Department of Defense Pilot Program Encourages Contracting with Employee-Owned Businesses

ESOP Initiatives for United States Department of Defense

This program marks the first time that the government authorized a set-aside program for ESOPs

The Department of Defense (DoD) issued a memorandum on November 8, 2022 of great import for employee-owned government contractors. The memorandum describes a pilot program for S-corporations that are 100% owned by an employee stock ownership plan (ESOP) to receive a noncompetitive award for certain follow-on contracts. This pilot program is especially noteworthy since it is the first time that the government has authorized a program for ESOPs.

The pilot program is limited to only nine ‘entities’ and applications will be accepted by April 28, 2023 or until nine contracts are approved. Contracting officers must submit the applications. Competition for these nine slots is expected to be vigorous so it is important that employee-owned government contractors get in touch with their contracting officers quickly to indicate their interest in the pilot program and to provide the required information to file an application.

Some eligibility criteria to keep in mind includes:

A minimum rating of satisfactory (or an equivalent) for the predecessor contract is required.
The contractor must have been 100% S-corporation ESOP-owned during the performance period of the predecessor contract.
Contractors cannot subcontract more than 50% of the amount paid under the follow-on contract.

The memorandum provides an application template to be submitted according to the DoD’s procedures as well as a data collection template. The data collection template must be submitted within 30 days of the contracting officer’s request.

This first-of-its-kind program should elicit tremendous interest from defense contractors who meet the criteria for participation and is an excellent opportunity for business growth. Since the program is limited in scope to only nine entities, it’s important to get in touch with your contracting officer quickly.

The opportunity presented by this historic pilot program is a win-win for the DoD, for ESOPs and for employee-owned businesses. It will be great to hear about the results of the pilot and even better to see the program expand.

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