receipts for all recipients-based SBA size standards and other agencies’ proposed size standards for service-industry firms from a 3-year averaging period to a 5-year averaging period.”

The Bid Protests

  • On June 6, 2019, the GSA issued an amendment to the solicitation at issue in the subject bid protests stating that the GSA would follow the SBA’s position, set forth in the December 21, 2018, Informational Notice, that the Small Business Runway Extension Act was inapplicable until the SBA promulgated a final rule and that, accordingly, a three-year — rather than five-year — lookback period applied to the procurement.
  • TechAnax, LLC, a prospective offeror, filed a protest with the GAO on June 13, 2019, and Rigil Corporation, another prospective offeror, filed a protest with the GAO on June 26, 2019. Both protests challenged the terms of the solicitation pertaining to the GSA’s decision to apply a three-year — rather than a five-year — lookback period and argued that the Small Business Runway Extension Act “took effect immediately after enactment, thereby requiring SBA to immediately apply a 5-year average for the calculation of a firm’s revenue in determining its small business size status.”
  • The GAO consolidated the two protests and then solicited comments from the SBA on the protest arguments. The SBA, in turn, referred the GAO to its June 24, 2019, proposed rule, which addressed the SBA’s interpretation of the Small Business Runway Extension Act “as requiring rulemaking, by either SBA or an agency promulgating its own size standards, to implement the revision of the 3-year average to a 5-year average, and the prospective effect of that revision.”
  • The GAO noted in its decision on the consolidated protests that the GAO “grant[s] deference to SBA’s interpretation of the Small Business Act, particularly with regard to its role in the establishment, amendment and interpretation of small business size standards.” Accordingly, the GAO found “no basis to conclude that the SBA’s interpretation of the Small Business Act or its own regulations are unreasonable in such a manner that would require procuring agencies such as GSA to issue solicitations that implement a 5-year average for calculating a firm’s annual revenue in the absence of rulemaking.” The GAO therefore “conclude[d] that nothing in the Runway Extension Act requires GSA to incorporate terms into the [solicitation] stating that offerors’ small business status self-certifications may be based on a 5-year average for revenue.”

The Takeaways

  • Given the considerable debate and confusion regarding the applicability of the Small Business Runway Extension Act’s five-year lookback period, it was only a matter of time before the issue was the subject of a bid protest decision.
  • The GAO’s decision in these two protests has effectively ended the debate about whether or not the Small Business Runway Extension Act immediately changed the small-business size-standard lookback period from three years to five years. That being said, it is still possible that a similar bid protest will be filed at and ruled on by the U.S. Court of Federal Claims — which is not bound by the GAO’s decision and, thus, could reach a different conclusion on the present effect of the five-year lookback period.
  • The SBA presumably will update its regulations in the fairly near future to include the five-year lookback period set forth in the Small Business Runway Extension Act (indeed, the deadline for comments on the SBA’s proposed rule is August 23, 2019). Accordingly, any lingering confusion about the applicability of the five-year lookback period hopefully will be ameliorated fairly soon.

Please do not hesitate to contact Aron Beezley if you have any questions about the topics discussed in this article.

This post is a continuation of the 10 most horrible, terrible, no good, “bang your head against the door” mistakes that I have seen lawyers make before, during and after mediations in which I was the mediator. As stated in previous posts, it takes more than throwing together a mediation statement at the last second and showing up at the mediation. Doing it right requires the same kind of due diligence and work that goes into preparing for a key deposition or even trial. Great “mediation” lawyering is essential and is the best way to get to an acceptable deal.

Number 6: Failing to Be Intellectually Honest with the Mediator

Number 6: Failing to Be Intellectually Honest with the MediatorLet’s get real. All mediators know that there is a game to be played if a settlement is to be reached.  They understand there are client representatives in the caucus rooms who are paying their lawyers by the hour (normally) and expect their lawyers to be tough, hard-nosed bulldogs fighting (especially if there is bad blood between the parties) to bat down any arguments. However, that is often incompatible with meaningful settlement discussions which require, both for lawyers and clients, a realistic assessment of the dispute. Mediators understand that there is a fine line to be balanced by the mediator and the lawyers.

Mediators expect good, tough representation, but do not insult the mediator’s intelligence and knowledge about the subject matter of the dispute and the law. Beyond the initial presentation of your client’s position (in which you can certainly be a zealous advocate), mediators want frank and candid discussion of the strengths and weaknesses of the case.  What are the best and worst case scenarios? What will be the future litigation expenses and legal fees? That can sometimes mean pulling the lawyers out of the room to have those frank discussions. Good lawyers want that from the mediator, even in front of their client. Because no matter how many times a lawyer may have told a client about the weaknesses in a case, there is something about having an experienced mediator explain to the client, face to face, the same thing and that all of the great lawyering in the world (of course) cannot change a set of facts or the law. Your job as counsel is not to show the mediator how smart you are and how you are going to kick the other side’s backside in court, but to see if there is a way to reach your client’s goal of getting the case resolved as efficiently as possible. Rare is the client who will willingly spend unlimited legal fees, allow the company’s key workers to spend hundreds of hours in discovery and depositions, and put his business into the hands of a third party, whether it’s a judge, arbitrator or jury. Sometimes it is not just about the money…but most of the time it is about the money.

Read numbers 7, 8, 9, and 10 on the list.

The U.S. Small Business Administration (SBA) recently issued an interim final rule “adjusting the monetary-based industry size standards (i.e., receipts- and assets-based) for inflation that has occurred since the last adjustment in 2014.”

According to the SBA, “[a] number of businesses may have lost small business eligibility for Federal assistance under SBA’s monetary-based industry size standards simply because of inflation-led revenue growth that has occurred since the 2014 adjustment.” This interim final rule—which will take effect on August 19, 2019—“aims to reinstate those firms’ small business eligibility for Federal assistance.”

The following table, which is set forth in the interim final rule, “summarizes the results of the inflation adjustment for 16 different receipts-based size standard levels, ranging from $0.75 million to $38.5 million, as well as one assets-based size standard of $550 million.”

Table 1 - Inflation Adjustment to Monetary-Based Size Standards
Table 1 – Inflation Adjustment to Monetary-Based Size Standards / Federal Register / Vol. 84, No. 138 / Thursday, July 18, 2019 / Rules and Regulations pg. 34263

Notably, the adjustment for inflation “applies to all monetary-based industry size standards, including the $750,000 receipts-based size standard for agricultural industries, which was previously set by statute.”

While the interim final rule will take effect on August 19, 2019, the SBA has stated that it will accept comments on the rule until September 16, 2019.

If you have any questions about this noteworthy development, please do not hesitate to contact Aron Beezley.