The next time you submit an offer in response to a federal small-business contracting opportunity, or otherwise represent or certify your size or status in connection with a solicitation, be certain that you are accurately making the certification. An SBA Rule that became effective on August 27, 2013 (see the final rule here) includes strict liability provisions and imposes specific penalties on businesses that willfully misrepresent their small business status or their small business size to obtain contracts or subcontracts and/or other favorable treatment reserved for small businesses.

Whereas the old SBA rule included general, nonspecific language reminding those responsible for small business size certifications that misrepresentation could result in severe penalties, the new rule is specific. If a firm willfully misrepresents its size or status to win a small business contract or subcontract, the government will presume that its loss is equal to the value of the contract or subcontract that was the object of the misrepresentation. Although this is a rebuttable presumption, the burden shifts to the contractor to rebut the presumption of responsibility, likely triggering a legal experience that will be both lengthy and costly. Other penalties include suspension and debarment as well as civil and criminal penalties.

So, as tempting as it might be to conveniently ignore the realities of your size or status, you cannot afford to do so. We recommend that you review your management processes to eliminate or mitigate the possibility of incorrect certifications and that you implement procedures for prompt, voluntary correction of any such representations/certifications improperly made. These policies or procedures should include specific designations of authority for making representations and certifications on behalf of the company and ensure that those designated individuals have the authority to validate their representations or certifications. We further recommend that these actions be incorporated into your internal business ethics policy.

There is more to the new rule, and this is intended only to remind you of the penalties provisions. If you have questions about small business size and status representations and certifications, or if you want information concerning business ethics policies, feel free to contact MWL Partner Pat McMahon.