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Focus on Regulation

SBA Publishes Final Rule Implementing New Size Representation Requirements and Penalties for Small Business Size Misrepresentations

Marta Anne Thompson, an Associate in Hogan Lovells’ Government Contracts Practice, contributed to this post.

On June 28, 2013, the Small Business Administration (SBA) released a final rule amending the SBA program regulations regarding the requirements for representing small business size and eligibility status, and the penalties that can be imposed on a concern that willfully misrepresents itself as a small business in order to receive an award.   Small Business Size and Status Integrity, 78 Fed. Reg. 38,811 (June 28, 2013).  The rule, which implements statutory provisions of the Small Business Jobs Act of 2010, establishes a presumption of loss to the government in an amount equal to the award where a concern willfully seeks and receives such award by misrepresenting itself as an eligible small business.   The rule applies to many small business eligibility representations, including certifications of size, small disadvantaged business status, service-disabled veteran-owned small business status, HUBZone status, and women-owned small business status.

The rule provides that a concern makes a “willful” certification of size status by submitting a bid, proposal, application or offer for a federal grant, contract, subcontract or any other instrument that has been reserved for small business offerors only, or causes the agency the agency to classify the bid or proposal, as a submission from a small business.   78 Fed. Reg. at 38,816.  Registration as a small business on any Federal electronic database, such as the System for Award Management (SAM), for purposes of being considered for federal awards constitutes a willful certification under the rule. 

The rule also requires that “[e]ach offer, proposal, bid, or application for a Federal  contract, subcontract, or grant [] contain a certification concerning the small business size and status of a business concern,” and that an “authorized official [representing the concern] sign the certification on the same page containing the size status claimed by the concern.”  78 Fed. Reg. at 38,817.  A concern found to have willfully misrepresented its size and small business status in any of the ways described above may be suspended or debarred by the SBA. Concerns that violate the rule are also subject to severe civil and criminal penalties False Claims Act and various anti-fraud statutes.  

If a concern misrepresents itself as small unintentionally, through a technical malfunction or other sort of innocent mistake, the concern is not liable for the misrepresentation and the rule establishing the presumption of loss does not apply.   The rule also provides that a prime contractor acting in good faith may not be held responsible for any willful small business size and/or ownership status misrepresentations by a subcontractor. 78 Fed. Reg. at 38,817.