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Last week, the White House announced that the Office of Management and Budget ("OMB") issued guidance to help small businesses in the federal contracting marketplace. With the guidance, as the announcement states, the government will be able to support a broader and more diverse market, drive cost savings, and, ultimately, improve the federal supply chain. The announcement also states that the guidance will advance the President's goal of increasing the small business contracting goal for socially and economically disadvantaged individuals ("SDBs") to 15% by FY2025.

Briefly, OMB's guidance, Increasing Small Business Participation on Multiple-Award Contracts, seeks to increase opportunities for small businesses by focusing on three areas: (1) multiple award contracts, (2) orders and the "rule of two," and (3) best-in-class contracting. OMB's guidance – and upcoming regulatory amendments – is welcome news because, in a market where agencies are creating larger and more complex procurements with multiple or combined requirements, more of those procurements may end up being set-aside for small business (as opposed to being competed on an unrestricted basis).

Quick Take on OMB's Guidance

In implementing the below guidance, OMB stressed the need for "earlier involvement by SBA’s Procurement Center Representatives (PCR) and the agency small business specialist" during the acquisition planning process. As mentioned above, proposed regulatory changes are also on the horizon as the "SBA and the agency members of the FAR Council" have already started developing proposed amendments to address OMB's guidance.

Multiple Award Contracts

• Engage agency small business specialists earlier in acquisition planning for all multiple-award contract strategies. The guidance states that procuring agencies should carefully consider both total or partial small business set-asides when planning new multiple-award contracts ("MACs"). In this respect, the guidance also states that "agency requirements and acquisition officials should invite the agency small business specialist and the SBA PCR to engage with the agency early in the acquisition planning process during the development of the acquisition plan."
• Consider on-ramps when developing the acquisition strategy. The guidance states that agencies should use more "on-ramp" procedures, which is a procuring and solicitation procedure that contemplates awarding contracts to additional small (and large) businesses sometime after the initial batch of MAC awards. If no on-ramps are contemplated, the guidance further states that acquisition plans also should explain why the agency did not include an on-ramp procedure in MACs where small businesses will enter the marketplace after contract award and there is a "sufficient volume of activity" anticipated under the MAC, which would provide meaningful opportunities for newly on-ramped companies.
• Promote supplier resilience. The guidance states that 13 C.F.R. § 121.404(g) recognizes that a small business that outgrows its size status during performance of a set-aside MAC "should be allowed to remain on the contract as a small business until recertification." Accordingly, the guidance discourages agencies from using “off-ramp” procedures to remove a business from a set-aside MAC due to a change to the company's size status (except for size changes due to M&A).

Orders

• Apply the rule of two to contract orders, with limited exception. The guidance states that except for orders under the exception for fair opportunity pursuant to FAR 16.505(b)(2), procuring agencies should "set aside orders over the micro-purchase threshold (MPT) for small business contract holders when the contracting officer determines there is a reasonable expectation of obtaining offers from two or more small business contract holders under the multiple-award contract that is competitive in terms of market prices, quality, and delivery." Notably, the guidance also states that if the procuring agency does not use an order set-aside for small business, including MACs that have no or only one small business awardee, the "contracting officer should document the basis for the determination in accordance with agency procedures and provide an explanation in that documentation."
• Maximize orders to small businesses under the simplified acquisition threshold (SAT) to the maximum extent practicable. The guidance states that "contracting teams should work with their small business directors to identify and proactively shift the buying strategies for recompetes of orders under the SAT to ensure that small businesses are afforded exclusive set-aside opportunities for these orders where market research shows that small firms are capable."

Best-in-Class Contracts

• The guidance states that, for best-in-class ("BIC") vehicles, "[s]mall firms have proven to be capable and should be considered as new BIC contracts are developed." The guidance notes that BICs have been used to effectively support a diverse and resilient federal market. For example, the guidance discusses the success of the GSA 8(a) STARS III GWAC, which has over 1,100 SDBs with awards over $1.6 billion, GSA VETS II GWAC, which $693 million in contract spend, and NIH CIO-SP3, with another $542 million to SDBs and $3 billion to small businesses, among others.
• While the OMB notes that there are challenges with respect to supporting a diverse marketplace of small businesses, the guidance states that agencies could use federal contracting tools, for example, to determine where its "contracting base for a particular market segment, such as for IT software development, reflects a lower percentage of work with one or more categories of socioeconomic small businesses."
• The guidance also states that agencies should "actively seek new entrants," as called for OMB Memorandum M-21-11, "by first determining whether use of a BIC could result in the addition of entities that are new to the agency’s contracting base." Notably, if a BIC is not expected to do this, the procuring "agency should consider whether an open market set-aside would be a more effective way to meet its mission while expanding the supplier base."

Takeaway

The OMB guidance is welcome news for small businesses, as it further demonstrates the President's commitment to broadening and diversifying the federal marketplace. With a focus on MACs and on- and off-ramp procedures, orders, and the "rule of two," and BICs, small businesses should see OMB's guidance as a step in the right direction. Contractors should be on the lookout for (and be prepared to comment on) proposed rules in the Federal Register once the SBA and FAR Council have completed the necessary steps to promulgate regulatory amendments.

In the meantime, small businesses should begin socializing OMB's guidance with procuring agencies, as the guidance states explicitly that "OFPP encourages early agency adoption of these management steps" even before the final rules are promulgated. Indeed, as FAR 1.102 provides, where a contracting procedure is in the government's best interest but is neither addressed in the FAR nor prohibited by law, procuring officials may assume that the procedure is a permissible exercise of authority.