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GAO Weighs In on Applicability of Small Business Runway Extension Act

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The Government Accountability Office (GAO) recently denied two consolidated bid protests alleging that a solicitation issued by the General Services Administration (GSA) was inconsistent with the Small Business Runway Extension Act of 2018 in that the solicitation included a three-year — rather than a five-year — lookback period for the purpose of determining an offeror’s small-business size status. As discussed below, the GAO’s decision in these two protests is a particularly noteworthy development regarding the much-debated applicability of the Act’s five-year lookback period.

Background on the Small Business Runway Extension Act

  • On December 17, 2018, President Trump signed into law a bill — known as the Small Business Runway Extension Act of 2018 (H.R. 6330) — that amended the Small Business Act to require that the size of a federal contractor be measured by an average of five years, rather than three years, of revenue for the purpose of determining small business program eligibility. As several commentators noted at the time, the bill did not have a specific effective date, and thus it should be presumed to be effective immediately under long-standing principles of statutory interpretation.
  • On December 21, 2018, however, the Small Business Administration (SBA) issued an Informational Notice stating that, in the SBA’s view, “[t]he change made by the Runway Extension Act is not presently effective and is therefore not applicable to present contracts, offers, or bids until implemented through the standard rulemaking process,” and that, “[u]ntil SBA changes its regulations, businesses still must report their receipts based on a three-year average.”
  • On June 24, 2019, the SBA issued a proposed rule “to change its regulations on the calculation of annual average receipts for all recipients-based SBA size standards and other agencies’ proposed size standards for service-industry firms from a 3-year averaging period to a 5-year averaging period.”

The Bid Protests

  • On June 6, 2019, the GSA issued an amendment to the solicitation at issue in the subject bid protests stating that the GSA would follow the SBA’s position, set forth in the December 21, 2018, Informational Notice, that the Small Business Runway Extension Act was inapplicable until the SBA promulgated a final rule and that, accordingly, a three-year — rather than five-year — lookback period applied to the procurement.
  • TechAnax, LLC, a prospective offeror, filed a protest with the GAO on June 13, 2019, and Rigil Corporation, another prospective offeror, filed a protest with the GAO on June 26, 2019. Both protests challenged the terms of the solicitation pertaining to the GSA’s decision to apply a three-year — rather than a five-year — lookback period and argued that the Small Business Runway Extension Act “took effect immediately after enactment, thereby requiring SBA to immediately apply a 5-year average for the calculation of a firm’s revenue in determining its small business size status.”
  • The GAO consolidated the two protests and then solicited comments from the SBA on the protest arguments. The SBA, in turn, referred the GAO to its June 24, 2019, proposed rule, which addressed the SBA’s interpretation of the Small Business Runway Extension Act “as requiring rulemaking, by either SBA or an agency promulgating its own size standards, to implement the revision of the 3-year average to a 5-year average, and the prospective effect of that revision.”
  • The GAO noted in its decision on the consolidated protests that the GAO “grant[s] deference to SBA’s interpretation of the Small Business Act, particularly with regard to its role in the establishment, amendment and interpretation of small business size standards.” Accordingly, the GAO found “no basis to conclude that the SBA’s interpretation of the Small Business Act or its own regulations are unreasonable in such a manner that would require procuring agencies such as GSA to issue solicitations that implement a 5-year average for calculating a firm’s annual revenue in the absence of rulemaking.” The GAO therefore “conclude[d] that nothing in the Runway Extension Act requires GSA to incorporate terms into the [solicitation] stating that offerors’ small business status self-certifications may be based on a 5-year average for revenue.”

The Takeaways

  • Given the considerable debate and confusion regarding the applicability of the Small Business Runway Extension Act’s five-year lookback period, it was only a matter of time before the issue was the subject of a bid protest decision.
  • The GAO’s decision in these two protests has effectively ended the debate about whether or not the Small Business Runway Extension Act immediately changed the small-business size-standard lookback period from three years to five years. That being said, it is still possible that a similar bid protest will be filed at and ruled on by the U.S. Court of Federal Claims — which is not bound by the GAO’s decision and, thus, could reach a different conclusion on the present effect of the five-year lookback period.
  • The SBA presumably will update its regulations in the fairly near future to include the five-year lookback period set forth in the Small Business Runway Extension Act (indeed, the deadline for comments on the SBA’s proposed rule is August 23, 2019). Accordingly, any lingering confusion about the applicability of the five-year lookback period hopefully will be ameliorated fairly soon.

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