Legal Authorities Governing Federal Contracting and Subcontracting with Small Businesses

Congress has generally broad authority to impose requirements upon the federal procurement process, or the process whereby agencies obtain goods and services from the private sector. One of the many ways in which Congress has exercised this authority is by enacting measures intended to promote contracting and subcontracting with “small businesses” by federal agencies. Among other things, these measures (1) declare a congressional policy of ensuring that a “fair proportion” of federal contract and subcontract dollars are awarded to small businesses; (2) establish government-wide and agency-specific goals for the percentage of contract and/or subcontract dollars awarded to small businesses; (3) require or authorize agencies to conduct competitions in which only small businesses may compete (i.e., set-asides), or make noncompetitive awards to them in circumstances when such awards could not be made to other businesses; and (4) task the Small Business Administration (SBA) and officers of the procuring agencies with reviewing and helping to restructure proposed procurements so as to maximize opportunities for small business participation.

Small business contracting and subcontracting are complicated topics, in part, because numerous statutes—implemented by multiple agencies and subject to interpretation by multiple judicial and administrative tribunals—require or authorize particular actions by federal agencies. The Small Business Act of 1958, as amended, is key among these authorities. This act establishes the SBA, defines “small business,” and tasks SBA with specific responsibilities intended to promote contracting with small businesses. SBA has promulgated regulations implementing the Small Business Act, and its Office of Hearings and Appeals regularly issues decisions regarding firms’ eligibility for assistance under the act.

Other provisions of the Small Business Act apply government-wide and authorize or require actions by agencies other than SBA. Among other things, these provisions (1) authorize agencies to set aside contracts for small businesses and make sole-source awards to small businesses in circumstances when such awards could not be made to other firms; (2) require agencies to incorporate terms in their prime contracts promoting subcontracting with small businesses; and (3) prohibit agencies from “bundling” or “consolidating” their requirements into contracts that are unsuitable for performance by small businesses. SBA regulations implement these provisions of the Small Business Act, but so does the Federal Acquisition Regulation, which sometimes addresses topics that are not addressed in the SBA regulations. In addition, these and other provisions of the act, along with their implementing regulations, are regularly subject to interpretation by the federal courts and the Government Accountability Office.

In addition, other statutes, beyond the Small Business Act, authorize or otherwise govern contracting and subcontracting with small businesses. Among other things, these provisions (1) permit agencies to use firms’ size and status as evaluation factors in negotiated procurements; (2) grant agencies additional authority, beyond that in the Small Business Act, to set aside contracts for small businesses or otherwise make noncompetitive awards to them; (3) establish mentor- protégé programs that are distinct from the SBA mentor-protégé program; and (4) set goals for the percentage of contract and subcontract dollars awarded to small businesses that exceed the government-wide goals provided in the Small Business Act.

A companion report, CRS Report R42390, Federal Contracting and Subcontracting with Small Businesses: Issues in the 112th Congress, by Kate M. Manuel and Erika K. Lunder, describes and analyzes recently enacted and introduced measures.