United States: Highlights From The Currently Stalled Small Business Administration Reauthorization And Improvement Act Of 2019

Last Updated: August 12 2019
Article by Damien C. Specht and Ali Young

Last month, Senator Marco Rubio, Chairman of the Senate Committee on Small Business and Entrepreneurship, released the Chairman's mark to the Small Business Administration (SBA) Reauthorization and Improvement Act of 2019 (the "SBA Reauthorization Act"). This legislation aims to modernize and streamline SBA programs, and would be the first comprehensive reauthorization of the Small Business Act in nearly twenty years. Although the legislation appears stalled, it is likely that many of these initiatives will find their way into future policy initiatives. Here are a few potential changes to track in the SBA Reauthorization Act:

  • Creation of a Centralized Certification Office. With a few exceptions, small business programs are based on self-certification by each firm. This legislation would create a centralized certification office for firms wishing to participate in the SBA's Socially and Economically Disadvantaged Business Development Program (8(a)), Women-Owned Small Business Program (WOSB), Service-Disabled Veteran-Owned Small Business Program (SDVOSB), and Historically Underutilized Business Zone Program (HUBZone). This would increase certainty for Government officials relying on size representations and reduce the number of speculative size and status protests. However, it may also create logistical and funding complications for the SBA due to the sheer volume of applications.
  • Increased Sole Source Authority. To increase the use of sole source awards for small businesses, the legislation would increase the contract-value limit on sole-source awards for the HUBZone, WOSB, and SDVOSB programs – from $6.5 and $7 million to $10 million for manufacturing contracts, and $4 million to $8 million for all other contracts.
  • Increased Venture Capital Investment in WOSBs. The legislation would allow women-owned and minority-owned firms to accept venture capital and equity investments that would exceed 50 percent ownership of the firm, so long as those venture capital and equity investment firms are themselves women-owned or minority-owned. This would allow WOSB and 8(a) entities to accept needed investments and still maintain their program status.
  • Joint Venture Control and Workshare Clarifications. The legislation would direct the SBA to issue clarifying regulations relating to control and performance of work requirements for joint ventures under the mentor-protégé program. Although the current regulations clearly state that the small business must control the joint venture and perform a majority of the work, it is not clear how the SBA actually determines whether the small business has actually met these requirements. As more and more entities are investing time and resources into applying for the program and forming joint ventures thereunder, additional clarity from the SBA would be a welcome change.
  • Permanent Reauthorization of the Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) Programs. The SBIR and STTR programs are currently set to expire in Fiscal Year 2022 if they are not reauthorized. Reauthorization of these programs has been controversial over the years, and small businesses performing research and development would appreciate the consistency of a permanent program.
  • Increased SBIR and STTR Funding. Starting in 2024, the SBA Reauthorization Act would increase SBIR funding from 3.2 percent to 6.4 percent of extramural research and development funding and STTR funding from 0.45 percent to 1 percent.
  • Increased Venture Capital Access to SBIR/STTR Funds. Continuing the trend of increased venture capital access to these programs, all federal agencies would be allowed to spend up to 25 percent of their SBIR/STTR allocated funds towards entities that are owned in majority by multiple venture capital operating companies, hedge funds, or private equity firms, which is an increase from the current 15 percent cap.
  • SBIR/STTR Phase III Education. Despite the success of these programs, there have been continuing challenges in transitioning firms to Phase III. The SBA Reauthorization Act would encourage federal agencies and prime contractors to educate contracting officers on executing Phase III sole source award contracts for SBIR and STTR programs.

Whether these proposed initiatives pass in a single bill or just provide impetus for future reforms, the SBA Reauthorization Act is worth tracking closely. We will be monitoring the development of these efforts going forward.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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