Government Contracts Monitor

Getting Credit for Small Business Subcontracting at All Levels

October 19, 2015

By: Eric Whytsell

The Small Business Administration (SBA) recently proposed a rule implementing Section 1614 of the National Defense Authorization Act for Fiscal Year 2014 (FY14 NDAA) by modifying the rules relating to certain small business subcontracting plans and the use of small businesses as lower tier subcontractors in connection with such plans. More particularly, the proposed rule would allow an other than small prime contractor with an individual small business subcontracting plan for a specific contract (as opposed to a commercial or comprehensive plan) to receive credit towards its small business subcontracting goals for subcontract awards made to small business concerns at any tier (instead of only at the first tier subcontracting level).

However, the ability to take credit for involving small businesses at every level does not come without added responsibilities – for both prime contractors and subcontractors. Under the new rule, other than small prime contractors will need to incorporate the lower tier subcontracting performance into their subcontracting plan goals. In accordance with Section 1614 of the FY14 NDAA, contractors (prime or sub-) required to have small business subcontracting plans (e.g. those awarding non-construction subcontracts valued in excess of $650,000) must, in addition to adopting such a plan, also “ensure at a minimum that all subcontractors required to maintain subcontracting plans pursuant to this paragraph, will review and approve subcontracting plans submitted by their subcontractors; monitor subcontractor compliance with their approved subcontracting plans; ensure that subcontracting reports are submitted by their subcontractors when required; acknowledge receipt of their subcontractors’ reports; compare the performance of their subcontractors to subcontracting plans and goals; and discuss performance with subcontractors when necessary to ensure their subcontractors make a good faith effort to comply with their subcontracting plans will be required to monitor subcontractors’ performance and compliance towards reaching the goals set out in those plans, as well as their compliance with subcontracting reporting requirements.”

The rule also requires prime contractors to include the applicable size standard for a particular subcontract in the solicitation for that subcontract and to describe in their subcontracting plans “the types of records they will maintain to demonstrate the procedures which have been adopted to ensure that subcontractors at all tiers comply with the requirements and goals in their respective subcontracting plans, including the establishment of source lists to identify small business concerns, small business concerns owned and controlled by veterans, small business concerns owned and controlled by service-disabled veterans, qualified HUBZone small business concerns, small business concerns owned and controlled by socially and economically disadvantaged individuals, and small business concerns owned and controlled by women, and efforts to identify and award subcontracts to such concerns.”

While the proposed rule expressly allows the prime contractor to rely on its subcontractors’ electronic representations and certifications if they are properly verified, many contractors may question whether receiving credit for lower tier small business contracting is worth the additional new duties imposed by the rule.

Those who do have until December 7, 2015 to submit comments on the proposed rule.

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