Barriers – Other Considerations
The U.S. procurement system contains laws and policies that require U.S. government procurement dollars to be spent in ways that further social and economic goals. Protected as exceptions to international trade agreements, preferential treatment may be given to minority or disadvantaged groups, as well as to small businesses to spur their development.
Small Business Set-Asides
The most significant impact on Canadian companies results from set aside contract requirements to procure from U.S. small business. When procurements are set aside for small business, the non-discriminatory provisions of the North American Free Trade Agreement (NAFTA) do not apply, and Canadian firms cannot participate as prime contractors. However, Canadian firms still have an opportunity to participate as a subcontractor.
What is a "Small Business"
The U.S. Small Business Administration (SBA), was established to support the interests of small businesses. Whether or not a business qualifies as a small business is defined by either the number of employees it has (generally used for supplies) or its annual receipts in U.S. dollars (generally used for services), or both. These determinants may vary from one business segment to another. Contracting Officers and contractors refer to appropriate codes in the North American Industry Classification System (NAICS), to determine if a particular U.S. business qualifies as small business.
In addition, each agency has its own small business advocates or "advisors." They are knowledgeable about procurement requirements of the agency and can answer general questions posed by contractors other than small businesses.
Small Business Set-Aside Procurement Thresholds
Procurements over US$3,500 and under US$150,000 are automatically set aside for small business unless the Contracting Officer determines that there is no reasonable expectation of obtaining competitive offers from small businesses. The respective thresholds for nuclear, biological, chemical, or radiological defence, and certain contingency operations are US$20,000 and US$300,000.
The Rule of Two
When a procurement contract is expected to exceed the simplified acquisition threshold (US$150,000), U.S. Contracting Officers must follow the "Rule of Two." Simply put, if the Contracting Officer expects at least two responsible small businesses to submit offers at fair market prices, the procurement is set aside for small business. This is called a "total set aside." If a small business is not capable of performing the entire contract, consideration may be given to setting aside part of the requirement. This is called a "partial set aside." If the Contracting Officer does not expect two or more small business offers, the procurement is not set aside, and the non-discriminatory provisions of NAFTA could apply, whereby Canadians may be able to compete equally.
Refer to FAR Subpart 19.5 for small business set-asides.
Small Disadvantaged Businesses
In addition to small business set-asides, procurements may also be set aside under SBA's "8(a)" program. This program benefits exclusively small disadvantaged businesses (often referred to as "minority" businesses). Occasionally, small disadvantaged businesses compete with other businesses but are awarded a price evaluation adjustment to make their offers more price-competitive.
There are many types of "disadvantaged businesses" that can be considered or receive a price evaluation adjustment. The Contracting Officer must, to the extent practicable, require each prospective contractor to represent whether it is a small business, veteran-owned small business, service-disabled veteran-owned small business, small disadvantaged business, women-owned small business concern or a HUBZone small business. HUBZone set-asides exist for small businesses exclusively located in historically underutilized business zones, primarily in designated inner city locations.
Programs for the Blind and Severely Disabled
The U.S. government sets aside certain goods and services for purchase from certified workshops that employ the blind and severely disabled. This is done pursuant to a law called the Javits Wagner O'Day Act (formerly known as JWOD). These set-asides are referred to as AbilityOne procurements. The Committee for Purchase from People Who Are Blind or Severely Disabled manages this procurement list of products, and publishes any proposed and final changes in the Federal Register. As NAFTA Chapter 10 does not cover such contracts, Canadian firms are not eligible to supply these requirements.
Each U.S. government solicitation and contract, depending on the type and scope of the contract effort, has provisions and clauses pertaining to all manner of social and economic issues. Socio-economic provisions and clauses deal with, among many other issues:
- Equal employment opportunity;
- Drug free work place;
- Use of U.S. ships or airplanes for transport;
- Worker wage and work hour requirements;
- Workplace safety;
- Environmental protection; and
- Buy American
When submitting a bid or offer, taking the possible application of these provisions and clauses into consideration is essential. If in doubt, obtain clarification from the Contracting Officer identified in the government solicitation. Not only can compliance with restrictive clauses cost additional monies, if you fail to comply with any of the terms and conditions of a U.S. government contract it could be grounds for terminating the contract.
Oddly enough, inclusion of socio-economic provisions in a solicitation can sometimes help your competitive position. For example, a clause may require a U.S. firm to establish a small business subcontracting program, or to meet goals for various categories of small business subcontracting, but the provision or clause that requires this of U.S. contractors might not apply to Canadian firms.
Opportunities for Canadians
Quite often, small businesses and 8(a) companies will seek out talented, experienced contractors in order to bid as subcontractors. This both enhances the attractiveness of competitive proposals and gives greater assurance of successful contract performance.
Canadian firms should learn ways to identify these small businesses to get in touch with them.
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