Under new rules from the U.S. Small Business Administration, businesses could face severe penalties if they intentionally misrepresent their size or status so they can win a set-aside contract or subcontract from the federal government. 

What’s New

When a business submits an offer for a contract or subcontract, encourages the government to award it a contract based upon its size or status, or registers on any federal electronic database for the purpose of being considered for award of a contract or subcontract, the SBA will consider such acts as an affirmative certification of small business size and status. The SBA also now requires the signature of an authorized official of the company when making a certification as to size or status.

Severe penalties can result from any miscertification. If an individual or business willfully misrepresents its size or status and, as a result, receives a federal contract or subcontract, then there is a presumption of loss to the United States equal to the amount expended by the government for the contract. (Civil claims were previously capped at $11,000. Criminal penalties could include a $500,000-maximum fine and up to 10 years in prison.)

The SBA will determine, on a case-by-case basis, whether a business willfully misrepresented its size or status, and the business may present facts demonstrating it made the representation in good faith. The SBA includes the following factors in determining whether or not the firm committed a “willful” act:

»  The firm’s internal management procedures governing size representation or certification

»  The clarity or ambiguity of the representation or certification requirement

»  The efforts made to correct an incorrect or invalid representation or certification in a timely manner

With regard to the “presumption of loss” provision, the SBA’s final rules open the door for businesses to argue the government’s loss was something less than the contract price. Also, SBA’s adverse determination of size will not automatically trigger a presumption of “willful.”

What You Should Do

Contractors should immediately institute procedures to comply with these new rules.

»  Develop internal check and cross-check procedures to verify certifications and representations before submitting an offer or bid to the government or submitting an offer to a contractor bidding a government contract.

»  Develop internal procedures to verify size and status in the other situations where the SBA will scrutinize the status, such as when the business will “encourage” the government to award it the contract.

»  Develop procedures to verify registration on the System for Award Management website annually.

»  For nondisadvantaged businesses participating in teaming or joint-venture arrangements with a disadvantaged firm, develop internal procedures to evaluate the teaming partner’s certifications.