Legal Authorities Governing Federal Contracting and Subcontracting with Small Businesses

See, e.g., Perkins v. Lukens Steel Co., 310 U.S. 113, 127 (1940) ("Like private individuals and businesses, the Government enjoys the unrestricted power to produce its own supplies, to determine those with whom it will deal, and to fix the terms and conditions upon which it will make needed purchases."). But see infra notes 10-12 and accompanying text.

See 15 U.S.C. §631(a) ("It is the declared policy of the Congress that the Government should aid, counsel, assist, and protect, insofar as is possible, the interests of small-business concerns in order to preserve free competitive enterprise, to insure that a fair proportion of the total purchases and contracts or subcontracts for property and services for the Government (including but not limited to contracts or subcontracts for maintenance, repair, and construction) be placed with small-business enterprises, to insure that a fair proportion of the total sales of Government property be made to such enterprises, and to maintain and strengthen the overall economy of the Nation.").

See, e.g., 15 U.S.C. §644(g)(2)(B) (requiring agencies, in consultation with the Small Business Administration (SBA), to set goals for the percentage of federal contract and/or subcontract dollars awarded to small businesses that "realistically reflect" the ability of small businesses to participate in such contracts or subcontracts).

See, e.g., 15 U.S.C. §637(a) (authorizing set-asides and sole-source awards to small businesses owned and controlled by socially and economically disadvantaged individuals participating in SBA's Minority Small Business and Capital Ownership Development Program (commonly known as the 8(a) Program)).

See, e.g., 15 U.S.C. §644(l)(1) (requiring SBA to appoint Procurement Center Representatives (PCRs) to work with "each major procurement center"); 13 C.F.R. §125.2(b) (requiring PCRs to review all acquisitions not set aside for small businesses to determine whether a set-aside is appropriate and to identify alternate strategies to maximize small business participation as contractors or subcontractors, among other things).

In addition, where subcontracting is concerned, there is no "privity of contract"—or direct contractual relationship—between the federal government and the subcontractor. This means that the subcontractor generally cannot seek payment from the government, and may not be entitled to certain protections that federal law provides to prime contractors (e.g., interest on payments that are not made within particular time frames; the ability to protest the award, or proposed award, of a contract). See, e.g., Williams v. Fenix & Scisson, 608 F.2d 1205 (9^th Cir. 1979) (finding that the defendant owed no contractual duty to the plaintiff because the defendant's contract was with the plaintiff's employer, not the plaintiff). Where protections for subcontractors do exist, they typically result from the federal agency's including in its contracts certain terms intended to benefit the subcontractor, and only the agency may generally enforce these terms against the contractor. See generally CRS Report R41230, Legal Protections for Subcontractors on Federal Prime Contracts, by [author name scrubbed].

"Procuring activities" are those "component[s] of an executive agency having a significant acquisition function and designated as such by the head of the agency." 48 C.F.R. §2.101.

For example, the Small Business Jobs Act of 2010 amended Section 31 of the Small Business Act in response to a series of decisions by GAO and the U.S. Court of Federal Claims. See P.L. 111-240, tit. I, subtitle C, §1347, 124 Stat. 2546-47 (September 27, 2010). These decisions had found that set-asides for Historically Underutilized Business Zone (HUBZone) small businesses took "precedence" over set-asides for other small businesses because Section 31, at that time, used "shall" to describe when agencies were to use set-asides for HUBZone small businesses, while other provisions of the Small Business Act used "may" to describe when agencies were to use set-asides for other small businesses. See Mission Critical Solutions v. United States, 91 Fed. Cl. 386 (2010); DGR Assocs. v. United States, 94 Fed. Cl. 189 (2010); Rice Services, Inc., B-403746, B-403746.2, 2010 U.S. Comp. Gen. LEXIS 253 (September 16, 2010); DGR Associates, Inc., B-402494, 2010 U.S. Comp. Gen. LEXIS 95 (May 14, 2010); All Seasons Apparel, Inc., B-401805, B-401805.2, 2009 U.S. Comp. Gen. LEXIS 206 (November 4, 2009); Mission Critical Solutions, B-401057, 2009 U.S. Comp. Gen. LEXIS 86 (May 4, 2009); Int'l Program Group, Inc., B-400278; B-400308, 2008 U.S. Comp. Gen. LEXIS 193 (September 19, 2008). In response to these decisions, Congress changed the "shall" in Section 31 to "may", thereby permitting the FAR Council to promulgate regulations providing for parity among the set-aside programs. See Dep't of Defense, Gen. Servs. Admin. & Nat'l Aeronautics & Space Admin., Federal Acquisition Regulation: Socioeconomic Program Parity, 76 Federal Register 14566, 14567 (March 16, 2011).

Perkins, 310 U.S. at 127.

U.S. Const. amend. V (guaranteeing due process of law). Due process under the Fifth Amendment includes equal protection, or the constitutional assurance that the government will apply the law equally to all people and not improperly prefer one class of people over another. See Bolling v. Sharpe, 347 U.S. 497 (1954).

Adarand Constructors, Inc. v. Peña, 515 U.S. 200 (1995). An alleged government interest qualifies as a compelling one, for due process or equal protection purposes, only when the government entity creating the racial classification (1) identified public or private discrimination with some specificity before resorting to race-conscious remedies and (2) had a "strong basis in evidence" to conclude that race-conscious remedies were necessary before enacting or implementing these remedies. Shaw v. Hunt, 517 U.S. 899, 909-10 (1996); Concrete Works of Colorado, Inc. v. City and County of Denver, 321 F.3d 950, 958 (10^th Cir. 2003).

Craig v. Boren, 429 U.S. 190, 197 (1976). In United States v. Virginia, the Court required the State of Virginia to provide an "exceedingly persuasive justification" for its policy of maintaining an all-male military academy. 518 U.S. 515 (1996). It is unclear whether this standard (i.e., an "exceedingly persuasive justification") is to be seen as more stringent than the "intermediate scrutiny" traditionally applied to classifications based on gender.

An Act to Dissolve the Reconstruction Finance Corporation, to Establish the Small Business Administration, and for Other Purposes, P.L. 83-163, §204(a), 67 Stat. 233 (July 30, 1953) (codified at 15 U.S.C. §633(a)). The 1953 act established the SBA, but it did not become a permanent agency until the 1958 act. See An Act to Amend the Small Business Act of 1953, as Amended, P.L. 85-536, §4(a), 72 Stat. 384 (July 18, 1958).

See infra notes 16-43 and accompanying text.

In addition, the act contains numerous provisions intended to assist small businesses in other ways, most notably through direct or guaranteed loans. These provisions are outside the scope of this report, but are discussed in other CRS reports, including CRS Report R41184, Small Business Administration 504/CDC Loan Guaranty Program, by [author name scrubbed]; CRS Report R41146, Small Business Administration 7(a) Loan Guaranty Program, by [author name scrubbed]; and CRS Report R41057, Small Business Administration Microloan Program, by [author name scrubbed].

15 U.S.C. §636(j)(15)(A)-(B). This program shall be "exclusively" for such firms and shall, among other things,

assist small business concerns participating in the program (either through public or private organizations) to develop and maintain comprehensive business plans which set forth [their] business targets, objectives, and goals … [and] provide for such other nonfinancial services as deemed necessary for the establishment, preservation, and growth of small business concerns participating in the Program, including but not limited to (I) loan packaging, (II) financial counseling, (III) accounting and bookkeeping assistance, (IV) marketing assistance, and (V) management assistance.

15 U.S.C. §637(a)(1)(A).

The act does refer to "programs" for HUBZone, women-owned, and service-disabled veteran-owned small businesses. See 15 U.S.C. §637(m) (women-owned small businesses); 15 U.S.C. §657a (HUBZone small businesses); 15 U.S.C. §657f (service-disabled veteran-owned small businesses). However, the act does not prescribe that SBA provide specific types of assistance to such businesses as part of these programs, nor are these programs time-limited, as the 8(a) Program is. See 15 U.S.C. §636(j)(15) (limiting firms and individual owners to a maximum of nine years in the 8(a) Program). For more on the 8(a) Program, see generally CRS Report R40744, The "8(a) Program" for Small Businesses Owned and Controlled by the Socially and Economically Disadvantaged: Legal Requirements and Issues, by [author name scrubbed].

15 U.S.C. §637(b)(1)(A).

For more on "procuring activities," see supra note 7.

See infra note 44 and accompanying text.

See, e.g., 13 C.F.R. §124.501(a); Partnership Agreement Between the U.S. Small Business Administration and the U.S. Department of Defense, January 1, 2013, available at http://www.sba.gov/sites/default/files/files/Department%20of%20Defense.pdf.

13 C.F.R. §124.504(d)(1) ("Except as set forth in (d)(4) of this section, where a procurement is awarded as an 8(a) contract, its follow-on or renewable acquisition must remain in the 8(a) … program unless SBA agrees to release it for non-8(a) competition."). But see K-LAK Corporation v. United States, 98 Fed. Cl. 1 (2011) (upholding an agency's determination to procure through the Federal Supply Schedules services that it had previously procured through the 8(a) Program, notwithstanding the fact that SBA had not approved the withdrawal of these requirements).

15 U.S.C. §637(b)(7)(A).

48 C.F.R. §9.103(a)-(b) ("Purchases shall be made from, and contracts shall be awarded to, responsible prospective contractors only. No purchase or award shall be made unless the contracting officer makes an affirmative determination of responsibility.").

See generally 41 U.S.C. §113. For more on these factors, see CRS Report R40633, Responsibility Determinations Under the Federal Acquisition Regulation: Legal Standards and Procedures, by [author name scrubbed].

See, e.g., Molded Insulation Co., B-151834 (November 29, 1963) ("In view of the discretion vested in the contracting agency with respect to such matters we must conclude that there is no basis upon which we may question the legality of the award made pursuant to the invitation [for bids].").

48 C.F.R. §9.103(b); 48 C.F.R. Subpart 19.6.

48 C.F.R. §9.105-2(a)(2).

15 U.S.C. §632(a)(1). This is the primary definition of "small business" used for federal contracting and subcontracting, and for other purposes. However, other definitions may be used in specific contexts. For example, under various transportation statutes, firms whose average annual gross receipts over the past three years exceed $23.98 million are excluded from the Disadvantaged Business Enterprise (DBE) program, even if they meet the size standards established by SBA. See 49 U.S.C. §47113(a)(1)(B); 49 C.F.R. §26.65(b).

15 U.S.C. §632(a)(2)(A). Section 5 also gives the Administrator broad authority over any "size standards" promulgated by other agencies. While the act permits other agencies to promulgate size standards without specific congressional authorization under certain circumstances, it requires that any such standards be "approved by the Administrator," among other things. 15 U.S.C. §632(a)(2)(C)(iii). This requirement effectively gives SBA a key role in federal determinations of firm size, and many states also rely upon federal size standards in determining eligibility for state and local programs for small businesses. See, e.g., N.Y. Pub. Auth. §1695 (2011) ("The maximum number of employees and the maximum dollar volume which a small business may have under the rules promulgated by the authority shall vary from industry to industry to the extent necessary to reflect differing characteristics of such industries based on criteria used by the Small Business Administration.").

See infra note 91 and accompanying text.

15 U.S.C. §634(b)(6).

See infra notes 57-63 and accompanying text.

15 U.S.C. §657f(a)-(b).

15 U.S.C. §632(q). SBA's authority here is somewhat limited in that the Small Business Act defines "veteran" and "service-disabled veteran" by reference to the Veterans Benefits Act. However, SBA may otherwise determine eligibility for the service-disabled veteran-owned small business program so long as its determinations are consistent with the definitions of "veteran" and "service-disabled veteran" given in the Veterans Benefits Act.

See generally 13 C.F.R. §§125.8-125.30.

15 U.S.C. §694b. Bid, performance, and payment bonds are all types of surety bonds. A surety bond is an instrument between a surety, a contractor, and a project owner, under which the surety assumes the contractor's responsibilities to ensure that the project is completed in the event the contractor is unable to successfully perform the contract. See generally CRS Report R42037, SBA Surety Bond Guarantee Program, by [author name scrubbed].

15 U.S.C. §637(b)(1). Mentor-protégé programs are intended to promote contracting and/or subcontracting with small businesses by pairing new businesses with more experienced businesses in mutually beneficial relationships. Section 637(b)(1) also authorizes SBA to establish a Service Corps of Retired Executives (SCORE) to advise small businesses. For more on the SCORE program, see generally CRS Report R41352, Small Business Management and Technical Assistance Training Programs, by [author name scrubbed].

15 U.S.C. §637(b)(1) & (11).

15 U.S.C. §634(b)(11).

See 13 C.F.R. §125.2(b)(1)(i)(A).

See 13 C.F.R. §125.3(e)(1).

The Competition in Contracting Act (CICA) of 1984 generally authorizes agencies to make noncompetitive awards only when expressly authorized by statute, or when one of the following seven circumstances exist: (1) the property or services needed by the agency are available from only one responsible source, and no other type of property or services satisfies the agency's needs; (2) the agency's need for property or services is of such an unusual and compelling urgency that the government would be seriously injured unless the agency is permitted to limit the number of sources from which it solicits bids or proposals; (3) it is necessary to award the contract to a particular source in order to maintain the industrial base; (4) the terms of an international agreement effectively require the use of other than competitive procedures; (5) a statute expressly authorizes or requires that the procurement be made through another executive agency or from a specified source, or the agency needs brand-name commercial items for authorized resale; (6) disclosure of the agency's needs would compromise national security unless the agency is permitted to limit the number of sources from which it solicits bids or proposals; or (7) the head of an agency determines that it is necessary in the public interest to use other than competitive procedures in the procurement and notifies Congress in writing of this determination no less than 30 days before the award of the contract. See 10 U.S.C. §2304(c)(1)-(7) (procurements of defense agencies); 41 U.S.C. §3304(1)(a)(1)-(7) (procurements of civilian agencies). The Small Business Act, in contrast, expressly authorizes noncompetitive awards to particular types of small businesses in certain circumstances when similar awards could not be made to other firms. See Table 1.

For more on these programs, see generally CRS Report R42981, Set-Asides for Small Businesses: Legal Requirements and Issues, by [author name scrubbed] and [author name scrubbed].

Section 15 of the Small Business Act states that:

small-business concerns within the meaning of this chapter shall receive any award or contract or any part thereof, and be awarded any contract for the sale of Government property, as to which it is determined by the Administration and the contracting procurement or disposal agency (1) to be in the interest of maintaining or mobilizing the Nation's full productive capacity, (2) to be in the interest of war or national defense programs, (3) to be in the interest of assuring that a fair proportion of the total purchases and contracts for property and services for the Government in each industry category are placed with small-business concerns, or (4) to be in the interest of assuring that a fair proportion of the total sales of Government property be made to small-business concerns,

and the regulations implementing Section 15 indicate that a set-aside "shall" be used if the contracting officer reasonably expects offers from at least two small businesses, and the award can be made at a fair market price. See 15 U.S.C. §644(a); 48 C.F.R. §19.502-2(b). These regulations have been construed as requiring agencies to set aside contracts for small businesses when the specified conditions are met. See, e.g., DNO Inc., B-406256, B-406256.2 (March 22, 2012) ("Contracting officers generally are required to set aside for small business all procurements exceeding $150,000 if there is a reasonable expectation of receiving fair market price offers from at least two responsible small business concerns."); Metasoft, LLC, B-402800 (July 23, 2010) ("Under FAR sect. 19.502-2(b), a procurement with an anticipated dollar value of more than [$150,000] must be set aside for exclusive small business participation when there is a reasonable expectation that offers will be received from at least two responsible small business concerns and that award will be made at a fair market price.").

15 U.S.C. §637(d)(2)-(3). This clause is not required in contracts for personal services, or which will be entirely performed (including any subcontracts) outside the United States. The Prompt Payment Act generally does not apply to payment of subcontractors. But see Prompt Payment Act Amendments of 1988, P.L. 100-496, §9, 102 Stat. 3460-63 (October 17, 1988) (codified at 31 U.S.C. §3905(b)(1)-(2)) (requiring that every construction contract awarded by a federal agency contain clauses obligating the prime contractor to (1) pay the subcontractor for "satisfactory performance" under the subcontract within seven days of receiving payment from the agency and (2) pay interest on any amounts that are not paid within the proper time frame). The contract must also obligate the prime contractor to include similar payment and interest-penalty terms in its subcontracts, as well as require its subcontractors to impose these terms on their subcontractors. Id.

15 U.S.C. §637(d)(4)-(5). This clause is not required in contracts that do not offer subcontracting possibilities.

All firms participating in the 8(a) Program are small disadvantaged businesses (SDBs). However, firms that are not in the 8(a) Program may also qualify as SDBs. See generally CRS Report R40987, "Disadvantaged" Small Businesses: Definitions and Designations for Purposes of Federal and Federally Funded Contracting Programs, by [author name scrubbed].

15 U.S.C. §644(g)(1)(A)(i)-(v).

15 U.S.C. §644(g)(2)(A)-(E). For more on the goaling program, see generally http://www.sba.gov/category/about-sba-navigation-structure/sba-programs/contracting/goaling-program.

15 U.S.C. §644(e) (bundling); 15 U.S.C. §657q (consolidation). For more on bundling and consolidation, see generally CRS Report R41133, Contract "Bundling" Under the Small Business Act: A Legal Overview, by [author name scrubbed].

15 U.S.C. §637(d)(6)(G)(i)-(ii) & (13)(B)(i)-(ii).

See, e.g., 13 C.F.R. §125.2(c)(4)(i)-(ii). The "substantial bundling" threshold varies by agency. It is $8 million for the Department of Defense; $6 million for the National Aeronautics and Space Administration (NASA), the General Services Administration, and the Department of Energy; and $2.5 million for other agencies. 48 C.F.R. §7.104(d)(2)(i).

Neither the Small Business Act nor its implementing regulations define what it means for a procurement to involve "significant bundling."

15 U.S.C. §644(k)(1)-(16); 13 C.F.R. §125.2(c)(5)(i)-(v). Contracting officers are not required to follow OSDBU recommendations as to whether particular acquisitions should be set aside for small businesses. However, they must document any failure to do so in the contract file. 15 U.S.C. §644(k)(10).

See, e.g., Van Brocklin v. Tennessee, 117 U.S. 151, 154 (1886) (government has the inherent authority to enter into binding contracts in the execution of its duties).

48 C.F.R. §1.602-1 (authority of contracting officers); 48 C.F.R. §1.603-1 (appointment of contracting officers). See supra note 7 for more on "procuring activities." Other statutes, beyond the Small Business Act, also authorize agencies to make noncompetitive awards to businesses, including small businesses, in certain circumstances. See 10 U.S.C. §2304(c)(1)-(7) (procurements of defense agencies) & 41 U.S.C. §3304(1)(a)(1)-(7) (procurements of civilian agencies).

SBA can, however, ensure that agencies do not award contracts under the authority of the Small Business Act to ineligible firms, and agencies need SBA's approval for the "release" of requirements from the 8(a) Program. See supra note 23 and accompanying text.

13 C.F.R. §125.2(b)(3).

13 C.F.R. §125.2(b)(3).

48 C.F.R. §19.505(e). Executive Order 13170 requires the heads of agencies to "carefully review" and "give[] due consideration" to SBA's views. It also authorizes SBA or the procuring agency to "seek assistance" from the Office of Management and Budget (OMB) when there are disagreements as to the existence or extent of bundling. Executive Order 13170, Increasing Opportunities and Access for Disadvantaged Businesses, 65 Federal Register 60827, 60829 (October 12, 2000). However, Executive Order 13170 does not require the agency to comply with OMB's recommendations.

However, legislation introduced in the 113^th Congress would have authorized the Administrator of Small Business to delay the issuance of a solicitation, pending submission of the matter to the Director of the Office of Management and Budget, whenever SBA and the procuring agency fail to agree on the existence or degree of bundling. See Expanding Opportunities for Main Street Act, H.R. 2551, 113th Cong. Whether there is any such delay is currently within the agency's control.

ASPA, P.L. 80-413, 62 Stat. 21 (February 19, 1948) (codified at 10 U.S.C. §2302 et seq.) (governing the procurements of defense agencies); FPASA, P.L. 81-152, 63 Stat. 377 (June 30, 1949) (codified in scattered sections of Titles 40 and 41 of the United States Code) (governing the procurements of civilian agencies).

See supra note 44 and accompanying text.

48 C.F.R. §15.101 (best value); 48 C.F.R. §15.304 (evaluation factors). For more on negotiated procurements, see 48 C.F.R. Part 15.

48 C.F.R. §15.304(c)(1).

48 C.F.R. §15.304(c)(2).

See, e.g., Washington-Harris Group, Comp. Gen. December No. B-401794; B-401794.2, 2009 U.S. Comp. Gen. LEXIS 226 (November 16, 2009) (finding that the limitations on subcontracting do not apply to preference contracts); archived CRS Report R40998, The Inapplicability of Limitations on Subcontracting to "Preference Contracts" for Small Businesses: Washington-Harris Group, by [author name scrubbed]. However, the 112^th Congress enacted legislation which authorizes the Administrator of Small Business to promulgate limitations on subcontracting for contracts that are awarded under authorities other than the Small Business Act. See National Defense Authorization Act for FY2013, P.L. 112-239, §1651,126 Stat. 2079-81 (January 2, 2013). SBA proposed amendments to the regulatory limitations on subcontracting at the end of 2014, but the proposed changes do not appear to address limitations as to contracts awarded under authorities other than the Small Business Act. See Small Bus. Admin., Small Business Contracting and National Defense Authorization Act of 2013 Amendments, 79 Fed. Reg. 77955 (December 29, 2014).

P.L. 109-461, 120 Stat. 3431 (December 22, 2006) (codified, in part, at 38 U.S.C. §§8127-8128).

P.L. 110-389, 122 Stat. 4189 (October 10, 2008).

Under these acts, awards to service-disabled veteran-owned small businesses take priority over those to veteran-owned small businesses, and awards to veteran-owned small businesses take priority over those to other small businesses under other authority. See generally 38 U.S.C. §8127(i)(1)-(4).

38 U.S.C. §8127(a). The latter goal (i.e., that for the percentage of contracts awarded to veteran-owned small businesses) is within the Secretary's discretion. See 38 U.S.C. §8127(a)(2)-(3). In addition, the Secretary is required to "establish a review mechanism to ensure that, in the case of a subcontract of a Department contract that is counted for purposes of meeting a goal established pursuant to this section, the subcontract was actually awarded to a business concern that may be counted for purposes of meeting that goal." 38 U.S.C. §8127(a)(4).

In the case of supplies or services to be used in support of a contingency operation or to facilitate defense against or recovery from nuclear, biological, chemical, or radiological attack, the simplified acquisition threshold increases to $300,000 for contracts to be awarded and performed inside the United States, and $1 million for contracts to be awarded and performed outside the United States. 48 C.F.R. §2.101.

38 U.S.C. §8127(b). Under the 2006 and 2008 acts, VA also has discretion to set aside contracts whose value is below the simplified acquisition threshold for competitions in which only veteran-owned small businesses may compete. Id.

Specifically, the contracting officer must determine that the business is a responsible source with respect to performance of the contract, and that the award can be made at a fair and reasonable price "that offers best value to the United States." 38 U.S.C. §8127(c)(1)-(3).

See Powerhouse Design Arch. & Eng'rs, Ltd., B-403174; B-403175; B-403176; B-403177; B-403633; B-403647; B-403648; B-403649 (October 7, 2010) (finding that procurements of architect/engineer services by the VA are subject to set-asides for small businesses).

Kingdomware Techs., Inc. v. United States, 754 F.3d 923 (Fed. Cir. 2014), aff'g 107 Fed. Cl. 226 (November 27, 2012). GAO had reached the opposite conclusion in a series of 18 bid protest decisions issued in 2011 and 2012. See, e.g., Aldevra, B-405271; B-405524 (October 11, 2011); Kingdomware Techs., B-405727 (December 19, 2011); Crosstown Courier Serv., Inc., B-406262 (March 21, 2012). See also Alternative Contracting Enters., LLC; Pierce First Med., B-406265, B-406266, B-406291, B-406291.2, B-406318.1, B-406318.2, B-406343, B-406356, B-406357, B-406369, B-406371, B-406374, B-406400, B-406404, B-406428 (March 26, 2012) (finding that it was within VA's discretion to promulgate regulations which provided for the purchase of items currently on the AbilityOne list from AbilityOne, as opposed to a set-aside for veteran-owned small businesses).

Petition for Certiorari No. 14-916 (filed January 29, 2015) (copy on file with the authors).

An Act to Authorize Appropriations for Fiscal Year 1991 for Military Activities of the Department of Defense, for Military Construction, and for Defense Activities of the Department of Energy, to Prescribe Personnel Strengths for the Armed Forces and for Other Purposes, P.L. 101-510, §831, 104 Stat. 1607-08 (November 5, 1990) (codified, as amended, at 10 U.S.C. §2302 note). The DOD Mentor-Protégé Pilot Program also contemplates mentors providing different types of assistance to protégés than is provided under SBA's mentor-protégé program. See generally CRS Report R41722, Small Business Mentor-Protégé Programs, by [author name scrubbed].

See, e.g., 51 U.S.C. §30304 (requiring the NASA Administrator to annually establish as a goal that at least 8% of the total value of certain prime contracts and subcontracts be made to small disadvantaged businesses).

See, e.g., 12 U.S.C. §1441a (2010) (authorizing the Resolution Trust Corporation to award certain small businesses "an additional 10 percent of the total technical points and an additional 5 percent of the total cost preference points achievable in the technical and cost rating process" when evaluating proposals); Consolidated Appropriations Act, 2012, P.L. 112-74, §7057(h), 125 Stat. 1245 (December 23, 2011) ("In entering into multiple award indefinite-quantity contracts with funds appropriated by this Act, USAID may provide an exception to the fair opportunity process for placing task orders under such contracts when the order is placed with any category of small or small disadvantaged business."). Other agencies currently have similar authority under 15 U.S.C. §644(r)(2) (permitting agencies to set aside orders placed under multiple-award contracts "notwithstanding the fair opportunity requirements under section 2304c(b) of title 10 and section 4106(c) of title 41"). The cited provisions generally require that all vendors holding a multiple-award contract be given a "fair opportunity to be considered" for orders placed under it.

For example, the Small Business Act requires only that small businesses (1) be independently owned and operated; (2) be not dominant in their field of operations; and (3) meet any standards established by the Administrator of Small Business. 15 U.S.C. §632(a)(1)-(2). See supra note 31 and accompanying text. The act does not require the Administrator to establish such standards, or specify what any standards should be. Rather, the Administrator has established by notice-and-comment rulemaking the well-known standards that define firms' size based, in part, upon their annual receipts or number of employees. See infra note 91 and accompanying text.

See supra notes 9 to 12 and accompanying text.

See generally CRS Report RL32240, The Federal Rulemaking Process: An Overview, coordinated by [author name scrubbed]; CRS Report R41546, A Brief Overview of Rulemaking and Judicial Review, by [author name scrubbed] and [author name scrubbed].

Chevron, USA v. Natural Resources Defense Council, 467 U.S. 837, 842 (1984). See, e.g., Mission Critical Solutions v. United States, 91 Fed. Cl. 386, 410-12 (2010) (finding that SBA regulations that implicitly provided for parity among the set-aside programs were not entitled to deference under Chevron because they were contrary to the Small Business Act, as it then existed).

Chevron, 91 Fed. Cl. at 843. Procurement regulations can generally be challenged in pre- or post-award protests by "interested parties" alleging that agency conduct pursuant to the regulation is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law. See, e.g., 31 U.S.C. §§3551-3553 (authorizing pre- and post-award protests); Superior Helicopter LLC v. United States, 78 Fed. Cl. 181, 186-87 (2007) (application of the arbitrary-and-capricious standard in a bid protest). An interested party includes any "actual or prospective bidder or offeror whose direct economic interest would be affected by the award of the contract or by failure to award the contract." 31 U.S.C. §3551(2)(A).

For an overview of current set-aside programs, see generally Table 1.

P.L. 98-369, §§2701-2753, 98 Stat. 1175-1203 (July 18, 1984) (codified, in part, at 10 U.S.C. §2304(a)(1) (procurements of defense agencies) & 41 U.S.C. §3301(a)(1) (procurements of civilian agencies)).

41 U.S.C. §107.

13 C.F.R. §121.201. For example, businesses in the field of scheduled passenger air transportation are small if they have fewer than 1,500 employees, while those in data processing are small if they have annual receipts of less than $32.5 million. 13 C.F.R. §121.201. SBA regulations also specify how annual receipts and number of employees are to be calculated. See 13 C.F.R. §121.104 (annual receipts); 13 C.F.R. §121.106 (number of employees).

See, e.g., 13 C.F.R. §124.105 (ownership of 8(a) firms); 13 C.F.R. §124.106 (control of 8(a) firms).

See 13 C.F.R. §124.103(b)(1). In the Small Business Act, Congress finds that certain groups, including, but not limited to, "Black Americans, Hispanic Americans, Native Americans, Indian tribes, Asian Pacific Americans, Native Hawaiian Organizations, and other minorities" are socially disadvantaged. 15 U.S.C. §631(f)(1)(C). However, other groups have been recognized as such by SBA (e.g., Indian Americans), and SBA regulations establish procedures whereby other groups may petition for recognition as socially disadvantaged. 13 C.F.R. §124.103(d).

See 13 C.F.R. §124.104(c)(2) ("For initial 8(a) … eligibility, the net worth of an individual claiming disadvantage must be less than $250,000. For continued 8(a) … eligibility after admission to the program, net worth must be less than $750,000."); 13 C.F.R. §127.203(b)(1) ("In order to be considered economically disadvantaged, the woman's personal net worth must be less than $750,000."). Individuals' ownership interests in the small business and equity in their primary personal residences are generally excluded when determining net worth.

See, e.g., 13 C.F.R. §126.103 ("Employee means all individuals employed on a full-time, part-time, or other basis, so long as that individual works a minimum of 40 hours per month. This includes employees obtained from a temporary employee agency, leasing concern, or through a union agreement or co-employed pursuant to a professional employer organization agreement."). See also Mission Critical Solutions v. United States, 96 Fed. Cl. 657 (2011) (finding that at least 35% of a firm's employees must reside in a HUBZone both at the time the firm is certified as a HUBZone firm and at the time the firm is awarded a contract through the HUBZone program).

See 13 C.F.R. §125.10.

The 112^th Congress enacted legislation that restates how the limitations on subcontracting are expressed—in terms of the amount paid instead of the costs of performing—in the hopes of "ensur[ing] that small businesses that get contracts are doing the bulk of the work." P.L. 112-239, §1651, 126 Stat.2079-81; Charles S. Clark, House Republican Seeks to Curb "Deceitful" Subcontracting, Govt. Exec., February 2, 2012, available at http://www.govexec.com/contracting/2012/02/house-republican-seeks-curb-deceitful-subcontracting/41074/. Under this legislation, small businesses may subcontract no more than 50% of the "amount paid to [them] under the contract," in the case of contracts for services (other than construction) or supplies (other than from a regular dealer in such supplies). This legislation also requires SBA to establish similar limitations for general and special trade construction. P.L. 112-239, §1651, 126 Stat.2079-81. In addition, it grants SBA the authority to modify any statutory limitations on subcontracting if it determines that "such change is necessary to reflect conventional industry practices" for small businesses, and to apply similar percentages to other contracts not awarded under the authority of the Small Business Act. Id. As previously noted, the SBA proposed amendments to the regulatory limitations on subcontracting at the end of 2014. See generally 79 Fed. Reg. 77955.

13 C.F.R. §§121.406 &126.601(f). It is important to note that, in its recent decision in Rotech Healthcare Inc. v. United States, the U.S. Court of Federal Claims found that the SBA regulations here are contrary to the plain language of 15 U.S.C. §637(a)(17)(A) because the regulatory version of the nonmanufacturer rule applies only to contracts for supplies or manufacturing, while the statutory version of the rule, in the court's view, applies to any contract that involves the supply of a product. See 118 Fed. Cl. 408 (2014); James Boland, Fed. Claims Court Extends Reach of Nonmanufacturer Rule, Law360, September 25, 2014. The proposed regulations promulgated by the SBA at the end of 2014 include certain changes to the nonmanufacturer rule, but do not appear to directly respond to the Rotech decision.

13 C.F.R. §§121.1001-121.1103 (protests as to size); 13 C.F.R. §§124.1001-124.1014 (protests as to 8(a) status); 13 C.F.R. §§125.24-124.28 (protests as to service-disabled veteran-owned status); 13 C.F.R. §§126.800-126.805 (protests as to HUBZone status); 13 C.F.R. §§127.600-127.605 (protests as to women-owned status).

13 C.F.R. §121.108 (misrepresentation of size); 13 C.F.R. §124.1004 (misrepresentation of eligibility for the 8(a) Program); 13 C.F.R. §125.29 (misrepresentation of service-disabled veteran-owned status); 13 C.F.R. §126.900 (misrepresentation of HUBZone status); 13 C.F.R. §127.700 (misrepresentation of women-owned status).

See, e.g., 13 C.F.R. §121.1001(a)(i)-(iv).

See, e.g., 13 C.F.R. §125.29. For more on debarment and suspension, see generally CRS Report RL34753, Debarment and Suspension of Government Contractors: Legal Overview, by [author name scrubbed].

For more on the FAR, see generally CRS Report R42826, The Federal Acquisition Regulation (FAR): Answers to Frequently Asked Questions, by [author name scrubbed] et al.

See Dep't of Defense, Gen. Servs. Admin. & Nat'l Aeronautics & Space Admin., Establishing the Federal Acquisition Regulation, 48 Federal Register 42102 (September 19, 1983) (codified, as amended, in part, at 48 C.F.R. §1.101) ("The Federal Acquisition Regulations System is established for the codification and publication of uniform policies and procedures for acquisition by all executive agencies. The Federal Acquisition Regulations System consists of the [FAR], which is the primary document, and agency acquisition regulations that implement or supplement the FAR.").

But see 48 C.F.R. Subpart 1.4 (authorizing contracting officers to deviate from the FAR on a contract-by-contract or class basis).

48 C.F.R. §19.102(b)(1)-(3).

48 C.F.R. §19.202-2.

48 C.F.R. §19.202-6 (determining fair market price for all except 8(a) set-asides); 48 C.F.R. §19.807 (estimating fair market price for 8(a) set-asides).

48 C.F.R. §19.502-6(a)-(h). For example, under the FAR, having placed a large percentage of previous contracts for the requirements with small businesses, or having a period of less than 30 days available for receipt of offers, are insufficient causes for not setting aside a procurement for small businesses.

48 C.F.R. §19.705-7. The SBA regulations note only that liquidated damages may be assessed in such cases. See 13 C.F.R. §125.3(f)(5).

48 C.F.R. §52.219-10(b) ("If the Contractor exceeds its subcontracting goals for small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, and women-owned small business concerns in performing this contract, it will receive _ [Contracting Officer to insert the appropriate number between 0 and 10] percent of the dollars in excess of each goal in the plan, unless the Contracting Officer determines that the excess was not due to the Contractor's efforts (e.g., a subcontractor cost overrun caused the actual subcontract amount to exceed that estimated in the subcontracting plan, or the award of subcontracts that had been planned but had not been disclosed in the subcontracting plan during contract negotiations)." Formerly, the FAR also included provisions addressing the use of performance in small business subcontracting as an evaluation factor in certain procurements, as well as made somewhat different provisions for monetary incentives. See 48 C.F.R. §§19.1201-19.1204 (2013). However, these provisions were deleted as a result of amendments made in 2014. See generally Dep't of Defense, Gen. Servs. Admin., & Nat'l Aeronautics & Space Admin., Federal Acquisition Regulation; Federal Contracting Programs for Minority-Owned and Other Small Businesses: Final Rule, 79 Fed. Reg. 61746, 61746 (Oct. 14, 2014). It is important to note, though, that in making the 2014 amendments, the FAR Council expressly stated that "nothing ... precludes an agency from using evaluation factors and subfactors for subcontracting." The FAR Council also cited SBA regulations authorizing such evaluation factors. See id. (citing 13 C.F.R. §125.3(g)).

Under the FAR, when evaluating proposals, agencies may consider (1) the extent to which the offers specifically identify potential subcontracting opportunities for SDBs; (2) the extent of offerors' commitment to use SDBs; (3) the complexity and variety of work to be performed by small SDBs; (4) the realism of offerors' proposals; (5) the offerors' past performance in complying with subcontracting plan goals for SDBs and monetary targets for SDB participation; and (6) the extent of SDB participation in terms of the value of the total acquisition. See 48 C.F.R. §15.304.

Funds generally are not appropriated specifically to pay such monetary incentives, unlike with "subcontracting bonuses" under the Indian Financing Act. See, e.g., Consolidated and Further Continuing Appropriations Act, P.L. 113-235, §8020,—Stat.—(December 16, 2014) (appropriating $15 million to the Department of Defense for use in making "incentive payments" under Section 504 of the Indian Financing Act of 1974 to contractors or subcontractors that use certain Indian-owned small businesses as subcontractors or suppliers).

For example, in their provisions regarding contract bundling, the FAR and SBA regulations both require agencies to notify any small business(es) currently performing the requirements of the agency's intention to bundle the requirements at least 30 days before releasing the solicitation. See 13 C.F.R. §125.2(d)(5); 48 C.F.R. §10.001(c)(2)(i).

P.L. 108-375, §807, 118 Stat. 2010-11 (October 28, 2004) (codified at 41 U.S.C. §1908). The act further provides that, subject to certain exceptions, "acquisition-related dollar threshold" includes any "dollar threshold that is specified in law as a factor in defining the scope of the applicability of a policy, procedure, requirement, or restriction provided in that law to the procurement of property or services by an executive agency."

See, e.g., 13 C.F.R. §126.607(b)(2) (2011) (giving the simplified acquisition threshold as $100,000, despite changes made to the FAR in 2010). The amounts given in various provisions of the Small Business Act also do not reflect these inflation adjustments.

See, e.g., 13 C.F.R. §125.2(d)(5)(i)(A)-(B) (2011) (distinguishing between contracts valued at or below $86 million and those valued over $86 million). After adjustments for inflation, the FAR gives this amount as $94 million. 48 C.F.R. §7.107(b)-(c).

See, e.g., Marwais Steel Co. v. Dep't of the Air Force, 871 F. Supp. 1448 (D.D.C. 1994) (addressing an alleged discrepancy between FAR §19.303(i) and 13 C.F.R. §121.1603(a)(2), as those provisions then existed).

See 38 C.F.R. §§74.1-74.29; 48 C.F.R. §§819.7001-819.7009.

48 C.F.R. Appendix I to Chapter 2, I-107. Mentor-protégé programs typically seek to pair new businesses with more experienced businesses in mutually beneficial relationships. Protégés may receive financial, technical, and/or management assistance from mentors in obtaining and performing federal contracts or subcontracts, or serving as suppliers under such contracts or subcontracts. Mentors may receive credit toward subcontracting goals, reimbursement of certain expenses, or other incentives. For more on the DOD and other mentor-protégé programs, see generally CRS Report R41722, Small Business Mentor-Protégé Programs, by [author name scrubbed].

41 U.S.C. §1303(a)(2)(B) (emphasis added).

See, e.g., 48 C.F.R. §3052.219-71(b)(1) (mentor-protégé program of the Department of Homeland Security).

48 C.F.R. §§3052.219-71 to 3052.219-72.

Advance payments are payments made to a contractor before any costs have been incurred on a contract, while progress payments are payments made during the performance of work, but before completion of the contract, on the basis of either a percentage of completion of the work or the incurrence of costs. Advance payments are generally only authorized when (1) the contractor gives adequate security; (2) the payments do not exceed the contract price; and (3) the agency head or a designee determines that advance payment is in the public interest or facilitates the national defense. See, e.g., 48 C.F.R. §32.402(b). Progress payments made on the basis of percentage of completion under construction or architect-engineer contracts are considered invoice payments and are permissible. 48 C.F.R. §32.903. Progress payments made on the basis of performance milestones are considered financing payments and are likewise permissible. 48 C.F.R. Subpart 32.5. Any other progress payments based on costs are considered "unusual progress payments" and may be used only when authorized in "exceptional cases." See 48 C.F.R. §§32.501-32.501-2.

13 C.F.R. §124.513(b)(3); 13 C.F.R. §124.520(d)(1). For the joint venture to be eligible for awards set aside for small businesses, the protégé must qualify as small for the size standard corresponding to the NAICS code assigned to the procurement, and must not have "reached the dollar limit set forth in § 124.519." 13 C.F.R. §124.520(d)(1). Section 124.519 generally prohibits 8(a) firms from receiving additional sole-source awards once they have received a combined total of competitive and sole-source awards in excess of $100 million, in the case of firms whose size is based on their number of employees, or in excess of an amount equivalent to the lesser of (1) $100 million or (2) five times the size standard for the industry, in the case of firms whose size is based on their revenues.

See, e.g., Small Bus. Admin., Small Business Size Regulations; 8(a) Business Development/Small Disadvantaged Business Status Determinations, 74 Federal Register 55694, 55694 (October 28, 2009) ("[A]n exception to affiliation for protégés in other Federal mentor/protégé programs will be recognized by SBA only where specifically authorized by statute (e.g., the Department of Defense mentor/protégé program) or where SBA has authorized an exception to affiliation for a mentor/protégé program of another Federal agency under the procedures set forth in §121.903.").

545 F.3d 1023 (Fed. Cir. 2008). For more on the Rothe decision and its potential implications for small business contracting programs, see generally archived CRS Report R40440, Rothe Development Corporation v. Department of Defense: The Constitutionality of Federal Contracting Programs for Minority-Owned and Other Small Businesses, by [author name scrubbed] and [author name scrubbed].

For purposes of DOD's program, a price evaluation adjustment worked as follows: when comparing an offer from a small disadvantaged business with one submitted by another business, the agency could subtract up to 10% of the price from the offer submitted by the small disadvantaged business in determining which offer has the lowest price or represents the best value.

See Strom Thurmond National Defense Authorization Act for FY1999, P.L. 105-261, §801, 112 Stat. 2080-81 (October 17, 1998) (prohibiting DOD from using its authority to grant price evaluation adjustments in any fiscal year directly following a fiscal year in which DOD awarded at least 5% of its contract dollars to small disadvantaged businesses).

See Small Bus. Admin., The Women-Owned Small Business Federal Contract Assistance Procedures: Eligible Industries, 74 Federal Register 1153 (January 12, 2009). This proposed rule has since been withdrawn, and the Obama Administration issued final regulations for the set-aside program for women-owned small businesses. Small Bus. Admin., Women-Owned Small Business Federal Contract Program: Final Rule, 75 Federal Register 62258 (October 7, 2010).

National Defense Authorization Act for FY2010, P.L. 111-84, §252, 123 Stat. 2242-43 (October 28, 2009).

Rothe Dev. Corp. v. Dep't of Defense, 2009 U.S. Dist. LEXIS 22029, at *11-14 (W.D. Tex. 2009).

79 Fed. Reg. 61746.

See OHA Decisions, available at http://archive.sba.gov/aboutsba/sbaprograms/oha/OHADecisions/OHA_DECISIONS.html.

Valenzuela Eng'g, Inc. & Curry Contracting Co., Inc., SBA 4151 (1996). This test considers: (1) which party will manage the contract; (2) which party possesses the background and expertise required to perform the contract; (3) which party actively sought the contract; (4) what degree of collaboration was involved in the bid; (5) whether each party is to perform discrete tasks, or whether there is commingling of personnel or materials; (6) the relative amount of work performed by each party; and (7) which party will perform the more complex and costly functions.

13 C.F.R. §121.103(a)(6). Certain affiliations may, however, be excluded when determining size. See, e.g., 13 C.F.R. §124.109(c)(2)(iii) ("In determining the size of a small business concern owned by a socially and economically disadvantaged Indian tribe (or a wholly owned business entity of such tribe) for either 8(a) … program entry or contract award, the firm's size shall be determined independently without regard to its affiliation with the tribe, any entity of the tribal government, or any other business enterprise owned by the tribe, unless the Administrator determines that one or more such tribally-owned business concerns have obtained, or are likely to obtain, a substantial unfair competitive advantage within an industry category.").

See 31 U.S.C. §3556 (granting GAO, the procuring agencies, and the U.S. Court of Federal Claims each non-exclusive authority to hear bid protests). Previously, the federal district courts also had jurisdiction over bid protests. However, this jurisdiction expired on January 1, 2001. See Administrative Dispute Resolution Act of 1996, P.L. 104-320, §12(d), 110 Stat. 3875 (October 19, 1996).

4 C.F.R. §21.5(b).

Appeals from the Court of Federal Claims are heard by the U.S. Court of Appeals for the Federal Circuit.

31 U.S.C. §3556. For more on GAO bid protests, in particular, see generally CRS Report R40228, GAO Bid Protests: An Overview of Time Frames and Procedures, by [author name scrubbed] and [author name scrubbed].

See supra note 8 for a discussion of these decisions and subsequent amendments to the Small Business Act.

Aldevra, B-405271; B-405524 (October 11, 2011).

See, e.g., Kathleen Miller, Veteran-Owned Suppliers May Gain $3 Billion from Griddle Fight, Bloomberg Gov't, November 14, 2011.

See Kingdomware Techs., Inc. v. United States, 754 F.3d 923 (Fed. Cir. 2014), aff'g 107 Fed. Cl. 226 (November 27, 2012). A petition for Supreme Court review of this decision is pending. See supra note 79.

Dep't of Veterans Affairs, VA Acquisition Regulation: Supporting Veteran-Owned and Service-Disabled Veteran-Owned Small Businesses, 74 Federal Register 64619 (December 28, 2009)..

But compare Infiniti Solutions LLC v. United States, 92 Fed. Cl. 347 (2010) (finding that certain actions by the procuring agency did not constitute permissible "market research" under 13 C.F.R. §124.503(e)) with id. at 354 (noting that GAO had dismissed this protest because it found that the agency's actions constituted permissible "informal assessments" under 13 C.F.R. §124.503(e)(2)).

Ameron, Inc. v. U.S. Army Corps of Eng'rs, 809 F.2d 979, 986 (3d Cir. 1986).

See generally CRS Report R40228, GAO Bid Protests: An Overview of Time Frames and Procedures, by [author name scrubbed] and [author name scrubbed] (noting that in only 7 cases between FY2001 and FY2011 did an agency decline to follow GAO's recommendations). Agencies are required to notify GAO whenever they decline to follow its recommendations, and GAO, in turn, is required to notify several committees of Congress. See 31 U.S.C. §3554(b)(3).

See supra note 137.

See, e.g., GC Micro Corp. v. Def. Logistics Agency, 33 F.3d 1109 (9^th Cir. 1994) (finding that such forms were generally not confidential or exempt from disclosure).

See, e.g., Am. Small Bus. League v. Johnson, 2010 U.S. Dist. LEXIS 97846 (N.D. Cal., September 3, 2010) (alleging that the removal of certain fields pertaining to small business contracting from the Federal Procurement Data System (FPDS) was in violation of the Office of Federal Procurement Policy Act).

See, e.g., United States ex rel. King v. F.E. Moran, Inc., 2002 U.S. Dist. LEXIS 16277 (N.D. Ill., August 29, 2002).

K-Mar Indus., Inc. v. U.S. Dep't of Defense, 752 F. Supp. 2d 1207 (W.D. Okla. 2010). For an overview of this and other cases challenging agency insourcing determinations, see generally CRS Report R41810, Insourcing Functions Performed by Federal Contractors: Legal Issues, by [author name scrubbed] and [author name scrubbed].