November 04, 2014

In this article, Jenner & Block Partner Damien C. Specht and Associate James A. Tucker examine implications of a recent Court of Federal Claims decision on small business set-aside contracts.  The authors explain that small businesses for years have relied on Small Business Administration (SBA) regulations to balance their ability to fulfill the government’s needs using subcontractors with the public’s need to prevent set-aside awardees from being pass-through entities.  The regulations require that if the prime contract is a supply contract, the contractor must manufacture the supplies itself or it may supply the goods of another domestic small business through a limited exception known as the Nonmanufacturer Rule.  If, however, the prime contract is a services contract, the applicable requirement is different in that the contractor must perform at least 50 percent of the cost of the contract work with its own employees.  The Court of Federal Claims’ decision in Rotech Healthcare Inc. v. United States suggests that both of these rules apply to any set-aside contract requiring any amount of goods or services.  “Such a rule, which would deviate from years of established practice and SBA guidance, could pose significant compliance concerns for holders of set-aside contracts,” the authors observe.