Draft PWS_Investment_Due_Diligence_Reporting_Services_for_SBIC_Applicants_OII_FY25.docx

Performance Work Statement for <insert acquisition title> Small Business Administration Office of investment and Innovation May 30, 2025

1. Background The U.S. Small Business Administration's (SBA) Office of Investment and Innovation (OII) leads several programs that provide the high-growth small business community with access to two things: financial capital and R&D funds to develop commercially viable innovations. Its work is underpinned by public-private partnerships that help small businesses on their trajectory from idea to initial public offering (IPO).

This effort focuses on the Small Business Investment Company (SBIC) Program. Since 1958, the mission of the SBIC program has been to stimulate and supplement the flow of private equity capital and long-term debt financing that American small business concerns (SBCs) need to operate, expand and modernize their businesses. SBA does this by licensing teams of experienced private equity fund managers who seek eligible SBCs to make loan, debt and/or equity investments. Most SBICs are licensed with the expectation that they will receive financial assistance from SBA in the form of SBA-guaranteed debentures (“leveraged SBICs”) and some are licensed with the understanding that they will not receive financial assistance from SBA.

SBA capital comes in the form of a government-guaranteed loan to the fund to match privately raised capital. The SBA-guaranteed loan, paired with private capital, increases access to financing for qualifying U.S. small businesses and startups while potentially improving risk-adjusted returns for private investors.

2. Objectives SBA OII is seeking a qualified contractor to conduct high-quality independent risk assessments and provide the SBA with investment due diligence reports on SBIC applicants, Accrual SBICs, and Reinvestor (Fund-of-Funds) SBICs. A very important aspect of the Accrual and Reinvestor SBIC types is the Small Business Investment Company Critical Technologies (SBICCT) Initiative SBA has entered with the U.S. Department of Defense (DoD). These assessments and subsequent reports will help to inform OII of the potential risk of awarding an SBIC license and leverage to an applicant who becomes an SBA licensed SBIC.

The primary objectives of this investment due diligence services include, but are not limited to:

1. Conducting comprehensive financial analysis.

2. Assessing market potential and industry trends.

3. Evaluating risks associated with the investments.

4. Validating the accuracy of the provided information.

5. Providing actionable recommendations based on findings.

The secondary objectives of this investment due diligence services include, but are not limited to:

1. Assessment of Financial Viability: Evaluate the financial health and sustainability of the portfolio companies by analyzing key financial metrics (i.e., Gross and Net Internal Rate of Return (IRR), Total Value to Paid-In (TVPI), Residual Value to Paid-In (RVPI), Multiple on Invested Capital (MOIC), and Distribution to Paid-In Capital (DPI)), profitability, liquidity, and solvency ratios. Identify any irregularities or discrepancies that might impact SBA’s investment decision.

2. Risk Identification and Mitigation: Conduct a comprehensive risk assessment to identify potential risks associated with the Applicant or its portfolio companies, such as market risks, operational risks, regulatory risks, and financial risks. Develop strategies or recommendations to mitigate these risks.

3. Market and Industry Analysis: Perform in-depth market research and analysis to understand the industry dynamics, market trends, growth potential, competitive landscape, and factors influencing the market's outlook. This includes evaluating the market positioning of the portfolio companies and their differentiation strategies.

4. Management and Leadership Evaluation: Assess the capabilities, experience, and track record of the management team and key leadership personnel associated with the investment. Determine their ability to execute strategic plans and navigate challenges effectively.

5. Due Diligence of Assets and Liabilities: Scrutinize the assets and liabilities of the target investment, including tangible and intangible assets, intellectual property, debts, contracts, and any pending litigations. Validate the accuracy of portfolio companies' valuations and assess potential contingencies.

6. Compliance and Legal Review: Conduct a thorough review of regulatory compliance, legal agreements, licenses, permits, and adherence to industry standards and SBA’s Code of Federal Regulations and Standard Operating Procedures. Identify any legal or compliance issues that might impact the Applicant’s viability.

7. Synergy and fit with SBA’s Goals: Evaluate how the investment aligns with SBA’s strategic objectives and goals. Assess the synergy potential and compatibility between the investment opportunity and the investor's portfolio or business operations.

8. Assessment of Growth Potential: Analyze the scalability and growth prospects of the Portfolio companies, considering market demand, innovation potential, geographic expansion opportunities, and any factors that could contribute to sustained growth over time.

9. Evaluation of Exit Strategy: Explore potential exit strategies for the portfolio companies, considering options such as mergers, acquisitions, IPOs, or divestment strategies. Assess the feasibility and potential returns associated with different exit routes.

10. Recommendations and Decision Support: Provide actionable recommendations based on findings and analysis to assist the investor in making well-informed decisions regarding the investment opportunity.

3. Scope The scope of work for the investment due diligence services includes, but is not limited to:

1. Reviewing financial statements, including balance sheets, income, cash flow statements, and other SBA-specific investment documents.

2. Analyzing historical financial performance and projections.

3. Conducting market research and analysis to assess the industry landscape, competitors, and potential market risks.

4. Assessing the regulatory environment and legal aspects affecting the investment.

5. Evaluating the management team and their qualifications.

6. Identifying potential risks and opportunities associated with the investment.

7. Providing a comprehensive investment due diligence report outlining findings, conclusions, recommendations, and final rating as to whether an applicant fund can operate successfully, both in financial terms (repaying all SBA Leverage) and regulatory terms (complying with SBIC program rules and regulations). These ratings and reports will be available to the subject SBIC and their potential investors.

4. Specific Tasks

a. Task 1 - Risk Assessment - This is an in-depth assessment across all areas to ensure all significant risks are captured for a SBIC applicant. As determined by OII and requested in writing by an OII program official or the Contracting Officer’s Representative (COR), conduct due diligence to assess investment risks of candidates to be licensed as SBICs (applicants), currently licensed SBICs, their asset managers, custodians and other service providers as requested. Review internal operations and review asset managers investment strategies, structure, resources, policies, systems and other essentials to determine capability to deliver results as projected by SBIC applicant and minimize risk to the SBA and their government affiliations. Direct due diligence via reference checks and independent directed inquiries are critical to this work.

b. Task 2 – Investment Due Diligence Report - This detailed report provides a holistic view. This report is expected to be delivered within four (4) to eight (8) weeks after assignment, or an agreed upon timeframe between the SBA and contractor. The written report will include written support for each core area and a final rating. These reports will include comprehensive review and rating on identified SBIC applicants, actual SBICs and their management companies. This will assist in their decision-making to either move forward or decline an applicant. Written reports must meet or exceed the standards provided by SBA OII. These ratings and reports will be available to the subject SBIC and their potential investors.

Examples of core areas to address for each SBIC applicant or licensed assigned, include but not limited to the following core factors: Governance and Organizational Structure (as applicable/necessary), Human Capital (with emphasis on turnover, critical job skills, and appropriateness of staff resources allocation- business development, deal execution, etc., with verifying due diligence), Fund Structures (in more complex scenarios), Regulation, Compliance and Audit, Risk Control (i.e., macro strategy risk, micro/portfolio company level risk, deal execution risk, fraud/mismanagement risk, reputational risk, etc.), Transaction and Private Equity Execution (thorough review of firm’s underwriting, valuation and due diligence methodologies), Valuation Policy, Past Adherence to Policy for exiting managers (conservative vs. aggressive in valuation marks), Potential Conflict of Interests, and Environmental, Social and Governance (ESG) assessment.

Task 2.1 - Additionally, possible follow-up/revised reports from original report in the event additional interviews, reviews or rework is necessary as determined and mutually agreed upon between SBA and the contractor.

Note: Initial review and acceptance of assessments, report processes and formats must be approved and accepted in writing by SBA OII.

5. Deliverables/Delivery Schedule Deliverables: The following deliverables will be provided upon completion of the investment due diligence process for SBIC applicant:

1. Detailed investment due diligence report, including findings, analysis, and recommendations.

2. Presentation summarizing key points and recommendations for stakeholders.

3. Any additional documentation or data gathered during the due diligence process.

Timeline: The estimated timeline for completion of the investment due diligence process is preferably within four (4) weeks of receipt of the files. This timeline is subject to change based on the complexity of the investment opportunity and the availability of required information.

Team and Responsibilities: Contractor shall assign a dedicated team of professionals with expertise in financial analysis, market research, legal review, and other relevant fields.

Reporting and Communication: Regular progress updates will be provided to the SBA (the Director of Licensing or the Chief of Licensing) throughout the engagement. Both parties will agree on communication channels, reporting formats, and frequency.

Table 1: Deliverables

The contractor shall provide all resources necessary to accomplish the tasks and deliverables described in this work statement.

6. Inspection and Acceptance The government will review, for completeness, preliminary or draft deliverables submitted by the Contractor, and may return them to the Contractor for correction. Absence of comments by the government will not relieve the Contractor of the responsibility for complying with the requirements of this work statement. Final approval and acceptance of deliverables required herein shall be provided to the contractor in writing by the designated government official. The Contractor shall not construe any letter of acknowledgment of receipt as a waiver of review, or as an acknowledgment that a deliverable is in conformance with this work statement. Any approval given during preparation of a deliverable, shall not guarantee the final acceptance of the completed deliverable.

7. Quality Control Plan (QCP) The contractor must develop and maintain an effective quality control program to ensure services are performed in accordance with this work statement. The contractor shall implement procedures to identify, prevent, and ensure non-recurrence of defective services. The contractor’s quality control program is how it assures that contractor performance complies with the requirements of the contract. After acceptance of the quality control plan, the contractor shall receive the contracting officer’s (CO’s) acceptance in writing of any proposed change to its quality control system. The quality control plan is due within five (5) business days of contract award.

8. Quality Assurance Surveillance Plan The Government will evaluate the contractor’s performance under this contract in accordance with the Quality Assurance Surveillance Plan (QASP). This plan is primarily focused on what the Government must do to ensure the Contractor has performed in accordance with the performance standards. It defines how the performance standards will be applied, the frequency of surveillance, and the minimum acceptable defect rate(s).

The contractor must develop a QASP. The QASP is due at within five (5) business days of contract award. After acceptance of the QASP, the contractor must receive the contracting officer’s acceptance in writing of any proposed change to its quality control system. A QASP Template may be provided by the Government.

9. Security

a. Physical Security The Contractor shall establish and comply with appropriate administrative, technical, and physical safeguards to protect all Government data, property, facilities, and personnel.

i. Data All electronic data and documentation provided or made accessible by the Government, and all electronic data and documentation produced during performance of the services associated with this award are the property of, and are owned by, the Government.

The Contractor shall not disclose and must safeguard all data and personnel work products that are obtained or generated in the performance of this contract. The Contractor shall not access data or documentation that is not required in the performance of services awarded via this contract/task order, even if the data or documentation is available to contractor personnel. The Contractor shall immediately report any instance of non-compliance with this requirement to the Contracting Officer.

The government may authorize contractor access to controlled, sensitive, classified, or other government information for use in performance of this contract. The term “government information” includes information furnished by the government and information acquired or developed by the contractor in performance of the contract. The contractor shall provide immediate written notification the Contracting Officer if a breach of any of the requirements in this section occurs.

The contractor shall not publish or otherwise divulge government information, in whole or in part, in any manner or form, or authorize or permit others to do so, taking such measures as are necessary to restrict access to such information to only those employees needing the information to perform work required by the contract, i.e., on a “need to know” basis. The contractor is cautioned that its employees and subcontractors have no blanket authorization for access to government information based on their employment status.

Government data, including electronic data, shall not be removed from the Government facility without the express permission of the Contracting Officer or the Contracting Officer’s Representative. Government data including documentation shall be surrendered to the Government upon contract completion and upon request. Government personnel, including government security personnel, have the express right to inspect documentation for any reason and at any time during the term of this award. The contractor shall ensure that direct and subcontract employees:

· Only access information required to perform their tasks as specified in this contract, and do not access information that is not required to perform these tasks.

· Ensure continuous government access to their work product in support of this contract.

· Do not email government information to non-government email accounts.

· Do not discuss government information with non-government personnel (including the contractor employee’s management).

· Do not remove, or conspire to remove, government information out of a government facility or system, either physical and electronic, without written Contracting Officer or Contracting Officer Representative authorization.

· Comply with non-disclosure agreements.

· Protect the confidentiality of government information, and do not disclose government information to any unauthorized person.

ii. Facilities The contractor and all associated subcontractors’ employees shall comply with all facility access and use policies and procedures, including security policies and procedures. Questions shall be referred to the Contracting Officer’s Representative (COR). The contractor shall provide all information required for background checks to meet facility access requirements. The contractor shall comply with all personal identity verification requirements associated with facility access. Should the security procedures at any individual facility change, the Government may require changes in contractor security matters or processes.

iii. Property and Personnel The Contractor shall report threats to government property and personnel employed by or supporting the Government.

To help ensure the protection of the life and health of all persons, and to help prevent damage to property, the Contractor shall comply with all Federal, State, and local laws and regulations applicable to the work being performed under this contract. These laws are implemented or enforced by the Environmental Protection Agency, Occupational Safety and Health Administration (OSHA) and other regulatory/enforcement agencies at the Federal, State, and local levels.

The Contractor agrees to use only qualified, responsible, ethical, and capable people to perform the work. Contractor employees shall perform services at all times in a professional, ethical manner. Unprofessional, unethical, or threatening conduct will not be tolerated. Contractor employees with knowledge of unprofessional, unethical, or threatening behavior or conduct by any person shall immediately report such behavior or conduct to the Contractor. The Contractor shall immediately report receipt of a report concerning such behavior or conduct to the Contracting Officer.

The contractor and its employees shall only conduct business covered by this contract during periods paid for by the government and shall not conduct any other business on government premises or government time. The contractor shall not use government time, equipment, materials except for the express purpose of providing government support.

Contract personnel attending meetings, answering Government telephones, and working in other situations where their contractor status is not obvious to third parties shall identify themselves as Contractors to avoid creating an impression that they are Government officials. The Contractor shall also ensure that all documents or reports produced by the Contractor are suitably marked as Contractor products or that Contractor participation is appropriately disclosed.

The Contractor shall, at its own expense, immediately remove employees who have displayed or are displaying or engaging in unprofessional, unethical, or threatening behavior or conduct. The Contracting Officer may require that the Contractor remove from the job at its own expense, employees who jeopardize or interfere with mission accomplishment, or endanger or threaten to endanger persons or property, or whose continued employment under this contract is inconsistent with the interest of agency security.

10. Type of Contract The Government anticipates awarding an IDIQ contract consisting of both Time & Materials (T&M) and Firm Fixed Price (FFP) CLINs. Actual contract type will be determined at task order level.

11. Period of Performance The period of performance consists of a base and two (2) 12-month option periods.

Table 2 – Period of Performance

12. Place of Performance The primary place of performance will be at the Contractor facility or approved alternate work site.

13. Hours of Operation The Contractor is responsible for providing support between the hours of 0730 and 1800 Eastern Time (ET) Monday through Friday, except Federal holidays or when the Government facility is closed due to local or national emergencies, administrative closings, or similar Government-directed facility closings. The Contractor must maintain an adequate work force for the uninterrupted performance of all tasks defined within this work statement when the Government facility is not closed for the above reasons. When hiring personnel, the Contractor shall keep in mind the stability and continuity of the work force are essential.

14. Travel and Other Direct Costs (ODC) Travel may be required in support of the requirements in this work statement.

Travel is subject to pre-approval by the Contracting Officer’s Representative (COR). Travel pricing and payment shall comply with the Federal Travel Regulations and FAR 31.205-46, Travel Costs.

ODCs are allowable under this work statement.

15. Conflicts of Interest The contractor shall ensure that neither the contractor or any subcontractor is biased because of financial, contractual, organizational, or other interests which relate to the work under this contract. The contractor agrees it will make an immediate and full disclosure, in writing, to the Contracting Officer of any potential or actual organizational conflict of interest or the existence of any facts that may cause a reasonably prudent person to question the contractor's impartiality because of the appearance or existence of bias or an unfair competitive advantage. Such disclosure shall include a description of the actions the contractor has taken or proposes to take to avoid, neutralize, or mitigate any resulting conflict of interest.

16. Contractual Problems Contractual problems, of any nature, that may arise during the life of this contract must be handled in conformance with very specific public laws and regulations (e.g., the Federal Acquisition Regulation). Only the CO (CO) is authorized to formally resolve such problems. Therefore, the Contractor is hereby directed to bring all such contractual problems to the immediate attention of the CO.