New Federal Procurement Rules and the Impact on Small Businesses

Speaker A: Hello everyone. Welcome to Government Contractor Chat. I am Lindsay Riegelsberger, Director of Operations and Business Development for Streamlined Government Contracts. Streamline helps small to mid sized government contractors who seek experienced effective support with contract management that reduces risks, increases profits and enhances reputations. We do this by negotiating teaming agreements, subcontracts, preparing estimates of completion when necessary, and speaking to contracting officers in their own language. We are the proud organizers of Government Contractor Chat and we thank you for joining us today. All right everyone, it's time for our guest speaker. Let's welcome, um, GovCon SME, Shirley Collier.

Speaker B: Hello everyone and welcome to today's session. Our session today is New Procurement, uh, rules and opportunities, um, amidst the, for small businesses and miss all the changes, um, with the revolutionary FAR overhaul, the budget and the 2026 NDAA. So I'm going to be talking about some of the changes to the Federal Acquisition Regulations, uh, and the dfar, the Defense Federal Acquisition Regulations, uh, procurement regulatory and programmatic changes that were embedded in the 2026 NDAA. So a little about myself so you know how to use me as a resource. Um, I am uh, the president of Scale to Market, host of the Growth Masters Federal podcast and I also have a substack, ah, newsletter. So in my company we help small businesses prosper in the federal marketplace by developing and executing strategic business development plans. That's a little bit about what we do, uh, give you an idea of just sort of the scope, uh, of services that way that we provide. So I have a lot to share with you today and it's uh, really too much to kind of absorb in 45 minutes. So if you would be interested in a summary of my comments, please give me your email address and I'm glad to send that to you afterwards or, or just ask Lindsey to um, release your ah, email address to me. So my presentation is broken into two sections. The first is about the revolutionary FAR overhaul which was effective, um, generally October of last year and also the DFARS deviations that were effective in February of this year. I'm also going to be talking about the 2026 NDAA that was signed into law by the President on 18th. So all of these changes are relatively new within the last six months. Some of the changes help small businesses and some hurt. But we're going to be talking about the. So what, what do you need to do as a small business owner to operate and to prosper in this marketplace? So um, how did we, how did we get here? Um, I started looking in January of 2025 at all the executive orders. Um, at last count there were 227 executive orders. Read every one of the executive orders. And uh, the one that we're going to be talking about today is the one that uh, initiated uh, the FAR overhaul. So all 53 parts of the FAR and an equal number of the DFAR have been modified. Today for the FAR, we're going to be talking about sections 12, 15, 16, 19, 33 and 37. I also read the 2026 NDAA. All 1300 pages of it is divided into titles and sections. I'm going to be summarizing 15 sections of it. So my view on all of these documents that we're going to be discussing today is the so what, how does this impact small businesses? So we have 227 executive orders. We have the big beautiful bill that was signed into law last summer. We have budget narratives for every federal agency. We have OMB and GSA memos. And I also reviewed both the House and Senate versions of the NDAA bills as they were going through Congress last summer. Not everything was um, reconciled and signed into law, but it gives us a harbinger of things to come. It lets us know what Congress is thinking. So in looking at and summarizing all of these documents there were seven categories of changes that I'm going to be talking about. Number one, very clear message. Eliminate dei. It was repeated over and over in every document. Number two, leverage technology and innovation to improve operational efficiency and to achieve mission. And what that really means is that they want to replace federal employees with as much automation as possible. So there's a big push for artificial intelligence. Number three, protect infrastructure, both cyber and supply chain physical uh, infrastructure. Number four, to leverage small and non traditional contractors. And what that really means is that they want to increase competition among small and non traditional traditional contractors and competition among small businesses and large businesses. Number five, reduce regulatory burdens. Ah, you will see that there are many flow down clauses that have been eliminated uh, in the far. Number six, to use commercial items first. And I'm going to be explaining what commercial items means in this context. And number seven, to uh, speed up the procurement uh, process. Okay, so we're going to start at uh, commercial commercial items far part 12. So part 12 has been around for a while but it has been kind of juiced up in terms of its terms and conditions and applicability. So uh, far part 12 is intended to mirror commercial practices far procurement. So for example contracting officers can now accept quotations after the due date that used to be prohibited. They can solicit revised quotations from bidders also that used to be uh, prohibited. FAR Part 12.102 is the simplified acquisition threshold. And that threshold is now up to $9 million. So it used to be $250,000. They increase that to $350,000. But the new threshold it can go up to 9 million dol million in federal civilian agencies. And as of this summer that will be $9.5 million um, for the Department of Defense. And in looking at the House and Senate versions of the NDAA they intend to increase that threshold up to $50 million in the Department of Defense. And for disasters, uh, the threshold goes from 9 million up to 15 million. And the reason that this is important is that simplified acquisition procedures and simplified acquisition threshold for commercial items applies to all companies. Doesn't matter the size. And as we're, as we're going to see there have been uh, um, restrictions on sole source contracts for small businesses under part 19. And so they're uh, uh, discouraging direct awards to small businesses under part 19 but encouraging direct awards to companies of all sizes under part 12. So it's absolutely critical that small businesses understand that if what they offer is considered as a commercial item, they can seek a direct award up to $9.5 million. And that is effective immediately. So negotiations and competitions which are stipulated in parts 15 and 14, they're not required now for acquisitions below the SA which is 9.5 million UM for Department of Defense. Part 12 also removes about 40 clauses, uh from commercial contracts flow down clauses, uh, the commercial solutions openings uh, is not subject to the far and uh, will allow um, agencies uh to buy software in a variety of very creative ways and not go through the far restrictions at all. And that's currently being used by gsa, by the Department of Homeland Security, uh, nsa. Um, one of the things that uh, is also mentioned in uh, part 12 is that you can get a direct award for up to $9.5 million uh to use something as sort of off the shelf, a commercial item. But agencies are allowed to follow on those contracts, those commercial contracts with OTAs, uh, other transaction authorities so that you can customize your off the shelf product for the government's needs. And that is also a direct non Compete Award. Part 12.10109 uh, indicates that um, cost accounting standards are not required for contracts under 25 million in the Department of Defense is 35 million. So that is a significant uh, help and improvement for small businesses. There are about 20 agencies right now that are implementing Part 12. Debriefs are also, uh, now optional. And that's not so good, uh, for small businesses because that's one of the ways that small businesses learn why they did not win an award is through debriefs. So now those debriefs are optional. However, the contracting officers are encouraged to provide brief explanations, uh, in the award notice. So if you get a notice that you did not win, they're supposed to give you more explanation as to why executive compensation, uh, for prime and first year subcontracts are no longer required either for, uh, commercial. Commercial, uh, acquisitions. So what exactly is a commercial product? And the way to think about commercial product is, uh, anything that could be sold in the commercial market. I used to say, um, that it was missiles, uh, and, and uh, tanks. But missiles are now a commercial item because they're space companies in, uh, the private sector. But, uh, so it would be a tank or something like that that would be illegal to, to be acquired in the commercial market. So for most, if not all of my clients, what they sell, IT accounting, uh, finance, um, uh, repair and maintenance, construction, uh, marketing, all of those services, program management, the entire spectrum of, uh, IT and technology, all are commercial items. Okay, so for part 15, this is contracting by negotiation. Part 15 determines when to negotiate the requirements for proposal submissions, exchanges with bidders, and pricing documentation and debrief briefs. So what Part 15 now contains is that you can correct as a bidder. As a contractor, you can correct minor errors after proposal submission. Uh, it's intended to clarify, not to revise the proposal. But it used to be you had absolutely no right to make any changes to a proposal. Uh, that has now changed. Part 15 now contains wording such as negotiations and best suited, uh, rather than highly rated. Contracting officers do not have to negotiate with all bidders. That used to be the case. If they were talking to one bidder after, uh, receiving proposals, they had to talk to all the bidders. That's no longer the case. This clause is actually in conflict with precedent at the Court of Federal Claims and at the General Accounting Office, the gao. So I'm not sure you know what, what's going to happen with that, but that's what the FAR says. Uh, right now it also says in part 15 there are new source selection types. Um, highest technically rated with a fair and reasonable price is the new terminology you probably have heard of lpta. That's gone. It's now highly technically rated with a fair and reasonable price. And also phased acquisitions the um, message here is that the government is not as price sensitive. They're looking for the best product. Part 15 has been implemented by the Department of Transportation, USDA and GSA. However, what was not eliminated in Part 15 that I've been emphasizing to my clients is that pre solicitation. So before the RFP drops one on one communications with vendors are encouraged. It's not just allowed, but it's encouraged. And that has always been the case. But for some reason federal employees have it in their heads that they're not supposed to meet one on one with vendors, especially with small businesses. Uh, so I was really glad to see that um, the pre solicitation communications remains in part 15. Okay. For part 16 there are new types of contracts. Contracting officers are encouraged to use innovative contract types, quote unquote. And I'm not sure exactly what that means, but uh, the, the FAR council has given contracting officers much more authority than they have had in the, in the past to use their discretion. Part 16 also encourages the use of multi award contracts and on ramps for new vendors and increasing the quantity of awards. So many of you are probably going after or have an OASIS plus contract. We're going to see more of that consolidation under these multi award contracts, but also continuous on ramps and an opportunity for more businesses to be on these contract vehicles. So that's, I think that's all uh, a good thing. However, part 16 does allow contracting offices to remove underperforming quote unquote, Quote unquote, are not, uh, participating, uh, vendors, uh, on task order competition. Uh, so if you're not competing, if you're not submitting RFPs, uh, as a result of task orders, you could be taken off the master contract. This is being implemented by the VA, USDA and the GSA. Now part 19, um, let me see here, let me go to this. Part 19. There are multiple changes. I'm going to only go over these very briefly, but one of the questions before part 19 was actually publicized was um, will the rule of two, uh, be retained? And it was which? The rule of two says that you must set aside procurement for a small business, for small businesses if two or more small businesses qualify. And this applies to single award contracts as well as multi award contracts. So that was good. We were glad that that was retained. However, the caveat is a couple of major changes here. Contracting officers are no longer required to prioritize socioeconomic set asides or sole source awards. So they are not obligated, um, to set aside task orders under multi award contracts, including schedules and the decision to set aside an order or not is not subject to uh, a protest. So small businesses can still compete but there are no longer priorities for socioeconomically certified companies and there's not a priority for uh, sole source. So one of the major changes regarding the 8 program is that follow on contracts are the recompete of an eight um, uh set aside contract, um, can be moved outside of the 8 program. It used to be once an 8, always an 8. But if an 8 contract is coming up for renewal the contracting office does not need to get approval from the SBA and they can set it aside for another socioeconomically certified category such as women owned small business. Hubzone sdvosb however, what we're seeing in practice is that opportunities are being taken out of the eight program and just put it put uh out as generic small uh business. They're changing the scope to stay within the regulations. They're changing the scope just slightly and calling it a new opportunity. But that's, that's what's um, sort of happening there. And it used to be that small businesses had to re certify at the task order level um every year uh, to maintain their uh, small business status. To maintain their status with a multi award contract. Now the requesting that a small business recertify at the task order level is not allowed. So contracting officers cannot ask a small business if they are still small. However uh, it is allowed if there has been a uh, transaction, uh, such as an M and a uh transaction. But if there's just generic growth, organic growth in a small business, uh that small business that is now maybe a mid size or a large company, if their master contract has not expired, they can compete at the task order level. What this means is that in concept a uh, $50 million company used to be small, no longer small can compete against 1, 2, 3, $4 million companies at the task order level. Uh and the reason that they're doing that is because there have been a lot of complaints about small from small businesses that there's this sort of valley of death that you reach that threshold 30, 35 million and sudden you're uh, competing against the likes of Booz Allen and Northrop Grumman and those sorts of things. So I think the contracting office is trying to give uh, these mid sized companies a little bit more time to uh, compete with the bigs. So um, part 19 was accepted by the Department of Defense and effective on February 1st the next far and is uh part 33 which deals with uh, protest so frivolous Protests by incumbents used to delay transition are discouraged. Um, basically in the FAR it says to the contracting offices that they need to just put out better solicitations to discourage, uh, protest. There were all sorts of things that went through the bills as they were going through Congress. But what finally came out in the FAR is just do a better job of uh, putting out solicitations. However, section 875 of the NDAA, which we're going to talk about here in a minute, allows contracting officers to withhold 5% of revenue during the protest period. If an incumbent protest and they can keep that 5%, the government can keep that 5 if the protest is deemed to be frivolous, uh, lack reasonable legal or factual um, basis. Uh, so far part 37 encourages the use of GSA, uh, contract vehicles. So this is the clause that is encouraging the consolidation of contract vehicles, um, under the gsa, which includes OASIS plus and a number of others, uh, master contract vehicles. Okay, so those are the changes to the FAR that came as a result of the executive order that came out in April of last year. Those changes were effective throughout last summer and last fall. Now let's talk about the NDAA. So the NDAA 2026 was signed into law 12-18-2025 and, and overall it contains um, provisions to accelerate the use of commercial products, just like the FAR did reduce regulatory burdens, especially on non traditional and small contractors, to modernize testing and data practices and to scale industrial based capacity, all while elevating biotechnology. I saw more references to biotechnology than I have in 30 years in the 2026 NDAA, artificial intelligence, advanced manufacturing and supply chain resilience. So near term opportunities for UM contractors include consumption based solutions. The Defense Innovation unit now has new fielding pathways for emerging technologies, advanced manufacturing capability, developing new AI products. I'm going to talk about some of these sections here in a minute. And integrating and managing big data and developing and enforcing cybersecurity requirements. So lots of opportunities for small businesses. In addition, the Department of Defense, uh, is requesting uh, help from small businesses in the design and implementation of agile business processes and to train acquisition and program professionals in these new acquisition policies and procedures. An additional takeaway from the 2026 NDAA is that the Department of Defense does not want to be beholden to large prime contractors. So you'll see here in a minute some of the ways that they are forcing open source on all contracts so that new systems that are developed are no longer proprietary. They're using open source technology. So they can take these big contracts and break them into small contracts and bid it to small companies. Okay, so section 211, it's um, actually title two, uh, subtitle B. Um, the RDT prize went from um, it went from M. $10 million up to $20 million in fair market value or uh, up to $2 million in cash. If it's over 20 million, you have to get approval from the Undersecretary of Defense uh for research and engineering. And then uh, uh, congressional notification is required at larger thresholds. But section 213, this is what I find very exciting. Uh, inserts that eligible activities for RD and T research, development, testing and evaluation. Eligible activities include facilities management, construction, repair, business operations, personnel management, policies and procedures, and what they call intramural and public outreach. We used to think of RDT&E as drones and you know, other types of uh, hard technology. But that is not the case. So I think there are many opportunities for small businesses, small innovative businesses to get in on um, on these opportunities. And these are all direct awards, non compete. They'll usually have a demonstration um, process, but they can award prizes uh, very quickly. The next section, uh, 222 is regarding the Catalyst Pathfinder program. What this says is that the army will establish a program that creates partnerships between operational units of the army and research universities to provide a platform for university based researchers and small businesses to collaborate directly with soldiers on innovative applied R and D. And I'm really glad to see that because there's this valley of death between research and operations and it's been a known problem for 30 years. And uh, finally we see Congress taking action on closing that gap. The next section224. I'm very excited about this as well. This establishes a National Security and Defense Artificial Intelligence Institute. And it's focused on cross cutting, challenge and foundational science for artificial intelligence and national security, uh, and the defense sector. It establishes partnerships between public and private, uh, organizations, including as appropriate federal agencies, institutions of higher learning, including community colleges. Very glad to see that inserted in the language. Nonprofit research organizations, federal laboratories, state, local and tribal governments and industry, including the defense industrial base and startup companies. This is the first time in 30 years that I have seen the word startup in the ndaa. So I'm encouraged by that. Um, it also stipulates a uh, AI sandbox for use among people at all levels of expertise. And it includes summer camps for children and financial assistance for partners to um, cast a wide net to get as many people as possible in and, and contributing to artificial intelligence. So the next uh, big section was title eight regarding acquisition policy. And section 803 is a um, it calls for a pilot program to determine if financing costs can be covered as an allowable expense. And the reason that this is important is in the defense industrial base. It allows contractors to improve their inventory management and capacity through capital expenditures to be prepared for surge requirements by the Department of Defense. So at this point um, um ah, interest expense is not allowable. But they're going to, they're looking at that to allow especially for small businesses that have innovative uh, technologies to allow them to uh, um, prepare their organizations inventory and so forth so they can respond very quickly to the Department of defense uh section 812. Go to this next section here. Section 812 is very interesting. So um, it strikes out the wording that used to be in uh, the ndaa, uh regarding lowest overall cost alternative and inserts best value. So this is consistent with the government wanting to be not so much price sensitive but to really find best most innovative products. It allows money to be used for risk reduction and process improvements. It emphasizes ah, price competition over two or more competing bids. And it uses capability based analysis for the prices, price of goods and services offered by non traditional defense um contracts. So whereas the wording used to be capacity they struck that out and inserted the word capability. So my analysis of that is that they're not just looking for large companies that have the capacity to execute. They're looking for small companies that have capability. The government, Department of Defense. Large contractors know how to scale. What they're missing is the innovation. The other thing uh that this gives us, I think it's this uh, section also that allows uh, past performance.

Speaker A: Uh.

Speaker B: Oh no, that's the next section. This is in section um uh 824. Before we get to that, section 813 is uh, a modification of the award amount for programs to accelerate the fielding of innovation, innovative technology. So it used to say that there was a maximum of $10 million that can be used to field test and innovation. Now it says a minimum of $10 million has to be invested by Department of Defense in fielding new uh, technology. So I'm very glad to see that because that has been a uh, barrier to really getting some of these innovative technologies uh, tested. So the next section here, section 824 uh allows the government to consider alternatives to past performance. It used to be government past performance. If you didn't have the past performance you wouldn't be able to get in Sort of a catch 22. How do you get innovative non traditional defense contractors in where they don't have the past performance? Now this section new wording says that the government can consider commercial past performance. But it will also allow the government to substitute demonstrations and pilots far past performance. So I had one uh, of my clients say you know, I really would love to get into the space program but how can I get past performance in space? You know, when I haven't, I don't have past performance in space. I need to work for the Space force in order to get it. So that's uh. So these, this wording now allows them to uh, use uh demonstrations and pilots as uh past performance. Section 825 of the Defense is regarding the Defense Acquisition University. So under the Director of Acquisition Innovative, the Acquisition Innovation Research center, um they uh. To strengthen the Defense Acquisition University. With all these changes taking place, as you can imagine everything has to be rewritten. So to develop members of the acquisition work workforce to meet current and future needs. There will be a comprehensive assessment of the Defense Acquisition University including educational offerings, uh, staff skills and the use of uh, external expertise. And I believe if I, if I recall that there is a report that, that needs to go to Congress by May um of this year by the DAU indicating how they're going to train all of the new uh, uh all the contracting officers on all the new uh policies and procedures. So I think that also represents an opportunity for small businesses that are in elearning and instructional Design. Okay. Section 861 establishes centers of Excellence in the APEX Accelerator program. You might be aware that every state in the country has an APEX Accelerator that's funded by the Department of Defense. And the Centers of Excellence will be used to foster innovation uh, for the Defense industrial base, especially for small businesses. That's the whole purpose of APEX Accelerators. And to diversify and expand the Defense industrial base again for um innovation. It also gives the authority to waive the government um cost share restriction. So it used to be that small businesses in the states and other um entities had to share in the cost of the program. Under the Centers of Excellence. The federal government will um, is is waiving that requirement. Okay. Section 874 indicates that there the Department of Defense will send to Congress to both the House and uh, Senate Armed Services Committees a report on um, contract cancellations and terminations. So what I heard in the reading this terminology was that Congress got a lot of complaints from small businesses on contract cancellations. And so now the Secretary of Defense has to submit a report listing all the cancellations or terminations in the preceding fiscal year, the amount and the reason for those contract, uh, terminations. And it's going back to 20, 25. Okay, acquisition thresholds. I mentioned earlier about the simplified acquisition threshold going up to 9 million for federal civilian and 9.5 for the Department of Defense. There's another program and it's called the JNA Justification and Approval Program. Um, so it used to be that um, there was, I think it was up to uh, $10 million. Uh, could be um, direct awards. Now direct, the major programs have the authority to issue direct awards non compete, up to $500 million. So just let that sink in. Uh, a lot of direct award, not non compete. We just hear about it once it's been um, awarded. The uh, area called tina, which is actually the truthful Cost and pricing um, act is only as a cost buildup is only required for contracts. 10 million or greater good for small businesses. Um, but it also includes uh, subcontracts of $10 million, um, or more. And it excludes uh, existing contracts and subcontracts before June of this year. So this provision will kick in uh, in June, um, of this year. Okay, more, more acquisition. Um, reform. Section 1806, um, updates the threshold for full cost accounting coverage from 50 million to 100 million. So this is good for even, even larger companies in trying to reduce regulatory burdens. So now going forward, the modified cost accounting standards only apply to contracts over 35 million. This is in the Department of Defense. 35 million. Um, as a result, if a contractor remains below 100 million in revenue, any contract it receives that is less than $35 million will not be subject to cost accounting standards. However, I tell my small clients that cost accounting is um, a good thing to have. Um, it helps small contractors determine profitability even if you're. I do suggest that you have some form of cost accounting and a good bookkeeper can help you with that. Okay, the next section and we're getting towards the end here, but section 807 is the establishment of Project Spectrum for small businesses. And this is to uh, increase the awareness in the defense industrial base on how to do business with the Department of Defense, especially with CMMC certification. So it's going to make resources available to small contractors to become CMMC certified, unfortunately does not include a provision to underwrite the cost. The upfront cost of that. It is an allowable expense once you get a contract. But then you have to do all this investment up front. Um, so that um, that is not yet available, although a lot of us are lobbying for, for that. That section 1833 is the boost program which is called Bridging Operational Objectives and Support for Transition. This is to help uh, bridge that valley of death between research and operations. And uh, so I'm very glad to see that additional funding going to these companies that are in that, that valley of death. Section 1843 addresses workforce shortages, especially in advanced manufacturing. It sets, sets up a working group to make some recommendations regarding public private partnerships. And here in our area in Maryland, the Route 1 corridor, there are a lot of small manufacturers that could definitely benefit uh, uh, from this. So in summary, the emphasis is on competition, even requiring major programs to use open source code so others can enhance and repair it. Um, we also are seeing um, the initial uh, design being done being broken up and uh, allocated out to smaller businesses. Smalls will compete against one another, so very few if any sole source awards anymore, ah, under any of the socioeconomic certification programs, uh, and for small businesses also to compete with large. But that also means higher proposal costs for small businesses. There's an increased um, threshold, uh, for no competition under the JNA program as well as the simplified acquisition procedure. So that's a good thing. Definitely. Uh, I'm advising my clients to school themselves on the SAP and SAT so they can have conversations with the contracting office personnel. There's reduced regulations under certain thresholds in terms of cost accounting and flow downs. There's an emphasis on commercial first. Uh, definitely put in your proposal and on your website that what you offer are commercial items. Emphasis on innovation through awards and testing. Emphasis on artificial intelligence, biotechnology, advanced manufacturing, cyber, including workforce development opportunities and an emphasis on retraining the acquisition, uh, workforce. So my advice to small government contractors is to revise your products, your services and your strategies to respond to this new marketplace. Lead with innovation and commercial items become CMMC compliant. It's required now in the Department of Defense and soon will be for all agencies, all federal agencies lead your teaming partnership groups of smalls can be highly effective against large companies. And understand the new contracting process levers and programs both inside and outside of uh, the SBA and uh, some of their programs. That's my formal presentation.

Speaker A: Thank you, Shirley. That was an excellent presentation. We truly appreciate you taking the time out of your schedule and sharing share your expertise and insights with us. We can't thank you enough for being a multiple times guest speaker on Government Contractor Chat. Now let's take a look at what's coming up next. Our Government Contractor Chat. Complimentary Zoom webinar series takes place the third Wednesday of each month, excluding holidays, from 12pm to 1pm Eastern Time. Wednesday, May 20, we will have Tony Warrick, partner at Capital Edge consultant, presenting DCAA Trends amidst a regulatory overhaul. To register for this webinar, you can scan the QR code on the screen now. Thank you for your time today. We hope to see you in May.