Contract Performance After the SBA 8(a) Business Development Program

SUSAN MOSER: Hi. Welcome to Cherry Bekaert's GovCon Podcast, where we discuss current government contracting trends, compliance matters, and best practices to guide federal contractors forward.

SUSAN MOSER: I am Susan Moser, a partner with Cherry Bekaert, and with me today are other members of our Government Contract Services Group. Joining me is John Yer, a tax partner who specializes in working with small business contractors, and Brendan Halloran, a senior manager who works with contractors of all sizes on compliance, regulatory, and business systems requirements and who, prior to joining Cherry Bekaert, was a divisional ACO with EC Advance Ltd.

SUSAN MOSER: This is another podcast in our SBA 8(a) Government Contract Series. Today we will take a look at contract performance after the 8(a) program.

SUSAN MOSER: While this topic will delve into important considerations for small businesses that will be graduating from the SBA 8(a) program, much of the information we discuss is relevant to any small business doing business with the federal government.

SUSAN MOSER: Our government contracts group works with hundreds of clients, both small and large, and we try to take something we learn from every client that benefits a wider audience.

SUSAN MOSER: Thanks for joining me today, Brendan and John.


JOHN YER: Great to be here.


SUSAN MOSER: Again, the topic is contract performance after the SBA 8(a) program. A company is getting ready to graduate from the SBA 8(a) program, and we want to encourage folks to plan well in advance. This is not something you start thinking about in the last year of the program.

SUSAN MOSER: There are several paths companies can take as they exit the SBA 8(a) program. The two most common are staying small or being fully prepared to compete in full and open competition.

SUSAN MOSER: John, you work with many 8(a) companies. Why might a contractor focus on staying small, and what does that mean? Is it a bad thing, and what should they consider doing differently?


JOHN YER: Some people feel that if they are not growing continually, they are not successful, but that is not the case. Many companies choose to stay small for various reasons. That can be a deliberate and profitable choice.

JOHN YER: If you choose to stay small, focus on the quality of opportunities. With small businesses, there is sometimes a tendency to pursue anything that comes through the door. That may be fine initially, but if you plan to remain small, you should narrow opportunities to those that grow core competencies and are consistently profitable.

JOHN YER: When companies specialize and excel in a niche, they become more profitable, can hire experts in their field, and build a strong reputation. They can remain under the size standard while delivering excellent results.

JOHN YER: To clarify, choosing to stay small after exiting the SBA 8(a) program means you must still qualify as a small business under the NAICS codes and applicable size standards. Some benefits and ownership rules associated with the 8(a) program may relax after graduation, but you must still meet size standards for SBA considerations.

JOHN YER: Many clients choose to shed contracts or divisions to remain small. A spinoff can be a useful tool to maintain small business status.

JOHN YER: When calculating size, remember that revenue from a division sold in 2022 will still appear on your 2022 tax return until the sale date. Most NAICS codes are revenue-based, so you must include that revenue on your tax return up to the day you sell it.

JOHN YER: Some NAICS codes are employee-based, so understand the basis of your size standard. If you choose to stay small and manage it well, you do not have to give up profitability or expertise. You can maintain culture and performance as a smaller company, which can be an advantage.


SUSAN MOSER: Thanks, John. We do see staying small as a strategy.

SUSAN MOSER: Competing in full and open competition is a different challenge. At higher revenue levels, if you are no longer small, you will compete with much larger contractors.

SUSAN MOSER: Brendan, what considerations apply if a company plans to grow and compete as a large business? What do they need to do differently, and why is planning ahead important?


BRENDAN HALLORAN: Growing into a large business brings a new set of requirements and considerations for government contracting. When you are small, you may compete for various contract types, but as you plan to compete in full and open competition, you need to identify where you have traction and find your niche.

BRENDAN HALLORAN: Develop a plan while you are still small and well ahead of graduation. Identify target agencies and customers and narrow your focus. That plan will predict some of the things your business must prepare for.

BRENDAN HALLORAN: As you enter full and open competition, you may face additional business systems requirements depending on contract clauses and statements of work. Cost Accounting Standards, or CAS, may apply to awards you pursue, and you need to solidify estimating practices.

BRENDAN HALLORAN: You cannot assemble this information at the last minute. Prepare your business for competitive indirect rate structures and be ready to meet requirements despite not having the resources of larger, established government contractors.

BRENDAN HALLORAN: Plan to continue growth and be ready not just to win but to perform if you win.


SUSAN MOSER: Brendan, that reminds me of a call we had earlier today with a client that is a small business bumping up on size standards. They are not an 8(a) company, but they are planning for full and open competition and looking at an opportunity expected next spring in FY23.

SUSAN MOSER: They are taking steps now. We are helping with training on what they need to mature in their business and how to approach proposals differently.

SUSAN MOSER: They are planning six to nine months out, which is key to a successful transition. Many of our listeners have been thinking about this since the day they entered the 8(a) program, so it is not a decision to take lightly.

SUSAN MOSER: In the last couple of minutes, Brendan, the SBA recently issued new rules on past performance for small businesses that may be relevant. Can you discuss those at a high level?


BRENDAN HALLORAN: The SBA issued two new rules that are effective as of August 22. They help companies leverage and meet past performance requirements.

BRENDAN HALLORAN: First, agencies are now required to consider past performance that a small business obtained as a first-tier subcontractor on a prime contract when that prime had a small business subcontracting plan.

BRENDAN HALLORAN: Second, when bidding, a small business can use the past performance of a joint venture of which they were a member, provided the small business performed work on that joint venture's contract.

BRENDAN HALLORAN: These changes create additional avenues to leverage subcontractor past performance and joint ventures, which can be particularly important when targeting the same market or customer agency.


SUSAN MOSER: There is no easy path while you are in the SBA 8(a) program, while you are preparing to graduate, or after you graduate. The key is to plan ahead, be strategic, and take every advantage you can.

SUSAN MOSER: We will end for today. Thank you to John and Brendan for joining me.

SUSAN MOSER: If anyone has questions, feel free to email any of the three of us. You can find information on our website, cherrybekaert.com, including past podcasts and other thought leadership.

SUSAN MOSER: Please join us again for the next Cherry Bekaert GovCon Podcast. Thanks.