“Educating the Government Contracting Community”

NDAA for FY 2013 Imposes Major Changes to Small Business Government Contracting

Congress recently passed and the President signed into law the National Defense Authorization Act (NDAA) of 2013 with significant changes to small business government contracting. These changes include:

Small Business Prime Contractor Subcontracting Prohibitions. Pursuant to the revisions contained in NDAA, small business prime contractor performance percentages are now tied to the total amount paid under the contract instead of the cost of direct labor. However, NDAA allows a small business prime contractor to satisfy its performance percentage requirements by subcontracting with those “similarly situated” to the small business prime contractor. For non-construction service contracts, small business prime contractors may not subcontract for more than fifty percent (50%) of the total contract costs. For supply contracts, small business prime contractors are prohibited from subcontracting for more than fifty percent (50%) of total contract price, less materials costs. For construction contracts, the NDAA has charged the U.S. Small Business Administration (SBA) with the promulgation of new regulations. Violations of the subcontracting limits noted above will subject the small business prime contractor to a penalty of five hundred thousand dollars ($500,000) or the dollar amounted paid to the subcontractors in excess of the permitted levels, whichever is greater.

Safe Harbor Provision for Small Business Misrepresentation. The NDAA has established a “small business fraud exception” for companies that misrepresent their small business status where the company “acted in good faith reliance on a written advisory opinion” prepared by a Small Business Development Center or an entity participating in the Procurement Technical Assistance Cooperative Agreement Program (PTAC). Pursuant to Section 1681(b) of the NDAA, SBA shall issue rules “defining what constitutes an adequate advisory opinion” under this safe-harbor exception within two-hundred seventy (270) days.

Surety Bond Guaranty by SBA.The NDAA has increased the maximum surety bond amount the SBA is allowed to guarantee for government construction contracts from two million dollars ($2M) up to six million dollars ($6M) and adjusted for inflation.

WOSB Set-Aside Contracts. The NDAA has removed the contract amount awards cap for set-aside contract to women-owned small business concerns. Prior to the NDAA, the WOSB set-asides were limited contracts not exceeding five million dollars ($5M) for manufacturing industrial classification coded contracts and three million dollars ($3M) for all other contract types.


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