Bipartisan Bill Extends ESOP Company DoD Procurement Program to All Agencies

In 2022, the National Defense Authorization Act created the first-ever government contracting program to specifically encourage ESOPs. Section 874 of the new law created a Department of Defense (DoD) pilot program to allow companies that are or become 100% ESOP-owned to receive noncompete follow-on contracts for their work. The award is contingent on finding that the contractor’s performance is satisfactory or better. The program will run for five years, and the Government Accountability Office is required to provide an assessment of it within three years of the program’s enactment.

Now Senators Gary Peters (D-MI) and Ted Cruz (R-TX) have introduced the Federal Improvement in Technology Procurement Act, a bill that creates a number of changes to the federal procurement process to make it easier to use for smaller companies. One of the bill's sections extends the DoD pilot program to all federal agencies. Under the bill, a “qualified business wholly-owned through an ESOP may have a single opportunity for award of a sole-source follow-on contract under this subsection, unless the senior procurement executive of the executive agency awarding the contract approves a waiver of such limitation.” The bill states that “the products or services to be procured by an executive agency under a follow-on contract with a qualified business wholly-owned through an ESOP for the continued development, production, or provision of products or services that are the same as or substantially similar to the products or services procured under a prior contract may be procured through procedures other than competitive procedures if the performance of the qualified business on the prior contract was rated as satisfactory (or the equivalent) or better.” The extended pilot program would last five years.