GAO Defers to SBA on When Runway Extension Act Applies

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Last year, Congress passed—and President Trump signed—the Small Business Runway Extension Act (the “Runway Extension Act” or the “Act”), which changed the time period for determining a company’s size based on average annual receipts from the previous three years to the previous five years. This summer, the Small Business Administration (“SBA”) finally published its proposed rule to amend its regulations and change the period of measurement for receipts-based size calculations from three years to five years. As my colleague Megan Connor noted in her blog, SBA was slow to implement the change imposed by the Runway Extension Act because it believes the Runway Extension Act amended a section of the Small Business Act that does not apply to SBA. Now, the Government Accountability Office (“GAO”) has deferred to SBA’s interpretation, days before comments to SBA’s proposed rule are due. While GAO’s decision may signal that offerors may need to continue to calculate their average annual receipts based on the previous three year, this is an open and developing issue, especially until SBA finalizes a rule implementing the Runway Extension Act.

In TechAnax, LLC; Rigil Corporation, B-408685.22; B-408685.25 (Aug. 16, 2019), TechAnax, LLC and Rigil Corporation, two small businesses, challenged the terms of a request for proposals (“RFP”) issued by the General Services Administration (“GSA”) for award of new contracts in GSA’s OASIS small business pool of government-wide multiple-award indefinite-delivery, indefinite-quantity contracts. The companies argued that the Runway Extension Act changed the method by which SBA must calculate the size of small businesses, and the RFP was flawed because it did not reflect this change. More specifically, TechAnax and Rigil argued that the Runway Extension Act applies to all size standards issued by SBA and that the Act took effect immediately, requiring SBA to immediately apply a five-year average for the calculation of a company’s revenues in determining its small business size status.

GAO denied the protests and found there was no basis to conclude SBA and GSA’s actions violated the Runway Extension Act. Even if—as the protesters alleged—the Runway Extension Act went into effect on the date President Trump signed it into law, GAO concluded that the Act did not automatically amend all existing size standards or SBA regulations. GAO cited to the comments that SBA submitted in response to the protests, as well as SBA’s proposed rule, and expressly deferred to SBA’s interpretation of the Small Business Act, particularly with respect to SBA’s role in the establishment, amendment, and interpretation of small business size standards. More specifically, GAO agreed with SBA’s explanation that the “Small Business Act requires the promulgation of regulations to give effect to the Runway Extension Act.” Indeed, GAO deferred to SBA’s interpretation of the Runway Extension Act as requiring rulemaking, by either SBA or another agency promulgating its own size standards, to implement the revision of the three-year average to a five-year average. As such, until SBA issues a final rule implementing the five-year lookback, SBA will apply the three-year calculation period, and the Runway Extension Act, at this time, does not require GSA to incorporate terms stating an offeror’s small business status may be based on a five-year average into an RFP.

Since GAO merely deferred to SBA’s interpretation of the Small Business Act, the Runway Extension Act, and SBA regulations, there remains an open question as to whether the Court of Federal Claims would do the same. PilieroMazza will continue to monitor this development. In the meantime, please do not hesitate to contact PilieroMazza with any questions. Members of PilieroMazza’s Government Contracts and Small Business Programs & Advisory Services practice groups are well-equipped to advise government contractors regarding proposals, GAO’s decision, SBA’s proposed rule, the Runway Extension Act, and size standards

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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