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The Small Business Jobs Act's Presumption of Loss: It's Rebuttable on the Basis of Value

Section1341 of the Small Business Jobs Act (SBJA) of 2010, Pub. L. No. 111-240, amended § 3 of the Small Business Act,15 USCA § 632(w)(1), to create a ‘‘presumption of loss’’ to the Government equal to the entire value of a contract whenever it is established that a contract or that is "other than small" "willfully sought and received" a small business set-aside contract by misrepresenting its size. Several commentators appear to have seriously misinterpreted this rule, stating that the only way a contractor can rebut the presumption of loss is by demonstrating that it did not willfully misrepresent its size. See15 USCA § 632(w)(4) (presumption of loss rule does not apply if the misrepresentation was the result of "unintentional errors, technical malfunctions, and other similar situations"). Under this interpretation, if the Government establishes liability under the False Claims Act, 31 USCA § 3729 etseq., it is automatically entitled to damages equal to three times the total value of the contracts at issue unless the contract or demonstrates that the misrepresentation was not willful. This interpretation ignores the plain language of the statute and the legal definition of a presumption. As the case law and Federal Rules of Evidence make clear, presumptions are rebuttable. And here, the presumption is that the Government suffered a loss, not that the contractor acted willfully. Thus, as senior Government offcials have concluded and as supported by well-established case law, the presumption of loss may be rebutted by producing evidence of the value of the goods or services that the contractor provided to the Government. Misguided acquiescence to this erroneous interpretation has, in some cases, emboldened the Government to take unfair advantage of contractors that are alleged to have willfully misrepresented themselves as small businesses. And, it is not only businesses that directly represent themselves as being small that are at risk. Large businesses that provide enough assistance to small businesses to be considered "affiliated" under the Small Business Administration's regulations are at risk as well. Given the potential for substantial damages and penalties, as well as other ramifications, it is essential for contractors, Government officials, and judges to understand the correct interpretation of the presumption of loss rule.

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