Small Business Contracting Law

Small Business Contracting Law

February 23, 2015
Small Business Contracting Law businesses (e.g., 38 U.S.C. §8127), or impose goals that are
There are multiple provisions of federal law intended to
higher than the government-wide goals under the Small
promote Congress’s “declared policy” that a “fair
Business Act (e.g., 51 U.S.C. §30304).
proportion” of government contracts and subcontracts be
awarded to small businesses. See 15 U.S.C. §631(a). Some
Table 1 below illustrates executive branch agencies’
of these provisions are of government-wide applicability,
reported performance as to these goals in FY2013 (the most
and are generally codified in the Small Business Act. Other
recent fiscal year for which data is available) although it is
provisions pertain only to specific agencies, and are
important to note that questions have been raised regarding
generally not part of the Small Business Act. Rather, they
the accuracy of the numbers reported by the agencies.
are part of other statutes, such as the provisions of the
Armed Services Procurement Act codified in Title 10 of the
Table 1. Agency Performance in Contracting with
United States Code (e.g., 10 U.S.C. §2302 note); or they are
Small Businesses: FY2013
uncodified provisions of appropriations measures (e.g., 125
Stat. 1245).
Type of Small Business
Percentage & Amount
Small businesses generally
23.4% ($83 billion)
This “In Focus” briefly notes key provisions of small
business contracting law, and provides citations to CRS
Small disadvantaged
8.6% ($30.6 billion)
reports discussing these provisions in more detail.
Women-owned
4.3% ($15.4 billion)

Service-disabled veteran-owned
3.4% ($12 billion)
What Is a Small Business?
HUBZone
1.8% ($6 billion)
For purposes of federal procurement law, a “smal business”
Source: Federal Procurement Data System, Small Business Goaling
is one that is “independently owned and operated;” is “not
Report: FY2013, available at https://www.fpds.gov.
dominant in its field of operation;” and meets any size
standards established by the Administrator of Small Business.
See CRS Report R40987, “Disadvantaged” Small
The Administrator has established standards which specify
Businesses: Definitions and Designations for Purposes of
firm size by North American Industrial Classification System
Federal and Federally Funded Contracting Programs, by
(NAICS) code and provide, for example, that recreational
Kate M. Manuel.
vehicle dealers are smal if their annual receipts (averaged
over three years) are less than $32.5 million, while line-haul
Limiting Competition to Promote
railroads are small if they have fewer than 1,500 employees.
Contracting with Small Businesses
15 U.S.C. §632(a)(1)-(2); 13 C.F.R. §121.201.
See CRS Report R40860, Small Business Size Standards: A
Various provisions of the Small Business Act authorize or,
Historical Analysis of Contemporary Issues, by Robert Jay Dilger.
in some case, require agencies to provide for other than
“full and open competition through the use of competitive
procedures” when dealing with small businesses. Among
Goals for Contracting and
other things, under the act or its implementing regulations,
Subcontracting with Small Businesses
• smaller contracts—whose value exceeds $3,000, but is
Section 15(g) of the Small Business Act establishes goals
less than $150,000—are generally “reserved
for the percentage of contract and/or subcontract dollars
exclusively” for small businesses;
awarded to small businesses government-wide and by
• agencies must generally “set aside” larger contracts—
individual agencies. The government-wide goal is that at
valued at or above $150,000—for competitions in which
least 23% of federal contract dollars go to small businesses,
small businesses (of any type) can compete provided
and that at least 5% of contract and subcontract dollars go
offers are reasonably expected from at least two small
to women-owned small businesses; 5% to “small
businesses, and may similarly “set aside” such larger
disadvantaged businesses”; 3% to Historically
contracts for competitions in which particular types of
Underutilized Business Zone (HUBZone) small businesses;
small businesses can compete (e.g., women-owned);
and 3% to service-disabled veteran-owned small
businesses. Agency goals are to be established after
• agencies may make sole-source awards to particular
“consultation” with the SBA, and often parallel the
types of small businesses when the conditions for a
government-wide goals.
small business “set-aside” are not satisfied; and
• agencies must grant HUBZone small businesses a price
Other provisions of law sometimes establish additional
evaluation preference in unrestricted competitions.
goals as to contracting and subcontracting with small
www.crs.gov | 7-5700

Small Business Contracting Law
Other statutes also authorize set-asides, sole-source awards,
See CRS Report R41133, Contract “Bundling” Under the
or other departures from “full and open competition” to
Small Business Act: A Legal Overview, by Kate M. Manuel.
promote contracting with small businesses by particular
agencies (e.g., 38 U.S.C. §8127).
Payment Protections for Small Business
Contractors and Subcontractors
See CRS Report R42981, Set-Asides for Small Businesses:
Legal Requirements and Issues, by Kate M. Manuel and
The Prompt Payment Act of 1982 generally requires federal
Erika K. Lunder; CRS Report R40744, The “8(a)
agencies to pay interest to prime contractors on any invoice
Program” for Small Businesses Owned and Controlled by
payments the agency fails to make by the date(s) specified
the Socially and Economically Disadvantaged: Legal
in the contract, or within 30 days of receipt of a “proper
Requirements and Issues, by Kate M. Manuel.
invoice,” if no date is specified. Amendments made to the
act in 1988 impose similar requirements upon agency prime
Requiring Prime Contractors to
contractors in paying subcontractors on construction
Subcontract
contracts. Also, legislation enacted in 2010 requires that
subcontracting plans incorporate terms obligating the
Section 8(d) of the Small Business Act requires agencies to
contractor to notify the agency in writing if a subcontractor
incorporate terms in their prime contracts pertaining to
is paid a reduced price, or if payment is more than 90 days
subcontracting with small businesses. Specifically, agencies
past due on a contract for which the federal agency has paid
must incorporate
the prime contractor (15 U.S.C. §637(d)(13)).
• in contracts valued in excess of $150,000, terms
indicating that federal policy calls for small businesses
The Obama Administration has also issued guidance that
calls for agencies to pay small business contractors within
to have the “maximum practicable opportunity” to
15 days of receipt of a “proper invoice,” and to “accelerate”
participate as subcontractors and suppliers; and
payment to other contractors so that they can pay their
• in contracts valued in excess of $650,000 ($1.5 million
small business subcontractors more quickly.
for construction contracts), a “subcontracting plan” that
includes “separate percentage goals” for the amount of
See CRS Report R41230, Legal Protections for
work to be subcontracted to small businesses.
Subcontractors on Federal Prime Contracts, by Kate M.
Manuel.
The subcontracting plans must also include terms obligating
the contractor to “make a good faith effort” to work with
Other Provisions
the subcontractors that they “used” in preparing their bids
or proposals. 15 U.S.C. §637(d)(6)(H)(i)-(ii).
Other provisions, not specifically addressed here, also seek
to promote contracting and subcontracting with small
Subcontracting plans constitute a material part of the
businesses in various ways. Among other things, these
contract, and failure to make a “good faith effort” to
provisions authorize mentor-protégé programs for small
comply could subject the contractor to liquidated damages
business contractors and permit the SBA to guarantee the
of an “amount equal to the ... amount by which the
bonds that small businesses post to comply with general
contractor failed to achieve each subcontracting goal.” 15
requirements that federal contractors post certain bonds.
U.S.C. §637(d)(9); 48 C.F.R. §19.705-7(b).
See CRS Report R42391, Legal Authorities Governing
See CRS Report R41230, Legal Protections for
Federal Contracting and Subcontracting with Small
Subcontractors on Federal Prime Contracts, by Kate M.
Businesses , by Kate M. Manuel and Erika K. Lunder; CRS
Manuel.
Report R43573, Federal Contracting and Subcontracting
with Small Businesses: Legislation in the 113th Congress,
Minimizing Bundling and Consolidation
by Kate M. Manuel; CRS Report R41722, Small Business
Mentor-Protégé Programs, by Robert Jay Dilger; and CRS
Since 1997, Congress has sought to limit agencies’ ability
Report R42037, SBA Surety Bond Guarantee Program, by
to structure their procurements in such a way that small
Robert Jay Dilger.
businesses are unable to perform the contract by defining
and regulating “bundling” and, more recently,
Kate M. Manuel, kmanuel@crs.loc.gov, 7-4477
“consolidation.” Although there are subtle distinctions

between them, both terms attempt to capture agencies’
grouping of “requirements” (i.e., needed supplies and
IF10138
services) into contracts that small businesses are likely to be
unable to perform. For example, under Section 44 of the
Small Business Act, agencies are generally prohibited from
carrying out an acquisition strategy that involves a
consolidation of “contract requirements” (i.e., the supplies
and services being procured) valued in excess of $2 million
unless senior agency acquisition officials determine in
writing that consolidation is “necessary and justified.”
www.crs.gov | 7-5700