The Act extends from three to five years the “look-back” period for determining whether a government contractor qualifies as a small business based on its average annual revenue. A recent GAO decision held that the Act will not take effect until the SBA issues its final rule.
On August 16, 2019, the Government Accountability Office (GAO) denied two pre-award protests brought by TechAnax LLC and Rigil Corp, which argued that a solicitation issued by the General Services Administration (GSA) was defective because it directed offerors to calculate their revenue-based determinations of size status using the average of their past three years of revenue. The solicitation, the protesters argued, contravened the Small Business Runway Extension Act, signed into law this past December, which attempted to change the revenue-based size status look-back period from three years to five. This extended look-back period will permit contractors that no longer qualify for small business opportunities based on their prior three years of average revenue—or are on the cusp of losing their small business status—to reassess their eligibility for such opportunities based on their prior five years of average revenue.
Importantly, the Act itself is silent as to any effective date for its implementation. Indeed, the Act contains but one sentence: “Section 3(a)(2)(C)(ii)(II) of the Small Business Act (15 U.S.C. 632(a)(2)(C)(ii)(II)) is amended by striking ‘3 years’ and inserting ‘5 years.’” Citing U.S. Supreme Court decisions for the principle that “absent a clear direction by Congress to the contrary, a law takes effect on the date of its enactment,” the protesters argued that the Act was self-executing and took immediate effect upon its passage.
GAO invited the Small Business Administration (SBA) to comment on the protests. In denying that the Act took immediate effect, the SBA explained that the Act does not apply to size standards issued by the SBA at all, but only to the unusual circumstance where an agency other than the SBA elects to issue its own size standards. The SBA, nevertheless, advised GAO that it is in the process of implementing the five-year look-back period through its own rule-making process in order to avoid confusion. Accordingly, the SBA asserted that the three-year period will continue to be in effect until the SBA issues a final rule. (Comments on the SBA’s proposed rule were due August 23, 2019.) Noting the deference owed to “SBA’s interpretation of the Small Business Act,” GAO held that “nothing in the Runway Extension Act requires GSA to incorporate terms into the RFP stating that offerors’ small business status self-certifications may be based on a 5-year average for revenue.”
In sum, GAO’s decision provides necessary guidance to the contractor community, which for months has debated the immediate impact of the Act. It also serves as a broad reminder to contractors to take little for granted in endeavoring to comply with the complex series of statutes and regulations that comprise the federal legislative process. As important as it is for contractors to keep abreast of key statutory changes, it is perhaps more important to track the regulatory processes and agency interpretations that follow such changes.